Without full year budget, Navy to face $40B shortfall

The Department of the Navy is determined not to repeat its mistakes of 2013 the last time it faced massive budget cuts due to sequestration.

Navy Secretary Carlos Del Toro has made it clear, time and again, that readiness will not suffer.

Del Toro met with acquisition leadership yesterday to lay out how it will prioritize readiness over investments in new products.

Russell Rumbaugh, the assistant secretary of the Navy for financial management and comptroller, said Thursday that the acquisition professionals heard some of the details about the steps the Navy would have to take if Congress doesn’t pass a full year budget.

“Obviously, we’re still hoping this doesn’t happen. But it’s a little bit breathtaking when the Secretary has to sit there and hear the bad news delivered to his acquisition professionals,” Rumbaugh said after speaking at the ACT-IAC Digital Transformation Summit in Reston, Va. on Thursday. “Every time we go through these budget shenanigans, it makes everybody’s life harder. All of the funds distributions are different. We have multiple ways that we may have to chop it up to make sure we stay within the controls that we’re stuck with because of a continuing resolution and to create a lapse, it’s even worse. There’s plenty of drama and turbulence no matter what.”

The first of two current continuing resolutions expire March 1 for some agencies and March 8 for others.

It’s unclear if Congress will even pass all spending bills and there is some discussion about a full-year CR.

The Congressional Budget Office reported in January that a full-year CR could require big cuts to agency discretionary budgets. Non-defense agencies would face a 5% or a total of $41 billion in cuts, while defense agencies would have to reduce their discretionary spending by about $1 billion or 1%. If Congress passes a full-year appropriations at current levels, only non-defense agencies would face cuts under sequestration of about 9% or $73 billion.

In December, the Office of Management and Budget said that cuts under sequestration would not be decided until later this spring.

Navy to make readiness a priority

All of this uncertainty is leading the Navy to plan for the worst.

Del Toro said at the AFCEA and U.S. Naval Institute West 2024 conference in San Diego on Feb. 15 that the Navy may face a deficit of $40 billion without a full year budget.

“[W]hile Congress has so far avoided a painful and disastrous government shutdown, a full-year continuing resolution would be monumentally damaging to our efforts to build and maintain the fleet of today — much less the fleet of the future,” Del Toro said. “Without a full budget, our safety and readiness will suffer, at a time when we are ill able to afford it—lost time in readiness cannot be bought back through future funding.”

Rumbaugh added that the cuts from sequestration in 2013 severely impacted the Navy’s readiness and a decade later, it is “still trying to dig out of that hole.”

Other military services have rang similar alarm bells. The Air Force said a yearlong continuing resolution, estimating that the service would lose as much as $13 billion in buying power before adjusting for inflation. The Space Force would face the largest funding gap, losing nearly $2.6 billion in research dollars. The Air Force would lose up to $1.4 billion in research, test, development and evaluation dollars. It would have to cancel 34 construction projects, and the measure would impact seven national security space launches.

Navy auditability could suffer

Sabrina Singh, the deputy press secretary for the Defense Department, said on Monday that a full-year CR would have a major impact on the services and defense agencies’ readiness.

“No amount of money can buy back the time we lose when we are forced to operate under continuing resolutions,” Singh said. “If you add up the total time spent under a CR going back to 2011, we’ve spent nearly five years under CRs.  That puts our national security at risk and prevents the department from modernizing as we continue to be constrained to existing funding levels and prevented from launching new programs. We must break this pattern of inaction.  We can’t outcompete the People’s Republic of China with one hand tied behind our back three, four, five or even six months of every fiscal year. The best way that Congress can support the department is to pass appropriations bills into law as soon as possible. We need predictable, adequate, sustained and timely funding.”

Rumbaugh said both the potential funding shortfall and the focus on readiness over investment will have downstream effects on the Navy’s goal to become audit ready by 2028.

He said the migration to the new enterprise resource planning (ERP) systems is considered an investment. So if the Navy is prioritizing readiness over investments, including new ships, all the progress the service has made over the last few years will slow down.

“By 2026, we want to shut off [the legacy system] SABERS for the Department of the Navy and be out of that and into our big ERP. The nitty gritty is taking a bunch of commands and moving them, and some of them do have unique financial transactions we haven’t dealt with before,” Rumbaugh said. “Other times it is a modern magnification. And most probably you just kind of take the people with you. They have to learn we’re asking a huge amount of them to not just do their day job, but learn how to do their day job in a totally new environment. We are very sympathetic and very concerned about them even as we have to just do it.”

Marines already migrated

The Navy recently completed the migration of the Bureau of Personnel to the ERP. Rumbaugh said the Fleet Forces Command are among the final organizations that need to migrate and that will happen over the next few years.

“Migrating them is in process. We’re just cleaning their data, which you won’t be surprised to hear is a fairly formidable challenge. But we’re in the process, I can see the end of this migration. It’s great,” he said.

As a part of the ERP modernization effort, Rumbaugh said the Navy has retired 11 of 16 financial management systems, but a CR and/or sequestration would impact the service’s ability to shut down the remaining systems.

The Marines Corps already are well on their way to not only moving to a new systems, but, hopefully, auditability.

Rumbaugh said the Marines decided to move to Defense Agencies Initiative (DAI), a financial management modernization effort that doesn’t involve the services.

“They’re all the way there on the financial management, and that does just address a huge amount of problems,” he said. “There was still a bunch of side things we had to do, but that migration, that huge cultural change, which was absolutely turbulent, absolutely painful, they are through, and in fact, I think, now healing from it.”

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