1. The Budget Debate: Key Facts for Leaders “The views expressed in this presentation/article are those of the author and do not reflect the official policy or position of the National Defense University, the Department of Defense, or the U.S. Government.” Ricardo Aguilera Director Chief Financial Officer Academy National Defense University, iCollege

2. The Fiscal Future: Issues and Options Issue: Balance Budget  Debt limit agreements to date do not balance the budget  Current FY 14 President’s Budget plans for deficits into future  Option: Start long-term revenue increases and/or spending cuts Issue: Pay Down National Debt  Requires initial balanced budgets and long-term surpluses  Option: Control growth in mandatory spending and/or raise revenue Issue: Ensure Long-Term Social Insurance Programs solvency  Social Security will be able to pay out full benefits until 2036  After this point tax revenue will fund pay outs of 75% of full benefits  Medicare will fund full benefits until 2024.  Option: Reduce benefits and/or increase revenue

3. The Fiscal Future: Federal Leaders Watch List Understand  Politics  Calendar/Process  Baselines

4. Federal Debt Held by the Public and Gross Dollars in Trillions Source: OMB 0.7 0.6 Deficit: 18.7 17.9 16.7

5. Congressional Issues 5  Democrats 200  Republicans 232  Vacant 3  Democrats 53 (including 2 independents)  Republicans 45 Issues: May 18, 2013 October 1, 2013 October 17, 2013 December 13, 2013 January 15-18, 2014 February 7, 2014 March 4, 2014 October 1, 2014 November 4, 2014

6. Debt Reduction Remaining All budget-related legislation to date brings annual deficits to “historic norm” of about 4% of GDP Most economists agree $4T in savings/revenue increases over 10 years needed to balance the budget and initially pay down the debt Debt Reduction Required: ___ ($T)  Required 4.0  Achieved to date 2.7  Difference 1.3 $1.3T additional still needed to a achieve $4T in savings/revenue Source: Bi-Partisan Policy Center

7. Sequestration’s Effect on Debt

8. In current (as-spent) dollars, both Federal receipts and outlays have grown rapidly and are expected to continue growth. Source: Office of Management and Budget Federal Budget Trends

9. One measure of fiscal stress is the additional borrowing required by a government relative to the size of its economy. This slide from OECD indicates that, for the FY 2006-9 period, the US and UK were in the middle of a group – seemingly worse off that Germany, Japan or France, but less stressed than Ireland, Spain or Greece. Budget Deficits Around the World

10. 10 Fiscal Year 2015 The President’s Budget Receipts FY 2015 Deficit = $564B Average Annual Deficit FY 16-24 ~ $485B $3,337B Outlays $3,901B Source: OMB

11. FY 12/13 DoD Requests vs. Appropriation (Budget Authority in $ Billions) 142 Source: OMB 142135 Does not include $26B from Initiative Fund in FY 15 or $79B OCO 11.8 495.5 12.0 496.0495.6 7.8

12. 12 Fiscal Year 2015 President’s Budget (Outlays) Mandatory $2,709B (69% of total) Discretionary $ 1,192B (31% of total) TOTAL $3,901B * Includes $6B in disaster costs ** About $8B in Implementation costs Source: OMB

13. Baby Boom Births by Year Millions of Births = Baby Start/End Year Source: Statistical Abstract of the United States

14. October 14, 2010 Howard G. Borgstrom 14 All unlisted agencies – NASA, Education, Energy, Interior, Commerce, State and Foreign Aid, Justice, Homeland Security, SBA, EPA, Judicial Branch, Legislative Branch, etc. – compete for less than 10% of the spending. Growth in Outlays by Agency

15. 15 Fiscal Year 2015 President’s Budget (Revenue) TOTAL $3,337B * Source: OMB

16. Much of what people see as a growing tax burden is through increased payments into Social Security and Medicare; the personal income tax per se has been very stable and corporate income taxes are proportionately decreased since WWII. Source: OMB

17. Corporate Taxes Paid as a Percent of Taxable Income Source: Internal Revenue Service Percent of Taxable Income Asset Value of Corporation

18. In 2008, the US had one of the lowest tax burdens among OECD nations, in terms of tax revenues as a percent of GDP. Source: OECD

19. 287 328 365 377 400 411 432 479 513 528528 530 496496496 535 544 551 559 91 76 3 116 8 166 187 146 162 159 115 82 85 79 $0 $250 $500 $750 FY01 FY02 FY03FY04FY05 FY06 FY07 FY08 FY09 Base BudgetOCO FY10FY11 Other FY12FY13FY14FY15FY16FY17FY18FY19 345 Budget Totals in President’s FY 2015 Budget Request DoD Topline, FY 2001 – FY 2019 (Current Dollars in Billions) 575 565 438 468 479 535 601 666 691 687 645 574 316 6 23 3 7 1 17 589 30*30* 30*30* 30*30* *Reflects FY13 Enacted level excluding Sequestration *Placeholders only Focus Only On Base Budget For Remainder Of Briefing No FY 2015 OCO Budget Yet * 578 581 30 * 2 614* 581 73 Source: DoD

20. Since 2001, real growth has occurred in all major categories, but O&M has grown the most in dollar terms FY14$ in billions, base budget FY 2001 Actual FY 2014 Enacted Dollar Growth Percent Change Percent of Total Growth Military Personnel 101.1135.234.834%30% Operation and Maintenance (ex. DHP) 114.0160.546.541%40% Defense Health Program (DHP) * 16.032.316.3102%14% Procurement 81.692.410.913%9% Research, Development, Test, and Evaluation 54.462.88.415%7% Military Construction 7.18.41.318%1% Family Housing 4.81.4-3.4-70%-3% Other 1.42.20.856%1% TOTAL 380.5496.0115.630%100% * The DOD Unified Medical Budget ($48 billion in FY 2015) includes both DHP and some additional Military Personnel funding. Source: OMB

21. 475 500 525 FY14FY14 FY15 PB14 FY16FY17 Sequester - Level Budgets FY18FY18FY19FY19 PB15 Sequester - Level Budgets 559 551 550 541 535 575 ($B) 600 FY 2014 President’s Budget (PB14) 496 500 537 577 PB15 DoD Base-Budget Topline PB15 3 Source: DoD

22. 500 Sequester - Level Budgets 475 525 550 575 FY14FY14 FY15 PB14 FY16FY17 Sequester - Level Budgets FY18FY18FY19FY19 PB15 $115B Cut ($B) 600 FY 2014 President’s Budget (PB14) PB15 DoD Base-Budget Topline (Effects Of Sequester-Level Budgets) PB15 15 Source: DoD

23. 475 $26B Initiative 500 525 550 541 575 ($B) 600 FY 2014 President’s Budget (PB14) FY14FY14 FY15 PB14 FY16FY17 Sequester - Level Budgets FY18FY18FY19FY19 PB15 PB15 DoD Base-Budget Topline (Opportunity, Growth, and Security Initiative) Sequester - Level Budgets 496 PB15 13 Source: DoD

24. FY 2015 Opportunity, Growth, and Security Initiative Total $26 billion for DoD Readiness enhancements –Training adds in Army –Spares and logistics in Navy –Unit training in USMC –Training in Air Force Investment increases –Army Helicopters (56) –Navy P-8 (8), E-2D Aircraft (1) –USMC Light Armored Vehicle –Air Force F-35 (2), C-130J (10), MQ-9 Aircraft (12) –Science and Technology ($335M) Installation support increases –All Services increase base sustainment –All Services add MilCon funding 14 Source: DoD

25. The OMB budget review schedule JulyAugSeptOctNovDecJanFebMarAprMayJune Passback/ Appeals Program/Budget Review with Agency HQ Director’s Review Revised Economic Assumptions Review of Congressional Testimony and Actions Ongoing Budget Oversight Mid-Session Corrections Apportionments Review of Congressional Testimony and Actions Ongoing Budget Oversight Mid-Session Corrections Apportionments Review Proposed Authorizations with Budget impact MAX Database: Prior Years MAX Database: Budget Years Budget Chapter Writing Budget Review Board Meetings Review Agency Budget Justifications July: OMB issueds revised A-1l guidance State of the Union and Budget Submission

26. The Budget Calendar and the PPBE Process FY11 Q3 FY12FY13FY14FY15FY16 Q2Q4Q3Q2Q4Q3Q2Q4Q3Q2Q4Q3Q2Q4Q3Q2 FY 2014 Budget FY 2015 Budget FY 2016 Budget PlanningProg/Budget Congressional Action Execution Planning Prog/Budget Execution Today FY 2014 – 2016 Budget Status Congressional Action??? Congressional Action Prog/Budget Congressional Action

27. Front End Asses Prog. Review?? DoD Planning, Programming, Budgeting, and Execution (PPBE) System Overview Yearly PPBE Process and Milestones FebMarAprMayJunJulAugSepOctNovDecJan Planning (QDR, DPPG, GEF) Program/Budget Estimates Components submit estimates PDMs 3-Star Final JCS risk assessment Execution Review OUSD(C) performs an Execution review. Result: Omnibus Reprogramming PBD = Program Budget Decision; PDM = Program Decision Memorandum Dep. Mgmt Act. Grp PPBE Phases Strategic Planning Program Review Execution Review Budget Review PBDs Budget Submission Budget Review Budget Justification 3-Star Small Group/Large Group JCS Chairman’s Program Assessment Dep. Mgmt Act. Grp Prog Decision Memo Resource Mgmt Decision Small Group/Large Group JCS Chairman’s Joint Planning Document Budget Estimate Submission (BES) Program Objective Memorandum (POM)

28. Authorizers President’s Budget Hearings, briefings, questions Congressional Process and Timeline Hearings, briefings, questions Appropriators House Committee Senate Committee Conference Bill President Signs HAC, Subcommittee SAC, Subcommittee Conference Bill President Signs Congress: Budget Committees JR CR PL Omni Feb Mar Sep-Aug-July

29. What does it mean for us? Building Better Budgets Future Budget Pressures  Decisions made within short deadlines at aggregated levels  Budget leaders are in the room when decisions are made  Do they have the facts that can sway a decision your way? Get Better Numbers  Analysts ask: “What is the impact of $1 more/less on this program?”  Metrics need to link funding to agency outcomes/goals  Output measures are no good.  Self audit: Be honest  Self examine the programs - criteria, condition, cause, and effect Tell Better Stories  Program officials must explain simply how previous funding brought gains  Program’s story for future funds needs to be compelling and well-reasoned  Tell your story consistently and often