DoD Begins Zero-Based Review

The Department of Defense has embarked on a top-to-bottom review of its “fourth estate” agencies using the principles of zero-based budgeting.  In a department-wide memo dated August 2, 2019, David Norquist, deputy Secretary of Defense, ordered defense agencies to take steps to identify sources of inefficiency and unjustified cost. The first wave of the review will focus on supporting the government’s Program and Budget review for Fiscal Years 2021-2025. The second component of the review will focus on diagnosing structural reform,” seeking to assess functions and activities for alignment with the National Defense Strategy, to achieve greater long-term cost savings. Promising an aggressive but tailored approach, Norquist expressed openness to all budgeting reform suggestions, stating “no reform is too small, too bold, or too controversial to be considered.”

Budgeting experts have long extolled the virtues of zero-based budgeting as a tool for prudent fiscal management and strategic capital reinvestment. Famously, the Carter Administration experimented with zero-based budgeting on a government-wide basis. Advocates see zero-based budgeting as a tool for scaling back legacy federal programs and freeing up appropriations for more urgent, well-performing, and/or newer programs.

The Army, under the command of then-Secretary Mark Esper,  began zero-based budgeting in 2018, using a stringent “night court” process to assess the performance and strategic alignment of existing programs. Esper has stated that this method produced $25 billion in savings that the Army was able to direct toward other priorities.   Earlier this Spring, the Navy announced plans to follow the Army’s lead, by instituting zero-based budgeting during the next budget cycle. These have been paired with other business process cost-savings measures to yield $1.3 billion in savings for FY 2020 for the Navy. The Air Force conducted a zero-based review in preparation for the FY 2020 budget cycle.

The push for zero-based review of DoD-wide agencies and activities has received a mixed reception. Senate Armed Services Committee Chair Jim Inhofe praised Secretary Esper for his “strategic creativity” in pursuing budgetary reform.  However, Esper’s “night court” approach has discontented many members of Congress, who view it as an incursion on legislative terrain. The Senate’s version of the FY 2020 Defense Appropriations bill includes a statement criticizing the Army’s “night court” initiative.  

In an analysis of the potential budgetary impact of DoD’s zero-based review of department-wide programs, CSIS concluded that savings will not be realized immediately. Rather, savings will “come on the margins” of fourth estate programs. This is because many DoD-wide agencies and programs are mission-critical and/or politically sensitive, such as the Defense Health Agency and Special Operations Command.

DoD’s fourth estate agencies and programs have been targeted by others for reform prior to the new zero-based review. A 2018 GAO report criticized fourth estate agencies and activities, noting that the need and relevance of many of these entities had not been assessed or justified. GAO found particular issue with management functions being redundantly dispersed across the fourth estate, resulting in “inconsistent performance information” being available to defense enterprise leaders for hiring, assessing IT systems, and analyzing overhead costs.  Also, in 2018, former House Armed Services Committee Chair Mac Thornberry unsuccessfully proposed a major package of fourth-estate reforms, including a 25 percent across-the-board budgetary cut. 

Topics: Budget