Four months into his first (and possibly only) term, President Barack Obama is beginning to grasp the severity of the government's fiscal crisis. Washington is spending $5 billion per day it does not have; the bond market is signaling that it will demand much higher interest rates to absorb all the debt the Treasury needs to place; the dollar is weakening; and the outlook for the administration's ambitious domestic agenda is dimming.
The White House is rethinking how to reform healthcare and searching for savings in entitlement programs, but the simple truth is that America's fragile economy can't support the level of spending Obama proposes.
Somehow these realities have not managed to penetrate the Pentagon, where policymakers continue to pursue goals wildly out of sync with fiscal circumstances. Having added 92,000 new soldiers and marines to the joint force (even though we are leaving Iraq), Pentagon leaders now want to hire 20,000 more personnel to manage weapons purchases (even though they are killing dozens of programs). Does anyone at the Pentagon ever ask why an acquisition bureaucracy of 147,000 personnel is needed to buy ten warships and a couple of hundred planes each year? Apparently not -- which is one reason the cost of pay and benefits for the defense workforce is rising uncontrollably.
With such wrongheaded priorities being pursued, perhaps it isn't surprising that Pentagon leaders tend to make questionable calls on the small things, too. Take the decision to kill the president's new helicopter. Defense secretary Robert Gates probably expected praise for his decision to cancel a pricey replacement of the 30-year-old presidential helicopter fleet. Instead, the decision produced a cascade of criticism. Reporter Christopher Drew of the New York Times wrote that the "effort to avoid wasting billions of dollars could end up doing just that." The editors of Defense News complained in an editorial that "starting this program over will only waste money."
The critics are right. Starting over will cost the government at least $8 billion, and that's not even counting the price-tag for a new replacement helicopter. First, Secretary Gates proposes to walk away from the $3.3 billion already spent on the canceled replacement helicopter, designated VH-71. Second, the government will have to pay termination fees of $200-600 million to contractors (depending on whose estimate you believe). Third, $4.4 billion will need to be spent to extend the service life of the helicopters in the existing Marine One fleet, which were supposed to be retired in the near future. Nobody knows what it will cost to develop a different replacement helicopter, but that money will be added to the $8 billion in costs already associated with the Gates decision.
It appears that Secretary Gates canceled the helicopter without a serious assessment of alternatives. VH-71 was the only rotor-craft in existence that had the potential to meet presidential range and payload requirements while still being able to land in the confined space of the White House lawn.
Most of the cost overruns in the program resulted from unrealistic specifications and features added by the government. And some of the supposed problems with VH-71 that Gates cited as reasons for killing the program -- like a limited service life -- turn out to be untrue.
But what's most unsettling about the cancellation of the president's new helicopter is that it squanders billions of dollars at a time when the federal government is facing the worst fiscal crisis in living memory.