The Strategic Choices and Management Review has shown that a strategic approach to cutting the department's budget can't meet the schedule set by full sequestration, Deputy Defense Secretary Ash Carter told Congress Aug, 1.
The review, ordered by Defense Secretary Chuck Hagel, was partly an examination of the Defense Department's strategic options under sequestration, Carter told the House Armed Services Committee.
It also was an evaluation of the department's management, he added.
"That's about IT efficiencies, overhead reduction [and] compensation reform," Carter said. "And none of that is strategic, but if we don't address those issues, which we did in the SCMR, then we would have to take all of any budget cuts out of investment, modernization and force structure, which we don't want to do."
Under sequestration, the department is required to make $470 billion in cuts over 10 years in addition to an equivalent cut already planned. The cuts this fiscal year amounted to $37 billion -- implemented only in the last half of the year. Next year, they are estimated to be $52 billion.
Long before sequestration came into effect, senior defense leaders were warning that it would have devastating effects on the department and its personnel, Carter said.
"As predicted, sequestration's impacts on the department's operations have been very unfortunate and far-reaching," he said.
The study revealed a grim outlook for the department and for national security under sequestration, Carter told the committee.
"Its findings are sobering," Carter said. "The things we have to do under sequestration are not strategic -- they're dumb."
Three potential budget scenarios were examined in the review: full sequestration, implementation of the president's proposed 2014 budget, and a middle ground between the two.
"The SCMR did not make final choices among these possibilities because we hope never to have to face them, but it did map out various options to reach each budget scenario," Carter said.
There were three key findings, he said.
First, it is crucial that savings be realized through efficiencies -- reductions in overhead, administrative costs and operating expenses -- as well as through serious reforms to compensation for civilian and military employees, the deputy defense secretary said.
"Compensation alone makes up more than half of the defense budget," Carter said.
Carter said if compensation continues to grow as the overall budget shrinks, further budget cuts will lead to reduced combat power and increased national security risk.
Even the most aggressive and ambitious compensation reform and efficiency packages were insufficient to meet the budget reductions called for in any of the scenarios, Carter said.
"The SCMR showed that cuts in combat power, force structure, readiness and investment will be necessary in all three of the budget scenarios," he said.
Second, the review found that, "a combination of carefully chosen efficiencies and compensation reforms combined with various carefully and strategically chosen alternative approaches to cuts in force structure, investment and readiness could achieve sequestration-level cuts over time," Carter said.
Crucially, though, "there's no strategically and managerially sound approach to budget cuts that can close the gap within the next few years," he said. The effects already have been felt this year, he said, though readiness stand-downs and furloughs of civilian employees.
"It takes time to downsize forces, to cut employees, to close bases, to reap savings from reforms," the deputy secretary said. "These strategic adjustments take time."
The third finding is that the president's proposed fiscal year 2014 budget would allow the department to implement the main tenets of the defense strategic guidance, Carter said. However, if full sequestration remains in effect, he said, the department would be forced to make "significant" changes to force structure and the nation's defense strategy.
Force reductions would be necessary under the president's budget scenario, but they would be in areas that are essentially excess to the nation's strategic needs and incur only minimal risk, Carter said.
"In particular, for example, reducing the size of our ground and tactical air forces as we draw down from more than a decade of stability operations in Iraq and Afghanistan," he said.
Sequestration is showing the nation in an unflattering light, Carter said.
"Friends and potential enemies around the world are watching our behavior to be sure America will remain the world's strongest military power," he said. "But we're accepting unnecessary risk. It's embarrassing and unsafe to be in the situation we are in ... scrambling in this way."