FY13 DoD IT Budget Briefing: Overview of Budget and Sequestration

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  • http://www.actgov.org/knowledgebank/documentsandpresentations/Documents/Program%20Events/Innovation%20to%20Achieve%20the%20DoD%20Joint%20Information%20Environment%20-%20Rob%20Carey-DoD%2004-13-12.pdfI wanted to rattle off a few statistics about DOD that you may find interesting… I certainly did. The DOD has 1.4 million IT users on active duty plus an additional 1.1 million National Guard and Reserves and 750 thousand civilian personnel who are IT users. The US Military operates in over 600 thousand buildings in 150 countries. To support all of these users in all of these locations, DOD manages over 10,000 operational IT systems, nearly 800 data centers and 65,000 servers. There are currently 7 million laptop and desktop computers in use by the DOD, and nearly 300 thousand mobile devices managed by the agency. This is an IT environment with truly unparalleled size, scope, and complexity.
  • http://www.cio.gov/FY2013-IT.pdfhttp://www.usgovernmentspending.com/budget_pie_gs.phphttp://nlihc.org/article/house-and-senate-propose-fy13-budget-levelshttp://useconomy.about.com/od/usfederalbudget/p/Discretionary.htmhttp://www.federalnewsradio.com/130/2911052/Lockheed-CEO-warns-of-increased-government-costs-from-sequestration-http://thehill.com/blogs/defcon-hill/navy/214735-sequester-cuts-like-government-shutdown-for-pentagon-warns-admiralhttp://www.defensenews.com/article/20120614/DEFREG02/306140004/U-S-Sequestration-Won-8217-t-Happen-Levin-Predictshttp://www.whitehouse.gov/sites/default/files/omb/memoranda/2012/m-12-13.pdfManaging all of those assets is not cheap. The DOD IT budget is only 7% of the total DOD budget, and only 1% of total Federal expenditures. But let’s be honest, 1% of $3.8 trillion is an enormous number, so we’re still dealing with huge amounts of money here. The $3.8 trillion in total Federal expenditures that will be spent in FY13, is about even with FY12 levels. Looking at discretionary spending last year, between the minibus and megabus appropriations, the government received $1.39 trillion in funding. Now, the Budget Control Act actually established a cap on FY12’s discretionary funding at $1.05 trillion, And the CR that was just passed approved discretionary spending at FY12 levels, so we’re again looking at $1.05 trillion for discretionary spending in FY13. Luckily, despite budget constraints over the last couple years, the IT budgets remained mostly in tact; but depending on what happens with sequestration… this might be the last year that even IT budgets are safe. The FY13 IT Budget request came in at $78.9 billion, which isn’t even a 1% reduction from prior year levels. And of that, DOD will take up $37.2 billion, which is not even a 3% decrease from last year’s levels. Getting a little more granular on the IT budget; nearly $25 billion of the DOD’s IT budget will be dedicated to Infrastructure or cybersecurity related investments.
  • Here is a 3 year view of the 3 services branches, plus DISA and MHS. As you can see, with the exception of DISA, IT budgets are now shrinking for the most part. In some cases, that is due to agencies realizing operational efficiencies and not needing the funds they once received. In other cases, policy and legislation are the driving forces behind shrinking budgets. OMB actually issued a mandate back in May requiring that agencies cut their IT budgets by 10% in 2014. Whether or not CIOs pay any attention to that mandate remains to be seen because OMB can only offer guidance and set policies… not create laws that agencies must abide by. But one law that is certain to affect IT budgets in the future is the sequestration component of the Budget Control Act. When looking at these numbers, keep in mind that all of the FY13 budget plans were made without considering the possibility of sequestration.
  • http://www.heritage.org/federalbudget/budget-control-acthttp://comptroller.defense.gov/defbudget/fy2013/FY2013_Budget_Request_Overview_Book.pdfhttp://www.bgov.com/news_item/hEr6OxfzrNvvQQPKfOIbGQIn case some of you are unfamiliar, I will do a quick review of what sequestration actually is. The Budget Control Act of 2011 mandated that Congress find $1.2 trillion in spending cuts over a 9 year period so that we could rein in our budget deficit as a nation. Some of you may recall the “supercommittee” that consisted of 12 congressmen whose purpose it was to create and pass a deficit reduction plan. As we all know, around this time last year, the supercommittee failed to come up with a deficit reduction bill, so this led to the triggering of automatic spending cuts across the board, this is what’s known as sequestration. As this graphic depicts, the largest share of cuts resulting from sequestration will come from defense spending. There is no shortage of speculation over what the specific ramifications of sequestration will be; but for the sake of time, I’ll try to be brief with my analysis: The total sequester is slated to be $1.2 trillion over 9 years beginning on January 2nd. The amount that will actually affect government programs totals $984 billion. DOD’s share of that is $492 billion. Carried out over 9 years, this means that DOD will be reducing its budget roughly $55 billion a year. As we saw a few slides ago, DOD’s FY13 base budget request was roughly $525 billion; so assuming sequestration occurs, DOD will instead be faced with a base budget of $470 billion, which is a 9% decrease.
  • http://www.bgov.com/news_item/hEr6OxfzrNvvQQPKfOIbGQAs we can see from this slide, to suggest that DOD is taking the largest hit of all agencies is no exaggeration. Publically, DOD representatives are claiming that all programs are subject to the same cuts across the board. Historically, IT budgets have remained secure despite budget cuts, and specifically, the IT Product space has been a bit of a haven in an otherwise tumultuous budget environment. Unfortunately, OMB Sequestration update last month did not offer any guidance suggesting that any budget is completely safe at this point, except for obligated funds. Obligated funds – that is to say old money that has been specifically marked to buy something or used for O&M – are not eligible for sequester. Thus I believe we can look for the three month period of October, November, and December to be a bit busier than normal, as program managers and contract officers try to obligate funds by purchasing new products so that their budgets will take less of a hit. Also, one other caveat to consider, is that the continuing resolution that passed in September approved funding to keep the government operating through March, but at FY12 spending levels. So any new program that was slated to begin in FY13 will be put on hold until an official budget is created, or in a more likely scenario, Congress continues to pass more CRs. So later on when I present the programs and opportunities in each agency, you’ll see that I list steady state and DME funds for both FY12 and FY13. The best way to plan for next year’s budgets is to ignore the FY13 numbers. Steady state will remain safe at FY12 levels, but for DME, you’ll need to subtract 9% from FY12 levels, and that is the funding the program will most likely receive. Now to put the CR and sequestration together in context; FY11 discretionary spending was $1.3 trillion. FY12 discretionary spending was $1.05 trillion, and the CR for FY13 approved us at FY12 levels: $1.05 trillion. Sequestration is going to knock 9% off of what the CR approved, so we’re looking at a discretionary spend of $956 billion for FY13, which, since 2011, is actually a reduction of 26%. Clearly, these cuts are going to lead to program realignments and contract modifications, which, truthfully, will lead to quite a bit of anxiety in the contracting community. The government will continue in its trend toward smaller procurements, incremental investments, and relying on Lowest Price Technically Acceptable as a procurement strategy. If you’ll recall last year’s budget briefing, the overarching theme was Cost Savings. The other major themes and drivers I discussed last year were cloud computing, telework, and cybersecurity. And when developing this years budget drivers and considering trends moving into FY13, I realized that not much had changed from last year. I think it’s a safe bet to assume that in the foreseeable future, cost savings will continue to be the overarching driver affecting IT procurement in the government, and key technologies will be related to cloud, telework, and cybersecurity. So rather than harp on the same topics, I’d like to talk for a minute about some of the policies and guidance offered by governing bodies that are shaping the way agencies procure technology.

Transcript

  • 1. Department of Defense DOD supports 3.25 million IT users between Active Duty, National Guard, Reserves, and Civilian Personnel DOD operates in 600,000 buildings across 150 countries DOD manages over 10,000 operational IT systems DOD manages nearly 800 data centers and 65,000 servers DOD manages 7 million computers and IT devices, and 300,000 mobile devices © 2012 immixGroup, Inc. All rights reserved. No part of this presentation may be reproduced or distributed without the prior written permission of immixGroup, Inc. 1
  • 2. FY13 Budgets DOD IT Budget: $37.2B Federal IT Budget: $78.9B DOD Budget: $525B Federal Discretionary Budget: $1TTotal Federal Budget: $3.8T © 2012 immixGroup, Inc. All rights reserved. No part of this presentation may be reproduced or distributed without the prior written permission of immixGroup, Inc. 2
  • 3. IT Budgets Three Year View IT Budget 12 10 8 2011$B 6 2012 4 2013 2 0 Army Navy/MC Air Force DISA MHS © 2012 immixGroup, Inc. All rights reserved. No part of this presentation may be reproduced or distributed without the prior written permission of immixGroup, Inc. 3
  • 4. Sequestration and CRSources: Congressional Budget Office and The Heritage Foundation © 2012 immixGroup, Inc. All rights reserved. No part of this presentation may be reproduced or distributed without the prior written permission of immixGroup, Inc. 4
  • 5. Sequestration and CR Distribution of Sequestration Cuts by Agency $60,000 $50,000 $40,000$M $30,000 $20,000 $10,000 $0 © 2012 immixGroup, Inc. All rights reserved. No part of this presentation may be reproduced or distributed without the prior written permission of immixGroup, Inc. 5