Senators Threaten to Penalize Pentagon for Wasteful Spending

Senators Threaten to Penalize Pentagon for Wasteful Spending

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Plus - Fed comments spook markets
Wednesday, May 19, 2021

A New Proposal to Force the Pentagon to Clean Up Its Act

The Department of Defense has famously never passed a financial audit, with the first one coming only in 2017 following decades of avoidance of the issue. The Pentagon failed that first audit, and each one thereafter, much to the chagrin of those hoping to bring an end to the legendarily wasteful spending – and inordinately complex bookkeeping – that have long been a hallmark of military procurement. On Wednesday, a bipartisan group of lawmakers proposed a new way to put more pressure on the Pentagon to get its financial act together.

The Audit the Pentagon Act of 2021 would penalize any part of the Pentagon that fails its audit by forcing it to pay 1% of its budget back to the U.S. Treasury, with the funds being used to reduce the federal deficit.

The bill is co-sponsored by Sens. Bernie Sanders (I-VT) and Chuck Grassley (R-IA), along with Sens. Ron Wyden (D-OR) and Mike Lee (R-UT).

“The Pentagon and the military industrial complex have been plagued by a massive amount of waste, fraud and financial mismanagement for decades. That is absolutely unacceptable,” Sanders said in a statement. “If we are serious about spending taxpayer dollars wisely and effectively, we have got to end the absurdity of the Pentagon being the only agency in the federal government that has not passed an independent audit. The time is long overdue for Congress to hold the Defense Department to the same level of accountability as the rest of the government. That is the very least we can do.” 

Along with many other critics, the lawmakers believe that the lack of good accounting is a big part of the reason that spending at the Pentagon involves so much waste. “We've seen example after example of excessive and inefficient spending by the Pentagon, and every dollar squandered is a dollar not being used to support our men and women in uniform," Grassley said. "After 30 years to get ready, this bill pushes the Defense Department to finally achieve a clean annual audit – a requirement that every other federal agency is held to.”

Pentagon officials say they are trying their best to get a handle on the military’s outsized spending, which is the largest discretionary part of the federal budget, totaling $740 billion this year alone. Both the department and the audit process are extremely complex, requiring more than 20 individual examinations, and results are improving each year. But Pentagon leaders can’t say when they think they’ll finally get a clean result.

The bottom line: The senators hope to provide some inspiration to Pentagon leaders as they struggle to get a handle on hundreds of billions in spending. It’s not clear if the bill will be able to progress, but it could end up being considered as part of the next National Defense Authorization Act this fall.

Quote of the Day

“A number of participants suggested that if the economy continued to make rapid progress toward the Committee's goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.”

– From the minutes of the April 27-28 meeting of the Federal Open Market Committee, released Wednesday. That one line in particular briefly accelerated a stock market selloff as it suggested that the Federal Reserve might be edging toward discussion of tapering the current $120 billion a month in bond purchases, a first step in scaling back support for the economy. “The discussion revealed in the minutes is the first time that central bankers have indicated that a reduction in purchases could happen ahead, though there was no timetable,” CNBC’s Jeff Cox says.

Fed Chair Jerome Powell said after the April meeting that the economy had yet to show the “substantial further progress” that central bankers have said would be necessary before they change direction. And the meeting minutes also said that “various participants” anticipated that it will “likely be some time” until economic progress reached their goals for tightening policy.

“Confusing, and at times conflicting, data released since the April 27-28 gathering could make the Fed’s assessment of when to dial back support — or even to start talking about doing so in earnest — difficult,” notes Jeanna Smialek of The New York Times.

Capito Sees Good Chance of Making a Deal With Biden on Infrastructure

Sen. Shelley Moore Capito (R-WV), the lead Republican negotiator on an infrastructure package, said Wednesday that she sees a greater than 50-50 chance of striking a deal with President Joe Biden, though she acknowledged that the two sides continue to have substantial differences.

“I’m a little bit too much of an optimist at times, but I’m putting it over 50-50,” Capito said in a television interview with Bloomberg's David Westin. “I do think we have gaps here, but we do have the will to want to do this.”

Capito added, however, that a deal will have to come together quickly given that Biden doesn’t want talks to drag on. “I think the next two weeks will probably be the critical time,” she said.

Capito was among six Republican senators who met with Biden administration officials on Tuesday to discuss an infrastructure deal. She indicated that Wednesday that Republicans had upped their initial $568 billion counteroffer, which included existing spending plans, to Biden’s nearly $2.3 trillion proposals, but declined to provide a new figure.

“We’re moving, and obviously we would be moving up because that would be moving towards the president’s numbers, but I don’t want to negotiate in public,” she said.
Capito added that Republicans were willing to look at electric vehicle infrastructure, a priority for Biden, who has proposed $174 billion in spending to boost that market in the U.S., arguing that such investment is necessary to compete with China.

The White House is slated to respond to the latest GOP proposal by the end of the week.
House Speaker Nancy Pelosi has targeted July 4 as an ambitious deadline for House passage, but Capito said she doubted the package could be done by then.

The bottom line: The talks may be progressing but they remain far from agreement. “And they still can’t define infrastructure,” Politico reports, noting that Capito said the administration’s definition “is still a lot broader than ours."

The two sides have yet to reach a consensus on a topline spending total, what should be included in any package or how to pay for it.

The White House, meanwhile, faces increased pressure from progressives to end the bipartisan talks and have Democrats try to press ahead on a broader package without GOP support. “At what point do they seriously come to the table?” Rep. Mark Pocan (D-WI) said, according to Politico. “If they don’t come to the table, it doesn’t mean we don’t serve the meal.”

House Republicans Release Transportation Bill

Republicans in the House of Representatives introduced a $400 billion transportation bill Wednesday, adding another reference point in the ongoing talks between the Biden administration and lawmakers over infrastructure spending.

Assembled by GOP members on the House Transportation and Infrastructure Committee, the legislation would increase current spending levels by $100 billion over five years, with most of the new funding going toward road construction. The bill would put limits on federal regulations governing infrastructure projects, reducing the time allowed for environmental reviews, and transfer more power over projects to state governments. And it would create a new office focused on rural infrastructure investment, among other things.

The bill does not include any revenue sources, which are the responsibility of the tax-writing committee, The Wall Street Journal reports. And it focuses only on surface transportation, leaving other issues such as air and water transportation to other committees.

Another talking point: The measure, which would be the largest transportation bill in history, has no chance of passing in its current form given the Republican minority, but it could serve as a basis for negotiations over President Biden’s proposed $2.3 trillion infrastructure bill.

“As the process for considering legislation on infrastructure moves forward, I am eager to see these proposals become part of a robust bipartisan effort — just as the president continues to call for,” Rep. Sam Graves of Missouri, the top Republican on the transportation committee, said.

Still, the bill is a reminder of how far apart the two parties are when it comes to dealing with infrastructure. Democrats are pushing to include an array of different issues in their proposed legislation, from road and rail transportation to green energy and elder care. Republicans, on the other hand, are sticking to more basic issues, with a heavy emphasis on roads, while showing few signs of interest in taking a more expansive approach on the topic.

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