Military Waste & Fraud: $172 billion/year

excerpted from the book

Take the Rich Off Welfare

by Mark Zepezauer and Arthur Naiman

Odonian Press, 1996

 

Military Waste and Fraud - $172 billion a year

When it comes to wasting money, the Pentagon has no peer. For one thing, there's the single question of scale. For fiscal year 1996, the Pentagon budget was $265 billion ($7 billion more than it requested). That's 5% of our gross national product, a larger percentage than in virtually any other industrialized nation.

In absolute dollars (not as a percentage of GNP), the Pentagon shells out 3 1/2 times more than the next largest military spender (Russia), 6 1/2 times more than Britain, 7 1/2 times more than France, 7 1/4 times more than Japan, 8 1/2 times more than Germany. Our military budget is bigger than the next nine largest military budgets combined, and sixteen times larger than the combined military budgets of all of our "regional adversaries"- Cuba, Syria, Iran, Iraq, North Korea and Libya. It accounts for 37% of all military spending on the planet (in comparison, our economy is only 22% of the world total).

As enormous as the Pentagon's budget is, there's more military spending buried elsewhere-in the Department of Energy's production of fuel for nuclear weapons, in the military portion of the NASA budget, in the VA, etc. By adding in these hidden military expenses, the Center for Defense Information (CDI), a Washington think tank run by retired generals and admirals, concluded that we spend a total of $327 billion a year on the military. (When it did similar computations independently, the War Resisters League came up with $329 billion.)

But that doesn't include what we have to pay for past Pentagon budgets. The CDI went back to 1941 and multiplied the military's percentage of each year's budget by the deficit for that year. Using that method, they figured that interest on past military spending cost us $167 billion in fiscal 1996. (The War Resisters League went all the way back to 1789 and came up with $291 billion.)

Since the CDI's estimates are lower, let's be conservative and use them. Adding them together gives us a figure for total military spending-past and present-of $494 billion a year ($9 1/2 billion a week, $1 1/3 billion a day.

 

Waste beyond your wildest dreams

But just the scale of the Pentagon's budget alone can't explain its prodigious ability to waste money. Another quality is required- world-class incompetence. There are so many examples of this that they tend to blur together, numbing the mind. Here are just a few:

According to a US Senate hearing, $13 billion the Pentagon handed out to weapons contractors between 1985 and 1995 was simply "lost." Another $15 billion remains unaccounted for because of "financial management troubles." That's $2B billion-right off the top-that has simply disappeared...

 

Career criminals

... According to the Bulletin of the Atomic Scientists, every single one of the top ten weapons contractors was convicted of or admitted to defrauding the government between 1980 and 1992. For example:

* Grumman paid the government $20 million to escape criminal liability for coercing subcontractors into making political contributions.

* Lockheed was convicted of paying millions in bribes to obtain classified planning documents.

* Northrop was fined $17 million for falsifying test data on its cruise missiles and fighter jets.

* Rockwell was fined $5.5 million for committing criminal fraud against the Air Force.

In another study, the Project on Government Oversight (PGO) searched public records from October 1989 to February 1994 and found-in just that 4~/~-year period-85 instances of fraud, waste and abuse in weapons contracting. For example:

Boeing, Grumman, Hughes, Raytheon and RCA pleaded guilty to illegal trafficking in classified documents and paid a total of almost $15 million in restitution, reimbursements, fines, etc.

* Hughes pleaded guilty to procurement fraud in one case, was convicted of it in a second case and, along with McDonnell Douglas and General Motors, settled out-of-court for a total of more than $1 million dollars in a third case.

* Teledyne paid $5 million in a civil settlement for false testing, plus $5 million for repairs.

* McDonnell Douglas settled for a total of more than $22 million in four "defective pricing" cases.

But General Electric was the champ. PGO lists fourteen cases, including a conviction for mail and procurement fraud that resulted in a criminal fine of $10 million and restitution of $2.2 million. In our own research, we found several other examples of GE crimes and civil violations:

* In 1961, GE pleaded guilty to price-fixing and paid a $372,500 fine.

* In 1977, it was convicted of price-fixing again.

* In 1979, it settled out-of-court when the State of Alabama sued it for dumping PCBs in a river.

* In 1981, it was convicted of setting up a $1.25 million slush fund to bribe Puerto Rican officials.

* In 1985, GE pleaded guilty to 108 counts of fraud on a Minuteman missile contract. In addition, the chief engineer of GE's space systems division was convicted of perjury, and GE paid a fine of a million dollars.

* In 1985, it pleaded guilty to falsifying time cards.

* In 1989, it paid the government $3.5 million to settle five civil lawsuits alleging contractor fraud at a jet-engine plant (which involved the alteration of 9,000 daily labor vouchers to inflate its Pentagon billings).

In 1990, GE was convicted of criminal fraud for cheating the Army on a contract for battlefield computers; it declined to appeal and paid $16 million in criminal and civil fines. ($11.7 million of this amount was to settle government complaints that it had padded its bids on 200 other military and space contracts-which comes to just $58,000 or so per contract.)

In 1993, GE sold its weapons division to Martin Marietta for $3 billion (retaining 23.5% of the stock and two seats on the board of directors).

The largest investigation of Pentagon fraud took place between 1986 and 1990. Called Operation Ill Wind, it began when Pentagon official John Marlowe was caught molesting little girls. He cut a deal to stay out of jail and, for the next few years, secretly recorded hundreds of conversations with weapons contractors.

There's no way of knowing how much the crimes Ill Wind looked into cost the taxpayers, but the investigation, which cost $20 million, brought in ten times that much in fines. According to Wall Street Journal reporter Andy Pasztor, "more than 90 companies and individuals were convicted of felonies... including eight of the military's fifteen largest suppliers....Boeing, GE and United Technologies pleaded guilty...Hughes, Unisys, Raytheon, Loral, Litton, Teledyne, Cubic, Hazeltine, Whittaker and LTV...admitted they violated the law."

Unisys signed the largest Pentagon fraud settlement in history: $190 million in fines, penalties and forgone profits (which means they weren't allowed to charge for cost overruns the way military contractors usually do).

Assistant Navy Secretary Melvyn Paisley was the central figure in the Ill Wind scandal and the highest-ranking person convicted (he was sentenced to four years in prison). He ran his office like a supermarket for weapons manufacturers, soaking up bribes, divvying up multibillion-dollar contracts and diverting work to a firm he secretly controlled with a partner.

Paisley may have been a bit more...flamboyant than most, but there was nothing terribly unusual about his approach. As of 1994, nearly 70 of the Pentagon's 100 largest suppliers were under investigation. Fines for that year totaled a record $1.2 billion.

That may sound like a lot, but it's less than 2% of the weapons industry's net income (which averaged $64 billion a year in 1994 and 1995). A billion or two in fines is hardly an incentive to end the corruption and waste in Pentagon contracting.

 

The black budget

Not all Pentagon waste is visible. Hidden within the military budget is a secret "black budget" that's not subject to any congressional oversight (toothless as that usually is). It includes money for the CIA (tucked away in the Air Force budget, it gets about 10% of the total) and for less well-known but better-funded "intelligence" organizations like the National Security Agency (NSA) and the National Reconnaissance Office (NRO).

In 1995, several members of Congress tried to argue that, with the Cold War over, there was no harm in publishing the total amount of the intelligence black budget, without details on how it was spent. Even this modest proposal went down to defeat but, in the process, led to the absurd spectacle of legislators mentioning the figure-$28 billion for fiscal 1996-while arguing that it shouldn't be publicly disclosed.

John Pike of the Federation of American Scientists estimates that the 1996 black budget included an additional $3 billion or so in military "stealth" projects, for a total of about $31 billion-down from about $36 billion a year during the Reagan years. Pike attributes the decrease to a couple of projects that grew too huge to be hidden in the black budget.

One of the projects that "surfaced" into the public budget is the B-2 bomber. Originally projected to cost $550 million each, B-2's ended up costing $2.2 billion each-literally more than their weight in gold.

Another is MILSTAR, which is designed to ''fight and win a six-month nuclear war...long after the White House and the Pentagon are reduced to rubble." The Air Force has tried to kill this idiotic program four times since it emerged from the black budget, but Congress won't listen. MILSTAR has cost us between $8 and $12 billion so far, and could cost another $4.5 billion between 1996 and 2000.

Since the black budget is completely off the books, it encourages waste on a titanic scale. As one Pentagon employee put it: "In a black project, people don't worry about money. If you need money, you got it. If you screw up and need more, you got it. You're just pouring money into the thing until you get it right. The incentive isn't there to do it right the first time. Who's going to question it?" ...

Don't call it bribery

Why do our legislators put up with military waste and fraud? For the same reason they do anything. Defense PACs gave members of Congress $7.5 million in 1993 and 1994. And PAC money is just part of the story.

Of the $4.5 billion in unrequested weapons funding added to the Pentagon budget for fiscal 1996, 74% was spent in or near the home districts of representatives who sit on the House National Security Committee. Another $290 million was spent in or around Newt Gingrich's home district, Cobb County, Georgia. (Cobb gets more federal pork than any county except Arlington in Virginia, which is right next to Washington, and Brevard in Florida, where Cape Canaveral is located.)

Although the Pentagon insists that it doesn't need any more B-2 bombers, Norman Dicks (D-Washington) and Ted Stevens (R-Alaska) don't care. Dicks-who's one of the largest recipients of military PAC money in the House-received over $10,000 from nine major B-2 contractors in the four months just before the battle to resurrect B-2 funding. Stevens got $37,000 between 1989 and 1994, making him one of the top ten recipients of PAC contributions from B-2 contractors. (Isn't it amazing how little politicians cost?)

If PAC money isn't enough, military lobbyists can always argue jobs. It didn't hurt funding for the B-2 that spending for it was spread across 88% of all congressional districts and all but two states.

Liberal California Representative Maxine Waters defended her vote to continue B-2 funding by candidly admitting that it was one of the few ways she knew to bring federal jobs to her district. (Since her district is South-Central Los Angeles, you can understand her desperation.)

There's no conceivable need for Seawolf submarines (which cost $2.4 billion apiece)- except for the votes in Connecticut, where it's built, and in surrounding states. That's why liberal New England senators like Ted Kennedy, John Kerry and George Mitchell supported it, as did Bill Clinton-who needed votes from those states-in his 1992 campaign.

Neither the Air Force nor the Navy wants any part of the V-22 Osprey assault plane, which the Bush administration tried in vain to kill. But it's supported by legislators in Texas and Pennsylvania-the two states that do the most contracting for it-and by Clinton, who...oh, you get the idea.

What about the jobs we'd lose? -- If new weapons systems are nothing more than make-work programs, they're really inefficient ones. A 1992 Congressional study estimated that shifting money from the Pentagon to state and local governments would create two jobs for every one it eliminates. Building weapons we don't need is so wasteful that the economy would probably be better off if we just paid people the same money to stay at home.

The Congressional Budget Office concluded that a billion dollars spent on successfully promoting arms exports creates 25,000 jobs, but if that same billion is spent on mass transit, it creates 30,000 jobs; on housing, 36,000 jobs; on education, 41,000 jobs; or on health care, 47,000 jobs.

Aside from the cost, using federal money to prop up military contractors creates a disincentive for them to convert to civilian products. Shifting Pentagon funds to urgently needed domestic uses would be good for both the US and the rest of the world. As President Eisenhower put it, "Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and not clothed."

Pentagon boosters argue that military spending has already been slashed too far, since more than 800,000 military-related jobs have disappeared since 1990. But many of these layoffs were in nonmilitary divisions of the companies, and more than half of them were caused by the economy contracting in a recession, not by smaller Pentagon budgets-especially since they've dropped off only slightly from their all-time high of $304 billion (adjusted for inflation) in 1989.

Just eight companies-McDonnell Douglas, Lockheed, Martin Marietta, Boeing, General Dynamics, Northrop Grumman, Raytheon and Hughes-were responsible for half of all military contractors' layoffs in 1993. Only 15% of Boeing's layoffs and a third of McDonnell Douglas' were related to military production. After the firings, the stocks of these eight companies rose by 20% to 140%, and the salaries of their CEOs soared.

 

The revolving door

Another reason for Pentagon waste and fraud is the revolving door between military contractors and government personnel. Before he was Secretary of Defense, Caspar Weinberger was a top executive at Bechtel, which does massive engineering projects for the Pentagon and foreign clients like Saudi Arabia. Before he was Secretary of State, George Shultz was president of Bechtel.

Before his days as a Navy felon, Melvyn Paisley worked for Boeing-as did his boss at the Pentagon, Navy Secretary John Lehman. Secretary of Defense William Perry and CIA Director John Deutch both did consulting work for Martin Marietta before they joined the Clinton administration. The list goes on and on.

Generals have an interest in keeping weapons contractors happy-at least if they want to sit on the boards of corporations after they retire. Contractors can use their connections at the Pentagon to find work there and, like Paisley, feed lucrative contracts to their friends in the private sector.

On both sides of the revolving door, militarists live in the lap of luxury. Nobody batted an eyelash when Paisley entertained contractors in staterooms on the Queen Elizabeth, nor is there ever much dismay when military aircraft are used, at a cost of tens of thousands of dollars an hour, to fly politicians, lobbyists and weapons contractors on pleasure trips.

 

Direct handouts

Still, personal perks don't cost us much compared to corporate perks. For example, when Lockheed and Martin Marietta merged to become Lockheed Martin, $92 million in bonuses-or "triggered compensation," as they prefer to call it-was handed out to top executives and members of the board. They expect the government to pick up $31 million of that.

John Deutch quietly reversed a 40-year ban on such compensation when he was at the Pentagon. The biggest bonus, $8.2 million, went to the new company's president, Norman Augustine, who Deutch and William Perry had done work for at Martin Marietta.

Both Deutch and Perry obtained waivers from an ethics regulation that prohibits Pentagon officials from dealing with people they formerly did business with untl a year has passed. (Up to 30,000 employees will lose their jobs as a result of this merger.)

Military contractors milk the government in other ways as well. It's common for the State Department to give foreign aid to brutal dictatorships like Indonesia and Guatemala, with the requirement that the money be used to buy US weapons. Each year this program results in the transfer of $5-7 billion from US taxpayers to US arms merchants (not to mention the murder of lots of innocent people in the countries involved).

The Pentagon has similar programs that not only provide subsidies to foreign countries to buy from US weapons suppliers but also help them negotiate the sale. In 1994, General Dynamics and Lockheed received a total of $1.9 billion in foreign military sales awards- 126,567% more than the $1.5 million they gave to candidates for federal offices in the

1994 elections. (As we've already remarked, politicians sure are a bargain.)

Thanks in large part to these Pentagon programs-on which we spend $5.4 billion a year, almost half our total foreign aid expenditure-the US is the largest arms supplier on earth, with 43% of the world trade. What's more, many of these loans are ultimately defaulted on or forgiven. Egypt, for example, was let off the hook for $7 billion in loans, as a reward for participating in the Gulf War...

 

How much military spending is waste?

Even if you accept the absurd two-war plan, lots of savings are still possible:

* We have more Trident missiles than we could ever use, and nobody to aim them at. But the Navy isn't happy with their old Tridents (currently funded at $787 million a year). They want to replace them with a newer version, even though both kinds of Tridents are likely to be eliminated under the next arms-control agreement, START lll.

* Although our 121 C-5 and 265 C-144 transport planes are perfectly adequate, the Pentagon wants to replace a bunch of them with 120 new C-17s, at a total cost of $45 billion.

The rationale for the F-22 fighter is especially weak. It was designed to achieve air superiority in the 1990s over the now-defunct Soviet Union. We already have 900 F-15s (which the GAO calls the best tactical aircraft in the world), and none of our real or potential enemies have more than a handful of planes that come anywhere close to matching its capabilities. That hasn't stopped the Pentagon from asking for 442 F-22s, at a total cost of $72 billion.

* Even a hawk like Barry Goldwater points out the waste involved in the Army, Navy, Air Force and Marines each having its own air force. Both the Marines and the Army have light infantry divisions, and the Navy and the Air Force aren't satisfied with the same kind of satellites and cruise missiles-each has to have its own kind.

* The Pentagon keeps 100,000 troops in Europe and 70,000 in Korea and Japan. We spend $80 billion a year on NATO, $59 billion a year in South Korea and $48 billion a year in the Persian Gulf. In all of these cases, the countries we're supposedly defending have militaries that are better-equipped and much better-funded than their enemies'.

* As we've mentioned above, even the Pentagon doesn't want any more B-2 bombers, V-22 Osprey assault planes or additional Star Wars funds. The Navy doesn't want the Seawolf submarine and admits it doesn't need another $3.5-billion nuclear-powered aircraft carrier. But try telling that to the companies that make those weapons, or to the politicians whose campaigns they fund.

By now it should be obvious that the "defense" budget isn't based on any rational calculation of what the defense of this country actually requires-it's based on what US arms manufacturers can get away with (almost anything, it turns out).

Attaching the word "defense" to this spending isn't just misleading-it's the complete opposite of the truth, since military waste and fraud make our country weaker, not stronger. The preposterously obese Pentagon budget is the single greatest threat there is to our national security.

It's not just wild-eyed radicals who feel this way:

* Lawrence Korb, a military planner under Reagan who's now with the Brookings Institution, says we could have the most overwhelmingly powerful military in the world for around $150 billion a year.

* In a report called Ending Overkill, the Bulletin of the Atomic Scientists laid out a detailed military budget that includes funding for a lot of programs we think are unnecessary (Star Wars, for example). Even so, its report calls for scaling down the military budget to $115 billion by the year 2000, and states that this would still give us a force "adequate to undertake six or eight Somalia-like operations at the same time, or to mount a force somewhat larger than the American part of Desert Storm."

* The Center for Defense Information (founded by retired generals and admirals) thinks we could get by quite nicely with about a million soldiers, instead of the 1.6 million we now have, and with a Pentagon budget of about $200 billion.

The average of those three estimates is $155 billion a year-quite a bit less than the $327 billion a year we actually spend. (And remember: that $327 billion doesn't include the $167 billion or more we lay out each year to service debt that's the result of past military programs. Unfortunately, there isn't much we can do about that past debt-except to cut down on present military budgets, so the problem doesn't keep getting worse.)

Subtracting $155 billion from $327 billion gives us a figure for current military waste and fraud of $172 billion a year-almost $500 million a day-virtually all of which goes to large corporations and super-rich individuals. (Sure, some of it pays for ordinary people's salaries, but they'd also be earning money if they were doing something useful.) Half a billion dollars a day could buy a lot of medical care, or fill a lot of potholes, or...you name it. After all, it's your money.


Take the Rich Off Welfare