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August 11, 2012

August 13, 2012




Car-hacking: Bluetooth and other security issues

It’s not time for full-on panic, but researchers have already successfully applied brakes remotely, listened into conversations and more.

Linda Melone

August 6, 2012 (Computerworld)

A disgruntled former employee of Texas Auto Center chose a creative way to get back at the Austin-based dealership: He hacked into the company’s computers and remotely activated the vehicle-immobilization system, which triggered the horn and disabled the ignition system in more than 100 of the vehicles. The dealership had installed the system in their cars as a way to deal with customers who fell behind on their payments.

Police arrested the man and charged him with breach of computer security. His legal status was unclear as of our deadline for this story.

Out-of-control honking horns may be annoying, but other types of hacking, such as cutting the engine of unsuspecting drivers, could have deadly consequences. Although most experts agree there isn’t an immediate risk, vehicle hacking is something that bears watching.

With the increasing computerization of vehicles of all types, observers have longer-term concerns over the vulnerabilities of trucks, delivery vans, rental cars and consumer autos. A malicious hacker could, in theory, disable the vehicles, re-route GPS signals or otherwise put employees, customers and the company as a whole in danger.

Consumers are getting worried about the safety and privacy risks that come with today’s connected cars, according to a Harris Interactive poll released last week. For their part, auto makers and industry association spokesmen responded that they are adding electronic features carefully and based on market research.

Modern vehicle engines bear little resemblance to the engines of the past. Engines originally consisted of various mechanical devices assembled around a combustion engine. Within the past 20 years, cars have evolved to contain a complex network of as many as 50 to 70 independent computers, electronic control units (ECUs) with up to 100MB of binary code. Automotive ECUs originally entered production in the U.S. largely in response to California’s automotive-emissions reduction law, first passed in 1961, and then the subsequent federal Clean Air Act, passed originally in 1963, strengthened considerably in 1970 and updated since then.

ECUs measure the oxygen present in exhaust fumes and adjust the fuel/oxygen mixture before combustion, which improves efficiency and reduces pollutants. Over time these systems have become integrated into nearly every aspect of a car’s functioning, including air bag deployment, steering, braking and other real-time systems.

In the mid-1990s car manufacturers began integrating more powerful ECUs with peripherals such as GM’s OnStar system, which is a combination GPS, emergency response unit and vehicle recovery system. An OnStar-equipped car can analyze its on-board diagnostics as the car is being driven, detecting problems and alerting the driver to any issues that require a visit to the repair shop.

These ECUs connect to one another and to the Internet, making car computers as vulnerable to the same digital dangers widely known among PCs and other networked devices: viruses, Trojans, denial-of-service attacks and more.

“The Austin case is a fairly particular case in that they had an add-on system that specifically gave them the ability to wirelessly immobilize the cars,” says Stefan Savage, professor in the department of computer science and engineering at the University of California, San Diego. “It’s not a standard feature on most automobiles.”

Generally speaking, these types of systems are there to disable the vehicle in the event of theft and enable their eventual recovery, says Savage. “This was not a case of hacking into a system or creating new functionality that didn’t exist before,” he explains. But that’s not to say it can’t be done. “In our research we demonstrated taking over a car through a software vulnerability and creating a completely new piece of functionality that did not exist before,” he says.

GM’s OnStar service, which also helps recover stolen vehicles, is currently the only vendor advertising that capability as a standard feature, says Savage. “However, the set of cars for which a clever adversary could create a new capability to shut down the car is likely quite a bit larger.”

Motive behind the madness

One of the saving graces is there are relatively few motivations to stealing vehicles via a sophisticated hack, Savage adds, because of the complexity involved and the need to spend some serious cash to be able to pull it off. “There is a theft motivation. But while we’ve been able to demonstrate a computer attack and steal cars, frankly it’s still easier to use a Slim Jim,” he says, referring to the classic lock pick.

“The Austin scenario could not happen to a system that is not networked,” says Dan Bedore, director of product communications at Nissan North America. “Our vehicle control modules are discrete systems and are not networked. So any scenario that involves hacking a car would be limited to a single unit.”

If a fleet of, say, 100 units were immobilized, “the hack would likely be into some added hardware or software installed by the fleet operator,” such as what occurred in Austin, says Bedore.

Nonetheless, a fair number of vulnerabilities in car computer systems currently exist, says Savage, although he feels it will be a while before computerized attacks are preferable to physical ones. “The most likely scenario where you have to worry are disgruntled attacks, where people are trying to sow havoc,” he says.

Inside threat

There are two main ways an attacker could theoretically gain access to a car’s internal network. The first is by physical access, such as a mechanic, a valet, a person who rents a car, an ex-friend or car owner, someone with momentary access to the vehicle. The attacker could insert a malicious component into a car’s internal network via the OBD-II port, typically located under the dashboard. A brief period of connectivity embeds the malware within the car’s components.

Similarly, counterfeit or malicious components may enter the vehicle before it is sent to the dealer or with a car owner’s purchase of an after-market component such as a radio or alarm.

“One of the attacks we staged took advantage of vulnerability in the diagnostic tools used at dealerships,” says Savage. “We built a virus that could get into a dealership and then could affect the diagnostic tools. So whenever a car was brought into the dealership and the diagnostic tool was connected to the car it would infect the car.”

Savage and his team built a package that, upon taking over the car, would then contact his team’s servers via the Internet and request further instructions. “At that point we could download just about any functionality we wanted — disable the car, listen to conversations in the car, turn on the brakes, etc.”

Access may also happen via numerous wireless interfaces. “Cars are not only becoming more computerized internally, but that they are becoming increasingly connected to the outside world,” says Franziska Roesner, a student and researcher in the security and privacy research lab at the University of Washington. She calls this interconnectedness a “concerning” trend.

Today’s cars are connected to the cell phone network and to the Internet via systems including OnStar, Ford Sync and others, Roesner explains. They have Bluetooth connectivity, short-range wireless access for key fobs and tire pressure sensors, they support satellite radio and they also have inputs for CDs, iPods, USB devices and others, he says.

BMWs hacked via diagnostic port

Thefts of BMWs in the U.K. recently spiked as thieves discovered they could bypass the car’s alarm system and immobilizers. Using devices that plug into the car’s OBD port, thieves programmed blank key fobs and drove the stolen cars away.

Reports indicate that such thefts appear to work similarly: After gaining access to the vehicle, either by breaking a window or via a nearby RF jammer — which blocks the fob lock signal from reaching the car, thus preventing the car owners from properly securing their own vehicle even if they think they have — thieves gain access to the car’s OBD-II connector. This allows the thief to gain access to the car’s unique key fob digital ID, enabling him to program a blank key fob on the spot, insert the key and steal the car.

In a statement by BMWs U.K. media relations manager, Gavin Ward, the company noted it is aware of and investigating the security loophole. The loophole affects all BMW series models, from the 1 to the X6.

“We liken this increase in connectivity to the desktop computing world before the Internet: Security vulnerabilities on disconnected machines suddenly became very important when computers were networked together,” says Roesner. “There’s even talk among auto manufacturers about creating app stores for cars. We’re at the same point in the evolution of computerized automobiles.”

Roesner works with other researchers to identify these issues with the goal of addressing them before they become major problems.

Studies conducted by Roesner and her colleagues show the OBD-II port as the most significant automotive interface for hacking purposes. This port provides access to the vehicle’s key controller area network buses and can provide sufficient access to affect the full range of a vehicle’s systems.

Alternatively, hackers may deliver malicious input by encoding it into a CD or a song file, which may “live” on an iPod or other MP3 player, or by installing software that attacks the car’s media system when it connects to the Internet.

Currently, the Internet is only a hypothetical vulnerability, however, says Roesner. “In the case of the car that we examined, we used the malicious file on a CD to exploit a vulnerability in the radio.”

“In our research, we showed that attackers with access to the car’s network can completely control most of the car’s computerized components,” she says. This could allow an attacker to sabotage an automobile — disable the brakes or lights, for instance. “But we also showed that attackers could use such exploits to perform espionage,” Roesner explains. Examples include the ability to extract potentially sensitive GPS data from a system and send it outside of the vehicle to an attacker. Also, a car could be stolen if the hacker can override the car’s computerized theft detection/prevention system.

Automobiles most at risk include those with more components under computer control and without manual overrides, and those that are more connected to the outside world via the Internet or wirelessly, says Roesner.

Law enforcement fleet concerns

A security attack on a law enforcement fleet, in particular, may risk the lives of police officers as well as the general public. This issue raises concern at the Arizona Department of Public Safety, which in June fell victim to hackers who downloaded and released hundreds of law enforcement files on the Internet to protest a newly passed law they perceived as racist.

Hackers infiltrated accounts of Arizona law enforcement personnel and email accounts of the Arizona Legislature in a separate attack, posting items such as credit card information, photos, emails and documents including a master list of passwords and names and addresses of other police officers throughout the state of Arizona, according to Stacey Dillon, president of Public Safety Authority Media.

Extrapolating from there, she says, “If the hackers had accessed our fleets by, say hijacking our GPS system, it could present a lot of officer safety issues.” In that scenario, police couldn’t send backup units to the correct location if the GPS were compromised.

One safety check already in place: If a patrol car is idle or is stopped for 45 minutes to an hour, “an automatic signal is sent to our dispatchers and they’re told to check on it,” says Dillon.

Rick Perine, vice president of the Mesa (Ariz.) Police Association, agrees that a hacker could stop police in their tracks. “We use a GPS map in our vehicles that’s constantly updated,” he explains. Among other things, “it relays to our dispatch where our patrol unit is, Hacking into our GPS could put me in the wrong part of town and another officer dispatched to a different part of town, which puts me in danger.”

The use of an after-market product is the most likely way for a hacker to take over a vehicle fleet, says André Weimerskirch, CEO of Escrypt Inc., a provider of embedded security systems based in Ann Arbor, Mich. “If you own a business and you use after-market products to equip your fleet with GPS, for example, it’s important to look at the details in terms of security.”

After-market products work similarly to remote-control car engine starters marketed to consumers through retail stores, says Weimerskirch. “Remote control starters work by undermining the theft protection mechanism in the car. This opens the door for anyone to steal your car.”

A clear, but not yet present, danger

“We can remotely stop the brakes on a car from 1,000 miles away, but it’s not a clear and present danger today,” Savage explains.

Doing this kind of a hack requires a large investment of time and money. “You need to buy the kind of car you want to hack,” says Savage. “You have to be really motivated to do this; it’s not something someone will do as a hobby. Because of the time and money involved, I don’t think it’s an imminent problem.”

We liken this increase in connectivity to the desktop computing world before the Internet: Security vulnerabilities on disconnected machines suddenly became very important when computers were networked together.

Franziska Roesner, Researcher, University of Washington

Although hacking into fleets may not present an immediate danger, manufacturers are taking this research seriously, says Savage. “Every manufacturer we are aware of is putting substantially more research into security than they have in the past. The challenge is they’ve never had to think about this before at all.”

The good news is that car manufacturers can ramp up very quickly by adapting the same techniques as those used with PCs, such as finding latent security vulnerabilities, implementing data execution prevention and other measures, says Savage. “Some things will [require] standardization to make them economically feasible,” he says.

The Society for Automotive Engineers (SAE), the industry’s premier standardization group, is in the process of trying to set security baselines “based on our work,” says Savage. “But it will take a while because there’s so many different components involved.”

Next steps

Roesner’s research pointed to diagnostic tools used by service personnel as a potential source of attacks, she says. “These tools can be used to exploit vulnerabilities in automobiles,” so owners need to be careful about who is permitted to access the OBD-II diagnostic ports of their cars, Roesner says.

Beyond individual auto companies, the U.S. Department of Transportation has “shown interest,” she explains. The United States Council for Automotive Research (USCAR) and the SAE have both created tasks forces focused on computer security for automobiles.

Now is a good time to look at this and start thinking of possible solutions, when automakers and fleet owners are not in panic mode, says Savage. “We’re working with the car industry to get ahead of it. In five to 10 years, it may be more of an issue.”


The Hill

Frustrated appropriators hoping to salvage work on spending bills


By Erik Wasson – 08/05/12 06:00 AM ET

The congressional spending committees are known as among the hardest working in Congress, despite the fact that partisan gridlock often means their 12 annual bills do not get enacted and stopgap measures are used instead.

This year their members are described as “very, very” frustrated that countless hours of work have likely been wasted, and they are searching for relevance in the coming months of spending talks.

On Tuesday, House Speaker John Boehner (R-Ohio) and Senate Majority Leader Harry Reid (D-Nev.) struck a deal to punt 2013 spending decisions until next March. They announced Congress will simply extend current funding for six months after the government’s funding runs out Sept. 30.

House and Senate appropriators had separately crafted almost all of their 2013 bills, and they will be legally irrelevant in the next Congress.

The House passed 6 of its 12 bills and devoted 81 hours to debating them on the floor, often late into the night. The House Appropriations Committee marked up 11 of 12 bills at the full committee level and 12 of 12 at the subcommittee level.

“They represent nearly a year of work,” Appropriations Committee Chairman Hal Rogers (R-Ky.) said Friday. “We put a lot of effort into those bills.”

He noted that the bills end 166 programs entirely that the committee deemed wasteful.

The Senate did not take up any bills but Senate appropriators moved 11 of 12 through the committee this year. It even acted on two of the bills after the Reid-Boehner deal was already announced.

Senate Appropriations Committee Chairman Daniel Inouye (D-Hawaii) appeared vexed this week when asked about the six-month continuing resolution. He said he believes in “regular order.”


Inouye shares Rogers’s frustration, an aide said, given the work that went into the bills. The defense bill alone targets 475 programs for waste, the aide noted.

Ranking member Sen. Thad Cochran’s (R-Miss.) ire boiled over as soon as the continuing resolution was announced.

“Agreeing to put the government on autopilot for six months is no great achievement,” he said. “Our committee members have done the work of scrutinizing budgets, holding hearings, and drafting bills. Those bills deserve to be considered by the Senate, negotiated with the House and sent to the President as soon as possible.”

According to a GOP aide, a six-month CR doesn’t preclude appropriations activity in the interim. It still leaves lawmakers needing to fund the government for the remainder of the year. Nothing is off the table, the aide said.

In the coming months, Sen. Cochran will continue to look for opportunities to advance appropriations measures that make conscious choices about spending on individual programs, and which contain the kind of detailed oversight and policy provisions that reflect the appropriate role of Congress in controlling the federal purse strings, the aide said.

Rogers told the Hill Friday that he hopes the 12 bills can at least become negotiating markers when Congress finally gets around to settling 2013 spending, months after the fiscal year begins.

He also raised the possibility that the bills themselves could still make it into law.

“Just because we did a CR that lasts until March, doesn’t mean we can’t pass bills before that,” he said.

For the bills to be acted upon without being re-introduced, action would have to come in the busy lame duck session where Congress will be wrangling over Bush era tax rates, and a related set of automatic spending cuts known as the sequester.

Appropriations aides said such action would only come if the November election produces the exact status quo Washington now enjoys—a GOP House, a Democratic Senate and Obama in the White House.

“It’s ironic for Rogers—the only way the bills become relevant is if his party makes no gains in the election,” a Democratic aide mused. “I don’t see any appetite to revisit old appropriations bills next year if the election changes anything.”

Even in this scenario, the House and Senate would have to agree on a top-line number for 2013 and these discussions will be difficult with the rest of the fiscal cliff looming. The House bills add up to $1.028 trillion and the Senate bills use the $1.047 trillion figure that the planned continuing resolution, to be voted on next month, will roughly follow.

An aide said that Democrat appropriators also feel that time has been wasted and in general want to follow regular order to make their actions relevant.

If final action on spending is delayed to late March, appropriators will have a hard time getting 2014 bills, due next September, done. That could lead to a giant omnibus again.

Conservative budget hawk Rep. Jeff Flake (R-Ariz.), who is running for Senate, was often at odds with Rogers during his tenure on the Appropriations Committee, but he also hopes the committee work becomes relevant, after a GOP victory in the fall.

“I do think the bills should be used because there were some good amendments and report language, regarding the [Environmental Protection Agency], for example, that should be included in a final spending package,” he said.


Flake says the time spent in the House wasn’t a waste. He blamed the continuing resolution on Senate Democrats who declared this summer they would not be passing or conferencing any individual bills. Democrats had said they were doing that because in their view the House “violated” last August’s debt ceiling deal by seeking $19 billion more in cuts in the House bills.

“Just because the Senate won’t do its job and move on these bills, doesn’t mean the House should also neglect its job,” Flake said in an emailed comment. “Additionally, the guidance provided in the bills will help determine which programs can be justified and will be helpful in determining which duplicative and wasteful programs to cut moving forward.”


After defeat of Senate cybersecurity bill, Obama weighs executive-order option

The Hill

By Brendan Sasso – 08/04/12 02:40 PM ET


Senate Republicans recently blocked cybersecurity legislation, but the issue might not be dead after all.

The White House hasn’t ruled out issuing an executive order to strengthen the nation’s defenses against cyber attacks if Congress refuses to act.

“In the wake of Congressional inaction and Republican stall tactics, unfortunately, we will continue to be hamstrung by outdated and inadequate statutory authorities that the legislation would have fixed,” White House Press Secretary Jay Carney said in an emailed response to whether the president is considering a cybersecurity order.

“Moving forward, the President is determined to do absolutely everything we can to better protect our nation against today’s cyber threats and we will do that,” Carney said.

The White House has emphasized that better protecting vital computer systems is a top priority.

The administration proposed its own legislation package in 2011, sent officials to testify at 17 congressional hearings and presented more than 100 briefings on the issue. In a recent Wall Street Journal op-ed, President Obama warned that a successful cyber attack on a bank, water system, electrical grid or hospital could have devastating consequences.

The president urged Congress to pass the Cybersecurity Act, which was offered by Sens. Joe Lieberman (I-Conn.) and Susan Collins (R-Maine). The bill would have encouraged private companies and the government to share information about cyber threats and would have required critical infrastructure operators to meet minimum cybersecurity standards.

But Senate Republicans, led by Sen. John McCain (R-Ariz.), worried the bill would burden businesses with unnecessary and ineffective regulations.

The bill’s sponsors watered down the regulatory provisions, replacing the security mandates with voluntary incentives, but that wasn’t enough to win over Republicans. The bill mustered 52 votes in the Senate, well short of the 60 needed to overcome a filibuster.

If Obama issues an order on cybersecurity, it wouldn’t be the first time that his administration has resorted to executive action to bypass Congress.


Obama uses the slogan “we can’t wait” to argue that some issues are too important to be allowed to stall in Congress.

When lawmakers refused to pass the Dream Act to give legal status to students brought to the country illegally, the administration announced that it would stop deporting young immigrants who would have been eligible to stay under the bill.

Jim Lewis, a senior fellow at the Center for Strategic and International Studies, explained that Obama could enact many of the core provisions of the Cybersecurity Act through executive order.

Many companies managing vital computer systems are already heavily regulated. Lewis said the president could order agencies to require the industries they regulate to meet cybersecurity standards.

“You don’t need new legislative authority to do that,” Lewis said.

He noted that some regulatory agencies, including the Federal Communications Commission and the Nuclear Regulatory Commission, are independent and not bound to follow executive orders. But Lewis predicted that even the independent agencies would likely enforce an executive order on cybersecurity.

Lewis said the Office of Management and Budget is already working on security standards for federal computer systems, and said those guidelines could form the basis of standards for the private sector.

Lewis acknowledged that the provisions of the Cybersecurity Act that would have torn down legal barriers to information-sharing would have to be enacted by Congress. Although those provisions were the ones most strongly supported by the business community, Lewis expressed skepticism that they would do much to improve cybersecurity anyway.

“You can have them or don’t have them. Who cares,” he said.

But Lewis said that an executive order could even partially address information-sharing. The FCC, for example, has set up a voluntary system for companies to share information about cyber threats with each other, he said.

An executive order may accomplish many of the goals of the Cybersecurity Act, but it could also further raise the ire of Republicans and the business groups, such as the U.S. Chamber of Commerce, who lobbied against the legislation.

Republicans have already accused President Obama of making illegal power grabs with his previous executive actions, and a cybersecurity order would likely elicit similar howls of disapproval.

Although Sen. Collins was frustrated by the defeat of her bill, she reacted coolly to the idea of the president bypassing Congress.

“I’m not for doing by executive order what should be done by legislation,” she said.

Sen. Dianne Feinstein (D-Calif.), one of the main co-sponsors of the Cybersecurity Act, said she prefers that Congress address the problem, but she is open to presidential action if Congress fails.

“I suppose if we can’t, the answer would be yes,” she said when asked whether she would support an executive order.


Fearing an Impasse in Congress, Industry Cuts Spending



August 5, 2012


A rising number of manufacturers are canceling new investments and putting off new hires because they fear paralysis in Washington will force hundreds of billions in tax increases and budget cuts in January, undermining economic growth in the coming months.

Executives at companies making everything from electrical components and power systems to automotive parts say the fiscal stalemate is prompting them to pull back now, rather than wait for a possible resolution to the deadlock on Capitol Hill.

Democrats and Republicans are far apart on how to extend the Bush-era tax breaks beyond January — the same month automatic spending reductions are set to take effect — unless there is a deal to trim the deficit. The combination of tax increases and spending cuts is creating an economic threat called “the fiscal cliff” by Ben S. Bernanke, chairman of the Federal Reserve.

Until recently, the loudest warnings about the economy have come from policy makers and economists, along with military industry executives who rely heavily on the Pentagon’s largess and who would be hurt by the government reductions.

But more diversified companies like Hubbell Inc. in Shelton, Conn., have begun to hunker down as well.

Hubbell, a maker of electrical products, has canceled several million dollars’ worth of equipment orders and delayed long-planned factory upgrades in the last few months, said Timothy H. Powers, the company’s chief executive. It has also held off hiring workers for about 100 positions that would otherwise have been filled, he said.

“The fiscal cliff is the primary driver of uncertainty, and a person in my position is going to make a decision to postpone hiring and investments,” Mr. Powers said. “We can see it in our order patterns, and customers are delaying. We don’t have to get to the edge of the cliff before the damage is done.”

The worries come amid broader fears that the economy is losing momentum — the annual rate of economic growth in the second quarter fell to 1.5 percent from 2 percent in the first quarter, and 4.1 percent in the last quarter of 2011.

On Thursday, the Commerce Department reported that factory orders unexpectedly fell 0.5 percent in June from the previous month, while data on the labor market released Friday showed job creation still falling short of the level needed to bring down the unemployment rate.

All told, the political gridlock in the United States, along with the continuing debt crisis in Europe, will shave about half a percentage point off growth in the second half of the year, estimates Vincent Reinhart, chief United States economist at Morgan Stanley.

More than 40 percent of companies surveyed by Morgan Stanley in July cited the fiscal cliff as a major reason for their spending restraint, Mr. Reinhart said. He expects that portion to rise when the poll is repeated this month.

“Economists generally overstate the effects of uncertainty on spending, but in this case it does seem to be significant,” he added. “It’s at the macro- and microeconomic levels.”

Unless Congress acts to extend the tax provisions and comes up with a budget deal that averts the planned reductions in military spending and other government programs, taxes will rise by $399 billion while federal government spending will fall by more than $100 billion, according to an analysis by the Congressional Budget Office. The end-of-year battle comes after Democrats and Republicans have failed over the last year to reach long-term agreements on how to tackle the budget deficit.


Last week, Congressional leaders did manage to agree tentatively to keep the government financed through next March, extending a deadline that had been set to expire Oct. 1, but that deal did not address the extension of the tax cuts or spending reductions.

All together, the fiscal cliff’s total impact equals slightly more than $600 billion, or 4 percent of gross domestic product, and if no action is taken, the Congressional Budget Office projects the economy will shrink by 1.3 percent in the first half of 2013 as a result.

With many Fortune 500 companies now setting budgets and planning for 2013, chief executives say they cannot afford to hope for the best. Wall Street is also paying more attention: over the last few weeks, chief executives of companies like Honeywell, U.P.S. and Eaton all cited the uncertainty as a threat to earnings in the second half of 2012.

“We’re in economic purgatory,” said Alexander M. Cutler, the chief executive of Eaton, a big Ohio maker of industrial equipment like drive trains and electrical and hydraulic systems. “In the nondefense, nongovernment sectors, that’s where the caution is creeping in. We’re seeing it when we talk to dealers, distributors and users.”

As a consequence, Mr. Cutler lowered Eaton’s projected results for 2012 in late July, adding that he sees particular weakness in the heavy-duty truck market. “I don’t think there’s any question the economy is starting to see an impact from the fiscal cliff,” Mr. Cutler said. He noted that as companies retreat, the effect is multiplied by the impact it has on other sectors, like restaurants and hotels.

Siemens, the German industrial giant, remains optimistic over the long haul about the American market, but has turned more cautious in the short-term, said the company’s chief financial officer, Joe Kaeser. Siemens has slowed the filling of openings among its 60,000 member work force in the United States, while delaying some new investments and capital expenditures. “We would expect volatility till after the election and the fiscal cliff is sorted out,” he said.

In Washington, powerful business lobbies like the National Association of Manufacturers, the Business Roundtable, and more specialized groups like the National Electrical Manufacturers Association have grown more vocal about their frustration with the inaction of Congress, and the possible dangers ahead.

“It’s totally irresponsible and absolutely insane,” said Evan R. Gaddis, the president of the electrical manufacturers’ group. “The two parties are really dug in. Companies see the writing on the wall and business decisions are now being made on this.”

Business leaders say the latest fight feels different. Last summer, during a confrontation over raising the debt limit that risked a government shutdown, Mr. Powers of Hubbell did not alter course at his company, as he is doing now. “We never expected the government to shut down,” he said. “This bluff carries much more weight.”

Many in Washington predict a solution that keeps most of the tax cuts in place and avoids the worst of the budget cuts in the short-term will emerge after the November election, but John Selldorff is not taking chances. As the chief executive of the American subsidiary of Legrand, a global manufacturer of power devices based in France, Mr. Selldorff says that for the rest of the year, his company plans to “hold off on doing things that we might otherwise do if the environment were more stable.”

“We’d love to hire more people, but we’re saying no,” he said.

Smaller companies that serve both military and civilian customers are also taking steps. Ace Clearwater, an aerospace firm in Torrance, Calif., began the year projecting a 7 percent rise in revenue, but now expects sales to be flat at best, down 10 percent at worst, said Kellie Johnson, the company’s owner.


As a result, Ms. Johnson said the company had decided not to fill eight open positions among its 200 member work force, canceled a half-million-dollar machine order, and opted to buy a used forklift instead of a new one, saving more than $100,000.

“Everyone is sitting back and hunkering down,” she said.


Decision on 2013 base closings to be delayed

Dayton Daily News

Posted: 5:39 p.m. Monday, Aug. 6, 2012

By John Nolan

Staff Writer


The Obama administration, after initially asking Congress for permission to consider whether to close military installations as part of defense spending cuts in upcoming years, now says it isn’t recommending any base closings in 2013.

Congress hasn’t granted authority for any new rounds of the base realignment and closure (BRAC) process. And President Obama is making it clear that he thinks this isn’t the time to be closing bases, as the U.S. economy struggles to recover and unemployment remains a prominent problem.

On Jan. 26, Defense Secretary Leon Panetta previewed the president’s 2013 defense budget proposal that was released the following month by saying: “The president will request the Congress to authorize use of the base realignment and closure process — so-called BRAC process — with the goal of identifying additional savings and implementing them as soon as possible.”

Asked by a reporter at the Pentagon whether that could mean a new round of base closures, Panetta replied: “It’s a fundamental problem we have to confront. As we draw down the force, we’ve got to take a look at the infrastructure that’s supporting the remaining force. And the reality is that we are going to have to be able to reduce that infrastructure.”

Panetta said the budget envisions gradually reducing the Army, to active-duty totals of 490,000 from the present 562,000, and the Marine Corps to 182,000, down from the current 202,000.

Last month, in an interview with Portsmouth, Va., television station WAVY, which covers the Norfolk area and its Navy base, Obama was asked if he would support another round of BRAC base closures.

“I don’t think now is the time for BRAC,” Obama said. “We just went through some base closings, and the strategy that we have does not call for that.”

The nation just completed its 2005 BRAC process in 2011. That brought new programs and a net gain of about 1,200 jobs to Wright-Patterson Air Force Base, while bases in other parts of the country were either closed or saw some of their programs relocated elsewhere. The Ohio Air National Guard base at Springfield lost its mission flying F-16 fighter aircraft, but was awarded a mission for remote piloting of MQ-1 Predator drones.

“Although we asked Congress for the authority to do another BRAC round in 2013 (also 2015), it is clear now that Congress is not going to give us that authority this year,” Lt. Col. Melinda Morgan, a Defense Department spokeswoman, wrote in an email response to questions from the Dayton Daily News. “Neither the House nor Senate voiced support for a 2013 BRAC round.


“We knew it would be difficult,” Morgan wrote. “That is part of the reason we did not build BRAC savings (or costs) into our budget prediction. It would not have been prudent to plan for BRAC in the near term.”

Obama has not called for any base closings in 2013, said a White House press office spokeswoman, who agreed to speak only on the condition she not be identified.

The White House and Congress have committed to cut defense spending by $487 billion during the next 10 years. There could also be $500 billion in additional defense spending reductions, beginning in January 2013, unless Congress and the Obama administration agree before then on a plan to avoid automatic spending cuts to reduce the federal budget deficit.

The Pentagon has said the additional cuts would be devastating to defense preparedness.

Mitt Romney, the presumed Republican presidential nominee, has made no mention of base closings in his blueprint for defense spending. According to his campaign’s website, Romney’s defense plan includes modernizing the the aging inventories of the Army, Air Force and Marines and increasing the rate of Navy shipbuilding. He said he would save money by reducing the Defense Department’s administrative bureaucracy, promoting greater competition in military procurement and imposing more discipline in the design and deployment of new weapons.

Although no military program can be considered untouchable as Washington identifies budget areas to cut, Wright-Patterson is regarded as a key installation. During a visit to the Dayton area in July, Gen. Norton A. Schwartz, the Air Force chief of staff, described the base as a “vitally important institution in our Air Force.”

Still, Schwartz cautioned that he could not predict how budget cuts might affect Wright-Patterson, Ohio’s largest single-site employer with about 27,000 employees and a $5 billion annual economic impact on the Dayton region.

In September 2011, Wright-Patterson finished absorbing aerospace medicine and additional sensors research missions under changes ordered by the nation’s 2005 BRAC process. The reorganization was designed to consolidate expertise and create “centers of excellence” at bases including Wright-Patterson, which is the hub of Air Force acquisition, logistics, research and development, and post-graduate defense education programs.



Retirement claims processing picks up speed in July


Aug. 6, 2012 – 03:16PM |



The Office of Personnel Management processed 12,304 new retirement claims in July — the second-highest monthly number this year.

That brings the overall backlog of unprocessed retirement claims — a longstanding problem that has plagued OPM for decades — to 44,679 cases last month, a decrease from 61,108 in January.

The 37 percent increase over 8,964 cases processed in June could be a sign that OPM’s reforms to speed processing are starting to work.

Since January, OPM has hired 56 new legal administrative specialists to process more claims. The office said in January that by July, when the new employees’ training was completed, the added specialists would be able to process an additional 3,000 claims per month.

That appears to have happened. OPM processed, on average, about 9,500 cases per month for the first six months of the year. July’s tally of 12,304 cases processed is about 2,800 cases more than that monthly average.

It remains to be seen whether OPM can maintain that level of productivity. The agency’s most productive month this year was March, when it processed 12,386 cases.

Ken Zawodny, OPM’s associate director of retirement services, told Federal Times in April the increase was due to process improvements, such as making sure case files are complete when legal administrative specialists start to calculate pensions.

Berry and other OPM officials have, in the past, said that incomplete case files are one of the biggest problems hampering pension processing, since adjudicators often had to stop working to hunt down missing documents.

But in April, OPM’s claims processing dropped to 8,028 — its lowest point of the year. Zawodny said that processing declined in April because several experienced claims processers helped train newly hired processers that month.

OPM received 8,660 retirement claims last month — slightly more than the 8,400 it expected.

OPM has struggled for decades to process federal retirees’ pension claims quickly and accurately. As a result, tens of thousands of new retirees wait months — or in some cases, more than a year — to receive their complete annuities, and in the meantime, they struggle to get by on reduced interim pensions.

In the past, some retirees have received less than half of what they are owed. But OPM says interim pensions now average 80 percent of what retirees are eventually owed.

OPM also issued guidance to agencies this month with tips on how to submit “healthy” retirement application packages — that is, packages that are not missing key documents.

Agencies most frequently fail to include proof that an employee had at least five years of Federal Employees Health Benefits Plan coverage prior to retirement, OPM said. Such proof is needed to continue an employee’s health coverage in retirement.



Obama signs bill requiring White House to detail fiscal cliff

The Hill

By Erik Wasson 08/07/12 03:51 PM ET

President Obama on Tuesday signed a law requiring the White House budget office to reveal exactly how automatic budget cuts looming in January 2013 will be carried out.
The Sequestration Transparency Act was passed by the House in July by a 414-2 vote. The Senate approved it unanimously later in the month.
Under last August’s debt-ceiling deal, $109 billion in automatic spending cuts are to hit in January to punish politicians for failing to come up with a bipartisan deficit-reduction plan last year as part of the supercommittee process.
The administration must issue its report to Congress in 30 days. The report will come close to the election and could focus the debate on the ballooning deficit and looming cuts to defense — two themes that Mitt Romney has been emphasizing in his campaign against Obama.

In total, sequestration will require $1 trillion in cuts over 10 years to reduce the deficit. Roughly half of those cuts would be made to defense spending.

Last week, Republicans began to pound Obama for not signing the transparency law, which was sponsored by House GOP conference head Rep. Jeb Hensarling (Texas), who had served on the supercommittee.

Hensarling urged the president to work quickly to avoid the cuts to defense.

“The American people deserve to know how their commander in chief intends to implement half a trillion dollars in cuts to our national security, which his own secretary of Defense compared to ‘shooting ourselves in the head,’ ” he said.

Sens. Jeff Sessions (R-Ala.) and John Thune (R-S.D.) had introduced a version of the bill in the Senate.
“Although OMB [the White House Office of Management and Budget] resisted our attempts to get this information, I’m glad the administration has realized its obligation to lay out for Congress and the American people just how the sequester would be implemented,” said Sessions, the Budget Committee ranking member.

House Budget Committee Chairman Paul Ryan (R-Wis.) said the report will be needed to understand the effects on national defense and other “key domestic priorities.”
“Allowing the sequester to occur would be a failure of leadership and a failure to govern. We must work together to replace these arbitrary cuts,” he said.
Ryan noted that the House in May passed a bill to more than replace the 2013 cuts with reductions to mandatory spending.
“I urge the Senate and President Obama to follow our lead in providing an alternative to replace the harmful effects of sequestration,” Ryan said.
Obama has rejected the House solution, which slashed spending on entitlements such as food stamps, and called for a “balanced” package that includes tax increases through the ending of tax breaks, including those provided for oil companies.

Former supercommittee co-chairwoman Sen. Patty Murray (D-Wash.) had also pushed for a version of the bill, arguing that the looming cuts to social programs have not gotten the attention they deserve.
“This new law will make sure that every member of Congress and the public understands the impact of sequestration, as well as the need to replace both the defense and non-defense cuts in a balanced and bipartisan way,” she said Tuesday.

The spending sequester is part of a series of fiscal changes set for early next year that has come to be called the “fiscal cliff,” since the combination of tax increases and spending cuts, if allowed to occur, would tip the economy into recession, according to the Congressional Budget Office.

Updated at 4:26 p.m.



Obama signs Sequestration Transparency Act

By Amber Corrin

Aug 07, 2012

President Barack Obama on Aug. 7 signed the Sequestration Transparency Act, a law that will require his office to provide details within 30 days on how sequestration, if enacted in January, will be implemented.

More specifically, the new law requires the Office of Management and Budget to explain exactly what could be cut should Congress fail to prevent the sweeping budget cuts. Sequestration is set to be triggered due to a congressional “supercommittee” that could not reach agreement on what could have been more targeted budget cuts. It was written into last year’s Budget Control Act as the next step should the supercommittee fail. It would slash federal spending by $1.2 trillion over the next 10 years.


“There is no amount of planning or reporting that will turn the sequester into anything other than the devastating cut in defense and domestic investments that it was meant to be. The sequester was passed by both Republicans and Democrats not as a policy we want to see enacted, but as a forcing mechanism to get Congress to act in a serious, balanced way on deficit reduction,” White House Spokesman Jay Carney said in a July 26 press briefing.

Beyond detailing areas of spending reductions, the transparency legislation asks for a list of functions exempt from the cuts as well as “any other data and explanations that enhance public understanding of the sequester and actions to be taken under it,” according to language in the bill.

Additionally, the legislation directs heads of federal agencies to consult with congressional appropriations committees and provide OMB with information “at the program, project and activity level.”

“The American people deserve to know how their commander-in-chief intends to implement half a trillion dollars in cuts to our national security which his own Secretary of Defense compared to ‘shooting ourselves in the head,'” House Republican Conference Chairman Jeb Hensarling (R-Texas), who sponsored the bill, said in a released statement. “While House Republicans remain committed to achieving the full spending reduction required by the Budget Control Act, we believe that we cannot solve our national debt crisis by deliberately permitting a national defense crisis, which is why we have a plan to replace those arbitrary cuts with other spending cuts and reforms. With the sunlight provided by this new law, I look forward to working with my colleagues in Congress to replace these damaging defense cuts and expect the president to work with us.”

Democrats have called on Republicans to increase taxes on the wealthy in order to help prevent the drastic cuts, which would have deep impact across government.

“Congress must act to avoid these devastating cuts & ask wealthiest to pay fair share,” White House deputy press secretary Amy Brundage tweeted in announcing the president’s signature.

Brundage’s comments echo those of OMB Director Jeffrey Zients, who testified in an Aug. 1 House Armed Services Committee hearing on sequestration that devolved into riotous partisan bickering.

“What is holding us up now is the Republican refusal to have the wealthiest 2 percent pay their fair share,” Zients said.



Ohio forms UAV test center, partners with Indiana

Dayton Business Journal

Date: Thursday, August 9, 2012, 6:25am EDT


Ohio is launching a new UAV and UAS testing center and is searching sites in the Dayton region for the center’s offices.

To be called the Ohio Unmanned Aircraft Systems Center and Test Complex, the state is funding the center with $1.5 million, but hopes it will eventually become self-sufficient with testing fees paid by companies that would use the center, according to the state.

The Dayton Development Coalition is charged by the state with leading planning for the UAS Center.

Also, Ohio Gov. John Kasich and Indiana Gov. Mitch Daniels have agreed to jointly seek designation by the FAA as one of six test range sites under a five-year program created by Congress to accelerate the safe integration of unmanned aircraft systems in the National Airspace System.

The UAV/UAS industry is considered to have a big potential for the state and Dayton region from an economic development standpoint. According to a recent study by the Teal Group, annual worldwide spending on remotely piloted aerial systems will almost double over the next decade from $6.6 billion to $11.4 billion, totaling $90 billion in the next 10 years.

The region already has benefited from the prospect of UAV growth in the region. SAIC recently unveiled plans to add more than 200 jobs in the Dayton region, in large part because of the Air Force’s focus on UAV research and development in the area.



Analysts See Unmanned Aircraft Market Growing

Defense News

Aug. 8, 2012 – 06:11AM |



LAS VEGAS – The global unmanned aircraft market will continue to grow in the coming decade as many nations increase spending on these types of systems, according to analysts.

These projections come despite fewer near-term U.S. military purchases as the Pentagon prepares cuts to planned spending.

Derrick Maple, an analyst with HIS, projects about $81.3 billion being spent globally on unmanned aircraft procurement, services, and research and development over the next 10 years.

“We are very much still at the early stages of the life cycle of this market,” Maple said during an Aug. 7 presentation at the Association for Unmanned Vehicle Systems International’s annual North America Unmanned Systems conference.

“The global market over the next 10 years will grow despite budget constraints, and it is a major developing marketplace,” he said.

The U.S. military is cutting $487 billion from planned spending over the next decade as mandated by the Budget Control Act of 2011.

The Pentagon’s 2012 budget showed about $41.7 billion eyed for unmanned aircraft over a five-year period. That number fell to $28.3 billion in DoD’s 2013 budget proposal, with the cancellation of Air Force and Navy unmanned programs partially accounting for the decline, according to Ron Stearns, an analyst with G2 Solutions.

The current global unmanned aircraft market is about $11 billion, with the U.S. share totaling about $4.5 billion, according to analysts.


“We’re predicting the market to drop back in the U.S. over the next five years and then a resurgence as new programs come on stream,” Maple said.

During the last five years, the U.S. unmanned aircraft market has experienced double-digit growth, and U.S. users account for two-thirds of the market, according to Maple.

“This growth rate is not sustainable, especially under the current drawdown situation in Iraq and Afghanistan,” he said.

Although defense spending in the United States and most of Western Europe will likely decline, unmanned aircraft emerging markets include Russia, China, India and South Korea, Maple said.

“There is a growing indigenous capability out there,” he said.

Tension in the Middle East has served as a catalyst for the unmanned aircraft market, and numerous countries are looking to expand their capabilities, according to Maple.

In South America, Brazil has “emerged as a potential future major player,” and the Brazilian air force is working to establish an independent unmanned aircraft capability, he said.

The next-generation unmanned aircraft programs will favor larger companies, according to Philip Finnegan, an analyst with the Virginia-based Teal Group.

“If you think about the requirement for these systems – some form a stealth, greater autonomy, more power – those all favor larger players like Boeing, Lockheed Martin, Northrop Grumman and General Atomics,” he said. “Smaller companies without production programs are going to face serious pressure in this environment as funding dries up for some of the emergency, urgent requirements that we’ve seen fund those companies in the past.”

The U.S. Air Force’s Long Range Strike Bomber (LRS-B) – which is being designed to fly with or without a pilot — could end up being a $100 billion program through 2030, Stearns said.

The Pentagon has set a price target of $500 million per copy, and the Air Force wants to buy at least 80 new bomber aircraft.

Defense companies are also looking at diversifying their unmanned aircraft portfolios to enter the commercial market, according to Mike Blades, an analyst with Frost and Sullivan.

“Defense companies, while not totally integrated into this market yet, are looking at it,” he said.



Ohio UAV center could bolster jobs, industry

Dayton Daily News

Updated: 9:22 a.m. Thursday, Aug. 9, 2012 | Posted: 5:27 p.m. Wednesday, Aug. 8, 2012

Bottom of Form

By John Nolan

Staff Writer

Ohio is establishing a complex for unmanned aerial vehicles to bolster the state’s UAV industry and try to capture a share of the growing, multibillion-dollar worldwide appetite for the craft, state officials said Wednesday.

State officials are looking at sites in the Dayton area to house the center’s offices, which is intended to be a one-stop-shop for government, industry and universities seeking to participate in the effort to demonstrate that UAVs can be safely flown in manned airspace.

A critical piece of this effort is ongoing research to develop reliable “sense and avoid” systems that would enable a remotely piloted aircraft to automatically swerve to miss an oncoming manned plane even before the ground-based UAV pilot would become aware of the hazard.

Ohio will pay the estimated $1.5 million startup cost for the center. State officials hope it will eventually become self-supporting through fees that users would pay.

Ohio also announced it is partnering with Indiana to strengthen the two states’ efforts to win Federal Aviation Administration approval for one of six test sites to be created nationally in order to accelerate the integration of remotely piloted aircraft into airspace now reserved for manned airplanes. Ohio officials made the announcement at a Las Vegas convention of the Association for Unmanned Vehicle Systems International, a UAV industry trade organization.

Ohio Gov. John Kasich and Indiana Gov. Mitch Daniels agreed to jointly seek approval for one of the FAA sites, under a five-year test program Congress enacted legislation to create. The FAA has told Congress that, in December, the agency intends to announce its choice of the six test-flying ranges. The sites are expected to provide an economic-development jolt to the host regions as UAV-specialty companies seek to move there to take advantage of the opportunity.

Leaders of Dayton’s UAV and sensor development community haven’t forecast how many jobs the region might realize if it becomes a nationally recognized center of UAV testing, research, training and flying.

But the Teal Group Corp., an aerospace industry analyst, has projected global spending on unmanned aircraft systems (UAVs and their sensor systems) at $90 billion during the next 10 years. Beyond the current military uses, unmanned aircraft are projected to have widespread civilian uses including agriculture, law enforcement, border patrol, disaster response and utility industry transmission line monitoring.

“The size of this opportunity is just unparalleled,” said James A. Leftwich, special adviser to Kasich for UAS initiatives. “It is the emerging aerospace opportunity.”

The region, birthplace of aviation, already is home to UAV manufacturing, research and development; advanced materials manufacturing, sensors research and Wright-Patterson Air Force Base, which manages and supports Air Force UAV programs and sensors research and development. In 2009, former Gov. Ted Strickland designated Dayton as Ohio’s hub of aerospace innovation, entitling the area to receive state funding support to build its expertise and job-creating potential.

“Ohio is well-positioned to compete for the industry given the strength of its aeronautics industry, with an emphasis on research and training, as well as its existing infrastructure of airspace and facilities,” Kasich’s office said Wednesday in a prepared statement.

Last year, defense contractor Science Applications International Corp. (SAIC) moved 215 jobs to the Dayton-Springfield area to seek UAV business in support of Wright-Patterson Air Force Base. Nine months later, the Dayton Development Coalition — which Leftwich formerly headed as president and chief executive officer — hired SAIC under a $1.35 million, 18-month contract to help the coalition and Ohio improve the state’s prospects for becoming a nationally recognized center of unmanned aircraft expertise. The coalition, a nonprofit, promotes economic development in the 14-county Dayton region.

Ohio would begin the UAV test-flying in the Buckeye-Brush Creek military operating area, east of Cincinnati and south of Columbus. That airspace was once restricted for use by Wright-Patterson Air Force Base’s 4950th Test Wing, disbanded in 1994. In recent years, Springfield’s Ohio Air National Guard base has used that airspace for practice flights of F-16 fighter aircraft.

Other areas of Ohio could be added as the demand for UAV flying time increased, Leftwich said.

Indiana now allows UAV flying at Camp Atterbury, an Indiana Air National Guard base near Columbus, Ind. That has been the closest UAV flying area for operators of unmanned aircraft in recent years. But, more recently, Sinclair Community College has received FAA approval for restricted flying of a small UAV at the Springfield Air National Guard base. The Air Force Research Laboratory has obtained similar FAA approval for UAV developmental flying at Wilmington Air Park, the former DHL air express delivery hub near Wilmington.


HR execs brace for downsizing


Aug. 8, 2012 – 06:00PM |


The government’s top human resources officials expect their agencies’ workforces to decline due to budget cuts, according to a new survey the Partnership for Public Service will release Thursday.

Seventy-two percent of 55 senior federal HR executives surveyed a predict their agencies will see staffing cuts — especially at larger agencies — and many fear their agencies are doing little to prepare for them.

About 36 percent of those surveyed said their agencies are ill-prepared to fill critical positions as they become vacated. Another 36 percent feel their agencies’ succession plans show moderate success, according to the report, “Bracing for Change.”

Partnership CEO Max Stier said agencies must plan more to avoid reckless staffing cuts that could gut crucial skills.

“This is a period of substantial change in the government,” Stier said. “If you do it right, you can minimize the downside. But if you don’t, you could do real harm to the American public, and what they receive from the government. What do you prioritize with a diminished resource base?”

But the broken budget process is making the problem worse, the report said. Congress rarely passes annual budgets on time, and instead passes a series of continuing resolutions well into the fiscal year before the actual budget is passed. This means managers often don’t know if they can hire new staff for certain areas, which makes “effective planning close to impossible,” the report said.

“It’s not just that there’s less,” Stier said. “It’s that they don’t know what they will have.”

Although budgets and workforces are both expected to decline in the near future, the Partnership doesn’t expect this to spark a new wave of outsourcing. Stier said this is because most jobs that can easily yield savings through outsourcing have already been outsourced. Instead, the report said that agencies must be more creative and work on improving their current staffs’ capabilities to allow them to do more.

“HR feels there’s not much low-hanging fruit left there” in terms of outsourcing possibilities, Stier said.

Other findings:

• An “alarming” decline in the confidence of chief human capital officers (CHCOs) in agency managers’ leadership skills. In 2008, the Partnership found that 44 percent of surveyed CHCOs thought their agencies’ non-HR managers and supervisors had the skills needed to be successful. By 2010, that number had dropped to 32 percent, and this year, it plunged to 18 percent. The percentage of CHCOs who thought other supervisors had limited or no leadership skills at all increased from 18 percent in 2008 to 33 percent this year.

• A clear consensus that the six-decade-old General Schedule system is outdated and should be replaced with a series of broad pay bands. HR officials agreed that the government’s performance management system should be strengthened, since managers are not as involved in evaluating employees as they should be, and because it remains difficult to reward high performers and discipline poor performers. But there was no consensus on exactly what a new civil service system should look like. And some feared if the government handled the process poorly, it could end up with something worse than the GS system.

• Twenty-six percent of CHCOs said they don’t have the resources to do their jobs effectively, up six percentage points from the last survey in 2010.



Obama may act to stop infrastructure cyberattacks

Miami Herald

Posted on Wed, Aug. 08, 2012


Associated Press


The Obama administration is weighing plans to use its executive power to press U.S. businesses to better protect critical industries from potentially crippling computer attacks, after Congress failed to pass such legislation last week.

President Barack Obama may use his authority to issue orders compelling or encouraging private industry to meet minimum security standards to protect their computer networks from attacks by hackers or foreign governments, White House counterterrorism adviser John Brennan said Wednesday.

“One of the things that we have to do in the executive branch is to see what we can do to maybe put additional … guidelines or policy in place under executive branch authorities,” Brennan told the Council on Foreign Relations. “If the Congress is not going to act on something like this, then the president is going to do everything possible.”

His comments reflect escalating U.S. worries about the persistent computer network probes, attacks and industrial espionage that already have stolen billions of dollars in high-tech data from U.S. companies and could eventually shut down critical water or power plants.

A fierce lobbying effort by businesses and the U.S. Chamber of Commerce stalled legislation in the Senate, even after authors revised the bill so that it called for voluntary participation by companies, rather than creating new regulations and mandates.

Brennan said the White House was looking at possible additional guidelines or changes in policy, but he did not indicate whether such measures would require industry participation or use incentives to encourage voluntary action.

“We’re going to keep pushing on the Congress, but we’re also going to do what we can under executive branch authorities,” he said.

The Senate cyberattack legislation initially had given the federal government new authority to require businesses to protect their networks, but there was widespread opposition to the idea of expanding federal regulatory powers during tough economic times.

The revised bill offered incentives, such as liability protection and technical assistance, to businesses that voluntarily participated in a government-managed computer security program. Industry associations and groups would be involved in developing the standards needed to blunt the risks of computer attacks, according to the revised legislation.

Industry groups, however, said voluntary standards would lead to mandates. The U.S. Chamber of Commerce and other congressional Republicans support a competing bill drafted by Sen. John McCain, R-Ariz., that is similar to legislation passed by the House in late April. Those bills are focused only on the sharing of threat information between the federal government and private sector. The White House threatened to veto the House bill, however, over concerns the bill didn’t do enough to protect privacy rights.

“I think the administration is seriously frustrated over the lack of congressional action and may decide they have no choice” but to act administratively, said Roger Cressey, who served as a cybersecurity and counterterrorism adviser in the Clinton and George W. Bush administrations.

Cressey, now a senior vice president at the Booz Allen Hamilton consulting firm, said the administration was weighing a number of options, including offering incentives, such as liability protection, to entice industry to opt-in to voluntary computer security standards. He said there likely would be more conversations about the issue after Congress returns in September before the White House takes any action.

Senate leaders have said they will take another stab at passing the computer security bill in September. But at least one of the bill’s authors, Sen. Susan Collins, R-Maine, voiced concern about the impact of White House action.

“Given the threat, I understand the administration’s desire to act, but an executive order should not be a substitute for legislative action,” Collins said. “I am deeply disappointed that the Senate failed to pass our bipartisan bill before the August recess, but it remains imperative that this Congress address this issue. An executive order could send the unintended signal that congressional action is not urgently needed.”

Sen. Joe Lieberman, I-Conn., who also is one of the authors, noted that there were some provisions that could only be done by statute. But, he added, “If Congress cannot get its act together to protect our nation from the real, urgent and growing threat of cyberattack, then the president must do everything he can by executive order.”

It’s not clear whether the threat of executive action could trigger greater support for the bill or whether it merely would coalesce opposition.

Top military, intelligence and national security officials have ramped up their warnings to Congress and the American public about the dire cyber threats the U.S. is facing, and the fact that it will only get worse.

Defense Secretary Leon Panetta has described the threat as the next Pearl Harbor. And intelligence officials issued a landmark report late last year charging China and Russia with methodically stealing high-tech data from U.S. companies in order to boost their own economies.

The next step, according to experts, is hackers, criminals, terrorists or enemy nations taking down critical U.S. industries with computer viruses. More than 80 percent of the country’s critical infrastructure, which includes financial networks, transportation systems and chemical plants, are owned and operated by the private sector.

And experts contend that while some industries, particularly the financial sector, have taken steps to protect their networks, others have not done enough.

“I think we are stuck in a ‘Groundhog Day’ movie where we’re having the same conversation and nothing is changing,” Cressey said. “At the end of the day, the American people should be asking themselves if critical infrastructure is not secure enough, what action should be taken to make it more secure? And whether or not it’s an executive order or legislation, something needs to be done.”

Read more here:


Cybersecurity firm finds new virus that can spy on financial transactions

The Hill

By Sterling C. Beard 08/09/12 04:57 PM ET

Russian cybersecurity firm Kaspersky Lab has announced the discovery of a new virus that is capable of spying on financial transactions, according to its website.

The virus, named Gauss after the key internal module, is capable of stealing passwords and login data, as well as communicating system configurations. It can even steal credentials to gain access to banking systems in the Middle East.

One of the viruses modules, named Godel, appears to possess the capability of attacking industrial control systems, Reuters reported. Kaspersky’s researchers believe the modules are named in homage to famous mathematicians and philosophers, including Kurt Godel and Johann Carl Friedrich Gauss.

Kaspersky said on the company’s website that the virus is related to several others that have cropped up in the Middle East: Stuxnet, Flame and Duqu, all of which are cyberweapons. Stuxnet was originally designed to attack Iran’s nuclear program.

According to Kaspersky, Gauss began operation roughly in September of 2011 and was first detected in June. The estimated number of computers infected with the virus is probably in the tens of thousands, which is lower than the number of computers infected by Stuxnet, but significantly higher than the number of computers infected by Flame and Duqu. The highest number of infections appear to be in Lebanon.

The virus’s command and control servers were shut down quickly after the virus’s discovery.



Pentagon proposes more robust role for its cyber-specialists

Washington Post

By Ellen Nakashima, Published: August 9

The Pentagon has proposed that military cyber-specialists be given permission to take action outside its computer networks to defend critical U.S. computer systems — a move that officials say would set a significant precedent.


The proposal is part of a pending revision of the military’s standing rules of engagement. The secretary of defense has not decided whether to approve the proposal, but officials said adopting the new rules would be within his authority.

“Without a doubt it would be a very big and significant step forward,” said a senior defense official, speaking on the condition of anonymity to discuss a sensitive topic. “It would account for changes in technology that will give more flexibility in defending the nation from cyberattack.”

Currently, the military is permitted to take defensive actions or to block malicious software — such as code that can sabotage another computer — only inside or at the boundaries of its own networks. But advances in technology and mounting concern about the potential for a cyberattack to damage power stations, water-treatment plants and other critical systems have prompted senior officials to seek a more robust role for the department’s Cyber Command.

The proposed rules would open the door for U.S. defense officials to act outside the confines of military-related computer networks to try to combat cyberattacks on private computers, including those in foreign countries.

In establishing the new regulations, officials have sought to overcome concerns that action in another country’s networks could violate international law, upset allies or result in unintended consequences, such as the disruption of civilian networks.

The Pentagon, in consultation with the White House and other agencies, has developed strict conditions governing when military cyber-specialists could take action outside U.S. networks. Some officials said these conditions are so stringent that the new capability to go outside military boundaries might never be used.

Pentagon and other officials say such military action is meant to be taken only in extreme emergencies and with great care.

The proposed revision to Cyber Command’s standing rules is significantly narrower than what the military originally sought, officials said. But, one senior Pentagon official said, “we want to have something approved that starts the dialogue that allows us to start seeking more.”

Generally, the new rules would allow the two-year-old Cyber Command to take defensive action in a foreign country or in the United States if reliable intelligence indicates that a threat is imminent and could have certain consequences, such as deaths, severe injury or damage to national security, said several current and former officials.

“We’re not talking about shooting back, not talking about tit-for-tat,” said the Pentagon official, who like many interviewed for this article spoke on the condition of anonymity and would not discuss operational details. “We’re talking about stopping the bleeding, lest something really bad happens to the country.”

The standing rules of engagement, or SROE, were last revised in 2005. They are intended to give military commanders guidance on what they can do when they find their troops or systems under attack and they need to act quickly without having to consult the president or defense secretary.

While the rules for air, sea and land operations are fairly straightforward, the rules for cyberspace have posed great challenges for policymakers. For one thing, cyberattacks can take place in milliseconds. The assailant may be unknown. The attack route may be hard to trace, crossing multiple countries.

“The legal and policy entanglement in cyber is far, far more difficult than it is in some of the other domains” of warfare, William J. Lynn III, a former deputy defense secretary, said at a global security conference this year.


The SROE discussion is part of a larger interagency policy debate over the role of government in fighting attacks on the nation’s privately owned critical computer systems.

Ideally, current and former officials say, the Pentagon would like Cyber Command to be able to undertake a range of activities, from blocking or redirecting viruses to disabling a computer server in another country to prevent destructive malware from being launched.

But something as aggressive as shutting down a server in another country is probably going to require presidential permission, Gen. Keith Alexander, the head of Cyber Command, has said.

Indeed, “going after something outside the network in defense of the nation, which may still be characterized as offensive, is definitely the hardest policy part,” a senior U.S. official said.

Even actions on networks in the United States would involve an integrated cyber operations center with personnel from all relevant agencies: the National Security Agency, Cyber Command, the Department of Homeland Security and the FBI. When a cyber threat is detected, whichever agency has the lead by law — FBI for criminal and counterintelligence cases, Cyber Command for foreign adversary and terrorist attacks — would take over, officials said.

DHS has the lead for working with critical industries. NSA and Cyber Command are able to lend their expertise to DHS and other agencies, officials said.

“We’re very careful about roles and responsibilities between Justice, DHS and DOD,” the U.S. official said. “Those are being carefully reviewed. But in every domain, ultimately DOD has the responsibility to defend the nation.”

A variety of blocking techniques can be used that are not destructive to networks, officials said. They include diverting malware into a “sinkhole,” effectively a cyber black hole, which is something Internet service providers do now to protect their own networks.

Alexander, who is also director of the NSA, has pushed publicly for new rules on rules of engagement. Officials “need standing rules of engagement and execute orders that allow the government to do defense that is reasonable and proportionate,” he said at a recent conference in Aspen.

Earlier efforts to establish the ability for the military to defend private critical networks failed in the face of opposition from the Justice Department, which did not want to set a legal precedent for military action in domestic networks, and the State Department, which feared the military might accidentally disrupt a server in a friendly country, undermining future cooperation.

Alexander said an enhanced ability for the Pentagon to take action to defend the nation rests in part on expanded cyberthreat data-sharing.

He said that in debating the rules, policymakers are “trying to do the job right.” But what concerns him is the discussion over whether “you can use this tool, but not that one, without understanding what that really means.”


US, Russia Create Bomber Exchange Program

Air Force Magazine


US, Russia Create Bomber Exchange Program: A delegation from Barksdale AFB, La., visited Engels Air Base in Saratov, Russia, establishing the foundation for a US-Russia long-range aviation bomber exchange program, announced Air Force Global Strike Command officials.


“We’re going to fly B-52s to Russia and they’re going to fly Tu-95 Bears to Barksdale,” said 2nd Bomb Wing Commander Col. Andrew Gebara, who led the Barksdale group, in an Aug. 8 release. He added, “It’s a tremendous opportunity for our two nations to learn from each other to improve aviation technology and skills in our respective air forces.”

During the July visit, the seven-member US delegation evaluated Engels airfield to see if it was suitable for B-52H operations. “One of the big takeaways from our trip is that while we fly different aircraft and are from opposite ends of the globe, our objective is the same,” said Lt. Col. Michael Thompson, 2nd BW director of staff, who was with the delegation. “We all want to have a safe and credible deterrent force.” (Barksdale report by A1C Samuel O’Brien)





Aug. 4, 2012 – 11:54 a.m.

Wiggle Room for Cuts?

By Frank Oliveri, CQ Staff


Republican lawmakers lined up last month at an event sponsored by three conservative think tanks to denounce how the coming budget sequester would gut the nation’s military. South Carolina Sen. Lindsey Graham called the mandated, across-the-board cuts “the most irresponsible approach to defense in modern times.” Californian Howard P. “Buck” McKeon, chairman of the House Armed Services Committee, said it is “shameful” to “hold the troops hostage” to the budget-cutting device. And several quoted Defense Secretary Leon E. Panetta as saying that allowing the sequester to take effect would be akin to “shooting ourselves in the head.”

Potential job losses at defense contractors are being estimated at more than 1 million. Predictions of a “hollow force” are being thrown around. Last week, Graham joined two other senators for a tour of military-rich Florida, North Carolina and Virginia, three presidential election battleground states, to deliver their full-throated anti-sequester message in person.

Behind the intensifying rhetoric is a growing fear on Capitol Hill that the automatic cuts, which had been designed to be so punishing that they would force a broader compromise on deficit reduction, might not be averted. This realization has prompted congressional aides on both sides of the aisle, outside budget experts and even a few lawmakers to take a closer look at exactly what the first year of the sequester would mean.

The somewhat surprising findings are that the automatic cuts need not, in fact, be as painful for the military as conventional wisdom would suggest. The worst-case scenarios being offered assume that the Pentagon, the White House Office of Management and Budget (OMB) and Congress would do absolutely nothing to manage the sequester before it takes effect Jan. 2. Although the defense cut for fiscal 2013 would total almost $54.7 billion, it turns out that a fair amount of flexibility might be employed to limit damage. Lawmakers and executive branch officials have a variety of tools that would allow them to wield the sequester as a scalpel, rather than an ax, to trim away fat from a military budget that finances far more programs than the Pentagon ever could hope to complete.


“I have no doubt that there is greater flexibility in sequestration than at first it would appear — more than people are claiming there is right now,” says Adam Smith of Washington, the ranking Democrat on the House Armed Services Committee.

Some steps, in fact, have already been quietly taken. Last week, the White House announced that military personnel accounts would be exempt from the sequester — an option allowed by the August 2011 debt limit law that set the automatic cuts in motion. As a practical matter, that eliminates the potential need to dismiss members of the armed forces but would apply the total amount of the scheduled cuts to a smaller portion of the Pentagon’s budget — taking a bigger slice from such line items as procurement accounts.

Moreover, the White House and Senate appropriators have taken pre-emptive steps involving a special financing mechanism for war-related expenses, known as Overseas Contingency Operations. The White House issued what many believe is an inflated request for OCO costs, and the top Senate Appropriator, Daniel K. Inouye of Hawaii, wants to boost it further. Because OCO spending isn’t subject to statutory caps on appropriations but would be subject to sequester, those moves would expand the pot of defense spending and make it easier for the Pentagon to absorb the automatic cuts.

Very few lawmakers say sequester is good policy. The across-the-board, account-by-account cuts scheduled for the coming year would prevent the sort of deliberate steps that budget experts would prefer when it comes to managing spending reductions.

Many, including Smith, voted against the debt limit law at least in part because of the heavy toll the sequester would take on defense spending. And others, among them Missouri Democratic Sen. Claire McCaskill, remain confident that Congress will find a way to stop the sequester from coming to pass.

“There will be a path,” says McCaskill, who serves on the Armed Services panel and faces a difficult re-election bid. “I don’t think sequester is going to happen. I think most people around here don’t want it to happen.”

But as the sequester date nears, partisan opposition to the sorts of compromises that might be needed to repeal or replace the sequester with alternative savings have only appeared to harden. Unless Republicans relax their opposition to raising revenue or Democrats abandon their insistence on tax increases, the sequester will stay on track. And some budget experts suggest that may not be the worst outcome.

Before the reality of the sequester settled upon Capitol Hill and Pentagon planners, defense spending was already being constrained. In addition to creating the sequester, which was triggered only after a special joint committee of Congress didn’t produce a plan to trim the deficit by $1.2 trillion over the next decade, the debt limit law had also set strict year-by-year defense appropriations caps through fiscal 2021.

In the aggregate, those caps already require that the Pentagon reduce its future spending plans by about $487 billion over the coming decade. The sequester will require additional savings of about $500 billion over that period.

How those sequester cuts are managed raises many questions. That’s why Congress voted overwhelmingly two weeks ago to demand a detailed report on the automatic cuts from the administration in the next month.

The administration’s decision to exempt military personnel was favored by many Pentagon officials. But others counseled against it. Exempting personnel costs will levy a heavier price on the rest of the budget, prompting some military leaders to object that they won’t be able to support their forces with the training and equipment required.

“We can’t yet say precisely how bad the damage would be, but it is clear that sequestration would risk hollowing out our force and reducing its military options available to the nation,” Panetta told Senate Defense appropriators on June 13.


Several experts say it is in the administration’s interest to make the sequester appear unacceptable in order to put pressure on lawmakers to find alternative savings and repeal it.

“It’s the Washington monument technique,” says Benjamin H. Friedman of the Cato Institute, a libertarian think tank. “You want to cut? Sure. We’ll close the Washington Monument. Yeah, it’s overwrought.”

Still, Friedman is among a phalanx of defense budget experts who say that the sequester, while undesirable, wouldn’t be the disaster it’s being portrayed to be.

Another is Gordon Adams, who handled the Pentagon budget at the OMB under President Bill Clinton. “The one thing that makes serious choice-making and management at the Pentagon possible is making the budget go down,” says Adams. “One thing that forces the department to become more efficient is to have less money. Sequester has the prospect of imposing discipline it would be hard to get any other way.”

It’s these experts who note that the administration and Congress have some alternatives, even absent repeal of the sequester, to limit the budgetary pain felt by the Pentagon. Some are used every year to mitigate, for example, the effects of program cost overruns, fluctuating fuel costs or outdated requirements.

Adams, who now works with the Stimson Center, a nonpartisan think tank in Washington, says that by including OCO war costs for fiscal 2013 in the sequester, OMB has expanded the pool of money that would be cut to well in excess of $600 billion.


Flexibility in War Spending

The war fund is thought by many experts to be inflated because it assumes that 68,000 troops will be operating in Afghanistan throughout fiscal 2013. President Obama has announced a strategy to draw down the number of U.S. troops to about 68,000 in Afghanistan by October. But many, including Smith, say that number is likely to come down before the end of fiscal 2013.

Additionally, while the House-passed fiscal 2013 Defense appropriations bill would provide $88.5 billion for OCO costs, Inouye has shifted an additional $5.9 billion into the OCO category from the base military spending accounts in the Senate Defense appropriations bill. Inouye views the war fund, which he set at $93.3 billion, as a tool to relieve pressure on the base defense budget. In fiscal 2012, he shifted billions of dollars of operations and maintenance costs into the war fund.

Florida Republican C.W. Bill Young, chairman of the House Defense Appropriations Subcommittee, also says the war fund offers opportunities to protect military accounts.

“The OCO number has been very flexible, and it has been used almost as a slush fund for a number of other projects. So there is probably some room in the OCO funds,” Young says.

Another way to create flexibility in applying sequester would depend on how the across-the-board cuts should be applied. OMB has determined that the cuts will be applied at the “program, projects and activities” level, which would assure that every program would take a hit of around 10 percent.

But appropriators might simply change the definition of program, projects and activities in report language to create greater flexibility, says a senior congressional aide with knowledge of the process. Should that occur, Adams adds, it could be applied to a higher aggregate, say to all Army track vehicles, for example. He says such a move would offer the Army more flexibility in applying the cuts.

“Congress’ hands are not tied at all,” says Todd Harrison, a defense budget expert with the Center for Strategic and Budgetary Assessments, an independent defense policy think tank in Washington. “Congress has total flexibility in how this plays out. This is up to Congress.”


The Pentagon also has some inherent operating flexibility in the nature of its budget makeup. About a third of the base defense budget and about two-thirds of the war funding is taken up by the operations and maintenance category, which covers everything from fuel costs to tires and other spare parts.

“O&M dollars are highly fungible,” says Adams.

Beyond those options, Congress routinely grants the Pentagon permission to redirect billions of dollars throughout the fiscal year in a process known as reprogramming, which enables officials to shift money within the base and war budgets.

It is expected that lawmakers will provide about $6.5 billion in reprogramming authority to the Pentagon for fiscal 2013, an amount that would represent about 12 percent of the total defense sequester.

The four defense committees must approve any reprogramming. But Smith says the defense panels would be very willing to work with the Pentagon to try to offset the effects of sequester by shifting money from troubled or lower-priority programs to protect those of greater importance.

“There is a fair amount of money sloshing around the Pentagon,” Smith says.

And if the sequester appears to be more likely later this year, lawmakers might have time to give the Pentagon even greater reprogramming authority, one senior congressional aide says.


Flexibility in the Law

The original Gramm-Rudman-Hollings law contains a section that also affords the president an opportunity to mitigate the effects of sequester by providing him with an option to reshape it.

The law includes a section that would enable the president to provide an alternative plan for meeting the requirements of sequester. Another provision would permit the president to realign military cuts being made by sequester, as long as the total amount of the reduction meets the mandate.

The Cato Institute’s Friedman says this would allow the Pentagon to make choices and set priorities. In this way, Panetta and his service chiefs could protect higher- priority programs from sequester. Both options would require congressional approval.

“I haven’t a clue as to why no one is talking about this,” Adams says. “It’s a mystery to me.” Adams points out it would not be difficult for the Defense Department to come up with such a plan. But most experts say defense isn’t really at the core of the sequester debate. Defense “is just the whipping boy,” Adams says.

In fact, Harrison of the Center for Strategic and Budgetary Assessments suggests that defense wouldn’t even be cut all that deeply, particularly in historical terms.

The spending caps in the debt limit law require the Defense Department to reduce only increases it had planned over 10 years — and that would come on top of an overall defense budget that grew at a 6.6 percent annual rate from 2001 to 2010, according to the Congressional Research Service. Defense spending almost doubled over the past decade, not counting the cost of the wars in Iraq and Afghanistan.

Even after the sequester, Smith says, the Pentagon would receive $552 billion for fiscal 2013, about the same amount as was spent on defense in fiscal 2007. “That’s a lot of money,” Smith says.

Of course, sequester still wouldn’t be simple. The cuts would still be steep — and could fall quite suddenly.


Asked by McKeon about the effects of sequester during a House Armed Services hearing with defense industry officials on July 18, Lockheed Martin Corp. chief Robert J. Stevens took note of the potential effects — and the accumulated cost of delaying the sequester until after the start of the fiscal year.

“The act requires a $55 billion reduction in fiscal ’13, but the act takes effect after the first quarter. So the $55 billion has to be reduced over nine months, not a year. If three more months go by, the equivalent of $110 billion would have to be taken out of the agency, which would be more and more disruptive,” Stevens said. “Every day that’s delayed after Jan. 2 makes the magnitude of the reduction to accumulate $55 billion in the year more.”

More details about how sequester would play out should be available in the next month or two, assuming the administration supplies the required report regarding its implementation.

And nothing is likely to stop the dire warnings from defense hawks on and off Capitol Hill.

Still, Adams says he doesn’t buy all the “doomsday machine” talk about the sequester.

“It’s a management challenge,” he says. “The Pentagon has spent 10 years getting fat, and people forgot how to prioritize. The real management challenge we face is we spend too much on defense.”



Aug. 4, 2012 – 11:56 a.m.

Managing Portion Sizes

By Paul M. Krawzak, CQ Staff


To federal government budget planners, a day doesn’t mean what it means to most everyone else. The average person who looks at the law that created the spending sequester would see the Jan. 2, 2013, effective date as a precise and unbending deadline, the very day the country figuratively falls off the “fiscal cliff.”

But to those mapping out the way dollars are spent across agencies and across time, the beginning of a budget period is only the start of a monthslong process of bending the calendar to match the money in the bank, stretching out spending in some accounts while hoarding dollars in others before meeting the specific spending demands of a huge number of policies and programs.

That fundamental of budgeting provides a sort of flexibility that might be used to stave off the immediate impact of the sequester, perhaps providing a cushion for departments that need to absorb deep reductions and even giving lawmakers extra time to strike a deal to undo the scheduled across-the-board cuts.

Under the basics of federal budgeting, OMB is required to specify and direct the rate of spending among federal departments and agencies to prevent them from spending too much too fast. With this authority comes managerial flexibility. As a result, OMB might tell departments and agencies to spend more than they normally would early in the fiscal year, saving many of the across-the-board cuts until later in 2013. That would give Democrats and Republicans more time to reach a deal on replacing the sequester, which otherwise would trim $109 billion off the top of spending over the course of the year.

The fiscal year begins Oct. 1, and will be one-fourth over when the sequester is scheduled to kick in.

Neither President Obama nor congressional leaders are talking about the flexibility afforded by apportionment. But Barry Anderson, who was in charge of administering several sequesters as a top career official at OMB in the 1980s and 1990s, calls apportionment “a subject which is very unknown outside of a small group of people at OMB and a few agency officials. The Hill doesn’t understand it. The contractors, agencies don’t. And it is a very powerful tool.”

The potential for the use of apportionment may be one thing lawmakers are trying to learn about as they seek more information from the administration about the plans for implementation of the sequester.

“We are witnessing a massive game of chicken, are we not?” says Anderson. “Apportionment can play into the president’s hands in that game of chicken.”


How It Works

The practice of apportionment derives its authority from a provision in the century-plus-old Antideficiency Act, a law designed to prevent agencies from spending too quickly in ways that would demand a supplemental appropriation before the end of the year. Basically, federal departments can’t spend the money that has been appropriated for them until it is apportioned by OMB.

The budget office typically apportions money every quarter, telling each department how much it can spend in that three-month period on specific programs, projects and activities. As the Government Accountability Office explains in a volume on appropriations law, apportionment “is required not only to prevent the need for deficiency or supplemental appropriations, but also to ensure that there is no drastic curtailment of the activity for which the appropriation is made.”

Anderson says apportionment can be used to delay the pain of automatic spending cuts by directing agencies not to reduce spending until later in the year. And he stresses he has no information about whether the administration plans to do so.

But OMB does have flexibility in apportionment. “They can do it quarterly, they can do it monthly, they can do it annually, they can do it at any rate they want,” Anderson says. And OMB might direct spending at different rates for defense programs than for domestic programs, and at different rates within the Pentagon and within domestic agencies.

The power of apportionment has its limits. For instance, Anderson says delaying all cuts affecting personnel until late in the year would be unworkable. “I don’t think they could do this for an account that pays for employees, because they basically have to furlough the entire agency in the last quarter,” he says. “So they probably wouldn’t do this for a payroll account. But they could do it for a procurement account.”

OMB officials have not given any indication of whether they might use apportionment to delay the impact of the cuts, or how it would be employed. Responding to a request for comment, an OMB official pointed to guidance about the sequester issued by the agency last week, which did not address apportionment. “Nothing more to add at this time,” the official said.

But when he testified to the House Armed Services Committee on Aug. 1, Acting OMB Director Jeff Zients acknowledged that the sequester cuts would hit programs at different times.

“As you know, some programs are seasonal, so more spending might be up front, in which case you need to save up front,” Zients said. “Some might be backend-loaded, in which case the money’s going to come out of the later months of the fiscal year.” By the end of the year, every agency would have to achieve its across-the-board cut if the sequester is not stopped, Zients told lawmakers.

But, he also said, “There’s a lot of complexity. There’s a lot of nuance. I think it’s hard to generalize about how that’ll be achieved.”


Slowing Spending

OMB probably could use apportionment to slow spending in the first quarter of the fiscal year starting Oct. 1 — essentially to spread the pain of the sequester over 12 months — but the administration has indicated there are no plans to do that. In a July 31 memorandum to department and agency heads, Zients said “agencies should continue normal spending and operations since more than five months remain for Congress to act” to stop the automatic cuts.

But spending may slow anyway as the fiscal year begins and as department heads take stock of the possibility of the sequester.

“Some agency spending is going to slow on its own — it doesn’t entail OMB doing something,” says Robert Greenstein, president of the Center on Budget and Policy Priorities and a former administrator at the Agriculture Department. “You’re an agency head and you have to plan based on the potential for the reduction in January, so the last thing you want to do is make all kind of commitments that then would require you to do an even deeper reduction afterwards.”

In fact, Scott Lilly, a senior fellow at the Center for American Progress, thinks agencies already are slowing spending ahead of Jan. 2. In a confidential survey conducted by Deutsche Bank in the spring, almost a third of Defense Department program managers who were interviewed said they had already started adjusting their government contracting to prepare for a sequester, says Lilly, a former Democratic staff director of the House Appropriations Committee.

“If I were in a budget office or running a program,” he says, “I want my program to succeed and I want to get credit for doing a good job. And I’m going to start squirreling money away to try to deal with contingencies.”

Lawmakers also may be calibrating their political messages to the idea that the budget year won’t begin and end on a single day in January, and that Jan. 2 may mark the start of a new budgeting process, not the end.

“The ‘let ‘er rip’ crowd, from my perception, is growing every day,” Anderson says of those who argue that the automatic cuts should simply go forward. “The let ‘er rip crowd, with respect to the sequester, think they can fix it sometime in the next year with the new Congress — and they may right.”



New CSAF Letter to Airmen

Posted 8/10/2012

by Gen. Mark A. Welsh III
Chief of Staff of the Air Force

8/10/2012 – WASHINGTON — To the Airmen of the United States Air Force

Earlier today, I was sworn in as the 20th Chief of Staff of our Air Force. It was a pretty humbling experience. Since I haven’t met most of you, I thought my first move as CSAF should be to say hi. You’ll probably get tired of hearing me say that “every Airman has a story,” but it’s true, and I’m no different.

My story starts with family. My dad, who was the greatest patriot, officer, and leader I’ve ever known, taught me that no rank or title would ever be as important as the unit patch I wore. Today, I wear the Air Force patch, and my family has grown to 690,000 active, Guard, Reserve, and civilian Airmen, all serving as part of an unbeatable Joint team.

YOU are what makes our Air Force the best the world has ever known!

Thank you for your service, your sacrifice, your dedication and commitment. Most of all, thank you for the privilege of serving beside you and your families. Betty and I are so honored to represent you and will do everything in our power to do it in a way that makes you proud.

From Tooey Spaatz’s drive and vision in 1947, to General Norty Schwartz’s steady hand and thoughtful leadership over the past four years, our Air Force has benefited from strong Chiefs of Staff throughout its rich heritage. I wish I could tell you I bring the same IQ and talent level to the job as they did, but that would be a stretch. So I just promise you I’ll do my very best, every day, every task…just like you do.

You need to know that I care about each of you, your mission, your training, your equipment, your professional development, your career, and your family. My job is to prove it to you.

I’ll get back to you after I’ve had a chance to sit down with Secretary Donley and benefit from his wise counsel. I’ll let you know what my focus areas will be and where I think we’re headed. In the meantime, you take care of the “Fly, Fight, and Win” part…and I’ll ensure that “Integrity, Service, and Excellence” aren’t just buzz words I use in speeches.

General, USAF
20th Chief of Staff


China’s slowing economy could complicate relationship with U.S.

Washington Post

Aug 11, 2012

By Zachary A. Goldfarb,


The Chinese economy on Friday showed worrisome signs of slowing down, a development that not only threatens global economic growth but also may complicate the relationship between China and the United States.

China reported that its exports, a critical driver of economy activity, grew by only 1 percent in July, far below the 11 percent rate seen in the prior month. It was the latest evidence that the world’s second-largest economy is losing steam, a problem for U.S. businesses that sell their goods and services to China.

But China’s response to its slowdown, which comes ahead of a rare change in power, could also create new tension with the United States, where the presidential campaign is focused on the economy.

China is turning to policies that may benefit its economy at the expense of the United States’. This year, for instance, China has surprised a wide range of observers by allowing its currency to lose value relative to the dollar, which makes its exports cheaper than America’s. And there are prominent calls inside the country for the renminbi to fall further.

“The economic slowdowns and the political circumstances in both countries could lead to trade tensions erupting once again,” said Eswar S. Prasad, an international trade expert at Cornell University.

Driving China’s slowdown are several factors — most notably, the financial crisis and recession in Europe, which is sapping demand for China’s goods. Also contributing is a slow recovery in the United States and a significant decline in residential real estate investment in China.

Exports are critical to China’s economy, accounting for more than a quarter of economic activity, compared with a little more than a tenth in the United States. To maintain overall growth rates, China has hoped to keep exports growing at about 10 percent per year, and for much of this year it has succeeded.

That’s why the news that Chinese exports had dropped so much caused worry on Friday, and it was only one of several troubling signs. Another indicator Friday showed bank lending declining, a signal that businesses and consumers are planning to spend less money, while on Thursday factory production failed to meet expectations. Many expect overall Chinese economic growth to suffer, too.

Chinese leaders are under pressure to take steps to help the economy as a rare change in power looms. This fall, the Communist Party will choose a new general secretary and officials through the government.

“They cannot afford, during a period of political transition and political turmoil, to suggest any loss of economic control,” Prasad said.

China and the United States are the twin engines of global growth, and both need each other to take steps to keep economic activity going.

China has a number of tools at its disposal to stimulate economic growth — some harmful to the United States, others potentially neutral or helpful. China routinely subsidizes companies that locate there, reducing the competitiveness of U.S. businesses. More favorable programs include China’s effort to boost government spending and lower interest rates to increase lending.

One of the most politically contentious is China’s management of its currency, which U.S. leaders, as well as independent economists and the International Monetary Fund, have long criticized as artificially low.

In response to heavy lobbying, China has since 2011 allowed its currency to become as much as 8 percent more valuable relative to the dollar, after inflation, building on prior progress. That has modestly leveled the playing field.

The IMF now says that the Chinese currency remains “moderately undervalued.” Nonetheless, China has allowed its currency to depreciate lately as growth has slowed. This year, the renminbi depreciated by 2 percent, after inflation.

“China will be less forthcoming in terms of currency appreciation,” said Cheng Li, a China scholar at Brookings.

Earlier this month, the state-backed China Securities Journal noted that “depreciation ... will be beneficial by enhancing exports” and said the currency should fall by an “appropriate” amount, according to the Financial Times.

China’s trade advantage over the United States has continued to widen in recent months. On Thursday, the U.S. reported that its trade deficit — how much more the country exports than imports — narrowed, a positive for economic growth. But it widened with China.

Others note China has not overreacted to its slowdown. So far, its currency’s decline relative to the dollar has been modest this year. Chinese leaders also don’t appear to be backing off other commitments to open up markets.

Another currency indicator, which is used by many economists to take into account a broader swath of global trade, shows the Chinese currency appreciating slightly this year, but still at a significantly slower pace than in recent years.

It’s also possible the United States might take steps that could aggravate relations with China.

When the Federal Reserve embarked on another aggressive campaign to lower interest rates in late 2010, China howled, saying it would devalue the dollar and help U.S. exports. And indeed, the dollar did come down some, and exports boomed.

But the dollar has since rebounded, likely as investors have sought security in U.S. Treasury bonds.

China might signal similar concern this September, if the Fed launches a round of so-called quantitative easing to jolt growth.

Republican candidate Mitt Romney has lashed out at President Obama for refusing to declare China a “currency manipulator,” a Treasury Department designation that could lead to tariffs. Romney has vowed to do so, a move favored by many labor unions.

Obama officials have questioned the usefulness of the label and suggested it would cause a trade war. They point out that China has made a lot of progress in allowing its currency to appreciate over the past several years.


Nuclear ruse: Posing as toymaker, Chinese merchant allegedly sought U.S. technology for Iran

Washington Post

By Joby Warrick, Published: August 11


The Chinese toymaker said he was seeking parts for a “magic horse,” a metal-framed playground pony. But the exotic, wildly expensive raw material he wanted seemed better suited for space travel than backyard play.

His shopping list, sent by e-mail to a Seattle factory, started with 20 tons of maraging steel, an ultra-strong alloy often used in rockets. The buyer didn’t flinch at the price tag — $2 million — but he repeatedly insisted on secrecy. “This material,” an associate confided in an e-mail, “are danger [sic] goods.”

Only in recent months did the full scope of the ruse become apparent. The destination for the specialty steel was not China but Iran, and the order had nothing to do with toy horses, U.S. investigators say.

“We are certain,” said a law enforcement official familiar with the case, “that the metal was meant for advanced centrifuges in Iran’s nuclear program.”

Last month, the Justice Department announced indictments against two people, one Chinese and the other Iranian, for conspiring to acquire maraging steel and other restricted American technology. U.S. officials say the case is part of a broader effort by Iran to dramatically expand its capacity to enrich uranium — with Chinese firms serving as willing accomplices.

The United States and its European allies have imposed ever-escalating sanctions intended to cut off Iran from sensitive technology and restricted material required for its nuclear program and to reduce its access to the global oil market. The goal is to stop Iran’s progress toward what the West believes is a nuclear arsenal, even as Iran maintains that its nuclear efforts are strictly part of a civilian energy program.

Maraging steel is a critical material in a new, highly efficient centrifuge that Iran has struggled for years to build. Barred by sanctions from buying the alloy legally, Iranian nuclear officials have sought to secretly acquire it from Western companies. In recent years, U.S. officials say, an increasing number of Chinese merchants have volunteered to help, serving as middlemen in elaborate schemes to obtain the steel and other forbidden material for Iran’s uranium enrichment plants as well as its missiles factories.

“They are not just stumbling on opportunities,” said Steve Pelak, the Justice Department’s counterespionage chief. “They are professional, studied procurement agents and shippers. They know precisely what business they’re in and how to go after it.”

The Seattle case is at least the fourth in the past two years in which companies based in China have been accused of helping Iran try to purchase sensitive technology. Although Iran has used Chinese go-betweens in the past, U.S. officials said sanctions have forced the isolated and besieged Iranian government to rely increasingly on China for economic help and access to restricted goods.

A senior Justice Department official, speaking on the condition of anonymity to discuss ongoing investigations, said, “As some countries have retreated from the Iranian market with the imposition of increased sanctions, many Chinese companies appear to have moved into the void.”

Although the Obama administration has praised China for reducing its imports of Iranian oil in recent months, bilateral trade between Tehran and Beijing surged in the previous decade, from $2.5 billion in 2000 to $29.3 billion in 2010. The increase has softened the impact of international sanctions, U.S. officials and independent analysts say.

With the latest case, however, U.S. warnings about Iranian-Chinese collusion have gained new urgency. If Iran can buy enough maraging steel on the black market, it can build more-efficient centrifuges, which will enrich uranium much faster than the machines it now uses.

“It is a major bottleneck in Iran’s production,” said David Albright, a former U.N. weapons inspector and author of a new study on Iranian procurement of nuclear technology. While Iran appears to have the know-how to make better centrifuges, the shortage of high-strength materials demanded by the new version — particularly maraging steel and carbon fiber — has prevented its scientists from producing more than a few hundred for testing, he said.

Officially, the Chinese government opposes a nuclear-armed Iran, and U.S. officials say Beijing has been a helpful ally during recent international negotiations aimed at pressuring the government to scale back its nuclear program. In addition, there is no evidence that China has provided nuclear assistance to Iran directly since the early 1990s.

Yet, despite repeated U.S. protests, Chinese businessmen continue to offer crucial assistance to Iran’s procurement efforts without fear of punishment or censure, U.S. officials and nuclear experts say.

An unusual order

Perhaps the most striking fact about the toy-horse plot, investigators say, is that it was discovered at all. The tip came in late 2008 from an obscure Homeland Security program that involves occasional factory visits by U.S. officials to guard against foreign pilfering of sensitive U.S. technology.

During a visit to a Puget Sound steelmaker, an export manager there told a U.S. official about a bizarre query he had gotten from China.

“It was a gigantic order: 20 tons of maraging steel,” recalled a law enforcement official familiar with the case.

The mention of maraging steel raised eyebrows because of the alloy’s use in missiles and centrifuges. Months passed with no follow-up to the initial inquiry from the prospective buyer, and efforts by U.S. officials to investigate the unusual order reached a dead end.

In the spring of 2009, a new query from China turned up in the steelmaker’s inbox. This time, the buyer claimed to represent a toy company, Monalila Co., a maker of playground equipment. The company Web site showed photographs of real toys, including its premier product, Model HF450, the “Magic Horse.”

“No gas, no battery, no power, but can be ride [sic] as a horse and run smoothly on squares, parks, alleys and any other flat grounds,” read the product description, displayed beneath a photo of a black-and-white toy pony with a saddle and cottony mane.

To make its ponies, the company needed the bulk order of maraging steel, wrote the purchasing agent, who identified himself as “Yi.” Except for the names and products, the $2 million order was identical to the one from the previous year.

U.S. investigators were alerted, and they set up a sting. In a chain of e-mails, federal agents posing as salesmen teased out details about the order and who was behind it. Eventually Yi excused himself and handed over the correspondence to his boss, a man he called “Martin.” It quickly became apparent that Martin was not Chinese and had no interest in toys.

“We were able to determine that Martin’s e-mail originated in Iran,” said the law-enforcement official familiar with the case.

Over the following months the shopping list grew, as the Iranian, with increasing boldness, piled on requests — other specialty metals used in uranium enrichment, an array of machines and instruments with known nuclear applications, even a mass spectrometer specifically calibrated to measure uranium fluorine gas, a key part of the enrichment process.

Investigators determined Martin’s real identity — Parviz Khaki. As part of the subterfuge, they confronted him about the possibility that the materials would be shipped illegally to Iran. Khaki did not appear to care, Justice Department officials said in an indictment handed down last month around the time of the man’s arrest.

“Khaki discussed his motivation to make money from this transaction,” the indictment stated.

On July 13, authorities in the Philippines arrested Khaki as he was boarding a plane in Manila. He had been indicted by a U.S. grand jury on charges of running a $30 million scheme to acquire banned U.S. technology for Iran. His alleged Chinese associate, Zongcheng Yi, was also indicted. Khaki remains in custody in Manila. Yi’s whereabouts are unknown.

Persistent flow of material

Khaki’s alleged plan to ship maraging steel to Iran through China was stopped, but federal officials concluded that the network delivered other nuclear-related components and tools to Tehran. Among them were corrosion-resistant nickel alloy and special lathes to manufacture centrifuge parts.

U.S. officials say the items are among several million dollars’ worth of material and parts — from missile components to electronics for roadside bombs — that have passed through China to Iran in the past five years. The flow of Western technology to Tehran is so persistent that it has emerged as an irritant in relations between Beijing and Washington, prompting the Obama administration to dispatch two delegations to Beijing since 2010 to complain.

Chinese officials have made occasional arrests but say they can’t always know of every attempt by a Chinese entrepreneur to make a profit by helping Iran shop for technology. But given the stakes, current and former U.S. officials and Iran experts continue to press Beijing to do more.










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