Reeling from outrage over a costly bureaucratic misstep, the Pentagon has halted its efforts to force California National Guardsmen to personally repay salary bonuses that should not have approved in the first place. 

As some observers concluded that only Congress could clean up the accounting mess, Defense Secretary Ash Carter took matters into his own hands. “Carter ordered the military’s money managers at the Defense Finance and Accounting Services to ‘suspend all efforts to collect reimbursements from affected California National Guard members, effective as soon as practical,'” Military Times reported. “Carter also ordered the Pentagon’s top personnel official, Undersecretary of Defense Peter Levine, to review and streamline the bureaucratic process that enables service members to individually appeal debts imposed by military accountants and seek to have those debts eliminated.”

The state Guard all but asked legislators in Washington to intervene. “Amid anger over the repayment program, the California National Guard issued a statement Sunday saying that it has been acting under the Pentagon’s orders and that it couldn’t ‘unilaterally waive these debts,'” according to NPR. “The service added that it would welcome an act by Congress forgiving the debts.”

The furor around the Defense Department’s approach, which was swiftly construed as a betrayal of trust and a black eye for America, arose from a Los Angeles Times report that found immediate traction nationwide. “It is unthinkable to me that the Department of Defense’s first reaction is to punish service members who fulfilled their end of the deal,” said VFW national commander Brian Duffy in a statement quoted by the Times. “This is how you destroy all faith in a Pentagon that is supposed to have your back.”

Years of misuse

The bogus bonuses reached back years. “The National Guard struggled to fill its ranks during the height of the wars in Iraq and Afghanistan, relying on bonuses to sign recruits and for re-enlistment,” USA Today noted. “National Guard recruiting has been rocked by scandal in recent years. In 2014, more than 800 of its soldiers were under criminal investigation for gaming a program that paid hundreds of millions in bonuses to guardsmen who signed up friends.”

California became a hotbed of misallocations. Six years ago, a former Guard auditor told the Sacramento Bee that “as much as $100 million has gone to soldiers who didn’t qualify for the incentives, including some who got tens of thousands of dollars more than the program allows. For years, the auditor and other Guard officials allege in interviews or internal documents obtained by The Bee, California’s incentives program was operated as a slush fund, doled out improperly to hundreds of soldiers with fabricated paperwork, scant supervision and little regard for the law.”

But the California Guardsmen targeted by the Pentagon were largely innocent. “Nearly all of the soldiers took the bonuses in good faith and were unaware of the misspending until notices arrived in the mail years later,” the New York Times reported. “Some had to repay more than $20,000 and a few more than $40,000. Many had wages garnished and racked up penalties and other debt trying to pay back the bonuses.”

An unclear path

Pending a Pentagon review, other state programs similar to California’s could come under more scrutiny, although questions remain as to how fraudulent bonuses might be adjudicated as a whole. “It’s unclear how the Pentagon’s adjusted policy might apply to veterans in states other than California,” NPR noted. High-ranking officials have cautioned that efforts to address the problem on the Hill already ran aground. “Maj. Gen. Matthew Beevers, the No. 2 officer in the California Army National Guard, said Monday that Guard leaders attempted to resolve the problem through Congress two years ago, and the effort stalled,” according to the Washington Post. “Beevers said that an effort to pass legislation that would have provided relief to affected soldiers did not find favor with the Congressional Budget Office because it would have added spending at a time when the U.S. government was attempting to cut back.”

The Pentagon announced a sizable new investment anchored by a new Manufacturing Innovation Institute for Flexible Hybrid Electronics, a program to be established in San Jose. “The Institute falls under the aegis of the National Network for Manufacturing Innovation, a network of manufacturing research centers set up by the White House in 2013,” according to Defense News, which noted that the institute will be California’s first of its kind.

Politics and productivity

Officials played up the size and sweep of the initiative, which brings together more than a hundred of Silicon Valley’s bold-faced names. “The institute will be led by FlexTech Alliance, a consortium of more than 162 companies, nonprofits, labs and universities,” reported the International Business Times. “The consortium includes the likes of Apple, Hewlett Packard, Qualcomm, Boeing and Lockheed Martin as well as Stanford, Harvard and the University of California, Berkeley.”

“The San Jose-based institute will focus on developing wearable technologies that could be used to assist wounded soldiers, automobiles and aircrafts in harsh environments and light-weight robotics, among others applications, the department said. Additionally, the institute will be focused on coming up with new ways to lower the cost of manufacturing these technologies so that private American businesses can innovate with them.”

The Obama administration touted the news in a press release. “With a total investment of over $171 million — $75 million in federal funds, and more than $96 million in non-federal contributions — the announcement marks the first manufacturing institute launched that will be headquartered on the West Coast,” it said, using the occasion to challenge Congress to spend even more on manufacturing. “We can make critical bipartisan investments to strengthen manufacturing across the United States, laying a strong foundation for good jobs and economic growth — or we can pull back, letting other countries and their workers take the lead,” the administration argued.

Industry blowback

The effort followed the Defense Department’s April announcement of a Silicon Valley office — dubbed Defense Innovation Unit Experimental — timed to debut with an infusion of venture capital into the region, as the Wall Street Journal reported. Though the political reception was not unfavorable, that initiative quickly attracted the ire of the private-sector security establishment, including big corporations like Boeing and Northrup Grumman. “Defense industry leaders aren’t just offended by the implication that small hardware startups and tech giants such as Facebook and Google are outpacing them in ingenuity,” Politico observed. “More important, they argue, those companies don’t have the slightest idea about military needs or understand how to navigate the Pentagon’s acquisition system — in short, to make their ideas reality.”

This May, Politico added, Northrop Grumman chief Wes Bush suggested that, because Silicon Valley tech attracting Pentagon interest was “inherently broadly available,” supplied “no national security advantages by definition.”

But security and war fighting experts have already envisioned applications with much narrower and more powerful uses. “For the Pentagon, the benefits could be myriad. Imagine a thin plastic computer worn around the wrist that could provide live biometric data on a solider in the field, or a laptop that could be rolled up into a mat and moved from operating centers with ease,” Defense News suggested. “Such technology could also cut the weight aboard ships or planes, providing more space for cargo, while the ability to mold sensors to the outside of a fighter jet could reduce its radar signature and wind resistance.”

Whatever the objections from established players, Defense officials have adopted a full-steam-ahead approach. The Air Force has opened a Silicon Valley outreach office of its own; as NBC San Diego reported, in his first visit to Camp Pendleton at the end of August, Defense Secretary Ash Carter boasted that the Defense Innovation Unit Experimental would help “connect the Department of Defense to the innovative community of California and around the world.”

These earnings, and Google’s expert deployment of its cash, have made the company one of the best places to work in the world. In fact, earlier this year Forbes (once again) ranked Google the best place to work.

From Forbes’ rousing endorsement:

“The Internet juggernaut takes the Best Companies crown for the fourth time, and not just for the 100,000 hours of subsidized massages it doled out in 2012. New this year are three wellness centers and a seven-acre sports complex, which includes a roller hockey rink; courts for basketball, bocce, and shuffle ball; and horseshoe pits.”

Perhaps one of Google’s nicest perks is the fleet of private jets it keeps for its executives.

But just because the company is doing well, doesn’t mean it spends recklessly. In fact, until recently, Google engaged in a very beneficial deal with the Department of Defense, a deal that exemplified the excesses of modern crony capitalism.

Discount fuel

The Wall Street Journal recently reported that the DoD and the National Aeronautics and Space Administration ended an exclusive arrangement with Google that gave the company access to steeply discounted jet fuel for its private fleet.

A private company representing Google bought 2.3 million gallons of jet fuel at an average rate of $3.19 per gallon. Corporate flight departments typically paid an average of $4.35 per gallon over the same period, meaning Google saved roughly $2.7 million through the arrangement.

So why did Google get favored treatment over other corporations?

The first reason is geographical: NASA’s Ames Research Center is based at Moffett Federal Airfield, just three miles away from Google’s Northern California headquarters.  Google pays $1.3 million a year to house seven jets and two helicopters at the same airfield, and using the government fuel already there was just convenient.

But the second reason for the steep discount is more interesting:

“In explaining the unusual arrangement, NASA officials have pointed to a related agreement by the Google executives to perform scientific flights and other NASA-related transport. That mostly has involved flights by an Alpha jet, a small trainer bought by the Google executives and used by NASA to measure atmospheric greenhouse gases and ozone.”

A representative for Google said the company simply bought the only fuel available.

Not happy

But not everyone is happy, particularly those businesses that don’t participate in NASA’s favored research. Fred Fitts, the president of a nonprofit that negotiates jet-fuel discounts for different corporate flight departments throughout the United States, was incredulous.

“I don’t see how in the hell anybody can buy it that cheap,” he told the Journal.

Luckily for the taxpayers, it doesn’t look like the Pentagon lost any money in the arrangement (though it certainly could have made some back).

However, it still might not be legal. The contract between the company representing Google (H211) and the DoD said that the fuel was meant for performance of government contracts or approved use. If Google didn’t comply, they’d be faced with civil penalties.

Since most of the flights weren’t NASA related — a Google executive flew out to his brother’s wedding in Croatia, for example — Google may have violated the arrangement.

But the last part of the arrangement might irk taxpayers the most.

It appears as though Google may even have dodged some taxes:

“One reason commercial prices are higher is that they include sales tax levied by California on all fuel sales to private jets, currently 8.75% in Moffett’s locale. It’s unclear if H211 ever paid that tax. The Pentagon said it collected only federal taxes, and H211 was responsible for remitting any local taxes owed. [An H211 executive] said the Pentagon’s invoices included ‘all applicable taxes.'”

Some might call it savvy business; others would call it crony capitalism at its worst.