In a few weeks, President Obama will submit his fiscal year (FY) 2011 defense budget request to Capitol Hill along with a myriad of important supporting documents including the Future Years Defense Program (FYDP), long-range shipbuilding and aviation plans, and the Quadrennial Defense Review.
While many expect a minimal topline increase for defense spending again in FY 2011 (one to two percent real growth), this modest bump is still insufficient to pay all the Pentagon bills. The underfunding of defense plans has become predictable and why many analysts discount as unrealistic Pentagon budget outyear projections.
Too often the dilemma is simply ignored, glossed over, or used in attempts to force changes in U.S. foreign policy by statements like “the defense budget has been growing since 9/11”– therefore implying that even if there is a problem, there shouldn’t be. Instead of learning to live with the chronic condition, the underfunding of defense requirements should be addressed openly with realistic solutions.
Strategy-Resource Mismatch is So Last Century
Like clockwork, the defense budget comes in every year underfunding the Pentagon’s own plans and programs. According to the Congressional Budget Office (CBO), if the Pentagon were to simply carry out its own proposed plans in the FYDP, it would require “sustaining annual defense funding over the long term at higher real (inflation-adjusted) levels than those that occurred at the peak of the buildup in the mid-1980s.”
Why are current defense plans and programs consistently underfunded? CBO’s former analyst, J. Michael Gilmore–now Director of Operational Test and Evaluation at the Pentagon–elaborates on the driving factors behind projected high level of defense spending under the FYDP including plans to:
* Buy more new military equipment and sustain that rate of procurement;
* Develop weapon systems that provide new capabilities;
* Increase endstrength and the growing costs of personnel; and,
* Fund the rising costs of operation and maintenance (O&M) for aging equipment and newer, more complex equipment.
This shortfall between what the Pentagon says it needs and the military services actually plan to buy and what the annual core defense budget topline can truly afford is a constant predicament facing military leaders. Just two years ago, the former Secretary and Chief of Staff of the Air Force argued the Air Force faced a modernization shortfall of $20 billion per year. To put that into perspective, as the Congressional Research Service (CRS) does in last year’s six-year defense plan, acquisition funding in the Air Force base budget was scheduled to grow from $63 billion in FY 2009 to $70 billion in FY 2013. Air Force officials were claiming that their budget was 30% short of the amount they thought necessary for equipment purchases and upgrades.
The disconnect between requirements and resources plagues all the services. The Army “reportedly is now projecting ongoing budget requirements of $170 to $180 billion a year, which is $30 to $40 billion per year higher than currently projected base funding,” again according to CRS. Finally, CRS notes that last year the Navy “increased substantially its estimates of the cost of its 30-year shipbuilding plan, and it has warned of a substantial shortfall in fighter aircraft inventories as well.”
Acknowledging the obvious–that the military is underfunded–is a nonpartisan exercise, as it should be. Respected defense budget expert Michael O’Hanlon wrote in June that President Obama’s 2010 defense budget plans are “insufficient to support the national security establishment over the next five years.” He notes that by adopting a policy of zero real growth in the base budget, the Administration will leave the U.S. military with a cumulative funding shortfall of about $150 billion against stated requirements through 2014.
Dr. O’Hanlon then elucidates what should be common sense to defense observers:
“For the Defense Department to merely tread water, a good rule of thumb is that its inflation-adjusted budget must grow about 2 percent a year (roughly $10 billion annually, each and every year). Simply put, the costs of holding on to good people, providing them with health care and other benefits, keeping equipment functional, maintaining training regimes, and buying increasingly complex equipment tend to grow faster than inflation.”
Flat Budgets are Declining Defense Budgets
The critical takeaway is that a flat defense budget topline is really a declining defense budget. That is because the cost of doing everything in the military–from paying people to buying new equipment–greatly outpaces inflation every year. CRS analyst Stephen Daggett accurately describes why defense money always seems tight, even with growing budgets since 9/11.
The cost of paying America’s all-volunteer force engaged in protracted conflict is expensive. Current spending per active duty servicemember–compared to the average trend in defense over time–shows that funding has “grown by a bit more than 2% per year above inflation on average since the end of the Korean War.” Yet, in FY 2009, “the overall DoD base budget, not including war costs, is about 8% above this historic trend line.” The reason for this growth occurs for a variety of reasons ranging from increasing health care costs to Congressionally-added benefits. Indeed, the average military servicemember is about 45% more expensive, after adjusting for inflation, in FY 2009 than in FY 1998.
Another reason a flat defense budget cannot sustain military plans is the “continued, steady growth of operation and maintenance budgets.” Since the end of the Korean war, annual O&M budgets have grown “by somewhere between 2.5% and 3% above inflation every year–year after year after year.” This, too, is due to a variety of reasons ranging from medical care benefits and premium growth to the cost of maintaining increasingly older equipment being employed at wartime rates to civilian personnel pay and benefits that have outpaced the growth of inflation.
Reform is Needed to Bolster Modernization
When personnel and O&M accounts rise anywhere from two to eight percent above inflation predictably every year yet the overall defense topline stays flat, modernization becomes a billpayer. This is the real challenge facing defense leaders and policymakers alike when making decisions about tradeoffs between people and platforms.
While there are numerous external pressures on the defense budget–primarily the growth of Social Security, Medicare, and Medicaid–the internal imbalances within the defense budget should be addressed immediately. Pressures from within the defense budget are primarily the results of the high cost of military operations and the increasing costs (both gross and per capita) of compensating servicemembers. Defense reform efforts are important steps to alleviate some of the pressure on the defense budget, including procurement reform; changing how America pays those in uniform; conducting stringent oversight of private contracting in combat zones; and eliminating the unnecessary use of emergency supplementals to fund operations that have predictable sizes and scopes.
Restructuring how Congress pays the military to make it more cost-effective and responsive to the needs of today’s highly mobile workforce would produce significant cost savings for the military. It would also enhance the ability of the all-volunteer force to recruit and retain the most talented individuals the nation has to offer, specifically by structuring compensation according to the skills the military needs as opposed to tending towards a “one size fits all” approach within the categories of ranks and seniority. Real acquisition reform would also begin deregulating the defense market to help reduce cost overruns and allow more small businesses to break into the defense market.
Ultimately, however, the persistent underfunding of defense plans cannot be solved without a sustained commitment by Congress to increase the core defense budget at a rate that outpaces inflation. Adequately funding Pentagon plans would stop the bleeding in many defense modernization programs. The steady erosion of modernization plans is why many senior uniformed officials such as the Chairman of the Joint Chiefs of Staff have supported an increase in the defense topline of roughly $30 to $50 billion to alleviate the persistent shortfalls. A higher topline would fund a more robust procurement account thereby allowing for increased build rates. Greater economies of scale will stimulate contractor competition, increase per-unit savings, and provide a steady workload for the nation’s defense industrial base. This would allow Congress to restore the balance between R&D and procurement to provide incentives for contractors to push programs into the hands of the military.
Something Has to Give
Fully funding defense plans through a defense budget topline that rises annually above inflation would address the greatest dilemma facing the military today, which is mortgaging future capabilities to pay for present operations. Spending on today’s forces has tended to crowd out investment in tomorrow’s forces. The trend of the modernization accounts receiving smaller shares of the core defense budget began with the 1990s procurement holiday that left an enduring imbalance between the procurement and R&D accounts. A flat defense budget in FY 2011 would exacerbate the problem. This is a compounding problem because inadequate near-term defense budgets set unacceptably low baselines for presenting longer-term defense budget proposals.
To close the growing gap between defense needs and defense budget authority, Congress should increase funding for the core defense programs, increase the overall defense budget in a way that permits sufficient growth in the modernization accounts, and increase the share of the modernization accounts devoted to procurement.
