The Coming Challenges in Defense Planning, Programming and Budgeting
July 27, 2010
This brief is a part of series prepared by the Burke Chair in Strategy on current issues in defense budgeting and strategy. Other briefs within this series include,
- “'Unplanning' for Uncertainty”
- “The Uncertain Costs of War(s)”
- “The Macroeconomics of US Defense Spending”
This particular brief is divided into seven main sections, preceded by “Overview” and “Key Challenges” sections which aggregate the salient issues raised throughout the brief. The brief focuses on the budgeting and planning challenges the Department of Defense (DOD) faces at it enters FY 2011. The seven sections following the prefatory sections contain the bulk of the analysis on the budgeting and planning challenges the DOD faces. This brief draws upon research and data provided by the DOD, the Center for Strategic and Budgetary Assessments (CSBA), the Congressional Budget Office (CBO), the Government Accountability Office (GAO), as well as a number of other sources.
The first section gives a brief overview of key features of the DOD’s FY 2011 Budget Request as well as a summary of budget changes since FY 2010. This brief’s research reveals the FY 2011 base budget is structurally very similar to the FY 2010 base budget. Relative to FY 2010, the Military Personnel, Operations and Maintenance (O&M), and Procurement titles have increased slightly, while funding for RDT&E has decreased slightly. Funding for Military Construction, Family Housing, and Revolving and Management Funds titles have decreased significantly relative to their FY 2010.
The total request for the base budget has also changed only marginally: the FY 2011 total base budget sees only a 3.4% or approximately $18 billion increase over FY 2010 levels (Slides 11-16). Likewise, OCO Funding has not changed materially since FY 2010 (Slide 15). Slides 16-23 contain a further breakdown of the FY 2011 Budget Request by title.
The second section discusses projected trends for future Defense spending. This section arrives at four key conclusions:
- First, DOD funding has nearly doubled in real terms since Clinton Era lows (Slide 25).
- Second, this funding growth is due to both war costs and to growth in the Base Defense budget (Slides 25-26).
- Third, according to DOD and CBO projections, Defense spending may decrease significantly in FY 2012, followed by a slow, gradual long-term growth (Slides 26-27).
- Fourth, these projections, however, may be unrealistic as DOD and CBO estimates are typically predicated upon assumptions of reduced activity levels in Iraq and Afghanistan. Depending upon future conditions on the ground, especially in Afghanistan, as well as domestic political will, current activity levels may be sustained or even increased in the near-term (Slide 27).
The remaining sections analyze the causal factors behind Defense spending growth.
The third section (Slides 32-35) focuses specifically on cost escalation in Operations and Maintenance (O&M). This section raises three salient issues:
- First, the DOD tends to underestimate O&M costs.
- Second, further growth in O&M costs could “crowd-out” other titles within the Pentagon’s budget in the coming years. Third, unpredictability of future war costs renders accurately predicting future O&M costs highly challenging.
The fourth section looks into the some of the costs associated with the high Operations Tempo (OPTEMPO) associated with current Overseas Contingency Operations (OCO) and arrives at two key points:
- First, sustaining a high OPTEMPO of OCO for roughly a decade has placed immense strength on both troops and on material, rendering “reset” more and more expensive as OCO continues and the OPTEMP remains high (Slide 37). Consequently, Defense O&M costs are likely to remain high and potentially increase even as Defense funding is projected to decelerate.
- Second, the sustained high OPTEMPO has and will continue to result in many shadow costs not planned for at the time annual budget requests are assembled (Slide 38).
The fifth section explores the reasons for the recent, drastic increase in per troop costs and its implications for Defense manpower affordability. The DOD has seen an essentially static end strength in active duty military personnel since 1990 (Slides 40-41). However, the per soldier military personnel and O&M costs have risen continuously and quickly, even after accounting for “temporary” costs associated with war (Slides 42-44). CSBA analysis holds that per troop cost growth is primarily attributable to pay raises, growth in healthcare costs, and expansions of other benefits (46-52).
Per troop cost growth has the potential to threaten Defense strength, as the DOD may not be able to achieve manpower end strength goals (Slides 53-56). Or the DOD may be forced into budgeting dilemmas in which it must select from the lesser of two evils by cutting from one important budget title to fund another (Slides 59-61).
The sixth section analyzes the host of challenges the Pentagon faces in reforming the procurement process and harness its procurement funding to successful modernize the US military. Many DOD procurement programs still reflect Cold War era acquisition requirements rather than the capabilities needed to execute new missions such as CT, CS and humanitarian operations (Slides 62-63). Moreover, rampant cost growth and long time delays have become the norm for DOD procurement programs (Slides 64-70). In an effort to reduce procurement spending excesses, the Secretary of Defense has cut a number of “unnecessary” programs (Slide 71).
Furthermore, the DOD has often attempted to fudge its way out of procurement problems by cutting RDT&E funding and slipping procurement funding into the outyears (Slides 72-75). In turn, procurement program failures and inefficiencies may lead reset crises as the military needs to repair and refit degraded capital as well as investment crisis as the military may in the near future find itself without the capabilities it requires to fulfill its missions (Slides 76-86).
The seventh and final section focuses exclusively on a growing concern for Defense budget planners: rising military and veterans’ entitlement costs. The armed forces may see extreme cost escalation in the near-term and long-term due to rapid growth in health service costs (Slides 88-94). Health services costs are projected to rise in both real terms and as a percentage of DOD total outlays (Slide 95). Costs associated with veterans’ entitlements are also likely to increase as more and more troops both become eligible for and actually utilize veteran’s benefits as a result of many years of sustained deployment stress (Slides 96-98).
These costs are mandatory; thus, they have the capacity to crowd-out other titles in the Pentagon’s budget. In turn, increasing per soldier costs may force the Pentagon to cut military end strengths, leaving the military less capable of executing manpower intensive Counterinsurgency and humanitarian operations.