A Poisoned Chalice?

June 30, 2008

Both parties have nominated their candidates for the presidential elections in November 2008. What can now be said with certainty is that regardless of which candidate is elected, he will face a crisis in US national security planning, programming, and budgeting. This crisis has accelerated sharply over the last eight years and requires a broad restructuring of the US national security effort, defense spending, military manpower, procurement, and readiness, which will be a major burden for the next President.

Although this crisis is not the fault of any one administration, and has often been shaped by the mistakes of the US Congress and key military commanders, it will put the campaign rhetoric of both candidates to the test of reality, come January 2009.

The real cost of national security spending is likely to be 20-30% higher than is estimated in current baseline budget requests. There is no clear or coherent plan, program, or budget that reflects the fact the nation is at war and no credible mix of force plans, modernization plans, and procurement plans for the future.

Whether or not it is fair to call this crisis a “poisoned chalice” depends on one’s choice in rhetoric. What is clear is that there are a wide range of critical areas where cost escalation poses a critical problem, where no hard choices have been made, where key programs are not fully defined or cannot be implemented, and where trade-offs will have to be made between major increases in the defense budget and current force plans. The combined cost of war, steadily rising military manpower costs, the underfunding of operations and maintenance, and a procurement crisis in every service will force the next Administration to reshape almost every aspect of current defense plans, programs, and budgets.

The Burke Chair in Strategy has prepared an updated briefing on these problems.  This briefing provides an overview of the major issues and trends involved, drawing on data developed by the Department of Defense, Department of State, OMB, the Congressional Budget Office, Congressional Research Office, and Government Accountability Office. It deliberately avoids using independent estimates to make it clear that the data represent official estimates.

It will be regularly updated and revised during the course of the year, and outside comments, additions, and corrections will be most welcome. All such comments should be addressed to the Burke Chair in care of Adam Mausner (amausner@csis.org)

The report can be downloaded here.

The Challenges the Next Administration Will Face

The crisis in US national security planning, programming, and budgeting has been shaped by a wide range of factors, and the briefing explains and quantifies the challenges the next Administration will face in:

•     Estimating and paying for the real cost of the national security program.
•     Determining whether the burden on federal spending and the GDP is acceptable.
•     Balancing the interaction between national security spending and the overall fiscal squeeze driven by rising mandatory spending and entitlement costs.
•    Creating and funding a proper approach to the Iraq War, Afghan War, and GWOT.
•    Creating a meaningful approach to a national strategy that is directly coupled to a well defined plan, program, and long-term budget.
•     Bring the overall pattern of operations and support into a well-managed and affordable path.
•    Dealing with a crisis in defense manpower.
•    Managing the problem of escalating military medical costs.
•    Properly funding O&M and reset costs.
•    Dealing with a major crisis in defense procurement and the failure to manage military modernization.

The briefing shows that the Department of Defense’s budget baseline request, as presented in the President’s FY2009 baseline budget and the Department’s current Future Year Defense Program, does not include the cost of the wars the US is currently fighting, and there is no clear plan for even a credible supplement for FY2009. It also shows that CBO projection indicates that the real cost of the national security budget could well be some 20% higher from FY 2010 onwards than the Department of Defense currently programs and budgets. (pp. 11-21)

A significant part of FY2008 supplemental funding for the wars is still in congressional limbo, as of June 2008. Further delay will deplete the Army’s personnel account by mid-July and seriously disrupt war-related procurement programs, according to the Secretary of Defense. (pp. 22-28)

An Acceptable Burden on Federal Spending and the GDP by Historical Standards, But… (pp. 29-49)

The “good news” is that this does not mean that even if such cost rises are fully funded, they will place an unacceptable burden national security on the nation’s economy and federal/public spending. The current burden remains lower than during all of the Cold War, and even if a “worst case” assumption is made about future cost escalation, the burden on the GDP is likely to remain under 5%.

There will, however, be sharply growing pressure on the federal budget from rising mandatory spending and entitlements costs, and national security spending – like all discretionary spending – will come under growing pressure if this nation continues to let its medical expenditures increase as both a portion of the federal budget and GDP.

An Uncosted, Unplanned Set of Wars (pp. 51-73)

It is important to note that the problems the next Administration will face in planning, programming, and budgeting will not be driven primarily by the cost of the Iraq War, although that has been almost the sole focus of Congressional and media attention, and the debates between the Presidential candidates.

At the same time, the planning, programming, and budgeting, for the combination of the Afghan War, Iraq War, and Global War on terrorism have been badly mismanage since FY2002, and there is no credible plan for the future. The Department of Defense does not make a public estimate and its current budget requests are hollow place holders for costs that will require a major supplemental in FY2009, and much higher spending in the outyears than is provided in the FYDP.

Much will depend, however, on how soon the level of US effort can be reduced, how much host countries can and do take over the burden of combat and financing their own military operations and development, and on whether the next President decides to sustain a major US combat involvement in the Iraq War. While real-world defense costs are almost certain to be much higher throughout the life of the next Administration than the Department currently budgets, CBO estimates indicate that it may be possible to make major reductions in the cost of the Iraq War.

The problem is, however, that the Afghan War has long been underfunded, and continues to escalate. The rising cost of the Afghan conflict might offset any savings from added spending by the government of Iraq, US force cuts, and a shift in the US mission in Iraq to strategic overwatch.

The QDR and Strategy “Implosion:” No Real Force Plans, Budgets, and Path for Modernization (pp. 74-89)

The broader problems in planning, programming, and budgeting have been shaped by many factors, but one is the decoupling of efforts to define US strategy and goals from the creation of specific force, modernization, and readiness plans to implement them. The most recent QDR, and a failure to take hard planning and programming decisions to support it, is sometimes a useful conceptual document but even many of the concepts have no clear definition. These problems are even more severe in the various “strategies” presented by the military services and joint staff. Furthermore, this decoupling of strategy from any attempt to define workable plans is made worse by a failure to cost the future, and create credible long-term spending plans.

These failures now can only be corrected by the next Administration. Tying strategy, plans, programs, and budgets together will have to be a nearly “zero-based” exercise. It is also one that must go far beyond the Department of Defense. As many studies have shown, the US needs a new partnership between the Department of Defense, Department of State, and other civilian departments and agencies. Such a partnership can ultimately only be effective if the new form of “jointness” involved is supported by a truly national
plan, program, and budget for all aspects of national security.

Rising Operating Costs: Reality versus the Baseline (pp. 90-95)

It is a not possible to separate sharp and continuing rises in operations and support costs from the impact of war, and major delays and cutbacks resulting from a failed procurement and modernization program in each of the four services. CBO estimates do, however, warn that there is a serious “cost-containment” crisis that will have to be addressed early in the next Administration.

The Defense Manpower Affordability Issue (pp. 96-108)

Rising military manpower costs are a critical part of the problem in rising operating costs, but the problems go far deeper. Many of what are supposed to be wartime costs are almost certain to become de facto military entitlement costs that will continue indefinitely into the future.

The US has also made cutbacks in force size and military manpower, as well as career civilians, that current efforts to increase Army and Marine Corp end-strength only begin to address. The strains of over-deployment on a relatively small total volunteer force already threaten the ability to recruit and retain the proper mix of force quality and quantity.

It is also clear that, at a minimum, the US will have to “rebalance” the size and relative role of its active and reserve forces, and that it should comprehensively reexamine the real-world trade-offs between military personnel, career civilians, and a growing dependence on contract personnel.

Rising Military and Veterans Medical Costs (pp. 109-113)

Rising military and veterans medical costs lead much of the rise in manpower costs even under assumptions that may understate the true cost of dealing with the lingering effect of wartime injuries. This is an area the next Administration will need to address almost immediately after taking office.

The Operations, Maintenance, and “Reset” Crisis (pp. 114-118)

The Department’s current baseline budget projections for operations and maintenance costs make no allowance for ongoing wars and are little more than absurd. There also is no clear plan, program, and budget for dealing with the growing “reset” problem of coping with wartime losses and wear, deciding what to transfer or leave behind, and how to make trade-offs between existing equipment, modifications and improvements, and new systems.

The Modernization and Procurement Crisis (pp. 119-144)

The briefing can only provide a brief overview of the full scale of the crisis the nation faces in military procurement. These problems are so permeating in every service, and affect so many critical programs, that it is brutally apparent that the Department has no real world spending plans, and is indulging in a “liar’s contest” in terms of costs, the timelines for major programs, their probable effectiveness, the numbers it can actually procure, and the force trade-offs between modernization and force cuts.

Even if one ignores key issues in effectiveness and availability, work by the GAO shows that the cost of the defense major acquisition portfolio rose from $790 billion in FY2000 to $1.6 trillion in FY2007, and outstanding commitments rose from $390 to $858 billion. The average cost escalation in RDT&E costs over the first cost estimate rose to 40% over the eight-year period, and total acquisition costs rose 26%. The share of programs with more than 25% cost escalation rose from 37% to 44% and the average delay in delivering initial capability rose from 16 months to 21 months.

Work by both the GAO and CBO indicate these problems are likely to escalate steadily in the near-term unless the next Administration acts quickly to control them, and reshaping an affordable and effective procurement program may well take at least the full term of the next President. This may well involve major program cancellations, and further hardship for defense industry. It certainly means a need to establish far more realistic standards for estimating program costs, schedules and deployment times, and effectiveness; far tighter standards of program management; and far tighter control over the kind of changes in specifications and design that do so much to raise cost and increase program delays.