Special report: DoD’s budget quandary

An extended look at how DoD arrived at what one analyst calls "an inflection point," what it means, and where things could go next.

There’s no end in sight to the apocalyptic tenor of Beltway defense news and, if anything, it could keep getting worse. Todd Harrison, a defense budget analyst at the Center for Strategic and Budgetary Assessments – who you also heard from last week – briefed reporters Monday on his new report on the fiscal 12 defense budget, including DoD’s future prospects, and the outlook for the military-industrial complex is bleak.

Today we take a special extended look at this situation, dispensing with the blog post format for the moment in favor of something like an essay, to try to take half a step back and a look at the bigger picture.

The trick is in the doing

The Pentagon’s long-term problems aren’t insoluble: Harrison outlined what he believes Washington needs to do to weather the buffeting of Austerity America, and included some interesting and innovative concepts along with the now-familiar prescriptions — control requirements, manage well, and follow a strategy. The problems for DoD and America lie in executing what many people agree must be done, but which requires today’s dysfunctional system to work perfectly.

First, the problem: At Monday’s brief, Harrison brought up numbers from the fiscal 2001 defense budget to compare against the fiscal 2012 plan now under consideration up on the Hill. Although the United States has spent about $1.3 trillion on the wars in Iraq and Afghanistan since 2001, those costs will theoretically diminish along with the smaller American presence in both countries. But the costs of DoD’s normal operations have grown enormously over the past decade, and they won’t stop growing or decrease without major strategic and structural changes:

Personnel costs have increased about 46 percent per person since 2001, Harrison said, even though the total force has stayed about the same size. The cost of the defense health program has increased 85 percent. The Air Force’s cost per flight hour has increased 90 percent since fiscal 2001; the Navy has seen the cost of one day at sea for one ship increase 22 percent, even as its ships have spent 11 percent fewer days underway. A big question mark for DoD is fuel costs, which could take an unexpected bite worth hundreds of billions of dollars if they spike again. And these costs just for standard DoD operations won’t be helped by the services’ aging arsenals, wherein older planes, ships and equipment require more effort and money to keep going.

What about all that money we spent since the Sept. 11 attack, you ask. Didn’t that buy a whole bunch of wham-o-dyne new toys? Not really, Harrison said: His report describes it as a decade of “hollow growth,” in which DoD frittered away billions of dollars and lots of time on advanced weapons it ended up cancelling.

“Overall, nearly half of the growth in defense spending over the past decade is unrelated to the wars in Afghanistan and Iraq — personnel costs grew while end strength remained relatively flat, the cost of peacetime operations grew while the pace of peacetime operations declined, and acquisition costs increased while the inventory of equipment grew smaller and older. The base budget now supports a force with essentially the same size, force structure and capabilities as in FY2001 but at a 35 percent higher cost. The department is spending more but not getting more.”

Harrison showed a selective list of 12 major cancelled programs, including Future Combat Systems, the Army’s Comanche helicopter, the Marines’ Expeditionary Fighting Vehicle, the new presidential helicopter, etc. Americans paid a total of about $46 billion for them, but none saw the light of day. (This does not include the costs of over-budget programs that did yield copies, such as the littoral combat ship or the F-22.)

Service officials might jump in here and say that they learned important lessons from these programs — for example, if the American special operators who killed Osama bin Laden used a stealthy Black Hawk that carried technology from the Comanche, it wouldn’t be fair to say all of that $7.9 billion was “wasted,” the brass would argue. Army officials would say that some components of FCS are still on track to be fielded and improve soldiers’ ability to fight. More basically, the service secretaries today have heard this song so many times they know they can’t repeat these mistakes.

So, to sum up: The Pentagon spent a decade becoming addicted to unlimited spending, much of which yielded nothing, much of which was paid for with debt. Now, everyone in Washington is throwing chairs and gnashing teeth over big budget cutbacks, which naturally must involve a big red bull’s eye over the Puzzle Palace.

Harrison and others, including former Defense Secretary Robert Gates, say that the one thing Congress and the administration must not do is just send Secretary Panetta a slip of paper with a number on it and order him to reduce his budget by that much. If you try to shrink the military proportionally by giving everyone an equal cut — “salami slicing” — you’ll just end up with a force that has the same responsibilities but not to the ability to fulfill them. Commanders will still ask the Air Force for X patrols over Afghanistan, but it’ll only have Y aircraft, meaning it will have to wear out its fleet quicker to meet its tasking or tell commanders it can’t fly some missions, denying air cover for troops on the ground.

The strategy strategy

The answer, defense-watchers hope, lies in the Mother of All Reviews, now in the works in the Pentagon. If DoD can produce a roadmap that says, for example, we’re willing to decommission the Air Force’s arsenal of land-based missiles; try to get by with 9 aircraft carriers and 8 air wings; abandon our posture based on fighting 2 simultaneous major wars; and take your pick on what else — that will enable America to choose where it lessens its power, rather than weakening itself across the board, Harrison and others believe.

This will also give the defense establishment the opportunity to set down new markers about where to make new investments, and what strategic priorities the U.S. is willing to maintain going forward. So although DoD might want to disestablish some Army units in Europe, it could also increase the number of troops who attack and defend computer networks. It could say, for example, that the U.S. should expand its military presence in the Western Pacific, while shrinking it elsewhere, to deter a geopolitically ambitious China.

Harrison is an optimist. He told reporters Monday and wrote in his brief that he believes standing at the doorstep of Austerity America is an opportunity:

“It can provide both the fiscal and political imperative to jettison programs and activities that are no longer needed — so called “wasting assets” — and focus resources more efficiently on confronting the most likely future threats,” he wrote. “This period of constrained budgets can, if properly managed, result in a truly transformed military that fundamentally looks and operates differently – and more effectively – than today’s force.”

It’s a terrific idea: Through stringent management and sagacious planning, DoD, Congress and the administration can cut hundreds of billions, avoid a “hollow force” and reshape the military into something equal or greater. Problem is, there are many reasons to be skeptical about this.

The big, ongoing study may not even do its basic job of showing a clear way forward. DoD’s review dependence tactics worked for awhile, but Congress has figured them out and now fights fire with fire. You could see that just last week, in fact, when Rep. Randy Forbes, the Virginia Republican who chairs the House Armed Services readiness subcommittee, renewed his old complaint about the document that is now supposed to be the touchstone for defense planning: the Quadrennial Defense Review.

When it’s in the works, generals and admirals won’t tell you what they had for lunch on a given day because they’d rather wait for the QDR. Once the report comes out, it meshes with that year’s defense budget request like the gears of a Ferrari, but after only a few months, DoD officials begin telling you the assumptions in it are already out of date. (And won’t give you their current ones.)

This drives Forbes and other Hill defense advocates up the wall, so Congress convened an independent panel to review the QDR, which — no surprise — found it doesn’t serve its intended purpose: To outline the threats and strategies that should then govern how DoD buys and plans. Congress’ independent QDR panel has neutralized the power DoD once had to control the discussion, which means that now, no one does. If defense advocates on the Hill don’t like DoD’s mega-review, what’s to stop them from doing one of their own that reaches the conclusions they want?

Let’s say Congress doesn’t try to trump DoD’s big new report with one of its own. Under Gates’ and others’ ideal narrative, DoD submits its mega-review before or alongside its fiscal 13 budget submission, outlining who it thinks should be the winners and losers. For instance, let’s say the review says: “Given that the Navy won’t need to provide aircraft carriers to support air operations in Afghanistan anymore, we plan on reducing the carrier fleet to eight ships, based on the assumption they’ll take X patrols per year. Consequently, we’re requesting money this year to begin decommissioning the extra ships and we plan to draw down our force accordingly.”

Lawmakers will just rouse from slumber, reach over and rubber-stamp that idea, right? Wrong — the delegations from California, Washington, Virginia and elsewhere would wail like banshees and fight like wolves to keep their ships and squadrons. This year, the House couldn’t even bring itself to cap funding for the military services’ bands, or to cut off their support for NASCAR, let alone agree to let the Air Force decommission six B-1 bombers.

You’ll hear a lot of speeches like this one, given by Rep. Randy Neugebauer, the Texas Republican whose district includes Dyess AFB, home of the 7th Bomb Wing, and who is fighting to keep those aircraft in the force:

“Mr. Chairman, I know that in this new, and frankly refreshing, climate of tightening our belts around here, no program is off limits,” Neugebauer said. “There are no sacred cows and programs across the board, defense and non-defense, have to justify their funding levels. I believe keeping the B-1 fully funded and maintaining the current fleet size makes the case for itself.”

Translation: ‘Look, I know we’ve got to make cuts, but my particular piece of the military-industrial pie is too important.’ Multiply that times every defense advocate in the House and Senate, and you get a Congress where lawmakers will suddenly start looking very eagerly at the salami slicer. If you’ve got to cut, it’s easier to spread the pain around equally — but that’s exactly what defense analysts don’t want.

Maybe things will be different if the United States defaults on its debt this summer — if the consequences are as bad as some voices warn, it could no longer be politically rewarding to play budgeting games by the time the big DoD review comes out. Maybe people like those in Neugebauer’s district, some of whom would lose their jobs under defense reductions, will shrug and say “I’ve got to do my bit by giving up my livelihood for the good of the fiscal health of this country.” Then again, maybe not.

Efficiencies, shmefficiencies

But hold on, you say: What about finding “efficiencies?” Nah, said CSBA’s Todd Harrison — DoD can’t produce the kinds of savings America needs just by eliminating waste, fraud and abuse. (Although there probably are a few billion dollars to be gained that way.) The defense budget can achieve around $400 billion in savings just by growing at or below the rate of inflation, Harrison said, but that would require steep cuts upfront, almost 3 percent this year, or deep single-year cuts in the future. That could be tantamount to salami-slicing, could shock the industrial base, and the word in the E-Ring is that President Obama may offer up even bigger cuts as part of a potential deal with Republicans.

Harrison said from what he’s heard, the Office of Management and Budget hasn’t formally told managers to plan for reductions beyond the $400 billion, but DoD budgeters are working up plans for even bigger cuts. If the White House does end up sending Panetta a slip of paper with a higher number on it, it doesn’t want to be totally caught off guard.

Although Harrison was skeptical about the potential for major savings from “efficiencies,” he did say DoD must get better at developing and buying weapons — it just has no choice. If the Army really wants a Joint Light Tactical Vehicle or a Ground Combat Vehicle, the Navy wants an SSBN(X), or the Air Force wants a new bomber, the services must exercise monastic discipline over requirements, execution and production. If they don’t, they won’t be able to afford the numbers of weapons they want, which will increase the cost per unit of the ones they can buy, which will make everyone upset and put the programs in jeopardy. Same old story.

It’s worth pointing out here that some analysts have said no matter how stringent the services are about how they pursue their current programs, they still won’t have enough money to afford what they want. The Navy, for example, must buy not only SSBN(X) but also new cruisers and destroyers in the 2020s and beyond, and it’s not clear how it’ll get the cash to pay for all of that. Around that same time, the Air Force has procurement “bow wave” because its new bomber, the KC-46A tanker and the F-35 all are supposed to be in full-rate production at the same time. Service officials must figure out whether they can afford all that and the other things they want to buy.

Possible solutions

So what can the services do? Harrison said they need to crack down on requirements, to keep the Air Force bomber from becoming like the presidential helicopter. (Which, as Gates famously quipped, got to the point that it had to be able to “cook a dinner while in flight under nuclear attack.”) Part of that, Harrison argued, could require changing the way DoD approves these parameters. Its Joint Requirements Oversight Council, which comprises the services’ vice chiefs, ends up authorizing almost everything, Harrison said, because its members usually don’t have to deal with the cost of each new requirement they add.

“The process we have right now is really, I think, a stumbling block to achieving the kind of requirements discipline I’m talking about,” he said. “The JROC, if you look at them, there aren’t many requirements that go before the JROC that don’t get approved … They aren’t having to pay the bills directly for all these programs. So why not approve it? I mean, if someone comes up and says, ‘hey, I want this neat little widget to go in the cockpit of some airplane for the Air Force,’ why wouldn’t the Army say yes? It’s not going to be their budget. So if you create a tighter link between those who approve requirements and those who budget for them in the future, that will enforce better discipline on this process.”

Fixed-price contracts also will be essential in Austerity America, Harrison said, just so long as they actually impose fixed prices. He gave the example of the KC-46A contract, which technically sets a fixed price but still permits Boeing to charge from $3.9 to $4.9 billion, with taxpayers responsible for 60 percent of any overages.

“I don’t think most Americans would interpret that as fixed price, in that its price is not fixed,” Harrison joked.

He also warned that if DoD does try to begin using no-kidding fixed-price contracts, the upfront costs for weapons probably will go up, because companies will know they’ll have to budget appropriately to absorb possible cost overruns.


At the department-wide level, Harrison said DoD has no choice but to get its personnel and health care costs under control. To do that, he suggested that officials reevaluate which units and capabilities remain in the active force, verses in the reserves, given that reserve units are cheaper. Maybe it’s worth redefining the services’ different levels of readiness, at say, A, B and C levels, Harrison said. One Air Force unit could fly X percent fewer hours, with the understanding that it would require Y more days or weeks to get to a deployable state of readiness. Service officials might respond that they already practice a version of this.

Another way to control DoD’s department-wide personnel costs might be to revamp service members’ pay and benefits, Harrison argued. He called DoD’s current approach a “1950s-style” setup long ago outpaced by the private sector, and said the Pentagon might consider using a 401k-style system instead of traditional pensions, as well as regular increases in the amount troops and working-age retirees must contribute to their own medical care. Federal workers pay about $5,000 per year for their health care plans, but the Tricare enrollment fee for working-age retirees remains $460, the same as it was in 1995.

Harrison also said the services could change the way they talk about a service member’s pay and benefits, to create a clearer picture of the total amount of money involved. Troops draw basic pay, but they also get allowances for housing and other benefits and special pays that aren’t rounded up in the amount of money they appear to make every year. You can check out Military.com’s Basic Allowance for Housing tables for this year to get a sense of how much more a soldier stationed in Washington, D.C. can end up making than an airman stationed in Idaho. If it were clearer how much service members already bring in, total, there might be less incentive for personnel costs to keep going up.

The reality, though, is that lawmakers and most Americans believe service members can never be paid enough, and whatever they’re making now, they deserve more. (Many people still assume today’s military consists of the poorly educated, bottom-rung screwups they’ve seen in TV and movies, not the comparatively skilled, well-paid force it actually is.) Any proposals for major changes to pay, benefits, health care or the active and reserve components must be approved by Congress, and lawmakers don’t like to be seen as anything less than fully committed to the troops.


So where does all this leave us? No matter what happens with the Mother of all Reviews and Congress’ response, the Army looks like it will wind up the biggest loser, Harrison said. Americans won’t want to fight another big land war for awhile, and Harrison cited the post-Korea reshaping of the military under Eisenhower as a potential precedent for how DoD could look going forward. Ike didn’t like Korea in the first place, so he was in sync with the “no more Koreas” mindset that led to shrinking U.S. land power and increasing its strategic forces over the 1950s, Harrison said.

And then, of course, after a few more years, America went on to fight another big Asian land war anyway.

Military, congressional and political leaders use the same clichés to describe the coming era: “it won’t be easy;” it will require “tough choices,” etc. All true, but unless there are some major shakeups in the daily realities of business in Washington, even the broadest-spectrum, soupest-to-nutsest review in DoD’s history won’t make this process an easy splashdown. It’ll be like everything else in American political life — loud, contentious, often absurd, and always unpredictable.