Long-Term Trends in the Defense Budget

1. Long-Term Trends in the Defense Budget Stephen Daggett Specialist in Defense Policy and Budgets May 5, 2010

2. Overview of Main Points 1) Trends in DOD budget – • Procurement the “bill payer” in past declines • Norm since 1955 is growth of about 2% per year above inflation per troop in base budget 2) Growing costs require difficult choices just to stay in place 3) No real growth or declining budgets would require trade-offs • Limit personnel & O&M costs? DOD has tried. • Trim weapons procurement? Usual answer. • Reconsider size of the force? May be on the table, but requires adjustments in strategy.

3. DOD Discretionary Budget Authority and Outlays, FY1950-FY2015 Note: FY2010-FY2015, Administration projection, includes projected war costs.

4. Total DOD Budget by Title, FY1948-FY2015:Procurement Has Been the “Bill Payer” in Past Declines (includes war costs) Note: FY2010-FY2015, Administration projection, includes projected war costs.

5. DOD Budget Authority per Active Duty Troop: FY1955-FY2015 (base budget) Note: Base budget only, not including war costs

6. Six Factors Driving Up the Cost of Defense • Increase in personnel pay and benefits: FY1998-FY2009 = 45% above inflation • O&M grows 2.7% per year above base inflation [1 & 2 discussed, 3-6 in additional slides] 3) Generational cost growth in weapons 4) Underestimation of weapon costs 5) Reorganization of Army/lessons of wars 6) Expanded range of threats/challenges

7. Military Personnel Compensation Per Active Duty Troop, FY1972-FY2009, Indexed to FY1972, Adjusted for Inflation Using CPI

8. DOD Operation & Maintenance Per Troop, FY1955-FY2015 (base budget) Note: Base budget only, not including war costs

9. DOD Base Budget with No Real Growth: FY2010-FY2020*(constant FY2010 $ in billions) *Assumes 0.7% annual growth in MilPers, 2.7% annual growth in O&M.

10. Alternatives if No Real Growth or Real Decline in Defense 1) Reform pay & benefits system? • E.g., less for retirement • Issue: Why take risk (current system worked) 2) Limit O&M & weapons costs? • DOD has tried repeatedly • Would be worse without continuing efforts 3) Reduce new weapons procurement? • Usual answer, but only for short term • Okay with force drawdown, but then must recover 4) Reconsider size of the force? • Difficult until withdrawals from Iraq/Afghanistan • Requires adjustments in strategy

11. Additional/Backup Slides

12. National Defense Outlays % GDP: FY1950-FY2016 Note: FY2010-FY2015, Administration projection, includes projected war costs.

13. Weapons Recapitalization Rates: FY1985 vs. FY2008 Procurement + R&D = $213 billion in FY1985, $244 billion in FY2008, both in FY2008 prices Source: Adapted from Cecil Black, Boeing Corporation, January 2008

14. GAO: Accuracy of Cost Estimates Grows Worse Source: Annual GAO reviews of selected acquisition programs.

15. Increased Ground Force Requirements • 92,000 increase in Army and MC end-strength = + $13 billion/year • Army “Modularization” = $52 billion ++ • Lessons of the war: • Force protection • Communications (every Marine in Anbar to have a radio) • Transportation (trucks, helicopters) • National Guard combat units to be equipped as part of rotation base

16. Source: Department of Defense briefing slides, August 2004

17. 2006 QDR Objective – Shift in Focus Irregular Catastrophic Defeat Terrorist Extremism Counter WMD Defend Homeland Shape Choices Today's Capability Portfolio Disruptive Traditional “Shifting Our Weight” Source: DOD briefing on 2006 Quadrennial Defense Review, February 3, 2006.

18. Breakdown of Increases in Military Pay and Benefits per Troop, FY1998 to FY2009 Note: Base budget only, not including war costs

19. Breakdown of Increases in Military Pay and Benefits per Troop, FY1998 to FY2009 Note: Base budget only, not including war costs

20. Acquisition per Troop: FY1955-FY2013 (base budget only) Note: Base budget only, not including war costs

21. Contact Information Stephen Daggett sdaggett@crs.loc.gov 202 707-7642