war on the rocks

Funding Defense: A Strategic Problem

February 20, 2019

The president’s proposed defense budget for next year remains under wraps for now, but alone will not be sufficient to address what has become a long-term challenge. A more difficult international environment, the Defense Department’s internal funding dynamics, and unresolved stresses in federal spending are combining to make adequate defense spending a truly strategic problem.

Defense leadership had hopes the Fiscal Year 2020 defense budget would finally match resources with the new National Defense Strategy announced last year. Resource managers also anticipated defense increases would further if not complete the transfer of annual overseas contingency operations funds into the base defense budget. A surging deficit following the 2017 tax cuts and a new Democratic-led House of Representatives, however, have changed the tactical landscape.

The federal government annually has been borrowing roughly 20 cents of every dollar it spends, and the national debt now exceeds 75 percent of GDP. Expiration of the latest bipartisan deal easing defense budget caps in FY2018–FY2019 means the potential for sequestration under the FY2011 Budget Control Act once again hangs over the Department of Defense.

Federal spending remains dominated by Social Security, Medicare, Medicaid and other mandatory spending under current law totaling about 62 percent of the budget. Interest on the debt accounts for nearly 8 percent. Each year brings a congressional tug-of-war over the 30 percent of the budget subject to annual review, the “discretionary” funding roughly split between defense and non-defense, general government spending. Potential solutions to federal deficits involving some combination of easing spending and increasing revenue are well understood but have been consistently rejected by presidents and/or the Congress.

For defense, the non-partisan Congressional Budget Office has long found that the Defense Department’s current plans require greater funding to execute. They estimated that to achieve the administration’s goals would require another 12 percent beyond levels the Pentagon currently forecasts from 2018 to 2027. Internal defense costs are driven by pay and benefits for military and civilian personnel, and operation and maintenance of the force — together averaging about 60 percent of the defense budget over the past five years.

Annual increases in the cost of operating the force have generally tempered the perceived need to grow it. From 2000 to 2014, for example, the Defense Department’s base budget (adjusted for inflation) grew by 31 percent while, internally, operation and maintenance and military personnel costs increased by 34 and 46 percent respectively, even while military end-strength declined by over 4 percent. And for over 15 years, the Pentagon has benefitted from off-budget, overseas contingency operations funding as a necessary relief valve for shortfalls in the Defense Department’s base budget.

The military’s judgment, oversimplified, is that the quality of the force and the need to stay on leading edges of technology have been more important than quantity. Yet facing the rising costs of more sophisticated equipment, the department has had to delay and stretch procurement, slowing modernization of the force.

These internal defense spending patterns and the continuing use of overseas contingency operations for budgetary relief are now very familiar, so why has defense spending become a strategic problem?

First is a more challenging international environment, summarized as “4+1.” This includes a resurgent Russia, a rising China, a nuclear North Korea, and the malign influence of Iran across the Middle East. The United States is still dealing with international terrorist groups such as the self-proclaimed Islamic State, al-Qaeda, and others, but it is the resurgence of great power competition backed by advancing technologies and (in China’s case) economic power that requires attention. Sometimes overlooked is the Defense Department’s highest priority: the defense of North America. Once defined by mutual U.S.-Soviet nuclear deterrence, defending the United States from missile, cyber, and other threats is now a substantially more complex, multi-domain problem.

Second, there is little if any slack left in the defense enterprise. For over three decades, with a few exceptional years, the Defense Department has been trading size for new capabilities: shrinking the force to protect continuing modernization. It has not been radically apparent year over year, and was masked by the post-9/11 build-up, but is plainly obvious over time as today’s active duty strength has shrunk about 40 percent since the mid-1980s. Today’s force is in many respects more capable than ever, but it’s smaller and the number of personnel stationed abroad is at a 60-year low. It is good news that there are currently no really big, “hot” wars, but mixed news for allies who ask whether we have sufficient commitment and forward presence to deter potential adversaries.

However, despite consciously choosing quality over quantity, the Defense Department has not kept up with the need for modernization. Equipment is more expensive, especially since the information technology and digital revolutions. It has also taken longer to field new equipment due partly to technological complexity, and because we’ve delayed and stretched-out procurements to ease the yearly burden on defense budgets. The KC-46 tanker program, for example, has been programmed to fund about 15 aircraft per year to ensure procurement dollars are available for other programs and priorities. At such a low rate of production, however, it will take over ten years to deliver 179 aircraft. This modernizes less than half the current tanker fleet of 400+ aircraft, a fleet the Air Force recently assessed is too small. Inventories of ships, aircraft, and other weapons are now older than ever, and the U.S. military is just now at the front-end of multi-decade replacement plans that will be challenged to adapt to rapidly changing threats and technologies.

The services are still trying to restore an acceptable level of readiness following years of shortfalls in training and maintenance. Current readiness challenges reflect the lingering effects of the post-9/11 operational tempo, the sharp drop in planned spending following 2013 sequestration, and the new demands imposed by today’s security environment on a relatively smaller force.

Defense expenditures now constitute only 3 percent of GDP and roughly 15 percent of federal spending. Yes, the United States spends more on defense than any other country. Yes, allies should spend more. Yes, the Defense Department failed its first audit. And yes, more internal reforms could save money.

But none of these conditions changes the picture. America’s geopolitical challenge of deterring and confronting potential adversaries abroad and sustaining alliances from great distances still pertains, and defending North America from missile and cyber threats is today more difficult than it has ever been. There is broad bipartisan support for the pay and benefits afforded today’s all-volunteer force, and for the training and technology providing them clear advantage over potential adversaries.

A clean audit and continuing internal reforms remain essential and worthy objectives, but will not produce savings sufficient to fund the backlog of deferred modernization overhanging the department.

Congress and the Defense Department have recently undertaken several reviews to validate the National Defense Strategy and the force levels required to support it. Military leaders are now on record advocating for a 355-ship Navy, a 386-squadron Air Force, and an Army of more than 500,000 active duty personnel. And the National Defense Strategy Commission has recommended 3 to 5 percent real growth in the defense budget above inflation for the next five years (and perhaps beyond). But absent a national emergency, these aspirational force levels, and the resources necessary to support them, seem well out of reach in today’s budget environment.

Third, U.S. budget and fiscal trends have continued into uncharted territory.

Spending is being driven in large part by aging demographics and health care costs, and interest on the debt. These two areas account for 70 percent of federal spending and they are growing. It is becoming almost pointless to argue over the balance of a shrinking discretionary piece of the budget pie. The United States needs both defense and non-defense spending, and there is a case that both are underfunded.

Add to this a rancorous political environment. The executive and legislative branches have routinely failed to implement longer-term solutions to pressing national problems such as budget deficits, immigration, health care, and infrastructure. Inability to implement recommendations of the Simpson-Bowles commission on fiscal responsibility or the mandates of the Budget Control Act is accompanied by sweeping tax cuts, late appropriation bills, government shutdowns, and short-term budget deals.

In summary, on the “demand” side of the equation, the U.S. military faces a more complex and dynamic threat environment with an aging force lacking in sufficient readiness, needing modest growth and significant modernization. Meeting these challenges will require resources beyond a single, five-year or future-years defense plan.

On the “supply” side is a deteriorating federal fiscal picture and a caustic political environment feeding domestic and foreign doubts about the effectiveness of America’s political institutions to deal with pressing national issues.

Defense planners have a strategic problem: What does the risk of funding below 3–5 percent real growth look like? How much risk to take in planning for forces and equipment beyond that likely to emerge given prevailing political and fiscal realities? How to credibly execute a strategy that may not be fully resourced? The military needs stable resources at levels sufficient to restore readiness and finance multiple capital investments at the same time, but it must also take care to constrain the size of the force, which affects long-term affordability. The Defense Department must beware the mismatch among strategy, forces, and resources.

Congress, for its part, has much to do. While the Defense Department has been funded for FY2019, the impasse in finalizing a 2019 budget for much of the federal government does not bode well for FY2020 budget negotiations.  The president’s recent declaration of a national emergency on the southern border is aimed at financing barriers or walls by redirecting defense military construction and counter-drug funds previously appropriated by Congress for other purposes. This has generated constitutional challenges and will further compound the overall difficulty in producing a FY2020 budget. Calls for increasing defense spending have been made, and should be heeded, but may fall on a divided and distracted Congress not ready to force yet another uncomfortable debate, however necessary, over how to balance defense, entitlements, and other domestic spending needs with federal revenues while returning the United States to a path of fiscal responsibility.

For the House and Senate defense committees, at least, it is certainly time for frank and candid closed-door discussions with defense leaders concerning the size and shape of the force, the full scope of the modernization challenges ahead, the pace of planned improvements to capability, and how and where to apportion risk. While defense leadership needs to face up to the longer-term challenge of affordability, congress must confront the challenge of how to finance the nation’s strategic needs.

The recent increases in defense spending have been necessary and welcome. But wherever the defense topline settles out for FY2020, these are but a few steps on a very long road on which the U.S. military must demonstrate sound strategy and consistency of purpose. No single number or year will signal success.

It is often observed that the U.S. economy can afford whatever the country needs for national defense. True enough, but ultimately we have only the defense capabilities that Congress will support, and we cannot expect Congress to finance the defense we need if our political leaders collectively are unable first to put the nation’s fiscal house in order. National security, it seems, rests not only on the foundation of a strong economy, but also on a foundation of sound governance. Finding bipartisan solutions to adequate and sustainable funding for defense is indeed a long-term strategic challenge, and we had better step up our game.

 

 

Michael Donley served as the 22nd Secretary of the Air Force from 2008 to 2013 under both Presidents George W. Bush and Barack Obama. He was previously Director of Administration and Management in OSD, Deputy Executive Secretary at the National Security Council, and on the Professional Staff of the Senate Armed Services Committee.

Image: Chairman of the Joint Chiefs of Staff