Living Beyond Its Means

The Pentagon's budget is squeezed by war, soaring fuel costs and out-of-control acquisition programs.

In early July, the Defense Department reached a major acquisition milestone with the purchase of its 10,000th mine-resistant, ambush-protected vehicle; by summer's end, another 5,000 are to be delivered. Defense Secretary Robert Gates made the vehicles the department's top acquisition priority last year after troops in Iraq and Afghanistan were found to be too vulnerable to insurgent bombs.

The program, which has consumed more than $18 billion thus far, was only a blip on the radar of acquisition executives a few years ago and illustrates how the wars in Iraq and Afghanistan are reshaping Pentagon purchasing. Defense budget officials are finding that $480 billion just doesn't stretch as far as it used to. That was the department's base budget in fiscal 2008, but it didn't include the $189 billion in supplemental funding officials had requested to pay for operations overseas.

In December 2007, Congress appropriated only $86.8 billion of that request and by mid-June the Army was so strapped for cash the Pentagon had to move funds from Navy and Air Force accounts into the Army's coffers to keep soldiers on the payroll. Anticipating the funds transfer, Gates told lawmakers in May the move was a shell game that would disrupt ongoing programs and push the services' operation and maintenance accounts "to the edge of fiscal viability." But for the Pentagon, such maneuvers have become business as usual. Lawmakers finally approved the remaining $102 billion in supplemental funding in late June.

While the wars are wreaking havoc with the budget, so too is the price of oil. Defense officials estimate that every $10 jump in the price of a barrel of oil drives operating costs up by $1.3 billion. For a department that uses more fuel than many countries, the impact is considerable. The rising cost of ongoing military operations and fuel, however, is only part of the fiscal challenge the Defense Department confronts. Spiraling acquisition costs threaten to derail some of the department's long-term modernization plans. Defense continues to invest in conventional big-ticket programs such as the Army's Future Combat Systems; Air Force and Navy fighter aircraft, including the F-22 and Joint Strike Fighter; and Navy submarines and a new aircraft carrier. But those programs are facing increased scrutiny from lawmakers skeptical about their ballooning price tags as well as their utility.

And useful or not, the department's portfolio of weapon systems far exceeds its resources, the Government Accountability Office told the Senate Armed Services Committee in June (GAO-08-782T). "From 1992 to 2007, the estimated acquisition costs remaining for major weapons programs increased almost 120 percent, while the annual funding provided for these programs only increased 57 percent. Current programs are experiencing, on average, a 21-month delay in delivering initial capabilities to the warfighter-often forcing DoD to spend additional funds on maintaining legacy systems," GAO found.

The cost of that portfolio has grown by more than $300 billion since initial program estimates, GAO reported. Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, told a Government Executive audience in June that some programs "will collapse of their own weight if we don't do something about it."

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