Defense budget portends difficult trade-offs

The Obama administration's request for $538 billion for the Defense Department in fiscal 2010 and its stated intention to maintain a high level of funding in the coming years put the president on track to spend more on defense, in real dollars, than any other president has in one term of office since World War II. And that's not counting the additional $130 billion the administration is requesting to fund the wars in Iraq and Afghanistan next year, with even more war spending slated for future years.

Nonetheless, the department faces enormous fiscal challenges that likely will force a significant shift in spending priorities as it conducts its latest Quadrennial Defense Review, which will be released early next year.

"When you look at the pressure on the top line [of the Defense budget] and growing entitlements, we are going to have to look at some very hard choices," said Jim Thomas, vice president for studies at the nonpartisan Center for Strategic and Budgetary Assessments.

On Wednesday, CSBA released three reports that examine the Obama administration's fiscal 2010 Defense budget request, the impact of the wars in Iraq and Afghanistan on military plans, and classified funding in the 2010 budget.

Collectively, the reports show the toll the wars and economic trends are having on the military services and their long-term modernization plans. Of particular note are growing personnel costs. In 2007, to fill a shortage of ground troops needed for combat in Iraq and Afghanistan, the Army and Marine Corps began adding 65,000 and 27,000 troops, respectively.

"Whenever you add troops to the force there are long-term budget implications," said Todd Harrison, a CSBA budget analyst and author of the three reports. He estimated the additional 92,000 troops will cost about $14 billion annually when items such as pay, health care, housing, equipment, retirement benefits, training and education are factored in.

The Defense Department is predicting military health care costs will double during the next 10 years due to higher-than-inflation cost growth and Congress' steady expansion of benefits, including those for reservists and their families.

"Once these conflicts do subside, can we afford to maintain the [troop increases]? If so, where does the money come from?" Harrison wondered. What's more, the Army announced in July that it would need a temporary increase of 22,000 soldiers in addition to the earlier increase of 65,000.

The cost of fielding new weapons is another concern. The high cost of developing weapons is undercutting the department's ability to buy them once they're available, Harrison said.

In the 1970s and 1980s, the ratio of procurement to RTD&E (research, development, testing and engineering) funding was 3-to-1. Today, it is between 1.2-to-1 and 1.5-to-1, Harrison said.

"Acquisition programs are procuring next-generation systems in much smaller quantities than the legacy systems they are replacing," he said. Even with the increased capability provided by most next-generation weapons programs, numbers do matter. An aircraft or ship only can be in one place at a time -- something that matters greatly to military planners.

Harrison's analysis also shows that predicted savings from program changes don't always materialize. He noted that the 2005 Base Realignment and Closure process, which resulted in the decision to shut down 22 major bases -- about 7 percent of the military's network of installations -- was supposed to yield $40.1 billion in savings between 2005 and 2025. The Defense Department now estimates the savings will be $15.3 billion, but in the near term the department is spending more to close the bases than it is saving.

"The days of nipping and tucking are coming to an end," said Thomas, referring to the long-standing practice of cutting small amounts of money from many programs to make up for budget shortfalls. Instead, the nation faces strategic decisions about its willingness to accept risk.

In the broader context of the overall federal budget and the nation's mounting debt, the pressure to curtail spending on Defense is inevitable, Thomas and Harrison said. CSBA estimates that in 10 years, the interest payment on the national debt will exceed the Defense budget for the first time in history.

"We may not be able to afford to field a force that can respond to two major wars at a time," he said, referring to the strategic objective of the previous QDR.