Big Budget, Bad News

Defense has more to spend than ever, but it can't afford the weapons it's developing.

The United States is a nation at war, and the vaunted "arsenal of demo-cracy" is humming along, pumping on all cylinders. After all, operations in Iraq and Afghanistan, funded this year with an off-budget supplemental appropriation of $82 billion, have generated an urgent need for everything from refurbished M-1 tanks and Bradley Fighting Vehicles to armored Humvees and munitions too numerous to list. The Pentagon also has no less than 80 major new weapons programs now under development with a combined price tag of more than $1.47 trillion.

Meanwhile, the Bush administration's fiscal 2006 defense budget request of $441 billion, combined with $85 billion in supplemental funds the Congressional Budget Office estimates likely will be needed for ongoing military operations, would bring the Pentagon's total budget next year to $527 billion-making it, in real terms, the largest annual defense expenditure since the Korean War.

So, if these are the best of times in terms of defense spending, why are so many analysts and experts predicting the worst of times just around the corner for the Pentagon and the defense industry? Simple. The Pentagon has far more weapons programs in its pipeline than it can afford to buy, and the combined costs already have exceeded projections by more than $300 billion and climbing.

Indeed, despite record levels of spending, the CBO and the authoritative Center for Strategic and Budgetary Assessments in Washington both estimate that the Pentagon actually is underfunding the current force and its own modernization plans by $50 billion each year. Finally, given record federal budget deficits and looming crises in Social Secu-rity and Medicare associated with the approaching retirement of baby boomers, almost no one believes the current level of defense spending is sustainable over the long run.

"We're really seeing a confluence of factors that make the overall picture for defense acquisition quite worrisome," says Steven Kosiak, the director of budget studies at CSBA. Chief among those factors is a large number of major programs now in transition from the relatively inexpensive research and development stage toward the far more costly production phase. "Whether it's the Navy's DD(X) destroyer, the Air Force's Joint Strike Fighter, or the Marine Corps V-22 tilt-rotor aircraft, there's a whole range of programs going into production in the next five years or so," he says. "The Pentagon's efforts to rein in the growth in costs for those new weapons have also largely failed. At the same time, concerns about the federal deficit have raised doubts about how long this defense buildup can be sustained. Finally, operations in Iraq and Afghanistan are wearing out the current arsenal very quickly, which is a major concern for the Army especially."

In response, the Pentagon recently launched a major review of how it buys weapons in order to identify the reasons why major programs-from aircraft to ships to satellites-are taking longer to execute and steadily increasing in cost.

That the costs increases are substantial and pervasive is not in dispute, a fact pointed out in a recent report by the Government Accountability Office. "Just four years ago, the top five weapons systems cost about $281 billion; today, in the same base-year dollars, the top five weapons systems cost about $521 billion," analysts concluded in a March study (GAO-05-301), noting that estimates of time and money on major programs are routinely off by 20 percent to 50 percent. "If [today's] megasystems are managed with traditional margins of error, the financial consequences can be dire, especially in light of a constrained discretionary budget."