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

CRS-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.

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

CRS-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.

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

CRS-6 Six Factors Driving Up the Cost of Defense 1)Increase in personnel pay and benefits: FY1998-FY2009 = 45% above inflation 2)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

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

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

CRS-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.

CRS-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

CRS-11 Additional/Backup Slides

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

CRS-13 Weapons Recapitalization Rates: FY1985 vs. FY ∆ Tactical Fighters Bombers Other Fixed Wing Rotary Wing Missiles87,11313,471-73,642 Tracked Combat Vehicles2,4141,258-1,156 Tactical Vehicles56,55132,276-24,275 Satellites (Unclassified)101-9 Ships Source: Adapted from Cecil Black, Boeing Corporation, January 2008 Procurement + R&D = $213 billion in FY1985, $244 billion in FY2008, both in FY2008 prices

CRS-14 GAO: Accuracy of Cost Estimates Grows Worse 2000 portfolio2005 portfolio2007 portfolio2008 portfolio Portfolio Size Number of programs Total planned commitments $805 Billion$1.5 Trillion$1.6 Trillion Commitments outstanding $390 Billion$905 Billion$875 Billion$786 Billion Portfolio Performance Indicators Change to total RDT&E costs from first estimate 27 percent33 percent40 percent42 percent Change in total acquisition cost from first estimate 6 percent18 percent26 percent25 percent Estimated total acquisition cost growth $43 Billion$206 Billion$301 Billion$296 Billion Share of programs with 25 percent or more increase in program acquisition unit cost 37 percent44 percent 42 percent Average schedule delay in delivering initial capabilities 16 months17 months21 months22 months Source: Annual GAO reviews of selected acquisition programs.

CRS-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

CRS-16 Source: Department of Defense briefing slides, August 2004

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

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

CRS-19 Breakdown of Increases in Military Pay and Benefits per Troop, FY1998 to FY2009 FY1998FY2009% Change BASIC PAY/ SUBSISTENCE/ SEPARATION PAY$33,518$39,079+17% BASIC ALLOWANCE FOR HOUSING$4,174$11, % SPECIAL/INCENTIVE PAY AND ALLOWANCES$3,387$4,976+47% PERMANENT CHANGE OF STATION TRAVEL$2,630$3,408+30% RETIREMENT ACCRUAL AND SOCIAL SECURITY$11,442$12,659+11% RETIREE 65- AND OVER MEDICAL ACCRUAL$0$5,484NA CONCURRENT RECEIPT ACCRUAL/ SPECIAL DISABILITY COMPENSATION$0$2,672NA DEATH GRATUITIES/ SURVIVOR BENEFITS/ HAZARD INSURANCE$26$ % OTHER MILPERS$104$ % TOTAL ACTIVE DUTY MILITARY PERSONNEL PAY AND BENEFITS$55,280$80,004+45% Note: Base budget only, not including war costs

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

CRS-21 Contact Information Stephen Daggett