The Congressional Budget Office (CBO) prepared this report in July 2012, to analyze the long term impact of the 2013 Future Years Defense Program, the Department of Defense's budget projection of fiscal years 2013 to 2017, through 2030. This report considers the budget in light of the Budget Control Act, or sequestration.
From CBO's description and summary of the report's findings:
In most years, the Department of Defense (DoD) provides to the Congress a five-year plan, called the Future Years Defense Program (FYDP), along with its budget request for the coming year. Because decisions made in the near term can have consequences for the defense budget well beyond that period, CBO regularly examines the plans in DoD's FYDP and projects their budgetary impact over the long term. This study analyzes the budgetary impact of the 2013 FYDP, which covers fiscal years 2013 to 2017, through 2030.
CBO projects that DoD's plans will cost $123 billion, or 5 percent, more to execute through 2017 than DoD estimates. CBO also projects that the cost of DoD's plans will exceed the limits established in the Budget Control Act.
The FYDP describes the department's "base" budgetary plan—for its normal activities, such as manning, training, and equipping the military—and excludes overseas contingency operations, such as the war in Afghanistan and other nonroutine military activities elsewhere. Accordingly, CBO focused its analysis on DoD's base-budget costs and produced two projections.
The first, the "CBO projection," uses CBO's estimates of cost factors and growth rates that reflect DoD's experience in recent years. The second, the "extension of the FYDP," starts with DoD's estimates of the costs of the FYDP through 2017 and extends them beyond 2017 using DoD's estimates where available and CBO's projections of price and compensation trends for the overall economy where DoD's estimates are not available. Neither projection should be viewed as a prediction of future funding; rather, the projections are estimates of the costs of executing the department's current plans.
What is the CBO's Projection of the Costs of the DoD's Plans?
The CBO projection yields these conclusions (with all costs measured in 2013 dollars):
- To execute its base-budget plans for 2013 through 2017, DoD would need appropriations totaling $53 billion (or 2.0 percent) more in real, or inflation-adjusted, terms than if funding for the base budget was held at the 2012 amount of $543 billion. For the entire projection period of 2013 through 2030, DoD's base-budget plans would require appropriations totaling $1.2 trillion (or 12 percent) more than if funding for the base budget was held at the 2012 amount in real terms.
- The primary cause of growth in DoD's costs from 2013 to 2030 would be rising costs for operation and support (O&S), which accounts for 64 percent of the base budget in 2012. In particular, under DoD's plans, there would be significant increases in the costs of military health care, compensation of the department's military and civilian employees, and various operation and maintenance activities.
- The costs of replacing and modernizing weapon systems would grow sharply during the next several years, from $168 billion in 2013 to $212 billion in 2018 in real terms—an increase of 26 percent. Acquisition costs would remain fairly steady at that level until 2025 before declining.
- The growth in DoD's costs would be less than the growth of the economy, so costs would decline as a share of gross domestic product (GDP). Spending for DoD's base budget was 3.5 percent of GDP in 2010 and would decline to 3.0 percent of GDP in 2017 and to 2.5 percent in 2030.
How Does CBO's Projection Compare with a Projection Based on DoD's Estimates of the Costs of the FYDP?
For most categories of DoD's budget, costs under the CBO projection are higher than the costs estimated by DoD in the FYDP and the assumed costs for the extension of the FYDP. In particular, DoD's costs of providing health care, paying military and civilian personnel, and developing and buying weapons have historically been higher than the department's planning estimates. Over the FYDP period, CBO's projection exceeds DoD's estimates by a total of $123 billion, or 5 percent, in 2013 dollars.
How Does CBO's Projection Compare with Funding Provided Under the Budget Control Act?
CBO compared its projection of the costs of executing DoD's plans with the maximum funding levels that could be provided to the department under the Budget Control Act of 2011 (BCA), which limits discretionary appropriations through 2021. If DoD continues to receive its historical share of the national defense budget, CBO's analysis yields these conclusions:
- The cost of DoD's base-budget plans for 2013 through 2021 is $508 billion higher in nominal terms than the funding that would be available to DoD under the BCA's limits on discretionary appropriations for national defense before reductions due to that law's automatic enforcement procedures.
- The cost of DoD's base-budget plans for 2013 through 2021 is $978 billion higher in nominal terms than the funding that would be available to DoD after the reductions due to the BCA's automatic enforcement procedures, which are poised to take effect in January 2013.
- For 2013, CBO's projection of the cost of DoD's plans is $14 billion higher than the funding that would be available under the BCA's limits on discretionary appropriations for national defense before the BCA's automatic reductions. Those costs would be $66 billion higher than the funding that would be available after the automatic reductions. Accommodating those reductions, in particular, could be difficult for the department to manage because it would have to be done over only nine months. Even with that cut, however, DoD's base budget in 2013 would still be larger than it was in 2006 (in 2013 dollars) and larger than the average base budget during the 1980s.