The Fine Print on Defense Spending
from Global Economy in Crisis

The Fine Print on Defense Spending

As the Obama administration finalizes its first defense budget, analysts say near-term growth will be followed by lean spending amid the worst economic crisis since the Great Depression.

Last updated April 8, 2009 8:00 am (EST)

Current political and economic issues succinctly explained.

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Introduction: "Tough Choices"

On the campaign trail, President Barack Obama made repeated vows to overhaul the Pentagon budget process (PDF). And despite inheriting a defense establishment embroiled in two wars and fielding major weapons systems developed decades ago to fight the Soviet Union, the Obama administration is poised to make good on its promises. On April 6, 2009, Secretary of Defense Robert Gates unveiled a sweeping overhaul of defense spending priorities. If approved by Congress, the moves would shift billions of dollars away from elaborate weapons systems--like advanced fighter jets and naval vessels--to intelligence and surveillance programs employed in current counterinsurgency campaigns such as Iraq and Afghanistan. The moves were not entirely unexpected. Speaking on Capitol Hill in January 2009, Gates told lawmakers "tough choices" lay ahead for military spending. Growing competition for domestic dollars, Gates said, means "the spigot of defense funding opened by 9/11 is closing" (PDF). But as budget analysts await the final defense budget (an overview was released February 26), some predict overall spending cuts will come slowly. Indeed, defense analyst James McAleese says preexisting plans approved by Congress to add thousands of troops to both the U.S. Army and Marine Corps, coupled with ongoing conflicts in Iraq and Afghanistan, indicate the new administration’s first budget--once it winds its way through Congress--will see a "significant increase in [the] 2010 DoD budget" (PDF) before pursuing cuts down the road.

Near-Term Spike

As Washington refocuses its attention from fighting in Iraq to stabilizing Afghanistan, military budget experts expect overall warfighting costs will decrease over time. But baseline spending--money used to pay for standard Pentagon operations--is almost certain to go up in the near term. As costs associated with repairing the force after seven years of war remain high, many analysts say baseline dollars will increase slightly in FY2010 to keep pace. The budget unveiled by Secretary Gates represents a $20 billion increase over 2009 (WashPost). Stanley Collender, a veteran budget analyst with Qorvis Communications in Washington, told reporters on February 12 that given the military’s current warfighting needs, it’s unlikely Congress will be willing to shave the military budget down from this projected level.

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Benjamin H. Friedman, a research fellow at the Cato Institute, a libertarian think tank, writes in World Politics Review that the increase shouldn’t come as a surprise. "Many Americans believe that Barack Obama and the Democratic majority in Congress will lower defense spending and restrain the militaristic foreign policy it underwrites," Friedman notes. "The coming years should destroy that myth." Even still, some spending hawks have sought to portray the Obama administration as weak on defense (WashPost), arguing the president’s request is below the Pentagon’s actual needs. But Gordon Adams, a national security budgeting official in the Clinton administration and an expert on defense spending assessments, argues Obama’s proposal, if realized, "would represent budget discipline at Defense that has been sorely absent for the past eight years."

Long-Term Decline

While Obama’s 2010 baseline budget would be an increase over 2009 spending, defense analysts see long-term trends headed in the opposite direction. Information Technology Association of America (ITAA), a defense lobbyist, forecast in October 2008 that over the next decade, the base budget plus war-related costs will decrease from a high of $678 billion in the last year of the Bush administration to an estimated $531 billion by 2019. The assessment, completed before the crush of the financial crisis painted an even more foreboding economic picture, concluded that spending on mandatory programs such as Medicare, Medicaid, and Social Security will eat into future defense programs. Robert Work, a defense budget analyst with the Center for Strategic and Budgetary Assessments, says this assumption makes sense given the historic uptick in defense expenditures. The United States spent a staggering $696 billion on defense in 2008, Work says, more than at any time since World War II. "That included 1952, when we had ... combat operations against the Communist Chinese in Korea. It included Vietnam, when we had 550,000 troops in the field. It included the height of the Reagan defense buildup." Looking ahead, Work says spending declines are, "statistically and historically speaking," almost assured.

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“Many Americans believe that Barack Obama and the Democratic majority in Congress will lower defense spending and restrain the militaristic foreign policy it underwrites. The coming years should destroy that myth.” -- Benjamin H. Friedman, Cato Institute

The most immediate and likely avenue for that outcome, according to Work, would be through a "supplemental to baseline migration," a concept the Obama administration has supported. During the Bush administration, the wars in Iraq and Afghanistan were largely paid for with supplemental budgets, a common tool for funding fluid conflicts that offers quick access to cash with minimal legislative review. But beginning around 2005, the Pentagon under President Bush began funding acquisition programs that Work says should have gone into the baseline budget, which is subject to congressional approval. "It got to the point where you couldn’t really see where the baseline budget ended, and the supplemental began," he says. Fast forward to 2009. As conditions on the ground in current U.S. wars improve, analysts believe the Obama administration will decrease its supplemental requests, which would translate into an overall decline in defense spending.

Getting Service Specific

Cuts to major weapons systems are not going to happen overnight, however. An assessment of Obama’s defense policies by Morgan Stanley finds that Obama "will not cut the DoD budget within his first 18 months in office," but could "curtail defense spending growth, with an eye for a potential defense budget peak possibly in 2010 or the year after." Lawrence J. Korb, senior fellow at the Center for American Progress, tells the first Pentagon budget Obama will have a chance to shape is fiscal year 2011. The budget for 2009 is in place, and planning for 2010 spending is too far along for immediate slicing, Korb says. Yet defense analyst McAleese says regardless of near-term funding streams, the nation’s military services will all face tough decisions in coming years, as the military establishment seeks to eliminate duplicative programs and zero in on weapons and systems vital to the counterinsurgency fight. Gates fired the opening salvo with his April 2009 budget preview. The secretary said the Pentagon would end or scale back production of a number of costly programs, including the F-22 Raptor warplane, the Air Force’s most advanced jet; the Transformational Satellite System, a space-based communications program valued at $26 billion; and the ground-vehicle component of the Army’s Future Combat Systems. Gates did, however, recommend increasing production of the Joint Strike Fighter F-35 Lightning II program, which, at an estimated $300 billion, is the most expensive weapons program ever undertaken.

Here is a breakdown of what analysts see as key considerations for each service in the months ahead:

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Army: With the Iraq war winding down, the army faces serious equipment shortages as units return home. "Resetting the force," the military’s jargon for rehabilitating and replacing worn out equipment, will cost tens of billions of dollars, experts predict. President Obama already has endorsed plans to continue expanding the army; an additional sixty-five thousand soldiers will be added to the service’s ranks in coming years. Secretary Gates told lawmakers in January 2009 the goal is to increase the army to the point where soldiers will be given two years off for every year of deployment (PDF). Beyond Iraq, the chief question mark for the army will be the survival of the service’s cornerstone modernization program, the $161 billion Future Combat Systems (FCS). McAleese predicts FCS will be "heavily scrutinized" in the forthcoming budget cycle; in April 2009 Gates committed to reviewing the entire program. Intended as the next step away from the lumbering army divisions of the Cold War era, the program would provide new vehicles, sensors, and weapons to the army’s slimmed-down, brigade-based force structure. But the program has been besieged by cost overruns and performance setbacks, and the U.S. Government Accountability Office recommended in March 2008 that "viable alternatives" (PDF) be considered.

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“The spigot of defense funding opened by 9/11 is closing." -- Secretary of Defense Robert Gates

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Air Force: Efforts to expand the service’s airlift capabilities would see increased funding under President Obama’s budget proposal. The White House has expressed concern for the service’s shortfall in aerial refueling and airlift capabilities, and vowed "greater investment in advanced technology ranging from the revolutionary, like Unmanned Aerial Vehicles and electronic warfare capabilities, to essential systems like the KC-X air refueling aircraft." By contrast, with Washington seeking to shift focus from conventional, large-scale conflicts to hybrid counterinsurgencies in Iraq and Afghanistan, tactical aircraft programs--high performance fighter aircraft, for instance--may fare much worse. The $67 billion F-22 Raptor tops the list of proposed cuts. Pentagon officials, including Secretary Gates, have opposed the service’s requested 381 planes, and in February 2009 Air Force Chief of Staff Gen. Norton Schwartz acknowledged that the service’s target will be somewhat less than 381. Gates’ proposal would halt production at 187. Yet trimming the sails on the F-22 will likely be opposed in legislative districts where the planes are manufactured. "Do you cut this program at a time when you’re spending billions of dollars to create jobs when in fact these are jobs already in place?" Rep. David Scott (D-GA), whose congressional district includes Lookheed Martin’s F-22 plant, told the Atlanta Journal-Constitution. "This is the wrong place to cut at this time."

Navy: Plagued by shipbuilding delays and cost overruns, analysts say they expect the navy to turn its focus to relatively "affordable" ships, such as the Arleigh Burke class DDG-51, the NSSN new attack submarine, and the LPD-17 amphibious transport. Setbacks in the navy’s $27 billion Zumwalt class DDG-1000 destroyer program, by contrast, reflect endemic design and execution troubles that plague many of the service’s efforts to design next-generation warships (PDF). Analysts like McAleese had long predicted the DDG-1000 was "is in great danger," especially if the service sticks with plans to reorient toward the DDG-51. Gates confirmed this analysis in April 2009, calling for production of the DDG-1000 to cease after three ships. Senior navy officials had already scaled back from a previous high of thirty-one ships, drawing fire from some officers who argued this was shortsighted. James Lyons, former commander of the U.S. Pacific Fleet, writes in the Washington Times that the decision "has left the Navy’s future shipbuilding plans in troubled waters," and may have sunk a key component of any future anti-ballistic missile intercept capability. Not all Navy programs will go under the knife, however. Gates said DoD would extend the life of older navy aircraft, including the variants of the carrier-borne F/A-18 fighter, vowing to buy thirty-one planes in the coming fiscal year.

Marines: Like the army, the Marine Corps faces staffing, equipment, and procurement challenges. A 2006 assessment of the service’s equipment needs by the Center for American Progress found that nearly half of the Marine Corps’ assets had been shipped to Iraq; replacement and repair costs could run upwards of $20 billion dollars. To defray these high costs, some analysts say the corps should divert funding from the controversial V-22 Osprey, a troubled tiltrotor transport aircraft, and instead fund the purchase of new H-92 and CH-53 helicopters. Doing so could save the Marines more than $10 billion over the next five years, says a 2007 budget assessment (PDF) prepared by the Institute for Policy Studies. Gates did not discuss plans for the V-22 in his April 2009 budget review. Critics have also called for the cancellation of the troubled Expeditionary Fighting Vehicle program. Additionally, McAleese says the Obama Pentagon is likely to review the Joint Light Tactical Vehicle, which is being developed in partnership with the army.

What To Watch

With economic concerns rippling across the United States, proposed cuts to major weapons systems could be political nonstarters in regions where jobs are at stake. Some economists, including Harvard’s Martin Feldstein, argue increased defense spending is what’s needed to stimulate the economy and create jobs (WSJ). Former Clinton budget official Adams, on the other hand, says that argument holds no water in the current economic climate.

Senate Armed Services Committee Chairman Carl Levin (D-MI) said in January 2009 that Washington will seek to reduce spending on weapons, specifically missile-defense programs which have a mixed track record of success, but will not go after troop pay, historically a political land mine. "We don’t want to reduce personnel; we don’t want to shortchange personnel," the senator told reporters (Defense News). Keeping the promise will not be easy, though. According to the ITAA annual forecast, costs associated with personnel and operation and maintenance costs accounted for nearly 59 percent of the Pentagon’s total budget in 2008. By 2019, that share that is forecast to reach nearly 70 percent. Gates’s April 2009 budget overview brought a new round of criticism. Republican Senator James Inhofe of Oklahoma, in a YouTube video recorded in Afghanistan, lambasted President Obama for the proposed military cuts. Even some top Democrats, including Rep. Ike Skelton (D-MO), predicted a tough fight in Congress.

But budget analysts say with such skyrocketing projections in personnel costs, something will have to give, either on the weapons procurement and development side, or on maintenance and operations. Either one will likely lead to protracted political warfare in Washington as the defense spending picture begins to clear. "In the near term it looks as if defense spending will be protected," Andrew Krepinevich, president of the Center for Strategic and Budgetary Assessments, said in Washington on February 12. "But as you look further out, things really do look grim."


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