Deficits in a Growing Defense Budget
from Global Economy in Crisis

Deficits in a Growing Defense Budget

The Obama administration’s proposed defense budget fails to align spending with calls to rebuild the military to handle irregular warfare, says expert Todd Harrison. He also cites an inability to get personnel costs under control.

February 3, 2010 2:16 pm (EST)

To help readers better understand the nuances of foreign policy, CFR staff writers and Consulting Editor Bernard Gwertzman conduct in-depth interviews with a wide range of international experts, as well as newsmakers.

The Obama administration released its second defense budget and an accompanying Pentagon strategy on February 1 amidst talk of rebuilding the American defense establishment. But Todd Harrison, a defense budget expert at the nonpartisan Center for Strategic and Budgetary Assessments, says while the administration’s reform rhetoric is laudable, its defense spending plan doesn’t allocate money to seriously rebuild the military to deal with such threats as irregular warfare. Soaring costs of military healthcare are cutting into the Pentagon’s ability to fund and design new equipment, says Harrison. And despite early predictions that a Democratic administration would dramatically reduce defense spending, Harrison says, just the opposite is happening. "This administration hasn’t cut defense spending at all but increased it to record levels, and it looks like for the foreseeable future defense acquisitions are going to continue increasing," Harrison says. "What happened [on February 1] was people started to realize, ’Hey, this president isn’t bad for the defense industry.’"

In addition to releasing several strategic planning documents, the Obama administration unveiled its fiscal year 2011 defense budget request--a $708 billion opening bid. This is a jump from last year, but is it what you expected?

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It’s significantly more than last year’s budget request, because last year’s budget request did not take into account the surge in Afghanistan. But if you count the surge and those costs incurred, fiscal year 2010 tops out as $693 billion compared to this year’s $708 billion, which is more of an increase than many were expecting. But at the same time, it looks like DoD did not get everything they wanted. Overall, it’s safe to say that DoD fared better than a lot of other agencies that are funded through discretionary appropriation.

What did they get, and what will they be left wanting?

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They got continued increases in military personnel in terms of pay, not as much as last year, but costs of employment haven’t gone up as much in the past year. They got significant increases in Operation & Maintenance [defense dollars spent on everything from fuel to training, spare parts to healthcare]; it’s up over 7 percent over last year. A good portion of that is due to increases in military healthcare programs. They are increasing again as DoD said they would. Military healthcare now tops out at $50.7 billion in the DoD budget. One thing that came as a slight surprise was that the procurement account [for purchasing new equipment] increased significantly but then RDT&E [Research, Development, Test & Evaluation] decreased by almost the same amount.

Over the last decade or so, personnel numbers haven’t really changed, while the percentage of personnel costs in the budget have. How will this increase affect the Pentagon’s ability to provide the most advanced equipment?

That really is the tension within the DoD budget right now. In this budget, about 62 percent goes to operations and support, and that includes direct costs of personnel in terms of pay, and also the cost of training and recruiting. That’s 62 percent of the budget, and it’s growing. It was only 60 percent last year, and this is a long-term trend we’re seeing. There is a tension between funding for the people and the benefits, and funding for the equipment that they need to succeed in their missions. That’s a tension that’s only going to grow over time if the current trend continues.

[B]enefits, particularly healthcare, are getting out of control, and DoD is going to have to do something to rein in these costs so they don’t continue growing at the rates we’ve seen the past ten years.

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Does it suggest that the size of our armed forces is not sustainable?

That’s a difficult question. Given the level of funding that we have, it certainly calls into question whether or not we can continue funding the military the way we have, and spending the money the way we have. What I’d suggest more than anything is that the benefits, particularly healthcare, are getting out of control, and DoD is going to have to do something to reign in these costs so they don’t continue growing at the rates we’ve seen the past ten years.

When Secretary Gates rolled out the budget, he said the funding priorities are meant to orient the Pentagon to fight today’s wars while preparing for future threats. What’s Gates saying, and how well does this budget meet his objective?

There’s some evidence of this transition that Gates has talked about, this rebalancing, in the budget. There’s increased funding for things like UAVs [unmanned aerial vehicles], rotary aircraft, and there’s new programs that were called for in the QDR [Quadrennial Defense Review]. But the thing that’s troubling here is that the secretary is saying that we need to place a greater priority on the wars that we’re in today and the most likely threats of the future, but that inherently means that other things must be lower priority. If you’re actually going to prioritize things other things, things have to be moved down [the priority list]. We’re not seeing evidence of that in the budget. There aren’t any major weapons systems that are terminated, nothing new, and there’s no real indication of where the department intends to take risks. That is, where’s the department going to do less, or where is the department going to go without something in order to focus resources more on new priorities? We’re not really seeing that in this budget. What that shows is that this rebalancing is not that great of a shift after all.

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What hasn’t been addressed in this budget, and what should be done to address the holes?

Number one, like we were just talking about, is personnel costs. They really haven’t done anything in terms of healthcare or the other personnel costs to get that part of the budget under control. So that’s been left open. Also the programs that are in the DoD portfolio. If Secretary Gates is saying we’re going to shift to focus more on irregular warfare and high-end, asymmetric-type warfare [from] this middle of the spectrum of conflict like the first Gulf War . . . you would expect to see [spending on middle of the spectrum warfare costs] reduced and that money used to fund programs that are at either end of the spectrum--irregular warfare, or high-end, asymmetric-type warfare. And we’re not seeing that.

But each time you bring one of these programs to Congress and suggest elimination, the political firestorm is fierce. In this current budgetary, employment, and partisan climate, how likely is it that any of these cuts will be made?

Since [Gates] didn’t propose as many this time, the real focus will be making [cuts] stick for the C-17 and the Joint Strike Fighter alternate engine. Of course, these are two items that they proposed cutting last year, and Congress restored the funding. So it’s uncertain whether they will be able to get these cuts to stick this year, although Secretary Gates came out swinging when he said he would recommend a veto if these items are included in the budget again. I think that’s one of the fights we’re going to see.

In addition to the FY11 budget, the Pentagon released the 2010 QDR, a congressionally mandated roadmap of the U.S. military’s future strategy. The budget funds the priorities laid out by the QDR. How do these two documents fit together?

I think it’s safe to say that the 2010 QDR was not intended to be a big change. It’s basically a continuation of the evolution of the previous QDR [from 2006]. In that respect you wouldn’t expect to see dramatic changes in the budget. Although it does call for rebalancing and reforming, reforming is hard to quantify in the budget. There are items like the addition of twenty thousand employees to the acquisition workforce, so that’s part of acquisition reform, but a lot of reform is just really being smarter about how we do things. Being more transparent. In terms of rebalancing, there aren’t many big program terminations; there aren’t that many new starts, so there isn’t that much money being moved around relative to the overall budget.

In fairness to the QDR, it’s a very long-term-looking document. It’s looking five, ten, fifteen, twenty years into the future, so you don’t necessarily have to see money between accounts in the first year [budget], but you would expect to see it over time. There’s a few examples of that, like with long-range strike [capabilities]. They’re putting a little over $4 billion into long-range strike, and that goes into a number of different programs; one of those is the next-generation bomber (PDF). But overall I don’t see a lot of serious effort at rebalancing, because we don’t see where they’re going to cut and do without something and take risks in order to fund the priorities that are stated in the QDR.

I don’t see a lot of serious effort at rebalancing, because we don’t see where they’re going to cut and do without something and take risks in order to fund the priorities that are stated in the QDR [Quadrennial Defense Review].

Under Secretary of Defense for Policy Michele Flournoy has suggested the Pentagon is looking to move away from waging two conventional wars concurrently, in favor of focusing more on asymmetric threats. Is this a monumental shift?

It’s less monumental than it may appear. Secretary Gates said [on February 1] that one could argue that we’re fighting two major theater wars today in Iraq and Afghanistan. It’s getting more nuanced into the scenarios that DoD should use for planning in the future. And we should be looking at a wide range of possibilities and combinations of operations that may have to go on simultaneously. It’s not as simple as saying there’s going to be two major wars the size of Desert Storm going on at the same time. The reality is we could be faced with something like we’re experiencing in Afghanistan and Iraq, and then something like Haiti pops up and we need to be able to do all of those things at once.

Secretary Gates has announced he’s firing the general in charge of the beleaguered F-35 (Joint Strike Fighter) program because of cost overruns, and he’s withholding reward fees to Lockheed-Martin, the contractor. What’s behind Gates’ tough talk?

It’s consistent with what Gates has said about acquisition reform in the past; programs that don’t perform need to be held accountable. The difficulty here for the [Defense Department] is that they are highly dependent on the JSF [Joint Strike Fighter], so this is not a program that is in danger of being canceled. But it’s a program that has run into trouble (PDF), and they need to do something about it. They’re trying to tread a fine line here in trying to find out what to do and how to proceed with the JSF.

So we shouldn’t read too much into it?

The only thing to read into it is that [Secretary Gates] does not have much tolerance for poor performance. But this program is a critical program; the Air Force, Navy, Marine Corps, and our international partners are relying on this program. It kind of has to succeed. What this shows is that DoD might not be happy with it, but they’re sticking with the JSF and there’s really no chance of this program going away.

Given a bigger defense budget and few major program cuts, the defense establishment is elated, if stock values are any indication (Reuters). Pundits who predicted a declining defense budget in an Obama administration were way off the mark.

Part of what’s happening in the defense-industry base is people read too much into a Democratic administration coming into office and there being real pressure on the federal budget overall because of soaring deficits. They read too much into it and construed massive cuts in defense spending in the future, particularly in acquisitions. That hasn’t proven to be true. This administration hasn’t cut defense spending at all but increased it to record levels, and it looks like for the foreseeable future defense acquisitions are going to continue increasing. What happened [on February 1] was people started to realize, "Hey, this president isn’t bad for the defense industry."


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