Realistic appraisal presents hard decisions

• Defense spending has risen to its highest level since WWII, even after adjusting for inflation.
•  The base defense budget increased at 7-8 percent a year over the last eight years.
•  With war funding included, the defense budget has more than doubled since 2001.
•  With large deficits and tight budgets, spending at this level will be difficult to sustain.

When the Bush administration submitted its last budget, it projected that defense spending would bottom out in 2009, and thereafter decline in real terms. This made the bottom line of the budget look better; but it was not realistic, and when pressed, Bush administration witnesses acknowledged the gap.

Bush flattened out the Future Years Defense Program (FYDP) by omitting the cost of Iraq and Afghanistan and leaving the real number for later, in supplemental appropriations. To its credit, the Obama administration disavowed this practice, and submitted its $130 billion request for Iraq and Afghanistan for 2010 and $50 billion each year thereafter along with its regular budget. But the budget still does not realistically capture the cost of current defense plans, partly because our deployment in Afghanistan is likely to cost more than expected.

CBO projects that the current defense plans in the 2010 budget will require $567 billion (in 2010 constant dollars) annually between 2011 and 2028, or 6 percent more than the $534 billion requested in the president’s budget. That difference seems modest, but CBO warns that if current plans take account of realistic scenarios, the cost would be much more. By its calculation, “total unbudgeted costs” of current defense plans could increase the projection to an average of $624 billion a year through 2028 — 17 percent more than requested for 2010.

Thirty-eight percent of the additional cost is associated with overseas contingency operations. The cost of overseas operations peaked at $187 billion in 2009, when we had 175,000 troops in Iraq and 40,000 troops in Afghanistan by March. The administration’s request for 2010 is substantially less: $130 billion. This would support 100,000 troops in Iraq and 68,000 troops in Afghanistan — but that’s before Gen. Stanley McChrystal’s request.

This mismatch between resources and demands is not uncommon for the Department of Defense, but the gap is substantial, and it begs the question of what we do next.

In previous years, when defense funding reached unsustainable levels, the usual resort was force structure reduction. But force levels are low already, and troop rotations are taking a toll, making reductions difficult, if not indefensible.

Procurement is $110 billion in 2010, or 20 percent of the budget, and RDT&E is $80 billion, or 15 percent of the budget. The Obama administration has proposed changes to acquisition plans and reforms, and CBO has said that Obama’s changes should reduce the acquisition costs by $8 billion a year. But this saving is eclipsed by cumulative cost growth, which is now $296 billion or 42 percent higher than originally estimated.

Operation and Maintenance (O&M) is at a record high, increasing on a per capita basis by 2.7 percent above inflation annually since the Korean War. There have been continual attempts to rein in O&M, but everything from healthcare to operational tempo to the maintenance of worn-out weapons contributes to the cost.

Personnel costs have increased well above inflation — by 45 percent since the late 1990s. Pay increases above the Employment Cost Index and benefit increases, like the redux military retirement system and Tricare for Life, have driven costs up.

Add all of the above to the cost of our deployments in Iraq and Afghanistan, and you begin to see why how even a $700 billion defense budget can get stretched thin. This leaves this year’s Quadrennial Defense Review (QDR) a full plate. The QDR will need to ask how we remain the world’s most powerful conventional force, and strongest economy, while:

• Defending ourselves against terrorists, insurgents, and unconventional war generally;
• Curbing the spread of nuclear weapons and materials;
•  Reconciling the demands for force size and overseas engagements, operations and maintenance, weapons modernization, reset and replacement; and
•Dealing with “hybrid threats,” by irregular forces armed with advanced technology, and “high-end asymmetric threats,” like anti-satellite weapons.

In wrestling with these issues, this year’s QDR will have to be bolder than previous reviews. Our budget, our security, and our future may rest on how they come down.

Spratt is a member of the House Armed Services Committee and chairman of the House Budget Committee.