DoD’s Strategy-Resource Mismatch

"DoD should either submit a budget that fully funds the strategy or revise its defense strategy to fit within the resource constraints of the BCA."

Decades ago, Secretary of Defense Robert McNamara asked the simple question: how much is enough? The answer, of course, is not a number but rather another more difficult question: enough for what? As the U.S. military embarks on a new operation in the Middle East and as members of Congress return to their home districts to campaign, these questions remain unresolved.  Should the military be resourced to fight terrorist groups like ISIL, counter Russian moves in Eastern Europe, balance China’s rising power and influence in the Asia Pacific region, fight Ebola in Africa, or some combination of these?

The level of defense spending needed depends, among other things, on one's strategy, risk tolerance, support provided by allies and partners, and the roles and missions assigned to the military. The 2014 Quadrennial Defense Review (QDR) and 2012 Defense Strategic Guidance (DSG) provide the best available insight into current defense strategy, specifying the roles and missions assigned to the military and the force structure needed to support those missions at what the Department deems to be an acceptable level of risk. These strategy documents, however, do not fully account for the spending constraints put in place by the Budget Control Act (BCA) of 2011 as modified by the Bipartisan Budget Agreement of 2013. The key question, then, is how much of a gap exists between the current defense strategy and the resource constraints imposed by the BCA?

The FY 2015 budget request does not fully answer this question.  While the budget request exceeds the BCA budget caps by $116 billion over the next five years, it appears to be insufficient to execute the defense program articulated in the QDR and DSG. In particular, the budget does not fund Army and Marine Corps end strength and Navy aircraft carriers to the levels stated in the QDR. Assuming this force structure is needed to execute the defense strategy at an acceptable level of risk, the budget appears to be roughly $20 billion short over the next five years.

The budget request also assumes that Overseas Contingency Operations (OCO) funding for Afghanistan can be used to offset some costs typically funded in the base budget. The OCO budget for FY 2015 appears to be roughly $35 billion higher than required for operations in Afghanistan. DoD has not submitted a projection for OCO funding for FY 2016 through FY 2019, so it is impossible to know precisely how much its future plans depend on using OCO funding for base budget activities. Given recent trends, however, it is reasonable to assume that DoD may be counting on an average of $10–20 billion in annual OCO funding for base budget activities, for a total of $50–100 billion over the Future Years Defense Program (FYDP).  Also, as events unfold in Iraq and Syria, DoD may need to divert additional funding to this new operation.

The budget also assumes some savings that are unlikely to materialize in future years. Anticipated savings from a series of initiatives designed to increase the efficiency in the use of defense funding now total hundreds of billions over the FYDP. Savings from the proposed changes to military compensation included in the FY 2015 request total roughly $31 billion over the FYDP. These savings are effectively “spent” within the budget, and if some portion of these savings does not materialize, as seems almost certain, the defense program will be further under-resourced.

Acquisition programs are also likely to exceed their projected costs. Historically, major acquisition programs often exceed their initial cost estimates by 20 to 50 percent. Because these programs are not budgeted for future cost overruns, the acquisition funding in the budget is likely insufficient to execute all of the currently planned acquisition programs. Similarly, operations and maintenance (O&M) funding has historically exceeded DoD’s budget projections. Thus the level of O&M funding in the budget may also be insufficient to fund training, maintenance, and peacetime activities at the levels currently planned—especially if Congress rejects DoD’s plans to retire legacy platforms like the A-10.

In total, DoD could require $200–300 billion more over the FYDP than the BCA budget caps currently allow in order to execute the defense program and the force levels detailed in the QDR and DSG. The shortfall could be more or less depending on the success of DoD’s efficiency initiatives, Congress’ willingness to enact some of the proposed changes to military compensation and retire legacy weapons, and the ability of DoD to continue using OCO funding to offset reductions in the base budget.

This projected shortfall should not come as a surprise. The FY 2013 budget request, submitted concurrently with the 2012 DSG, was designed to fund the strategy at an acceptable level of risk before the BCA budget caps were passed into law. The difference between the FY 2013 budget projection and the BCA budget caps is roughly $272 billion over the current FYDP period (FY 2015 to FY 2019).