Establishing the next president’s national security agenda: How to confront the defense budget morass

When we think about controlling the budget, we think about things like Medicare, Social Security, and urgent domestic needs such as education and alternate minimum taxes. But the most urgent fiscal and planning challenge the next president will face is the defense budget. The bottom line: Either presumptive Democratic presidential nominee Barack Obama or presumptive Republican nominee John McCain must gain control of defense strategy, planning, and spending the moment the inauguration ends on January 20, or it will be almost impossible to deal with new options for any other spending program.

Already, the White House has informed every federal agency that it doesn’t intend to submit a budget for the next fiscal year–standard operating procedure for an outgoing administration–meaning the next president will need to prepare the first real budget for fiscal year 2010 in a hurry since it’s due the first week of February.

There’s no point in canceling military programs just for budget savings. The real question is whether programs that are increasingly out of control financially are critical to future military missions.”

Making matters much harder, the Office of Management and Budget exempted three agencies from this guidance–the Defense Department, the international affairs agencies (mainly the State Department and U.S. Agency for International Development), and the Department of Homeland Security. So the defense secretary and Chairman of the Joint Chiefs are preparing a little surprise for the new president: While the White House won’t transmit a formal budget, the Pentagon is currently undertaking a full budget plan. How the results will get to Congress isn’t clear, but they will most certainly be made public, daring the new president to change the plan.

Although the future defense budgets anticipated in the 2008 budget proposal to Congress project a marginal decline in defense spending, the new Pentagon plan will seek to significantly increase future defense budgets–as they have since 9/11. Thanks in large part to emergency supplemental funding related in part to combat operations in Iraq and Afghanistan, the last nine defense budgets have grown from $381 billion to more than $680 billion.

As I’ve pointed out in previous columns–see “The True Cost of U.S. Defense Spending” and “A Look at the 2008 Defense Budget”–while supplemental budgets are supposed to cover the incremental costs for the Iraq War and conflict in Afghanistan, the distinction between these budgets and the basic Pentagon budget has been lost as more and more regular Pentagon procurement and force-structure funding is showing up in the supplementals. The availability of this additional money has made it unnecessary for Defense to think about the long-term, make choices, set priorities, or link budgets to strategy, destroying any semblance of discipline in the planning and budgeting process.

If combat operations end, especially in Iraq, the risk from Defense’s view is that those extra resources could disappear. So Defense believes now is the time to try to build these funds into its base budget, regardless of what happens in Iraq. So it is working on adding funds to its basic budget, creating a whole new “defense baseline” for the future. Rumors suggest that this new, elevated baseline could be at least $60 billion above what the Pentagon projected when it submitted this year’s budget.

Even if not formally transmitted to Congress by President George W. Bush, the new, elevated baseline will be out there, allowing defense planners and military chiefs to argue that anything less will sacrifice national security–the aforementioned dare. Their hope is that any new president, but particularly Obama, will be faced with a political risk if he changes the plan.

No matter the backlash, the next administration must steel itself to ignore this political maneuver and go back to basics in setting out the defense portion of its national security strategy.

We’re at a turning point with respect to defense spending and the military’s role in preserving national security. Today, the U.S. defense budget is larger than the defense budgets of every other country in the world combined, and it’s more than one-half of all discretionary spending in the federal budget. Worse yet, we’re asking the military to execute missions far beyond its core competence–virtually all of our dialogue on national security is conducted in terms of the roles and missions of the military. This has seriously diverted attention from the need to rebuild our civilian national security tools.

The next president and defense secretary must make fundamental decisions about the country’s true defense needs. Some suggestions:

Shrink the strategy

The new president and defense secretary should simply set aside the plan the Pentagon is already writing and announce its own defense and military strategy review. Such a review needs to closely examine today’s conventional wisdom that the military should focus on counterinsurgency, stabilization, and military occupation missions. It should ask the fundamental question: Where–and under what conditions–are such missions likely to happen? And also, how truly demanding would they be given the likely scenarios? Along with, what capabilities need to be built to maintain the military side of a balance with China or Russia?

But missions are only part of the problem. Beneath the surface, there are severe pressures on defense planning and budgeting, pressures that grew out of former Defense Secretary Donald Rumsfeld’s failure to impose any strategic or budgetary discipline at the Pentagon. Today’s Defense Department would prefer to avoid these pressures, so planning is now based on taking a bigger share of federal spending while avoiding choices and priorities driven by strategy.

“Right-size” the force

The first pressure is about personnel. The army and navy are currently well on their way to adding 92,500 more men and women to the ground forces, bringing the army to more than 550,000 troops and the marines to more than 200,000 troops. While force stress due to combat activities in Iraq and Afghanistan is offered as the official rationale for this expansion, these forces likely won’t be combat ready until that stress is gone. And like any other industry, adding more employees is going to be expensive. Additional troops will cause upward pressures on the military’s training, exercising, and operating accounts and increase equipment needs. There’s an urgent need to review this personnel expansion, and right-sized the force according to the strategy, which could mean a smaller ground force.

Review benefits for military personnel

The additional personnel must also be given benefits–i.e., housing, allowances, health care, and retirement, all of which are also rapidly increasing in cost. Today, military pay and benefits are more than 30 percent higher per enlistee than in fiscal year 2000.

It will be difficult to resist pressures for continued future growth in personnel spending, including the compelling need to provide benefits and health care for veterans returning from Iraq and Afghanistan–though much of that is paid for by the Department of Veterans Affairs. Costs for the military health-care system have skyrocketed to $40 billion a year, and the Congressional Budget Office projects that this number will double by 2025.

Although a benefits review is likely to be highly unpopular, economics may dictate that an overhaul of the current architecture be broached.

Get operations and maintenance expenses under control

The forthcoming Pentagon budget plan will almost certainly continue a time-honored tradition of projecting that the costs of operating, educating, training, and exercising the force will suddenly become cheaper in the future. Yet, with metronomic regularity over the years, operations and maintenance costs have annually increased at 2.5 percent above inflation, rising from around $30,000 per soldier a year in 1955 to around $110,000 today (in constant dollars).

Given the overall budget pressures, it’s now urgent to dig more deeply into these costs. A lesser-known reality is that pay for the Pentagon’s civilian staff of more than 710,000 (about one-third of all federal civilian employment) is funded through the operations and management (O&M) accounts. Alongside the careful scrub of the size of enlisted forces, there needs to be a careful scrub of the size of the Pentagon’s civilian staff and a bottom-up analysis of the inefficiencies and redundancies in O&M activities.

Conduct a zero-based review of procurement plans

The cost of military equipment also continues to increase. Defense’s “major acquisition programs” were projected to cost $782 billion in 2000. In comparison, the portfolio of “major acquisition programs” in 2007 were projected to cost more than $1.6 trillion over their lifetime. The unit cost of the air force’s F-22 fighter has risen 160 percent, the space-based infrared radar is up 300 percent, and the army’s Future Combat System is up more than 45 percent, according to the General Accounting Office. (For more, see “A Poisoned Chalice? The Crisis in National Security Planning, Programming, and Budgeting.”)

Both Obama and McCain have said that they will undertake a review of the services’ hardware plans to ensure that the country is buying equipment that meets its strategy. Even before such a review, McCain’s federal budget plan already suggests that the Future Combat System and the air force’s airborne laser and C-14 Globemaster cargo aircraft “should be ended.” (That all three are Boeing programs, and the senator was a severe critic of Boeing’s actions around the new air force tanker program may be more than a coincidence.) Thus far, Obama hasn’t identified program changes, but he has promised a procurement review.

To be effective, however, such a review needs to be closely tied to the strategy review. There’s no point in canceling programs just for budget savings. The real question is whether programs that are increasingly out of control financially are critical to future military missions, which the strategy review should determine.

End mission creep

As I’ve written elsewhere, Defense has already developed new programs and authorities to conduct foreign assistance–from the Commander’s Emergency Response Program, which has grown from $300 million a year to a requested $1.7 billion, to a program to train and equip security forces that the Pentagon would like to make permanent and fund at a cost of $750 million a year. The new African Command wants to expand its growing cooperation, training, and assistance program. And the Latin American Command says it wants to be a “Velcro cube” to which other national-security and foreign-policy agencies can attach in carrying out U.S. foreign and security policy in the region.

Similarly, U.S. military forces are now building clinics, schools, wells, and roads in many countries throughout the world. The new 2008 National Defense Strategy, recently leaked from the Pentagon, expands these missions further, pointing to the challenges of “natural and pandemic disasters and a growing competition for resources.” It argues, “The Department of Defense must respond to these challenges, while anticipating and preparing for those of tomorrow.”

In the wake of Iraq and Afghanistan, it’s critical to sort out the programs that truly support military missions from those that belong to other agencies and departments. (See “Integrating Twenty-First Century Development and Security Assistance.”)

If Obama or McCain wants to define and execute his own national security strategy; if he wants to get control over defense spending; if he wants to invest in diplomacy and foreign assistance and development; and if he wants the flexibility to address a growing agenda of domestic issues or a persistent deficit, it will be important to establish strategic guidelines early on and restore strategic and budgetary discipline to the Pentagon. This means ignoring the resource plan the Pentagon is currently producing and returning to the basics.