Defense Costs To Outstrip Funds Available

The U.S. military procurement effort faces an immense disconnect between funding needs and available financing, complicated by new emerging threats such as the loss of sanctuary in space and the ability to assume that satellites and other assets are safe there.

A further complication involves a long-standing conflict between urgently immediate requirements of combatant commanders versus the need to procure assets to meet long-range needs.

These were some of the unsettling points aired in an hours-long symposium of the Center for Strategic and Budgetary Assessments (CSBA), a defense-oriented Washington think tank, at a hotel in Washington.

Fiscal strictures already are evident, whether it is the Air Force getting only 183 F-22 Raptor supersonic superstealth fighter aircraft by Lockheed Martin Corp. [LMT] instead of the 381 it needs, the decades-long battle to build two Virginia Class submarines instead of just one yearly at General Dynamics Corp. [GD] and Northrop Grumman Corp. [NOC] yards, a decision to let the number of aircraft carriers in the Navy fleet (Northrop) slip from 12 to 11 to 10 (some critics say nine or fewer), controversy over the cost and number of the next-generation DDG 1000 destroyer (GD and Northrop), a reduction of hundreds fewer F- 35 Joint Strike Fighter (Lightning II) aircraft than once envisioned (Lockheed aided by Northrop and BAE Systems), and much more.

Many long-existing major defense procurement programs have begun or soon will move into their most expensive years, in full-rate production.

And the outlook will only grow grimmer as the military moves into the next decade, the experts cautioned.

Worse, the money crunch isn’t confined to the Department of Defense (DOD), but instead is endemic throughout federal agencies, from Social Security to national parks to the space program. There likely is no easy solution for the DOD money shortage to be found in attempting to raid budgets of other federal departments.

Additionally, candidates for president have proposed launching new programs that would tend to make the fiscal vise squeeze ever tighter.

These were just a few of the findings enunciated by CSBA experts Robert O. Work, Barry Watts, Steve Kosiak and Andrew Krepinevich, during the symposium.

Kosiak noted that entitlement programs are poised to begin devouring sharply increased amounts of money, as baby boomers retire and health care demands increase. That means DOD can’t turn to other big-ticket federal programs to raid them for funds.

As Kosiak noted in a recent CSBA book, "U.S. Defense Budget: Options and Choices for the Long Haul," it is a fact that in both defense and non-defense programs, "the nation’s long-term fiscal outlook is, at best, troubling." And, he continues, "it is likely that the outlook will deteriorate still further in coming years." This would be true even if the war in Iraq were to end soon.

The mismatch between federal spending and revenues over the next 10 years could be on the order of $3 trillion to $4 trillion, equivalent to a third or more of what every man, woman and child produces in a year in the United States, the largest economy on the planet.

In defense modernization, the mismatch amounts to this: while defense spending approved by policymakers suggests the defense budget likely would remain at something like the equivalent of $518 billion yearly over the next 20 years, DOD actually requires $575 billion to pay for its current long-term plan, including programs in the pipeline.

After that next 10 years, things go downhill much faster. "As bad as the deficit picture appears to be for the coming decade, the outlook for the years beyond 2018 is far worse" Kosiak predicted.

Further, Krepinevich noted that proposals in the election campaign include a desire by Sen. Barack Obama of Illinois, the presumptive Democratic presidential candidate, to institute some form of national health care, which would involve a major new expense. "He has a higher priority in terms of … discretionary spending, like education, infrastructure, health care" and other initiatives, Krepinevich said.

It is worth noting that just in one of those areas, national health care systems, "we’ve seen what that’s done to the budgets of other western industrialized states," he said, as medical treatment costs have soared far faster than general inflation rates.

Thus DOD procurement programs face severely restrictive financial conditions spanning the entire federal government.

The gravity of the challenge can be seen in the fact that DOD, under likely future federal revenue levels, probably won’t be able to afford all the procurement programs already in the pipeline, under contract, much less to devise, develop and procure new types of hardware and systems to meet emerging threats, Krepinevich said.

One possible source of huge new revenue flows to the federal government would be to permit existing tax cuts enacted in 2001 and 2003 to expire as scheduled in 2010 or 2011, which would mean some $2.5 to $3 trillion of new revenues over the next decade.

But Krepinevich said in an interview after the symposium that even if federal tax levels return to those of the 1990s, the next president, who will be elected in November and take office in January, may have many competing demands for that money other than defense programs.

"I don’t think that there’s an easy way out of this," Krepinevich said, "absent some sort of disruptive event" such as another major terrorist attack on the United States that would make clear the overriding need for an adequate and competent national defense. Were such an event to open policymakers’ eyes to the need for a robust defense, "that could trigger a substantial buildup" of defense programs.

Krepinevich said the enormous funding crunch could be resolved in several ways, some of which would include:

• Increased revenues. It is unclear how likely this might be to eventuate.
• Stretching out procurement programs.
• Cutting programs, such as reducing the number of platforms produced.

Still another difficulty inherent in this fiscal conundrum, Krepinevich said, is satisfying two simultaneous and sometimes opposing demands.

While combatant commanders fighting a hot war understandably want what they know works in the short term, and want it immediately, there also is a need to save money by procuring what is needed for threats likely to emerge in the long term, he said.

Thus the Army or Marines may wish to buy a huge number of heavily armored vehicles resistant to improvised explosive devices, or roadside mines, used currently by terrorists to kill U.S. forces. But a long-term outlook might ask whether the heavily-armored vehicles might later become vulnerable if terrorists begin using more powerful mines, so that it would be better to invest instead in some other asset that would meet that future threat.