Weaker Defense Dollars

The White House and Capitol Hill have spent months publicly battling over the size of defense cuts, while the Defense Department faces a far greater threat from within: the prospect of not only fewer defense dollars but also weaker defense dollars.

Most of the current commentary inside the Capital Beltway is focused on the $500 billion in sequestration cuts that could emerge in January, but it is the escalating cost of continuing to do business that has sapped the defense dollar’s purchasing power.

The deepest level of cuts being envisioned, the dreaded sequester, only goes half as far as has been seen in every previous drawdown this century, including a drop of 43 percent after the Korean War, 33 percent after the Vietnam War and 36 percent following the Cold War. Nonetheless, senior Pentagon officials have stridently opposed these cuts, invoking epithets ranging from “mindless” and “devastating” to “catastrophic.”

This reaction is likely due to the fact that the defense budget is being hollowed out by internal cost inflation. The defense budget is $300 billion larger than it was in 2001, and yet there are fewer dollars available today for buying weapons and fielding new capabilities. Indeed, increasing personnel, operations and acquisition costs have combined to form a three-headed monster that is eating away at the foundation of U.S. military superiority.

Personnel and operating costs have always made up the largest portion of the budget, but they have recently ballooned to 70 percent of the total budget and are squeezing out the accounts that pay for new hardware and the development of the next generation of systems. If personnel costs are allowed to continue to grow at their current rate, they will, as Todd Harrison of the Center for Strategic and Budgetary Assessments has observed, “consume the entire defense budget by FY2039.”

Similarly, the Congressional Budget Office reports that operating costs per active-duty soldier have nearly quadrupled since 1980, and doubled since 2001 alone. The cost inflation within these two accounts has a cumulative effect that significantly weakens the defense dollar by reducing the amount of military capability that can be acquired per dollar.

The Government Accountability Office has tracked the escalating costs of major weapon programs for years and concluded in its most recent estimate in 2012 that these costs are increasing by as much as 5 percent per year. Total costs for the Pentagon’s new Joint Strike Fighter, the most expensive weapon system in history, are projected to surpass $1.5 trillion, a 9 percent increase in just one year.

Not only are our nation’s defense dollars now buying fewer capabilities, but those capabilities are arriving over cost and behind schedule.

The Defense Department is clearly aware that it has a problem. As its own 2012 budget white paper notes, “military personnel costs have doubled since 2001 … while the number of full-time military personnel, including activated reserves, increased by only eight percent during the same period.”

But while the Pentagon has attempted to address this problem in its recent budget proposal by increasing health care fees and limiting future pay raises, it has not gone nearly far enough. Even so, Congress is likely to attempt to undo such reforms.

The Defense Department also is aware of the issues confronting its operations and acquisitions accounts, as earlier this year the Pentagon’s acting head of acquisitions, Frank Kendall, denounced the strategy for production of the Joint Strike Fighter as “acquisition malpractice.”

Ultimately, it is impossible to predict precisely how deep the long-term defense cuts will be. The looming threat of sequester cuts failed to produce a supercommittee deal in late 2011, and is likely to similarly fail to produce a grand bargain in 2012, as a lame-duck Congress, paralyzed by the prospect of more than $6 trillion in sequestration and expiring tax cuts, kicks the can to the next Congress.

And while the total reduction to the defense budget top line might only be the 17 percent enacted by the budget caps and the sequester, it will feel much deeper to the Pentagon because of the reduced purchasing power of the defense dollar.

As the Defense Department, the White House and Congress snipe back and forth, playing toward a political endgame, the deeper issues affecting the strength of the defense dollar get lost in the wash. The time for playing games has long passed.

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Clark Murdock is senior adviser and director, Project on Nuclear Issues; Kelley Sayler, research associate for the Defense and National Security Group; and Ryan Crotty, research associate for the Defense Industrial Initiatives Group of the Center for Strategic and International Studies.