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Pentagon Budget Seeks To Leverage R&D Investments

February 13, 2016 (Photo Credit: Mike Morones, Military Times)

WASHINGTON — With few surprises in the budget request unveiled by the Pentagon last week, reaction was largely muted as the $582.7 billion spending level complied with limits set by last year’s budget deal.

During the rollout, defense officials touted the budget’s efforts to balance near-term priorities — including ongoing conflicts against the Islamic State and bolstering European defenses against Russian aggression — with long-term efforts to stay ahead of potential peer and near-peer adversaries of Russia, China, North Korea and Iran.

While the funding levels set by 2015’s Bipartisan Budget Act — $523.9 billion in base budget with an additional $58.8 billion in overseas contingency operations (OCO) funds — represented a $2.4 billion increase from the previous year’s appropriations, the new levels still came in almost $22 billion lower than the Pentagon's FY17 projection in last year’s budget.

To make up the difference, Pentagon budgeters moved $5 billion of base budget activities into OCO, and marked down another $5.6 billion in fuel and inflation savings plus new efficiencies. The remaining $11.2 billion in cuts came from reduced buys of platforms, including Apache and Black Hawk helicopters for the Army, F-35As and C-130Js for the Air Force, V-22 Ospreys for the Navy and Joint Light Tactical Vehicles for the Marine Corps.

Acquisition accounts are more adjustable in a short-term, one- or two-year change in available funds, said Pentagon Comptroller Mike McCord.

“It’s not unusual, if you look at history, to say that procurement is my short-term shock absorber,” he said.

Byron Callan, an analyst with Capital Alpha Partners, noted the Defense Department’s willingness to cut buys of mature platforms enabled it to increase research and development funding, which increased 4 percent from $69 billion to $71.8 billion.

“The rhetoric about lagging US defense technology and that ‘Other people are catching up to us, we really are going to focus on some of these high-end threats,’ I think that got reflected in the research and development plan,” he said.

In Paris, the French procurement chief noted the uptick in American R&D spending.

“What I see is they continue to maintain research and development at the same order of magnitude, a colossal amount compared to the levels we see in Europe and France,” said Laurent Collet-Billon, head of the Direction Générale de l’Armement procurement office.

“The US approach is ‘We can cut production, slow down a little, but we never cut technological innovation,’” he said during a Feb. 10 news conference on military procurement. “That is my model — never cut innovation. It is a question of superiority for them, for us it is a question of survival.”

Jon Louth, senior research fellow and director of the Royal United Services Institute, said the budget submission contained an implicit warning of trouble ahead for European governments and industry if they fail to raise their game to match the US' renewed R&D ambitions.

“If the US is going to significantly outspend its European allies on research to a degree markedly different to that of the past, what does that mean for Europe’s ability to maintain high-level  competence and capabilities among indigenous industries?” Louth said. “If the technologies become so exquisite that the Europeans, for various reasons, haven’t been able to develop their own capabilities, they risk becoming the natural clients of US exporters to a greater extent than they are today.”

The request also quadrupled the amount for the European Reassurance Initiative, from $800 million in 2016 to $3.4 billion in FY17.

Giri Rajendran, research associate for defense and economics at the International Institute for Strategic Studies, said the ERI increase signals a shift away from the 25-year, post-Cold War trend of a declining American military footprint on the continent. Over that period, the number of active combat battalions under US European Command (EUCOM) fell from 99 in 1990 to just 14 in 2015, he said.

“With the ERI funding increase, the US would be the 15th largest defense spending power in Europe in 2016,” he said. “Additionally, the fact that part of the allocation will go toward funding more extensive training and exercises — in many cases undertaken in conjunction with European allies — is particularly important for European militaries.”

Since 2008's financial crash, many European armed forces have cut training and readiness levels as short-term cost saving measures, he said.

“To the extent that the ERI promotes greater readiness and interoperability, it is likely to have a multiplier effect on the region’s armed forces level of preparedness and their ability to counter a revanchist Russia,” he said.

While noting that the budget conforms to the funding levels set by Congress, industry groups maintained that the budget was still too small to meet all the demands faced by the military, especially long-term modernization requirements.

Craig McKinley, president and CEO of the National Defense Industrial Association, said the DoD needs more money for modernization and innovation.

“The budget submission reflects estimates on strategic threats, but there is still considerable risk, and a troubling trend: the year-over-year gaps in modernization spending.” McKinley said in a prepared statement. “We urge Congress to continue its bipartisan work and provide the department with the stability it needs to function long-term in force structure, readiness and specifically in modernization, where funding has taken the biggest hit.”

The Aerospace Industries Association said the budget does not meet the requirement of providing adequate resources for the nation’s pressing priorities.

“The Department of Defense funding request aims to preserve the readiness and size of our forces, but substantially cuts aircraft, ship and ground combat systems, threatening our ability to quickly and decisively respond to the growing number and variety of security threats around the world,” AIA said in a prepared statement. “Such cuts will increase risk to our troops, make future military operations more costly, and make future modernization efforts more expensive.”

However, the likelihood of Congress plussing up the defense budget – perhaps by increasing OCO funding – appears remote, said Callan.

“You might be able to put more money in defense, but the Democrats aren’t going to let that go through without getting an equal pound of flesh on non-defense discretionary,” he said. “And you still have this wing of the GOP that’s going to look at increased budget deficits as poison.”

Instead, a shortfall of funds might serve as a driver for the Pentagon’s so-called third offset strategy, its hopes to leverage technological advances into force-reducing battlefield advantages. Both of the prior offset strategies were guided by the need to curtail defense spending.

“In the 1950s and 1970s, in both instances, the United States could have made the decision to absolutely increase defense dramatically and match the Soviets with more armor, more ground forces, better airpower,” Callan said. “Instead, this fiscal discipline pushed the defense department to seek these technology offsets. You’re seeing the exact same thing play out here.”

Andrew Chuter in London and Pierre Tran in Paris contributed to this report.

Email: aclevenger@defensenews.com

Twitter: @AndClev

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