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The Coming Crunch August 31, 2009

Posted by Stephen Abott in Analysis.
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Source: DOD

Source: DOD

Defense procurement and R&D will be under increasing budgetary pressure over the next few years, posing a challenge for the Quadrennial Defense Review (QDR) now underway in the Pentagon. Internally, budget pressure comes from two principal sources, rising healthcare and operations and maintenance (O&M) costs. The Center for Strategic and Budgetary Assessments (CSBA) recently released an analysis of the FY 2010 defense budget. It showed that DOD healthcare costs are expected to grow 5-7% annually in the coming years, while O&M and personnel costs will continue to rise faster than the overall budget.

Externally, the pressure will come from the growing need to curtail rapidly expanding federal deficits, underlined by the most recent OMB Mid-Session Review, which will cap future growth in overall defense budgets.

DOD can not do much to control the deficit and must learn to live with a stable or even declining overall budget.  The QDR will have to deal with the internal pressures that result. Healthcare and O&M budgets have grown, along with procurement and war spending, because the DOD budget was surging, overall.  With budget stability or decline, these costs become budgetary cannibals, eating away at procurement and R&D spending. In addition, the “temporary” expansion of the ground forces will add to the near-term budgetary cannibalism and generate new health and operations spending needs downstream.

A good example of is the upcoming expansion of Army end strength.  Secretary Gates recently requested the reprogramming of $1 billion in proposed FY 2010 funding to support the recruit and training of 15,000 new soldiers. The majority of these reprogrammed funds come from FY 2010 procurement accounts, including money for the Family of Tactical Vehicles (FMTV), Hellfire missiles, and other systems. Setting aside the wisdom of these program choices (which may make sense), the need to raid procurement to pay for operations, personnel, and benefits is clear.  The reprogramming scarcely touched existing spending plans for O&M or benefits.

The QDR should be dealing directly with these personnel, operations, and benefits issues, as well as tackling the acquisition plan.  If the inexorable growth of such spending is allowed to proceed, the price will be paid by the technology the Department needs to cope both with near-term requirements and long-term modernization needs.

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