President's Perspective

March 2005

The Budget Realities We Must Face

by Lawrence P. Farrell Jr.

As Congress deliberates at length on the fine points of the Bush administration’s fiscal year 2006 budget request for the Defense Department, it may be an appropriate time to take a broader look at the potential implications of the Pentagon’s spending plan.

The president’s proposed $419.3 billion spending plan covers the department’s most pressing needs for operations and personnel, as well as overdue pay raises for active-duty troops, increases for military construction and family housing programs. It does not cover any Iraq war costs that are expected to be part of an upcoming $75 billion supplemental request for 2005. Overall, however, the proposed fiscal year 2006 budget is more than $3 billion less than was projected in last year’s 2005 budget.

Of most concern are the investment accounts, particularly the procurement of new weapon systems and research and development. The budget requests $78 billion for procurement and $69 billion for R&D. These are disappointing numbers considering that last year’s budget projected that by 2006, spending would reach $80.4 billion for procurement and $71 billion for R&D.

As we’ve seen in the past when major military operations are under way, investments get postponed or curtailed. That is the reality of wartime operations. Although the five-year spending plan proposes increases in procurement (to $91.7 billion in 2007, and $101.4 billion in 2008), it is reasonable to predict that, in light of the war and current forecasts for Social Security and Medicare costs, these projected jumps in procurement accounts appear overly optimistic.

Pentagon officials, meanwhile, said their intent is to cut defense spending by $30 billion during the next six years. Although that is a minuscule amount in the context of a $3 trillion six-year spending plan, it is expected that most of the cuts will come from major procurement programs, especially ships and aircraft. The Defense Department already has announced its intent to cut Navy aircraft-carrier groups from 12 to 11, to terminate the production of C-130J cargo aircraft and to downsize the Air Force F/A-22 fighter program from 381 to 150 aircraft.

These are just three examples of spending decisions that raise important questions about the Pentagon’s long-term strategy for maintaining the technological edge of our military forces and a healthy procurement program.

It’s been a fact of life since the end of the Cold War that the procurement accounts have become bill-payers for other, more urgent, priorities. It was only in 2001 that we saw a turning point, and acquisition spending began to surge. Now that we are barely coming out of the so-called “procurement holiday,” investment accounts once again are being targeted.

The cost of the war in Iraq obviously is putting pressure on the budget, and it is understandable that far-term modernization would take a temporary back seat to personnel and operations costs. This is a necessary step, but if the trend continues over a longer period, there is a risk that our military forces will find themselves under-equipped and outgunned by future adversaries.

It would be fair to assume that we can continue to stretch programs for five or six more years without significantly undermining the health of the industrial base. But if investment accounts continue to be shortchanged beyond that, we could be risking the nation’s ability to develop and produce advanced weapon systems.

The slowdown and stretching of major acquisition programs are a familiar practice in the Defense Department, leading to a scenario known as a “procurement bow wave.” This term describes the situation that occurs when the full-rate production of weapon systems is delayed. That, in turn, causes the program’s cost to surge dramatically in the out years.

Tough decisions to trim procurement programs may be justified today, but could eventually exacerbate the bow wave even more. We have seen this happen before, when the Pentagon, facing stiff opposition from Capitol Hill, ends up keeping programs alive, but stretches them several years out.

I’m not suggesting that the Defense Department should be insulated from the larger federal budget crisis, but we also should keep in mind that defense is only one piece of the budget problem, and that spending on national security is not optional.

Although we hear much talk about the need to maintain the U.S. military’s technology edge, that only can be achieved with sound spending policies that address our immediate priorities, especially in a time of war, but also take into account the need to stabilize defense resources over time so that we can make and sustain smart, war-winning investments.

Please email me your comments to Lfarrell@ndia.org

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