Budget Sets Stage for Fight With Congress

It initially appeared that the Defense Department’s budget for fiscal year 2015 had at last offered some much needed breathing room for the military to prepare for leaner times. But it is now clear that the same challenges will continue into 2016.

The fiscal year 2015 defense discretionary budget top line is $495.6 billion. The request includes an additional $26 billion fund called the Opportunity, Growth and Security Initiative, part of a government-wide proposal by President Obama that for defense is targeted at readiness, modernization, base sustainment and military construction. About $336.3 billion, or roughly two-thirds of the proposed budget, pays for operations, while the other third, or $159.3 billion, makes investments in modernization and recapitalization of equipment and facilities.

The budget request includes a 20 percent cut in headquarters operating costs, a base realignment and closure round recommended for fiscal year 2017, proposed adjustments to military compensation and healthcare benefit reforms, 26 F-35As, six F-35Bs and two F-35Cs — with a total of 343 Joint Strike Fighters over the five-year future years defense program.

The budget funds 59 Air Force combat-coded air squadrons, provides $900 million for the long range strike bomber in 2015 and $11.4 billion for it over the FYDP; seven KC-46 tankers in 2015 and 69 aircraft over the FYDP; $1 billion over the FYDP for a next-generation jet engine; a 288-ship Navy in 2014 which is proposed to grow to about 309 ships over the FYDP; two Virginia-class submarines and two DDG-51 guided-missile destroyers per year over the FYDP; three littoral combat ships in 2015 and 14 total over the FYDP; a Marine Corps end strength of 182,700 in 2015; 32 active Army brigade combat teams and 28 Army National Guard brigade combat teams; $7.5 billion for the Missile Defense Agency and $5.1 billion for cyber operations; and $7.7 billion for special operations, a 10 percent increase over this year’s funding.

The FYDP for fiscal years 2016 through 2019 included in this budget request exceeds the current budget caps for those years by about $115 billion. In order for that funding to be appropriated in 2016 and beyond, Congress would need to change the budget caps established by the 2011 Budget Control Act and amended by the 2013 Bipartisan Budget Act.

The budget reasonably tries to balance near-term readiness against long-term modernization, although the Army will struggle more than the other services as it tries to shed force structure to free up funds for investments.

The Army sees a drop of budget authority from $125 billion to $121 billion, a 3 percent reduction. But the personnel account stays level, so the burden shifts to the procurement account, dropping 6 percent from $21.4 billion to $20.1 billion. The Army is divesting 898 helicopters from the fleet. Research and development continues to decline with the cancellation of the ground combat vehicle. The Army seeks to bolster combat training with 19 major exercises planned for fiscal year 2015. Procurement is weighted toward the soldier — night vision, communications, weapons upgrades — and new helicopters.

The problem for the Army is that its personnel costs eat up nearly half its budget — about 46 percent — and it takes several years to ramp down. The Army needs relief from the BCA caps not only to fund modernization but also to avoid falling below 450,000 active-duty soldiers, which is the size the Army insists it must be in order to meet the strategic requirements set in the Quadrennial Defense Review. If forced to stay within the caps, the Army would have to drop to 420,000 soldiers.

The Department of the Navy has a budget of $148 billion — $125 billion for the Navy, $22.8 billion for the Marine Corps. Personnel costs account for 31 percent of their budgets. Most of the $38 billion procurement budget goes to ships and aircraft. Navy manpower remains steady at 323,000 while the Marines would drop to 175,000 if Congress does not provide relief from sequester.

The Marine Corps continues to attempt to maintain the maximum force readiness, but future procurements of equipment are being slowed down. It is still committed to buying a new amphibious assault vehicle. But like the other services, the Marine Corps must perform a balancing act.

The Air Force continues to emphasize full spectrum warfare in its budget. It is reducing force structure and capabilities, as well as associated support and infrastructure. It is cutting back on service contracting, limiting travel and divesting entire fleets of aircraft, notably the A-10 attack plane and the U-2 surveillance aircraft. It is fully funding its flying hours requirements and its top three procurement programs: the F-35A, the KC-46 tanker and the next-generation bomber. A big effort is underway to shore up munitions procurement.

Air Force personnel costs are even lower than the Navy, at 27 percent of the budget. Air Force ranks will be drawing down to 308,000 active-duty airmen in fiscal year 2019, with proportional reductions in reserve components also planned. The Air Force is trying to balance capabilities across the force and wrestling with the trade-off as expressed by Chief of Staff Gen. Mark Welsh: “Do we want a ready force today or a modern force tomorrow?”

One major point of contention in the coming budget negotiations with Congress will be military benefits the Pentagon is seeking to trim. According to the 2015 proposal, tax-free housing allowances — which currently cover 100 percent of housing expenses — will be slowed down until they cover an average of 95 percent of housing expenses with a 5 percent out-of-pocket contribution. The military would no longer reimburse for renter’s insurance.

Over three years, the Defense Department will reduce by $1 billion the annual direct subsidy provided to military commissaries, which now totals $1.4 billion. The budget proposes increases to TRICARE copay and deductibles. It seeks to consolidate TRICARE programs for retirees under 65 and active duty family members.

It appears that the relief granted by the Ryan-Murray Bipartisan Budget Act does not provide enough headroom for the services to draw down quickly enough to protect procurement and readiness. The battle is now beginning as Defense Department leaders advocate more relief from BCA caps in 2016. 

It will be a difficult struggle. The $26 billion opportunity fund — which funds items of interest to industry — has a slim chance of being approved. Given the pushback in Congress on the relief granted in the BBA for 2014 and 2015, it is hard to imagine more relief coming in fiscal year 2016. Lacking that reprieve, the services will have to further reduce force structure and continue to push needed procurements further into the future.

Topics: Defense Department, DOD Budget, DOD Policy