Reduce DoD’s Operation and Maintenance Appropriation, Excluding Funding for the Defense Health Program

The Department of Defense (DoD) uses funds from its operation and maintenance (O&M) account to pay the salaries and benefits of most of its civilian employees, to train its military personnel, and to purchase goods (ranging from paper clips to jet fuel) and services (including, for example, health care, the maintenance and repair of equipment, and information technology support). O&M accounts for about 40 percent of DoD’s request for base-budget funding in 2017 (which does not include the additional funding that DoD requested for overseas contingency operations), making it the largest single appropriation title in DoD’s budget. In real terms (that is, after the amounts have been adjusted to remove the effects of inflation as measured by growth in the price index for gross domestic product), DoD’s base-budget costs for O&M grew by nearly 40 percent from 2000 to 2016, despite a slight decrease in the size of the military. Under DoD’s current plans as laid out in its Future Years Defense Program (FYDP), O&M funding—measured in real dollars—would grow by 4 percent from 2016 through 2021, the last year in the most recent FYDP.

This option has two alternatives that would reduce the growth in DoD’s O&M appropriation without affecting the portion of O&M funding slated for the Defense Health Program (DHP). (The Congressional Budget Office excluded funding for the DHP from this option because the causes of growth in that program are well-known and distinct from the factors that underlie growth in the rest of the O&M account; such funding is addressed by two health options in this volume, which are listed below.) Under the first alternative, DoD’s O&M appropriation in the base budget (excluding funding for the DHP) for the years 2018 through 2021 would equal the amount that the department requested in its budget for 2017. That portion of the budget would grow with inflation from 2022 through 2026. Under the second alternative, DoD’s O&M appropriation in the base budget (excluding funding for the DHP) would grow with inflation from the 2017 amount throughout the entire 10-year period.

The first alternative would reduce the discretionary budget authority needed for O&M by $163 billion over 10 years in relation to what would be needed under the FYDP and CBO’s extension of it. Outlays would decrease by $151 billion over that period. With the compound effects of inflation, the effect of the first alternative would be to reduce the purchasing power of the O&M appropriation (excluding funding for the DHP) in 2022 by 10 percent. The second alternative would reduce discretionary budget authority by $53 billion and outlays by $49 billion. DoD’s total purchasing power for O&M would be 3 percent less than it would be under the department’s current plan.

The option does not specify how the O&M reductions would be spread among the four military services and the defensewide agencies or how they would be implemented within each service or agency. Rather than stipulating across-the-board cuts, for example, the option would allow DoD to redistribute O&M funding among the services and agencies in its future budget requests as it sees fit and would leave it to the services and agencies to reallocate their funding in a manner that minimizes any losses of capability or readiness.

There are a number of methods that DoD could use to meet the O&M targets. Although those methods could be implemented individually, they might be more effective if they were applied as part of a DoD-wide effort to streamline its functions and business processes. One approach would be to gradually but significantly reduce the number of civilian personnel paid from the O&M account. If DoD used that approach, by 2022 it would, under the first alternative, employ roughly 220,000 (or 35 percent) fewer civilian personnel than it would under its current plan; under the second alternative, DoD would employ 60,000 (or 10 percent) fewer civilians. However, such cuts would generate the necessary savings only if the functions performed by the civilian personnel who were cut were not fulfilled by contractors (who would also be paid through the O&M account). The military services and DoD could continue to provide those functions if they found ways to operate more efficiently, or they could forgo the functions altogether. Using military personnel to replace civilians, contractors, or contracted services would not be an effective solution: Although that approach would lower O&M spending, it would transfer those costs to the military personnel account. Further, CBO has found that in many cases, substituting military personnel for civilians would have the net effect of increasing total costs.

Another method that could be used to meet the O&M targets would be to reduce the use of contractors and contracted services. DoD relies on contractors to perform a wide range of functions—from mowing lawns to maintaining complex weapon systems—that in the past were performed almost exclusively by military personnel and civilian employees. As with reducing the civilian workforce, cutting down on the use of contractors each year could save billions of dollars—but only if DoD forgoes the functions that contractors fulfill or finds more efficient ways of performing them.

The primary advantage of this option is that slowing the growth in O&M would make it easier for DoD to preserve force structure (the number of major combat units such as Army brigade combat teams or Marine regiments) and to modernize its weapon systems while still responding to pressures to constrain overall defense spending. Costs per uniformed service member generally increase every year because their pay and health care costs typically rise faster than inflation, and DoD’s current plan calls for significant increases in spending to modernize many of its weapon systems. Slowing the growth in O&M spending would help offset those increases.

A disadvantage of this option is that it could negatively affect the capability of the military if care is not taken to ensure that personnel remain as well trained and equipment as well maintained as under DoD’s current plan. If DoD was unable to afford that level of readiness under this option, it would have to reduce force structure to preserve readiness. Another disadvantage of the option is that it could discourage DoD’s efforts to make changes that would allow it to provide essential functions more efficiently. For example, in 2012, DoD identified about 14,000 military positions in commercial activities that could be converted to positions filled by federal civilian employees or contractors (see Option 4). By reducing spending on military personnel, such conversions would probably reduce DoD’s overall costs, but they would nevertheless increase the department’s O&M spending. Policymakers and DoD would need to take precautions to prevent the option from forestalling such conversions.