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

Background

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 (such as paper clips and jet fuel) and services (including, for example, health care, equipment maintenance and repair, and information technology support). O&M accounted for nearly 40 percent of DoD's request for base-budget funding in 2019, making it the largest single appropriation title in DoD's budget. (That funding does not include the additional amount that DoD requested for overseas contingency operations.) 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 about 45 percent from 2000 to 2018, despite a 4 percent decrease in the size of the military. (A previous Congressional Budget Office study found that spending for departmental management functions, which are largely funded through the O&M account, grew at a faster pace than spending for other support functions.)

Under DoD's plans, as laid out in its Future Years Defense Program (FYDP), O&M funding—measured in real dollars—would grow by 2 percent from 2019 through 2023, the last year in the most recent FYDP, (That amount does not include the additional increase from the planned transition of contingency funding into the base budget.) CBO projects O&M funding beyond 2023 by applying the employment cost index for growth in civilian pay and the historical average rate for O&M per service member for growth in other costs. (Military health care costs are projected separately and not included in this option.) Under that projection, O&M continues to grow faster than inflation through 2028.

Option

This option has two alternatives. Both 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). CBO 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; DHP funding is addressed by another option in this volume, which is listed below.

Under the first alternative, DoD's O&M appropriation in the base budget (excluding funding for the DHP) for 2020 through 2023 would equal the amount that the department requested in its budget for 2019. That portion of the budget would grow with inflation from 2024 through 2028. Under the second alternative, DoD's O&M appropriation in the base budget (excluding funding for the DHP) would grow with inflation from the 2019 amount throughout the entire 10-year period.

Effects on the Budget

The first alternative would reduce the discretionary budget authority provided for O&M by $220 billion over 10 years relative to the amount that would be needed under CBO's estimates of the costs of DoD's plans over the next decade. As a result, outlays would decrease by $195 billion over that period. The first alternative would lessen the amount appropriated for O&M (excluding funding for the DHP) in 2024 by 11 percent. The second alternative would reduce discretionary budget authority over 10 years by $81 billion and outlays by $70 billion. DoD's total appropriations for O&M under the second alternative would be 3 percent less than they would be under the department's current plan.

This option does not specify how the changes to DoD's plans for O&M funding would be allocated among the four military services and the defensewide agencies or how they would be implemented within each service or agency. Rather than stipulating slower growth across the board, for example, the option would allow DoD to redistribute O&M funding in its future budget requests among the services and agencies as it sees fit and would permit the services and agencies to reallocate their funding in a manner that minimized any loss of capability or readiness.

DoD could use many methods to achieve the lower 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 functions and business processes. One approach would be to gradually but significantly reduce the number of civilian personnel and, thus, decrease amounts paid from the O&M account. If DoD used that approach alone to meet the funding targets under this option, by 2024 the department would employ roughly 240,000 (or 37 percent) fewer civilian personnel under the first alternative than it would under its current plan; under the second alternative, DoD would employ 60,000 (or 9 percent) fewer civilians.

However, such changes would decrease costs 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: That approach would simply transfer costs from the O&M account to the military personnel account. Furthermore, CBO has found that in many cases, substituting military personnel for civilians would increase total costs, on net.

Another approach that could be used to achieve the lower 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 could save billions of dollars each year, but only if DoD forgoes the functions that contractors fulfill or finds less costly ways of performing them.

One source of uncertainty about savings under this option is changes in the prices of the goods and services that the department purchases. If the price of fuel falls—as a result of decreases in the price of oil, for example—then the costs of DoD's plans would be less than they were estimated to be in the 2019 FYDP and CBO's extension of that plan. Thus, the savings under this option compared with those estimates would be correspondingly smaller. Increases in other costs, such as for civilian pay (which is determined by the Congress) and maintenance (perhaps from aging equipment) would have the opposite effect.

Other Effects

An advantage of this option is that some parts of DoD would have incentives to become more efficient. DoD's business functions, such as financial management and logistics, may be less efficient than analogous functions in the private sector. The operations of many of DoD's support programs have been placed on the Government Accountability Office's (GAO's) High Risk List, which identifies federal programs that GAO believes are at risk for waste, inefficiency, or ineffective spending. DoD's business-reform initiatives suggest that spending on those support programs could be reduced without significantly decreasing the quality of services provided.

A disadvantage of this option is that it could negatively affect the capability of the military to fight and win wars if care is not taken to ensure that personnel remain as well trained and equipment stays 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 from making 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 "Replace Some Military Personnel With Civilian Employees"). 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 this option from forestalling such conversions.