Long-Term Implications of the 2009 Future Years Defense Program

January 7, 2009

Decisions made today about national defense-- whether they involve weapon systems, military compensation, or numbers of personnel-- can have long-lasting effects on the composition of the nation's armed forces and the budgetary resources needed to support them. CBO has publisheda series of reports over the past six years about its projections of the resources that might be needed over the long termto carry out theAdministration's plans as expressed in the Future Years Defense Program (FYDP).Yesterday CBO released a paper providing projections of the amount of budgetary resources might be needed in the long term to carry out current defense plans (as they are described in the 2009 FYDP).

As in recent similar CBO reports, today's report projects that carrying out the plans proposed in the 2009 FYDP would require sustaining higher inflation-adjusted levels of spending than those that occurred at the peak of the defense buildup in the mid-1980s. Four key factors account for the projected high level of spending:

  • Plans to purchase more new military equipment over the next several years and then to sustain that rate of procurement over the longer term;
  • Plans to develop and produce weapons systems with new capabilities and rising estimated costs;
  • Plans to increase the size of military forces, coupled with the increasing cost of pay and benefits for military and civilian personnel; and
  • Plans to meet rising operations and maintenance costs for both aging equipment and newer, more complex equipment.

In CBOs projection of DoDs current FYDP, defense resources average about $549 billion annually (in 2009 dollars) from 2014 to 2026, or about 6 percent more than the$515 billion in total obligational authority (TOA) provided by the Congress for 2009.(The 2009 FYDP and CBO's projections of its long-term implications exclude potential future supplemental or emergency appropriations; CBO's projections include additional appropriations that have already been enacted).

Possible unbudgeted costs have the potential effect of increasing the projection of long-term demand for defense funding to an annual average of about $652 billion through 2026, or 26 percent more than the funding provided for 2009. CBOs analysis includes several possible sources of unbudgeted costs: that the costs of weapon systems now under development would exceed early estimates; that medical costs might rise more rapidly than DoD has assumed; and that DoD would continue to conduct military operations overseas as part of the war on terrorism, albeit at reduced levels relative to current operations in Iraq and Afghanistan.

Costs for operations in Iraq, Afghanistan, and for other purposes related to the war on terrorism have been rising. In 2007, appropriations for those activities totaled $170 billion in 2007 dollars, or 28 percent of total funding for the Department of Defense. In 2008, the appropriations rose to $187 billion in 2008 dollars, or 28 percent of defense funding that year. (In both years, some of the supplemental and emergency funding was for purposes unrelated to military operations overseas: in 2007, $5 billion; in 2008, $7 billion.)

Under DoDs current plans and CBOs projections of them, defense resources would steadily decline in relation to the size of the economy. The share of the U.S. gross domestic product (GDP) allocated to defense spending declined from an annual average of 5.6 percent in the 1980s to 3.8 percent in the 1990s. If DoDs current plans were carried out, defense spending would drop to 3.1 percent of GDP by 2013 and to 2.5 percent of GDP by 2026, excluding unbudgeted costs.

CBO's report includes two alternatives to its projections for DoDs plans: an evolutionary scenario (in which DoD would forgo or scale back acquisition of the new, advanced capabilities that the department associates with military transformation and instead pursue evolutionary upgrades to its current capabilities) and a transformational scenario (in which DoD would increase its emphasis on acquiring the advanced capabilities it associates with military transformation). Under those two scenarios, CBO projects that the long-term demand for defense resources would be reduced by 7 percent and 4 percent, respectively, relative to its projection of the implications of the 2009 FYDP.