Presentation on Defense Spending to the National Commission on Fiscal Responsibility and Reform

June 11, 2010

Earlier this week, CBO’s Acting Assistant Director for National Security, Matthew Goldberg, spoke to the National Commission on Fiscal Responsibility and Reform on the topic of discretionary defense spending. Last month, representatives of CBO spoke to the commission on three different occasions to provide information on tax policy, discretionary spending, and mandatory spending.

Discretionary defense spending makes up half of all discretionary spending (that is, spending that is subject to the annual appropriation process) in the federal budget. The Department of Defense (DoD) requested and the Congress provided about $530 billion in appropriations for fiscal year 2010. But current plans would require greater funding in future years. In a report released in January, CBO estimated that to implement the programs, plans, and policies in the Administration’s 2010 budget would require appropriations averaging about $570 billion (in constant 2010 dollars) over the period extending through 2028, excluding any potential costs for overseas contingency operations. DoD’s 10-year budget plan for the period starting in 2011 would require about $50 billion per year more over the next decade than CBO projected in January, mostly to fund overseas contingency operations (including, but not necessarily limited to, the ongoing operations in Afghanistan and Iraq).

An important factor contributing to the projected increases in defense funding needed to implement current plans is that many weapon systems being acquired today are much more expensive than their predecessors. For example, the Air Force has been spending nearly as much annually to purchase relatively small numbers of F-22 fighter jets and Joint Strike Fighters (JSFs) as it did to purchase much larger numbers of F-15s and F-16s during the 1980s.

Another factor contributing to increases in the defense budget has been increases in pay and other benefits for military personnel. Several enhancements to the pay and medical benefits of retired military personnel have been enacted over the past decade, most prominently for the TRICARE for Life program (which supplements Medicare for retirees who are eligible for both programs). In addition, in each of the past six years the military pay raise has exceeded the percentage increase in the Employment Cost Index (a measure of average wages and salaries in the private sector). In contrast, certain charges that military retirees pay under TRICARE Prime (the military system’s health management organization), such as the $460 annual family enrollment fee and the $12 copayment for a civilian outpatient visit, have not been increased in over 10 years.

Recent CBO studies have identified some particular areas where added spending may be needed to meet DoD’s current objectives. The JSF program has thus far experienced a cumulative delay of four years, which will adversely affect the Navy and Marine Corps as well as the Air Force and could necessitate additional spending over the next five years or more to maintain fighter inventories until the JSFs become available in large quantities. As discussed in a CBO study, F/A-18 Hornets in the Navy’s and Marine Corps’ fleets are rapidly approaching the maximum number of hours for which they are certified to fly, at which point (absent further action) they will have to be retired. To maintain fighter inventories at or close to their goals, those two services may have to invest in extending the service lives of their Hornets or purchase additional F/A-18E/F Super Hornets in order to bridge the gap until the JSFs are delivered.

The costs of the Navy’s shipbuilding program may also result in additional pressures on the defense budget. Another CBO study analyzed the Navy’s most recent shipbuilding plan, which covers the 30 years starting in 2011. The Navy’s plan calls for the purchase of 276 ships over that period, but CBO’s analysis indicates that those purchases would not be adequate to meet the Navy’s goal of having a total inventory of 322 ships for most of that period. Further, CBO estimates that purchasing the 276 ships and conducting related activities such as refueling nuclear-powered aircraft carriers would cost an average of $21 billion per year (in 2010 dollars)—considerably more than the $15 billion per year the Congress has appropriated for those purposes on average over the past 30 years, or the $13 billion per year the Congress has provided during the past five years.