Long-Term Implications of the 2011 Future Years Defense Program

February 11, 2011

In most years, the Department of Defense (DoD) provides a five- or six-year plan, called the Future Years Defense Program (FYDP), associated with the budget it submits to the Congress. Because decisions made in the near term can have consequences for the defense budget well beyond that period, CBO—at the request of the Senate Budget Committee—has examined the programs and plans contained in DoD’s most recent FYDP (issued in April 2010) and projected their budgetary impact in subsequent years. The FYDP covers the fiscal years 2011 through 2015, and CBO’s projections span the period from 2011 through 2028. The results of that analysis are presented in a study released today, the latest in an annual series that CBO has published over the past eight years.

CBO’s Projections

In February 2010, DoD requested an appropriation of $707 billion for 2011. Of that amount, $548 billion was to fund the “base” programs that constitute the department’s normal activities, such as the development and procurement of weapon systems and day-to-day operations of the military and civilian workforce. The remaining $159 billion was requested to pay for overseas contingency operations—the operations in Afghanistan, Iraq, and elsewhere. CBO focused its analysis on the base budget because it reflects DoD’s future plans for manning, training, and equipping the military.

CBO has projected the costs of DoD’s plans for its base budget (reflected in the FYDP, along with other long-term plans released by the department) by using factors that are consistent with the department’s recent experience. CBO’s analysis yields these conclusions (with costs all expressed in terms of 2011 dollars):

  • To execute its base-budget plans for the period covered by the FYDP, DoD would need about $187 billion (or 7 percent) more over those five years than if funding was held at the 2010 level of $537 billion. Over the 10 years from 2012 to 2021, DoD would need a total of $680 billion (or 13 percent) more than if funding was held at the 2010 level.
  • From 2011 to 2015, DoD’s base budget would grow at an average annual rate of 2.3 percent over and above the rate of inflation. Beyond the FYDP period, from 2016 to 2028, average annual growth in the costs of DoD’s base-budget plans would be 0.8 percent over and above the rate of inflation. At those rates, DoD’s base budget would rise from $548 billion in 2011 to $601 billion in 2015 and to $665 billion in 2028.
  • The primary cause of long-term growth in DoD’s budget from 2011 through 2028 would be increasing costs for operation and support, which would account for nearly all of the increase. In particular, CBO projects that there would be significant increases in the costs for military and civilian compensation, military medical care, and various operation and maintenance activities.
  • That large contribution of operation and support costs to budget growth is a change from earlier projections, in which sharp growth in anticipated requirements to replace and modernize weapon systems (the so-called bow wave) was the primary factor underlying budget growth beyond the years covered by the FYDP. In the current projections, acquisition costs would steadily grow from $189 billion in 2011 to a peak of $218 billion in 2017 (an increase of about 15 percent) before decreasing and leveling off—albeit with year-to-year variations—at an average of about $200 billion per year thereafter.

Comparison With Projections Incorporating DoD’s Estimates

CBO compared its projection with DoD’s estimate of the costs of the FYDP (for the 2011–2015 period) and with an extension of the FYDP (for the 2016–2028 period). The latter is a projection based on DoD’s estimates of costs, where they are available for years beyond 2015 (for some weapon systems, for instance), and on costs consistent with the broader U.S. economy, where estimates from the department are not available (for pay and medical costs, for instance).

CBO’s projection of the total cost of the FYDP through 2015 is about 1 percent higher than the department’s estimate. Much of the difference derives from an assumption that recent trends in the costs of weapon systems, medical care, and other support activities persist. Through 2028, CBO’s projection of the FYDP’s total cost is about 4 percent higher than what is cumulatively estimated under DoD’s plan and an extension of the FYDP.

The degree to which the plans laid out by DoD are executed in the future will depend on the amount of funding that will be provided in an era of increasing pressure on the federal budget as a whole and on the success of ongoing efforts to curb cost growth in areas such as medical care and advanced weapon systems. Indeed, Secretary of Defense Gates announced in January 2011 that DoD will trim its plans by a total of $78 billion (or about 3 percent) from 2012 to 2016 in recognition of the fiscal environment. Because many details of those revisions to plans have not yet been released, an analysis of the possible effects if they were adopted is not possible and is not included in this study.

This study was prepared by David Arthur with contributions by members of CBO’s National Security Division.