Options for Reducing Defense Budgets to Meet Funding Limits Under the Budget Control Act

Posted by David Arthur on
December 9, 2013

In a report released a few weeks ago, CBO presented its projections of the long-term costs of the Department of Defense’s (DoD’s) plans and highlighted the mismatch between those costs and the funding limits imposed by the Budget Control Act (BCA) through 2021. That mismatch, CBO estimates, would average about $60 billion to about $90 billion a year, depending on the cost assumptions used in the analysis. In percentage terms, satisfying the BCA limits in 2021, for example, would require that DoD’s budget be roughly 10 percent to 20 percent below the projected costs of DoD’s plans for that year, CBO estimates.

Today’s post describes several options—as discussed in CBO’s March 2013 report, Approaches for Scaling Back the Defense Department’s Budget Plans—that DoD could use to bring its budgets down to levels consistent with the BCA limits. The Strategic Choices and Management Review (SCMR) that DoD completed a few months after the release of CBO’s March study seems to have taken a similar approach and reached similar conclusions.

To Reduce Costs, Policymakers Could Reduce the Number of Combat Units, Average Funding Per Unit for Equipping and Operating Those Units, or Both

To lower DoD’s costs, policymakers could reduce the number of combat units the military services field, reduce average funding for acquiring equipment and for operations per unit, or adopt some combination of those two approaches, with the following broad implications:

  • Reducing the number of combat units fielded would allocate reductions across most of DoD’s budget categories. Units that remained in the force would continue to be funded at levels that have produced today’s highly capable forces. However, having fewer such forces might jeopardize the military’s capacity to respond to multiple conflicts simultaneously or to prolonged conflicts without requiring long overseas deployments for service members.
  • Reducing the average funding per unit for equipping and operating combat units would maintain the size of the force at planned levels but would provide generally more austere budgets for those units. Such a reduction in funding for acquisition and operations might result in fewer or delayed purchases of new weapons, decreased peacetime operations, and less training. These measures might affect the U.S. military’s superiority in areas such as advanced weaponry and comprehensive training, and might constrain peacetime operations.

CBO examined four broad options that policymakers could adopt that would bring DoD’s budget into compliance with the BCA—each involving different combinations of force reductions and cuts to acquisition and operations. The options are illustrative; other combinations tailored to specific strategies would be possible (and, indeed, might be preferred).

In the options, CBO assumed that, when reducing the number of combat units, DoD would trim the same proportion from support units and overhead activities within the department; if DoD could not make proportional reductions in support and overhead activities, more combat units would need to be eliminated to achieve the required total reductions. CBO also assumed that DoD would not reduce military compensation per service member and would not provide overhead activities more efficiently than it does today. If policymakers took steps to reduce either of those costs (or to reduce their projected growth through 2021), the cuts required by each option would be smaller. In all four options, the cuts would be larger in 2021 than in earlier years because CBO projects that the costs of implementing DoD’s plans will increase faster than the funding allowed under the BCA.

Option 1: Preserve Force Structure; Cut Acquisition and Operations

Under this option, policymakers would preserve the size of U.S. military forces but reduce the average funding for acquisition and operations for each unit. In its analysis, CBO divided DoD’s funding into three broad budget categories: military compensation (funding for military personnel, family housing, and military health care); acquisition (funding for research, development, test, and evaluation, and for procurement and military construction); and operations (funding for operation and maintenance, excluding military health care, as well as working capital and revolving funds). By 2021, the required reductions in acquisition and operations would range from 20 percent to 30 percent depending on the underlying assumptions about future costs.

Option 2: Cut Acquisition and Operations; Phase in Reductions in Force Structure

Under Option 2, policymakers would achieve half of the necessary reduction after 2017 by cutting forces and half by reducing funding for acquisition and operations for the forces that remain. CBO assumed that the bulk of the force reductions would be phased in by 2017, similar to the timing of the force cuts that DoD is already planning. Each year thereafter, small additional reductions would be needed to remain at the BCA limits. The size of the force in 2021 would be 8 percent to 11 percent smaller than the force DoD currently plans for 2017.

Until the force reductions were phased in, the average acquisition and operations funding for all forces would bear the brunt of the cuts. By 2021, funding for acquisition and operations for the military units that would remain in the force would be reduced by 10 percent to 15 percent relative to CBO’s projections of DoD’s current plans.

Option 3: Achieve Savings Primarily by Cutting Force Structure

Under this option, policymakers would adhere to the BCA limits primarily by cutting force structure below its planned levels. As with Option 2, additional cuts to acquisition and operations would be made to stay within the BCA limits through 2016. To satisfy the BCA, the size of the force in 2021 would have to be 15 percent to 23 percent smaller (depending on cost assumptions) than DoD’s planned force size in 2017, but average funding for acquisition and operations per unit would not be reduced.

Option 4: Reduce Force Structure Under a Modified Set of Budget Caps

Under this option, new legislation would modify the BCA so that the automatic spending reductions could be phased in more slowly; however, the same total reduction to DoD’s funding would be achieved through 2021 by making larger cuts in later years to offset the smaller cuts in earlier years. Policymakers would adhere to those modified budget caps entirely by cutting force structure. To satisfy the BCA, the size of the force in 2021 would have to be 18 percent to 25 percent smaller (depending on cost assumptions) than DoD’s planned force size in 2017. The average funding for acquisition and operations per unit would not be reduced.

All of the Options Would Scale Back DoD’s Plans Significantly

The cuts to force structure under Option 4 could—if spread evenly across DoD’s four military services and among both full-time (active) units and part-time (reserve) units—be as large by 2021 as 18 Army brigade combat teams (or BCTs, out of a planned force of 66); 58 major warships (out of a planned force of 244); 3 Marine regiments (out of a planned force of 11); and 300 Air Force fighters (out of a planned force of about 1,100 in combat squadrons). Reductions in similar proportions would be made to the other types of combat and supporting units in each service. Options 2 and 3 would involve smaller but still substantial cutbacks in forces (see the table below). (The reductions in the number of units shown for each option are based on CBO’s analysis of DoD’s 2013 plans; those results would probably not be very different for DoD’s 2014 plans because the plans are very similar.)

Policymakers must evaluate the implications of such reductions in the context of national security strategy and the military capabilities of potential adversaries around the world. A smaller force would be more limited in the size and duration of conflicts that it could respond to. Although forces would not be cut under Option 1, the reductions in average acquisition and operations funding per unit would be large enough to raise the specter of a “hollow” force—a force of impressive size but without the resources to be as effective as it is today. However, current U.S. military forces have substantial technological, operational, and, in most instances, size advantages over those of other nations. Therefore, policymakers may find it acceptable for the United States to reduce the size of its military or to slow the pace of technological advancements in weaponry as a decade of overseas conflicts draws to a close. Notwithstanding the direct costs of those conflicts that were largely funded from emergency and supplemental appropriations, DoD’s base budget in 2012 was substantially larger in real (inflation-adjusted) terms than in 2001. Even at their deepest in 2014, the cuts from the BCA will return DoD’s budget to where it stood in real terms in 2006 and still 25 percent above its level in 2000.

Illustrative Reductions for Selected Combat Forces Under CBO Options

David Arthur is an analyst in CBO’s National Security Division.