Trends in Spending by the Department of Defense for Operation and Maintenance

The Department of Defense’s (DoD’s) budget consists of appropriations for the following purposes: compensating military personnel; developing and purchasing weapons; building bases, facilities, and housing; and supporting day-to-day operations. The largest single appropriation category in DoD’s base budget is the operation and maintenance (O&M) account, which funds day-to-day operations ranging from health care to equipment maintenance.

Over the past few decades, funding for O&M has increased substantially, accounting for a growing share of DoD’s budget. That growth has occurred even as the number of active-duty military personnel has remained flat or declined. Consequently, Members of Congress and the defense community at large have expressed concerns about this portion of DoD’s budget. However, efforts to identify the activities that have contributed significantly to the growth in spending are complicated by the diverse nature of the goods and services purchased with O&M funds and limitations associated with available data. Nevertheless, CBO’s analysis indicates that increased funding for large and familiar categories, such as the military health care system, civilian pay, and fuel, accounts for about 60 percent of the long-term growth in O&M funding; varied smaller and lesser-known activities, such as contracted services and the operations of small DoD agencies, account for the remaining 40 percent. Of those varied and lesser-known activities, funding increased significantly for the maintenance of equipment, weapon systems, and property; technical and research services; professional and other services; and purchases of equipment not part of weapon systems.

How Much of DoD’s Funding Is for O&M?

In 2015, about $200 billion (40 percent) of DoD’s base budget of $500 billion was designated for operation and maintenance. Funding in the base budget for each of the other major categories was much smaller—military personnel (27 percent); procurement (19 percent); research, development, test, and evaluation, or RDT&E (13 percent); military construction (1 percent); and family housing (0.2 percent). Although not part of DoD’s base budget (and thus not the focus of this report), O&M funding for overseas contingency operations (OCO) also accounted for a significant share ($51 billion, or 80 percent) of the $64 billion the Congress appropriated to DoD for OCO in 2015, mostly for the wars in Iraq and Afghanistan. In total, funding for O&M (in the base budget and for OCO) accounted for about 50 percent of DoD’s appropriations in 2015.

Funding for operation and maintenance is used to purchase a wide range of goods and services—numbering in the thousands—and those goods and services are often acquired in small quantities or at relatively small unit cost. DoD uses O&M funds to pay the salaries and benefits of most of its civilian employees and to purchase goods that range from jet fuel to paper clips and services that range from information technology to housekeeping. That diversity makes it difficult to determine why spending is rising and to formulate approaches to slow that growth. In contrast, growth in funding for larger programs, such as those pertaining to major weapon systems or military pay, is more easily understood. For instance, DoD’s appropriation for procurement funds fewer than 100 major programs (as well as several hundred smaller programs), each of which has separate accounting and reporting procedures; consequently, problems with cost growth in each of those programs are easier to identify.

What Are the Trends in O&M Funding?

To provide context for the scale of growth in O&M funding, CBO examined trends in that appropriation for DoD’s base budget between 1980 and 2015. To identify the activities responsible for most of that growth, CBO conducted a more detailed analysis of the growth in funding that occurred between 2000 and 2012—two years for which data with sufficient detail were available.

In real terms (that is, with adjustments to remove the effects of inflation), O&M funding has grown fairly steadily since 1980 and, over that time, taken up an increasing share of DoD’s base budget. O&M funding in each of the service branches (including both the active-duty component and reserves) has also increased in the past several years; O&M funding in defensewide organizations has increased at an even faster pace. (Defensewide organizations include various defense agencies and smaller independent organizations, the Defense Health Program, the Office of the Secretary of Defense, the Joint Chiefs of Staff, Special Operations Command, and other organizations that support the services.) The increase in O&M funding across DoD has occurred at the same time that the number of military personnel has either stayed relatively flat or fallen. As a result, O&M spending for each active-duty service member has risen even faster, on average, than the O&M budget; such spending accelerated after 1991. In general, growing O&M spending means that fewer resources are available for other defense needs, particularly in periods of fiscal constraint.

Which Activities Have Experienced Significant Growth in O&M Funding?

In its analysis, CBO was able to identify programs and activities that have experienced significant increases in O&M funding; but in many cases, the agency was not able to explain the reasons for that growth with the data DoD routinely provides the Congress. More detailed information about specific programs would be required for such analysis.

Funding for O&M in DoD’s base budget increased by about $64 billion between 2000 and 2012. From a detailed analysis of data for those two years, CBO determined that about 60 percent of that growth could be explained by changes in three large categories—medical care for service members, military retirees, and their families; civilian compensation; and fuel:

• O&M spending for health care for military personnel and their families increased by about $15 billion (from $16 billion to $31 billion), representing roughly 25 percent of the increase in the O&M budget.
• Spending for civilian compensation (excluding compensation for civilians who provide health care) increased by $17 billion (from $31 billion to $48 billion).
• Spending for fuel increased by $5 billion (from $3 billion to $8 billion).

Health care spending rose for several reasons, including expanded benefits authorized by the Congress in the early 2000s and the increased use of health care services, which has been encouraged by the relatively low out-of-pocket costs that military retirees and their families incur. Spending for civilian compensation grew largely because of increases in both the number of civilians employed by DoD and the cost per civilian (brought about in part by legislated pay raises). Finally, spending for fuel increased because of the substantial increase in fuel prices during the period.

By contrast, the causes of the remaining 40 percent (or about $25 billion) of the growth in O&M funding during the same period are not well understood. To help shed some light on the reasons for growth in those less-understood categories, CBO categorized O&M data for 2000 and 2012 in several different ways to identify some of the other sources of growth in O&M funding. CBO’s analysis indicates that those other areas that experienced significant growth are not directly associated with combat forces and include administrative and infrastructure-related activities, such as the maintenance of equipment, weapon systems, and property; technical and research services; professional and other services; and purchases of equipment. However, CBO could not assess the causes of that growth in more detail because sufficient data were not available.