An Analysis of the Obama Administration’s Final Future Years Defense Program
The Obama Administration’s final defense plan called for base-budget funding averaging $540 billion (in 2017 dollars) from 2017 through 2021, but it would have reached almost $600 billion per year by 2032 under DoD’s cost assumptions.
In most years, the Administration develops a five-year defense plan, called the Future Years Defense Program (FYDP), associated with the budget that it submits to the Congress. That multiyear plan encompasses the Department of Defense’s (DoD’s) expectations for its normal, peacetime activities.
This report describes the Congressional Budget Office’s analysis of the Obama Administration’s 2017 defense plan, which was issued in April 2016 and spanned the period from 2017 through 2021. Because decisions made now can have longer-term consequences, CBO has projected the costs of that plan through 2032. The Trump Administration has indicated its intention to substantially change those plans—for example, to increase the size of the military and to reevaluate plans for the procurement of several major weapon systems. The findings of this analysis can serve as a basis for assessing the scope, magnitude, and long-term budgetary implications of proposed policy changes.
In February 2016, DoD estimated that its plans for fiscal year 2017 would cost $583 billion. That total included $530 billion for base-budget activities (such as day-to-day military and civilian operations and developing and procuring weapon systems) and $54 billion for overseas contingency operations (OCO; mostly for the wars in Afghanistan and Iraq and the Levant). President Obama’s proposed budget included that same total amount—but allocated $525 billion for DoD’s base budget and $59 billion for OCO to comply with funding caps in the Budget Control Act of 2011, as amended. Adjusted for inflation, funding requested for DoD’s base-budget appropriation in 2017 was 1.2 percent less than the amount enacted for 2016.
For the years after 2017, DoD estimated that the costs of executing its 2017 plans for the base budget—the FYDP excludes funding for OCO—would have been higher,averaging $543 billion per year between 2018 and 2021. (All costs in this report are adjusted for inflation and expressed in 2017 dollars). According to CBO’s extension of DoD’s plans and cost assumptions to the years beyond the FYDP period, the cost of those plans would have increased steadily, reaching $598 billion in 2032—about 14 percent more than the proposed 2017 funding. Those higher costs would have resulted from a sharp increase in the acquisition of new weapon systems in 2022 and 2023 plus steadily growing costs to operate and support military forces over the projection period.
Moreover, CBO projects even higher costs for DoD’s 2017 plans—about 3 percent higher over the next 16 years—under alternative assumptions about policies and prices that more closely match recent experience. For that higher estimate, CBO assumes that some of DoD’s planned cost-saving measures would not have been enacted and that developing and buying weapon systems would have cost more than 2017 estimates indicated.
DoD’s 2017 Plans Would Have Cost More in Each Year From 2018 Through 2032 Than in 2017
CBO has projected the costs of the 2017 FYDP on the basis of DoD’s estimates of its total costs through 2021 that are described in the 2017 FYDP as well as longer-term estimates DoD has made for certain activities and programs. For example, DoD generates annual cost estimates for major weapon acquisitions that often extend many years beyond the FYDP period. Where estimates from DoD were not available—such as for changes in labor costs—CBO used its projections of prices and compensation trends for the overall economy to estimate DoD’s costs. Even without a change in Administration, CBO’s projection would not serve to predict DoD’s budgets; rather, it is an extrapolation of DoD’s cost estimates under the assumption that the primary aspects of the 2017 FYDP remained unchanged.
Under the 2017 FYDP, DoD’s base-budget costs would have increased by 4.2 percent, or $22 billion, to $547 billion in 2018, and then declined to $540 billion in 2020, before rising slightly to $543 billion in 2021— in comparison with $525 billion in 2017 (see Summary Figure 1). Coupled with CBO’s projections for economic growth, those plans would have seen DoD’s costs as a percentage of gross domestic product (GDP) decrease slightly, from 2.8 percent in 2017 to 2.5 percent in 2021. Nevertheless, the average annual cost of $540 billion per year over the FYDP period would have exceeded the funding DoD received in all but six years since 1980.
After exhibiting only a slight net change over the last four years of the FYDP period, the cost of implementing DoD’s plans would have risen by 3 percent, or $16 billion, in 2022, CBO estimates. Costs would have continued to climb in most of the years thereafter, reaching $598 billion in 2032—increasing by 0.7 percent per year, on average. That amount is 2.3 percent of CBO’s projection of GDP for that year.
Most of the increase projected for 2022 is attributable to DoD’s plans to develop and buy new weapons (activities categorized as acquisition). CBO projects that those costs would have grown rapidly right after the FYDP period—reaching $192 billion in 2023, an amount 6 percent greater than the average annual spending on weapon systems within the FYDP period. That “bow wave” in acquisition funding suggests that developing and procuring weapons was being deferred to limit DoD’s overall budget through the end of the FYDP period. After that increase, costs for acquisition would have changed only slightly through 2029 and declined thereafter.
In contrast, growth in costs for operation and support (O&S) is projected to exert continuing long-term upward pressure on DoD’s budget. Now accounting for 65 percent of DoD’s budget, O&S includes compensation for the department’s military and civilian employees, military health care, and the department’s other operation and maintenance activities. CBO projects that, under DoD’s 2017 plans, the costs for O&S would have grown steadily at an average annual rate of 1.4 percent from 2021 through 2032. By 2032, the costs for O&S would have reached $409 billion, 19 percent more than the Obama Administration’s request for 2017 and more than two-thirds of DoD’s budget in that year.
DoD’s Plans Usually Cost More Than It Estimates
The FYDP and CBO’s extension of DoD’s costs through 2032 are estimates of long-term costs under the assumption that plans do not change. Of course, international events, Congressional decisions, and other factors could markedly change an Administration’s plans. Nevertheless, even if a plan was to generally stay the same, many program-level policies that underlie projections of its costs may not come to pass, and some of the cost estimates it incorporates may prove to be optimistic. In the 2016 FYDP, for example, DoD assumed that the Air Force would begin to retire its fleet of A-10 attack aircraft and that certain changes to the military health care system would be implemented— policies that lawmakers largely blocked.
Furthermore, the FYDPs have often incorporated estimates that understated costs. In several areas of DoD’s budget, costs have historically been higher than was projected in the FYDP:
- Costs to develop and buy weapon systems,
- Compensation costs for military and civilian personnel, and
- Military health care costs.
How much the future costs of specific programs in each area might differ from estimates made by DoD is never certain. Changes could result from some combination of Congressional action, changes by a new Administration, DoD’s difficulty in controlling costs, or growth in costs in the economy as a whole.
To assess the possible effects of such developments, CBO projected costs for DoD’s 2017 FYDP under an alternative set of assumptions reflecting a growth in costs that accorded with patterns in the recent past (CBO’s historical-cost scenario). In that case, CBO projected total costs for DoD from 2017 to 2021 that were about $57 billion (2 percent) higher than indicated in the 2017 FYDP, and total costs for 2017 through 2032 that were $274 billion (about 3 percent) higher. About half of those higher costs through 2032 would have occurred if the Congress continued to reject certain policy changes related to military and civilian pay, military health care, and military construction that DoD has requested; the rest would have come primarily from cost growth in weapon systems.