Long-Term Implications of the 2021 Future Years Defense Program
CBO analyzes DoD’s plans for 2021 through 2025 as presented in the 2021 Future Years Defense Program and projects how those plans would affect defense costs through 2035.
In most years, the Department of Defense (DoD) produces a five-year plan, called the Future Years Defense Program (FYDP), that is associated with the budget it submits to the Congress. The 2021 FYDP, issued in March 2020, comprises DoD’s request for appropriations in 2021 and a series of planned budgets for 2022 through 2025. This report describes the Congressional Budget Office’s analysis of the FYDP and summarizes DoD’s expectations about the costs of its plans for 2021 through 2025. Because decisions made in the near term can have consequences for the defense budget in the longer term, CBO projected the costs of the 2021 plan through 2035.
What Are DoD’s Budget Plans Under the 2021 FYDP?
The proposed budget for DoD in 2021 totals $706 billion, about 4 percent less than was appropriated in 2020 after removing the effects of inflation. Of that total, $637 billion is designated for the base budget, which is intended to fund normal, peacetime activities, such as day-to-day military and civilian operations and the development and procurement of weapon systems. The remaining $69 billion is designated for overseas contingency operations (OCO)—a funding category intended for temporary, war-related activities, such as operations in Afghanistan and elsewhere. Of the $69 billion requested for OCO, however, only $20.5 billion would be for direct war costs; $32.5 billion would be for enduring activities (such as other military missions that are part of the United States’ long-term global presence), and $16.0 billion would be for base-budget costs. The allocation between base and OCO funding for 2021 is structured to comply with the statutory caps on discretionary spending, which do not limit OCO funding.
For the remaining four years of the FYDP, DoD indicated it would request about the same amount of total funding in real terms (that is, after adjusting for the effects of inflation) as it had in 2021: an average of $707 billion per year. Within DoD’s total budget, the relative amounts allocated for day-to-day operations, the acquisition (including development and procurement) of new weapons, and upkeep of infrastructure would also remain nearly unchanged over the FYDP period. However, because the limits on discretionary funding are set to expire in 2021, the enduring and base-budget activities currently covered by OCO funding would be included in the base budget for the following years. As a result, much less funding would be designated for OCO—about $19 billion in 2022 and 2023 and $9 billion in 2024 and 2025.
What Is the Potential Cost of DoD’s Plans for 2026 Through 2035?
Unlike DoD’s estimates for the cost of its plans over the FYDP period, CBO’s projections indicate that costs after 2025 would increase faster than inflation. In CBO’s estimation, those costs would reach $781 billion (in 2021 dollars) by 2035, an increase of 10 percent in real terms over the 10 years following 2025 (see figure).
The key factors that would lead to increases in DoD’s costs are as follows:
- The costs of compensation for military personnel and of operation and maintenance (O&M) are projected to increase at historical rates, growing faster than inflation; and
- The costs for the acquisition of weapon systems are projected to increase to meet the department’s modernization objectives and maintain the current size of the force.
Of the $74 billion increase in annual costs that CBO projects between 2025 and 2035, about 20 percent is for military personnel costs, 50 percent is for O&M costs, and nearly 30 percent is for costs to develop and purchase weapon systems.
What Are Uncertainties in the Cost of DoD’s Plans Through 2035?
In many areas of DoD’s budget, costs have historically grown more rapidly than they are projected to grow in the 2021 FYDP. For example, DoD projects that the costs of military health care will grow more slowly over the FYDP period than CBO’s forecast of the cost of health care in the general economy would indicate. Similarly, DoD has frequently underestimated costs for O&M and the acquisition of weapon systems.
To assess the possible effects of such factors, CBO prepared an alternative projection of the costs of implementing DoD’s 2020 plans using estimates that better reflect the patterns of growth in DoD’s costs over the past several decades. According to those estimates, total costs from 2021 through 2025 would be $77 billion (or 2 percent) higher than DoD indicated in the 2021 FYDP, and total costs from 2021 through 2035 would be $376 billion (or 3 percent) higher than CBO projected using DoD’s estimates.
More generally, DoD’s projections of costs in the FYDP and CBO’s projections through 2035 are estimates of the long-term costs of executing DoD’s plans as they stood when DoD was preparing its 2021 budget and supporting documents. However, international events, Congressional decisions, and other factors could change those plans. For example, policymakers may seek to offset costs that have been incurred in responding to the 2020 coronavirus pandemic or to increase funding to prepare for future pandemics by decreasing military budgets. Furthermore, even if DoD’s plans generally remained unchanged, many program-level policies that underlie DoD’s projections of its costs might not come to pass. For those reasons, CBO’s projections should not be viewed as predictions of future funding for DoD; rather, the projections are estimates of the costs of executing the department’s 2020 plans under the premise that those plans would not change.
Costs for contingency operations are even more uncertain than costs in the base budget because they depend on how ongoing conflicts evolve and whether new conflicts will arise. As outlined in the 2021 FYDP, DoD plans for operations in the Middle East to subside, reducing its projected direct war costs by roughly half by 2025. CBO used DoD’s projection for that year ($9 billion) for the cost of OCO in each year between 2026 and 2035.