Monday, March 2, 2009

President Obama’s First Defense Budget – The End of an Era

For anyone concerned about spiraling military spending in recent years, the Obama Administration’s new budget proposal gives cause for hope. The Pentagon is seeking $533.7 billion in funding for Fiscal Year 2010, not including funding for military operations in Iraq and Afghanistan or the nuclear weapons related activities of the Department of Energy. Adjusted for inflation, the $534 billion request is $9 billion, or 1.7 percent, more than Congress approved for the Defense Department for FY 2009.

The proposed increase, less than two percent when accounting for inflation, is extremely modest. This is particularly true when you consider the following:

• President Obama largely inherited this budget, and had little time or flexibility to put his imprint on it.

• Military spending has been growing rapidly over the past decade. Under the Bush administration, Pentagon spending (not including war funding) increased by 36 percent when adjusted for inflation. And while much of that increase occurred in the years immediately after the terrorist attacks of September 11, 2001, Pentagon spending has still been growing by more than five percent annually over the last several years.

• The Pentagon had planned to request much more money for next year. A “wish list” of additional spending released by the Defense Department late last year proposed raising the Pentagon budget by $55 billion over FY’09 levels after accounting for inflation – a 10.5 percent increase.

How will the Defense Department deal with a tightening budget? The details will have to wait until the complete budget is rolled out in mid-April, but a number of high-profile weapons programs are receiving close scrutiny from Pentagon budgeters and it seems likely that several will see their funding cut. Here’s why.

The Defense Department’s budget is divided into four major accounts. The first, the Personnel account, which covers pay and benefits for members of the military and their families, will continue to grow. The Administration is proposing a 2.9 percent pay raise for the military next year and is continuing to fund plans to increase the size of the active duty Army and Marine Corps.

Likewise the Operations and Maintenance accounts, which are the part of the Pentagon’s annual budget most closely associated with actual combat operations, are likely to increase. This is particularly true as the costs of repairing and operating aging equipment continue to rise – something that happens at a much higher rate during war time than during peace time.

This leaves the two “acquisition accounts” – Research, Development, Testing & Evaluation, and Procurement – whose primary role is to fund the development and purchase of major weapons systems. Efforts to achieve savings within the overall Pentagon budget will have an impact on these accounts. A number of big-ticket items, which represent large pots of money and are therefore considered most able to absorb the necessary reductions, could see their funding cut. These could include the Joint Strike Fighter, the Army’s Future Combat System, and ballistic missile defense. The Navy’s shipbuilding accounts will also face cuts. The DDG-1000 destroyer (or DDx) in particular will receive very close attention. And finally, the future of the Air Force’s F-22 fighter program is uncertain, despite strong Congressional support.

Granted, the Obama Administration’s first defense budget doesn’t cut military spending; it only slows its growth. And last week’s funding request is just the first round in the annual budget process. Congress has yet to have its say, and Capitol Hill is notoriously reluctant to cut weapons funding, even when it’s requested by the Defense Department. But a clear message has been sent to the military’s leadership, who have become used to getting their way on budget matters – the era of uncontrolled Pentagon spending growth is coming to an end.

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