Pentagon’s budget pressures will mount soon
Inflation looms as a danger, more than for other programs
ANALYSIS — The Pentagon always faces tough choices about how to spend its money, even when the supply is ample, as it has been lately. But experts think the military’s decisions about its priorities in the next few years will be particularly hard.
Defense Department leaders try to maintain a sufficiently large amount of forces and equipment and ensure they are ready to fight. At the same time, they have to spend funds on technology for the next war.
That balancing act is only going to get harder as President Joe Biden’s team, fresh off submitting its fiscal 2022 budget on May 28, pivots to write the fiscal 2023 budget — the first one that will truly bear the new administration’s imprimatur.
“The Biden administration is going to have a difficult task putting together the FY23 budget for next year,” said John G. Ferrari, a retired two-star Army general, at an American Enterprise Institute event Tuesday.
People, hardware and inflation
At least in the near term, spending on the military’s people, comprising a huge chunk of the budget, will rise considerably. To pay for that, barring an increase in the total military budget, the Pentagon will have to move funds from the equipment side of the house, experts said.
At the same time, U.S. inflation is expected to loom as a danger to the Pentagon budget, more than other federal programs, they said.
Overall inflation will rise considerably on top of the cost growth that plagues virtually all Pentagon programs, from hardware to facilities upkeep.
Biden’s Defense Department budget request of $715 billion would be 1.6 percent above the current level of spending. At the same time, he proposes increasing the rest of the federal budget by about 16 percent.
Inflation, which is typically in the neighborhood of 2 percent annually, could hit 3.5 percent soon, according to the inflation-indexed bond market, Ferrari said.
“Inflation is the hidden danger that will eat the defense budget,” said Ferrari, now a visiting fellow at AEI. “It is like this giant anaconda squeezing the Department of Defense.”
Todd Harrison, an analyst with the Center for Strategic and International Studies, speaking at the same event, agreed.
If personnel costs grow faster than inflation, while the overall amount of money in the defense budget grows more slowly than inflation, then “personnel costs are going to eat up investment accounts over time,” Harrison said.
While the Pentagon may be swimming upstream against inflation in the next few years, this comes after nearly two decades of virtually uninterrupted increases in its budget, keeping it far out front of inflation.
Today, in fact, the Pentagon’s coffers are at a level not seen since World War II, except at the height of the post-9/11 wars. So there may be room for trimming.
But doing so, as a practical matter, is far from easy.
Capping or reducing pay and benefits is politically difficult, as is retiring existing weapons or canceling those under development. So too is cutting the size of the military or scaling back the number of missions that are considered must-do.
An obvious, partial solution to the budget crunch — one worth a few billion dollars a year indefinitely — is so hard to accomplish that it is now scarcely uttered and hasn’t even been seen in a budget request for a couple of years: closing military bases and facilities that are excess to projected needs.
Growing mission set
There are multiple reasons to think Biden’s task in the year ahead of balancing competing pressures on the Pentagon budget could be even harder than usual.
The first issue is the mission — or more precisely, the growing number of missions. The administration is aiming to keep pace with China and Russia in fields such as hypersonics and artificial intelligence. Protecting satellites is a burgeoning field, as is cyber. Creating resilience for facilities hit by climate change — and responding to weather-induced humanitarian crises — will become a bigger part of the Pentagon’s job list. Ditto for handling healthcare crises such as the one from which the world is slowly emerging.
The Pentagon’s $112 billion request for research and development spending is the largest ever. But it could create another pressure on future budgets to the degree it creates a bow wave of procurement programs later. The department projects procurement outlays increasing through fiscal 2024 but then staying flat in fiscal years 2025 and 2026.
Personnel issues loom large in the coming budget battles. End strength — the required number of people in uniform — would decrease only minimally in the fiscal 2022 request. But the number of civilians on the department’s payroll would grow by 1.1 percent, Ferrari pointed out.
Harrison believes end strength needs to go down further and faster in order to start saving money that can be spent on new systems.
“They’re just deferring the tough choices,” he said.
But Ferrari thinks that end strength must increase because, he said, the Navy lacks sufficient manning for its ships and the Air Force is short on pilots.
Under Biden’s plan, the pay rate for troops would increase across the board by 2.7 percent, and so too would pay for their civilian counterparts.
The Pentagon’s spending on healthcare for its nearly 2.2 million active and reservist forces and retirees would grow 5 percent in fiscal 2022 and would comprise fully $54 billion of the $715 billion budget, Ferrari noted.
In Biden’s new defense budget request, many older military assets, such as aircraft and ships, would be retired. These include A-10 attack planes, Global Hawk drones and Littoral Combat Ships.
If these so-called divestments happen, it would save $2.8 billion in fiscal 2022, the Pentagon says. Harrison pointed out that the longer-term savings will be many multiples of that and would continue “in perpetuity.”
The most likely scenario, however, is that those savings will not happen, because Congress will reject the bulk of them, as is its wont, the experts said.
Congress is also likely to add assets not included in the request, such as a second Arleigh Burke-class destroyer built in Maine, many analysts have predicted.
Ferrari, in fact, believes lawmakers will increase the defense budget by about $20 billion this year. That includes, he said, $6 billion for operations and maintenance to account for higher inflation; $2 billion for military construction; $8 billion in procurement; and $4 billion in research, particularly in science and technology, an area that would decrease even amid the record hike for R&D.
Such a $20 billion hike would bring the Pentagon budget to about $735 billion, just short of the 3 percent increase that defense hawks call a minimum boost and probably enough to stay close to or possibly above inflation.
But it is far from clear if that will happen this year, given Democrats' control of both chambers, however narrow it is.
One factor weighing in favor of defense hawks in the coming budget battle is the absence — for the first time in a decade — of statutory caps on spending.
However, another factor that has helped the hawks’ cause in the past is absent for now anyway: a shooting war or other obvious, immediate threat of the kind that has traditionally motivated lawmakers to spend more on defense.