On Dec. 19, 2009, shortly after the U.S. Senate had passed the Department of Defense (DoD) Appropriations Act of 2010 by a vote of 88 to 10, President Barack Obama signed it into law. The House had passed the bill three days earlier with a 395 to 34 vote.

The first defense budget approved during the Obama administration was, in one important detail, markedly different from previous budgets enacted during the wars in Iraq (Operation Iraqi Freedom, or OIF) and Afghanistan (Operation Enduring Freedom, or OEF). In keeping with the administration’s April request, the defense budget has moved items previously funded through supplemental appropriations for the wars in Iraq and Afghanistan into the “base budget,” a transfer amounting to about $13 billion. The 2010 base budget totals $497.7 billion, about $3.4 billion below the administration’s request; the budget for “overseas contingency operations” (OCO, or the Iraq and Afghanistan wars), is $128.2 billion, $348 million below the requested amount – for a total appropriation of $636.3 billion.

In his analysis of the administration’s budget request, Todd Harrison, fellow for Defense Budget Studies at the Washington, D.C.-based Center for Strategic and Budgetary Assesments (CSBA), asserted that the end of the practice of funding war costs through supplemental requests is an important step toward improving oversight and transparency. “While supplemental appropriations have been used in the past to fund conflicts,” he wrote, “it is unprecedented to use them for a conflict of this duration … Including the full cost of the wars in the annual budget, as well as moving non-war related items into the base budget, has the effect of giving these programs a ‘seat at the table’ in the annual budget process within DoD and subjects them to greater scrutiny by Congress.”

Overall, the numbers for the 2010 budget are as follows:

• Military personnel (MILPERS): $124.8 billion; $1.114 billion below the administration’s request. The MILPERS account funds the basic pay and benefits for troops, provides subsistence for their dependents, pensions and retirement pay, and medical expenses. Roughly, this amount is apportioned among the service branches as follows:

Army: $41 billion;

Navy: $25.3 billion;

Marines: $12.8 billion; and

Air Force: $26.1 billion.

• Operations and maintenance (O&M): $154.3 billion, $2.19 billion below the request. O&M funds are used for training and the “infrastructure” costs of maintaining forces in the field, such as base operations, food, fuel, uniforms, and weapons maintenance.

• Procurement: $104.4 billion, $816 million below the request. This account buys equipment – everything from cartridges to aircraft carriers, including money to upgrade and modernize existing weapons systems.

• Research, development, testing, and evaluation: $80.5 billion, $1.9 billion above the request, for developing the next generations of weapon and force-protection systems.

• Other defense programs: $32.4 billion, $932 million above the request. By far the largest item in this account is the Defense Health Program, funded at $29.2 billion; and

• Revolving and management funds: $3.1 billion, as requested.

Funding the Wars

In the FY 2010 budget, funding for the wars in Afghanistan and Iraq, included under Title IX of the Appropriations Act, totals $128.2 billion, which generally breaks down as follows:

• Personnel: $15 billion, $863 million above the request;

• O&M: $86.1 billion, $3.2 billion below the request;

• Procurement: $21.3 billion, $1.75 billion above the request;

• Research, development, testing, and evaluation: $268.1 million, $42.4 million below the request;

• Revolving and management programs: $412.2 million, $15.3 million above the request; and

• Other defense programs: $3.1 billion, $249 million above the request.

Significant provisions of 2010 war funding include:

• $6.56 billion for the Afghanistan Security Forces (ASF) Fund; $900 million below the administration’s $7.5 billion request. There was sharp disagreement between the White House and Congress on this provision. In a statement released Sept. 28, 2009, as Senate appropriators debated the bill, the administration rebuked Congress for its steep cuts in operations funding, as well as for the $900 million cut to the ASF Fund. The Senate Appropriations Committee, positing that the full amount would not be used until FY 2011, determined that some of it would be better spent on buying additional Mine Resistant Ambush Protected vehicles (MRAPs). “Accelerating the growth in size and capability of the Afghanistan national security forces is a key component of the U.S. strategy in Afghanistan,” the administration said. “The president’s full request reflects his commanders’ plan for Afghan forces to assume a greater share of responsibility for security as quickly as possible.”

• $1.76 billion for the Joint IED Defeat Fund (IEDDF), $227 million above the request;

• $6.28 billion for the MRAP program, $825 million above the request – enough to purchase 6,600 vehicles;

• $1.2 billion for the Commander’s Emergency Response Program (CERP), $300 million below request. The CERP enables U.S. officers to be more agile in their efforts to finance urgent humanitarian relief and reconstruction projects. $1 billion of the CERP is devoted to projects in Afghanistan; $200 million for Iraq;

• $950 million for equipment to National Guard and Reserve; and

• $80 million for the procurement of MQ-1 Predator unmanned aerial vehicles (UAVs or “drones”), which have proven effective in taking out Taliban tribesmen in the remote mountain regions of Afghanistan and Pakistan.

Because Obama’s call for a “surge” of 30,000 additional troops in Afghanistan was not made until mid-December, funding for this provision is not included in the FY 2010 Defense Appropriations Act.

The Troops and Their Families: Personnel Provisions

Every year, it seems – and especially during the wars in Iraq and Afghanistan – the practical and ideological differences that fuel the debate over defense spending tend to be set aside when it comes to honoring the nation’s commitment to military service members and their families. While they may differ on the details, the White House, the Pentagon, and Congress made clear their shared intent to reduce the strain of wartime deployments on service members and their families. 2010 provisions include:

• Continuing to grow the forces by fully funding, at $122.4 billion, requested end strength levels;

• 3.4 percent increase in pay for active duty personnel, 0.5 percent more than requested by the administration;

• Special compensation for designated caregivers of catastrophically ill or injured service members;

• Standard eligibility for TRICARE, the military health insurance system, extended to retired Reserve members under the age of 60.

• A total of $47 billion in health care expenditures, including the $29.2 billion for the Defense Health Program. In all, Congress approved about a 10 percent increase in military health care funding;

• $372 million in military medical research, including $120 million for research in traumatic brain injury and psychological health; and

• $474 million for family advocacy and support programs, which provide quality child care, job training for spouses, and expanded counseling and outreach services to families experiencing wartime separation and stress.

Of all the fiscal issues facing the Department of Defense, these personnel-related costs are among the most troubling to analysts from all over the political spectrum. How to honor the nation’s commitment to its military personnel, while investing adequately in readiness and modernization, is the question that promises to dominate future defense budgets. A few weeks before officially rolling out the Pentagon’s budget request in the spring of 2009, Defense Secretary Robert Gates acknowledged that modernization programs were going to be cut to pay for rising personnel costs. “It is an accurate statement,” Gates said, “that our personnel costs are rising every year and consume a larger percentage of the budget.” Health care costs, he said, were increasing at an “alarming rate.” Military pay, as well, has increased at a faster rate than in the private sector, and at a faster rate than inflation.

While the White House and the Pentagon tried to trim these costs somewhat in their request – notably, they included a politically noxious increase in the standard in-patient fees for members of the TRICARE system – their attempts were met with resistance. Congress expanded TRICARE to embrace reservists, did away with the politically unpopular fee increases, and upped military pay an extra half-percent.

As Todd Harrison pointed out, health care costs will nearly double every 10 years at today’s projected rate of growth. As part of the sharply rising cost per warfighter, it marks an unsustainable trend. “Congress enacted a whole new slew of benefits programs about five or six years ago. The cost per troop back in 2000 was about $65,000,” said Harrison, “and now fast forward to today. It’s about $110,000 per troop in terms of the compensation we’re giving them … in the long run what this means is we don’t have a lot of flexibility in terms of adding more troops or force, because they are so much more expensive now than they were just 10 years ago.”

The Hardware: Procurement and Acquisitions

When Gates released his Defense Budget Recommendation Statement in April and spoke of “rebalancing” the nation’s defense budget, the reining in of rising personnel costs was part of what he was talking about. Mostly, however, he was reinforcing the contention now acknowledged in some Pentagon and defense analysts’ circles: the hardware being purchased until now – notably, the Army’s high-tech Future Combat System (FCS) and the Air Force’s F-22 Raptor jet fighter – is intended to battle “midlevel” military adversaries that resemble the United States. “But everyone has learned,” commented Harrison in April, “they can’t fight us that way and win.” Threats to U.S. national security have gravitated, in recent years, to both the lower (the IED and the suicide bomber) and higher (cyberspace, long-range missiles, and space systems) ends of the threat spectrum.

“We must rebalance this department’s programs,” said Gates in his statement, “in order to institutionalize and enhance our capabilities to fight the wars we are in today and the scenarios we are most likely to face in the years ahead, while at the same time providing a hedge against other risks and contingencies … in order to do this, we must reform how and what we buy, meaning a fundamental overhaul of our approach to procurement, acquisition, and contracting.”

The administration made a stand on several weapon programs it considered out of balance, either because they were mismatched to existing threats, or because they were plagued by cost overruns and missed deadlines. Obama threatened a veto of any budget that extended funding for production of the F-22 beyond 187 planes. The president and the secretary of defense also strongly discouraged additional funding for two other programs: the development of an alternate engine for the Joint Strike Fighter (JSF), also known as the F-35 Lightning, a tactical fighter aircraft intended to be the world’s premier strike aircraft through 2040; and the VH-71 Kestrel helicopter, being developed to replace Marine One, the presidential helicopter transport. As pointed out by Gates, the VH-71 was “designed to provide 23 helicopters to support the president at a cost of $6.5 billion. Today, the program is estimated to cost over $13 billion, has fallen six years behind schedule, and runs the risk of not delivering the requested capability.”

With a single VH-71 helicopter now priced higher than Air Force One – a customized Boeing 747 – Congress, for the most part, agreed to cut the Navy’s losses on the program, though legislators budgeted an unrequested $130 million for “technology capture,” to recoup investments in the program, and for the Navy’s effort to develop the next Marine One.

The alternate engine for the JSF – billed as an insurance program in case the propulsion system currently being developed by Pratt & Whitney should fail, but also pitched as an option to JSF partner nations – has proven harder to kill. Once again, Congress has defied the White House and the Pentagon, adding $485 million in unrequested funds for the development of a second engine.

In most cases, Congress went along with the Pentagon’s request. Notable program terminations or truncations for 2010 include:

• the remaining vehicle development plans of the Army’s $160 billion FCS program. Army leadership is still working out the details of the successor program, currently known as the Army Brigade Combat Team Modernization (ABCTM) program;

• the $26 billion Transformational Satellite (TSAT) program, after high cost, technological risk, and development delays made it an unfeasible option. Instead, the department will purchase two additional Advanced Extremely High Frequency (AEHF) satellites to provide secure global communications for high-priority military ground, sea, and air assets; and

• consistent with the administration’s announcement of a new missile defense plan relying on shorter-range ground- and sea-based missiles to counter the Iranian threat, program elements of the existing ground-based system were terminated or severely truncated. The multiple kill vehicle (MKV) and kinetic energy interceptor (KEI) missile systems are gone, and development of the airborne laser (ABL) platform – an expensive but unproven high concept – has been reduced to an R&D effort. Instead, the DoD will purchase additional Standard or Terminal High Altitude Area Defense (THAAD) missiles, and convert six more Aegis ships for the purpose of missile defense. Overall, the Missile Defense Agency programs have been reduced by $1.4 billion.

Along with the second JSF engine, the most glaring exception to Congress’s overall willingness to embrace the Pentagon’s procurement request is the addition of $2.6 billion in unrequested funds for 10 C-17 Globemaster transport planes. Despite a Pentagon study’s conclusion that the military’s 205 C-17s are enough to meet future airlift needs “even under the most stressing situations,” several appropriators reframed the debate to focus on jobs. Sen. Christopher Bond, R-Mo., argued that cutting the C-17 would eliminate the nation’s only large airlift production line and eliminate 30,000 jobs in 43 states. The administration’s decision to cap C-17 production, he said, “took for granted the capacity and innovation of our defense industrial base, but we cannot afford to let that wither.” An amendment to cut the C-17 expenditure, introduced by Sen. John McCain, R-Ariz., was defeated 64-34.

A Reform Budget?

The decision to purchase 10 C-17s the Air Force doesn’t want raises an important question: Is the FY 2010 budget ultimately, as Gates claimed, a “reform” budget that rebalances the military portfolio or is it business as usual – runaway price escalation and pork-barrel politics?

The word “reform” does not describe what Winslow Wheeler, director of the Straus Military Reform Project at the Washington-based Center for Defense Information, sees in the budget. In December, he cited an estimate, published by the independent watchdog group Taxpayers for Common Sense, of more than 1,720 earmarks in the conference agreement on the bill, amounting to more than $4.2 billion. The sin of legislators was compounded, Wheeler claimed, by the age-old practice of funding earmarks by taking from the parts of the budget that most directly affect force readiness: O&M (which Congress cut, in Wheeler’s estimate, by $3.5 billion) and MILPERS (cut by $1.9 billion). “The porkers on the House and Senate Appropriations Committees,” Wheeler wrote, “are clearly happy to lead the charge of raiding training, spare parts, weapons maintenance and much else for readiness to pay for their pork.”

Pork-barrel politics are annoying, even infuriating, to taxpayers, and $4.2 billion is, to anyone, a lot of money. But more alarming to some analysts – including Harrison and Raymond F. DuBois, acting under secretary for the Army from 2005 to 2006 and now a senior advisor at the Center for Strategic and International Studies (CSIS) – is the continuing trend toward rising military personnel costs. The 2010 budget is, they said, a start toward rebalancing. But neither thinks it goes far enough.

To DuBois, the cuts to the FCS program – acknowledged as temporary by the Pentagon, until a more streamlined and threat-appropriate Army modernization program is devised – indicate an imbalance between what the Pentagon is ordering and what it says it wants. “The Navy continues to be able to buy its littoral combat ships,” said DuBois. “And the Air Force continues to buy the F-22, up to Secretary Gates’ decision [to cap production at 187]. The F-35 program continues – correctly so, I might add,” said DuBois. “But the Army’s modernization program – that is to say, ‘the son of FCS’ – was held in abeyance. And what I fear is, as history has shown us in the past, budgets tend to diminish in terms of investments in the ground power, the ground forces, as we tend to remove ourselves from combat.”

Another important problem, DuBois said, is that rising personnel costs will be magnified by the current plans to increase the number of troops in the field. “The rebalancing concerns me because it’s rebalancing for the short term to provide enough head count, enough soldiers and Marines, to sustain the defense and foreign policy of this country,” he said. “There is somewhat of a disconnect between our strategy – that is to say, the mission statement that the president has decided on – and our asset investment strategy, not in the short term but perhaps in the intermediate to long term.”

Harrison sees rising personnel costs as one of the biggest threats to the nation’s military. In October 2009, he published an essay titled “Avoiding a DoD Bailout,” in which he noted several similarities between the challenges faced today by the Department of Defense and those faced by General Motors a few years ago. Noncash and deferred compensation for active-duty troops, he pointed out, comprise 52 percent of total compensation, compared to GM’s 46 percent in 2006 – both far higher than the private-sector average of 29 percent.

Additionally, Harrison wrote, DoD and GM have confronted a “period of disruptive change in the competitive environment … GM found itself building a fleet of SUVs and trucks that consumers did not want and could not afford. Similarly, DoD now finds itself saddled with a number of weapon programs whose capabilities are ill-suited for the types of conflict the military currently faces and whose costs have risen beyond what the Department can afford.”

After the FY 2010 budget was signed into law, Harrison saw little that made him believe the DoD’s personnel costs were going to be curbed anytime soon. “The first step when you’re in a hole is to stop digging,” he said. “That’s been the big problem so far, is we keep adding [benefits].” Politically, it’s simply too easy for Congress to continue to do so, rather than make hard budget choices – and once a benefit has been bestowed, it’s nearly impossible to cut it or take it back. But there are certain steps, Harrison said, that could be taken. “You don’t have to raise the retirement age for people who are currently in the service from 20 to some higher number of years,” he said, “but you could say that from now on, for people who join the military service, the retirement age is going to be higher.” In order to slow the growth in costs, Harrison said, DoD will need to find a way to stop growing personnel benefits while learning to live with the costs it has already added.

In terms of procurement, Harrison said, the 2010 budget more clearly signaled the beginnings of a reform effort. “I think this budget was really kind of a good start along the lines of rebalancing,” Harrison said. Congress, for the most part, went along with the major cuts proposed by Gates – with the obvious exceptions of the C-17 and the alternate JSF engine, but “a lot of those items,” cautioned Harrison, “were kind of the low-hanging fruit. These were programs that the previous administration, in some cases, had tried to kill as well, things that had kind of been limping along for a while, and everyone knew that they were eventually going to be put out of their misery.” The more revealing decisions, Harrison said, are yet to come – in the upcoming Quadrennial Defense Review and the subsequent FY 2011 budget request.

“I think this kind of cleared the slate … for the QDR and the FY 11 budget, and I think that’s where we’re going to see, really, what Secretary Gates means about rebalancing,” he said. “That will be his real opportunity to make some significant changes. There could be some surprises in there in terms of which programs are going to go, which ones are going to get added, which ones will get busted up. I think the FY 11 budget is going to really tell us a lot.”