For all the fiery debates it launched in 2011, the U.S.’s fiscal year 2012 Defense budget achieved reality in anticlimactic form: part of the 1,200-page Consolidated Appropriations Act, finalized in the closing hours of the 2011 legislative session and signed into law by President Barack Obama on Dec. 23.

The Pentagon’s budget request, released in February, was a watershed event: For the first time since the U.S. invasion of Iraq in 2003, the Department of Defense (DoD) requested less funding for its base budget than in the previous year; the $553 billion, excluding supplemental war costs, was 1.2 percent smaller than its FY 2011 request.

Because of the intervening complication of spending caps required by the Budget Control Act passed in August, the $518.1 billion appropriated by Congress for the base defense budget turned out to be even smaller – though in real terms still about $5 billion, or 1 percent, more than last year’s appropriation.

The end of the war in Iraq, where the last U.S. combat troops withdrew on Dec. 18, sharply reduced the military’s budget for Overseas Contingency Operations (OCO): The $115 billion in supplemental funding was 27 percent less than last year’s $158 million.

Roughly, what the nation will spend on defense in FY 2012 breaks down as follows:

For Military Personnel: $131.1 billion. For basic pay and benefits to troops and their dependents. Noteworthy items in the personnel appropriation include:

• an across-the-board 1.6 percent pay raise for military personnel.
• $32.5 billion for DoD health programs, an increase of $1.1 billion over last year and $283 million more than the Pentagon’s request.

In recent years, one of the most pressing budget issues for the Defense Department has been the rapid rate of increase for personnel costs, especially health care costs, which the Pentagon now estimates at about $50 billion a year, and which continue to increase at three times the rate of inflation. For 2012, Congress has authorized a $30 per year increase in the enrollment fees for individual members of TRICARE Prime who are not on active duty, and a $60 per year increase for families, as well as an increase in prescription co-payments. For the future, Congress has called for fees to be raised by the same cost-of-living-adjustment applied to military retired pay. While a $30-$60 increase might not seem worth mentioning, it marks the first-ever fee increase for TRICARE, a program established in 1995.

Todd Harrison, senior fellow for Defense Budget Studies at the Center for Strategic and Budgetary Assessments (CSBA), has made a study of the Pentagon’s rising personnel numbers – and points out that money spent to keep TRICARE fees artificially low, in a time of budget constraints, is simply shorting other accounts. “Because fees are so low, it’s incentivizing working-age retirees to go on the government military health care system instead of taking health care from the private employer,” he said. “So you want to raise the fee high enough that people won’t have that incentive. It saves DoD a tremendous amount of money that they can put toward better training and better equipment for our troops. That’s the tradeoff: We’re either subsidizing health care for retirees, or we could use that money for better training and equipment for today’s forces.”

For Operations and Maintenance: $163 billion. The largest budget account is wide-ranging, covering training and readiness as well as the costs of maintaining forces in the field – food, fuel, weapons, clothing, etc. The appropriation is $2.5 billion less than the currently authorized level of O&M expenditure.

For Procurement: $104.6 billion, $2.5 billion more than last year and $9.8 billion less than the administration’s request. Funding both the development and modernization of defense systems, this account also meets the material needs (staplers and telephone systems) of the military’s everyday bureaucracy. The most talked-about items in this year’s budget include:

• a modest cut of one F-35 Joint Strike Fighter. The most expensive acquisition project in U.S. military history, the $9.4 billion program will provide, in 2012, 18 F-35s for the Air Force, seven for the Navy and six for the Marine Corps. In the separate authorization bill, Congress directed the Pentagon to award fixed-price contracts for the sixth and all remaining initial production lots of F-35s.
• the restoration of some funding – $244 million – for the Joint Light Tactical Vehicle (JLTV). In their report accompanying the final appropriation, House and Senate conferees explained that the costly program had, since being zeroed out in the Pentagon’s request, been modified with a simpler design and a competitive, streamlined acquisition timeline.
• as expected, the termination of the Marine Corps’ Expeditionary Assault Vehicle (EFV) program. The EFV had grown costly – and more important, its status as a “game-changer” had become increasingly questioned in view of future scenarios. The Pentagon is expected to pursue the development of a more affordable amphibious tracked fighting vehicle.

For Research, Development, Testing and Evaluation: $72.4 billion, $2.5 billion less than last year. The overall reduction may be less significant than a trend Harrison pointed out in his analysis of the Pentagon’s 2012 budget request (www.csbaonline.org/wp-content/uploads/2011/07/2011.07.16-FY-2012-Defense-Budget.pdf): The military budget continues to shift funding away from early projects – basic and applied technology and demonstrations – toward later developmental activities. While this may focus funding on the most feasible projects in the pipeline, it also dries out the future landscape. “We don’t have as many new starts in the early phase of development as we have had in the past,” Harrison said. “So in the long run there aren’t going to be as many major programs ramping up over the next decade.”