President Clinton’s proposed $305.4 billion fiscal year (FY) 2001 defense budget request would provide a 1.3 percent real (inflation-adjusted) increase from this year’s budget level. Moreover, it marks a 5 percent rise from FY 1998, when the defense budget bottomed out. It also would provide nearly $5 billion more than projected for FY 2001 in last year’s defense plan and about $2 billion more than envisioned in last year’s congressional budget resolution. The request includes $291.1 billion for the Department of Defense (DoD) and $14.3 billion for Department of Energy and other defense-related activities. Under the new plan, funding for defense would decline by 0.9 percent in FY 2002 and stay essentially flat at that level, in real terms, through FY 2005.

Given the force structure, readiness and modernization goals of the current defense plan, some increase in funding for defense is clearly needed. On the other hand, U.S. security requirements might be better served by revising the strategy and plans that drive the allocation of defense resources. In any case, over the long run, increasing funding is less critical than spending our defense dollars more wisely.

How significant is reaching the $60 billion mark in procurement?
In the fall of 1995, the Joint Chiefs of Staff (JCS) stated that they hoped DoD’s weapons procurement budget could be increased to $60 billion by FY 1998, two years earlier than projected in DoD’s then-current plans. Ever since, the Clinton Administration has expressed its determination to reach this goal, and with the FY 2001 budget request the administration has finally made it. Just how significant this achievement is depends on one’s perspective. It represents almost a 10 percent real increase from FY 2000, and is about a 33 percent rise from FY 1996, when DoD’s procurement budget was at its lowest. However, CSBA estimates that the cost of DoD’s modernization plans will likely top $80 billion (FY 2001 dollars) a year over the long run, and DoD’s own plans call for further increases through FY 2005. Of course, serious questions also remain about whether these plans are necessary and focused on the right kinds of capabilities and challenges.

Is near-term readiness protected?
Accurately estimating future O&M funding requirements is extremely difficult. However, the $109.3 billion included for O&M in the FY 2001 budget request represents a reasonable estimate of likely funding requirements. O&M funds pay for fuel, depot maintenance, and other readiness-related requirements, as well as military health care, and pay for most DoD civilian employees. The proposed budget includes $4.4 billion more than provided last year and, on a per troop basis, represents a real increase of some 40 percent from FY 1990, when the readiness of U.S. forces was at its peak. Even subtracting out costs for environmental cleanup and other activities, which some have argued are non-defense missions, and contingency operations, the proposed budget would provide substantially more O&M funding per troop than did the FY 1990 budget. Given continuing problems with material readiness, such as low mission-capable rates for some aircraft, it is unclear whether the proposed funding level will suffice, but it appears to be a reasonable estimate.

What about long-term readiness?
Under the new defense plan, after increasing in FY 2001, O&M funding is projected to fall about 3.5 percent in real terms in FY 2002 and remain roughly flat at that level through FY 2005. It seems unlikely that this projected funding level will prove sufficient, given the historical tendency for O&M costs to increase over time. Among other things, the increasing age of the U.S. weapons inventory may push O&M costs higher in coming years. If O&M costs do continue to rise, it is likely that, as in the past, DoD will have to shift funding out of procurement and into O&M to sustain current readiness levels. This calls into the question the realism of the administration’s projection that procurement funding will grow from $60.3 billion in FY 2001 to $70.9 billion by FY 2005.

Is the plus-up affordable, given the budget caps and other budget priorities?
The Clinton Administration has indicated that it would like to raise the caps on discretionary spending agreed to as part of the 1997 balanced budget agreement. Abiding by these caps would require making real cuts in FY 2001 of close to 10 percent in discretionary programs—which include defense, a broad range of domestic programs, and foreign affairs spending. Such a cut is widely viewed as unrealistic. However, even if the caps are raised, providing the administration’s proposed increase in funding for defense, let alone a substantially larger increase, may be difficult. This is because both the administration and Congressional leaders have pledged to refrain from tapping the Social Security surplus, and the non-Social Security (“on-budget”) surplus for FY 2001, is relatively small. According to the Congressional Budget Office (CBO), just holding overall discretionary spending flat in real terms (i.e., raising it only enough to cover inflation) would consume all but $11 billion of the projected FY 2001 non-Social Security surplus. In order to get a share of that $11 billion surplus, defense will have to compete with other priorities—such as education, transportation, improved Medicare benefits, and tax cuts.

Is it the right defense plan?
For several years, DoD leaders have stated that the U.S. military must be “transformed” to exploit an emerging military revolution. Most recently, the Army’s new chief of Staff, General Eric Shinseki, has reoriented the Service’s plans in favor of creating a “middleweight force.” A key stimulus for this change came from the criticism leveled against the Army over its relatively slow deployment into Albania during last year’s war in Kosovo. The new budget provides new money for this transformation, and scales back plans to buy some more traditional weapon systems. These are certainly steps in the right direction. However, it remains to be seen whether these transformation efforts go far enough and whether they will be supported with adequate funding over the long term. Moreover, the new defense budget in general remains very much focused on traditional modernization programs like tactical fighters, surface ships and aircraft carriers. Unless DoD starts spends smarter, the U.S. will be ill-prepared to meet the very different and more dangerous challenges likely to emerge over the long term. More than anything else, this means shifting greater resources into experimenting with and developing new technologies and operational concepts.

For further information, contact Steven Kosiak or Elizabeth Heeter at (202) 331-7990

CSBA is an independent research institute established to promote innovative thinking about defense planning and investment strategies for the 21st century. CSBA is directed by Dr. Andrew Krepinevich.

Figure 1: FY 2001 Defense Budget Request