Out of Balance: Obama Cut Weapons Too Much, Personnel Not Enough

The Obama administration has assured the American public that any cuts to defense spending would be part of a reasonably balanced package of reductions, would help reduce record budget deficits, and will be “reversible” if future contingencies require it.

Now that the Pentagon has released the president’s fiscal year 2013 defense budget, the question is how well did it achieve those three goals? Despite the best efforts of the defense leadership to make sensible strategic trade-offs with significantly less resources, the final result does not match the rhetoric and the promises. It is a package of cuts that will fall disproportionately on funding for new weapons and equipment, will ultimately prove more costly to the American taxpayer over time, and will create gaps in the defense manufacturing base that cannot be readily filled in the future, much less reversed.

First, with respect to balance. Spending on procurement of new weapons and equipment represent less than one-fifth of the total defense budget, but represented some 40 percent of the cuts for next year’s budget. Over the 2013-2017 Future Years Defense Plan (FYDP) the modernization accounts – procurement, research and development – are projected to decrease by more than $110 billion, more than any other budget appropriations category.

Procurement was made the “bill payer” despite urgent need to replace or upgrade the U.S. military’s aging and shrinking inventory of combat vehicles, tactical aircraft, warships and submarines. Moreover, it is important to remember that, unlike the rest of the defense budget, the military’s procurement and R&D accounts have already been under downward pressure for nearly three years – beginning with the cancellation of several major modernization programs under Secretary Gates in the fiscal 2010 budget.

By comparison, personnel costs – pay, health care, and other benefits – also consume a similar share of the defense budget but made up less than one-tenth of the projected reductions. Everyone wants to see our troops and their families fairly compensated and well cared for. But this was hardly a balanced, much less a bold approach by the administration to dealing with a part of the defense budget that most experts agree is growing at an unsustainable rate.

Furthermore, it is a misnomer to refer to most of these procurement cuts as “savings.” In reality, this spending is simply being deferred. Even as the procurement of several major systems is being pushed outside the FYDP, the Pentagon continues to insist publicly that the planned total buy of these systems is staying the same. For example, the United States still needs and intends to buy more than 2,400 F-35 Joint Strike Fighters over the life of the program. Therefore, the $15 billion taken out of the FYDP to purchase JSF has not been reduced, much less saved. The same is true for a number of other key modernization efforts where funding was delayed – the Littoral Combat Ship, new attack and ballistic missile submarines, Army helicopters, combat vehicles, and much more.

The problem with this approach is that even if the rate of production goes down, the overhead costs for the manufacturer – for maintaining factories, labs and trained personnel – remain relatively constant. Consequently, the unit costs of these deferred programs will invariably go up, in some cases substantially. That is not a notional prediction. It reflects the history of virtually every major military weapons program and the simple laws of economics.

If procurement is deferred and prices invariably rise, we can expect the press, Pentagon acquisition officials, and the Congress to be scandalized at these mounting unit costs and pressure will build to terminate these programs before rates of production have been achieved that could make them economically viable over time – as has happened with the B-2 bomber, the F-22 fighter, the DDG-1000 next generation destroyer and many other programs,

In the end, the military services will receive far fewer new systems than the platforms they were designed to replace and, in many cases, significantly fewer than what the Armed Forces need to accomplish their assigned missions in defense of America’s core national security interests. For example, the Navy has effectively given up on its long-stated goal of reaching a fleet size of 313 ships, as the number of new vessels being funded in this FYDP will fall from 57 to 41. In fact, most of the deferred “savings” came from the air superiority, sea-power, regional missile defense and space capabilities most relevant to the missions and regions rated as the highest priority in DoD’s own strategy document last month.

The Pentagon has assured the public that it can minimize the risk caused by these cuts through “reversibility” – being able to undo previous decisions by surging capabilities if required by future events. This holds true for reducing personnel strength, as new recruits can be brought into the force relatively quickly at minimal risk as long as there is an experienced cadre of mid-level personnel to train and lead them. However unpalatable given past experience with a “hollow” force, reversibility may also hold true to a lesser extent when it comes to readiness, as lower-tier units can be brought up to standard over time through intensive training and maintenance support.

However, when it comes to developing and building new weapons and equipment, pinning ones hopes on surging production assumes that key skills and facilities can be maintained in the face of budget reductions and substantial uncertainty.

The companies that produce our military’s weapons and equipment are accountable to investors and shareholders. They do not have the luxury of keeping idle factories open and skilled workers on the payroll in the absence of incoming orders and revenue to pay for those critical and costly assets. The cancellation of a number of major weapons programs starting in 2009 has already resulted in the loss of tens of billions in revenue and tens of thousands of high-skill jobs.

This highly specialized manufacturing capacity and human capital is not easily “reversible.” It can only be regenerated at great cost and significant time. In some cases, this industrial capacity may no longer exist as all, as further budget cuts make defense companies and business units – manufacturing and service, up and down the supply chain – more likely to exit the sector altogether, consolidate further, or be divested by their parent corporation.

What all these decisions and impacts have in common is the willingness of the administration to harvest the most strategically important and, in recent years, most frequently raided part of the U.S. defense budget to reduce spending in the near term. That just raises more difficult choices later.

So when it comes to recapitalizing the force and maintaining our military’s decisive technological edge, rather than investing in the future, our government has effectively mortgaged it.