Congress needs to re-up procurement accounts, as well as help fund other inflation-hit needs, says AEI’s John Ferrari. (file)

OPINION: As Congress begins to consider and discuss the fiscal 2022 defense budget, it must mitigate the real threat to America’s defense posture caused by current inflation, which has now risen to 5%. While economists debate whether this inflation rate is transitory or enduring, it has already begun to erode US military readiness. Without increased congressional funding to account for this rise in prices, defense readiness, as well as the quality of life of American service members are both being dangerously squeezed and diminished, as if in the grip of a giant anaconda.

The Defense Department needs to add an additional $20 billion to its budget on top of the Biden administration’s $715 billion request to ensure the readiness of the force, better fund defense, and support the families of service members. Increasing the Defense Department’s budget from $703.7 billion in FY21 to $735B in FY22 is only a 4.4% increase, less than the current rate of inflation. But within an overall $6 trillion federal budget request, the $20 billion of additional defense spending will provide enhanced security for the nation while also ensuring that military families suffer no undue financial hardships.

Calls for more defense spending are common in Washington, but this is not a simple call for more, more, more. Here, then, is exactly how you spend $20 billion wisely to help counter inflation’s impact.

Rising real estate prices are already having a negative impact on the hundreds of thousands of US service members and their families, who are forced to relocate each summer to a different duty station. Military families are facing immediate and substantial hardships because of the housing rental market today. While their basic housing allowance is slated to increase by 2.7% in January 2022, the Case-Shiller index for rental costs has increased by more than 10%. Hence, $2 billion of the addition $20 billion could be allocated within military personnel accounts to cover the increased housing costs that off-post military families are facing this year.

Oil prices are also up significantly, more than 40% from a year ago. Military services do not hedge fuel costs, hence they have to absorb the price increase by either reducing training or reducing global operations, which is the first step in creating a hollow force. Given that the US military uses more fuel oil than any other organization in the United States — consuming 12.6 million gallons of fuel per day — even small fluctuations become expensive. With oil prices up 40% and heading higher, readiness will undoubtedly be impacted. Congress therefore should add $6 billion of the $20 billion in the operating accounts for both fuel and parts.

Similarly, the price of other commodities such as steel have also gone up in the past year which will have a dramatic effect on the procurement of weapon systems, likely leading to cost overruns that will ultimately slow the fielding of needed systems; this comes at a time service budget requests have already decreased procurement quantities, which will also drive-up costs. Therefore, Congress should add $8 billion of the $20 billion, to restore the procurement budget to the 2021 level. Priorities for buying back slashed capabilities would include helicopters and tanks for the Army, ships for the Navy, and munitions for the Air Force. The last is a particularly egregious cut; trimming back on munitions procurement is extremely short-sighted given that it takes years to rebuild depleted munitions.

With the cost of building materials also increasing, there will be substantial cost overruns for ongoing and planned military construction. Scaling back the scope of already designed projects is not cost-effective or feasible, meaning the military will have to divert funds from its operating accounts and further reduce readiness to keep construction projects on track. Failing to add funds to cover the post-pandemic surge in construction costs will yield to a cannibalization of other parts of the budget. Take another $2 billion dollars of the $20 billion and add it to a military construction reserve fund to pay for both ongoing and planned construction.

That leaves $2 billion more, and while not directly related to inflation, Congress should still add that money to the science and technology (S&T) budget. Congress always funnels money to S&T, but they do that by diverting money from other accounts. In this budget, Congress should not “rob Peter to pay Paul.” Instead, it should add $2 billion in additional S&T funds to topline funding.

While the Senate Armed Services Committee’s proposed increase of $25 billion is a welcome sight, it is important that the rest of the Congress support it — and that the extra money is focused appropriately

With the FY22 budget up only 1.6% from FY21, a 5% inflation rate is going to cause dramatic harm to the Defense Department and American military families. Unexpected inflation has a significantly harsher impact on defense readiness, procurement, and service members and their families than on other parts of the federal budget, or the US economy in general.

To secure America’s military readiness, as well as to ensure that the inflated cost of housing is not passed on to military families, Congress must increase the defense budget in FY22 by $20 billion.

Maj. Gen. John Ferrari, US Army (ret.), is a visiting fellow at the American Enterprise Institute (AEI), a former director of program analysis and evaluation for the US Army, and the chief financial officer at QOMPLX.