Previewing Biden’s FY23 defense budget request: 5 things to expect

With the long saga of the fiscal year 2022 budget looking like it will be finalized in March, eyes now turn to the FY23 defense budget and what it might look like. Between Russian aggression, inflation and a Congress that appears supportive of increasing defense spending, it’s unclear how high the Pentagon’s budget will go. But as Mackenzie Eaglen of AEI notes, there are plenty of signs about what shape the budget might take. 

While the White House lags on sending its next federal budget to Congress, there is a fair amount policymakers know already about the forthcoming fiscal year 2023 request. Reports suggest the White House’s passback guidance will set the FY23 national defense budget for the Department of Defense somewhere at or above $770 billion. That might sound high, but it fails to account for the military’s lost purchasing power as a result of record breaking inflation this year and likely next, along with nearly a half year under a spending freeze.

Thanks to public comments, we can also piece together five key points about budget trends under the topline—whenever it officially arrives.

The defense budget will once again tout record levels of investment in Research and Development (R&D) as the priority approach to competition with China. Heidi Shyu, Under Secretary of Defense for Research and Engineering, told reporters in January that she believes the Pentagon’s FY23 research and development budget request would again be historically high. But that will simply trigger déjà vu for Congress and demonstrate a lack of imagination. A budget stuck on cruise control by continuing well-worn paths laid two administrations ago will not please Congress.

Expect a focus on funding almost-ready R&D efforts. Comments from top leaders signal the budget will favor R&D and science and tech programs ready to move into production and procurement as opposed to those further out. Army Secretary Christine Wormuth recently said key modernization programs are being scrutinized for cuts. Those that will survive are prototypes that are affordable and ready to scale. If they’re not primed for this, they are vulnerable in the 2023 budget request.

That was echoed when Air Force Secretary Frank Kendall said recently that there is no shortage of innovation or technology at the Pentagon. The implication, of course, is that there is a shortage of fielded projects, products and weapons. Kendall noted how R&D projects are piling up without a clear path to getting them in the hands of warfighters. But this is a problem Congress has been pushing the Pentagon to address for years. 15 months ago, the House Future of Defense task force report said the Pentagon must identify innovative capabilities and “make substantial investments to procure them at the necessary scale.” Such programs “should then be fast-tracked” instead of failing “to become funded programs of record,” the report stated.

This is a necessary and long overdue effort to bridge the so-called acquisition valley of death; too many programs are languishing in the science experiment-equivalent phase and petering out before they have the chance to bear fruit, at scale. If there is not tangible and substantial progress in moving large numbers of programs into procurement in the FY23 defense budget request, it will have failed to meet the moment.

RELATED: Hey OMB – Defense needs $816B for FY23

Try to divest to invest — again. The next Biden budget will also continue the trend, started during the Obama administration, of “divesting” old weapons to “invest” in new technologies of the future. While this sounds smart and novel, the problem is that this strategy lacks nuance.

Too often the approach has unilaterally cut capacity at a time the armed forces are as busy as ever around the globe. And because the process is bottom-line driven, it often sheds innovative legacy programs evolving toward new capabilities. And, let’s be frank: the results usually end up divesting without the money materializing for actually investing. Unfortunately, this trend will be hyper accelerated with raging inflation affecting every defense account and priority.

Further, Congress tends to approve divestment in smaller tranches than the services typically propose, or moves to protect parochial interests in such a way that the cuts become cost neutral. So while the service chiefs are making clear progress in convincing lawmakers to overcome at-times local interests to retire bombers, tankers and drones, the half-loaf approach results in what Kendall calls the “death by a thousand cuts” that has “failed to result in real savings.”

Steal first from readiness to cover unexpected budget holes. The cost of doing regular business is going up across the enterprise thanks to COVID-19, lingering supply chain disruptions, continued labor shortages, and now inflation. The result will be attempts to move money around to cover unplanned cost increases.

Similar to how the Pentagon responded to natural disasters at various bases in recent years, the first billpayer will inevitably be military readiness. That is because the operations and maintenance account has what are called execution-year dollars. These, as senior leaders have noted, are far “more valuable than future-year dollars” when you need to financially triage in a pinch.

But expect impacts across the board; no priority will be spared except military and civilian pay and compensation, although they too will feel poorer immediately, as the generous-looking 4.6% raise ahead in FY23, based on the Bureau of Labor Statistics’ Employment Cost Index, will still not be enough to keep up with inflation. Add to that the expired child tax credit going away and pocketbooks across the military will be worse for wear.

Red hot inflation will also keep a lid on any endstrength growth across the services, and likely cause a slight decline in active-duty numbers. With an overall topline that will very likely not keep up with overall inflation at or above seven percent, the Defense Department will struggle to even meet the 4.6% pay raise for 1.4 million uniformed personnel and roughly 800,000 civilian employees.

Marine Corps leaders are already previewing endstrength cuts to help fund modernization. Calling active duty cuts “the most logical lever to pull, based on the fact [the Corps] had grown so large to the point that [it] was unsustainable,” the rest of the services are about to come to the same difficult realization.

Unfortunately, the Commandant is likely to get fewer Marines but no additional dollars to funnel into technology as he hopes due to inflation. It will cost more money this year than last year to keep a smaller force paid.

Not only will troops’ paychecks take a hit, but their quality-of-life programs will also be squeezed. The Navy, for example, is already shrinking base operations services across the country “due to budgetary constraints.” This affects family priority programs, from gym and swimming pool hours to base libraries, auto hobby shops, landscaping and other custodial services.

Endstrength cuts in light of growing global demands will further add to readiness woes. That is because, as Navy Secretary Carlos del Toro said recently, “the threat doesn’t change much just because inflation is going up.”

The bowwave is still looming. Finally, the Pentagon will continue to grapple with the “Terrible 20’s” challenge of funding strategic and conventional modernization in the same decade without nearly enough funds to do so. Discussing the challenge of trying to fund tri-service modernization from within existing budgets—as opposed to getting additional new money—Air Force leaders have said plainly this approach will crowd out other equally-important investments.

Lt. Gen. Clint Hinote, Air Force Deputy for Strategy, Integration and Requirements, said conversations are ongoing with stakeholders about whether strategic and conventional modernization is “either/or” or “both/and.” He noted there is “no free money” and so “it has to come from somewhere.”

The problem is too big to come from somewhere, so instead, it’s going to have to come from everywhere — including nuclear modernization — with budgets that do not keep pace with inflation.

If the administration continues to underfund national defense by failing to engage with the very real ramifications of record inflation and overdue modernization efforts, it will inevitably force servicemembers to pay the price by stretching them steadily further. Like last year, the White House will pass the future of the US military to Congress. Lawmakers should dust off this year’s playbook and be prepared to force defense spending higher again.