The Long Bottom of US Defense Spending

7 April 2016 • 0 Comments

Signs of spring abound: The forsythia is in bloom; the crack of baseball’s opening day resounds; and the DoD Comptroller’s “Green Book” once again issues forth. The National Defense Budget Estimates for FY 2017, or Green Book, so-called by the seasonal hue of its cover, is a 300-page volume of dense tables expressing to the nearest millionth dollar every obligation, authority, and outlay associated with the defense program each Administration submits to Congress in February. And yet, I confess to welcoming the tome’s publication no less than the skylark’s April twitter. Ah, spring!

Here’s why. The Green Book helps put to rest all the defense spending silly-talk that typically thrashes about in late-winter ahead of Congress settling into the serious business of passing a budget resolution and marking the Administration’s budget request. Among the notable silly talkers this winter have been defense-sector bulls of Wall Street, who are hailing 2016 as the start of a sustained growth cycle. Of course, at the other end of the silly-talk spectrum lies the field of Republican presidential candidates, whose talking points about the Obama Administration’s defense budget are uniformly inflected with the viscerally pleasing “gutted.”

So, what’s the realistic outlook for defense spending today? In a just-released assessment of world military spending, the serious Swedes at the Stockholm International Peace Research Institute dryly observe, “US military spending is projected to remain roughly level in real terms in 2016.” That’s a fair characterization but one the Green Book’s precision would deem slightly understated: Its constant-dollar measure of growth in the Pentagon’s budget authority from 2015 to 2016 actually registers 1.5 percent. Regardless, looking to the end of the defense program in 2021, that which appears a modest 2016 budget bump is really just the proverbial dead cat bounce off the 2015 nadir of sequestration-era strictures. The outyear trend of defense spending will slide down off that 2016 blip into what I’ve come to call the long bottom, a sustained period of roughly level annual defense budgets—“base” plus “supplemental” appropriations­—totaling about $600 billion (measured in constant 2016 purchasing power).

However, this stable floor under the defense spending cycle that began in 2010 obscures what is going to be a frantic churn in the programs arrayed across it. Wringing out the last five years of the Budget Control Act (BCA) will buffet these spending plans, and not least because the view of its sunset in 2021 undermines incentives for structural changes to military forces, which today are unaffordable. And, sure, the advent of a new presidential administration intent on making its mark on defense policy also will contribute to the churn.

Procurement spending in particular is set up for a perilous run. Despite the gloss of “innovation” that the Administration extolled in its February roll out of the 2017 budget, proposed acquisition accounts (the Procurement + RDT&E appropriations titles) are 2.1 percent lower than the levels appropriated for 2016. More tellingly, compared to the 2017 column of last year’s acquisition plans, the new request is lower by fully 5.6 percent, of which reductions Procurement alone bears a preponderant $10.2 billion share. Indeed, Procurement was the only material programmatic bill payer contributing to how the Pentagon digested the $22 billion in reductions to its 2017 program that resulted from last October’s Bipartisan Budget Act.

What’s more, Procurement is likely to suffer disproportionately again next year when the gap between the Pentagon’s plan for 2018 and the BCA cap rebounds to $30 billion. Even if Congress manages to enact another partial relief from that cap in its lame duck session, Procurement cannot be spared. The Administration which inherits this fiscal hand is not likely again to enjoy savings from fortuitously low inflation and fuel prices; nor is a new Congress likely to abide the willful bleed of base program costs into the unconstrained supplemental appropriation; accommodations which together limited the erosion of Procurement that had been planned for 2017 to only $10.2 billion. Indeed, I’d bet the Pentagon’s fail-safe 2018 budget is going to reduce Procurement spending by $15 billion from the amount now planned for that year in the defense program it just recommended to Congress.

Of course, hope springs eternal, and doubly so in a presidential election year. There may yet emerge some kind of a green thumb to promote the growth of defense spending. In the meantime, we instead should rely on the good Green Book to keep our feet planted firmly on the ground.

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