October 1, 2008  

Our shrinking, more costly force

It is common knowledge that the Pentagon is spending more in inflation-adjusted dollars today than at any point since the end of World War II.

The $635 billion appropriated in fiscal 2007 is $31 billion, or 5 percent, above the previous high-water mark of $604 billion in 1952. 2008 will be higher at about $670 billion, and 2009 will likely be more still.

It should also be conventional wisdom — but isn’t — that our military forces are smaller than they have ever been since the end of World War II; major equipment is also, on average, older than it ever has been before; and key elements of our most important fighting forces are not ready for combat. At new highs in spending, all that is an accomplishment of spectacular incompetence — if, indeed, that is the cause.

The wars in Iraq and Afghanistan, and the human and material stress they have imposed on the forces, are not the cause. The negative trends have been around for decades. The wars have not siphoned off money from the nonwar parts of the Pentagon budget, known today as its “base” budget. In fact, above and beyond the $800 billion-plus the Pentagon will have received by the end of 2008 for the wars, it has also received about $770 billion more than was planned for it in 2000. One would hope this huge “plus-up” for the peacetime, or base non-war, budget would have addressed some of the decades-old problems. It didn’t; today they are worse.

The base Defense Department budget has increased — in inflation-adjusted dollars — from $370.8 billion in 2001 to $518.3 billion in 2009, a 40 percent increase. Comparing actual Pentagon base budgets to the base budgets planned at the start of the first President Bush administration (for the years from 2001 to 2009) computes to an added $770 billion.

The “plus-ups” for each of the military services demonstrate how more money has made our problems worse.

In early 2001, the Army anticipated a budget of about $720 billion for 2001 to 2009. Not counting $387 billion subsequently appropriated for Army participation in the wars in Iraq and Afghanistan, the Army’s base budget was increased by $191 billion to $911 billion. The war funding shown for 2008 and 2009 is incomplete; Congress has not finished action on the president’s requests for 2008 or 2009.

The Army’s “division equivalents” have declined over time to a post-World War II low in the 21st century at about 11 divisions; the Army budget is now at an all time high.

A key equipment inventory — ground fighting vehicles — continues to age while it also shrinks. The Congressional Budget Office (CBO) anticipates this inventory will continue to shrink even as the number of combat units has stabilized in the early 21st century. It is a trend that Army plans will accelerate in future years.

Evidence on readiness is also discouraging. Army budget materials for 2009 articulate a goal of 608 tank training miles (per tank per year) for 2009. This would be an increase from the 459 training miles performed in 2008. During the Clinton era, the goal was commonly 800 tank miles; for the most part, the Army did little better than 650. During the George H.W. Bush administration, the goal was typically 1,000 miles, and 800 was sometimes achieved. In other words, in 2008, tank crews are training at a level less than half of what was considered optimal in the early 1990s.

The Army asserts today that all units sent to Iraq and Afghanistan are “fully ready.” That is a suspect assertion. Training time in the continental U.S. for unconventional war has been reduced thanks to the high operational tempo and frequent, recurrent deployments of the same units back to combat after 12 months in the U.S. Only a portion of the nondeployed time is spent retraining for redeployment. More importantly, during that limited training time, units do not always have available to them the proper equipment on which to train, and the people in those units get truncated time to train together — whether or not they possess the right equipment — with new personnel.

The Army is not alone in facing these problems.

In early 2001, the Navy anticipated a budget of about $900 billion for itself and the Marine Corps for 2001 to 2009. Not counting $95 billion subsequently received for the wars in Iraq and Afghanistan, the Navy-Marine Corps base budget was increased by $174 billion to $1.07 trillion.

The fleet is as small today as at any point in the post-World War II period. From a 1953 high of 835 combat ships, it persistently hovers in the 21st century at about 300.

The budget shows ups and downs, but the overall trend is for it to increase in “real” dollars. In recent years, the Navy’s budget has increased sharply, mostly for expenses not related to the wars in Iraq and Afghanistan, and yet the force structure remains flat.

In the Air Force, things are worse.

Since early 2001, the Air Force has received more than $200 billion above what was then planned for its base budget. The tactical inventory of the Air Force is as small today as at any point in the post-World War II period. From a 1957 high of 61 “wing equivalents,” it persistently hovers in the 21st century at 16 to 18.

There have also been budget ups and downs, but the overall trend is for the budget to remain constant — in inflation-adjusted dollars — and today the amount of spending for the Air Force is above the overall trend-line. Thus, at a level of spending today higher than the historic norm, we have an Air Force tactical inventory that is as small as it has ever been.

While shrinking, the overall Air Force inventory has aged further.

Given the failure of the $200 billion-plus the Air Force received from 2001 to 2009 to stem the shrinking, aging service, there is no reason to think that throwing still more money at the Air Force will do anything but perpetuate the problems.

Some advocates of high-cost weapon systems will claim that the reduced size of the military force structure is offset by advances in capability thanks to modern technology. The advocates of these arguments are quick to skip over the aging nature of these high-tech inventories and the serious readiness problems.

Advocates of high-cost, high-complexity weapons also skip over two other key attributes. First, the equipment is far more expensive than they allow. They describe costs in terms of the “flyaway” unit cost that ignores development and testing expenses, and they routinely understate the cost relationship with equipment being replaced. Systems end up costing far more than what is promised at the “buy-in” stage, and they often cost multiples of what they are replacing, even more when all support costs are considered. Second, the advocates grossly overstate how well complex systems perform, both initially in theoretical discussions and in combat after they are deployed. For some systems, real improvements do occur, but they are far less than what is advertised; other times, the new, far more expensive system brings no meaningful improvement and by virtue of the reduced, less-ready force size, real-world capability is lessened.

There is no silver lining to the shrinking, aging, less-ready, more-expensive cloud.

About the $191 billion plus-up for the Army, the $174 billion added for the Navy, and $203 billion for the Air Force, it is reasonable to ask, “Where did the money ($568 billion) go?” Pork: Congress added about $60 billion in pork to post-Sept. 11 defense bills. The impact on national defense is a matter of apparent indifference to Congress.

Hardware cost growth

Since 2001, spending for hardware has exploded. The added money has often meant fewer weapons.

If one inspects the Defense Department’s Selected Acquisition Reports for just before and at the end of the current Bush administration, one finds two types of pathologies: programs that increased in cost, and programs that increased in cost to buy fewer weapons. For example:

å In 2000, the Defense Department planned to buy 458 V-22s for the Marines for $38.1 billion (unit cost: $83.2 million). In 2007, the same 458 V-22s were rescheduled to cost $54.2 billion (unit cost: $118.3 million).

å In 2000, 30 Virginia class submarines were going to cost $65.7 billion; today, the same 30 will cost $92 billion. Unit cost increased from $2.2 billion to $3.1 billion.

In other cases, we don’t get the same quantity for more money; we get fewer systems for more money.

å In 2000, the Air Force promised 341 F-22 fighters would cost $61.9 billion ($181.5 million each). Today, the estimate is $64.5 billion for 184 aircraft ($350.5 million each). Program cost went up 4 percent. Unit cost went up 185 percent. The inventory to be bought shrank by 46 percent.

å In 2000, the Navy projected 12 LPD-17 amphibious assault ships for $10.7 billion ($891.7 million each); today, we are to expect nine LPD-17s for about $14 billion (about $1.6 billion each). Program cost went up 33 percent; unit cost went up 179 percent; inventory went down 25 percent.

Taken together, the Government Accountability Office (GAO) found that from 2000 to 2007, major system costs escalated by $295 billion.

Some of these systems never have and never will appear in the wars in Iraq and Afghanistan. Given their irrelevance to war as we currently know it, one must also consider whether not just the cost growth should be considered waste but also the entire cost of the program.

People costs

People, certainly the ones in uniform, are not irrelevant. They enable America to fight, and, assuming competent strategic leadership, they are central in determining whether America wins or loses the conflicts it decides to fight.

Basic people costs in the Pentagon have been increasing, per capita, for decades. The Congressional Budget Office measures this real growth at 1 percent to 2 percent per year. In the new century, that growth has accelerated. Congress has accelerated pay raises for all in uniform, and it has enacted the Tricare for Life health care system that — while popular — has proven far more expensive than first predicted. And, Congress has repealed previous military retirement cost reforms and has layered on additional benefits for veterans and their survivors.

In a time of conflict, it is probably unavoidable that Congress adds to these benefits — to express the nation’s appreciation for service rendered in Iraq and Afghanistan. However, these benefits apply not just to the men and women who have served in those conflicts; most have been generalized to any service member regardless of when or where they served. In 2000, 1,449,000 active-duty personnel cost $100.5 billion in constant 2009 dollars for pay and benefits in the Defense Department’s military personnel account. In 2009, 1,445,000 active-duty personnel, a reduction of 4,000, are expected to cost $128.9 billion, an increase of $28.4 billion, or 28 percent. Once again, we pay more for less.

Tracking costs

As decades of reports from the GAO and the Defense Department’s inspector general make clear, the Pentagon’s spending records are not reliable. The department cannot accurately assert how, when or for what it spends money today, tomorrow and yesterday. Most Defense Department components not only cannot pass an audit, they cannot be audited. Their records are so chaotic that neither the GAO nor the inspector general can track expenses.

The need for integrity in Pentagon expenses is not just a matter of satisfying green-eyeshade accountants. It also means having reliable estimates of cost, schedule and performance for programs. Habitually, at the beginning of an enterprise, the Defense Department underestimates costs, overstates performance and cites a schedule it cannot maintain. Real reforms could be simple, but vested interests with all the power in today’s system will oppose them vehemently.

Ending the addition of billions of dollars of dubious pork projects to defense bills each year would require a process to sort out the junk from the worthy projects, if any. Members of Congress who argue that their earmarks are good ideas should have no problem with competent, independent evaluation of their proposals and a good-government process for implementing them. In short, any earmark proposed to any defense (or any other) bill should have:

å An estimate from the Congressional Budget Office for all costs, past, present and future.

å An evaluation from an independent entity (one with no material interest in the project, which eliminates the Pentagon) to determine if the project is needed and, if needed, whether the proposed solution can be effective. In most cases, GAO can and should provide such evaluations.

å A requirement that any earmark that successfully emerges from the CBO and GAO evaluations must be submitted to a competitive bidding process, for initial and for any follow-on work.

Weeding out irrelevancies from the military services’ budgets should be performed by an independent panel. While the views of the military services and of other interested parties should be heard, their membership on any such review panel must be barred for it to have credibility. Similarly, retired military officers who have any pecuniary relationship with defense corporations must also be barred. And finally, any person accepting membership on the panel, as well as staff, should be barred from accepting any future position with any entity that can gain from the panel’s decisions.

Financial integrity

Commensurate with a review panel should be a pause in new contracting and other expenses in the Pentagon, other than contractual obligations already incurred and war expenses that must be paid. New contract obligations and new program, or milestone, decisions should be held in suspension. The purpose of this important step is to permit the program review panel to operate in an atmosphere of seriousness and purpose, and to force the Pentagon to start down the long-avoided road of financial management integrity.

While new spending is suspended, the Pentagon’s audit agencies and qualified public accounting firms should undertake a maximum effort to audit the entire Pentagon system. The basis for understanding current programs and the financial consequences of new decisions must be established. Without doing so, there is little hope the hardware review panel will be able to understand the consequences of its own decisions. It is also a fundamental question of the Pentagon finally putting aside its empty promises and to actually fix its financial accounts so that future program enterprises are initiated in a system that understands the future consequences of its current decisions.

After the initial audit, any program, project or activity that has not received a clean audit should be placed on a public watch list for special oversight and frequent periodic reports to the defense secretary and Congress. Programs and their managers that fail should be noted, and new money for programs and promotions for managers that cannot pass an audit should be suspended, except for programs — but not managers — that the Pentagon and Congress jointly certify as essential despite their fiscal turpitude.

Failure to fix the Pentagon on this essential measure will mean that none of the other reforms will be meaningful. How can you control an acquisition process that you cannot accurately measure in terms of cost, schedule and performance?

High personnel costs for an all-volunteer army in a time of conflict are unavoidable. However, Congress’ undoing of past reforms for military retirement and concurrent receipt of veterans and retirement benefits are reasonable candidates for reconsideration. Other cost-saving reforms may also be possible, as long as military personnel who served in Iraq and Afghanistan are provided the best health care and other appropriate benefits the nation can afford. Unfortunately, Congress has not shown itself capable of much restraint in this area. Perhaps a reliable audit of the costs these legislative actions have piled up, now and in the future, will give some the impetus to start an inquiry.

In a system that measures merit by the amount of money spent, these changes will meet huge resistance. It remains to be seen if a leader will emerge on the American political scene — either from Congress or the White House — to make meaningful reform a reality.

But that’s what elections are for in a working democracy.

Winslow T. Wheeler is director of the Straus Military Reform Project at the Center for Defense Information.