February 2011

1. The US Defense Budget and QDR Trends and Implications for the Future February 2011

2. Overview • An annual $ 700bn budget that includes war expenditures. • The extent of America’s commitments, the unpredictability of threats, and the military competition from a rising China, makes cuts look irresponsible. • A $100 bn efficiency savings budget cancelling 30 weapons systems; proposing to close the Joint Forces Command in Virginia; and a 10% reduction in the budget for contract workers for each of the next three years. • Money saved would be redirected towards unmanned aerial systems; new electronic jammers for the navy; and a penetrating bomber and some other hardware upgrades. • A culture of “savings and restraint” will have an additional $78 bn worth of cuts over the next five years. • A possibility of achieving a 10% reduction in “real-dollar non-war spending”($60bn) by the time of the 2017 budget. • This reduction will hamper the military ability to fight two big ground campaigns simultaneous entailing larger security risks.

3. A Question Of Scale: Where The Axe Will Fall?

4. Context for the Budget and QDR • Deepest economic downturn since the Great Depression • Record $1.6 trillion deficit projected for FY10 • Net interest payments on the national debt on track to exceed total national defense spending by FY18 • Major changes underway in DoD • Two on-going wars • Shake-up in acquisition programs from April 2009 announcement • Several major reviews underway in parallel with QDR

5. QDR’s Assessment • Not intended as a major course correction • Consolidates reforms / rebalancing already implemented • Twenty-year time horizon, but focuses more heavily on near-term threats • Terrorism and current conflicts • Challenges to access of “global commons” in sea, air, space, and cyberspace • Proliferation of WMD by state and non-state actors • Asymmetric capabilities • Less discussion of long-term trends, such as global financial crisis, demographics, and rising regional powers

6. Strategic Guidance in the QDR • Identifies four priorities (the “4 Ps”): • Prevailing in today’s wars • Preventing and deterring conflict • Preparing to defeat adversaries and succeed in a wide range of contingencies • Preserving and enhancing the all-volunteer force • Force planning construct evolves from a two war construct to a more nuanced mix of contingencies • Draws on a larger set of scenarios that include homeland defense, civil support, and irregular operations • Used for sizing and planning of forces and capabilities

7. Priorities in the QDR • QDR says: • Its priorities are “the urgent demands of today and the most likely and lethal threats of the future” • and “for the first time, it [the QDR] places the current conflicts at the top of our budgeting, policy, and program priorities” • To make something a higher priority, something else must be consigned to a lower priority • Leads to the following questions: • Where should you reduce risk? • Where should you take more risk? • What programs or activities can you do without or do with less? • What new programs are needed to address new priorities or emerging threats?

8. FY 2011 Defense Budget in Perspective

9. Comparison to Previous Years

10. Operations and Support • O&M and personnel funding ($339B) is 62% of DoD base budget • Military personnel costs have outpaced DoD civilian pay due to: • Addition of TRICARE for Life • Changes to retirement pay and benefits • Indexing of basic pay increases to the Employment Cost Index (ECI) • Military healthcare costs grew at real annual rate of 6.3% over the previous decade

11. Research and Development • Grew at a real annual rate of 5.1% over the previous decade • Down 6.0% from FY10 budget • Shift away from early research activities to later development activities over the decade • Average 4.7% increase in RDT&E funding each year from what is requested to actual budget authority • Largest RDT&E program is JSF • FY11 budget extends development • Funds additional R&D costs through delays in aircraft procurement

12. Aircraft Procurement • Combat aircraft consume nearly half of total aircraft procurement funding • JSF procurement is $8.7B for 43 A/C in FY11 • Fastest growing category is Other Aircraft, which includes UAVs, although it represents only 16% of total • Airlift aircraft funding drops cut in half due to C-17 termination

13. Ground Systems Procurement • Received a large amount of war funding • $16.8B for 9,380 MRAP vehicles in FY08 alone • FCS was largest program planned, now replaced by Brigade Combat Team Modernization program • Narrowing definition of war-related costs could push reset costs into base budget

14. Shipbuilding Procurement • Over the past 10 years: • 29% for subs • 26% for destroyers • 21% for carriers • 15% for amphibious ships • 9% other • FY11 funding up to $15.7B • Still far below the estimated $21B needed to support the Navy’s shipbuilding plan • Will be difficult to achieve a 300+ ship Navy within the fiscal realities of the future

15. Space Systems Procurement • Fastest growing area of procurement over the past 10 years, at a real annual rate of 16.2% • Cost overruns are a major issue for space programs • 6 of 7 largest DoD space programs are over budget • Together they are $35B over their original estimates • Two of the largest programs (Space Radar and TSAT) were recently terminated

16. Missile Defense • A number of programs were cut or terminated in the FY10 request, reducing the budget by 14% in real terms from FY09 • FY11 budget requests returns budget to near former level, $9.9 B • Reliance on existing BMD systems will put additional pressure on the inventory of interceptor missiles for THADD, GMD, and Aegis BMD • Administration’s new plan for European missile defense will rely on sea-based interceptors initially • Will require 9 dedicated ships for this mission (3 deployed, 3 in maintenance, and 3 in training at any given time) • Could cost as much as $19B if additional Arleigh Burke-class destroyers are procured, or as little as $300 million if existing ships are converted • FY10 and FY11 budgets funded conversions of 9 existing ships

17. Communications and Electronics Procurement • Army received a significant increase due to war funding for radios and satellite communications terminals • After 13 years, the Joint Tactical Radio System (JTRS) program is beginning to produce radios • Services plan to procure 194,000 JTRS radios at a cost of $23B

18. Family Housing & Military Construction • Grew at a real annual rate of 5.9% over the past decade, excluding war funding • Rapid growth due primarily to 2005 BRAC implementation • BRAC funding peaked in FY09 at $9.1B • FY11 should be last year of BRAC funding • Fate of agreement with Japan to move Marines to Guam is uncertain • Estimated cost to US is $4.2B

19. War Funding • Of the $4.8 trillion in funding DoD received from FY00-FY09, 21% (or $1.02 trillion) was for the wars in Iraq and Afghanistan • Cost per troop in Afghanistan has averaged $1.1 million per year • Only $66,000 of that figure is spent directly on troops in pay, benefits, and healthcare • Surge of 30,000 troops will require an additional $30-35B per year • Supplemental request for FY10 included in budget

20. Highlights in the FY 2011 Budget • Operations and Support • Military Pay and End Strength • Healthcare • Acquisition Workforce • Acquisition • Joint Strike Fighter • FCS Follow-On • Navy Shipbuilding Plan • European Missile Defense • Interceptor Missiles • TSAT Follow-On • JTRS • Reset Costs • Military Construction • BRAC • Guam • Overall • New Program Starts • Future War Funding • Deficit Reduction