Defense Dilemmas in the 1990s

Defense I T h e new administration has inherited a troubling defense legacy. The Reagan administration left behind a defense program that cannot be enacted without significant real growth in defense budgets and spending during the first half of the 1990s, but there is little prospect for such growth. It is more likely that defense budgets will not grow at all for several years, and they may even fail to keep pace with inflation. It should be possible to meet U.S. national security requirements without any growth in defense spending. Defense spending has grown 40 percent after inflation since Fiscal Year (FY) 1980, reaching unprecedented peacetime levels. If spending were to decline as much as three percent after inflation each year until FY 1994, it would still be higher, in constant dollars, than in any peacetime year prior to FY 1983. High spending levels alone, however, will not guarantee a strong defense. Security needs will be better served by sound defense policies and a longterm plan that matches programs to realistic projections of resources. In the absence of such planning, U.S. defense capabilities could erode, even with a continuation of high levels of defense spending. If the new administration simply tries to proceed with the program that it has inherited, a growing share of the defense budget will be consumed by expensive new weapons that will not be purchased in adequate amounts, while force structure contracts , and readiness and sustainability decline. If the United States is to achieve military security at lower cost in the 1990s, tough choices must be made. Some programs will have to be cancelled or deferred, while less expensive solutions to military problems are sought. A proper balance must be struck among the size of military forces, their level of readiness and sustainability, and the rate at which military hardware is modernized. Choices must be guided by a reexamination of global U.S. security policies and commitments, especially towards the Soviet Union and Western Europe. Gordon Adam is the director of the Defense Budget Project, a non-partisan, non-profit research organization in Washington, D.C. Stephen Alexis Cain is the senior budget analyst at the Project. [nternalional Security, Spring 1989 (Vol. 13, No. 4) 01989by the President and Fellows of Harvard College and of the Massachusetts Institute of Technology 5 International Security 13:4 I 6 The Fiscal Legacy of the 1980s Defense Buildup The Reagan administration’s emphasis on military hardware has left a legacy of high defense spending and pressures for further spending growth. Commitments made to a large number of weapons programs in the 1980s have created a ”stern wave“ of defense spending in the latter part of the decade, which will persist into the early 1990s. Commitments to the next generation of weaponry threaten to create a ”bow wave“ in the 1990s, pushing defense spending still higher.’ This fiscal dilemma results from the shift in the composition of the defense budget since FY 1980 from ”consumption” to ”investment.”2 Between FY 1980and FY 1985, funds for Department of Defense (DoD)investment grew 104 percent after inflation, while budgets for operations and maintenance (up 37 percent) and for military personnel (up oiily 8 percent) grew far more slowly. This rapid growth pushed the investment share of the defense budget from 38 percent in FY 1980 to a peak of 48 percent in F Y 1985. When defense investment funding grows rapidly, actual spending (outlays) lags behind budget authority, creating a backlog of appropriated but unspent funds.3 This backlog results because Congress ”fully funds” weapons programs in a single appropriation, but contractors receive these funds in incremental “progress payments” during the several years that it takes to build a system or to complete a contract. While overall DoD budget authority doubled (including inflation) between FY 1980 and FY 1988, the backlog of unexpended funds grew 188 percent, from $92 billion to an estimated $266 billion. Approximately 80 percent of this backlog is already obligated to contracts. Because the spending that flows from these obligations is virtually automatic , the share of defense outlays considered ”relatively uncontrollable” 1. The term “stern wave” reflects the fact that spending commitments already made are pushing...