CongressionalBudgetOffice

Pressures on DoD’s Budget Over the Next Decade

PresentationattheProfessionalServicesCouncil2016VisionFederalMarketForecastConference

DavidE.MosherAssistantDirectorforNationalSecurity

November16,2016

1C O N G R E S S I O N A L B U D G E T O F F I C E

Outline

• Fiscal Situation

• Implications of Budget Control Act

• Internal Pressures on DoD’s Budget

2C O N G R E S S I O N A L B U D G E T O F F I C E

DeficitsorSurplusesUnderCBO’sBaselineforFY2016

CBO's Baseline Projection

Source: Congressional Budget Office, An Update to the Budget and Economic Outlook: 2016 to 2026 (August 2016), www.cbo.gov/publication/51908.

PercentageofGrossDomesticProduct

-

3C O N G R E S S I O N A L B U D G E T O F F I C E

FederalDebt,Spending,andRevenuesUnderCBO’sExtendedBaselineforFY2016

CBO's Baseline Projection

Source: Congressional Budget Office, The 2016 Long-Term Budget Outlook (July 2016), www.cbo.gov/publication/51580.

4C O N G R E S S I O N A L B U D G E T O F F I C E

ComponentsofFederalSpendingUnderCBO’sExtendedBaselineforFY2016

CBO's Baseline Projection

Source: Congressional Budget Office, The 2016 Long-Term Budget Outlook (July 2016), www.cbo.gov/publication/51580.

PercentageofGDP

5C O N G R E S S I O N A L B U D G E T O F F I C E

Outline

• Fiscal Situation

• Implications of Budget Control Act

• Internal Pressures on DoD’s Budget

6C O N G R E S S I O N A L B U D G E T O F F I C E

CostsofDoD’s2016PlansintheContextoftheBudgetControlAct,asAmended

FYDP = Future Years Defense Program.Source: Congressional Budget Office, Long-Term Implications of the 2016 Future Years Defense Program (January 2016), www.cbo.gov/publication/51050.

Billionsof2016Dollars

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 20300

100

200

300

400

500

600

700

800

BaseBudget

Base-BudgetPlusOverseasContingencyOperationsFunding

ActualFYDPPeriod

BeyondtheFYDPPeriod

EstimateofBase-BudgetFundingAvailabletoDoD

UndertheBudgetControlActof2011

ProjectionUsingDoD'sCostAssumptions

7C O N G R E S S I O N A L B U D G E T O F F I C E

Outline

• Fiscal Situation

• Implications of Budget Control Act

• Internal Pressures on DoD’s Budget

8C O N G R E S S I O N A L B U D G E T O F F I C E

GrowthinDoD’sInflation-AdjustedBaseBudget,FiscalYears2000and2014Billionsof2014Dollars

2000 20140

100

200

300

400

500

600

Acquisition(25% increase)

Operation and Maintenance(34% increase)

Military Personnel(46% increase)

Other(43% decrease)

MilitaryPersonnel(46%increase)

OperationandMaintenance(34%increase)

Acquisition(25%increase)

Other(43%decrease)

20142000

600

500

400

300

200

100

0

Source: Congressional Budget Office, Growth in DoD’s Budget From 2000 to 2014 (November 2014), www.cbo.gov/publication/49764.

9C O N G R E S S I O N A L B U D G E T O F F I C E

CostsofDoD’s2016PlansbyAppropriationCategory

Billions of 2016 Dollars

FYDP = Future Years Defense Program.Source: Congressional Budget Office, Long-Term Implications of the 2016 Future Years Defense Program (January 2016), www.cbo.gov/publication/51050.

10C O N G R E S S I O N A L B U D G E T O F F I C E

PressureinEachoftheThreeMajorCategoriesoftheDefenseBudget

■ Costsofdevelopingandbuyingweaponshavebeen,onaverage,20percentto30percenthigherthanDoD’s initialestimates

■ Costsforcompensationofmilitarypersonnel—includingtheiractiveandretiredhealthcarebenefits—havebeenrapidlyincreasingsince2000

■ Costsofoperationandmaintenanceperactive-dutyservicememberhavebeensteadilyincreasingsinceatleast1980,withoutincludingthecostofthewarsinIraqandAfghanistan

ThemismatchbetweenDoD’sFYDPplansandtheBudgetControlActcapsisexacerbatedbytheseinternalpressuresin

DoD’sbudget

11C O N G R E S S I O N A L B U D G E T O F F I C E

ExampleofBudgetaryPressureinAcquisition:TheNavy’sShipbuildingProgram

■ CBOestimatesthatthe2016shipbuildingplanwillcostmorethantheNavyestimates

■ TheNavy’s2016planwouldfallshortofmeetingtheservice’sinventorygoalforsometypesofships

■ Historicalaveragefundingwouldbeinsufficienttopayforthe2016planAverageAnnualCostofNew-ShipConstructionUndertheNavy’s2016Plan

Source: Congressional Budget Office, An Analysis of the Navy’s Fiscal Year 2016 Shipbuilding Plan (October 2015), www.cbo.gov/publication/50926.

12C O N G R E S S I O N A L B U D G E T O F F I C E

ExampleofBudgetaryPressureinMilitaryPersonnel:PayandBenefits

■ Annualincreasesinmilitarybasicpayexceededthepercentageincreaseintheemploymentcostindex(ECI)byatleast0.5%foreachoftheyearsbetween2001and2010– BasicpayraisesthenequaledECIfor2011through2013– Inthelastthreeyears(2014–2016)basicpayraisewasbelowtheECI

■ DoD estimatesthatcashcompensationforenlistedmilitarypersonnelexceedsthatof90percentofworkerswithsimilareducationandyearsofexperience– Noncashcompensation(includinghealthcareandother)makesthatgap

larger

13C O N G R E S S I O N A L B U D G E T O F F I C E

2014Dollars

PercentofTotalGrowth

SourcesofGrowthinMilitaryPersonnelCosts,FiscalYears2000to2014

Costin2014($142.3billion),a46%Increase

From2000

Source: Congressional Budget Office, Growth in DoD’s Budget From 2000 to 2014 (November 2014), www.cbo.gov/publication/49764.

14C O N G R E S S I O N A L B U D G E T O F F I C E

ExampleofBudgetaryPressureinOperationandMaintenance:O&MperActive-DutyServiceMember

■ O&MpaysformostDoDcivilians’salaries,goodsandservices(belowprocurementthresholds),fuel,maintenance, contractorservices,etc.

■ Comparedwiththeprewar(1980–2001)trend,DoD’s2016FYDP:– Rises$300peryearfaster– Is$20,000perpersonhigherin2020

FYDP = Future Years Defense Program.Source: Congressional Budget Office, Long-Term Implications of the 2016 Future Years Defense Program (January 2016), www.cbo.gov/publication/51050.

15C O N G R E S S I O N A L B U D G E T O F F I C E

SourcesofGrowthinOperationandMaintenanceCosts,FiscalYears2000to2014

(101%Growth)

2014Dollars

PercentofTotalGrowth

Costin2014($193.5billion),a34%Increase

From2000 (22%Growth)

Source: Congressional Budget Office, Growth in DoD’s Budget From 2000 to 2014 (November 2014), www.cbo.gov/publication/49764.

16C O N G R E S S I O N A L B U D G E T O F F I C E

OperationandMaintenance(O&M)Fundinginthe2012BaseBudget

RemainingO&M

CivilianCompensation

Fuel

DefenseHealthProgram

DHP = Defense Health Program; WCF = working capital fund.Source: Derek Trunkey, Analyst, Congressional Budget Office, “Trends in Operation and Maintenance Spending by the Department of Defense” (presentation to the 91st Annual Conference of the Western Economic Association International, Portland, Oregon, July 1, 2016),www.cbo.gov/publication/51731.

17C O N G R E S S I O N A L B U D G E T O F F I C E

PurchasesFundedThroughOperationandMaintenance(O&M)inthe2012BaseBudget

Billionsof2012Dollars TotalBase-BudgetO&M:$198billionActivity

Forces(27.3)

SupportandIndividualTraining(71.5)

Administration(33.1)

Infrastructure(34.7)

HealthCare(31.4)

Property(4.3)

CivilianCompensation,

Non-WCF(53.6)

Services(91.9)

Goods(33.3)

CommodityClass

DomesticCivilians

ForeignNationalCivilians

Provider

OtherGovernmentAgencies(4.2)

WorkingCapitalFunds

(37.6)

PrivateSector(87.7)

DoDCivilians(53.6)

Classified(14.8)

WCF= workingcapitalfund.

18C O N G R E S S I O N A L B U D G E T O F F I C E

GrowthinOperationandMaintenanceFundingfor“Activities”inBaseBudgetfrom2000to2012,byService

Billionsof2012Dollars

Source: Derek Trunkey, Analyst, Congressional Budget Office, “Trends in Operation and Maintenance Spending by the Department of Defense” (presentation to the 91st Annual Conference of the Western Economic Association International, Portland, Oregon, July 1, 2016),www.cbo.gov/publication/51731.