WASHINGTON (MNI) – The following text is a summary of the
Congressional Budget Office’s analysis of the budgetary impact of the
Department of Defense’s Future Years Defense Program submitted to
Congress in April 2011:

Summary

In most years, the Department of Defense (DoD) provides a five- or
six-year plan, called the Future Years Defense Program (FYDP),
associated with the budget that it submits to the Congress. Because
decisions made in the near term can have consequences for the defense
budget well beyond that period, the Congressional Budget Office (CBO)
has examined the programs and plans contained in DoD’s FYDP and
projected their budgetary impact in subsequent years. For this analysis,
CBO used the FYDP provided to the Congress in April 2011, which covers
fiscal years 2012 to 2016. CBO’s projections span the years 2012 to
2030.

CBO’s Projections

In February 2011, DoD requested an appropriation of $671 billion
for 2012. Of that amount, $554 billion was to fund the “base” programs
that constitute the department’s normal activities, such as the
development and procurement of weapon systems and day-to-day operations
of the military and civilian workforce. The remaining $118 billion was
requested to pay for overseas contingency operationsthe wars in
Afghanistan and Iraq and other military activities elsewhere. CBO
focused its analysis on the base budget because it reflects DoD’s future
plans for manning, training, and equipping the military.

CBO has projected the costs of DoD’s plans for its base budget
(reflected in the FYDP, along with other long-term plans released by the
department) by using factors that are consistent with the department’s
recent experience. CBO’s analysis yields these conclusions:

* To execute its base-budget plans for the period covered by the
2012 FYDP, DoD would need appropriations totaling about $206 billion (or
8 percent) more over those five years than if funding was held at the
2011 level of $536 billion. Over the 10 years from 2012 to 2021, DoD
would need a total of $597 billion (or 11 percent) more than if funding
was held at the 2011 level.

* DoD’s base budget would grow at a real (inflation-adjusted)
average annual rate of 1.8 percent from 2012 to 2016 and by 0.5 percent
from 2016 to 2030. At those rates, DoD’s base budget would rise from
$554 billion in 2012 to $594 billion in 2016 and to $642 billion in
2030.

* The primary cause of long-term growth in DoD’s budget from 2012
to 2030 would be rising costs for operation and support (O&S), which
would account for nearly all of the increase. In particular, CBO
projects significant increases in the costs for military and civilian
compensation, military health care, and various operation and
maintenance activities. O&S costs would grow steadily throughout the
projection period, from $350 billion in 2012 to $459 billion in 2030, a
growth rate of 1.5 percent per year.

* That large contribution of operation and support costs to
long-term budget growth is a change from the years before the wars in
Afghanistan and Iraq, when sharp growth in anticipated requirements to
replace and modernize weapon systems (the so-called bow wave) was the
primary factor underlying projected budget growth beyond the years
covered by the FYDP. In CBO’s current projections, acquisition costs
(the costs of developing and procuring weapon systems) would grow
steadily from $189 billion in 2012 to a peak of $217 billion in 2019 (an
increase of about 14 percent) before decreasing and leveling offalbeit
with year-to-year variationsat an average of about $197 billion per
year through 2030.

Comparison with Projections Incorporating DoD’s Estimates

CBO compared its projection (referred to in this study as “the CBO
projection”) with DoD’s estimate of the costs of the FYDP (for the
20122016 period) and with an “extension of the FYDP” (for the 20172030
period). The latter projection is based on DoD’s estimates of costs if
they are available for years beyond 2016 (for some weapon systems, for
instance) and on costs consistent with the broader U.S. economy if such
estimates are not available (for pay and medical costs, for instance).

By DoD’s estimates, executing its plans for 2012 to 2016 would
require real increases in funding of about 0.7 percent annually
(excluding supplemental and emergency funding for overseas contingency
operations). Over the five-year period, that growth rate would result in
costs that were $142 billion (or 5 percent) greater than the amount of
DoD’s budget if it was held at the 2011 level.

In most cost categories, the CBO projection is higher than the FYDP
and the extension of the FYDP. For instance, health care costs for DoD
have grown faster than they have in the broader economy, and the costs
of developing and buying weapons have historically been, on average, 20
percent to 30 percent higher than DoD’s initial estimates. The CBO
projectionwhich, starting with 2013, includes estimates of those costs
that reflect historical trendsindicates how rapidly defense budgets
would have to grow to execute DoD’s plans under the assumption that the
department’s costs continue to grow as they have in the past.

CBO’s projection of the total cost of the FYDP through 2016at
$2,885 billionis $64 billion (or about 2 percent) higher than the
department’s estimate. Compared with the FYDP and the extension of the
FYDP, annual costs under the CBO projection would be about $25 billion
(or 4 percent) higher in 2016, at the end of the FYDP period; $31
billion (4 percent) higher at the end of 10 years; and about $29 billion
(5 percent) higher by 2030, at the end of the projection period. Much of
the difference derives from CBO’s judgment that recent trends in the
costs of military health care, weapon systems, and other support
activities are likely to persist. Although the costs of DoD’s base
budget would increase under CBO’s projections, that increase would not
be as rapid as CBO’s current estimates of the future growth of the
economy, so costs would decline as a share of GDP. CBO’s projections
should not be viewed as predictions of future defense spending; rather,
they are estimates of the costs of executing DoD’s current plans. The
degree to which the plans laid out by DoD are executed in the future
will depend on the funding that will be provided in an era of increasing
pressure on the federal budget as a whole and on the success of ongoing
efforts to curb cost growth for such items as medical care and advanced
weapon systems.

** Market News International Washington Bureau: 202-371-2121 **

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