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CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

A

STUDY

JANUARY 2003

The Long-Term

Implications

of Current

Defense Plans

CBO

Billions of 2002 Dollars

Estimated Cost Risk

Investment

Operation and Support

Actual DoD's

FiveYear

Plan

CBO's Projection

550

A

CBO

STUDY

January 2003

The Long-Term Implications 

of Current Defense Plans

The Congress of the United States Congressional Budget Office 
Notes

In the printed version of this report, Summary Figure 5, Figure 3-27, and several passages

in the text were incorrect in regard to the average age and inventory of Air Force tankers.

They have been corrected in this version.

Unless otherwise indicated, all years referred to in this study are fiscal years, and all dollar

amounts are expressed in 2002 dollars of total obligational authority. 

Numbers in the text and tables may not add up to totals because of rounding.
Preface

What are the long-term implications of the Bush Administration's plans for defense?

What level of resources might be needed to execute those plans? If they were carried out, what

would the Administration's plans imply about the size, composition, and age of future U.S.

military forces? 

This Congressional Budget Office (CBO) study—prepared at the request of the Chairman

and Ranking Minority Member of the Subcommittee on Defense of the Senate Appropriations Committee—addresses those questions. It projects the long-term implications of today's

defense plans for both resources and forces. In keeping with CBO's mandate to provide objective, impartial analysis, the study makes no recommendations.

Lane Pierrot and Gregory T. Kiley of CBO's National Security Division wrote the study

under the supervision of J. Michael Gilmore. Ian MacLeod and Eric J. Labs, along with

Allison Percy, Paul Rehmus, Sally Sagraves, Russ Beland, Adebayo Adedeji, and David Arthur,

all of the National Security Division, contributed to the analysis. Debbie Clay-Mendez supervised the analysis of operation and support costs, and R. William Thomas supervised portions

of the investment analysis. Kent R. Christensen, Raymond J. Hall, Sarah T. Jennings, David

B. Newman, Sam Papenfuss, Michelle Patterson, and Matthew Schmit of CBO's Defense,

International Affairs, and Veterans' Affairs Cost Estimates Unit also contributed to the analysis, under the supervision of Jo Ann W. Vines. Barry Anderson and Arlene Holen of CBO

provided thoughtful review comments. In addition, the authors are grateful to Robert R.

Soule for his suggestions on how to improve the analysis. (The presence of external participants implies no responsibility for the final product, which rests solely with CBO.)

Christian Spoor edited the study, and Leah Mazade proofread it. Cindy Cleveland produced

drafts of the manuscript, Karina Braszo and Kathryn Winstead prepared the study for publication, and Annette Kalicki prepared the electronic versions for CBO's Web site.

Barry B. Anderson

Acting Director

January 2003

This study and other CBO publications

are available at CBO's Web site:

www.cbo.gov

CONTENTS

1

Summary xi

Introduction 1

The Current Defense Budget 3

The Administration's Plans for Defense 4

Methods of CBO's Analysis 5

Possible Effects of Transforming the Military 10

Projected Long-Term Costs Versus Actual Funding 12

2 Long-Term Implications for Operation and Support 15

Overview of Operation and Support 17

Forces and Logistics 20

Medical Costs 22

Training 24

Installations Support 26

Headquarters, C3, and Administration 29

Personnel Support 30

Recruiting 32

Other Costs: Military Construction and Family Housing 34

3 Long-Term Implications for Investment 37

Overview of Investment 43

The Army 47

The Navy and Marine Corps 56

The Air Force 72

Defense Agencies and Missile Defenses 89

Transformation 93
Tables

Figures

vi THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS

S-1. Steady-State Procurement Costs Under a Variety of Assumptions xxi

1-1. Actual, Requested, and Projected Funding for the Department 

of Defense, 2003-2020 5

2-1. Requested and Projected Funding for Department of Defense 

Operation and Support 19

3-1. Requested and Projected Funding for Department of Defense 

Investment 39

3-2. Steady-State Procurement Costs Under a Variety of Assumptions 40

3-3. Current and Transformed Forces for the Army 94

3-4. Current and Transformed Forces for the Navy and 

Marine Corps 95

3-5. Current and Transformed Forces for the Air Force 96

3-6. Steady-State Procurement Costs for Current and

Transformed Forces 97

S-1. Past and Projected Resources for Defense xii

S-2. Defense Spending as a Share of the Federal Budget and GDP xiii

S-3. Past and Projected Resources for Operation and Support xv

S-4. Past and Projected Resources for Investment xvii

S-5. Average Age of Selected Army and Air Force Weapon Systems xviii

S-6. Average Age of Selected Navy and Marine Corps Weapon

Systems xix

1-1. Past and Projected Resources for Defense 2

1-2. Defense Spending as a Share of the Federal Budget and GDP 13
CONTENTS vii

2-1. Spending for Operation and Support 16

2-2. Three Measures of Defense Spending 18

2-3. Spending for Forces and Logistics 20

2-4. Medical Spending 22

2-5. Spending for Training 24

2-6. Spending for Installations Support 26

2-7. Spending for Installations Support by Subcategory 27

2-8. Spending for Headquarters, C3, and Administration 29

2-9. Spending for Personnel Support 30

2-10. Spending for Recruiting 32

2-11. Spending for Military Construction and Family Housing 34

3-1. Spending for Investment by Budget Account 38

3-2. Projected Department of Defense Spending for Investment 42

3-3. Projected Army Spending for Investment 47

3-4. Procurement of Army Ground Combat Vehicles 49

3-5. Age and Inventory of Army Ground Combat Vehicles 51

3-6. Procurement of Army Helicopters 52

3-7. Age and Inventory of Army Helicopters 54

3-8. Projected Army Procurement Funding Versus Steady-State Costs 55

3-9. Projected Navy and Marine Corps Spending for Investment 56

3-10. Procurement of Battle Force Ships 58

3-11. Age and Inventory of Battle Force Ships 60

3-12. Procurement of Navy Fighter and Attack Aircraft 62
Figures

viii THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS

3-13. Age and Inventory of Navy Fighter and Attack Aircraft 64

3-14. Procurement of Marine Corps Helicopters 65

3-15. Age and Inventory of Marine Corps Helicopters 67

3-16. Procurement of Marine Corps Ground Combat Vehicles 68

3-17. Age and Inventory of Marine Corps Ground Combat Vehicles 70

3-18. Projected Navy and Marine Corps Procurement Funding

Versus Steady-State Costs 71

3-19. Projected Air Force Spending for Investment 72

3-20. Procurement of Air Force Fighter and Attack Aircraft 74

3-21. Age and Inventory of Air Force Fighter and Attack Aircraft 76

3-22. Procurement of Air Force Bombers 77

3-23. Age and Inventory of Air Force Bombers 79

3-24. Procurement of Air Force Airlifters 80

3-25. Age and Inventory of Air Force Airlifters 82

3-26. Procurement of Air Force Tankers 83

3-27. Age and Inventory of Air Force Tankers 85

3-28. Projected Air Force Procurement Funding Versus 

Steady-State Costs 88

3-29. Projected Investment Spending for Defense Agencies 89

3-30. Projected Investment Spending for Missile Defenses 90
Boxes

CONTENTS ix

1-1. The Future Years Defense Program 6

1-2. Base Realignment and Closure 8

1-3. Calculating Steady-State Procurement Costs 11

Summary

In their annual debate about the defense 

budget, Members of Congress focus primarily on

whether the President's budget request will meet the

military's immediate spending needs. But programs to

develop weapon systems often run for a decade or

more before those systems are fielded, and other 

policy decisions have long-term implications; thus,

decisions made today can influence the size and 

composition of the nation's armed forces for many

years to come. Recognizing the need for a longer view, 

the Senate Appropriations Committee's Defense

Subcommittee requested that the Congressional

Budget Office (CBO) analyze the long-term implications of the Administration's current plans for defense.

This analysis examines those implications both for

budgetary resources and for ages and inventories of

weapon systems.

In the five years from 1997 to 2002, the annual U.S.

defense budget grew from $274 billion to $345 billion. (All dollar amounts in this study represent total

obligational authority expressed in 2002 dollars.) 

The defense program outlined by the Bush Administration for fiscal year 2003 and the following four

years (the 2003 Future Years Defense Program, or

FYDP) anticipates additional growth, with the defense

budget averaging $387 billion over the 2003-2007

period and reaching $408 billion in 2007. If that 

program continued as currently envisioned, the

demand for defense resources would continue to

increase through 2012, CBO projects, and would average $428 billion a year between 2008 and 2020. Costs

for day-to-day operations (running units, maintaining

equipment, and providing pay and benefits to military

personnel) would grow from $222 billion in 2002 to

more than $280 billion by 2020. Demands for investment resources (primarily to develop and purchase new

equipment) would rise from $110 billion in 2002 to

$164 billion in 2012 and then decline to about $134

billion by 2020. 

Those projections are based on the Department of

Defense's (DoD's) current cost estimates for a host of

defense programs and activities. CBO also projected

long-term resource demands if costs for weapons programs and certain other activities grow as they have historically (a case it called cost risk). In that case, the

annual cost of current defense plans would average

$398 billion over the 2003-2007 period and could later

reach $488 billion at its peak (see Summary Figure 1).

In either case, future resource demands would be higher than defense spending has been at any time in the

past 22 years—exceeding the peak of $421 billion in

1985—and would need to remain at such levels for a

decade or more. 

Viewed in relation to the size of the economy, 

however, future demands for defense resources could be

less than past spending. The share of gross domestic

product (GDP) dedicated to defense declined from an

average of 6 percent in the 1980s to an average of 4 

percent in the 1990s (see Summary Figure 2). If current

defense plans were implemented, defense spending

would drop to 3 percent of GDP by 2007 and to 2 percent by 2020, assuming that GDP grows at the rates

projected by CBO. (Because of the size of the economy, those levels are the same for CBO's projections

with or without cost risk.)
As a share of the federal budget, defense spending

declined from an average of 28 percent in the 1980s 

to 16 percent in 1998. Since then, its share of the 

budget has increased to about 18 percent. Nonetheless, 

assuming that the rest of the federal budget continues

to grow in real (inflation-adjusted) terms through 2020

at the rate that CBO projects in its current 10-year

baseline, defense funding would compose a steadily

smaller portion of the budget over the long run under

current plans. In CBO's long-term projection of those

plans, defense spending would fall to about 13 percent

of the total budget by 2020 (15 percent using CBO's

projection with cost risk), as the growth of mandatory

programs for the elderly, such as Social Security and

Medicare, and other entitlement programs, such as

Medicaid, outpaced projected increases for the military. Those three programs are projected by 2030 to

consume a substantial portion of what the federal government now spends on the entire budget. Thus, even

if defense spending rose substantially over the long

term, it would compose a smaller share of a rapidly

increasing total federal budget.

xii THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS

Billions of 2002 Dollars

RDT&E

Family Housing, Military Construction, and Other

Military Personnel

Operation and Maintenance

Procurement

1980-2002 Average

Cost Risk

Investment

Operation

and Support

}

0

100

200

300

400

500

1980 1985 1990 1995 2000 2005 2010 2015 2020

Actual Projected FYDP

Summary Figure 1.

Past and Projected Resources for Defense

Source: Congressional Budget Office using data from the Department of Defense.

Notes: FYDP = Future Years Defense Program; RDT&E = research, development, test, and evaluation.

Portions of the budget titles for family housing and military construction pay for support activities, whereas other portions pay

for investment. Thus, it is not possible to allocate all of the funding in each of those titles to either category.
SUMMARY xiii

In short, under CBO's projection of the Administration's current plans, defense resources could reach 

levels greater than those sustained during the Cold

War. However, the fraction of the country's economic

activity that they constitute, and their share of the total

federal budget, could be significantly smaller than 

during the Cold War.

The Administration's Plans for

Defense

CBO's estimates are current-policy projections, which

assume that the policies and plans underlying the Bush

Administration's 2003 defense program do not change

in future years. That program is described in detail in

DoD's 2003 FYDP, a report submitted with the

President's 2003 budget request that presents DoD's

estimated appropriation needs through 2007. Further

detail comes from committee staff backup books,

which DoD provides to the Congress to support its

budget request for various accounts, and from Selected

Acquisition Reports, which are submitted to the

Congress for certain major defense programs. General

descriptions of the Administration's current policies

and plans are contained in the Quadrennial Defense

Review Report from September 2001 and the Annual

Report to the President and the Congress submitted by

the Secretary of Defense in 2002.

1980

0

35

30

10

5

25

20

15

Percent

Defense Spending as

a Share of the Budget

Defense Spending as

a Share of GDP

Actual Projected FYDP

1985 1990 1995 2000 2005 2010 2015 2020

Summary Figure 2.

Defense Spending as a Share of the Federal Budget and GDP

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program; GDP = gross domestic product.
As described in those sources, the Administration's

current policies stress the importance of transforming

the nation's military forces, but they make few 

substantial changes to those forces or to the defense

programs that will sustain them in the long term. DoD

describes transformation as shifting the composition of

the armed forces from traditional approaches to new

approaches. Those new approaches are intended to

incorporate advanced technologies that will save

money while retaining or improving combat capability

to meet the threats foreseen for the 21st century. The

Administration plans to initiate or increase funding for

a number of programs that it associates with transformation, including space-based radar satellites, missile

defenses, unmanned combat air vehicles, unmanned

reconnaissance aircraft, small surface combat ships for

the Navy, advanced-technology combat vehicles for the

Army, and precision munitions. 

However, the 2003 FYDP would also continue to fund

nearly all of the major defense programs inherited from

the previous Administration (except the Army's Crusader self-propelled howitzer, which was terminated in

the spring of 2002). In addition, the Administration

has not announced any major changes to military force

structure—the number and composition of Army divisions, Air Force tactical fighter wings, Marine Corps

expeditionary brigades, Navy carrier battle groups, and

so forth—through 2007. Although transformation

might enable DoD to make significant changes to its

major investment programs or force structure in the

longer term, programs started now are unlikely to provide operational capabilities for 10 to 15 years, if not

longer. 

Thus, in CBO's projection of current plans, demands

for defense resources increase in the long term for three

reasons: the transition from development to 

production or increasing production for a number of

existing programs; continued growth (even without

cost risk) in the costs to operate and sustain future

forces, which are assumed to be essentially the same

size as today's forces; and continued development and

eventual production of those few new programs 

associated with transformation that are included in the

Administration’s current plans.

CBO projected the resource demands associated with

current plans—but it did not evaluate the basis for

those plans, the necessity of pursuing them, or possible 

alternative plans. For example, CBO has not 

considered alternatives to the national security strategy

or to the defense strategy developed during the 2001

Quadrennial Defense Review. It has not assessed alternative plans that might achieve those strategies or

examined their resource implications. In addition,

CBO has not attempted to evaluate the efficiency of

the way in which DoD does business or the need for a

particular infrastructure to support combat forces.

Those are all important issues that could have a major

impact on future defense costs. But those issues would

be associated with changes to current policies and plans

and thus are excluded from CBO's current-policy

analysis.

Resource Demands for Operation

and Support: Paying for Day-to-Day

Operations

Although investment in new weapon systems tends to

get more attention, about two-thirds of the defense

budget is devoted to operation and support (O&S)

funding—a category that covers almost all of DoD's 

current operating costs. In 2002, O&S funding totaled

$222 billion ($218 billion will be available for O&S in

2003). 

Some 60 percent of O&S funding is appropriated to

operation and maintenance accounts, which pay for

the salaries of DoD's civilian employees, the services of

contractors, and purchases of fuel, spare parts, and

other goods routinely consumed by the military (see

Summary Figure 3). Some of the activities funded by

the operation and maintenance accounts, such as training for individuals and units, support combat capabilities directly, whereas other activities, such as central

headquarters, support combat indirectly.

xiv THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
SUMMARY xv

The remaining 40 percent of O&S funding consists of

appropriations to DoD's military personnel accounts.

That funding covers the pay and allowances received

by active-duty and reserve personnel as well as contributions to their retirement fund. Beginning in 2003,

personnel spending also includes contributions to a

fund to provide supplemental medical benefits for current service members when they have retired and

become eligible for Medicare.

If the Administration's current defense plans were

unchanged over the long term, annual O&S costs

would grow by 14 percent between 2007 and 2020,

CBO projects, rising from $245 billion in 2007 to

$280 billion. The main sources of that projected

growth are wage increases and rising medical costs. 

As noted above, CBO's projection assumes that the

size of the military remains constant from 2007

through 2020. It also assumes that military and 

civilian pay grows at the same rate as the employment

cost index (a measure of wage increases in the private

sector produced by the Bureau of Labor Statistics).

Medical costs for active-duty personnel are assumed to

grow at the annual long-term rate projected by the

Department of Health and Human Services for growth

in civilian health care costs (3.6 percent). Medical costs

for retirees are assumed to grow at an annual rate 

estimated by DoD's independent board of actuaries

and included in the 2003 FYDP (4.0 percent).

CBO's projection of the Administration's plans

excludes certain risks of additional cost growth, such as

Billions of 2002 Dollars

Military Personnel

Operation and Maintenance

Cost Risk

1980-2002 Average

0

100

200

300

400

500

1980 1985 1990 1995 2000 2005 2010 2015 2020

Actual Projected FYDP

Summary Figure 3.

Past and Projected Resources for Operation and Support

Source: Congressional Budget Office using data from the Department of Defense.
potential costs that are not fully funded in current

plans or elements of those plans that experience 

suggests may not come to pass. Those sources of risk

include the cost of maintaining existing equipment as

it ages and the cost of maintaining new, more-complex

equipment as it is acquired and fielded. Another source

of risk is that the round of base realignments and 

closures that the Administration has proposed for 2005

will not proceed as planned and thus not produce the

anticipated savings in O&S costs. 

If those and other cost risks are taken into account,

annual operation and support costs could rise by an

additional $26 billion, CBO projects, reaching $306

billion by 2020. That increase would represent growth

of 25 percent from the 2007 level rather than the 14

percent increase without cost risk. Of the additional

$26 billion in the cost-risk projection, about $16 

billion would come from increases in the cost of 

maintaining older equipment and new, more-complex

equipment, and $5 billion would reflect forgone 

savings from the anticipated 2005 round of base 

closures. 

In CBO's projection including those risks, the introduction of new equipment does not offset the growth

in maintenance costs that would otherwise occur if old

equipment were retained. Although increases in costs

because of equipment aging and the introduction of

more-complex equipment do not dominate total projected growth in O&S costs, they are the largest component of O&S cost risk considered by CBO. The reason is that those costs are some of the largest that are

not fully funded in DoD's current plans.1

Other risks of cost growth may exist that CBO has not

considered. Such additional risks would most likely be

associated with changes to current policy, such as the

provision of additional medical benefits to military

personnel or increases in force structure to meet

increased commitments overseas. Those sorts of risks

were not considered in CBO's projection, which is

based on current policies and plans. (In addition, there

are some projections of growth in U.S. health care costs

that, at least in the near term, greatly exceed the rates

that CBO used in this analysis. If those higher rates

were realized over the long term, they would represent

a cost risk associated with current plans that CBO has

not considered.)

Resource Demands for Investment:

Paying for a Modern Force

DoD currently devotes about one-third of its budget to

researching, developing, testing, and buying weapon

systems. In 2002, investment funding (which this

analysis defines as the sum of accounts for research,

development, test, and evaluation and for procurement) totaled $110 billion. (About $128 billion will be

available for investment in 2003.)

Under the 2003 FYDP, the Administration plans to

increase funding for investment by about 5 percent per

year, reaching $142 billion by 2007. If the Administration's plans were carried out over the long term,

resource demands for investment would continue to

grow—peaking at about $164 billion in 2012, CBO

projects. Unlike operation and support, which would

increase continuously through 2020, investment

would decline after 2012 as the purchases projected to

begin just beyond 2007 are completed. Annual investment would fall to about $134 billion by 2020, or $8

billion less than the amount planned for 2007. Over

the entire 2002-2020 period, resource demands for

investment would average $144 billion a year—about

$20 billion more than average annual funding during

the past 22 years (see Summary Figure 4).

xvi THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS

1. For a discussion of the effects of equipment age on operating 

costs, see Congressional Budget Office, The Effects of Aging 

on the Costs of Operating and Maintaining Military Equipment

(August 2001). CBO concluded that although equipment 

aging is not the primary contributor to increases in total operation and maintenance costs (being only a small subset of those 

costs), evidence exists that equipment such as aircraft does 

become more expensive to operate and maintain as it ages.
SUMMARY xvii

Those projections are based on DoD's current 

estimates for the costs and numbers of weapon systems

that it expects to buy. If costs for such systems 

exceeded current estimates to the extent that they have

historically, the resources needed to carry out current

investment plans could rise to $156 billion by 2007

and top $190 billion in 2012, CBO projects. In that

case, investment demands through 2020 would 

average about $165 billion—or $41 billion more per

year than the average investment funding provided

since 1980.

Aging Equipment

In addition to projecting the long-term cost of the 

current defense program, CBO examined whether

planned purchases would support DoD's planned

forces and halt the aging trends that are evident for

many types of military equipment since the armed

forces were reduced after the Cold War. CBO 

projected the size of DoD's equipment stocks through

2020 and their average age if currently planned 

purchases occur. A useful indicator of whether the age

of equipment stocks is an issue is how close that age is

to one-half of the equipment's expected service life

(what this analysis calls the half-life). An average age

well above the half-life generally implies an inventory

with many pieces of equipment that might soon have

to be replaced or refurbished over a short span of time.

If DoD received enough funding through 2020 to 

execute its current plans, as projected by CBO, aging

trends would eventually be halted or reversed for many

0

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RDT&E

Procurement

Cost Risk

1980-2002 Average

1980 1985 1990 1995 2000 2005 2010 2015 2020

Actual Projected FYDP

Summary Figure 4.

Past and Projected Resources for Investment

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program; RDT&E = research, development, test, and evaluation.
xviii THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS

Half-Life

Helicopters

Half-Life

Ground Combat Vehicles

Average Age

0

10

20

30

40

50

1990 2000 2010 2020

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10

20

30

40

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1990 2000 2010 2020

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1990 2000 2010 2020

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1990 2000 2010 2020

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1990 2000 2010 2020

Average Age

Fighter and Attack Aircraft

Half-Life

Bombers

Air Force

Army

Average Age

Half-Life

Average Age

Airlifters

Average Age

Half-Life

Tankers

Average Age

Half-Life

Summary Figure 5. (Revised 1-13-03)

Average Age of Selected Army and Air Force Weapon Systems

Source: Congressional Budget Office using data from the Department of Defense.
SUMMARY xix

types of weapons, including Army and Marine Corps

combat vehicles and helicopters (see Summary Figures 5

and 6). In addition, current plans would sustain the

Navy's fleets of ships and aircraft at average ages that

the service considers acceptable. However, average ages

would remain a concern for Air Force weapons such as

bombers, airlifters (transport aircraft), and tankers.

Of course, to achieve those results, purchases and 

procurement budgets would, in many cases, have to

match or exceed the levels seen during the defense

buildup of the 1980s. Future budget pressures—

arising from growth in other federal programs, such as

Social Security and Medicare, as well as from 

continued growth in the military's O&S costs—might

make it difficult to sustain those levels of procurement

spending.

Half-Life

Average Age

Fighter and Attack Aircraft

Average Age

Battle Force Ships

Helicopters

Half-Life

Average Age

Ground Combat Vehicles

Average Age

Navy

Marine Corps

0

10

20

30

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50

1990 2000 2010 2020

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20

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1990 2000 2010 2020

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1990 2000 2010 2020

0

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20

30

40

50

Half-Life

1990 2000 2010 2020

Half-Life

Summary Figure 6.

Average Age of Selected Navy and Marine Corps Weapon Systems

Source: Congressional Budget Office using data from the Department of Defense.
Steady-State Procurement

Another way to measure the adequacy of planned purchases is to compare those purchases with steady-state

levels (the procurement needed to sustain planned

forces indefinitely).2 CBO estimated the annual level of

steady-state purchases by dividing a planned inventory

of weapon systems by the expected service life of those

systems. Multiplying those steady-state purchases by

the estimated unit costs of various systems (either

DoD's estimates or those estimates plus historical cost

growth) yields an overall projection of annual steadystate procurement costs (see Summary Table 1). In making that calculation, CBO used two alternative estimates of service lives. One assumes DoD's current projections for service lives, which are generally longer

than those planned for during the Cold War. The other

uses the shorter service lives incorporated in DoD's

Cold War-era planning.

In the past, the combination of new military equipment funded during the Reagan Administration and

the drawdown in U.S. military forces that occurred

after the Cold War enabled DoD to sustain its forces

with much smaller annual equipment purchases. But

during the 1990s, those purchases fell below the

steady-state level, and as a result, the average age of

many types of weapons increased, as shown in Summary Figures 5 and 6.

DoD's planned procurement budgets for the 2003-

2007 period, as outlined in the current FYDP, are

below CBO's estimates of the steady-state procurement costs needed to sustain currently planned forces.

That is why average ages generally rise through 2007 in

Summary Figures 5 and 6. But if current procurement

plans were carried out through the 2008-2020 period,

procurement would be within the steady-state range

(between the estimates for long and short service lives),

CBO projects. That is why average ages for many

weapon systems decline beginning around 2010 in

Summary Figures 5 and 6.

As noted earlier, the Bush Administration has stated

that it expects DoD's forces to ultimately be transformed. The programs associated with transformation

that the Administration has just started will not provide substantial numbers of operational weapons for

10 to 15 years. Therefore, transformation is unlikely to

be fully realized before the 2020 endpoint of CBO's

projection. 

Whenever it occurs, transformation could take many

forms, depending on the success or failure of concepts

that have only begun to be explored. Research on

unmanned aircraft, advanced-technology combat 

vehicles, and smaller ships has started. In addition, the

military services and the U.S. Joint Forces Command

are experimenting with new ways of organizing and

operating forces that might be possible if such systems

can be developed. If those (or other) concepts succeed,

military forces could eventually be very different from

the ones assumed in DoD's current plans and in

CBO's year-by-year projections. And if the cost goals

now asserted for those systems can be achieved—

which would be at variance with past experience—

steady-state procurement costs might eventually be

lower.

To assess the potential impact of transformation on

future procurement needs, CBO estimated steady-state

procurement costs for one example of how a 

transformed force might look. The example that CBO

chose assumes that many of the transformation 

initiatives now being undertaken by the Bush

Administration ultimately succeed and are fully

embraced by the military services. Thus, CBO's 

hypothetical transformed force uses unmanned aircraft

xx THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS

2. This analysis developed detailed year-by-year projections of the 

long-term implications of current defense programs through 

2020. It used steady-state procurement costs as one of several 

metrics to assess the sufficiency of the programs underlying 

those long-term projections. A previous CBO study, Budgeting 

for Defense: Maintaining Today’s Forces (September 2000), 

included steady-state procurement estimates for the military 

forces and defense acquisition programs planned by the 

Clinton Administration. However, that study did not provide 

detailed long-term projections of annual demands for defense 

resources comparable to the ones presented here.
SUMMARY xxi

to replace today's manned systems for both groundattack and reconnaissance missions. It also assumes

that many ships can be operated with two alternating

crews or from forward bases, which would allow a

smaller fleet of surface combatants to perform the 

current level of peacetime missions, and it asssumes

that the Navy converts additional nuclear-missilecarrying submarines to perform conventional missions.

Such a military force would be a radical departure from

today's force—and is unlikely to be realized within the

period of CBO's projections.

CBO's estimate of steady-state procurement costs for a

transformed force suggests that DoD might eventually

be able to reduce its annual procurement needs below

the level associated with current plans if it can 

ultimately change those plans significantly. For the 

particular example of transformation examined by

CBO, procurement savings could equal 10 percent to

15 percent compared with the annual steady-state costs

of current plans shown in Summary Table 1.

Of course, those estimates hinge on the particular

assumptions that CBO made about the composition of

a transformed force. Larger or smaller savings—or

higher costs—might result depending on how transformation actually occurred. Although CBO's transformed force is radically different in composition from

today's force, it contains about the same total numbers

of aircraft and other major weapon systems. If transformation enabled DoD to substantially reduce its

number of weapon systems, greater procurement savings than CBO projects might be possible. (Likewise, 

if transformation allowed forces to be cut or signifiSummary Table 1.

Steady-State Procurement Costs Under a Variety of Assumptions

(In billions of 2002 dollars of total obligational authority)

Source: Congressional Budget Office.

Notes: FYDP = Future Years Defense Program.

In the long-service-lives assumption, the Department of Defense keeps weapons as long as it currently projects, which is 

generally longer than it has in the past. In the short-service-lives assumption, the Department of Defense operates systems only as 

long as it has previously.

Using DoD’s Assuming Historical

Cost Estimates Cost Growth

Steady-State Procurement Costs for

Currently Planned Forces

Assuming long service lives 85 99

Assuming short service lives 111 130

Average Annual Procurement Costs to

Carry Out Current Plans

2003-2007 (As requested in the FYDP) 77 81

2008-2020 (As projected by CBO) 101 121
cantly changed peacetime operating concepts, savings

could accrue in O&S costs as well as in procurement.

CBO did not analyze the potential O&S savings that

might result from transformation, which could be substantial.) 

Conversely, savings could be much less if—as happened in the past—the currently hoped-for cost goals

of new systems cannot be met. Such goals are generally very optimistic relative to historical experience with

cost growth in DoD systems. For example, the Global

Hawk unmanned reconnaissance aircraft now in operation was originally intended to cost $20 million

apiece. Actual costs have exceeded $60 million per 

aircraft.

xxii THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
Introduction

1

Roughly one out of every six dollars spent by the

federal government goes to the Department of Defense

(DoD).1 Those resources make up half of the 

discretionary funds in the federal budget (funds whose

levels the Congress can control directly each year

through appropriations). Congressional debates on

defense budgets most often focus on DoD's 

immediate spending needs. Nevertheless, some defense

programs—such as major weapon systems—are years

in the making, and DoD produces plans for them in

advance. In addition, DoD publishes detailed five- or

six-year plans incorporating resource projections for all

of its programs.

What would current defense plans mean for military

forces and budgets over the longer term? To cast light

on that question, the Congressional Budget Office

(CBO) has produced annual projections through 2020

of the resources that might be needed to carry out the

Bush Administration's current plans for DoD (see

Figure 1-1). It has also examined the implications of

those plans for quantities and ages of major weapon

systems. CBO projected DoD's two main types of

resource demands—current operating expenses and

spending on investment—separately and also produced separate estimates for the Department of the

Army, the Department of the Navy (which includes

the Marine Corps), and the Department of the Air

Force. In addition, CBO estimated the steady-state

procurement costs needed to sustain currently planned

forces indefinitely. 

The Bush Administration has called for transforming

U.S. military forces to better meet the challenges of

warfare in the 21st century. If such transformation

occurred, it could have significant implications for

DoD's costs to buy new systems. To illustrate those

implications, CBO projected steady-state procurement

costs not only for a force of today's size and composition but also for a hypothetical example of a transformed force, in which new and different types of systems replace current systems in many mission areas.2

All long-term projections are uncertain. To reflect

some of the elements contributing to that uncertainty,

CBO produced two sets of projections of the longCHAPTER

1. The Office of Management and Budget assigns funds for DoD 

to the national defense function of the budget (function 050). 

That function also includes funding for nuclear weapons 

programs run by the Department of Energy and for activities 

related to national security conducted by the Department of 

State, the Department of Justice, and other agencies. 

This study deals with resources for the Department of Defense 

(subfunction 051 of the budget).

2. For discussions of military transformation, see Steven Kosiak, 

Andrew Krepinevich, and Michael Vickers, A Strategy for a 

Long Peace (Washington, D.C.: Center for Strategic and 

Budgetary Assessments, January 2001); Michael O’Hanlon, 

Technological Change and the Future of Warfare (Washington, 

D.C.: Brookings Institution Press, 1999); Secretary of Defense 

Donald Rumsfeld, Quadrennial Defense Review Report 

(September 2001); and Secretary of Defense Donald 

Rumsfeld, Annual Report to the President and the Congress 

(2002).
term funding needed to implement the Administration's current plans. One set is based on DoD's

assumptions about future program costs (where 

available), and the other is based on a certain degree of

cost risk. For current operating expenses, cost risk

includes the potential growth in costs as existing

weapon systems age and as new systems that are more

complex and expensive are added to the inventory. It

also includes the risk that the Administration's current

plans to reduce costs by realigning or closing military

bases cannot be carried out. Cost risk for investment

reflects DoD's past experience with cost growth in its

major weapons programs. (Other sources of possible

cost risk, which are generally associated with changes to

DoD's current policies and plans, are not considered in

this analysis.)

CBO's analysis focuses only on projecting the possible

resource demands and other effects associated with

current defense plans—not on evaluating the basis for

those plans. For example, CBO did not analyze 

alternative approaches to structuring U.S. military

forces consistent with the President's newly announced

national security strategy. Nor did CBO assess the

range of threats that the United States might face in

coming decades and how those threats could alter 

current plans. Further, CBO did not attempt to evaluate the efficiency of DoD’s business practices or its

Billions of 2002 Dollars

RDT&E

Family Housing, Military Construction, and Other

Military Personnel

Operation and Maintenance

Procurement

1980-2002 Average

Cost Risk

Investment

Operation

and Support

}

0

100

200

300

400

500

1980 1985 1990 1995 2000 2005 2010 2015 2020

Actual Projected FYDP

Figure 1-1.

Past and Projected Resources for Defense

Source: Congressional Budget Office using data from the Department of Defense.

Notes: FYDP = Future Years Defense Program; RDT&E = research, development, test, and evaluation.

Portions of the budget titles for family housing and military construction pay for support activities, whereas other portions pay 

for investment. Thus, it is not possible to allocate all of the funding in each of those titles to either category. 

2 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER ONE

need for a particular infrastructure to support combat

forces. Those issues could have a major impact on

future defense costs, but they are beyond the scope of

this analysis, which looks at the long-term implications

of the Bush Administration's current decisions about

defense policies and programs.

The Current Defense Budget

Defense is the second biggest item in the federal 

budget (only Social Security is larger). It is also the 

single biggest category of discretionary spending. That

category has two main components: operation and

support (O&S) funding, which covers DoD's day-today operations; and investment funding, which covers

the development and procurement of new and 

modified equipment. O&S funding is by far the larger

of the two parts, making up 65 percent of DoD's 

budget in 2002. It pays for the salaries and benefits of

military and civilian personnel, the services of contractors, and purchases of consumable goods (such as fuel

and spare parts for equipment). The rest of DoD's

budget—about 35 percent in 2002—represents investment in future capability.

Of the $222 billion in O&S funding provided for

2002, slightly less than 40 percent ($82 billion) was

allocated to the military personnel accounts.3 (Unless

otherwise indicated, all dollar amounts are in 2002

dollars to account for the effects of past or projected

inflation. Those amounts represent total obligational

authority.)4 Together, the four military services have

about 1.4 million members on active duty and another 0.9 million members in the National Guard and

Reserve. Appropriations for military personnel cover

pay and benefits (including the allowances for food

and housing given to some service members) as well as

selected benefits for future military retirees.

The other 60 percent of O&S funding ($140 billion in

2002) was appropriated to the operation and maintenance accounts.5 Those accounts fund all of DoD's

current operating expenses except the costs of military

personnel, family housing ($4 billion annually), and

some small direct appropriations to trust funds and

revolving funds (about $3 billion a year). Operation

and maintenance pays for combat and training activities and for such support activities as medical care for

active-duty military personnel and their families, child

care and schools for the children of service members,

and the costs of operating bases (including utilities,

groundskeeping, and fire departments).

Funds for the other major part of DoD's budget—

investment—totaled about $110 billion in 2002, 

rising to $128 billion for 2003. Investment comprises

activities paid for in DoD's research, development,

test, and evaluation (RDT&E) accounts and procurement accounts.6 RDT&E funding pays for conducting

basic and applied research, building devices to demonstrate new technology, and developing and testing

equipment prototypes and full-scale preproduction systems. That funding also pays for operational testing

INTRODUCTION 3

3. In the Department of Defense Appropriations Act, 2003, the 

Congress has provided $92 billion for military personnel for 

2003. In general, this analysis uses 2002 numbers as a base 

because they represent the most recent full year of defense 

funding, including supplemental appropriations. Unless 

otherwise noted, historical values used in the study reflect sums 

reported in National Defense Budget Estimates for FY2003

released by the Office of the Under Secretary of Defense 

(Comptroller) in March 2002.

4. Total obligational authority (TOA) is the funding available to 

be obligated by a federal agency or department. The great 

majority of that funding is budget authority, which is 

appropriated by the Congress, but TOA also includes funding 

that is derived from receipts as well as other nonappropriated 

amounts. In most years, the difference between total 

obligational authority and budget authority in budget 

subfunction 051 is no more than about $2 billion.

5. The Congress has provided $127 billion for operation and 

maintenance for 2003. That figure is smaller than the 2002 

amount because the latter includes supplemental funding for 

operations in Afghanistan and the war on terrorism.

6. Some breakdowns of the budget include spending for military 

construction and for some aspects of military family housing in 

the investment category. CBO’s analysis treats those costs 

separately, for reasons described later in this chapter.
when systems are first fielded and for design and testing

when they are modified later during the course of their

use. Procurement appropriations pay for the purchase of

a wide variety of new weapons and other equipment—

ranging from items unique to the military (such as combat aircraft and ships, fighting vehicles, and missiles) to

desktop computers and office furniture.

The Administration's Plans 

for Defense

The Administration's current defense plans are

described in general terms in the Secretary of Defense's

Quadrennial Defense Review Report from September

2001 and his Annual Report to the President and the

Congress from 2002. More-detailed descriptions of

DoD's plans are provided in the Future Years Defense

Program (FYDP) for 2003 (a document submitted to

the Congress as part of the President's budget request),

in committee staff backup books for various budget

accounts (reports that DoD provides to the Congress

about its program plans), and in Selected Acquisition

Reports (SARs) submitted to the Congress for major

defense programs that meet certain guidelines.

The annual FYDP summarizes the force levels and

funding associated with specific programs that the

Administration would like the Congress to approve.

The 2003 FYDP, published early in 2002, presents

DoD's estimated funding needs for the year for which

funds were being requested (fiscal year 2003) and the

following four years (2004 to 2007). For 2003, the

Congress provided $359 billion in total obligational

authority for defense rather than the $373 billion that

the Administration had requested (see Table 1-1).

The FYDP is a database that also includes actual

spending on defense since 1962 (for more details about

that database, see Box 1-1). For this analysis, CBO used

data contained in the FYDP going back to 1980. As

described in the sources listed above, the Administration's current plans would make few substantial

changes to U.S. military forces or to the major acquisition programs that are expected to sustain them over

the long term. The plans do, however, stress the importance of transformation—shifting forces from traditional approaches to new approaches that incorporate

advanced technologies. As a consequence, the

Administration plans to initiate or increase funding for

programs such as space-based radar satellites,

unmanned combat air vehicles, unmanned reconnaissance aircraft, small surface combatants for the Navy,

advanced-technology combat vehicles for the Army,

and precision munitions. Nevertheless, the Administration's 2003 plans would continue to fund nearly

all of the major acquisition programs inherited from

the Clinton Administration (except the Army's

Crusader self-propelled howitzer program, which was

terminated). And the 2003 FYDP incorporates no significant changes over the next five years to the military's force structure—the number and composition of

Army divisions, Air Force tactical fighter wings,

Marine Corps expeditionary brigades, Navy carrier

battle groups, and so forth. Transformation might

enable DoD to make significant changes at some

point, but programs begun now are unlikely to provide

operational capabilities for 10 to 15 years, if not longer.

Thus, transformation is unlikely to be realized before

the 2020 endpoint of CBO's long-term projections.

Even though most types of forces are not expected to

change significantly over the next five years, the 2003

FYDP projects that annual O&S funding will need to

grow by 10 percent between 2002 and 2007, reaching

$245 billion. That growth rate is smaller than the rate

at which the Administration expects the total DoD

budget to increase (18 percent). As a result, the share of

the budget allocated to O&S costs would decline by 4

percentage points during the 2002-2007 period—from

64 percent to 60 percent—under the Administration's

plans.

The Administration projects that spending for investment will grow three times faster than O&S spending

over the next five years. Under the 2003 FYDP, investment spending would reach $142 billion by 2007—a

real (inflation-adjusted) increase of 30 percent from

the 2002 level. Investment's share of the total DoD

budget would increase by 3 percentage points during

the 2002-2007 period—to 35 percent in 2007.

4 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER ONE

Methods of CBO's Analysis

CBO developed its long-term projections assuming

that the policies and plans underlying the Bush

Administration's 2003 FYDP are not changed in

future years; thus, they are current-policy projections

and are not meant to predict future budgets. Specifically, CBO estimated the resource demands associated

with executing the Administration's current defense

policies in each year from 2008 (the first year not covered by the current FYDP) through 2020.7 Those

resource demands were broken down by budget titles,

Table 1-1.

Actual, Requested, and Projected Funding for the Department of Defense,

2003-2020

(In billions of 2002 dollars of total obligational authority)

Source: Congressional Budget Office.

Note: n.a. = not applicable.

a. The annual funding needs laid out in the FYDP amount to $372 billion for 2004, $384 billion for 2005, $396 billion for 2006, and 

$408 billion for 2007 (in 2002 dollars of total obligational authority).

b. CBO’s projection of cost risk for the period of the Future Years Defense Program (2003 to 2007) reflects cost growth only for

investment, not for operation and support. Projected cost growth for investment is based on historical patterns of cost increases 

for major weapons programs. The methods used to project cost growth for operation and support use 2008 as a starting point, 

in part based on funding trends over the 2003-2007 period.

Average, Average, Average,

2003 2003-2007 2008-2014 2015-2020

Funding Envisioned in the

Administration’s 2003

373 387 n.a. n.a.

Funding Provided by the Congress 359 n.a. n.a. n.a.

Funding in CBO’s Long-Term

Projection of the Administration’s

Current Plans

Without cost risk 373 387 426 430

380 398 464 480

7. CBO’s long-term defense projections differ from the baseline 

estimates that it provides twice a year to the Congress. CBO’s 

baseline covers a 10-year period and projects the current 

budget into the future assuming no policy or program changes

other than those already enacted into law. The baseline gives 

the Congress a benchmark against which to measure the effects 

of proposed changes in tax and spending policies. CBO’s longterm defense projections, by contrast, are based on the 2003 

FYDP and capture changes in defense programs that are now 

anticipated to occur during the 2008-2020 period.

INTRODUCTION 5

Future Years Defense Program

With cost risk

a

b
by service, and by operating and investment costs.

Major acquisition programs and selected operation and

support accounts were projected in detail using the

sources of information described in the previous section. Other elements of acquisition programs were projected using a regression analysis of the historical trends

in their funding. In addition, CBO estimated the

effects of current plans on the size and age of major

types of equipment inventories through 2020. 

Those long-term projections required many assumptions. For example, CBO assumed that the total number of military and civilian personnel would remain

constant through 2020 and that increases in their pay

would keep pace with changes in the employment cost

index—a measure of growth in wages in the private

sector. CBO also assumed that the current force structure would not be changed and that the major acquisition programs now under way would be used to

replace the equipment in today's forces. In addition,

on the basis of currently stated Administration plans,

CBO assumed that another round of base realignments and closures (BRAC) would begin in 2005 and

would produce savings consistent with those from the

four previous rounds (see Box 1-2 for more details).

CBO used deflators derived from its economic projections to adjust past or future costs to 2002 dollars. 

In producing the long-term projections for investment, CBO used DoD's current estimates of development costs as well as its long-range plans for purchase

rates and quantities (if they were available). CBO also

The annual Future Years Defense Program (FYDP)

produced by the Department of Defense is a database that contains a historical record of defense

forces and spending as well as DoD's plans for

future programs and priorities. The Congressional

Budget Office's projections rely heavily on both

parts of that database.

The historical section of the database contains a

record of costs, forces, and personnel levels since

1962. The FYDP data analyzed for this study have

been adjusted to take into account changes in definitions of funding categories between 1980 and

2002. (Both the Institute for Defense Analyses and

DoD’s Office of the Director of Program Analysis

and Evaluation make those adjustments to allow for

better comparisons of defense spending over time.)

For example, from the late 1980s to the early 1990s,

spare parts were purchased with procurement dollars rather than operation and support dollars, as

they are today, so one adjustment moved those past

purchases to the operation and support side of the

budget.

The plan portion of the FYDP presents DoD's 

program budgets—estimates of future funding

needs based on the planned content of specific programs. DoD projects costs for each element of

those programs through a period of either five or six

years, on the basis of proposals made by each of the

services and the policy choices made by the current

Administration. The 2003 FYDP extends from

2003 to 2007. DoD's projections of FYDP funding change each year to reflect anticipated changes

in the content of programs. For instance, the FYDP

projection for a weapons program would increase or

decrease over time if DoD intended to raise or lower

the quantity of that weapon it expected to buy.

Funding would also change if an Administration

expected to alter the number of military personnel,

the force size, personnel benefits, or various other

factors in future years.

Box 1-1.

The Future Years Defense Program

6 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER ONE

used DoD's pricing assumptions for major weapons, a

choice that was intended to characterize the Administration's goals.

In the past, however, DoD has regularly failed to

achieve its goals for preventing costs from rising. Over

many Administrations, its plans have underestimated

future operating costs, have projected cuts in infrastructure that did not occur, and have incorporated

projections of weapons costs that were lower than the

costs actually realized. Therefore, CBO also developed

projections that reflect the risk of cost growth. For

investment, CBO's cost-risk projections reflect DoD's

experience with cost growth during the past 30 years of

weapons purchases.8 For O&S spending, cost risk

includes the added costs of operating aging equipment

and fielding and operating modern, more-complex

equipment, as well as the additional costs that might

accrue if key elements of the Administration's program, such as the 2005 BRAC round, do not proceed

as now planned.

Projecting Resource Demands 

for Operation and Support

For its analysis, CBO divided O&S spending into

seven categories based on function:

• Forces and Logistics. Almost half of O&S spending

in 2002 fell in this category, which covers the 

costs—including pay—of operating and maintaining DoD's combat forces as well as activities in 

support of those forces, such as airlift, reconnaissance, and unit-level intelligence and communications.

• Medical. Military medical care—which includes 

health care for service members and their families 

plus accrual charges for the health benefits of 

future military retirees—accounted for over 10 

percent of O&S spending in 2002. 

• Training, Permanent Change of Station, and 

Transient and Holding Accounts.This category constituted 10 percent of O&S spending in 2002. It 

funds training for new military personnel, periodic training for experienced personnel to upgrade 

their skills or prepare for new assignments, moving expenses, students' salaries, and the personnel 

costs of service members who are between assignments.

• Installations Support. About 10 percent of O&S 

spending in 2002 went to the upkeep and repair 

of military buildings and facilities, operating 

expenses for military bases, and environmental 

programs.

• Headquarters; Central Command, Control, and 

Communications; and Defensewide Administration. 

Just under 10 percent of O&S spending in 2002 

paid for operating higher-level headquarters staffs, 

such as the staffs of the Office of the Secretary of 

Defense, service headquarters, and other operational headquarters; for centralized intelligence 

and mapping activities; and for DoD-wide administration.

• Personnel Support.This category, which made up 2 

percent of O&S spending in 2002, funds recreation programs and facilities for service members, 

8. The Bush Administration has adopted a new policy of using 

the cost estimates for major systems prepared by the Office of 

the Secretary of Defense Cost Analysis Improvement Group 

(CAIG) in developing its budget and FYDP. The CAIG was 

established by Deputy Secretary of Defense David Packard. 

CAIG estimates have a record of being closer to actual costs 

than do the military services’ estimates, which were often used 

to develop past budgets. Nonetheless, significant cost growth 

relative to the Administration’s current estimates is still possible 

for several reasons. First, the new policy is not fully 

implemented yet, and many of the new or recently begun 

systems that are included in CBO’s projections (such as the 

Future Combat System) lack CAIG estimates. Second, when 

the policy is fully implemented, it will not cover the many 

major systems that have been delegated to the services to over

see (such as the space programs delegated to the Air Force). 

And third, the historical record indicates that costs have grown 

even relative to CAIG estimates. For 2012, CBO estimates that 

about 20 percent of its projection of total investment without 

cost risk, and about one-third of its projection of major 

investment, is based on CAIG-generated costs.

INTRODUCTION 7
Beginning in the late 1980s, the Department of

Defense sought to reduce its operating costs by closing unneeded military bases. Significant reductions

in force structure at the end of the Cold War made

many bases unnecessary. But because political and

procedural difficulties had long made closing bases

nearly impossible, the Congress set up four successive independent commissions on base realignment

and closure (BRAC), whose recommendations

would be presented to the Congress for a single upor-down vote. Those commissions recommended

shutting or realigning (moving departments and

facilities at) hundreds of military installations in the

United States, Puerto Rico, and Guam. As a result

of those changes, DoD estimates that it saves about

$6 billion annually in operation and support costs.

The Secretary of Defense has asked the Congress

numerous times over the past five years to authorize

additional base closures. In The Report of the Department of Defense on Base Realignment and Closure

of April 1998, DoD stated that opportunities exist

for further cutbacks and consolidations at several

types of bases—such as defense laboratories, test

and evaluation installations, training facilities, naval

bases, aircraft installations, and supply facilities.

That report evaluated 259 major military installations, estimating that DoD has about 23 percent

excess base capacity. In the Quadrennial Defense

Review Report of September 2001, DoD again stated that it has 20 percent to 25 percent more facility

structure than necessary to support its forces.

The Administration's current plan would implement a fifth round of base closures and realignments

in 2005 that the Congress authorized in 2001.

Such actions could produce substantial operation

and support savings in the long run, but they would

require some up-front investment in repair and

restoration to ensure that closed bases were in good

condition for transfer to localities. As a result, costs

would increase in the short run. Those investment

dollars are gererally placed in the military construction accounts until spent (and once spent are spread

between the budgets for military construction and

for operation and maintenance, primarily for environmental restoration).

Under the 2003 Future Years Defense Program and

the Congressional Budget Office's long-term projections, up-front funding for the fifth BRAC round

would increase DoD's military construction costs

by a total of $8 billion between 2006 and 2008. By

2014, however, DoD could realize recurring savings

of around $5 billion per year in operation and support costs, CBO projects, if the four earlier rounds

of base closings are any guide.

In its cost-risk case, CBO assumes that the 2005

BRAC round would not proceed as planned. Some

analysts argue that BRAC cuts have gone far enough

in matching the planned reductions in forces. They

maintain that the military's base structure should

retain enough excess capacity to accommodate a

new risk to national security that required a sudden

increase in the number of military forces. Accordingly, in its risk case, CBO does not include any savings from a BRAC round. Moreover, without such

a round, DoD might need to fund maintenance and

repair that it had delayed in hopes that the bases and

facilities in question would be demolished, closed,

or sold. Thus, CBO's risk case also includes additional funding for repairs that are now being

delayed.

Box 1-2.

Base Realignment and Closure

8 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER ONE

child care and schools for their children, commissaries, and other activities intended to improve the 

quality of military life. 

• Recruiting. About 2 percent of O&S spending in 

2002 covered the costs of recruiting new military 

personnel.

For most of those functional categories, CBO made

two projections of resource demands for O&S: one

reflecting the Administration's expectations and

another reflecting additional cost risk. (For detailed

information about each category and about the

assumptions, methods, and results of CBO's projections, see Chapter 2.)

In the projection of the Administration's plans, wage

increases for military and civilian personnel and rising

medical costs help push total O&S spending from

$245 billion in 2007 to $280 billion by 2020—a 14

percent increase. That total includes projected savings

of $4 billion to $5 billion a year starting in 2014 from

closing bases to be identified in the 2005 BRAC

round. 

As noted above, cost risk for O&S spending mainly

springs from the possibility that aging equipment and

new, more-complex equipment will raise operation

and maintenance costs and from the possibility that

the 2005 BRAC round will not occur as planned. That

additional cost risk could total $26 billion through

2020, CBO estimates, pushing annual O&S spending

to $306 billion by 2020—a 25 percent increase from

the 2007 level rather than a 14 percent increase.

Projecting Resource Demands for Military

Construction and Family Housing

Most of DoD's spending for construction and a share

of its spending for service members' housing are considered part of investment spending in some tallies of

the defense budget. CBO separates out those costs

(discussing them in Chapter 2 rather than Chapter 3)

because its methods for projecting military construction and family housing have more in common with

the methods it uses for projecting operation and support costs. Specifically, for those categories, CBO used

an aggregate approach that projected funding for DoD

as a whole rather than for individual construction or

housing projects in each military service.

In 2002, DoD devoted $7 billion, or 2 percent of its

budget, to the military construction account, which

funds the planning, design, construction, and major

restoration of military facilities. That account also pays

for the operating expenses of the BRAC commission.

In the 2003 FYDP, funding for military construction

is expected to rise to $12 billion by 2007, mainly

because of the need to pay the up-front costs of what

DoD expects will be the largest-ever BRAC round. In

CBO's long-term projections of current plans,

resource demands for military construction remain

close to $6 billion a year from 2010 through 2020,

consistent with recent levels.

The family housing account—which received $4 billion in 2002, or 1 percent of DoD's budget—funds

the operation, leasing, and construction of housing for

military families. Since 1980, that funding has varied

between $4 billion and $5 billion a year, the level also

projected in the 2003 FYDP. CBO's long-term projection assumes that planned efforts to privatize the building and operation of family housing will not lessen

resource demands, which continue at a level of about

$4 billion per year through 2020.

Projecting Resource Demands for Investment

CBO's investment projections have two parts: estimates for major systems (such as aircraft, ships, and

tanks), for which DoD provides detailed plans; and

estimates for all other equipment and activities, for

which DoD does not provide long-term plans. (For

details of CBO's projections of resource demands for

investment, by military service, and the assumptions

underlying them, see Chapter 3.)

INTRODUCTION 9
Major Investment. CBO projected future resource

demands for major systems individually, using the

Administration's long-range plans for costs, purchase

rates, and quantities, as well as DoD's current estimates

of the costs to develop those systems. In most cases,

CBO's projections were based on information provided by DoD or the services, although in a few cases,

CBO developed independent estimates of costs and

schedules for programs for which DoD has expressed a

desire but not yet formally submitted plans. Using

those sources, CBO was able to project about 60 percent of the investment budget in detail. (Besides large

weapon systems, major investment includes activities

associated with the National Foreign Intelligence

Program. CBO projected that those activities would be

funded through 2020 at their 2007 levels.)9

Minor Investment. DoD provides no widely available,

detailed estimates for the items that make up the other

40 percent of the investment budget, which CBO

termed the minor-investment category. That category

funds RDT&E and procurement for a wide array of

items and activities, such as ammunition, radios, computers, lower-cost modifications to systems already in

use, and basic and applied research. (It also includes

selected highly classified, or black, programs.) CBO

projected resource demands for minor RDT&E and

procurement on the basis of their relation to past investment funding and to spending on major programs.

Spending for investment, which would rise to about

$142 billion by 2007 in the FYDP, would continue to

grow under current plans, CBO projects. It would peak

at about $164 billion in 2012 and average about $143

billion a year over the 2002-2020 period. If, by contrast, historical trends in the growth of weapons costs

continue, the investment resources necessary to carry

out current plans would rise to about $156 billion by

2007. They would top $190 billion in 2012 and average $164 billion annually over the 2002-2020 period.

Possible Effects of Transforming 

the Military

CBO's projections through 2020 assume that the Bush

Administration will make only those changes in forces

and major programs that it has explicitly announced or

that are contained in the 2003 FYDP. Because those

changes are relatively minor, CBO assumes that the

composition of future forces will be similar to that of

today's forces. For example, manned aircraft such as

the Air Force's F-16 fighter or the Marine Corps's 

AV-8 jump jet are assumed to be replaced by the

manned Joint Strike Fighter that DoD has on the

drawing board. 

As noted above, however, the Administration has also

stated that it expects to transform DoD by incorporating new technologies to save money while retaining or

improving combat capability. Transformation could

take many forms, depending on whether concepts that

DoD has just begun to explore succeed or fail. DoD

has started research on advanced-technology combat

vehicles, unmanned aircraft, and smaller combat ships;

in addition, the military services and the U.S. Joint

Forces Command are experimenting with new ways to

organize and operate forces that might be possible if

such systems can be fielded. If those transformation

concepts succeed and are adopted—which is unlikely

before 2020, the endpoint of CBO's projections—

future military forces could be very different from the

ones assumed in the Administration's current plans.

Moreover, if the cost goals now envisioned for those

systems can be met, transformation could reduce

future defense costs. 

To illustrate the possible scope of that impact, CBO

calculated the steady-state procurement funding needed over the long term to sustain both current military

forces and a hypothetical example of transformed

forces. (For more information about how CBO made

that calculation, see Box 1-3.)

In its current-forces case, CBO assumed that today's

forces would be maintained indefinitely and equipped

with systems that are similar to the ones they have

9. Projected funding for activities of the National Foreign 

Intelligence Program is not identified explicitly in this report 

because it is classified.

10 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER ONE

now, unless the Administration has explicitly announced otherwise. Steady-state procurement costs for

those forces would range from $85 billion to $130 billion a year, depending on CBO's assumptions about

the costs and lifetimes of major defense systems. 

In the transformed-forces case, CBO assumed that

many of the transformation initiatives now being

undertaken by the Bush Administration ultimately

succeed and are embraced by the military services. In

that case, the services would use significantly different

systems in the future to replace some of their current

To provide a measure with which to compare the

long-term implications of the Administration's current procurement plans—as well as the potential 

savings from transforming the military—the

Congressional Budget Office estimated how much

the Department of Defense would need to spend on

major procurement each year to sustain forces and

keep the average age of various types of weapon systems constant. CBO concluded that DoD would

need a total of $85 billion to $112 billion annually

for major procurement to sustain currently planned

forces indefinitely if costs do not grow beyond

DoD's expectations. If historical cost growth was

repeated, steady-state procurement costs would

range from $99 billion to $130 billion a year.

Those estimates are based on the number of

weapons that DoD has in its current inventory, the

projected life spans of those weapons, and the costs

of their replacements. For example, the Air Force's

desired inventory of fighter and attack aircraft totals

about 2,400 planes (including reserves to replace

lost or damaged planes). In the past, the Air Force

expected to keep its fighter and attack aircraft flying

for about 20 years before replacing them. Beginning in the 1990s, however, the service planned to

retain its fighters for 30 years or more. Thus, CBO

assumes service lives for Air Force fighters that span

20 to 30 years.

Annual steady-state purchases equal the desired

inventory level divided by the expected service 

life—or, in this case, purchases of 80 to 120 Air

Force fighters per year. The cost of the Joint Strike

Fighter (JSF) and the F-22 aircraft, which will eventually replace current fighters, ranges from about

$50 million for the Air Force version of the JSF to

about $110 million for the F-22. (The Air Force

plans to replace some 80 percent of its fleet with the

lower-cost JSF.) CBO multiplied annual steadystate purchases for each type of aircraft by the estimated cost for each replacement to estimate total

steady-state procurement costs for the Air Force's

fleet of tactical aircraft. That estimate ranges from

$5 billion to about $7 billion a year.

Steady-state procurement funding relates only to

the size and type of systems purchased; it is 

independent of the current level of the procurement

budget. Implementation of actual plans could bring

annual budgets that are higher or lower than steadystate levels. If DoD bought all systems in the 

annual quantities reflected in a steady-state estimate,

inventories of equipment would eventually be evenly distributed throughout the age range from new

deliveries to systems at retirement age. For inventories with such an age distribution, annual retirements would be steady rather than varying from

year to year, as would happen if systems were purchased unevenly. The average age of each type of

equipment would come to equal half the 

equipment's service life and would neither increase

nor decrease thereafter.

Box 1-3.

Calculating Steady-State Procurement Costs

INTRODUCTION 11
equipment. For example, unmanned combat air vehicles—instead of manned combat aircraft—would be

used for ground-attack missions. CBO also assumed

that DoD would transform some of its operating methods to reduce the number of platforms needed to perform peacetime missions. CBO projects that steadystate procurement costs for that particular example of

transformed forces would range from $76 billion to

$114 billion per year. Thus, under CBO's assumptions

about transformation, DoD might eventually save

between $9 billion and $16 billion (or about 12 percent) annually on procurement if it succeeded in significantly altering the way it equips and uses its forces.

Of course, those estimates hinge on the particular

assumptions that CBO made about the composition of

transformed forces. Larger or smaller savings, or higher

costs, might result depending on how transformation

actually occurred. Although CBO's transformed forces

are radically different in composition from today's

forces, they contain about the same total numbers of

aircraft and other weapon systems. If transformation

enabled DoD to substantially reduce its number of

weapon systems, greater procurement savings than

CBO projects might be possible. Conversely, savings

could be much less if—consistent with past experience—the currently hoped-for cost goals of new systems cannot be met.

Projected Long-Term Costs Versus

Actual Funding

For 2003, the Bush Administration requested $373 billion for DoD, an amount that it hopes to increase to

$408 billion by 2007. In October 2002, the Congress

passed—and the President signed into law—a budget

of $359 billion for defense for 2003 (see Table 1-1 on

page 5).

10

In CBO's long-term projections of current plans,

demand for defense resources would continue to grow,

reaching about $430 billion by 2020. That projected

growth springs from three sources: increasing production of a number of existing programs; continued

growth in the costs to operate and sustain future forces,

which are assumed to be essentially the same size as

today's forces; and continued development and eventual production of new programs.

How do those projected levels of resource needs compare with past and present defense budgets? Over the

past 20 years, DoD's budget has ranged from about

$275 billion to $420 billion per year. The levels of

defense spending envisioned in the FYDP period are

not unprecedented, but the higher levels in CBO's

long-term projections are slightly greater than past

spending. Moreover, levels approaching those amounts

have been sustained in the past for only a few years in

succession (see Figure 1-1 on page 2). Projected annual

resource demands for defense through 2020 exceed the

funding requested for 2003 by an average of $45 billion, or 12 percent. 

Some defense experts argue that the nation's ability to

pay for such defense spending should be measured relative to benchmarks other than past budgets—such as

the size of the U.S. economy or of the federal budget.

As a share of the nation's gross domestic product

(GDP), defense spending declined from an average of

6 percent in the 1980s to an average of 4 percent in the

1990s. Under the 2003 FYDP, defense spending

would remain at about 3 percent of GDP through

2007 (see Figure 1-2). Assuming that the economy

grew at a long-term rate of 3 percent a year, the

resource demands associated with current defense

plans would drop to 2 percent of GDP by 2020, CBO

projects. 

Defense spending has also declined as a share of the

overall federal budget—from an average of 28 percent

in the 1980s to an average of 18 percent in the 1990s.

The Administration's plans under the 2003 FYDP

would keep defense spending at 18 percent of the

10. See the Department of Defense Appropriations Act, 2003 

(Public Law 107-248) and the Military Construction Act, 2003 

(P.L. 107-249). Note that the amounts reported in this study are 

in 2002 dollars of total obligational authority, whereas the 

amounts enacted are in 2003 dollars of budget authority.

12 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER ONE

budget through 2007. After that, if the federal budget

grew through 2020 at the rates that CBO now 

projects through 2012, the resources needed for 

current defense plans would represent 13 percent of

the budget by 2020.11

That projected decline results because increases for

nondefense spending outpace projected increases in

defense. In particular, the aging of the large babyboom generation will begin to push up costs for federal health care and retirement programs significantly in

the next three decades.12 The resource demands of

those entitlement programs could limit the funding

available for all discretionary programs, including

those of the Department of Defense.

1980

0

35

30

10

5

25

20

15

Percent

Defense Spending as

a Share of the Budget

Defense Spending as

a Share of GDP

Actual Projected FYDP

1985 1990 1995 2000 2005 2010 2015 2020

Figure 1-2.

Defense Spending as a Share of the Federal Budget and GDP

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program; GDP = gross domestic product.

11. CBO’s most recent published projections for GDP and federal 

budgets through 2012 are contained in The Budget and 

Economic Outlook: An Update (August 2002).

12. U.S. demographic pressures are such that without major 

changes to Social Security, Medicare, and Medicaid, those three 

programs are projected by 2030 to consume a substantial por

tion of what the federal government now spends on the entire 

budget. See Congressional Budget Office, The Budget and 

Economic Outlook: An Update, Chapter 1.

INTRODUCTION 13

Long-Term Implications for Operation and Support

2

Nearly two-thirds of the defense budget goes to

operation and support, a category that covers the 

day-to-day costs of the Department of Defense as well

as its civilian and military payrolls. If the plans in the

Administration's 2003 Future Years Defense Program

were carried out, annual O&S costs would grow by 14

percent from 2007 to 2020, the Congressional Budget

Office projects—rising from $245 billion in 2007 to

$280 billion.1 The main contributors to that projected

growth are wage increases that exceed inflation and 

rising medical costs.2

CBO's projections of the long-term implications of

the Administration's defense plans assume that only

the changes included in the 2003 FYDP or already

announced by the Administration are made. They also

assume that the size of the military remains constant

from 2007 (the end of the current budget plan)

through 2020 and that military and civilian pay grows

at the same rate as the employment cost index.3

Even under those assumptions, uncertainty remains

about future O&S costs. The biggest question is

whether the cost of maintaining equipment will rise as

existing inventories age and as DoD acquires new,

more-complex equipment. Another important question is whether the proposed 2005 round of base

realignments and closures will proceed as planned and

produce the anticipated savings in O&S costs.

If those and other cost risks are taken into account,

annual operation and support costs could rise by an

additional $26 billion, reaching $306 billion by 2020,

CBO estimates. (That increase would represent

growth of 25 percent from the 2007 level rather than

14 percent.) Of the additional $26 billion in that 

projection, about $16 billion comes from increases in

the cost of maintaining equipment, and $5 billion

reflects forgone savings from the 2005 BRAC round. 

CHAPTER

3. The employment cost index measures the weighted-average

cost of an hour of labor in the U.S. civilian labor force. It 

comprises the cost to the employer of wage and salary 

payments, employee benefits, and contributions for social 

insurance programs (such as Social Security and Medicare). 

The employment cost index is calculated by the Department of 

Labor’s Bureau of Labor Statistics.

1. Historical O&S spending and CBO’s projections of O&S costs 

are expressed in terms of total obligational authority. 

All dollar amounts are in 2002 dollars.

2. The National Defense Authorization Act for Fiscal Year 2003, 

enacted in December 2002, institutes funding for special compensation for veterans with combat-related disabilities. That 

provision was not included in the 2003 FYDP and thus is 

excluded from CBO’s long-term projections. CBO estimates 

that the provision will cost DoD about $5 billion (in current 

dollars) over 10 years.
Billions of 2002 Dollars

Forces and Logistics

Personnel Support, Training,

and Recruiting

Medical

Installations Support

HQ and C3

DERF

Cost Risk

0

50

100

150

200

250

300

350

1980 1985 1990 1995 2000 2005 2010 2015 2020

Actual Projected FYDP

Operation and Maintenance

Cost Risk

1980-2002 Average

Billions of 2002 Dollars

Military Personnel

0

50

250

300

350

200

150

100

1980 1985 1990 1995 2000 2005 2010 2015 2020

Actual FYDP Projected

By Functional Category

By Budget Account 

Figure 2-1.

Spending for Operation and Support

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program; DERF = Defense Emergency Response Fund; HQ = headquarters; C3 = command, 

control, and communications.

16 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER TWO

Overview of Operation and Support

Operation and support includes the funds appropriated for two main budget accounts: operation and maintenance, and military personnel (see Figure 2-1). Those

accounts, along with appropriations for family housing

and some small direct appropriations for trust funds

and revolving funds, cover all of DoD's current operating costs. 

The bulk of O&S spending (about 60 percent in 

both 2002 and 2003) goes to operation and maintenance costs, which include the salaries of DoD's civilian employees, the services of contractors, and 

purchases of fuel, spare parts, and other goods 

routinely consumed by the military. Operation and

maintenance funding pays for activities that directly

enhance combat capabilities, such as individual and

unit training, and for activities that are less directly

linked to combat capabilities, such as central 

headquarters management. 

Appropriations for military personnel make up much

of the remaining 40 percent of O&S spending. They

cover the pay and allowances received by active-duty

and reserve personnel as well as the accrual costs of

military retirement. Beginning in 2003, personnel

spending also includes accrual charges for the expanded supplemental medical benefits that DoD provides

to military retirees who are eligible for Medicare.4

In addition to budget accounts, another way to break

down O&S spending is by functional category. For its

analysis, CBO divided O&S spending into seven categories, as described in Chapter 1—forces and logistics;

medical; training; installations support; headquarters,

central command, control, and communications, and

defensewide administration; personnel support; and

recruiting. CBO examined past trends in funding and

the Administration's current plans, as reflected in the

2003 FYDP, for each category. CBO then developed

budget projections of the Administration's plans and

of selected cost risks for those categories through 2020

(described in greater detail later in this chapter). 

The amount that DoD spends on O&S activities has

nearly doubled over the past 22 years relative to the size

of the active-duty force: from $84,000 per service

member in 1980 to $160,000 per member in 2002 

(see Figure 2-2). Some of that increase reflects growth

in the cost of supporting military personnel, including

rising health care costs and pay increases. But it also

reflects a decline in the size of the active-duty force—in

part because of efforts to substitute less costly

reservists, contractors, or civilians for active-duty personnel. (Over the same period, spending on investment has risen from $46,000 to $80,000 per activeduty service member, although it has fluctuated with

DoD's investment cycles. That rise suggests that DoD

has substituted capital for active-duty personnel.) 

O&S spending currently accounts for almost twothirds of DoD's budget (see Table 2-1). During the

defense buildup of the mid-1980s, investment 

spending rose dramatically, but the number of DoD's

military and civilian personnel increased very little. As

a result, O&S's share of the defense budget declined

from the high levels that had existed during the

Vietnam War to a low of 52 percent in 1985 (see Figure

2-2). That share rose again to 65 percent during the

1990s because of the post-Cold War drawdown 

of U.S. forces and the sharp reduction in procurement

of new equipment that accompanied it. 

In CBO's projection of the Administration’s plans, 

the share of the budget devoted to O&S would decline

in the next 10 years to a low of 56 percent with cost

risk or to 59 percent without cost risk. In either case, 

however, O&S spending would return to just above its

current share of the defense budget by 2020. 

4. Accrual costs are charges to DoD’s budget for deferred 

compensation (such as pensions and future retirees’ health

care). Under an accrual system, DoD pays the charges for the 

years in which employees are working and earning benefits, 

rather than for the years in which the benefits are actually paid.

An independent board of actuaries sets the charges for each year

so that, when invested in Treasury securities, DoD’s payments 

will fully fund expected future benefits.

LONG-TERM IMPLICATIONS FOR OPERATION AND SUPPORT 17
Because CBO's projection assumes no change in the

number of active-duty service members, O&S costs per

member would grow to the same degree as total O&S

costs from 2007 through 2020: by 14 percent without

cost risk and 25 percent with cost risk. The resulting

pattern is consistent with historical trends in O&S

spending per service member. (Investment costs per

active-duty service member continue to show a longterm upward trend, though in a cyclical pattern, in

CBO's projection. Between 2002 and 2020, they grow

by 22 percent without cost risk and 41 percent with

cost risk.)

The remainder of this chapter discusses in detail

CBO's projections for each of the seven functional

areas of operation and support costs. It also discusses

projections for military construction and family housing. Those spending categories are grouped with O&S

costs in this chapter because CBO used similar projection methods for all of them.

30

40

20

10

0

70

60

50

200

250

150

100

50

0

Percent Thousands of 2002 Dollars

O&S as a Share of Total

Defense Budget (Left scale)

O&S per Service Member

(Right scale)

Investment per Service Member

(Right scale)

1980 1985 1990 1995 2000 2005 2010 2015 2020

Actual Projected FYDP

Figure 2-2.

Three Measures of Defense Spending

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program; O&S = operation and support.

18 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER TWO

Table 2-1.

Requested and Projected Funding for Department of Defense 

Operation and Support 

(In billions of 2002 dollars of total obligational authority)

Source: Congressional Budget Office.

Note: n.a. = not applicable; O&S = operation and support.

a. Includes cost risk for both O&S and investment. O&S funding makes up a smaller percentage of the defense budget with cost risk 

than without cost risk because of a relatively larger amount of investment cost risk.

Average, Average, Average,

2003-2007 2008-2014 2015-2020

O&S Funding Envisioned in the

Administration’s 2003

Future Years Defense Program 240 n.a. n.a.

O&S Funding in CBO’s 

Long-Term Projection of the 

Administration’s Current Plans

Without cost risk 240 253 272

With cost risk 240 264 294

O&S Funding as a Percentage of the

Total Defense Budget

Without cost risk 62 60 63

With cost riska 60 57 61

LONG-TERM IMPLICATIONS FOR OPERATION AND SUPPORT 19
Forces and Logistics

The category of forces and logistics, which now

accounts for nearly half of O&S spending, includes the

costs of personnel, supply, equipment maintenance,

and day-to-day operations for Air Force squadrons,

Navy fleets, and Marine Corps and Army divisions. In

CBO's projection of the Administration's plans, the

annual O&S costs of forces and logistics grow by 9 percent between 2007 and 2020—from $116 billion to

$127 billion (in 2002 dollars). If cost risks are taken

into account, those annual costs would rise by 23 percent over that period, to $143 billion.

What the Category Covers

O&S funding for forces and logistics pays for the flying hours of aircraft, the steaming days of ships, and

the miles driven by tanks and other vehicles, as well as

for the salaries of the personnel who operate and 

maintain that equipment.5 Spending on fuel, parts,

and equipment maintenance—including overhauls at

depots—accounts for 20 percent of O&S spending on

forces and logistics. The salaries of personnel 

associated with combat units make up another 40 

percent of the total. The remaining spending covers

deployable units or activities that directly support

combat forces, such as airlift, reconnaissance, and unitlevel intelligence and communications.

60

80

40

20

0

160

180

140

120

100

20

0

100

120

140

80

60

40

Billions of 2002 Dollars Thousands of 2002 Dollars

Total Spending

(Left scale)

Total Spending with Cost Risk

(Left scale)

Spending per Service Member

(Right scale)

1980 1985 1990 1995 2000 2005 2010 2015 2020

Actual FYDP Projected

Figure 2-3.

Spending for Forces and Logistics

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program.

5. Cost per flying hour, steaming hour, or tank mile is defined as 

the hourly cost of operating equipment. It includes fuel and 

other consumable items, such as bearings and washers, as well 

as the repair of major subsystems such as radars, navigation 

instruments, or engines (so-called depot-level reparables).

20 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER TWO

Trends 

Over the past 22 years, spending for forces and logistics has mirrored total DoD spending—rising when

defense budgets increased and falling when they

declined. Spending for forces and logistics reached its

highest sustained levels during the defense buildup of

the 1980s. Through the mid-1990s, as U.S. forces

shrank by 30 percent, that spending also fell by 30 percent (despite a brief spike in 1991 for the Gulf War).

From 1995 through 2001, as reductions in forces

ended and concerns about readiness grew, spending for

forces and logistics stabilized. Recently, total defense

spending has risen, and the Administration plans to

increase funding levels for forces and logistics from

$105 billion in 2002 to $116 billion by 2007 (see

Figure 2-3).

Projection

CBO's projection of the Administration's plans

includes the costs of military and civilian pay raises.

However, it follows the Administration's implicit

assumption that management initiatives in logistics

support, as well as the advent of more-modern 

equipment, will offset the rising operation and 

maintenance costs of existing systems as they get older.

Historically, DoD's projections have assumed little or

no growth in annual costs to operate and maintain

existing military equipment. That remains true with

the funding levels in the 2003 FYDP, despite 

anecdotal evidence, Congressional testimony, and

recent analysis suggesting that aging systems do cost

more to maintain.6 Likewise, DoD's estimates of O&S

costs for new systems have historically been optimistic,

projecting lower operating costs for increasingly 

complex and expensive equipment. Although DoD

provides for some real increases in operating costs for

equipment through 2003, it appears to assume that

lower costs for newer systems will offset rising costs for

older systems in the longer term. 

CBO's projection of cost risk for forces and logistics—

which is based on recent analytic work about aging systems and about the increasing costs of more-modern

equipment—includes additional cost growth of $16

billion between 2007 and 2020. For Air Force and

Navy aircraft, CBO assumed that operating costs

would grow by 1 percent for each additional year of

average age per system, boosting annual costs by a total

of $4 billion by 2020.7 Additionally, the operating

costs of aircraft from generation to generation are

assumed to rise in relation to the purchase price

(increasing by 4 percent for each 10 percent rise in the

purchase price of new aircraft over the price of the 

previous generation).8 That assumption would translate into another $4 billion in extra costs by 2020. For

ships, CBO based its projection on current costs to

operate and maintain the Navy's various types of vessels and on planned changes in the inventory and mix

6. For a discussion of the effects of equipment age on operating

costs, see Congressional Budget Office, The Effects of Aging on 

the Costs of Operating and Maintaining Military Equipment

(August 2001). CBO concluded that although equipment 

aging is not the primary contributor to increases in total 

operation and maintenance costs (being only a small subset of 

those costs), Air Force and Navy aircraft do become more 

expensive to operate and maintain as they age.

7. Average ages and inventories of different types of aircraft are 

based on CBO's projections of investment spending and commensurate purchases and retirements of systems (see Chapter 

3). The 1 percent estimate is based on various analyses, including Congressional Budget Office, The Effects of Aging on the 

Costs of Operating and Maintaining Military Equipment; Center 

for Naval Analyses, "Effect of Aircraft Age on Maintenance 

Costs" (briefing given to the Congressional Budget Office, 

March 2000); and Department of the Navy, Naval Aviation 

Maintenance Office, Aircraft Age Impact on Individual 

Operating and Support Cost Elements (July 1993). 

8. See Congressional Budget Office, The Effects of Aging on the 

Costs of Operating and Maintaining Military Equipment; and 

RAND, An Estimation of USAF Aircraft Operating and Support 

Relations (Santa Monica, Calif.: RAND, May 1990). Other 

works supporting the assertion that newer systems are more 

expensive to operate and maintain than older systems include 

Donald Vandegraff, ed., Spirit, Blood, and Treasure: The 

American Cost of Battle in the 21st Century (Navato, Calif.: 

California Presidio Press, 2001); and Center for Strategic and 

Budgetary Assessments, Buying Tomorrow's Military: Options

for Modernizing the U.S. Defense Capital Stock (Washington, 

D.C.: CSBA, May 2001).

LONG-TERM IMPLICATIONS FOR OPERATION AND SUPPORT 21
of ships. CBO's projection indicates that total operating costs for ships over the 2008-2020 period would

not vary much from the current level of $9 billion a

year. Little information or analysis exists on the operating costs of future Army vehicles. Consistent with historical trends, CBO assumed that the Army's costs for

forces and logistics would grow by 1 percent a year,

adding $8 billion to annual costs by 2020.

20

10

0

60

50

40

30

15

10

0

5

35

40

30

25

20

Billions of 2002 Dollars Thousands of 2002 Dollars

Total Spending

(Left scale)

Spending per Service Member

(Right scale)

1980 1985 1990 1995 2000 2005 2010 2015 2020

Actual FYDP Projected

Figure 2-4.

Medical Spending

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program.

22 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS

Medical Costs

Spending for military medical care, which already

makes up more than 10 percent of DoD's operation

and support costs, is the fastest-growing category of

O&S spending. In CBO's projection of the Administration's plans, annual medical spending rises by 67

percent over the 2007-2020 period, from $33 billion

to $55 billion.

What the Category Covers

DoD's medical spending covers the health care costs of

service members, their dependents, and military retirees. Those costs include expenses for patient care and

prescription drugs provided at military treatment facilities as well as the cost of health care purchased in the

private sector and paid for through Tricare (DoD's

third-party health insurance program for active-duty

and retired service personnel and their eligible family

members and survivors). Medical spending also pays

the salaries of doctors, nurses, and technicians at military treatment facilities and the salaries of personnel

who administer DoD's health care system. In addition,

it funds items that are unique to military medicine,

such as deployable field hospitals, excess capacity to

deal with wartime casualties, and programs to respond

to attacks by chemical and biological weapons.
CHAPTER TWO

Trends

In general, medical costs per service member have

increased steadily for the past 22 years (see Figure 2-4).

Many of the same forces that cause national health

expenditures to rise—an increase in the volume of

health care services available and expanded use of new,

high-cost drugs and procedures—translate into higher

military medical costs. In addition, retirees and their

dependents now make up a larger share of beneficiaries, increasing the average age and costs of the people

who receive health coverage through DoD.

In the current FYDP, medical costs are expected to rise

dramatically over the next five years, for two reasons:

new benefits for military retirees over age 65 (called

Tricare for Life) and a switch to an accrual accounting

system. In 2001, the Congress passed legislation 

providing medical benefits to retirees over 65, who had

previously lost eligibility for Tricare coverage when

they became eligible for Medicare. In addition, 

under that legislation, the new coverage for future

retirees will be funded on an accrual basis, with DoD's

budget being charged each year for the expected 

costs of future benefits.9 The rate at which those 

accrual charges increase each year will be set by an

independent board of actuaries, taking into account

growth in civilian health care costs and demographic

changes among military retirees. 

Projection

CBO projects that the plans in the 2003 FYDP would

boost annual medical costs by $22 billion between

2007 and 2020. That projection has two components:

health care costs for active-duty personnel and their

families, and accrual charges for retirees and their

dependents. CBO estimated the growth of costs for

active-duty personnel (about $11 billion a year by

2020) using the Department of Health and Human

Services' projection of 3.6 percent real annual per 

capita growth in civilian health care costs in the long

term.10 The estimated growth of accrual charges (nearly another $11 billion a year by 2020) is derived from

applying the 4.0 percent real annual growth rate set by

the independent board of actuaries and included in the

FYDP, projected out to 2020. 

CBO did not produce a cost-risk projection for medical spending. The most likely risks, which would be

the addition or expansion of health care benefits, are

difficult to project now with any confidence. (However, some projections exist of growth in civilian health

care costs that, at least in the near term, are higher than

CBO’s assumptions. If those higher growth rates were

realized in the long term for military medical care, they

would reflect a risk of increased costs not associated

with additional benefits.)

10. That growth rate is derived from data available at 

the Department of Health and Human Services, Centers for 

Medicare and Medicaid Services Web site (http://cms.hhs.gov/

statistics/nhe/projections-2000/t1.asp).

9. Health care benefits for future Medicare-eligible retirees and 

their dependents are funded on an accrual basis as of 2003, 

whereas benefits for all other military retirees and dependents 

are funded out of DoD's annual operation and support 

budget. The 2003 FYDP proposed that health care costs 

for those other retirees and dependents be funded on an 

accrual basis beginning in 2004, but that measure has not yet

been enacted. CBO's projection of future health care costs 

assumes that the proposal will be enacted and thus does not 

differentiate among retirees.

LONG-TERM IMPLICATIONS FOR OPERATION AND SUPPORT 23
Training

In CBO's breakdown of O&S costs, the training 

category currently accounts for 10 percent of O&S

spending. It includes the costs of training military 

personnel, preparing them for new assignments, 

moving them from posting to posting (often called

permanent change of station, or PCS, costs), and 

paying them between assignments (referred to as 

transient and holding costs). Annual training costs rise

by 16 percent between 2007 and 2020 in CBO's 

projection (from $25 billion to $28 billion) because of

assumed pay increases.

What the Category Covers

Funding for training pays for civilian and military

instructors, supplies and equipment, and training 

support for both active-duty and reserve personnel.

The PCS account covers the expenses of moving 

personnel from assignment to assignment. The 

transient and holding account pays for personnel not

currently assigned to specific units and students in

training billets. The training category focuses on socalled schoolhouse training; it does not cover exercises

or training conducted by operational units. (Those

costs are included in the forces and logistics category.) 

The largest segment of training ($7 billion a year) is

categorized as professional and skills training, including general skills training and advanced professional

military education courses. DoD spends three times as

much on professional and skills training as on training

for new recruits. The second largest training account

($5 billion a year) is command-managed training—

training above the unit level, such as for combat exer15

10

5

0

35

30

25

20

10

0

5

30

35

25

20

15

Billions of 2002 Dollars Thousands of 2002 Dollars

Total Spending

(Left scale)

Spending per Service Member

(Right scale)

1980 1985 1990 1995 2000 2005 2010 2015 2020

Actual FYDP Projected

Figure 2-5.

Spending for Training

Source: Congressional Budget Office using data from the Department of Defense.

Notes: FYDP = Future Years Defense Program.

These numbers include the defense budget's permanent change of station (PCS) and transient and holding accounts, which pay 

moving expenses, students' salaries, and the personnel costs of people between assignments.

24 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER TWO

cises and follow-on flight schools. Initial aviation and

flight training ($3 billion a year) as well as officer training and the service academies ($1 billion a year) are

also included in the training category. The PCS

account is funded at about $3 billion a year and the

transient and holding account at $2 billion. 

Trends

Training costs per service member have risen steadily

since 1990, from $16,000 per member to $24,000 per

member in 2003 (see Figure 2-5). Training costs

depend on the size of the military force, but they also

include some overhead expenses for training facilities.

Because training facilities did not shrink as quickly as

the military force did during the drawdown of the

1990s, neither did training costs. By 1998, however,

spending for both professional and skills training and

command-managed training had declined by 30 

percent from the highs of the previous decade

(although not by the 35 percent that the overall

defense budget had fallen).

In the 2003 FYDP, overall spending for training would

stay around $25 billion a year through 2007. Funding

for command-managed training would remain steady

at about $5 billion a year, but professional and skills

training would grow by 16 percent—to nearly $9 

billion a year by 2007. 

Projection

In CBO's projection of the Administration's plans, the

annual cost of military and civilian pay that is 

included in the training category would grow by $3

billion between 2007 and 2020, pushing total costs for

training to $28 billion a year. CBO did not estimate

cost risk for this category. Further study is necessary to

determine the potential effect that new technologies or

policies—such as advancements in computer-based

training or increased reliance on simulation over 

actual training—could have on training, PCS, and

transient and holding costs. Depending on their

details, new technologies or policies might have either

upward or downward effects on training costs.

LONG-TERM IMPLICATIONS FOR OPERATION AND SUPPORT 25
Installations Support

Installations support covers the upkeep and repair of

military buildings and facilities, operating expenses for

bases (such as utilities and fire departments), and various environmental programs. Together, those costs currently account for a little over 10 percent of O&S

spending. In CBO's projection of the Administration's

plans, annual costs for installations support would drop

by 10 percent over the 2007-2020 period (from $29

billion to $26 billion a year), in part because of savings

from the round of base realignments and closures set to

begin in 2005 (see Box 1-2 in Chapter 1). If that BRAC

round does not occur as scheduled and additional costs

for facilities maintenance are incurred, annual costs for

installations support could instead rise by 17 percent

(from $29 billion to $34 billion) over that period (see

Figure 2-6). 

What the Category Covers

Installations support covers three main areas: maintenance of facilities, previously called real property maintenance; a wide variety of base operating support functions, such as utilities, fire fighting, and snow removal;

and environmental programs designed to prevent pollution and clean up current and former facilities.

Trends

The three components of spending on installations

support have followed different paths over the past 22

years (see Figure 2-7). From its height during the 1980s

defense buildup, spending for real property maintenance fell markedly, from $10 billion in 1987 to $3

billion by 1994. Part of that decline reflects reductions

in defense infrastructure, such as base closures, that

occurred during the post-Cold War drawdown.

10

0

50

40

30

20 15

0

5

10

35

40

30

25

20

Billions of 2002 Dollars Thousands of 2002 Dollars

Total Spending with Cost Risk

(Left scale)

"Readiness 

Reserve"

Total Spending

(Left scale)

Spending per Service Member

(Right scale)

1980 1985 1990 1995 2000 2005 2010 2015 2020

Actual FYDP Projected

Figure 2-6.

Spending for Installations Support

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program.

26 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER TWO

However, the decline also reflects DoD's decision to

defer a substantial amount of maintenance and repair

of noncritical facilities during the shrinking budgets of

the 1990s. That decision created a backlog of 

maintenance and repair that stood at an estimated $27

billion in 2001. In the current FYDP, the Administration has called for further delay of some repairs and

maintenance until it can announce the installations to

be closed as part of the 2005 BRAC round.

In contrast, funding for base operating support did not

immediately fall during the post-Cold War drawdown.

Spending remained fairly stable between 1980 and

1994, averaging $21 billion a year. Between 1995 and

2002, it fell to an average of $18 billion a year as base

closures and cuts in military personnel reduced some

support requirements. 

Spending on DoD-related environmental projects

began in earnest only in the mid-1980s. It reached a

peak of $4 billion in 1993 before slowly declining to

the current level of $3 billion a year. That decline was

largely caused by a drop in the number of restoration

projects that needed funding.11

The 2003 FYDP contains an increase of $3 billion for

installations support in 2005 and $2 billion in 2006

(see Figure 2-6). According to documents provided by

the Office of the Secretary of Defense (OSD), that

11. The installations support category does not include the costs of 

some substantial environmental programs that, despite being 

defense-related, are funded by the Department of Energy. 

Those programs include the cleanup of the former nuclear 

weapons plant at Rocky Flats, Colorado.

LONG-TERM IMPLICATIONS FOR OPERATION AND SUPPORT 27

0

15

20

25

10

5

Billions of 2002 Dollars

Base Operating Support

Environmental Programs

Real Property Maintenance

1980 1985 1990 1995 2000 2005 2010 2015 2020

Actual FYDP Projected

Figure 2-7.

Spending for Installations Support by Subcategory

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program.
additional funding was initially designated to cover 

up-front costs of the 2005 BRAC round and was

included in the operation and maintenance account

during budget formulation. Later versions of the FYDP

assigned BRAC funding to the military construction

account (where it has been in the past) for 2006 and

2007 but never subtracted the original BRAC amounts

from the operation and maintenance budget. Instead,

the OSD Comptroller has redesignated that total of $5

billion in 2005 and 2006 as a readiness reserve.

Projection

CBO's projection of the Administration's plans

includes the cost of pay raises for the military and civilian personnel who support installations as well as two

areas of potential savings: the 2005 BRAC round and

environmental restoration projects. 

CBO projects that pay raises would increase costs for

installations support by about $3 billion a year by

2020. To drive costs in the opposite direction, the

Administration plans on holding a BRAC round in

2005 that would be three times as large (in terms of initial costs) as previous rounds. The base realignments

and closures resulting from that round could save $5

billion a year in reduced installations support by 2014,

CBO estimates. 

CBO's projection also assumes that DoD's spending

on planned environmental restoration projects would

decline by $50 million each year until 2030, when all

projects would be finished. DoD has identified $20

billion in projects that require cleanup to meet environmental codes; it included funding for them in the

2003 FYDP at a little over $1 billion a year. If CBO

assumed (as it did with other types of costs) that the

level of funding at the end of the FYDP continued

through 2020, all of those projects would be completed by 2015, and total spending would exceed currently estimated requirements by $5 billion by 2020.

The main sources of risk in CBO's projection for

installations support are that the 2005 BRAC round

does not take place and that DoD does not eliminate

its backlog of maintenance and repair of aging facilities

by 2020. In that case, installations support costs would

grow to $34 billion a year by 2020. DoD and military

officials report that delayed maintenance is causing

substantial problems at military bases in terms of costs,

safety concerns, and readiness.12 Without a BRAC

round, DoD might need to fund maintenance and

repair that had been delayed (in hopes that the bases

and facilities in question might be demolished, closed,

or sold). CBO estimates that eliminating the backlog

would cost $2.5 billion each year through 2020.

28 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS

12. See George Cahlink, "Battered Defenses," Government 

Executive Magazine, August 1, 2002, pp. 39-46.
CHAPTER TWO

Headquarters, C3, and

Administration

Spending for headquarters, central command, control,

and communications (C3), and defensewide administration pays for the staff of the Office of the Secretary

of Defense, the Joint Staff, the headquarters of the 

military services, and other operational headquarters,

including the combatant commands. That category,

which also includes centralized intelligence facilities

(such as the National Imagery and Mapping Agency),

currently accounts for just under 10 percent of O&S

spending. 

Headquarters, C3, and administration spending is not

proportional to the size of military forces. It has nearly

doubled over the past 22 years (from $10 billion in

1980 to $19 billion in 2002) even though forces were

reduced by 30 percent from the height of the 1980s

buildup through the drawdown of the 1990s. Spending for that category continues to increase in the 2003

FYDP, rising by $3 billion by 2007 (see Figure 2-8). 

In CBO's projection of the Administration's plans,

costs for headquarters, C3, and administration would

grow by 9 percent—from $22 billion in 2007 to $24

5

0

25

30

35

20

15

10

3

0

15

18

21

24

12

9

6

Billions of 2002 Dollars Thousands of 2002 Dollars

Total Spending with Cost Risk

(Left scale)

Total Spending

(Left scale)

Spending per Service Member

(Right scale)

1980 1985 1990 1995 2000 2005 2010 2015 2020

Actual FYDP Projected

Figure 2-8.

Spending for Headquarters, C3, and Administration

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program; C3 = command, control, and communications.

LONG-TERM IMPLICATIONS FOR OPERATION AND SUPPORT 29
billion in 2020. That growth of $2 billion by the end

of the period springs entirely from pay raises. 

The National Defense Authorization Act for Fiscal Year

2000 required a 15 percent reduction in major headquarters staffs from their 1999 levels by October 2002.

DoD did not meet that goal, however, and recent conflicts—which attest to the reliance on headquarters,

C3, and defensewide administration to prosecute the

war on terrorism—cast doubt on whether that 15 percent cut would continue through 2020 even if it were

achieved. Consequently, for its projection with cost

risk, CBO assumed that the reduction of headquarters

personnel mandated under current law would eventually be reversed, adding $1 billion a year to this category of costs by 2020.

30 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS

3

2

1

0

9

10

8

7

6

5

4

10

5

0

35

40

30

25

20

15

Billions of 2002 Dollars Thousands of 2002 Dollars

Total Spending with Cost Risk

(Left scale)

Total Spending

(Left scale)

Spending per Service Member

(Right scale)

1980 1985 1990 1995 2000 2005 2010 2015 2020

Actual FYDP Projected

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program.

Personnel Support

About 2 percent of O&S spending currently goes

toward initiatives to improve the quality of military life

and support service members' families. The category of

personnel support includes such diverse items as

morale, welfare, and recreation programs; child care;

schools for the children of DoD personnel; and commissaries and other on-base stores. 

Personnel support has been one of the more rapidly

growing categories of O&S spending in recent years

(disregarding the one-time spike in 1991 for costs

related to the Gulf War). It doubled between 1980 and

2002—from $2 billion to $4 billion (see Figure 2-9). 

In the current FYDP, annual spending for personnel 

support is projected to continue to grow, reaching $6

Figure 2-9.

Spending for Personnel Support
CHAPTER TWO

billion by 2007. Major program increases in the FYDP

include $300 million more by 2007 for adult 

voluntary education programs and an additional $400

million by 2007 for schools for DoD dependents.

However, much of the apparent increase in personnel

spending from 2003 to 2004 (about $1 billion) results

from an accounting process for funding commissaries

and exchanges. That process allocates funding in 

current and past budget years—in this case, 2003 and

earlier—to a revolving fund for the Defense

Commissary Agency, but it tracks funding for future

years as an operation and maintenance appropriation

in the individual services’ budgets. 

In CBO's projection of the Administration's plans,

personnel support costs rise by 17 percent—from $6

billion a year to $7 billion—over the 2007-2020 

period. That increase results only from pay raises for

the people engaged in personnel support activities.

Personnel support programs could keep growing after

2007, but the Administration has not formulated any

specific plans for them beyond that date. If, as in

CBO's cost-risk projection, those programs continued

to expand at the rates seen since 1980 (about 12 percent a year), annual costs for personnel support would

grow by 35 percent rather than 17 percent, reaching

almost $9 billion by 2020. 

LONG-TERM IMPLICATIONS FOR OPERATION AND SUPPORT 31
Recruiting

DoD's recruiting budget, which currently constitutes 2

percent of O&S spending, covers the costs of attracting

new personnel—costs such as advertising campaigns,

the salaries and expenses of recruiters, and hiring

bonuses for new service members. The military services try to maintain a large pool of young personnel

who can withstand the rigors of combat and be

retained in sufficient numbers to produce the senior

leaders of the future. Under current policies, the services must plan to recruit an average of roughly 200,000

new active-duty enlisted personnel each year, as well as

19,000 new active-duty officers and over 90,000 new

reserve personnel. 

Recruiting costs are a function of supply and demand.

They depend on such factors as the size of the military,

turnover rates among current personnel, the military's

standards for recruits, the size of the young-adult 

population, civilian unemployment rates, and how the

general public perceives military service. Spending on

recruiting generally increased in the 1980s and 1990s,

in part because unemployment rates in the civilian 

sector were relatively low, the population of young

adults was small, and the services raised their admission standards. In the current FYDP, that spending

continues to increase: from $3 billion in 2002 to $4

billion in 2007 (see Figure 2-10). 

CBO's projection of the Administration's plans

assumes that stability in the number of recruits needed

and the increasing population of young adults 

combine to keep the costs of attracting new military

personnel from growing. As a result, those costs rise

32 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS

1

0

6

5

4

3

2

10

5

0

35

30

25

20

15

Billions of 2002 Dollars Thousands of 2002 Dollars

Spending per Recruit

(Right scale)

Total Spending

(Left scale)

1980 1985 1990 1995 2000 2005 2010 2015 2020

Actual FYDP Projected

Figure 2-10.

Spending for Recruiting

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program.
CHAPTER TWO

only because of pay increases, which amount to an

additional $300 million annually by 2020, pushing

recruiting costs to a little over $4 billion that year. 

CBO did not project cost risk for the recruiting 

budget because the level of funding in the 2003 FYDP

appears more than adequate to cover any unforeseen

shocks in the supply of or demand for service members. The size of the youth population is expected to

grow through 2020, so a greater propensity on the part

of young people to go to college or a need for higher

recruiting bonuses to attract technically skilled personnel could still be accommodated under the Administration's planned spending levels for recruiting, CBO

believes. Even if the services' demand for recruits grew,

other factors—such as revised recruiting standards, rising military pay, or worsening civilian employment

opportunities—could mitigate the budgetary effects of

that growth, postponing the need for additional

recruiting resources. 

LONG-TERM IMPLICATIONS FOR OPERATION AND SUPPORT 33
Other Costs

In addition to funding for operation and support 

activities and investment programs, spending for 

military construction and family housing, plus a

defense emergency response fund, round out the DoD

budgets proposed in the FYDP. Those three items are

relatively small segments of the defense budget— 

together totaling about $20 billion—but they attract

large interest in some DoD and Congressional circles. 

Military Construction and Family Housing

Military construction funding pays for the planning,

design, construction, and major restoration of various

military facilities and for the up-front costs associated

with BRAC rounds.13 Except during years in which

base closures were funded, spending for military construction has ranged between $5 billion and $7 billion

a year since 1980. In the current FYDP, funding for

military construction would rise to $12 billion by

2007 because of the large BRAC round expected to

begin in 2005 (see Figure 2-11). 

34 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS

13. BRAC rounds require some up-front investment in repair and 

restoration to ensure that the bases to be closed are in good 

condition for transfer to local authorities. Those dollars are 

placed in the military construction budget until they are 

needed, at which point they are spread between the budgets for 

military construction and operation and maintenance.

0

2

16

18

14

12

10

8

6

4

Billions of 2002 Dollars

Military Construction

BRAC

Round

Family Housing

1980 1985 1990 1995 2000 2005 2010 2015 2020

Actual Projected FYDP

Figure 2-11.

Spending for Military Construction and Family Housing

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program; BRAC = base realignment and closure.
CHAPTER TWO

CBO's projection of the Administration's plans for

military construction assumes that facilities have an

average life of 67 years, that DoD replaces them steadily as they reach the end of that life, and that their

replacement value grows by 0.3 percent per year. Those

assumptions translate into budget needs of $6 billion a

year for military construction between 2010 and 2020,

which is consistent with the average levels of the past

two decades. Military construction costs would be

higher in 2008 (by $2 billion) and 2009 (by $1 billion)

because of continued expenses related to the planned

2005 BRAC round. 

Funding for family housing pays for the structures,

operating costs, leasing arrangements, and construction of military family housing. Since 1980, that funding has remained at around $4 billion to $5 billion a

year—a level that continues in the current FYDP. 

The projection of the Administration's plans for family housing assumes that spending follows the path laid

out in each service's family housing master plan and

that privatization efforts do not reduce family housing

costs below that level. Under those assumptions, the

resulting budget levels would be $4 billion a year

through 2020 for family housing, which is consistent

with past funding.

CBO did not project cost risk for military construction

or family housing because it considers the most likely

major risk to be additional construction or housing

projects, which cannot be predicted at this time.

Moreover, further study is needed to determine the

potential costs or savings that might result from 

additional BRAC rounds or from implementing the

services' plans for family housing.

Defense Emergency Response Fund 

The 2003 FYDP also includes $10 billion a year for a

general defense emergency response fund for 2004

through 2007.14 That funding is not allocated to the

services or among the budget accounts. Given the

uncertain nature of overseas and domestic threats 

and the military's ongoing commitments, CBO 

continued to include an emergency fund of $10 billion

a year from 2008 to 2020 in its projection of the

Administration's plans (see Figure 2-1 on page16).

14. In 2003, DoD requested $20 billion for its defense emergency 

response fund—$10 billion for specific projects and $10 

billion for unspecified costs of ongoing operations in the war 

on terrorism. Although the Congress did not provide the 

unspecified $10 billion in funding for 2003 in the National 

Defense Authorization Act, CBO retained that general fund 

through the FYDP years and in its projection of the 

Administration’s plans through 2020 in order to remain 

methodologically consistent.

LONG-TERM IMPLICATIONS FOR OPERATION AND SUPPORT 35

Long-Term Implications for Investment

3

The Department of Defense currently devotes about

one-third of its budget to researching, developing, testing, and buying weapon systems. In 2002, DoD's

investment budget was about $110 billion. After

Congressional action, $128 billion will be available for

investment in 2003. (Dollar amounts are expressed in

2002 dollars.) This analysis defines investment as the

sum of funding for research, development, test, and

evaluation (RDT&E) accounts and procurement

accounts. (Funding for military construction and family housing, which some budget analyses include in

investment spending, is discussed in Chapter 2.)

The 2003-2007 Future Years Defense Program, which

was associated with the President’s 2003 budget

request, envisions that funding for investment will

grow at an average annual rate of more than 5 percent

over the next five years, reaching $142 billion by 2007

(see Figure 3-1). If the plans in the 2003 FYDP were

carried out past 2007, investment would continue to

grow, the Congressional Budget Office projects—

peaking at about $164 billion in 2012. Unlike the pattern for operation and support, which is continuously

upward, investment declines after 2012 in CBO's projection as an increase in purchases begun just after the

FYDP period is completed.

Carrying out the Administration's current plans would

boost the share of the defense budget devoted to

investment from 32 percent to 35 percent over the

next five years (see Table 3-1). That increase would offset some, but not all, of the decline in investment's

share of defense spending that occurred during the

1990s. But that share would remain below the more

than 40 percent of budgets that investment received in

the 1980s—when many of the weapon systems in

today's inventories were bought.

The projections above are based on DoD's estimates of

future costs and purchases of weapon systems. However, the department has often underestimated the

costs of new weapons. If future costs exceed DoD's

current estimates to the same degree that they have in

the past, the resources associated with carrying out current investment plans could equal about $156 billion

by 2007 and top $190 billion in 2012, CBO projects.

In the absence of cost growth, investment spending

would need to average about $151 billion a year over

the 2008-2020 period to develop and buy all of the

equipment implied by the Administration's 2003-

2007 plans, CBO projects. With potential cost

growth, the average would rise to $178 billion a year.

That level of resources for defense investment is not

unprecedented: investment spending averaged $164

billion a year (in 2002 dollars) during the Reagan

Administration and exceeded $170 billion for three

years during that Administration. But spending at

those levels would continue much longer under this

estimate. The Bush Administration apparently considers the long-term affordability of its defense plans to be

an issue, as indicated by the fact that it commissioned

numerous studies of alternative program options in its

Defense Planning Guidance for 2004 to 2009.

CHAPTER
The Administration's investment plans would require

substantial increases in part because they are intended

to counter the problems of aging that are now developing for many categories of DoD weapons. CBO

projects that those plans would stabilize or even reduce

average ages for several categories of weapons—including Army ground combat vehicles and Army and

Marine Corps helicopters. In addition, current plans

would buy enough ships and aircraft for the Navy to

keep those fleets at average ages that the service considers acceptable. By 2020, aging would remain a concern

only for certain categories of Air Force weapons that

CBO analyzed: bombers, fighter and attack aircraft,

tankers, and airlifters.

Another way to assess the sufficiency of planned

weapons purchases is to compare them with steadystate purchases—the annual procurement needed to

preserve a given force size indefinitely.1 Funding that is

0

500

450

400

150

100

50

350

300

250

200

Billions of 2002 Dollars

RDT&E

Procurement

Cost Risk

1980-2002 Average

1980 1985 1990 1995 2000 2005 2010 2015 2020

Actual Projected FYDP

Figure 3-1.

Spending for Investment by Budget Account

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program; RDT&E = research, development, test, and evaluation.

38 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS

1. This analysis developed detailed year-by-year projections of the 

long-term implications of current defense programs through 

2020. It used steady-state procurement costs as one of several 

metrics to assess the sufficiency of the programs underlying 

those long-term projections. A previous CBO study, Budgeting 

for Defense: Maintaining Today’s Forces (September 2000), 

included steady-state procurement estimates for the military 

forces and defense acquisition programs planned by the 

Clinton Administration. However, that study did not provide 

detailed long-term projections of annual demands for defense 

resources comparable to the ones presented here.
CHAPTER THREE

significantly below the steady-state level would result

in inventories that are either aging or shrinking; funding above the steady-state level will cause inventories to

grow or become younger. (For more information

about how CBO calculated steady-state purchases, see

Box 1-3 in Chapter 1.)

The steady-state procurement costs associated with

sustaining today's forces over the long term would

range from about $85 billion to $111 billion a year

using DoD's cost estimates and $99 billion to $130

billion a year assuming historical cost growth. The

ranges in those estimates reflect varying assumptions

about how long systems will last. The procurement

funding that CBO projects would be needed over the

2008-2020 period to carry out current plans—about

$100 billion a year using DoD's cost estimates and

$120 billion a year assuming cost growth—is fairly

consistent with those projected steady-state costs (see

Table 3-2).

In CBO's projections, the Administration's current

plan includes only those changes reflected in the 2003

FYDP and related documents. But the Bush Administration has stated that it expects DoD's forces to ultimately be transformed. Transformation could take

many forms, depending on the success or failure of

concepts that have just begun to be explored. For

example, DoD has started research on unmanned 

aircraft, advanced-technology combat vehicles, and

LONG-TERM IMPLICATIONS FOR INVESTMENT 39

Table 3-1.

Requested and Projected Funding for Department of Defense Investment 

(In billions of 2002 dollars of total obligational authority)

Source: Congressional Budget Office.

Note: n.a. = not applicable.

Average, Average, Average,

2003-2007 2008-2014 2015-2020

Investment Funding Envisioned in the

Administration’s 2003 Future Years 

Defense Program 131 n.a. n.a.

Investment Funding in CBO’s 

Long-Term Projection of the 

Administration’s Current Plans

Without cost risk 131 157 144

With cost risk 141 184 171

Investment Funding as a Percentage 

of the Total Defense Budget

Without cost risk 34 37 33

With cost risk 35 40 36
smaller surface combat ships. In addition, the military

services and the U.S. Joint Forces Command are 

experimenting with new ways of organizing and 

operating forces that might be possible if such systems

can be developed. If those—or other—concepts succeed, future military forces could be quite different

from the ones assumed in the Administration's current

plans and in CBO's year-by-year projections.

To assess the potential impact of transformation on

future resource demands, CBO estimated steady-state

procurement costs for one example of what a transformed force might look like. That example assumes

that many of the transformation initiatives now being

undertaken by the Administration ultimately succeed

and are embraced by the military services. (For

instance, CBO's example of a transformed force uses

unmanned aircraft to replace some of today's manned

systems for both the ground-attack and reconnaissance

missions. It also assumes that many ships can be dual

crewed—using two alternate crews rotating between

two ships to operate them more efficiently. That would

Table 3-2.

Steady-State Procurement Costs Under a Variety of Assumptions 

(In billions of 2002 dollars of total obligational authority)

Source: Congressional Budget Office.

Notes: FYDP = Future Years Defense Program.

In the long-service-lives assumption, the Department of Defense keeps weapons as long as it currently projects, which is 

generally longer than it has in the past. In the short-service-lives assumption, the Department of Defense operates systems only 

as long as it has previously.

a. See text for more details of CBO’s hypothetical example of transformation.

Using DoD’s Assuming Historical

Cost Estimates Cost Growth

Steady-State Procurement Costs for 

Currently Planned Forces 

Assuming long service lives 85 99

Assuming short service lives 111 130

Steady-State Procurement Costs for 

Transformed Forcesa

Assuming long service lives 76 84

Assuming short service lives 98 114

Average Annual Procurement Costs to

Carry Out Current Plans

2003-2007 (As requested in the FYDP) 77 81

2008-2020 (As projected by CBO) 101 121

40 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER THREE

allow a smaller fleet of surface combatants to perform

the same number of peacetime missions as today's

fleet.) Such a force would be a radical departure from

the current force. CBO calculated annual steady-state

procurement needs for that transformed force assuming that the cost goals now advertised for those systems

can be met. Such goals are generally very optimistic

compared with past cost growth in DoD systems. For

example, the Global Hawk unmanned reconnaissance

aircraft now in use was originally expected to cost $20

million apiece. The actual cost has exceeded $60 million per aircraft, although that amount also buys a

more capable aircraft than was originally envisioned.

CBO's estimate of steady-state procurement costs for a

transformed force suggests that DoD might reduce its

annual procurement needs from those associated with

current plans if it is ultimately able to change those

plans significantly. Savings of about 10 percent to 15

percent relative to CBO's estimate of the annual

steady-state costs of currently planned forces might be

possible if the particular example of transformation that CBO examined could be achieved.

LONG-TERM IMPLICATIONS FOR INVESTMENT 41
Top Programs

Other Major Investment

Billions of 2002 Dollars

FYDP Projected

See

Chart

Below

Billions of 2002 Dollars

FYDP Projected

Minor Investment

Fighter and Attack Aircraft

Surface Combatants and Amphibious Ships

Submarines

Army Combat Vehicles

Short- and IntermediateRange Missile Defense

Long-Range

Missile Defense

Army Helicopters

Army Digitization

Aircraft Carriers

Selected Navy and Marine 

Corps Helicopters

Long-Range Strike

Mobility Aircraft

}

0

20

40

60

80

100

120

140

160

0

10

70

60

40

50

30

20

180

200

2005 2008 2011 2014 2017 2020

2020

2002

2002 2005 2008 2011 2014 2017

Figure 3-2.

Projected Department of Defense Spending for Investment

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program.

42 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER THREE

Overview of Investment

Funding for research, development, test, and 

evaluation activities made up 44 percent of investment

spending in 2002 and 2003. RDT&E funding pays

for basic and applied research, construction of devices

to demonstrate new technology, and development and

testing of prototypes and full-scale precursors to 

production models. It also pays for operational testing

early in a system's service life and for testing modifications during the course of the system's operation. The

other component of investment spending—procurement—pays for the purchase of new weapons and

other equipment for DoD and the modification of

existing equipment.

Almost 60 percent of investment funding goes to 

develop and purchase major systems—such as aircraft,

ships, and tanks—for which DoD develops detailed

plans. (CBO calls that category major investment.)

The other 40 percent (which CBO terms minor investment) funds items for which DoD provides no

long-term plans (see Figure 3-2). Those items include

such things as ammunition, less expensive communications equipment, and computers. 

Major Investment

CBO projected the long-term resource demands for

major systems individually, using the Administration's

long-range program plans (which can include development schedules, purchase quantities, and annual purchase rates). That information comes from several documents. The Future Years Defense Program provides

detailed data about a broad spectrum of DoD programs through 2007. DoD also delivers committee

staff backup books for each of the accounts in the 

procurement title and descriptive summaries for

accounts in the RDT&E title to the Congress each

year to support the budget request.2Those reports provide additional details about DoD programs at the 

appropriation and account level and, for some 

programs, include summaries of plans for periods 

several years beyond the FYDP. For an even smaller

number of programs (fewer than those displayed in the

FYDP or the backup books), DoD provides Selected

Acquisition Reports (SARs), which contain the 

department's projections of development schedules,

purchase rates and quantities, and costs through the

duration of a program.3 DoD is required by the

Congress to provide SARs for major programs that

meet certain guidelines.

Data for a few major investment programs were 

lacking or conflicting; in those cases, CBO produced

independent estimates. In particular, CBO developed

projections for procurement when it appeared that the

Administration or one of the services planned to 

buy a piece of equipment but had not included an estimate of its procurement costs in budgetary backup

material. For example, CBO generated a schedule and

estimated costs for developing, procuring, and launching a constellation of space-based radar satellites,

because the Administration's plans include development funding for such satellites beginning in 2003.

Likewise, because of a lack of information about the

LONG-TERM IMPLICATIONS FOR INVESTMENT 43

2. Procurement and RDT&E are titles in the national defense 

budget functions. Those titles are broken into a number of 

appropriations or accounts, for which DoD provides detailed 

reports. For example, one account in DoD’s procurement title 

covers spending to purchase ammunition for the Air Force. 

The report on that account for the 2003 budget request was 

Department of the Air Force, Committee Staff Procurement 

Backup Book, FY 2003 Amended Budget Submission: 

Procurement of Ammunition (February 2002). Another account 

pays for the Army’s RDT&E activities during two segments of 

the development process. The report on that account for the 

2003 budget request was Supporting Data, FY 2003 President’s 

Budget, Descriptive Summaries of the Research, Development, 

Test, and Evaluation Army Appropriations, Budget Activities 4 

and 5, Volume 2 (February 2002).

3. See Department of Defense, Selected Acquisition Reports for the 

Quarter Ending 6/30/02 (August 2002), and Future Years 

Defense Program 2003-2007 (April 2002). Neither document is 

publicly available, but information about the 2003 budget 

year—effectively the first year of the FYDP—is available at 

a Web site maintained by the DoD Comptroller 

(www.dtic.mil/comptroller/fy2003budget/index.html).
content of the highly classified National Foreign

Intelligence Program, CBO projected that the 

program would be funded through 2020 at its 2007

level.

CBO also developed its own projections in a few cases

in which the Administration changed its plans for a

program after submitting the budget. An example is

the Army's Crusader, a self-propelled artillery system.

The Administration announced in April 2002 that it

would cancel the program. That announcement came

three months after the Administration submitted its

budget request for 2003, so the Administration's 

budget documentation does not reflect the funding

implications of that change. In those and a variety of

other cases, CBO consulted personnel in the Office of

the Secretary of Defense, the Office of the Chairman of

the Joint Chiefs of Staff, or the services about the latest

plans before producing its estimates—though CBO's

cost and schedule projections were developed independently.

A handful of top spending programs account for slightly less than two-thirds of DoD's major investment

funding (see Figure 3-2). Those programs include tactical fighter aircraft (specifically, the Joint Strike Fighter,

the F-22, and the F/A-18E/F), surface combatants (the

DDG-51, the new DD-X destroyer, and the smaller littoral combat ship), and Army helicopters (the

Longbow Apache and Comanche attack helicopters as

well as the CH-47 cargo helicopter and modifications

to the Blackhawk utility helicopter). Funds for missile

defense are also included in that part of CBO's projection. Spending for those programs drives total investment spending and thus mostly exhibits the same

trends: rising rapidly through 2007, peaking in the following five years, and then gradually declining. CBO

projects that annual resource demands for those investment programs would exceed a total of $60 billion at

their peak in 2008, remain close to that level through

2012, and then decrease to about $50 billion by 2020.

Minor Investment

Procurement funding in CBO's minor-investment category pays for the purchase of such items as artillery

rounds, radios, passenger vehicles, and spare parts to

fill up supply bins when a system is initially fielded, as

well as for relatively low-cost modifications to systems

that are already in use. (Spare parts to replenish stocks

are funded in the operation and maintenance accounts.) RDT&E funding in the minor-investment

category pays for basic and applied research, development of advanced technologies, management activities

in support of development, and some lower-cost programs to develop modifications to fielded systems.

Since DoD provides no detailed plans for those items

and activities, CBO projected their long-term resource

demands on the basis of trends in their funding since

1980 and the relationship between that funding and

spending for major programs. The relationship

between major and minor spending within the sum of

funds in RDT&E and procurement varies among the

three military departments, so CBO produced a 

separate estimate for major investment funding and

minor investment funding for each department.

Funding for some highly classified (or black) programs

is implicitly captured in those relationships.

The Bush Administration has set a goal of allocating at

least 3 percent of total defense spending to the science

and technology portion of the RDT&E accounts to

support basic research, applied research, and development of advanced technology. That goal is not

achieved in the 2003 FYDP, but CBO assumed that

DoD would increase funding steadily for those 

activities after 2007, meeting the 3 percent goal in

2011.

Cost Risk

CBO's projections of investment spending depend on

assumptions made about costs—particularly the 

assumption that future investment costs will equal

44 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER THREE

DoD's current estimates of them. In the past, DoD has

often underestimated what new systems will cost to

develop and purchase. Consequently, CBO also 

projected investment resources assuming that DoD's

past experience with cost growth is repeated in the

future.

Those projections are largely based on information

from a RAND analysis of the cost growth that has

occurred since 1969 for all major programs for which

DoD submitted annual Selected Acquisition Reports

to the Congress through 1999.4 RAND compared the

cost estimates that DoD made for SAR systems at the

Milestone B (system development and demonstration)

stage, when extensive development activity begins,

with its cost estimates for those systems when they

were produced and became operational.5 The analysis 

developed estimates of increases or decreases for both

development and procurement costs for eight 

categories of systems, including ships, ground combat

vehicles, and aircraft. 

RAND's analysis—based on 3,047 SARs submitted to

the Congress over the 1969-1999 period for 274 

programs—suggests that most DoD programs increase

in cost. In addition, those programs are often delayed,

and DoD may eventually purchase smaller numbers of

weapons than it originally expected to buy. RAND

adjusted systems' procurement prices to account for

cuts in quantity (although its analysis showed both

adjusted and unadjusted numbers). RAND also estimated the cost and schedule changes that occurred by

service and by type of weapon.6 Army ground combat

vehicles and space programs have experienced the

largest growth rate in development costs—both about

70 percent relative to early estimates. Army ground

combat vehicles have also experienced the greatest

growth rate in procurement costs—again about 70

percent. Ships have had the smallest growth in both

development and procurement costs: 16 percent and

11 percent, respectively. For its cost-risk case, CBO

applied RAND's cost-growth factors for those and

other categories of weapon systems to programs that

have not yet entered production.7

The Administration has launched a policy initiative to

make DoD's cost estimates more realistic. It includes

incorporating factors to reflect DoD's experience with

LONG-TERM IMPLICATIONS FOR INVESTMENT 45

4. RAND's most recent published study on its SAR database is 

Jeanne M. Jarvaise, Jeffrey A. Drezner, and D. Norton, The 

Defense System Cost Performance Database: Cost Growth 

Analysis Using Selected Acquisition Reports, MR-625-OSD 

(Santa Monica, Calif.: RAND, 1996). The estimates of cost 

growth that CBO used in this analysis are based on unpublished updates of the 1996 report prepared by Robert S. 

Leonard, Fred Timson, and John C. Graser in 1999 through 

2002.

5. Major DoD programs go through a series of stages that are outlined in DoD's acquisition regulations. Milestone B (formerly 

Milestone II) is when a program enters the system 

development and demonstration stage (formerly known as 

full-scale development, or FSD, and as engineering and 

manufacturing development, or EMD). For a discussion of 

those milestones, see the Web site of the Undersecretary of 

Defense for Acquisition, Technology, and Logistics at 

www.acq.osd.mil/ap/dodi_5000_2_final_version_april_05_

2002_Instruction.doc.

6. The Institute for Defense Analyses (IDA) has also analyzed 

trends in weapons costs using a database from DoD's Selected 

Acquisition Reports. Like RAND, IDA produced separate 

estimates for the different military services and for various types 

of systems. IDA used slightly different methods in estimating 

cost growth—adjusting for model changes as well as for 

changes in total quantity—and its estimates cover a somewhat 

different group of systems. Nonetheless, its estimates of past 

cost growth mostly equal or exceed those reported by RAND. 

See Karen W. Tyson and others, The Effects of Management 

Initiatives on the Costs and Schedules of Defense Acquisition 

Programs (Alexandria, Va.: Institute for Defense Analyses, 

1992), and Karen W. Tyson, Bruce R. Harmon, and Daniel M. 

Utech, Understanding Cost and Schedule Growth in 

Acquisition Programs (Alexandria, Va.: Institute for Defense 

Analyses, 1994.)

7. DoD's costs also grow after systems enter production, although 

CBO did not incorporate that in its projections. One factor 

that causes cost growth during production is model changes. 

For example, the C/D models of both the F-15 and F-16 were 

more expensive than the A/B models that preceded them.
cost growth in projections for major programs in future

budgets. Independent estimates developed by the Cost

Analysis Improvement Group (CAIG) in the Office of

the Secretary of Defense are to be used as baselines for

major programs in the future. CAIG estimates have

often been closer to actual costs than estimates developed by the military services, which were most often

used in the past to develop budgets.

Despite that change, DoD's investment costs could

continue to grow beyond expectations, for at least three

reasons. First, DoD has not fully implemented the 

policy initiative yet, and many new programs, such as

space-based radar, lack CAIG estimates. Second, even

when the policy is fully implemented, it will not apply

to the many programs that are delegated to the 

services for oversight. The CAIG does not routinely

estimate the costs for such programs. (In 2012, about

20 percent of CBO's projection for total investment

without cost risk and about one-third of its projection

for major investment reflects programs for which

CAIG cost estimates have been made.) And third,

DoD programs have experienced some cost growth in

the past even relative to CAIG estimates.

DoD can offset the effect of cost increases on its 

yearly budgets to some extent by delaying the start of

programs, stretching out their schedules, and reducing

quantities purchased. (Such program changes often

come at the cost of increased development funding or

higher unit costs for procurement.) In particular,

analysis suggests that the department often produces

fewer weapons than it originally projected. If quantities were reduced or programs were delayed, annual

resource demands could be lower than in CBO's projection with cost risk—but such a revised plan would

be different from the overall defense program that

CBO is analyzing, and program requirements, as they

are now defined, would not be met without those

higher expenditures. Therefore, CBO's projection

focuses on proceeding with programs as they are currently planned, not on how those programs might

change later to conform to future budget constraints.

46 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER THREE

The Army

The Army plans to increase investment funding by

about a quarter during the FYDP: from $19 billion in

2002 to $24 billion in 2007. To carry out current

plans, Army investment funding would have to rise

much more rapidly immediately thereafter, CBO 

projects. It would need to grow by $6 billion between

2007 and 2008 and reach a peak of $35 billion in

2012—or about 80 percent more than today's funding

(see Figure 3-3).

Those substantial resource demands result from the

Army's plans to purchase several new major systems

simultaneously, including the Future Combat System

—which is supposed to ultimately replace Army

ground combat vehicles—and the RAH-66 Comanche helicopter. (Those programs are examined in more

detail in the next two sections.) Resource demands

could also rise after 2007 for other major investment

programs, including a variety of next-generation tactical missiles, new heavy trucks, and new high-capacity

tactical radios.

Missile defense systems are funded in the DoD-wide

portion of the defense budget while they are being

developed, rather than in the services’ budgets. Once a

system enters procurement, its funding is to be moved

to the budget of the service that will operate it. Thus,

LONG-TERM IMPLICATIONS FOR INVESTMENT 47

Billions of 2002 Dollars

Cost Risk

FYDP Projected

Minor Investment

Other Major Investment

Trucks

RAH-66 Cargo and 

Utility Helicopters

Future Combat System

Digitization

0

50

40

30

20

10

15

25

35

45

5

2002 2005 2008 2011 2014 2017 2020

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program.

Figure 3-3.

Projected Army Spending for Investment
CBO's projection of Army investment includes procurement spending to field ground-based missile

defenses, which is projected to increase. (CBO's projections for missile defenses are discussed in detail later

in this chapter.)

A major component of the Army's plans is a set of 

programs that CBO grouped under the term digitization. The Army expects those programs to meet its

needs to increase the transfer of data among its own

units, between itself and the other services, and

between fielded forces and those at headquarters.

Much of the Army's current doctrine is predicated on

dramatically improving both the quantity and quality

of information that can be provided to soldiers on the

battlefield. The digitization category includes spending

for the programs associated with those improvements.

Growth in the resources needed to carry out current

investment plans would be even higher if the Army did

not succeed in holding down the costs of its new

weapon systems. If their costs grew at past rates, the

Army's annual investment could rise to a peak of $45

billion in 2012, more than double today's level.

48 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER THREE LONG-TERM IMPLICATIONS FOR INVESTMENT 49

MLRS

Future Combat System

Abrams Stryker

Bradley

M109A4

M-60 M109A5 and Paladin

Number of Vehicles

Annual Purchases

Annual Funding

Actual Projected FYDP

Steady 

State

Steady 

State

}

Billions of 2002 Dollars

Actual Projected FYDP

}

0

200

400

800

600

1,800

1,600

1,400

1,200

1,000

0

1

2

6

3

4

5

1980 1995 2000 2005 2010 2015 2020 1985 1990

1980 1985 1990 1995 2000 2005 2010 2015 2020

Source: Congressional Budget Office using data from the Department of Defense.

Notes: FYDP = Future Years Defense Program; MLRS = multiple-launch rocket system.

The M109A5 and Paladin were funded as a single program.

Figure 3-4.

Procurement of Army Ground Combat Vehicles
Army Ground Combat Vehicles

After the end of the Cold War, DoD cut the number of

active and reserve Army divisions from 28 to 18, creating surplus stocks of many kinds of ground combat

equipment. As a result, procurement of ground combat

vehicles—such as tanks, armored personnel carriers,

and self-propelled artillery—slowed dramatically (see

Figure 3-4). The Army bought an average of about 430

ground combat vehicles per year in the 1990s, compared with annual purchases averaging more than

1,300 in the 1980s. Thus, Army procurement funding

for those vehicles dropped sharply during the 1990s.

Those cutbacks were eventually felt, and the average

age of the Army's ground combat vehicles began to rise

(see Figure 3-5), reaching 10 years by 2000. CBO's

analysis suggests that the average age of those vehicles

will continue to rise through 2008, when it will

approach 15 years, before deliveries of projected purchases begin to lower it.

The Army plans to change the composition of its fleet

of ground combat vehicles radically over the next 

several decades. Today's heavy forces were developed

for a Cold War battle in Europe against heavy ground

combat vehicles of the former Soviet Union. Division

sets of equipment, including tanks and other heavy

equipment, were prepositioned in Germany, where

they could be easily transported by ground to where

they would be needed if war occurred. In addition,

during the four decades of the Cold War, an extensive

network of logistical support had been built up for

forces deploying from the United States.

Today, the Army is questioning whether the heavy

vehicles of the 1980s are significantly less useful, given

the uncertain nature and location of potential foes and

future conflicts. Tanks and other ground combat 

vehicles may be too heavy to transport quickly to 

distant theaters. In addition, future battles might occur

in places where logistical support was rudimentary at

best. And the tanks that were needed to counter Soviet

tanks may not be as useful in wars against terrorists

with small arms or unconventional weapons. Finally,

improvements in the accuracy of munitions may have

made some of the Army's heavy forces overly vulnerable to attack.

The Army is trying to address some of its concerns

about the weight, mobility, and vulnerability of 

current forces by developing and fielding several new

systems. The Stryker, a wheeled armored vehicle now

in production, is intended to replace some of the

equipment in existing light infantry brigades, thus 

creating what the Army calls interim combat brigades.

The Stryker is lighter than the Army's Bradley fighting

vehicle or Abrams tank, so brigades equipped with the

Stryker can be transported more rapidly than can

heavy combat brigades.

The Future Combat System (FCS) is the next step in

the Army's transformation plans. The FCS program is

intended to produce a variety of vehicles that would

weigh about one-third (or less) of the weight of an

Abrams tank. The Army expects these vehicles to

replace heavy main battle tanks and other ground

combat vehicles beginning in 2008. According to the

Army, FCS variants will use advanced technologies to

achieve the same or better lethality than today's much

heavier tanks and other armored vehicles, while being

just as survivable. All-electric drives, advanced active

protection (rather than the passive protection provided

by heavy armor), and unmanned, autonomous operation are among the technologies being considered for

the FCS.

Once the Future Combat System enters production, it

is supposed to replace most of the combat vehicles that

now equip Army divisions. The Army hopes that, at

peak production, enough FCSs will be built to equip

three brigades per year. The capabilities that each element of the FCS will provide are still being defined, so

it is unclear whether every combat vehicle now in an

Army brigade will be replaced by one FCS. If that 

happened, the Army's peak production of FCS vehicles would be about 1,200 per year. CBO's funding 

projection for the FCS adopts the current unofficial

cost goal of the Army Staff: to buy three brigade sets of

FCS equipment per year at a cost of about $4 billion.

50 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER THREE LONG-TERM IMPLICATIONS FOR INVESTMENT 51

1990

0

5

10

20

15

Years

Average Age

Inventory

1995 2000

Actual FYDP Projected

2005 2010

Half- }Life

2015 2020

Number of Vehicles

1990

0

25,000

20,000

15,000

10,000

5,000

1995 2000

Actual FYDP Projected

2005 2010 2015 2020

Bradley Future Combat

System

Abrams

M109A4 MLRS

M109A5

Paladin

Stryker

M-60

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program; MLRS = multiple-launch rocket system.

Figure 3-5.

Age and Inventory of Army Ground Combat Vehicles
1995

Future Transport Rotorcraft

CH-47

AH-64

UH-60

AH-1

RAH-66

1980 1985 1990

0

30

60

120

90

270

240

210

180

150

Number of Helicopters

Annual Purchases

Annual Funding

2000

Actual FYDP Projected

2005 2010

Steady 

State

Steady 

State

}

2015 2020

Billions of 2002 Dollars

0

1

5

4

3

2

Actual FYDP Projected

}

1980 1995 2000 2005 2010 2015 1985 1990 2020

Source: Congressional Budget Office using data from the Department of Defense.

Notes: FYDP = Future Years Defense Program.

The OH-58s and UH-1s shown in Figure 3-7 were purchased before 1980.

Figure 3-6.

Procurement of Army Helicopters

52 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER THREE

Army Helicopters

Like the Army's fleets of ground combat vehicles, its

attack and utility helicopters have been reduced since

the end of the Cold War. From about 7,900 helicopters in 1991, the Army now has fewer than 4,000. That

inventory will decrease even more over the next several years as the Army retires utility helicopters—largely

from the Army National Guard and Army Reserve—

without replacing them. Under current plans, the

number of Army helicopters would drop slightly below

3,000 by 2004 and remain close to 3,000 throughout

CBO's analysis period.

The Army has followed the same cyclical pattern in its

helicopter purchases that it has for ground combat

vehicles. Those purchases peaked at more than 250

helicopters in 1985 and exceeded 100 per year during

most of the 1980s (see Figure 3-6). Helicopter 

purchases fell sharply in the 1990s and reached a nadir

of 12 aircraft in 2002. Under the 2003 FYDP, 

annual purchases of new and refurbished helicopters

are planned to grow rapidly, topping 100 in 2006—

about eight times the 2002 quantity. In CBO's longterm projection of current plans, annual purchases of

new and refurbished helicopters would reach about

180 by 2010. Those quantities would equal or exceed

the purchases needed to sustain today's helicopter fleet

indefinitely (96 to 138 aircraft per year, depending on

how long helicopters are expected to last).

Even if costs did not grow above the Administration's

current estimates, the Army would pay an average of

$18 million for each helicopter that it buys over the

next 20 years under current plans, or $7 million more

than the average cost during the 1980s. Those higher

procurement costs occur mainly because the Army

intends to buy up to 96 relatively expensive RAH-66

Comanche light-attack/reconnaissance helicopters a

year.8 In CBO's projection, resource demands for 

helicopter procurement would average $2.6 billion

over the 2003-2020 period—about four times the

average of the 1990s. Moreover, helicopter procurement costs would exceed the peak spending level of the

1980s in 10 out of the next 20 years, CBO estimates.

If the Army can afford those purchases, it should be

able to support its planned forces and do so with a

slightly younger fleet of helicopters (see Figure 3-7).

The average age of Army helicopters was about 12 at

the beginning of the 1980s, but it grew during that

decade because the service retained a large number of

older OH-58 reconnaissance helicopters and 

Vietnam-era UH-1 utility helicopters. Although 

purchases of UH-60 Blackhawk utility helicopters and

AH-64 Apache attack helicopters were substantial,

they were below the rates needed to sustain a force

approaching 8,000 aircraft; thus, the Army's helicopter

fleet was about 18 years old, on average, by 1991.

Despite declining purchases, average age did not

increase significantly during the 1990s because the

Army began to retire large numbers of its oldest 

helicopters. The average age of the fleet will decline

somewhat between 2002 and 2004 as the Army 

finishes retiring all of its UH-1s. After that, average age

is projected to rise again until Comanche helicopters

start being delivered in large quantities after 2012.

LONG-TERM IMPLICATIONS FOR INVESTMENT 53

8. Erin Q. Winograd, "Aldridge Signs RAH-66 Comanche 

ADM, Procurement Cut in Half," Inside the Army, October 

21, 2002, p. 1. The Administration reportedly has decided to 

cut the Comanche procurement rate to 60 a year. CBO has not 

reflected the smaller quantity in its long-term projection since 

that decision will be incorporated in the FYDP plans that 

accompany the President's 2004 budget request, to be 

submitted in February 2003. Reducing annual purchases by 36 

Comanches would lower CBO's estimate for helicopter 

procurement by roughly $680 million a year, on average, over 

the 2010-2020 period (when yearly purchases were projected 

to have reached 96 but would now reach only 60).
Years

Actual Projected FYDP

HalfLife

Number of Helicopters

Actual Projected FYDP

Inventory

OH-58

RAH-66

AH-1

AH-64

UH-1

CH-47

UH-60

Average Age

0

0

10

20

30

40

2,000

1,000

3,000

5,000

4,000

6,000

7,000

8,000

9,000

}

1980 1985 1990 1995 2000 2005 2010 2015 2020

1980 1985 1990 1995 2000 2005 2010 2015 2020

Source: Congressional Budget Office using data from the Department of Defense.

Notes: FYDP = Future Years Defense Program.

Future Transport Rotorcraft are supposed to be purchased before 2020 but not delivered.

Figure 3-7.

Age and Inventory of Army Helicopters

54 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER THREE

Procurement Funding for the Army

If the Army's current plans for procurement were 

carried out through 2020, the service would buy

enough weapons to keep its inventories at about 

current levels and maintain average fleet ages within

limits that the Army has found acceptable in the past.

To do that, however, the Army's annual procurement 

funding would need to double, from about $12 billion

today to a peak of about $26 billion in 2011, under

optimistic assumptions about prices. If procurement

costs grow as they have historically, the cost of implementing current plans would approach $35 billion in

2011. After that, annual procurement costs would

decline slowly through the rest of CBO's projection 

period. The average of that planned funding over the

2008-2020 period falls within the range that CBO

estimated the Army would need (steady-state funding

of $18.5 billion to about $35 billion) to sustain current forces indefinitely (see Figure 3-8).

LONG-TERM IMPLICATIONS FOR INVESTMENT 55

Billions of 2002 Dollars

Cost Risk

Steady }State

FYDP Projected

Helicopters

Combat Vehicles

Other Major Procurement

Minor Procurement

0

20

30

40

55

60

10

2002 2005 2008 2011 2014 2017 2020

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program.

Figure 3-8.

Projected Army Procurement Funding Versus Steady-State Costs
The Navy and Marine Corps

Investment for the Department of the Navy (which

includes the Marine Corps) would grow by more than

60 percent over the next eight years under the 2003

FYDP plan and CBO's projections of its long-term

implications (see Figure 3-9). From a level of about $36

billion in 2002, that spending would peak at about $58

billion in 2010 and then decline thereafter. Spending

would average $50 billion a year between 2008 and

2020. By the end of the projection period, Navy and

Marine Corps investment spending would return to

about $40 billion a year. If investment costs grow as

they have in the past, however, investment spending

for the two services could rise to a peak of $66 billion

by 2010 and average $58 billion a year between 2008

and 2020, falling back to about $47 billion by the end

of the period.

During the 1990s, with the Cold War over, the Navy

retired many of its older ships and aircraft. Consequently, it was left with relatively young fleets and

did not need to purchase many weapon systems to sus0

70

60

50

30

40

20

10

Billions of 2002 Dollars

Minor Investment

Other Major Investment

Miscellaneous Weapons

Submarines

DDG-51 and 

Cruiser Conversions

Joint Strike Fighter

DD(X)/LCS Carriers

CG(X)

Cost Risk Amphibious Ships

F/A-18 E/F

FYDP Projected

2002 2005 2008 2011 2014 2017 2020

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program; LCS = littoral combat ship.

Figure 3-9.

Projected Navy and Marine Corps Spending for Investment

56 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER THREE

tain the force structure. However, those young systems

of the 1990s will become the old systems of the 2010s.

Thus, the Navy will need to boost its procurement

spending in coming years to prevent its ship and aircraft fleets from reaching average ages that exceed half

of their planned service lives. (Exceeding that age

means that the Navy might have to buy weapon systems at rapid rates or extend service lives to sustain current forces. Such actions might not be a problem if

they affected only a few systems, but having to rapidly

replace systems in a number of mission categories

could be costly.)

LONG-TERM IMPLICATIONS FOR INVESTMENT 57
Submarines

Amphibious Ships

Surface Combatants Aircraft Carriers

Other

Number of Ships

Annual Purchases

Annual Funding

Actual Projected FYDP

Steady 

State

Steady 

State

}

Billions of 2002 Dollars

Actual FYDP Projected

}

1980 1995 2000 2005 2010 2015 2020 1985 1990

1980 1995 2000 2005 2010 2015 2020 1985 1990

0

5

10

15

20

25

30

0

5

10

15

20

25

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program.

Figure 3-10.

Procurement of Battle Force Ships

58 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER THREE

Navy Battle Force Ships

During the Reagan-era defense buildup of the 1980s,

the Navy purchased an average of 20 battle force ships

(ships designed to participate in or directly support

combat operations) each year, at an average spending

level of $14 billion (see Figure 3-10). Averages are

important when looking at procurement spending for

battle force ships because big-ticket items, such as aircraft carriers, can produce large spikes in spending during the years when they are purchased. In the 1990s,

the Navy took a procurement holiday, and the shipbuilding rate fell by more than half: to an average of

eight ships a year (many of them relatively inexpensive

support ships) at $6 billion annually. Those reductions

accompanied substantial cuts in force structure: the

size of the Navy's battle force fleet dropped from 550

ships in 1990 to 314 today (see Figure 3-11).

The lower levels of spending and purchases seen in the

1990s continue in the 2003 FYDP. However, not all

the plans and programs that the Navy has announced

are fully reflected in that FYDP. CBO estimates that

those plans would eventually lead to a fleet of 354 battle force ships. That number is much larger than

today's fleet largely because of the Navy's plan to buy

56 corvettes (littoral combat ships), which is not

reflected in the funding projections in the 2003

FYDP.9

To maintain a fleet of about 354 ships, the Navy would

need to spend more money on ship construction than

it has in recent years or plans to under the 2003 FYDP.

Ship purchases would have to average between nine

and 13 per year (depending on assumptions about

average service lives) to keep the fleet at 354 battle

force ships indefinitely.10 Under CBO's long-term projection of current and future ship procurement plans,

the Navy would meet those construction rates by

2010. It would buy an average of 14 ships per year

between 2010 and 2020, spending around $13 billion

annually to do so—almost as much as during the

defense buildup of the 1980s. In short, if the Navy

were to receive the funding to implement its ship construction programs and plans, it would increase the

size of the battle force fleet from 314 ships now to 323

in 2020. If that level of annual funding could be sustained indefinitely, the fleet would grow to about 350

in the mid- or late 2020s and remain there.

Although construction of battle force ships fell by

more than 50 percent in the 1990s, the average age of

the fleet declined by four years (from 17 to 13) over

the same period as older ships were retired and younger

ones were retained. Since then, average age has begun

increasing. If the Navy's plans for a larger fleet were

fully funded, that rise in age would halt.

Submarines 

Perhaps the greatest procurement challenge facing the

Department of the Navy is sustaining a force of 55

attack submarines (SSNs).11 The attack submarine

force saw its deepest cuts in recent history in the

1990s, during which the Navy built only five SSNs.

LONG-TERM IMPLICATIONS FOR INVESTMENT 59

9. The Navy has not officially determined how many surface 

combatants it would like to have. The best information 

available to CBO at the time of this writing suggests that the 

service wants 160 surface combatants, including 56 corvettes, 

which are relatively small ships designed to operate in the 

world's coastal waters. Combining those ships with the Navy's 

other ship programs and goals results in a 354-ship fleet. (The 

service's new proposed force goal is 375 battle force ships. Part 

of the difference between that goal and the 354-ship fleet is 

that the Navy would count an additional nine mine-clearing 

ships as battle force ships that are not included in that category now. In addition, the Navy may need more support ships, 

which CBO did not include in its analysis of the Navy's plans 

because the number is not yet determined. CBO is preparing a 

study on transforming surface combatants that will address 

that issue in more detail.)

10. For a 354-ship Navy, if the average service life per ship is 28 

years (which is in line with historical norms), the Navy would 

need to buy 13 ships annually. If the average service life is about 

40 years (which is how long the Navy hopes to operate many 

of its ships), it would need to purchase about nine ships every 

year.

11. See Congressional Budget Office, Increasing the Mission 

Capability of the Attack Submarine Force (March 2002), for a 

more detailed discussion of attack submarines.
10

0

20

30

Years

Average Age

Inventory

Actual Projected FYDP

Half- } Life

Number of Ships

1980 1985 1990

0

800

Other

Surface Combatants

Submarines

Amphibious Ships

Aircraft Carriers

600

400

200

1995 2000

Actual FYDP Projected

2005 2010 2015 2020

1980 1995 2000 2005 2010 2015 2020 1985 1990

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program.

Figure 3-11.

Age and Inventory of Battle Force Ships

60 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER THREE

The Navy currently buys SSNs at a rate of one per

year—a rate that would keep the force at about 55

SSNs through 2015 (assuming that all Los Angeles

class submarines that have service life remaining on

their hulls when their nuclear fuel cores wear out are

refueled and kept for their entire 33-year service life).

After 2015, however, the size of the force would fall

precipitously as large numbers of Los Angeles class

submarines were retired.

To prevent that from happening, the Administration's

program would have the Navy begin building three

attack submarines a year in 2008 and continue that

rate through 2020 and beyond. That higher rate would

more than double the $2.7 billion a year now being

spent on building and reconfiguring submarines. (The

Navy is converting four Trident submarines to a 

guided-missile, or SSGN, configuration. If the SSGNs

can be considered substitutes for SSNs, the rise in construction rates could be delayed for two years.)

Without an increase in annual spending for SSNs of

several billion dollars, it would be virtually impossible

to sustain 55 SSNs through 2020.

Surface Combatants

Spending on surface combatants did not decline as

rapidly during the 1990s as did spending on attack

submarines. During that period, the Navy built more

surface combatants than were necessary to maintain a

force of 116 ships, the goal laid out in DoD's 2001

Quadrennial Defense Review. Between 1990 and

2002, the Navy bought an average of 3.5 surface combatants per year, compared with the 2.9 to 3.9 needed

to keep the force at 116 indefinitely.

The Navy has stated that it wants to increase the size

of the surface combatant force to 160 ships (including

56 littoral combat ships). That would mean spending

even more on surface combatants: an average of six

ships per year between 2010 and 2020, at a procurement cost of $5 billion annually. That level is roughly

equal to what was spent on surface combatants during

the Reagan-era defense buildup; it is two-thirds greater

than what the Navy is spending on those ships today.

CBO projects that if the Navy received that funding,

the number of surface combatants would rise from 115

now to 136 by 2020.

LONG-TERM IMPLICATIONS FOR INVESTMENT 61
A-6

AV-8B

F/A-18A-D

F-14

JSF

UCAV-N

0

20

40

80

60

160

180

140

120

100

Number of Aircraft

Annual Purchases

Annual Funding

Actual Projected FYDP

Steady 

State

Steady 

State

}

1980 1995 2000 2005 2010 2015 2020 1985 1990

Billions of 2002 Dollars

0

1

4

2

9

8

7

6

5

3

Actual Projected FYDP

}

F/A-18E-F

1980 1995 2000 2005 2010 2015 2020 1985 1990

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program; JSF = Joint Strike Fighter; UCAV = unmanned combat air vehicle.

Figure 3-12.

Procurement of Navy Fighter and Attack Aircraft

62 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER THREE

Navy Fighter and Attack Aircraft

As it did with ships, the Navy cut back substantially on

the quantities of fighter and attack aircraft that it

bought following the large buildup of the 1980s (see

Figure 3-12). Annual purchases of those planes averaged 49 during the 1990s, compared with an 

average of 127 during the 1980s. Under the Navy's

current plans, aircraft purchases average 56 per year

between 2000 and 2009, and potential resource

demands average about $4.2 billion a year. Those 

numbers would rise further in the next decade: to an

average of 92 aircraft and about $5.0 billion per year

over the 2011-2020 period. That sum is almost equal

to what the Navy spent on fighter and attack aircraft in

the 1980s and is roughly two-thirds more than it will

spend on them in 2003.

Overall, the Navy's fighter and attack aircraft are

newer than those of the Air Force. The average age of

those Navy aircraft, which was fairly constant in the

1980s, declined during the early 1990s and reached a

low of 8.7 years in 1996 (see Figure 3-13). After that,

average age began to grow. It would continue to rise

over the next five years under the 2003 FYDP, reaching an average of 14.8 years in 2008.

The Administration's longer-term plans, if executed as

CBO envisions, would slow the growth in average age

after 2008, keeping it from exceeding 15 years (the

upper bound of the half-life range) through 2020. The

average age of fighter and attack aircraft would fall

once the large numbers of Joint Strike Fighters (JSFs)

that the Navy plans to buy are delivered, dropping

below 10 years (the bottom of the half-life range) by

the middle of the next decade.

The Navy's current requirement for fighter and attack

aircraft is about 1,300 planes (plus replacements for

attrition). Thus, in order to maintain the average age of

the fleet at half its service life or less, the Navy must

buy 56 to 77 aircraft per year, depending on whether

those planes' service lives are assumed to be 20 or 30

years.

The Navy's plans are particularly dependent on having

a successful development program for the Joint Strike

Fighter. If that program was unsuccessful, the Navy

could instead buy F/A-18E/Fs to use on its aircraft 

carriers for roughly the same cost as the JSF (or perhaps less, if the developmental fighter grows in cost).

But delays in the JSF schedule would present problems

for the Marine Corps. The Marine Corps version of

that plane must be able to operate from amphibious

ships and thus take off over a short distance and land 

vertically. Other new U.S. fighters do not have that

capability, so the Marine Corps does not have a viable

alternative to the short takeoff, vertical landing variant

of the JSF if the JSF were to be delayed or canceled.

LONG-TERM IMPLICATIONS FOR INVESTMENT 63
15

10

0

5

20

25

Years

Average Age

Inventory

Actual Projected FYDP

Half- } Life

Number of Aircraft

1980 1985 1990

0

A-7

A-4

UCAV-N

JSF

A-6

FA-18E/F

AV-8

F-4 F/A-18A-D

F-14

1,000

2,000

3,000

1995 2000

Actual Projected FYDP

2005 2010 2015 2020

1980 1985 1990 1995 2000 2005 2010 2015 2020

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program; JSF = Joint Strike Fighter; UCAV = unmanned combat air vehicle.

Figure 3-13.

Age and Inventory of Navy Fighter and Attack Aircraft

64 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER THREE

AH-1W

AH-1Z/UH-1Y

V-22

CH-53E

CH-53X

Number of Helicopters

Annual Purchases

Annual Funding

Actual Projected FYDP

Steady 

State

Steady 

State

}

Billions of 2002 Dollars

Actual Projected FYDP

}

0

0.5

1.0

1.5

2.0

2.5

3.0

0

10

30

20

50

40

90

80

70

60

1980 1995 2000 2005 2010 2015 2020 1985 1990

1980 1985 1990 1995 2000 2005 2010 2015 2020

Source: Congressional Budget Office using data from the Department of Defense.

Notes: FYDP = Future Years Defense Program.

The AH-1Z and UH-1Y were funded as a single program.

LONG-TERM IMPLICATIONS FOR INVESTMENT 65

Figure 3-14.

Procurement of Marine Corps Helicopters
Marine Corps Helicopters 

and Tilt-Rotor Aircraft

The Marine Corps's helicopter and tilt-rotor fleet faces

some of the most serious procurement and aging challenges of any category of weapon systems discussed in

this report. Unlike its procurement of most types of

systems, DoD did not buy great quantities of Marine

helicopters during the defense buildup of the 1980s (see

Figure 3-14). Instead, it purchased an average of just 21

per year during that decade. The pattern continued

through the 1990s, when Marine helicopter purchases

averaged 13 per year, compared with an estimated

steady-state level of about 20 to 30. Under the Administration's current plans and CBO's projection of their

long-term implications, purchases of helicopters and

tilt-rotor aircraft to replace some Marine helicopters

would rise dramatically over the next 15 years: to an

average of 29 aircraft per year between 2000 and 2009

and 43 per year between 2010 and 2020. Meeting

those procurement goals would require spending more

than twice (in peak years) what the Department of the

Navy spent on that category of funding for the Marine

Corps in the 2002 budget.12 The lion's share of that

funding would be consumed by the V-22 tilt-rotor

transport, an aircraft whose development program has

suffered a series of problems, including three fatal

crashes.

Whether or not the V-22 proves to be a viable aircraft,

the Marine Corps will need some sort of new mediumlift helicopter to stop the fleet aging that has been

occurring since 1980. Because of the small purchases

since then, the average age of Marine Corps helicopters

has more than doubled, from about 10 years in 1980

to 23 years in 2002, which is above the fleet's half-life

(see Figure 3-15). In particular, the Marine Corps

would need to purchase between 23 and 32 helicopters

per year to bring the average age of the fleet into its

half-life range. The Administration's current plans

would buy enough Marine Corps helicopters to reduce

their average age well below that range, once those

planes were delivered. But those plans depend both on

the success of the V-22 program and on doubling

spending for Marine Corps helicopters between now

and 2007.

12. Funding for development and procurement of helicopters and 

other aircraft for the Marine Corps is contained in the 

Department of the Navy's aviation budget.

66 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER THREE LONG-TERM IMPLICATIONS FOR INVESTMENT 67

15

10

0

5

20

25

Years

Average Age

Inventory

Actual Projected FYDP

Half- } Life

Number of Helicopters

AH-1

UH-1

CH-46

CH-53

V-22

CH-53X

UH-1Y

AH-1Z

0

200

400

600

800

1,200

1,000

Actual FYDP Projected

1980 1985 1990 1995 2000 2005 2010 2015 2020

1980 1985 1990 1995 2000 2005 2010 2015 2020

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program.

Figure 3-15.

Age and Inventory of Marine Corps Helicopters
}

Abrams

LAV FLCV

AAV AAAV

Number of Vehicles

Annual Purchases

Annual Funding

Actual FYDP Projected

Steady 

State

Steady 

State

Billions of 2002 Dollars

Actual FYDP Projected

} 0.6

0.4

0.2

1.6

1.4

1.2

1.0

0.8

0

0

100

200

300

400

500

600

700

1980 1995 2000 2005 2010 2015 2020 1985 1990

1980 1995 2000 2005 2010 2015 2020 1985 1990

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program; LAV = light armored vehicle; FLCV = future light combat vehicle; AAV = amphibious

assault vehicle; AAAV = advanced amphibious assault vehicle.

Figure 3-16.

Procurement of Marine Corps Ground Combat Vehicles

68 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER THREE

Marine Corps Ground Combat

Vehicles

Marine Corps ground combat systems face a challenge

similar to that faced by Marine helicopters, although

more ground combat vehicles were purchased during

the Reagan-era defense buildup (see Figure 3-16).

During the 1980s, the Marine Corps bought a total of

more than 2,000 ground combat systems—including

the amphibious assault vehicle (AAV), the light

armored vehicle (LAV), and the Abrams tank—to

replace older systems that had reached the end of their

useful service lives. With all of its major ground systems new, the Marine Corps purchased very few combat vehicles throughout the 1990s, and it does not

expect to begin buying replacements for those systems

until 2005. When it does, however, the new equipment—the advanced amphibious assault vehicle

(AAAV) and the future light combat vehicle (FLCV)

—will require a major investment of resources. Under

CBO's projection, procurement costs for major

ground combat vehicles for the Marine Corps would

average $750 million per year between 2008 and

2020, compared with almost no procurement funding

requested in the President's 2003 budget. (There is

development funding for the AAAV in the Department of the Navy's RDT&E accounts.)

Those purchases would maintain the inventory of

Marine Corps ground combat vehicles at a little more

than 2,000 (see Figure 3-17). They would also cause

the vehicles' average age to begin to decline in 2013,

reenter the half-life range in 2014, and remain in or

below that range through 2020.

LONG-TERM IMPLICATIONS FOR INVESTMENT 69
0

10

15

5

20

Years

Average Age

Inventory

Half- } Life

Number of Vehicles

0

3,000

2,000

LAV

AAV

AAAV

FLCV

Abrams

1,000

Actual FYDP Projected

1990 1995 2000 2005 2010 2015 2020

1990 1995 2000 2005 2010 2015 2020

Actual FYDP Projected

Source: Congressional Budget Office using data from the Department of Defense.

Notes: FYDP = Future Years Defense Program; AAV = amphibious assault vehicle; AAAV = advanced amphibious assault vehicle; 

LAV = light armored vehicle; FLCV = future light combat vehicle.

An AAV product improvement program funded in the 1990s reset the age of those vehicles to zero, which caused the average 

age of ground combat vehicles to decline.

70 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS

Figure 3-17.

Age and Inventory of Marine Corps Ground Combat Vehicles
CHAPTER THREE

Navy and Marine Corps Procurement

If the Administration's current plans for Navy and

Marine Corps investment were carried out in the long

term, those services would be able to buy enough

weapons to sustain inventories at about current levels

through 2020. The range of steady-state costs (the 

procurement funding needed to sustain current Navy

and Marine Corps forces indefinitely) is broad because

it covers various asssumptions about service lives and

the possibility of cost increases (see Figure 3-18). The

bottom of that range assumes longer service lives for

weapon systems and DoD's estimates of future 

procurement costs. The top of the range incorporates

shorter service-life assumptions and accounts for the

risk that costs will exceed DoD's estimates. CBO's

projection of annual resource demands for Navy and

Marine Corps procurement is generally close to the

upper end of the steady-state range. Therefore, CBO

projects, even if weapons proved to be more expensive

than anticipated (as they have historically), currently

planned purchases would be close to steady-state levels,

and inventories would decline only modestly or the

fleet would have to grow older. If costs did not grow

significantly, most purchases would equal or exceed

levels for sustaining today's force sizes in a steady state.

However, the levels of funding to carry out current

plans over the long term are significantly higher than

the Department of the Navy's current procurement

budget. To implement those plans, annual procurement funding would have to be about 50 percent more

than today's levels (without cost risk) to 75 percent

more (with cost risk) between now and 2010. 

Billions of 2002 Dollars

Minor Procurement

Other Major Procurement

Aircraft

Ships

Cost Risk

FYDP Projected

Steady }State

0

10

20

30

40

50

60

2002 2005 2008 2011 2014 2017 2020

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program.

Figure 3-18.

Projected Navy and Marine Corps Procurement Funding 

Versus Steady-State Costs

LONG-TERM IMPLICATIONS FOR INVESTMENT 71
The Air Force

Under the Administration's 2003-2007 FYDP, funding

for research, development, test, and evaluation and for

procurement in the Air Force would rise from about

$37 billion in 2002 to about $50 billion in 2007 (see

Figure 3-19). Carrying out the Administration's plans

for the Air Force would require annual investment

funding to keep growing beyond 2007, CBO projects.

That funding would reach a peak of about $59 billion

in 2012 and then fluctuate through 2020, averaging

$54 billion over the 2013-2020 period.

If the costs of developing and purchasing Air Force 

systems grew beyond the service's current estimates to

the same extent that they have in the past, carrying out

current plans would require an additional $9 billion in

the peak year (2012). After that, resource demands

would fluctuate, as they would in the absence of cost

growth, but they would average $8 billion more ($63

billion) a year between 2013 and 2020. 

A large share of that projected growth comes 

from rising RDT&E or procurement for two new

Billions of 2002 Dollars

Minor Investment

Space and Other Major Investment

C-17

F-22

Other Cargo Planes

Long-Range Strike Platform

KC-767

Missiles and Munitions

Joint Strike Fighter

Long-Range Interdictor

Cost Risk

FYDP Projected

80

70

60

40

30

20

10

0

50

2002 2005 2008 2011 2014 2017 2020

Source: Congressional Budget Office using data from the Department of Defense.

Notes: FYDP = Future Years Defense Program.

CBO assumed that the Air Force’s Long-Range Interdictor would be a version of the F-22.

Figure 3-19.

Projected Air Force Spending for Investment

72 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER THREE

fighter aircraft: the F-22 and the Air Force's version of

the JSF. CBO's projection of current plans also

includes funding for airlifters (transport aircraft that

operate within or between theaters), for a tanker plane

to refuel those fighter and airlift fleets, and for initial

development of missiles and long-range strike systems

that would replace today's intercontinental ballistic

missiles and augment or replace today's conventional

bombers. Additionally, CBO's projection includes a

number of space systems that DoD is contemplating,

such as various satellites and boosters to launch them.

LONG-TERM IMPLICATIONS FOR INVESTMENT 73
A-10

A-7

F-15

F-16

F-22

Long-Range Interdictor

JSF

UCAV-AF

0

100

50

200

150

450

350

400

300

250

Number of Aircraft

Annual Purchases

Annual Funding

Actual Projected FYDP

Steady 

State

Steady 

State

1980 1995 2000 2005 2010 2015 2020 1985 1990

Billions of 2002 Dollars

0

3

2

1

8

9

10

7

6

5

4

Actual FYDP Projected

}

}

1980 1985 1990 1995 2000 2005 2010 2015 2020

Source: Congressional Budget Office using data from the Department of Defense.

Notes: FYDP = Future Years Defense Program; JSF = Joint Strike Fighter; UCAV = unmanned combat air vehicle.

CBO assumed that the Air Force's Long-Range Interdictor would be a version of the F-22.

Figure 3-20.

Procurement of Air Force Fighter and Attack Aircraft

74 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER THREE

Air Force Fighter and Attack Aircraft

The F-22 and the Joint Strike Fighter are the center of

the Air Force's current plans for tactical fighter and

attack aircraft (ones that operate in a theater, rather

than over long distances). Purchases of the F-22 

fighter are scheduled to rise over the next five years,

reaching 56 aircraft per year in 2007 (see Figure 3-20).

Purchases of the Air Force's version of the JSF are

scheduled to begin in 2006. By 2012, they would

reach a yearly procurement rate of 110 planes. In 

addition to those manned fighter and attack aircraft,

the Air Force plans to buy unmanned combat air 

vehicles (UCAVs), with the first squadron to be 

operational around 2010. To pay for those aircraft 

purchases, annual procurement would have to nearly

triple over the next decade—from about $3 billion

today to more than $8 billion in the peak purchase

years of the early to mid-2010s, CBO projects.

The Air Force's planned fighter purchases, and the

funding required for them, exceed steady-state 

procurement levels.13 But higher purchases might be

needed to offset the decline that occurred in the aftermath of the Cold War—when Air Force fighter forces

were almost halved and procurement of new aircraft

fell dramatically (to well below steady-state needs).

CBO compared actual and planned purchases for the

25-year period from 1995 to 2020 with the steadystate purchases that would have been necessary then to

support today's forces. Using 2020 (the endpoint of

CBO's projection) as a benchmark and assuming a 25-

year service life, CBO estimated that the accumulated

shortage in deliveries of new aircraft will equal about

700 in 2003 and grow to about 1,100 by 2010. After

that, deliveries of the Joint Strike Fighter will begin to

replace a significant portion of the tactical fighter

force.

Another way of looking at how well the Air Force’s

planned purchases support planned fleets is to consider trends in average fleet age. Air Force fighters are

much older today, on average, than they have been in

the past (see Figure 3-21). Their ages are also significantly higher than the ages that the Air Force considered acceptable in previous years. (During the Cold

War, aircraft were typically slated for retirement when

they reached 20 years old.)

In the aftermath of the Cold War, Air Force fighter

inventories dropped from more than 4,000 aircraft in

the mid- to late 1980s to about 2,400 by the mid- to

late 1990s. During that contraction, the Air Force was

able to reduce fighter purchases to low levels without

causing fleets to grow older because it could retire older

planes. But once inventory reductions were completed,

average age began to increase, reaching 14 years by

2000. Under current plans, the average age of fighter

aircraft will continue to grow through the early

2010s—reaching an average age of more than 20 years

by 2013. After that, the aging trend will begin to

reverse as JSFs are delivered in quantity. However, the

average age of fighter and attack aircraft will remain

above the desired level of half their service life through

2020, CBO projects.

LONG-TERM IMPLICATIONS FOR INVESTMENT 75

13. Assuming service lives of 20 to 30 years for fighter and attack 

aircraft, the Air Force would need to buy about 80 to 120 aircraft a year—at an annual cost of about $5 billion to slightly 

more than $7 billion—to support planned force levels 

indefinitely.
Years

Average Age

Inventory

Actual Projected FYDP

Half- } Life

Number of Aircraft

A-10

A-7

F-4

F-5

F-22

Long-Range Interdictor

JSF

UCAV-AF

F-117

F-111

F-15

F-16

F-101, F105, F-106

Actual FYDP Projected

0

1,000

2,000

3,000

4,000

5,000

0

5

10

15

20

25

1980 1985 1990 1995 2000 2005 2010 2015 2020

1980 1985 1990 1995 2000 2005 2010 2015 2020

Source: Congressional Budget Office using data from the Department of Defense.

Notes: FYDP = Future Years Defense Program; JSF = Joint Strike Fighter; UCAV = unmanned combat air vehicle.

CBO assumed that the Air Force's Long-Range Interdictor would be a version of the F-22.

Figure 3-21.

Age and Inventory of Air Force Fighter and Attack Aircraft

76 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER THREE LONG-TERM IMPLICATIONS FOR INVESTMENT 77

B-1 B-2 Long-Range Strike Platform

0

20

15

10

5

30

25

50

45

40

35

Number of Aircraft

Annual Purchases

Annual Funding

Actual Projected FYDP

Steady 

State

Steady 

State

}

1980 1995 2000 2005 2010 2015 2020 1985 1990

Billions of 2002 Dollars

0

2

8

10

12

6

4

Actual FYDP Projected

}

1980 1985 1990 1995 2000 2005 2010 2015 2020

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program.

Figure 3-22.

Procurement of Air Force Bombers
Air Force Bombers

Strategic bombers—whose primary mission during the

Cold War was carrying nuclear payloads but which

have been used frequently in recent conflicts to conduct conventional strike missions—add little to funding requirements in CBO's projection. The Air Force

has not purchased a bomber since 1993, and the modest number it may buy in the future will not enter procurement until the second half of the next decade (see

Figure 3-22). On the one hand, that long hiatus

between purchases will lead to a relatively old bomber

fleet. On the other hand, as the long-lived B-52 demonstrates, bombers can be operated for many years if

enough funding is provided for maintenance and

upgrades.

After the Cold War, the Air Force's fleet of strategic

bombers was cut by an even greater percentage than its

fleet of tactical fighters. From an inventory of about

400 planes in the early and late 1980s, the fleet has 

fallen to less than 200 planes (see Figure 3-23). That

decline resulted from the retirement of the Air Force's

intermediate-range FB-111s, many of its long-range B52s, and a number of B-1s that had been assigned to

the Air National Guard.

After remaining steady for almost two decades, the

average age of Air Force bombers is on the rise. In the

1980s, their average age was about 20 years—largely

because of the age of the B-52s, which the Reagan

Administration was describing as old even then.14 The

delivery of new B-2s and the retirement of those older

bombers reduced the fleet and kept its average age from 

growing.

However, when no aircraft are retired and none are

delivered, the fleet grows a year older, on average, each

year. CBO is projecting neither deliveries nor retirements of Air Force bombers until at least 2017, when

CBO assumes that an aircraft to replace the Air Force's

strategic bombers would begin deliveries. As a result,

the fleet will grow steadily older and reach an average

age of more than 45 years by 2020 (see Figure 3-23).

Even those out-year bomber purchases are speculative.

The 2003 FYDP includes funds for the Air Force to

investigate new long-range strike capabilities. Statements by Administration officials and Air Force leaders call for a new system capable of attacking targets

distant from U.S. bases.15 CBO assumes that this effort

will eventually become a major program, with a development schedule similar to that of the B-2 bomber. If

that program started over the next few years and followed the B-2's schedule, purchases of a new longrange strike platform might begin in 2017. But the

Administration has not announced any specifics about

the schedule of any replacement plans for bombers.

There is also uncertainty about what the long-range

strike platform could be. The Administration is currently studying several concepts—including a standard

endo-atmospheric manned bomber, a space plane, and

an unmanned aerial vehicle—to provide long-range

strike capabilities.

14. See Secretary of Defense Caspar W. Weinberger, Annual 

Report to the President and the Congress, Fiscal Year 1983, 

p. I-40.

15. See John A. Tirpak, "Heavyweight Contender," Air Force 

Magazine (July 2002), p. 34. That article suggests that the 

Administration and the Air Force may be calling for the longrange strike program to produce an aircraft that can "deploy 

from U.S. bases, proceed directly to its targets, and recover at a 

forward location to quickly rearm and refuel for another 

mission." The goal of attacking targets directly would most 

likely require an aircraft with ranges comparable to those of 

today's strategic bombers.

78 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER THREE

10

0

20

30

40

50

Years Average Age

Inventory

Actual FYDP Projected

HalfLife }

Number of Aircraft

1980 1985 1990

0

300

350

400

450

250

150

200

B-1 B-2

FB-111

B-52

B-2

Long-Range Strike Platform

100

50

1995 2000

Actual FYDP Projected

2005 2010 2015 2020

1980 1995 2000 2005 2010 2015 1985 1990 2020

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program.

LONG-TERM IMPLICATIONS FOR INVESTMENT 79

Figure 3-23.

Age and Inventory of Air Force Bombers
C-5

C-17

C-130

Number of Aircraft

Annual Purchases

Annual Funding

Actual Projected FYDP

Steady 

State

Steady 

State

}

}

Billions of 2002 Dollars

Actual FYDP Projected

0

1

2

3

4

5

0

5

10

15

25

20

30

1980 1995 2000 2005 1985 1990 2010 2015 2020

1980 1995 2000 2005 2010 2015 1985 1990 2020

Source: Congressional Budget Office using data from the Department of Defense.

Notes: FYDP = Future Years Defense Program.

Many aircraft that make up the bulk of the airlift fleet, C-141s and many C-130s, were purchased before 1980.

Figure 3-24.

Procurement of Air Force Airlifters

80 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER THREE

Air Force Airlifters

Requirements for airlift aircraft have remained fairly

constant in the post-Cold War era. During that period,

the two airlifters that the Air Force bought in quantity

were the C-17 and the C-130 (see Figure 3-24). The C17 replaced the C-141 in performing intertheater airlift missions (carrying troops and equipment from the

continental United States to overseas theaters of operations or between theaters around the world).16The Air

Force has bought 124 C-17s through 2003 and

expects to purchase 56 more over the 2004-2008 period. The C-130, for its part, performs a variety of missions for the services, including intratheater airlift

(transporting items from one base to another within a

theater).17 The Air Force bought (or made major modifications to) several versions of the C-130 during the

1990s. It expects to buy more C130s over the next

decade.

The fact that the airlift fleet declined by only 11 percent (100 planes) after the end of the Cold War while

other fleets shrank more dramatically demonstrates the

priority that defense officials have accorded to the airlift mission. The airlift fleet has aged over the past two

decades: from an average age of about 15 years in 1980

to 23 years today (see Figure 3-25). That age is above

the airlifters' half-life, assuming that the planes can be

expected to last between 30 and 45 years.18 The average age is expected to dip over the next five years as

large numbers of older C-141s are retired and both the

C-17 and C-130 are delivered. After that, the average

age of airlifters is projected to rise to 29 years by

2020—nearly 40 percent above the top of the half-life

range—primarily because of the aging of the C-130

fleet.

LONG-TERM IMPLICATIONS FOR INVESTMENT 81

18. CBO used projections of service lives developed by the military 

services when they were available. Rather than assuming that a 

modification sets a plane's age clock to zero, the Air Force 

typically assigns longer service lives to planes that receive lifeextending modifications, which might include strengthening a 

plane's structure, updating its avionics, or equipping it with a 

new engine. A number of Air Force aircraft, including tankers 

and airlifters, have received such modifications.

16. C-17s also have a short take-off and landing capability that 

could make them more useful in transporting materials within 

a theater than the older C-5 (the Air Force’s largest airlifter) or 

the C-141.

17. The Air Force also uses variants of the C-130 as searchand-rescue aircraft, gun ships, planes for special-operations 

forces, and for a variety of other specialized tasks. The Marine 

Corps also employs C-130s.
10

0

50

40

20

30

Years

Average Age

Inventory

Actual Projected FYDP

Half- } Life

Number of Aircraft

1980 1985 1990

0

1,000

800 C-141

C-17

C-5

C-130

600

400

200

1995 2000

Actual FYDP Projected

2005 2010 2015 2020

1980 1995 2000 2005 2010 2015 2020 1985 1990

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program.

Figure 3-25.

Age and Inventory of Air Force Airlifters

82 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER THREE

KC-10 KC-767

Number of Aircraft

Annual Purchases

Annual Funding

Actual Projected FYDP

Steady 

State

Steady 

State

}

Billions of 2002 Dollars

Actual Projected FYDP

}

0

1

2

3

4

5

0

10

20

30

40

50

1980 1995 2000 2005 2010 2015 2020 1985 1990

1980 1995 2000 2005 2010 2015 2020 1985 1990

Source: Congressional Budget Office using data from the Department of Defense.

Notes: FYDP = Future Years Defense Program.

The KC-135s that make up the bulk of the Air Force's tanker fleet were purchased before 1980. 

LONG-TERM IMPLICATIONS FOR INVESTMENT 83

Figure 3-26.

Procurement of Air Force Tankers
Air Force Tankers

The Air Force has acquired no new tanker aircraft since

the mid-1980s (see Figure 3-26). The current tanker

fleet consists of more than 500 KC-135s, augmented

by about 60 KC-10s (see Figure 3-27). The KC-135

fleet was delivered to the Air Force in the 1950s and

1960s. But the Air Force has refurbished portions of

that fleet several times since it originally purchased the

planes. The most recent program replaced engines and

repaired airframe corrosion. The Air Force expects

those refurbished planes, the KC-135Rs, to last 50 or

more years. But the tanker fleet includes more than

100 older KC-135E models that had only minor refurbishment and engine upgrades performed and may not

last as long as the R models. Air Force leaders have been

considering tanker replacement options for KC-135Cs

as well as for the rest of the tanker fleet.

The Air Force is exploring an option to replace the KC135E with a modified Boeing 767 commercial aircraft.

The 2002 Defense Appropriations Act authorized a

pilot program to lease up to 100 commercial aircraft

and modify them for tanker service, and the Defense

Appropriations Act for Fiscal Year 2003 includes $3

million to establish a system program office for the KC767 program. Although it would be more costly in the

long run, the Air Force would prefer to lease the aircraft

rather than use standard procurement methods to

acquire them outright, because leasing allows the Air

Force to avoid a large, upfront commitment of budget

authority.

DoD and the Office of Management and Budget are

still evaluating the merits of leasing and the details of

the lease agreement between Boeing and the Air Force.

Thus, CBO assumed in its analysis that the Air Force

would purchase the aircraft outright—which is consistent with plans incorporated in the 2003 FYDP—

starting in 2007 and would buy up to 18 KC-767s

annually. CBO also assumed that the Air Force would

eventually acquire 500 aircraft to replace almost all of

the KC-135 models. At a cost of about $150 million

per plane, that program would increase the service's

investment needs by roughly $2.7 billion annually.

The average age of the tanker fleet has been growing

since 1980, because annual purchases of the KC-10s

were not sufficient to offset the aging of 600 KC-135s.

CBO projects that if deliveries of new tankers begin in

2008, the average age of the fleet will peak at 45 years

around 2010 and then decline to about 39 years by

2020—or roughly the current age. That age represents

more than half of the service life of tankers, if they last

the 60 or more years now projected for the KC-135Rs.

84 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER THREE

Years

Average Age

Inventory

Actual Projected FYDP

Half- } Life

Number of Aircraft

800

KC-135

KC-10

KC-767

Actual FYDP Projected

0

10

20

30

40

50

0

200

100

400

300

500

700

600

1980 1985 1990 1995 2000 2005 2010 2015 2020

1980 1995 2000 2005 2010 2015 1985 1990 2020

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program.

LONG-TERM IMPLICATIONS FOR INVESTMENT 85

Figure 3-27. (Revised 1-13-03)

Age and Inventory of Air Force Tankers
Air Force Space-Related 

and Other Programs

In addition to the major programs discussed above, the

Air Force budget contains investment funding for

space-related programs and various other major activities.19 Under the current FYDP, investment in that part

of the Air Force budget would grow by 33 percent over

the next five years, reaching $22 billion in 2007. CBO

projects that carrying out current plans for the programs in this combined category would require annual

funding to rise by another 15 percent by 2011, to a

peak of about $26 billion. That growth would result

from the procurement of transformation-related programs begun by the Administration in 2003 as well as

the continuation of programs inherited from the previous Administration. After 2011, investment funding

for space-related and other activities could decline to

about $19 billion per year, provided no additional initiatives were funded.

The Bush Administration has attached special importance to space programs, which it views as a key element in its efforts to transform the military. CBO projected in detail essentially all of the Air Force's major

space booster programs and satellite programs that are

unclassified. For example, the service is responsible for

developing and launching the majority of DoD's communication satellites. Programs now in the development phase include the advanced extremely high frequency satellite system and the advanced wideband system, which will provide special-purpose communications for all four military services. CBO's projection

assumes that those and the other communication satellites now being developed are launched on the schedules that DoD currently envisions.

The planned lifetime of a communication satellite is

typically seven to 10 years, so in some cases replacement satellites will need to be launched or be in development before the end of CBO's projection period.

DoD has not yet defined in detail its plans for the successors to the communication satellites now being

developed.20 In the absence of detailed information,

CBO assumes that the schedules and costs to develop

and procure successor satellites will be similar to those

of their predecessors.

CBO's projection also includes development and procurement of the space-based infrared system in highEarth orbit (which will detect launches of ballistic missiles worldwide) as well as procurement of the spacebased infrared system in low-Earth orbit (which is

designed to provide global capability to track ballistic

missile warheads in flight).21 Again, CBO's projection

assumes that successor programs will have similar

costs. Other space-related elements in CBO's projection include:

• Development and launch of the national polarorbiting environmental satellite sensing 

(NPOESS) system, a constellation of weather 

satellites being developed in cooperation with the 

Department of Commerce;22

• Continuation of the currently planned global 

positioning system satellite program;

• Development and launch of a constellation of 

space-based radar satellites to identify and track 

moving targets on the ground worldwide;23 and

• Development and procurement of a space maneuver vehicle and a common aerospace vehicle, 

which are intended to allow the military to attack 

targets worldwide on very short notice.24

19. CBO included Air Force funding for the National Foreign 

Intelligence Program in this combined category. CBO assumes 

that funding for the classified activities that make up that 

program will stay at the 2007 level through 2020.

20. The 2003 FYDP includes funding for a transformational satellite communications program that could use a variety of 

methods, including lasers, to provide high-capacity communications.

86 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER THREE

For some time, DoD has also been pursuing a low-cost

family of expendable space boosters for launching

satellite systems (such as those discussed above) into

orbit. The Air Force is developing the evolved expendable launch vehicle, which is planned as the successor

to all booster rockets now used by DoD. CBO's 

projection incorporates the schedules, funding, and

planned launches outlined in the program's December

2001 Selected Acquisition Report.

LONG-TERM IMPLICATIONS FOR INVESTMENT 87

21. Consistent with the 2003 FYDP, CBO includes only 

procurement funding for that system in its Air Force 

projection. Development funding is included in CBO's 

projection for defense agencies.

22. The Department of Commerce also budgets money for 

NPOESS. CBO’s projection includes only the resources that 

DoD allocates to the program.

23. The 2003 FYDP contains funding to begin development of 

that program as a part of the Administration's emphasis on 

transformation. CBO's projection assumes that this nascent 

effort continues through production and deployment of an 

operational system.

24. The 2003 FYDP contains resources to start developing those 

programs as a part of the Administration's emphasis on 

transformation. CBO's projection assumes that those programs 

continue through production and deployment of operational 

systems.
Total Air Force Procurement

If the Administration's plans for Air Force procurement were carried out, the service would buy enough

weapons to sustain most inventories at about current

levels through 2020. However, the average age of

bombers and intratheater airlift fleets would exceed

desired levels. And despite procurement of more than

1,600 tactical fighters, the average age of that fleet in

2020 (16 years) would exceed its desired half-life by

one year.

The Air Force would have to spend an average of $34

billion to $45 billion per year on purchasing equipment to sustain currently planned forces indefinitely.

(That steady-state range depends on how long systems

are assumed to last and how much they are expected to

cost.) In CBO's projection, the Air Force procurement

funding needed to carry out current plans averages $36

billion a year from 2008 to 2020, which is about equal

to steady-state funding if systems last as long and cost

only as much as DoD estimates (see Figure 3-28). If

costs exceeded current estimates, the spending needed

to execute current plans would average about $42 billion per year. Provided those cost increases were paid

for, most purchases would still be at steady-state levels.

However, Air Force procurement spending would have

to grow by 50 percent to 100 percent from today's

level to pay for those purchases. Moreover, in the Air

Force's case, steady-state purchases would not be

enough to correct aging problems quickly, because

procurement of fighters, bombers, and tankers was so

far below steady-state levels in the 1990s.

Billions of 2002 Dollars

Space and Other Major Procurement

Minor Procurement

Missiles and Munitions

Aircraft

Cost Risk

FYDP Projected

Steady } State

2002 2005 2008 2011 2014 2017 2020

0

10

20

30

40

50

60

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program.

Figure 3-28.

Projected Air Force Procurement Funding Versus Steady-State Costs

88 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER THREE

Defense Agencies and 

Missile Defenses

In addition to funding for the Departments of the

Army, Navy, and Air Force, the DoD budget provides

money for a variety of specialized agencies that deal

with matters such as missile defenses, research projects,

special operations, and information systems. The 2003

FYDP anticipates that investment funding for defense

agencies will total $19 billion to $23 billion a year during the 2003-2007 period (see Figure 3-29). Those

funds pay for a wide array of activities:

• Research on missile defenses, which averages 

about $7 billion a year over the 2003-2007 

period;25

• Basic and applied research by the Defense 

Advanced Research Projects Agency, which 

averages about $3 billion a year from 2003 to 

2007;

• Research, development, and procurement of 

equipment for the U.S. Special Operations 

Command, which averages just over $1 billion a 

year from 2003 to 2007; and

0

60

50

40

30

20

10

Billions of 2002 Dollars

Other Defense Agency Investment

Missile Defense R&D

FYDP Projected

2002 2005 2008 2011 2014 2017 2020

Source: Congressional Budget Office using data from the Department of Defense.

Note: FYDP = Future Years Defense Program; R&D = research and development.

LONG-TERM IMPLICATIONS FOR INVESTMENT 89

Figure 3-29.

Projected Investment Spending for Defense Agencies

25. According to the Bush Administration, research and development of missile defenses will be budgeted under the 

Missile Defense Agency. Once a program progresses to the 

procurement phase, funds will be budgeted under the military 

service that will be responsible for operating that system. 

CBO's projection followed that policy.
• The investment-related activities of the other 

defense agencies, including the Defense Threat 

Reduction Agency (which monitors and verifies 

arms control treaties and examines the effects of 

nuclear weapons), the Defense Information 

Systems Agency (which provides communications and information technology services), the 

Joint Chiefs of Staff (which produce studies and 

develop models), and the Office of the Secretary 

of Defense (which produces studies, develops a 

variety of different kinds of models, and administers certain research activities, such as the highperformance computing program).

CBO's projection of defense-agency investment

assumes that all investment activities other than those

associated with missile defenses will continue to be

funded through 2020 at their 2007 levels (a total of

about $12 billion a year). The rest of this section discusses in detail CBO's projection of investment spending for missile defenses.

2002

0

15

10

5

Billions of 2002 Dollars

Long-Range Missile Defense R&D

Short- and Intermediate-Range Missile Defense R&D

Short- and Intermediate-Range 

Missile Defense Procurement

Long-Range Missile 

Defense Procurement

Cost Risk

2005 2008 2011

FYDP Projected

2014 2017 2020

Source: Congressional Budget Office using data from the Department of Defense.

Notes: FYDP = Future Years Defense Program; R&D = research and development.

The Department of Defense plans to fund research and development of missile defense programs in the budget of the Missile 

Defense Agency (see Figure 3-29). Once those programs make the transition to procurement, they will be funded in the budgets of the services that will operate them. The service-wide procurement charts shown earlier in this chapter (Figures 3-8,

3-18, and 3-28) incorporate those funds.

Figure 3-30.

Projected Investment Spending for Missile Defenses

90 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER THREE

Current Plans for Missile Defenses

CBO based its long-term projection for missile 

defenses on the Bush Administration's recent policy

statements as well as on the progress that has been

made so far on individual programs being pursued by

the Missile Defense Agency (see Figure 3-30). The

Administration has stated that through 2007, its 

missile defense program will focus on researching, 

developing, and testing a broad range of technologies

and potential systems. On the basis of those efforts’

results, decisions will eventually be made about which

systems should proceed to procurement and operational deployment. Despite that emphasis on research

and testing, however, the Secretary of Defense has stated that the purpose of the Missile Defense Agency is

not only to develop but also to deploy an integrated set

of layered missile defenses—that is, missile defenses

operating from land, ships, aircraft, and in space.

Recently, a panel of the Defense Science Board reportedly recommended that DoD focus its missile defense

efforts in the next few years on deploying a system with

two layers. One layer would consist of long-range,

land-based interceptor missiles; the second would 

consist of shorter-range, ship-based interceptors.26

Long-range defenses can intercept ballistic missiles and

warheads flying between continents. Short-range and

intermediate-range defenses can intercept missiles 

flying trajectories of a few hundred to several thousand

kilometers. CBO's projection assumes that the panel's

recommendation is carried out.

Long-Range, Land-Based System. DoD has begun

building a missile defense test bed that will include

placing a small number of interceptor missiles and

building a radar in Alaska, as well as making upgrades

to existing facilities. CBO assumes that after 2007,

DoD would expand that effort to include deployment

of 250 ground-based interceptor missiles at two sites:

Fort Greely, Alaska, and Grand Forks, North Dakota.

That long-range, ground-based system, which would

be operated by the Army, would also include nine 

X-band radars, six upgraded early-warning radars, and

three communications facilities at various sites. Accounting for activities contained in the 2003 FYDP,

CBO estimates that deployment of that system could

be completed sometime in 2013 or 2014, at a total

investment cost of about $25 billion.

CBO also assumes that DoD would deploy a 27-satellite constellation of space-based infrared sensors in

low-Earth orbit (known as SBIRS-low) to support the

ground-based system. Those satellites would provide

the capability to track ballistic missile warheads at long

range and to discriminate warheads from potential

decoys. That information would enable ground-based

interceptors to be guided to their intended targets.

Consistent with the plans reflected in the 2003 FYDP,

CBO projects that the full SBIRS-low constellation

would be in orbit by 2015.27

Shorter-Range, Ship-Based System. For the second layer

of the two-layer approach, CBO's projection assumes

deployment of an intermediate-range, sea-based missile defense system. That system would consist of new

interceptor missiles using exo-atmospheric kill vehicles

(the payload that separates from the missile, senses a

target, and guides itself to collide with that target

before it enters the atmosphere). The Navy has tested

a precursor to those missiles, consisting of a lightweight exo-atmospheric projectile mounted on a standard missile. CBO assumes that those new interceptors

would be deployed after 2010 on the Navy's airdefense-capable cruisers and destroyers, at a total

investment cost of about $17 billion.

LONG-TERM IMPLICATIONS FOR INVESTMENT 91

26. Bradley Graham, "Missile Defense Choices Sought: Panel 

Urges Focus on Two Approaches," Washington Post, September 

3, 2002, p. A1.

27. CBO used information in its January 2002 letter to Senator 

Thomas Daschle on "Estimated Costs and Technical Characteristics of Selected National Missile Defense Systems" 

as the basis for estimating the costs and schedule to deploy a 

two-site, ground-based missile defense system, including a 

27-satellite SBIRS-low constellation.
Other Missile Defense Programs. For several years, the

Air Force has been developing a missile defense system

based on airborne lasers. That system is planned to

consist of high-energy chemical lasers mounted within

Boeing 747 aircraft. Consistent with the plans in the

2003 FYDP, CBO's projection assumes that the Air

Force will build six full-power lasers and install them

on 747s and that a test aircraft now being built and

equipped with a low-power laser will be retrofitted after

2007 with a full-power laser.28 Thus, CBO's projection

includes the resources needed to develop and deploy an

airborne-laser missile defense system with seven 

aircraft.

CBO's projection also includes DoD's currently

planned purchases of the Patriot Advanced Capability3 short-range missile defense system, as well as continued development and eventual procurement of the

intermediate-range Theater High Altitude Area

Defense system. Both of those would be mobile

ground-based systems that the Army would procure

and operate.

Besides the ground-, air-, and sea-based defenses

described above, the Bush Administration is pursuing

several other concepts, including space-based and seabased boost-phase defenses. (Boost-phase defenses

attempt to destroy a ballistic missile while it is still in

powered flight—that is, before it can deploy its warheads on ballistic trajectories toward their intended targets.) Those concepts are still in the preliminary stages

of development. CBO assumes that research on them

will continue through 2020 at the levels funded in

2007 but that no procurement or deployment of those

concepts will occur during the projection period.

CBO's Long-Term Projection for Missile Defenses

CBO's projection of missile defense investment

includes both the research and development funding

tallied in the projection of total defense agency investment and the procurement funding tallied under the

investment projections for the various services

described earlier in this chapter (see Figure 3-30). In

CBO's projection, the research and development

spending needed to carry out current plans for missile

defenses declines steadily after 2007 as the ground-,

sea-, and air-based systems that are assumed to be

deployed move from development to procurement.

Total investment in missile defenses peaks in 2009 at

about $10 billion and then decreases as systems finish

procurement and become operational. CBO assumes

that all of the deployments in its projection would be

complete by about 2016. After that, DoD would

spend about $5 billion a year for minor, evolutionary

upgrades to operational systems, CBO projects, as well

as for continued research on such concepts as spacebased defenses.

If costs grow as they have historically, however, pursuing the programs in CBO's missile defense projection

would cost an additional $3 billion a year, on average,

peaking at about $13 billion in 2009. That estimate of

cost growth is based on applying the results of the

RAND study discussed earlier in this chapter to all

missile defense programs that have not entered the

production phase (in other words, all of the programs

in CBO's missile defense projection except the

Patriot).

28. Funds to fabricate and test the low-power laser are included in 

CBO's projection of defense agency investment. Funds to 

procure the six operational full-power airborne lasers and to 

retrofit the test aircraft with a full-power laser are included in 

CBO's projection of Air Force investment.

92 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER THREE

Transformation

CBO's long-term projections of current defense plans

assume that only the force and program changes that

the Bush Administration has explicitly announced will

take place. Those changes would result in a force 

structure very much like today's. Apart from canceling the Crusader self-propelled howitzer, the Administration has not significantly altered ongoing investment programs. However, the Administration has

argued that it expects to transform DoD, shifting the

composition of military forces from traditional approaches to new approaches.29 Those new approaches

are intended to incorporate advanced technologies that

the Administration expects will improve combat capability for the same or lower cost and make U.S. forces

better able to meet the challenges of 21st century warfare. To illustrate the effects that such changes might

have on resource demands, CBO estimated steadystate procurement costs for two cases: one that reflects

the force structure underlying CBO's long-term projections and another that features one example of a

transformed force. 

Current Forces

In its current-forces case, CBO assumes that today’s

forces will be maintained indefinitely unless the Administration has explicitly stated otherwise. In addition, the services are assumed to replace equipment on

a one-for-one basis with the successor systems that are

now planned. Those systems are generally similar to

ones in the current force structure—for example, a

manned fighter aircraft replaces a manned fighter aircraft.

CBO projected steady-state procurement funding first

assuming that costs do not grow beyond DoD's current estimates and then again assuming that cost

growth follows historical patterns, based on the

RAND analysis (see Table 3-2 on page 38). Likewise, it

estimated steady-state procurement costs under two

assumptions: if DoD operates systems for as long as it

now intends, as well as if retirement ages are more in

line with past experience. Combining those assumptions yields an estimate of total steady-state procurement costs that ranges from about $85 billion a year

(assuming DoD's cost estimates and long service lives)

to about $130 billion a year (assuming historical cost

growth and shorter service lives).

Transformed Forces

In its hypothetical example of transformed forces,

CBO assumes that the transformation initiatives just

started by the Administration succeed and are embraced by the military services. For example, the

Departments of the Army, Navy, and Air Force are

assumed to use unmanned combat air vehicles instead

of manned combat aircraft to perform ground-attack

missions (see Tables 3-3 through 3-5).

In terms of ships, CBO assumed that the Navy would

transform both its fleet and the way it operates the

ships that compose it. The transformed Navy cuts the

number of cruisers and destroyers as well as the number of attack submarines. But the Navy would use two

alternating crews on some of its surface combatants

and base a total of seven attack submarines in Guam,

enabling smaller fleets to perform the same number of

peacetime missions that larger fleets perform today.

CBO also assumes that the Navy would convert another four SSBNs to SSGNs (a configuration that carries

cruise missiles and special-operations forces), for a total

of eight SSGNs. 

A transformed Air Force is assumed not only to replace

current fighters with UCAVs but also to rely on

unmanned systems for nearly all of the combat missions now performed by manned aircraft. Thus, CBO

LONG-TERM IMPLICATIONS FOR INVESTMENT 93

29. In its Defense Planning Guidance for 2004 through 2009, the 

Administration initiated numerous studies, including assessments of potential changes to a variety of major weapons 

programs. Those studies are meant to inform decisions that will 

be made in developing the 2004 FYDP, which is due to 

be submitted to the Congress in February 2003. Thus, the 

possibility exists that significant changes to ongoing programs 

could be incorporated in the new defense plan.
assumes that reconnaissance aircraft such as the U-2

and RC-135 would be replaced by unmanned systems

and that today's bombers would be replaced by

unmanned long-range aircraft with a similar payload

capacity.

In CBO's projection for transformed forces, steadystate procurement funding for the Army differs little

from the steady-state costs associated with current

plans (see Table 3-6). The reason is that systems 

identified with transformation—to result from the

Army's Future Combat System program—compose a

fairly large portion of the Army's plans today. The

major change that CBO made in postulating a transformation case for the Army was that UCAVs similar

to current armed versions of the Predator UAV would

replace the planned purchase of 1,200 Comanche 

helicopters. Since the weapons payload of those

UCAVs might be about half that of Comanche, CBO

assumed that the Army would need two UCAVs to

replace the capability provided by each Comanche.

CBO also assumed that the service life of those

UCAVs would be roughly half that of Comanche.

Thus, to sustain the force in steady state, the Army

would need to buy about four times as many UCAVs

per year as it had planned to buy of Comanche helicopters. However, CBO assumed that the cost of the

Army's UCAV would be about one-quarter the cost of

Comanche, using Predator as a basis. Consequently,

transforming Army aviation by replacing manned

attack helicopters with UCAVs would produce no significant savings in steady-state procurement costs relative to current plans.

Table 3-3.

Current and Transformed Forces for the Army

Source: Congressional Budget Office.

Notes: UCAV = unmanned combat air vehicle; UCRC = unmanned combat rotorcraft.

This table shows only the systems that differ between CBO’s current-forces and transformed-forces cases. Any systems not 

shown here are assumed to be at currently planned levels.

Currently Planned Inventory in a

Type of Weapon Inventory Transformed Force Difference

Manned Helicopters

Comanche (Scout/reconnaissance/

light attack) 1,200 0 -1,200

UH-60 (Light and medium utility) 1,400 1,680 280

Unmanned Air Vehicles

UCAV or UCRC (Reconnaissance/

light attack) 0 2,400 2,400

94 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER THREE LONG-TERM IMPLICATIONS FOR INVESTMENT 95

Table 3-4.

Current and Transformed Forces for the Navy and Marine Corps

Source: Congressional Budget Office.

Notes: SSBN = nuclear-powered ballistic missile submarine; SSN = nuclear-powered attack submarine; CONUS = continental United 

States; SSGN = nuclear-powered guided-missile submarine; UCAV-N = unmanned combat air vehicle designed for Navy aircraft 

carrier operations; UCRC = unmanned combat rotorcraft.

This table shows only the systems that differ between CBO’s current-forces and transformed-forces cases. Any systems not shown 

here are assumed to be at currently planned levels.

Currently Planned Inventory in a

Type of Weapon Inventory Transformed Force Difference

Ships

DDG-51

Single-crewed 61 33 -28

Dual-crewed 0 17 17

CG-47 27 0 -27

CG-X(Dual-crewed) 0 15 15

DD-X 16 0 -16

Corvettes 56 60 4

Littoral Support Craft 0 5 5

SSBN 14 10 -4

SSN

CONUS-based 55 34 -21

Guam-based 0 7 7

SSN Converted to SSGN 4 8 4

Aircraft

Fighter and Attack 1,175 341 -834

Electronic Warfare 134 0 -134

Combat Support 124 129 5

Carrier Early Warning 75 0 -75

Maritime Patrol 232 0 -232

Trainers 407 118 -289

Attack Helicopters 194 0 -194

Antisubmarine Warfare Helicopters 252 0 -252

Heavy-Lift Helicopters 205 0 -205

UCAV-N 152 1,156 1,004

UCRC 0 678 678
The example of transformation that CBO chose assumes that many of the transformation initiatives now

being undertaken by the Bush Administration ultimately succeed and are fully embraced by the 

military services. In that event, DoD might be able to

reduce its annual procurement needs below the level

associated with current plans if it can ultimately change

those plans significantly. For the particular example of

transformation examined by CBO, procurement savings could equal 10 percent to 15 percent relative to the

annual steady-state costs of current plans. Specifically,

if forces were transformed as CBO has assumed,

steady-state procurement funding would range from

$76 billion for a low-cost, long-service-life fleet to

$114 billion a year—a savings of $9 billion to $16 billion from the steady-state procurement costs associated with current plans (see Table 3-6).

Of course, those estimates hinge on the detailed

assumptions that CBO made about the composition

Table 3-5.

Current and Transformed Forces for the Air Force

Source: Congressional Budget Office.

Notes: HAEUAV = high-altitude endurance unmanned aerial vehicle, a potential replacement for existing manned reconnaissance aircraft;

UCAV = unmanned combat air vehicle.

This table shows only the systems that differ between CBO’s current-forces and transformed-forces cases. Any systems not shown 

here are assumed to be at currently planned levels.

Currently Planned Inventory in a

Type of Weapon Inventory Transformed Force Difference

Manned Aircraft

Bombers 175 0 -175

Multirole/Close Air Support 1,380 0 -1,380

Reconnaissance/Battle Management/

Command, Control, Communications, 

and Intelligence 97 0 -97

Trainers 1,200 687 -513

Unmanned Air Vehicles

HAEUAV 50 147 97

UCAV 257 1,841 1,584

Bomber UCAV 0 175 175

96 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS
CHAPTER THREE LONG-TERM IMPLICATIONS FOR INVESTMENT 97

Table 3-6.

Steady-State Procurement Costs for Current and Transformed Forces 

(In billions of 2002 dollars of total obligational authority)

Source: Congressional Budget Office.

Notes: In the long-service-lives assumption, the Department of Defense keeps weapons as long as it currently projects, which 

is generally longer than it has in the past. In the short-service-lives assumption, the Department of Defense operates systems

only as long as it has previously.

For details of the difference in weapon systems between current and transformed forces, see Tables 3-3 through 3-5.

Using DoD’s Assuming Historical

Cost Estimates Cost Growth

Short Service Long Service Short Service Long Service

Lives Lives Lives Lives

Current Forces

Navy 42 31 49 36

Air Force 40 33 44 36

Army 27 18 35 23

Defense Agencies 2 2 2 2

Total 111 85 130 99

Transformed Forces

Navy 33 24 36 27

Air Force 35 30 40 31

Army 29 19 36 24

Defense Agencies 2 2 2 2

Total 98 76 114 84

Cost or Savings (-) from Transformation

Navy -9 -6 -13 -10

Air Force -5 -3 -4 -6

Army 1 1 1 1

Defense Agencies 0 0 0 0

Total -13 -9 -16 -14
of transformed forces. Larger or smaller savings might

result depending on how transformation ultimately

plays out. Although CBO's transformed forces are radically different in composition from today's forces,

CBO did constrain cuts in capabilities, preserving, for

example, payloads comparable to its current-forces

case. If, for example, transformation enabled DoD to

substantially reduce the payloads its weapons can deliver, greater savings than CBO projects might be possible. Conversely, savings could be much less or costs

could increase if—as happened in the past—the currently hoped-for cost goals of new systems cannot be

met. Such goals are generally very optimistic relative to

historical experience with cost growth in DoD 

systems, as the example of the Global Hawk UAV 

indicates.30

And if changes to purchases did result in procurement

savings like those shown in Table 3-6, they could take

some time to materialize. Savings depend on developing and fielding new systems. DoD could take at least

10 years to develop those new systems and perhaps

that amount of time or more to fully replace fleets of

their predecessors. Thus, transformation of any force is

unlikely to be fully realized by the 2020 endpoint of

CBO's projection.

30. CBO has not analyzed the potential savings in operation and 

support costs that transformation might yield. Those savings 

could be substantial, particularly if transformation enabled 

DoD to reduce forces and personnel.

98 THE LONG-TERM IMPLICATIONS OF CURRENT DEFENSE PLANS