BUDGETING FOR DEFENSE:

MAINTAINING TODAY'S FORCES

The Congress of the United States

Congressional Budget Office
NOTES

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

2000 dollars of budget authority.

Data on forces and military personnel are drawn from 1999, the last completed fiscal year.

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

F

unding for national defense is a major issue that the 107th Congress will consider.

With a new Administration—and possibly a new national security strategy—in place,

the size and shape of U.S. forces and the budget needed to maintain them are likely to

be a focus of that debate. This Congressional Budget Office (CBO) study, which was

prepared for the Senate Committee on the Budget, presents CBO’s estimate of the cost of

sustaining today’s military forces. In keeping with CBO’s mandate to provide objective,

impartial analysis, the study contains no recommendations.

Lane Pierrot of CBO’s National Security Division (NSD) wrote the study with assistance from Evan Christman and Billy Trimble. Jo Ann Vines of CBO’s Budget Analysis

Division (BAD) wrote the section on procurement costs and together with colleagues

Raymond Hall and Dawn Regan developed many of the cost estimates for the sustaining

budget. The analysis was performed under the general supervision of Christopher Jehn and

R. William Thomas of NSD and Michael A. Miller of BAD. Barry Anderson, Bruce

Arnold, Deborah Clay-Mendez, Arlene Holen, and Steve Lieberman of CBO and Sean

O’Keefe of the Maxwell School at Syracuse University provided helpful comments. CBO’s

Russ Beland, Eric Labs, Rachel Schmidt, and Laurinda Zeman analyzed portions of the

defense budget. John Cadigan, Delia Welsh, and Anne Dupree, formerly of CBO, also made

important contributions.

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

typed the many drafts with speed and precision. Kathryn Quattrone prepared the report for

publication. Annette Kalicki prepared the electronic versions for CBO’s Web site. Barry

Anderson designed the cover.

Dan L. Crippen

Director

September 2000

This study and other CBO publications

are available at CBO's Web site:

www.cbo.gov

Contents

SUMMARY vii

ONE INTRODUCTION 1

Current Threats to U.S. Security 2

Current U.S. Military Strategy 6

What Factors Drive Budget Requests for Defense? 8

TWO CBO'S ESTIMATE OF A SUSTAINING

BUDGET FOR NATIONAL DEFENSE 13

The Scope of the Estimate 13

CBO's Estimate of a Sustaining Budget for

the Department of Defense 14

CBO's Estimate of a Sustaining Budget for

Defense Activities in Other Agencies 23

The Limitations of CBO's Estimate 24

THREE ALTERNATIVE DEFENSE FORCES AND BUDGETS 25

Reducing Budget Requirements 25

Increasing the Defense Budget to Equal CBO's Estimate

of a Sustaining Level for Today's Forces 29
vi BUDGETING FOR DEFENSE: MAINTAINING TODAY'S FORCES September 2000

TABLES

S-1. U.S. Military Forces in Selected Fiscal Years, 1989-1999 ix

S-2. Funding for National Defense and Personnel for the

Department of Defense in Selected Fiscal Years,

1989-1999 x

S-3. Fiscal Year 2000 Appropriations for National Defense

and CBO's Estimate of a Sustaining Defense Budget,

by Budget Category xi

1. Funding for National Defense and Personnel for the

Department of Defense in Selected Fiscal Years,

1989-1999 2

2. U.S. Military Forces in Selected Fiscal Years, 1989-1999 9

3. Fiscal Year 2000 Appropriations for National Defense

and CBO's Estimate of a Sustaining Defense Budget,

by Budget Category 15

4. DoD's Past Purchases of Selected Equipment and CBO's

Estimates of Purchases Under a Sustaining Budget 20

5. Selected U.S. Military Forces Under Current and

Alternative Strategic Priorities 27

FIGURE

1. Stocks of Major Weapon Systems Held by the

United States and Selected Other Nations 4
Summary

The budget request for national defense that the

107th Congress will consider in 2001 will be

the first submitted by a new Administration in

eight years. That Administration could put forth new

strategies or programs that would change the funding

needed to maintain national security. As the Congress

considers that budget, three questions should be prominent:

o Is the new Administration’s national security

strategy an appropriate response to likely threats

to U.S. security?

o Will the military forces and modernization programs that the Department of Defense (DoD)

plans adequately support that strategy?

o Will the budget that the Administration proposes

be sufficient to maintain those forces and carry

out those plans?

All three of those questions are appropriate for evaluating the nation’s military forces and the funding that

is necessary to maintain them. But this Congressional

Budget Office (CBO) study focuses only on the last

question and attempts to provide a context or reference

point for answering it.

A full examination of either the current threats to

U.S. security or the adequacy of the strategy that has

been developed to counter those threats is beyond the

scope of this analysis. Accordingly, the discussion

treats threats and strategy only briefly to provide some

background for CBO’s analysis of today’s military

forces and their funding. Further, this study does not

address the cost of the broad array of alternative strategies that might be pursued in the future. Instead, as a

starting point for such an analysis, it discusses the cost

of a “sustaining” budget for today’s national defense

structure—that is, the annual funding CBO estimates

is needed to maintain today’s forces into the future and

to modernize them. The study also describes several

options for closing the gap between current appropriations for defense and CBO’s estimate of sustaining

funding.

Threats

The U.S. military today has no peer. In number, certain Russian and Chinese conventional (mostly nonnuclear) weapons and forces may equal and, in a few

cases, exceed those of the United States. But the capabilities of the U.S. military far surpass those of

other nations once such factors as training, readiness

for combat, sophistication of weapons, and availability

of linked communications and intelligence networks

are taken into account.

Nevertheless, certain regional powers around the

world are antagonistic to U.S. interests and pose

threats that are the focus of much of today’s defense

planning. Iran, Iraq, and North Korea are the nations
viii BUDGETING FOR DEFENSE: MAINTAINING TODAY'S FORCES September 2000

of most concern, although they have substantially

fewer forces than either Russia or China, let alone the

United States. Their forces are also no match for U.S.

troops and equipment in many of the other dimensions

of combat capability noted above.

But most worrisome, according to the intelligence community and many military leaders, may be

unconventional threats—for example, nuclear, biological, and chemical (NBC) weapons, many of which

have enormous destructive capacity. The regional

powers of concern to U.S. defense analysts may be

developing or expanding their stocks of such weapons.

Moreover, threats to use unconventional weapons

could come from individuals or hostile groups as well

as other nation states. Adversaries could also target

the Internet and seek to disrupt commercial and military computer networks on which the United States

and DoD increasingly rely. Such threats are difficult

to counter, in part because most current U.S. weapons

are focused on more conventional threats. Moreover,

the nation's superior conventional forces and weapons

would be of limited value in a regional war if an enemy's threat of retaliation with NBC weapons deterred

the United States from using its conventional arms.

Strategy

The current national security strategy rests on a policy

of engagement in the world’s affairs, not only during

crises but in peacetime as well. Consequently, the

strategy directs the U.S. military to be ready to undertake activities ranging from limited humanitarian missions to full military campaigns against capable, wellequipped regional adversaries.

The makeup of today’s combat forces is driven

by a goal of being ready to fight two regional campaigns occurring at about the same time. That objective determines the size and structure of most types of

forces. But the current national security strategy has

also expanded the U.S. military’s peacetime activities

—what CBO refers to in this study as peace operations—compared with past periods. (Peace operations

include peacekeeping, humanitarian assistance, hostage rescue, and peace enforcement.) That part of the

strategy has affected forces as well, adding to the military’s operating costs in peacetime and increasing the

demands on military personnel—not only from additional activities but also from the greater need for

forces specifically associated with peace missions,

such as civil affairs personnel and military police.

Another factor that affects U.S. military actions

and budgets is the desire of decisionmakers to minimize casualties, a desire that has increased over the

past several decades. That attitude may affect the

nature of the forces that are used—for example, air

rather than ground forces. It may also lead to increases in the number of forces DoD maintains, because, the military argues, greater U.S. superiority can

shorten wars and reduce U.S. casualties.

In addition to meeting current demands, the services are directed by the national security strategy to

prepare for the demands of the future. The plans that

DoD develops for that purpose attempt to consider the

evolution of military technology, the proliferation of

more-sophisticated weapons—including weapons of

mass destruction and the means to deliver them—and

the possible emergence in the future of a nation with

military capabilities that rival those of the United

States. The military has used those considerations to

justify its plans for modernization and its development

and procurement of new weapons.

What Factors Drive Budget 

Requests for Defense?

Several major factors determine the resources needed

to support today’s military forces. Factors that influence DoD’s annual operating costs—specifically the

number, type, and readiness of its forces—are particularly important. (The costs associated with readiness,

however, are difficult to pinpoint, in part because

funding is dispersed among a number of budget categories; moreover, DoD’s measures of readiness have

serious limitations.) Another major determinant is the

future capability that DoD requires in its forces, which

guides the military’s investment in modernization (specifically, the development and procurement of weapons, equipment, and facilities). The costs of supporting DoD's infrastructure, including military construc-
SUMMARY ix

Summary Table 1.

U.S. Military Forces in Selected Fiscal Years, 1989-1999

1989 1993 1997 1999

Percentage

Change,

1989-1999

Strategic Forcesa

Land-Based ICBMs 1,000 787 580 550 -45

Heavy Bombersb 310 194 126 143 -54

Submarine-Launched Ballistic Missiles 576 408 408 432 -25

Conventional Forcesc

Land Forces

Army divisionsd

Active 18 14 10 10 -44

Reserve 10 8 8 8 -20

Marine Corps expeditionary forcese

Active 3 3 3 3 0

Reserve 1 1 1 1 0

Naval Forces

Battle force shipsf 566 435 354 317 -44

Aircraft carriers

Active 15 13 11 11 -27

Reserve 1 0 1 1 0

Navy carrier air wings

Active 13 11 10 10 -23

Reserve 2 2 1 1 -50

Air Forces

Tactical fighter wings

Active 25 16 13 13 -48

Reserve 12 11 8 8 -33

Airlift aircraft

Intertheater 401 382 345 331 -17

Intratheater 468 380 430 425 -9

SOURCE: Congressional Budget Office using data from Office of the Secretary of Defense, Annual Report to the President and the Congress

(various years).

NOTE: ICBMs = intercontinental ballistic missiles.

a. Forces with basically nuclear missions.

b. Includes some long-range bombers that do not have strategic missions.

c. Forces with largely nonnuclear missions.

d. Excludes separate brigades that are not part of a division.

e. A Marine expeditionary force includes a division, an air wing, and supporting forces for those combat elements.

f. Includes all Navy ships involved in combat—for example, ballistic missile submarines, surface combat ships, aircraft carriers, and amphibious

craft—as well as some other vessels.
x BUDGETING FOR DEFENSE: MAINTAINING TODAY'S FORCES September 2000

tion and family housing, also add to budgetary requirements.

The size and structure of U.S. conventional

forces largely determine the military’s operating costs

and hence its budget requests. Metrics used for those

factors typically include divisions (the Army and the

Marine Corps); tactical air wings (the Air Force, Marine Corps, and Navy); and ships (the Navy). Today’s

Army includes 10 active-duty divisions, and each typically has three brigades. Another eight divisions and

18 separate brigades make up the Army National

Guard. The Navy operates more than 300 battle force

ships (essentially all ships involved in combat plus

some others). The Marine Corps is organized into

three active divisions and three Marine air wings; another division and air wing make up the Marine Corps

Reserve. Finally, the Air Force operates the equivalent of about 20 tactical fighter wings—12.6 in the

active component of the service and 7.6 in the Air National Guard and Air Force Reserve. (Summary Table

1 lists today’s forces and compares them with those

of previous years. Summary Table 2 shows how budgets have changed along with force structures.)

Summary Table 2.

Funding for National Defense and Personnel for the Department of Defense 

in Selected Fiscal Years, 1989-1999

1989 1993 1997 1999

Percentage

Change,

1989-1999a

Budget Authority (In billions of 2000 dollars)

Department of Defense

Military personnel 109 93 78 73 -33

Operation and maintenance 116 99 99 109 -6

Procurement 97 58 44 52 -47

Research, development, test, and evaluation 47 42 38 39 -17

Military construction 7 5 6 6 -20

Family housing 4 4 4 4 -11

Subtotal 380 302 269 282 -26

Other Agenciesb 11 16 13 14 23

Total, National Defensec 391 318 282 296 -24

DoD Personnel (In thousands)d

Active Duty 2,130 1,705 1,439 1,386 -35

National Guard and Reserve 1,171 1,058 902 869 -26

Civilian 1,107 984 786 704 -36

SOURCE: Congressional Budget Office using data from the Department of Defense and the Office of Management and Budget.

a. The apparent discrepancies in CBO's calculations arise from rounding.

b. Covers defense activities related to atomic energy in the Department of Energy and national defense functions in other agencies.

c. Includes revolving and management funds, trust funds, and offsetting receipts. Excludes contract authority for the working capital funds because

appropriations are used to liquidate that authority.

d. Strength measured at the end of the year.
SUMMARY xi

CBO did not analyze whether those forces are

sufficient to support the national security strategy,

although that issue has been a matter of some contention. Defense analysts have criticized force levels as

either too high or too low, or the mix of units as

wrong, for the missions that the U.S. military is expected to accomplish, both today and in the future.

Such criticisms suggest that the levels and structure of

those forces may change and that questions about their

sufficiency will be a topic of upcoming debates about

defense. In its analysis, however, CBO accepted the

nation’s military forces as they are sized and structured today and estimated the annual budget that

would be necessary to sustain and modernize them.

CBO's Estimate of a 

Sustaining Budget for 

National Defense

CBO’s estimate of a sustaining budget for national

defense totals about $340 billion in 2000 dollars.

That amount represents the overall funding required to

keep defense forces in a “steady state,” which CBO

calculated by holding constant certain factors, including the numbers of personnel, forces, and military

bases. It is not an estimate of the defense budget for

any specific year, although CBO has organized the

components of the estimate in traditional budget categories (see Summary Table 3). In budgetary terms,

the estimate covers budget function 050, which includes not only funding for the Department of Defense

but also budget authority for defense activities related

to atomic energy in the Department of Energy and for

national defense functions in other federal agencies.

More specifically, CBO’s estimate of sustaining

funding for DoD’s portion of the defense budget includes funds to:

o Keep increases in the pay of military personnel

consistent with increases in pay in the private

sector;

o Maintain current operating tempos (the pace of

operations and training) and levels of maintenance and support for today’s forces, and keep

increases in pay for DoD’s civilian workforce in

line with those in the private sector;

o Replace the military’s weapons and equipment at

a rate consistent with projections of their service

lives—in particular, replace old weapons and

equipment with new systems that exist or are

planned, or with items in DoD’s current inventory where no new system is in development;

o Provide funding for the research, development,

test, and evaluation category consistent with the

historical share of the budget that has been devoted to those activities; and

o Repair and replace the existing stock of military

facilities and family housing units.

Most of the sustaining budget—$327 billion—

would fund DoD; about $13 billion would support the

defense programs in other agencies. Activities in the

Department of Energy would account for $12 billion

of the non-DoD funds, and the remaining $1 billion

would be dispersed among a variety of other agencies.

Sensitivities and Uncertainties 

of CBO’s Estimate

The assumptions CBO made in estimating a sustaining

budget for national defense were based on the best

available information about current forces and trends.

Like most estimates, CBO’s is sensitive to (would be

affected by) changes in some of those assumptions.

For example, a different force structure would

not only alter appropriations for the pay and benefits

of military personnel but also change the funding required for both operating costs and modernization.

And even if the number and structure of forces remained the same, the estimate would still be sensitive

to changes in other assumptions.

CBO’s sustaining estimate of operating costs, for

example, rests on an assumption about how much the

pay of military personnel and DoD’s civilian workforce would need to grow in real (inflation-adjusted)

terms over a particular period to remain competitive

with the pay of private-sector workers. That estimate
xii BUDGETING FOR DEFENSE: MAINTAINING TODAY'S FORCES September 2000

would be higher or lower depending on whether pay in

the private sector grew faster or more slowly than

CBO’s projection. And if the labor market for young

adults tightens further or even remains as challenging

for military recruitment and retention as it is today, the

costs of labor (military pay and benefits) could rise

faster than the costs of other aspects of support for the

military.

CBO’s estimate of sustaining funding for procurement ($90 billion) is particularly sensitive to

changes in some of its components. Alternative assumptions about some portions of that estimate could

add to or reduce it by tens of billions of dollars. For

example, a major assumption involved the service

lives of weapon systems and equipment. CBO used

service-life projections that are consistent with those

that the military services use for their planning, which

are much longer than the projections used in the past

(because DoD is now keeping some equipment in service longer). But if CBO based its estimate on DoD’s

previous experience in retiring equipment, its estimate

of sustaining funding for procurement would be $25

billion higher.

Conversely, that estimate would be lower under

an assumption that weapon systems and other equipment would be replaced on some other basis than one

for one. The services might choose a different replacement policy in the future for a variety of reasons,

as an example involving the Navy suggests. The service has cut the number of fighter aircraft in its carrier

Summary Table 3.

Fiscal Year 2000 Appropriations for National Defense and CBO's Estimate of a Sustaining Defense

Budget, by Budget Category (In billions of 2000 dollars of budget authority)

Appropriation for

Fiscal Year 2000a

SustainingBudget Estimateb

Department of Defense (Budget subfunction 051)

Military personnel 74 82

Operation and maintenance 102 107

Procurement 53 90

Research, development, test, and evaluation 38 40

Military construction 5 5

Family housing 4 4

Subtotal 276 327

Other Agencies (Budget subfunctions 053 and 054)c 13 13

Total, National Defense (Budget function 050)d 289 340

SOURCE: Congressional Budget Office.

NOTE: The figures in the table include both discretionary and mandatory funding.

a. Based on CBO’s estimates as of July 2000 but excluding supplemental appropriations of about $9 billion.

b. The sustaining-budget estimate is CBO’s calculation of the annual funding required to maintain U.S. military forces at their current size; to

modernize their weapons and equipment at a rate that is consistent with expected service lives and with maintaining a technological advantage

over potential adversaries; and to maintain current funding for readiness. It is a steady-state concept and not an estimate of the defense budget

for any specific year.

c. Covers defense activities related to atomic energy in the Department of Energy and national defense functions in other agencies.

d. Includes revolving and management funds, trust funds, and offsetting receipts, which total less than $0.5 billion. Excludes contract authority for

the working capital funds because appropriations are used to liquidate that authority.
SUMMARY xiii

wings by about 20 percent from the levels it maintained during the Cold War. Such cuts might reflect

changes in the threats faced by the carrier wings and

in their missions. But they might also reflect the

Navy’s view that it could provide sufficient capability

with fewer planes if those planes were more capable.

The Limitations of CBO’s Estimate

In addition to the uncertainties noted above, CBO’s

estimate of a sustaining budget for national defense

has several limitations that affect its usefulness. The

estimate does not apply to the period for which DoD

typically constructs detailed plans; in addition, as

noted earlier, it is not an estimate of the defense budget for any specific year. The estimate is also a broad

one, based on total defense appropriations and simple

estimating methods. Consequently, it is not comparable to the detailed cost estimates that CBO prepares

for legislation.

A more fundamental limitation of CBO’s estimate is that it is not a calculation of the funding required to defend the nation’s security interests. Such

an estimate would require a full evaluation of the national security strategy and the military capabilities

required to support it in light of the threats that the

United States could confront. A new strategy could

deemphasize, revise, or replace any of DoD’s and the

Administration’s goals. Changes in the assumptions

DoD now uses for planning—such as maintaining

enough forces to fight two regional wars that occur at

about the same time—would change the forces that the

military required and therefore the funding it would

need for both the operations and modernization of

those forces. Likewise, fewer peace operations and

deployments overseas could reduce the operating

funds that the military required and might even justify

cuts in the number of forces it would need.

Alternatives for Defense

Forces and Budgets

To broaden the discussion, CBO’s study includes a

number of illustrative options showing how changes to

the military’s force structure, modernization plans, or

operations might affect the funding that the services

require to maintain their forces. Some of the options

would change specific force elements or particular

programs; others would alter DoD’s business operations or the way it runs its military bases. CBO drew

specific alternatives from its March 2000 publication

Budget Options for National Defense. The options

are not intended to be recommendations but are merely

examples that indicate the rough size of the savings

such changes might produce. Average annual savings

under the options would range from $0.5 billion (for

canceling the Army’s Comanche helicopter) to $3.8

billion (for canceling the F-22 fighter plane).

In addition to those options, CBO constructed

two broad force structures to illustrate the budgetary

effects of changing the focus of some of the military’s

missions. The first alternative emphasizes peace operations and deemphasizes combat missions. It would

cut conventional combat forces, such as Army divisions, yet preserve most maritime forces and units that

have been heavily used in recent peace operations,

such as some support forces and airlift aircraft. Sustaining the forces in that option would require an annual budget of about $320 billion (in 2000 dollars),

CBO estimates, or about $20 billion less than the sustaining budget associated with today’s forces.

The second of CBO’s alternative force structures

stresses regional combat and conventional forces

rather than peace missions but would cut purchases of

newly developed equipment. According to CBO’s calculations, the forces under the second option would

require about $325 billion (in 2000 dollars) to sustain

them.

Conclusion

The questions noted at the beginning of this summary

provide a context for considering the defense budget

request and the military forces and activities it funds.

CBO’s analysis, however, addressed only the budget

required to sustain the military forces that are in place

today and not the issues those questions raise about

threats, strategy, and the sufficiency of forces.
xiv BUDGETING FOR DEFENSE: MAINTAINING TODAY'S FORCES September 2000

CBO’s estimate of a sustaining budget is higher

than any recent year’s funding for national defense.

To eliminate that imbalance, decisionmakers could

change what they require from the military services,

increase funding, or pursue some combination of those

approaches. But even under the broad options that

CBO evaluated for closing that gap, its estimate of a

sustaining budget would still be higher than today’s

level of defense funding.

The large disparity between current defense budgets and CBO’s estimate indicates the complexity of

the problem that decisionmakers face. To fully address that problem, they would need to consider all

three of the questions posed earlier, which would involve a thorough review of possible threats to the nation’s security (both now and in the future), the appropriate strategy to counter them, and the budgetary implications of decisions about those matters—a process

that could lead to changes in forces, levels of readiness, and plans for modernization. Without that review, the appropriate level of budgetary support for

national defense cannot be determined.
Chapter One

Introduction

With the end of the Cold War, strategic balances worldwide shifted radically, and the

threats faced by the United States diminished. The collapse of the Warsaw Pact and the dismantling of the Soviet Union left the world looking

different from the way it did when the Soviets dominated much of Asia and Eastern Europe. In response

to those shifts, U.S. military forces have also undergone profound changes. The missions for which they

train and plan have been substantially altered. And

their numbers have been greatly reduced.

Throughout much of the 1990s, the funds U.S.

policymakers allocated to national defense followed a

similar downward trend, as budgets fell along with

forces (see Table 1). In 1998, the defense budget

reached a 20-year low. In 1999, policymakers halted

that decline and provided regular and supplemental

appropriations that constituted real (inflation-adjusted)

growth in the resources available to support national

defense activities. In particular, funds for procuring

new equipment and weapons, which had shrunk by a

larger percentage than had the total defense budget,

began to receive significant, real boosts.

That increased funding, however, has not eliminated questions about future defense budgets—in particular, about the level of funding necessary to sustain

today’s forces. (The “sustaining” budget that this

study addresses is the annual funding that would be

needed to retain U.S. military forces at their current

size, modernize their equipment, and maintain current

levels of readiness for operations.) Before policymakers can ask and answer questions about future

defense budgets, however, broader issues require consideration. What threats does the United States face?

What strategy is appropriate to respond to those

threats? And what military forces are needed to implement that strategy?

A full examination of those questions demands a

complex political and military analysis that would begin by appraising the role that the United States wants

to play in the post-Cold War world and how specific

foreign policy interests and objectives help determine

that role. From those considerations would follow a

national security strategy, one element of which would

be the function of military force and the threat of

force. Using that strategy as a basis, the missions that

the military might assume could then be determined,

the number of forces needed to perform those missions

established, and their budgetary requirements calculated. A further consideration in that calculus, many

observers now believe, is the increasing importance to

policymakers of minimizing U.S. casualties in military

operations. That attitude might significantly affect

how missions are conducted as well as which forces

are used. It might also affect the number of forces the

military maintains, because many defense leaders believe that overwhelming superiority shortens wars and

reduces U.S. casualties.

This study does not address the broader issues

associated with the kind of examination detailed
2 BUDGETING FOR DEFENSE: MAINTAINING TODAY'S FORCES September 2000

above. Although the study briefly discusses presentday threats to U.S. security, describes the nation’s

current military strategy, and reviews the structure of

today’s military forces, it does not analyze whether

those forces are adequate in number and appropriately

configured to support the strategy. Instead, this Congressional Budget Office (CBO) analysis accepts as a

“given” the military forces that the Administration has

decided to retain to implement its current strategy and

assesses the budgetary implications of those decisions.

Current Threats to U.S.

Security

With the breakdown of the Soviet Union, U.S. military

forces are now the strongest in the world. Among all

foreign powers, only China and Russia have armed

forces and inventories of conventional weapons

(broadly speaking, nonnuclear arms) that are close in

Table 1.

Funding for National Defense and Personnel for the Department of Defense 

in Selected Fiscal Years, 1989-1999

1989 1993 1997 1999

Percentage

Change,

1989-1999a

Budget Authority (In billions of 2000 dollars)

Department of Defense

Military personnel 109 93 78 73 -33

Operation and maintenance 116 99 99 109 -6

Procurement 97 58 44 52 -47

Research, development, test, and evaluation 47 42 38 39 -17

Military construction 7 5 6 6 -20

Family housing 4 4 4 4 -11

Subtotal 380 302 269 282 -26

Other Agenciesb 11 16 13 14 23

Total, National Defensec 391 318 282 296 -24

DoD Personnel (In thousands)d

Active Duty 2,130 1,705 1,439 1,386 -35

National Guard and Reserve 1,171 1,058 902 869 -26

Civilian 1,107 984 786 704 -36

SOURCE: Congressional Budget Office using data from the Department of Defense and the Office of Management and Budget.

a. The apparent discrepancies in CBO's calculations arise from rounding.

b. Covers defense activities related to atomic energy in the Department of Energy and national defense functions in other agencies.

c. Includes revolving and management funds, trust funds, and offsetting receipts. Excludes contract authority for the working capital funds because

appropriations are used to liquidate that authority.

d. Strength measured at the end of the year.
CHAPTER ONE INTRODUCTION 3

size to those of the United States (see Figure 1). The

Chinese People’s Liberation Army is the largest army

in the world, with almost 2 million troops. It has large

stocks of conventional weapons, but most of them

were developed in the 1950s and 1960s and are far

less sophisticated than comparable U.S. versions.

Russia also has substantial stocks of most conventional weapons, largely inherited from the former Soviet Union. Many defense analysts believe, however,

that significant numbers of the weapons may be in

very poor condition. Despite such shortcomings, the

forces of those nations and of others could still

threaten U.S. interests and be used to menace U.S.

allies.

U.S. defense planning currently emphasizes preparing for threats posed by countries that may have

less combat capability than Russia and China but that

nevertheless still threaten the peace in their own regions. Of those powers, Iran, Iraq, and North Korea

probably have the most significant military capabilities; consequently, wars in the Persian Gulf region and

on the Korean Peninsula are the scenarios that for the

most part drive the United States’ plans for its military

forces. Yet those countries have far less military

equipment than the United States has and lack other

advantages of U.S. forces—for example, aircraft that

can penetrate enemy defenses without being detected

in time to be shot down, large quantities of precisionguided munitions, better surveillance and reconnaissance, and more sophisticated command, control, and

communication systems.

As U.S. military leaders have noted, however, the

most worrisome threats to U.S. interests may not be

the conventional forces of foreign powers. Instead, socalled unconventional threats to the United States and

to U.S. forces overseas may pose greater dangers.

Such threats range from nuclear, biological, or chemical (NBC) weapons to “cyberattacks”—assaults on

the United States’ computer infrastructure.1

 Unconventional threats are difficult to assess and, as a result,

hard to counter. Attacks with such weapons may also

require responses that are difficult to carry out because they go beyond the boundaries of standard military activities.2

Many of the same regional powers that U.S.

planners worry most about facing in conflicts with

conventional weapons also have NBC weapons. In the

developing world today, about 20 countries are believed to have stocks of chemical weapons. Iraq, for

example, used them extensively during its war against

Iran in the 1980s. Almost 20 more countries are believed to have developed some type of biological

weapon. And some defense planners suspect that Iran,

Iraq, and North Korea are very close to developing

their own nuclear arms—if they do not already have

them. Not surprisingly, many of the countries that

have or are developing NBC weapons are also developing the means—perhaps through ballistic missiles

—to deliver them effectively.

Another potentially serious threat that has surfaced in recent years is attacks against military and

civilian computer and communication networks. The

risk of such assaults by individuals and groups seeking

to disrupt U.S. warfighting abilities or critical elements of the U.S. economy and infrastructure has

grown in the 1990s as the number of computers, computer networks, and Internet users has exploded. That

aggression can take two basic forms: electronic attacks by hackers on computer networks themselves or

physical attacks on critical nodes such as power supplies, switching stations, or satellite ground stations.

The U.S. military has become more vulnerable to such

threats as it relies increasingly on computer networks

and comes to depend more and more on commercial

communication satellites and systems. Civilian com1. CBO uses the term "NBC weapons," but defense experts may use a

variety of phrases for such threats. Some analysts use "weapons of

mass destruction," which generally cover larger attacks and might also

include conventional attacks using high explosives. Several recent

studies have used "chemical, biological, radiological, and nuclear

weapons" to focus attention on the potential for radiological attacks

(for instance, poisoning people by wrapping conventional explosives in

highly radiological materials). That term is used in the First Annual

Report to the President and the Congress of the Advisory Panel to

Assess Domestic Response Capabilities for Terrorism Involving

Weapons of Mass Destruction, December 15, 1999 (available at

www.rand.org/organization/nsrd/terrpanel/terror.pdf) and in Anthony

H. Cordesman, “Defending America: Redefining the Conceptual Borders of Homeland Defense” (draft, Washington, D.C., Center for Strategic and International Studies, September 3, 2000), available at

www.csis.org/homeland/reports/NMDfullreport.pdf.

2. In the event of an attack with biological weapons, for example, military forces might want to help local officials with law enforcement.

But the Supreme Court has upheld laws that restrict the Department of

Defense’s (DoD’s) involvement in certain domestic situations. Those

constraints limit the assistance DoD can offer and place the burden of

response on other federal, state, or local agencies.
4 BUDGETING FOR DEFENSE: MAINTAINING TODAY'S FORCES September 2000

U.S.

Russia

China

IranIraq

Libya

N. Korea

Syria

Cuba

0

1

2

3

4

5

6

7

8

9

Thousands

Main Battle Tanks

U.S.

Russia

China

IranIraq

Libya

N. Korea

Syria

Cuba

0

5

10

15

20

25

30

Thousands

Other Armored Vehicles

U.S.

Russia

China

IranIraq

Libya

N. Korea

Syria

Cuba

0

50

100

150

200

Principal Ships

U.S.

Russia

China

Iran

Iraq

Libya

N. Korea

Syria

Cuba

0

10

20

30

40

50

60

70

80

Submarines b

a

Figure 1.

Stocks of Major Weapon Systems Held by the United States and Selected Other Nations

SOURCE: Congressional Budget Office using data from International Institute for Strategic Studies, The Military Balance, 1999/2000 (London:

International Institute for Strategic Studies, October 1999).

a. For Russia, stocks as reported on January 1, 1999, under the Treaty of Conventional Forces in Europe.
CHAPTER ONE INTRODUCTION 5

U.S.

Russia

China

Iran

Iraq

Libya

N. Korea

Syria

Cuba

0.0

0.5

1.0

1.5

2.0

Air Force Navy Army

U.S.

Russia

China

IranIraq

Libya

N. Korea

Syria

Cuba

0

1

2

3

4

5

Navy Air Force

Thousands

Combat Aircraft

Thousands

Combat Helicopters

U.S.

Russia

China

IranIraq

Libya

N. Korea

Syria

Cuba

0.0

0.5

1.0

1.5

2.0

2.5

Thousands

Airlift, Tanker, and Other Aircraftc

Figure 1.

Continued

b. Includes aircraft carriers, surface combat ships, and amphibious vessels but excludes a number of other ships that the U.S. Navy counts as battle

force ships.

c. Includes only air force planes and excludes training aircraft. The Military Balance provided no data for Iraq.
6 BUDGETING FOR DEFENSE: MAINTAINING TODAY'S FORCES September 2000

puter networks at the core of the nation’s financial

infrastructure and rail and air transportation systems,

as well as communication networks, could also be vulnerable.3

Even if unconventional weapons were not used to

attack the United States itself, they might restrict the

U.S. military’s operations overseas. The nation’s superior conventional forces and weapons would be of

limited value in a regional war if an enemy’s threat of

retaliation with NBC weapons deterred the United

States from using its conventional arms. Moreover, if

enemies with only modest conventional capabilities but

stocks of unconventional weapons developed intercontinental ballistic missiles that could reach the United

States, those nations could exert considerable leverage

and pose a sizable threat.

As unconventional threats have multiplied, their

claim on the attention of U.S. leaders and defense analysts has increased. Some officials have called for

more spending on defenses against ballistic missiles.4

Others advocate radically transforming the way the

United States develops its strategies and structures its

forces. Decisions on those kinds of issues are likely to

be among the challenges that will face the new Administration and the 107th Congress.

Current U.S. Military Strategy

Following logically on the identification of threats to a

nation would be the development of policies to counter

those threats. In the United States, those policies constitute the national security strategy, which can be

roughly defined as the nation’s evolving plan for coordinated use of all of the instruments of state power to

defend and advance the national interest.5

 Military

force or the threat of force is a chief component of that

plan. Because strategy determines the missions that

the military services are expected to accomplish to

counter national security threats, it also influences the

levels and types of forces that the U.S. military requires and how modern and ready those forces need to

be.

Today’s military strategy calls for enough forces

to fight two regional wars and to support peace operations.6

 Strategically, the goal of being able to respond

to two major wars in different regional theaters (two

major theater wars, or MTWs) that occur nearly simultaneously determines in large part the number of

combat forces that the U.S. military maintains. The

two-MTW metric was initially developed in the immediate aftermath of the Cold War, when the Department

of Defense (DoD) first formulated its regional defense

strategy. That strategy defined a base force—DoD’s

estimate of the minimum force required to accomplish

3. Terrorists with unconventional weapons they have developed or stolen

are a further threat that could be even more dangerous for the United

States than a crisis involving a nation state, which might be deterred

from acting by persuasion or the threat of force.

4. The Rumsfeld Commission—a panel charged with assessing the current and potential threat to the United States from missile attack and

the capability of the U.S. intelligence community to provide timely

warning—has added to concerns about those issues. The commission

reported in 1998 that widespread foreign assistance and extensive

efforts to hide missile development programs from Western intelligence have created conditions under which North Korea, Iran, and

Iraq could, with very little warning, deploy ballistic missiles with

ranges long enough to strike parts of the United States. See Commission to Assess the Ballistic Missile Threat to the United States, Executive Summary of the Report of the Commission to Assess the Ballistic Missile Threat to the United States, July 15, 1998, pursuant to

Public Law 201, 104th Congress (available at www.fas.org/irp/threat/

bm-threat.htm).

5. For a description of the Administration’s current strategy, see the

White House, A National Security Strategy for a New Century (December 1999). For a critique of the Administration’s strategy, see

National Defense Panel, Transforming Defense: National Security in

the 21st Century (December 1997). See also United States Commission on National Security/21st Century, Seeking a National Strategy:

A Concert for Preserving Security and Promoting Freedom (April

2000). That commission is at work evaluating the current strategy

and may propose revising it. For an evaluation of all aspects of the

strategy and proposed alternatives, see Zalmay M. Khalilzad and

David Ochmanek, eds., Strategy and Defense Planning for the 21st

Century (Santa Monica, Calif.: RAND, 1997).

6. CBO uses the term "peace operations" in this study to refer to military

operations other than war, or MOOTWs. The Office of the Joint

Chiefs of Staff, in the Joint Doctrine Encyclopedia, defines

MOOTWs as follows: “Operations that encompass the use of military

capabilities across the range of military operations short of war. These

actions can be applied to complement any combination of the other

instruments of national power and occur before, during, and after

war.” According to that encyclopedia, military operations in this category include peace enforcement, counterterrorism, shows of force,

peacekeeping, noncombatant evacuation operations, counterinsurgency, counterdrug, and humanitarian assistance. (The Joint Doctrine

Encyclopedia is available at www.dtic.mil/doctrine/jrm/ency.htm.)

Another umbrella term that is sometimes used is smaller-scale contingencies. For a more detailed discussion of peace operations, see Congressional Budget Office, Making Peace While Staying Ready for

War: The Challenges of U.S. Military Participation in Peace Operations, CBO Paper (December 1999).
CHAPTER ONE INTRODUCTION 7

U.S. national security goals during the post-Cold War

period.7

DoD’s 1993 Bottom-Up Review (BUR), one of

the department’s periodic assessments of the capabilities it needed to maintain or develop to carry out its

missions, endorsed the two-MTW yardstick.8

 The

BUR developed overall requirements for U.S. combat

forces by taking the forces deemed necessary for the

first conflict and doubling them to deter—or fight, if

necessary—a second aggressor. The Congressionally

mandated Quadrennial Defense Review (QDR) of

1997 basically endorsed the force levels that emerged

from the BUR, but it made a few changes.9

 (For example, the QDR cut the Navy’s requirements for surface combat ships from the force of 131 ships planned

in the BUR to a force of 116.) The QDR planned for

2001 is likely to bring other changes as well.

Operations that the U.S. military conducts in

peacetime also influence, to some degree, the forces

DoD must maintain. The Clinton Administration’s

defense policy has heavily emphasized such peace operations as humanitarian assistance and civil-support

and nation-building activities. That emphasis derives

from the Administration’s goal of shaping the national

security environment to make it more positive toward

U.S. interests. As a result, U.S. forces engaged in

peace operations to a much greater degree in the 1990s

than they did during the Cold War. Peace operations

may require forces that have less relevance to combat

—for example, units with personnel expert in helping

nations develop civil institutions such as courts. Requirements for those kinds of personnel can drive up

the number of such units that the military must maintain.

The military’s operations in both war and peace

also affect the pace at which it modernizes its weapons

and equipment. During the Cold War, the primary

impetus for U.S. military modernization was the perceived need to keep up with the development and fielding of new systems by the former Soviet Union. But

modernizing solely to stay ahead of adversaries may

no longer be as strong a rationale for allocating resources as it was in the past. As discussed earlier,

most U.S. forces are already much more sophisticated

or capable than the forces of countries that could oppose the United States in major regional wars. U.S.

superiority is even more overwhelming compared with

the capabilities of military forces in countries where

the United States might participate in operations other

than war. And it is unlikely that any of those countries will have the funds any time soon to modernize

their forces sufficiently to gain parity with the U.S.

military.

What arguments, then, would justify increasing

funds for modernization, as occurred in 1999?

o First, the United States may wish to preserve its

overwhelming superiority, which, as service

leaders regularly argue, leads to shorter conflicts

and fewer U.S. casualties. Even with limited

defense budgets, potential adversaries could focus their resources on developing certain technologies or tactics that offset U.S. conventional capabilities in particular areas. If opponents could,

for example, develop chemical or biological

weapons and use them to attack ports or airfields, they could slow the deployment of U.S. air

and ground forces during a conflict.

o Second, focusing strategic planning only on today’s threats could produce a misleading sense

of security, which could result in modernization

that was too slow (as well as cuts in forces that

were too large). Over the course of several decades, nations that are no threat today could

amass significant military capability, as Germany did in the decade preceding World War II.

Some defense analysts argue that in the postCold War world, U.S. modernization efforts should

have a different focus. They advocate basing modernization not on the capabilities of foreign powers but on

the objectives that the United States wishes to accomplish and the capabilities that the nation wishes to de7. General Colin L. Powell, Chairman of the Joint Chiefs of Staff, “The

Base Force—A Total Force” (briefing prepared for the Subcommittee

on Defense of the House Committee on Appropriations, September 25,

1991).

8. Secretary of Defense Les Aspin, Report on the Bottom-Up Review

(October 1993).

9. Secretary of Defense William S. Cohen, Report of the Quadrennial

Defense Review (May 1997).
8 BUDGETING FOR DEFENSE: MAINTAINING TODAY'S FORCES September 2000

velop or improve.10 Under that kind of framework,

modernization might relate more to producing weapons that were cheaper to operate than comparable

weapons today or that accomplished missions that no

current weapons could carry out. It might also include

preparing to counter threats posed by technologies that

are now available only to U.S. forces but that could be

acquired by other nations in the future.

The basis that the military chooses for its modernization efforts is only one of a number of factors

that affect how much money DoD ultimately needs to

support its forces. The following section considers

some of the major determinants of the defense budget.

What Factors Drive Budget

Requests for Defense?

Several important factors determine in large part how

much money is needed to finance the nation’s defense

activities. The size and structure of U.S. military

forces and their readiness for combat strongly influence budget requirements, as does investment in weapons, equipment, and facilities. The military spends its

appropriations to keep those factors at acceptable levels today and also to try to preserve acceptable levels

in the future.11

Another major determinant of the defense budget

is the cost and capability of the infrastructure that

supports military forces and the efficiency with which

support is delivered. DoD has estimated that spending

on infrastructure support—which is found in all defense appropriations—represents more than half of the

spending in DoD’s overall budget. The level of that

funding does not rise or fall automatically as Administrations change their strategy, forces, or plans for

modernization. Thus, like large corporations, DoD

must actively seek to minimize what it spends on support, from controlling the costs of operating its facilities to providing services to its personnel as efficiently

as possible. But cutting infrastructure costs has not

proved to be easy, and as a result, funding for infrastructure support may well have increased as a percentage of the total defense budget over the past decade.

Force Size, Structure, and Readiness

DoD divides its forces into two major categories: strategic (basically nuclear) and conventional (see Table

2). For strategic forces, common measures of size and

structure include ballistic missiles and bombers. Metrics used for conventional forces include divisions

(Army and Marine Corps), tactical air wings (Air

Force, Marine Corps, and Navy), and battle force

ships (Navy), which include all Navy ships involved in

combat—for example, aircraft carriers, surface combat ships, and submarines—as well as certain other

vessels.

U.S. combat forces in 1999 were structured as

follows:

o The Army’s forces included 10 active-duty divisions, with another eight divisions and 18 separate brigades in the Army National Guard. The

active Army consisted of 480,000 personnel; the

Army National Guard, 350,000; and the Army

Reserve, 205,000.

o The Navy operated 317 ships (others were laid

up in storage) with more than 370,000 personnel

on active duty and about 90,000 in the Navy Reserve. Among those ships were 18 ballistic missile submarines carrying Trident missiles.

o Slightly more than 170,000 Marines were divided into three active divisions, three Marine air

wings, and support forces. Another division and

air wing made up the Marine Corps Reserve,

which was supported by almost 40,000 reservists.

o The Air Force operated the equivalent of 20 tactical fighter wings—12.6 in the active component

10. See, for example, Glenn A. Kent and William E. Simons, “ObjectiveBased Planning,” in Paul Davis, ed., New Challenges for Defense

Planning (Santa Monica, Calif.: RAND, 1994), pp. 59-71.

11. For the amounts appropriated in each title in the 2001 budget, see

Stephen Daggett, RL30505: Appropriations for FY2001—Defense,

CRS Appropriations Report for Congress (Congressional Research

Service, August 11, 2000).
CHAPTER ONE INTRODUCTION 9

Table 2.

U.S. Military Forces in Selected Fiscal Years, 1989-1999

1989 1993 1997 1999

Percentage

Change,

1989-1999

Strategic Forcesa

Land-Based ICBMs 1,000 787 580 550 -45

Heavy Bombersb 310 194 126 143 -54

Submarine-Launched Ballistic Missiles 576 408 408 432 -25

Conventional Forcesc

Land Forces

Army divisionsd

Active 18 14 10 10 -44

Reserve 10 8 8 8 -20

Marine Corps expeditionary forcese

Active 3 3 3 3 0

Reserve 1 1 1 1 0

Naval Forces

Battle force shipsf 566 435 354 317 -44

Aircraft carriers

Active 15 13 11 11 -27

Reserve 1 0 1 1 0

Navy carrier air wings

Active 13 11 10 10 -23

Reserve 2 2 1 1 -50

Air Forces

Tactical fighter wings

Active 25 16 13 13 -48

Reserve 12 11 8 8 -33

Airlift aircraft

Intertheater 401 382 345 331 -17

Intratheater 468 380 430 425 -9

SOURCE: Congressional Budget Office using data from Office of the Secretary of Defense, Annual Report to the President and the Congress

(various years).

NOTE: ICBMs = intercontinental ballistic missiles.

a. Forces with basically nuclear missions.

b. Includes some long-range bombers that do not have strategic missions.

c. Forces with largely nonnuclear missions.

d. Excludes separate brigades that are not part of a division.

e. A Marine expeditionary force includes a division, an air wing, and supporting forces for those combat elements.

f. Includes all Navy ships involved in combat—for example, ballistic missile submarines, surface combat ships, aircraft carriers, and amphibious

craft—as well as some other vessels.
10 BUDGETING FOR DEFENSE: MAINTAINING TODAY'S FORCES September 2000

and 7.6 in the Air National Guard or Air Force

Reserve—as well as a large number of intercontinental ballistic missiles, strategic bombers, and

airlift and tanker aircraft. Air Force personnel

numbered about 360,000 in the active-duty component and 180,000 in the reserve component.

The United States places considerable emphasis

on keeping its military forces ready for operations.

Indeed, some military experts feel that the readiness of

forces is the most important determinant of their capability. Traditionally, readiness has been a measure of

how well prepared forces are to fight when they are

needed. Some of the questions used to gauge military

readiness are, Is equipment in good repair? Do forces

have enough spare parts, fuel, and ammunition to keep

them operational? Are troops in good physical condition and highly trained?

Despite the military's emphasis on readiness, it is

difficult to estimate exactly how much money is being

spent on it. There is no specific appropriation for

“readiness”; instead, the resources that support it are

spread among a broad array of budget categories, or

titles. Commonly associated with readiness are the

two titles that pay for DoD’s annual operations: operation and maintenance (O&M) and military personnel.

The O&M budget funds many kinds of equipmentrelated items such as spare parts and repairs and many

expenses related to training. The military personnel

appropriations fund pay and benefits. But not all of

the funds in those two titles support current readiness,

and other titles also provide funding.

Evaluating the impact of the money spent on

readiness can be as difficult as estimating the amount.

Readiness is difficult to quantify, and to a certain extent, evaluations of it depend on subjective military

judgments. As a result, DoD’s measurements of

readiness have serious limitations. In the past—specifically, in the late 1970s—the military services were

willing to cut back on readiness in response to budgetary and other constraints. Today, though, defense

leaders do not support cutting readiness to meet budget targets and instead place a high priority on maintaining it. Despite that priority, some defense officials

believe that the readiness of U.S. forces has declined

enough to be a basis for concern. Others believe that

readiness remains at acceptable levels. Those varying

opinions underscore the difficulties of reaching a consensus about readiness when objective measures are

lacking.

Investment

As discussed earlier, most of the nations that might

threaten U.S. interests today or in which U.S. forces

might be called on to intervene in peacetime have

weapons that are significantly less capable than the

current generation of U.S. weapons. The military’s

investment in modernization, therefore, focuses on

maintaining a significant level of superiority now and

preparing for other threats, perhaps from unconventional sources, that might emerge in the longer term.

Funds for modernization, which is a third major determinant of the size of the defense budget, are spread

among the appropriations for research and development and for procurement of equipment and weapon

systems. Funding for military construction and military family housing is also included under the rubric

of investment because those two budget categories

support purchases of buildings and facilities that last a

long time. In general, funding in those categories is

less directly linked to responding to threats than are

funds in some other areas of the budget.

Research and Development. Funding for research

and development pays for basic and applied research

that explores new technologies (with possible military

implications) and develops and tests new systems.

Those activities are intended to enable the military to

respond to emerging threats, take advantage of new

technologies, and address other objectives, such as

improving the mobility of U.S. forces or producing

systems that are less expensive to operate. In the

1990s, funding for defense research and development

was protected to a degree from cuts, perhaps reflecting

the belief of policymakers that the continued superiority of the U.S. military required a strong technological

foundation.

Procurement. How many new weapons DoD purchases and how much it upgrades and modernizes its

existing stocks determine how much it spends on procurement. During the 1990s, as military forces were

being cut, DoD halted or slowed purchases of a number of weapons. In addition, the services retired many

pieces of equipment that had not yet reached the end of
CHAPTER ONE INTRODUCTION 11

their useful lives because they were no longer needed

to equip the military’s smaller forces.

As purchases over the decade slowed or stopped,

the average age of many classes of defense equipment

rose. Trying to halt or reverse that trend, DoD has

included more money for procurement in its recent

budget requests. As noted earlier, appropriations have

met or exceeded those requests, and DoD plans to increase spending on procurement even further over the

next few years.

Military Construction and Family Housing. Funding for military construction constitutes a relatively

modest share of the defense budget. Over the past

decade, funding for new construction or for renovation

of existing facilities may have been reduced to pay for

the base realignment and closure process in which

DoD engaged during those years. The smaller U.S.

military of the post-Cold War period as well as budgetary constraints arising from the federal deficit led

policymakers to conclude that the nation needed fewer

military bases. Closing bases was expected to save

money in the long run, but shutting them brought some

up-front expenses. (Some of those costs were for environmental cleanup at the bases.) Thus, in the early

to mid-1990s, expenditures related to base closures

equaled as much as 19 percent of the funds appropriated for military construction. DoD has sought to reduce funds for military construction in the long run

through additional rounds of base closure, but the

Congress has not authorized further rounds.

Funds to construct new military family housing

units, to renovate existing units, and to pay for the

upkeep of facilities were also limited during the 1990s.

As a result, DoD’s stock of family housing is aging

and deteriorating. Currently, DoD is seeking to increase private-sector involvement in modernizing its

housing units.

For the above categories of the budget as well as

others, DoD has sought to increase the funding it receives to support its forces and carry out its missions.

But some experts and policymakers argue that funding

for national defense is still not adequate to accomplish

the military’s objectives under the national security

strategy and to ensure the readiness of U.S. forces. In

the next chapter, CBO presents its estimate of the sustaining, or steady-state, funding needed for those purposes.

Chapter Two

CBO's Estimate of a Sustaining

Budget for National Defense

The Congressional Budget Office’s estimate of a

sustaining budget for the U.S. military answers

the question, What budgetary resources would

be required to sustain today’s forces into the future?

In general, CBO estimated the funding it would take to

retain forces at their current size; to modernize their

equipment at a pace consistent with the expected service lives of the equipment and with continuing the military’s technological advantage over potential adversaries; and to maintain current funding for readiness and

training. Specifically, CBO’s estimate of a sustaining

defense budget would:

o Provide enough funds to maintain current operating tempos (the rates of military training and operations) and current levels of maintenance and

support for equipment;

o Keep increases in military and civilian pay for

Department of Defense personnel comparable

with pay increases in the private sector;

o Provide enough funding for modernization to

purchase new equipment to eventually replace all

current items;

o Provide funding for research and development

that is consistent with historical levels; and 

o Provide funds to repair and replace the existing

stock of military facilities and family housing

units.

The concept of a sustaining budget represents the

funding that DoD would require in a “steady state,”

when everything was held constant and nothing

changed over time. In other words, CBO’s estimate

begins with the size and structure of today’s military

and calculates the annual budget that would be necessary to sustain it into the future. Of course, in reality,

many things can and do change over time—including

the number and structure of military units, technology,

the pace of military operations, the civilian labor market from which military and civilian personnel are

drawn, and countless other factors that affect how

much money it would take to provide a given level of

military capability. So many things can change that it

is difficult, if not impossible, to compare an estimate

of the defense budget that would be required for a

given period with estimates for budgets covering other

periods. In any use of CBO’s sustaining-budget estimate, that caveat should be kept in mind.

The Scope of the Estimate

CBO estimated that a sustaining budget for all national defense activities (budget function 050) would

total $340 billion. (CBO’s estimates in this study are

in 2000 dollars of budget authority.) Included in that

total are funds for the Department of Defense and for

the defense-related activities of the Department of Energy and other agencies of the federal government. In

2000, the Congress appropriated $289 billion for na-
14 BUDGETING FOR DEFENSE: MAINTAINING TODAY'S FORCES September 2000

tional defense: $276 billion went to DoD, $12 billion

to the Department of Energy, and $1 billion to the remaining agencies. CBO’s estimate of a sustaining

budget for today’s national defense activities is thus

$50 billion higher than the actual appropriations for

2000. (The 2000 appropriations that are discussed in

this paper do not include supplemental appropriations,

which total about $9 billion.)

Since CBO’s estimate of a sustaining budget is a

long-run, or steady-state, concept, it is not an estimate

of the national defense budget for 2001 or for any

other fiscal year. That kind of calculation would have

to take many factors into account, including the aging

of specific types of weapons and equipment; the priority to be given in the short term to purchases of certain

equipment or to certain operations compared with

other equipment and operations; and the status of new

weapons and equipment (whether they were ready to

enter production). Such factors were not considered in

developing CBO’s estimate of a sustaining budget.

CBO's Estimate of a 

Sustaining Budget for 

the Department of Defense

CBO estimates that sustaining funding for DoD would

total $327 billion. The discussions that follow break

down that total by budget title. Most of the funds that

the Congress appropriates for DoD fall into six titles:

military personnel; operation and maintenance; procurement; research, development, test, and evaluation;

military construction; and family housing.1

 CBO developed separate estimates of funding for those categories for each of the three military departments and a

total estimate for the rest of DoD’s organizational

components (mainly the defense agencies).2

 However,

with the exception of procurement, the discussions in

this section present only the total estimates for each

title (see Table 3). As part of those discussions, CBO

also assesses both the uncertainties surrounding those

estimates and their sensitivity—how much the estimates would be affected by changes in the assumptions used to develop them.

Military Personnel Appropriations

The military competes with the private sector for its

personnel. To keep the quality and quantity of today’s

forces in a steady state, their compensation must remain competitive with compensation in the private

sector, which generally rises each year at a rate above

inflation.3

 So a sustaining budget for military personnel must increase each year.

In 2000, the Congress appropriated $74 billion

for military personnel. To calculate a sustaining budget for that category, CBO had to choose an actual

period over which to project the increase in pay and

benefits. Such a choice is necessarily arbitrary; CBO

chose 2001 through 2015 as a reasonable span over

which to make its calculations. (The effects of using a

longer or shorter period are discussed below.) To

maintain military pay and benefits at today’s level

over that period, military personnel appropriations

would need to average $82 billion annually, CBO estimates.

What the Funds Purchase. In total, the services today have about 1.4 million members on active duty

and another 0.9 million in the reserves, which include

the National Guard. Military personnel appropriations cover pay and many benefits for active and reserve military personnel in the four services, as well as

accrual charges for future retirement pay. The appropriations also include the cost of allowances that military personnel receive for subsistence and housing,

together with moving costs to relocate personnel from

one permanent duty location to another. (Housing

benefits that the services provide to their members in1. Two other categories, revolving and management funds and trust

funds, are intermediate financing mechanisms and are not discussed in

detail here.

2. There are three military departments: the Army, the Navy, and the Air

Force. The Marine Corps falls under the Department of the Navy. In

addition, DoD includes a number of separate support agencies such as

the Defense Intelligence Agency and the Defense Logistics Agency.

Funding for defense agencies comes from multiple appropriation titles.

CBO’s forthcoming study, Budgeting for Naval Forces: Structuring

Tomorrow's Navy at Today's Funding Level, addresses funding for

the Department of the Navy in more detail.

3. One measure of the “quality” of military forces is the percentage of

high school graduates among the services’ recruits.
CHAPTER TWO CBO'S ESTIMATE OF A SUSTAINING BUDGET FOR NATIONAL DEFENSE 15

clude housing in government-owned units and allowances that personnel can use to secure housing in the

private sector. See the later discussion on family

housing.)

Estimating Methods. CBO’s estimate for this budget

title began with the amount appropriated for military

personnel in 2000. That figure reflects the changes

that the Congress made in 1999 to the military’s retirement system and pay table. In estimating a

sustaining-budget amount, CBO held constant the total

number of current service members as well as their

pay grade and length of service.

As part of its estimate, CBO increased DoD’s

costs for military personnel during each year of the

2001-2015 period by an estimated rate of real growth

that is specified in law. The National Defense Authorization Act for Fiscal Year 2000 directs DoD to adjust upward the nominal value of the pay portion of

military personnel appropriations by certain amounts

each year. In 2001 through 2006, that increase is set

to equal the percentage change in the employment cost

index (ECI) plus 0.5 percentage points; thereafter, the

pay portion would rise at the same rate as the ECI.

The sustaining-budget estimate reflects those mandated increases, which CBO based on a projection of

future growth in the ECI averaging 3.3 percent per

year through 2015. To calculate annual real growth,

CBO deflated the nominal value of military pay by its

projection for the gross domestic product (GDP) price

index. Under that approach, the real cost of military

pay would increase by about 1.5 percent annually, and

total funding for the military personnel title would rise

by about 1.2 percent per year. At those rates, the appropriations for military personnel would total about

Table 3.

Fiscal Year 2000 Appropriations for National Defense and CBO's Estimate of a Sustaining Defense

Budget, by Budget Category (In billions of 2000 dollars of budget authority)

Appropriation for

Fiscal Year 2000a

SustainingBudget Estimateb

Department of Defense (Budget subfunction 051)

Military personnel 74 82

Operation and maintenance 102 107

Procurement 53 90

Research, development, test, and evaluation 38 40

Military construction 5 5

Family housing 4 4

Subtotal 276 327

Other Agencies (Budget subfunctions 053 and 054)c 13 13

Total, National Defense (Budget function 050)d 289 340

SOURCE: Congressional Budget Office.

NOTE: The figures in the table include both discretionary and mandatory funding.

a. Based on CBO’s estimates as of July 2000 but excluding supplemental appropriations of about $9 billion.

b. The sustaining-budget estimate is CBO’s calculation of the annual funding required to maintain U.S. military forces at their current size; to

modernize their weapons and equipment at a rate that is consistent with expected service lives and with maintaining a technological advantage over

potential adversaries; and to maintain current funding for readiness. It is a steady-state concept and not an estimate of the defense budget for any

specific year.

c. Covers defense activities related to atomic energy in the Department of Energy and national defense functions in other agencies.

d. Includes revolving and management funds, trust funds, and offsetting receipts, which total less than $0.5 billion. Excludes contract authority for

the working capital funds because appropriations are used to liquidate that authority.
16 BUDGETING FOR DEFENSE: MAINTAINING TODAY'S FORCES September 2000

$88 billion in 2015; over the 15-year period, appropriations would average about $82 billion annually.

Uncertainty and Sensitivity of the Estimate. To

maintain the current number and quality of military

personnel, CBO assumed that increases in real pay

would need to equal or exceed those in the economy as

a whole. But private-sector pay could increase more

or less than CBO has assumed. If real wages in the

private sector grew substantially more than CBO projected, future policymakers might need to increase

compensation for the military even more than estimated to maintain an equally qualified force. Conversely, private-sector wages that grew more slowly

than in CBO’s projections might result in smaller increases in the future.

If, for example, military pay increased annually

by 2.2 percent rather than by 1.5 percent (the figure

CBO used in its calculation), DoD would need about

$85 billion each year, on average, over the 2001-2015

period. But if pay grew by only 1.2 percent, the department would need about $80 billion.

Moreover, CBO’s decision to use the 2001-2015

period affected its estimate. A longer or shorter period

would change the calculation. For instance, choosing

the 2001-2010 period would yield an estimate of only

$79 billion; using 2001 to 2020 would produce an estimate of $84 billion.

Pay is only one aspect of the civilian labor market, however. Unemployment rates can affect the propensity to enlist and reenlist, as can young adults’ attitudes toward military service. Those factors and others could potentially affect the compensation rates

needed to keep a force of the current size and quality.

More generally, if the labor market for young adults

tightens further or even remains as challenging for military recruitment and retention as it is today, the costs

of labor (military pay and benefits) could rise faster

than the costs of other aspects of support for military

forces. However, an analysis of those issues is beyond

the scope of this study.

Operation and Maintenance

Appropriations

Together with the funding for military personnel, the

operation and maintenance appropriations provide

most of DoD’s annual operating budget.4

 The adequacy of O&M funds, therefore, is an important determinant of whether military forces are trained and

ready to fight on short notice.

Part of the O&M appropriations covers pay and

benefits for most of the civilians who work for the Defense Department. To estimate a sustaining budget for

those costs, CBO used the same period (2001 to 2015)

and techniques that it used for military personnel.

CBO estimates that O&M funding would need to average about $107 billion annually to maintain a civilian workforce equivalent to today’s and to cover the

cost of the items and services that are also funded

through these appropriations. In 2000, the Congress

appropriated about $102 billion for the O&M title.

What the Funds Purchase. Pay and benefits for most

of DoD’s civilian employees constitute about a third

of the costs in the O&M category. (DoD employs the

equivalent of about 700,000 full-time civilian personnel.) The other two-thirds of the appropriations cover

many of the costs of diverse items and activities that

include fuel, spare parts for DoD equipment, other

supplies, operations at military bases, training and

education of individual service members, and medical

care.

Estimating Methods. CBO developed its estimate of

sustaining O&M funding in two parts: one for civilian

pay and one for the rest of the appropriations. In estimating the pay of DoD’s civilian workers in each military department and in the other DoD organizations,

CBO took the pay they received in 2000 and increased

it each year by the projected annual percentage rise in

the ECI minus the estimated rate of inflation (in the

form of the GDP price index). In estimating funding

for the remaining portion of the O&M title, CBO simply used the amount appropriated for 2000.

4. See Budget of the United States Government, Fiscal Year 2001:

Appendix.
CHAPTER TWO CBO'S ESTIMATE OF A SUSTAINING BUDGET FOR NATIONAL DEFENSE 17

Uncertainty and Sensitivity of the Estimate. Any

estimate of sustaining funding for the O&M title is

uncertain to a significant degree. One reason is that

the appropriations pay for so many disparate goods

and services. Another is that O&M funding is influenced by numerous factors, including:

o The number, type, and condition of the services’

equipment;

o The number, size, type, and condition of DoD’s

facilities;

o The number, size, and type of operations and

deployments undertaken by military forces;

o The cost of medical care for beneficiaries of

DoD’s health care system; and

o The size and pay-grade structure of DoD's civilian workforce.

CBO’s assumption that a sustaining budget for

two-thirds of the funds in the O&M category (those

spent on purchases) would be the same as this year’s

budget is based on its approach of holding constant as

many factors as possible. Among the most important

are the structure of DoD's forces, the number of personnel, and the way the department organizes and

manages its business operations. Considerable uncertainty remains, nevertheless, about the level of O&M

funding that would be required to sustain the readiness

and operations of today’s military.

Upward Pressures on O&M Spending. At least over

the past 30 years, O&M spending per capita—that is,

spending adjusted for the size of the active-duty military—has increased annually by an average of 2 percent to 3 percent in real terms. Indeed, the O&M budget, on a per-person basis, was about 35 percent

higher in the 1980s than in the 1970s, and it averaged

about 25 percent more in the 1990s than in the 1980s.

Some of DoD’s leaders have suggested that per

capita spending for O&M could continue to grow in

the future.5

 Analysts have suggested that factors such

as additional costs for training personnel to operate

ever more complex equipment and funding for moresophisticated spare parts might contribute to growth in

the future and push O&M spending higher than

CBO’s sustaining-budget estimate. If, for example,

spending grew by 2 percent per year over the next 15

years, annual O&M budgets would average about $13

billion more than CBO’s estimate.

An example of a budget category that could easily grow is medical costs. Funding for military medical care totaled about $17 billion in 2000; about $12

billion of that amount was part of the O&M title. If

DoD’s medical costs maintain their past relationship

to national health expenditures—which are projected

to increase in the future—DoD’s average O&M bill

could be more than $2 billion higher than CBO’s

sustaining-budget estimate.

Downward Pressures on O&M Spending. The underlying determinants of past increases in O&M spending

may not persist into the future. For instance, the increase in the 1990s in O&M spending per capita may

reflect the cuts in military forces following the Cold

War. Those cuts, it could be argued, spread DoD’s

fixed costs—many of which are funded through the

O&M appropriations—over a smaller number of military personnel, which raised O&M costs per person.

If that argument is valid, the increase will not be repeated as long as DoD’s forces and the number of military personnel are held constant, which CBO’s estimate assumes.

Other factors—the effects of management initiatives, possible additional base closures, and other

economies, to name a few—might wholly or partially

offset any tendency for O&M costs to rise. If future

Administrations made DoD’s business practices more

efficient, reduced maintenance costs, or closed more

bases, O&M spending could be cut considerably. Indeed, by DoD’s estimates, an additional round of base

closures comparable with those in the 1990s could

bring annual savings of as much as $3 billion, some of

which would come from the O&M title.

5. “Department of Defense Press Briefing on the Fiscal Year 2001 Budget Submission,” February 7, 2000. Despite the potential for growth

in per capita spending, the budgets DoD has planned through 2006 do

not reflect such increases.
18 BUDGETING FOR DEFENSE: MAINTAINING TODAY'S FORCES September 2000

Also likely to dampen costs is a shift in the age

distribution and pay-grade structure of DoD’s civilian

workforce. The current workforce, on which CBO

based its sustaining-budget estimate, is more senior

than the future workforce is likely to be. Thirty-five

percent of today’s civilian DoD workers are age 51 or

older and will be eligible for retirement in the next few

years; 75 percent of workers are over 40, and many of

them are also likely to retire in the next two decades.

If employees at lower pay grades replaced retirees, the

O&M funding needed would be less than the amount

CBO assumed. In fact, if the average pay grade

among DoD’s civilian personnel dropped by just two

steps (from today’s average of grade 9, step 9, to

grade 9, step 7), O&M funding for civilian salaries

would fall by between $1 billion and $2 billion a year.

Finally, as for military personnel, CBO’s decision to use 2001 through 2015 as the period for its

estimate affects overall O&M funding in its sustaining

budget. Basing the estimate on the 2001-2010 period

would yield a total of $106 billion in sustaining funding for the O&M title ($1 billion less than the estimate

presented here). In contrast, using the 2001-2020 period would yield an estimate of $108 billion.

Procurement Appropriations

Funding for procurement buys new weapons and other

equipment that DoD needs to carry out its missions in

peacetime and to prepare for war. The funds cover a

wide array of items ranging from aircraft, ships, and

missiles to automobiles and air conditioners.

The Congress appropriated $53 billion for defense procurement in 2000, but by CBO’s estimate,

annual sustaining funding for procurement would total

about $90 billion. That figure falls within the range of

past experience and is only about 15 percent below the

average for the 1980s—a period when DoD was buying large quantities of many systems. (In 2000 dollars, funding for procurement averaged $64 billion in

the 1970s, $104 billion in the 1980s, and $59 billion

in the 1990s.)

Because major procurement programs overlap,

funding for procurement might need to exceed $90

billion in some years, but those years would be offset

by years in which the budget could fall below $90 billion. CBO’s estimate is not an average; it represents

the steady-state amount that would be sufficient over

time to replenish the equipment associated with current forces.

CBO’s estimate of a sustaining budget for procurement has two parts: an estimate for major weapon

systems such as aircraft, ships, and tanks, for which

DoD provides detailed procurement plans; and an estimate for all other equipment, for which DoD provides

less detail. The latter category includes such items as

communications equipment, trucks, and computers.

Procurement of Major Systems. CBO’s estimate of

the annual funding needed to procure major air, sea,

and land systems to sustain DoD’s current forces is

$40 billion. Of that amount, roughly $5 billion would

pay for Army systems, $20 billion for Navy (including

Marine Corps) systems, and $15 billion for Air Force

systems. CBO based its estimate on the number of

systems that DoD requires for its current forces, the

projected service lives of those systems, and the costs

of replacing them.

Estimating Methods. In calculating sustaining funding for procurement of DoD’s major equipment, CBO

took into account only the numbers and types of systems to be purchased and not the current procurement

budget or the age distribution of the systems in a particular “fleet,” or inventory. If DoD purchased all of

its systems in the quantities reflected in this estimate,

its inventories would eventually be evenly distributed

throughout a range of ages—that is, from new deliveries to systems ready for retirement. Retirements from

inventories with such a distribution would be steady

instead of varying from year to year, as they would if

systems were purchased unevenly. Thus, the average

fleet age of each system (the average age for all systems of that type) would come to equal half the equipment’s service life and would neither increase nor decrease thereafter.

The following example illustrates how CBO arrived at steady-state dollar values for the quantities of

major systems it assumed would be procured. The

inventory of aircraft that CBO considered in calculating a sustaining-budget estimate for the Air Force totals about 5,100. The expected service lives of those

planes stretch from 30 years for fighters to 80 years
CHAPTER TWO CBO'S ESTIMATE OF A SUSTAINING BUDGET FOR NATIONAL DEFENSE 19

for bombers. The costs for replacing them range from

$10 million to $400 million per plane. To calculate an

annual sustaining budget for each type of aircraft,

CBO determined how many DoD needed to buy each

year (the annual requirement), dividing the inventory

by the plane’s expected service life and adding an adjustment for expected yearly losses during peacetime.

Those annual purchases were then multiplied by

CBO’s estimate of the unit cost for replacing each aircraft.

Uncertainty and Sensitivity of the Estimate. CBO

based its estimate of a sustaining budget for major

procurement on a number of assumptions, all of which

are uncertain to varying degrees.6

 Those assumptions

cover projected inventories, estimates of the ages of

equipment at the time of replacement, and costs for

replacing systems.

For example, CBO’s assumptions about annual

purchases of systems, which underlie its estimate of

sustaining funding, call for replacing systems on a

one-for-one basis. But that might not happen in every

case. DoD might find that the services could perform

their missions with less equipment than they use today—perhaps because of improvements in the equipment’s capabilities. The inventory DoD required for

comparable capability would then be smaller and annual procurement costs lower than in CBO’s estimate.

In fact, DoD has reduced the amount of equipment

used for certain missions. (For example, the Navy cut

the number of fighter and attack aircraft in its carrierbased air wings from 60 to 48.)

Another crucial group of assumptions underlying

CBO’s estimate of major procurement are those about

retirement ages. CBO’s estimate assumed that equipment would be retired at ages consistent with DoD’s

current plans (see the column in Table 4 labeled

“Based on Longer Service Lives”). But in the case of

many systems, the services have never kept them for

as long as they now plan to. If shorter service lives

—based generally on historical experience—proved to

be more accurate indicators of how long systems actually remained in service, then an estimate using those

assumptions would better reflect sustaining quantities

for major procurement (see the corresponding column

in Table 4). Those quantities are much larger than

CBO’s estimate of the quantities associated with

DoD’s plans. Consequently, under those shorterservice-life assumptions, CBO’s estimate of a sustaining budget would not be sufficient to maintain today’s

inventories.

In estimating the costs for replacing systems,

CBO used the prices that DoD paid for similar units

as a base. For some systems, CBO adjusted those

prices to reflect expected improvements in technology

and growth in costs. However, its assumptions about

costs may not be accurate. DoD’s analysts, for example, might argue that using historical prices—with or

without CBO’s adjustments—may overstate costs in

the future. The Defense Department and private industry, they might contend, are committed to reducing

the cost of procuring major systems—for instance,

through so-called lean manufacturing techniques.7

 In

addition, for some missions, the services are planning

to buy systems that could be less expensive than a

current-system replacement. For example, DoD is

considering replacing some manned reconnaissance

systems with lower-price unmanned equipment.

CBO’s estimate does not reflect such possible changes

to the composition of DoD’s forces.

In contrast to the problem of overstating costs,

some of the prices for weapons and equipment that

CBO used for its estimate could be too low. Replacements for many current systems are either early in the

development stage or not in development at all. Historically, as systems have moved from early stages

into full production, their price has grown. As mentioned earlier, some of CBO’s estimates of prices for

replacement systems include the likely growth of costs.

But the estimates may not be high enough to cover the

full price of improved capabilities or further modifications.

6. For an alternative estimate based on markedly different assumptions,

see Daniel Gouré and Jeffrey M. Ranney, Averting the Defense Train

Wreck in the New Millennium (Washington, D.C.: Center for Strategic and International Studies and Management Support Technology,

Inc., November 1999). Gouré and Ranney’s estimate is substantially

higher than CBO’s. For an estimate of DoD’s budget needs that is

lower than CBO’s, see Steven Kosiak and Elizabeth Heeter, Cost of

Defense Plan Could Exceed Available Funding by $26 Billion a

Year Over Long Run, CSBA Highlight (Washington, D.C.: Center for

Strategic and Budgetary Assessment, April 2, 1998).

7. Those techniques include delivering parts to the production line just

before they are needed, thereby reducing storage costs; using computers more efficiently in the design and manufacturing process; and using more generic equipment to assemble systems, which reduces

spending on specialized tooling.
20 BUDGETING FOR DEFENSE: MAINTAINING TODAY'S FORCES September 2000

Table 4.

DoD’s Past Purchases of Selected Equipment and CBO's Estimates of Purchases

Under a Sustaining Budget (By fiscal year)

Annual SustainingBudget Purchasesa

Based on

Longer 

Service Livesb

Based on

Shorter

Service Livesc

Average Annual Purchases

1975-1990 1991-2000

Tanks, Artillery, and Other Armored Vehicles 2,083 145 588 883

Helicopters

Scout and attack 78 7 105 169

Utility 109 69 151 183

Battle Force Shipsd 19 7 8 11

Aircraft

Fighter and attack

Navy 111 42 64 88

Air Force 238 28 89 124

Electronic-warfare 21 7 9 12

Tactical and strategic airlifte 31 15 20 26

Tankers 5 1 12 14

Heavy bombers 7 1 3 3

Otherf 16 0 11 15

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

a. The sustaining-budget estimate is CBO’s calculation of the annual funding required to maintain U.S. military forces at their current size; to

modernize their weapons and equipment at a rate that is consistent with expected service lives and with maintaining a technological advantage over

potential adversaries; and to maintain current funding for readiness. It is a steady-state concept and not an estimate of the defense budget for any

specific year.

b. Assumes longer service lives—generally those that underlie DoD’s and the services’ current projections of inventories.

c. Assumes shorter service lives that reflect historical experience or more-pessimistic assumptions about how long equipment will last.

d. Includes all Navy ships involved in combat—for example, ballistic missile submarines, surface combat ships, aircraft carriers, and amphibious

craft—as well as some other vessels.

e. Air Force planes only.

f. Includes, for example, fixed-wing antisubmarine warfare aircraft and planes for special operations.

Other Procurement. The other part of CBO’s estimate for procurement covers equipment and systems

for which CBO lacked the data to develop individual

cost estimates.8

 (Examples include some trucks, communications and civil engineering equipment, and ammunition, as well as programs for modifying existing

systems.) CBO’s overall estimate of the total costs for

all of those systems and programs—almost $50 billion

annually—exceeds the total costs of the programs that

procure major systems. The Army’s share of the estimated funding for other procurement totals more than

$10 billion, the Navy’s almost $15 billion, the Air

Force’s more than $20 billion, and the defense agencies’ almost $5 billion.

8. CBO’s category should not be confused with accounts labeled “Other

Procurement” in the budgets of the Army, Navy, and Air Force. Although CBO’s category includes funds from those accounts, it also

includes money for items that are funded through many other accounts.
CHAPTER TWO CBO'S ESTIMATE OF A SUSTAINING BUDGET FOR NATIONAL DEFENSE 21

Estimating Methods. CBO estimated a sustaining

budget for purchases of equipment other than major

systems by using historical data (for the 1974-1998

period) on total spending for procurement. In particular, CBO based its estimate on the relationship between total current spending on procurement and past

spending on equipment similar to the replacement

items, as well as on the relationship between spending

on major systems and spending on other kinds of procurement.

Uncertainty and Sensitivity of the Estimate. CBO’s

estimate of the funds needed to sustain DoD’s other

procurement is uncertain for at least two reasons.

First, it is based in part on CBO’s estimate of the sustaining funding needed to procure major systems; as a

result, it is affected by all of the uncertainties associated with that estimate—specifically, changes in the

costs, service lives, and required inventory for individual systems. (For example, if CBO used the shorter

service lives described in Table 4 in its calculations,

its estimate of $90 billion for steady-state procurement

would increase by $25 billion.) Second, the estimate

for other procurement relies on statistical analysis that

is inherently imprecise.

To try to lessen some of those uncertainties,

CBO developed alternative methods for calculating a

sustaining budget for this category. One approach

broke down spending for other procurement into subcategories and developed an estimate for each one using detailed statistical relationships. Like CBO’s original approach, that method generated an estimate of

about $50 billion for other procurement funding.

Research, Development, Test, and 

Evaluation Appropriations

In 2000, the Congress appropriated $38 billion for the

programs that make up the research, development,

test, and evaluation (RDT&E) category of DoD’s budget. At $40 billion, CBO’s estimate of the RDT&E

funding necessary to sustain today’s forces is quite

close to the appropriations for 2000.

What the Funds Purchase. Appropriations in this

title pay for basic and applied research, fabrication of

devices for demonstrating new technologies, development and testing of prototypes, and testing of fullscale models of weapon systems before they enter production. Development funds also pay for operational

testing of systems, when they are first taken into the

field and when they are modified during the course of

operations.

Estimating Methods. The RDT&E budget title has

four major components. The Army, Navy, and Air

Force each have RDT&E appropriations (research and

development for the Marine Corps is included in the

Navy’s appropriation); the fourth component takes in

DoD-wide programs such as national and theater missile defense. For the three military departments, CBO

based its estimate of sustaining funding on the relationship of each department’s RDT&E funding to its

total budget. First, CBO calculated the shares of their

annual budgets that the Army, Navy, and Air Force

devoted to RDT&E between 1974 and 1999, the period CBO used for this estimate. The average share of

its budget that each service had allocated over the period was then used to compute CBO’s estimate of the

service’s sustaining budget for RDT&E.

Two important considerations support the assumption that estimates of sustaining budgets for research and development should be tied to total

sustaining-budget estimates. First, much of DoD’s

funding for RDT&E pays for the salaries of engineers

and scientists employed under defense contracts.

Those costs should rise with costs in the civilian labor

market and thus should be tied to CBO’s estimates of

sustaining funding for O&M and military personnel.

Second, because most of the funds for RDT&E go

toward developing and testing new systems, an estimate of sustaining funding for RDT&E should be

linked to the number and costs of DoD’s weapon programs—and thus to the total sustaining budget for

procurement.

The fourth component of DoD’s RDT&E spending is not tied directly to the services’ budgets, since it

funds DoD-wide research and development activities.

The largest of those are the national and theater missile defense programs. Those programs, which have

substantially increased DoD-wide research, were established to develop systems to protect the United

States and its forces from attacks by enemy missiles.

To estimate a sustaining budget for this component,
22 BUDGETING FOR DEFENSE: MAINTAINING TODAY'S FORCES September 2000

CBO used the amount appropriated for it in the 2000

budget.

Uncertainty and Sensitivity of the Estimate. CBO’s

estimate of sustaining funding for RDT&E is highly

uncertain. A change of as little as 1 percentage point

in CBO’s estimate of the RDT&E share of DoD’s total budget would lead to a shift of $3 billion in the sustaining budget for RDT&E. And the RDT&E share

of DoD’s budgets has varied by more than 1 percentage point in the past. Moreover, an estimating approach that is founded on budget shares links CBO’s

calculation of a sustaining budget for RDT&E to its

estimates of sustaining funding for other appropriations. As a result, CBO’s estimate for RDT&E is

subject to all of the uncertainties that surround those

other calculations.

As the foundation for procuring future weapons

and equipment, RDT&E activities—and by extension,

funding—should be a function of DoD’s plans for

those items (for example, when they should be bought

or the capabilities they should deliver). Indeed, that

connection is the basis for CBO’s budget-shares approach to estimating a sustaining RDT&E budget.

But determining the exact relationship between plans

for future weapon systems and the RDT&E funding

that would be needed to implement those plans is very

difficult. The relationship can vary widely from system to system, depending, for example, on the specific

technologies involved and the schedule for introducing

a new system. In principle, CBO’s approach might

balance those effects across the mix of new systems

being planned. But CBO’s methods are sensitive to

shifts in the shares of funding allocated to RDT&E.

The historical variations in those shares, combined

with the variations that have occurred in funding for

DoD-wide research and development activities, point

up the considerable uncertainty in CBO’s calculation.

For instance, CBO’s estimate of about $10 billion for

DoD-wide research and development programs could

either over- or understate the funding needed to sustain

those activities. Over the past 10 years, funding for

DoD-wide RDT&E has varied from about $9 billion

to about $11 billion (in 2000 dollars).

Military Construction Appropriations

In 1997, DoD operated about 1.7 billion square feet of

facilities, ranging from office buildings to schools for

the dependents of military personnel to facilities on air

bases.9

 Construction and replacement of those facilities and improvements to them are funded under the

military construction title of the defense budget, which

also covers many of the costs associated with base

closures. In 2000, the Congress appropriated about

$5 billion for this category, and CBO’s estimate of a

sustaining budget for it is about $5 billion as well.

Estimating Methods. CBO based its estimate of a

sustaining budget for military construction on what

DoD spent on facilities in the 1980s. (During the

1990s, rounds of base closings and realignments—

shifts of the activities at a variety of facilities—

affected this category of funding and made that period

less representative.) CBO’s estimate of $5 billion is

the average of two calculations that used the 1980s

data. In the first calculation, CBO took average

spending for military construction per active-duty

service member in the 1980s and multiplied that

amount by the number of such personnel today. In the

second calculation, CBO took average spending in the

1980s per square foot of building space and multiplied

it by DoD’s current space. CBO’s estimate of sustaining funding for military construction makes no

provision for the effects of additional rounds of base

closures and realignments.

Uncertainty and Sensitivity of the Estimate. As

with assumptions made for other categories of appropriations, there is considerable uncertainty about

whether relationships for construction spending in the

1980s are the right measure to use in developing

CBO’s sustaining-budget estimate. Again, as with

other estimates, CBO’s calculation is quite sensitive to

changes in its assumptions. One way to demonstrate

that sensitivity would be to compare the two calculations noted above without averaging them together.

9. The figure of 1.7 billion square feet represents buildings at facilities

for both active and reserve components of the services. The last year

for which complete data were available from DoD was 1997.
CHAPTER TWO CBO'S ESTIMATE OF A SUSTAINING BUDGET FOR NATIONAL DEFENSE 23

Using only the approach based on spending per square

foot results in an estimate that is about 15 percent

greater than CBO’s averaged estimate. And using the

approach based on spending per active-duty service

member produces an estimate that is about 15 percent

less than the average.

Family Housing Appropriations

Appropriations for family housing in 2000 totaled

about $4 billion, and CBO’s estimate of sustaining

funding for that budget title is the same. The appropriations finance the costs of constructing, improving,

operating, maintaining, and leasing military family

housing units.

Estimating Methods. CBO’s assumptions about military family housing began with the premise that DoD

would continue to maintain its current inventory of

housing units. CBO also assumed that operation and

maintenance costs for the units would match those for

2000. The new construction that each military department would need each year to sustain its forces was

estimated by taking the portion of the inventory that

the department owned and dividing it by 50 years—a

unit’s assumed service life. CBO estimated that a new

unit would cost slightly more than $150,000, on average, to construct and that each unit would be revitalized once during its life at an additional cost of

roughly $80,000. (Those costs are actual averages

from the 1998-1999 period.)

Uncertainty and Sensitivity of the Estimate. In constructing its estimate, CBO assumed that DoD would

continue to rely on publicly funded construction to

maintain its housing stock. Recently, however, DoD

has begun to broaden the private sector’s involvement

in constructing and maintaining its family housing. If

DoD increased that involvement in the future and consequently produced substantial savings, a sustaining

budget for family housing might be lower than CBO

has estimated. If DoD eliminated any current deficits

in family housing, it might need more money than

CBO has estimated.

CBO's Estimate of a 

Sustaining Budget for 

Defense Activities in 

Other Agencies

In addition to the Department of Defense, other federal

agencies conduct programs or activities that contribute

to national defense. In 2000, the Congress appropriated approximately $13 billion for those activities,

allocating more than $12 billion to the Department of

Energy (budget subfunction 053) and $1 billion to

other agencies (budget subfunction 054). CBO’s estimate of a sustaining budget for the activities covered

under both of those categories also totals $13 billion.

What the Funds Purchase

The Department of Energy (DOE) uses its funds to

maintain stockpiles of U.S. nuclear weapons and develop technologies to better detect, identify, and respond to the proliferation of nuclear and other weapons of mass destruction. DOE’s funding also pays for

environmental cleanup of sites that formerly contained

facilities for producing nuclear weapons. Funds for

other agencies support diverse activities that range

from overseas deployments of the Coast Guard and its

enforcement of U.N. sanctions to counterintelligence

and surveillance activities by the Federal Bureau of

Investigation.

Uncertainty and Sensitivity of 

the Estimate

CBO has not evaluated potential changes to funding

for the above activities in any detail, and as a result,

its estimate of sustaining funding is particularly uncertain. One factor that could drive up DOE’s budget

requirements is higher-than-expected costs for cleaning up some facilities. CBO, however, has not performed a detailed analysis of such potential budgetary

pressures.
24 BUDGETING FOR DEFENSE: MAINTAINING TODAY'S FORCES September 2000

The Limitations of CBO's 

Estimate

As the Congress debates future defense budgets and

evaluates proposals for future strategies and missions,

CBO’s analysis and estimates of a sustaining budget

could prove to be useful. But several limitations of

CBO’s work should be noted.

First, the estimates presented here do not apply

to the period for which DoD typically constructs detailed plans. For example, CBO’s estimates of sustaining funding for procurement reflect the cost of a

number of weapons and systems that either are not yet

in production or are in production only at initial low

rates. Thus, CBO did not estimate the level of procurement DoD would require in the near term. In fact,

as noted earlier, CBO’s estimates are not associated

with any specific budget year.

Second, because CBO based its estimates on

methods that used broad totals as their foundation, the

estimates are also broad. As a result, CBO’s numbers

are not specific enough to be used in a formal cost estimate of the type that CBO prepares for legislative

proposals.

Third, and most important, CBO has not evaluated the current national security strategy and the

threats it is intended to counter, nor has it assessed

whether the forces and the goals for modernization

that are now in place adequately support that strategy.

In fact, today’s national security strategy has

been the subject of considerable debate. Some observers argue that its two-war focus overstates the conventional combat forces that DoD needs to sustain. Others contend that DoD requires larger forces than those

in place today because the strategy also emphasizes

smaller-scale contingencies and peacetime presence

and those operations add to the forces needed for combat. Next year, a new Administration could markedly

change the country’s national security strategy. And

that might significantly change the numbers and kinds

of forces DoD would need to maintain and the budget

that would be required to build and sustain them. But

even if today’s strategy continued to form the basis for

the defense requirements of a new Administration, the

forces that constitute the current U.S. military might

not be able to support that strategy. The leaders of the

military services and others have suggested that the

military is being asked to do more than its current

forces can sustain. This analysis does not address that

issue but only the question of what funds are necessary to maintain those forces in the future.

CBO’s analysis also does not take into account

any alterations that DoD and the Congress might make

in the military’s support services or DoD’s infrastructure. Even if plans for strategies, forces, and modernization remained substantially unchanged, such alterations could affect CBO’s estimate of sustaining funding. If DoD reduced the number of bases it operated,

for example, or improved its business practices to provide services more efficiently, those changes could

decrease the sustaining budget for a given level of

forces. Conversely, increasing support services or

enhancing infrastructure could increase DoD’s longterm operating costs. CBO’s analysis does not reflect

those possibilities.
Chapter Three

Alternative Defense Forces

and Budgets

The gap between current defense budgets and the

Congressional Budget Office’s estimate of the

funding needed to sustain today’s military offers a challenge to future policymakers. In broad

terms, they have two options for eliminating that gap:

they could either bring the amount of the sustaining

budget down to today’s level of funding—by cutting

specific programs or forces or by paring down their

missions—or they could increase funding for defense.

This chapter discusses both of those approaches.

For example, it includes selected examples of possible

reductions directed at each of the major determinants

of the defense budget discussed in Chapter 1. But defense officials could also change the nation’s strategic

goals and its respective priorities, which might lead to

decisions to reduce forces or cut investments in modernization related to lower-priority missions. CBO

illustrates that option for closing the gap by developing two alternative force structures that each emphasize one or the other of the Department of Defense’s

major strategic goals—preparing for regional conflicts

(specifically, major theater wars) and pursuing peace

operations. An across-the-board cut to DoD’s forces

and programs is a further option available to policymakers, as is increasing the defense budget to the level

of funding that CBO estimates is needed to sustain today’s military.

CBO’s alternatives are only broad renderings of

different approaches to eliminating a funding gap. To

make the detailed changes associated with a major restructuring of U.S. strategic priorities would require

policymakers to thoroughly review possible threats to

the nation’s security (both now and in the future), the

appropriate strategy to counter them, and the budgetary implications of decisions about those matters.

Such a review could lead to changes in forces, levels

of readiness, and plans for modernization. Without

that review, estimates of the cost of alternative strategies are merely illustrative, and actual requirements

for national defense cannot be calculated.

Reducing Budget 

Requirements

To close the gap between current defense funding and

CBO’s estimate of a sustaining budget, future policymakers may seek to change the requirements that generate the defense budget request. They could do that

by cutting specific programs, changing strategic priorities, or instituting an across-the-board cut in all defense programs.

Reducing Specific Budget Categories

Cuts to one or more of the major categories of DoD

spending—forces, investment, or infrastructure—

would be one way to significantly reduce the resources

needed to sustain the U.S. military. CBO evaluated a

number of such options in its March 2000 report Budget Options for National Defense, calculating potential savings over the 2001-2010 period. The examples
26 BUDGETING FOR DEFENSE: MAINTAINING TODAY'S FORCES September 2000

that follow are selected from that volume; here, however, savings from the options are expressed in 2000

dollars rather than the current dollars used in the defense options report.1

Forces. In preparing that volume, CBO examined the

costs and implications of cutting several types of major combat forces—for example, reducing the numbers

of Army National Guard divisions, Navy attack submarines and aircraft carriers, and tactical fighter

wings in the Air Force. Average annual savings from

implementing those options would range from about

$0.5 billion (for eliminating two Army National Guard

combat divisions) to $2.2 billion (for cutting two carriers and their air wings). Savings from trimming National Guard divisions and tactical fighter wings reflect only operating costs; however, CBO’s option for

cutting the number of carriers also includes savings

from reducing procurement. Declines in operating

costs alone from eliminating two carriers and their air

wings would average $1.4 billion annually. Operating

savings from cutting two Air Force tactical fighter

wings would average about $0.6 billion.

Investment. Although the Defense Department is not

buying sustaining quantities of most types of military

equipment, it is developing or buying a number of new

weapon systems. They include the Army’s Comanche

helicopter and Crusader artillery system, aircraft carriers and attack submarines for the Navy, and the Air

Force’s F-22 fighter and C-17 airlift aircraft. Canceling or cutting back any of those programs would reduce the funding required for procurement or development, or both. Average annual savings over the 2001-

2010 period could range from about $0.5 billion (for

canceling the Comanche) to $3.8 billion (for canceling

the F-22).

Infrastructure. Making its support activities more

efficient is another way that DoD could save money

and reduce the resources needed to maintain its forces

in the future. A large share—more than half—of

DoD’s funding is found in categories related to infrastructure, according to the Defense Department. Cutting the costs of those activities may be an option that

future Administrations and Congresses would choose

to pursue regardless of other cuts (to forces and investment, for instance) that they decided to make.

Maintaining national security at the lowest price

to taxpayers is, of course, a widely shared objective.

CBO evaluated several approaches to reducing the military’s support costs in Budget Options for National

Defense; the options included revamping the military

medical system, closing more bases, restructuring

some benefits that active-duty personnel now receive,

and consolidating DoD’s retail facilities. CBO’s estimates of average annual long-term savings from such

options reached as much as $1.6 billion (for downsizing the military medical care system).

Yet despite their potential for savings, efforts to

make support operations more efficient are unlikely to

resolve all of DoD’s budget problems. Most of the

savings from individual options in this category would

amount to less than $0.5 billion annually; in some

cases, the savings would be much less. Also, whether

such changes could be instituted at all is questionable.

Many efficiency measures of this kind—including

some of the options CBO evaluated, such as base

closures—have proved to be quite difficult to implement.

Changing Strategic Priorities

Many of the options discussed above would substantially reduce the funding that CBO estimates DoD

would need to sustain its forces. But a number of

those changes would have to be undertaken together to

bring CBO’s estimate of a sustaining budget down to

the level of DoD’s funding for 2000. A systematic

approach to such reductions would reassess the national security strategy, rank the military’s missions in

the light of that reassessment, and reduce spending on

forces and modernization programs associated with

missions of lower priority. The following alternatives

illustrate two ways in which that spending could be

cut.

Alternative I: Emphasize Peace Operations. Increasing the priority of military missions that CBO

has labeled peace operations would probably mean a

shift in the distribution of forces that the military

1. Current dollars reflect future inflation. Those effects must be removed—that is, the savings must be converted to 2000 dollars—before the amounts in the options can be compared with the figures in

this study.
CHAPTER THREE ALTERNATIVE DEFENSE FORCES AND BUDGETS 27

Table 5.

Selected U.S. Military Forces Under Current and Alternative Strategic Priorities

Forces Under Alternative

Strategic Priorities

Forces Under Current

Strategic Prioritiesa

Emphasize Peace

Operations

Emphasize Major

Theater Wars

Army Divisions

Active 10 8 10

Reserve 8 5 5

Navy Carrier Battle Groupsb 12 12 12

Marine Corps

Amphibious ready groupsc 12 12 12

Expeditionary forcesd

Active 3 3 3

Reserve 1 0.7 1

Air Force Tactical Fighter Wings

Active 12.6 9.3 12.6

Reserve 7.6 5.1 7.6

Memorandum:

Sustaining-Budget Estimate (Billions

of 2000 dollars of budget authority) 340 320 325

SOURCE: Congressional Budget Office.

a. Today’s strategic priorities encompass what CBO has termed peace operations (such as humanitarian assistance, peacekeeping, and peace

enforcement) and major theater wars.

b. A carrier battle group includes an aircraft carrier and its air wing, along with surface combat ships, attack submarines, and logistics ships.

c. An amphibious ready group comprises several amphibious ships (including one that can carry attack aircraft and a variety of helicopters) that

transport Marines and their equipment.

d. A Marine expeditionary force includes a division, an air wing, and supporting forces for those combat elements.

maintains. Some military units—in particular, some

noncombat units—would need to be increased or at

least retained at their current level.2

 Units that are

heavily involved in peace missions include the Navy’s

carrier battle groups, amphibious ready groups in the

Marine Corps, certain support and administrative elements of the Army's divisions and corps, and surveillance and reconnaissance aircraft in the Air Force.

This alternative would retain those units at current

levels (see Table 5). At the same time, it would cut

some traditional combat forces, including five Army

divisions (two active and three reserve) and almost six

tactical fighter wings (including two and a half from

the reserves) in the Air Force.

In developing this alternative, CBO assumed that

its estimate of steady-state quantities for procurement

would decline in proportion to the reductions in forces.

Thus, Alternative I would pare back the level of purchases under a sustaining budget for ground combat

equipment, including tanks, attack helicopters, and

artillery systems. It would also reduce sustaining purchases of fighter, ground attack, and multirole aircraft.

2. See General Accounting Office, Impact of Operations Other Than

War on the Services Varies, NSIAD-99-69 (May 1999), for a discussion of the variation in the effects of peacekeeping operations on units’

readiness.
28 BUDGETING FOR DEFENSE: MAINTAINING TODAY'S FORCES September 2000

In contrast, the alternative would maintain purchases

of a variety of systems that have been heavily used in

recent peace operations including utility helicopters

and trucks for the Army and airlift aircraft, tankers,

and reconnaissance aircraft in the Air Force. Because

CBO did not assume that any programs would be

eliminated, it also assumed that RDT&E funding

would not be cut.

As a result of lower costs for operations and

modernization, the sustaining budget for Alternative I

is smaller than the sustaining budget associated with

today’s forces. CBO estimates that the total sustaining budget for this alternative is about $320 billion—

approximately $30 billion more than the budget for

2000 but $20 billion less than the amount CBO estimates is required to sustain and modernize today’s

forces.

Alternative II: Emphasize Major Theater Wars.

Some defense experts believe that the services’ most

important mission is to be ready to go to war, not to

perform peace operations. If DoD decided to emphasize the conventional capabilities necessary to fight

two regional wars, it might choose to preserve most

types of combat forces—specifically, units with a

great deal of firepower, such as tank battalions, conventional attack wings, and strategic bomber squadrons—at today’s levels (see Table 5). However, this

option would cut three divisions of the Army National

Guard because those units are not included in DoD’s

current plans for fighting two major theater wars.

Basically, this alternative would preserve the military’s current force structure, but it would rely much

more than do current plans on using today’s weapons

to equip those forces. The relatively unsophisticated

warfighting capabilities of potential regional foes are

one justification for such a move. Another would be

the possibility of avoiding the problems of aging

equipment by buying newly built current-generation

weapons and curtailing purchases of new, moresophisticated weapons.3

 For example, this alternative

would purchase F-15s and F-16s for the Air Force’s

tactical fighter forces instead of more-advanced F-22s

and Joint Strike Fighters. It would also purchase the

cheaper OH-58D helicopter instead of the light-attack

Comanche helicopter that is part of the Army’s current

purchasing plan.

A sustaining budget for this alternative totals

about $325 billion a year, CBO estimates. That sum

is about $15 billion less than the sustaining-budget

estimate associated with today’s planned forces and

about $35 billion more than the appropriation for

2000. Compared with the first alternative, this option

would keep far more forces at a modestly higher cost.

However, the fact that changes of the extent described

under both alternatives still would not bring the total

for a sustaining budget down to today’s level of funding illustrates the complexity of the problem that decisionmakers face.

Reducing DoD’s Forces, Programs, and

Activities Across the Board

Spreading cuts across all parts of the defense establishment is another alternative for closing the gap between today’s defense funding and CBO’s estimate of

sustaining funding. Although reducing budgets in that

way might seem an unlikely approach for DoD, the

department has frequently spread cuts broadly in the

past, perhaps finding it easier to impose reductions

everywhere rather than direct cuts toward specific areas. By dispersing cuts, DoD may also preserve more

kinds of capabilities than it would if it targeted reductions.

But across-the-board cuts have disadvantages as

well. Overall, they probably cut forces and purchases

3. Such an approach would still provide considerable modernization.

The aircraft, ship, or tank built today is often much improved from the

original model of one or two decades before, even though today’s system carries the same designation (for example, F-16 or M1).
CHAPTER THREE ALTERNATIVE DEFENSE FORCES AND BUDGETS 29

more deeply than would cuts that result from reducing

specific programs. That is because the savings from

canceling complete systems can be greater than the

savings from reducing the quantities purchased by a

number of programs. In addition, some portion of

DoD’s costs probably does not vary with reductions in

its forces. (For example, if a unit such as a squadron

or part of a brigade was cut, operating costs for the

base at which the unit was located might not decline

by much.) Making across-the-board cuts to forces

without proportional cuts in DoD’s infrastructure can

also mean that the operating cost per unit will increase. One of CBO’s earlier analyses suggests, for

example, that the Air Force could operate more fighters without increasing its budget if it did so from

fewer bases.4

CBO estimates that DoD would need to cut

roughly 25 percent of today’s forces to reduce its total

sustaining budget to $290 billion (the defense appropriation for 2000, excluding supplemental funding).

That kind of reduction would mean cutting more than

two divisions in the active Army, three carrier battle

groups in the Navy, and the equivalent of more than

three active fighter wings in the Air Force. Such cuts

are smaller than the reductions in forces that occurred

during the 1990s. Nevertheless, they would have a

substantial effect on the capability of U.S. forces because the cuts would be taken from today’s smaller

military. As a result, some defense leaders believe

that cuts of the magnitude described above would

leave DoD’s forces smaller than the forces necessary

to fight two major theater wars.

Across-the-board reductions would also lessen

the military’s investment in modernizing its forces.

Funding for research and development would fall to

about $34 billion under this approach, making it likely

that DoD would pursue fewer programs to develop

new technologies than it would have otherwise. And

despite the budgetary benefits of across-the-board cuts

in programs for weapon modernization, that approach

would do little to resolve the department’s problem of

ever-older fleets of equipment and weapon systems.

Increasing the Defense Budget

to Equal CBO's Estimate of a

Sustaining Level for Today's

Forces

The gap between DoD’s current budget and the funding that CBO estimates would sustain today’s military

could also be closed if the defense budget grew. If the

Congress and the President boosted funding for national defense to $340 billion (CBO’s overall estimate

of a sustaining budget), that funding would be about

$50 billion a year higher than the appropriations for

2000. Most of the increase—about $30 billion—

would go toward procurement. Nearly all of the remaining $20 billion would be split evenly between the

categories of military personnel and operation and

maintenance. (As noted in Chapter 2, the latter

amount reflects a boost in real compensation over the

2001-2015 period to keep increases in military and

civilian pay comparable with pay increases in the private sector. Consequently, CBO’s estimate may overstate the near-term increase required for a sustaining

budget but understate the funding required over the

longer term.)

Many advocates of increased spending for defense argue that not just more money but additional

forces and weapon programs are needed. CBO, however, did not analyze the effects of those kinds of

changes to current forces.

To consider increasing the defense budget may

seem plausible with the federal budget in surplus.

CBO’s most recent baseline projections of cumulative

4. Statement of Robert F. Hale, Assistant Director for National Security,

Congressional Budget Office, before the Subcommittees on Conventional Forces and Alliance Defense, on Manpower and Personnel, and

on Readiness, Sustainability, and Support of the Senate Committee on

Armed Services, May 16, 1989.
30 BUDGETING FOR DEFENSE: MAINTAINING TODAY'S FORCES September 2000

on-budget surpluses over the next 10 years range from

$2.2 trillion, when discretionary appropriations are

adjusted for expected inflation, to $3.3 trillion, when

discretionary appropriations are frozen at today’s

level.5

But those projected surpluses are far from assured. Relatively small changes in the economy could

shift the budget’s balances up or down.6

 And even if

large surpluses materialized, they would not guarantee

big additional sums for defense because the military

would be competing with many other claimants for

those funds. CBO’s Budget Options volume discusses

several possible uses of the surplus, which include

cutting taxes, improving benefits for Medicare recipients, and providing more support for education programs.7

 Increased spending on nondefense programs

or reductions in revenues through tax cuts could make

increases in defense spending less likely.

5. Congressional Budget Office, The Budget and Economic Outlook:

An Update (July 2000), p. 2. Those amounts are in current dollars

rather than the constant dollars used for the other budget estimates in

this study.

6. For example, CBO estimated the effects of making more pessimistic or

more optimistic assumptions in its January 2000 report The Budget

and Economic Outlook: Fiscal Years 2001-2010.

7. See Congressional Budget Office, Budget Options (March 2000).

Chapter 1 of that volume discusses a number of expansions to the

scope of federal activities that policymakers have proposed, many of

which could add significantly to spending in parts of the federal budget

other than defense. Such proposals cover revisions to Social Security

and Medicare, ways to increase the number of people covered by

health insurance, increases in long-term care for the elderly, and improvements in education. Chapter 2 discusses a variety of changes to

the U.S. tax code. Most of those changes would decrease taxes and

therefore federal revenues, at least in the near term, although some

changes could improve economic performance over the long run.