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Congressional Budget Office October 29, 2019 Prospects for DoDs Acquisition Budget Over the Next Decade Professional Services Council, Vision Conference 2019 Panel on Platforms David E. Mosher Assistant Director for National Security CBO

SLIDE 1

Congressional Budget Office

Professional Services Council, Vision Conference 2019 Panel on Platforms

October 29, 2019

David E. Mosher Assistant Director for National Security

Prospects for DoD’s Acquisition Budget Over the Next Decade

SLIDE 2

1 CBO

Outline

Internal Pressures

n DoD’s

Budget Fiscal Situation Effect of 2020 Plans

n DoD’s

Budgets

SLIDE 3

2 CBO

Source: Congressional Budget Office, An Update to the Budget and Economic Outlook: 2019 to 2029 (August 2019), www.cbo.gov/publication/55551.

Deficits Grew Rapidly Over the Past Three Years and Are Expected to Level Off Through 2029

Percentage of Gross Domestic Product

SLIDE 4

3 CBO

Source: Congressional Budget Office, The 2019 Long-Term Budget Outlook (June 2019), www.cbo.gov/publication/55331.

In CBO’s Projections, Debt Rises to 144 Percent of GDP by 2049

CBO's Baseline Projection

Percentage of Gross Domestic Product

SLIDE 5

4 CBO

Source: Congressional Budget Office, The 2019 Long-Term Budget Outlook (June 2019), www.cbo.gov/publication/55331.

In CBO’s Projections, Discretionary Spending Falls Over the Next Decade

CBO's Baseline Projection

Percentage of Gross Domestic Product

SLIDE 6

5 CBO

Outline

Internal Pressures

n DoD’s

Budget Effect of 2020 Plans

n DoD’s

Budgets Fiscal Situation

SLIDE 7

6 CBO

DoD’s 2020 budget plan requests a total of $718 billion for DoD in fiscal year

2020—2 percent more than in 2019.

Total funding would be relatively flat through 2024, averaging about $700 billion

per year in 2020 dollars—3 percent less than in the previous plan. – That estimate assumes growth in military compensation, operation and maintenance costs, and acquisition costs that would be slower than the historical average.

Using DoD’s cost assumptions, CBO projects that the cost of DoD’s plans

would increase by about 13 percent ($76 billion) in real terms from 2025 to 2034. – Costs could be 4 percent higher if DoD’s Future Years Defense Program (FYDP) assumed historical average cost growth.

CBO Has Projected the Budgetary Effects of DoD’s 2020 Budget Plan

SLIDE 8

7 CBO

Source: Congressional Budget Office, Long-Term Implications of the 2020 Future Years Defense Program (August 2019), www.cbo.gov/publication/55500.

In CBO’s Projections for 2020, the Costs of DoD’s Plan Grow by 13 Percent by 2034

Billions of 2020 Dollars

SLIDE 9

8 CBO

Source: Congressional Budget Office, Long-Term Implications of the 2020 Future Years Defense Program (August 2019), www.cbo.gov/publication/55500.

Most of the Increase in Costs of DoD’s Plan Would Be in Operation and Support

Billions of 2020 Dollars

SLIDE 10

9 CBO

Source: Congressional Budget Office, Long-Term Implications of the 2020 Future Years Defense Program (August 2019), www.cbo.gov/publication/55500.

Most of the Increase in Acquisition Costs Would Be in Procurement

Billions of 2020 Dollars

SLIDE 11

10 CBO

Source: Congressional Budget Office, Long-Term Implications of the 2020 Future Years Defense Program (August 2019), www.cbo.gov/publication/55500.

The Air Force and the Navy Have the Greatest Increases in Acquisition Costs Beyond the FYDP Period

Billions of 2020 Dollars

SLIDE 12

11 CBO

Outline

Internal Pressures

n DoD’s

Budget Fiscal Situation Effect of 2020 Plans

n DoD’s

Budgets

SLIDE 13

12 CBO

Costs for the compensation of military personnel — including health care

benefits for active and retired personnel — have been rapidly increasing since 2000.

Costs of operation and maintenance per active-duty service member have

been steadily increasing since at least 1980.

Costs of developing and buying weapons have been, on average, 20 percent to

30 percent higher than DoD’s initial estimates.

Each of the Three Major Categories of the Defense Budget Has Its Own Momentum

Those internal pressures in DoD’s budget create mismatches between historical funding and the costs of DoD’s plans.

SLIDE 14

13 CBO

Between 2000 and 2014, military personnel costs increased 46 percent after

the effects of inflation are removed. – Growth in housing allowances, basic pay, and TRICARE for Life were the largest drivers of that growth.

DoD estimates that in many cases, cash compensation for enlisted military

personnel exceeds cash compensation for 90 percent of workers with similar education and years of experience. – Noncash compensation (health care and other benefits) widens that gap.

Pay and Benefits of Military Personnel Have Increased in Recent Years

SLIDE 15

14 CBO

Cost in 2014 ($142.3 billion, a 46 percent increase since 2000)

Percentage of Total Growth

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

Sources of Growth in Military Personnel Costs, Fiscal Years 2000 to 2014

SLIDE 16

15 CBO

Source: Congressional Budget Office, An Analysis of the Obama Administration’s Final Future Years Defense Program (April 2017), www.cbo.gov/publication/52450.

Operation and maintenance costs include the costs of most DoD civilians’

salaries, goods and services (below procurement thresholds), fuel, maintenance, contractors’ services, and other items.

In DoD’s 2017 FYDP, operation and maintenance costs rise more quickly than

they did during the prewar (1980–2001) period. – The average increase per year is $2,600, which is larger than the prewar average increase of $2,300. – By 2020, the costs are $20,000 per person (or about 15 percent) higher than they would have been if the prewar trend had continued.

Operation and Maintenance Costs per Active-Duty Service Member Keep Rising

SLIDE 17

16 CBO

Source: Congressional Budget Office, An Analysis of the Obama Administration’s Final Future Years Defense Program (April 2017), www.cbo.gov/publication/52450.

Operation and Maintenance Costs per Active-Duty Service Member Keep Rising (Continued)

Thousands of 2017 Dollars

SLIDE 18

17 CBO

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

Sources of Growth in Operation and Maintenance Costs, Fiscal Years 2000 to 2014

Cost in 2014 ($193.5 billion, a 34 percent increase since 2000)

Percentage of Total Growth

SLIDE 19

18 CBO

Source: Congressional Budget Office, An Analysis of the Obama Administration’s Final Future Years Defense Program (April 2017), www.cbo.gov/publication/52450.

Costs for the Military Health Care System Are Projected to Keep Rising

Billions of 2020 Dollars

SLIDE 20

19 CBO

The U.S. deficit will remain large over the next decade and grow substantially

after that.

The end of the Budget Control Act may not reduce pressure on defense

spending.

If future defense budgets are constrained, internal pressures on DoD’s budget

from rising costs for operation and maintenance and military personnel could: – Reduce the buying power of defense dollars every year (after the effects of inflation are removed) and – Reduce the amount of procurement and research and development that can be done.

Congressional Budget Office

Professional Services Council, Vision Conference 2019 Panel on Platforms

David E. Mosher Assistant Director for National Security

Prospects for DoD’s Acquisition Budget Over the Next Decade

Outline

Internal Pressures

Budget Fiscal Situation Effect of 2020 Plans

Budgets

Deficits Grew Rapidly Over the Past Three Years and Are Expected to Level Off Through 2029

In CBO’s Projections, Debt Rises to 144 Percent of GDP by 2049

In CBO’s Projections, Discretionary Spending Falls Over the Next Decade

Outline

Internal Pressures

Budget Effect of 2020 Plans

Budgets Fiscal Situation

2020—2 percent more than in 2019.

per year in 2020 dollars—3 percent less than in the previous plan. – That estimate assumes growth in military compensation, operation and maintenance costs, and acquisition costs that would be slower than the historical average.

would increase by about 13 percent ($76 billion) in real terms from 2025 to 2034. – Costs could be 4 percent higher if DoD’s Future Years Defense Program (FYDP) assumed historical average cost growth.

CBO Has Projected the Budgetary Effects of DoD’s 2020 Budget Plan

In CBO’s Projections for 2020, the Costs of DoD’s Plan Grow by 13 Percent by 2034

Most of the Increase in Costs of DoD’s Plan Would Be in Operation and Support

Most of the Increase in Acquisition Costs Would Be in Procurement

The Air Force and the Navy Have the Greatest Increases in Acquisition Costs Beyond the FYDP Period

Outline

Internal Pressures

Budget Fiscal Situation Effect of 2020 Plans

Budgets

benefits for active and retired personnel — have been rapidly increasing since 2000.

been steadily increasing since at least 1980.

30 percent higher than DoD’s initial estimates.

Each of the Three Major Categories of the Defense Budget Has Its Own Momentum

Those internal pressures in DoD’s budget create mismatches between historical funding and the costs of DoD’s plans.

the effects of inflation are removed. – Growth in housing allowances, basic pay, and TRICARE for Life were the largest drivers of that growth.

personnel exceeds cash compensation for 90 percent of workers with similar education and years of experience. – Noncash compensation (health care and other benefits) widens that gap.

Pay and Benefits of Military Personnel Have Increased in Recent Years

Sources of Growth in Military Personnel Costs, Fiscal Years 2000 to 2014

salaries, goods and services (below procurement thresholds), fuel, maintenance, contractors’ services, and other items.

they did during the prewar (1980–2001) period. – The average increase per year is $2,600, which is larger than the prewar average increase of $2,300. – By 2020, the costs are $20,000 per person (or about 15 percent) higher than they would have been if the prewar trend had continued.

Operation and Maintenance Costs per Active-Duty Service Member Keep Rising

Operation and Maintenance Costs per Active-Duty Service Member Keep Rising (Continued)

Sources of Growth in Operation and Maintenance Costs, Fiscal Years 2000 to 2014

Costs for the Military Health Care System Are Projected to Keep Rising

after that.

spending.

from rising costs for operation and maintenance and military personnel could: – Reduce the buying power of defense dollars every year (after the effects of inflation are removed) and – Reduce the amount of procurement and research and development that can be done.

Despite Recent Budget Increases, DoD May Continue to Face Budget Pressure