[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



 
                   THE COST OF CURRENT DEFENSE PLANS:
                      AN ANALYSIS OF BUDGET ISSUES

=======================================================================


                                HEARING

                               before the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

            HEARING HELD IN WASHINGTON, DC, OCTOBER 14, 2009

                               __________

                           Serial No. 111-16

                               __________

           Printed for the use of the Committee on the Budget


                       Available on the Internet:
       http://www.gpoaccess.gov/congress/house/budget/index.html




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                        COMMITTEE ON THE BUDGET

             JOHN M. SPRATT, Jr., South Carolina, Chairman
ALLYSON Y. SCHWARTZ, Pennsylvania    PAUL RYAN, Wisconsin,
MARCY KAPTUR, Ohio                     Ranking Minority Member
XAVIER BECERRA, California           JEB HENSARLING, Texas
LLOYD DOGGETT, Texas                 SCOTT GARRETT, New Jersey
EARL BLUMENAUER, Oregon              MARIO DIAZ-BALART, Florida
MARION BERRY, Arkansas               MICHAEL K. SIMPSON, Idaho
ALLEN BOYD, Florida                  PATRICK T. McHENRY, North Carolina
JAMES P. McGOVERN, Massachusetts     CONNIE MACK, Florida
NIKI TSONGAS, Massachusetts          JOHN CAMPBELL, California
BOB ETHERIDGE, North Carolina        JIM JORDAN, Ohio
BETTY McCOLLUM, Minnesota            CYNTHIA M. LUMMIS, Wyoming
CHARLIE MELANCON, Louisiana          STEVE AUSTRIA, Ohio
JOHN A. YARMUTH, Kentucky            ROBERT B. ADERHOLT, Alabama
ROBERT E. ANDREWS, New Jersey        DEVIN NUNES, California
ROSA L. DeLAURO, Connecticut,        GREGG HARPER, Mississippi
CHET EDWARDS, Texas                  ROBERT E. LATTA, Ohio
ROBERT C. ``BOBBY'' SCOTT, Virginia
JAMES R. LANGEVIN, Rhode Island
RICK LARSEN, Washington
TIMOTHY H. BISHOP, New York
GWEN MOORE, Wisconsin
GERALD E. CONNOLLY, Virginia
KURT SCHRADER, Oregon

                           Professional Staff

            Thomas S. Kahn, Staff Director and Chief Counsel
                 Austin Smythe, Minority Staff Director


                            C O N T E N T S

                                                                   Page
Hearing held in Washington, DC, October 14, 2009.................     1

Statement of:
    Hon. John M. Spratt, Jr., Chairman, House Committee on the 
      Budget.....................................................     1
    Hon. Paul Ryan, ranking minority member, House Committee on 
      the Budget.................................................     2
    Hon. Robert B. Aderholt, a Representative in Congress from 
      the State of Alabama, questions for the record.............    60
    Matthew Goldberg, Acting Assistant Director for National 
      Security, Congressional Budget Office......................     3
        Prepared statement of....................................     9
        Responses to Congressman Aderholt's questions for the 
          record.................................................    60
    Stephen Daggett, specialist in defense policy and budgets, 
      Congressional Research Service.............................    27
        Prepared statement of....................................    33
        Responses to Congressman Aderholt's questions for the 
          record.................................................    62


                   THE COST OF CURRENT DEFENSE PLANS:
                      AN ANALYSIS OF BUDGET ISSUES

                              ----------                              


                      WEDNESDAY, OCTOBER 14, 2009

                          House of Representatives,
                                   Committee on the Budget,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:11 a.m., in room 
210, Cannon House Office Building, Hon. John M. Spratt, Jr. 
[Chairman of the Committee] presiding.
    Present: Representatives Spratt, Doggett, Etheridge, 
Yarmuth, Edwards, Scott, Schrader, Ryan, Jordan, Aderholt, 
Lummis, and Harper.
    Chairman Spratt. This is your typical weekday session. You 
know we have multiple conflicts with the meeting today. I am 
sure we will have some members joining us later on, and those 
like our distinguished Ranking Member who just arrived. Do you 
have anywhere to go later on? Ways and Means?
    Mr. Ryan. Not for a while. Yeah, I have Ways and Means at 
noon.
    Chairman Spratt. Well let us get under way. We got two good 
witnesses, and we welcome you and everyone else to the hearing 
today on the Cost of Current Defense Plans.
    Our witnesses this morning are excellent witnesses. They 
have made a career literally of studying expense spending. 
Steve Daggett, Specialist in Defense Policy and Budgets with 
the CRS, Congressional Research Service, and Matthew Goldberg 
who is the Acting Director of National Security Division of the 
Congressional Budget Office.
    Our purpose today is to get an update of current defense 
plans and to gain better insight into the issues that are 
driving defense spending over the longer term.
    Our Nation is faced with some enormous fiscal challenges. 
The worst recession since the great depression the record 
budget deficit and defense budgets at record levels as well. To 
take on these challenges and to ensure that we are spending the 
taxpayer's money wisely, we need to consider the whole domain 
of federal policy making, including defense, which after all 
makes up more than half of all federal discretionary spending.
    Next week we will hold a hearing, a second hearing on the 
topic of longer term challenges of the defense budget. Our 
witnesses will be Deputy Secretary of Defense William Lynn, and 
Defense Comptroller Robert Hale, that will be next week.
    Since 2001 the federal government has more than doubled 
what the Nation spends on defense. Defense spending now stands 
at its highest level since World War II, in real terms 
surpassing the peak spending years of Korea and Vietnam. 
Splitting war costs out, defense spending over this period grew 
well above rate of inflation, increasing seven to eight percent 
a year. Future costs are projected to follow the same rising 
path, and if these plans remain unchanged we will have a 
significant increase in defense over the next five years.
    The Congressional Budget Office has issued a number of 
reports showing that the Bush Administration's defense plan 
would require tens of billions of dollars more per year than 
its own budget projected. This last budget request the Bush 
Administration projected defense spending to slow down and 
flatten out this year, but it did not project scenarios or 
engagements or troop levels consistent with such a decline in 
the real defense spending and it is not likely to happen.
    The Obama Administration submitted its 2010 budget this May 
with a number of changes to the defense budget. The Obama 
Administration has proposed tocancel or to slow down a number 
of acquisition programs which are experiencing problems and 
calls for acquisition reform to control cost growth. This marks 
a move in the right direction, but much more needs to be done. 
Great challenges lie ahead.
    For example, O&M, operation and maintenance and military 
personnel. These make up two-thirds of the Defense Department's 
budget, and they are growing at a rate far above the rate of 
inflation, threatening to squeeze out our ability to fund R&D 
and new acquisitions. And of course we cannot ignore or 
overlook the cost of overseas deployment. Even though we are 
beginning to draw down forces in Iraq, we are also beginning to 
add to forces in Afghanistan, which diminishes the prospect of 
any peace dividend and implies that the cost of our overseas 
deployments will continue to be significant.
    The Administration is now conducting the QDR, the 
Quadrennial Defense Review. This will assess programs and 
consider costs and roles and missions and ultimately defense 
strategy recommendations that will form the basis of the 2011 
budget. In preparation of the release of the QDR 
recommendations and the 2011 budget we hope to get a better 
understanding of how the long-term projections of the Nation's 
defense plan have changed since the 2010 budget and a clearer 
understanding of the issues that lie at the heart of ongoing 
defense spending.
    Before we turn to your witnesses let me turn to the Ranking 
Member, Mr. Ryan of Wisconsin, and ask for any opening 
statement that he would like to make. Mr. Ryan.
    Mr. Ryan. Thank you, Chairman Spratt, I also want to 
welcome our witnesses. Steven Daggett, welcome back, good to 
have you. Matthew Goldberg welcome. We appreciate you being 
here.
    I think it is fair to assume that the chief concern on most 
American's minds these day and the minds of Congress remains 
the economy, jobs, and the future of our health care sector. 
But even as we continue to address these challenges others are 
coming to a head. Among them of course is how we are going to 
handle Afghanistan and Iraq, as well as other developing 
threats like Iran and North Korea.
    So even with the countless competing commands in the 
budget, this Congress must continue to honor the primary role 
of the federal government providing for our national defense.
    In short that means ensuring America's men and women in 
uniform have whatever resources are necessary to complete their 
missions. We simply cannot take our national defense for 
granted.
    Now that being said, I did not mean to imply that there is 
not a great deal of room for improvement on DoD's budgetary 
front, there sure is. There is clearly an opportunity for 
savings, particularly in the procurement programs. So I look 
forward to exploring how the Department might more efficiently 
meet its critical mission. But I also want to discuss how this 
Congress might avoid the growing temptation to raid DoD's 
budget for more domestic spending as resources get tighter. 
That is my current budgetary concern when it comes to 
discretionary spending. We saw this in the 1990s, I fear we may 
be returning to a time where we are raiding defense not 
necessarily for efficiency gains, but just for the sake of 
raiding defense in order to plus up more domestic spending, 
building in a higher spending baseline, and creating more 
deficits. I hope we can resist that temptation while we do get 
the kinds of savings we need from defense for deficit 
reduction.
    I am eager to hear from both members and witnesses on their 
thoughts on how we can achieve savings in the DoD budget 
without eroding its ability to provide for our Nation's 
security. Thank you, chairman.
    Chairman Spratt. Thank you, Mr. Ryan. Before proceeding 
with the testimony of our witnesses just a few housekeeping 
details. I would ask unanimous consent that all members be 
allowed to submit an opening statement for the record at this 
point. And as to our witnesses I would say we have your 
complete statements, there are just two witnesses today, you 
should feel free to take as much time as necessary to explain 
your testimony, but we will make the full testimony part of the 
record so that you can summarize where you see fit.
    Dr. Goldberg, I understand you wish to go first?
    Mr. Goldberg. Yes, sir.
    Chairman Spratt. Then the floor is yours, and we welcome 
you once again to the hearing, and we appreciate your 
participation and the efforts you put in producing the 
statement that you made part of the record today.

 STATEMENTS OF MATTHEW GOLDBERG, ACTING ASSISTANT DIRECTOR FOR 
    NATIONAL SECURITY, CONGRESSIONAL BUDGET OFFICE; STEPHEN 
      DAGGETT, SPECIALIST IN DEFENSE POLICY AND BUDGETS, 
                 CONGRESSIONAL RESEARCH SERVICE

                 STATEMENT OF MATTHEW GOLDBERG

    Mr. Goldberg. Thank you, Mr. Chairman, and Congressman Ryan 
and other members of the Committee. It is my pleasure to be 
here today representing the Congressional Budget Office to talk 
about the long-term implications of the 2010 budget submission 
for the Department of Defense.
    As you probably recall, Mr. Chairman, over the past seven 
years what CBO has done is looked at the DoD's plans as 
presented in their budget and in their FYDP, their Future Years 
Defense Program, which generally takes the budget out and 
projects another five or six years. This year, the first year 
in the new Administration the budget came over, but without a 
FYDP, so we are working at a bit of a disadvantage this year, 
and especially in light of the changes that Secretary Gates 
announced for acquisition programs, and we don't have full 
information on how those programs will play out. Indeed I don't 
think those decisions have been made, so we are truly 
presenting today projections that are somewhat preliminary 
based on the information we have, which is the 2010 budget, the 
announcements made by the Secretary and senior defense 
officials since the budget rollout.
    Our projections start in 2011 and go out through 2028. The 
amount that the Administration requested in regular defense 
funding, and that is putting aside for the moment overseas 
contingency operations, that is 534 billion for 2010. Our 
projection is that in constant 2010 dollars carrying out those 
plans would require a larger amount. It would require 567 
billion. In other words, some 30 billion more than was 
currently planned. We estimate we would be required to carry 
out those plans in the future to continue buying the systems 
and the programs of record, to continue the levels of 
personnel, the end-strength plans, et cetera, that are 
reflected in the 2010 budget.
    The reason that we are projecting higher resource demands 
in the future than in 2010, I will talk about those today, 
there are four main categories to start.
    One is that military pay raises have generally been higher 
than the employment cost, index which is a measure of parity in 
the civilian sector. And in fact there is permanent law that 
passed in 2003 that would have the military pay raises equal to 
the change, percentage change in the ECI. And many years 
Congress has chosen to grant higher pay raises of half a 
percentage point above the ECI, so that compounds over the 
years, and so military pay is growing, growing in real terms, 
growing faster than inflation.
    There have also been increases in the O&M accounts as you 
mentioned in your opening remarks, Mr. Chairman. O&M is 
growing. Interestingly we see O&M growing for the older systems 
as they get older and harder to maintain, and we also see the 
newer and more complex systems requiring more O&M as well.
    Turning to the acquisition area, DoD has plans to field new 
advanced weapon systems. In some cases to replace other 
systems, existing systems that are reaching the end of their 
service life, and also to switch toward newer capabilities such 
as advance intelligence, surveillance, and reconnaissance, so-
called ISR assets.
    This year we had the Administration's request for the 
overseas contingency operations as $130 billion, that is on top 
of the 534--they requested in the regular budget, and that 
reflects a shift of--early this year we were estimating that in 
March there were 175 service members in the Iraq theater and 
40,000 in the Afghanistan theater. The Administration's request 
of 130 billion would support 100,000, a smaller number in Iraq, 
but a larger number, 68,000 troops on the ground in 
Afghanistan.
    In our projections we have a category of what we call those 
contingency unbudgeted costs. In other words they are costs to 
continue overseas contingency operations, they are separately 
identified in 2010 as the 130 billion. The Administration has a 
place holder for 50 billion per year in the next five years, 
what it would cost to continue those operations. We have our 
own estimates that are somewhat higher than that, and that is 
what we call contingency unbudgeted costs.
    And then we have other types of unbudgeted costs. Other 
things that can happen as they have in the past that could 
cause the need for defense resources to be higher than what is 
in the budget. For example, weapon systems often end up costing 
more than preliminary estimates. We have cost growth in weapon 
systems. DoD's medical costs often grow faster than what has 
been in the budget. And for those and other factors we are 
projecting that the total demands on average through 2028 could 
be as high as 624 billion per year, including overseas 
operations, including these various kinds of cost growths, 
again in weapon systems and in health care and in other places.
    In terms of the share of gross domestic product we are 
projecting that defense spending would nonetheless decrease 
below four percent of GDP, because we are expecting GDP growth 
to pick up again, and that has been discussed elsewhere in the 
CBO testimony.
    What are the factors that are driving these increases? Well 
again, military pay. There are several aspects of military 
compensation. One is that the military pay raises have been 
more generous than the increase in the ECI, the Employment Cost 
Index, for civilian workers, and in many of the most recent 
years, in particular in 2004, '05, and '06, and then again more 
recently, and in our projections we have military pay growing 
at the same rate as ECI, but nonetheless ECI grows faster than 
the price index. So even if the Congress would enact pay 
increases just equal to the ECI without the extra half percent 
that is sometimes been granted, you will still have real 
increases in the cost of the military personnel.
    Similarly civilian personnel often end up getting the same 
pay raise as military personnel. It is called the pay parity 
principal. That has been true in 20 or the past 28 years. So in 
our projections again, we have military personnel receiving 
real pay increases, we have federal civilians, including 
civilians working for DoD receiving pay increases, most of them 
are paid out of the O&M appropriation, so that is another 
reason that the O&M appropriation is projected to grow. And of 
course we have other military benefits that have been enacted 
over the past decade that are built into our projections. 
Establishment of TRICARE for life, the changes to the REDUX 
retirement system that restored retirement at 50 percent of 
basis pay, rules regarding concurrent receipt so that military 
retirees can receive their military retirement pay as well as 
their veterans compensation with fewer offsets, and they 
recently passed changes to the age at which retirees can start 
drawing their pay; below age 60.
    So all of these changes that have been made in the past ten 
years and are built into our projections as well as real pay 
increases, that is pay increases at the ECI, they exceed 
inflation.
    Now part of the discussion about the military pay raises 
has to do with the so-called pay gap, and the pay gap is 
computed by going back to 1982, which was a year when after two 
big pay raises when it was widely thought that military pay was 
brought into parity, into equity with civilian pay, and then 
the issue is whether the military pay raises have kept up since 
'82 with the ECI, that is the civilian pay raises. And using 
this pay gap, this comparison to the ECI as a benchmark, has 
been a justification for many of the recent pay raises, and in 
fact there are folks who still claim that the pay gap is 2.9 
percent. That is that military pay has not quite caught up. It 
is about three percent behind where it should have been based 
on 1982.
    We put out a paper earlier this year where we argued that a 
better measure of military pay is not basic pay, but what we 
call RMC, Regular Military Compensation, which includes the 
food and housing allowances, and also accounts for the fact 
that those allowances are not subject to federal tax. And if 
you use the RMC to make the comparison rather than basic pay 
our analysis reveals that in fact there is not a pay gap, that 
there is a pay surplus. That since 2002 pay has caught up and 
then some since it would have been based on the benchmark 
started in 1982.
    So those considerations apply to the military pay raise, 
they also apply to the civilian pay raise, to the degree that 
civilians are granted the same pay raise as military with the 
same justification compared to the ECI and compared to the pay 
gap.
    Nonetheless in our estimates in our high case and we call 
unbudgeted pay increases, which is the high dash lines in your 
Figure 1, we do have military and civilian pay raises above the 
ECI, the employment cost index, by half a percentage point for 
each of the next five years, 2011 through 2015. And to fund 
those pay raises would cost about 2.8 billion in military 
personnel account and 2.3 billion in the O&M account by 2015, 
and those raises would continue to compound so that by 2028 it 
would cost 3.6 billion in the military personnel appropriation, 
and 2.8 in the O&M appropriation, according to our estimates.
    I would like to use my remaining time of my opening 
statement to talk a little bit about the procurement and the 
RDT&E, the Research and Development Accounts. We are actually 
projecting less in those accounts than we were last year at 
this time based on the 2009 FYDP. Again, we don't have a FYDP 
this year, we just have the 2010 budget, we don't have the out 
years that ordinarily come with the FYDP; however, based on 
that and other information that we do have, if you go out to a 
common year comparing our projections now to projections that 
were briefed here a year ago based on a 2009 FYDP, we are 
projecting that procurement funding by 2020 would be $8 billion 
lower than where we thought it would have been in 2020 as of 
the information a year ago, and that total investment will be 
called procurement plus RTD&E would be 7 billion lower. So 
there is some impact that we see immediately from some of the 
changes that Secretary Gates announced that are built into the 
2010 defense budget. And I would like to talk a little bit 
about three or four of those if I could.
    The active Army had started off with 42 brigade combat 
teams, and the plan in the 2009 FYDP was to grow that number 
from 42 to 48. We observed earlier this year that it would 
probably take additional endstrength to fill out an Army with 
48 brigade combat teams. It would probably take about 23,000 
additional soldiers, and that would cost about 16 billion over 
the next five years. In fact what the Secretary announced in 
April is that rather than going all the way up to 48 brigade 
combat teams he would stop at 45. So roughly speaking the 16 
billion for those last three brigades, numbers 46, 47, and 48 
is avoided--is contained by stopping at 45 brigade combat 
teams, and that is reflected in our projection.
    Probably the biggest single change in regards to the FCS 
program, the Future Combat System, where the ground vehicles 
portion was suspended by Secretary Gates, we had been 
projecting based on the 2009 FYDP, that as a year ago that for 
the next ten years, starting from that point, that is fiscal 
years 10 through 19, the FCS program would have cost about 60 
billion, that the spin out of technology, communications, and 
other technology to all of the infantry brigades in the Army 
would cost another 10 billion, and upgrades to combat vehicles 
that we thought would have been necessary, keep them modern, 
would have cost another 28 billion. The total of the ten-year 
cost of those three aspects would have been 98 billion. Ten 
years worth of FCS and related programs.
    In light of what Secretary Gates announced we are 
projecting a smaller number, 80 billion, 18 billion less over 
ten years. And I should say that this is a very preliminary 
estimate in that I don't believe the Department has decided, 
and they certainty haven't announced, exactly where they are 
going with replacement to the vehicles program in the FCS, but 
in our estimates if you were to upgrade existing Abrams Tanks, 
Bradley Fighting Vehicles, M109 self-propelled howitzers and by 
continuing to buy Stryker vehicles that would cost you about 43 
billion between 2010 and 2019, and that the spin out of 
communication and other equipment would cost another 37 
billion. So in total those related programs would cost about 80 
billion. Given our current understanding of where the 
Department is going that may change. And that is again compared 
to the 98 billion, the estimate a year ago at this time.
    I want to talk finally about ballistic missile defense. As 
you know, Mr. Chairman, there were several important 
announcements made in April. The Secretary announced plans to 
freeze the number of ground-based interceptors in Alaska, but 
to continue research and development on defense against long-
range ballistic missiles. The Secretary also asked for 200 
million to start converting Aegis warships, six of them, to 
perform ballistic missile defense. And then on top of 
announcement the President in September announced that he was 
canceling for now the previous Administration's plan to field 
tracking radar in the Czech Republic in ten ground-based 
interceptors and silos in Poland, and that plan was replaced by 
a four-phase plan. The first phase of that would rely on the 
Block 1A of the standard missile, the SM-3 missile deployed on 
existing Aegis warships, and then there were three more phases 
that would introduce land-based element, as well as upgrades to 
the standard missiles, some of which are still under 
development.
    The thing I want to point out here, and again, this is very 
much a program that is in flux and we don't know where it is 
going, and nobody has announced where it is going, a big driver 
in cost here is going to be the types of ships in the ship-
based option. And there are basically three ways I think you 
could go.
    One is to take existing Aegis warships and upgrade them to 
do the ballistic missile defense mission. One thing I should 
point out is if you want three ships permanently on station 
around the war of Europe you need to dedicate nine ships in 
total. Because for each ship that is on station you have 
another ship that is roughly speaking in training, the next one 
to go out, and another ship that is in maintenance and 
overhaul. So three stations require about nine ships. The 
Secretary asked for 200 million to upgrade six ships, and that 
would ultimately be in CBO's estimation nine ships to do the 
mission. That is the lowest cost way to do the mission is to 
take existing ships and convert them. The problem then is that 
you will have nine ships dedicated to this mission that can't 
do something else. That is the trade off. Or you could build 
new ships, nine new ships that are dedicated to this mission. 
And then the question is what kind of ships do you want? To 
build Arleigh Burkes configured for this mission, nine of them 
would cost about 19 billion in total.
    There is another option that we have looked at which is to 
take a ship that looks more like the Littoral combat ship, the 
LCS, which is a less expensive ship, add a spy one radar and 
vertical launch cells to the LCS and that would cost about 6 
billion in total for the nine ships. So 6 billion for the 
converted LCS versus about 19 billion for the Aegis destroyers 
to perform the same mission.
    All told in the missile defense area we are projecting that 
costs will be quite a bit lower than we were seeing a year ago. 
In 2010 alone the Secretary of Defense asked for 1.4 billion 
less than the prior year, and we are estimating on an average 
through 2028 that with all the changes that were announced the 
total bill for missile defense could average about 2 billion 
less per year than what we were looking at based on the 2009 
budget and FYDP.
    And with that I would like to close my statement and I of 
course welcome your questions, Mr. Chairman.
    [The statement of Matthew Goldberg follows:]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Chairman Spratt. Thank you very much, Dr. Goldberg. Mr. 
Daggett.

                  STATEMENT OF STEPHEN DAGGETT

    Mr. Daggett. Mr. Chairman, Mr. Ryan, members of the 
Committee, thanks very much for your invitation to testify. I 
appreciate it.
    Chairman Spratt. Steve, pull the mic a little closer.
    Mr. Daggett. When I was here last in February I discussed 
the major factors that I saw as driving up the cost of defense 
even more quickly than defense budgets that had been 
increasing. In the months since February the Defense Department 
has announced a number of significant changes in the defense 
program, particularly in acquisition programs, and is also 
engaged in a Quadrennial Defense Review, which will look ahead 
10 to 20 years with a view towards future requirements.
    In this statement I want to address first of all the impact 
of the changes that Secretary Gates announced last April. 
Second talk about what kind of additional trade offs the 
Department of Defense might face, given the possibility of 
limited budgets over about the next ten years, not just within 
the current future years defense plan but a little bit beyond 
that. And then third say a few things about what I see as 
potential even longer term challenges that the Quadrennial 
Defense Review appears likely to address.
    When I testified in February I laid out six major factors 
that had driven up the cost of defense dramatically in recent 
years. One was the increase in cost to military personnel. By 
my account a military service member in 2009 was about 45 
percent more expensive than in 1998 after adjusting for 
inflation.
    The increase in cost of operation and maintenance which has 
continued to grow by two and a half by three percent per year 
per troop above base inflation every year since the end of the 
Korean War and it appeals likely to continue to do so.
    The apparently accelerating rate of increase in costs from 
one generation of weapons to another.
    Fourth factor was just apparently worsening DoD's ability 
to estimate the cost of major programs resulting in cost 
overruns and delays.
    A fifth factor was increasing demands and budget 
requirements therefore for ground forces which entailed a 
pretty substantial increase in ground force endstrength and 
also substantial new equipment requirements.
    And then finally DoD over time has been seeing itself 
facing a much expanded array of challenges in the international 
security environment. Not just traditional state-on-state 
conflict with other militaries, but also irregular warfare, 
disruptive challenges by enemies that would try to exploit our 
vulnerabilities, and potentially catastrophic effects on the 
homeland.
    And I also saw all of these factors as driving up the cost 
of defense more rapidly than even very rapid increases in the 
top line for defense, which as Mr. Spratt said, by historical 
standards appears to be very robust.
    The changes that Secretary of Defense announced in April 
may have some effect on all of these. Some of the changes will 
drive up costs. He announced some increases, in particular in 
Medical care and also social services, particularly for service 
members returning from aboard. He reaffirmed increases in Army 
and Marine Corp endstrength, and will be taking those costs 
into the base budget, which also implies driving up costs at 
least in the base defense budget. He also announced some 
increases in production rates for a couple of weapon systems-
the F-35 and the Littoral Combat Ship. But the main impact of 
his statement was to announce termination of a number of major 
weapons programs. And my view, as Matt said, is that these will 
likely drive down costs over the long term.
    I think they may serve to drive down costs even more than 
the immediate impact of the cuts in those programs themselves. 
And the reason is this. That the Administration's decisions 
appear to go in the direction of narrowing down the number of 
different new kinds of major platforms that we are building. 
And to the extent that that remains the case, it creates means 
for DoD to really pursue increased efficiencies in production.
    If you look at tactical aircraft production. The decisions 
that Secretary Gates announced reduced production really to two 
major systems: Variance of the F/A-18 fighter aircraft for the 
Navy and Marine Corp, and of the F-35 for all of the services.
    In ship building we are now focused on producing the DDG-51 
destroyer, and perhaps with variance of that for future 
missions LPD-17 amphibious ships, Littoral Combat Ship, and 
Virginia class submarines. Even in satellites giving up the 
transformational communications satellite means we will be 
going back to producing satellites for similar missions of 
quite proven designs.
    To the extend this leads to our focus and production on a 
relatively smaller number of relatively mature technologies 
with relatively stable designs, I think there is a possibility 
for DoD to really work with defense industry to drive down 
production costs, to make productivity improving investments on 
the basis that there is a guarantee of income coming in in the 
future, to work on production practices, to use more multiyear 
contracting which improve the financial stability of the 
program and also drive down costs, to require the industry to 
engage in much broader competition at the subcontractor level.
    So the potentially biggest change is not necessarily in the 
specify weapons programs that the Secretary announced, but in 
the long-term kind of pattern of defense industry production.
    Same thing in the development side. The termination of the 
transformational communications satellite, of the presidential 
helicopter, of the combat search and rescue helicopter for the 
Air Force. These were all programs that had real technical 
difficulties, that in effect each tried to go a technological 
bridge too far, and therefore had run into technical problems 
and schedule delays and big cost increases.
    Now there is still debate about the wisdom of terminating 
each of them, and of the cost of potential alternatives, but 
leaving that aside what I see reflected in this is a 
determination that in the development process we are going to 
be more careful about the technical risks that we are taking. 
And the acquisition reformat that Congress passed in May by the 
way reflects the same basic principal. It requires in general 
that before there is milestone approval to go ahead with the 
next stage of design and invest more money we are assured of 
the technological maturity of the technologies that are going 
into the system. It means we are not going to try to make as 
great technical leaps ahead, and that to some degree may be a 
cost, but the benefit is much more predictability and the cost 
of systems at the inception and much more stable cost trends in 
systems as we develop them.
    So you know, I don't think we have a full answer as to the 
long-term impact of the effect of the changes Secretary Gates 
announced. The effect depends on the extent to which they 
represent--their continued in the future and represent changes 
in policy that will apply to weapons production in the future.
    That said, looking ahead beyond the current FYDP and beyond 
the changes that Secretary Gates announced in April, unless 
defense budgets begin to turn up to some extent, the Defense 
Department is going to inevitably face a real budget crunch and 
face some very difficult budget trade-offs. And just not as a 
way of predicting what the budget would look like, but as a way 
of illustrating the possible trade-offs I prepared the chart 
that is now up and is in Figure 1 in your written testimony.
    And what I did here was just assume that the defense budget 
is frozen at the Fiscal Year 2010 level for the next ten years, 
which is about $534 billion in 2010, just the DoD budget. And 
then I said suppose that military personnel costs and O&M costs 
grow at a given level. For military personnel I assumed just 
growth at the Employment Cost Index, which as Matt said is a 
measure of costs in the civilian sector, that has typical 
increased by about 0.7 percent per year above inflation.
    Chairman Spratt. Can I interrupt you. Does this include 130 
billion, 150 billion for overseas deployment?
    Mr. Daggett. No, it does not. This is excluding overseas 
contingency operations. I don't talk about that at all. This is 
just the base defense budget. Okay? And we know that those will 
come down as well and effect trade-offs as well, but I just 
wanted to look here at the base defense budget. Okay? So 
military personnel I assume will grow at a cost of 0.7 percent 
per year above inflation. That is a pretty limited rate of 
growth. It is a lot slower than growth in recent years. And the 
premise is the military service support organizations have 
gotten for service members most of what they were seeking, so 
cost growth can level off from now on. That may or may not be 
true, but that is the projection. And operation and maintenance 
I assumed that O&M costs are going to increase by 2.7 percent 
per year above base inflation, as they have historically since 
the end of the Korean War.
    Well what happens to the defense budget in ten years under 
those assumptions? The answer is that the amount of the budget 
that remains for defense acquisition to climb substantially. It 
goes from 186 billion for procurement and R&D, which is about 
35 percent in the budget in 2010, down to about 127 billion or 
24 percent of the budget in 2020. So it is a decline in real 
terms after adjusting for inflation about 32 percent. Almost 
one-third, at a time when the QDR is projecting that we will 
face a larger number, an array of challenges in the future. It 
would be very hard to sustain anything like a robust weapons 
modernization program with that kind of funding.
    So I think we face some other trade-offs. And those trade-
offs include first of all potential reductions in the size of 
the force. Are we going to give up on the increases in the Army 
and the Marine Corps that we will have just completed by the 
end of 2010, which added 92,000 troops to the force? You can 
make a strategic argument for doing that, and that is that 
based on lessons of Iraq and Afghanistan we are going to be 
more reluctant in the future to commit forces to military 
actions that would involve a constant rotation of large numbers 
of forces into long-term stability operations. So you can make 
a case for that, but it certainly will be a contentious 
argument.
    Will we reduce the size of the Navy and the Air Force and 
rely instead on higher technology systems? Those are the kind 
of trade-offs that we face.
    An alternative is to modestly increase the budget. If we 
increase spending by about two percent per year above inflation 
that adds about $10-$11 billion per year to the top line. If 
you did that for five years you would have about $50 billion 
more by the end of that period, and if you put that into 
acquisition that would get the acquisition accounts up more 
towards what they were in 2010.
    Another alternative that the QDR certainly will explore is 
to try to look at ways to rein in operating costs. Can we draw 
down the 2.7 percent per year increase in O&M accounts? For my 
part, DoD has tried to do that in the past by the way. In the 
1990s they always projected from year to year that O&M accounts 
would level off, and they engaged in a number of vigorous 
management reforms to try to accomplish that. They also closed 
a number of military bases in the 1990s with three rounds of 
military base closures to try to get infrastructure costs down. 
None of that really succeeded in drawing down the rate of 
growth of O&M.
    So my view would be to be quite skeptical about potential 
impact of efficiency measures. It doesn't mean you shouldn't 
try, but in the past these efficiency measures seem to have 
served to keep O&M growth down to the historical level rather 
than to achieve additional savings.
    So budget trade-offs over the next ten years look 
potentially pretty severe, unless there is some room to have at 
least modest increases in the top line for defense.
    Final discussion, and I will be very brief about this, but 
it opens up a very, very wide array of questions, and that has 
to do with the current Quadrennial Defense Review.
    QDRs in the past have often been subject to quite a lot of 
criticism, frankly for not being radical enough. The argument 
has been it is been very difficult to trace each Quadrennial 
Defense Review to any significant changes either in the size of 
the force or the composition of the force or the decision 
whether to go ahead with certain major weapons programs or not.
    My view is that is a bit unfair. That it is I think more 
realistic to look at QDRs as snapshots of an ongoing discussion 
inside the Defense Department and in the broader national 
security community of changes in the international security 
environment and how the Defense Department, as well as other 
agencies, need to adjust to that. And when you look at QDRs 
that way you can see a real progression. The initial pre-QDR 
Defense Reviews, the base force review of 1990, the bottom up 
review in 1993 really provided a rationale for maintaining 
strong military forces after the end of the Cold War, but those 
forces looked very much like a smaller version of Cold War 
forces.
    Beginning in 1997 and with the 2001 QDR and 2006 QDR DoD 
began to say quite explicitly that that wasn't adequate, that 
the new requirements of changes in the international security 
environment required not just a smaller version of Cold War 
forces but other kinds of capabilities. In the Army, for 
example, required in particular the ability to rotate forces 
forward on a regular basis without disrupting personnel 
patterns throughout the force. Prior to the 1997 QDR the Army 
was really organized on a basis that required large scale 
mobilization of additional troops to fill out deploying units. 
After the 1997 QDR it was pretty clear that senior leadership 
of DoD regarded that as inadequate, and finally in 2001 the 
Army adopted a new organizational structure around modular 
brigades that could be deployed separately, but most 
importantly were fully manned in peacetime, and therefore could 
rotate into a conflict and rotate back without requiring that 
you draw personnel from other units, thereby disrupting their 
readiness. So the Army over time, although very slowly, did 
adapt to changes in the international security environment.
    The new QDR is, based on what senior officials have said, 
likely to address some very different kinds of challenges in 
the future. The discussion has been first of all about not just 
irregular warfare or catastrophic dangers to the homeland, but 
what people term hybrid threats. That is think of Hezbollah and 
Hamas using relatively sophisticated weapons like anti-ship 
cruise missiles or fairly accurate missiles to attack Israel. 
Or in Iraq the insurgents using modern shaped charged munitions 
to attack our armored vehicles. That is pretty advanced 
technology in the hands of what we used to look at as the low 
end of the conflict spectrum.
    Similarly we think that even future near-peer competitors, 
countries that can match our technological capability to some 
extent at least, wouldn't limit themselves to fighting us force 
on force where we have advantages. They would use irregular 
warfare, they would use other advanced means to try to exploit 
our weaknesses. They call it high-end asymmetric. That can 
include cyber warfare, efforts to disrupt communications, anti-
satellite weaponry, efforts to deny access of U.S. military 
ships or ground-based forces to the region through anti-access 
strategies. They can use some older technologies, but also new 
means of attacking.
    And the new QDR really appears to be focusing on that based 
on speeches under Secretary of Defense Flournoy and some others 
have made.
    There is a real debate however about the pace at which 
those kinds of threats are going to materialize. Andy 
Krepinevich of the Center for Strategic and Budgetary 
Assessments, who by the way has been invited by DoD to sit on a 
red team that is reviewing the QDR, has been very critical of 
DoD, he says, for not adjusting rapidly enough to these changes 
that high-end asymmetric warfare are creating. Specifically he 
has talked about area denial strategies. He argues that it will 
be very difficult in the future for the U.S. to get naval 
forces anywhere close to the littoral areas near a conflict 
zone, and he believes that that implies there should be much 
less investment in short-range tactical air and much more 
investment in longer range systems, and in other technologies 
like submarines that are more difficult to attack that can 
launch missiles ashore.
    His view is starkly at odds with what Michele Flournoy, the 
Under Secretary of Defense for policy has laid out. In an 
article in the Proceedings of the U.S. Naval Institute she 
acknowledged that over time these kinds of technologies were 
developing, but she said that for many years ahead the United 
States appears to have a margin of security in these kinds of 
technologies.
    I can't think of a starker difference of view. Krepinevich 
has argued that some elements of the U.S. force for projecting 
power are in, in his words, ``precipitous decline,'' and 
Secretary Flournoy says, ``We have a margin of superiority that 
we can rely on for some time.''
    My view is we need to face that debate head on and discuss 
it directly, and it ought to be a matter for discussion in the 
QDR and also in the Congress. And these and other asymmetric 
challenges really have profoundly important long term budget 
impacts. Will we reduce investments and things like F-35 in 
favor of long-range strike systems that could be unmanned 
aerial vehicles that can loiter? What do we need to do to deal 
with the anti-satellite threats? Do we need to develop a whole 
new generation of satellites that are smaller that can be kept 
in reserve and launched when needed? To do that we would need a 
much larger launch capability as well. That could be fairly 
expensive. In the past we have tended to look at these kinds of 
asymmetric threats as requiring only marginal changes in 
investment.
    My view is that is not necessarily the case. It could 
require much larger changes in investment, particularly if they 
are developing as rapidly as people like Krepinevich and others 
think.
    With that I would be glad to take your questions.
    [The statement of Stephen Daggett follows:]

Prepared Statement of Stephen Daggett, Specialist in Defense Policy and 
                Budgets, Congressional Research Service

    Chairman Spratt, Ranking Member Ryan, distinguished Members of the 
Committee, thank you for your invitation to discuss the cost of current 
defense plans and budget issues facing the Department of Defense. I am 
Stephen Daggett, Specialist in Defense Policy and Budgets with the 
Congressional Research Service. When I testified before this Committee 
last February, I discussed factors that have driven up the cost of 
defense substantially over the past several years. In April, DOD 
announced some significant changes in its current plans and additional 
changes may result from the Quadrennial Defense Review that is now 
underway. This statement will address the potential impact of the 
recent defense changes, additional budget trade-offs that may be 
necessary in the remainder of the coming decade, and some of the more 
long-term defense budget and policy issues that may be addressed in the 
current QDR.
    Specifically, the discussion addresses three very broad questions:
     How have the program decisions that Secretary Gates 
announced last April affected trends in the cost of defense?
     What additional trade-offs might the Defense Department 
face in the future in view of projections of substantial federal budget 
deficits through the next decade?, and,
     In view of experience with earlier defense reviews in 1990 
and 1993 and with prior QDRs in 1997, 2001, and 2006, is the Defense 
Department keeping up with rapid changes in the international security 
environment, and what more far-reaching changes in force posture and 
budgets might it be in order for the QDR to consider?
                 factors driving up the cost of defense
    My testimony before the Committee last February began by noting 
that recent defense budgets, even without including large supplemental 
appropriations for war costs, appear by historical standards to be 
quite robust. Nonetheless, leaders of each of the military services 
were warning about substantial budget shortfalls. To explain the 
discrepancy, I cited six factors that have driven up the cost of 
defense substantially in recent years, including
     Dramatic growth in the cost of military personnel, 
especially since the end of the 1990s (45% growth above inflation 
between FY1999 and FY2009);
     Continuing growth of operation and maintenance costs, 
relative to the size of the force, at a pace of two-and-a-half to three 
percent per year above inflation every year since the end of the Korean 
War;
     Apparently accelerating growth in the cost of new weapons 
programs compared to costs of earlier generations of systems for 
similar missions;
     Inaccurate and apparently worsening estimates of weapons 
costs at the inception of major development programs and subsequent 
cost overruns and schedule delays;
     New requirements for the ability to rotate large numbers 
of ground forces into long-lasting stability operations, leading to 
significant increases in ground force end-strength and substantially 
higher investments in new ground force equipment for force protection, 
communications, transportation, and other purposes; and
     Demands for capabilities to cope with an expanded array of 
security challenges ranging from conventional conflict, to irregular 
warfare, to efforts by future foes to disrupt U.S. military power by 
exploiting vulnerabilities, and to threats of catastrophic attacks on 
the U.S. homeland.
    In recent years, my testimony concluded, these trends have driven 
up the cost of defense too rapidly even for substantially growing 
defense budgets to keep up and, unless they were reined in, it would be 
increasingly difficult for the Defense Department to carry on its plans 
within budgets that most analysts thought likely because of constraints 
imposed by projected federal deficits.
             the impact of recent changes in defense plans
    Since that Committee hearing in February, the Defense Department 
has made significant changes in long-term defense plans that Secretary 
Gates announced in April. Some changes called for higher spending, 
particularly for health care and social services for personnel 
returning from combat and for their families. The Secretary also 
reaffirmed plans to increase ground force end-strength, with costs 
being absorbed in the base defense budget rather than in supplemental 
appropriations. Many of the changes announced in April, however, 
particularly the termination of several major weapons programs, might 
very well limit future costs, especially to the extent they mark 
changes in policies that will affect designs of future weapon systems. 
In addition, in May, Congress passed a major defense acquisition reform 
measure, the Weapon Systems Acquisition Reform Act of 2009, P.L. 111-
23, which, if implemented effectively, might also limit weapons cost 
growth.
    The changes in major weapons programs that Secretary Gates 
announced might be particularly significant to the extent they provide 
an impetus to pursue more efficient production practices for systems 
that were not eliminated. For tactical fighter aircraft, the Defense 
Department has narrowed production to two platforms--various versions 
of the F/A-18 Navy-Marine fighter and of the multi-service F-35 Joint 
Strike Fighter. In shipbuilding, while there are some uncertainties, 
the effect of recent decisions may be to allow fairly long and 
relatively large production runs of DDG-51 destroyers, perhaps with 
some variants; of the Littoral Combat Ship (LCS); of new ships based on 
LPD-17 amphibious ship; and of Virginia-class submarines. Even in 
satellites, the termination of the Transformational Communications 
Satellite (TSAT) program will entail reliance on improved designs of 
existing, more proven technologies. To the extent the changes result in 
regular, predictable, and robust annual production runs of 
technologically mature systems with stable designs, both acquisition 
officials in the government and production teams in industry might 
focus on efficiency measures. Weapon costs might be driven down 
considerably by such measures as productivity improving investments and 
production practices; cost saving financial mechanisms including 
multiyear contracting; and expanded use of competitive sourcing in 
subcontracting.
    Similarly, in the weapons development process, the termination of 
programs that had experienced significant cost growth and schedule 
delays--including TSAT, the presidential helicopter, and the Combat 
Search and Rescue (CSAR) helicopter--may reflect a determination to 
ensure that development efforts rely on proven technologies before 
committing to large development and production investments. The Weapons 
Acquisition Reform Act provides further statutory support for DOD 
acquisition policies that require achievement of appropriate levels of 
technological maturity in key elements of development programs before 
milestone approval for progressively more costly stages of a project. 
The Act also creates an independent cost analysis directorate. While 
some of the program terminations remain matters of debate, there 
appears to be a growing consensus on the general principle that 
development should proceed on the basis of sufficient knowledge about 
the availability and cost of key technologies throughout the 
development process in order to avoid excessive technical risk that has 
contributed to delays and cost increases in the past.
                  trade-offs in future defense budgets
    While progress in these areas may, if pursued consistently in the 
future, help ameliorate some of the factors that have been driving the 
cost of defense so high, budget trade-offs remain an issue for the 
Defense Department, particularly in the years following the current 
Future Years Defense Plan (FYDP), which runs through FY2015. A key 
issue for the QDR may be how to balance potential trade-offs between 
the size of the force, the pace of weapons modernization, and the size 
of future defense appropriations, particularly in view of currently 
projected long-term federal budget deficits.
    To date, DOD officials have not said much about how the QDR will 
address intermediate- and longer-term budget issues. Officials have 
said that, at least for initial planning purposes, the QDR assumes that 
the base defense budget, not including war-related funding, will be 
essentially flat for the next five years, with growth sufficient only 
to cover inflation--i.e., ``zero real growth.'' \1\ And they have 
acknowledged that this will require at least modest trade-offs between 
programs. At the end of July, David Ochmanek, a leader of the 
Pentagon's QDR integration group, told defense reporters that the QDR 
had already led to a decision to move about $60 billion over the FYDP 
into programs supporting current operations--``the wars we are in'' as 
Secretary Gates has put it--and that the military services were 
developing lists of cuts in other programs to act as bill payers.
    A shift of $60 billion within the DOD FYDP is by no means unusual. 
On the contrary, it is well within the range of adjustments that the 
Defense Department makes in every annual budget cycle. But trade-offs 
in the years beyond the current FYDP will have to be much more 
substantial unless spending turns up at least modestly within the next 
few years. To illustrate that point, a very simple exercise may be 
useful. Consider, not as a prediction, but only for the sake of 
analysis, what would happen to the allocation of funds within major 
categories of the defense budget between FY2010 and FY2020 if (1) the 
overall level of spending is frozen at the FY2010 level for the next 
ten years, (2) military personnel funding grows at the historical rate 
of the Employment Cost Index (ECI), which increased by 0.7% per year 
above base inflation between FY1981 and FY2005, and (3) DOD operation 
and maintenance accounts are assumed to grow at the historical rate of 
2.7% per year above inflation.\2\
    Figure 1 shows the allocation of funds between (1) military 
personnel, (2) operation and maintenance, (3) acquisition (the sum of 
procurement plus R&D funding), and (4) other programs in the Department 
of Defense base budget, not including war-related supplemental funding, 
in FY2010 compared to FY2020, on those assumptions. The result, as one 
would expect, is a dramatic reduction in funding for weapons 
acquisition, which declines, in constant FY2010 prices, from $186 
billion and 35% of the budget in FY2010 to $127 billion and 24% of the 
budget in FY2020.\3\ In relative terms, that is a cut of 32% in funding 
to replace equipment and modernize the force between FY2010 and FY2020 
in the base defense budget.


    Source: CRS based on the FY2010 Department of Defense budget 
request, with growth of 0.7% per year in Military Personnel accounts 
and 2.7% per year in Operation and Maintenance accounts through FY2020.

    While, again, this is not intended as a prediction of likely budget 
trends, it may suggest a need for the Defense Department to discuss 
intermediate-term budget trade-offs in the QDR. CBO and other budget 
projections over the next ten years show potential budget deficits as a 
percentage of GDP that have, in the past, been followed by long-term 
limits on defense spending.\4\ The alternatives to a steep reduction in 
acquisition accounts are (1) a resumption of at least modest real 
growth in the overall defense budget, (2) cuts in the size of the 
force, or (3) measures to reduce operating costs. Each 2% increase in 
the defense budget above inflation would add about $10 billion in funds 
available for acquisition accounts. A cut of 100,000 active duty troops 
would save $12-15 billion per year in military personnel and in 
directly related operation and maintenance costs. A smaller force would 
entail limits on U.S. military capabilities--one choice might be to 
reduce requirements for ground forces for long-term stability 
operations.
    The need for difficult budget trade-offs could, of course, be 
ameliorated to some extent by further limiting defense costs. The QDR 
will certainly address that issue. Business process reform is one of 
five focus areas in the original QDR guidance that Secretary Gates 
issued in April, and one of five QDR issue teams is responsible for 
addressing defense costs. Earlier QDRs also led to efforts to reduce 
costs by reducing infrastructure, outsource activities, and improving 
contracting procedures.
    How much DOD can save--and how much it should count on saving--is a 
matter that deserves careful consideration. In the past, the Defense 
Department has perennially projected that operation and maintenance 
(O&M) budgets, which, as I noted, have grown historically at 2.5 to 3 
percent per year above inflation per active duty service member, would 
level off, freeing up funds for weapons investments. Throughout the 
1990s, however, projected savings in O&M did not materialize, in spite 
of concerted efforts at management reform, and procurement accounts 
ended up being cut from year to year to finance must-pay-bills in the 
operating accounts.
    In the FY2010-FY2020 budget exercise shown in Figure 1, the 
assumption was that O&M would continue to grow at the historic rate of 
2.7% per year above inflation. Given past experience, DOD will have 
strong incentives in the QDR to assume that reforms will slow that rate 
of growth. But experience also shows that reforms generally serve to 
keep O&M cost growth down to historical levels rather than to achieve 
additional savings. In addition, the FY2010-FY2020 analysis shown above 
assumes much more limited increases in military pay and benefits than 
Congress approved in the years between FY1999 and FY2009. The premise 
is that service members have already won most of the increases in pay 
and benefits that support groups were seeking, so growth may be more 
modest in the future. That assumption may not be correct, however, and 
the analysis may well underestimate personnel costs. Long-term budget 
trade-offs might be more difficult to the extent personnel costs grow 
faster.
                     have qdrs been radical enough?
    As well as discussing budget trade-offs over the next decade or so, 
the current QDR may be an occasion for considering more far-reaching, 
longer-term changes in policy with potentially very substantial effects 
on budget planning. Perhaps the central issue in debate over earlier 
QDRs has concerned whether the Defense Department has kept up with the 
pace of global change and has adjusted defense plans accordingly. That 
issue appears likely to remain a matter of debate over the current QDR.
    The current QDR, on which the Defense Department is required to 
provide a report early next year, is the fourth such review mandated by 
a provision that Congress originally included in the FY1997 National 
Defense Authorization Act and later made permanent. QDRs in 1997, 2001, 
and 2006 were preceded by two earlier, similarly broad reviews--the 
``Base Force'' analysis that the Joint Chiefs carried out under then 
Chairman Colin Powell in 1990, and the ``Bottom-Up Review'' conducted 
at the beginning of the Clinton Administration under Secretary of 
Defense Les Aspin in 1993.
    The Base Force analysis and the Bottom-Up Review (BUR) were 
intended first of all to establish a rationale for maintaining strong 
military capabilities as the Cold War came to an end. The BUR, 
following the Persian Gulf War of 1991, established as a basic planning 
principle a requirement that U.S. military forces should be able to 
prevail in two nearly simultaneous regional conflicts--now termed 
``Major Theater Wars'' (MTWs)--comparable to the war with Iraq. 
Planners did not neglect post-Cold War requirements for capabilities to 
manage other kinds of operations. Rather, the BUR argued that forces 
able to prevail in two major wars would also be able to meet less 
demanding requirements.
    By the time Congress enacted the original QDR requirement, however, 
that premise was being very widely questioned. Ongoing, long-term U.S. 
military missions in Bosnia and later in Kosovo, plus enforcement of 
no-fly zones in Iraq, were straining the Army and Air Force, neither of 
which was organized to sustain long-term rotational deployments abroad. 
The Army, in particular, was still organized in a way that required the 
mobilization of large numbers of reserves and the reassignment of 
substantial numbers of active duty troops in order to fill out units 
selected for deployment. The effect was to disrupt Army personnel 
management across the whole force and to degrade the readiness of many 
non-deployed units in order to support even a modest rotational 
deployment of 5,000 troops to the Balkans.
    The 1997 QDR reflected efforts to assess and later ameliorate some 
of these strains. Among other things, it identified so-called low 
density-high demand units; mandated additions to some of the more 
highly stressed forces, including military police and civil affairs 
teams; made offsetting reductions in other units; and undertook 
systematic studies of the burdens of recent and ongoing contingency 
operations on military personnel. It also included a substantially new 
statement of the missions of U.S. military forces that stressed 
military engagement and other measures to make use of military forces 
in non-conflict situations to improve ties with foreign nations and 
prevent regional conflicts.
    As one means of encouraging a more far-reaching policy 
reassessment, Congress required as part of the 1997 process the 
appointment of an independent group, called the National Defense Panel, 
to provide input to the QDR and then to prepare an alternative 
assessment. The NDP's final report emphasized the prospect that future 
foes would not challenge U.S. conventional military power directly, but 
would instead use asymmetric means to exploit U.S. weaknesses. The 
panel warned that critical U.S. capabilities, particularly the ability 
to project power far around the globe from bases in distant regions and 
naval forces offshore, would be increasingly at risk because of the 
diffusion of advanced technologies. The NDP recommended new programs, 
including converting ballistic missile submarines to launch cruise 
missiles against targets ashore, and substantial annual investments in 
experimental technologies to cope with rapidly evolving challenges.
    The NDP report is in many ways representative of the discussion, in 
Congress and elsewhere, about the apparent limitations of successive 
QDRs. Even though the 1997 QDR, by most accounts, reflected 
considerable progress in addressing new challenges, the NDP report was 
quite critical of the Defense Department for not adjusting rapidly 
enough to accelerating changes in the international security 
environment. Critical as it was, the NDP also received a respectful 
hearing from senior leaders--the authors of the QDR--inside the 
Pentagon.
    In general, successive QDRs can be seen as progressive steps away 
from force planning that remained wed to weapons and organizations 
inherited from the Cold War and toward a much fuller appreciation of 
the extraordinarily broad array of challenges facing the United States 
in first half of the 21st Century. The 1997 QDR was succeeded by the 
2001 QDR, which emphasized the need to build a full range of 
capabilities to cope with often unpredictable dangers. It added to the 
two-war requirement a mandate to protect the homeland from potentially 
catastrophic attacks and to maintain an effective deterrent presence in 
four critical regions of the globe.\5\
    The 2006 QDR, the first composed after the attacks of September 11, 
2001, included the ``new challenges'' framework that has since shaped 
much of the discussion of defense planning. Figure 2, taken directly 
from the a DOD briefing on the 2006 QDR, illustrates the premise--which 
Secretary Gates has pursued since then more assiduously--that 
investments should be shifted from means of engaging in traditional, 
conventional force-on-force conflicts, in which the United States still 
appears to have a significant margin of superiority, and toward 
irregular, disruptive (i.e., asymmetric attacks on U.S. 
vulnerabilities), and catastrophic (WMD attacks on the homeland) 
challenges.


    Source: Department of Defense, Briefing Slides on the 2006 
Quadrennial Review, February 3, 2006.

    Based on briefings by senior DOD officials, the current QDR appears 
likely to push the discussion of the international security 
environment, with implications for force planning, somewhat further. 
Secretary Gates and other officials have, for example, stressed that 
distinctions between traditional, irregular, and disruptive challenges 
are eroding. Groups like Hezbollah and Hamas have employed quite 
sophisticated short-range missiles, including anti-ship missiles, 
supplied by sponsoring nations. Insurgents in Iraq and Afghanistan have 
used modern shaped-charge munitions in IEDs to attack armored vehicles. 
Analysts describe the result as ``hybrid warfare,'' in which non-state 
groups, considered to operate at the lower end of the conflict 
spectrum, employ quite advanced technology, a merger of irregular 
warfare with advanced means of warfare.
    Officials also emphasize that even relatively sophisticated future 
enemies, including peer- or near-peer competitors, will almost 
certainly employ whatever means they believe will be effective in a 
conflict with the United States and its allies, including irregular and 
disruptive asymmetric attacks and even assaults on the U.S. homeland. A 
focus of the current QDR appears to be on what officials term ``high 
end asymmetric'' threats, meaning challenges that a technologically 
sophisticated and relatively wealthy opponent might pose in an effort 
to prevail without having to defeat the U.S. on its own terms. High-end 
asymmetric warfare was another focus of the April QDR guidance, and it 
is the subject of one of the QDR's issue teams.
    In focusing on high-end asymmetric challenges, part of what defense 
officials are thinking may be reflected in recent discussions by Under 
Secretary of Defense for Policy Michele Flournoy, who has stressed the 
need to safeguard what she and others call ``the global commons,'' 
meaning air, sea, space, and cyberspace means of transport, 
intelligence, and communications.\6\ Threats to the global commons 
could involve the use of some new technologies, including anti-
satellite devices (not just weapons but jammers) and cyber-attacks. 
They could also involve aggressive, wide-scale use by possible future 
foes of new versions of older technologies. In attacking sea lanes, for 
example, enemies could use high-speed small boats packed with high 
explosives (perhaps with suicide pilots); advanced, very quiet diesel-
electric submarines with highly capable munitions; smart sea mines that 
can be deployed in large numbers, hidden, maneuvered, and activated 
when needed; short- to intermediate-range ballistic missiles with 
highly accurate and perhaps even maneuverable warheads to attack ships 
as well as fixed sites; and long-range, stealthy anti-ship cruise 
missiles. Some of these technologies, particularly ballistic and cruise 
missiles, could also be used to attack U.S. forward bases in regions of 
conflict.
    Taken as a whole, discussions of security challenges in successive 
QDRs appear to represent considerable progress over time. The issue, 
however, is whether the progress has been rapid enough, and, more 
importantly, whether it has led to sufficiently rapid changes in 
policy. One goal Congress had in requiring quadrennial defense reviews 
was to push the discussion of post-Cold War force requirements further. 
QDRs may have helped to some degree in doing so, simply by requiring 
senior DOD leaders to think systematically about long-term issues. At 
the same time, it would be hard to say that QDRs have fully anticipated 
the evolving nature of future threats. On the contrary, they seem in 
many cases to have lagged behind emerging threats.
    Moreover, changes in military force posture appear to have been 
even slower to mature. It took the Army until 2001, just on the verge 
of subsequent conflicts in Afghanistan and Iraq, to begin implementing 
a new force posture based on more deployable, modular brigades that 
were sufficiently manned in peacetime to be deployed without disrupting 
personnel movements over the whole of the force. In general, earlier 
QDRs appear to constitute snapshots of progress in ongoing discussions 
of strategy rather than radical departures from earlier views--an 
evolutionary process driven by the pressing need to adjust to 
unexpected events, rather than anything revolutionary.
    This raises what may be the key issue for Congress in assessing the 
current QDR. Will this QDR be another in a line of modest adjustments 
to global changes, or will it more fully anticipate the impact on U.S. 
security of fast-moving global trends? A goal of DOD's current 
leadership appears to be, not merely to identify the range of 
challenges facing the nation, but also to establish priorities in 
addressing them. But will this include not only identifying areas that 
may warrant greater investment, but also capabilities that may be 
becoming obsolete?
    One common criticism of the ``capabilities based'' analysis of the 
2001 and 2006 QDRs, even as they helped to broaden awareness of the 
range of threats, is that the analytical framework did not help much in 
allocating resources away from some areas and into others. Leaving 
aside whether such criticism is fair, the current Administration has 
emphasized the need to analyze specific threats in order to establish 
priorities. The question that follows is, how boldly will the current 
QDR address the potential need for major changes in forces in view of 
its assessment of new challenges?
    To give one example of the kinds of more radical changes in force 
posture that the QDR might address, consider the long-standing debate 
over anti-access/area denial strategies. The issue has been debated at 
least since the National Defense Panel discussed it in 1997. A ``Red 
Team'' established as part of the 2006 QDR, and headed by Andrew 
Marshall, director of the Office of Net Assessment, also discussed it 
and recommended some far-reaching changes in force structure, including 
a cut of up to one-third in the number of short-range tactical fighter 
aircraft and an increase in funding for longer-range strike systems. 
Now a similar ``Red Team'' has been established for the current QDR, 
also co-chaired by Marshall, and it includes prominent advocates of 
changes in forces to cope with anti-access/area denial strategies. They 
include Andrew Krepinevich, who served on earlier panels as well, and 
who has long highlighted the issue, and retired Marine Lieutenant 
General Paul Van Riper, who, in a major war game, called ``Millennium 
Challenge 2002,'' directed a ``Red Force'' group that exploited with 
great effect creative means of disrupting U.S. forces in a Persian 
Gulf-type scenario.
    It is important to note that the Defense Department has not ducked 
the issue. The National Defense Panel and later internal Red Teams were 
not suppressed or dismissed--on the contrary, the Defense Department 
has appeared to welcome the involvement of some forceful critics of 
some of its policies. After he read Krepinevich's recent book, 7 Deadly 
Scenarios, Secretary Gates reportedly directed the QDR team to 
incorporate Krepinevich's examples into its set of planning 
exercises.\7\
    That said, there appears to be a considerable gulf between the 
urgency that Krepinevich and others attach to the issue and views of 
senior DOD officials. In a recent article in Foreign Affairs, 
Krepinevich characterized current U.S. means of projecting and 
sustaining power around the globe--a capability now unique to the 
United States and also extremely expensive to maintain--as a ``wasting 
asset.'' ``Several events in recent years have demonstrated that 
traditional means and methods of projecting power and accessing the 
global commons are growing increasingly obsolete,'' he wrote. Citing 
General Van Riper's success in Millennium Challenge, which, he says, 
led to the early loss of half the U.S. ships deployed in a model 
conflict with Iran in the Persian Gulf, Krepinevich concluded:
    Van Riper's success should have served as a warning: projecting 
power into an area of vital interest to the United States using 
traditional forces and operational concepts will become increasingly 
difficult. Indeed, these means and methods are at great risk of 
experiencing significant, perhaps even precipitous, declines in value. 
* * *
    In the real world, Iran and other states can buy high-speed, sea-
skimming ASCMS [anti-ship cruise missiles] in quantity. In confined 
waters near shore, U.S. warships would have little warning time to 
defend against these weapons. The same can be said of high-speed 
suicide boats packed with explosives, which can hide among commercial 
vessels. Widely available modern sea mines are far more difficult to 
detect than were those plaguing the U.S. fleet during the 1991 Gulf 
War. Quiet diesel submarines operating in noisy waters, such as the 
Strait of Hormuz, are very difficult to detect. Iran's possession of 
all of these weapons and vessels suggests that the Persian Gulf--the 
jugular of the world's oil supply--could become a no-go zone for the 
U.S. Navy.\8\
    China, too, he says, is concentrating on anti-access/area denial 
capabilities as well as the ability to disrupt U.S. freedom of action 
in space and cyberspace.
    In contrast, Under Secretary Flournoy and co-author Shawn Brimley, 
acknowledge similar challenges, but come to a starkly different 
conclusion about the immediacy of the threat:
    * * * barriers to entry for both state and non-state actors to 
develop and field capabilities that can pose challenges to U.S. and 
allied freedom of action will lower substantially over time. The 
proliferation of knowledge and technology will allow an increasing 
number of state and non-state actors to deploy anti-access capabilities 
and high-end asymmetric technologies that can put allied infrastructure 
at risk and hamper U.S. power projection.
    While these trends are already apparent today, their enumeration 
should not be interpreted to mean that U.S. dominance in, for example, 
space-based capabilities or in blue-water naval power projection is 
being eroded at a precipitous pace. Far from it--America's military 
will remain without peer for some time in the ability to project and 
sustain substantial military power from the air and sea over large 
distances.
    These trends are, however, harbingers of a future strategic 
environment in which America's role as an arbiter or guarantor of 
stability within the global commons will become increasingly 
complicated and contested.
    What evidence the Defense Department has to support the conclusion 
that power projection capabilities are not ``being eroded at a 
precipitous pace,'' is a matter of critical importance. This judgment 
appears to be at odds, to some degree at least, with the conclusions of 
the 2006 QDR Red Team, as well as with the views of Krepinevich and 
other well-regarded independent analysts. A measure of the value of the 
QDR may be how directly and effectively it addresses this and similar 
issues that raise questions about the pace at which the Defense 
Department is adjusting to changes in the international security 
environment.
    The amount of new investment that may be needed to cope with 
asymmetric threats may very well be substantial. If area denial 
strategies are effective in forcing shorter-range U.S. forces away from 
regions of conflict, for example, investments in longer-range air- or 
even space-based strike systems might be needed, particularly for use 
in the early stages of a conflict. The task of striking against mobile 
ballistic and cruise missile launchers remains challenging, and much 
larger investments in intelligence, surveillance, and reconnaissance 
systems for the mission, as well as in long-range and loitering strike 
systems, might be required. One alternative may be a substantial 
increase in submarines and submarine launched weapons. Defenses against 
ballistic and cruise missiles might also be required in very large 
numbers. Cost exchange ratios may not favor existing sea- or land-based 
missile defense systems, and new investments in air-launched anti-
missile systems may be needed.\9\
    Other asymmetric threats could also require expensive measures in 
response. Defense against anti-satellite systems might require not only 
measures to protect current generations of large satellites, but, as 
many have proposed, the development of smaller satellites for key 
missions that could be launched in substantial numbers in the run up to 
a conflict. This might also require large investments in launch 
systems.
    The Cold War was punctuated by occasional, unexpected international 
crises, but, in retrospect defense planning was characterized by a 
remarkable degree of stability. The post-Cold War era, in contrast, 
appears to be defined both by a succession of unpredictable challenges 
and by the accelerating pace of global change. Experience with earlier 
QDRs suggests that the Defense Department may sometimes be slow to 
adjust to new challenges, and that institutional inertia may make 
senior leaders reluctant to pursue far-reaching changes in policy. The 
central issue for this and future QDRs may be how effective they are in 
turning investments that will determine U.S. military capabilities 
twenty years and more in the future, in the right direction.
                                endnotes
    \1\ In questions and answers following a presentation at the Center 
for Strategic and International Studies (CSIS) on April 29, 2009, Under 
Secretary of Defense Miche*le Flournoy said that QDR budget planning 
was focused strictly on the FYDP--audio and video recordings are 
available on line at CSIS, though not a transcript. Also see David 
Ochmanek, Deputy Assistant Secretary of Defense for Force Planning, 
Interview with the Defense Writers Group, July 28, 2009, of which a 
transcript is available on line from Air Force Magazine.
    \2\ The Employment Cost Index is a Bureau of Labor Statistics 
measure of the average change of pay and benefits in the overall 
economy. The annual real growth in DOD O&M accounts is a CRS 
calculation that measures the change per active duty service member in 
O&M funding excluding funding of overseas contingency operations.
    \3\ This is analysis is based on a discussion with Hugh Brady of 
the Raytheon Corporation of a forthcoming defense industry 10 year 
budget projection under the auspices of TechAmerica.
    \4\ Congress passed the original Gramm-Rudman-Hollings deficit 
control act in November 1985 after the federal budget deficit exceeded 
6% of GDP in FY1983. Defense spending subsequently declined in real 
terms every year until FY1999, when the federal budget ran a surplus.
    \5\ The 2001 QDR articulated what it called the 1-4-2-1 force 
planning construct, which called for forces to (1) protect the 
homeland, (4) deter aggression in Europe, Northeast Asia, the East 
Asian littoral, and Southwest Asia and the Middle East, (2) 
simultaneously halt attacks in two regions, and (1) win decisively in 
one major conflict.
    \6\ Michele Flournoy and Shawn Brimley, ``The Contested Commons,'' 
Proceedings of the U.S. Naval Institute, Vol 135, No. 7, July 2009.
    \7\ Andrew F. Krepinevich, 7 Deadly Scenarios (New York: Bantam 
Books, 2009). Christopher J. Castelli, ``QDR Shakes Up Planning 
Scenarios for Future Military Missions,'' Inside the Pentagon, May 28, 
2009.
    \8\ Andrew F. Krepinevich, ``The Pentagon's Wasting Assets,'' 
Foreign Affairs, JulyAugust, 2009, Vol. 88, Issue 4.
    \9\ There has been some discussion of using upgrades of Sparrow or 
AMRAAM air-to-air missiles for missile defense.

    Chairman Spratt. Thank you both for excellent testimony in 
a fairly short period of time. A good sweep of not just where 
we are, but where we seem to be going and what some of our 
options are.
    Would you just for the record and for elaboration give us 
an idea of what has happened in the acquisition programs? What 
has been the rate of inflation, the rate of cost growth over 
the last 10, 15 years? Either one of you or both.
    Mr. Daggett. Yeah, let me say one thing about--Matt, why 
don't you go ahead first.
    Mr. Goldberg. We have seen programs that coming out of 
development into production are 20, 25--ultimately 20, 25, 30 
percent more expensive to actually build than what was 
predicted coming out of development, and those kind of numbers 
have been with us for a long time. There hasn't really been 
much change or progress.
    Mr. Daggett. Yeah. Actually when I was here last February I 
provided a chart, and actually I did provide it if we can find 
it, which was just a recapitalization rates of major systems. 
And one of the leaders of the business projection units at the 
Boeing Corporation, Cecil Black did this, and I have just 
adopted it a little bit. And what he did was look at production 
rates of major weapons programs in 1985 compared to production 
of similar systems in 2008. Starting from the premise that in 
constant 2008 dollars we were actually spending about the same 
amount in acquisition. There was about $200 billion in 
procurement and in R&D. Yeah, here is the chart.
    In both years. So with $200 billion in money for 
acquisition how many of different kinds of various systems 
could we buy in '85 as opposed to 2008? And here is what he 
found. For tactical fighters in 1985 we bought 338 new tactical 
fighters, 56 in 2008. In ships we bought 23 new ships in 1985, 
7 in 2008.
    Chairman Spratt. Is this apples to apples?
    Mr. Daggett. Yeah, well that is the point. They are ships 
for similar missions, yeah, but they have become much more 
expensive individually. And because they have become that much 
more expensive individually we can afford only many fewer of 
them.
    Chairman Spratt. Yeah.
    Mr. Daggett. I mean it does address your point in general, 
but that is the key point, that the intergenerational cost 
growth between major systems has accelerated so much that we 
are finding it very difficult to replace existing equipment on 
a one-for-one basis given budget constraints.
    In fighter aircraft the main low-end fighter in 1985 was 
the F-16, which at the time cost about $16 million a copy. The 
F-35 will cost about $83 million a copy. If you adjust for 
inflation it is about 24 million a piece for the F-16 versus 83 
for the F-35, but that has been the pace of intergenerational 
cost growth, and you can't sustain that over time. You have to 
do something to rein it in. And I think the changes that 
Secretary Gates announced in April, many of those changes 
appear to be moving in that direction. Not going ahead with 
DDG-1000 as a basic whole design for surface combatants, but 
instead DDG-51, which is a much smaller and presumably less 
expensive hull, relying more on Littoral Combat Ship for many 
missions rather than larger destroyers.
    Chairman Spratt. One last question for both of you and then 
I will let others have an opportunity.
    Listening to the various forces that impinge upon the 
defense budgets and determine how much we spend and how we 
spend it remind you of what a complex determination it is, 
whether it is an adequate defense. Do you think it is helpful 
to speak of defense adequacy in terms of percentages of GDP? 
Three percent, four percent? Is that useful or misleading and 
unuseful.
    Mr. Goldberg. I would say from our point of view it is 
probably not extremely useful. And I would say a better 
approach than saying well we can afford to spend three or four 
percent of our economy on defense would be more from the bottom 
up as to say what the QDR is attempting to do, we have yet to 
see what success they will have, is to ask what are the 
threats, what do we have in the inventory, and what do we need 
to buy to meet those threats? And whatever percentage that 
turns out to be I would rather build it up from the bottom than 
to say that we should flat line the defense budget at some 
percentage of GDP.
    With all of the other pressures on the federal budget, I am 
sure you are aware, Mr. Chairman, health care and other 
entitlement programs, it is almost inevitable there is going to 
be a squeeze on defense, and so I think the better approach 
would probably be to figure out what do we need and how much 
would it cost, rather than starting off by saying we need to 
maintain this much top line.
    Mr. Daggett. Yeah, my view is that talking about defense is 
four percent of GDP. It is perfectly reasonable to use that as 
a way of arguing that if we choose to do so we can afford it, 
that it is a measure of the impact of defense spending on the 
economy. And to say that it is four percent of GDP says that 
relative to what it has been in the past is less of a burden in 
that sense. So it is perfectly legitimate as a measure of the 
kind of economic burden of defense spending.
    What it misses is the overall budget environment, and the 
budget environment has changed dramatically as well. Federal 
spending has stayed stable at about 20 percent of GDP going 
back the last 40 almost 50 years. What has happened is major 
entitlement programs have climbed dramatically as a share of 
GDP and as a share of the budget while defense and other 
discretionary programs have declined.
    So you know, while it is reasonable to look at defense as a 
share of the economy you also need to look at defense as a 
share of the overall budget. If you want to increase the budget 
above 20 percent then there is room for a bigger increase in 
defense, but you need to take the budget picture into account 
as well.
    And one other point. You know, ultimately Matt's point is 
the correct one. I mean, in defense the starting point has to 
be what do you want to accomplish in the international 
environment and what kind of military forces do you need to 
accomplish that? And within limited resources how can you best 
do that? And that is quite a part from the level of defense 
spending as a share of GDP.
    We need to be looking at what China is doing in military 
spending more than we need to be looking at what is happening 
to our spending as a share of GDP. And in dealing with China we 
also need to take account of the fact that within 40 years 
China is going to have as large a GDP as we do. They will be 
the largest economy in the world. So the way in which we 
address how China is evolving militarily has to take account of 
this dramatic change in relative financial circumstances over 
time as well.
    Chairman Spratt. Thank you both. Mr. Ryan.
    Mr. Ryan. Thank you, Mr. Chairman. Mr. Goldberg, this 
probably is a best question for you. How much of operations in 
Iraq and Afghanistan contributed to the deficit this year?
    Mr. Goldberg. The number aren't quite in, but it appears 
that operations in Iraq and Afghanistan ran about 155 billion 
in the year that we just completed in 2009.
    Mr. Ryan. Can you bring up Chart 9?
    
    
    Mr. Ryan. The point I guess behind my question is, what we 
are hearing more often these days is that, you know, if it 
weren't for the war we wouldn't have these big budget deficits. 
The blue graph shows you the war spending and the red shows you 
the deficits. So we are seeing that war spending, which peaked 
I think in 2008, is really actually quite a small fraction of 
our deficit.
    Do we make a distinction as to what is deficit finance and 
what is not deficit finance when it comes to federal spending 
in a deficit climate?
    Mr. Goldberg. At CBO we do not, and we are reluctant to do 
that because it is very difficult to say that this particular 
dollar that I am going to spend on defense, whether that is a 
dollar that I raised through taxes or whether that is a dollar 
for which I had in a float bond, so we prefer not to make that 
distinction.
    Mr. Ryan. Yeah. So I think it is important to put these 
conversations in perspective as to their impact on our fiscal 
situation and our deficits.
    Your missile defense line was very interesting to me, and I 
am not an armed services guy so you need to break it down for 
me. Looking at the decision that was made to withdraw our 
systems out of the Czech Republic and Poland, what is the cost 
difference between the current plan for missile defense under 
the various scenarios you described and the cost trajection we 
were on with the land-based system? And what are the costs 
associated with discontinuing the land-based system? I assume 
there are wind down costs, there are storage, you know, costs 
and other things. What are those costs associated with this 
decision?
    Mr. Goldberg. There are costs. All of the numbers are a 
little preliminary in that we don't really know the concept yet 
that the Administration is going to use, but I can give you a 
few of the numbers. Eliminating the sites in the Czech Republic 
and in Poland we would save 1.5 billion, by not having the 
radar in the Czech Republic and the interceptors in Poland, 1.5 
billion.
    Chairman Spratt. Is that with ten or over five or over----
    Mr. Goldberg. That is the total cost over the ten years, 
1.5 billion.
    Mr. Ryan. Okay.
    Mr. Goldberg. There were lost of small costs. The biggest 
element that you put back in is the cost for the ships, and the 
cost for the ships, as I have indicated, they are----
    Mr. Ryan. It is 19- to 6 billion? You said the LCS type 
ships would be 6 billion, if we do new ships they would be 
about 19-?
    Mr. Goldberg. Yes. If we do new Aegis destroyers they would 
be 19-, if we do new LCS specially modified for this mission it 
would about 6 billion.
    The other option is to take existing ships and just convert 
them, upgrade them so that they could perform this mission, and 
that would be about 300 million in total for the nine ships. 
Two hundred million has already been requested for six ships.
    Mr. Ryan. And is that assuming we don't replace those 
existing ships because we are changing their missions?
    Mr. Goldberg. We would not replace them, that is correct.
    Mr. Ryan. Okay.
    Mr. Goldberg. That is assuming that they would be dedicated 
to this mission and therefore not be available for other 
missions.
    Mr. Ryan. Are there termination costs associated with this? 
Any contract termination costs associated with this decision?
    Mr. Goldberg. I am not aware of any. I believe the 1.5 
billion that I gave you earlier was the complete----
    Mr. Ryan. Is the complete cost?
    Mr. Goldberg. Is the complete cost. There are a few other 
costs, and it is hard to answer this question, because the Navy 
was buying the standard missiles anyway, and they may continue 
to buy just as many standard missiles regardless of how this 
option plays out, so it is hard to say that we would buy more 
fewer standard missiles because they would probably be in the 
inventory anyway.
    Mr. Ryan. Okay. So I am trying to get a sense of just how 
this technology is to be deployed and what its long-term costs 
are. So ten year we have got 1.5 billion savings for 
discontinuing the land-based system.
    Mr. Goldberg. Correct.
    Mr. Ryan. Depending on how we deploy from a sea base 
system----
    Mr. Goldberg. Correct.
    Mr. Ryan [continuing]. It is anywhere from 300 million up 
to 19 billion dollars?
    Mr. Goldberg. Correct. Now the one other----
    Mr. Ryan. Yeah.
    Mr. Goldberg. If I may. The one other big cost that I can 
offer you, which we have estimated, would be for the land-based 
version. Because there are four phases of the Administration 
plan, some of which involve sea basing on the Aegis ships and 
some which involve land-based. So if I could talk about the 
land-based piece----
    Mr. Ryan. Sure.
    Mr. Goldberg [continuing]. Because I have some numbers. We 
estimate that to develop the land-based version of the SM-3, 
the standard missile for this purpose, would take 400 million 
in R&D, and then for every additional site it would be another 
700 million. And so 400 to develop it and 700 million for site 
for land-based.
    Mr. Ryan. Okay. And how many sites were being contemplated 
in the full build out?
    Mr. Goldberg. What did we have? I think two is the current.
    Mr. Ryan. Okay.
    Mr. Goldberg. Two is the current number.
    Mr. Ryan. All right. Mr. Daggett, I have got a question for 
you. Give us a sense of health care. You know, we focus so much 
on our domestic spending liabilities with respect to our 
entitlement programs on Medicare, Medicaid, you know, the 
demographics, the health inflation being what it is. Give us a 
sense of the crowd out of defense spending with respect to 
TRICARE. And I assume you have the same kind of fiscal 
pressures. We have seen these numbers before; I think you have 
testified on that.
    Mr. Daggett. Yeah.
    Mr. Ryan. Give us a sense of the crowd out with respect to 
the health care on legacy cost and DoD.
    Mr. Daggett. In Fiscal Year 2010 budget total health care 
costs include costs in the operation and maintenance accounts 
for care of uniform personnel and their dependents through 
TRICARE. If you include military personnel and if you include 
accrual payments that DoD makes for future health care benefits 
for current employees it is about 45 billion dollars this year 
for health care costs.
    Mr. Ryan. And that is a percentage of the overall DoD 
budget of what?
    Mr. Daggett. Within of about $534 billion, so it is about 
nine percent of the budget.
    Mr. Ryan. Okay.
    Mr. Daggett. The projection is that that will increase 
within five years to about $64 billion. So you know, that is in 
constant 2010 dollars. So it is about five percent per year 
growth in line with growth of health care costs in the overall 
civilian sector. So another, you know, almost $20 billion of 
additional expenses just in a five-year period.
    So it is, yes, health care costs are a major factor that 
DoD is concerned about. It is a major factor that is driving up 
the cost of operation and maintenance by 2.7 percent per year, 
and it is a real matter of concern for DoD.
    Mr. Ryan. All right, thank you.
    Chairman Spratt. Mr. Doggett.
    Mr. Doggett. Thank you both for your testimony. My 
questions concern Afghanistan, and I will address them to Mr. 
Daggett.
    During the long deceit and denial days of the Bush, Cheney, 
Rumsfeld's Administration it was almost impossible to determine 
or estimate the cost of our go it alone invasion of Iraq. It 
seemed as if they had a grand don't ask don't tell policy 
whenever we sought to get the facts about what American 
taxpayers were being asked to commit to there.
    As some people now are calling for expanding the number of 
young Americans who will be asked to face the harsh realities 
of Afghanistan, I want to be sure that we replace deceit and 
denial and don't ask don't tell with as accurate of facts as we 
possibly can, and certainly so that this Committee can fulfill 
its responsibilities in budgeting.
    First let me ask Mr. Daggett. Just as it refused to break 
out the cost of Iraq, the pentagon, as I understand the way 
they present their figures on the cost of Afghanistan, they 
have intermingled them with the cost of operations in 
Philippines and the Horn of Africa have they not?
    Mr. Daggett. Yeah, that is true. From the beginning DoD has 
identified costs of what they call Operation Enduring Freedom.
    Mr. Doggett. Yes, sir.
    Mr. Daggett. And that includes Afghanistan and----
    Mr. Doggett. Well whether or not that is an appropriate 
label for what they are doing it certainly is possible if they 
want to provide the American people with the information to 
break out separately the cost for Afghanistan.
    Mr. Daggett. Yes, absolutely.
    Mr. Doggett. And let me focus your attention on the 
specific cost as best you can determine of what we are 
committing to each time we send one additional service member 
to Afghanistan, is it correct that the best estimate we have is 
one soldier, one year in Afghanistan, one million American 
dollars?
    Mr. Daggett. That is about right.
    Mr. Doggett. All right.
    Mr. Daggett. My colleague, Amy Belasco, has actually done 
numbers on this extensively, as has CBO by the way.
    Mr. Doggett. And from your review of the literature, and I 
understand that is all you have to rely on, is it also correct 
that the cost of maintaining one Afghan soldier one year in 
Afghanistan is about $12,000?
    Mr. Daggett. We have seen that just from press accounts. 
That that is a DoD estimate, yes.
    Mr. Doggett. Twelve thousand versus one million.
    Mr. Daggett. Yes, sir.
    Mr. Doggett. Let me ask you. With reference to one of the 
problems we had with the Bush, Cheney, Rumsfeld camouflage of 
the figures from the American people was that they would 
announce one set of troop figures when in fact they were 
actually committing us to much larger set. And I was troubled 
yesterday to see on the front page of the Washington Post, 
support troops willing U.S. force in Afghanistan, that while we 
had had an announcement that we were expanding the number of 
troops there in the spring by 21,000. In fact when you count 
the support troops that are being added there, 21 becomes the 
new 34, and we actually have 34,000 more troops going there. Is 
that correct?
    Mr. Daggett. Yes, sir.
    Mr. Doggett. And in calculating the cost, a million 
dollars, one soldier, one year you have to include the support 
troops to give people an accurate indication don't you?
    Mr. Daggett. Yes, right.
    Mr. Doggett. Now anyone who is advocating, again, asking 
you from your review of the literature, because I know you 
follow this, are you aware of anyone who is advocating more 
troops for Afghanistan now that has suggested a time line that 
they can stay for less than a decade? Have you heard of anyone 
out there?
    Mr. Daggett. No, I have not heard any particular time line.
    Mr. Doggett. Okay. So when we talk about one million per 
soldier per year we are not just talking about one year, and 
certainly in your estimates you don't look to just one year do 
you?
    Mr. Daggett. No, we don't.
    Mr. Doggett. Let me ask you also about what, and it is a 
strange term to me, but it is the term I heard from the 
pentagon, the so-called monthly burn rate. How much money is 
being burned each month.
    Mr. Daggett. Right.
    Mr. Doggett. Is the monthly burn rate in Afghanistan now 
without all these additional troops about 3.6 billion per 
month?
    Mr. Daggett. Through the first seven months of Fiscal Year 
2009 the average monthly burn rate is $3.6 billion per month, 
yes.
    Mr. Doggett. And if we deploy an additional 50,000 troops, 
including support personnel to Afghanistan, will the burn rate 
in Afghanistan be equal or about equal to the burn rate we 
currently have in Iraq?
    Mr. Daggett. Yeah, almost precisely. The $3.6 billion per 
month supports an average troop level of about 51,000 in 
Afghanistan. If you added another 50,000 to that that would 
double it which would bring the burn rate to 7.2 billion per 
month. The burn rate now in Iraq is about 7.3 billion per 
month.
    Mr. Doggett. And you referenced your colleague, Amy 
Belasco, who has helped this Committee in the past in her 
objective studies. Has she analyzed the Defense Finance and 
Accounting data, the DFAS data to show that actually even what 
the Washington Post reported yesterday understates the true 
cost of the war in Afghanistan because there are many other 
support troops that are actually, when you look at those 
records, are actually supporting Afghanistan?
    Mr. Daggett. Well it understates the number of troops, it 
doesn't necessarily revise the cost figures.
    Mr. Doggett. I see.
    Mr. Daggett. The cost figures are just supporting a much 
larger number of support troops in the region.
    Mr. Doggett. That may not actually be in country.
    Mr. Daggett. Right, right.
    Mr. Doggett. Well thank you very much. Thank you, Mr. 
Chairman. This is a tremendous cost in addition of course to 
the cost in blood and sacrifice the military families that we 
must consider as we evaluate our alternatives in Afghanistan.
    Chairman Spratt. Thank you, Mr. Doggett. Ms. Lummis.
    Ms. Lummis. Thank you, Mr. Chairman.
    Mr. Daggett, President Obama has established this joint 
understanding with Russia to work towards further reductions in 
our strategic nuclear arms by renewing START. This is a concern 
to me because F.E. Warren Air Force Base is in my district of 
Wyoming and we oversee the Nation's ICBM force. And I know that 
there are strategic factors that play into a nuclear force 
reduction decision. What can you tell me about the comparative 
cost per warhead delivery vehicle in our ICBM forces as opposed 
to a submarine launched missile bomber?
    Mr. Daggett. We did a study last spring for Senator Conrad 
that addressed specifically that question. And what we did was 
look at not only the missile force, Minuteman III ICBMs versus 
Trident 2 submarine launched missiles, but also looked at the 
bomber force, and what we found was that the cost per warhead 
depends on warhead loadings, and they can be quite variable. So 
that is the big variable factor in this.
    Ms. Lummis. And excuse me for interrupting, but I am really 
more interested in the delivery system.
    Mr. Daggett. Yeah.
    Ms. Lummis. The delivery vehicle rather than the warheads, 
because I know you can load multiple warheads on one delivery 
vehicle.
    Mr. Daggett. Yes, you can. Well what we found was that each 
Minuteman III missile costs about $2.9 million per year in 
acquisition and operating costs. Each Trident 2 missile costs 
about $10.5 million per year, but again, if you look at warhead 
costs that evens out because the Tridents deploy somewhat more 
warheads than the Minuteman do.
    Ms. Lummis. Well and I recognize the role of bombers and 
submarines in our nuclear posture, but the ICBM force possesses 
unique characteristics, the land deterrents and stability to 
ourselves and other nuclear powers around the world. The silo 
locations are publicly known, yet because they are so dispersed 
they make a preemptive or disarming attack almost impossible in 
today's world. So our ICBM forces contributed to global 
stability for decades, and I have been visiting with Air Force 
officials and they confirm that they remain vital to our 
national security.
    And so I just wanted to point out that as between the two 
warhead delivery platforms that we get a lot of bang for our 
buck without, you know, butchering that term.
    My next question, Mr. Daggett is also for you. If you look 
at the larger defense budget. Your testimony mentioned that the 
Administration's current defense plan differs significantly 
from the needs articulated by the Joint Chiefs of Staff last 
December in their own defense plan. For 2010 alone the Obama 
Administration has requested a 2.5 percent increase in the 
defense funding while the Joint Chiefs called for a 12 percent 
increase.
    Do you know what underlying defense policy differences 
account for this discrepancy, 2.5 versus 12 percent?
    Mr. Daggett. No, I didn't do those numbers. I did not look 
at specifically the difference between those earlier plans.
    I do know that there was some discussion early in the year 
of a request that DoD presented to the Office of Management and 
Budget for I think it was a $57 billion increase in the top 
line, and that may be what that is referring to. That top line 
increase though was in large part involved taking into the base 
budget costs that earlier had been in the supplementals. About 
$30 billion of that 57 billion additional amount, as I 
understand it, was simply to take in house into the base budget 
costs of Iraq and Afghanistan, and OMB did not sign off on 
that. So there was a much smaller real additional increase in 
the top line.
    Some of the proposals did involve increases in Air Force 
and Navy acquisition accounts. Biggest increases in Navy 
acquisition accounts on the order of $5-$6 billion a year I 
think. I don't know precisely what those changes were for.
    Ms. Lummis. Okay, thank you. Mr. Goldberg, you mentioned in 
your testimony that the Obama Administration has not submitted 
the customary FYDP for 2010?
    Mr. Goldberg. Yes.
    Ms. Lummis. And that you had to rely on press releases and 
briefing papers in addition to the 2010 budget request by the 
last Administration's FYDP, so I have a two pronged question.
    Has the Administration provided justification for not 
submitting a FYDP? And has not having a FYDP posed extra 
challenges to your agency in formulating long-term projections?
    Mr. Goldberg. Yes, ma'am. The Administration justified not 
submitting the FYDP because it was a new Administration. They 
came in within a month or two of the inauguration they had to 
present a budget and there just wasn't enough time to present 
more detail than beyond the 2010 single budget year.
    Has it posed challenges to us? Absolutely. Because 
ordinarily we have five years or six years of at least a plan. 
There were out year funding numbers in there that of course 
won't be enacted until future sessions of Congress. So they are 
placed in their plan, they are not actual commitments by 
anyone, but nonetheless it gives us a good idea where the 
Department thinks they are going, where they would like to go. 
And so our projection was much more difficult this year by not 
having that.
    If I could also add, there is one other thing that was 
missing, is called the Selected Acquisition Reports, the SAR, 
the SARs, which are produced periodically, but the full reports 
come out at the end of every calendar year, every December. 
December of '07 was the last time the Department produced SARs. 
There were no December '08 SARs.
    What they do is they give cost schedule technical 
challenges basically every major acquisition program. There 
would be one for the FCS, there would be one for the joint 
strike fighter, et cetera at that level, and having that 
information every year refreshes our knowledge of those 
particular programs, and that again was not submitted this year 
and has been a hindrance.
    Ms. Lummis. So when you haven't had SARs for that long how 
do you make those projections? And what is the justification 
for going since '07 without SARs?
    Mr. Goldberg. Actually, I would suggest, if I could defer 
that question for your session next week with the DoD 
comptroller. I presume it would be the same justification. So 
many things were changed in the April announcements by 
Secretary Gates and the subsequent budget submissions, a lot of 
programs had to recalibrate and that information is just not 
yet reflected in a fresh set of SARs.
    Ms. Lummis. Okay. I know that I am asking the wrong person, 
but the SARs weren't even coming from the previous 
Administration it sounds like. Excuse me, Mr. Chairman, my time 
is up.
    Chairman Spratt. Just for clarification. Not having a FYDP 
in transition year is pretty standard procedure.
    Ms. Lummis. Okay.
    Chairman Spratt. 2001 the Bush Administration didn't have 
one. And frankly Cheney admitted in late June that one reason 
he dragged his feet in presenting a FYDP, a budget, to pull up 
budget for that year the President asked him to do so until he 
could get his tax cuts passed.
    Ms. Lummis. Until he could get his tax cuts?
    Chairman Spratt. Tax cuts passed.
    Ms. Lummis. Okay.
    Chairman Spratt. Bush didn't have one in '01, Clinton 
didn't have one in '93. It is not uncommon, because they would 
be adopting somebody else's budget. They would rather put in 
place their own full up budget and that is part of the reason 
for the delay.
    Ms. Lummis. Okay. Thank you, Mr. Chairman. And why would 
the SARs, these----
    Chairman Spratt. Selected Acquisition Reports?
    Ms. Lummis. Yeah. Why would they not come in '08 and '09? I 
mean those would have been prepared by the previous 
Administration.
    Chairman Spratt. Well SARs should come every year.
    Mr. Goldberg. If I could, Mr. Chairman. The SARs would be 
as of December '08, but would be released perhaps a month or 
two later and concurrent with the budget and they were not this 
year.
    Chairman Spratt. Well they come annually.
    Mr. Goldberg. Yeah, they are quarterly SARs, but the ones 
that are meaningful, the annual ones, and their information as 
of December and they might typically be released a month or two 
later. So the December '08 SAR would have been released early 
this calendar year. Should have been and wasn't.
    Ms. Lummis. So would that have been held back by this 
Administration, or prepared by the last Administration and then 
this Administration said whoa up, we don't know if we agree 
with that? Is that----
    Mr. Goldberg. I believe that is right. I believe that the 
current DoD under secretary comptroller----
    Chairman Spratt. Well I tell you what, we are going to have 
Mr. Hale as a witness, and you can----
    Ms. Lummis. Sorry, Mr. Chairman.
    Mr. Goldberg. I believe it is Mr. Hale's----
    Ms. Lummis. Okay. Thank you.
    Mr. Goldberg [continuing]. Province there.
    Chairman Spratt. Mr. Etheridge.
    Mr. Etheridge. Thank you, Mr. Chairman, and let me thank 
you for this hearing. Let me thank both of you gentlemen for 
being here today.
    My question is going to be a little different because I 
have a privilege of representing two very active bases. Fort 
Bragg in North Carolina and the Pope Air Force Base that is 
adjacent that does the lift.
    So my questions are this, because they are critical areas 
as it relates to what they do, wherever they may be sent. And 
in both of your testimonies you list factors that are driving 
up the cost of our national defense. In each case the majority 
of the factors are related to increase in weapons cost. Mr. 
Daggett had four of six, I believe that is correct, and Dr. 
Goldberg had three of four. And as I said, as it relates to the 
areas I represent, as well as a significant number of guard and 
reservists who now find themselves serving in various places 
around the world, I am very concerned about being able to meet 
the needs of those men and women when we ask them to go that 
they have the resources.
    So my question is, what constraints will our defense budget 
face as we thrive to continue to meet the obligation of those 
who are protecting our Nation? You talked about the increase in 
costs, but what are those constraints?
    And second, let me move to the second part of that, and 
hopefully both of you can take a shot at that. The BRAC process 
has also contributed to some of the increased costs in 
operation and support, and there continues to be a significant 
need tied to those BRAC operations, specifically at Fort Bragg 
and other places where you have major movements into housing, 
schools, infrastructure needs.
    And my question is what do you think the long-term impact 
of BRAC will be on the defense budget, and how do we make sure 
that sufficient funds are there as we are looking to increasing 
costs as these bases are charged like Fort Bragg to meet their 
ever increasing roles and responsibilities in our national 
defense? Whoever wants to start first.
    Mr. Goldberg. If I could respond to you first, Mr. 
Etheridge.
    First thing about the constraints on our personnel, I am 
not speaking for the Defense Department, but what we have all 
heard is that it is a big concern for them. And one of the 
concerns is dwell time so that the soldiers coming back to 
places like Fort Bragg have a year at home, and another concern 
is the stop loss, extending folks deployments when their 
contracts are over. And in some statements, again, I don't 
represent Secretary Gates of course, but in some statements he 
made in April, Secretary Gates expressed concern about a desire 
to end stop loss and a desire to get out of dwell time, and for 
that reason he also talked about temporarily increasing the 
Army's in-strength by another 22,000, I believe, 22,000 people 
in Fiscal Years 2010, 2011, and 2012.
    So the Secretary's statement was that in Fiscal 2010 that 
money was supposed to be taken out, he wasn't asking for any 
additional funding to support those folks, and it remains to be 
seen how that would be funded in 2011 and 2012.
    So an issue that will then come before the Congress is in 
order to keep those 22,000 troops in the Army for the purposes 
of fully populating units so that the deployment soldiers get 
dwell time and to avoid stop loss. The trade off we face is are 
we willing to fund those 22,000 troops? I think that is one of 
the biggest issues.
    Mr. Etheridge. Yeah. Mr. Daggett?
    Mr. Daggett. Yeah, let me echo that on personnel. The big 
question on personnel is just how the pace of operations is 
affecting individuals and their families. And a lot of what DoD 
has been doing has been aimed at ameliorating that problem both 
in the short term and the long term. The increases in the size 
of the Army and the Marine Corps in particular were designed to 
fill out deployable units so that it would be less disruptive 
on other units when you deploy one unit forward. They have 
actually found it is more difficult even than they thought.
    So the most recent decision in April was to reduce the 
number of combat brigades in the active duty force from 48 down 
to 45 so they could all be fully manned and/or be ready for 
deployment. That is a difficult problem.
    Mr. Etheridge. But in that whole process we are actually 
using our guard and reservists at a much more rapid rate and 
they are becoming part of that same force.
    Mr. Daggett. Yeah. Well they are now becoming part of the 
rotation base, yes.
    Mr. Etheridge. Yeah.
    Mr. Daggett. And to the extent that we maintain the current 
level of deployments abroad in Iraq and Afghanistan it is going 
to continue to be a strain on the reserves just because the 
active duty units can't do it all.
    So I think you are right, that strain can only be 
ameliorated in the long term by reducing the forward 
deployment, but reducing deployments to Iraq and Afghanistan. 
We are in process in that in Iraq. It will be offset to some 
degree by increases presumably in Afghanistan if there is a 
decision to go in that direction, but I don't think anybody 
foresees deployments in Afghanistan equaling the level in Iraq. 
So the situation should get somewhat better over time, but I 
mean, that is the real pressing issue for DoD.
    What we have seen lately by the way is that you know DoD is 
always tracking very closely retention rates and accession 
rates of new personnel, and they have both been doing pretty 
well lately. Now part of that is the economy. When the economy 
is bad being in the military and signing up looks better. But I 
think part of it is also that people are looking--military 
families on retention rates in particular--military families 
are looking ahead to things easing up a bit. If it doesn't, if 
it gets worse then we could face a real crunch, yeah. And we 
look very closely at that too. It has been a real matter 
concern since 2005.
    Let me say that the Army by the way when we looked at the 
retention recruitment rates in 2005 we were all very concerned 
that the Army was going to have a bad problem with it, and they 
took a number of steps to try to handle it, including you know, 
accelerating some changes in the force structure, including 
dramatic increases in re-enlistment bonuses and things of that 
sort, and to some degree reducing requirements for new 
personnel. And there was a price to pay, and that the quality 
of personnel declined to some extent, but they ended up meeting 
their target.
    So the Army did its thing, and you know, by every account 
deserves immense credit for the way in which they were able to 
do it. But can they manage that over the long term? It is still 
a pressing concern, yeah.
    You commented on base realignment and closure as well. Let 
me say one thing about that. You know base realignment and 
closure funding are provided out of a separate account in the 
military construction budget. So presumably that is a given 
amount, and it is supposed to be provided on a regular basis to 
carry on the activities that are identified with base closure.
    This last round of base closures had a very high investment 
cost associated with it, and part of it was it was done not 
just for reasons of efficiency, but also for security reasons 
and things of that sort. So the cost associated with this round 
make me question whether in the long run the savings will 
offset what the investments had been.
    In the past the evidence is pretty clear that in the very 
long run at least, we don't have precise measures, but the 
ultimate operating costs have exceeded the initial investment 
costs, so we have gained something by base closure rounds. This 
last round was relatively expensive though. I am not sure what 
the outcome of that will be.
    Mr. Etheridge. And we are not through yet. Thank you, Mr. 
Chairman.
    Chairman Spratt. Mr. Edwards.
    Mr. Edwards. Thank you, Mr. Chairman.
    Let me first make an observation as we are talking about 
defense and budgeting. A number of my Republican colleagues in 
the House back in 2001 and through the Bush Administration were 
the architects, some on this Committee, the architects have 
frankly taken the largest surplus in American history and 
turned it into the largest deficit in American history.
    Then with the new Democratic President I have heard a lot 
of focus on reducing the deficit, and yet some of these same 
Republican colleagues have criticized the democratic health 
care proposals because they are too expensive and also because 
they reduced spending for Medicare.
    Mr. Ryan said earlier that it is important to put things in 
perspective in talking about the cost to the Iraq and 
Afghanistan war. It is a fair comment to make.
    I would just add to that perspective that that $155 billion 
a year, as I understand it, is almost twice the annual cost of 
the health care plan passed out of Senate Committee yesterday 
intending to provide health care for the vast majority of 
Americans, so I would put that perspective to it.
    I think what surprises me is not that a number of our 
Republicans colleagues would support General McCrystal's 
increase in troops and Afghanistan, ultimately I believe that 
defense decisions must be made based on the importance of the 
mission, and I agree with Mr. Ryan that our national defense is 
our number one priority.
    What surprises me though is that the Republicans have 
raised questions about million dollar expenditures here and 
there, seemed to have not asked too many questions. I certainly 
haven't read about it, about the cost of General McCrystal's 
proposal for increasing the number of troops in Afghanistan by 
40,000. That seems completely inconsistent with their new found 
focus on trying to reduce the deficit that in my opinion many 
of them helped create with their irresponsible budgets of tax 
cuts during a time of war and defense build up.
    I would like to go to you, Dr. Goldberg, on this issue and 
follow up on some of the questions that Mr. Doggett was asking 
of Mr. Daggett.
    Has the CBO analyzed what the additional costs would be in 
defense spending of following General McCrystal's proposals of 
adding 40,000 troops to Afghanistan?
    Mr. Goldberg. We have not been requested to do that 
analysis.
    Mr. Edwards. You have not been requested. Now, Mr. 
Chairman, I hope perhaps as Budget Committee Chairman and 
perhaps in conjunction with Mr. Ryan that that would be a fact 
basis that I think would be very, very important for the 
Congress to take a look at.
    So have you personally analyzed in any way some of the 
other estimates that for every soldier or service men or woman 
we have in Afghanistan that it costs about a million dollars?
    Mr. Goldberg. What I would have to say is that since most 
of our focus has been on Iraq, since Iraq has been the bigger 
operation until now, we have not distinguished the cost per 
servicemember between the two theaters. If we were to receive a 
request to look specifically at Afghanistan we would attempt to 
make these distinctions and find it.
    Mr. Edwards. Okay. Okay. Then Mr. Daggett, I may go to you, 
and I hope we will put in a request to CBO to analyze it. While 
it is not necessarily the final determining factor on whether 
we add troops in Afghanistan, for anyone who is serious about 
the deficit certainly it is a factor we ought to consider.
    Mr. Daggett, you said that if we doubled the number of 
troops in Afghanistan that would come to about $7.2 billion a 
month; is that correct?
    Mr. Daggett. That is a good back of the envelope 
calculation, nothing more than that.
    Mr. Edwards. So that is about $86.4 billion a year 
according to my envelope math here. To put that in perspective, 
I believe that is more than the proposed cost of the Senate 
health care plan that passed out of the Senate Finance 
Committee yesterday.
    Let me ask you this. If you estimate $1 million per service 
man or woman in Afghanistan, I think you referenced another 
person's study to that, and if you had 68,000 troops today and 
added another 40,000 that would be say approximately 108,000 
troops. If you used $1 million per service man or woman that 
would actually be $108 billion a year.
    Mr. Daggett. Right.
    Mr. Edwards. Could you explain the difference between the 
86 billion the 108 billion dollars?
    Mr. Daggett. Fiscal Year 2009 versus Fiscal Year 2010. The 
burn rate of 3.6 billion per month is the Fiscal Year 2009 
average through July. We have just passed the Fiscal Year 2010 
budget which includes about--or we are just in the process of 
passing it--includes about $130 billion for contingency 
operations, of which about $68 billion is for Iraq in 2010. 
That is for a troop level of about 68,000. So $1 million per 
troop.
    So if you use that as the basis for saying if you add 
40,000 troops you would be up to 108,000. If the cost per troop 
remains the same I am not sure it is safe to assume that. You 
have got a lot of the infrastructure already in place. It could 
go over that.
    Mr. Edwards. But it could be over $1 billion or trillion 
dollars over a decade. Thank you.
    Mr. Daggett. Sure, I would say that is the upper limit.
    Mr. Edwards. Okay, thank you, Mr. Daggett. Thank you, Mr. 
Chairman.
    Chairman Spratt. Mr. Scott.
    Mr. Scott. Thank you, Mr. Daggett, I would just follow up 
on that. You are using the million dollars per troop and that 
is what you call the burn rate. What portion of the cost of the 
troop is not spent this year? That is to say you have got 
disability, you have got mental health, you have got equipment 
to be replaced and everything else, what portion of the total 
kind of life cycle costs would be added to the million a year?
    Mr. Daggett. Your point is a good one. The costs that we 
talk about are the incremental costs of the operation. 
Incremental now being broadly defined, but it is still the cost 
of deploying a troop to Afghanistan over and above the cost of 
keeping the same service member in Fort Hood or whatever. And 
that is a limited part of the total cost of the service member 
over the total whole, you know, lifetime of a service member. 
So there are follow on costs for Veterans Administration 
benefits and so on.
    Some of those are incorporated. Because a service member 
pay and benefits include contributions to the military 
retirement fund for retirement costs and for these days 
concurrent receipt of military retired pay and VA disability 
benefits, right? So some of those long-term costs are included 
in the current pay of personnel. We do it on an accrual basis. 
We pay now. The actuarially determined future costs of current 
personnel, right? But to some extent they are not captured. The 
Veterans Administration budget, which provides medical care for 
veterans after their service is completed, is not covered by 
that, and that will be an additional expense. I don't have good 
numbers on that.
    Mr. Scott. I mean is it half, one-tenth? I mean, any idea?
    Mr. Daggett. Well the VA budget this year is about $80 
billion compared to a defense budget of what, 530 billion, so 
that is what about not 20 percent, 16 percent, something like 
that, 16 percent of the budget. That may be a fair calculation.
    Mr. Scott. And what about equipment reconstitution?
    Mr. Daggett. Yeah.
    Mr. Scott. They are wearing out equipment?
    Mr. Daggett. Yeah. The figure $68 billion is the estimated 
cost in Fiscal Year 2010. That includes funding for equipment, 
including for reset and other purposes. That does include an 
investment piece of it, not just the operating costs.
    Mr. Scott. In terms of cost per troop the gentleman from 
Texas, Mr. Doggett, mentioned the cost for an Afghanistan troop 
being essentially de minimis compared to an American troop.
    Mr. Daggett. Yeah.
    Mr. Scott. And talked about other support staff. What is 
the economic impact on contracting out rather than using 
troops? I know when we used contracting out when I was in the 
National Guard you thought you were talking about KP so you 
didn't have to peel potatoes.
    Mr. Daggett. Right.
    Mr. Scott. But they are actually doing what are essentially 
military functions now. What is the budget impact of 
contracting out, particularly when you are contracting out to 
sole source providers without much limitation on what they are 
charging?
    Mr. Daggett. Yeah. There are as many contractors in 
Afghanistan working for the United States now as there are 
service members or more. It is part of the cost.
    When we talk of the cost of $1 million per troop that 
incorporates the cost of support activities, including 
contractors who do food services and transportation and to some 
degree security and so on. Although many of them receive lower 
pay than military personnel members.
    Mr. Scott. And some receive higher pay.
    Mr. Daggett. A few do for security. When it is a U.S. 
personnel for security activities and things of that sort, yes, 
but actually the bulk of most contractors in Afghanistan are 
third-country nationals, are neither U.S. nor Afghans, they are 
from places like the Philippines or the Persian Gulf countries 
and so on.
    You know, the net effect of contracting out service 
activities is a matter of some debate, because it is been a 
very high cost. The premise is it is cheaper to contract out on 
a temporary basis even if you pay a premium for it than it is 
to maintain in the force the permanent structure that would be 
necessary to carry out those operations.
    Mr. Scott. Which goes back to the first question I asked.
    Mr. Daggett. Yeah. Which is how much more are the costs? 
Yeah.
    Mr. Scott. When you said asymmetrical challenge, were you 
talking about the use of 100,000 troops in Afghanistan to chase 
after 100 Al Qaeda members?
    Mr. Daggett. Irregular warfare is one means of asymmetric 
conflict, yes. You know, what Hezbollah does in Israel is an 
example of asymmetric warfare. They are using less 
technologically sophisticated means than the Israelis have, but 
to pose a real military challenge. So I think it is 
incorporated, yeah. And any future foe, Iran, would use all of 
the means at their disposal in a conflict with the United 
States, including those kinds of irregular activities; use of 
terrorist attacks, yes.
    Chairman Spratt. Are there any other questions? Mr. 
Yarmuth.
    Mr. Yarmuth. Thank you, Mr. Chairman. I think we are 
obsessed with this line of questioning, but I want to pursue it 
just a little bit further.
    Apparently looking at the data, the actual O&M for an 
individual, an American troop is something like a little over 
$100,000 a year; is that correct?
    Mr. Daggett. A pay plus directly related O&M.
    Mr. Yarmuth. Benefits.
    Mr. Daggett. It is actually more like 120or 130,000.
    Mr. Yarmuth. Okay, 120-, 130-. And then we are talking 
about $1 million cost per year in the field.
    Mr. Daggett. Right.
    Mr. Yarmuth. We have kind of talked around it. What are the 
components that take 120,000 person to a million dollar person?
    Mr. Daggett. If you want to take a cut at that I would be 
happy to have you do it, but it is hard to get there 
admittedly.
    My colleague, Amy Belasco, in particular has taken a very 
close look at that, and it incorporates acquisition, it 
incorporates investment accounts. We are buying very large 
numbers of MRAPs, investing a lot in IED defense and things of 
that sort, large acquisition of new systems for UAVs for 
intelligence and reconnaissance activities and things of that 
sort; all of that is included.
    The operating costs include though, you know, the cost of 
deploying forces in a war zone that is very difficult to get 
to, so it has very high transportation costs, and of hiring 
contractors who are expensive as well to carry out support 
activities.
    That said, you know, if you compare costs in Iraq and 
Afghanistan recently to costs of earlier operations in Bosnia 
and Kosovo or Haiti or Somalia before there, it is just vastly 
more expensive now than it has been in the past.
    Mr. Yarmuth. Uh-huh.
    Mr. Daggett. It has jumped up not quite expediently, but 
almost. And I think that is to be explained. That is a matter 
of ongoing discussion, yeah.
    Mr. Yarmuth. So is there ever a point in which there is an 
economy of scale? You know, if there were a million troops 
would it still be $1 million a person?
    Mr. Daggett. No, there has to be an economy of scale, and I 
think if there is an increase of 40,000 troops in Afghanistan 
that would begin to show up. It costs a certain amount just to 
have the infrastructure--support infrastructure established in 
the region, build the bases, have the transport facilities 
elsewhere. It is not just in Afghanistan, it is elsewhere, and 
we have made a big investment already in doing that.
    Mr. Yarmuth. Dr. Goldberg, would you want to comment on 
that?
    Mr. Goldberg. I could just amplify, I don't fundamentally 
disagree with anything that Steve has said. But when you think 
about the O&M costs per soldier in the theater, which I think 
was the thrust of your question, there is transportation to and 
from the theater, there is all the fuel, there is--you know we 
drive tanks--well we don't have tanks there, but you know we 
drive armored vehicles many more times the mileage in theater 
than we would in home station. And not only that, but the 
conditions are much worse; the sand. And we fly helicopters a 
lot more than we would during peacetime. There is the cost for 
providing fuel, water, food, a lot of which is shipped in. The 
transportation is contractors who do that kind of work. And 
then there is a lot of costs when the equipment gets sent back 
home and it has been beaten up from all that use and it has to 
go to the depots and get refurbished. That is also an O&M 
funded activity. It is really a lot of things.
    Mr. Yarmuth. So it really doesn't matter where that troop 
comes from, if it is a new enlistee, new trainee going to 
Afghanistan, Iraq, or shifted from another theater, it is still 
going to be the same essential cost.
    Mr. Goldberg. The cost of the soldier is actually the 
smaller part of it.
    Mr. Yarmuth. Uh-huh.
    Mr. Goldberg. And in fact the basis salaries are already in 
the regular budget. The only part that you would see, formally 
is supplemental and what is called the OCO, the Overseas 
Contingency Operation, explicit budget would be the special 
pays for serving in the combat theater and the activation costs 
for reservists would otherwise be home. The base pay is already 
provided. So all you are seeing in the contingency costs are 
the extra pays, but you are seeing this huge chunk of 
operations and maintenance costs for these types of things we 
have been describing, including sending equipment back home for 
up to a two-year lag process to repair it or replenish it.
    Mr. Yarmuth. I am going to try to ask a quick question with 
the 40 seconds, you may not be able to get at this.
    But with the projected increase we have experienced 
already, the increase in health care cost for military back 
here and so forth and the projected increase, the $64 billion 
you said in another five years, if we adopt health care reform, 
have you taken a look at the health care reform proposals to 
see if in fact they are successful in bending the health care 
cost curve that it could have a beneficial impact, a positive 
impact on military health care expenditures?
    Mr. Goldberg. It could, but it is not automatic. If the 
Chairman would let go over a minute or two I would like to 
answer.
    You could look at the supply side, the providers of health 
care and their incentives and you can look at the demand side, 
how much care people demand. One of the big initiatives on the 
supply side is what if you had health information technology, 
electronic medical records? DoD already has health information 
technologies. It is probably not as good as what the VA has, 
but the problem is that for that to really work and save costs 
it has to be interoperable nationwide.
    So you have to realize that a lot of service members get 
part of their care through TRICARE, a retired service member 
will get part of the care through TRICARE and part through the 
private plan provided by his or her civilian provider. Can they 
exchange data electronically? If that can happen that will help 
bend the curve. If not it is much harder. And this is a problem 
that is endemic to big health care reform for the whole country 
as well, not just having electronic records, but making it 
interoperable so one provider can view the other.
    On the demand side the issue there is giving us as 
consumers incentives to economize on our health care. Not to go 
to the doctor every time for a minor problem that maybe would 
get better on its own. It has been difficult to DoD to manage. 
And one reason the TRICARE costs have grown so rapidly, as 
Steve pointed out, is that many of the fees that the military 
beneficiaries retires pay have been frozen. For three years in 
a row DoD requested fee increases that the Congress shot down. 
It is very hard to get folks to control utilization when they 
don't face co-payments.
    Chairman Spratt. To our two witnesses, Mr. Daggett, Mr. 
Goldberg, thank you very much in deed for excellent 
presentations and for your painstaking replies to everyone's 
questions. We very much appreciate it and we will be calling 
upon you again in the forthcoming future I am sure as these 
numbers develop.
    Mr. Ryan, do you have anything?
    Thank you again, and this adjourns the hearing.
    [Questions submitted by Mr. Aderholt and their responses 
follow:]

             Responses to Congressman Aderholt's Questions
                    for the Record From Mr. Goldberg

                                question
    1. Why, in your view, do the costs of weapon systems nearly always 
outpace the estimates for them? What are the major factors that 
contribute to that pattern?
                                response
    One factor in cost growth is that the system's requirements are not 
yet locked down at the time the initial procurement estimate is made. 
So-called ``requirements creep'' can lead to costs that increase faster 
than the program office's projections. In turn, additional requirements 
may lead to increases in volume or weight that are difficult to 
accommodate in a platform's initial design. The classic example of 
weight growth and its consequences occurs in fighter aircraft, 
necessitating either: (a) a degradation in performance characteristics 
such as range or maximum speed, (b) larger (more expensive) engines to 
compensate for the higher weight, or (c) a systems engineering effort 
to moderate the increase in weight.
                               questions
    2. In your testimony, you discuss the costs of the Administration's 
new plan for ground-based missile defense systems in Eastern Europe? 
How much does this new plan cost compared to the plan proposed by the 
Bush Administration?
    3. We have to either build new ships or reassign ships from 
current, important missions in order for them to be stationed as 
missile defense ships in this region. What would be the cost of those 
ships and the personnel who man them?
                               responses
    Combined response to questions 2 and 3:
    In April 2009, Secretary of Defense Gates announced plans to freeze 
the current number of ground-based interceptors in Alaska as part of 
the ground-based midcourse missile-defense (GMD) system that is 
intended to defend the United States against limited ballistic missile 
attacks from North Korea or Iran. The plan would continue funding 
research and development to improve the nation's ability to defend 
against long-range ballistic missiles. Secretary Gates also announced 
plans to upgrade six U.S. Navy Aegis warships to perform the ballistic 
missile defense mission at a total cost of $200 million. Moreover, on 
September 17, 2009, President Obama announced his cancellation of the 
previous Administration's plans to field a high-resolution tracking 
radar in the Czech Republic and to deploy 10 ground-based interceptor 
missiles in permanent silos in Poland. In its place, the President 
proposed a four-phase plan. Phase One would rely on Block IA of the SM-
3 missile, which would be deployed on existing Aegis warships; Phase 
One would also base an AN/TPY-2 radar in Europe to provide early 
detection and tracking of ballistic missiles if launched toward the 
United States. Phase Two would entail both sea- and land-based 
deployment of a more-capable Block IB version of the SM-3 missile. 
Phases Three and Four would involve Block IIA and Block IIB missiles 
that are still under development.
    The budget implications of the new plan for missile defense in 
Europe are the net sum of the costs avoided by not fielding the 
original system and the costs incurred by fielding the SM-3 based 
defenses instead. Note that cost estimates are preliminary because the 
Administration has not yet fully formulated and announced its new plan.
    CBO estimates that about $1.5 billion in costs would be avoided by 
not fielding two-stage interceptors in Poland and by not fielding the 
European Midcourse Radar in the Czech Republic.
    The costs associated with fielding SM-3 based defenses in Europe 
would depend on how the plan was implemented. The biggest variable in 
the cost is whether or not new ships would be purchased to operate at 
fixed stations in Europe. Maintaining continuous coverage in three 
locations would require a total of nine ships (for each ship deployed, 
another would be undergoing maintenance and a third would be in use for 
training). If the Navy were to procure nine Arleigh Burke-class 
destroyers for the mission, the total cost would be about $19 billion. 
However, it could be possible to perform that mission with less costly 
ships. For example, littoral combat ships cost about $560 million each; 
a specially developed Aegis module consisting of a version of the SPY-1 
radar and vertical launch system cells would add about $90 million per 
ship, CBO estimates. The total cost for nine such ships would be about 
$6 billion.
    Rather than building new ships dedicated to the missile defense 
mission, and consistent with the Secretary of Defense's announcement in 
April 2009, the Navy could upgrade existing warships (or proposed 
warships that would have been built to perform other missions) to 
provide missile defense. The fiscal year 2010 request for $200 million 
to convert six warships may be viewed as a first installment in 
pursuing the latter approach; the total cost for nine ships would be 
about $300 million. In that case, however, the Navy would forgo the 
possibility of deploying those ships to other locations in the world 
where they could perform other missions.
                      questions for both witnesses
    1. How much is the delayed procurement process of the new Air Force 
Tanker costing the taxpayer? How much is the extended procurement 
process costing? How much more will U.S. taxpayers pay to maintain the 
existing tanker fleet?
                                response
    The delays in the tanker replacement program have resulted in lower 
near-term costs for the Air Force. The Air Force has already retired 
nearly all of its KC-135E aircraft, the most expensive-to-operate 
version of the KC-135 remaining in the force. Based on data from 2008, 
CBO estimates the full-year cost in 2009 to operate the KC-135Rs that 
remain in the tanker fleet at over $3 billion. At a production rate of 
15 KC-X aircraft per year--as was indicated in the FY2009 budget 
request, prior to GAO upholding Boeing's protest of the contract award 
to the Northrop Grumman team--procurement of new tankers alone would 
cost about $3 billion per year. That cost would be added to the 
operations costs for those new aircraft as well as for the KC-135Rs 
that are yet to be replaced. Even without delays in the replacement 
tanker program, the KC-135Rs would continue to be the most numerous 
tanker for many years to come, and the Air Force would continue to 
incur the cost to operate those that remain.
    The extent to which delays in the tanker replacement program will 
result in different total costs over the entire program is uncertain. 
It will depend on several factors including how costly the new tanker 
turns out to be, how many tankers will be needed to support an aviation 
force whose size and composition may change in the future, how busy the 
tanker fleet will be supporting operations, how the cost to operate the 
KC-135Rs will change over time as those aircraft continue to age, and 
how the cost to operate the new tankers will compare to the cost to 
operate the KC-135Rs.
                               questions
    2. You cited the underestimates, miscalculations and delays as 
reasons for the increased cost in the procurement process? What changes 
are being made in the procurement of new military equipment to ensure 
such a delay does not happen again? What had DoD learned from the USAF 
Tanker procurement debacle?
    3. What cost-saving measures, if any, are currently being utilized 
by DoD to counter these ballooning costs?
                 combined response to questions 2 and 3
    Public Law 111-23, the Weapon Systems Acquisition Reform Act of 
2009, enacted some changes that may help contain cost growth and ensure 
that initial cost estimates are reasonable and planned schedules are 
feasible. One important change was the redesignation of the Director, 
Program Analysis and Evaluation (PA&E) as the Director of Cost 
Assessment and Program Evaluation (CAPE). The law contains provisions 
to strengthen and clarify the roles and missions of that office. In 
addition, by imposing a requirement for CAPE to report annually to the 
Congressional defense committees, the law provides a mechanism for 
closer Congressional oversight of acquisition programs. However, it is 
too soon to tell how effective the law will turn out to be. The new 
tanker competition may provide one of the first tests of these changes. 
Although current plans call for the Air Force to manage the program, 
active oversight by offices such as CAPE should be expected.
                                question
    4. Currently, one bidder for the tanker has the pricing data from 
the other bidder (from the first round of bidding), but the other 
bidder does not have the pricing data from the first company. Do you 
know of any other major procurements in the past twenty years in which 
this was the case?
                                response
    CBO is not aware of any other major procurement in the past twenty 
years in which one bidder had the pricing data for the other bidder, as 
is currently the case in the tanker program.
                                question
    5. While the base budget does not directly fund the wars in Iraq 
and Afghanistan, how will the President's request of a 2.5 percent 
increase in defense spending indirectly affect our troops in those two 
countries as compared to the 12 percent increase suggested increase 
from the Joint Chiefs?
                                response
    There would likely be little difference to our troops deployed to 
Iraq and Afghanistan whether the increase in regular defense spending 
were 2.5 percent or 12 percent. The costs of overseas contingency 
operations are funded separately from the regular defense budget. One 
possible indirect effect of higher regular defense spending would be if 
the military services (principally the Army) increased end strength so 
that soldiers would have more ``dwell time'' in the U.S. to recover 
between deployments. However, Secretary of Defense Gates has already 
announced a temporary increase in active Army end strength from 547,000 
to 569,000 through fiscal year 2012, to be funded (at least through 
2010) in the regular defense budget without requesting any additional 
budget authority. Additional funding is apparently not necessary to 
increase dwell time.

             Responses to Congressman Aderholt's Questions
                    for the Record From Mr. Daggett

                                question
    You cite the ``inaccurate and apparently worsening estimates of 
weapons costs'' and ``schedule delays'' as a reason for the increased 
cost of defense. Can you please give a few examples of such poor 
estimates and delays? What is the Pentagon doing to correct these 
problems?
                                response
    For the past several years, the Government Accountability Office 
has prepared annual assessments of the status of Defense Department 
Major Defense Acquisition Programs (MDAPs), based on DOD Selected 
Acquisition Reports.\1\ The following table summarizes GAO's findings 
in its two most recent reports:

                        GAO ANALYSIS OF DOD MAJOR DEFENSE ACQUISITION PROGRAM PORTFOLIOS
                                           [Fiscal Year 2009 Dollars]
----------------------------------------------------------------------------------------------------------------
                                       Fiscal year 2000   Fiscal year 2003   Fiscal year 2007   Fiscal year 2008
          Portfolio status                portfolio*         portfolio          portfolio          portfolio
----------------------------------------------------------------------------------------------------------------
Number of programs..................                75                 77                 95                 96
Total planned commitments...........     $807 billion*      $1.2 trillion      $1.6 trillion      $1.6 trillion
Commitments outstanding.............     $388 billion*       $724 billion       $875 billion       $786 billion
Change to total research and                27 percent         37 percent         40 percent         42 percent
 development costs from first
 estimate...........................
Change in total acquisition cost             6 percent         19 percent         26 percent         25 percent
 from first estimate................
Estimated total acquisition cost          $43 billion*       $183 billion       $301 billion       $296 billion
 growth.............................
Share of programs with 25 percent or        37 percent         41 percent         44 percent         42 percent
 more increase in program
 acquisition unit cost..............
Average delay in delivering initial          16 months          18 months          21 months          22 months
 capabilities.......................
----------------------------------------------------------------------------------------------------------------
Source: Data for FY2003, FY2007 and FY2008 portfolios from Government Accountability Office, Defense
  Acquisitions: Assessment of Selected Weapon Programs, GAO Report GAO-09-326SP, March 30, 2009. Data for FY2000
  portfolio from Government Accountability Office, Defense Acquisitions: Assessment of Selected Weapon Programs,
  GAO Report GAO-08-467SP, March 31, 2008.

*Note: GAO provided figures for the FY2003, FY2007, and FY2008 portfolios in FY2009 prices. CRS updated GAO's
  figures for the FY2000 portfolio from FY2008 constant dollars to FY2009 constant dollars using Department of
  Defense inflation indices.

    Some key conclusions are that:
     The cost of defense programs in DOD's FY2008 long-term 
acquisition plan grew on average by 25 percent over initial estimates, 
whereas the cost of programs in the FY2000 plan had grown by an average 
of 6 percent;
     42 percent of programs in the FY2008 plan grew by more 
than 25 percent over initial estimates, and 37 percent of programs in 
the FY2000 plan had grown by more than 25 percent;
     The average delay, compared to the originally planned 
schedule, in achieving initial capabilities was 22 months for programs 
in the FY2008 acquisition plan and 16 months for programs in the FY2000 
plan;
     The cumulative increase in the total cost of programs in 
the FY2008 plan amounted to $296 billion, in constant FY2009 prices, 
while the cumulative increase in the FY2000 plan amounted to $43 
billion.
    This is the basis for concluding that inaccurate and apparently 
worsening weapons cost estimates are a significant independent factor 
driving up the cost of defense.
    Examples of substantial cost growth and schedule delays include 
several of the most expensive and high profile programs in each of the 
military services. As discussed in GAO's March 2009 report, these 
include:
     F-35 Joint Strike Fighter: The F-35 is currently projected 
to be the largest U.S. defense acquisition program ever. The total 
acquisition cost of the program has grown from an initial estimate, in 
October 2001, of $206.4 billion in constant FY2009 prices, to an 
estimate in September 2008 of $244.8 billion, an increase of 18.6 
percent. In the mean time, the quantity to be procured declined from 
2,866 aircraft to 2,456. As a result, the program unit acquisition cost 
climbed from an initial estimate of $72.0 million per aircraft to $99.7 
million, again in FY2009 prices, an increase of 38.4 percent. As to 
schedule delays, as of December 2007, the projected Initial Operational 
Capability of the Marine Corps version of the program had slipped from 
April 2010 to March 2012, of the Air Force version from June 2011 to 
March 2013, and of the Navy version from April 2012 to March 2015. Cost 
growth and schedule delays appear to be continuing. In April 2009, 
Secretary Gates announced a decision to accelerate production of F-35s. 
Just a few months later, however, that plan appears to have slipped.\2\ 
In the mean time, independent estimates have projected additional 
increases in development costs of $15 billion or more, and the Defense 
Department is reviewing the status of the program.\3\ DOD remains 
committed to the aircraft, and with F-22 procurement limited, the F-35 
is the only fifth generation fighter that the United States plans to 
procure in large numbers. The growth in program costs, however, 
illustrates the trends that have made even a very substantial defense 
budget seem tight.
     Littoral Combat Ship: The LCS is a relatively small 
surface combatant, with comparatively high speed and maneuverability, 
designed to operate close to shore, and intended to be outfitted with 
specialized modules for a range of missions. Shortly after the 
inception of the program the Navy revised its requirements, and the 
projected cost has climbed substantially. The initial cost estimate, in 
May 2004, was $328 million per ship in FY2009 prices (though the 
estimate covered only the first 4 vessels). The latest official updated 
cost estimate, as of July 2008, is $560 million per ship (based on 7 
vessels), an increase of 70 percent. Specialists at the Center for 
Naval Analyses, the Congressional Budget Office, CRS, and elsewhere 
have commented that the initial cost estimates were far too 
optimistic--based on comparisons with costs of similar-sized foreign 
ships--even before the Navy added to requirements.\4\
     Army Future Combat System: The ground combat vehicle 
portion of the Army's FCS program was terminated in April 2009, though 
the Army was directed to pursue an alternative armored ground vehicle 
program that has yet to be fully defined. The overall Army FCS program 
encompassed 14 major systems and a number of support programs 
integrated into an overall system-of-systems design. The program 
intended to equip fifteen Army brigades with the full package of FCS 
components. The initial estimate, as of May 2003, was for a total 
program acquisition cost of $89.8 billion. As of December 2007, the 
estimated cost had grown to $129.7 billion, an increase of 45%. The 
planned deployment of the system had been stretched from an initial 
estimate of 8 years to more than 12 years.
    Why the Defense Department underestimates program costs, and what 
to do about it, has been a matter of more or less constant discussion 
for the past fifty years or more. The problem can be attributed to many 
factors. The most significant, by most accounts, is simply that there 
are strong incentives for program advocates in each of the military 
services--and in defense industry--to gain support for new programs by 
overstating performance and by understating cost, schedule, and 
technological risks.\5\
    Over the years, DOD leaders have implemented changes in acquisition 
procedures and created new organizational structures in an effort to 
control the problem by strengthening centralized oversight. Congress 
has occasionally enacted measures to reinforce such efforts.
     In 1962, Secretary of Defense McNamara established the 
Systems Analysis Office, which has since evolved into the Office of 
Program Analysis and Evaluation, with a mandate, in part, to oversee 
estimates of acquisition costs.
     In 1972, Secretary of Defense Laird established a separate 
organization, the Cost Analysis Improvement Group (CAIG), specifically 
assigned to oversee cost estimation procedures and to review service 
cost estimates.
     In 1983, Congress enacted measures to require independent 
cost estimates at key acquisition milestones.
     And in 1992, the Defense Department expanded the CAIG, 
gave it the task of preparing independent cost estimates, and clarified 
its other responsibilities.\6\
    Without these procedures, DOD's performance in accurately 
estimating costs might have been worse than it has been. Still, the 
process reforms and organizational changes that DOD has implemented do 
not appear to have corrected the problem and, in recent years, as GAO's 
reports have shown, cost estimates and schedule projections appear to 
have gotten worse, not better.
    Most recently, the Defense Department and the Congress have 
undertaken yet additional measures that are intended to improve the 
cost and schedule estimation process. In a few cases, the Defense 
Department has established independent teams--called ``Joint Estimating 
Teams''--to review cost and schedule projections for specific programs, 
to provide independent cost estimates, and to propose measures to limit 
cost growth. JETs have been established, for example, to review F-22 
and F-35 development, and, in both cases, the teams identified likely 
sources of additional cost growth. In addition, toward the end of the 
last Administration, DOD made a number of changes in defense 
acquisition regulations intended to correct some of the problems that 
appear to have contributed to cost growth.\7\ Among other things, the 
new regulations require reviews of engineering development plans early 
in the acquisition process and establish Configuration Steering Boards 
to review proposed technical changes in ongoing development projects 
with a view toward restricting unnecessary or overly expensive 
additions to requirements. In its March 2009 report on major 
acquisition programs, GAO endorsed these changes, saying,
    In December 2008, DOD revised its policy for major defense 
acquisition programs to place more emphasis on acquiring knowledge 
about requirements, technology, and design before programs start and 
maintaining discipline once they begin. The policy recommends holding 
early systems engineering reviews; includes a requirement for early 
prototyping; and establishes review boards to monitor requirements 
changes--all positive steps.
    None of these changes appear directly to address the key underlying 
problem, which is the strong incentives for the military services to 
promote unrealistic cost estimates in order to gain support for new 
programs. Congress, however, focused on that issue in the Weapon System 
Acquisition Reform Act of 2009, P.L. 111-23, that was enacted in May 
2009. Section 101 of the statute establishes a Director of Cost 
Assessment and Program Evaluation, to be appointed by the President and 
approved by the Senate, reporting directly and ``without obtaining the 
approval or concurrence of any other official within the Department of 
Defense'' to the Secretary of Defense. The Director's responsibilities 
include overseeing ``cost evaluation and cost analysis for acquisition 
programs.'' The intent, as the conference report explained, is ``to 
ensure that cost estimates for major defense acquisition programs * * * 
are fair, reliable, and unbiased.''
    The establishment of a new directorate and the December 2008 
changes in acquisition procedures have yet to be fully tested, but 
clearly reflect an effort, both in DOD and in Congress, to improve cost 
and schedule performance in developing major weapons programs.
                                question
    You said the Joint Chiefs envision 4 percent of GDP for the DoD 
base budget. How does this compare with other countries? Given the fact 
that many countries, including China, spend a larger percentage of 
their GDP on Defense, is it reasonable for the U.S. to spend only 4 
percent of GDP on the DoD base budget?
                                response
    Though he has not made similar statements recently, Admiral Mullen, 
the Chairman of the Joint Chiefs, has, as recently as January of 2009, 
argued that the defense budget should be maintained at about 4 percent 
of GDP, saying that such a level is economically sustainable, since the 
defense budget has been much larger, as a share of GDP, in the past. 
None of Admiral Mullen's statements on the matter have been entirely 
clear about the extent to which the 4 percent level might include some 
amount for ongoing costs of military operations in Afghanistan, Iraq, 
and elsewhere in the future, or whether the 4 percent level should 
apply only to the base defense budget. If applied only to the base 
defense budget, a 4 percent of GDP level of spending would imply quite 
substantial increases compared either to the outgoing Administration's 
long-term defense plan or to tentative plans in the current 
Administration.
    In any case, Admiral Mullen's purpose in repeating such remarks did 
not appear to be to appeal for a specific level of funding, so much as 
to argue that the nation can afford enough of an investment in defense 
to meet current military requirements without imposing a significant 
strain on the economy. On that point, Admiral Mullen's comments appear 
unobjectionable. Defense spending as a share of GDP has, as the 
Chairman pointed out, declined steadily over time as a share of the 
economy, though not because defense spending has fallen, but because 
the economy has grown. As a result, there is no good reason to think 
that somewhat higher defense spending would, in itself, be economically 
damaging.
    The economic effects of higher defense spending, however, depend on 
other factors--in particular, on how an increase would be financed. 
Many economists warn that currently projected long-term federal budget 
deficits cannot be sustained indefinitely without, at some point, 
driving up the cost of borrowing, particularly from overseas sources. 
If higher defense spending is financed, therefore, without either 
greater revenues or offsetting cuts in other federal expenditures, then 
defense increases could contribute, if only marginally, to economically 
unhealthy and unsustainable trends.
    As to how U.S. defense spending, in absolute terms and as a share 
of GDP, compares to spending by foreign nations, the following table, 
drawn from data compiled by the Stockholm International Peace Research 
Institute, shows military expenditures in U.S. dollars in calendar year 
2008 and as a percentage of GDP in calendar year 2007.\8\ The totals 
are shown ranked by spending and by percentage of GDP.

SIPRI ESTIMATES OF THE TOP 25 NATIONS IN MILITARY EXPENDITURES RANKED BY
      SPENDING IN U.S. DOLLARS AND BY DEFENSE % GDP, 2007 AND 2008
     [Ranked by Expenditures; Ranked by Military Spending as % GDP]
------------------------------------------------------------------------
                                            $ in millions,
                  Nation                         2008        % GDP, 2007
------------------------------------------------------------------------
United States............................           607,263          4.0
China....................................            84,900          2.0
France...................................            65,675          2.3
United Kingdom...........................            65,265          2.4
Russia...................................            58,600          3.5
Germany..................................            46,759          1.3
Japan....................................            46,296          0.9
Italy....................................            40,587          1.8
Saudi Arabia.............................            38,223          9.3
India....................................            30,030          2.5
Korea, South.............................            24,172          2.6
Brazil...................................            23,302          1.5
Canada...................................            19,290          1.2
Spain....................................            19,196          1.2
Australia................................            18,399          1.9
Israel...................................            16,194          8.6
Turkey...................................            15,810          2.1
Greece...................................            12,627          3.3
Netherlands..............................            12,228          1.5
Poland...................................            10,741          2.0
Taiwan...................................            10,331          2.0
Iran.....................................             9,174          2.9
Colombia.................................             9,076          4.0
Syria....................................             7,735          4.4
Singapore................................             7,507          4.1
------------------------------------------------------------------------
Source: Stockholm International Peace Research Institute, SIPRI Yearbook
  2009, (Stockholm: SIPRI, 2009).

Notes: Data are not available for some nations that might rank in the
  top 25, including North Korea and Iraq. Figures for China, Russia,
  Italy, Turkey, Greece, and Israel are SIPRI estimates rather than
  official reported amounts.

    While some other countries, mainly in the Middle East, devote a 
greater share of GDP to defense, the U.S. level, which was at about 4% 
of GDP in 2007, is larger than most, and higher than that of China or 
Russia. Moreover, in absolute terms, U.S. military spending is far 
higher than that of any other nation. According to SIPRI estimates, in 
2008, U.S. military expenditures were about 45% of the world total.\9\
    Neither Admiral Mullen, nor others who have advocated 4% or more of 
U.S. GDP for defense, appear to be arguing that such an amount is a 
measure of what U.S. military strategy requires. Rather, they appear to 
be arguing that such an amount is affordable in economic terms. The key 
questions for U.S. policymakers have to do with the strategy necessary 
to ensure U.S. security; the size, composition, and technological 
capabilities of military forces that are needed to carry out the 
strategy; and the amount of spending that is reasonably necessary to 
support those forces. Whether one considers the defense budget to be 
adequate or not, therefore, does not depend on the defense share of 
GDP, but rather, first of all on strategic requirements, second on 
programs needed to support the strategy, and then, and only then, on 
budget totals.
    The premise that budgets should be derived from an analysis based 
first of all on defense strategy is reflected in standing law. The 
congressional mandate for the Quadrennial Defense Review, which was 
made into a permanent requirement as Section 118 of Title 10 U.S. Code 
by the FY2000 National Defense Authorization Act,10 lays out the 
principle that a review of strategy should lead to an assessment of 
force requirements and then of budgets as follows:
Sec. 118. Quadrennial defense review
    [ * * * ]
    (b) CONDUCT OF REVIEW--Each quadrennial defense review shall be 
conducted so as----
          (1) to delineate a national defense strategy consistent with 
        the most recent National Security Strategy prescribed by the 
        President pursuant to section 108 of the National Security Act 
        of 1947 (50 U.S.C. 404a);
          (2) to define sufficient force structure, force modernization 
        plans, infrastructure, budget plan, and other elements of the 
        defense program of the United States associated with that 
        national defense strategy that would be required to execute 
        successfully the full range of missions called for in that 
        national defense strategy; and
          (3) to identify (A) the budget plan that would be required to 
        provide sufficient resources to execute successfully the full 
        range of missions called for in that national defense strategy 
        at a low-to-moderate level of risk, and (B) any additional 
        resources (beyond those programmed in the current future-years 
        defense program) required to achieve such a level of risk.
                                question
    Should the U.S. set a limit on Defense spending before assessing 
our needs?
                                response
    I am not aware of any defense analysis or of any defense advocacy 
group that has argued that defense spending should be limited before 
assessing requirements, nor, for that matter, of any who have argued 
that 4% of GDP or more should be spent on defense without regard to 
requirements. There has been considerable debate, however, about the 
degree to which resource constraints should be reflected in defense 
planning, particularly in the Quadrennial Defense Review. Many have 
complained that earlier QDRs were ``budget drills'' rather than 
``strategy-driven'' assessments. In the FY2007 John Warner National 
Defense Authorization Act (NDAA), Congress specifically required that 
the assessment of defense strategy, force structure, and budgets in 
future Quadrennial Defense Reviews not be ``constrained to comply with 
the budget submitted to Congress by the President pursuant to section 
1105 of title 31.'' \11\
    DOD has not, however, taken this provision to require that QDRs be 
conducted without regard to limits on resources. As Secretary Gates 
expressed it, the QDR needs to be ``resource informed'' if not 
``resource constrained.'' One purpose of QDRs is to guide priorities in 
allocating resources that are always, to some degree, limited. Indeed, 
a key element of any strategic thinking is how to manage necessarily 
limited resources to accomplish critical objectives, and strategic 
objectives themselves must necessarily be defined in terms of what is 
possible. The issue for the upcoming QDR is how to balance the need for 
some degree of realism in budget planning with Congress's clear intent 
that reviews should be conducted independently enough to indentify 
significant shortfalls in resources. How well it does so may be a 
matter of some debate.
                                question
    How much is the delayed procurement process of the new Air Force 
Tanker costing the taxpayer? How much is the extended procurement 
process costing? How much more will U.S. taxpayers pay to maintain the 
existing tanker fleet?
                                response
    The recompetition of the tanker contract has required each of the 
competitors to prepare new bids. The government is covering at least 
part of the cost for Boeing, since its appeal of the earlier contract 
award to Northrop Grumman-EADS was upheld. CRS does not have official 
information on the total cost, but, based on discussions with defense 
company executives, the total could be as much as $50 to $100 million. 
This is a substantial penalty to pay for an apparently flawed 
competitive bidding process, though officials comment that it is not a 
major expense compared to the ultimate $35-$40 billion cost of the 
overall acquisition program. The delay of the contract award will 
entail one or two years of additional operation of some KC-135 
aircraft. Initial deliveries of new tankers will begin in about 2015, 
and KC-135s will then be retired as new aircraft are delivered. The 
delay will not significantly affect plans for depot maintenance 
overhauls of KC-135s, however, since bulk of the fleet will continue to 
operate for many more years as the new tankers are delivered. There may 
be a marginal difference in costs of operation between the older KC-
135s and newer tankers, but, again, additional costs due to the delay 
do not appear to be of very great magnitude compared to the cost of the 
new acquisition. The extent of added costs depends on the pace at which 
new aircraft are purchased, which, in turn, depends on long-term budget 
trade-offs.
                                question
    You cited the underestimates, miscalculations and delays as reasons 
for the increased cost in the procurement process? What changes are 
being made in the procurement of new military equipment to ensure such 
a delay does not happen again? What had DoD learned from the USAF 
Tanker procurement debacle?
                                response
    DOD officials have said that the main lesson of GAO's rejection of 
the initial contract award was that the selection criteria were too 
broad, leaving too much uncertainty on the part of the competing 
companies about the final basis of the award decision. According to 
senior DOD officials, the initial Request for Proposals (RFP) listed 
808 requirements, of which 37 were mandatory.\12\ The bidding companies 
had extensive latitude to propose trade-offs between the non-mandatory 
requirements, but were left with a great deal of uncertainty about 
which requirements the selection process would weigh most highly. That 
uncertainty was a large part of the basis for the Comptroller General's 
decision to reject the award. The new RFP, which was released for 
comments in September 2009, reduced the 808 requirements to 373 
mandatory requirements, with 93 additional non-mandatory requirements 
that bidders may propose to meet to varying degrees. Officials say that 
this clarifies the selection criteria sufficiently to be fair to the 
competing companies. As to the cost of recompetitions in general, it is 
not usual for programs to be delayed by the success of contract 
appeals. Most cost growth results from underestimates of costs at the 
inception of programs and from reliance on immature technologies that 
then grow in cost or cause delays.
                                question
    What cost saving measures, if any, are currently being utilized by 
DoD to counter these ballooning costs?
                                response
    In general, DOD is in the process of implementing changes in the 
acquisition process that fall into five broad areas, all of which are 
affected to some degree by the Weapons Acquisition Reform Act of 2009, 
and all of which are important in improving the process. These include:
    1. Efforts to improve initial weapons cost estimates. Concern about 
systematic underestimation of costs at the inception of new programs is 
a large part of the reason Congress established an independent Director 
to oversee cost analyses and program evaluation. The success of the new 
directorate will depend on the willingness of senior defense officials 
to reject service cost estimates that appear overly optimistic, that 
are at odds with independent estimates, or that are based on new and 
untested premises.\13\
    2. Measures to ensure technological maturity. New DOD regulations 
and many provisions of the Acquisition Reform Act are aimed an ensuring 
that new technology is mature enough at specific milestones in the 
acquisition process to warrant going ahead to new and costly stages in 
development. GAO refers to the principle as ``knowledge based 
acquisition.'' GAO and other reviews of ``technology readiness levels'' 
in system development have found that DOD often proceeds with 
development without meeting its own criteria for the maturity of new 
technology. Efforts to reverse this pattern include requiring 
additional prototyping, more rigorous adherence to milestone 
requirements, and the requirement for independent reviews of new 
systems designs in an effort to rein in excessively optimistic efforts 
to make major technological leaps ahead without an adequate basis for 
assessing risks. Success, again, depends on how willing senior 
officials are to reject projects that do not meet established 
requirements.
    3. Ensuring that system requirements reflect strategic priorities. 
Secretary Gates has complained that the acquisition process appears 
still to be following a Cold War model that seeks maximum advances in 
technology in almost every area of system development. In some cases, 
the Secretary argues, a 75 percent solution may be appropriate, rather 
than a 99 percent solution that costs much more and that accepts much 
higher technical risk. Measures to review system design at the initial 
stages of development may help overcome the incentives to be 
unnecessarily aggressive in pursuing pursue unnecessarily aggressive in 
pursuing technological advances. Success, again, depends on senior 
officials ensuring that overall strategic priorities are reflected in 
decisions on specific systems. The issue is whether the acquisition 
system can strike an appropriate balance between the value of marginal 
improvements in capabilities and increased cost. Improvements in force 
protection, for example, might obviously warrant support even at very 
high cost. Improvements in cargo lift capabilities or in communications 
bandwidth compared to commercial technologies, in contrast, might not 
warrant such a high priority.
    4. Use of appropriate contracting procedures and competitive 
contract awards. The Defense Department has been working to develop 
criteria for managing competition and for using contracting procedures 
that will improve performance and also limit costs. Issues include 
whether second sources, though costly to maintain, may drive down costs 
by ensuring continued competition, when fixed price contracts are in 
order, how to use incentives to encourage improved performance, and 
what limits should be established on contract extensions.
    5. Improvements in the defense acquisition workforce. The 
Acquisition Reform Act, other legislative measures, and a number of DOD 
initiatives are aimed, first, at taking back into the government some 
acquisition management responsibilities that had been outsourced; 
second, at expanding the size and quality of the acquisition work 
force; and, third, at ensuring high quality continuing education and 
training of the work force.
    How successful these measures will be in improving the process 
remains to be seen.
                                question
    Currently, one bidder for the tanker has the pricing data from the 
other bidder (from the first round of bidding), but the other bidder 
does not have the pricing data from the first company. Do you know of 
any other major procurements in the past twenty years in which this was 
the case?
                                response
    Because it was appealing the initial tanker award decision, Boeing 
was given access to Northrop Grumman-EADS pricing information. Company 
officials have complained that this gives Boeing an unfair advantage in 
the new competition. Others counter that Boeing and EADS have long 
experience competing in the commercial sector with aircraft that are 
identical in basic design to the aircraft they are proposing for the 
competition, so basic pricing is not a great secret. For their part, 
DOD officials have said that the current competition has both different 
selection criteria and a different contract structure, so that the 
previous bids are not necessarily a clear guide to the new bids.\14\
    There may be some examples of cases in which a successful appeal of 
a contract award has led to one company having garnered data on another 
company's initial offer. CRS has not had occasion to look at the 
history of DoD contract appeals and subsequent recompetition of 
contract awards to be sure that this is the case, however, or to know 
of any specific examples.
                                question
    While the base budget does not directly fund the wars in Iraq and 
Afghanistan, how will the President's request of a 2.5 percent increase 
in defense spending indirectly affect our troops in those two countries 
as compared to the 12 percent increase suggested increase from the 
Joint Chiefs?
                                response
    There have been recent press accounts to the effect that the 
President's FY2011 budget will request an increase of 2 percent or more 
above inflation in funding for the Department of Defense, but 
Administration officials have not confirmed these accounts.\15\ The 
most recent reports are that the Administration plans to request $549 
billion in discretionary funding for the base defense budget in FY2011, 
with an additional $159 billion for war costs.\16\ Assuming a final 
appropriation for the base DOD budget of $530 billion in FY2010, an 
increase to $549 billion would amount to growth of 3.5% without 
adjusting for inflation. If inflation is assumed to be 2.4%, real, 
inflation-adjusted growth would amount to about 1.1%.
    I am not aware of any account to the effect that the Joint Chiefs 
have proposed a larger increase in the FY2011-FY2015 defense plan. 
Prior to release of the FY2010 budget request last year, there were 
some accounts to the effect that the Chiefs had endorsed an increase of 
as much as $57 billion in the FY2010 base DOD budget compared to 
earlier plans, and that the Administration rejected that proposal. 
Based on briefing materials that were published by the trade press, 
however, it appears that these accounts were quite misleading. DOD 
apparently did consider a $57 billion addition to the FY2010 budget in 
August of 2008. Of the $57 billion addition, more than $30 billion 
appears to have been due to a shift of some ongoing war costs into the 
base budget, and another $12 billion was to cover inflation and fuel 
cost increases that later did not materialize.\17\
    Whether there might be significant gaps between service budget 
plans and overall top line budget totals in the upcoming FY2011 request 
may become more clear after release of the request, which is expected 
to be accompanied by a full five-year budget plan extending through 
FY2015. CRS testimony before the Budget Committee in February 2009 
noted that each of the services had complained of shortfalls in funding 
for their projected long-term acquisition and operating plans. In its 
very detailed annual assessments of the long-term defense program, CBO 
has regularly pointed to significant gaps between projected plans and 
resources.
                                endnotes
    \1\ A ``Major Defense Acquisition Program'' is defined by Section 
2430 of Title 10 U.S. Code as ``a Department of Defense acquisition 
program that is not a highly sensitive classified program (as 
determined by the Secretary of Defense) and (1) that is designated by 
the Secretary of Defense as a major defense acquisition program; or (2) 
that is estimated by the Secretary of Defense to require an eventual 
total expenditure for research, development, test, and evaluation of 
more than $300,000,000 (based on fiscal year 1990 constant dollars) or 
an eventual total expenditure for procurement of more than 
$1,800,000,000 (based on fiscal year 1990 constant dollars).'' Section 
2432 of Title 10 requires the Defense Department to submit to Congress 
quarterly ``Selected Acquisition Reports'' with detailed information on 
the schedule and cost of all Major Defense Acquisition Programs.
    \2\ Tony Capaccio, ``Gates Calls for Delay in Pentagon Purchases of 
Lockheed F-35s,'' Bloomber.com, January 7, 2010; Jason Sherman, ``DOD 
Braces For Yet Another F-35 Cost And Schedule Assessment,'' 
InsideDefense.com, January 6, 2010.
    \3\ Gopal Ratnam and Tony Capaccio, ``Pentagon Concerned With 
Lockheed F-35's Cost Trends,'' Bloomber.com, December 2, 2009.
    \4\ Based in part on author's notes of comments at a meeting at CRS 
including CNA, CBO, and CRS analysts and congressional aides on 
December 14, 2009.
    \5\ See, for one example, John J. Young, Jr., Under Secretary of 
Defense for Acquisition, Technology, and Logistics, Memo for the 
Secretary of Defense, ``Reasons for Cost Changes in Selected Major 
Defense Acquisition Programs,'' January 30, 2009, published on line by 
InsideDefense.com.
    \6\ Russell Vogel, Executive Secretary, Cost Analysis Improvement 
Group, ``An Overview of the Cost Analysis Improvement Group,'' Briefing 
Slides, June 14, 2002. Accessed on line on January 8, 2010 at http://
www.scaf.org.uk/library/prespaper/CAIG%20Overview.pdf.
    \7\ See DOD Instruction (DODI) 5000.02, ``Operation of the Defense 
Acquisition System,'' December 8, 2008.
    \8\ An alternative source is the International Institute for 
Strategic Studies. IISS, however, shows only officially reported 
amounts of military expenditures for China and some other nations, 
which significantly understate expenditures. In 2007, IISS shows 
China's military expenditures at $46 billion.
    \9\ The SIPRI yearbook shows total worldwide military expenditures 
in 2008 of $1,226 billion in 2005 U.S. prices, of which the U.S. total 
was $548 billion, or 45%. IISS shows worldwide military expenditures in 
2007 of $1,279 billion in 2007 U.S. prices, of which the U.S. total was 
$553 billion, or 43%.
    \10\ P.L. 106-65, Section 901.
    \11\ P.L. 109-364, Section 1031.
    \12\ See DoD News Briefing with Deputy Secretary of Defense William 
Lynn, Under Secretary of Defense Ashton Carter, and Secretary of the 
Air Force Michael Donley, September 24, 2009, available on line at 
http://www.defense.gov/transcripts/transcript.aspx?transcriptid=4484.
    \13\ Case studies of cost underestimation would be useful in 
assessing the causes of recently worsening problems. Some have said 
that F-22 cost underestimates were based on overoptimistic assessments 
of progress in ``lean'' manufacturing techniques and also that early 
prototypes were not representative of production designs. DDG-1000 
costs may have been underestimated because the Navy rejected 
traditional methods of estimating costs based on ship tonnage as out of 
date, but then did not project costs of electronics and other elements 
of the ship design on the basis of reliable models. These and other 
concerns about costing procedures, however, have not been studied as 
thoroughly as is needed to support firm conclusions.
    \14\ DoD News Briefing with Deputy Secretary of Defense William 
Lynn, Under Secretary of Defense Ashton Carter, and Secretary of the 
Air Force Michael Donley, September 24, 2009.
    \15\ Jason Sherman, ``OMB Grants Defense Department Nearly $60 
Billion More Over Five Years,'' Inside the Navy, December 7, 2009.
    \16\ Anne Gearan and Anne Flaherty, ``AP Exclusive: Obama Wants $33 
Billion More for War'', The Associated Press, Wednesday, January 13, 
2010.
    \17\ Army Briefing Slide, ``Current Overview of $57 B,'' November 
2008, published by InsideDefense.com.

    [Whereupon, at 11:55 a.m., the Committee was adjourned.]

                                  
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