Defense spending: people versus things

Defense spending: people versus things

Posted on December 30th, 2011 in Blog, News, Services, Top Picks

As the Defense Department prepares to release a new strategy in January and confronts the harsh realities of a flat or even declining budget, one of the little-mentioned complications is the large and growing cost of active duty military personnel.

Baker Spring of the Heritage Foundation has just published a piece on this: “An Unacceptable Squeeze on Defense Modernization.” Heritage is certainly not saying we should cut the defense budget–on the contrary. But they have highlighted a severe long term problem that has been masked by the past 10 years of significant budget increases, namely, that the growth in personnel costs is unsustainable.

Just how bad is this problem? At present, looking only at the base DoD budget (not including overseas contingency operations funds), the Personnel accounts encompass roughly 27% of DoD’s budget (it was 25% of a much smaller budget in 2001). Under current planning assumptions, that will only rise slightly, to 28-29% over the next decade. But that assumes a CAGR in per person costs of 1.95%, cost control that DoD has not been able to achieve. In fact, per person cost growth over the past decade has averaged over 7%. At that rate–and assuming no additional force reductions, personnel costs could reach almost 43% of the budget by 2021. And that’s with some real top line growth; if Budget Control Act (BCA) sequestration hits, the numbers will be worse.

In any case, Heritage makes a critical point. If personnel costs are not controlled, other Defense priorities will be adversely affected. One option is cutting numbers; other options include reforms to pension and health care, as Heritage suggests here. The impact on modernization accounts is not exactly one-for-one. Operations and maintenance cost growth can be limited…but DoD has not had success in this area recently either, and it risks creating a hollow force. Another complication: except for large (>10%) and rapid force reductions, near-term savings (what’s needed for the BCA) are minimal. We’ll explore the interactions and possible alternatives in future posts.