Why Defense Bulls May Be Disappointed

Signs of spring abound. The forsythia is in bloom. The crack of opening day resounds. And the DoD Comptroller’s “Green Book” issues forth. The National Defense Budget Estimates for FY 2017, or Green Book, so-called by its seasonally-toned cover, is a 300-page volume of dense tables expressing to the nearest millionth dollar every obligation, authority, and outlay associated with the defense program each Administration submits to Congress in February. And yet, I confess to welcoming the tome’s publication no less than the morning skylark’s April twitter. Ah, spring!

Here’s why. The Green Book helps put to rest all the silly-talk about defense spending that commonly thrashes about in late-winter ahead of Congress settling into the serious business of passing a budget resolution and marking the Administration’s budget request. Among the notable silly talkers this winter have been defense-sector bulls of Wall Street, who are hailing 2016 as the start of a sustained growth cycle. At the other end of the silly-talk spectrum lies the field of Republican presidential candidates, whose talking points about the Obama Administration’s defense budget all employ the inflection “gutted.”

So, what’s the real outlook for defense spending today? In a just-released assessment of world military spending, the serious Swedes at the Stockholm International Peace Research Institute dryly observe, “US military spending is projected to remain roughly level in real terms in 2016.” That’s a fair characterization but one the Green Book’s precision renders an understatement: Its constant-dollar measure of growth in the Pentagon’s budget authority from 2015 to 2016 actually registers 1.5 percent. Regardless, looking to the end of the defense program in 2021, that which appears a modest 2016 budget bump is really just a dead cat bounce off the 2015 nadir of sequestration-era strictures. The outyear trend of defense spending slides off that 2016 blip into what I’ve come to call the long bottom, a sustained period of roughly level annual appropriations—“base” plus “supplemental”­—at about $600 billion.

However, this stable floor under the defense spending cycle that began in 2010 obscures what is going to be a frantic churn in the composition of programs beneath it. Wringing out the last five years of the Budget Control Act (BCA) will buffet these spending plans, and not least because the view of its sunset undermines incentives for structural changes to military forces, which today are unaffordable. And, sure, the advent of a new administration also lends churn.

Procurement spending in particular is set up for a perilous run. Despite the gloss of “innovation” that the Administration extolled in its roll out of the 2017 budget, proposed Investment accounts (Procurement + RDT&E) are 2.1 percent lower than the comparable levels appropriated for 2016. More tellingly, compared to last year’s plan for Investment in 2017, the new request is lower by fully 5.6 percent, of which Procurement alone bears a $10.2 billion reduction. Indeed, Procurement was the only material programmatic bill payer in the Pentagon’s digestion of $22 billion in reductions to its 2017 program resulting from last October’s Bipartisan Budget Act.

In fact, Procurement is likely to suffer disproportionately again next year when the gap between the Pentagon’s plan for 2018 and the BCA cap rebounds to $30 billion (see DoD Comptroller’s depiction of “the Defense Budget picture today”). Even if Congress manages to enact another partial relief from that cap in its lame duck session, Procurement cannot be spared. The Administration which inherits this fiscal hand is not likely again to enjoy savings from inflation and fuel prices nor a new Congress’s willful bleed of base program costs into the unconstrained supplemental appropriation, fortuitous accommodations which this year limited to $10 billion the erosion of planned investment spending in 2017. Instead, I’d bet the Pentagon’s failsafe 2018 budget is going to have to reduce Procurement spending by $15 billion from the level indicated in the 2017 program.

Of course, hope springs eternal, and doubly so in a presidential election year. There may yet emerge a Green Thumb to promote the growth of defense spending. In the meantime, we should rely on the Green Book to keep our feet planted firmly on the ground.

Steven Grundman is the Lund Fellow for Emerging Defense Challenges in the Brent Scowcroft Center on International Security. This article first appeared on 7 April in Aviation Week & Space Technology.