In most years, the Department of Defense (DoD) produces a five-year plan, called the Future Years Defense Program (FYDP), that is associated with the budget it submits to the Congress. This report describes CBO’s analysis of the 2020 FYDP, which was issued in March 2019, and summarizes DoD’s expectations about the costs of its plans from 2020 through 2024.
Because decisions made in the near term can have consequences for the defense budget in the longer term, CBO projected the costs of the 2020 plan through 2034.
In previous assessments of the long-term implications of DoD’s plans, CBO focused on the department’s base budget, which is intended to fund normal, peacetime activities, such as day-to-day military and civilian operations and the development and procurement of weapon systems. However, this year, CBO has changed its approach to also include all funding designated for overseas contingency operations (OCO)—a funding category intended for temporary, war-related activities, such as operations in Afghanistan and elsewhere.
CBO modified its approach because about 85 percent of OCO funding requested by DoD for 2020 and 2021 supports base-budget and other “enduring” activities (for example, military missions that are now part of the United States’ long-term global presence).
What Are DoD’s Budget Plans Under the 2020 FYDP?
The 2020 FYDP comprises DoD’s request for appropriations in 2020 and a series of planned budgets for 2021 through 2024. Total funding for each year in the request is relatively constant across all five years of the FYDP period, averaging about $700 billion per year in real terms—that is, after adjusting for the effects of inflation. Total funding in the 2020 FYDP is about 3 percent less than in the 2019 FYDP.
The proposed budget for 2020 totals $718 billion, the largest annual amount requested over the five-year period. Of that total, $545 billion is designated for the base budget. At the time the 2020 FYDP was prepared, that base-budget amount was consistent with the caps on discretionary spending set by the Budget Control Act of 2011 (BCA, Public Law 112-25); those caps were increased when the Bipartisan Budget Act of 2019 was enacted. In the FYDP, DoD further requested that the remaining $173 billion be designated as nonbase funding— that is, either funding for overseas contingency operations ($164 billion) or emergency funding to cover unanticipated costs caused by crisis, natural disaster, or rapid changes in the price of commodities (about $9 billion).
Because appropriations designated as OCO or emergency are not subject to spending limits set by the BCA, designating appropriations in that way would have allowed DoD to reach a budget of $718 billion without exceeding the caps in effect before enactment of the Bipartisan Budget Act.
As outlined in the FYDP, DoD planned to request a total of $699 billion for 2021. That request, like the one for 2020, was structured so that all funding over the BCA’s prior cap of $546 billion (about $153 billion) would have been designated as OCO. Total funding in 2021 would be about 3 percent less than in 2020, in part because no emergency funding was included in the 2021 budget.
The Bipartisan Budget Act of 2019 increased base-budget caps for defense spending in 2020 and 2021 and set targets for the amount of OCO funding in those years. Funding appropriated at those levels would be about 1 percent less per year, in 2020 and 2021, than the amounts DoD indicated in the 2020 FYDP. Because those changes are small, they would not necessarily affect the costs of DoD’s plans after 2021. Therefore, CBO’s projections through 2034 would change little if funding for 2020 and 2021 were reduced by that small percentage.
For the remaining three years of the FYDP, when the BCA’s limits on discretionary funding no longer apply (because they are set to expire in 2021), DoD indicated it would request about the same amount of total funding. However, much less funding would be designated for OCO, increasing DoD’s base-budget request by about 24 percent, from $546 billion in 2021 to $679 billion in 2022. Along with an estimated $19 billion in OCO funding, DoD anticipated that total funding in 2022 would be $698 billion, slightly less than the $699 billion requested for 2021.
Planned requests for funding would remain nearly constant until 2024, the last year of the FYDP, when DoD anticipated that OCO funding would decrease to $9 billion; consequently, total funding planned in that year would drop from $698 billion to $688 billion.
What Is the Potential Cost of DoD’s Plans for 2025 Through 2034?
Unlike DoD’s estimates for the cost of its plans over the FYDP period, CBO’s projections indicate that costs after 2024 would increase faster than inflation. In CBO’s estimation, those costs would reach $776 billion (in 2020 dollars) by 2034, an increase of 13 percent in real terms over the 10 years following 2024.
The key factors that would lead to increases in DoD’s costs are as follows:
-- The costs of compensation for military personnel would continue to increase at historical rates, growing faster than inflation;
-- The costs of operation and maintenance (O&M) would continue to increase at historical rates, growing faster than inflation; and
-- The costs for the acquisition of weapon systems would meet the department’s modernization objectives and maintain the current size of the force.
Of the increase in annual costs that CBO projects from 2024 through 2034 ($88 billion), about 18 percent ($16 billion) is for the cost of military personnel; 43 percent ($37 billion) is for O&M costs; and 38 percent ($33 billion) is for costs to develop and purchase weapon systems. (Emphasis added—Ed.)
In each of those areas of DoD’s budget, costs have historically grown more rapidly than they are projected to grow in the 2020 FYDP. For example, DoD projects that the costs of military and civilian compensation will grow more slowly over the FYDP period than CBO’s economic forecast of the cost of labor would indicate. Similarly, DoD has frequently underestimated costs for O&M and the acquisition of weapon systems.
To assess the possible effects of such factors, CBO prepared an alternative projection of the costs of implementing DoD’s 2020 plans under a set of estimates that better reflect the patterns of growth in DoD’s costs over the past several decades. According to those estimates, total costs from 2020 through 2024 would be about $78 billion (2 percent) higher than indicated in the 2020 FYDP, and total costs from 2020 through 2034 would be $472 billion (4 percent) higher.
What Are Uncertainties in the Cost of DoD’s Plans?
DoD’s projections of costs in the FYDP and CBO’s projections through 2034 are estimates of the long-term costs of executing the plans that DoD articulated in its 2020 budget and supporting documents. However, international events, Congressional decisions, and other factors could change those plans. Furthermore, even if DoD’s plans generally remained unchanged, many program- level policies that underlie DoD’s projections of its costs might not come to pass.
For those reasons, CBO’s projections should not be viewed as predictions of future funding for DoD; rather, the projections are estimates of the costs of executing the department’s 2020 plans under the assumption that those plans would not change.
Costs for contingency operations are even more uncertain than costs in the base budget because they depend on how ongoing conflicts evolve and whether new conflicts will arise. As outlined in the 2020 FYDP, DoD plans for operations in the Middle East to subside, reducing its projected OCO costs in 2024 by half. CBO used DoD’s projection for that year ($9 billion) for the cost of OCO in each year between 2025 and 2034.
Click here for the full report (28 PDF pages), on the CBO website.