- The Washington Times - Friday, October 17, 2008

The spiraling financial crisis and the ballooning costs of wars in Iraq and Afghanistan will force U.S. military planners to make hard choices about defense spending, which has risen at unprecedented levels since 2001, defense officials and experts say.

“There is a lot of pressure on defense budgets going forward,” Assistant Defense Secretary Michael G. Vickers told United Press International.

Mr. Vickers, who oversees special operations and low-intensity conflict, said the structural pressures of U.S. entitlement programs such as Social Security, compounded by the imminent retirement of many baby boomers, would compete with the cost of recapitalizing a military strained by seven years of war while simultaneously transforming itself to meet new threats.

The United States needs to reconstitute equipment that is being used up “at very intense rates,” he said. At the same time, the military has to “deter rising conventional and strategic threats, like … China or rogue nuclear powers.”

That requires modernizing capabilities such as the U.S. nuclear arsenal and air and naval fleets “while you´re fighting this war on terror and getting better at irregular warfare,” he said.

“It´s the coming together of investment challenges and strategic challenges.”

The new pressures follow seven years of rising budgets by an administration that has given the Pentagon almost a blank check.

In the last fiscal year, which ended Sept. 30, total U.S. defense spending was nearly $695 billion: $515 billion in the Pentagon´s base budget and another $180 billion in so-called emergency supplemental appropriations for Iraq and Afghanistan. That is more than twice what it was in 2000.

Steven M. Kosiak of the Center for Strategic and Budgetary Assessments said the base budget had increased more than 5 percent adjusted for inflation every year since 2000. “The only historically comparable rise … was the one under Reagan in the 1980s,” he said.

Kathleen Hicks, a former senior career policy official in the defense secretary´s office, said the upside of the crisis is that it will force the next administration to prioritize.

“In some ways, it´s a good thing,” said Ms. Hicks, who left the Pentagon after 13 years in 2006 and is now at the Center for Strategic and International Studies. Under the Bush administration, the Defense Department “has not a governor on its [spending] demands for some time.”

The Pentagon was told to build a spending plan for the fiscal year that begins next Oct. 1 that was essentially a wish list, she said. These requests will inevitably become “the baseline against which any incoming administration will surely have to cut.”

It is hard to predict exactly where the ax will fall.

Big-ticket high-technology procurements, such as the Air Force’s F-35 or the Army’s Future Combat System, have come under fire for ballooning costs. But such programs are often protected by the “sunk costs argument” that cutting now will mean money already spent has been wasted, Ms. Hicks said.

Critics of congressional oversight charge that lawmakers often make room for such programs by short-changing operations and maintenance.

“What typically happens is we muddle through,” Mr. Kosiak said.

New budget realities may dictate a clearer strategy.

Figures released this week by the U.S. Treasury show that the federal budget deficit for the last fiscal year was a record $455 billion, nearly three times that of the previous year. The figure does not include the $700 billion price tag for the financial bailout.

Jeremy Potter, a senior analyst for federal industry with the government contractor consulting group INPUT, said the full impact of the bailout´s cost would not be felt until fiscal 2010, which begins next Oct. 1.

A year from now, “defense program managers are going to be scrambling to get their programs funded,” he said.

A new administration is likely to stop including tens of billions of dollars of foreseeable wartime expenditures in emergency supplemental appropriations requests.

“There are plans to do that,” Mr. Vickers said without elaborating.

He said one way to deal with the budget crisis would be to adopt a “portfolio approach. … Rather than have a single joint force which is optimized for theater warfare … against regional powers,” each of the armed forces needs to consider its priorities, he said.

“It´s a question of emphasis, balance and a little more specialization than you had in the past,” Mr. Vickers said.

“You can do this,” he concluded, “But not if you say everyone has to do everything.”

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