- The Washington Times - Thursday, February 12, 2009

With the combined cost of the economic stimulus package and the Wall Street bailout projected by some estimates to top $2 trillion and the federal deficit spiraling, U.S. officials are fretting that current levels of defense spending may be unsustainable.

Moreover, military leaders argue that they will need more money in future years to repair or replace equipment worn out or destroyed in the wars in Iraq and Afghanistan, transform the force to fight modern wars and invest in new generations of high-tech weaponry.

“The spigot of defense spending that opened on Sept. 11 is closing,” Defense Secretary Robert M. Gates told a hearing last month of the Senate Armed Services Committee.

According to the Congressional Budget Office (CBO), defense spending constitutes more than half of U.S. domestic discretionary spending - the part of the federal budget that is not spent on mandatory items including Medicare, Medicaid and Social Security. That is about 4.5 percent of U.S. gross domestic product, more than double the proportion of national wealth most other industrialized countries spend on defense.

The CBO says fiscal 2008 defense spending adjusted for inflation was 20 percent more than spending in 1985 - at the height of the Cold War military buildup - and has risen 43 percent since its lowest post-Cold War level in 1998.

Although the military is much smaller than it was at that time, service chiefs projected last year that they will need continuing annual growth to maintain force readiness - even accounting for the falling cost of smaller U.S. deployments in Iraq.

“Quite bluntly,” said analyst Stephen Daggett of the nonpartisan Congressional Research Service during a little-noticed hearing of the House Budget Committee last week, “the cost of everything we have been doing in defense has been accelerating upward too fast even for growing budgets to keep up.”

Mr. Daggett listed several reasons for the growth in the cost of the military.

First, personnel costs have spiraled. The “average military service member is about 45 percent more expensive, after adjusting for inflation, in fiscal year 2009 than in FY 1998,” he said. Figures he presented showed that although congressionally mandated increases in pay and benefits have grown by 30 percent more than inflation in that period, fully one-third of the total increase is down to the expanding costs of health care for military retirees.

In the future, said the CBO’s J. Michael Gilmore at the same hearing, his agency projects that “needed funding for the military medical system is growing seven, eight times more rapidly than … costs as a whole” for the Defense Department - and will more than double to $90 billion a year by 2026.

Mr. Daggett also identified two elements related to the ballooning costs of major weapons systems, such as the Air Force’s new F-35 Joint Strike Fighter or the Navy’s DDG-1000 multibillion-dollar destroyer: intergenerational cost growth and systematic underestimation of acquisition costs.

“The growing price of weapons does much to explain why the expense of maintaining even a smaller force structure than in the past has climbed so high,” he said.

Intergenerational cost growth refers to the fact that military weapons systems, unlike almost every other category of high-tech equipment, are more expensive than they were 20 years ago.

As an example, Mr. Daggett cited the costs of the F-35, which the Air Force considers its “low-end” fighter, and the F-16 it will replace. The F-35 is projected to cost $83 million each, compared to the inflation-adjusted cost of $30 million for the F-16 when it was developed in 1985.

Another driver of escalating weapons costs, Mr. Daggett said, was a development process that tended to produce systems with multiple capabilities, and he cited the DDG-1000 as an example.

The new destroyer will be half as large as the DDG-51 it will replace because it has state-of-the-art capabilities on many different fronts, including air defense, anti-submarine warfare, and communications - not to mention the ability to carry helicopters, unmanned aerial vehicles and a Marine Corps or Special Forces detachment.

Mr. Daggett said the result is a ship “that is now projected to cost between $3.5 [billion] and $4 billion each, and that cannot, therefore, be afforded in substantial numbers.”

The DDG-1000 also illustrates the systematic underestimation of acquisition costs.

Figures Mr. Daggett presented showed that between 2000 and 2007, the cost growth of major weapons systems between first estimate and delivery rose from 6 percent of total costs to 27 percent, while delays in delivery rose from an average of 16 months to 21 months in the same period. In other words, major systems on average are costing more than a quarter more than they were budgeted for, despite being nearly two years overdue.

Mr. Gilmore said such overspending was in large part the result of unrealistic initial estimates.

He said the initial estimate of $1.5 billion in today’s dollars for the DDG-1000, then called the SC-21, “would have made it the cheapest surface combatant [vessel] ever built. … There were a lot of people in the building - I was in the building at that time - who knew that initial estimate was unrealistic.”

He said that when initial costs are low-balled in such a fashion, “no program manager in the world is going to be able to manage the program in such a way that the costs will not grow.”

“It’s not so much cost growth as cost realism setting in,” he concluded.

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