Why the U.S. can't afford its military

By SHAUN WATERMAN, UPI Homeland and National Security Editor

WASHINGTON, Feb. 11 (UPI) -- With the combined cost of the economic stimulus package and the Wall Street bailout now 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 Gates told a hearing last month of the Senate Armed Services Committee.

According to the Congressional Budget Office, defense spending currently constitutes more than half of U.S. domestic discretionary spending -- that is, the part of the federal budget that is not spent on mandatory items like 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.

In absolute terms, the CBO says, Fiscal Year 2008 defense spending, adjusted for inflation, is now 20 percent more than it was 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.

Yet 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 gradually falling cost of smaller U.S. deployments in Iraq.

"Quite bluntly," analyst Stephen Daggett of the non-partisan Congressional Research Service told 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."

Daggett in his prepared testimony listed several reasons for the explosive growth in the cost of the U.S. 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 healthcare for military retirees under the "TRICARE for life" program.

And in the future, J. Michael Gilmore of the CBO told the same hearing his agency projected "needed funding for the military medical system (including care for both veterans and serving personnel) is growing seven, eight times more than rapidly than … costs as a whole" for the Defense Department -- and will more than double to $90 billion a year by 2026.

Daggett also identified two elements related to the ballooning costs of major weapons systems, like the Air Force's new F-35 Joint Strike Fighter, or the Navy's controversial 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, Daggett cited the comparative 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 now projected to have a "flyaway cost" of $83 million each, compared with the inflation-adjusted cost in today's dollars of $30 million for the F-16 when it was developed in 1985.

"Look at any part of the civilian sector," he told lawmakers, according to a transcript of the hearing, "not just electronics, but automobiles or aircraft … the (cost) trends are not as good in (the Department of Defense) and sometimes they're going in the opposite direction … from what's going on in the civilian sector."

Daggett said the reasons for this were "a matter far beyond the scope of this brief survey" but did proffer some thoughts, including that developers often sought the highest possible performance -- what Gates has referred to as the 99 percent solution, vs. a much more affordable 75 percent solution.

"The bottom line on it is seeking performance," Daggett said. "What drives it here is when you're developing a weapons system, what are you looking for? You're looking for performance, and you're trying to push the envelope in a lot of cases."

Another driver of escalating weapons costs, he added, was a requirements 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 again as the DDG-51 it will replace, because it has state-of-the-art capabilities on so 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.

"In short, it is all things to all requirements writers," he said, adding the result was 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 illustrated Daggett's second factor in the spiraling costs of weapons systems -- the systematic underestimation of acquisition costs.

Figures he 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 are now, on average, costing more than a quarter more than they were budgeted for, despite being nearly two years overdue.

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've 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 lowballed 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.