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.

Thompson Files: Defense programs face ax
by Loren B. Thompson
Arlington, Va. (UPI) Feb 10, 2009
Last week two of the best-sourced reporters on the defense beat wrote stories indicating the U.S. Department of Defense may be getting an early start on cutting weapons programs.

On Feb. 5 Jason Sherman of InsideDefense.com disclosed that Defense Secretary Robert Gates had chartered a small team of aides to draft a list of major systems that could be targeted for termination in the fiscal 2010 budget. On Feb. 6 Tony Capaccio of Bloomberg Business News reported the contents of what appears to be one such list.

No decisions have been made, but if even half the options on the list are implemented, tens of thousands of good-paying jobs are about to disappear in places where the economic outlook is already bleak.

Sherman described the efforts of the Gates team as part of a broader effort to rebalance military capabilities between conventional and irregular warfare. President Barack Obama embraced that goal on the campaign trail, but nobody knew when he drew up his defense agenda that credit markets were about to collapse.

Obama now finds himself trying to rescue an economy that is in free fall, yet the Pentagon is going ahead with plans to cut weapons despite the likely economic impact.

Among the targeted programs listed by Capaccio in his Bloomberg story are the Navy's DDG-51 destroyer and LPD-17 amphibious warship, the Lockheed Martin F-35 Lightning Joint Strike Fighter, the Joint Tactical Radio System, the Boeing F/A-18 Super Hornet fighter and the U.S. Army's future family of networked combat vehicles.

The DDG-51 destroyer is built at Bath Ironworks in Maine and the Ingalls shipyard in Mississippi, the two biggest industrial complexes in their respective states. The U.S. Navy recently decided to cancel its next-generation Zumwalt-class destroyer, leaving DDG-51 as the only surface combatant likely to be built at either site in significant quantities.

The Navy says it needs to buy upgraded versions of the DDG-51 to protect the fleet against growing ballistic, airborne and undersea threats. Termination of the DDG-51 would endanger the 5,700 workers at Bath and some multiple of that number at other locations. Combined with a decision to forgo production of the 11th LPD-17, the DDG-51 termination would also endanger many of the 10,000 workers at the Ingalls shipyard.

Cutting production of the F/A-18 Super Hornet would destroy thousands of jobs in St. Louis, where two car plants are shutting, and at the GE jet engine factory in Massachusetts.

According to Capaccio, the hit list does not envision terminating the F-35 Joint Strike Fighter, but it does raise the possibility of reducing funding to save money.

That would be a false economy, because the tightly wound F-35 business plan requires timely execution and efficient production rates to hold down the cost of each plane. Tinkering with the plan now would greatly increase long-term program costs for three U.S. services and at least nine overseas allies, potentially impairing the whole effort. The loss of manufacturing jobs in Texas, Connecticut and elsewhere could number in the tens of thousands.

The economic consequences of cutting the U.S. Army's Future Combat Systems and the joint radio would be more diffuse, because those programs are still in development. But thousands of direct jobs could be lost, and prime contractor Boeing recently estimated there are three jobs indirectly tied to its programs for each direct job.

It doesn't make sense to buy unneeded weapons just to stimulate the economy, but all of the programs on the reported list meet critical military requirements and are strongly supported by the services that will receive them. So maybe someone at the White House ought to consider the connection between the administration's defense and economic policies.

(Loren B. Thompson is chief executive officer of the Lexington Institute, an Arlington, Va.-based think tank that supports democracy and the free market.)

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