War Stories

Rumsfeld’s Dubious Deficit Cutting

Pentagon budget cuts will take years to translate into savings.

Rumsfeld’s cuts mean delayed gratification

So, the Pentagon is finally realizing that, while money may grow on trees, the tree doesn’t grow forever. The New York Times and Washington Post report today that Donald Rumsfeld & Co. are looking at ways to cut the military budget—a topic they hadn’t even thought about since taking office four years ago—and that big-ticket weapons systems (including the Air Force’s F-22 stealth fighter plane, a new Navy destroyer, and a futuristic Army combat vehicle) are not immune from the ax. As John Warner, chairman of the Senate Armed Services Committee, is quoted as saying, the Defense Department, while preserving “adequate funds” for operations in Iraq and Afghanistan, must “bear its share of cuts necessary to help work down deficits.”

There are many good reasons for killing the Pentagon’s white elephants, gargantuan relics from an era gone by. (I offered a couple of lists of candidates for the chopping board here and here.) But slowing the Bush-Rumsfeld weapons-buying spree is not going to have much of an effect on the deficit, at least in the short term. Like driving a hot rod at 120 miles per hour, you keep skidding for quite a while after slamming on the brakes.

According to news reports, Pentagon officials are thinking about cutting various weapons programs by $10 billion in the Fiscal Year 2006 military budget, which they send to Congress in February. But the way weapons programs work, a $10 billion budget cut would reduce next year’s deficit by only about $2.5 billion or less.

There are two measures of a budget. One is “budget authority”—how much money is requested and allocated. The other is “outlays”—how much is actually spent in a given year. For most federal budgets, the two are similar; most of the money goes for payroll, which gets spent instantly. The Defense Department is one of the few federal bureaucracies that engages in large-scale capital spending. Many projects take years to build; in other words, the budget authority takes years to translate into spending. By the same token, cuts in budget authority take years to translate into savings.

The precise duration of this time lag is spelled out in a voluminous (and, therefore, largely unread) document called the National Defense Budget Estimate (also known as “the green book”), published each March by the Pentagon’s comptroller. Among the green book’s many charts is one titled “Outlay Rates To Be Used for Incremental Changes in BA Purchases” (BA standing for budget authority).

The chart (found in this year’s edition on Pages 54-55) calculates a different rate, over a six-year period, for each category of military spending. For example, for Air Force aircraft procurement, only 26 percent of the money authorized is spent in the first year. Another 45 percent is spent during the second year, 19 percent the third year, 6 percent the fourth year, and the final 2 percent in the fifth and sixth years.

With this in mind, look at the Air Force’s F-22 stealth fighter plane. Earlier this year, Congress authorized $4.1 billion to buy 24 planes. By the green book’s calculation, only $1 billion of that amount will be spent next year (the first year of outlays). In the unlikely event that the F-22 is halted in this February’s budget—that is, if $4 billion in budget authority is cut to zero—the savings for 2006 will be just $1 billion. A billion dollars is a substantial saving, but it’s not $4 billion. Meanwhile, the Air Force will be spending nearly $2 billion for the second-year outlay on the planes authorized in 2004.

And the spending rate—and, therefore, the savings rate—of Air Force aircraft is relatively fast. Pentagon officials are thinking of cutting back on the Navy’s new DD(X) destroyer, which will cost about $1.5 billion per ship. According to the green book, just 17 percent of money authorized for Navy ships is actually spent during the first year. Another 23 percent is spent the second year, 21 percent the third, 20 percent the fourth, 10 percent the fifth year, 8 percent the sixth, and the final 1 percent in the seventh year. So, a $1.5 billion budget cut in shipbuilding translates to just a $255 million spending cut. And, equally pertinent, the financial impact of ships authorized two years ago is only now beginning to be felt—and will continue to be felt strongly for the next two years to come.

The root of the problem is that, over the past four years, not only have President Bush and Secretary Rumsfeld pushed the military budget to its highest level in half a century (even with the effects of inflation), they’ve also overloaded that budget with big-ticket weapons purchases—and with research and development for big-ticket weapons to come. (For details, click here.)

The fastest way to save real money is to cut military personnel, spare parts, fuel, and supplies. Between 90 percent and 95 percent of budget authority for personnel gets spent in the first year. Ditto for nearly 60 percent of authority for operations and maintenance. But, of course, this is the last thing the Pentagon wants to cut, and rightly so. In fact, given the consensus for a larger Army—and the heavy rate at which supplies are being used up in Iraq and Afghanistan—these accounts are going to rise.

None of this is to suggest we shouldn’t bother to slash wasteful, expensive weapons systems. The cuts will pay off in the long run. It’s just that this long run is longer than might be expected at first glance.