Examining National Security as Part of the Entire Federal Budget

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As the 2020 election concludes and the new Congress and administration prepare for discussions on federal spending, there are three important things to do before making any hasty decisions about national security.

First, examine all federal spending.

Before rushing to halt defense readiness recovery and restored competitiveness or limit operational options in favor of increased federal spending elsewhere, we must cast an uncomfortable but necessary light on mandatory spending, which in 2019 comprised more than 62% ($2.7 trillion) of the annual federal budget.

There is no productive way to address the deficit or concerns about federal spending without expert, positive, aggressive and creative examination of mandatory spending.

For example, federal civilian and military retirement comprises $170 billion of entitlement funding. The Department of Defense has been reviewing a creative and cost-effective proposal to address a portion of this by investing DoD pensions in marketable securities that provide a higher rate of return while reducing costs. The plan would also create a secure real asset base that contributes to the U.S. economy.

This innovative concept would have no impact on military members but has not been submitted due to "scoring" rules, which impose a current year budget impact on the proposal. Emphasis should be placed on breaking through this barrier to initiate smart entitlement reforms that are good for stakeholders and taxpayers. 

Second, consider actual defense costs when examining discretionary spending.

Defense makes up about 16.6% of the federal budget and half of discretionary spending. But it contains non-defense spending, skewing general understanding of what defense actually costs.

Before we entertain proposals to cut billions from defense to support increased federal spending on innovation or anything else, we should match budgets with the appropriate departments and determine if a federal agency's engagement is even the best solution.

For example, the Department of Defense funds education, health care, and grocery stores. We should take a hard look at the appropriate role of DoD in running any of these programs and businesses.

While supporting uniform and civilian personnel with safe, local access to goods and services makes sense in remote or non-U.S. locations, the overwhelming conclusion of 12 studies devoted to examining defense resale entities recommended some form of consolidation. Projected net savings of at least $700 million over five years and recurring annual savings of between $400 million to $700 million thereafter could be harvested for priority spending or deficit reduction. 

DoD currently funds activities more appropriate to other departments. In FY 2020, DoD had a budget of more than $1.5 billion for medical technology development, including autism and breast, ovarian and prostate cancer research. In parallel, the National Institutes of Health, where such federal efforts should be supported, had a total budget of more than $250 billion, within which $17.7 billion was reserved for conditions and diseases DoD also funded. 

Defense budgets also include money (albeit minor amounts) for education grants for state and local entities, law enforcement support, and blankets for the homeless. Not really core DoD competencies.

Appropriating funds to DoD for non-defense activities promotes an inflated picture of the true costs of national security. It also creates false choices between defense and non-defense priorities.

Third, pursue opportunities to capture lost buying power.

DoD loses billions in buying power due to antiquated resourcing structures, byzantine legislative requirements, and financial systems designed for budget execution, not detailed, enterprise-wide accounting and audits.

While DoD is modernizing its systems for audit purposes and seeing savings and cost recovery, as a result, it needs help to update appropriations structures to match continuous program development, deployment and sustainment.

Based on recommendations from a Defense Innovation Board study, DoD proposed a pilot program to save time and money by combining appropriations for development, procurement and sustainment of software programs. The requested changes would accelerate the process, save money and reduce risk to programs such as the joint Global Command and Control System, which provides an integrated, comprehensive real-time operational and intelligence picture for joint and multi-national operations. 

The Department has also proposed capturing expiring and canceled funds for shipbuilding and using budget carry-over flexibility as other departments have done. More ideas like this should be pursued.

It is imperative that the Department of Defense continue an on-going critical self-examination of programs, organizations, systems, and core functions to harness all the buying power granted by Congress.

The administration and new Congress should avoid false trade-offs between defense and domestic priorities while allowing DoD to be a smarter customer and capture lost buying power. Inclusive federal spending options that incrementally realign resources from DoD to those who hold the mission, along with aggressive and creative entitlement reform, would inform, expand, and improve choices available to elected officials.

Elaine McCusker is a resident fellow at the American Enterprise Institute. She is a former Acting Under Secretary of Defense (Comptroller).

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