How DoD’s own budget process keeps the military on the wrong side of the ‘valley of death’

In fiscal year 1956, the Army didn’t ask Congress for a single dollar in its procurement budget. It didn’t need to. Back then, DoD’s budget accounts were apportioned in incredibly broad lump sums, and the dollars didn’t expire. So the Army could simply use $5 billion in unspent funds left over from the Korean War for all of its equipping needs that year.

Fast-forward 65 years, and each military service’s budget is made up of...

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In fiscal year 1956, the Army didn’t ask Congress for a single dollar in its procurement budget. It didn’t need to. Back then, DoD’s budget accounts were apportioned in incredibly broad lump sums, and the dollars didn’t expire. So the Army could simply use $5 billion in unspent funds left over from the Korean War for all of its equipping needs that year.

Fast-forward 65 years, and each military service’s budget is made up of hundreds of different line items, each narrowed down into the range of tens of millions of dollars. Each “program element” is planned at least two years in advance, the funds vanish if they’re not used as scheduled, and only about 1% of the budget can be reprioritized during the year it’s actually being expended.

Somewhere between those extremes is a budgeting system that’s rational for the 21st Century. That’s the gist of a new study by George Mason University’s Center for Government Contracting. The authors chronicle, in detail, the Defense budget’s gradual slide toward ever more rigidity, and posit that budget inflexibility is one of the main reasons it’s so difficult to get new technologies across the “valley of death” and into military use.

“The department is embracing things like other transaction authorities and commercial solutions openings to develop all kinds of prototypes. But there’s a big frustration that these companies develop these prototypes, and DoD customers want them, but there’s no program of record to put them in,” said Jerry McGinn, the GMU center’s executive director said in an interview for Federal News Network’s On DoD. “That’s the whole budgeting problem. That’s the valley of death that’s really bedeviling a lot of the department today.”

There’s no program of record to put them in because in most cases, it’s very, very difficult, to budget for production-scale spending on new systems two years before they’re even prototyped — or in the case of existing systems, to know which of DoD’s 1,800 budget lines is the best home for a breakthrough technology before anyone knows about the breakthrough.

Up until the 1970s, the military services were able to deal with some of that uncertainty by reprogramming funds during the year they were being spent. In that era, about 8% of the Defense budget could be reallocated to meet new priorities during the year of execution. But via a combination of a loss of trust between DoD and Congress and DoD’s own regulatory changes, that’s since declined to about 1%, said Eric Lofgren, a Center for Government Contracting senior fellow.

“And Congress actually reduced the reprogramming thresholds for procurement and operations and maintenance accounts in the last few years down to $10 million, so that was a significant shift in the wrong direction,” he said. “And it’s not necessarily clear that there’s the appetite to raise those thresholds a lot.”

Congress could also help solve the problem by loosening restraints on “use it or lose it” funding. As of now, operation and maintenance dollars expire within one year, R&D funds expire in two years, and procurement funding expires after three years (five years, in the case of ships). But the authors concluded lawmakers aren’t likely to change those rules anytime soon either, again, because of a breakdown in trust between DoD and its overseers.

On the bright side, the report offers a couple of other suggestions that researchers think are both politically practical and wouldn’t require significant changes in law or DoD regulations.

One is an expansion and rethinking of “innovation funds.” The department already has several accounts with that nomenclature, but all-told, they amount to only a few hundred million dollars per year, and they’re much more focused on experimenting with new technologies than on fielding the ones that work.

Instead, the authors think DoD could focus its innovation funds on warfighting exercises that are clearly focused on operationalizing new technologies. In that construct, the ones that prove successful during “sprints” would move onto a rapid procurement phase funded by a single pool of innovation funding that crosses traditional color-of-money boundaries.

“We proposed trying a pilot or two, where you have a fund on the level of about $100 million in one of the services or multiple services, and link it through experimentation into a specific program executive office that would then be able to execute or transition those efforts,” McGinn said. “So there, you’ve got the funding, and you’ve got the catcher’s mitt for the technology to transition and meet the need.”

Another option that could go a long way toward solving the problem: Collapse the “program elements” that currently go into DoD’s 30,000-page annual budget submission into a smaller, more rational number of funding lines.

The number of individual line items in the Defense budget has grown tenfold since the 1960s, Lofgren said, to the point where the median line item in DoD’s R&D budget is $30 million — a rounding error in the department’s topline.

“You can’t move between those line items. You’re kind of like a train on a railroad track, and you can’t really pivot between things or handle problems as they come,” Lofgren said. “There’s a plethora of these very small, very narrow, tightly-defined program elements, and they basically have the contractor or the requirement specified on it. So it shackles the program managers from making choices like, ‘I’m going to trade off cost for schedule,’ or ‘I will go for the 80% solution and move money somewhere else that needs help.’ They can’t make those choices.”

In isolation, a consolidation of all those program elements could have the effect of reducing transparency and oversight of DoD’s spending.

But Lofgren said that problem’s solvable too: The department could give Congress more real-time insight into its own data systems, like the department’s Advana platform, rather than asking it to approve the exquisitely-tailored funding lines it forecasted it would need two years before the spending occurs.

“That provides you insight and oversight as to where the department is going, as opposed to forcing all that detail to fix a forward plan and locking the department into that detailed plan according to weapon system,” he said. “The notion is that you can get lower-level insight into what’s actually happening without constraining the department’s forward plans. So we might be able to reduce those 30,000 pages of documentation and streamline it if you can also double-click into [a portfolio of systems] and see the actuals. Then, Congress can still stop something if they don’t like it, and the program managers will respond. You don’t have to express it in legislation, but they will respond and try to act in good faith, I think, when you have that transparency.”

 

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