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The Defense budget request from the Biden administration is a bit of an outlier, as these things go. It was submitted later than ever, and is an amalgam of Biden and Trump administration priorities. It’s also the first in 20 years to come with no overseas contingency fund request. Or not exactly. For the important messages the budget is sending, Federal Drive with Tom Temin turned to the Director of Defense Budget Analysis at the Center for Strategic and International Studies, Todd Harrison.

Interview transcript:

Tom Temin: Todd, good to have you back.

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Todd Harrison: Hey, good to be here.

Tom Temin: We should begin with the fact that there is no 2022 appropriation to begin with, so we’re a little bit talking academically here.

Todd Harrison: That’s right. And that’s important to remind folks that even though the house in the Senate, you know, reached a compromise deal on the National Defense Authorization Act — and that’s waiting for the President’s signature — they still have not reached a deal on the appropriations bill, and you have to have appropriations in order to spend money. So for now, and perhaps all the way through February 18 at least, we’re under a continuing resolution. So the FY22 defense budget is still up in the air.

Tom Temin: All right, but given what they have requested, that’s a good place to begin. And there’s a lot of issues and an emphasis on the people costs of the volunteer force. I guess that continues a trend of 50 years in some sense, but it’s accelerating, isn’t it?

Todd Harrison: It is. We’re seeing an uptick again in people costs. And really, the metric you want to look at is the average cost per person, both in active duty military as well as the DoD civilian workforce. And so that’s one of the things that jumped out in this budget request is that the milpers accounts — military personnel accounts — went up by nearly 2%, adjusting for inflation. And part of that is they were calculating in a 2.7% pay raise for personnel, which is what is required by statute that’s based on the employment cost index of the previous year. So that was already factored into the budget here. And you know, these costs are only going to get more challenging next year, let’s move on to the RTD&E costs — the research, technology, development, engineering — this is a big part of what the military states is its need to modernize in terms of the threat environment, and what does the budget say there? Yeah, so that’s where, you know, it got pretty interesting, because if you look on the surface, they’re showing more than a $6 billion increase [in the] research and development part of the budget. When you adjust for inflation, you know, it’s about 4.4% growth above inflation. So, you know, I looked at that and says, hey, you know, maybe they are really, you know, doubling down on the strategy, which says, we need to invest more in modernization and new technology to compete better with China and to a lesser extent Russia. But when you start to, you know, peel back the details, it’s not as much growth as you might think. So, one of the things you know, I found in there is that they included $1.25 billion in a new funding line, — mandatory funding — for something that’s related to pandemic preparedness, and they put that in DoD’s budget, and then r&d funding line. And that’s not really, of course, what we think of in terms of investing in new defense technology. It’s really not a defense application, but they put it in that part of the budget anyway. The other thing that is interesting in there is this new category of funding. They call it 6.8 funding —budget activity 6.8 — it’s for software pilot programs. And that’s where they’ve created this new authority. Congress created the new authority that allows DoD to basically put procurement money, operation and maintenance money, research and development, money, testing money all in one pot of money that they can flexibly use, you know, for different types of activities at different stages in a program’s process. And so you know, that’s an important thing, because in software, like, how do you actually, you know, how do you tell the difference between development and procurement and maintenance, right? It’s all kind of happening at the same time. So they needed that kind of flexibility. So we saw a big increase in that part of the r&d budget, but a lot of that increase about — one and a half billion of it, by my count — is not new money. It’s money that’s just being transferred that was already in procurement accounts and operation and maintenance accounts. And they just transferred it into this part of the budget. So when you look at all of those factors, you know, the growth that we saw in research and development was actually about half as much as we thought on first glance.

Tom Temin: Yeah. So that seems to say that they’re not fully behind, in a budget sense, what they say in public they need, which is the strategic offset continuance.

Todd Harrison: That’s right. Yeah. So it casts more doubt on, you know, how much they were really leaning into the defense strategy here. And so that means looking forward to the next budget request for fiscal year 23, which, you know, by statute is supposed to come out in February. We’ll see if they meet that deadline. But, you know, that’s going to make us look more closely and say, okay, this will be the first budget request, the next one, will be the first one that the Biden administration was able to craft from the beginning, right. And it will be crafted, you know, in alignment with their new defense strategy, which they’re expected to come out with early in the new year. And we’ll be able to see, okay, are they still relying, is the strategy still relying and placing an emphasis on, you know, investments in new technologies, game-changing technologies? And then do we see that reflected in the research and development part of the budget?

Tom Temin: Alright, so then some things that were kind of moved in and out of different procurement accounts, and there’s not really a clear statement of doctrine here in this budget. What about the traditional procurements — platforms and planes and ships and all those things?

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Todd Harrison: That was an interesting budgetary maneuver that they did. They essentially punted over to Congress a lot of the hard decisions. And the way you do that in the budget is when you’ve got to meet, you know, a fixed top line, then you — you know, and there’s more more you want to put in it, then you can fit in that top line — then you take things out, cut things out of your budget requests that you know Congress will want to put back in. And then Congress has to figure out how to pay for it, right? Do they give you more money overall? Or do they make other offsetting cuts, difficult cuts, elsewhere in the budget? So that’s essentially what happened in procurement is they cut out things like shipbuilding, they cut out a number of ships from the plan that they’re, you know, they could be pretty confident Congress was going to add those things back in and it looks like Congress will be adding ships and planes back into the budget requests that were taken out. But now Congress, you know, of course, has to figure out how to pay for it.

Tom Temin: Well, that’s right. What we saw from the appropriations that didn’t come through is that there was a big plus up, and that was supported by both Republicans and enough Democrats to make it into those bills. But you know, they haven’t really finished up yet.

Todd Harrison: That’s right. So that they haven’t finished up yet. But in the authorization bill that came out, it’s authorizing about $15 billion in additional procurement money. And so it is going back and authorizing those ships that were taken out, and a lot more airplanes than DoD had planned on buying. And, you know, the appropriations, if you look at the the appropriations bill that made it through the house, it actually only adds about $2 billion — $2.1 billion in procurement funding. If you look at the appropriations bill that was introduced in the Senate, although it’s not passed anything yet, it adds $9.3 billion and procurement funding. So it seems pretty likely that Congress will end up adding procurement funding. But you know, we don’t know the specifics yet until they come out with a final compromised version of the appropriations.

Tom Temin: And early on, you mentioned that, yes, there’s a lot of statement of intent and some money behind pandemic spending, and also all this climate area and making sure that bases are resilient and so forth, and that’s all well and good. But does the budget fundamentally say we’ve got a big problem on our hands with China, and we’ve got a big problem on our hands with the fact that they’re having more, soon will have more nuclear weapons than we do. They’ll have more ships than we do when their hegemony is going beyond, way beyond, where they live. Does the budget talk about that in the dollar sense?

Todd Harrison: Yeah, I mean, you know, some indications there along those lines, but the budget really, it continues to speak towards the threat posed by China. And much the same way and a lot of continuity in the way that the Trump administration’s budget requests did. And that’s not surprising, because, you know, this budget request for FY22, it was actually, you know, prepared and developed from the bottom up by the Trump administration. They handed a fully completed budget over to the Biden team in January, and then the Biden team had a chance to make some revisions to it. I would say it did not go further in terms of trying to address the China threat more directly, more aggressively. And part of that, I think, is because, you know, one of the things that Trump administration did at the very end is it came out with a whole new 30-year shipbuilding plan that called for a tremendous increase in the size of the fleet and, in the near term, in shipbuilding and construction funding. And they had reportedly put that into the FY22 request, and so they were going to really try to accelerate shipbuilding at the expense of other parts of the budget. And we don’t know the details of what they would have cut. But what it looks like is when the ’22 budget came out, the Biden administration took a pass on that accelerated shipbuilding plan, and rolled it back significantly and basically said, we’re gonna wait and we’re gonna think about that and come up with our own plan before we try to implement something the previous administration had just developed at the last minute. So that is going to be part of the national defense strategy that they’ve been working on for almost a year now. And we’ll know a lot more when that comes out.

Tom Temin: So then basically presuming, then, to wrap this kind of up in a bow, if the 2022 package was enacted, by Congress in the budget bills, then basically it would be sort of a holding pattern until we can see what the new administration really wants in ’23 and beyond.

Todd Harrison: Yes, and that is typical of the first budget request of a new administration is it basically tries to forego any big changes, any big shifts, until the new administration has all of its key personnel in place and has had time to review and build its own strategy and budget from the ground up. So, you know, that’s what we’re looking at in this budget request. That’s why you see Congress making more changes to it, because they’re trying to adapt more dynamically to the threat environment and what we see going on around the world. But the FY23 request, you know, all eyes are going to be on that to see what does the Biden administration really want to do when it comes to national defense.

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Tom Temin: And meantime, Xi Jinping says, I can make myself president for life and we’ll definitely have continuity.

Todd Harrison: Yeah, but, you know, still prefer our system over theirs.

Tom Temin: You bet, we’ll take it any day. Todd Harrison is director of defense budget analysis at the Center for Strategic and International Studies. As always, thanks so much.

Todd Harrison: Thanks, Tom.

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