A New Budgeting Approach for the Defense Department

Policy Reports | National Security

No. 388
Friday, November 18, 2016
by David Grantham

Executive Summary

Zero-based budgeting is an alternative budgeting system proven to decrease expenditures and improve efficiency within private sector companies and public institutions. The process requires organizations to conduct an internal review of all expenditures each year and obligates each department to justify its proposed spending. This budget strategy does not allow costs to simply carryover from one fiscal cycle to the next without examination. Instead, zero-based budgeting helps identify wasteful spending, whether redundant programs or obsolete positions, and helps purge unnecessary expenses.

Evidence shows that the yearly review process, while initially time-consuming, can save organizations substantial sums. According to independent studies, a well-implemented zero-based budget could save large corporations 10 percent to 25 percent, sometimes within six months of implementation. And those savings are more sustainable over a longer period than traditional cost reduction methods, such as lower level workforce reduction, offshoring and outsourcing. If the Department of Defense achieved just a 10 percent savings over the entire organization, those savings would amount to $53 billion.

The DOD is the ideal organization within the federal government to test zero-based budgeting. The current baseline budgeting system requires the government to set the previous year’s spending as the starting point for the next year’s budget. Preparers assume all of the same programs and operating procedures, and only adjust the following year’s expenditures to account for actual spending in the current year, inflation and population growth. Since inflation and population growth are almost always positive, the budget almost always rises.

Senator John McCain (R-Az.) has pointed out that America’s defense spending, “in constant dollars, is nearly the same as it was 30 years ago.” Yet it consists of “35 percent fewer combat brigades, 53 percent fewer ships, and 63 percent fewer combat air squadrons.” Chairman of the House Armed Services Committee Mac Thornberry (R-Texas) more recently questioned the rise in Overseas Contingency Operations funds despite the decline in troops. The increased spending alongside the decline in readiness exposes a problem with the overall budget process.

The automatic carryover of expenditures under baseline budgeting actually encourages spending.
Toward the end of each fiscal year, defense officials regularly exhaust their funds so that they do not lose
money in the upcoming budget. This period is known as “use it or lose it.” Researchers found that federal
procurement spending was five times higher in the last week of the fiscal year than the weekly average for
the rest of the year, and the quality of the projects was scored well below average. A zero-based budgeting
model would automatically eliminate this practice and likely save the DOD millions.

The zero-based budgeting model could be tested within the DOD by applying it first to the bloated
levels of defense leadership, their staffs and civilian employees. The number of general and flag officers
positions has increased disproportionately to the personnel they oversee, while the growth in civilian and
staff numbers continues to exceed what is necessary.

According to former Secretary of the Navy John Lehman, over half of U.S. active-duty personnel serve
on staffs. Indeed, the number of various Joint Task Force staffs has grown from seven to more than 250
over the last 30 years ‒‒ a significant and largely unsubstantiated growth in defense bureaucracy.

The zero-based budgeting model could examine and adjust the overall ratio of GFOs to troops, a
number that has become severely lopsided:

  • Roughly 2,000 GFOs oversaw 12 million military personnel in 1945.
  • Now, nearly 900 GFOs oversee 1.3 million active duty personnel.
  • In fact, over the past 30 years, the military’s end-strength ‒‒ deployable/fieldable forces ‒‒ has
    decreased 38 percent, but the ratio of four-star officers to the overall force has increased by 65 percent.

A 10 percent cut among GFOs and their staffs could save nearly $11.5 billion over 5 years.

These cuts would not harm the combat readiness of the U.S. armed forces since the reduction would
target support and nondeployable positions. Moreover, the closure of some overseas bases and the
lowering of rank requirements for certain positions would ensure those savings are maintained. Identifying
savings within the DOD will require more than indiscriminate cuts to active duty numbers, military
platforms or pentagon programs. Thoughtful, long-term spending will be achieved by overhauling the
budget process.

 


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