Skip Navigation
| Skip Navigation |
|
|
|
|
|
Rapid increases in defense spending during the past six years (1981-1986) have been accompanied by changes in the composition of the defense budget. The shares of procurement, military construction, and research and development--so-called "investment" spending--have increased at the expense of appropriations for military personnel and operation and maintenance.
Some analysts have questioned whether Administration plans provide sufficient funds for manning, operating, and maintaining the military services' weapons and facilities. Lacking measures of readiness that can be linked to support funding, this Congressional Budget Office (CBO) study is limited to exploring whether the historical relation between appropriations for defense investment and support provides a basis for projecting likely future support needs. In accordance with CBO's mandate to provide objective analysis, the report offers no recommendations.
This paper was prepared initially by Randall Kish, a civilian employee
of the U.S. Navy on temporary detail to CBO, under the general supervision
of Robert F. Hale and Neil M. Singer. Neil Singer later revised and extended
the original study. Helpful comments were received from Edward M. Gramlich
and R. William Thomas of CBO. The manuscript was edited by Sherry Snyder
and prepared for publication by G. William Darr.
September 1986
CHAPTER I. OVERVIEW
CHAPTER II. THE OPERATIONS AND SUPPORT BUDGET
CHAPTER III. O&S AS A PERCENTAGE OF THE VALUE OF DoD CAPITAL STOCK
CHAPTER IV. O&S BUDGETS AS A PERCENTAGE OF DoD INVESTMENT
In 1980 the United States embarked on the most extensive and prolonged peacetime defense buildup in its history. Since then, over $500 billion in constant 1987 dollars has been appropriated for military equipment and facilities, resulting in an annual real rate of increase in the investment appropriations accounts--military procurement and construction--of 10 percent. Although the 1986 procurement appropriation was smaller (in real terms) than that for 1985, further increases are projected by the Administration for the remainder of this decade.
As these weapon systems and support facilities enter the Defense Department's inventory, they will require additional funds for operations and support. In fact, appropriations for military personnel and operations and maintenance have also increased since 1980, but at less than half the rate of the investment accounts. The Administration's latest five-year defense plans project that investment will continue to grow more rapidly than support.
These trends have led some critics to charge that the Administration's plans overemphasize the acquisition of new equipment and facilities, with little regard to the cost of using and maintaining them. These critics maintain that the Administration has failed to budget adequately for future support costs. Eventually, they believe, the Defense Department will be confronted with a choice between adding support funds to its budget or accepting sharply reduced capabilities. Indeed, they claim, recent patterns of funding have already penalized military readiness.
Two variations of this thesis, as advanced separately by William Kaufmann, of the Brookings Institution, and Franklin C. Spinney, of the Department of Defense, are examined in this study. Kaufmann asserts that operating and support (O&S) costs--defined as the sum of spending for personnel, day-to-day operations, and maintenance--are proportional to the value of equipment and facilities for each weapon system. Thus, in the long run, O&S funding must be proportional to the value of the Defense Department's capital stock. Inasmuch as appropriations for the investment accounts largely translate into growth in the capital value of weapon systems (net of an allowance for the attrition and replacement of obsolete systems), Kaufmann's hypothesis implies that ultimately O&S funds must grow at about the same rate as investment in order to remain proportional to total capital stock.1
Spinney contends that, historically, appropriations for investment and
support have maintained approximately constant shares of the overall defense
budget. More recently, however, the share of the O&S accounts has fallen,
and Administration plans project that it will stay at its new, lower level
through at least the end of the decade.2 Spinney's
thesis is that unless O&S appropriations maintain their share of the
overall defense budget, readiness activities--training, operations, modernization,
and maintenance, for example--will have to be curtailed and overall capability
will fall.
EVALUATING THE HYPOTHESES
Testing either hypothesis is difficult because of the implicit assumption linking military readiness on operations and support. The Congressional Budget Office (CBO) has no comprehensive measure of readiness, let alone any quantitative link between readiness and levels of O&S funding. A common assertion by military and civilian officials of the Defense Department, in connection with the overall defense buildup, is that readiness has improved since 1980. Yet, apart from the dramatic improvements in military manpower, CBO has found the evidence for increased readiness to be mixed.3 In this analysis, CBO assumed that increases in O&S funding have occurred against a backdrop of roughly constant overall force readiness.
Kaufmann's Proportionality Theory
Analysis of Kaufmann's hypothesis--that O&S costs are proportional to the value of capital stock for each weapon system--is complicated by two factors. First, Kaufmann's estimates of capital stock are difficult to replicate for many weapon systems because of problems in estimating attrition from the inventory and the effect of modernization. Second, O&S costs cannot be apportioned to individual systems except in a minority of the activities funded through the O&S accounts.
Kaufmann's hypothesis can be tested for a limited sample of systems--specifically, strategic missiles and ballistic missile submarines--but the test is not conclusive. Kaufmann's proportionality hypothesis generally is satisfied for missiles, but appears not to be for submarines. Moreover, in both cases, O&S requirements estimated in this paper are much lower--no more than half as great--as those underlying Kaufmann's published estimates. On balance, the historical trends appear to be generally consistent with the capital stock proportionality hypothesis, but the specific O&S projections made by Kaufmann are not supported.
Spinney's Theory of Constant Budget Shares
Spinney's theory holds that, to maintain military readiness, O&S appropriations must account for a constant share of the total defense budget. But analysis shows that budget shares for investment and for operations and support have not remained stable historically; instead, they have fluctuated within stable ranges. Investment consumed a large proportion of the defense budget in the 1960s and 1980s, but a smaller one during the 1950s and 1970s. O&S exhibited the opposite pattern by definition. O&S funding presumably affects day-to-day military readiness, and changes in O&S could simply reflect periods of poorer and better readiness. But today, when the share of the budget devoted to O&S has fallen to a historical low, testimony by senior military commanders suggests that readiness is high and improving. Thus, history does not appear to support the need for constant budget shares.
A separate analysis of the shares devoted to the components of O&S--military personnel and operation and maintenance (O&M)~also fails to support Spinney's hypothesis. In the military personnel account, which has shown the most dramatic change, sharp reductions in budget share have occurred even though most service requirements for numbers of personnel have been met and despite a major improvement in the quality and experience of military personnel. Thus, it is not clear that appropriations for military personnel require a constant share of the budget.
The analysis of the O&M accounts leads to the same finding, though
less conclusively. Because it is plausible that increases in investment
will generate increases in O&M as new systems impose new support needs,
the Spinney hypothesis was examined in the light of 20 years of historical
data. This analysis incorporated the assumption--which cannot be verified
with precision--that O&M and related readiness programs have not been
under- or overfunded for prolonged periods. In most comparisons, the history
suggests a statistical relationship between changes in the budget shares
of investment and O&M, but O&M does not appear to increase by the
same percentage as investment. Thus, while Spinney's hypothesis appears
to receive weak support from this empirical investigation, his conclusion
that O&M must maintain a constant share of the budget is not supported.
LIMITATIONS OF THE ANALYSIS
The conclusions of this study are limited by the difficulty of constructing complete and comparable data and, in some cases, by the need to limit the analysis to particular types of weapon systems. Despite these limitations, the analysis suggests some relationship between spending for operations and support and spending on investment. But the relationships are not nearly as strong as implied by either the Kaufmann or Spinney claims, and the relationships established here fail to provide a basis for forecasting O&S requirements precisely.
In general, it seems plausible that funds to support defense activities should increase by some amount as the force increases in size and complexity. But the specific techniques used by Kaufmann and Spinney appear to be problematic with regard to both the assumptions made and the data used. At best, these techniques provide approximate guidance in forecasting future O&S requirements.
This document is available in its entirety in PDF.
1. In practice, most replacement investment is related to attrition. Older items of capital equipment typically "trickle down" to reserve units and thus remain in the overall DoD inventory.
2. The Administration's budget request for fiscal year 1987, however, provides for a one-year increase in the share of O&S.
3. See Congressional Budget Office, "Defense Spending: What Has Been Accomplished?" (Staff Working Paper, April 1985), pp. 17-19.