Sep 14, 2020 - 11:45am

DAEC Summary of key highlights from CSIS report: Analysis of the FY2021 Defense Budget


President, Defense and Aerospace Export Council (DAEC)
Vice President, U.S. Chamber of Commerce

Reference:  Analysis of the FY2021 Defense Budget, by Todd Harrison and Seamus Daniels, CSIS Defense Budget Analysis Program, dated August 2020 (see linked document).

The fiscal year (FY) 2021 budget requests a total of $716 billion for the Department of Defense (DoD), including $10.8 billion in mandatory funding and $69 billion in Overseas Contingency Operations (OCO) funding. This represents a reduction in DoD funding of 2.2 percent (or 4.1 percent if adjusted for inflation) from the current fiscal year, driven mainly by emergency supplemental funding, which totaled $18.5 billion in FY 2020 but is not requested in the FY 2021 budget.

In the lead-up to the release of the FY 2021 budget request, reports emerged surrounding internal disagreements within the Trump administration over funding for atomic energy activities (053 subfunction), specifically the National Nuclear Security Administration (NNSA). The NNSA’s budget of approximately $20 billion for FY 2021, submitted to the Office of Management and Budget (OMB) in the fall, faced cuts from OMB officials seeking to reduce the requested figure to $17.5 billion. With the support of Republican members of the Congressional Armed Services Committees, NNSAsecured a $19.8 billion request over the opposition of OMB. The nearly $3 billion increase in the NNSA’s requested budget for FY 2021 comes at the expense of funding for DoD programs.

The largest budge increase for DoD is in the research, development, test, and evaluation (RDT&E) title of the budget, which is $5.8 billion larger than previously projected, followed by funding for military personnel (MILPERS), which is $2.7 billion higher. These increases are offset by $4.1 billion in cuts to operation and maintenance (O&M), $8.5 billion cut in procurement, and $3.4 billion cut in military construction (MILCON) relative to what was previously planned for FY 2021.

The acquisition portion of the DoD budget, which consists of the procurement and RDT&E titles, shifted noticeably in PB21 relative to PB20. Procurement funding is down $8.5 billion (or 5.8 percent) for FY 2021 compared to the previous projection for the same year, and procurement is $18.5 billion (or 3.1 percent) lower over the four-year period the two requests have in common (FY 2021 to FY 2024). RDT&E funding, however, fared differently, increasing by $5.8 billion (or 5.8 percent) in FY 2021 and $27.7 billion (or 7.2 percent) over the four-year period relative to PB20.

While the increase in RDT&E funding in FY 2021 could be a sign that DoD is rebalancing its portfolio of investments in new technologies and weapons to better align with the National Defense Strategy (NDS), the fact that RDT&E funding is still projected to decline in real terms over the following four years could undercut that narrative. Moreover, procurement funding is projected to decline through FY 2022 and rebound by FY 2025 to just 1.8 percent higher in than it is in FY 2020. This means that by FY 2025, when DoD is expected to be in the middle of its long-awaited modernization bow wave, total acquisition funding would be 4.7 percent less in real terms than it is today.

Procurement funding declines in FY 2021 relative to both last year’s projection for FY 2021 and the current level of funding in FY 2020. Aircraft funding is projected to continue declining through FY 2025, falling by a total of 21 percent in real terms over the next five years. This is due in part to the end of P-8 production and planned reductions in other Navy aircraft programs. Funding for shipbuilding and construction declines through FY 2022 due to cuts in the number of Virginia-class subs, DDG-51 destroyers, and amphibious transport dock ships (LPDs) planned in those years. However, the shipbuilding budget returns to near its current level by FY 2025. Funding for communications, sensors, and electronics is projected to increase by 21 percent in real terms over the next two years.

Ground systems procurement funding is projected to decline by 17 percent from FY 2020 to FY 2025 due in part to reductions in the Abrams Upgrade Program, Armored Multi-Purpose Vehicle, and other vehicle programs. Space procurement funding, which transitions to the newly created Space Force in PB21, is projected to grow by 13 percent in real terms over the next five years, although it remains just 1.8 percent of total DoD procurement funding. Missile defense procurement receives a boost in FY 2024, when the Missile Defense Agency increases SM-3 Block IIA production to 51 per year.

In the FY 2021 request, DoD divides the OCO budget into three categories of funding. Direct war requirements total $20.5 billion in FY 2021 and include the incremental costs of ongoing combat and combat support operations in Afghanistan ($14 billion) and Iraq and Syria ($7 billion). At $32.5 billion, the largest share of OCO funding is for enduring requirements—activities that are expected to continue even if combat operations end. These include the costs of overseas basing, depot maintenance, the European Deterrence Initiative (EDI), and security cooperation funding (including $250 million for the Ukraine Security Assistance Initiative). The third category is OCO for base requirements, which totals $16.0 billion and is used for a variety of base budget activities.

In its FY 2021 budget, the Army requests $37.8 billion in funding for acquisition programs. Between FY 2021 and FY 2025, Army acquisition funding is projected to fall by 8.5 percent in real terms. This is primarily due to a significant reduction in RDT&E funding over the FYDP. The Army’s FY 2021 RDT&E request totals $12.8 billion, but the service estimates that figure will fall by 27.0 percent by FY 2025 when adjusted for inflation.

Funding for O&M accounts was the notable winner in the Navy’s FY 2021 request relative to what was projected in PB20. O&M funding is $3.3 billion higher in this year’s request, while RDT&E accounts receive $1.4 billion more than last year’s projection. Of the three military departments, the Navy’s procurement programs took the biggest cut in PB21, at $4.4 billion below the estimate for the same year in PB20.

The enacted Navy budget (including mandatory and discretionary funding) in FY 2020 is the highest for the department since FY 1948 when adjusted for inflation. The FY 2020 level of funding is fractionally higher than previous peaks in FY 2010 and FY 1985. But while the budget reached an historic high in FY 2020, the current fleet of 300 ships is roughly half the size of the fleet in FY 1985 (according to both the active ship and battle force ship counting methods). The ship count peaked in FY 1987 at 594 active ships (568 battle force ships) before falling to a post-Cold War trough of 271 ships in FY 2015. Assessed at the macro level, this indicates that maintaining force structure is increasingly expensive for the Navy as it tries to increase the size of the fleet. While the Navy did not submit its annual 30-year shipbuilding plan with the FY 2021 budget request as mandated in law, it does include its shipbuilding plan over the FYDP.  Between FY 2021 and FY 2025, the request calls for 10 fewer ships in total compared to the estimates in the FY 2020 budget.

The FY 2020 shipbuilding plan projected the fleet would reach 355 ships by FY 2034; however, this was based on an April 2018 decision to extend the service life of each DDG to 45 years— roughly a 5 to 10-year extension. However, Navy officials announced it had cancelled the planned service life extension in March 2020 due to concerns over the policy’s cost-effectiveness.  The FY 2019 shipbuilding plan, which was created prior to the decision to extend DDG service lives, did not anticipate reaching 355 ships in its 30-year time frame, instead peaking at 342 ships in FY 2039 and FY 2041.

The Navy’s procurement request in PB21 is 8.8 percent lower than the FY 2020 enacted level when adjusted for inflation and $4.4 billion, or 7.2 percent, lower than the projected level of funding for FY 2021 in PB20. Shipbuilding and Conversion programs, which account for almost 35 percent of the Navy’s procurement request in FY 2021, bore the brunt of the procurement reduction. The $19.9 billion request for FY 2021 is 17.9 percent lower than the enacted FY 2020 funding level and $3.6 billion less than what was anticipated for FY 2021 in the FY 2020 request. The Navy shipbuilding request in PB21 calls for the procurement of 7 battle force ships rather than the 10 vessels anticipated for FY 2021 in the PB20 shipbuilding plan.

The Navy is requesting $21.5 billion in RDT&E for FY 2021, 3.8 percent higher than the enacted FY 2020 level of funding when adjusted for inflation and $1.4 billion more than what was projected in PB20. Of the FY 2021 RDT&E request, Advanced Component Development and Prototypes (budget activity 6.4), System Development and Demonstration (6.5), and Operational Systems Development (6.7) together account for 84 percent of funding.

The PB21 budget requests 21 F-35Cs (the carrier variant for the Navy) and 10 F-35Bs (the short takeoff and vertical landing variant for the Marine Corps). This is a net increase compared to last year’s budget, which projected that 18 F-35Cs and 15 F-35Bs would be procured in FY 2021.  The PB21 FYDP projects that the procurement rate will gradually increase to 28 F-35Cs and 20 F-35Bs per year. In last year’s budget process, Congress appropriated money for six more F-35Bs than the Navy requested for FY 2020, and Congress could add more aircraft than requested this year as well.

The CH-53K is a unique heavy-lift helicopter for the Marine Corps that replaces the aging and accident-prone CH-53E. According to budget documents, the existing fleet of CH-53Es “has developed performance degradation, fatigue life, interoperability, maintenance supportability, and other operational concerns.” PB21 funds the procurement of 7 aircraft in FY 2021 and projects that production will increase to 23 per year by FY 2025. The Marine Corps plans to buy a total of 200 CH- 53Ks.

Just as the Marine Corps falls under the Department of the Navy structurally, the Marine Corps’ budget constitutes part of the Navy’s budget. Funding for the Marine Corps falls into two categories: “green” dollars that are “unilaterally program[ed]” by the service itself and “blue-in-support-of-green” dollars that are “programmed jointly” by the Navy and the Marine Corps.

The reported total Marine Corps request for FY 2021 is $46.0 billion, a nearly 5 percent decrease in real terms from last year’s enacted level of funding. Approximately 64 percent, or $29.3 billion, of the Marine Corps’ budget is green funding. The request for the Procurement, Marine Corps account is $3.0 billion, down 3.3 percent from the enacted FY 2020 level when adjusted for inflation and 13.5 percent below what was projected for FY 2021 in PB20.

The remaining $16.6 billion of blue-in-support-of-green funding includes: $1.4 billion for the procurement of 10 F-35B aircraft (down from the 15 projected in PB20); $1.0 billion for the procurement of 7 CH-53K heavy-lift helicopters (down from the 12 projected in PB20); and $2.7 billion for Marine Corps RDT&E investments. In total, the Marine Corps budget accounts for approximately 22.2 percent of the overall Department of the Navy discretionary budget request for FY 2021.

The Department of the Air Force’s budget request for FY 2021 totals $206.9 billion, a slight decline in real terms from the FY 2020 enacted budget. Of the total, $38.2 billion is “non-blue” pass through funding, and $15.4 billion is Space Force funding. The total Department of the Air Force request for FY 2021 is $0.26 billion less than was previously projected for FY 2021 in last year’s request, a difference of only 0.13 percent. While the topline budget has remained relatively consistent, the allocation of funding within the FY 2021 topline has changed from last year’s projection. MILPERS, O&M, and RDT&E accounts received more funding than previously projected, and these increases are paid for by cuts to funding that had been planned for procurement and MILCON.

The Air Force fared somewhat better than the other departments over the FYDP projection. The Air Force’s FYDP projection in PB21 is higher for FY 2022 and beyond than was previously projected in PB20. For the four years that the two requests overlap (FY 2021 to FY 2024), the Air Force receives a total of $8.8 billion more in then-year dollars than previously projected.

The relationship between the Air Force’s force structure and budget are similar to those of the other services. The Air Force’s budget declined by 46 percent from its peak in FY 1985 to its trough in FY 1997, and this drop in funding was matched by a commensurate decline in the total aircraft inventory: a 37 percent reduction in bombers, a 43 percent reduction in fighter/attack aircraft, and a 66 percent reduction in reconnaissance aircraft. However, the budget and aircraft inventory began to diverge when the budget began growing again. From FY 1997 to FY 2010, the Air Force budget increased by 74 percent, or 51 percent if OCO funding is excluded, while the aircraft inventory declined by another 18 percent, reaching an all-time low in FY 2010.

In the FY 2021 request, the Air Force proposes several aircraft retirements that would reduce the inventory to free up resources for newer, more advanced aircraft. Notably, the Air Force is proposing the retirement of 17 B-1s, 24 RQ-4s, 13 KC-135s, 16 KC-10s, and 24 C-130Hs, and further retirements are projected for future years. Ultimately, Congress could intervene to block the retirement of these aircraft, as it has done in the past, and force the Air Force to fund the maintenance and operation of these aircraft longer than planned.

Air Force acquisition funding in the FY 2021 request totals $96.8 billion, which is a slight decrease (0.6 percent) below the level of funding enacted in FY 2020. Air Force RDT&E funding has grown rapidly, increasing by 77 percent in real terms over the past five years. The largest single component of RDT&E for the Air Force is the budget activity for Operational System Development (6.7), much of which is classified. While most of the classified funding lines do not include a projection for future years, the overall level of unreported funding in future years (FY 2022 to FY 2025) can be estimated by comparing the total RDT&E budget reported by DoD to the sum of all individual procurement lines in the R-2 budget justification documents. Budget activity 6.7 grew by nearly $10 billion (in FY 2021 dollars) to a peak of $26.2 billion in FY 2021, and the combined level of 6.7 funding and other unreported funding is projected to decline through FY 2025.

The other major driver of growth in Air Force RDT&E funding is the budget activity for Advanced Component Development and Prototypes (6.4). This budget activity has increased by more than seven-fold since FY 2014, adjusting for inflation. Roughly half of the 6.4 funding requested in FY 2021 is for three acquisition programs: the B-21 bomber, the Ground-Based Strategic Deterrent (GBSD) nuclear-armed ballistic missile, and the Next-Generation Air Dominance (NGAD) fighter.

Aircraft procurement funding is down by 5.2 percent in FY 2021 and is projected to continue declining through FY 2025. Even though Air Force aircraft procurement funding is declining, it exceeds Navy aircraft procurement funding in FY 2021 for the first time since FY 2009. Funding for missiles and munitions procurement is down 26 percent in real terms in FY 2021 due mainly to reductions in the Joint Direct Attack Munition (JDAM) and general purpose bombs.

The F-35A is by far the largest acquisition program in the Air Force’s portfolio. For several years, Congress has authorized and appropriated funding for more F-35As than the Air Force has requested. In FY 2020, for example, the Air Force requested 48 aircraft, but Congress approved 62 instead. The FY 2021 budget again requests 48 F-35As, which would represent a decline of nearly a quarter in the production rate if approved by Congress. The FYDP projects that the Air Force will remain steady at a procurement rate of 48 aircraft per year through FY 2025, which is less than the planned full-rate production of 60 F-35As per year.

 

 

 

 

 

 

About the Author

About the Author

Keith Webster headshot
President, Defense and Aerospace Export Council (DAEC)
Vice President, U.S. Chamber of Commerce

President, Defense and Aerospace Export Council (DAEC), and Vice President, U.S. Chamber of Commerce.