The Pentagon Needs Budget Agility to Compete with China

Congress put defense acquisition under a microscope during the last decade, pressuring Pentagon officials on slow or failing programs and creating new ways to identify future needs, buy equipment, and develop software. These efforts yielded some successes, like the Middle-Tier Acquisition Path that bypasses DoD’s laborious requirements system to let program managers prototype their way to a new weapons system. Unfortunately, DoD’s newfound acquisition agility will be wasted unless it also gains more budget latitude.

The Pentagon’s funding process is notoriously inflexible. Spending plans are built two years in advance to account for internal haggling and Congressional deliberation; and if appropriation delays require continuing resolutions, the gap between planning and execution grows even longer. Further entrenching funding choices, budgets are distributed into discrete program elements across multiple appropriation categories from operations and maintenance to procurement. Reprogramming money from one category or program element to another requires approval from four Congressional committees. As a result, managers often cannot shift funding away from a failing program for more than two years.

The inability of defense officials to promptly move money out of unproductive efforts and into new challenges or opportunities is more than a management problem. The U.S. military’s lack of adaptability also puts DoD at a disadvantage against its primary competitor, China’s People’s Liberation Army. Unlike the Pentagon’s attempt to predict specific needs years in advance, the Chinese budget process rolls continuously from one year into the next and allocates money to services and bureaus in blocks that can pay for multiple functions or programs. As noted by Andrew Marshall and others who guided America’s Cold War effort against the Soviets, long-term security competition is about organization and process as much as hard military capabilities. 

Prioritize the customer

Another implication of the Pentagon’s budget model is it is supply-based. Program managers build or modify systems to meet needs determined a decade or more in the past and based on funding levels decided years earlier. Because requirements and budgets are relatively inflexible, not much of a vote is given to program managers’ customers, the combatant commanders. 

The usual argument against operational commanders being involved in acquisition decisions is they are focused on the near-term, whereas Pentagon planners are looking into the future. But aside from the unreliability of long-term prediction, commanders and their staffs are arguably in a better position to understand how long-term competitions with opponents like China and Russia are evolving than are planners and program managers in Washington, D.C. 

DoD still needs to pursue leap-ahead advancements like stealth aircraft that are not designed for commanders’ near-term needs. These advancements, however, are the exception. Almost all of DoD’s capabilities, even some innovative ideas like precision-guided weapons, are iteratively developed. These efforts suffer under today’s predictive and inflexible budget process.

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In addition to being closer to military needs, combatant commanders are also responsible for actually putting together military forces to accomplish missions. The Pentagon’s budget structure, being focused on programs, does not capture the operational infrastructure needed to execute an operation such as networks, decision support tools, logistics, and transportation. Each of these elements is planned and resourced by military services in isolation and delivered to a commander that cobbles them together. 

Introduce mission-based funding

Focusing Pentagon budgets on meeting demand rather than sustaining supply will require more funding flexibility and emphasizing the glue that operationally integrates forces in theater. Big changes like this will not happen overnight, but Congress could start the effort at budget reform with some pilot efforts that begin to reframe how budgets are built and executed. 

The first and potentially most important reform could be mission-based funding to complement today’s program-based budgets. While systems like aircraft, radars, vehicles, or ships should continue to be funded via program elements, Congress could also appropriate funding for high-priority missions such as air and missile defense of forward bases in Japan or Poland. Mission element funding could be allocated by defense officials in collaboration with combatant commanders to buy operational infrastructure or new systems that fill seams between the military services’ offerings.

Combined with new acquisition paths, a pilot project for mission-based budgeting would allow Congress to assess how more flexibility and a demand-based view of resource allocation could improve DoD’s agility and ability to incorporate new technologies. Another benefit would be to test new methods of fiscal oversight. Although mission elements would be less constrained than program elements, improved transparency and clear metrics could provide accountability by allowing Congress and civilian leaders to understand where funds are being spent and how they support the mission. To assess how defense budgeting should evolve more broadly, Congress should establish a panel or commission, similar to the one that informed acquisition reform.

Congress has spent the last decade trying to fix the Pentagon’s acquisition process. Now is the time to start reforming resource allocation. Without changes to defense budgeting, all the agility in how DoD buys weapons will be wasted waiting for the money to catch up.

Bryan Clark is a Senior Fellow at the Hudson Institute.

Dan Patt is an Adjunct Fellow at the Hudson Institute.