Dear Incoming Defense Department Comptroller:

Congratulations on your new position! You are the second most powerful civilian in the Pentagon! Military service chiefs, Combat Support Agencies, Combatant Commands, and Defense contractors will cower before you, seek to understand your every utterance, and work slavishly to adhere to the deadlines you set for them, all while you build the department’s future years defense program (FYDP), which is the strategic budget document that oversees Pentagon spending.

But also, please accept our condolences! You now have the hardest job in the Pentagon: radically reforming the Defense Department’s budget; the Defense industrial base; and, ultimately, America’s ability to project combat power.

This will not be easy, but we have a plan to help you.

The Need for More Procurement Dollars

Over the past several years, the global security order has come under assault from America’s enemies. From the Taliban’s takeover of Afghanistan in 2021, to Russia’s invasion of Ukraine followed by near-monthly threats of the employment of nuclear weapons by Moscow against the West for its support to Ukraine,REF to Hamas’s October 7 attack on Israel, to Houthi attacks on global shipping, to Iran’s repeated missile attacks on Israel and its status as a near-nuclear state,REF to North Korea’s expanding nuclear arsenal and threats against the United States and its Japanese and Korean allies, and—most worryingly—to China’s increasing belligerency and unprecedented military buildup, the world’s security environment is the worst it has been since the 1930s.REF

While these developments threaten global stability, U.S. interests, and America’s allies, the primary threat to the United States is posed by China. In addition to having the world’s largest Navy,REF the largest missile force in the world,REF and a huge fleet of fifth-generation fighters that is larger than the American fifth-generation fleet in the Pacific,REF China is the fastest-growing nuclear power on the planet.REF It regularly threatens and exercises its military forces to retake Taiwan—a liberal, capitalistic democracy and long-standing U.S. partner—by forceREF and generally engages in coercive behavior against neighboring states.REF

Even more disconcerting, China has the world’s second largest economy, equal to almost 70 percent of the U.S. economy.REF This is roughly twice the size of the Soviet Union’s economy at the height of the Cold War.REF Further, China’s defense budget is far higher than previous estimates that had it pegged as equal to 20 percent–25 percent of the U.S. defense budget. Instead, more recent and far more accurate estimates peg the Chinese defense budget as being roughly equal to 80 percent of the Pentagon budget.REF And while the United States is a global power with global commitments—with requisite force presence that ranges from the North Atlantic, to Europe, to the Red Sea, to the Middle East, to the Western Pacific, to North East Asia, to the North American homeland—China is able to focus its military power in the Western Pacific and East Asia. This ability to focus its forces makes China’s People’s Liberation Army (PLA) a formidable quantitative and qualitative opponent.

Although the United States does not seek a war with China, it must be prepared for one. Not only does Washington have allies in the region with whom it shares mutual defense treaties, but there is a political consensus within Washington that a Communist China that uses military force to establish itself as the hegemon of East Asia is contrary to American national interests.REF The past three Administrations have argued that the United States must field a military that can deter and, if necessary, defeat Chinese aggression against one of Beijing’s neighbors.REF

As mentioned earlier, while the United States seeks to deter China, it will remain engaged in Europe and the Middle East and will likely conduct military missions in those regions for the foreseeable future while at the same time providing assistance to homeland missions as required, including such potentialities as defense support to civil authorities or supporting activities at the southern border.

This is an extensive list of functions and missions for the Pentagon. Even if the United States engages in some prioritized-driven trade-offs between theaters to ensure that it has the right capabilities and forces in the priority theaters of operation,REF it is almost a certainty that it does not have enough military hardware or combat power to do all that is necessary to secure and defend America’s national interests.REF

The United States military is short of the ships, planes, munitions, heavy lift, air refueling capabilities, and nuclear weapons it needs to deter and, if necessary, defeat a peer competitor.REF Some, particularly in Congress, have offered intriguing plans that, if implemented, would significantly expand the Defense Department’s topline budget so that defense spending represents 5 percent of U.S. gross domestic product (GDP),REF but the fact of the matter is that the United States needs more combat capabilities in the immediate term—and it is far from clear when there will be a consensus in Congress for such a 60 percent increase in defense spending,REF given that today’s defense budget represents roughly 3.2 percent of GDP.REF

We agree that more combat capabilities are needed to deter or defeat Chinese or Russian aggression. We also support an annualized topline increase in the defense budget of about 3 percent—because this is the upper end of what Congress will realistically support for the foreseeable future.REF

But there is some good news. There is a lot of money that can be shifted within the existing Defense Department budget that will enable the military to build and field the ships, planes, and weapons we need to deter and, if necessary, defeat adversary aggression. Put simply, the United States should shift money out of research and development and into procurement. While Congress technically does have the power to make such shifts, the reality is that legislators are loathe to change categories of defense dollars. For that reason, ensuring that our nation procures what the military needs is now largely your responsibility.

The Color of Money

Broadly speaking, defense dollars are broken into five large buckets of spending:

• Procurement;
• Operations and Maintenance;
• Research, Development, Testing, and Evaluation (RDT&E);
• Military Personnels (MILPERS); and
• Military Construction (MILCON).

Over the years, Procurement spending as a percentage of total defense spending has decreased with money lost in the increased costs associated with personnel, the Operations and Maintenance “death spiral” caused by insufficient procurement of new systems, and what The Heritage Foundation and others have argued is an imbalance between Procurement and RDT&E. During the Cold War, the ratio of RDT&E fluctuated, but for much of the period, it was around 1:3. Throughout the Cold War, the procurement and fielding of sufficient quantities of military hardware were given funding priority. During this period of procurement prioritization, era-defining technological breakthroughs ranging from stealth technology to GPS emerged from the defense industrial base.

Since the end of the Cold War, the ratio has changed and is now approaching 1:1 in the latest defense budgets, with RDT&E at approximately $143 billion and procurement at $167 billion.REF

RDT&E has risen as a share of the defense budget in part because of its versatility. It can be used as multi-year money, can finance studies or science or field experimentation, and in some instances can be used for the hiring of contractors. In many cases, however, the versality of RDT&E funding has led to its abuse for hyper-politicized pet projects and pork. Congressional additions to the annual National Defense Authorization Act (NDAA) have a strong tendency to be RDT&E. Some Congressmen use RDT&E funds to set up Centers of Excellence at universities in their home states or to award large research projects of dubious defense applicability to researchers at these universities.REF

For example, First Lady Jill Biden announced this year that the Department of Defense was committing to $500 million spent each year on women’s health research as part of the White House Initiative on Women’s Health Research.REF Even before this, the department was already spending almost $1 billion a year on Congressionally Directed Medical Research Programs.REF Some of this funding may be worth it, but it should be funded through the National Institutes of Health or some other government agency and not through the Department of Defense, which should be laser-focused on warfighting capabilities to defend the security of the American people.

This is not exclusively the fault of the Department of Defense. Congress loves to add earmarks to the DOD Appropriations Act, and Members tend to favor RDT&E earmarks by a wide margin. The Fiscal Year (FY) 2024 DOD Appropriations Act had 107 anonymous earmarks (including 54 for health and disease research under the Defense Health program) totaling around $1.9 billion.REF Unfortunately, this issue has been around since at least the 1990s, and DOD dollars are misdirected to non-defense RDT&E every year. In 2012, Senator Tom Coburn released a report detailing all the waste in the defense budget, labeling the DOD the “Department of Everything.” The report detailed how much of the medical research funding was wasted on overhead at universities and noted that the result was billions of dollars not being spent on the “procurement of aircraft or new rifles or new machine guns.”REF

This has all been great news for professors and PhD candidates across the country but has distracted the DOD from purchasing the ships, planes, and munitions that it desperately needs in this new era of great-power competition. Given that China is the world’s fastest-growing military and nuclear power and presents a challenge to American security greater than that posed by the Soviet Union during the Cold War, the United States cannot afford to be spending billions of defense dollars each year on non-defense projects when the overall size of the Navy has been shrinking, each service has critical shortages in the munitions that are needed to deter China, and the military is spread thin across the globe.

The Proposal

Given all this, what can you, the Comptroller, do to shift defense dollars to create a more lethal, more capable force in the immediate term?

First, defense budget submissions should request a 3.5 percent topline increase every year for the totality of your tenure. While a 3.5 percent increase may not be politically viable in today’s congressional atmosphere, such a modest but realistic request could enable the Defense Department to increase its budget at a rate that matches or potentially exceeds inflation.

Next, you should begin a five-year campaign to recolor RDT&E dollars into Procurement dollars. In your first budget submission as Comptroller, you should shift $20 billion from your projected RDT&E budget into Procurement. This would allow the department to retain roughly $125 billion in RDT&E and increase the Procurement budget to nearly $190 billion. For each of the subsequent four years, 10 percent of the existing RDT&E budget should be recolored into Procurement. After that point, the RDT&E-to-Procurement ratio would approach 1:2.2, a far cry from the current ratio of 1:1.2 and far closer to the Cold War average of 1:3.REF

While slowly ramping up procurement in the immediate term with the larger shifts in defense dollars coming in the later years might be tempting, it would be a strategic mistake for several reasons. The military needs to build and field more military capability in the immediate to medium terms. It does not have the luxury of waiting for the late 2030s, when many future capabilities such as the Next Generation Air Dominance Fighter, the next-generation fast attack submarine, and other systems will come online. In addition, the strengthening of and expansions within the defense industrial base, to include more munitions production lines, more shipyards, and more aircraft production lines, must happen before our nation can actually get the additional ships, planes, submarines, and weapons that we need. In many cases, existing production lines are operating at capacity today, and it will take some time to expand America’s capacity to produce more and better platforms and weapons.

Perhaps more important, large sudden, seismic shifts in the defense budget will force the Pentagon leadership—in particular, the military services’ leadership—to prioritize the systems and programs that they need and cut those programs that they do not need. Such a large, immediate shift in defense dollars would incentivize the service leadership, primarily the service secretaries, their civilian deputies, the service chiefs, and the deputy chiefs, to gather and identify the top-priority programs that are critical to their ability to provide combat capability and then “fence off” those capabilities. Subordinate service commands would be told that no cuts in these programs would be allowed and that they must find offsets among other, lesser-priority programs.

To understand such an approach, a simple example may be useful. If the Air Force was forced to cut its RDT&E budget by 3 percent, Air Force leadership might be tempted to tell all program managers to tighten their belts and submit RDT&E budgets that were 3 percent lower. This likely would result in cuts in high-profile, high-priority future programs while maintaining lower-priority programs at commensurately lower funding levels. Most programs would continue, but simply at a smaller scale, thereby creating delays in most programs.

On the other hand, if the Air Force was told to reduce its RDT&E budget by 20 percent immediately, the Secretary and Under Secretary of the Air Force, along with the Chief and Deputy Chief of Staff of the Air Force (in other words, the two most senior civilians and uniformed military officers), would confer and likely come up with a few key programs that would not be cut. These might include the next-generation nuclear intercontinental ballistic missile (Sentinel), the B-21 stealth bomber, the Next Generation Air Dominance fighter, and perhaps a small handful of key munitions and weapons. Subordinate commanders would be told to make up the difference by cutting lower-priority programs and study efforts. Program managers that wanted to make the case for why their individual programs should be protected would have to make their case to the Deputy Chief of Staff and the Under Secretary.

Services have been known, of course, to cut large, high-profile programs as a way to force Congress to fund those programs.REF In this scenario, services cut the programs they know Congress values most, inevitably relying on Congress to reinsert funding for those programs through direct line-item insertions into defense appropriations bills. You, as Comptroller, have the ability to prevent this from happening because you are able to reject such budgets before they are submitted to Congress. Given the President-elect’s focus on good governance and cutting waste, he might even be willing to replace service secretaries and service chiefs who attempt such budgetary games.

The major question is: What will the Defense Department do with the extra Procurement funds?

The first three years’ resources should be spent on expansion of the defense industrial base. Two additional shipyards should be funded along with the production of planes (particularly air refueling tankers, C-17s transports, and B-21 bombers); munitions (particularly cruise missiles, missile interceptors, short-range and medium-range ballistic missiles, and hypersonic missiles); and ships (particularly destroyers, frigates, and submarines).

By years three and four, more of the dollars within the Procurement budget could be used to purchase additional quantities of these munitions and platforms with a final output by the late 2020s/early 2030s of three Columbia-class submarines produced every two years, three attack submarines per year, four destroyers and four frigates a year, 30 B-21s a year, and twice the current number of refueling and strategic lift capabilities. Such an expansion of production lines would also enable the production of more innovative systems, to include potentially an unmanned version of the F-15EX.

Most fundamentally, such a shift would enable the military to field the fleets and weapons it needs to deter and, if necessary, defeat adversary aggression. And you would be known as the greatest Comptroller ever to walk the halls of the Pentagon—and perhaps a key, if relatively unsung, figure in preventing World War III.

Conclusion

The United States faces a rising China that threatens American allies like Japan and Australia in the Indo-Pacific and intends to displace the United States as the world’s richest and most powerful country. This would have a negative effect on both the prosperity and the security of the American people if drastic changes in American defense spending are not made over the next couple of years. Redirecting defense dollars into procurement of the ships, planes, and munitions that the U.S. military needs to prevent Chinese hegemony and deter an attack on the United States or on one of our allies in the Indo-Pacific is a strategic necessity.

Robert Peters is Research Fellow for Nuclear Deterrence and Missile Defense in the Douglas and Sarah Allison Center for National Security at The Heritage Foundation. Wilson Beaver is a Policy Advisor for Defense Budgeting in the Allison Center.