Sunday night at 8 00 p. M. Eastern on cspan q a. Next a look at 2020 defense spending and how it relates to strategy. Hosted for the center for strategic and budget assessments. This is 45 minutes. Evan im going to say couple of quick words before turning things over to travis to highlight his report and field your questions. Two things i want to mention. First, this is an important event here for at csba. Defense corps analysis is something we have done for decades, uniquely well, and travis, the author of this report, is the latest in a long line of talented Defense Budget analysts who have spearheaded these efforts for us over the years. I think it is important to note the Defense Budget analysis we do here is not just about defecting Defense Budgets, not just about going line by line to understand precisely what is in the budget, but assessing and analyzing budgets whether budgets match strategy or they dont. Right now, we have an interesting situation where 18 months ago the department of defense released its National Defense strategy which called for a significant reorientation on the part of dod. Focused on highend conventional warfare against great power competitors in europe and east asia, rather than low intensity conflicts against less capable adversaries in other parts of the world. The question is whether or not the Defense Budget delivers on the promise of Senior Defense officials that this would be the first budget document to reorient dod and set it on a path where it was better equipped and better positioned for this era of renewed Great Power Competition we are talking about. Basically whether the dollars below strategy. You often hear your priorities are where your money goes. There is some truth to that. One thing this report does, and does uniquely well, is to assess whether or not the fy2020 budget request delivers on its promise, whether it is the masterpiece promised that sets the dod on a path where it is better equipped for Great Power Competition. It is a uniquely important thing we do and an important element at csba, but also an important time to look at the linkages of strategy and resources. With that, i will turn it over to travis, who i think will read brief for about 30 minutes, take your questions, and then we end promptly at 1 00. Thank you for being here with us. Travis . Travis thank you, evan. Good afternoon, ladies and gentlemen. Thank you for being here today. I want to thank my colleagues at csba for the terrific feedback and insight they provided while i was preparing this report. I am extremely lucky because working at a place like csba, im surrounded by experts and not at all ashamed to admit i drew heavily on their knowledge and expertise when i was preparing the report. To my teammates at csba, thank you very much. In my report and in the talk i will give today, i will focus on three questions. The first question is, where is the budget headed. Answering this question is important because this has been a volatile year for the federal budget. We entered the year with a government shutdown, negotiations over the future of the budget control act spending caps consumed much of our time in the spring and summer. Last month, congress and the white house agreed to a deal that would increase the spending caps contained in the budget control act. What i want to do it today is pause and take stock of where we stand currently and where we are going in the near future. To preview the answer, i will argue the Defense Budget is headed up in fiscal year 20, but it appears to be headed down in fiscal year 2021. The second question i will address today is how big is the Defense Budget historically . I think this question is important for a couple of reasons. First and foremost, i suspect the size of the Defense Budget will receive some attention in the intensifying president ial campaigns for the remainder of this year and headed into next year. Oftentimes, the intricacies of defense policy dont receive a lot of attention during president ial campaigns, but the size of the Defense Budget is often a president ial campaign issue. I would like to inform that debate as much as i can using some facts and data. To anticipate the answer, it turns out, in historic terms, the current Defense Budget is quite big but not as big as President Trump has repeatedly claimed. Third and finally, the talk will focus on the question that is the title of the report, did dollars follow strategy . This question is important because, in many ways, the current budget is sort of like the high watermark for the Trump Administrations defense policy, and the reason for that is because every president ial administration tends to see a dissipation in its political power over time. When you are first coming in and your first few years, you are able to have your biggest possible impacts, so in a sense, the 2020 budget might be as good as it gets for the Trump Administration in terms of achieving its outcome, so it makes sense to take stock in what has been achieved. To preview that, in the report, i developed three diagnostic tests for analyzing and i assessed the Administration Budget passed two out of the three tests. Two out of three aint bad. However, i will show that there are still some significant mismatches between the budget and strategy, and my bottom Line Assessment would be that the fiscal year 2020 budget request falls short of supporting the defense strategy. To turn to the first question, wheres the budget headed. Over the last 10 years, the u. S. Defense budget went through a drawdown and, in recent years, has been going through an increase. You can see that represented on the charts in front of you by the black line at the top of the chart, showing you the National Level of defence spending in inflationadjusted dollars. The amount of information spent on overseas Contingency Operation or oco. It gradually declined, but since roughly 2014, the amount of money spent on oco as roughly stabilized, because the United States had been conducting a military campaign to defeat isis. The biggest change in defense spending occurred last month, when congress and the white house agreed to the budget deal i already mentioned. This budget deal increased the spending caps for fiscal year 20 20 and 2021. Those caps now stipulate that, in 2020, National Defense spending shall not exceed 738 billion, and in 2021, the spending shall not exceed 740. 5 billion. You can see that represented in the chart in front of you with the green line, which represents the higher cap, and the orange dash line, which is the previous cap. Green represents a reasonable compromise between the various stakeholders represented on the chart. For example, the 738 billion level falls in between what republicans in the senate set as their preferred level in defense spending, the red column, and what democrats in the house set as their preferred level of house spending, the blue column. The new budget caps also fall relatively close to the overall level of defense spending at the department of defense forecasted as necessary, represented by the black dash line. Given these factors, that is what supports my assessment that the fiscal year 2020 budget of 738 million is still going up because it is a roughly 1 inflationadjusted increase over the 2019 level. However, the 2021 cap of 740. 5 billion represents a 1. 6 real decrease over the 2020 level. That suggests to me that the overall level of defense spending, which has been increasing for the past five years, may be headed down, starting in 2021. Now, i will transition to talking about my second question which is the historic size of the Defense Budget. Lets assume that for 2020, the overall level of National Defense spending a 738 billion as called for under the budget deal. How big would that be in historical terms . It turns out that that size budget would be smaller than the amount the department of defense received during the peak years of the wars in iraq and afghanistan. In that sense, the current budget is smaller in those years in inflationadjusted dollars, and thus, if we define historic as meaning the biggest ever, then the current budget is not historic, but it is still quite large. I have a few stats that illustrate that point. In inflationadjusted dollars, the current budget is bigger than the peak years of the korean war, vietnam war, and the Ronald ReaganNational Defense buildup. It would also be the biggest peacetime budget since world war ii, but you will notice the slide has peacetime in air quotes for a specific reason. The United States has 20,000 actively operating in iraq, syria, afghanistan, and elsewhere around the world. The department of defense is supporting 30,000 contractors in those locations and elsewhere. In my judgment, given that context, you cannot accurately describe the Current Situation as being peacetime. Final point here is that a budget in the 738 billion range would be part of what have been a roughly 160 billion infusion of nominal dollars since president obamas budget before leaving office. In other words, the dod received 160 billion in new money relative to what president obama planned to provide before he left office. I think it is fair to categorize that level of increase as being a fairly significant Defense Budget buildup. Now, i want to look at this historic concept from another perspective. One way to think about this is to compare the changes that have occurred under President Trump to the changes that have occurred under other president s going back to world war ii. The trick here is that you have to find a way to put all of the president s on a level playing field. Because they all inherit the budget from their predecessor. They might inherit a big budget or inherit a small budget, and the size of that inheritance will impact their ability to achieve historically high or historically low levels of spending. What i do in the report is that i measure the changes president s oversee in terms of real growth, meaning percentage change in the Defense Budget. I index all of the president s to the same starting point. So, basically, what the chart in front of you is showing is that when a president enters office, what types of percentage changes do they oversee in defense spending. This exhibit provides an interesting way to think about what historic means in terms of defense spending. There are a few takeaways. The first, President Trump stands to be the fourth only president to achieve positive real growth in defense spending in each of his first three annual budgets. That is represented on the chart in front of you by a line that is sloping upward in each of the first three president ial years. Truman, reagan, and george w. Bush are the only three president s besides trump to achieve it. In that sense, trump is in relatively exclusive company. A second take away from the chart is that the changes overseen by trump actually track most closely with john f. Kennedy excepting kennedys third and final year, the level of defense spending in percentage terms declined whereas trump is on track to achieve increases for a third year, as i mentioned finally. The third and final take away from this chart is that if there is one president since world war ii who deserves to have the the moniker historic, it is harry s. Truman. The annual percentage changes he oversaw while preparing and entering the korean war and executing National Security strategy and se68 to increase competition against the soviet union are literally off the chart. So much so, that i had to build another chart to show you how trumans changes in percentage terms compared to every other president since world war ii. The main take away here is that if we are talking about historic changes in defense spending, we better be talking about harry s. Truman. Now, i will pivot you talking about the third question in the report, the most important question in many senses. That is whether or not dollars follow the strategy. The argument i make in the report is that we need to develop diagnostic tests in order to try to assess whether or not strategy and budgets match. When i say diagnostic, i am using it in a medical sense. We are trying to evaluate whether the budget and strategy match. The problem is that there is no welldefined way of doing this currently. The methods available to analysts to do this type of assessment are fairly limited, which means most of the assessments produced tend to reflect the underlying preferences of the endless doing analysts who generally prefer higher levels of defense spending often produce assessments which argue the level of funding provided inadequately resources the strategy. As a result, the level of funding should increase in order to line the strategy. That is one argument you see very often. But then the opposite argument is also made, and that is the budget and the strategy dont much, which means the strategy is too ambitious, which means that strategy needs to be scaled back so that it fits the overall spending available. That is the opposite argument. Both of these arguments are useful because they show us where we should be looking in order to find potential problems in the defense program. But these approaches dont provide us with a general objective sense of whether or not the department of defense is doing relatively better or worse matching resources to strategy. What my report tries to do is provide three tests that can be administered both to this budget and future budgets to try to determine whether or not dollars follow the strategy. Test i developed, i called the topline test. This test is relatively straightforward. Former secretary of defense jim mattis and the chairman of the joint chiefs of staff and are a generalal jones don joe dunford, several years ago said in order to implement the 2018 National Defense strategy, the department of defense base budget needed to grow by roughly 3 to 5 in inflationadjusted terms each year. So, the test is simple. Lets look at the budget and see whether or not it provides 3 to 5 real growth. If it does, it passes. So my assessment is that the 2020 budget passes the topline test in spirit. Let me explain what i mean by that. The request actually contained 2. 4 real growth in the july budget deal actually provided about 1. 9 real growth. So those numbers are obviously less than 3 , so that would seem to suggest it failed the test. But the math works out such that if you shifted 7 billion from the overseas Contingency Operation budget to the base budget, that would increase the real growth percentage up to that 3 threshold and, therefore, pass the test. In my judgment and in the judgment of, i think, most defense analysts, a large portion of the funding contained in the overseas Contingency Operation budget could be in the base budget. But dod has steered the funds into the oco budget, because in past years the budget was exempt from the changes in the budget control act. As a result, i think it is reasonable to assume 7 billion probably could be in the base budget, and assuming that is true, i think we can conclude the 2020 budget passed the topline test. Now, moving onto to the second test, which i call the scenarios test. This test focuses on a key component of the National Defense strategy. The strategy introduced what dod calls the two plus three force planning framework. This framework says china and russia, those are the two, are going be prioritized over iran, north korea, and countering violent extremism. Those are the three. To explain the logic of the test, what if we found in the budget that the amount of money that was dedicated to say countering violent extremism was , actually bigger than the amount spent on china or russia. That would basically show that the budget didnt match the strategy because the two plus three framework was not being upheld. So let me start by telling you the bad news. We basically have no idea how much the department of defense spends on china and russia and some of these other priorities because there is no budgetary line item that says china and then gives us an amount of money. The way i get around the difficulty in the report is to focus on the component of the Defense Budget that seems to have the tightest relationship to one of those two plus three priorities, and component i focused on is the countering violent extremism portion. You can think about this test as follows, if you break china and russia apart, the two plus three framework is telling us that spending on iran, or north korea, or on countering violent extremism should not be bigger than any of those individual items than the amount spent on china or russia. If you work it backwards deductively, it turns out that means those three priorities, none of them individually should receive more than 32 of dod s total budget. The reason is as follows. Imagine countering violent extremism would receive 3 of the budget. That means china and russia has to receive 34 of the budget. If you take 33 plus 34 plus 34 of the budget, because otherwise you wouldnt be prioritizing china or russia over the other priorities. Well, if you take 33 plus 34 plus 34 , you just busted 100 of the dod budget and you didnt spend anything on the other two priorities. So this gives us a deductive threshold we can use to try to parse dods budget. The contingency budget provides us the reasonable proxy measure for countering violent extremism because most of the budget money from the oco budget goes to the countering violent extremism part of the strategy. We are figuring out whether or not the oco exce