Notes - Report on “FINANCING THE FIGHT”, about the DOD Budget Formulation Process (April 2021)

Robert F. Hale has written a very thoughtful and noteworthy report, released by Brookings, on the DOD budget formulation process. Few are in a better position to offer insights on improvements, as he e.g., from 2009 to 2014 he served as Comptroller of defense and 1994 to 2001 financial management and comptroller for the US Air Force.

The main DOD budget mechanism put in place in 1961 and still in use, although modified, is the Planning, Programming, Budgeting, and Execution System (PPBES).


The PPBES is criticized. Critics say it fails to consider a sufficiently wide range of alternatives and is too burdensome. The perhaps most consequential critique is that it is too slow to integrate rapidly shifting technologies into DOD programs and ultimately in the hands of the solders on the frontline.


Where PPBES has been successful is to avoid duplications by offering a structured and more centralized approach. The author describes how it has supported spending taxpayer money more wisely and responsibly as it links budgets to plans, using analysis to choose among alternatives, and a multi-year approach, leading to more sound budgets.


War budgeting has forced changes in processes and required more flexibility to move funds to new missions, areas where PPBES struggles. Beginning with the fiscal year (FY) 2010 budget request, a technique called the Overseas Contingency Operations (OCO) fund was put in place. Over the years much criticism has been leveraged towards this mechanism. The Biden administration has decided to stop using OCO after the end of FY2021.


What works with the PPBES, but should be refined:

  • A more decentralized approach involving service use of PPBES to create budgets.

  • Program budgeting, which considers issues together (for example, all tactical aircraft or all strategic forces) has helped achieve coordination and minimize duplication

  • The Pentagon needs to persuade Congress to alter PPBES to better accommodate rapidly changing technology initiatives, including budgeting for them in broader categories to provide more flexibility during budget execution.


What would improve the PPBES process:

  • Late approval of budgets by Congress causes problems during budget formulations. Could potentially be minimized by having the fiscal year coincide with the calendar year.

  • For additional, and perhaps innovative, budget alternatives, the Office of the Secretary of Defense could withhold a part of the defense budget (~ 5%) and let the services put forward their best ideas to compete for added funding.

  • Cost reduction efforts should continue to hold down DOD costs. But potential savings must be realistic as unreasonable savings assumptions leads to budgets that cannot be kept.

Key influencers in the planning process: Today the Under-Secretary of defense (Policy) leads the planning process. The process reflects inputs from outside the DOD, including presidential direction along with substantial input from the Joint Chiefs of Staff.


This is a flow chart in the report on what the process looks like today.


Key documents influencing the process:


1. Planning begins with the National Security Strategy - lays out broad guidance for the DOD and other agencies involved in national security.


a. The National Defense Strategy (focuses on DOD strategy, signed by the secretary of defense)


b. The National Military Strategy (which indicates how the military will implement strategy, signed by the chairman of the Joint Chiefs of Staff).


c. The Defense Planning Guidance provides specific direction to the PPBES. Issued annually, generally in the spring, reflects significant inputs from the military services but ultimately reflects decisions by the secretary of defense regarding priorities to be considered during the budget formulation process.


Fun fact: As the US was formed, federal agencies transmitted their estimates to Congress in what was known as the “Book of Estimates.” The first such estimate for the War Department, in connection with the budget for 1789, resulted in a lump-sum appropriation of $137,000 (about $6 million in today’s dollars).


The complete report can be found here: https://www.brookings.edu/wp-content/uploads/2021/04/FP_20210426_financing_the_fight_hale.pdf

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