This was produced by the center for strategic and budgetary assessments. Montgomery, here at the center for strategic and budgetary assessments, and i want to thank you for joining us as we rollout our latest report, due dollars follow strategy, by travis sharp, a Research Fellow here who also directs our budget studies program. I will say a couple of quick words. Travis can highlight the findings of his report and field your questions, but two things i want to mention. First, this is an important event for us here at cspi. Defense budget csba. Defense budget analysis is something we have done here for decades and something we have done extremely well, and travis hayes the latest in a long line in a travis is the latest long line of analysts who have spearheaded these efforts over the years. It is important to note that the Defense Budget analysis we do here is not about dissecting Defense Budgets, not just about going through line by line to understand what is in the budget. It is about assessing and analyzing whether budgets actually match strategy, or whether they dont. Right now we have an interesting situation. 18 months ago the department of defense released its National Defense strategy, which called for a significant reorientation on the part of dod. It would be focused on highend conventional warfare against greatpower competitors in europe and east asia, rather than lowintensity conflicts against less capable adversaries in other parts of the world. Whetheruestion here is the Defense Budget submitted by the administration this year delivers on the promise of Senior Defense officials that this would be the first budget to reorient dod, to set it on a path where it was better positioned for this renewed era of greatpower competition, basically whether the dollars follow strategy. You often hear that your priorities are where your money goes, and there is truth to that. One thing this report does is to the fy 2020er budget request really does deliver on its promise, whether it is the masterpiece that was promised that sets dod on a path where it is better equipped for greatpower competition. It is a uniquely important thing we do here at csba, but it is also important to look at these linkages between strategy and resources. I will turn it over to travis, he he can take your questions that we will end promptly at 1 00. Again, thank you for joining us. Travis. Travis thank you, very much, evan. Good afternoon, ladies and gentlemen. Thank you for being here today. I want to start by thanking my csba for their feedback while i was working on this report. , im surrounded by worldclass experts in military strategy and operations, and i drew heavily on their knowledge when i was preparing the report did so to my teammates here at csba, thank you very much. In my report and the talk i am going to give today, i am going to focus on three questions. The first question is, where is the budget headed . Answering this 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 spending act cap consumed much of our time in spring and summer, and last Month Congress on the white house agreed to a deal that would increase spending caps contained in the budget control act. I want to pause and take stock of where we stand and where we are going. Answer, im going to 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 today is, how big is the Defense Budget historically . This is important for a couple of reasons, first enforce most first and foremost, i suspect the size of the Defense Budget will seep some intent will receive some attention during the president ial campaign this year and next year. Oftentimes defense policy doesnt 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 using facts and data. Answer, inte the historic terms the current Defense Budget is quite big, but not as big as President Trump has repeatedly claimed. Third and finally, the talk today is going to focus on the question that is the title of the report, did dollars follow strategy . Because inortant many ways, the current budget is the the highwatermark for Trump Administrations defense policy. The reason is because every president ial administration tends to see a dissipation in its political power over time. When you come in, in your first few years you are able to have the biggest possible impact. So in a sense, the 2020 budget might be as good as it gets for the Trump Administration in terms of achieving outcomes. So it makes sense to take stock of what they have achieved. To preview that, in the report i developed three diagnostic tests for analyzing the defense theest, and i assessed that administrations budget past two out of those three tests. Two out of three aint bad. Show there are significant mismatches between the budget and the strategy, and for that reason, my bottom Line Assessment is that the fiscal year 2020 budget request falls short of fully supporting the 2018 National Defense strategy. To turn to the first question, which is, where is the budget headed . Over the last 10 years, the u. S. Defense budget first went through a drawdown, and in recent years has been going through an increase. You can see that represented on the chart in front of you by the black line at the top of the chart, which is showing you the enacted level of National Defense spending in inflationadjusted dollars. The amount of money spent on overseas Contingency Operations, gradually declined as the u. S. Withdrew troops from our rack from iraq and afghanistan, the money spent on because theilized u. S. Was conducting a military campaign to defeat isis. The biggest change in defense spending occurred last month, when congress and the white house agreed to a budget deal i already mentioned. This budget deal increased spending caps for fiscal year 20 and 21. Those caps nest up you 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 on the chart in front of you with the green line representing the higher cap, and the orange line which is the previous cap. The new spending caps represented in green represent a reasonable compromise between the various stakeholders represented on the chart. Billionple, the 738 level falls in between what set atcans in the senate their preferred level of defense spending, the red column, and what democrats in the house set as their preferred level of defense spending, which is the blue column. The old caps fall close to the overall level of defense spending the dod forecast as necessary, and that is represented by the black dotted line at the top of the chart. Given these various factors, that supports my assessment that the fiscal year 20 budget of 738 billion dollars is still going roughly 1 it is a inflationaryadjusted increase over the previous level. However, the 2021 cap with 740. 5 billion, represents a 1. 6 percent real decrease over the 2020 level. That suggests the overall level of defense spending, which has been increasing for the past five years, may be headed down starting in 2021. Now i am going to transition to talking a little about my second question, 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 actually be smaller than the amount the department of defense received during the peak years of the wars in iraq and afghanistan. So, in that sense, the current budget is smaller in those years in current, inflationadjusted dollars, and thus, if we define historic as meaning the biggest ever, then the current budget is not historic. But its still quite large. And 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, the vietnam war, and the Ronald ReaganNational Defense buildup. It would also be the biggest peacetime budget since world war ii, but youll notice the slide has peacetime in air quotes for a very specific reason. The United States currently has 20,000 actively operating in iraq, syria, afghanistan, and elsewhere around the world. And the department of defense is also currently 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 has been a roughly 160 billion infusion of nominal dollars since president obamas final 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. So i think its fair to categorize that level of increase as being a fairly significant Defense Budget buildup. So 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 occurred under other president s going back to world war ii. But 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. So they might inherit a big budget or they might inherit a small budget, and the size of that inheritance will impact their ability to achieve historically high or historically low levels of spending. So what i do in the report is i measure the changes president s oversee in terms of real growth, meaning percentage change in the Defense Budget. And 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, i think, provides an interesting way to think about what historic means in terms of defense spending. And i think that theres a few takeaways from this analysis. 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. And thats 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. So in that sense, trump is in relatively exclusive company. A second takeaway from the chart is that the changes overseen by trump actually track most closely with john f. Kennedy. Except in 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 takeaway 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, in fact, that i had to build another chart to show you how trumans changes in percentage terms compare to every other president since world war ii. So the main take away here is that if were talking about historic changes in defense spending, we better be talking about harry s. Truman. So now ill pivot to talking about the third question in the report, the most important question in many senses. And that is whether or not dollars follow 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, im using it almost in a medical sense. We are just trying to evaluate whether the budget and strategy match. The problem is that there is no welldefined way of doing this currently. The methods that are available to analysts to do this type of assessment are fairly limited, which means that most of the assessments produced tend to reflect the underlying preferences of theanalysts who the analysts who do the assessing. Let me make an example. The 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 argument 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. Thats the opposite kind of argument. Now both of these arguments are actually quite 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. So what my report tries to do is to provide three tests that can be administered both to this budget and to future budgets to try to determine whether or not dollars followed strategy. So the first test i developed in the report i called the topline test. And this test is relatively straightforward. Former secretary of defense jim mattis and the chairman of the joint chiefs of staff and general 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 a little bit about what i mean by that. So the request actually contained 2. 4 real growth in real growth. And 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, then that would increase the real growth percentage up to that 3 threshold and, therefore, it would pass the test. Now, 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 actually 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. In other words, i think its 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. So 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 2 3 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, lets 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. So 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 2 3 priorities, and component i focused on is the countering violent extremism portion. So, 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 shouldnt be bigger than any of those individual items than the amount we spend on china or russia. And if you work backwards, deductively, it turns out that means those three priorities, none of them individually should receive more than 32 of dods total budget. And the reasons as follows. Imagine countering violent extremism would receive 3 of the budget. That means china and russia has to receive 34 of the budget. Well, if you take 33 plus 34 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. So what were really trying to do here is try to figure out whether or not the oco ex