As spending comes down, Strategic Choices needed.

• Author: Kratz, Lou
• Position: INDUSTRY PERSPECTIVE

After more than a decade of conflict, the United States has begun to draw down defense spending, with sequestration cuts expected to continue over the coming years.

The Defense Department must cope with declining resources at a time when it also faces persistent global threats and is under pressure to modernize aging systems to deter emerging competitors.

The ongoing Strategic Choices and Management Review, directed by Defense Secretary Chuck Nagel, is expected to conclude that even with budget pressures and sequestration, the nation will still have to maintain and reset equipment in order to remain a viable military force.

Faced with declining defense budgets, aging weapon systems and growing personnel costs, the Defense Department must avoid austerity measures that result in a "hollow force" and must focus on how to maintain and enhance key capabilities at reduced cost.

Some experts contend that the United States has historically reduced force structure following conflicts, and that current reductions are consistent with past precedent. That argument, however, fails to consider that those historic drawdowns were marked by diminishing threats and did not account for the cost of an all-volunteer force. Today, personnel costs consume 45 percent of the base defense budget, or $250 billion of the $558 billion spent in fiscal year 2012. The cost of military health care has almost tripled since 2001, from $19 billion to $53 billion in 2012, or nearly 10 percent of the entire defense budget. The Congressional Budget Office estimates that military health care costs could reach $65 billion by 2017 and $95 billion by 2030.

Force structure reductions in this environment create "hollow" savings. To reduce personnel costs sufficiently, dramatic force reductions would be required, which would diminish the military's capability to address current and emerging threats.

There are fundamental business decisions the Defense Department could make to ensure readiness and modernization while maintaining force structure. Those business decisions were made by many U.S. allies that faced similar challenges more than a decade ago. Nations such as the United Kingdom, Australia and Canada transformed their military structures to concentrate on their core competencies of deterrence and national defense.

These nations opted to migrate uniformed personnel to combat/combat support functions, privatize infrastructure and use public/private partnerships to buy outcomes...