Follow the bouncing ball of defense, federal budgets: disoriented yet?

• Author: Farrell, Lawrence P., Jr.
• Position: PRESIDENT'SPERSPECTIVE

* In the nation's fiscal outlook, instability is the order of the day. Just last May, Defense Secretary Robert Gates announced his budget initiatives with major program adjustments and a set of efficiency measures that are designed to set defense on an affordable ramp and move approximately $100 billion from overhead to acquisition accounts.

At the federal level, the U.S. economy is emerging slowly from the recession with anemic job recovery and massive budget deficits as far as the eye can see. As recently as August, the 2011 deficit was projected to be around $1.3 trillion with corresponding projected levels of spending and debt.

So where are we on those projections?

In the defense arena, Gates announced in January that the services were able to deliver on the $100 billion of overhead efficiencies, but $28 billion of that must now be used to pay for fact-of-life bills that had not been contemplated when he unveiled the $100-billion reinvestment strategy in May. This reduces the amount of efficiencies to be added to acquisition accounts. In addition, Defense must trim $78 billion from the top line over the next five years. This will require some major program adjustments such as the cancellation of the Marine Corps' Expeditionary Fighting Vehicle and a two-year slip in the F-35 Joint Strike Fighter.

Complicating the budget picture is the turmoil caused by Congress delaying passage of a defense budget for fiscal year 2011, which began in October. The Pentagon has been operating under a "continuing resolution." Such resolutions are highly detrimental to defense programs, as they fuel uncertainty and create costly disruptions.

The inevitable conclusion is that the defense budget is, at this point, structurally unstable.

Government-wide projections are rather bleak. The Peter G. Peterson Institute noted that, since August 2010, the Congressional Budget Office (CBO) has forecast a slower-than-predicted economic recovery; a $1.5 trillion deficit for 2011; cumulative deficits from 2011 to 2020 to increase by $1.4 trillion to $3 trillion; permanent cash flow deficits for Social Security; a doubling of healthcare costs; and, soaring interest payments on the national debt.

Under worst-case scenarios, the deficit is projected to average 5 to 6 percent of Gross Domestic Product--compared to a 40-year average of minus 2.4 percent--and total debt rises to 90 percent of GDP by 2021. CBO also projects unemployment will decline slowly, only reaching 5.3...