Strategic Investments: Mapping the Next Defense Strategy and Budget By Ryan McCarthy

A Response By Ryan McCarthy

The Department of Defense risks strategic insolvency because of a growing mismatch between resources and capabilities relative to the most pressing global threats and demand signals from policymakers and combatant commands.

There are overarching issues—fiscal, strategic, policy—beyond DOD’s control that the White House and the Congress must address. So, as a starting point to any larger discussion, DOD must get its own balance sheet in order.

The prior administration made some progress toward reducing DOD-wide spending (“4th Estate”) and transitioning away from Cold War-era legacy systems toward new capabilities. In the case of the Army, some $35 billion was reallocated to invest in more than 31 new programs.

Budget allocations have since regressed out of alignment with warfighting priorities. The Fiscal Year 2025 request included more than $140 billion for the Office of the Secretary of Defense (OSD), field activities, and agencies. A portion of that 4th Estate total (10-15 percent) could be reallocated to the services to better man, train, and equip the Joint Force.

Despite providing, by one estimate, up to 60 percent of combatant command requirements, the Army base budget in real terms has declined by more than 25 percent over the past four years (recouped, in part, by Ukraine-related supplemental appropriations). Demand has surged recently, in Europe and in Asia, for Army formations of all kinds—air and missile defense, engineers, training, and service support, along with combat capabilities—with no slackening on the horizon.

At the same time, there has been an alarming drop-off in Army recruiting, with three consecutive years of missed targets, which ended only by reducing the overall goal by 10,000. This shortfall needs to be addressed (again) as a personal leadership priority at the chief of staff and service secretary level.

A steep increase in Navy budgets relative to the other military services has not resulted in appreciable gain in shipbuilding or ship availability. An external scrub is needed of Navy operations and maintenance accounts before layering on yet more funding. There is some low-hanging fruit— laggard suppliers, non-competitive workforce compensation—that can be addressed next year to remediate the worsening shipbuilding backlog. In the absence of massive new funding, some difficult tradeoffs will need to be made about the Navy’s modernization plans and aspirations. At minimum, the undersea mission—attack, ballistic, unmanned—is a no-fail national defense priority that should be revitalized and resourced accordingly.

A generally brighter picture exists in the Air Force. The B-21 bomber appears to be on track and the Collaborative Combat Aircraft shows promise to deliver meaningful unmanned capability on a historically short timeline. The Air Force Secretary’s modernization effort has been undercut by OSD’s (and Congress’) continued refusal to retire legacy aircraft, which are costly to maintain and unlikely to survive contact with a modern air defense system.

Across all mission sets, DOD needs to shift significantly more emphasis and funding toward munitions, which the services historically neglect in favor of platforms and other priorities. Even if the United States does not find itself in a Ukraine-style ground war, the China-Taiwan scenario demands significantly more anti-air, anti-ship, and cruise missiles than are currently available (and to be procured over the FYDP). The sluggish pace and low output of field and air defense artillery munitions production since 2020 exposes a strategic liability calling for action beyond the incremental improvements achieved so far. Returning to high-rate, mass-scale munitions production—last seen during the 1980s—will require a more hands-on, directive approach to defense contractors. It will also require a credible plan for industrial base investment, incentives, and multi-year procurements that can achieve bipartisan support in Congress.

As a service secretary, I was all too familiar with the demands and appetites of geographic combatant commands. DoD needs a new force generation model going inside-out (rather than outside-in) based on national (versus regional) defense priorities. The solution is not to eliminate or merge the geographic commands, as the transition would be dangerously disruptive and, ultimately, save relatively few billets or dollars (as shown by past DOD ‘efficiencies’ exercises). As with most seemingly intractable problems, right-sizing the combatant commands is a matter of leadership by the Defense Secretary—–in terms of the taskings he or she approves and the advice given to the President, as much of the demand overreach comes from the National Security Council.

Nonetheless, there are geographical and functional missions that need a significant increase in funds, authorities, and leadership priority.

The Arctic region is becoming a theater of strategic competition with Russia and eventually China. The U.S. Navy has one operational icebreaker ship available compared to 40 fielded by Russia. The accession of Finland and Sweden into NATO—alongside Norway, Iceland, and Canada— completes a formidable band of alliance presence and military capability along Europe’s northern rim. We must take full advantage of these new members through regular multinational exercises and investments uniquely suited to operations along the Arctic Circle.

DOD has also neglected to support and field effective information operations (IO), which had been a priority for counter-terror and counterinsurgency after September 11. The open source, increasingly digital, information battlefield has been largely abandoned to Russia and China. Under the current administration, DOD does not have the latitude to conduct IO without multiple levels of vetting and approval. Authorities should be restored along with adequate funding and manning for military IO units.

Ideally, DOD would be spared some of these difficult capability trade-offs and associated risks if defense appropriations surged to Cold War levels: beyond $1 trillion-plus defense budgets climbing above four percent of GDP. Senator Roger Wicker’s proposed defense investment plan is a bold step in the right direction to plus-up depleted weapons stocks and build out our fragile industrial base.

What DOD needs immediately are politically and fiscally sustainable budgets—locked in with the White House and Congress—which, at minimum, keep pace with inflation, and ideally go up at least two percent or higher. It has been decades since DOD received an appropriations bill on time and continuing resolutions have become the norm. The Pentagon leadership must accept this situation will likely stay the reality and prepare accordingly, which is more helpful than repeatedly complaining about the Congress.

In all, strong and credible leadership will be the deciding factor—rather than technology, reforms, or even funding—to right DOD’s strategic balance sheet and, with that, move closer to strategic solvency for the United States.