Reforming the Pentagon’s Budgeting System: Can DOD and Congress Strike a Deal? – CSIS

Published August 22, 2023

On August 15, a congressionally established commission published its interim report about reforming the Pentagon’s budgeting system amid criticisms about inflexibility, a lack of agility, risk aversion, and excessive workload. Noteworthy is the fact that the commission did not recommend starting fresh with something entirely new but instead proposed a variety of fixes that would, in effect, offer Congress a deal: more information and a closer relationship in exchange for relaxing some of its grip over the defense budget. Also implied is that the Office of the Secretary of Defense’s (OSD) staff will need to delegate some authority to services and agencies. Although the commission makes a wide variety of useful recommendations for training, staffing, and information technologies, the push for increased agility is central.

These process improvements appeal to insiders but lack the drama of the war in Ukraine, congressional debates, competition with China, or cyberattacks. Nevertheless, everyone should pay attention because process drives substance. As an old Pentagon aphorism goes, plans without resources are hallucinations. Changes in the budgeting system affect what issues get raised, which organizations participate in the analysis, who makes what decisions, and, ultimately, what gets funded.

This is not the last word. The final report, due in March 2024, will reveal the exact nature of the deal and whether it has a chance of implementation with the many stakeholders.

Q1: What is the Pentagon’s budgeting system?

A1: The Pentagon’s budgeting system is called the planning, programming, budgeting, and execution system (PPBES). The Deparment of Defense (DOD) defines it as follows: “The PPBE shall serve as the annual resource allocation process for DoD within a quadrennial planning cycle. . . . Programs and budgets shall be formulated annually. The budget shall cover 1 year, and the program shall encompass an additional 4 years.”

Robert McNamara established the system in 1962 to ensure that decisions were resource-informed, decisionmakers had access to objective analysis, and the outyear implications of decisions were shown. Previously, the military services had developed one-year plans virtually independently.

A full cycle takes about three years to complete. It begins with a planning phase that examines that year’s key strategy questions and produces the Defense Planning Guidance (DPG) for the services and defense agencies. That transitions to a programming phase, which translates capabilities into specific programs and forces. The budgeting phase assesses pricing and executability. DOD then sends the budget to Congress as part of the president’s annual budget proposal, generally early in February. Finally, once Congress enacts a budget and DOD begins execution, an execution phase assesses whether programs are operating as planned. The process is comprehensive, involving every element of DOD, from local commands to the military services and agencies to the Office of the Secretary of Defense.

Although Congress has established certain organizational structures, funding controls, and report requirements, PPBES is not established by law but by DOD internal directives. Thus, DOD has considerable latitude in making changes, though these must gain acceptance from multiple stakeholders, including Congress, which has the final say.

Q2: Why is there criticism?

A2: Although there have been many tweaks and a few substantial changes over the years, the system remains fundamentally the same. As a result, it has been characterized as an “industrial age process” unsuited for twenty-first-century government. The criticisms are fourfold:

The process takes too long, nearly three years from initiation to the end of budget year execution. Although there are feedback loops and opportunities to make changes, a lot can happen during that time to change budget needs.
The process cannot deal with rapidly evolving technologies like software and artificial intelligence.
The system is biased toward existing weapons and technologies because the many hierarchical reviews make the system risk averse.
The process is labor-intensive. Dozens of agencies and thousands of personnel participate in driving the budget along its three-year journey.

Q3: What is the commission?

A3: These criticisms drove Congress to create an independent Commission on Planning, Programming, Budgeting, and Execution Reformin the FY 2022 National Defense Authorization Act. The commission’s purpose is to “examine the effectiveness of the planning, programming, budgeting, and execution process and adjacent practices of the Department of Defense, particularly with respect to facilitating defense modernization.”

The 14 commissioners are classic Washington insiders with deep personal experience in PPBES as senior officials in the Pentagon, the military services, or Congress. Consistent with the statute, none of the commissioners are currently employed by the federal government.

However, the insider aspects engendered some criticism. The Center for Defense Information dismissed the commission as it began because many commissioners had jobs in defense industry: “In a room full of people with glaring conflicts of interest, it is impossible to meaningfully reform an acquisition and budgeting system in a way that benefits the troops and American taxpayers.”

However, commissions need insiders with deep knowledge of the subject matter who can fix problems rather than outsiders who can admire them. People with deep experience in defense budgets and programs tend to stay in that profession, but that means they will likely have some linkage to industry, however tenuous.

The commission notes that it held 29 formal in-person meetings, interviewed over 560 individuals, and had 15 engagements with professional staff from the congressional defense committees. It has engaged research by several federally funded research and development centers and academic institutions.

Q4: What is the commission’s approach in this interim report?

A4: The report eschews the breathless rhetoric of broken systems, national peril, fundamentally changed national security environments, or villainous opponents of change often seen in commission reports. Instead, as a result of the commissioners’ backgrounds, it recommends many specific improvements and notes that the commission is considering a few major changes. Overall, the commission “found that the PPBE process serves a critical role in identifying key budget issues . . . enabling senior leaders to guide the course of the department and developing consensus proposals that can be defended before Congress. . . . however, almost everyone the commission spoke with, even those praising aspects of today’s PPBE process, agrees that changes are needed [emphasis in original].”

This approach may disappoint some critics who would junk the current system and institute something completely different. However intellectually satisfying that might be, the chances of starting from scratch are essentially zero given the immensity of the task―it allocates three percent of U.S. GDP―and the hundreds of stakeholders. As think tank scholars Thomas Spoehr and Frederico Bartels put it, “the commission’s recommendations should apply to the existing system. It cannot—nor should it try to—develop a ‘clean-sheet’ design supported by an ideal financial management system. If the commission organizes itself around the idea that it should completely abandon the current system and rebuild from the ground up, it will immediately consign its final report to the graveyard where blue-ribbon commission reports go to die.”

Q5: What specific actions does the commission recommend?

A5: The report makes recommendations in five areas: PPBE-related relationships between the DOD and Congress, PPBE processes to enable innovation and adaptability, the alignment of budgets to strategy, PPBE systems and data analytics, and DOD programming and budgeting workforce capability. Note that DOD uses “PPBE” to refer to the general topic of planning, programming, and budgeting, and “PPBES” to refer to the formal system.

PBBES-Related Relationships between DOD and Congress

Although PPBES is an internal process, Congress has the power of the purse. Therefore, its views and participation are critical to establishing a budget. Indeed, the report goes out of its way to show how both sides, executive and legislative, have problems and need to take action on reform.

The Problem

DOD provides an immense amount of information upfront with the budget release, but the information flow slows down after that. Congress complains that its follow-up questions do not get answered quickly. The DOD complains about the number of inquiries, which has doubled to 1,429 in FY 2020, as the report notes. Everyone is late getting their products out, with the administration averaging 49 days late in its budget proposal and Congress averaging 113 days late getting a defense appropriation passed. (This is one example of many where the report cites problems on both sides.)

Recommendations for Immediate Implementation

Provide a midyear update briefing. This would provide a formal venue for communication, particularly in connection with the department’s midyear reprogramming actions. Indeed, this update has the appearance of both a reprogramming session and a budget amendment since DOD and the congressional committees would discuss changes to both the president’s budget proposal and the budget being executed. This requires buy-in from the White House through its budget arm, the Office of Management and Budget, since DOD has half the discretionary budget and what happens there affects the president’s overall budget strategy. Three corner negotiations are difficult. If successful, this would provide a major tool for adapting to changing circumstances. If it fails, the review is liable to degenerate into a pro forma reiteration of the administration’s policies and proposals.
Give budget justification books a standard structure. This would improve accuracy and make budget preparation tools common across DOD.
Improve training for program and budget staff and congressional liaison. A better-trained workforce can answer questions more quickly.

Considerations for Final Report

Assess the impact of late release of administration budget requests and the resulting delay in getting congressional appropriations. The report here is again evenhanded. However, the congressional problem is much more severe, being twice as late and occurring over a much longer period of time.

PBBE Processes to Enable Innovation and Adaptability and Alignment of Budgets to Strategy

The report lists these two separately, but they are closely related and constitute the core of the commission’s recommendations. Although these issues have little visibility to those outside of government, they are of immense interest to people in government and should be of interest to the general public. They answer the question of who gets to decide which issues and, ultimately, what gets funded.

The Problem

The system lacks the flexibility to respond rapidly because of its length, inflexible budget structure, and hierarchical nature. The Research, Development, Test, and Evaluation (RDT&E) appropriations alone have over 900 individual budget lines that act as congressional controls. Although the system is designed as a smooth linear process whereby one organization hands off seamlessly to the next, products from one phase are often late, disrupting the process’s logical flow.

Recommendations for Immediate Implementation

Update PPBE documents. This is a perennial problem in large organizations since practices change faster than descriptive documentation, especially since updating such documents tends to be low priority.

Considerations for Final Report

Restructure the budget. This is potentially the commission’s largest change. The report outlines three potential ways forward that would result in larger groupings of funds. These groupings would focus more on programs and capabilities than on life cycle phases such as R&D, procurement, or operations and maintenance. Indeed, showing all a program’s resources was one of the founding goals of the entire PPBES and implemented for reporting purposes through the program element structure. The commission’s theory is that changing the current appropriations structure would avoid the “color of money” problem whereby programs and missions have difficulty moving money across appropriations and face delays and inefficiency as a result.
There are precedents to changing the structure. For example, during the wars in Iraq and Afghanistan, Congress allowed DOD to create the Joint Improvised Explosive Device Defeat Organization Fund and the Mine Resistant Ambush Protected Vehicle Fund. Congress funded the programs in a lump sum and DOD decided which activities to support. DOD then reported to Congress in a timely manner where the money was going. The commission is suggesting an approach like this but without the impetus of a crisis atmosphere.
Extend the availability of some funds to avoid the “use it or lose it” dynamic. This refers to when organizations scramble to spend money at the end of the fiscal year. The report notes that this is especially a problem with the operations and maintenance appropriations.
Consolidate budget lines. Currently, there are thousands that individually act as congressional controls. Some consolidation would be reasonable since there will still be many tools for control. However, individual members or professional staff often have an interest in particular budget items and use the extensive line-item structure to implement their views.
Delegate some reprogramming authority to services and agencies. This would allow more rapid shifts in funds during the year of execution because there would be fewer layers of required approval.
Allow more internal reprogramming and simplify new start notifications for low-dollar programs. Most of these actions are for programs of less than $50 million.

PBBES Systems and Data Analytics

The Problem

DOD has many obsolete and fragmented business systems because of their low priority for funding and the difficulty in getting organizations to agree on change. Yet improving business systems is not just a good government effort. It increases visibility so more stakeholders can participate more easily, and it increases efficiency so the process can be conducted with fewer people. With 50,000 civilian and military personnel working primarily in financial management, even small improvements in efficiency can yield useful personnel savings.

Recommendations for Immediate Implementation

Accelerate consolidation of data systems used by the comptroller’s office and the office of Cost Assessment and Program Evaluation (CAPE).
Establish classified and unclassified mechanisms for DOD to share information with Congress in real time.

Considerations for Final Report

Explore the use of artificial intelligence to automate and streamline workflow and facilitate data-driven decisions.
Use analytics more extensively to shape the DPG. The commission has great hopes that this will better illuminate key issues for the senior leadership and produce stronger links of budgets to strategy.

Improve DOD Programming and Budgeting Workforce Capability

With so many commissioners coming from the programming, budgeting, and financial communities, it is not surprising that they are sympathetic to workload issues.

The Problem

Of all OSD program and budget positions, 12 to 18 percent are unfilled. Continuous budget crises, from the need to support Ukraine to hedging against prospective government shutdowns, prevent the staff from getting training, leave, or a reasonable work-life balance.

CSIS has described how Congress often uses civilian headcount as a metric for bureaucratic overhead and imposes caps. Government then turns to contractors to fill gaps. However, the commission notes policy limits on what contractors can do. The budgeting workforce is thus caught in a long-term adverse political dynamic.

Recommendations for Immediate Implementation

Improve incentives and bonuses for direct hires.

Considerations for Final Report

Assess programming and budgeting organizations in the services and military departments. This is fair since concentrating solely on OSD would miss much PPBES activity. (It would also avoid criticism that commissioners were overly focused on OSD and Congress because that is where most of their experience lies.)
Increase civilian staffing levels in the comptroller’s office and CAPE. The commission makes a strong argument here, but there is much internal competition for personnel.

Q6: What happens next?

A6: DOD’s leadership recognized the interim report, saying it would implement the actions it could. However, there were no specifics. Congress has not reacted.

The commission’s final report is due March 2024. For that, the commission will need to make its toughest decisions, particularly about budget structure. For every winner, there will be a perceived loser, even if there is a net benefit.

Increasing flexibility and agility often means pushing authority down in an organization. That sounds reasonable and aligns with many management concepts, but it means that powerful institutions and senior personnel give up authority they have become accustomed to. In this case, the authority resides in Congress and OSD. Critical to the success of the reform effort will be whether these two organizations are willing to delegate some of their authority.

Mark Cancian (Colonel, USMCR, ret.) is a senior adviser with the International Security Program at the Center for Strategic and International Studies in Washington, D.C. During his time in the Department of Defense and the Office of Management and Budget, he worked with PPBES every day.

Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

Article link; https://www.csis.org/analysis/reforming-pentagons-budgeting-system-can-dod-and-congress-strike-deal

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