To Centralize or Not to Centralize? For Defense Budgeting, that is the (Unwritten) Question

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On March 9, 2023, the Biden administration submitted its Fiscal Year (FY) 2024 defense budget request to Congress, totaling $842 billion. This budget represents a $26 billion increase over the FY 2023 budget and largely centers on deterrence and warfighting vis-à-vis China in the Indo-Pacific region. Despite widespread agreement on the need to counter China, Department of Defense (DoD) officials have publicly disagreed over how best to allocate resources toward this challenge. While these disputes seem to revolve around policy preferences, they are largely informed by a more fundamental and unwritten debate over the degree to which the defense budget process should be centralized or decentralized. However, this debate is often unhelpful—for more immediate solutions to modern budgetary tradeoffs, policymakers should instead focus on making the existing system more effective and efficient.

The Pentagon’s FY 2024 budget request has been criticized for two main reasons. First, the request fails to fund a number of key priorities articulated by U.S. Indo-Pacific Command (INDOPACOM), neglecting short-term capability gaps in exchange for longer-term modernization efforts. Second, the request does not decisively resolve an “ugly dispute” between the Navy and the Marine Corps over the procurement of amphibious warships amid a lack of a clear shipbuilding plan for competition with China. Such dissent among the combatant commands, the military services, and the Office of the Secretary of Defense (OSD) has exposed a lack of strategic coherence on China, which is contributing to a lasting inability to navigate key budgetary tradeoffs. 

For some, this is a policy issue; for others, it is a funding issue. But the most important facet of this debate is often the least obvious one: the structure of the Pentagon’s resourcing cycle, known as Planning, Programming, Budgeting, and Execution (PPBE). The proposed solutions to many of these ad-hoc issues usually revolve around some degree of centralization or decentralization of the PPBE process. For example, critics of unresolved budgetary tradeoffs, like those articulated above on China, often call upon the presidential administration and senior DoD leadership to manage the resourcing cycle more actively and ensure that resources are allocated more strategically—thereby implicitly (and sometimes explicitly) advocating for greater centralization under OSD to impose some order of rationality on a messy budgetary process, and avoid a “Christmas tree” approach where funding is spread too thinly among a variety of disparate programs. However, analysts today are simultaneously demanding greater decentralization of the PPBE process in order to encourage bottom-up innovation. For example, as the Pentagon tries to modernize in key areas like artificial intelligence, quantum computing, and other dual-use technologies, the services’ need for flexibility to move money around to different agile, emerging technology firms on an annual basis becomes increasingly apparent.

It is impossible to have it both ways. PPBE cannot be simultaneously centralized enough to ensure strategic coherence and decentralized enough to encourage bottom-up innovation. Thus, while ‘to centralize or not to centralize?’ is often the key unwritten question, it may be the wrong question to ask in today’s policymaking environment. Rather than focus on the structure of the Pentagon’s resourcing process, which is difficult to change and impossible to perfect, more immediate and fruitful solutions to today’s complicated budget tradeoffs should focus on the agency of the individuals involved in the process. Specifically, officials in the executive and legislative branches should take greater care in articulating strategic priorities; new innovation agencies should be given greater resources to exploit initial successes; and the DoD acquisition workforce should be trained more comprehensively to better navigate the complexities of the current system.

The History of PPBE

Any historical contextualization of the budget centralization debate should begin with the origins and purpose of PPBE. In 1961, Secretary of Defense Robert McNamara established what was then called the Planning, Programming, and Budgeting System (PPBS) as a means for OSD to systematically translate strategic imperatives into programs and budgets—primarily by reviewing and influencing the weapon programs pursued by the military services. Each phase of the process is led by a different DoD civilian entity. The Undersecretary of Defense for Policy leads the planning phase by prescribing guidance to the services based on the National Defense Strategy (NDS); the Director of Cost Assessment and Program Evaluation (CAPE) leads the programming phase by reviewing the resource requirements for weapon programs over the five-year horizon of the Future Years Defense Program (FYDP); and the Under Secretary of Defense (Comptroller) leads the budgeting phase by reviewing and phasing budgets in accordance with laws and regulations. These prescriptive and calendar-driven phases over the course of approximately two years contribute to the President’s annual defense budget request, which is submitted to Congress in February or March of the calendar year prior to execution. “PPBS” became “PPBE” with the addition of the execution phase in 2003, in order to emphasize greater compliance and accountability throughout the implementation of the budget. PPBE was primarily designed to help DoD’s civilian leadership manage the enduring, competitive bureaucratic politics among the military services, which constantly vie for resources, personnel, roles and missions, and institutional security.

While these intentions were noble, the inherent centralization of the PPBE process resulted in greater rigidity over time, thereby complicating DoD innovation efforts. Specifically, the imperative to plan budgets years in advance has precipitated an inability to adapt to changing circumstances, including “contract delays, emergency situations, political factors, unexpected inflation, new technologies, evolving threats, and any number of fact-of-life changes.” For example, due to a series of bureaucratic reforms reflecting the solidification of PPBE and greater micromanagement by Congress from the 1960s through the 1980s, DoD officials lost the flexibility to adjust budgets on an annual basis through lump-sum, no-year, and reprogrammable funding allocations—instead requiring multiple layers of bureaucracy to reprogram and adjust funds.

One attempted solution has been to relinquish some OSD authority and empower the services to retake the initiative. Some Secretaries of Defense, like the Reagan administration’s Melvin Laird, have informally yielded greater flexibility to the services through their respective management styles. And less than a decade ago, Senator John McCain led a series of structural reforms to decentralize authority and “allow the military services and defense agencies a pathway around the existing system to once again focus on speedy development and deployment.” The services thus maintain an immense first-mover advantage in the PPBE process through their ability to generate Program Objective Memoranda (POMs) during the programming phase, and major budget debates between OSD and the services often occur at the margins of these budgets. However, despite these efforts, PPBE remains a flawed system—often too centralized to allow for budget flexibility by individual services and agencies, and often too decentralized to guide the services toward a coherent strategic approach.

Today’s Unwritten Debate

Due to rapid technological change, there is pressure to facilitate greater budget flexibility by streamlining the bureaucracy and decentralizing the PPBE process. Many of these calls originated from within the Pentagon across various administrations—from Andrew Marshall and his focus on accelerating military revolutions, to the Better Buying Power initiative under Ashton Carter and Frank Kendall, and more recently to Ellen Lord and Michael Brown. The problem is particularly acute as the Pentagon tries to collaborate with the startups, scaleups, venture capital firms, and other innovative businesses at the forefront of today’s emerging dual-use technologies, which require faster resourcing and acquisition decisions at lower levels of the Pentagon bureaucracy than the PPBE system currently allows. Defense budget analyst Eric Lofgren contends that the so-called “valley of death” that these companies face in competing for DoD contracts, developing prototypes, and scaling up solutions is a consequence of the top-down PPBE process. Therefore, analysts have advocated for increasing budget flexibility through a variety of decentralizing measures, including: changing reprogramming thresholds to enable annual budget adjustments by various services and agencies; eliminating “use-it-or-lose-it” spending to incentivize saving money; and relying less on the FYDP and more on innovation funds and/or portfolio management. Other analysts like Mislav Tolusic, Pete Modigliani, and Matt MacGregor have made the case for further decentralization by arguing that DoD should shift funding from Research, Development, Test, & Evaluation (RDT&E) to Procurement accounts, allowing the private sector (particularly venture capital) to supplant DoD in taking the lead on innovation. And there may even be support in Congress for decentralization; Representative Jason Crow recently advocated for measures whereby combatant commands could circumvent the military services in the pursuit of innovative capabilities. Thus, within this larger debate, it is currently popular to be in favor of decentralization for the sake of bottom-up innovation.

However, despite this outward preference, perennial debates over budget tradeoffs often belie a subtle argument for greater centralization. For example, in the aforementioned disputes over the FY 2024 budget and the need to better deter China, many of the criticisms are premised on the idea that DoD is not centralized enough to promote and enforce a coherent strategic vision. Indeed, OSD leadership was criticized for: neglecting INDOPACOM’s unfunded priorities list and struggling to address the tradeoff between short-term procurement and long-term modernization; presenting Congress with three shipbuilding options rather than choosing one in advance; and failing to resolve the Navy-Marine Corps dispute over amphibious warships. Rather than resolving these issues during the planning, programming, and budgeting phases prior to the submission of the budget to Congress, in accordance with a centralized PPBE process, the Pentagon presented these issues to Congress as an unresolved mess. Demand for greater strategic coherence on China is understandable—but such coherence is already incredibly difficult in a large bureaucracy, and it would be even more difficult in a decentralized system where individual services, agencies, and even combatant commands have the authority and flexibility to move money around.

Asking a Different Question

PPBE cannot be simultaneously centralized enough to build a coherent strategic vision and ensure top-down compliance across the bureaucracy, as well as decentralized enough to incentivize bottom-up innovation in collaboration with emerging technology companies. Perhaps there is an ideal point of equilibrium between these poles, and it remains to be seen whether recent initiatives like the congressionally-mandated Commission on PPBE Reform or the Atlantic Council’s Commission on Defense Innovation Adoption can locate this point and, more importantly, rally support for effecting necessary changes. But given the complexities of, and often the lack of political appetite for, major structural changes, the debate over PPBE should emphasize a different question: how can DoD better resolve tradeoffs and encourage innovation within the structure of the current system? This is in line with the thinking of Deputy Secretary of Defense Kathleen Hicks who, in response to a question I asked her about structural PPBE and acquisition reforms at Georgetown University’s conference on “The All-Volunteer Force at 50,” said:

“I would not currently recommend reversing the last round of major acquisition reforms. We can make it work. For folks who have not lived in an organization or institution, I think it is common to underestimate how incredibly disruptive it is to constantly change statutes/organizational structure… I am not interested in that right now. I’m interested in getting after how we modernize as quickly as humanly as possible, and that basically means work with the system we have…”

So how can DoD work with the system it has? If PPBE’s structure is to remain constant in the short term, it is essential to address the agency of the officials involved. The following three recommendations could go a long way toward ensuring a strategically coherent yet nimble PPBE process.

First, there needs to be a clearer articulation of strategic priorities by the executive branch, along with greater scrutiny by the legislative branch. PPBE begins with planning priorities derived from the NDS—and while the Biden administration’s 2022 NDS prioritized strategic competition with China, it evidently did not establish sufficient parameters for addressing subsequent budgetary tradeoffs in Indo-Pacific force structure and technological modernization. Greater clarity is necessary in order to influence an unwieldy bureaucracy. When the administration is unwilling to resolve these tradeoffs, Congress must intervene to force decisions, rather than writing blank checks by funding bloated and incoherent budgets. The bipartisan letter calling for Secretary of Defense Lloyd Austin to curtail “unfunded priorities” lists, like INDOPACOM’s list for FY 2024, is a good step in terms of Congressional willingness to more proactively shape its relationship with the Pentagon and demand a resolution of budgetary tradeoffs.

Second, DoD should better fund and support existing innovation agencies, while explaining the value of these agencies to Congress. Over the last two decades, the Pentagon has founded multiple innovation units—from the more centralized Defense Innovation Unit (DIU) under OSD to the more decentralized Rapid Capabilities Offices and agencies like Army Futures Command, AFWERX, and NavalX within the services. They tailor to the needs of emerging technology firms by advancing a variety of solutions to the innovation problem set, including greater budget flexibility, more favorable intellectual property rights, and more streamlined bureaucratic processes. However, they have struggled to scale up their programs beyond the prototyping stage. Therefore, future budgets should allocate greater resources to these agencies in order to help them further invest in promising technologies and transition them to programs of record—thereby increasing flexibility without changing the entire structure of PPBE.

Lastly, savvy DoD program managers are often able to navigate today’s byzantine resourcing and acquisition cycles, demonstrating the power of individual agency in the face of a rigid structure. However, such expertise is not evenly distributed. Greater training and education, potentially through the Defense Acquisition University, can help empower the entirety of the acquisition workforce.

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