A major step in reforming the Pentagon’s outdated budget system

Early in 2001, shortly after I had been nominated to be the Department of Defense comptroller in the new George W. Bush administration, former Defense Secretary Robert McNamara asked me if the department was still operating under the PPB (Planning, Programming, Budgeting) system. When I replied in the affirmative, he was taken aback.

“But I brought that in 40 years ago,” he exclaimed. Nearly a quarter-century since that conversation, the Defense Department continues to employ the same system, with very few changes since McNamara installed it.

Even the addition of “Execution” — which I mandated in 2003 in order to put greater focus on how money actually was spent — to the system, now called PPBE, did not change the manner in which the Pentagon went about its business. I had intended that, in place of one mid-year execution review that supported major reprogrammings, the department would conduct multiple reviews annually so as to add flexibility to the way funds were expended. No additional reviews ever took place, however; the frequent supplemental appropriations to finance the wars in Afghanistan and Iraq so overburdened the comptroller staff that additional reviews simply were simply infeasible.

The intervening years have seen the emergence of a powerful China whose dictatorial system has enabled it to modernize its military capability at a remarkable pace, thereby challenging America’s superiority. It was in the face of Beijing’s challenge, and threats ranging from Russia to Iran to North Korea, that Congress mandated a new commission to conduct a thorough review of the PPBE system.

That review is now complete. The Commission on Planning, Programming, Budgeting and Execution Reform, led by Bob Hale, one of the most capable people ever to hold the office of DOD comptroller; and Ellen Lord, a former under secretary for acquisition and sustainment; and including Dave Norquist, once my deputy and subsequently both comptroller and deputy secretary of Defense, released its final report earlier this week.

The report offers a total of 28 recommendations, many of which focus on the need for more frequent and in-depth analysis that, according to its authors, will enable DOD both better to align strategy to resources, and to do so in a far more flexible and actionable manner than is now the case. The report proposes a new system called the “Defense Resourcing System” that incorporates three separate phases: strategy, resource allocation and execution.

In themselves, these phases are not all that different from the current system. What distinguishes the new DRS is the injection of analytics throughout the strategy and resource allocation phases. The new system also combines the classic Program Organization Memoranda and Budget Estimate Submissions that the military services have developed each year into a single coherent Resource Allocation Submission.

The commission also recommends that the department adopt a new budget structure organizing budgets according to major capability areas that are then broken down into specific programs and systems, and then what it terms “relevant life cycle phases.” It stresses the importance of consolidating research and development budget activities that date back to the earliest years of the McNamara era, so as to allow for greater flexibility and responsiveness to new technological advances. Finally, in addition to highlighting the need for 21st-century information technology systems that would enable shared data, analysis and decision-making across the department, the commission calls for adding trained analysts to support the new system.

While the DOD can implement most of the aforementioned changes, several need congressional approval, as do most of the changes recommended for what is the Execution phase of the current system. Congress would have to permit the Pentagon to implement the commission’s recommendation that 5 percent of Military Personnel and Operations and Maintenance Authority funding be carried over to the next fiscal year. Doing so would reduce if not eliminate the current bureaucratic practice of spending last-minute funds in August or September of the outgoing fiscal year on low priority items, simply to ensure that budgets not be reduced in the upcoming fiscal year.

The commission also recommends increasing thresholds for reprogrammings that do not require prior congressional approval, and it recommends that Congress permit more new starts even within the context of continuing resolutions. Congress would also have to grant the department the ability to apply funds in more than one appropriations account (“colors of money”) for software acquisition.

At 398 pages long, the commission’s report is likely to make a non-expert’s eyes glaze over. Yet it is an important step forward that is critical to enabling the U.S. to preserve its military technological dominance and remain far ahead of its peer competitors. It may well be that even more radical changes are necessary for reforming the department’s 60-year-old system, but the commission has made a major contribution to that effort.

It is now up to the Department of Defense leadership to implement those change that are within its purview, and for Congress to face up to the need for removing the impediments, many of them not even enshrined in legislation, that it has imposed on the DOD for far too long.

Dov S. Zakheim is a senior adviser at the Center for Strategic and International Studies and vice chairman of the board for the Foreign Policy Research Institute. He was undersecretary of Defense (comptroller) and chief financial officer for the Department of Defense from 2001 to 2004 and a deputy undersecretary of Defense from 1985 to 1987.