DOD Bailout?

By Marjorie Censer / October 21, 2009 at 5:00 AM

Facing similar problems to those of General Motors a year ago, the Defense Department should begin reining in personnel costs and rethinking the way it buys weapons, according to a report released today.

Todd Harrison of the Center for Strategic and Budgetary Assessments writes in a report titled "Avoiding a DOD Bailout" that DOD's problems are "eerily similar" to those of GM a year ago.

Both saw high rates of growth in healthcare and retirement pension costs, he argues, while both also found themselves "in a period of disruptive change in the competitive environment."

For GM, this meant increasing fuel prices coupled with a declining economy and growing interest in fuel-efficient cars, while DOD "now finds itself saddled with a number of weapon programs whose capabilities are ill-suited for the types of conflict the military currently faces and whose costs have risen beyond what the Department can afford."

"The challenge for DOD, as it was for GM, is that the competition is adapting faster than it can keep up," Harrison writes.

But with budget challenges ahead, he argues the Pentagon cannot spend "its way out of these problems" and must make tough choices. Harrison calls for the Defense Department to rein in personnel costs by changing its pensions and healthcare benefits and reducing the number of troops. Additionally, he writes, DOD could save money by moving fewer families between bases.

In weapons acquisition, DOD must learn to control research and development costs as well as its "appetite for 'exquisite' systems," he contends.

"The Department is fundamentally on an unsustainable path, and a sharp change in direction is needed to correct its course," Harrison finds. "A massive infusion of funding in excess of the current defense plan -- a DOD 'bailout' of sorts -- would only delay the inevitable day of reckoning, much like giving more loans to GM without restructuring the company."