April 18, 2018

By Loren Thompson
Lexington Institute

When Dayton community leaders conducted their first fly-in to Washington in 1984, the U.S. military was engaged in what proved to be the last big modernization surge of Cold War years.

The Air Force was buying hundreds of new fighters each year, not to mention two different bombers.

Every facet of military spending was increasing, and by the end of the 1980s employment at Wright-Patterson Air Force Base topped 30,000.

But then the Cold War ended.

Secretary of Defense Dick Cheney killed a hundred major weapons programs as the Soviet Union was collapsing, and Wright-Patt lost a third of its workforce during the 1990s.

As it turned out, the Reagan buildup was the last big surge in military technology spending not just during the Cold War, but right up to today.

The Clinton Administration was determined to reap a "peace dividend," and made little effort to invest in new weapons.

Clinton was followed by George W. Bush who, seeing few threats on horizon, proposed during his campaign to skip a generation of weapons.

It soon turned out that there were threats facing the nation, but not the kind that required new fighters and bombers.

The global war on terror that commenced after 9-11 was a labor-intensive undertaking that required little investment in cutting-edge weapons.

And then President Obama took office, presaging an eight-year stretch in which partisan paralysis precluded modernizing the military to any great extent.

So here is where we stand today...

• The Air Force's fleet of fighters is the oldest it has ever been.

• The most common bomber in our nuclear force ceased production 56 years ago.

• The most common tanker in our aerial refueling fleet ceased production 53 years ago.

• The Air Force's aged Minuteman ballistic missiles are rapidly approaching the point at which they must retire.

• And the military satellites the Air Force manages are increasingly vulnerable to preemption by foreign rivals.

No doubt about it, the Air Force is overdue for a technology refresh that replaces all of its Cold War planes and many of its space systems.

President Trump ran for office promising to address that challenge, and he is making good on his promise.

Thus we may be on the verge of a golden age for Wright-Patt, because every aspect of Air Force modernization is managed there.

And much of the necessary research is conducted there.

And lots of the intelligence driving military requirements is generated there.

But there are threats to that golden age even before it has begun -- fiscal and political threats that could derail what might otherwise be an economic boom for Dayton.

So here is what I would like to discuss during the remainder of my remarks...

• First, I want to expand on why the future should be bright for Wright-Patt, in fact, brighter than for almost any other military base in the world.

• Second, I want to describe the challenges in Washington that could dim Wright-Patt's potential to be an engine of growth for the region.

• And then finally, I want to lay out a strategy for protecting the investment that the Dayton area has in what is probably the Air Force's most important base.

The Good News

So let's begin with the good news -- why the future should be bright for Wright-Patterson Air Force Base and the Dayton regional economy.

In a bipartisan budget agreement last month, Congress and the Trump administration agreed to raise defense spending by over $60 billion in 2018, and keep defense outlays at the same elevated level in 2019.

The Air Force share of the increased amount will be about $184 billion in 2018 -- bigger than the entire military budget that China has announced for this year.

The Air Force number will then grow to $194 billion in 2019 -- the fiscal year that begins October 1.

The increased level of funding will enable the Air Force to raise military pay by 2.4 percent this year while catching up with its backlog of planes requiring maintenance.

But the really big impact on Wright-Patt will come from the growth in modernization spending that the President has promised to deliver.

Over $50 billion will be spent by the Air Force this year on researching, developing and producing new weapons, and over $60 billion will be spent in 2019.

Almost all of this money will be managed through the Air Force Materiel Command headquartered at Wright-Patt, and a significant amount of the research will be executed in and around the base.

Even before the increased spending arrived, the Materiel Command was already consuming about 30 percent of the Air Force's entire budget, and now that share looks likely to rise.

We may have begun a period similar to the Reagan era, in which spending on new military technology dominates the defense budget.

The reason why is simple: our weapons are old and the focus of the National Security Strategy is shifting from counter-terrorism to great-power competition.

There wasn't much urgency about modernizing the force while we were fighting Al Qaeda and ISIS, because they didn't have air forces or air defenses.

But now the emphasis is shifting to Russia and China.

While America was bogged down in places like Iraq, the Russians and Chinese were closing the military technology gap with America  not just in the air, but in space and on the electromagnetic sprectrum.

So today Air Force leaders are in a near panic about the technological advances being made by Russia and China.

That's why nearly half of the money the Air Force will spend on technology this year goes not to buying more aircraft and satellites, but to developing a new generation of combat systems.

When there is that much R&D money in a budget and it is all being managed out of Wright-Patt, the research opportunities for local universities and companies are nearly certain to grow.

Bear in mind, Wright-Patt isn't just the place where Air Force Materiel Command is headquartered...

• It is also the home of the Air Force Research Lab, which controls the Air Force's science and technology budget.

• It is also the home of the Air Force Life Cycle Management Center, which plays a central role in sustaining fielded combat systems.

• It is also the home of the National Air and Space Intelligence Center, which analyzes emerging threats to determine future military needs.

Bottom line: the Dayton area is going to be one of the world's premier centers of aerospace research and innovation for the foreseeable future.

Wright-Patterson Air Force Base will be a magnet for scientists and engineers and entrepreneurs even if the rest of the national economy falls into recession.

And that's just the direct effect of the coming surge in Air Force modernization.

The indirect effects will ripple through every facet of the local economy, benefiting workers who couldn't even find the base's main gate.

When it comes to commercial technology, most of the key decisions in the years ahead will be made in Silicon Valley, and Austin, and Boston.

But if you are pursuing leap-ahead technology in military air vehicles, new propulsion concepts, overhead sensors or applied materials, the key decisions will be made in metropolitan Dayton.

So if the Trump administration’s military buildup unfolds as planned, few places will benefit more than Dayton.

The Bad News

Now for the bad news.

There are important fiscal and political trends unfolding that could undermine the Trump military surge within two years.

Under the current White House plan, the U.S. will spend $3.3 trillion on defense over the next five years -- by far the biggest amount that any nation is likely to spend on its security.

But if that amount is reduced by even ten percent, the cuts will fall disproportionately on modernization and Wright-Patt may not see that golden age that I have just forecast.

The reason a modest cut to defense might signal a major cut to modernization is that the military must cover personnel and readiness costs before it gets to modernization, and so investment in new technology tends to become a bill-payer for other things when budgets get tight.

As we have seen over the last several years, our political culture is amazingly adept at ignoring threats when it doesn't want to change its ways.

So if budget plans have to be trimmed, legislators on both sides of the aisle will convince themselves that developing new weapons can be delayed in order to keep entitlements flowing and military personnel adequately compensated.

Those are the kinds of outlays that get politicians re-elected, not funding for new air weapons.

Against that backdrop, let's consider the various ways in which President Trump's planned revitalization of the military might go awry.

The first problem is that a law called the Budget Control Act has been in place since 2012 capping military outlays for ten years.

The reason defense spending has surged this year is that Congress passed a bipartisan agreement lifting the budget caps for 2018 and 2019.

That enabled legislators to raise both defense and domestic spending by $300 billion above what the original budget caps would have permitted over the two years.

But the original budget caps are still in place for 2020 and 2021 -- the last two years of the ten years the Budget Control Act covers.

If those caps are not adjusted upward, the defense department would need to strip $260 billion out of its budget plans for 2020 and 2021, effectively ending the Trump modernization surge.

Now, you might ask yourself why Congress wouldn't just lift the caps again in 2020 and 2021 the way it has repeatedly done in recent years.

The answer is that between now and then, the nation will hold midterm elections and at the moment it appears the GOP will suffer major losses.

If there is one thing we know about the Democrats who might make up congressional majorities starting next year, it is that they are not real enthusiastic about spending money on weapons.

They might support military pay increases or readiness outlays, but buying weapons is more of a Republican thing, so if the GOP is in the minority some of the biggest programs Wright-Patt manages are likely to take a hit.

But there's another problem: as a result of recent tax cuts and spending increases, federal deficits are out of control again.

Washington has already borrowed $600 billion this year, and we're a long way from the end of the fiscal year on September 30.

Both the White House budget office and the Congressional Budget Office estimate that the government will spend about $980 billion more than it collects in taxes in the fiscal year beginning October 1, meaning we are back to trillion-dollar deficits.

Or said differently, we are back to adding another trillion dollars to the nation's accumulated debt every year.

It was all of that borrowing that spawned the Tea Party movement at the beginning of the decade, so it isn't hard to imagine Congress once again rebelling against oversized deficits before the Trump buildup has gained full momentum.

And there's a third problem that needs to be taken into account in predicting future levels of defense spending.

The biggest reason the government has been borrowing so much money lately is that it doesn't cost much: interest rates are the lowest anybody can remember thanks to the policies of the Federal Reserve.

But inflation has begun to increase, and that means the cost of carrying the government's huge accumulated debt is probably going to increase too.

With a $20 trillion dollar debt, every one-percent increase in interest rates raises the government's debt-servicing costs by $200 billion per year.

So imagine what happens to federal finances if interest rates go up by two or three or four percent!

The entire budget goes haywire.

We know from past experience that if that happens, military modernization will likely be one of the first casualties.

Thus, the planned surge in defense spending might go off the rails even if there is no recession and even if a Republican president sits in the White House.

So Representative Mike Turner had it right when he told Barrie Barber of the Dayton Daily News two weeks ago that the current budget plan provides "two years of certainty through 2019".

After that it may take some fancy footwork to protect the workers and programs at Wright-Patt.

Which brings me to the final item I wanted to discuss with you -- a strategy for keeping Wright-Patt whole if the budget outlook deteriorates.

A Strategy for Dayton

Strategies for protecting major cost centers from cuts during hard times require two pieces to be successful in Washington.

First, they have to speak to the interests of key political players, and second, they have to provide a merit-based rationale for keeping spending high in your area while money is being cut elsewhere.

It doesn't matter how compelling your case is if you lack political skills, and it doesn't matter how good your political skills are if you want to build a bridge to nowhere.

On the political side of the ledger, Dayton has two huge advantages.

One big plus is Representative Turner, who is a genuine expert on military issues and already chairs one of the most important military panels on Capitol Hill.

Turner is unusually popular with his colleagues, having developed political skills as the mayor of Dayton that enable him to work with both sides of the political aisle in Congress.

There aren't many players left on Capitol Hill who get along with people in both parties, but Turner is one of them, and everybody knows Wright-Patt is his top priority.

Turner typically votes with the Republican majority in supporting robust defense spending, but he isn't afraid to vote against his GOP brethren when they try to cut money for science, so he is considered an honest broker by both sides.

Thus, any strategy for protecting Wright-Patt has to begin with Mike Turner.

But you also have another big political advantage.

No Republican has ever won the White House without carrying Ohio, and Wright-Patt is the biggest single-site employer in the state.

Ohio is literally the only state in the nation that has consistently voted for the winning presidential candidate in every election since I was ten years old, and that makes it the ultimate swing state in national politics.

Leveraging the political skills of Representative Turner and the pivotal role of Ohio in presidential elections should be the foundation of any strategy for protecting Wright-Patterson Air Force Base if the budget walls start closing in.

The other part of the strategy -- the merit-based case -- will be relatively easy for you to articulate.

Every region thinks its base is special, but Wright-Patt really is unique.

It is a hub of aerospace innovation, a center of advanced research, and a nexus for sophisticated intelligence analysis.

As I said earlier, it is probably the most important base operated by the world's most capable air force.

Its activities are especially critical in an era when national strategy is shifting to emphasis on great-power competition, because the kind of systems Wright-Patt develops are what we need to prevail against high-tech rivals like China.

The Air Force could do a better job of telling the Wright-Patt story, but the raw material for a really compelling case is already there.

And then there is the special status of Montgomery County as a center of research and innovation.

Until recently, it was ranked Number One in the nation for patents awarded on a per capita basis.

Boston has now pulled ahead thanks to Harvard and MIT, but the fact Montgomery is still ranked high tells you that it has special qualities independent of Wright-Patt.

So you can make a fact-based case that spending federal technology funds in Montgomery County is more likely to produce desired outcomes than sending those funds almost anywhere else.

That would be my strategy for protecting Wright-Patt in challenging times if they come -- a persuasive political case combined with abundant evidence that what happens in and around Dayton is crucial to America's future as a superpower.