Executive Summary
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Ballistic missile defense is technologically extremely challenging and efforts to solve the technical challenges, including those of evolving countermeasures, are inevitably laden with uncertainty and, therefore, are expensive. The Bush administration’s interest in building a comprehensive, or “layered,” missile defense system could lead to extraordinary defense budget costs over the next twenty to thirty years. The projected costs of all the layers and components of a layered missile defense are seldom in public view, and never all at one time. Moreover, the projected future costs over the plausible life cycles of missile defense systems are rarely examined and poorly understood by key decision makers, at least outside the missile defense realm itself. Presentations of the technical and cost issues needed for congressional accountability frequently conceal more than they reveal. Assessments of the likely cost of missile defense architectures that are intelligible to the public as a whole hardly exist.

I. ANALYSIS OF MILITARY COSTS

Most cost estimates of weapons systems prepared for Congress reflect relatively short periods and tend to emphasize development and acquisition costs, but often do not project operations and support costs, and rarely make such projections in realistic terms — as we typically see retrospectively. It is true, to be sure, that any projection of future costs — especially of weapons systems that involve major technological challenges and high technical risk – cannot be done precisely. But the effort should be made in order to properly inform decisionmakers so that they can make rational choices, including choices that take the long-term impact of operations and support costs into account.

We have undertaken this analysis to generate a reasonable assessment of the costs — both acquisition and life cycle costs — of a “layered” missile defense. Where relevant official information on costs and schedules is publicly available, we use it as a starting point, making adjustments for technical uncertainty and cost growth that reflects historical experience with challenging weapon systems. Where official information about the architecture and costs of missile defense systems or components is fragmentary or does not exist, we construct and estimate the costs of plausible missile defense architectures — in a layered system of systems — that reflects the momentum of existing programs and also covers other technology areas of interest to the administration.

The illustrative missile defense “system of systems” postulated in this analysis incorporates boost-phase, midcourse, and terminal defenses both in and around the United States and overseas. Taken together, the layers and components of this system of systems undoubtedly represent ambitious objectives, but are by no means as ambitious as those conceived in President Reagan’s SDI, and probably fall short of the vision of the most zealous BMD planners today.

Our cost estimates are expressed in constant 2003 dollars in ranges, usually with Low and High Estimates that allow for prospective choices of thinner and slightly thicker missile defense architectures and deployment options. Various combinations of deployment options might be deemed feasible but the exact configurations cannot, for obvious reasons, be forecast clearly at this time. We do not attempt to predict which missile defense systems will be built. Instead, we attempt to show how much each of the missile defense systems under consideration would cost if they were built to reasonable standards of effectiveness.

Readers who have seen estimates of missile defense cost provided by the Defense Department to Congress, or those prepared by the Congressional Budget Office from DoD information in response to Congressional inquiries, will recognize that the figures compiled in this report are considerably higher even than those published in recent CBO estimates. There are several reasons why the dollar estimates here are higher.

First, this report draws on the statements of the Bush administration to illustrate what a layered missile defense system might look like, and to project the cumulative costs of the full system. No publicly available DoD report or CBO study depicts all the elements of such a system, or estimates the cumulative cost of the various interceptor layers.

Second, this report sums and displays not only the acquisition costs but estimates the full life cycle costs of each illustrative layer, and the illustrated system of systems. Most policy community members are accustomed to receiving and evaluating only the acquisition costs — like the price sticker on a new car (1). But knowing the costs of operating and maintaining missile defense — the full cost of ownership — should be a part of the evaluation.

Third, the estimates provided here exceed those published by the CBO on the same systems because this analysis posits larger system configurations in some cases (e.g., larger SBL satellite constellations), assumes, in some cases, higher technical challenges and longer delays with correspondingly higher component costs than officially acknowledged (e.g., in the feasibility of using existing AEGIS naval platforms for strategic and boost-phase interceptor systems), and generally uses higher cost growth assumptions than CBO.

Fourth, this analysis estimates the cost of ground-based boost-phase systems on foreign soil and of limited terminal defenses around the United States that could be considered logical requirements in the event a full-scale layered missile defense is constructed.

The authors of this report recognize that independent estimates will not be accorded the same authority as official estimates. Nevertheless, these estimates fill gaps in the public record on costs that undoubtedly would be incurred downstream by deploying and maintaining a layered ballistic missile defense system. In any case, the independent figures offered here provide a baseline for critical discussion. Hopefully, they will encourage the preparation of revised and additional official estimates that provide a more realistic guide to the expected overall costs of a comprehensive missile defense program.

Assuming the illustrative layered missile defense architecture and schedules described in this study (see below, for the individual systems and layers), our basic findings are that:

1. Merely the acquisition costs (2), plus operations costs just through 2015 (when applicable), of the postulated layered missile defense system would range, on the Low Estimate side, between $509 and $532 billion, and on the High Estimate side, between $776 and $807 billion.

2. Once longer term operations and support costs are added to acquisition costs to give a picture of the total life cycle costs for each missile defense system in the overall system, we find that the likely future cost of layered missile defense would be, on the Low Estimate side, between $785 billion and $825 billion dollars at least, and on the High Estimate side, between $1.1 trillion and $1.2 trillion.

A breakdown of the layered missile defense structure that is assumed as the basis for our cost estimates, and the bottom line of the estimates of the acquisition and total life cycle costs of each system, follows:

Ground based, midcourse NMD system
We assume that either a two-site or three-site ground-based, midcourse NMD system could be built, using essentially the same technologies that were under development during the Clinton administration, with Low and High estimates for each configuration.

We project that the total likely acquisition costs for the two-site option, plus operations costs through 2015, would fall in a range between $76 billion and $110 billion dollars. Acquisition costs of the three-site option, plus operations through 2015, could cost between and $90 billion and $123 billion.

Total life cycle costs for the two-site system would range from $120 billion to $161 billion, and for the three-site system would range from $142 billion to $181 billion.

Sea based adjuncts to a groundbased, midcourse NMD system
Our estimates build on the limited Navy illustrations of the “Missile Trap” and the “Strategic Defense” architectures discussed in the unclassified Summary of a presentation to Congress (3) .

We estimate that acquisition (and operations through 2015) of the illustrative “Missile Trap” system would actually cost at least $27 billion to $31 billion, and that this system would command a life cycle cost of $52 billion to $58 billion.

Acquisition and operations of the heavier “Strategic Defense” system through 2015, according to our estimates, would cost between $37 billion and $49 billion, while total life cycle costs for this system would rise to from $70 to $95 billion.

Space based laser (boost-phase) missile defense system
We assume that a credible space-based laser missile defense system would require constellations of either 48 or 72 satellites, as the basis for its cost estimates.

We estimate that acquisition of the 48 and 72 satellite constellations, respectively, would cost $128 billion and $195 billion.

Total life cycle costs for these constellations would be $310 billion and $423 billion respectively.

Space Based Kinetic Boost Phase Missile Defense System
We believe that the life cycle costs of a space based kinetic missile defense system, similar to the “brilliant pebbles” system, would cost about $69.9 billion.

Ground Based Boost-Phase Missile Defense System
This conceptual missile defense layer would depend on foreign countries to host US deployment of land-based, boost-phase interceptors, a construct endorsed by a number of senior US defense experts and also by Russian Federation President Putin in 2000. Development work on such a system has not yet been announced or conducted. We have developed an illustrative architecture, with four-site and eight-site configurations located in Russia or Central Asia, representing the low and high estimates as a range.

Our estimates for acquisition costs (and operations through 2015) of the four-site and eight-site systems, respectively, are $22.5 billion and $30.1 billion.

Total life cycles costs for these two configurations probably would run about $28 billion and $41.8 billion. These figures do not include the likely cost to obtain, protect, or secure foreign bases overseas where land-based boostphase systems might be located.

Sea Based Boost-Phase Missile Defense System
This conceptual missile defense layer would not depend on foreign countries for deployment but today is still only a concept that has yet to be developed and demonstrated. The Bush administration has expressed interest in accelerated development of such a capability, however, probably using AEGIS ships and substituting this for the former Navy Area Defense (NAD) program. We again offers an illustrative architecture for a boost-phase system with either five or seven patrol areas, relying not on AEGIS but rather on converted cargo ships — as proposed by some non-government experts.

We find that the acquisition costs (plus operating costs through 2015) for such sea based boost-phase systems would greatly exceed the costs of ground-based systems with the same objectives, and would be on the order of $61.4 billion and $71 billion, for five and seven patrol area configurations respectively.

The total life cycles costs for this system probably would be at least $66.8 billion and $77.5 billion respectively.

Airborne Laser Boost-Phase Missile Defense System
This program is expected to provide seven Boeing 747 aircraft with lasers on board for rapid deployment anywhere in the world. The Bush administration has given this program new impetus, aiming to upgrade it from its original theater missile defense (TMD) objective to provide a strategic intercept capability as well as to expedite testing and initial deployment.

Our estimate, based on the most recently adjusted administration figures and delayed schedules, is that the acquisition cost (plus operations through 2015) for this system will be about $11.2 billion dollars.

The total life cycle costs of the seven aircraft laser fleet would easily reach $19.3 billion, and these estimated costs do not include other operating costs for fighter aircraft protection in foreign airspace or the indirect costs of diverting other air capabilities from their customary missions.

Coastal Terminal Missile Defense System
The Bush administration has emphasized terminal missile defense rhetorically, but has not clarified whether it wishes to use this capability for national missile defense (defense of the homeland) or only for theater missile defense overseas. We assume that the intent includes homeland defense, and we construct an illustrative architecture covering the US coastlines, but not the entire territory of the United States. This illustration relies on naval and landbased theater missile defense (TMD) systems that have been developed or are under active development by the United States, and postulates two terminal missile defense capability levels of increasing thickness, from “light” to “medium”.

We believe the acquisition costs for the light and medium level capabilities for coastline terminal defense would cost, respectively, $91.6 billion and $148.1 billion.

Our estimates of the total life cycle costs for this coastline terminal defense system are $100.1 billion and $167 billion, respectively.

Overseas US Terminal Missile Defense Systems
The rationale for the TMD systems that have been under development by the US Army and Navy has been keyed to overseas power projection, by augmenting the US capacity to defend its forces and those of allies in distant locations. Thus, estimating the costs of this category of missile defenses means adding up the sunk and prospective costs of the Army and Navy TMD programs — PAC-3, THAAD, NAD, and NTW. Larger acquisition goals (e.g., increasing the number of combat units, missiles, and sensors, or AEGIS ships) could cause these numbers to rise.

We estimate that the acquisition costs of these overseas “terminal defense systems” in the numbers currently planned will be about $80 billion.

We expect the total life cycle costs of these TMD systems, in the numbers currently planned, to be about $108.2 billion.

II. ECONOMIC AND BUDGETARY IMPLICATIONS

If a goal of full deployment of ground, sea and air-based systems by 2015 is to be met, half of the costs — about $500 billion — could be incurred in the next 13 years, 2003 through 2015, inclusive. (Space-based laser defenses would be deployed later — by 2025.) Under this demanding schedule, spending must increase very rapidly over the next several years, reaching perhaps $25 billion in 2005 and $50 billion by 2007. (All years refer to fiscal years unless specified.)

If spending is increased more slowly than indicated above, then deployment of at least some components of a layered shield is likely to be delayed. If spending rises, for example, only to $12 billion by 2005, and, say, $25 billion in 2009, and if it does not reach $50 billion until 2013, then deployment of major components of the ground, sea and air-based systems probably would slip to 2020 or beyond. Of course, total spending could be reduced if some components of the layered system we examine are set aside or scaled back. Although we base our analysis of the economic and budgetary consequences on the ambitious 2015 deployment schedule for most systems, we recognize that schedules can be delayed and decisions can be made to defer or not build some components.

The United States probably can afford to spend a trillion dollars or more over 33 years for ballistic missile defenses. However, this military program does not exist in a vacuum. Even with its enormous resources, the United States cannot afford everything. We must make choices, and this review makes it clear that a serious program of layered ballistic missile defenses will involve large opportunity costs over many years.

If the military budget were not increased to cover spending on BMD, then BMD would displace nearly 6% of other defense spending by 2005 and more than 12% from 2007 through 2011 before tapering down gradually as a share of defense spending. It would continue to take more than $50 billion each year (in 2003 dollars) through 2015 (although a declining percentage of a growing defense budget) and between $25 billion and $35 billion per year through 2022 before reaching a long-term operating budget of about $22 billion per year. This would come at the expense of other military technology development, procurement and operations. If spending rises more slowly at first, and deployment dates are pushed back, then spending would not decline after 2015 but would continue rising steeply, as deployment of ground, sea and air-based systems coincides with high spending on production and deployment of space based BMD systems.

Military transformation is underway, with new organizational forms, new technologies, new equipment and new roles for individuals. Most transformation goals will require substantial budgetary resources for research into new technologies, extensive re-training, and reequipping. The schedule for missile defense spending planned for the next several years will inevitably compete with and divert resources needed for the broader goals of military transformation.

If BMD were to be financed by curtailing outlays for non-defense discretionary programs, it would force cuts rising from nearly 6% of this spending in 2005 to 11% or more from 2007 through 2011 before subsiding somewhat. The non-defense discretionary sector of the budget, however, finances many federal agencies associated with homeland defense. Because these functions are receiving greater priority in light of concern about terrorism, the brunt of spending cuts would fall much more heavily on non-defense discretionary programs not deemed critical to homeland defense and not protected by powerful interests.

President Bush’s 2003-07 budget request for program areas like community and regional development, the environment, job training, social services and housing assistance would barely keep pace with inflation and in some cases would not do so. If Congress accedes to this request, these programs will be starved for funds. If subjected to such a budget squeeze over a longer term, these functions would be pushed ever more onto the states and local governments and/or would become heavily dependent on private charity or simply would become neglected.

The non-defense discretionary sector of the federal budget finances most federal civilian investment in physical infrastructure and human capital. Nearly half of non-defense discretionary spending goes to such investments. Financing BMD by cutting non-defense discretionary programs is likely to reduce federal investment in education and training, civilian research and technology development, health and physical infrastructure at a cost to future productivity in the civilian economy. If BMD were to be financed by curtailing outlays for non-defense discretionary programs, it would displace amounts rising from 5.6% of this spending in 2005 to 10% or more for six years from 2007 through 2013, inclusive, before tapering down. It would continue to displace more than 5% of those outlays through 2020.

If funding for what one might regard as vulnerable discretionary budget categories, such as community and regional development, natural resources and the environment, job training, social services, housing assistance, and other income security programs were to be squeezed to finance BMD, it could displace 11% of those outlays by 2005 and 20% or more for nine years from 2007 through 2015, inclusive, before subsiding gradually. These cuts would be in addition to any that might be made in the process of reallocating funds to other sectors of the military or other aspects of homeland defense.

The projected rise in spending for BMD as system deployment accelerates in 2007 and after would coincide directly with a steep rise in entitlement spending for the elderly. For the next several years the combined Social Security and Medicare Hospitalization Trust Funds will collect over $100 billion per year more than they disburse and will lend this money to the Treasury. The combined surpluses of the trust funds are projected to begin declining in 2009, however, and to drop by an average of about $18 billion per year through 2015. When the surpluses of these programs decline, this source of revenue for other purposes will dry up, forcing other funds to be found to replace them.

Trust-fund surpluses would turn to deficits in about 2017, and these deficits would increase by amounts averaging some $50 billion per year through 2020 and more thereafter. Hence, demands for cash over and above earmarked tax receipts for Social Security and Medicare would swell by such amounts each year and have to be met by cutting benefits or other federal spending, raising revenues and/or borrowing more in bond markets. Some people suggest that the Social Security problems can be solved by switching to private accounts invested partly in corporate stocks. Whether or not that is a good idea, any transition to individual accounts would greatly worsen the federal budget outlook for at least two decades.

This analysis does not suggest that a commitment to BMD alone would require cutbacks in Social Security or Medicare. It would, however, be a significant element contributing to a very tight budget environment in which changes in these programs will be made. As the period of BMD’s phase-in stretches onward, the demands of Social Security and Medicare are likely to create desperately tight budgets year in and year out. If spending for BMD systems rises more slowly than assumed by the ambitious deployment dates, and there reaches its peak beyond 2015, spending would collide even more directly with the impending financial crisis in oldage entitlement programs.

If BMD were to be financed through tax increases, it is unlikely to be by raising payroll and other taxes earmarked for social-insurance or by raising estate taxes, customs duties or user fees. In other words, individual and corporate income taxes would have to be increased. A boost in receipts from those sources of 2% by 2005 and 3% to nearly 4% from 2006 through 2015 would be required. This would be equivalent to a boost in marginal tax rates on the two highest personal income tax brackets by about one percentage point or by a larger increase in the corporate rate or by more modest increases in both. Boosts in excises like the gasoline tax could play a significant role.

The Bush administration has taken the position that the importance of fiscal surpluses is subordinate to the needs of the military and of “homeland defense” and that taxes should be cut, not increased. If the President cannot obtain large cuts in nonmilitary spending, it seems likely that BMD would be financed by borrowing. Debt financing would draw the funds from capital markets, slightly raising interest rates and reducing investment in the private economy or drawing in more investment from abroad. It would increase the interest-payment wedge of federal outlays in the future, putting an additional squeeze on other spending programs and additional upward pressure on tax rates.

Heavy spending for missile defense systems that have yet to be proven effective, along with spending for other questionable weapons systems, has already made it more difficult to improve national security in areas such as nuclear proliferation, airport security, and the policing of the coastline, harbors, and coastal rivers.

It has become traditional for proponents of large military projects to project substantial economic benefits in terms of employment and income. There is no direct evidence on the size and distribution of gains from a missile defense program. Evidence from other large military programs in the past indicates that such gains tend to be smaller than projected, and tend to be spread across a relatively narrow range of economic activities and physical locations. This is likely to be the case with missile defense which is less labor intensive than other government programs and which will involve extensive activities in a relatively few states.

Endnotes:

  1. In its latest 2002 figures on missile defense, for example, the CBO provided estimates of annual operating and support costs as memoranda, but emphasized just the acquisition costs in its bottom line summary figures. CBO did not compute and summarize the net costs including cumulative operating and support costs over the expected life of each system for which it provided an acquisition cost estimate. To be sure, the CBO had a set of questions from Congress to answer and undoubtedly answered those questions directly within the same terms of reference. The present report, however, seeks to go further. For additional information and citation of the CBO 2002 report, see Section I. Basic Approach of This Report, below.
  2. Since most of the missile defense systems would not be fully deployed much before 2015, we also include, where applicable, operations costs through 2015 in this summary number of acquisition costs. Acquisition costs include research, development and testing costs, together with military site construction and production costs of the weapon system, sensors, other hardware, and software. Operations and support costs are the costs to operate and maintain the systems after they are deployed, including operations and support of partial and phased deployments. Operating costs include the costs of personnel, site utilities, fuel, re-provisioning of ships and aircraft, equipment repair and replacement, etc.
  3. See Ballistic Missile Defense Organization and Department of the Navy, Naval National Missile Defense: A Potential Expansion of the Land-Based NMD Architecture to Extend Protection - Executive Summary (U), Unclassified (Washington, D.C.: Department of Defense, December 8, 2000).

 

Economists for Peace and Security
http://www.epsusa.org