The Pentagon’s outdated budget process is stifling innovation and must be reformed to outpace rising threats.
The views in this article are those of the authors alone and do not represent those of the Department of Defense, its components, or any part of the US government.
In a world of rapid technological change and rising Chinese military power — as well as actors like Ukraine, the Houthis, and Iran gaining precision mass capabilities that can impose significant costs on the US military — there is broad agreement that the Pentagon must become far more agile in acquiring new military capabilities. What connects Ukraine’s recent daring strike inside Russia with Israel’s initial attack in Iran is the use of inexpensive, AI-enabled drones, a capability that warfighters, Silicon Valley innovators, and armchair strategists alike believe the Pentagon must urgently adopt and scale for the US military. So why hasn’t it happened yet?
Congressional Budget Dynamics Slow the Adoption of New Capabilities
Most discussions about the Pentagon’s need to move faster tend to focus on the role of senior leadership in advocating for and aggressively pursuing transformational capabilities. That’s true, but what’s less understood is Congress’s role. The relationship between the Pentagon and its congressional budget overseers, the appropriations committees, within the Planning, Programming, Budget, and Execution (PPBE) process often turns innovation adoption into a long, grinding battle even in the best of times. These committees line-edit the Department of Defense’s $850 billion budget down to the thousand-dollar level and tend to favor legacy capabilities, further stacking the deck against change.
Today’s Threats Demand Urgent Reform of the PPBE Process
While these challenges are well known, the urgent too often crowds out the important, leaving systemic reform of the Pentagon’s budget process perpetually sidelined, even as it continues to undermine efforts to adopt emerging technologies. But today could be different. Rapid technological change, the rising threat from China, and the arrival of a new Trump administration have created a rare window of opportunity to modernize how the Pentagon budgets for and acquires capabilities suited to today’s world.
The four most important changes are: enabling the Pentagon to reprogram resources more quickly to match the pace of technological change and evolving threats; having Congress fund capability development in ways that reflect how programs actually progress from research to fielding; allowing the Pentagon to start and end programs even under a continuing resolution; and resetting the Pentagon’s own requirements and acquisition processes. Together, these reforms would significantly improve the military’s ability to adopt innovative capabilities at the speed and scale needed to deter and defeat China in the Indo-Pacific.
The DoD’s budget and acquisition processes are broken in ways that jeopardize the military’s ability to deter and defeat major global threats, especially from China. Failing to seize this window of opportunity risks further entrenching these fixable bureaucratic flaws.
The Pentagon’s 1960s Budget System Is Too Slow for Today’s Wars
The Pentagon’s budget process, known as Planning, Programming, Budget, and Execution (PPBE), has remained largely unchanged since it was established by Secretary Robert McNamara in the 1960s. Originally designed to better coordinate and streamline efforts across the Department’s many components, defense agencies, and military services, the process typically begins with each component and service submitting a budget proposal to the Secretary of Defense. In theory, these proposals are grounded in the national defense strategy and represent a line-by-line allocation of funding aligned with the service’s key operational challenges and strategic priorities.
Disappointingly, though unsurprisingly, these budget proposals often mirror what each military service funded the previous year. The Secretary of Defense then initiates a review process, typically led by the Deputy Secretary of Defense, to assess these requests and make adjustments aligned with the national defense strategy. However, most changes are limited to marginal tweaks, as the bulk of funding is locked into maintaining existing capabilities and line items mandated or strongly supported by Congress. Once approved by the Secretary of Defense, the budget moves to the White House for further edits, then to Congress for a two-step review: first, the authorizing committees pass the sprawling National Defense Authorization Act, which sets overall spending levels and policy; then the appropriations committees allocate funds, adding or subtracting based on their own priorities.
The process is designed to take two years from initial planning to funding — assuming Congress appropriates funds on time, which it generally does not. In fact, over the past 15 years, the government has spent a cumulative five years under continuing resolutions (CRs), which fund operations at prior-year levels and prohibit the start of new programs. Prolonged periods under CRs undermine long-term planning and, without legislative relief to permit program adjustments, delay the adoption of innovative and emerging capabilities — even when they are more effective or cost-efficient than the systems they would replace. In effect, a CR locks not only the budget of the past in place, but also the technologies and capabilities of the past.
Even when the PPBE process runs as intended, the military services can still work around the Secretary of Defense and White House by lobbying Congress directly for their priorities — a common practice, but one that risks skewing investments toward programs that benefit local constituencies rather than those that best meet military needs. For example, over the past decade, the Department of the Air Force repeatedly sought to retire the aging A-10 “Warthog,” a 1970s-era close air support aircraft with limited relevance for a potential China fight. Yet Congress consistently blocked its retirement through provisions in the NDAA. Lawmakers have similarly prevented the decommissioning of outdated naval cruisers and amphibious ships without increasing budgets to build replacements. Once funds are allocated, the Pentagon also faces little flexibility to respond to evolving technologies or emerging threats. Shifting more than $15 million between priorities requires congressional approval — an onerous and time-consuming process that limits the Pentagon’s ability to adapt at speed.
The current PPBE process, though better suited to the slower pace of Cold War-era technological change, is now far too rigid and slow for today’s defense needs. The cycle of developing capabilities, counter-capabilities, and counter-counter capabilities now unfolds in years, not decades. In a world where large language models double their computational power every five to fourteen months, and Ukrainian drone software is updated every six weeks, the Pentagon’s funding process moves at a pace far behind both technological progress and the speed required to field relevant capabilities.
The PPBE process was designed in an era when the U.S. government was the primary driver of national research and development — investing heavily in basic and applied research, STEM education, domestic defense industry infrastructure, and founding institutions like DARPA and programs like the National Defense Education Act. Secretary McNamara intentionally built a deliberate, methodical process because he believed the U.S. either possessed or soon would possess the technologies needed to win the Cold War. The priority at the time was to allocate funds carefully, minimizing mistakes and waste. But the assumptions underlying PPBE no longer hold — and the process no longer effectively serves today’s Department of Defense.
The harsh reality is that today, the United States faces a great power competitor in China — one that is anything but slow and steady. China is rapidly advancing across every capability area, from anti-ship missiles and amphibious landing craft to cyber tools, aircraft carriers, fighter jets, and air-to-air missiles. At the same time, the US has seen much of its R&D, technology development, and talent shift to the private sector, while its defense industrial base has been hollowed out. It is no longer certain that the United States currently has — or will soon develop — the technologies needed to maintain credible deterrence against China.
Moreover, the PPBE process fails even at its original purpose — reducing the costs and risks of capability acquisition. Every Major Defense Acquisition Program (DoD parlance for large programs such as submarines or fighter jets) is either over budget, behind schedule, or both. The result is a budget process that is not only too slow for today’s pace of technological change and the scale of the China challenge — but one that no longer succeeds on its own terms.
Concrete Changes Can Accelerate Capability Fielding
Of course, the PPBE process is only one part of the broader capability development and fielding cycle — which spans early R&D (whether privately or publicly funded), experimentation and prototyping, acquisition, fielding, and sustainment. While improvements are needed across the entire cycle, the PPBE process and related acquisition system challenges remain among the most deeply troubled.
Numerous reports, commissions, and legislative proposals in recent years — from across the political spectrum — have echoed similar critiques of the PPBE system and called for reforms in budgeting and acquisition. This reflects both a broad understanding of the problems and the difficulty of addressing them. With a cooperative Congress, the Trump administration now has a once-in-a-generation opportunity to advance legislative changes that would better align the DoD’s capability development process with the pace of technological change and the scale of the threat posed by China.
At the broadest level, the PPBE process, and the relationship between DoD and the appropriations committees, needs a reset, given the growing challenge to US conventional military superiority from China. When US dominance seemed assured, a slow, risk averse process may have been appropriate. But in an era where the US risks falling behind, greater risk taking in capability development is essential. This means accelerating the adoption of emerging technologies with high potential, especially those that can be fielded quickly, favoring more small bets on new capabilities over large, monolithic programs like the F-35. And innovation must have a purpose, true success means turning today’s emerging capabilities into tomorrow’s legacy systems.
Four changes to the process, in particular, would substantially enhance the Pentagon’s ability to scale and adopt innovative capabilities, especially those involving emerging technologies, at speed and scale:
1) The Pentagon Must Be Allowed to Reprogram Resources Quickly Enough to Match the Pace of Technological and Threat Changes
First, the Pentagon needs the ability to reprogram resources more quickly to keep pace with evolving technology and threat environments. Raising the current $15 million cap on reprogramming without prior Congressional approval to $100 million or higher, or indexing it to the size of the defense budget, would go a long way toward accelerating the fielding of game changing capabilities. This is especially important now, as low cost precision strike technologies using commercially available systems are ready to scale, even though many of these options are not existing programs of record.
Some limits on reprogramming remain appropriate to ensure the Pentagon does not broadly shift investments away from Congressional priorities. However, the current cap allows reprogramming of only about 0.001 to 0.01 percent of the overall defense budget.
2) Congress Should Give the Pentagon More Flexible, Colorless Funding to Accelerate Capability Fielding
Second, beyond funding specific programs, Congress often further compartmentalizes the funds available for those programs, sometimes in rigid or arbitrary ways, especially for non-MDAP programs, which can create serious disconnects and delays in fielding capabilities. For example, separating funds into distinct categories for research and development, testing and evaluation, and acquisition, combined with the Pentagon’s multi-year budget process and today’s rapid pace of technological change, can result in funding gaps that stall progress. If a program advances through testing faster than expected and is ready for procurement, the Pentagon must wait for new funds specifically allocated for procurement, rather than being able to reallocate leftover testing funds. Allowing greater flexibility within program funding, through so-called “colorless” money that can move across phases as needed, would dramatically improve DoD’s ability to scale emerging capabilities more quickly.
3) The Pentagon Must Replace a Broken Acquisition Process With More Open, Accountable, and Flexible Contracting
Third, every Major Defense Acquisition Program (MDAP) is either behind schedule, over budget, or both — a clear sign of the system’s failure. Large scale acquisition programs should operate with open architectures and more flexible contracting that enables the Pentagon to hold companies accountable when they underperform, while allowing other industry players to step in and deliver when needed. Simplifying the acquisition process, reducing the chokehold of overly rigid service level requirements, and automating business processes to accelerate paperwork could have an enormous positive impact.
The growing reliance on alternative acquisition pathways, such as middle tier acquisition authority, other transaction authority, and commercial service offerings, only highlights how broken the current process has become. Pentagon leadership should not have to rely on workarounds or temporary loopholes to deliver capabilities to warfighters. Instead, common sense, flexible contracting processes should become the norm for both software and hardware acquisition.
4) The Pentagon Needs Permanent Flexibility to Start New Programs When Congress Fails to Appropriate Funds on Time
Fourth, if Congress continues to miss deadlines for appropriating funds, the Pentagon needs greater flexibility to operate during those periods, rather than having its capabilities locked in based on outdated priorities. In fiscal year 2025, Congress granted DoD a one time exception to start new programs under a continuing resolution, a departure from past practice. That authority should be made permanent, so DoD can start and end programs even when domestic political gridlock delays appropriations. In an era where staying ahead requires fielding emerging capabilities, not simply producing more of the same, the Pentagon must be able to move forward even when Congress cannot.
Reforming the Budget Process Is a Strategic Imperative
What is surprising is not that a Pentagon budget process designed in the 1960s needs fixing, but that it has taken this long, despite widespread recognition of the problem across the Pentagon, White House, and Congress, for serious momentum to build for reform. That a system created in the middle of the Cold War still governs how the US military designs, procures, and fields capabilities likely reflects the vast advantage the United States enjoyed at the end of the Cold War, a gap that once allowed the luxury of time. That luxury no longer exists.
With a rising China rapidly advancing conventional military capabilities across every domain, expanding its nuclear arsenal, and US military leaders warning that China may be capable of invading Taiwan by 2027, there is no time to lose. America remains the world’s greatest engine of innovation, but those innovations will do little to maintain military advantage or national security if their adoption is continually delayed. Through common sense reforms that align the Pentagon’s budgeting process with the realities of modern capability development and the pace of technological change, the US military can position itself to stay ahead, not just today and tomorrow, but for the next generation.
About the Authors: Michael C. Horowitz and Lauren A. Kahn
Michael C. Horowitz is a Richard Perry Professor and Director of Perry World House at the University of Pennsylvania, and a Senior Fellow at the Council on Foreign Relations.
Lauren Kahn is a Senior Research Analyst at the Center for Security and Emerging Technology at Georgetown University.
Image: Shutterstock
