Secretary of Defense Pete Hegseth hosts a bilateral exchange with Israeli Prime Minister Benjamin Netanyahu at the Pentagon, Washington, D.C., Feb. 5, 2025. (DoD photo by U.S. Air Force Senior Airman Madelyn Keech)
WASHINGTON — Secretary of Defense Pete Hegseth has ordered the Pentagon to take a look at its fiscal 2026 budget plans and find 8 percent savings which can be realigned away from legacy efforts and towards new priorities. And that opens up two key questions:
Can the services use an old playbook to pull an end around and save their programs, or will the Trump team be able to really break the mold? And with certain areas known to be protected, what pots of money might be on the cutting room floor?
It’s hardly the first time a Pentagon leader has talked about a large-scale shift of funding towards more modern priorities. As Todd Harrison, a senior fellow at the American Enterprise Institute and a long-time DoD budget guru, put it: “The Pentagon is used to budget drills like this.”
Perhaps the best comparison to what Hegseth seems to be doing is former defense secretary Donald Rumsfeld’s push for “transformation,” launched in the wake of the 9/11 attacks.
As part of that effort, Rumsfeld wanted to see a shift from legacy programs towards newer capabilities, including drones, space systems, precision munitions and missile defense. Heavy armor, manned fighters and large surface vessels, Rumsfeld said, were outdated for the War on Terror age — criticisms and focus areas that match up with current comments from Hegseth and Elon Musk.
The similarities to Hegseth’s push are even more direct when looking at the industrial base. Per a Congressional Research Service report, “Transformation could affect the defense industrial base by transferring funding from ‘legacy’ systems to transformational systems, and from traditional DOD contractors to firms that previously have not done much defense work.”
But what happened, according to analysts, is that Pentagon planners were quick to shift how they described their programs, making sure their big, legacy items now fell under the “transformation” rubric rather than seem outdated.
As Roman Schwiezer, an analyst with TD Cowen, told Breaking Defense, “I remember under Rumsfeld, everything from the F-22 to the USMC’s new combat boot was called ‘transformational’ to try to protect it from cuts.”
So with significant shifts seemingly planned between Hegseth’s memo and Musk’s desire to cut, should we expect to see Pentagon planners run the old playbook again?
Brad Bowman, a senior director at the Foundation for Defense of Democracies, told Breaking Defense that “of course” the Pentagon moves money around to protect certain programs. He also said that given the nature of the current geostrategic environment combined with inadequate defense spending, “I don’t blame them.”
“I’d recommend they do that. I’m just being blunt,” he said.
“Some programs are parochial and unneeded or unnecessary, redundant and should be killed, but many are necessary. … Now is the moment for increased defense spending, for increased defense industrial base production capacity, for stockpiling weapons and focusing on building combined combat readiness and deterrence.”
Bowman added that while the services should not act deceptively or immorally, they should do what is necessary to defend programs and capabilities that “make sure that our service members have what they need to do their missions be successful and come home to their families.”
But John Ferrari, a retired Army one-star who did budgeting inside the building for years, isn’t so sure the old playbook will work the way it used to.
“I do think this is very different in feel from when Rumsfeld last did this and everything became transformation,” said Ferrari, now at the American Enterprise Institute. “This team is looking at old defense companies and new defense companies very differently.”
One thing that is certain: Everyone in the defense sector is waiting for the next shoe to drop.
Potential Losers In Budget Shift
Hegseth’s memo called out 17 priority areas whose investments should not be cut — implying that those are areas that may also get plus-ups with the redirected funding. Those priorities were:
Southwest Border Activities; Combating Transnational Criminal Organizations in the Western Hemisphere; Audit; Nuclear Modernization (including NC3); Collaborative Combat Aircraft (CCAs); Virginia-class Submarines; Executable Surface Ships; Homeland Missile Defense; One-Way Attack/Autonomous Systems; Counter-small UAS Initiatives; Priority Critical Cybersecurity; Munitions; Core Readiness, including full DRT funding; Munitions and Energetics Organic Industrial Bases; Executable INDOPACOM MILCON; Combatant Command support agency funding for INDOPACOM, NORTHCOM, SPACECOM, STRATCOM, CYBERCOM, and TRANSCOM; and Medical Private-Sector Care.
One key problem with shifting funds in accordance with Hegseth’s directive is that some programs can blur the lines between an exempt and non-exempt category. Homeland missile defense, for example, requires a “layered system” that requires a plethora of sensors from the ground up to the air and then into space, along with different intercept capabilities such as fighter jets that can shoot down cruise missiles, said Doug Birkey, the Mitchell Institute’s executive director.
And even exempt categories can require non-exempt linkages to function. Although the Air Force’s Collaborative Combat Aircraft program is spared from losing funds, the concept relies on teaming with manned fighters.
“It’s ‘and,’ not an ‘or,’” Birkey said. “I just caution about cherry picking certain things, because we need to look at the enterprise that gets the solution.”
Given that list, what areas of the department might be in trouble? Ferrari says to first look at people.
He noted that military pay (a number he puts at about $181 billion) was not listed as protected, which means a smaller force structure, with cuts likely coming from land forces seen as less helpful in a China conflict. Civilians will also likely take a big cut overall, with defense agencies in the “fourth estate” — parts of DoD that don’t fall under one of the military departments — likely targets. (CNN reported Friday that wide cuts to the civilian workforce are paused to review impact on military readiness.)
An F-35A Lightning II assigned to the F-35A Lightning II Demonstration Team performs at the Capitol Air Show over Sacramento, Calif., July 15, 2024. The F-35A is an agile, versatile, high-performance, 9-G capable multirole fighter that combines stealth, sensor fusion and unprecedented situational awareness. (U.S. Air Force photo by Staff Sgt. Zachary Rufus)
“They have escaped serious reductions [in the past], this time feels different,” Ferrari said, predicting that groups like the Defense Finance Accounting Service (DFAS), Defense Information Systems Agency (DISA), and Defense Logistics Agency (DLA) could be cut “in half.” The fact that private sector medical care is protected, he noted, could also be a bad sign for Defense Health Program efforts.
Services’ contracts for IT and staff support, leased buildings, federally funded research and development centers and R&D labs are also likely targets the planners could go after as they try to protect warfighting priorities, he said.
And eventually, cuts will come for major programs. Ferrari predicts the F-35 (a favorite target of Musk), the Army’s Future Vertical Lift and Optionally Manned Fighting Vehicle, and some naval programs will be offered up as sacrifices.
Those kinds of items are part of another Pentagon playbook: putting up cuts that will hurt jobs in Congressional districts in order to entice Congress to come protect them.
However, the combination of Musk’s DOGE team, a secretary who has boasted about not having any ties to legacy contractors, and a president who has shown interest in weapon procurement in the past means that may backfire this time, said Harrison.
“If the services respond this time by proposing cuts to things that are politically unpalatable to ward off the reductions they may end up having to live with those cuts,” Harrison said. “This administration has flipped the script on what is politically acceptable and how much risk it is willing to take.”
Good News For Missiles, Space
On the flip side, what might do well?
Jeff Rowlison, vice president for space and intelligence at American Defense International, told Breaking Defense that “despite any real guidance” yet from DoD, the Iron Dome for America program “is going to be like the gold rush for companies — everyone is going to rush to show how they can contribute to the effort.”
And until that guidance is released, he added, there also likely will be “a disjointed” race among the military services “to associate everything with Iron Dome.”
Doug Loverro, former head of Pentagon space policy, agreed that military space programs “will be a relative winner here along with missile defense in general, but so will other administration priorities.”
And in some ways, the services might benefit from a willingness to cut among Republicans that hasn’t been there in previous years.
One Army source said the service is planning to use this exercise as an avenue to push for cuts it has been eyeing for some time but had trouble getting through Congress, in hopes that lawmakers allow them to be cut this time.
At the end of the day, there was widespread agreement from the analysts that the Pentagon needs to have the freedom to make smart choices and not just cut towards an arbitrary number.
“If we’re going to argue for more defense spending, you’ve got to make sure that the Pentagon [are] responsible fiscal stewards. Yes, yes and yes,” Bowman said. “But in this moment, any DOGE initiative, any efficiency initiative that gets in the way of those topline priorities … is exactly the wrong approach at the worst possible moment.”
By Aaron Mehta, Theresa Hitchens, Justin Katz, Michael Marrow and Ashley Roque
