An Analysis by the Republican Staff of the Senate Budget Committee

(This analysis and an examination of the rest of the budget request can be found at the Budget Committee (Minority) website http://www.senate.gov/~budget/republican/)

National Defense section follows:

FUNCTION 050

The National Defense budget function includes the Department of Defense (DOD) in subfunction 051 (about 95 percent of total function costs), Atomic Energy Defense Activities in the Department of Energy (DOE) in subfunction 053 (about 5 percent of the total), and other defense activities in the Federal Emergency Management Agency, the Selective Service, the General Services Administration, and other agencies in subfunction 054 (less than 1 percent).

All figures in billions of dollars.

The President’s 2003 National Defense (050) budget increases BA by $46.1 billion from $350.7 billion in 2002 to $396.8 billion in 2003. This is 13.1 percent nominal growth; it is 9.0 percent real growth, assuming OMB’s projected 3.8 percent GDP Price index inflation in 2003. This will be the largest real growth percentage since fiscal year 1982, when real growth was 10.5 percent, according to DoD budget data.

Summary of DoD Spending

Including the emergency supplemental funding appropriated by Congress in September and December to fight the war on terrorism and accrual of health and retirement recommended by the President, discretionary budget authority for the Department of Defense (subfunction 051) is increasing from $318.5 billion in 2001 to $333.7 billion in 2002 to $379.3 billion in 2003. These figures mean nominal growth rates of 4.8 percent and 13.7 percent for 2002 and 2003, respectively, and they mean real growth rates of 4.1 percent and 9.9 percent respectively. Since President Clinton’s initial 2001 budget request for the Department of Defense of $291.1 billion, spending for that agency will have increased in 2003 by $88.2 billion, or 30.3 percent in nominal terms and 24.7 percent in real terms.

Highlights of the President’s 2003 request

• An across the board pay raise for all uniformed military personnel of 4.1 percent and up to an additional 2 percent for targeted mid-career personnel.

• Parity for civilian employees is not requested; they would receive a pay raise of 2.6 percent.

• A $10 billion “Emergency Response Fund” to fund as yet unspecified military operations in the continuing war on terrorism in 2003. This request would obviate a supplemental request in 2003 for new military operations of the magnitude that $10 billion would permit.

• In addition to the $10 billion emergency fund, $9.4 billion is requested for currently planned anti-terrorism policies, including $3 billion for force protection and certain homeland security activities, $1.2 billion for air patrols over the US, and $465 million for chemical and biological detection, protection, and response capabilities.

• An increase of $22.7 billion (18 percent nominal growth and 14 percent real growth) for the Operations & Maintenance (O&M) budget. $16.7 billion of this increase will support the ongoing US military presence in and around Afghanistan. Also, in the O&M budget, the Defense Health Program is funded at $22.4 billion, an increase of $4.1 million from the $18.3 billion funded in 2002. A major but unspecified part of this $4.1 billion increase reflects budgeting reforms in the accrual of health care costs discussed elsewhere in this presentation. Most importantly, the O&M budget supports military readiness with spare parts, training, weapons maintenance, and other activities essential for military forces to enter combat operations and prevail. Proposed spending for these purposes include -

• $10 billion for training, a 2.2 percent real increase.

• $4.8 billion for depot maintenance of hardware, a 2.5 percent real increase, and

• $11.8 billion for Navy and Air Force flying hours, an increase of $0.5 billion, which according to DoD budget presentation data would fully fund Air Force flight training requirements but just 89 percent of Navy tactical flight training requirements. It is not clear from DoD’s presentation materials why

• Navy flight hours remain underfunded.

• Major growth is requested for spending in DoD acquisition. In the procurement budget, an increase of $7.6 billion to $68.7 billion (over 10 percent real

• growth) is requested. Major items include the following program requests:

• $812 million for Interim Armored Vehicles, which the Army considers essential to perform its transformation to 21st Century warfare effectiveness.

• $1 billion for the Navy’s conversion of Trident submarines to launch up to 150 tactical range, conventional warhead Tomahawk land attack missiles rather than 24 nuclear tipped, intercontinental range strategic nuclear missiles.

• $1.1 billion to increase production of GPS and laser-guided bombs, which saw frequent use in the recent conflict in Afghanistan.

• $4.6 billion to procure 23 Air Force F-22 fighter aircraft for a 2003 unit cost of $200 million each, not including the previously invested R&D funding.

• $3.1 billion for 44 Navy F/A-18E/F fighter/bombers at just over $70 million each, not including previous R&D spending.

• $8.6 billion for the production of five Navy ships of various types at an average cost of $1.7 billion each. Funding for these five ships is well short of the eight to ten that Navy leaders have said in the past are needed to maintain a 300 ship Navy.

• An increase of $5.5 billion to $53.9 billion in Research & Development (another 10 percent real growth increase), including the following:

— $7.8 billion for missile defense, plus an additional $815 million for space-based laser research to detect missile attacks, thereby making a total of $8.6 billion, a $300 million increase over 2002.
— $9.9 billion for “Science and Technology,” a 2.7 percent real increase.
— $961 million to develop the Navy’s new “family” of surface combatants.

• The Procurement and R&D budgets also include the termination or restructuring of various projects, thereby saving $9.3 billion. Terminated projects include the Navy’s DD-21 destroyer and Area Missile Defense system, the Air Force’s Peacekeeper ICBM, and 18 different Army projects. Restructured – but not terminated – projects include the Marines V-22 tilt-rotor aircraft and the SBIRS-low satellite detection and warning system.

• A decrease of $1.8 billion to $4.8 billion in Military Construction, and an increase of $100 million for Family Housing, are requested. This budget would fund over 300 construction projects in 185 different locations. Projects deemed “low priority” are being deferred, and bases that might be considered for “restructuring” in 2005 are not included in the request for new projects, thereby accounting for a request that may be lower than some had expected.

Summary of DoE Defense Activities

DoE defense activities increases $500 million to $15.6 billion, (3.3 percent nominal growth and 0.5 percent negative real growth). Virtually every account in the 053 subfunction appears to receive only minimal nominal growth and decline in terms of real growth.

Perspective

To put the President’s budget request in historic perspective, Figure 1 shows post-World War Two Department of Defense budget authority in constant dollars. Note that the proposed spending in 2003 ($379 billion) exceeds the “Cold War Average” ($335 billion) by $44 billion.

The increases for 2003 are major when considered either as a year-to-year increase or in their historic context. Despite the demise of the Soviet Union as America’s only super-power adversary, overall spending levels remain above what they were – on average – with a super-power adversary in existence. On the other hand, when specific funding levels for selected areas are reviewed, there are clearly areas that are not receiving generous funding. Among these are Department of Energy Defense Activities, shipbuilding, military construction, Science and Technology, all forms of military training, overall depot maintenance of military hardware, and Navy flying hours.

When he addressed the National Defense University at Fort McNair on January 31, Secretary of Defense Rumsfeld articulated what appears to be a realization brought to the fore by September 11 and its aftermath. He said, “The notion that we could transform while cutting the defense budget over the past decade was seductive, but false.” Clearly, the Administration has set out on a new course of increases in the defense budget well beyond those contemplated earlier.

Performance-Based Government

The basic budget volume, “Fiscal Year 2003 Budget of the U.S. Government,” presents on pages 87 - 101 assessments of various programs and policies of the Department of Defense. Programs and policies for “Military Readiness,” Military Compensation,” and Army and Navy “Family Housing” are rated as “effective.” “Cooperative Threat Reduction” and “Science and Technology” are rated as “moderately effective.” And Air Force “Family Housing,” Infrastructure” (i.e. the military base infrastructure), “Weapons Systems Cost Control,” “Chemical Demilitarization,” “DoD-VA Coordination,” “Human Capital,” “Competitive Sourcing,” and “Financial Management” are all rated as “ineffective.”