THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Monday, April 1, 1996 TAG: 9603300177
SECTION: BUSINESS WEEKLY PAGE: 04 EDITION: FINAL
TYPE: Opinion
SOURCE: BY JAMES L. GEORGE, SPECIAL TO BUSINESS WEEKLY
LENGTH: Long : 114 lines
The fiscal year 1997 Department of Defense budget was released recently and as expected, more questions were raised than answered.
One big question: Will 1996 go down as the peak post-Cold War defense budget?
The Department of Defense budget authority for fiscal year '97 was $242.6 billion, down from $251.8 billion approved for the current budget of fiscal year '96.
The $265 billion for FY '96 often cited in the media includes Department of Energy nuclear weapons and other programs such as civil defense. According to the Pentagon's own figures, this is a 6 percent decline in real growth.
The Future Year Defense Plan numbers are not much better - only $248.1 billion for FY '98, $254.2 for FY '99; $261.6 billion for FY 2000; $269.6 billion in FY '01 and $276.6 billion for the final year of the FYDP in FY '02. Even these always optimistic last two years of the FYDP only amount to modest real increases (when adjusted for inflation) of 0.6 and 0.2 percent.
There was some good news on the weapons procurement front - at least at first glance.
Although the procurement account dips to $39 billion for FY '97 from this year's $42 billion budget, it then rises each year, finally reaching $60 billion, the level the Joint Chiefs of Staff estimate is needed to sustain the force.
A second glance, however, raises two questions. Will that level ever be reached? And is it really enough to sustain the current force? Unfortunately, the answer to both is no.
Historically, the last years of the FYDP are always more wish-lists than reality, but compounding that are other problems.
To increase the procurement budget by over 50 percent from $39 to $60 billion while holding the overall DoD budget to only modest 0.6 and 0.2 percent increases, all the other accounts such as personnel, O&M (operations and maintenance), military construction and family housing are essentially frozen. R&D (research and development) actually declines.
Also, inflation projections have been reduced, which might hold true for this year, but not necessarily for the future.
In short, if there are any changes in conditions, the money will have to come out of the procurement account. And, there are always unforeseen events.
For example, last year we were told that 1996 was supposed to be the turn around year for procurement, but Bosnia and other changing conditions required additional money.
Where did it come from? The procurement account.
To the Pentagon's credit, for the first time, the Fy '97 budget does contain funds for on-going operations but still not unforeseen contingencies.
The other problem is that the Administration still counts heavily on savings from both the Base Realignment and Closure process and acquisition reform, promising that all savings will go into the procurement account.
However, under questioning, Pentagon spokesmen could not identify specific areas where these savings have gone. They obviously did not go into the FY '97 procurement account which, as noted, decreased.
The fact is, the BRAC process is still costing money and future costs such as environmental cleanups are unknown. Acquisition reform savings are similarly elusive.
However, even if world conditions, inflation estimates, BRAC and acquisition reform savings all hold true, the question remains:
Will a $60 billion weapons procurement account buy the forces necessary to sustain the Bottom-Up Review Force of 10 Army Divisions, a 346-ship Navy and 13 active Air Force wings?
Looking at the Navy's budget, which was only the one presented in any detail to the year 2001, the answer again is no.
The standard life of a warship is 30 years, which means that at least 11 new ships per year are needed to sustain a 346-ship Navy.
Since 1990, the average annual procurement rate has been about four per year and it continues at that level until it reaches five in 2001. In sum, even a $60 billion procurement budget comes up over 50 percent short in maintaining the fleet.
There are some other discouraging indications. In 1997, the Navy will start procuring the new F/A- 18E/F Super-Hornet and the V-22 and the unit costs for the both are staggering.
For the F/A-18E/F they are almost $180 million per plane and for the V-22, about $140 million.
The Navy insists Super-Hornet costs will drop to $62 million once in production, but the unit cost for 150 to be purchased between 1998 and 2001 still works out to $95 million. That is based on increasing aircraft buys from the 30 new planes and 10 remanufactured for FY '97 to 107 new/15 remanufactured in 2001.
That's a very optimistic four-fold increase and probably will not happen, meaning F/A-18E/F unit cost will undoubtedly remain over $100 million. Incidentally, the last batch of F/A-18C/D's had a unit cost of $44 million. The Air Force's new F-22 also shows up in the out years with a unit cost of $295 million for the first 40.
No wonder Adm. Bill Owens, outgoing vice chairman of the joint chiefs of staff, warned something had to be done about tactical air.
And, since 2002 is the designated year for balancing the overall budget, defense increases, if any, will undoubtedly be quite modest.
With options limited, it appears the choice will eventually come down to procurement versus people, as it usually does.
The Army is already under such orders. The Navy is similarly looking at so-called smart ships to decrease personnel costs. There are already calls for yet another commission to look at defense with most Pentagon observers predicting major changes next year no matter who wins the Presidential election in November.
There is no question these issues deserve debate. A good place to start would be ending the fiction that a $60 billion procurement budget - even if reached - can sustain the current force structure. MEMO: James L. George, author of The U.S. Navy in the 1990s: Alternatives for
Action, is an adjunct fellow with the Hudson Institute.
by CNB