Volume 3, Issue 1 February 1999

National Security Report

Background and Perspective on Important National Security and Defense Policy Issues,

Written and Produced by

Chairman, House Armed Services Committee

On February 1st, President Clintondelivered his defense budget to

Congress, officially beginning the fiscal

year 2000 defense budget cycle. Although

U.S. military forces continue to confront a

series of worsening problems, the

President’s admission last fall that the

services are facing serious quality of life,

readiness and modernization shortfalls,

and his recognition that increased defense

spending will be necessary to address

them, marked an important milestone in the

defense debate.

Indeed, the President has taken a small

step in the right direction by proposing

The FY2000 Defense Budget:

Gambling with America’s Defense

The following text is adapted from Chairman Floyd D. Spence’s

opening statement at a February 2, 1999 House Armed Services

Committee hearing with Secretary Cohen and General Shelton.

increased funding for

defense, including an $84

billion dollar top-line increase

over the next six years.

Unfortunately, the President

has indicated that $80 billion

dollars of this increase is

predicated on social security

– continued on page 2 –

reform as well as on renegotiation of the

Balanced Budget Act. With fairly

significant “strings” like these attached,

it is difficult to judge just how sincere

the President is about addressing even

the Chiefs’ unfunded requirements.

NOTE: Requirements expressed as additions to the FY 99 Presidents Budget per Joint Chiefs Testimony

0.0

5.0

10.0

15.0

20.0

25.0

30.0

FY 00 FY 01 FY 02 FY 03 FY 04 FY 05

0.0

5.0

10.0

15.0

20.0

25.0

30.0

New Budget Authority

Fiscal Year

Joint Chiefs Unfunded Requirements 

-$18.0 B

-$9.1 B -$11.4 B

-$11.9 B

-$11.3 B

-$8.3 B Chiefs Requirements

Real Requirements - Continued Shortfalls

Budget Authority in Billions of Current Year Dollars

HASC Staff

The President’s FY2000 defense budget falls at least $18 billion short of what the nation’s military leaders have

identified as unfunded requirements in the coming year, and nearly $70 billion short over the next six years. This chart

illustrates the gap between the Joint Chiefs of Staff’s unfunded requirements and the President’s defense budget proposal.
2 National Security Report

– continued from page 1 –

The bottom line is clear, this budget falls

well short of adequately addressing the

unfunded requirements of the U.S. military.

Simply put, this budget does not

represent a $12 billion dollar increase in

fiscal year 2000, nor is it a $112 billion

dollar increase over six years. Instead, it

contains a $4 billion dollar increase in fiscal

year 2000, $2.9 billion dollars of which is

suspect, and an $84 billion dollar increase

over the six year plan. The difference is

about $28 billion dollars worth of assumed

savings and reductions from within the

budget, which in no way represent

increased top-line spending.

Last fall, the military service chiefs

identified more than $150 billion dollars in

critical unfunded requirements, a figure

likely to be understated, since several of

them have since noted that problems are

getting worse. Even if every dime of the

Administration’s assumed savings from

within the budget materialize – from

inflation to fuel to BRAC – the six year

$275

$290

$305

$320

$335

FY 00 FY 01 FY 02 FY 03 FY 04 FY 05

FY 00 Presidents Budget

FY 99 Presidents Budget

Chiefs Requirements

NOTE: Requirements expressed as additions to the FY 99 Presidents Budget per Joint Chiefs Testimony

Real Requirements - Continued Shortfalls

Budget Authority in Billions of Current Year Dollars

Budget Authority (Function 050)

Fiscal Year

HASC Staff

FY 00 Presidents Budget is

as much as $70 billion below

the Chiefs Requirements

Even if the $84 billion in new budget authority proposed by the President materializes (in grey), the President’s budget

falls $70 billion short of the Joint Chiefs of Staff’s unfunded requirements (in red).

The President’s FY2000 defense budget proposal has been characterized as an

“increase” of $12.6 billion. In fact, only $4.1 billion is new spending, while

the remaining $8.5 billion reflects assumed savings, cutbacks, and gimmicks.

Even the $4.1 billion in new budget authority is suspect, as much of it may be

predicated on a budget gimmick. Furthermore, the $84 billion in new budget

authority proposed for the next six years is entirely predicated on renegotiation

of the Balanced Budget Act’s spending caps.

Breaking Down the Presidents Defense Increase Budget Authority in Billions of Current Year Dollars

New Budget Authority

$4.1 (32%)

Rescissions

$1.6 (13%)

Economic and Other 

Adjustments

$3.8 (30%)

New Budget Authority

$84.3 (75%)

Economic and Other 

Adjustments

$26.1 (23%)

Rescissions

$1.6 (2%)

MILCON 

Spending Reduction

$3.1 (25%)

FY 00

$12.6 billion

FY 00 through FY 05

$112 billion

HASC Staff
National Security Report 3

– continued on page 4 –

plan still falls more than $40 billion dollars

short of meeting the services’ requirements

– which translates, on average, to about $7

billion dollars per year. If the assumed

savings do not materialize, the six year plan

is almost $70 billion short, or nearly $12

billion dollars per year.

Furthermore, despite the Administration’s assertion that this budget represents the first sustained defense increase

since 1985, two of the next three budgets

(including the fiscal year 2000 defense budget) fail to keep pace even with record low

inflation. They represent real decline. Indeed, there is no sustained growth in this

Holes in the Presidents Budget:

Billions in Assumed Savings, Spending Cuts,

and Gimmicks

HASC Staff

Milcon Cut:

 $3.1 billion

Bosnia:

Unfunded in

Outyears

Cheap Fuel:

$4.6 billion

Unprecedented

Historically

Inflation: $20 billion

Unspecific

Rescissions:

 $1.6 billion

Intelligence

Rescission:

$652 million

Outlay Reduction

Gimmicks:

???

Missile Defense

Rescission:

$230 million

PAYGO Scoring

Gimmick:

$5 billion

budget proposal until beyond fiscal year

2003, which occurs after both the

President’s term and the Balanced Budget

Act expire. In fact, more than $50 billion of

the proposed top-line spending increase

occurs after the Balanced Budget Act expires and on the watch of a future Administration.

Unfortunately, the picture is clouded

further by the fact that the budget relies

heavily on assumed savings, spending

cuts and outlay gimmicks.

For instance, the Adminstration’s

defense budget repeatedly “gives with one

hand while taking away with the other.” In

order to fit the budget under next year’s

spending caps, the President’s budget

would rescind $1.6 billion dollars of prior

year defense spending — no specifics, just

a cut. Of particular concern, the outlays

associated with such a rescission would

result in many more billions of dollars in

reductions (certainly more than $1.6 billion)

to the investment accounts.

Also tucked away in this budget proposal

is a rescission of almost $900 million dollars

for missile defense and intelligence

funding agreed to by the President in last

fall’s omnibus appropriations bill.

According to the Administration, these

rescissions would be used to offset the

costs associated with the Wye River

Agreement. Although the Administration

has assured Congress that these funds will

be reprogrammed in the outyears, future

spending will have to come out of

someone’s “hide.” In essence, the

Administration is breaking last fall’s budget

“deal,” sacrificing congressional priorities,

and making DOD pay for it twice.

On another front, the Administration’s

budget goes to great lengths to

demonstrate its commitment to taking

better care of the troops and their families

by including a robust package of pay and

retirement proposals. Yet, this same budget

proposes to cut an already anemic military

construction program by a whopping 40

percent next fiscal year. This $3 billion

“MILCON massacre” is apparently an effort

to “fix” a budget was $3 billion dollars short

of the desired $12 billion “increase” in fiscal

year 2000. This shell game will decimate

the military construction accounts, compel

a construction freeze (or worse), and will

The “MILCON Massacre”

will decimate military

construction accounts,

compel a construction

freeze, and will almost

certainly increase costs.
4 National Security Report

The National Security Report is archived on the House Armed Services Committee website at: http://www.house.gov/hasc/. Additional background

information may be obtained from Tom Donnelly (x65372), David Trachtenberg (x60532), or Michelle Spencer (x53036) on the committee staff.

almost certainly increase the costs of

hundreds of construction programs.

In the area of contingencies, the

Administration’s six year plan funds

Bosnia operations for only about the first

18 months of the six year plan. Unless the

Administration has decided to pull the

ground troops out of Bosnia in fiscal year

2001, billions of dollars for future Bosnia

costs are unfunded and will have to be

budgeted later. The Administration has

not yet announced whether these funds

will come “out of the services’ hides,” or

whether the President will provide

resources above the current top-line.

Finally, the Administration’s budget

includes $25 billion in assumed economic

savings based on lower than anticipated

inflation and fuel costs. Most accountants

would agree that it is one thing to “bank”

HASC Staff

Gambling on the Economy - Inflation

derived from annual defense purchases BA deflators - budget authority in billions of current year dollars

Average Annual Defense Purchases Inflation since 1990: 2.0%

 since 1980: 3.4%

 since 1970: 4.9%

 since 1960: 4.3% 

The Presidents Budget assumes the longest period of

unprecedentedly low inflation since the Korean War

Average annual defense purchases inflation rate

assumed in the Presidents Budget for Fiscal Years

2000 through 2005: 1.8%

Savings from revised defense purchases inflation assumptions

 FY 99 FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 Total

Savings (billions) - 2.5 2.9 3.1 3.4 3.7 4.0 19.6

such savings after economic assumptions

have proven inaccurate, and quite another

to project the sustainment of historically

unprecedented economic conditions six

years into the future and to build the

hoped-for savings into the services’

budgets. To count on $25 billion in

inflation and fuel savings as the source

of future funding for critical defense

needs is a gamble. If these savings fail

to materialize, where will the funding

necessary to fill in the hole come from?

Unfortunately, the services’ unfunded

requirements are real, but the savings

may never be.

While the Administration’s budget

may look good, one does not have to

scratch very deeply to reveal serious

problems — from being $70 billion short

of the Chiefs’ requirements to a heavy

reliance on assumed savings, spending

reductions and gimmicks. If each annual

budget submission in the years ahead

relies as heavily on assumptions and

gimmicks as the fiscal year double zero

budget appears to, the services are in

trouble. Even a cursory look at the

Administration’s budget indicates a

number of outlay problems that are being

dumped onto Congress’s lap. If recent

history is any judge, CBO will score this

budget $4 - $5 billion higher in outlays

than will OMB. Furthermore, this budget

increases spending by more than $8

billion dollars in the high outlay

personnel and O&M accounts, yet total

outlays for the entire budget function

decline by about $3 billion dollars. This

fact alone is a warning flag that there is

some “creative accounting” ahead. In

the context of an already serious CBO/

OMB outlay scoring mismatch, this kind

of creative accounting could easily

necessitate $12 - $15 billion dollars in

budget authority reductions to the

President’s request just to stay within the

spending caps.

– continued from page 3 –