The shortfalls were due to several factors. First, the administration
took office with wildly optimistic notions of its ability to manage
reductions in defense overhead, to rein in the accelerating cost of
weapons system modernization, and to control the historical
exponential growth in operations and maintenance costs. Second, the
administration demonstrated a proclivity to commit American forces to
peacekeeping operations for which budget funds had not been
anticipated. Third, the administration expanded the level of defense
budget funding for non-defense activities, in effect employing
defense resources to support social welfare and other activities that
otherwise might not have been funded. Finally, the administration
pegged its long-range budget hopes on the extension of current low
inflation rates, allowing it to project savings in billions of
dollars. Each of these four factors deserves some elaboration.

Failure to control costs. The administration's optimism about its
ability to control costs was based in part on the expectation that it
would reap the budgetary rewards from the early phases of the base
closure process that had begun in 1987. This process had involved the
creation of a Commission to recommend base closures, thereby
depoliticizing an issue that otherwise would have been impossible to
resolve. The effort became politicized yet again, however, as the
Commission turned to those facilities that were more difficult
politically for the administration to close--notably bases in
California. The original plan for the elimination of seventy-seven
additional facilities in the 1995 round of closures was cut back by
about a third. Moreover, the Commission announced no timetable for
future base closures. Finally, even those bases that were nominally
closed often remained open to house other government agencies. As a
result of all this, the fiscal rewards of base closures simply did
not materialize as expected.

The administration also promised major savings from acquisition
reform, a promise that had been made many times in the past but that
had never been realized. This time, administration principals
asserted, the Clinton team was committed to increasing the
acquisition of off-the-shelf items that were not developed to
military specifications. It promised to cut back on the number and
complexity of specifications, and to speed up the acquisition system.
Yet it failed to reckon with the rigidity of a bureaucracy whose
survival instincts took precedence over any drive for efficiency. As
a result, the savings, such as they were, came far more slowly than
anticipated.

The administration also found that, like its predecessors, it could
not restrain the technology-driven increases in the costs of weapons
system development. One particular and troubling example involved the
much-vaunted F-22 aircraft. Designed to replace the Air Force F-15,
the F-22 is one of three new aircraft in various stages of
development, including the F-18 E&F upgrade of the F-18 C/D, and the
Joint Strike Fighter. The Air Force originally planned to build 648
F-22s at a projected cost of $75 billion. By late December 1996, the
program had been reduced by nearly one-third to 438 aircraft, while a
Defense Department Joint Estimating Team projected that costs could
rise as high as $80 billion, or $182 million per plane.

The price-driven reductions in the size of the F-22 purchase may not
be at an end, however. In order to contain costs, the Pentagon is
planning reductions in the number of test aircraft that it was
scheduled to acquire. "Success oriented" test plans invariably drive
up long-term costs. Adjustments that might have been identified prior
to production are only made after the plane's hard tooling has been
ordered; prices climb higher, and force levels drop even further.

The impact of the F-22's price increase also extends to other planned
aircraft programs. Should the F-22 schedule slip as a result of the
rise in costs, it will interfere with planned acquisition levels for
the F/A-18 E&F and the development-to-production profile of the Joint
Strike Fighter. Indeed, Congress has already alleged that the
administration underfunded the latter two programs when it increased
funding for both in its FY 1997 authorization bill. Clearly, the
prospects for acquiring these two systems at their projected force
levels are uncertain at best.

The impact of technological cost growth extends beyond aircraft to
all classes of weapons systems. The administration's FY 1997 plan for
missile modernization is a case in point. The Authorization Act added
$94 million to the President's request for precision-guided munitions
and a further $55 million for other programs identified by the
service chiefs (who calculated the annual procurement budget
shortfall at $60 billion) and not at all funded by the President's
budget. In both cases, requisite force levels would have been delayed
or not achieved at all without the infusion of these additional
resources.

Infatuation with peacekeeping. Bosnia represented a new high-water
mark for the administration's rather vaguely labeled national
security strategy of "engagement and enlargement", whose "central
goals" were "enhancing (American) security . . . promoting prosperity
at home [and] . . . promoting democracy" abroad. Yet even before the
United States joined NATO's Implementation Force (IFOR), that
strategy had already resulted in an unprecedented level of American
military activity in "operations other than war." By 1996 the Clinton
team had dispatched forces overseas on over twenty-five different
occasions, and had continued to operate forces on missions it
inherited from preceding administrations. The administration
invariably underestimated the cost--and length--of these operations,
and therefore found itself returning repeatedly to Capitol Hill for
supplemental appropriations.

The decision to dispatch ground forces to Bosnia was the most
egregious example of this practice. The Department of Defense
initially calculated the cost of the operation--from start to
finish--at $1 billion. By the end of FY 1996, that cost had more than
tripled. Then, immediately after the 1996 presidential election, Mr.
Clinton announced that 8,500 troops would remain in Bosnia past the
December 1996 IFOR withdrawal deadline. It was not made clear at the
time how long these troops, or some portion of them, would remain in
that troubled country, nor how much the operation would ultimately
cost.

Peacekeeping operations are funded from the operations and
maintenance (O&M) accounts unless the Congress specifically earmarks
funds for them. By underestimating the costs of these operations, the
Clinton administration virtually assured that they would be covered,
at least initially, by other O&M funds. Since these funds would have
been applied to training and readiness--both nominally high on the
administration's list of priorities--those activities in turn had to
be either curtailed or supported by funds diverted from still other
accounts. Ultimately, the modernization accounts replenished the O&M
shortfall, and the reduction in modernization funding meant that
older systems have remained in the force longer than anticipated,
while ongoing weapons programs have had to be "stretched." As always,
stretching out programs increases unit costs, and leads to purchases
of force levels even lower than those resulting from
technology-driven price increases.

Non-defense programs in the defense budget. The defense budget has
increasingly become the repository for programs having little if
anything to do with defense. With Congress as the primary culprit,
departmental expenditures on non-defense related programs rose from
$1.4 billion in FY 1990 to $4.6 billion three years later. By FY 1997
these accounts were in excess of $10 billion. They included funding
for environmental clean-up and compliance, security at the 1996
Olympic Games, and even breast cancer research. These funds were
drawn virtually in their entirety from the operations and maintenance
accounts, further aggravating O&M budgetary shortfalls.

Excessive optimism on inflation. The administration has also resorted
to projecting current low inflation rates through the future year
defense program. Despite consistent warnings from the Federal Reserve
Board that underlying inflation is likely to rise over the longer
term, the administration has identified budget "savings" from revised
inflation rates so as to offset other cost increases. Faced with a
shortfall for the FY 1996-2001 program that it acknowledged to be $49
billion, the administration identified $12.2 billion as savings due
to revised inflation and related cost-of-living estimates.

More outrageously, the Pentagon identified "over $4 billion . . . in
program additions" for FY 1997 as a result of revised inflation
estimates. These revisions, which derived from lowering estimated
annual inflation from 3.0 to 2.2 percent, allowed the administration
to "find" $1 billion for Bosnia in FY 1997. The administration also
claimed that "because of lower inflation, it takes $46 billion less
to buy the FY 96 defense program" and "the FY 1997 FYDP (future years
defense program) buys last year's program but also $30 billion
additional program [sic]." The revised estimate thus enabled the
administration to plan for a rise in procurement funding beginning in
fiscal year 1998, after that account reached its lowest budgeted
level since before the Korean War ($38.9 billion). This, in turn,
enabled the administration to claim that it had allocated additional
procurement funds in the 2000-02 time frame, to which it had deferred
the bulk of its procurement program.

All this is clearly disingenuous. It is unlikely that during the next
six years, when currently planned systems begin to be fielded and
operated, inflation rates will remain as low as they have been over
the past four years. There have not been four consecutive years with
similarly low rates since the 1950s. On the other hand, in two of the
past twenty years inflation exceeded double digits and in four others
it exceeded 8 percent. Leaving out the two years with double-digit
price growth, the average annual inflationary increase for the
remaining eighteen years exceeded 4.5 percent. Under these
circumstances, it would have been prudent to have retained the
assumed inflation rates of at least 3 percent for long-range budget
projections extending into the twenty-first century. As things stand
now, any increase in inflation through the year 2002 will have a
significant impact on the defense budget, further constraining annual
equipment purchases. The department would not only have to endure
further programmatic stretch-outs, but it would also be burdened
either by a further drop in force levels, or by increased O&M costs
to support weapons systems that otherwise should have been retired.
Neither option is especially welcome in the Pentagon.

Essay Types: Essay