Defense procurement projected at $60 billion in new DOD budget

WASHINGTON - Defense contractors and their suppliers can breathe a little easier about the availability of money for their hardware programs with the Defense Department's $60 billion request for the critical procurement category of the $291.1 billion DOD budget request.

By John Rhea

WASHINGTON - Defense contractors and their suppliers can breathe a little easier about the availability of money for their hardware programs with the Defense Department's $60 billion request for the critical procurement category of the $291.1 billion DOD budget request.

Although Defense Secretary William Cohen stressed that "there was nothing that was magical or sacrosanct about the $60 billion," this was the annual figure that the Joint Chiefs of Staff had insisted five years ago was necessary to reverse post-Cold War declines. DOD officials deferred the decision to ask for $60 billion until this year - not insignificantly an election year where the status of the military is proving to be a hot campaign issue. The budget plan does not stop at $60 billion, however. The new budget for Fiscal Year 2001, submitted to Congress April 7, envisions steadily increasing budget authority for procurement to $70 billion over the next five years. The federal fiscal year begins Oct. 1.

The $291.1 billion top-line request itself represents an increase over this year's level of $277.6 billion. One healthy trend in this concerns budget authority, which is outrunning actual expenditures projected at $277.5 billion in the coming fiscal year. As Pentagon officials explain, outlays typically lag authorization of money. This is particularly true when the procurement account abruptly increases because it takes two or three years to pay the contractors for the new programs.

The increase in procurement money is expected to shore up existing programs rather than to permit substantial new efforts. The four principal tactical aircraft programs - the Army RAH-66 Comanche scout/attack helicopter, the Air Force's F-22 jet fighter, the Navy's F/A-18E/F fighter-bomber, and the Air Force/Navy/Marine Corps Joint Strike Fighter (JSF) - should stay healthy if:

  • 1) Congress supports this budget; and
  • 2) a new president and secretary of defense, who will take office a year from now, do not overturn this budget.

Funding of missile defense will remain steady at about $5 billion a year, which is essentially enough to keep the programs alive until the president can determine whether a limited system can be deployed by 2005. This has been another contentious issue with Congress.

Also, there should be adequate funding for the Navy's new DD-21 multi-mission destroyer - about $555 million next year and reaching nearly $1 billion in FY 2005. This ship is intended to reduce manning requirements from 300 to 100 and thus will be depend heavily on new technology. Procurement of the first ship is now scheduled for 2005.

The 2001 budget also contains $4.1 billion for construction of a new Nimitz-class aircraft carrier, the so-called "CVN-77." This new ship is to be a "bridge" platform for the Navy to switch from the Nimitz class to the next-generation aircraft carrier, now known as the "CVNX." Navy officials say the CVN-77 carrier will have an integrated topside island with multifunction radar, new engine monitoring equipment, and new manning requirements. This budget also contains $1.7 billion for long-lead, non-nuclear components for the third Virginia-class (SSN-774) new attack submarine.

Pentagon officials say they expect to maintain a 300-ship Navy. Given the average ship lifetime of 35 years, that means building about eight ships a year, they say.

For ground forces, the Army will be spending more money to upgrade the Bradley fighting vehicle and finish up the upgrades to the M-1 Abrams tanks, while the Marine Corps will increase spending on the Armored Amphibious Assault Vehicle (AAAV) and begin procurement in 2004 and 2005 with buys of 35 and 66 AAAVs, respectively.

In parallel with the industry opportunities in major weapon systems under the procurement account, increased funds should also be available within the operations and maintenance (O&M) category. This amounts to $109 billion and sustains operational readiness to meet such challenges as the recent operations in Bosnia and Kosovo. Pentagon officials estimate that spending on the training, necessary field equipment, and depot maintenance, much of it contracted out to industry, has risen in recent years from $40,000 to $60,000 per soldier.

To pay for these readiness upgrades - and the personnel costs for pay, pensions, health care, and the like - Secretary Cohen warned that two more base realignment and closure, or BRAC, rounds will be required under the Defense Reform Initiative in fiscal years 2003 and 2005. The new budget contains $2.1 billion to fund these rounds, which are projected to produce $3 billion in annual savings once completed. This has always been hard for the Pentagon to sell to Congress, and Cohen conceded as much, calling it a "significant challenge."

Looking beyond the future year defense plan, or FYDP, which covers fiscal years 2001 through 2005, Cohen expressed optimism that the procurement momentum could be sustained with new programs coming on line as the services wrap up their efforts on the F-22, JSF, DD-21, and the other current major programs. "There are a lot of items that will be in the production stage at that point," he told a Pentagon news conference. The FYDP itself projects total military spending of $1.5 trillion over the next five fiscal years.

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