Defense budget: A tough balancing act. (President's Perspective).

In a climate of uncertainty surrounding a possible war with Iraq, there is much anticipation about what we may see in next year's defense budget.

In recent weeks, the Pentagon completed the 2004-2009 spending plan and soon will send it over to the White House Office of Management and Budget, for further review, before it goes to Capitol Hill in early February.

At the Pentagon, senior officials are quick to point our that the 2004 budget will be the first one that truly reflects the administration's strategy and philosophy on national defense. The $355 billion budget for fiscal year 2003, which saw a $48 billion increase from the previous year, was viewed by the Bush administration as part of a spending plan that it had inherited, rather than built fundamentally from the ground up.

The budget for fiscal year 2004, which begins next October 1, attempts to "meet today's threats while preparing for tomorrow's challenges," says Stephen A. Cambone, the Defense Department's director of program analysis and evaluation. At the direction of Secretary Rumsfeld, the PA&E office acquired greater authority in the budget-making process and in setting overall direction than it had under previous administrations.

Cambone says the new budget must achieve a proper balance among three key priorities: supporting military operations in the global war on terrorism, transforming the U.S. military into a more agile and more lethal force, and ensuring that the services have high-quality, combat-ready soldiers, sailors, airmen and Marines.

Several guiding principles have shaped the 2004-2009 defense budget blueprint. Cambone outlined them, as follows:

* The budget will reflect the prominence of joint war-fighting capabilities in the areas of precision strike, command-and-control, communications, intelligence, space, information operations, logistics, training and techniques to counter asymmetric threats.

* The focus should be on the war-fighting capabilities, rather than the individual platforms or systems. This way of thinking makes particularly vulnerable those platforms that have been in development for a long time, are running over budget and have failed to convince PA&E that they contribute to the transformation of the force.

* The budget must balance risk in the context of new strategic directions. When it comes time to make tough decisions, areas such as homeland defense, joint operations, experimentation, quality of life and military housing will move to the top of the priority list. To pay for these efforts, the Defense Department is prepared to accept more risk in non-essential areas, such as administrative overhead and military programs where the United States already has a distinct advantage.

These guiding principles should nor surprise anyone who has been following events at the Pentagon since Rumsfeld took over nearly two years ago. Despite the large increase in the 2003 budget, it was made clear that money would be tight, given the growing demands from the war on terrorism and the pressure to boost spending in people programs, such as health care for veterans and pay raises for the active-duty forces.

The administration also has made efforts to improve force readiness and to maintain the rapidly aging fleets of airplanes, ships and combat vehicles in the U.S. inventory.

As far as modernization goes, however, accounts are still underfunded.

Based on congressional studies and testimony from the joint chiefs, procurement needs to be at about $100 billion a year to meet the current program requirements. According to the five-year spending plan, procurement spending is expected to grow from about $74 billion this year to nearly $99 billion in 2007. But, if history is any guide, when the Pentagon plans increases to the procurement accounts in the outyears, they typically don't materialize, because there are more pressing priorities. Readiness and people programs typically come first when funds are tight, so modernization suffers.

No matter what the top line is in fiscal year 2004, the job of balancing readiness, modernization and the demands of the war on terrorism will not be easy. As Cambone says, "The political military environment is evolving at every stage and at every turn, and it will continue to evolve." The threats to U.S. national security will change, as we watch the proliferation of advanced military capabilities around the world. "Whether it's surface-to-air missile systems or it's diesel submarines or other kinds of anti-access capabilities," he notes, "It is clear that potential adversaries are becoming more sophisticated in their military equipment."

So far, the administration has shown that it can spend money wisely, when it comes to national defense. The focus on readiness and people should remain strong. Transformation also is a laudable goal. Hopefully, the administration's new budget will strike the right balance, so that we can meet today's challenges, but also invest in the long-term health and superiority of our fighting force and the nation's industrial base.

Whatever balance is arrived at, we know for sure that the health of the industrial base depends upon stable production programs over time. It is hoped, therefore, that succeeding budgets continue to grow the procurement budget towards the $100 billion mark.