Panel discussion: current budget issues.

John R Roth

Deputy Comptroller (Program/Budget)

Office of the Under Secretary of

Defense (Comptroller)

Brigadier General Sandra Gregory

Director for Budget, Operations and Personnel

Office of the Assistant Secretary of the Air Force

(Financial Management and Comptroller)

Robert L. Panek

Associate Director for the Office of Budget

Office of the Assistant Secretary of the Navy

(Financial Management and Comptroller)

Charles Cook

Assistant Deputy Commandant for Programs

and Resources and Director, Fiscal Division

Headquarters, United States Marine Corps

Wesley C. Miller

Director, Management and Control

Office of the Assistant Secretary of the Army

(Financial Management and Comptroller)

The discussion focused on current budget issues, including execution of the fiscal year (FY) 2005 budget and supplemental appropriations, the FY 2006 budget request, and the possible need for a 2006 supplemental appropriation. Speakers highlighted the numerous financial challenges involved with fighting the Global War on Terrorism (GWOT) while continuing to transform and modernize the military services.

Mr. John R Roth opened the discussion with a broad overview from the perspective of the Office of the Secretary of Defense. In 2005, the Department of Defense (DoD) budget (not including the supplemental) was $400.1 billion. The 2006 budget is $419.3 billion. Funding continues to increase throughout the Program Objective Memorandum years: The FY 2007 projection is $443.1 billion, FY 2008 is $462.4 billion, and projections increase by about $10 billion per year through the out-years to reach $502.3 billion in FY 2011. While the numbers seem huge compared to recent times, it's important to keep them in perspective. In this regard, it should be noted that the FY 2006 budget is only 3.3 percent of the Gross Domestic Product.

The FY 2006 budget contains an increase of 4.8 percent, or an additional $19.2 billion over the FY 2005 budget. That consists of $300 million less for Army, $6.5 billion more for Navy, $9.7 billion more for Air Force, and $3.4 billion more for Defense-wide programs. There are increases in the Military Construction (MILCON) budget to address Base Realignment and Closure (BRAC).

Basically, DoD has four major themes in its FYs 2005 and 2006 budgets:

* Supporting the GWOT, which includes training and equipping Iraqi and Afghan support forces, and the Command Emergency Response Program, which gives humanitarian and reconstruction assistance to those countries.

* Restructuring our forces (global postures and repositioning), which includes shifting our focus and structure from the cold war model to a rapid deployment force that is needed to address current threats. This restructuring should return 70,000 troops (stationed around the world) to U.S. soil.

* Building joint capabilities (transformation) to combat future threats, which includes (a) funding new technologies for use in the field against new threats and (b) net-centric warfighting that can be coordinated across all cognizant agencies and their functional stovepipes.

* Taking care of our forces, which includes the 3.1 percent military pay raise, funding housing with no out-of-pocket expenses for soldiers and their families, and increased healthcare and education funding to expand coverage to mobilized National Guard and Reserve personnel.

As enacted, the FY 2005 supplemental gave DoD an additional $76 billion to fund operations Enduring Freedom and Iraqi Freedom, to accelerate modularity initiatives, to refurbish and/or replace military equipment, to fund innovations in technology to combat improvised explosive devices, and to train Iraqi and Afghan security forces. DoD is working to reduce demands on the force through modularity, increasing deployable forces, better use of personnel, and rebalancing the force mixture. Mr. Roth advised that the BRAC Commission will give its final recommendations in September. Previous BRAC initiatives have resulted in savings of $7 billion per year.

Brigadier General Sandra Gregory followed with the Air Force presentation. She spoke of the challenges that the Air Force is facing in FYs 2005 and 2006. Specifically, the Air Force has a $3.7 billion shortfall in FY 2005 ($700 million in military personnel and $3 billion in operation and maintenance (O&M). This is in part because Operation Noble Eagle (which has received funding from supplemental appropriations in previous years) was not funded in the FY 2005 supplemental. This year, the service has had to absorb those costs. Another reason for the shortfall is the rising cost of fuel. The Air Force flies over 200 combat sorties every day, and the cost of performing those missions is escalating along with rising fuel prices.

To resolve its funding gap, the Air Force has requested omnibus reprogramming for military pay and has curtailed travel, and likely will have to slow down operations if no additional funding is appropriated. However, the future is brighter.

The FY 2006 Air Force budget is increasing by $4.7 billion. This includes an additional $500 million for military pay to cover the increase of 4,000 personnel and military conversions. It also includes an additional $4.5 billion in O&M funds, and an additional $400 million in MILCON and housing. These increases are offset by a decrease of $700 million in investment funding, which reflects the reprogramming of investment funds (used to purchase new contracted systems and facilities) to O&M funds (used to maintain these facilities and systems once fielded).

Mr. Robert L. Panek followed with the Navy presentation. He noted that the emphasis is on transformation and outlined the major issues for the Navy in 2005 and 2006:

* Rising costs (such as fuel)

* Decreased ship production rates and the consequent increase to the cost of each new ship. (Since only one or two ships are now being built, all of the overhead costs for maintaining the shipyards is being distributed over these one or two ships, making each one markedly more expensive.)

* Retiring some classes of ships (for example, the USS John F. Kennedy)

* Restructuring/reducing forces

* Developing new weapons systems and retiring some old ones (since the Navy is transitioning from legacy platforms to all new design platforms, which are more expensive)

* Reinvesting some Navy forces to the Marine Corps to better position them for combating today's threats

Mr. Charles Cook, speaking for the Marine Corps, outlined the major issues for that service in FYs 2005 and 2006:

* Recapitalization of forces--equipment used in warfighting requires frequent replacement.

* End strength--the guidance for most of the services is to reduce the force (that is, to use fewer people and more systems), but the nature of ground forces is that both the Marine Corps and the Army need to recruit additional troops.

* Transformation--which requires using increasingly more scarce resources more wisely.

Mr. Wesley C. Miller then outlined the major issues for the Army in FYs 2005 and 2006. That service's challenges in 2005 include the following:

* Force reductions and the need to align the budget to force protection priorities.

* Reprogramming necessary to transfer procurement funding (which is used to purchase new contracted systems) to O&M accounts (to maintain these systems).

* Cash flow problems inherent in supplemental funding (wherein the services first borrow against other programs until the supplemental is passed and those programs can be reimbursed).

* Uncertainty of funding. As with the Air Force, because Operation Noble Eagle was not included in the FY 2005 supplemental, the Army has been forced to absorb the costs.

* Modularity resulting from the change (from division-size to brigade-size forces).

* Recruiting goals not being met, which is necessitating more funding being diverted to recruitment.

* Creation of the Installation Management Agency (IMA), that is, a new structure created a stovepipe for funding installations separate from their missions. The challenge now is balancing the funding required for the IMA against funding required for the warfighting effort.

Speakers summarized the discussion by outlining the challenges for FY 2006, which included the following:

* The assumption is that FY 2006 will be a lot like FY 2005.

* Mission degradation will occur in some programs if no bridge supplemental is passed in FY 2006.

* The need to resource modularity activities, which were not included in the FY 2006 budget request (but will be requested in the bridge supplemental).

* The initial outlays required by BRAC initiatives.

* Funding required for global posture restructuring.

* Military-to-civilian conversions, which will free up forces for deployment, but may lead to civilian personnel funding challenges.

The challenges are many, but all speakers expressed confidence in the ability of our Armed Forces to accomplish their current and future missions.

Elaine Shipman is the management analysis officer for the U.S. Army Corps of Engineers, New York District. A member of ASMC's West Point Chapter, she earned her CDFM in July 2001.