Pentagon feeling the pressure on budget.

There is good and bad news in the defense spending legislation that President Bush signed in August.

The good news is that the $416 billion approved for fiscal year 2005 covers "must-pay" bills, including a pay increase for U.S. troops and a $25 billion supplemental appropriation to address next year's essential expenses for operations in Iraq and Afghanistan.

One piece of bad news is that there are several issues that have potentially huge implications for future spending that Congress has yet to debate. Another piece of bad news is that the appropriation shows a downturn compared to a year ago. And although we will see more supplemental appropriations in 2005, one wonders if defense budgets are leveling off and headed for declines.

One reason to worry is the projected U.S. federal budget deficits over the next several years, and how these deficits might constrain defense spending. U.S. Comptroller David M. Walker articulated the problem very clearly in an article just published in National Defense. "A crunch is coming, and eventually all of government will feel its impact. Although national defense and homeland security have received generous funding in recent year's, this cannot continue indefinitely. Defense budgets of the future almost certainly will be tighter," Walker wrote.

Not only will Social Security and Medicare become huge financial burdens in the years ahead, as the baby boom generation enters retirement, but the nation also is saddled by mounting war expenses. At a recent conference, Congressman John Murtha, a Pennsylvania Democrat who strongly supports defense spending, said that the defense budget, of necessity, must come down. The pressure no doubt will grow.

Although the Pentagon did receive a $25 supplemental for the war, the expectation is that more money will be needed before fiscal year 2005 ends next October. The United States is spending on average nearly $5 billion a month in Iraq, according to Pentagon estimates, likely bringing total defense spending above the $450 billion level for 2005. The Government Accountability Office also noted in a July report that fiscal year 2004 costs for the global war on terrorism will exceed previous supplemental appropriations, requiring the Defense Department to shift funds from other accounts.

The obvious prediction is a squeeze on Defense Department procurement, research and development budgets, with adverse consequences for the defense industrial base. Although procurement spending--has seen growth--from $62 billion in 2002 to $81 billion in 2004--it takes a downswing in 2005, to $78 billion. But research and development accounts continue to show steady increases from $64.5 billion in 2004 to $70 billion in 2005. However, that trend could change if R&D ends up becoming a bill payer for other, more pressing needs.

In recent weeks, we have heard rumblings about cutbacks in ship-building programs and delays in the construction of a new aircraft carrier. Programs such as the Air Force F-22 fighter, the Joint Strike Fighter, space systems, missile defense and the Army Future Combat Systems will not be exempt from budgetary pressures. These are ominous signs that lean times are coming and tough choices are needed.

The Congressional Research Service urged lawmakers to investigate to what extent major weapon programs in all the services may need to be reined in, because of limits on overall defense spending and rapid cost growth in several big projects--the perennial "bow wave" that has been predicted for many years.

Some of these questions may be answered in the Defense Department's fiscal year 2006-2011 spending plan, to be unveiled early next year. Regardless of who wins the November election, it is fair to expect defense spending to remain under pressure, at least for the duration of the war. Current Defense Department projections show real growth of about 2 percent between 2005 and 2009, when spending could exceed $500 billion. Given budget realities, that path is far from certain.

Any administration coming into power in January will have a tough job, not just deciding how much discretionary federal spending realistically can be allocated to national defense, but also shaping future investments in military modernization.

The White House and Congress will have to make strategic decisions based on both today's and tomorrow's threats. U.S. forces, after all, continue to fight for the most part with weapons systems developed during the Reagan administration's military buildup two decades ago. It will not be long before aging airplanes, ships, tanks and other platforms will need to be replaced, despite many remarkable efforts by the services to extend the life of existing weapon systems.

Further, a number of critical issues that will affect future defense spending still remain unsolved. These issues include, among others, congressionally mandated increases to military end-strength, whether to proceed with the acquisition of a new tanker for the U.S. Air Force, industrial offsets for foreign buyers of U.S. military systems, a potential round of base closures in 2005 and several health and benefits programs for reservists and families of retirees.

Lawmakers are expected to address many of these issues when they convene for the fiscal year 2005 defense authorization conference.

In the meantime, it will be imperative to continue the discussion involving government and industry on how to move forward. The real concern is the ability of our warriors to maintain battlefield dominance. Our edge lies in three areas: high-quality personnel and training, and world-class systems. The competition within our budget between operations, recapitalization and procurement could threaten this dominance. External budget pressures can do the same. Although current events are driving our spending, our future competence and competitiveness will depend on the development and procurement of advanced technology. All of us should support careful budget choices, especially during these very demanding and challenging times.

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