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Spending muscle fueled by emergency funding.

A COMBINATION OF BIGGER procurement accounts in this year's budget and war-emergency appropriations puts the Army on course to receive some of the largest levels of funding it has seen in decades.

The upshot will be at least $28 billion for Army equipment buys for the fiscal year that ends September 30, 2006, and a projection of even larger sums in fiscal year 2007.

The Army requested $11.8 billion for procurement in 2006. Two emergency funding requests--one in 2005 and the most recent one in February, 2006--bolstered the Army's procurement accounts by nearly $17 billion. In 2005, a $10.4 billion procurement budget rose to $24.6 billion also via supplemental appropriations.

The service safely can expect that its 2007 procurement request of $16.8 billion will climb by several billion dollars in supplemental funds that the administration likely will seek later this year or in early 2007, analysts say. The most recent budget proposal is indicative of a continuing trend that points to substantial procurement spending included in supplemental requests.

"The supplementals--that's where the real money is coming from," says defense industry, consultant James A. McAleese.

Soaring equipment expenditures, to a great extent, are the consequence of three years of fighting in Iraq with more than 100,000 soldiers on the ground. But much of the new hardware, Army officials note, also is needed to make up shortages that started after the end of the Cold War. By the Army's own account, the shortfalls add up to a staggering $100 billion.

"We had almost $100 billion in under-resourcing in the decade prior to 2011 in investment accounts," says Army Chief of Staff Gen. Peter Schoomaker. "That was part of that peace dividend everybody talked about. The dearth in actual modernization that was occurring ... hurt us as we were preparing to go into this [Iraq war]," Schoomaker tells reporters.

War supplementals have changed the traditional dynamics of military budgeting and spending. For the Army, which has shouldered the lion's share of the deployment duties in Iraq and Afghanistan, the additional appropriations have allowed unprecedented flexibility in balancing its resources. A case in point is a decision in 2007 to reduce personnel spending in order to boost procurement.

"The Army leadership chose to cut force structure instead of procurement," says McAleese. The Army proposed a $2 billion cut in personnel by reducing the total number of active combat brigades from 43 down to 42, and dropping six of 34 National Guard combat brigades. The ensuing political backlash ultimately forced the Army to reinstate the six Guard units, albeit as support brigades. But to keep those six Guard brigades, the Army was expected to seek funds in the latest emergency supplemental request sent to Congress last month.

Observers caution that the escalating emergency requests, which have added up to more than $400 billion since 9/11, eventually will run into stiff political opposition. But that is not likely to happen until after the Bush administration leaves office. McAleese says.

"It is possible we might see some resistance to funding upside in the Senate, saying 'why do you need all the Army regular appropriations, plus this $120 billion worth of defense emergency supplementals?'"

Of the $120 billion emergency request, at least $30 billion is allotted to Army and Marine Corps procurement.

For the foreseeable future, the largest share of Army procurement dollars will go to aircraft programs. Aircraft procurement will grow to $3.5 billion in 2007, compared to $2.8 billion in 2006. The bulk of the funds will pay for AH-64 Apache, UH-60 Black Hawk and CH-47 Chinook helicopter upgrades. The Army also allocated funds to begin procuring a new light utility helicopter and a new reconnaissance helicopter that will replace the Comanche, which was cancelled two years ago.

Other accounts that will see substantial growth are logistics vehicles and communications equipment.

The 2007 budget includes $3.8 billion for tactical and support vehicles and associated gear--a nearly $1 billion jump from 2006. The Army requested $4 billion for communications and electronics equipment, but expects to increase that amount considerably with supplemental dollars. If the 2006 budget offers any clues, the Army then requested $2.3 billion for communications and electronics, and ended up spending $4.5 billion.

The fiscal 2006 supplemental funding proposal sent to Congress in February seeks more than $2 billion for tactical trucks and another $2 billion for communications devices, in addition to $150 million for unmanned aircraft and $173 million for night-vision gear.

One continuing question mark in Army budget discussions is the Future Combat Systems, which the service views as the centerpiece of its modernization plan. The estimated $160 billion FCS so far remains a research-and-development program. It consumes a third of the Army's $10.9 billion annual R&D budget.

The complex makeup of the program--a computer network and 17 families of vehicles and weapons--has raised questions on how the Army will go about shifting FCS into its procurement account. Army officials say the goal is to field 15 FCS-equipped brigades by 2025.

McAleese predicts the Army will keep as much of FCS in the R&D account as possible, in order to safeguard the program from funding cuts. "The Army leadership is canceling every other RDT&E program to protect FCS," he says. "FCS will survive as long as it's in the developmental phase."

Unlike the procurement account, where many programs vie for resources, R&D offers FCS a safe haven, McAleese says. "The Army can safely expect to get $10 billion a year in RDT&E."

The plan is to gradually introduce FCS technology into the force, but that will spread the program into multiple "procurement buckets," so it is unlikely that there will be a consolidated FCS procurement line in the budget, he says. One major piece of FCS that could result in significant procurement spending--the ground armored vehicle that was intended to replace the Abrams tank--has been delayed until 2016. "The manned ground vehicle is slipping to the right," says McAleese. "It is supposed to be the heart of this creature."

The Army also must worry about garnering political support for this mammoth program. In recent congressional hearings, lawmakers cited a Government Accountability Office study that shows FCS costs have climbed by 76 percent from the Army's first estimate. Further, GAO cautions that the higher cost projections still may be understated. "Because uncertainties remain regarding FCS requirements, and the Army faces significant challenges in technology and design maturity, we believe the Army's latest cost estimate still lacks a firm knowledge base," writes Paul L. Francis, GAO director of acquisition.

A larger question that analysts have posed is how the Iraq war potentially could affect the Army's long-term procurement plans.

"Many observers inside and outside the FCS program say its overgrown network won't work, its vehicles aren't survivable, and there are faster, cheaper ways to get new capabilities into the field," writes Loren Thomson, a defense expert at the Lexington Institute. "FCS isn't a disaster yet ... but you have to wonder where the Army thinks it's going after Iraq."

Another looming uncertainty is what will happen with Army procurement accounts when troops start leaving Iraq.

"I am concerned as troop drawdowns begin, there does have to be a clear contract between the secretary of defense and Congress for allocation of funds to Army procurement and Marine Corps procurement," McAleese says. "That would be the real debate that I would focus on for 2008."
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Author:Erwin, Sandra I.
Publication:National Defense
Geographic Code:1USA
Date:Apr 1, 2006
Previous Article:Defense procurement: hard decisions 'kicked down the road'.
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