Budgeting Should Not Be an Emergency

dding funds to the Defense budget under the guise of emergency appropriations is increasingly in vogue, for several reasons. First has been the heavy drain placed on military forces by unexpected contingencies in Iraq and the Balkans. Second has been the use of military forces in responding to a series of devastating natural disasters such as Hurricane Mitch, which ravaged Central America in 1998. Finally, as many have argued for some time, the military as it is currently funded does not have the resources to meet its ambitious strategic mission, to recapitalize its aging equipment inventory, and to attract and retain personnel in an increasingly competitive economy.

Providing emergency funds to pay for unplanned military operations and disasters is necessary. But providing emergency funds to meet ongoing requirements could create as many problems as it solves.

The Defense budget must be seen for what it is: a one-year snapshot of a five-year program that reflects a 10- to 15-year strategic plan. The Pentagon bureaucracy invests enormous effort and energy in crafting a Defense budget that relates near-term spending requirements to longer-term investment needs and strategic demands. Officials use an elaborate process that was launched in 1961 by Defense Secretary Robert McNamara known as the Planning, Programming and Budgeting System (PPBS). The purpose of PPBS was to:

• Examine future security needs.
• Determine the missions the Defense Department would be required to perform.
• Establish a set of objectives that must be achieved to meet those missions.
• Prioritize the objectives in accordance with funding levels approved by the administration over a five-year period.
• Present that information to Congress on a recurring basis as the annual budget.

Although PPBS is a tedious and ponderous process, its continuation over seven administrations suggests that it has been successful not only in balancing the numerous demands of a complex organization, but also in producing a timely budget in sufficient detail for Congress to fund national defense requirements.

Nonetheless, since the end of the Cold War, and the loss of what had been a clear mission focus, the ability of PPBS to connect strategies to budgets has become increasingly tenuous.

Planning for the future is a major challenge for any organization, but for the Pentagon the absence of competitors, the diversity and dynamism of its market, and the absence of commonly understood performance metrics create a particularly daunting task. Since the ability of the Pentagon to change course rapidly is limited, issues of strategy, needed capabilities (today and in the future), force structure, weapons systems and personnel policy have to be identified, discussed and decided with a degree of certainty.

Ripple Effect

Emergencies such as regional conflicts and natural disasters cannot be predicted. When military forces are used to address them, the funds needed are diverted from other planned activities, normally in training, operations and base support. For operations and maintenance, such diversions create backlogs. Emergency funding is, therefore, a necessary response to prevent a ripple effect across numerous operations and maintenance activities.

There are somewhat different implications, however, in using emergency funding to deal with longer-term Defense program requirements. Funding programs that have clear "outyear tails" in one year, without providing for the subsequent years, can be nearly as disruptive as shifting resources from one account to another in addressing an unexpected shortfall. Consider what has happened, and may happen, for this year's budget. When the 1999 Defense budget was passed last October, it contained $8.3 billion in spending added by the Congress. Some of this spending was intended for military operations in Iraq, while other provisions dealt with intelligence, readiness, national missile defense, terrorism and the Y2K problem. With the exception of the Y2K funding and possibly Iraq (although after 10 years one would expect military operations in the Arabian Gulf to be routinely funded), these policy items have future costs.

Were they paid? Not completely, it seems. When the administration submitted its fiscal 2000 budget in February 1999, it supposedly included increased Defense funding of $112 billion from 2000 to 2005-$84 billion in new funding and $28 billion in additional buying power based on revised inflation figures and fuel expenses. But there was a catch. The administration calculated the $84 billion from its fiscal 1999 submission, which did not include $8.3 billion added later by Congress.

According to the Congressional Budget Office, had the administration used the final appropriation as the baseline and inflated that figure through 2005, it would have discovered that its increase for 2000 was actually an $8 billion decrease, and the total increase of $1 billion through 2005 was relatively insignificant. This suggests that the outyears of the Defense program are not being systematically reviewed with congressional actions taken into consideration.

'Policy Muddle'

Military pay is the most glaring and the most important issue. In its current submission, the administration requested a pay increase of 4.4 percent for uniformed personnel to address recent recruiting problems by making military compensation more competitive. By its calculations, the Pentagon added $33.5 billion of the $84 billion increase for 2000 to 2005 to its military personnel accounts. But by the CBO's calculation, the increase is a mere $3 billion. The CBO analysis shows that had the Pentagon merely extended its 1999 funding for personnel to 2005 it would have arrived at the same funding level. This suggests that the administration's pay raise is based upon assumptions about lowered end strength or pay grades that may not be achievable.

In May, Congress passed yet another supplemental appropriation for 1999 providing an additional $11 billion to the Defense budget for the Kosovo operation. Following the lead set by earlier legislation in the Senate, this emergency package contains an additional $1.8 billion for personnel pay that seemingly matches the administration's pay increase for fiscal 2000 and provides a significant down payment for a major revision of the military retirement system.

The retirement change will mean that all personnel will be eligible to retire with half their base pay after 20 years of service. Currently, only those who enlisted before 1986 retire with 50 percent of their pay. The motivation is to reverse a steadily deteriorating recruiting effort with stronger incentives than those proposed by the administration.

Funding pay and retirement changes in this manner creates something of a policy muddle. Although funded in an emergency supplemental for fiscal 1999, the pay increase is intended for fiscal 2000.While the $1.8 billion approved seems to match the administration's request for its 2000-2005 plan, by some measures it may require $8 billion of additional spending out to 2005. Furthermore, if separate legislation on military pay, passed earlier by the Senate but not yet by the House, is enacted there will be a still more expensive 4.8 percent pay raise and a yearly inflation adjustment that is 1 percent more generous than current policy. Paying for this change means the administration would either have to break the existing budget caps or take funds from other programs. In the absence of more funding by the administration in its next program formulation this fall, the congressional pay increase may become an unfunded mandate.

Without additional funding, the Pentagon would have to deal with this shortfall internally. The most likely source of funding would be its procurement accounts. Procurement essentially represents the Defense Department's discretionary spending. Since procurement is now 70 percent below what it was 10 years ago, increasing spending on new equipment has been a top priority. It would be ironic, and somewhat self-defeating, if steps taken to attract new recruits are offset by retention problems attributable in part to soldier frustration at having to operate increasingly tired and aging equipment, much of it older than the recruits themselves.

Similarly, the Defense Department also might be forced to cut base operations and other "quality of life" programs for military personnel and families-the very programs service leaders have been pushing to attract and keep personnel. Therein lies the potential dilemma of short-term fixes to long-term problems.

Putting non-emergency funds in an emergency funding bill is shortsighted at best. To solve one problem in the near term, it creates a potentially devastating problem for the long term. When it comes to funding Defense, the stakes are too high.

Col. M. Thomas Davis retired as the Army Chief of Staff's chief of program development in 1997. He is the author of Managing Defense After the Cold War, (Center for Strategic and Budgetary Assessments, 1997) and is now directing a study of PPBS for Business Executives for National Security.