The Pentagon's budget planners are sending mixed messages to the defense industry
about what to expect next fiscal year.
On the one hand, they are expressing enthusiasm about the procurement accounts,
predicting they will continue to grow in order to address the military services'
so-called modernization gap. But they also are issuing cautionary signals about
what they see as potential roadblocks to new weapon purchases in the near term.
Modernization dollars today face tough competition from important areas-such
as medical benefits, facility maintenance and personnel recruiting-that have
emerged as top priorities at the Pentagon and on Capitol Hill.
That clearly was the message from several budget officers, representing each
military service, who briefed industry executives last month.
Purchases of new ships, aircraft and ground vehicles will continue as planned
for the foreseeable future, these officials said. The procurement budget this
fiscal year was about $60 billion.
The buzzword that dominated their briefings, however, was "recapitalization."
This term is assigned different meanings within each service. But, generally,
it refers to the process of replacing aging platforms and weapons with new systems
or programs that upgrade them with modern technology.
But the services today clearly have other financial problems than modernization.
Legislation now moving through Capitol Hill would fund medical care for service
veterans over the age of 65-who currently do not have access to military health
care. The benefits package is expected to cost the Pentagon between $2 billion
and $5 billion a year.
The backlog for repair work at military facilities is reaching gigantic proportions.
The Air Force fiscal 2001 budget for facility maintenance is $1.7 billion, which
is half of what is needed to address improvements at 87 bases, said a senior
official. The backlog stands at $4.3 billion and continues to grow.
The physical plant shortfalls, he said, are "a major problem ... getting
top leadership attention."
The Army is in even worse shape. In this year's budget, the service funded
only 37 percent of its military construction requirements for the active force.
"At the current rate, it would take 194 years to get healthy" on the
military construction front, a senior official said.
The services' well-publicized difficulties in recruiting and retaining troops,
meanwhile, will result in fresh demands for advertising and quality-of-life
programs.
In 1999, the Air Force was 10,000 people short. That is roughly the equivalent
of two wings. It missed its recruiting goal by 1,700. "That understrength
is unprecedented," said one official. "We are concerned about the
retention of experienced staff-particularly air traffic controllers, engine
technicians, avionics experts, supervisors."
The service is doubling its recruiting budget from $177 million in 1998 to
$354 million in 2001. There are now 101 Air Force skilled positions that qualify
for a signing bonus. That translates into an additional $109 million. The total
investment for recruiting and retention this year is $721 million
The Navy plans to allocate funds for more recruiters, who will be growing from
3,000 to 5,000. And the advertising budget will double. Five Navy aircraft carriers
currently deployed collectively are 3,385 sailors short. The service will push
to increase funding for enlistment bonuses, a thrift savings plan for sailors,
and will seek $1.2 billion to eliminate out-of-pocket housing expenses during
the next five years.
Army officials also said they will seek additional dollars for advertising
and recruiting, as well as funding to increase housing allowances.
The Marine Corps faces similar financial hurdles. To fund personnel-related
demands, for example, the Corps deferred $3 billion worth of modernization projects
between 1990 and 1999.
New Business
The good news for contractors is that there will be new business opportunities
in areas other than big-ticket hardware sales-namely, programs that improve
force readiness and troop morale.
Spare parts accounts will receive an infusion of $1.3 billion between 1999
and 2002. The shortage of aircraft parts, particularly, has been brought to
light in recent congressional hearings and is seen as a source of discontent
that drives technicians out of the service.
About $1.2 billion is being sought by the Navy for "smart work" initiatives,
designed to "take work off the back of the sailors," said one official.
Under this effort, the Navy plans to hire "contractor preservation teams"
to take over many of the ship maintenance duties traditionally performed by
sailors. Applying advanced coatings on ship surfaces, for example, requires
sophisticated tools not available on ships. And the Navy wants sailors to spend
less time on maintenance and more on warfare training. That is one sure way
to enhance retention, officials believe.
And, because the services are holding on to aging platforms for much longer
than expected, upgrade work remains aplenty.
The Air Force will spend $2.5 billion this year on depot maintenance for 416
aircraft and more than 1,000 engines. "We've been using fighters longer
than they were designed for," said one officer. That means more maintenance
contracts are in the offing. The service budget includes $1.4 billion for contractor
logistics support. There are 279 upgrade programs, worth $2.8 billion, in this
year's Air Force budget to improve aircraft reliability.
The Army wants to get 20 more years of use out of its existing Cold War equipment
until it fields a new force. The recapitalization bill for the Army, said a
service official, is "$30 billion that we don't have," without including
the additional billions it needs to field the new force of medium brigades.
The Navy added $1.9 billion to its fiscal 2001 for improvements to the fleet
of EA-6B electronic warfare aircraft, the Marine Corps' AV-8B jump jet, the
P-3 surveillance platform, aviation spares and purchases of additional smart
munitions.
The five-year spending plan for next year, known in Pentagonese as the 2002
POM (program objective memorandum), is being wrapped up this month. Service
budget officials are not sure how election-year politics will play in the budget
drills. According to one official, "if it's bad news, they are not going
to want it to leave the building. It may not go through the usual schedule,
because of the elections."
It is an understatement that the next administration will have to perform a
tough juggling act with defense spending priorities.