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Strategy Research Project 



United States Army Reserve 


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15 MAR 2008 Strategy Research Project 


00-00-2007 to 00-00-2008 


Paying for the War on Terror: Process and Budget Impacts 





Denise Atkins 





U.S. Army War College ,122 Forbes Ave.,Carlisle,PA,17013-5220 







Approved for public release; distribution unlimited 



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The U.S. Army War College is accredited by the Commission on Higher Education of the Middle State Association 
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Council for Higher Education Accreditation. 




Colonel Denise Atkins 
United States Army Reserve 

Harold W. Lord 
Project Adviser 

This SRP is submitted in partial fulfillment of the requirements of the Master of Strategic 
Studies Degree. The U.S. Army War College is accredited by the Commission on 
Higher Education of the Middle States Association of Colleges and Schools, 3624 
Market Street, Philadelphia, PA 19104, (215) 662-5606. The Commission on Higher 
Education is an institutional accrediting agency recognized by the U.S. Secretary of 
Education and the Council for Higher Education Accreditation. 

The views expressed in this student academic research paper are those of the author 
and do not reflect the official policy or position of the Department of the Army, 
Department of Defense, or the U.S. Government. 

U.S. Army War College 







Colonel Denise Atkins 

Paying for the War on Terror: Process and Budget Impacts 
Strategy Research Project 

25 March 2008 WORD COUNT: 5,709 PAGES: 29 

KEY TERMS: PPBE, GWOT, Federal Budget, Supplemental Appropriations 


The United States is engaged in a long war against terror as a top national 
security priority. While initial response to the unexpected 11 September 2001, (9/11), 
terror attacks was clearly unfunded, the U.S. is still using “emergency” appropriations to 
fund ongoing operations as well as other non-emergency defense requirements. Since 
2001, over $500B has been infused into defense programs and operations through 
supplemental appropriations, separate from funds provided through DOD’s 
comprehensive strategic planning and resource allocation process: Planning, 
Programming, Budgeting, and Execution (PPBE) Process. Is a PPBE process that 
funds peacetime requirements still relevant after six years of war and current projections 
of long-term operational commitments? After years of steadily increasing base budgets, 
should DOD seek additional base budget growth by requesting some portion of 
enduring war requirements transferred from supplementals into the PPBE process or 
should the nation expect a “peace-dividend” as happened after the Korean and Vietnam 
Wars? Can the federal budget withstand ongoing unbudgeted defense spending at the 
expense of domestic programs and in the face of looming fiscal challenges? 


The national security environment has changed dramatically since the end of the 
Cold War. The defense build up that occurred during the Korean War and continued 
through most of the Cold War was followed by defense downsizing and spending 
reductions, also known as a peace dividend. At the onset of the Korean war, spending 
increases supported operations and a military build up. Once major spending for 
Vietnam began in the 1960s, the primary focus was on operations and benefits to 
sustain the all-volunteer force. 

After the United States suffered from terrorist attacks on September 11 th , 2001 
(9/11), national security strategic priorities changed to fighting a long war against terror 
as a top priority. Since that time the United States has been engaged in three 
simultaneous operations to meet the demands of the new security environment and the 
Department of Defense (DOD) has received over $500B in emergency war funding 
above its baseline budgeted dollars to support operations, sustain and grow the force, 
and transform to meet future security challenges. 

The requirement for this infusion of non-budgeted dollars has been generated 
through an off-line estimating methodology and then provided by a mechanism called 
“emergency supplemental appropriations.” Because the initial response to the 
unexpected 9/11 terror attacks was clearly unfunded, the use of an emergency funding 
mechanism appeared to be a reasonable immediate response with historical 
precedents. However, after more than six years, “emergency” appropriations are still 
being used to fund ongoing operations. An unintended consequence of this long-term 
reliance on emergency supplemental appropriations has been the inclusion of war 

related spending in the base budget and items not directly related to the war being 
funded through the emergency supplemental. 

This causes concern that the PPBE process is not relevant to the current 
strategic environment of ongoing war operations since it is not being used to develop 
the costs of war simultaneously with the base operations of DOD. This creates a 
situation where trade-offs between current operations and the future readiness and 
composition of the force are not considered. Now the DOD’s planning and resource 
allocation system; Planning, Programming, Budget, Execution System (PPBE), appears 
to be strategically outdated simply because it does not include the costs of current 
operations and does not anticipate inevitable transfers of budgeted allocations to fund 
these current operations. 

This paper will describe PPBE as a long-range comprehensive process that links 
strategy and missions to resources. It will then present the historic experience and 
current status of supplemental appropriations used to pay for unexpected national 
security operations. It will conclude with observations about the relevancy of a 
peacetime planning and resource allocation process that has been circumvented by 
reliance on annual emergency supplemental appropriations over the last six years. 



The Planning, Programming, Budgeting and Execution (PPBE) produces a plan, 
a program, and finally, a budget for the DOD. PPBE was designed to provide a 
deliberate and structured decision-making process for appropriate allocations of 
resources and the right mix of forces and equipment to Combatant Commanders. An 


assessment of the current environment (threat, political, economic, technological, and 
resources) is the starting point for developing strategy, identifying required capabilities, 
making new trade-off decisions and reexamining prior ones as necessary. 

The PPBE process has four distinct phases beginning with planning, which is 
guided by the President’s National Security Strategy (NSS) and the Secretary of 
Defense’s (SECDEF) Quadrennial Defense Review (QDR). The NSS is required to be 
updated annually (in practice it is updated as required) and assesses threats to U.S. 
interests, outlines a national strategic plan to counter those threats, and thus forms the 
basis for the QDR and National Defense Strategy (NDS). Each administration submits a 
comprehensive defense planning report, QDR, to Congress every four years and it 
represents a strategy and required capabilities for defense of the nation. The QDR 
attempts to align military strategy with appropriate resources while balancing risk within 
the context of an uncertain security environment. 

The Joint Chiefs of Staff (JCS) use the QDR and NDS to produce a resource- 
unconstrained document every two years called the National Military Strategy (NMS) 
and provides recommendations to the SECDEF in an annual Chairman’s Program 
Recommendation (CPR). The CPR identifies joint programs the Chairman deems 
critical for the execution of NMS. The SECDEF considers this input as he develops and 
promulgates DOD priorities and performance goals in the Strategic Planning Guidance 
(SPG). The SPG serves as official guidance to the military services regarding force 
structure and fiscal constraints for development of their six-year Program Objective 
Memoranda (POMs). 


In the programming phase of PPBE, DOD components develop programs 
consistent with the SPG, outlining a plan for allocating resources over a six-year period. 
“These programs reflect systematic analysis of missions and objectives to be achieved, 
alternative methods of accomplishing them, and the effective allocation of the 
resources.” 1 The programming phase produces a Future Year Defense Program 
(FYDP) that officially summarizes SECDEF-approved programs developed within 

Approved programs are then translated into budgets and related justification 
material in the budgeting phase. A detailed budget review occurs during every even 
year (on-year), focusing on the first two years of the POM, to ensure compliance with 
SECDEF program review decisions and the President’s NSS. After budget decisions for 
the applicable years are resolved, DOD’s budget becomes part of the President’s 
annual budget submission each February. In an even year as mentioned above, the 
President’s budget (PB) covers estimates for the budget year and the budget year plus 
one. During the odd years (off-years) unless there are significant changes to policy, 
strategy, or fiscal guidance, only Program Change Proposals (PCPs) and/or Budget 
Change Proposals (BCPs) and fact-of-life changes (e.g., cost increases) are permitted 
and the PB submission presents a revised second year budget. 

Execution in this context means spending resources so approved programs are 
resourced during the execution phase and evaluated for results - an assessment of 
what funding bought compared to expected outcomes. The results of execution reviews 
may inform the planning and programming phases to adjust policy and program 


Overall, PPBE assesses threats and commitments, then estimates resources 
needed to meet commitments at “acceptable” levels of risk. 2 Policy and programmatic 
planning within PPBE provides a long-range perspective of 10 to 20 years and beyond, 
programming tends to focus on a 6-year period, while the budget is decided annually. 3 
The PPBE process is designed to systematically determine the resources necessary to 
support the NSS; it provides an assessment of the total DOD effort and produces an 
annual budget designed to implement strategy through execution of approved 

The PPBE is theoretically comprehensive and deliberate. It was designed to 
produce a long-range program for peacetime military operations, but it does not reflect 
the true cost of sustaining continuous operations and therefore does not reconcile 
strategic capabilities, and the cost of ongoing operations, with available resources. 
Emergency supplemental, in response to emerging requests, have circumvented this 
deliberate process by infusing billions of dollars for unplanned war expenditures into the 
execution phase of the process without a clear mechanism for reassessing and 
reconciling the PPBE baseline. 

Historical Uses of Supplemental Appropriations 

After regular appropriations have been enacted into law for the current fiscal 
year, natural disasters and other emergencies may cause a disruptive drain on funding. 
In extreme cases, the government may have to provide immediate additional federal 
spending to respond to these situations. “A ‘supplemental’ appropriation is spending 
legislation, generally but not exclusively requested by the president, intended to address 


a need not known or foreseen when the annual budget for the given fiscal year was 
drawn up.” 4 

Supplemental appropriations are supposed to be a last resort when the 
requirement is of such magnitude that only an additional appropriation will suffice. 
According to OMB Circular A-11, OMB will only consider requests for supplementals 
and amendments when: 

• Existing law requires payments within the fiscal year (e.g., pensions and 

• An unforeseen emergency situation occurs (e.g., natural disaster 
requiring expenditures for the preservation of life or property); 

• New legislation enacted after the submission of the annual budget 
requires additional funds within the fiscal year; 

• Increased workload is uncontrollable except by statutory change; or 

• Liability accrues under the law and it is in the Government’s interest 
to liquidate the liability as soon as possible (e.g., claims on which 
interest is payable). 5 

Supplemental appropriations have been used to finance unanticipated spending 
since the second session of the first Congress in 1790. During the 1970s, supplemental 
appropriations were used to fund wide range of activities including pay raises for federal 
employees, natural disaster relief, changes in entitlement programs caused by 
unexpected economic conditions, economic stimulus programs, and ongoing federal 
programs whose appropriations were delayed by late legislation. 6 

The major purposes of supplemental appropriations have changed over the past 
25 years and by the 1980s, changes to the budget process required offsets for 
supplemental appropriations in order to control deficit spending. 7 The 1990 Budget 
Enforcement Act (BEA) imposed spending caps on federal spending which meant that a 


non-emergency supplemental that exceeded the cap could only be passed if it could be 
matched with an offsetting spending reduction or revenue increase. 8 On the other hand, 
an emergency designation for a supplemental appropriation exempted the spending 
from discretionary spending caps. 

Supplementals have been used throughout history to fulfill immediate war 
requirements, but no previous use compares the magnitude and almost total reliance on 
the current “emergency” funding of military operations. A brief review of the Korean and 
Vietnam wars provide good examples for comparison with the U.S. response to 
operations in Afghanistan, Iraq, and the Global War on Terror (GWOT). 

Korean War 

The North Korean invasion into South Korea occurred five days before the end of 
FY50, and the FY51 budget process was already nearing an end. Congress began 
immediately to develop the supplemental appropriation request that was enacted into 
law on 27 September 1950 (FY51 ). 9 The supplemental provided DOD with over $11B 
for Korean operations along with the beginning of a military build-up initiated to offset 
downsizing after World War II. 10 The remaining FY51 supplemental requests were built 
without constraints and viewed as a first step in a planned four-year effort to restore 
U.S. military posture. 

Incremental war costs were not included in DOD’s appropriated baseline budget 
in FY52 but the budget funded operations until a supplemental was used to fund 
resulting shortfalls. By FY53 Congress had some reservations and included incremental 
war costs in the baseline budget. The FY54 budget did include some incremental costs 
but a negotiated ceasefire agreement stopped the fighting in the first few days of the 


fiscal year. Although the end of hostilities negated the need for additional supplemental 
in less than three years, Korea was similar to today’s environment because 
supplemental facilitated a defense restructure in addition to supporting military 
operations. Table 1 summarizes DOD supplemental appropriations during the Korean 

Regular and Supplemental DOD Appropriations During the Korean 
Conflict, FY51-53 (billions of then-year dollars) 

Fiscal Year 



















Table I 11 


Peak U.S. military efforts in Vietnam occurred between 1965 and 1973. President 
Johnson requested the first defense-specific Vietnam supplemental appropriation with a 
$700M request in FY65. “Secretary of Defense, Robert McNamara, appeared before 
Congress later that year requesting $1.7 billion in a separate account, ‘Emergency 
Fund, Southeast Asia’." 12 There was no major opposition to the supplemental at this 
time because Congress considered Vietnam as vital to U.S. national defense. The first 
FY66 supplemental was $12.3B and increased overall defense spending by 30%. 

By FY67, the Johnson administration attempted to forecast Vietnam war 
requirements and have them appropriated in DOD’s baseline budget. Although $10.3B 
was requested and approved in the baseline budget, the administration had to request 
an additional $12.2B in supplementals that same year. In FY68 $20B was added to 


DOD’s baseline budget to fund war requirements and the supplemental for that year 

totaled $3.8B. 13 

Even though a $1.3B supplemental was eventually required in FY69 for pay and 
benefit increases, it was the first year that DOD’s baseline budget absorbed the majority 
of costs in Vietnam. Supplementals continued to absorb the cost-of-living increases in 
FY71 but it was also the beginning of the drawdown of U.S. forces in Vietnam. 

Politicians also began discussing a “peace dividend”, or reduction in DOD’s baseline 
budget. Table 2 summarizes the use of supplemental appropriations for the Vietnam 
conflict. Although a portion of war costs were financed with supplemental 
appropriations for five years, the majority of requirements were funded with base budget 
dollars by the second full year of major operations. 

Methods of Funding the Vietnam Conflict 
(billions of then-year dollars) 

Fiscal Year 































Table 2 14 

Afghanistan, Iraq, and the Global War on Terror (GWOT) 

President Bush uttered the following words on October 11,2001 that gave birth 

to a U.S. NSS for the Global War on Terror (GWOT): 

“The attack took place on American soil, but it was an attack on the heart 
and soul of the civilized world. And the world has come together to fight a 
new and different war, the first, and we hope the only one, of the 21st 


century. A war against all those who seek to export terror, and a war 
against those governments that support or shelter them.” 

Since the terrorist attacks of 9/11, the United States has initiated three major military 


• Operation Enduring Freedom (OEF) covering operations in Afghanistan and 
other Global War on Terror (GWOT) operations ranging from the 

Philippines to Djibouti that began immediately after the 9/11 attacks 
and continues; 

• Operation Noble Eagle (ONE) providing enhanced security for U.S. 
military bases and other homeland security that was launched in 
response to the attacks and continues at a modest level; and 

• Operation Iraqi Freedom (OIF) that began in the fall of 2002 with 
the buildup of troops for the March 2003 invasion of Iraq and 
continues with counter-insurgency and stability operations. 15 

The initial 9/11 response was funded in FY02 when Congress appropriated $40 

billion ($17.3B for DOD) to a transfer account in Public Law 107-38, Emergency 

Supplemental Appropriations Act for Recovery from and Response to Terrorist Attacks 

on the United States. 16 The entire sum was placed in an emergency response fund 

under direct control of the President. When funds were transferred to DOD, they 

became Defense Emergency Response Funds (DERF); these funds gave DOD greater 

flexibility on when, where, and how to apply resources without having to return to 

Congress for reprogramming authority. 17 Public Law 107-117 was enacted in early 

January 2002 and appropriated an additional $3.4B into DERF. 

Since FY03, Congress has funded war costs in two bills, typically a bridge 

fund included in the regular DOD Appropriations Act to cover the first part of the 

upcoming fiscal year, and an emergency supplemental enacted after the fiscal year has 

begun. The bridge funding supports on-going operations into the next fiscal year without 


interruption, and it provides DOD with time to finalize a detailed war request. Bridge- 
fund dollars are no longer available after the supplemental is appropriated in the 
following year. 

By 2004, Congress began expressing concerns about requests for 
supplementals because they bypassed the formal budget review process. By FY2007 
Congress began exerting some control through traditional legislative tools: hearings and 
testimony, reporting requirements, reprogramming and transfer restrictions, reviews and 
investigations, and fencing funds pending compliance with provisions. 18 

For the first time since the 9/11 attacks, the Bush Administration submitted, with 
the President’s 2008 budget, a request for war funding for the full year to meet a 
requirement levied in the FY2007 John Warner National Defense Authorization Act 
(P.L.109-364). That submission entailed more review than had ever been accomplished 
since 2001, raising many questions about precisely which requirements should be 
included in base budgets, rather than supplemental requests. 

Blurring Lines Between Supplemental and Baseline 

For the past ten years, DOD financial regulations have specified that the costs of 
contingencies should include only incremental costs directly related to operations. Until 
October 2006, the services complied with this guidance as they prepared estimates for 
operations related to the GWOT. The guidance required that services specify 
assumptions about troop levels, operational tempo, and reconstitution. Service Chiefs 
were directed to limit requests to incremental costs “that would not have been incurred 
had the contingency operation not been supported.” 19 Investment requests were also 


to be incremental and made “only if the expenditures were necessary to support a 
contingency operation.” 20 

After nearly six years in a wartime operational tempo (OPTEMPO) and 
emergency supplemental resourcing environment, there is no longer a clear line 
between baseline and war-related military requirements and mixed messages at all 
levels of government regarding definitions make the baseline versus supplemental 
question more perplexing. One of the dilemmas in war funding over the last several 
years is how to distinguish between programs that are necessary because of war 
requirements and those that are dedicated to enhancing DOD capabilities necessary to 
meet longer-term requirements. 

Within DOD, the distinction between war-related and regular funding has been 
blurred by senior leader guidance and overlapping requests. “On October 25, 2006, 
Deputy Secretary of Defense Gordon England issued new guidance to the services for 
requesting war funds, requiring them to submit new requests that reflect the ‘longer war 
on terror’ rather than limiting requirements specifically for war operations in Iraq, 
Afghanistan and other counter-terror operations.” 21 This new guidance appeared to 
open the way for including a far broader range of requirements particularly since the 
needs of the “longer war” are relatively undefined. 

In September 2007, DOD revised financial management regulations for 
contingency operations to institutionalize the guidance in Secretary England’s October 
2006 memo. The new guidance includes a section on budgeting for “large-scale 
contingencies” that expands the range of expenses that “relate directly to operations”; it 
adds those that are “a result or consequence of the operations such as reconstitution 


activities (to replenish stocks, replace battle losses, or worn equipment or systems), 
depot maintenance and other supporting actions.” 22 

The new guidance enables the services to restore or buy new equipment that 
meets a higher standard to execute its future missions by enhancing capability or 
adding new technology as well as rebuilding equipment to its original condition. 23 This 
guidance appears to have influenced, at least to some degree, DOD’s FY2007 and 
2008 war supplemental requests based on increases over the 2006 supplemental of 
40% and 61% respectively. Figure 1 summarizes DOD’s base budget and 
supplemental funding since 2001. 

Dollars in Billions 









FY 01 FY 02 FY 03 FY04 FY05 FY06 FY07 FY08 

■ DOD base budget and noo-GWOT supplemental 

■ GWOT requests 

■ FY08 DOD budget request 

■ FY08 GWOT request 

■ FY08 GWOT amendment 

Figure 1: DOD Base Budget and GWOT Appropriations and Requests 24 

In many other examples, it appears that war-related requirements for 
recapitalization, modularity, force protection, and upgrades overlap each other in 
baseline budgets and war requests. The results or consequence of operations has been 



interpreted to include DOD’s efforts to transform Army and Marine Corps units to new 
standard configurations, known as modularity and restructuring. Although restructure is 
designed to meet the terrorist threat overall, requests to fund conversion have been 
submitted as war requirements. 

For example, at DOD’s request, Congress agreed to provide $5 billion in the 
FY05 and FY06 supplemental for converting units with the understanding that DOD 
would subsequent conversion funds back to its regular budget in later years. The FY07 
and FY08 supplemental included funding to convert two Army brigade teams and 
create an additional Marine Corps regimental combat team. 25 But these same 
requirements will be funded from DOD’s baseline program beginning in FY2009. 

Recent Flouse and Senate debates over the FY2008 defense authorization bill 
reveal more inconsistencies in specifications of baseline and supplemental 
requirements. The Flouse approved DOD’s requests for funding the GWOT and 
recommended the full initial FY2008 request. However, the House Appropriations 
Committee (HAC) cut funding from DOD’s baseline request, arguing these items should 
be considered war-related. The items included: 

• Special pay for language skills and hardship duty; 

• Procurement of heavy Army trucks and night vision 
devices, Marine Corps Unmanned Aerial Vehicles (UAV), upgrades 
to C-130 aircraft and war consumable, Hellfire missiles for Predator 
(armed) UAVs, Air Force ammunition and trucks; 

• Global Train and Equip program to equip and train foreign security forces other 

than Iraq or Afghanistan who face counter-insurgency threats; and 


• A “Rapid Acquisition Fund,” intended to make it easier for DOD to procure 
urgently needed items. 26 

The Senate bill, on the other hand, approved the full initial GWOT request but 
transferred GWOT-requested funds to DOD’s baseline program. “The Senate Armed 
Services Committee (SASC) report recommended the transfer from GWOT to the 
baseline program on the grounds that funds provided for military personnel, 
procurement, and military construction that are dedicated to ‘growing the force,’ as well 
as funds for weapon system upgrades that pre-date the Afghan and Iraq conflicts 
should both be considered part of DOD’s baseline rather than war-related 
requirements.” 27 Also, according to the SASC, GWOT requests for higher Army and 
Marine Corps force levels adopted originally to meet OIF/OEF are no longer 
appropriately considered temporary emergency expenses. 

Blurring lines between base budgets and war requirements combined with 
growth and transformation initiatives will cause difficulties for the Marines and the Army 
due to the level of their engagement over the last several years. At a time when DOD is 
challenged to maintain a high level of military operations while competing for resources 
in a fiscally constrained environment, another question looms: If major troop 
withdrawals occur within the next couple of years, should the nation expect a ‘peace 
dividend’, or reduction in base budgets, or should part of supplemental funding transfer 
to base budgets and increase defense total obligation authority (TOA)? This SRP 
summarizes some of the work the Army has done to address this question, then it 
considers the implications from the perspective of the federal budget. 


Army’s Position 

The U.S. Army has assumed the largest burden for military operations in 
supporting GWOT. In addition to maintaining troop levels and fighting the ground wars, 
the Army has several ongoing strategic initiatives: growing the force, building an 
operational reserve, transformation, and global positioning. The Army has recently 
determined that their 2009 base budget and beyond falls approximately $28B short 
annually, jeopardizing the Army’s ability to execute strategic initiatives while conducting 
direct operations overseas. 28 

Approximately $18B of the anticipated baseline shortfall includes requirements 
currently funded in the supplemental for programs that should continue despite 
significant troop withdrawals, such as reinstating “peacetime offsets”, sustaining 
GWOT-initiated missions, maintaining long-term equipment, and improving force 
readiness. 29 The Army has certainly experienced the impacts of the previously 
described blurred lines between base and supplemental funding. For an obvious 
example, consider that peacetime programs, such as the Army’s flying hour program, 
were being reduced in the base budget several years ago to offset requests for 
supplemental appropriations to execute war operations. A reduced baseline 
requirement offsets an increase to Army’s wartime funding request. 

Although everyone expects supplemental funding to dry up and disappear 
eventually, the Army expects reasonable consideration for realigning funding from 
supplementals back to base budgets. In FY2008, the Army’s supplemental funding 
request grows to 91% of its base and nearly 50% of total Army spending (see Figure 2). 
Consider the effects of changing definitions of war cost criteria, significant growth in 
supplemental funding, and execution of base program funding to support a high 


OPTEMPO. It becomes clear just how difficult it is to make a distinction between 
executing decisions derived from a structured out-year PPBE process and an 
integrating year of execution decisions, along with funding received from an expedient 

emergency supplemental mechanism. 



I Base Funding 
I Supplemental Funding 
| Pass Through funding 
Pending Approval 

FY02 FY03 

Actual Execution 

FY07 FY08 

Appropriations PBR 09-13 


Pass Through 









$1 1 .2 































Supp as a % of Total 

(not including Pass Through) 










Figure 2. Army Base and Supplemental Funding: FY 2001-2009 30 
Any discussion of realigning funding from supplemental to DOD base budgets 
should include a review of the federal budget because in the final fiscal analysis, DOD 
funding is only one piece of the federal budget pie. 

Federal Budget Perspective 

In addition to external security threats, our nation faces serious internal 
challenges due to growing fiscal imbalances. The combination of lost revenue from tax 
cuts, additional demands for national and homeland security resources, the long-term 
rate of growth of entitlement programs, and rising health care costs require our leaders 
to make difficult choices about the affordability and sustainability of additional growth in 
defense spending. The overall composition of federal spending has changed 


dramatically over the last 40 years. As depicted in Figure 3, mandatory spending 
(including interest) has grown from 33% of spending in 1966 to 62% in 2006. 

1966 1986 2006 

| Net interest Q Discretionary H Mandatory 

Figure 3. Categories of Federal Spending 31 

In 2001, the federal budget ran a surplus equal to 1.3% of gross domestic 
product (GDP). By the end of 2007, the federal budget had averaged a deficit equal to 
2% of GDP. Defense spending contributes to budget deficits because base DOD 
budgets have increased by 59% since 2001, resulting in more budget outlays each 
year. The 2008 discretionary pie depicted in Figure 4 shows a clear priority for spending 
more on national defense than all other non-defense programs - indeed at the expense 
of these programs. 

Figure 4: 2008 Proposed Discretionary Budget 1 


Although supplemental appropriations do not fall under balanced budget 
spending controls because they are not considered part of the regular budget, they do 
contribute to the deficit and growing national debt which has increased by over 40% 
since 2001 (see Figure 5). 

Figure 5: National Debt from 1940 to Present 32 
Many experts agree that a fiscal policy that continues to limit revenues while 
increasing spending and debt is not sustainable. Based on the current situation, DOD 
should prepare to address the implications of inevitable changes to national security 
and fiscal policy framed by the following questions: Is a PPBE process that generates 
peacetime requirements still relevant after six years of war and supplemental funding? 
After years of growth in its base budgets, is it reasonable for DOD to expect additional 
funding by moving some portion of enduring war requirements from supplementais to 
the base budget? Can the federal budget accommodate continued growth in defense 
spending at the expense of domestic programs? 


Recommendations and Key Considerations 

Is a PPBE process that generates peacetime requirements still relevant after six 
years of wartime supplemental funding? On one hand, PPBE is a relevant theoretical 
process that has been applied successfully for decades to allocate hundreds of billions 
of dollars to provide what is arguably the best military force in the world. DOD is the only 
federal department that relies on a comprehensive tool that integrates strategy, 
decision-making, and resource allocations. In order to maintain relevancy, however, the 
process must adapt to the current and future environment. The PPBE process should 
produce a program that allocates all resources necessary to defend the nation and that 
eliminates peacetime and wartime stovepipes. 

One of the first adjustments that may be required outside of PPBE is legislative: 
Congress and OMB must clearly define “emergency” and put time limits on 
supplemental funding for emergencies. Based on historical trends, a maximum of three 
years may be a good start point. This would allow for initial response; give the 
President time to formulate revised fiscal policy; and provide DOD time to develop 
methodology for identifying requirements, assessing and reconciling program base 
requirements with operational requirements, and top-loading new strategic initiatives 
and operational requirements into the planning phase of PPBE. In order for the process 
to be effective it must accommodate decisions and trade-offs based on a total, rather 
than fragmented, view of national defense strategy. 

In other words, if after two to three years following an initial response or 
engagement and if strategic analysis points to prolonged operations, requirements for 
the total picture should be assessed using PPBE to accommodate trade-off decisions 
between, for example, capabilities more closely linked to current operations and 


requirements for future weapons systems. During a period of rolling requirements from 
supplemental to base, the primary goal should be to produce a program to accomplish 
strategic objectives, and funding targets should contain a floor and ceiling to 
accommodate potential growth. 

With some adaptation, PPBE can continue to be relevant for DOD. Serious 
consideration should also be given to implementing a national level PPBE-like process 
that integrates the budgets of all federal departments; establishes national priorities 
across all elements of national power (diplomatic, information, military, economic); 
balances resource allocation using a national strategic decision-making process; and 
considers trade-offs between national priorities. 

After years of increasing base budgets, is it reasonable for DOD to expect 
additional funding by moving some portion of enduring war requirements from 
supplementals? DOD budgets have grown in recent years due to an expanding vision of 
national security and defense. Assuming that policy and priorities don’t change, that 
immediate withdrawal from Iraq or Afghanistan is not likely, and that supplemental 
appropriations will soon disappear; it’s reasonable to assume that DOD must have 
some level of TOA increase in order to reset, transform, grow, and continue operations 

Even if national priorities change with a new administration, for example, some 
method for a phased slow-down in defense spending seems appropriate, especially in 
the case of the Army, versus some immediate 40-50% cut in total budget authority. The 
current process of separate baseline and supplemental funding sources disguises many 
hidden operations and maintenance (O&M), or tail costs, of many new programs 


initiated under the auspices of GWOT, but are now considered enduring programs that 
must be sustained beyond direct GWOT operations. 

Can the federal budget accommodate growth in defense spending at the 
expense of domestic programs? As mentioned earlier, the combination of growth in 
mandatory entitlements and defense spending combined with a policy to maintain tax 
cuts is not sustainable. The issue of national priorities may require a revolution in 
national security thinking and a paradigm shift to address the broader perspective of 
military spending and foreign policy priorities from an ideological perspective to the 
perspective of mere affordability. What kind of threat to the U.S. forces choices between 
weapons systems and the domestic economy, education or healthcare, etc.? 

The U.S. currently spends more on its national defense than nearly the rest of 
the world combined (Figure 6). Other world military spending statistics include: 

• The US military spending was almost 7 times larger than the Chinese budget, the 
second largest spender. 

• The US military budget was almost 29 times as large as the combined spending 
of the six “rogue” states (Cuba, Iran, Libya, North Korea, Sudan and Syria) who 
spent $14.65 billion. 

• It was more than the combined spending of the next 14 nations. 

• The United States and its close allies accounted for some two-thirds to three- 
quarters of all military spending, depending on who you count as close allies 
(typically NATO countries, Australia, Canada, Israel, Japan and South Korea) 

• The six potential “enemies,” Russia, and China together spent $139 billion, 30% 
of the U.S. military budget. 33 

Current U.S. military capabilities, equipment, training, and personnel are head 
and shoulders above our adversaries and allies. Fifty-nine percent of the nation’s 
discretionary budget goes towards defense. The rest of the world clearly knows that the 


military is at the heart of America’s foreign policy, so it may be time to think critically 
about re-balancing national priorities. In a 21 st century era dominated by globalization, 
competition for limited natural resources, and concern for the environment, should the 
Army’s Future Combat System (FCS) be a top national priority at a time when the U.S. 
faces no true peer military competitor and when there are clear imbalances at the 
national level between all elements of power? 

Surely, terrorism poses a real threat to the United States. But is it possible that 
our passion for defense and reliance on the military may be contributing to a hostile 
threat environment? This is a rhetorical question for an entirely different discussion but 
our severely constrained resources and growing fiscal imbalances may force some of 
the most difficult national security questions this nation has ever faced. Defense 
spending is only one piece of the federal spending pie. Basic principles of fiscal policy 
must be combined with an overarching process for balancing social, domestic, military, 
and foreign policy objectives if the U.S. is going to peacefully coexist as a 21 st century 
global leader. 


^.S. Department of Defense, The Planning, Programming, Budgeting, System (PPBS), 
Directive 7045.14 (Washington, D.C.: U.S. Department of Defense, 22 May 1984), 2. 

2 Jerry L. McCaffery and L.R. Jones, Budgeting and Financial Management for National 
Defense (Greenwich: Information Age Publishing, 2004), 108. 

3 lbid. 

4 OMB Watch, Background Brief: Supplemental Appropriations (Washington, D.C.: OMB 
Watch, March 2007), 1. 

5 Office of Management and Budget, Preparation and Submission of Budget Estimates, 
Circular A-11 (Washington, D.C.: Office of Management and Budget, June 2005),Section 110, 
1 . 


6 U.S. Congressional Budget Office, Supplemental Appropriations in the 1990s 
(Washington, D.C.: U.S. Congressional Budget Office, March 2001), 3. 

7 OMB Watch, 2. 

8 McCaffery and Jones, 183. 

9 Richard M. Miller, Jr., Funding Extended Conflicts (Westport: Praeger Security 
International, 2007), 19. 

10 lbid., 21. 

11 Stephen Daggett, Military Operations: Precedents for Funding Contingency Operations 
in Regular or Supplemental Appropriations Bills (Washington, D.C.: Library of Congress, 
Congressional Research Service, June 2006), 5. 

12 Miller, 45. 

13 lbid., 57-58. 

14 Daggett, 3. 

15 Amy Belasco, The Cost of Iraq, Afghanistan, and Other Global 

War on Terror Operations Since 9/11 (Washington, D.C.: Library of Congress, 
Congressional Research Service, June 2006), 1. 

16 Philip J. Candreva and L. R. Jones, “Congressional Control over Defense and 
Delegation of Authority in the Case of the Defense Emergency Response Fund,” Armed 
Forces & Society 32 (October 2005): 110. 

17 “Emergency Response Fund, Defense” was initially created in FY1990 Department of 
Defense Appropriation Act (PL 101-65) to be used for reimbursement of other appropriations 
when used by DOD in support of state and local governments for domestic emergencies. 

18 Candreva and Jones, 118. 

19 Amy Belasco, The Cost of Iraq, Afghanistan, and Other Global War on Terror 
Operations Since 9/11 (Washington, D.C.: Library of Congress, Congressional Research 
Service, Updated February 2008), 29. 

20 lbid. 

21 Ibid., 30. 

22 Amy Belasco, Specialist, U.S. Defense Policy and Budget, Congressional Research 
Service U.S. Congress, The Growing Cost of the Iraq War, Statement before U.S. Congress, 
House, Budget Committee, 24 October 2007, 12. 

23 lbid. 


24 0ffice of the Under Secretary of Defense (Comptroller), “Defense Budget Materials, FY 
2008,” “Global War on Terror Funding: Department of Defense FY 2008 Global War on Terror 
Amendment,” October 2007, 1. 

25 Belasco, The Cost of Iraq, Afghanistan, and Other Global War on Terror Operations 
Since 9/11 (Updated June 2006), 19. 

26 Pat Towell, Stephen Daggett, Amy Belasco, Defense: FY2008 Authorizations and 
Appropriations (Washington, D.C.: Library of Congress, Congressional Research Service, 
Updated June 2006), 23. 

27 lbid. 

28 U.S. Army Budget Office, “The Budget: What Does the Army Need?”, 1. 

29 lbid., 6. 

30 lbid„ 3. 

31 The Flonorable David Walker, Comptroller General of the United States, prepared 
witness statement before the CNGR, Flearing on Impact on Reserve Component Personnel, 
Compensation Policies, June 21,2007; available from 
21/Walker%20Statement.pdf; Internet; accessed 8 Feb 08, 8. 

32 Ed Flail’s Plome Page, available from; 
Internet; accessed 31 January 2008. 

33 Anup Shah, “World Military Spending,” 25 February 2008, linked from Global Issues 
Home Page at “Spending,” available from; Internet; accessed 17 February