Order Code RL31805
Report for Congress
Received through the CRS Web
Authorization and Appropriations
for FY2004: Defense
Updated June 2, 2003
Amy Belasco
Specialist in National Defense
Foreign Affairs, Defense, and Trade Division
Stephen Daggett
Specialist in National Defense
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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Appropriations are one part of a complex federal budget process that includes budget
resolutions, appropriations (regular, supplemental, and continuing) bills, rescissions,
and budget reconciliation bills. The process begins with the President’s budget
request and is bounded by the rules of the House and Senate, the Congressional
Budget and Impoundment Control Act of 1974 (as amended), the Budget
Enforcement Act of 1990, and current program authorizations.
This report is a guide to one of the 13 regular appropriations bills that Congress
passes each year. It is designed to supplement the information provided by the House
and Senate Appropriations Subcommittees on Energy and Water. It summarizes the
current legislative status of the bill, its scope, major issues, funding levels, and
related legislative activity. The report lists the key CRS staff relevant to the issues
covered and related CRS products.
NOTE: A Web version of this document with active links is
available to congressional staff at:
[http://www.crs.gov/products/appropriations/apppage.shtml].

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Authorization and Appropriations
for FY2004: Defense
Summary
Congress is now considering the FY2004 budget for the Department of Defense
(DOD). The Administration requested $399.7 billion for national defense. In their
respective versions of the FY2004 DOD Authorization Act passed on May 22, 2003,
both houses authorized $400.5 billion for national defense, an amount consistent with
the FY2004 Budget Resolution but $800 million more than the request. Neither
chamber has yet begun formal action on annual defense appropriations bills.
On May 22, 2003, the House passed H.R.1588, the FY2004 DOD Authorization
Act, by a vote of 361 to 68. Although the Senate passed its version, S. 1050, by 98
to 1 on May 22, the Senate adopted a resolution on the following day providing for
consideration of several additional amendments concerning base closures,
immigration, and concurrent receipt. The resolution also provides that the Senate
would substitute S. 1050 into the House bill, H.R. 1588, when it is received along
with any subsequent amendments that are passed. In its statement of policy, the
Administration signaled that any provision that would delay or repeal the 2005 base
closure round could trigger a veto threat. Including concurrent receipt that would
provide both veterans and retirement benefits to military retirees is also likely to
provoke a veto.
Debate on the FY2004 DOD Authorization Act began May 19 in the Senate and
May 21st in the House. The Senate completed marking up its bill on May 8 and
reported its bill on May 13 (S.Rept. 108-46). The House completed its markup on
May 14 and reported its bill on May 16th (H.Rept. 108-106).
One of the key issues in conference on the authorization bill may be how to
address the Administration’s request to give the Secretary of Defense wide-ranging
new authority to set up a new and separate personnel system for the 700,000 civilians
working in the Department of Defense. The House-reported version of the bill
approves much of what the Administration requested, while the Senate-reported
version does not include any proposed changes.
Several amendments were added on the Senate and House floor that have
important cost or policy implications and could be conference issues. On the Senate
side, the Graham/Daschle amendment would make all non-active reservists eligible
for TRICARE health care benefits if they pay annual premiums ranging from $330
to $610. If enacted, this new benefit could cost $1.4 billion annually, and other
programs would need to be cut to provide offsets. The House version does not
include this provision. If the Senate adds a provision delaying or cancelling the 2005
round of base closures, that is likely to be a conference issue because of the
Administration’s opposition. The House and Senate also include different provisions
that would exempt military training exercises from constraints imposed by several
environmental statutes. Restrictions on R&D on low-yield nuclear weapons and a
nuclear earth penetrator weapon is also likely to be an issue.

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Key Policy Staff
Area of Expertise
Name
Telephone
E-Mail
Acquisition
Valerie Grasso
7-7617
vgrasso@crs.loc.gov
Aviation Forces
Christopher Bolkcom
7-2577
cbolkcom@crs.loc.gov
Arms Control
Amy Woolf
7-2379
awoolf@crs.loc.gov
Arms Sales
Richard Grimmett
7-7675
rgrimmett@crs.loc.gov
Base Closure
David Lockwood
7-7621
dlockwood@crs.loc.gov
Stephen Daggett
7-7642
sdaggett@crs.loc.gov
Defense Budget
Amy Belasco
7-7627
abelasco@crs.loc.gov
Defense Industry
Gary Pagliano
7-1750
gpagliano@crs.loc.gov
Defense R&D
John Moteff
7-1435
jmoteff@crs.loc.gov
Edward Bruner
7-2775
ebruner@crs.loc.gov
Ground Forces
Steven Bowman
7-7613
sbowman@crs.loc.gov
Health Care; Military
Richard Best
7-7607
rbest@crs.loc.gov
Intelligence
Richard Best
7-7607
rbest@crs.loc.gov
Military Construction
Daniel Else
7-4996
delse@crs.loc.gov
David Burrelli
7-8033
dburrelli@crs.loc.gov
Military Personnel
Robert Goldich
7-7633
rgoldich@crs.loc.gov
Military Personnel;
Lawrence Kapp
7-7609
lkapp@crs.loc.gov
Reserves
Missile Defense
Steven Hildreth
7-7635
shildreth@crs.loc.gov
Naval Forces
Ronald O’Rourke
7-7610
rorourke@crs.loc.gov
Nuclear Weapons
Jonathan Medalia
7-7632
jmedalia@crs.loc.gov
Peace Operations
Nina Serafino
7-7667
nserafino@crs.loc.gov
Radio Frequency,
Lennard Kruger
7-7070
lkruger@crs.loc.gov
Military
Readiness
Amy Belasco
7-7627
abelasco@crs.loc.gov
Space, Military
Marcia Smith
7-7076
msmith@crs.loc.gov
David Ackerman
7-7965
dackerman@crs.loc.gov
War Powers
Louis Fisher
7-8676
lfisher@crs.loc.gov
Richard Grimmett
7-7675
rgrimmett@crs.loc.gov

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Contents
Most Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Status of Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
FY2004 Defense Authorization Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Additional Amendments To Be Considered by the Senate . . . . . . . . . . 2
Major Amendments Considered During Senate Floor Action . . . . . . . . 4
Major Amendments Considered During House Floor Action . . . . . . . . 5
Major Changes During Markup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Overview and Budget Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Annual Growth for DOD Slows In Later Years in FY2004
Budget Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
House and Senate Differences about Defense Spending . . . . . . . . . . . 11
DOD’s Appropriation Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Trends in DOD Spending Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
DOD Receives $93.1 Billion in Supplemental Appropriations
Since September 11 Attacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Major Themes in the Administration’s FY2004 Request . . . . . . . . . . . . . . . . . . 16
Key Issues in Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Issues for Congress in DOD’s Legislative Package . . . . . . . . . . . . . . . . . . . 17
Status of Bills Addressing DOD Proposal . . . . . . . . . . . . . . . . . . . . . . 17
A New Civilian Personnel System for DOD? . . . . . . . . . . . . . . . . . . . 18
DOD’s Proposed Changes in Managing Senior Military
and Reservists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Proposed Acquisition Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Other Organizational And Financial Proposals To Increase
Flexibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Authority To Spend $200 million To Support Foreign Militaries . . . . 23
DOD Again Requests Environmental Exemptions . . . . . . . . . . . . . . . 23
Affordability and Mix of DOD’s FY2004 Investment Programs . . . . . . . . 24
Army Transformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Navy Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Aircraft Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Missile Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Nuclear Weapons Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Personnel Pay and Benefits and Readiness Issues . . . . . . . . . . . . . . . . . . . . 32
Basing Structure, Role of the Reserves, and Force Mix Issues . . . . . . . . . . 33
Congressional Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Number of Active and Reserve Duty Personnel . . . . . . . . . . . . . . . . . 34
Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Congressional Budget Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Defense Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

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List of Tables
Table 1a. Status of FY2004 Defense Authorization (H.R. 1588/S. 1050) . . . . . . 6
Table 1b. Status of FY2004 Defense Appropriations . . . . . . . . . . . . . . . . . . . . . . 6
Table 2. National Defense Budget Function and Department of Defense
Budget, FY1999-FY2008, Administration Projections . . . . . . . . . . . . . . . . . 8
Table 3. Status of FY2004 Budget Resolution
(H.Con.Res. 95, S.Con.Res. 23) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Table 4. FY2004 Budget Resolution: DOD Request and
Congressional Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Table 5. Administration Request: National Defense Budget Function
by Title, FY2001-FY2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Table 6. Flexibility in DOD’s Supplemental Funding Since
September 11 Attacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Table 7: House and Senate Armed Services Markup of
Major Army Acquisition Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Table 8: House and Senate Armed Services Markup of
Major Navy Acquisition Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Table 8: House and Senate Armed Services Markup of
Major Air Force Acquisition Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

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Authorization and Appropriations for
FY2004: Defense
Most Recent Developments
Before recessing for Memorial Day on May 23, 2003, the House passed H.R.
1588, its version of the FY2004 DOD Authorization Act by 361 to 68. Although the
Senate passed its version, S. 1050, by 98 to 1 on May 22, the Senate adopted a
unanimous consent resolution providing that several amendments to the bill on base
closures, immigration, and concurrent receipt could be considered. The resolution
also provides that the Senate would substitute S. 1050 into the House bill, H.R. 1588,
when it is received along with any subsequent amendments that are passed. These
amendments may be considered after the Senate returns on June 2 and before
conferees are appointed. The Administration generally supports the House bill but
threatened to veto any version of the FY2004 DOD Authorization Act that delayed
or cancelled the 2005 round of base closures.
During floor debate, several amendments with significant cost or policy
implications were adopted. On the Senate side, the Graham/Daschle amendment
would expand access to TRICARE health care benefits to non-active duty reservists;
it could cost an average of at least $1.4 billion annually and about $8.4 billion over
five years. This provision is not in the House bill.
After debate about whether and how to restrict R&D on nuclear weapons with
the lifting of the ten-year ban on R&D of low-yield nuclear weapons, the Senate
adopted amendments that would require specific authorization of engineering
development of low yield nuclear weapons (Warner amendment)or a nuclear earth
penetrating weapon (Ben Nelson amendment). An attempt in the House to transfer
funding from the nuclear earth penetrating weapon to a conventional bunker busting
weapon (Tauscher amendment) failed as did an attempt in the Senate to prohibit
funding of the nuclear earth penetrating weapon (Dorgan amendment). An attempt
to add civil service protections to the House bill (Cooper amendment) was also.
Both bills authorize $400.5 billion for national defense, an amount consistent
in the FY2004 Congressional Budget Resolution (H.Con.Res. 95) but $800 million
more than the amount requested by the President. The House-reported bill includes
legislative language that the Administration requested giving the Secretary of
Defense wide-ranging authority to set up a new and separate personnel system for the
700,000 civilians working in the Department of Defense, while the Senate-reported
bill does not.

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CRS-2
Status of Legislation
FY2004 Defense Authorization Bills
On May 22, the House and the Senate passed their respective versions of the
FY2004 DOD Authorization bills after several days of floor debate. The House
version, H.R. 1588, passed by 361 to 68. Although the Senate passed its version, S.
1050, by 98 to 1 on the same date, the Senate adopted a unanimous consent
agreement the next day providing for consideration of several specific amendments.
When the Senate returns on June 2 after the Memorial Day recess, the Senate may
consider several amendments on base closures, immigration, and concurrent receipt
before appointing its conferees.1 Debate in the House took place on May 20 and May
21, and in the Senate on May 19, 20, 21 and 22. Both houses are likely to appoint
conferees after return from the Memorial Day recess on June 2.
On May 13, the Senate Armed Services Committee (SASC) reported S. 1050,
after completing markup on May 9 (S.Rept. 108-46). The bill does not include the
DOD proposal to design its own civilian personnel system. The House Armed
Services Committee (HASC) reported its bill on May 16 after completing markup on
May 14 (H.Rept. 108-106). On May 21, the House adopted a rule (H.Res. 245) that
limited general debate to two hours and amendments to those specified in the rule.
The Senate rule required that all amendments be considered relevant by the
Parliamentarian. The House bill includes much of DOD’s legislative proposal for a
new civilian personnel system as initially marked up by the House Government
Reform Committee (H.R. 1836).2
Additional Amendments To Be Considered by the Senate. After its
return from the Memorial Day Recess on June 2, 2003, the Senate may consider
several amendments to S. 1050, which were ruled not relevant by the Senate
Parliamentarian.3 Senator Dorgan may offer an amendment to cancel the 2005 round
of base closures. Senator Warner, who opposes the cancellation, may also offer two
amendments on base closures.4 If a cancellation of the 2005 round is enacted, the
Secretary of Defense and other senior advisors would recommend a veto of the
FY2004 DOD Authorization Act, according to a statement of Administration policy.5
1 Congressional Record, May 23, 2003, p. S7115.
2 For a comparison of all the Administration’s proposed legislative provisions compared to
current law, see CRS Report RL31916, Defense Department Transformation Proposal:
Original DOD Proposal Compared to Existing Law, by Robert L. Goldich, Gary J. Pagliano,
Barbara L. Schwemle, and Thomas J. Nicola. Other bills that would reform the current civil
service system are S. 129 (introduced by Senator Voinovich) and H.R. 1601 (introduced by
Representative JoAnn Davis). For a review of these measures, see CRS Report RL31516,
Civil Service Reform Proposals: A Side-by-Side Comparison of S. 129 and H.R. 1601 (108th
Congress) with Current Law, by Barbara L. Schwemle and L. Elaine Halchin.
3 Congressional Record, May 20, 2003, p. S6645 and p. S6648.
4 Congressional Record, May 23, 2003, p. S7115.
5 OMB, Statement of Administration Policy on H.R. 1588 - National Defense Authorization
(continued...)

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CRS-3
Another amendment that could trigger a veto threat by the Administration is
Senator Reid’s amendment on concurrent receipt that would provide both VA
disability and retirement benefits to about 700,000 military retirees with 20 or more
years of service (S.Amdt. 697).6 Faced with a veto threat by the Administration last
year to similar congressional proposals, Congress adopted a targeted special
compensation that would provide benefits to about 40,000 retirees whose disabilities
reflect either combat or combat-related disabilities.7 That special compensation
benefit will be available to those retirees who are eligible as of June 1, 2003.
Recently, CBO estimated that providing full concurrent receipt would cost the
government a total of about $4.1 billion in FY2004, including $1.1 billion that would
be financed through DOD appropriations and about $3 billion that would be financed
by the Treasury.8 CBO estimates that about 700,000 would be eligible for a blanket
version of concurrent receipt. Over 600,000 of those who would be eligible for
benefits would be non-disability retirees, who receive VA disability ratings after
leaving military service. Over ten years, CBO estimates that full concurrent receipt
would cost the government about $61.0 billion, including about $46 billion in direct
spending and $15.2 billion in accrual payments.9 The FY2004 congressional budget
resolution does not include an allowance for concurrent receipt. If enacted, other
programs would have to be decreased to finance the DOD portion.
Less likely to be controversial is an amendment to be offered by Senators
Kennedy and Brownback that would extend citizenship to the spouse, children, and
5 (...continued)
Act for Fiscal Year 2004, May 22, 2003, p. 1; available on the White House website at
[http://whitehouse.gov/omb/legislative/sap/108-1/hr1588sap-h.pdf]. Completion of the
FY2002 DOD Authorization Act was stymied by the Administration’s threatened veto
because of congressional unwillingness to authorize another round of base closures.
6 Except for those eligible for the new combat or combat-related special compensation,
military retirees who opt to receive VA disability benefits must take an offset to their
military retirement of the same amount. See Congressional Record, May 19, 2003, p.
S6637, for Reid amendment. Senate Amendment 697 is the same as S. 392, the Retired Pay
Restoration Act of 2003, introduced by Senator Reid and others on February 13, 2003.
7 See CBO testimony by Sarah T. Jennings before the Subcommittee on Personnel, Senate
Armed Services Committee, March 27, 2003; CRS Report RL31305, Authorization and
Appropriations for FY2003: Defense by Stephen Daggett and Amy Belasco; and CRS
Report RS21327, Concurrent Receipt of Military Retirement and VA Disability Benefits:
Budgetary Issues, by Amy Belasco.
8 Payments for current beneficiaries would be paid by the Treasury (direct or mandatory
spending), whereas accrual costs to cover the future cost of the benefits for DOD’s current
military personnel would be paid for by DOD. The cost reflects the offsets against
retirement benefits currently taken by about 695,000 military retirees who would be eligible
and about 7,000 from the other uniformed services (Public Health Service, National Oceanic
and Atmospheric Administration).
9 See CBO testimony by Sarah T. Jennings before the Subcommittee on Personnel, Senate
Armed Services Committee, March 27, 2003, and CRS Report RS21327, Concurrent
Receipt of Military Retirement and VA Disability Benefits: Budgetary Issues, by Amy
Belasco.

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CRS-4
parents of selected reservists who are non-citizens or permanent resident aliens and
who die while in active-duty status. Currently, citizenship is available to such
relatives of active-duty military personnel.10
Major Amendments Considered During Senate Floor Action. Several
amendments were added during floor debate in each house with significant cost or
policy implications. (Additional information will be included in sections on
individual issues in a later update.)
On the Senate side, the following major amendments to S. 1050 were adopted:
! Graham/Daschle amendment that would provide access to
TRICARE health care benefits to non-active duty reservists with a
potential annual cost of $1.4 billion (by a vote of 85-10);
! Warner amendment that would require specific authorization by
Congress for DOD to begin engineering development of a low-yield
nuclear weapon (by a vote of 59 to 38);
! Nelson (Ben) amendment that would require specific authorization
for DOD to begin engineering development of a Robust Nuclear
Earth Penetrator weapon (voice vote);11
! Lautenberg/Jeffords amendment that would require a determination
by the Secretary of Interior for DOD to substitute an integrated
resources management plan to protect endangered species (by vote
of 51 to 48);
! Modified Bingaman amendment that would prohibit funding for
ballistic missile defense interceptors to be used in space (by voice
vote);
! Reid amendment to transfer $20 million from special operations
forces to modifications of 23 B-1 bombers slated for retirement (by
voice vote); and
! Warner/Boxer/Lautenberg amendment to express the sense of the
Senate that by August 31, 2003, DOD should have a competitive
contract in place for the reconstruction of Iraq’s oil industries (by a
vote of 99 to 0).
Senate amendments that were defeated include:
! Feinstein/Kennedy amendment to re-institute the ban on R&D on
low-yield nuclear weapons; and
! Murray amendment that would have permitted overseas DOD
facilities to be used for abortions if no DOD funds were used.
10 See S.Amdt. 720 in Congressional Record, May 20, 2003, p. S6720-S6726.
11 See CRS Report RS20834, Nuclear Earth Penetrator Weapons, by Jonathan Medalia, and
CRS Report RS21133, The Nuclear Posture Review: Overview and Emerging Issues, by
Amy F. Woolf.

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CRS-5
Major Amendments Considered During House Floor Action. Several
amendments with significant policy or cost implications were adopted during House
debate of the FY2004 DOD Authorization Act:
! Goode amendment to authorize the Secretary of Defense to assign
military personnel to assist the U.S. Customs Service in carrying out
border patrol if the Secretary of Homeland Security certifies that the
assistance is necessary to meet national security threats from
terrorists, drug traffickers, or illegal aliens (vote of 250-179);
! Upton amendment to authorize imminent danger pay for military
personnel assigned duty as a first responder (included in Hunter en
bloc, agreed to by voice vote); and
! Hunter amendment to add $100 million to enhance the capability of
the fourth Stryker brigade (included in Hunter en bloc, agreed to by
voice vote).
Several House amendments to H.R. 1588 were rejected:
! Tauscher amendment to transfer $15 million from the Robust
Nuclear Earth Penetrator to a R&D on a conventional bunker-
busting bomb (by a vote of 199-226);
! Loretta Sanchez amendment to permit military personnel to receive
abortions in DOD medical facilities overseas (by a vote of 201-227);
and
! Cooper amendment to recommit the bill with instructions to add
various civil service protections to the proposed National Security
Personnel System and to delete language that would allow the
Secretary of Defense to bargain with employees without being
subject to dispute resolution procedures (by a vote of 204 to 224).
Major Changes During Markup. The Senate markup of S. 1050 did not
include DOD’s request for broad new authority to design its own civilian personnel
system. The House markup of H.R. 1588 includes some but not all of DOD’s
request, generally tailoring the new authorities to be consistent to those granted to the
Department of Homeland Security allowing the agency to set its own pay scales and
devise a new appeals procedures for employees but retaining some of the civil service
protections in the current system (see CRS Report RL31924, Civil Service Reform
— H.R. 1836, Homeland Security Act, and Current Law by Barbara L. Schwemle and
Thomas J. Nicola and section below on “New Civil Service System for DOD?”).
Neither the House Armed Services Committee (HASC) nor the Senate Armed
Services Committee (SASC) endorses DOD’s request for broad authority to manage
senior level military officers, proposing expansions of current provisions instead.
Also controversial may be the HASC proposal to grant DOD exemptions to certain
environmental laws, which Congress has rejected in previous years (see section on
Environmental Provisions, below).

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CRS-6
Table 1a. Status of FY2004 Defense Authorization
(H.R. 1588/S. 1050)
Conference
Subcommittee
Report
Markup
House
House
Senate
Senate
Conf.
Public
Report Passage Report
Passage Report
Approval
Law
House Senate
House Senate
5/16/03
5/13/03
5/22/03
5/22/03
5/14/03 5/9/03 H.Rept.
S.Rept.
—
—
—
—
361-68
98-1a
108-106
108-46
Notes
a Senate may continue debate on selected amendments to S. 1050 that are listed in a
unanimous consent agreement passed on May 23, 2003; see Congressional Record, p.
S7115.
Table 1b. Status of FY2004 Defense Appropriations

Conference
Subcommittee
Report
Markup
House
House
Senate
Senate
Conf.
Public
Report
Passage Report Passage Report
Approval
Law
House Senate
House Senate
—
—
—
—
—
—
—
—
—
—
Overview and Budget Trends
On February 3, 2003, the Administration submitted its FY2004 budget request
to Congress. The Administration proposed $399.7 billion for the national defense
budget function, about $7 billion above the estimated FY2003 level. (Note: This
includes in the FY2003 total $10 billion that Congress appropriated for DOD in the
FY2003 Consolidated Appropriations Act — most OMB and DOD tables prepared
for the February budget release do not include these additional funds.12 This does
not include in FY2003 level, however, $62.6 billion in supplemental appropriations
that DOD recently received for the Iraq war and other costs.13
The FY2004 increase is in addition to substantial increases in FY2002 and
FY2003. The new request is more than $100 billion above the 1999 level for defense
12 DOD has received $93.1 billion in supplemental funding to combat terrorism since the
September 11 attacks; see below.
13 OMB, Fiscal Year 2004 Historical Tables, Table 5.1 (February 2003) and H.Rept. 108-10,
Conference Report on FY2003 Consolidated Appropriations Resolution, p. 1498.

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CRS-7
spending, which reflects an increase over five years of 20% in inflation-adjusted
constant FY2004 dollars. The FY2004 defense request is almost 25% higher in real
terms than the budget in FY1996 when DOD’s draw down in spending and military
personnel in response to the end of the Cold War was completed. The number of
military personnel has remained level since 1996 and is not projected to increase.
The Administration is proposing continued increases of about $20 billion
annually in the defense budget for the next five years, which would increase national
defense budget authority to $480 billion by FY2008. Table 2 shows ten-year
FY1999-FY2008 trend in defense spending under the Administration’s plan for both
the national defense budget function and the Department of Defense budget.14
Of the $399.7 billion requested for national defense in FY2004, $370.6 billion
is for programs covered by the defense appropriations bill, $9.0 billion by the military
construction appropriations bill, $17.3 billion for Department of Energy defense-
related activities funded in the energy and water appropriations bill, and the
remaining $2.8 billion in other appropriations bills.
14 The National Defense budget function (050 in OMB budget documents) is made up
primarily of the Department of Defense (051), plus about $18 billion in other defense-
related activities, primarily weapons-related activities in the Department of Energy (see
Table 2 for a breakout of these categories).

---

CRS-8
Table 2. National Defense Budget Function and Department of Defense Budget, FY1999-FY2008, Administration
Projections
(current and constant FY2004 dollars in billions)
Actual
Actual
Actual
Actual
Enacted
Req.
Proj.
Proj.
Proj.
Proj.
Fiscal Year:
1999
2000
2001
2002
2003a
2004
2005
2006
2007
2008
National Defense Budget Function
Budget Authority
Current year dollars
292.3
304.1
335.5
362.1
392.7
399.7
420.0
440.0
460.3
480.7
Constant FY2004 dollars
331.1
335.8
360.1
378.5
401.8
399.7
410.4
420.0
429.0
437.5
Real growth/decline
5.1%
1.4%
7.2%
5.1%
6.2%
-0.5%
2.7%
2.3%
2.1%
2.0%
Outlays/b/
Current year dollars
274.9
294.5
305.5
348.6
376.3
390.4
410.1
423.2
436.4
460.5
Constant FY2004 dollars
312.2
325.3
327.4
363.4
385.1
390.4
400.9
394.6
397.3
409.3
Real growth/decline
12.1%
4.2%
0.6%
11.0%
6.0%
1.4%
2.7%
-1.6%
0.7%
3.0%
Department of Defense
Budget Authority
Current year dollars
278.6
290.5
319.5
345.0
374.0
379.6
399.6
419.6
440.3
461.6
Constant FY2004 dollars
315.5
320.8
343.0
360.6
382.7
379.6
390.5
400.5
410.4
420.1
Real growth/decline
5.1%
1.7%
6.9%
5.1%
6.1%
-0.8%
2.9%
2.6%
2.5%
2.4%
Outlays/b/
Current year dollars
261.4
281.2
291.0
332.0
358.2
370.7
389.6
402.7
416.3
441.1
Constant FY2004 dollars
296.9
310.7
311.9
346.1
366.5
370.7
380.8
375.5
379.0
392.1
Real growth/decline
11.7%
4.7%
0.4%
11.0%
5.9%
1.1%
2.7%
-1.4%
0.9%
3.5%
Source: Office of Management and Budget, F2004 Historical Tables, and FY2003 Consolidated Appropriations Resolution (P.L. 108-11).
a Includes $10 billion in budget authority appropriated to DOD in the FY2003 Consolidated Appropriations Resolution (see P.L. 108-11) but not the outlay effects of that addition
because OMB has not re-estimated outlays. Does not include $62.6 billion in FY2003 supplemental appropriations for defense provided in H.R. 1559, P.L. 108-11.

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CRS-9
Annual Growth for DOD Slows In Later Years in FY2004
Budget Resolution
Passed by both houses on April 11 just before the April recess, the FY2004
budget resolution (H.Con.Res. 95, H.Rept. 108-71) endorses the Administration’s
proposed growth of $20 billion annually for defense over the next five years (see
Table 3). Over the following five years, however, defense would grow by about $10
billion annually; the Administration does not project beyond FY2008. The chief
issue in this year’s budget resolution was the amount to be provided for tax cuts.
Table 3. Status of FY2004 Budget Resolution
(H.Con.Res. 95, S.Con.Res. 23)
Conference
Subcommittee
Report
Markup
House House
Senate
Senate
Conf.
Public
Report Passage Report Passage Report
Approval
Law
House Senate
House Senate
NAa
NA
4/10/03 3/21/03 3/26/03
3/26/03
4/11/03 4/11/03 4/11/03 NAb
H.Rept. 215-212 S.Rept.
56-44
H.Rept. 216-211 51-50
108-37
No rept.
108-71
Note : Senate substituted S.Con.Res. 23 into H.Con.Res. 95 after passage.
a Budget resolutions are only marked up in full committee.
b Budget resolutions guide the action of the authorizing and appropriating committees but are not
signed into law by the President.
Although there has been considerable congressional support for increases for
defense, some observers have questioned whether increases can be sustained with
reduced federal revenues because of tax cuts, high federal budget deficits, and the
dramatic increases in costs associated with the retirement of the baby boom
generation.15 The FY2004 budget resolution projects a 40% increase in entitlement
programs by 2008 and an 80% increase by 2013.16
15 Center for Strategic and Budgetary Assessment, Analysis of the 2004 Defense Budget
Request by Steven M. Kosiak, p. 5-p.7
16 CRS calculations based on table in H.Rept. 108-71, Conference Report on Concurrent
Resolution on the Budget For Fiscal Year 2004, p. 68.

---

CRS-10
Table 4. FY2004 Budget Resolution: DOD Request and Congressional Action
(billions of dollars)
FY2004-
FY2009-
FY2004-
FY2003
FY2004
FY2005
FY2006
FY2007
FY2008
FY2008
FY2013
FY2013
Est.a
Proj.
Proj.
Proj.
Proj.
Proj.
Proj.
Proj.
Proj.b
Budget Authority
Administration Request
392.7
399.7
420.0
440.0
460.3
480.7
2,200.8
NA
NA
FY2004 Budget Res.
392.5
400.5
420.1
440.2
460.4
480.9
2,202.0
2556.1
4758.2
Annual Change In Dollars
Administration Request
30.6
7.0
20.3
20.0
20.3
20.4
88.1
NA
NA
FY2004 Budget Res.
NA
8.1
19.5
20.1
20.3
20.5
88.4
48.5
136.9
Annual Change In Percent
Administration Request
8.5%
1.8%
5.1%
4.8%
4.6%
4.4%
NA
NA
NA
FY2004 Budget Res.
NA
2.1%
4.9%
4.8%
4.6%
4.4%
NA
NA
NA
Defense Share Of Discretionary BA
Administration Request
48.8%
47.6%
48.2%
48.6%
48.9%
49.7%
NA
NA
NA
FY2004 Budget Res.
51.5%
50.9%
51.7%
52.2%
52.6%
53.2%
NA
NA
NA
Outlays
Admin. Requesta
376.3
390.4
410.1
423.2
436.4
460.5
2,120.7
NA
NA
FY2004 Budget Res.
386.2
400.9
414.2
426.0
438.7
462.9
2,142.7
2,515.6
4,658.3
Estimates Of The Surplus/Deficit
Administration Request
-304.0
-307.0
-208.0
-201.0
-178.0
-190.0
NA
NA
NA
FY2004 Budget Res.
-282.5
-287.3
-218.1
-169.4
-128.1
-113.9
NA
118.8
-798.1
Source: CRS calculations based on OMB, FY2004 Historical Tables, and DOD, Office of the Secretary of Defense, Comptroller, Briefing, FY2004 Defense Budget (February 6, 2003);
Conference Report on FY2004 Budget Resolution, H.Rept. 108-71, and House report on H. Con. Res. 95, H.Rept. 108-71, p. 6.
a Administration request does not reflect outlays from the $10 billion enacted in the FY2003 Consolidated Appropriations Resolution.
b OMB does not project budget authority or outlays beyond five years.

---

CRS-11
House and Senate Differences about Defense Spending. The final
version of the FY2004 budget resolution projects a five-year total for defense
spending of $2.2 trillion, a level comparable to the Administration and matching
levels passed in both houses. In later years, the House provided larger funding for
defense than the Senate and the conference compromised at $4.758 trillion, at about
the midpoint between the two houses.17
The conference version of the budget resolution also deleted two provisions
proposed by the Senate:
! a measure to set aside $100 billion over the next ten years in a
reserve fund to pay for costs associated with the war in Iraq; and
! a measure to include $182 million in FY2004 and $12.8 billion in
FY2004-FY2013 to cover the cost of phasing in concurrent receipt
benefits for military retirees with disability levels of 60% or higher.
The Senate bill had included a defense reserve fund that decreased by $100
billion the funds set aside for a tax cut in order to provide $10 billion annually to
cover continued costs of military action or reconstruction in Iraq.18 Funding for Iraq
in FY2003 was provided in the FY2003 supplemental, but there is no funding for
occupation costs in the FY2004 budget, which was submitted before the initiation of
hostilities. Nor is there funding in the FY2004 budget to cover the costs of the
continued U.S. presence in Afghanistan.
The Senate version of the resolution also would have allowed all military
retirees whose disabilities are 60% or higher to receive both their military retirement
and VA disability payments, a proposal considered but rejected in the final version
of the FY2003 DOD Authorization Act. Instead, Congress provided special
compensation for military retirees whose disabilities are a result of combat or
combat-related activities in the FY2003 Authorization Act.19 The conference version
of the resolution deleted both provisions. Without an allocation in the budget
resolution, it appears unlikely that benefits for military retirees with disabilities will
be expanded.
Scoring Differences Between Congress and the Administration.
CBO scored the cost of DOD’s request as $400.5 billion, $800 million higher than
the Administration’s estimate (see Table 2 and Table 4) . The difference between
the two estimates reflects primarily CBO’s assessment that a DOD proposal to set up
a new account, the Refined Petroleum Products transfer account, would cost about
$675 million compared to zero expenditures assumed by DOD. According to DOD,
the rationale for setting up this new account with an “indefinite appropriation” is to
17 As passed by the House, H.Con.Res. 95 recommended $4.8 trillion for defense and the
Senate recommended $4.6 trillion with a midpoint of $4.7 trillion; CRS calculation based
on House Budget Committee, Majority staffs, Budget Conference for Fiscal Year 2004:
Side-By-Side Comparison of House and Senate Resolutions, April 2, 2003, p. 11.
18 See H.Rept. 108-71, p. 73.
19 See H.Rept. 108-71, p. 109 and Congressional Record, March 20, 2003, p. S4209 for
S.Amdt. 341.

---

CRS-12
allow DOD to cover the difference between the amount budgeted for fuel costs and
actual market prices.20 Since DOD assumes that its estimate is correct, the
Administration provided no funds for the account. CBO, however, believes that fuel
prices in FY2004 are likely to be about $5 higher per barrel than DOD assumes —
$27 a barrel compared to $22 barrel — and on the basis of DOD’s annual fuel
purchases, scores the likely cost of the new account at $675 million.
Although the FY2004 congressional budget resolution adopted CBO’s higher
scoring, it is not clear whether Congress will, in fact, agree to setting up the new
account. The Senate version of the FY2004 DOD Authorization Act, S. 1050,
deletes the funding for the account and transfers that $675 million to other programs.
The House version, H.R. 1588, does not reduce the funding for the account. Neither
committee explicitly discusses the Administration’s proposal for the new account.21

DOD’s Appropriation Allocation. A sign of potential pressure on DOD’s
budget top line is the difficulties in reaching decisions about the distribution of funds
to the various subcommittees, known as the 302(b) allocations.22 Although the
annual congressional budget resolution recommends spending allocations for each
budget function to the appropriations committees, the appropriators are only bound
to meet the total for discretionary spending set in the resolution.
According to press reports, the House Appropriations Committee debated
whether to cut the amount recommended by the budget resolution for defense in
FY2004 by $3.4 billion in order to provide additional spending for non-defense
programs.23 On the Senate side, recent press reports indicate that the Senate
considered proposals that would shift $7 billion to $10 billion from international and
national defense to domestic programs that are funded within the budget resolution.24
According to a recent press report, neither house may adopt allocations for individual
subcommittees.25
Trends in DOD Spending Plans
Understanding the trends in DOD’s FY2004 budget is difficult because of the
effect of the large amount of supplemental funding received since September 11,
2001, in the Emergency Terrorism Response Supplemental of 2001 and the FY2002
Supplemental. That funding is shown in Table 5 and makes comparisons difficult,
particularly for operation and maintenance spending which received the bulk of
supplemental funding (see below).
20 OMB, Fiscal Year 2004 Appendix to the Budget of the United States, p. 298.
21 S.Rept. 108-46, p. 10 and p. 298; H.Rept. 108-106, p. 7 and p. 306.
22 The 302(b) allocation process was established by the Congressional Budget Act of 1974.
23 Congress Daily, “House Juggling Allocations for Approps Subcommittees,” May 9, 2003.
24 Congress Daily, “Appropriations Impasses Continues Over Spending Allocations, May
21, 2003.
25 Alexander Bolton and Jonathan E. Kaplan, “Congress Veils Appropriations Spending
Totals,” The Hill, May 28, 2003.

---

CRS-13
Figures for FY2003 also include an additional $10 billion provided for DOD in
the FY2003 Consolidated Appropriations Resolution to cover intelligence and costs
associated with the U.S. presence in Afghanistan and the global war on terrorism.
The $62.6 billion provided to DOD in the FY2003 Supplemental, however, is not
included. DOD’s procurement funding shows little increase in FY2004. Much of the
increase in RDT&E reflects an increase from $7.6 billion to $9.1 billion in DOD’s
Missile Defense Program reflecting DOD’s plan to begin deployment of 10 land-
based interceptors as well as continue the ramp-up in R&D. By 2008, however,
DOD plans to ramp up funding for procurement by about 40% and RDT&E by over
15% compared to FY2003.
Table 5. Administration Request: National Defense Budget
Function by Title, FY2001-FY2008
(in billions of dollars)
Fiscal Year
Actual Actual
Est.
Req.
Proj.
Proj.
Proj.
Proj.
2001
2002
2003a
2004
2005
2006
2007
2008
Military Personnel
76.9
87.0
95.1
99.0
103.1
107.4
111.0
114.6
Operation &
Maintenance
115.8
133.2
134.8
133.5
139.3
145.2
150.3
157.6
Procurement
62.6
62.7
73.8
74.4
78.6
85.8
96.1
105.3
RDT&E
41.6
48.7
57.5
61.8
67.1
64.3
64.6
67.0
Military
Construction
5.4
6.6
6.3
5.0
6.1
10.4
13.2
12.2
Family Housing
3.7
4.0
4.2
4.0
4.8
5.1
4.8
3.8
Other
13.5
2.7
2.2
2.0
0.6
1.4
0.3
1.2
Subtotal, DOD
319.5
345.0
374.0
379.6
399.6
419.6
440.3
461.6
Atomic Energy
Defense Activities
14.4
15.3
16.6
17.3
17.7
17.7
17.1
16.2
Defense-Related
Activities
1.6
1.8
2.1
2.8
2.8
2.8
2.9
2.9
Total, National
Defense
335.5
362.1
392.7
399.7
420.0
440.0
460.3
480.7
Source: OMB, FY2004 Historical Tables and Analytical Perspectives (February 2003), and H.Rept.
108-10, Conference report on FY2003 Consolidated Appropriations Resolution for final enacted
levels, and House Appropriations Committee. OMB figures include DOD’s supplemental
appropriations of $17.3 billion in the FY2001 Emergency Terrorism Response Supplemental and
$14.0 billion in the FY2002 Supplemental.
Note: Does not include $62.6 billion received by DOD in FY2003 Supplemental.

---

CRS-14
DOD Receives $93.1 Billion in Supplemental Appropriations
Since September 11 Attacks
Since the September 11 attacks, DOD has received $93.1 billion in
supplemental appropriations for the war in Afghanistan, the war in Iraq, enhanced
security at DOD installations, and the global war on terrorism (see Table 6). The
most recent supplemental for the Iraq war provides funding for the U.S. presence in
Afghanistan and continued operations in Iraq through FY2003. The Administration
did not include any funding for these costs in the FY2004 budget, however, which
suggests that the Administration will propose either a supplemental or a budget
amendment for FY2004.
In its post-September 11 requests for supplemental funding, DOD has requested
substantial flexibility in its use of funds, citing the uncertainty of estimating the cost
of war and the global war on terrorism. The Administration has reiterated that theme
in its FY2004 request as well, calling for transformation of not only weapon systems
to meet new threats but also transformation of DOD’s business practices and
personnel management systems (see discussion of Major Administration Themes
below).
Although Congress has generally provided the amounts requested by DOD in
its supplemental requests, it has been reluctant to provide the amount of flexibility
requested by DOD. In fact, with each supplemental request, Congress has been less
willing to accept the flexibility proposed by DOD.
Of the $40 billion appropriated in the Emergency Terrorism Response
Supplemental (ETR) passed on September 14, 2001 to combat terrorism, DOD
received $17.3 billion, almost entirely within the Defense Emergency Response
Fund, a flexible account. Of that total, DOD had discretion to allocate funds as long
as Congress was informed. For the remainder, Congress set levels within ten broad
categories for DOD spending. Congress also permitted DOD to move funding into
various appropriation accounts at its discretion in the FY2002 supplemental for the
bulk of the funding requested.
In the most recent supplemental, for FY2003, DOD requested that Congress
provide 95% of the funding in the Defense Emergency Response Fund (DERF) so
that DOD could transfer funds to various accounts as needs arise. Instead Congress
set up an new fund, the Iraq Freedom Fund, and allocated 25% of the funds requested
to that fund but required five-day advance notifications.

---

CRS-15
Table 6. Flexibility in DOD’s Supplemental Funding Since
September 11 Attacks
Emergency Terrorism
Funding Level
FY2002
FY2003
Response Supplemental
& Amount of
Supplemental
Supplemental
(P.L. 107-38 and P.L. 107-
Flexibility
(P.L. 107-206)
(P.L. 18-11)
117)
In Billions of Dollars
Flexible Funda
Request
21.163
11.300
59.863
Enacted
15.000
11.300
15.679
Regular Appropriations
Request
0.000
2.722
2.724
Enacted
2.300
2.722
46.908
Total Funding
Request
21.163
14.022
62.587
Enacted
17.300
14.022
62.587
As Percent of Total Funding
Flexible Fund
Request
100.0%
80.6%
95.6%
Enacted
86.7%
80.6%
25.1%
Regular Appropriations
Request
0.0%
19.4%
4.4%
Enacted
13.3%
19.4%
74.9%
Total Funding Received
Request vs.
81.7%
100.0%
100.0%
Enacted
Source: CRS calculations from CRS Report RL31829, CRS Report RL31005, CRS Report RL31406,
and appropriations conference reports and GAO Report, Defense Budget: Tracking of Emergency
Response Funds for the War on Terrorism, April 2003.
a In the ETR, DOD funds were appropriated into the Defense Emergency Response Fund (DERF)
except for a small amount of military construction funds, procurement funding, and Pentagon
Renovation Revolving Funds. In the FY2002 Supplemental, DOD funds were appropriated to
the DERF, which was made into a transfer account. In the FY2003 supplemental, funds were
appropriated into a new Iraq Freedom Fund, set up as a transfer account, or into regular
appropriations accounts.

---

CRS-16
Major Themes in the Administration’s
FY2004 Request
The overarching theme in the Administration’s FY2004 request is a call for
flexibility to transform not only U.S. military doctrine and technology, but also
military and civilian personnel systems and defense acquisition practices. According
to Secretary of Defense Rumsfeld, not only do “our armed forces need to be flexible,
light and agile,” but also “the same is true of the men and women who support them,”
in meeting the “frequent, sudden changes in our security environment,”26 including
the global war on terrorism.
To meet this goal, the Administration delivered a broad ranging legislative
proposal, entitled the “Defense Transformation for the 21st Century Act,” to Congress
on April 10, 2003 shortly before Congress’s two-week April recess. Among other
things, the legislative proposal would give the Secretary of Defense authority to re-
design the civil service system governing the 700,000 civilian employees in the
Department of Defense, provide additional flexibility in managing senior military
officers, modify certain acquisition requirements, and exempt DOD from certain
environmental statutes.
Some members of Congress expressed concern that DOD had delivered such an
ambitious proposal at a time when Congress was about to recess and shortly before
markup of the DOD authorization act was planned. Although DOD witnesses
discussed their plans to submit the proposal earlier in the year and met with
congressional staff over the past couple of months, the specific proposals were not
available before April 1027 (as noted above, CRS compares all of the proposed new
measures with current law in CRS Report RL31916, Defense Department
Transformation Proposal: Side by Side with Current Law, by Robert L. Goldich,
Gary J. Pagliano, Barbara L. Schwemle, and Thomas J. Nicola).
The Administration characterizes these proposals as the logical followup to
earlier efforts to transform weapons modernization and operational practices.
According to DOD, the FY2004 budget is the first budget to reflect fully President
Bush’s commitment to “challenge the status quo” and balance the need to meet
current challenges from the global war on terrorism and near-term threats with the
need to transform DOD in the longer term.28 DOD contends that transformation is
now fully underway with new emphasis placed on unmanned vehicles, precision
guided munitions, special operations forces, command, control, and communications
and missile defense (see discussion on modernization below), as well as the
26 Secretary of Defense Rumsfeld testifying before the Senate Armed Services Committee,
Defense Authorization Request for Fiscal Year 2004 and the Future Years Defense
Program, February 13, 2003, transcript; available from Reuters.
27 Statement of Deputy Secretary of Defense Paul Wolfowitz before the House Committee
on Government Reform, May 6, 2003, p. 4.
28 Secretary of Defense Rumsfeld testifying before the Senate Armed Services Committee,
FY2004 Budget, February 13, 2003; transcript available from Reuters.

---

CRS-17
establishment of a new command, NORTHCOM to focus on homeland security and
changes in training practices to emphasize joint operations.
DOD also argues that its proposals for military pay raises and other benefits and
its funding of operational training will ensure that recruitment and retention remain
high and that readiness goals continue to be met. Over the longer term, DOD plans
to review its current basing strategies in Europe and review the role of reserve forces
but these areas are currently under study and not incorporated in the FY2004 budget.
Key Issues in Congress
The major issues likely to be the focus of this year’s congressional debate are:
! DOD’s request for broad ranging authority to manage its civilian
workforce and senior military personnel as well as exemptions for
DOD to certain environmental laws;
! Whether DOD’s investment priorities are transformational,
affordable, and consistent with “lessons learned” from the war in
Iraq;
! Possibly revisiting the FY2005 base closure round due to be initiated
next year; and
! Longer-term Administration proposals that could affect global troop
deployments, the mix of active and reserve forces, and the mix of
civilian, contractor, and uniformed personnel.
Issues for Congress in DOD’s Legislative Package
Sent to Congress on April 10, 2003, DOD’s legislative proposal, the “Defense
Transformation for the 21st Century Act,” includes far-ranging provisions that would
allow the Secretary of Defense to set up a new personnel system for its 700,000
civilians, give the Secretary new flexibility to retain, move, and retire senior military
personnel, exempt DOD from certain environmental provisions, and change certain
acquisition rules.
The budget implications of DOD’s proposal are not obvious because DOD has
provided only the broadest outlines of its plans to reform its civilian personnel
system. Until that system is defined, it is not possible to know whether DOD’s
proposal would raise or lower its costs for civilian personnel. DOD did not present
its acquisition proposals as cost-saving measures. According to DOD, the main
rationale for its proposal is the need to provide additional flexibility to DOD in
carrying out its missions.
Status of Bills Addressing DOD Proposal. H.R. 1836 is the markup by
the House Government Reform Committee of DOD’s proposed new civilian
personnel system. Much of that bill was then incorporated in H.R. 1050, the FY2004
defense authorization bill as reported by the House Armed Services Committee on

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CRS-18
May 14.29 The HASC approves changes to DOD civilian personnel management
proposal that were included in the Government Reform Committee markup, but does
not approve the major Administration proposals to change laws governing senior
uniformed officers and addresses only some of the Administration’s environmental
proposals. On the Senate side, the Armed Services Committee does not include any
of the major Administration personnel proposals in S. 1050, its version of FY2004
authorization bill.
A New Civilian Personnel System for DOD? Perhaps the most
controversial provisions in DOD’s 205-page legislative proposal would permit the
Secretary of Defense to design and implement a new personnel system for the
700,000 civilians working for the Department of Defense. DOD’s proposal calls for
the Secretary of Defense to develop a system that is “flexible,” and “contemporary”
to meet DOD’s needs. Requesting discretion even broader than the temporary
authority given to the new Department of Homeland Security, DOD proposed that
the Secretary of Defense be permitted to develop its own rules for:
! defining positions,
! setting pay scales,
! designing hiring and firing systems,
! bargaining with employees,
! expanding early retirement options,
! hiring consultants and employees overseas,
! rewarding senior level employees.30
DOD’s proposal has been opposed by government employee unions and has
raised concerns among some Members of Congress, while it has been supported by
other organizations and some other legislators. Some are concerned about the
breadth of the authority requested by DOD, the decision to apply changes selectively
to almost half of the total civilian workforce, potential effects on government
workers, and the lack of specificity in DOD’s proposals. Others observers commend
DOD for addressing longstanding concerns about laws and regulations governing the
federal civilian work force and for proposing to develop a new system.31
Like the new Department of Homeland Security, DOD is seeking the authority
to design its own National Security Personnel System jointly with the Office of
29 The HASC did not include sections on NASA and the SEC but did include some
government wide provisions.
30 This section was prepared with the help of CRS analysts, Barbara Schwemle, Thomas
Nicola, Sharon Gressle, and Jon Shimabukuro. General Counsel, DOD, William J. Haynes
III, letter to Speaker of the House Hastert, April 10, 2003; see
[http://www.defenselink.mil/dodgc/lrs/legispro.html]; See also CRS Report RL31916,
Defense Department Transformation Proposal: Original DOD Proposal Compared to
Existing Law by Gary J. Pagliano, Robert L. Goldich, Barbara L. Schwemle, and Thomas
J. Nicola; see also CRS Report RL31924, Civil Service Reform: H.R. 1836, Homeland
Security Act and Current Law, by Barbara Schwemle and Thomas Nicola.
31 House Government Reform Committee, Hearing on Civil Service and National Security
Personnel, May 6, 2003; transcript available from Reuters.

---

CRS-19
Personnel Management. Compared to DHS’s authority, however, DOD’s proposal
includes broader discretion because the Secretary of Defense could unilaterally
institute rules and procedures that DOD certifies are “essential for national security,”
would receive the authority permanently rather than temporarily, and could bargain
with employees at the national rather than the local level.32
DOD’s proposal, however, does not include specific provisions outlining how
it would design or implement its new system. For further information, DOD witness,
Under Secretary of Defense for Personnel and Readiness, David Chu, referred
Congress to DOD’s “Best Practices” plan for its demonstration projects that was
published in the Federal Register on April 2, 2003. Under its proposal, DOD would
continue to follow some of the current merit system principles and would be subject
to anti-discrimination statutes, but would be exempt from certain statutes governing
competitive hiring as well as laws defining procedures to discipline or remove
personnel.33
DOD is proposing to develop a new system for all its civilian personnel that
builds on its experience over the past twenty years with practices like pay banding
which gives managers greater flexibility to hire at different pay levels and to reward
performance, and has been used by DOD to attract and reward scientific and
technical personnel working at DOD’s research facilities.34 Some observers are
concerned about the expansion of “pay for performance,” systems because of the
difficulties in measuring employee performance. According to GAO’s work, most
of these systems, including those used by DOD, do not do a meaningful evaluation.35
Although DOD has had the authority to expand its personnel demonstration projects
to 120,000 civilians, over 15% of its workforce, DOD has only used its authority for
30,000 personnel.

To gain additional flexibility to remove, suspend, or discipline employees,
DOD seeks the authority to re-write the appeals process, though they do not specify
the changes they would seek. Employees could no longer appeal decisions to the
current Merit System Protection Board. To give greater ability to manage its
workforce, DOD is also requesting authority to offer buyouts. To simplify bargaining
with employees, DOD is also requesting the authority to bargain at the national rather
than the local level as is the current practice and would also be required to consult,
but not necessarily reach agreement with OPM thirty days in advance of negotiations.
32 General Counsel, DOD, William J. Haynes III, Letter to Speaker of the House Hastert,
April 10, 2003, Section 5 U.S.C. 9902 (a); see
[http://www.defenselink.mil/dodgc/lrs/legispro.html]
33 For example, DOD would no longer be required to follow the “rule of three, that requires
an agency to re-advertize if they don’t select a candidate from the top three. DOD would
also not need to follow current procedures governing adverse actions against employees.
34 Statement by Deputy Secretary Paul Wolfowitz before the House Committee on
Government Reform, May 6, 2003.
35 Statement by David M. Walker, Comptroller General of the United States, “Defense
Transformation: DOD’s Proposed Civilian Personnel System and Governmentwide Human
Capital Reform,” before the House Armed Services Committee, May 1, 2003, p. 3.

---

CRS-20
The new Department of Homeland Security did not receive national bargaining
authority.
DOD is also seeking the flexibility to hire personnel outside of the U.S. “as
determined by the Secretary to be necessary and appropriate,” and to negotiate
personal services contracts for national security missions without any restrictions
about the type of persons selected, an authority currently available to the CIA. Other
provisions would allow DOD greater flexibility to set pay levels for senior executive
service (SES) positions.
Congressional Action: Senate and House Markup. S. 1050, the
Senate-reported version of the FY2004 DOD Authorization bill, does not include
DOD’s request for authority to set up a new civilian personnel management system,
ensuring that this will be a conference issue. H.R. 1588 as reported, the House
version of the bill, modifies DOD’s proposal to make the authorities closer to those
provided to the Department of Homeland Security (DHS) rather than permitting
DOD the broader discretion that it requested. DOD would, however, be given a
special waiver authority that would allow the Secretary of Defense, with the approval
of the President, issue new rules without the agreement of the Office of Personnel
Management if they are necessary for national security (Section 9990(a)). Like DHS,
DOD would have flexibility to set pay scales and to change the appeals process but
would be subject to anti-discrimination statutes.
The House-reported version changes DOD’s proposal in the following ways:
! requires DOD to establish an independent appeals board to hear
employee grievances;
! limits DOD’s authority to waive current civil service rules on hiring
procedures (e.g. DOD must continue to rate applications);
! sets criteria for DOD’s performance management system including
that it follow merit principles, establish a link between the
performance and the agency’s strategic plan, involve employees, and
provide safeguards to employees.
DOD would also be allowed to bargain at the national level, an authority not
provided to DHS, and one likely to be controversial.

DOD’s Proposed Changes in Managing Senior Military and
Reservists. As part of its “transformational” package, DOD is also requesting a
series of provisions that would give the President and the Secretary of Defense
additional flexibility to select and retain DOD’s senior military leadership. Examples
include allowing the President to re-appoint Service Chiefs and the Chair and Vice-
Chair of the Joint Chiefs of Staff for as many two-year terms as desired, to repeal
mandatory terms for certain general and flag officers, and to re-assign many senior
officers in Senate-confirmed positions without returning to Congress. To retain
senior officers, DOD also wants to raise the normal maximum retirement age from
62 to 68 and modify retirement rules so that senior officers can retire after less than
three years (known as a time-in-grade rule) but still receive retirement based on their
highest rank.

---

CRS-21
According to DOD witnesses, these proposed changes would allow DOD to
move senior military leaders to where they are needed, to retain those whose skills
are important, and to retire those who may no longer be performing as needed. Critics
voice concern that these changes could reduce incentives for younger officers who
could see their opportunities limited by older officers who stay longer.36
Other proposals in this package would add flexibility to use reservists by
allowing DOD to activate reservists for an additional 90 days of training and by
expanding the reasons that the President can call up reservists to include domestic
disasters, accidents or catastrophes. DOD would also be allowed to provide medical
and dental screening of reservists preparing for mobilization.37
Congressional Action: Senate and House Markup. The Senate Armed
Services Committee (SASC) was unwilling to grant DOD broad ranging authority to
move, set retirement terms, and raise age limits for senior level military officers, but
did make permanent an existing authority that allows the Secretary of Defense to
permit officers above the grade of major to retire and still receive benefits based on
their current pay grade after two rather than three years in grade. In response to
DOD’s request for broad authority to use reserves in domestic crises, the SASC only
agrees to expand existing authority to use reserves in terrorist-related incidents. The
SASC does agree to provide medical and dental screening for reservists likely to
deploy.
Like the SASC, the HASC did not grant the Secretary of Defense broad
discretion to manage senior level military officers. The HASC bill would make
permanent a current authority to allow two rather than three years in grade for Lt.
Colonels and Colonels, and Commanders and Captains (O-5s and O-6s), and would
also permit DOD to reduce the requirement of three years in grade to one-year for
senior military officers (general and flag officers) as long as the Secretary certified
that their performance was satisfactory, a requirement that applies to about half of
DOD’s senior officer corps (O-8s to O-10s). The HASC also does not approve
DOD’s request to add up to 90 days to reserve training requirements but does agree
to provide medical and dental screening of reservists likely to deploy.

Proposed Acquisition Changes. In its legislative package, DOD includes
a variety of provisions designed to increase its flexibility to contract for major
defense weapons systems and information technology programs, receive waivers
from Buy American and domestic content requirements, and buy standardized
items.38
36 Testimony of Under Secretary of Defense David Chu before the House Armed Services
Committee, May 2, 2003, transcript; available from Reuters.
37 General Counsel, DOD, William J. Haynes III, letter to Speaker of the House Hastert,
April 10, 2003, Title 10, Sections 135, 136, and 137; see
[http://defenselink.mil/dodgc/lrs/legispro.html].
38 General Counsel, DOD, William J. Haynes III, letter to Speaker of the House Hastert,
April 10, 2003, Title 10, Sections 201-206; see
[http://defenselink.mil/dodgc/lrs/legispro.html].

---

CRS-22
Two potentially controversial proposals would allow DOD to contract out for
firefighting and security guards at bases and would allow DOD to count work
performed by contractors at federally owned facilities as part of the 50% minimum
for in-house performance of depot work. Congress has consistently opposed allowing
DOD to hire private security guards and loosening the definition of work that could
be counted as “in-house”.39

Congressional Action: Senate and House Markup. The SASC was
willing to lift the prohibition on contracting out for one year only for firefighters who
were deployed. Concerning DOD’s request to expand the definition of depot work
that would be counted as in-house, the SASC recommends that only depot work
performed by a public-private partnership in a center of excellence would be
excluded from the tally.
The HASC did not include either of DOD’s requests to contract out firefighters
or security guards or expand the depot work that could be counted as “in-house.”
Other Organizational And Financial Proposals To Increase
Flexibility. Other potentially controversial proposals would give the Secretary of
Defense broad discretion to reorganize the department, transfer personnel, and be
exempt from current personnel caps. To increase financial flexibility, DOD is
requesting that the limit on transfers between appropriation accounts be raised from
the current level of $2.5 billion to 2.5% of total DOD spending or about $9 billion.
(DoD made this same request in the FY2003 supplemental, and received a higher
transfer limit but not the 2.5%.)40
Equally controversial may be DOD’s proposal to change the standard governing
awards of contracts to government entities versus private companies based on the A-
76 competitive sourcing rules. DOD proposes to use a “best value” rather than the
current lowest cost standard. A proposal that has been endorsed by both OPM and
DOD that is not likely to be controversial would transfer the DOD civilian personnel
currently performing security investigations to OPM. DOD also proposes to
eliminate 184 reports to Congress that are currently required, ranging from reports
on specialized topics to more general reports on readiness levels and operation and
maintenance funding.41
Congressional Action: Senate and House Markup. The SASC did not
agree to give the Secretary of Defense authority to reorganize the department, transfer
personnel, or be exempt from ceilings on headquarters. The SASC did agree to
39 General Counsel, DOD, William J. Haynes III, letter to Speaker of the House Hastert,
April 10, 2003, Title 10, Sections 211 and 214; see
[http://defenselink.mil/dodgc/lrs/legispro.html],
40 General Counsel, DOD, William J. Haynes III, letter to Speaker of the House Hastert,
April 10, 2003, Title 10, Sections 401-405,411;
[http://defenselink.mil/dodgc/lrs/legispro.html].
41 General Counsel, DOD, William J. Haynes III, letter to Speaker of the House Hastert,
April 10, 2003, Title 10, Sections 404, 405, and 421; see
[http://defenselink.mil/dodgc/lrs/legispro.html].

---

CRS-23
increase DOD’s transfer authority to $3 billion, $500 million higher than the limit in
the regular DOD bill but below the $9 billion level requested by DOD.
The HASC also did not give the Secretary of Defense authority to reorganize
DOD and set the annual transfer limit at the current $2.5 billion level.
Authority To Spend $200 million To Support Foreign Militaries. In
its request, DOD asks Congress to give it permanent authority to allocate up to $200
million to support “coalition forces,” or foreign military forces. Although this
request is similar to the request enacted in the FY2003 supplemental for $1.4 billion
for coalition forces who help the U.S. to combat terrorism, DOD’s request for
permanent authority could be controversial because it includes no provision for
congressional oversight. In the FY2003 supplemental, Congress requires DOD to
report by July 1, 2003 on its plan to allocate funding for coalition forces.42
Congressional Action: Senate and House Markup. Neither the SASC
nor the HASC approves DOD’s request for authority to spend up to $200 million for
coalition forces.
DOD Again Requests Environmental Exemptions. As it did last year,
DOD again requests that military readiness-related activities be exempted from
provisions of a number of federal environmental laws, including the Clean Air Act,
the Endangered Species Act, the Marine Mammal Protection Act, and the Solid
Waste Disposal Act and “Superfund.” Last year, Congress was receptive to only one
of DOD’s environmental proposals, providing DOD with a targeted exemption from
the Migratory Bird Treaty Act. Critics have questioned DOD about the extent of the
impact on readiness activities and its limited use of waiver authorities included in
current law.
This year, environmental provisions again appear likely to be contentious on the
House and Senate floor. The House-reported version of the bill includes the
Administration’s proposed readiness exemptions from provisions of the Endangered
Species Act and the Marine Mammal Protection Act, while the Senate-reported bill
includes exemptions from the Endangered Species Act. Amendments to delete both
measures were rejected in the House committee markup.
Congressional Action: Senate and House Armed Services
Committee Markup. The SASC agrees only to allow DOD bases to be exempt
from critical habitat requirements under the Endangered Species Act only if it has
submitted an integrated natural resource management plan that addresses the
protections required under the Act.
42 General Counsel, DOD, William J. Haynes III, letter to Speaker of the House Hastert,
April 10, 2003, Title 10, Section 441; see [http://defenselink.mil/dodgc/lrs/legispro.html],
and CRS Report RL31829, Supplemental Appropriations FY2003: Iraq Conflict,
Afghanistan, Global War on Terrorism, and Homeland Security, by Amy Belasco and Larry
Nowels.

---

CRS-24
The HASC agrees to modified versions of DOD’s requests for exemptions from
provisions of the Endangered Species and the Marine Mammal Protection Act.
Affordability and Mix of DOD’s FY2004 Investment Programs
A perennial issue in defense policy has been whether the Defense Department
will be able to afford all of the major weapons modernization programs that have
been on the drawing boards, particularly toward the end of the decade, when a
number of new programs are planned to be in full scale production. The issue has
been complicated by the Defense Department’s growing commitment to defense
transformation, which implies an effort to accelerate selected programs and perhaps
add some entirely new ones. During the 2000 presidential election campaign, then-
Governor Bush promised to “skip a generation” of weapons programs in order to free
up funds for more transformational priorities.
Last year, and again this year, the Defense Department has tried to calculate the
amount that is being devoted to modernization programs that it regards as particularly
transformational. According to DOD Comptroller Dov Zakheim, these programs add
up to $24.3 billion in the FY2004 budget and $239 billion over the period of the six-
year FY2004-FY2009 future years defense plan (FYDP). Under Secretary Zakheim
said that DOD made room for these programs in part by cutting about $82 billion
from projected service budgets over the course of the FYDP. The cuts include
termination of a number of Army programs to upgrade current weapons, early
retirement of 26 Navy ships and 259 aircraft and an attendant reduction of 10,000 in
the Navy’s personnel end-strength, and early retirement of 115 Air Force fighter
aircraft and 115 mobility/tanker aircraft, as well as efficiencies.43
In the FY2004 budget, the Defense Department requested $74.4 billion for
weapons procurement and $61.8 billion for research, development, test, and
evaluation (RDT&E). Major aspects of the Administration request, and some key
potentially controversial issues include the following.
Army Transformation. In recent years, the Army has been pursuing three
major initiatives simultaneously — (1) upgrades to the current “legacy” force,
including improvements in M1 tanks and Bradley Fighting Vehicles; (2)
development and deployment of an “interim” force made up of six brigades equipped
with Stryker wheeled armored vehicles and designed to be more rapidly deployable
than heavy armored forces; and (3) pursuit of an “Objective Force” include the
“Future Combat System,” a family of new armored vehicles and other systems
designed to fundamentally change the way the Army will fight in the future. In
addition, the Army has been continuing to develop the Comanche helicopter, though
late last year, the Defense Department decided to cut planned total Comanche
procurement by about half.
In the FY2004 budget request, the Defense Department cut back a number of
planned upgrades of Army legacy systems, including high-profile M1 and Bradley
43 Briefing by DOD Comptroller Dov Zakheim, “FY2004 Defense Budget,” February 6,
2003.

---

CRS-25
upgrades. In the wake of the Army’s success in the Iraq war, there was extensive
discussion in Congress about the wisdom of these planned cuts. The House Armed
Services Committee-reported version of the authorization adds $727 million to the
request to continue M1 and Bradley upgrades along with some related Army upgrade
programs.
Congressional Action: Senate and House Markup. Table 7 shows
changes made during markup by the House and Senate Armed Services Committee.

---

CRS-26
Table 7: House and Senate Armed Services Markup of Major Army Acquisition Programs
(amounts in millions of dollars)
House
Senate
Request
Action
Action
Comments
Procurement
R&D
Procurement
R&D
Procurement
R&D
#
$
$
#
$
$
#
$
$
RAH-66 Comanche
—
— 1,079.3
—
—
1,079.3
—
—
1,079.3 —
UH-60 Blackhawk
10
167.0
70.2
19
279.8
70.2
17
237.0
74.1 House adds $112.8 mn. for 9 aircraft for Army National Guard.
Senate adds $70.7 mn. for 7 aircraft in accordance with Army
priorities and for air inlet upgrades ($0.8 mn.) and $3.9 mn. for
R&D for C2 integration..
UH-60 Blackhawk mods.
—
138.5
—
—
38.5
100.0
—
38.5
100.0 Both House and Senate transfer $100 mn. from proc. to R&D
for UH-60M upgrade.
CH-47 Upgrades
—
516.0
—
—
522.0
—
—
531.0
— House adds $6 mn. for crashworthy seats. Senate adds $15 mn.
for MH-47G mods.
AH-64 Mods
—
58.9
—
—
74.4
—
—
58.9
— House adds $15.5 mn. for bladefold kits.
AH-64D Apache Longbow
—
776.7
—
—
776.7
—
—
776.7
— —
Bradley Base Sustainment
—
113.3
—
—
372.1
—
—
113.3
— House adds $258.8 mn. for Bradley M3A2 Operation Desert
Storm ``D+’‘ upgrades.
M1 Abrams
—
361.6
—
—
645.6
—
—
361.6
— House adds $424 mn. for M1A2 to M1A2 SEP upgrades, cuts
Mods/Upgrades
$108 mn. from new engine program due to delays and $32 mn.
from other upgrades — net add $284 mn.
Stryker Interim Armored
301
955.0
46.0
301
955.0
46.0
301
955.0
46.0 —
Vehicle
HIMARS (Rocket
24
124.2
87.4
24
124.2
87.4
24
124.2
— Note: C-130 air transportable version of MLRS.
Launcher)
Hellfire Missiles
—
33.1
—
—
33.1
—
—
76.1
— Senate adds $43 mn. for laser Hellfire II missiles — request
was just for Longbow Hellfires.
Javelin (Anti-Tank Missile)
901
140.7
—
901
140.7
—
901
180.7
— Senate adds $40 mn. for command launch units for Army
National Guard.
ATACMS Penetrator
—
—
55.1
—
—
55.1
—
—
— House urges no obligation of funds until DOD explores more
cost effective options to attack hardened sites.

---

CRS-27
House
Senate
Request
Action
Action
Comments
Procurement
R&D
Procurement
R&D
Procurement
R&D
#
$
$
#
$
$
#
$
$
Logistic/Theater Support
—
—
3.8
1
33.0
3.8
—
—
11.3 House adds $33 mn. in proc. for Logistic Support Vessel
Vessel
(Army now has 8); Senate adds $7.5 mn. in R&D for composite
hull design Theater Support Vessel to replace LSVs.
Sources: H.Rept. 108-106; S.Rept. 108-46.

---

CRS-28
Navy Programs. Key Navy ship-acquisition programs for FY2004 include
the Virginia (SSN-774) class submarine program, the Littoral Combat Ship (LCS)
program, the Arleigh Burke (DDG-51) class Aegis destroyer, the DD(X)
next-generation destroyer program, the San Antonio (LPD-17) class amphibius ship
program, the Lewis and Clark (TAKE-1) auxiliary ship program, the Trident
cruise-missile submarine (SSGN) conversion program, and the Aegis cruiser (CG-47
class) conversion program. The FY2004 budget also includes, among other things,
continued advanced procurement funding for CVN-21, an aircraft carrier to be
procured in FY2007.
One issue in congressional hearings on the FY2004 Navy program concerns the
planned size and structure of the Navy. The 2001 Quadrennial Defense Review
(QDR) revalidated the plan for a 310-ship Navy established by the 1997 QDR, but
also stated that force-structure goals in the 2001 QDR, including the 310-ship goal,
were subject to change pending the maturation of DOD’s transformation efforts. In
February 2003, in submitting its proposed FY2004 defense budget, DOD officials
stated that they had launched studies on future requirements for undersea warfare and
future options for forcibly entering overseas military theaters. These studies have the
potential for changing, among other things, the planned number of attack submarines
and the planned size and structure of the amphibious fleet. Since attack submarines
and amphibious ships are two of the four major building blocks of the Navy (the
others being aircraft carriers and surface combatants), DoD, by launching these two
studies, appears to have taken steps to back away from the 310-ship plan. At the
same time, the Secretary of Defense has explicitly declined to endorse a plan for a
375-ship fleet that has been put forward in recent months by Navy leaders.
As a result of these events, there is now uncertainty concerning the planned size
and structure of the Navy: DoD may no longer support the 310-ship plan, but neither
has it endorsed the 375-ship plan or any other replacement plan. This uncertainty
over the planned size and structure of the Navy affects surface combatants as well as
submarines and amphibious ships, because the biggest single difference between the
310-ship and 375-ship plans is in the area of surface combatants. The 310-ship plan
includes 116 surface combatants, all of which are cruisers, destroyers, and frigates,
while the 375-ship plan includes 160 surface combatants, including not only cruisers,
destroyers, and frigates, but as many as 60 smaller Littoral Combat Ships as well.
Congressional Action: Senate and House Markup. Table 8 shows
changes to the Administration’s request made by the House and Senate Armed
Services Committees during markup.

---

CRS-29
Table 8: House and Senate Armed Services Markup of Major Navy Acquisition Programs
(amounts in millions of dollars)
House
Senate
Request
Action
Action
Comments
Procurement
R&D
Procurement
R&D
Procurement
R&D
#
$
$
#
$
$
#
$
$
Carrier Replacement Program
— 1,186.6
339.2
1,186.6
339.2
—
1,186.6
— —
Carrier Refueling Overhauls
—
367.8
—
367.8
—
—
367.8
— —
Missile Submarine Conversion
2 1,167.3
—
2 1,167.3
—
2
1,167.3
— —
Submarine Refueling Overhauls
—
164.4
—
164.4
—
—
412.4
— Senate adds $248 mn. for overhauls in FY2004
DDG-51 Destroyer
3 3,198.3
205.7
3 3,198.3
250.7
1
3,219.3
205.7 House adds $35 mn. in R&D for S-band radar and $10
mn. for open Aegis architecture. Senate adds $21 mn. in
proc. for ship modernization.
LPD-17 Amphibious Transport
1 1,192.0
8.0
1 1,192.0
8.0
1
1,192.0
8.0 —
LHD-8 Amphibious Assault
—
355.0
—
—
355.0
—
—
355.0
— —
Ship
Prior Year Shipbuilding Costs
—
635.5
—
—
635.5
—
—
635.5
— —
DD (X) Destroyer
—
— 1,038.0
—
— 1,042.0
—
— 1,038.0 House adds $4 mn. for knowledge projection for
maintenance.
T-AKE Auxiliary Cargo Ship
2
722.3
—
2
722.3
—
2
722.3
— Note: In National Defense Sealift Fund, not in Navy
Procurement.
Sources: H.Rept. 108-106; S.Rept. 108-46.

---

CRS-30
Aircraft Programs. One of the most expensive elements of the Defense
Department’s long-term modernization plan is procurement of a number of new
advanced aircraft, including the Air Force F/A-22 fighter, the Navy/Marine Corps
F/A-18E/F aircraft; and the multi-service F-35 Joint Strike Fighter. In addition, the
Air Force is continuing to procure C-17 airlift aircraft, and the Marine Corps is
continuing to develop the V-22 tilt rotor aircraft, while DOD is continuing to review
whether to go ahead with a proposal to allow the Air Force to lease Boeing 767s as
tanker aircraft.
The F/A-22 has been a particular focus of attention recently because of
continued cost growth in the program and because of the Air Force’s continued desire
to expand the program. For its part, the Air Force sees the program as its highest
priority and, in the long run, would like to increase the total number of aircraft to be
procured, particularly to build a version of the aircraft configured especially for a
deep strike ground attack role to replace F-15E aircraft as they retire in the future.
The Air Force even changed the formal designation of the aircraft from the F-22 to
the F/A-22 to emphasize its ground attack capabilities.
The Department of Defense, however, has continued to approve only enough
aircraft for about three wings of aircraft for the air superiority mission, and a key
budget decision in the FY2004-FY2009 FYDP was that the Air Force may plan to
buy only as many aircraft as it can with the total funds projected last year to be
available for the program. With continued cost growth, this number has shrunk from
the 330 aircraft the Air Force has wanted to outfit three wings (each with 72
deployable aircraft, plus attrition reserves, aircraft in repair, etc.), to 295 and most
recently to 276. For its part, Congress has imposed a cap on the total development
cost of the program, which the Air Force wants to Congress to lift.
A few years ago, the House Appropriations Committee proposed terminating F-
22 development, though funding was eventually provided. This year, the F-22 has
been an issue in the Senate, though not in nearly so drastic a way. The Senate
committee-reported bill reduces procurement from the 22 aircraft requested to 20 in
order to allow the Air Force to adjust planned production and delivery dates.
The issue of tanker leasing continues to be unresolved. In the FY2002 defense
appropriations conference report, Congress approved a proposal to allow the Air
Force to begin negotiations with Boeing to lease as many as 100 767 aircraft to be
converted to operate as air-to-air refueling tankers. This measure was controversial
because Federal budget rules generally discourage leases on the premise that direct
purchase will be cheaper for the government in the long run, though it may require
more up-front money in agency budgets. Through all the controversy, the Air Force
and Boeing continued to try to hammer out the details of a lease agreement. The
resulting agreement, apparently with several options, has now been under review in
the Office of the Secretary of Defense for the past few months, but Secretary
Rumsfeld has declined to speculate when he will make a final decision and
recommendation to Congress on the issue.
Congressional Action: Senate and House Markup. Table 8 shows
changes to the Administration’s request made by the House and Senate Armed
Services Committees during markup.

---

CRS-31
Table 8: House and Senate Armed Services Markup of Major Air Force Acquisition Programs
(amounts in millions of dollars)
House
Senate
Request
Authorization
Authorization
Comments
Procurement
R&D
Procurement
R&D
Procurement
R&D
#
$
$
#
$
$
#
$
$
F-22
22 4,225
936.5
22
4,064.4
936.5
20 4,008.4
936.5 House cuts $161 mn. Senate cuts 2 aircraft and $217
.4
mn.
E-8C Joint STARS mods.
— 36.0
58.4
—
63.0
58.4
—
36.0
58.4 House adds $27 mn. in proc. for reengining.
F-16C/D Mods./Post
— 314.5
87.5
—
328.7
107.5
—
372.7
87.5 House adds $14.2 mn. in proc. and $20 mn. in R&D
Production
for upgrades. Senate adds $48 mn. in proc. for
engines and $10 mn. for upgrades.
F-15 Mods./Post
— 204.9
112.1
—
244.9
128.6
—
241.4
128.6 House adds $40 mn. in proc. and $16.5 mn. in R&D
Production
for upgrades. Senate adds $36.5 mn. in proc. and
$16.5 mn. in R&D for upgrades.
JPATS Trainer
52 280.6
—
52
280.6
—
52
280.6
— —
C-17 Globemaster
11 3,502
184.1
12
3,680.4
—
11 3,498.4
— House added $182 mn. for 1 aircraft. House and
.1
Senate transferred -$10 mn. for Multi-Year
Procurement and +$6.3 mn. for mods. at AF request.
C-130/C130J Airlift
5 641.7
13.6
5
647.8
13.6
5
654.6
13.6 House adds $6.1 mn. for radar upgrades for Air Guard.
Aircraft
Senate adds $6.1 for radar. upgrades and $6.8 mn. for
satellite comm.
F-35 Joint Strike Fighter
—
— 2,194.1
—
—
2,194.1
—
—
2,194.1 —
B1-B Bomber Mods.
— 100.1
—
—
120.4
—
—
100.1
— House adds $20.3 mn. for mods.
B-2 Stealth Bomber Mods.
— 114.9
176.8
—
166.7
176.8
—
136.6
176.8 House adds $24.7 mn. AF transfer request and $27.1
mn. for upgrades. Senate adds $24.7 mn. AF transfer
request.
Sources: H.Rept. 108-106; S.Rept. 108-46.

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CRS-32
Missile Defense. The Administration requested a total of $9.1 billion in
FY2004 for missile defense programs, including development programs that it
requests be funded through the Missile Defense Agency and procurement of the
Patriot PAC-3 missile that it requests in the Army budget. The Administration’s
major new initiative has been to pursue accelerated fielding of a limited National
Missile Defense capability to include, among other things, up to 20 ground-based
interceptor missiles based in Alaska and California.
Last year, with the Senate under Democratic control, a major issue was the
acquisition process that the Administration has proposed for missile defense
programs. The FY2003 defense authorization included measures requiring more
detailed reports on costs and on planned missile defense tests to Congress. The
authorization also prohibited development of a nuclear-tipped interceptor for missile
defense. And Congress reduced funding for some space-based programs and
increased funding for some ground-based theater missile defense systems.
Nuclear Weapons Programs. Last year, a major debate in Congress
concerned an Administration proposal to study development of a new “Robust
Nuclear Earth Penetrator” warhead. This year, one of the more controversial issues
has been whether to authorize an Administration request for $6 million the
Department of Energy to conduct “advanced concepts” research into low-yield
nuclear weapons. In its markup, the House Armed Services Committee rejected an
amendment to eliminate the funds.
Personnel Pay and Benefits and Readiness Issues
As it did last year, DOD has proposed a mixture of across-the-board and
targeted pay raises along with continuation of a plan initiated in the Clinton
Administration to reduce out-of-pocket housing costs for military personnel living
in private housing. The Administration is proposing a minimum 2% across-the-
board pay raise for uniformed personnel, with additional increases for targeted grades
and skills, so that most personnel would receive a larger increase. The FY2004
budget also includes funds to reduce out-of-pocket off-base housing costs from a
maximum of 7.5% of pay to 3.5%, with costs reduced to zero in FY2005.
Permitting concurrent receipt of military retirement and disability payments, last
year’s critical personnel issue which stymied passage of the defense authorization
bill, has not been an issue in the authorization bill this year — as noted above, the
conference agreement on the FY2004 budget resolution did not include a Senate
proposal to provide funding for concurrent receipt. DOD is currently implementing
a compromise proposal passed by Congress last year, which provides special
compensation benefits to a targeted group of military retirees whose disabilities are
a product of combat or combat-related activities.
As in the past, there has been some sentiment in Congress for a larger pay raise
than the Administration has proposed. The Senate committee-reported bill approves
a 3.7% minimum across-the-board pay raise for all uniformed service personnel,
though it approves targeted pay raises ranging from 5.25 to 6.25% as the
Administration proposed. The overall average pay raise in the Senate bill is 4.15%.

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Overall funding for operation and maintenance is continuing to grow at more
than 2.5% per year above inflation under Administration projections — about the
historical rate of growth per active duty troop. While concerns about military
readiness appear to have abated, some have questioned how long DOD can sustain
the deployment of substantial numbers of troops in Iraq, Afghanistan, and elsewhere
without jeopardizing morale and readiness goals.
Basing Structure, Role of the Reserves, and Force Mix Issues
In congressional testimony, Secretary of Defense Rumsfeld has raised two
additional issues which may arise in future years — changing DOD’s overseas basing
structure to give DOD a smaller “footprint” with potentially fewer forces located in
western Europe, and reviewing the role of the reserves in light of homeland security
needs and DOD’s heavy reliance on reserves for the Global War on Terrorism and
the Iraq war. DOD is currently studying both issues. Re-locating U.S. overseas bases
to eastern European countries and increasing the number of unaccompanied tours
could potentially save money but DOD has not fleshed out its proposals.
In the FY2004 budget, DOD asks Congress to merge funding for active-duty and
reserve forces in order to increase flexibility in allocating funds. This proposal has
sparked opposition from reserve proponents who see it as a way to reduce the
authority of the heads of the National Guard and Reserves.
A major issue this year may be possible restrictions on the next miliary base
closure round. Two years ago, Congress approved a new round of military base
closures in 2005, following procedures that were used in earlier rounds in 1991,
1993, and 1995.
Congressional Action. The Senate may consider an amendment to be
offered by Senator Dorgan that would cancel the 2005 round of base closures. The
Administration has signaled that a veto is likely if Congress includes either a delay
or a cancellation of the 2005 round, which the Administration considers essential to
its plans to reduce the size and cost of DOD’s infrastructure and free up funds for
transformational programs.44 During floor debate, Senator Dorgan argued that a new
round should be delayed because of the uncertainties of determining the size and
make-up of DOD’s force structure after the September 11th terrorist attacks and
because of the economic effects on communities of potential base closures.45
The House Armed Services Committee-reported authorization bill includes a
provision that would require the Defense Department to preserve a sufficient basing
structure to support a possible expansion of the force in the future, though the full
committee reversed a subcommittee measure that would have eliminated the 2005
round. It is not clear how DOD will react to the committee proposal.
44 OMB, Statement of Administration Policy on H.R. 1588 - National Defense Authorization
Act for Fiscal Year 2004, May 22, 2003, p. 1; available on the White House web site at
[http://whitehouse.gov/omb/legislative/sap/108-1/hr1588sap-h.pdf].
45 Congressional Record, May 20, page S644ff.

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CRS-34
Number of Active and Reserve Duty Personnel. A frequent issue in
recent years has been whether current active duty end-strength is sufficient. Some
legislators have proposed increases in end-strength, particularly for the Army, to fill
out deployable units and thus ease pressures on the force. The Defense Department
has resisted these measures. The Navy, in fact, reduces its end-strength by 10,000
over the next five years reflecting a reduction in the number of ships. In
congressional testimony this year, DOD witnesses have said that a broader review of
the mix of active-duty, reserve, civilian, and contractor personnel has been under way
and some far-reaching proposals could be in the works. Secretary of Defense
Rumsfeld testified that DOD has determined that some 300,000 military personnel
are currently performing non-military duties.46 DOD is looking to rely more heavily
on contractors within the Army in particular, setting ambitious goals for its
competitive sourcing or contracting-out program.
Congressional Action: Senate and House Markup. The House Armed
Services Committee did not agree to a proposed Navy reduction of 1,900 in active
duty end-strength (which was part of the 6-year savings from early retirement of
some ships that the Administration emphasized in its initial budget request). The
committee also added 4,340 positions to authorized end-strength for the other
services for a total increase of 6,240 compared to the Administration request. The
committee also cited substantial shortfalls in end-strength identified by each of the
services and criticized the Administration’s opposition to any increases in the size of
the force in the future. The Senate Armed Services Committee agreed to the
Administration’s end-strength request.
Legislation
Congressional Budget Resolution
H.Con.Res. 95 (Nussle)
A concurrent resolution establishing the congressional budget for the United
States Government for fiscal year 2004 and setting forth appropriate budgetary levels
for fiscal years 2003 and 2005 through 2013. Reported by the House Budget
Committee (H.Rept. 108-37), March 17, 2003. Approved by the House (215-212),
March 21, 2003. Senate struck all after the enacting clause and substituted the
language of S.Con.Res. 23, as amended, and agreed to the measure by unanimous
consent in lieu of S.Con.Res. 23. Conference report filed (H.Rept. 108-71), April 10,
2003. Conference report agreed to in the House (216-211), April 11, 2003.
Conference report agreed to in the Senate (51-50), April 11, 2003.
S.Con.Res. 23 (Nickles)
An original concurrent resolution setting forth the congressional budget for the
United States Government for fiscal year 2004 and including the appropriate
budgetary levels for fiscal year 2003 and for fiscal years 2005 through 2013.
Resolution agreed to in the Senate (56-44), March 26, 2003. Senate incorporated this
46 Testimony of Secretary of Defense Rumsfeld before Senate Armed Services Committee,
FY2004 DOD Authorization Request, February 13, 2003.

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CRS-35
measure into H.Con.Res. 95 as an amendment and agreed to H.Con.Res. 95 in lieu
of this measure (unanimous consent), March 26, 2003.
Defense Authorization
S. 1050 (Warner)
An original bill to authorize appropriations for fiscal year 2004 for military
activities of the Department of Defense, for military construction, and for defense
activities of the Department of Energy, to prescribe personnel strengths for such
fiscal year for the Armed Forces, and for other purposes. Ordered to be reported by
the Senate Armed Services Committee, May 8, 2003. Reported by the Senate Armed
Services Committee (S.Rept. 108-46), and placed on the Senate Legislative Calendar,
May 13, 2003.
H.R. 1588 (Hunter)
A bill to authorize appropriations for fiscal year 2004 for military activities of
the Department of Defense, to prescribe military personnel strengths for fiscal year
2004, and for other purposes. Committee consideration and markup held and ordered
to be reported, May 14, 2003.

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