February 6, 1997

Reference Number No. 051-97


Secretary of Defense William S. Cohen today released details of President Clinton's Fiscal Year (FY) 1998 defense budget. The FY 1998 budget begins implementation of the Administration's FY1998-2003 Future Years Defense Program (FYDP). Both the budget and FYDP were developed under the direction of outgoing Defense Secretary William J. Perry, before Secretary Cohen was sworn into office on January 24.

President Clinton's FY 1998 budget requests $250.7 billion in budget authority and $247.5 billion in outlays for the Department of Defense (DoD). Budget authority for FY 1998 is $2.8 billion above the amount the Administration last year planned for FY 1998, but $2.1 billion below the level Congress appropriated for FY 1997.

For FY 1999 through 2003, DoD budget authority increases above projected inflation. This planned real growth was achieved because President Clinton, during the final weeks of budget preparation, added $7 billion to the DoD topline and allowed DoD to keep $4 billion of inflation savings. This marked the fifth time in four years that the President increased defense spending above previously planned levels.

The new budget and FYDP continue to sustain high readiness for U.S. forces and provide a good quality of life for military personnel and their families. These are the Secretary's highest budget priorities. Plans also call for a substantial increase to procurement spending by FY 2002 to modernize aging weapons and equipment. While the request for procurement funding in FY 1998 is modestly less than the Department planned last year, the full program still holds to the goal of achieving a $60 billion level of procurement funding by FY 2001.


As the new budget is released, work is continuing on the Department's Quadrennial Defense Review (QDR). The QDR is a comprehensive reassessment of U.S. defense strategy, force structure, readiness, modernization, and infrastructure. Secretary Cohen will direct the completion of the QDR and its presentation to the Congress later this year. One of the QDR's key aims is to identify budget savings to sustain the increases needed for weapons modernization.

Preserving Force Readiness and Supporting Ongoing Military Operations

In the preparation of the new budget, strong support was provided for training, maintenance, supplies and other essentials needed to keep U.S. forces ready to fight and win decisively. This readiness-related spending occurs mostly in the Department's Operation and Maintenance (O&M) accounts. Reflecting the priority given to readiness, O&M is the only appropriation title given a dollar increase in the new budget: from $92.9 billion in FY 1997 to $93.7 billion in FY 1998. Within its own O&M account, each military service will work to sustain high levels of readiness, while continually implementing initiatives to reduce overhead costs. The success of this budget strategy is reflected in the high state of readiness of U.S. forces -- as demonstrated in Bosnia, Southwest Asia, and elsewhere around the world.

The Department continues to take action to prevent unbudgeted costs of non-routine operations, like those in Bosnia, from absorbing funds needed for readiness, modernization, and other top priorities. To that end, the FY 1998 budget continues the practice of budgeting for all known military operations. The request includes $1.5 billion in FY 1998 in the Overseas Contingency Operations Transfer Account to complete planned operations in and around Bosnia. In addition, $.7 billion is included in the Military Service/Defense Agency budgets for the continuing operations in Southwest Asia.

In its FY 1997 defense bill, Congress appropriated $1.3 billion to cover military operations that were projected at the time of the bill's completion. Since then, two developments have occurred that now leave the Department facing $2.0 billion in unbudgeted FY 1997 military operations costs. First, new provocations by Iraq last September increased the intensity of U.S. operations in Southwest Asia. Second, this past November President Clinton approved participation of U.S. forces in a new phase of operations in Bosnia to further advance the goals of the Dayton Peace Accord. To cover these new projected costs, the Clinton Administration is requesting a FY 1997 supplemental appropriation of $2.0 billion. Of this $2.0 billion, $124 million is for Southwest Asia operations.

The Administration is also requesting authority for the Secretary of Defense to rescind (cancel) $4.8 billion in previously appropriated FY 1997 funds. The goal will be to target spending that, in the Secretary's judgment, would not make significant contributions to U.S. military capabilities. The budget assumes that $2.0 billion of these rescissions would offset the FY 1997 supplemental appropriation request for Bosnia. The other $2.8 billion in rescissions is necessary to reach outlay targets.

Improving Quality of Life

Providing a good quality of life for our uniformed people and their families is essential to sustaining readiness and the long-term quality of U.S. forces. Reflecting that reality, the FY 1998


budget includes strong support for military pay, housing, medical services, and other important services for our personnel. The budget supports:

Modernization Strategy

For several years, the Defense Department has been able to reduce its procurement of new weapons and upgraded capabilities without undermining the battlefield superiority of U.S. forces. The average age of military equipment has not risen substantially, partly because many new weapons were procured in the 1980's and partly because older equipment was weeded out as forces were drawn down. This decline in procurement spending has made room in the budget for robust funding for training, maintenance, quality of life, and other components of near-term readiness.

Now, to ensure the long-term readiness and capability of the force, it is necessary to begin investing in the procurement of new systems. Consistent with that goal, spending for procurement is projected to achieve real growth in excess of 40 percent through FY 2002 from the $42.6 billion requested in FY 1998.

Major procurement programs in FY 1998 include:

Major Research, Development, Test, and Evaluation programs in FY 1998 include:

Ballistic Missile Deterrence and Defense

The proliferation of weapons of mass destruction (WMD) and the ballistic missiles that deliver them pose a major threat to U.S. forces, as well as to our allies and other friendly nations. The Department of Defense is pursuing a robust Ballistic Missile Defense (BMD) program, as part of a broader counterproliferation strategy to reduce, deter, and defend against this threat.

The BMD program's highest priority is Theater Missile Defense (TMD), to meet the threat that exists now. The goal is to develop, procure, and deploy systems that can protect forward-deployed and expeditionary elements of U.S. forces, as well as allied and friendly nations, from theater-range ballistic missiles. In general, these programs are structured to proceed at the fastest pace that the technology risks will allow. Key programs include the Patriot PAC-3, Navy Area TMD, Medium Extended Air Defense System (MEADS), Navy Theater-Wide TMD, Theater High Altitude Area Defense (THAAD) system, and Airborne Laser (ABL).

The next highest BMD priority is development of a National Missile Defense (NMD) program that positions the United States to field the most effective possible system to defend U.S. territory in the future when the threat warrants such a deployment. The third BMD priority is the continued development of a technology base that improves the capability of both the Theater and National defense programs to respond to emerging threats.

FY 1998 budget authority requested for Ballistic Missile Defense is $3.5 billion. For FY 1999-2003 an additional $17.9 billion is planned. Beginning with the FY 1998 budget, all procurement funding for TMD programs are in the appropriate Army, Navy, or Air Force accounts. Funding for the Administration's FY 1998-2003 BMD program is $2.4 billion higher than the level projected last year.


Force Structure and Manpower

The U.S. force structure has been reduced by about one-third since 1990. Comparable cuts also have been made in support activities and infrastructure, but efforts are ongoing to reduce these costs further, without compromising quality and responsiveness.

Reflecting these changes, personnel levels have declined as well. Active duty military strength is budgeted at 1,431,000 for FY 1998, down 34 percent from its FY 1987 post-Vietnam War peak. Selected Reserves will decline to about 892,000 in FY 1998, down 24 percent from their FY 1989 peak of 1,171,000. DoD civilian manpower (full-time equivalents) will number approximately 772,000 in FY 1998, a 32 percent decline from FY 1987. Plans call for a further drop to about 718,000 by FY 2003.

Reserve Components

About $19 billion of the FY 1998 defense budget is for the Reserve components, which provide essential capabilities and 892,000 Selected Reserve personnel to the Total Force. Budget emphasis continues to be on maintaining readiness for wartime missions and contingencies.

This budget continues to focus on the Reserve Component units that would be needed earliest to fight two nearly simultaneous major regional conflicts and fully funds continuation of their high readiness levels. The budget also includes several initiatives to increase the peacetime use of the Guard and Reserve--which would reduce the stress on active forces, while providing more realistic training for Reservists.

Efficiencies in the Budget

The new budget and FYDP reflect more efficient operations as a result of several different changes. DoD civilian personnel are being drawn down, partly as a result of post-Cold War force structure reductions and partly because of management reforms. Excess inventories of supplies are being reduced. Acquisition reform is changing the way the Department develops and procures new weapons, making the process less expensive both for the Department and for its private contractors. Financial and personnel management systems are being consolidated and modernized, making them less costly and more responsive to both customers and DoD decision makers. Initiatives to outsource activities that can be done more cost effectively by the private sector are included in the budget. The goal is to provide better products and services to DoD customers at reduced cost.

The Department is continuing to carry out the decisions of the Base Realignment and Closure (BRAC) process for streamlining defense facilities within the United States. The results from all four BRAC commissions should be implemented completely by the end of FY 2001, and should provide a net savings of $14 billion for the years FY 1990 through FY 2001. After FY 2001, the Department expects to realize annual recurring BRAC savings of about $5.6 billion.



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National Defense Topline (Function 050)
($ Billions)

Budget Authority
DoD Military (051)250.0250.7256.3262.8269.6277.5
DoE and Other12.314.612.912.211.911.6
Total (050)262.3265.3269.2275.0281.5289.1
DoD Military (051)254.3247.5249.3255.2256.2261.4
DoE and Other12.911.912.112.011.811.8
Total (050)267.2259.4261.4267.2268.0273.2

(End strength in thousands)

Active Military
Marine Corps
Air Force
Total Active1,4721,4521,431-211,445
Selectd Reserves920902892-10893
Civilians (FTEs)819799772-27728