Department of Defense Appropriations for Fiscal Year 1977

Grant aid has declined as more recipients have reached the point of economic development where they can shift to Foreign Military Sales (FMS), either credit or cash, and to commercial sales. In the past

few years, cash sales have grown rapidly, with the bulk of the increase occurring in the Middle East.

The change in character and in primary recipients of security assistance has raised some serious questions regarding the need to continue grant military aid as a policy tool and the wisdom of accepting the role of a major seller and exporter of defense articles and services. Additionally, because the total of recent arms transfers is large and because the materiel sought is often first-line equipment in demand both by U.S. forces and by friends and allies, military exports should come generally from production, or excess or overage equipment in order to avoid adverse impact on overall Defense Department programs and resources. An evaluation of security assistance suggests that it has on the whole supported U.S. foreign policy. Security assistance has helped maintain a military balance between NATO and Warsaw Pact in Western Europe and contributes to a stabilized balance in Northeast Asia by helping to deter North Korea. In the Middle East, military assistance to Saudi Arabia and Iran has supported the development of regional security in the Persian Gulf area and assistance to Israel has been vital to her security.

Military assistance does not result in the unquestioning support of foreign governments for U.S. policies. Security assistance credits and sales are expected to help further our security interests by providing recipient states with sufficient confidence in their own military security to engage in regional political negotiations, and thus decrease opportunities for the Soviet Union or any other power to intimidate them or gain dominant influence over them.

The demand for articles and services (primarily through foreign military cash sales) is likely to continue as nations acquire the means. The United States is dealing with sovereign nations determined to establish their own defense requirements and who do not wish to be told how to allocate resources. The United States supports multilateral efforts including regional arrangements to limit arms transfers, but this is a sensitive issue involving strongly held feelings of national sovereignty, and progress will be slow and difficult. At the same time, we are decreasingly able, unilaterally, to influence the arms acquisition policies of other nations because military materiel is available from many communist countries and Western nations.

6. The Foreign Policy-Military Posture Relationship Reviewed

The U.S. military force structure is derived from U.S. national security and foreign policy objectives, our appreciation of the most likely threats to the achievement of those objectives, and an assessment of the military force that would be most effective in preventing those threats from materializing, in overcoming them if they should arise, or in generally sustaining U.S. diplomatic efforts to maintain a credible deterrent.

In strategic force planning, the pace and character of U.S. improvements are based on the degree of success we experience in restraining a strategic arms race through arms limitation negotiations and on our estimates of what steps are necessary to prevent Soviet strategic forces from upsetting the current strategic balance.

General purpose force planning is based primarily on our policies of deterring war in Europe and Northeast Asia, and on the necessity to

maintain the flexibility to protect major interests elsewhere in the world should they be threatened. The security assistance program remains an important means of helping friends meet their own security needs and undergirding our other foreign policies.

The defense posture has been developed to meet the military requirements of U.S. policy as efficiently as possible, recognizing the range of demands on total national resources.

Meeting the military requirements of U.S. foreign policy is a dynamic process created in part by changes in technology, military capabilities, and the international situation. There are no grounds for slackening current defense programs. On the contrary, our assessments strongly support the case for a properly focused real increase in the resources devoted to our military posture.

A rough balance now exists at the level of the strategic nuclear forces and whatever the ambitions of the USSR, essential equivalence is the foundation we must maintain. If challenged, we and our allies have the resources to defend the two bastions of Western Europe and Northeast Asia, and hold open the main sea lanes to our shipping although not without serious initial losses. To the extent that we could meet these two basic challenges, we should have in hand the capability to meet other and less demanding contingencies. But our posture, unless strengthened, has potential vulnerabilities such as aging of forces and readiness which is lower than it should be.

Debates no doubt will continue on how to compare Soviet defense expenditures with ours; differences will arise as to whether and when their outlays have exceeded U.S. expenditures. Much or little can be made of the Sino-Soviet dispute and the hard fact that the USSR has tripled its forces in the Far East during the past decade. What cannot be in question, however, are these trends:

Soviet defense expenditures have been increasing more or less steadily for more than ten years;

Soviet military power

nuclear and non-nuclear, strategic and tactical, quantitative and qualitative has been expanding, not contracting;

Much of the expansion has taken place in the forces that constitute a direct threat to the United States and its allies.

We have responded to these developments by extracting greater combat power out of existing defense assets. If we are to maintain the necessary conditions of deterrence and stability in the years ahead, we must provide real increases to the defense budget. The need now is not so much for expanded force structure as it is for the replacement of aging systems and improved capability, readiness, and mobility in the structure that is now planned.

Department of Defense budget totals are summarized in Table IB-1:

TOA and BA figures differ, largely because of the transactions of the Foreign Military Sales Fund./ Outlays (actual spending) lag because of the long-lead times for many items. TOA provides the most significant measure of the defense program. The FY 19TQ figures shown above cover the period July 1, 1976 to September 30, 1976 the transition quarter necessary to convert to the new fiscal year. The significant comparisons, of course, involve the full fiscal years.

As indicated above, TOA rose by $10.4 billion from FY 1975 to FY 1976. Most of this increase was necessary to cover pay raises and price increases and to provide for funding shortages in prior-year shipbuilding programs, limiting the increase in real purchasing power to about $2 billion. TOA is projected to rise by $14.4 billion from FY 1976 to FY 1977. About half of this increase is necessary to cover inflation (pay raises and price increases). The remainder about $7 billion represents an increase in real purchasing power, necessary to modernize weapon systems, to improve the combat capability of existing forces, and to continue improvements in the equipage of Army divisions and tactical air wings. The budget also provides necessary increases for strategic forces, for continued development and initial procurement of the B-1 bomber; continued development and procurement of the TRIDENT missile and submarine system; and for a range of other strategic system improvements which can be deployed if necessary.

The budget, and the projections through FY 1981, reflect the continued resolve of the President to maintain a defense posture sufficient to ensure that the United States can fulfill its objectives of peace, utual security and international stability. This budget meets the test of national security needed for the United States and demonstrates a steadiness of purpose and consistency of effort over time.

The increase in real purchasing power provided for FY 1976 is especially noteworthy. Last year marked the reversal of a ten-year downtrend in baseline resources, which reached a quarter-century low in FY 1975. This steady downtrend, in the face of the Soviet trend discussed elsewhere in this report, is a source of deep concern. To reverse the trend, the President proposed an FY 1976 budget that would have provided an increase in real baseline resources from the depressed level of FY 1975. After Congressional reductions in the FY 1976 requests, a real increase of about $2 billion has resulted. In this connection, it is important to note that some of the Congressional reductions, such as those associated with the war in Vietnam, did not affect baseline U.S. defense programs.

1/ Under the technical rules governing budgetary presentations, budget authority for this fund is the net of orders received from foreign governments and cash collections from those governments. All of these transactions will ultimately be paid in full by those governments. Under the technical budgetary rules just described, though, there are large swings in budget authority from year to year, quite aside from any changes in the defense program.

In speaking of an increase in real purchasing power in this Report, it is important to note that we use the conventional definition of that term dollar increases over and above those necessary to cover pay raises and price increases. The definition does not imply an increase in manpower, which is in fact declining somewhat and then stabilizing after 1978. Nor does it imply an increase in the force structure, which is essentially stable. The term does not imply, necessarily, an increase in the number of weapons. These increases reflect, primarily, qualitative improvements and the provision of full materiel support to existing units. Modernization and enhancement of this sort are essential to maintain a capability responsive to a mounting threat. Equipment which is purchased to replace worn-out items must embody the technology needed to match the increasingly sophisticated Soviet forces. This necessarily involves defense budget increments over and above those required to cover pay raises and price increases. As noted, such an increment was provided from FY 1975 to FY 1976, although less than required, and the FY 1977 budget requests the increase needed to place us on a steady and orderly path of growth. For the period FY 1978-81, smaller annual increments will be necessary, approximating the size of that provided from FY 1975 to FY 1976.

To achieve the necessary improvements in military capability within existing fiscal constraints, the Department is emphasizing its efforts to obtain greater efficiency within the defense establishment. We will continue to seek opportunities for economies through base closures and realignments, streamlining of headquarters activities, and conversion of support resources into combat capabilities. Furthermore, the Department is sharing in the general restraints upon which the President's overall budget proposals are based. Examples include limiting military and civilian pay increases; a cutback of 26,000 in civilian employment; reducing petroleum consumption; holding new construction below FY 1976 levels; reducing the level of training for certain National Guard and Reserve positions; cutting back travel and transportation, with associated reductions in numbers of personnel; reducing various forms of payments to personnel; phasing out the subsidies for labor and utility costs of military commissaries; and moving toward fair-market rental values in amounts withheld for occupancy of public quarters. If these actions some of which will require legislation cannot be accomplished, then additional amounts of about $2.8 billion or more would have to be added to the FY 1977 budget totals projected here.

In appraising the defense budget trend, it is necessary to allow for pay raises and price increases, and to consider separately certain items which do not contribute to current and projected U.S. military capability. These adjustments are reflected in Table IB-2.