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The original documents are located in Box 9, folder "FY 1977 - 11/21/75, Defense,
Intelligence (3)" of the White House Special Files Unit Files at the Gerald R. Ford
Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 9 of the White House Special Files Unit Files at the Gerald R. Ford Presidential Library
MEETING ON FY 1977 BUDGET
(Defense and Intelligence)
Friday, November 21, 1975
1
3:00 P.M.
1977
PRESIDENTIAL
REVIEW
DEFENSE
Small Agencies
GEFALD FORD
CLASSIFIED ATTACHMENT
PRESIDENT
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE
UNITED
OFFICE OF MANAGEMENT AND BUDGET
SECUTIVE
STATES
WASHINGTON, D.C. 20503
THE PRESIDENT HAS SEE
MEETING ON FY 1977 BUDGET
Friday, November 21, 1975
3:00 p.m. (60 minutes)
The Oval Office
From: James T. Lynn
I. PURPOSE
To make decisions on issues raised by the FY-77
budget for The Department of Defense and the
Intelligence Community.
II. BACKGROUND AND PARTICIPANTS
A. Background: The FY-77 Budget submission of The
Department of Defense and the Intelligence Community
has been reviewed by the Office of Management and
Budget and members of the White House staff. This
meeting will be conducted as a part of the overall
Defense Department budget review. It will focus
on issues that require Presidential consideration
and determination.
B. Participants: James T. Lynn, Brent Scowcroft,
Paul O'Neill, and Donald Ogilvie.
C. The attached material is classified and should
be treated accordingly.
III. TALKING POINTS
A. Don Ogilvie, what is the first issue we should
discuss today?
GERALD FORD LIBRANT
CLASSIFIED ATTACHMENT
Defense
1977 Presidential Review
Department of Defense
Table of Contents
TAB A
Summary tabulation of the 1977 Budget amounts
requested and recommended.
TAB B
Summary of the principal budget decisions reflected
in the OMB recommendation.
TAB C
Issue Papers
Effect of issue on TOA
Issue
(dollars in millions)
1977
1978
1. Military, Civilian, and Retired
Pay Caps
-2,651
-385
2. Civilian and Military Strength Levels
Military Strength Levels
-180
-250
Civilian Employment Levels
-450
-900
3.
Guard and Reserve Forces
Manpower
-78
-73
Pay Practices
-114
-114
4.
Compensation
Junior Enlisted Travel Entitlements
-136
-181
Enlistment Bonuses
-61
-61
Pay/Allowances--Cadets and Midshipmen
-5
-10
FHA Mortgage Insurance Premiums
---
Commissary Subsidy
-103
-205
Non-Appropriated Fund Activities
-40
-100
Fair Market Rental
-52
-119
Personal Money Allowances
---
---
Enlisted Aides
-5
-5
5. Operations and Maintenance
Permanent Change of Station Moves
-242
-264
Real Property Maintenance Activities
-222
-252
Defense Energy Consumption
-147
-158
Inventory Levels
*
*
Civil Defense
-83
-88
Travel
-94
-94
MAC Charter Concept
-13
-11
Rate Stabilization
-500
-500
FORD & LIBRARY 976835
1977
1978
6:
Construction/Family Housing
Military Construction
-804
---
Aeropropulsion Systems Test Facility
+437
-437
Family Housing
-320
-329
7. Investment
Non-Major Systems Procurement
-1,000
-1,100
Army - Ground Forces
-238
-76
Navy - Cruisers/Destroyers
---
Aircraft Carrier
-200
-100
Support Ships
-363
-142
Attack Submarines and Patrol
Frigates
-249
+231
Full Funding of Shipbuilding
+846
-366
CONDOR Missile
-49
-65
Aircraft - F-18
-233
-242
Tactical Aircraft Procurement
-1,102
-399
Aerospace Overcapacity
-402
-417
Advanced Tanker/Cargo Aircraft
---
+300
Strategic - Minuteman III
-322
-340
Intelligence (provided separately)
-200
-200
-9,375
-7,452
*
No TOA impact; only outlays are affected.
GERALD OKO
A - Summary Tabulation
1
Department of Defense
1977 Budget
Summary Data
Employment, end-of-year
Full-time
TOA
Outlays
Permanent
Total
1975 actual
87,958
86,019
954,721
989,323
1976 February budget
104,684
92,800
953,321
985,000
enacted (estimated)
97,270
89,278
supplementals recommended
730
722
agency request.
98,000
90,000
935,000
962,000
OMB recommendation.
98,000
90,000
935,000
962,000
OMB employment ceiling
953,321
985,000
TQ February budget
24,642
25,400
enacted (estimated)
23,028
23,965
supplementals recommended
85
85
OMB recommendation.
23,113
24,050
1977 planning target.
110,000
99,000
agency request (anticipated)
113,000
101,000
950,000
968,000
OMB recommendation.
110,000
99,000
910,000
920,000
reduction target
110,000
99,000
1978 OMB estimate
122,600
111,350
910,000
920,000
GERALD
R.
FORD
LIBRARY
B - Background
2
Background - Strategy: Defense Budget
My memorandum to you of October 3 proposed a Defense budget level of $110 billion in TOA and $99
billion in outlays. That proposal was designed to:
-- Fully fund all of the Defense Department's major force proposals;
-- Provide real program growth of $3 billion over 1976 and fully cover anticipated inflation;
-- Affect only pay and support programs and have no appreciable impact on our military capability;
-- Provide a substantial cushion for Congressional cuts; and
-- Signal our continued commitment to a strong national defense by showing a 12% increase over
last year.
I continue to believe that $110 billion in TOA and $99 billion in outlays is an appropriate level
for Defense in 1977. The overall program I recommend is described below:
OMB Proposed 1977 Defense Budget
($ billions)
TOA
Outlays
1976 Likely Congressional Level
98
90
Changes to arrive at 1977 level:
Add: Inflation
10
8
Desirable program growth
3
2
Congressional cut insurance
3
2
Subtotal
114
102
Subtract: Hold pay raise to 5%
-2
-2
Improve efficiency
-2
-1
Proposed Budget Level
110
99
Changes to the Defense proposal:
-- The October 3 memorandum identified a Defense budget request of $122 billion in TOA based
upon the requests of the services.
--- At the time we prepared our review book, the Defense Department had reached a budget level of
$118 billion in TOA, and our issues and proposed reductions are tied to that level. We have
identified about $9 billion worth of issues to give you the option to select the final level
you desire.
3
-- Since we prepared our review book, Defense has continued to reduce its forecast. As a result
of their reductions:
(1) Some of our issues have been fully accepted and are no longer in contention;
(2) Some of our issues have been partially accommodated; and
(3) Some reductions are being proposed by the Defense Department which are different from
issues we have raised.
As you review the Defense Department issues, I recommend you make tentative decisions to reach a
level of $110 billion in TOA and $99 billion in outlays or below, for consideration by DOD.
-- I recommend that we inform DOD that alternative proposals to achieve a budget level of $110
billion in TOA and $99 billion in outlays are acceptable, provided that:
Existing military force levels and readiness are preserved.
Strategic modernization levels required for an appropriate SALT posture are maintained.
No programs are delayed to 1978 or beyond when such action would be uneconomical.
Specific decisions you make are accommodated.
-- Following your tentative decisions we will advise the Department and arrange for a meeting with
you, Don Rumsfeld, Brent Scowcroft, and myself to arrive at final decisions.
In order to retain real program growth and Congressional cut insurance in the Defense budget level
of $110 billion, it is necessary to achieve the types of reductions which will improve efficiency.
These are often the types of reductions which are the most difficult to convince the Congress and
many in the Department of Defense to accept. Indeed, we would recommend that you take the lead in
proposing and supporting these types of actions. The position should be that these types of actions
are necessary in order to achieve an affordable Defense program which preserves the necessary military
capabilities. Specifically, compensation issues, reserve and active military and civilian personnel
reductions, excess aircraft production facilities, and some others are in this category. Thus, Defense
can be viewed as being subjected to a level of fiscal austerity equivalent to that imposed on the
domestic programs.
ERALD
4
1977 Budget
Department of Defense
Summary of Recommended Program Reductions
($ Millions)
1976
1977
1978
FTP
TQ
FTP
FTP
TOA
Employ
TOA
TOA
Employ
TOA
Employ
Current base
98,000
935,000
23,100
118,000
950,000
950,000
Recommended level
98,000
935,000
23,100
110,000
910,000
122,600
910,000
Reduction
---
---
---
-8,000
-40,000
-40,000
Program reductions:
Military, civilian and retired pay caps. Hold military and civilian pay increases to 5% and retired
pay to 60% of CPI. Legislation required.
-2,651
-385
Military strength levels reduced by 37,000 from the amount requested in support and non-combat categories.
-180
-250
Civilian employment levels reduced by 48,000 in total and 40,000 in FTP from the requested level.
-450
-900
Guard and Reserve forces manpower paid drill strength reduced by 46,000 from the requested level.
Legislation required.
-12
-20
-78
-73
5
1976
1977
1978
FTP
TQ
FTP
FTP
TOA
Employ
TOA
TOA
Employ
TOA
Employ
Guard and Reserve pay practices and related programs reduced by eliminating dual compensation for
Federal employees who are reservists; reducing the annual paid drill requirements for certain reservists;
eliminating administrative duty pay; eliminating the practice of paying certain reservists two days of
pay for one eight-hour extra drill period; and eliminating all Junior ROTC. Legislation required.
-114
-114
Junior enlisted travel entitlements. Do not provide for travel of dependents of junior enlisted personnel.
-136
-181
Enlisted bonuses, suspend due to success of the all volunteer force.
-61
-61
Pay and allowances of cadets and midshipmen, reduce to expenses plus $125 per month. Legislation required.
-5
-10
FHA mortgage insurance premiums, suspend payment by Government for service members. Legislation required.
---
---
Commissary subsidy. Phase out over a three-year period. Legislation required.
-103
-205
Non-appropriated fund activities. Reduce appropriated fund support gradually.
-40
-100
6
1976
1977
1978
FTP
TO
FTP
FTP
TOA
Employ
TOA
TOA
Employ
TOA
Employ
Fair market rental. Convert on-base military housing to a fair market rental system by 1984 by
allocating a greater portion of future pay raises to quarters allowances. Legislation required.
-52
-119
Personal money allowances. Terminate these special allowances to certain high ranking officers.
Legislation required.
---
---
Enlisted aids. Eliminate enlisted aids.
-5
-5
Permanent change of station moves. Reduce personnel turbulence and PCS moves by gradually implementing
changes to make Hawaii and Alaska domestic rather than overseas tours; homebasing; and planning to meet
prescribed average overseas tour lengths.
-34
-60
-242
-264
Real property maintenance. Reduce by holding backlogs to existing levels; increased use of military
construction units; and contracting out.
-222
-252
GERALD
Energy consumption. Increase use of smaller aircraft and flight simulators in place of high fuel burning
R.
aircraft.
R.FORD
FORD
-147
-158
Inventory levels. Hold stock levels of fuel and other commonly available items at 1975 levels. (Note:
no TOA savings; rather a reduction of $600 million in outlays.)
---
---
---
7
1976
1977
1978
FTP
TQ
FTP
FTP
TOA
Employ
TOA
TOA
Employ
TOA
Employ
Civil Defense. Limit functions to those closely related to nuclear disaster preparedness.
-83
-88
Travel. Reduce administrative travel to a level 5% below actual 1975.
-82
-23
-94
-94
MAC Charter Concept. Use block seat purchases on commercial scheduled airlines for overseas travel.
Requires CAB approval.
-13
-11
Rate stabilization. Do not permit future inflation to be anticipated in establishing revolving fund
price levels.
-350
-125
-500
-500
Military construction. Delete or defer lower priority construction projects.
-804
0
ASTF. Construct an Aeropropulsion Systems Test, Facility to improve design and test capability of new
GERALD
aircraft engines.
+437
-437
Family housing. Reduce leased and new construction housing units where local community off-base housing
can fill needs; limit improvements to essential minimums; and provide only essential operating and
maintenance costs.
-320
-329
8
1976
1977
1978
FTP
TQ
FTP
FTP
TOA
Employ
TOA
TOA
Employ
TOA
Employ
Non-major systems procurement. Limit increase over 1976 to 17%.
-1,000
-1,100
Ground forces procurement. Defer procurement of non-nuclear Lance and long-lead funding of the XM-1
tank; recognize slip in M-60 production build up.
-238
-76
Major warships. Make a Title VIII Presidential determination. Fund a conventionally powered destroyer
in 1977 and plan for a nuclear-powered cruiser in 1978.
---
---
Aircraft carrier funding. Defer advance funding for new nuclear powered aircraft carrier until design
characteristics are better defined.
-200
-100
Support ships. Defer one oiler and one destroyer tender in 1977; defer one oiler in 1978.
-363
-142
Attack submarines and patrol frigates. Shift funding of one attack submarine from 1977 to 1978.
-249
+231
Full funding of shipbuilding. Re-establish full funding of the 1975 and prior-year shipbuilding programs.
GENALD
+846
-366
9
1976
1977
1978
FTP
TO
FTP
FTP
TOA
Employ
TOA
TOA
Employ
TOA
Employ
CONDOR missile. Cancel
-86
-10
-49
-65
F-18. Reopen industry design competition for a new Navy Air Combat Fighter.
-80
-18
-233
-242
Tactical aircraft procurement. Hold A-10 production to current rate of 5 per month in 1977 pending
correction of structural defect; reduce Airborne Warning and Control System from 6 to 3 to encourage
possible NATO procurement; and reduce F-15 procurement from 108 to 72 in 1977 in view of likely foreign
sales.
-1,102
-399
Aerospace overcapacity. Discontinue inefficient Navy aircraft production lines (A-4M, A-6E, E-2C, and
C-130).
-402
-417
Advanced Tanker/Cargo Aircraft. Initiate procurement of this aircraft in 1978.
---
+300
Minuteman III Missile Procurement. Defer decision to continue Minuteman III production pending Presidential
decision in light of SALT.
-322
-340
Offsetting adjustment from
internal Defense Department
review
+644
+256
+1,375
---
C - Issues
Military, Civilian
& Retired Pay Caps
10
Issue Paper
Department of Defense
1977 Budget
Military, Civilian and Retired Pay Caps
Statement of Issue
Should military, classified, wage board and retired pay increases be capped in 1977?
Background
Current law is estimated to require pay increases for:
($ millions)
1977
1978
- Military and GS civilians, 11.5% on 10/1/76 and
6% on 10/1/77
$3,744
5,921
- Wage boards civilians, 10% in 19TQ, 9.4% in 1977,
and 6% in 1978
370
876
- Retired pay CPIs, 5.88% on 10/1/76, 5.34% on
654
1,317
5/1/77 and 5.47% on 1/1/78
$4,768
8,114
Alternatives
#1. Reduce pay raises by $2,116 million in 1977 by holding only military and civilian GS increases
to 5%. Do not reduce wage board or retired pay increases due to low probability of congressional acceptance.
(Agency request)
#2. Approve $4,768 million for pay raises under current law in 1977 and $8,114 million in 1978.
#3. Reduce pay raises by $2,651 million in 1977 and $385 million in 1978 by holding military,
GS and wage board increases in 19TQ and 1977 to 5% and by reducing retired pay CPIs to 60% of
entitlement. (OMB recommendation)
TOA ($ Millions)
CERALD
1977
1978
Alternative #1
2652
8114
FORD
4768
Alternative #2
8114
2117
7729
Alternative #3
LIDRARY
11
Analysis
The 1976 budget proposed legislated caps on military, classified, wage board and retired pay
increases. While the pay cap on military and classified pay was achieved, the proposed caps on wage
board and retired pay were never considered by the Congress.
Military and Classified Civilians. By holding military and GS pay to 5% in 1976, the 1977
increase to maintain comparability has gone from 8.75% to 11.5%. Assuming a 5% cap in 1977, the 1978
increase to maintain comparability will increase from the presently-estimated 6% to 12.6%.
Holding increases to 5% in 1977 arbitrarily would generate reductions of $2 billion in 1977 and
nothing in 1978.
Wageboard Civilians. Holding wage board increases to 5% for the transition quarter and 1977 would
generate reductions of $271 million in 1977 and nothing in 1978.
Retired pay. Holding cost of living increases in 1977 to 60% of entitlements would generate
savings of $264 million in 1977 and $385 million in 1978. It is unlikely this cap will be approved
by Congress in an election year.
Agency Request: Alternative #1. Defense has no objection to reducing military and GS increases but
they are concerned that if the other caps are not enacted, the agency, as happened in 1976, would have
to absorb part or all of the cost of these pay raises within its concurrent resolution ceiling. There-
fore, the agency recommends holding only military and GS increases to 5%.
OMB Recommendation: Alternative #3. Cap military, GS and wage board increases.
Civilian & Military
Strength Levels
12
Department of Defense
1977 Budget
Civilian and Military Strength Levels
Background
Defense payroll costs are going to continue to increase both in direct salary, and related personnel
support and benefits costs. Legislative initiatives designed to moderate these increases have been
rejected or resisted. In these circumstances, it is essential to assure that military and civilian
strength levels are established at the minimum needed to support national goals.
Alternatives
The following table displays the strength levels in the Defense request:
Actual
Request
1974
1975
1976
1977
Personnel (000)
Military
2,161
2,127
2,094
2,122
Civilian Total
1,015
989
962
968
Civilian Full-Time Permanent
(961)
(955)
(935)
(950)
The agency request would reverse the downward trend of the past few years in 1977 with increases in both
military and civilian totals. We do not believe such a reversal is consistent with current fiscal guidance
or justifiable on program grounds, and the alternatives would, accordingly, continue the downward trend.
Summary of the Issues
Can military end strength be reduced by 37,000 with savings of $180 million?
Can civilian end strength be reduced by 5% from the 1976 level with savings of $450 million?
13
Issue Paper
Department of Defense
1977 Budget
Military Strength Levels
Statement of Issue
Should Defense military strength levels be reduced?
Background
The following table displays military end strength included in the budget requests of the military
departments, the likely congressional action, and the OMB recommendation.
Actual
Estimate
Increase
OMB FY 1977
Military End Strength
1975
1976
SAC
1/
197T
SAC
1977
Over 197T
Alternative
(000)
Army
784
783
(782)
791
(788)
791
-
782
Navy
535
527
(526)
534
(532)
547
13
539
Marine Corps
196
196
(196)
196
(196)
196
196
Air Force
612
587
(582)
587
(582)
588
1
568
Total
2,127
2,094
(2,086)
2,108
(2,098)
2,122
14
2,085
1/ Strengths approved by the Senate Appropriations Committee.
Alternatives
#1. Approve the strength levels as requested by the military departments (Agency request).
#2. Reduce military strength in 1977 by 37,000 from the request, which is a reduction, however, of only
3,000 from the 197T level (OMB recommendation).
TOA ($ millions)
1975
1976
1977
1978
GERALD
Alternative #1
Alternative #2
-180
-250
14
Analysis
Historically the joint review results in individual decisions which reduce military strength on a
program basis. Normally the military departments make total strength levels a "major issue, and the
individual reductions are returned in final budget wrap-ups. Initial results of the budget review indi-
cate that a reduction of about 27,000 will be approved in individual decisions. Over half of this
reduction results from the proposal to contract out the work performed by some 14,000 Air Force personnel
in real property maintenance. A 6,000 reduction in Navy results from a proposal to reduce recruit training
from 9 weeks to 7 weeks. The remaining reduction of 7,000 consists of a large number of individual
workload related decisions in Army (2,000), Navy (2,000), and Air Force (3,000). These reductions are
expected to be approved in Headquarters and related support activities and in medical and training functions.
In part they will reflect logical extension of the congressional action on FY 1976 and FY 197T. In our
view these reductions can be accomplished without in any way affecting military capabilities. In addition,
a further reduction of 10,000 in transient accounts of Army (7,000), Air Force (3,000), and Marine Corps
(300) will be possible upon approval of the revised Permanent Change of Station policies recommended
in the OMB study of this subject. These reductions will not detract from military capabilities and in
fact could enhance them by reducing turbulence. There will be strong pressures to convert these savings
into expanded combat capability on the grounds that this is not only needed but that reducing total
strength levels could be misinterpreted as a sign of a lessening in our resolve to preserve a strong
national defense.
Agency Request: Alternative #1. The agency will maintain that current strength levels should be continued
with savings from tighter management converted into combat units.
OMB Recommendation: Alternative #2. The recommended reduction is minimal (less than 1 1/2%) and can be
accomplished without impacting capabilities.
GERALD
FORD
15
Issue Paper
Department of Defense
1977 Budget
Civilian Employment Levels
Statement of Issue
Should Defense civilian employment be reduced in 1977?
Background
For the past several years, Defense civilian employment has declined at a rate of 1% to 3% per
year. The decreases have been directed by the Administration or Congress and have been absorbed
through increased productivity, including the closing of unneeded facilities.
Alternatives
#1. Hold 1976 employment to the level expected to be approved by Congress and then increase
by 6,000 for seasonal adjustment. (Agency request)
#2. Plan on about a 2.5% decrease from the 1977 request.
#3. Require a 5% reduction from the 1977 request. (OMB recommendation)
TOA ($ millions)
1975
1976
1977
1978
Alternative #1
Alternative #2
-250
-400
Alternative #3
-450
-900
GERALD
?
FORD
16
Civilian End Strength (000)
1975
1976
1977
1978
Total
FTP
Total
FTP
Total
FTP
Total
FTP
Alternative #1
989
955
962
935
968
950*
968
950*
Alternative #2
962
935
944
924
944
924
Alternative #3
962
935
920
910
920
910
Analysis
Congressional action to date on the 1976 civilian employment requests require a reduction of over
23,000. It is not clear whether the Congressional intent is to require this reduction from direct hire
civilian employment only or whether some part of the reduction can be taken in indirect hire foreign
nationals. Our best estimate is that the reduction will be taken in direct hire employment and the end
1976 employment will be about 962,000. Adjusting that end strength for seasonal changes only would
result in an end strength for 1977 of 968,000. The original military department requests totaled 982,000.
We estimate that the normal budget scrub will eliminate most of the requested increases and that the
final 1977 agency request will be about 968,000.
Alternative #2 proposes a 2.5% reduction in 1977 civilian end strength from the estimated 968,000
level to a level of 944,000. This reduction can be achieved through the implementation of several
issues that are discussed later, and through normal productivity increases. In summary,
GERALD
-
Eliminating appropriated fund support from non-appropriated fund welfare and recreation activities
would reduce employment by 5,000.
FORD
- Transfer of overseas passenger movement functions from Air Force to civilian airports and reduc-
tions in civil defense activities would reduce employment by 800 civilians.
Application of a 1.9 percent productivity increase would permit reducing employment by the
remaining 18,500.
This overall reduction could be achieved with no impact on military readiness and would be consistent
with current OMB guidance which provides for a 2.5 percent productivity increase goal.
*
Includes 9,000 formerly classified as temporary.
17
Alternative #3 proposes an overall reduction of 5 percent in the 1977 end-strength level. The
additional 24,000 end-strength reduction required by the alternative can be achieved through the
following management improvement and belt tightening actions:
- Improved efficiencies in logistics and procurement management including (a) maximizing use
of existing depot facilities and closure of single purpose depots, (b) reducing the number
of inventory control points, by one-third, (c) consolidating the Defense Contract Administration
Service into three regional offices, (d) transferring Marine Corps supply and maintenance opera-
tions to other military services and Defense Agencies. These actions permit employment reduc-
tions of about 10,000 civilians.
- Reductions in administrative overhead including a 10 percent reduction in OSD/JCS staff would
reduce civilian employment by about 1,000.
- Holding Army and Air Force Reserve and National Guard technician employment to the 1975 level,
foregoing planned improvements in Reserve training and maintenance, would provide a reduction
of 3,000 civilians.
SERALD
- Reductions in training personnel and training base closures, reflecting an anticipated decline
FORD
in training loads would save 5,000 civilian personnel.
LICENSE
- Shifting the accomplishment of some real property maintenance, base operations and other support
activities from civilians to military personnel would permit a reduction of 5,000 civilians.
Some of the actions to achieve a 5 percent personnel reduction would involve base and facility
closures. A 5 percent reduction would also require some reductions in force. The fact that
about 26 percent of Defense civilian employees are eligible to retire would soften the effect of
such a reduction in force.
Agency Request: : Alternative #1. The Department believes further reductions should not be expected at
this time until specific productivity improvements have been identified and accomplished.
OMB Recommendation: Alternative #3. Would require an employment level about 5 percent below the expected
1976 level with the reduction to be achieved by a combination of specifically identified reductions
including a major revamping of logistical operations, achievement of established productivity improve-
ment objectives, and foregoing planned improvements in Reserve training and maintenance.
Guard and Reserve Forces
Department of Defense
1977 Budget
Guard and Reserve Forces
Background
Under the "Total Force Policy," Guard and Reserve forces are designated as the primary source for
augmentation of active forces in time of emergency. Equipment modernization, intensified training,
conversion of units to higher priority missions and "association" with active counterpart units are
key parts of this policy. Funding and strength levels for 1975-1978 are shown below:
1975
1976
1977
1978
Funding ($ millions)
Investment
725
1,003
1,465
1,801
Operations
2,421
2,796
3,013
3,046
Personnel
1,679
1,772
1,826
1,823
ROTC
81
93
98
99
Total Budget Authority ($ Millions)
4,906
5,664
6,402
6,769
Paid Drill Strength (000)
897
892
895
896
These funds are related primarily to the roughly 900,000 member Selected Reserve who train on a regular
basis and are the only portion of our Reserve forces who receive drill pay. An additional 600,000
members belong to the Individual Ready Reserve (IRR), but they generally do not train regularly and
they receive no drill pay.
Basic to the size and composition of Guard and Reserve forces is the extent to which they are geared
to realistic and current mobilization plans. Guard and Reserve programs have been greatly influenced
by external factors such as political support in the Congress, coupled with a natural reluctance by the
active forces to part with meaningful missions. Examples are the imposition by the Congress of a minimum
average strength authorization of 904,000 in 1976 in lieu of the 886,000 requested by the Administration,
and the directed retention of seventeen Navy Seabee battalions although Defense stated a requirement
for only eight battalions.
GERALD
FORD
LIBRASY
19
A "Study of the Guard and Reserve in the Total Force," completed this past September, has resulted in
four major thrusts: (1) improved modernization; (2) expanded recognition and use of the IRR; (3)
increased recognition that non-essential or ineffective Reserves are an unaffordable luxury; and (4)
increased integration of active and Reserve forces. Stemming from this study are various tests of
Reserve capability to be conducted and a requirement that Army Guard and Reserve and Navy Reserve
drill strength be justified on the basis of approved planning guidance.
Alternatives
Within the context of this current thrust and in view of today's austere budget climate, meaningful
program adjustments can be initiated over and above those likely to result from the review now being
conducted within Defense. * A key factor as to the success of the issues presented is how the impact
on the Reserve is perceived by the Congress.
FY 1975
FY 1976
FY 1977
FY 1978
Budget Authority ($ Millions)
0
-12
-192
-187
Manpower
0
-12
-78
-73
Pay Practices
0
0
-114
-114
Paid Drill End Strength (000)
0
-16
-46
-46
* Recommendations are made for reductions in Guard and Reserve manpower and pay practices that could
be accomplished without degrading mission capability.
GERALD
FORD
LIBRARI
20
Issue Paper
Department of Defense
1977 Budget
Guard and Reserve Forces Manpower
Statement of Issue
Can portions of the paid drill Guard and Reserve program and Headquarters overhead not directly
related to combat requirements be eliminated?
Background
Paid drill Guard and Reserve strengths show a slight decline from 897,000 to 895,000 from 1975 to
1977. Strength levels and Headquarters support can be reduced without degrading the capability to meet
assigned missions.
Alternatives
#1. Continue Reserve forces manpower and Headquarters support as requested by the Department of
Defense. (Agency request)
#2. Reduce Reserve paid drill strength and Headquarters functions. (OMB recommendation)
TOA ($ Millions)
1975
1976
1977
1978
Alternative #1
0
0
0
0
Alternative #2
0
-12
-78
-73
Analysis
Through better management of Reserve manpower, including expanded use of the Individual Ready
Reserve (IRR), Guard and Reserve forces can provide needed capability at reduced funding levels.
LIBRARY GERALD ? FORD
21
-- Navy Reserve requirements for 92,000 drill pay Reservists include approximately 40,000 spaces
assigned to reenforce operational staffs, headquarters, bureaus, offices and shore activities upon
mobilization. Because of the high experience level of these Reservists, the inability of some units
to get meaningful training during paid drills and the questionable essentiality of meeting CONUS shore
requirements with paid drill Reservists, objectives could be met through placing these billets in the
IRR category. This would require only two weeks' active duty for training in lieu of their programmed
training category requiring paid drills plus two weeks' active duty for training. Savings of $46 million
in 1977 would result.
-- Manning against computed requirements of some Reserve components is projected to increase from
approximately 90% at present to as high as 97%, based on improved recruiting capability. Continued man-
ning at about 90% (the minimum criteria for units to be considered "combat ready") for Marine Corps Reserve
and Air Guard and Reserve and a more gradual recovery of Army National Guard strength to its 400,000
approved level (currently at 390,000) would provide reasonable strength management levels considering
difficulties in obtaining certain skills, varying unit deployment criteria and added emphasis on the
non-pay IRR. Savings totaling $17M and strength adjustments as shown below would be realized in 1977.
End Strengths (000)
Army Guard
Marine Corps Reserve
Air Force Reserve
Air Guard
Latest Actual 9/30/75
390
31
51
94
1977 Agency Request
400
35
54
95
1977 OMB Recommendation
400
33
52
93
-- As more Guard and Reserve units "associate" with active force units and as active force gaining
commands gain experience with Reserve component management, there is a need to reduce overhead and
marginally necessary layers of management. Such Headquarters functions that now appear questionable
are the three CONUS Armies, the three Air Force Reserve Regions and the Reserve functions of six Naval
Districts. All are under review within DOD or the Congress, but positive action is not certain. Savings
of $15 million in 1977 would result from these actions.
Strong pressure from Congressional and Reserve groups can be expected against restraining strength
levels.
GERALD
FORD
LIBRARY
22
Agency Request: Alternative #1. Defense feels manning level funding constraints may prevent some
units from attaining their maximum readiness capability, lower levels will be reversed by the Congress
and such actions may lead to further Congressional legislative initiatives to manage the Reserves.
OMB Recommendation: Alternative 2. The lower manning levels and reduced Headquarters functions
provide significant savings during an austere budget period without affecting essential force
requirements.
GERALD
R.
FORD
LISBARY
23
Issue Paper
Department of Defense
1977 Budget
Guard and Reserve Pay Practices
Statement of Issue
Can some Guard and Reserve pay practices and related programs be curtailed without degrading
training proficiency?
Background
While significant changes have occurred in the Reserve forces during the past few years, there
are questionable pay practices and related programs that continue without change.
Alternatives
#1. Continue current practices and programs. (Agency request)
#2. Make adjustments in those areas which do not directly contribute to military readiness.
R.
(OMB recommendation)
"yod
TOA ($ Millions)
1975
1976
1977
1978
Alternative #1
0
0
0
0
Alternative #2
0
0
-114
-114
Analysis
Dual Compensation for Military Training - An estimated 150,000 Federal employees who are Guards-
men or Reservists receive an average of $400 in military pay in addition to their regular Federal
civilian pay while on active duty for training. The Federal Government could follow the policy of many
private employers of granting military leave and providing pay only to the extent necessary to assure
no loss of take home pay due to Reserve duty. A savings of up to $45 million annually could be
realized. Legislative action would be required. While strong opposition can be expected on the
grounds that many Government employees may leave the Reserve program and that recruitment for
24
technicians could be adversely affected, we feel this opposition to be based more on emotions than
fact of life.
Reserve Training Requirements - Although deployment criteria, skill attainment difficulty and
skill proficiency levels achieved vary widely among Reserve units and individuals, the Reserve compo-
nents require 48 four-hour training periods and two weeks' active duty for 97.7% of those personnel
in paid drill status. Significant numbers could shift to lower training/pay categories with minimal
impact on readiness. Legislative action is necessary for National Guard personnel. Strong opposition
can be expected primarily on the basis that reduced drill pay may create a negative recruiting impact.
Over 30,000 spaces have been identified for such action in the joint review at a savings of $20 million,
but the decision is uncertain.
Administrative Duty Pay - Administrative duty pay, not to exceed $240 annually, is provided in
law for Commanding Officers of units at a cost of $2 million annually. This pay was initiated in
recognition of the extra time and expense involved with administrative duties of command and is com-
puted on the basis of assigned unit strength. The need is questionable in view of adequate admin-
istrative support now provided to units. (Civilian technicians, extra paid training periods.)
Drill Pay - As implemented under law, Reserve inactive duty drill pay is based on one day's pay
for each four-hour training period, not to exceed two in any one day. This method, as well as paid
mandays (a day's pay for a day of duty), is also used for compensation for additional training above
regularly scheduled drills. In the absence of any consistent approach to pay for extra training, the
manday method for extra training appears appropriate and can result in annual savings of $22 million.
While this adjustment to extra training pay computation methods could reasonably be implemented without
major program impact, the logical follow-on of a day's pay for a day of duty for regular inactive duty
training periods has many ramifications warranting detailed study -- a precedent of close to 60 years
for one day's basic pay per drill period of 1-1/2 to 4 hours, the impact on retention and recruiting
of a substantial loss in daily pay, alternatives to current pay and incentives, retirement point credit
implications, etc. However, in view of the magnitude of the current added cost of paying two days'
pay for a days' work, approximating $.5 billion, a detailed study of the Guard and Reserve inactive
duty pay seems warranted.
GERALD
?
FORD
LIBRARY
25
Junior ROTC - The desirability of continued Defense support for the Junior ROTC (high school)
program is open to serious question. Support for this program, which is not required to meet any
specific military needs, runs about $25 million per year. There are 1,200 units authorized in law
and legislative action would be required.
Strong resistance from Congressional and Reserve groups can be expected for changes to all the
above programs.
Agency Request: Alternative #1. Defense would view adjustments to these programs as having a possible
adverse impact on recruiting and retention and would fear counterproductive Congressional reaction.
OMB Recommendation: Alternative #2. The current austere budget climate provides an ideal climate
to adjust the programs discussed. Defense should develop required legislation for inclusion in their
legislative program, where required, and implement those adjustments not requiring legislation. In
addition, a comprehensive review of Reserve pay programs should be conducted by the Department of
Defense.
GERAL
7803
LICARAT
Compensation
GERALD
26
Department of Defense
FORD
1977 Budget
Compensation
The military salary and benefits system is a highly complicated composite of basic pay plus a wide
variety of selected benefits imposed over the past 100 years to meet then identified needs. This
hodge-podge of benefits continues today despite the fact that in the past five years the basic salaries
for military personnel have been raised substantially and are now considered comparable with those of
the Federal civilian work force.
The Quadrennial Review of Military Compensation has been examining the military system in some detail
since early 1975. The results to date have been disappointing, and basic questions such as what con-
stitutes military salary remain unresolved. Regardless of the outcome of the QRMC, the budget review
provides a useful arena for addressing and resolving the need to continue selective benefits for active
military and retired personnel.
The issues raised can be grouped in three categories:
1. Proposed new benefits not currently available to military personnel. Travel for junior enlisted
personnel is the single issue in this area.
2. Opportunities to reduce or eliminate inequities in the benefit structure applicable to future
military personnel only. Current active and retired personnel would continue to receive the benefit.
Included in this area are enlistment bonuses, pay for military cadets, the clothing maintenance
allowance, and the insurance premiums on FHA mortgages.
3. Changes in benefits which will take money away from active duty military and retired personnel.
These will be most difficult to implement and will encounter severe opposition on the part of the
affected parties, as well as congressional obstacles. Specific issues include a renewed attempt to
reduce the commissary subsidy, the initiation of medical user charges for dependents of military
personnel and retirees, a reduction in appropriated fund support of non-appropriated fund activities,
and the initiation of a fair market rental system for Government housing.
Most military people, active and retired, believe they receive less compensation than in fact they do.
They tend to equate their total compensation with basic pay only, leaving out any consideration of retirement
benefits, special pays, allowances, and the tax advantage. Thus, in the mistaken belief that they are
underpaid, they feel that they richly deserve those special benefits of the type with which we take issue here.
(Attached is a comprehensive list of auxiliary benefits for military personnel.)
27
Further aggravating the situation is the perception by the average military person that there has
been a constant erosion of their benefits in recent years and that there is a concerted effort to deprive
them of more benefits.
For reasons such as these, it would be extremely difficult--if not impossible--for a Secretary of
Defense or a military service chief to take the lead in supporting before Congress and the public the
sorts of alternatives we are proposing in the following set of issues--especially those in the third
category. Successful implementation will require active personal leadership by the President, as
commander-in-chief. He would have to make the case that, because of the huge growth in personnel costs
in the Defense budget in recent years, these changes are essential in order to achieve the necessary
defense capabilities within an affordable total budget.
GERALD
CHO3
LIBRARY
28
COMPREHENSIVE LIST OF AUXILIARY BENEFITS FOR MILITARY PERSONNEL
I. Morale Welfare and Recreational Activities
--
Resale of Goods and Services
Post exchanges
- Consumer goods
- Barber shops
- Repair services, watch, auto, other
- Gas stations
Liquor stores
Movie theaters
Cadet and civilian employee restaurants
Academic book stores
Stars and Stripes system
--
General Welfare and Recreation
Athletic facilities and equipment
- Gymnasiums
- Tennis courts
- Ball fields
- Swimming pools
Bowling and golf facilities
Crafts and hobby shops
Libraries
Organized sports and youth activities
Other recreational facilities and equipment
BERALD
- Billiard, ping pong, card rooms
- Boating and camping equipment
FORD
--
Membership Associations
LIBRARY
Officer and enlisted personnel clubs (open messes)
Hobby and sporting clubs
29
--
Special Activities
Billeting or housing operation for transient military
personnel
Transient family accommodations
Guest houses and visitor accommodations
Child care centers
On-post vehicular registration and inspection
Military museums and historical sites
--
Other Recreational and Welfare Benefits
Overseas rest and recreation areas including hotel
facilities
Professional entertainment through the USO
Military entertainment and military bands
Waived or reduced fees in national parks and national
recreation areas
Discount admission prices at selected commercial
entertainment and amusement establishments
II. Commissaries
III. Community Services
-- Direct housing services at less than fair market rental
-- Utilities, water and waste removal
-- Fire and police protection
-- Road construction, maintenance and snow removal
-- Major maintenance for housing facilities
-- "Insurance" against property loss or damage
-- Furniture at selected overseas posts
-- Parks and other recreational facilities
GERALD
--
"Courtesy" moves for families in the local area to
P.
acquire on-post Government quarters
FORD
-- Transportation for dependent children to local public
schools within the U.S. and direct schooling for dependent
LIBRARY
children in overseas areas
30
IV. Transportation and Moving Services
-- On-post transportation
--
Organized transportation to off-post activities
--
"Space-available" transportation on military aircraft
-- Personal property insurance for moved or stored goods
-- Dislocation allowances
-- Temporary lodging allowances
-- Station housing allowances
-- Military discounts on commercial air fares
-- Reduced Government rates for household goods movement
V. Medical Services
-- Direct care for military member
-- Direct and/or civilian care (80/20 cost sharing) for
dependents, retired personnel and their dependents
-- VA medical services
VI. Other Professional Services
-- Legal services
-- Religious services
-- Financial counseling
-- Career counseling and job placement
-- Veterinary services
-- Mortuary services, including cemetary plots with
headstones
VII. Educational Services
--
Military member
In service training at military institutions
Full-time enrollment in civilian institutes of higher
education for selected officers
3.
Tuition assistance for part-time enrollment in high
school, college or other degree granting institutions
GI Bill
--
Dependents
Direct elementary and secondary education services
overseas
Fellowship and scholarship assistance
VIII. Special Financial Advantages
-- No state or local taxes on purchases at commissaries,
exchanges or other stores on military installations
-- Exemption from state and local income and personal property
taxes at current residence unless the member is legally
domiciled in that state
-- Exemption from state vehicular registration and licensing
fees so long as vehicle is registered in members' state
of domicile
-- Exemption or reduction in local vehicular licensing fees
and military personnel and their families into the U.S.
-- Noncontributory retirement program
-- FHA mortgage insurance of 1/2 of one percent for members
on active duty
-- "No fee" passports for military personnel and their
dependents when on official overseas travel
IX. Executive Privileges
-- Chauffeured staff cars
-- Enlisted aides
-- Executive aircraft
-- Selected dining rooms
32
-- Furnishings for entertainment areas
-- Personal money allowances
-- Guest rooms in Government quarters
-- Other special position allowances
X.
Miscellaneous Auxiliary Benefits
-- Initial cash clothing allowance for certain officers
-- Initial clothing issue for enlisted personnel
-- Monthly clothing allowance in cash or in kind for
maintenance of enlisted clothing
-- Enlisted subsistence either through direct Government
provision or in cash payments
-- Subsidized meals for officer personnel at specially
established officer field ration messes
FORD
33
Issue Paper
Department of Defense
1977 Budget
Junior Enlisted Travel Entitlements
Statement of Issue
Should existing entitlements for dependent travel and transportation allowances be extended to junior
enlisted military personnel?
Background
Junior enlisted personnel stationed overseas, even if accompanied by their dependents, are not
eligible for travel and transportation allowances for their dependents or for station allowances (cost
of living, housing and temporary lodging) at rates otherwise allowable for those with dependents. DOD
attempted to change the policy in 1975, but the Congress denied the funds for reasons that included high
program cost, the potential increase in the number of dependents overseas, removal of a reenlistment
incentive and rejection of DOD's equity argument when so many entitlements are differentiated by rank.
DOD attempted to include funding again in the 1976 President's Budget for a smaller group of junior
enlisted personnel (those who agreed to an active duty commitment of at least four years). The Secretary
discussed this issue with the President who decided not to include the funds in the 1976 budget. The
1977 budget would again request these funds.
Alternatives
#1. Extend travel and transportation allowances to junior enlisted personnel. (Agency request)
#2. Retain the current policy of providing travel and transportation allowances only to senior
enlisted personnel who are primarily careerists. (OMB recommendation)
TOA ($ Millions)
1975
1976
1977
1978
Alternative #1
0
0
136
181
Alternative #2
0
0
0
0
34
Analysis
Although equity is cited as the primary basis for extending the travel entitlements to junior
enlisteds, the Congress indicated in its rejection of the 1975 proposal that equity alone should not be
the basis for extension of the entitlement. The entire military pay structure is based on different
allowances for individuals of different rank and officer/enlisted status. Based on current military
promotion policies, the junior enlisted population is nearly totally composed of first-term service
personnel. Providing these entitlements to first-termers would remove an inducement for a junior
enlisted service member to reenlist, since he will enjoy full benefits before he completes his first
reenlistment. Further, the lack of the entitlement does not appear to have significantly affected
reenlistments, inasmuch as the military services are now enjoying an unprecendented high rate of
reenlistments. On the other hand, by not providing these new allowances, it may prove to be an incen-
tive for an individual to seek both promotion and reenlistment. Equity as an argument is less compel-
ling in an all-volunteer force environment than in a draft situation when draftees have no choices.
It is also necessary to point out that in denying funds for this purpose in 1975 Congress expressed
concern about the possibility of increasing the number of dependents overseas. Again, in its review
of the 1976 military travel program, the House Appropriations Committee expressed the same concern. It,
therefore, is highly unlikely that Congress would act favorably on funds for this purpose. Not included
in the cost of extending this entitlement is the yet undetermined cost and impact of additional housing
and other requirements overseas. In 1975 DOD estimated that extension of the entitlement would require
3,000 new housing units and 3,000 new leasing units at a cost of $76.9 million.
Agency Request: Alternative #1. The Department believes that extending the entitlement to junior
enlisted personnel would be equitable, would alleviate the financial burden on many service personnel
and would encourage reenlistments.
OMB Recommendation: Alternative #2. Both enlistments and reenlistments are generally exceeding expecta-
tion
the existing compensation structure appears adequate.
GERALD
35
Issue Paper
Department of Defense
1977 Budget
Enlistment Bonuses
Statement of Issue
Should enlistment bonuses be eliminated in view of the favorable recruiting situation?
Background
Current law provides for an enlistment bonus of up to $3,000 for personnel who enlist in a
critical skill in the military services for at least four years. In March 1975, DOD reduced the
maximum to $2,500 which is paid to individuals in the Army and Marine Corps who enter into the
combat arms skills. A lesser amount - $1,500 - is paid to individuals who enlist in critical
technical skills.
Alternatives
#1. Maintain enlistment bonus program at currently planned level. (Agency request)
#2. Suspend the enlistment bonus until a demonstrated need develops for such an incentive.
(OMB recommendation)
TOA ($ Millions)
1975
1976
1977
1978
Alternative #1
59
63
61
61
Alternative #2
59
63
0
0
GERALD
Analysis
During 1975, the military services attained their enlistment goals. Generally this success
was both quantitative and qualitative. The percentage of recruits who are high school graduates
LISSANY
and in the higher mental group categories increased from 66% and 90% in 1974 to 72% and 94%
respectively in 1975. As a result of the improvements in recruiting, DOD advised the Congress
36
that the 1976 enlistment bonus program could be reduced from a requested $75.5 million to $62.1 million.
Congressional action is likely to further reduce the program.
Reenlistments in 1975 were also greater than anticipated, and it is expected that this favorable
trend will continue throughout 1976. All of the above, when coupled with recent economic forecasts,
suggest that DOD should continue to meet its manpower requirements even without an enlistment
incentive.
The Services will point out that while they are facing less difficulty in meeting their numerical
strengths, they continue to experience significant skill mismatch problems. The Marine Corps, for
example, utilizes the program to upgrade the quality of enlistees received into the combat arms skills.
However, while many skills are undermanned, others are overmanned. The Services have recently initiated
retraining, promotion, and policy changes which are designed to shift personnel from overmanned to
undermanned skills. This approach to reducing speciality imbalance could be more effective and less
costly than the bonus payments.
Agency Request: Alternative #1. The Department believes that technical skill shortages as well as
the need to attract people into the combat arms, justifies continuing the enlistment bonus program.
OMB Recommendation: Alternative #2. The current favorable enlistment and reenlistment situation provides
an ideal climate to reduce these costs. A change can be made in later years if there is an adverse impact
on recruiting.
37
Issue Paper
Department of Defense
1977 Budget
Pay and Allowances of Cadets and Midshipmen
Statement of Issue
Should the pay and allowances of cadets and midshipmen be reduced?
Background
In addition to a free education and free room and board, cadets and midshipmen of the military
academies are entitled to basic pay. This pay is established by law at 50 percent of the basic pay
of a second lieutenant. Pay raises approved for members of the Armed Forces are passed on to cadets.
As a result of the October 1, 1975, pay raise, cadet basic pay is established at $5,445 per annum.
In addition, cadets receive either a Navy ration or the value of the ration in cash.
Alternatives
#1. Continue the current system for providing pay and allowances to cadets and midshipmen.
GERALDO
(Agency request)
#2. DOD sponsor legislation which would replace basic pay for cadets and midshipmen with a new
system which would provide for cadet expenses plus a $125 monthly allowance. (OMB
recommendation)
TOA ($ Millions)
1975
1976
1977
1978
Alternative #1
61
65
66
66
Alternative #2
61
65
61
56
Analysis
The report by the House Appropriations Committee on the 1976 Defense Appropriations bill indicates
that the practice of paying cadets was begun to prevent perceived inequities when cadets who come from
different economic and social levels were placed together. At that time the rate of pay was not tied
to the pay of a second lieutenant. This salary system has been justified in the past as necessary
38
to teach cadets to handle personal finances. In practice, however, they are given very little
freedom over the use of their funds. Currently they receive only a monthly allowance. The
remaining funds are held by the Academy. Expenses for books, procurement and maintenance of
uniforms, laundry and dry-cleaning, etc., are deducted from this pay. The Appropriations Committee
recommended that DOD complete a study by April 1, 1976, of alternatives to the current pay system.
It suggested that consideration be given to a system in which the Government pays all non-personal
expenses associated with academy attendance, uniforms, books, laundry, etc., and the cadet is
provided with a fixed monthly pay for his personal use similar to that awarded to ROTC students.
Students enrolled in the Services' ROTC program on the average receive a $100 per month allowance,
presumably for room and board. A ROTC student on full tuition scholarship is also provided with
books.
Continuing increases to military pay have resulted in a system which provides compensation to
cadets and midshipmen in excess of what is needed to attract qualified applicants. There are many
more applicants than spaces available to be filled. The following table compares current cadet pay
with the OMB alternative proposal.
Cadet Pay
Cadet Pay
Current Salary
OMB Alt.
Difference
Annual Salary per cadet
$5,400
$1,500
-$3,900
Academy expenses (annualized)
Uniforms and equipment
670
-
- 670
Laundry/dry-cleaning
190
190
-
Books and supplies
200
I
- 200
Class ring and class activities
80
60
-
20
Net Pay
$4,260
$1,250
-$3,010
Agency Request: Alternative #1. The Department believes the present compensation system meets the
Svoa
needs of cadets and midshipmen and should be maintained.
OMB Recommendation: Alternative #2. The level of services provided to cadets including a free education,
free room and board, plus a $125 per month allowance would be adequate compensation.
39
Issue Paper
Department of Defense
1977 Budget
Payment of FHA Mortgage Insurance Premiums
Statement of Issue
Should Government payment of a service members' FHA mortgage insurance premium be discontinued?
Background
Under provisions of the National Housing Act, the Department of Defense pays the 1/2 of 1% FHA
mortgage insurance premium for military home buyers. This benefit is limited to approximately 34,000
servicemen who are homebuyers with FHA insured mortgages. The amount of the benefit depends on the
amount of the outstanding mortgage, with the average payment $90.00 per year. Almost without exception,
the payments under this benefit go to career military personnel, because one is required to have com-
pleted at least two years of active duty before one is eligible to apply for an FHA in-service loan.
The payment by the Government of the mortgage insurance premium terminates when the member departs
from active duty. The program was justified in large measure because of the inability of the Government
to provide adequate quarters to all career service families.
Alternatives
No
#1. Continue paying FHA mortgage insurance premiums for military homebuyers. (Agency request)
#2. Phase out this program by accepting no new applications. (OMB recommendation)
TOA ($Millions)
1975
1976
1977
1978
Alternative #1
3
3
3
3
Alternative #2
3
3
3
3
andi
40
Analysis
Military compensation is now reasonably comparable to civilian pay for comparable levels of work.
There is no reason why the military homebuyer should suffer any disadvantage relative to other home-
buyers. Maintenance of the mortgage insurance premium provision constitutes a supplemental benefit
that subsidizes a small group of career members who buy houses and finance them under FHA insured
mortgages.
Agency request: Alternative #1. DOD is likely to support continuing the payments on the basis that
ending the program would be seen as a further erosion of military benefits.
OMB Recommendation: Alternative #2. The program has outlived its original purpose and should be phased
out by accepting no new applications.
41
Issue Paper
Department of Defense
1977 Budget
Commissary Subsidy
Statement of Issue
Should the direct subsidy to commissaries from appropriated funds be terminated and the costs passed
directly on to the commissary patrons?
Background
The Defense commissary system was initiated to meet the needs of military personnel stationed at
remote locations and evolved into an economic benefit to offset low military salaries. Today military
salaries are competitive with civilian salaries, but the subsidy remains unchanged. In the 1976
review, the President determined to phase out the subsidy over a two-year period, and the budget was
reduced by $109 million. Subsequently, the House of Representatives overwhelmingly approved a resolution
supporting continuation of the subsidy and later restored the $109 million. There are strong indications
that the Senate will also restore the funds. The subsidy, which totals $308 million, pays the salaries
and expenses of the 26,500 civilian and military personnel engaged in commissary operations.
Alternatives
#1. Continue the subsidy on the basis that favorable congressional action is unlikely. (Agency request)
#2. Terminate the existing subsidy over a three-year period beginning on October 1, 1976, and submit
legislation in January to implement this change. (OMB recommendation)
TOA ($ millions)
1975
1976
1977
1978
Alternative #1
265
308
308
308
Alternative #2
265
308
205
103
GERALD FORD
42
Analysis
Both the Executive Branch and the Congress have received a very large volume of mail against the
1976 proposal to have the patrons assume the direct costs of commissaries over a two-year period.
Private sector, Service oriented publications have publicized the proposal and urged their readers to
protest to both Congress and the Executive Branch. The large volume of protest mail, particularly from
retired personnel, appears to have influenced the House. The two major concerns of the Congress appear
to be that the proposal would be implemented too quickly and that retired personnel would be financially
hurt by it. A three-year phase-out of the subsidy would increase the costs to the patrons by approxi-
mately 3% in 1977, 1978 and 1979. This would reduce, over the three years, the average commissary
savings from 22% to about 10-12% over commercial stores. Implementing this change in connection with
the October pay raises would partially offset the adverse impact of the higher prices for the commissary
patrons. Legislation will be required to implement this proposal. The impact of this proposal on
retired personnel is alleviated by several factors. A DOD pamphlet points out that " the current
military retirement system provides benefits far in excess of the average private pension plan. "
Military retired pay, unlike most retirement plans in the civilian sector, is automatically adjusted,
based on change in the consumer price index, to insure that the retiree suffers no loss in purchasing
power through cost-of-living increases. These cost-of-living increases have, in fact, been greater
than the actual increase in the CPI because of the one percent "kicker."
In lieu of terminating the subsidy, reductions in the subsidy are possible. Closing the seven stores
in the Washington, D.C. area in 1976 would permit a 1977 reduction of $13 million. Eliminating tobacco
products, soft drinks, candy, and health and beauty aids would reduce labor requirements and the subsidy
by $8 million. These products are available at the post and base exchanges (which do not benefit from
appropriated fund support). The substitution of boxed beef for carcass beef would reduce the number of
meatcutters and the subsidy by $3 million. These actions can be taken administratively without seeking
any legislation and are under consideration within the Department. These actions would respond to
criticisms in the House Appropriations Committee report about the large number of stores in major
metropolitan areas and the efficiency of commissary stores. Strong criticism can be expected if the
Washington, D.C. area stores are closed, but it is most obviously unnecessary here because of the large
number of shopping centers and small numbers of personnel occupying on-base housing. Such action could
result in legislation to prevent closings in the future or it could make the surcharge proposal more
attractive to the Congress and the Commissary patrons. The Department has never closed a store unless
it closed a base, and in some cases, has continued the commissary even after the base has been closed.
GERALD
FORD
43
Agency Request: Alternative #1. Retain the subsidy on the basis that Congress will not allow the subsidy
to be ended.
OMB Recommendation: Alternative #2. Terminate the commissary direct labor subsidy over a three-year
period, starting October 1, 1976.
FORD
44
Issue Paper
Department of Defense
1977 Budget
Appropriated Fund Support of Non-appropriated Fund Activities
Statement of Issue
Should appropriated funds continue to be used in partial support of non-appropriated fund morale,
welfare, and recreation activities?
Background
Non-appropriated funds are monies derived from sources other than Congressional appropriations,
primarily from the sale of goods and services to DOD military personnel and their dependents and used
to support or provide essential morale, welfare, recreational, and certain religious and education
programs (MRWR programs). The creation and maintenance of high morale is seen by DOD as essential to
the military effectiveness of the Armed Forces. Therefore, it is the policy of the Department to promote
and provide a well-rounded MRWR program to insure the mental and physical well being of its personnel
(and their dependents). Many of these programs are also available to retired personnel. Adequate
programs, including facilities, should be provided, under this policy, through financial support
tendered by the Federal Government from appropriated sources. Non-appropriated fund resources are used
to supplement appropriated resources for the cost of these programs. The non-appropriated fund activities
fall into 4 groups: resale activities such as exchanges and movie theatres; general welfare and recrea-
tion activities such as bowling and golf facilities; membership associations such as officer clubs and
flying clubs; and special activities such as guest houses and child care centers.
Data are not available centrally on the exact number or size of these activities nor the exact
extent of appropriated fund support. The non-appropriated fund activities have approximately 250,000
full and part-time employees and there are approximately 10-15,000 appropriated fund military and
civilian personnel in support. DOD is in the process of conducting a world-wide survey of these activities,
their cost, and the degree and type of appropriated fund support. While the results of this survey will
not be available until early next year, there is at least $150 million in the 1977 budget in support of
these activities and possibly as much as $300 million.
GERALD
FORD
45
Alternatives
#1. Continue the present level of appropriated fund support of these activities. (Agency request)
#2. Gradually discontinue appropriated fund support of these activities. (OMB recommendation)
#3.
Direct an inter-agency study of the current arrangements to be completed by September 1, 1976.
TOA ($ Millions)
1975
1976
1977
1978
Alternative #1
-
-
-
Alternative #2
-
-40
-100
Alternative #3
-
-
-
Analysis
When military pay, particularly for junior enlisted men was deliberately depressed, there were strong
arguments for appropriated fund support of these activities. With the move to a volunteer force and the
accompanying competitive pay levels, the rationale is less clear. It is estimated that there is about
$10 of non-appropriated fund support of these activities for every $1 of appropriated fund support. Thus,
the appropriated fund support could be phased out with only moderate increases in user charges for these
activities. The Department of Defense counters that the present arrangement of only 1 appropriated
dollar for every 10 non-appropriated dollars is a bargain since these activities have long been considered
a Federal responsibility. Very strong opposition can be expected from the military leadership on reducing
this subsidy on the grounds that it is a further erosion of benefits and could increase the chances of
military unions. Military personnel and particularly retirees can be expected to voice strong opposition
and the Congress may well bow to such pressure. Legislation is not necessary, however, and thus, the
likelihood of congressional intervention is lessened.
In view of the sensitivity of this issue with military people and the Congress, it could be
determined to conduct an inter-agency study of the many facets of the current arrangements using the
work that has already been done in DOD and the survey they are conducting as a base. OMB, CSC and DOD
would be logical participants in such a study. Savings in 1977, however, would have to be deferred
FORD
under this alternative.
an
46
Agency Request: Alternative #1. The Department strongly recommends that no changes be made at this time.
They believe these are legitimate obligations of the government and until they have completed their survey
of the precise amounts of subsidization it would be difficult to implement the change.
OMB Recommendation: Alternative 2. Phase out appropriated fund support of these activities over five
years with the first phase being the elimination of Federal civilian employee support.
SERALD
FORD
193817
47
Issue Paper
Department of Defense
1977 Budget
Fair Market Rental of Military Housing
Statement of Issue
Should military housing be converted to a system of fair market rentals?
Background
Military personnel receive either a cash allowance for quarters (BAQ) or government housing, for
which they forfeit entitlement to the BAQ. BAQ rates are tied to rank. Personnel with dependents
(married rate) draw an allowance about 20 percent greater than personnel without dependents (single
rate). The cash amount of BAQ is not equivalent to either the value of government housing or the cost
of civilian housing.
In mid-1973 OMB and DOD initiated a joint evaluation of all military housing programs, family and
bachelor. This issue is the direct result of the study.
For 1977 the estimated total request for on-base and off-base housing for active military personnel
is $4,900 million.
Alternatives
#1. Continue the present method of treating BAQ when occupying military housing. (Agency request)
#2. Convert military housing value to a fair market rental (FMR) system. Implement an FMR system
by reallocating a larger portion of future pay raises directly to BAQ until average BAQ is equivalent to
the average fair market rental value of family housing. At the same time, an offsetting rebate for
GERALD
certain personnel living in bachelor housing is provided. (OMB recommendation)
?
TOA ($ millions)
FORD
1975
1976
1977
1978
Alternative #1
Alternative #2
-52
-119
48
Analysis
Military housing policy is the cause of several inequities in the military compensation system which
stem from the differences between cash allowances and the wide variations in value among military quarters.
This ranges from an average cash loss of $800 per year for single personnel receiving BAQ to a cash gain
of $1,460 for married personnel in government quarters.
The fair market rental system proposed in the OMB-OSD study eliminates these inequities over time
and has the following features:
Military housing inventory appraised at fair market rental value on a local basis for family
quarters. Either a nationwide or local basis for bachelor quarters.
BAQ cash paid to all personnel. Personnel voluntarily occupying government quarters will pay rent
equivalent to the fair market rental value.
Shipboard quarters, field quarters, emergency quarters provided for duty sections or watches, and
certain other quarters in remote or combat areas normally manned without accompanying dependents would
be provided without charge to the occupant.
By instituting the policy of fair market rental for military housing, the inequity between the value
of military housing and the cash amount of BAQ will be removed, and the DOD housing costs will be reduced,
primarily through reduced construction requirements.
The proposed implementation plan raises the rent for occupants of military family quarters on a
gradual basis. Alternative 2 provides for a transition into a fair market rental by 1984 through annual
increases in the BAQ portion of cash pay until average BAQ becomes nearly equivalent to average family
housing fair market rental. BAQ would be raised in conjunction with normal government pay raises by
diverting 25 percent of each future pay raise directly into BAQ. Thus, 1.25 percent of the planned 5
percent October 1976 pay raise would be added directly to the BAQ allowance of each military person.
By 1984 the average BAQ could be approximately equivalent to the average fair market rental of family
housing, assuming future pay raises of 6 percent and annual family housing fair market rental increases
based on OMB projections of the Consumer Price Index.
To offset the effects of further increasing the BAQ forfeited by bachelor enlisted personnel (who
currently forfeit BAQ exceeding the fair market rent of their housing), a special cash rebate would
be provided. The total amount of the rebate to bachelors would be equivalent to the money "gained" by
49
increased BAQ forfeitures for government housing, less an amount for the tax advantage created through
increasing the portion of military compensation in BAQ, which is not taxed.
The effects of incorporating this revised BAQ proposal is shown below:
1976
1984
Average annual BAQ
$2,080
$4,980
Average annual fair market rental
$3,450
$4,980
The annual savings (i.e., "increased rent" for family housing) accrued through this implementation
plan, without considering any reductions in construction, are the result of the reduction in base pay
and subsistence received by personnel in family housing:
1977
1978
1979
1980
1981
1984
Savings ($ in millions)
52
119
193
275
365
639
Defense is likely to oppose this change and will suggest that the subject be considered by the Quadrennial
Review of Military Compensation (QRMC). Expected reaction from various segments of the military population
who either are or expect to be in these categories would be negative, except for bachelors in government
quarters who will receive cash rebates. Reserve personnel will be opposed, since base pay would be lower,
and they do not draw BAQ for paid drills.
The ongoing QRMC has not taken a position. Should that group approve a total salary system, which is
unlikely, fair market rental would be implemented as part of that process. Legislation will be required to
implement this proposal.
Agency Request: Alternative #1. The budget request assumes no change in the current system.
OMB Recommendation: Alternative #2. Convert military housing to a fair market rental system by 1984.
Allocate 25 percent of each pay raise to BAQ until that time. Initiate a special pay rebate to bachelors
living in government quarters. Legislation will be required to implement this proposal.
GERALD
FORD
50
Issue Paper
Department of Defense
1977 Budget
Personal Money Allowances
Statement of Issue
Should the personal money allowances and position allowances paid to certain generals and
admirals be terminated ?
Background
167 admirals and generals, mostly at the 3 and 4 star level, receive from $500 to $5,200 each year
to cover whatever entertainment expenses they might incur. Payments of this type started in 1922.
Alternatives
#1. Continue the Personal Money Allowance and the position allowance as now in law. (Agency
request)
#2.
Seek legislation to terminate these allowances. (OMB recommendation)
TOA
($ millions)
GERALD
1975
1976
1977
1978
Alternative #1
.2
.2
.2
.2
Alternative #2
.2
.2
0
0
LIBRAN
Analysis
High ranking military personnel are reimbursed for official entertaining with personal money
allowances and/or position allowances. There is no accounting for the money or requirement that it
be spent for official entertainment. When these allowances started in 1922 they were designed to
correct a pay inequity for the occupants of certain positions. These inequities no longer exist.
The effective salaries of high ranking military personnel receiving these allowances is considerably
higher than all civilian counterparts except Cabinet Officers. No civilians receive a personal
money allowance. The Internal Revenue Service has ruled that these allowances are not subject to
taxation as income, thus implicitly recognizing their validity as a business type expense. The
senior military leaders who receive these allowances would resent their discontinuance.
51
The following table shows those who now receive such allowances:
Personal Money Allowances
Annual Rate
Members Joint Chief of Staff )
Commandant, Marine Corps
)
$4,000
Commandant, Coast Guard
)
General or Admiral (other than above)
2,200
Senior Member, U.N. Military Staff
2,200
Surgeon General, Public Health Service
1,200
Lieutenant General/Vice Admiral
500
Position Allowances
Director of Naval Intelligence
5,200
Superintendent of the Naval Academy
5,200
President of the Naval War College
1,000
Commandant of Midshipmen, Naval Academy
800
Superintendent, Naval Post Graduate School
400
Agency Request: Alternative #1. DOD supports this expenditure as a valid reimbursement for
expenses incurred in official business. Defense might go along with a proposal to establish some
accounting for the money.
OMB Recommendation: Alternative #2. Allowances which are paid directly to personnel for which
there is no accounting, should be terminated. There are no similar payments for high ranking
civilian officials.
BERALD
1000
52
Issue Paper
Department of Defense
1977 Budget
Enlisted Aides
Statement of Issue
Should all enlisted aides to senior officers be eliminated?
Background
Enlisted aides have been authorized to officers of the U. S. Armed Forces since the Revolutionary
War. At one time, company grade officers were authorized enlisted aides; today, however, only
selected general and flag officers are authorized such aides. The 1977 request includes a total
of 396 aides.
Enlisted aides relieve general and flag officers of those minor tasks and details which, if
performed by the officers, would be at the expense of the officers' primary military and official
duties. Enlisted aides may be utilized to:
a. Assist with the care, cleanliness, and order of assigned quarters and uniforms.
b. Assist in the preparation and conduct of official social functions and activities.
C. Assist in purchasing, preparing, and serving food and beverages.
d. Perform errands, provide quarters security, and necessary administrative assistance.
GERALD read
53
Alternatives
#1. Continue the enlisted aide program at a level of 396 enlisted men. (Agency request)
#2. Eliminate enlisted aides. (OMB recommendation)
TOA ($ Millions)
1975
1976
1977
1978
Alternative #1
7
5
5
5
Alternative #2
5
0
0
Analysis
The enlisted aides issue has long been a sore point between the Department of Defense and the
Congress. In every recent year there has been a minor skirmish on the issue resulting in a congressional
reduction. The Administration should decide whether it should take the initiative and end the practice
of enlisted aides or permit Congress to complete the task. The necessary official duty services
should be performed by regular base personnel as required.
Agency Request: Alternative #1 DOD believes that the enlisted aide partially offsets the personal
expense involved in conducting a myriad of representational activities and in maintaining the quarters
to which an officer is assigned.
OMB Recommendation: (Alternative #2) Eliminate enlisted aides from the 1977 budget.
GERALD