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The original documents are located in Box 11, folder "FY - 11/16/76, Defense, Small
Agencies (1)" 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States of America his copyrights in all of his unpublished writings in National Archives collections.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 11 of the White House Special Files Unit Files at the Gerald R. Ford Presidential Library
NATIONAL ARCHIVES AND RECORDS SERVICE
WITHDRAWAL SHEET (PRESIDENTIAL LIBRARIES)
FORM OF
CORRESPONDENTS OR TITLE
DOCUMENT
DATE
RESTRICTION
1.
briefing paper, 11/16/76
la. papers
DOD, pp 1-18
18 pages
11/76
A
lb. papers
DOD issues, pp 20-23
4 pages
11/66
A
FILE LOCATION
Special Files, Budget Decision papers
FY 1978, 11/16/76, DoD etc... (1) box 11
PLC 4/19/84
RESTRICTION CODES
(A) Closed by Executive Order 12065 governing access to national security information.
(B) Closed by statute or by the agency which originated the document.
(C) Closed in accordance with restrictions contained in the donor's deed of gift.
GENERAL SERVICES ADMINISTRATION
GSA FORM 7122 (REV. 1-81)
a
FY 1978
Defense
Presi.
dential
Review
DOD 1976 Budget
Presiduntial Review
Should du peet
upetairs in
Case in 6
with rest of
Ford materials
ACC. 78-69
Special Files
SF-72
FORD LIBRARY & HERAL
DEPARTMENT
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
DATE: 2/25/77
TO: Frank Matthews
FROM: Office of Management & Budget
Returned per telephone conversation
with Nell Doering. Please put
with President Ford's papers.
OMB FORM 38
REV AUG 73
President Ford's book
OFFICE OF TIME PRESIDENT STATES UNITED
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503
NOV 15 1976
MEETING ON FY 1978 BUDGET
Tuesday, November 16, 1976
2:00 p.m. (3 hours)
The Oval Office
FROM: Paul H. O'Neill
Ohein
I. PURPOSE
To make decisions regarding the fiscal year 1978
budget for the Department of Defense and related
small agencies.
II. BACKGROUND, PARTICIPANTS, AND PRESS PLAN
A. Background: The Office of Management and Budget
has completed its review of the fiscal year 1978
budgets submitted for the Department of Defense
and related small agencies. This meeting will
raise the budget issues in these agencies that
require Presidential review or determination.
The primary supporting material was sent to
you last Thursday. Additional materials con-
cerning summary information and small agency
budget requests are included in the attachment.
In addition, a second complete set of materials
is attached.
B. Participants: James Lynn, Paul O'Neill,
Donald Ogilvie, Dale McOmber,
Brent Scowcroft
FORD
C. Press Plan:
David Kennerly photo
GENAL
III. TALKING POINTS
1. Donald Ogilvie, what is the first issue
that we should discuss this morning?
Small Agencies
A
NATIONAL SECURITY COUNCIL
Comments
OMB concurs with Agency request on staffing
levels, but recommends a more limited
funding increase for operating expenses.
Agency has agreed to accept OMB recommendation.
Budget
Full-time
authority
Outlays
permanent
(In thousands of dollars)
employment
1976 actual
3,052
3,192
68
1977:
Employment ceiling
XXX
XXX
70
Agency request
3,210
3,300
70
OMB recommendation
3,210
3,300
70
Change
XXX
XXX
XXX
1978:
GERAL
R.
Agency request
3,388
3,350
70
OMB recommendation
3,235
3,250
70
FORD
Change
-153
-100
XXX
LIBRARY
1979:
Agency request
3,388
3,388
XXX
OMB recommendation
3,235
3,235
70
Change
-153
-153
XXX
AMERICAN BATTLE MOI
TS COMMISSION
Comments
The OMB mark would make minor
adjustments to the operations
and maintenance program funding
level and would allow construction
of a WWI/Pershing memorial in
Washington, D.C., and completion
of a memorial commemorating the
missing in Vietnam. The agency
has agreed to accept the adjust-
ment.
GERAL
R.
FORD
LIBRARY
Budget
Full-time
authority Outlays
permanent
(In thousands of dollars)
employment
1976 actual
5,581
5,405
385
1977:
Employment ceiling
XXX
XXX
392
Agency request
5,844
5,803
392
OMB recommendation
5,844
5,803
392
Change
-0-
-0-
-0-
1978:
Agency request
6,733
6,603
392
OMB recommendation
6,483
6,200
392
Change
-250
-403
-0-
1979:
Agency request
6,033
6,000
392
OMB recommendation
6,033
6,000
392
Change
-0-
-0-
-0-
U. S. Soldiers' and Airmen's Home
Comments
OK
Agency requested increases for
inflation and to improve main-
tenance and repair of facilities.
Agency has agreed to accept re-
duction in inflation estimate.
GERAL
R.
FORD
Budget
Full-time
authority
Outlays
Permanent
(In thousands of dollars)
Employment
1976 actual
15,502
14,513
934
1977:
Employment ceiling
XXX
XXX
1,080
Agency request
15,939
15,875
965
OMB recommendation
15,939
15,875
965
Change
0
0
XXX
1978:
Agency request
16,260
16,215
965
OMB recommendation
16,196
16,151
965
Change
-64
-64
XXX
1979:
Agency request
16,260
16,215
965
OMB recommendation
16,196
16,151
965
Change
-64
-64
XXX
Includes pay supplemental of $726.
Selective Service System
Comments
Agency requested increases in 1977 and 1978 for Reconciliation Services
Program and in 1977 for deferred Reserve training and for increased
severance pay costs. OMB mark approves only the increased severance pay
and in addition would disestablish the Agency and transfer its functions
and resources to the Federal Preparedness Agency, GSA. Agency agrees
to part of mark but requests 1977 supplemental of $602K and strongly urges
retention as independent Agency.
GERAL
Budget
Full-time
authority
Outlays
permanent
(In thousands of dollars)
employment
1976 actual
37,500
34,494
173
1977:
Employment ceiling
XXX
XXX
90
Agency request
9,074
10,388
90
OMB recommendation
8,124
9,438
90
Change
-950
-950
0
1978:
Agency request
6,590
6,820
83
OMB recommendation
6,297
6,527
83
Change
-293
-293
0
1979:
Agency request
6,200
6,200
80
OMB recommendation
6,200
6,200
80
Change
0
0
0
Issue Paper
Selective Service System
1978 Budget
Background
Your tentative decision last year on the 1977 budget for the Selective Service System provided
for an end to pre-registration and the Selective Service System as an independent agency. Residual
planning and reserve training functions would have been assigned to the Federal Preparedness Agency
in GSA.
In response both to Director Pepitone's appeal and OMB's recommendation that the System's
independent status be retained until its pre-registration activities were phased down, you decided
to defer your decision on the future organizational location of this agency until the 1978 budget
review.
Statement of Issue
Should the Selective Service System's planning and training functions be assigned to the Federal
Preparedness Agency?
Pros.
-- Many Americans believe the Selective Service System is an agency without a mission.
By taking the initiative now, we can demonstrate the seriousness of our purpose in
cutting back unnecessary Federal Government activity.
Cons.
-- Disestablishment of the Selective Service System as a visible and separate entity has the
potential for being considered a sign of national weakness on the subject of preparedness.
GERAL
Alternatives
#1.
Retain the Selective Service System as an independent agency (Agency req.).
#2.
Disestablish the Selective Service System and assign its planning and training functions
to the GSA Federal Preparedness Agency (OMB rec.).
Analysis
Budget authority and outlays are roughly similar under both alternatives. Alternative #2
reflects the OMB view that these resources would purchase greater "preparedness" if the System's
planning and training functions were transferred to GSA. The Agency argues the reverse.
The Selective Service System continues to indicate that their delivery performance in a
future military mobilization would be well below that which was actually achieved just prior to
World War II when they emerged from a similar operational posture. The table below illustrates
some of the critical differences between the System's past and projected response times.
Action
World War II
Current Projection
Registration
M+30
M+60
Initial Induction Orders
N/A
M+90
Initial Inductions
M+62
M+110
100,000 Inductions
M+120
M+150
In our view the System's projected delivery performance should actually exceed that experienced
in 1940 when the Nation's communications, transportation, and data processing facilities were
primitive in comparison to today's capability.
The report of an informal interagency (DOD/SSS/OMB) study group on the budget concept for
FY 1976 presented an analysis that further suggests that the System is understating the delivery
performance its current processing procedure could achieve. Within 60 days of the initial issue
of induction orders to registrants, 655,000 registrants could be inducted according to this report.
By comparison, the Agency indicates that this figure would reach only 100,000.
In the current re-examination of foreign policy and military force requirement (NSSM 246), the
possible need for an expanded draft capability is being considered. As part of this exercise, the
System presented alternative funding levels and their associated delivery performance which were
logically inconsistent. That is, for certain alternatives, increased funding resulted in decreased
performance. While the System was quick to revise their estimates, this type of incident raises
some concern about the credibility of their projections.
The Selective Service System argues that their current operational posture does not mirror that
existing just prior to World War II when substantial portions of the Nation's mobilization manpower
planning and training efforts were being funded in other agencies and in budgets at the State and
local level rather than at the Federal level.
As to the report of the informal study group on the budget concept for 1976, Director Pepitone
indicates that he has never formally accepted the report's conclusion on induction delivery performance.
Agency request: Alternative #1. Current procedures minimize the System's mobilization reaction
time within existing resource constraints. A faster response cannot be obtained with improved
procedures or with the proposed functional shift to FPA but only with increased funding.
OMB recommendation: Alternative #2. Mobilization capability depends primarily on the procedures
used to process young men for induction. To a large extent, they are independent of the cost of
operating the Selective Service System. There is substantial evidence that mobilization performance
could be much better than now projected by the Selective Service System, with proper planning and
training.
Agency efforts to secure increased resources through its continued use of pessimistic performance
projections must be corrected. A functional transfer of the System's responsibilities to the FPA
offers the best hope of realizing this goal. Even if NSSM 246 should result in an expanded standby
draft capability, FPA would still be the preferred organization to assume the additional responsibilities.
R.
I
Introduction
GERALD R. FORD LIBRARY
This form marks the file location of item number
la
as listed on the pink form (GSA Form 7122, Withdrawal Sheet)
at the front of the folder.
19
ISSUES
No.
Title
Page
* 1
Defense Budget Level
20
Pay and Efficiencies
24
2
Quadrennial Review of Military Compensation
26
3
Military and Civilian Pay Increases
30
4
Agency Budgeting for Federal Employee Retirement Programs
33
5
Commissary Subsidy
37
6
Junior Enlisted Travel Entitlements
40
7
DOD Recruiting Costs
43
8
Average Grade Controls
49
9
Civilian Employment Levels
54
10
Guard and Reserve Manpower
58
11
Guard and Reserve Pay Initiatives
62
12
Modernization of Defense Domestic Installation Structure
65
13
Contracting Out Depot Maintenance
70
14
Shipbuilding in Navy Yards
74
Operations and Maintenance
15
Growth of Purchases: Operations and Maintenance
77
Modernization
82
Strategic
85
* 16
M-X
89
* 17
B-1
93
* 18
Defense Civil Preparedness Agency
97
General Purpose
19
Air Force Tactical Aircraft
100
* 20
Aircraft Carrier Procurement
109
* 21
Naval Force Options
112
22
Shipbuilding Funding Management
119
23
The XM-1 Tank
123
Other
24
Aircraft Industry Capacity
125
25
RDT&E
130
26
Satellite Communications
134
* 27
Level of Other Procurement
137
28
Chemical Warfare
141
*
Affected by NSSM 246.
Overall Defense Level
GERALD R. FORD LIBRARY
16
This form marks the file location of item number
as listed on the pink form (GSA Form 7122, Withdrawal Sheet)
at the front of the folder.
Efficiencies
Pay and
24
Department of Defense
1978 Budget
Pay and Efficiencies
The Defense budget is extremely labor intensive. The cost of people represents a very high
proportion of the total and is very difficult to control. Federal pay levels are generous and
future pay increases reflect major increases in the Defense budget.
The issues raised in this area can be grouped in four categories:
1. Broad policy issues concerning the basic structure of current compensation policy.
Included in this area would be a review by an outside group of the work done to
date by the QRMC, and the use of the outside group to generate a broad base of
national support for reform of the Federal Wage System for blue collar workers.
2. Efficiencies in the way we now do business. These include civilian and Reserve Forces
manning levels, the possibilities of further contracting out, base realignment studies,
and the question of building ships in naval ship yards.
GERALD
3. Changes in current practices which will take money away from current and future personnel.
These will be most difficult to implement and will encounter severe opposition on the part
FORD
of the affected parties as well as congressional obstacles. Specific issues include a
renewed effort to reduce the commissary subsidy, reductions in Reserve compensation, and
LIBRARY
a reduction in civilian average grade levels.
4. Proposed new benefits not currently available to military personnel. Travel for junior
enlisted personnel and new Reserve recruiting incentives are included in this area.
25
Further complicating the current situation is the perception by military people that there has
been an ongoing erosion of the benefits that they have been historically entitled to and the
attitude of organized civilian employee leaders that the Administration is "picking on" Federal
civilians.
The changes proposed will be difficult to achieve and will require strong and personal Presidential
leadership as well as the development of something approaching a national consensus that the changes
are just and essential.
26
Issue Paper
Department of Defense
1978 Budget
Issue # 2: The Quadrennial Review of Military Compensation
Background
The present military compensation structure is a complex mixture of direct pays, tax advantages,
purchasing advantages and in-kind benefits. The system originated at a time when most military
people lived in a military environment where the employer provided food, shelter and most other
necessities. Over the years, the pay system was patched to meet specific problems, and today
we are still patching with no policy on what military pay should be and no rational way of adjusting
military pay.
This situation led the Congress in 1966 to direct a. comprehensive review of military compensation
to be conducted beginning January 1, 1967 (and once each four years thereafter). The Congress also
instituted what was viewed at the time as a temporary link of the adjustment process wherein
military personnel pay raises are equated with those of Federal civilian employees 1/ Flaws
in
this temporary mechanism resulted in military personnel receiving larger annual increases than
civilians for seven years. This imperfection has now been remedied. Many observers believe that
while the flaws were in effect, direct military compensation shifted from a position which lagged
Federal civilian pay to a point where it now appears to be ahead.
The Third Quadrennial Review of Military Compensation has been considering these issues since
January 1975. Unfortunately, it has not been able to reach a consensus on what policy changes are
needed in this area. Accordingly, the study group Chairman (Assistant Secretary for Manpower and
Reserve Affairs, David Taylor) has submitted to Secretary Rumsfeld for decision three key issues:
Should military compensation levels be set and adjusted on the basis of pay for similar
levels of work in the private sector (a comparability principle) or should they be set
and adjusted as needed to attract and retain the desired quality and quantity of personnel
(a competitive principle)? Secretary Rumsfeld chose the comparability principle.
1/ The "Rivers amendment"
27
-- Should compensation levels be based upon total compensation or upon the military equivalent
of salary? Total compensation was tentatively approved.
-- Should the current pay and allowances system be replaced by a salary system? The current
system was retained.
These decisions, in turn, require a series of difficult decisions on unresolved questions,
primarily:
-- What is military pay?
What value should be placed on retirement? (The QRMC has not reached a consensus.)
What value should be placed on medical care? (The QRMC has not reached a consensus.)
Does the extensive recreation system represent compensation? (The QRMC says no, but the
GAO and many in the Congress say yes.)
-- What should military pay be?
CERALD
What elements should be included in comparisons?
Where should military and civilian pay lines be linked?
What is the "military factor" (which some say requires special compensation consideration
for the rigors of the military life) and should it be compensated for?
We understand that Assistant Secretary Taylor is in the process of obtaining Secretary Rumsfeld's
position on these issues and it thus may be premature to reach a final conclusion on the likely
outcome. Nevertheless, we believe it is likely that the net effect will be almost no change in
a complex, controversial pay system that has been heavily criticized.
The present set of circumstances is not surprising. A series of actions have been taken (e.g.,
the change in the Rivers amendment and the pay raise reallocation measure) or proposed (e.g., the
28
retirement modernization act and elimination of the commissary subsidy) which are perceived by
military personnel as an "erosion" of their earned benefits. The uniformed military leadership
involved in the QRMC are keenly sensitive to this situation, and, in fact, share this belief.
They feel deeply that this situation can lead not only to increasing pressure for unionization
but also to a loss of morale which would reduce the effectiveness of their Services. There has
thus been a reluctance to come to conclusions or follow analytical paths whose inevitable con-
clusion might worsen the situation as their members perceive it.
On the other hand, there are conflicting perceptions of military compensation. There are those
not only in the Administration but in the Congress who believe that military compensation in total
is excessive. Others believe it is inefficient. The Defense Manpower Commission, in April, recom-
mended conversion to a salary system. They also recommended a competitive system. Given the existence of
these fundamentally different views, it may be appropriate to use the forum of a distinguished outside
group, whose objectivity and concern with the national interest would be unquestionable, to review the
complex issue of military compensation and provide recommendations to the President. It is unlikely that
anything less would be accepted by all concerned.
Statement of Issue
Should an outside group of distinguished Americans be established as a commission to review
military compensation and make recommendations to the President?
Pros.
-- The QRMC has been in process for almost two years. For an in-house group to finally
emerge with what may be seen as fundamentally the status quo may serve to only prolong
the debate on military compensation. The recommendations of a prestigious commission
BERALD
would possibly avoid this.
-- It has been impossible for those directly involved, either military or civilian, to be
objective about the issues. An outside group could be.
The issue involved is of such fundamental importance that we should not be satisfied with
a series of compromises. The military personnel appropriations are now at a level of
$26 billion and annual pay increases add about a billion and a half each year. At the
same time the future success of the All-Volunteer force requires that service in the
military be as attractive to young people as opportunities in the private sector.
29
Cons.
-- After two years of study, there are obvious disadvantages to take the step of, what will
be seen as, asking for another study.
-- The military leadership can be expected to strongly oppose such a step.
Alternatives
#1. Permit Secretary Rumsfeld to proceed on his current schedule which we now expect will result
in essentially no real change in the current system (Agency req.
#2. Establish a Presidential Commission which would review the findings of the QRMC to date
and provide an independent recommendation to the President. (Such a panel could also be
asked to review the Administration's proposal on blue collar pay and serve as a means of
building national support for the reform measures) (OMB rec.).
Agency request: Alternative #1. The Department believes that the issue of military compensation has
been debated too long already and that the most needed reforms have already been achieved.
OMB recommendation: Alternative #2. The issues will not go away and only a comprehensive review by
an outside body can provide a credible assessment of the military compensation system. The Commission
could use the research already done by the QRMC and thus could be expected to report in 3-6 months.
You could ask the Quadrennial Commission on Executive Pay under Pete Peterson to take on this
additional task or you could announce a new commission with appointments to be made later.
30
Issue Paper
Department of Defense
1978 Budget
Issue # 3: Military and Civilian Pay Increases
Background
The Defense budget request assumes pay increases for FY 1978 and FY 1979 under current law. The
assumptions used and the resulting costs are displayed below.
($ in millions)
Defense Budget Request Pay Raise Assumptions
1978
1979
General Schedule: 6.5% on Oct. 1, 1977 and
6.25% on Oct. 1, 1978
625
1,266
Military: 6.5% on Oct. 1, 1977 with a full 25%
reallocation from basic pay to the Quarters
Allowance and 6.25% on Oct. 1, 1978 with no
reallocation
1,370
2,890
Wage Board: 8.8% in 1977, 7.9% in 1978 and
7.0% in 1979
553
1,079
TOTAL
2,548
5,235
General Schedule and Wage Board salaries are adjusted annually on the basis of "comparability" with
salaries paid in the private sector for similar levels of work. Changes in military pay are tied by
statute to changes in the General Schedule. Current law permits the President to propose an alternate
pay adjustment for General Schedule (and military) employees if he considers the "comparability"
GERAL
FORD
31
increase inappropriate "for reasons of national emergency or economic conditions affecting the
general welfare. This authority does not extend to the wage board system. The amount of the
General Schedule pay increases and the issue of an alternative plan will be covered later on a
government-wide basis.
This issue discussed herein concerns treatment of the Wage Board system and exercise of the
authority to reallocate up to 25% of the increase in military basic pay to the Quarters Allowance.
The Civil Service Commission plans to resubmit to the next Congress legislation to reform
several features of the Federal Wage System that impede implementation of comparability. While
the Department of Defense strongly supports enactment of this proposal, they are reluctant to
anticipate the savings in the budget because they estimate a low probability of congressional
acceptance.
For the October 1976 military pay increase you authorized the reallocation of 25% of the basic
pay increase to the Quarters Allowance. This was done to better align the Quarters Allowance with
the costs of housing and to facilitate an eventual move to a Fair Market Rental system which you
approved last year. The 1978 budget assumes a full reallocation in 1978 but none in FY 1979.
Statement of Issue
Should the budget assume smaller pay increases resulting from enactment of the Federal Wage
System reforms and a full 25% reallocation from basic pay to the Quarters Allowance in 1979?
Pros.
-- It may not be credible to submit wage board reform legislation without reflecting the
savings in the budget.
GERAL,
R.
Attainment of the goal of a quarters allowance that reflects the cost of housing
FORD
requires full reallocation in both years.
32
Cons.
-- If the wage board reform legislation is not enacted, Defense may have to absorbe the
additional costs.
-- Military people who are nearing retirement object to the reallocation because it has the
effect of reducing their retired pay.
Alternatives
#1. Assume wage board salary increases consistent with current law and assume no reallocation
in FY 1979 (Agency req.).
#2. Assume enactment of the wage board reform legislation and full reallocation in both years
(OMB rec.).
Agency Request
($ in millions)
Department of Defense
(Difference from Alt. #1 (Agency Request)
1978 Outlays
1979 Outlays)
Alt. #2 (OMB rec.)
-337
-971
)
Agency request: Alternative #1. While Defense strongly supports the wage board reform, they believe
it has little chance of passage and they are reluctant to anticipate the savings in the budget. In
reallocation, they prefer a slower approach to the same goal.
OMB recommendation: Alternative #2. Failure to anticipate 1978 enactment of the proposed Federal
Wage System reforms in the budget estimates will severely dim prospects for enactment.
GERAL
3403
33
Issue Paper
Department of Defense
1978 Budget
Issue #4: Agency Budgeting for Federal Employee Retirement Programs
Background
Secretary Rumsfeld recommended that the current military retired pay appropriation be shifted
to the income security function in the FY 1978 budget, excluding all funding for the military retire-
ment program from the DOD budget. In the Spring Planning Review, we proposed a similar shift of
those specific costs associated with past or current military retirees and their survivors. However,
our recommendation would also budget the accrued retirement costs associated with the current active
duty force in the Defense military function. In addition, we proposed that accrual estimates for all
Federal employee retirement systems reflect "dynamic" assumptions that anticipate future salary
increases, CPI adjustments, and applicable interest rates. Mr. Rumsfeld supports the OMB position
as a long-term goal but does not feel that the functional transfer should be delayed pending imple-
mentation of full accrual budgeting.
A draft report on the CSC evaluation of the present financing of the Civil Service Retirement
System was submitted on October 15, 1976, without specific recommendations on financing and
budgeting for Federal employee retirement programs. Their evaluation has focused on the cash flow
management aspects of the trust fund rather than the personnel management impacts of accruing full
retirement liabilities. One of the alternatives developed in that report reflects the OMB staff
position on this issue. The Civil Service Commission would recommend that this issue be deferred
until after their report has been finalized and thoroughly reviewed.
Statement of Issue
Should agency budgets for military and civilian retirement programs reflect the full accrual cost
of their current workforce?
34
Pros.
-- Provides timely and appropriate incentives for efficient manpower, personnel and compensa-
tion decisions both within the Executive Branch and in the Congress
by linking the cost of retirement benefits to the decisions from which such costs
accrue, and
by taking account of anticipated benefit increases due to wage and price inflation.
-- More accurately reflects the cost of defense spending relative to non-defense spending in
the Federal budget.
-- Reduces defense budget authority and outlays by $2 billion in 1979, although this is both
later and less than the $9 billion 1978 reduction resulting from the Defense proposal.
Cons.
-- Projected 1979 total budget authority would increase by $13 billion although total outlays
would remain unchanged.
-- Calculating accrual costs is both complex and difficult to check. Small changes in
economic assumptions or continuation patterns introduce billion-dollar changes in
accrual levels.
-- The management objectives sought by full accrual advocates can be achieved without
reflecting such costs in our budgeting system. It may be sufficient simply to include
deferred costs as part of the justification for off-budget management and policy
decisions.
Alternatives
#1. Retain the current budget structure.
GERALS
FOR
35
#2. Shift the cost of the Military Retired Pay Appropriation to the income security function in
1978 (Agency req.).
#3.
In the 1979 budget combine the proposed functional shift of the Military Retired Pay Appro-
priation with the introduction of full accrual budgeting for both military and civilian
retirement programs (OMB rec.).
Analysis
1976
1977
1978
1979
1980
1981
1982
Budget Authority/Outlays
BA
o
BA
o
BA
o
BA
o
BA
o
BA
0
BA
o
($ Billions)
Dept. of Defense
Alt. #1
8
8
9
9
10
10
11
11
12
12
13
13
14
14
Alt. #2 (Agency req.)
8
8
9
9
1
1
1
1
1
1
1
1
1
1
Alt. #3 (OMB rec.)
8
8
9
9
10
10
9
9
9
9
10
10
10
10
All Agencies
Alt. #1
10
16
11
18
12
20
13
22
14
24
15
26
16
28
Alt. #2
10
16
11
18
12
20
13
22
14
24
15
26
16
28
Alt. #3 (OMB rec.)
10
16
11
18
12
20
26
22
28
24
30
26
32
28
Secretary Rumsfeld is seeking implementation of his proposal in the 1978 Budget. The OMB recom-
mendation would be implemented in the 1979 Budget with the President announcing his intention to do
so in the 1978 Budget Message. Additional time is required to seek agency agreement on costing
methodologies and procedures.
Agency request:
Alternative #2. The Secretary of Defense supports the OMB staff proposal as a
long-term goal. In his view, however, it is important that we not "muddy the water" and endanger
his immediate FY 1978 objective by pushing for short-term implementation of full accrual budgeting.
The Defense alternative will minimize the "apparent" size of the Defense budget and possibly secure
additional resources to purchase other defense materials and services. Mr. Rumsfeld indicates that
there is strong support for his proposal in Congress.
GERAL
R.FORD
FORD
36
OMB recommendation: Alternative #3. The OMB alternative seeks to improve the legislative and
management processes, by relating future retirement payments to the policies and decisions that
give rise to the liability for them. The agency request completely frustrates this cost management
objective by removing DOD's incentive to limit annuity increases for current military retirees
without substituting any incentive to manage the cost of their future retirees. It actually
provides Defense with a perverse incentive to initiate manpower, personnel, and compensation actions
that shift costs from military pay to retired pay appropriations in order to reduce the DOD cost
of internal decisions. The Defense proposal would also result in serious undercosting of the
Defense budget relative to other agency budgets which include a partial retirement accrual for
all their employees.
With respect to Mr. Rumsfeld's expressed reluctance to "muddy the water" in Congress by pressing
for early implementation of the OMB recommendation (which he supports as a long-term goal), it
should be pointed out that a $9 billion-dollar reduction in the FY 1978 Defense budget, followed
one year later by an $8 billion increase as full accrual budgeting is implemented, will be much
more difficult to explain and justify than a single $2 billion reduction in 1979 that results from
simultaneous introduction of both actions. Furthermore, approval of his short-term proposal may
substantially dim legislative prospects for his professed long-term objective. While there is
support for the Secretary's proposal in some parts of the Congress, past inquiries on this question
have revealed strong opposition to the idea by the Chairman of the House Appropriations Committee.
GERAL
R.
FORD
37
Issue Paper
Department of Defense
1978 Budget
Issue # 5: Commissary Subsidy
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 formerly 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 two years and in the
1977 review the President proposed to reduce the subsidy over three years. In each instance the
House restored the funds while the Senate was willing to accept the reductions proposed (although
in the 1977 bill, the Senate proposed a six-year phase out in lieu of the Administration's three-
year proposal). In 1976 and in 1977, the conference committee restored most of the funds deleted.
The Congress did accept savings in the subsidy which resulted from management improvements rather
than the imposition of a surcharge. The subsidy, which totals $340 million, pays the salaries and
expenses of the 24,600 civilian and military personnel engaged in commissary operations.
Statement of Issue
Should the full costs of operating the military commissaries be passed on to the consumer by
either ending the direct subsidy or adjusting future military pay increases to account for the
value of commissary benefits?
Pros.
RAL
Today's military salaries and retiree programs and the ready availability of alternative
(although somewhat more expensive) markets make the commissary system and, in particular,
the direct Government subsidy to the commissary system archaic.
Military salaries are at least competitive, or more than competitive, with civilian
salaries.
38
The military retirement system provides benefits far in excess of the average private
pension plan. Military retired pay, unlike most civilian sector retirement plans, is
automatically adjusted, based on 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 the past been even greater than the increase in the CPI
because of the 1% "kicker."
-- Discounting the amount of future military pay increases until the value of the subsidy
is fully recovered, as proposed in Alternative #3, would follow the general principle
of valuing total compensation--including fringe benefits--when setting military and
civilian salaries.
Cons.
-- The commissary program is politically popular.
Private sector service-oriented publications have publicized the proposal and urged
their readers to protest to the Congress and the Executive Branch. A large volume
of protest mail, particularly from retired personnel, can be expected.
This recommendation requires legislation to either end the direct subsidy or to allow
differentiation between the civilian and military pay increases.
The reduction in compensation proposed in Alternative #3 will be clearly delineated
each time that there is a pay increase, while the proposal is being implemented,
thereby increasing the proposal's unpopularity.
The QRMC has included the commissary subsidy as part of the unquantified compensation
necessary to offset the "military factor. If
Alternatives
GERAL
Continue the subsidy on the basis that favorable congressional action is unlikely (Agency req.).
39
#2.
Terminate the existing subsidy over a three-year period beginning on October 1, 1977, and
submit legislation in January to implement this change (OMB rec.).
#3.
Continue the direct subsidy but limit the amount of future military pay increases over the
next two years until the value of the commissary to military personnel is fully discounted
in military salaries.
Analysis
1976
1977
1978
1979
1980
1981
1982
Budget Authority/Outlays
BA
0
BA
0
BA
0
BA
o
BA
o
BA
o
BA
o
($ Millions)
Alt. #1 (Agency req.)
310
310
320
320
340
340
340
340
340
340
340
340
340
340
Alt. #2
(OMB rec.)
310
310
320
320
225
225
110
110
Alt. #3
310
310
320
320
90
90
Agency Request
(Difference from Alt. #1 (Agency request)
1978 Outlays
1979 Outlays)
Alt. #3
-250
-340
)
(
Alt. #2 (OMB rec.)
-115
-230
)
Agency request: Alternative #1. Retain the subsidy on the basis that Congress will not allow the
subsidy to be ended.
OMB Recommendation: Alternative #2. Reiterate the decision of the last two years to phase out the
commissary subsidy over a three-year period.
FORD
40
Issue Paper
Department of Defense
1978 Budget
Issue # 6: Junior Enlisted Travel Entitlements
Background
Junior enlisted personnel stationed in CONUS or overseas, even if accompanied by their dependents,
are not eligible for travel and transportation allowances for these dependents. They are also
ineligible for station allowances (cost of living, housing and temporary lodging) at rates other-
wise allowable for those with dependents. Since 1975 DOD has attempted, unsuccessfully, to change
this policy to include funds in the budget for this purpose. In 1975 they were deleted by Congress;
in 1976 they were deleted by the Secretary of Defense after discussion with the President; and in
1977 they were deleted by the President.
Statement of Issue
Should existing entitlements for dependent travel and transportation allowances be extended to
junior enlisted military personnel?
Pros.
-- It would alleviate a definite financial burden imposed on the lowest-paid members of the
armed forces.
-- It would reduce family separations which should improve service morale and which may
result in improvements in the attrition and re-enlistment rates.
CRAL
-- It would permit junior enlisted personnel to be treated the same as higher ranking
FORD
members of the armed forces.
41
Cons.
-- It would result in significantly more dependents overseas, thus, aggravating current
inadequate housing problems and contributing to additional government cost for hospitals,
post exchanges and commissaries.
-- The present policy applies primarily to enlisted personnel during their first enlistment
as most have been promoted to E-4 by the time they re-enlist which makes them and their
dependents eligible for travel entitlements. Providing these entitlements to first-termers
may remove an inducement for a junior enlisted member to re-enlist since he will enjoy
full benefits before he completes his first year.
-- Although equity is 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.
Although it would probably result in longer overseas tours for many junior enlisted service-
GETTIE
members, the cost of extending the entitlements would not nearly be offset by longer tour
lengths. In FY 1976, when this issue was proposed, the Army estimated the maximum savings
from this proposal including reduced travel, longer tours, leave and fewer hardship
reassignments at $5 million.
Alternatives
#1. Extend travel and transportation allowances to junior enlisted personnel (Agency req.).
#2. Retain the current policy of providing travel and transportation allowances only to senior
enlisted personnel who are primarily careerists (OMB rec.).
Analysis
1976
1977
1978
1979
1980
1981
1982
Budget Authority/Outlays
BA
0
BA
0
BA
o
BA
o
BA
o
BA
0
BA
o
($ Millions)
Alt. #1 (Agency req.)
189
189
189
189
189
189
189
189
189
189
Alt. #2 (OMB rec.)
42
Agency Request
Difference from Alt. #1 (Agency request)
1978 Outlays 1979 Outlays)
(
Alt. #2 (OMB rec.)
)
-189
-189
)
Agency request: Alternative #1. The Department believes that extending the entitlement to junior
enlisted personnel should be just the cost of doing business which is equitable and which would
alleviate the financial burden on many service personnel and which may encourage re-enlistments.
OMB recommendation: Alternative #2. The Department has no evidence that extension of this
entitlement to junior enlisted personnel would have any significant positive impact on re-enlistment
as most service members qualify for the entitlement when they are eligible to re-enlist.
43
Issue Paper
Department of Defense
1978 Budget
Issue # 7: DOD recruiting Costs
Background
Since the advent of the All-Volunteer Force (AVF) the cost of military recruiting has increased
dramatically. Much of this increase results from the fact that, unlike the draft era, the military
services must now compete directly with the civilian labor market for young males. This has
resulted in new and improved bonuses for enlistments and re-enlistments and sophisticated marketing
techniques, including a greatly expanded recruiter force, paid advertising and a great deal more
management of the total military recruiting effort throughout DOD. Prior to the AVF, the re-
cruiter was, to a great extent, simply "an order taker." He is now a carefully selected and highly
trained service member who faces a real challenge to continually obtain the quality and quantity
of people demanded of him by his military service.
The military services have concluded that the recruiter and their other recruiting resources
should especially be directed at obtaining male high school diploma graduates, as opposed to
non-high school or high school equivalency certificate (GED) graduates. DOD believes that high
school graduates are much more likely to complete their enlistments and pose significantly fewer
discipline problems. The services would prefer all of their male recruits to be high school
graduates, but supply and demand factors make this impossible. All services require that their
female recruits be high school graduates.
Each year, since the beginning of the AVF, the percentage of high school graduates entering the
armed forces has increased.
Percentage of Recruits Who are High School Graduates
FY 1964
FY 1974
FY 1975
FY 1976
68
66
72
75
44
The Department's success in improving "quality" can be attributed in part to its vigorous
recruiting and advertising programs and its ability to pay enlistment bonuses up to $2,500 to
high school graduates who agree to enter shortage skills. However, some of their success must
also be attributed to poor economic conditions and the lack of employment alternatives for young
men and women in the private labor market.
While all the services completed FY 1976 with improvements over FY 1975, the Army was displeased
with its performance. Army had established a FY 1976 high school graduate enlistment objective of
65%. During the first half of FY 1976, it was able to recruit 65%. However, in the latter half of
the fiscal year, a downward trend in quality developed, and Army ended the year with only a slight
improvement over FY 1975. If Army's first half FY 1976 performance had continued, DOD's overall
rate in FY 1976 would have been 79% rather than 75%.
Army attributes the downward trend in the last half of FY 1976 to reduced recruiting resources.
In FY 1976 alone, the Congress reduced its recruiting budget by 13 percent and in the FY 1977
President's Budget, funds for the enlistment bonus were significantly reduced - from $73 million
in FY 1976 to $29 million in FY 1977.
As a result of the Army's problems in the second half of FY 1976, $79 million in additional re-
sources have been proposed for reprogramming in FY 1977, including additional funds for enlistment
bonuses. All of the other services, however, met or exceeded their FY 1976 high school graduate
enlistment goals.
To halt what Army considers as a continuing downward trend in high school enlistments, it proposes
to increase FY 1978 funding by $41 million from a proposed $276 million in FY 1977 to $317 million
in FY 1978.
However, the Air Force and Marines, as well as the Army Reserves, are also programming higher
levels of high school graduate enlistments. Both active and Reserve forces are requesting greater
recruiting resources in FY 1978, including the Air Force, which historically has enjoyed nearly
100% high school graduate enlistments. Air Force complains that the increased recruiting resources
provided to the other services is adversely affecting their capability to attract quality recruits.
GERAL
FORD
45
And, if additional recruiting resources are provided to Air Force and Navy, Army's problems grow
as today's youth prefer these two services over the Army.
Although there are other sources for "quality" recruits, such as college drop-outs and prior
service personnel, DOD's recruiting efforts and resources are primarily concentrated on the Nation's
high school seniors, as this group generally is much easier to contact.
The stated requirements of the military services for male high school graduates are compared
with the anticipated supply on the following table.
Male High School Graduate Enlistments Required
FY 1976
FY 1977
FY 1978
Active Forces
246,350
262,996
266,920
Reserve Forces
42,846
61,960
68,575
TOTAL
289,206
323,956
335,495
High School Graduate (HSG) Market*
FY 1976
FY 1977
FY 1978
Anticipated No. of Males
1,543,000
1,541,000
1,547,000
GERAL
No. Entering College
717,000
718,000
726,000
Never enter labor market
60,000
60,000
60,000
FORI
Available: HSG Market
766,000
763,000
761,000
% Required by Active Forces
30.2
32.5
33.1
% Required by Reserve Forces
5.6
8.1
9.0
Total % Required by DOD
35.8
40.5
42.1
*
Source: Census Bureau and BLS data.
Statement of Issue
Should the military services quest for high school graduates be constrained and can more efficient
use be made of recruiting resources by lowering the amount of interservice competition?
46
Pros.
-- It would permit manpower resources currently utilized for recruiting to be applied to
other military efforts.
-- It would require that the military services aggressively examine measures to reduce first-term
attrition (currently over 35%) other than by recruiting more high school graduates. This could
mean further expansion in the enlistment of women and major changes to recruit training.
-- DOD's FY 1977 and FY 1978 requirement for male high school graduate enlistments appears
excessive and probably unrealistic unless this group of Americans continue to experience
high unemployment.
-- The quest for quality recruits results in expensive competition between the services.
The military services, especially the Army, have not made maximum use of prior service
personnel who wish to return to military life. These people, to a great extent, have
made the adjustment to military living and 80% are high school graduates.
-- We don't know what number of high school graduates are needed. We should review the
overall need and identify places where others can be used.
Cons.
-- If the military services recruit lower quality enlistees, DOD will incur significantly
higher training and manpower cost due to increased attrition. A FY 1975 Army study of
accessions showed that 1,200 non-high school graduates had to be recruited to perform
the same useful service as 1,000 diploma holders. Army has estimated that the present
level of quality results in cost avoidances of up to $133 million per year.
-- Policy changes which would support lesser quality recruits could lead to serious questions
about the viability of the all-volunteer armed force.
GERAL
47
--- Much of the personnel disturbances experienced by the services during the late 1960's
and early 1970's have been blamed on lower quality first-termers. To endorse a return
to lower quality recruits may signal a return of these problems.
If the services are required to enlist more prior-service personnel, then additional
manpower costs, especially with respect to retirement, will be incurred in the outyears,
as prior-service personnel tend to remain on to retirement in much greater numbers than
recent high school graduate enlistees.
Alternatives
#1. Approve the Department of Defense request which provides for additional recruiting resources
for both active and reserve forces (Agency req.).
#2.
Maintain recruiting resources at the FY 1977 level and direct DOD to conduct a study of
military recruiting. This study would examine the implications as well as the feasibility
of continuously accessing more and more high school males. It would also study methods
of reducing attrition such as possible modifications to recruit training programs. And
it would examine alternatives to male high school graduate enlistments such as recruiting
GERAL
more women and prior service personnel.
R.
In view of the major increases already planned in 1977, approve no more than one-half the
increased resources requested for 1978 and direct the Department to conduct the study
proposed in Alternative #2. The distribution of the increase should assure that a competitive
balance exists among the services in the recruiting effort (OMB rec.).
Analysis
1976
1977
1978
1979-1982
Budget Authority/Outlays
BA
0
BA
0
BA
o
BA
0
($ Millions)
DOD recruiting Costs:
Alt. #1 (Agency req.)
486
486
595
595
720
720
720
720
Alt. #2
486
486
595
595
595
595
595
595
Alt. #3 (OMB rec.)
486
486
595
595
645
645
645
645
48
Agency Request
(Difference from Alt. #1 (Agency Request)
1978 Outlays 1979 Outlays)
Alt. #2
-125
-125
)
Alt. #3 (OMB rec.)
-75
-75
)
Agency Request: Alternative #1. The military services have made tremendous strides in achieving an
acceptable level of quality recruits each year. They should be commended and encouraged to improve
past performances. To do otherwise, could undermine the very idea of an all-volunteer force.
OMB recommendation: Alternative #3. Present quality recruiting plans, when viewed individually,
appear to be acceptable in most cases. However, when examined collectively, they make large
demands on the young male population. Further, while the services are enjoying improved quality
each year, they still experience a high level of recruit attrition. A study of military recruiting,
including a review of methods to reduce the present level of recruit attrition should be initiated.
Further alternatives to the present service recruitment plans should be explored, such as accessing
more prior service personnel and resources. This review should particularly assure that no one
service is permitted to maintain a significant competitive advantage over any other.
GERAL
49
Issue Paper
Department of Defense
1978 Budget
Issue #8 : Average Grade Controls
Background
The average grade of Federal civilian workers under the General Schedule has risen from 7.458 in 1964
to 7.852 in 1974 and is currently reported at 7.997. Much of this increase is generally attributed to
technological changes which have forced a change in the make-up of the Federal workforce, thus in-
creasing the proportion of high level technical, professional, and managerial employees. However, it
has long been recognized that not all of this average grade increase can be attributed to occupational
or structural shifts and that some portion is attributable to unwarranted grade inflation. This
prompted OMB to direct a Government-wide exercise in 1972-73 designed to arrest the trend of average
grade increases. Estimates vary widely as to the portion of average grade increase that is un-
explained by structural change. These estimates depend upon methodology, but the amount appears to
be significant. It should be emphasized that all "unexplained" increases are not necessarily un-
justifiable increases.
Included in the ongoing Presidential Management Initiatives is a year-long position and classi-
fication management objective (announced by a Presidential directive of May 27, 1976) which requires
Federal agencies to re-examine their internal position management systems and take appropriate
corrective action to restrain grade escalation. This initiative deliberately avoided setting grade
reduction targets and instead requires individual agencies to implement the program under CSC guide-
lines and monitoring. CSC has begun a vigorous attack on the problem. Among other steps, CSC recently
has identified statistically significant average grade changes occurring since May 1973 in twenty
occupational series involving eight different agencies. These agencies are being given until next
month to explain such changes. In cases which are not explained satisfactorily (by changes in series
standards, classification appeals, etc.) CSC will direct position audits and ultimate corrective action
where warranted. The question has been raised whether corrective agency action and compliance would
be strengthened by projected budget reductions.
Statement of Issue
Should the anticipated results of this year's highly selective average grade reduction program be
reflected in the 1978 budget by budgeting for a 1% reduction in the Government-wide average grade?
50
Pros.
-- Could provide a stronger incentive for agencies to develop effective position management
and evaluation systems.
-- Could reduce competitive hiring disadvantages that the Federal Government may be imposing
on the private sector.
-- Could improve internal equity among Federal classified workers by ensuring that pay
distinctions reflect work distinctions.
Cons.
-- Could open OMB to repeated union charges that we have directed downgradings to save money
regardless of case merits.
-- Could suggest that agencies which do a conscientious job of position management will be
rewarded by having their budgets reduced.
-- Could induce perverse management actions which increase total program costs while
reducing average grade, such as hiring of lower graded temporary personnel to drive
down the average grade.
-- Could create recruiting, retention, and morale problems (unless appropriate compensation
adjustments are implemented).
Alternatives
#1. Retain the current plan without budgeting for anticipated average grade reduction (Agency req.).
#2. Budget for a reduction of 1% in the General Schedule average grade (OMB rec.).
51
Analysis
Request
($ Millions)
(Difference from Alt. #1
1978 Outlays 1979 Outlays)
(
Alt. #2 (OMB rec.) - Total Government
-18
-95
)
(
- DOD
-7
-38
)
OMB has recently completed a preliminary analysis on the causes of changes in average grade and
the cost implications of these changes. While this research has relied on several different data
sources and 22 highly aggregated job families, the conclusions derived are likely to be supported
by analysis of strictly comparable data bases and full review of all 422 classified occupational
series. Its major conclusions are outlined below:
-- Average grade for General Schedule employees increased 7% between 1964 and 1976.
-- A substantial portion of the average grade increase is due to non-structural changes.
-- Grade inflation in the occupations reviewed is most prevalent in
Washington, D. C.
High wage areas (Detroit, San Francisco, etc.)
High grades (GS 12-15)
Certain occupational groups (Clerical, Engineering, and Medical)
Certain agencies (Agriculture, SBA, NSF, GSA, FTC, etc.)
-- The proportion of higher graded positions in most of the occupations reviewed is higher than
in the same private sector occupations.
52
-- Overgrading is primarily the result of
Management distortion of position descriptions
Management influence on classifier judgment
Lack of classifier expertise
The design of any solution to the grade escalation problem must consider the incentive structure
facing each manager. The manager who allows positions to be classified higher than permitted by
CSC standards may obtain a recruiting and retention advantage over other managers. With this
advantage he may have a better chance of mission accomplishment, for which he is rewarded. He will
not necessarily be penalized for overgrading his people, nor rewarded for strictly holding grades
to classification limits.
The OMB recommendation would establish a continuing OMB/CSC task force to reconcile differences in
and refine various preliminary research efforts, in order to identify those specific agencies,
occupational groups, grade levels, and geographic locations where grade reduction targets should be im-
posed on an agency or where an agency's classification authority should be revoked, modified, or
centralized. These selective efforts will be designed to achieve a 1% reduction in projected
average grade by the end of FY 1978. Full outlay savings of approximately $219 million are not
achieved until FY 1981. Projected savings will be reflected in the pay raise contingency in the 1978
budget pending allocation of specific targets to selected agencies and appropriations.
Agency request and CSC recommendation; Alternative #1. Continue and conclude the year-long,
Presidentially-directed re-examination of internal agency classification systems and positions
before projecting and budgeting for specific agency average grade reductions. Special CSC and
agency actions under this initiative should be completed before further OMB action in this area.
53
OMB Recommendation: Alternative #2. CSC oversight of the agencies' classification responsibilities,
and initiatives such as the PMIs, may not be sufficient to overcome the strong incentives facing some
agencies and managers to overgrade portions of their work force. Effects of selective controls
should be anticipated in the budget to help ensure results. The program must be coordinated across
Federal agency lines, since any unilateral constraint on the civilian grade structure within DOD
could disadvantage Defense activities in recruiting and retaining personnel.
GERAL,
R,
FORD
54
Issue Paper
Department of Defense
1978 Budget
Issue #9:
Civilian Employment Levels
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. In the employment
plan approved in last year's budget, Defense would have reduced employment by 25 thousand from
967,000 at the end of September 1976 to 942,000 at September 1977. While Defense will begin
FY 1977 at 957,000, there is great resistance by the military departments, particularly Army, to
accomplishing the remaining planned reduction of 15,000.
The following table displays the total employment reflected in the Service budget submissions
as compared with past history.
(In Thousands)
FY 1967
FY 1971
FY 1975
FY 19TQ
FY 1977
FY 1978
FY 1979
Total
1,306
1,094
989
957
955
970
973
The FY 1977 request is an increase of 13 thousand over the current ceiling. Three thousand of
the increase is offset by a decrease of 3 thousand in planned indirect hire foreign national
employment and reflects the fact-of-life utilization of dependents in Germany to so some of the
jobs previously filled by local nationals. The primary justification advanced for the balance of
this increase is an alleged inability to accomplish the planned base closure actions contemplated
in last year's budget. We expect that the Joint review will approve about half the requested
increase and FY 1977 will end at 950 thousand. For FY 1978 we expect the Joint review to produce
GERALD
R.
55
a "requirement" of 960 thousand from which the Secretary will assume that productivity improvements
of 1-1/2% can be achieved resulting in a civilian employment level of 945 thousand in 1978 and 1979.
This is only a slight decrease from the revised 1977 level.
Statement of Issue
Should further reductions be planned in Defense civilian employment?
Pros.
-- The employment planned in the Defense request may be inconsistent with a balanced budget
in 1979.
-- The planned savings in FY 1977 should be accomplished because the existing base structure
is extremely inefficient resulting in much larger than needed overhead costs.
-- The Presidential Management Initiatives include a plan for achieving productivity
improvements of 2% annually and these should be reflected in the budget.
Cons.
-- It may be unrealistic to expect productivity savings of 2% from the FY 1977 base in that
workload in Defense in-house industrial activities is increasing and the overall growth
in Defense purchases should have some impact on civilian manpower requirements.
-- Productivity savings as they occur should be used to meet added requirements. Defense
employment has been decreasing for several years while employment in other Government
agencies has been increasing.
--
There has been significant Congressional pressure against closing bases particularly
during a period of high unemployment, and no additional base closures or reductions
are being proposed in this budget review.
56
Alternatives
#1. Approve the expected result of the joint review which would provide an employment program
of about 950 thousand in FY 1977 decreasing slightly to 945 thousand in FY 1978 (Agency req.).
#2. Retain the current plan for FY 1977 and require a productivity increase of 1% in FY 1978
and FY 1979 (OMB rec.).
#3. Retain the current plan for FY 1977 and require a productivity increase of 2% in FY 1978
and FY 1979.
The employment which would be provided by the alternatives is displayed on the following table:
Total Employment (in thousands)
FY 1977
FY 1978
FY 1979
Alternative #1
950
945
945
Alternative #2
942
933
923
Alternative #3
942
923
905
Analysis
The Presidential Management Initiative on productivity improvement has resulted in a concerted
effort to improve and extend productivity measurements. Throughout the Government a goal of 2%
annual improvement has been set and several agencies have set targets well in e xcess of 2%. DOD
has established a productivity increase goal of at least 2% for each measured activity. They would
claim that any savings are reflected in meeting of additional requirements.
Agency Request
(Difference from Alt. #1 (Agency Request)
1978 Outlays
1979 Outlays)
(
Alt. #2 (OMB rec.)
-90
-220
)
(
Alt. #3
-175
-530
)
57
Agency request: Alternative #1. The Department believes that its request reflects the minimum
employment needed to accomplish the funded workload and that appropriate productivity savings have
been reflected. In the absence of base closures and reductions or other program reductions, it
is not reasonable to anticipate further employment reductions.
OMB recommendation: Alternative #2. Given overall government productivity improvement goals of
2%, it is not unreasonable to require Defense to achieve an overall average of 1%.
GERAL
R.
58
Issue Paper
Department of Defense
1978 Budget
Issue #10: Guard and Reserve Manpower
Background
Reserve and Guard manpower projections indicate the beginning of a recovery from the downward
trends that began with the elimination of draft motivated enlistments. Reflected in authorized
and requested strength levels is recognition of the current inability of Reserve forces to meet
a paid drill objective of approximately 940,000 against a stated full wartime structure allowance
of about 1 million men.
1976
1977
1978
1979
Paid Drill Strength (000)
Manning authorization
/
904
878
902
906
Service request
823
862
899
906
(Latest actual-Sept. 1976)
(826)
The administration's 1977 budget initiatives for utilization of lower training categories
consistent with proficiency and mobilization needs, including legislative authority required to
permit this latitude for National Guard units, were rejected by the Congress. Consequently, the
manpower programs continue to be based almost exclusively on utilization of the most intensive and
costly training category requiring 48 four-hour training periods and two weeks of active duty
training annually.
1/ 1976-77, Congressional Floor; 1978-1979, DOD paid drill authorization.
59
Statement of Issue
Should Reserve manpower programs provide for more gradual recovery of manning levels than
requested by the Services and greater utilization of available training categories consistent
with unit/individual proficiency and mobilization needs?
Pros.
-- Attainment of the requested strengths is highly questionable based on trends.
-- Overoptimistic strength goals can result in quality deterioration, diversion from
mission training and excessive utilization of recruiting and retention resources.
-- Recognition of different deployment criteria and varying skill and proficiency levels,
provides an opportunity for more meaningful and efficient training.
Cons.
-- Lack of full support for service efforts to meet Reserve manning authorizations and
provide maximum training opportunity casts doubts on the sincerity of stated reliance
on the Reserves in any future conflict.
-- Utilization of less intensive training options is considered counterproductive to
recruiting and retention efforts due to reduced income opportunity.
Alternatives
#1. Approve the funding requested to reach and train programmed manning levels (Agency req.).
#2. Provide for a more gradual recovery of manning levels and more efficient utilization of
available training options (OMB rec.).
BERALD
60
Analysis
Manning levels. Notwithstanding intensive recruiting and retention efforts, the Reserve Components
are consistently overoptimistic in their strength programs. In addition, to the extent that a
sudden surge in strength does occur in any one year, the likelihood of large losses and associated
short-term recruiting problems in the out-years is greatly increased. A more realistic projection of
gain and loss estimates indicates that funding for a manning level approximately 21,000 less than
requested by the Reserve Components would be reasonable and save approximately $30 million in 1978.
Training Frequency. Last year's budget initiative to transfer significant numbers of Guard and
Reserve personnel to lower training categories consistent with mobilization deployment and skill
level requirements was rejected by the Congress. In rejecting the initiative to shift 40,000 Naval
Reservists to a lower category, the Congress called for a Naval Reserve mission study, to be completed
by February 1, 1977, to identify specific new missions for better utilization of authorized strength.
Analytical effort within OSD and Navy is being accelerated so that the Secretary can determine the
appropriate strength level for the 1978 budget.
While it is premature to address overall Naval Reserve paid strength levels, available program
data indicates the potential for significant personnel cost savings through better management of
training frequency for all Reserve Components. After consideration of unit skill requirements, the
need for unit integrity and deployment criteria, a distribution of units and personnel by training
category can be developed which is considered more appropriate and consistent with training require-
ments than the service request that places 98% of drilling reservists in the most intensive training
category. We estimate that approximately 30% of all drilling unit personnel could potentially
maintain required proficiency at lower than currently programmed training frequencies, including
over 40% of the Naval Reserve due to its heavy emphasis on augmentee personnel. Such a plan,
which would require resubmission of legislation with respect to the National Guard, could result
in ultimate reduced funding requirements of $125 million. Phasing of the redistribution over a
five-year period would allow evaluation and adjustment during implementation and enhance the chance
of acceptance by the Congress. The strongest administration support will be required to obtain
Defense as well as congressional approval to proceed in this direction.
61
Agency Request
($ Millions)
(Difference from Alt. #1 (Agency Request)
1977 Outlays 1978 Outlays 1979 Outlays)
Alt. #2 (OMB rec.)
-17
-55
-75
)
Agency request: Alternative #1. The Reserve Component Chiefs feel that nothing short of all-out
support for reaching authorized manning levels as quickly as possible will result in a viable
Reserve as a partner in the total force. Any initiative, such as reduced training, at a time
of increasing reliance on Reserves is incomprehensible to them.
OMB recommendation: Alternative #2. The current austere budget climate warrants every effort
for providing a viable Reserve force mobilization asset through a managed program to conserve
resources. Defense should initiate the actions discussed, including resubmission of required
legislation.
62
Issue Paper
Department of Defense
1978 Budget
Issue #11: Guard and Reserve Pay Initiatives
Background
The administration's 1977 budget initiatives included elimination of both dual compensation of
Federal employees on active duty for training, and Administrative Duty Pay for reserve unit
commanders. Both initiatives were rejected by the Congress.
The 1978 request includes $20 million for an Army Guard and Reserve enlistment/re-enlistment
bonus test which would also require legislative authority.
Statement of Issue
Should the 1978 legislative program include resubmission of the administration's 1977 Reserve pay
initiatives and/or authority for a Reserve force enlistment/re-enlistment bonus?
Pros.
-- Initial limited support in Congress may increase in a second attempt.
-- A bonus test may provide an answer to the problem of current Guard and Reserve manning
shortfalls with a minimal commitment of resources at this time.
-- Support for a bonus test concurrently with resubmission of the 1977 initiatives may defuse
the charge that the Administration "is out to get the Reserves."
63
Cons.
-- Submission of any Reserve compensation initiatives may be viewed as prejudging the
ongoing Presidential directed Reserve Compensation System Study.
-- Resubmission of the 1977 initiatives will be perceived as a disincentive to Reserve
participation at a time when manning levels are low, regardless of merit.
-- Support of a bonus test may result in a significant long-term funding commitment.
Alternatives
#1. Withhold further action on the 1977 pay initiatives pending consideration by the Reserve
Compensation System Study but seek legislative authority required to conduct the
enlistment/re-enlistment bonus test (Agency req.).
#2. Include the 1977 pay initiatives and bonus authority in the 1978 legislative program.
#3. Include only the initiative for elimination of dual compensation in the 1978 legislative
program (OMB rec.).
Analysis
Dual Compensation for Military Training. Federal employees who are also reservists receive both
their full civil service pay and military pay while on active duty for training. If the Federal
Government followed the policy of many private employers by granting military leave and providing
civilian pay only to the extent necessary to avoid loss of take-home pay, it would save up to
$45 million annually in civilian pay--split approximately $30 million within Defense and $15 million
in other Federal agencies. The House Appropriation Committee agreed that the current policy
represents a questionable practice but decided not to act pending action by either the Armed
Services or Post Office and Civil Service Committees, neither of whom acted. Emphasis placed on
this proposal as a Federal civilian pay practice initiative would enhance the likelihood of
favorable consideration as well as minimize the argument that action should be deferred pending
completion of the Reserve Compensation System Study.
64
Administrative Duty Pay. The 1978 Defense request includes $2 million for payment to Reserve
unit commanders for administrative duties performed outside of prescribed drill periods. In con-
sidering the administration's 1977 budget initiatives, the Senate Armed Service Committee recommended
repeal of the authority, but receded in conference to the House Committee view that it was
inappropriate to terminate this incentive. As a specific reserve pay entitlement, this issue could
properly be left to the Reserve Compensation System Study for resolution. An interim report is due
December 1.
Enlistment/Re-enlistment Bonus. The Defense request for an enlistment/re-enlistment bonus test
to be conducted by the Army Guard and Reserve in FY 1978 is expected to cost up to $50 million,
with $20 million in FY 1978. Despite current manning difficulties, the implementation of a bonus
program prior to determination that other recruiting/retention initiatives being implemented are
not successful, or that other more cost-effective alternatives are not available, appears questionable.
Agency Request
($ Millions)
(Difference from Alt. #1 (Agency Request)
1978 Outlays
1979 Outlays)
Alt. #3 (OMB rec.)
-50
-50
)
Alt. #2
-32
-32
)
Agency request: Alternative #1. The Department feels resubmission of the 1977 initiatives would
stand no better chance of success than last year and may adversely impact on intensive efforts to
improve manning levels. They would prefer to have review by the Compensation Study. Conversely,
they feel the current strength situation warrants immediate action on a bonus test as part of the
overall Reserve Component Readiness Improvement Package.
OMB recommendation: Alternative #3. Seek elimination of dual compensation as a civilian Federal
Government pay practice initiative. Defer action on Administrative Duty Pay pending review by the
Reserve Compensation System Study. Evaluate the full impact of additional non-compensation recruiting
and retention actions being initiated before seeking a bonus authority.
RACE
65
Issue Paper
Department of Defense
1978 Budget
Issue #12: Modernization of Defense Domestic Installation Structure
Background
On June 30, 1975, the Department of Defense had 4,038 domestic installations located on 23 million
acres at an initial acquisition cost of $37 billion. These installations have evolved over the years.
Many were founded originally during the 19th century, but the majority were formed in response to
foreign wars. The major expansions occurred during World Wars I and II. Subsequent to World War II,
the creation of the Air Force and new or revised missions for the other services has created more new
installations. Our structure is still near its World War II level and is imposing a very heavy cost
burden on Defense.
There has been steady pressure to close unnecessary installations, but we are still a long way from
the optimum domestic installation structure required to support our current forces. Although Defense
has accomplished 2,700 separate realignment actions in the last six years, most of these have been
generated by short-range budget pressures and have not had a significant impact on the total installa-
tion structure. Neither the Services, nor the Department have conducted studies to determine long-
range future installation requirements. The result has been the perpetuation of an inefficient,
outdated basing structure.
The reasons for this continuing inability to modernize the installation structure are twofold:
-- Congressional resistance to base closure. A major Defense installation is frequently the
largest employer within a constituency and the economic impact of closures can be severe
during the period of transition. The recent passage of Section 612 of the 1977 Military
Construction Authorization (despite the President's initial veto) indicates that Congressional
interference with plans to realign the base structure can be expected to continue and increase
in the future.
66
-- The Services have strongly ambiguous feelings on the subject of base realignments. On the
one hand they are acutely aware of the budgetary drain imposed on them by maintaining
obsolete facilities. However, they also believe that a network of military installations
around the country serves to generate grass roots support for military programs in the
Congress. They are concerned that an optimized base structure, which might result in
concentration of the military presence in one or two regions of the country, would erode
Congressional, support of military programs to a severe extent. This concern is seldom
expressed openly, but usually emerges on the basis that various installations must be
retained for "surge" purposes or for "unforeseen contingencies."
We believe there should be a study to determine long-range future requirements in compliance with
NSSM 246 and to prioritize construction programs. The Department has begun such a study but is already
encountering strong resistance from the Services. With any cooperation, this study should be completed
in a few months. However, a Presidential commitment is required to minimize resistance from the Congress,
unions and impacted communities. Without such a commitment, an effective study may never be completed,
and if one were completed, political opposition would probably kill any implementation plans. The
Presidential commitment should be emphasized in the State of the Union message and in the formation of
a Blue Ribbon Panel to study our domestic basing. Such a panel could ameliorate political opposition
and could provide independent credibility. Its membership should consist of distinguished Americans
(such as the Vice President), defense experts (such as Ambassador Bunker and David Packard), congres-
sional representatives (such as Senator Stennis and Senator Goldwater) and leading business and labor
leaders who could provide assistance in the difficult area of economic adjustment.
The Panel would be expected to produce a document that would identify our Nation's essential required
installations. Any installation not identified as essential would be closed. If the study were completed
by August 1977, candidates for closure or realignment could be announced then and environmental impact
statements could be initiated. Because such a study is expected to reduce our basing structure, and to
minimize criticism about sunk costs, some form of moratorium should be placed on FY 1978 domestic
military construction, except for: safety and approved mission changes (TRIDENT). Nonawarded
construction, projects from prior years could be placed in budgetary reserve. Upon completion
of the Panel study, prior year projects could be released for the essential installations and
proposed legislation would be prepared to revise the authorization for utilization of other funds on
essential installations. With the August 1977 completion date, adequate time would exist to prepare the
67
FY 1979 construction budget. This FY 1979 budget would be redirected to a planned program to modernize,
within four years, the essential installations. By so doing, readiness would be enhanced, a more
efficient and effective Defense would result, and morale of military forces should increase.
Statement of Issue
Should there be a major Presidential initiative to optimize by FY 1982 the domestic military
installation structure?
Pros.
-- Based upon such a Presidential initiative:
Department of Defense military basing structure would be reconfigured to conform to
modern national security requirements, as revised by NSSM 246.
DOD would enhance military readiness by establishing a modernized, efficient basing
structure.
Deferral of FY 78 and prior year construction programs would minimize sunk costs and
would update programs to comply with NSSM 246.
Cons.
-- Support for military programs might erode following withdrawal of military presence from
certain parts of the country.
-- Strong opposition can be expected on two fronts:
Locally - reflecting the adverse economic impacts on local communities with resulting
unemployment and lost revenues from major base closures or realignments after FY 1978.
Congress - massive resistance to impact of construction slowdowns and base
realignments in their communities.
68
Alternatives
#1. Approve the FY 1978 military construction programs at the Department's requested level and
program base realignments as currently planned (DOD req.).
#2. Establish a Blue Ribbon Panel to identify optimum military basing requirements, place a
moratorium on FY 1978 domestic construction (except for family housing operations, safety
and approved major weapon systems), freeze FY 1977 and prior year projects not under con-
tract, and modernize resulting base structure during the FY 79 to FY 82 period.
#3. Same as Alternative #2 except for a partial construction moratorium to allow for projects on
installations that can be reasonably agreed as having firm functional requirements (OMB rec.).
Analysis
Budget Authority/
1976
1977
1978
1979
1980
1981
1982
Outlays
BA
o
BA
o
BA
o
BA
o
BA
0
BA
o
o
($ Millions)
Alt.
#1
(DOD
req)
2,483
2,019
2,482
1,945
2,881
2,100
3,035
2,575
3,285
2,775
3,578
2,995
3,557
3,250
Alt. #2
2,483 2,019
2,482
1,945
881 1,900
3,035
1,575
3,285
2,175
3,578
2,695
3,557
3,100
Alt.
#3
(OMB
rec)
2,483
2,019
2,482
1,945
2,381
2,050
3,035 2,325
3,285
2,625
3,578
2,920
3,557
3,210
The TOA reductions shown in the above table are $-2.0 billion and -$.5 billion for Alternatives Nos. 2
and 3, respectively. These adjustments are based on our judgment as to the overall reductions consistent
with the rationale of Alternatives 2 and 3. They do not reflect detailed project review and final adjust-
ments for this issue could vary significantly!
Agency Request
(Differences from Alt. #1 (Agency request)
1978 Outlays
1979 Outlays)
(
Alt. #3 (OMB rec.)
-50
-250
)
(
Alt. #2
-200
-1,000
)
69
Agency Request: Alternative #1. The Department believes that the FY 1978 military construction
program should be approved at the requested level and that no outyear deferral should occur until
completion of its long-range basing study. To do otherwise would be unrealistic. They also
maintain that they place the great bulk of their construction projects at bases which are clearly
to be retained indefinitely.
Alternative #2. A one-year deferral of most of the military construction program. The findings
of a select Blue Ribbon Committee would govern (subject to Presidential approval) our future
installation structure and investment over the next four years. The "hard-line" moratorium would
make it clear that the Blue Ribbon Committee has a charter to consider the most comprehensive
possible restructuring since no preconceptions would be built in on the basis of installations
selected for modernization in 1978. Furthermore, deferral of the FY 1978 construction program
would minimize sunk costs until the firmness of the basing structure was established.
OMB Recommendation: Alternative #3. Same as Alternative #2 except that only a partial moratorium
would be imposed. This means that certain projects will be approved for construction in 1978.
Approval of these projects would be on the basis that they will definitely be viable under any plan
developed by the Blue Ribbon Commission.
PERALD
R.
FORD
70
Issue Paper
Department of Defense
1978 Budget
Issue #13: Contracting-Out Depot Maintenance
Background
OMB Circular A-76 sets forth the Government's "policies for acquiring commercial or industrial
products and services for Government use." This circular states that the Government's general policy
is to rely on the private enterprise system to supply its needs. Under some circumstances specified
in A-76, however, it is in the national interest for the Government to provide directly the products
and services it uses.
DOD depot maintenance activities, such as Navy shipyards, Navy and Air Force aircraft facilities
and Army vehicle facilities, represent a large segment of DOD civilian employees (172,000). There
are major problems in increasing depot maintenance contracting out because:
1. The Services want to protect their in-house capability in order to insure a ready and
controlled source of the technical competence and capability necessary to meet military
contingencies. Therefore, before any work is even considered for contracting out, it
must be shown that doing so will not jeopardize their mobilization capability.
2. Once work is identified as being considered for contracting out, DOD generally conducts a
cost comparison study to determine if doing the work in-house would meet the cost criteria
set forth in A-76. Since these cost studies are based on incremental cost comparisons,
the in-house option has a decided advantage; the expensive plant and equipment are a sunk
cost to the Government, but a contractor would have to invest in and amortize similar
equipment as a part of his cost.
3. Inertia is a powerful force which makes it difficult to change on-going work from in-house
to contract or the reverse.
71
Under DOD depot maintenance policy, there is an implied goal for distributing workload between
in-house and contract sources, i.e., no more than 70% of mission-essential workload should be
accomplished in-house. However, the Services have not met this goal, since the latest actual data
available shows that in 1975 77% of mission-essential work was done in-house. For non-mission
essential workload, the implied DOD policy is that no special in-house capacity should be planned.
In 1975, 40% of the non-mission essential work was done in-house. Since there are no clear criteria
for distinguishing mission essential from non-mission essential workload, there is some doubt about
how meaningful this policy is in any case.
It is also not clear that organic depot facilities can accommodate increased demand more rapidly
than private industry even for "mission-essential" work. For example, the 1965-68 Air Force workload
surge was initially carried by industry and not accommodated by the depots until 1970. The GAO
criticized the Army for procuring new UH-1 helicopters from Bell when several hundred were awaiting
repair at Army depots. GAO argued that Bell could have accomplished the repair and the procurement
could have been avoided. In 1969, when the Services were forced to develop a rapid defense against
Infra-Red missiles in Southeast Asia, effective countermeasure devices were provided very rapidly,
but primarily by industry.
In addition, the possibilities of converting in-house maintenance facilities to contractor operation
(Government owned-contractor operated) have not been fully explored. This approach could involve consider-
able cost savings.
Statement of Issue
Should DOD be required to prepare a plan for meeting specific objectives for contracting out
depot maintenance workload and should there be a moratorium on depot facilities modernization and
expansion until this is accomplished?
Pros.
-- Would provide some discipline to the current A-76 implementation policy guidelines in DOD.
-- Puts the burden of proof on DOD and the Services for exceptions to the general policy set
forth in A-76.
-- OSD and OMB will be able to review those areas identified by the Services which would least
affect their mission capability and determine whether these particular cases would, in
fact, reduce the Services' mission capability.
72
The Services would be required to develop and justify criteria for evaluating the
effect of contracting out mission essential work on their mission capability.
The moratorium on depot maintenance facility improvements would reduce the continual
growth of Service in-house capability which makes incremental comparisons between
in-house and contract options weighted in favor of the in-house option.
Could reduce DOD civilian personnel by approximately 15,000.
Cons.
-- Implementation of the above plan would meet considerable resistance from the Military
Services and OSD.
-- There would need to be some exceptions to a moratorium on facilities construction to
permit continuation of on-going efforts.
Alternatives
#1. Continue A-76 implementation in DOD under current system (Agency req.).
#2. Request that DOD conduct a study to determine if more depot work could be contracted out
and to establish more definitive criteria for retaining work in-house. In particular, the
impact of contracting out 30% of mission-essential and 70% of non-mission essential work
by 1979, and 35% of mission-essential and 80% of non-mission-essential work by 1980
should be examined. The study should also include specification of criteria for defining
mission-essential effort. It should also analyze possibilities of converting in-house
maintenance facilities to contractor-operated facilities.
#3. In addition to alternative #2, direct DOD to submit a plan to meet the specific objectives
stated in that alternative for contracting-out depot maintenance work, and impose a moratorium
on in-house facility expansion (allowing for some exceptions). (OMB rec.).
GERAL
R.
FORD
,3
Analysis
1976
1977
1978
1979
1980
1981
1982
Budget Authority/Outlays
BA
0
BA 0
BA
0
BA
0
BA
0
BA
0
BA
0
($ Millions)
Depot Maintenance
* Facility Modernization:
Alt. #1 (Agency req.)
75
4
94 35
129
59
157
94
160
124
146
140
149
129
Alt. #2
75
4
94 35
129
59
157
94
160
124
146
140
149
129
Alt. #3 (OMB rec.)
75
4
94 35
54
56
82
60
85
75
71
77
74
76
*
Agency request represents DOD funds for depot modernization, OMB recommendation would reduce this
program by an estimated $75 million annually.
Agency Request
(Differences from Alt. #1 (Agency request)
1978 Outlays
1979 Outlays)
(
Alt. #3 (OMB rec.)
-3
-34
)
(
Alt. #2
--
--
)
Agency Request: Alternative #1. DOD believes that their current policies are adequate for imple-
menting A-76 guidance. Defense is trying to increase the amount of depot maintenance work being
contracted out.
OMB Recommendation: Alternative #3. This assumes that there is significant potential for
increased contracting-out and that requiring a study as in Alternative #2 would not be sufficient
to accomplish desired actions.
GERAL
FORD
74
Issue Paper
Department of Defense
1978 Budget
Issue #14: Shipbuilding in Navy Yards
Background
All ships have been built in private shipyards since the 1967 program. Lower costs for ships
constructed in private yards and pressure from private shipbuilders for more work led to the policy
of assigning all new ship construction to private shipyards. Reversing this policy to put Navy
shipyards back into the business of constructing new ships would be a major Administration initiative.
Statement of Issue
Should shipbuilding be reinstituted in naval yards?
Pros.
-- New construction effort could help to fill in slack periods for ship repair, with a
consequent increase in work force productivity.
-- The new construction work force would provide a surge capability for repair work in
time of war.
-- Active experience with shipbuilding would enhance the expertise of Navy's engineering
officers.
-- Naval yards would provide competition to private yards which could hold down private
yard prices.
BERALD
-- It would provide an alternative to private yards in the face of their reluctance
to accept Navy work.
75
Cons.
-- Naval shipyard work can be expected to cost 30-40% more than private yard work, in
addition to start-up costs that would be associated with initiation of Navy yard
construction.
-- Administration policy stresses maximum reliance on the private sector. Public yard
shipbuilding would be inconsistent with the President's initiative to encourage the con-
tracting out of government functions.
-- It is inconsistent with Administration efforts to restrain the level of government
employment. Public yard shipbuilding would require 2,400 additional civilian naval
shipyard employees in 1978 and as many as 8,300 additional in 1982.
-- New construction in naval yards would compete for manpower resources now devoted to
repair work, causing disruption and inefficiency.
-- There are less costly ways of providing surge capability for naval yards and experience
for engineering officers.
-- There is no evidence to demonstrate that naval yard competition holds down private
yard prices.
-- Will require another supplemental budget request ($.4 billion) in 1977.
Alternatives
#1.
Assign construction of two nuclear submarines and one destroyer tender to naval yards
in 1977 and one submarine and one tender to naval yards in 1979 (Agency request).
#2.
Maintain the Administration policy of assigning no new ship construction to naval yards
(OMB rec.).
SERALS
++
76
Analysis
1976
1977
1978
1979
1980
1981
1982
Budget Authority/Outlays
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
($ Millions)
Shipbuilding in Navy Yards
Alt. #1 (Agency req.)
--
--
450
20
16
95
176
105
177
140
183
125
114
16
Alt. #2 (OMB rec.)
Agency Request
ifference from Alt. #1 (Agency request)
1978 Outlays
1979 Outlays)
Alt. #2 (OMB rec.)
-95
-105
Agency Request: Alternative #1. Defense believes that the benefits associated with public yard
shipbuilding outweigh the costs involved.
OMB Recommendation: Alternative #2. It is unclear that even the potential benefits which have
been identified can be realized through public yard shipbuilding. The cost of public yard ship-
building is large and it is inconsistent with Administration policies to rely on private industry.