billion of the $92 billion estimated. This represents an increase of $2.4 billion in spending on personnel in one year alone to maintain a smaller force. Although the number of military personnel will have been reduced from 3.5 million men in 1968 to 2.1 million in 1976, average per capita cost is expected to double due principally to pay increases and inflation-from $5,500 to $12,000 in 1976. As a result, total active duty pay costs for our military personnel have risen from $19 billion in 1968 to $25 billion in 1976. Spending for national defense is up almost $9 billion over last year, but nearly one-third of this, $2.4 billion, will go for military and civilian pay and related personnel costs. Of the remaining $6 billion, about $1.8 billion will go for procurement; $2.6 billion for operation and maintenance; about $1 billion for research and development, and about $400 million for military construction and family housing. In the area of fuel costs alone, the bill will rise by $400 million between fiscal year 1975 and 1976, even though actual consumption will be about the same.' Mr. President, I do not want my remarks today to be misinterpreted. There is a very real and significant growth in funding for our national defense effort contemplated in the fiscal year 1976 budget, and it must bear very close scrutiny in light of the overall budget totals. I want to assure my colleagues that the Appropriations Committee will examine very carefully some of the following areas of increase, and make prudent reductions where they are feasible. Some of the more significant areas of concern include: An increase in military aid to South Vietnam of almost $600 million; A $650 million increase budgeted for a higher peacetime tempo of air operations, more real property maintenance, greater numbers of ship alterations and increased maintenance in other areas; A one-time request of $2.3 billion to pay for naval ships whose costs were very seriously underestimated by the administration in fiscal year 1975 and previous years; Very significant increases-approaching $1 billion-in war reserves; A 20 percent increase (over $1.6 billion) in research and development funding to pay for a whole range of new initiatives in advanced weapons systems-both strategic and tactical; A significant and costly program to increase exploration, development and production of oil from our Naval Petroleum Reserves as well as to establish a sizeable national strategic petroleum reserve; An increase of over $1 billion in appropriations for military construction and family housing programs. It is obvious that reasonable men often differ on the question of "how much is enough" for defense. However, Mr. President, I wish to impress upon this body the following facts: During fiscal 1976, national defense will receive the smallest share of the Federal budget since 1940--the year before Pearl Harbor. During fiscal 1976, defense will have the lowest levels in manpower it has had since 1950. No one can seriously challenge the proposition that there must be significant reductions in Federal spending. But, defense spending is only one segment of the national budget. It cannot be forced to bear the whole burden of fighting inflation. For the sad truth is that despite detente, military power is by no means irrelevant in the modern world. It is a real, tangible and indispensable element of our national and international policy. The burden of military preparedness which we must bear is not easy to carry. There is no way to shirk or escape this burden without weakening-and possibly imperiling our national safety and security. As we celebrate the bicentennial of the independence of our nation during this coming fiscal year, it is well for us to be guided by the words of Thomas Paine : Those who expect to reap the blessings of freedom, must, like men, undergo the fatigue of supporting it. In fiscal year 1976, 199.5 million barrels at a cost of $3.4 billion, compared with 198.2 million barrels at a cost of $3.0 billion in fiscal year 1975. Mr. President, I ask unanimous consent that a letter from the Secretary of Defense to me regarding the effects of inflation on defense costs and a chart prepared by the staff of the Senate Committee on Appropriations showing the comparison of defense spending to the cost of human resources and other programs from fiscal 1966 to fiscal 1976 be entered in the Record at this point. LETTER FROM JAMES R. SCHLESINGER Hon. JOHN L. MCCLELLAN, Chairman, Committee on Appropriations, U.S. Senate SEPTEMBER 30, 1974. DEAR MR. CHAIRMAN: The Selected Acquisition Reports for June 30, 1974 are currently being finalized for transmission to you in the near future. The reports are behind schedule this quarter to permit implementation and refinement of the changes previously discussed with the Committee staff and the inclusion of more realistic escalation indices for the out-year programs. In the interim, there is attached for your information a summary of the more significant program cost data reflected in the preliminary SAR's for June. While some of the data included therein may change, the summary will provide you with advance information on the magnitude of the cost increases since the March submissions. Since the factors that influence economic escalation are beyond the control of the Department of Defense, we continue to believe that the Base Program estimates provide you and the Congress with the best measure of management efficiency. The Base Program includes the best estimate of all acquisition costs associated with a program except for economic escalation. The increase in Base Program estimates since the March SAR's is $857M bringing the Base Program cost to complete for the 42 SAR programs to $106.5B. By Service, the increase is $619M for the Navy, $261M for the Army, and a decrease of $23M for the Air Force. In addition to providing estimates for the Base Programs, we have, as previously agreed, provided estimates reflecting the impact of economic escalation for all programs in the SAR system through completion, in some cases extending 15 years into the future. In providing these economic escalation factors, we are attempting to provide you and the Congress with our best estimate of the eventual dollar costs of systems procured, as described in each of the SAR's. These are our best estimates and their development required assumptions concerning the overall economy and the impact of national and international events on the various elements of costs for our weapons systems. In addition, our estimates are heavily influenced by the timing and rate of procurement for these systems. The rate of inflation experienced in the U.S. since last December (when previous indices were developed) has been much greater than anticipated. As a result, the inflation indices developed last July reflect much higher rates and this accounts for the significant increase in the escalation estimates reported in the June SAR's. For the December and March SAR's, we developed general price escalation indices which provided for a 4.5% increase for procurement in FY 1975 and 3.1% in FY 1976 and each year thereafter. For the June SAR's, we developed revised price indices which indicated an 11% increase from 1974 to 1975, 8% in 1976, decreasing to 4.3% in 1980 with 3.7% per year thereafter. Although the Services are provided the OSD indices for general application, they are encouraged and do in fact develop their own indices which are representative of the conditions pertinent to a particular program. Based on the past few months' experience, the 11% projection for FY 1975 may be too low. The overall increase since the March SAR's is $16.9B, bringing the total cost to complete for the 42 SAR programs to $143.6B. By Service, the increase is $7.3B for the Navy, $3.7B for the Army, and $5.9B for the Air Force. A $16.0B increase in the provision for economic escalation reflected in the June SAR's is responsible for 95% of the overall cost increase this quarter. The increase in economic escalation by Service is $6.7B for the Navy, $3.4B for the Army and $5.9B for the Air Force. By weapon system, 10 programs account for $15.1B or 89% of the total cost increase reported this quarter. These are the programs of longer range where the effects of higher out-year escalation are most significant. The 10 programs, which are marked with a check on the enclosure, are the Navy's TRIDENT, With kindest regards, 1 Of the total increase of $214,700,000,000, only 17.8 percent is attributable to national defense, while 82.2 percent of the increase is attributable to nonmilitary functions. Note: Columns may not add due to rounding. INTRODUCTION OF WITNESSES Chairman MCCLELLAN. Our first witness this morning will be the Secretary of Defense, Dr. Schlesinger. He is here to tell us what the Defense Department wants and the reason for each request that has been submitted in the budget. Senator Young, do you have a statement? Senator YOUNG. I am deeply concerned about the overall budget. There has been considerable criticism concerning the $52 billion deficit forecast in this budget. Chairman MCCLELLAN. Well, I am sure the deficit does not have much support, but it is an affliction. INTRODUCTION OF SENATOR PROXMIRE We have a new member on this subcommittee whom I am glad to welcome this morning. Senator Proxmire, we would be glad to hear any comments you have this morning. Senator PROXMIRE. I am honored and flattered to be on this subcommittee. It is the most important subcommittee that the Appropriations Committee has. I look forward to working with you, Mr. Chairman and Senator Young, for whom I have the greatest admiration. Chairman MCCLELLAN. Very well. Mr. Secretary, we welcome you and we hope that we can repeat at least some of our modest success in the past in scrutinizing the budget for the Defense Department objectively with a view of doing what is necessary to protect the national interest while maintaining strong national security. You have cooperated with us in the past, and we anticipate the same fine spirit of cooperation as we begin this tremendous task of analyzing the budget this year, trying to find areas where reductions can be made without doing violence to our defense posture. We will proceed until 12:30 today. I have another appointment scheduled this afternoon, and will have to defer to that. We will make all the progress we can. Mr. Secretary, you may now proceed any way you like. Secretary SCHLESINGER. Thank you, Mr. Chairman. Mr. Chairman, I think your statement yesterday on the floor summarizes the issues very well. Some of the remarks that I shall make in the next 15 or 20 minutes will be remarks whose general content you and other members of the committee will be familiar with. PREPARED STATEMENT Chairman MCCLELLAN. Do you have a formal statement this morning? Secretary SCHLESINGER. Yes, Mr. Chairman. I would like to submit my formal statement for the hearing record and speak briefly on the major points. Chairman MCCLELLAN. Very well, Mr. Secretary. Without objection, it will be received and printed in the record at this point. [The statement follows:] Mr. Chairman and members of the committee, it is my privilege to present to you the Defense Program and Budget for FY 1976 and for the three months thereafter, ending September 30, 1976. In compliance with the 1974 Budget and Impoundment Control Act, I am providing you with the Department's request for legislative authorization through FY 1977. I am also submitting for the first time a five-year projection of future Defense budgets in total obligational authority. The table below shows the Departmental requests for FY 1976 and the transition period. The Department's requests and five-year projections will be discussed later in this Report. Before doing so, however, it is essential to discuss the basic defense choices that we as a nation face and the international context within which we must make them. |