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CHAPTER II
Budgeting for War

 

Never before had the Department of Defense been called upon to budget for the activities of its components during a way, as was the case during the Vietnam conflict. Even during the Korean War, when reasonably accurate records were kept concerning the cost, there was no real attempt to limit the funds required to assure everything necessary to bring a successful conclusion. At the beginning of the Vietnam situation, Congress regarded the Vietnam requirements in much the same light as those for Korea, but as the nature of the war developed into one of attrition, there was an intense feeling of frustration created in the minds of Congressmen. They wanted to assure that the American fighting man was provided everything he needed, but his needs were often in direct competition with domestic programs. This change in Congress was a subtle one, with no real turning point, but the budget hearings slowly required more and more information concerning the appropriate use of resources. In this chapter, I will trace the budgetary actions of the Army primarily dealing with the operation and maintenance appropriation; it will be necessary, however, to briefly touch other appropriations which affected it.

Background for Budgeting

In order to present a complete picture of the environment which existed during the period, it is desirable that the reader understand the normal planning, programing [sic], and budgeting system used within the Department of Defense. Chart 1 is a graphic representation of this cycle constantly in operation. For the most part, this method of arriving at a budget was used during the war, with certain deviations which I will point out as they occurred in the sequence of events. The chart is a rather complicated rendition of a simple basic concept. In theory, the development of a budget requires that one take the joint Strategic Operations Plan and with certain adjustments to fit the current situation simply assign dollar values to the desired actions. This would then become the budget. There are a number of pressures being exerted during the entire process which are covered on the illustration by the block "External In-

12-13
 click here for 
CHART 1
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fluences." These could include decisions made concerning national policy by the President. They would most certainly take into consideration the economy of the nation and the "climate" existing within Congress with regard to defense spending. Disregarding these sometimes indeterminate factors which shape the budget, one is still left with the problem of calculating exact requirements in a peacetime situation, with the problem increasing in war. Just by examining the time frames involved in the process, the plight of a budgeteer becomes evident. The illustration depicts the cycle for the preparation of the 1973 fiscal year budget, which had to be ready to present to Congress in January of 1972. The funds appropriated by Congress as a result of this budget were to be used during the period 1 July 1972 to 30 June 1973. The major portion of the planning effort had to be completed during June of 1971, one year prior to the availability of any of the requested funds and two years before the exhaustion of the authority granted. Although refinements may be made until the last moment before presentation to Congress, at best, a budget has to include items which are anticipated needs for some eighteen months ahead. In other words, the Defense Department in time of war must anticipate what the enemy is going to do and the response we should make far in advance. Most field commanders would be pleased with one day's notice of enemy intentions and anticipated actions.

One other facet of the current budget process should be understood to appreciate some of the actions taken to finance the Vietnam War. The budget submitted by the Department of the Army is staff developed. This essentially means that the Department of the Army staff develops the entire budget with minimal input from the field. The installations throughout the world do submit budgets representing their requirements for the immediate fiscal year, but they do not impact directly on the Presidential budget submitted to Congress. As a matter of fact, these installation budgets are better described as a request for a certain portion of those funds appropriated by Congress. This is not to say that there is absolutely no input from commanders in the field, but there is little detailed information concerning programs which are anticipated. As a general rule, the commanders are allowed to indicate any major changes in the programs which were pursued in previous years. The staff of the Department of Army makes extensive use of factors to determine what is needed in the operations and maintenance appropriation. Basically, the number of divisions which will be required is established, and then factors for the various supporting activities are used in establishing funding levels for the Army. These

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factors are usually based on historical information during like periods. As you can see, it was difficult to prepare a budget for Vietnam, when we had never been engaged in a war of this type before. Many of the initial factors proved incorrect and also were the subject of quite a number of debates not only before Congress but between the Department of the Army and the Department of Defense. These factors have been continually revised throughout the conduct of operations in Vietnam, and they have become rather accurate now (1972), but since we are diminishing our presence, they have not been useful in current budget preparations.

As if the difficulties already stated were not enough for the budgeteer to overcome, he has one more deterrent to effective financial management. Historically, Congress has been late in making the final determination on appropriations for the services. The budget which is submitted in January and is to become effective on 1 July of that same year is normally not enacted into law until late in the fiscal year. The following listing reflects budget submission dates and appropriation act dates for fiscal years 1965-72.

PRESIDENT'S BUDGET SUBMISSION AND APPROPRIATION DATES
 
Fiscal Year President's Budget Submission Appropriation
1965 21 January 1964 19 August 1964
1966 25 January 1965 21 September 1965
1967 24 January 1966 11 October 1966
1968 24 January 1967 13 September 1967
1969 29 January 1968 17 October 1968
1970 15 January 1969 18 December 1969
1971 2 February 1970 29 December 1970
1972 29 January 1971 15 December 1971
This requires that the Army operate on an authority provided by Congress, which is stated to commanders in the field in these words: Effective 1 July you are authorized to incur obligations for essential operating expenses of a continuing nature under the OMA appropriation at a rate consistent with the level of your preceding fiscal year operating expenses.
Unless specifically revised this authority will remain in effect until formal allotments are issued.
There are usually some indications of specific items which will not be approved based on Congressional hearings and informal
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contacts with powerful personalities in Congress. The result of being forced to operate in this void of information is either to maintain a level of obligation which is below or above that which would have resulted in efficient use of resources.

With this as a backdrop, I would like to review the actions taken by the Department of Defense and the Congress during the period of the Vietnam War. There were some major innovations used to obtain additional funds, some of which were condoned by Congress and some which brought the wrath of certain Congressmen during hearings on the budget. The mood of both the people and certainly the legislature was different than. had ever been experienced before.

The Early Budgets

As I mentioned in Chapter 1, our support of Vietnam started with direct use of funds and other resources to sustain French operations. This fact was officially recognized in the Semiannual Report of the Secretary of Defense for the period January 1 to June 30, 1954. Charles E. Wilson, then Secretary of Defense, stated:

The complete loss of Indochina, rich in raw materials and lying astride the air route between South Asia and the Pacific, would constitute a direct threat to the safety of all neighboring countries and to nations as far removed geographically as India, Australia, and even Japan. In recognition of this fact, the United States made a major effort during fiscal year 1954 to assist the French forces and those of the Associated States of Cambodia, Laos, and Vietnam in their struggle against Communism. In September 1953, $385 million were allocated to the direct support of the French Union forces and added to the $400 million previously appropriated for this purpose in the budget for fiscal year 1954. These amounts were in addition to the regular Indochinese military assistance program for weapons and equipment, the delivery of which was given the highest priority. Technicians were dispatched to help maintain in operational order the major weapons and equipment supplied by the United States. During the emergency in May 1954, United States Air Force transports rushed troop reinforcements from France to Indochina. Despite all the assistance that was provided, our allies found themselves in a precarious military position at the close of the fiscal year and felt compelled to negotiate a settlement. Such a settlement will not reduce the need for continued military assistance for the free people of Southeast Asia. The Congress, at this time, regarded Vietnam as a necessary expense and a vital concern of national defense. Not only were funds provided for normal operations under the Military Assistance Program, including advisory support and weapons, but the Mutual Security Appropriations Act for 1955 made available a fund of $700 million to be used as conditions might dictate in Southeast Asia and
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the western Pacific. This was used almost totally for operations in Indochina. Although an active insurgency existed in Vietnam, there were very few Americans directly involved and the amount of money being expended was relatively small when compared with the total defense budget.

This was the climate which existed in Congress from that time until well after the major buildup of U.S. forces had occurred. As a matter of fact, there is little record of Congressional interest in Vietnam as a major topic for discussion until funds were being requested for the buildup. Typifying the lack of opposition to our assistance efforts were the Senate hearings on the fiscal year 1964 appropriation. Senator Richard B. Russell, Chairman of the Senate Appropriations Committee, in querying the Army Chief of Staff, General Earle G. Wheeler, concerning our activities in Vietnam almost casually asked how many people were there, referring to the number of American military personnel. General Wheeler replied, "In the Armed Forces, as a whole, the figures are around 12,000, sir. The majority of those, oh, around 8,000-odd are from the Army." This number was noted as an increase over the last calendar year. When asked by Senator Russell if there were any plans which contemplated augmenting this force, General Wheeler replied, "No sizable increase, sir. We have had to make some changes in our maintenance units over there for helicopters, to beef up the maintenance. There will be other realignments of forces which may call for a small increase, but I wouldn't expect any sizable increase." The matter was promptly dropped in favor of a discussion on the co-operation which was being received from the Vietnamese, and then drifted quickly into an overall questioning concerning our armed forces located in 80 different countries around the world. It was plain that the Vietnam problem was virtually lost in the magnitude of our total support to other nations.

Although Vietnam escaped the intense interest of Congressmen, it is evident that such was not the case within the Department of Defense. It is difficult to state unequivocally that long range plans there envisioned such an increase in the involvement of the U.S. as that which actually occurred, but it is possible to establish the feeling of the Secretary of Defense, Robert S. McNamara, as of I March 1965. On that date, he signed a memorandum for all of the service secretaries which left little doubt of his position with regard to our support of South Vietnam. He stated:

Over the past two or three years, I have emphasized the importance of providing all necessary military assistance to South Vietnam, whether it be through MAP or through application of U.S. Forces and their
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associated equipment. Occasionally, instances come to my attention indicating that some in the Department feel restraints are imposed by limitations of funds. I want it clearly understood that there is an unlimited appropriation available for the financing of aid to Vietnam. Under no circumstances is lack of money to stand in the way of aid to that nation. Here was the blank check again, which military leaders normally expected to receive when preparing for a war. This memorandum was the basis for many actions which precluded efficient management of resources, especially during the early stages of the buildup. Unfortunately in later developments, neither the Congress nor certain members of Mr. McNamara's own staff subscribed to the words in the memorandum. It became sharply evident that the luxury promised of "unlimited appropriation" was not, in fact, to be the case.

It is somewhat paradoxical that only two weeks prior to the date of the above memorandum, the Army was defending before Congress its operation and maintenance budget for fiscal year 1966 which requested a modest increase for Southeast Asia over fiscal year 1965. In the House Appropriations hearings, General Ralph E. Haines, Jr., then Deputy Assistant Chief of Staff for Force Development, responded to queries concerning this increase in this manner: "The $10,100,000 increase in the Pacific is primarily for the support of the increased strength and the equipment in this theater, and primarily in the Southeast Asia area. The increased number of tactical aircraft in the Pacific occasioned by deployment of additional aviation units to Vietnam will require an increase of over $6 million for mission support, and for the O&M realignment of aircraft repair parts."

It was not apparent at this hearing that a major buildup was contemplated, and certainly there were no funds requested to support such a plan. The Congressional interest was increasing, however, but the tenor of comments was still to the effect that we should do everything necessary to provide support. This feeling was typified by House Appropriation Committee Member Mr. George W. Andrews' comment concerning supplies of petroleum, oils, and lubricants, "I do not want you to have a shortage down there."

These same hearings provided some indication that Congress expected normal methods of funding and reimbursement to be used in Vietnam. There was a discussion of the costs of converting the USNS Albermarle, a Navy seaplane tender scheduled for mothballing, into a floating maintenance facility for repairing helicopters. Lieutenant Colonel J. P. Cribbins, Office of the Deputy Chief of

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Staff for Logistics, testified concerning the funding for this conversion, "Actually, the Army funded for the PEMA and OMA funds for conversion and operation of the Albemarle. This was a program coordinated with the Navy." Mr. Andrews then asked, "Will you reimburse the Navy for all the work they will do?" Colonel Cribbins replied, "We will reimburse the Navy for all the work they do." Since I will devote a later chapter to the problems caused by reimbursement procedures, I will not dwell on this point here. This represents only the beginning of the use of different funds for various purposes so intermingled as to defy identification, and the insistence that normal procedures prevail.

Supplemental Budgets

It was shortly after this period that Mr. McNamara demonstrated his new approach to budgeting which was to continue throughout the early stages of the war. He made extensive use of the supplemental approach to submission of budgets. Although this was not a new method, it was normally reserved for emergency situations and Congress challenged this quite sharply, as will be pointed out later. Calendar year 1965 was to see the major buildup begin and it would continue into 1966 with the greatest increase in troops and matériel in one location since World War II. The chain of events began in March 1965, when 3,500 marines were sent to establish a defensive perimeter around the air base at Da Nang. May saw the 173d Airborne Brigade land at Bien Hoa from Okinawa. In June, Mr. McNamara announced the deployment of an additional 21,000 troops, bringing the total in Vietnam to 75,000. In an address to the people during July, President Lyndon B. Johnson, announced that he had given authority to increase the strength from 75,000 to 125,000 men. He further stated, "Additional forces will be needed later and they will be sent as requested." The number reached approximately 200,000 by the end of the year.

In order to finance this tremendous increase, Mr. McNamara appeared before Congress during August 1965, requesting $1.7 billion in a separate account, "Emergency Fund, Southeast Asia." There was very little opposition to granting this amount, even though testimony indicated that this was necessary primarily for additional financing to gear up the production machine in order to have equipment and weapons available to support the buildup. It was evident that the current year's appropriation did not contain sufficient funds to sustain the effort in Vietnam, and I do not think that anyone in Congress was truly surprised when a supplemental request for fiscal year 1966 was submitted to Congress on 19 January

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1966. Table 1 shows the total submission including the original fiscal year 1966 funds approved, the disposition of the $1.7 billion given to Department of Defense in August 1965, and the new requirements for the remainder of the fiscal year.

TABLE 1FINANCIAL SUMMARY OF FISCAL YEAR 1966 BUDGET (INCLUDING THE PROPOSED SUPPLEMENTAL FOR SOUTHEAST ASIA)
(In thousands of dollars)
 
  NOA enacted excluding amendment $1,700 million amendment Military and civilian pay supplemental Southeast Asia supplemental Total NOA
Military personnel:
Army 4,092,291 ........ 222,100 833,600 5,147,991
Navy 3,055,000 ........ 182,600 318,500 3,556,100
Marine Corps 749,900 ........ 42,400  184,600 976,900
Air Force 4,393,800 ........ 227,600 219,300 4,840,700
National Guard personnel, Army 271,800 ........ 4,500 45,900 322,200
Reserve personnel, Army 238,600 ........ ....... 7,500 246,100
National Guard personnel, Air Force 71,300 ........ 3,500 5,700 80,500
Reserve personnel, Navy 105,100 ........ 4,600 ......... 109,700
Reserve personnel, Marine Corps 33,000  ........ 1,600 2,200 36,800
Reserve personnel, Air Force 60,500  ........ 1,200 2,700 64,400
Retired pay, defense 1,529,000 ........ 71,000  ......... 1,600,000
Total military personnel 14,600,291 ........ 761,100 1,620,000 16,981,391
Operation and maintenance:
Army 3,434,067 ........ 33,400 1,077,200 4,544,667
Navy 3,292,137 ........ 23,000  506,000 3,821,137
Marine Corps 192,101 ........ 1,054 102,600 295,755
Air Force 4,03,737 ........ 27,600  544,900 4,976,237
Defense agencies 683,680 ........ 14,356  41,769  739,805
Operation and maintenance, Army National Guard 208,796 ........ 2,000 35,700 246,496
Operation and maintenance, Air National Guard 238,000 ........ 1,000 8,100 247,100
National Board for Promotion of Rifle Practice, Army 459 ........ ....... ......... 459
Claims, defense 24,000  ........ ....... ......... 24,000
Contingencies, defense 15,000 ........ ....... ......... 15,000
Court of Military Appeals, defense 579 ........ 11 ......... 590
Total operation and maintenance 12,492,556 ........ 102,421 2,316,269 14,911,246
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TABLE 1-FINANCIAL SUMMARY OF FISCAL YEAR 1966 BUDGET-Continued
(In thousands of dollars)
 
  NOA enacted excluding amendment $1,700 million amendment Military and civilian pay supplemental Southeast Asia supplemental Total NOA
Procurement:
Procurement of equipment and missiles, Army 1,204,800 504,500 ........ 2,465,000 4,174,300
Procurement of aircraft and missiles, Navy 2,220,387 190,200 ....... 764,500 3,175,087
Shipbuilding and Conversion, Navy 1,590,500 ........ ....... ......... 1,590,500
Other procurement, Navy 1,135,000 167,090 ....... 607,500 1,909,590
Procurement, Marine Corps 43,800 149,100 ....... 516,600 709,500
Aircraft procurement, Air Force 3,516,700 158,800 ....... 1,585,700 5,261,200
Missile procurement, Air Force 771,900 4,000 ....... 63,700 839,600
Other procurement, Air Force 829,100 360,600 ....... 1,016,400 2,206,100
Procurement, defense agencies 15,200 ........ ....... ......... 15,200
Total procurement 11,327,387 1,534,290 ....... 7,019,400 19,881,077
Research, development, test and evaluation:
Army 1,433,988 ........ ....... 27,995 1,461,983
Navy 1,513,130 ........ ....... 52,570 1,565,700
Air Force 3,181,956 ........ ....... 71,085 3,253,041
Defense agencies 491,300 ........ ....... ......... 491,300
Emergency fund, defense 19,426 ........ ....... ......... 19,426
Total, research development, test and evaluation 6,639,800 ........ ....... 151,650 6,791,450
Military construction:
Army 346,843 64,600 ....... 509,700 921,143
Navy 329,405 43,210 ....... 254,600 627,215
Air Force 361,773 57,900 ....... 274,100 693,773
Defense agencies 19,768 ........ ....... 200,000 219,768
Army Reserves ......... ......... ....... ........ .........
Naval Reserves 9,500 ........ ....... ......... 9,500
Air Force Reserves 4,000 ........ ....... ......... 4,000
Army National Guard 10,000  ........ ....... ......... 10,000
Air National Guard 10,000 ........ ....... ......... 10,000
Loran stations, defense 5,000 ........ ....... ...... 5,000
Total military construction 1,096,289 165,710 ....... 1,238,400 2,500,399
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TABLE 1-FINANCIAL SUMMARY OF FISCAL YEAR 1966 BUDGET-Continued
(In thousands of dollars)
 
  NOA enacted excluding amendment $1,700 million amendment Military and civilian pay supplemental Southeast Asia supplemental Total NOA
Family housing: Defense 665,846 ....... ........ ......... 665,846
Civil defense:
Office of Mobilization 64,066 ........ ....... ......... 64,066
Research, shelter survey, marking 42,700 ........ ....... ......... 42,700
Total civil defense 106,766 ........ ....... ......... 106,766
Total military functions 46,928,935 1,700,000 863,521 12,345,719 61,838,175
Military assistance: Executive 1,470,000 ........ ....... ......... 1,470,000
Total Department of Defense 48,398,935 1,700,000 863,521 12,345,719 63,308,175
Recapitulation:
Army 11,241,644 569,100 262,000 5,002,595 17,075,339
Navy 14,268,960 549,600 255,254 3,309,670 18,383,484
Air Force 17,842,766 581,300 260,900 3,791,685 22,476,651
Defense agencies 3,468,799 ........ 85,367 241,769 3,795,935
Civil defense 106,766 ........ ....... ......... 106,766
Military assistance 1,470,000 ........ ....... ......... 1,470,000
Total 48,398,935 1,700,000 863,521 12,345,719 63,308,175
It was during the hearings for this supplemental appropriation that it was officially recognized that Vietnam no longer fell within the purview of the Military Assistance Program. A request to transfer all balances from the assistance program to other appropriations was granted. The actual transfer took place on 25 March 1966. The interest of Congress in total costs in Vietnam was becoming more and more evident. One of the specific requests of Senator Stephen M. Young, a member of the Senate Committee on Appropriations, was a revelation of the total amount of military assistance provided South Vietnam. The amounts shown in Table 2 were entered into the Congressional Record.

It is interesting to note that at the time Congress was considering the 1966 fiscal year supplemental, the budget for fiscal year 1967 had already been submitted by the President. This fact was addressed several times during testimony, and Mr. McNamara indicated through his comments that the fiscal year 1967 budget was based on current plans and would support the anticipated activity through June 1967. Although he did not specifically outline his new ap-

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TABLE 2-ECONOMIC AID FOR VIETNAM
(In millions of dollars)
 
U.S. fiscal years AID and predecessor agencies Public Law-480 (all titles) Total
1953-57 783.9 39.4 823.3
1958 179.1 9.7 188.8
1959 200.6 6.5 207.1
1960 169.0 11.5 180.5
1961 132.6 12.0 144.6
1962 110.7 32.5 143.2
1963 133.2 64.3 197.5
1964 159.3 71.0 230.3
1965 216.1 52.8 268.9
TOTAL 2,084.5 299.7 2,384.2
1966 1541.1 79.5 620.6
1967 550.0 98.1 648.1
1. Current estimate of fiscal year 1966 AID program, including $275,000,000 requested in the fiscal year 1966 supplemental.

proach to budgeting to Congress at this time, he certainly gave several hints to this effect. In discussing the basis for formulation of the budget for this fiscal year, he said, "With regard to the preparation of the FY 1967-71 program and the FY 1966 Supplemental and the FY 1967 Budget, we have had to make a somewhat arbitrary assumption regarding the duration of the conflict in Southeast Asia. Since we have no way of knowing how long it will actually last, or how it will evolve, we have budgeted for combat operations through the end of June 1967."

This, then, became the pattern for budget submissions for Vietnam. The assumption was always made that enemy activity would continue at the level which existed at the time of budget preparations and that the war would be over by 30 June of the fiscal year under consideration. This, naturally, would require a supplemental request should either of these assumptions prove invalid.

Growing Congressional Concern

During the proceedings of the Senate subcommittee of the Committee on Appropriations, it became increasingly evident that the cost of the Vietnam War was of growing concern to the Congress. As an illustration, the following dialogue between Senator Stuart Symington, Member, Senate Armed Services Committee, and me is furnished from the Congressional Record.

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Senator Symington. I saw the Deputy Secretary of Defense on a television show last night. To the best of my recollection he said the Vietnam war was costing a billion dollars a month minimum, and that they could not figure all the overhead. Some of us figure that it is costing a great deal more than a billion a month. As the budget officer for the U.S. Army, do you have any figure that you have drawn up as to what the total cost is per month for the Vietnamese operations?
General Taylor. We have not made an attempt to put a precise price tag on the cost of the war. There are many, many reasons for this. The rationale is simple. Each estimate would depend entirely on the assumptions that you use to determine what price you derive. For example, the very large procurement appropriation that we received in fiscal year 1966 provides for things which won't be delivered for another year or 18 months. So you really can't charge these to any one particular fiscal year. I am aware that Secretary McNamara used the $1 billion figure and I have no reason to depart from that. This is a good order of magnitude cost estimate. Also, you get into this situation in trying to determine costs. The 25th Infantry Division, for example, is now in Vietnam. If the 25th Infantry Division had remained in Hawaii, it would incur a major portion of the cost that it is now incurring in Vietnam. The only items you could charge off to Vietnam would be such things as increased combat consumption and provide for a faster rotation of people.
Senator Russell. Where would you charge all the installations there? Do you not think the 1st Infantry ought to bear a part of that? They could not be supplied without it?
General Taylor. Yes, sir; I think so. The construction that is going on out there, to what fiscal year can you apportion that? Some of it will not be completed until —.
Senator Symington. What worries me, Mr. Chairman, is that one sees headlines about saving $4 billion, $31/2 billion, the same time you are heavily increasing the cost of the war. It is hard to correlate that. I personally view with grave apprehension the danger to the future value of the U.S. dollar incident to these various programs. I noticed, for example, the tremendous development in Okinawa. But your request this year for docks and aircraft alone in South Vietnam are over a quarter of a billion dollars more than the total investment in Okinawa by the United States since World War II. This budget apparently really means little as against the president of a company reporting to his board of directors just how much money lie needs to run his business for the next year. You know there will be some gigantic supplementals come up here incident to what we are doing. The people do not have any idea as to what the basic facts are incident to the cost of Vietnam.
This question of the Department of Defense ability to identify the total cost of the Vietnam conflict generated actions which were later to haunt the budgeteers in attempting to justify budgets during the years of diminishing troop strengths. The Department of Defense instructed the services to introduce a new account into their respective accounting systems to identify those costs which could be associated with the Vietnam troop support. This was not only to
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include those direct expenses in Vietnam and the Pacific, but also those expenses in the continental United States training base, which could be considered as being directly related to training of replacements for that area. Here, again, the concept of the "blank check" reared its ugly head. There is little evidence to support the general feeling which prevailed concerning this new expense account, but it was almost universally assumed that any costs which could be logically charged to Vietnam would be funded completely. At the training centers, it was difficult, if not impossible, to identify each individual who was destined to go to Vietnam upon completion of training. Additionally, it was equally difficult to specifically identify accurately all of the costs on an installation and pinpoint whether or not it should be included in the Vietnam account. I think it is common knowledge now (1972) that the prevailing trend at the time was, "When a doubt exists, charge it to Vietnam." As these costs were subsequently accumulated and provided in bulk to Congress, they became concrete evidence, not only of the cost of the war, but also that those funds would not be needed should our presence in Vietnam be no longer required. This mistake will plague us for some time in attempting to establish a meaningful base line for the cost of a peacetime force.

Changing Attitudes

As had been anticipated by Senator Symington, the "gigantic" supplemental for fiscal year 1967 was submitted to Congress by the President on 24 January 1967. The request was for a total of $12,275,780,000, of which $1,968,000,000 was for operation and maintenance, Army. This was perhaps the most difficult time for those individuals who were charged with the responsibility of justifying this budget. The climate in Congress had definitely changed and many of the Congressmen felt as if Mr. McNamara had overstepped his authority in administering the funds appropriated to the department. The concern of Congress is adequately stated by Mr. Glenard P. Lipscomb, Member, House Committee on Appropriations, in the following excerpt from the Congressional Record of hearings on the fiscal year 1967 supplemental before the House subcommittee:

Mr. Lipscomb. Mr. Secretary, you spent a part of your statement explaining why you did not request of Congress a supplemental last autumn and fall when Congress was still in session, and you explained in your statement why you made the decision.
Now, I recognize, as I am sure all of us do, that it is necessary in an emergency to have flexibility in the Department of Defense budget
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to permit you to make quick decisions, take care of unforeseen problems, and I think that this is necessary. This authority was placed in the law by Congress for this purpose, but is was not intended, as I see it, to be used excessively or abused.
When the 1967 budget was before the Congress, it was clear at that time that the estimates for fiscal year 1967 were understated and that a budgeted estimate could have been given to Congress to be acted upon when we were still in session. It made a lot of difference to us as Congressmen to know just what the fiscal year 1967 demands were for the whole budget. We could have made a determination, should other programs in the domestic area be reduced; should we raise taxes at that time; what was our national debt going to be. In other words, it was a very significant time for us.
You indicate that the budget is an estimate, that you couldn't precisely see what the needs would be for Southeast Asia, but a budget is always an estimate. It is a plan. It is a guess in many cases.
We had before us at that time military and civilian pay. We knew about the stock fund. Certainly we realized that certain production funds were needed. We could have reevaluated the assumption at that time that the war wouldn't be over June 30, 1967. Many Members of the House and the Senate recognized that the Department of Defense needed more money.
This is of concern and this is a good time, I think, to talk about it, because you have changed your assumptions and have recognized a great difference in your fiscal year 1968 budget, as well as the supplemental that is before us. There is a big change in your approach.
At that time, suppose Congress, which I believe represents the people, had decided that there was a limit to the amount they were willing to spend in Southeast Asia? Suppose they wanted to debate at that time the size of the forces or whether they desired to appropriate funds before the forces were committed? Suppose that we had wanted to know at that time what the commitments were in that which the Department of Defense was proposing? Suppose we had wanted to give you all the money you wanted, but had said to come back to Congress before you make any further commitment, so that we could look at it?
As of the end of calendar year 1966 we were in the dark.
That just does not seem to be the way Congress should handle the Department of Defense budget. It appears to me that we have lost all control as a Congress over the Department of Defense appropriation process. No matter what we do, whether we raise your budget or vote it in as you request it, it doesn't seem like Congress has any control over this at all. This is a meaningless operation we go through every year.
For instance, if the State Department or the Commerce Department or the U. S. Information Agency or the Federal Bureau of Investigation came in here and asked for 123,000 employees that were already hired, or on board, and then would come in and say they wanted the funds to pay them, there would be a revolutionary development in the Congress if they handled it the same way.
Now, what gives the Department of Defense this great and uncontrollable authority and what gives the Department of Defense the right to be as loose in handling the money that Congress appropriates to it,
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and why can't we, as Members of Congress, have a better idea and a better control over Department of Defense money? Secretary McNamara was very seldom placed on the defensive before Congress, and this was certainly not to be the case when confronted by the above statement. The following dialogue ensued: Secretary McNamara. Mr. Lipscomb, no Congress in the midst of military operations has ever had as much detailed information as this Congress has been receiving in the last two years and is receiving now about our military program. I would simply ask you to look at the record if you doubt my statement. I have looked at the record. I examined the financing of the Korean War and I examined the financing of World War II and the manner in which we are submitting the budget to you is vastly more precise than that employed by the Defense Department in either of those two previous occasions. I completely disagree with your conclusion that Congress has lost control of the war. Such is not the case. You had the opportunity last year, you had the opportunity in 1964, and you have the opportunity today, to debate the issue of the support of our forces in Vietnam and to turn down the appropriation requests that lie before you.

I don't believe that it is ever wise for a department to submit to you requests for appropriations in advance of the leadtimes required for those appropriations and especially when we are so uncertain as to the requirement as to not be able to document it. That is exactly the condition we were in last year. I explained it very carefully to this committee and to other committees. You may have a different view. I think the process we are following leads to the most prudent financial management possible under the circumstances. I believe it gives the Congress the greatest degree of potential control over the budget. I guarantee you that we are going to come out of this military operation with a better financial control and with less waste than was incurred in the Korean War. I think that result will be entirely a reflection of the change in the way the budget has been prepared and presented to the Congress.

Mr. Lipscomb. Mr. Secretary, why does the Department of Defense have a different approach to the budget than is required of other Government agencies?

Secretary McNamara. The main reason is we are fighting a war and they aren't and it is absolutely impossible for us to predict the actions of our enemy 21 months in advance.

The desire of Congress to maintain costs at a minimum level is epitomized in the following exchange between House committeemen Daniel J. Flood and Speedy O. Long, and Department of Defense representatives General Wheeler and Secretary McNamara. Mr. Flood. You know artillerymen and so do I. What about your ammunition? You give an artilleryman a gun and a lot of ammunition and he will have a ball day and night. He just keeps pulling that lanyard—whang, whang, whang. What about that?
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General Wheeler. They are shooting a lot of ammunition. There is an ample supply of ammunition.

Mr. Flood. Is that an answer?

General Wheeler. I didn't know to which point your question was directed.

Mr. Flood. I know you are not short of ammunition.

Secretary McNamara. The answer is that we are not short, and they are shooting a lot of ammunition.

Mr. Flood. just so they are not having fun with this hardware.

General Wheeler. I don't think you could characterize it that way, Mr. Flood.

Mr. Flood. It is just a question of waste and not a question of shortage. I never thought there was a shortage. I know there was once a certain line [type of ammunition] but that didn't last long. It was about a year now. Now it is coining out of your ears and you are all right, with an extra line standing by. There is such a thing as waste in war.

General Wheeler. I think General Westmoreland can be trusted to keep a proper control over the assets given him.

Mr. Flood. General Westmoreland [in Saigon] is a long way from that hill [Artillery Hill near the demilitarized zone] you are talking about.

General Wheeler. He is up there quite frequently. I was with him there the other day.

Mr. Long. Is the cost of artillery shells, bullets, and that sort of thing a very important part of the cost of the war?

General Wheeler. Substantial.

Mr. McNamara. It is substantial but I think in relation to potential gain to us it is not something we are seeking to hold down. We have encouraged our commanders to request whatever they wanted in the way of ground ordnance and to use it freely.

It was evident already to budgeteers within the services that this type of reception could have been anticipated, since their submissions to the Department of Defense had been carefully pared to minimum levels. In the case of the Army, the Department of Defense had eliminated 32 percent of the total budget dollar value submitted to it by the Army. Thus, only 68 percent of the Army's requirements were forwarded to Congress. Whether these cuts made by the Department of Defense before submission to Congress were genuine attempts to provide only those funds which their statistics indicated were necessary or were cuts imposed to bring the total supplemental request within levels which might be acceptable in Congress is a question difficult to answer.

There was one specific point of disagreement between the Army and the Department of Defense which resulted in almost all of the cuts. The budget had been based on the anticipated number of troops to be supported in Vietnam. More importantly, a factor of tons per man-year was used to obtain the total amount of funds to be requested. The fiscal year 1967 regular budget had been sub-

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mitted using a factor of 5.5 tons per man-year. This was obviously incorrect, but the question of just what it should be was the point of discussion. Figures accumulated by the Army during 1966 and the first quarter of 1967 indicated that it should be 9 tons per man-year. The Department of Defense believed the correct factor to be 7.8 tons per man-year. Since this is a bulk factor covering all types of equipment and supplies, it is naturally a judgment decision as to which is correct. Even though the Army submitted a reclama concerning the decision, the Department of Defense factor was used in developing the budget. From this point on the blank check was obviously gone. Service submissions since have been carefully scrutinized by the Department of Defense before submission to Congress, and more and more effort has been expended to control the cost of the Vietnam War. Financial management and responsibility in this conflict began here after the major buildup was accomplished.

The Fiscal Year 1968 Budget

Compared to the discussions of the fiscal year 1967 supplemental appropriation, the hearings on the fiscal year 1968 budget were mild. Congress had evidently vented its wrath during the earlier deliberations, and further, had been told that a change in the method of budget preparation had been made for fiscal year 1968. The major change was the estimate that the war might extend beyond 30 June 1968 and that continuation of the current level of activity would be experienced. This would negate the necessity for another large supplemental as had been required in fiscal years 1966 and 1967. The hearings on the regular budget did bring out one new twist in funding which was later to generate considerable verbiage in the Congressional Record concerning its propriety. Under a program, known as AID/DOD Realignment, the Department of Defense (DOD) was to assume some of the functions in Vietnam previously performed by the Agency for International Development (AID). This was a logical shift of responsibility, since projects such as building roads, repairing the railway system, providing medical supplies, construction of ports and waterways, and other normal developmental actions were just as necessary to the war effort as they were to the improvement of the Vietnamese infrastructure. In fact, many of the same requirements existed in both programs.

The funds required to pursue the program was another matter, not so clearly defined. In attempting to obtain sufficient funds it was sometimes difficult to correlate figures which the Agency for International Development was willing to relinquish with the sums

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requested by the Department of Defense to administer these activities. This was brought rather forcefully to light in this comment during the fiscal year 1968 hearings.

Mr. Lipscomb. Regarding the AID/DOD Realignment program, we have now been provided with three different sets of figures as to the amount required for fiscal 1968. The information you have provided the committee shows that $92.1 million will be required to carry out this function.
The Office of the Assistant Secretary of Defense, Comptroller, has submitted ' a project listing which indicates you will obligate $97.8 million for this program. However, Mr. [Rutherford M.] Poats, Assistant Administrator, Far East, Agency for International Development, has advised the Subcommittee on Foreign Operations that the Army will only require $50.4 million to carry out this activity.
For instance, your supporting information states you need $5 million for MEDCAP teams. The Office of the Assistant Secretary of Defense shows it at $5.3 million, but AID estimates that at only $3 million. Can you tell the committee which are the proper figures?
The response was, as expected, that the Army's figures which were currently under consideration were the correct ones and stated the exact needs. Even though there was considerable comment, there is no evidence that Congress seriously balked at approving the requested funds.

Although the fiscal year 1968 budget had been prepared using different guidelines, there was a need for another supplemental as the year progressed. Its size, however, was only approximately one-third that of the supplementals for fiscal years 1966 or 1967. Whether Congressmen had resigned themselves to the supplemental form of budgeting, or they were relieved that it was so small in comparison, is not clear, but this supplemental passed virtually as requested with none of the innuendoes concerning the possibility of mismanagement of funds which had characterized the fiscal year 1967 supplemental hearings. There were instances when the Army's obvious attempt to institute a form of financial management was lauded by certain members of the subcommittee. It was evident that some measure of control had been initiated at least and that we were truly underway toward having more meaningful data on which to base future submissions.

The Fiscal Year 1969 Budget

The fiscal year 1969 budget discussions were equally mild, although the budget represented a slight increase over fiscal year 1968. The budget plan shown in Chart 2 was submitted to Congress to illustrate the budget plans for fiscal years 1967, 1968, and 1969.

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click here for 
CHART 2
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Also indicated on the appropriation total lines are the costs for Vietnam. The explanation which accompanied this illustration emphasized the larger numbers of personnel planned for support in 1969 than had been accomplished in 1968 with a modest increase in funds required. In fiscal year 1968, the active Army strength was quoted as 1,477,525, compared with an anticipated support requirement for 1,501,397 during fiscal year 1969, while an additional 39,000 free world military armed forces were envisioned. The realignment program received the anticipated scrutiny during the hearings, and the Army was asked to specifically identify costs with programs for the new fiscal year. The Army's submission is shown in Table 3.

The fiscal year 1969 supplemental arrived on schedule as expected and was made quite acceptable by two factors completely unrelated. The first was that it was smaller than the request had been for the fiscal year 1968 supplemental, and, second, there was much discussion at this time concerning the Vietnamization program, which was looked upon by many as the beginning of the phasedown of the U.S. presence in that country. The actual submission date for this budget was 17 January 1969. Even though the initial amount requested was less than the fiscal year 1968 supplemental, additional changes in policy by the new administration called for re-evaluation of the request. Reductions were presented to Congress formally on 27 March 1969, and during hearings other areas of possible reductions were identified. Apparently, Congress adopted a wait-and-see attitude to determine just exactly what would be required to finance the needs of the Department of Defense for fiscal year 1969. The supplemental appropriation was finally passed on 22 July 1969 after the end of the fiscal year, and represented approximately a 15 percent reduction from that originally requested in January. The end of massive budgets to support this increasingly unpopular war was in sight, but the problems of a diminishing budget for the Army had just begun.

New Problems in the Seventies

At the time of submission of the fiscal year 1970 budget, withdrawal of American troops had already begun. The Army found itself in the unique position of trying to anticipate the phasing of troops out of Vietnam, which proved just as difficult as projecting the buildup in many instances. This was somewhat paradoxical, since we had just accumulated quite accurate data on which to base budgets for continuing activity in Vietnam. We even had some factors concerning the costs of increasing American troops in

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TABLE 3-REALIGNMENT PROJECTS
Description of AID/DOD Project
(In millions)
 
Project Amount
1. MEDCAP: Supply medicines for Military Civic Action Teams. These Supplies are used by US, RVNAF and FWMAF medical personnel conducting the Medical Civic Action Program (MEDCAP) $ 3.0
2. Medical supply: Provide funds for procurement of common use medical supplies in treating civilian population by medical personnel working for the Ministry of Health. AID and DOD will share costs equally (50-50) 15.8
3. Railway sabotage replacement: DOD will assist the GVN Directorate of Vietnam Railway Systems to continue implementation of the USAID planned restoration of VN railroads. Assistance will consist of commodity support and technical assistance 3.8
4. Commodity support of GVN police: To provide supplies or funds for financing items used by the National Police Field Forces involved in paramilitary operations 12.4
5. Highway maintenance: Originally this program was to furnish supplies and technical assistance to the GVN Ministry of Public Works for the Directorate General of Highways. It has been expanded to include contractor and troop maintenance of some major highways and streets 23.1
6. Ports and waterways, commodity support: Commodity assistance for rehabilitation and development of RVN ports by the GVN Ministry of Communications and Transport. AID continues to provide technical assistance and training but DOD finances the commodity support .8
7. Revolutionary development: DOD provides commodities to support 3 military affairs projects: (1) Military Civic Action; (2) Popular Force Dependent Housing; (3) People's Self Defense 3.0
8. Vietnam TV: DOD finances the Vietnamese Television Service as an integrated adjunct of the U.S. Armed Forces Radio and Television Service and as a separately managed program by JUSPAO. As an essential psychological warfare effort JUSPAO co-ordinates with GVN Ministry of Information and Open Arms and the Director of Television 2.5
9. Chieu Hoi program: Provides encouragement to NVN defectors and care, including educational program for these defectors 2.0
10. Port handling and off-loading charge: Formerly reimbursed by AID is now budgeted as a direct Army expense 7.0
11. Subsistence, consumable, and associated air transport for military personnel families and refugees 5.3
Total $78.7
Vietnam. Now, the whole picture had changed, and our budget became a guessing game again.

The hearings on this budget brought to light a problem which had heretofore been lost in all of the activities to support our troops with everything necessary to carry on combat-excess supplies and equipment. I will discuss the matter of "push" shipments of supplies and the methods used to insure that no shortages existed in Vietnam in a later chapter. The Army had just begun to identify

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those items which were in long supply, and this became a subject for debate during the deliberations on the fiscal year 1970 budget. Mr. Robert L. Sikes, Member, House Committee on Appropriations, issued this prophetic understatement during the House appropriation hearings: "You will get some criticism for shipping too much material in there, but I would rather err on the side of too much than on the side of not enough." The criticism did, in fact, materialize, and in the very same hearing. The following excerpt is only one example:

Mr. Lipscomb. I am getting a little tired of working on the supplemental budget basis, Mr. Chairman. The next thing we know we will have another supplemental budget in here that we have got to work on in a hurry in order to get help to our men in Vietnam. It just seems inconceivable to me that with all the computers, accountants, and technicians and all of the compiled statistical data that we have over in the Pentagon, or have had, that now at this date we are told of a great oversupply and overstockage, an excess of stock; and yet the combat intensity over there, as far as I can tell, is still pretty high. It just does not make sense to me.

But I should be able to think it out, probably.

General Taylor. No, sir. May I respond?

Mr. Lipscomb. Yes, I would be glad to have you respond.

General Taylor. Mr. Lipscomb, this is the first time in the history of our country that we have ever conducted a war where we have attempted for the first time to institute in an active theater of operations any type of financial inventory accounting or actual monetary controls. Even this was not started until, I guess it was, 1968.

General Hayes. 1968; right.

General Taylor. 1968, after the war had been going on for a period of 2 years, we are now attempting to do this. I think we are well on the way. But this is part of our problem. We have never attempted to have an actual inventory of supplies on hand in an active theater of operations, nor have we attempted in the past to maintain a strict monetary accounting system in-country. We actually have not instituted financial accounting, per se, in-country, but it is in the theater at Headquarters, USARPAC at this particular time and we are now starting to make improvements. I am not trying to tell you that we will be perfect because I would be foolish.

Mr. Lipscomb. I do not expect you to. You just happen to be across the table. I am not being critical of the present officers but I have never before been under the impression, sitting on this side of the table, that we have been other than carefully prudent about appropriating money and sending supplies necessary to our men over there. I thought that the Department had the best available system to do this—to get these supplies over there. In fact, I have thought from time-to-time that we have been too close in what we sent. There was a time a few years back they were short of clothes, and they were short of ammunition in some areas. You remember the shortages talk. Well, at that time we were being criticized because we were holding it too much in line. So I have never had the impression that we have been just shipping supplies out, tires

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and all the rest of these things, without adequate authorization or adequate invoices and whatever you use to account. Not only did the Army experience some difficulties in justifying requests for funds in Congress, but analysts in the Department of Defense disagreed in many areas with the anticipated costs for operations during the 1970 fiscal year. The original operation and maintenance appropriation of Budget Program 2000 submission by the Army to the Defense Department totaled $3,662.3 million. Reductions identified by the Department of Defense were $712 million. Reclamas were $327.1 million, of which $23.7 million were restored. Table 4 is a detailed listing of the Office, Secretary of Defense (OSD), adjustments to the original submission, the Army reclamas by projects, and those which were restored.

For the first time since fiscal year 1966, no supplemental was required for the 1970 fiscal year. This was made possible to a large degree by the decision to further reduce the number of troops in Vietnam during the year. The required funds were supplemented by

TABLE 4—ADJUSTMENTs, RECLAMAS, RESTORATIONS
(In thousands of dollars)
 
  OSD adjustments Army reclama OSD restoration
Operation, tactical forces aircraft -12,800 ..... .....
Other support activities -7,797 7,797 +842
Revolutionary development cadre, Vietnam +2,694 9,100 .....
JCS directed and co-ordinated exercises -9,000 ..... .....
Classified project +50 ..... .....
Republic of Vietnam supplies and matériel -252,700 211,100 .....
Air pollution abatement program -228 ..... .....
Army civil defense training -92 30 .....
Real property maintenance -34,398 34,398 .....
Automatic data processing -11,400 11,400 .....
Reactor support activities +1,700 -1,000 .....
Air Defense Forces -409 158 .....
Sentinel system +69 -69 .....
Man-year costs -2,859 ..... .....
Military assistance activities +6,700 ..... .....
Administration and associated activities -905 905 +228
Reduction of costs in Europe -31,455 13,222 +10,869
General purpose forces -155,103 7,499 +10,500
Additional submissions -19,845 9,100 +2,052
Strategic and Reserve Forces air defense -10,624 10,286 -552
General purpose forces air defense -9,992 9,992 .....
Civilian employment -3,169 3,169 .....
Southeast Asia attrition and consumption -160,000 ..... .....
Miscellaneous -387 ..... -251
Total -711,950 327,087 +23,688
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the identification of more excess supplies and equipment which could be used by other commands, thereby reducing their need for new obligational authority. Financial management improved throughout the year, and the Army was finally bringing all aspects of funding and supply under firm control. As evidence of the renewal of interest in eliminating unnecessary spending, a Chief of Staff Action Memo was issued by Headquarters, Military Assistance Command, Vietnam, to all commanders. It urged conservation of resources in these words:

During fiscal year 1970 there has been increasing pressure to reduce spending within DOD. This has been evidenced by the receipt of actual funding authorizations which are far below previously budgeted requirements. From all indications to date, the austere funding limitations will continue for the next several years. Accordingly, efforts must be initiated now to effect substantial reductions in all elements of cost and to initiate a program that will insure the conservation not just of funds, but all other MACV resources as well. With the continued withdrawal of troops and renewed awareness of cost by commanders, the fiscal year 1971 budget reached a new low during the conflict and was only lightly challenged by Congressmen. The major area of discussion concerned the fact that many members of the Appropriation Committee did not feel that we were reducing the budget enough in light of the reduced activity in Vietnam. They harked back to previous hearings when the Army had presented their total costs for Vietnam, and the feeling seemed to be that we should be able to live at pre-Vietnam levels of funding when all of the troops were withdrawn. The indication was present that we were not headed toward that level at a rate consistent with the draw-down of troop strength. The response by the Army to this line of reasoning was based on several factors, including pay raises for civilians, training and maintenance which had been deferred due to the need for funds in Vietnam, rise in cost of supplies and equipment, and costs associated with actions which would have to be completed in connection with the withdrawal, such as excess supply identification and distribution. It was made exceedingly clear to the Congress that the Army could never support the same troop strength which existed in 1964 with the same number of dollars which were appropriated in that year. This method of justification had prevailed since the hearings on the fiscal year 1971 budget.
A Review of Army Actions

In submitting the 1972 fiscal year budget to the House subcommittee, the Assistant Director of the Army Budget, operations

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and maintenance, Office of the Comptroller of the Army, Brigadier General John A. Kjellstrom, provided an insight into the actions taken by the Department of the Army to establish a viable financial management arena for the operation and maintenance appropriation. His remarks included the following:

I would like to highlight some of the efforts we have initiated within the Department of the Army to improve the management of the Operation and Maintenance, Army Appropriation.
Financial Management
In January 1970, an Army Financial Management Committee was convened at the direction of the Vice Chief of Staff of the Army. This committee, which was chaired by the Comptroller of the Army, was charged to conduct an examination of the Army's organization and procedures for Financial Management and to make appropriate recommendations as to how they could be improved. The recommendations of this committee have resulted in significant changes in the Army staff financial management organization and procedures. The thrust of the reorganization was to improve the capability to review critically the total Army program and budget request so that the very top Army managers could make timely decisions concerning the allocation of funds between all programs and appropriations. It was the recommendation of this committee that resulted in assignment of responsibility for OMA to the Assistant Director of Army Budget in order to allow the Director to concentrate his attention to the entire Army Budget. These recommendations have resulted in better balance between appropriations and better budget justifications.
Operation and Maintenance, Army Analysis
A second effort to improve the management of the Operation and Maintenance, Army appropriation was the formulation of an in-house Department of the Army group to conduct an in-depth analysis of the appropriation. The objective of the analysis was to improve budget development techniques and procedures to ensure that programs funded by this appropriation are sound and balanced.
The major effort was directed toward development of cost estimating techniques which would facilitate the program and budget development of this appropriation. As a result of this effort, new cost estimating techniques, which relate costs to military strength supported, have been developed and are being validated at the present time. This effort also provided new insights into the relationship between mission and base operations funds.
Mission funds provide support for the soldier, his unit and other supporting activities without respect to their geographical locations. For example, mission funds support the divisions located in the Continental United States, Should one of these divisions be deployed to reinforce the North Atlantic Treaty Organization (NATO), the same mission funds would support the division in Europe as in the United States. These funds provide for -command and control, individual and
38
unit training, operating supplies and equipment maintenance. Base operations funds, on the other hand, provide housekeeping services for the soldier, his unit and other supporting activities at a specific geographical location. Referring to the earlier example, these funds pay for the operation of installations where the divisions are located. These costs continue as long as the installation is open, whether or not a division is located there. Base operations funds provide essentially the same services that a city provides to its residents plus services peculiar to a military organization.

The group researched and studied the validity of historical workload indicators such as student loads, items processed, short tons shipped, and patient loads. In addition, they studied the application of the accepted business practice which recognizes that some costs vary with volume or output while other costs remain essentially fixed. This was found to be applicable in many of the OMA programs, but it was particularly so in the force related programs. The group found that the dollar requirements in these programs are quite variable and relate to the average number of military personnel in the Army.

The group also found that many of the costs which OMA supports cannot be related directly to the average number of military personnel supported. These costs, which we have chosen to call "static costs," closely resemble what the business world calls fixed costs in that they do not vary directly with volume or output. A good illustration of static costs occurs in base operations where costs vary only somewhat with volume or output but do not vary in direct proportion. For example, the annual base operations cost to operate Fort Hood, Texas, which supports two divisions, is approximately $27 million. If we moved one of the two divisions from Fort Hood, we would have reduced the troop strength by one half, but would not be able to reduce the base operations by one half. The reason is that some costs continue whether there are 10,000 or 20,000 soldiers at an installation. For example, there are the same miles of roads to maintain and essentially the same number of buildings to repair. Since the buildings remain, the cost of fire protection remains the same. The base services, such as commissary, laundry and dry cleaning, can reduce some costs by reducing the number of people they employ and, to some extent, by limiting the hours of operation. However, if the level of services is to be maintained, the costs cannot be cut in half solely because the military population has been reduced by one half.

I believe the Army's efforts in this direction hold great promise in improving the management of manpower related programs as well as our base operations activities. We are continuing within my organization to refine and improve these management techniques. I would like, however, to emphasize that this approach is not designed to replace our proven workload indicators nor our field commanders' estimates. It is an additional management technique which has been used along with many others in developing this request.

Continental Army Command Base Operations

A third effort to improve our management began in June 1970 when the Comptroller of the Army, in coordination with the Commanding General of the Continental Army Command, undertook an analysis of

39
base operations at installation level. The objectives of the analysis were to identify the reasons for the wide variance in base operations costs at various installations in the Continental Army Command. The analysis also sought to establish a method for analyzing installation base operations funding levels in relation to a standard of performance. Although we do not attempt to manage each installation from the Pentagon, we do, however, assist the installation commander in improving the management of his resources. This study was directed at assisting our field commanders as well as our own overview of these costs.
The study identified the key factors which influence the base operations fund requirements and account for the differences in cost between installations. Some of these determinants are:
-The number and type of military personnel assigned to the post.
-The number, type, condition and use of real property facilities. For example, physical size of the post, the training areas and temporary versus permanent construction.
-The density, type, condition and use of vehicles, weapons and other equipment items.
-Geographic location in terms of weather conditions, wage rates and transportation charges.
-Policies, directives, and priorities emanating from the installation commander or high commands.
It was recognized that, because of these determinants, each installation is unique in its requirements for base operations funds. In view of this, it is necessary that the character of each installation be recognized when resource decisions are made.
Using data obtained by reports and field visits, we have been able to develop specific base operations cost levels for 25 major and 17 lesser Continental Army Command installations. With the methodology developed in this study, the Commanding General, Continental Army Command, who is responsible for managing the installations, will continually validate, update, and expand its application.
The real value of this technique, when fully developed, is that we will have a valid standard against which to measure performance and develop base operations estimates. This standard is designed to relate workload to dollars received and, at the same time, provide adequate support to our soldiers.
The methodology developed in this study has been determined to be applicable to both mission activities and base operations world-wide. We have just recently undertaken the extension of the study with personnel resources presently assigned to the Office, Comptroller of the Army.
Transportation
One of the most serious financial management problems facing the Army today is that of determining and managing second destination transportation. As you recall, we found it necessary to reprogram in excess of $100 million into the transportation account in order to meet our Fiscal Year 1971 requirements. We believe the Fiscal Year 1972 request is correctly stated; however, we are continuing our efforts to improve transportation management.
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In January of this year, we formed an in-house group to examine ways for improving the financial management of the Army transportation program. The group is headed by a general officer from the Office of the Comptroller of the Army and has representatives from other Army staff agencies and field commands. The group's recommendations are scheduled to be completed by May of this year.
Supply Support of Forces in Vietnam
The Army has, for several years, devoted a great deal of effort to managing the procurement of operating supplies for our forces and Allies in Vietnam. We have in operation in Vietnam, within the depot system, a Financial Inventory Accounting System comparable to that utilized throughout the rest of the Army. We did not implement a Financial Inventory Accounting System during the early stages of the conflict, but our experience indicated a firm requirement for financial information on supply levels, issues, and receipts. The Commander, U.S. Army, Vietnam, now provides for Headquarters, Department of the Army, information on supply operations on a monthly basis. This data is utilized at all echelons to carefully manage our financial requirements for supplies in support of our forces in Vietnam.
Since Fiscal Year 1968, we have had the Centralized Financial Management Agency located at Headquarters, U.S. Army; Pacific in Hawaii. This organization is the financial manager for all Operation and Maintenance, Army funded supplies and materiel purchased in support of U.S. Army Forces, Republic of Vietnam Armed Forces, and Free World Military Assistance Forces in the Republic of Vietnam. In the formulation of the budget request, requirements for Southeast Asia supplies were separately determined and reviewed.
The computation of requirements involves the use of a zero based consumption budget using actual monthly dollar consumption. The fact that the Vietnamese and other Free World Forces consume fewer supplies than a U.S. soldier is considered in the computation formula. Once the total requirement has been determined, we then determine how much of the requirement can be satisfied by utilizing assets already on hand and how much will require new obligational authority.
For example, in Fiscal Year 1970, the Army was able to use assets on hand in the amount of $231.5 million against a total consumption requirement of S1,404.4 million. The Fiscal Year 1971 plan calls for asset utilization in the amount of $215.4 million against a total consumption requirement of $753.4 million. The Fiscal Year 1972 budget contains a planned asset utilization figure of $101.8 million against a total estimated consumption requirement of $533.9 million. The lower asset utilization plan for Fiscal Year 1972 is the result of our intensive efforts to achieve better supply and financial management over our inventories in support of Vietnam and reduce our excess supply position.
As a result of aggressive and intensified supply and financial management actions, the Army has, in the past two fiscal years, been able to provide supplies to our forces in Vietnam worth over $1.8 billion, at a cost in current years obligational authority during these two years of just slightly over $1.3 billion. Because of its importance to the support of our forces in Southeast Asia, this supply program is intensively man-
41
aged and undergoes frequent personal review by the Secretary of the Army. This intensive management has paid dividends by allowing the Army to take advantage of savings and long supply utilization to offset what might otherwise be new dollar requirements in support of Southeast Asia.
A Reputation for Responsibility

The Army has emerged from the Vietnam conflict with a reasonably good reputation with Congress. Even in the years when frustrations resulted in sharp comments and sometimes ridicule, it was the Department of Defense which bore the brunt of the attacks. Numerous instances arose, in which Army budgeteers were more successful in obtaining funds from Congress than they had been with their requests at the Department of Defense level. The general impression created throughout was that the Army was making every effort to maintain a reasonable degree of financial control while insuring that no commander in the field was deprived of anything absolutely necessary to pursue the war as he deemed necessary. This is a difficult tightrope to walk, but the dividends to be derived in future budget submissions will be evident. At least with Congressmen, the Army has no credibility gap at the moment. I think it is also evident that the Congressmen were walking the same tightrope with their constituents. There will always be competition for the limited funds available, but with the reputation developed through this period of extreme turbulence and the institution of measures such as described above, the Army should be in an excellent position to defend its requirements. While some belt tightening will be necessary, proper financial management should provide for a strong, responsive force.


page updated 30 May 2001


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