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49. Memorandum From the Assistant to the President for Management and Budget (Ash) to President Ford 1

SUBJECT

  • 1976 Budget Decisions: Department of Defense

The anticipated agency request and some alternatives with respect to 1976 budget amounts for the Department of Defense are attached. Because the joint Defense/OMB review of the DOD budget is not yet completed, the anticipated agency request and the attached issue papers2 represent our best estimate of the final Defense submission.

I have requested a meeting with you, Secretary Kissinger and Secretary Schlesinger on December 12 or 13 to review these issues and reach final decisions on the Defense budget.3 Eight key issues have been identified for your consideration.

I. Level of Defense Budget

The most important issue is the overall level of the Defense budget. Secretary Schlesinger has indicated that he will request $94.6 billion in outlays. However, on the basis of decisions already made, his final request will probably be closer to $95 billion, and we have used $95 billion in preparing the attached issue papers. This is an increase of $10 billion over our revised 1975 outlay estimate of $84.5 billion. It would provide for major increases (above last year) in procurement, R&D, and readiness levels, and would require no major force changes or significant reductions in personnel strengths and benefits.

Three lower alternatives have been prepared for your consideration:

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$94 billion in outlays would cover estimated inflation and provide $1 billion in real program growth over 1975.

$93 billion in outlays would cover estimated inflation and maintain the 1975 real program level.

$92 billion in outlays represents a fiscally constrained budget. After inflation, it would require a real program reduction of about $1 billion below 1975.

All of the alternatives provide for substantial increases in budget authority over 1975. The Defense request is for budget authority of $106 billion, 20 percent above 1975. In each of the lower alternatives, budget authority is reduced from the Defense request by an increment of $2 billion. At the lowest level, budget authority would be $100 billion, an increase of $11.5 billion over 1975.

II. Pay and Benefits

Pay-related costs have been the fastest growing portion of the Defense budget in recent years. Defense recommends no substantial changes in military salaries or benefits.

The alternatives recognize that, while pay increases have brought military salaries in line with those of civilians in the public and private sectors, little has been done to scale back special military pay-related benefits which were initiated when military salaries were relatively low. Candidates for reduction or elimination include the commissary subsidy from appropriated funds, leave payments at reenlistment, travel entitlements for junior enlisted men and the annualization of reenlistment bonuses. The fiscal constraint alternative would also reduce the anticipated October 1975 pay raise.

III. Manpower

Military manpower is now about 20 percent below the 1964 pre-Vietnam level while civilian manpower has declined by four percent. The current 1976 Defense budget includes a one percent reduction in military manning and no reduction in civilian manpower from 1975 levels.

The alternatives propose further manpower reductions, particularly civilians, without adversely affecting forces or readiness levels. Specific candidates include a manpower drawdown at Pacific bases, an accelerated phasedown in Thailand, an anticipated 1.5 percent improvement in civilian productivity, and a reduction in the number of military officers enrolled fulltime in graduate schools. The fiscal constraint alternative imposes a larger civilian productivity reduction and further reductions in military manpower.

IV. Force Modernization

The largest increase in 1976 budget authority occurs in force modernization. The current Defense forecast for R&D and procurement [Page 230]calls for an increase of about $10 billion in 1976 over last year. This increase recognizes the impact of inflation and includes over $4 billion in real program growth.

The alternatives address several areas which have a large impact on 1976 budget authority, including: the impact of shipyard capacity limitations and Congressional legislation stipulating nuclear propulsion for all major combatant ships; the Defense proposal in 1975 to suspend full funding procedures to finance higher shipbuilding costs; the level of program growth in other procurement programs; and the size of the 1976 R&D program. An Administration decision on whether to request initial production funds for the B–1 in 1976 is also required.4

V. Administrative Action

A range of administrative activities within the Department of Defense are proposed to be included in the budget at current or increased levels.

The alternatives propose that, while very large reductions in these programs would ultimately affect military readiness, minor reductions in travel, real property maintenance and selected inventory levels could be made with only limited adverse effects.

VI. Force Structure

The Department of Defense proposes to increase the number of Army Divisions from 14 to 16 in 1976 and to reduce the number of Navy aircraft carriers from 13 to 12 in 1977. No plans are included for any reductions in reserve forces.

The alternatives propose to slow down the plan to reach a level of 16 Army Divisions by 1978, accelerate the reduction to 12 aircraft carriers from 1977 into 1976; and eliminate 60,000 marginal reservists and reserve program add-ons which do not contribute to readiness.

VII. Intelligence

These issues will be presented for your review separately.

VIII. Naval Petroleum Reserves

The Department of Defense proposes to request appropriations of $270 million to increase fuel purchases so that all available fuel storage will be kept at full capacity to meet emergency requirements.

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One alternative would seek authority to increase production from Naval Petroleum Reserve #1 to generate sufficient revenues to finance this additional Defense fuel requirement. The other alternative would seek authority to increase production to 160,000 barrels per day to generate sufficient resources to procure the additional fuel and further exploration and development of NPR #1 and NPR #4.

  1. Source: Ford Library, White House Special Files, Presidential Files, 1974–1977, Budget Review Decision Papers, 1974–1976, Box 8, 12/9/74—DOD, Small Agencies. No classification marking.
  2. Papers discussing in detail each of the eight key issues identified below by Ash are attached, but not printed.
  3. Ash, Kissinger, and Schlesinger met with Ford to discuss the FY 76 budget on December 13 and again on December 14. Although no record of those meetings has been found, a December 21 memorandum from Ash to Ford indicates that the President, during the latter meeting, approved a FY 76 Defense budget of $93.9 billion. Ash’s memorandum also requested Presidential decisions on several budgetary items totaling $1.1 billion subsequently added by Schlesinger, only $0.3 billion of which OMB supported. Ford approved $144 million of the $844 million of the additions in question, bringing the White House’s final FY 76 Defense budget to just over $94.3 billion. (Ford Library, National Security Adviser’s Files, Presidential Agency Files, 1974–1977, Box 6, Defense, Department of, (1)–(8)) On January 27, 1976, Congress approved a defense appropriations bill for FY 1976 totaling $90.5 billion. (Congress and the Nation, Vol. IV, 1973–1976, pp. 167–168)
  4. Ash’s memorandum of December 21 requested Presidential guidance on the B–1 issue, noting that Schlesinger had since “decided to delete all production money for FY 1976, while continuing the R&D and flight test portions of the program.” Ford wrote on the memorandum: “I tend to favor long lead-time for B–1.” (Ford Library, National Security Adviser’s Files, Presidential Agency Files, 1974–1977, Box 6, Defense, Department of, (1)–(8))