57. Action Memorandum From the Director of the Office of Management and Budget (Lynn) to President Ford 1

SUBJECT

  • FY 1977 Defense Budget

I. Background

At our recent budget meeting,2 we reviewed the large gap between current Defense plans and the OMB planning targets. I fully share your desire to develop a Defense budget which will in no way impair our military capability or signal a lack of resolve to the Soviets. With these concerns in mind, I have identified possible Defense budget reductions which will:

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• Fully fund all of Jim Schlesinger’s major force proposals.

• Provide real program growth of $3 billion over 1976 and fully cover anticipated inflation.

• Affect only pay and support programs and have no appreciable impact on our military capability.

• Provide a substantial ($4 billion) cushion for Congressional cut insurance, and

• Signal our continued commitment to a strong national defense by showing a 12% increase over last year (compared to a 24% increase in Jim Schlesinger’s proposed budget).

These figures do not include an allowance for increased expenditures for strategic programs in the event of a breakdown in the SALT negotiations. The budget implications of a SALT amendment are discussed in the last section of this memorandum.

Program Growth in FY 1977

The Defense budget request for 1977 has increased by $5 billion since January. At the same time Congress has reduced 1976 funding by $7 billion, resulting in the following picture:

Defense Total Obligational Authority (TOA)

($ billions)

1976 1977 Increase
January 1975—President’s Budget : 105 117 12
October 1975:
Defense Budget Submission : 98 122 24
OMB Proposed Alternative : 98 110 12

This $24 billion increase is double that envisioned in January, primarily because the Defense 1977 request was developed from a 1976 program base unadjusted for Congressional reductions. In fact, Defense proposes to add to their 1977 budget all of those items deleted by Congress in 1976. The OMB proposed alternative starts from the adjusted 1976 Congressional level.

In outlays, from a 1976 level of $91 billion, the Defense 1977 request would increase to $109 billion. The OMB proposal of $99 billion provides an $8 billion increase—which is about the same increase proposed in the 1976 Budget.

Further adjustments below this level are possible but would require substantial reductions in modernization and operating levels which would affect near and long-term capability. These reductions were included in our recent $25 billion overall budget reduction exercise.

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Secretary Schlesinger’s proposed budget will hold military manpower levels of about 2,100,000 and will provide the following significant areas of real growth:

Forces—Complete and equip three added Army divisions.

—Commence buildup of four additional Air Force tactical fighter wings.

Readiness—Reduce maintenance backlogs and improve supplies availability.

—Improve capability and effectiveness of Army reserves.

Modernization—Increase strategic modernization by $2 billion.

—Increase shipbuilding funding.

—Increase investment in all general purpose and support areas.

The OMB alternative proposal would support the same military manning level, all of the Schlesinger force-related objectives, and much of the funds to achieve his other identified needs. Existing capabilities and readiness would not be reduced. The OMB proposal—which would reduce the 1977 Defense total by $12 billion—would still include real program growth and an allowance for Congressional cuts.

These reductions are achieved by:

• A lower real growth increase for high priority strategic and other investment programs.

• More realistic estimates of inflation in investment programs.

• Lower pay raise assumptions.

• Economies resulting from eliminations or reductions of Defense frills and policies which do not affect capability.

• Holding existing backlogs and supply inventories to current levels.

Signals our commitment with the 1977 Defense Budget

Congressional budget reductions of about $7 billion in TOA and $2 billion in outlays will be reflected in the 1976 column of the 1977 Budget. The value of the 1977 Defense budget request in conveying a signal of our resolve will be directly related to the size of the year to year increase. The Congressionally-adjusted 1976 program should be the base for arriving at the 1977 program level.

As shown in the following table, I would propose adding to the Congressionally-adjusted 1976 level all that is required for inflation as well as sizable amounts of program growth and Congressional cut insurance. These increases would be offset partially by holding pay raises to 5% and by other minor pay related and budget scrub reductions to arrive at the desired 1977 budget level.

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Alternative 1977 Defense Budget ($ billions)

TOA Outlays
1976 request to Congress 105 93
Less Congressional action −7 −2
Revised 1976 program 98 91
Changes to arrive at desired 1977 Budget:
Add: Inflation 9 7
Desirable program growth 3 2
Congressional cut insurance 4 2
Subtotal 114 102
Subtract:
Hold pay raise to 5% −2 −2
Eliminate frills and improve efficiency −2 −1
Proposed 1977 Budget level 110 99

Your Defense budget would then appear as follows:

($ billions)
1975 Actual 1976 1977
TOA O/L TOA O/L TOA O/L
89 86 98 91 110 99
% changes from prior year +10% +6% +12% +9%

These Defense increases over 1976 would signal our continued commitment to a strong national defense especially in the face of lesser increases, or even decreases, in other non-defense areas.

Impact of a Possible Breakdown in SALT Negotiations

The OMB planned 1977 Defense budget includes over $12 billion for strategic programs, or an increase of more than $2 billion over 1976. This includes increases for research and development programs and for procurement of the TRIDENT missile and the B–1 aircraft which enters major production.

Failure to negotiate an acceptable SALT agreement may require additional increases. The SALT contingency budget amendment which you requested from Secretary Schlesinger would add an additional $2.8 billion in obligational authority to the Defense budget in 1976 and 1977. [Page 261]The amendment would expand development and production of ongoing systems and would lay the basis for further acceleration in 1978 and later, if required by Soviet actions. In his analysis of this amendment, Secretary Kissinger has suggested that a breakdown of SALT negotiations could require even larger additions of up to $5 billion in 1976–77. Such additions would more rapidly accelerate ongoing programs and expand TRIDENT and B–1 production capacity. The rate of TRIDENT submarine construction would be doubled and B–1 production increased by 50%.

The Defense amendment is probably as much of an increase as Congress is likely to accept, unless the public is convinced that the Soviets intend an unrestrained expansion of their strategic forces. You approved my recommendation of September 153 that the Defense amendment should not be forwarded to Congress until necessary in the light of SALT negotiations. Any submission to Congress should be modified by excluding certain programs that fail to contribute visibly to our strategic capabilities. This modification would provide an amendment of about $2.1 billion in 1976–77.

II. OPTIONS

The current gap between Defense and OMB on the 1977 planning level is too great to be resolved between Jim Schlesinger and myself. Your guidance is requested as to the size of the Defense program to be included in your 1977 Budget. There are two options, exclusive of SALT considerations:

1. The Defense proposal of $122 billion in obligational authority and about $109 billion in outlays. This will be an extension of the 1976/77 program proposed last January with addbacks for Congressional reductions in 1976.

2. The OMB proposal of $110 billion in obligational authority and about $99 billion in outlays. This takes off from the Congressionally-adjusted 1976 program and provides allowances for inflation, real growth and Congressional cut insurance. At $99 billion, we are $5 billion above the level of Defense outlays in our exercise of last month which reduced the total budget deficit for 1977 by $25 billion. Thus, even at $99 billion we are adding to the difficulty of reducing the total Federal deficit.

III. RECOMMENDATION

I am convinced that you can achieve your objectives of retaining our military capability and sending appropriate signals of our determi[Page 262]nation to emphasize a strong military posture with Option 2. In the event that SALT negotiations are not successful, additional funds of about $2 billion could be requested.

Approve Option 1

Approve Option 24

  1. Source: Ford Library, Presidential Handwriting File, Box 18, Finance—Budget: Defense Department (5). No classification marking.
  2. No record of such a meeting has been found.
  3. Not found.
  4. Although Ford approved neither option, his attached handwritten memorandum, October 11, reads: “Reductions: 1) Military and admin/250,000 Industry—100,000 2) 20 base closures 3) 8% cut in R&D; 4) Stretch out of aircraft procurement 5) Reduction in shipbuilding 6) Aircraft carriers—13/10 7) Cutback tank production.”