187. Memorandum From the Assistant Secretary of Defense for Manpower, Reserve Affairs and Logistics (White) to Secretary of Defense Brown 1


  • Military Construction and Other Costs Incident to Implementation of the Panama Canal Treaty—ACTION MEMORANDUM

The Issue

Funds in the amount of $44.1 million are required in FY 79 for implementation of the Panama Canal Treaty. A budget amendment is being prepared in accordance with the wishes of the House. Congressional committees now informally advise that this request will not be favorably received by the current Congress. What are the alternatives?


—Provisions of the Panama Canal Treaty require the transfer of various U.S. military facilities to Panama over the first five years of the Treaty, with initial transfers to take place on 1 October 1979, the [Page 457] effective date of the Treaty’s entry into force (T-Day). U.S. Army units (primarily HQ 193rd Inf Bde, 210th Avn Bn and 470th MI Grp) essential to the defense of the Panama Canal Zone will be displaced in the process, requiring considerable rehabilitation of alternate facilities and new construction.

—Various base operation support functions, including dependent education and medical services, will be assumed by the Services from the Panama Canal Zone Government and Panama Canal Company on T-Day. The resultant assumption of additional facilities and approximately 3,000 civilian employees will require an expansion of base support management and a modicum of facility construction and rehabilitation.

—Language in the FY 79 DoD Appropriation Authorization Bill (Hansen Amendment cr Section 813) and HAC MILCON Committee Report No. 95–1246 requires a formal budget submission (vice reprogramming) to cover treaty-implementation costs. Accordingly, a FY 79 budget amendment in the amount of $44.1 million has been prepared, with $36.9 million for military construction and $7.2 million for operation and maintenance. This budget amendment is summarized at Tab A.2 Congressional pressures appear now to be mounting to delay submission of an appropriation request, at least until after the elections.

SecDef letters of 28 June 78 to the Chairman of both Committees on Armed Services3 included a request for deletion of Section 813 from the House Bill.

—The SAC, on 7 June 78, agreed with the House that projects in support of implementing Panama Canal Treaty should be addressed during normal budget process, except that reprogramming should be considered as an acceptable alternative for initial FY 79 phases in order to avoid major disruption (i.e., reprogramming should not be automatically precluded, as directed by the House).

LTG McAuliffe, USCINCSO, in testimony before the Senate Committee on Armed Services on 24 January 1978, indicated that planning to date, though incomplete, resulted in a current estimate of treaty-related start-up (construction) costs of $42.9 million. Subsequent planning refinements and OSD/OMB analysis produced MILCON requirements of $36.9 million to be completed by T-Day. This plan will effectively permit unit and activity relocations without recourse to expensive interim moves.

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FY 79 O&M requirements for a 30 day transition period to facilitate effective assumption of additional base operations support by T-Day are estimated at approximately $7.2 million.

—Relocation of affected units without measureable mission derogation is possible if funded by the onset of FY 79. This extremely time sensitive construction would require employment of accelerated construction procedures, probably a 3-shift contract operation, to enable commencement of construction by December 1978, the beginning of the next 5-month dry season.

—Indigenous contractor capability and locally-available construction materials/equipment are extremely limited, necessitating a U.S. contractor and heavy importation of materials and equipment.

—Accelerated construction and heavy importation more than double the cost of construction. A similar Stateside program under normal conditions would be estimated at $15 to $18 million.

—Lease-back of facilities scheduled for transfer by T-Day for a year or more to obviate accelerated construction and permit regular programming of construction in FY 80 is not feasible since renegotiation with Panama would be required. The majority of the areas occupied by U.S. forces being returned on T-Day are of high political priority to Panama and Panama is not expected to agree to any meaningful extension of their use.

—Emergency funding for interim relocations is estimated at $8.2 million of which approximately half would be non-recoverable, i.e. required for stop-gap construction of only short term need. Details are at Tab B.4 Current availability of SecDef emergency construction funds (contingency funds) is $15.4 million.

—Post T-Day requirements being evaluated by Defense Components for regular [Page 459] MILCON programming are estimated at $32 million. Details are at Tab C.5

The Options

Five basic options have been considered regarding the new construction and facility rehabilitation incident to implementation of the treaties. The options have similarly been considered for assumption of additional base operations support during 30 day transition to T-Day. These options, in order of declining preference, are as follows:


I—FY 79 Budget Amendment—Full funding by 1 October 1978

II—SecDef Contingency Funding/Service Reprograming—Full funding by 1 October 1978

III—SecDef Contingency Funding/Service Reprogramming—Interim Relocation funded by 1 October 1978, balance incorporated into FY 80 program

IV—FY 79 Budget Supplement—Full funding not until late FY 79.

V—FY 80 Budget—Full funding at beginning FY 80


I—FY 79 Budget Amendment—Full funding by 1 October 1978

II—FY 79 Budget Supplement—Full funding in late FY 79

III—Service reprograming within FY 79 TOA—Approval not likely prior to late FY 79.

To deprive or significantly delay the funds needed for unit relocations by T-Day will impact adversely on the operational readiness of U.S. forces, will cause personnel turbulence and seriously affect morale at a time when the attitude of our people will play an important role in initiating a successful U.S./Panamanian partnership. Command and control, intelligence, aviation, security and postal services would be measureably degraded and troops would be relocated to substandard quarters. This effectively negates MILCON options IV and V and O&M option II.

MILCON options II and III would require prior approval of reprograming by the Committees on Appropriations which, in view of political considerations (elections would probably delay these unacceptably in view of the limited Panama construction season.) Option II would deplete available DoD contingency funds and emergency authorization available to the Army. Option III, to permit interim relocation, would be wasteful in as much as about $4 million of such costs would be nonrecoverable. It would also result in derogated operational readiness and in relocation of troops to substandard BEQ’s.


That you approve Option I (MILCON and O&M) to preclude any measurable readiness and morale degradation, command and control problems and inefficiency of operation which, in the end, will result in higher costs for treaty-related transitions.6

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ALTERNATIVELY, that we re-emphasize our concern by seeking Congressional approval for use of DoD contingency funds and Service reprograming (MILCON Option II and O&M Option III) to the maximum extent possible in substitution for the budget amendment.7

John P. White
Assistant Secretary of Defense
(Manpower, Reserve Affairs & Logistics)
  1. Source: Washington National Records Center, OSD Files, FRC: 330–87–0068, 1978–1979 Panama Canal Treaty Milcon Costs. No classification marking. Prepared by J.P. Sylva (CEC USN) on July 11. Dolvin concurred. A stamped notation reads: “SecDef Has Seen.” Brown wrote on the memorandum: “7/15 JLS should see this. I approve Option 1 in each case. This relays our good faith to Panama. I reserve the possibility of seeking Cong’l approval for contingency funds + reprogramming, at least for planning and for the initial items, if Congress rejects the FY 79 amendment.”
  2. Attached but not printed.
  3. Not found.
  4. Attached but not printed.
  5. Attached but not printed.
  6. Brown initialed the approve option on July 15.
  7. There is no indication of approval or disapproval of this recommendation.