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THE COSTS OF THE
ADMINISTRATION'S PLAN FOR THE
ARMY THROUGH THE YEAR 2010
 
 
November 1994
 
 

This memorandum on costs of the Administration's plan for the Army was prepared by the Congressional Budget Office (CBO) in response to a request from the Chairman of the House Committee on Armed Services. CBO prepared companion memorandums on budget requirements for the Navy and Air Force and an overview paper that discusses requirements for the entire Department of Defense.

Frances M. Lussier of CBO's National Security Division wrote this memorandum under the general supervision of Neil M. Singer and R. William Thomas. Raymond J. Hall of CBO's Budget Analysis Division provided detailed cost estimates. The author gratefully acknowledges the contributions of Shaun C. Black. Sherwood Kohn edited the manuscript, and Judith Cromwell prepared it for publication.
 
 

CONTENTS
 

SUMMARY

INTRODUCTION AND BACKGROUND

MILITARY PERSONNEL

OPERATION AND MAINTENANCE

PROCUREMENT

RESEARCH, DEVELOPMENT, TEST, AND EVALUATION; MILITARY CONSTRUCTION; AND FAMILY HOUSING

THE TOTAL ARMY BUDGET

RESPONDING TO POTENTIAL BUDGETARY PRESSURES
 
TABLES
 
1.  Planned Army Military Personnel, 1994-1999
2.  Army Funding for Military Personnel, 1994-1999
3.  Army Funding for Operation and Maintenance, 1994-1999
4.  Army Funding for Procurement, by Account, 1994-1999
5.  Assumptions About the Structure of Three Army Procurement Programs
6.  Army Funding for Research, Development, Test, and Evaluation; Military Construction; and Family Housing, 1994-1999
7.  Total Army Funding, 1994-1999, Based on the Administration's Plan
 
FIGURES
 
S-l.  Total Army Costs, Planned and Estimated, 1995-2010
1.  Army Funding for Procurement, 1974-1994
2.  Costs of Major Army Programs, 1995-2010
3.  Total Army Procurement, Planned and Estimated, 1995-2010
4.  Total Army Costs, Planned and Estimated, 1995-2010


 

SUMMARY

The Army's budget rose sharply during the 1980-1985 period, from $66 billion to $100 billion, then fell almost as precipitously back to $62 billion for the 1994 fiscal year. (All costs in this memorandum are expressed in 1995 dollars.) The Administration has submitted a detailed plan for the next five years that calls for a further decrease in the Army's budget to $53 billion by the year 1999. This shrinking is commensurate with a proposed reduction in the number of military personnel and major combat units during the same period.

The Congressional Budget Office's (CBO's) analysis shows that if the Army is to carry out its plans for modernization programs, its budget must grow in the years beyond 1999, even if the Army itself does not increase in size. The average annual increase in the budget would need to be on the order of 2 percent during the 1999-2007 period. The Army's budget requirements would remain roughly constant or decrease between 2007 and 2010, depending on CBO's assumptions about the costs of Army acquisition programs.

The need for budget increases is driven largely by the Army's plans to produce a new reconnaissance/attack helicopter, known as the RAH-66 Comanche. This program is scheduled to go into production in the late 1990s or the early part of the next decade. During the later part of the next decade, the program could require annual funding of more than $2 billion. Unanticipated cost growth could push the funding requirements of the Comanche program up even further.

CBO's estimates of the annual costs of the Army's long-term plans are based, wherever possible, on Department of Defense and Army statements and the Administration's plan for 1995 through 1999. CBO assumes that the Army will remain at the size planned for 1999--determined by the Bottom-Up Review--through 2010, an assumption consistent with statements by the Army's Chief of Staff. CBO further assumes that the planned forces can be supported with the funds included in the Administration's plan, and that those forces would be modernized with weapons that the Army plans to develop and acquire in the next 15 years. Changes in the Administration's plans would obviously change CBO's estimates.

CBO generated two estimates of the costs that the Army might incur through the year 2010. The range of estimated costs of the Army's plan primarily reflects differing assumptions about the cost of weapons that the Army plans to purchase in the future. The lower estimate is based on the assumption that policies are adopted to hold down these costs, and that the unit cost of weapons will remain at levels currently estimated by the Army, even though some of the weapons have yet to be designed. The lower estimate is also based on the assumption that costs for research, development, test, and evaluation and all nonmajor procurement will return to historically average levels, adjusted for the smaller size of the Army. Under these assumptions, the costs of the Administration's current plans for the Army would rise from $53 billion in 1999 to almost $61 billion in 2007--an average growth of slightly less than 2 percent a year--and then would decline slowly to just under $60 billion by 2010. Army budgets at these levels would be about $7 billion to $8 billion above those planned by the Administration for 1999 (see Summary Figure).

The higher estimate of costs reflects past experience with acquisition programs. It assumes that:

The relationships among these portions of the Army budget were based on spending patterns for the 1974-1994 period. Based on these assumptions, the annual cost of the Army's plan would grow from the planned level of $53 billion in 1999 to $63 billion by 2007, requiring average real increases of slightly more than 2 percent a year. After 2007, funding requirements would fall to about $60 billion by 2010. Such funding levels would significantly exceed the $53 billion planned for 1999.

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