Document created: 16 June 04
Air University Review, January-February 1970

Military Programming and Budgeting Practices

D.V. Schnurr

After doctrine on the conduct of warfare, the most basic, controversial, and important issue in the Department of Defense is the method by which force determinations are made, programming is accomplished, and the financial requirements of approved forces are met. In terms of money alone, DOD’s is the largest and most important decision-making process in the world. Money, of course, is not the only measure of size or importance.

There are many differing philosophies on how program and budget decisions should be made, most having some degree of validity. There are always advocates for the proposition that each military service should be allowed to develop all weapon systems it believes required, without regard for what the other military services are doing and without any constraints. At the other end of the scale are those who hold that programming for the requirements of the military departments should always be accomplished within a fixed financial limitation without regard for external conditions or national relationships. Between these extremes are many positions, each representing its own combination of values and emphases.

Twenty years ago the determination of force levels and associated dollar requirements was a rough and ready process—crude, imprecise, and haphazard. The services went pretty much their own separate ways, each with its eye on the budget dollar and each determined to get the highest possible percentage of the total. It was only in a budget compression exercise, like that conducted in the late forties, that programs were subjected to competitive review. Just as the process of building requirements was crude and imprecise, so was the process by which they were cut. About the best that could be said for the Johnson-McNarney result in 1949 was that it was done fairly and that it reduced budgets.

During the Korean War and the consequent buildup of forces, the scramble for service supremacy resumed. There was tremendous upheaval in the budgetary process, and for a few years the spigot was wide open. For example, the Army lived for four years without a major procurement appropriation, using up funds that had been appropriated in support of the Korean War. In the middle fifties important amounts were channeled into ballistic missile developments.

As technology progressed and weapon systems became more complex and expensive, the financial demands of the military services rose higher and higher. Several executive determinations attempted to define and limit the roles and missions of the services, but none of these retained effectiveness more than briefly. Successive Secretaries of Defense, all generally reasonable men themselves, were unable to resolve interservice controversy. Programs and forces of the military services contained some startling duplications, probably the most widely publicized being the Thor and Jupiter developments by the Air Force and the Army. Throughout this period the machinery of the Joint Chiefs of Staff (JCS) functioned well on most questions but failed under the strain of trying to bring the Chiefs into agreement on weapons that were so costly as to be obvious competitors for limited budgets.

Toward the end of the 1950s the budget process entered a phase in which the dollar total was candidly admitted to be controlling. Beginning with FY 1958 and continuing through the first budget for FY 1962, each military department developed its budget and the array of forces which the budget would support within a stated dollar total, usually expressed in expenditures rather than obligating authority. This procedure had the advantage of limiting the dollar requirement to a feasible total, but it had several disadvantages: There were inadequate safeguards against weapon system duplications. There was in-adequate protection against the possibility that a service could so phase its development and procurement actions as to obtain approval for a weapon with a small expenditure in the budget year but with a balloon payment coming along two, three, or four years later. The system also was open to the criticism that division among the services of the amount determined available for defense requirements was largely arbitrary. Usually the split followed closely the pattern of the preceding years. Thus, regardless of priority or need, the interservice budgetary relationship tended to become self-perpetuating.

This was the situation in 1961 when Mr. Kennedy became President and Mr. McNamara became Secretary of Defense. There was little doubt among the citizenry at large of the need to strengthen central control of the military establishment. With a high degree of public support for the idea of showing the military who was boss, Mr. McNamara turned over to Charles J. Hitch the task of installing a system by which the forces, programs, and budgets of the military departments could be brought firmly under his control.

Mr. Hitch’s first and basic innovation was the development of the Five Year Defense Program (FYDP). This was a hefty document divided into eight program categories (now ten), each made up of similar program elements representing the combat forces and supporting structure of all the military departments. In force program number one, Strategic Forces, it was possible for the first time to view in a single context the Air Force approved programs for Minuteman forces and the Navy approved programs for Polaris forces. Force levels were projected eight years beyond the current year. Dollar requirements for approved forces were projected for five years beyond the current year.

Part of the new programming process was a procedure for continuously updating the program base by means of a specially designed document for requesting change, the Program Change Proposal, as well as one for approving or disapproving a change, the Program Change Decision.

Under this new process, the service Secretaries and the Secretary of Defense participated personally in proposing and deciding upon program changes. The program was viewed as a complete, integral, internally consistent entity. The budget was viewed solely as the means by which approved programs were financed—resultant, not a determinant. Mr. Hitch made the statement that it would be possible to slice off the next year’s worth of the FYDP and this would constitute the military budget for the year.

The McNamara/Hitch changes represented far more than a revision of formats and mechanical procedures. In fact, there was a merger of single-year budgets with a five-year program scheme. More important, the practice of detailed program-making passed from the heads of the military departments to the Secretary of Defense. The Secretary of Defense had had such prerogatives all along, but he had not used them except in gross terms, usually financial. No previous Secretary of Defense had been able or willing to accept the burden of detail involved in specific decisions on individual programs. The shift of Secretary of Defense interest to the nuts and bolts of program formulation was significant.

Of course the new process had its own rough spots and inconsistencies. There were sizable gaps between theory and practice. Mr. McNamara often stated that President Kennedy had charged him with the mission of building the military forces that were required, and that his only financial constraint was the general one to build required forces for the lowest possible cost. There were indications each year, however, that force decisions were influenced by financial considerations. This suspicion was reinforced when tough decisions involving sizable financial requirements were deferred until the inexorable calendar and the legally prescribed timing of the budget schedule made further deferral impossible. Decisions to cancel systems like Dyna-Soar and the GAM 87 Skybolt are cases in point. The services, of course, did little to accelerate this process; decisions they did not like were debated until time for debate ran out.

There was no denying that, in principle, the new system was a major step forward. It established a framework for recording weapon and force decisions in a single articulated display. It provided for the development of indirect costs as well as direct, to be considered when weapon system proposals were up for decision, and for projection of costs far enough into the future to remove financial booby traps from the path ahead.

There were really only two principal drawbacks initially: the amount of detail required in a Program Change Proposal (PCP) and the rigidity with which the system was administered.

Under Mr. McNamara the arabic numeral had come into its own. Everything had to be quantified so that it could be stated in equation form. The first few PCP’s submitted by the Air Force were summarily rejected because they lacked detail. Soon PCP’s of 50 pages were common, and in some instances they ran two or three times that length. Not all the material they contained was factual or even reasonable: after all, the systems whose operational concepts, capabilities, control aspects, safety features, and costs were described in minute detail had not yet, for the most part, been invented. On the receiving end, not many of the reviewers in OSD could make practical use of much of the information with which they were being deluged. However, in the new climate of quantification and the deification of minutiae, they dared not reduce the volume—usually any change was in the direction of increase.

An elaborate control mechanism was established to prevent unauthorized changes in resource requirements. A PCP had to be submitted to document a requirement for even one additional manpower space or one additional unit of hardware. Thresholds for dollar changes were established, so that below a fixed amount the Secretary of a military department could approve a change while above that amount approval by the Secretary of Defense was required. When a Program Change Decision (PCD) was received in a military department, the service Secretary was obliged to sign and return a certificate stating that he had received the decision, understood it, and would carry it out.

Although the mechanism for controlling change in programs was rigid and demanding, many changes were proposed. Sometimes these had substance, but sometimes they merely represented small adjustments in resource requirements in an “out-year” (four or five years away from the present). Such changes were often the product of fantasy, since neither the original numbers nor the ones proposed for substitution had factual basis. Nevertheless, the merits of the figures were debated endlessly, with OSD analysts comparing two wholly fictitious numbers and demanding and getting differences explained.

Another development occurred that had not been advertised. The OSD budget people had seemed to be threatened with technological extinction, but they had not read the signs that way at all; they did not view themselves as operators of a slicing machine for cutting off a year’s worth of the FYDP and calling it the military budget. When the first budget under the FYDP was submitted, in the fall of 1961, they began holding reviews that paralleled those the systems analysts had made. Even though a decision had been made and documented by a PCD, this did not mean that financing would be forthcoming. The budget review gauntlet first had to be run. The volume of detail that had been presented in support of PCP’s was greater by several orders of magnitude than had ever before been seen in the budget review process. Since all of this was grist for the budget reviewers mill, it often turned out that approval of the PCD not only was not an asset but in the hands of the budget analyst, accustomed to searching out and exploiting inconsistency, it could be a liability. So the “PBD” or Program Budget Decision was born. This document summarized the budget request, discussed the issues, and posed several alternatives to the Secretary of Defense, usually making it easy for him to select one. Sometimes, because of subtle differences in presentation, the obvious alternative could be substantially at odds with a decision the Secretary had made in PCD form a few days earlier. Such discrepancies appeared to cause no embarrassment whatever. Indeed, they were scarcely noticed—which was not surprising, what with so much going on and so many papers being exchanged.

By this time we had an FYDP, a means of changing programs through the PCP/PCD process, and a means of changing them further through the budgetary PBD process. With so much change taking place, it was necessary to establish a procedure for updating the formal Five Year Defense Program to reflect like changes and to establish a schedule for doing this more or less routinely. This requirement in turn generated more workload, some of which was exceedingly tedious and perplexing. For example, an update change in the FYDP frequently required identification of the difference between a number printed in the FYDP and a new number which was the product of a change by PCD as well as a further change by PBD. Audit trails had to be blazed, and care had to be taken to avoid inadvertent breach­ing of thresholds. The operation was one of some complexity.

In the Appropriated Fund area, yet another requirement had to be observed: the “reprogramming process” which had been agreed to between the Secretary of Defense and the chairman of the House and Senate committees concerned with appropriations and with authorizing legislation. The Congress had become concerned because in several instances funds appropriated for one purpose had been used for another without consultation with the committees. The formal reprogramming procedure had been developed to provide a positive safeguard and make sure that we kept faith with the Congress. Under the agreement, increases of specified size in the financing of a program had to be documented as formal reprogramming actions—sometimes with a requirement for advance approval by the Congress, sometimes only as a “notification” action (on which, in the absence of objection by the Congress, we could proceed after a specified time). Everyone recognized the purpose and indeed the necessity of the reprogramming procedure. Nevertheless, it represented another way of doing essentially the same task. In combination with all the other prescribed procedures, it added up to a workload of increasing dimensions. Needless to say, the growing possibilities for inconsistency were frightening.

During the second year of the FYDP process, a need was recognized for a device to document force-level changes that would be broader than the PCP/PCD. Thus the Tentative Force Guidance (TFG) memorandum came into existence. This document could be applied to any grouping of forces that it was desired to address in a single context. The TFG was prepared in OSD Systems Analysis and was usually sent to the service for comment before being finally approved by the Secretary of Defense. The TFG document served a useful purpose for several years. Its name was changed to “Draft Presidential Memorandum,” but its function continued.

In the years between 1962 and 1967, the whole system gradually became more complex and elaborate. Everyone deplored the growing workload and the increasing weight of the internal linkage that had to be moved before the machine turned out anything. At the same time it was felt that little could be done to solve the problem, because to reduce the administrative burden meant that some detail would be sacrificed. In the great inverted pyramid that represented DOD management, where it was assumed that no one could make a decision of any consequence except the Secretary of Defense, the appetite for facts large and small was insatiable.

There were two or three perfunctory efforts at “streamlining and strengthening” the system. A consulting firm was retained, people were interviewed, studies were written, and in the end nothing much really changed except the names of a few things. The “Program Change Proposal” became the “Program Change Request.” There was a little relaxation in the thresholds for program change within military department authority. A scheme was devised for identification of “major force oriented issues” early in the calendar year, so there would be plenty of time to discuss and decide them in advance of budget consideration. (It did not work out that way; people, being people, waited as long as possible to make the hard choices.) The schedule for submitting the military construction budget was split, theoretically to spread the workload over a longer period. (Actually, the result was to fragment the context of the construction appropriation, making the job more difficult.) The words in the consultants’ final report were grand, but to the people directly involved in the programming/budgeting process, the result was disappointing since it largely ignored practical problems. Generally it was realized, however, that no improvement could be made until there was acceptance of the notion that improvement implied change. Flexibility was not the most conspicuous attribute of DOD’S top echelon.

After Mr. McNamara’s departure, the military departments began seriously to consider changes in procedures that should be recommended to a new administration. It was recognized that no basic change of system was likely until after the change of command resulting from the 1968 election (whichever way it went). The situation was summarized in an Air Staff study written in December 1988. See Appendix.

In February 1969 the Secretary of the Air Force signed a reply to an OSD request for comments on the proposed 1969 schedule of programs/budget actions. The Air Force letter recommended that significant conceptual revision be made in the system, citing our unsatisfactory experience of the previous two calendar years with program turbulence, delayed decisions, and major budgetary adjustments. The Air Force recommended steps to

—Apply fiscal constraints throughout the program/budget cycle;

—Increase departmental and JCS participation in development of a DOD program within fiscal constraints;

—Make greater use of cost model techniques in pricing program change recommendations;

—Simplify record-keeping by eliminating most of the FYDP updating, except for the current and budget year (which would be updated monthly), the “out-years” to be updated only after completion of the President’s budget so as to reflect final budget decisions.

The developments being adopted by the present Administration in the area of program/ budget procedures seem to be directly in line with Air Force views. Indications are that the overcentralization of decision-making will be corrected. In testifying before the Senate Committee on Appropriations, Air Force Secretary Robert C. Seamans said:

The Services have moved from a loose association with one another following World War II to a highly centralized Defense system in recent years. It is entirely possible that this process has gone too far and steps are being taken in the Department of Defense to reverse the trend. This is true not only at the OSD level, but also within the Air Force as well. Overcentralization can affect both initiative and responsibility at lower levels, sometimes greatly increasing costs as a result.

The then Air Force Chief of Staff, General J. P. McConnell, added:

In this country we tend to move from one extreme to the other. In recent years the military services have been under highly centralized civilian control. Detailed procedures were set up requiring that virtually all decisions be made by OSD. This set in motion a Parkinsonian effect that required more and more detailed information at higher and higher levels, and called for more and more people at those levels.

It is my belief that any operation as vast as the Department of Defense requires the strongest and most imaginative leadership available. However, I also believe that the size and complexity of Department of Defense operations make it mandatory that detailed management be exercised by responsible officials at a lower level than the Secretary of Defense himself. In other words, it is my opinion that the Service Secretaries should supervise the execution of operations within approved policy guidelines. I am pleased to say that it is my understanding that Secretary Laird and Secretary Packard are moving toward this point of view and are proceeding along these lines.

The year 1969 was one of transition. We followed, with some modifications, the January plan for development of the FY1971 budget. In view of publicly announced actions to reduce outlays below those reflected in the President’s Amended Budget for FY1970, the program for FY 1970 is undergoing revision. For both the revised FY 1970 budget and the FY 1971 budget, which is being developed, fiscal constraints are part of the program guidance. These are expressed in amounts of obligating authority, by major force and support categories, which are convertible to FYDP major force programs.

Procedures for calendar year 1970 (not published in final form at the time this article is written) will provide for several major departures from earlier procedures, embodied in the following steps:

I—The JCS submits Volume I (Strategy) of the Joint Strategic Objectives Plan (JSOP to the Secretary of Defense in October 1969.

II—The Secretary of Defense issues a memorandum on strategic concepts in December 1969.

III—The Secretary of Defense seeks comments in January 1970 from the JCS and the Secretaries of the military departments on tentative fiscal guidance for each of the “program” years—FY 1972 through FY 1976.

IV—The JCS submits Volume II of the JSOP, “Analyses and Force Tabulations,” in February. This is to be costed as in the past. However, objective forces recommended by the JCS will not be constrained by dollar totals.

V—The Secretary of Defense issues fiscal guidance for each of the five program years in March.

VI—The JCS will submit in April their force recommendations within the Secretary of Defense fiscal guidance.

VII—The military departments submit to the Secretary of Defense in May program recommendations (Program Objective Memoranda), responsive to the Secretary’s fiscal guidelines. To the extent feasible, these are to take account of JCS force recommendations.

VIII—The Secretary of Defense issues program decisions by 31 August which are to constitute the basis for the FY 1972 budget estimate.

IX—The military departments submit the FY 1972 budget by 30 September 1970.

It is important to note that the fiscal guidance seeks to avoid the pitfalls of the dollar-limited budgets of the late ’50s. It is stated in mission terms for each service and uses the approved FYDP as a base line, although it need not follow the FYDP projection. And it covers a five-year period.

While details are not fully worked out, it is clear that the new procedures will reduce the amount of pricing and other detail required to be submitted with a request for program change. Program changes themselves will be proposed by the services in a Program Objective Memorandum (Procedure VII), which will include discussion and rationale and “cost model” type of pricing. After tentative decisions have been made by the Secretary of Defense, there will be provision for dissent—and for reconciliation, after staff discussions, of any remaining major differences in a Secretary of Defense/service Secretary meeting on major force issues.

The frequency and detail of FYDP updates have not been announced as yet.

At this point we hope and believe that a sensible step forward is being taken. Essentially, the changes to be implemented in calendar year 1970 represent refinements of the Hitch procedures—not in any sense a repudiation of them. These new procedures are designed to be operated within stated fiscal constraints. Again, the difference is less a matter of philosophy than a manner of presentation. There have been fiscal constraints all along; however, they were applied not in the early stages of program development but just before the budget decisions had to be made. The con­sensus in the Air Staff is that the new approach will work better.

Hq United States Air Force

Appendix

(Summarized from an Air Staff study of December 1968)

In today’s world, the steps that lead to submission of the President’s Budget to the Congress begin in January and end with the last gasp of December. The preparation and evaluation of requirement studies in the Department of Defense are year-round actions, but such studies are particularly relevant early in the year as the annual planning/programming/budgeting cycle is initiated. Between January and April the Military Services prepare and submit to the Secretary of Defense, through JCS channels, the Joint Strategic Objective Plans. These plans represent JCS recommendations for forces required to meet the threat projected ten years into the future (1969-1978).

The Office of the Secretary of Defense reviews the JSOP submittals, as well as other available studies and analyses, and prepares tentative decision documents which deal with issues in the forthcoming program period and react to the JCS proposals. These documents are known as Draft Presidential Memoranda. (There are related guidance documents known as Defense Guidance Memoranda. These are addressed to considerations warranting intra-DOD guidance but which need not be sent to the President—manpower, indirect support aircraft, and pilot and navigator requirements and inventories.)

The Draft Memoranda are transmitted to the Military Departments for review and comment and the preparation of Program Change Requests to document changes from previously approved programs. The Service is required to prepare a Program Change Request to implement a change contained in a Draft Presidential Memorandum whether or not the Service agrees with the change. It is possible at the same time to submit a reclama to the Draft Memorandum but the reclama must also be accompanied by a Program Change Request. Following receipt in OSD of the Service comments, reclamas and PCR’s, the process calls for issuance of Program Change Decisions to ratify the detail of the decisions made.

Although a firm calendar schedule is established each year for this process, with provision for PCD’s to be issued before the budget preparation is complete, the Secretary of Defense has never in fact completely documented the DPM changes with PCD’s within the scheduled time. Under pressure of the calendar and the budget process, it has been necessary, in three successive years, to establish a cutoff point for the issuance of PCD’s—and to provide that issues remaining undecided would be taken care of during the budget reviews. The impact of this situation in terms of the planned systems is twofold: (1) program decisions are not occurring prior to budget review, and (2) the decisions made are one-year or “budget” decisions as opposed to the advertised five-year variety planned.

This year, after the FY 1970 budget was submitted to the Secretary of Defense, there was a period of time during which the Services continued to receive Program Budget Decisions. At a predetermined point the PCD process ended and the Services began to receive Program/Budget Decisions. These arrived in batches, slowly at first and with only a small number of decisions reflecting budget adjustments of minor size. Near the end of the available time, the process accelerated and each day’s receipts included a large number of PBD’s whose dollar volume was great. In the early stages of the process, Services were allowed five working days to analyze a PBD, decide to accept or reclama, and then prepare and forward a reclama document if one was required. As the end of the process neared, the deadline was shortened, although both the number and the importance of the decisions to be addressed were significantly greater. In all, the Air Force received a total of 200 PBD’s which had the net effect of reducing the budget submit about $7 billion.

At the conclusion of the process by which another year’s budget has been produced (The President’s FY 1970 budget) the Air Force is pervaded with a feeling of frustration. A great deal of effort has been expended in preparation of JSOP’S, PCR’s, FYDP updates, DPM reclamas, basic and addendum budgets, PDB reclamas, budget issue papers, etc. without apparently having significant influence upon the outcome.

After the submittal in April of JSOP recommendations, the views of the Chief of Staff and the Secretary of the Air Force were never sought in terms of recommendations for a total combination of weapons and forces. It is true that top officials of the Air Force were expected to recommend program changes and submit reclamas against adverse decisions on these recommendations. However, all such expressions were addressed, at a minimum, to a single weapon system and at a maximum to a segment of total forces as categorized within one of the Draft Presidential Memoranda—for example, Tactical Air Forces.

It is hard for people who have been subjected to maceration in this intricate machine to believe that a way cannot be found to get a better result, or an easier way found to get as good a result.

The Air Staff study went on to discuss the ambiguous status of the Draft Presidential Memorandum:

It reacts primarily to the JCS recommendations expressed in the JSOP. One view is that it should express the tentative judgment of the Secretary of Defense on forces required in the context of the stipulated threat, without consideration of fiscal constraints. If that view were accepted, it obviously would be necessary to provide a mechanism at some later point in the cycle for recognizing our financial inability to afford all the capability that might be “required” in a purely military sense. From review of several DPM documents it is clear that, desirable or not, some effort is made to give consideration to fiscal constraints.

Whether reflected in the DPM or in some other mechanism, it is clear that financial constraints must be considered prior to the time the budget is finalized. The only real question is when. There was some degree of artificiality in Mr. McNamara’s contention that his budget recommendations were not financially constrained. It would be more forthright to develop recom­mended forces and programs with specific recognition that financial resources for support of the military establishment are limited. It would certainly contribute mightily to simplification of the programming/budgeting process if fiscal constraints could be introduced into the force structure considerations early in the planning cycle. There is no sense in the world in developing a $33 billion budget if the amount to become available will not exceed $26 billion. The $7 billion difference represents not added strength but clutter and distortion. It diverts attention from serious objectives and meaningful programs.

Contributor

Duane V. Schnurr is Associate Director of Budget, Hq USAF. Since joining the Budget Directorate of Hq USAF, 1949, his positions include Budget Analyst; Branch Chief, Operations and Maintenance Division; Chief, Cost Division; and Chief, Missile and Space Systems Division. Mr. Schnurr assumed his present position in February 1965.