6. NATIONAL DEFENSE AND INTERNATIONAL AFFAIRS ---------------------------------------------------------------------- I took this office on a pledge that had no partisan tinge to keep our nation secure by remaining engaged in the rest of the world. And this year, because of our work together, enacting NAFTA, keeping our military strong and prepared, supporting democracy abroad, we have reaffirmed America's leadership, America's engagement, and as a result, the American people are more secure than they were before. President Bill Clinton January 25, 1994 ---------------------------------------------------------------------- This Administration came into office facing a host of new international and national security challenges. The Cold War tensions had begun to subside, and the first rays of opportunity in the post-Cold War world were gaining strength. Yet the United States was still pursuing policies formulated during a 40-year period of hostility and mistrust that existed between the two superpowers. We also maintained a military establishment sufficient to deter our principal adversary and, if necessary, to defeat that adversary in what could have been a global conflict. Table 6-1. DISCRETIONARY FUNDING SUMMARY FOR NATIONAL DEFENSE AND INTERNATIONAL AFFAIRS (Dollar amounts in billions) ---------------------------------------------------------------------- Dollar Percent 1993 1994 1995 Change: Change: Actual Estimated Proposed 1994 to 1994 to 1995 1995 ---------------------------------------------------------------------- National Defense (050): Budget Authority........ 276.1 261.7 264.2 +2.4 +1.0% Outlays................. 292.4 280.6 271.1 -9.5 -3.4% Department of Defense--Military (051): Budget Authority....... (262.4) (250.0) (252.8) (+2.9) (+1.1%) Outlays................ (280.1) (268.3) (259.8) (-8.5) (-3.2%) International Affairs (150): Budget Authority........ 33.3 20.8 20.9 +0.1 +0.5% Outlays................. 21.6 21.8 20.8 -1.0 -4.6% ------------------------------------------- Total Budget Authority........ 309.4 282.5 285.1 +2.6 +0.9% Outlays................. 314.0 302.4 291.9 -10.5 -3.5% ---------------------------------------------------------------------- This Administration now faces the task of redefining our national security policies and reshaping our programs and institutions to fit the realities of the post Cold War era. Moreover, this new approach must have the strong support of the American people and be clearly understood by the international community. In addressing these new issues, we confront two contradictory trends. On the one hand, we live in a world made smaller by growing economic interdependence and communications. Satellites, television, fiber optic cables, international financial flows, and the globalization of production all expand the understanding of global human values and the importance of cooperation and collaboration. On the other hand, the end of the Cold War has brought to the surface ethnic and national tensions that undermine regional security and threaten to divide communities in heart-rending conflict. Neither of these trends provides the clear and present threat we once faced. Each new problem forces us to redefine and rethink our national interest--the core mission of our national security strategy. Not surprisingly, in these new conditions, the importance of our continued international engagement has been unclear to the American people. National security strategy and foreign policy are again subjected to a familiar debate: withdraw from the world, or remain engaged? In the Administration's view, this is a false choice. We cannot disengage from the world. U.S. exports (which alone constitute over 10 percent of the U.S. Gross Domestic Product) make withdrawal no choice at all. Global issues such as environmental pollution, the migration of refugees and the flow of narcotics directly concern our nation. More fundamentally, the sobering lessons of history illustrate the dangers of isolationism. At the end of World War I, the United States made a political decision to withdraw from the world only to have to reenter a global conflict at a very high price once the international system failed. After World War II, the United States debated its international commitments intensively, and made a fundamental decision to engage internationally. We held that course against a global adversary with successful results. Today, as a new era begins, the Administration is committed to engagement and international leadership. The United States is the remaining superpower; those who say otherwise sell America short. We have the world's strongest military, its largest economy and its most dynamic society. We are setting a global example in reinventing our government and restoring our economy. Around the world, our power, authority and example provide unparalleled opportunities to lead, but in this new era, we must be prepared to lead in new ways. This mission of international leadership continues to advance our national interests. Today, however, the defense of the national interest requires a more subtle examination of the dangers and opportunities in a new world. Our strategy for promoting our values and defending our national interests has four basic objectives: o integrating a healthy American economy into a healthy global economy; o creating and expanding democratic governance and free markets overseas; o defending our national security through skilled diplomacy and a strong, ready military; and o shaping cooperative solutions to such transnational problems as the degradation of the global environment, population growth, refugee migration and the flow of narcotics. U.S. foreign policy and defense planning during the Administration's first year have pursued these objectives. Our budget for the second year sharpens this focus, based on our reexamination over the past twelve months of our foreign and defense policies and of the institutions that make and implement those policies. Our review has led to fundamental changes in our foreign policy, putting trade, competitiveness and market expansion front and center. It has also led to a basic restructuring of foreign assistance programs. The new international affairs budget focuses on: o Promoting U.S. Prosperity through Trade, Investment and Employment; o Building Democracy; o Promoting Sustainable Development; o Promoting Peace; o Providing Humanitarian Assistance; and o Advancing Diplomacy. At the same time, the Administration has carried out the first fundamental post-Cold War reexamination of U.S. defense policies and institutions--the Bottom-Up Review (BUR). Focusing on new threats and opportunities--nuclear security and counter-proliferation, regional conflict, the expansion of democracy and economic security--the BUR is reshaping a smaller U.S. military to be ready, flexible and technologically superior. Preparing for the new roles and missions of the post-Cold War era, these forces remain capable of deterring and if necessary, prevailing in two nearly simultaneous, major regional conflicts. Our defense budget provides full support for that force structure. This basic reexamination of our national security policy and institutions gives us the tools to exercise leadership as we move toward a new century. This budget recognizes that high-priority international challenges and opportunities involve the full range of governmental institutions, including many concerned primarily with domestic policy. In particular, these new challenges and opportunities require increasingly close cooperation and coordination between the defense and foreign affairs agencies of the government. We will use these redefined, reshaped and newly coordinated policies and institutions and the resources proposed in the 1995 budget to tackle the highest priority international and national security policy issues: --Our first priority is the health of the American economy and its competitiveness in a healthy global economy. We have invested in education, technology and defense conversion to bolster American competitiveness. Our efforts to empower our people, revive our economy, reform our health care, welfare and worker training programs, reduce the deficit and reinvent government enhance our global strength and our ability to lead and to compete in the global economy. In an increasingly integrated world economy, the strength of our economy and the standard of living of all Americans are closely linked to our international economic agenda. We seek to open new markets and level the trade playing field for all nations. Trade policy is the centerpiece of our international economic policy--including successful implementation of the GATT and NAFTA agreements and further market opening through the Japan Framework negotiations, the Asian Pacific Economic Cooperation (APEC) process, negotiations with China, and wider free trade agreements with our Latin American neighbors. --The clearest link between the expansion of democracy and free markets and the U.S. national interest is in Russia and the other newly independent states (NIS) of Eurasia and central and eastern Europe. The Cold War, which bought security at a great price, has been replaced by the struggle to create and strengthen institutions of representative government and private sector economies in this diverse region. If the people of Russia build a free society and a market economy, the payoffs for the United States will be large: a permanently diminished threat of nuclear war, vast new markets, and cooperation on the global and regional issues that once divided us. Helping democracy prevail in Russia remains the wisest and least expensive security investment that we can make. The United States has led in shaping bilateral and international assistance programs to achieve these objectives. These programs continue in the 1995 budget for both international affairs and defense agencies. --The defense of American security focuses increasingly on the proliferation of weapons of mass destruction (WMD). With the end of the Cold War, the risk of proliferation of weapons and delivery systems has become one of the most serious threats to the security of the United States and our allies. The 1995 budget provides continuing support for the Nunn-Lugar program in the Department of Defense (DOD) in order to achieve the safe and secure dismantling of nuclear weapons in Russia, Belarus, Ukraine and Kazakhstan, and to safeguard those weapons and materials. It also increases voluntary funding for the International Atomic Energy Agency for nuclear safeguards and inspections and provides for additional DOD activities to stem WMD proliferation. Funding for intelligence nonproliferation activities also grows significantly. Throughout DOD, steps are being taken in the areas of policy, military doctrine and planning, acquisitions and research, intelligence, and international cooperation to prevent WMD proliferation as well as to prepare to protect U.S. forces and interests. At the same time, the Administration is also relieving unnecessary burdens on U.S. business by eliminating unilateral controls on the export of technologies with dual military and civilian uses--unless they are of critical importance to national security. --The Administration is enhancing U.S. national security through arms control--turning the promises of existing agreements into reality. A critical step was made at the recent Summit meeting, where the President helped Russia and Ukraine fashion an agreement that will allow Ukraine to satisfy the conditions it had set for START I ratification. This creative agreement compensates Ukraine for forgoing nuclear weapons, provides assurances on the integrity of its borders, and supplies reactor fuel. START I's implementation will provide the basis for U.S.-Russian ratification of START II. In the non-strategic arena, the Administration has submitted the Chemical Weapons Convention (CWC) to the Senate for its advice and consent to ratification and is working with other CWC signatories to prepare for the treaty's implementation. Also, the U.S. is participating in international efforts to identify and examine potential verification measures for the Biological and Toxins Weapons Convention (BWC) and is supporting convening a special conference to strengthen the BWC. The United States continues to observe a moratorium on nuclear testing, and has begun to negotiate a Comprehensive Test Ban. Finally, the U.S. strongly supports indefinite extension of the Non-Proliferation Treaty (NPT) and is undertaking vigorous diplomatic efforts to achieve this outcome at the 1995 NPT Conference. --The United States will seek stability in regions important to our interests through diplomatic and economic means as our first line of defense, while above all remaining prepared to deter or defeat major aggression, unilaterally when necessary. However, we are also prepared to participate in multinational operations sanctioned by the UN Security Council for enforcement of UN resolutions, or at the request of another country for its self-defense when it is in our interests to do so. --This budget supports international peacekeeping and peace enforcement operations, which promote U.S. national security interests and regional peace and security. Effective peacekeeping can have great benefits for the United States. If we permit regional conflicts to spin out of control the cost to restore order is higher and the danger to America greater than halting conflicts before they spread. At the same time, the United States cannot and should not shoulder a disproportionate share of the human and economic costs of maintaining international peace and security. --Therefore the Administration has undertaken a basic review of its peacekeeping policy, paying special attention to command and control arrangements for U.S. combat forces, to reforming United Nations peacekeeping operations and to securing adequate funding. This budget proposes a new policy of "shared responsibility" between the Departments of Defense and State for managing and funding peacekeeping. Specifically, the Departments will share responsibility for day-to-day support and funding of UN peace operations in a manner consistent with the Departments' principal areas of competence. State will have lead responsibility for and fund traditional peacekeeping operations mandated under Chapter VI of the UN Charter which do not involve U.S. combat units. These operations are unlikely to involve significant use of force and their objectives are primarily political. The Department of Defense will have lead responsibility for and fund those Chapter VI peacekeeping operations that involve U.S. combat units and all Chapter VII peace enforcement operations. In these operations, military imperatives tend to predominate. In all cases, key decisions on U.S. support for or participation in UN peace operations will continue to be made on an interagency basis at senior levels. --Finally, the budget makes good on the President's promise to fund assessed payments for peacekeeping for which the U.S. has fallen behind. --U.S. security will also be enhanced by peace in the Middle East. Our greatest asset in advancing our interests in this region is our security relationship with key regional states. Through forward positioning, prepositioning of equipment and military exercises with our allies, we deter potentially hostile powers and can respond quickly to crises in that region. In addition, our diplomatic contribution to peace negotiations gives us a central role in what could become one of the most successful conflict resolution efforts in recent decades. This budget provides critical support for both of those efforts, as well as for the rebuilding that must now begin in the region. --Our ability to export, and to expand overseas investment is directly linked to the growth of market-based economies and democracy. This budget makes a strong commitment to sustainable development, population programs and democratization in these emerging economies, both through meeting our commitments on U.S. contributions to multilateral development institutions like the World Bank and through a strong program of bilateral development assistance. --Our security is increasingly threatened by problems which transcend national frontiers, such as the degradation of the global environment, starvation, refugee flows, and the growth of the international trade in narcotics. This budget devotes significantly increased resources to dealing with such problems: new bilateral and international initiatives on the environment, funding for humanitarian assistance and refugee programs, and an increase in funding to reduce the flow of illicit drugs to the United States. INTERNATIONAL AFFAIRS ---------------------------------------------------------------------- As we take [these] steps together to renew our strength at home we cannot turn away from our obligation to renew our leadership abroad. President Bill Clinton, January 25, 1994 ---------------------------------------------------------------------- In reshaping foreign policy and foreign assistance programs to fit post-Cold War realities, the Administration has proposed new legislation for reform of foreign assistance and related programs. That legislation and the budget that supports it divide international affairs programs into six major categories that reflect U.S. goals in this new era. PROMOTING U.S. PROSPERITY The highest-priority foreign policy goal of the Administration is the growth of the U.S. economy and employment. One of the most effective ways to achieve this goal is to open foreign markets through trade agreements and related negotiations. This budget supports a more focused strategy to promote and facilitate U.S. exports. The Administration has reviewed export promotion programs through the Trade Promotion Coordinating Committee (TPCC), and this budget acts on several TPCC recommendations. Table 6-2. 1995 INTERNATIONAL AFFAIRS--FUNCTION 150 DISCRETIONARY (Budget authority in millions of dollars) ---------------------------------------------------------------------- Dollar 1994 1995 Change: Estimated Proposed 1994 to 1995 ---------------------------------------------------------------------- Promoting U.S. prosperity through trade, investment and employment................. 1,037 1,038 +1 ------------------------- Export-Import Bank Financing (net)*....... 718 796 +78 Food Export Promotion (Public Law 480 Title I)................................. 395 312 -83 Trade and Development Agency.............. 40 45 +5 Overseas Private Investment Corp. credit activities............................... 17 20 +3 Overseas Private Investment Corp. non-credit programs...................... -133 -135 -2 Building Democracy......................... 3,677 2,853 -824 ------------------------- New Independent States of the former Soviet Union (NIS)*...................... 891 900 +9 NIS Assistance (Defense transfers to USAID)................................... 919 ....... -919 Central and Eastern Europe................ 390 380 -10 Countries in Transition................... 124 143 +19 Information and Exchange.................. 1,353 1,430 +77 Promoting sustainable development.......... 4,375 4,974 +599 ------------------------- Multilateral Development Banks, IMF, and debt reduction........................... 1,485 2,109 +624 State/USAID Programs...................... (2,621) (2,591) (-30) Broad-Based Economic Growth (including Public Law 480 Title III)............... 1,664 1,477 -187 Protection of Global Environment......... 292 350 +58 Stabilization of World Population Growth. 502 585 +83 Support for Democratic Participation..... 163 179 +16 Peace Corps, Inter American and African Development Foundations.................. 268 274 +6 Promoting Peace............................ 6,844 6,431 -412 ------------------------- Regional Peace and Security............... 5,430 5,460 +30 of which: Middle East Peace Process...... (5,176) (5,225) (+49) of which: military loan subsidy.......... (47) (60) (+13) Peacekeeping Programs..................... 477 608 +131 Peacekeeping supplemental................. 670 ....... -670 Non-Proliferation and Disarmament......... 94 111 +17 Narcotics, Terrorism, and Crime Prevention 172 252 +80 Providing Humanitarian Assistance.......... 1,703 1,626 -77 ------------------------- Refugee Assistance........................ 720 683 -37 Disaster Assistance (including Crisis and Transition Initiative)................... 161 170 +9 Food Assistance (Public Law 480 Title II). 822 773 -49 Advancing Diplomacy........................ 4,004 4,146 +142 ------------------------- State Department Operations............... 2,535 2,623 +88 USAID Operating Expenses.................. 559 567 +8 State Dept small programs................. 49 42 -7 UN and Other Affiliates (Assessed Payments)................................ 861 914 +53 Other...................................... -825 -208 +617 ------------------------- Other programs............................ 73 74 +1 Enacted Rescissions and Special Defense Acquisition Fund......................... -474 -282 +192 Proposed Rescissions...................... -424 ....... +424 Total Discretionary Programs**........... 20,817 20,861 +44 ---------------------------------------------------------------------- *1994 appropriations of $300 million for Export Import Bank for export financing in the New Independent States is shown under "New Independent States of the former Soviet Union." **Total may not add due to rounding. ---------------------------------------------------------------------- Export-Import Bank.--The Bank, which administers a major U.S. program for financing exports, provides loans, loan guarantees and insurance to U.S. firms primarily for capital-goods exports. In 1994, the Bank received a significant one-time amount of $300 million to support credit for exports to the former Soviet Union. Some of these resources remain available in 1995. In addition, the Administration requests a net $796 million for the Export-Import Bank in 1995. This includes resources at the level appropriated for 1994 for the Bank's regular credit programs ($650 million, excluding the amount for the former Soviet Union) and could subsidize as much as $17.6 billion in loans, guarantees and insurance. This budget also includes a new initiative recommended by the TPCC--a $150 million "tied aid" fund. Many developed countries use foreign aid grants or concessional loans to finance capital-goods export sales. While international agreements have limited this practice, a significant amount of "tied aid" persists. The tied aid fund administered by Export-Import Bank permits the United States to deter other countries' use of tied aid and to compete with other countries selectively, when they use such aid. P.L. 480 Title I Export Credits.--Loans under Title I of Public Law 480, managed by the Department of Agriculture (USDA), promote the export of selected agricultural commodities primarily to developing countries and Eurasian markets where export prospects appear promising. Budget authority for this program would decrease from $355 million in 1994 (after rescissions) to $312 million in 1995. A number of other federal programs continue to support U.S. farm exports, including over $5.5 billion annually in USDA guaranteed loans for export financing and about $1 billion annually for USDA export subsidies for US farm commodities. Trade and Development Agency.--TDA promotes U.S. exports by funding feasibility studies and other activities for potential industrial and infrastructure projects in middle-income and developing countries. This provides U.S. business involvement in the early stages of project development and helps them to establish a position in markets otherwise difficult to penetrate. In 1995, TDA's resources would increase 12 percent to $45 million. TDA also will receive $17.5 million in 1994 in additional funding, transferred from the State Department, for programs in Russia and the other NIS. The agency has responsibility to conduct all U.S. government-funded feasibility studies for export promotion. Overseas Private Investment Corporation (OPIC).--Foreign investment by U.S. firms benefits the recipient countries and also generates substantial U.S. exports. The Overseas Private Investment Corporation provides insurance, loans and loan guarantees for foreign investment in developing countries, Eastern Europe, Russia and the other NIS. OPIC has undertaken new initiatives in Russia (the Russia country fund) and in the Middle East (the Israel Growth Fund), and is planning a new fund for Africa, which will devote a significant amount of resources to projects in South Africa. BUILDING DEMOCRACY New Independent States of the Former Soviet Union.--Perhaps the most significant political event of the late 20th century is the effort by the states of the former Soviet Union to become democracies and develop market economies. The United States has provided substantial bilateral assistance in support of these efforts, and has encouraged other bilateral aid donors and the major international financial institutions to support this transition. For 1995 the budget calls for $900 million in assistance to the NIS to consolidate their gains and continue reform. Central and Eastern Europe.--Countries in Central and Eastern Europe have made remarkable progress toward democracy and market-oriented economies. Poland, Hungary and the Czech Republic, in particular, are rapidly integrating into the world economy, realizing economic benefits that also promote political stability. The pace of this transition offers hope to reformers in the former Soviet Union. The progress of some Eastern European countries permits a shift of some U.S. support to other nations in the region within total budget authority of $380 million in 1995. Countries in Transition.--The democratic revolution is taking place in many other countries. A modest investment can support free elections in Africa and foster truly democratic governments in Central America and elsewhere. $143 million in budget authority has been requested for this purpose. Information and Exchange.--The U.S. Information Agency (USIA) constitutes a key element of U.S. efforts to promote democracy by increasing foreign understanding of American society, democratic values, processes, and policy. USIA conducts exchange programs for foreign leaders and scholars, distributes books and operates resource, information and cultural centers. The consolidation of U.S. international radio broadcasting under the Agency's management in 1995 will reduce costs and increase flexibility to meet the information needs of a rapidly changing world. One time consolidation costs and the integration of all broadcasting funds under USIA will increase budget authority for the Agency to $1.4 billion. Outlay savings from this consolidation will total about $400 million by the end of 1997. USIA is also restructuring internally to streamline core programs, consistent with the National Performance Review, leading to budget savings of over $15 million in 1995. PROMOTING SUSTAINABLE DEVELOPMENT Multilateral Development Banks (MDBs).--The Administration proposes $2 billion for the MDBs in 1995. The United States has long been a major contributor to the World Bank Group of institutions and to the Asian, African and Inter-American development banks and more recently the European Bank for Reconstruction and Development. These institutions provide loans on terms ranging from highly concessional interest rates and repayment periods to terms close to what developed country governments pay. U.S. support is leveraged, because many other developed countries contribute to the MDBs and because the banks increase their resources by borrowing funds on world capital markets. Total lending by these banks in 1993 is estimated to be $45 billion, which also translates into procurement opportunities for U.S. exporters. Because of the magnitude of their resources, the banks, particularly the World Bank, can strongly encourage economic reform in recipient countries, including budget stability and privatization. Moreover, the MDBs can quickly bring large scale resources to bear in such areas as South Africa, Eastern Europe and the New Independent States, where development and free markets are of major importance to the United States. U.S. contributions to the Banks have, in recent years, fallen behind the level of commitments previously negotiated, leading to arrears of $819 billion by 1994. The budget would halt the accumulation of arrears and would begin a four-year process of paying off previously accumulated arrears. The 1995 budget proposes: o $1.6 billion for scheduled payments on commitments previously negotiated. o $275 million for new capital for the African Development Fund, the Inter-American Development Bank (IDB) and the Global Environment Facility (GEF), a major new multilateral environmental initiative (all currently in negotiation). o $87 million to the IDB, World Bank group and the African Development Fund to start clearing existing MDB arrears. Enhanced Structural Adjustment Facility (ESAF).--The ESAF, managed by the International Monetary Fund, offers highly concessional loans to developing countries that are carrying out economic reform and privatization. The budget proposes a U.S. contribution of $100 million in 1995. State/USAID Programs Under Sustainable Development.--USAID is changing as a "reinvention lab" in the Administration's National Performance Review. USAID's philosophy and program mix of bilateral development assistance is being altered to increase its effectiveness and to fit post-Cold War needs. Bilateral assistance will have a lasting impact only if it: o is provided to countries moving toward market economies, o involves in its design and implementation not only recipient country governments but also the people served by the assistance and, where appropriate, non-governmental organizations, and o conserves scarce natural resources and counters environmental degradation. Sustainable development funds will also pay for U.S. voluntary contributions to UN and related development organizations such as the UN Development Program and UNICEF. USAID's reshaped program has four main components to meet its new priorities: o Broad-Based Economic Growth.--USAID provides grants to developing countries to support sustainable economic growth. Activities include technical assistance on economic reforms, and projects in such areas as agriculture, education and housing. Budget authority of $1,477 million is proposed in 1995. o Protection of the Global Environment.--The 1992 United Nations Conference on Environment and Development in Rio de Janeiro heightened awareness of the need for environmentally sound development programs. Programs for the environment will have high priority in USAID's sustainable development activities. The budget provides a significant increase in budget authority for environmental programs from $292 million in 1994 to $350 million in 1995. This will provide $57 million to the UN Environment Program and the Montreal Protocol Multilateral Fund. The $293 million of direct USAID projects includes support for biodiversity, reduction of greenhouse gasses and expanding markets for U.S. environmental products. o Stabilization of World Population Growth.--Through USAID, the Administration will also emphasize programs that reduce the growth of world population, and will provide leadership at the International Conference on Population and Development in Cairo later this year. Proposed budget authority grows 17 percent to $585 million in 1995. This revitalized program will focus on voluntary family planning and related activities. The United States will also provide $60 million to the UN Population Fund (UNFPA) from these funds. o Support for Democratic Participation.--The Administration will work, in part through USAID, to support the enlargement of the community of democratic nations. USAID will continue its support for free elections, for human rights programs and for improving the administration of justice. The budget requests $179 million for this program category. Peace Corps, Inter-American and African Development Foundations.--The Administration will continue to support grassroots development activities around the world by providing trained Peace Corps volunteers and by supporting indigenous self-help efforts through the Inter-American Foundation and the African Development Foundation. The budget includes $274 million for these programs in 1995. PROMOTING PEACE U.S. foreign policy also places high priority on reducing the risk of regional conflict in the post-Cold War world. Regional Peace and Security.--This activity--requested at $5.46 billion--supports primarily regional security and the peace process in the Middle East. It provides the current level of assistance for Israel and Egypt, new aid to programs on the West Bank and in the Gaza strip, and modest assistance for other countries supporting the peace process. The program also provides Greece and Turkey with direct loans to buy U.S. military exports, and provides Turkey with economic aid grants. Several other countries also receive assistance for military training, but direct military aid is deemphasized. Peacekeeping and Related Programs.--The 1995 budget requests $608 million of budget authority for Department of State-funded voluntary and mandatory financial contributions to peacekeeping operations including $288 million for arrears anticipated on 1994 assessments. For 1995 these contributions pay for operations involving peaceful settlement of disputes mandated by Chapter VI of the UN Charter that do not involve U.S. combat units. A fully offset supplemental appropriation of $670 million is proposed to pay assessed contributions for current peacekeeping operations that will come due in 1994. Failure to meet these obligations would seriously impair, if not shut down, ongoing operations in regions such as the Middle East, Latin America, Europe and elsewhere that are important to U.S. national interests. Non-Proliferation and Disarmament.--The State and Defense Departments and the Arms Control and Disarmament Agency, among other departments and agencies, share responsibility for reducing the spread of nuclear and other weapons of mass destruction. Budget authority of $111 million is requested for the international affairs portion of this effort to support a revitalized ACDA, to finance innovative State Department non-proliferation activities, and to increase voluntary contributions for the increasingly important activities of the International Atomic Energy Agency (IAEA) by 33 percent over 1994 to $40 million. International Narcotics Trafficking, Terrorism and Crime Prevention.--The Administration is shifting the primary emphasis of international narcotics control activities from interdicting the flow of illegal drugs into the United States to assisting major source and transshipment countries, particularly in the Andean cocaine growing region, to prevent growth and export of those drugs. The budget increases funding from $157 million in 1994 to $232 million. Anti-terrorism assistance will remain at the 1994 level of $15 million. Also, a new $5 million anti-crime program will be initiated to help countries and international organizations cope with international lawlessness (e.g., trafficking in arms or endangered species, and financial and computer crimes). PROVIDING HUMANITARIAN ASSISTANCE The budget reflects continued U.S. leadership in humanitarian assistance, particularly for refugees and victims of disasters. Refugee Assistance.--In addition to resettling the largest number of refugees (110,000 refugee admissions to the United States are planned for 1995), the United States is also the largest contributor to UN and other multilateral efforts to assist refugees abroad. The budget proposes $683 million in 1995 for refugee admissions and assistance. P.L. 480 Title II Humanitarian Food Aid.--Under this longstanding food aid program, agricultural commodities and products are donated to needy people abroad through U.S. private and voluntary organizations and through the UN World Food Program. The budget proposes $773 million to continue the highly effective emergency feeding component of Title II and slightly reduced non-emergency regular feeding activities. Disaster Assistance.--The Agency for International Development aids the victims of natural and man-made disasters with non-food assistance complementing the P.L. 480 Title II program. Budget authority in 1995 would increase to $170 million. This would finance a new element (Crisis and Transition Initiative) of the program to bridge the gap between immediate responses and long-term reconstruction. ADVANCING DIPLOMACY Department of State and USAID Operations.--The effective use of diplomacy--through reporting, crisis prevention and membership in the UN and other international organizations--is critical to success in achieving all U.S. foreign policy goals. The foundation of an assertive American diplomacy is a strong Department of State that can support a worldwide network of over 260 embassies, missions and other posts in a constantly changing world. The 1995 budget reflects restructuring and new investments in agency operations to conduct foreign affairs more effectively. Budget authority of $2.6 billion is requested for Department of State programs to maintain global operations, restructure and improve communications and information management systems, and accommodate facility requirements worldwide including a new embassy office building in Ottawa. The budget also reflects the major organizational streamlining recently begun by the Agency for International Development (USAID) including the phasing out of 21 overseas missions. The budget provides $567 million for USAID's operating expenses. UN and Other Affiliates.--Recognizing the growing role of the United Nations (UN) and other international organizations, the budget requests $873 million to pay the U.S. share of those organizations' budgets, as required by treaty. The budget also reaffirms the U.S. commitment to eliminate arrearages owed to the UN and other international organizations; it includes $41 million as the next installment on the arrearage-elimination schedule begun in 1991. Under this plan, U.S. arrearages will be paid off by 1997. As in past years, arrearage payments will be used for activities agreed upon by the United States and the international organizations, and payments will be conditional upon such agreements. NATIONAL DEFENSE ---------------------------------------------------------------------- Our forces are the finest military our Nation has ever had, and I have pledged that as long as I am President, they will remain the best equipped, best trained and best prepared fighting force on the face of the earth. President Bill Clinton January 25, 1994 ---------------------------------------------------------------------- The dramatic changes in the military threat to the United States, combined with the demonstration of U.S. military capabilities in Operation Desert Storm, have led to major changes in U.S. defense planning. The 1995 defense budget continues the process of both downsizing and reshaping U.S. military forces and defense technology for the challenges of the post-Cold War world. The Department of Defense and the military services face major new challenges. From a force designed to meet a global Soviet threat, we must shape one which has the size, training, flexibility and technology to deal with threats large and small in any part of the world. The first step in this reshaping was the Bottom-Up Review (BUR). A key premise of the BUR was that the United States, in concert with its allies, must field forces capable of fighting and winning two nearly simultaneous major regional conflicts. With this capability, the United States, its allies and its potential adversaries can all be certain that involvement in a single regional conflict will not threaten the interests of the United States or its allies in other regions. The 1995 defense budget provides the force structure needed to accomplish this mission, and, if not engaged in two major regional conflicts, lesser missions such as peacekeeping, smaller-scale conflicts and humanitarian operations. These lesser missions, however, would have to be significantly curtailed in the event of two nearly simultaneous major regional conflicts. The budget continues to transform U.S. Reserve and National Guard forces to reshape and strengthen their contribution to national defense. Most important, the budget underwrites the Administration's strong commitment to maintain the high level of readiness needed to confront, in a timely way, any contingencies where U.S. interests require military action. The budget emphasizes U.S. technological superiority, through investment in research and development. It will acquire key capabilities to arm U.S. forces through the end of the decade and into the next century. It also continues to reshape intelligence capabilities to provide the knowledge necessary for defense planners to anticipate, deter and combat new threats. The budget reflects the Defense Department's commitment to ease the economic impact of defense "downsizing" through dual-use technology programs and policies to create a smaller, more responsive defense industrial base; through transition support for civilian and military personnel leaving the Department; through community planning assistance; and through major investment by both the Department of Defense and the Department of Energy to identify, resolve and prevent harm to the environment from defense and nuclear activities. The budget reflects the role of the Department of Defense in a number of ongoing programs concerning counter-proliferation, humanitarian assistance, disaster relief and peacekeeping. Through the Nunn-Lugar program, DOD is pursuing cooperative threat reduction with the former Soviet Union aimed at the safe and secure dismantlement of nuclear and chemical weapons and preventing the spread of weapons of mass destruction. All of these programs will be fully coordinated with other agencies to ensure a comprehensive approach to these issues. This budget also reflects a commitment to provide a dollar of defense for a dollar of budget. As part of the National Performance Review and with Congressional cooperation, the Department is undertaking a significant restructuring of defense acquisition policies and practices, is improving its business operations and financial accounting systems, and is reforming its health-policy programs to control costs and enhance benefits in anticipation of national health reform. Finally, the Department and the services are implementing the three previous rounds of base closures through an accelerated program for quick cleanup and rapid disposal of property, and are preparing for the next round of base closure commission decisions due in 1995. Overall, the Administration is committed to supporting a properly sized, balanced, flexible, technologically dominant military capability for the 21st Century. The Administration will provide this capability while meeting the needs of the men and women in the military, the requirements for a responsive public and private defense infrastructure, and the impact of these changes on America's economy and communities. DEFENSE BUDGET LEVEL The 1995 defense budget request and the 1995-1999 projected defense plan continue the reduction of defense resources since the end of the Cold War. The budget requests discretionary funding of $264.2 billion in budget authority and $271.1 billion in outlays for programs in the National Defense Function (050). This includes functions of the Department of Defense-Military (051), Atomic Energy Defense Activities (053) and Other Defense-Related Activities (054). Table 6-3 shows budget authority and outlay funding levels for these functions through 1999. Table 6-3. FUNDING SUMMARY FOR NATIONAL DEFENSE (Discretionary funding in billions of dollars) ---------------------------------------------------------------------- Proposed 1993 1994 -------------------------------------- Actual Estimate 1995 1996 1997 1998 1999 ---------------------------------------------------------------------- Department of Defense-Military (051): Budget Authority... 262.4 250.0 252.8 244.2 241.0 247.5 253.8 Outlays...... 280.1 268.3 259.8 249.9 245.4 245.5 246.3 Atomic Energy Defense Activities (053): Budget Authority... 12.1 10.9 10.6 11.0 10.9 11.0 11.2 Outlays...... 11.0 11.2 10.5 10.8 10.9 11.0 11.1 Other Defense Related Activities (054): Budget Authority... 1.7 0.9 0.7 0.7 0.7 0.7 0.7 Outlays...... 1.3 1.1 0.8 0.9 0.7 0.7 0.7 ------------------------------------------------------ Total National Defense (050): Budget Authority... 276.1 261.7 264.2 255.9 252.6 259.2 265.7 Outlays...... 292.4 280.6 271.1 261.6 257.0 257.1 258.1 ---------------------------------------------------------------------- For the military functions of the Department of Defense, the budget requests discretionary funding of $252.8 billion in budget authority and $259.8 billion in outlays in 1995. In real (inflation-adjusted) dollars, the budget levels projected for DOD by the end of the five-year planning period are 35 percent below the last Cold War (1989) budget level, and 42 percent below the 1985 peacetime defense spending peak. Historical budget authority trends since 1950 are shown in Chart 6-1. As a share of the GDP, DOD spending will fall from 3.7 percent in 1995 to 2.8 percent in 1999. This compares to an average DOD share of 8.5 percent of GDP during the mid 1950's to mid 1960's. Insert chart: CHART6_1 The budget request also includes a proposed 1994 emergency supplemental of $1.2 billion for the incremental costs incurred by the Department of Defense related to peacekeeping and peace enforcement operations in Somalia, Bosnia, Iraq and Haiti. These incremental costs result from special military pay for hazardous duty, operation and maintenance of equipment, transportation of personnel and equipment, and force support expenses not included in the 1994 budget. FORCES RESTRUCTURED FOR REGIONAL SECURITY AND CONTINGENCIES U.S. military forces are being downsized and restructured to meet the requirements identified in the Bottom-Up Review, building on the experience and success of Operation Desert Storm. Core military capabilities will be preserved and active and reserve forces will be better integrated for regional contingencies. Although the primary focus of the budget is on conventional forces for regional defense, the budget also continues to support a strong strategic deterrent. The new force structure will be smaller than the Cold War force. Main force trends are shown in Table 6-4. Table 6-4. MILITARY FORCE TRENDS ---------------------------------------------------------------------- 1989 1994 1995 ---------------------------------------------------------------------- Active Forces: Army Divisions............................ 18 12 12 Navy Aircraft Carriers.................... 16 12 11 Navy Air Wings............................ 13 11 10 Navy Surface Combatants and Attack Submarines............................... 287 196 198 Marine Divisions and Air Wings............ 3 3 3 Air Force Tactical Wings.................. 25 13 13 Reserve Forces: Army Combat Brigades...................... 56 48 46 Navy Air Wings............................ 2 1 1 Navy Aircraft Carrier..................... -- -- 1 Navy Ships................................ 26 16 17 Marine Divisions.......................... 1 1 1 Marine Air Wings.......................... 1 1 1 Air Force Tactical Wings.................. 12 9 8 Nuclear Deterrent: Intercontinental Ballistic Missiles....... 1,000 642 550 Ballistic Missile Submarines (Missiles)... 34(608) 15(352) 15(360) Bombers................................... 268 152 107 Mobility Forces: Strategic Airlift Aircraft................ 367 356 365 Sealift Ships\1\.......................... 163 174 178 Military Personnel (in thousands): Active Forces............................. 2,130 1,611 1,526 Guard and Reserve Forces.................. 1,171 1,025 979 ---------------------------------------------------------------------- \1\Includes ships in the Ready Reserve Force funded by the Department of Transportation. ---------------------------------------------------------------------- A military force sized for two major regional contingencies is expected to be capable of undertaking likely peacekeeping and humanitarian missions in the post-Cold War world. Reflecting a shared responsibility approach between DOD and the Department of State, the Administration now proposes that the Department of Defense assume lead management and funding responsibility for such missions. The Administration proposes that the Department of Defense assume responsibility for those Chapter VI peacekeeping operations that involve U.S. combat units and all Chapter VII peace enforcement operations. The budget requests $300 million in funding for the Defense Department to pay UN assessments for such operations in 1995. Military Personnel Active military end strength will decline to 1.526 million by 1995--28 percent below the 1989 level and the lowest level since before the Korean War. An active force level of about 1.45 million will be achieved by 1999, as shown in Chart 6-2. Guard and Reserve personnel levels will also decline. In 1995, Guard and Reserve end strength are estimated at 979 thousand, or 16 percent below the 1989 level. By 1999, Active forces will be about 1,453 thousand and the Reserve forces will be 906 thousand. As Active and Reserve forces decline, our armed services must continue to place high priority on recruiting and retaining highly motivated and well-trained personnel. Insert chart: CHART6_2 Army National Guard and Reserve Reform The Army National Guard and Army Reserve forces are being downsized and restructured consistent with the Bottom-Up Review. Army National Guard units will focus on wartime combat and peacetime domestic emergency missions. Army Reserve units will support wartime combat forces. Consistent with these missions, some combat missions currently assigned to the Army Reserve will be transferred to the Guard while some support functions in the Guard will be transferred to the Reserve. As a result of these changes, Army Reserve elements will decline from 670 thousand personnel in 1994 to 575 thousand in 1999. READINESS IS THE TOP PRIORITY The first priority of the Department of Defense is to maintain high levels of readiness in the smaller U.S. military force. Readiness is fundamental to the morale and job satisfaction of men and women in uniform and to the ability of the forces to carry out their missions. The budget supports training programs at levels that will keep forces ready to fight. Proposed funding for repair and replacement of equipment will provide U.S. forces the tools they need. The budget proposes full funding for personnel programs and high operating tempos for 1995. The budget provides for the operating rates, a key indicator of force readiness, shown in Table 6-5. Table 6-5. MILITARY OPERATING RATES ---------------------------------------------------------------------- 1985 1990 1993 1994 1995 ---------------------------------------------------------------------- Army: Annual tank miles................. 833 733 600 800 800 Flying hours per crew month....... 13.1 14.2 13.5 14.5 14.5 Navy: Flying hours per crew month....... 25 24 24 24 24 Ship steaming days per quarter: Deployed forces.................. 53.6 54.2 54.9 50.5 50.5 Non-deployed forces.............. 27.4 28.1 28.3 29 29 Air Force: Flying hours per crew month: Fighters......................... 19.0 20.4 20.7 20.3 19.7 Bombers*......................... NA NA 21.8 18.0 19.9 ---------------------------------------------------------------------- *Bomber flying hours were not separately identified prior to 1993. ---------------------------------------------------------------------- EMPHASIS ON TECHNOLOGICAL SUPERIORITY As stealth aircraft and precision weapons vividly demonstrated during Operation Desert Storm, advanced technology employed by well-trained forces can be decisive and save lives. U.S. defense technology is dominant today, and the 1995 budget gives high priority to Research, Development, Test, and Evaluation programs to ensure dominance in the future. To maintain a clear technological edge for future U.S. forces, the budget proposes funding of $9.3 billion for defense science and technology programs. The Administration's defense technology strategy ensures that new capabilities enter the forces quickly through improved operational military systems, while new systems are developed. Providing $23.6 billion for development of defense systems, the budget strikes a balance between development of new systems ($12.7 billion) and improvements to existing systems ($10.9 billion). For example, upgrades are being developed for the E-3 Airborne Warning and Control System (AWACS) aircraft now in operational units. At the same time, work continues on the development of a new generation of combat aircraft, including the Army's RAH-66 helicopter and F/A-18E/F and F-22 multi-role tactical aircraft for the Navy and Air Force. Funding for the major categories is shown in Table 6-6. Table 6-6. DOD RESEARCH, DEVELOPMENT, TESTING, AND EVALUATION (Budget authority in billions of dollars) ---------------------------------------------------------------------- 1994 1995 ---------------------------------------------------------------------- Technology: Basic research......................................... 1.2 1.2 Applied research....................................... 2.7 3.0 Advanced technology development: Ballistic Missile Defense............................. 2.6 1.2 Other Technology Development.......................... 3.6 3.9 ------------ Total Science and Technology.......................... 10.1 9.3 System Development: New system development................................. 10.1 12.7 Development of modifications for existing systems...... 11.4 10.9 ------------ Total................................................. 21.5 23.6 R&D management support.................................. 3.2 3.3 ============ Total RDT&E............................................. 34.8 36.2 ---------------------------------------------------------------------- DEPARTMENT OF ENERGY R&D ACTIVITIES The primary post-Cold War defense missions at the Department of Energy's laboratories are to sustain the safety and reliability of the nuclear weapons stockpile without nuclear testing and to provide technology to prevent the spread of nuclear weapons, materials, and expertise. The former will be carried out through a comprehensive Stockpile Stewardship Program, using above-ground non-nuclear (hydrodynamic) experiments, computer simulations, weapons physics experiments, nuclear weapons effects simulations, and review and analysis of historical data, in place of underground nuclear testing. The budget provides $1.3 billion for RDT&E in support of Stockpile Stewardship and $315 million for non-proliferation and arms control. MAJOR MODERNIZATION PROGRAMS CONTINUE The budget continues a trend of the past five years to procure fewer new systems as forces shrink. By retaining technological dominance, fewer new models of systems need to enter production. The budget proposes $43 billion to procure new systems and perform upgrades in 1995. Important modernization programs include enhancements in strike capabilities of aircraft carriers, lethality of Army firepower, the ability of long-range bombers to deliver conventional smart munitions, and the continuing ability to project military power over long distances. Strategic mobility modernization will improve capabilities for rapid deployment of U.S. forces worldwide through more prepositioning and enhancements to airlift and sealift. The 1995 budget funds procurement of six C-17 aircraft and two large-capacity sealift ships, and improves rail transportation and port facilities within the United States. Prominent procurement programs include the E-8 Joint Surveillance Target Attack Radar System (Joint STARS) aircraft ($564 million for 2 aircraft), the Navy's F/A-18C/D tactical aircraft ($1,117 million for 24 aircraft), modifications to install the Longbow radar on the Army's AH-64 Apache attack helicopter ($118 million) and the CVN-76 aircraft carrier ($2,447 million). REFOCUSED INTELLIGENCE ACTIVITIES The post-Cold War era is clearly characterized by a dispersal of threats, problems and opportunities, and significant uncertainty about world events. An intelligence apparatus focused for decades principally on a single major military threat must now deal with a wide variety of targets and issues. To respond to this diversity and uncertainty, the 1995 budget continues the process of refocusing U.S. intelligence programs and capabilities on new priorities: Monitoring threats to regional stability The proliferation of weapons of mass destruction and their means of delivery, terrorist activities, ethnic conflicts and trafficking of illegal drugs pose significant threats to regional peace and U.S. security interests. Monitoring these activities and providing information on these threats will be primary tasks of U.S. intelligence in 1995 and beyond. Supporting military operations Intelligence will increasingly provide a real-time picture of the battlefield. Restructuring tactical reconnaissance, increasing interoperability, and improving the timeliness and reliability of imagery dissemination receive increased emphasis in the 1995 budget. Enhancing economic security Intelligence on democracy and reform abroad and on international factors affecting U.S. economic well-being is also increasing. The community will monitor international compliance with economic sanctions and international trading practices, including unfair foreign competition and foreign government efforts to acquire sensitive U.S. commercial information. Streamlining infrastructure and support Management and implementation of intelligence programs and capabilities are being improved through consolidations and streamlining. A civilian personnel drawdown of about 3 percent in National Intelligence programs will be implemented in 1995. Further annual reductions are planned through 1999 resulting in more than a 20 percent reduction during the 1990's. NON-PROLIFERATION, COUNTER-PROLIFERATION, AND THREAT REDUCTION ACTIVITIES Funding is included in the Department of Defense budget both to prevent proliferation of weapons of mass destruction (WMD) and to develop U.S. military capabilities to protect U.S. forces in case prevention fails. The budget includes $400 million for the Nunn-Lugar program to help with the safe and secure dismantlement of nuclear weapons in Russia, Belarus, Ukraine, and Kazakhstan, and the conversion of defense industries in these countries to the civilian sector. The Intelligence Community is increasing its nonproliferation funding by 21 percent. This will help to improve the information available for formulating military and diplomatic options to prevent proliferation. Recognizing that prevention may fail, the budget provides for the development of a wide range of needed military capabilities to counter the WMD threat. Finally, the budget includes $30 million for DOD support of the activities of the U.N. Special Commission on Iraq, nuclear safeguards programs of the International Atomic Energy Agency, effective export control systems in areas of proliferation risk, and analyses of proliferation issues. MAJOR INITIATIVES IN THE DEFENSE TRANSITION The Department of Defense and the military services face new internal challenges from the end of the Cold War. As budgets decline and production dollars shrink, DOD uniformed and civilian personnel, the defense industry, communities and the workforce face a transition. The 1995 budget addresses these problems to assist the necessary transition and ensure the maintenance of a defense industrial base that can meet future needs. Defense Reinvestment, and Conversion The Department of Defense is a key player in the Administration's commitment to reinvest defense resources productively. DOD provides almost 60 percent of the funding and many of the program initiatives in the Defense Reinvestment and Conversion Program. A key program is the Technology Reinvestment Project (TRP), which promotes technologies with both military and civilian applications (or "dual-use"). Funding for the TRP will grow to $625 million. Projects supported by the TRP will be selected competitively from private-sector proposals, and will be jointly funded by DOD and the private sector. Among these projects is the $40-million MARITECH initiative to increase productivity of the American shipbuilding industry. In addition to the TRP, the Defense Department is investing to bring the dynamism of the commercial sector to the development of defense systems. Recognizing the rapid advances in commercial products, particularly electronics, the Administration has given high priority to such technologies. Such dual-use programs include $1.4 billion for defense conversion initiatives, and $.7 billion of other continuing technology developments. Important dual-use programs include development of high performance computers and communications ($397 million) and support of SEMATECH to develop advanced equipment to produce semiconductors ($90 million). Industrial Base Programs and Policies The Department has provided funding in a small number of exceptional cases to maintain defense-unique industrial capabilities, including nuclear propulsion for ships and submarines. Procurement of the third Seawolf submarine in 1996 is an example of this policy. Department of Energy Laboratory Conversion Activities The primary Department of Energy mechanism for defense technology conversion is cooperative research and development between DOE laboratories and the private sector on technologies that provide dual-benefit for defense and civilian purposes. The Cooperative Research and Development Agreements (CRADAs) that govern the joint research require that at least 50 percent of the resources come from the private sector. The CRADAs also allow private-sector participants to retain rights to all patents and other intellectual property resulting from the joint research. The 1995 budget includes $216 million for the DOE weapons laboratories for dual-benefit CRADAs. Initiatives for Personnel and Communities The Department of Defense provides personnel separation benefits and administers an aggressive job search program to help military and civilian personnel find careers in the private sector. For communities, DOD is implementing the Administration's five-point plan for revitalizing the towns and cities hard hit by base closures. The Department is working to speed low-cost or no-cost transfer of closed bases to communities for economic redevelopment by expediting environmental clean-up and facilitating community planning. In 1995, as part of the Defense Reinvestment and Conversion Program, DOD will spend nearly $1.2 billion for personnel and community assistance programs. The Department of Energy will spend $125 million on its program to assist workers and communities. Environmental Programs The Department of Defense and the Department of Energy both face serious environmental problems as their activities are reduced. The Department of Defense continues to make significant progress in environmental cleanup, compliance, conservation, pollution prevention, and related research and development. The 1995 budget provides a total of $5.7 billion, an increase of 6 percent above the 1994 enacted level. This includes funding for cleaning up past contamination, complying with Federal, State and local environmental laws, conserving natural and cultural resources, and reducing pollution. DOD is also pursuing research and development to reduce cleanup and compliance costs. (see also DOD section in the "Investing in the Quality of Life" section of Chapter 3B). In 1994, Department of Energy funding for environmental activities surpassed funding for research and production of nuclear warheads for the first time. DOE faces one of the nation's most complex environmental challenges. The mission of its Office of Environmental Restoration and Waste Management (EM) is to manage the generation, handling, treatment, storage, transportation, and disposal of DOE waste. Key areas are waste management, environmental restoration, facility transition, and technology development. The budget provides $5.2 billion, an increase of 1 percent over 1994, for these important programs (see also DOD section in the "Investing in the Quality of Life" section of Chapter 3B). REFORMING DEFENSE MANAGEMENT With shrinking forces and changing missions, the Department of Defense is working to be a National Performance Review leader as a better customer, with reformed management practices and streamlined infrastructure. With smaller budgets, every dollar must contribute to the central mission of the Department: the delivery of its combat capabilities. Acquisition Reform The Administration is committed to reforming the way government contracts for goods and services. As the largest single purchasing agency (spending 67 percent of all government procurement dollars), DOD has a major stake in this effort. Success means cost savings and access to the most advanced technologies of the commercial marketplace. Working closely with the National Performance Review, the Department helped to develop the Administration's proposals for improving the acquisition system. There are now two major acquisition reform bills in Congress incorporating many of the Administration's ideas. These bills would raise the threshold under which simplified purchase procedures can be used (from $25,000 to $100,000), and encourage the acquisition of more commercial items by Federal agencies. The Department will continue to seek efficiencies in acquisition and to reform its contracting practices. Defense Business Operations Fund One of the key DOD management reforms continues to be the Defense Business Operations Fund (DBOF), which promises to bring greater efficiency to defense support services. Military commanders purchase supplies, equipment maintenance, and other services through the DBOF. Resources for the DBOF are greater than those for many government agencies. For 1995, DBOF sales of goods and services are estimated at about $80 billion, and 311,000 military and civilian personnel conduct these activities. DBOF was created in 1992 to establish a more business-like relationship between military commands and support activities. The goal was better control over support costs. This approach is consistent with key National Performance Review goals of "Giving Customers a Voice--and a Choice," "Making Service Organizations Compete," and "Creating Market Dynamics." Problems remain. Inadequate accounting systems have contributed to DOD's financial management problems. In 1993, the Department undertook a major review of the DBOF and has already begun to implement changes. The Department has developed a new action plan and established a defense-wide DBOF Corporate Board, led by the DOD Comptroller, to resolve these problems. Financial Management The DBOF problems stem, in part, from weaknesses in DOD financial and accounting systems. DOD currently operates over 280 financial and accounting systems--80 financial and accounting systems and about 200 ancillary systems that feed financial information to these systems. These systems do not always produce accurate and reliable information. General Accounting Office, military department, and DOD Inspector General audits continue to identify serious weaknesses in these systems. In addition, the requirements of the Chief Financial Officers Act of 1990 make it imperative that DOD develop the capability to produce auditable financial statements. Correcting the problems of DOD's financial management systems requires the development of integrated financial accounting systems and procedures. The Department is moving aggressively to improve its financial operations, including centralizing financial functions in the Defense Finance and Accounting Services (DFAS). Health Program The Department continues to reform and streamline its health operations within the framework of the Administration's national health reform program. The DOD health program is available to an estimated 8.3 million beneficiaries. These are active duty military personnel, retired military personnel, and their dependents. The program consists of the military services' medical facilities and the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS). In 1995, the military services will operate 133 hospitals and medical centers and 504 medical clinics at a cost of $15.3 billion. Streamlining Infrastructure and Support The Administration is making a major effort to reduce defense infrastructure (bases, depot facilities, and related civilian employment) as forces are reduced. The final round of closures under the current Base Realignment and Closure process is due in 1995. Activities in 1988-90, 1991, and 1993 will close 70 major domestic installations. Depot maintenance is another area where greater use of the private sector could result in savings and help with the maintenance of the industrial base. Finally, the Department is pursuing an aggressive policy to reduce civilian personnel levels consistent with the declining force structure and infrastructure requirements. The National Performance Review set a goal of a government-wide civilian personnel reduction of 12 percent through 1999. Based on current plans, defense full-time equivalent (FTE) civilian personnel levels will fall from 932 thousand in 1993 to 766 thousand in 1999, an 18 percent reduction. The long term trend in civilian personnel is shown in Chart 6-2.