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IMMEDIATE RELEASE

Release No: 287-01
June 27, 2001

DEPARTMENT OF DEFENSE AMENDED BUDGET FOR FY 2002

Secretary of Defense Donald Rumsfeld today released details of President Bush's Fiscal Year (FY) 2002 amended defense budget. The amended budget adds funding and program details to the broad defense vision the President outlined in February in his budget submission to Congress, A Blueprint for New Beginnings.

Secretary Rumsfeld said the new budget begins an increased focus on future threats. "If we are to extend this period of peace and prosperity, we need to prepare now for the new and different threats we will face in the decades ahead and not wait until they fully emerge." He said the new budget balances preparation for the future with current needs -- through robust funding to improve morale, boost readiness, transform defense capabilities, and upgrade aging facilities.

The amended budget requests $328.9 billion in discretionary budget authority for the Department of Defense (DoD). The proposed new topline is $18.4 billion more than Blueprint DoD total of $310.5 billion. It is $32.6 billion higher than the $296.3 billion enacted by Congress for FY 2001 - an inflation-adjusted increase of 7 percent. The $32.6 billion topline increase in FY 2002 is in addition to the President's $6 billion FY 2001 supplemental appropriations request, nearly all of which is for defense activities related to military quality of life and readiness.

In his Blueprint, the President outlined his vision for the revitalization of the U.S. defense posture and directed the Secretary of Defense to conduct a strategy review to guide defense decisions. The FY 2002 amended budget reflects both the President's revitalization vision and, to the extent possible, recommendations of Secretary Rumsfeld's strategy review so far.

In discussing the FY 2002 amended budget, Secretary Rumsfeld stressed that it begins to address selected shortfalls in readiness, healthcare, operations, maintenance, infrastructure, and more - shortfalls that the Administration inherited and that are far worse than originally understood. DoD leaders say the budget reflects honest budgeting - based on sound projections of costs and needs. Besides addressing shortfalls, the budget supports modernization programs consistent with the early results of the Secretary's ongoing strategy review.

People Programs - Improving Military Morale

The FY 2002 amended budget puts people first. It includes strong measures to improve morale, recruiting, and retention. It proposes major improvements to military pay, housing, healthcare, and overall quality of life.

The budget includes the largest boost in military pay and benefits in a generation. This will help pay military people what is needed to attract, motivate, and retain the top quality people essential to the nation's security. Reflecting the large increases in pay and allowances, funding for Military Personnel is to climb from $75 billion in FY 2001 to $82 billion in FY 2002.

The budget includes the President's $1.4 billion Blueprint initiative for military compensation. It funds a targeted pay raise - at least 5 percent for every service member and up to 10 percent for enlisted grades E-4 to E-9 and for mid-grade officers. This initiative will enhance recruiting and retention by fundamentally changing the pay structure and increasing pay for grades with difficult retention challenges.

The budget increases housing allowances to improve the quality of housing and enable military personnel and their families to afford acceptable private sector housing. It will reduce the service members' average out-of-pocket housing expenses from the current 15 percent to 11.3 percent in FY 2002 and eliminate the average out-of-pocket expense completely by FY 2005.

The budget improves the military's ability to recruit and retain members of high quality and with critical skills not just with better pay and benefits, but also through a robust program of Selective Reenlistment Bonuses, Enlistment Bonuses, and other incentive programs.

For the first time in recent years, the President's budget will fund a realistic estimate of military healthcare costs. The FY 2002 budget includes $17.9 billion for the Defense Health Program - up sharply from $12.1 billion in FY 2001. It funds new benefits and realistic growth rates for both managed care support contracts (12 percent) and pharmacy purchases (15 percent). It includes $3.9 billion for prescription and medical care benefits for Medicare-eligible military retirees and their families - and other benefits authorized last year.

Readiness

The FY 2002 amended budget will boost readiness, which has been strained by a high tempo of operations and escalating maintenance costs for aging equipment. Readiness is funded primarily in Operation and Maintenance (O&M) accounts, funding for which will climb from $108 billion in FY 2001 to $126 billion in FY 2002.

The budget includes strong funding for the Military Services' readiness requirements -- for flying hours, ship operations, training, weapon system maintenance and repair, base operations, spare parts, force protection, utilities, and training range repair and support.

The budget makes a major investment toward reducing the backlog of weapon system maintenance (e.g., Air Force aircraft maintenance funding will increase to the 92 percent level and Navy ship maintenance funding will increase to 90 percent).

FY 2002 funding includes:

Aircraft Operations/Flying hours: $11.5 billion (up from $9.3 billion in FY 2001)
Army OPTEMPO: $2.7 billion (same as $2.7 billion in FY 2001)
Ship operations: $2.9 billion (up from $2.8 billion in FY 2001)
Depot maintenance: $9.3 billion (up from $7.7 billion in FY 2001)
Training $9.3 billion (up from $8.5 billion in FY 2001)
Facility/Base support $20.7 billion (up from $17.9 billion in FY 2001)

The budget supports the vital role of the Reserve components in the U.S. defense posture. It includes $12.5 billion in Reserve component O&M funding - with increases for full-time support personnel, flying hours, and base operations. It provides for Reserve component support to civil authorities for response to incidents involving weapons of mass destruction and continues important Civil Military Programs.

Transformation

The FY 2002 amended budget begins to implement President Bush's resolve to move beyond incremental improvements and instead develop the military capabilities needed for the 21st century. It emphasizes the exploitation of leap-ahead technologies, countering unconventional threats, improving research and testing infrastructure, and controlling the costs of weapons and intelligence systems.

The budget accelerates the acquisition of capabilities especially appropriate for the 21st century security environment, such as capabilities to locate and track targets more rapidly and on a global basis; strike with increased speed, higher precision, and at greater ranges; and capitalize on the aggregate power of networked forces.

Procurement. The budget includes $61.6 billion for Procurement. It aligns programs and funding to provide balanced and strong support for both the U.S. military's short-term requirements and for its long-term transformation. The budget emphasizes robust funding of systems that will continue to be necessary even with significant shifts in defense strategy, e.g., airlift assets. It supports the overhauling of systems that will remain essential until the next generation of capabilities is developed and fielded. It reflects realistic pricing of major weapons programs, which should reduce program disruptions.

Research, Development, Test, and Evaluation (RDT&E). The budget aligns RDT&E funding and programs to advance the President's transformation vision. It builds upon the $2.6 billion RDT&E initiative for leap-ahead technologies included in the President's Blueprint. It targets technologies with the greatest promise for transforming the U.S. defense posture. Within RDT&E, the budget includes $8.8 billion for Science and Technology (S&T), which funds basic and applied research and development of technologies and prototype subsystems - all of which are key to preserving America's superiority in military capabilities.

Information and Space Capabilities. The budget increases funding for information and space capabilities - both critical to deterrence and warfighting, and both unique advantages for the U.S. and its allies. America's growing dependence on information and space capabilities necessitates greater assurance that these capabilities will remain effective against any prospective threat. The budget emphasizes situational awareness, attack warning, protection of assets, prevention of unattended use, and counters to likely future threats.

Missile Defense. The budget advances the President's commitment to build effective missile defenses based on the best available technologies, deployed at the earliest possible date. It includes a total of $7.0 billion for Ballistic Missile Defense Organization (BMDO) programs and $1.3 billion for lower tier systems that will be devolved to the Services. It emphasizes a new approach focused on an expanded, robust RDT&E program with flexibility to pursue most promising developments. The Airborne Laser, Space-Based Laser, and Space-Based Infra-Red System (SBIRS) Low programs are to be merged into the BMDO program.

Strategic Forces and Precision Strike. The budget advances the President's initiative to reshape U.S. strategic and tactical nuclear forces for the post-Cold War world by funding design studies to convert two TRIDENT submarines to cruise missile carrying submarines and by beginning to retire Peacekeeper missiles.

Future Threat Initiatives. The budget boosts funding for programs that the ongoing strategy review has identified as especially critical to countering threats that appear likely in the future, e.g., close-in ship self-defense improvements, E-2C radar modernization, chemical/biological vaccines, and miniature munitions. Through this initiative, the budget accelerates the transformation of U.S. forces by focusing on global joint response forces, capabilities encompassing the full spectrum of conflict (from a major conflict to peacetime activities), and transforming early-entry forces first.

Infrastructure

The FY 2002 amended budget inaugurates a strong commitment to the upgrading of DoD's aging infrastructure. It increases funding to meet current needs and begins a long-range plan to streamline, restructure, and upgrade DoD facilities. Key to the long-range goal will be the Efficient Facilities Initiative (EFI), which the Administration is planning in order to achieve a 25 percent reduction in DoD facilities, and ultimately to save $3.5 billion annually. Another long-range range goal is to reduce the age of DoD facilities by reducing the unacceptable FY 2001 recapitalization rate of 192 years to a rate that more closely approximates commercial standards. The budget reduces the recapitalization rate for FY 2002 to 101 years.

The budget includes the President's $400 million Blueprint initiative to improve housing for military people and their families: $107 million in Military Construction for barracks and $293 million for family housing. Implementation of the initiative will emphasize privatization in order to deliver better housing more quickly.

The budget includes a total of $5.9 billion for Military Construction - up from $5.3 billion in FY 2001. Funding will construct or renovate barracks, medical treatment facilities, schools, and physical fitness centers.

The budget includes $4.1 billion for Family Housing - up from $3.6 billion in FY 2001. It intensifies efforts to improve the quality of military housing and accelerate elimination of substandard housing. It includes $1.1 billion to construct or renovate about 6,500 family housing units and privatize over 30,000 units.

New Management Direction

The new DoD leadership is determined to change the way the Department does business - to achieve greater effectiveness and efficiency and to save billions of dollars long-term. New efforts include more competition and outsourcing, more commercialization, and other innovations to strengthen DoD management and ensure optimal use of every defense dollar. For example, while adhering to its commitment to core DoD logistics capabilities, the Department is requesting flexibility to accomplish its depot maintenance workloads more efficiently.

Although Secretary Rumsfeld's management overhaul is still being fully developed, the amended budget captures about $1 billion in savings that are achievable in FY 2002. To invest for future savings, the budget includes $100 million for a pilot project to transform DoD financial management.

FY 2002 President's Budget (Some columns may not add correctly due to rounding)

FY 2002 Department of Defense Budget by Title (discretionary budget authority $ billions)

FY 00 FY 01 FY 02
Military Personnel 73.8 75.4 82.3
Operation & Maintenance 108.1 107.9 125.7
Procurement 55.0 62.1 61.6
RDT&E 38.7 40.8 47.4
Military Construction 5.1 5.3 5.9
Family Housing 3.5 3.6 4.1
Funds, Receipts, & Other 3.1 1.1 1.9
Total DoD (051) 287.4 296.3 328.9

FY 2002 Department of Defense Budget by Component (discretionary budget authority $ billions)

FY 00 FY 01 FY 02
Army 73.0 73.2 80.2
Navy/Marine Corps 88.5 93.0 99.0
Air Force 83.1 85.8 95.7
Defensewide 42.8 44.4 54.0
Total DoD (051) 287.4 296.3 328.9

Copies of Department of Defense budget documents are available at the following Internet address: http://www.dod.mil/comptroller/.

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