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Unfunded Contingency Operations Affect Readiness
Prepared statement of Secretary of Defense William J. Perry , the National Security Subcommittee, House Appropriations Committee, Wednesday, January 25, 1995

Mr. Chairman, members of the committee, it is a pleasure to be here to discuss the readiness of America's armed forces, particularly how to prevent it from being hurt by unbudgeted contingency operations undertaken by the United States.

Since taking office the Clinton administration has stressed the importance of sustaining the traditionally high readiness of U.S. forces. That importance was solidified by our 1993 Bottom-up Review, whose war-fighting scenarios were dependent on the ability of forces to deploy quickly and fight successfully.

Last year's defense budget provided strong support for readiness, and this year's request will be stronger still. However, events of the past year have shown how readiness can erode even when annual defense appropriations are sufficient. The culprit: unbudgeted contingency operations, combined with legal and fiscal restrictions on our flexibility to manage their costs.

Ever since America fully embraced its global leadership role in the aftermath of World War II, U.S. presidents have ordered unplanned deployments of our nation's forces for diverse security and humanitarian missions. The end of the Cold War has not diminished the importance of U.S. leadership nor caused our global interests to disappear. Not surprisingly then, in this new security era the deployment of U.S. forces in response to crises continues, although thankfully now without the risk of confrontation with a hostile Soviet Union.

Over the years the Congress has been asked to approve supplemental appropriations to help the Department of Defense cover its costs for unbudgeted operations, and the response is nearly always favorable. For example, to help DoD cover its fiscal year 1994 costs for contingency operations, Congress last year passed two emergency supplemental appropriations requests totaling $1.5 billion.

However, this did not prevent readiness problems from developing late in FY 1994. The second supplemental was granted the last day of the fiscal year, too late to prevent the canceling of training exercises, which DoD was forced to do in July and August. Moreover, late and only partial congressional approval of the department's reprogramming request exacerbated its O&M [operations and maintenance] funding problem.

To illustrate the problem, consider the situation in the current fiscal year. For recently completed or ongoing contingency operations DoD estimates its FY 1995 unfunded contingency costs at $2.6 billion. While awaiting supplemental funds DoD is limited in what it can do to pay contingency costs without canceling activities that have a direct impact on readiness. It is important to understand these limitations.

Out of a total FY 1995 DoD budget of $253 billion, $2.6 billion in contingency costs is roughly 1 percent. On initial glance this seems like a small problem. And indeed it would be if department leaders had the entire year and the entire DoD budget to work with. Such is not the case, however. For one thing, nearly one-third of this fiscal year is gone already. The larger problem, however, is the limitation created by fiscal law.

The Defense Department's ability to limit the readiness impact of unbudgeted contingencies is restricted by several legal and financial requirements. I'd like to highlight four requirements:


  • Fiscal year integrity must be preserved. DoD does not have authority to transfer appropriated money from one fiscal year to another. Even if some O&M funds from 1994 are unobligated, they cannot be used to pay for O&M bills in FY 1995.
  • Transfer authority is limited. It often takes months to receive congressional approval of proposed reprogramings, far too long to cover fast-breaking contingency requirements. In addition this limited transfer authority is generally used to pay unanticipated bills other than those from contingency operations.
  • Spending in a fiscal year must be for a bona fide need in that fiscal year. DoD does not have authority to obligate this year's money to pay for next year's needs.
  • Anti-deficiency violations must be avoided. Funds cannot be obligated or expended in excess of appropriated amounts nor obligated in advance of an appropriation, except for the limited authority of the "Feed and Forage" provision. Additionally, DoD does not have authority to obligate funds appropriated for one account on needs covered by another. For example, procurement funds cannot be spent on readiness, which is funded almost totally by operation and maintenance accounts. Any attempt to do so potentially constitutes a criminal violation.

Given such obstacles, DoD's bottom line is: Without adequate supplemental appropriations well before the end of a fiscal year, unfunded contingencies can only be paid from O&M funds for that year. And any major draining of O&M funds is bound to hurt readiness.

The vulnerability of readiness to O&M cuts is magnified by the fact that DoD has little or no flexibility to divert funds from many programs within O&M accounts. Nearly half ($45 billion in FY 1995) of the O&M budget is practically off limits as far as contingency costs are concerned. For example, we have no discretion in our ability to pay civilians. Nor can we tell people not to get sick the last two months of the year, in order to divert health care funds.

Some $20 billion is potentially available, but only if Congress authorizes a transfer of funds. While potentially providing limited flexibility, practically speaking it would take months to tap these funds because of reprograming limitations. We only have genuine flexibility to tap funds appropriated for optempo [operations tempo] (operations and training), depot maintenance and operations support and transportation. For FY 1995 these flexible funds total $27 billion; diverting 10 percent of this for contingency operations would clearly make a big difference.

Thus, our $2.6 billion in FY 1995 contingency costs is most accurately seen not as a mere 1 percent of the DoD budget nor as 3 percent of total O&M funding. Rather, the $2.6 billion should be seen as potentially a 10 percent cut to DoD's total, year-long, flexible O&M funds. The services in effect borrow fourth quarter O&M funds to finance contingency operations until they receive reimbursement from supplemental appropriations. Contingency costs of $2.6 billion represent 40 percent of the last quarter's flexible O&M. This creates chaos for fourth quarter operations, training and readiness.

Faced with such a prospect, DoD leaders and military field commanders would have to take drastic steps well before the end of the fiscal year in the absence of supplemental funding. Training would be canceled, maintenance deferred, supplies allowed to dwindle and more. This troubling scenario is what happened at the end of FY 1994, resulting in a drop in readiness -- primarily for three U.S. Army divisions. Passage of sufficient supplemental appropriations to cover such costs did not come in time to prevent a diversion of readiness funds.

Given these realities, what can be done to prevent contingency operations from hurting readiness? Part of the answer is full and prompt funding of supplemental appropriations. President [Bill] Clinton will soon forward a supplemental appropriation to cover DoD's FY 1995 unfunded contingency costs. If FY 1995 DoD supplemental appropriations are not enacted by March 31, the delay will begin to impact readiness.

In addition to prompt passage of supplemental appropriations, the preservation of readiness requires a new legislative authority to deal with contingency operations. The administration will soon ask the Congress to grant the secretary of defense limited new authority to enable him to protect readiness more dependably in this and future years.

The aim of this proposed authority is to preserve what Congress has unequivocally supported: the traditionally high readiness of America's armed forces. This "readiness preservation authority" would operate like overdraft protection on a checking account. It would not give DoD more money. It would merely let DoD protect the readiness of operating units by using other funds. It provides for rescissions to pay for any use of the authority unless the president determines that emergency conditions exist that preclude such rescissions. I would be happy to discuss with you this approach for the protection of readiness funding.

In the president's FY 1996-97 defense budget, O&M funding will remain fully sufficient to sustain high operations and training rates and other building blocks of readiness. Still, the readiness of U.S. forces cannot be judged simply by O&M funding. Ultimately the sufficiency of plans to preserve readiness must be judged by the chain of command responsible for it -- from front-line commanders up to the Defense Department's senior leadership.

Before completing the FY 1996-97 budget request, I asked the secretary and service chief of each military department if our budget plans enabled U.S. forces to remain ready. They said that the requested funding is sufficient so long as any unbudgeted contingency operations are paid for by supplemental appropriations, not by tapping readiness accounts.

With those comments foremost in my mind, I look forward to working closely with the new Congress to achieve adequate appropriations for readiness and to protect those appropriations from diversions to other uses. Preserving the readiness of America's armed forces -- month to month, year to year -- is as important as any challenge we face as stewards of our nation's defense posture.


Published for internal information use by the American Forces Information Service, a field activity of the Office of the Assistant to the Secretary of Defense (Public Affairs), Washington, D.C. Parenthetical entries are speaker/author notes; bracketed entries are editorial notes. This material is in the public domain and may be reprinted without permission