The O&M program that we're addressing here today is categorized into about 15 major groupings as addressed in the O&M overview. Briefly, some of the categories are: flying hours; ship operations; land forces which are more peculiar to the Army and the Marine Corps; base operations programs in support of infrastructure; command control and communications programs; reserve forces; our depot maintenance programs which provide for the maintenance of aircraft ships and combat vehicles; supply and transportation and logistics programs. There are budget line items in O&M for all these. Medical and training of recruiting and examining is another major section of the O&M budget. The fiscal year 1990 and 1991 budget maintains the operating tempos and readiness levels that we anticipate to be achieved in 1989 with just one exception. The operating tempo for Army is down to 800 miles per combat vehicle, on the average, which is a decrease from 1989. The 1989 level was programmed at 850 miles. The Air Force and Navy operating tempos are sustained from 1989; there is no reduction in operating tempos. The budget maintains the readiness levels achieved in prior years. There are increases in depot maintenance and facility maintenance backlogs. This is a matter of funding priorities. But the program is balanced. The depot maintenance program, the repair of end items, and repair parts is balanced with the operating tempos that we have reflected in the budget. Mr. HUTTO. Let me just ask you a couple of questions before you continue. Mr. FLINN. Yes, sir. Mr. HUTTO. Regarding the budget process, a few years ago we mandated that the Defense Department present a biennial budget and that was done in the last Congress. We're not to the stage yet where the Congress is on biennial budgeting and we are still in annual appropriations. If we could go to a longer budget cycle, would that significantly change what you would do and how, just briefly, would it affect you? It seems to me it would be a much more efficient way to do business. Mr. FLINN. Well, yes, sir, we are presenting the budget, as you indicated, on a biennial basis right now for fiscal 1990 and 1991. The advantage to a 2-year appropriation at such time is that it affords the Department the opportunity to make long-range plans; early enactment of appropriations; gives us the opportunity to decide based on the funding levels that are approved what adjustments we have to make at a much earlier time and will allow for more orderly execution of programs. Mr. HUTTO. The budget that you are going to be talking about today, is it the Reagan budget or is this the Bush budget? Mr. FLINN. This is the Reagan budget, Mr. Chairman. Mr. HUTTO. The Reagan budget. Mr. FLINN. That's right. I am not prepared today to talk in terms of any adjustments relative to the Bush budget. Mr. HUTTO. All right. But will you be able to do that? Mr. FLINN. The Department, as you may know, is currently-we are just getting into that next stage. As it has been indicated we are looking at a zero growth budget and looking at alternatives in terms of taking some approximate $6 billion out of the budget. The impact of the reductions on the O&M appropriation I'm really not prepared to comment on. We are really just getting into the first stages of that adjustment. Mr. HUTTO. You may proceed with your statement. Mr. FLINN. Sir, I would like to just begin by discussing some of the more significant assumptions that are reflected throughout the O&M title. Then I would like to turn to General McCausland and Dr. Lagomarsino and Ms. Duke to speak to their respective pieces of the budget. For fiscal 1990 the O&M budget request the title level is $91.8 billion, which is an increase of $4.9 billion in obligational authority over 1989 funding. This will provide for approximately $2.2 billion in real growth or a 2.5 percent increase over the 1989 level. As I have already indicated, the program growth falls in both the direct readiness and support areas, and will maintain force training levels that we planned to achieve in 1989. For fiscal 1991 the request is $95.5 billion which provides for an increase of $3.7 billion over the 1990 level. This provides for approximate $1 billion in program growth or approximately 1 percent over the 1990 level. The price growth amounts that are reflected in the budget includes $.5 billion in 1990 and $900 million in 1991 for civilian pay raises of 2 and 3 percent respectively effective on January 1 of each year. These pay raise amounts are included in the individual O&M appropriations consistent with OMB guidance, rather than requesting a supplemental appropriation. It is advantageous in execution of the programs knowing what the funding levels we will have to execute through the year. Mr. HUTTO. Mr. Flinn, would you, for the members, explain the difference between program growth and price growth. Mr. FLINN. Yes, sir. The 1990 request has included approximately $2.7 billion for price growth over the 1989. That represents a 3.4 percent inflation factor based on the standard OMB inflation index. The $2.7 billion represents the additional cost to accomplish 1989 programs that are carried forward into fiscal year 1990. Price growth also includes the pay raise increases for civilian personnel that we have reflected in the budget each year. Program growth provides for increased activity levels; increased flying hours; increased levels of depot repair or increased steaming levels for Naval ships. The inflation rates that this budget is based on is 3.4 and 3 percent in 1990 and 1991 respectively. The stock fund fuel prices reflected in the budget are $23.56 per barrel in fiscal 1990; and $24.83 per barrel in 1991. This is approximately 10 percent below the 1989 cost of 26.46 cents per barrel in fiscal 1989. Fuel prices in 1991 are projected to increase at about 5 percent over fiscal 1990. Mr. HUTTO. What basis do you use for projecting that the fuel prices will be lower in 1990? Mr. FLINN. This is based on projections based on current contract prices that the Defense Supply Fuel Center experiencing at the time the budget is formulated. The foreign currency rates reflected in the budget represent an increase over fiscal 1989. We have included an increase of $868 million in fiscal 1990 which represents about a third of the price in crease. For example, the Deutsche mark is priced at 206 to the dollar in 1989 and $1.75 to the dollar for 1990 and 1991. Those are rates experienced at the end of November 1988. While foreign currency rates have become more favorable in the recent past, the department still experiences a shortfall in fiscal 1989. We have reflected a transfer in fiscal year 1989 budget of approximately $580 million from stock fund assets to resolve this shortfall. This reprogramming from the stock fund is possible due to favorable fuel prices experienced in fiscal 1988 and 1989. However, this will not solve a long term problem of having insufficient balances in the foreign currency account. The Department has requested the approval of legislative language which would permit the transfer of unobligated balances from expired procurement accounts to the foreign currency account. We solicit the committee's approval of this proposal. Mr. HUTTO. Mr. Flinn, it might be well for you also to explain what is meant by the non-fuel stock funds? Mr. FLINN. Mr. Chairman, that refers to the commodities piece, the repair parts and miscellaneous supplies, medical, various equipment items that are bought from the stock fund vice fuel. Mr. HUTTO. Will you tell us just a little bit how that operates. Mr. FLINN. The budget also reflects in fiscal year 1989 a reprogramming of some 300 million to finance the 2.1 percent additional civilian pay raise that the Department had to absorb. I would like to highlight the fact that the O&M title does include some $500 million in both 1990 and 1991 for the DOD base closure account. These funds will provide for advance planning, design, construction and other activities incident to the transfer and closure of functions and facilities as we proceed with the closure and realignment actions. The budget also at this time reflects a separate appropriation for the Office of the Inspector General. This is incident to the Inspector General Act Amendments of 1988, Public Law 100-504 which directed the establishment of a separate appropriation for the Inspector General. Previously the Inspector General was included in the overall defense agency's appropriation. I would now like to turn to a brief overview of the Defense request. There are currently 21 Defense agencies within the Operation and Maintenance Defense agencies appropriation. We have divided these agencies into about five broad categories of support; readiness; intelligence and communications; audit and investigative activities; defense management support; and military personnel support. Overall the Defense agencies appropriation increases by some $254 million from 1989 which reflects an approximate $21 million net decrease in program growth. The bulk of the program growth that's reflected in Fiscal 1990 for the Defense agencies account appears in the intelligence and communications category. There's a program increase of some $128 million in that area which due to security classification I do not plan to discuss at this point. The next major area of growth in the agencies is in the audit and investigative activities. There is an approximate $30 million increase for the Defense Contract Audit Agency and for the Defense Investigative Service to provide for additional personnel levels in order to maintain the investigative and audit enhancements that we have achieved in the past. The next major area of growth in the Defense Agencies appears in the Dependent Schools area. There is an approximate $23 million increase in that area, which Ms. Duke and Mr. Lagomarsino will talk to today. Mr. Chairman, that completes my overview and if you wish we could answer any questions you may have on the overview or we can turn to General McCausland and the Dependent School program, if you would. PREPARED Statement of JOHN A. FLINN Mr. Chairman and members of the Committee, I appreciate this opportunity to appear before you to discuss the FY 1990 and FY 1991 budget requests for the Operation and Maintenance accounts. With me this morning are Lieutenant General Charles McCausland, the Director of the Defense Logistics Agency; Dr. Hector Nevarez, the Director for Dependents Support Policy; and Dr. Bart Lagomarsino for the DoD Dependents Schools. I would like to begin by discussing some of the more significant assumptions which are reflected throughout the 0&M title, provide you with a brief overview of the Defensewide O&M accounts, and then turn to General McCausland and Drs. Nevarez and Lagomarsino who will discuss the FY 1990 and FY 1991 budget requests for the DLA and dependents education programs. For FY 1990 the O&M budget request at the title level is $91.8 billion which reflects an increase of $4.9 billion in total obligational authority over the FY 1989 funding. Of this amount, approximately $2.2 billion represents real growth of 2.5% and the remaining $2.7 billion provides for price increases. As you will see in your upcoming hearings with the Services, the program growth falls in both the direct readiness and support areas and for the most part will maintain the training levels of the operating forces planned in FY 1989. For FY 1991 the request is $95.5 billion which provides an increase |