    [Economic Outlook, Highlights from FY 1994 to FY 2001, FY 2002 Baseline Projections]
    [III. Major Functions of the Federal Government]
    [2.  National Defense]
    [From the U.S. Government Printing Office, www.gpo.gov]

    [[Page 43]]

                              2.  NATIONAL DEFENSE

      ----------------------------------------------------------------------

                              Table 2-1.  Federal Resources in Support of National Defense
                                              (Dollar amounts in millions)
    ----------------------------------------------------------------------------------------------------------------
                                                                                                            Percent
                                    Function 050                                     1993        2001       Change:
                                                                                    Actual     Estimate    1993-2001
    ----------------------------------------------------------------------------------------------------------------
    Spending:
      Discretionary budget authority............................................    276,109     311,030         13%
      Mandatory outlays.........................................................     -1,344        -418        -69%
    Credit Activity:
       Direct loan disbursements................................................  ..........         11          NA
       Guaranteed loans.........................................................  ..........         39          NA
    Tax expenditures............................................................      2,115       2,160          2%
    ----------------------------------------------------------------------------------------------------------------
    NA = Not applicable.

      ----------------------------------------------------------------------
      Since 1993, the Clinton-Gore Administration has sustained its
    commitment to supporting the world's strongest military force, capable
    of defending the United States, its citizens, and its allies, and
    protecting and advancing American interests and values around the world.
    Today, the United States is the sole remaining superpower in the world,
    with military capabilities unsurpassed by any Nation. The United States
    has sought to use that position of strength in a manner consistent with
    the fundamental values and ideals upon which our republic was founded.
    We have maintained a steadfast focus on simple goals--peace, shared
    prosperity, and freedom. The U.S. military, as the world's best trained
    and best equipped fighting force, provides the strength and leadership
    that serve as the foundation for regional peace and stability that
    allows us to share our goals with others around the globe. This has been
    demonstrated throughout the tenure of this Administration, most recently
    by the restoration of stability in Kosovo and during humanitarian relief
    and other contingency operations.
      President Clinton took significant steps to ensure that our Nation's
    military is fully prepared to meet the challenges of this new century.
    The Administration strengthened our Nation's security by sustaining a
    commitment to recruit, train, and equip the best fighting force that the
    world has ever known, one capable of defeating large-scale cross-border
    aggression in two distant theaters in overlapping timeframes. This was
    achieved by enhancing military readiness and operational capabilities,
    and supporting programs to take care of military personnel and their
    families from recruitment through retirement, including defense health
    programs. The Administration also prepared for the future by procuring
    effective and modern weapons systems and funding a strong and diverse
    research and development effort to maintain our technological advantage
    through the development of advanced weapons systems.
      The Administration's efforts to shape the strategic landscape through
    continued deterrence, arms control agreements, such as the START
    agreements, and threat reduction assistance programs in Russia and other
    states of the former Soviet Union, has reduced the global danger from
    nuclear weapons and other weapons of mass destruction. The Department of
    Energy's (DOE's) national security program has maintained confidence in
    our nuclear stockpile deterrent and has significantly advanced the
    cleanup of radioactive waste from fifty years of weapons production.

    [[Page 44]]

    Building a new Defense Strategy for the Post-Cold War World

      The end of the Cold War left the United States armed forces with a
    strategy, force structure, and infrastructure no longer appropriate for
    the new security environment. Based on an in-depth assessment of the new
    security environment and rethinking of U.S. defense strategy, the
    Administration conducted a Bottom Up Review (BUR) in 1993 and
    restructured its forces to meet four key requirements:
      fight and win two nearly simultaneous major regional wars;
      conduct, in peacetime, a variety of operations short of a
              major regional conflict;
      maintain a strong forward presence; and,
      deter and prevent the use of weapons of mass destruction
              against U.S. territory, forces, and allies.
      In an effort to better align U.S. military strategy, force structure,
    infrastructure, manning, and resource requirements, the Administration
    conducted the Quadrennial Defense Review (QDR) in 1997. This is the
    Department of Defense's (DOD's) strategic plan, which was reviewed and
    approved by the President and the Congress. The QDR supported the BUR
    requirement to maintain the ability to fight two major-theater wars
    nearly simultaneously, and adopted a defense strategy of shaping the
    international environment to prevent conflict, responding to crises, and
    preparing for future threats. It also emphasized that it was in the
    Nation's interest to respond to small-scale contingency operations and
    address asymmetric threats such as information warfare, weapons of mass
    destruction, and terrorism. The QDR force structure is shown in Table 2-
    2.
      ----------------------------------------------------------------------

                  Table 2-2.  U.S. Conventional Force Structure
    ------------------------------------------------------------------------
                                      Cold War                   QDR Target
                                       (1990)         2001        (by 2003)
    ------------------------------------------------------------------------
    Land Forces:
      Army divisions (active/             18/10          10/8          10/8
       National Guard)............
      Marine Corps divisions                3/1           3/1           3/1
       (active/reserve)...........

    Tactical Air Forces:
       Air Force fighter wings            24/12        12+/7+         12+/8
       (active/reserve)...........
      Navy air wings (active/              13/2          10/1          10/1
       reserve)...................
      Marine Corps wings..........          3/1           3/1           3/1

    Naval Forces:
       Aircraft carriers (active/          15/1          12/0          11/1
       reserve)...................
      Battle forces ships.........          546           317           306

    Mobility Forces:
       Airlift (tactical/               513/432       526/335       478/329
       strategic).................
      Sealift (Surge/Ready Reserve       69/102         67/76         78/90
       Force).....................

    Military Personnel:
       Active.....................    2,069,000     1,382,242     1,367,600
      Selected reserve............    1,128,000       863,775       837,200
    ------------------------------------------------------------------------

      ----------------------------------------------------------------------

    Maintaining a Strong Defense

      When this Administration took office, the DOD budget, as a result of
    the end of the Cold War, had already declined by 33 percent in real
    (after inflation) terms from its 1985 peak, when the drawdown started,
    and active military forces had been reduced by 25 percent. Today, our
    military forces and programs are sized to meet the threats and strategy
    addressed in both the BUR and QDR.
      The Administration requested several significant increases in the
    defense budget to provide full support in the near term for

    [[Page 45]]

    military readiness and quality of life, and to modernize our forces over
    the long term. These objectives--first outlined in the Defense Funding
    Initiative of December 1994--which added $25 billion over five years--
    have remained the essential pillars of this Administration's defense
    program.
      The President's approval of a six-year, $112 billion increase for
    defense in the 2000 Budget furthered these efforts and represented the
    first long-term, sustained increases for defense programs in over a
    decade. That, and subsequent budget proposals, provided continued
    significant increases for military readiness programs to enhance our
    forces' ability to respond immediately to crises; build for the future
    by increasing funding for weapons modernization programs; and, care for
    our military troops and their families by further enhancing quality of
    life programs. These efforts help ensure that the United States will be
    fully prepared to meet the security challenges of the 21st Century.
      In addition, the Administration has placed great emphasis on managing
    our defense resources more efficiently by reforming and improving the
    management of defense programs. The Defense Reform Initiative increased
    the use of competitive sourcing and privatization, adopted best business
    practices through acquisition reform, and eliminated excess
    infrastructure through base realignments and closures. Other initiatives
    included streamlining of the civilian work force, improving financial
    management practices, and implementing information technology reforms.

    Ensuring the Nation's Security Through the Best Equipped, Best Trained,
    and Best Prepared Fighting Force in the World

      Enhancing Military Readiness and Operations: Maintaining high levels
    of readiness has been this Administration's top defense priority. Robust
    funding has been provided for training, spare parts, and weapons
    maintenance critical to unit readiness, and for recruiting and retaining
    quality personnel. In addition, in an effort to monitor current and
    future military readiness, the Administration has undertaken efforts to
    improve readiness reporting systems to ensure early identification of
    potential problems, and allow prompt remedial action. To meet the
    diverse security challenges of the 21st Century, the Administration has
    undertaken initiatives to transform the Army into a more deployable
    force, restructure the Air Force into 10 flexibly-sized air
    expeditionary force units, and reduce the Navy's operating costs and
    manning requirements through the Smart Ship Program. Greater use has
    also been made of National Guard and reserve forces and personnel to
    complement active duty forces.
      Funding Contingency Operations: The U.S. military has protected U.S.
    interests through involvement in contingency operations such as Bosnia,
    Kosovo, and Iraq. To pay for these operations, the Administration
    consistently sought supplemental appropriations, including nearly $4
    billion in a 1999 request for Kosovo operations. These supplemental
    requests ensured that U.S. military forces remained at high levels of
    readiness as they participated in contingency operations. The
    Administration developed accurate cost projection methodologies which
    served to inform policy decisions. The Administration made special
    efforts to track the incremental costs of these operations, especially
    Kosovo, separately from traditional defense operations costs. The
    Administration also sought supplemental funding in advance, whenever
    possible, so that normal military activities would not be disrupted by
    diverting funds to cover contingency costs. It is true that U.S.
    military participation in contingency operations has been costly in
    terms of dollars, in part because the Congress has provided funding
    above the requested levels for items not directly related to these
    operations. However, costs of individual operations have come down as
    they have made progress toward their objectives. Moreover, the
    Administration has clearly advanced U.S. national security interests by
    helping to contain Iraq, stopping the bloodshed in the Balkans,
    strengthening the NATO alliance and demonstrating its continuing value.
      Taking Care of Military Personnel and their Families from Recruitment
    through Retirement--including Defense Health Programs: In order to
    attract and retain high quality personnel and ensure that military
    compensation remains competitive with private sector pay, the
    Administration has consistently supported increases in military pay

    [[Page 46]]

    and retirement benefits. The Administration has also provided
    significant enhancements to the quality of life of our military
    personnel and their families, including a compensation initiative to
    reduce service members' out-of-pocket costs for housing. This program,
    approved by the Congress in 2001, will reduce out-of-pocket costs for
    military personnel from 19 percent to 15 percent by 2001, and eliminate
    these costs entirely by 2005.
      Additional quality of life improvements have been demonstrated by the
    tremendous decline in the number of military personnel on food stamps--a
    result of the Administration's consistent support for military pay
    increases. In 1991, 19,400 military personnel received food stamps; by
    2000, this number had been reduced to 5,100. For 2001, the
    Administration submitted legislation designed to immediately eliminate
    military personnel dependence on food stamps by providing a military
    commissary benefit. Other quality of life improvements include a
    worldwide family support and communications program to ease the
    hardships of deployments and family separations, and the construction
    and improvement of child care centers, fitness centers, upgraded
    barracks, and family housing. Specifically, the Administration has moved
    aggressively to upgrade the inventory of Government-owned housing for
    military families and utilize private sector capital and expertise to
    provide new, modern privatized housing for military families. DOD has
    awarded contracts for the construction of about 5,600 housing units and
    issued solicitations for the construction of approximately another
    22,000 units.
       To reduce the costs of defense health programs, the Administration
    established a managed care approach to military health care known as
    TRICARE---now also available for Medicare-eligible military retirees for
    the first time. The Administration has also implemented special programs
    for active duty families stationed in remote areas of the country where
    health care may not be available.

      Preparing for the Future by Modernizing Weapons Systems: The U.S.
    military is the best equipped fighting force in the world. Over the past
    eight years, the Administration has strongly supported a robust
    modernization program focused on the most advanced technologies to
    incorporate in future systems. This effort is critical to maintaining
    military forces capable of deterring and winning wars and successfully
    executing all contingency missions that may arise. Weapons
    modernization, including procurement of new systems, upgrades to
    existing systems, and development of new technologies to incorporate in
    future systems, has been a high priority for this Administration. The
    Administration's efforts in developing and procuring new systems have
    positioned the U.S. military to continue its unrivaled military
    superiority well into the 21st Century, as the discussion that follows
    highlight.
      Ground Forces: Over the past eight years, the Army developed
              new systems to improve warfighting capabilities, such as the
              Comanche helicopter and the Crusader howitzer, and upgraded
              existing systems such as the Apache helicopter and the Abrams
              tank to enhance operational readiness and improve
              capabilities. In addition, both the Army and the Marine Corps
              have developed a new light weight 155mm howitzer. The hallmark
              of the Army's modernization effort is its plan to transform
              itself into a more mobile and lethal force. The Army plans
              first to field a medium weight force between now and 2007 to
              provide greater combat power and mobility to units that deploy
              to hostile areas in the early stages of a conflict or to peace
              enforcement operations. In the long term, the Army plans to
              field an ``objective force'' that is lighter and more lethal
              than the current force by developing a Future Combat System
              (FCS). Ultimately, Army transformation will exploit technology
              advances anticipated in the FCS along with new operational
              concepts and organizational structures to maintain its
              battlefield superiority.
              The Administration has funded the cornerstones of the Marine
              Corps' modernization program--the V-22 tilt-rotor aircraft and
              the Advanced Amphibious Assault Vehicle--to significantly
              enhance capability as well. Both programs, developed over the
              course of the last decade, will replace aging helicopters and
              tracked vehicles and increase the Marines' ability to execute
              their ship-to-shore and cross-country

    [[Page 47]]

               movements with greater speed, range, and payload.
      Naval Forces: Since 1994, the Administration has funded
              several new classes of ships that will ensure U.S. naval
              superiority far into the future. These new classes include the
              LPD-17 amphibious ship, the Virginia Class attack submarine,
              and a new auxiliary support ship. The Administration also
              fully funded continued procurement of Nimitz class nuclear
              aircraft carriers, the backbone of the Navy's fleet, as well
              as Seawolf attack submarines, and DDG-51 class destroyers. The
              Administration provided funds to develop new technologies that
              will lead to procurement of next-generation systems including
              a new design nuclear aircraft carrier and the next generation
              surface combatant, known as DD-21, that will serve the Navy
              well into this century. The Administration has also supported
              programs that augment the fleet's warfighting capabilities and
              enable more cost-effective operation. Initiatives, such as
              Cooperative Engagement Capability and the Smart Ship program,
              take advantage of advances in information technology to
              deliver improved combat capabilities to our Navy while also
              reducing personnel and operations costs.
      Tactical Aviation Forces: Aviation force modernization has
              been an important part of the Administration's modernization
              program from the start. As a result of the President's
              efforts, the Navy's F/A-18E/F attack fighter and the Air
              Force's F-22 fighter are now in production, and the Joint
              Strike Fighter, a low-cost, stealthy, multiservice attack
              aircraft, is entering advanced development. These aircraft
              will ensure that U.S. troops will never have to fight under
              threat of enemy air attack.
      Mobility Forces: The Administration has aggressively pursued
              modernization of DOD's strategic airlift and sealift forces,
              which are vital to transporting U.S. forces where they are
              needed anywhere in the world. The Administration corrected
              serious problems it inherited in the C-17 airlift aircraft
              program and put the program on track. Recent operations in the
              Balkans proved the C-17's versatility in performing a variety
              of airlift missions. The Department plans to purchase
              additional C-17s in coming years to ensure that U.S. mobility
              forces possess the maximum possible flexibility with which to
              face the uncertain world of the future. In addition, the
              Administration provided funding that enabled the Air Force to
              initiate a C-5 modernization program to ensure that they are
              capable of meeting the projected airlift requirements; and it
              funded procurement of a new class of sealift ships intended to
              expand the ability to transport large quantities of equipment
              around the world.
      Tactical Munitions: The Administration has pursued a munitions
              investment strategy to develop and procure weapons with
              revolutionary capabilities--such as precision accuracy, all-
              weather performance, U.S. Global Positioning System (GPS)
              guidance, and increased standoff range. America's role in
              NATO's victory in the Kosovo air war showcased the success of
              this strategy. The Joint Direct Attack Munition (JDAM), a GPS
              guidance kit which inexpensively transforms unguided bombs
              into accurate weapons with all-weather capability, is a
              revolutionary munition first procured during this
              Administration; the Air Force used JDAM to great effect in
              Kosovo. The Administration requested funds to improve the
              Navy's Tomahawk cruise missile, a ``weapon of choice'' against
              high-value, heavily-defended targets. The newer Tactical
              Tomahawk version will feature a number of improved
              capabilities, including in-flight re-targeting. The military
              Departments also initiated a mid-range Joint Air-to-Surface
              Standoff Missile which is now under development.
      Space Systems: The Administration made significant investments
              in space systems that are critical to supporting military
              operations worldwide. These systems will enhance military
              communications, positioning and navigation, missile detection
              and warning, and weather monitoring. The Administration's
              National Space Transportation policy sustained and revitalized
              U.S. space launch capabilities and led to development of the
              Evolved Expendable Launch Vehicles program to provide

    [[Page 48]]

              more efficient, economical access to space. The Space Based
              Infra-red Satellites will replace the existing missile
              detection and warning satellite constellation. The
              Administration consolidated Department of Commerce and DOD
              programs into a single enhanced, polar-orbiting satellite
              system now in development to reduce the cost of acquiring and
              operating weather systems. Finally, the Administration
              formulated a national policy and strategic vision for the
              management and use of the GPS, and funded a modernization
              program for GPS that will significantly improve services for
              all users, both civil and military.
      Missile Defense: The Administration has invested in both
              ballistic missile defense technologies and theater missile
              defense systems that will defend against missiles directly
              threatening deployed United States and allied forces. The
              Administration has also been committed to the development of a
              limited National Missile Defense (NMD) system to counter the
              emerging ballistic missile threat from states of concern, and
              to working with Russia on any changes to the Anti-Ballistic
              Missile Treaty that may be required to deploy a limited NMD.
              The NMD system as a whole is not yet proven, and the President
              decided in September 2000 not to proceed with the deployment
              at this time. However, the Administration is continuing a
              program that represents the fastest, and most technologically
              mature path to achieving an effective NMD that can protect all
              50 States against emerging threats.

    Reducing the Global Danger from Nuclear Weapons and Other Weapons of
    Mass Destruction

      Shaping the Strategic Landscape Through Deterrence, Arms Control, and
    Cooperative Threat Reduction: The President has remained firmly
    committed to maintaining a robust deterrent capability while reducing
    the threat from weapons of mass destruction (WMD) through arms control
    and cooperative threat reduction efforts with states of the former
    Soviet Union.
      President Clinton's budgets over the past eight years have
              maintained and improved the Nation's deterrent capability by
              selectively enhancing the current nuclear force. The largest
              program in this regard will modify the remaining four Trident
              nuclear submarines to enable them to carry the most accurate
              and longest range submarine launched ballistic missile. Other
              DOD efforts to maintain the strategic nuclear force include
              programs that support upgrades to intercontinental ballistic
              missiles and intercontinental bombers such as the B-2.
      DOE also plays a critical role in the nuclear deterrence
              mission. Following President Clinton's announcement in August
              1995 that he would seek a ``zero yield'' Comprehensive Test
              Ban Treaty, which would ban any nuclear weapons test
              explosions, DOE implemented a science-based Stockpile
              Stewardship Program to ensure the safety and reliability of
              our nuclear deterrent. Through this program, which relies on
              non-nuclear test facilities and computer codes (rather than
              underground testing) to simulate nuclear explosions to predict
              the performance of the weapons, DOE has been able to annually
              certify the nuclear weapons stockpile as safe and reliable.
              The 2001 enacted level for this program is nearly $5 billion.
              The Administration successfully negotiated the zero-yield
              Comprehensive Test Ban Treaty with the other nuclear powers
              and sent it to the Senate for ratification in September, 1997.
              It remains in the Senate awaiting ratification.
              In addition, DOE made significant progress in reducing
              contamination at former weapons production facilities. Over
              the past eight years, DOE completed remedial action at more
              than 4,000 of the 9,700 areas of known hazardous or
              radioactive material contamination, including cleanup of some
              ecologically sensitive areas such as along the Columbia River
              in Washington and above the Snake River Plain Aquifer in
              Idaho.
      While investing in these force enhancements and the stockpile
              stewardship program, the Administration has simulta

    [[Page 49]]

              neously worked to lower the risks associated with WMD. To that
              end, the President has maintained arms control as a high
              priority of U.S. policy and implemented reductions under the
              Strategic Arms Reduction Treaty (START I), brought the START
              II treaty to the threshold of implementation (pending Senate
              approval), and laid the groundwork for even further reductions
              under a START III agreement. In addition, the Administration
              negotiated the passage in 1997 of the Chemical Weapons
              Convention to ban the worldwide production, storage, and use
              of chemical weapons. To date, the United States has destroyed
              22 percent of its chemical weapons stockpile.
      ----------------------------------------------------------------------

                          Table 2-3.  Strategic Forces
    ------------------------------------------------------------------------
                                      Cold War       Current      Projected
                                     (Pre-START)    (START I)    (START II)
    ------------------------------------------------------------------------
    ICBMs
      Minuteman...................          950           500           500
      Peacekeeper.................           50            50             0

    TRIDENT Submarines............           31            18            14
    SLBMs.........................          568           432           336

    Heavy Bombers.................          324        97 \1\        97 \1\

    Total Warheads................       13,498     6,000 \2\         3,500
    ------------------------------------------------------------------------
    \1\ Excludes 93 B-1B bombers dedicated to conventional missions.

    \2\ Maximum number of warheads on delivery vehicles determined by
      ``counting rules'' established by each treaty.

      ----------------------------------------------------------------------
      The Administration's threat reduction assistance programs in
              Russia and other states of the former Soviet Union have
              steadily grown to nearly $1.0 billion per year, and they have
              reaped significant benefits over the past eight years. Managed
              by DOD, DOE, and State, the programs mitigate the danger posed
              by WMD, the proliferation of their fissile material
              components, and the scientific expertise behind them. In 2001,
              DOD's Cooperative Threat Reduction (CTR) program accounted for
              about 48 percent of the total Administration threat reduction
              request while DOE's portion was about 37 percent and State's
              was 14 percent.
              DOD funds support accelerated strategic arms reductions in
              Russia and states of the former Soviet Union by dismantling
              and destroying strategic warheads, their delivery systems, and
              infrastructure. They also support WMD nonproliferation efforts
              by enhancing the safety, security, and control of nuclear
              weapons and fissile material components as well as chemical
              and biological munitions. Over the past eight years, CTR
              programs have supported deactivating over 5,000 nuclear
              warheads, destroying 17 strategic nuclear submarines and 405
              intercontinental ballistic missiles (ICBMs), and eliminating
              365 ICBM silos and 67 strategic bombers, while maintaining the
              fissile components of these weapons in a secure environment.
              The Administration began eliminating United States surplus
              weapons-grade plutonium by conversion and immobilization, and
              negotiated a similar program to dispose of Russian surplus
              plutonium; improved the safety of 65 reactors at Soviet-
              designed nuclear power plants and assisted nine countries to
              adopt and implement internationally accepted nuclear safety
              programs; and, provided security and accounting upgrades to
              protect over 400 metric tons of weapons-grade nuclear material
              at dozens of Russian and former Soviet sites. The United
              States and Russia also concluded an agreement in 1993 under
              which Russia will sell to the United States low-enriched
              uranium (LEU) derived from 500 tons of highly enriched uranium
              (HEU) from dismantled former

    [[Page 50]]

              Soviet Union nuclear weapons. To date, the U.S. Enrichment
              Corporation (the United States agent in these purchases) has
              purchased LEU fuel derived from about 6,000 nuclear weapons'
              worth of HEU.
              State's programs also support proliferation prevention
              activities by engaging former weapons scientists to direct
              their efforts away from weapons programs to activities with
              civilian benefits, and by preventing the illicit transfer of
              WMD through implementation of effective export controls.

      Meeting the Challenges of Unconventional Threats: The Administration
    has focused on meeting the challenge from emerging unconventional and
    asymmetric threats designed to offset U.S. superiority. The last decade
    has seen an increase in the frequency and severity of terrorist attacks
    on military forces and civilian targets, as well as the sophistication
    of emerging threats, such as WMD and information-based warfare.
    President Clinton has made defending the United States against such
    threats a top national security priority, and has sought to defend
    against these threats through diplomatic and military means abroad and
    increased preparedness at home. Over the past eight years, the
    President:
      Issued three Presidential Directives to combat terrorism and
              defend against WMD at home and abroad, and to protect the
              Nation's critical infrastructure from cyber attack. The
              Directives codified the roles and responsibilities of the many
              U.S. agencies involved in these missions.
      Appointed a National Coordinator for Security, Infrastructure
              Protection, and Counter-terrorism to coordinate the U.S.
              Government's efforts to confront emerging threats against
              Americans at home and abroad.
      Provided over $11 billion across the Government in 2001--a
              funding increase of more than 40 percent since 1998--to combat
              terrorism, defend against WMD, and protect critical
              infrastructure. This funding included efforts to equip and
              train first responders in the Nation's 120 largest
              metropolitan areas to prepare for and defend against weapons
              of mass destruction; create the first ever civilian medical
              stockpile for WMD incidents; and, recruit and train cyber
              security personnel to protect the Federal Government's own
              critical infrastructure.
      ----------------------------------------------------------------------

             Table 2-4.  Overall Funding for Unconventional Threats
                   (Budget authority, in millions of dollars)
    ------------------------------------------------------------------------
                                                  Actual
                                       ----------------------------   2001
                                        1998 \1\    1999     2000   Estimate
    ------------------------------------------------------------------------
    Combating Terrorism, excluding WMD     5,871    7,519    6,966     7,759
    Defense Against WMD...............       645    1,238    1,454     1,552
    Critical Infrastructure Protection     1,142    1,429    1,759     2,027
                                       -------------------------------------
      Total...........................     7,658   10,186   10,179    11,338
    ------------------------------------------------------------------------
    \1\ 1998 was the first year that data were available.

      ----------------------------------------------------------------------

    Reforming and Improving the Management of Defense Programs

      Defense Management Initiatives: The Administration identified defense
    reform as a major DOD priority. In November 1997, the Department
    announced the Defense Reform Initiative (DRI), which adopted the best
    business practices used by industry. The goal was to improve these
    activities and to reduce the overhead burden that these support
    activities place on the defense budget. DOD has completed two-thirds of
    54 separate Defense Reform Initiatives and the remainder are well
    underway. Since the DRI was launched, DOD has made progress in
    consolidating various defense organizations, streamlining its

    [[Page 51]]

    infrastructure, re-engineering its business practices, and competing
    more jobs with the private sector than ever before. DOD has projected
    that the work currently performed by approximately 150,000 positions
    will be bid against private sector firms by 2005, with projected savings
    of approximately $7 billion. Savings that result from competition are
    being reallocated to meet readiness and modernization needs.
      Reforming the Acquisition System: The Administration has also
              strongly supported efforts by DOD to reform the way it
              acquires weapon systems and services. Over the past eight
              years, DOD has reduced the amount of time it takes to field
              new weapon systems by 25 percent, saved millions of dollars in
              small purchases through the use of a Government-wide
              commercial purchase card, and, through the use of electronic
              commerce, reduced cumbersome paper transactions by 50 percent.
      Reducing Infrastructure: The reduction in the U.S. force
              structure made possible by the end of the Cold War has left
              DOD with more land and buildings than it needs to carry out
              its mission. The Administration inherited an established
              process, the Base Realignment and Closure Commission (BRAC),
              to remove this infrastructure from DOD's inventory. Since
              1988, BRAC has closed or restructured 97 major military
              installations and hundreds of smaller ones (55 of these major
              installations since 1993). While this process is costly in the
              short term, it is an investment that leads to elimination of
              the cost of upkeep on unused buildings and yields operational
              efficiencies. By the end of 2001, BRAC will have more than
              paid for itself, saving a net of $15 billion, and will save
              nearly $6 billion annually thereafter. At the same time, the
              Administration has worked diligently to minimize the effect of
              moving jobs out of affected communities by providing technical
              support to community redevelopment efforts, and turning over
              land to reuse as quickly as possible. Although the reduction
              in total DOD infrastructure has been beneficial and despite
              the many efficiencies achieved, BRAC has not kept pace with
              the overall change in force structure. For the last several
              years, the Administration requested additional BRAC rounds to
              allow for a further ``right-sizing'' of Defense
              infrastructure. This request, strongly endorsed by both
              internal DOD and external analysis, has failed to win
              congressional approval.
              The Administration has also implemented an aggressive
              demolition program, and has recently widened the authority to
              lease out unneeded DOD buildings and land. These programs have
              helped to reduce costs without moving people, and have become
              particularly important given the failure of the Congress to
              pass the legislation needed to replicate the success of
              previous BRAC rounds.
      Streamlining the Civilian Work Force: Over the past eight
              years, DOD has used buyouts and early retirements to achieve a
              streamlined and more productive work force. During this time,
              the Department has shrunk its civilian work force by
              approximately 37 percent, roughly commensurate with the
              reduction in military forces. The Administration was able to
              achieve this result mainly by offering incentives to those
              eligible or nearly eligible for retirement. Providing these
              incentives reduced the need for reductions-in-force, and thus
              accomplished the downsizing and streamlining with a minimal
              amount of disruption or economic hardship. While using these
              transition initiatives to ease the way for the many workers
              who left the work force, the Administration has also supported
              pay and benefit increases for the remaining employees who
              continue to become a more productive work force.
      Improving Financial Management: DOD has made significant
              progress in reforming its financial management operations. The
              Defense Finance and Accounting Service (DFAS) is the
              Department's agent for accomplishing needed financial
              management reforms. DFAS has consolidated DOD's financial
              operations, significantly reduced the number of finance and
              accounting systems, established and implemented ambitious
              deployment schedules, and reengineered business practices to
              adopt best practices from both the private and Government
              sectors. For example, over 300

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              financial management field sites were reduced to just 26,
              saving about $120 million annually; 324 finance and account
              systems were reduced to 76--with further reductions planned to
              achieve ultimately a 90-percent reduction; and, between 1993
              and 1999, personnel levels at the DFAS decreased by 37
              percent, from 31,000 personnel in 1993 to 19,500 personnel at
              the end of 1999. Since 1996, the DFAS has identified over 85
              percent of its personnel in finance and accounting functions
              as available for public-private competition, and has committed
              to study over 6,000 positions for competitive outsourcing. To
              date, the DFAS has completed six competitions resulting in
              annual savings of over $28 million.
      Implementing the Information Technology Management Reform Act
              (ITMRA): Also known as the Clinger-Cohen Act, ITMRA is
              designed to help agencies improve mission performance by
              effectively using information technology. One example is the
              Global Command and Control System, which provides the seamless
              integration of Service capabilities necessary to conduct joint
              and multinational operations into the 21st Century. In October
              2000, the U.S. Navy awarded an eight-year, $6.95 billion
              Navy--Marine Corps Intranet (NMCI) contract for managing the
              Service's shore-based computing enterprise. NMCI represents
              one of the biggest technology outsourcing contracts ever. The
              DOD Chief Information Officer Council manages DOD's
              information technology budget and its command, control, and
              communications budget, and provides advice on ITMRA-related
              issues. In addition, DOD continues to restructure its work
              processes while applying modern technologies to maximize the
              performance of information systems, achieve a significant
              return on investment, cut costs, and produce measurable
              results.