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Staff Summary of Testimony to the PCSCB: Skibbie, Nat'l Defense Industrial Association

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Lawrence F. Skibbie, President, National Defense Industrial Association (NDIA)
(June 22, 1998)

Mr. Skibbie did not appear before the Commission. A summary of his written statement on capital
budgeting follows.

Written Testimony: NDIA surveyed its members and provided a summary of responses from the eight companies that replied. About half of the respondents generally did not comment due to their lack of knowledge about how capital budgeting would affect them; however, two of these companies opposed major changes to the current process. The two companies believe that the current process is flawed, but it's at least understood. One respondent strongly supported a separate capital budget that would be free from budgetary caps and debt ceilings, because the capital budget would bring stability to defense acquisitions. Most of these companies also noted that they can not definitely comment until clear details of the capital budgeting proposal are available. In closing, NDIA emphasized the need for a full, open discourse to better inform the defense industry and the need for a clear definition of capital expenditures.

The following list summarizes the major views of the survey respondents in detail:

Definition of capital expenditures

  • should include tangible defense assets and defense research and development costs;
  • should be limited, not broad, for a capital budget to have any chance of acceptance; and
  • should include DoD installations and exclude manpower spending, such as training, but it is unclear whether to include durables (tanks, aircraft, ships) and consumables (ammunition, rations, petroleum product stocks).
Capital budgeting process
  • a conceptual justification for a capital budget would be allow a deficit for capital expenditures; and
  • should be as close as possible to the current process.
  • difficulty in calculating the economic return on military investments will confuse the debate on the appropriate levels of defense investment;
  • capital budgeting techniques are inadequate in prioritizing defense vs. nondefense items;
  • every proponent of a project will seek the capital asset classification, politicizing the definition of capital expenditures; and
  • advocates of certain investments would lengthen amortization schedules to minimize apparent costs.
  • inform the industry fully and distribute amplifying information;
  • keep the unified budget, but create separate sublimits for defense programs within the discretionary caps;
  • devise a formula to limit capital borrowing to a percentage of, for example, GNP; and
  • create a firewall between defense and nondefense accounts and, within the Department of Defense, in both operating and capital budgets, to preclude diversion of investment funds to operational emergencies.

President's Commission to Study Capital Budgeting

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