Fight Brews Over $43 Billion in Unspent Defense Funds

A battle is shaping up over $43 billion in unspent Pentagon funds left over from the Ronald Reagan Administration’s arms buildup, even as Congress is seeking to cut military spending.

The funds are contained in two low-profile accounts. And, despite the size of the money pot, some people are just noticing that it exists.

Rep. John D. Dingell (D-Mich.) charged Thursday that the Pentagon funds amount to a “semi-secret slush fund” that exists largely outside congressional jurisdiction. The funds are nearly half as large as the Bush Administration’s proposed fiscal 1991 military procurement budget.

When the existence of the funds surfaced quietly last year in congressional hearings, the General Accounting Office was asked by Rep. John P. Murtha (D-Pa.) and Sen. Daniel K. Inouye (D-Hawaii) to investigate whether they were being used properly. The GAO found that the money was not being used improperly but that the situation constituted a loss of control by Congress.

Dingell called for legislation to eliminate the $43-billion funding authority held by the Pentagon in the accounts.

Pentagon spokeswoman Susan Hansen denied that the accounts represent a slush fund and described them as a kind of reserve held against unexpected or unbilled claims by defense contractors. She acknowledged that the $43 billion “sounds somewhat like the figures we know.”

Hansen said the $43-billion accounts are under the control of the Treasury Department and referred questions about their size to Treasury officials. But a Treasury spokesman said that the Defense Department controls the funds and that the Treasury’s only function is to write checks against the money.

The controversy underscores the increasing concern many experts have with the Pentagon’s accounting system, which was severely criticized only last week in a draft GAO audit that was leaked to the press. In that audit, it was disclosed that the Air Force had understated its costs on three major weapons systems built during the Reagan Administration by $25.5 billion because of sloppy accounting.

Moreover, the entire Pentagon business apparatus has been stung repeatedly through the years for its inability to deal effectively with such seemingly trivial matters as paying defense contractors on time, handling paper work and negotiating adequate contracts.

The $43 billion in unspent Pentagon funding authority is held in a so-called M account and a “merged surplus account.” The staff of Dingell’s House Energy and Commerce Committee, which has been investigating the funds, found that $25.3 billion in authority is held in the merged surplus account and $17.2 billion is held in the M account. The Navy holds the largest amount of funds with $9 billion in its M account and $8 billion in its merged surplus accounts, Dingell said.

Under the federal budget system, congressional appropriations lapse after two years. It has been widely assumed that all lapsed appropriations are returned to the Treasury, but a large portion of those funds ends up in such special accounts.

The M account is supposed to contain funds to pay for weapons contracts that have not yet come due but for which the two-year appropriation has lapsed. The merged surplus account theoretically contains lapsed appropriations that would be used to pay off unexpected claims against the Pentagon.

“The only way we are able to use those funds is if an obligation was made on a previous contract and a bill is forthcoming that was not expected,” Hansen said about the M account. As for the merged surplus account, she explained: “Maybe somebody can bring a battleship out of mothballs and present a bill that goes back that far.”

But a Dingell staff member said funds in the merged surplus account can be used to pay virtually any claim against the government, using funds appropriated for one weapon to pay for another.

For example, the Air Force used its M account to pay about $1 billion to Eaton Corp. to fix the B-1 bomber avionics system, which failed to meet its contractual requirements and left the bomber unable to fulfill its mission of penetrating Soviet air defenses.