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Lawrence F. Skibbie, President, National Defense Industrial
(June 22, 1998)
Mr. Skibbie did not appear before the Commission. A summary of his written
statement on capital
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
Definition of capital expenditures
should include tangible defense assets and defense research and development
should be limited, not broad, for a capital budget to have any chance of
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.
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,
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.