WASHINGTON — Despite having a budget of over $800 billion and the ability to purchase millions of weapons and equipment every year, the Pentagon sometimes manages to find extra money. This time, it found $300 million.
For the second time in nine months, Defense Department accountants have carefully reviewed their financial records and managed to allocate more military aid to Ukraine.
The $300 million may seem like a large sum to regular people struggling to pay their mortgages, but for the Pentagon, it's not. Given the enormous size of the military budget, even small savings, like reducing the cost of each bullet in a new contract, can add up to millions of dollars.
This is how the White House and Pentagon leaders explained their ability to send a new set of weapons and equipment to Ukraine this month, even though the bill to fund military aid is stuck in Congress. It was the first aid package since late December, and the lack of U.S. weapons deliveries has caused Ukrainian troops on the front lines to ration or run out of ammunition.
A senior defense official revealed that the department used savings recovered from an Army contract that turned out to be cheaper than expected. The official spoke anonymously to discuss the details of the process.
The discovery of the $300 million has sparked some interest. The Defense Department is requesting money from Congress to replace weapons it has already sent to Ukraine. Earlier this month, the Pentagon disclosed the extent of the gap — $10 billion. This means that the military services that dispatched stockpiled equipment to Ukraine will not receive replacements unless Congress approves the funding bill, which House Republicans have obstructed.
It's uncertain whether the Pentagon could have used the $300 million to reduce the $10 billion replenishment deficit. There are congressional restrictions on how different funding can be utilized, and the Pentagon did not immediately respond to questions about the savings. However, given that Ukrainian troops are running out of ammunition in their fight against Russia, and with no indication of the funding deadlock in Congress ending soon, the Biden administration chose to use the savings to assist its struggling ally.
In another complex financial development, the Pentagon announced last year that it had identified an accounting error that freed up an additional $6.2 billion in weapons for Ukraine. The military services utilized replacement costs to determine the value of the equipment sent to Ukraine, but regulations necessitate the use of the lower net book value.
The surplus was in spending authority, not actual money, so it meant the Pentagon had congressional approval to dispatch an additional $6.2 billion worth of equipment to Ukraine.
A look at the complicated accounting:
The $10 billion hole …
The $10 billion replenishment gap is based on estimates made by Pentagon budget planners in the early months of the war. At that time, there were few details on the weapons Ukraine would require over time and what the U.S. would ultimately send. In those early months, mostly basic systems, like small arms ammunition and anti-tank rounds, were quickly provided.
For the less complex systems, the Pentagon's costs to restock were roughly the same as the original cost.
However, as time passed, the U.S. began sending complete air defense systems, armored vehicles, advanced missiles, and even Abrams tanks. The ratio for replacement costs increased, reaching as high as 4-to-1 for certain systems. This is because in some cases, the military is replacing older weapons with newer, more advanced, and pricier ones.
For instance, the Army sent Humvees to Ukraine but is now purchasing new and much more expensive Joint Light Tactical Vehicles to replace them. Additionally, the Army is acquiring the upcoming Precision Strike Missile (PrSM) to replace the long-range Army Tactical Missile System (ATACMS), which is in high demand for Ukraine and costs less than the PrSM.
As a result, the initial estimates for restocking U.S. supplies fell short. However, it's challenging to calculate by how much. The Pentagon hasn't provided any details to explain how it arrived at the $10 billion figure, such as the total value of the equipment already sent and how much of that the department needs to restock.
…and the savings of $300 million
When the U.S. began negotiating contracts to replace weapons sent to Ukraine, officials were sometimes able to save money by obtaining items at lower prices than initially anticipated.
For example, the military managed to purchase 25 millimeter ammunition for $93 per round, rather than the initial estimate of $130 per round. Therefore, when it bought 120,000 rounds, the savings on that contract alone amounted to $4.4 million.
Such savings occur frequently, as do contract overages. Over the last two years, the military services returned over $1.57 billion to the replenishment fund by September 2023, due to price savings or other contract issues.
Of the funds returned, around $1.5 billion was used to replace other supplies sent to Ukraine, while the remaining $70 million arrived too late in the fiscal year and expired before it could be reprogrammed.
The majority of the $300 million came from an Army contract to purchase Armored Multi-Purpose Vehicles. The final cost was $290 million less than initially estimated.
Basically, the recovered $300 million allowed the Pentagon to balance out the costs of sending more munitions to Ukraine without going further into debt.
The unexpected $6.2 billion
In late June of last year, as the fiscal year was ending and congressional funding for Ukraine was starting to decrease, Pentagon officials declared that they had discovered an accounting mistake.
This involved the Pentagon's Presidential Drawdown Authority (PDA). This program allows the department to take weapons from its own stockpiles and send them to Ukraine, but it doesn't provide funding — that comes from other appropriations bills.
As the military services took weapons off the shelves, they used replacement costs to calculate the value of the equipment sent, instead of the book value as required. The book value of a weapon is the original cost minus depreciation, which was much lower than weapon replacement costs. Once the costs were adjusted, there was about $6.2 billion in spending authority remaining.
What is remaining?
The Pentagon used some of the unexpectedly found $6.2 billion to send extra weapons to Ukraine, and now there's about $3.91 billion still available.
In theory, that money could be used to send weapons from U.S. stockpiles to Ukraine. However, because there's no money left to buy replacement weapons, and no assurance that Congress will act soon, the Pentagon is hesitant to use that power.
Sending weapons without the funding would worsen the $10 billion replenishment shortfall, further reducing stockpiles and potentially endangering U.S. troops.
In the past week, top Pentagon officials have publicly urged Congress to approve a $95 billion supplemental funding package that is still stalled on Capitol Hill. About $60 billion of that would fund U.S. efforts to support Ukraine, with $20 billion of it going toward replenishing stockpiles now and in the future. The officials argue that such funding actually benefits Congress, as it would be used to increase production at manufacturing plants all around the U.S.
Last week, Gen. CQ Brown, chairman of the Joint Chiefs of Staff, pressed the point during a rare trip with lawmakers. He took Republican House and Senate members from Arkansas and Oklahoma, some of whom have opposed the spending bill, with him to visit companies in those states making weapons needed by Ukraine to show that the bill, if passed, would ultimately benefit the local economies and workforces that make up the U.S. defense industrial base.
