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2010 Defense Budget Full Of Adds And Add Ons

President Obama signed the 2010 Defense Appropriations Act into law on Saturday. This means the full resources have been released to the Pentagon for its use and the continuing resolution is over. The Senate voted late Friday to send the compromise Conference report to the President.

As with all spending bills of this size -- well over $600 billion -- there are lots of items added to it that were not specifically requested or wanted by the Executive Branch. Not only that but due to the fact that it was the last major bill passed by Congress other then health care reform it was loaded up with non-defense related items as well.

The two major things incorporated that were specifically not asked for by Obama and Secretary of Defense Gates were the continuation of the second engine for the F-35 JSF and the VH-71 New Presidential Helicopter. Despite discussion of vetoing the bill over their inclusion for the last six months the President did not follow through accepting the adds of almost $600 million for these two programs as the price to pay to get the rest of the budget including money for the operations in Afghanistan.

Lockheed Martin (LMT) was able to keep some parts of the VH-71 program going as Congressman Hinchey (D-NY) who represents the Owego, NY area where the plant involved is was able to keep about $100 million in the bill. This money will be used to continue development and integration of some of the technologies developed for the program that was canceled. Hinchey is hoping that once the Navy and Pentagon realize how much it will cost to start a new program they will return to Lockheed to try and get some use out of the aircraft already purchased. This money will keep that option open.

Congress for several years has funded development by GE (GE) and Rolls-Royce (RR) of a second engine source for the F-35. This is being done as risk reduction in case Pratt & Whitney's engine is not ready or available in sufficient quantities to support the large number of aircraft to be procured. The Obama administration had wanted to save this money believing that the second source was not needed. The final bill kept almost $500 million for the second engine but Congress found this from other funds rather then reducing the core JSF budget. This actually increased as production of the advanced fighter was accelerated to support quicker testing and development.

These were two of the main bones of contention between the Congress and the Defense Department but the bill is also full of all sorts of other local funding. For example there is $300 million to work on roads and transportation around the new Walter Reed Army and Fort Belvoir medical centers. These are the result of the last round of BRAC which saw movement and consolidation of the facilities outside Washington D.C. The local Congressman, Chris Van Hollen (D-MD), brags about his securing this funding.

Because of the lateness and how critical the bill is Congress added some provisions not related to defense. Some of these are just extensions of existing laws like a flood insurance and small business loan program. Others are more substantial such as a rule that prevents the reduction of doctor's payments from Medicare in the next year. Reasons like these were why several members did not vote for the bill. Some provisions added to the debt and increased Government spending not related to defense.

As the full details of the bill become known over the next few days analysts and defense contractors will pour over it to learn where they are going to make or lose money. The other major issue will be whether a supplemental will be required to keep funding operations in Afghanistan and Iraq. The Obama Administration tried to include enough money in the base budget to do that but that was prior to the "surge" in Afghanistan troop commitment. Ideally there will be no need but some are already predicting that there will be one.

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