Finding money: How the Pentagon dug down and found $300M for Ukraine but is still deep in the red

Canadian dies in volunteer fighting group A Canadian-born commander of a volunteer fighting group in Ukraine has died.

WASHINGTON — Even with a budget of more than US$800 billion and the ability to buy millions of weapons and pieces of equipment every year, the Pentagon sometimes can find a few dollars in the couch cushions. Or, make that $300 million.

For the second time in nine months, U.S. Defense Department accountants have sharpened their pencils, pored over their books and found a way to send more military aid to Ukraine.

That $300 million figure may sound huge to ordinary citizens who struggle to pay the mortgage. But it's not for the Pentagon. Given the vast size of the military budget, even minor savings like shaving a few dollars off every bullet in a new contract can translate into millions of dollars.

That's how White House and Pentagon leaders explained how they could send a new package of weapons and equipment to Ukraine this month even though the bill to fund military aid is stalled 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 defence official said the department used savings it recouped in an Army contract that came in cheaper than planned. The official spoke on condition of anonymity to discuss details of the process.

The discovery of the $300 million has raised some eyebrows. The Defense Department is begging Congress for money it needs to replace weapons it already sent to Ukraine. Earlier this month, the Pentagon revealed how bad the gap was -- $10 billion. That means that the military services that sent stockpiled equipment to Ukraine won't get replacements unless Congress approves the funding bill, which House Republicans have stalled.

It's unclear whether the Pentagon could have put that $300 million toward reducing the $10 billion replenishment deficit instead. There are congressional controls on how different funding lines can be used, and the Pentagon did not immediately respond to questions on the savings. But with Ukrainian troops running out of ammunition in their fight against Russia -- and no sign that the funding impasse in Congress will end soon -- the Biden administration opted to use the savings to help its struggling ally.

Adding to the complicated financial record keeping, the Pentagon announced last year it had found an accounting error that freed up an extra $6.2 billion in weapons for Ukraine. The military services used replacement costs to determine the value of the equipment sent to Ukraine. But rules require them to use net book value, which is lower.

The surplus was in spending authority -- not actual money -- so it meant the Pentagon had congressional approval to send 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 stems from estimates that Pentagon budgeteers made in the early months of the war. Back then, there were few details on what weapons Ukraine would need over time and what the U.S. would ultimately send. In those early months, mostly simple systems, like small arms ammunition and anti-tank rounds, were rushed in.

For those simpler systems, the Pentagon's replenishment costs were estimated to be close to a one-to-one ratio.

But as the months went by, the U.S. began to send entire air defence systems, armored vehicles, sophisticated missiles -- even Abrams tanks. The replacement cost ratio grew, depending on the system, sometimes to as much as four-to-one, because the military in some cases is replacing older weapons with newer, higher-tech, pricier ones.

For example, the Army sent Humvees to Ukraine but is buying new and far more expensive Joint Light Tactical Vehicles to replace them. The Army also is buying the upcoming Precision Strike Missile, or PrSM, to replace the long-range Army Tactical Missile System, or ATACMS, which is a high-demand item for Ukraine and costs less than the PrSM.

As a result, the early estimates for how much it would cost to replenish U.S. stockpiles fell short. By how much, however, is difficult to calculate. The Pentagon has not provided any details to explain how it came up with the $10 billion figure, such as the total value of the equipment already sent and how much of that the department needs to replenish.

...and the $300 million savings

As the U.S. began negotiating contracts to replace weapons sent to Ukraine, officials at times were able to save money by getting things at lower prices than initially expected.

For example, the military was able to buy 25 millimeter ammunition for $93 per round, rather than the initial estimate of $130 per round. So, when it bought 120,000 rounds, the savings on that contract alone totaled $4.4 million.

Such savings actually happen all the time, as do contract overages. Over the past two years, the military services returned more than $1.57 billion to the replenishment fund, as of September 2023, due to price savings or other contract issues.

Of the funds returned, about $1.5 billion was used to replace other stocks sent to Ukraine, while the remaining $70 million came too late in the fiscal year and expired before it could be reprogrammed.

The senior defence official said the bulk of the $300 million came from an Army contract to buy Armored Multi-Purpose Vehicles. The final cost was $290 million less than initially estimated.

Essentially, the recovered $300 million allowed the Pentagon to offset the costs of sending more munitions to Ukraine without going deeper into the red.

The $6.2 billion surprise

Late last June, as the end of the fiscal year was nearing and congressional funding for Ukraine was beginning to dwindle, Pentagon officials announced they'd found an accounting error.

The account in question involved the Pentagon's Presidential Drawdown Authority, or PDA. That program gives the department the authority to pull weapons from its own stockpiles and send them to Ukraine. It does not provide funding -- that comes in other appropriations bills.

As the military services pulled weapons off the shelves, they used replacement costs to calculate the value of the equipment sent, rather than book value as required. The book value of a weapon is the original cost minus depreciation, which was a lot less than weapon replacement costs, and once the costs were corrected, there was about $6.2 billion in spending authority left over.

What's left?

The Pentagon dipped into that unexpectedly discovered $6.2 billion a few times to send additional weapons to Ukraine, and there is currently about $3.91 billion left.

In theory, that could be used for sending arms from U.S. stockpiles to Ukraine. But because there is no money left to buy replacement weapons, and no guarantee that Congress will act soon, the Pentagon is reluctant to use that authority.

Sending weapons without the funding would only deepen the $10 billion replenishment hole, further reducing stockpiles and potentially putting U.S. troops at risk.

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 is a boon to Congress, since 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. defence industrial base.