MILITARY SECRECY RISES, WITH PENTAGON HIDING BILLIONS OD ITS OUTLAYS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90-00965R000402650009-9
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 3
• Document Creation Date: December 22, 2016
• Document Release Date: February 8, 2012
• Sequence Number: 9
• Publication Date: September 25, 1985
• Content Type: OPEN SOURCE

STAT
Declassified in Part - Sanitized Copy Approved for Release 2012/02/08 : CIA-RDP90-00965R000402650009-9
Shadowy Spending
Military Secrecy Rises,
With Pentagon Hiding
Billions of Its Outlays
ON PAGE I -..
ARTICLE APPEARED 25 September 1985
Stealth Bombers and Fighters
Expand Classified Total;
Is It All That Necessary?
How Bidding Can Be Averted
By Roy J. Hasats JR.
And Rosear S. Gassrrssacsa
Sta.fj Reporters o/ Ttz WALL STREET JOURNAL
A black hole is growing inside the fed-
eral government, and it is pulling in bil-
lions of dollars a year.
Like the celestial black holes, this phe-
nomenon can be seen mostly by its effects:
Lockheed Corp.'s 7,000 or so employees in
Burbank, Calif., busily working on some-
thing the company steadfastly refuses to
discuss; giant C-5 military transports roar-
ing out of the Hollywood-Burbank airport
on late-night secret missions; unexplained
gaps in the financial reports of defense
contractors, and the recent disappearance
of an entire Pentagon agency from the fed-
eral budget for research and develop-
ment.
What's happening is a sudden and enor-
mous rise in military secrecy, particularly
of so-called black programs, ones so sensi-
tive that their very existence is known to
only a handful of top government and cor-
porate officials.
The government, of course, won't ac-
knowledge how much It is spending on
black programs. But those who study the
difference between the government's total
$302 billion defense-spending plan and the
programs broken out in the complex tangle
of budget proposals estimate that between
$10 billion and $30 billion is being hidden.
The Center for Defense Information, an in-
dependent research group often critical of
administration policies, calculates that the
black budget has shot up at least 50% for
fiscal 1986, which begins next Tuesday.
Why Total Rises
The size apparently has ballooned lately
because of a few huge' programs nearing
the production stage: especially "Stealth"
fighters and bombers-aircraft whose nick-
name derives from their ability to evade
radar. But black Programs cover an array
of hardware anprograms, m spy satel-
anturistic electronic weaponry
she plans for protecting the president in
case, of war.
Sometimes public efforts become
programs. The research and development
budget of the Pentagon's Defense Mapping
Agency, which prepares the data that
guide bombers and cruise missiles, van-
ished from this fiscal year's budget. This
fast-growing portion of the agency's budget
increased from $70 million in 1983 to a re-
quest for $207 million in 1985 before disap-
pearing into the black budget.
When black programs do show up in the
Pentagon budget, they are undefined and
unquantifled. They often are cloaked in in-
triguing code names like "Theme Castle"
and "Omega," or deceptively familiar
ones like "Bernie" and "Leo." Experts
piece together information that yields
clues about these code names. David Mor-
rison, of the Center for Defense Informa-
tion, believes that black budget codes be-
ginning with "Seek," such as "Seek Axle"
or "Seek Spinner," refer to radar systems.
Mr. Morrison notes that unclassified Pen-
tagon documents frequently refer to the
FPS-117 radar, which is part of the U.S. -
Canadian air defense system, as "Seek Ig-
loo."
Pentagon's Position
ID an age when weapons technology is
developing at breakneck speed larger
numbers of programs must be kept from
the public eye, says Britt Snider, the De-
fen a Department's director for counterin-
telligence and security policy. Black pro-
grams are needed because "even acknowl-
edging the existence of a program in some
circumstances can provide an adversary
with an indication of the direction of U.S.
efforts" and allow the enemy to create a
countermeasure, he says.
Even most of the nation's elected repre-
sentatives must be excluded, defenders of
black programs say. "Congress is a leaky
place. You can't trust them," says Richard
DeLauer, former undersecretary of de-
fense for research and engineering.
Some lawmakers aren't impressed by
such arguments. "I recognize some things
have to be secret. But (the Pentagon is)
putting up a serious barrier that's not in
the public interest," says Democratic Sen.
Paul Simon of Illinois.
In what could be a major challenge to
the administration's secrecy effort, Rep.
Mike Synar of Oklahoma has sponsored an
amendment to the defense authorization
bill that would require a report to Congress
by next February on the total cost of
Stealth bomber development. The Demo-
crat's bill would prohibit procurement
funds until Congress receives the report.
Debatable Results
It is debatable whether the secrecy
really keeps all that much information
from the Russians. Bill Sweetman, a San
Francisco journal writing a on
Stealth techn 0 oev describes Lockheed--
built Stealth fighters' being sequestered in
Individual, spy-proof hangars on a corner
`f Nevada's Nellis Air Force Base. But, he
head all the time-you can see them at
night in the desert sky"-presumably
watching the planes fly through simulated
Russian radar defenses.
The amounts being spent on secret pro-
grams, though hidden in the Pentagon
budget and in financial reports by contrac-
tors, may also be discernable. Benjamin
Schemmer, the editor. of Armed Forces
Journal, a monthly magazine published in-
dependently of the military, says that the
size of the holes in military arms requests
is so apparent that "the Russians can fig-
ure it out with third-grade mathemat-
ics."
Another worry is that classification
may simply be a way to protect the mili-
tary and contractors from criticism about
high costs and abuses. In black programs
the military normally picks contractors
privately, short-cutting the system of seek-
ing low bids from various competitors,
says Melvin Laird, a Nixon administration
defense secretary, who believes secrecy
has. expanded far more than necessary.
"You've got to be careful that you're not
using the black route to avoid competitive
bidding," Mr. Laird says.
Some in the defense industry, however,
claim black programs actually tend to be
better buys for taxpayers. "There's much
less red tape and much more flexibility" in
black programs, says Willis Hawkins, a
Lockheed senior adviser who recently re-
tired as senior vice president for aircraft.
He says Lockheed's "Skunk Works" opera-
tion in Burbank, where much of the com-
pany's secret work is done, "had a history
of turning money back to the customer-.
over and over again," and? generally did
similar work at costs 25% below Lock-
heed's other programs. -
The claim can't be substantiated, Mr.
Hawkins concedes, because of the secrecy
of the programs involved. And one official
of a Lockheed competitor has some
doubts: "If a coffee pot costs $10,000 on a
white aircraft, can you imagine what a
contractor charges on a black one?" he
asks.
Whatever the costs, however, history il-
lustrates that politics, and sometimes eco-
nomics, can play as much a role as na-
tional security in determining when a pro-
gram leaves or enters the light.
the 1 for example, President
Johnson ade Lockheed's top-secret SR-71
siDy plane u c ause "he ec he
wanc t or tt " Mr. Hawkins save.
(The U-2,
another Lockheed-built spy
plane, got an embarrassing c debut in
1960 after the Russians of one down over
their territory.)
President Reagan's current Strategic
Defense Initiative opened up many for-
merly black programs-at least temporar-
ily-as a part of his drive to gain public
and scientific support for developing the
so-called Star Wars technology.
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particularly instructive is the history of
the nation's Stealth bomber program.
Research into reducing the "signature"
of an aircraft-the various images that are
picked up by radar and other defenses-
first slipped into blackness in the early
1970s. That was when well-publicized in-
dustry theories began to jell into a plan for
building a jet that was "invisible" to the
enemy. Only tidbits of information leaked
out. Several sources, for example, reported
at least one crash in Nevada of an early
design by Lockheed (nicknamed Harvey,
after the invisible rabbit of fiction). A local
newspaper even identified a Lockheed pilot
who had gone into a hospital with post-
crash injuries, although reporters trying to
follow up found the crash report classi-
fied.
Secrecy was tightened even more by
the Carter administration in 1977. In 1978,
a Pentagon official asked Mr. Schemmer,
the Armed Forces Journal editor, to kill a
major article on the emerging Stealth tech-
nology. He obliged, believing the story
might do "immense, grave damage" to the
nation's security.
Two years later, the editor was amazed
when the same Pentagon official, William
J. Perry, volunteered an on-the-record in-
terview about Stealth. Shortly thereafter,
in October 1980, the defense secretary,
Harold Brown, held a press conference an-
nouncing that work was under way on. an
aircraft designed to be undetectable to ra-
dar.
Carter officials said the release was
prompted by leaks in the news media
about Stealth. They noted that they gave
out only scant data about technology and
the potential for a bomber.
Other Possible Motives
However, critics suggest the announce-
ment was more timed to help President
Carter's reelection bid that year and to
justify the controversial decision to cancel
the B-1 bomber. Mr. Schemmer, a firm be-
liever in the need for black programs, says
the government's release of the Stealth in-
formation was premature and "compro-
mised security far more" than his original
story would have.
The Reagan administration hasn't been
immune to outside pressure on Stealth
bomber secrecy.
In 1981, Aviation Week, a major trade
publication, identified Northrop Corp. as
the program's prime contractor and placed
the overall value of the bomber work at
$21.9 billion. Over the next several days,
Northrop stock surged 15% and was heav-
ily traded. The New York Stock Exchange
halted trading until Northrop could make
an announcement about the reasons for the
activity.
Initially, the company felt it couldn't
comment. But when stock trading was
halted, the company made an urgent ap-
peal to the military for some kind of an-
nouncement, says one person who was
close to the matter. Air Force officials re-
sisted. But finally the Air Force and Nor-
throp made a terse announcement saying
that Northrop was indeed the prime con-
tractor for research on an advanced-tech=
nology bomber and that the program
would have "material significance" for the
company. After that, the company's stock
resumed trading.
Officials involved in.that decision insist
they didn't compromise security for the
sake of securities. "The main thing was to
protect the developmental design of the
aircraft. The contractor part of it wasn't
necessarily as sensitive," says Gen. Rich-
ard Abel, at the time the Air Force's chief
of public information.
Boon for Northrop
For Northrop, the announcement helped
solve an increasing embarrassment of
riches. Just a few days later, the company
reported a 30% increase in quarterly sales
that it couldn't otherwise have explained.
"It was like being pregnant," recalls one
Northrop executive. "People were starting
to notice."
Lockheed, on the other hand, can't talk
about its reported Stealth efforts, including
the widely published speculation that it is
building Stealth fighters in Burbank and
transporting them out at night in C-5s.
Gen. Abel suggests that the Air Force
disclosed only the Stealth bomber contrac-
tors because that program "had received
so much visability" in 1980. But another
factor keeping the fighter hushed may be
that the much larger Lockheed-with sales
last year more than twice Northrop's $3.69
billion-is simply better able to conceal se-
cret programs in its financial reports.
An inability to mask ..secret programs
apparently changed one company's future.
Little San Diego-based Global Analytics
filed in 1983 for an initial public stock of-
fering, describing itself as a specialist in
Stealth technology for new and modified
weapons systems. But the offering was
withdrawn suddenly; a source close to the
company says it was because the Air
Force feared that sensitive information
about the progress of Stealth technology
could emerge in Global's required public
filings.
Global Analytics later was purchased
by Aluminum Co. of America, which lumps
the unit's financial results in with a new
defense systems division.
Alcoa declines to comment on Global
Analytics.
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? WALL STREET JOURNAL
ARTICLE APPEARED
DN PAGE L4
25 September 1985
Securities Firms Hire
Experts to Penetrate
Pentagon Secrecy
New Breed of Analyst Studies
Budgets, Contractor Data
For Classified Projects
By Roy J. HARM JIL
St q ff Reporter of Tta WA" STRZ Jotnwwt.
NEW YORK-Joseph Campbell used to
be a national security aide in the Reagan
White House. Since 1983, however, he has
helped outsiders penetrate the mysteries of
defense programs.
Mr. Campbell hasn't become a spy. He
is a securities analyst who now uses his
knowledge of the government's inner work-
ings when he studies defense budgets or
contractor financial reports that mask
classified work. His employer, Paine Web-
ber Group Inc., has made a special effort
to bring to its research staff people who
have "relevant experience" in the areas
being analyzed, he says. And in the case of
aerospace and defense, that means a back-
ground of dealing with military secrets.
As the hidden portion of the Pentagon
budget has expanded, a community of aca-
demics, journalists and others has sprung
up to analyze how taxpayer money is being
spent by the government or earned by con-
tractors. And several Wall Street firms
have hired experts in classified programs
to try a hand at figuring out defense-indus-
try financial puzzles.
Lumping Together
"The analytical mind can't deal with
jelly like what appears in company finan-
cial reports," says David J. Smith, who
joined Sanford C. Bernstein & Co. last year
after an Air Force career in which he
claims to have worked around some secret
aircraft programs. Companies tend to
lump their secret projects in with unclassi-
fied work. So he spends much of his time
estimating the size of hidden programs,
like Northrop Corp.'s Stealth bomber, and
projecting sales and earnings.
"I guess You could say I act almost like
an intelligence nt in the work I do," he
says But he maintains that his informa-
tion doesn't come from secret sources. In-
stead, it is based on his educated guesses
about what the military needs, tidbits of in-
formation gleaned from Pentagon budget
requests and corporate filings, and reports
that appear in trade publications.
For all their expertise, this new breed
of defense-industry analyst doesn't seem to
be unusually prescient in estimating the
earnings of such companies as Northrop
and Lockheed Corp.,, with their heavy con-
centrations of classified programs.
Mr. Smith recently had to increase his
forecast of Northrop's 1985 pre-tax operat-
ing profit from the Stealth bomber pro-
gram by 60%, to $90 million, based on his
review of the latest government defense-
spending proposal. The budget request in-
dicated to him that the program has grown
far faster than he had anticipated, he says.
And a few months before Northrop re-
ported its 1984 net income of $3.63 a share,
Mr. Smith had predicted earnings of
$3.30. ,.
At the same time, Wolfgang Demisch of
First Boston Corp., who doesn't have a
background working with classified infor-
mation, was a little closer, at $3.35 a
share.
The Big Picture
By concentrating mainly on classified
programs, an analyst "can miss the big
picture of how a company is doing," says
Mr. Demisch, who concedes that he relies
heavily on reports about secret programs
that appear in such major trade publica-
tions as Aviation Week and Interavia, a
European publication that often writes
about Stealth technology.
Those press reports rarely are docu-
mented and often offer veiled hints about
the nature and the size of various secret
programs. The reporting technique of Bill
Sweetman, whose Interavia stories are
filled with colorful detail about Stealth air-
craft, offers scant assurance that his infor-
mation is always accurate.
Mr. Sweetman, based in San Francisco,
says a lack of verifiable information often
forces him to recount rumors that his Air
Force sources won't confirm. His sources
probably would tell him if a rumor was er-
roneous, he says, because "the Air Force
doesn't want false reports to get too much
credit."
Declassified in Part - Sanitized Copy Approved for Release 2012/02/08: CIA-RDP90-00965R000402650009-9