What Budget Commitment?

In his December 29 letter to Cap Weinberger recommending how to proceed with respect to the space shuttle, and again in its January 3 letter responding to OMB questions, James Fletcher had asked for a "Administrator’s contingency" of 20 percent to guard against unex­pected costs during shuttle development, saying "approval of a $5 bil­lion program would thus constitute a commitment by NASA to make every effort to produce the desired system for under $5 billion, but in no case more than $6 billion." That funding reserve apparently was not discussed at the January 3 meeting at which Shultz gave quick approval to the full capability shuttle. Fletcher intended to bring up the issue with the president when he and Low met with Nixon on January 5, but forgot to do so. He called Bill Anders the next day, ask­ing Anders to intercede with the White House to make sure that the budget reserve was part of NASA’s understanding with OMB. When Anders called John Ehrlichman, he was told to relay the message to Fletcher that NASA would have to "eat" any cost overruns. In a February 16 letter from Shultz to Fletcher in which Shultz "recapitu­lated our understanding of the decisions that have been made to date on the space shuttle," there was no mention of a funding reserve; indeed Shultz told Fletcher that we "fully expect NASA to develop a shuttle system within the $5.5 billion of research and development costs, should we subsequently agree on the choice of pressure-fed boosters, or within an appropriately smaller amount should the choice be solid rocket motors."5

In the same letter, Shultz told NASA that it was "our specific under­standing that NASA’s peak annual spending during the period of development of the shuttle will not exceed $3.2 billion of outlays in the dollars of the FY 1973 budget." NASA up to that point had been argu­ing that the offer that NASA had made to develop the shuttle within the framework of a constant overall NASA budget, adjusted for infla­tion, was based on FY1971 dollars and on a FY 1973 new obligational authority level of $3.379 billion, rather than the $3.2 billion outlays level. The question of the budget baseline also had not been explicitly discussed at the January 3 approval meeting. When Fletcher and Low realized that their understanding was at variance with OMB’s intent, a difference that could lead to more than a billion dollar shortfall in the funds available for shuttle development, they tried for the next month to convince OMB to agree to a constant NASA budget based on the $3.379 billion level for FY 1973 and shuttle cost estimates based on FY1971 dollars. They did not succeed. Indeed, in fall 1972, Weinberger, by then the director of OMB, refused to honor the constant budget agreement even at the $3.2 billion level, leading James Fletcher to conclude that "a commitment from OMB is worthless."6

These two differences of understanding between NASA and OMB with respect to the funding available for shuttle development meant that the program had to be managed under very tight financial con­straints. When the almost inevitable technical problems arose, there was no margin in the shuttle budget to deal with them; as a result, there were cost overruns and schedule delays that in the late 1970s almost led to President Jimmy Carter canceling the shuttle program.