BY STEVE HOLLAND AND ANDREA SHALAL
(Reuters) - U.S. President Barack Obama has ordered a review of the distribution of military hardware to state and local police out of concern at how such equipment has been used during racial unrest in Ferguson, Missouri.
The president ordered the examination of federal programs and funding that enable state and local law enforcement to purchase such equipment, a senior Obama administration official said on Saturday.
Images of police wielding military-style guns and armor have shocked many Americans following clashes that were triggered by the fatal shooting of a black teenager, Michael Brown, by a white police officer in Ferguson two weeks ago.
Obama wants to know whether the programs, which were expanded after the Sept. 11, 2001, attacks, are appropriate and whether state and local law enforcement are given proper training, the official said.
The review will be led by White House staff including the Domestic Policy Council, the National Security Council, the Office of Management and Budget, and relevant U.S. agencies including the Departments of Defense, Homeland Security, Justice and Treasury, and conducted in coordination with Congress.
Obama signaled he would review the programs at a White House news conference on Monday when he said he wanted to make sure police were purchasing equipment they actually needed because there is "a big difference between our military and our local law enforcement and we don't want those lines blurred."
A growing number of lawmakers have voiced concern about the militarization of U.S. police forces through programs administered by the Pentagon, Justice Department and Department of Homeland Security.
Democratic Senator Claire McCaskill of Missouri, who heads the oversight subcommittee of the Senate Homeland Security and Governmental Affairs Committee, announced plans this week for a hearing in September about the programs.
Senate Armed Services Committee Chairman Carl Levin, a Michigan Democrat, said last week he planned a review to ensure that the Pentagon's 1033 program, which transfers surplus equipment to local and state authorities, was working as intended before the full Senate considers the annual bill that authorizes military spending.
Key concerns include a clause in the program that requires police to use the equipment within a year, something the American Civil Liberties Union argues may give police forces an incentive to use the equipment in inappropriate situations. The program also does not mandate training for crowd control or other uses.
House of Representatives lawmakers defeated a bill to halt the 1033 program in a 355-62 vote in June, but concerns about the handling of the crisis in Ferguson have revived the reform effort.
COMPANIES HAVE EYED 'ADJACENT' MARKETS
The Pentagon has transferred more than $4 billion of equipment including armored vehicles, tents, rifles and night-vision goggles to local and state agencies since 2006, of which about 36 percent involved new equipment.
Over the past year alone, the Pentagon said, it has transferred some 600 armored military trucks known as MRAPS that were built for the war in Iraq.
In addition, the Department of Homeland Security has awarded more than $35 billion in grants over the past decade.
U.S. weapons makers have been eyeing what they call "adjacent" markets for years, keen to drum up fresh demand for products initially developed for the military, and recently, to offset declines in U.S. and European military spending.
Faced with a dwindling number of big-ticket military contracts, even the Pentagon's largest suppliers such as Lockheed Martin Corp (LMT.N) and Northrop Grumman Corp (NOC.N) are competing for increasingly smaller contracts in commercial or non-military markets, analysts and industry executives said.
Among the products marketed to state and local officials are military-grade communications equipment, radios, night-vision goggles, drones and other surveillance equipment.
Some smaller companies such as privately held Sierra Nevada Corp and Exelis Inc (XLS.N) are also marketing military-style reconnaissance systems to state and local governments to help agencies become more efficient, said Loren Thompson, chief operating officer of the Virginia-based Lexington Institute think tank.
But Michael Smith, managing director of the Virginia-based Silverline Group defense consultancy, said local law enforcement agencies accounted for less than 1 percent of the revenues of most defense contractors.
But he said the crisis in Ferguson could help niche firms by increasing demand for cameras, more coordinating centers and better training.
Digital Ally (DGLY.O), which makes tiny digital video cameras worn by police officers, and Taser International Inc, which makes stun guns, have seen a sharp increase in interest in their products since Aug. 9, the day of the fatal shooting in Ferguson.
The 1033 program was begun in 1991 to help police forces in the "War on Drugs," and was revamped in 1997 to include counterterrorism activities. Chris Coyne, economics professor at George Mason University in Virginia, said the program expanded sharply after the 2001 hijacked airliner attacks.
"Once it was in place, it led to opening the floodgates in an unquestioning manner to the state and local level. And people grabbed stuff because they could," Coyne said.
Coyne said he was particularly concerned about the use of such teams after the Boston Marathon bombing in 2013. "Shutting down a city and unleashing massive SWAT teams that look very similar to military forces abroad is problematic. Then in Ferguson, it just ramped up even more," he said.