14"

4 4

4<

*4

Q414

S ',
A

I;

I4

i~ 1 1

Ax

A A

I

A&

;
United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-258691

August 2, 1995

The Honorable Herbert H. Bateman

Chairman, Subcommittee on Military Readiness

The Honorable Joel Hefley

Chairman, Subcommittee on Military

Installations and Facilities

Committee on National Security

House of Representatives

In 1977, U.S. President Jimmy Carter and Panamanian leader General

Omar Torrijos signed treaties that called for the transfer of the Panama

Canal to Panama and the withdrawal of U.S. military presence from

Panama by December 31, 1999. Earlier this year, we issued a classified

report to you on issues related to the U.S. military drawdown in Panama.

Since that time, most of the classified information has been declassified.

On the basis of discussions with your staff and because of the likelihood

that U.S. military drawdown issues will come before the Congress in the

near future, we have updated the information in our earlier report and are

issuing this unclassified report. Specifically, we are providing information

on (1) the potential for a post-1999 U.S. presence, (2) the status of

transfers of Department of Defense (DOD) properties and Panama's

preparedness to accept them, (3) the coordination to address

treaty-related issues, (4) DOD environmental and property valuation

policies, (5) DOD efforts to address employee terminations due to the

drawdown, and (6) the cost of the U.S. military drawdown. This report

does not deal with the transfer of the Panama Canal to Panama.

BackgFround The Panama Canal Treaty and the Treaty Concerning the Permanent

Neutrality and Operations of the Panama Canal went into effect on

October 1, 1979. These treaties now serve as the primary basis for

U.S.-Panamanian relations. Treaty provisions require that the United

States transfer, without charge, all U.S. military real property and

nonremovable improvements in Panama to the Panamanian government.

The treaties also call for the continued neutrality of the canal but specify

that by December 31, 1999, all U.S. military forces will be withdrawn from

Panama and only Panama will operate and maintain military forces,

Page 1 GAO/NSIAD-95-183 Panama
B-258691

defense sites, and military installations within its national territory.'

However, a 1978 protocol states that

nothing in the [Neutrality] Treaty shall preclude the Republic of Panama and the United

States of America from making . . . any agreement or arrangement between the two

countries to facilitate performance at any time after December 31, 1999, of their

responsibilities to maintain the regime of neutrality established in the Treaty, including

agreements or arrangements for the stationing of any United States forces or the

maintenance of defense sites after that date in the Republic of Panama 

DOD's treaty implementation plan, approved by the Secretary of Defense in

1992 and revised most recently in October 1993, includes plans to

(1) relocate or deactivate about 10,050 military personnel, 3,000 U.S.

civilians, and 5,200 non-U.S. civilian personnel; (2) consolidate DOD

operations primarily onto a few bases on the Pacific side of the isthmus by

1995 and transfer all DOD facilities to Panama by the end of 1999; and

(3) relocate U.S. Southern Command (soumcoM) headquarters. SOUTHCOM,

a regional unified command, oversees U.S. military operations in

19 countries in Central and South America and is responsible for carrying

out the treaty implementation plan. Funding to implement the plan is

provided through the normal DOD budget process, and each military

service is responsible for estimating budgetary requirements.

DOD plans to transfer to Panama about 77,000 acres of property and

4,272 buildings that have an investment cost of about $538 million.3 These

facilities include major military installations such as Howard Air Force

Base (5,282 acres) on the Pacific Ocean side of the isthmus, from which air

operations throughout South and Central America are conducted; Fort

Sherman (23,100 acres) on the Atlantic Ocean side, where the Army's

Jungle Operations Training Center is located; and several other bases

located throughout Panama that are primarily used for housing and

training military personnel. Panama believes that the properties to be

transferred can be put to good economic use if they can be developed

quickly, and Panamanian officials have discussed various proposals for

using the properties. For example, Fort Amador, located next to

iPanama's comt)ined nilit arv-police forces-known since 1983 as the Panamanian Defense

Forces-were dissolved following the December 1989 U S. military intervention In its place, Panama

created a National Police Force, which, in addition to its policing responsibilities, has responsibility for

protecting Panama's h rders IP'anana does not currently have military forces.

Throtoc,>l of Exchmnge o>f Inst nnents of Ratification Regarding the Treaty concerning the Permaintn

Neutraity and ()iperantion of t he Panuaima Canal and the Panama Canal Treaty, tone 16, 1978

[his figure was repxsri ed in June 199 1 by the Assistant Secretary of Defense in a st uidy done in

respanst to the Natiomat Defense Authonzation Act for Fiscal wear 1991 (P I 101-510)

Page 2 GAO/NSIAD-95-183 Panama
B-258691

Panama City, is considered to be prime property, and plans are to develop

it for tourism.

Results in Brief In 1979, and again in 1991, the Congress stated that the best interests of

the United States would be served by retaining a U.S. military presence in

Panama after 1999 and that the President should begin negotiations with

the government of Panama to consider whether the two countries should

allow permanent stationing of U.S. forces in Panama. Some members of

the current Congress have reiterated that the President should begin such

negotiations. Officials of both the United States and Panamanian

governments have publicly indicated a willingness to consider a post-1999

U.S. military presence. However, negotiations have not begun and U.S.

executive branch officials have not reached agreement among themselves

on (1) what U.S. interests would be served by keeping U.S. forces in

Panama or (2) how or when to proceed on this matter. In its drawdown

schedule, DOD is positioning itself to retain some forces in Panama after

1999 if instructed to do so by the President under any negotiations that

may occur. According to DOD officials, an early decision on this matter is

important to maintain an orderly process and avoid incurring unnecessary

costs.

Although DOD'S treaty implementation plan has been revised several times,

generally to postpone some transfers, DOD is proceeding with the

drawdown according to its revised schedule. The transfer of Fort Davis

and Fort Espinar to Panama, planned for October 1995, will end the U.S.

military presence on the Atlantic Ocean side of the isthmus, except for the

Jungle Operations Training Center at Fort Sherman and operations at

Galeta Island. The transfer of some properties on the Pacific side,

including Fort Amador and Fort Clayton, has been postponed from the

originally scheduled date because U.S. requirements have changed and

Panama does not have a plan for using these properties. In addition, Miami

has been selected as the new location for sOUTHCOM headquarters with the

move planned for 1998.

A number of committees, some with only U.S. officials and others with

both U.S. and Panamanian officials, have been established to coordinate

specific treaty implementation matters. Both SOUTHCOM and U.S. Embassy

officials noted, however, that as a number of critical issues pertaining to

the transfer of properties need to be resolved, the need for all parties to be

kept fully informed and engaged on treaty implementation actions will

become more important.

Page 3 GAO/NSIAD-95-183 Panama
B-258691

DOD has approved policy guidance for the transfer of DOD installations to

the government of Panama, including property condition and valuation.

Also, Do)[ has been planning for its employee termination liability in

Panama since 1989, and incentives such as early retirement and job

placement offered by the U.S. Panama Area Personnel Board should help

minimize the effects of severance pay and other potentially costly

personnel issues.

DOD reported that as of September 30, 1994, its cumulative treaty-related

cost was $813 million, and it expects future treaty-related costs to be

about $554 million. However, these costs are not offset by estimated

savings that may accrue as a result of transferring properties to Panama.

Plans for a Post-1999 The Panama Canal treaties specify that by December 31, 1999, all U.S.

military forces will be withdrawn from Panama and that all U.S. military

U.S. Presence in real and nonremovable property will be transferred without charge to

Panama Panama. Department of State and DOD officials have stated that the United

States would fully implement all provisions of the treaties. However, treaty

implementation documents do not preclude the United States from

negotiating an agreement with Panama for the permanent stationing of

U.S. military forces in Panama after 1999. Officials from both Departments

said that if such an agreement is not negotiated with Panama, all U.S.

forces will be withdrawn as specified by the treaties.

The Panama Canal Act of 1979 (P.L. 96-70), enacted to implement the

Panama Canal treaties, expressed the sense of the Congress that "the best

interests of the United States require that the President enter into

negotiations with the Republic of Panama for the purpose of arranging for

the stationing of United States military forces" in Panama after 1999. The

Panama Canal Commission Authorization Act for fiscal year 1992

(P.L. 102-190, sec. 3505) states, among other things, that "the Panama

Canal is a vital strategic asset to the United States and its allies," and that

"the presence of United States Armed Forces offers a viable defense

against sabotage or other threat to the Panama Canal." The act expressed

the sense of tie Congress that the President should negotiate, at a

mutually agreeable time, with the government of Panama to consider

whether the two governments should allow the permanent stationing of

U.S. military forces in Panama after 1999.

In June 1994, the Secretary of Defense said that the United States would

consider keeping forces in Panama if the Panamanian government

Page 4 GAO/NSIAD-95-183 Panama
B-258691

requested it to do so. Likewise, Panama's newly elected President, who

took office in September 1994, stated that any request on the part of the

United States to have military forces remain in Panama would be carefully

studied. According to U.S. Embassy officials in Panama, as of October

1994, the U.S. government had no plans to request that the Panamanian

government permit U.S. forces to remain in Panama after 1999. In

June 1995, executive branch officials noted that they had not agreed

among themselves on (1) what U.S. interests would be served by keeping

U.S. forces in Panama or (2) how or when to proceed on this matter.

According to Department of State and DOD officials, a presidential review

of U.S. policy toward Panama is underway, and the process should, among

other things, determine what national interests would be served by having

U.S. military forces stationed in Panama after 1999. The review, which was

to have begun in early 1994, has been repeatedly delayed. In January 1995,

we were told that position papers had been circulated among executive

branch agencies and that the review would be completed early in 1995.

However, as of June 1995, the review had not been completed, and DOD

and State officials told us it was on hold.

Any decision to seek a post-1999 presence would be followed by

negotiations with the Panamanian government if it agrees to participate in

such negotiations. According to DOD officials, an early decision on a

post-1999 presence is important if the services are to maintain an orderly

process and avoid incurring unnecessary costs. In its 1995 strategic

assessment,4 the National Defense University asserts that the executive

branch must decide soon if U.S. foreign policy and security interests

require a continued military presence in the hemisphere outside the

United States. The assessment states that a decision on a continued U.S.

military presence in Panama cannot be deferred much longer, noting that

units are being deactivated as a part of the overall downsizing of the

armed forces and budgetary decision windows affecting construction and

relocation are about to close.

Status of the Transfer According to its treaty implementation plan, DOD will consolidate

operations at a few locations primarily on the Pacific side of the isthmus of DOD Facilities by 1995 and transfer all DOD facilities to Panama by December 1999. The

first step in this consolidation occurred in June 1994 when DOD transferred

the Coco Solo Medical Clinic on the Atlantic side of the isthmus to

'Strategic Assessment 1995: U. S Security Challenges in Transition. National Defense University,

Feb. 1995, p. 96

Page 5 GAO/NSIAD-95-183 Panama
B-258691

Panama. The consolidation of U.S. troops on the Pacific side is planned for

Howard Air Force Base, Fort Kobbe, and Rodman Naval Station. DOD

officials stated that these facilities are among those the U.S. military would

want to retain if the United States and Panama agree on a post-1999 U.S.

presence in Panama.5

DOD officials believe 1995 will be a key year in consolidating forces from

the Atlantic to the Pacific side. The transfers of Fort Davis and Fort

Espinar, expected to occur in October 1995, appeared to be on schedule as

of June 1995. These transfers will mark the end of U.S. military presence

on the Atlantic side of the isthmus, except for the Jungle Operations

Training Center at Fort Sherman, and operations at Galeta Island, both

scheduled for transfer in 1999. About 1,200 military and 650 civilian

personnel on the Atlantic side will be relocated or deactivated by the end

of 1995. At that time, only 154 military and 116 civilian personnel are

scheduled to remain on the Atlantic side to staff the Jungle Operations

Training Center and Galeta Island.

Although some minor properties on the Pacific side of the isthmus have

already been transferred, Panama's lack of a plan for using DOD properties

has delayed some transfers. For example, Fort Amador was scheduled for

transfer in late 1995, but in January 1994 SOUTHCOM and the government of

Panama negotiated a postponement of the transfer until early 1996. In

June 1995 they negotiated a further delay to late 1996. Panama favored the

postponement because it had not awarded a contract to formulate an

economic development plan for Fort Amador, which is to be developed for

tourism.6 A U.S. Agency for International Development official told us that

the development plan would take at least 8 months to complete. SOUTHCOM

officials told us they can use the housing on Fort Amador and agreed to

the postponement to accommodate Panama's planning needs.

rThe 1992 treaty implementation plan stated that Howard Air Force Base, Rodman Naval Station, Fort

Kobbe, and Fort Sherman would be the final bases transferred to Panama in 1999. In 1994, Fort

Clayton was added to the list of bases to be transferred in 1999

"This $1 million contract is to be) paid by the government ,f Panama with funds generated from the

repayments of loans made under a grant agreement by th - 1 S Agency for International Development

These funds had been previously earnmarked by Panama to repay n onnilitary bilateral debt to the

United States

Page 6 GAO/NSIAD-95-183 Panama
B-258691

Figure 1: DOD Installations to Be

Transferred to the Republic of Panama

(as of June 1995) Atlantic Ocean

Fort Sherman iG

1999 e a6md19

eCoc

Solo Clinic 1 9

* Fort Espinar 1995

Pina Range* eort Davis

1999

Balb oa West Range

1997

N Empire Range e 1999

N Fort Clayton 1999

Corozal 1999

* Albrook 199 Gorgas Hospital 1998

* Curundu Quarry Heights 1998 1999 Rodman 199 Fort Amador 1996

Howard AFB

Fort Panama City

Kobbe

Paoiic Ocean

Pensma CManal

Note: Dates indicate planned reversion to Panama.

Page 7 GAO/NSIAD-95-183 Panama
B-258691

Other transfers have been postponed due to changing U.S. requirements.

For example, Fort Clayton was originally scheduled for transfer in 1997. In

mid-1994, soUTHcom officials decided to postpone the transfer to 1999

based on a continuing need for housing and office facilities. SOUTHCOM

headquarters, originally scheduled to be moved in 1995, is now scheduled

to be moved to Miami in 1998. Figure 1 on page 7 shows the scheduled

dates for the transfers of all DOD properties to Panama.

Coordination of SOUrTIRoM and the U.S. Embassy have interrelated responsibilities for

implementing the Panama Canal treaties. The U.S. Ambassador to Panama Treaty Issues has overall responsibility for (1) effecting the diplomatic notes that

transfer U.S. properties to Panama, (2) generally providing authoritative

treaty interpretations, and (3) negotiating bilateral agreements with

Panama on behalf of U.S. agencies that fall outside the purview of the

treaty-mandated Joint Committee.7 SOITHCOM is responsible for planning

and coordinating activities affecting the U.S. forces and military-related

aspects of the treaties.

Various committees assist with implementing the treaties. A key

committee, known as the Joint Committee, is comprised of representatives

of the U.S. military and the government of Panama. It addresses

treaty-related matters pertaining to the U.S. military and Panama. Most of

the committee's work to date has dealt with matters other than the

reversion of lands, and U .S. Embassy and SOUTHCOM officials believe that

the committee has worked effectively. However, they told us that in the

near fut ture, the committee would be handling an increased number of

reversion issues, for which the procedures had not been fully tested. Some

of the critical issues that will require close coordination include the

approval of property transfer procedures and the resolution of issues on

health, safety, and the removal of hazards before the transfer of properties.

The Joint Committee does not have a representative from the U.S.

Embassy as a permanent member, but an Embassy official may attend

meetings as an observer. The committee met formally in 1990 but did not

formally convene again until September 1994, when it met to discuss the

use of IT.S. facilities for housing Cuban migrants. A sOUTHCoM official told

us that most of the committee's work has been conducted by telephone,

letters, and memorandums of understanding.

IThi Anti ,ssiador's posit loll his iecii vacan Since Februairy 1994 As of July 19, 1995, the President's

n1nuge a aAO/NSAg sInt9 co8i rPanno

Page S GAW/NSIAD-95-183 Panama
B-258691

The Panama Review Committee is comprised of the U.S. Ambassador, the

SOUTHCOM Commander-in-Chief, and the Panama Canal Commission

Administrator and meets quarterly to discuss U.S. government positions

on various matters, including those related to treaty implementation.

Minutes of these meetings are provided to the Secretary of State, the

Secretary of Defense, and heads of other interested agencies.

An unofficial, binational planning working group comprised of SOUTHCOM

and Panamanian officials was established to help Panama with

treaty-related activities, to include the sharing and coordination of

turnover timeliness, reutilization workshops, and the exchange of

computer-aided information. This committee is working with the

Panamanian Regional Authority to plan for the reversion of military

properties, since the Authority is responsible for developing land use plans

for reverted properties.

The Joint Commission on the Environment was established as a binational

commission comprised of Americans and Panamanians. This commission

does not represent the U.S. or Panamanian governments. Its function is to

advise both governments on matters pertaining to safety, health, and the

environment. The U.S. Embassy provides an executive secretary to the

commission's U.S. delegation.

Both SOUTHCOM and U.S. Embassy officials said they believed that overall

coordination at the working level has been effective. However, as the end

of the treaty implementation period nears and increasing numbers of

properties are prepared for turnover, officials from both sotUTHcom and the

U.S. Embassy noted that all participants will need to be kept fully

informed on actions being taken and on U.S. policy decisions.

DOD Environmental According to an agreement implementing the Panama Canal Treaty, before

the United States transfers properties to Panama, the two countries must

and Property consult with each other concerning the properties' condition, including the

Valuation Policies removal of hazards to life, health, and safety. We previously reported that

DOD experienced high termination costs for bases closed in Germany and

that the U.S. military withdrawal from the Philippines involved high costs

for relocation and potentially high costs for environmental damage.'

'The charge d'affaires represents the United States in the absence of an ambassador.

'European Drawdown: Status of Residual Value Negotiations in Germany (GAO/NSLAD-94-195BR,

June 23, 1994) and Military Base Closures: U.S. Financial Obligations in the Philippines

(GAO/NSIAD-92-51, Jan. 22, 1992).

Page 9 GAO/NSJAD-95-183 Panama
B-258691

DOD has approved a policy for the transfer of DOD properties to the

government of Panama. The policy specifies that DOD will eliminate known

imminent and substantial hazards to human health and safety and will

attempt to maintain the usefulness of facilities transferred to Panama.

SOUTHCOM is developing implementing procedures and is expected to

prepare and maintain records of all facility transfer consultations and

agreements.

DOD has several firing ranges among the properties it will transfer to

Panama. They present the most problematic environmental concerns due

to the potential for unexpended ordnance below and on the surface. Other

potential environmental concerns involve fuel spills and leaks from

underground storage tanks. The President of Panama's Interoceanic

Regional Authority stated that the Panamanian government has been

studying contamination on U.S. bases to document contamination levels.

He said that the Panamanian government would ask the United States to

decontaminate all military bases before turning them over to Panama and

noted that the total cost of decontamination might be in the hundreds of

millions of dollars.

Although the Panama Canal Treaty states that U.S. properties will revert to

Panama at no charge, an agreement to implement the treaty requires that

the United States and Panama consult with each other concerning

compensation for the properties' residual value. To comply with the

agreement, DOD's policy on the valuation of transferred facilities to

Panama states that the adjusted book value (that is, the original cost

adjusted for age, inflation, and condition) of the nonremovable property or

improvements will be used as the starting point for discussion of residual

value with the government of Panama. Accordingly, DOD is recording the

accumulated residual value of these properties, and DOI officials have

noted that such figures could be used to offset Panamanian claims for

environmental damage.

Personnel Issues One sOTiucoM objective is to maintain a high quality of life for military

members and their families in Panama. souTTIOM's Commander-in-Chief

has stated that he believes military forces stationed in Panama should

continue to be accompanied by their families as long as possible. He has

also stated that on-base housing should be provided to the extent possible

to all military members who want to live on base. As the transfer of DOD

properties occurs, sm oM's Commander-in-Chief has also made it a

Page 10 GAO/NSIAD-95-183 Panama
B-258691

priority to maintain a full range of community services for U.S. military

personnel and their families, including the education of dependents.

The drawdown of U.S. military troops in Panama will result in the

termination of civilian employees' jobs. As of June 1995, DOD employed

more than 6,350 U.S. and Panamanian and other non-U.S. civilians in

Panama, about 1,800 of whom were temporary employees. Permanent

employees, who are eligible for severance pay, will receive a basic

severance and an age adjustment allowance when their jobs are

eliminated.

The U.S. Panama Area Personnel Board is responsible for coordinating

civilian personnel policy in Panama. The Board's Executive Director told

us that DOD and the Board have been planning for the DOD drawdown by

implementing several programs to reduce the costs of treaty

implementation. For example, the Board administers interagency

placement and referral programs to help displaced DOD civilian employees

find jobs with other federal agencies and the Panamanian private sector.

Also, the Board has approved policies that encourage the use of

treaty-related retirements for pre-treaty employees covered under the Civil

Service Retirement System. Both of these programs encourage voluntary

separations and in turn decrease the adverse effects of reductions-in-force.

We previously reported that in other countries DOD had not always

anticipated the full extent of its termination liabilities for displaced host

country personnel. These liabilities have been significant.' 0 In anticipation

of the drawdown in Panama, all locally hired DOD civilians have been

appointed on a temporary basis since November 1989. As of June 1995,

26 percent of DOD's Panamanian and other non-U.S. civilian employees

were temporary hires. Temporary employees are not eligible for severance

pay or reduction-in-force rights when displaced, which will help reduce

the budgetary impact of a reduction-in-force on the U.S. government.

Under 5 U.S.C. 8348 (i)(1), the Panama Canal Commission is responsible

for that portion of any estimated increase in liability resulting from the

early retirement of pre-treaty Commission and DOD employees. According

to a Panama Area Board official, the Office of Personnel Management

confirmed that the special retirement costs for all pre-treaty DOD

employees have been included in the Commission's monthly payments to

the U.S. Civil Service Retirement Fund. Our audit of the Commission's

"Base Closures: Long and Costly Process of Reducing the LocaJ National Work Force in Germany

(GAO/NSIAD-92-32, Apr. 17. 1992) and Army Force Struct ure Persnnel Equpment, and Cost Issues

Related to the European Drawdown (GAO/NSAD-42-2001R, Apr 9. 19

Page 11 GAO/NSIAD-95-183 Panama
B-258691

1993 and 1994 financial statements found that early retirement costs are

being funded from Canal revenues on an accelerated basis in order to be

fully funded by 1999."

DOD reported that as of September 30, 1994, its cumulative treaty-related

cost was $813 million, and officials believe that DOD's future treaty-related Implementation Costs costs will be about $554 million.' 2 These costs are for relocating units,

turning over properties, consolidating forces into fewer sites, and funding

other planning considerations. However, these costs are not offset by

estimated savings such as reduced maintenance and civilian personnel

costs that may accrue as a result of transferring properties to Panama.

About $447 million of the $554 million in estimated DOD future costs is

related to the Army. The Army's future costs include the following:

- Relocation costs of $292.9 million include transportation of personnel,

families, and equipment; civilian personnel severance pay; procurement of

communication equipment for SOUTHCOM headquarters; and construction

for units remaining in the force structure.

* Turnover costs of $51.7 million include repair and maintenance to facilities

before turnover, environmental compliance and hazardous waste disposal

requirements, deinstallation or removal of equipment from facilities and

transportation to a disposition area, and security of facilities before

turnover.

- Consolidation costs of $44.3 million include local transportation of

equipment from one site to another; upgrade of base communications and

design and construction of an information facility at Howard Air Force

Base, Rodman Naval Station, and Fort Kobbe; and facility renovation to

accommodate consolidating units.

- Other costs of $58.4 million include operation of treaty implementation

offices at SOUTiCOM and DOD headquarters, travel allowances for military

police to provide security, and transfer of supplies to other locations.

The Air Force and the Navy estimated that they will need $82.9 million and

$23.9 million, respectively, for treaty implementation requirements from

1996 to 2000.

'"Financial Audit Panama Canal Commission's 1994 and 1993 Financial Statements (GAO/AIMD-95-98,

Mar31l,_1_99_5).-_______________

'his figure does not include funding to fully decontaminate the firing ranges and military bases.

which the President of the Interoceanic Regional Authority said the govemment of Panama might

request

Page 12 GAO/NSIAD-95-183 Panama
B-258691

Agency Comments In commenting on a draft of this report, DOD generally concurred with the

information included in this report (see app. I). DOD provided some

technical points of clarification, which we incorporated where

appropriate. The State Department provided oral comments, which we

have also incorporated where appropriate.

Scope and We interviewed and obtained relevant documents from officials at DOD, the

State Department, the Panama Canal Commission, the Agency for

Methodology International Development, the U.S. Embassy in Panama, and soUTcom.

We also visited a number of DOD properties in Panama. We conducted our

review from February 1994 to January 1995 and updated the information in

June 1995 in accordance with generally accepted government auditing

standards.

We are sending copies of this report to the Chairman and Ranking

Minority Member, Senate Committee on Armed Services, and other

appropriate congressional committees; the Secretaries of Defense and

State; and other interested parties.

If you or your staffs have any questions concerning this report, please call

me on (202) 5124128. Major contributors to this report were Lawrence L.

Suda, Assistant Director; Oliver G. Charter, Evaluator-in-Charge; and Jay A.

Scribner, Evaluator.

Harold J. Johnson, Director

International Affairs Issues

Page 13 GAO/NSIAD-95-183 Panama
Appendix I

Comments From the Department of Defense

N)te GAO comments

_upplementing those in the

re ort text appear at the

end of this appendix

ASSISTANT SECRET Y OF DEFENSE

2400 DEFENSE PENTAGON 50

WASHINGTON, D.C. 20301-2400 -"Z""

iNTERNATIONAL

SECURfTY AFFAIRS

1 2 8 J0N 1995

Mr. Harold J. Johnson

Director, International Affairs Issues

National Security and International

Affairs Division

U.S. General Accounting Office

Washington, D.C. 20548

Dear Mr. Johnson:

This is the Department of Defense (DoD) response to the General

Accounting Office (GAO) draft report entitled "PANAMA: DOD's Drawdown

Plan for the U.S. Military in Panama" dated December 2, 1994 (GAO Code

711066), OSD Ca.e 9824-X. The DoD partially concurs with the report.

The GAO draft report reflects information available through October

1994. However changes are continuing to occur. The changes to the Treaty

Implementation Plan proposed by the U.S. Southern Command, even though not

See comment 1. yet formally approved, have created a different situation today than was depicted

during the time of the GAO review. For example, the inactivations of some units are delayed and some properties will revert later than originally reported.

In addition, while the DoD agrees with much of the information

included in the draft it is important that GAO discussion of treaty-related

requirements be precisely presented to avoid incorrect interpretation. In that

regard it should be clearly recognized that there are important differences

between the treaty itself and treaty protocols.

The detailed DoD comments on the draft report findings are provided

in the enclosure. Suggested technical changes were separately provided to the

GAO staff. The DoD appreciates the opportunity to comment on the GAO draft

report.

Sincerely,

Joseph S. N , Jr.

Enclosure

Page 14 GAO/NSIAD-95-183 Panama
Appendix I

Comments From the Department of Defense

GAO DRAFT REPORT - DATED DECEMBER 2, 1994

(GAO CODE 711066) OSD CASE 9824-X

"PANAMA: DOD's DRAWDOWN PLAN FOR

THE U.S. MILITARY IN PANAMA"

DEPARTMENT OF DEFENSE COMMENTS

FINDINGS

FINDING A: Panama Canal Treaty. The GAO observed that

the Panama Canal Treaty and the Treaty Concerning the Permanent

Neutrality and Operations call for the continued neutrality of the canal, but

specify that, by December 31, 1999, (1) all U.S. military forces will be

withdrawn from Panama; (2) only Panama will operate and maintain

military forces, defense sites, and military installations within its national

territory; and (3) the U.S. will transfer, without charge, all U.S. military

real property and nonremovable improvements in Panama to the

Panamanian Government.

The GAO further observed that the May 1994, DoD Treaty

Implementation Plan includes plans to (1) relocate or deactivate about

10,050 military personnel, 3,000 U.S. civilian, and 5,200 non-U.S. civilian

personnel; (2) consolidate DoD operations primarily onto a few bases on

the Pacific side of the isthmus by 1995 and transfer all DoD facilities

to Panama by the end of 1999; and (3) relocate U.S. Southern Command

(SOUTHCOM) headquarters. In addition, the GAO pointed out that the

DoD plans to transfer to Panama about 77,000 acres of property and 4,272

buildings that have an investment cost of about $538 million. The GAO

noted that those facilities include major military installations, such as

Howard Air Force Base (5,282 acres); Fort Sherman (23,100 acres); and

Fort Sherman (23,100 acres). (pp. 1-3/GAO Draft Report)

DoD RESPONSE: Partially concur. The GAO observed that the

Panama Canal Treaties specify that by December 31, 1999, all U.S.

military

Page 15 GAO/NSIAD-95-183 Panama
Appendix I

Comments From the Department of Defense

forces will be withdrawn from Panama and that only Panama will operate

and maintain military forces and defense sites and installations within

Panama. The DoD agrees that the Treaty Concerning the Permanent

Neutrality and Operation of the Panama Canal (the Neutrality Treaty) does

contain language to this effect. It should be recognized, however, that the

Protocol of Exchange of Instruments of Ratification regarding the Treaty

Concerning the Permanent Neutrality and Creation of the Panama Canal

and the Panama Canal Treaty of June 16, 1978, contains a stipulation which

has the effect of limiting the treaty language. That protocol states that

"Nothing in the Neutrality Treaty shall preclude the Republic of Panama

and the United States of America from making . any agreement or

arrangement between the two countries to facilitate performance at any

time after December 31, 1999, of their responsibilities to maintain the

regime of neutrality established in the Treaty, including agreements or

arrangements for the stationing of any United States forces or the

maintenance of defense sites after that date in the Republic of Panama."

Therefore, any arrangement between the two countries for stationing of

forces after 1999 would not require any modification of the existing treaty,

See comment 2 as ratified.

October 14, 1993 was the last annual update to the Treaty

Implementation Plan document directing the draw down of U.S. Forces

from Panama. The GAO report should reference that document, rather

See comment 3 than the May 1994, DoD Treaty Implementation Plan.

Finding B remains classified.

Page 16 (AO/NSIAD-95-183 Panama
Appendix I

Comments From the Department of Defense

FINDING C: Status of DoD Facilities to Be Transferred.

The GAO observed that according to the DoD Treaty Implementation Plan,

operations will be consolidated to a few locations primarily on the Pacific

side of the isthmus by 1995, and transfer of all DoD facilities to Panama by

December 1999. Specifically, the GAO reported that:

- In May 1994, the DoD transferred the Coco Solo Medical Clinic on

the Atlantic side of the isthmus to Panama.

- Consolidation of U.S. troops on the Pacific side is planned for

Howard Air Force Base, Fort Kobbe, and Rodman Naval Stationfacilities that are among those the U.S. military would want to retain,

if the U.S. and Panama agree on a post-1999 U.S. presence in

See comment 4. Panama.

- The transfer of Fort Davis and Fort Espinar, expected in

October 1995.

- The transfer of the Jungle Operations Training Center at Fort

Sherman, is scheduled for transfer in 1999.

- About 1,400 military and 775 civilian personnel on the Atlantic side

will be relocated or deactivated in 1994 and 1995, and by the end of

1995, only 179 military and 121 civilian personnel are scheduled to

remain on the Atlantic side to staff the Jungle Operations Training

Center.

- The SOUTHCOM headquarters would be relocated in 1995--

however, a decision on the new location of SOUTHCOM

Page 17 GAO/NSIAD-95-183 Panama
Appendix I

Comments From the Department of Defense

headquarters had not been made as of October 1994, and the

SOUTHCOM relocation has been postponed until 1998. The GAO

noted that in June 1994, the SOUTHCOM Commander-in-Chief

submitted a proposal to relocate the SOUTHCOM headquarters out

of Panama regardless of whether the U.S. retains a post-1999

military presence in Panama, but the Secretary of Defense had not

responded to that proposal as of October 1994. (pp. 8-11/GAO

Draft Report)

DoD RESPONSE: Partially concur. The 1994 annual

SOUTHCOM update of the Panama Canal Treaty Implementation Plan

(PC TIP) also specifies the retention of Fort Clayton as one of those

facilities that the U.S. Military would want to retain for optimizing

available base support infrastructure, particularly family housing for the

refined TIP personnel ceiling. In addition, based on the 1994 annual

SOUTHCOM update of the PC TIP, about 1,400 military and 775 civilian

personnel on the Atlantic side will be relocated or inactivated in 1994 and

1995. However, by the end of 1995, only 154 military and 116 civilian

personnel are now scheduled to remain on the Atlantic side to staff the

Jungle Operations Training Center and the Galetta Island operation.

As of January 1995, the Secretary of Defense has not yet responded

to the SOUTHCOM proposal to relocate the SOUTHCOM headquarters out

See comment 4 of Panama, regardless of whether the U.S. retains a post-1999 military

presence there. A decision by the Secretary of Defense is expected by the

end of March 1995.

FINDING D: Coordination of Treaty Issues. The GAO

reported that the SOUTHCOM and the U.S. Embassy have interrelated

responsibilities for implementing the Panama Canal treaties. The GAO

explained that the U.S. Ambassador to Panama has overall responsibilities

for (1) coordinating the transfer of U.S. properties to Panama, (2)

generally providing authoritative treaty interpretations, and (3) negotiating

bilateral agreements with Panama on behalf of U.S. agencies. The GAO

added that the SOUTHCOM is responsible for planning and coordinating

activities affecting the U.S. forces and military-related aspects of the

treaties.

The GAO reported that various committees assist with implementing

the treaties, such as: (1) the Joint Committee which addresses treaty-related

matters pertaining to the U.S. and Panama; (2) the Panama Review

Committee which meets to discuss U.S. Government positions on varous

Page 18 GAW/NSIAD-95-183 Panamn
Appendix I

Comments From the Department of Defense

matters, including those related to treaty implemen-tation; (3) an unofficial

binational planning working group that was established to help Panama

create the Inter-oceanic Regional Authority responsible for developing land

use plans for reverted properties; and (4) the Joint Commission on

Environment which advises both U.S and Panamanian Governments on

matters pertaining to safety, health, and the environment.

The GAO pointed out that according to SOUTHCOM and U.S.

Embassy officials, the overall coordination at the working level had been

satisfactory. However, the GAO noted that as the end of the treaty

implementation period nears and increasing numbers of properties are

prepared for turnover, officials from both the SOUTHCOM and the U.S.

Embassy indicated that all participants will need to be kept fully informed

on actions being taken and on U.S. policy decisions.

(pp. 11-13/GAO Draft Report)

DoD RESPONSE: Concur. The U.S. Ambassador to Panama has

overall responsibilities for (1) effecting the diplomatic notes that transfer

U.S. properties to Panama, (2) generally providing authoritative treaty

interpretations, and (3) negotiating the bilateral agreements with Panama

on behalf of U.S. agencies that fall outside of the purview of the Treaty

mandated Joint Committee. The Joint Committee addresses treaty-related

matters pertaining to the U.S. forces and Panama. The Binational Planning

Working Group is an unofficial committee established to assist Panama in

treaty related activities, to include sharing and coordinating turn over

timelines, reutilization workshops, and exchange of computer aided

information.

FINDING E: The DoD Policies On the Condition and

Value of Properties. The GAO reported that according to an agreement

implementing the Panama Canal Treaty, the U.S. and Panama are required

to consult with each other, before the transfer of properties, concerning the

properties condition, including the removal of hazards to life, health, and

safety. The GAO noted that the DoD has approved a policy for the transfer

of DoD properties to the Government of Panama, which specifies that the

DoD will eliminate known imminent and substantial hazards to human

health and safety and will attempt to maintain the usefulness of facilities

transferred to Panama. The GAO added that the SOUTHCOM is

developing implementing procedures and is expected to prepare and

maintain records of all facility transfer consultation and agreements.

The GAO reported that although the treaty states that DoD properties

Page 19 GAO/NSIAD-95-183 Panama
Appendix I

Comments From the Department of Defense

will revert to Panama at no charge, an agreement to implement the treaty

requires the U.S. and Panama consult with each other concerning

compensation for the residual value. The GAO noted that to comply with

the agreement, the DoD policy of the valuation of transferred facilities to

Panama states that the adjusted book value of the nonremovable property or

improvements will be used as the starting point for discussion of residual

value with the Government of Panama. The GAO pointed out that

accordingly, DoD is recording the accumulated residual value of those

properties, and DoD officials have noted that such figures could be used to

offset any Panamanian claims for environmental damage. (pp. 14-15/GAO

Draft Report)

DoD RESPONSE: Concur.

FINING E: Personnel Issues. The GAO reported that

according to the SOUTHCOM Commander-in-Chief, military forces

stationed in Panama should continue to be accompanied by their families as

long as possible, and that on-base housing should be provided to the extent

possible to all military members who want to live on base. The GAO noted

that as the transfer of DoD properties occurs, the SOUTHCOM

Commander-in-Chief has also made it a priority to maintain a full range of

community services for U.S. military personnel and their families,

including the education of dependents. The GAO reported that although

the drawdown of U.S. military troops in Panama will result in civilian

employee terminations, permanent employees eligible for severance pay,

will receive a basic severance and an age adjustment allowance upon

termination. The GAO noted that as of June 1994, DoD employed more

than 8,200 U.S. and Panamanian civilians in Panama, 2,700 of which were

temporary employees.

The GAO reported that the U.S. Panama Area Personnel Board is

responsible for overseeing civilian personnel activities in Panama. The

GAO reported that according the Board's Director, the DoD and the Board

have been planning for the DoD drawdown by implementing several

programs to reduce the costs of treaty implementation. The GAO reported

that the Board has also approved policies that encourage the use of treatyrelated retirements for pre-treaty employees covered under the Civil

Service Retirement Systems. The GAO added that both of those programs

encourage voluntary separation which, in turn, decrease the adverse effects

of reduction-in-force. The GAO further added that, in anticipation of the

drawdown, all locally hired DoD civilians have been appointed on a

temporary basis since November 1989. The GAO explained that because

Page 2(0 GAO/NSIAD-95-183 Panama
Appendix I

Comments From the Department of Defense

temporary employees are not eligible for severance pay or reduction-inforce rights when displaced, that action will help reduce the budgetary

impact of a reduction-in-force on the U.S. government.

(pp. 15-17/GAO Draft Report)

DoD RESPONSE: Concur. The U.S. Panama Area Personnel

Board is also responsible for coordinating personnel policy in Panama.

FINDING G: Treaty Implementation Costs. The GAO

reported that as of September 30, 1993, DoD cumulative treaty-related

costs were $770 million, and according to officials, DoD requirements for

future treaty related costs are about $554 million. The GAO explained that

those costs are for relocating units, turning over properties, consolidating

forces into fewer sites, and funding other planning considerations. The

GAO pointed out that those costs are not offset by estimated savings, such

as reduced maintenance and civilian personnel costs that may accrue as a

result of transferring properties to Panama.

The GAO asserted that the Army portion of future costs is about

$447 million, and include (1) relocation costs of $292.9 million, (2)

turnover costs of $51.7 million, (3) consolidation costs of $44.3 million,

and (4) other costs of $58.4 million for operation of treaty implementation

offices at SOUTHCOM and DoD headquarters. The GAO also noted that

the Air Force and the Navy estimated that they will need $82.9 million and

$23.9 million, respectively, for treaty implementation requirements from

1996 to 2000.

The GAO noted that according to DoD officials, the lack of a timely

decision on where to relocate the SOUTHCOM headquarters could result in

a lack of funding in the DoD budget for major construction that may be

needed for the new location, thereby delaying the move even further. The

GAO also noted that according to DoD officials, a decision on a location

for the SOUTHCOM must be made by mid-1995, to ensure that budgets are

formulated and approved in time to facilitate the move.

(pp. 18-19/GAO Draft Report)

DoD RESPONSE: Concur. As of September 30, 1993, the DoD

cumulative treaty-related costs were $770 million and DoD requirements

See comment 5. for future treaty related costs are about $554 million for relocating units,

turning over properties, consolidating forces into fewer sites, and funding

other planning considerations. The September 1993 estimated costs are

well within the funding limits established by Public Law 96-70. and are

Page 21 GAO/NSIAD-95-183 Panama
Appendix I

Comments From the Department of Defense

not offset by savings such as reduced maintenance and civilian personnel

costs that may accrue as a result of transferring properties to Panama.

RECOMMENDATIONS

NONE.

I'agG 22 (;AO/NSIAD-95-183 Panam
Appendix I

Comments From the Department of Defense

The following are GAO's comments on the Department of Defense's letter

dated January 28, 1995.

GAO Comments 1. As stated in the report, we updated the information in our classified

report, and verified this information with the appropriate agencies.

2. Our draft report did not state that any arrangement between Panama

and the United States for stationing forces after 1999 would require a

treaty modification; nonetheless, we modified our report to clarify this

point.

3. The report text has been modified to reflect this information.

4. See page 8 for updated information on the SOUTHCOM's scheduled move

to Mianm.

5. See page 12 for updated cost estimates.

(711066)(711141) Page 23 GAO/NSIAD-95-183 Panama

aa a a; aa ++

5 2 a 

x2

* a a at 

ai4 a +++ 

a a aa

~ a a' It~ a - a a a 4a

* ' a. a ;1 aa a*i.,8 a a' : a' a aa a ~ ~ 

2

aa'' a aa 1

MW
* 

* p

4 4