CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

A

R E P O R T

JULY 2010

An Analysis of the

Army’s Arsenal Support

Program Initiative

CBO
Pub. No. 4024
The Congress of the United States O Congressional Budget Office

A

REPORT

CBO

An Analysis of the Army’s 

Arsenal Support Program Initiative

July 2010
CBO

Note

The cover photograph, which depicts the testing of a new Vertical Heat Treatment Facility at 

the Watervliet Arsenal in New York, is provided courtesy of the U.S. Army.
Preface

CBO

The Congress created the Arsenal Support Program Initiative (ASPI) to help maintain 

the functional capabilities of the Army’s three manufacturing arsenals, which are located in 

Rock Island, Illinois, Watervliet, New York, and Pine Bluff, Arkansas. A primary goal of the 

program is to enable commercial firms to lease vacant space at the arsenals once that space 

has been renovated, thereby encouraging collaboration between the Army and commercial 

firms as well as reducing the costs the government incurs to operate and maintain the arsenal 

facilities. Since the ASPI’s inception, a number of commercial tenants have leased unused 

property at the arsenals; however, the financial benefits that the program has generated for the 

government have proved to be small relative to the program’s funding.

In response to a directive from the Congress, the Congressional Budget Office (CBO) 

conducted a “business case” analysis of the ASPI, examining the program’s costs, return on 

investment, and economic impact. In keeping with CBO’s mandate to provide objective, 

nonpartisan analysis, this report makes no recommendations.

Daniel Frisk of CBO’s National Security Division prepared the report under the 

supervision of Matthew Goldberg. Alec Johnson assisted with fact checking the document. 

Robert Dennis, Deborah Lucas, William Randolph, and Jason Wheelock of CBO provided 

helpful comments, as did Larry Schwartz, an independent consultant. (The assistance of 

external reviewers implies no responsibility for the final product, which rests solely with 

CBO.)

Loretta Lettner edited the report, and Kate Kelly proofread it. Cindy Cleveland produced 

early drafts of the manuscript. Maureen Costantino designed the cover and prepared the 

document for publication. Monte Ruffin oversaw the printing of the report, Linda Schimmel 

handled the print distribution, and Simone Thomas prepared the electronic version for 

CBO’s Web site (www.cbo.gov).

Douglas W. Elmendorf

Director

July 2010

Contents

CBO

Summary and Introduction 1

Overview of the ASPI 2

Objectives of the ASPI 3

Main Accomplishment of the ASPI to Date 4

Funding Provided to the ASPI and Related Program Costs 6

Financial Impact of the ASPI on the Federal Government 8

Historical Receipts and Other Financial Benefits 8

Future Financial Benefits and Costs 10

Estimating the Financial Impact of the ASPI on the Federal Government 13

Economic Impact of the ASPI 15

Impact of the ASPI on Regional Economies 15

Impact of the ASPI on the National Economy 16
VI AN ANALYSIS OF THE ARMY’S ARSENAL SUPPORT PROGRAM INITIATIVE

CBO

Tables

1. Status of the Property Available Under the ASPI as of the Summer of 2009 5

2. Number of Commercial Tenants and Tenants’ Employees Working at 

Arsenals Under the ASPI, 2001 to 2009 6

3. Appropriations for the ASPI, 2002 to 2010 8

4. Funds Obligated for the ASPI, by Type of Spending, 2001 to 2009 10

5. Financial Benefits Generated for the Government by the ASPI, by Source, 

2001 to 2009 11

6. Status of Property Available for Lease at the Rock Island and 

Watervliet Arsenals 14

Figures

1. Funding for the ASPI, 2001 to 2010 7

2. Cumulative Appropriations, Obligations, and Outlays for the ASPI, 

2001 to 2010 9

3. Estimated Financial Benefits Generated for the Government by the ASPI, 

2001 to 2009 12

4. Basis for CBO’s Projections of the Financial Benefits and Costs the ASPI 

Will Probably Generate for the Government in the Future 13
CBO

An Analysis of the Army’s 

Arsenal Support Program Initiative

Summary and Introduction 

The Congress created the Arsenal Support Program 

Initiative (ASPI) in 2001 to help maintain the viability of 

the Army’s three manufacturing arsenals. Owned and 

operated by the federal government, those arsenals—

which are located in Rock Island, Illinois, Watervliet, 

New York, and Pine Bluff, Arkansas—provide a variety of 

services, including the manufacture, renovation, and 

demilitarization of weapons and other equipment. The 

broad intent of the ASPI is to encourage collaboration 

between the Army and commercial firms to preserve the 

arsenals’ capabilities and to reduce the costs to the 

government of operating and maintaining those arsenals. 

Originally established as a two-year demonstration 

program, the ASPI has subsequently been extended 

through a series of National Defense Authorization Acts.1

The program is currently scheduled to expire at the end 

of 2011. 

The principal outcome of the ASPI to date is that commercial tenants have begun to lease unused property at 

the arsenals, typically vacant buildings or portions of 

buildings that the Army has renovated specifically for that 

purpose. Tenants compensate the arsenals mostly in the 

form of negotiated rental payments or services in lieu of 

rent. As of 2009, a total of 46 tenants were leasing more 

than 200,000 square feet of space at the arsenals under 

the ASPI.

In recent years, however, policymakers have expressed 

concern that the ASPI is not fulfilling its objectives. In 

the conference report that accompanied the National 

Defense Authorization Act for Fiscal Year 2008, legislators noted that receipts generated by the ASPI to that 

point were small relative to funding provided for the program; they also stated that the program was not clearly 

bolstering the arsenals’ core missions.2

 As a result of 

those concerns, the Congress directed the Congressional 

Budget Office (CBO) to conduct a “business case” 

analysis of the ASPI. In response to that directive, CBO 

examined the costs, return on investment, and economic 

impact of the program; those findings are presented in 

this report. The Congress also directed the Government 

Accountability Office (GAO) to investigate how effectively the ASPI was fulfilling its objectives and to provide 

recommendations on restructuring the program to support the arsenals’ core missions. GAO’s findings appear in 

a separate report that was released in November 2009.3

Although the Department of Defense (DoD) has not 

requested any funding for the ASPI in its annual budget 

submissions, the ASPI has received more than $87 million in funding from its inception in 2001 through 2010. 

As of the end of 2009, a total of $69 million had been 

1. Section 343 of the Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001 (Public Law 106-398, 114 Stat. 

1654A-65) established the Arsenal Support Program Initiative. 

The National Defense Authorization Acts for 2003, 2005, 2008, 

and 2010 extended the ASPI (Public Laws 107-314, 108-375, 

110-181, and 111-84). 

2. U.S. House of Representatives, National Defense Authorization Act 

for Fiscal Year 2008: Conference Report to Accompany H.R. 1585, 

House Report 110-477 (December 6, 2007), pp. 881–882. A 

conference report is the end result of negotiations between specially appointed Members of the House and Senate who meet to 

reconcile differences in legislation passed by both chambers. 

House Report 110-477 describes and discusses the legislation in 

the form in which it was ultimately enacted.

3. Government Accountability Office, Defense Infrastructure: The 

Army Needs to Establish Priorities, Goals, and Performance Measures 

for Its Arsenal Support Program Initiative, GAO-10-167R (November 5, 2009).
2 AN ANALYSIS OF THE ARMY’S ARSENAL SUPPORT PROGRAM INITIATIVE

CBO

obligated for the program and, of that amount, $54 million had been disbursed.4

 Over 90 percent of the obligations made for the program have been for the purpose of 

renovating and improving arsenal properties and infrastructure, CBO estimates. Funding for the ASPI is not 

used to pay employees who work for the office that manages the program; those costs are paid out of the Army’s 

operation and maintenance account.5

To determine the financial impact of the ASPI on the federal government, CBO first estimated the receipts and 

other financial benefits that the program has generated 

for the government so far and those that might be generated in the future. CBO then calculated the present value 

of those cash flows using a discount rate that attaches a 

market price to the risk associated with those flows. That 

present value can be compared to the present value of the 

governmental outlays needed to make space available to 

tenants.

Under the assumptions that the ASPI will receive no 

additional appropriations for renovations after 2010 and 

that the government will continue to pay for marketing 

and administering the program, CBO estimates that, 

measured in 2010 dollars, the present value of outlays for 

the program through 2075 is $99 million and the present 

value of the financial benefits that the program will generate for the government is $47 million. The resulting net 

present value is negative $52 million, meaning that the 

total stream of financial benefits that the ASPI has generated for the government so far and can be expected to 

generate in the future will fall short of the up-front 

investment required to ready the arsenal properties for 

tenants. That estimate translates into a government subsidy for the program of about 50 cents for every dollar 

spent.

Should the Congress provide further funding for renovations after 2010, each additional 100,000 square feet of 

space that the Army renovated under the ASPI would 

cost about $16 million in 2010 dollars, CBO estimates. 

At a subsidy of about 50 cents for every dollar spent, that 

spending would result in a net cost to the government of 

about $8 million.

In terms of the program’s broader economic impact, 

the ASPI positively affects the local economies in the arsenal regions in two ways: Government spending for the 

program probably leads to additional jobs for civilians 

and income for area businesses; and commercial tenants 

who relocate to the arsenal regions because of the program buttress economic activity in the area. However, 

because of a number of uncertainties, CBO could not 

reliably quantify the positive economic impact of the 

ASPI within the arsenal regions. 

On a national basis, the ASPI has had little if any net economic impact, in CBO’s judgment, because the program 

primarily causes shifts in resources from one region of the 

country to another. It is possible that the government’s 

spending for the ASPI has simply displaced appropriations that would have been made for other purposes 

within the federal budget, in which case any net impact 

on the economy would have been minimal. Alternatively, 

even if the spending added to federal deficits, the economy was operating at or near capacity during much of the 

program’s existence. To keep inflation in check under 

those circumstances, the Federal Reserve generally takes 

into account information about the government’s spending when it makes decisions about interest rates, with the 

intention of offsetting the impact on the economy of 

short-term fluctuations in such spending. As a result, 

additional government spending under those circumstances would not produce sustained increases in overall 

economic activity and employment. In addition, nearly 

all of the tenants currently leasing space at the arsenals 

were already located in the United States before they 

decided to participate in the program. Although the relocation of those tenants probably created an economic 

gain in the arsenal regions, it also probably resulted in an 

economic loss in the regions in which the tenants were 

previously located. 

Overview of the ASPI

The core mission of the Army’s arsenals is to support military operations by manufacturing, renovating, and 

demilitarizing defense-related materiel and components. 

According to the Army, the manufacturing arsenals at 

4. Appropriations provide authority for a federal program to incur 

obligations and make payments from the Treasury. Obligations 

are legally binding commitments by the federal government that 

will result in outlays, immediately or in the future. Outlays are 

disbursements from the U.S. Treasury to pay federal obligations.

5. Currently, the Tank-Automotive and Armaments–Life Cycle 

Management Command, a subordinate command of the Army 

Materiel Command, oversees activities related to the ASPI. Those 

operations are managed from a program office located at the Rock 

Island Arsenal. 
AN ANALYSIS OF THE ARMY’S ARSENAL SUPPORT PROGRAM INITIATIVE 3

CBO

Rock Island, Watervliet, and Pine Bluff provide some 

important capabilities that are not readily available elsewhere.6

 For example, the Rock Island Arsenal houses the 

Army’s only foundry and a fully equipped shop for manufacturing prototypes of various weapons and weapon 

components; the Watervliet Arsenal is the Army’s only 

manufacturer of large-caliber cannons; and the Pine Bluff 

Arsenal is the Army’s sole facility for repairing or rebuilding certain masks and breathing apparatuses.7

Although the ASPI is funded directly through appropriations, funding for day-to-day operations at the arsenals 

themselves is provided through the Industrial Operations 

activity group of the Army’s Working Capital Fund. 

(Components of the Army receive appropriations for 

their operations, place orders with the arsenal for equipment or services, and transfer the necessary funds to the 

Working Capital Fund. The funds are then used to cover 

the costs incurred by the arsenals in filling those orders.)

Objectives of the ASPI

The stated intent of the ASPI is to preserve the capabilities of the arsenals’ skilled workforces and specialized 

equipment by fostering government collaboration with 

commercial firms. The program was created during a 

period when workloads at the arsenals were declining 

because of the downsizing of the armed services following 

the end of the Cold War. In spite of a surge in activity 

related to the wars in Iraq and Afghanistan, the arsenals 

still have a substantial amount of underutilized or idle 

space. In its 2005 report to DoD’s Base Closure and 

Realignment Commission, the Army indicated that more 

than 80 percent of the space designated for armament 

production at the arsenals was excess.8

When the ASPI was established in 2001, the Congress 

enumerated 11 goals that the demonstration program was 

meant to achieve. As stated in the National Defense 

Authorization Act for Fiscal Year 2001, those goals 

(which the Congress did not prioritize) are as follows:

B To provide for the utilization of the existing skilled 

workforce at the Army manufacturing arsenals by 

commercial firms.

B To provide for the reemployment and retraining of 

skilled workers who, as a result of declining workload 

and reduced Army spending on arsenal production 

requirements at these Army arsenals, are idled or 

underemployed.

B To encourage commercial firms, to the maximum 

extent practicable, to use these Army arsenals for 

commercial purposes.

B To increase the opportunities for small businesses 

(including socially and economically disadvantaged 

small business concerns and new small businesses) to 

use these Army arsenals for those purposes.

B To maintain in the United States a workforce having 

the skills in manufacturing processes that are necessary 

to meet industrial emergency planned requirements 

for national security purposes.

B To demonstrate innovative business practices, to support Department of Defense acquisition reform, and 

to serve as both a model and a laboratory for future 

defense conversion initiatives of the Department of 

Defense.

B To the maximum extent practicable, to allow the operation of these Army arsenals to be rapidly responsive 

to the forces of free-market competition.

B To reduce or eliminate the cost of government ownership of these Army arsenals, including the costs of 

operations and maintenance, the costs of environmental remediation, and other costs.

B To reduce the cost of products of the Department of 

Defense produced at these Army arsenals.

6. CBO did not address the cost-effectiveness of the arsenals or 

whether the Army should continue to operate arsenals or rely 

on the private sector to provide those products and services. For a 

discussion of that issue, see W. Michael Hix and others, Rethinking 

Governance of the Army’s Arsenals and Ammunition Plants (Santa 

Monica, Calif.: RAND, 2003). 

7. For more information on the Army’s manufacturing arsenals’ 

missions and capabilities, refer to The Metal Book published by the 

Army Materiel Command, and the Army Working Capital Fund’s 

budget justification material.

8. Department of Defense Report to the Defense Base Closure and 

Realignment Commission, Department of the Army Analysis 

and Recommendations, BRAC 2005, Volume III (May 2005), 

pp. A87–A88.
4 AN ANALYSIS OF THE ARMY’S ARSENAL SUPPORT PROGRAM INITIATIVE

CBO

B To leverage private investment at these Army arsenals 

through long-term facility use contracts, property 

management contracts, leases, or other agreements 

that support and advance the demonstration program 

for the following activities:

• Recapitalization of plant and equipment;

• Environmental remediation;

• Promotion of commercial business ventures; and 

• Other activities approved by the Secretary of the 

Army.

B To foster cooperation between the Department of the 

Army, property managers, commercial interests, and 

state and local agencies in the implementation of sustainable development strategies and investment in 

these Army arsenals.

CBO’s analysis focuses on the budgetary, financial, and 

economic aspects of the ASPI. CBO did not assess how 

well the ASPI was fulfilling its other objectives; that analysis was conducted by GAO, and the agency’s findings 

were published in its November 2009 report.9

The ASPI is similar in concept to the Armament, Retooling, and Manufacturing Support (ARMS) program. Created by the Congress in 1992, the ARMS program 

encourages businesses to use the Army’s ammunition 

plants and depots for commercial purposes.10 Those facilities, which manufacture, store, and demilitarize conventional ammunition, are owned by the government but 

operated by contractors (unlike the arsenal properties, 

which are both owned and operated by the government). 

Under the ARMS arrangement, the contractor managing 

the facility is authorized to use idle property for commercial tenants, reducing the government’s costs of owning 

those facilities. CBO did not examine the costs, receipts, 

or economic impact associated with the ARMS program. 

Main Accomplishment of the ASPI to Date

To date, the principal outcome of the ASPI has been the 

rental of unused arsenal property to commercial tenants. 

Arsenal commanders have identified vacant buildings or 

vacant portions of buildings that were made available for 

the program. Typically, those spaces required major renovation before they could be leased. Since the program’s 

inception, the Army has identified nearly 1 million 

square feet of space at the Rock Island and Watervliet 

Arsenals that could be used by commercial tenants 

(see Table 1). That space could be used as administrative 

offices, manufacturing facilities, storage facilities (heated 

or unheated), laboratories, or “clean rooms.”11 The Pine 

Bluff Arsenal, which has participated in the ASPI just 

minimally, currently leases out rail yard space only. 

As of 2009, more than 200,000 square feet of space at the 

Rock Island and Watervliet Arsenals had been renovated 

and occupied by commercial tenants. The square footage 

available for lease under the ASPI will almost double once 

renovations that were under way in 2009 are complete. In 

addition, the arsenals have other underutilized and vacant 

space that has not been renovated but could be used for 

the ASPI: The Watervliet Arsenal has about 16,000 additional square feet that would require renovation, and the 

Rock Island Arsenal has almost 500,000 additional 

square feet of such space.

The Rock Island and Watervliet Arsenals each use a contracted, nonprofit development group to solicit and manage commercial tenants.12 Under those “site manager” 

contracts, the development groups are responsible for 

advertising properties, negotiating lease terms, and overseeing renovations and upgrades (which often are made 

to future tenants’ specifications). Officials at the ASPI 

administrative office in Rock Island and the installation 

commander at each arsenal review tenants’ proposals on 

the basis of an established set of criteria and make the 

final decision on accepting tenants.13 The development 

groups conduct the day-to-day management of the leased 

properties and collect tenants’ rental payments. The Pine 

Bluff Arsenal does not use a contractor to attract or 

manage tenants.

9. Government Accountability Office, Defense Infrastructure: The 

Army Needs to Establish Priorities, Goals, and Performance Measures 

for Its Arsenal Support Program Initiative.

10. Section 1097 of the National Defense Authorization Act for Fiscal 

Year 1993 (P.L. 102-484) established the ARMS program.

11. Clean rooms, typically used for manufacturing or scientific 

research, are designed to allow the infiltration of only small concentrations of contaminants, such as dust and bacteria.

12. Presently, the site manager contracts at the arsenals in Rock Island, 

Illinois, and Watervliet, New York, are held by the Rock Island 

Development Group and the Arsenal Business and Technology 

Partnership, respectively.

13. For an outline of the process for reviewing tenant applications, 

see the Arsenal Support Initiative Program: Implementation Plan, 

Revision 2 (June 2008). 
AN ANALYSIS OF THE ARMY’S ARSENAL SUPPORT PROGRAM INITIATIVE 5

CBO

Table 1.

Status of the Property Available Under the ASPI as of the Summer of 2009

Source: Congresssional Budget Office based on data from the Rock Island Development Group and the Arsenal Business and Technology 

Partnership.

Notes: The arsenals in Rock Island, Illinois, and Watervliet, New York, use contracted nonprofit development groups to market space that is 

available for lease and to manage commercial tenants.

The arsenal in Pine Bluff, Arkansas, currently leases rail-yard space only and therefore is not included in this table.

ASPI = Arsenal Support Program Initiative.

a. “Clean rooms,” typically used for manufacturing or scientific research, are designed to limit contaminants, such as bacteria and dust.

b. All vacant space in need of renovation at the arsenal in Rock Island, Illinois, is classified as “storage” but could be converted to serve 

other purposes during the renovation process.

55 2 47 0 107

10 72 0 0 82

13 0 33 0 45

0 0 0 00

0 0493 b 0 493 __ __ ____ _ ____

78 74 575 b 0 728

36 49 25 17 127

0 92 0 092

0 0 0 00

2 0 3 04

15 1 0 016 ___ ___ __ __ ___

52 142 28 17 239

Total 131 216 603 b 17 967

Storage Laboratories or 

(With prospective tenant)

(With prospective tenant)

Under Renovation

(No prospective tenant)

Vacant and Ready for

Occupancy

"Clean Rooms"a Total

Watervliet, New York

Occupied

Under Renovation 

Renovation

Subtotal, 

Watervliet Arsenal

Subtotal, 

Rock Island Arsenal

Vacant but Needs

Renovation

Rock Island, Illinois

Occupied

Under Renovation

Administrative Manufacturing (Heated and Unheated)

Under Renovation 

(No prospective tenant)

Vacant and Ready for

Occupancy

Vacant but Needs

Type of Arsenal Space
6 AN ANALYSIS OF THE ARMY’S ARSENAL SUPPORT PROGRAM INITIATIVE

CBO

Table 2.

Number of Commercial Tenants and Tenants’ Employees Working at Arsenals 

Under the ASPI, 2001 to 2009

Source: Congressional Budget Office based on data from the office that administers the ASPI.

Notes: The category “tenants’ employees” includes both full-time and part-time employees working for commercial tenants at the arsenal 

properties but excludes employees working for tenants under the Intergovernmental Personnel Act Mobility Program. That program 

provides for the temporary assignment of federal employees to other organizations to facilitate cooperation between federal and

nonfederal entities. 

The commercial tenants participating in the ASPI represent a variety of industries, including data processing, manufacturing, 

engineering, and software development.

ASPI = Arsenal Support Program Initiative.

From 2001 to 2009, the number of commercial tenants 

increased each year, reaching 46 in 2009 (see Table 2). 

(Over that period, a total of 63 commercial tenants participated in the program, but some no longer lease property at the arsenals.) Similarly, the number of employees 

working for commercial tenants at the arsenals has grown 

from the single digits to the hundreds. (The count of tenants’ employees includes part-time and seasonal workers.) 

In a few instances, tenants leased storage space at the arsenals that did not require any employees to be present. 

The commercial tenants participating in the ASPI represent a variety of industries, including data processing, 

manufacturing, engineering, and software development. 

Additionally, circumstances specific to the Rock Island 

and Watervliet Arsenals have led to a concentration of 

tenants in specific lines of business. About half of the 

tenants at the Rock Island Arsenal work as contractors 

for DoD, according to CBO’s estimates. A number of 

Army contracting offices—including the Joint Munitions 

Command, the Army Field Support Command, and the 

Tank-Automotive and Armaments Command Integrated 

Logistics Support Center—maintain headquarters or 

offices at the Rock Island Arsenal, making it an attractive 

location for defense contractors. At the Watervliet Arsenal, a handful of tenants are involved in the field of nanotechnology. The Watervliet region has a notable presence 

in the nanotechnology industry, bolstered by the College 

of Nanoscale Science and Engineering of the State 

University of New York at Albany and other nearby 

universities.

Funding Provided to the ASPI and 

Related Program Costs

From 2002 through 2010, the Arsenal Support Program 

Initiative received a total of $87.4 million in appropriations (see Figure 1 and Table 3). More than half of that 

2001 2002 2003 2004 2005 2006 2007 2008 2009

0 2 8 12 11 17 20 22 27

1 2 5 7 10 17 17 17 18

01232111 1 __ __ ___ ___ ___ ___ ___ ___ ___

Total Tenants 1 5 15 22 23 35 38 40 46

0 9 26 47 40 186 461 275 346

3 36 50 70 109 143 205 215 230

00685332 3 __ ___ ___ ____ ____ ____ ____ ____ ____

Total Employees 3 45 82 125 154 332 669 492 579

Rock Island, Illinois

Watervliet, New York

Pine Bluff, Arkansas

Number of Commercial Tenants

Number of Tenants' Employees

Rock Island, Illinois

Watervliet, New York

Pine Bluff, Arkansas
AN ANALYSIS OF THE ARMY’S ARSENAL SUPPORT PROGRAM INITIATIVE 7

CBO

Figure 1.

Funding for the ASPI, 2001 to 2010

(Millions of dollars)

Source: Congressional Budget Office.

Notes: Excludes $4.2 million in funding provided in 2009 for equipment at the Rock Island Joint Manufacturing and Technology Center.

ASPI = Arsenal Support Program Initiative.

funding was provided in the past three years. Although 

no funding for the ASPI was provided in 2001, the year 

of the program’s inception, commercial tenants first 

started leasing arsenal property that year. 

All financial support for the ASPI has been the result of 

funding included in appropriation bills for the Department of Defense.14 Although the Army has requested 

funding for the ARMS program in its annual budget 

submissions, it has not requested funding for the ASPI. 

With two exceptions—occurring in 2002 and 2004—the 

Congress directed that funds within the Army’s account 

for procurement of weapons-tracked combat vehicles 

(WTCV) be used for the ASPI. In 2002, the Congress 

made $7.5 million from the Army’s account for operation 

and maintenance available for the program. (According 

to the office that manages operations for the ASPI, 

$3.2 million of that funding was allocated to the program.) In 2004, the Congress directed that $1.5 million 

from the Army’s procurement account for ammunition 

and $3.5 million from the Army’s procurement account 

for WTCV be used for the ASPI. In 2006, the Congress 

began directing funds to specific arsenals, rather than to 

the program as a whole.

As of the end of 2009, $69 million of the $87 million 

in funding for the ASPI had been obligated (that is, 

binding agreements to purchase items or services had 

been entered into), and, of that amount, $54 million had 

been spent (see Figure 2). Some $63.5 million—more 

than 90 percent—of the obligated funds was allocated 

for renovations and capital improvements to prepare 

arsenal properties for commercial tenants (see Table 4 on 

page 10). Of the properties made available for lease over 

that period, some required substantial investments in renovations and capital improvements before the space could 

be occupied. In certain cases, environmental remediation, 

such as the removal of pollutants or toxins from buildings, was necessary before renovations could begin. The 

remaining obligations were allocated for marketing the 

arsenal properties to prospective tenants and for administrative and miscellaneous expenditures (for instance, to 

prepare various documents, such annual reports on the 

program, master plans, and feasibility studies).15 Administering the ASPI requires the full-time effort of one 

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

0

5

10

15

20

25

14. The final funding amounts are listed in the conference reports for 

Public Laws 107-248, 108-87, 108-287, 109-148, 109-289, 110-

116, and 111-118.

15. The Rock Island Development Group and the Arsenal Business 

and Technology Partnership both maintain Web sites that advertise properties available under the ASPI.
8 AN ANALYSIS OF THE ARMY’S ARSENAL SUPPORT PROGRAM INITIATIVE

CBO

Table 3.

Appropriations for the ASPI, 2002 to 2010

(Millions of dollars)

Source: Congressional Budget Office.

Note: ASPI = Arsenal Support Program Initiative. 

a. In 2002, the Congress directed that $7.5 million in the Army’s operation and maintenance account be made available for the ASPI. 

According to the office that oversees the ASPI, the program received $3.2 million of that funding.

b. Excludes $4.2 million in funding that the Congress directed be used for equipment for the Rock Island Joint Manufacturing and

Technology Center.

civilian Army employee as well as the part-time effort of 

several other civilian Army employees. The costs of those 

employees’ salaries and benefits are not funded by the 

program but through the Army’s account for operation 

and maintenance. Assigning those personnel to the ASPI 

creates an opportunity cost for the Army, as the skills of 

those workers could be redirected to other tasks.

Financial Impact of the ASPI on the 

Federal Government

To calculate the financial impact of the ASPI on the federal government, CBO first estimated the receipts and 

other financial benefits that the program has generated 

for the government so far and those that might be generated in the future. CBO then compared the present value 

of those receipts and benefits to the outlays required to 

make space available to tenants. The resulting difference 

is the estimated cost to the government of subsidizing the 

program, which, expressed as a subsidy rate, measures the 

cost per dollar invested in the arsenal facilities.

Historical Receipts and Other Financial Benefits

One rationale for creating the ASPI was to reduce the 

cost to the government of operating and maintaining 

Army arsenals. The program has generated receipts and 

other financial benefits for the government from the 

following sources:

B Rental payments from commercial tenants who lease 

arsenal property;

B Services provided by tenants in lieu of rent;

B Investments by tenants in infrastructure at the 

arsenals; 

B Fees paid by tenants to hire government employees 

under the Intergovernmental Personnel Act Mobility 

Program;16 and 

B Fees paid by tenants for renting arsenal machinery and 

equipment.

According to data collected by a contractor that the 

ASPI administrative office commissioned, the program 

generated $6.6 million in receipts and other financial 

benefits for the government from 2001 through 

2009 (see Table 5 on page 11). The Watervliet Arsenal 

generated about half of that amount, the Rock Island 

Arsenal produced about 30 percent, and the Pine Bluff 

Arsenal accounted for the remaining 20 percent 

2003 2004 2005 2006 2007 2008 2010

Rock Island, Illinois 0 0 0 0 5.5 5.9 11.5 8.5 b 7.6 39.0

Watervliet, New York 0 0 0 0 3.0 3.0 9.6 5.0 6.4 27.0

Pine Bluff, Arkansas 0 0 0 0 0 0 0 0 0 0

Not Specified 3.2 a 4.2 5.0 9.0 0 0 0 0 0 21.4 ___ ___ ___ __ ___ ___ _____ _____ ____ _____

Total 3.2 a 4.2 5.0 9.0 8.5 8.9 21.1 13.5 b 14.0 87.4 a

Total, 

2002-

2002 2009 2010

16. To facilitate cooperation between the federal government and 

nonfederal entities, the Intergovernmental Personnel Act Mobility 

Program provides for the temporary assignment of federal 

employees to other organizations.
AN ANALYSIS OF THE ARMY’S ARSENAL SUPPORT PROGRAM INITIATIVE 9

CBO

Figure 2.

Cumulative Appropriations, Obligations, and Outlays for the ASPI, 2001 to 2010

(Millions of dollars)

Source: Congressional Budget Office based on data from the office that administers the ASPI.

Notes: Data on obligations and outlays for 2010 will not be available until the end of the fiscal year.

ASPI = Arsenal Support Program Initiative.

(see Figure 3 on page 12). The value of the receipts and 

other benefits grew from $0.4 million in 2001 to 

$1.3 million in 2009, roughly corresponding with the 

growth in the number of tenants leasing space at the 

arsenals. 

The payments that tenants have made to lease space at 

the arsenals represent the largest financial benefit the 

ASPI has generated, totaling almost $4.0 million through 

2009 (net of certain expenses). Nearly all tenants compensate the arsenals by paying rent, and total payments 

have grown since the start of the program. Rental rates 

per square foot vary on the basis of the type of property 

rented (such as administrative, manufacturing, or 

storage) and are reported by the Army to be comparable 

with the local market rates for similar properties.17 At 

the Pine Bluff Arsenal, tenants pay the arsenal directly. 

At the Rock Island and Watervliet Arsenals, tenants pay 

an agreed rate to the arsenal development groups; the 

development groups retain about $1 per square foot and 

pass the remaining payment on to the arsenals. The funds 

received by the arsenals are, in turn, deposited into their 

respective working capital funds.

When estimating the financial benefits that rental 

payments generate, the contractor commissioned by the 

ASPI’s administrative office takes into account the additional expenses the arsenals incur to maintain properties 

for commercial tenants. For example, filling previously 

vacant spaces with tenants may require an arsenal to 

pay more for items such as groundskeeping, janitorial 

services, and utilities. The contractor calculates those 

additional costs and deducts them from the gross rental 

payments made by tenants. 

The other significant sources of financial benefits that 

accrue to the government under the ASPI are the services 

and infrastructure improvements that tenants provide; 

together those services and improvements provided 

nearly $2.2 million in benefits to the government 

between 2001 and 2009.18 A few tenants have provided 

services to the arsenals, such as certain types of vocational 

training, in lieu of paying rent. The contractor commissioned by the ASPI’s managing office estimated the value 

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

0

10

20

30

40

50

60

70

80

90

Outlays

Obligations

Appropriations

17. See the Arsenal Support Initiative Program: Implementation Plan. 

Rental rates are reviewed annually, but adjustments have been 

infrequent, according to the office that manages ASPI operations.

18. Data on services and investments provided by tenants were combined prior to 2005.
10 AN ANALYSIS OF THE ARMY’S ARSENAL SUPPORT PROGRAM INITIATIVE

CBO

Table 4.

Funds Obligated for the ASPI, by Type of Spending, 2001 to 2009

(Millions of dollars)

Source: Congressional Budget Office based on data from the office that administers the ASPI.

Notes: Because not all funds are obligated during the year in which they are appropriated, annual appropriations and obligations are not 

equal.

ASPI = Arsenal Support Program Initiative; * = less than $50,000. 

a. Excludes the cost of the salaries and benefits paid to the Army employees who administer the ASPI. Those costs are paid out of the 

Army’s operation and maintenance account.

b. Environmental remediation includes activities such as the removal of pollutants or toxins from buildings.

of those benefits on the basis of market rates for similar 

services. In some instances, tenants paid to make additional improvements to the arsenal property. Tenants’ 

investments are considered to be of benefit to the government only if they improve the arsenal property and only 

if the improvement remains in place when the tenant 

leaves the arsenal. The estimated value of those investments was based on tenants’ actual expenses.

Future Financial Benefits and Costs

The financial benefits that the program will generate for 

the government in the future will depend on how much 

space is available and how rapidly that space is rented to 

commercial tenants; rental rates; tenants’ payments for 

using government equipment and temporarily employing 

government personnel; and the value of tenant-provided 

services and investments in the arsenals’ infrastructure 

(see Figure 4 on page 13). 

Regarding space, CBO assumed that all renovations of 

ASPI property under way before 2011 will be completed 

without the need for additional appropriations. As a 

result of the $87 million in funding provided through 

2010 for the ASPI, CBO estimates, the Rock Island 

Arsenal will have a total of about 280,000 square feet 

available for rent, allocated in roughly equal proportions 

for administrative purposes, manufacturing, and storage 

(see Table 6 on page 14). The Watervliet Arsenal will 

have approximately 240,000 square feet available for rent 

(with no additional space requiring renovation). CBO 

estimates that about 20 percent of that space will be 

allocated for administrative purposes, 60 percent for 

manufacturing, 10 percent for storage, and 10 percent for 

laboratories or clean rooms. Renovating the remaining 

arsenal space available under the ASPI—more than 

400,000 square feet at the Rock Island Arsenal—would 

require additional appropriations; such renovations are 

not included in CBO’s analysis. The Pine Bluff Arsenal 

will not renovate any property but will continue to rent 

space in its rail yard.

CBO estimated that the vacancy rate for properties at the 

arsenals will be 10 percent and that newly reconfigured 

spaces will be rented within two years of their renovation. 

CBO projected that future net rental payments 

(incorporating the costs to the arsenals to accommodate 

tenants) will equal the current average rates paid per 

square foot (adjusted for inflation), which range from 

$1 to $8 depending on the arsenal and type of property. 

2001 2002 2003 2004 2005 2006 2007 2008 2009

Renovations and Capital 

Improvements 0 3.2 2.4 3.0 4.5 4.5 14.7 19.7 11.6 63.5

Administration and 

Miscellaneous a 0 0 0.6 0.8 * 0.1 0.3 1.2 0.5 3.4

Marketing 0 0 0.2 0.2 0.3 0.1 0.1 0.4 0.1 1.3

Environmental 

Remediation b 0 0 0 0 0.1 * 0 0.3 0.4 0.8 __ ___ ___ ___ ___ ___ ____ ____ ____ ____

Total 0 3.2 3.1 3.9 4.9 4.7 15.0 21.6 12.5 69.0

Total,

2001–2009
AN ANALYSIS OF THE ARMY’S ARSENAL SUPPORT PROGRAM INITIATIVE 11

CBO

Table 5.

Financial Benefits Generated for the Government by the ASPI, by Source, 

2001 to 2009

(Thousands of dollars)

Source: Congressional Budget Office based on data from the office that administers the ASPI.

Note: ASPI = Arsenal Support Program Initiative; IPA = Intergovernmental Personnel Act; n.a. = not applicable.

a. Before 2005, data on the value of services provided by tenants in lieu of rent and on the value of tenants’ investments were combined 

in a single category. Starting in 2005, they are shown separately.

b. The numbers in the category "Receipts from Leasing Arsenal Property" represent net receipts; they incorporate the additional expenses 

incurred by the arsenals to accommodate commercial tenants.

c. The IPA Mobility Program provides for the temporary assignment of federal employees to other organizations to facilitate cooperation 

between federal and nonfederal entities.

CBO assumed that, as the properties experience wear and 

tear over time, the rental rates that the Army can charge 

will gradually decline. On that basis, CBO estimated that 

services provided by and investments made by tenants 

will be worth about 50 cents annually for every square 

foot of space rented. Lastly, CBO estimated that fees 

paid by tenants to hire employees under the Intergovernmental Personnel Act Mobility Program and tenants’ 

payments to rent Army equipment will, in combination, 

total $150,000 annually. 

The future costs of the ASPI will include the costs to 

renovate additional space, market the properties, and 

administer the program. (The additional costs that arsenals incur to accommodate commercial tenants, such as 

providing routine maintenance and paying utility bills, 

are already incorporated into the net rental rates.) On the 

basis of prior obligations made for renovations and infrastructure improvements under the ASPI, CBO estimated 

that the average cost of renovating any additional space 

would equal $150 per square foot. CBO estimated that, 

initially, costs to market the properties will total 

$200,000 annually until all newly renovated properties 

are filled. At that point, marketing costs are expected to 

decline to $20,000 annually, as tenants vacate properties 

on a periodic basis. Administrative costs will be $300,000 

per year, CBO estimated, including the cost of paying 

civilian employees to oversee the ASPI, as well as the costs 

of producing the annual report on the program, master 

plans, and other miscellaneous studies. CBO estimated 

2001 2002 2003 2004 2005 2006 2007 2008 2009

n.a. n.a. n.a. n.a. 237 176 150 57 65 n.a.

n.a. n.a. n.a. n.a. 34 149 155 9 63 n.a. ____ ____ ____ ___ ____

Subtotal, Services Provided and

Investments Made by Tenants 340 246 85 414 271 324 305 66 128 2,180

40 100 167 262 383 420 570 900 1,048 3,892

0 0 0 0 0 0 149 148 144 441

0 0 0 0 0 0 33 20 4 58 ____ ____ ____ ____ ____ ____ _____ _____ _____ _____

Total 380 347 253 676 654 744 1,057 1,135 1,325 6,571

Investments Made by Tenants a

Total,

2001–2009

Services Provided and 

Fees Paid by Tenants for

Employees Hired Under the IPA c

Payments for Leasing Army

Equipment

Investments by Tenants in 

Arsenal Infrastructure a

Services Provided by Tenants in

Lieu of Rent a

Receipts from Leasing 

Arsenal Property b
12 AN ANALYSIS OF THE ARMY’S ARSENAL SUPPORT PROGRAM INITIATIVE

CBO

Figure 3.

Estimated Financial Benefits Generated for the Government by the ASPI, 

2001 to 2009

(Thousands of dollars)

Source: Congressional Budget Office based on data from the office that administers the ASPI.

Note: ASPI = Arsenal Support Program Initiative.

that funds will be spent at the following rates: 50 percent 

within the first year of their being obligated; 75 percent 

within two years; and 100 percent within three years. 

(Because of the extended time frame being considered, 

however, the rate of spending did not have a pronounced 

effect on the results.) CBO estimated that all costs and 

financial benefits will grow at the rate of general inflation. 

Two alternative approaches could be used to account for 

the cash flows that will occur beyond the period considered in the analysis—through 2075—under the assumption that no further appropriations are provided for 

renovations. The first approach would assume that the 

property will be sold at the end of the period and would 

incorporate the net proceeds from that future sale. The 

second approach would avoid an arbitrary sale date and 

instead project cash flows over the entire service life of the 

property, which CBO estimates to be 65 to 70 years, 

assuming a “salvage value” of zero.19 CBO took the latter 

approach because the resale value of properties renovated 

under the ASPI is not clear. The commercial market for 

similar properties is not a useful indicator of their value, 

as the Army probably would not sell individual buildings 

or portions of buildings at a secure location unless it 

closed the entire arsenal. Assigning a value to the 

renovated properties that was equal to the cost of replacing them would also be problematic. The vacancy of 

those spaces prior to commercial tenancy indicates that 

the Army does not presently have a need for them and 

would not require replacements. Certainly, the Army’s 

property needs could change and the Army’s use of renovated arsenal properties in the future could save the costs 

of constructing or renovating properties elsewhere. But 

the timing and magnitude of any future property needs 

are unknown.

For renovations already under way, CBO estimated the 

ASPI’s financial transactions for a period extending from 

the start of the program in 2001 to 2075. At that point, 

most of the renovated properties in the program would 

2001 2002 2003 2004 2005 2006 2007 2008 2009

0

200

400

600

800

1,000

1,200

1,400

Rock Island, Ill.

Watervliet, N.Y.

Pine Bluff, Ark.

Arsenal

19. DoD bases its funding for recapitalization of buildings on 

an expected average service life of 67 years. See Department of 

Defense, Facilities Recapitalization Front-End Assessment 

(August 2002).
AN ANALYSIS OF THE ARMY’S ARSENAL SUPPORT PROGRAM INITIATIVE 13

CBO

Figure 4.

Basis for CBO’s Projections of the Financial Benefits and Costs the ASPI 

Will Probably Generate for the Government in the Future

(Constant 2010 dollars)

Source: Congressional Budget Office.

Notes: CBO estimated that funds would be spent at the following rates: 50 percent within the first year of their being obligated; 75 percent 

within two years of obligation; and 100 percent within three years. In addition, CBO estimated that all receipts generated and costs 

incurred would grow at the rate of inflation.

ASPI = Arsenal Support Program Initiative; IPA = Intergovernmental Personnel Act.

a. The IPA Mobility Program provides for the temporary assignment of federal employees to other organizations to facilitate cooperation 

between federal and nonfederal entities. 

b. Includes the cost of the salary and benefits paid to the Army employees who administer the ASPI. Those costs are paid out of the Army’s 

operation and maintenance account.

be between 65 and 70 years old and near the end of their 

useful service life. (The Army could extend the useful life 

of the ASPI properties by making substantial renovations 

to them, but those costs were not included in CBO’s 

analysis.) When estimating the financial effects of 

renovations paid for using funds appropriated after 2010, 

CBO considered a period extending 70 years from the 

completion of the renovations. 

Estimating the Financial Impact of the ASPI on the 

Federal Government

A standard method for valuing a project that requires 

an up-front investment and then is expected to generate 

an extended stream of benefits is to calculate its net present value (NPV). Calculating the NPV involves estimating the time path of all future financial benefits and costs 

and then discounting them to the present to account for 

Type of Financial Benefits

Type of Costs

Net payments collected from tenants

for leasing arsenal property

Services and investments provided by tenants

Estimated Benefits

Estimated Costs

An average of $1 to $8 per square foot, depending on

the arsenal's location and the type of property leased; 

payments decline by 1.5 percent per year as the

property ages

50 cents per square foot annually

Fees paid by tenants for hiring employees

under the IPA and for leasing Army equipment

a

$150,000 annually

Marketing of vacant properties $200,000 annually until available space is leased, 

$20,000 annually thereafter

Administration of the programb $300,000 annually

Renovations to additional properties

(if funding continues after 2010) 

$150 per square foot
14 AN ANALYSIS OF THE ARMY’S ARSENAL SUPPORT PROGRAM INITIATIVE

CBO

Table 6.

Status of Property Available for 

Lease at the Rock Island and 

Watervliet Arsenals

(Thousands of square feet)

Source: Congressional Budget Office based on data from the 

Rock Island Development Group and the Arsenal Business 

and Technology Partnership.

Notes: The arsenals in Rock Island, Illinois, and Watervliet, 

New York use contracted nonprofit development groups 

to market space that is available for lease and to manage 

commercial tenants.

The arsenal in Pine Bluff, Arkansas, currently leases rail-yard 

space only and therefore is not represented in this table. 

CBO assumed that the Pine Bluff Arsenal would not renovate 

additional property.

RIA = Rock Island Arsenal in Illinois; WVA = Watervliet 

Arsenal in New York.

the fact that money in hand now is worth more than the 

same amount received in the future. CBO used a riskadjusted discount rate that attaches a market price to the 

risk associated with future cash flows. The subsidy cost 

under this “fair value” approach measures what a private 

entity would need to be paid to voluntarily assume the 

benefits, costs, and risks that the government is assuming. 

A negative NPV would indicate a net cost to the government, whereas a positive NPV would indicate that net 

value was created for the government. 

In particular, CBO used a discount rate for future financial benefits and costs that is equal to the estimated return 

that a private investor would require on a project of similar risk and duration. As an example of the risk attached 

to such investments in the current economic climate, the 

Rock Island Arsenal may not be able to find sufficient 

tenants to fill its available space, as there is uncertainty in 

the commercial real estate market and vacancy rates tend 

to escalate during economic downturns. 

Taking into account the cost to the government of assuming risk is consistent with the Congress’s directive to 

CBO to evaluate the business case for the ASPI. Such a 

methodology provides a more complete measure of the 

economic subsidy associated with the project than would 

a calculation that treats the government’s capacity to bear 

risk as having no cost.20 Although the government can 

borrow at a risk-free rate, its ability to do so depends on 

taxpayers’ absorbing the risk that a project’s returns will 

not be sufficient to cover the cost of borrowing.

Because taxpayers are effectively equity holders in the 

arsenals’ real estate investments, CBO used a risk 

premium derived from data on market investments that 

reflects the average return private entities would require 

for investing in commercial, industrial, warehouse, 

and office properties.21 The estimated discount rate is 

between 4 percent and 5 percent per annum in real 

(inflation-adjusted) terms over the expected useful life of 

the properties and includes a risk premium of 1 percent 

to 2 percent.22

Under the assumptions that the ASPI will receive no 

additional appropriations for renovations after 2010 and 

that the government will continue to pay to market and 

administer the program, CBO estimates that the net present value of the program to the government is negative 

$52 million.23 That figure is the difference between net 

Renovations Completed 107 131 238

Renovations to Be Completed

Using Funds Appropriated 

Before 2011 177 108 285

Renovations Requiring

Additional Appropriations

After 2011 443 0 443

RIA WVA Total

20. This principle was reflected in the legislation authorizing the 

Troubled Asset Relief Program. That law directed CBO to use 

risk-adjusted discount rates in estimating the subsidy cost of the 

program. See Congressional Budget Office, Report on the Troubled 

Asset Relief Program—March 2010 (March 2010). 

21. See Joseph Gyourko and Edward Nelling, Systematic Risk and 

Diversification in the Equity REIT Market (November 1994), 

available at http://finance.wharton.upenn.edu/~rlwctr/papers/

9411.pdf.

22. The time value of money before accounting for risk is captured 

using a real (inflation-adjusted) discount rate of 3 percent, which 

is equal to the interest rate that CBO projects for 10-year Treasury 

notes in the long run (see Congressional Budget Office, The LongTerm Budget Outlook, June 2010, Appendix B, pp. 73–74). The 

risk premium is the additional rate of return that investors require 

to hold assets whose returns are more variable than those of riskless assets.

23. Even if the discount rate did not include a risk component (in 

other words, if the future receipts to the government were certain), 

the net present value of the benefits and costs of the ASPI would 

be negative.
AN ANALYSIS OF THE ARMY’S ARSENAL SUPPORT PROGRAM INITIATIVE 15

CBO

present values for benefits and outlays of $47 million and 

$99 million, respectively.

Another approach to evaluating a project of this sort (and 

one that the Congress directed CBO to calculate for the 

ASPI) is to estimate the return on investment. A common 

measure of return on investment is a project’s internal 

rate of return (IRR)—the average return on capital 

invested over a project’s lifetime. An IRR that is less than 

the project’s risk-adjusted discount rate indicates that the 

return on capital is insufficient to compensate for the 

time value of money and the cost of risk-bearing. To 

determine the ASPI’s internal rate of return, CBO calculated the average return on capital that the government 

will realize given the estimated future financial benefits, 

the outlays to date, and the costs of administering and 

marketing the program through 2075. That figure was 

0.2 percent—well below the 4 percent to 5 percent discount rate that CBO estimates a private investor would 

require.

An alternative measure of return on investment is the 

ratio of the net present value of the program’s financial 

benefits to the amount invested, which gives the dollar 

amount of value created per dollar invested. That ratio is 

$47 million over $99 million for the ASPI for renovations made through 2010, or about 50 percent.24

If the program received additional funding for renovations after 2010, it would continue to require a government subsidy of about 50 cents for each dollar spent, 

CBO estimates. Thus, each 100,000 square feet of 

renovated space would, on average, generate a net present 

value of negative $8 million.

Economic Impact of the ASPI

The ASPI affects the economy in two ways: through the 

government’s expenditures for the program and through 

the economic activity generated by commercial tenants 

that relocate to the arsenal regions. The economic impact 

of the program varies depending on the geographic sector 

being analyzed; CBO considered the impact of the ASPI 

at both the regional and national levels.

Spending by the government and by industry generates 

economic activity both directly and indirectly. Purchases 

of goods and services directly spur economic activity that 

would not occur otherwise. Spending also usually has 

indirect effects that enhance or offset the direct effects. 

For instance, direct effects are enhanced when spending 

leads to higher income for workers who are employed 

because of a particular industrial activity or government 

policy and those workers then use their higher income to 

boost their consumption. Direct effects are also enhanced 

when a greater demand for goods and services prompts 

companies to increase investment spending to bolster 

future production. In the other direction, spending by 

the government and by industry can cause resources 

(including employees) to shift away from production at 

other firms or in other industries. Such indirect “crowding out” effects at least partially offset the growth in 

employment that results from the direct effects of additional spending by the government or the private sector.

Impact of the ASPI on Regional Economies

The economies of the arsenal regions benefit from the 

government’s spending for the ASPI.25 Federal funding 

for the program pays primarily for renovating and repairing underutilized arsenal property to prepare it for lease 

by commercial tenants; some funds have also been used 

to market the properties and pay for various administrative costs. That spending creates new demand for associated products and services in the region. Because the 

properties being readied for use under the ASPI have 

been vacant prior to their lease, CBO concluded that the 

Army would not have renovated those properties if the 

program was not in effect. Almost all of that spending 

occurred in the Watervliet and Rock Island regions 

because those arsenals received the bulk of the funding 

for the ASPI.

The ASPI also benefits the regions in which the arsenals 

are located through the economic activity that commercial tenants create. When the tenants relocate to a region, 

they not only bring additional jobs but also create new 24. In an August 2007 report to the House and Senate Armed Services Committees, the Army stated that the “rate of return” for the 

ASPI through 2006 was negative 20 percent. Dividing then current estimates of receipts generated by the ASPI ($3.1 million) by 

the program’s costs ($15.5 million) produced that result. See 

Department of the Army, A Review of the Arsenal Support Program 

Initiative (ASPI) Demonstration Program (August 2007).

25. The Watervliet region includes the following areas of New York: 

Albany, Schenectady, Troy, and Great Falls. The Rock Island 

region includes areas surrounding Davenport, Iowa, and Moline, 

Illinois. The Pine Bluff region of Arkansas includes areas surrounding Little Rock and North Little Rock.
16 AN ANALYSIS OF THE ARMY’S ARSENAL SUPPORT PROGRAM INITIATIVE

CBO

demand for goods and services.But such economic effects 

are attributable to the ASPI only if a tenant was not 

already located in the region before renting space at an 

arsenal. Tenants who relocate within a region do not generate new economic benefits for that region because their 

activities are already part of the regional economy. CBO 

estimates that about half of the tenants participating in 

the ASPI were already located in the Rock Island or 

Watervliet regions.26

Because many relevant factors are very difficult to measure, CBO could not reliably quantify the economic 

impact of the ASPI within the arsenal regions. Those 

factors include crowding-out effects, whereby spending 

at the arsenals causes a shift of resources away from other 

businesses within the arsenal regions. For example, businesses moving into a region to participate in the program 

represent competition for existing firms in the region—

perhaps driving up their labor costs and depressing their 

revenues and employment—but the magnitude of those 

effects is not known. Furthermore, the impact on 

regional economies depends on the degree to which the 

renovation contracts entered into under the ASPI and 

tenants’ subsequent activities result in the consumption 

of goods and services produced within the region rather 

than in other parts of the country. Such interregional 

flows could not be determined with any precision.

Impact of the ASPI on the National Economy

In CBO’s judgment, the ASPI has had little if any net 

impact on the nation’s economy because the program 

primarily causes shifts in resources from one region of 

the country to another. 

Beginning with the public sector, the government’s 

spending for the ASPI may or may not have increased 

total government spending. Because funding for the ASPI 

has been subject to the constraints that apply to the 

annual appropriation process, its funding may have 

displaced appropriations that would have been provided 

to DoD for different purposes or to other federal agencies. If so, any positive macroeconomic effects from the 

additional ASPI spending would have been offset by the 

impact of reducing spending for other purposes. 

Even if spending for the ASPI added to federal deficits 

between 2002 and 2010, its positive macroeconomic 

effects were probably limited to periods when economic 

activity was weak and unemployment high. During much 

of the program’s existence, however, the economy was 

operating at or near capacity. To reduce the risk of excessive inflation under those circumstances, the Federal 

Reserve generally considers information about the government’s budget when it makes decisions about interest 

rates and other monetary policy actions, with the intention of offsetting the impact on the economy of shortterm fluctuations in federal deficits. As a result, additional government spending under those circumstances 

would not produce sustained increases in overall economic activity and employment. Over the long term, the 

increased debt necessary to finance added spending tends 

to reduce the stock of productive private capital, which 

would diminish economic growth (by an amount that 

would be small relative to the amount of additional 

spending). 

Any effect on the national economy that might be 

attributable to the activity of the arsenals’ tenants is also 

minimal. Nearly all of the tenants who formerly leased 

or currently are leasing space at the arsenals were already 

located in the United States before they elected to participate in the program. Although the relocation of those 

tenants probably created an economic gain in the arsenal 

regions, it also probably resulted in economic losses in the 

regions that the tenants left. Therefore, the economic 

activity and employment of those tenants represents a 

shift of resources from one region of the country to 

another, resulting in no net economic impact nationally.27

26. CBO did not investigate whether a tenant’s decision to move to 

the arsenal region was a direct result of the ASPI. In some cases, a 

tenant might have relocated to that region even if the ASPI had 

not been in place. 

27. CBO did not estimate relocation costs, which if included would 

have resulted in a slight negative national impact of relocation 

from other regions.