United States General Accounting Office

GAO Briefing Report to the Chairman,

Committee on the Budget, House of

Representatives

April 1995 DEFENSE SECTOR

Trends in Employment

and Spending

GAO/NSIAD-95-105BR

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-260487 

April 19, 1995

The Honorable John R. Kasich

Chairman, Committee on

 the Budget

House of Representatives

Dear Mr. Chairman:

This report responds to your request for data on (1) the extent of the

Department of Defense (DOD) and defense industry downsizing and

(2) defense reinvestment and conversion expenditures. We briefed your

staff on our findings on February 10, 1995.

In summary, the defense sector, as measured by DOD spending and DOD and

defense industry employment, has been shrinking, both in absolute terms

and relative to the U.S. economy, since the mid-1980s. Declines in DOD

spending and concomitant decreases in defense-related employment have

occurred during a period of strong increase in the gross domestic product

and in nondefense employment. The defense reinvestment and conversion

initiative was established in 1993, in part, to help ease the displacement

caused by the defense sector downsizing. However, not all programs were

tied directly to DOD cuts. Some individual programs contained in the

initiative also have other purposes and will likely continue after the

initiative ends in fiscal year 1997.

Overall defense spending and employment peaked in the mid- to late 1980s

and have steadily declined since then. The most dramatic drops, and those

that have most directly affected the defense industry, have been in the

procurement accounts. Defense-related employment—active-duty military

personnel, DOD civilian employees, and defense industry employees—has

followed the same pattern, peaking in the mid- to late 1980s and declining

since then. Defense industry employment has shown a slightly larger

decrease than the other components—35 percent since 1987.

The level of defense industry activity and employment will depend in part

on the amount of future research and development and procurement

spending. DOD expects the decline in procurement spending to bottom out

in 1996 and projects a 47-percent increase in procurement budget

authority, adjusted for inflation, from the 1996 level by 2001. Presently,

however, further reductions in DOD employment and infrastructure are

expected. For example, in anticipation of upcoming base closure

Page 1 GAO/NSIAD-95-105BR Defense Sector
B-260487 

deliberations, DOD has identified infrastructure reductions in addition to

the 15 percent of bases designated for closure in earlier rounds.

The 5-year defense reinvestment and conversion initiative, started in 1993,

is currently planned to continue through fiscal year 1997 and combines

some new and some existing programs. Some programs, such as

separation pay, are directly tied to declines in defense spending and are

targeted to help individuals and communities cope with cutbacks in

military spending. Other programs (1) provide assistance to companies to

develop dual-use technologies—that is, technologies with both military

and civilian applications or (2) generally support the defense industrial

base. In commenting on a draft of this report, DOD pointed out that since

dual-use programs have long-term objectives, they will continue after the

administration’s 5-year initiative ends in 1997.

The estimated cost of the administration’s 5-year defense reinvestment

and conversion initiative has risen to $24.1 billion—$16.7 billion for

technology initiatives and $7.4 billion for worker and community

assistance—from the original estimate of $21.6 billion. Projected spending

was higher than initially proposed in each of the first 4 years. Existing

programs, such as SEMATECH, a consortium of semiconductor companies,

were categorized as being part of the defense reinvestment and conversion

initiative after it was announced in March 1993. This accounts for at least

part of the spending increase from the initial proposal. The executive

branch’s fiscal year 1996 budget proposes $178 million less for fiscal year

1997 than the administration originally planned.

Several indicators of the shrinking defense sector are (1) defense

employment relative to total employment and (2) defense spending as a

percentage of the gross domestic product. Defense-related employment as

a percentage of total U.S. employment reached a peak of 6.2 percent in

1987 and has declined to 3.8 percent in 1995. Similarly, defense spending

as a percentage of gross domestic product peaked at 6.5 percent in the late

1980s and has since declined to 4.1 percent.

Although defense spending and the defense industry have declined, the

U.S. economy as a whole has expanded. Since the late 1980s, total

nondefense-related employment has grown by 12 percent and the nation’s

gross domestic product has increased by 18 percent. Many analysts

forecast continuing growth over the near term.

Page 2 GAO/NSIAD-95-105BR Defense Sector
B-260487 

Scope and

Methodology

We obtained statistical data on defense spending and defense conversion

spending from DOD’s Office of the Comptroller. In addition, we obtained

information on other defense reinvestment and conversion spending from

officials at the Departments of Commerce and Labor and from our ongoing

work at the Department of Energy. This information includes estimates of

future year requests.

We obtained information on defense spending and defense-related

employment from DOD’s Office of the Comptroller, except for fiscal years

1996 and 1997 data on defense-related employment in private industry. We

estimated these figures from previous years’ data. Data on military base

closures, including future estimates, were obtained from senior DOD

officials.

We performed our work from December 1994 to February 1995 in

accordance with generally accepted government auditing standards. We

did not obtain written agency comments. However, we discussed the data

contained in this briefing report with senior DOD officials. They generally

agreed with the information presented, but believed that a fuller

presentation of the Department’s dual-use technology was warranted. We

have made changes where appropriate, but this report is not intended to

be a comprehensive review of dual-use technology.

We are providing copies of this briefing report to the Chairmen, House and

Senate Committees on Appropriations, the House Committee on National

Security, and the Senate Committee on Armed Services. We are also

sending a copy of this report to the ranking minority members of those

committees and to the Secretary of Defense. We will provide copies to

other interested parties upon request.

Page 3 GAO/NSIAD-95-105BR Defense Sector
B-260487 

Please contact me at (202) 512-4587 if you or your staff have any questions

concerning this report. The major contributors to this briefing report were

Katherine V. Schinasi, Thomas P. Hubbs, and Thomas W. Hopp.

Sincerely yours,

David E. Cooper

Director, Acquisition Policy, Technology,

 and Competitiveness Issues

Page 4 GAO/NSIAD-95-105BR Defense Sector
Page 5 GAO/NSIAD-95-105BR Defense Sector
Contents

Letter 1

Briefing Section I 

Defense Sector

8

Briefing for House Committee on the Budget 8

Definitions 9

DOD Spending by Major Category 10

DOD Spending and Defense-Related Employment 11

Defense-Related Employment 13

DOD Procurement Spending and Industry Employment 14

Major Domestic Defense Base Closures 16

Five-Year Defense Reinvestment and Conversion Initiative 17

Defense Reinvestment and Conversion by Category 19

Defense Reinvestment and Conversion by Program 21

Defense Reinvestment and Conversion Initial and Revised

Funding Estimates

22

DOD Spending and 5-Year Defense Reinvestment 24

Defense Employment and Reinvestment/Conversion 25

Defense Employment as Percentage of Total Employment 26

Defense Spending as Percentage of Gross Domestic Product 27

Growth in Nondefense-Related Employment 28

Gross Domestic Product 29

Page 6 GAO/NSIAD-95-105BR Defense Sector
Page 7 GAO/NSIAD-95-105BR Defense Sector
Briefing Section I 

Defense Sector

Briefing for the House Committee on

the Budget

Information on (1) Department of 

Defense (DOD) and defense industry 

downsizing and (2) defense 

reinvestment and conversion 

spending

Page 8 GAO/NSIAD-95-105BR Defense Sector
Briefing Section I 

Defense Sector

Definitions

• We defined "defense reinvestment 

and conversion" as the 5-year 

initiative announced by the 

administration in March 1993.

• We defined "spending" as budget 

authority.

Page 9 GAO/NSIAD-95-105BR Defense Sector
Briefing Section I 

Defense Sector

DOD Spending by Major Category 

Dollars in billions (constant fiscal year 1995)

0

15

30

45

60

75

90

105

120

135

1985 1987 1989 1991 1993 1995 1997 1999 2001

Fiscal year

Personnel

Operations and Maintenance

Procurement

Research and Development

Source: U.S. Office of Management and Budget, Budget of the United States Government, fiscal

year 1996 and DOD briefing documents.

• Overall, spending decreased by over 35 percent from fiscal years 1985 to

1996. The most pronounced drop occurred in procurement—over

70 percent.

• DOD projects a 47-percent increase in procurement budget authority,

adjusted for inflation, from the 1996 level by 2001.

Page 10 GAO/NSIAD-95-105BR Defense Sector
Briefing Section I 

Defense Sector

DOD Spending and

Defense-Related Employment

Dollars in billions Employees in thousands

1980 1982 1984 1986 1988 1990 1992 1994 1996 1997

Fiscal Year

400


375


350


325


300


275


250


225


200


 0

7,500


7,000


6,500


6,000


5,500


5,000


4,500


4,000


0

National defense spending (fiscal year 1995 constant dollars)

Total defense-related employment

Source: DOD, Office of Comptroller; however, GAO used previous years’ data to extrapolate

defense industry employees for fiscal years 1996 and 1997.

Note: Defense-related employment includes active-duty military, DOD civilian employees, and

defense industry employees.

• DOD’s budget authority and defense-related employment reached their

highest levels in the mid- to late 1980s and have declined since then.

Page 11 GAO/NSIAD-95-105BR Defense Sector
Briefing Section I 

Defense Sector

• Data on defense-related industry employment is reported on a biannual

basis by the Department of Labor’s Bureau of Labor Statistics. The next

report, expected in spring 1995, will update projections through fiscal year

1998.

Page 12 GAO/NSIAD-95-105BR Defense Sector
Briefing Section I 

Defense Sector

Defense-Related Employment

(FY 1980-97)

Employees in thousands

0

500

1000

1500

2000

2500

3000

3500

4000

1980 1985 1990 1995 1997

Fiscal year

Defense industry employees

Active-duty military personnel

Defense civilian employees

Source: DOD, Office of Comptroller; however, GAO used previous years’ data to estimate private

industry employees for fiscal years 1996 and 1997.

• Total defense-related employment peaked at about 7 million workers in

1987 and declined to an estimated 4.8 million in 1995, a 32-percent

decrease. Defense industry employment decreased by about 35 percent

from the 1987 peak but is still higher than in 1980.

Page 13 GAO/NSIAD-95-105BR Defense Sector
Briefing Section I 

Defense Sector

DOD Procurement Spending and 

Industry Employment

Dollars in billions

Fiscal Year

Employees in thousands

Industry employment

Procurement spending

140


130


120


110


100


 90


 80


 70


 60


 50


 40


 30


 20


 10


 


 0


3,800


3,700


3,600


3,500


3,400


3,300


3,200


3,100


3,000


2,900


2,800


2,700


2,600


2,500


2,400


2,300


2,200


2,100


2,000


1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997

Source: DOD, Office of Comptroller.

• Procurement budget authority is expected to decrease by over 70 percent

from fiscal years 1985 to 1996.

• Defense procurement spending decreased by over 65 percent from its 1985

peak, and defense industry employment decreased by 35 percent from its

1987 peak. The Department of Labor estimates that defense industry

employment will continue to decrease for the next 2 years.

Page 14 GAO/NSIAD-95-105BR Defense Sector
Briefing Section I 

Defense Sector

• Since actual expenditures lag behind budget authority, employment may

continue to decrease even as DOD expenditures begin to increase in 1996.

Page 15 GAO/NSIAD-95-105BR Defense Sector
Briefing Section I 

Defense Sector

Major Domestic Defense Base

Closures

Number of bases

0

20

40

60

80

100

120

140

160

180

200

220

Army Navy/Marine

Corps

Air Force Defense

agencies

Service component

109

97

168

135

206

183

12 10

Number of bases prior to BRAC rounds

Number of bases after BRAC rounds

Source: DOD, Office of Economic Security.

Note: BRAC is the Defense Base Realignment and Closure Commission.

• To date, BRAC actions (1988, 1991, and 1993) represent a 15-percent

reduction in the number of facilities, from 495 to 425. DOD anticipates

additional closings as a result of BRAC 1995.

Page 16 GAO/NSIAD-95-105BR Defense Sector
Briefing Section I 

Defense Sector

Five-year Defense Reinvestment 

and Conversion Initiative 

Dollars in millions

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

5500

6000

1993 1994 1995 1996 1997

Fiscal year

Worker and community assistance programs

Technology initiatives

Total funding

Source: Budget of the United States Government, fiscal year 1995, DOD and the Departments of

Commerce, Energy, and Labor.

Page 17 GAO/NSIAD-95-105BR Defense Sector
Briefing Section I 

Defense Sector

• In March 1993, the administration announced a governmentwide 5-year,

$21.6-billion defense reinvestment and conversion initiative for fiscal years

1993 through 1997.

• Assistance programs include separation benefits, education and training,

and economic adjustment planning grants to communities affected by

defense downsizing.

• Technology initiatives include long-term dual-use high-technology

investments. Spending for technology initiatives associated with defense

reinvestment and conversion for all government programs is expected to

peak at $4.2 billion in fiscal year 1997.

• Governmentwide funding for worker and community assistance programs

increased for the first 3 years and then declined. Governmentwide funding

for technology initiatives has continually increased, and DOD said its

program funding will continue beyond the 5-year initiative.

Page 18 GAO/NSIAD-95-105BR Defense Sector
Briefing Section I 

Defense Sector

Defense Reinvestment and Conversion 

by Category (Totals, FY 1993-97)

Dollars in billions

0

2

4

6

8

10

12

14

16

18

Technology initiatives

Worker and

community assistance programs

Program categories

16.7

7.4

Source: Budget of the United States Government, fiscal year 1995, DOD and the Departments of

Commerce, Energy, and Labor.

• About 30 percent of the defense reinvestment and conversion funding is

targeted to people and communities that are affected by defense

downsizing, including military base closures and defense industry layoffs.

Page 19 GAO/NSIAD-95-105BR Defense Sector
Briefing Section I 

Defense Sector

• About 70 percent of the funding supports technology initiatives. These

include broader objectives of developing dual-use technologies and

generally supporting the defense industrial base.

Page 20 GAO/NSIAD-95-105BR Defense Sector
Briefing Section I 

Defense Sector

Defense Reinvestment and 

Conversion by Program

Source: Departments of Commerce, Energy, Labor, and DOD.

• These programs represent the defense reinvestment and conversion

initiative as defined by the administration.

• Over 55 percent of technology initiative funding is for defense dual-use

programs.

• Funding has been provided through DOD and the Departments of

Commerce, Energy, and Labor.

Page 21 GAO/NSIAD-95-105BR Defense Sector
Briefing Section I 

Defense Sector

Defense Reinvestment and Conversion

Initial and Revised Funding Estimates

Dollars in millions

1500

2000

2500

3000

3500

4000

4500

5000

5500

6000

1993 1994 1995 1996 1997

Fiscal year

Original proposal (March 1993)

Revised funding estimate (February 1995)

Source: Initial Proposal (March 1993) - Office of Management and Budget. Revised Funding

Estimates (February 1995) - Departments of Commerce, Labor, Energy, and DOD.

• Projected spending was higher than initially proposed for each of the first

4 years of the defense reinvestment and conversion program. In the fiscal

year 1996 budget, the administration is requesting $178 million less for

fiscal year 1997 than originally anticipated.

Page 22 GAO/NSIAD-95-105BR Defense Sector
Briefing Section I 

Defense Sector

• Existing programs, such as SEMATECH, were categorized as being part of the

defense reinvestment and conversion initiative after it was announced in

March 1993. This accounts for at least part of the spending increase since

the initial proposal.

Page 23 GAO/NSIAD-95-105BR Defense Sector
Briefing Section I 

Defense Sector

DOD Spending and 5-year Defense 

Reinvestment

400
 Dollars in billions

375


350


325


300


275


250


15


10


 5


 0

FiscalYear

Spending for defense reinvestment and conversion

1980 1982 1984 1986 1988 1990 1992 1994 1996 1997

National defense spending (fiscal year 1995 constant dollars)

1993 1995

Source: DOD, for national defense spending; and the Departments of Commerce, Energy, Labor,

and DOD for defense reinvestment and conversion spending.

• Programs within the defense reinvestment and conversion initiative were

to mitigate the impacts of decreases in defense spending.

Page 24 GAO/NSIAD-95-105BR Defense Sector
Briefing Section I 

Defense Sector

Defense Employment and 

Reinvestment/Conversion

Source: DOD, Office of Comptroller; however, GAO used previous years’ data to extrapolate

defense industry employees for fiscal years 1996 and 1997.

Note: Defense-related employment includes active-duty military, DOD civilian employees, and

defense-related private industry employees.

• Programs within the defense reinvestment and conversion initiative were

to mitigate the impacts of decreases in defense-related employment. Some

are mandated separation benefits.

Page 25 GAO/NSIAD-95-105BR Defense Sector
Briefing Section I 

Defense Sector

Defense Employment as Percentage of

Total Employment (FY 1980-95)

Percentage

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

1980 1982 1984 1986 1988 1990 1992 1994 1995

Fiscal year

Source: DOD, Office of Comptroller.

Note: Total defense-related employment includes active-duty military, DOD civilian employees,

and defense-related private industry employees.

• Defense employment as a percentage of overall employment peaked at

6.2 percent in fiscal year 1987 and has steadily decreased to an estimated

3.8 percent in fiscal year 1995.

Page 26 GAO/NSIAD-95-105BR Defense Sector
Briefing Section I 

Defense Sector

Defense Spending as Percentage of 

Gross Domestic Product (FY 1980-95)

Percentage of gross domestic product

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

1980 1982 1984 1986 1988 1990 1992 1994 1995

Fiscal year

Source: DOD, Office of Comptroller.

• Defense spending as a percentage of the gross domestic product peaked at

6.5 percent in fiscal years 1986 and 1987 and has declined to an estimated

4.1 percent in fiscal year 1995.

Page 27 GAO/NSIAD-95-105BR Defense Sector
Briefing Section I 

Defense Sector

Growth in Nondefense-Related 

Employment (FY 1980-95)

Nondefense employees in thousands

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

110000

120000

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

Fiscal year

Source: Department of Labor.

• Nondefense-related employment grew from 106.5 million workers to

119.5 million, a 12-percent increase from fiscal year 1987 to fiscal year

1995.

Page 28 GAO/NSIAD-95-105BR Defense Sector
Briefing Section I 

Defense Sector

Gross Domestic Product 

(FY 1980-95)

Dollars in billions (constant fiscal year 1995)

4000

4500

5000

5500

6000

6500

7000

7500

8000

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

Fiscal year

Source: DOD, Office of Comptroller.

• The gross domestic product grew from $5.8 trillion to $7.1 trillion, an

18-percent increase from fiscal year 1987 to fiscal year 1995.

(705093) Page 29 GAO/NSIAD-95-105BR Defense Sector
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