```
                                                                 
Defense Budget: Contingency Operations in the Balkans May Need	 
Less Funding in Fiscal Year 2003 (27-SEP-02, GAO-02-1073).	 
                                                                 
From the end of the Persian Gulf War in February 1991 through May
2002, the Department of Defense (DOD) reported over $43.9 billion
in incremental costs for its overseas contingency operations.	 
These operations include the enforcement of no-fly zones,	 
humanitarian assistance, and peace enforcement operations, as	 
well as combating terrorism beginning in fiscal year 2001. The	 
majority of these costs were incurred in the Balkans and	 
Southeast Asia. In fiscal year 2002, U.S. military forces are	 
continuing to participate in a number of contingency operations, 
primarily in the Balkans, Southwest Asia, and a number of	 
locations that involve combating terrorism. The military services
received a combination of funding provided in the DOD		 
appropriations act for fiscal year 2002 and money remaining in	 
previously funded contingency fund accounts. The services also	 
took steps to reduce costs in order to keep them in line with	 
available funding. Both the North Atlantic Treaty Organization	 
and DOD plan to reduce troop levels in the Balkans during fiscal 
year 2003, which may reduce funding needs during the year. In	 
Europe, the Army  anticipates an overall reduction of 1,160	 
troops during fiscal year 2003. Although a decline in troop	 
strength does not necessarily correspond to an equal reduction in
costs, given the large anticipated reduction in troop levels,	 
there should be a decrease in estimated costs for fiscal year	 
2003. Since the fiscal year 2003 budget request was developed	 
from an already reduced fiscal year 2002 appropriation level, any
further reduction in fiscal year 2003 level would pose a funding 
challenge.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-1073					        
    ACCNO:   A05176						        
  TITLE:     Defense Budget: Contingency Operations in the Balkans May
Need Less Funding in Fiscal Year 2003				 
     DATE:   09/27/2002 
  SUBJECT:   Armed forces abroad				 
	     Defense budgets					 
	     Defense contingency planning			 
	     Defense cost control				 
	     Future budget projections				 
	     Bosnia						 
	     Bradley Fighting Vehicles				 
	     DOD Operation Deliberate Forge			 
	     DOD Operation Joint Forge				 
	     General Framework Agreement for Peace in		 
	     Bosnia and Herzegovina (Dayton			 
	     Agreement) 					 
                                                                 
	     Herzegovina					 
	     Kosovo						 
	     Overseas Contingency Operations Transfer		 
	     Fund						 
                                                                 
	     Southwest Asia					 
	     Yugoslavia 					 

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GAO-02-1073

                                    Untitled

GAO- 02- 450.

Report to the Subcommittee on Defense, Committee on Appropriations, U. S.
Senate

United States General Accounting Office

GAO

September 2002 DEFENSE BUDGET Contingency Operations in the Balkans May
Need Less Funding in Fiscal Year 2003

GAO- 02- 1073

Page i GAO- 02- 1073 Defense Budget Letter 1

Results in Brief 2 Background 3 Balkans and Southwest Asia Funding for
Fiscal Year 2002 5 Plans to Further Reduce Balkans Force Levels May Reduce

Fiscal Year 2003 Funding Needs 9 Conclusion 11 Agency Comments and Our
Response 11 Scope and Methodology 12

Appendix I Location of the Department of Defense*s Major Contingency
Operations in Fiscal Year 2002 14

Tables

Table 1: Comparison of Services* Operation and Maintenance Budget
Estimates and Funding Provided for Southwest Asia Operations, Fiscal Year
2002 8 Table 2: Comparison of the Army in Europe*s Budget Estimates for

Fiscal Years 2002 and 2003 10

Abbreviations

DOD Department of Defense GAO General Accounting Office NATO North
Atlantic Treaty Organization OCOTF Overseas Contingency Operations
Transfer Fund Contents

Page 1 GAO- 02- 1073 Defense Budget

September 27, 2002 The Honorable Daniel K. Inouye Chairman The Honorable
Ted Stevens Ranking Minority Member Subcommittee on Defense Committee on
Appropriations United States Senate

From the end of the Persian Gulf War in February 1991 through May 2002,
the Department of Defense (DOD) reported over $43.9 billion in incremental
costs for its overseas contingency operations. 1 These operations include
the enforcement of no- fly zones, humanitarian assistance, and peace
enforcement operations, as well as combating terrorism beginning in late
fiscal year 2001. The majority of these costs ($ 29.7 billion) were
incurred in the Balkans (Bosnia and Kosovo) and Southwest Asia. In fiscal
year 2002, U. S. military forces are continuing to participate in a number
of contingency operations, primarily in the Balkans, Southwest Asia, and a
number of locations that involve combating terrorism. Appendix I contains
a map depicting the location of DOD*s operations for fiscal year 2002.

You asked us to review the administration*s request for funding overseas
contingency operations. In response to your request, we examined (1) the
funding for continued operations in the Balkans and Southwest Asia for
fiscal year 2002 and (2) the outlook for funding operations in the Balkans
during fiscal year 2003.

To accomplish this review, we interviewed DOD and service officials who
are responsible for preparing budgets and estimating costs and force
levels. We also met with officials at the U. S. Mission to the North
Atlantic Treaty Organization (NATO) to discuss force levels in the
Balkans.

1 *Incremental costs* means those directly attributable costs that would
not have been incurred if it were not for the operation. It should be
recognized that DOD*s financial systems capture total obligations only and
that the services use various management information systems to identify
incremental obligations and to estimate costs. Although we use the term
*costs* throughout this report as a convenience, we are actually referring
to DOD*s obligation of funds.

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 02- 1073 Defense Budget

The military services received a combination of funding provided in the
DOD appropriations act for fiscal year 2002 and money remaining in
previously funded contingency fund accounts. The services also took steps
to reduce costs in order to keep them in line with available funding. The
Army in Europe, which had the largest share of the Balkan operations*
costs, took a number of steps to reduce costs. Its estimated costs for
fiscal year 2002 fell by more than $500 million between the time its
original estimate was developed and July 2002. This reduction was achieved
through decisions to reduce the amount of personnel and equipment in both
Bosnia and Kosovo and other cost- cutting measures, including reductions
in contract costs under the Army*s Balkan Support Contract through
improved contract management and oversight. In the Balkans, the Air Force*
which had the second largest share of costs in the Balkans* reduced its
expected costs by $49 million, bringing costs to within $2 million of the
funding provided. In Southwest Asia, the services continue to estimate
costs above available funding. The Air Force and the Navy will each have
to absorb about $11 million in costs while the Army will have to absorb
less than $1 million within their respective overall fiscal year 2002
appropriation for operation and maintenance (which funds these costs).
These amounts represent less than 1 percent of those appropriations.

Both NATO and DOD plan to reduce troop levels in the Balkans during fiscal
year 2003, which may reduce funding needs during the year. The Army in
Europe anticipates an overall reduction of 1,160 troops during fiscal year
2003. The Army in Europe*s fiscal year 2003 cost estimate of $1.251
billion is based on a troop strength of 6,140 soldiers. This estimate is
slightly higher than the Army in Europe*s fiscal year 2002 cost estimate
of $1.227 billion, which was based on 7,300 troops. Army in Europe
officials recognize that their $1.251 billion estimate for fiscal year
2003 is too high and are working on a revised estimate. Army headquarters
has told the Army in Europe to expect $1.059 billion in funding. Army in
Europe officials have told us* and we agree* that a decline in troop
strength does not necessarily correspond to an equal reduction in costs,
but given the large anticipated reduction in troop levels, we would expect
a decrease in estimated costs for fiscal year 2003. According to the Army,
the fiscal year 2003 budget request was developed from an already reduced
fiscal year 2002 appropriation level and that any further reduction in the
fiscal year 2003 level would pose a funding challenge. Army headquarters
and Army in Europe officials are working to narrow the difference between
the planned funding level and estimated costs. Results in Brief

Page 3 GAO- 02- 1073 Defense Budget

In official oral comments on a draft of this report, DOD concurred with
the facts presented in our report. However, the Army noted that its fiscal
year 2003 budget proposal is already constrained and expressed concern
that the report suggests that the Army plans to migrate any available
contingency operations funds to cover other Army budget needs. We are not
suggesting that the Army plans to migrate any available Balkan funds.
However, since Balkan funding is included in the Army*s overall operation
and maintenance budget, should savings from reduced troop levels
materialize in excess of the Army*s Balkan budget needs, any such savings
could be used to address other needs within the Army*s operation and
maintenance budget. A detailed discussion of DOD*s comments and our
response is contained in the body of this report.

During fiscal year 2002, U. S. military forces participated in a number of
contingency operations, and Congress appropriated funds to cover DOD*s
costs. Contingency operations for fiscal year 2002 included efforts to
combat terrorism as well as contingency operations in the Balkans and
Southwest Asia. Operations in these latter two areas accounted for 17
percent of DOD*s reported contingency costs for fiscal year 2002 through
May 2002, the latest available data. The bulk of the costs have been
incurred in combating terrorism.

In the Balkans, the United States was first engaged in Bosnia and then in
the Yugoslavian province of Kosovo. U. S. involvement in Bosnia began in
July 1992 as part of humanitarian relief efforts. Then, in April 1993, the
United States began to participate in NATO*s enforcement of a no- fly zone
over Bosnia and Herzegovina in support of United Nations peacekeeping. In
December 1995, the United States deployed military personnel in and around
Bosnia to assist in implementing the General Framework Agreement (also
known as the *Dayton Agreement*). Since then, the number of U. S. military
personnel stationed in Bosnia has steadily declined from about 18,000
troops in February 1996 to about 2, 500 troops in July 2002.

In March 1999, the United States provided military forces in support of
NATO*s combat operations against Yugoslavia following the failure of peace
talks and escalating violence against ethnic Albanians in Kosovo. Combat
operations officially ended on June 20, 1999. With Yugoslavia*s acceptance
of a peace plan and the United Nations* endorsement of a plan, the United
States began providing troops for the NATO- led Kosovo force, whose
mission is peace enforcement in Kosovo. The United States is currently
providing 5,000 troops as part of the NATO force. In addition, Background

Page 4 GAO- 02- 1073 Defense Budget

the United States has about 400 troops in the Republic of Macedonia to
operate a staging base for U. S. troops entering and departing Kosovo.
From the inception of operations through May 2002, Balkan costs have
totaled $19. 5 billion.

U. S. forces have been involved in enforcing the no- fly zone over parts
of Iraq since the end of the Persian Gulf War in 1991. The U. S. force
involved has on average comprised about 20,000 troops, many of them Navy
and Marine Corps personnel deployed on ships. Beginning in December 1998,
the United States conducted low- level air strikes against Iraq, first in
support of the United Nations* weapons of mass destruction inspection
efforts and then in response to Iraqi attempts to target allied aircraft
enforcing the no- fly zones. From the inception of operations through May
2002, Southwest Asia costs have totaled $10.2 billion.

Following the terrorist attacks of September 11, 2001, U. S. military
forces began military operations to combat terrorism. These operations
fall into two categories* defense of the United States and overseas
operations, principally in Central Asia to date. More than 148,000
military personnel were involved in these operations as of July/ August
2002. Through May 2002, DOD*s reported costs for these efforts totaled
$11.1 billion.

Within budget and appropriations accounts, operation and maintenance costs
account for the majority of all contingency operations costs. In fiscal
years 2000 and 2001 combined, operation and maintenance costs accounted
for 87 percent of the total; military personnel costs accounted for the
remaining 13 percent. During fiscal year 2002 through May 2002, operation
and maintenance costs accounted for 65 percent of the total; military
personnel costs accounted for the balance of the costs. 2 Operation and
maintenance funds are used for a variety of purposes, including the
transportation of personnel, goods, and equipment; unit operating support
costs; and intelligence, communications, and logistics support. Military
personnel accounts fund the pay and allowances of mobilized reservists as
well as special payments or allowances for all qualifying military
personnel, such as Imminent Danger Pay and Family Separation Allowance.

2 Military personnel costs represented a larger share of the overall costs
in fiscal year 2002 because of the large number of reservists (more than
75, 000) activated to combat terrorism.

Page 5 GAO- 02- 1073 Defense Budget

The method for funding operations in the Balkans and Southwest Asia
changed in fiscal year 2002. Prior to fiscal year 2002, Congress
appropriated funds both directly to the services* appropriations accounts
and to the Overseas Contingency Operations Transfer Fund (OCOTF). 3 DOD
transferred funds in the OCOTF to the services* appropriations accounts as
operations unfolded during the year. Any funds remaining in the fund at
the end of the fiscal year were carried over to the next fiscal year. We
reported in May 2002 that limited guidance and oversight, combined with a
lack of cost- consciousness, contributed to some questionable expenditures
of contingency funds. 4 Beginning in fiscal year 2002, DOD proposed that
the funding for its Southwest Asia operations be provided directly to the
services* appropriations accounts. Congress not only directly appropriated
funds to the services* appropriations accounts for the U. S. operations in
Southwest Asia, but directly appropriated funds for the operations in the
Balkans as well. Congress also significantly reduced funding for
contingency operations to encourage the services to spend funds more
efficiently and effectively.

In the case of new, expanded, or otherwise unfunded operations, costs are
not budgeted in advance. DOD must use funds appropriated for other
activities that are planned for later in the fiscal year. If these funds
are not replenished through supplemental appropriations or the
reprogramming of funds from other sources, the services have to absorb the
costs within their regular appropriations.

The military services received a combination of funding provided by the
DOD appropriations act for fiscal year 2002 and funds that remained in the
OCOTF. For Balkan operations, the amount that Congress appropriated was
$650 million less than the amount requested in the President*s budget. For
Southwest Asia operations, requested funding was included in the military
services* overall accounts. The services collectively received about $24
million less in funding than they had estimated was needed. In

3 OCOTF was established by the DOD appropriations act for fiscal year 1997
to meet operational requirements in support of emerging contingency
operations without disrupting approved program execution or force
readiness. The OCOTF later became a

*no year* transfer account in order to provide additional flexibility to
meet operational requirements by transferring the funding to the military
components on the basis of actual budget execution experience as events
unfold during the year of execution.

4 See U. S. General Accounting Office, Defense Budget: Need to Strengthen
Guidance and Oversight of Contingency Operations Costs, GAO- 02- 450
(Washington, D. C.: May 21, 2002). Balkans and

Southwest Asia Funding for Fiscal Year 2002

Page 6 GAO- 02- 1073 Defense Budget

response to the reduction in funding, the military services took steps to
reduce costs in order to keep costs in line with available funding,
although they will have to absorb some costs related to operations in both
the Balkans and Southwest Asia. The proportion of costs that will have to
be absorbed represents less than 1 percent of each of the services*
appropriation for operation and maintenance.

The services took important cost- cutting steps to meet reduced funding
levels in fiscal year 2002. Funding for Balkan operations was reduced by
$650 million in fiscal year 2002 and was appropriated directly into the
services* military personnel and operation and maintenance accounts. The
services were generally funded at the amounts requested for military
personnel and less than requested for operation and maintenance. 5 The
Senate Appropriations Committee, in its report on DOD*s appropriations for
fiscal year 2002, suggested that providing funds directly into the
services* accounts would lead to better accountability and the elimination
of redundant and questionable costs. 6 Subsequently, Congress appropriated
funds for contingency operations directly into the services* accounts as
part of their base programs.

The Army, which had the largest share of Balkan costs, received the
largest funding reduction. Within the Army, the Army in Europe, which is
responsible for paying the bulk of the Balkan operations* costs, started
fiscal year 2002 with a large gap between its estimated cost and the
funding that the Department of the Army told it to expect. Specifically,
prior to the beginning of fiscal year 2002 (in July 2001), the Army in
Europe estimated that its Balkan operations would cost $1.458 billion, but
it was told to expect funding of $1.152 billion with a promise of an
additional $150 million later in fiscal year 2002.

To address the reduced funding, the Army in Europe took a number of steps
to reduce costs. We previously reported that the Army in Europe in April
2001 provided us with its revised cost estimate for fiscal year 2002,
which reflected as much as a $284 million decline in costs from DOD*s
initial budget estimate because of a variety of factors. The reduction

5 Subsequently the Office of the Secretary of Defense transferred $51.4
million from the OCOTF to the Army to cover higher reserve military
personnel costs because of a decision to use more reserve soldiers in the
Balkans.

6 S. Rep. No. 107- 109 at 53 (2001). Cost Cutting Played an

Important Role in Managing Balkan Costs

Page 7 GAO- 02- 1073 Defense Budget

reflected a reduction in the amount of personnel and equipment in both
Bosnia and Kosovo, as well as declines in other costs, including those for
contractors and airlift services in Kosovo. Additional troop and
heavyequipment reductions, and improved contract management and oversight
of the Army*s Balkan Support Contract, allowed the Army in Europe in July
2002 to further reduce its fiscal year 2002 estimate for Balkan operations
by $231 million from its July 2001 estimate for fiscal year 2002. This
included action on our previous report finding involving the Army in
Europe*s counting airlift costs twice* directly paying the Air Force for
airlift charges and including transportation costs on travel orders. 7
Army in Europe officials stated that correcting this double obligation of
airlift billing charges reduced costs.

The remaining $75 million difference between the Army in Europe*s July
2002 estimate of $1.227 billion and the $1.152 billion in funding it had
initially been told to expect will have to be covered by using funds
planned for other activities within existing Army programs. In early
September 2002, an Army headquarters budget official told us that the Army
was still working to identify a source for the needed funds.

The Army*s Forces Command, which is responsible for Army units and
facilities in the continental United States and Puerto Rico, also started
fiscal year 2002 with a large gap between its estimated cost and the
funding the Department of the Army told it to expect. Specifically, Forces
Command*s original fiscal year 2002 estimate for Balkan operations was
$169 million, but it was told to expect funding of $65.7 million. By
February 2002, Forces Command had reduced its estimate to $116.3 million
on the basis of its cost experience. In August 2002, Forces Command told
us that it would reduce its costs to the $65 million in available funding
as a result of continued analysis of initial estimates and actual costs.

The Air Force, which had the second largest share of Balkan costs,
received $51 million less than its estimated costs of about $174 million.
In August 2002, the Air Force told us that it had reduced its cost
estimate for fiscal year 2002 by $49 million. This brought the estimate
closer to available funding. One example of cost reduction involves the
Air Force in Europe, which told us that its cost estimate had fallen by
about $6 million

7 See

Page 8 GAO- 02- 1073 Defense Budget

as a result of savings achieved from consolidating U- 2 aircraft
operations and closing San Vito Air Base in Italy.

In fiscal year 2002, funds for Southwest Asia operations were also
appropriated directly into the military services* accounts as part of
their base programs, and traditionally any shortfall in funding would have
to be absorbed by the services. The services received less funding than
they had originally estimated in costs, but the gap was not as great as
that for the Balkans. Within the estimates, costs for military personnel
were funded as requested, but funding for operation and maintenance was
below the estimates, as shown in table 1.

Table 1: Comparison of Services* Operation and Maintenance Budget
Estimates and Funding Provided for Southwest Asia Operations, Fiscal Year
2002

Dollars in millions

Service Original estimate Funding

provided Current estimate

Difference between funding and current

estimate

Army $249.5 $207.4 $208.3 ($. 9) Air Force 657.5 636.1 646.9 (10.8) Navy
232.0 220.1 232.0 (11.9)

Source: Developed by GAO from DOD*s data.

The services continue to estimate costs above available funding and in the
past have had to absorb these costs within their overall operation and
maintenance budget. The Army has reduced its estimated shortfall to less
than $1 million, and the Air Force has reduced its estimated shortfall to
$10.8 million. The Navy continues to estimate costs at its original level
and so continues to have a shortfall of $11.9 million. The shortfalls
represent less than 1 percent of the services* operation and maintenance
appropriations for fiscal year 2002. 8

8 In the Fiscal Year 2002 Appropriation Act (P. L. 107- 117), the Air
Force was appropriated $26 billion for operation and maintenance; the
Army, $22.3 billion; and the Navy, $26.9 billion. Services Will Have to

Absorb Some Southwest Asia Costs

Page 9 GAO- 02- 1073 Defense Budget

Both NATO and DOD plan to reduce troop levels in the Balkans during fiscal
year 2003, which may reduce funding needs to support Balkan operations
during the year. The military services included funding for the Balkans in
their base program funding input for the President*s fiscal year 2003
budget, which was submitted to Congress in February 2002. According to the
budget justification data provided with the President*s budget, the Army
stated that there would be a $32.1 million decrease for Balkan operations,
reflecting reductions in supplies, fuel, equipment, and contract support.
The Air Force included an increase of $18.8 million for operations in
Bosnia, including Operation Joint Forge (peacekeeping in Bosnia) and
Operation Deliberate Forge (enforcement of the no- fly zone over Bosnia).

Since February 2002, when the President*s budget was submitted, NATO has
agreed to reduce force levels, which could reduce costs. In the spring of
2002, NATO approved a reduction in total multinational force troop
strength in Bosnia to approximately 12,000 troops. This is a decline of
about 4,700 from the approximately 16,700 troops that were stationed there
as of July 23, 2002. The reduction is scheduled for completion by December
2002. NATO also approved a reduction in multinational troop strength in
Kosovo to approximately 29,000 troops. This is a decline of about 3,800
from the approximately 32,800 troops that were stationed in Kosovo as of
July 23, 2002. These changes will occur between August 2002 and June 2003.
NATO has not made any decisions regarding troop reductions by donor
countries. However, officials at the U. S. Mission to NATO told us that
they expected U. S. force levels to decline as part of the overall
reduction and that U. S. forces would remain at about 15 percent of the
total NATO force. On the basis of the overall troop strength reduction, we
estimate that this could translate into a reduction of about 1,269 U. S.
military personnel during fiscal year 2003.

The Army in Europe was directed by the U. S. European Command 9 to reduce
troop levels in the Balkans to levels slightly below those envisioned by
our pro rata estimate of the U. S. share of the NATO- directed reduction.
However, on the basis of July 2002 information that we were provided with,
the reduction does not appear to have lowered anticipated costs. As shown
in table 2, the overall reduction totals 1,160 troops (from 7,300 to 6,140
troops) and is to take place between September and November 2002. It also
includes a reduction in heavy equipment, such as tanks, Bradley

9 The European Command is the combatant command responsible for Balkan
operations. Plans to Further

Reduce Balkans Force Levels May Reduce Fiscal Year 2003 Funding Needs

Page 10 GAO- 02- 1073 Defense Budget

Fighting Vehicles, and helicopters. The Army in Europe*s budget estimate
for its Balkan operations is $1.251 billion in fiscal year 2003 and is
based on the reduced troop level. The decision to reduce force levels was
made after submission of the President*s budget for the fiscal year 2003
appropriation for DOD. The budget estimate for fiscal year 2003 is
slightly higher than the Army in Europe*s July 2002 estimate of its fiscal
year 2002 costs. However, the cost estimate for fiscal year 2002 is based
on higher troop levels.

Table 2: Comparison of the Army in Europe*s Budget Estimates for Fiscal
Years 2002 and 2003

Dollars in billions

Fiscal year End of year troop level Budget estimate

2002 7,300 $1.227 2003 6,140 1.251

Source: Developed by GAO from the Army in Europe*s data.

In discussing the budget estimate with Army in Europe officials, we were
told that they recognize that their $1.251 billion estimate for fiscal
year 2003 is too high and that they are working on a revised estimate.
These officials believe that their estimate for fiscal year 2003 will fall
below their estimate for fiscal year 2002. To complete their revised
estimate, they are working with their planners on the timing of any troop
reduction, the impact that the reduction will have on the number of base
camps, whether any offsetting contracts will need to be awarded to
maintain some mission capability, and the support and overhead that can be
eliminated. Army in Europe officials told us* and we agree* that a decline
in troop strength does not necessarily correspond to an equal reduction in
costs. However, given the large anticipated reduction in troop levels, we
would expect a decrease in estimated costs for fiscal year 2003.

Regarding funding, Army headquarters has told the Army in Europe to expect
$1. 059 billion in funding. Army headquarters and Army in Europe officials
are working to narrow the difference between the planned funding level and
estimated costs. An Army headquarters budget official told us that the
fiscal year 2003 budget request was developed from the already reduced
fiscal year 2002 appropriation level and that any further reduction in the
fiscal year 2003 level would pose a funding challenge.

Page 11 GAO- 02- 1073 Defense Budget

Reductions in the number of troops in the Balkans, to the extent not
reflected in the President*s budget for fiscal year 2003, have the
potential to reduce costs for fiscal year 2003 below the requested funding
level. Army officials believe that their fiscal year 2003 budget proposal
is already constrained. However, to the extent that savings are realized
from reduced troop levels, we believe any such savings could relieve that
constraint or make additional funds available for other Army budget needs
if Congress appropriates the full amount requested by the President.

In official oral comments on a draft of this report, DOD concurred with
the facts presented in our report. However, the Army noted that its fiscal
year 2003 budget proposal is already constrained and expressed concern
that the report suggests that the Army plans to migrate any available
contingency operations funds to cover other Army budget needs. We noted in
the report that the Army*s fiscal year 2003 budget request was developed
from the already reduced fiscal year 2002 appropriation level. We further
noted that the Army believes that any further reduction in the fiscal year
2003 level would pose a funding challenge. We have concluded that to the
extent savings are realized from reduced troop levels, any such savings
could relieve that constraint or make additional funds available for other
Army budget needs. We agree that to the extent savings are realized from
reduced troop levels it could and should relieve any overall Balkan budget
constraints for fiscal year 2003. We are not suggesting that the Army
plans to migrate any available Balkan funds. However, since Balkan funding
is included in the Army*s overall operation and maintenance budget, should
savings from reduced troop levels materialize in excess of the Army*s
Balkan budget needs, any such savings could be used to address other needs
within the Army*s operation and maintenance budget. Conclusion

Agency Comments and Our Response

Page 12 GAO- 02- 1073 Defense Budget

To examine funding for Balkan and Southwest Asia operations in fiscal year
2002, we obtained records and conducted interviews at the Office of the
Secretary of Defense, as well as at the Departments of the Army, Navy, and
Air Force. We used the data obtained to compare original budget estimates,
funding provided, and more current budget estimates. To ascertain steps
taken to reduce costs, we held discussions with and reviewed data provided
by officials in the Departments of the Army, Navy, and Air Force.

To examine the outlook for funding operations in the Balkans during fiscal
year 2003, we (1) reviewed the President*s fiscal year 2003 budget request
and supporting budget documentation and (2) obtained budget estimates from
key service elements involved in Balkan operations, particularly the Army
in Europe. We obtained information on any changes in force levels planned
for fiscal year 2003 from both the Army in Europe and the U. S. Mission to
NATO. We then compared the force levels used in preparing the President*s
budget request for fiscal year 2003 with any subsequent decisions to
reduce force levels since the President*s budget was submitted to
Congress.

We visited the following locations during our review:

 Office of the Secretary of Defense (Comptroller), Washington, D. C.

 Department of the Army, headquarters, Washington, D. C.

 U. S. Army Forces Command, Fort McPherson, Ga.

 U. S. Army Europe, Heidelberg, Germany.

 Department of the Air Force, headquarters, Washington, D. C.

 U. S. Air Force Europe, Ramstein Air Base, Germany.

 Air Combat Command, Langley Air Force Base, Va.

 Department of the Navy, headquarters, Washington, D. C.

 U. S. Mission to NATO, Brussels, Belgium. We performed our work from
February through September 2002 in accordance with generally accepted
government auditing standards.

We are sending copies of this report to interested congressional
committees; the Secretary of Defense; the Under Secretary of Defense
(Comptroller); and the Director, Office of Management and Budget. Copies
of this report will also be made available to others upon request. In
addition, this report will be available at no charge on the GAO Web site
at http:// www. gao. gov. Scope and

Methodology

Page 13 GAO- 02- 1073 Defense Budget

If you have any questions regarding this report, please call me on (757)
552- 8100. Principal contributors to this report were Steve Sternlieb,
Donna Rogers, Frank Bowen, and Shamik Ghosh.

Sincerely yours, Neal P. Curtin Director, Defense Capabilities and
Management

Appendix I: Location of the Department of Defense*s Major Contingency
Operations in Fiscal Year 2002

Page 14 GAO- 02- 1073 Defense Budget

Source: Developed by GAO from the Department of Defense*s data.

Appendix I: Location of the Department of Defense*s Major Contingency
Operations in Fiscal Year 2002

(350168)

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