PAYING FOR MILITARY READINESS AND UPKEEP:

TRENDS IN OPERATION AND MAINTENANCE SPENDING

SEPTEMBER 1997

The Congress of the United States

Congressional Budget Office
NOTES

Numbers in the text and tables may not add to totals because of rounding.

All dollar amounts are expressed in 1996 dollars unless otherwise noted.

All years are fiscal years unless otherwise indicated.
P

Preface

ressures to find money for new weapon systems are pushing the Department of Defense (DoD) to take a fresh look at its infrastructure. Spending on operation and maintenance (O&M) is one of the chief sources of funding for infrastructure. In order to

realize its plans and meet the level of defense spending included in the 1998 Congressional

budget resolution, DoD may have to cut $11 billion from its current level of annual spending

on O&M by 2002. In light of past trends, that could be difficult and would require either

major changes in the amount or method of providing O&M support or reductions in the number of forces.

This analysis, prepared by the Congressional Budget Office (CBO) for the Defense Subcommittee of the Senate Committee on Appropriations, examines how O&M spending grew in

the 1980s and fell in the 1990s. The study highlights changes that could be made to achieve

lower levels of spending by 2002. In keeping with CBO's mandate to provide objective analysis, the study makes no recommendations.

Amy Belasco of CBO's National Security Division prepared the study under the general

supervision of Cindy Williams and Neil Singer. Ellen Breslin Davidson wrote the section on

DoD's health care spending, and Wayne Glass contributed the section on DoD's environmental

security program in Chapter 2. The author would like to thank Nathan Stacy, Shaun Black,

Doug Taylor, Jofi Joseph, and Evan Christman for their help in organizing and verifying large

amounts of data. She is also grateful to the many people in the Department of Defense and the

military services for providing data and answering numerous queries. Michael Miller of CBO

and Stanley Horowitz of the Institute for Defense Analyses provided helpful comments on an

earlier draft of the study, and Amy Plapp, Kent Christensen, and Lisa Siegel of CBO helped

with cost estimates.

Sherwood Kohn edited the manuscript. Cindy Cleveland and Judith Cromwell produced

drafts of the study. Kathryn Quattrone and Jill Sands prepared the report for publication.

June E. O'Neill

Director

September 1997

Contents

SUMMARY xi

ONE THE NEED TO REDUCE OPERATION AND

MAINTENANCE SPENDING LEVELS IN

THE FUTURE 1

Spending on Operation and Maintenance

in the 1980s and 1990s 5

Changes in the Composition of Operation

and Maintenance Spending 9

TWO WHY DEFENSEWIDE SPENDING ON

OPERATION AND MAINTENANCE HAS GROWN 13

External Pressures on Defensewide O&M Spending:

DoD's Medical Program 17

Pressure on O&M Spending from New Defense

Responsibilities 19

Expansion of Ongoing Defensewide Missions 23

Other Growth 23

THREE READINESS AND O&M SPENDING

BY THE SERVICES 25

Changes in Force Structure and O&M Spending 25

Changes in Indicators of Readiness and Operating

Spending 27

Changes in Spending on Mobilization 38

Changes in Spending on Infrastructure 38

FOUR STRATEGIES FOR REDUCING O&M SPENDING 47

Cut Force Structure 48

Redefine Defensewide O&M Responsibilities 48

Reduce Training Levels Selectively 49

Change How Support Is Delivered 50

Cut Infrastructure Costs by Closing Bases 58
vi PAYING FOR MILITARY READINESS AND UPKEEP September 1997

APPENDIXES

A Adjusting Operation and Maintenance Spending

Between 1981 and 1996 63

B Classifying Operation and Maintenance Activities

According to the New Operation and Maintenance

(O-1) Structure Adopted by DoD 67

C Spending in the Services by New Operation

and Maintenance (O-1) Budget Categories 69

D Estimating Future Cuts in Force Structure 75
CONTENTS vii

TABLES

S-1. Spending for Operation and Maintenance and Indicators 

of Workload in the 1980s and 1990s xiii

S-2. Changes in Spending for Operation and Maintenance

and Indicators of Workload in the 1980s and 1990s xiv

S-3. Mission- and Infrastructure-Related Spending as a Share

of Total Spending for Operation and Maintenance xv

1. Spending for Operation and Maintenance and Indicators 

of Workload in the 1980s and 1990s 6

2. Changes in Spending for Operation and Maintenance 

and Indicators of Workload in the 1980s and 1990s 7

3. Mission- and Infrastructure-Related Spending as a Share

of Total Spending for Operation and Maintenance 9

4. Changes in Spending for Operation and Maintenance

by O-1 Budget Category 10

5. Spending for Operation and Maintenance by Component 14

6. Defensewide Spending for Operation and Maintenance

by O-1 Budget Category 15

7. Sources of Growth in Defensewide Spending for

Operation and Maintenance 16

8. Changes in Spending on Operating Forces and in Training Levels 27

9. Changes in O-1 Budget Categories for Operation and 

Maintenance Spending by the Services 39

10. Statutory Restrictions on Privatization: Key Provisions 56

A-1. Standardizing Operation and Maintenance Spending

Between 1981 and 1996 64

C-1. Mission- and Infrastructure-Related Spending as a Share

of the Services' Total Spending for Operation and Maintenance 70

C-2. Spending for Operation and Maintenance in the Services

by O-1 Budget Category 71

C-3. Changes in Spending for Operation and Maintenance

in the Services by O-1 Budget Category 72
viii PAYING FOR MILITARY READINESS AND UPKEEP September 1997

C-4. Distribution of Spending for Operation and Maintenance

in the Services by O-1 Budget Category 73

FIGURES

S-1. Past and Alternate Future Levels of Spending for

Operation and Maintenance, 1979-2003 xii

S-2. Changes in Indicators of Training Readiness and

Spending in the 1980s and 1990s xvii

S-3. Changes in Average Operating Spending in the

Army, Navy, and Air Force xviii

1. Changes in Shares of Department of Defense Spending 

by Type in 1981, 1989, and 1996 2

2. Past and Alternate Future Levels of Spending for

Operation and Maintenance, 1979-2003 3

3. Operation and Maintenance Spending per Person,

1971-2003 5

4. Total Defense Spending on Environmental Security

Programs, 1984-1997 21

5. Spending for Operation and Maintenance per Capita

by Service, 1981-1997 26

6. Changes in Indicators of Equipment Readiness and

Spending in the 1980s and 1990s 29

7. Changes in Indicators of Training Readiness and

Spending in the 1980s and 1990s 31

8. Changes in Average Operating Spending in the

Army, Navy, and Air Force 36

9. Changes in Spending for Schoolhouse Training by Service 40

10. Changes in per Capita Spending for Administrative and 

Servicewide Support by Service 41

11. Changes in per Capita Spending for Administration

by Service 42
CONTENTS ix

12. Per Capita Spending for Base Support by Service,

1981-1997 43

13. Changes in Total Building Space Within the United States

and Overseas, 1981-2001 44

14. Floor Space of Buildings per Capita, 1981-2003 45

BOXES

1. Projections of Inflation by the Congressional Budget

Office and the Administration 4

2. Comparing Operation and Maintenance Over Time 8

B-1. Department of Defense O-1 Budget Categories,

as Standardized by the Congressional Budget Office 68

C

Summary

onfronted with a budget that is declining and

then likely to remain level, the Department of

Defense (DoD) faces a funding challenge:

how to find more money to modernize its current inventory of weapon systems. Testifying before the Congress in February of 1997, then Deputy Secretary of

Defense John White declared that defense reform would

be one of the major ways to meet that challenge. In

fact, White concluded, "defense reform is a fiscal imperative."

DoD's plans for future reductions in spending on

operation and maintenance (O&M) are further evidence

of its intent to carry out defense reforms. O&M spending supports the training, supply, and equipment maintenance of military units as well as the administrative

and facilities infrastructure of military bases. That

spending makes up 37 percent of the total defense budget. Along with funding for military personnel, O&M

spending is the chief source of support for the defense

infrastructure and, hence, one of the prime targets of

reform efforts.

Operation and maintenance spending, however, is

also considered one of the major components of DoD's

funding for readiness. (The other, spending on military

personnel, is not discussed in this study.) Determined

to prevent a return to the so-called hollow forces of the

late 1970s, when there were reports of inadequate

readiness, the Administration, the Secretary of Defense,

and the services have all stated their commitment to

fund fully those programs essential to maintaining

ready forces. But the need to maintain readiness may

have to be met with resources constrained by both

smaller defense budgets and the competing needs of

other defense programs, principally the growing drive

to fund the next wave of defense modernization.

Under both the Administration's plan for 1998 and

this year's Congressional budget resolution, overall defense spending is slated to fall by about 6 percent between 1996 and 2002. Spending on O&M in 2002

would fall more steeply, to about $80 billion in the Administration's plan, which is about $10 billion, or 11

percent, lower than its level in 1996 (see Summary Figure 1). The 1998 Congressional resolution proposes an

amount of spending for defense in 2002 that is the

same as that assumed by the Administration. The Congressional Budget Office (CBO) uses 1996 as a baseline because it is the latest year for which the actual

spending level is available. Reductions from the 1997

level of O&M spending would be more modest: a decrease of over $7 billion.

Greater cuts in O&M spending could be necessary

if the Administration's assumptions about inflation for

purchases and civilian pay prove to be overly optimistic, as they have in the past. Using less optimistic CBO

assumptions for inflation and pay, O&M spending

might have to be reduced by an additional $2 billion in

2002 to cover those costs. Including the effect of

higher inflation, it would be necessary to cut total

O&M spending by about $12 billion from the 1996

level and $10 billion from the 1997 level.

DoD is likely to realize some savings in O&M from

base closures that are already under way as a result of

recommendations by the Base Realignment and Closure

Commissions. Based on DoD estimates, closures will
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

50

60

70

80

90

100

110

120

Billions of 1996 Dollars

Fiscal Year

Actual Projected

Past Levels

and 1998 Plan

1998 Plan with

Alternate Inflation

a

b

xii PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

Summary Figure 1.

Past and Alternate Future Levels of Spending for Operation and Maintenance, 1979-2003

SOURCE: Congressional Budget Office (CBO) based on data from the Department of Defense.

NOTES: Spending levels are expressed in total obligational authority, adjusted to reflect changes in financing conventions and to exclude spending

on Desert Shield/Desert Storm and other contingencies.

Alternate assumptions are based on CBO's estimates for the 1998 budget for inflation in purchases and changes in civilian pay.

a. Reflects the Administration’s plan and inflation assumptions as of the 1998 budget.

b. Reflects CBO’s alternate inflation assumptions.

reduce O&M spending from the 1996 level by about

$1.3 billion. Taking those savings into account, total

O&M spending may have to be cut by about $11 billion. Although the Congress and DoD have made some

cuts in O&M spending in recent years by trimming programs, a reduction of $11 billion could be difficult to

achieve, particularly because reductions in force structure are largely complete. A decrease of that magnitude

would equal about three-quarters of the total reduction

in O&M from the defense drawdown that began in

1990. The drawdown followed a decade of growth in

O&M spending during which support of military personnel became increasingly expensive.

Past Spending Trends in

Operation and Maintenance

At first glance, the prospect for reducing O&M spending might seem bleak. Over the past 25 years, O&M

spending per active-duty military person has grown in

real terms at an average rate of more than 3 percent a

year. The Administration's plan assumes a dramatic

reversal of that trend. If the trend was projected over

the next five years, total O&M spending would be $18

billion higher than the Administration's plan by 2002.
SUMMARY xiii

Summary Table 1.

Spending for Operation and Maintenance and Indicators of Workload in the 1980s and 1990s

1981 1989 1996

Total O&M Spending (Billions of 1996 dollars)

O&M Appropriation 86 107 92

Force Structure (Number of units/platforms)a

Army Divisions 16 18 10

Ships 460 492 288

Air Force Tactical Wings 24 24.6 12.5

Training Levels (Thousands)a

Army Tank Miles 3,085 3,313 1,668 b

Navy Underway

Steaming Hours 1,165 1,251 812

Air Force Flying Hours 1,181 1,255 651

Personnel Levels (Thousands)

Active-Duty

Army 781 770 495

Navy 540 593 428

Marine Corps 191 197 174

Air Force 570 571 388

Total 2,082 2,131 1,485

Reserves 917 1,170 1,019

Real Estate (Millions of square feet of buildings)

Floor Space 1,697 1,802 1,530

SOURCE: Congressional Budget Office based on data provided by the Department of Defense.

NOTES: Tactical Air Force wings are measured in $wing equivalents,# which divide the number of aircraft authorized for units by 72, the average size

of a wing. Navy ships include all submarines, surface ships, and most support ships. The Congressional Budget Office’s totals for

spending on operation and maintenance (O&M) include a variety of adjustments in total obligational authority to reflect changes in financing

conventions over the years (see Appendix A).

a. Active-duty forces only.

b. Reflects the 1982 level. The level for 1981 is not available.
xiv PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

Summary Table 2.

Changes in Spending for Operation and Maintenance and Indicators of 

Workload in the 1980s and 1990s (In percent)

Change Between

1981 and 1989 1989 and 1996 1981 and 1996

Total O&M Spending

O&M Appropriation 24 -14 7

Force Structurea

Army Divisions 13 -44 -38

Ships 7 -41 -37

Air Force Tactical Wings 3 -49 -48

Training Levelsa

Army Tank Miles 7 -50 -46 b b

Navy Underway

Steaming Hours 7 -35 -30

Air Force Flying Hours 6 -48 -45

Personnel Levels

Active-Duty

Army -1 -36 -37

Navy 10 -28 -21

Marine Corps 3 -12 -9

Air Force 0 -32 -32

Total 2 -30 -29

Reserves 28 -13 11

Real Estate

Floor Space 6 -15 -10

SOURCE: Congressional Budget Office based on data provided by the Department of Defense.

NOTES: Tactical Air Force wings are measured in $wing equivalents,# which divide the number of aircraft authorized for units by 72, the average size

of a wing. Navy ships include all submarines, surface ships, and most support ships. The Congressional Budget Office’s totals for

spending on operation and maintenance (O&M) include a variety of adjustments in total obligational authority to reflect changes in financing

conventions over the years (see Appendix A).

a. Active-duty forces only.

b. Change measured from the 1982 level. The level for 1981 is not available.
SUMMARY xv

That long-term trend, however, does not reveal the patterns in O&M funding, which may point to ways of

constraining spending in the future.

Between 1979 and 1981, total O&M spending

grew by $12 billion, or 17 percent, primarily in reaction

to concerns about readiness raised in the late 1970s. In

the next eight years, O&M spending grew by an additional 24 percent&from $86 billion in 1981 to $107

billion in 1989. The substantial expansion in O&M

spending in the 1980s outstripped the modest growth

seen in several indicators of "workload" demand for

O&M resources: force structure (the number of military units), training levels (tank miles for the Army,

steaming hours for the Navy, and flying hours for the

Air Force), the number of active-duty military personnel, and the extent of real estate managed by the services (see Summary Tables 1 and 2).

O&M spending and those indicators of workload

also diverged in the 1990s after the military drawdown.

Between 1989 and 1996, O&M spending fell to about

$92 billion, a decline of 14 percent. That decline, however, was more modest than reductions in force structure and training levels, which ranged between 35 percent and about 50 percent. In light of the discrepancies

between spending and workload, military forces are

now relatively more expensive to support than they

were in the past; hence, total O&M spending in 1996 is

about 7 percent greater than it was in 1981 despite the

smaller number of forces.

Shifts in the Composition 

of O&M Spending

One way to look at changes in O&M spending over

time is to examine how its composition varied. Using

budget categories developed in response to Congressional concerns, O&M funding can be split into "missionrelated" and "infrastructure-related" spending. Mission-related O&M can be thought of as spending to

train and support forces that may ultimately be deployed in a conflict; it pays for field training by operating and mobility forces (see Summary Table 3).

Infrastructure-related O&M pays for training and recruiting, administrative and servicewide support, and

base support in the United States for those forces.

Given those categories, the share of O&M spending devoted to mission has fallen by 5 percentage

points&from 46 percent to 41 percent of all O&M

funding&since 1981. That drop reflects primarily the

large drop in spending on operating forces attributable

to the military drawdown. The share devoted to infrastructure has grown, partly because spending on indirect support has fallen less than spending on operating

forces and partly because some types of defensewide

support have increased despite the drawdown. Reflecting those two trends, O&M spending dedicated to infrastructure now makes up 59 percent of the total.

Summary Table 3.

Mission- and Infrastructure-Related Spending 

as a Share of Total Spending for Operation and

Maintenance (In percent)

Budget Activity 1981 1989 1996

Mission-Related

Spending

Operating forces 43 43 36

Mobilization 4 3 5

Subtotal 46 46 41

Infrastructure-Related

Spending

Training and recruiting 555

Administrative and 

servicewide support 26 27 33

Base support 24 22 21

Subtotal 54 54 59

Total 100 100 100

Memorandum:

Operation and 

Maintenance Spending

(Billions of 1996 dollars) 85.8 106.9 91.9

SOURCE: Congressional Budget Office based on data provided by

the Department of Defense.

NOTES: Includes all spending for operation and maintenance

(O&M) by active-duty and reserve forces as well as funding

managed on a defensewide basis. Spending reflects total

obligational authority, which includes any additional funding

transferred into or out of O&M appropriations during budget execution.
xvi PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

Growth in Defensewide O&M Spending

Defensewide O&M spending pays for a variety of support that is common to the services and bears little relationship to force structure. About 40 percent of the $21

billion increase in O&M spending in the 1980s was

dedicated to defensewide O&M spending, doubling its

share of total O&M spending.

Between 1989 and 1996, defensewide O&M continued to grow, reaching a total of $25 billion and making up about 27 percent of total O&M spending in

1996. DoD will have difficulty meeting lower O&M

spending levels in the future unless that rapid growth in

spending can be reversed through policy changes or

more efficient operations.

The rapid growth in defensewide O&M reflects

several factors. In DoD's $10 billion health care program, the most significant reason for growth is external

pressure on costs. The 50 percent growth in DoD's

health care spending during the past 15 years reflects

the same factors that affect civilian health care: aging

of the beneficiary population, an increase in the volume

of health care services and procedures per visit or hospital stay, and expanded use of new and high-cost procedures. The continued high level of spending since the

drawdown also reflects overcapacity in the direct care

system of military hospitals and clinics.

The new responsibilities assigned to DoD in "nontraditional" defense areas, such as drug interdiction and

environmental programs, exert another important pressure on defensewide spending. Those additional responsibilities account for about one-third of the growth

in defensewide O&M spending since 1981 and twothirds of the continued growth since the drawdown.

Reducing that spending could require policy decisions

to change DoD's role or modifications of statutes that

apply governmentwide, such as those in the environmental area.

Growth in O&M Spending 

by the Services

Unlike spending on defensewide support, spending by

the individual services would be expected to change in

response to modifications in standards of readiness or

the size of force structure. Operational readiness measures the ability of forces to deploy quickly and perform as they were designed to in wartime. CBO has

found little relationship, however, between trends in

spending and readiness levels. Nor are changes in force

structure an adequate explanation for shifts in spending. Trends in spending over the past 15 years suggest

that the decline in the efficiency with which support is

provided, particularly since the drawdown, is another

important factor.

Improving or maintaining high readiness levels has

been the justification for increases in O&M spending in

the 1980s and for maintaining currently high levels of

O&M spending per capita. In particular, one would

presume that spending on field training of operating

forces and readiness levels would be related: higher

spending should result in improved readiness and vice

versa. That has not proved to be the case, however.

Using several indexes, CBO compared indicators

of readiness with average spending levels for operating

forces over time (see Summary Figure 2). The services

report the readiness of individual units to the Joint

Chiefs of Staff through the Status of Resources and

Training System (SORTS). SORTS scores can be

compiled to show the percentage of total units that meet

current standards for training or have their equipment

in working order and are ready to go into combat.

In addition to SORTS scores, training readiness is

measured by operating tempo, or optempo, which represents the standards that the services set for the

amount of unit training considered necessary over the

course of a month, a quarter, or a year to maintain combat skills. The Air Force tracks flying hours per crew

per month; the Navy, the average number of steaming

days for training for nondeployed ships; and the Army,

the average number of tank miles driven per year.

Indicators of training readiness have not changed in

relation to average spending for those personnel assigned to operational units. SORTS scores have stayed

remarkably steady over the past 15 years, remaining at

high levels, and optempo has changed little. Over the

same period, average spending for operating forces in

the Army and Air Force rose significantly, particularly

in the 1990s. Average spending for the Navy gradually

declined, but its indicators of readiness remained high.

Those long-term trends suggest little linkage between
1981 1983 1985 1987 1989 1991 1993 1995

0

50

100

150

200

250 Index Value

Navy

(Indexed to 1981)

1982 1984 1986 1988 1990 1992 1994 1996

0

50

100

150

200

250

Army

Index Value (Indexed to 1982)

1981 1983 1985 1987 1989 1991 1993 1995

0

50

100

150

200

250 Index Value

Air Force

(Indexed to 1981)

 SORTS Training 

 Readiness Optempo 

 Average Spending 

 on Operating Forces b c d

 a

SUMMARY xvii

Summary Figure 2.

Changes in Indicators of Training Readiness and Spending in the 1980s and 1990s

SOURCE: Congressional Budget Office based on data from the Department of Defense.

NOTE: The figures show rates of change compared with the levels in the base year. In other words, the vertical axis represents an index in which the

base year equals 100 in each category.

a. The spike in Army spending reflects additional costs associated with Desert Shield/Desert Storm. Army data are indexed to 1982 because ground

optempo cannot be computed before that date.

b. Status of Resources and Training System (SORTS) scores for training readiness show the portion of the force that is considered sufficiently

trained to perform its duties in wartime.

c. Optempo, or operating tempo, measures the frequency of field training. Average number of tank miles per year are used in the Army, average

steaming hours under way for nondeployed ships in the Navy, and average flying hours per month in the Air Force.

d. Average Spending on Operating Forces reflects the total amount spent to operate and maintain equipment divided by the number of personnel

assigned to strategic or tactical units.
 0

1

2

3

4

5

6

7

Army

Thousands of 1996 Dollars per Tank Mile

1982 1989 1996 1982 1989 1996 1982 1989 1996

 Combat Forces Combat Operations Support Depot Maintenance 

 0

1

2

3

4

5

6

7

Navy

Thousands of 1996 Dollars per Steaming Hour

1982 1989 1996 1982 1989 1996 1982 1989 1996

 0

1

2

3

4

5

6

7

Air Force

Thousands of 1996 Dollars per Flying Hour

1982 1989 1996 1982 1989 1996 1982 1989 1996

 Combat Forces Combat Operations Support Depot Maintenance 

 Combat Forces Combat Operations Support Depot Maintenance 

a

xviii PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

Summary Figure 3.

Changes in Average Operating Spending in the Army, Navy, and Air Force

SOURCE: Congressional Budget Office based on data from the Department of Defense.

NOTE: Excludes funding for Bosnia in 1996. Active-duty forces only.

a. Spending per flying hour excludes support of space operations and global command, control, and communications that provide support for all

forces.
SUMMARY xix

the resources expended and the readiness levels

achieved. Nor are there signs of a relationship between

changes in average spending and indicators of equipment readiness. Spending for operating forces appears

to have varied in response to other factors.

Growth in average spending levels for operating

forces reflects the fact that spending also has not increased or decreased in proportion to changes in force

structure. Although direct spending to support operating forces per hour or mile of training has remained

stable since 1982, the amount spent on combat operations support&which funds headquarters and tactical

support units&has risen dramatically in the Army and

Air Force (see Summary Figure 3). Those increases

reflect various initiatives to expand and improve the

quality of support in the 1980s and the difficulties associated with downsizing in the 1990s.

Increases in the average amount of spending for

infrastructure-related O&M are other indicators of

growing inefficiency in the ways support is provided.

For example, the average amount spent on administrative support per active-duty member of the armed

forces has grown by 15 percent to 40 percent over the

past 15 years. And the number of square feet of building space maintained per person has also risen despite

the closing of facilities in response to recommendations

by two commissions on base closures and realignments.

Some people would argue that spending on infrastructure cannot be expected to adjust to cuts in force

structure. After all, only direct costs are variable and

fall with workload, and indirect types of support are

assumed to be fixed. But in the private sector, when

the volume of sales shrinks, firms must adjust their

fixed costs by shedding workers, closing buildings, selling capital equipment, or expanding to other lines of

business. Otherwise, faced with competitors who

charge lower prices, they are likely to go out of business. In the long term, all costs are variable.

Strategies for Reducing

O&M Spending

Both the Administration and the Congress have called

for substantially lowered spending on O&M. To reduce it by about $11 billion by 2002, DoD can use a

variety of approaches:

o Redefine the scope of DoD's responsibilities,

o Reduce the amount of O&M support,

o Change the way services are delivered,

o Cut military bases, or

o Trim force structure further.

In view of past trends, spending on O&M is unlikely to

decline or even stabilize in the future unless DoD

makes major changes in the amount or the ways that it

provides support.

The dramatic growth in defensewide spending

could be reversed if DoD narrowed the scope of its responsibilities. For example, spending levels in the department's health care program could be cut significantly if DoD limited its role to meeting the wartime

medical needs of active-duty personnel. Care of other

beneficiaries&dependents of active-duty personnel and

retirees and their families&could be turned over to the

civilian sector. If beneficiaries were offered coverage

under a civilian plan and charged a premium similar to

that charged to civilian federal employees, spending

could be cut by more than $2 billion a year. Although

that change in policy would be controversial, the impact

on readiness would be minimal and the savings substantial.

DoD could also choose to reduce selectively the

amount of O&M support it provides. One example is a

proposal to adopt a practice of "tiered" readiness under

which training would be trimmed for those units that

are likely to be deployed later during a conflict. An

option that would reduce training levels for those units

could save about $450 million a year.

Changing the way that support is provided can take

a variety of forms. One method of improving its efficiency is to consolidate military equipment at fewer

bases. Another approach is to reduce duplication by

assigning a support mission solely to one service. Although it is difficult to estimate savings from consolidations, some evidence suggests that new organizations

are more likely to reduce staffing levels in proportion to
xx PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

workload and to shed excess infrastructure. If that is

the case, DoD may recoup any up-front costs and save

more than the overhead savings from the consolidation

itself. Consolidations can provoke substantial opposition, but they do not harm readiness.

Still another way of changing the delivery of support&one that has received considerable attention recently&is the proposal to "outsource" a wide range of

support functions. Outsourcing initiatives must overcome significant obstacles that range from statutory

and regulatory restrictions to protests about equity and

economic impact. If the barriers could be overcome,

and DoD could target the types of O&M support most

similar to those currently performed by private firms,

DoD could save several billions of dollars.

The convening of a new commission on base closures is another approach to reducing O&M spending

that the Secretary of Defense recently endorsed. A base

closure commission that met in 1998 and 2000 could

save DoD more than $500 million in O&M spending

by 2002.

If DoD is unable to make changes in the amount of

support or the methods by which it is provided, the services could face a still more unpalatable choice: substantial reductions in force structure. CBO estimates

that if DoD was to rely solely on cuts in force structure

to reduce O&M spending by about $11 billion, training

levels and the associated forces would be cut by about

23 percent in the Army, 24 percent in the Navy, and 36

percent in the Air Force by 2002.

Although those reductions can be made fairly simply and quickly, experience indicates that cuts in forces

would have to be about twice as large in percentage

terms as the savings in total O&M spending. That discrepancy reflects the experience during the drawdown

when operating spending for field training of units bore

the brunt of the cuts because other areas of O&M

spending either declined little or grew. Faced with the

prospect of further cuts in force levels or postponements in its modernization plans, DoD may be willing

to adopt difficult and controversial changes in the

amount and ways that O&M support has been provided, as well as trim the number of military bases to

reduce excess capacity.
A

Chapter One

The Need to Reduce Operation and

Maintenance Spending Levels in the Future

lthough defense spending has been largely

spared in the recent drive to curtail or eliminate the federal deficit, the Congress's 1998

budget resolution would require that spending on defense be reduced by 2002. That pressure prompts a

continuing debate about how to allocate the diminished

resources.

One of the Congress's chief concerns is providing

sufficient funding to ensure the readiness of U.S. military forces. The Administration, the Secretary of Defense, and the military services have all stated their

commitment to preserving current high levels of readiness and avoiding a recurrence of the problems associated with the "hollow forces" of the late 1970s. That

commitment may be tested, however, by the growing

demand to modernize the Department of Defense's

(DoD's) inventory of weapon systems and preserve the

current level of forces.

Thus, DoD may face several competing demands in

the near future: maintaining high levels of readiness,

raising current levels of investment funding, and preserving force structure. In testimony before the Congress, then Deputy Secretary John White stated that

DoD expected defense reform to be "one of the major

elements of our efforts to free resources for higher priority programs" and declared reform to be "a fiscal imperative." DoD is regarding defense reform as a way 1

to reduce spending on operation and maintenance

(O&M) without jeopardizing readiness. Operation and

maintenance spending pays for the training, supply, and

equipment maintenance of military units as well as the

administrative support and facilities infrastructure of

military bases.

The definition of military readiness is a crucial factor in considering the issues. The Congressional Budget Office (CBO) uses the Joint Chiefs of Staff's definition of readiness, which is also referred to as operational or current readiness: the ability of forces to deploy quickly and perform initially in wartime as they

were designed. That definition does not signify what 2

some policymakers and military leaders have recently

characterized as future readiness, which is defined as

the investment in new weapon systems that may be necessary to ensure that future capabilities are adequate.

Senator John McCain, former Chairman of the Readiness Subcommittee of the Senate Committee on Armed

Services, is one who has emphasized the importance of

adequately funding weapons modernization so as not to

"put our future readiness at risk."3

Two types of defense spending support operational

readiness. The first is operation and maintenance

spending, and the second is funding for military pay

and benefits, which helps ensure that highly qualified

1. Statement of John White, Deputy Secretary of Defense, before the

House Committee on National Security, February 26, 1997.

2. Joint Chiefs of Staff, The Dictionary of Military and Associated

Terms, Joint Publication 1-02 (March 23, 1994).

3. Senator John McCain, Ready Tomorrow: Defending American Interests in the 21st Century (March 1996), pp. 2 and 19.
1981 1989

1996

Investment

Other

Military

Personnel

Operation

and

Maintenance

Investment

Other

Military

Personnel

Operation

and

Maintenance

Investment

Other

Military

Personnel

Operation

and

Maintenance

a a

a

2 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

personnel are attracted to and retained in the military.

The latter is not discussed in this study. Instead, the

focus is on spending for the multitude of support activities funded by O&M that now make up a larger share of

the total defense budget&37 percent in 1996 versus 29

percent in 1981 (see Figure 1).

Support activities vary in the strength of their ties

to readiness. For example, O&M spending supports

field training exercises, periodic overhauls of military

equipment, and the purchase of spare parts. The level

of spending for those functions has an effect on whether

units are adequately trained for wartime tasks and

whether their equipment is "mission capable," or in

working order, two of the main criteria that the services

track in evaluating their readiness for war duties.

But O&M also funds a wide variety of other activities that have only a tangential relationship to readiness.

Those tasks range from administering the military and

civilian payroll, providing peacetime health care for

military and other eligible personnel, and subsidizing

Figure 1.

Changes in Shares of Department of Defense Spending by Type in 1981, 1989, and 1996

SOURCE: Congressional Budget Office based on data from the Department of Defense.

NOTE: Spending does not include adjustments for transfers between appropriations and excludes supplementals for operations other than war.

a. Includes procurement, research and development, and military construction.
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

50

60

70

80

90

100

110

120

Billions of 1996 Dollars

Fiscal Year

Actual Projected

Past Levels

and 1998 Plan

1998 Plan with

Alternate Inflation

a

b

CHAPTER ONE THE NEED TO REDUCE OPERATION AND MAINTENANCE LEVELS IN THE FUTURE 3

Figure 2.

Past and Alternate Future Levels of Spending for Operation and Maintenance, 1979-2003

SOURCE: Congressional Budget Office (CBO) based on data from the Department of Defense.

NOTES: Spending levels are expressed in total obligational authority, adjusted to reflect changes in financing conventions and to exclude spending

on Desert Shield/Desert Storm and other contingencies.

Alternate assumptions are based on CBO's estimates for the 1998 budget for inflation in purchases and changes in civilian pay.

a. Reflects the Administration’s plan and inflation assumptions as of the 1998 budget.

b. Reflects CBO’s alternate inflation assumptions.

the cost of child care centers for military and civilian

personnel, to painting barracks, repairing roads, removing snow, and cutting the grass on military bases. Such

day-to-day activities make up more than one-half of

total O&M spending.

Spending on O&M is projected to fall significantly

in the Administration's 1998 blueprint for national defense in future years. The 1998 Congressional budget

resolution adopted a level of defense spending that

matches the Administration's level in 2002, which suggests that the Administration's plan may be a reasonable benchmark for future spending levels for O&M.4

Under the Administration's plan, O&M spending is

budgeted to fall to about $80 billion by 2002&about

$10 billion and 11 percent lower than the current level

using the Administration's estimate of inflation (see

Figure 2). (This study uses 1996 as a baseline because 5

it is the latest year for which actual spending is available.) Because O&M spending is slated to fall this

year, the reduction from the 1997 level would be

smaller, but still over $7 billion.

Inflation could also squeeze operation and maintenance support activities. The Administration's plan for

the 1998-2003 period assumes lower levels of inflation

for purchases of goods and services and smaller raises

in civilian pay than those projected by CBO (see Box

1). If CBO's projections prove correct, the Administration's O&M budget could require about $2 billion

more in 2002. That would raise the total amount that

O&M spending would have to be cut from the 1996

level to about $12 billion.

4. There are minor differences between the 1998 Congressional budget

resolution and the Administration's plan in the intervening years. 5. Contingency funding of $2.9 billion is excluded in 1996.
4 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

Box 1.

Projections of Inflation by the 

Congressional Budget Office and the Administration

The budget of the Department of Defense (DoD) contains funding to cover the effects of inflation, based on

the Administration's projections of future military and

civilian pay raises, inflation for DoD purchases, and anticipated changes in fuel prices. Each appropriation

account is adjusted according to its mix of pay, purchases, and fuel. For example, operation and maintenance (O&M) appropriations typically are composed of

about 40 percent civilian pay, 55 percent purchases, and

5 percent fuel. DoD later revises its price indexes to

reflect enacted pay raises and actual gross domestic

product (GDP) price changes. In this study, the Congressional Budget Office (CBO) used DoD's historical

price indexes to convert nominal spending levels in the

past to 1996 dollars, constructing specific price indexes

for each major budget category of O&M spending on

the basis of its mix of civilian pay, purchases, and fuel.

In the President's budget request for 1998, DoD

assumed civilian pay raises of 2.8 percent in 1998 and 2

percent a year for the 1999-2002 period. CBO's projections for civilian pay are somewhat higher&about 3 percent a year (see below). CBO's estimate assumes that

civilian pay increases would follow the guidelines in the

Federal Employee Pay Comparability Act, which calls

for civilian pay to increase by the employment cost index less 0.5 percentage points, plus 0.5 percentage

points to fund differences in pay among localities. The

assumption for civilian pay and the price index for purchases are those used by CBO in its fiscal year 1998

baseline projections.

For inflation affecting purchases, the Administration has assumed annual increases in the price index for

GDP of 2.2 percent in all years. That assumption may

be optimistic. CBO's projections of inflation for DoD

purchases are higher than that.

Alternate Assumptions for Civilian Pay and Purchases (In percent)

Annual Change

1997 1998 1999 2000 2001 2002

Civilian Pay Raises

Administration 3.0 2.8 2.0 2.0 2.0 2.0

CBO 3.0 3.3 2.6 2.9 3.3 3.3

GDP Price Index

Administration 2.1 2.2 2.2 2.2 2.2 2.2

CBO 2.2 2.4 2.6 2.6 2.6 2.6

SOURCES: Office of the Under Secretary of Defense (Comptroller), National Defense Budget Estimates for FY 1998 (March 1997), p. 51; and

Congressional Budget Office, The Economic and Budget Outlook: Fiscal Years 1998-2007 (January 1997), p. 15.

Base closures are one of the ways by which the Department of Defense expects to meet those lower levels.

DoD's budget projections assume that compared with

today, it will realize an additional $1.3 billion a year in

annual O&M savings by 2001 from base closures that

are currently under way. Assuming that those savings

materialize, the current level of O&M spending could

still have to be reduced by about $11 billion by 2002 to

meet the Administration's plan.

DoD could probably cut O&M spending by smaller

amounts by trimming programs. In a recent report, for

example, the General Accounting Office suggested a

variety of ways in which the services could reduce
1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

0

10

20

30

40

50

60

70

80

Thousands of 1996 Dollars

Fiscal Year

Historical Trend

Actual

Extension of

Historical Trend

Administration's

1998 Plan

CHAPTER ONE THE NEED TO REDUCE OPERATION AND MAINTENANCE LEVELS IN THE FUTURE 5

Figure 3.

Operation and Maintenance Spending per Person, 1971-2003

SOURCE: Congressional Budget Office based on data from the Department of Defense.

NOTE: Operation and maintenance (O&M) spending per person is computed by dividing total O&M spending by the number of active-duty military

personnel. The "historical trend" line reflects a regression based on data from 1971 through 1996, excluding Desert Storm (1991).

O&M spending with minimal programmatic effects. A6

reduction of $11 billion, however, is about 75 percent

as large as the $14.7 billion decrease in O&M spending

that has resulted from the entire defense drawdown.

The Department of Defense could find it difficult to

realize savings of that size, particularly since reductions

in force structure are largely complete.

Cutting O&M spending by that amount would require that DoD reverse long-term historical trends. The

amount of O&M spending per capita is one simple

gauge of O&M spending cited by the Administration as

a sign of its commitment to readiness (see Figure 3).

Over the past 25 years, O&M spending per capita has

risen at an average annual rate of more than 3 percent

in real terms. If that trend was to continue, DoD could

have trouble supporting its forces within available budgets; the gap between the Administration's plan and the

spending level projected on the basis of history would

be $18 billion by 2002. But that projection fails to reveal the patterns of O&M spending in the past, which

may suggest ways that O&M spending could be reduced in the future.

Spending on Operation and

Maintenance in the 1980s 

and 1990s

O&M spending grew substantially in the 1980s. Some

of that growth can be attributed to the general buildup

in defense spending, and some took place in response to

concerns about readiness problems experienced in the

1970s. In constant 1996 dollars, O&M spending

jumped $12 billion&or 17 percent&from 1979 to

1981, the initial years of the buildup (see Box 2). It

continued to grow during the rest of the decade&from

$86 billion in 1981 to $107 billion in 1989&an increase of 24 percent.

6. General Accounting Office, 1997 DoD Budget: Potential Reductions

to Operation and Maintenance Program, GAO/NSIAD-96-220

(September 1996).
6 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

Table 1.

Spending for Operation and Maintenance and Indicators of Workload in the 1980s and 1990s

1981 1989 1996

Total O&M Spending (Billions of 1996 dollars)

O&M Appropriation 86 107 92

Force Structure (Number of units/platforms)a

Army Divisions 16 18 10

Ships 460 492 288

Air Force Tactical Wings 24 24.6 12.5

Training Levels (Thousands)a

Army Tank Miles 3,085 3,313 1,668 b

Navy Underway

Steaming Hours 1,165 1,251 812

Air Force Flying Hours 1,181 1,255 651

Personnel Levels (Thousands)

Active-Duty

Army 781 770 495

Navy 540 593 428

Marine Corps 191 197 174

Air Force 570 571 388

Total 2,082 2,131 1,485

Reserves 917 1,170 1,019

Real Estate (Millions of square feet of buildings)

Floor Space 1,697 1,802 1,530

SOURCE: Congressional Budget Office based on data provided by the Department of Defense.

NOTES: Tactical Air Force wings are measured in $wing equivalents,# which divide the number of aircraft authorized for units by 72, the average size

of a wing. Navy ships include all submarines, surface ships, and most support ships. The Congressional Budget Office’s totals for

spending on operation and maintenance (O&M) include a variety of adjustments in total obligational authority to reflect changes in financing

conventions over the years (see Appendix A).

a. Active-duty forces only.

b. Reflects the 1982 level. The level for 1981 is not available.
CHAPTER ONE THE NEED TO REDUCE OPERATION AND MAINTENANCE LEVELS IN THE FUTURE 7

Table 2.

Changes in Spending for Operation and Maintenance and Indicators of

Workload in the 1980s and 1990s (In percent)

Change Between

1981 and 1989 1989 and 1996 1981 and 1996

Total O&M Spending

O&M Appropriation 24 -14 7

Force Structurea

Army Divisions 13 -44 -38

Ships 7 -41 -37

Air Force Tactical Wings 3 -49 -48

Training Levelsa

Army Tank Miles 7 -50 -46 b b

Navy Underway

Steaming Hours 7 -35 -30

Air Force Flying Hours 6 -48 -45

Personnel Levels

Active-Duty

Army -1 -36 -37

Navy 10 -28 -21

Marine Corps 3 -12 -9

Air Force 0 -32 -32

Total 2 -30 -29

Reserves 28 -13 11

Real Estate

Floor Space 6 -15 -10

SOURCE: Congressional Budget Office based on data provided by the Department of Defense.

NOTES: Tactical Air Force wings are measured in $wing equivalents,# which divide the number of aircraft authorized for units by 72, the average size

of a wing. Navy ships include all submarines, surface ships, and most support ships. The Congressional Budget Office’s totals for

spending on operation and maintenance (O&M) include a variety of adjustments in total obligational authority to reflect changes in financing

conventions over the years (see Appendix A).

a. Active-duty forces only.

b. Change is measured from the 1982 level. The level for 1981 is not available.
8 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

Box 2.

Comparing Operation and Maintenance Over Time

An element of judgment is always involved in selecting

particular years for comparisons. The Congressional

Budget Office (CBO) has compared operation and

maintenance (O&M) spending levels between 1981 and

1989 to determine the amount of growth that occurred

during the 1980s and before the Department of Defense

began to downsize.

CBO selected 1981 rather than earlier years because by then O&M had already been increased sharply

in response to concerns raised by the services and others

in the late 1970s that military forces had become "hollow"&that is, they were not adequately supported, thus

jeopardizing readiness. Between 1979 and 1981, O&M

spending was increased by $12 billion. Most of those

initial increases were dedicated to increasing some types

of field training, improving the supply of spare parts,

and repairing facilities at military bases.1

To compare changes in O&M spending with those

in force levels, CBO examined workload indicators between 1981 and 1989 and between 1989&before the

drawdown&and 1996. The drawdown of military

forces was largely complete by 1996.

All O&M funding levels are expressed in terms of

total obligational authority (TOA). TOA is the most

_______________

1. Office of the Secretary of Defense, Operation and Maintenance

Overview, Justification of Estimates for Fiscal Year 1982, vol.

1, as amended (April 1981).

precise measure of actual resources because it includes

later transfers into O&M from other sources. In order to

improve the accuracy of comparisons of O&M spending

over time, CBO also adjusted TOA levels over the past

15 years to reflect changes in financing conventions (see

Appendix A). Those changes have made analyses of

trends in O&M spending problematic.2

As much as possible, CBO excluded spending for

wars and contingencies so as to compare support provided for the peacetime force over time. However, that

spending can only be segregated at the level of appropriation accounts. For 1996, spending reflects the original budget request and therefore does not include additional funding provided for Bosnia or other contingencies. Spending for contingencies in previous years,

however, is included unless specifically noted. Total

O&M spending levels for future years reflect the 1998

President's budget request unless otherwise indicated.

Finally, CBO analyzed changes in the composition of

spending using a set of budget categories developed

specifically for operation and maintenance known by the

shorthand "O-1." The O-1 categories, adopted in 1994,

divide O&M spending by mission or function.

_______________

2. The Department of Defense (DoD) has commissioned work to

"normalize," or adjust, O&M spending over time to reflect

changes in accounting conventions. See Office of the Director

(Acquisition Program Integration), DoD, Understanding Increased Operation and Maintenance (O&M) Funding Requirements: A Comparison of FY 1975 and FY 1995 O&M Programs,

IDA Document D-1616 (Alexandria, Va.: Institute for Defense

Analysis, December 1994).

Increases were much smaller, however, in several

indicators of the "workload" demand for O&M resources: force structure (the number of military units),

training levels (tank miles for the Army, steaming hours

for the Navy, and flying hours for the Air Force), the

number of active-duty military personnel, and the extent of real estate managed by the services (see Tables

1 and 2 on pages 6 and 7).

A disparity between O&M spending and most of

those indicators also appears in the reductions in O&M

expenditures following the large military drawdown

that began in 1990. Spending for operation and maintenance declined by 14 percent, to about $92 billion in

1996. By contrast, reductions in the force structure and

training levels ranged from 35 percent to almost 50 percent, and the number of active-duty military personnel

fell by 30 percent.

Despite the comparatively modest decrease in

O&M spending, the Congress has remained sympathetic to the Department of Defense's argument that

overall levels of O&M spending should be maintained

to make sure that readiness is fully protected. In 1996,

total O&M spending remained about 7 percent higher

than it was in 1981, despite the large drawdown in

forces. Over the past 15 years, then, O&M spending

first grew more than most indicators of workload, then
CHAPTER ONE THE NEED TO REDUCE OPERATION AND MAINTENANCE LEVELS IN THE FUTURE 9

declined less than those signs, making military forces

relatively more expensive to support now than in the

past.

Changes in the Composition

of Operation and Maintenance

Spending

This study examines historical trends in the composition of O&M funding in order to illuminate where and

how O&M spending levels might be reduced to meet

projected lower levels of funding. CBO constructed a

historical database to study the diverse functions and

levels of O&M support. When coupled with workload

indicators, the database helps to highlight trends in

areas of O&M spending. CBO also looked at how indicators of readiness have varied over time as funding

levels have changed, in order to assess how readiness

might be affected in the future.

The new historical database relies on budget categories, known by the shorthand O-1 (see Table 3 and

Appendix B). DoD developed the categories specifically for operation and maintenance spending in 1994

in response to Congressional criticism that spending

levels were not clearly related to changes in force structure. The new categories allocate O&M spending ac- 7

cording to the following major missions or functions:

o Operating forces,

o Mobilization,

o Training and recruiting,

o Administrative and servicewide support, and

o Base support.

Unlike DoD, which distributed base support among

missions, CBO treated it as a separate category. CBO

Table 3.

Mission- and Infrastructure-Related Spending 

as a Share of Total Spending for Operation 

and Maintenance (In percent)

Budget Activity 1981 1989 1996

Mission-Related

Spending

Operating forces 43 43 36

Mobilization 4 3 5

Subtotal 46 46 41

Infrastructure-Related

Spending

Training and recruiting 555

Administrative and 

servicewide support 26 27 33

Base support 24 22 21

Subtotal 54 54 59

Total 100 100 100

Memorandum:

Operation and 

Maintenance Spending

(Billions of 1996 dollars) 85.8 106.9 91.9

SOURCE: Congressional Budget Office based on data provided by

the Department of Defense.

NOTES: Includes all spending for operation and maintenance

(O&M) by active-duty and reserve forces as well as funding

managed on a defensewide basis. Spending reflects total

obligational authority, which includes any additional funding

transferred into or out of O&M appropriations during budget execution.

took that approach in order to give greater visibility to a

significant part of DoD's infrastructure and because it

was not possible to distribute spending on past base

support according to the new budget categories.

Each budget activity is broadly defined to include

all of the elements necessary to support a specific mission. For example, the category for operating forces

includes not only the cost of training units in the field

but also the cost of weather systems and management

headquarters supporting those units (see Appendix B

for a detailed listing of O-1 categories and subcategories).

7. U.S. Senate, Department of Defense Appropriations Bill, 1993, report to accompany H.R. 5504, Report 102-408 (September 17, 1992),

p. 17.
10 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

The new budget categories can be used as a way of

distinguishing shifts in mission-related O&M compared

with spending on infrastructure. The first two budget

categories&operating forces and mobilization&cover

DoD's mission-related O&M spending. Missionrelated O&M can also be thought of as spending to

train and support forces that may ultimately be deployed in a conflict. The latter three categories&training and recruiting, administrative and servicewide support, and base support&can be viewed as spending on

Table 4.

Changes in Spending for Operation and Maintenance by O-1 Budget Category

Spending Percentage Change Between

(Billions of 1996 dollars) 1981 and 1989 and 1981 and

1981 1989 1996 1989 1996 1996 

Operating Forces

Active Forces 29.0 33.9 23.5 * * *

Reserve Forces 4.4 6.0 5.8 * * *

Defensewide 3.2 5.6 4.1 ***

Subtotal 36.6 45.5 33.4 24 -27 -9

Mobilization

Active Forces 2.5 2.9 3.6 * * *

Reserve Forces 0.5 0.6 0.7 * * *

Defensewide 0 0 0 ***

Subtotal 3.0 3.5 4.3 17 23 43

Training and Recruiting

Active Forces 3.8 5.1 3.8 * * *

Reserve Forces 0.2 0.2 0.2 * * *

Defensewide 0.1 0.2 0.4 ***

Subtotal 4.1 5.5 4.4 34 -20 7

Administrative and Servicewide Support

Active Forces 14.5 16.5 13.3 * * *

Reserve Forces 0.1 0.3 0.4 * * *

Defensewide 7.3 12.5 16.5 ***

Subtotal 21.9 29.2 30.2 33 3 38

Base Support

Active Forces 18.4 20.3 14.2 * * *

Reserve Forces 0.8 1.2 1.3 * * *

Defensewide 1.0 1.7 4.1 ***

Subtotal 20.2 23.2 19.6 15 -15 -3

All Categories

Total 85.8 106.9 91.9 25 -14 7

SOURCE: Congressional Budget Office based on data provided by the Department of Defense.

NOTES: O-1 is Department of Defense shorthand for its budget categories for operation and maintenance.

* = not applicable.
CHAPTER ONE THE NEED TO REDUCE OPERATION AND MAINTENANCE LEVELS IN THE FUTURE 11

infrastructure that provides support in the United States

for the forces that would be deployed.8

Since 1981, the share of O&M spending devoted to

support of mission forces has fallen by 5 percentage

points&from 46 percent to 41 percent of all O&M

funding&primarily reflecting the drop in force structure

accompanying the drawdown. The growth in the share

of infrastructure reflects the modest decline in some

indirect support compared with sharper decreases in

the funding of operating forces and increases in

defensewide support (see Table 4). For example,

spending on base support dropped at half the rate of

operating spending. And spending on administrative

and servicewide activities has grown by 2 percent since

1989.

Using the major budget categories, CBO analyzed

how each of the services and defense agencies allocated

its share of the additional O&M funding of the 1980s.

CBO also examined how much and in which categories

spending was reduced in response to the large decreases

in the force structure of the 1990s. In addition, CBO

looked at whether those changes in spending appear to

have affected readiness.

8. Although there is no common definition of infrastructure, the Department of Defense used a similar definition in its Bottom-Up Review of

the defense budget in 1993. See Les Aspin, Secretary of Defense,

Report of the Bottom-Up Review (October 1993), p. 97.

T

Chapter Two

Why Defensewide Spending on

Operation and Maintenance Has Grown

he composition of spending on operation and

maintenance has changed. More is now spent

on defensewide support that cuts across service boundaries and is only indirectly related to force

structure or readiness. Fifteen defense agencies or the

Office of the Secretary of Defense (OSD) oversee that

defensewide spending. In 1996, the active and reserve

forces managed 73 percent of the $92 billion in total

spending on operation and maintenance, and defense

agencies or OSD managed or oversaw 27 percent (see

Table 5). Fifteen years ago, defensewide spending 1

made up only 14 percent of the total.

The increase in the share of defensewide O&M

spending is a result of both the decline in spending by

the services since 1989 and the increase in defensewide

O&M spending, growth that has not abated with the

drawdown. Defensewide support accounted for 40 percent of the $21 billion growth in O&M spending between 1981 and 1989, three times its share of total

O&M spending in 1981. By contrast, spending by the

services made up 60 percent of the growth during that

period, less than its share in 1981.

Most of defensewide spending on O&M provides a

variety of infrastructure support, ranging from peacetime medical benefits to intelligence, communications,

and environmental programs (see Table 6). The only

direct spending on training and supporting deploying

forces is the share of DoD's medical program designated for the wartime mission, special operations

forces, and training and management provided by the

Joint Chiefs of Staff.2

Defensewide O&M spending is in some ways the

most difficult to understand because of the multitude of

purposes it serves. In other ways, defensewide spending on O&M is more clearly related to policy goals and

initiatives than is overall spending by the services.

Growth in environmental spending, for example, is

largely the result of laws passed in the 1980s that required defense installations to comply with environmental regulations. As for medical spending&the largest single component of defensewide O&M spending&

levels vary with the types of benefits available to beneficiaries as well as management changes designed to

control costs.

A variety of factors help to explain the rapid

growth of defensewide O&M spending. The following

elements play important roles in the substantial growth

of defensewide O&M in the 1980s and the continued

high levels of spending in the 1990s:

o External pressures on certain defense costs,

1. The $92 billion total for operation and maintenance spending reflects

the 1996 budget before adjustments by Congressional action and supplemental appropriations for contingencies.

2. Basically, the Congressional Budget Office considers the wartime

medical mission to be the provision of health benefits to active-duty

forces in the United States and all military beneficiaries overseas; the

peacetime mission includes health benefits for all other eligible beneficiaries&retirees, dependents in the United States, and survivors. See

Congressional Budget Office, Restructuring Military Medical Care,

CBO Paper (July 1995), Appendix B, for a more detailed description.
14 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

o New Department of Defense responsibilities,

o Expansion of continuing defensewide support

tasks, and

o The failure of some types of support to adjust to

lower force levels.

Defensewide O&M spending grew from almost

$12 billion in 1981 to $20 billion by 1989&an increase

of 70 percent&far faster than that of O&M within each

of the services. Defensewide spending has continued to

grow in the l990s, reaching $25 billion in 1996. Unless

DoD is successful in reversing the growth of that

spending through changes in policy or improved management, the Department of Defense will find it difficult to meet the lower O&M spending levels that may

be required in the future.

About 60 percent of the increase in defensewide

O&M spending since 1981 can be attributed to DoD's

new responsibilities and to the external pressures on

DoD's medical program, in which costs have risen

sharply (see Table 7). The remaining growth reflects

increased emphasis on such continuing missions as special operations and intelligence, as well as on growth in

other overhead functions (such as headquarters) that

show little adjustment to the drawdown. In most cases,

however, some mixture of factors is at work.

Table 5.

Spending for Operation and Maintenance by Component

Spending (Billions of 1996 dollars) Share of Total Spending (Percent)

1981 1989 1996 1981 1989 1996

Active Forces

Army 19.9 24.8 17.7 23 23 19

Navy 26.2 27.9 20.8 31 26 23

Marine Corps 1.8 2.3 2.1 2 2 2

Air Force 20.2 23.7 17.9 24 22 19

Subtotal 68.1 78.7 58.5 80 74 64

Reserve Forces

Army Reserve 0.9 1.0 1.0 1 1 1

Army National Guard 1.5 2.3 2.2 2 2 2

Navy Reserve 0.8 1.3 0.8 1 1 1

Marine Corps Reserve a 0.1 0.1 b b b

Air Force Reserve 0.7 1.1 1.5 1 1 2

Air Force National Guard 2.1 2.5 2.7 2 2 3

Subtotal 6.0 8.2 8.3 7 8 9

Defensewide

Defense Medical 7.0 9.9 10.2 8 9 11

Other Defensewide 4.7 10.1 15.0 5 10 16

Subtotal 11.7 20.0 25.1 14 19 27

All Components

Total 85.8 106.9 91.9 100 100 100

SOURCE: Congressional Budget Office based on data provided by the Department of Defense.

a. Less than $100 million.

b. Less than 1 percent.
CHAPTER TWO WHY DEFENSEWIDE SPENDING ON OPERATION AND MAINTENANCE HAS GROWN 15

Table 6.

Defensewide Spending for Operation and Maintenance by O-1 Budget Category

Spending (Billions of 1996 dollars) Share of Total Spending (Percent)

Budget Activity 1981 1989 1996 1981 1989 1996

Mission-Related Spending

Operating Forces

Military medical mission 3.2 4.5 2.5 27 23 10 a

Other defensewide n.a. 1.1 1.6 n.a. 6 6 b

Mobilization

Defense Logistics Agency c c c 0 0 0

Subtotal 3.2 5.6 4.1 27 29 16

Infrastructure-Related Spending

Training and Recruiting

Medical training 0.1 0.2 0.2 1 1 1

Other defensewide 0 0 0.2 0 0 1

Administrative and Servicewide Support

Peacetime medical mission 2.7 4.0 6.5 23 20 26 d

Other defensewide 4.6 8.4 10.0 39 42 40

Base Support

Medical base support 1.0 1.2 0.9964

Environmental security programs 0 0.6 3.2 0 3 13 e

Subtotal 8.4 14.3 21.0 72 71 84

Total

Defensewide Spending 11.7 20.0 25.1 100 100 100

SOURCE: Congressional Budget Office based on data provided by the Department of Defense.

NOTES: O-1 is Department of Defense shorthand for its budget categories for operation and maintenance.

n.a. = not available.

a. Spending to provide medical benefits to all active-duty personnel in the United States and both active-duty forces and their dependents overseas.

For methodology, see Appendix B in Congressional Budget Office, Restructuring Military Medical Care, CBO Paper (July 1995).

b. Spending is for training and support of special operations forces, transportation expenses associated with joint exercises, and headquarters costs

for the Joint Chiefs of Staff. Spending on special operations forces is not distinguishable from that on service units before 1989, when the control

of those forces was centralized in a separate command. Therefore, growth between 1981 and 1989 is not measurable.

c. Less than $50 million.

d. Spending to provide medical benefits to non-active-duty military beneficiaries. See Congressional Budget Office, Restructuring Military Medical

Care, CBO Paper (July 1995), Appendix B.

e. Includes all spending funded by the operation and maintenance appropriation.
16 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

Table 7.

Sources of Growth in Defensewide Spending for Operation and Maintenance

Spending Percentage Change Between

(Billions of 1996 dollars) 1981 and 1989 and 1981 and

1981 1989 1996 1989 1996 1996

External Pressures

Defense Health Program 7.0 9.9 10.2 35 6 24

New Responsibilities

Environmental Security Programs 0 0.6 3.2 7 51 24 a

Drug Interdiction 0 0.5 0.7 6 4 5

Nunn-Lugar Cooperative

Threat Reduction Program 0 0 0.4 0 8 3 b

Federal Energy Management

Program 0 0 0.2 0 4 1 c

On-Site Inspection Agency 0 e 0.1 0 2 1 d

Subtotal 0 1.2 4.6 13 69 34

Increased Emphasis

Intelligence and Communications 1.7 3.1 3.4 17 6 13 f

Special Operations n.a. 0.7 1.0 8 6 7

Auditing 0.2 0.5 0.5 4 0 2

Joint Chiefs of Staff e 0.4 0.6 5 4 4 g

Corporate Information Management 0 0 0.1 0 2 1

Acquisition Training 0 0 0.2 0 4 1 h

Subtotal 1.9 4.7 5.7 34 20 28

Other Growth

Defense Mapping Agency 0.5 0.7 0.7 2 0 1

Department of Defense

Dependents Education 0.7 1.2 1.3 6 2 4 i

Defense Logistics Agency 1.1 1.6 1.1 6 -10 0

Headquarters Functions 0.2 0.3 0.8 1 10 4 j

Other Miscellaneous Support 0.2 0.4 0.7 2 6 4 k

Subtotal 2.8 4.3 4.6 18 6 13

Total

Defensewide Spending 11.7 20.0 25.1 100 100 100

SOURCE: Congressional Budget Office based on data provided by the Department of Defense.

NOTE: n.a. = not available.

a. Includes defense environmental restoration account, environmental compliance, conservation, and pollution prevention.

b. Also referred to as the Former Soviet Union Threat Reduction program.

c. Promotes energy efficiency in federal buildings.

d. Funds inspections of specific facilities overseas to ensure compliance with arms control agreements.

e. Less than $100 million.

f. Funding for the National Security Agency, Defense Information Services Agency, the Defense Intelligence Agency, and the Central Imagery Office.

g. Funds headquarters staff as well as transportation costs of joint exercises.

h. Funding for the newly established Defense Acquisition University and the Defense Management University.

i. Funds elementary and secondary schools for dependents of military personnel stationed overseas and in certain military installations within the

United States.

j. Funding for the Office of the Secretary of Defense (OSD), the Washington Headquarters Services (WHS), Department of Defense support

activities, and the Civilian Personnel Management Service.

k. Funding for small agencies and miscellaneous support under the aegis of WHS; excludes WHS and OSD headquarters.
CHAPTER TWO WHY DEFENSEWIDE SPENDING ON OPERATION AND MAINTENANCE HAS GROWN 17

External Pressures on

Defensewide O&M Spending: 

DoD's Medical Program

In the health care arena, external factors have helped to

push DoD's costs upward, although the patterns of

practice in the military health care system may also explain its continued high level of spending. Even after

adjusting for inflation in the medical sector, total O&M

medical spending has grown by about 50 percent&from

$7 billion to about $10 billion over the past 15 years&a

rate considerably higher than the rate of growth of the

entire O&M budget. Why O&M medical spending 3

grew so rapidly is not quite clear. But it is safe to say

that many of the same forces that caused national health

expenditures to rise rapidly during the period were

probably responsible for higher military health care

costs. Those factors include the aging of the beneficiary population, an increase in the volume of health

care services and procedures per visit or hospital stay,

and expanded use of new and high-cost procedures.

O&M spending per beneficiary rose from about

$800 in 1981 to $1,200 in 1996. The current level of

spending per person also reflects the increasing expense

to operate the military's system of hospitals and clinics

over the past 15 years. The likely culprits: lower occupancy rates in hospitals and a failure to reduce budgets

in response to declines in workload.

At the same time, DoD's current system of entitlements creates few if any incentives for beneficiaries to

limit their use of medical services. As in the civilian

sector, DoD has recently adopted reforms of its management practices to curb the rise in medical costs, including budgeting on the basis of "capitation rates"&

that is, fixed annual payments based on projected per

capita costs and workload&and by relying on health

maintenance or preferred-provider delivery systems for

its insurance program. The success of those new management practices in checking future growth of costs

has yet to be demonstrated. Unlike most O&M spending, the cost of the Department of Defense's medical

program is very sensitive to economywide trends in

medical spending as well as to changes in the demographic composition of its beneficiaries.

DoD's Medical Program

DoD's medical spending cannot be expected to mirror

directly changes in force levels. After all, the military

health care system serves not only the 1.6 million men

and women on active duty but also 6.6 million "nonactive" beneficiaries, including dependents of active-duty

personnel, retirees and their dependents, and survivors

of deceased personnel.4

Those beneficiaries may receive their care either

directly&through military medical centers, hospitals,

and clinics&or through the Civilian Health and Medical

Program of the Uniformed Services (CHAMPUS), an

insurance program that covers most of the cost of care

from civilian providers. (CHAMPUS is now part of 5

the Tricare system, which allows beneficiaries to

choose among several types of health care plan.) The

direct care system is the larger of the two, composed of

more than 120 hospitals and 500 clinics in the United

States and overseas. Beneficiaries receive care at those

facilities at no charge. That system gives first priority

to active-duty beneficiaries, who must rely on the direct

care system. Although other eligible personnel may

turn first to the direct care system, they receive care

only if facilities and personnel are available. The order

of priority for different groups of beneficiaries in receiving care is set by statute. Active-duty personnel

receive first priority, then come family members, and

finally retirees and their dependents and survivors.

When direct care is not available because military

facilities are located too far away or waiting times are

too long, some beneficiaries use CHAMPUS. As under

a civilian health insurance policy, CHAMPUS reimburses providers for most of the cost of the care. But

3. The Congressional Budget Office deflated the Department of Defense’s medical costs based on the mix of military pay and civilian

pay and medical purchases. For O&M funding, for example, CBO

used DoD’s deflator for civilian pay and the medical portion of the

consumer price index.

4. The number of active-duty personnel also includes all medically eligible personnel in the full-time Guard and Reserve, Coast Guard, Public

Health Service, and National Oceanic and Atmospheric Administration.

5. An exception is beneficiaries who are 65 years old or older and eligible

for Medicare, who may not receive care under CHAMPUS.
18 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

CHAMPUS is only intended to supplement the care

given out at military treatment facilities.

In 1996, DoD spent about $15.5 billion to support

both components of the military health care system.

Although that system is funded through several appropriations, O&M spending accounts for almost twothirds of the total, paying for the salaries of civilian

personnel, purchases for the direct care system, and

contracts with civilian providers under CHAMPUS.

The other major funding source is military personnel

appropriations, which cover the pay and allowances of

military doctors and other active-duty personnel in the

direct care system. O&M's share of DoD's total health 6

care budget has not changed over the past 15 years.

Because it grew so rapidly in the 1980s&from $7

billion in 1981 to $10.2 billion in 1996&O&M medical

spending now consumes 11 percent rather than 8 percent of the overall O&M budget. Although most of

that growth occurred between 1981 and 1989, O&M

medical spending peaked in 1991 at around $11 billion,

shrinking to $10 billion by 1996.

Why Spending on DoD's Medical Care

System Has Changed

Population alone does not account for changes in O&M

medical spending. Between 1981 and 1989, when the

O&M budget for medical care grew by about 40 percent, the population of eligible beneficiaries grew by

only 9 percent. Conversely, the slowdown in the

growth of O&M medical spending between 1989 and

1996, when costs rose by only 3 percent, is not proportional to the 9 percent drop in the overall population of

beneficiaries that the military drawdown precipitated.

The aging of the beneficiary population is more

important then its size in explaining changes in O&M

medical spending, because older people make greater

use of health care resources than do younger people.

DoD has faced the same pressures on cost from an aging population as has the civilian health care system.

Between 1981 and 1996, the share of beneficiaries 65

years old or older grew from 5 percent to 15 percent of

the eligible population. Some portion of the increase in

O&M medical spending clearly reflects the impact of

serving an older&and more expensive&group of beneficiaries.

Increases in the number of health care visits per

person is another factor that might be expected to contribute to higher health care costs. Contrary to that expectation, the frequency and length of hospital admissions per capita fell for both the direct care system and

CHAMPUS between 1981 and 1993. Hospital admission rates fell by about 20 percent under the direct care

system and about 6 percent under CHAMPUS; the

length of hospital stays per admission declined under

both the direct care system and CHAMPUS. The trend

in less costly outpatient visits is not as clear. The number of outpatient visits per person declined in the direct

care system by about 10 percent, but that rate rose

dramatically&by more than 200 percent&under

CHAMPUS. In part, the rise reflects a shift in the

amount of care provided by CHAMPUS as the direct

care system has shrunk under the drawdown.

Demographic changes and increases in the number

of outpatient visits do not appear to explain adequately

the 50 percent increase in O&M medical spending per

military beneficiary over the years. As in civilian health

care, that growth may stem from an increased reliance

on expensive testing procedures for diagnosis and treatment and additional services or procedures per outpatient visit or inpatient stay. The increasing sophistication of medical technology has affected costs for the

military as well as the civilian health care system. For

example, DoD provides coverage for expensive liver

and heart transplants. It is difficult&if not impossible

&to measure on the basis of available data the specific

contributions to rising costs from changes in population, its demographics, health care use, and health care

practices.

Another factor, however, is the increasing cost of

operating the military's direct care system. Between

1981 and 1993, total costs rose by almost 50 percent,

even though DoD operated 33 percent fewer hospital

beds at military treatment facilities and handled 17 percent fewer admissions and 7 percent fewer outpatient

visits. Per capita costs under that system grew by 43

percent, from $510 to $730. If those trends continue,

the direct care system could become increasingly ex6. Other, smaller sources are the military construction appropriations that

fund renovations and buildings and procurement appropriations that

fund purchases of capital equipment for new facilities and replacement

of equipment in current facilities.
CHAPTER TWO WHY DEFENSEWIDE SPENDING ON OPERATION AND MAINTENANCE HAS GROWN 19

pensive to operate unless DoD significantly changes its

medical management practices.

Another factor contributing to cost pressures on

DoD's medical budget is relatively high utilization rates

by DoD beneficiaries, compared with those in the general civilian population. For example, for each 1,000

people under the age of 65, military beneficiaries consumed 675 days of hospital care, whereas civilians consumed only 530 days. Similarly, military beneficiaries

had 7.3 outpatient visits per person compared with 4.5

for civilians. Because military beneficiaries receive

direct care free and are charged only nominal amounts

under CHAMPUS, they have little incentive to restrict

their use of health care services. Similarly, providers of

health care services to the military had little incentive

until recently to limit those services, because funding

was simply adjusted each year on the basis of previous

levels. Because capitation rates reflect historical experience, current rates still assume the high use typical of

military beneficiaries.

Controlling Future Medical Costs

Concerned about rising costs, DoD has tried a variety

of reforms to restrain health care spending. The most

recent is Tricare, under which beneficiaries can select a

plan modeled on civilian health maintenance organizations. Although the Congress required that Tricare not

increase current costs to the government, CBO estimates that when it is fully in place, Tricare will increase

annual costs substantially. If DoD benefits from the 7

current moderation in civilian health costs, the flaws in

Tricare may be less visible. Without significant

changes in the definition of DoD's medical mission or

major organizational changes in its delivery of health

care, the Department of Defense's medical costs are

unlikely to fall significantly in the future.

Pressure on O&M Spending

from New Defense 

Responsibilities

The addition of new responsibilities for DoD helps to

explain about one-third of the growth in defensewide

O&M spending since 1981 and almost two-thirds of

the continued growth in defensewide O&M spending

since the drawdown. Frequently characterized as "nontraditional" defense spending, those new responsibilities are ancillary to DoD's core mission&namely, to

prepare for possible wars.

Since 1981, DoD has taken on several new tasks:

environmental programs, drug interdiction, and the

Nunn-Lugar Cooperative Threat Reduction program of

aid to the former Soviet Union to assist in defense conversion as well as in destroying nuclear and other weapons. O&M funding for environmental programs, the 8

largest of DoD's new responsibilities, grew to more

than $3 billion in 1996&more than 15 times its modest

beginning in 1984. DoD now spends about $700 million supporting drug interdiction. Aid to the states of

the former Soviet Union amounted to $400 million in

1996 and 1997 and may continue at that level for the

next several years. Together, those new missions have

added almost $5 billion to O&M spending since 1981

(see Table 7).

This additional spending stems largely from statutory or policy changes. Although environmental programs are a new responsibility for DoD, much of the

cost represents the price of repairing past damage and

bringing DoD facilities and activities into compliance

with national environmental standards. Similarly, responsibility for drug interdiction typically rests with

federal, state, and local law enforcement agencies, but

DoD has been given a role in supporting other federal

agencies in this area.

7. For a complete discussion of this latest reform effort, see Congressional Budget Office, Restructuring Military Medical Care, pp. 21-33.

8. Although there is no standard definition of $nontraditional# defense

spending, environmental, Nunn-Lugar, and drug interdiction are typically included. See Steve Daggett and Keith Berner, $Items in the Department of Defense Budget That May Not Be Directly Related to

Traditional Budget Responsibilities# (Congressional Research Service

Memorandum, March 21, 1994).
20 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

DoD's Growing Environmental 

Responsibilities

Of all the new missions of recent years, the Department

of Defense's environmental responsibilities have added

the greatest new cost to defensewide O&M spending

and the one most likely to persist for many years.

DoD's Environmental Security Program funds cleanup

programs, compliance procedures, pollution prevention,

and conservation measures. 

Those environmental responsibilities have grown

dramatically in the l980s and l990s. Increased spending

levels for environmental programs parallel the growth

in the number of contaminated sites identified on DoD

installations, the rise in environmental standards, and

progression to the later stages of the cleanup effort itself. The Department of Defense's cleanup program,

for example, has proved to be considerably more extensive than expected. DoD has uncovered thousands of

previously unidentified sites of contamination on defense facilities, many of which have also proved to be

more complex than originally thought and have required extensive study and analysis. In addition, the

states have required increasingly stringent cleanup standards that demand expensive remediation technology.

Moreover, legislation enacted in the 1980s required

the Department of Defense to comply with environmental laws that apply to nongovernmental entities, thus

contributing to rising costs for environmental compliance efforts at defense bases. Finally, funding levels

are higher because DoD is moving from the research

and evaluation stage of cleanup to the actual effort.

DoD has completed the study stage on about half of the

21,425 sites initially identified as being potentially contaminated. Despite increased spending levels in recent 9

years, DoD still faces an enormous cleanup task that

could cost over $40 billion more to complete.

Spending on rectifying DoD's environmental problems has increased from slightly more than $200 million in 1984 to almost $5 billion in 1996 (see Figure 4).

About two-thirds of that amount&more than $3 billion&was funded with O&M appropriations. In 10

1996, about half of O&M spending on environmental

programs&$1.6 billion&was allocated for the defense

environmental restoration account (DERA) for cleaning

up operational bases. Another 40 percent&about $1.4

billion&was spent to ensure that DoD is in compliance

with handling and storage laws and regulations. The

remaining portion of O&M environmental funding paid

for environmental conservation and pollution prevention programs.

Operation and maintenance spending for cleaning

up active bases has proved very expensive, costing a

total of $13.3 billion since the Congress authorized

DERA in 1984. Cleanup funding increased from about

$200 million to more than $600 million between 1984

and 1989 and tripled again in 1994, when it reached

$2.1 billion. Annual spending for DERA may have

peaked, however, because funding in 1995 slipped to

$1.8 billion and dipped further in 1996 to $1.6 billion.

Recent DoD budget plans project continued reductions

in spending for DERA through 2001.

Whether DoD can reduce spending levels for

DERA in the future will depend on factors only partly

within DoD's control. The total cost of cleanup may

grow as the extent of contamination and the cost of

remediation is determined. The schedule for cleanup,

however, depends on what DoD negotiates with the

relevant authorities. For the more heavily polluted

sites&those on the National Priorities List&DoD must

negotiate an agreement with the Environmental Protection Agency and state and local authorities. Once

agreed upon, those "Records of Decision" have the effect of law, and DoD must comply with the provisions

they contain.

The Congress has reduced funding for environmental restoration below the level requested by the Department of Defense in recent years, resulting in the need to

renegotiate cleanup agreements. DoD has greater flexibility to adjust funding for cleaning up sites that are

less contaminated, because a cleanup plan negotiated

9. Statement of Cindy Williams, Assistant Director, National Security

Division, Congressional Budget Office, before the House Subcommittee on Military Procurement and the Subcommittee on Military Readiness, Committee on National Security, March 21, 1996, p. 5.

10. Smaller amounts were funded in 1996 by other appropriations, including about $360 million in research and development, $210 million in

procurement, $230 million in military construction, and $460 million

in the base realignment and closure accounts. Funding to clean up

military bases that are scheduled to be closed is not included in operation and maintenance spending.
1984 1986 1988 1990 1992 1994 1996

0

1

2

3

4

5

6

Billions of 1996 Dollars

Fiscal Year

Environmental Restoration 

Environmental Conservation 

BRAC Cleanup 

Environmental Compliance

Pollution Prevention

Environmental Technology R&D

CHAPTER TWO WHY DEFENSEWIDE SPENDING ON OPERATION AND MAINTENANCE HAS GROWN 21

Figure 4.

Total Defense Spending on Environmental Security Programs, 1984-1997

SOURCE: Congressional Budget Office based on data from the Department of Defense.

NOTES: About two-thirds of all funding for environmental security programs is provided in the operation and maintenance appropriation.

 R&D = research and development; BRAC = Base Realignment and Closure Commission.

between agencies is not required. Even in such cases,

however, state and local authorities could take exception to DoD's plan and insist that stricter standards and

schedules be met.

In recent years, the Department of Defense has also

spent about $1.3 billion a year to ensure that it is in

compliance with handling and storage laws and regulations. CBO estimates that the O&M portion of spending for compliance has increased almost threefold from

its 1990 level of $490 million. That funding is un- 11

likely to decline substantially in the near future, although base closures during the next several years will

slightly reduce DoD's responsibilities in that area.

Spending for compliance ensures that DoD will be able

to meet the same standards that govern private industry

and all federal facilities. If DoD does not meet compliance standards, it is liable for fines and penalties. If the

Congress chooses to adopt less stringent standards for

compliance by private and federal facilities, however,

future spending levels could be reduced. The downside

may be a greater risk to the environment, health, and

safety of the population.

In the long term, DoD investment in pollution prevention programs could reduce the cost of future compliance programs. In recent years, the Department of

Defense has begun to spend more money on both pollution prevention and conservation activities, but the programs are fairly small. O&M spending for conservation increased from about $9 million in 1991 to $118

million in 1996 to meet the requirements established by

such public laws as the National Historic Preservation

Act and the Endangered Species Act. Reducing 12

spending for conservation could prevent DoD from

11. Although the military services spent money for compliance from the

operation and maintenance account before 1990, the funding was not

identified separately, and DoD was not able to provide that budget

information for this study.

12. The estimate assumes that DoD allocated the same share of its total

funding for conservation to operation and maintenance in the past as it

did in 1996, when that share was 80 percent.
22 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

meeting its legal requirements. The spending level

would fall only if the Congress chose to adopt less

stringent conservation measures governing such tasks

as the protection of threatened and endangered species;

wetlands areas; cultural, historical, and archeological

sites; and natural resources.

Other New Responsibilities: Drug 

Interdiction and Aid to the Former 

Soviet Union

The two other major, nontraditional DoD responsibilities added in recent years are drug interdiction&primarily a responsibility for domestic law enforcement&and the Nunn-Lugar Cooperative Threat Reduction program designed to help the former Soviet Union

in its transition from the Cold War. Allocating responsibility to the Department of Defense for those programs represents a policy decision to expand DoD's

role and exploit the department's expertise. Funding

levels are unlikely to change unless the Congress or the

Administration decides that DoD's participation is not

cost-effective or should be circumscribed.

DoD's Role in Drug Interdiction. Beginning in 1989,

the Congress assigned DoD the responsibility of using

military forces in peacetime to carry out counterdrug

surveillance; integrate those command, control, communication, and intelligence assets dedicated to drug

interdiction; and provide support to law enforcement

agencies by sharing and expanding intelligence collection as well as helping to train local law enforcement

officials. Between 1989 and 1996, funding for drug 13

interdiction and surveillance activities grew from $550

million to a peak of $1.4 billion in 1992, then fell to

about $700 million in the 1996 budget request.

Part of DoD's drug interdiction activities adds little

cost to the services. Much of DoD's surveillance effort,

for example, serves dual purposes&providing information to domestic law enforcement agencies and training

military personnel for wartime surveillance missions.

Nor does sharing intelligence with domestic agencies

burden DoD, unless additional intelligence specifically

related to drug interdiction is collected. In other areas,

however, such as aiding or training domestic or a host

nation's law enforcement officials, DoD is taking on an

additional task that does not contribute to its wartime

capabilities.

Debate about the appropriate extent of DoD's role,

as well as the effectiveness of the Department of Defense's contribution to antidrug activities, has been

heated, and DoD's spending has dropped to half of its

peak level. Part of the cutback in funding was in response to questions about the effectiveness of DoD's

surveillance efforts as well as the concerns of some

policy-makers about the appropriateness of military

personnel providing support to local law enforcement

agencies. Future funding levels will depend on resolv- 14

ing those issues.

Nunn-Lugar Cooperative Threat Reduction Program. Similar questions have been raised about the

effectiveness and appropriateness of DoD's role in

helping the former Soviet Union dismantle nuclear

weapons and ease its transition to a civilian economy.

The Nunn-Lugar Cooperative Threat Reduction program was established by the Congress in 1991, and by

1996 almost $2 billion had been authorized, although

far less had been spent. Under the program, DoD helps

the former Soviet Union destroy or dismantle nuclear

and other weapons, guard its remaining weapons stockpile, provide alternate employment to scientists with

nuclear expertise, and convert military facilities to civilian use.15

Some policymakers have argued that such a program is an essential new military mission&a way, in

effect, of enhancing U.S. security by ensuring the dismantling of Russia's nuclear weapons and preventing

their spread to other nations or to terrorists. Other

policymakers question the appropriateness of U.S. aid

in the defense conversion of the former Soviet Union.

Still others have questioned the program's effectiveness, particularly because of delays in spending appropriated funds and the funding of projects of questionable value, such as subsidizing housing for Russian

13. See sections 1101-1104 of the National Defense Authorization Act,

Fiscal Year 1989, 10 U.S.C. 113, 371-380, 102 Stat. 2042-2046.

14. $Military Role in Drug War Debated,# Washington Post, August 30,

1996, p. A6. See also $GAO Pessimistic About U.S.-Mexican Drug

Control Efforts,# Inside the Pentagon (July 4, 1996), p. 20.

15. Amy F. Woolf and Theodor W. Galdi, Nuclear Weapons in the Former Soviet Union: Location, Command and Control, CRS Issue

Brief 91144 (Congressional Research Service, March 23, 1995), p.

CRS-13ff.
CHAPTER TWO WHY DEFENSEWIDE SPENDING ON OPERATION AND MAINTENANCE HAS GROWN 23

military officers. In 1996, for example, the House 16

Committee on National Security proposed to cut the

program almost in half in light of those concerns.17

And in 1996 and 1997, the Congress prohibited the use

of Nunn-Lugar funds to provide housing for military

officers. In response to such criticisms, the Administration cut the size of the program from about $400 million a year to about $300 million in 1997, and has

aimed efforts more directly toward guarding and destroying nuclear and chemical weapons and nuclear material.18

Expansion of Ongoing

Defensewide Missions

Spending for "traditional" defensewide functions, which

ranges from more than $3 billion for intelligence and

communications to $100 million for expanding information management, also grew substantially over the

1981-1996 period. Such spending rose from $2 billion

in 1981 to almost $6 billion in 1996, accounting for

more than one-quarter of the total growth in spending

in that period. The largest increases were for support of

intelligence and communications and special operations

forces, areas on which DoD and the Congress have chosen to place additional emphasis.

Intelligence and Communications

Decisions by the services to improve and expand their

intelligence gathering and analysis led to the doubling

of spending on the support of intelligence and communications between 1981 and l996&an increase far

greater than the growth of one-third in the defense budget during the 1980s. The services argue that intelligence improves the effectiveness of forces.

Despite the fall of the Soviet Union, which had

been the focus of most intelligence collection during the

Cold War, O&M spending to gather and analyze intelligence has not decreased. Nor does the funding within

O&M to support intelligence appear to be a part of ongoing initiatives to reduce the total number of intelligence personnel by almost one-quarter in the l990s.19

Debate about the appropriate level of intelligence

spending has focused on the size of the intelligence

community, duplication among its agencies, and its

overall organization. Although the Congress has considered several proposals to consolidate and restructure

the intelligence community, the issue has not been resolved.20

Special Operations

In the late 1980s, the Congress required that DoD set

up a separate command for special operations forces

(rather than having those forces subsumed within each

individual service) as a way of giving greater visibility

and bureaucratic clout to this wide-ranging mission.

The mission, seen as playing a key role in peacetime

operations, includes intelligence and unconventional

operations, evacuation and combat rescue, training of

foreign military forces, and civil affairs tasks. Spending for it totals $1 billion and is likely to remain at least

that high because of the frequent deployment of those

forces in operations other than war.

Other Growth

Although much of the growth in defensewide spending

on support clearly indicates policy decisions to place

greater emphasis on particular areas of centralized support in the 1980s, why other defensewide spending re16. Amy F. Woolf, Nunn-Lugar Cooperative Threat Reduction Program: Issues for Congress, CRS Report for Congress 96-804F (Congressional Research Service, September 30, 1996).

17. See House Committee on National Securitiy, National Defense Authorization Act for Fiscal Year 1996, H. Report 104-131 (June 1,

1995), pp. 256-259. See also Woolf, Nunn-Lugar Cooperative

Threat Reduction Program.

18. Office of the Secretary of Defense, Operation and Maintenance

Overview, FY 1997 Budget Estimates (March 1996), p. 55; and Office of the Secretary of Defense, Operation and Maintenance Overview, FY 1996/FY 1997 Biennial Budget Estimates (February 1995),

p. 55.

19. The $3.4 billion in visible O&M funding for intelligence and communications includes only a small portion of total funding for intelligence,

which is reported to be some $29 billion. See James Kitfield, $Looking for Trouble,# National Journal (May 18, 1996), pp. 1094-1098.

20. Congressional Budget Office, Easing the Burden: Restructuring and

Consolidating Defense Support Activities, CBO Paper (July 1994),

pp. 53-66.
24 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

mains high is not at all clear. For example, spending on

auditing, which expanded in the 1980s to monitor a

larger investment budget and in response to procurement scandals, has not decreased despite the rapid fall

in the procurement budget. Nor has spending fallen for

the Defense Mapping Agency, which supports DoD's

strategic and tactical military operations and weapon

systems by providing mapping, charting, and geodetic

services.

Similarly, spending for the Department of Defense

Dependents' Education program, which provides

schooling for the dependents of military personnel overseas and on certain installations in the United States,

continues to cost $1.3 billion&the same level as in the

1980s&despite the overall drawdown of military personnel and the two-thirds drop in the number of military personnel and their dependents stationed overseas.

Similarly, spending for headquarters staff in the Office

of the Secretary of Defense and associated support

grew by 50 percent in the 1980s and has more than

doubled since the drawdown. The justification for

those levels remains unclear.
U

Chapter Three

Readiness and O&M Spending

by the Services

nlike spending levels for defensewide operation and maintenance, which largely represent

changes in defining the scope of the Department of Defense's responsibilities, O&M spending by

the services is more directly related to DoD's core mission of preparing for war. That spending would be expected to vary with force structure, standards of readiness, and the efficiency with which support is provided.

Changes in force structure alone are not an adequate explanation for changes in O&M spending levels.

Force structure&the number of units or weapon system

platforms&rose modestly in the 1980s and fell sharply

in the 1990s (see Tables 1 and 2 in Chapter 1). O&M

spending by the services, however, rose significantly in

the 1980s and declined less steeply than force structure

in the 1990s. One gauge of the discrepancy between

changes in force size and O&M spending levels is

trends in spending per active-duty service member.

Trends in those average O&M funding levels over the

past 15 years indicate that DoD is generally spending

more to train and support military personnel for their

wartime functions than it has in the past.

Higher spending levels for O&M were originally

justified in the early 1980s as a way to correct problems

of readiness associated with the "hollow forces" of the

late 1970s. In recent years, DoD has again suggested

that increases in O&M spending per capita may be associated with high readiness. But several indicators of

readiness commonly used by the services have not

grown from the levels that were set in the early 1980s.

Because measured readiness has changed little

since the early 1980s, the basis for DoD's justification

of today's high levels of per capita spending is not

clear. Rather, based on the Congressional Budget Office's analysis of spending growth, higher O&M spending levels in the 1980s most likely reflect greater spending on infrastructure and indirect support of combat

operations. Continued increases in average spending

levels in the 1990s appear to be primarily the result of

the difficulties that the services have had in adjusting

their support structure to lower force levels.

Changes in Force Structure

and O&M Spending

Between 1981 and 1989, spending to support activeduty forces grew from $68 billion to $79 billion, an

increase of about 15 percent. Force structure, training

levels, and the number of active-duty personnel&all

indicators of workload&rose by much less. In fact,

growth in O&M spending was twice as great as the increase in training and seven times as great as the

change in personnel levels, suggesting little relationship

between spending and indicators of workload.

Nor did spending trends since the drawdown follow

those indicators. In the 1990s, force structure, training

levels, and personnel levels all fell far more than did
1981 1983 1985 1987 1989 1991 1993 1995 1997

0

10

20

30

40

50

60

Thousands of 1996 Dollars

Fiscal Year

Navy

Air Force

Army

26 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

Figure 5.

Spending for Operation and Maintenance per Capita by Service, 1981-1997

SOURCE: Congressional Budget Office based on data from the Department of Defense.

NOTES: Per capita spending is computed by dividing spending for operation and maintenance (O&M) under the management of active-duty

personnel by the number of active-duty personnel at the end of each fiscal year.

O&M spending for the reserves, defensewide support, and Desert Shield/Desert Storm and operations other than war is excluded.

O&M spending. Both force structure and training levels dropped by between 35 percent and 50 percent,

whereas active-duty personnel levels fell by 30 percent.

At the same time, O&M spending by the services declined by 26 percent&less than the reductions in force

structure, training, and active-duty personnel levels.

The most straightforward gauge of the discrepancy

between changes in workload indicators and O&M

spending is trends in O&M spending per active-duty

service member. Although that measure is simplistic, it

provides a general indicator of long-term trends in

O&M spending. In fact, in 1996 and 1997, the Administration stated that although current levels of per

capita spending on O&M were high by historical standards, that was a sign of its commitment to military

readiness. Wishing to avoid a recurrence of the readi- 1

ness problems encountered in the late 1970s, the Administration and the Department of Defense have decreased O&M funding by a smaller percentage than

that of the overall defense budget.

In fact, a closer look at per capita trends over the

past 15 years reveals significant differences among the

services (see Figure 5). Per capita spending to train and

support active-duty personnel rose steadily in the 1980s

and 1990s in the Army and the Air Force. Navy per

capita spending followed a different path, rising in the

early 1980s, then dropping back gradually, and settling

over the next decade at about its 1981 level.

The premise that continuing increases in per capita

O&M funding are necessary to preserve readiness is

not at all obvious. In fact, demonstrating the link between O&M spending levels and indicators of readiness

is extremely difficult. Benefits from increases in per 2

capita O&M spending in the services are more likely to

depend on which categories of spending are increased,

1. Office of the Assistant Secretary of Defense for Public Affairs, "Department of Defense Budget for FY 1997" (press release, Washington,

D.C., March 4, 1996), pp. 1-2.

2. Richard K. Betts, Military Readiness: Concepts, Choices, Consequences (Washington, D.C.: Brookings Institution, 1995), pp. 130-

131.
CHAPTER THREE READINESS AND O&M SPENDING BY THE SERVICES 27

just as the potential dangers of reducing O&M spending depend on where cuts are made.

The Congressional Budget Office analyzed O&M

spending by the active-duty forces in the Army, Navy,

and Air Force but excluded spending for the Marine

Corps and reserve forces. CBO excluded that spending

because of the difficulties in identifying true unit spending trends for the Marine Corps and reserve forces. The

Marine Corps relies on the Navy for some of its support just as reserve forces rely on active-duty forces for

some of their assistance.

Changes in Indicators of 

Readiness and Operating

Spending

Spending on operating forces constitutes the largest

single category of O&M spending in each of the services: 32 percent in the Army, 40 percent in the Air

Force, and 47 percent in the Navy (see Table C-4 in

Appendix C). Spending for operating forces pays for

Table 8.

Changes in Spending on Operating Forces and in Training Levels

Change Between

Service 1981 and 1989 1989 and 1996 1981 and 1996

Spending on Operating Forces

In Billions of Dollars

Army 3.0 -2.7 0.3

Navy -7 -4.2 -4.9

Air Force 2.4 -3.4 -1.0

Total 4.7 -10.3 -5.6

In Percent

Army 55 -32 5

Navy -5 -30 -33

Air Force 29 -32 -12

Total 16 -31 -20

Training Levels

In Thousands

Army Tank Miles 228 -1,645 -1,417 a a

Navy Underway Steaming Hours 86 -439 -353

Air Force Flying Hours 74 -604 -530

In Percent

Army Tank Miles 7 -50 -46 a a

Navy Underway Steaming Hours 7 -35 -30

Air Force Flying Hours 6 -48 -45

SOURCE: Congressional Budget Office based on data provided by the Department of Defense.

NOTE: Active-duty forces only, excluding Marine Corps.

a. Measured from the 1982 level. The level for 1981 is not available.
28 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

field training by military units and for the maintenance

of their equipment. One would expect that spending to

be closely related to changes in training levels or readiness standards. But spending on training has not varied

in proportion with the amount of training performed by

the services (see Table 8 on page 27). Nor has readiness changed with spending.

Although force levels changed little during the

1980s in any of the services, the Air Force and the

Army earmarked the lion's share of their additional

O&M resources for operating forces that fund training

units in the field. Hence, training unit-cost as measured

by average spending per flying hour or tank mile of

training grew over the decade (see Figure 6). The

Navy, however, generally spent less on its operating

forces, gradually decreasing average spending per

steaming hour (training unit-cost) over the decade.

In the 1990s, force levels dropped substantially,

but spending on operating forces in the Air Force and

Army dropped far less. Hence, average spending

climbed steeply. Unlike the other services, the Navy

cut its operating spending more sharply than its force

levels; as a result, its average spending per steaming

hour first declined, then drifted upward to just below

the level of 1981. Apparently, other factors not associated with changes in force levels were affecting those

spending levels.

Changes in readiness standards could be another

important factor. It would be useful to know whether

changes in operating spending measurably affected

readiness in case O&M spending needed to be cut in

the future. If resources and readiness are related, one

would expect to see higher readiness levels coupled

with higher spending on field training by units and vice

versa. On the basis of available evidence, however, the

Army and the Air Force have not achieved higher readiness standards as a result of the rise in average levels of

spending on operating forces in the 1980s and 1990s.

Nor did Navy readiness fall with the gradual decline in

its average levels of spending on operating forces.

Defining and Measuring Readiness

The first step in seeking connections between spending

on O&M and readiness is to understand the term readiness. As noted earlier, CBO uses the term to refer to

current operational readiness as defined by the Joint

Chiefs of Staff&that is, the ability of forces to perform

their wartime tasks.

Measuring readiness is also controversial. The services assess operational readiness by tracking a set of

indicators that measure the preparedness of military

units. The Status of Resources and Training System

(SORTS) ratings, based on quantitative indicators and

the judgment of commanding officers, measure whether

units have the personnel, equipment, training, and supplies needed to go to war. The results are periodically

reported to the Joint Chiefs of Staff. Although the primary purpose of SORTS is to alert decisionmakers to

shortfalls that must be addressed to preserve wartime

capability, SORTS ratings are also used to select forces

needed for contingencies, identify persistent problems

in units or areas, shift equipment and resources between

units, and detect longer-term trends.3

Individual units report readiness ratings in four categories: personnel, availability of equipment, training,

and condition of equipment. Individual units also report an overall rating, which reflects the lowest rating in

any individual category unless modified by the commander on the basis of other factors. The Joint Chiefs 4

of Staff set the scoring standards for C-ratings (C

stands for category) in each area. Although military

commanders would readily deploy units with scores of

C-1 or C-2 under which a unit is judged to be "fully" or

"substantially" ready to carry out its wartime tasks,

units in C-5 status&those undergoing maintenance or

3. Chairman, Joint Chiefs of Staff, Memorandum of Policy No. 11, Status of Resources and Training System (SORTS) (December 24,

1992), p. 2. For the predecessor of the SORTS ratings in the 1980s,

the Unit Status and Identity Report (UNITREP), see Department of

Defense, Improvements in U.S. Warfighting Capability, FY 1980-84

(May 1984), pp. 98-100. For a further description of indicators of

readiness, see S. Craig Moore and others, Measuring Military Readiness and Sustainability, R-3842-DAG (a report prepared by RAND

for the Defense Advisory Group to the National Defense Research

Institute, 1991), p. 11. For a more recent but similar description of the

purposes of SORTS, see Office of the Inspector General, Evaluation

Report on the Status of Resources and Training System, Report No.

96-086 (March 15, 1996), p. 7.

4. See Joint Chiefs of Staff, Memorandum of Policy No. 11, pp. A-1 to

A-4; and Joint Chiefs of Staff, Joint Reporting Structure, Status of

Resources and Training System (SORTS), Joint Publication 1-03.3

(August 10, 1993), pp. xiv-1 to xiv-32.
1982 1984 1986 1988 1990 1992 1994 1996

0

50

100

150

200

250

Army

Index Value (Indexed to 1982)

1981 1983 1985 1987 1989 1991 1993 1995

0

50

100

150

200

250 Index Value

Air Force

(Indexed to 1981)

1981 1983 1985 1987 1989 1991 1993 1995

0

50

100

150

200

250 Index Value

Navy

(Indexed to 1981)

 SORTS Equipment 

 Readiness 

 Training

 Unit-Cost b

Percentage of 

Combat-Ready

Equipment c d

a

CHAPTER THREE READINESS AND O&M SPENDING BY THE SERVICES 29

Figure 6.

Changes in Indicators of Equipment Readiness and Spending in the 1980s and 1990s

SOURCE: Congressional Budget Office based on data from the Department of Defense.

NOTE: The figures show rates of change compared with the levels in the base year. In other words, the vertical axis represents an index in which

the base year equals 100 in each category.

a. The spike in Army spending reflects additional costs associated with Desert Shield/Desert Storm. Army data are indexed to 1982 because

spending per tank mile cannot be computed before that date.

b. Status of Resources and Training System (SORTS) scores for equipment readiness show the portion of the force that has its equipment ready for

combat.

c. Percentage of Combat-Ready Equipment is measured by "mission-capable" rates in the Army and Air Force and by "casualty reports" in the Navy.

Both rates show the amount of equipment that has no serious maintenance problems.

d. Training Unit-Cost is computed by dividing operating spending by the number of tank miles in the Army, flying hours in the Air Force, and steaming

hours under way in the Navy.
30 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

in transition and not currently manned or equipped&

would not be deployed.5

Strengths and Weaknesses of SORTS Ratings.

SORTS has been criticized for various reasons, ranging

from its emphasis on tracking resources rather than actual performance, to its sensitivity to particular circumstances that may be short-lived or easily solved (such as

temporary shortages of a minor part). SORTS ratings

have also been criticized for evaluating units in a scenario that may not reflect their probable wartime role:

for example, a unit likely to be deployed in the later

stages of a crisis may be evaluated as if it must be immediately available. Finally, critics have questioned the

accuracy and timeliness of the scores, including their

susceptibility to "gaming" by commanders concerned

with protecting or enhancing their reputation.6

In view of all those criticisms, can SORTS ratings

be used as an indicator of long-term trends in readiness? Despite their shortcomings, SORTS ratings

probably do indicate whether units carry out their designated training, whether equipment is ready to be used,

and how readiness of forces varies over time. Because 7

low SORTS ratings generally lead to corrective actions,

the system's sensitivity to individual problems is likely

to be compensated for over longer periods of time. Because deployment schedules that are assumed in the

standard scenario may be more stringent than those

faced by some units, ratings may be conservative. That

conservatism may counterbalance any tendency of commanders to be overly optimistic. Moreover, unless the

amount of "gaming" changes over time, SORTS ratings

would still identify trends. Finally, the accumulation of

SORTS ratings from many units covering long periods

of time could offset individual biases in reporting.

SORTS remains the basic method for tracking

changes over time and the one that is most closely tied

to those elements that are considered crucial to maintaining military readiness&namely, ensuring that the

military has sufficient personnel and appropriate equipment and skills, and that units carry out training exercises to maintain those skills.

One would expect SORTS scores for training and

the condition of equipment to reflect levels of O&M

spending for operating forces. However, DoD continues to treat most SORTS scores that are less than eight

years old as classified information. Classifying those 8

data has made public discussion of the relationship between readiness and resources difficult because there is

little unclassified, comprehensive, quantitative evidence. Nor is much information provided by military 9

commanders who testify before the Congress about the

readiness of their troops, because they generally focus

on specific current problems&such as the effect on the

training readiness of deploying troops in operations

other than war&rather than the longer-term issue of the

relationship between O&M resources and readiness. To

examine that relationship, CBO developed unclassified

indexes of SORTS scores for training and equipment

condition that show changes over time without revealing actual scores at any point (see Figures 6 and 7).

Other Indicators of Readiness. In addition to

SORTS ratings, DoD uses two other indicators (available on an unclassified basis and used as a contributing

5. A unit with a rating of C-3 is considered able to meet "many, but not

all" of its wartime functions and could be deployed if necessary. Units

with ratings of C-4, however, are judged able to meet only "portions"

of their wartime mission and would need additional training or supplies before deployment. To qualify for a particular C-rating, a unit

must generally reach certain percentage levels, which vary for each

SORTS category. For example, to be rated C-1 in equipment condition, at least 75 percent of the aircraft in a unit must be "mission capable" or in good repair and have sufficient supplies to carry out its wartime mission. For training, the commanding officer rates whether units

are ready to go to war on the basis of quantitative factors and his or her

own judgment.

6. For an extensive discussion of problems in measuring readiness, see

Moore and others, Measuring Military Readiness, pp. 23-24; and

Betts, Military Readiness, Chapter 4.

7. For a similar conclusion about the accuracy of Navy readiness data,

see Matthew Robinson and others, Avoiding a Hollow Force: An

Examination of Navy Readiness, CRM 95-238 (Alexandria, Va.:

Center for Naval Analysis, April 1996), pp. 19-23 and 63-64.

8. The Joint Chiefs of Staff (JCS) policy directive calls for SORTS historical data to be downgraded one level every four years. Since

SORTS data are initially classified as "secret," that would declassify

data that are eight years or older. Each of the services, however, has

adopted somewhat different practices of classification. For example,

for SORTS category ratings covering all active-duty forces, the Army

and Navy classify all data that are less than eight years old. The Air

Force classifies all SORTS scores that distinguish active from reserve

forces separately, but not SORTS scores for the entire Air Force. See

Chairman, Joint Chiefs of Staff, Memorandum of Policy No. 11,

p. 11, for JCS policy.

9. Betts, Military Readiness, p. 131. See also testimony by Edwin Dorn,

Undersecretary of Defense for Personnel and Readiness, in House

Committee on National Security, Hearings on Natonal Defense Authorization Act for Fiscal Year 1996 (H.R. 1530): Title III&Operation and Maintenance, H.N.S.C. No. 104-6 (March 16, 1996),

p. 530ff.
1981 1983 1985 1987 1989 1991 1993 1995

0

50

100

150

200

250 Index Value

Navy

(Indexed to 1981)

1982 1984 1986 1988 1990 1992 1994 1996

0

50

100

150

200

250

Army

Index Value (Indexed to 1982)

1981 1983 1985 1987 1989 1991 1993 1995

0

50

100

150

200

250 Index Value

Air Force

(Indexed to 1981)

 SORTS Training 

 Readiness Optempo 

 Average Spending 

 on Operating Forces b c d

 a

CHAPTER THREE READINESS AND O&M SPENDING BY THE SERVICES 31

Figure 7.

Changes in Indicators of Training Readiness and Spending in the 1980s and 1990s

SOURCE: Congressional Budget Office based on data from the Department of Defense.

NOTE: The figures show rates of change compared with the levels in the base year. In other words, the vertical axis represents an index in which the

base year equals 100 in each category.

a. The spike in Army spending reflects additional costs associated with Desert Shield/Desert Storm. Army data are indexed to 1982 because ground

optempo cannot be computed before that date.

b. Status of Resources and Training System (SORTS) scores for training readiness show the portion of the force that is considered sufficiently

trained to perform its duties in wartime.

c. Optempo, or operating tempo, measures the frequency of field training. Average number of tank miles per year are used in the Army, average

steaming hours under way for nondeployed ships in the Navy, and average flying hours per month in the Air Force.

d. Average Spending on Operating Forces reflects the total amount spent to operate and maintain equipment divided by the number of personnel

assigned to strategic or tactical units.
32 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

factor in SORTS ratings) to track the readiness of military units. The first is operating tempo (optempo for

short), which measures the frequency of field training.

Optempo rates represent the standards that the services

set for the amount of unit training that is considered

necessary over the course of a month, a quarter, or a

year to prepare forces for their wartime responsibilities.

Optempo standards are expressed as so many hours or

miles of training per crew or per weapon system. For

example, Air Force optempo is measured by the number of flying hours per crew per month.

Even if force structure did not change, overall operating spending would rise if the services raised

optempo standards, thereby increasing the frequency of

training. Thus, growth in spending on operating

forces&beyond that necessary to support larger force

levels&could reflect higher optempo standards. In that

case, one could argue that higher O&M spending reflected improved readiness.

In order to carry out field training and be ready for

wartime deployment, units must keep their equipment

in working order and maintain adequate supplies of

spare parts. The second indicator of readiness used by

the Army and the Air Force to track the availability of

equipment is mission-capable rates for ground and air

platforms; the Navy uses casualty reports (known as

CASREPs) for the same purpose. Both rates measure

the percentage of major equipment (such as aircraft,

tanks, or ships) that is in adequate repair, supplied with

the necessary spare parts, and ready for its wartime

mission.

Higher mission-capable rates or casualty reports

should indicate improvements in readiness levels. One

would expect higher average O&M spending for flying

hours, steaming hours, and tank miles to result in

higher readiness levels and vice versa. Thus, levels of

readiness should reflect spending on O&M for operating forces. But that does not appear to have been the

case.

Comparing Trends in Operating 

Spending and Indicators of 

Training Readiness

In order to determine whether greater spending is associated with higher training readiness, CBO compared

changes over time in average spending for operating

forces with SORTS scores for training and optempo

rates in each of the services. The SORTS indexes show

changes in the number of units that are considered

ready to deploy compared with the base year. Units are

considered ready for deployment if they meet certain

standards for the amount of training expected of a fully

trained unit. CBO used 1981 as a base year for the Air

Force and the Navy and 1982 for the Army. (Data on

tank miles in the Army were not available before 1982.)

Thus, for example, Army SORTS training scores in

1987 show that the share of units ready to deploy was 8

percentage points higher than in 1982, the base year.

The Congressional Budget Office compared those indicators of readiness with average spending on operating

forces for personnel assigned to strategic and generalpurpose units, a measure that adjusts for changes in

force levels.10

SORTS scores for training in all three services over

the past 15 years have been surprisingly stable. That

inclusive measure reflects not only whether units are

meeting optempo standards but a variety of other indicators reviewed by commanding officers. According to

testimony by service chiefs and other high officials,

readiness levels in the 1990s can be characterized as

"acceptable," or "at high levels." General Ronald R.

Fogelman, former Chief of Staff of the Air Force, for

example, stated in 1995 that nearly 90 percent of Air

Force units were combat ready and that the percentage

has remained fairly stable during the past 10 years.11

Over the past 15 years, for example, the spread between the high and low points in Air Force SORTS

scores has been at most 10 to 11 percentage points.

10. To compute that spending, CBO divided the total spending for operating forces by the number of active-duty military personnel assigned to

strategic and general-purpose units. For the number of personnel assigned to strategic and general-purpose forces as opposed to those assigned to support functions such as intelligence or base operations

support, see, for example, Department of Defense, FY 1994 Manpower

Requirements Report (May 1993). That measure is more specific than

the per capita number used by the Department of Defense, which divides all O&M spending by all active-duty personnel.

11. Testimony by Ronald R. Fogelman, Chief of Staff, U.S. Air Force, in

U.S. Senate, Department of Defense Authorization for Appropriations for Fiscal Year 1996 and the Future Years Defense Program,

Part 3, Readiness, hearings before the Committee on Armed Services,

104th Cong., 1st session, p. 28; and testimony by Edwin Dorn, March

16, 1996, p. 530. See also Office of the Under Secretary of Defense

for Acquisition and Technology, Report of the Defense Science

Board Task Force on Readiness (June 1994), p. i.
CHAPTER THREE READINESS AND O&M SPENDING BY THE SERVICES 33

Changes in average spending levels for Air Force

operating forces in the 1980s and 1990s exceeded those

of the SORTS scores for training. During the 1980s,

however, higher average spending paralleled in some

years the gradual rise in aircraft optempo rates, which

may reflect an Air Force initiative begun in the early

1980s to increase the frequency of training for tactical

fighters to 20 hours per crew per month. In the 1980s 12

and 1990s, average flying hours per crew per month

hovered between about 18 and 19.5 hours. More recently, however, when optempo varied little, average

spending shot up, reaching a level 45 percent above the

base year of 1981.

As with the Air Force, increases in average spending for operating forces in the Army cannot be linked to

improvements in readiness indicators. Instead, average

spending for the operating forces rose by almost 50

percent in the Army during the past 15 years, whereas

SORTS training scores remained stable and optempo

rates declined. The average number of tank miles per

year declined by 15 percent in the 1980s.

It is not clear, however, that the gradual decline in

the 1980s represented a conscious decision by the

Army to reduce optempo standards. Rather, the decrease in average tank miles may reflect the fact that the

Army did not retire its older M-60 tanks as fast as it

acquired new M-1 tanks and thus used its inventory of

equipment less intensively. That average varied between about 750 and 850 tank miles in the 1990s except for sharp drops in 1993 and 1994 that reflected

cuts in training. The Army made the cuts to pay for

several unanticipated contingency operations that occurred late in the fiscal year and to meet unexpectedly

high expenses for drawing down forces in Europe.

The Navy story shows even less of a connection

between changes in average spending levels for operating forces and indicators of readiness. Although

SORTS training scores held steady, spending declined

in the late 1980s and the 1990s. By 1996, that spending was 20 percent below the 1981 level. Optempo&

measured by the average number of steaming days under way per quarter for nondeployed ships&hovered

between 27 and 29 days per quarter in the 1980s and

1990s. (To preserve training readiness, the Navy emphasizes the importance of meeting the average number

of steaming days under way per quarter for nondeployed ships because that is when most formal training

exercises take place.)

The slight decline in average steaming days under

way per quarter for nondeployed ships in the 1980s

may not, however, signify any drop in readiness. Over

the past 15 years, the Navy has come close to meeting

its optempo goal of 29 steaming days per quarter for

the nondeployed fleet. Moreover, other research suggests that the Navy improved its training readiness during the 1980s and that training has seldom been a problem in the Navy's overall readiness levels. Slight 13

shifts in Navy optempo levels thus do not appear to

signal that readiness was harmed by the long-term decline in the Navy's spending for operating forces during

the 1980s.

Ultimately, there is little evidence linking changes

in average spending for operating forces with changes

in indicators of training readiness. Instead, the steeper

growth in average spending on operating forces in the

1990s, at a time when indicators of readiness remained

at high levels, may reflect a decision by the services to

spend more money as a precaution against jeopardizing

training readiness. That discrepancy may also reflect

the difficulties of downsizing the support structure for

combat forces in an efficient manner.

Comparing Trends in Operating 

Spending with Indicators of 

Equipment Readiness

Even if the services do not appear to have bolstered

training readiness with higher levels of spending, the

condition of equipment, the second major indicator of

readiness funded with O&M, could have improved.

Although there are indications that equipment readiness

improved in the Army and Air Force, the link between

higher spending and improvements in equipment readiness also appears to be weak.

12. Department of Defense, Improvements in U.S. Warfighting Capability, FY 1980-84, p. 73. 13. Robinson and others, Avoiding a Hollow Force, pp. 22-23 and 31.
34 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

Although its SORTS equipment scores have improved over the past 15 years, training unit-costs in the

Army have grown far more sharply. By 1996, those

scores had risen by 25 percent, whereas spending levels

soared to 65 percent above the base year of 1982.

Mission-capable rates for ground equipment remained

flat throughout the period.

Unlike those of the Army, SORTS equipment

scores for the Air Force varied little throughout the period, showing no responsiveness to the growth of about

40 percent in spending per flying hour over the past 15

years. Although mission-capable rates in the Air Force

rose with higher spending per flying hour, whether the

improvement reflects higher spending for active-duty

forces is not clear, since the Air Force was unable to

provide rates for the entire period for the active forces

alone. Moreover, those rates remained level in the

1990s at a time when spending per flying hour grew

steeply.

As with the other services, the experience of the

Navy generally does not support the case that higher

average spending improved readiness. Except for a

temporary upsurge in the mid-1980s, average spending

per underway steaming hour in the Navy has declined

gradually for most of the past 15 years while indicators

of readiness improved. The upsurge in 1985 may be

associated with additional deployments for contingency

operations in Grenada and Lebanon. Over the past 15

years, SORTS equipment scores improved by almost

20 percent, and casualty reports, which measure the

proportion of equipment ready for combat, rose by as

much as 60 percent by 1986.

In the 1990s, both casualty reports and SORTS

equipment scores remained at levels substantially above

those of 1981 at a time when average spending per

steaming hour first dipped and then returned to a level

similar to that in 1981. The dip in spending in the early

1990s may reflect artificially low prices charged by the

Navy's maintenance depots for ship repairs&one of the

major components of operating spending. Because the

depots charged prices below their costs, they lost

money, and the Congress appropriated additional funds

in 1996 to make up for those losses. Over the long 14

term, the condition of ships appears to have improved,

notwithstanding the long-term trend toward slightly

lower average costs per steaming hour.

Other Factors Affecting 

Operating Spending

Another factor sometimes offered to explain increases

in average operating spending is the modernization of

equipment in the 1980s: if more sophisticated equipment required more expensive maintenance and support

per hour of operation, average spending would simply

rise to meet the same readiness standards.

Proponents of that view frequently cite dramatic

increases in the operating costs of individual weapon

systems. In the case of the Army, for example, the support costs of operating the M-1 tank are double those of

its predecessor, the M-60. The more advanced fighting

vehicle, the M-2 Bradley, costs over five times as much

as the older M-113. In other instances, however, the

cost of supporting a new system is less than or the same

as its predecessor; support of the F-16 aircraft has cost

less than the F-4, and support of the F-15 is roughly

comparable with that of the F-4. The CG-47 cruiser

costs about the same to operate as the DDG-2, which it

replaced.15

Based on growth patterns in the past 15 years,

however, modernization does not appear to be the culprit responsible for higher average operating spending.

The new budget categories divide the spending that

pays for unit training into three subcategories:

o Combat forces, funding direct costs of fuel and

spare parts for wings in the Air Force, divisions

and other combat units in the Army, and Navy

ships and planes;

o Combat operations support, funding indirect support such as tactical support units and headquarters; and

14. Ship repairs are priced according to cost projections made by the shipyards. If costs turn out to be higher than anticipated, the shipyards lose

money. Eventually, higher prices must be charged or additional appropriations voted to make up for those losses.

15. Institute for Defense Analysis, "The Growth and Management of O&S

Spending in DoD" (briefing prepared for the Deputy Under Secretary

of Defense for Readiness, Office of the Secretary of Defense, June

1996).
CHAPTER THREE READINESS AND O&M SPENDING BY THE SERVICES 35

o Depot maintenance, funding overhauls of equipment.16

A close look at those categories reveals that, contrary to some of the examples cited, more modern

equipment has not cost more to operate at the unit level.

In fact, average spending per hour or mile of training

for combat forces has remained stable in the Army and

declined somewhat in the Navy and Air Force during

the past 15 years (see Figure 8). For example, the

higher costs for spare parts for new systems may be

offset by their greater reliability, requiring less frequent

repair or replacement.

In the Navy, modernization may be responsible for

the long-term gradual decline in average spending for

combat forces, because ships introduced into the fleet in

the 1980s typically are more fuel efficient and have

lower operating costs than ships that were retired. The

fleet now consists mostly of ships equipped with more

efficient turbine propulsion plants. Navy spending on

operating forces may also have declined with the shift

to greater numbers of nuclear-powered ships. Energy

costs are part of the initial procurement cost of nuclearpowered ships rather than a continuing O&M cost.17

If modernization did not increase the average costs

of combat forces, making it more expensive to attain

the same readiness standards, did it increase combat

operations support, the second major component of

operating spending? Average spending per hour of

training for that type of support rose dramatically in all

three services in the 1980s and l990s. In the 1980s,

those increases may reflect various initiatives by the

services to expand and improve support: adding intelligence and tactical support units, expanding the amount

and improving the realism of large-scale training exercises, adding simulation training, and increasing headquarters support and research into the tactics and techniques of combat. Although service commanders believe that those initiatives improve the quality of support and training, such measures are not an inevitable

result of the modernization of equipment.

Nor would those types of improvements necessarily

be apparent in indicators of readiness. SORTS ratings,

for example, primarily measure whether the planned

amount of training is achieved, although some qualitative improvements may be reflected in commanders'

subjective judgments.

Another factor in explaining higher spending levels

for combat operations support may be the difficulties in

eliminating indirect assistance, such as that provided by

headquarters and tactical units, while downsizing

forces. Average spending on combat operations support increased by more than 60 percent in the Army and

doubled in the Air Force in the 1990s, a far steeper increase than in the 1980s. The number of tactical units

and headquarters may not decline in proportion with the

number of units of combat forces.

Such declines would depend on how and where

force structure was cut. For example, the Air Force

achieved part of the decrease in force structure by cutting the number of aircraft in each squadron rather than

eliminating entire squadrons. That practice would

probably require a greater proportion of combat operations support for each hour of training and may reflect

the difficulties of reorganizing forces, closing bases,

and cutting command billets. The Air Force has acknowledged that the current practice is inefficient and is

considering restoring the number of aircraft in tactical

fighter units to the previous level of 24.

Army spending may be higher in part because that

service has increased the ratio of support units to combat forces. The new ratio may reflect the Army's worry

that it could have difficulty in marshaling support units

to meet small contingency operations quickly. The

number of active-duty military personnel providing

combat support has decreased less than the number of

those assigned to combat forces.

Again, trends differ in the Navy, where average

spending on combat operations increased relatively little in the 1980s or the l990s. The Navy's experience

may reflect the fact that much of its combat operations

support is provided on ships where space limits expansion. Thus, combat operations support would automatically be eliminated as ships were withdrawn from the

fleet. For example, the Navy relies on shipboard radar

systems to provide electronic warfare support, whereas

16. Combat operations support refers to the wide range of tactical support

units, including those providing intelligence and engineering, weather,

or electronic warfare support (see Appendix B).

17. Nuclear refuelings are also funded in procurement.
 0

1

2

3

4

5

6

7

Army

Thousands of 1996 Dollars per Tank Mile

1982 1989 1996 1982 1989 1996 1982 1989 1996

 Combat Forces Combat Operations Support Depot Maintenance 

 0

1

2

3

4

5

6

7

Navy

Thousands of 1996 Dollars per Steaming Hour

1982 1989 1996 1982 1989 1996 1982 1989 1996

 Combat Forces Combat Operations Support Depot Maintenance 

 0

1

2

3

4

5

6

7

Air Force

Thousands of 1996 Dollars per Flying Hour

1982 1989 1996 1982 1989 1996 1982 1989 1996

 Combat Forces Combat Operations Support Depot Maintenance 

a

36 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

Figure 8.

Changes in Average Operating Spending in the Army, Navy, and Air Force

SOURCE: Congressional Budget Office based on data from the Department of Defense.

NOTE: Excludes funding for Bosnia in 1996. Active-duty forces only.

a. Spending per flying hour excludes support of space operations and global command, control, and communications that provide support for all

forces.
CHAPTER THREE READINESS AND O&M SPENDING BY THE SERVICES 37

the Air Force has separate tactical support units of aircraft equipped for electronic warfare. The Air Force

would maintain that support for combat squadrons regardless of the number of aircraft in each squadron.

The role of modernization in explaining higher average spending for depot maintenance&the third component of operating spending&is unclear. Again, the

trends differ among the services. Spending on depot

maintenance per tank mile or hour of training grew by

two-thirds in the Army and doubled in the Air Force

between 1982 and 1996. By contrast, the Navy experienced a drop of more than 15 percent in spending on

depot maintenance per steaming hour, which drove the

overall decline in its average spending per steaming

hour.

Those trends suggest that new Army and Air Force

systems may require more frequent and costly repairs

and that new ships in the Navy require less repair. The

comparative youth of the current Navy fleet may have

given the Navy a "maintenance honeymoon." The

newer surface combatants, equipped with gas turbine

technology, require less maintenance than the older,

steam-powered surface combatants. The Navy has also

avoided costly overhauls for older ships by retiring

them. Moreover, the Navy has been more aggressive

than the other services in closing maintenance depots&

including four of its six shipyards and three of its six

aviation depots&thereby reducing its excess capacity

and lowering overhead costs.

The Air Force, however, has been reluctant to close

depots or reduce the size of its depot workforce despite

the drop in workload, thereby contributing to the rise in

average spending on depot maintenance. A number of

analyses have documented considerable excess capacity

for aviation repair both within and among the services.

The decision by the Base Realignment and Closure

Commission to close two Air Force depots would have

reduced that excess capacity. The Administration,

however, decided to allow the current workforce at the

two depots to compete with the private sector for that

workload. Thus, excess capacity will probably continue to be a problem.

Benefits from Higher Levels of 

Operating Spending

Benefits to the services from higher levels of spending

on operations are not clear. There is little evidence to

support the proposition that readiness levels for training or equipment have improved as average spending

on operating forces has risen. Nor does modernization

of equipment in the 1980s appear to be responsible for

the increase in spending.

Instead, the growth of spending may be the result

of a combination of factors, including decisions by the

services to add and improve the quality of combat operations support, followed by a failure to reduce that support as the number of combat forces contracted. The

same difficulties encountered by other organizations in

downsizing may explain higher average spending levels

for depot maintenance as well. The Navy appears to

have maintained its readiness despite lower operating

spending levels, in part because of the benefits it derived from modernization and in part because of its

greater success in adjusting to downsizing.

Implications for the Future

Projecting spending for operating forces is difficult because of the complex mixture of factors affecting

trends. One can, however, make some generalizations.

First, although the services can save much by decreasing force structure&operating spending has fallen by

more than $10 billion since 1989&O&M savings are

likely to be significantly smaller than cuts in force

structure and associated training levels (see Table 8).

Operating spending in the services fell by 31 percent,

but training levels dropped by about 35 percent in the

Navy, 50 percent in the Army, and 48 percent in the Air

Force. The discrepancy arises because combat operations support and depot maintenance have not fallen as

much as workload indicators, except in the case of the

Navy.

If long-term trends in operating spending persist,

the Army and Air Force could face higher unit costs to

sustain training standards, even with a stable force

structure. If recent increases stem from the difficulties

in adjusting to the drawdown, however, unit costs could

rise more modestly and could even decline if forces are
38 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

consolidated in response to planned base closures. The

services would argue, certainly, that levels of operating

spending are stabilizing. Historically, however, only

the Navy shows evidence of stable operating spending.

Past trends also indicate that operating spending

will probably not decrease in the future unless major

changes take place in the ways in which that support is

provided or more force structure is cut. Despite the

lack of evidence that higher average operating spending

improves readiness, the services appear to be reluctant

to cut it as much as force levels or to improve the efficiency of that support.

Changes in Spending

on Mobilization

Unlike other areas of O&M managed by the services,

spending on mobilization was greater in 1996 than in

1989, despite the drawdown. At about $4 billion in

1996, that funding trains the military personnel who

would transport troops and equipment in wartime, provides for prepositioning of supplies overseas, and pays

for the cost of maintaining sufficient airlift capacity to

meet wartime requirements. Between 1981 and 1996, 18

spending in support of mobilization activities grew

from $2.5 billion to $3.6 billion, an increase of about

45 percent (see Table C-2).

Spending on mobilization has grown mainly because DoD has placed more emphasis on meeting the

mobilization requirements of post-Cold War scenarios.

Requirements for transportation have fallen less than

the drop in force structure because fewer troops are

based overseas and because the new plans require that

large numbers of troops and equipment be transported

rapidly to theaters that are more distant than Europe.

Provided with higher funding levels and somewhat lower demands, the services are closer to meeting

those requirements than they were in the 1980s.19

The higher level of spending on mobilization is

likely to continue as long as the Department of Defense

remains committed to the current scenario of being prepared to fight and win two nearly simultaneous major

regional conflicts, unless, of course, DoD adopts less

stringent demands for the speed at which equipment,

supplies, and personnel must be deployed or develops

less costly ways of meeting the requirement.20

Changes in Spending

on Infrastructure

There is no single definition of "infrastructure spending," although there are similarities in the ways in

which the term is used. In its Bottom-Up Review, DoD

used the term "infrastructure" to refer to all O&M and

personnel spending on "all DoD activities other than

those directly associated with operating forces, intelligence, strategic defense, and applied research and development.'' Under the O-1 categories, mission-re- 21

lated spending consists of O&M for operating forces

and mobilization. Infrastructure spending includes the

other three budget activities: training and recruiting,

administrative and servicewide support, and base support. At $31 billion, O&M spending by the services on

infrastructure currently makes up more than one-half of

their O&M spending, remaining at about 53 percent

during the past 15 years (see Table C-1).

Spending on infrastructure might be expected to be

less responsive to changes in force structure, at least in

the short term. In fact, however, the services decreased

that spending in the l990s by almost the same rate as

that of mission-related spending (see Table 9). The 22

overall decrease&25 percent&is smaller than the reduc18. In order to maintain enough airlift capacity to meet wartime needs, the

services subsidize the cost of peacetime transportation of supplies.

Customers of those services are charged commercial rates rather than

actual costs so that they will not turn to commercial vendors. This

subsidy is also funded in the mobilization category. In addition,

smaller amounts are included in mobilization for the deactivation of

military equipment&for example, mothballing ships&and industrial

preparedness measures.

19. Congressional Budget Office, Options for Strategic Airlift, CBO

Memorandum (October 1995), pp. 1-5.

20. Congressional Budget Office, Moving U.S. Forces: Options for Strategic Mobility (February 1997).

21. Les Aspin, Secretary of Defense, Report on the Bottom-Up Review

(October 1993), p. 97.

22. Spending and rates of change within individual O-1 budget activities,

however, varied among the services. See Tables C-2 and C-3.
CHAPTER THREE READINESS AND O&M SPENDING BY THE SERVICES 39

Table 9.

Changes in O-1 Budget Categories for Operation and Maintenance Spending by the Services

Percentage Change Between

Billions of 1996 Dollars 1981 and 1989 and 1981 and

Budget Activity 1981 1989 1996 1989 1996 1996 

Mission-Related Spending

Operating forces 29.0 33.9 23.5 17 -31 -19

Mobilization 2.5 2.9 3.6 17 24 45

Subtotal 31.5 36.8 27.1 17 -26 -14

Infrastructure-Related Spending

Training and recruiting 3.8 5.1 3.8 34 -24 1

Administrative and servicewide

support 14.5 16.5 13.3 14 -19 -8

Base support 18.4 20.3 14.2 11 -30 -23

Subtotal 36.6 41.8 31.4 14 -25 -14

Total 68.1 78.7 58.5 16 -26 -14

SOURCE: Congressional Budget Office based on data provided by the Department of Defense.

NOTE: O-1 is Department of Defense shorthand for its budget categories for operation and maintenance.

tion in the number of active-duty personnel being supported, however, leading to an increase in spending on

infrastructure support per person. According to those

trends, infrastructure spending is unlikely to provide

future savings in O&M without major changes in the

way that support is delivered.

Unlike spending on operating forces, which is presumed to contribute to readiness, spending for infrastructure support may best be evaluated in terms of the

relative efficiency with which support is delivered. For

example, the cost of administrative support depends on

the way in which the workload is organized and managed. Another factor making infrastructure support

less efficient is the number of bases retained by DoD.

Even after four rounds of base closures, DoD still holds

more real estate in relation to the size of military forces

than it has in the past and will continue to do so even

after all planned base closures are completed in 2001.

Spending for Individual Training Has

Not Fully Adjusted to the Drawdown

One would expect that spending on individual training,

unlike other types of infrastructure spending, would

vary with changes in military personnel levels and force

structure. Military personnel are sent to DoD's schools

for individual training, first before recruits are assigned

to units and then periodically during their career to upgrade their skills or prepare for new assignments.

In 1996, the services spent about $3 billion for that

preparation. Training, plus smaller amounts for recruiting and other personnel support, makes up between 5

percent and 9 percent of each service's O&M spending.

That funding pays for civilian instructors, supplies and

equipment, and management support for training both

active-duty and reserve personnel. Training of reserves, which is largely funded by the active-duty

forces, makes up about 20 percent of the total training

workload.23

Conducted almost exclusively at military facilities,

individual or "schoolhouse" training is considered an

investment ensuring that active-duty and reserve per23. Operation and maintenance funding does not cover all the cost of individual training. Other expenses of training, including the cost of military instructors and the salaries of military personnel while they are in

training, are funded in the military personnel appropriations. The total

cost of training, including both O&M and military personnel funding,

was about $14 billion in 1996.
1981 1983 1985 1987 1989 1991 1993 1995 1997

0

20

40

60

80

100

120

140

160

180

200

Index Value

Fiscal Year

Navy

Air Force

Army

40 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

sonnel are prepared to carry out their jobs. In some

cases, on-the-job training can substitute for individual

training in classrooms. If such training was inadequate

or if training levels were low, the readiness of a unit

could eventually decline, although it would be difficult

to track the specific effect of different levels of individual training on readiness because other factors such as

the quality of personnel affect it.

Contrary to the expectation that training varies with

force size, spending for individual training grew dramatically in the 1980s, when force levels experienced

only minor fluctuations. That spending has remained

relatively high in the l990s (see Figure 9). Spending on

training grew by about one-third in the 1980s as the

services added or lengthened courses and upgraded and

invested in training devices and simulators. The higher

spending may also reflect additional training on new

weapon systems introduced in the 1980s, as well as a

greater emphasis on specialized skill training and professional military education, both of which are expensive compared with initial training of recruits or officers. The dramatic growth of training in the 1980s, as

well as its current level, may also simply reflect the

high level of commitment by the services to maximizing individual training and their reluctance to reduce the

size of their schoolhouse establishments.

Spending on training remains relatively high, in

part because the services failed to downsize their training programs to match lower personnel levels, and in

part because the average expense for a year of training

has risen in the past 15 years. Because O&M managed

by the active-duty forces pays for the cost of training

for reserve as well as active-duty forces, changes in the

personnel levels of both types are the appropriate measure of workload. Between 1989 and 1996, active-duty

personnel levels fell by 30 percent and reserve personnel decreased by 13 percent. If training had fallen in

proportion to those personnel levels, workloads would

have dropped by 27 percent; instead, they dropped by

only 19 percent.

Figure 9.

Changes in Spending for Schoolhouse Training by Service (Indexed to 1981)

SOURCE: Congressional Budget Office based on data from the Department of Defense.

NOTE: Figure compares spending for schoolhouse training in each service between 1981 and 1997 with the spending for that service in 1981; in

other words, the vertical axis represents an index in which 1981 = 100 for each service.
1981 1983 1985 1987 1989 1991 1993 1995 1997

0

20

40

60

80

100

120

140

160

180

200

Index Value

Fiscal Year

Navy

Air Force

Army

CHAPTER THREE READINESS AND O&M SPENDING BY THE SERVICES 41

Figure 10.

Changes in per Capita Spending for Administrative and Servicewide Support by Service (Indexed to 1981)

SOURCE: Congressional Budget Office based on data from the Department of Defense.

NOTE: Figure compares per capita spending for administrative support in each service between 1981 and 1997 with the spending for that service in

1981; in other words, the vertical axis represents an index in which 1981 = 100 for each service. Spending is for active-duty forces only;

includes Desert Shield/Desert Storm.

The services believe that higher investment in training is justified as a way of improving performance.

Even in the midst of downsizing, for example, the Air

Force mounted a training initiative in the early 1990s

designed to standardize and expand training opportunities throughout an individual's career. Despite recent

calls for more joint unit training in the field and more

sharing of "schoolhouses" to improve readiness and

efficiency, the services continue to conduct the bulk of

individual training at their own schools. Although the

services projected that spending per student would fall

between 1994 and 1996, savings may be difficult to

achieve because the services have consolidated few

training programs and closed few training bases.

Despite the relatively high investment, individual

training does not appear to have helped ensure that job

assignments are filled by individuals with the requisite

skills. Indeed, there has been little change in the degree

to which job assignments and individual skills in the

1980s and 1990s have been mismatched, according to a

CBO analysis of the number of military personnel serving in jobs for which they are not qualified. At the

same time, the number of mismatches has remained

small.24

Average Spending for Administrative

and Servicewide Support Grows

Spending for administrative and servicewide support,

the fourth major budget activity, accounts for about

one-fourth of the O&M budget of the services. It

totaled $13 billion in 1996 and provides three types of

centrally managed support within each service (see

Table C-2):

o Security programs, including the gathering and

analyzing of intelligence by each service;

o Servicewide support activities, including civilian

and military personnel management, communications networks, information management programs,

24. Congressional Budget Office, Trends in Selected Indicators of Military Readiness, CBO Paper (March 1994), pp. 30-31.
1981 1989 1996 1981 1989 1996 1981 1989 1996

0

2

4

6

8

10

12

14

16

18

Security Servicewide Logistics Operations

Thousands of 1996 Dollars

Army Navy Air Force

42 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

Figure 11.

Changes in per Capita Spending for Administration by Service

SOURCE: Congressional Budget Office based on data from the Department of Defense.

NOTE: Administrative spending per active-duty person excludes funding for contingencies in the years cited.

and headquarters for the support commands (training, personnel, and logistics); and

o Logistics operations support, including maintenance depots headquarters, transportation, technical support for weapon systems, and test-range operations.

Using a per capita measure as a proxy for workload, the services now pay between 15 percent and 40

percent more for all administrative and servicewide activities than they did in 1981 (see Figure 10 on page

41). During the 1980s, those average support levels

rose substantially, reflecting a variety of initiatives to

expand headquarters, improve information management, increase oversight, and provide technical support

for new weapon systems.

Within administrative and servicewide support activities, average spending on the small security programs of the three services expanded most rapidly. For

example, spending per capita more than doubled in the

Army from $350 to $730 per person between 1981 and

1996 (see Figure 11). Similar trends took place in the

Navy and Air Force. Nor did that spending fall with the

drawdown.

Servicewide support followed a similar pattern, but

its growth was somewhat smaller. In the Navy, for example, spending was $4,000 in 1996 compared with

$2,800 in 1981&a growth of 40 percent; the rate of

increase in the Army was 70 percent in the same period.

Growth in Air Force servicewide spending was more

modest&from $2,600 to $2,800 over the past 15 years.

Logistics operations support was more responsive

to the drawdown, remaining almost flat on a per capita

basis in the Army and Navy in the past 15 years. Declines in depot maintenance and supply workload

caused by the drawdown were greater than declines in

active-duty personnel levels, however, suggesting some

increase in the average cost of logistics overhead. Air

Force logistics support showed a different trend, growing by more than 50 percent, from $2,100 per capita to
1981 1983 1985 1987 1989 1991 1993 1995 1997

0

2

4

6

8

10

12

14

16

Thousands of 1996 Dollars

Fiscal Year

Navy

Air Force

Army

CHAPTER THREE READINESS AND O&M SPENDING BY THE SERVICES 43

Figure 12.

Per Capita Spending for Base Support by Service, 1981-1997

SOURCE: Congressional Budget Office based on data from the Department of Defense.

NOTE: Spending is for active forces only; includes Desert Shield/Desert Storm.

$3,300, reflecting retention by the Air Force of all of its

aviation depots.

Although spending on those types of support activities might not respond to small changes in workload,

one would expect more adjustment after several years

and a substantial change in workload. Adjustment

would probably have to take the form of a major reorganization of responsibilities or a change in the way in

which support is delivered in order to achieve significant savings.

To avoid reducing force structure and therefore military capability, DoD adopted a set of reforms in the

early 1990s designed to improve efficiency and save

money. Known as the Defense Management Report

initiatives, those reforms consolidated some functions

that were previously managed by the individual services. They included commissary management, financial and accounting services, contract management,

printing services, and supply depots. (To take the

changes into account, CBO does not include funding

for those functions within the service accounts throughout the period. See Appendix A.) Although spending

on those activities has decreased significantly, DoD has

had difficulty distinguishing consolidation savings from

spending decreases as a result of the drawdown.25

Most administrative and servicewide support, however, remained under the management of the individual

services. They resisted efforts to consolidate larger support activities, such as depot maintenance and transportation, proposing instead to streamline their internal

operations. Because average administrative and servicewide support spending continued to rise, streamlining

does not appear to have been successful.

25. That was the conclusion of a Defense Science Board Commission convened by former Secretary of Defense Les Aspin to determine whether

DoD realized savings included in budget plans for fiscal years 1991 to

1997. See memorandum from the Secretary of Defense in Office of

the Secretary of Defense, Defense Science Board Task Force Report,

FY 1994-99 Future Years Defense Plan (May 1993), pp. 1 and 4 of

the memorandum and p. 5 of the accompanying report.
1981 1989 1996 2001 1981 1989 1996 2001 1981 1989 1996 2001 1981 1989 1996 2001

0

500

1,000

1,500

2,000

Within United States Overseas

Millions of Square Feet

Army Navy Air Force Totala

44 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

Spending for Base Support Reflects 

the Size of the Infrastructure

Spending for base support in 1996 totaled $14 billion

and made up about another one-fourth of the services'

total O&M funding (see Table C-2). As long as the

number of bases was reduced in proportion to changes

in force structure and the standard of maintenance remained the same, one would expect spending on base

support to vary directly in relation to the number of

people being served. That has not been the case, however, for a variety of reasons.

Base support encompasses a wide range of activities, from paying for facilities maintenance and utilities

and providing community services such as subsidized

child care centers, libraries, and fitness centers to complying with environmental regulations. (CBO categorized all environmental spending as defensewide base

support because policy and funding levels are set centrally even though the services carry out environmental

programs. See Chapter 2.)

Compared with 1981, base support spending per

capita grew by about 10 percent for active-duty forces

in the Army and about 20 percent in the Air Force. It

stayed the same in the Navy. That average spending

rose from $9,400 to $10,300 in the Army, from

$10,300 to $12,200 in the Air Force, and remained at

about $8,000 in the Navy (see Figure 12 on page 43).

Apparently, spending on base support in the past 15

years has changed in response to several factors&

namely, modest growth in the number of bases during

the 1980s, adoption by the services of a higher standard

of maintenance, initiatives to improve personnel support on bases, and the scope of base closures.

Some policymakers have suggested that lower

spending for real property maintenance&one of the

main components of base support&may be a harbinger

Figure 13.

Changes in Total Building Space Within the United States and Overseas, 1981-2001

SOURCE: Congressional Budget Office based on data from the Department of Defense.

NOTE: Inventory includes square footage of all buildings on active-duty installations worldwide, except for family housing. Inventory reflects closure

of a base even if the service has not yet transferred the facility.

a. Includes real estate managed by all four services, including the Marine Corps.
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

0

250

500

750

1,000

1,250

1,500

1,750

2,000 Square Feet

Fiscal Year

Navy

Army Air Force

CHAPTER THREE READINESS AND O&M SPENDING BY THE SERVICES 45

Figure 14.

Floor Space of Buildings per Capita, 1981-2003

SOURCE: Congressional Budget Office based on data from the Department of Defense.

NOTE: Inventory includes square footage per active-duty person of all buildings on Army, Navy, and Air Force active-duty installations worldwide,

except for family housing.

of future readiness problems. The services may temporarily decrease spending in that area to save money for

operating forces or fund other, unanticipated expenses.

After all, repairs to facilities can often be delayed; roofs

can be patched rather than replaced, and renovations to

office buildings can be put off. Delays in repairing facilities, however, will increase the backlog of maintenance and repair (BMAR). That has more than doubled

since 1989, to over $12 billion in 1996. But BMAR

levels may be only a rough indicator of the adequacy of

funding for base support, because the backlog comprises all repair requirements, regardless of their urgency or relationship to mission requirements. For example, the backlog includes not only repairs to airfields

but renovations to soccer fields.

Although there is no consensus about an "acceptable" level of BMAR, the Congress added $700 million

to DoD's appropriations for facilities maintenance in

1996 because it was concerned about the size and

growth of that backlog. Despite those concerns, there 26

is no quantitative indicator that links the readiness of

military units with levels of spending for base support.

Nor is there any simple arithmetical relationship

between the size of forces and the amount of military

real estate. Nevertheless, DoD's real estate expanded

more than force structure and workload in the 1980s

and has shrunk less than those factors in the 1990s.27

Between 1981 and 1989, the amount of real estate managed by the active-duty services grew from 1.7 billion

square feet of building space to 1.8 billion, or about 6

percent worldwide (see Figure 13).

26. U.S. House of Representatives, Report of the Committee on Appropriations on the Department of Defense Appropriations Bill, 1996,

Report 104-208 (July 27, 1995), p. 30; and U.S. House of Representatives, Making Appropriations for the Department of Defense for the

Fiscal Year Ending September 30, 1996 and Other Purposes, conference report to accompany H.R. 2126, Report 104-344 (November 15,

1995), p. 57.

27. Congressional Budget Office, Closing Military Bases: An Interim

Assessment, CBO Paper (December 1996), pp. xi and 3.
46 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

Among other things, that growth reflects new bases

opened by the Navy in the 1980s to establish home

ports for ships on both coasts, expansion by the Army

for its new light divisions, and enlargement of Air

Force bases overseas. During the same period, spending on base support for that real estate grew by about

10 percent. That growth probably reflected not only the

increase in floor space but also the adoption by the services of higher standards of maintenance and personnel

support. For example, the services adopted higher

standards for dormitories for enlisted personnel and

improved "quality of life" programs such as family support.

In the l990s, all three services have lowered their

spending levels per square foot, perhaps by carrying out

fewer repairs on bases slated for closure. Nevertheless,

average funding for base support per active-duty person

has remained high, in part because of the difficulties of

closing bases. Despite the efforts of four base-closure

commissions, the reduction in real estate by the services

is still proportionately smaller than the reduction in

their levels of active-duty personnel.

Between 1989 and 2001, when the fourth round of

base closures will be completed, the services will reduce the amount of their building space by about 400

million square feet, or 23 percent. Overall active-duty

personnel levels, however, are expected to drop by 33

percent. The Army will cut its floor space by 32 percent, but its number of personnel will shrink by 38 percent; the Air Force will cut its real estate by 20 percent

but decrease its personnel by 34 percent; and the Navy

will reduce its building space by 22 percent but its personnel by 33 percent in the same period. (Modest cuts

in the Marine Corps of only 12 percent will offset the

deeper cuts of the other services.) If workload measures such as training hours or tank miles were used as

a more appropriate metric, the divergence would be

even greater.

About one-third of the decreases in building space

occurred in overseas bases in response to the drop of

over 60 percent in the number of U.S. military personnel stationed overseas, rather than through the baseclosure process. Although decreases since the drawdown in overseas holdings have not matched drops in

population, reductions have been more rapid than the

15 percent cut in real estate within the United States

that is scheduled to take place by 2001.

Because of the discrepancies between decreases in

floor space and cuts in personnel, the average floor

space maintained per service member on active duty

will still be 16 percent higher in 2001 than it was in

1989 and 21 percent higher than it was in 1981. Average floor space per capita rose by different amounts for

each of the services: from just under 1,000 square feet

to 1,100 square feet for the Army, from 750 square feet

to 850 square feet for the Navy, and from 750 square

feet to 1,000 square feet for the Air Force (see Figure

14).

Many officials in the Department of Defense have

voiced concern that base closures have not matched the

scope of the drawdown. According to statements by

DoD officials, the number of bases recommended to the

fourth commission for closure was far smaller than

originally anticipated.

Although additional savings in base support are

anticipated by 2001, the services may face pressure to

raise the levels of funding for base support because of

concerns about the growing backlog of maintenance

and repair. Unless the services can adopt more efficient

ways of carrying out base support or unless another

base-closure commission is convened, spending is

likely to remain close to current levels, forcing the services to devote a relatively high share of their O&M

resources to just maintaining physical plants.
T

Chapter Four

Strategies for Reducing O&M Spending

here are a variety of ways of reducing spending on operation and maintenance to meet the

Administration's 1998 plan or to reach those

levels of O&M spending consistent with the current

budget resolution. The Congress and the Department

of Defense could:

o Trim force structure further;

o Redefine the scope of DoD's responsibilities;

o Reduce the amount of O&M support provided;

o Change the way in which support and services are

delivered; or

o Cut infrastructure by closing bases.

Under the Administration's plan and the budget

resolution, and adjusting for the possibility of underestimation caused by inflation, O&M spending may have

to be about $11 billion lower in 2002 than it was in

1996. The estimate assumes that DoD will realize the

savings from base closures currently included in its

budget plans.

Achieving savings of that magnitude without compromising readiness could require either large additional cuts in force structure or a variety of other

changes, including changing the way in which O&M

support is provided. Cuts in force structure could be

substantial because, based on recent experience, force

structure would have to be cut by almost twice as much

as the overall O&M savings achieved. The cuts are

thus relatively inefficient as a mechanism for trimming

O&M spending. They would be comparatively simple

to carry out and could be done rapidly. However, the

resulting loss of military capability is unlikely to be

acceptable unless DoD modifies the current strategy of

being prepared for two major regional conflicts that

occur nearly simultaneously.

Alternatively, DoD could adopt a variety of

changes, ranging from redefining the scope of certain

O&M responsibilities and selectively reducing the

amount of training, to making major organizational

changes in the ways in which O&M support is delivered. The organizational changes could include consolidating equipment at fewer locations, privatizing functions, or reducing military infrastructure through additional base closures. Together, savings from such options could be significant. But they would take time to

carry out and would probably provoke significant opposition, both within the services and in the political

arena. The great advantage of such options is that they

would have little effect on military readiness and would

not reduce military capability.

If the services are unable to achieve savings by

such approaches, reductions in force structure might be

the only other way to meet future levels of O&M

spending. In its budget planning, DoD is already anticipating that savings from O&M spending would be

available to transfer to modernization or "recapitalization" of DoD's stock of weapon systems. Allocating

more resources for O&M support in the future to make

up for any shortfall in savings would jeopardize those

plans that have been endorsed by military leaders and

other proponents of modernization.
48 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

Cut Force Structure

The services now spend $59 billion annually in O&M

funds to support a force structure of about 1.5 million

active-duty military personnel. Since the end of the

Cold War, DoD has relied primarily on reductions in

those forces to lower the level of O&M spending. The

required cuts in force structure can be estimated by using history as a guide. If DoD relied solely on cuts in

force structure to reduce total O&M spending by $11

billion (or about 12 percent) by 2002, training levels

and the associated forces would have to be cut by about

23 percent in the Army, 24 percent in the Navy, and 36

percent in the Air Force, based on the pattern of reductions during the drawdown. Reductions in force structure vary among the services because each branch allocates its decrease among the major budget categories

somewhat differently, although all three services absorbed most of the decrease by cutting operating forces.

The Congressional Budget Office allocated the cut

among the services according to each organization's

share of O&M spending for active-duty forces in 1996

(see Appendix D). CBO apportioned all of the decrease in O&M spending to those active-duty forces

because spending on reserve forces did not decline during the drawdown and defensewide spending grew. If

other areas of O&M spending were to increase, still

larger reductions could be necessary.

Those estimates assume that the services would

preserve current optempo rates and fund support costs

at the same average levels as in 1996 as a hedge against

jeopardizing operational readiness. The estimates assume that the services will take reductions in their

forces and achieve savings as they did between 1989

and 1996.

Assuming that recent patterns were repeated,

spending for operating forces would receive the heaviest cuts. Reductions in training and force levels would

have to be almost twice as large in percentage terms as

the savings in overall O&M spending. A relatively

small share of the cuts would fall on infrastructure

spending, assuming that it would continue to change

less in response to decreases in workload. CBO assumes that the effect on operating levels would also be

magnified because spending for defensewide support

and the reserve forces would not fall, reflecting what

happened during the drawdown.

It should be pointed out, however, that the Department of Defense's total savings from such cuts in unit

training and force levels would be significantly larger

than those from O&M savings alone because military

personnel costs would also be reduced. Indeed, if the

services were permitted to allocate the associated personnel savings to O&M, the scope of force reductions

needed to achieve a given target of savings would be

substantially smaller. For the purposes of this estimate,

however, CBO assumed that personnel savings would

be allocated to achieve the reductions in spending that

would be necessary to meet DoD's overall budget targets or to pay for modernization.

If force levels were considerably smaller, the services might find it impossible to meet the requirements

of two nearly simultaneous major regional conflicts. Of

course, if that scenario was changed, smaller force levels might be acceptable.

If those cuts in force structure are unacceptable,

however, DoD could use other approaches to reduce

O&M spending, ranging from redefining DoD responsibilities to privatizing the delivery of support services.

Although those other methods would enable DoD to

preserve force structure and readiness, carrying out the

alternatives could take time and require difficult organizational change.

Redefine Defensewide O&M

Responsibilities

DoD currently spends $25 billion on defensewide

O&M support, including such diverse activities as environmental restoration efforts and support for special

operations. Some policy changes that would cut spending for defensewide support are already under discussion. They include reducing DoD's role in drug interdiction, slowing its environmental restoration efforts,

and redefining its medical role. Although changes in

those programs could be controversial, the impact on

military readiness would probably be small, and the

savings could be significant.
CHAPTER FOUR STRATEGIES FOR REDUCING O&M SPENDING 49

One way to redefine DoD's drug interdiction responsibilities, for example, would be to identify and

limit its role to those surveillance, tracking, and interdiction efforts that also provide useful training for military personnel. Other activities that have little or no

ancillary benefit to DoD&such as providing aid or

training to local or foreign law enforcement officials&could be eliminated. Redefining DoD's mission

in that way could reduce the current spending level of

about $700 million to about $200 million a year. (That

funding level would continue DoD's program to test and

treat its military and civilian employees for drugs.)

Proponents of this approach might argue that

DoD's participation should be confined to areas that

also provide wartime training and that DoD's participation in other areas is not appropriate or effective. De- 1

fenders of DoD's current role contend that the Department of Defense should expand and share its resources

(for example, in personnel or intelligence) with domestic agencies to help in the war against drugs. If DoD's

responsibilities in drug interdiction were simply transferred to another government agency, however, there

would be little, if any, reduction in overall government

spending.

In another controversial redefinition of current responsibilities, DoD could choose to limit its medical

services to those essential to potential wartime medical

needs and to serve the peacetime needs of active-duty

personnel. Care of other beneficiaries&dependents of

active-duty personnel and retirees and their families&

would be turned over to the civilian sector by offering

beneficiaries coverage under a civilian health plan.2

Such a redefinition of DoD's medical mission could

save more than $2 billion a year after it was fully in

place. Those savings would result from dramatically

cutting the size of DoD's direct care system and charging beneficiaries a premium similar to that charged civilian federal employees. The change would reduce

DoD's costs for those electing coverage, provide incentives for them to limit their use of medical care, and

encourage some of those who are eligible to rely on

other sources of medical insurance.

Military medical officials, however, oppose the

change, contending that the scope of DoD's current

medical establishment and its current peacetime care

must be maintained to train physicians for wartime duties and to attract and retain medical personnel. To a

large extent, however, DoD already separates its responsibility for providing medical care to dependents

and other beneficiaries from its wartime role; many

non-active-duty beneficiaries rely on DoD's insurance

program for their medical benefits. For wartime training, DoD could also develop ties with civilian hospitals

that have shock trauma centers and treat patients suffering from injuries comparable with those encountered

during wartime. Opponents of that approach empha- 3

size the potential effects on morale of increasing out-ofpocket costs for health care benefits available to current

and former DoD military personnel. Beneficiaries

might, however, also receive improved coverage

through a civilian provider.

Reduce Training Levels

Selectively

O&M spending could also be reduced by providing

somewhat less unit or field training to operating forces,

which now costs the services $24 billion a year. Conducted by units at their home bases and on deployments

to regional or national training bases, that training

could be trimmed for those units that are likely to be

deployed later during a conflict and would have more

time to "train up" before being sent into battle. Training requirements could also be scaled back in recognition of the gains in proficiency achieved by forces deployed overseas for operations other than war.

Originally characterized as "flexible" readiness by

then Senator Sam Nunn in 1990, that approach was

1. See "GAO Pessimistic About U.S.-Mexican Drug Control Efforts,"

Inside the Pentagon (July 4, 1996), p. 20.

2. For a full discussion of this alternative approach, see Congressional

Budget Office, Reducing the Deficit: Spending and Revenue Options

(March 1997), pp. 71-72. See also Congressional Budget Office, Restructuring Military Medical Care, CBO Paper (July 1995).

3. Congressional Budget Office, Restructuring Military Medical Care

Ch. 2.
50 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

recently proposed again by Senator John McCain.4

Senator McCain has suggested three tiers of readiness:

training to the highest level those forces that are deployed overseas or designated for crisis response, training to a second level those forces required for a major

buildup, and setting lower training levels for those

forces that would be deployed either seldom or not until

six months after a conflict was initiated. The services

are currently exploring the proposal.

If training for forces that are less likely to be deployed was reduced by 10 percent below current levels,

DoD would save about $450 million a year. Propo- 5

nents of tiered readiness might also suggest that current

optempo levels may be higher than necessary in light of

the deployment of selected forces for operations other

than war. Although those deployments are often

faulted for requiring the services to reschedule planned

training exercises, military leaders also say that the experiences contribute to the training and proficiency of

forces by giving them "real life" practice in handling

certain types of conflict. In view of the frequency and 6

continuing nature of these deployments, optempo levels

may not need to be sustained at the high levels set during the l990s.

Moreover, current optempo levels have not been

adjusted to reflect the change in the nature of the threat

since the end of the Cold War, which has made it likely

that the United States will face forces that are considerably less well trained than was previously assumed.

Partly for those reasons, the Air Force recently lowered

its optempo level for the number of flying hours of

training planned for pilots from 20 hours a month&the

previous standard&to about 18 hours a month.7

Change How Support

Is Delivered

Another method of reducing O&M spending is to

change the way in which that support is managed and

delivered. Many proposals for reform have surfaced in

recent years. Consolidating the delivery of support for

all four branches and turning to the private sector for

services could enable DoD to eliminate excess capacity

and save money. But such proposals could require initial investments and provoke opposition.

Consolidate Equipment at 

Fewer Locations

Spending trends in the support of combat operations

suggest that some reorganization and relocation of units

may be in order. Average spending to support combat

units has risen substantially, particularly in the Army

and Air Force over the past 15 years and since the

drawdown. If the levels of spending per hour or mile of

training in support of combat operations could be returned to those experienced in 1989, the Army and the

Air Force could each reduce such expenditures by about

$1 billion a year, and the Navy's spending would fall by

about $200 million a year.

Consolidating major weapon systems at fewer locations would be one way to lower spending for combat

operations support. For example, the Air Force could

reduce the number of squadrons and their associated

combat support by restoring each unit to the 1990s'

complement of 24 aircraft rather than the current complement of 16 to 18 aircraft. The Air Force is now considering that option on the basis of its cost-effectiveness. If there were fewer squadrons at fewer locations, 8

the cost of support for combat operations would fall,

and some base closures might be possible as well.9

Similarly, the Army could consolidate its combat forces

4. See Congressional Budget Office, Reducing the Deficit: Spending

and Revenue Options (February 1993), pp. 108-109. See also the

section on "tiered force readiness" in Senator John McCain, Ready

Tomorrow: Defending American Interests in the 21st Century

(March 1996), pp. 19-22.

5. Congressional Budget Office, Reducing the Deficit (February 1993),

pp. 108-109.

6. See, for example, comments by D.L. Johnson, Assistant Deputy for

Operations in the Air Combat Command, as quoted in "Air Force Set

to 'Hold Line' on More Fighter Flying Hours Cuts," Inside the Pentagon (June 27, 1996), pp. 3-4.

7. Ibid.

8. "Air Force May Boost Quantity of Aircraft in Fighter Squadrons,"

Inside the Pentagon (May 2, 1996), pp. 1, 10, and 11.

9. General Accounting Office, Air Force Aircraft: Consolidating

Fighter Squadrons Could Reduce Costs, GAO/NSIAD-96-82 (May

1996). The estimate of savings in that report does not appear to include any reductions in the combat operations support for those aircraft.
CHAPTER FOUR STRATEGIES FOR REDUCING O&M SPENDING 51

in fewer battalions at fewer locations and reduce the

number of intelligence, medical, and logistics support

units. Reorganizing combat operations support, however, could require initial costs to relocate equipment

and limit career opportunities for military personnel by

reducing the number of command billets.

Assign Support Missions Exclusively to

One Service or Defense Agency

Another way to reduce O&M costs would be to assign

one service, command, or defense agency the exclusive

responsibility for carrying out a particular support function. Although such changes would require major reorganizations and provoke considerable internal opposition, they could reduce or eliminate underutilization and

inefficiencies in the various support organizations within each service and reduce O&M spending.

In order to be effective, the provider of the support

service would have to be given exclusive authority over

assets, full management control, and the ability to reduce assets and overhead in accord with changes in

workload and force structure. Although the evidence

from DoD's recent experience is sketchy, consolidations

may make it easier for support organizations to decrease staffing to match workload, as well as realize

modest savings from the consolidation itself. The potential for greater savings over the longer term may depend on an organization's success in adopting common

management information systems and practices as well

as reducing overhead and closing facilities.

Previous consolidations by the services have not

necessarily achieved large savings, in part because only

partial authority was given to the new entity and because of failures to downsize sufficiently. For example,

in 1992, the U.S. Transportation Command

(USTRANSCOM), the joint command in charge of

transportation for all the services, was given responsibility for managing peacetime as well as wartime transportation of troops and equipment.

Because the services retained their individual transportation commands&Military Traffic Management

Command for port and freight management (Army),

Military Sealift Command (Navy), and Air Mobility

Command (Air Force)&USTRANSCOM did not fully

consolidate the management of defense transportation.

In fact, there is significant duplication in overhead and

staffing between USTRANSCOM and the services, as

well as cumbersome procedures and multiple handling

of the same request, all of which increases unit costs.10

In addition, USTRANSCOM has no authority over the

number or type of cargo aircraft and ships to buy. A

genuine consolidation that eliminated management by

the individual services and created a single buyer could

reduce the number of transports and the cost of maintaining mobility assets that are required for wartime

deployments, as well as cut the cost of delivering spare

parts to operating forces during peacetime.

Even if support organizations within the individual

services were eliminated and exclusive authority was

given to one entity, consolidation alone would not necessarily produce large savings. It is difficult to use recent DoD experience to estimate the savings that may

be derived from consolidation because of the multiple

factors affecting costs during the drawdown; reductions

in personnel and closing of facilities may reflect lower

demand rather than the effect of consolidation itself. In

an early evaluation of the consolidation of supply depots under the Defense Logistics Agency (DLA), for

example, the Logistics Management Institute (LMI)

was unable to segregate the savings from consolidation

from those attributable to a reduced workload, but did

note that reductions in civilian personnel were proportional to decreases in depot workload. Achieving such 11

decreases in staffing in proportion with workload, however, is more than DoD typically achieved for administrative and servicewide functions that have continued to

be managed by the services (see Chapter 3).

Nevertheless, LMI also found that savings from the

reduction of overhead personnel through consolidation

of supply depots on the West Coast were less than anticipated because of slower attrition in that workforce.

That evaluation was made a little over a year after the

consolidation took place and was further complicated

10. General Accounting Office, Defense Transportation: Streamlining of

the U.S. Transportation Command Is Needed, GAO/NSIAD-96-60

(February 1996).

11. John B. Handy and others, Independent Evaluation of the Bay Area

Supply Depot Consolidation Prototype (report submitted by the Logistics Management Institute to the Department of Defense, December

1991).
52 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

by the temporary upsurge in orders as a result of Desert

Shield/Desert Storm.12

Although more time has elapsed, it remains difficult to isolate the effects of consolidations because of

the wide range of "reengineering" initiatives adopted by

the Defense Logistics Agency to reduce costs. For example, DLA credits several factors for decreases in its

costs: reductions in the number of distribution depots

and the number of employees (reflecting both the consolidation and lower demand) and reductions in the size

of its inventory as a result of privatizing and contracting for direct delivery of supplies (reengineering). In

fact, some analysts believe that reengineering is likely

to generate greater savings than consolidation.13

In addition to the consolidation of supply depots

under DLA, DoD has eliminated individual service organizations and set up the following new defensewide

support agencies: the Defense Printing Service, the

Defense Commissary Agency, the Defense Finance and

Accounting Service (DFAS), and the Defense Contract

Management Command (DCMC). The savings expe- 14

rience of those organizations presents a mixed picture.

The Defense Finance and Accounting Service reports

that it has realized savings of about $120 million, or

about 6 percent of its operating budget, strictly from

consolidation, although it anticipates additional savings

from continuing initiatives to standardize and reduce

the number of accounting systems. According to 15

DFAS, the services originally employed 44,000 personnel to carry out finance and accounting services. By the

time that function was turned over to DFAS in 1991,

the workforce had fallen to 30,000 employees, and by

1996, DFAS had cut it to 23,000. Those personnel

trends show a significant reduction of more than 50

percent in staffing&in response to both the drawdown

and the consolidation&carried out in part by the services and in part by DFAS.

The Defense Contract Management Command has

also substantially reduced its size since its formation in

1990, trimming its staff from 24,000 to 16,000 and

cutting the number of district offices from 10 to two.

Because the primary function of DCMC is to administer contracts for weapon systems, its staffing levels

might be expected to reflect changes in investment accounts, which have been cut in half since 1989. But

since the number of systems has not fallen as sharply as

funding levels, expecting strict comparability may not

be appropriate. The consolidation of contract management into a single command may well have made

greater reductions in personnel more likely than if the

services had retained control of the function.

Making predictions on the basis of DoD's recent

experience is difficult because downsizing and consolidation took place simultaneously. It appears likely,

however, that consolidations, under which a new organization is in charge of staffing, increase the likelihood

that personnel levels will be cut to match workload.

Thus, savings may be greater than the modest economies associated strictly with reductions in overhead as a

result of consolidation. Greater savings over the longer

term may require initial investments to convert or adopt

standard management information systems and practices as well as to cut overhead and close facilities.

Assuming that consolidation is worthwhile, support

functions could be assigned to a particular service on

the basis of expertise. For example, the Army could be

given responsibility for all civil engineering support,

security police, and helicopter maintenance and training

because of its predominant role in those missions. The

Air Force could be entrusted with the space mission

because of its ownership of most space assets and its

management of the military's worldwide communication system. The Navy could manage all search-andrescue support because of its expertise in that area.

Other criteria for selecting candidates for consolidation are cases in which workload is similar and there

is excess capacity. For example, the Commission on

Roles and Missions recommended that one service

manage all fixed-wing and another manage all rotarywing aircraft depot maintenance, as well as proposing

further consolidation of the supply system. Other func12. Ibid., pp. 2-5 to 2-7, 3-3, and 3-5.

13. Defense Logistics Agency, briefing prepared for the Congressional

Budget Office, National Security Division, May 22, 1995. See also

Marygail K. Brauner and Jean R. Gebman, RAND issue paper, "Is

Consolidation Being Overemphasized for Military Logistics?" (Santa

Monica, Calif., March 1993), pp. 5 and 6.

14. A forthcoming CBO study will address the full range of issues associated with the cost and efficiency of the current commissary system.

15. Presentations to the Defense Science Board by the Defense Finance

and Accounting Service, "Status of Privatization Efforts" and "Consolidation of Operations" (November 9, 1995).
CHAPTER FOUR STRATEGIES FOR REDUCING O&M SPENDING 53

tions expected to yield savings from consolidation include individual training, medical care, and acquisition

management, all areas in which spending has not decreased in proportion to smaller workloads.16

In order for consolidations to be effective and to

overcome the reluctance of one service to rely on another, joint training could become more routine and replace the current practice under which most unit and

schoolhouse training is carried out by the individual

services. For example, if the Army was the sole provider of civil engineering support, Army troops would

have to participate in the Air Force's large-scale exercises. Through those exercises, the services would become accustomed to relying on each other for support,

one of the chief factors inhibiting cross-service support

in the past. Although DoD and retired military leaders

have called for greater emphasis on joint training to

improve joint operations, most unit training continues

to be conducted by the individual services. Consolidating support functions could make joint training more

acceptable.

Savings from consolidation could be significant.

For example, before the fourth round of base closures,

CBO estimated that consolidating maintenance workload among the services&and shedding excess capacity&could save from $350 million to $700 million a

year, once the initial costs of moving equipment and

closing facilities were offset. That estimate included 17

closure of seven depots, including one closure specifically resulting from pooling the aviation workload

among the services.

In the fourth round of base closures, DoD closed an

Army and a Navy depot and slated two Air Force depots for shutdown. It is not clear, however, whether the

two Air Force depots will be closed. The Administration's latest plan for the depots calls for a competition

between private companies and the current government

workforce for the depots' workload. DoD did not, however, consolidate workload among the services and continues to keep open more depots than necessary. That

experience suggests that DoD will continue to pay

prices for depot maintenance that reflect the burden of

excess capacity. Closing additional depots could well

be more palatable if the authority to allocate and manage workload was centralized.

The extent of initial costs is another key variable in

selecting candidates for consolidation; some support

functions are more capital-intensive than others. Even

if there are significant costs up front, consolidation may

still be worthwhile. Determining factors include the

extent of excess capacity and the likelihood that staffing levels will be reduced to match workload in a new,

centralized organization, allowing the services to close

additional bases and thereby shed the burden of excess

infrastructure.

Privatize Support Services

Another way to reduce support costs that has received

considerable attention is for the government to expand

its reliance on the private sector by privatizing or

"outsourcing" entire functions. A recent report by a

Defense Science Board (DSB) task force recommends

that DoD rely on the private sector to provide many, if

not most, nonmilitary support functions, just as some

companies have contracted out support functions that

are not part of their "core" business. For example,

many large companies have subcontracted such overhead functions as payroll, benefits administration, human resource management, training, information system management, recordkeeping, and facility maintenance.18

Local governments have conducted competitions

between public and private providers of services that

have traditionally been considered the province of government itself, such as trash pickup and parking ticket

enforcement. Similarly, companies have also out- 19

sourced such traditional business functions as marketing and distribution. Selection of the appropriate func16. See Commission on Roles and Missions, Directions for Defense,

Ch. 3 (May 24, 1995). See also Congressional Budget Office, Easing

the Burden: Restructuring and Consolidating Defense Support Activities, CBO Paper (July 1994); and John D. Winkler, Consolidating

Military Education and Training: Perspectives from RAND Research, PM-291-CRMAF (Santa Monica, Calif.: RAND, September

1994).

17. Congressional Budget Office, Easing the Burden, p. 49.

18. See Office of the Under Secretary of Defense for Acquisition and

Technology, Report of the Defense Science Board Task Force on

Outsourcing and Privatization (August 1996).

19. Howard Husock, Organizing Competition in Indianapolis: Mayor

Stephen Goldsmith and the Quest for Lower Costs, Case Program,

John F. Kennedy School of Government, Harvard University (1995).
54 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

tions to perform internally and those to be contracted

out requires that organizations assess whether those

functions are a central part of their basic mission rather

than a support function and whether sufficient control

can be retained if the function is subcontracted.

The Defense Science Board Task Force on Outsourcing and Privatization noted that many businesses

believe that outsourcing improves the quality of support and saves substantial amounts of money. The task

force recommended that DoD mount a large-scale initiative and overcome the current obstacles. It also recommended that DoD set a goal to save $7 billion to $12

billion by 2002 by privatizing one-half to two-thirds of

all workload of a "commercial nature" and transfer

those savings to modernization by 2002. Since both 20

military and civilian personnel perform support functions that could be privatized, there could be savings in

both military personnel and O&M appropriations.

What is the potential for O&M savings, and what

are the benefits and pitfalls of privatization? The scope

of savings from privatization depends on how many

activities could be outsourced, the presence of competitive sources in the private sector, and the likelihood of

overcoming institutional barriers. Proponents suggest

that DoD could achieve substantial savings, improve

the quality of services, respond more rapidly to changes

in workload, avoid making capital investments in commercial areas, and shed unnecessary infrastructure.

Opponents say that savings may not be achieved and

sustained, the quality of services could be compromised, the costs of transition assistance to displaced

government workers could be high, and local economies

could be affected adversely. Precisely because the potential costs and benefits are high and the outcome is

uncertain, the debate about privatization of government

activities has been contentious and long-standing.

Range of Savings. Estimates of savings vary widely.

Some analysts contend that savings are ephemeral and

may be offset entirely by higher contract management

costs. DoD reports that savings from competing for the

delivery of support services between private companies

and the current government provider&using the Office

of Management and Budget (OMB) Circular A-76

handbook for making cost comparisons and conducting

competitions&averaged 31 percent between 1978 and

1994. The Defense Science Board task force assumed

savings in personnel costs of 30 percent to 40 percent

in its estimates.21

Under A-76 competitions, the governmental entity

performing the service submits a "bid" based on its

"most effective organization," or MEO, which can include a smaller workforce than is currently used. The

cost of the MEO is then compared with the offers of the

private companies submitting bids. If the government

wins the competition, personnel levels for that work

center are adjusted to reflect the MEO. Since 1978,

DoD has conducted a total of 2,138 studies and now

estimates that it saves a total of $1.5 billion a year from

those competitions. A study of the Navy's experience

with A-76 competitions examined more than 900 of

them covering 29,000 positions between 1979 and

1990. Savings were greatest when the function was 22

taken over by the private sector, when several functions

and a larger number of positions were involved, or

when functions were performed by military personnel.

Savings were least when the government won the competition; in 29 percent of the cases, there were no cost

savings at all.23

Although some estimates of savings by private

companies from outsourcing support functions are similar to those in DoD's experience, most of the evidence

on savings is anecdotal. According to the DSB task 24

20. Office of the Under Secretary of Defense for Acquisition and Technology, Defense Science Board Task Force on Outsourcing, p. 51A.

21. Department of Defense, Improving the Combat Edge Through

Outsourcing (March 1996), p. 7.

22. Alan J. Marcus, Analysis of the Navy's Commercial Activities Program, CRM 92-226.10 (Alexandria, Va.: Center for Naval Analyses,

July 1993), p. 1. See also Office of Management and Budget, Revised

Supplemental Handbook, Performance of Commercial Activities,

Circular A-76 (March 1996), for the regulatory procedures for making

cost comparisons between government and private entities for the delivery of "commercial" types of services and the types of areas to be

excluded from competition (for example, "inherently governmental

functions" such as policy formulation).

23. Marcus, Analysis of the Navy's Commercial Activities Program, pp.

5, 12, and 16.

24. The Outsourcing Institute, a recently established association that

works with businesses interested in outsourcing and businesses that

provide those services, estimated savings of 20 percent to 40 percent

but provided no basis for the estimate. See Outsourcing Institute, The

Source (New York, N.Y.: Fall/Winter 1994), p. 10. The Outsourcing

Institute reported savings to businesses of 10 percent to 15 percent to

the Defense Science Board Task Force on Outsourcing and Privatization; see Office of the Under Secretary of Defense for Acquisition and

Technology, Defense Science Board Task Force on Outsourcing,

p. 15A.
CHAPTER FOUR STRATEGIES FOR REDUCING O&M SPENDING 55

force, businesses are turning to outsourcing, not so

much to reduce costs but to improve the quality of support services and to focus their attention on their "core

competencies."

In order to achieve savings, support functions

should be similar to work being done in the private sector. How much the government would save also depends on the extent of underutilized capacity and duplication among the services, the size of up-front costs

(such as leasing and disposing of equipment and training the workforce to manage contracts), and perhaps

most important, the presence of competition in the private sector. Success in achieving savings and avoiding

poor performance also requires a skilled workforce capable of specifying and monitoring performance in contracts.25

Moreover, although competition may produce savings, proponents of privatization recommend establishing long-term relationships with suppliers by signing

five- to 10-year contracts. Such contracts would reduce, if not temporarily eliminate, the pressure of competition and could create problems for DoD if performance was poor, which has happened to some businesses that have outsourced. Long-term contracts could

also be problematic for DoD when the government emphasizes selecting the lowest-cost bidder and competing

contracts. An additional complication is that funding

for support functions is appropriated annually, somewhat limiting DoD's ability to negotiate long-term contracts for support functions. A longer-term contract

would have to be contingent on receiving appropriations.

If privatizing enables DoD to reduce the size of its

infrastructure and avoid investment in commercial technology, the potential benefits go beyond any immediate

savings. Although DoD would pay for capital investment by way of prices, as do private companies, it

could share those costs with other customers.

O&M Functions That Could Be Privatized. At first

glance, a large chunk of the operation and maintenance

budget would appear to have potential for privatization.

Many of the functions categorized as administrative

and servicewide support are comparable with those performed in the private sector, are common among the

services, and have been relatively unresponsive to the

drawdown. In addition, most base support services

could be performed by private-sector companies (for

instance, vehicle maintenance and facility and road repair), and some are already contracted out. Much of the

classroom training and education that is funded in the

third major budget activity&training and recruiting&is

similar to that provided privately. Not all of the functions funded in each category, however, are candidates

for privatization.

Functions most suitable for privatization include

those for which service companies already exist. Administrative support functions, common to DoD and the

private sector, include such areas as records or benefits

management, telecommunications, information management, finance and accounting, and personnel management; they have also been popular choices for

outsourcing in the private sector.26

Other areas in O&M's administrative and servicewide category, such as intelligence programs, obviously would not be good candidates. Those same security programs, however, would be good candidates for

consolidation among the services. Similarly, training

that is specific to the military and unlikely to be available elsewhere (such as specialized avionics maintenance skill training) might best be provided within

DoD, whereas other training that is available at trade

schools, local universities, or through private firms

(such as business management and basic pilot training)

could be privatized.

Of the total budget of about $50 billion for administrative and servicewide support, some $15 billion

could be turned over to the private sector. That estimate does not include work comparable with that in the

private sector which has already been contracted out.

25. For concerns about privatizing, see statement of Donald F. Kettl,

LaFollette Institute of Public Affairs, University of Wisconsin at Madison, before the Senate Committee on the Budget, March 7, 1995; and

Keith Naughton, "Has Outsourcing Gone Too Far?" Business Week,

April 1, 1996, pp. 26-28.

26. "Will Your Finance Function be Outsourced?" Management Accounting, December 1, 1995, p. 20; "Benefits Outsourcing Can Reduce

Costs, Increase Efficiency, Vendors Report," Employee Benefit Plan

Review, November 1995, pp. 32-36; "Taking on the Last Bureaucracy," Fortune, January 15, 1996; and Garry J. DeRose and Janet

McLaughlin, "Outsourcing Through Partnerships," Training & Development, October 1995, pp. 51-55. For other references, see Office of

the Under Secretary of Defense for Acquisition and Technology, Defense Science Board Task Force on Outsourcing.
56 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

Table 10.

Statutory Restrictions on Privatization: Key Provisions

Statute Summary

10 U.S.C. 2461 Mandates extensive reporting to the Congress, including cost comparison study, before outsourcing.

10 U.S.C. 2464 Logistics requirements defined as "core" cannot be outsourced.

10 U.S.C. 2465 Prohibits outsourcing of civilian firefighting or security guard functions at military bases.

10 U.S.C. 2466 Limits outsourcing of depot maintenance to 40 percent of total.

10 U.S.C. 2469 Depot maintenance work valued at more than $3 million may not be outsourced without public 

or private cost comparison.

Section 8015 of Requires "most effective organization" (MEO) analysis of all functions with more than 10 civilian

the Appropriations employees of the Department of Defense before outsourcing.b

Act of 1997a

Section 8029 of No funds for A-76 studies that exceed 24 months for one function or 48 months for more than

the Appropriations one function.

Act of 1997a

Section 317 of Prohibits contracting out any function at McAlester or Crane Army Ammunition Plants.

the Defense 

Authorization

Act of 1987

SOURCE: Excerpted from Office of the Under Secretary of Defense for Acquisition and Technology, Report of the Defense Science Board Task

Force on Outsourcing and Privatization (August 1996).

a. Restrictions included in appropriation law apply only to that year's appropriations unless they are reenacted the following year.

b. MEO represents the estimate by the government of the most efficient workforce that could accomplish the workload that is being competed for

under A-76 guidelines.

That estimate also excludes areas that are specifically

governmental functions (such as auditing and intelligence), depot maintenance, which is highly controversial, and medical care, for which alternative approaches

have already been discussed. If DoD could achieve 20

percent to 30 percent in savings from privatizing functions currently costing $15 billion, annual O&M support costs could be reduced by between $3 billion and

$4.5 billion.

If DoD was no longer subject to statutory restrictions on privatizing depot maintenance, another $1 billion in savings might be possible (see Table 10). Al- 27

though the 104th Congress considered lifting the current statutory restriction requiring that DoD retain 60

percent of depot maintenance work in-house, the final

conference report made no change in the law. Since 28

the services now perform about 60 percent of depot

27. Congressional Budget Office, Public and Private Roles in Maintaining Military Equipment at the Depot Level (July 1995).

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

for Fiscal Year 1997, conference report to accompany H.R. 3230,

H. Report 104-724 (July 30, 1996), pp. 732-733.
CHAPTER FOUR STRATEGIES FOR REDUCING O&M SPENDING 57

maintenance work at defense depots, a change in the

law would be necessary to privatize more of their workload.

Two recent studies by the Defense Science Board

have suggested that savings could be far greater. Those

studies assume that more activities could be privatized&such as DoD's medical support activities, commissaries, testing and evaluation centers, military housing, and depot maintenance. The studies also include

savings in military personnel as well as O&M. CBO's 29

estimate covers only O&M savings in less controversial

areas that are most similar to commercial functions.

Barriers to Privatization. DoD faces several significant barriers to its current initiative to privatize more

support activities: statutory and regulatory restrictions,

concerns about equity and economic impacts, and worries about the possibility of poor performance by private providers. DoD's success in privatizing support

activities depends on the resolution of those issues.

The 1996 Defense Science Board Task Force on

Outsourcing and Privatization acknowledges that there

are significant statutory and regulatory impediments to

widespread privatization. Although strict statutory restrictions apply only to privatization of depot maintenance and firefighting or security guard functions at

military bases, the primary limiting factor in other support areas may be DoD's expectation of internal and

Congressional opposition. Presumably because of that

concern, DoD has not authorized any waivers to current

A-76 procedures. Waivers are permitted when the

"conversion will result in a significant financial or service quality improvement and . . . not serve to reduce

significantly the level or quality of competition," when

there is no prospect that the in-house performer of the

service could win an A-76 competition, or "in cases

where functions are designated for termination on specified dates."30

Because few waivers have been given, there are no

precedents for the circumstances that would justify

waiving A-76 procedures. The DSB task force suggests, however, that DoD could choose to "get out of

the business" entirely of performing particular types of

support functions, thus eliminating the requirement

forA-76 competitions. If the Department of Defense 31

authorized a waiver, it could avoid the kind of timeconsuming studies of small, individual work centers

that are typically conducted under A-76 procedures.

Although it is not clear what constitutes appropriate grounds for waivers, revisions of the circular in

1996 appear to be designed to limit the application of

A-76 cost comparison procedures to continuing commercial activities. In fact, the circular suggests that

other "restructuring or reengineering activities, privatization options . . . and terminations of obsolete services or programs" may not be covered by A-76 procedures. The Office of Management and Budget re- 32

cently suggested, for example, that if DoD chose to buy

electrical power directly rather than operate its own

power plants, that change would not be covered by A76. Instead, the change would represent the termina- 33

tion of an obsolete activity. Similarly, the Defense Logistics Agency did not need to conduct cost comparisons when it chose to eliminate its practice of warehousing some supplies and arranged to have vendors

deliver supplies directly to customers.

In some cases, however, a decision to terminate a

function could undermine or eliminate efforts to consolidate support activities. If the Secretary of Defense, for

example, wanted to privatize most of the financial functions performed by the Defense Finance and Accounting Service (as recommended by the Defense Science

Board), the organization would probably have to be

dissolved. If DFAS no longer existed, the services

could choose to contract with private suppliers. If con29. Office of the Under Secretary of Defense for Acquisition and Technology, Defense Science Board Task Force on Outsourcing; and Under

Secretary of Defense for Acquisition and Technology, Report of the

Defense Science Board 1996 Summer Study on Achieving an Innovative Support Structure for 21st Century Military Superiority:

Higher Performance at Lower Costs (November 1996).

30. Office of Management and Budget, Revised Supplemental Handbook,

Ch. 1, Sec. E, p. 5.

31. Office of the Under Secretary of Defense for Acquisition and Technology, Defense Science Board Task Force on Outsourcing, p. 54; the

DSB cites as an example a decision by the Defense Logistics Agency

to rely on the private sector entirely for the provision of medical supplies. That example, however, is on a much smaller scale than that

which the DSB recommends.

32. See Office of Management and Budget, Revised Supplemental Handbook, p. iii.

33. Letter of May 1, 1997, from John Koskinen, Deputy Director for Management, OMB, to John N. Sturdivant, National President, American

Federation of Government Employees.
58 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

tract management of financial services devolved to the

services or individual commands, however, DoD would

probably lose any benefits from standardization and

consolidation.

The revised circular also permits an agency to contract services out without doing a cost comparison if

"fair and reasonable prices" can be obtained through

private-sector competition and if federal employees are

placed in other, comparable jobs. That new option 34

has not yet been exercised. Until those procedural issues are resolved, it will be difficult to know whether

widespread privatization could be carried out.

Even assuming that the regulatory and procedural

issues could be resolved, DoD would be likely to face

significant opposition to such a policy because of concerns about the equity of turning work over to the private sector without first allowing the government

workforce to compete. And, of course, policymakers

are worried about the economic effects of eliminating

government jobs. Defenders of the A-76 process 35

would argue that despite its drawbacks, it is the best

available procedure for comparing the costs of public

and private providers. Moreover, they would suggest

that assuming that the private sector would be more

efficient without first conducting a competition is neither equitable nor justified by the history of A-76 competitions. Government entities have won about onehalf of the competitions. Critics of the A-76 process 36

suggest that cost comparisons do not accurately ascertain costs incurred by the private sector but not by government providers (for example, taxes and return on

capital).37

In addition, the Department of Defense could argue

that private-sector performance is more efficient in

some areas and that minimizing DoD's role in providing

support services would benefit national security by reducing the size of the support infrastructure and enabling DoD to concentrate its efforts on its wartime

mission. Furthermore, as with base closures, the effect

on communities of losing government jobs depends on

the concentration of jobs and the availability of alternative employment.

Policymakers fear that turning work over to private

companies could jeopardize the delivery of support services if performance was poor or could increase the

potential for fraud and abuse. That fear reflects a 38

problem faced by both DoD and private companies that

outsource: it is difficult to specify workload and performance standards and monitor performance accurately.

Using an internal workforce, government managers can

clarify and adjust requirements periodically without incurring penalties. Defining and specifying requirements in advance is more difficult, particularly if the

government was to enter into long-term contracts, as

many advocates of privatization recommend. Poor definition of requirements could create problems. Extensive privatization of support functions would clearly

demand a dramatic shift in the role of government personnel from management of an internal workforce to

oversight of private providers and could well necessitate additional training or the hiring of people with a

different mix of skills.

Cut Infrastructure Costs

by Closing Bases

Consolidation of weapon systems and combat support

roles and privatization of other support activities could

make it easier to close bases. Former Secretary of Defense William Perry acknowledged that the size of

DoD's infrastructure will still be excessive even after

the latest round of base closures is completed in 2001.

DoD recently proposed two additional rounds of base

closures as part of its Quadrennial Defense Review:

the first in 1999 and the second in 2001. The services

currently spend $14 billion a year to provide the support services for maintaining about 1.5 billion square

feet of buildings on military bases and facilities.

34. Office of Management and Budget, Revised Supplemental Handbook,

p. 4.

35. For a full discussion of these and other concerns, see Frank Camm,

Expanding Private Production of Defense Services (report to the

Commission on Roles and Missions of the Armed Forces by RAND,

Santa Monica, Calif., 1996), pp. 9-24.

36. See Marcus, Analysis of the Navy's Commercial Activities Program,

p. 5.

37. See Congressional Budget Office, Public and Private Roles in Maintaining Military Equipment at the Depot Level. The latest revision of

the A-76 handbook requires agencies to include the cost of capital for

assets purchased within the past two years.

38. See Camm, Expanding Private Production, pp. 13-14; and testimony

of Donald F. Kettl, March 7, 1995.
CHAPTER FOUR STRATEGIES FOR REDUCING O&M SPENDING 59

In order to restore the ratio between floor space and

active-duty military personnel that existed before the

drawdown, DoD would have to eliminate an additional

200 million square feet of building space, or an additional 14 percent of the total real estate currently held

or managed by the services in the United States and

overseas. If DoD was able to reduce overseas bases by

an additional 45 percent commensurate with the reduction in the number of military personnel stationed overseas, floor space on bases in the United States would

have to be reduced by about 70 million square feet.39

On the basis of previous rounds of base closures,

that magnitude of reduction would require one additional round. If DoD was unable to reduce overseas

bases in proportion to the 60 percent reduction in its

overseas population since 1989, however, it would have

to rely more heavily on the base closure process, and

two more rounds would probably be needed. At the

other extreme, if no additional overseas facilities were

closed, DoD could require about three more rounds of

base closures.

By holding two additional base closure rounds in

the next three years, DoD could achieve O&M savings

of about $700 million by 2004 and an additional $700

million by 2006 when both rounds would be complete,

based on DoD's estimates of savings from previous

base closures. If new rounds were initiated in 1998 and

2000, by 2002 DoD would achieve O&M savings of

more than $500 million. On the basis of DoD's estimates, there could be significant savings of more than

$800 million in the total defense budget by 2003.

Although base closures are politically unpopular,

savings are likely to be substantial in the long run.

Moreover, if further base closures are not undertaken,

the backlog of facilities maintenance faced by the services may continue to grow, creating considerable pressure to add funding, provide base support services more

efficiently, or adopt lower standards of maintenance for

the entire infrastructure. As long as the services are

responsible for an excess number of bases, support

spending for them may siphon funds from other O&M

areas that could affect military readiness or require cuts

in other areas of defense spending to meet DoD's budgetary targets. 39. Includes all buildings except family housing units on the bases managed by the active-duty forces.

Appendixes

B

Appendix A

Adjusting Operation and Maintenance

Spending Between 1981 and 1996

etween 1981 and 1996, the Department of Defense (DoD) made a number of adjustments in

the funding sources of particular types of operation and maintenance (O&M) support, shifting

spending between O&M and other appropriations and

among different categories of operation and maintenance (see Table A-1). Analysis of O&M spending has

been hampered by those changes in financing over the

years. In order to determine cost trends accurately, the

Congressional Budget Office (CBO) standardized

spending for operation and maintenance in earlier years

to match the financing conventions of the 1996 biennial

President's budget request.

CBO included those adjustments in the budget categories that DoD currently uses to present its spending

on operation and maintenance to the Congress (see Appendix B). DoD adopted the new categories for operation and maintenance spending&known by the shorthand O-1&in 1994. The database extends from 1981

to 1997 and reflects the financing conventions in the

biennial 1996 President's budget.
64 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

Table A-1.

Standardizing Operation and Maintenance Spending Between 1981 and 1996

Type of O&M Support Adjustment Description

Transferred into O&M

Replenishment Spares From Procurement Since 1985 in the Navy and since 1991 in the

Army and Air Force, the cost of buying replacement spare parts has been charged to O&M users

(customers) through a revolving fund to increase

cost-consciousness on the part of users.

Subsistence-in-Kind From Military Personnel The cost of providing rations during training exercises was included as an O&M cost in the 1996

budget.a

Military Personnel Providing

Airlift Services

From Military Personnel From 1992 to 1995, DoD counted the cost of military personnel assigned to the airlift mission as an

O&M cost. In 1996, DoD discontinued that policy.

Transferred out of O&M

Interim Contractor Support To Procurement Initial support of weapon systems is now considered part of the cost of buying new systems.

First-Destination

Transportation

To Procurement Initial delivery of supplies and weapon systems is

now considered part of the investment cost.

Installation of

Modifications

To Procurement The labor cost of installing parts to upgrade or

correct deficiencies is now considered part of the

investment cost of modifying weapon systems; the

cost of the parts, known as "modification kits," is

already funded in procurement.

Space Launch Services To Procurement Launching space shuttles is now considered part

of the cost of buying satellites.

Intra-O&M Transfers

Drug Interdiction To Defensewide

Account

Support of counterdrug activities is appropriated to

a central account but transferred to the services

during budget execution.

Defense Environmental

Restoration Account

To Defensewide

Account

Cleanup of contaminated military bases is appropriated to a central account but executed by the

services.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

(Continued)
APPENDIX A ADJUSTING OPERATION AND MAINTENANCE SPENDING BETWEEN 1981 AND 1996 65

Table A-1.

Continued

Type of O&M Support Adjustment Description

Intra-O&M Transfers (Continued)

Defense Health Program To Defensewide

Account

Starting in 1992, medical programs of the services

were funded centrally.

Defense Commissary

Agency

Deleted From Services' 

O&M Accounts

Starting in 1992, commissaries were managed by

a central agency, and the subsidy for operations

was appropriated to revolving funds.

Special Operations 

Command

To Special 

Operations Accounts

Starting in 1991, a separate command was established to manage training and support of special

operations formerly handled by the services.

Installation of Depot-Level

Reparables

To Customers Within the

Services' O&M Accounts

Starting in 1985 in the Navy and in 1991 in the

Army and Air Force, the cost of installing parts in

weapon systems was "charged" to users (customers) rather than being centrally funded in O&M.

Management of Consumable

Parts

To Customers Within 

Services' O&M Accounts

Starting in 1991, part of the cost of managing the

inventory of consumable parts was charged to

users (customers) rather than being centrally

funded in O&M.

Second-Destination 

Transportation

To Customers Within 

Services' O&M Accounts

Starting in 1992, the cost of delivering parts from

warehouses to their final destination was charged

to users (customers) rather than being centrally

funded in O&M.

Stock Fund/Industrial Fund

Pricing Adjustments

To Customer of 

Revolving Funds

Annual adjustments for losses or gains in revolving accounts from previous years were allocated

to users (customers) rather than being centrally

funded in O&M.

Foreign Currency 

Fluctuations

Deleted from Services' 

O&M Accounts

CBO excluded the cost of changes in foreign currency in relation to the U.S. dollar from operating

costs.

Contract Management To Defense

Logistics Agency

In 1990, most contract management functions

were consolidated under the Defense Contract

Management Command within the Defense Logistics Agency.

SOURCE: Congressional Budget Office based on information provided by the Department of Defense.

NOTE: O&M = operation and maintenance; DoD = Department of Defense.

a. In the 1997 budget, DoD transferred subsistence-in-kind back to the military personnel appropriation.

T

Appendix B

Classifying Operation and Maintenance

Activities According to the New Operation

and Maintenance (O-1) Structure

Adopted by DoD

he list in Box B-1 classifies operation and

maintenance tasks according to the major budget activities, activity groups, and subactivity

groups first adopted by the Department of Defense

(DoD) in 1994 in response to guidelines from the Congress's appropriations committees. Those categories&

presented in a budget document called an O-1 (short for

Operation and Maintenance-l)&are made up of groupings of program elements (PEs) that identify the spending associated with particular elements such as F-16

aircraft squadrons. At the request of the Congres- 1

sional Budget Office (CBO), the Department of Defense assembled a database that distributed PEs according to those budget categories between 1981 and 1999.

CBO then adjusted the database to reflect changes in

financing conventions over the years (see Appendix A).

In the case of the Navy, however, the composition

of individual program elements varies widely from year

to year, making it difficult, if not impossible, to create a

consistent historical database as one would for the other

services. Instead, CBO relied on the Capabilities Resource Allocation Display, a Navy database that groups

functions and support activities more consistently over

time. CBO then adjusted those groupings for changes

in financing and distributed them into O-1 categories.

The list differs from the categories used by DoD

because CBO standardized them across the services.

For example, CBO used the category "Combat Forces"

for "Land Forces" in the Army, "Air Operations" in the

Air Force, and "Ship and Air Operations" in the Navy.

CBO also treated base support as a separate major budget activity rather than allocating it to each mission or

function. CBO took that approach for the sake of comparing spending with indicators of workload and because it is not possible to distribute base support

spending historically by mission.

1. The Congress receives similar budget documents for procurement and

research and development accounts, known as "P-1s" and R-1s," respectively; hence the name O-1.
68 PAYING FOR MILITARY READINESS AND UPKEEP: TRENDS IN O&M SPENDING September 1997

Box B-1.

Department of Defense O-1 Budget Categories, as Standardized by the Congressional Budget Office

Operating Forces

Combat forces

Combat forces (direct)

Combat operations support

Combat support activities

Tactical support

Force-related training

Combat communications

Headquarters

Global command, control, and communications/early warning

Space operations

Space operations support

Depot maintenance

Mobilization

Mobility operations

Industrial preparedness/war reserves

Training and Recruiting

Accession training

Officer acquisition

Recruit training

Reserve Officer Training Corps

Basic skill and advanced training

Specialized skill training

Flight training

Professional development education

Training support

Recruiting and other training and education

Recruiting and advertising

Examining

Off-duty and voluntary education

Civilian education and training

Junior Reserve Officer Training Corps

Administrative and Servicewide Activities

Security programs

Logistics operations

Servicewide transportation

Logistics and technical support

Servicewide support

Administration

Servicewide communications

Military and civilian manpower management

Other personnel support

Other service support/support of other nations

Base Support

Base operations

Support/real property maintenance

Environmental programs

Othera

SOURCE: Congressional Budget Office based on information from the Department of Defense.

NOTE: O-1 is Department of Defense shorthand for its operation and maintenance budget categories.

a. Includes family support programs and audiovisual activities.
O

Appendix C

Spending in the Services by Operation

and Maintenance (O-1) Budget Categories

verall, the allocation of operation and maintenance (O&M) funding among major budget

activities has been fairly stable for the services (see Table C-1). The totals below include activeduty O&M spending only.

Each of the services, however, has allocated different amounts to particular budget categories (see Table

C-2). Moreover, the rates of change in the 1980s and

1990s varied widely among major budget categories

and the services (see Table C-3).

The results of those differences among the services

are reflected in changes in the shares of total operation

and maintenance funding dedicated to particular missions and functions (see Table C-4). In the Navy, the

share of its O&M funding dedicated to operating forces

has declined significantly since 1981, from 56 percent

to 47 percent, and the amount allotted to infrastructure

support has grown. In the Army, the reverse is true:

more of its resources are now devoted to operating

forces and less to infrastructure. Funding shares within

the Air force have changed little over time.
70 SPENDING IN THE SERVICES BY OPERATION AND MAINTENANCE (O-1) BUDGET CATEGORIES September 1997

Table C-1.

Mission- and Infrastructure-Related Spending as a Share of the Services' Total 

Spending for Operation and Maintenance (In percent)

Budget Activity 1981 1989 1996

Mission-Related Spending

Operating forces 42.5 43.1 40.1

Mobilization 3.7 3.7 6.2

Subtotal 46.2 46.8 46.3

Infrastructure-Related Spending

Training and recruiting 5.5 6.4 6.5

Administrative and servicewide support 21.3 21.0 22.8

Base support 27.0 25.8 24.4

Subtotal 53.8 53.2 53.7

Total 100.0 100.0 100.0

Memorandum:

Operation and Maintenance Spending

(Billions of 1996 dollars) 68.1 78.7 58.5

SOURCE: Congressional Budget Office based on data provided by the Department of Defense.

NOTE: Spending is for active-duty forces only.
APPENDIX C COMPOSITION OF OPERATION AND MAINTENANCE SPENDING BY THE SERVICES 71

Table C-2.

Spending for Operation and Maintenance in the Services by O-1 Budget Category (In billions of 1996 dollars)

Budget Activity 1981 1989 1996

Army

Operating Forces 5.5 8.5 5.7

Mobilization 0.2 0.1 0.7

Training and Recruiting 1.8 2.3 1.6

Administrative and Servicewide Support 5.1 5.8 4.4

Base Support 7.3 8.0 5.3

Subtotal 19.9 24.8 17.7

Navy

Operating Forces 14.8 14.1 9.9

Mobilization 0.3 0.9 1.0

Training and Recruiting 0.8 1.4 1.0

Administrative and Servicewide Support 6.1 6.6 5.6

Base Support 4.3 4.8 3.4

Subtotal 26.2 27.9 20.8

Marine Corpsa

Operating Forces 0.5 0.6 0.6

Mobilization 0.1 0.1 0.1

Training and Recruiting 0.1 0.2 0.2

Administrative and Servicewide Support 0.2 0.3 0.3

Base Support 0.9 1.1 0.9

Subtotal 1.8 2.3 2.1

Air Force

Operating Forces 8.2 10.6 7.2

Mobilization 1.9 1.8 1.8

Training and Recruiting 1.1 1.1 1.0

Administrative and Servicewide Support 3.1 3.8 3.1

Base Support 5.9 6.3 4.7

Subtotal 20.2 23.7 17.9

All Services

Operating Forces 29.0 33.9 23.5

Mobilization 2.5 2.9 3.6

Training and Recruiting 3.8 5.1 3.8

Administrative and Servicewide Support 14.5 16.5 13.3

Base Support 18.4 20.3 14.2

Total 68.1 78.7 58.5

SOURCE: Congressional Budget Office based on data provided by the Department of Defense.

NOTE: Spending is for active-duty forces only; O-1 is Department of Defense shorthand for its budget categories for operation and maintenance.

a. The Congressional Budget Office did not analyze Marine Corps funding separately because of the difficulty of obtaining data on full costs; the Navy

funds some Marine Corps expenses (for example, aviation spare parts). CBO provides those data for the benefit of other analysts.
72 SPENDING IN THE SERVICES BY OPERATION AND MAINTENANCE (O-1) BUDGET CATEGORIES September 1997

Table C-3.

Changes in Spending for Operation and Maintenance in the Services by O-1 Budget Category

Percentage Change Between

Budget Activity 1981 and 1989 1989 and 1996 1981 and 1996

Army

Operating Forces 56 -33 5

Mobilization -32 398 238

Training and Recruiting 30 -29 -8

Administrative and Servicewide Support 15 -25 -14

Base Support 10 -35 -29

All O&M Spending 25 -29 -11

Navy

Operating Forces -5 -30 -33

Mobilization 235 10 269

Training and Recruiting 73 -29 22

Administrative and Servicewide Support 8 -16 -19

Base Support 14 -31 -21

All O&M Spending 6 -26 -21

Marine Corpsa

Operating Forces 26 1 27

Mobilization 26 -12 12

Training and Recruiting 59 -13 38

Administrative and Servicewide Support 23 13 40

Base Support 23 -17 3

All O&M Spending 27 -8 17

Air Force

Operating Forces 30 -32 -12

Mobilization -10 4 -6

Training and Recruiting 7 -11 -5

Administrative and Servicewide Support 23 -19 0 

Base Support 7 -25 -20

All O&M Spending 17 -24 -11

All Services

Operating Forces 17 -31 -19

Mobilization 17 24 45

Training and Recruiting 34 -24 1

Administration and Servicewide Support 14 -19 -8

Base Support 11 -30 -23

All O&M Spending 16 -26 -14

SOURCE: Congressional Budget Office based on data provided by the Department of Defense.

NOTES: Spending is for active-duty forces only; O-1 is Department of Defense shorthand for its budget categories for operation and maintenance.

O&M = operation and maintenance.

a. The Congressional Budget Office did not analyze Marine Corps funding separately because of the difficulty of learning full costs; the Navy funds

some Marine Corps expenses (for example, aviation spare parts). CBO provides those data for the benefit of other analysts.
APPENDIX C COMPOSITION OF OPERATION AND MAINTENANCE SPENDING BY THE SERVICES 73

Table C-4.

Distribution of Spending for Operation and Maintenance in the Services by O-1 Budget Category (In percent)

Budget Activity 1981 1989 1996

Army

Operating Forces 28 34 32

Mobilization 1 1 4

Training and Recruiting 9 9 9

Administrative and Servicewide Support 25 23 25

Base Support 37 32 30

Total 100 100 100

Navy

Operating Forces 56 51 47

Mobilization 1 3 5

Training and Recruiting 3 5 5

Administrative and Servicewide Support 23 24 27

Base Support 16 17 16

Total 100 100 100

Marine Corps

Operating Forces 28 28 30

Mobilization 4 4 4

Training and Recruiting 8 10 9

Administrative and Servicewide Support 11 11 14

Base Support 49 48 43

Total 100 100 100

Air Force

Operating Forces 40 45 40

Mobilization 10 7 10

Training and Recruiting 5 5 6

Administrative and Servicewide Support 15 16 17

Base Support 29 27 26

Total 100 100 100

All Services

Operating Forces 43 43 40

Mobilization 4 4 6

Training and Recruiting 6 6 7

Administrative and Servicewide Support 21 21 23

Base Support 27 26 24

Total 100 100 100

SOURCE: Congressional Budget Office based on data provided by the Department of Defense.

NOTE: Spending is for active-duty forces only; O-1 is Department of Defense shorthand for its budget categories for operation and maintenance.

T

Appendix D

Estimating Future Cuts in Force Structure

he Congressional Budget Office (CBO) estimated the size of potential cuts in force structure that would be necessary by 2002 to meet a

given decrease in operation and maintenance (O&M)

resources, based on the behavior of the services during

the drawdown between 1989 and 1996. In other words,

CBO assumed that each service would reduce the various categories of O&M spending by the same proportion and at the same rate as it did during that period.

CBO also assumed that current average spending levels

for operating forces and infrastructure support remained at the 1996 levels. For example, operating

spending per hour of training was presumed to be the

same in 2002 as in 1996. Thus, CBO's method assumed neither more growth in average spending levels

nor greater efficiency in delivering support than in the

past.

Some analysts might consider CBO's assumption

overly optimistic, given long-term increases in O&M

support spending levels. Others might argue that current spending levels are unusually high because some

support costs may still be adjusting to the drawdown,

and future support costs could therefore be lower than

current levels. Because CBO has no way of knowing

how future support costs may change, extrapolating

from the present appeared to be the most reasonable

approach.

The first step in estimating the size of potential

cuts in force structure was to distribute the total amount

of the potential cut&$11 billion&among the services.

(Because spending by reserve forces remained the same

and spending on defensewide O&M grew rather than

declined during the drawdown, CBO did not assume

any reductions in that spending.) CBO distributed the

cut among the services according to each service's share

of spending on active-duty O&M in 1996&30 percent

for the Army, 35 percent for the Navy, 31 percent for

the Air Force, and 4 percent for the Marine Corps.

CBO assumed that each major operation and maintenance (O-1) budget category within each service

would be cut in the same fashion that they were between 1989 and 1996. CBO then estimated how much

training would have to be cut to reach the allotted decrease in operating spending, based on the average

spending per hour or mile of training in 1996. That cut

in training levels was assumed to require a proportional

decrease in force levels. For example, a decrease of 20

percent in flying hours would mean a 20 percent cut in

the number of aircraft. That assumption preserves current standards for operating tempo in order to protect

readiness.