United States General Accounting Office

GAO Report to Congressional Committees

September 1996 1997 DOD BUDGET

Potential Reductions to

Operation and

Maintenance Program

G O A

years

1921 - 1996

GAO/NSIAD-96-220

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-274141 

September 18, 1996

Congressional Committees

This report evaluates the military services’ and Department of Defense’s

(DOD) fiscal year 1997 operation and maintenance (O&M) budget requests,

which total $79 billion. Our objective was to determine whether the O&M

accounts should be funded in the amounts requested.

We reviewed selected O&M activities managed by the Army, the Navy, the

Air Force, and DOD at the headquarters level. We also reviewed O&M

activities managed by U.S. Army, Europe (USAREUR); U.S. Forces Command

(FORSCOM); Air Combat Command; and the Atlantic and Pacific Fleets. The

command and activities were selected for review because (1) O&M funding

levels are increasing, (2) ongoing and issued reports by us and DOD audit

agencies disclosed programmatic issues with O&M implications, or

(3) congressional committees’ expressed interest.

As shown in table 1, we identified potential budget reductions of about

$3.4 billion to the fiscal year 1997 O&M budget requests.

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Table 1: Potential Reductions to the Fiscal Year 1997 O&M Budget Requests by Program Category

Dollars in millions

Category Army Navy

Marine

Corps Air Force Defense

National

Guard Total

Inventoy management $188.0 $67.0 $468.0 $723.0

Bulk fuel 113.8 166.3 242.2 522.3

Unobligated funds 200.2 150.4 151.6 502.2

Aircraft storage 376.2 376.2

O&M pass-through to Defense business

operating fund 58.9 194.5 253.4

Civilian personnel 33.3 108.3 70.0 $33.9 245.5

Operating Tempo 235.0 235.0

Transportation 92.5 25.0 12.5 55.0 65.0 250.0

Environmental restoration 80.0 80.0

Flying hours 40.3 18.0 58.3

Air Force basing strategy 48.0 48.0

Real property maintenance 27.9 27.9

Hunter unmanned aerial vehicle system 19.5 19.5

Training rotations at the National Training

Center and Joint Readiness Training

Center 8.1 $8.6 16.7

Prepositioning ship program 13.7 13.7

Fuel tax refunds 2.3 8.5 10.8

Bosnia operations 5.6 5.6

Ammunition maintenance 1.3 3.9 5.2

Mine hunter ships 4.7 4.7

Moral, welfare, and recreation subsidy 2.1 2.1

Total $1,009.0 $549.6 $16.4 $1,619.6 $196.9 $8.6 $3,400.1

In April, May, and June 1996, we provided your staffs with the preliminary

results of our work. This report summarizes and updates that information,

but does not include any actions that may have been taken by the

Committees during their reviews of the services’ budget requests. The

following sections briefly discuss each of the potential reductions.

Inventory Management The fiscal year 1997 Army, Navy, and Air Force budgets for spare parts can

be reduced by $723 million for the following reasons:

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• A 1993 Air Force Audit Agency (AFAA) report1 found that program directors

maintained aircraft in reconstitutable storage categories (i.e., aircraft with

potential contingency, mobilization, or conversion use) even though they

had not identified future requirements for the aircraft and had not

regenerated an aircraft from reconstitutable storage for the active force in

25 years. AFAA recommended that the Air Force Materiel Command delay

procurement of current and future spare parts requirements, valued at

$388 million, that were available for reclamation2

 and initiate screening of

excess aircraft and engines containing parts that could satisfy spare parts

requirements. In a February 1996 follow-up report,3 AFAA found that Air

Force personnel did not release excess aircraft for programmed

reclamation screening as recommended. Additionally, the Air Force

Materiel Command did not initiate screening of excess aircraft and engines

for serviceable spare parts. As a result, timely reclamation was not

scheduled for 816 aircraft classified as having no future operational use.

Air Force management has initiated action to correct this problem.

However, the changes are not reflected in the fiscal year 1997 budget

request. Therefore, Congress could reduce the Air Force’s fiscal year 1997

budget request by $388 million to reflect the value of reclaimed spare parts

that could be used to satisfy other requirements.

• The Air Force, in determining its spare and repair parts budget request,

does not consider parts on hand at the depot maintenance facilities as an

offset to spare and repair parts requirements. Although Congressional

Committees have made several attempts to change this policy, the Air

Force continues to exclude depot-level assets in its requirements data and

budget computations.4

 Our analysis showed that the Air Force overstated

its fiscal year 1996 spare parts budget request by $72 million because parts

on hand for depot maintenance were not offset against budget

requirements.

In our March 1996 report, we also reported that the Navy spare parts

requirements and budget request for fiscal year 1997 were overstated by at

1

Management of Air Force Reclamation Program (Project 93061013, May 26, 1993).

2

Reclamation is the process of removing serviceable and economically repairable components and

materiel from excess or surplus property to satisfy valid requirements. Reclamation is limited to

aircraft with no identified future use.

3

Follow-up Audit —Management of the Air Force Reclamation Program (Project 95061010, Feb. 16,

1996).

4

Defense Logistics: Requirement Determinations for Aviation Spare Parts Need to Be Improved

(GAO/NSIAD-96-70, Mar. 19, 1996).

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least $60 million. This occurred because the Navy duplicated depot

maintenance requirements in its requirements and budget computations.

The depot-level assets were included once as recurring demands, based on

past depot maintenance usage, and again in a planned program

requirements category that is not based on recurring demands. As a result

of these duplications, the Navy’s fiscal year 1997 requirements and budget

estimates were overstated by at least $60 million.

• The Air Force and the Navy overstated their spare parts budget requests

because inaccurate lead times, demand rates, due-out quantities, and

inventory on hand and on order were used in the requirements

determination process. The use of inaccurate data resulted in overstated

requirements of $8 million and $7 million for the Air Force and the Navy,

respectively.

• The Army budget stratification reports that are used to determine spare

and repair parts budget requests are based on inaccurate data. When an

item’s available inventory is not sufficient to meet the requirements, the

item is considered to be in a deficit position and the aggregate value of

items in a deficit position is the basis for determining the budget request.

Our review5

 of 258 items with a reported deficit value of $519 million

showed that the deficit position for $211 million of the items was

incorrect. If accurate requirements and inventory data had been used, the

inventory deficit for these items would have been $23 million rather than

the $211 million reported. As a result, the fiscal year 1996 budget request

included $188 million ($211 million minus $23 million) for items that were

not in a deficit position.

Because corrective actions were not taken in time to affect the fiscal year

1997 budget request, we believe the fiscal year 1997 request is also

overstated. Therefore, Congress may want to reduce the Army’s spare and

repair parts budget request by the $188 million it was overstated in fiscal

year 1996.

Bulk Fuel Requirements The Army, the Navy, and the Air Force O&M budget requests for bulk fuel

could be reduced by $522.3 million for the following reasons:

5

Army Inventory: Budget Requests for Spare and Repair Parts Are Not Reliable (GAO/NSIAD-96-3,

Dec. 29, 1995).

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• In September 1995,6 we reported that for fiscal year 1996, the Army, the

Navy, and the Air Force budget requests for bulk fuel totaled about

$4.12 billion. Of this, $4.01 billion was to be used to buy fuel from the

Defense Fuel Supply Center (DFSC), with the remaining $107 million used

to buy fuel from commercial sources. Based on historical usage data, DFSC

estimated that the services’ fuel purchases would be about $3.57 billion, or

about $440 million less than the services requested in their budgets, as

shown below.

Table 2: Bulk Fuel Requirements in the Fiscal Year 1996 Budget Request and DFSC’s Estimate of Sales to the Services

Budget estimate DFSC estimated sales Difference

Dollars and numbers in millions

Service Barrels Dollars Barrels Dollars Barrels Dollars

Army 10.5 $316.9 7.5 $236.2 3.0 $80.7

Navy 46.5 1,461.2 39.3 1,236.6 7.2 224.6

Air Force 69.7 2,235.2 66.7 2,100.9 3.0 134.3

Total 126.7 $4,013.3 113.5 $3,573.7 13.2 $439.6

As a result of the information in our September 1995 report, Congress

reduced the Navy’s fiscal year 1996 fuel budget by $100 million. However,

in February 1996 we found that the services’ fuel requirements had been

reduced, and there is still about $340 million in the services’ fiscal year

1996 budgets that exceeds their fuel needs.

In view of the above, Congress may want to offset the $340 million against

the fiscal year 1997 request as follows: Army—$80.7 million,

Navy—$124.6 million, and Air Force—$134.3 million.

• For fiscal year 1997, the services have again requested more funds for fuel

than they will need. They budgeted for 117.8 million barrels of fuel at a

cost of $3.796 million. However, DFSC estimates that the services will buy

113.2 million barrels at a cost of about $3.613 billion, or $183 million less

than the services estimate. As a result, Congress may want to reduce the

services’ fiscal year 1997 budget requests by the amounts shown in table 3.

This reduction would be in addition to the off-set to the fiscal year 1996

budget.

6

1996 DOD Budget: Potential Reductions to Operation and Maintenance Program

(GAO/NSIAD-95-200BR, Sept. 26, 1995).

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Table 3: Bulk Fuel Requirements in the Fiscal Year 1997 Budget Request and DFSC’s Estimate of Sales to the Services

Budget estimate DFSC estimated sales Difference

Dollars and numbers in millions

Service Barrels Dollars Barrels Dollars Barrels Dollars

Army 9.2 $294.8 8.2 $261.7 1.0 $33.1

Navy 43.7 1,398.3 42.5 1,356.6 1.2 41.7

Air Force 64.9 2,102.9 62.5 1,995.0 2.4 107.9

Total 117.8 $3,796.0 113.2 $3,613.3 4.6 $182.7

Unobligated Balances

From Prior Years’ O&M

Appropriations

Unobligated balances of expired prior years’ O&M appropriations are

generally not available for new obligations but may be used for upward

adjustments to existing obligations for the specific fiscal year of the

appropriation. These expired unobligated balances may be used to fund

upward adjustments for 5 fiscal years after the year of appropriation. At

the end of 5 years, the remaining balances are canceled.

As of September 30, 1995, the Army, the Navy, and the Air Force had

unobligated balances from prior year appropriations totaling $2.2 billion.

Service officials stated that the unobligated balances were needed to

satisfy upward adjustments to obligations that were incurred in the

specific fiscal year but have not yet been liquidated.

Our analysis shows that unobligated balances have been increasing rather

than decreasing and that the average annual increase over the last 4 years

has been $200.24 million for the Army, $150.42 million for the Navy, and

$151.57 million for the Air Force. The reason for the increasing balances is

that the amount of the liquidations is generally less than the amount

initially obligated.

Our analysis showed that the average annual increase in unobligated

balances was $502 million. In view of this overall trend in inaccurately

establishing either requested amounts or obligations for specific projects,

Congress could reduce the services’ O&M funding request to amounts that

more accurately reflect what is actually needed.

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Aircraft Storage The Air Force’s O&M budget request could be reduced by $376.2 million if

some aircraft were retired and others placed in storage until needed.

• The Air Force plans to upgrade its B-1B bombers to play a greater role in

combat interdiction. In a recent report,7

 we suggested that instead of

upgrading the bombers, the Air Force should retire them. We reported that

upgrading the bombers will only marginally increase combat interdiction

when compared to total interdiction capabilities that already exist. On the

other hand, retiring the aircraft could save the Air Force about $1 billion

annually in operating costs, including approximately $366.7 million in O&M

costs.

• The Air Force currently assigns attrition aircraft8 to active and reserve

units where they are flown and maintained as combat designated aircraft.

In fiscal year 1997, the Air Force plans to have 126 attrition attack and

fighter aircraft in the active force inventory.

In 1995, we reported9

 that storing attrition aircraft could be a

money-saving alternative to assigning aircraft to active units. A 1992 Air

Force study concluded that the costs to store and reconstitute F-15 and

F-16 aircraft were 1.9 percent and 2.1 percent of the aircraft’s operation

and maintenance costs, respectively. In addition, the Navy found that

storing excess aircraft was the most cost-effective way of managing them.

Historical attrition rates indicate that some of the attrition aircraft will not

be needed until the year 2002. Therefore, Congress may want to reduce the

Air Force’s fiscal year 1997 budget by $9.5 million ($75,000 multiplied by

126 aircraft) to encourage the Air Force to store its attrition aircraft. Our

analyses of the operating and maintenance costs is based on the funding

the Air Force gave Air National Guard units for additional attrition

aircraft—about $75,000 per aircraft.

Defense Business

Operating Fund

Pass-throughs

The Defense Business Operating Fund (DBOF) is a revolving account that

provides various types of services and materials to the military, which

pays for these items with O&M funds.

7

U.S. Combat Air Power: Reassessing Plans to Modernize Interdiction Capabilities Could Save Billions

(GAO/NSIAD-96-72, May 13, 1996).

8

Attrition aircraft are aircraft that are used to replace aircraft lost while performing peacetime

missions.

9

Aircraft Requirements: Air Force and Navy Need to Establish Realistic Criteria for Backup Aircraft

(GAO/NSIAD-95-180, Sept. 29, 1995).

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The Air Force’s fiscal year 1997 O&M budget request includes a one-time

increase of $194.5 million that will be passed through to DBOF so that it can

recover prior years’ operating losses and will not have to increase the

surcharge rate it charges its customers.

Additionally, the Army’s fiscal year 1997 O&M budget request includes

$58.9 million for pass-through to DBOF to cover the cost of unutilized

plants. According to an Army official, the Army requested the pass-through

rather than having to pass the costs on to its customers through increased

surcharge rates. For fiscal year 1997, the Army changed its policy

regarding unutilized plants. The change in policy is intended to encourage

DBOF activities to put unused plants and equipment into standby, idle, or

layaway status. Prior to fiscal year 1997, the Army could pass the costs of

unutilized plants on to customers through increased DBOF rates.

We have previously reported10 that we do not agree with the practice of

using the O&M appropriation process to finance DBOF losses. Doing so fails

to focus on DBOF’s actual results of operations, diminishes its incentive to

operate efficiently, and makes it more difficult to evaluate and monitor

DBOF operations. Our long-standing position has been that DBOF managers

should be required to request funds for and justify the need to recover the

prior years’ losses to Congress rather than covering such losses with an

O&M pass-through to DBOF.

In view of our long-standing position that DBOF managers be required to

request supplemental appropriations to cover losses associated with Air

Force and Army DBOF activities, Congress may want to reduce the Air

Force’s O&M budget request by $194.5 million and the Army’s O&M budget

request by $58.9 million.

Civilian Personnel

Requirements

The Army’s, the Navy’s, the Air Force’s, and DOD’s fiscal year 1997 budget

requests for civilian personnel could be reduced by $245.5 million because

(1) the projected civilian personnel levels at the beginning of fiscal year

1997 will be less than those the services used to determine their budget

requests ($185.5 million) and (2) the amount requested in the budget

submission differs from the amount shown in the budget justification

documents ($60 million).

10Defense Business Operations Fund: Improved Pricing Practices and Financial Reports Are Needed to

Set Accurate Prices (GAO/AIMD-94-132, June 22, 1994).

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Based on the number of Navy and DOD personnel onboard as of April 1996,

and Army and Air Force personnel onboard as of May 1996, we estimate

that the actual end strength at the end of fiscal year 1996—the beginning

figure for fiscal year 1997—will be 7,33111 personnel less than the number

used by the services to determine their fiscal year 1997 budget request.

Because the services used a larger beginning figure, the number of work

years used in the budget request is also overstated by 3,665 work years, or

$185.5 million.

Additionally, we found that the amount shown in the President’s budget

for civilian personnel was $60 million more than the amount shown in the

justification documents.

Table 4 shows the effect of the overstatement of work years and the

variance between the President’s budget presentation and the supporting

documentation.

Table 4: Civilian Personnel Overstatement for Fiscal Year 1997

Overstatedb

Dollars in millions

Service

Our estimated

beginning

strength for FY

1997a

Beginning

strength used in

FY 1997 budget

request

Difference

between our

estimate and

estimate in

budget request

Work

years Value

Difference

between amount

in President’s

budget and

supporting

documentation

Total

overstatement

Army 258,590 259,462 872 436 $28.3 $5.0 $33.3

Navy 235,373 239,961 4,588 2,294 111.3 (3.0) 108.3

Air Force 182,926 183,357 431 216 12.0 58.0 70.0c

Other DOD 101,933 103,373 1,440 719 33.9 33.9

Total 778,822 786,153 7,331 3,665 $185.5 $60.0 $245.5

aActual attrition rate for fiscal year 1996 to date projected to the end of the fiscal year. The

projected figure was then adjusted downward to compensate for unknown events that could

affect attrition during the remainder of the fiscal year.

bEquivalent work years multiplied by the average annual compensation rate.

cAir Force officials said that the $58 million overstatement is offset by a $58-million

understatement in contract and services. If this is the case, the total Air Force overstatement

would be $12 million.

In view of the overstated personnel requirements, Congress may want to

reduce the Army’s budget request for civilian personnel by $33.3 million,

11This equates to 3,665 work years.

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the Navy’s by $108.3 million, the Air Force’s by $70 million, and other DOD

agencies by $33.9 million.

Army Operating Tempo The Army uses the Training Resource Model (TRM) to compute its

operating tempo (OPTEMPO) requirements. OPTEMPO refers to the pace of

operations and training that units need in order to achieve a prescribed

level of readiness. We reported12 that TRM contained outdated assumptions

that resulted in an overstatement of training requirements. Although the

Army is in the process of implementing corrective measures, TRM remains

outdated and the Army continues to overestimate the amount of OPTEMPO

funds it needs.

For fiscal year 1997, the Army requested $2.61 billion for ground OPTEMPO

based on a training rate of 800 miles per vehicle per year. However, the

Army only obligated 91 percent of its OPTEMPO funds in fiscal year 1995. In

addition, one of the Army’s major commands planned to execute a training

rate of only 720 miles for fiscal year 1996.

Based on the fact that TRM has not been updated to more accurately reflect

actual training requirements and the Army’s average percentage of

OPTEMPO funds obligated for fiscal year 1995 was 9 percent less than the

Army planned to spend, we estimate the Army’s fiscal year 1997 request

could be reduced about $235 million ($2.61 billion multiplied by

9 percent).

U.S. Transportation

Command

The U.S. Transportation Command (USTRANSCOM) is responsible for

providing air, land, and sea transportation services to the military forces.

These services are provided through USTRANSCOM’s three component

commands: the Military Traffic Command (MTMC), the Air Mobility

Command (AMC), and the Military Sealift Command (MSC). USTRANSCOM

operates under the DBOF system of financial management whereby DOD

customers request transportation services from USTRANSCOM’s component

commands, which contract for the services and bill the customers for

those services. DOD guidance requires that USTRANSCOM recover its total

cost from its customers. Customers generally pay for the transportation

services with O&M funds.

12Army Training: One-Third of 1993 and 1994 Budgeted Funds Were Used for Other Purposes

(GAO/NSIAD-95-71, Apr. 7, 1995).

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In February 1996,13 we reported that DOD customers pay USTRANSCOM

substantially more—from 24 percent to 201 percent—than it costs

USTRANSCOM to provide the transportation services. For example,

customers may pay MTMC and MSC $3,800 to arrange for shipment of a

container load from California to Korea. However, the commercial carrier

may charge USTRANSCOM only $1,250 for providing the transportation

service.

Factors that increase the transportation costs to the customers include

(1) fragmented transportation processes, (2) multiple organizational

elements to implement these processes, and (3) component commands’

organizational structure that requires duplicative administrative and

support activities.

DOD and USTRANSCOM are reengineering the component commands’

transportation business processes, but are delaying organizational changes

that would eliminate duplicative and redundant functions existing among

the component commands. We believe that waiting to address the issues

of organizational structure will be a significant barrier to achieving the full

benefits of the reengineering efforts.

In order to encourage USTRANSCOM to make the needed organizational

changes, Congress may want to reduce USTRANSCOM’s DBOF budget by

$250 million, or 5 percent. If the changes are made, the services would

need less O&M funds to pay for the more efficient and less costly

USTRANSCOM transportation services. The reduction should be made based

on the percent of total transportation services that each of the military

services obtain from USTRANSCOM: Army $92.5 million, Navy $25 million,

Marine Corps $12.5 million, Air Force $55 million, and Defense-wide

$65 million.

DOD officials said that reducing the services’ O&M budgets has the effect of

penalizing the services for USTRANSCOM’s inefficient operations. They

recommended and we agree that if the services’ O&M budget requests are

reduced, USTRANSCOM should rebate a like amount to each service.

13Defense Transportation: Streamlining of the U.S. Transportation Command Is Needed

(GAO/NSIAD-96-60, Feb. 22, 1996).

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Environmental Restoration In March 1996,14 we reported that the Army’s budget request does not

consider the funds contributed by the Shell Oil Company for its share of

the cleanup costs at the Rocky Mountain Arsenal. According to Army

officials, there is about $80 million in the Shell account and these funds

are used to supplement funds transferred to O&M from the Defense

Environmental Restoration Account (DERA).15

The Army rolls up the Arsenal’s requirements for appropriated funds into a

consolidated DOD budget request and according to Army officials, the Shell

funds are not visible in the budgeting process and do not influence funding

decisions. Army officials also said that, in most instances, it is not feasible

to use the Shell funds to offset budget requirements because the funds do

not represent a steady fixed flow and are not fiscal year specific.

Although the Shell contribution may not represent a fixed flow of funds,

there are about $80 million in the account, and this is more than the

Arsenal’s allocation for environmental cleanup in fiscal year 1996—about

$75 million. In view of the fact that the $80 million Shell contribution to

the cleanup costs at the Arsenal has not been considered in determining

total requirements, Congress may want to reduce the amount of funds

transferred to Army O&M from the Environmental Restoration Account in

the fiscal year 1997 budget request by $80 million.

Flying Hours The Army and the Defense-wide fiscal year 1997 O&M budget requests for

flying hours can be reduced by $58.3 million for the following reasons:

• The Army traditionally requests more funds for its flying hour program

than it obligates. For example, in fiscal year 1995, the Army planned to fly

807,000 hours but only flew 748,419 hours, a 7-percent reduction. In fiscal

year 1996, the Army’s budget request was based on 690,667 flying hours.

However, after the budget was submitted, the Army adjusted its flying

hour program downward by 5 percent. Additionally, the Army flew about

5 percent fewer hours in the first quarter of fiscal year 1996 than it

planned.

14Environmental Cleanup: Progress in Resolving Long-standing Issues at the Rocky Mountain Arsenal

(GAO/NSIAD-96-32, Mar. 29, 1996).

15Congress established DERA in 1984 to fund the cleanup of inactive contaminated sites on DOD

installations. DERA is a transfer account, that is, funds in the account are available for transfer by the

Secretary of Defense to any appropriation account or fund for obligation.

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In view of the fact that the Army flew fewer hours than funded in fiscal

year 1995 and it appears that the Army will fly fewer hours than funded in

fiscal year 1996, Congress may wish to reduce the Army’s fiscal year 1997

flying hour budget by $40.3 million (5 percent of the $805 million

requested).

• The Defense Health Program’s flying hour program supports the

aeromedical evacuation system, which provides air transportation for

injured, sick, and wounded active-duty members of the armed forces in the

United States.

A joint review conducted by the DOD Inspector General (DOD-IG) and the Air

Force Audit Agency16 concluded that the Defense Health Program’s

aircraft were being flown in excess of previous and current training

requirements and that the flying hour program should be reduced from

17,211 hours to 8,550 hours—a savings of $20.2 million. In response to the

report, the DOD Comptroller reviewed the aeromedical flying hour program

budget request for fiscal year 1997 and reduced the aeromedical flying

hour program by 3,500 hours—a reduction of $2.2 million.

Because the DOD-IG recommended a $20.2 million reduction and the DOD

Comptroller only reduced the flying hour program by $2.2 million,

Congress may want to further reduce the program’s fiscal year 1997 flying

hour program by $18 million.

Air Force Aircraft Basing Until 1992, Air Force F-15 and F-16 aircraft wings consisted of 

3 squadrons, with 24 combat aircraft in each squadron. In 1992, the Air

Force began reducing each squadron to 18 combat aircraft, or 54 combat

aircraft in each wing.

Our May 199617 report showed that the current F-15 and F-16 squadron

configuration is less efficient and more costly than the former

configuration of 24 aircraft in each squadron. Our review of Air Force base

closure capacity data indicated that most fighter wings in the United

States could increase squadron size to previous levels with little or no

additional costs. In fact, wing personnel at 2 Air Force bases indicated that

their installations could absorb 18 aircraft per wing at no additional cost. If

16DOD Inspector General Report No. 95-225, Aeromedical Evacuation System, June 9, 1995.

17Air Force Aircraft: Consolidating Fighter Squadrons Could Reduce Costs

(GAO/NSIAD-96-82, May 6, 1996).

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the Air Force changed its wing configuration back to the previous level of

72 aircraft, it could close 1 base, reduce maintenance personnel and

equipment requirements, and save about $48 million in fiscal year 1997.

Accordingly, Congress may want to reduce the Air Force’s fiscal year 1997

O&M request by $48 million.

Real Property Maintenance The real property maintenance program funds the maintenance, repair,

and minor construction of facilities and properties. The Navy’s Pacific

Fleet’s real property maintenance account is divided into 19 categories, 18

of which identify specific projects in areas such as troop housing, utility

systems, and maintenance. The remaining category is identified as “other.”

For fiscal year 1997, the Navy’s budget request included $27.9 million for

the other category.

We requested the list of projects to be funded from the other category.

Pacific Fleet officials told us that a list does not exist for the other

category. We also asked Navy Comptroller officials to provide

documentation to support the $27.9 million request. At the time we

completed our review in July 1996, the requested documentation had not

been provided nor could the Navy explain how the money would be used.

Therefore, Congress may wish to reduce the Navy’s O&M request by

$27.9 million.

Hunter Unmanned Aerial

Vehicle System

The Army’s fiscal year 1997 O&M budget request includes $20 million to

operate, support, and store the Hunter Unmanned Aerial Vehicle system.

In 1995, the Joint Chiefs of Staff (JCS) and the Joint Requirements

Oversight Council (JROC) recommended terminating the Hunter program

and reprogramming the funds to other warfighting priorities. Their

memorandum directed that equipment already delivered should be placed

in an inactive storage status.

In January 1996, the DOD Acquisition Decision Memorandum approved

termination of the Hunter program after delivery of seven systems. The

memorandum also approved the operational use of one system until a new

unmanned aerial vehicle becomes available and authorized the use of

other assets for testing as well as operator and maintenance training.

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Our evaluations of the Hunter program disclosed numerous deficiencies.

In December 1993,18 we reported that test results identified deficiencies

that could jeopardize the system’s ability to meet military requirements. In

March 1995,19 we reported that the Hunter system was logistically

unsupportable and that tests had identified serious performance problems

that adversely impacted the system’s effectiveness.

Our analysis showed that $19.5 million of the $20 million the Army

requested will be used for depot operations, field training support, and

logistics support. The remaining $500,000 will be used for inactive storage.

In view of the numerous logistics and operational problems highlighted in

our reports and the fact that the JCS and the JROC recommended that the

Hunter program be terminated, Congress may want to reduce the Army’s

budget by $19.5 million.

Training Rotations at the

National Training Center

and the Joint Readiness

Training Center

The fiscal year 1997 Army and National Guard O&M budget requests for

training rotations can be reduced by $16.7 million for the following

reasons:

• Two Army units (one active unit and one National Guard unit) that were

scheduled to attend the National Training Center (NTC) in fiscal year 1997

are not ready for NTC training and will not go. Because other units will not

be sent in place of the two units, the number of NTC training rotations has

been reduced to 10 instead of 12 during fiscal year 1997. As a result, the

Army will not incur about $7.2 million of O&M training costs related to

transportation, maintenance, and sending opposing force augmentees to

NTC.

• The National Guard planned to send a brigade to the Army’s Joint

Readiness Training Center (JRTC) in fiscal year 1997. After the Army

submitted its operating budget for JRTC, a decision was made to not send

the brigade and no other unit will be sent in its place. As a result, the Army

will not incur about $900,000 of costs that were included in the fiscal year

1997 budget.

The Army agrees that its budget request is overstated by $8.1 million due

to changes in training rotations. However, Army officials said that they

18Unmanned Aerial Vehicles: Performance of Short Range System Still in Question

(GAO/NSIAD-94-65, Dec. 15, 1993).

19Unmanned Aerial Vehicles: No More Hunter Systems Should Be Bought Until Problems Are Fixed

(GAO/NSIAD-95-52, Mar. 1, 1995).

Page 15 GAO/NSIAD-96-220 1997 DOD Budget
B-274141 

would like to retain $3 million of the $8.1 million to meet other unfunded

requirements.

In addition to the costs incurred by the active Army for sending units to

the training centers, the National Guard also incurs costs for sending its

units to the training centers.

• The Army National Guard is allocated a training rotation each year at NTC

and JRTC. According to the National Guard Bureau, it costs the National

Guard about $8.6 million more than normal annual training expenses to

send two brigades to the training centers. Because of the decision not to

send a brigade to NTC and JRTC in fiscal year 1997, the National Guard

budget could be reduced by $8.6 million.

Army Prepositioning Afloat

Program

The Army currently has seven prepositioning ships that were activated

from the Ready Reserve Force (RRF). The Army plans to use these ships

until it takes delivery of five large, medium speed, roll-on/roll-off (LMSR)

ships. At that time, the Army will transfer the materials from the seven

existing ships to the five LMSR ships and return the seven ships to RRF.

The Army’s fiscal year 1997 O&M budget request includes $173.8 million to

lease and operate the prepositioning ships. Included in the $173.8 million

is $12.6 million to lease and operate six ships for 30 days to 92 days from

the date the ships are unloaded until they are returned to RRF.

20 The Army

added costs for 30 to 92 additional days between the unloading date and

the date the ships are scheduled for return to RRF, because, according to an

Army official, the additional days would be needed if LMSRs are not

delivered as scheduled.

In addition, the Army’s budget includes $1.1 million to deactivate one ship

on the last day of the fiscal year even though the Military Sealift Command

has included the deactivation cost for the ship in its fiscal year 1998

budget.

In view of the fact that the Army included $12.6 million for additional ship

lease and operating costs and $1.1 million for deactivation, which is

scheduled for fiscal year 1998, Congress could reduce the Army’s fiscal

year 1997 O&M budget request by $13.7 million.

20The Army pays the Military Sealift Command for the lease and operation of the prepositioning ships.

Page 16 GAO/NSIAD-96-220 1997 DOD Budget
B-274141 

Fuel Tax Refunds The Internal Revenue code imposes a federal excise tax on gasoline and

diesel fuel purchased. However, the military services are entitled to a

refund for that portion of the fuel used on base. In September 1995, the Air

Force Audit Agency21 and the Army Audit Agency22 reported that neither

service is receiving all the refunds they are entitled to.

The Air Force Audit Agency estimated that because the Air Force had not

established effective controls to ensure timely filing for the tax refunds,

the Air Force could lose about $8.5 million in fiscal year 1997 if corrective

actions are not taken. The Army Audit Agency similarly reported that the

Army could lose as much as $2.3 million in fiscal year 1997 because of its

failure to seek and obtain fuel tax refunds. Therefore, Congress may want

to reduce the Air Force’s fiscal year 1997 budget by $8.5 million and the

Army’s by $2.3 million to encourage them to improve their fuel tax refund

filing procedures.

Bosnia Operations The Air Force included $74.4 million in its fiscal year 1997 O&M budget

request for ongoing operations in Bosnia based on fiscal year 1996 cost

estimates. In March 1996, we reported23 that the Air Force’s fiscal year

1996 costs may be significantly less than estimated because (1) per diem

costs were less than planned ($89 million instead of $128 million) and

(2) the number of flying hours in fiscal year 1996 was reduced by 

1,900 hours.

We computed the estimated costs for fiscal year 1997 using the Air Force’s

updated fiscal year 1996 costs for per diem and transportation, and added

an inflation factor of 3 percent. Our computation was $4.7 million less than

the Air Force’s estimate.

In addition, the Air Force’s cost estimate for the fiscal year 1997 air

operations is overstated because the Air Force based its estimate on the

fiscal year 1996 program before it was reduced by 1,900 hours (475 per

quarter). As a result, air operations, which are planned to end after the

first quarter of fiscal year 1997, are overstated by 475 hours, or $910,695.

Therefore, Congress may want to reduce the Air Force’s fiscal year 1997

budget request by $5.6 million ($4.7 million plus $900,000).

21Follow-up Audit—Management of Ground Fuel Tax Refunds (Air Force Audit Agency Project

94077011, Sept. 8, 1995).

22Fuel Tax Refunds (Army Audit Agency NR-95-211, Sept. 8, 1995).

23Bosnia: Costs Are Uncertain but Seem Likely to Exceed DOD’s Estimate (GAO/NSIAD-96-120BR,

Mar. 14, 1996).

Page 17 GAO/NSIAD-96-220 1997 DOD Budget
B-274141 

Ammunition Maintenance The Army, as the single manager for conventional ammunition, is

responsible for managing and maintaining wholesale stocks of

conventional ammunition for all the services. Each service provides O&M

funds to the Army to pay for maintenance and repair of its ammunition.

In June 1996,24 we reported that the Army plans to spend $1.3 million and

the Marine Corps $3.9 million in fiscal year 1997 to restore ammunition

items to a usable condition when, at the same time, there are already

sufficient excess ammunition items in a ready-to-use condition. Table 5

shows the planned maintenance expenditures and the existing excess

ammunition items.

Table 5: Fiscal Year 1997 Ammunition

Maintenance Expenditures for

Like-Type Excess Ammunition Items Planned maintenance

Quantities and dollars in thousands

Description

Excess inventory

quantity Quantity Cost

5.56mm cartridge 22,301.8 288.1 $86.4

40mm cartridge 727.7 50.0 112.5

40mm cartridge 1,049.0 350.0 1,118.5

155mm projectile 839.7 50.0 1,560.0

Fuze 3,773.6 245.0 2,290.8

Total 28,691.8 983.1 $5,168.2

In view of the above, Congress may want to reduce the Army’s and the

Marine Corps’ fiscal year 1997 O&M requests by $1.3 million and

$3.9 million, respectively.

Mine Hunter Ships The Navy plans to acquire 12 coastal mine hunter ships (MHC) by the end of

fiscal year 1999 at a total cost of about $1.5 billion. Although these ships

were initially designed for U.S. coastal protection from Soviet mines, the

need for them has greatly diminished with the breakup of the Soviet

Union. In May 1995, the DOD-IG reported25 that the Navy could deactivate 

5 of the 12 MHC ships and achieve O&M cost avoidance of $69.2 million26

24Defense Ammunition: Significant Problems Left Unattended Will Get Worse (GAO/NSIAD-96-129,

June 21, 1996).

25This report is classified.

26The cost avoidance is the difference between the total O&M cost ($76.2 million) for the 6-year period

and the cost of inactivating the ships ($7 million).

Page 18 GAO/NSIAD-96-220 1997 DOD Budget
B-274141 

during fiscal years 1996-2001. In March 1996, we recommended27 that the

Navy consider deactivating and storing the five unneeded ships or

transferring them to other allied navies through the foreign military sales

program. The Navy is currently exploring these options.

By the end of fiscal year 1997, the Navy will have received 10 of the 12

ships and has identified a requirement for 7 of them. Our analysis showed

that if the Navy deactivated three ships—the number of ships on hand by

the end of fiscal year 1997 less the identified requirement—it could save

about $4.7 million ($6.9 million total O&M costs less $2.2 million for

deactivating the ships). Therefore, Congress may want to consider

reducing the Navy’s O&M request by $4.7 million to encourage the Navy to

deactivate the unneeded ships.

Moral, Welfare, and

Recreation

The Army’s morale, welfare, and recreation (MWR) programs are

quality-of-life programs that provide a variety of community, soldier,

family, recreational, educational, and other support activities. The

programs are funded by appropriated funds and/or nonappropriated funds.

Appropriated fund support for the MWR programs is included in the Army’s

O&M budget request.

The Army Audit Agency reported28 that the Army’s Training and Doctrine

Command could reduce its annual MWR overhead costs by $2.1 million if it

would transfer MWR accounting functions to a centralized accounting

facility at the Red River Army Depot. The Army Audit Agency also

reported that the Training and Doctrine Command was the only major

Army command in the United States that had not transferred its MWR

accounting functions to Red River.

In February 1996, the Command agreed to transfer its MWR accounting

functions to Red River Army Depot. The transfer will save $2.1 million,

which will be available to fund other MWR programs. Because the fiscal

year 1997 budget request does not reflect the transfer of accounting

functions, Congress could reduce MWR appropriated fund support to the

Army by $2.1 million and not adversely affect MWR services.

27Navy Mine Warfare: Budget Realignment Can Help Improve Countermine Capabilities

(GAO/NSIAD-96-104, Mar. 13, 1996).

28Morale, Welfare, and Recreation Overhead and Layering (Army Audit Agency SR 95-710, Aug. 9,1995).

Page 19 GAO/NSIAD-96-220 1997 DOD Budget
B-274141 

Scope and

Methodology

This review is one of a series that examines defense budget issues. Our

review approach consisted of interviews with program and budget officials

responsible for managing the programs and/or preparing the budget

requests; reviews and analyses of financial, budget support, and program

documents related to the O&M issues being reviewed; and analysis of

prior-year funding levels and obligations to identify trends. In addition, we

reviewed our ongoing assignments and recently issued reports as well as

recently issued reports of the DOD-IG and the service audit agencies to

identify issues with O&M ramifications.

Our review was performed at Army, Navy, Air Force, and DOD

headquarters; USAREUR; FORSCOM; Atlantic and Pacific Fleets; and Air

Combat Command. We performed our review from January to June 1996

in accordance with generally accepted government auditing standards.

Representatives of the services and DOD were given an opportunity to

comment on the issues in this report. Their comments were incorporated

in the report where appropriate.

We are sending copies of this report to the Secretaries of Defense, the

Army, the Navy, and the Air Force; the Director of the Office of

Management and Budget; the Chairmen and Ranking Minority Members of

the House and Senate Committees on Appropriations, Senate Committee

on Armed Services, and House Committee on National Security; and other

interested congressional committees. Copies will be made available to

others upon request.

This report was prepared under the direction of Mark E. Gebicke,

Director, Military Operations and Capabilities Issues, who may be reached

on (202) 512-5140 if you or your staff have any questions. Major

contributors to this report are listed in appendix I.

Henry L. Hinton, Jr.

Assistant Comptroller General

Page 20 GAO/NSIAD-96-220 1997 DOD Budget
B-274141 

List of Congressional Committees

The Honorable Ted Stevens

Chairman

The Honorable Daniel K. Inouye

Ranking Minority Member

Subcommittee on Defense

Committee on Appropriations

United States Senate

The Honorable John McCain

Chairman

The Honorable John Glenn

Ranking Minority Member

Subcommittee on Readiness

Committee on Armed Services

United States Senate

The Honorable John R. Kasich

Chairman

The Honorable Martin Olav Sabo

Ranking Minority Member

Committee on the Budget

House of Representatives

The Honorable Herbert H. Bateman

Chairman 

The Honorable Norman Sisisky

Ranking Minority Member

Subcommittee on Military Readiness

Committee on National Security

House of Representatives

The Honorable C. W. Bill Young

Chairman

The Honorable John P. Murtha

Ranking Minority Member

Subcommittee on National Security

Committee on Appropriations

House of Representatives

Page 21 GAO/NSIAD-96-220 1997 DOD Budget
Appendix I 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

Robert J. Lane

Carole F. Coffey

Donna M. Rogers

Atlanta Regional

Office

Robert M. Crowl

Harry F. Jobes

Kansas City Regional

Office

Leonard C. Hill

Robert C. Sommer

Mark T. Amo

Los Angles Regional

Office

Revae E. Steinman

Dale M. Yuge

Yelena K. Thompson

Norfolk Regional

Office

Thomas A. Pantelides

Robert C. Mandigo, Jr.

Cora M Bowman

Raul S. Cajulis

Linda H. Koetter

Jeanett H. Reid

(703135) Page 22 GAO/NSIAD-96-220 1997 DOD Budget
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