Future Years Defense Program: Actions Needed to Improve Transparency of DOD's Projected Resource Needs
Published: 2004-05-07T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Congress needs the best available data about DOD's resource tradeoffs between the dual priorities of transformation and fighting the global war on terrorism. To help shape its priorities, in 2001 DOD developed a capabilities-based approach focused on how future adversaries might fight, and a risk management framework to ensure that current defense needs are balanced against future requirements. Because the Future Years Defense Program (FYDP) is DOD's centralized report providing DOD and Congress data on current and planned resource allocations, GAO assessed the extent to which the FYDP provides Congress visibility over (1) projected defense spending and (2) implementation of DOD's capabilities-based defense strategy and risk management framework.
section_title: What GAO Found
paragraphs: The FYDP provides Congress with mixed visibility over DOD's projected spending for the current budget year and at least four succeeding years. On the one hand, it provides visibility over many programs that can be aggregated so decision makers can see DOD's broad funding priorities by showing shifts in appropriation categories. On the other hand, in some areas DOD likely understates the future costs of programs in the FYDP because it has historically employed overly optimistic planning assumptions in its budget formulations. As such, DOD has too many programs for the available dollars, which often leads to program instability, costly program stretchouts, and delayed program termination decisions. Also, the FYDP does not reflect costs of ongoing operations funded through supplemental appropriations. Since September 2001, DOD has received $158 billion in supplemental appropriations to support the global war on terrorism, and DOD expects to request another supplemental in January 2005 to cover operations in Iraq and Afghanistan. While DOD officials stated they are uncertain of the amount of the request, some requirements they intend to fund with the supplemental appropriation have already been identified, such as temporarily increasing the Army's force structure. Defining costs during ongoing operations is challenging and supplemental appropriations are sometimes necessary; however, not considering the known or likely costs of ongoing operations expected to continue into the new fiscal year as part of larger budget deliberations will preclude DOD and congressional decision makers from fully examining the budget implications of the global war on terrorism. The FYDP provides Congress limited visibility over important DOD initiatives. While DOD is considering how to link resources to defense capabilities and the risk management framework, it does not have specific plans to make these linkages in the FYDP, in part because the initiatives have not been fully defined or implemented. Because the FYDP lacks these linkages, decision makers cannot use it to determine how a proposed increase in capability would affect the risk management framework, which balances dimensions of risk, such as near term operational risk versus risks associated with mid- to long-term military challenges.

section_title: Letter
paragraphs: In light of the Department of Defense’s (DOD) challenge of transforming  its forces for the future while simultaneously fighting the global war on  terrorism, decision makers need to have the best data available about  resources to make trade-offs among these priorities. The Future Years  Defense Program (FYDP), a DOD centralized report consisting of  thousands of program elements, provides information on DOD’s current  and planned outyear budget requests and is one of the principal tools  available to help inform DOD and Congress about resource data relating to  these challenging trade-offs. In 2001, to help shape its priorities, DOD  developed a new capabilities-based defense strategy focused on “how”  future adversaries might fight, rather than specifically on “whom” they  might be. Realizing that it could not achieve the goals of the new strategy  without a new approach to managing different kinds of defense risks, such  as near term operational risk, DOD identified an associated risk  management framework to ensure that current defense needs are  balanced against future requirements. These two concepts—the  capabilities-based approach and the risk management framework—are  key tenets in DOD’s 2001 Quadrennial Defense Review (QDR).  Furthermore, DOD has emphasized the need to link resources to  capabilities and the risk management framework.
We believe this report on the FYDP will be useful for your committees’  oversight of DOD’s future resource allocations between the dual priorities  of transformation and fighting the global war on terrorism. We examined  the utility of the FYDP as one of the principal tools providing DOD and  Congress data on current and planned resource allocations. Specifically  we assessed the extent to which the FYDP provides Congress visibility  over (1) projected defense spending and (2) the implementation of DOD’s  capabilities-based approach and risk management framework outlined in  the 2001 QDR.
In conducting our review, we determined that the automated FYDP data  were sufficiently reliable for meeting our objectives. To assess  congressional visibility of projected defense spending, we compared DOD  reports and related 2003 and 2004 budget submissions, analyzed 2003 and  2004 FYDP resource data, examined related reports, reviewed documents  and officials’ statements related to supplemental appropriations, and  interviewed appropriate DOD program and budget officials. To assess  DOD’s implementation of its capabilities-based approach and risk  management framework, we interviewed appropriate DOD officials, and  officials from the Institute for Defense Analyses -– the organization  currently under contract to make improvements to the FYDP; examined  various DOD planning and budget documents; and analyzed the FYDP  structure for the feasibility of including links to defense capabilities and  the risk management framework. We conducted our work between June  2003 and February 2004 in accordance with generally accepted  government auditing standards. See appendix I for a more complete  description of our scope and methodology.
subsections: section_title: Background
paragraphs: In 1962, DOD instituted the Planning, Programming, and Budgeting System  to establish near-term projections in defense spending. This system was  intended to provide the necessary data to assist defense decision makers  in making trade-offs among potential alternatives, thereby resulting in the  best possible mix of forces, equipment, and support to accomplish DOD’s  mission. The military services and other DOD components developed the  detailed data projections for the budget year in which funds were being  requested and at least the 4 succeeding years and provided them to the  Office of the Secretary of Defense. The resulting projections were  compiled and recorded in a 5-year plan. In 1987, Congress directed the  Secretary of Defense to submit the five-year defense program (currently  referred to as the future years defense program, or FYDP) used by the  Secretary in formulating the estimated expenditures and proposed  appropriations included in the President’s annual budget to support DOD  programs, projects and activities. The FYDP, which is submitted annually  to Congress, is considered the official report that fulfills this legislative  requirement.
The Office of Program Analysis and Evaluation has responsibility for the  assembly and distribution of the FYDP. The Office of the Under Secretary  of Defense (Comptroller) has responsibility for the annual budget  justification material that is presented to Congress. These offices work  collaboratively to ensure that the data presented in the budget justification  material and the FYDP are equivalent at the appropriation account level.
The FYDP provides DOD and Congress a tool for looking at future funding  needs beyond immediate budget priorities and can be considered a long- term capital plan. As GAO has previously reported, leading practices in  capital decision making include developing a long-term capital plan to  guide implementation of organizational goals and objectives and help  decision makers establish priorities over the long term. In 2002, Congress  directed the Department of Homeland Security to begin developing a  future budget plan modeled after DOD’s FYDP.
In the 2001 QDR Report, DOD established a new defense strategy and  shifted the basis of defense planning from a “threat-based” model to a  “capabilities-based” model. According to the QDR report, the capabilities- based model is intended to focus more on how an adversary might fight  rather than specifically on whom the adversary might be or where a war  might occur. The report further states that in adopting a capabilities-based  approach, the United States must identify the capabilities required to deter  and defeat adversaries, maintain its military advantage, and transform its  forces and institutions.
The QDR report also outlined a new risk management framework to use in  considering trade-offs among defense objectives and resource constraints.  This framework consists of four dimensions of risk:    Force management–the ability to recruit, retain, train, and equip  sufficient numbers of quality personnel and sustain the readiness of the  force while accomplishing its many operational tasks;    Operational–the ability to achieve military objectives in a near-term  conflict or other contingency;    Future challenges–the ability to invest in new capabilities and develop  new operational concepts needed to dissuade or defeat mid- to long-term  military challenges; and    Institutional–the ability to develop management practices and controls  that use resources efficiently and promote the effective operation of the  Defense establishment.
These risk areas will form the basis for DOD’s annual performance goals  and for tracking associated performance results. Moreover, the QDR states  that an assessment of the capabilities needed to counter both current and  future threats must be included in DOD’s approach to assessing and  mitigating risk.
section_title: FYDP Provides Congress with Mixed Visibility of Projected DOD Spending
paragraphs: The FYDP provides Congress visibility of broad DOD funding shifts and  priorities regarding thousands of programs that have been aggregated, or  grouped, by appropriation category. For example, we noted that DOD  increases its Research, Development, Test and Evaluation (RDT&E)  account category and decreases other account categories in the 2004  FYDP. Other funding shifts/priorities are less visible because the FYDP  report, organized by program, cannot display some specific costs that are  important to decision makers, such as funding for DOD’s civilian  workforce. Moreover, the FYDP is a reflection of the limitations of DOD’s  budget preparation process. For example, as we have reported in the past,  the FYDP reflects DOD’s overly optimistic estimations of future program  costs that often lead to costs being understated. Such understatements  may have implications for many programs beyond the years covered by  the FYDP. Finally, the costs of ongoing operations in Iraq and Afghanistan,  which have been funded through supplemental appropriations, are not  projected in the FYDP thereby limiting the visibility over these funds. The  administration is expected to request additional supplemental funds in  calendar year 2005 according to DOD officials. Although some costs are  difficult to predict, DOD expects costs to become more predictable later  this year. However, some requirements it plans to fund with the  supplemental appropriation have already been identified.
subsections: section_title: Some Funding Shifts/Priorities Are Visible at the Appropriation Category Level in the FYDP; Others Are Less Visible
paragraphs: The FYDP was designed to provide resource information at the program  level that could be aggregated a variety of ways including up to the  appropriation category level. For individual programs, this means that  decision makers have visibility over planned funding for 4 or 5 years  beyond the current budget year. Similarly, the programs can be aggregated  in a variety of ways to analyze future funding trends. For example, our  comparison of the 2003 FYDP to the 2004 FYDP provides visibility of  funding shifts that DOD made at the appropriation category level,  specifically showing that over the common years of both FYDPs, DOD  plans to increase funding in its RDT&E appropriation category, while in  most years decreasing funds to Procurement, Military Construction,  Military Personnel, and Operation and Maintenance. According to DOD  officials, this shift toward RDT&E reflects DOD’s emphasis on  transforming military forces. Since the FYDP does not clearly identify  those programs DOD considers transformational, we could not validate  this claim. Figure 1 shows the changes made between the 2003 and 2004  FYDPs to the department’s appropriation categories for the common   4-year period, 2004–2007. Appendix II provides a more detailed table.
Compared to the 2003 FYDP, funding in the Operation and Maintenance  appropriation category in the 2004 FYDP was reduced by at least $9 billion  per year from 2004 through 2007 for a total of $42 billion over that period.  About $41 billion of that decrease is accounted for by the elimination of  the Defense Emergency Response Fund, which had projected over   $10 billion in funding each year for 2004 through 2007 in the 2003 FYDP,  but had no funding in the 2004 FYDP for those years. Over those same  years, the “Other DOD accounts” category increased by a total of   $19 billion. The increase in these categories was mainly fueled by a  $22 billion increase in the Defense Health Program, which was offset  somewhat by a decrease in Revolving Management Funds.
Although DOD’s policy priorities can be discerned at the appropriation  level, some important funding categories cannot be identified because  program elements, the most basic components of the report, are intended  to capture the total cost of the program, as opposed to individual costs  that comprise the program. For example, funding for spare parts, civilian  personnel, and information technology are included in funding for  individual programs and cannot be readily extracted from them. Congress  has expressed interest in all of these funding categories. We note that DOD  officials stated that these funding categories are delineated in other  reports to Congress.
Program elements that encompass multiple systems, such as the Army’s  Future Combat Systems and DOD’s Ballistic Missile Defense System, could  also limit visibility over funding trends and trade-offs in the FYDP. For  example, in its 2004 budget justification material, the administration  requested funding for the Army’s Future Combat Systems—often referred  to as a “system of systems”—under a single program element. In the  National Defense Authorization Act for Fiscal Year 2004, Congress  rejected the single program element and instead required the Secretary of  Defense to break Future Combat Systems into three program elements. In  the conference report accompanying the bill, the conferees noted that “the  high cost and high risk  require  congressional oversight which can be better accomplished through the  application of separate and distinct program elements for the [Future  Combat System].” In another example, DOD had proposed that Congress  repeal its requirement for specifying Ballistic Missile Defense System  program elements. According to DOD’s legislative proposal, this would  coincide with the Secretary of Defense’s goal to establish a single program  that allows allocating and re-allocating of funds among competing  priorities within the program. While Congress provided the administration  flexibility for specifying program elements related to Ballistic Missile  Defense, it nonetheless noted that budget reporting for Ballistic Missile  Defense under one program element would be inappropriate.
section_title: FYDP Limits Visibility of Some Future Costs through Overly Optimistic Planning Assumptions
paragraphs: Since the mid-1980s, we have reported a limitation in DOD’s budget  formulation—the use of overly optimistic planning assumptions. Such  overly optimistic assumptions limit the visibility of costs projected  throughout the FYDP period and beyond. As a result, DOD has too many  programs for the available dollars, which often leads to program  instability, costly program stretch-outs, and program termination. For  example, in January 2003, we reported that the estimated cost of  developing eight major weapon systems had increased from about   $47 billion in fiscal year 1998 to about $72 billion by fiscal year 2003.  We  currently expect DOD’s funding needs in some areas to be higher than the  estimates in the FYDP. The following are some examples of anticipated  cost increases based on recent reports where we made recommendations  to improve the management and costs estimates of these programs.
As we reported in April 2003, cost increases have been a factor in the Air  Force substantially decreasing the number of F/A-22 Raptors to be  purchased—from 648 to 276. Moreover, current budget estimates, which  exceed mandated cost limitations, are dependent on billions of dollars of  cost offset initiatives which, if not achieved as planned, will further  increase program costs. In addition, GAO considers continued acquisition  of this aircraft at increasing annual rates before adequate testing is  completed to be a high-risk strategy that could further increase production  costs.
DOD has not required the services to set aside funds to support the  procurement and maintenance of elements of the Ballistic Missile Defense  System. Management of this “system of systems” was shifted from the  services to the Department’s Missile Defense Agency in January 2002, but  procurement and maintenance costs will be borne by the services as  elements of the system demonstrate sufficient maturity to enter into full- rate production. In April 2003, we concluded that because DOD had not  yet set aside funds to cover its long-term costs, the department could find  that it cannot afford to procure and maintain that system unless it reduces  or eliminates its investment in other important weapons systems. We  recommended that the Secretary of Defense explore the option of  requiring the services to set aside funds for this purpose in the FYDP. DOD  concurred with this recommendation, noting that doing so would not only  promote the stability of the overall defense budget but would also  significantly improve the likelihood that an element or component would  actually be fielded.
Since its inception in fiscal year 1986, DOD’s $24 billion chemical  demilitarization program (a 2001 estimate) has been plagued by frequent  schedule delays, cost overruns, and continuing management problems. In  October 2003, we testified that program officials had raised preliminary  total program cost estimates by $1.4 billion and that other factors, yet to  be considered, could raise these estimates even more.
In written comments on a draft of this report, DOD strongly objected to  our conclusion that DOD has historically employed overly optimistic  assumptions and noted that these statements do not reflect recent efforts  to correct this problem. In August 2001, DOD established guidance that all  major acquisition programs should be funded to the Cost Analysis  Improvement Group estimates, which, according to DOD, have historically  been far more accurate than Service estimates. However, as DOD  acknowledges in its written comments, there is currently no auditable data  available to document the effects of this guidance; therefore, we could not  analyze this claim. Further, GAO reports issued after a draft of this report  was sent to DOD – such as our March 2004 report on the Air Force’s F/A- 22 program and our April 2004 testimony on DOD’s Chemical  Demilitarization program – continue to raise questions about DOD’s  planning assumptions. For example, in our F/A-22 report, we continued  to observe that additional increases in development costs for the F/A-22  are likely and in our report on DOD’s Chemical Demilitarization Program,  we observed that the program continues to fall behind schedule  milestones.
Some of the examples listed above will have budgetary impacts beyond  the 2009 end date of the 2004 FYDP. As the Congressional Budget Office  (CBO) reported in January 2003, “programs to develop weapon systems  often run for a decade or more before those systems are fielded, and other  policy decisions have long-term implications; thus, decisions made today  can influence the size and composition of the nation’s armed forces for  many years to come.” In its February 2004 update to that report, CBO  projected that if the programs represented in the 2004 FYDP were carried  out as currently envisioned by DOD, demand for resources would grow  from the current projection in 2009 of $439 billion to an average demand  for resources of $458 billion a year between 2010 and 2022. When CBO  assumed that costs for weapons programs and certain other activities  would continue to grow as they have historically rather than as DOD  currently projects, CBO’s projections increased to an average of $473  billion a year through 2009 and an average of $533 billion between 2010  and 2022.
section_title: FYDP Does Not Provide Visibility Over Future Costs of Operations Funded through Supplemental Appropriations
paragraphs: The FYDP does not include future costs for ongoing operations when  these operations are funded through supplemental appropriations. Since  the attacks of September 11, 2001, DOD has received supplemental  appropriations totaling $158 billion in constant 2004 dollars to support  operations in Iraq, Afghanistan, and elsewhere, as well as to initially  recover and respond to the terrorist attacks. This amount exceeds the  $99 billion DOD received in supplemental appropriations throughout all of  the 1990s and is more than what DOD requested for its entire Operation  and Maintenance account for fiscal year 2004. Table 1 summarizes these  supplemental appropriations.
In presentations related to the 2005 President’s budget submitted to  Congress in early February 2004, DOD officials reported that the budget  does not include funding for ongoing operations in Iraq and Afghanistan,  and they expect another supplemental will be needed in January 2005 to  finance incremental costs for these operations. Senior DOD officials  indicated that operations in Iraq and Afghanistan will continue into fiscal  year 2005, but the requirements and costs of these continued operations  are difficult to estimate because of uncertainties surrounding the political  situations in these regions. However, they noted that funding estimates  will likely become clearer over the course of the year. For example, the  Under Secretary of Defense (Comptroller) stated that by July 2004, the  operations in Iraq and Afghanistan may be better defined and that having  time to analyze expenditures will help in making more realistic  projections. In addition, Service and DOD officials have already identified  some requirements that have associated costs. For example, the Army has  been authorized to temporarily increase its end strength by 30,000 soldiers.  In briefings on the 2005 budget request, DOD and Army officials stated  that they intended to partially fund this additional end strength with the  supplemental appropriation anticipated for 2005.
DOD, with congressional approval, has used different approaches in the  past to fund operations. For example, in the former Yugoslavia, DOD  funded operations begun in fiscal year 1996 through a combination of  transfers between DOD accounts, absorbing costs within accounts, and  supplemental appropriations. However, in 1997, Congress established the  Overseas Contingency Operations Transfer Fund, which provided funding  to DOD rather than directly to the individual military services, and allowed  DOD to manage the funding of contingency operations among the military  services more effectively and with some flexibility. In 2002, DOD  determined that funding for operations in the former Yugoslavia were  sufficiently stable to be included directly in appropriation account  requests. GAO observed in a 1994 report that if an operation continued  into a new fiscal year, it would seem appropriate that DOD would build  the expected costs of that operation into its budget and allow Congress to  expressly authorize and appropriate funds for its continuation. We  continue to hold this view.
section_title: The FYDP Has Not Been Linked to Important QDR Initiatives, Thereby Limiting Congressional Visibility
paragraphs: The FYDP, as currently structured, does not contain a link to defense  capabilities or the dimensions of the risk management framework, both  important QDR initiatives, limiting the FYDP’s usefulness and  congressional visibility of the initiatives’ implementation. Further,  although DOD is considering how to link resources to these initiatives, it  does not have specific plans to make these linkages in the FYDP. The  Major Force Programs, initially developed as the fundamental framework  of the FYDP, remain virtually unchanged and are not representative of  DOD’s capabilities-based approach. Furthermore, additional program  aggregations that DOD created in the FYDP’s structure do not capture  information related to capabilities-based analysis or the risk management  framework in part because these concepts have not been fully developed.
subsections: section_title: FYDP Structure Does Not Reflect QDR Initiatives
paragraphs: DOD has modified the FYDP over time to create new categories of  program elements; however, it currently does not include categorizations  that are intended to relate to the QDR’s initiatives regarding defense  capabilities and the risk management framework. Major Force Programs,  originally established to organize the FYDP into the major DOD missions,  have remained virtually the same in the five decades since their  introduction, do not reflect how DOD combat forces and their missions  have changed over time, and do not organize the FYDP by major defense  capabilities. For example, the Major Force Program of General Purpose  Forces includes large numbers of programs with varied capabilities that  would complicate comparisons needed for understanding defense  capabilities and associated trade-off decisions inherent in risk  management. General Purpose Forces include virtually all conventional  forces within DOD and slightly over one-third of DOD funding is allocated  to this broad category. Ground combat units, tactical air forces, and  combatant ships are among the wide array of forces considered General  Purpose Forces. Including forces with such diverse capabilities in the  same category diminishes the Major Force Program’s usefulness to DOD  and Congress for identifying trade-offs among programs. Additionally, all  available resources with comparable capabilities are not categorized in the  same Major Force Program. For example, the Major Force Program  structure identifies Guard and Reserve forces separately despite the fact  that today Guard and Reserve forces are integrated into their respective  Service’s force structure, deploy and fight with the general forces, and  have some of the same capabilities.
Over time, as decision makers needed information not captured in the  Major Force Programs, DOD created new aggregations of program  elements and added attributes to the FYDP’s structure. The most recent  aggregation categorized the data by force and infrastructure categories,  which were developed to relate every dollar, person, and piece of  equipment in the FYDP to either forces or infrastructure. This model  groups forces, the warfighting tools of the Combatant Commanders, into  broad operational categories according to their intended use (such as  homeland defense or intelligence operations), and groups infrastructure,  the set of activities needed to create and sustain forces, based upon the  type of support activity it performs (such as force installations or central  logistics). DOD has also added attribute fields to the program elements for  such activities as space and management headquarters in order to capture  the resources associated with specific areas of interest. However, these  new aggregations and attributes were not intended to relate the FYDP’s  resources to defense capabilities or the risk management framework.
section_title: DOD Does Not Have Specific Plans to Link the FYDP to Important QDR Initiatives
paragraphs: According to officials, DOD does not have specific plans to link  capabilities and the risk management framework to the FYDP, in part,  because these concepts have not been fully developed. For example,  capability-based analysis is still under development. DOD officials  describe this as a complex process—representing a fundamental shift in  the basis of defense planning and requiring the participation of all DOD  components. In the past, DOD focused on whom an adversary might be,  whereas the current approach focuses on how future adversaries might  fight. DOD’s April 2003 Transformation Planning Guidance states that joint  operating concepts will provide the construct for a new capabilities-based  resource allocation process. To date, these joint operating concepts have  not been formalized. According to DOD officials, while some concepts  may be completed near-term, the overall initiative is expected to take 4 to  5 years to complete.
Furthermore, although the risk management framework has been better  defined than the capabilities have, it also has not been fully implemented  because it has not been fully linked to resources. In December 2002, DOD  instructed its components to begin displaying the linkage of plans,  outputs, and resources in future budget justification material based upon  the four dimensions of its risk management framework. According to DOD  officials, in the fiscal year 2005 budget submission, DOD provided this  linkage for 40 percent of its resources. DOD plans to complete this process  by fiscal year 2007, but does not currently have plans to link the risk  management framework to the FYDP as part of this process. DOD’s 2003  Annual Report provided an example of how the FYDP could be linked to  the risk management framework using the Force and Infrastructure  categories. However, according to DOD officials, this example was  intended to be a rough aggregation for a specific performance metric and  is not officially recognized as the most appropriate way to show how  DOD’s resources link to the risk management framework. Therefore, this  linkage has not been integrated into the FYDP’s structure.
section_title: Conclusions
paragraphs: It is important for DOD and congressional decision makers to have the  most complete information possible on the costs of ongoing operations as  they deliberate the budget. In a previous report, we observed that if an  operation continues into a new fiscal year, it would seem appropriate that  DOD would build the expected costs of that operation into its budget and  allow Congress to expressly authorize and appropriate funds for its  continuation. We recognize that defining those expected costs is  challenging and that supplemental appropriations are sometimes  necessary. Nonetheless, the consequences of not considering the expected  costs of ongoing operations as part of larger budget deliberations will  mean that neither the administration nor congressional decision makers  will have the opportunity to fully examine budget implications of the  global war on terrorism. Indeed, the FYDP could be a useful tool for  weighing the costs of defense priorities such as the global war on  terrorism and DOD’s transformation efforts. However, as a reflection of  the budget, the FYDP is weakened in this regard because it does not  include known or likely costs of ongoing operations funded through  supplemental appropriations. Without a clear understanding of such costs,  members of Congress cannot make informed decisions about  appropriations between competing priorities.
Additionally, the FYDP as it is currently structured does not provide either  DOD or Congress with full visibility over how resources are allocated  according to key tenets of the defense strategy outlined in the QDR. As a  result, resource allocations may not reflect the priorities of the defense  strategy, including its new capabilities-based approach and the risk  management framework. Yet, the current strategic environment and  growing demand for resources require that DOD and Congress allocate  resources according to the highest defense priorities. Indeed, as the  common report that captures all components’ future program and budget  proposals, the FYDP provides DOD an option for linking resource plans to  its risk management framework and capabilities assessment and providing  that information to Congress. Furthermore, this linkage could provide a  crosswalk between capabilities and the risk management framework such  that assessments of capabilities could be made in terms of the risk  management framework, which balances dimensions of risk, such as near  term operational risk versus risks associated with mid- to long-term  military challenges.
section_title: Recommendations for Executive Action
paragraphs: In the interest of providing Congress greater visibility over projected  defense spending, we recommend that the Secretary of Defense direct the  Undersecretary of Defense (Comptroller) to take the following two  actions:  (1) provide Congress data on known or likely costs for ongoing operations  that are expected to extend into fiscal year 2005 for consideration during  its deliberation over DOD’s fiscal year 2005 budget request and  accompanying FYDP and  (2) include known or likely projected costs of ongoing operations for the  fiscal year 2006 and subsequent budget requests and accompanying  FYDPs.
To enhance the effectiveness of the FYDP as a tool for planning and  analysis in the current strategic environment, the Secretary of Defense  should direct the Office of Program Analysis and Evaluation to take the  following two actions:  (1) align the program elements in the FYDP to defense capabilities needed to  meet the defense strategy, as these capabilities are identified and  approved, and the dimensions of the risk management framework and  include this alignment with the FYDP provided to Congress, and  (2) report funding levels for defense capabilities and the dimensions of the  risk framework in its summary FYDP report to Congress.
section_title: Agency Comments and Our Evaluation
paragraphs: In written comments on a draft of this report, DOD provided some general  overarching comments concerning our characterization of the FYDP as a  database, as well as other comments responding to our specific  recommendations.
First, DOD noted that it had redefined the FYDP as a report rather than a  database, and stated that it maintains a variety of databases to support  decision making that should not be confused with the FYDP itself.  DOD  stated that our characterization of the FYDP as a database resulted in a  misinterpretation that pervades our draft report and results in incorrect  assertions and conclusions.  We have updated our report to refer to the  FYDP as a report rather than a database in response to the definition  change provided in DOD’s April 2004 guidance – issued after our draft  report was sent to DOD for comment.  However, we disagree with the  DOD statement that characterizing the FYDP as a flexible database  structure leads to incorrect assertions and conclusions.  Whether the  FYDP is referred to as a database or a report, it is an existing tool used to  inform analyses, as DOD acknowledged in its written comments, and it has  been modified over time to capture resource information associated with  special areas of interest.  Although a variety of databases are maintained  by DOD to support decision making, the FYDP is submitted annually to  Congress, as required.  Therefore, we believe that our recommendations  that DOD provide Congress with greater information in fiscal year 2005  and beyond on known or likely costs of operations, and enhance the FYDP  as a tool in the new strategic environment provide practical solutions for  improving congressional visibility of DOD’s allocation of resources, as  discussed below.
DOD neither concurred nor nonconcurred with the recommendations that  the Undersecretary of Defense (Comptroller) provide Congress data on  known or likely costs for ongoing operations that are expected to extend  into fiscal year 2005 and beyond.  DOD stated that it already provides this  information to Congress as soon as it is sufficiently reliable and that, at  this point in the war on terrorism, current operations are too fluid to  permit an accurate determination of the amount of funding required a year  in advance.  In response to our statement that DOD does not include the  costs of ongoing operations funded through supplemental appropriations,  DOD further stated that items funded through supplemental  appropriations are above and beyond resources budgeted and  appropriated for peacetime operations and that funding requirements for  wartime and contingency operations are driven by events and situations  that DOD cannot anticipate.  We are encouraged that DOD agrees with the  principle of providing these data to Congress as soon as they are  sufficiently reliable.  As we reported, DOD indicated that operations in  Iraq and Afghanistan will continue into fiscal year 2005; therefore, it is  reasonable that DOD would anticipate some costs associated with these  operations.  However, DOD did not budget any funds for these operations  in its fiscal year 2005 budget request or accompanying FYDP submitted to  Congress.  Based on statements by the Undersecretary of Defense  (Comptroller) that cost data will become clearer as the year progresses,  we expect that DOD will be able to provide such data to Congress for both  the fiscal year 2005 and 2006 budget deliberations.  In addition, some  requirements that have associated costs, such as the Army’s temporary  increase in endstrength, have already been identified.  We acknowledge in  our report the challenges associated with estimating costs for ongoing  operations.  Although DOD states that including these estimates would  unnecessarily complicate resource discussions and decisions, we maintain  that the challenges of estimating costs for ongoing operations must be  weighed against Congress’s responsibility for balancing government-wide  funding priorities using the best available data at the time of its budget  deliberations.
Lastly, DOD nonconcurred with our recommendations for the Office of  Program Analysis and Evaluation to align the program elements in the  FYDP with defense capabilities and the risk management framework and  include this alignment with the FYDP provided to Congress.  DOD stated  that it does not use the FYDP as a tool to conduct analyses of capability or  risk trade-offs between systems, as such a tool would be relatively  uninformative and needlessly complex, though the FYDP does inform  those analyses.  DOD also said it does not intend to embed capabilities or  the risk management framework in the FYDP, as these constructs are still  being developed and may change significantly, but it is working to create  decision-support tools that will link resource allocations to capability and  performance metrics, and it may be able to report on those allocations as  the tools and processes mature.   We maintain our view that the FYDP is  the ideal vehicle for providing information on these new concepts to  Congress.  First, since the FYDP already exists as a legally mandated  reporting mechanism, it avoids the creation of any duplicative reporting.   Second, because the FYDP cuts across all the services and agencies, it  provides a macro picture of DOD resource allocations in terms of both  missions and appropriations.  Third, as we note in our report, because the  FYDP is flexible, DOD has periodically built new categories of program  elements into it to provide decision makers with resource information as  needed.  Currently, Congress cannot use the FYDP to identify the results  of DOD’s resource analyses of capabilities or risk trade-offs between  programs because these relationships are not aligned with the program  elements in the FYDP.   We recognize that the FYDP is not the only tool  available for defense resource decision making; however, we note, as DOD  has stated in its written comments, that the FYDP informs analyses and  reflects the resource implications of decisions.  While we recognize that  DOD is still working to define these concepts, we maintain our view that,  once defined, reporting these relationships with the FYDP provided to  Congress would improve congressional visibility of DOD resource  allocations.
DOD’s comments are included in their entirety in appendix III. Annotated  evaluations of DOD’s comments are also included in appendix III.
We are sending copies of this report to the Secretary of Defense; the  Undersecretary of Defense (Comptroller); and the Director, Office of  Management and Budget. We will also make copies available to others  upon request. In addition, this report will be available at no charge on the  GAO Web site at http://www.gao.gov.
If you have any questions about this report, please contact me at   (202) 512-9619. Major contributors to this report are listed in appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: We determined that the automated FYDP data was sufficiently reliable for  use in meeting this report’s objectives. DOD checks the FYDP data against  its budget request sent to Congress at the appropriation category level. We  also compared the FYDP data with published documents DOD provided to  ensure that the automated data correctly represented DOD’s budget  request. Specifically, we compared total budget estimates, appropriation  totals, military and civilian personnel levels, force structure levels, and  some specific program information. Based on our and DOD’s comparison,  we were satisfied that the automated FYDP data and published data were  in agreement. GAO has designated DOD’s financial management area as  high risk due to long-standing deficiencies in DOD’s systems, processes,  and internal controls. Since some of these systems provide the data used  in the budgeting process, there are limitations to the FYDP’s use. However,  since we determined the FYDP accurately represents DOD’s budget  request, it is sufficiently reliable as used for this report.
To determine whether the FYDP provides visibility over DOD funding  priorities we compared DOD reports and Secretary of Defense  congressional testimonies that supported the 2003 and 2004 budget  submissions against FYDP data. We also analyzed resource data from the  2003 and 2004 FYDPs for fiscal years 2004 – 2007 to identify trends. We  adjusted the current dollars to constant 2004 dollars using appropriate  DOD Comptroller inflation indexes to eliminate the effects of inflation. To  determine whether the FYDP provides visibility over likely future budget  requests, we reviewed other related GAO, Congressional Research Service,  and Congressional Budget Office reports and interviewed program and  budget officials at the Office of the Secretary of Defense and service  headquarters. In addition, we summarized documents related to  supplemental appropriations and analyzed DOD officials’ statements  regarding plans for supplemental appropriations in 2005.
To determine whether the FYDP is useful for implementing DOD’s risk  management framework and capabilities based planning, we interviewed  appropriate officials at the Office of the Secretary of Defense, service  headquarters, and the Institute for Defense Analyses— the organization  currently under contract to make improvements to the FYDP, and  examined various DOD planning and budget documents including the 2001  Report of the Quadrennial Defense Review, DOD’s 2003 Annual Report to  the President and the Congress, and DOD’s fiscal year 2003 and 2004  budget submissions. We also examined the structure of the FYDP to  determine if it currently included, or was possible to include, a link to the  risk management framework or defense capabilities.
Our review was conducted between June 2003 and February 2004 in  accordance with generally accepted government auditing standards.
section_title: Appendix II: Comparison of DOD’s 2003 and 2004 FYDPs by Primary Appropriation Category
subsections: section_title: Total obligation authority in millions of FY 2004 dollars
paragraphs: Other DOD programs include chemical agent and munitions destruction, the defense health  program, drug interdiction and counter-drug activities, and the Office of the Inspector General.
section_title: Appendix III: Comments from the Department of Defense
paragraphs: The following are GAO’s comments on the Department of Defense’s letter  dated April 13, 2004.
subsections: section_title: GAO Comments
paragraphs: 1.  DOD objected to our observation that DOD has historically employed  overly optimistic planning assumptions in its budget formulations. In  response to its comments, we acknowledged DOD guidance to reduce  future resource shortfalls on page 11 of this report and noted the lack  of auditable data to document the effects of this guidance. We also  provided additional examples of GAO reports that continue to raise  questions about DOD’s planning assumptions.  2.  DOD provided a rationale for growth in civilian personnel costs. We  intended civilian personnel to be an example of costs not visible in the  FYDP, as opposed to an example of cost growth. Therefore, we have  clarified the language on page 2 of this report to reflect this point.  Further, we are not proposing that civilian personnel costs be  disassociated from programs, as suggested by DOD’s comments.  3.  DOD reiterated that it already provides Congress reliable information  on the known costs for ongoing operations as soon as it is available. As  we stated in our evaluation of agency comments on page 19 of this  report, we are encouraged that DOD agrees with the principle of  providing these data to Congress as soon as they are sufficiently  reliable. However, we note that cost data is expected to become  clearer as the year progresses and some requirements that have  associated costs have already been identified. Therefore, we expect  that DOD will be able to provide such data to Congress for their fiscal  year 2005 and 2006 budget deliberations.  4.  DOD noted that our report implied that the cost of increased Army  force structure has been fully identified and asserted that, to the  contrary, the work to define the particulars of this plan in sufficient  detail to support budget development is still in progress. However, we  note that in February 2004, the Undersecretary of Defense  (Comptroller) outlined an Army force-restructuring plan that would be  partially funded through the existing fiscal year 2004 supplemental  appropriation. While DOD may not have fully defined the particulars of  this plan, since it has identified a funding timeline, we believe that at  least some of the cost of increased Army force structure can be  estimated at this time.  5.  Based on comments from the Air Force, DOD asked that we clarify  that the reduction in the number of F/A-22 aircraft being purchased  was not largely due to cost increases, and it referred to the role played  by two Quadrennial Defense Reviews in the decision. Our report  stated, however, that cost increases have been one factor in the Air  Force’s substantially decreasing the number of F/A-22 Raptors to be  purchased – from 648 to 276. Moreover, development costs have  increased dramatically and in a report that was issued after this draft  was sent to DOD for comment, GAO continued to observe that  additional increases in development costs for the F/A-22 are likely. We  maintain our view that the F/A-22 program illustrates that DOD’s  funding needs in some areas exceed the estimates used in the FYDP.  6.  Based on comments from the Air Force, DOD challenged our  implication that the F/A-22 program will exceed mandated cost  limitations if billions of dollars of cost offset initiatives are not  achieved as planned. In February 2003, we reported that the Air Force  has had some success in implementing cost reduction plans to offset  cost growth. However, production improvement programs, also  designed to offset costs, have faced recent funding cutbacks and  therefore are unlikely to offset cost growth as planned. The Air Force  stated that it has no intention of violating mandated cost limitations,  but that it does intend to seek relief from them as part of the fiscal year  2006 President’s budget. To the extent that the Air Force requests  additional funds for the F/A-22, our view that the FYDP understates  costs is further confirmed.
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: In addition to the person named above, Patricia Lentini, Margaret Best,  Barbara Gannon, Christine Fossett, Tom Mahalek, Betsy Morris, Ricardo  Marquez, Jane Hunt, and Michael Zola also made major contributions to  this report.