Military Bases: Closure and Realignment Savings Are Significant, but Not Easily Quantified
Released: 1996-04-18T00:00:00

Letter

Background

The Congress passed initial legislation in October 1988 to bring DOD’s base structure into line with its smaller post-Cold War force structure. Generally, the process, as modified by subsequent legislation, called for (1) establishing independent commissions to recommend installations for realignment or closure and (2) implementing the commissions’ recommendations within 6 years of the date the President sends the commissions’ recommendations to the Congress.

The realignment of underutilized bases and closure of unnecessary bases were expected to result in significant savings, primarily from reduced base support costs. The February 1992 DOD Base Structure Report defined base support costs as the overhead cost of providing, operating, and maintaining the defense base structure, including real property maintenance and repair costs, base operations costs, and family housing costs. According to historical information in DOD’s Future Years Defense Program (FYDP) database, in fiscal year 1988 base support costs totaled $41 billion. During that year, most base support costs were paid from the operations and maintenance account (54 percent); the military personnel account (23 percent); and the family housing account (10 percent).

The Congress recognized that an up-front investment was necessary to achieve the savings and established two accounts to fund certain implementation costs. These costs included (1) constructing new facilities at gaining bases to accommodate organizations transferred from closing bases, (2) remedying environmental problems on closing bases, and (3) moving personnel and equipment from closing to gaining bases. In addition, revenue generated when land at closing bases is sold is deposited in the BRAC accounts and used to offset one-time implementation costs. Moreover, the legislation required that DOD submit annual budgets estimating the cost and savings of each closure or realignment, as well as the period in which savings were to be achieved.

According to its February 1995 budget submission, DOD estimated that, for the first three BRAC rounds, one-time implementation costs will total $16.3 billion and savings will total $16.1 billion, for a net cost of $189.6 million over the period. According to DOD, the $16.1 billion in estimated savings have been or will be reflected as reductions in DOD component appropriation accounts. Once the implementation of the three BRAC rounds is completed in fiscal year 1999, DOD estimates that annual net savings will be $4.1 billion.

BRAC Savings Should Be Substantial, but Are Difficult to Quantify

Our analysis of the FYDP indicates that DOD plans to substantially reduce spending for base support programs. Furthermore, our analysis of operations and maintenance costs at nine closing installations indicates that actual base support costs have been reduced at those installations and therefore savings should be substantial. However, the DOD FYDP and service accounting systems are not configured to provide information concerning actual BRAC savings, and failure to achieve them would affect the quality of base support services or DOD’s ability to fund other programs.

Overall Base Support Costs Have Been Reduced

Table 1 shows that by fiscal year 1997 DOD expects to reduce annual base support costs by about $11.5 billion from a fiscal year 1988 baseline. The cumulative reduction over the period is about $59 billion. DOD’s information system does not indicate how much of the reduction is due to BRAC versus force structure or other changes. In addition, an Office of the Deputy Assistant Secretary of Defense (Installations) official stated that DOD is reviewing the classification of base support programs in the FYDP, which could affect future analyses.

Our analysis of the FYDP shows that, within reduced overall base support spending levels, DOD plans to increase average spending on family housing from $1,880 to $2,730 for each active duty military person between fiscal years 1988 and 1997. Average spending for the remaining base support activities is expected to remain relatively stable over the 10-year period. However, table 2 shows that, over the period, DOD’s force structure is expected to be reduced by 680,000 military personnel and average base operations and real property support costs are expected to fall slightly to about $16,600 per person.

Information Concerning Actual Savings Is Limited

Key requirements for calculating actual BRAC savings include information on decreased support costs at closing bases and the offsetting increases at gaining bases. DOD cannot provide accurate information on actual savings because (1) information on base support costs was not retained for some closing bases and (2) the services’ accounting systems cannot isolate the effect on support costs at gaining bases. DOD officials stated that designing and implementing a system for collecting actual BRAC savings information would be difficult and extremely expensive, and they questioned the value of such a system.

According to DOD officials, the accounting systems were not designed to isolate the impact of specific initiatives, such as BRAC, on base support costs. With the disestablishment of the 509th Bombardment Wing and closure of Pease Air Force Base, for example, the Wing’s FB-111 bombers were placed in storage as part of a force structure change, while its KC-135 refueling aircraft were transferred to five gaining bases along with their crews, support personnel, and equipment. The largest group of aircraft, six KC-135s, was transferred to Fairchild Air Force Base. According to Air Force officials, their systems would not allow them to determine how much of the reduction in Pease Air Force Base support costs was due to the changing strategic bomber force structure as opposed to the closure of Pease Air Force Base and how much of any increase in Fairchild Air Force Base support costs was due to the arrival of Pease aircraft. Officials stated that, since the arrival of the 6 KC-135 aircraft from Pease, Fairchild has received over 50 KC-135 tankers from other bases.

The Army Audit Agency had similar difficulties in determining the actual savings from the closure of 10 Army BRAC I installations. According to the Agency’s November 1995 report, the Army’s system of management controls did not ensure that adequate documentation was retained to determine actual savings or reliable estimates of savings. The report stated, for example, that auditors were unable to locate the accounting records necessary to determine base support cost savings at one site. In addition, they could not determine incremental base support cost increases at gaining installations because the Army’s accounting system did not contain all the necessary information.

We analyzed base support costs paid from the operations and maintenance account for the eight installations for which data were available. The analysis shows that the closures will have a combined net cost of $7.6 million for the implementation period, and an annual recurring savings of $212.8 million thereafter. As table 3 shows, four bases (Chase Field, the Long Beach Naval Hospital, Pease, and Williams) are expected to have a net savings at the end of the implementation period, indicating a payback period of less than 6 years. The longest payback period is Fort Devens at about 11 years.

Our estimates reflect force structure savings at closing bases and do not reflect incremental base support cost increases at gaining bases unless they were readily identifiable. Additionally, estimated implementation costs do not include economic assistance costs to the area affected by the closure or other costs not reported in DOD’s budget submission. Including these factors would reduce the net savings. However, our estimates also do not reflect savings due to reduced base support costs paid from the military personnel and military construction accounts or reduced family housing costs, which would increase savings. For example, at the three Air Force bases we reviewed, the Air Force estimated military personnel savings at $669.6 million over the implementation period and $156.6 million annually thereafter.

BRAC Savings Are Essential to Future Defense Programs

DOD expects BRAC savings to provide much of the funding necessary for quality-of-life initiatives and defense modernization efforts. In November 1994, for example, the Secretary of Defense stated that the fiscal year 1996 DOD budget will increase funding by $94 million for community and family support projects, including increasing eligibility for child care support by up to 38,000 families and strengthening programs aimed at preventing family violence.

Additionally, in January 1996, the Secretary stated that DOD will need to increase modernization programs to ensure the long-term readiness of defense forces. According to the Secretary, failure to achieve savings from earlier initiatives required DOD to restructure the budget. DOD stated that estimated savings from BRAC are taken out of the services’ budgets up front. This is the same process that was followed in implementing budget reductions under the defense management review initiatives. To the extent BRAC savings are not realized at the levels that were anticipated, it could have similar effects on DOD’s FYDP.

Limitations on DOD’s Cost and Savings Estimates

DOD’s savings estimates are inconsistent because the services used different estimating methodologies, and are unreliable because the services excluded some savings and did not update some estimates to reflect revised closure schedules. In addition, DOD’s cost estimates are incomplete because the services did not include many BRAC-related nondefense costs.

Savings Estimates Were Inconsistently Developed and Are Unreliable

The methodologies used for developing the savings estimates differed among the services. The Air Force used savings estimates that were developed through the Cost of Base Realignment Actions (COBRA) model,with adjustments for inflation and recurring cost increases at gaining bases, as the basis for its estimates. The adjustments accounted for differences in the way inflation and recurring costs were treated in the COBRA and budget estimates. According to an Air Force official, however, major commands and installations were not requested to provide budget-quality data to revise the COBRA savings estimates for their bases.

The Navy, on the other hand, used its Comptroller’s analyses of expected increases and decreases in each base’s costs, but no documentation was available to show how specific estimates were calculated. For example, the Navy’s estimate for the Long Beach Naval Hospital savings assumed, among other things, that the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS) costs at gaining bases would be reduced by about $143 million over the 6-year implementation period and about $38 million for each year thereafter. The Navy Comptroller was unable to provide documentation to show how that estimate was calculated.

The Army based its estimates on detailed implementation plans prepared by major commands after the BRAC Commissions announced their decisions. Unlike the Navy, however, the Army eliminated CHAMPUS savings from its estimates. Also, unlike the other services, the Army excluded savings from military personnel reductions from its BRAC II and III savings estimates. The Air Force, the Navy, and DOD agencies estimated that BRACs II and III would eliminate the need for about 28,000 military personnel and save about $3.9 billion during the 6-year implementation periods. An Army official stated that military personnel savings were excluded because the reductions had already been recognized in previous initiatives. Closure implementation plans for the three Army bases we examined stated that the installations were authorized 475 military personnel for base support functions.

Further, a Navy official stated that Navy estimates were reviewed annually and revised during the budget review process. According to Army and Air Force officials, their savings estimates are not routinely updated, even though some bases close faster than initial estimates, thereby resulting in increased savings. For example, the 1995 Fort Benjamin Harrison savings estimate, which has not changed since it was initially submitted in 1992, does not reflect significant operation and maintenance savings until fiscal year 1995. Our analysis indicates that savings started in fiscal year 1992 and totaled over $92 million by fiscal year 1995.

According to a DOD Comptroller official, the Office of the Secretary of Defense provided no additional guidance to the services on developing savings estimates other than the guidance on preparing COBRA estimates. He said that DOD headquarters and the services focused most of their attention on monitoring and managing BRAC costs rather than savings.

Cost Estimates Are Incomplete

In March 1996, we reported that DOD’s cost estimates for closing maintenance depots excluded some BRAC-related costs that have been or will be paid from DBOF or the operation and maintenance account. For example, the Navy estimates that, through fiscal year 1995, closing naval aviation depots and shipyards would have an accumulated operating loss of about $882 million that would be recouped from its operation and maintenance account ($695 million) or written off within DBOF ($187 million). Some of this loss was directly related to depot closures. We also reported that closing Army depots had closure-related costs and losses that were financed by DBOF. In fiscal year 1993, for example, the Sacramento Army Depot charged about $12 million in closure-related costs, including employees’ voluntary separation incentive pay, to DBOF instead of the BRAC account. The Navy and other organizations charge separation incentive pay to their BRAC account. In addition to depot-related closure costs, DOD estimates do not include $781 million for the following BRAC-related economic assistance costs, much of which is non-DOD:

The Economic Development Administration began providing funds for BRAC-related activities in fiscal year 1992, and has obligated about $371 million for them between fiscal years 1992 and 1995.

The Federal Aviation Administration provided about $182 million to BRAC bases through fiscal year 1995.

The Department of Labor said it could not readily tell how much it spent on BRAC-related activities between 1988 and 1990. It spent about $103 million on BRAC-related activities from fiscal years 1991 through 1995. This does not include funds distributed to states under block grants or funds spent on DOD demonstration projects, such as projects at Philadelphia and Charleston, because these funds are administered by the states.

DOD’s Office of Economic Adjustment provided $125 million to BRAC bases from fiscal years 1988 to 1995.

In addition, DOD paid about $500 million in unemployment compensation to civilian employees who lost their jobs from fiscal years 1990 through 1995. According to DOD, the BRAC process resulted in the elimination of about 31,000 civilian positions during that period, which indicates that some unemployment costs could be categorized as BRAC related.

Because much of the information necessary to prepare comprehensive and reliable savings estimates for all the installations is no longer available, we are not recommending the revision of these estimates. However, should there be future BRACs, we believe the Secretary of Defense should provide and the services should implement guidance to ensure estimates are comprehensive, consistent, and well-documented.

Recommendation

We recommend that the Secretary of Defense, at a minimum, explain the methodology used to estimate savings in future BRAC budget submissions. Also, the submissions should note that all BRAC-related costs are not included.

Agency Comments and Our Evaluation

In commenting on a draft of this report, DOD indicated that the inconsistencies in its budget savings estimates we cited were the result of an attempt to give the services reporting flexibility. DOD acknowledged that cost estimates in BRAC budget submissions do not include some costs that were paid from other DOD accounts or from non-DOD appropriations. DOD agreed that the BRAC budget submissions should include an advisory statement that economic assistance and non-DOD costs are not included. DOD also indicated that it was willing to consider including a brief statement that the BRAC budget submissions are based on the initial cost and savings estimates, which are subsequently refined through the use of site surveys. However, DOD did not believe that using different methodologies was a weakness that needed to be reported.

To clarify the inconsistencies we found among the services, we have expanded the report to show the differences in (1) the extent to which COBRA estimates were updated and (2) the treatment of military personnel and CHAMPUS savings in the services’ budget estimates. We believe that eliminating the inconsistencies in the preparation of savings estimates for future BRACs would enhance the usefulness of the budget submissions. However, we deleted the term weakness in describing the differences in the various methodologies. With regards to non-DOD costs, the information on many excluded costs is readily available. For example, information on $781 million in BRAC-related economic assistance costs incurred through fiscal year 1995 was readily available from various agencies. We also believe that including information from the other agencies would give the Congress a more comprehensive overview to use in evaluating the success of BRAC implementation. DOD comments are presented in their entirety in appendix I.

Scope and Methodology

We reviewed reports, documents, and legislation relevant to BRAC cost and savings estimates. We also interviewed BRAC and Comptroller officials from the Office of the Secretary of Defense and the military services. From officials of the Departments of Labor and Commerce and the Federal Aviation Administration, we obtained data on their BRAC-related costs.

Our examination of cost and savings estimates focused on BRACs I through III because DOD had not yet developed BRAC IV estimates at the time we initiated our review. In addition, we focused our analysis of actual costs and savings on BRACs I and II because many BRAC III installations were still being closed.

For our analysis of actual savings, we analyzed trend data from DOD’s historical and current FYDP databases, which were updated through June 1995. We identified base support costs by examining program element titles and discussing the costs with officials in DOD’s Office of Program Analysis and Evaluation and from the military services. We did not assess the reliability of the FYDP database.

We also attempted to obtain information on actual base support costs for nine closures. We selected the closures from a listing of BRACs I and II to obtain three closing installations from each of the military services, and to ensure each closing installation was from a different major command. For one of the nine installations selected, base support cost data was not available. Where possible, we obtained actual base support cost data for the operation and maintenance account from the responsible major command. Our estimates of base support cost reductions at closing installations and incremental increases at gaining bases were based on major command estimates or our analysis of trends in the closing and gaining bases’ actual support costs. We estimated fiscal years 1995 and 1996 costs on the basis of fiscal year 1994 costs. Our analysis of the nine bases cannot be projected to all BRAC bases. While overall trends indicate substantial savings, it is possible that net savings may not be achieved at an individual location.

We conducted our work from March 1995 to February 1996 in accordance with generally accepted government auditing standards.

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Comments From the Department of Defense

Major Contributors to This Report

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