The Department of Defense’s (DOD) lodging programs were established to maintain mission readiness and improve productivity. They were intended to provide quality, temporary lodging facilities and service for authorized personnel and to reduce official travel costs for DOD’s mobile military community. DOD’s lodging programs are classified as either permanent- change-of-station (PCS) or temporary duty (TDY). The major differences between PCS and TDY lodges are the number of rooms (fewer PCS rooms); the type of traveler they primarily serve; and their primary source of funding and support. TDY lodging typically receives more appropriated funding than does PCS lodging, which relies primarily upon nonappropriated funds generated from lodge operations. Historically, DOD’s lodging programs have had varying linkages to the department’s morale, welfare, and recreation (MWR) programs. The assistant secretary of defense for force management policy is responsible for establishing uniform policies for service lodging programs. DOD’s lodging programs are classified as TDY or PCS on the basis of the type of traveler they primarily serve. Table 1 shows the magnitude of DOD’s lodging programs. TDY lodges serve mainly individual military or civilian travelers who are temporarily assigned to a duty station other than their home station. In addition, they can serve military personnel and their families who are changing permanent duty stations. On a space available basis, they also serve military retirees and other people authorized by installation commanders. Room rates at these lodges are set at the lowest rate possible to reduce travel costs yet recover authorized nonappropriated fund expenses. While departmental regulations state that the cost of major upgrades and new lodges is expected to be paid with appropriated funds, in recent years some services have added a surcharge to the nightly room rate, which they accumulate and use for lodge construction and major renovation. The revenues from TDY lodging must be maintained in a separate nonappropriated fund account, designated as a lodging or billeting fund, and used only to operate and maintain the lodging facilities. Prior to 1991, Army TDY lodges were part of its MWR program. However, based on a GAO report that found the Army was overcharging TDY travelers to subsidize MWR activities, the Army, in 1991, established a separate lodging fund for TDY lodging revenues. PCS lodges primarily serve military personnel or DOD civilians (traveling outside the continental United States) who are changing permanent duty stations and their families. On a reservation basis, PCS lodges can also accommodate families, relatives, and guests of hospitalized military or their families and official guests of the installation as determined by the installation commander. On a space available basis, they can serve other authorized patrons, such as civilian PCS (personnel traveling inside the continental United States); military and civilian TDY personnel; military members not on official travel; military retirees; and relatives and guests of service members assigned to the installation. According to DOD’s current guidance, the military services can choose how they provide PCS lodging services: (1) through a lodging or billeting fund with all of its revenue used to support lodging activities, as do the Air Force, the Army, and the Navy or (2) through an MWR fund as does the Marine Corps. When services are provided through an MWR fund, revenue is deposited into a single MWR installation account and used for the benefit of the local MWR program. The Marine Corps PCS lodging program is currently the only DOD lodging program operating in this manner. The cost of new PCS lodge construction for all the services is paid with nonappropriated funds, but the department’s regulations permit some maintenance and repair to be paid with appropriated funds. Because the department allows the services to choose their method of managing PCS lodging, it has two sets of instructions providing guidance on managing lodging operations. One applies to PCS lodges operated as revenue-generating MWR or exchange service activities, and the other applies to all lodges not operated as such. Both sets of instructions implement policy, assign responsibility, and prescribe procedures for operating the lodges. However, the instructions differ in their program goals and authorized patronage, allowing wide latitude in the operation of PCS lodging programs. DOD’s MWR program provides for the physical, cultural, and social needs and the well-being of service members, their families, and eligible civilians by providing an affordable source of goods and services like those available to civilian communities. DOD has determined that these programs are vital to mission accomplishment, are an integral part of the non-pay compensation system, and provide quality-of-life benefits for authorized patrons. The services’ MWR programs—such as gymnasiums, fast food operations, and libraries—are intended to provide a sense of community among patrons in order to make individuals more satisfied with military life and to attract people to military careers. MWR programs receive financial support primarily from two sources: nonappropriated funds—generated from profitable business activities such as retail outlets, restaurants, and golf courses—and funds appropriated by Congress. DOD regulations classify MWR activities into three categories, which relate to the degree of appropriated fund support they are expected to receive. Category A activities—such as athletic fields, gymnasiums, and libraries— are considered the most essential to supporting MWR. Such activities promote the physical and mental well-being of the military member, supporting the basic military mission. They are generally not expected to support themselves financially. Accordingly, DOD policy provides that a minimum of 85 percent of total expenditures should come from appropriated funds. The use of nonappropriated funds is limited to specific instances where appropriated funds are prohibited by law or where nonappropriated funds are essential to operate a facility or program. Category B activities—such as swimming pools, automotive hobby shops, and child care centers—are closely related, in terms of mission support, to those in Category A. These activities provide, to the extent possible, the community support systems that make DOD installations temporary hometowns for a mobile military population. DOD views these activities as having a limited ability to generate nonappropriated fund support and thus requiring less appropriated support than activities in Category A. The DOD standard for appropriated fund support is a minimum of 65 percent of total expenditures. Category C activities—such as golf courses, clubs, and bowling alleys—are revenue-generating activities. Although they may lack the ability to completely sustain themselves, they are expected to generate enough income to cover most of their operating expenses. In many cases, they also generate enough income to help support Category A and B activities. Thus, they may receive limited support from appropriated funds. DOD has established separate but similar classifications for its lodging program. TDY lodges are classified as Category A activities and are thus authorized a higher degree of appropriated support. PCS lodges may be classified, at the option of the service, as either Category A or Category C activities. In the past, the Army, Navy, and Marine Corps operated PCS lodges as Category C activities. In these cases, the lodges were part of the services’ MWR programs and lodging revenues were often used to financially support other MWR programs. Currently, the Marine Corps’ lodging program is the only one that still has any significant financial connection with MWR operations. DOD’s proposed change to its PCS lodging policy is intended to sever this last connection and ensure that no PCS lodging revenues are used to support MWR programs. This change, if adopted, would require the services to deposit all PCS lodging revenues into a lodging fund separate from the MWR fund, which would be dedicated to supporting the service’s lodging program. Except for the Marine Corps, DOD’s proposed policy change will not impact the services’ MWR programs. The Marine Corps still uses PCS lodging earnings to help support its MWR programs. Without these earnings, Marine Corps officials told us that they would have to seek additional appropriations or local installations would have to make changes to their MWR programs that could affect the quality of life of marines and their families. Therefore, Corps officials may request a waiver from the policy if it is adopted. However, the Corps has options that could lessen the effect of the policy on both its MWR and lodging programs if necessary. With regard to the Army, prior to October 2000, the Army also used PCS lodging funds to support its MWR program. Presuming adoption of the policy change, the Army took a number of actions to minimize the impact on its MWR program. Therefore, it will no longer be affected by the policy change. However, as part of these provisions, the Army now permits its installations to charge its patrons not on official orders, such as military retirees, a surcharge that can be used by the local installation’s MWR program. This practice violates department and Army regulations. According to DOD, the Navy and Air Force PCS lodging programs already conform to the proposed policy, which would then have no impact on their MWR programs. The Marine Corps has 14 PCS lodges at 12 of its 19 installations. Since 1996 the PCS lodges have reported steadily increasing earnings. For example, in fiscal year 1996 they reported a net profit of about $1.8 million, and by fiscal year 2000, they reported a net profit of about $5.1 million, which was used to operate the lodging program as well as help support MWR programs at the local installations. Marine Corps officials believe that the proposed policy is inappropriate for the Marine Corps, considering its size, decentralized organization, and the manner in which it operates its MWR and its TDY lodging programs.