An objective of DOD’s 1993 Report on the Bottom-Up Review was to identify potential infrastructure savings and to launch a long-term process to reduce and streamline DOD’s infrastructure without harming readiness. The report stated that infrastructure activities accounted for $160 billion in fiscal year 1994, or about 60 percent of DOD’s total obligational authority. DOD defines infrastructure as those activities that provide services to mission programs, such as combat forces, and primarily operate from fixed locations. Our analysis of DOD’s FYDPs and infrastructure activities over the past few years showed that the infrastructure portion of DOD’s budget had not decreased as DOD planned. As explained in our previous reports, about 80 percent of DOD’s infrastructure activities are paid for from the military personnel and operation and maintenance (O&M) accounts. Therefore, if DOD is to free up dollars for weapons modernization, it must reduce funding requirements for these accounts. The FYDP is an authoritative record of current and projected force structure, costs, and personnel levels that have been approved by the Secretary of Defense. The 1997 FYDP supported the President’s fiscal year 1997 budget and included budget estimates for fiscal years 1997-2001. The 1998 FYDP supports the President’s fiscal year 1998 budget and includes budget estimates for fiscal years 1998-2003. In May 1997, DOD completed its first QDR. The QDR was required by the Military Force Structure Review Act, which was included in the National Defense Authorization Act for Fiscal Year 1997 (P.L. 104-201). DOD said that it designed the QDR to be a fundamental and comprehensive examination of America’s defense needs from 1997 to 2015. It considered potential threats, strategy, force structure, readiness posture, military modernization programs, defense infrastructure, and other elements of the defense program. The QDR is intended to provide a blueprint for a strategy-based, balanced, and affordable defense program. DOD plans to incorporate many of the details of the QDR blueprint into its fiscal year 1999 budget and FYDP for fiscal years 1999-2003. The 1997 FYDP, which totaled $1,281 billion, represented DOD’s 5-year program through fiscal year 2001. The 1998 FYDP, which totals $1,607 billion, covers the 6-year period through fiscal year 2003. The 1997 plan overlaps the 1998 plan for the 4 years 1998-2001. Table 1 compares the two plans, by appropriation. Focusing on the years common to both FYDPs, table 1 shows that the costs of military personnel; O&M; and RDT&E are higher than previously planned, while planned procurement spending is reduced. Specifically, the 1998 FYDP adds about $1 billion to the military personnel accounts, $3.7 billion to O&M accounts, and $4.9 billion to RDT&E accounts and reduces planned procurement spending by $2.8 billion. Increases in the O&M accounts and decreases in the procurement accounts are inverse to DOD’s goals since the bottom-up review, which have been to reduce infrastructure and increase funding for weapons modernization. This is the fourth straight budget year since 1995 that DOD has not met procurement goals established in previous FYDPs. Savings achieved from infrastructure reductions have too often not been as large as anticipated and tended to be absorbed by unplanned or underestimated expenses in day-to-day operations. According to DOD, the most prevalent underestimated expenses are for depot maintenance, real property maintenance, military construction, and medical care. Because of unrealized savings, weapons modernization plans have repeatedly been delayed. Defense budgets are planned to remain relatively flat in inflation-adjusted terms through 2003 as part of the balanced budget agreement. Therefore, if DOD is to achieve real growth in the procurement accounts, it must reduce funding for its infrastructure activities. The 1997 FYDP projected that spending for infrastructure would decline slightly from 58 percent to 57 percent of DOD’s budget during 1998-2001. The 1998 FYDP shows that spending for infrastructure is projected to decline from 58 percent to about 55 percent of DOD’s budget from 1998 through 2001 and further decline to 54 percent through 2003. This planned decline in infrastructure spending is predicated primarily on planned reductions in O&M accounts. Our review of these and other accounts and DOD’s own review of the current FYDP found risks that sufficient reductions will not occur and that planned procurement increases will not materialize. We discuss these risks in later sections of this report. “Based on an assessment of recent patterns and the assumptions embedded in the current six-year plan, the QDR concluded that there was a potential for annual migration to unplanned expenses of as much as $10-$12 billion per year in the later years of the plan. Migration in that range would undermine much of the planned increase in procurement. Instead of growing to $60 billion, procurement funding could be expected to stall in the range of $45 to $50 billion. Some growth from the FY 1998 level could be expected from ongoing efforts to reduce the cost of defense infrastructure and from the natural transition of several major programs from development to production. Absent any further changes to the defense program, however, growth above $50 billion would be highly unlikely.” A principal resource management objective of the QDR was to understand the financial risk in DOD’s program plans and devise ways to manage that risk. In the QDR report, the Secretary recognizes the sources of instability that are built into the current FYDP and presents plans to mitigate that instability through more realistic planning assumptions in the 1999 FYDP. Those assumptions include making some force structure reductions and greater personnel reductions, shedding additional excess facilities through more base closures and realignments, streamlining operations, and proceeding more prudently on the acquisitions of new weapons. DOD recognizes in the report that it will need congressional approval to accomplish some of the more significant cost-reduction measures, such as additional base closures and military personnel reductions. In appendix I, we discuss specific QDR proposals that could impact future defense programs. By comparing the 1998 FYDP with the 1997 FYDP, we found that during fiscal years 1998-2001, active duty military personnel and the comparable military personnel accounts have net increases of 4,655 personnel and $929 million, respectively. The overall increases are due to changes in the active Army. The Army has programmed 10,000 more military personnel by the end of 1998 and an additional 10,000 personnel in 1999 for a total increase of 20,000 from the 1997 FYDP. The Air Force and Navy have programmed personnel decreases in every year for the common period, and the Marine Corps’ 1998 personnel remains unchanged from the 1997 FYDP. Within the active components, some military personnel programs expected to receive the largest cumulative funding increases during 1998-2001 are the Army’s recruit training ($1.8 billion), general skill training ($1.4 billion), and integrated recruit and skill training ($965 million). Some of the largest cumulative decreases in military personnel costs are projected for the Navy’s general skill training ($547 million) and the Army’s and Air Force’s defense medical centers, station hospitals, and medical clinics ($249 million and $191 million, respectively). Appendix II provides a description of these and other programs identified in this report. The 1998 FYDP shows that the Navy and Air Force plan to lower active duty force levels in fiscal years 1998-2003 by 3,319 and 6,031, respectively. The planned decreases would bring force levels below the permanent end-strength levels set forth in the National Defense Authorization Act for Fiscal Year 1996. If DOD is precluded from implementing its planned personnel reductions, it will have to make other compensating adjustments to its overall program. Overall, a comparison of the 1998 FYDP with the 1997 FYDP shows an increase of $3.7 billion in O&M funding during 1998-2001. By service, the 1998 FYDP projections differ considerably from the 1997 projections when comparing dollar values in the common 4-year period. The Air Force’s 1998 FYDP projections are higher than the 1997 FYDP projections in every year. Air Force programs that are projected to receive the largest cumulative gains between 1998 and 2001 are base operations for tactical air forces ($904 million), training ($525 million), and F-15A/B/C/D squadrons ($410 million). The Air Force program, logistics operations other than working capital funds, has the largest projected cumulative decrease during the common period—$437 million. The Navy and Marine Corps 1998 FYDP O&M estimates are higher in 1998 and 1999, with decreases in 2000 and 2001. The Navy’s largest projected cumulative increases include nonindustrially funded depot maintenance ($564 million) and administrative base operations ($418 million). The Marine Corps’ largest projected cumulative increase is for other combat support ($444 million). The largest cumulative projected decreases are in the Navy’s logistics support activities ($330 million) and in the Marine Corps’ other personnel activities program ($302 million). In contrast, the Army’s 1998 FYDP O&M funds are lower in every year than the 1997 FYDP. Some of the Army’s largest projected cumulative decreases are in real property maintenance ($800 million) and nonindustrially funded depot maintenance ($622 million). Despite lower 1998 FYDP levels, Army base operations increase by $2.3 billion during 1998-2001. According to the Secretary of Defense, support costs have been consistently underestimated in recent years. In underestimating costs, DOD risks the execution of its program as originally desired. The following sections describe significant influences on the O&M accounts. Part of the higher 1998 O&M level in the 1998 FYDP is due to DOD’s request for almost $1.5 billion for Bosnia operations.