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). The act directed the Secretary of Defense, in consultation with the Chairman, Joint Chiefs of Staff, to conduct a review of the defense needs from 1997 to 2015. Since its bottom-up review in 1993, DOD has repeatedly stated that it must reduce its infrastructure to offset the cost of future modern weapon systems. Our analysis of DOD’s FYDPs and infrastructure activities over the past several years showed that the infrastructure portion of DOD’s budget had not decreased as DOD planned. Further, planned funding increases for modern weapon systems have repeatedly been shifted further into the future with each succeeding FYDP. In May 1997, under the balanced budget agreement, the President and Congress set forth a budget blueprint for the national defense budget function. As part of the agreement, national defense funding levels were established for 1999-2002. The FYDP is an authoritative record of current and projected force structure, costs, and personnel levels that has been approved by the Secretary of Defense. In addition, it is used extensively throughout DOD for analytical purposes and for making programming and budgeting decisions. The 1998 FYDP supported the President’s 1998 budget and included budget estimates for 1998-2003. The 1999 FYDP supports the President’s 1999 budget and includes budget estimates for 1999-2003. A principal objective of the QDR was to understand and devise ways to manage the financial risk in DOD’s program. In the QDR, the Department acknowledges that it has a historic, serious problem—the postponement of procurement modernization plans to pay for current operating and support costs. DOD refers to this as migration of funds. According to DOD, the chronic erosion of procurement funding has three general sources: underestimated day-to-day operating costs, unrealized savings from initiatives such as outsourcing or business process reengineering, and new program demands. The QDR concluded that as much as $10 billion to $12 billion per year in future procurement funding could be redirected as a result of these three general sources. The QDR also identifies other areas of significant future cost risks. To address this financial instability, the QDR directed DOD to cut some force structure and personnel, eliminate additional excess facilities through more base closures and realignments, streamline infrastructure, and reduce quantities of some new weapon systems. By taking these actions, the Secretary of Defense intended that the 1999 budget and FYDP would be fiscally executable, modernization targets would be met, the overall defense program would be rebalanced, and the program would become more stable. During the QDR, DOD identified initiatives to reduce infrastructure costs and personnel. However, even as the QDR report was released, the Department acknowledged that more could be done. The Department’s November 1997 Defense Reform Initiative Report provided a second set of initiatives to streamline and improve DOD’s infrastructure and support activities. Money saved by these initiatives is to help fund weapons modernization. The Defense Management Council, chaired by the Deputy Secretary of Defense, was charged by the Secretary to ensure implementation of the reform decisions. The Council also was directed to examine similar reforms for each of the services and to negotiate an annual performance contract with the director of each defense agency. The 1999 FYDP reflects the budget blueprint outlined in the balanced budget agreement, and therefore, its total budget does not vary greatly from that in the 1998 FYDP. The common 5-year period of both FYDPs (1999-2003) shows that the 1998 FYDP totaled $1,355 billion and the 1999 FYDP totaled $1,356 billion. Table 1 compares the two plans, by primary appropriation account. As shown in table 1, DOD adjusted its three largest appropriations substantially in the 1999 FYDP. Specifically, DOD added $24.9 billion to operation and maintenance (O&M) accounts and decreased the procurement and military personnel accounts by $16.4 billion and $6.4 billion, respectively. (App. I shows the differences between accounts in the 1998 and 1999 FYDPs for each appropriation.) DOD made other adjustments in the 1999 FYDP to (1) meet unplanned operating expenses, such as medical care, or new program demands, such as the National Missile Defense System and (2) avoid disrupting or displacing other investment plans. In the 1999 FYDP, the Defense Health Program, which accounts for about 11 percent of annual O&M spending, is projected to receive higher funding in every year (1999-2003) when compared with the 1998 FYDP. The cumulative projected increase from the 1998 FYDP is $1.6 billion. According to a Defense Health Affairs official, the projected increase would adequately fund the core medical mission, which is comprised of 2 parts, direct care and managed care contracts. However, significant cost-saving initiatives will be necessary in the non-patient care areas of the program. The 1999 FYDP includes an acquisition program stability reserve to address unforeseeable cost growth that can result from technical risk and uncertainty associated with developing advanced technology for weapons systems, for example, unexpected engineering problems. Currently, cost growth in one program requires offsets from other programs, which in turn can disrupt the overall modernization program. DOD’s plan is to distribute the reserve among programs for the budget year before a President’s budget is submitted to Congress. The service acquisition executives centrally will manage the reserves, and the Under Secretary of Defense for Acquisition and Technology will provide oversight. These reserve funds total $2.4 billion for 2000-2003. Between 2000 and 2003, approximately $2.3 billion, or 97 percent, of the funding is programmed in procurement accounts for the Army, Air Force, Navy, and Marine Corps. The remaining 3 percent is programmed in the defense-wide research, development, test, and evaluation account. Table 2 shows the allocation of these funds, by year. As stated in a recent report on weapon acquisitions, we have not evaluated the program stability reserve or the way DOD plans to implement it. Nonetheless, DOD’s use of the reserve has the potential for communicating to program managers which practices will be encouraged and which ones will not. For example, if the reserve funds are used primarily to pay for problems that are revealed in late product development or early production, the fund could reinforce existing incentives for not dealing with problems until they occur. Conversely, if the fund is used to resolve and preclude problems, the fund could encourage problems to be revealed earlier in programs. The 1999 FYDP increased National Missile Defense System research, development, test, and evaluation funding by $1.4 billion, or 75 percent ($1.8 billion to $3.2 billion), from the 1998 FYDP. The program is to provide protection against a limited ballistic missile attack. DOD’s approach, commonly referred to as “3+3,” is to develop, within 3 years, elements of an initial system that can be deployed within 3 years of a deployment decision. The initial deployment decision review is scheduled for 2000. According to DOD, if a sufficient missile threat to the United States has not materialized at that time, development will continue, and the program will maintain a capability to deploy within 3 years. The QDR directed that some planned procurement be cut, in part to address overall affordability concerns. In the 1999 FYDP, DOD reduced quantities of some weapon systems from the 1998 FYDP. For example, DOD reduced the planned purchase of Joint Surveillance Target Attack Radar Systems’ aircraft from 8 to 2, F-22 fighters from 70 to 58, and F/A-18E/F fighters from 228 to 204. When comparing the 1999 FYDP with the 1998 FYDP, substantial planned funding appears in the 1999 FYDP outyears. OSD has programmed funds in two appropriation accounts without distributing the amounts to a DOD organization. Within the revolving and management funds, DOD working capital funds are anticipated to receive $450 million in 2000 to reduce advance billings. Moreover, in 2003, $700 million is programmed for potential purchases of war reserve materials. According to an Army official, the Army and an outside study group have verified requirement shortages in Army war reserve materials. If future DOD programming and budgeting cycles reveal that the programmed funds are needed, then the amounts would be requested in the applicable President’s budget. Accordingly, trade-offs within other DOD programs would not have to be made. Estimated costs associated with DOD’s request for the base closure and realignment round in 2001 appear in the defense-wide contingencies account. Net costs of $832 million and $1.45 billion are programmed in fiscal years 2002 and 2003, respectively. The costs represent a net amount, since DOD anticipates savings from the avoidance of military construction and the cessation of some O&M activities. If Congress does not give DOD new base closure authority, DOD could budget these funds for other activities. In 1997, infrastructure spending was 59 percent of DOD’s total budget, the same percentage that was reported in DOD’s bottom-up review report for 1994. Both the 1998 and the 1999 FYDPs projected that infrastructure spending would decline to 54 percent of DOD’s budget in 2003. To modernize the force, DOD plans to increase procurement funding to $60 billion per year. If DOD is to achieve a $60 billion budget goal, it must reduce funding for its infrastructure activities from the military personnel and O&M accounts. As explained in our previous reports and reflected in the 1999 FYDP, about 80 percent of DOD’s infrastructure activities are funded from these appropriation accounts.