National Defense Stockpile: Improved Financial Plan Needed to Enhance
Decision-making (Letter Report, 01/26/2001, GAO/GAO-01-17).

The National Defense Stockpile is composed of strategic and critical
materials that can be used in times of national emergency. The stockpile
was established to minimize dependence on foreign sources of these
materials. Because of changes in mobilization planning and modernization
of weapon systems, stockpiling requirements for many materials have been
reduced dramatically during the last two decades. The Defense Logistic
Agency's Defense National Stockpile Center manages the stockpile program
and is responsible for the sale of materials that exceed stockpile
requirements. Concerns have arisen over whether existing cash balances
and projected collections from stockpile gross sales will meet all
expected stockpile transaction fund outlays for fiscal years 2000-2010.
GAO found that the National Defense Stockpile transaction fund's
projected long-term outlays exceed projected collections from gross
sales. The projections do not include all likely outlays, so the timing
and size of a gap between available funds and outlays is unclear.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GAO-01-17
     TITLE:  National Defense Stockpile: Improved Financial Plan Needed
	     to Enhance Decision-making
      DATE:  01/26/2001
   SUBJECT:  Sales
	     Military inventories
	     Surplus federal property
	     Future budget projections
	     Budget outlays
	     Budget receipts
	     Financial management
IDENTIFIER:  National Defense Stockpile
	     National Defense Stockpile Transaction Fund

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GAO-01-17

A

Report to the Chairman, Committee on Armed Services, House of
Representatives

January 2001 NATIONAL DEFENSE STOCKPILE

Improved Financial Plan Needed to Enhance Decision- making

GAO- 01- 17

Lett er

January 26, 2001 The Honorable Bob Stump Chairman, Committee on Armed
Services House of Representatives

Dear Mr. Chairman: The National Defense Stockpile is composed of strategic
and critical materials that can be used in times of national emergency. The
stockpile was established to minimize dependence on foreign sources of these
materials. Because of changes in mobilization planning and modernization of
weapon systems, stockpiling requirements for numerous materials have been
reduced dramatically in the past two decades, with only a few

materials still being required. The reported value of stockpile inventories
on hand has also decreased through annually authorized sales of excess
stockpile materials, from about $10. 1 billion in fiscal year 1987 to about
$3. 4 billion as of September 30, 1999.

The Defense Logistics Agency's Defense National Stockpile Center manages the
stockpile program and is responsible for the sale of materials that exceed
stockpile requirements. The Center deposits collections from gross sales of
stockpile materials to a U. S. Treasury transaction fund. The transaction
fund is used for various purposes, including outlays to pay for stockpile
operations. The Congress has also mandated transfers from the fund to
Defense and other federal programs.

The late Chairman, Subcommittee on Military Readiness, Representative
Herbert H. Bateman, noting that collections from sales of stockpile
materials can be transferred to other programs, expressed concern about
whether sufficient funds will likely be available in the future for
effective management of the stockpile. Our August 20, 1999, report 1
provided initial information on projected stockpile gross sales from fiscal
year 1999

through 2010 as well as on corresponding projections for remaining
inventory.

1 National Defense Stockpile: Sales Revenue and Inventory Data (GAO/ NSIAD-
99- 201R, Aug. 20, 1999).

As agreed with your office, this report addresses whether existing cash
balances and projected collections from stockpile gross sales will be
sufficient to meet all expected stockpile transaction fund outlays for
fiscal

years 2000- 2010. Results in Brief The National Defense Stockpile
transaction fund's projected long- term

outlays exceed projected collections from gross sales. Projections do not
include all likely outlays, so the timing and size of a gap between
available funds and outlays is unclear. The Center has a long- range
financial plan in which projected collections through fiscal year 2003 may
reasonably be expected to meet its projected outlays, including costs of
operations and

currently projected transfers to other federal programs. After that, the
fund's cash balance will offset shortfalls during fiscal years 2004- 2009,
but the plan projects a negative cash balance of $48 million in fiscal year
2010.

The cash may run out sooner because the Center's financial plans do not
include all environmental costs to dispose of hazardous materials or clean
up storage sites. 2 For example, the Center is reasonably certain it will
have to pay an additional $80 million in disposal costs that are not
included in the current plan. The cash projections in the financial plans
may also be

affected if (1) commodity prices increase or decrease or (2) the fund is
required to pay for additional probable 3 environmental cleanup costs that
may be identified through ongoing or future studies. Complete information is
essential for decision- making regarding the use of funds in the stockpile
transaction fund. Consequently, we recommend that the Administrator of the
Defense National Stockpile Center revise the

Center's long- range plan to reflect all probable and measurable outlays to
aid decision- making and oversight of stockpile operations. The Department
of Defense agreed with our recommendation, stating that the long- range plan
will be revised as recommended.

2 Department of Defense 7000. 14- R, Department of Defense Financial
Management Regulation, Volume 6B, Form and Content of the Department of
Defense Audited Financial Statements, December 1998, requires the Defense
Logistics Agency to report estimated environmental cleanup and disposal
costs. 3 Statement of Federal Financial Accounting Standards No. 5,
Accounting for Liabilities of the Federal Government, defines
“probable” as that which can reasonably be expected or is
believed to be more likely than not on the basis of available evidence or
logic.

Background The stockpile program was established under the Strategic and
Critical Materials Stock Piling Act 4 to maintain and manage strategic and
critical materials for use during a national emergency. 5 The stockpile's
operating funding limits and transaction fund transfers have been authorized
annually in national defense authorization acts. 6 The stockpiling act
established a separate fund in the Treasury called the National Defense
Stockpile Transaction Fund. 7 The transaction fund is available, subject to
limitations in the appropriation acts, to fund expenses associated with the
operation of the stockpile, including payroll, storage,

disposal of hazardous materials, and environmental restoration. The fund is
also used for congressionally mandated transfers to other government
departments, such as the general fund of the Department of the Treasury, the
Department of Health and Human Services, and the military services within
the Department of Defense.

4 50 U. S. C. sect.98 et seq. 5 The reported value of these requirements has
decreased from about $16 billion in the 1980s to about $6 million in fiscal
year 1999. Most of the current requirements value is for beryllium, a metal
used in nuclear reactors and various defense weapons. 6 The authorization
covering fiscal year 2000 was the National Defense Authorization Act for
Fiscal Year 2000 (P. L. 106- 65). 7 50 U. S. C. sect.98h.

The President has delegated authority for management of the operational
aspects of the National Defense Stockpile to the Secretary of Defense. 8 The
Defense Logistics Agency assigned responsibility to its Defense National
Stockpile Center. As of September 30, 1999, the Center managed 69 sites (10
staffed and 59 unstaffed satellite stockpile sites). Some sites are located

on property owned by the military services or the General Services
Administration and some are leased from the private sector. As of September
30, 1999, the Center stored 77 types of materials with a reported

market value of about $3.4 billion. 9 In 1997, the Department of Defense
declared 99 percent of the National Defense Stockpile's reported material
value as excess material. The Center established a long- range plan to
vacate 66 sites, reduce staffing, sell most of the excess materials, and
transfer Center functions to another as yet unidentified entity.

The Gap Between Defense National Stockpile Center projections indicate that
collections Projected Collections

from gross sales during fiscal years 2000- 2003 will generally meet or
exceed planned Center expenditures, including operating costs and planned
and Outlays Is Greater

transfers. However, as shown in figure 1, total expected outlays will exceed
Than Reported

collections beginning in fiscal year 2004. 8 Executive Order 12626 (Feb. 25,
1988). 9 According to the Defense National Stockpile Center, this value is
based on September 30, 1999, prices at which comparable materials were being
traded. In the absence of current trading data, market values are estimated.
Unaudited stockpile financial statements for fiscal year 1999 reported
inventory and related property of about $2. 8 billion on a historical cost
basis (acquisition plus fees) and $3. 5 billion at market value. According
to stockpile staff, the difference in estimated market values and the fiscal
year 1999 financial statements occurred because the financial statement
disclosure of market value was based on March 31, 1999, prices and the
market value was based on September 30, 1999, data.

Figure 1: Projected Collections and Outlays for Fiscal Years 2000- 2010

Dollars in millions 500 450 400 350 300 250 200 150 100

50 0

Fiscal Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Collections $465 467 427 419 371 340 218 91 71 57 45

Outlays $393 432 432 399 389 380 373 279 245 245 205

Collections Outlays

Source: Defense National Stockpile Center.

The total outlays of $3.77 billion during fiscal years 2000- 2010 include an
estimated $670 million for stockpile operations and about $3. 1 billion to
be transferred to other agencies. Of the amount to be transferred to other
agencies, $1. 65 billion is for the military services and is authorized
annually. Other transfers, such as transfers to the Department of Health and
Human Services, have been mandated under law to occur over future years. 10
These outlays of $3. 77 billion exceed the sum of (1) the projected cash

10 P. L. 105- 261 sect.3303.

balance of $752 million in the transaction fund plus (2) the estimated
collections ($ 2. 97 billion), thus resulting in a $48- million shortfall in
fiscal year 2010.

Figure 2 shows an expected significant drop in the transaction fund balance
after fiscal year 2004 and, by fiscal year 2010, the Center projects a
shortfall of about $48 million.

Figure 2: Projected Ending Balances of the Stockpile Transaction Fund for
Fiscal Years 1999- 2010

Dollars in millions 1000

858 854 874 856 823 816

800 752

661 600

473 400

299 200

111 0

-48 -200

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Fiscal Year
Source: Defense National Stockpile Center.

Appendix I provides details on projected sales revenues, inventory values,
cash collections, outlays, and remaining cash balances. Environmental
outlays will further reduce transaction fund balances. Outlays for stockpile
operations in the Center's projections include some outlays related to
compliance with environmental laws and cleanup of

contamination resulting from past operations. These outlays have been a
relatively small part of the stockpile's annual operating budget: $3.6
million out of the $74.2 million budgeted in fiscal year 2000. However, the
Center's projected environmental compliance outlays for fiscal years 2001-
2010 do

not include $80 million of estimated disposal outlays that the Center is
likely to incur. Specifically, the Center estimated disposal outlays of $40
million to convert its inventory of thorium nitrate to thorium oxide and

another $20 million for disposal of the thorium oxide (if it cannot be
sold). It also estimated $20 million to repackage and store mercury.
However, according to Center officials, these compliance outlays have not
been included in the Center's transaction fund cash flow projections because
of uncertainty about the value and the timing of these actions. The
Department of Defense Financial Management Regulation 11 requires that the
Defense Logistics Agency estimate and report the cost to clean up and
dispose of hazardous material resulting from its prior and current

operations. The Department of Defense criteria cite the requirements
contained in the Statements of Federal Accounting Standards. Specifically
the Federal Financial Accounting Standards 12 require the estimated costs of
environmental cleanup and disposal to be reported if it is probable and
measurable. These costs would also be useful in the Center's long- range
financial plan.

In addition, the transaction fund's outlays for environmental cleanup could
increase further because the Department has not yet fully assessed
environmental damage at some or all of the 47 active stockpile sites that
have stored hazardous material. Consequently, the Department has only
partially estimated the likely environmental cleanup costs and has not
determined the share of these costs that will be paid by the transaction

fund. The Department identified some environmental cleanup costs in its
annual cleanup report to the Congress for fiscal year 1999, which contained
cleanup costs of $83.5 million for 15 of the sites. However, assessments at
these sites are preliminary and could change, and they must be supplemented
by assessments at the other 32 active stockpile sites that have stored
hazardous materials. Figure 3, which is based on the Center's 11 DOD 7000.
14- R.

12 Statement of Federal Financial Accounting Standards No. 5, Accounting for
Liabilities of the Federal Government, Feb. 28, 1997, and No. 6, Accounting
for Property, Plant, and Equipment, Feb. 28, 1997.

most recent data, shows the 69 current active stockpile locations, including
the 47 that have stored hazardous materials.

Figure 3: Active Stockpile Locations (69) as of September 30, 1999, That
Have Nonhazardous and Hazardous Materials

Depots that have stored hazardous materials (47) Depots with preliminary
assessments made Deports without known hazardous materials (22)

Source: Defense National Stockpile Center.

According to Center officials, it is probable that the Center will have to
fund at least some of these environmental cleanup costs. The Department has
an environmental restoration account for each service and the Defense
Logistics Agency that may be used for cleanup of old contamination from
hazardous materials (including studies) at its facilities, including

Department of Defense stockpile sites. Center officials expect that the
environmental restoration accounts will fund some cleanup at stockpile
sites. However, according to Center officials, many costs cannot be funded

by the environmental restoration accounts because legislation and

implementing policy limit types of activities that can be funded. Examples
of potential costs that may not be covered by the accounts include ? tearing
down buildings, such as at Curtis Bay, Maryland, when thorium

is disposed of; ? cleaning up contaminated soil under current stockpiles of
hazardous

materials when the sites are closed; ? drilling monitoring wells and
maintaining such wells to ensure

compliance with the Clean Water Act; and ? disposing of hazardous materials
found during a closure of a site (as occurred when lead- contaminated soils
were found during investigations of a stockpile in Louisiana).

The stockpile fund may have to fund some of these types of activities, but
these costs are not included in the Center's transaction cash flow
projections. Conclusions The Center's projections show that stockpile fund
outlays will exceed expected collections from sales revenues beginning in
fiscal year 2004, and

its cash reserves are estimated to be depleted in fiscal year 2010. In
addition, the Center's financial projections do not include a likely $80
million in environmental liabilities, and additional funding may be needed
for future stockpile closure and cleanup activities. Consequently, decision-
makers do not have a clear financial picture of potential stockpile
operations costs and of funds that might be available for other purposes.

Recommendation for In order to assist decision- making regarding the use of
funds in the

Executive Action transaction fund, we recommend that the Administrator of
the Defense National Stockpile Center prepare a revised long- range
financial plan that reflects all probable and reasonably measurable
stockpile outlays for the disposal of hazardous materials and environmental
cleanup. This plan should include the currently known probable costs and
include goals and

milestones for finalizing studies to determine probable costs for all other
stockpile sites. Agency Comments and

In written comments on a draft of this report, the Department of Defense Our
Evaluation

concurred with our recommendation, stating that the long- range plan will be
revised as recommended. The Department's comments are reprinted in

appendix II. The Department also provided technical comments on our report,
which we have incorporated as appropriate.

Scope and To determine whether stockpile collections from sales will meet
all Methodology

expected outlays, we obtained and analyzed information on projected
stockpile gross sales, cash collections, outlays (including payments for
operations and transfers), and remaining cash balances from Center
officials. We also examined documents such as inventory records and
environmental reports. We interviewed appropriate officials at the Defense
National Stockpile Center.

We used the Center's projections for gross sales, collections, and inventory
balances for fiscal years 1999- 2010. The basis of these projections were
inventory balances as of September 30, 1999, as reported in the Center's
fiscal year 1999 stockpile report to the Congress. Actual data for later
periods was not available at the time of our review. The Center will
recompute the projections when actual data becomes available.

We did work at 13 active stockpile sites at Curtis Bay, Maryland;
Clearfield, Utah; Arco, Idaho; Denver Federal Center, Colorado; Northgate,
Colorado; Pueblo Army Depot, Colorado; Granite City, Illinois; Hammond,
Indiana; Marietta, Pennsylvania; Warren, Ohio; Scotia, New York; Ravenna,
Ohio; and Somerville, New Jersey. We observed the physical stockpiles and
obtained information on the nature of related activities at these locations.

The Center's estimates for fiscal years 2000 through 2010 are in current
September 30, 1999, dollars. The Center's projected sales of commodities
were calculated using the past 3- year average unit price. For stockpile
items that have not been sold by the Center in the past 3 years, the Center
used the current market price. We did not evaluate the methodology used

by the Center to make projections. Also, the Department of Defense's
Inspector General did not audit the stockpile transaction fund financial
statements for fiscal year 1999 because the stockpile funds are not
considered material. 13 13 The Department of Defense's consolidated
financial statements are prepared under the requirements of the Chief
Financial Officers Act of 1990 (P. L. 101- 576), as amended by the
Government Management Reform Act of 1994 (P. L. 103- 356).

We conducted our review from September 1999 through November 2000 in
accordance with generally accepted government auditing standards. As
arranged with your office, we plan no further distribution of this report
until 30 days from its issue date, unless you publicly announce the its
contents earlier. We will send copies to the Honorable Donald Rumsfeld,
Secretary of Defense; the Honorable Mitch Daniels, Director, Office of
Management and Budget; Lieutenant General Henry T. Glisson, Director,
Defense Logistics Agency; and other interested parties.

Please contact me on (202) 512- 8412 if you have any questions about this
report. Major contributors to this report were Uldis Adamsons, Fred
Lundgren, Leo Clarke III, Dianne Guensberg, and David Merrill.

Sincerely yours, Charles I. Patton, Jr., Director Defense Capabilities and
Management

National Defense Stockpile Projected Cash Collections, Inventory, Uses of
Funds, and

Appendi x I

Remaining Cash Balances The Defense National Stockpile Center provided
background information on the National Defense Stockpile, including its
establishment, purpose, and authorization. The Center also provided data on
the projected stockpile inventory through fiscal year 2010, which shows the
inventory declining from about $3.4 billion to about $0. 5 billion by fiscal
year 2010.

The Center projects that for fiscal years 2000- 2010 about $3.77 billion
will be needed for outlays, of which about 82 percent will be for transfers
to other programs, including transfers to the military services, Health and
Human Services, and the Treasury. About 18 percent will be needed for
stockpile operations. The Center projects that the stockpile transaction
fund will show a shortfall of $48 million in fiscal year 2010.

Background on the The stockpile program was established under the Strategic
and Critical Stockpile Program

Materials Stock Piling Act to maintain and manage strategic and critical
materials for use during a period of national emergency. The stockpile's
operating funding limits and transaction fund transfers are authorized each
year by the national defense authorization acts. 1 The stockpiling act
established a separate fund in the Treasury called the National Defense
Stockpile Transaction Fund. The transaction fund is available, subject to
limitations in the appropriation acts, for the operation of the stockpile,
including payroll, storage, disposal of hazardous materials, and
environmental restoration.

In 1997, the Department of Defense declared 99 percent of the National
Defense Stockpile excess. The Center established a long- range plan to
vacate 66 sites, reduce depot staffing, sell most of the excess materials,
and transfer Center functions to another Defense entity.

The Center makes annual long- term estimates of its sales, cash collections,
outlays, and inventory status. The current long- range estimate, used as a
source of information for this report, was made in the spring of 2000.
Factors that could have a significant impact on the Center's projections
include changes in commodity prices, changes to or new mandated transfers,
and changes to sales plans due to recommendations by the stockpile advisory
committee (Market Impact Committee), which advises

1 The authorization for fiscal year 2000 was the National Defense
Authorization Act for Fiscal Year 2000 (P. L. 106- 65).

the stockpile manager on projected domestic and foreign economic effects of
acquisitions and disposals. Projected Stockpile

Figure 4 shows the Center's projections of remaining stockpile inventory
through fiscal year 2010. 2 Inventory

2 National Defense Stockpile: Sales Revenue and Inventory Data (GAO/ NSIAD-
99- 201R, Aug. 20, 1999).

Figure 4: Value of the Stockpile Inventory for Fiscal Years 1999 (Reported)
and 2000- 2010 (Projected)

Dollars in billions 3.5 3.4

3 2.9

2.5 2.4

2.0 2

1.6 1.5

1.2 1

0.9 0.7 0. 7

0.6 0.5 0. 5 0.5

0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Fiscal Year
Source: Defense National Stockpile Center.

In August 1999, we reported that the Center projected a remaining inventory
market value of $1. 36 billion at the end of fiscal year 2010. The Center
now projects that about $489.4 million will remain in inventory as of the
end of fiscal year 2010. Of this amount, about $6 million is not authorized
for sale because it represents stockpile goals needed in a

national emergency, including 50 tons of beryllium; 15,520 pounds of quartz;
and 300 pounds of mica. The Center projects that the remaining material,
about $483 million, is authorized materials not yet sold or which cannot be
sold due to either the market being unable to absorb the material or
restrictions imposed by the Annual Materials Plan. 3

Fiscal Year 2000- 2010 During fiscal years 2000- 2010, the Center projects
that about $3.77 billion

Activity will be needed for estimated outlays, including stockpile
operations and transfers. Figure 5 shows that most of the outlays from the
stockpile transaction fund are for transfers with only a small amount used
for

stockpile operations. 3 The plan lists the proposed maximum quantity of each
commodity that may be sold and/ or bought in a given fiscal year. Before any
transactions, the Congress must enact specific enabling legislation. After
receiving congressional authority, the Department of Defense develops the
plan. The plan is coordinated with the Market Impact Committee, an
interagency committee that advises the Department on the projected domestic
and foreign economic effects of the proposed stockpile transactions. The
plan is submitted to the Congress by February 15 of each year and, unless
disapproved, becomes effective on October 1.

Figure 5: Allocation of the $3.77 Billion of Projected Outlays for the
Stockpile Transaction Fund for Fiscal Years 2000- 2010

18% Stockpile operations

$671 million 82%

Transfers to other programs $3. 100 billion

Source: Defense National Stockpile Center.

Stockpile Operations The Center projects that about $670 million in total
will be needed to fund stockpile operations for the 11- year period over
fiscal years 2000- 2010. The Center or another activity to which operations
are transferred at a later date would incur these costs. The Center projects
that outlays for stockpile operation peak at $74.2 million in fiscal year
2000 and level off at about

$54.7 million in fiscal years 2007 through 2010. Center officials stated
that although the stockpile program will be downsized in the future, the
Center has adopted a conservative approach to estimating operating outlays
and projects the outlays to remain at $54.7 million for the fiscal years
2007

through 2010.

Transfers From the Over fiscal years 2000- 2010, the Center projects that
$3.10 billion will be Transaction Fund to Other

transferred from the transaction fund to other government activities,
Government Programs

including other agencies and to the general fund of the Treasury. There are
several major transfer programs: 4 ? transfers to the services, ? transfers
to the Health and Human Services program, and ? transfers to the general
fund of the Treasury.

Transfers to the services are authorized annually. Transfers under the other
programs have been mandated under law and are to occur over many years in
the future. Each is discussed below. Transfers to the Services About $150
million in total has been transferred annually from the

transaction fund to the military services. The Army, the Navy, and the Air
Force each receive $50 million annually under various public laws. 5 There
are no specific materials that must be sold for this transfer program. The

Center projects that transfers to the services remain constant at $150
million for fiscal years 2000- 2010. 6 A total of $1.65 billion will be
transferred over this period.

Health and Human Services The Health and Human Services Program consists of
the sale of specific Program materials whose revenues are deposited in the
transaction fund and subsequently transferred to both the program and to the
general fund of the Treasury over a 7- year period for fiscal years 1999-
2005. Funds transferred

to the program (not the Treasury) are to be credited in the manner
determined by the Secretary of the Department of Health and Human

4 In addition to these programs that affect the transaction fund there is a
Titanium Sponge Transfer Program. This program consists of the transfer of
titanium to the Army without charge. In each of the fiscal years 1996
through 2003, up to 250 tons of titanium sponge are to be transferred to the
Army for use in the weight reduction portion of the main battle tank upgrade
program. The Army pays transportation and related costs incurred in
connection with the transfer. The Center estimates that the total value of
the Titanium Program transfer is about $7 million. 5 Transfers to the
services are authorized under annual authorization legislation. All the
transfers to other government departments, for example, the transfers to the
Departments of the Treasury and Health and Human Services, are authorized by
legislation and cover more than 1 fiscal year.

6 According to Center officials, since this transfer requires an annual
authorization and appropriation, there is no guarantee that transfers will
be made beyond fiscal year 2002.

Services to the Federal Hospital Insurance Trust Fund and the Federal
Supplementary Medical Insurance Trust Fund. The Center projects that a total
of $89 million will be transferred to the program during fiscal years 2000-
2003.

Transfers to the Treasury The Center projects that under four mandated
transfer programs, about $1. 36 billion will be collected from sales of
stockpile materials and subsequently transferred to the general fund of the
Treasury during fiscal years 2000- 2010. These multiyear mandated transfer
programs and the

amounts to be transferred are as follows: ? The Health and Human Services
transfer program requires the sale of specific materials and transfers to
the Treasury totaling $396 million. ? The Foreign Military Sales program 7
requires the sale of specific

stockpile materials and the transfer of $430 million to the Treasury, which
is to be used to offset the revenues lost as a result of an amendment to the
program (P. L. 104- 106 sect.4303( a)). 8 ? The Cobalt Post Foreign Military
Sales Program 9 requires the sale of

cobalt in fiscal years 2003- 2007, with total projected collections of $235
million that are to be transferred to the general fund of the Treasury. ?
The Spectrum Program requires the sale of any materials not restricted by
use in the other transfer programs. Total projected collections of $300
million are to be transferred to the general fund of the Treasury. 10 The
program started in fiscal year 2000 and ends September 30, 2009.

Remaining Cash Table 1 shows the projected activity and beginning and ending
balances for

Balances the transaction fund for fiscal years 2000- 2010. The transaction
fund is projected to peak at $874 million at the end of fiscal year 2003.
Starting in

7 National Defense Authorization Act for Fiscal Year 1997 (P. L. 104- 201,
Sept. 23, 1996, as amended in P. L. 105- 65, Oct. 5, 1999). 8 The program
started in fiscal year 1997 and requires total receipts of $720 million
during the 10- fiscal year period ending September 30, 2006. 9 National
Defense Authorization Act for Fiscal Year 1998 (P. L. 105- 85, sect.3305, as
amended by P. L. 106- 65). It is called the Cobalt- Post Foreign Military
Sales program because cobalt is to be sold under the Foreign Military Sales
program before being sold under this program.

10 National Defense Authorization Act for Fiscal Year 2000 (P. L. 106- 65, sect.
3402).

fiscal year 2004, the projected transaction fund balance declines until it
is depleted in fiscal year 2010 and shows a projected shortfall of $48
million.

Table 1: Projected Beginning Balances, Collections, Outlays, and Ending
Balances for the Transaction Fund for Fiscal Years 2000- 2010

Dollars in millions

FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY
2009 FY 2010

Beginning cash $752 $823 $858 $854 $874 $856 $816 $661 $473 $299 $111

balance a Collections 465 467 427 419 371 340 218 91 71 57 45 Outlays -393
-432 -432 -399 -389 -380 -373 -279 -245 -245 -205 Ending cash $823 $858 $854
$874 $856 $816 $661 $473 $299 $111 $- 48 balance Note: The sum of the
columns and rows may not agree with the totals due to rounding.

a Because of subsequent adjustments, the actual beginning balance as of
October 1, 1999, was $743.9 million. Source: Defense National Stockpile
Center.

Any significant changes in commodity prices could have an effect on
collections from sales and deposits to the transaction fund. 11 Because the
transfers are in fixed dollar amounts, increases in commodity prices would

increase available transaction funds, while decreases in prices would cause
a decline in the funds.

Current estimates of outlays for stockpile operations do not include
potential outlays for stockpile site cleanup. Although the Center has
undertaken efforts to determine the extent of the environmental cleanup
effort, the Center has not projected the costs to clean up stockpile
locations with hazardous materials. 12

11 In its comments in our prior report, the Department of Defense stated
that future collections from sales are contingent on the fluctuating value
of the marketable inventory. 12 In its comments to our prior report, the
Department of Defense stated that future environmental costs would
substantially decrease the funds available for other projects.

Appendi x II Comments From the Department of Defense

Now on p. 9.

(709419) Lett er

GAO United States General Accounting Office

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Appendix I

Appendix I National Defense Stockpile Projected Cash Collections, Inventory,
Uses of Funds, and

Remaining Cash Balances Page 13 GAO- 01- 17 National Defense Stockpile

Appendix I National Defense Stockpile Projected Cash Collections, Inventory,
Uses of Funds, and

Remaining Cash Balances Page 14 GAO- 01- 17 National Defense Stockpile

Appendix I National Defense Stockpile Projected Cash Collections, Inventory,
Uses of Funds, and

Remaining Cash Balances Page 15 GAO- 01- 17 National Defense Stockpile

Appendix I National Defense Stockpile Projected Cash Collections, Inventory,
Uses of Funds, and

Remaining Cash Balances Page 16 GAO- 01- 17 National Defense Stockpile

Appendix I National Defense Stockpile Projected Cash Collections, Inventory,
Uses of Funds, and

Remaining Cash Balances Page 17 GAO- 01- 17 National Defense Stockpile

Appendix I National Defense Stockpile Projected Cash Collections, Inventory,
Uses of Funds, and

Remaining Cash Balances Page 18 GAO- 01- 17 National Defense Stockpile

Appendix I National Defense Stockpile Projected Cash Collections, Inventory,
Uses of Funds, and

Remaining Cash Balances Page 19 GAO- 01- 17 National Defense Stockpile

Page 20 GAO- 01- 17 National Defense Stockpile

Appendix II

Appendix II Comments From the Department of Defense

Page 21 GAO- 01- 17 National Defense Stockpile

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