Future Years Defense Program: Actions Needed to Improve Transparency of DOD's Projected Resource Needs

Future Years Defense Program: Actions Needed to Improve
Transparency of DOD's Projected Resource Needs (07-MAY-04,
GAO-04-514).

Congress needs the best available data about DOD's resource
tradeoffs between the dual priorities of transformation and
fighting the global war on terrorism. To help shape its
priorities, in 2001 DOD developed a capabilities-based approach
focused on how future adversaries might fight, and a risk
management framework to ensure that current defense needs are
balanced against future requirements. Because the Future Years
Defense Program (FYDP) is DOD's centralized report providing DOD
and Congress data on current and planned resource allocations,
GAO assessed the extent to which the FYDP provides Congress
visibility over (1) projected defense spending and (2)
implementation of DOD's capabilities-based defense strategy and
risk management framework.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-04-514
ACCNO: A09950
TITLE: Future Years Defense Program: Actions Needed to Improve
Transparency of DOD's Projected Resource Needs
DATE: 05/07/2004
SUBJECT: Appropriations
Counterterrorism
Defense budgets
Defense capabilities
Defense cost control
Defense economic analysis
Future budget projections
Planning programming budgeting
Program evaluation
Strategic planning
Terrorism
Warfare
DOD Future Years Defense Program
DOD Quadrennial Defense Review

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GAO-04-514

United States General Accounting Office

GAO

Report to Congressional Committees

May 2004

FUTURE YEARS DEFENSE PROGRAM

Actions Needed to Improve Transparency of DOD's Projected Resource Needs

GAO-04-514

Highlights of GAO-04-514, a report to Congressional Committees

GAO makes recommendations to provide Congress more data in fiscal year
2005 and beyond on known or likely costs of operations, and to enhance the
FYDP as a tool in the new strategic environment. In comments on a draft
report, DOD stated it already provides reliable information on known costs
of ongoing operations to Congress as soon as it is available, and did not
concur with the proposal to enhance the FYDP. GAO believes its
recommendations offer practical solutions that would provide better
information for congressional decision-makers to use during budget
deliberations.

www.gao.gov/cgi-bin/getrpt?GAO-04-514.

To view the full product, including the scope and methodology, click on
the link above. For more information, contact Sharon Pickup at (202)
512-9619 or [email protected].

May 2004

FUTURE YEARS DEFENSE PROGRAM

Actions Needed to Improve Transparency of DOD's Projected Resource Needs

The FYDP provides Congress with mixed visibility over DOD's projected
spending for the current budget year and at least four succeeding years.
On the one hand, it provides visibility over many programs that can be
aggregated so decision makers can see DOD's broad funding priorities by
showing shifts in appropriation categories. On the other hand, in some
areas DOD likely understates the future costs of programs in the FYDP
because it has historically employed overly optimistic planning
assumptions in its budget formulations. As such, DOD has too many programs
for the available dollars, which often leads to program instability,
costly program stretchouts, and delayed program termination decisions.
Also, the FYDP does not reflect costs of ongoing operations funded through
supplemental appropriations. Since September 2001, DOD has received $158
billion in supplemental appropriations to support the global war on
terrorism, and DOD expects to request another supplemental in January 2005
to cover operations in Iraq and Afghanistan. While DOD officials stated
they are uncertain of the amount of the request, some requirements they
intend to fund with the supplemental appropriation have already been
identified, such as temporarily increasing the Army's force structure.
Defining costs during ongoing operations is challenging and supplemental
appropriations are sometimes necessary; however, not considering the known
or likely costs of ongoing operations expected to continue into the new
fiscal year as part of larger budget deliberations will preclude DOD and
congressional decision makers from fully examining the budget implications
of the global war on terrorism.

DOD's Emergency Supplemental Appropriations for 2004

The FYDP provides Congress limited visibility over important DOD
initiatives. While DOD is considering how to link resources to defense
capabilities and the risk management framework, it does not have specific
plans to make these linkages in the FYDP, in part because the initiatives
have not been fully defined or implemented. Because the FYDP lacks these
linkages, decision makers cannot use it to determine how a proposed
increase in capability would affect the risk management framework, which
balances dimensions of risk, such as near term operational risk versus
risks associated with mid-to long-term military challenges.

Contents

Letter

Results in Brief
Background
FYDP Provides Congress with Mixed Visibility of Projected DOD

Spending The FYDP Has Not Been Linked to Important QDR Initiatives,

Thereby Limiting Congressional Visibility Conclusions Recommendations for
Executive Action Agency Comments and Our Evaluation

2 4

14 17 18 18

Appendix I Scope and Methodology

Appendix II Comparison of DOD's 2003 and 2004 FYDPs by Primary
Appropriation Category

Appendix III Comments from the Department of Defense

Appendix IV GAO Contact and Staff Acknowledgments

Table

Table 1: Emergency Supplemental Appropriations for DOD since September 11,
2001

Figure

Figure 1: Total Dollar Changes in Appropriation Categories between the
2003 and 2004 FYDPs for Fiscal Years 20042007 8

Abbreviations

CBO Congressional Budget Office
DOD Department of Defense
FYDP Future Years Defense Program
O&M operation and maintenance
QDR Quadrennial Defense Review
RDT&E research, development, test and evaluation

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United States General Accounting Office Washington, DC 20548

May 7, 2004

Congressional Committees

In light of the Department of Defense's (DOD) challenge of transforming
its forces for the future while simultaneously fighting the global war on
terrorism, decision makers need to have the best data available about
resources1 to make trade-offs among these priorities. The Future Years
Defense Program (FYDP), a DOD centralized report consisting of thousands
of program elements, provides information on DOD's current and planned
outyear budget requests and is one of the principal tools available to
help inform DOD and Congress about resource data relating to these
challenging trade-offs. In 2001, to help shape its priorities, DOD
developed a new capabilities-based defense strategy focused on "how"
future adversaries might fight, rather than specifically on "whom" they
might be. Realizing that it could not achieve the goals of the new
strategy without a new approach to managing different kinds of defense
risks, such as near term operational risk, DOD identified an associated
risk management framework to ensure that current defense needs are
balanced against future requirements. These two concepts-the
capabilities-based approach and the risk management framework-are key
tenets in DOD's 2001 Quadrennial Defense Review (QDR).2 Furthermore, DOD
has emphasized the need to link resources to capabilities and the risk
management framework.

We believe this report on the FYDP will be useful for your committees'
oversight of DOD's future resource allocations between the dual priorities
of transformation and fighting the global war on terrorism. We examined
the utility of the FYDP as one of the principal tools providing DOD and
Congress data on current and planned resource allocations. Specifically we
assessed the extent to which the FYDP provides Congress visibility over
(1) projected defense spending and (2) the implementation of DOD's

1 Throughout this report, the term "resources" refers to forces, manpower,
and funding.

2 Every 4 years, as directed by 10 U.S.C. S:118 (2004), DOD conducts a
comprehensive examination of the national defense strategy, force
structure, force modernization plans, infrastructure budget plan, and
other elements of the defense program and establishes a defense program
for the next 20 years.

capabilities-based approach and risk management framework outlined in the
2001 QDR.

In conducting our review, we determined that the automated FYDP data were
sufficiently reliable for meeting our objectives. To assess congressional
visibility of projected defense spending, we compared DOD reports and
related 2003 and 2004 budget submissions, analyzed 2003 and 2004 FYDP
resource data, examined related reports, reviewed documents and officials'
statements related to supplemental appropriations, and interviewed
appropriate DOD program and budget officials. To assess DOD's
implementation of its capabilities-based approach and risk management
framework, we interviewed appropriate DOD officials, and officials from
the Institute for Defense Analyses -- the organization currently under
contract to make improvements to the FYDP; examined various DOD planning
and budget documents; and analyzed the FYDP structure for the feasibility
of including links to defense capabilities and the risk management
framework. We conducted our work between June 2003 and February 2004 in
accordance with generally accepted government auditing standards. See
appendix I for a more complete description of our scope and methodology.

The FYDP provides Congress with mixed visibility over DOD's projected
spending. On the one hand, it provides visibility over many programs that
can be aggregated so that decision makers can see DOD's broad funding
priorities by showing shifts between and within appropriation categories.
On the other hand, the FYDP provides less visibility over some important
funding categories and may understate some costs. For example, the FYDP
does not provide visibility over costs for some high priority items- such
as civilian personnel, spare parts, and information technology- because,
by design, these items are embedded in individual programs. Furthermore,
as prior GAO reports have shown, DOD limits visibility in some areas
because it likely understates future costs by employing overly optimistic
planning assumptions in its budget formulations for programs, such as the
long-term costs for weapon systems. Overly optimistic planning assumptions
for programs not only limit visibility; they may have adverse
implications, such as program termination, for the programs beyond the
FYDP years.

In addition, DOD does not include the costs of ongoing operations funded
through supplemental appropriations, such as the global war on terrorism.
Since September 11, 2001, DOD has received $158 billion in supplemental
appropriations-an amount that exceeds the $99 billion DOD received in

Results in Brief

supplemental appropriations throughout all of the 1990s and is more than
DOD's fiscal year 2004 request for its entire Operation and Maintenance
account.3 Further, the administration expects to request another
supplemental in January 2005 to cover costs of operations in Iraq and
Afghanistan. While DOD officials have stated their uncertainty about how
much will be requested, some requirements they intend to fund with the
supplemental appropriation have already been identified, such as the cost
of increased Army force structure. We recognize that defining costs during
ongoing operations is challenging and supplemental appropriations are
sometimes necessary to cover these costs. Nonetheless, not considering the
expected costs of ongoing operations as part of larger budget
deliberations will mean that neither the administration nor congressional
decision makers will have the opportunity to fully examine the budget
implications of the global war on terrorism. Therefore, we are
recommending that DOD provide information on known or likely costs for
ongoing operations to Congress for consideration during its fiscal year
2005 and future budget deliberations.

The FYDP's current usefulness is limited in providing Congress visibility
over the implementation of the capabilities-based defense strategy and
associated risk management framework, important QDR initiatives. The Major
Force Programs, initially developed as the fundamental framework of the
FYDP, remain virtually unchanged and are not representative of DOD's
capabilities-based approach. Because the FYDP has a flexible structure,
DOD has modified it over time to capture the resources associated with
special areas of interest, such as space activities. However, DOD has not
established a link in the FYDP to either defense capabilities, the basis
of its new approach to the defense strategy, or the risk management
framework, developed to ensure that current defense needs are balanced
against future requirements. Moreover, while DOD is considering how to
link resources to these initiatives, it does not have specific plans to
make these linkages in the FYDP, in part because the initiatives have not
been fully developed. DOD is currently undergoing the complex process of
fully defining the capabilities it needs to meet the defense strategy.
Although the risk management framework is better defined, DOD has not
completed its process of linking it to resources, and this process does
not include creating a link in the FYDP. Therefore, although DOD makes
funding decisions that affect defense capabilities

3 Unless otherwise stated, the years and dollars shown in this report are
on a fiscal year basis and in constant fiscal year 2004 dollars.

and the risk management framework, the effects on capabilities and risk
are not clearly identifiable in the FYDP. If they were, both DOD and
congressional decision makers would have greater ability to assess how a
proposed increase or decrease in capability would relate to the funds and
other resources needed and how it would affect the risk management
framework. Therefore, we are recommending that DOD align the program
elements in the FYDP to defense capabilities and the risk management
framework and include this alignment with the FYDP provided to Congress.

In written comments on a draft of this report, DOD stated that it already
provides reliable information on the known costs of ongoing operations to
Congress as soon as it is available and does not concur with our proposals
to enhance the FYDP as a tool in the new strategic environment. We
maintain our view that our recommendations offer practical solutions that
would provide better information for congressional decision makers to use
during budget deliberations and for improving congressional visibility
over DOD's allocation of resources.

In 1962, DOD instituted the Planning, Programming, and Budgeting System to
establish near-term projections in defense spending. This system was
intended to provide the necessary data to assist defense decision makers
in making trade-offs among potential alternatives, thereby resulting in
the best possible mix of forces, equipment, and support to accomplish
DOD's mission. The military services and other DOD components developed
the detailed data projections for the budget year in which funds were
being requested and at least the 4 succeeding years and provided them to
the Office of the Secretary of Defense. The resulting projections were
compiled and recorded in a 5-year plan. In 1987, Congress directed the
Secretary of Defense to submit the five-year defense program (currently
referred to as the future years defense program, or FYDP) used by the
Secretary in formulating the estimated expenditures and proposed
appropriations included in the President's annual budget to support DOD

Background

programs, projects and activities.4 The FYDP, which is submitted annually
to Congress, is considered the official report that fulfills this
legislative requirement.

The Office of Program Analysis and Evaluation has responsibility for the
assembly and distribution of the FYDP. The Office of the Under Secretary
of Defense (Comptroller) has responsibility for the annual budget
justification material that is presented to Congress. These offices work
collaboratively to ensure that the data presented in the budget
justification material and the FYDP are equivalent at the appropriation
account level.

The FYDP provides DOD and Congress a tool for looking at future funding
needs beyond immediate budget priorities and can be considered a longterm
capital plan. As GAO has previously reported, leading practices in capital
decision making include developing a long-term capital plan to guide
implementation of organizational goals and objectives and help decision
makers establish priorities over the long term.5 In 2002, Congress
directed the Department of Homeland Security to begin developing a future
budget plan modeled after DOD's FYDP.6

In the 2001 QDR Report, DOD established a new defense strategy and shifted
the basis of defense planning from a "threat-based" model to a
"capabilities-based" model. According to the QDR report, the
capabilitiesbased model is intended to focus more on how an adversary
might fight rather than specifically on whom the adversary might be or
where a war might occur. The report further states that in adopting a
capabilities-based approach, the United States must identify the
capabilities required to deter

4 National Defense Authorization Act for Fiscal Years 1988 and 1989 (Pub.
L. No. 100-180, Sec. 1203; Dec. 4, 1987). The FYDP reporting requirement
is currently codified at 10 U.S.C. S: 221 (2004) and it states that any
such future-years defense program shall cover the fiscal year with respect
to which the budget is submitted and at least the 4 succeeding fiscal
years. The FYDP must also include the estimated expenditures and the
proposed appropriations, for each fiscal year of the period covered by
that program, for the procurement of equipment and for military
construction for each of the reserve components of the armed forces. 10
U.S.C. S: 10543 (2004).

5 U.S. General Accounting Office, Executive Guide: Leading Practices in
Capital Decision-Making, GAO/AIMD-99-32 (Washington, D.C.: Dec. 1998). GAO
reported that leading organizations it studied prepare long-term capital
plans to document specific planned projects, plan for resource use over
the long term, and establish priorities for implementation. These capital
plans usually cover a 5-, 6-, or 10-year period and are updated either
annually or biennially.

6 Homeland Security Act of 2002 (Pub. L. No. 107-296, Sec.874, Nov. 25,
2002).

and defeat adversaries, maintain its military advantage, and transform its
forces and institutions.

The QDR report also outlined a new risk management framework to use in
considering trade-offs among defense objectives and resource constraints.
This framework consists of four dimensions of risk:

o Force management-the ability to recruit, retain, train, and equip
sufficient numbers of quality personnel and sustain the readiness of the
force while accomplishing its many operational tasks;

o Operational-the ability to achieve military objectives in a near-term
conflict or other contingency;

o Future challenges-the ability to invest in new capabilities and
develop new operational concepts needed to dissuade or defeat mid-to
long-term military challenges; and

o Institutional-the ability to develop management practices and controls

FYDP Provides Congress with Mixed Visibility of Projected DOD Spending

that use resources efficiently and promote the effective operation of the
Defense establishment.

These risk areas will form the basis for DOD's annual performance goals
and for tracking associated performance results. Moreover, the QDR states
that an assessment of the capabilities needed to counter both current and
future threats must be included in DOD's approach to assessing and
mitigating risk.

The FYDP provides Congress visibility of broad DOD funding shifts and
priorities regarding thousands of programs that have been aggregated, or
grouped, by appropriation category. For example, we noted that DOD
increases its Research, Development, Test and Evaluation (RDT&E) account
category and decreases other account categories in the 2004 FYDP. Other
funding shifts/priorities are less visible because the FYDP report,
organized by program, cannot display some specific costs that are
important to decision makers, such as funding for DOD's civilian
workforce. Moreover, the FYDP is a reflection of the limitations of DOD's
budget preparation process. For example, as we have reported in the past,
the FYDP reflects DOD's overly optimistic estimations of future program
costs that often lead to costs being understated. Such understatements may
have implications for many programs beyond the years covered by the FYDP.
Finally, the costs of ongoing operations in Iraq and Afghanistan, which
have been funded through supplemental appropriations, are not projected in
the FYDP thereby limiting the visibility over these funds. The
administration is expected to request additional supplemental funds in

calendar year 2005 according to DOD officials. Although some costs are
difficult to predict, DOD expects costs to become more predictable later
this year. However, some requirements it plans to fund with the
supplemental appropriation have already been identified.

Some Funding Shifts/Priorities Are Visible at the Appropriation Category
Level in the FYDP; Others Are Less Visible

The FYDP was designed to provide resource information at the program level
that could be aggregated a variety of ways including up to the
appropriation category level. For individual programs, this means that
decision makers have visibility over planned funding for 4 or 5 years
beyond the current budget year. Similarly, the programs can be aggregated
in a variety of ways to analyze future funding trends. For example, our
comparison of the 2003 FYDP to the 2004 FYDP provides visibility of
funding shifts that DOD made at the appropriation category level,
specifically showing that over the common years of both FYDPs, DOD plans
to increase funding in its RDT&E appropriation category, while in most
years decreasing funds to Procurement, Military Construction, Military
Personnel, and Operation and Maintenance. According to DOD officials, this
shift toward RDT&E reflects DOD's emphasis on transforming military
forces. Since the FYDP does not clearly identify those programs DOD
considers transformational, we could not validate this claim. Figure 1
shows the changes made between the 2003 and 2004 FYDPs to the department's
appropriation categories for the common 4-year period, 2004-2007. Appendix
II provides a more detailed table.

Figure 1: Total Dollar Changes in Appropriation Categories between the
2003 and 2004 FYDPs for Fiscal Years 2004-2007

aRDT&E = research, development, test and evaluation

b O&M = operation and maintenance

c The "Other DOD accounts" category includes funding for the Other DOD
Programs appropriation category (chemical agents and munitions
destruction, the defense health program, drug interdiction and
counter-drug activities, and the Office of the Inspector General), as well
as for the two appropriation categories Revolving Management Funds and
Undistributed Contingencies.

Compared to the 2003 FYDP, funding in the Operation and Maintenance
appropriation category in the 2004 FYDP was reduced by at least $9 billion
per year from 2004 through 2007 for a total of $42 billion over that
period. About $41 billion of that decrease is accounted for by the
elimination of the Defense Emergency Response Fund, which had projected
over $10 billion in funding each year for 2004 through 2007 in the 2003
FYDP, but had no funding in the 2004 FYDP for those years. Over those same
years, the "Other DOD accounts" category increased by a total of $19
billion. The increase in these categories was mainly fueled by a

$22 billion increase in the Defense Health Program, which was offset
somewhat by a decrease in Revolving Management Funds.7

Although DOD's policy priorities can be discerned at the appropriation
level, some important funding categories cannot be identified because
program elements, the most basic components of the report, are intended to
capture the total cost of the program, as opposed to individual costs that
comprise the program. For example, funding for spare parts, civilian
personnel, and information technology are included in funding for
individual programs and cannot be readily extracted from them. Congress
has expressed interest in all of these funding categories. We note that
DOD officials stated that these funding categories are delineated in other
reports to Congress.

Program elements that encompass multiple systems, such as the Army's
Future Combat Systems and DOD's Ballistic Missile Defense System, could
also limit visibility over funding trends and trade-offs in the FYDP. For
example, in its 2004 budget justification material, the administration
requested funding for the Army's Future Combat Systems-often referred to
as a "system of systems"-under a single program element.8 In the National
Defense Authorization Act for Fiscal Year 2004, Congress rejected the
single program element and instead required the Secretary of Defense to
break Future Combat Systems into three program elements.9 In the
conference report accompanying the bill, the conferees noted that "the
high cost and high risk [of the Future Combat System] require
congressional oversight which can be better accomplished through the
application of separate and distinct program elements for the [Future
Combat System]."10 In another example, DOD had proposed that Congress
repeal its requirement for specifying Ballistic Missile Defense System
program elements. According to DOD's legislative proposal, this would
coincide with the Secretary of Defense's goal to establish a single
program

7 Revolving Management Funds include accounts such as DOD's Working
Capital Funds and National Defense Sealift Fund. These funds are used to
conduct continuing cycles of business-like activity, in which the fund
charges for the sale of products or services and uses the proceeds to
finance its spending.

8 The Army plans to develop a family of 18 systems under the Future Combat
Systems program.

9 Section 214(b), Pub.L. No.108-136 (Nov. 24, 2003).

10 Conference Report (H.R. Conf. Rep. No. 108-354, at 611 (2003)),
accompanying H.R. 1588 (Pub.L. No. 108-136).

that allows allocating and re-allocating of funds among competing
priorities within the program. While Congress provided the administration
flexibility for specifying program elements related to Ballistic Missile
Defense, it nonetheless noted that budget reporting for Ballistic Missile
Defense under one program element would be inappropriate.11

FYDP Limits Visibility of Some Future Costs through Overly Optimistic
Planning Assumptions

Since the mid-1980s, we have reported a limitation in DOD's budget
formulation-the use of overly optimistic planning assumptions. Such overly
optimistic assumptions limit the visibility of costs projected throughout
the FYDP period and beyond. As a result, DOD has too many programs for the
available dollars, which often leads to program instability, costly
program stretch-outs, and program termination. For example, in January
2003, we reported that the estimated cost of developing eight major weapon
systems had increased from about $47 billion in fiscal year 1998 to about
$72 billion by fiscal year 2003.12 We currently expect DOD's funding needs
in some areas to be higher than the estimates in the FYDP. The following
are some examples of anticipated cost increases based on recent reports
where we made recommendations to improve the management and costs
estimates of these programs.

o As we reported in April 2003, cost increases have been a factor in the
Air Force substantially decreasing the number of F/A-22 Raptors to be
purchased-from 648 to 276.13 Moreover, current budget estimates, which

exceed mandated cost limitations, are dependent on billions of dollars of
cost offset initiatives which, if not achieved as planned, will further
increase program costs. In addition, GAO considers continued acquisition
of this aircraft at increasing annual rates before adequate testing is
completed to be a high-risk strategy that could further increase
production costs.

o DOD has not required the services to set aside funds to support the
procurement and maintenance of elements of the Ballistic Missile Defense
System. Management of this "system of systems" was shifted from the
services to the Department's Missile Defense Agency in January 2002, but

11 Conference Report (H.R. Conf. Rep. No. 108-354, at 613 (2003)),
accompanying H.R. 1588 (Pub.L. No. 108-136).

12 U.S. General Accounting Office, Major Management Challenges and Program
Risks: Department of Defense, GAO-03-98 (Washington, D.C.: Jan. 2003).
These amounts are in constant fiscal year 2003 dollars.

13 U.S. General Accounting Office, Tactical Aircraft: Status of the F/A-22
Program, GAO-03-603T, (Washington, D.C.: Apr. 2, 2003).

procurement and maintenance costs will be borne by the services as

elements of the system demonstrate sufficient maturity to enter into full

rate production. In April 2003, we concluded that because DOD had not

yet set aside funds to cover its long-term costs, the department could
find

that it cannot afford to procure and maintain that system unless it
reduces

or eliminates its investment in other important weapons systems.14 We

recommended that the Secretary of Defense explore the option of requiring
the services to set aside funds for this purpose in the FYDP. DOD
concurred with this recommendation, noting that doing so would not only
promote the stability of the overall defense budget but would also
significantly improve the likelihood that an element or component would
actually be fielded.

o Since its inception in fiscal year 1986, DOD's $24 billion chemical
demilitarization program (a 2001 estimate) has been plagued by frequent
schedule delays, cost overruns, and continuing management problems. In
October 2003, we testified that program officials had raised preliminary
total program cost estimates by $1.4 billion and that other factors, yet
to be considered, could raise these estimates even more.15

In written comments on a draft of this report, DOD strongly objected to
our conclusion that DOD has historically employed overly optimistic
assumptions and noted that these statements do not reflect recent efforts
to correct this problem. In August 2001, DOD established guidance that all
major acquisition programs should be funded to the Cost Analysis
Improvement Group estimates, which, according to DOD, have historically
been far more accurate than Service estimates. However, as DOD
acknowledges in its written comments, there is currently no auditable data
available to document the effects of this guidance; therefore, we could
not analyze this claim. Further, GAO reports issued after a draft of this
report was sent to DOD - such as our March 2004 report on the Air Force's
F/A22 program and our April 2004 testimony on DOD's Chemical
Demilitarization program - continue to raise questions about DOD's
planning assumptions.16 For example, in our F/A-22 report, we continued

14 U.S. General Accounting Office, Missile Defense: Knowledge-Based
Practices Are Being Adopted, but Risks Remain, GAO-03-441 (Washington,
D.C.: Apr. 30, 2003).

15 U.S. General Accounting Office, Chemical Weapons: Better Management
Tools Needed to Guide DOD's Stockpile Destruction Program, GAO-04-221T
(Washington, D.C.: Oct. 30, 2003). These amounts are in then-year dollars.

16 U. S. General Accounting Office, Tactical Aircraft: Changing Conditions
Drive Need for New F/A-22 Business Case, GAO-04-391 (Washington, D.C.:
Mar. 15, 2004) and Chemical Weapons: Destruction Schedule Delays and Cost
Growth Continue to Challenge Program Management, GAO-04-634T (Washington,
D.C.: Apr. 1, 2004).

to observe that additional increases in development costs for the F/A-22
are likely and in our report on DOD's Chemical Demilitarization Program,
we observed that the program continues to fall behind schedule milestones.

Some of the examples listed above will have budgetary impacts beyond the
2009 end date of the 2004 FYDP. As the Congressional Budget Office (CBO)
reported in January 2003, "programs to develop weapon systems often run
for a decade or more before those systems are fielded, and other policy
decisions have long-term implications; thus, decisions made today can
influence the size and composition of the nation's armed forces for many
years to come."17 In its February 2004 update to that report, CBO
projected that if the programs represented in the 2004 FYDP were carried
out as currently envisioned by DOD, demand for resources would grow from
the current projection in 2009 of $439 billion to an average demand for
resources of $458 billion a year between 2010 and 2022.18 When CBO assumed
that costs for weapons programs and certain other activities would
continue to grow as they have historically rather than as DOD currently
projects, CBO's projections increased to an average of $473 billion a year
through 2009 and an average of $533 billion between 2010 and 2022.

FYDP Does Not Provide Visibility Over Future Costs of Operations Funded
through Supplemental Appropriations

The FYDP does not include future costs for ongoing operations when these
operations are funded through supplemental appropriations. Since the
attacks of September 11, 2001, DOD has received supplemental
appropriations totaling $158 billion in constant 2004 dollars to support
operations in Iraq, Afghanistan, and elsewhere, as well as to initially
recover and respond to the terrorist attacks. This amount exceeds the $99
billion DOD received in supplemental appropriations throughout all of the
1990s and is more than what DOD requested for its entire Operation and
Maintenance account for fiscal year 2004. Table 1 summarizes these
supplemental appropriations.

17 Congressional Budget Office, The Long-Term Implications of Current
Defense Plans, (www.cbo.gov, January 2003).

18 Congressional Budget Office, The Long-Term Implications of Current
Defense Plans: Detailed Update for Fiscal Year 2004, (www.cbo.gov,
February 2004).

Table 1: Emergency Supplemental Appropriations for DOD since September 11,
2001

2004 dollars in billions

Supplemental amount

Fiscal appropriated to
year Public law DOD
2004 Pub. L. No. 108-106 (Nov. 6, 2003). Emergency $65.2
Supplemental Appropriations Act for Defense
and for the
Reconstruction of Iraq and Afghanistan, 2004

2003 Pub. L. No. 108-87 (Sep. 30, 2003). Department of -3.6 Defense
Appropriations Act, 2004: (Rescinded funds appropriated in Pub. L. No.
108-11 (Apr. 16, 2003))

2003 Pub. L. No. 108-11 (Apr. 16, 2003). Emergency Wartime 64.0
Supplemental Appropriations Act, April 2003

2002 Pub. L. No. 107-206 (Aug. 2, 2002). 2002 Supplemental 14.0
Appropriations Act for Further Recovery From Response to Terrorist Attacks
on the United States

2001/ Pub. L. No. 107-38 (Sep. 18, 2001). 2001 Emergency 18.3

2002 Supplemental Appropriation For Recovery From And Response to
Terrorist Attacks on the United States and Pub. L. No. 107-117 (Jan. 10,
2002). Department of Defense and Emergency Supplemental Appropriations for
Recovery from Response to Terrorist Attacks on the United States Act, 2002

Total $158.0

Source: GAO analysis of supplemental appropriations.

Note: Numbers do not add due to rounding.

In presentations related to the 2005 President's budget submitted to
Congress in early February 2004, DOD officials reported that the budget
does not include funding for ongoing operations in Iraq and Afghanistan,
and they expect another supplemental will be needed in January 2005 to
finance incremental costs for these operations. Senior DOD officials
indicated that operations in Iraq and Afghanistan will continue into
fiscal year 2005, but the requirements and costs of these continued
operations are difficult to estimate because of uncertainties surrounding
the political situations in these regions. However, they noted that
funding estimates will likely become clearer over the course of the year.
For example, the Under Secretary of Defense (Comptroller) stated that by
July 2004, the operations in Iraq and Afghanistan may be better defined
and that having time to analyze expenditures will help in making more
realistic projections. In addition, Service and DOD officials have already
identified some requirements that have associated costs. For example, the
Army has

been authorized to temporarily increase its end strength by 30,000
soldiers. In briefings on the 2005 budget request, DOD and Army officials
stated that they intended to partially fund this additional end strength
with the supplemental appropriation anticipated for 2005.

DOD, with congressional approval, has used different approaches in the
past to fund operations. For example, in the former Yugoslavia, DOD funded
operations begun in fiscal year 1996 through a combination of transfers
between DOD accounts, absorbing costs within accounts, and supplemental
appropriations. However, in 1997, Congress established the Overseas
Contingency Operations Transfer Fund, which provided funding to DOD rather
than directly to the individual military services, and allowed DOD to
manage the funding of contingency operations among the military services
more effectively and with some flexibility.19 In 2002, DOD determined that
funding for operations in the former Yugoslavia were sufficiently stable
to be included directly in appropriation account requests. GAO observed in
a 1994 report that if an operation continued into a new fiscal year, it
would seem appropriate that DOD would build the expected costs of that
operation into its budget and allow Congress to expressly authorize and
appropriate funds for its continuation.20 We continue to hold this view.

The FYDP, as currently structured, does not contain a link to defense
capabilities or the dimensions of the risk management framework, both
important QDR initiatives, limiting the FYDP's usefulness and
congressional visibility of the initiatives' implementation. Further,
although DOD is considering how to link resources to these initiatives, it
does not have specific plans to make these linkages in the FYDP. The Major
Force Programs, initially developed as the fundamental framework of the
FYDP, remain virtually unchanged and are not representative of DOD's
capabilities-based approach. Furthermore, additional program aggregations
that DOD created in the FYDP's structure do not capture

The FYDP Has Not Been Linked to Important QDR Initiatives, Thereby Limiting
Congressional Visibility

19 U.S. General Accounting Office, Bosnia: Cost Estimating Has Improved,
but
Operational Changes Will Affect Current Estimates, GAO/NSIAD-97-183
(Washington,
D.C.: July 28, 1997) and Omnibus Consolidated Appropriations Act, 1997
(Pub. L.
No. 104-208, Sept. 3, 1999).

20 U.S. General Accounting Office, DOD Budget: Analysis of Options for
Funding
Contingency Operations, GAO/NSIAD-94-152BR, (Washington, D.C.: Apr. 26,
1994).

information related to capabilities-based analysis or the risk management
framework in part because these concepts have not been fully developed.

FYDP Structure Does Not Reflect QDR Initiatives

DOD has modified the FYDP over time to create new categories of program
elements; however, it currently does not include categorizations that are
intended to relate to the QDR's initiatives regarding defense capabilities
and the risk management framework. Major Force Programs, originally
established to organize the FYDP into the major DOD missions, have
remained virtually the same in the five decades since their introduction,
do not reflect how DOD combat forces and their missions have changed over
time, and do not organize the FYDP by major defense capabilities. For
example, the Major Force Program of General Purpose Forces includes large
numbers of programs with varied capabilities that would complicate
comparisons needed for understanding defense capabilities and associated
trade-off decisions inherent in risk management. General Purpose Forces
include virtually all conventional forces within DOD and slightly over
one-third of DOD funding is allocated to this broad category. Ground
combat units, tactical air forces, and combatant ships are among the wide
array of forces considered General Purpose Forces. Including forces with
such diverse capabilities in the same category diminishes the Major Force
Program's usefulness to DOD and Congress for identifying trade-offs among
programs. Additionally, all available resources with comparable
capabilities are not categorized in the same Major Force Program. For
example, the Major Force Program structure identifies Guard and Reserve
forces separately despite the fact that today Guard and Reserve forces are
integrated into their respective Service's force structure, deploy and
fight with the general forces, and have some of the same capabilities.

Over time, as decision makers needed information not captured in the Major
Force Programs, DOD created new aggregations of program elements and added
attributes to the FYDP's structure. The most recent aggregation
categorized the data by force and infrastructure categories, which were
developed to relate every dollar, person, and piece of equipment in the
FYDP to either forces or infrastructure.21 This model groups forces, the
warfighting tools of the Combatant Commanders, into

21 Institute for Defense Analyses, DOD Force & Infrastructure Categories:
A FYDP-Based Conceptual Model of Department of Defense Programs and
Resources, IDA Paper P-3660, (Alexandria, Va.: September 2002).

broad operational categories according to their intended use (such as
homeland defense or intelligence operations), and groups infrastructure,
the set of activities needed to create and sustain forces, based upon the
type of support activity it performs (such as force installations or
central logistics). DOD has also added attribute fields to the program
elements for such activities as space and management headquarters in order
to capture the resources associated with specific areas of interest.
However, these new aggregations and attributes were not intended to relate
the FYDP's resources to defense capabilities or the risk management
framework.

DOD Does Not Have Specific Plans to Link the FYDP to Important QDR
Initiatives

According to officials, DOD does not have specific plans to link
capabilities and the risk management framework to the FYDP, in part,
because these concepts have not been fully developed. For example,
capability-based analysis is still under development. DOD officials
describe this as a complex process-representing a fundamental shift in the
basis of defense planning and requiring the participation of all DOD
components. In the past, DOD focused on whom an adversary might be,
whereas the current approach focuses on how future adversaries might
fight. DOD's April 2003 Transformation Planning Guidance states that joint
operating concepts will provide the construct for a new capabilities-based
resource allocation process. To date, these joint operating concepts have
not been formalized. According to DOD officials, while some concepts may
be completed near-term, the overall initiative is expected to take 4 to 5
years to complete.

Furthermore, although the risk management framework has been better
defined than the capabilities have, it also has not been fully implemented
because it has not been fully linked to resources. In December 2002, DOD
instructed its components to begin displaying the linkage of plans,
outputs, and resources in future budget justification material based upon
the four dimensions of its risk management framework. According to DOD
officials, in the fiscal year 2005 budget submission, DOD provided this
linkage for 40 percent of its resources. DOD plans to complete this
process by fiscal year 2007, but does not currently have plans to link the
risk management framework to the FYDP as part of this process. DOD's 2003
Annual Report provided an example of how the FYDP could be linked to the
risk management framework using the Force and Infrastructure categories.
However, according to DOD officials, this example was intended to be a
rough aggregation for a specific performance metric and is not officially
recognized as the most appropriate way to show how DOD's resources link to
the risk management framework. Therefore, this linkage has not been
integrated into the FYDP's structure.

Conclusions

It is important for DOD and congressional decision makers to have the most
complete information possible on the costs of ongoing operations as they
deliberate the budget. In a previous report, we observed that if an
operation continues into a new fiscal year, it would seem appropriate that
DOD would build the expected costs of that operation into its budget and
allow Congress to expressly authorize and appropriate funds for its
continuation. We recognize that defining those expected costs is
challenging and that supplemental appropriations are sometimes necessary.
Nonetheless, the consequences of not considering the expected costs of
ongoing operations as part of larger budget deliberations will mean that
neither the administration nor congressional decision makers will have the
opportunity to fully examine budget implications of the global war on
terrorism. Indeed, the FYDP could be a useful tool for weighing the costs
of defense priorities such as the global war on terrorism and DOD's
transformation efforts. However, as a reflection of the budget, the FYDP
is weakened in this regard because it does not include known or likely
costs of ongoing operations funded through supplemental appropriations.
Without a clear understanding of such costs, members of Congress cannot
make informed decisions about appropriations between competing priorities.

Additionally, the FYDP as it is currently structured does not provide
either DOD or Congress with full visibility over how resources are
allocated according to key tenets of the defense strategy outlined in the
QDR. As a result, resource allocations may not reflect the priorities of
the defense strategy, including its new capabilities-based approach and
the risk management framework. Yet, the current strategic environment and
growing demand for resources require that DOD and Congress allocate
resources according to the highest defense priorities. Indeed, as the
common report that captures all components' future program and budget
proposals, the FYDP provides DOD an option for linking resource plans to
its risk management framework and capabilities assessment and providing
that information to Congress. Furthermore, this linkage could provide a
crosswalk between capabilities and the risk management framework such that
assessments of capabilities could be made in terms of the risk management
framework, which balances dimensions of risk, such as near term
operational risk versus risks associated with mid-to long-term military
challenges.

Recommendations for In the interest of providing Congress greater
visibility over projected defense spending, we recommend that the
Secretary of Defense direct the Executive Action Undersecretary of Defense
(Comptroller) to take the following two actions:

(1) provide Congress data on known or likely costs for ongoing operations
that are expected to extend into fiscal year 2005 for consideration during
its deliberation over DOD's fiscal year 2005 budget request and
accompanying FYDP and

(2) include known or likely projected costs of ongoing operations for the
fiscal year 2006 and subsequent budget requests and accompanying FYDPs.

To enhance the effectiveness of the FYDP as a tool for planning and
analysis in the current strategic environment, the Secretary of Defense
should direct the Office of Program Analysis and Evaluation to take the
following two actions:

(1) align the program elements in the FYDP to defense capabilities needed
to meet the defense strategy, as these capabilities are identified and
approved, and the dimensions of the risk management framework and include
this alignment with the FYDP provided to Congress, and

(2) report funding levels for defense capabilities and the dimensions of
the

Agency Comments
and Our Evaluation

risk framework in its summary FYDP report to Congress.

In written comments on a draft of this report, DOD provided some general
overarching comments concerning our characterization of the FYDP as a
database, as well as other comments responding to our specific
recommendations.

First, DOD noted that it had redefined the FYDP as a report rather than a
database, and stated that it maintains a variety of databases to support
decision making that should not be confused with the FYDP itself. DOD
stated that our characterization of the FYDP as a database resulted in a
misinterpretation that pervades our draft report and results in incorrect
assertions and conclusions. We have updated our report to refer to the
FYDP as a report rather than a database in response to the definition
change provided in DOD's April 2004 guidance - issued after our draft
report was sent to DOD for comment. However, we disagree with the DOD
statement that characterizing the FYDP as a flexible database structure
leads to incorrect assertions and conclusions. Whether the FYDP is
referred to as a database or a report, it is an existing tool used to

inform analyses, as DOD acknowledged in its written comments, and it has
been modified over time to capture resource information associated with
special areas of interest. Although a variety of databases are maintained
by DOD to support decision making, the FYDP is submitted annually to
Congress, as required. Therefore, we believe that our recommendations that
DOD provide Congress with greater information in fiscal year 2005 and
beyond on known or likely costs of operations, and enhance the FYDP as a
tool in the new strategic environment provide practical solutions for
improving congressional visibility of DOD's allocation of resources, as
discussed below.

DOD neither concurred nor nonconcurred with the recommendations that the
Undersecretary of Defense (Comptroller) provide Congress data on known or
likely costs for ongoing operations that are expected to extend into
fiscal year 2005 and beyond. DOD stated that it already provides this
information to Congress as soon as it is sufficiently reliable and that,
at this point in the war on terrorism, current operations are too fluid to
permit an accurate determination of the amount of funding required a year
in advance. In response to our statement that DOD does not include the
costs of ongoing operations funded through supplemental appropriations,
DOD further stated that items funded through supplemental appropriations
are above and beyond resources budgeted and appropriated for peacetime
operations and that funding requirements for wartime and contingency
operations are driven by events and situations that DOD cannot anticipate.
We are encouraged that DOD agrees with the principle of providing these
data to Congress as soon as they are sufficiently reliable. As we
reported, DOD indicated that operations in Iraq and Afghanistan will
continue into fiscal year 2005; therefore, it is reasonable that DOD would
anticipate some costs associated with these operations. However, DOD did
not budget any funds for these operations in its fiscal year 2005 budget
request or accompanying FYDP submitted to Congress. Based on statements by
the Undersecretary of Defense (Comptroller) that cost data will become
clearer as the year progresses, we expect that DOD will be able to provide
such data to Congress for both the fiscal year 2005 and 2006 budget
deliberations. In addition, some requirements that have associated costs,
such as the Army's temporary increase in endstrength, have already been
identified. We acknowledge in our report the challenges associated with
estimating costs for ongoing operations. Although DOD states that
including these estimates would unnecessarily complicate resource
discussions and decisions, we maintain that the challenges of estimating
costs for ongoing operations must be weighed against Congress's
responsibility for balancing government-wide

funding priorities using the best available data at the time of its budget
deliberations.

Lastly, DOD nonconcurred with our recommendations for the Office of
Program Analysis and Evaluation to align the program elements in the FYDP
with defense capabilities and the risk management framework and include
this alignment with the FYDP provided to Congress. DOD stated that it does
not use the FYDP as a tool to conduct analyses of capability or risk
trade-offs between systems, as such a tool would be relatively
uninformative and needlessly complex, though the FYDP does inform those
analyses. DOD also said it does not intend to embed capabilities or the
risk management framework in the FYDP, as these constructs are still being
developed and may change significantly, but it is working to create
decision-support tools that will link resource allocations to capability
and performance metrics, and it may be able to report on those allocations
as the tools and processes mature. We maintain our view that the FYDP is
the ideal vehicle for providing information on these new concepts to
Congress. First, since the FYDP already exists as a legally mandated
reporting mechanism, it avoids the creation of any duplicative reporting.
Second, because the FYDP cuts across all the services and agencies, it
provides a macro picture of DOD resource allocations in terms of both
missions and appropriations. Third, as we note in our report, because the
FYDP is flexible, DOD has periodically built new categories of program
elements into it to provide decision makers with resource information as
needed. Currently, Congress cannot use the FYDP to identify the results of
DOD's resource analyses of capabilities or risk trade-offs between
programs because these relationships are not aligned with the program
elements in the FYDP. We recognize that the FYDP is not the only tool
available for defense resource decision making; however, we note, as DOD
has stated in its written comments, that the FYDP informs analyses and
reflects the resource implications of decisions. While we recognize that
DOD is still working to define these concepts, we maintain our view that,
once defined, reporting these relationships with the FYDP provided to
Congress would improve congressional visibility of DOD resource
allocations.

DOD's comments are included in their entirety in appendix III. Annotated
evaluations of DOD's comments are also included in appendix III.

We are sending copies of this report to the Secretary of Defense; the
Undersecretary of Defense (Comptroller); and the Director, Office of
Management and Budget. We will also make copies available to others

upon request. In addition, this report will be available at no charge on
the
GAO Web site at http://www.gao.gov.

If you have any questions about this report, please contact me at
(202) 512-9619. Major contributors to this report are listed in appendix
IV.

Sharon L. Pickup
Director, Defense Capabilities and Management

List of Committees

The Honorable John Warner
Chairman
The Honorable Carl Levin
Ranking Minority Member
Committee on Armed Services
United States Senate

The Honorable Ted Stevens
Chairman
The Honorable Daniel Inouye
Ranking Minority Member
Subcommittee on Defense
Committee on Appropriations
United States Senate

The Honorable Duncan Hunter
Chairman
The Honorable Ike Skelton
Ranking Minority Member
Committee on Armed Services
House of Representatives

The Honorable Jerry Lewis
Chairman
The Honorable John Murtha
Ranking Minority Member
Subcommittee on Defense
Committee on Appropriations
House of Representatives

Appendix I: Scope and Methodology

We determined that the automated FYDP data was sufficiently reliable for
use in meeting this report's objectives. DOD checks the FYDP data against
its budget request sent to Congress at the appropriation category level.
We also compared the FYDP data with published documents DOD provided to
ensure that the automated data correctly represented DOD's budget request.
Specifically, we compared total budget estimates, appropriation totals,
military and civilian personnel levels, force structure levels, and some
specific program information. Based on our and DOD's comparison, we were
satisfied that the automated FYDP data and published data were in
agreement. GAO has designated DOD's financial management area as high risk
due to long-standing deficiencies in DOD's systems, processes, and
internal controls.1 Since some of these systems provide the data used in
the budgeting process, there are limitations to the FYDP's use. However,
since we determined the FYDP accurately represents DOD's budget request,
it is sufficiently reliable as used for this report.

To determine whether the FYDP provides visibility over DOD funding
priorities we compared DOD reports and Secretary of Defense congressional
testimonies that supported the 2003 and 2004 budget submissions against
FYDP data. We also analyzed resource data from the 2003 and 2004 FYDPs for
fiscal years 2004 - 2007 to identify trends. We adjusted the current
dollars to constant 2004 dollars using appropriate DOD Comptroller
inflation indexes to eliminate the effects of inflation. To determine
whether the FYDP provides visibility over likely future budget requests,
we reviewed other related GAO, Congressional Research Service, and
Congressional Budget Office reports and interviewed program and budget
officials at the Office of the Secretary of Defense and service
headquarters. In addition, we summarized documents related to supplemental
appropriations and analyzed DOD officials' statements regarding plans for
supplemental appropriations in 2005.

To determine whether the FYDP is useful for implementing DOD's risk
management framework and capabilities based planning, we interviewed
appropriate officials at the Office of the Secretary of Defense, service
headquarters, and the Institute for Defense Analyses- the organization
currently under contract to make improvements to the FYDP, and examined
various DOD planning and budget documents including the 2001 Report of the
Quadrennial Defense Review, DOD's 2003 Annual Report to

1 U.S. General Accounting Office, Major Management Challenges and Program
Risks: Department of Defense, GAO-03-98 (Washington, D.C.: Jan. 2003).

Appendix I: Scope and Methodology

the President and the Congress, and DOD's fiscal year 2003 and 2004 budget
submissions. We also examined the structure of the FYDP to determine if it
currently included, or was possible to include, a link to the risk
management framework or defense capabilities.

Our review was conducted between June 2003 and February 2004 in accordance
with generally accepted government auditing standards.

Appendix II: Comparison of DOD's 2003 and 2004 FYDPs by Primary Appropriation
Category

Total obligation authority in millions of FY 2004 dollars

Page 25 GAO-04-514 DOD's Future Years Defense Program
Operation Revolving
FYDP 2004 2005 2006 2007 Total Research, Evaluation 2003 $56,891 $59,556 $56,823 $54,902 $228,172 2004 61,827 66,001 62,182 61,304 251,314 $ 4,936 6,445 5,359 6,402 23,142 % 8.7% 10.8% 9.4% 11.7% 10.1% Procurement 2003 73,297 76,470 82,638 92,698 325,103 2004 72,747 75,949 81,594 89,985 320,275 $ -550 -521 -1,044 -2,713 -4,828 % -0.8% -0.7% -1.3% -2.9% -1.5% Military 2003 5,102 6,212 10,426 13,054 34,794 2004 5,123 6,036 10,048 12,520 33,727 $ 21 -176 -378 -534 -1,067 % 0.4% -2.8% -3.6% -4.1% -3.1% Military 2003 $103,966 $105,025 $107,327 $107,638 423,956 2004 98,956 100,174 101,447 101,776 402,353 $ -5,010 -4,851 -5,880 -5,862 -21,603 % -4.8% -4.6% -5.5% -5.4% -5.1% and 2003 128,052 130,367 131,653 130,407 520,479 2004 116,959 119,002 120,675 121,356 477,992 $ -11,093 -11,365 -10,978 -9,051 -42,487 % -8.7% -8.7% -8.3% -6.9% -8.2% Family 2003 4,322 4,984 4,734 4,572 18,612 2004 4,371 4,694 4,904 4,537 18,506 $ 49 -290 170 -35 % 1.1% -5.8% 3.6% -0.8% -0.6% Other DOD 2003 12,259 12,338 12,629 12,824 50,050 2004 17,900 17,773 18,089 18,402 72,164 $ 5,641 5,435 5,460 5,578 22,114 % 46.0% 44.1% 43.2% 43.5% 44.2% and 2003 2,115 2,587 2,198 3,255 10,155 2004 2,784 1,379 2,103 1,030 7,296 $ 669 -1,208 -95 -2,225 -2,859 31.6% -46.7% -4.3% -68.4% -28.2%
Development, Change Change Change Change Construction Change Change Personnel Change Change Maintenance Change Change Housing Change Change Programsa Change Change Management Change %
Test and Funds Change

Appendix II: Comparison of DOD's 2003 and 2004 FYDPs by Primary
Appropriation Category

Total obligation authority in millions of FY 2004 dollars

FYDP 2004 2005 2006 2007 Total
Undistributed 2003 0 0 0 0 0
Contingencies
2004 45 47 49 51 192
$ Change 45 47 49 51 192
% Change n/a n/a n/a n/a NA
2003 $386,004 $397,539 $408,428 $419,350 $1,611,321
2004 $380,712 $391,055 $401,091 $410,961 $1,583,819
$Change -$5,292 -$6,484 -$7,337 -$8,389 -27,502
Total %Change -1.4% -1.6% -1.8% -2.0% -1.7%

Source: GAO analysis of DOD data.

Note: Totals may not add due to rounding.

a Other DOD programs include chemical agent and munitions destruction, the
defense health program, drug interdiction and counter-drug activities, and
the Office of the Inspector General.

Appendix III: Comments from the Department of Defense

Note: GAO comments supplementing those in the report text appear at the
end of this appendix.

Appendix III: Comments from the Department of Defense

Now on pp. 18-19.

Now on pp. 19-20.

Now on p. 20.

Appendix III: Comments from the Department of Defense

Now on pp. 11-12 and see comment 1.

See comment 2.

Appendix III: Comments from the Department of Defense

Now on pp. 19-20 and see comment 3.

See comment 4.

See comment 5.

Appendix III: Comments from the Department of Defense

See comment 6.

Appendix III: Comments from the Department of Defense

GAO Comments

The following are GAO's comments on the Department of Defense's letter
dated April 13, 2004.

1. DOD objected to our observation that DOD has historically employed
overly optimistic planning assumptions in its budget formulations. In
response to its comments, we acknowledged DOD guidance to reduce future
resource shortfalls on page 11 of this report and noted the lack of
auditable data to document the effects of this guidance. We also provided
additional examples of GAO reports that continue to raise questions about
DOD's planning assumptions.

2. DOD provided a rationale for growth in civilian personnel costs. We
intended civilian personnel to be an example of costs not visible in the
FYDP, as opposed to an example of cost growth. Therefore, we have
clarified the language on page 2 of this report to reflect this point.
Further, we are not proposing that civilian personnel costs be
disassociated from programs, as suggested by DOD's comments.

3. DOD reiterated that it already provides Congress reliable information
on the known costs for ongoing operations as soon as it is available. As
we stated in our evaluation of agency comments on page 19 of this report,
we are encouraged that DOD agrees with the principle of providing these
data to Congress as soon as they are sufficiently reliable. However, we
note that cost data is expected to become clearer as the year progresses
and some requirements that have associated costs have already been
identified. Therefore, we expect that DOD will be able to provide such
data to Congress for their fiscal year 2005 and 2006 budget deliberations.

4. DOD noted that our report implied that the cost of increased Army
force structure has been fully identified and asserted that, to the
contrary, the work to define the particulars of this plan in sufficient
detail to support budget development is still in progress. However, we
note that in February 2004, the Undersecretary of Defense (Comptroller)
outlined an Army force-restructuring plan that would be partially funded
through the existing fiscal year 2004 supplemental appropriation. While
DOD may not have fully defined the particulars of this plan, since it has
identified a funding timeline, we believe that at least some of the cost
of increased Army force structure can be estimated at this time.

5. Based on comments from the Air Force, DOD asked that we clarify that
the reduction in the number of F/A-22 aircraft being purchased

Appendix III: Comments from the Department of Defense

was not largely due to cost increases, and it referred to the role played
by two Quadrennial Defense Reviews in the decision. Our report stated,
however, that cost increases have been one factor in the Air Force's
substantially decreasing the number of F/A-22 Raptors to be purchased -
from 648 to 276. Moreover, development costs have increased dramatically
and in a report that was issued after this draft was sent to DOD for
comment, GAO continued to observe that additional increases in development
costs for the F/A-22 are likely.1 We

maintain our view that the F/A-22 program illustrates that DOD's funding
needs in some areas exceed the estimates used in the FYDP.

6. Based on comments from the Air Force, DOD challenged our implication
that the F/A-22 program will exceed mandated cost limitations if billions
of dollars of cost offset initiatives are not achieved as planned. In
February 2003, we reported that the Air Force has had some success in
implementing cost reduction plans to offset cost growth.2 However,
production improvement programs, also designed to offset costs, have faced
recent funding cutbacks and therefore are unlikely to offset cost growth
as planned. The Air Force stated that it has no intention of violating
mandated cost limitations, but that it does intend to seek relief from
them as part of the fiscal year 2006 President's budget. To the extent
that the Air Force requests additional funds for the F/A-22, our view that
the FYDP understates costs is further confirmed.

1 U.S. General Accounting Office, Tactical Aircraft: Changing Conditions
Drive Need for New F/A-22 Business Case, GAO-04-391 (Washington, D.C.:
Mar. 15, 2004).

2 U.S. General Accounting Office, Tactical Aircraft: DOD Needs to Better
Inform Congress about Implications of Continuing F/A-22 Cost Growth,
GAO-03-280 (Washington, D.C.: Feb. 28, 2003).

Appendix IV: GAO Contact and Staff Acknowledgments

GAO Contact Acknowledgments

(350395)

Gwendolyn R. Jaffe (202) 512-4691

In addition to the person named above, Patricia Lentini, Margaret Best,
Barbara Gannon, Christine Fossett, Tom Mahalek, Betsy Morris, Ricardo
Marquez, Jane Hunt, and Michael Zola also made major contributions to this
report.

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