Defense Budget: Fiscal Year 2000 Contingency Operations Costs and Funding
(Letter Report, 06/06/2000, GAO/NSIAD-00-168).

Pursuant to a congressional request, GAO provided information on
Department of Defense's (DOD) contingency operations costs and funding
for fiscal year (FY) 2000, focusing on: (1) how DOD components identify
incremental costs in support of contingency operations; and (2) on the
need for, and average cost of, mission rehearsal exercises conducted by
the Army in preparation for contingency deployments.

GAO noted that: (1) DOD estimates all ongoing contingency operations in
FY 2000 will cost $4.7 billion, with operations in the Balkans and
Southwest Asia accounting for over 99 percent of that total; (2) to
date, DOD has received about $2.65 billion for FY 2000 contingency
operations; (3) Congress appropriated $396 million directly to the
services' military personnel accounts; (4) the remaining $2.3 billion
came from the Overseas Contingency Operations Transfer Fund, which
Congress created to provide funding to DOD components for contingency
costs; (5) in February 2000, the President submitted a request for an
emergency supplemental appropriation of about $2.05 billion for
contingency operations in Kosovo and East Timor for FY 2000; (6) the
supplemental request is pending; (7) nevertheless, if the supplemental
is not enacted, Army officials report that they will have to reduce
overall operation and maintenance spending in late July to cover the
shortfall in contingency operations costs; (8) the Air Force and the
Navy's Atlantic and Pacific Fleets use different methodologies to
calculate their costs for flying hours in support of contingencies; (9)
the DOD regulation on contingency operations costs permits different
methodologies, but this practice results in different rates of
reimbursement for similar levels of activity; (10) the Air Force is
seeking $47.2 million in the supplemental appropriation request to
repair or restore infrastructure used during contingency operations in
Kosovo; (11) no other service is seeking similar reimbursement in the
budget request; (12) DOD's regulation does not provide for whether
maintenance of home station infrastructure can be an allowable
incremental cost; (13) however, DOD officials believe that some home
station costs may be attributable to contingency operations and plan to
revise the regulation; and (14) exercise costs, which average about
$9-$15 million are offset against the costs that would have been
incurred for other exercises or training that the units had scheduled
before deployment was tasked but which were cancelled or modified due to
the deployment.

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

 REPORTNUM:  NSIAD-00-168
     TITLE:  Defense Budget: Fiscal Year 2000 Contingency Operations
	     Costs and Funding
      DATE:  06/06/2000
   SUBJECT:  Defense budgets
	     Defense contingency planning
	     Cost analysis
	     Military training
	     Military intervention
	     Foreign military assistance
	     Education or training costs
	     Supplemental appropriations
	     Armed forces abroad
	     Combat readiness
IDENTIFIER:  Overseas Contingency Operations Transfer Fund
	     Kosovo (Serbia)
	     Bosnia

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GAO/NSIAD-00-168

National Security and
International Affairs Division

B-285260

June 6, 2000

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

In a March 1999 report to Congress, the Department of Defense (DOD) reported
that since the end of the Persian Gulf War in February 1991, U.S. military
forces had conducted or participated in approximately 50 overseas
contingency operations involving the deployment of 500 or more military
personnel at any one time. These operations included noncombatant evacuation
operations, no-fly zone enforcement, humanitarian assistance, and peace
enforcement operations.

In fiscal year 2000, U.S. military forces have participated or are
participating in a number of contingency operations. The largest of these
are in the Balkans (Bosnia and Kosovo) and Southwest Asia, where incremental
costs have totaled about $21.3 billion since they began in 1991 through
March 2000.1 In response to your request, we (1) identified DOD's
incremental contingency operations costs and funding for all ongoing fiscal
year 2000 contingency operations and (2) assessed how DOD components
identify incremental costs in support of contingency operations.2 We are
also providing information on the need for, and average cost of, mission
rehearsal exercises conducted by the Army in preparation for contingency
deployments.

DOD estimates all ongoing contingency operations in fiscal year 2000 will
cost $4.7 billion, with operations in the Balkans and Southwest Asia
accounting for over 99 percent of that total. To date, DOD has received
about $2.65 billion for fiscal year 2000 contingency operations. Congress
appropriated $396 million directly to the services' military personnel
accounts. The remaining $2.3 billion came from the Overseas Contingency
Operations Transfer Fund, which Congress created to provide funding to DOD
components for contingency costs. As of April 2000, all funding available in
the Overseas Contingency Operations Transfer Fund had been transferred to
DOD components. In February 2000, the President submitted a request for an
emergency supplemental appropriation of about
$2.05 billion for contingency operations in Kosovo and East Timor for fiscal
year 2000. The supplemental request is pending. The military services
reported in March that their original cost estimates were still valid;
however, as of May 2000 there were about 1,000 fewer troops in the Balkans
than planned, which could result in lower fiscal year 2000 costs.
Nevertheless, if the supplemental is not enacted, Army officials report that
they will have to reduce overall operation and maintenance spending in late
July to cover the shortfall in contingency operations costs. The other
services report similar situations.

We have two concerns regarding how the services identify incremental costs
in support of contingency operations. First, the Air Force and the Navy's
Atlantic and Pacific Fleets use different methodologies to calculate their
costs for flying hours in support of contingencies. The DOD regulation on
contingency operations costs permits different methodologies, but this
practice results in different rates of reimbursement for similar levels of
activity.3 Second, the Air Force is seeking $47.2 million in the
supplemental appropriation request to repair or restore infrastructure used
during contingency operations in Kosovo. No other service is seeking similar
reimbursement in the budget request. DOD's regulation does not provide for
whether maintenance of home station infrastructure can be an allowable
incremental cost. However, DOD officials believe that some home station
costs may be attributable to contingency operations and plan to revise the
regulation.

Army mission rehearsal exercises are conducted to prepare units for
conditions they are likely to encounter during contingencies. Because the
skills taught are specific to the deployment and differ from ordinary
training tasks, the Army considers the exercise cost an incremental cost of
the contingency. Exercise costs--which average about $9-$15 million--are
offset against the costs that would have been incurred for other exercises
or training that the units had scheduled before the deployment was tasked
but which were canceled or modified due to the deployment.

This report contains recommendations that would improve DOD's identification
of incremental contingency operation costs to ensure costs are identified,
estimated, and reported consistently. DOD officials provided oral comments
on a draft of this report and generally agreed with the information
presented and with our recommendations. We incorporated their comments where
appropriate.

In fiscal year 2000, U.S. military forces are participating or have
participated in a number of contingency operations, and DOD is seeking
reimbursement for costs incurred in operations in the Balkans, Southwest
Asia, and East Timor. The largest ongoing contingency operations are in the
Balkans and Southwest Asia. From the beginning of U.S. military involvement
in the Balkans in 1992 through March 2000, DOD has reported $13.82 billion
in incremental costs. From 1991 through March 2000, DOD has reported $7.44
billion in incremental costs for Southwest Asia operations.

U.S. involvement in the Balkans began in July 1992 as part of humanitarian
relief efforts in Bosnia, Herzegovina, and Croatia and expanded in April
1993, when the United States began to participate in North Atlantic Treaty
Organization (NATO) enforcement of a no-fly zone over Bosnia and
Herzegovina. In December 1995, U.S. troops deployed as part of a
multilateral coalition under NATO command in and around Bosnia to assist in
implementing the General Framework Agreement (also known as the Dayton
Agreement). The number of U.S. military personnel in Bosnia as part of the
NATO force has steadily declined, from about 18,000 in February 1996, to
about 6,900 in October 1998, to about 4,300 in April 2000. In addition to
U.S. military personnel in Bosnia, there are also about 600 U.S. military
personnel stationed in the nearby countries of Hungary, Croatia, and Italy
in support of Bosnia operations.

In June 1999, the United States began providing troops to the NATO-led
Kosovo Force, whose mission is peace enforcement in Kosovo. The United
States is currently providing about 5,500 troops as part of the NATO force.
In addition, the United States has about 670 troops in Macedonia to operate
a staging base for U.S. troops entering and departing Kosovo.

U.S. forces have been involved in enforcing a no-fly zone in Southwest Asia
since the end of the Persian Gulf War. The size of the U.S. force varies
substantially depending on the level of tension with Iraq. According to DOD
budget documents, there are about 30,000 personnel in the area, many of them
Navy and Marine Corps personnel deployed on ships. Since the fall of 1999,
about 500 U.S. troops have also been participating in some small
humanitarian and civic assistance activities in East Timor.

DOD budgets for the cost of ongoing contingency operations, and Congress has
appropriated funds for these operations to the services' military personnel
accounts and the Overseas Contingency Operations Transfer Fund, which
Congress created to provide funding to DOD components for contingency costs.
DOD transfers funds out of the Overseas Contingency Operations Transfer Fund
to the DOD components' appropriation accounts as operations unfold during
the year. Any monies remaining in the Fund at the end of a fiscal year can
be carried over to the next fiscal year. In the case of new, expanded, or
otherwise unfunded operations, such as the operations involving Kosovo and
East Timor, costs are not budgeted in advance. DOD components borrow funds
from other budgeted activities that are planned for later in the fiscal
year. If these funds are not replenished through supplemental appropriations
or reprogramming of previously appropriated funds, then the components have
to absorb the costs within their regular appropriations.

Create Challenges

DOD estimates that it will need $4.7 billion to fund contingency operations
in fiscal year 2000. It has received funding for Bosnia and Southwest Asia,
and the President has submitted an emergency supplemental appropriation
request to fund operations in Kosovo and East Timor. This request is pending
and, if not passed, could cause the DOD components to curtail other planned
activities in order to fund contingency operations. The military services
reported in March that their original cost estimates were still valid.
However, there are currently fewer troops than originally planned in Bosnia
and Kosovo, which could result in lower fiscal year 2000 costs.

Maintenance Activities

According to DOD's fiscal year 2000 budget submission, ongoing contingency
operations in fiscal year 2000 are estimated to cost $4.7 billion (see table
1). On an operational basis, about $3.63 billion (77 percent) is for Balkans
operations. Most of the remainder is for Southwest Asia, with
$25 million planned for operations in East Timor.

 Dollars in millions
                Military personnel  Operation and maintenance  Total
 Bosnia         $214.3              $1,388.7                   $1,603.0
 Kosovo         191.8               1,833.6                    2,025.4
 Total Balkans  $406.1              $3,222.3                   $3,628.4
 Southwest Asia 138.0               913.3                      1,051.3
 East Timor     0                   25.0                       25.0
 Total          $544.1              $4,160.6                   $4,704.7

Source: DOD's supporting documentation to the President's fiscal year 2000
budget submission.

On an appropriation account basis, operation and maintenance continues to
represent the bulk of contingency costs--about $4.16 billion
(88 percent) of the total $4.7 billion in estimated contingency operations
costs. Operation and maintenance funds are used for a variety of purposes,
including transportation of personnel, goods, and equipment; unit operating
support costs; and intelligence, communications, and logistics support. The
remaining $544 million (12 percent) is for military personnel accounts,
which fund the pay and allowances of mobilized reservists and special
payments or allowances for all qualifying military personnel, such as
Imminent Danger Pay ($150 per month) and Family Separation Allowance ($75
per month).

in Troop Levels in the Balkans

DOD tracks the incremental costs of contingency operations and prepares
monthly contingency operations cost reports. The most recent report details
costs incurred through March 2000. Reported costs through March total over
$2.3 billion in incremental costs for all contingency operations in which
U.S. military forces have been involved in fiscal year 2000 and represent
about 49 percent of DOD's full-year estimate. The Army has incurred the
majority of the costs--about 66 percent--with the Air Force having the next
highest costs--about 20 percent (see fig. 1). DOD components have incurred
costs of about $1.7 billion in the Balkans and about $542 million in
Southwest Asia. The remaining costs are attributable to other small
operations such as East Timor and disaster relief efforts in Mozambique and
Venezuela.

Source: DOD Contingency Operations Cost Report for March 2000.

DOD separates the almost $2.326 billion in reported incremental costs into
five categories: military personnel, civilian personnel, personnel support,
operating support, and transportation. The last four categories are funded
from the operation and maintenance appropriation. The operating support
category, which accounts for costs relating to operation tempo, base
support, and reconstitution, has the highest costs--over $1 billion, or
about 71 percent of the costs through March 2000. The next highest category
is military personnel, which total about 11 percent. Transportation, about 9
percent, and personnel support, about 9 percent, are the next highest
categories. Civilian personnel costs account for less than 1 percent of the
total.4

As of March 2000, DOD was reporting that its original fiscal year 2000 cost
estimate was still valid, although cost reports through March 2000 suggest
costs could be higher. At the same time, as of May 2000, there were about
1,000 fewer U.S. troops in the Balkans than originally assumed, which
suggests that costs could be lower than originally estimated. Our analysis
of fiscal year 2000 costs for all DOD components through March 2000, the
latest data available, suggests that as of the middle of the fiscal year
costs were exceeding estimates by about $140 million. The Army's costs
exceeded estimates by about $117 million and the Navy's costs exceeded
estimates by about $21 million, while the Air Force's costs were about
$67 million below estimates. In discussing our analysis with DOD officials,
they said that while the cost reports are a useful tool, they have
limitations at this point in the fiscal year. For example, they said that
some services have contracts where annual costs are obligated at the
beginning of the fiscal year, although they will be incurred throughout the
year. Therefore, in a March 2000 report to the Senior Readiness Oversight
Council, the services indicated that their initial estimates were still
valid. However, there are about 700 fewer troops in Kosovo than originally
planned and 300 fewer in Bosnia, most of whom were support troops whose
tasks have now been taken on by contractors. Army officials expect that
current troop levels will remain unchanged for the balance of the fiscal
year. Therefore, unless contractors incur sufficiently higher costs to
offset the savings generated by lower troop levels as they take on tasks now
performed by troops, we believe that full fiscal year 2000 costs at the end
of the fiscal year could be less than originally estimated.

DOD's budget for operations in East Timor was limited to $25 million by the
Office of Management and Budget. However, DOD's cost reports through March
2000 show total costs for this operation at almost $54 million. Therefore,
if the $25 million included in the emergency supplemental for East Timor is
appropriated, the services will have to absorb the costs incurred above the
$25-million limit within their regular appropriations. For example, the
Marine Corps will have to absorb about $6.9 million in operation and
maintenance costs for this operation.

Contingency Funding May Prove Challenging for DOD

DOD had received about $2.65 billion in fiscal year 2000 funding for
contingency operations in Bosnia and Southwest Asia as of May 2000. Funding
came from several sources (see table 2).

 Dollars in millions
 Appropriated to Military Personnel Account    $ 396a
 Overseas Contingency Operations Transfer Fund
 Fiscal year 2000 beginning balance
                                               $ 544b

 Fiscal year 2000 appropriation
                                               1,714

 Total available in fiscal year 2000           $2,258
 Total available to DOD                        $2,654
 Emergency supplemental (pending)              $2,050

aIncludes military personnel funding for Bosnia and Southwest Asia only.

bThis amount remained in the Overseas Contingency Operations Transfer Fund
at the end of fiscal year 1999.

As of April 2000, the full $2.258 billion in the Transfer Fund had been
transferred to DOD components to pay for contingency operations costs to
date. The Army received $1.434 billion; the Air Force, $620.9 million; the
Navy, $70.5 million; the Marine Corps, $1.6 million; and other DOD
components, $130.8 million.

Congress did not include funds for ongoing Kosovo operations in the fiscal
year 2000 DOD Appropriations Act, and operations in East Timor began after
the act was passed. Therefore, the President submitted an emergency
supplemental appropriation request to Congress in February 2000 for these
two operations. This request, if enacted as submitted, would provide about
$2.05 billion--$25 million for operations in East Timor and the remainder
for operations in Kosovo. These operations have been ongoing since the
beginning of the fiscal year, and DOD components will have to use their
regular appropriated funds to pay for costs incurred for these operations
after funds from the Transfer Fund are exhausted. If the emergency
supplemental request is not passed, DOD components will have to absorb any
funding shortfalls within their regular appropriations by canceling or
deferring other planned spending. Such actions could involve canceling
training exercises, deferring depot maintenance, and canceling or deferring
spare parts purchases.

The Army, which estimated that it would need about $2.7 billion in funding
from the Overseas Contingency Operations Transfer Fund for fiscal year 2000,
will be affected more than the other services if the supplemental request is
not enacted. 5 It has received $1.434 billion from the Transfer Fund,
leaving a shortfall of about $1.3 billion for the fiscal year.6 U.S. Army,
Europe, which bears the bulk of the costs for the Balkans operations,
estimates that absorbing the shortfall within its operation and maintenance
account will deplete that account by early July 2000. If the shortfall is
spread across the entire Army operation and maintenance account, the Army
projects that it will run out of funds by late July. Decisions to cancel
training exercises, most of which cannot be rescheduled, will have to be
made in mid-June because of transportation scheduling deadlines. According
to Army officials, canceling training could affect readiness.

The other services will have to similarly absorb some contingency costs. The
Air Force estimated that it would need $856.1 million but has received only
$620.9 million from the Transfer Fund, leaving a shortfall of
$235.2 million. If it absorbs the shortfall, the Air Force projects that it
will run out of funds for its flying hour program in mid-August, which could
stop the Air Force from conducting training. The Navy's total requirement is
about $273.1 million, and it has received about $70.5 million from the
Transfer Fund, for a shortfall of $202.6 million. The Navy plans to delay
the overhaul of a submarine that is scheduled to begin in June and to make
other decisions to curtail planned activities as the year progresses. The
Marine Corps' total requirement is about $12.2 million, and it has received
$1.6 million from the Transfer Fund and $170,000 from other sources, for a
shortfall of $10.4 million.

In similar emergency situations, and when immediate action is necessary, DOD
has relied upon the so-called "Feed and Forage" Act (41 U.S.C. 11), enacted
in its original form in 1861 during the Civil War to incur obligations on
behalf of the United States for such items as "clothing, subsistence,
forage, fuel, quarters, transportation, or medical and hospital supplies"
that exceed available appropriations but which may not exceed the
necessities of the current year. The Secretary of Defense is required to
advise Congress immediately of the exercise of this authority and to report
quarterly on estimated obligations incurred under this authority. This
authority is unfunded and requires a subsequent appropriation to liquidate
any obligations that are incurred. DOD last used this authority in 1994
during an operation in Haiti.

Costs

The DOD regulation on contingency operations provides guidelines for
determining incremental costs and cost categories for those components
participating in contingency operations. Our assessment of how the services
determine their contingency operations costs raised two issues. First, the
Air Force and the Navy's Atlantic and Pacific Fleets differ in how they
identify their incremental flying hour costs for contingencies and are
reimbursed at different rates for similar levels of activity. Second, the
Air Force is requesting $47.2 million in infrastructure reconstitution costs
in the supplemental request for Kosovo. The regulation on reconstitution
does not provide for costs generated by infrastructure wear and tear at home
stations as an allowable incremental cost.

Different Reimbursements

The DOD regulation on contingency operations directs the services to report
only those incremental operation tempo costs they incur as a direct result
of a contingency. The regulation recognizes that flying hours in support of
contingency operations overlap to some degree with each service's flying
hour program, which is funded through its annual operation and maintenance
account. However, the regulation authorizes each specific command that is
involved in the operation to develop its own methodology for separating
funded flying hours from contingency flying hours to determine the
additional incremental costs attributable to the contingency. As a result,
the Air Force and the Navy's Atlantic and Pacific Fleets calculate their
incremental flying hours differently and are reimbursed at different rates
for similar levels of flying activity.

The Air Force incurs incremental costs providing flight support to
contingencies with its active, National Guard, and Reserve forces. In fiscal
year 2000, the Air Force has decided to absorb the cost of this
contingency-related flight support within its base flying hour budget for
active forces. The Air Force will need to reprogram funds or ask for
additional funding for any incremental contingency-related flying hours if
its base flying hour budget for active forces is fully used. This decision
was made because the Air Force had under executed its active forces' base
flying hour budget each year from fiscal year 1994 through 1998, yet sought
and received additional funding for its incremental contingency flying hour
costs. Air Force officials said that service leadership became concerned
that this historic under execution could lead to a future reduction in the
total flying hour program. The Air Force will still seek reimbursement,
however, for all incremental contingency operations flying hour costs
incurred by its National Guard and Reserve units. These units tend to fly
all the hours in their base flying hour budget and participate in
contingencies on an "as needed" basis.

The Navy's Atlantic and Pacific Fleet aircraft have been involved in
contingency operations, and each fleet has developed its own methodology for
calculating incremental flying hour costs in support of these operations.
The Atlantic Fleet's methodology determines how much its deployed aircraft
would have flown for training each month of the deployment had there been no
contingency. This scheduled flying hour requirement is already funded
through the Navy's annual operation and maintenance appropriation. When the
deployed units' monthly flying hour costs exceed this base funded budget,
the fleet counts the excess as an incremental cost of the contingency.

The Pacific Fleet's methodology for determining contingency flying hour
costs considers the training value of each flight. It considers all flying
hours flown in the contingency area as being in support of the contingency
but recognizes some training value in 40 percent of the hours flown. The
remaining 60 percent of hours flown are considered to have little or no
training value and are claimed as an incremental contingency cost. Depending
on the number of hours flown, this methodology could result in a higher rate
of reimbursement than the Atlantic Fleet's methodology.

Contingency Operations Costs

As part of the fiscal year 2000 supplemental request, the Air Force has
requested funds for what it described as the reconstitution of
infrastructure, such as buildings and runways, used during contingency
operations in Kosovo. The DOD regulation on contingency operations permits
the services to charge reconstitution costs for cleaning, inspecting,
maintaining, replacing, and restoring equipment owned by a participating
unit. Another section of DOD's regulation discusses facilities and base
support. This section allows incremental costs to be incurred for, among
other things, maintenance of billeting, camps, airfields, staging areas, and
other facilities, but only away from home station. DOD officials said that
while the regulation does not address infrastructure and facilities
reconstitution, it is meant to be a guide and is not all inclusive. These
officials believe that some home station costs may be attributable to
contingency operations. They stated that the regulation needs to be
clarified to include guidance on the extent to which infrastructure
maintenance and repair costs at home stations incurred while supporting
contingencies should be considered an incremental cost.

Some projects for which the Air Force has requested funding are at home
station bases, such as Spangdahlem Air Force Base in Germany, and others are
at bases that are used only to support contingencies, such as Moron Air
Force Base in Spain. Some of these projects are related to the Kosovo
operation; however, some repairs result from years of use over several
contingency operations. For example, one project includes restoring
contingency operations dormitories at Moron Air Force Base at a cost of $3.9
million. According to Air Force officials, this project is justified as a
reconstitution cost based on heavy use in Kosovo operations, as well as
being a refueling base for air traffic headed into Bosnia and Southwest Asia
over the years of those operations. Another project is for restoring
airfield pavements at Spangdahlem Air Force Base in Germany at a cost of
$2 million. According to Air Force documents, the base was used for combat
missions and transient heavy cargo aircraft during the Kosovo air campaign.
However, this base is also home to the 52nd Fighter Wing and is used for
regular operations.

The Air Force is the only DOD component to request contingency operations
funding for infrastructure maintenance and repair projects, which are
normally funded from operation and maintenance accounts. Requests for
funding for such projects from the Overseas Contingency Operations Transfer
Fund could increase if other DOD components follow this practice.

Deployments

The Army trains primarily to fight major theater wars at a high level of
intensity. However, Army units deploy for other operations, such as
peacekeeping, that involve lower levels of intensity and unique or different
skills. The Army uses mission rehearsal exercises to prepare and rehearse
those skills the task forces deploying to Bosnia or Kosovo may need to
successfully conduct the operation. Costs for these exercises are included
as incremental contingency operations costs and are offset against the cost
of training that was planned for the unit, but canceled or modified because
of the deployment.

Unique Skills

Mission rehearsal exercises have contributed to the success of contingency
operations in the Balkans, according to Army officials. These exercises have
provided the opportunity to develop the different skills, such as
controlling crowds and communicating with local nationals, needed for
contingency operations that are not covered in regularly scheduled training
and to practice these skills in a realistic training environment
specifically tailored to the operation. The officials also believe that
integrating low intensity conflict training into the scheduled training
rotations could shorten the days needed for the mission rehearsal exercise,
but not eliminate the need for the exercises.

The rehearsal exercises are tailored to the specific operation and last from
17 to 24 days, including the deployment to and from the training area. They
are scheduled after units are identified to deploy to support a specific
contingency operation. Four mission rehearsal exercises are scheduled for
fiscal year 2000, two to prepare for Bosnia deployments and two to prepare
for Kosovo deployments. The Bosnia rehearsal exercises are conducted at the
Joint Readiness Training Center, Fort Polk, Louisiana. Mission rehearsal
exercises for Kosovo are conducted at the Combat Maneuver Training Center at
Hohenfels, Germany.

In our prior work,7 we noted that ground combat commanders differed on when
to provide peace operations training. Some believed it should be included in
standard unit training and others believed it should be done after the units
have been notified of their participation. According to Army officials
responsible for training units in Europe, this low intensity conflict
training is now being integrated into regularly scheduled training rotations
at the Combat Maneuver Training Center. However, this training is not
tailored to any specific contingency as is the mission rehearsal exercise.

The Army considers mission rehearsal exercise costs to be contingency costs
because they relate to specific deployments to contingency operations. The
average total cost for a mission rehearsal exercise to prepare for a Bosnia
rotation has been about $9 to $11 million. The average cost for a mission
rehearsal exercise for a Kosovo rotation has been about $14 to $15 million.
The costs are higher for the Kosovo rotations because of the larger number
of personnel that participate in these mission rehearsal exercises. The
units that participate and the training center where they take place both
incur some of the costs, which include such things as personnel travel,
equipment transportation, operation tempo, and other support costs.

For example, the Brigade Task Force from the 10th Mountain Division at Fort
Drum and associated and support units participated in a mission rehearsal
exercise in May 1999 for the deployment to Bosnia in August 1999. This
mission rehearsal exercise cost $9.9 million and involved 6,405 personnel
who deployed to the Joint Readiness Training Center. The cost included $5.2
million for transportation and travel expenses for personnel and
transportation of equipment to and from the training center. The cost also
included $1.9 million for air and ground operating tempo during the exercise
and for the movement of the unit's aircraft to and from the exercise. Other
cost items included $2.8 million for role players and linguists,
construction of training facilities, support at the training center,
contractor support for developing the exercise, observers and controllers
for the exercise, and other miscellaneous items.

After these costs are submitted, the costs of the mission rehearsal
exercises are offset against the costs that would have been incurred for
other exercises and training that the units had scheduled before the
deployment was tasked but which were canceled or modified after the unit was
notified of the deployment. The Army considers any remaining costs after the
offset to be incremental to the contingency operation.

The DOD regulation on contingency operations permits the services
considerable latitude in identifying their incremental contingency
operations costs. Whatever methodology each service chooses to use, however,
should result in similar levels of reimbursement for similar levels of
activity, particularly within the same service. Depending on the hours flown
in support of contingency operations, the different methodologies the Navy
uses will not result in similar reimbursements. The DOD regulation does not
provide for infrastructure wear and tear at home stations as an allowable
contingency cost. However, DOD officials believe that some of this wear and
tear is appropriately attributed to contingency operations and plan to
modify the regulation to address these costs. As part of the emergency
supplemental request for Kosovo operations, the Air Force has requested
millions of dollars in costs for wear and tear on home station
infrastructure and related facilities used in contingency operations, which
the other services have not.

To insure consistency in estimating and reporting incremental contingency
operations costs, we recommend that the Secretary of Defense determine
whether a common methodology for developing incremental flying hour costs is
feasible, and, if so, revise the regulation on contingency operations to
reflect that methodology. At a minimum, we recommend that the Secretary of
Defense direct the Secretary of the Navy to develop and apply a single
methodology for determining the incremental flying hours within the Navy.

Because the regulation on contingency operations does not provide for wear
and tear on infrastructure and related facilities at home stations as a
contingency operation cost, we recommend that the Secretary of Defense
modify the regulation to specifically state circumstances under which home
station infrastructure wear and tear is allowable as a contingency operation
cost.

In oral comments on a draft of this report, the Associate Director, Active
Force Operations Team, and the budget analyst for contingency operations,
Office of the Under Secretary of Defense (Comptroller) and service budget
officials responsible for contingency operations costs generally concurred
with the information presented. In discussing a common methodology for
determining incremental contingency operation flying hours, while the Navy's
Atlantic and Pacific Fleets use different methodologies, DOD officials noted
that the Air Force and the Atlantic Fleet use similar methods for
determining incremental flying hours. The Navy representative stated that
although the Navy has not yet determined a methodology, a single methodology
for calculating incremental flying hours would be in place for use in fiscal
year 2001. If the Navy decides to adopt the Atlantic Fleet's methodology,
then the intent of our recommendation for a common methodology would be met.
If, however, the Navy decides to adopt the Pacific Fleet's methodology,
there would continue to be a disparity in methodologies between the Air
Force and the Navy and that methodology could result in a higher
reimbursement rate for incremental hours flown.

DOD officials agreed that infrastructure wear and tear at home station is
not provided for in the DOD regulation on contingency costs. However, they
noted that some home station infrastructure wear and tear may be
attributable to contingency operations. They stated that they plan to modify
the regulation to include guidance on these types of costs.

In commenting on our analysis of costs through the end of the year, the
officials stated that at this point in the fiscal year the cost reports,
taken on their own, may not present an accurate picture of year end costs.
Based on our discussion with DOD officials and more current cost data, we
revised our cost analysis to focus on how lower troop levels in the Balkans
may lead to lower overall fiscal year 2000 costs, notwithstanding the fact
that this could also lead to higher contractor costs. We also revised the
report to reflect other technical comments as appropriate.

We limited our review to those contingencies for which DOD has sought or is
seeking funding from the Overseas Contingency Operations Transfer Fund. To
identify and assess the contingency cost information contained in this
report, we conducted work at the Office of the Secretary of Defense; the
Joint Staff; the Departments of the Army, the Navy, and the Air Force; U.S.
Army Forces Command; U.S. Army Europe; 10th Mountain Division, Fort Drum,
New York; 1st Infantry Division, Wurzburg, Germany; U.S. Navy Atlantic
Fleet; U.S. Navy Pacific Fleet; Naval Air Forces Pacific; U.S. Pacific
Command; U.S. Army Pacific; Marine Forces Pacific; Air Force Air Combat
Command; U.S. Special Operations Command; and the Defense Information
Systems Agency. At these locations, we reviewed contingency operations cost
reports; DOD budget documents for fiscal years 1999, 2000, and 2001;
training plans; Joint Staff training policy regulations; and documents that
supported contingency-related costs. We did not verify the data used by the
Defense Finance and Accounting Service to create the contingency operations
cost reports.

We performed our work between January and May 2000 in accordance with
generally accepted government auditing standards.

We are sending copies of this report to the Honorable Jerry Lewis, Chairman,
and the Honorable John P. Murtha, Ranking Minority Member, Subcommittee on
Defense, House Committee on Appropriations; the Honorable William Cohen,
Secretary of Defense; the Honorable William J. Lynn, Under Secretary of
Defense (Comptroller); and the Honorable Jacob Lew, Director, Office of
Management and Budget. Copies of this report will also be made available to
others upon request.

If you have any questions on this report, please call me on (202) 512-5140
or the contact listed in appendix I.

Carol R. Schuster
Associate Director
National Security Preparedness Issues

GAO Contact and Staff Acknowledgments

Steve Sternlieb (202) 512-4534

In addition to the name above, Ann Borseth, Alan Byroade, Glenn Furbish, and
Herbert Dunn made key contributions to this report.

(702044)
  

1. As used in this report, "incremental costs" means those costs that would
not have been incurred if it were not for the operation. It should be
recognized that DOD's financial systems cannot reliably determine costs and
that only the total obligations are captured by the accounting systems. The
services use various management information systems to identify incremental
obligations and to estimate costs. Although we use the term costs throughout
this report as a convenience, we are actually referring to DOD's obligation
of funds.

2. DOD components include the four military services and smaller defense
components that also have a supporting role in the contingency operations,
such as the Defense Information Systems Agency, the National Security
Agency, and the Special Operations Command.

3. DOD Financial Management Regulation, vol. 12, chap. 23, Contingency
Operations (Mar. 1999).

4. Numbers do not add due to rounding.

5. These amounts do not include the funds appropriated directly to the
services' military personnel accounts for Bosnia and Southwest Asia.

6. This includes $220 million originally transferred from the Fund to the
Air Force and the Navy but later reallocated to the Army to cover its Kosovo
operation costs.

7. Peace Operations: Effect of Training, Equipment, and Other Factors on
Unit Capability (GAO/NSIAD-96-14, Oct. 18, 1995).
*** End of document. ***