Panama: DOD's Drawdown for the U.S. Military in Panama (Letter Report,
08/02/95, GAO/NSIAD-95-183).

GAO updated information on the U.S. military drawdown in Panama,
focusing on: (1) the potential for a post-1999 U.S. presence in Panama;
(2) the status of transfers of Department of Defense (DOD) properties
and Panama's preparedness to accept them; (3) the coordination of
treaty-related issues; (4) DOD environmental and property evaluation
policies; (5) DOD efforts to address employee terminations due to the
drawdown; and (6) the cost of the drawdown.

GAO found that: (1) Congress believes that a U.S. military presence
should be maintained in Panama after 1999; (2) Panama is agreeable to
retaining a U.S. military presence, but negotiations have not begun
because executive branch officials have not reached agreement on what
U.S. interests would be served by retaining U.S. forces in Panama or how
and when to proceed with negotiations; (3) DOD has contingency plans to
retain some U.S. forces in Panama after 1999, but it needs to make an
early decision on this matter in order to maintain an orderly process
and avoid unnecessary costs; (4) DOD is proceeding with the transfer of
U.S. properties to Panama according to its revised schedule and will
move the U.S. Southern Command's headquarters to Miami in 1998; (5)
Panama's lack of a use plan for DOD facilities and changing U.S.
requirements have delayed some property transfers; (6) numerous
committees of various composition have been established to coordinate
specific treaty implementation matters; (7) the need to keep all parties
fully informed will become more critical as the drawdown proceeds; (8)
DOD has approved policy guidance for the transfer of DOD properties to
the government of Panama; (9) DOD has hired local employees as
temporaries and has offered a number of employee incentives to reduce
its potential termination costs; and (10) as of September 1994,
cumulative treaty-related costs totalled $813 million and future costs
are expected to be about $554 million, but these costs may be offset by
savings from transferring property to Panama.

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

 REPORTNUM:  NSIAD-95-183
     TITLE:  Panama: DOD's Drawdown for the U.S. Military in Panama
      DATE:  08/02/95
   SUBJECT:  Military downsizing
             International agreements
             Property disposal
             Military facilities
             Federal property management
             Reductions in force
             Foreign governments
             Military cost control
             Evaluation methods
             Armed forces abroad
IDENTIFIER:  Panama
             Panama Canal
             
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Cover
================================================================ COVER


Report to Congressional Committees

August 1995

PANAMA - DOD'S DRAWDOWN PLAN FOR
THE U.S.  MILITARY IN PANAMA

GAO/NSIAD-95-183

Panama


Abbreviations
=============================================================== ABBREV

  DOD - Department of Defense
  SOUTHCOM - U.S.  Southern Command

Letter
=============================================================== LETTER


B-258691

August 2, 1995

The Honorable Herbert H.  Bateman
Chairman, Subcommittee on Military Readiness
The Honorable Joel Hefley
Chairman, Subcommittee on Military
 Installations and Facilities
Committee on National Security
House of Representatives

In 1977, U.S.  President Jimmy Carter and Panamanian leader General
Omar Torrijos signed treaties that called for the transfer of the
Panama Canal to Panama and the withdrawal of U.S.  military presence
from Panama by December 31, 1999.  Earlier this year, we issued a
classified report to you on issues related to the U.S.  military
drawdown in Panama.  Since that time, most of the classified
information has been declassified. 

On the basis of discussions with your staff and because of the
likelihood that U.S.  military drawdown issues will come before the
Congress in the near future, we have updated the information in our
earlier report and are issuing this unclassified report. 
Specifically, we are providing information on (1) the potential for a
post-1999 U.S.  presence, (2) the status of transfers of Department
of Defense (DOD) properties and Panama's preparedness to accept them,
(3) the coordination to address treaty-related issues, (4) DOD
environmental and property valuation policies, (5) DOD efforts to
address employee terminations due to the drawdown, and (6) the cost
of the U.S.  military drawdown.  This report does not deal with the
transfer of the Panama Canal to Panama. 


   BACKGROUND
------------------------------------------------------------ Letter :1

The Panama Canal Treaty and the Treaty Concerning the Permanent
Neutrality and Operations of the Panama Canal went into effect on
October 1, 1979.  These treaties now serve as the primary basis for
U.S.-Panamanian relations.  Treaty provisions require that the United
States transfer, without charge, all U.S.  military real property and
nonremovable improvements in Panama to the Panamanian government. 
The treaties also call for the continued neutrality of the canal but
specify that by December 31, 1999, all U.S.  military forces will be
withdrawn from Panama and only Panama will operate and maintain
military forces, defense sites, and military installations within its
national territory.\1 However, a 1978 protocol\2 states that

     nothing in the [Neutrality] Treaty shall preclude the Republic
     of Panama and the United States of America from making .  .  . 
     any agreement or arrangement between the two countries to
     facilitate performance at any time after December 31, 1999, of
     their responsibilities to maintain the regime of neutrality
     established in the Treaty, including agreements or arrangements
     for the stationing of any United States forces or the
     maintenance of defense sites after that date in the Republic of
     Panama .  .  .  . 

DOD's treaty implementation plan, approved by the Secretary of
Defense in 1992 and revised most recently in October 1993, includes
plans to (1) relocate or deactivate about 10,050 military personnel,
3,000 U.S.  civilians, and 5,200 non-U.S.  civilian personnel; (2)
consolidate DOD operations primarily onto a few bases on the Pacific
side of the isthmus by 1995 and transfer all DOD facilities to Panama
by the end of 1999; and (3) relocate U.S.  Southern Command
(SOUTHCOM) headquarters.  SOUTHCOM, a regional unified command,
oversees U.S.  military operations in
19 countries in Central and South America and is responsible for
carrying out the treaty implementation plan.  Funding to implement
the plan is provided through the normal DOD budget process, and each
military service is responsible for estimating budgetary
requirements. 

DOD plans to transfer to Panama about 77,000 acres of property and
4,272 buildings that have an investment cost of about $538 million.\3
These facilities include major military installations such as Howard
Air Force Base (5,282 acres) on the Pacific Ocean side of the
isthmus, from which air operations throughout South and Central
America are conducted; Fort Sherman (23,100 acres) on the Atlantic
Ocean side, where the Army's Jungle Operations Training Center is
located; and several other bases located throughout Panama that are
primarily used for housing and training military personnel.  Panama
believes that the properties to be transferred can be put to good
economic use if they can be developed quickly, and Panamanian
officials have discussed various proposals for using the properties. 
For example, Fort Amador, located next to
Panama City, is considered to be prime property, and plans are to
develop it for tourism. 


--------------------
\1 Panama's combined military-police forces--known since 1983 as the
Panamanian Defense Forces--were dissolved following the December 1989
U.S.  military intervention.  In its place, Panama created a National
Police Force, which, in addition to its policing responsibilities,
has responsibility for protecting Panama's borders.  Panama does not
currently have military forces. 

\2 Protocol of Exchange of Instruments of Ratification Regarding the
Treaty Concerning the Permanent Neutrality and Operation of the
Panama Canal and the Panama Canal Treaty, June 16, 1978. 

\3 This figure was reported in June 1991 by the Assistant Secretary
of Defense in a study done in response to the National Defense
Authorization Act for Fiscal Year 1991 (P.L.  101-510). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

In 1979, and again in 1991, the Congress stated that the best
interests of the United States would be served by retaining a U.S. 
military presence in Panama after 1999 and that the President should
begin negotiations with the government of Panama to consider whether
the two countries should allow permanent stationing of U.S.  forces
in Panama.  Some members of the current Congress have reiterated that
the President should begin such negotiations.  Officials of both the
United States and Panamanian governments have publicly indicated a
willingness to consider a post-1999 U.S.  military presence. 
However, negotiations have not begun and U.S.  executive branch
officials have not reached agreement among themselves on (1) what
U.S.  interests would be served by keeping U.S.  forces in Panama or
(2) how or when to proceed on this matter.  In its drawdown schedule,
DOD is positioning itself to retain some forces in Panama after 1999
if instructed to do so by the President under any negotiations that
may occur.  According to DOD officials, an early decision on this
matter is important to maintain an orderly process and avoid
incurring unnecessary costs. 

Although DOD's treaty implementation plan has been revised several
times, generally to postpone some transfers, DOD is proceeding with
the drawdown according to its revised schedule.  The transfer of Fort
Davis and Fort Espinar to Panama, planned for October 1995, will end
the U.S.  military presence on the Atlantic Ocean side of the
isthmus, except for the Jungle Operations Training Center at Fort
Sherman and operations at Galeta Island.  The transfer of some
properties on the Pacific side, including Fort Amador and Fort
Clayton, has been postponed from the originally scheduled date
because U.S.  requirements have changed and Panama does not have a
plan for using these properties.  In addition, Miami has been
selected as the new location for SOUTHCOM headquarters with the move
planned for 1998. 

A number of committees, some with only U.S.  officials and others
with both U.S.  and Panamanian officials, have been established to
coordinate specific treaty implementation matters.  Both SOUTHCOM and
U.S.  Embassy officials noted, however, that as a number of critical
issues pertaining to the transfer of properties need to be resolved,
the need for all parties to be kept fully informed and engaged on
treaty implementation actions will become more important. 

DOD has approved policy guidance for the transfer of DOD
installations to the government of Panama, including property
condition and valuation.  Also, DOD has been planning for its
employee termination liability in Panama since 1989, and incentives
such as early retirement and job placement offered by the U.S. 
Panama Area Personnel Board should help minimize the effects of
severance pay and other potentially costly personnel issues. 

DOD reported that as of September 30, 1994, its cumulative
treaty-related cost was $813 million, and it expects future
treaty-related costs to be about $554 million.  However, these costs
are not offset by estimated savings that may accrue as a result of
transferring properties to Panama. 


   PLANS FOR A POST-1999 U.S. 
   PRESENCE IN PANAMA
------------------------------------------------------------ Letter :3

The Panama Canal treaties specify that by December 31, 1999, all U.S. 
military forces will be withdrawn from Panama and that all U.S. 
military real and nonremovable property will be transferred without
charge to Panama.  Department of State and DOD officials have stated
that the United States would fully implement all provisions of the
treaties.  However, treaty implementation documents do not preclude
the United States from negotiating an agreement with Panama for the
permanent stationing of U.S.  military forces in Panama after 1999. 
Officials from both Departments said that if such an agreement is not
negotiated with Panama, all U.S.  forces will be withdrawn as
specified by the treaties. 

The Panama Canal Act of 1979 (P.L.  96-70), enacted to implement the
Panama Canal treaties, expressed the sense of the Congress that "the
best interests of the United States require that the President enter
into negotiations with the Republic of Panama for the purpose of
arranging for the stationing of United States military forces" in
Panama after 1999.  The Panama Canal Commission Authorization Act for
fiscal year 1992
(P.L.  102-190, sec.  3505) states, among other things, that "the
Panama Canal is a vital strategic asset to the United States and its
allies," and that "the presence of United States Armed Forces offers
a viable defense against sabotage or other threat to the Panama
Canal." The act expressed the sense of the Congress that the
President should negotiate, at a mutually agreeable time, with the
government of Panama to consider whether the two governments should
allow the permanent stationing of U.S.  military forces in Panama
after 1999. 

In June 1994, the Secretary of Defense said that the United States
would consider keeping forces in Panama if the Panamanian government
requested it to do so.  Likewise, Panama's newly elected President,
who took office in September 1994, stated that any request on the
part of the United States to have military forces remain in Panama
would be carefully studied.  According to U.S.  Embassy officials in
Panama, as of October 1994, the U.S.  government had no plans to
request that the Panamanian government permit U.S.  forces to remain
in Panama after 1999.  In June 1995, executive branch officials noted
that they had not agreed among themselves on (1) what U.S.  interests
would be served by keeping U.S.  forces in Panama or (2) how or when
to proceed on this matter. 

According to Department of State and DOD officials, a presidential
review of U.S.  policy toward Panama is underway, and the process
should, among other things, determine what national interests would
be served by having U.S.  military forces stationed in Panama after
1999.  The review, which was to have begun in early 1994, has been
repeatedly delayed.  In January 1995, we were told that position
papers had been circulated among executive branch agencies and that
the review would be completed early in 1995.  However, as of June
1995, the review had not been completed, and DOD and State officials
told us it was on hold. 

Any decision to seek a post-1999 presence would be followed by
negotiations with the Panamanian government if it agrees to
participate in such negotiations.  According to DOD officials, an
early decision on a post-1999 presence is important if the services
are to maintain an orderly process and avoid incurring unnecessary
costs.  In its 1995 strategic assessment,\4 the National Defense
University asserts that the executive branch must decide soon if U.S. 
foreign policy and security interests require a continued military
presence in the hemisphere outside the United States.  The assessment
states that a decision on a continued U.S.  military presence in
Panama cannot be deferred much longer, noting that units are being
deactivated as a part of the overall downsizing of the armed forces
and budgetary decision windows affecting construction and relocation
are about to close. 


--------------------
\4 Strategic Assessment 1995:  U.S.  Security Challenges in
Transition, National Defense University, Feb.  1995, p.  96. 


   STATUS OF THE TRANSFER OF DOD
   FACILITIES
------------------------------------------------------------ Letter :4

According to its treaty implementation plan, DOD will consolidate
operations at a few locations primarily on the Pacific side of the
isthmus by 1995 and transfer all DOD facilities to Panama by December
1999.  The first step in this consolidation occurred in June 1994
when DOD transferred the Coco Solo Medical Clinic on the Atlantic
side of the isthmus to Panama.  The consolidation of U.S.  troops on
the Pacific side is planned for Howard Air Force Base, Fort Kobbe,
and Rodman Naval Station.  DOD officials stated that these facilities
are among those the U.S.  military would want to retain if the United
States and Panama agree on a post-1999 U.S.  presence in Panama.\5

DOD officials believe 1995 will be a key year in consolidating forces
from the Atlantic to the Pacific side.  The transfers of Fort Davis
and Fort Espinar, expected to occur in October 1995, appeared to be
on schedule as of June 1995.  These transfers will mark the end of
U.S.  military presence on the Atlantic side of the isthmus, except
for the Jungle Operations Training Center at Fort Sherman, and
operations at Galeta Island, both scheduled for transfer in 1999. 
About 1,200 military and 650 civilian personnel on the Atlantic side
will be relocated or deactivated by the end of 1995.  At that time,
only 154 military and 116 civilian personnel are scheduled to remain
on the Atlantic side to staff the Jungle Operations Training Center
and Galeta Island. 

Although some minor properties on the Pacific side of the isthmus
have already been transferred, Panama's lack of a plan for using DOD
properties has delayed some transfers.  For example, Fort Amador was
scheduled for transfer in late 1995, but in January 1994 SOUTHCOM and
the government of Panama negotiated a postponement of the transfer
until early 1996.  In June 1995 they negotiated a further delay to
late 1996.  Panama favored the postponement because it had not
awarded a contract to formulate an economic development plan for Fort
Amador, which is to be developed for tourism.\6 A U.S.  Agency for
International Development official told us that the development plan
would take at least 8 months to complete.  SOUTHCOM officials told us
they can use the housing on Fort Amador and agreed to the
postponement to accommodate Panama's planning needs. 

   Figure 1:  DOD Installations to
   Be Transferred to the Republic
   of Panama (as of June 1995)

   (See figure in printed
   edition.)

   Note:  Dates indicate planned
   reversion to Panama.

   (See figure in printed
   edition.)

Other transfers have been postponed due to changing U.S. 
requirements.  For example, Fort Clayton was originally scheduled for
transfer in 1997.  In mid-1994, SOUTHCOM officials decided to
postpone the transfer to 1999 based on a continuing need for housing
and office facilities.  SOUTHCOM headquarters, originally scheduled
to be moved in 1995, is now scheduled to be moved to Miami in 1998. 
Figure 1 on page 7 shows the scheduled dates for the transfers of all
DOD properties to Panama. 


--------------------
\5 The 1992 treaty implementation plan stated that Howard Air Force
Base, Rodman Naval Station, Fort Kobbe, and Fort Sherman would be the
final bases transferred to Panama in 1999.  In 1994, Fort Clayton was
added to the list of bases to be transferred in 1999. 

\6 This $1 million contract is to be paid by the government of Panama
with funds generated from the repayments of loans made under a grant
agreement by the U.S.  Agency for International Development.  These
funds had been previously earmarked by Panama to repay nonmilitary
bilateral debt to the United States. 


   COORDINATION OF TREATY ISSUES
------------------------------------------------------------ Letter :5

SOUTHCOM and the U.S.  Embassy have interrelated responsibilities for
implementing the Panama Canal treaties.  The U.S.  Ambassador to
Panama has overall responsibility for (1) effecting the diplomatic
notes that transfer U.S.  properties to Panama, (2) generally
providing authoritative treaty interpretations, and (3) negotiating
bilateral agreements with Panama on behalf of U.S.  agencies that
fall outside the purview of the treaty-mandated Joint Committee.\7
SOUTHCOM is responsible for planning and coordinating activities
affecting the U.S.  forces and military-related aspects of the
treaties. 

Various committees assist with implementing the treaties.  A key
committee, known as the Joint Committee, is comprised of
representatives of the U.S.  military and the government of Panama. 
It addresses treaty-related matters pertaining to the U.S.  military
and Panama.  Most of the committee's work to date has dealt with
matters other than the reversion of lands, and U.S.  Embassy and
SOUTHCOM officials believe that the committee has worked effectively. 
However, they told us that in the near future, the committee would be
handling an increased number of reversion issues, for which the
procedures had not been fully tested.  Some of the critical issues
that will require close coordination include the approval of property
transfer procedures and the resolution of issues on health, safety,
and the removal of hazards before the transfer of properties. 

The Joint Committee does not have a representative from the U.S. 
Embassy as a permanent member, but an Embassy official may attend
meetings as an observer.  The committee met formally in 1990 but did
not formally convene again until September 1994, when it met to
discuss the use of U.S.  facilities for housing Cuban migrants.  A
SOUTHCOM official told us that most of the committee's work has been
conducted by telephone, letters, and memorandums of understanding. 

The Panama Review Committee is comprised of the U.S.  Ambassador,\8
the SOUTHCOM Commander-in-Chief, and the Panama Canal Commission
Administrator and meets quarterly to discuss U.S.  government
positions on various matters, including those related to treaty
implementation.  Minutes of these meetings are provided to the
Secretary of State, the Secretary of Defense, and heads of other
interested agencies. 

An unofficial, binational planning working group comprised of
SOUTHCOM and Panamanian officials was established to help Panama with
treaty-related activities, to include the sharing and coordination of
turnover timeliness, reutilization workshops, and the exchange of
computer-aided information.  This committee is working with the
Panamanian Regional Authority to plan for the reversion of military
properties, since the Authority is responsible for developing land
use plans for reverted properties. 

The Joint Commission on the Environment was established as a
binational commission comprised of Americans and Panamanians.  This
commission does not represent the U.S.  or Panamanian governments. 
Its function is to advise both governments on matters pertaining to
safety, health, and the environment.  The U.S.  Embassy provides an
executive secretary to the commission's U.S.  delegation. 

Both SOUTHCOM and U.S.  Embassy officials said they believed that
overall coordination at the working level has been effective. 
However, as the end of the treaty implementation period nears and
increasing numbers of properties are prepared for turnover, officials
from both SOUTHCOM and the U.S.  Embassy noted that all participants
will need to be kept fully informed on actions being taken and on
U.S.  policy decisions. 


--------------------
\7 The Ambassador's position has been vacant since February 1994.  As
of July 19, 1995, the President's nominee was awaiting Senate
confirmation. 

\8 The charge d'affaires represents the United States in the absence
of an ambassador. 


   DOD ENVIRONMENTAL AND PROPERTY
   VALUATION POLICIES
------------------------------------------------------------ Letter :6

According to an agreement implementing the Panama Canal Treaty,
before the United States transfers properties to Panama, the two
countries must consult with each other concerning the properties'
condition, including the removal of hazards to life, health, and
safety.  We previously reported that DOD experienced high termination
costs for bases closed in Germany and that the U.S.  military
withdrawal from the Philippines involved high costs for relocation
and potentially high costs for environmental damage.\9

DOD has approved a policy for the transfer of DOD properties to the
government of Panama.  The policy specifies that DOD will eliminate
known imminent and substantial hazards to human health and safety and
will attempt to maintain the usefulness of facilities transferred to
Panama.  SOUTHCOM is developing implementing procedures and is
expected to prepare and maintain records of all facility transfer
consultations and agreements. 

DOD has several firing ranges among the properties it will transfer
to Panama.  They present the most problematic environmental concerns
due to the potential for unexpended ordnance below and on the
surface.  Other potential environmental concerns involve fuel spills
and leaks from underground storage tanks.  The President of Panama's
Interoceanic Regional Authority stated that the Panamanian government
has been studying contamination on U.S.  bases to document
contamination levels.  He said that the Panamanian government would
ask the United States to decontaminate all military bases before
turning them over to Panama and noted that the total cost of
decontamination might be in the hundreds of millions of dollars. 

Although the Panama Canal Treaty states that U.S.  properties will
revert to Panama at no charge, an agreement to implement the treaty
requires that the United States and Panama consult with each other
concerning compensation for the properties' residual value.  To
comply with the agreement, DOD's policy on the valuation of
transferred facilities to Panama states that the adjusted book value
(that is, the original cost adjusted for age, inflation, and
condition) of the nonremovable property or improvements will be used
as the starting point for discussion of residual value with the
government of Panama.  Accordingly, DOD is recording the accumulated
residual value of these properties, and DOD officials have noted that
such figures could be used to offset Panamanian claims for
environmental damage. 


--------------------
\9 European Drawdown:  Status of Residual Value Negotiations in
Germany (GAO/NSIAD-94-195BR, June 23, 1994) and Military Base
Closures:  U.S.  Financial Obligations in the Philippines
(GAO/NSIAD-92-51, Jan.  22, 1992). 


   PERSONNEL ISSUES
------------------------------------------------------------ Letter :7

One SOUTHCOM objective is to maintain a high quality of life for
military members and their families in Panama.  SOUTHCOM's
Commander-in-Chief has stated that he believes military forces
stationed in Panama should continue to be accompanied by their
families as long as possible.  He has also stated that on-base
housing should be provided to the extent possible to all military
members who want to live on base.  As the transfer of DOD properties
occurs, SOUTHCOM's Commander-in-Chief has also made it a priority to
maintain a full range of community services for U.S.  military
personnel and their families, including the education of dependents. 

The drawdown of U.S.  military troops in Panama will result in the
termination of civilian employees' jobs.  As of June 1995, DOD
employed more than 6,350 U.S.  and Panamanian and other non-U.S. 
civilians in Panama, about 1,800 of whom were temporary employees. 
Permanent employees, who are eligible for severance pay, will receive
a basic severance and an age adjustment allowance when their jobs are
eliminated. 

The U.S.  Panama Area Personnel Board is responsible for coordinating
civilian personnel policy in Panama.  The Board's Executive Director
told us that DOD and the Board have been planning for the DOD
drawdown by implementing several programs to reduce the costs of
treaty implementation.  For example, the Board administers
interagency placement and referral programs to help displaced DOD
civilian employees find jobs with other federal agencies and the
Panamanian private sector.  Also, the Board has approved policies
that encourage the use of treaty-related retirements for pre-treaty
employees covered under the Civil Service Retirement System.  Both of
these programs encourage voluntary separations and in turn decrease
the adverse effects of reductions-in-force. 

We previously reported that in other countries DOD had not always
anticipated the full extent of its termination liabilities for
displaced host country personnel.  These liabilities have been
significant.\10 In anticipation of the drawdown in Panama, all
locally hired DOD civilians have been appointed on a temporary basis
since November 1989.  As of June 1995, 26 percent of DOD's Panamanian
and other non-U.S.  civilian employees were temporary hires. 
Temporary employees are not eligible for severance pay or
reduction-in-force rights when displaced, which will help reduce the
budgetary impact of a reduction-in-force on the U.S.  government. 

Under 5 U.S.C.  8348 (i)(l), the Panama Canal Commission is
responsible for that portion of any estimated increase in liability
resulting from the early retirement of pre-treaty Commission and DOD
employees.  According to a Panama Area Board official, the Office of
Personnel Management confirmed that the special retirement costs for
all pre-treaty DOD employees have been included in the Commission's
monthly payments to the U.S.  Civil Service Retirement Fund.  Our
audit of the Commission's 1993 and 1994 financial statements found
that early retirement costs are being funded from Canal revenues on
an accelerated basis in order to be fully funded by 1999.\11


--------------------
\10 Base Closures:  Long and Costly Process of Reducing the Local
National Work Force in Germany (GAO/NSIAD-92-62, Apr.  17, 1992) and
Army Force Structure:  Personnel, Equipment, and Cost Issues Related
to the European Drawdown (GAO/NSIAD-92-200BR, Apr.  9, 1992). 

\11 Financial Audit:  Panama Canal Commission's 1994 and 1993
Financial Statements (GAO/AIMD-95-98, Mar.  31, 1995). 


   TREATY IMPLEMENTATION COSTS
------------------------------------------------------------ Letter :8

DOD reported that as of September 30, 1994, its cumulative
treaty-related cost was $813 million, and officials believe that
DOD's future treaty-related costs will be about $554 million.\12
These costs are for relocating units, turning over properties,
consolidating forces into fewer sites, and funding other planning
considerations.  However, these costs are not offset by estimated
savings such as reduced maintenance and civilian personnel costs that
may accrue as a result of transferring properties to Panama. 

About $447 million of the $554 million in estimated DOD future costs
is related to the Army.  The Army's future costs include the
following: 

  Relocation costs of $292.9 million include transportation of
     personnel, families, and equipment; civilian personnel severance
     pay; procurement of communication equipment for SOUTHCOM
     headquarters; and construction for units remaining in the force
     structure. 

  Turnover costs of $51.7 million include repair and maintenance to
     facilities before turnover, environmental compliance and
     hazardous waste disposal requirements, deinstallation or removal
     of equipment from facilities and transportation to a disposition
     area, and security of facilities before turnover. 

  Consolidation costs of $44.3 million include local transportation
     of equipment from one site to another; upgrade of base
     communications and design and construction of an information
     facility at Howard Air Force Base, Rodman Naval Station, and
     Fort Kobbe; and facility renovation to accommodate consolidating
     units. 

  Other costs of $58.4 million include operation of treaty
     implementation offices at SOUTHCOM and DOD headquarters, travel
     allowances for military police to provide security, and transfer
     of supplies to other locations. 

The Air Force and the Navy estimated that they will need $82.9
million and $23.9 million, respectively, for treaty implementation
requirements from 1996 to 2000. 


--------------------
\12 This figure does not include funding to fully decontaminate the
firing ranges and military bases, which the President of the
Interoceanic Regional Authority said the government of Panama might
request. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :9

In commenting on a draft of this report, DOD generally concurred with
the information included in this report (see app.  I).  DOD provided
some technical points of clarification, which we incorporated where
appropriate.  The State Department provided oral comments, which we
have also incorporated where appropriate. 


   SCOPE AND METHODOLOGY
----------------------------------------------------------- Letter :10

We interviewed and obtained relevant documents from officials at DOD,
the State Department, the Panama Canal Commission, the Agency for
International Development, the U.S.  Embassy in Panama, and SOUTHCOM. 
We also visited a number of DOD properties in Panama.  We conducted
our review from February 1994 to January 1995 and updated the
information in June 1995 in accordance with generally accepted
government auditing standards. 


--------------------------------------------------------- Letter :10.1

We are sending copies of this report to the Chairman and Ranking
Minority Member, Senate Committee on Armed Services, and other
appropriate congressional committees; the Secretaries of Defense and
State; and other interested parties. 

If you or your staffs have any questions concerning this report,
please call me on (202) 512-4128.  Major contributors to this report
were Lawrence L.  Suda, Assistant Director; Oliver G.  Harter,
Evaluator-in-Charge; and Jay A.  Scribner, Evaluator. 

Harold J.  Johnson, Director
International Affairs Issues




(See figure in printed edition.)Appendix I
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
============================================================== Letter 



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


The following are GAO's comments on the Department of Defense's
letter dated January 28, 1995. 


   GAO COMMENTS
----------------------------------------------------------- Letter :11

1.  As stated in the report, we updated the information in our
classified report, and verified this information with the appropriate
agencies. 

2.  Our draft report did not state that any arrangement between
Panama and the United States for stationing forces after 1999 would
require a treaty modification; nonetheless, we modified our report to
clarify this point. 

3.  The report text has been modified to reflect this information. 

4.  See page 8 for updated information on the SOUTHCOM's scheduled
move to Miami. 

5.  See page 12 for updated cost estimates. 

