Defense Budget: Trends in Active Military Personnel Compensation Accounts
for 1990-97 (Letter Report, 07/09/96, GAO/NSIAD-96-183).

GAO reviewed the Department of Defense's (DOD) military personnel
compensation accounts, focusing on: (1) the accounts' various pay
categories; (2) trends in those pay categories; and (3) how changes in
the DOD budget compared with changes in service force levels.

GAO found that: (1) since 1990, decreases in the active military
personnel accounts have been closely aligned with decreases in active
military personnel; (2) between fiscal years 1990 and 1997, the active
military personnel account is projected to decline by 30 percent; (3)
military personnel accounts consist of basic pay, retired pay accrual,
basic allowances for quarters, subsistence, and social security tax
payments; (4) because the services only have discretion over a very
small portion of the military personnel budget, savings would need to
come from personnel reductions, a lower grade structure, or a
restructured military compensation and retirement system; (5) although
per person costs for most personnel accounts have increased, total
military personnel costs have remained constant largely due to offsets
in the retired pay accrual category; (6) the cost per military person
has decreased to about $40,600; (7) differences exist in the services'
personnel budgets and per person costs for special pay; (8) special pays
are estimated to cost $1.2 billion, and incentive pays are estimated to
cost $500 million in fiscal year 1997; and (9) the Navy has the largest
budget for special pays and the Navy and Air Force have the largest
budgets for incentive pays.

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

 REPORTNUM:  NSIAD-96-183
     TITLE:  Defense Budget: Trends in Active Military Personnel 
             Compensation Accounts for 1990-97
      DATE:  07/09/96
   SUBJECT:  Military downsizing
             Defense cost control
             Future budget projections
             Personnel management
             Military personnel
             Defense budgets
             Military pay
             Military expense allowances
             Budget cuts
             Variable incentive pay
IDENTIFIER:  DOD Future Years Defense Program
             
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Cover
================================================================ COVER


Report to the Chairman, Subcommittee on National Security, Committee
on Appropriations, House of Representatives

July 1996

DEFENSE BUDGET - TRENDS IN ACTIVE
MILITARY PERSONNEL COMPENSATION
ACCOUNTS FOR 1990-97

GAO/NSIAD-96-183

Defense Budget

(701064)


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

  DOD - Department of Defense
  GAO - General Accounting Office

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


B-272437

July 9, 1996

The Honorable C.  W.  Bill Young
Chairman, Subcommittee on National Security
Committee on Appropriations
House of Representatives

Dear Mr.  Chairman: 

The Department of Defense's (DOD) budget request for fiscal year 1997
includes almost $70 billion for pay and allowances for active and
reserve military personnel.  This represents about 30 percent of
DOD's fiscal year 1997 total budget request.  DOD estimates that in
2001, pay and allowances will continue to represent about 30 percent
of the total budget.  Because the military personnel accounts
represent such a large share of DOD's budget, we reviewed them to (1)
identify the various pay categories included in the accounts, (2)
identify the trends of those pay categories, and (3) determine how
changes in the budget compared with changes in service force
levels.\1 We also inquired into the reasons for some of the service
trends and differences among the services and have included the
explanations when available. 

Our analyses and discussions in this report focus primarily on the
pay and allowances for active components, which for fiscal year 1997
comprise about $60 billion of the $70 billion requested.  We will
report separately on the reserve components because the budget
categories for the reserve are considerably different from the active
components. 

Our review was performed under our basic legislative
responsibilities.  However, because of your expressed interest in the
military personnel accounts, we are addressing the report to you. 


--------------------
\1 Our analysis used actual obligations for fiscal years 1990 to 1995
and budget estimates for fiscal years 1996 to 1997. 


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

Military pay and allowances for active and reserve personnel are
authorized in title 37 of the U.S.  Code and are funded through the
military personnel accounts.  Military personnel is one of six major
budget groups for DOD.\2 It is the second largest of DOD's budget
groups after operation and maintenance and is expected to remain
second through 2001. 

The accounts for active duty personnel consist of 13 major
categories, including basic pay; retirement accrual; social security
taxes; allowances (e.g., for quarters, subsistence, relocation, and
uniforms); incentive pay (e.g., flying duty, submarine duty,
parachute jumping, and demolition); and 21 types of special pay for
such specialties and purposes as medical officers, nuclear-qualified
officers, sea duty, foreign language proficiency, and reenlistment
bonuses.  A list of these pay categories appears in appendix I. 

The military personnel accounts fund a sizable portion of DOD's
infrastructure, which DOD wants to decrease to help pay for modern
weapon systems.  For example, we reported in April 1996 that about 30
percent of DOD's planned direct infrastructure costs are funded out
of the military personnel appropriation.\3 DOD defines infrastructure
as all DOD activities other than those directly associated with
operational forces, intelligence, strategic defense, and applied
research and development.  Infrastructure consists of central
logistics; central medical; central personnel; central training;
acquisition management; installation support; force management; and
central command, control, and communications. 

DOD's fiscal year 1997 budget request estimates that there will be
about 1.4 million active duty military personnel in uniform by the
end of that fiscal year.  This total would represent a decrease of
about
600,000 personnel since fiscal year 1990. 


--------------------
\2 The other major account groups are operation and maintenance;
procurement; research, development, test, and evaluation; military
construction; and family housing. 

\3 In Defense Infrastructure:  Budget Estimates for 1996-2001 Offer
Little Savings for Modernization (GAO/NSIAD-96-131, Apr.  4, 1996),
we reported that 90 percent of planned direct infrastructure costs
are funded out of three appropriations:  operation and maintenance
(about 50 percent); military personnel (about 30 percent); and
research, development, test, and evaluation (about 10 percent). 


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

Discounting for inflation by using constant 1996 dollars, there has
been a close correlation since 1990 between the decrease in the
active component portion of the military personnel accounts and the
decrease in active military personnel.  Specifically, the active
component portion of the military personnel accounts is projected to
decline between fiscal years 1990 and 1997 by 30 percent, the same
rate of decline as active force levels. 

About 85 percent of the military personnel accounts in fiscal year
1997 consist of five pay categories:  basic pay (51 percent); retired
pay accrual (17 percent); basic allowances for quarters (7 percent);
subsistence (5 percent); and social security tax payments (4
percent).  The payments in these and most other categories are
requirements or entitlements by law.  The services have discretion
over some types of compensation, primarily within the special pays
category, but the total amount involved is a minuscule portion of the
total military personnel budget.  Because very little of the total
military personnel budget is discretionary, it appears that savings
in the military personnel part of the infrastructure would have to
come from personnel reductions, a lowering of the grade structure, a
restructuring of the military compensation and retirement system, or
any combination thereof. 

Discounting for inflation by using constant 1996 dollars, the cost of
each person in fiscal year 1997 is projected to be about the same as
it was in fiscal year 1990.  However, per person costs remained about
the same from fiscal year 1990 to fiscal year 1997 largely because a
substantial decrease in the retired pay accrual category offset per
person increases that have occurred in most of the pay categories. 
Specifically, the cost per military person has decreased by about $80
between 1990 and 1997 to about $40,600.  A decrease of about $2,000
per person in retired pay accrual mostly offset increases in basic
pay ($700), the basic allowances for quarters ($200), and six other
categories. 

There are marked differences in the services' budgets and per person
costs for some types of special pay, which are intended to enhance
the retention of skilled personnel, and for some incentive pays for
hazardous duty.  Special pays were estimated to cost $1.2 billion in
fiscal year 1997, and incentive pays were estimated to cost about
$500 million for the same year.  The Navy dominates the special pay
category, and the Navy and the Air Force have the largest budgets for
incentive pays. 


   DECREASE IN PERSONNEL BUDGET
   CLOSELY FOLLOWS DECREASE IN
   PERSONNEL
------------------------------------------------------------ Letter :3

The military personnel budget, adjusted to 1996 constant dollars, is
projected to decrease at about the same rate as military personnel
levels between fiscal years 1990 and 1997.  (See app.  II for an
overview of budget and personnel level changes from fiscal years 1990
to 1997.) Figure 1 shows that the military personnel budget for
active forces is projected to decline by 30 percent from about $85
billion to $60 billion through fiscal year 1997, while military
personnel levels are projected to decline by the same rate from over
2 million to about 1.4 million.\4

   Figure 1:  Decline of Military
   Personnel Budgets and Personnel
   Levels Between Fiscal Years
   1990 and 1997

   (See figure in printed
   edition.)

The decline in budgets and personnel levels for each of the services,
except for the Marine Corps, have mirrored the overall declines.  The
Marine Corps' military personnel budget is projected to decline by
about 15 percent while its personnel level is projected to decline by
about 12 percent.  Figure 2 shows the declines for each of the
services. 

   Figure 2:  Percentage Reduction
   in Military Personnel Budgets
   Compared to Percentage
   Reduction in Personnel Levels
   Between Fiscal Years 1990 and
   1997

   (See figure in printed
   edition.)


--------------------
\4 Personnel levels are as of the end of the fiscal year, or end
strength. 


   MILITARY PERSONNEL ACCOUNT
   PRIMARILY COMPRISED OF
   ENTITLEMENTS
------------------------------------------------------------ Letter :4

Legislated entitlements, retired pay accrual, and social security
taxes account for nearly the entire military personnel budget. 
Generally, once servicemembers meet certain criteria such as years of
service, marital status, and duty location, they are entitled to
certain benefits.  Title 37 of the U.S.  Code gives the services
discretion over only a limited number of military personnel account
categories, primarily certain types of special pay that the services
use to enhance the accession and retention of certain skilled
personnel.  These categories represent well under 1 percent of the
total military personnel budget.  Figure 3 shows that five budget
categories--basic pay, retired pay accrual, basic allowances for
quarters, subsistence, and social security tax payments--are
projected to comprise nearly 85 percent of the military personnel
budget for fiscal year 1997.  Figure 3 also shows that about half of
the military personnel budget is projected for basic pay. 

   Figure 3:  Allocation of Fiscal
   Year 1997 Military Personnel
   Budget

   (See figure in printed
   edition.)

Note:  Other includes permanent change of station, allowances,
variable housing allowance, special pay, separation pay, incentive
pay, other military personnel costs, and cadets/midshipmen pay. 

Given the present situation, there appears to be little opportunity
for reductions in the military personnel budget unless forces are
reduced, the average grade structure is reduced, or the military
compensation and retirement system is restructured.  According to
DOD's Future Years Defense Program and DOD officials, DOD does not
plan to significantly reduce the forces\5 or grade structure or
restructure the military compensation and retirement system.  Our
February 1996 report on personnel relocations shows the difficulty in
reducing entitlement budgets.  The report states that although the
services have attempted to reduce permanent change-of-station costs,
they have little discretion to do so because of relocation benefits
required by law and treaty or other commitments that require
relocation.\6


--------------------
\5 The Future Years Defense Program calls for relatively modest
personnel reductions between fiscal years 1997 and 2001.  For
example, the Army plans to reduce its force by another 20,000
personnel, the Navy by about 13,000, and the Air Force by about
6,000. 

\6 Military Personnel Reassignments:  Services Are Exploring
Opportunities to Reduce Relocation Costs (GAO/NSIAD-96-84, Feb.  16,
1996). 


   PER PERSON COSTS FOR MOST
   ACCOUNTS HAVE INCREASED
------------------------------------------------------------ Letter :5

The active military force has decreased in size since fiscal year
1990.  The overall proportion of officers, noncommissioned officers,
and other enlisted personnel in the force is projected to be almost
the same in fiscal year 1997 as it was in fiscal year 1990, with a
1-percent increase in the proportion of officers and a 1-percent
decrease in the proportion of enlisted personnel.  The proportion of
officers in the Army, the Navy, and the Air Force increased between 1
and 2 percent, and the Marine Corps' grade structure remained
relatively stable during the period.  Consistent with quality-of-life
improvements such as making housing more affordable, some pay
categories have increased.  The cost per military person has
decreased by about $80 from fiscal years 1990 to 1997 to about
$40,600.\7 However, major decreases in the retired pay accrual
category largely offset increases in other categories.  Otherwise,
increases in the rates for basic pay and basic allowances for
quarters would have resulted in a cost increase on a per person
basis. 

Excluding the retired pay accrual, which is projected to decrease by
about $2,000 per person, and separation pay, which is projected to
increase by almost $400 per person, the per person cost of military
pay and allowances is projected to increase by over $1,500 between
fiscal years 1990 and 1997.  Figure 4 shows the decline in the total
budget for pay and allowances and the increase in per person costs
between fiscal years 1990 and 1997, when retired pay accrual and
separation pay are excluded from the budget. 

   Figure 4:  Trend in Per Person
   and Total Cost of Military
   Personnel for Fiscal Years 1990
   to 1997, Excluding Retired Pay
   Accrual and Separation Pay

   (See figure in printed
   edition.)

Table 1 compares the per person costs by service and major pay and
allowance category for fiscal years 1990 and 1997.  Table 1 also
shows that: 

  -- Basic pay.  The Marine Corps' costs are considerably lower than
     the other services' in both fiscal years 1990 and 1997.  The Air
     Force's costs have remained consistently higher than the other
     services.  Air Force budget officials explained that its costs
     could be higher due to its higher officer-to-enlisted ratio,
     longevity for Air Force members, and higher-graded personnel. 

  -- Basic allowances for quarters.  The Air Force is projected to
     have the smallest increase between fiscal years 1990 and 1997 (3
     percent), but its allowances were considerably larger than the
     other services in 1990.  The Army's basic allowances for
     quarters increased 14 percent, while the Navy's rose 10 percent. 
     The Marine Corps is projected to have a 4-percent decrease. 
     Army budget officials said its increase largely resulted from an
     increase in the percentage of married personnel from 56 percent
     to 64 percent along with some changes in the grade structure. 
     Air Force officials mentioned that rates increased by 5 percent
     in fiscal year 1996.  Navy personnel officials said that the
     increase is primarily due to a more senior force with more
     dependents.  Specifically, the top 6 percent of enlisted pay
     grades are projected to increase from about 68 percent in 1990
     to 69 percent in 1997 while the percentage of servicemembers
     with dependents is projected to increase from 53 percent in 1990
     to 60 percent in 1997.  Additionally, beginning in fiscal year
     1997, single E-6s will become entitled to the basic allowance
     for quarters, thus significantly increasing the number of people
     entitled to receive this allowance. 

  -- Variable housing allowance.  The Navy's costs are considerably
     greater than the other services'.  Costs are projected to
     increase for all services, except the Marine Corps.  The Army's
     variable housing allowance rose 51 percent between fiscal years
     1990 and 1997, the Air Force's rose 23 percent, the Navy's rose
     17 percent, and the Marine Corps' declined 13 percent.  The
     Navy's cost per person was substantially higher than any other
     service.  Navy officials said the primary reason the Navy's cost
     per person is so much higher than the other services is due to
     the fact that the Navy's U.S.  bases are located on the coasts
     in higher cost areas.  For example, the Navy has bases in San
     Diego, California; Norfolk, Virginia; Jacksonville, Florida;
     Seattle, Washington; San Francisco, California; and New London,
     Connecticut.  In addition, as the Navy grows into a more senior
     force, the cost per person entitled to the allowance rises. 
     Moreover, as a larger percentage of the force has dependents, a
     growing percentage of the force is entitled to the allowance. 
     Army officials said that the percentage of personnel stationed
     overseas, where they are not eligible to receive the allowance,
     decreased from about 36 percent in 1990 to an estimated 24
     percent in 1997.  Air Force officials said that base closures
     resulted in moving personnel who had been in base housing to
     places where there were high base housing occupancy rates and
     also where the variable housing rates were higher.  Also,
     changes in the dormitory assignment policy for enlisted
     personnel resulted in more personnel using off-base housing. 

  -- Special pays.  The Navy's costs are greater than all the other
     services combined.  The Air Force's costs are projected to
     increase by 32 percent between fiscal years 1990 and 1997, while
     the other services' costs are decreasing.  The Marine Corps is
     projected to have a 50-percent decrease.  Navy officials said
     sea duty and selective reenlistment bonuses primarily contribute
     to their higher special pays.  The Navy's forward presence
     drives up the percentage of people entitled to sea pay. 
     Specifically, 30 percent of the force are entitled to receive
     sea pay.  Moreover, the Navy considers the bonuses critical
     tools for retaining quality sailors in critical skill areas. 
     Air Force officials said that recruitment needs affected special
     pay costs and that contingency operations were an important
     factor as well.  For example, hostile fire payments increased by
     25 percent, and flight pay and language proficiency pay were
     also affected.  Congress approved some new special pay
     categories and also increased medical pays. 

  -- Allowances.  The Navy's and the Marine Corps' costs were
     considerably less than the Army's and the Air Force's in fiscal
     year 1990, but the Navy budget estimate indicates the gap will
     narrow by fiscal year 1997.  All the services project increases. 
     The Navy has projected a 68-percent increase in per person costs
     between fiscal years 1990 and 1997.  The Marine Corps' costs
     will be lower than the other services' despite a 43-percent
     increase in allowance costs per person.  Navy officials said the
     single largest contributor to the increase in the cost per
     person from 1990 to 1997 is the overseas station allowance.  The
     allowance is authorized to assist a member in defraying the
     excess cost incurred when assigned to a permanent duty station
     abroad.  The allowance includes housing, cost-of-living, and
     temporary lodging allowances.  In recent years, unfavorable
     currency fluctuations, especially the Japanese yen, have been
     the major cause for the increase in the allowance.  For example,
     in July 1996, prices in Yokosuka, Japan, are approximately 42
     percent higher than the average U.S.  city.  Since 1990, a
     larger percentage of the Navy's total workforce is in overseas
     billets as the Navy has downsized.  The Air Force said that
     overseas currency rates have contributed to escalating the
     allowance costs beyond the normal inflation rate.  Base closures
     in Europe and contingency operations have also contributed to
     higher costs. 

  -- Permanent change-of-station travel.  The Army's and the Air
     Force's costs are considerably greater than the Navy's and the
     Marine Corps'.  Increases from fiscal years 1990 to 1997 range
     from 6 percent for the Marine Corps to 15 percent for the Army
     and the Navy.  According to Air Force officials, differences in
     the services' relocation costs are due to differences in the
     mixture of moves and varying relocation policies.  For example,
     the services have different weight restrictions, different rank
     and grade mixes, and movements to different locations.  Navy
     officials said a prominent contributor to the increase in
     permanent change-of-station travel is the increased cost of
     separation moves.  Separation moves, as a percent of total
     moves, increased from 29 percent in 1990 to 31 percent in 1997. 
     The increase in cost per move is also attributable to a more
     senior force with more dependents.  Navy officials said the Navy
     has been able to decrease the number of operational moves
     through efforts to reassign people locally after ship
     decommissioning.  However, when a steady state is reached, these
     efficiencies will no longer be achievable. 

  -- Retired pay accrual.  The accrual for each service is projected
     to decrease by a range of about 22 percent to 25 percent between
     fiscal years 1990 and 1997.  The retired pay accrual estimate is
     the product of the full-time normal cost percentage of basic pay
     and the total amount of basic pay expected to be paid during the
     fiscal year.  DOD's actuary sets the normal cost percentage to
     accrue the funds necessary to meet the future retirement
     obligation for current personnel.  The normal cost percentage
     has been declining.  For example, the normal cost percentage was
     43.9 percent in fiscal year 1990 and is set at 32.6 percent for
     fiscal year 1997. 

  -- Total per person costs.  The Air Force has the highest and the
     Marine Corps the lowest per person costs, but the Air Force
     projects a decrease of about $1,100 (3 percent) during the
     period, while the Marine Corps projects a decrease of over
     $1,400 (4 percent).  The other two services project increases of
     1 percent to 2 percent.  Although the Air Force's costs are
     projected to decrease by fiscal year 1997, the Air Force's
     fiscal year 1997 costs are about 6 percent higher than the
     Army's and the Navy's and about 25 percent higher than the
     Marine Corps'. 



                                     Table 1
                     
                      Per Person Costs by Service and Budget
                                     Category

                                      Fiscal                     Air      Marine
Budget category                         year    Army    Navy   Force       Corps
--------------------------------  ----------  ------  ------  ------  ----------
Basic pay                               1990  $19,68  $19,28  $22,06     $17,900
                                                   9       0       5
                                        1997  20,682  20,237  22,443      18,132
Basic allowances for quarters           1990   2,491   2,848   3,005       2,246
                                        1997   2,842   3,144   3,106       2,163
Variable housing allowance              1990     350   1,020     569         812
                                        1997     530   1,194     699         704
Special pays                            1990     626   1,723     477         551
                                        1997     571   1,596     632         277
Allowances                              1990   1,345     786   1,224         841
                                        1997   1,490   1,321   1,502       1,199
Permanent change of station             1990   1,778   1,222   1,855       1,213
                                        1997   2,038   1,412   2,062       1,288
Retired pay accrual                     1990   8,643   8,464   9,626       7,858
                                        1997   6,742   6,590   7,316       5,902
Other                                   1990   4,840   4,848   5,449       4,421
                                        1997   5,841   5,207   5,400       4,752
================================================================================
Total                                   1990  39,762  40,191  44,270      35,842
                                        1997  $40,73  $40,70  $43,16     $34,417
                                                   6       1       0
--------------------------------------------------------------------------------
Source:  GAO analysis based on services' budget estimates. 

Note:  Totals may not add due to rounding. 


--------------------
\7 For per person calculations, we used average yearly strength
reported by the services in their budget submissions.  Average yearly
strength includes reservists who serve on active duty, and the budget
figures also include the personnel costs of reservists who serve on
active duty. 


   VARIANCES EXIST IN THE
   SERVICES' SPECIAL AND INCENTIVE
   PAY BUDGETS
------------------------------------------------------------ Letter :6

There are marked differences in the services' budgeting for some
types of special pays, which are intended to enhance the retention of
skilled personnel, and for incentive pays for hazardous duty,
submarine duty, and aviation careers.  Special pays in particular,
which will decline by
33 percent to just over $1 billion by fiscal year 1997, vary by type
and service and are not necessarily proportional to a service's share
of overall personnel levels.  The total reduction in special pays,
however, approximates the reduction in personnel levels. 


Figure 5 shows that the Navy dominates the special pay category by
budgeting more than the Air Force, the Army, and the Marine Corps
combined (about $656 million estimated for fiscal year 1997). 

   Figure 5:  Trends in Special
   Pays by Service

   (See figure in printed
   edition.)


Figure 6 shows that the Navy accounts for over 53 percent of the
total special pays budget in fiscal year 1997, while its share of the
personnel level is 28 percent.  The fiscal year 1997 Navy budget
estimate equates to approximately $1,600 per servicemember, compared
to the next highest for the Air Force at about $630. 

   Figure 6:  Services' Share of
   Personnel and Special Pays for
   Fiscal Year 1997

   (See figure in printed
   edition.)


As shown in figure 7, the Navy's largest special pay categories are
for sea and foreign duty, reenlistment bonuses, and medical
personnel.  The Navy is the only service that budgets for
nuclear-qualified officer pay, nuclear accession pay, and officer
responsibility pay.  Also, the Navy uses an "other" classification of
special pay, which is estimated to be about $26 million for fiscal
year 1997. 

   Figure 7:  Navy Allocation of
   Special Pays for Fiscal Year
   1997

   (See figure in printed
   edition.)

Note:  Other includes other special pay ($26), language proficiency
($2),
and responsibility pay ($1). 


The incentive pay, hazardous duty, and aviation career categories are
projected to decline from $833 million in fiscal year 1990 to $533
million in fiscal year 1997, or 36 percent.  Figure 8 shows that the
Navy and the Air Force have the largest budgets and per person costs
for both fiscal years 1990 and 1997. 

   Figure 8:  Services' Total
   Budgets and Per Person Budgets
   for Incentive Pay

   (See figure in printed
   edition.)


   AGENCY COMMENTS
------------------------------------------------------------ Letter :7

We provided a draft of this report to DOD for comment, but DOD chose
not to comment formally on the draft.  We did, however, incorporate
informal comments from DOD and service officials. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :8

To identify budget trends and differences in costs among the
services, we analyzed each service's estimate for its annual military
personnel budget submission to Congress.  For fiscal years 1990 to
1995, we used actual costs.  For fiscal years 1996 and 1997, we used
estimated costs.  We adjusted the nominal dollars to constant fiscal
year 1996 dollars using 1996 DOD inflation factors for military
personnel costs.  We did not analyze or verify the services'
assumptions supporting the estimates, nor did we verify the accuracy
of the data presented in their budget estimate submissions.  We asked
DOD and military service representatives to explain some of the
trends and differences among the services.  We incorporated the
explanations we received and considered relevant.  We did not verify
the services' explanations. 

We conducted our work from October 1995 to June 1996 in accordance
with generally accepted government auditing standards. 


---------------------------------------------------------- Letter :8.1

We are providing copies of this report to appropriate congressional
committees; the Secretaries of Defense, the Air Force, the Army, and
the Navy; the Commandant, U.S.  Marine Corps; and the Director,
Office of Management and Budget.  We will also provide copies to
other interested parties upon request. 

If you have any questions concerning this report, please call me on
(202) 512-3504.  Major contributors to this report were Robert
Pelletier and Richard McGeary. 

Sincerely yours,

Richard Davis
Director, National Security
 Analysis


MILITARY PERSONNEL BUDGET
CATEGORIES
=========================================================== Appendix I

These budget categories apply to all services except where
parentheses specify the applicable services.  Special pays for
medical-related skills and the cadets/midshipmen category do not
apply to the Marine Corps. 

 Basic pay
 Retired pay accrual
 Basic allowances for quarters
  with dependents
  without dependents
  substandard family housing
  partial
 Variable housing allowance
 Subsistence
  basic allowance for subsistence
   authorized to mess separately
   leave rations
   rations-in-kind not available
   augmentation for separate meals (Army, Navy, Air Force)
  subsistence in kind
   subsistence in messes
   operational rations
   augmentation rations/other
 Incentive pay, hazardous duty, and aviation career
  flying duty pay
   aviation career, officers
   crew members, enlisted
   noncrew members (Army, Air Force)
   crew nonrated (Army, Air Force)
   AWAC weapons controllers (Air Force)
   aviation continuation bonus (Air Force, Marine Corps)
  submarine duty (Navy)
  parachute jump pay
   demolition pay
   flight deck duty (Marine Corps)
   high altitude, low opening parachute pay (Marine Corps)
   other pays (Army, Navy, Air Force)
   toxic fuels/live biological (Air Force)

 Special pays
  physicians
  dentists
  nurses bonus
  diplomate pay for psychologists (Army, Navy)
  board certified pay for nonphysician health care providers (Army)
  optometrists
  veterinarians (Army, Air Force)
  biomedical science (Air Force)
  nuclear officer incentive pay (Navy)
  nuclear accession bonus (Navy)
  responsibility pay (Navy)
  sea and foreign duty
   sea duty
   duty at certain places
   overseas extension pay
  foreign language proficiency pay
  diving duty pay
  reenlistment bonus
  special duty assignment pay
  enlistment bonus
  hostile fire pay (Army, Air Force)
  other special pay (Navy, Marine Corps)
 Allowances
  uniform/clothing allowances
   initial issue
    military
    civilian
   additional allowance
   basic maintenance
   standard maintenance
   supplementary
   other (civilian clothing maintenance, inventory prepurchase)
(Army,
    Navy)
   station allowance overseas
    cost of living
    housing
    temporary lodging
    moving-in housing (Air Force)
   continental U.  S.  cost-of-living allowance

   family separation allowances
    on permanent change of station--no government quarters (Army,
     Navy, Air Force)
     on permanent change of station--dependents not authorized
     afloat (Navy, Marine Corps)
     on temporary duty
  general and flag officers, personal money allowance
 Separation pay
  terminal leave pay
  lump-sum readjustment pay
  donations
  severance pay, disability
  severance pay, nonpromotion
  severance pay, involuntary half (5 percent)
  severance pay, involuntary full (10 percent)
  severance pay, voluntary separation incentive
  severance pay, special separation benefits
  severance pay, 15-year retirement
 Social security tax payments
  government contribution
  military service credit
 Permanent change of station travel
 Other military personnel costs
  adoption expenses
  apprehension of deserters
  death gratuities
  unemployment compensation
  survivor benefits
  education benefits
  interest on servicemembers' deposit/savings
  allowance for quarters, surviving dependents (Air Force)
  Civilian Community Corps (Air Force)
 Cadets/Midshipmen


SERVICES' SHARE OF MILITARY
PERSONNEL BUDGET BY CATEGORY AND
PERSONNEL LEVELS, FISCAL YEARS
1990-97
========================================================== Appendix II

                                                                         (Dollars and personnel in millions;
                                                                                  shares in percent)



Budget
category       Service      Share  Amount   Share  Amount   Share  Amount   Share  Amount     Share  Amount     Share  Amount     Share  Amount     Share  Amount    Change  Percent
-------------  ----------  ------  ------  ------  ------  ------  ------  ------  ------  --------  ------  --------  ------  --------  ------  --------  ------  --------  -------
Basic pay      Army          35.5  $14,83    37.1  $16,05    35.2  $13,97    33.9  $12,32      33.6  $11,53      33.7  $10,99      33.6  $10,51      33.7  $10,25  ($4,583)    -30.9
                                        7               7               1               1                 9                 0                 0                 4
               Navy          26.9  11,259    26.2  11,358    27.7  11,002    28.8  10,470      28.6   9,814      28.0   9,129      27.7   8,655      27.3   8,317   (2,942)    -26.1
               Air Force     29.2  12,189    28.0  12,127    28.3  11,223    28.2  10,243      28.6   9,822      28.6   9,311      28.6   8,953      28.7   8,732   (3,456)    -28.4
               Marine         8.4   3,514     8.7   3,761     8.8   3,483     9.1   3,300       9.2   3,175       9.6   3,137      10.1   3,145      10.3   3,139     (375)    -10.7
                Corps
====================================================================================================================================================================================
               Total        100.0  $41,79   100.0  $43,30   100.0  $39,67   100.0  $36,33     100.0  $34,35     100.0  $32,56     100.0  $31,26     100.0  $30,44  ($11,357    -27.2
                                        9               3               8               4                 0                 7                 3                 2         )
Retired pay    Army          35.6  $6,514    37.1  $6,953    35.2  $5,965    33.9  $4,485      33.6  $4,154      33.8  $3,901      33.6  $3,458      33.7  $3,343  ($3,171)    -48.7
 accrual
               Navy          27.0   4,943    26.3   4,916    27.7   4,690    28.8   3,806      28.6   3,530      28.0   3,238      27.7   2,845      27.3   2,709   (2,234)    -45.2
               Air Force     29.0   5,317    27.9   5,225    28.3   4,792    28.2   3,728      28.6   3,536      28.6   3,305      28.7   2,946      28.7   2,847   (2,471)    -46.5
               Marine         8.4   1,542     8.7   1,628     8.8   1,485     9.1   1,199       9.2   1,141       9.6   1,112      10.0   1,033      10.3   1,022     (521)    -33.8
                Corps
====================================================================================================================================================================================
               Total        100.0  $18,31   100.0  $18,72   100.0  $16,93   100.0  $13,21     100.0  $12,36     100.0  $11,55     100.0  $10,28     100.0  $9,920  ($8,397)    -45.8
                                        6               2               3               9                 0                 6                 1
Basic          Army          33.3  $1,877    35.4  $2,125    31.5  $1,664    31.9  $1,594      30.9  $1,431      32.2  $1,446      32.4  $1,420      32.9  $1,409    ($468)    -24.9
 allowances
 for quarters
               Navy          29.5   1,663    28.4   1,704    31.8   1,681    32.2   1,607      32.3   1,495      31.4   1,408      30.8   1,351      30.2   1,292     (371)    -22.3
               Air Force     29.4   1,660    28.1   1,688    28.7   1,518    28.0   1,399      29.0   1,345      28.4   1,275      28.4   1,247      28.2   1,208     (452)    -27.2
               Marine         7.8     441     8.1     483     8.0     424     7.8     392       7.9     364       8.1     362       8.4     370       8.7     374      (66)    -15.1
                Corps
====================================================================================================================================================================================
               Total        100.0  $5,641   100.0  $6,001   100.0  $5,288   100.0  $4,992     100.0  $4,635     100.0  $4,491     100.0  $4,388     100.0  $4,284  ($1,357)    -24.1
Variable       Army          19.8    $264    22.1    $328    20.0    $287    19.9    $273      21.8    $287      22.2    $277      22.4    $268      22.9    $263      ($1)     -0.3
 housing
 allowance
               Navy          44.7     596    43.6     648    47.2     677    48.4     662      46.5     610      44.7     558      43.7     523      42.8     491     (105)    -17.6
               Air Force     23.6     314    22.6     335    21.7     311    20.9     287      21.8     286      23.5     293      23.7     284      23.7     272      (42)    -13.4
               Marine        12.0     159    11.7     174    11.2     160    10.7     147       9.9     130       9.6     120      10.1     121      10.6     122      (37)    -23.5
                Corps
====================================================================================================================================================================================
               Total        100.0  $1,333   100.0  $1,485   100.0  $1,434   100.0  $1,368     100.0  $1,312     100.0  $1,248     100.0  $1,195     100.0  $1,148    ($185)    -13.9
Subsistence    Army          36.6  $1,731    33.5  $1,110    34.6  $1,147    33.7  $1,004      34.3    $969      35.1    $947      33.7    $917      35.9  $1,177    ($554)    -32.0
               Navy          26.0   1,232    25.2     834    25.0     829    25.7     767      25.2     713      24.6     665      23.3     635      26.3     862     (370)    -30.0
               Air Force     28.4   1,343    34.0   1,127    32.2   1,069    32.2     959      31.9     901      31.4     848      30.4     826      27.1     888     (454)    -33.8
               Marine         9.0     426     7.2     240     8.2     273     8.5     253       8.6     244       8.9     241      12.6     242      10.8     353      (73)    -17.2
                Corps
====================================================================================================================================================================================
               Total        100.0  $4,732   100.0  $3,311   100.0  $3,318   100.0  $2,982     100.0  $2,828     100.0  $2,700     100.0  $2,619     100.0  $3,280  ($1,452)    -30.7
Incentive      Army          18.9    $157    19.0    $165    19.5    $153    19.4    $138      19.8    $130      20.9    $124      20.7    $118      20.6    $110     ($47)    -30.2
 pay,
 hazardous,
 duty, &
 aviation
 career
               Navy          37.6     313    35.5     307    36.6     287    36.9     263      36.7     241      35.8     212      35.9     205      36.4     194     (119)    -38.0
               Air Force     38.2     318    40.4     349    38.7     303    38.1     272      38.1     249      37.6     223      37.9     216      37.1     198     (121)    -37.9
               Marine         5.3      44     5.0      44     5.2      41     5.6      40       5.4      35       5.8      34       5.6      32       5.9      32      (13)    -28.9
                Corps
====================================================================================================================================================================================
               Total        100.0    $833   100.0    $864   100.0    $785   100.0    $713     100.0    $655     100.0    $593     100.0    $570     100.0    $533    ($300)    -36.0
Special pay    Army          25.5    $472    32.3    $791    22.8    $373    23.3    $355      23.2    $309      25.0    $325      26.3    $345      22.9    $283    ($189)    -40.0
               Navy          54.4   1,006    45.3   1,111    56.4     925    55.7     849      55.0     732      52.5     682      50.7     664      53.2     656     (351)    -34.8
               Air Force     14.2     263    14.9     367    16.1     264    16.7     255      18.5     247      19.1     248      19.4     254      20.0     246      (17)     -6.6
               Marine         5.9     108     7.5     185     4.7      76     4.3      65       3.3      44       3.4      44       3.6      47       3.9      48      (60)    -55.8
                Corps
====================================================================================================================================================================================
               Total        100.0  $1,850   100.0  $2,454   100.0  $1,638   100.0  $1,525     100.0  $1,332     100.0  $1,299     100.0  $1,309     100.0  $1,233    ($617)    -33.4
Allowances     Army          43.8  $1,014    47.2  $1,345    40.0  $1,007    37.2    $845      35.3    $740      34.6    $778      35.8    $772      35.6    $739    ($275)    -27.1
               Navy          19.8     459    19.1     546    22.4     564    25.0     568      27.5     577      27.1     608      26.0     561      26.2     543        84     18.3
               Air Force     29.2     676    26.5     755    29.9     754    28.8     655      28.2     592      29.2     657      27.8     600      28.2     584      (91)    -13.5
               Marine         7.1     165     7.2     205     7.7     194     9.0     206       9.0     190       9.2     206      10.3     221      10.0     208        43     25.8
                Corps
====================================================================================================================================================================================
               Total        100.0  $2,314   100.0  $2,850   100.0  $2,519   100.0  $2,274     100.0  $2,099     100.0  $2,249     100.0  $2,154     100.0  $2,074    ($240)    -10.4
Separation     Army          41.5    $227    44.0    $335    56.9  $1,586    41.1  $1,084      42.0    $626      30.9    $499      38.7    $479      50.9    $484      $256    112.9
 pay
               Navy          27.4     150    25.5     194    11.9     331    15.5     407      27.2     405      20.4     329      25.6     317      20.2     192        42     28.0
               Air Force     21.8     119    19.4     147    26.3     732    35.5     935      20.9     312      43.0     695      27.4     339      16.2     154        35     29.2
               Marine         9.4      52    11.1      84     5.0     139     8.0     210       9.8     146       5.7      92       8.4     104      12.6     120        68    131.8
                Corps
====================================================================================================================================================================================
               Total        100.0    $548   100.0    $761   100.0  $2,788   100.0  $2,635     100.0  $1,489     100.0  $1,616     100.0  $1,239     100.0    $950      $401     73.2
Social         Army          35.6  $1,386    36.7  $1,407    35.1  $1,231    34.1  $1,095      34.0  $1,034      33.8    $957      33.6    $924      33.6    $887    ($500)    -36.0
 security tax
 payments
               Navy          26.7   1,038    26.2   1,003    27.5     963    28.4     913      28.2     858      27.8     785      27.4     755      27.2     718     (320)    -30.8
               Air Force     29.3   1,140    28.4   1,086    28.7   1,006    28.5     915      28.7     872      28.9     816      29.1     800      28.9     763     (377)    -33.1
               Marine         8.4     327     8.7     333     8.7     307     9.0     289       9.1     278       9.6     271       9.9     273      10.2     269      (59)    -17.9
                Corps
====================================================================================================================================================================================
               Total        100.0  $3,891   100.0  $3,829   100.0  $3,506   100.0  $3,212     100.0  $3,042     100.0  $2,829     100.0  $2,752     100.0  $2,636  ($1,255)    -32.2
Permanent      Army          40.4  $1,340    35.3  $1,212    43.1  $1,552    39.2  $1,314      37.9  $1,150      39.5  $1,147      39.0  $1,074      38.6  $1,010    ($330)    -24.6
 change of
 station
 travel
               Navy          21.5     714    22.4     769    20.4     734    21.1     709      23.0     698      22.8     662      21.5     593      22.2     580     (133)    -18.7
               Air Force     30.9   1,025    36.1   1,239    29.6   1,067    32.8   1,100      31.6     958      29.8     867      31.2     858      30.7     802     (222)    -21.7
               Marine         7.2     238     6.3     216     6.9     249     6.9     231       7.5     228       7.9     229       8.3     228       8.5     223      (15)     -6.4
                Corps
====================================================================================================================================================================================
               Total        100.0  $3,317   100.0  $3,436   100.0  $3,601   100.0  $3,354     100.0  $3,034     100.0  $2,905     100.0  $2,753     100.0  $2,616    ($701)    -21.1
Other          Army          47.3    $102    43.5    $137    55.4    $342    52.5    $408      44.4    $249      49.2    $278      44.9    $200      44.5    $203      $101     98.3
 military
 personnel
 costs
               Navy          22.9      49    27.2      86    18.9     117    22.5     175      29.1     163      26.0     147      28.8     128      30.6     140        90    182.6
               Air Force     21.3      46    18.4      58    16.6     102    17.1     133      15.0      84      16.7      95      15.2      68      14.0      64        18     39.3
               Marine         8.5      18    11.0      35     9.1      56     7.9      62      11.5      64       8.1      46      11.0      49      10.8      49        31    169.0
                Corps
====================================================================================================================================================================================
               Total        100.0    $216   100.0    $316   100.0    $618   100.0    $777     100.0    $560     100.0    $566     100.0    $445     100.0    $456      $240    111.0
Cadets         Army          31.9     $43    32.5     $42    32.8     $41    33.2     $39      34.1     $39      33.9     $38      33.3     $36      34.2     $36      ($7)    -16.7
               Navy          35.8      48    34.7      45    34.0      42    33.5      40      32.8      38      33.4      38      33.5      36      32.7      34      (14)    -29.1
               Air Force     32.3      44    32.8      43    33.2      41    33.3      39      33.0      38      32.7      37      33.3      36      33.1      35       (9)    -20.3
               Marine          \a      \a      \a      \a      \a      \a      \a      \a        \a      \a        \a      \a        \a      \a        \a      \a        \a       \a
                Corps
====================================================================================================================================================================================
               Total        100.0    $135   100.0    $130   100.0    $124   100.0    $118     100.0    $115     100.0    $112     100.0    $107     100.0    $105     ($30)    -22.3
Totals by      Army          35.3  $29,96    36.6  $32,00    35.7  $29,31    34.0  $24,95      33.4  $22,65      33.5  $21,70      33.5  $20,52      33.8  $20,19  ($9,768)    -32.6
 service                                4               8               9               6                 7                 7                 0                 6
               Navy          27.6  23,471    26.9  23,522    27.8  22,840    28.9  21,237      29.3  19,874      28.5  18,462      28.2  17,266      28.0  16,728   (6,743)    -28.7
               Air Force     28.8  24,454    28.1  24,545    28.2  23,184    28.5  20,919      28.4  19,241      28.8  18,669      28.5  17,426      28.1  16,795   (7,660)    -31.3
               Marine         8.3   7,036     8.4   7,386     8.4   6,888     8.7   6,393       8.9   6,041       9.1   5,894       9.7   5,863      10.0   5,957   (1,078)    -15.3
                Corps
====================================================================================================================================================================================
               Total        100.0  $84,92   100.0  $87,46   100.0  $82,23   100.0  $73,50     100.0  $67,81     100.0  $64,73     100.0  $61,07     100.0  $59,67  ($25,249    -29.7
                                        5               1               1               4                 2                 2                 5                 7         )
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                         (Dollars and personnel in millions;
                                                                                  shares in percent)



Personnel                          Person          Person          Person          Person            Person            Person            Person            Person
level          Service      Share     nel   Share     nel   Share     nel   Share     nel     Share     nel     Share     nel     Share     nel     Share     nel    Change  Percent
-------------  ----------  ------  ------  ------  ------  ------  ------  ------  ------  --------  ------  --------  ------  --------  ------  --------  ------  --------  -------
End strength   Army          36.3  0.7506    36.2  0.7254    33.8  0.6113    33.6  0.5724      33.6  0.5413      33.5  0.5086      33.4  0.4950      34.0  0.4950  (0.2556)    -34.1
               Navy          28.2  0.5829    28.5  0.5713    30.0  0.5419    29.9  0.5100      29.1  0.4687      28.6  0.4346      28.6  0.4245      27.9  0.4069  (0.1760)    -30.2
               Air Force     26.1  0.5393    25.5  0.5109    26.0  0.4703    26.1  0.4444      26.5  0.4263      26.4  0.4004      26.2  0.3882      26.2  0.3811  (0.1582)    -29.3
               Marine         9.5  0.1967     9.7  0.1950    10.2  0.1846    10.5  0.1784      10.8  0.1742      11.5  0.1746      11.7  0.1740      11.9  0.1740  (0.0227)    -11.5
                Corps
====================================================================================================================================================================================
               Total        100.0  2.0695   100.0  2.0026   100.0  1.8081   100.0  1.7052     100.0  1.6105     100.0  1.5182     100.0  1.4817     100.0  1.4570  (0.6125)    -29.6
Average        Army          36.1  0.7536    37.5  0.8037    35.2  0.6746    33.8  0.5923      33.9  0.5619      33.8  0.5285      33.5  0.5027      33.8  0.4958  (0.2578)    -34.2
 strength
               Navy          28.0  0.5840    27.3  0.5840    28.9  0.5528    29.8  0.5220      29.2  0.4851      28.7  0.4491      28.4  0.4267      28.0  0.4110  (0.1730)    -29.6
               Air Force     26.5  0.5524    25.4  0.5434    25.9  0.4969    26.0  0.4552      26.3  0.4366      26.4  0.4131      26.5  0.3972      26.5  0.3891  (0.1633)    -29.6
               Marines        9.4  0.1963     9.8  0.2107    10.0  0.1911    10.4  0.1818      10.6  0.1754      11.1  0.1737      11.6  0.1733      11.8  0.1731  (0.0232)    -11.8
====================================================================================================================================================================================
               Total        100.0  2.0863   100.0  2.1418   100.0  1.9154   100.0  1.7513     100.0  1.6590     100.0  1.5644     100.0  1.4999     100.0  1.4690  (0.6173)    -29.6
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\a Not applicable. 

Note:  Some columns do not add because of rounding. 


*** End of document. ***