Defense Budget: Observations on Infrastructure Activities (Briefing
Report, 04/04/97, GAO/NSIAD-97-127BR).

GAO provided information on Department of Defense (DOD) infrastructure
activities.

GAO noted that: (1) the proportion of planned infrastructure funding in
DOD's 1997-2001 budgets was projected to remain at about 60 percent, the
same proportion it was at the time of DOD's Bottom-Up Review; (2) costs
of infrastructure activities were expected to increase by $9 billion,
from $146 billion in fiscal year (FY) 1997 to $155 billion in FY 2001;
(3) about 50 percent of the infrastructure is in two categories, central
logistics and installation support; (4) about 80 percent of
infrastructure activities that can be clearly identified in DOD's Future
Years Defense Program (FYDP) are funded by a combination of the military
personnel, 30 percent, and operation and maintenance, 50 percent,
appropriations; (5) therefore, if DOD is to reduce its infrastructure
activities, it must look to these appropriations for the reductions; (6)
although active military personnel were projected to decline by about 30
percent between FY 1990 and 1997, the salaries and benefits for active
duty military personnel were projected to decline by only 13 percent;
(7) the budgets were not expected to decrease commensurate with the
force because the force that remains has progressively become more
expensive; (8) also, by 1999, each service is expected to have a higher
percentage of officers in its force than it had in 1990; (9) Congress
has been concerned about whether the drawdown of military personnel may
have gone too far and imposed permanent end strength levels in the
National Defense Authorization Act for Fiscal Year 1996; (10) but, GAO
work has shown that smaller end strengths are possible without reducing
the number of military personnel assigned to mission forces; (11) each
service is assessing ways to streamline its operations that could lead
to fewer active military personnel needs; (12) DOD could achieve savings
in the military personnel accounts by replacing active duty military
personnel, who perform infrastructure functions, with less costly
civilian personnel; (13) operation and maintenance accounts were
projected to increase from $88.3 billion in FY 1990 to $95.9 billion in
FY 2001; and (14) although DOD has improved operations and reduced
costs, it continues to waste billions of dollars annually on unneeded
facilities and inefficient activities.

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

 REPORTNUM:  NSIAD-97-127BR
     TITLE:  Defense Budget: Observations on Infrastructure Activities
      DATE:  04/04/97
   SUBJECT:  Military downsizing
             Military compensation
             Military cost control
             Future budget projections
             Military budgets
             Civilian employees
             Military personnel
             Military facilities
             Logistics
             Personnel management
IDENTIFIER:  DOD Bottom-Up Review
             DOD Future Years Defense Program
             DOD Quadrennial Defense Review
             
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Cover
================================================================ COVER


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

April 1997

DEFENSE BUDGET - OBSERVATIONS ON
INFRASTRUCTURE ACTIVITIES

GAO/NSIAD-97-127BR

Defense Budget

(701113)


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

  DOD - Department of Defense
  FYDP - Future Years Defense Program

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


B-276573

April 4, 1997

The Honorable Floyd D.  Spence
Chairman, Committee on National Security
House of Representatives

Dear Mr.  Chairman: 

The Department of Defense (DOD) wants to reduce and streamline
infrastructure to help pay for the billions of dollars that DOD
projects it will need for modern weapon systems.  On February 10,
1997, we briefed your staff on infrastructure activities within DOD
and our budget and program reviews of those activities.  Our briefing
was based primarily on data included in DOD's 1997 Future Years
Defense Program (FYDP) because the 1998 FYDP was not available for
our analysis.  The information we provided at that briefing is
detailed in the sections following this letter. 


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

An objective of DOD's 1993 Report on the Bottom-Up Review was to
identify potential infrastructure savings and to launch a long-term
process to reduce and streamline DOD's infrastructure without harming
readiness.  The report stated that infrastructure activities
accounted for $160 billion in fiscal year 1994, or about 60 percent
of DOD's total obligational authority. 

DOD defines infrastructure as those activities that provide support
services to mission programs, such as combat forces, and primarily
operate from fixed locations.  DOD accounts for its infrastructure
activities in eight categories:  installation support; central
training; central medical; central logistics; force management;
acquisition infrastructure; central personnel; and central command,
control, and communications. 

Between fiscal year 1997 and 2001, DOD planned to increase its
procurement budget from $38.9 billion to $60.1 billion, primarily to
buy modern weapon systems and upgrades to existing systems.  DOD
planned to fund that increase with a combination of increased defense
budgets, savings from acquisition reform, and a reallocation of funds
from infrastructure activities to procurement. 

The FYDP is an authoritative record of current and projected force
structure, costs, and personnel levels that have been approved by the
Secretary of Defense.  The 1997 FYDP supported the administration's
fiscal year 1997 budget and included budget estimates for fiscal
years 1997-2001. 


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

The proportion of planned infrastructure funding in DOD's 1997-2001
budgets was projected to remain at about 60 percent, the same
proportion it was at the time of the Bottom-Up Review.  Costs of
infrastructure activities were expected to increase by $9 billion,
from $146 billion in fiscal year 1997 to $155 billion in fiscal year
2001.  About 50 percent of the infrastructure is in two
categories--central logistics and installation support. 

About 80 percent of infrastructure activities that can be clearly
identified in DOD's FYDP are funded by a combination of the military
personnel (30 percent) and operation and maintenance (50 percent)
appropriations.\1 Therefore, if DOD is to reduce its infrastructure
activities, it must look to these appropriations for the reductions. 

Although active military personnel were projected to decline by about
30 percent between fiscal year 1990 and 1997, the salaries and
benefits for active duty military personnel were projected to decline
by only 13 percent.  The budgets were not expected to decrease
commensurate with the force because the force that remains has
progressively become more expensive.  Increases in basic pay and
allowances have contributed to the higher costs.  Also, by 1999, each
service is expected to have a higher percentage of officers in its
force than it had in 1990. 

Congress has been concerned about whether the drawdown of military
personnel may have gone too far and imposed permanent end strength
levels in the National Defense Authorization Act for Fiscal Year 1996
(P.L.  104-106).  But, our work has shown that smaller end strengths
are possible without reducing the number of military personnel
assigned to mission forces.  Specifically, about 660,000, or 45
percent, of active military personnel for fiscal year 1997 were to be
assigned to infrastructure activities.  Each service is assessing
ways to streamline its operations that could lead to fewer active
military personnel needs.  DOD could achieve savings in the military
personnel accounts by replacing active duty military personnel, who
perform infrastructure functions, with less costly civilian
personnel. 

Operation and maintenance accounts were projected to increase from
$88.3 billion in fiscal year 1990 to $95.9 billion in fiscal year
2001.  Operation and maintenance funds are often linked with the
readiness of U.S.  forces; however, those funds also pay for numerous
other DOD activities and functions.  Although DOD has improved
operations and reduced costs, it continues to waste billions of
dollars annually on unneeded facilities and inefficient activities. 
For example, DOD retains billions of dollars of excess inventory for
which it spends hundreds of millions of dollars annually to store. 
Also, 40 percent of the capacity of DOD's 21 major depots was excess
to its 1996 workload.  We have reported that, as a first step to
reduce infrastructure activities, DOD needs to prepare a plan to
guide its efforts.  This plan should establish time frames and
identify organizations and personnel responsible for accomplishing
fiscal and operational goals. 

We did not obtain agency comments on a draft of this report because
it was based primarily on our prior work, which is noted throughout
the report. 

We conducted our work between January and March 1997 in accordance
with generally accepted government auditing standards. 


--------------------
\1 In Defense Infrastructure:  Budget Estimates for 1996-2001 Offer
Little Savings for Modernization (GAO/NSIAD-96-131, Apr.  4, 1996),
we stated that there are parts of the total infrastructure funding
that cannot be clearly identified in the FYDP, according to DOD
officials.  These funds pay for goods and services sold by
service-specific revolving funds.  The officials estimate that this
is 20 to 25 percent of DOD's total infrastructure budget and is
mostly logistics purchases that cannot be specifically identified. 


---------------------------------------------------------- Letter :2.1

We are providing copies of this report to appropriate Senate and
House Committees; the Secretary of Defense; and the Director, Office
of Management and Budget.  We will also provide copies to other
interested parties upon request. 

Please contact me at (202) 512-3504 if you or your staff have any
questions concerning this briefing report. 

Sincerely yours,

Richard Davis
Director, National Security
 Analysis


Briefing Section I BACKGROUND
============================================================== Letter 



   (See figure in printed
   edition.)


   DOD WANTS TO REDUCE
   INFRASTRUCTURE TO HELP PAY FOR
   MODERN WEAPON SYSTEMS
------------------------------------------------------------ Letter :3

An objective of the Department of Defense's (DOD) 1993 Report on the
Bottom-Up Review was to identify potential infrastructure savings and
to launch a long-term process to reduce and streamline DOD's
infrastructure without harming readiness.  The report stated that
infrastructure activities accounted for $160 billion in fiscal year
1994, or about 60 percent of DOD's total obligational authority. 

Between fiscal year 1997 and 2001, DOD planned to increase
procurement funding from $38.9 billion to $60.1 billion, primarily to
buy modern weapon systems and upgrades to existing systems.  DOD
planned to fund that increase with a combination of increased defense
budgets, savings from acquisition reform, and a reallocation of funds
from infrastructure activities to procurement. 

DOD's Future Years Defense Program (FYDP) is the most comprehensive
source of continuous defense resource data.  The FYDP displays the
allocation of resources by programs and activities known as program
elements.  Using the FYDP, DOD has clearly identified program
elements that fund infrastructure activities and refer to these as
"direct infrastructure." However, there are parts of the total
infrastructure funding that cannot be clearly identified in the FYDP. 
According to DOD officials, these parts account for 20 to 25 percent
of DOD's total infrastructure funding.  These funds pay mostly for
logistics purchases. 

DOD, in conjunction with the Institute for Defense Analysis,
categorized each of the FYDP program elements as either mission
programs or infrastructure programs.  Activities and programs that
produce the outputs expected of DOD or directly support missions by
deploying with the combat forces are classified as mission programs. 
Activities that provide support services to mission programs, such as
combat forces, and primarily operate from fixed locations are
classified as infrastructure programs.  DOD accounts for its
infrastructure activities in eight categories:  installation support;
central training; central medical; central logistics; force
management; acquisition infrastructure; central personnel; and
central command, control, and communications.  DOD excludes many
intelligence, space, and command, control, and communications
programs from its infrastructure even though they appear to fit DOD's
infrastructure definition.  These programs account for about $25.9
billion, or 26 percent, of mission programs in fiscal year 1997. 


Briefing Section II INFRASTRUCTURE
IN DOD'S BUDGET
============================================================== Letter 



   (See figure in printed
   edition.)


   COMPARISON OF TOTAL PLANNED
   OBLIGATIONAL AUTHORITY TO TOTAL
   PLANNED INFRASTRUCTURE FUNDING,
   FISCAL YEARS 1997 TO 2001
------------------------------------------------------------ Letter :4


The 1997 FYDP supported the administration's fiscal year 1997 budget
and included budget estimates for fiscal years 1997-2001.  In May
1996, we reported that our analysis of the infrastructure portion of
the 1997 FYDP shows that infrastructure costs are projected to
increase about $9 billion, from $146 billion in fiscal year 1997 to
$155 billion in fiscal year 2001.\1 Although the infrastructure
portion of DOD's budget is projected to decrease from about 60
percent in 1997 to about 57 percent in 2001, this is primarily
because DOD's total budget is projected to increase at a faster rate
than the infrastructure part of that budget. 



   (See figure in printed
   edition.)


--------------------
\1 Defense Infrastructure:  Costs Projected to Increase Between 1997
and 2001 (GAO/NSIAD-96-174, May 31, 1996). 


   DOD'S FISCAL YEARS 1997 TO 2001
   PROGRAM
------------------------------------------------------------ Letter :5


The total projected DOD budget for the 5-year period (1997-2001)
included in the 1997 FYDP was about $1.3 trillion.  Infrastructure
activities account for about $744 billion of the $1.3 trillion total
and mission activities account for the remaining $537 billion. 



   (See figure in printed
   edition.)


   DOD'S FISCAL YEARS 1997 TO 2001
   PROGRAM BY INFRASTRUCTURE
   CATEGORY
------------------------------------------------------------ Letter :6


The $744 billion of infrastructure included in the 1997 FYDP can be
subdivided into the eight infrastructure categories, which DOD has
defined.  These categories are described in appendix I.  Since most
of the infrastructure that cannot be clearly identified in the FYDP
relates to logistics purchases, we included this portion of the
infrastructure in the central logistics category. 

Central logistics and installation support, the two largest
categories, together comprise almost 50 percent of infrastructure
costs.  As we stated in our May 1996 report on defense
infrastructure, funding for all of the categories, except
installation support, is projected to increase during the 1997-2001
period.  The decline in installation support is absorbed by the
increases in the other infrastructure categories. 



   (See figure in printed
   edition.)


   DIRECT INFRASTRUCTURE FUNDING
   BY APPROPRIATION, FISCAL YEARS
   1997 TO 2001 PROGRAM
------------------------------------------------------------ Letter :7


Although each appropriation funds some direct infrastructure
activities, about 80 percent of direct infrastructure costs are
funded by military personnel and operation and maintenance accounts,
about 30 percent and 50 percent, respectively.  Thus, if DOD is to
achieve significant infrastructure reductions to fund future force
modernization, those reductions must come from these appropriations. 
However, these appropriations have been closely associated with the
readiness and quality-of-life of the force, the Secretary of
Defense's priority areas for the last few years. 


Briefing Section III MILITARY
PERSONNEL ACCOUNTS
============================================================== Letter 



   (See figure in printed
   edition.)


   TRENDS IN MILITARY PERSONNEL
------------------------------------------------------------ Letter :8


Between 1990 and 1997, the number of active military personnel was
projected to decrease from 2.07 million to 1.46 million, or about
30 percent.  During the same period, DOD's annual budgets for active
military personnel were projected to decrease by only about 13
percent, from $70 billion to about $61 billion.  The budgets were not
expected to decrease commensurate with the force because the force
that remains has progressively become more expensive.  Increases in
basic pay and allowances have contributed to the higher costs.\1
Also, force reductions left DOD with a more senior and, thus, a more
expensive force.  For example, our ongoing work shows that by 1999,
each service is expected to have a higher percentage of officers in
the total forces than was the case in 1990.  The projected budgets
for active military personnel in the 1997 FYDP reflect DOD's plans
for a relatively stable force and pay and benefit increases through
2001. 

DOD can reduce costs in the military personnel accounts by (1)
reducing the force, (2) changing the compensation package for
military personnel, and/or (3) changing the composition of the force. 
Any of these actions would be difficult and controversial and would
require collaboration between Congress and the administration. 



   (See figure in printed
   edition.)


--------------------
\1 In Defense Budget:  Trends in Active Military Personnel
Compensation Accounts for 1990-97 (GAO/NSIAD-96-183, July 9, 1996),
we present comprehensive data on various pay categories included in
the military personnel compensation accounts and trends in those pay
categories. 


   MILITARY PERSONNEL IN
   INFRASTRUCTURE AND MISSION
   PROGRAMS, FISCAL YEAR 1997
------------------------------------------------------------ Letter :9


Congress has been concerned about whether the drawdown of military
personnel may have gone too far and imposed permanent end strength
levels in the National Defense Authorization Act for Fiscal Year 1996
(P.L.  104-106).  But, our work has shown that smaller end strengths
are possible without reducing the number of military personnel
assigned to mission forces.  In fiscal year 1997, about 797,000, or
55 percent, of all active duty military personnel are assigned to
positions DOD classified as directly related to mission programs. 
The remaining 660,000, or 45 percent, of active military personnel
are assigned to positions that support infrastructure functions.  Of
the military personnel that support infrastructure functions, 36
percent are in the Air Force, 26 percent are in the Army, 27 percent
are in the Navy, and 11 percent are in the Marine Corps.  Each
service is assessing ways to streamline its operations that could
lead to fewer active military personnel needs. 

The proportion of active duty military personnel that support
infrastructure functions varies by service.  For fiscal year 1997, 63
percent of Air Force personnel, 34 percent of Army personnel, 44
percent of Navy personnel, and 40 percent of Marine Corps personnel
are assigned to infrastructure functions. 


Briefing Section IV REFORMING
MILITARY PERSONNEL FUNCTIONS
============================================================== Letter 



   (See figure in printed
   edition.)


   MILITARY PERSONNEL
   STAFFING--CONDITION
----------------------------------------------------------- Letter :10

Our work has shown that DOD requirements for many noncombat positions
are not based on sound strategy and that thousands of positions
staffed by military personnel could be staffed by less costly
civilians.  We reported in 1997 that the Army's efforts to make its
institutional force (which provides generally nondeployable support,
including training, doctrine development, base operations, supply,
and maintenance) more efficient and potentially smaller are hampered
by long-standing weaknesses in its process to determine institutional
force requirements.\1 Specifically, many of the Army's institutional
requirements are not determined through an analysis of workload that
includes analyzing what work needs to be done based on mission and
assessing how processes can be improved.  Such an analysis, when
combined with the Army's efforts to reengineer its overall
organization through functional assessments, would help the Army
determine how big its force needs to be and allocate resources
efficiently toward its highest priority institutional needs.  In
ongoing work, we found that the Navy does not have an effective
program for determining personnel requirements for its shore
establishment and, therefore, has little assurance that these
resources are being used efficiently and that its shore establishment
is appropriately sized. 

We reported in 1994 that, although DOD policy is to use civilians
wherever possible, large numbers of military personnel perform
technical, management, administrative, and other functions that
civilians typically perform.\2 DOD's and the services' policies allow
service managers wide latitude in filling positions with military
personnel.  No single directive explains how DOD's policy should be
implemented or the specific criteria to use in determining the
appropriate mix of personnel.  Therefore, because of the broad nature
of the guidance, tradition, and cultural preferences for military
incumbency, DOD and the services often merely maintain the status quo
on military incumbency.  We identified opportunities for the services
to achieve operational efficiencies and budget savings through
greater use of civilian personnel in support positions.  We reported
that, on average, each civilian support employee in the United States
costs about $15,000 less per year than a comparable graded military
person. 

In 1996, we reported that about 9,500 military officers were staffed
to administrative and support positions in the Army, the Navy, and
the Air Force that civilians might be able to fill at lower costs and
with greater productivity due to the civilians' much less frequent
rotations.\3



   (See figure in printed
   edition.)


--------------------
\1 Force Structure:  Army Support Forces Can Meet Two-Conflict
Strategy With Some Risks (GAO/NSIAD-97-66, Feb.  28, 1997). 

\2 DOD Force Mix Issues:  Greater Reliance on Civilians in Support
Roles Could Provide Significant Benefits (GAO/NSIAD-95-5, Oct.  19,
1994). 

\3 DOD Force Mix Issues:  Converting Some Support Officer Positions
to Civilian Status Could Save Money (GAO/NSIAD-97-15, Oct.  23,
1996). 


   MILITARY PERSONNEL
   STAFFING--ACTIONS NEEDED
----------------------------------------------------------- Letter :11

DOD needs to improve its processes for determining the number and
composition of noncombat positions and to fill positions with
military personnel only when essential.  In our 1997 report on the
Army's force structure, we recommended that the Secretary of the Army
improve the management and allocation of personnel resources to the
institutional Army.  Specifically, we recommended that the Secretary
of the Army report to the Secretary of Defense the Army's
long-standing problems with implementing a workload-based analysis as
a material weakness under the Federal Managers' Financial Integrity
Act to maintain visibility of the issue.  DOD concurred with our
recommendation and stated that the Army will look at relationships
and potential of new workload-based management tools in the
Quadrennial Defense Review. 

In our 1994 report on DOD's force mix, we recommended that the
Secretary of Defense establish a joint review board and provide it
with a mandate to work with the services to ensure a thorough and
consistent review of military support positions that may have
potential for conversion to civilian positions.  We also recommended
that the Secretary of Defense direct the services to identify
military positions that should be replaced with civilians and
eliminate, to the extent possible, impediments to using civilians
when they would be less costly.  Although DOD concurred with our
recommendations, it converted no positions based on this work.  In a
congressionally mandated report,\4 DOD explained that large-scale
conversions of military positions would not be undertaken until its
civilian workforce stabilized at the conclusion of the drawdown. 

In our October 1996 report, we recommended that the Secretary of
Defense overcome the impediments to conversion, develop a plan to
convert officer positions in support activities that are not military
essential, and require that the services implement the plan and
report back to the Secretary on the progress in implementing the
plan.  We also recommended that the Secretary develop a process to
ensure that the need for military staffing in support positions is
reassessed when major changes or reorganizations occur.  DOD
generally concurred with our report and acknowledged that support
positions could be converted by the services and that cost savings
and other advantages can be obtained through such conversions.  DOD
indicated that it would convene a series of meetings to develop
approaches to facilitate conversions. 

Briefing Section V

--------------------
\4 Department of Defense Report on the Civilian and Military Mix in
Support Occupations, Report to the House Committee on National
Security and Senate Committee on Armed Services, Office of the Under
Secretary of Defense (Personnel and Readiness), April 1995. 


OPERATION AND MAINTENANCE ACCOUNTS
============================================================== Letter 



   (See figure in printed
   edition.)


   TRENDS IN OPERATION AND
   MAINTENANCE ACCOUNTS
----------------------------------------------------------- Letter :12

While the number of active military personnel were projected to
decline by about 30 percent between fiscal year 1990 and 1997,
operation and maintenance budgets were projected to stay relatively
constant, except for the increase in 1991 due to the Persian Gulf
War.  From fiscal year 1997 to fiscal year 2001, the operation and
maintenance budgets are projected to increase by 8 percent while
active military personnel remain relatively unchanged.  Although the
operation and maintenance appropriations do not fund military pay and
allowances, the accounts support many readiness activities and
quality-of-life programs that are affected by the number of military
personnel. 

Since fiscal year 1987, the operation and maintenance accounts have
been the largest appropriation group in DOD's budget, and they are
expected to remain the largest through fiscal year 2001.  When
compared with the federal budget, DOD's fiscal year 1997 operation
and maintenance budget request represents about 18 percent of total
federal discretionary spending and is larger than most federal
agencies' fiscal year 1997 budget requests.\1 This is larger than the
combined budgets of the Departments of Education, Energy, Housing and
Urban Development, Interior, and State and the Environmental
Protection Agency.  Operation and maintenance appropriations fund a
diverse range of programs and activities that include salaries and
benefits for most civilian DOD employees; depot maintenance
activities; base operations; consumable supplies; and health care for
active duty service personnel, dependents of active duty personnel,
and retirees and their dependents. 



   (See figure in printed
   edition.)


--------------------
\1 Discretionary programs are funded through annual appropriations
acts and include such programs as national defense, education, and
law enforcement. 


   OPERATION AND MAINTENANCE
   COMPONENT:  CIVILIAN PERSONNEL
   IN WORKFORCE, FISCAL YEAR 1997
----------------------------------------------------------- Letter :13


According to DOD, over 40 percent of annual operation and maintenance
appropriations fund civilian salaries and benefits.  In fiscal year
1997, DOD was projected to have 798,300 civilian personnel.  Of
these, about 252,000 were assigned to Army programs, 227,000 to Navy
and Marine Corps programs, 178,000 to Air Force programs, and 142,000
to defense agencies and DOD-wide programs. 



   (See figure in printed
   edition.)


   OPERATION AND MAINTENANCE
   COMPONENT:  CIVILIAN PERSONNEL
   IN INFRASTRUCTURE AND MISSION
   PROGRAMS, FISCAL YEAR 1997
----------------------------------------------------------- Letter :14


Civilian personnel have historically provided important support to
military combat forces in peacetime and in war.  Civilian personnel
maintain military installations, repair and maintain weapon systems,
and provide communications and logistical support.  In some
instances, civilians fill combat-essential functions and deploy with
combat troops.  For example, during the Persian Gulf War, DOD
employed over 14,000 civilian employees and contractor personnel to
support its military forces.  Civilians served in a wide variety of
support positions, including transportation, maintenance and repair,
and weapon systems support roles.\2 In fiscal year 1997, about
648,000 of DOD's civilian employees (81 percent) were projected to
fill positions that relate to infrastructure programs, while 150,000
(19 percent) were projected to fill positions related to mission
programs. 

Briefing Section VI

--------------------
\2 DOD Force Mix Issues:  Greater Reliance on Civilians in Support
Roles Could Provide Significant Benefits (GAO/NSIAD-95-5, Oct.  19,
1994). 


REFORMING OPERATION AND
MAINTENANCE FUNCTIONS
============================================================== Letter 



   (See figure in printed
   edition.)


   CURRENT INFRASTRUCTURE
   CONDITION
----------------------------------------------------------- Letter :15

Although DOD has made progress in improving key operations and
reducing costs, it continues to waste billions of dollars annually on
unneeded facilities, excess inventory, and inefficient activities. 
DOD has acknowledged that it has more infrastructure than needed for
the downsized force. 

We have identified potential areas where DOD could achieve savings by
reducing unneeded facilities.  For example, at the time of the 1995
Base Realignment and Closure process, DOD's overall depot system had
40 percent excess capacity (i.e., fiscal year 1996 program workload
compared to maximum potential capacity).  DOD currently has 21 major
depots--7 depots have 50 percent or more excess capacity and 3 have
between 40 and 50 percent excess capacity.  After all base closure
actions are completed, DOD's research and development laboratory
infrastructure still will have about 35 percent excess capacity,
according to DOD officials.  Further, DOD is spending $51 million in
military construction funds on accounting facilities that are
unneeded. 

We also pointed out that maintaining inventory that is not needed is
expensive and does not contribute to an effective, efficient, and
responsive supply system.  In 1996, we found that $2.7 billion of
DOD's
$8.3 billion in inventory at nonmajor locations was not needed to
meet the services' current operating and war reserve requirements. 
We estimated the services could save about $382 million annually in
inventory holding costs by eliminating the excess inventory.\1

We also found instances where more efficient operations could achieve
savings.  For example, to cover excessively high overhead costs, DOD
frequently charges customers double or triple the cost of basic
transportation.  The high overhead costs stem in part from an
outdated and inefficient organizational structure and separate
billing systems that could be streamlined.  DOD estimates its
processing costs for temporary duty travel--about $3.5 billion in
fiscal year 1993--are as much as 30 percent of the direct travel
cost.  This percentage is well above the 10-percent average reported
for private companies and the 6-percent rate that industry considers
an efficient operation.  Other examples can be found in our March 14,
1997, report, Addressing the Deficit:  Budgetary Implications of
Selected GAO Work for Fiscal Year 1998 (GAO/OGC-97-2). 



   (See figure in printed
   edition.)


--------------------
\1 Defense Inventory:  Spare and Repair Parts Inventory Costs Can Be
Reduced (GAO/NSIAD-97-47, Jan.  17, 1997). 


   ACTIONS NEEDED TO REFORM
   SYSTEMS AND PROCESSES AND
   REDUCE INFRASTRUCTURE
----------------------------------------------------------- Letter :16

DOD has substantial opportunities to reduce its infrastructure costs
and realize the significant savings it needs to support
modernization.  In March 1997, we reported on opportunities to reform
key DOD business practices.\2 We have previously reported that, to
take best advantage of these opportunities, DOD needs to develop an
overall strategic plan to guide efforts to reduce infrastructure
activities.  This plan should establish time frames and identify
organizations and personnel responsible for accomplishing fiscal and
operational goals.  In developing this plan, DOD should consider
using a variety of means to achieve reductions, including
consolidations, closings, reengineering, and privatizing facilities
and operations.  It should also consider the need and timing for
future base closure rounds, as suggested by the 1995 Base Realignment
and Closure Commission and others. 

Numerous opportunities exist for DOD to eliminate excess capacity by
consolidating workloads and closing facilities, especially in the
areas of depot maintenance, training, research, and financial
accounting.  Greater efficiency could also be achieved by
consolidating and eliminating duplicate support services where
military bases are located close to one another or where similar
functions are performed at multiple locations.  DOD needs to apply
private industry's best practices to reengineer key processes, such
as transportation, travel, and pay, which currently cost much more
than industry standards. 

DOD needs to reform its inventory management system by adapting best
business practices to ensure that its supply system is effective,
efficient, and responsive.  For example, DOD should improve its
requirements determination system and storage practices. 


--------------------
\2 Defense Programs:  Opportunities to Reform Key Business Practices
(GAO/NSIAD-97-99R,
Mar.  5, 1997). 


CATEGORIES OF DEFENSE
INFRASTRUCTURE
=========================================================== Appendix I

Installation support consists of activities that furnish funding,
equipment, and personnel to provide facilities from which defense
forces operate.  Activities include construction planning and design,
real property maintenance, base operating support, real estate
management for active and reserve bases, family and bachelor housing,
supply operations, base closure activities, and environmental
programs. 

Acquisition infrastructure consists of all program elements that
support program management, program offices, and production support,
including acquisition headquarters, science and technology, and test
and evaluation resources.  This category includes earlier levels of
research and development, including basic research, exploratory
development, and advanced development. 

Central logistics consists of programs that provide support to
centrally managed logistics organizations, including the management
of material, operation of supply systems, maintenance activities,
material transportation, base operations and support, communications,
and minor construction.  This category also includes program elements
that provide resources for commissaries and military exchange
operations. 

Central training consists of program elements that provide resources
for virtually all non-unit training, including training for new
personnel, aviation and flight training, military academies, officer
training corps, other college commissioning programs, and officer and
enlisted training schools. 

Central medical consists of programs that furnish funding, equipment,
and personnel that provide medical care to active military personnel,
dependents, and retirees.  Activities provide for all patient care,
except for that provided by medical units that are part of direct
support units.  Activities include medical training, management of
the medical system, and support of medical installations. 

Central personnel consists of all programs that provide for the
recruiting of new personnel and the management and support of
dependent schools, community, youth, and family centers, and child
development activities.  Other programs supporting personnel include
permanent change-of-station costs, personnel in transit, civilian
disability compensation, veterans education assistance, and other
miscellaneous personnel support activities. 

Command, control, and communications consists of programs that manage
all aspects of the command, control, and communications
infrastructure for Department of Defense facilities; information
support services; mapping and charting products; and security
support.  This category includes program elements that provide
nontactical telephone services, the General Defense Intelligence
Program and cryptological activities, the Global Positioning System,
and support of air traffic control facilities. 

Force management consists of all programs that provide funding,
equipment, and personnel for the management and operation of all the
major military command headquarters activities.  Force management
also includes program elements that provide resources for
Defense-wide departmental headquarters, management of international
programs, support to other defense organizations and federal
government agencies, security investigative services, public affairs
activities, and criminal and judicial activities. 


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