Environmental Compliance: Reporting on DOD Military Construction and
Repair Projects Can Be Improved (Letter Report, 12/08/97,
GAO/NSIAD-98-33).

Pursuant to a congressional request, GAO reviewed: (1) the Department of
Defense's (DOD) environmental compliance projects funded as construction
or repair; (2) DOD's criteria for determining which appropriation
account is used for programming funds; (3) the process for programming
funds; and (4) reporting on future funding requirements.

GAO noted that: (1) the basis for determining which funding source
should be used for funding environmental compliance construction and
repair projects is set forth in laws and regulations; (2) the law
requires military construction appropriations to be used for all
construction projects costing over $500,000; (3) the law defines
construction as the creation of complete and usable new facilities or
complete and usable improvements to existing facilities on military
installations; (4) in general, operation and maintenance appropriations
are available to fund construction projects costing less than $500,000
and repairs of any value; (5) other appropriations such as research,
development, test, and evaluation, may also be used in appropriate
circumstances; (6) the programming process for environmental compliance
construction or repair activities varies according to the project
funding source; (7) under the process, the level of project
justification detail that DOD provides to Congress is greater for
military construction projects than for projects funded under other
appropriations; (8) in general, any military construction project,
including environmental compliance projects, is programmed, reviewed,
budgeted, and funded individually; (9) projects to be funded from
operation and maintenance appropriations are rolled up into a single
amount for budgeting and funding purposes; (10) the law permits some
smaller value military construction projects to be carried out as
unspecified minor construction; (11) these are budgeted as a single
amount; (12) DOD has made some improvements to its annual compliance
reporting by identifying specific projects that will cost over $300,000;
(13) DOD has improved the detailed budget information provided to
Congress by identifying recurring and nonrecurring compliance costs by
appropriation; and (14) however, information provided to Congress in
this report does not identify proposed construction and repair projects
costing over $300,000 and their funding sources.

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

 REPORTNUM:  NSIAD-98-33
     TITLE:  Environmental Compliance: Reporting on DOD Military 
             Construction and Repair Projects Can Be Improved
      DATE:  12/08/97
   SUBJECT:  Military appropriations
             Congressional oversight
             Construction costs
             Reporting requirements
             Construction (process)
             Military budgets
             Environmental policies
             Repair costs
             Agency reports

             
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Cover
================================================================ COVER


Report to Congressional Committees

December 1997

ENVIRONMENTAL COMPLIANCE -
REPORTING ON DOD MILITARY
CONSTRUCTION AND REPAIR PROJECTS
CAN BE IMPROVED

GAO/NSIAD-98-33

Military Construction and Repair

(709273)


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

  DLA - Defense Logistics Agency
  DOD - Department of Defense
  EPA - Environmental Protection Agency
  OMB - Office of Management and Budget
  OSD - Office of the Secretary of Defense

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


B-277673

December 8, 1997

The Honorable Conrad Burns
Chairman
The Honorable Patty Murray
Ranking Minority Member
Subcommittee on Military Construction
Committee on Appropriations
United States Senate

The Honorable James M.  Inhofe
Chairman
The Honorable Charles S.  Robb
Ranking Minority Member
Subcommittee on Readiness
Committee on Armed Services
United States Senate

The Department of Defense (DOD) budgeted over $700 million for
environmental compliance construction and repair projects to comply
with environmental laws during fiscal years 1996-97.  Of the total,
$274 million was funded by military construction appropriations and
most of the remainder by operation and maintenance appropriations. 
The Senate Report on the 1997 Military Construction Appropriation Act
(Report 104-287, June 20, 1996) required us to review and make
recommendations on DOD's processes for programming environmental
compliance construction projects and estimating future funding
requirements and costs.  As agreed with your offices, this report
addresses environmental compliance projects funded as construction or
repair and (1) identifies DOD's criteria for determining which
appropriation account is used for programming funds, (2) describes
the process for programming funds, and (3) discusses reporting on
future funding requirements. 


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

DOD undertakes environmental compliance construction and repair
projects to meet the requirements of environmental laws and
regulations that protect water, air, and ground quality. 
Environmental compliance projects include constructing and repairing
facilities such as wastewater treatment plants, underground storage
tanks, and sanitary landfills.  Military installations use defense
programming guidance and applicable laws and regulations to determine
initially whether a project is construction or repair and to identify
the appropriate funding source.\1

The activities that make up the programming process include
identifying operations, equipment, and facilities that are or will be
out of compliance; verifying environmental compliance requirements;
prioritizing requirements; and budgeting funds.  As part of the
programming process, DOD installations are responsible for
identifying, classifying, and prioritizing projects and submitting
budget requests to higher commands for verification and approval. 
Environmental compliance construction and repair projects compete
with other projects for funding within the applicable accounts. 

Of the fiscal year 1998 estimate of $266.4 million for environmental
compliance construction and repair projects, DOD estimates that
$162.8 million would be funded from defense components' operation and
maintenance accounts, and that $103.6 million would be funded from
military construction appropriations.\2

DOD's Environmental Quality Annual Report to Congress is a principal
source of information about the proposed expenditures for compliance
construction and repair projects.\3 The report is to include status
in carrying out environmental compliance activities at defense
installations and provide information on such things as current and
projected funding levels to comply with applicable environmental
laws. 

We have previously reported on environmental compliance.  We
concluded that DOD could not adequately determine its environmental
compliance construction needs and project priorities, and that
reporting of compliance activities could be improved.\4 We
recommended that DOD develop guidance to assist the defense
components in consistently classifying projects.  Although DOD
disagreed with our recommendation, it took action to improve
compliance reports.  It subsequently made some minor modifications to
its classification system and issued other guidance.  Our current
review focuses on DOD actions since those reports. 


--------------------
\1 DOD's directive on the planning, programming, and budgeting system
(DOD Directive 7045.14) states that, in the programming phase,
defense components are to develop proposed programs that reflect
objectives to be achieved, methods for accomplishing them, and
effective allocation of resources. 

\2 Funds for environmental compliance construction account for $103.6
million of the overall $9.2 billion fiscal year 1998 military
construction estimate.  The $103.6 million for environmental
construction does not include funds for base realignment and closure
activities. 

\3 According to DOD, this annual report to Congress on environmental
compliance activities was developed in response to the provisions of
10 U.S.C.  2706(b) and Executive Order 12856, Federal Compliance with
Right-to-Know Laws and Pollution Prevention Requirements.  DOD
environmental budget exhibits provide additional information about
proposed expenditures for compliance construction projects. 

\4 Environmental Compliance:  Guidance Needed in Programming Defense
Construction Projects (GAO/NSIAD-94-22, Nov.  26, 1993);
Environmental Protection:  Status of Defense Initiatives for Cleanup,
Technology, and Compliance (GAO/NSIAD-97-126, May 29, 1997); and
Environmental Compliance:  Continued Need for Guidance in Programming
Defense Construction Projects (GAO/NSIAD-96-134, June 21, 1996). 


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

The basis for determining which funding source should be used for
funding environmental compliance construction and repair projects is
set forth in laws and regulations.  The law requires military
construction appropriations to be used for all construction projects
costing over $500,000.\5 The law defines construction as the creation
of complete and usable new facilities or complete and usable
improvements to existing facilities on military installations.  In
general, operation and maintenance appropriations are available to
fund construction projects costing less than $500,000 and repairs of
any value.  Other appropriations such as research, development, test,
and evaluation, may also be used in appropriate circumstances. 

The programming process for environmental compliance construction or
repair activities varies according to the project funding source. 
Under the process, the level of project justification detail that DOD
provides to Congress is greater for military construction projects
than for projects funded under other appropriations.  In general, any
military construction project, including environmental compliance
projects, is programmed, reviewed, budgeted, and funded individually. 
Projects to be funded from operation and maintenance appropriations
are rolled up into a single amount for budgeting and funding
purposes.  The law permits some smaller value military construction
projects to be carried out as unspecified minor construction.  These
are budgeted as a single amount. 

Since our prior reports, DOD has made some improvements to its annual
compliance reporting by identifying specific projects that will cost
over $300,000.  Also, it has improved the detailed budget information
provided to Congress by identifying recurring and nonrecurring
compliance costs by appropriation.  However, information provided to
Congress in this report does not identify proposed construction and
repair projects costing over $300,000 and their funding sources. 


--------------------
\5 The requirements for military construction are set out in the
Military Construction Codification Act (10 U.S.C.  2801-2813). 


   JUSTIFICATION FOR FUNDING
------------------------------------------------------------ Letter :3

The requirements for military construction are set out in the
Military Construction Codification Act (10 U.S.C.  2801-2813).  The
act defines military construction as projects that result in the
creation of complete and usable new facilities or complete and usable
improvements to existing facilities on military installations. 
Military construction projects must be specifically authorized by
law.  Specific authorization means that each project is requested and
justified individually to the authorization and appropriation
committees.  When approved, the amounts authorized for various
locations are listed in the authorization act, and each project is
identified by name, location, and amount in the committee reports on
the military construction appropriations act. 

The statute requires military construction projects costing over
$500,000 to be funded by the 5-year military construction
appropriation.  Projects costing less than $500,000 may be funded
from other appropriations, such as operation and maintenance.\6 The
statute also allows construction costing less than $1.5 million to be
carried out as unspecified minor construction, which is funded as a
single amount rather than by individual project.  Of the total $9.2
billion fiscal year 1998 budget proposal, DOD plans to spend $26.1
million for unspecified minor construction.  According to officials
in the Office of the Under Secretary of Defense (Comptroller), DOD
uses this authority only to execute projects that are not identified
early enough to have been specifically authorized.  The dollar
ceiling for unspecified minor construction can go up to $3 million if
the project is needed to correct deficiencies that threaten life,
health, or safety. 

Environmental compliance projects also include facility repairs,
which, according to DOD, are to be done to maintain real property
facilities, systems, and components, or restore them to a usable
condition.\7 Repairs of any value may be properly funded from 1-year
operation and maintenance appropriations, but in the past some
repairs have been specifically authorized by law to be funded from
military construction appropriations.  The law requires that
operation and maintenance funded repairs over $5 million be
authorized in advance by the Secretary concerned.  The National
Defense Authorization Act for Fiscal Year 1998 will also require DOD
to notify Congress when repair projects costing over $10 million are
to be conducted.  Table 1 shows appropriations that are used to fund
construction and repairs, including environmental compliance
projects. 



                                Table 1
                
                 Appropriations by Project Type Used to
                 Fund Military Construction and Repair
                                Projects

                                            Project Type
                              ----------------------------------------
                              Construction  Construction
                              greater than     less than    Repairs of
Appropriation                     $500,000      $500,000     any value
----------------------------  ------------  ------------  ------------
Military construction                x\a,b             x
Operation and maintenance               \b             x           x\c
Research, development, test,            \d           x\e
 and evaluation
Procurement                             \d           x\f
Family housing                           x             x             x
Working capital fund                                 x\g           x\g
----------------------------------------------------------------------
\a Military construction projects costing more than $500,000 must be
funded with military construction appropriations.  Also, any
construction costing less than $1.5 million can be carried out as
unspecified minor construction. 

\b Projects needed to correct deficiencies that threaten life,
health, or safety may be funded in alternative ways.  Projects
costing up to $3 million may be funded as unspecified minor
construction in a single amount by service, rather than by individual
project.  Alternatively, projects costing up to $1 million may be
funded with operation and maintenance appropriations. 

\c Repairs over $5 million must be authorized in advance by the
service secretary concerned. 

\d Efforts to execute construction costing more than $500,000 with
research, development, test, and evaluation or procurement funds
normally require congressional notification. 

\e Research, development, test, and evaluation appropriations may be
used to fund projects costing less than $500,000 at government-owned
installations that support research efforts, and to fund construction
that supports unique research-related items at facilities that are
contractor operated and maintained. 

\f Procurement appropriations may be used to fund projects at
government-owned, contractor-operated facilities when located on a
military installation, on government land other than a military
installation, or at an ammunition plant. 

\g The working capital fund may be used for construction in support
of environmental compliance at arsenals, plants, and depots. 


--------------------
\6 In addition, contractors that operate government-owned facilities
use procurement funds for environmental compliance construction and
repair projects costing less than $500,000.  Research, development,
test, and evaluation funds may also be used for construction costing
less than $500,000 for environmental compliance projects required in
connection with research activities. 

\7 These criteria are stated in a July 2, 1997, memorandum defining
repair and maintenance projects by the DOD Deputy Comptroller for
Program and Budget. 


   PROGRAMMING PROCESS VARIES
   DEPENDING ON PROJECT FUNDING
------------------------------------------------------------ Letter :4

The programming process for any construction or repair project varies
according to the project funding source.  Environmental compliance
projects are funded from the military construction or operation and
maintenance appropriations, depending on the project's character
(construction or repair) and cost.  Military installations use
defense programming guidance and applicable laws and regulations, to
initially determine whether a project is construction or repair and
identify the appropriate funding source. 


      PROJECTS FUNDED UNDER THE
      MILITARY CONSTRUCTION
      APPROPRIATION REQUIRE
      DETAILED JUSTIFICATIONS
---------------------------------------------------------- Letter :4.1

The process for identifying construction needs and obtaining military
construction funds through project completion requires about 5 years. 
Because the law requires military construction projects to be
specifically authorized, the services and DOD review each compliance
construction project to be funded with 5-year military construction
appropriations and request individual project funding approval from
Congress. 

Using defense programming guidance and applicable laws and
regulations, the services' headquarters offices are to review all
proposed military construction projects through a dual-track process
to confirm requirements and assess technical feasibility.  The
offices review the regulatory requirements to confirm their
environmental purpose.  At the same time, support agencies with
engineering expertise, such as the Air Force Civil Engineer Support
Agency, the Army Corps of Engineers, and the Naval Facility
Engineering Command review the technical aspects of proposed projects
to determine their feasibility.  After the requirements and technical
reviews have been completed, the services prioritize the proposed
projects to determine which ones will be contained in the budget
request. 

After the services have completed their review and prioritization
processes, they submit their compliance construction budgets to the
Office of the Deputy Under Secretary of Defense (Comptroller) for
review.  This office, in conjunction with other Office of the
Secretary of Defense (OSD) offices such as the Office of the Under
Secretary of Defense for Environmental Security, reviews proposed
construction projects to confirm and adjust requirements as
necessary.  The Comptroller issues program budget decisions to the
services, transmitting the Deputy Defense Secretary's decision on
each project.  Once OSD has approved the projects, it submits a
listing of approved projects to the Office of Management and Budget
(OMB), which approves and submits the final construction project
budgets, including compliance projects, to Congress as part of DOD's
overall budget request.  Figure 1 illustrates the military
construction project approval and funding process, which each
military service and defense agency conducts separately. 

   Figure 1:  DOD Process for
   Programming and Funding
   Environmental Compliance
   Military Construction Projects

   (See figure in printed
   edition.)

Note:  Major commands include organizations such as the Army Training
and Doctrine Command, Air Force Air Combat Command, and Naval Air
Systems Command.  Navy claimants include organizations such as the
Naval Air Warfare Center.  Major commands, claimants, service
headquarters, and OSD eliminate projects and adjust funding levels at
the project level. 

Source:  Our analysis of service and DOD data. 

For fiscal year 1998, DOD requested $103.6 million for the
construction of 24 environmental compliance projects to be funded
with military construction appropriations.  The Air Force requested
funding for
18 projects with military construction appropriations, whereas the
Army and the Navy requested funding for 2 and 3 environmental
compliance projects, respectively.  The Defense Logistics Agency
(DLA) requested funding for four similar projects to be constructed
at four separate locations under one common authorization. 

Table 2 shows the environmental compliance construction projects that
DOD requested for fiscal year 1998.  Five of the 24 projects are
wastewater treatment/disposal facilities and sewer systems, 4 are
corrosion control projects, and 2 are vehicle wash facility projects. 
The remaining projects include tank trail erosion mitigation, oily
waste treatment, and small arms range remediation. 



                                     Table 2
                     
                      DOD's Fiscal Year 1998 Budget Request
                      for Environmental Compliance Military
                              Construction Projects

                              (Dollars in thousands)

Project                    Component     Base                               Cost
-------------------------  ------------  -------------------------  ------------
Central vehicle wash       Army          Fort A.P. Hill, VA               $5,400
facility

Tank trail erosion         Army          Fort Lewis, WA                    2,000
mitigation

Emergency spill control    Navy          Camp Pendleton, CA                2,800

Oily waste collection      Navy          Portsmouth Naval                  9,500
system                                   Shipyard, VA

Oily waste collection      Navy          Pearl Harbor Naval               25,000
treatment system                         Station, HI

Water treatment plant      Air Force     Lajes Field, Portugal             4,800

Remediate small arms       Air Force     MacDill Air Force Base,           1,500
range                                    FL

Wastewater disposal        Air Force     Aviano Air Base, Italy            7,900
system

Wastewater treatment       Air Force     Arnold Engineering               10,800
facilities                               Development Center, TN

Upgrade wastewater         Air Force     Edwards Air Force Base,           1,500
treatment plant                          CA

Add/alter sewer liner      Air Force     Edwards Air Force Base,           1,400
                                         CA

Corrosion control          Air Force     Minneapolis/St Paul               1,600
facility                                 International Airport,
                                         MN\a

Fire training facility     Air Force     Westover Air Force Base,          1,800
                                         MA

Alter fuel cell/           Air Force     Charlotte Municipal               2,500
corrosion control                        Airport, NC\a
facility

Regional firemen training  Air Force     Gulfport International              900
facility                                 Airport, MS\a

Vehicle refueling shop     Air Force     Klamath Falls                       500
and paint bay                            International Airport,
                                         OR\a

Add/alter fuel cell and    Air Force     McEntire, SC                      1,500
corrosion

Vehicle wash facility      Air Force     Minneapolis/St. Paul                400
                                         International Airport,
                                         MN\a

Add/alter corrosion        Air Force     Quonset State Airport,              300
control facility                         RI\a

Add/alter vehicle washing  Air Force     Salt Lake City                      500
and corrosion control                    International Airport,
facility                                 UT\a

Fuel cell and corrosion    Air Force     Schenectady Air National          5,700
control facility                         Guard, NY

Upgrade petroleum oil      Air Force     Indian Mountain, AK               2,000
lubricant system

Fire training facility     Air Force     Kunsan Air Base, Korea            2,000

Conforming storage (for    DLA           \c                               11,300
hazardous materials)\b

================================================================================
Total                                                                   $103,600
--------------------------------------------------------------------------------
Source:  Office of the Deputy Under Secretary of Defense for
Environmental Security. 

\a Air Force Reserve and/or Air National Guard locations. 

\b Conforming storage facilities are built to conform to legal
standards for the storage of certain hazardous materials. 

\c The conforming storage project at DLA involves construction at the
following locations:  Anchorage, Alaska ($5 million); Cherry Point,
North Carolina ($2.1 million); Camp LeJeune, North Carolina ($1.3
million); and Oklahoma City, Oklahoma ($2.9 million). 

The military construction budget requests for environmental
compliance construction projects do not directly compete with
operation and maintenance budget requests.  However, service
officials told us that the increased competition for military
construction funds in recent years and reduced military construction
budgets, have made it more difficult to fund all the projects they
would wish to.  As a result, there is considerable uncertainty
whether a project will be approved.  The availability of military
construction funds has decreased over the years, with a slight
increase in the fiscal year 1998 request.  Table 3 shows the
environmental compliance portion of the military construction budget
for the defense components' environmental compliance requirements for
fiscal years 1996-98. 



                                Table 3
                
                Defense Components' Fiscal Year 1996-98
                   Military Construction Budgets for
                        Environmental Compliance

                         (Dollars in thousands)

                                                           Fiscal year
                           Fiscal year     Fiscal year     1998 budget
Defense components         1996 budget     1997 budget         request
----------------------  --------------  --------------  --------------
Army                           $21,200          $2,000          $7,400
Navy                           115,320          33,910          37,304
Air Force                       92,776          53,291          47,566
DLA                                  0               0          11,275
======================================================================
Total                         $229,296         $89,201        $103,581
----------------------------------------------------------------------

      PROJECTS FUNDED UNDER
      OPERATION AND MAINTENANCE
      APPROPRIATIONS
---------------------------------------------------------- Letter :4.2

Service installation commanders have discretionary approval authority
to budget and obligate operation and maintenance funds.  Thus, the
review and approval process for construction and repair projects
funded with operation and maintenance appropriations is often much
faster than the comparable 5-year military construction approval
process.  Projects funded with the operation and maintenance
appropriation can generally be approved and funded in 1 to 2 years
because many of the projects can be approved at the installation or
command level.  Projects are individually reviewed and approved by
major commands without being subject to the detailed headquarters
review required for construction projects funded with the military
construction appropriations.  However, projects costing over $500,000
must be separately identified in budget exhibits and are subject to
OMB review.\8

Service headquarters offices review only selected samples of projects
to confirm requirements.  OSD reviews total requests to confirm and
adjust overall requirements within a specified funding range.\9
Congress reviews and approves environmental compliance operation and
maintenance funding as part of its overall process for reviewing and
approving the defense components' operation and maintenance request. 
Figure 2 illustrates the operation and maintenance review and
approval process.  In that context, the only information that is
reviewed above the major command level is the (1) total dollar amount
each component is requesting for environmental compliance projects to
be funded from the operation and maintenance appropriation and (2)
Environmental Quality Annual Report to Congress list of projects over
$300,000. 

According to OSD and service officials, budgeting to fund projects
from operation and maintenance appropriations does not guarantee that
projects will be accomplished even if the request is approved and
funds are appropriated.  This is because installation commanders have
the authority to use operation and maintenance funds to meet their
day-to-day requirements.  Consequently, this is one reason that, in
the past, military construction funds were requested for large repair
projects. 

   Figure 2:  Operation and
   Maintenance Programming and
   Funding Process

   (See figure in printed
   edition.)

Source:  Our analysis of DOD data. 

Requirements data are submitted and tracked through a separate
compliance tracking system used to prepare information for the
Environmental Protection Agency (EPA), which is responsible for
monitoring federal environmental protection programs, including
compliance.  In commenting on a draft of this report, DOD noted that
the requirements data tracking system is not the DOD budget system
through which funding decisions are made.  Program funding is tracked
separately, and budgets are submitted through the Office of the
Comptroller.  Major commands, claimants, service headquarters, and
OSD adjust requirements within available funds. 

Construction projects costing less than $500,000, or repairs of any
value, may be funded with operation and maintenance appropriations. 
For purposes of developing budget requests, the project estimates are
totaled and shown as a single amount in the operation and maintenance
request.\10 Major commands may delegate approval authority to
installation commanders to use operation and maintenance funds for
environmental compliance construction and repair projects.  However,
requests for repair projects estimated to cost more than $5 million
must be individually approved in advance by the service secretary or,
in the case of defense agencies, the Secretary of Defense.  Section
2802 of the National Defense Authorization Act for fiscal year 1998
will require DOD to notify Congress of repair projects costing over
$10 million.\11

Table 4 shows estimates of the services' operation and maintenance
budgets for construction and repair projects for fiscal years
1996-98. 



                                Table 4
                
                Services' Fiscal Year 1996-98 Operation
                      and Maintenance Budgets for
                 Environmental Compliance Construction
                               and Repair

                         (Dollars in thousands)

                           Fiscal year     Fiscal year     Fiscal year
Service                    1996 budget     1997 budget    1998 request
----------------------  --------------  --------------  --------------
Army                           $81,778         $71,760         $45,764
Navy                           134,101          94,329          59,763
Air Force                       26,575          24,955          57,290
======================================================================
Total                         $242,454        $191,044        $162,817
----------------------------------------------------------------------
Note:  Most of DLA's construction and repair projects are funded with
military construction funds or its working capital fund. 

Source:  Defense components. 

The largest single project category among the services, according to
funds requested and budget justification material, is for sewer and
wastewater treatment projects.  For fiscal years 1996 and 1997, on
average, the Air Force and the Navy planned to spend about 40 percent
of their operation and maintenance environmental compliance
construction-related funds for sewer and wastewater projects.  The
remaining funds were to be spent on storage tank removal, repair and
remediation, and on air quality and other projects.  The Army planned
to spend about 18 percent of its requested funds on sewer and
wastewater treatment projects, with most of its planned expenditures
for storage tank removal, repair and remediation.  The remaining
funds were to be spent on air quality and other projects.\12

Officials from the Office of the Under Deputy Secretary of Defense
(Comptroller) recently advised us that, beginning with the fiscal
year 1999 budget, all projects meeting the definition for repair will
be funded from operation and maintenance appropriations.  In the
past, the defense components sometimes requested specific
authorization of military construction appropriation funds for major
repair projects such as landfill closures and wastewater treatment
facility upgrades.  For example, for fiscal year 1996, the Air Force
requested and received specific authorization for $7.5 million in
military construction funding for landfill closure projects at Beale
Air Force Base, California.  The Air Force plans to spend $5.6
million in fiscal year 1998 operation and maintenance funds for a
landfill closure project at Holloman Air Force Base, New Mexico. 

Figure 3 shows the landfill repair at Holloman Air Force Base. 

   Figure 3:  Fiscal Year 1997
   Environmental Compliance
   Landfill Repair Project at
   Holloman Air Force Base, New
   Mexico

   (See figure in printed
   edition.)

   Note:  Construction debris is
   on top of the landfill.

   (See figure in printed
   edition.)


--------------------
\8 In commenting on a draft of this report, DOD stated that volume 2
of the Financial Management Regulation, chapter 8, requires projects
costing over $500,000, funded with operation and maintenance
appropriations, to be identified in Budget Exhibit OP27P.  This
exhibit, which is included with the President's Budget Submission, is
required for all real property maintenance projects, including
environmental compliance projects. 

\9 Although budget requests are not reviewed in detail, OSD and
service officials told us that they monitor obligation of operation
and maintenance funds closely to ensure that funds requested for
environmental compliance projects are used for those purposes. 

\10 Operation and maintenance funding also may be used for
construction projects costing up to $1 million if the project is to
correct a deficiency that threatens life, health, or safety. 

\11 P.L.  105-85, section 2802. 

\12 We did not confirm whether the funds were spent for their
intended purpose. 


   REPORTING OF FUTURE
   REQUIREMENTS ESTIMATES
------------------------------------------------------------ Letter :5

While DOD has made some improvements to its annual compliance
reporting in its annual report and supporting budget documents, the
information provided is still insufficient for oversight purposes. 
Recent congressional committee reports have raised specific areas of
concern related to (1) expenditures for environmental compliance
activities, the standardization of such data, and the tracking of
funding and (2) DOD's definitions of compliance classes. 


      DOD INITIATIVES TO IMPROVE
      COMPLIANCE REPORTING
---------------------------------------------------------- Letter :5.1

Our May 1997 report on cleanup, technology, and compliance addressed
DOD initiatives to improve compliance reporting and provide Congress
with more informative data.  In 1995, DOD began an effort to achieve
consistency in compliance definitions, categories, and requirements. 
It planned to identify goals, strategies, budget items, and measures
of performance for compliance and other environmental areas. 
Accordingly, for the fiscal
year 1998 budget planning process, DOD's Office of the Under
Secretary of Defense for Environmental Security established new
policies and goals for classifying compliance projects and obtaining
needed compliance data.  For the fiscal year 1999 budget planning
process, DOD officials added explanatory footnotes to programming
preparation instructions.  DOD also included, as part of its fiscal
year 1998 budget submission, additional information by appropriation
on recurring and nonrecurring costs for the environmental quality
areas of compliance, pollution prevention, and conservation.  Actual
costs, obligations, and future year estimates are included as part of
this backup budget documentation. 

In its fiscal year 1995 Environmental Quality Annual Report to
Congress, DOD started including estimates of individual future
compliance projects.  For projects estimated to cost over $300,000,
DOD provided cost data on planned compliance projects for defense
component installations.  However, the report did not identify the
funding source of these activities or clearly indicate whether the
project was for construction or repair.  Although officials indicated
their intent to include more detail in future reports, officials from
the Office of the Deputy Under Secretary of Defense for Environmental
Security believed, as of May 1997, that they could not include
project detail on funding and environmental area such as compliance
or pollution prevention, because they believed the services' data
were not consistent and could not be standardized.  Since that time,
officials stated that the data has improved and that they are working
toward reporting project funding sources and environmental area for
all defense components except the Navy, which had not provided DOD
with the environmental information it needs. 


      ADDITIONAL COMPLIANCE DATA
      AVAILABLE FOR REPORTING
---------------------------------------------------------- Letter :5.2

The House National Security Committee report on the Defense
Authorization Act for Fiscal Year 1998 (Report 105-132, June 16,
1997) stated concerns about expenditures for environmental compliance
activities and directed DOD to develop standardized data on such
things as contracts, projects, and installations to permit the
tracking of compliance funding from budget request to expenditure. 

The defense components are already collecting data on some of the
information discussed in the House report.  Although these data do
not include expenditures, they include other useful information, such
as funding source, classification priority, and estimated cost.\13
Since 1978, heads of federal agencies have been responsible for
reporting on the status of their efforts to prevent, control, and
abate environmental pollution at their facilities.\14 The agencies
report on these efforts to OMB through EPA. 

DOD has required the services to provide standardized data for
reporting to EPA, and EPA has stated that it has provided formats for
consistent reporting to DOD and the services.  In most cases, data
already available from service installations could be extracted from
the information required for EPA reporting and incorporated into
DOD's annual environmental quality report.  Table 5 illustrates that
some of the needed data have already been gathered by DOD and the
services for EPA reporting.  However, these projects may not be
included in the fiscal year 1997 President's budget. 



                                     Table 5
                     
                       Examples of Fiscal Year 1997 Service
                              Data Prepared for EPA

                              (Dollars in thousands)

                    Appropriatio                  Law or                Estimate
Service             n             Project         regulation  Priority    d cost
------------------  ------------  --------------  ----------  --------  --------
Air Force           O&M           Removal/        RCRA               2    $2,000
                                  replacement of
                                  tanks

Army                RDT&E         Removal/        RCRA               2       400
                                  replacement of
                                  tanks

Navy                DBOF          Removal/        \a                \a       750
                                  replacement of
                                  tanks

Air Force           MILCON        Removal/        RCRA               2     3,940
                                  replacement of
                                  tanks

Air Force           MILCON        Closure         RCRA               1     6,735
                                  construction
                                  of landfill

Air Force           O&M           Closure/        RCRA               1       350
                                  cleanup
                                  landfill

Army                O&M           Soil erosion    NATR               3       600
                                  program
--------------------------------------------------------------------------------
Note:  O&M, operation and maintenance; RCRA, Resource Conservation
and Recovery Act; RDT&E, research, development, test, and evaluation;
DBOF, Defense Business Operating Fund (now the Working Capital Fund);
MILCON, military construction; NATR, Natural Resources Laws. 

\a Data were not provided. 

Source:  Service data prepared for EPA. 

EPA established a system for reporting compliance classes to assist
federal agencies in establishing the relative importance of their
projects and activities.  We also reported in May 1997 that DOD had
expanded the number of projects that qualify for funding under
compliance class I without distinguishing among different project
types.  Although EPA explicitly limits class I to facilities
currently out of compliance, as documented by notices of violation or
consent agreements, DOD's definition added projects to address
requirements in facilities that will not yet be out of compliance for
2 or more years.  DOD's descriptions also indicated that items that
EPA includes in class III (such as inventories, surveys, studies, and
assessments) could also be routinely funded as
class I projects. 

We recommended that DOD reconsider changes in compliance class
definitions so that the data permit better oversight and are more
consistent with governmentwide reporting to EPA.  DOD made minor
adjustments to its classification system by expanding its class I
standard to include components that will be out of compliance if
funds are not provided during the year requested, but the changes are
not sufficient to address our concerns.  There is still potential for
overlap when defining the different project types.  For example,
under EPA's definition, a class I project is currently out of
compliance.  Under DOD's definition, a project could be classified as
class I even if it is not out of compliance for 2 or more years. 

In commenting on a draft of this report, DOD noted that it may need
to make future minor adjustments to its class I and II definitions,
but that major changes are currently unnecessary.  If such
adjustments are similar to those made previously, the changes will
not be sufficient to address our concerns.  DOD stated that it
believes the EPA classification system, upon which DOD's class
definitions are based, is not sufficient to support budget
development or long-range financial planning.  As we have stated in
our previously cited June 1996 and May 1997 reports, the focus of our
concern is on DOD's ability to prioritize its requirements in a
meaningful way.  We reported that classification categories could
dilute the highest priority category by increasing the number of
highest priority projects, and thus significantly reduce management
oversight, and that we have been monitoring DOD's implementation of
revised definitions for multiple requesters. 

The Senate Armed Services Committee report on the Defense
Authorization Act for Fiscal Year 1998 (Report 105-29, June 17, 1997)
stated concerns regarding DOD's definitions of environmental
compliance classes.  The report noted that DOD's class I and class II
definitions overlap and may lead to confusion regarding funding
priorities.  The Committee directed DOD to clarify the class I and II
definitions and to eliminate the overlap.  We also reported that
data, such as those called for by the Senate report are available
because the services still distinguish between compliance classes I,
II, and III. 


--------------------
\13 Except for military construction-funded projects, DOD does not
track individual project expenditures. 

\14 Executive Order 12088, October 1978. 


   CONCLUSIONS AND RECOMMENDATION
------------------------------------------------------------ Letter :6

DOD's criteria for determining which appropriation account should be
used to fund construction and repair projects is set forth in laws
and regulations.  The law requires military construction
appropriations to be used for all military construction projects
costing over $500,000.  Operation and maintenance appropriations are
available to fund construction projects costing less than $500,000
and repairs of any value.  The process for programming funds for
environmental compliance construction or repair activities varies
according to the project funding source.  Under the process, the
level of project justification detail that DOD provides to Congress
is greater for military construction projects than for projects
funded under other appropriations.  Military installations use
defense programming guidance and applicable laws and regulations, to
initially determine whether a project is construction or repair and
identify the appropriate funding source. 

DOD has taken some actions on our previous recommendations to provide
better oversight of environmental compliance construction and repair
projects by modifying its classification system and providing
additional summary data in budget support documents.  However, both
the House and Senate reports of the fiscal year 1998 authorizing
committees expressed concerns about DOD environmental compliance data
and directed DOD action.  Since the Senate Armed Services Committee
has directed DOD to clarify compliance class definitions, we are not
making recommendations regarding compliance classes at this time. 
However, we will continue to monitor DOD's actions in this area. 

Although DOD disagreed with our prior recommendation to provide
better guidance for reporting costs in its annual report to Congress,
it has made minor improvements to guidance and taken initial steps to
improve reporting by obtaining data on compliance projects over
$300,000.  However, we believe reporting could be further improved by
identifying projects as construction or repair and indicating the
funding sources for them.  Thus, to improve the specificity of its
reporting, we recommend that the Secretary of Defense direct the
Deputy Under Secretary of Defense for Environmental Security to
revise the DOD annual report to Congress to (1) identify all proposed
construction and repair projects over $300,000 for all services and
(2) include the funding sources for them. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :7

DOD provided written comments on a draft of this report.  DOD agreed
with our recommendation.  It stated that its fiscal year 1996 annual
report to Congress will identify appropriation, environmental pillar
(such as compliance or pollution prevention), legal requirement, and
environmental class for each project estimated to cost over $300,000. 
DOD officials expect this report to be published in December 1997. 

DOD also provided technical comments, which we have incorporated
where appropriate.  DOD's comments are reprinted in their entirety in
appendix II, along with our comment on a specific point. 


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

To obtain information on DOD's criteria for determining which
appropriation account is used for programming funds, we obtained,
reviewed, and analyzed applicable laws and regulations and held
discussions with officials from the Office of the Comptroller, Office
of the Under Secretary of Defense for Environmental Security, and in
headquarters and field offices of the Army, the Navy, the Air Force,
the Marine Corps, and DLA. 

To obtain information on DOD's and the military services' processes
for programming funds, we reviewed pertinent laws, regulations,
policy statements, and other documents.  However, we did not assess
the extent to which projects complied with applicable laws and
regulations.  We obtained additional information on the processes
through discussions with OSD and service officials.  We used
information that we previously reported in November 1993 and June
1996.  We selectively verified data for specific projects, but did
not verify overall database accuracy.  However, we have issued a
series of reports over the past few years documenting deficiencies in
the Department's ability to reliably account for and report on its
expenditures.\15

To address reporting on future funding requirements, we reviewed and
analyzed DOD budget reports, submissions, and expenditure data for
fiscal years 1995 through 1998. 

We documented examples of construction and repair projects costing
over $300,000 that were funded with military construction and
operation and maintenance funds to illustrate the difficulty of
reporting and projecting future requirements.  We relied on the
accuracy of DOD and service data in conducting our analysis and
selectively verified data in certain reports.  We drew upon
information we reported in May and June 1997 on DOD's reporting of
compliance projects.  We held discussions with and obtained
information from officials in the Office of the Under Secretary of
Defense for Environmental Security and in headquarters and field
offices of the Army, the Navy, the Air Force, the Marine Corps, and
DLA. 

We visited and obtained information on DOD's programming and
requirements reporting processes at the following military
installations and major commands:  Commander in Chief, Pacific
Forces, Hawaii; Commander in Chief, Atlantic Fleet, Virginia;
Commander in Chief, Pacific Fleet, Hawaii; Naval Facilities
Engineering Command, Atlantic Division, Virginia; Naval Facilities
Engineering Command, Pacific Division, Hawaii; Marine Forces Pacific,
Hawaii; Air Combat Command, Virginia; Pacific Air Forces, Hawaii;
Holloman Air Force Base, New Mexico; Marine Corps Base, Camp
Pendleton, California; Army National Training Center, Fort Irwin,
California; Army Training and Doctrine Command, Virginia; Army Forces
Command, Georgia; and Army Pacific Command, Hawaii.  We discussed
environmental compliance issues with officials in EPA Region IX and
with officials of the State of Hawaii's Environmental Management
Office. 

We conducted our review between September 1996 and July 1997 in
accordance with generally accepted government auditing standards. 


--------------------
\15 In DOD Problem Disbursements (GAO/AIMD-97-36R, Feb.  20, 1997),
we identified significant errors in DOD expenditure reports. 


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

Unless you publicly announce its contents earlier, we plan no further
distribution of this report until 30 days from its issue date.  At
that time, we will send copies to appropriate congressional
committees; the Secretaries of Defense, the Army, the Navy, and the
Air Force; the Commandant, Marine Corps; the Director, Defense
Logistics Agency; the Environmental Protection Agency; and the
Director, Office of Management and Budget.  We will also make copies
available to others on request. 

If you or your staff have any questions concerning this report,
please contact me on (202) 512-8412.  Major contributors to this
report are listed in appendix II. 

David R.  Warren, Director
Defense Management Issues




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

report text appear at the end of this appendix. 



(See figure in printed edition.)


The following is GAO's comment on the Department of Defense's (DOD)
letter dated October 31, 1997. 

GAO COMMENT

1.  As discussed on page 17 of this report, the focus of our concern
is on DOD's ability to prioritize its requirements in a meaningful
way and to improve management oversight.  We have been monitoring
DOD's implementation of revised definitions for multiple requesters. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II

NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 

Charles I.  Patton, Jr.
Uldis Adamsons
Elizabeth G.  Mead

KANSAS CITY FIELD OFFICE

James Moores
Ben Douglas
Bob Hammons
Steve Pruitt
Virgil Schroeder

OFFICE OF THE GENERAL COUNSEL

Lynn Gibson
Margaret Armen


*** End of document. ***