Defense Budget: Real Property Maintenance and Base Operations Fund
Movements (Testimony, 03/01/2000, GAO/T-NSIAD-00-101).

Pursuant to a congressional request, GAO discussed the Department of
Defense's (DOD) real property maintenance and base operations fund
movements, focusing on the: (1) movement of funds to and from real
property maintenance and base operations during fiscal years 1994
through 1999; (2) movement of unit training funds during the same period
of time; and (3) evidence indicating that unit training funds have been
moved to pay for base operations and real property maintenance.

GAO noted that: (1) from fiscal years 1994 through 1999, the services
moved $7.1 billion into real property maintenance and base operations,
bringing the total funding for these activities to $95.7 billion, or 8
percent more than the initial congressional designation of $88.6
billion; (2) the services' movement of funds into and out of unit
training varied; (3) the Navy and the Marine Corps consistently moved
funds into unit training; (4) the Army moved funds out of unit training
from fiscal year (FY) 1997 through 1999 (the only years for which
comparable Army data is available); (5) the Air Force decreased unit
training funds in 1994 and 1995 and increased funding in later years;
(6) while it is not possible to trace the origins of all funds moved
into real property maintenance and base operations and to determine the
effects of these movements on readiness, DOD reports show that at least
some of the funds that the Army and the Air Force moved into these
activities came from unit training; (7) DOD's reports to Congress on
high-priority readiness-related transfers in fiscal years 1997 and 1998
show that the Army moved $641 million from unit training to real
property maintenance and attribute these movements to increased
efficiencies in training; (8) the FY 1998 report also shows that the Air
Force moved $35 million from unit training to base operations; and (9)
DOD generally agreed with GAO's analysis and facts as presented in GAO's
latest report.

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

 REPORTNUM:  T-NSIAD-00-101
     TITLE:  Defense Budget: Real Property Maintenance and Base
	     Operations Fund Movements
      DATE:  03/01/2000
   SUBJECT:  Real property
	     Combat readiness
	     Property and supply management
	     Equipment maintenance
	     Defense appropriations
	     Defense budgets
	     Facility maintenance
	     Transfer appropriation accounts
	     Military training
	     Military bases

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Before the Subcommittee on Military Readiness, Committee on Armed Services,
House of Representatives

For Release on Delivery

Expected at

10:00 a.m.,

Wednesday

March 1, 2000

DEFENSE BUDGET

Real Property Maintenance and Base Operations Fund Movements

GAO/T-NSIAD-00-101

Mr. Chairman and Members of the Subcommittee:

It is a pleasure to be here today to discuss the findings of our work on the
Department of Defense's (DOD) funding of its infrastructure and of
activities that directly affect readiness. The National Defense
Authorization Act for Fiscal Year 2000 requires us to review the military
services' funding and management of real property maintenance and base
operations. We have just issued the first in a series of reports in response
to that mandate. Our testimony today is based on this report and stems from
congressional concerns that funds may be moving away from areas such as
training to pay for real property maintenance and base operations. The
services' principal source of funding for these functions is their operation
and maintenance (O&M) appropriations, and the services have considerable
flexibility in using O&M funds.

Today we will discuss (1) the movement of funds to and from real property
maintenance and base operations during fiscal years 1994 through 1999, (2)
the movement of unit training funds during the same period of time, and (3)
the evidence indicating that unit training funds have been moved to pay for
base operations and real property maintenance.

SUMMARY

From fiscal years 1994 through 1999, the services moved $7.1 billion dollars
into real property maintenance and base operations, bringing the total
funding for these activities to $95.7 billion, or 8 percent more than the
initial congressional designation of $88.6 billion. The services' movement
of funds into and out of unit training varied. The Navy and the Marine Corps
consistently moved funds into unit training. The Army moved funds out of
unit training from fiscal year 1997 through 1999 (the only years for which
comparable Army data is available). The Air Force decreased unit training
funds in 1994 and 1995 and increased funding in later years.

While it is not possible to trace the origins of all funds moved into real
property maintenance and base operations and to determine the effects of
these movements on readiness, DOD reports show that at least some of the
funds that the Army and the Air Force moved into these activities came from
unit training. DOD's reports to Congress on high-priority readiness-related
transfers in fiscal years 1997 and 1998 show that the Army moved $641
million from unit training to real property maintenance and attribute these
movements to increased efficiencies in training. The fiscal year 1998 report
also shows that the Air Force moved $35 million from unit training to base
operations. DOD generally agreed with our analysis and facts as presented in
our latest report.

BACKGROUND

DOD manages more real property than any other entity in the world-more than
320,000 buildings, tens of thousands of miles of roads, and 1.1 million
square yards of pavement. Appropriations for operation and maintenance (O&M)
provide money to maintain this property, largely through funding for real
property maintenance and base operations. DOD uses real property maintenance
funds to maintain and repair buildings, structures, warehouses, roadways,
runways, railway tracks, and utility plants. Base operations funding is used
for services such as utilities, base communications, snow removal, security,
and recreation. Unit training and operations funds are used to increase
units' proficiency through flying and ground operations training and provide
units with resources such as fuel, support equipment, and spare parts for
equipment to meet their mission requirements.

The services have a great deal of flexibility to move funds within the O&M
funds appropriation. Appendix I of this testimony shows the various ways
that DOD can move funds within the O&M appropriation throughout the budget
year. Our February 2000 report on O&M fund movements provides additional
details on the services' movement of funds.

The House report on the National Defense Authorization Act for Fiscal Year
1996 noted the Committee's concerns over the extent of resources provided
for training and maintenance that are moved for other uses and the effects
of such movements on readiness. DOD is required to provide detailed data on
budget movements for high-priority readiness-related subactivities (budget
accounts comprise activities, which consist of activity groups, which are
broken down into subactivities). These reports describe movements of funds
for some of the subactivities designated as high-priority by Congress and
must include the total amounts moved into and out of these subactivities and
an explanation of the reasons for the movement.

FUNDS GENERALLY MOVED INTO BASE OPERATIONS

AND REAL PROPERTY MAINTENANCE

To identify the movement of funds into and out of real property maintenance
and base operations, we compared initial congressional designations with the
services' reported obligations for fiscal years 1994 through 1999. We found
that the services' reported obligations were $7.1 billion (8 percent) more
than the initial congressional designations of $88.6 billion. Table 1 shows
the difference for each of the services.

Table 1: Net Differences Between Initial Congressional Designations and
Reported Obligations for O&M Base Operations and Real Property Maintenance
(fiscal years 1994-99)

Current dollars in millions
               Initial                     Increase over
 Service       congressional  Reported
               designationsa  obligations  congressional designations
                                                       Percent increase
 Army          $31,511.8      $34,088.0    $2,576.2    8.2
 Navyb         21,798.4       22,114.5     316.0       1.4
 Marine Corps  6,036.0        6,454.4      418.5       6.9
 Air Force     29,241.5       33,069.2     3,827.7     13.1
 Total         $88,587.7      $95,726.1    $7,138.5    8.1

Note: Amounts may not total due to rounding.

aInitial congressional designation as reported in appropriations acts'
conference reports.

bNavy officials indicated that for the fiscal year 1999 reported
obligations, not all base operations and real property maintenance funds
were accounted for in the table. This was due to the Navy restructuring
these accounts after the initial congressional designation had been made.
Some functions such as those associated with equipment maintenance for
communication antennas, which were formerly considered as base operations
and real property maintenance, are no longer accounted for under those
subactivities.

Source: Our analysis based on congressional appropriations acts conference
reports and DOD's O&M budget data.

In 1996, the services separated base operations from real property
maintenance in their budget structures. We were thus able to analyze the
changes in funding for these two functions separately from 1996 through
1999. During this period, the services' reported obligations were $2.7
billion (4.5 percent) more for base operations and real property maintenance
than the initial congressional designation of $61.2 billion. Most of this
increase (about $2 billion, or 73 percent) was for base operations
functions.

MOVEMENTS OF SERVICES'

UNIT TRAINING FUNDS VARIED

In our recent report, we analyzed the movement of funds into and out of unit
training during fiscal years 1994 through 1999 and found that these
movements varied by service. The Army (which does not have comparable data
for fiscal years 1994-96) moved funds out of training in 1997-99; the Air
Force moved funds out of training in 1994-95 but then reversed this trend
and moved funds into training in 1996-99; the Navy and the Marine Corps
consistently moved funds into training.

   * The Army obligated $1.1 billion (12 percent) less than initially
     designated for unit training in fiscal years 1997-99.
   * The Air Force obligated $400 million (3 percent) less than initially
     designated for unit training in fiscal years 1994-95, then obligated
     $2.6 billion (10 percent) more in fiscal years 1996-99.
   * The Navy and the Marine Corps obligated a total of $2.1 billion (8
     percent) more for unit training than their combined initial
     designations for fiscal years 1994-99.

The effect of these fund movements on readiness is not measurable. DOD data
on the movement of O&M funds is limited. However, we reviewed DOD's
high-priority readiness-related transfer reports for fiscal years 1997 and
1998 and found instances in which the Army and the Air Force moved unit
training funds into base operations and real property maintenance. The
reports show that the Army moved a total of $641 million from unit training
to real property maintenance and base operations and attribute the movements
of these funds to increased efficiencies in completing unit training. The
fiscal year 1998 report also shows that the Air Force moved $35 million from
training to base operations and notes that commanders increased real
property maintenance funding by about $155 million, without citing the
source of those funds.

It should be noted that these reports are limited in that they show only
fund movements and do not address the impact of these movements, other than
financial ones. In our future work we will further explore the availability
of data to help assess the impact of O&M fund movements on readiness.

In conclusion, we would like to note that we will continue to address the
remaining areas of interest cited in the 2000 Defense Authorization Act and
will try to shed more light on the relationships between readiness, quality
of life, and infrastructure funding. Mr. Chairman, this concludes our
statement. We will be happy to respond to any questions that you or the
Members of the Committee may have regarding our work.

Contact and Acknowledgments

For future contacts regarding this statement, please contact Neal Curtin on
(202) 512-5140. Individuals making key contributions to this statement
included Brenda Farrell, Janet Keller, Laura Talbott, Douglas Mills, Janine
Cantin, Janine Prybyla, and Stefano Petrucci.

HOW O&M FUNDS CAN BE MOVED

DOD has considerable flexibility in using O&M funds and can move them in
several ways. As shown in figure 1, after the initial appropriation is made,
DOD can adjust funding through

   * adjustments directed by Congress in conference reports on
     appropriations acts and
   * fact-of-life adjustments DOD believes are necessary due to changes,
     such as unplanned force structure changes, that have occurred since the
     budget was formulated.

After making these initial fund movements, DOD establishes a new "adjusted"
baseline budget. It can then move funds through

   * reprogramming actions, to move funds from one budget activity to
     another within the same account;
   * statutorily authorized transfers, to move funds from other Defense
     appropriations (such as Procurement);
   * transfers from congressionally established, centrally managed accounts
     (such as for overseas contingencies);
   * supplemental appropriations that Congress provides for additional
     expenses during the year; and
   * rescissions, through which Congress cancels appropriated funds.

Figure 1: How O&M Funds Are Moved Throughout the Fiscal Year

EMBED Word.Picture.8 aIn the conference report on the appropriations acts, conferees often direct
DOD to make changes to its budget baseline. These changes are known as
unallocated adjustments and general provisions.

Source: Our depiction, based on Defense Financial Management Regulation DOD
7000.14-R, conference reports on the appropriations acts, and interviews
with officials from the Office of the Under Secretary of Defense
(Comptroller).

(702047)

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