DOD's Budget Status: Fiscal Years 1990-94 Budget Reduction Decisions Still Pending

Published by the Government Accountability Office on 1990-02-22.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

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                                                                                                    D O D ’S BUDGET -
                                                                                                    Fis c al Years 1990-94
                                                                                                    Budget Reduc tion
                                                                                                    Dec is ions Still Pending
    llnited Stales
    General Accounting     Office
    Washington,    D.C. 20548

    National Serurity   and
    International  AHairs Division


    February       22,    1990
    The Honorable Sam Nunn
    Chairman, Committee on Armed
    United States Senate
    The Honorable Les Aspin
    Chairman, Committee    on Armed
    House of Representatives
I   The Honorable Andy Ireland
    House of Representatives
    This letter     provides     a progress    report    on the status     of the
    Department of Defense's          (DOD) Five-Year      Defense Program
    (FYDP).     As you know, Title        10 of the U.S. Code as added by
    the National      Defense Authorization        Act for Fiscal      Years 1990
    and 1991 (P.L. lOl-189-November            29, 1989) states:        "The
    Secretary    of Defense shall submit to Congress each year at or
    about    the time that the President's            budget is submitted       . . .
    the current     five year defense program . . . reflecting                the
    estimated    expenditures      and proposed appropriations          included
    in that budget."         This section    also requires      consistency      in
    the numbers reported         in the budget submission        with those
    reported    in the FYDP.
    An official      from the Office       of the Secretary        of Defense told
    us that a FYDP will not be submitted               with this year's
    budget.       However, a FYDP will be prepared             at the completion
    of this year's        budget cycle.       The official       explained    that
    major changes in the national             security     environment     have
    significantly        affected    defense planning,       program m ing,     and
    budgeting      decisions.      The fiscal     year 1991 budget submitted
    in January 1990 shows a $167 billion               reduction      from the
    budget submitted          in April   1989 for the years 1990-94.
    Decisions      have been made on where and how to make the
    reductions      planned for fiscal        year 1991, but decisions           remain
    to be made for the outyears            1992-94.      Accordingly,       a FYDP
    cannot be prepared          at this time.
    DOD  has provided    congressional      committees    and us with a
    general   summary reflecting       outyear  (1992-94)    funding levels
    for selected    programs.     However, additional       adjustments  are
    needed to prepare a FYDP that is consistent             with the outyear
    funding levels     in the President's      budget.

DOD   notes however,    that    the summary is not intended to
satisfy    the requirements       of section 114a of title 10 U.S.
As you know, we testified     in May 1989 that the 1990-94 FYDP,
submitted   in April 1989, reflected       a potential     $147 billion
shortfall   because of overly   optimistic      inflation    and funding
assumptions   and $45 billion    in unidentified        FYDP adjustments.
The President’s        fiscal     year 1991 budget, submitted          to the
Congress on January           29, 1990, shows that planned defense
spending for fiscal           years 1990-94 was reduced $167 billion
from the April        1989 budget plan, which was adjusted               for
inflation.        The $167 billion       reduction     reflects    a $51.6
billion     inflation      adjustment    and a $115.4 billion        downward
revision      in planned funding.          The funding real growth rate,
adjusted     for inflation,        was revised     from 0,1,1,2,2      percent
for fiscal       years 1990-94, respectively,            to a real decline     of
2.6% in fiscal        year 1991 and 2 percent          per year thereafter.
Appendix I shows the inflation              adjustments      and reductions    by
year.      These reductions,         combined with the need to reduce the
April    1989 FYDP by $45 billion,1            will require     a total
reduction       of $212 billion       in the 1990-94 FYDP.
To date, DOD has made reductions           totaling     about $74.1
billion    of the $212 billion.        These reductions       consist     of
$4.2 billion      in fiscal    year 1990, $22.4 billion         in the fiscal
year 19911 budget, $22.8 billion          in reductions      for fiscal
years 1992-94,      and $24.7 billion       in Defense Management Report
savings    for fiscal     years 1992-94.      Accordingly,      DOD still
needs to make reductions          of $137.9 billion      ($212 billion       -
$74.1 billion)      in spending for the outyears.            Until    these
reductions     are made, a FYDP consistent          with the President’s
budget cannot be produced.
The President’s       fiscal     year 1991 budget and supporting
documents provide        details     regarding     the fiscal   year 1990 $4.2
billion    reduction     and the fiscal        year 1991 $22.4 billion
reduction.       DOD has provided        summary information       on the
$22.8 billion       in fiscal     year 1992-94 reductions        and has also
provided     ineormation      on the $39 billion       in anticipated
savings    from DOD’s Defense Management Report (DMR)

1The $45 billion    reduction   is required    to distribute   $21.7
 billion   in planned but not taken program reductions         and
 eliminate   $23.3 billion    in unanticipated    requirements   from
 the April   1989 FYDP.

savings      from DOD's Defense Management Report (DMR)
initiatives.         DOD's goal is to save $39 billion          over the
1991-95 5-year period           ($24.7 billion   1992-94) through
management efficiencies           and other changes, which are outlined
in summary form for budget justification              purposes.      Some
details      regarding    the implementation     of these initiatives     and
the savings       they are expected to produce have been provided.
DOD officials        state that more details      will be forthcoming.
As with any new initiative,            it remains to be seen whether all
these anticipated         savings will be achieved.        (See appendix II
for more detailed         information    on DMR savings.)
We have reviewed the inflation               estimates    DOD used in
adjusting      the outyear      projections      of budget authority.         As
indicated      above, the inflation          estimates     used in the April
1989 budget and FYDP have been adjusted                  upward to more
closely     match those of the Congressional              Budget Office      (CBO)
and other economic forecasts.                This adjustment      as reflected
in the January        1990 budget submission           added $51.6 billion       to
DOD's 1990-94 budget estimate.                However, the revised
inflation      adjustments      remain slightly        lower than CBO's
current     projections      for 1992 through 1994.           We estimate     that
CBO's inflation         estimates,      if applied to the current         1990-94
defense budget, would result               in a funding shortfall       of
approximately        $3 billion     for the 5-year period.          This is a
preliminary       estimate;     a more exact estimate          can be made once
we obtain DOD's latest            spendout rate projections.           The
inflation      adjustments      used by DOD and the CBO projections              are
shown in table 1.
Table   1:    Inflation     Estimates     For   1990-94
                            1990        1991         1992        1993         1994
Administration               4.1          4.2         3.9          3.6         3.3
CBO                          4.0          4.0         4.0          4.0         4.0
We are sending copies of this report         to the Chairmen, House
and Senate Committees on Appropriations,          Chairmen, House and
Senate Budget Committees,        the Senate Committee on
Governmental     Affairs,  the House Committee on Government
Operations     and the Secretary    of Defense.    Copies will be made
available    to other interested     parties   upon request.

This report      was prepared   under the direction      of Paul F.
tiath, Director,      Research,  Development,   Acquisition,    and
Procurement      Issues,  who may be reached on 275-8400 if you or
                                                                       .   .


your staff  have any questions.   Other   major   contributors   are
listed  in appendix III.

Frank C. Conahan
Assistant Comptroller   General
           I   FY 1991 DOD Budget               Revisions                     6

      II       Analysis    of Defense            Management Report
                 Projected    Savings                                         7

  III          Major       Contributors         to this     Report            9

           1   Inflation        Estimates        For     1990-1994
 II.1          DOD-Wide Savings From Defense                   Management
                 Report Initiatives


ADP            Automated        Data Processing
CR0            Congressional          Budget      Office
DOD            Department        of   Defense
DLA            Defense       Logistics         Agency
DMR            Defense       Management Report
FYDP           Five-Year        Defense        Program
OSD            Office       of the    Secretary         of Defense


     APPENDIX I                                                                APPENDIX I

                       FY 1991 DOD Budget       Revisions     (dollars      in billions)

        Year                1990        1991          1992         1993          1994       90-94
     April     1989 plan
     real    growth)        $295.6     $311.0        $322.0       $335.9        $349.8     $1,614.3
     Adjustment      for
     revised    Inflation
     estimates                   0.0      6.5          10.4          15.1         19.6          51.6
     Adjusted  April
     1989 plan              $295.6     $317.5        $332.4       $351.0       $369.4      $1,665.9

     Jan. 1990
     reduction                  -4.2    -22.4         -32.4        -46.6         -61.4       -167.0
     Jan. 1990 budget
     plan                   $          $295.1                     $304.4                   $1.498.9
     (-2% real growth)
APPENDIX II                                                                   APPENDIX II


DOD's DMR initiatives          are projected     to save an estimated             $39
billion      through management efficiencies            over the next 5 fiscal
years,     1991-95.       However, the actual      savings     resulting       from these
efficiencies        are uncertain.     Our analysis        shows that 54% ($21
billion)      of these savings      are expected      to come from changes in the
logistics       area.     Some of these initiatives         include      restructuring    or
streamlining        the Air Force Logistics        and Systems Commands and the
Army Materiel         Command. Savings are also expected               from increased
productivity        at naval aviation     depots and shipyards.               DOD-wide
changes affecting          the management of supplies          and reparables,
transportation         costs,  and clothing    and textiles        are expected to
save $14.2 of the $21 billion.
@ ther major      DMR initiatives        include:
--   Converting      some military       positions   to civilian.
--   Streamlining         Defense Logistics    Agency (DLA) Headquarters                 and
     the Office      of    the Secretary    of Defense (OSD).
--   Providing      more efficient       management of defense          agencies.
--   Developing     standard     automated data      processing        (ADP) systems           and
     computer-aided      logistics     support.
--   Reducing contract     advisory   and assistance          services and
     consolidating   contract     management services          under DLA.
--   Reducing     electric      costs   and moving   from   leased      space     onto
     military     facilities.
DOD is also forming study teams to review possible             consolidations
or management changes to six major areas:             supply depots,
inventory   control   points,   maintenance    depots,   ADP design centers,
accounting   operations     and finance   centers,    and research    and
development    labs and test facilities.         These consolidations      could
save $5.6 billion.
Table II.1     shows the impact of the DMR savings                  projections      on
appropriations      and other accounts.
APPENDIX II                                                                       APPENDIX II

Table      11.1:          DOD-Wide Savings From Defense Management Report
                          Initiatives by Appropriation  Account (dollars  in
Appropriation             account           FY 1991         1992-95                Total
Operations          and
maintenance                             $     890.0      $ 91361.5             $10,251.5
Military       personnel                      151.5         3r496.7               31648.2
Procurement                                   109.9         41490.1               41600.0
Other      procurement                          77.7        1,588.3               11666.0
Research,  development,
test,  and evaluation                           83.2          845.5                 928.7
Military      construction                        .2               .8                  1.0
Stock      fund                               986.0       12,019.3              13,005.3
Industrial         fund                         55.0        1,016.g              11071.9
Contingency         fund                      300.0        51150.0               5,450.o
Central      fund                            (254.0)      (1,222.O)             (1,476.0)
Foreign      military        sales                .l              2.0                  2.1
Corporate  information
management                                    (80.0)              0.0               (80.0)
Total                                   $2,319.6a        $36,749.1a

aTotals      may vary        slightly    from     DOD estimates       due to   rounding.
APPENDIX III                                                APPENDIX III


Michael E. Motley,      Associate      Director
J.-es   F. Wiggins,   Assistant      Director
Sherlie   S. Svestka,     Evaluator-in-Charge
Ann Borseth,    Evaluator
William        T. Woods,   Assistant   General    Counsel

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