oversight

DOD Budget: Military Personnel Program

Published by the Government Accountability Office on 1997-08-21.

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

United States
General Accounting Office
Washington, D.C. 20548

National Security and
International Affairs Division

B-277782

August 21, 1997

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

Subject- DOD Budget. Militarv Personnel Progrm

Dear Mr. Chairman:

In response to your request, we evaluated the Department of Defense's (DOD) fiscal
year 1998 military personnel budget requests, which total over $60 billion. Our
review focused on the services' military personnel strength projections since these
projections influence the most significant number of accounts and funds in the
budgets-specifically in the pay and allowances accounts. Also, per your request,
we reviewed the early retirement accounts that are centrally managed by the Army,
the Navy, the Marine Corps, and the Air Force. Our objective was to determine
whether the services' personnel budgets should be funded in the amounts
requested.

In June 1997, we provided your staff with the preliminary results of our work. This
report sumarizes and updates that information, but dots not include all
actions that may have been taken by the Committees during their reviews of
the services' budget requests. We have not acknowledged these committee
actions because in some cases House and Senate actions have varied and
conference actions are still pending.

RESULTS IN BRIEF

We identified potential reductions of about $390.1 million in the services' military
personnel requests: $304.4 million in the requests for military pay and allowances
and $85.7 million in the request to fund early retirements. We estimate military pay
and allowances accounts can be reduced by $255.3 million for the Army, $20.7
million for the Navy, $21.3 million for the Air Force, and $7.1 million for the Marine
Corps. The early retirement fund requests can be reduced $48.8 million for the Air
Force and $36.9 million for the Army.



                                          GAO/NSIAD-97-240R 1998 DOD Budget
B-277782


MIUTARY PAY AND ALLOWANCE ACCOUNT7

The fiscal year 1998 budget requests for active military personnel pay and
allowances accounts' can be reduced by $304.4 million because the senices will
begin fiscal year 1998 with 12,300 fewer active military personnel than budgeted for.
Our analysis is based on the active military personnel on board as of June 30, 1997,
projected to the end of the fiscal year, using updated service projections or
historical staffing patterns.

Almost 90 percent of the military personnel budget is used for pay and allowances
for officers and enlisted personrel. 2 In preparing their fiscal year 1998 requests for
military pay and allowances, the services used fiscal year 1996 actual staffing levels
and estimated end strengths for fiscal year 1997, adjusted for expected program
changes. The estimated 1997 end strengths are the beginning point for determining
workyear costs and end strengths for fiscal year 1998.

If fiscal year 1997 actual end strengths are less than budgeted for, the beginning
point for determining fiscal year 1998 requirements is incorrect and the budgets are
overstated. Due to the timing of the oudget cycles, fiscal year 1997 end strengths
are not adjusted before submission of the fiscal year 1998 budget. Additionally, the
services do not adjust their fiscal year 1998 budgets based on actual numbers for
fiscal year 1997 while Congress reviews the budget.

As shown in table 1, we estimate (1) the Army will begin fiscal year 1998 with 4,500
fewer personnel than originally budgeted for, resulting in a $255.3 million
overstatement in fiscal year 1998; (2) the Navy will begin fiscal year 1998 vith 6,400
enlisted personnel fewer than budgeted for, resulting in a $20.7 million
overstatement; (3) the Air Force will beg&n fiscal year 1998 with 1,100 enlisted
personnel and 100 officers fewer than budgeted for, resulting in a $21.3 million
overstatement, and (4) the Marine Corps will begin fiscal year 1998 with 200
officers fewer 'han budgeted for, resulting in a $7.1 million overstatement.




'The military pay and allowance accounts include basic pay, retired pay accrual,
special pay, basic allowance for quarters, incentive pay, variable housing allowance,
continental U.S. cost-of-living allowance, station allowance overseas,
clothing/uniform allowance, basic allowance for subsisteace, separation payment,
family separation allowance and social security tax-employer contribution,
reenlistment bonus, enlistment bonus, and special duty assignment pay.
2 The remaining military personnel costs-about 10 percent-are made up of pay and
allowances for cadets, subsistence of enlisted personnel, permanent change-of-
station travel, and other military personnel programs.

2                                          GAO/NSLAD-97-240R 1998 DOD Budget
B-277782


Table 1: Overstatement of Active Military Personnel Pay and Allowances for Fiscal
Year 1998


                              Our estimate of      Beun'             Difference           Equhivlent
                              beinnung              enh    used      between GAO          avere
                              stregth for          il FY 1998        estimate and         worive              Aveage
                              FY 198               Wudet request      udget request       overated            compention      Oversutamene
    Sevice      Cuedo          in thouands)        ",n thousands)    (in thouands)        in thousands)       rae'            (in mllio)

    Army        Enlisted                 491.0 i            495.5                  4.5                              $36,777           $255.3'
                and Officer
    Navy        Enlisted                 3%53               341.7                  6.4                 .633          32,729                  20.7
    Air Force    listed               301.5                 302.6                   1.1                .550          31,566                  17.4
                Officer                745
                                         4                                         Dl
                                                                                   A                   AO77,768                               La
                                      375.9                 377.1                  1.2                 .600                             $21.3

    Marine      Officer                   17.8               180                     .2                .099         $71.476                   7.1
    Corps

    Total                             1,220               1,22.                   12.                                                  *30.4

'Only affected categories are displayed.

bEstimated end strengths for fiscal year 1997, which would be the beginning strength for fiscal year
1998, are based on (1) the Navy's May 1997 revised estimates, (2) the Army's and Air Force's July
1997 revised estimates, and (3) the Marine Corps' June 1997 actual and past staffing patterns.
t
 Workyears are based on projected beginning and budgeted personnel end strengths. In general,
workyears are calculated as follows: (1) Add budgeted beginning and end strengths and divide total
by two to get the budgeted average workyears. (2) Add budgeted end strength to our estimate of
beginning strength and divide the total by two to get our estimate of average workyears. (3)
Compare our estimated average workyears with the budgeted average workyears. The difference is
the equivalent overstated average workyears.

dAverage compensation rates are derived from budgeted direct program pay and allowances for
officer and enlisted personnel divided by budgeted average workyears, respectively.

'Overstatement is calculated by multiplying the number of overstated equivalent average workyears
by the average compensation rate.

'Savings based on the Army's projected cost savings of $199.3 million due to underexecution and $56
million for favorable foreign currency fluctuations. The estimate does not include additional savings
if the Army follows its current plan to end fiscal year 1998 with 10,200 fewer military personnel or
the costs for increased recruitment and force reshaping, not currently justified in the Army's fiscal
year 1998 budget.




3                                                                   GAO/NSIAD-97-240R 1998 DOD Budget
B-277782


In commenting on a draft of this report, DOD officials noted the possibility for
additional costs if the Army does not meet our estimated or its budgeted end
strength of 495,200 for fiscal year 1998. Also, Air Force officials requested we use
their July 1997 revised estimates to calculate fiscal year 1997 end strengths for their
active military pay and allowances accounts. We have updated our figures
accordingly.

EARLY RETIREMENT FUNDS

The Air Force's and Army's requests for 15-year temporary early retirement funds
can be reduced by $48.8 million and $36.9 million, respectively. The Air Force
request can be reduced if (1) the program is limited to the first 6 months of fiscal
year 1998 and (2) costs are based on our manpower projections. The Army request
is not justified because the Army is below rather than above approved end-strengtA
levels. 3

Congress approved voluntary separation pay programs to assist the services in
downsizing their force structures, while maintaining readiness, and limiting the
personnel hardships associated with a drawdown. The Temporary Early Retirement
Authority (TERA) Program is used to encourage the retirement of service members
that have been in the military for 15 to 20 years. The Special Separation Benefits
(SSB) Program is another early retirement program for personnel with 6 to 19 years
of service. The authority to use TERA and SSB programs during the force
drawdown terminates on October 1, 1999.

All of the services have met their drawdown goals established by Congress.
However, the Air Force plans to downsize by an additional 9,600 personnel in fiscal
year 1998 and has requested $147.8 million to provide early-out incentives for 1,000
officers and 2,800 enlisted personnel.

The Air Force early retirement budget request could be reduced by limiting the
TERA program for both officers and enlisted personnel to the first 6 months of
fiscal year 1998 as the Army plans to do. Currently, the Air Force plans to offer
early retirement under the TERA program in the first 6 months of fiscal year 1998
for enlisted personnel but throughout the fiscal year for officers. This reduction
appears possible because Air Force officials estimate that 800 of the 1,000 officers
would use the TERA program if it were offered only during the first 6 months of the
year, thereby saving about $35.8 million.

Based on Air Force estimates, these savings would be offset by $35.2 million in SSB
progranm costs, which it would need to pay to get the remaining 200 officers to

3The  Navy has not requested temporary early retirement funds but plans to offer
early retirement during the first 3 months of the fiscal year and cover these costs
with military pay and allowance funds.
4                                          GAO/NSIAD-97-240R 1998 DOD Budget
B-277782

retire early to reach projected staffing goals. However, our analysis shows a lower
projected end strength. We estimate that the Air Force will start fiscal year 1998
with about 1,100 fewei enlisted and 100 fewer officers than planned. Based on
these lower end strength projections, budgeted enlisted separation costs could be
reduced by $30.6 million (1,100 times the average TERA cost of $27,851).

Under our projections, added SSB costs for officers would be $17.6 million rather
than $35.2 million because the Air Force would only need to get 100 rather than 200
officers to retire early under the SSB program. The net officer separation costs
would then be $18.2 million-$35.8 million in savings achieved by limiting the
program to the first 6 months minus $17.6 million in added SSB costs for officers.
Therefore, the total potential reduction in the Air Force's 15-year temporary
retirement funds would be $48.8 million-$30.6 million in enlisted separation costs
and $18.2 million in officer separation costs.

The Army's entire $36.9 million TERA Program budget request could be eliminated
because the Army has requested these funds to reshape rather than to downsize its
force.4 Army officials indicated that reshaping the force would take more time if
the TERA program were not used for this purpose. However, the Army has already
achieved its downsizing goals and is in fact having difficulty recruiting enough
people to reach minimum congressionally mandated end strength levels. Therefore,
it appears illogical to provide an incentive to 1,100 enlisted personnel to retire
under these conditions.

In commenting on a draft of this report, Air Force officials noted that the House's
version of the National Defense Authorization Act for Fiscal Year 1998 (H.R. 1119)
includes a provision to suspend the authorization for TERA during fiscal year 1998.
As noted earlier, we did not consider budget actions that the Committees may have
taken since conference actions were not yet completed.

SCOPE AND METHODOLOGY

To meet our objective, we interviewed program and budget officials responsible for
managing the military personnel programs and/or preparing the budget requests;
reviewed and analyzed financial, budget support, and program documents related to
the active military personnel pay and allowances and retirement funds and analyzed
prior-year funding levels and obligations to identify trends. We conducted our
review at Army, Navy, Air Force, Marine Corps, and DOD headquarters, Washington,


4The  Army's current enlisted rank mix is not in balance with the planned fiscal year
1998 budgeted mix. For example, as of May 1997, the Army had more E-3s and
fewer E-4s than required. This imbalance also applies to other ranks and skill
positions. The Army plans to correct this imbalance by "reshaping the force
structure."

5                                         GAO/NSIAD-97-240R 1998 DOD Budget
B-277782


D.C. We performed our review from November 1996 to August 1997 in accordance
with generally accepted government auditing standards.

Although additional budget reductions could result from the implementation of
recommendations from the Secretary of Defense's fiscal year 1997 Quadrennial
Defense Review to reduce active military personnel levels, we did not include these
additional potential budget reductions in this report.

DOD and service officials commented orally on a draft of this report They
generally agreed with the approach and methodology we used to develop our
findings. We have incorporated their comments where appropriate.



We are sending copies of this report to the Chairmen and Ranking Minority
Members of the House and Senate Committees on Appropriations, the Senate
Committee on Armed Services, and the House Committee on National Security; the
Secretaries of Defense, the Army, the Navy, and the Air Force; and the
Commandant of the Marine Corps; and the Director of the Office of Management
and Budget. Copies will be made available to others upon request.

This report was prepared under the direction of Mark E. Gebicke, Director, Military
Operations and Capabilities Issues, who may be reached on (202) 512-5140 if you or
your staff have any questions. Major contributors to this report are listed in
enclosure I.

Sincerely yours,



Henry L         Jr.
Assistant Comptroller General




6                                        GAO/NSIAD-97-240R 1998 DOD Budget
ENCLOSURE I                                                 ENCLOSURE I
                     MAJOR CONTRIBUTORS TO THIS REPORT


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

Carol R. Schuster
Brenda S. Farrell
Donna M. Rogers
Beverly C. Schladt

NORFOLK FELD OFFICE

Thomas A. Pantelides
Henry Arzadon




(703181)




7                                   GAO/NSIAD-97-240R 1998 DOD Budget
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