oversight

National Defense Stockpile: Sales Revenue and Inventory Data

Published by the Government Accountability Office on 1999-08-20.

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

      United States

GAO   General Accounting
      Washington,
                           Office
                    D.C. 20548

      National Security and
      International Affairs Division


      B-283068

      August 20,1999

      The Honorable Herbert H. Bateman
      Chairman, Subcommittee on Mihtary Readiness
      Committee on &-n-red Services
      House of Representatives

      Subject: National Defense Stockpile: Sales Revenue and Inventor-v Data

      Dear Mr. Chairman

      This report provides initial information in response to your request that we examine the
      management and funding of the National Defense Stockpile. The stockpile is maintained to
      minimize dependence on foreign sources of strategic and critical materials in times of
      national emergency. As agreed with your office, this report provides interim information on
      projected stockpile sales from the fiscal year 1999 through fiscal year 2010 and the projected
      remaining inventory from fiscal year 1998 through fiscal year 2010. Our final report to you
      will provide information on projected uses of funds and remaining cash balances and our
      overalI views on stockpile funding, including whether expected sales revenues can cover
      stockpile expenses.

      RESULTS IN BRIEF

      Projected stockpile sales between fiscal years 1999 and 2010 peak at about $438 miIlion in
      fiscal year 2000 (in current year dollars projected from September 30,1998). The projected
      decline in sales during this period is rapid starting in fiscal year 2002, with anticipated sales of
      $18 miI.Iion by fiscal year 2010. Projected inventory levels decline from $4.1 billion at the end
      of fiscal year 1998 to $1.4 billion at the end of fiscal year 2010. Of the $1.4 billion in remaining
      inventory, $0.3 billion will be available for sale, and $1.1 billion cannot yet be sold under
      current authorizing legislation.

      SALES OF STOCKPILE COMMODITIES

      Under the Strategic and Critical Materials Stock Piling Act (50 U.S.C. 98 et seq.), the stockpile
      is managed by the Defense National Stockpile Center and all proceeds are deposited in a U.S.
      Treasury transaction account that is used to fund ail operations of the stockpile.
      Since fiscal year 1994, the primary source of funds for stockpile operations has been
      stockpile sales revenues deposited in the transaction fund. (Before that, stockpile operations
      were funded by an annual appropriation.) Gross sales of stockpile inventory resulted in
      deposits of $504 million during fiscal year 1998. (Gross sales revenue would be reduced by
      expenses to arrive at net gains or losses for the fund.) Figure 1 shows estimated revenues
      from sales of the stockpile inventory for fiscal years 1999 through 2010.



      Page 1                                                        GAO/NSIAD-99-201RNational Defense Stockpile
B-283068


Figure 1: Estimated Gross Revenues from the Sale of Stockpile Inventory for F’iscaI Years
1999 to 2010

               Dollars in millions
     500      -r-
                        438      430
                408
                                  l-l
     400
                                          372

                                                   322

     300

                                                            242

                                                                    200
     200


                                                                              125
                                                                                       93
     100


                                                                                                26        18       18

          0
                FY99    FYOO FYOI         FY02 FY03 FY04 FY05 FY06 FY07                        FY08      FYO9 FYlO


Source: Defense National                Stockpile Center.

Figure 1 shows that gross sales revenues are expected to decline rapidly after peaking in
fiscal year 2000 at over $400 million. By fiscal year 2010, gross sales are projected to be about
$18 million. Details on estimated sales of stockpile commodities are in enclosure I.

REMAINING STOCKPILE INVENTORY

The stockpile inventory was valued at about $4.1 billion as of September 30,1998.’ F’igure 2
shows that as stockpile assets are sold off, the inventory wih decline.



‘According to the Defense National Stockpile Center, this value is based on September 30,1998, prices at which comparable
materials are being traded. In the absence of current trading data, market values are estimated. Unaudited stockpile financial
statements for fiscal year 1998 reported inventory and related property of about $3.1 billion on a historical cost basis (acquisition
plus fees) and $4.4 billion at market value. According to stockpile staff, the difference in estimated market values presented in
figure 2 and the fiscal year 1998financial statements was because the iinancial statement disclosure of market value was not
based on September 30,1998, data.




 Page 2                                                                             GAOLNSIAD-99-201RNational Defense Stockpile
B-283068



Figure 2: Value of the Stockpile Inventory for Fiscal Years 1998 (reported) and 1999 to 2010
(projected)
         Dollars in billions

  5-l


       4.1
  4 ---f-
                    3.6

                    l-l       3.2

  3 --



  2 --
                                     1     2.4
                                           l-l     2.1




   1 --



  0 -+          I         I


      FY98 FY99 FYOO .FYOl FY02 FY03 FY04 NO5                               FY06 FY07 FY08 FYO9 FYlO

Source: Defense National Stockpile Center.

The figure shows that inventory is projected to decline steadily from $4.1 billion at the end of
fiscal year 1998 and then flatten out after fiscal year 2006 at $1.4 billion.

The $1.4 billion worth of inventory remainin g in fiscal year 2010, according to projections,
consists primarily of about $1 billion in materials not yet authorized for sale by Congress.2
Over $0.3 billion of the inventory is authorized for sale but will not have been sold by fiscal
year 2010. Of this amount, DOD believes about $13 million in critical materials should be
retained-$13.080 mXlion in beryllium metal, $0.067 million in quartz crystal, and only $180 in
mica.3 Enclosure II shows a breakdown of the inventory at the end of fiscal year 2010 by
commodily.



’ Current authorization legislation is contained in the National Defense Authorization Act for Fiscal Year 1999 (P.L. 105-261,Title
III, 5304).
’ Beryllium is used in electronics, electrical components, and aerospace and defense applications. Quartz is used in electronics.
Mica is used in electrical devices, paints, plastics, and rubber products. Dollar values are taken from the fiscal year 1999
Stockpile Requirements Report.




Page 3                                                                           GAO/NSIAD-99-201R National Defense Stockpile
B-283068


SCOPE AND METHODOLOGY

Information on projected stockpile sales revenues and inventory was provided by the
Defense National Stockpile Center. The Center used inventory balances as of September 30,
 1998, as reported in the fiscal year 1998 stockpile report to Cqngress, in its projections
through fiscal year 2010. Its estimates for the fiscal years 1998 through 2010 were in current
September 30,1998, dollars. The unit prices used in the Center’s projections for commodities
that the Center has sold are based on the past 3-year average price. The unit price used in the
Center’s projections for commodities that the Center has not sold are based on a S-year
average of quoted market prices. Changes in commodity prices could have a significant
effect on the projections. In addition, recommendations by the stockpile advisory committee
(Market Impact Committee) which advises the stockpile manager, could also have a
significant impact on the Center’s projections. We did not evaluate the methodology used by
the Center to make projections. Also, the DOD Inspector General did not audit the stockpile
transaction fund financial statements for fiscal year 1998. The stockpile is not considered
material to DOD’s consolidated financial statements prepared under the requirements of the
 Chief Financial Officers Act of 1990, as amended by the Government Management Reform
Act of 1994.

AGENCY COMMENTS AND OUR EVALUATION

The Department of Defense (DOD) concurred with the report. In addition, DOD stated that
future environmental cleanup costs would substantially decrease the funds available for other
projects. DOD also stated that the projections for future revenues are contingent on the
fluctuating value of the marketable inventory. We are continuing to review these stockpile
revenues and expenses and will evaluate the issues raised by DOD as part of that work.
DOD’s comments are included in appendix III.



As arranged with your office, we plan no further distribution of this letter until 30 days from
its issue date, unless you publicly announce the letter’s contents earlier. We wilI send copies
to the Honorable WiIliam S. Cohen, Secretary of Defense; the Honorable Jacob J. Lew,
Director, Office of Management and Budget; Lieutenant General Henry T. Glisson, Director,
Defense Logistics Agency; and other interested parties.

Please contact me on (202) 512-8412 if you have any questions about this report. Major
contributors to this report were Uldis Adamsons, Fred Lundgren, and Leo Clarke III.

Sincerely yours,




 Defense Management Issues




 Page 4                                                     GAO/NSL4D-99-201RNational Defense Stockpile
 APPENDIX I                                                                                                                                                                                APPENDIX I




               DEFENSE NATIONAL STOCKPILE CENTER PROJECTED SALES OF COMMODITIES                                                     FOR FISCAL YEARS 1999 - 2010

 Dollars in millions
                                                                                       Fiscal year
                                                                                                                                                                                             Total for
 Commodity                  1999       2000       2001      2002         2003         2004         2006           2006           2007           2008           2009           2010         1999-2010&
Aluminum oxide,               $1.4       $1.4       $1.4      $1.4         $1.4         $1.3              0              0              0              0              0              0            $8.3
abrasive grain
Aluminum oxide,               10.3       10.3        4.4        0             0           0               0              0              0              0              0              0           25.0
fused crude
Antimony                       5.7        5.7        5.7       5.7          5.7          4.1              0              0              0              0              0              0           32.6
Asbestos amosite                 0          0          0         0            0            0              0              0              0              0              0              0              0
Asbestos chrysotile              0          0          0         0            0            0              0              0              0              0              0              0              0
Asbestos                         0          0          0         0            0            0              0              0              0              0              0              0              0
crocidolite
 Bauxite, metal               12.2       12.2       12.2      12.2         12.2          4.0              0              0              0              0              0              0           64.9

1Bauxite, metal
                        1      -- i       ^^ !       - _]            )            1            1              !              !              !              !              !
                                                                                                                                                                                     0           24.4
                        I                           _-                                                                                                                  1
Bauxite, refractory            -- i
                               2.3          01      u.3 1       01            0]           0!            !            0!                0!             01!            01I            0I           2.6
                                                                                                                                                                                                   -.

Beryl ore                      0.3        0.3       0.3       0.3           0.3          0.3        $0.30          $0.3                 0              010            01I            01I          2.6
Beryllium __copper             5.0        6.0       5.0       5.0           5.0          5.6           0              0                 0              01             01             01          30.6
master alloy            1          !          !         !         1
Beryllium metal         I      4.2 1      8.41      8.4 1     5.2 1           0           0            0              0              0              0              0              0              26.2
Bismuth                          01         01        0         0             0           0            0              0              0              0              0              0                 0
Cadmium                        0.2        0.2       0.2       0.2           0.2         0.2          0.2            0.2           $0.2           $0.2           $0.2           $0.2               2.0
Celestite                        0          0         0         0             0           0            0              0              0              0              0              0                 0
                                                                                                                                                                                                         I
  Chromite chemical     1      0.81      0.81       0.81      1.4 1          01           01              01             01             01             01  I
                                                                                                                                                                      01             01
  Chromite              I      0.71      0.71       0.71      0..8          0.7          0.3              0              0              0              0              0              0             3.9
  refractory                                            !
I Chromite,                                                                                t              0              0              0              0              0              0             9.3
  metallurgical
   -.
  Chromium metal
                grade
                        1
                                A--
                                01         01         01
                                                        !
                                                                01
                                                                  !
                                                                             01           01              0              0              0              0              0              0              0
  Chromium, ferro       I     11.11     44.81      49.8 1    28.0 1          01           0t              0              0              0              0              0              0          133.7
Ihigh carbon                                            I         I               I

Page 5                                                                                                              GAOINSIAD-99-201R National DefenseStockpile
APPENDIX I                                                                                                                                   APPENDIX I




                                                                     Fiscal year
                                                                                                                                               Total for
  Commodity            1999     2000     2001     2002,    2003     2004     2005        2006     2007      2008       2009      2010        1999-2010&
  Chromium, ferro         2.1      3.1      3.1      3.1      3.1      3.1      3.1         3.1      3.1       3.1        3.1       3.1             36.0
  low carbon
  Chromium, ferro           0      2.8      2.8      2.8      2.8      2.8         2.8      2.8       2.8       2.8       2.8        2.8           30.3
  silicon
  Cobalt                 62.0    62.0     62.0     49.1      72.9    62.0      58.2          0         0          0         0            0        428.2
  Columbium carbide       0.3     0.1        0        0         0       0         0          0         0          0         0            0          0.4
powder
  Columbium               0.5      0.5      0.5      0.5      0.2      0.2          0        0         0          0         0            0          2.4
  concentrates
  Columbium metal         0.3     0.3      0.3      0.3       0.3      0.3          0        0         0          0         0            0          1.7
  Columbium, ferro        2.0     2.2      1.6        0         0        0          0        0         0          0         0            0          5.8
  Diamond dies            0.1     0.1      0.1      0.1         0        0          0        0         0          0         0            0          0.3
  Diamond industrial      0.3     0.1        0        0         0        0          0        0         0          0         0            0          0.3
’ crushing bort
  Diamond industrial     4.8      8.0      8.0     10.2        0        0           0        0         0          0         0            0         31.0
 stone
 Fluorspar, acid          6.3     0.6        0        0        0        0           0        0         0          0         0            0          6.9
 grade
 Fluorspar,               1.3     1.3      1.3      1.3       1.3     0.3           0        0         0          0         0            0          6.7
 metallurgical grade
 Germanium               8.9      7.1      7.1      5.8      4.6        0           0        0         0         0          0            0         33.4
 Graphite Ceylon           0        0        0      0.3      0.9      0.5           0        0         0         0          0            0          1.6
 amorphous(lump)
 Graphite, natural       0.5      0.5      0.5      0.4        0        0           0        0         0         0          0            0          2.0
 Malagasy
 Graphite, other           0        0        0        0        0        0           0        0        ‘0         0          0            0            0
 than Ceylon &
 MaIagasy
 Indium                  0.1        0        0        0        0        0           0        0         0         0          0            0          0.1
 Iodine                  4.7      4.7      4.7      4.7      4.7      1.0           0        0         0         0          0            0         24.6
Jewel bearings             0        0        0        0        0        0           0        0         0         0          0            0            0
 Kyanite                   0        0        0        0        0        0           0        0         0         0          0            0            0




Page 6                                                                                     GAO/NSIAD-99-201R National DefenseStockpile
APPENDIX I                                                                                                                                           APPENDIX I




                    I                                                  Fiscal year                                                               I                 I
                                                                                                                                                       Total for
                        1999         2000     2001    2002,   2003    2004         2005     2006     2007       2008      2009       2010            1999-2010”
                          21.1         21.1     21.1    21.1    21.1    21.1         21.1     21.1     21.1        7.8           0           0             197.8
Manganese dioxide,         1.0          1.0      1.01    1.01    1.01    1.0          1.0      1.0        0          0           0           0               8.2
battery grade,     I             I




chemical grade.
Manganese ore,             4.6          1.9
metallurgical grade
Manganese, fen-o           9.2          6.5
high carbon
Manganese, ferro            0            0
medium carbon
Manganese, ferro            0            0
Silicon
Manganese, metal           2.7          2.7
Mercury                      0            0
Mica, muscovite            0.2          0.2
block, stained 8~
better              I        I
Mica, muscovite             01           0                                             0        0          0         0           0           0                0
block, stained &
lower
                                                          0       0       0            0                             0           0           0               .o'
Mica, muscovite             0            0        0                                             0          0
film, 1st & 2nd
Qualities
Mica, muscovite           0.2           0.3     0.3      0.3     0.3     0.3          0.3      0.3         0         0           0           0               2.3
                                                                               ~
splittings
Mica, phogopite           0.2          0.2      0.2      0.1      0       0    ---d-T                      0         0           0           0               0.7




Page 7                                                                                         GAOINSIAD-99-201R National DefenseStockpile
 APPENDIX I                                                                                                                                                                                           APPENDIX I




                                                                                                    Fiscal year
                                                                                                                                                                                                        Total for
                           1999        2000           2001           2002           2003           2004           2005           2006         2007           2008           2009           2010       1999-2010”
                                  0           0              0              0              0              0              0          0.1              0              0              0              0           0.3

1Morphine sulfate      1       1.11      0.3 1               01
  (analgesics)
  Nickel                     12.7             0              0              0              0              0              0           0               0              0              0              0          12.7
  Platinum group              0.9             0              0              0              0              0              0           0               0              0              0              0           0.9
  metals, iridium
  Platinum group             17.6       23.4           23.4           23.4           22.0                 0              0           0               0              0              0              0        109.9
  metals, palladium
  Platinum group             29.6       36.9           36.9           36.9           22.1                 0              0           0               0              0              0              0        162.5
  metals, pmtinum                  !              !              !              !              !              !              !            !              !              !              I
1Quartz crystals                 0         0              0              0              0                                                                                                      0               0
I Quinidine                   0.1        0.1            0.1            0.1            0.1                                                                                                    0.1
  Quinine                     0.2        0.2            0.2            0.2            0.2
  Ricinoleic/ sebacic         0.5        0.3            0.3            0.3            0.3
  acid products
  Rubber, natural
  Silicon carbide
I Silver              pjtf+fq
I Talc ground
1Talc steatite block
  & lump
  Tantalum carbide            0.2        0.2            0.2            0.2            0.2            0.2              0              0               0          0              0              0              1.2
 powder
  Tantalum metal              2.2        3.5            3.5            3.5            1.0              0             0               0               0          0              0              0             13.5’
 Tantalum metal               3.4        6.8            6.8            4.3              0              0             0               0               0          0              0              0             21.4
 powder                            !           !
 Tantalum minerals            5.0        5.0            5.0            5.0 1          2.5            0.1              0              0            0             0              0              0             22.6
 Tantalum oxide               0.6        0.6            0.6            0.6            0.6            0.6              0              0            0             0              0              0              3.4
 Thorium nitrate                0          0              0              0              0              0              0              0            0             0
 Tin                        52.8        52.8           52.8           52.8           52.8           52.8           52.8           52.8         38.7             0




Page 8                                                                                                                             GAO/NSJAD-99-201RNational DefenseStockpile
APPENDIX I                                                                                                                                                     APPENDIX I




                                                                             Fiscal year                                                                   I                      I
I                      I            I                                                                                                                             Total for
    Commodity              1999         2000     2001     2002     2003     2004     2005            2006      2007      2008        2009       2010           iooo-20109’
 Titanium sponge             13.9         13.9     13.9     14.8     14.8     13.9     13.9            13.9       5.9           0           0          0              121.6
1Tungsten carbide             8.9          8.9      4.8        0        0        0        0               0         0           0,          0          0               22.7

ITungsten ferro                                                                                                                                                         A.Y



IIunt;?n     metal                                                                                                                          0          0               .7.4
 P
1Tungsten ores &                          8.4                                                                                               0          0              50.3
i concentrates                                                                                   I
1Vanadium                                   0                          0        0           0             0         0           0           0          0                      0
cpentuxide
 Vegetable tannin                           0                          0        0           0             0         0           0           0          0                0.8
  extract, chestnut
 Vegetable tannin                                                     0.4      0.4         0.4          0.4       0.4       0.4        0.4        0.4                   5.0
  extract, quebracho
 Vegetable tannin             0.2         0.2       0.2      0.2      0.2      0.2         0.21         .0.2      0.2       0.1             0          0                1.8
  extract, wattle
ZiIK                     33.0     33.0     33.0   33.0      33.0     33.0      21.7                       0         0         0          0          0                219.5
Zirconium                   0        0        0      0         0        0         0                       0         0         0          0          0
To&#’                  $408.0 $437.7 $420.9 $371.6 $322.0 $241.8               $200                  $124.6     $93.5     $26.1      $18.2      $18.2             $2,694. :
‘Thesum of the columns and rows may not agree with the totals due to rounding.
Source: Defense National Stockpile Center.




Page 9                                                                                                  GAOINSIAD-99-201R National DefenseStockpile
APPENDIXII                                                                                APPENDIX II


                       DEFENSE NATIONAL    STOCKPILE CENTER   -
            ESTIMATED VALUE OF THE NATIONAL DEFENSE STOCKPILE INVENTORY
                            AT THE END OF FISCAL YEAR 2010


                                                            Estimated value of
                                                         inventory   at the end of




Tantalum metal                                                         12,984,624.00
Tantalum metal powder                                                   6,156,898.60
Thorium nitrate                                                                     0
zirconium                                                                           0
Subtotal                                                             $576,018,060.44

Remaining    balances   for inventory   authorized   1




Columbium metal                                                         1,139,652.50 1
Columbium concentrates                                                  5,293,367 A4
Tantalum minerals                                                      52,479,050.32
Tantalum carbide powder                                                   304,262.40
Tantalum oxide                                                            935,550.oo
Tungsten ores & concentrates                                          216,234,240.15
Tungsten ferro                                                          1,917,974.24
Tungsten metal powder                                                  11,847,394.65
Snhtotal                                                             $461.114.252.72




Page 10                                                         GAOLNSIAD-99-201R National DefenseStockpile
APPENDIX    II                                                                          APPENDIX II


                                                         Estimated value of
                                                      inventory   at the end of
              status of commodity                         fiscal year 2010
Ending inventory      value                                      $1,362,358,107.92
Sourcg Defense National Stockpile Center.
“Asbestos and mercury show no value because Defense National Stockpile Center estimates there
is no demand for any remaining asbestos and environmental concerns prevent the sale of mercury.
bJewel bearings are not authorized for sale; however, they are valued at zero because Defense
National Stockpile Center estimates that there is no market demand for jewel bearings.
These commodities can be sold until specific sales goals are reached and the receipts transferred
to specific mandated programs. Once the sales goals are met, the commodities can no longer be
sold. The Defense National Stockpile Center estimates that these will be the remaining balances
as of the end of fscal year 2010.




Page 11                                                     GAOINSIAD-99-201R National Defense Stockpile
APPENDIX III                                                                                  APPENDIX III


                     COMMENTS FROM THE DEPARTMENT                         OF DEFENSE




                                  DEFENSE      LOGISTICS         AGENCY           ’
                                            HEADQUARTERS
                              8725 JOHN J. KINGMAN       ROAD,    SUITE    2S33
                                  FT. BELVOIR,  VIRGINIA   -1
                                              Au6    4389




           Mr. David R Warren
           Director, DefenseManagementksucs
           National Semrity and Intemal Affairs Division
           U.S. GeneralAccounting Office
           Washiqton,.D.C. 20548




             This is the Depatiment of Defense(JIoD) responseto the GeneralAccounting Of&
           (GAO) dxaft report, ‘NATIONAL DEFENSE STOCKPILE Sales,Revenueand
           Inventory Data,’datedJuly 6,1999 (GAO Code 70939YOSD Case 1860). We have
           reviewed and collcur with tbe subjectreport. We think it is worth noting that future
           environmental cleanup costswill substantially decmse the fimds available for other
           projects. Also, the projections for fhure revenuesare contingent on the fhctua@ value
           3f tkc mrktable inventory. We recommendthr following addition to fc-mote 3 on
           page4, ‘Dollar values taken from the 1599RequirementsReport.”

           if you have any questions,pleasecontact SharonEntsmhger on (703) 767-6267.




Page i2                                                             GAO/NSlAD-99-201R National DefenseStockpile
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