oversight

Defense Budget and Program Issues in the Fiscal Year 1991 Budget

Published by the Government Accountability Office on 1990-03-01.

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

                     United States General Accounting              Of&e
                     Testimony




For Release on       Defense    Budget      and Program   Issues
Delivery  Expected
at 10 a.m.           in the    Fiscal     Year   1991 Budget
Thursday
March 1, 1990




                     -Statement   of
                      Charles   A. Bowsher,  Comptroller           General
                      of the United   States

                      Before the
                      Committee on Armed Services
                      United States Senate




GAO/T-NSIAD-90-18                        ,>I'                                GAOlb-m 160(m/m
Mr.    Chairman       and Members of             the   Committee:

I appreciate       the opportunity      to testify       today before     this
Committee      to present    GAO’s views on the defense            budget.      The
rapidly     changing    events    in the world,       particularly     in Eastern
Europe,     are creating     new challenges;         and the Department        of Defense
 (DOD) and the Congress are striving               to cut defense      spending     while
maintaining      national    security.

In this   type of environment,     hard decisions     are even more
difficult    to make, but this    environment    also affords  opportunities
to reassess    stratesies  and priorities.       My statement  today will
focus on the following     areas:

--    the prospects          for    deficit       reductions        in   fiscal    year   1991 and
      beyond ;

--    the relationship        between the most recent    Five                     Year Def-ense Plan
      and the S-year budget projections          for defense                      spending   in the
      President’s      fiscal    year 1991 budget submission;

-     our observations     on the management of defense activities                             and
      programs   and a possible   means to improve the management                             of these
      activities    and programs;

--    our views on the             prospects        for achieving    the anticipated
      savings  identified             in the      recently    issued Defense Management
      Report ;

--    the   results     of    our     recently         completed     financial      review   of   the
      Air   Force;
--   the vulnerability     of certain DOD program activities    to fraud,
     waste,  and abuse and what we believe      needs to be done to reduce
     these risks:      and

--   other   program areas in which we have refocused         our                    defense work
     to better     respond to the rapidly   changing political;                         military,
     and economic      picture throughout the world.

PROSPECTS FOR DEFICIT REDUCTION
IN FISCAL YEAR 1991 AND BEYOND

The President’s            budget for fiscal       year 1991 projects          a deficit   of
$63.1    billion        and a budgetsurplus          by 1993.      In my view,      these.
projections          are the result      of creative       bookkeeping;      they do not
portray        the real situation.           Using the Congressional           Budget
Office’s         numbers,      I believe   that the deficit       will    exceed $270
billion        in fiscal       year 1990 and will       increase     to over $300 billion
by fiscal         year 1995 if you exclude           the surplus       in trust   funds from
the deficit          calculation.

The true deficit         situation         is masked because we are using surpluses
in the federal        trust      funds (for          Social      Security,         highways    and
other    areas)    to pay current            operating         expenses.           By doing    this,  the
government      creates       the illusion           that    the deficit           problem   is being
solved when in actuality               it is getting             worse.        For example,        in
fiscal     year 1990,       the government             used S132 billion              of the Social
Security      and other government              trust      funds to pay current             operating
expenses and cloud the true                  deficit       situation.            In fiscal     year
1991,    it is estimated           that the government                will     use about $136
billion     of trust     funds to reduce the actual                       deficit.

If we continue   along this    same path,       we can expect the national
debt to increase    to $4.5 trillion        by fiscal  year 1995.  A debt                          of
this magnitude   would require       annual   interest  payments of over

                                                   2
$335 billion      and would         represent    the   largest      single    item    in   the
federal    budget.

RELATIONSHIP BETWEEN THE FIVE YEAR
DEFENSE PROGRAM AND THE PRESIDENT'S                    BUDGET

The President's            fiscal    year 1991 budget request     reflects      a fiscal
year 1990 to           1994 defense      budget projection    of $1.5 trillion.          This
is   $212    billion       less   than   the most recent   Five Year Defense Program
(FYDP)      which      was prepared      in 1989.

To date,     DOD has decided          on reductions          of $74.1 billion          from the
1989 FYDP:      $4.2   billion         in fiscal      year 1990,         $22.4 billion      in
fiscal     year 1991,     $22.8     billion        in the    outyears,       and $24.7 billion
in anticipated       savings      related        to the Defense Management Report.
Even so, DOD is still           faced with decisions              on how and where to make
reductions     of another       S137.9      billion       ($212   billion      minus $74.1
bill   ion) between     fiscal      years 1992 and 1994.

DOD officials        explained      that rapidly         changing     events make it
difficult,       if not impossible,          to make the decisions             at this time on
where and how these reductions                will    be made.        For these reasons,            a
new FYDP has not been prepared.                   While we do not think             that DOD
should make hasty and premature                 decisions,       it is important          that
these decisions          be made soon.         Until     these decisions         are made,
program managers           may be making       decisions      based on erroneous
information.          Resources      that are now allotted            to them in the FYDP
may not      be available.       Furthermore,          the Congress        is faced with
budget decisions           that will     have long-term         implications,         but   without
an updated FYDP, it does not have the information                            necessary      to
fully      assess alternatives.




                                                 3
THE NEED TO REASSESS MAJOR ’
WEAPONS ACQUISITIONS

The Congress will     need accurate      and timely    information      to use in
scaling   down the types and quantities         of major weapon systems           that
enter DOD’s inventory.       In the President’s        budget for fiscal        year
1991,   20 programs   are scheduled      for termination      in fiscal     year
1991.    These programs   account     for about $3 billion         of reductions       in
fiscal   year 1991 and a total      of $28.3 billion        in reductions      between
fiscal   years 1991 and 1994.

In    view of the lessening      tensions    with the Soviets,    the change in
the types of conflicts         we are likely      to face in the future,    and the
increase     in warning   time    that appears to have come about        as a
result     of the reduced tensions,       now is the     time to rethink   our
entire     weapon system    acquisition     strategy.

During      the 198Os,       numerous systems were approved            for production
before      adequate      testing      had been done to ensure that the weapons
did what they were supposed to do.                   This strategy       of concurrent
production         and testing       was designed    to get systems in the field
more    quickly,       but it often        resulted  in making     extensive--and
expensive--        changes after        the systems were fielded.           In some cases,
it resulted          in systems      that did not perform       their    mission.     Several
major     systems      acquisitions,         such as the following,        are now
following        this same path:

The B-2 Bomber Program:      The B-2 acquisition      strategy   includes     cost
and schedule  projections     that rely on very high annual funding
levels  ($7.5 to $8.0 billion)       and on ordering    a large number     of
planes before   the necessary     testing  is completed     to demonstrate
that the B-2 can perform      its mission.




                                             4
From 1986 to 1989, the B-2 cost estimate           increased     by a net $12
billion:     cost increases    are estimated     at $18 billion,      and
projected    future   savings  are projected     at $6 billion.       The final
B-2 delivery      was extended   3 years to 1999.       Future schedule
changes and cost increases        will  occur if projected       annual funding
requirements      are not appropriated     or if planned program savings        are
not achieved.

The flight      test program has just         begun.    If current      schedules   are
met,   it will     be at least    3 years before       critical    performance
requirements       have been fully      tested.      At that point      in testing,
problems     are typically     discovered,       and under the current        schedule,
over $48 billion       will  ‘have been appropriated,           and 31 aircraft     will
have been ordered.

Major design      changes early          in the B-2’s development        caused
manufacturing      difficulties          that have contributed        to a slower
production     schedule       and labor      cost increases.      Contractors     have
reported     improvements        in productivity       and reductions      in
manufacturing      defects,        but these improvements        are less than
anticipated.       Also,      continuing      design changes may further        hinder
manufacturing       improvements.

In view of all of these uncertainties,               as well as changing   world
condit-ions,      we believe  that it would be prudent        to reduce the pace
of the funding       and production     of the B-2 in order to limit       up-
front     investment    until the critical      performance   elements   of the
aircraft      have been adequately      evaluated.

Rail Garrison : Initial      operational     capability    for the rebased
Peacekeeper   missiles    is planned     for 1992, and the full       operational
capability   of all 50 missiles       is planned     to be achieved    in 1994.
To meet these milestones,       an initial    low-rate    production     decision
for the missile     launch cars is scheduled         for February    1991.

                                            5
At the time the initial           production      decision     is scheduled    to be
made, no operational          test and evaluation          of the complete     weapon
system (including        the missiles        and rail    launch cars) will       have been
conducted.      Additionally,        the Air Force plans to purchase             about 73
percent    of the launch cars after            the initial       production   decision.
Such a large purchase           would,    in effect,      amount to full-rate
production     without     any operational        test or evaluation        of the
complete     weapon system.

The Air Force considers               the Rail Garrison           to be a low technical
risk    because it views the program as basically                        an engineering
effort      to integrate         proven missile         systems into the existing               rail
industry.          However,      the Rail Garrison           Test and Evaluation            Master
Plan identifies            unique characteristics             of the program that require
testing.          These include        (1) the capability           of the train         to
withstand         missile     launch,     (2) the launch effects            on commercial
railroad        trackbeds       and the ability         of the train      to resume mobile
operation         after    launch,     (3) the capability           of the guidance          and
control       system to recover           specified       levels    of accuracy        following
rail     transit,        and (4) the effects           of horizontal      basing and rail
movement on Peacekeeper               missile       performance       and reliability.

We have recommended that the initial                    production       decision     be
deferred    until    the Air Force has conducted                 some operational           test
and evaluation       of the complete           weapon system.           While the Air Force
has delayed       the initial       production      decision       from April      1990 to
February    1991, the first           flight    test of the complete             weapon system
is not scheduled        until     the third       quarter    of fiscal       year 1992.
Therefore,     we believe       that the $1.62 billion               in the fiscal        year
1991 budget for the           procurement         of the rail        launch cars ($1.35
billion)    and construction             of the garrisons        ($269 million)          should be
deferred    pending     completion         of operational        tests    and evaluation         of
the test results.           We also believe         that the $102.6 million               in
advanced procurement          funding        and the $104.8 million             in military
                                                  6
construction  funding,          which   was appropriated         in   fiscal   year    1990,
should be rescinded.

The M-l Block II Program:                 The Army requested     $166 million    in
fiscal      year 1990 for advanced procurement               to produce a costly      and
significantly         modified      Abrams MlAl tank.        The Army believed     that
the modified        tank,    called     the “MlA2,”    was needed as an -interim
response       to future     Soviet     threats.     The Secretary    of Defense has
also requested         funding      in the fiscal     year 1991 budget to produce 62
M?A2 tanks.        With completion           of these tanks in March 1993,
production       of the Abrams tank is planned             to be terminated.

In   December             the Defense Acquisition
                      1988,                                  Board conditionally
approved      the Block II program         (the third      in a series     of block
modifications        to the Abrams tank)        for development       but    placed a $300
thousand      per-tank    limit     on the modifications.         As currently
designed , the modification            package will       cost about $532 thousand
per tank with total           program production       costs of over       S1.5   billion.


The Block        II  modifications    are intended       to improve the tank’s
survivability,          fightability,    and firepower,        as well as to provide
a linkage        to the next generation       of main battle         tanks.      However,
the current         package design does not include            all the survivability,
fightability,          and firepower   enhancements        envisioned       when the Army
performed        its cost and operational        effectiveness         analysis.


In an attempt      to field     an upgraded      tank within      the prescribed          time
frame,    the Army adopted a compressed             acquisition      strategy,       which is
risky   because key components           of the modificat,ion        package are in the
early   stages of development,           and testing      and evaluation        will   not     be
completed     when certain     production      decisions       are made.       Thus, under
the current     plans,    the Army will       commit    advanced procurement            funds
before    test results      are available.
We agree     with   the   Secretary    of Defense’s       decision     to terminate      the
program.

The DDG-51 : The DDG-51’s contractor             has experienced      problems  in
designing     and constructing      the lead ship.        Because of these
problems     and because the Navy has changed the contract’s
requirements,      costs have increased       substantially,      and the expected
delivery     schedule   has slipped     about   17 months     from the original
estimate.

The target      costs for the lead ship were initially          established      at
$111 million       for design     and $157 million   for construction.        Target
costs are now estimated           at $247 million  for design     and $253
mill  ion   for construct    ion.    These costs do not include        government-
furnished      equipment,    such as the AEGIS combat     system.


Although     the contractor       estimates     that about 50 percent            of the lead
ship is complete,        the major job of outfitting               the ship remains        to
be done.       The combat    system      and other    technical       components       have to
be installed       and integrated        within   the ship.       Often,     in the
development      of new systems,         it is during      the systems       integration
phase and subsequent         testing       that problems      surface.       The schedule
and costs of follow-on          ships are often         affected.

Although     the first      follow-on     ship is only 1 percent         complete,     the
estimated      cost to complete        it is already    over the ceiling         price    by
11 percent,       according      to the contractor,     and by 22 percent,
according      to the Navy.         In January   1990, we issued a report           on the
DDG-51    program in which we recommended that the Secretary                     of
Defense delay the contract             award for follow-on      ships until        he could
provide    assurance      as to the development        and affordability         of the
program.

Last week,      the Navy awarded        contracts  for 5 follow-on     ships and now
has a total       of 12 follow-on       ships under contract.      Furthermore,  the
                                              8
Navy could have as many as 17 follow-on    ships under construction                               or
awarded before  the lead ship has finished    testing and has been
de1 ivered in February  199 1. We believe  that the DDG-51 program
should be reexamined.

The Advanced Combat Systems               for Submarines:      To meet new Soviet
threats      and to ensure        continued     U.S. submarine    superiority,  the
Navy has initiated            the development        of two new advanced combat
systems.         The AN/BSY-1 is to be installed            in the improved SSN-688
class     nuclear      attack    submarine,     and the AN/BSY-2 is to be
installed         in the SSN-21.        The life-cycle     cost for the two systems
is estimated         at over ‘$26 billion.

These two systems are experiencing                problems.       Problems       with the
AN/BSY-1 raise          questions    about  when the improved         SSN-688 will           be
fully    mission       capable.    In its overly      ambitious      development
objectives       and schedules       for the combat      development        program,       the
Navy allowed         insufficient      time to resolve      technical       problems.
While the AN/BSY-1 system will              provide     the SSN-688 with improved
acoustics      and weapons launch capabilities,               the system       will   be less
capable     in other        areas.   Also,  these improved        capabilities        will      be
delivered      later      and will   cost more than originally            planned.

Potential      problems     with the AN/BSY-2 are similar            to problems       the
Navy has experienced           in developing    other    advanced submarine          combat
systems,     including      the AN/BSY-1 . In order to meet the SSN-21’s
construction        schedule,     the Navy also established          overly   ambitious
objectives      and schedules        for the AN/BSY-2 program.            As a result,
the first      combat    systems     will  not have full     capabilities       when they
are delivered        to the shipbuilder.        The contractor         will  not be able
to deliver       the first     combat system with full        capability      to the
Navy   until    November      1994,    1 year    later than necessary            to meet    the
scheduled      delivery     of   the   first    SSN-21 in May 1995.



                                                9
One of the major problems                   affecting       the AN/BSY-2 system has to do
with its computer              software.         The system involves            the largest
computer      software         development         effort     ever undertaken        for a
submarine . According                 to the contractor’s            software      development
plan,      it will      require       900 software         personnel      to develop      and
integrate      3.6 million            lines    of code written          primarily      in a computer
language      with which few experienced                    programmers       are familiar.           No
consistent         training       program has yet been developed                   by the
contractor.            Also challenging            will    be (1) designing         a system with
sufficient         reliability           to ensure that mission             needs are met: (2)
developing,          refining,        and testing         a model to accurately           predict
system performance:                (,3) ensuring        that there is sufficient              time for
the government             to witness       software       testing    and to resolve
 identified        problems:         and (4) ensuring           that independent         verification
and validation            asses,sments        are performed         on the software.

DOD’s Automated          Information        Systems

Computers    are a problem        not only with weapon systems but with
automated    information       systems as well.         Our work on eight            automated
information     systems .being developed           by the Army, the Air Force,                the
Navy, and the Defense Logistics              Agency showed a disturbing               pattern
of cost growth,       schedule     delays,     and performance       shortfalls.
Furthermore,      the cost estimates         provided     to the Congress          in budget
submissions     were not always accurate,             current,    or complete,          and the
systems generally        lacked     internal    oversight      to identify       problems,
such as the following,          that needed to be corrected              during      the
development     phase:

--   All the systems have experienced       significant       cost growth,  some
     in the hundreds    of mill ions of dollars.         As of September   1988,
     the estimated   cost to develop   and deploy        the systems was about
     $2 bill ion-- about twice the originally         estimated    cost.



                                                   10
--   Four of the systems    have been           in development     for at least       8
     years,  and three of the eight             systems’   development   efforts          were
     abandoned after   spending  $330           million.


--   Budget submissions         to   the   Congress have understated    the total
     life-cycle      costs   for some      of the systems   because DOD’ components
     have not provided         current,      accurate,  and complete cost
     informat   ion.

--   The oversight       body within      the Office       of   the Secretary      of Defense
     has not rigorously         enforced     established        policies,     procedures,
     and criteria      for reviewing        major    systems      to identify     and resolve
     problems     with system      development       and to     curb    cost growth and
     implementation       delays.

DEFENSE MANAGEMENT REPORT SAVINGS
IN THE FISCAL YEAR 1991 BUDGET

The recently        issued Defense Management             Report projects    savings
totaling      $39 billion        between fiscal       years 1991 and 1995.        Of this
total,     $2.3   billion      is related       to the fiscal     year 1991 budget.
Savings     are anticipated          by reducing      and consolidating     various
functions       and activities,        streamlining       the operations    of
organizations,           and reducing      the numbers      of civilian   and military
personnel       associated       with these activities.

We have recommended many of these proposed                     cost saving measures         in
previous      reports.      For example,   we previously           recommended
consolidating         depots and maintenance       facilities,         centralizing
payroll     functions,      reducing  supply    system      costs,     establishing
realistic       aircraft    spares requirements,         and streamlining           the
acquisition        process.



                                               11
I would like        to emphasize      that the anticipated        savings      are merely
projections.          To a large    extent,    the initiatives        to achieve    these
savings      are proposed      in broad terms:       statements     on these
initiatives        do not contain       the detailed      plans or milestones       that
will     be required     to successfully       implement      the initiatives.
Therefore,       the savings     referred    to in the report         are merely
targets.

The initiatives         DOD proposes       in its Defense Management Report are
commendable       in that they offer         opportunities        to achieve   significant
savings.        However,     it is too early       to tell     whether   these projected
savings     will    be achieved.       Furthermore,        achieving   these savings
Will require        a sustained     effort    on the part of DOD’s management
over several        years.      DOD’s track     record     in carrying     out such long-
term initiatives           is somewhat questionable.

FINANCIAL     REVIEW OF THE AIR FORCE

I would     now like   to briefly    discuss      the results    .of our most
recently     completed   audit    of the Air      Force’s   financial   operations.

The Air Force does not have accurate              cost data for almost all of
its non-cash        assets such as inventory,        equipment,  aircraft,     and
missiles.      Over 70 percent        of the accounts     on its consolidated
statement     of financial     position     were unauditable,    and therefore,       we
were unable to express         an opinion     on the financial     statements     for
fiscal    year 19-88. Also,      because of these weaknesses,           the financial
information       reported  to the Office       of Management and Budget and the
Department      of Treasury    is not reliable.

There are many reasons    that the accounts    were unauditable.         The Air
Force does not have financial      systems that produce reliable
financial  data.    A number of large-dollar    items--aircraft        and
accounts  payable,   for example-- are not included      in its accounting
systems.   A double-entry    set of books with a general        ledger    is not
                                            12
maintained     to establish    full    accountability        over costs and assets.
To balance      its accounts,    the Air Force has made a large              number of
adjustments--       some over $1 bill ion-- but Air Force officials             could
not explain       the bases for these adjustments.              The inventory    systems
do not provide        reliable data to support        either     the quantities     or
the values of inventories           on hand.    Also,     there is no accounting       of
                                                                          -
the full     cost of its weapons systems.

The Air Force is aware of some of its problems                 and has taken a
number of actions      to correct     them on a case-by-case         basis.      Its
initiative   to prepare     financial     statements       and have them audited        is
an important     step.   The Defense Management Report identifies
initiatives    that will    address several        of the Air Force’s       financial
management. weaknesses.        However,    cost-eff-ectiveness       and efficiency
need to become Air Force priorities             if meaningful      and lasting
improvements     are to be achieved.

DEFENSE PROGRAMS THAT ARE VULNERABLE
TO MISMANAGEMENT, FRAUD, AND ABUSE

Last summer, we launched      a major effort          to identify     areas that are
at risk   to mismanagement,     fraud,     and abuse.        Our objective      in
doing this was to identify        troublesome       programs      and functions     in
hopes of preventing    another      scandal    similar     to the one that has
ravaged the Department      of Housing and Urban Development                 (HUD).
Much of what happened at HUD could have been avoided                    if stronger
internal    controls and better      financial      management measures had been
in place.

We have identified     14 “vulnerable”        areas--2  in defense--and    we
have targeted     them for special     attention.      The two areas in defense
are DOD’s inventory     management systems and its major           systems
acquisition.



                                           13
DOD’s Inventory       Management      Systems

DOD’s inventories     exceed S103 billion:    about $34 billion      of this
amount is for items that are not needed to meet current             operating
or war reserve    requirements.     DOD’S inaccurate    inventory    records
and, its failure    to cancel requisitions    and planned procurement
actions  for unneeded items also reflect        serious   financial
management problems.

Inventory     management has focused on filling            orders     and obligating
funds-- not on reducing       costs or controlling         or securing      stock.
The situation      has evolved     to the point     that the services         often      do
not know what or how much they have in inventory                   or on order.          In
this   type of environment,        the system is vulnerable           to
mismanagement,       fraud,  and abuse.      In addition,       storing    stock that
may not be needed is expensive           and contributes        to inventory
management inefficiencies.            When inventory      must be relocated           to
make room for additional         incoming    inventory,      the potential        for
losing    control    over stock location       is increased.         This,   in turn,
can result      in increased   material    denials      and unnecessary
procurements      because the needed stock cannot be found.

With the current     pressure  to reduce DOD’s budget,  this area
provides   a great opportunity    for DOD to make major improvements                      in
its inventory    systems.

DOD’s Major      Systems    Acquisition

The total    estimated   cost of major systems currently            being developed
or produced     exceeds $900 billion.        As I have said before,
enforcing    established    management controls        to deliver    capable   and
supportable     weapons to the user when and where they are needed and
at reasonable      cost has been the exception         rather   than the rule.
As a result,     DOD continually      buys systems that cost substantially
more than originally       estimated,     are delivered      much later   than

                                            14


                    - -
originally  scheduled,   and do not have the advertised    capabilities.
We plan to address the effectiveness    of the initiatives     being taken
to solve these long-term    problems and to achieve meaningful
savings.

REFOCUSING GAO’S EFFORTS TO
MEET CHANGING NEEDS

The rapid      changes that continue         to sweep Eastern        Europe pose
enormous challenges            for U.S. policymakers      and legislators         who must
make difficult        decisions     in the face of uncertainty.             DOD planners
must restructure          defense   forces   without    a clear definition          of
future   security       threats.      U.S. arms control       negotiators      find
themselves      rushing      to conclude    agreements    that are complicated          by
major revisions         in their    own negotiation      positions,       announcements
of unilateral        force withdrawals       by NATO allies,        and calls      for the
removal of Soviet          troops   by Eastern     European nations.

While uncertainties            about the future     abound, continuing            domestic
budgetary      pressures      make the direction       of the adjustments            clear.
U.S. forces       that are withdrawn         from Europe will         probably      be removed
from the force structure.              These withdrawals        will     require
adjustments       to logistical       support,   defense     facilities        both here and
abroad,      and major items of defense           equipment.         How well the United
States     plans for and manages the required              adjustments         during     this
transitional        period    will,   in large measure,        determine       the strength
of U.S. defense          posture    and the U.S. standing          in the world well
into the next century.

In making these tough decisions,               we should not forget       the lessons
we learned         in the post-Vietnam      era when we cut readiness         and
sustainability.          In my view,    the defense       forces    would be better
served by ensuring          that a smaller      force   is well trained      and
equipped        than by trying     to maintain     a larger     force with no muscle.


                                             15
In order to be in a position         to respond to the many anticipated
requests     from the Congress,     we have refocused     much of our work in
the defense      arena.     In many cases,  our refocusing     has consisted    of
accelerating       the type of work we had already       planned    to do.   In
other cases, we have reoriented          the scope of our work to
accommodate      the changes that    have already    taken place or ‘are in the
process     of taking    place.   I would like    to discuss    some ‘of these.


The first      change relates      to restructuring        the armed forces.         In so
doing,    we believe      that sound planning        will    be essential     if
readiness      and force quality       are to be preserved         during   this
turbulent      period.      Last year,     in a report     we issued on the U.S.
military     presence     in Europe,     we stated     that more than 723,000
servicemen       and women, U.S. civilian          employees,     dependents,      and
foreign     national     employees    were stationed        in Europe.     The
information        in our report     should be useful         to your Committee       in
addressing       the President’s      proposal     to reduce U.S. forces         in
Europe and concerns          about the costs associated           with maintaining
U.S. overseas         commitments.

DOD’s planning        is complicated        by a still-evolving         definition    of the
threat,     ongoing     conventional      and strategic        arms negotiations,       and
budgetary     pressures      that may force deeper-than-anticipated                cuts in
defense     spending.       Budgetary     savings     will    accrue from troop
reductions      in Europe but only if forces               are removed from the force
structure.        We plan to monitor         DOD’s evolving        plans and to report
as necessary       on the reasonableness           of the criteria       used in making
major force restructuring             decisions      as well as the efficiency          and
effectiveness       of other planned          changes.

Restructuring     the forces   will     also have major impacts,            such as the
following,    on logistics,    facilities,     weapons acquisition            programs,
the defense    industrial    base, and strategy      and doctrine:



                                            16
--   The return    of troops     and equipment    to the United     States   will
     alter   deployment     plans and require     a reexamination      of logistical
     support    and strategic     air and sealift     requirements.

--   Proposals       for U.S.      and overseas     base closures   will   force
     difficult       decisions      affecting    local  economies   and plans for
     military       construction       and land acquisition.       Closing    bases will
     result    in    long-term      savings   but will    entail  costs in the short
     term.

--   Budgetary   pressures    will   intensify    debate over the future    of              key
     weapons acquisition      programs     and force modernization   plans.
     These decisions     could have major impacts        on the U.S. defense
     industrial   base.

--   The anticipated         conventional        and strategic       arms control
     agreements      will    require      a reassessment       of basic military
     strategies      and doctrine.           Major decisions      on naval    force
     structure      will    need to be made as land forces               are withdrawn    from
     Europe.       Restructuring        may significantly        alter    the way reserve
     forces     are employed,        trained,     and equipped.

Other major areas that will              be affected      by the changing          events   in
Eastern    Europe are arms control              and the changing         U.S. role in NATO.
The ongoing       conventional      and strategic        arms control        negotiations
are expected       to result      in major      accords   this year.         Once these
agreements      are concluded,        the focus will        shift      to implementation
and verification.           Costs as well as benefits              will    accrue from these
accords.      As political       restructuring        proceeds      in Europe,       the role
of NATO will       be redefined,        and there may be adjustments               to the U.S.
role and its security           commitments.         We have a series          of ongoing     and
planned, assignments         to address       these issues        as well.




                                               17
                                 me----


Mr. Chairman,   this concludes    my prepared     statement.   I would   be
pleased  to answer   questions   at this  time.




                                          18
                                                   ‘066 t hmtey  ‘yooling ia6png pue 3!wouo33 s,og*sJeaA la410
                                                                                166 1 Azl JO1@PW WYUO-686 1 Ad
                                                   ‘886 1 PUPL86 1 Ad JO&~!~~l~W wads WkIO-986 CPW 986 1 Aj :a3JnOS
                                                                                   %.gpunoJ 01anp pp~ lou Aew sfeiol :aloN

 811$-       lbl$-       8&C$-         8&1$-           ZSC$-          lZZ$-          ZlZ$-                      I!a!pP lewl

 S8C         LSl         9El           ZEl             EZC            z9            PS       snldms punj Isn4 ‘lelolqns

 LS          69          z9            99              1L            Sb             Sb                 spun4 lsn4 ~a410
 811         86          PL            99              ZS            Ll             6                    Al!Jrm3S ppos
                                                                                                       sn@ms puni lsrul
 EOE-        L6Z-        ELZ-          OLZ-            SLZ-          EBZ-           L9Z-             l!a!pP pun4 IeJ@Paj

 811$-       lbl$-       8El$-         8El$-           ZSl$-          lZZ$-         ZlZ$-                       IP!laP IWO1

 SSS’ 1      8lb‘l       SLZ‘ 1        SOZ’ 1          Ebl’l         066            9b6                              blno
 8Eb‘ l$     LLZ’ l$     LEl‘l$        L90’ l$         166$          69L$           bEL$                           anuaha~

Www)       (eieuwe)    (eteu~~lse)   (emu~lse)       (m=)           (iewe)         Wwe)              suo!li!a     Ul sJwoa
  S661         9661        1661         0661          6861            8861          9861
                                     JeaA jeos!j
6’LE C$         papaau suo!s!aap uo!gmpaJ @png
C’PL             wo6 www             tl wa ~66 c- ~66c
             suwnw        166 L 40 wdw ~66 l-z66 c
                       suo!nnpaJ w6pnq aoa 166 c
                     SUO!$3npaJ   IEUO!SSaJ&JO~        066   1
                                    amw suownoarr

6’86P 1                 uo!ss!urqns la6pnq 066 1 wy
6’0 CL‘ l$                                wows
                        sWWn!P~ daM 686 1 i!JdV
                        uo!ss!urqns @6pnq 686 Lrm.ludw-
                                     suo!~l!a     u!   welloa