In May 1997, DOD completed its first QDR. This is the fourth straight budget year since 1995 that DOD has not met procurement goals established in previous FYDPs. Therefore, if DOD is to achieve real growth in the procurement accounts, it must reduce funding for its infrastructure activities. The 1998 FYDP shows that spending for infrastructure is projected to decline from 58 percent to about 55 percent of DOD’s budget from 1998 through 2001 and further decline to 54 percent through 2003. QDR Finds That Program Changes Must Be Made to Mitigate Known Cost Risks

“Based on an assessment of recent patterns and the assumptions embedded in the current six-year plan, the QDR concluded that there was a potential for annual migration to unplanned expenses of as much as $10-$12 billion per year in the later years of the plan. Absent any further changes to the defense program, however, growth above $50 billion would be highly unlikely.”
A principal resource management objective of the QDR was to understand the financial risk in DOD’s program plans and devise ways to manage that risk. DOD recognizes in the report that it will need congressional approval to accomplish some of the more significant cost-reduction measures, such as additional base closures and military personnel reductions. Fiscal Year 1998 Program Provides for Small Increase in Active Military Personnel

By comparing the 1998 FYDP with the 1997 FYDP, we found that during fiscal years 1998-2001, active duty military personnel and the comparable military personnel accounts have net increases of 4,655 personnel and $929 million, respectively. The Air Force’s 1998 FYDP projections are higher than the 1997 FYDP projections in every year. Operational Changes in Bosnia Could Lead to Higher O&M Costs

Part of the higher 1998 O&M level in the 1998 FYDP is due to DOD’s request for almost $1.5 billion for Bosnia operations. According to DOD officials, the savings were programmed by the Office of the Secretary of Defense, although details do not exist on how the savings will be achieved. Estimates for Lower Health Care Costs May Be Unrealistic

The Defense Health Program, approximately 11 percent of projected annual O&M spending, changes considerably from the 1997 FYDP to the 1998 FYDP. Moreover, when the program in the 1998 FYDP is viewed in constant dollars, DOD projects no growth between fiscal year 1998 and 2001. This appears to be unrealistic, given that during fiscal years 1985-96, O&M funds in DOD’s health program increased 73 percent in real terms. Risks That Procurement Plans May Not Succeed

The 1998 FYDP reflects a net decline in planned procurement during the  4 years common to the 1997 FYDP. However, DOD has not assigned these projected funds to specific programs. DOD’s plans for procurement spending in the 1998 FYDP also run counter to another historical trend. Figure 3 shows the historical trend and DOD’s FYDP projections. We continue to find examples of program projections that appear to be overly optimistic. Quadrennial Defense Review Initiatives

The following sections describe proposed Quadrennial Defense Review (QDR) initiatives that could impact the Department of Defense’s (DOD) future programs. Most of these activities, including civilian pay, are funded from the operation and maintenance (O&M) appropriation. Request authority for two additional rounds of base closures and realignments. DOD recognizes the challenge it faces to achieve its modernization goals. Underwriting DOD’s extensive modernization effort and the Revolution in Military Affairs are plans for substantial future investments in research, development, test, and evaluation (RDT&E).
Why GAO Did This Study

Pursuant to a congressional request, GAO compared the Department of Defense's (DOD) fiscal year (FY) 1998 Future Years Defense Program (FYDP) with the FYDP for FY 1997, focusing on: (1) how major programs were adjusted from the 1997 FYDP to the 1998 FYDP; (2) how these adjustments may affect programs in the future; and (3) proposed Quadrennial Defense Review (QDR) initiatives that may have been taken by the the committees on authorization and appropriations during their reviews of the FY 1998 defense budget request.

What GAO Found

GAO noted: (1) its comparison of the 4 years common to both DOD's FY 1998 FYDP and FY 1997 FYDP (1998-2001) shows that funding for military personnel, operation and maintenance, and research, development, test, and evaluation is projected to be higher, and funding for procurement is projected to be lower than anticipated 1 year ago; (2) for the fourth straight budget year since 1995, DOD has not met its procurement goals established in pervious FYDPs; (3) the 1998 FYDP retains substantial risk that DOD's program will not be executed as planned; (4) although the 1998 FYDP projects that a smaller percentage of DOD's total budget will be needed to pay for infrastructure activities than that projected in the 1997 FYDP, DOD's projections are questionable; (5) for example, the 1998 FYDP projects billions of dollars in savings due to management initiatives, but DOD does not have details on how all the savings will be achieved; (6) also, DOD projects no real growth in the cost of the Defense Health Program during 1998-2001, whereas this program increased 73 percent in real terms during 1985-96; (7) another reason GAO believes the 1998 FYDP poses risks is that the estimates for procurement spending, in relation to DOD's total budget and its operation and maintenance projections, run counter to DOD's experience over the last 30 years; (8) DOD acknowledged in its May 1997 Report of the QDR that the 1998 FYDP includes substantial financial risk; (9) the Secretary has stated that absent any further changes, the fiscal patterns and assumptions embedded in the 1998 FYDP are most likely not going to free up sufficient funds to achieve DOD's modernization goals; (10) according to DOD, compared to the 1998 FYDP, the QDR proposes a more balanced, modern, and capable defense program that can be achieved within currently proposed budgets; (11) to accomplish its goals, DOD proposes that it reduce personnel, make some modest changes in force structure, realize additional infrastructure saving through fundamental reforms and base realignments and closures, and continue to improve its business operations; (12) the success of these initiatives will require discipline, execution, and aggressive follow-through on the part of DOD management; and (13) on some important initiatives, such as base closures and military personnel reductions, DOD will need congressional approval.