	Background

Since the mid-1980s, we have reported that DOD employs a systemic bias toward overly optimistic planning assumptions in its budget formulation. We have said that this results in too many programs for the available dollars—plans/funding mismatch. In 1997, infrastructure spending was 59 percent of DOD’s total budget, the same percentage that was reported in DOD’s bottom-up review report for 1994. Planned funding increases for modern weapon systems have repeatedly been shifted further into the future with each succeeding FYDP. The following table compares DOD’s procurement plans for the last five FYDPs. In the QDR, DOD acknowledges that it has a historic, serious problem—the postponement of procurement modernization plans to pay for current operating and support costs. Despite the adjustments to decrease the risk that funds would migrate from procurement to unplanned operating expenses, there are substantial risks that DOD’s program may not be executable as planned. Plans for some cuts included in the 1999 FYDP were incomplete or based on optimistic assumptions. Specifically, DOD’s procurement spending rises and falls with its total budget. The 1999 FYDP procurement projections continue to run counter to the historical trend, although DOD has moderated its position. Specifically, DOD projects that procurement funding will rise in real terms during 1998-2003 by approximately 29 percent, while the total DOD budget will remain relatively flat. Policy decisions and new program demands can also cause perturbations in DOD’s funding plans, according to the QDR report. Implications for DOD’s Future Modernization

In its QDR report, DOD recognized that current procurement trends have long-term implications. Specifically, “As successive FYDPs reduced the amount of procurement programmed in the six-year planning period, some of these reductions have accumulated into long-term projections, creating a so-called ‘bow wave’ of demand for procurement funding in the middle of the next decade.” The QDR report concludes that “this bow wave would tend to disrupt planned modernization programs unless additional investment resources are made available in future years.”
The bow wave is particularly evident when considering DOD’s aircraft modernization plans. Optimistic planning provides an unclear picture of defense priorities because tough decisions and trade-offs are avoided. In order for DOD to have an efficient and effective program and for Congress to properly exercise its oversight responsibilities, it is critical that DOD present realistic assumptions and plans in its future budgets.
Why GAO Did This Study

GAO discussed the Department of Defense's (DOD) budgetary plans to modernize its forces, focusing on: (1) DOD's experience over the last few years in trying to shift funds from nonmission or infrastructure programs to acquisition programs; (2) the risks in DOD's ability to execute its Future Years Defense Program (FYDP) for fiscal years 1999 through 2003; and (3) the implications of current procurement trends for DOD's future modernization.

What GAO Found

GAO noted that: (1) although DOD has reduced military and civilian personnel, force structure, and facilities over several years, it has been unable to follow through with planned funding increases for modern weapon systems; (2) this has occurred, in part, because DOD has not shifted funds from infrastructure to modernization; (3) in 1997, infrastructure spending was 59 percent of DOD's total budget, the same percentage that was reported in the bottom-up review report for 1994; (4) consequently, DOD has repeatedly shifted planned funding increases for modern weapon systems further into the future with each succeeding FYDP; (5) DOD acknowledged in its 1997 Quadrennial Defense Review report that it has had to postpone procurement plans because funds were redirected to pay for underestimated operating costs and new program demands, and projected savings from outsourcing and other initiatives had not materialized; (6) although DOD made adjustments in the 1999 FYDP to decrease the risk that funds would migrate from procurement to unplanned operating expenses, the 1999-2003 program, like previous programs, is based on optimistic assumptions about savings and procurement plans; (7) a further indication of risk can be found in DOD's procurement plans; (8) the rise and fall of DOD's procurement spending over the last 33 years has followed the movement in the total budget; (9) however, DOD projects that procurement funding will rise in real terms during 1998-2003 by approximately 29 percent while the total DOD budget will remain relatively flat; (10) DOD's current procurement trends have longer term implications; (11) as DOD reduced programmed procurement in successive FYDPs, it has reprogrammed some procurement to the years beyond the FYDP to create a bow wave of demand for procurement funds; (12) this bow wave, according to DOD, tends to disrupt planned modernization programs unless additional funds are made available; (13) GAO has reported that DOD employs overly optimistic planning assumptions in its budget formulation which leads to far too many programs for the available dollars; (14) optimistic planning provides an unclear picture of defense priorities because tough decisions and trade-offs are avoided; and (15) in order for DOD to have an efficient and effective program and for Congress to properly exercise its oversight responsibilities, it is critical that DOD present realistic assumptions and plans in its future budgets.