Budget Issues

Pursuant to a congressional request, GAO updated a previous report which estimated the Department of Defense's (DOD) inflation dividend, which is the benefit that accrues to DOD because of overestimates about future inflation. GAO provided: (1) updated estimates of the DOD inflation dividend; and (2) updated information on DOD unobligated budget balances.

GAO found that: (1) the estimated DOD inflation dividend for non-fuel purchases was $39.5 billion for fiscal years (FY) 1982 through 1986; (2) $14.2 billion of that dividend came from a special inflation multiplier for major weapons systems; (3) Congress has consistently reduced DOD appropriations in recognition of inflation dividends; and (4) its estimates did not reflect budget cuts which resulted from the Balanced Budget and Emergency Deficit Control Act. In addition, GAO found that: (1) during FY 1980 through 1985, DOD unobligated budget balances increased 154 percent; (2) at the end of 1985, actual unobligated balances totalled $63.7 billion, or $12.1 billion more than DOD estimated; (3) DOD estimates that, at the end of 1986, its unobligated balances will total $62.7 billion, or $7 billion more than it estimated in 1985; and (4) while DOD estimates for FY 1986 and 1987 will probably more closely reflect actual unobligated balances, such balances will continue to remain high.