DOD Inflation

In response to a congressional request, GAO provided estimates of the Department of Defense's (DOD) fuel inflation dividends for fiscal years (FY) 1986 and 1987.

GAO found that DOD: (1) calculated potential inflation dividends using the Office of Management and Budget's (OMB) July 1986 preliminary projections of fuel price declines of 29.4 percent and 20 percent for FY 1986 and 1987, respectively; (2) included in these calculations the changes in the mix of petroleum products it would procure; and (3) estimated that its fuel inflation dividends would be $3.10 billion. Using the OMB August 1986 fuel price estimates, GAO calculated the DOD fuel inflation dividends and computed a potential dividend of $4.61 billion for FY 1986 and 1987. GAO also found that: (1) Congress reduced DOD budgets for FY 1986 and 1987 fuel procurements by $3.46 billion; (2) the total inflation reduction Congress made to the fuel budget requests for FY 1982 through 1987 was $7.45 billion, which was 83 percent of the total of potential dividends, based on an approximation of actual and projected refiners' crude oil acquisition costs; (3) DOD calculated its dividends using actual costs for FY 1982 through 1985 and estimated costs for FY 1986 and 1987, and estimated its dividens for FY 1982 through 1987 would be $7.68 billion; and (4) according to the DOD estimate, the reduction that Congress made to the fuel budget requests for FY 1982 through 1987 was 97 percent of the DOD fuel inflation dividend estimate.