Future Years Defense Program

An earlier GAO analysis of the Defense Department's (DOD) Future Years Defense Program (FYDP) for fiscal year 1998 found substantial risk that the program would not be executed as planned. According to DOD, the Quadrennial Defense Review (QDR) proposed a more balanced, modern, and capable program that can be executed within currently proposed budgets. DOD planned to incorporate many of the details of the QDR blueprint into its fiscal year 1999 FYDP. This report (1) identifies the military's plans to address the financial and programmatic risks that the QDR found in DOD's program, (2) compares DOD's 1999 FYDP with its 1998 FYDP to identify major changes and adjustments to address these risk areas, and (3) explores whether there were risk areas in DOD's 1999 program.

GAO noted that: (1) although DOD has reduced military and civilian personnel, force structure, and facilities over several years, DOD has been unable to shift funds from infrastructure to modernization; (2) in 1997, infrastructure spending was 59 percent of DOD's total budget, the same percentage as in 1994; (3) DOD acknowledged in the QDR that it has postponed 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; (4) to address this diversion of funds, the QDR directed DOD to cut some force structure and personnel, eliminate additional excess facilities through more base closures and realignments, streamline infrastructure, and reduce quantities of some new weapon systems; (5) DOD made adjustments in the 1999 FYDP to decrease the risk that funds would migrate from procurement to unplanned operating expenses; (6) DOD has programmed additional funds for new programs and has moderated its procurement plans; (7) as a result of these and other changes, DOD believes that its 1999 program is on a sounder financial footing; (8) although DOD made adjustments to the 1999 FYDP, GAO continues to see risks that DOD's program may not be executable as planned; (9) for example, DOD projects savings of $24.1 billion as a result of lower projected inflation rates and fuel costs and favorable foreign currency exchange rates; (10) if these rates and costs do not hold true to DOD's assumptions, projected savings will not materialize, and DOD will have to adjust future budgets by cutting programs and/or requesting additional budget authority; (11) further indication of risk can be found in DOD's procurement plans and additional proposed initiatives to reduce facilities; (12) DOD's estimates for procurement spending, in relation to DOD's total budget, run counter to DOD's experience over the last 32 years; (13) DOD procurement spending rises and falls in nearly direct proportion to movements in its total budget; (14) 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; (15) on some important proposed initiatives, DOD will need congressional approval; and (16) as long as the funding levels agreed to in the balanced budget agreement for national defense remain unaltered, DOD must solve its funding issues within its current and projected total budget.