Future Years Defense Program
Actions Needed to Improve Transparency of DOD's Projected Resource Needs Gao ID: GAO-04-514 May 7, 2004Congress needs the best available data about DOD's resource tradeoffs between the dual priorities of transformation and fighting the global war on terrorism. To help shape its priorities, in 2001 DOD developed a capabilities-based approach focused on how future adversaries might fight, and a risk management framework to ensure that current defense needs are balanced against future requirements. Because the Future Years Defense Program (FYDP) is DOD's centralized report providing DOD and Congress data on current and planned resource allocations, GAO assessed the extent to which the FYDP provides Congress visibility over (1) projected defense spending and (2) implementation of DOD's capabilities-based defense strategy and risk management framework.
The FYDP provides Congress with mixed visibility over DOD's projected spending for the current budget year and at least four succeeding years. On the one hand, it provides visibility over many programs that can be aggregated so decision makers can see DOD's broad funding priorities by showing shifts in appropriation categories. On the other hand, in some areas DOD likely understates the future costs of programs in the FYDP because it has historically employed overly optimistic planning assumptions in its budget formulations. As such, DOD has too many programs for the available dollars, which often leads to program instability, costly program stretchouts, and delayed program termination decisions. Also, the FYDP does not reflect costs of ongoing operations funded through supplemental appropriations. Since September 2001, DOD has received $158 billion in supplemental appropriations to support the global war on terrorism, and DOD expects to request another supplemental in January 2005 to cover operations in Iraq and Afghanistan. While DOD officials stated they are uncertain of the amount of the request, some requirements they intend to fund with the supplemental appropriation have already been identified, such as temporarily increasing the Army's force structure. Defining costs during ongoing operations is challenging and supplemental appropriations are sometimes necessary; however, not considering the known or likely costs of ongoing operations expected to continue into the new fiscal year as part of larger budget deliberations will preclude DOD and congressional decision makers from fully examining the budget implications of the global war on terrorism. The FYDP provides Congress limited visibility over important DOD initiatives. While DOD is considering how to link resources to defense capabilities and the risk management framework, it does not have specific plans to make these linkages in the FYDP, in part because the initiatives have not been fully defined or implemented. Because the FYDP lacks these linkages, decision makers cannot use it to determine how a proposed increase in capability would affect the risk management framework, which balances dimensions of risk, such as near term operational risk versus risks associated with mid- to long-term military challenges.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-04-514, Future Years Defense Program: Actions Needed to Improve Transparency of DOD's Projected Resource Needs
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Report to Congressional Committees:
United States General Accounting Office:
GAO:
May 2004:
Future Years Defense Program:
Actions Needed to Improve Transparency of DOD's Projected Resource
Needs:
DOD's Future Years Defense Program:
GAO-04-514:
GAO Highlights:
Highlights of GAO-04-514, a report to Congressional Committees
Why GAO Did This Study:
Congress needs the best available data about DOD‘s resource trade-offs
between the dual priorities of transformation and fighting the global
war on terrorism. To help shape its priorities, in 2001 DOD developed a
capabilities-based approach focused on how future adversaries might
fight, and a risk management framework to ensure that current defense
needs are balanced against future requirements. Because the Future
Years Defense Program (FYDP) is DOD‘s centralized report providing DOD
and Congress data on current and planned resource allocations, GAO
assessed the extent to which the FYDP provides Congress visibility over
(1) projected defense spending and (2) implementation of DOD‘s
capabilities-based defense strategy and risk management framework.
What GAO Found:
The FYDP provides Congress with mixed visibility over DOD‘s projected
spending for the current budget year and at least four succeeding
years. On the one hand, it provides visibility over many programs that
can be aggregated so decision makers can see DOD‘s broad funding
priorities by showing shifts in appropriation categories. On the other
hand, in some areas DOD likely understates the future costs of programs
in the FYDP because it has historically employed overly optimistic
planning assumptions in its budget formulations. As such, DOD has too
many programs for the available dollars, which often leads to program
instability, costly program stretch-outs, and delayed program
termination decisions. Also, the FYDP does not reflect costs of ongoing
operations funded through supplemental appropriations. Since September
2001, DOD has received $158 billion in supplemental appropriations to
support the global war on terrorism, and DOD expects to request another
supplemental in January 2005 to cover operations in Iraq and
Afghanistan. While DOD officials stated they are uncertain of the
amount of the request, some requirements they intend to fund with the
supplemental appropriation have already been identified, such as
temporarily increasing the Army‘s force structure. Defining costs
during ongoing operations is challenging and supplemental
appropriations are sometimes necessary; however, not considering the
known or likely costs of ongoing operations expected to continue into
the new fiscal year as part of larger budget deliberations will
preclude DOD and congressional decision makers from fully examining the
budget implications of the global war on terrorism.
DOD‘s Emergency Supplemental Appropriations for 2004:
[See PDF for image]
[End of figure]
The FYDP provides Congress limited visibility over important DOD
initiatives. While DOD is considering how to link resources to defense
capabilities and the risk management framework, it does not have
specific plans to make these linkages in the FYDP, in part because the
initiatives have not been fully defined or implemented. Because the
FYDP lacks these linkages, decision makers cannot use it to determine
how a proposed increase in capability would affect the risk management
framework, which balances dimensions of risk, such as near term
operational risk versus risks associated with mid- to long-term
military challenges.
What GAO Recommends:
GAO makes recommendations to provide Congress more data in fiscal year
2005 and beyond on known or likely costs of operations, and to enhance
the FYDP as a tool in the new strategic environment. In comments on a
draft report, DOD stated it already provides reliable information on
known costs of ongoing operations to Congress as soon as it is
available, and did not concur with the proposal to enhance the FYDP.
GAO believes its recommendations offer practical solutions that would
provide better information for congressional decision-makers to use
during budget deliberations.
www.gao.gov/cgi-bin/getrpt?GAO-04-514.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Sharon Pickup at (202)
512-9619 or pickups@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
FYDP Provides Congress with Mixed Visibility of Projected DOD Spending:
The FYDP Has Not Been Linked to Important QDR Initiatives, Thereby
Limiting Congressional Visibility:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Comparison of DOD's 2003 and 2004 FYDPs by Primary
Appropriation Category:
Appendix III: Comments from the Department of Defense:
Appendix IVGAO Contact and Staff Acknowledgments:
Table:
Table 1: Emergency Supplemental Appropriations for DOD since September
11, 2001:
Figure:
Figure 1: Total Dollar Changes in Appropriation Categories between the
2003 and 2004 FYDPs for Fiscal Years 2004-2007:
Abbreviations:
CBO: Congressional Budget Office:
DOD: Department of Defense:
FYDP: Future Years Defense Program:
O&M: operation and maintenance:
QDR: Quadrennial Defense Review:
RDT&E: research, development, test and evaluation:
United States General Accounting Office:
Washington, DC 20548:
May 7, 2004:
Congressional Committees:
In light of the Department of Defense's (DOD) challenge of transforming
its forces for the future while simultaneously fighting the global war
on terrorism, decision makers need to have the best data available
about resources[Footnote 1] to make trade-offs among these priorities.
The Future Years Defense Program (FYDP), a DOD centralized report
consisting of thousands of program elements, provides information on
DOD's current and planned outyear budget requests and is one of the
principal tools available to help inform DOD and Congress about
resource data relating to these challenging trade-offs. In 2001, to
help shape its priorities, DOD developed a new capabilities-based
defense strategy focused on "how" future adversaries might fight,
rather than specifically on "whom" they might be. Realizing that it
could not achieve the goals of the new strategy without a new approach
to managing different kinds of defense risks, such as near term
operational risk, DOD identified an associated risk management
framework to ensure that current defense needs are balanced against
future requirements. These two concepts--the capabilities-based
approach and the risk management framework--are key tenets in DOD's
2001 Quadrennial Defense Review (QDR).[Footnote 2] Furthermore, DOD has
emphasized the need to link resources to capabilities and the risk
management framework.
We believe this report on the FYDP will be useful for your committees'
oversight of DOD's future resource allocations between the dual
priorities of transformation and fighting the global war on terrorism.
We examined the utility of the FYDP as one of the principal tools
providing DOD and Congress data on current and planned resource
allocations. Specifically we assessed the extent to which the FYDP
provides Congress visibility over (1) projected defense spending and
(2) the implementation of DOD's capabilities-based approach and risk
management framework outlined in the 2001 QDR.
In conducting our review, we determined that the automated FYDP data
were sufficiently reliable for meeting our objectives. To assess
congressional visibility of projected defense spending, we compared DOD
reports and related 2003 and 2004 budget submissions, analyzed 2003 and
2004 FYDP resource data, examined related reports, reviewed documents
and officials' statements related to supplemental appropriations, and
interviewed appropriate DOD program and budget officials. To assess
DOD's implementation of its capabilities-based approach and risk
management framework, we interviewed appropriate DOD officials, and
officials from the Institute for Defense Analyses --the organization
currently under contract to make improvements to the FYDP; examined
various DOD planning and budget documents; and analyzed the FYDP
structure for the feasibility of including links to defense
capabilities and the risk management framework. We conducted our work
between June 2003 and February 2004 in accordance with generally
accepted government auditing standards. See appendix I for a more
complete description of our scope and methodology.
Results in Brief:
The FYDP provides Congress with mixed visibility over DOD's projected
spending. On the one hand, it provides visibility over many programs
that can be aggregated so that decision makers can see DOD's broad
funding priorities by showing shifts between and within appropriation
categories. On the other hand, the FYDP provides less visibility over
some important funding categories and may understate some costs. For
example, the FYDP does not provide visibility over costs for some high
priority items--such as civilian personnel, spare parts, and
information technology--because, by design, these items are embedded in
individual programs. Furthermore, as prior GAO reports have shown, DOD
limits visibility in some areas because it likely understates future
costs by employing overly optimistic planning assumptions in its budget
formulations for programs, such as the long-term costs for weapon
systems. Overly optimistic planning assumptions for programs not only
limit visibility; they may have adverse implications, such as program
termination, for the programs beyond the FYDP years.
In addition, DOD does not include the costs of ongoing operations
funded through supplemental appropriations, such as the global war on
terrorism. Since September 11, 2001, DOD has received $158 billion in
supplemental appropriations--an amount that exceeds the $99 billion DOD
received in supplemental appropriations throughout all of the 1990s and
is more than DOD's fiscal year 2004 request for its entire Operation
and Maintenance account.[Footnote 3] Further, the administration
expects to request another supplemental in January 2005 to cover costs
of operations in Iraq and Afghanistan. While DOD officials have stated
their uncertainty about how much will be requested, some requirements
they intend to fund with the supplemental appropriation have already
been identified, such as the cost of increased Army force structure. We
recognize that defining costs during ongoing operations is challenging
and supplemental appropriations are sometimes necessary to cover these
costs. Nonetheless, not considering the expected costs of ongoing
operations as part of larger budget deliberations will mean that
neither the administration nor congressional decision makers will have
the opportunity to fully examine the budget implications of the global
war on terrorism. Therefore, we are recommending that DOD provide
information on known or likely costs for ongoing operations to Congress
for consideration during its fiscal year 2005 and future budget
deliberations.
The FYDP's current usefulness is limited in providing Congress
visibility over the implementation of the capabilities-based defense
strategy and associated risk management framework, important QDR
initiatives. The Major Force Programs, initially developed as the
fundamental framework of the FYDP, remain virtually unchanged and are
not representative of DOD's capabilities-based approach. Because the
FYDP has a flexible structure, DOD has modified it over time to capture
the resources associated with special areas of interest, such as space
activities. However, DOD has not established a link in the FYDP to
either defense capabilities, the basis of its new approach to the
defense strategy, or the risk management framework, developed to ensure
that current defense needs are balanced against future requirements.
Moreover, while DOD is considering how to link resources to these
initiatives, it does not have specific plans to make these linkages in
the FYDP, in part because the initiatives have not been fully
developed. DOD is currently undergoing the complex process of fully
defining the capabilities it needs to meet the defense strategy.
Although the risk management framework is better defined, DOD has not
completed its process of linking it to resources, and this process does
not include creating a link in the FYDP. Therefore, although DOD makes
funding decisions that affect defense capabilities and the risk
management framework, the effects on capabilities and risk are not
clearly identifiable in the FYDP. If they were, both DOD and
congressional decision makers would have greater ability to assess how
a proposed increase or decrease in capability would relate to the funds
and other resources needed and how it would affect the risk management
framework. Therefore, we are recommending that DOD align the program
elements in the FYDP to defense capabilities and the risk management
framework and include this alignment with the FYDP provided to
Congress.
In written comments on a draft of this report, DOD stated that it
already provides reliable information on the known costs of ongoing
operations to Congress as soon as it is available and does not concur
with our proposals to enhance the FYDP as a tool in the new strategic
environment. We maintain our view that our recommendations offer
practical solutions that would provide better information for
congressional decision makers to use during budget deliberations and
for improving congressional visibility over DOD's allocation of
resources.
Background:
In 1962, DOD instituted the Planning, Programming, and Budgeting System
to establish near-term projections in defense spending. This system was
intended to provide the necessary data to assist defense decision
makers in making trade-offs among potential alternatives, thereby
resulting in the best possible mix of forces, equipment, and support to
accomplish DOD's mission. The military services and other DOD
components developed the detailed data projections for the budget year
in which funds were being requested and at least the 4 succeeding years
and provided them to the Office of the Secretary of Defense. The
resulting projections were compiled and recorded in a 5-year plan. In
1987, Congress directed the Secretary of Defense to submit the five-
year defense program (currently referred to as the future years defense
program, or FYDP) used by the Secretary in formulating the estimated
expenditures and proposed appropriations included in the President's
annual budget to support DOD programs, projects and
activities.[Footnote 4] The FYDP, which is submitted annually to
Congress, is considered the official report that fulfills this
legislative requirement.
The Office of Program Analysis and Evaluation has responsibility for
the assembly and distribution of the FYDP. The Office of the Under
Secretary of Defense (Comptroller) has responsibility for the annual
budget justification material that is presented to Congress. These
offices work collaboratively to ensure that the data presented in the
budget justification material and the FYDP are equivalent at the
appropriation account level.
The FYDP provides DOD and Congress a tool for looking at future funding
needs beyond immediate budget priorities and can be considered a long-
term capital plan. As GAO has previously reported, leading practices in
capital decision making include developing a long-term capital plan to
guide implementation of organizational goals and objectives and help
decision makers establish priorities over the long term.[Footnote 5] In
2002, Congress directed the Department of Homeland Security to begin
developing a future budget plan modeled after DOD's FYDP.[Footnote 6]
In the 2001 QDR Report, DOD established a new defense strategy and
shifted the basis of defense planning from a "threat-based" model to a
"capabilities-based" model. According to the QDR report, the
capabilities-based model is intended to focus more on how an adversary
might fight rather than specifically on whom the adversary might be or
where a war might occur. The report further states that in adopting a
capabilities-based approach, the United States must identify the
capabilities required to deter and defeat adversaries, maintain its
military advantage, and transform its forces and institutions.
The QDR report also outlined a new risk management framework to use in
considering trade-offs among defense objectives and resource
constraints. This framework consists of four dimensions of risk:
* Force management-the ability to recruit, retain, train, and equip
sufficient numbers of quality personnel and sustain the readiness of
the force while accomplishing its many operational tasks;
* Operational-the ability to achieve military objectives in a near-term
conflict or other contingency;
* Future challenges-the ability to invest in new capabilities and
develop new operational concepts needed to dissuade or defeat mid-to
long-term military challenges; and:
* Institutional-the ability to develop management practices and
controls that use resources efficiently and promote the effective
operation of the Defense establishment.
These risk areas will form the basis for DOD's annual performance goals
and for tracking associated performance results. Moreover, the QDR
states that an assessment of the capabilities needed to counter both
current and future threats must be included in DOD's approach to
assessing and mitigating risk.
FYDP Provides Congress with Mixed Visibility of Projected DOD Spending:
The FYDP provides Congress visibility of broad DOD funding shifts and
priorities regarding thousands of programs that have been aggregated,
or grouped, by appropriation category. For example, we noted that DOD
increases its Research, Development, Test and Evaluation (RDT&E)
account category and decreases other account categories in the 2004
FYDP. Other funding shifts/priorities are less visible because the FYDP
report, organized by program, cannot display some specific costs that
are important to decision makers, such as funding for DOD's civilian
workforce. Moreover, the FYDP is a reflection of the limitations of
DOD's budget preparation process. For example, as we have reported in
the past, the FYDP reflects DOD's overly optimistic estimations of
future program costs that often lead to costs being understated. Such
understatements may have implications for many programs beyond the
years covered by the FYDP. Finally, the costs of ongoing operations in
Iraq and Afghanistan, which have been funded through supplemental
appropriations, are not projected in the FYDP thereby limiting the
visibility over these funds. The administration is expected to request
additional supplemental funds in calendar year 2005 according to DOD
officials. Although some costs are difficult to predict, DOD expects
costs to become more predictable later this year. However, some
requirements it plans to fund with the supplemental appropriation have
already been identified.
Some Funding Shifts/Priorities Are Visible at the Appropriation
Category Level in the FYDP; Others Are Less Visible:
The FYDP was designed to provide resource information at the program
level that could be aggregated a variety of ways including up to the
appropriation category level. For individual programs, this means that
decision makers have visibility over planned funding for 4 or 5 years
beyond the current budget year. Similarly, the programs can be
aggregated in a variety of ways to analyze future funding trends. For
example, our comparison of the 2003 FYDP to the 2004 FYDP provides
visibility of funding shifts that DOD made at the appropriation
category level, specifically showing that over the common years of both
FYDPs, DOD plans to increase funding in its RDT&E appropriation
category, while in most years decreasing funds to Procurement, Military
Construction, Military Personnel, and Operation and Maintenance.
According to DOD officials, this shift toward RDT&E reflects DOD's
emphasis on transforming military forces. Since the FYDP does not
clearly identify those programs DOD considers transformational, we
could not validate this claim. Figure 1 shows the changes made between
the 2003 and 2004 FYDPs to the department's appropriation categories
for the common 4-year period, 2004-2007. Appendix II provides a more
detailed table.
Figure 1: Total Dollar Changes in Appropriation Categories between the
2003 and 2004 FYDPs for Fiscal Years 2004-2007:
[See PDF for image]
[A] RDT&E = research, development, test and evaluation:
[B] O&M = operation and maintenance:
[C] The "Other DOD accounts" category includes funding for the Other DOD
Programs appropriation category (chemical agents and munitions
destruction, the defense health program, drug interdiction and counter-
drug activities, and the Office of the Inspector General), as well as
for the two appropriation categories Revolving Management Funds and
Undistributed Contingencies.
[End of figure]
Compared to the 2003 FYDP, funding in the Operation and Maintenance
appropriation category in the 2004 FYDP was reduced by at least $9
billion per year from 2004 through 2007 for a total of $42 billion over
that period. About $41 billion of that decrease is accounted for by the
elimination of the Defense Emergency Response Fund, which had projected
over $10 billion in funding each year for 2004 through 2007 in the 2003
FYDP, but had no funding in the 2004 FYDP for those years. Over those
same years, the "Other DOD accounts" category increased by a total of
$19 billion. The increase in these categories was mainly fueled by a
$22 billion increase in the Defense Health Program, which was offset
somewhat by a decrease in Revolving Management Funds.[Footnote 7]
Although DOD's policy priorities can be discerned at the appropriation
level, some important funding categories cannot be identified because
program elements, the most basic components of the report, are intended
to capture the total cost of the program, as opposed to individual
costs that comprise the program. For example, funding for spare parts,
civilian personnel, and information technology are included in funding
for individual programs and cannot be readily extracted from them.
Congress has expressed interest in all of these funding categories. We
note that DOD officials stated that these funding categories are
delineated in other reports to Congress.
Program elements that encompass multiple systems, such as the Army's
Future Combat Systems and DOD's Ballistic Missile Defense System, could
also limit visibility over funding trends and trade-offs in the FYDP.
For example, in its 2004 budget justification material, the
administration requested funding for the Army's Future Combat Systems-
-often referred to as a "system of systems"--under a single program
element.[Footnote 8] In the National Defense Authorization Act for
Fiscal Year 2004, Congress rejected the single program element and
instead required the Secretary of Defense to break Future Combat
Systems into three program elements.[Footnote 9] In the conference
report accompanying the bill, the conferees noted that "the high cost
and high risk [of the Future Combat System] require congressional
oversight which can be better accomplished through the application of
separate and distinct program elements for the [Future Combat
System]."[Footnote 10] In another example, DOD had proposed that
Congress repeal its requirement for specifying Ballistic Missile
Defense System program elements. According to DOD's legislative
proposal, this would coincide with the Secretary of Defense's goal to
establish a single program that allows allocating and re-allocating of
funds among competing priorities within the program. While Congress
provided the administration flexibility for specifying program elements
related to Ballistic Missile Defense, it nonetheless noted that budget
reporting for Ballistic Missile Defense under one program element would
be inappropriate.[Footnote 11]
FYDP Limits Visibility of Some Future Costs through Overly Optimistic
Planning Assumptions:
Since the mid-1980s, we have reported a limitation in DOD's budget
formulation--the use of overly optimistic planning assumptions. Such
overly optimistic assumptions limit the visibility of costs projected
throughout the FYDP period and beyond. As a result, DOD has too many
programs for the available dollars, which often leads to program
instability, costly program stretch-outs, and program termination. For
example, in January 2003, we reported that the estimated cost of
developing eight major weapon systems had increased from about $47
billion in fiscal year 1998 to about $72 billion by fiscal year
2003.[Footnote 12] We currently expect DOD's funding needs in some
areas to be higher than the estimates in the FYDP. The following are
some examples of anticipated cost increases based on recent reports
where we made recommendations to improve the management and costs
estimates of these programs.
* As we reported in April 2003, cost increases have been a factor in
the Air Force substantially decreasing the number of F/A-22 Raptors to
be purchased--from 648 to 276.[Footnote 13] Moreover, current budget
estimates, which exceed mandated cost limitations, are dependent on
billions of dollars of cost offset initiatives which, if not achieved
as planned, will further increase program costs. In addition, GAO
considers continued acquisition of this aircraft at increasing annual
rates before adequate testing is completed to be a high-risk strategy
that could further increase production costs.
* DOD has not required the services to set aside funds to support the
procurement and maintenance of elements of the Ballistic Missile
Defense System. Management of this "system of systems" was shifted from
the services to the Department's Missile Defense Agency in January
2002, but procurement and maintenance costs will be borne by the
services as elements of the system demonstrate sufficient maturity to
enter into full-rate production. In April 2003, we concluded that
because DOD had not yet set aside funds to cover its long-term costs,
the department could find that it cannot afford to procure and maintain
that system unless it reduces or eliminates its investment in other
important weapons systems.[Footnote 14] We recommended that the
Secretary of Defense explore the option of requiring the services to
set aside funds for this purpose in the FYDP. DOD concurred with this
recommendation, noting that doing so would not only promote the
stability of the overall defense budget but would also significantly
improve the likelihood that an element or component would actually be
fielded.
* Since its inception in fiscal year 1986, DOD's $24 billion chemical
demilitarization program (a 2001 estimate) has been plagued by frequent
schedule delays, cost overruns, and continuing management problems. In
October 2003, we testified that program officials had raised
preliminary total program cost estimates by $1.4 billion and that other
factors, yet to be considered, could raise these estimates even
more.[Footnote 15]
In written comments on a draft of this report, DOD strongly objected to
our conclusion that DOD has historically employed overly optimistic
assumptions and noted that these statements do not reflect recent
efforts to correct this problem. In August 2001, DOD established
guidance that all major acquisition programs should be funded to the
Cost Analysis Improvement Group estimates, which, according to DOD,
have historically been far more accurate than Service estimates.
However, as DOD acknowledges in its written comments, there is
currently no auditable data available to document the effects of this
guidance; therefore, we could not analyze this claim. Further, GAO
reports issued after a draft of this report was sent to DOD - such as
our March 2004 report on the Air Force's F/A-22 program and our April
2004 testimony on DOD's Chemical Demilitarization program - continue to
raise questions about DOD's planning assumptions.[Footnote 16] For
example, in our F/A-22 report, we continued to observe that additional
increases in development costs for the F/A-22 are likely and in our
report on DOD's Chemical Demilitarization Program, we observed that the
program continues to fall behind schedule milestones.
Some of the examples listed above will have budgetary impacts beyond
the 2009 end date of the 2004 FYDP. As the Congressional Budget Office
(CBO) reported in January 2003, "programs to develop weapon systems
often run for a decade or more before those systems are fielded, and
other policy decisions have long-term implications; thus, decisions
made today can influence the size and composition of the nation's armed
forces for many years to come."[Footnote 17] In its February 2004
update to that report, CBO projected that if the programs represented
in the 2004 FYDP were carried out as currently envisioned by DOD,
demand for resources would grow from the current projection in 2009 of
$439 billion to an average demand for resources of $458 billion a year
between 2010 and 2022.[Footnote 18] When CBO assumed that costs for
weapons programs and certain other activities would continue to grow as
they have historically rather than as DOD currently projects, CBO's
projections increased to an average of $473 billion a year through 2009
and an average of $533 billion between 2010 and 2022.
FYDP Does Not Provide Visibility Over Future Costs of Operations Funded
through Supplemental Appropriations:
The FYDP does not include future costs for ongoing operations when
these operations are funded through supplemental appropriations. Since
the attacks of September 11, 2001, DOD has received supplemental
appropriations totaling $158 billion in constant 2004 dollars to
support operations in Iraq, Afghanistan, and elsewhere, as well as to
initially recover and respond to the terrorist attacks. This amount
exceeds the $99 billion DOD received in supplemental appropriations
throughout all of the 1990s and is more than what DOD requested for its
entire Operation and Maintenance account for fiscal year 2004. Table 1
summarizes these supplemental appropriations.
Table 1: Emergency Supplemental Appropriations for DOD since September
11, 2001:
2004 dollars in billions.
Fiscal year: 2004;
Public law: Pub. L. No. 108-106 (Nov. 6, 2003). Emergency Supplemental
Appropriations Act for Defense and for the Reconstruction of Iraq and
Afghanistan, 2004;
Supplemental amount appropriated to DOD: $65.2.
Fiscal year: 2003;
Public law: Pub. L. No. 108-87 (Sep. 30, 2003). Department of Defense
Appropriations Act, 2004: (Rescinded funds appropriated in Pub. L. No.
108-11 (Apr. 16, 2003)); Supplemental amount appropriated to DOD: $-3.6.
Fiscal year: 2003;
Public law: Pub. L. No. 108-11 (Apr. 16, 2003). Emergency Wartime
Supplemental Appropriations Act, April 2003;
Supplemental amount appropriated to DOD: $64.0.
Fiscal year: 2002;
Public law: Pub. L. No. 107-206 (Aug. 2, 2002). 2002 Supplemental
Appropriations Act for Further Recovery From Response to Terrorist
Attacks on the United States; Supplemental amount appropriated to DOD:
$14.0.
Fiscal year: 2001/ 2002;
Public law: Pub. L. No. 107-38 (Sep. 18, 2001). 2001 Emergency
Supplemental Appropriation For Recovery From And Response to Terrorist
Attacks on the United States and Pub. L. No. 107-117 (Jan. 10, 2002).
Department of Defense and Emergency Supplemental Appropriations for
Recovery from Response to Terrorist Attacks on the United States Act,
2002;
Supplemental amount appropriated to DOD: $18.3.
Total;
Supplemental amount appropriated to DOD: $158.0.
Source: GAO analysis of supplemental appropriations.
Note: Numbers do not add due to rounding.
[End of table]
In presentations related to the 2005 President's budget submitted to
Congress in early February 2004, DOD officials reported that the budget
does not include funding for ongoing operations in Iraq and
Afghanistan, and they expect another supplemental will be needed in
January 2005 to finance incremental costs for these operations. Senior
DOD officials indicated that operations in Iraq and Afghanistan will
continue into fiscal year 2005, but the requirements and costs of these
continued operations are difficult to estimate because of uncertainties
surrounding the political situations in these regions. However, they
noted that funding estimates will likely become clearer over the course
of the year. For example, the Under Secretary of Defense (Comptroller)
stated that by July 2004, the operations in Iraq and Afghanistan may be
better defined and that having time to analyze expenditures will help
in making more realistic projections. In addition, Service and DOD
officials have already identified some requirements that have
associated costs. For example, the Army has been authorized to
temporarily increase its end strength by 30,000 soldiers. In briefings
on the 2005 budget request, DOD and Army officials stated that they
intended to partially fund this additional end strength with the
supplemental appropriation anticipated for 2005.
DOD, with congressional approval, has used different approaches in the
past to fund operations. For example, in the former Yugoslavia, DOD
funded operations begun in fiscal year 1996 through a combination of
transfers between DOD accounts, absorbing costs within accounts, and
supplemental appropriations. However, in 1997, Congress established the
Overseas Contingency Operations Transfer Fund, which provided funding
to DOD rather than directly to the individual military services, and
allowed DOD to manage the funding of contingency operations among the
military services more effectively and with some flexibility.[Footnote
19] In 2002, DOD determined that funding for operations in the former
Yugoslavia were sufficiently stable to be included directly in
appropriation account requests. GAO observed in a 1994 report that if
an operation continued into a new fiscal year, it would seem
appropriate that DOD would build the expected costs of that operation
into its budget and allow Congress to expressly authorize and
appropriate funds for its continuation.[Footnote 20] We continue to
hold this view.
The FYDP Has Not Been Linked to Important QDR Initiatives, Thereby
Limiting Congressional Visibility:
The FYDP, as currently structured, does not contain a link to defense
capabilities or the dimensions of the risk management framework, both
important QDR initiatives, limiting the FYDP's usefulness and
congressional visibility of the initiatives' implementation. Further,
although DOD is considering how to link resources to these initiatives,
it does not have specific plans to make these linkages in the FYDP. The
Major Force Programs, initially developed as the fundamental framework
of the FYDP, remain virtually unchanged and are not representative of
DOD's capabilities-based approach. Furthermore, additional program
aggregations that DOD created in the FYDP's structure do not capture
information related to capabilities-based analysis or the risk
management framework in part because these concepts have not been fully
developed.
FYDP Structure Does Not Reflect QDR Initiatives:
DOD has modified the FYDP over time to create new categories of program
elements; however, it currently does not include categorizations that
are intended to relate to the QDR's initiatives regarding defense
capabilities and the risk management framework. Major Force Programs,
originally established to organize the FYDP into the major DOD
missions, have remained virtually the same in the five decades since
their introduction, do not reflect how DOD combat forces and their
missions have changed over time, and do not organize the FYDP by major
defense capabilities. For example, the Major Force Program of General
Purpose Forces includes large numbers of programs with varied
capabilities that would complicate comparisons needed for understanding
defense capabilities and associated trade-off decisions inherent in
risk management. General Purpose Forces include virtually all
conventional forces within DOD and slightly over one-third of DOD
funding is allocated to this broad category. Ground combat units,
tactical air forces, and combatant ships are among the wide array of
forces considered General Purpose Forces. Including forces with such
diverse capabilities in the same category diminishes the Major Force
Program's usefulness to DOD and Congress for identifying trade-offs
among programs. Additionally, all available resources with comparable
capabilities are not categorized in the same Major Force Program. For
example, the Major Force Program structure identifies Guard and Reserve
forces separately despite the fact that today Guard and Reserve forces
are integrated into their respective Service's force structure, deploy
and fight with the general forces, and have some of the same
capabilities.
Over time, as decision makers needed information not captured in the
Major Force Programs, DOD created new aggregations of program elements
and added attributes to the FYDP's structure. The most recent
aggregation categorized the data by force and infrastructure
categories, which were developed to relate every dollar, person, and
piece of equipment in the FYDP to either forces or
infrastructure.[Footnote 21] This model groups forces, the warfighting
tools of the Combatant Commanders, into broad operational categories
according to their intended use (such as homeland defense or
intelligence operations), and groups infrastructure, the set of
activities needed to create and sustain forces, based upon the type of
support activity it performs (such as force installations or central
logistics). DOD has also added attribute fields to the program elements
for such activities as space and management headquarters in order to
capture the resources associated with specific areas of interest.
However, these new aggregations and attributes were not intended to
relate the FYDP's resources to defense capabilities or the risk
management framework.
DOD Does Not Have Specific Plans to Link the FYDP to Important QDR
Initiatives:
According to officials, DOD does not have specific plans to link
capabilities and the risk management framework to the FYDP, in part,
because these concepts have not been fully developed. For example,
capability-based analysis is still under development. DOD officials
describe this as a complex process--representing a fundamental shift in
the basis of defense planning and requiring the participation of all
DOD components. In the past, DOD focused on whom an adversary might be,
whereas the current approach focuses on how future adversaries might
fight. DOD's April 2003 Transformation Planning Guidance states that
joint operating concepts will provide the construct for a new
capabilities-based resource allocation process. To date, these joint
operating concepts have not been formalized. According to DOD
officials, while some concepts may be completed near-term, the overall
initiative is expected to take 4 to 5 years to complete.
Furthermore, although the risk management framework has been better
defined than the capabilities have, it also has not been fully
implemented because it has not been fully linked to resources. In
December 2002, DOD instructed its components to begin displaying the
linkage of plans, outputs, and resources in future budget justification
material based upon the four dimensions of its risk management
framework. According to DOD officials, in the fiscal year 2005 budget
submission, DOD provided this linkage for 40 percent of its resources.
DOD plans to complete this process by fiscal year 2007, but does not
currently have plans to link the risk management framework to the FYDP
as part of this process. DOD's 2003 Annual Report provided an example
of how the FYDP could be linked to the risk management framework using
the Force and Infrastructure categories. However, according to DOD
officials, this example was intended to be a rough aggregation for a
specific performance metric and is not officially recognized as the
most appropriate way to show how DOD's resources link to the risk
management framework. Therefore, this linkage has not been integrated
into the FYDP's structure.
Conclusions:
It is important for DOD and congressional decision makers to have the
most complete information possible on the costs of ongoing operations
as they deliberate the budget. In a previous report, we observed that
if an operation continues into a new fiscal year, it would seem
appropriate that DOD would build the expected costs of that operation
into its budget and allow Congress to expressly authorize and
appropriate funds for its continuation. We recognize that defining
those expected costs is challenging and that supplemental
appropriations are sometimes necessary. Nonetheless, the consequences
of not considering the expected costs of ongoing operations as part of
larger budget deliberations will mean that neither the administration
nor congressional decision makers will have the opportunity to fully
examine budget implications of the global war on terrorism. Indeed, the
FYDP could be a useful tool for weighing the costs of defense
priorities such as the global war on terrorism and DOD's transformation
efforts. However, as a reflection of the budget, the FYDP is weakened
in this regard because it does not include known or likely costs of
ongoing operations funded through supplemental appropriations. Without
a clear understanding of such costs, members of Congress cannot make
informed decisions about appropriations between competing priorities.
Additionally, the FYDP as it is currently structured does not provide
either DOD or Congress with full visibility over how resources are
allocated according to key tenets of the defense strategy outlined in
the QDR. As a result, resource allocations may not reflect the
priorities of the defense strategy, including its new capabilities-
based approach and the risk management framework. Yet, the current
strategic environment and growing demand for resources require that DOD
and Congress allocate resources according to the highest defense
priorities. Indeed, as the common report that captures all components'
future program and budget proposals, the FYDP provides DOD an option
for linking resource plans to its risk management framework and
capabilities assessment and providing that information to Congress.
Furthermore, this linkage could provide a crosswalk between
capabilities and the risk management framework such that assessments of
capabilities could be made in terms of the risk management framework,
which balances dimensions of risk, such as near term operational risk
versus risks associated with mid-to long-term military challenges.
Recommendations for Executive Action:
In the interest of providing Congress greater visibility over projected
defense spending, we recommend that the Secretary of Defense direct the
Undersecretary of Defense (Comptroller) to take the following two
actions:
* provide Congress data on known or likely costs for ongoing operations
that are expected to extend into fiscal year 2005 for consideration
during its deliberation over DOD's fiscal year 2005 budget request and
accompanying FYDP and:
* include known or likely projected costs of ongoing operations for the
fiscal year 2006 and subsequent budget requests and accompanying FYDPs.
To enhance the effectiveness of the FYDP as a tool for planning and
analysis in the current strategic environment, the Secretary of Defense
should direct the Office of Program Analysis and Evaluation to take the
following two actions:
* align the program elements in the FYDP to defense capabilities needed
to meet the defense strategy, as these capabilities are identified and
approved, and the dimensions of the risk management framework and
include this alignment with the FYDP provided to Congress, and:
* report funding levels for defense capabilities and the dimensions of
the risk framework in its summary FYDP report to Congress.
Agency Comments and Our Evaluation:
In written comments on a draft of this report, DOD provided some
general overarching comments concerning our characterization of the
FYDP as a database, as well as other comments responding to our
specific recommendations.
First, DOD noted that it had redefined the FYDP as a report rather than
a database, and stated that it maintains a variety of databases to
support decision making that should not be confused with the FYDP
itself. DOD stated that our characterization of the FYDP as a database
resulted in a misinterpretation that pervades our draft report and
results in incorrect assertions and conclusions. We have updated our
report to refer to the FYDP as a report rather than a database in
response to the definition change provided in DOD's April 2004 guidance
- issued after our draft report was sent to DOD for comment. However,
we disagree with the DOD statement that characterizing the FYDP as a
flexible database structure leads to incorrect assertions and
conclusions. Whether the FYDP is referred to as a database or a report,
it is an existing tool used to inform analyses, as DOD acknowledged in
its written comments, and it has been modified over time to capture
resource information associated with special areas of interest.
Although a variety of databases are maintained by DOD to support
decision making, the FYDP is submitted annually to Congress, as
required. Therefore, we believe that our recommendations that DOD
provide Congress with greater information in fiscal year 2005 and
beyond on known or likely costs of operations, and enhance the FYDP as
a tool in the new strategic environment provide practical solutions for
improving congressional visibility of DOD's allocation of resources, as
discussed below.
DOD neither concurred nor nonconcurred with the recommendations that
the Undersecretary of Defense (Comptroller) provide Congress data on
known or likely costs for ongoing operations that are expected to
extend into fiscal year 2005 and beyond. DOD stated that it already
provides this information to Congress as soon as it is sufficiently
reliable and that, at this point in the war on terrorism, current
operations are too fluid to permit an accurate determination of the
amount of funding required a year in advance. In response to our
statement that DOD does not include the costs of ongoing operations
funded through supplemental appropriations, DOD further stated that
items funded through supplemental appropriations are above and beyond
resources budgeted and appropriated for peacetime operations and that
funding requirements for wartime and contingency operations are driven
by events and situations that DOD cannot anticipate. We are encouraged
that DOD agrees with the principle of providing these data to Congress
as soon as they are sufficiently reliable. As we reported, DOD
indicated that operations in Iraq and Afghanistan will continue into
fiscal year 2005; therefore, it is reasonable that DOD would anticipate
some costs associated with these operations. However, DOD did not
budget any funds for these operations in its fiscal year 2005 budget
request or accompanying FYDP submitted to Congress. Based on statements
by the Undersecretary of Defense (Comptroller) that cost data will
become clearer as the year progresses, we expect that DOD will be able
to provide such data to Congress for both the fiscal year 2005 and 2006
budget deliberations. In addition, some requirements that have
associated costs, such as the Army's temporary increase in endstrength,
have already been identified. We acknowledge in our report the
challenges associated with estimating costs for ongoing operations.
Although DOD states that including these estimates would unnecessarily
complicate resource discussions and decisions, we maintain that the
challenges of estimating costs for ongoing operations must be weighed
against Congress's responsibility for balancing government-wide
funding priorities using the best available data at the time of its
budget deliberations.
Lastly, DOD nonconcurred with our recommendations for the Office of
Program Analysis and Evaluation to align the program elements in the
FYDP with defense capabilities and the risk management framework and
include this alignment with the FYDP provided to Congress. DOD stated
that it does not use the FYDP as a tool to conduct analyses of
capability or risk trade-offs between systems, as such a tool would be
relatively uninformative and needlessly complex, though the FYDP does
inform those analyses. DOD also said it does not intend to embed
capabilities or the risk management framework in the FYDP, as these
constructs are still being developed and may change significantly, but
it is working to create decision-support tools that will link resource
allocations to capability and performance metrics, and it may be able
to report on those allocations as the tools and processes mature. We
maintain our view that the FYDP is the ideal vehicle for providing
information on these new concepts to Congress. First, since the FYDP
already exists as a legally mandated reporting mechanism, it avoids the
creation of any duplicative reporting. Second, because the FYDP cuts
across all the services and agencies, it provides a macro picture of
DOD resource allocations in terms of both missions and appropriations.
Third, as we note in our report, because the FYDP is flexible, DOD has
periodically built new categories of program elements into it to
provide decision makers with resource information as needed. Currently,
Congress cannot use the FYDP to identify the results of DOD's resource
analyses of capabilities or risk trade-offs between programs because
these relationships are not aligned with the program elements in the
FYDP. We recognize that the FYDP is not the only tool available for
defense resource decision making; however, we note, as DOD has stated
in its written comments, that the FYDP informs analyses and reflects
the resource implications of decisions. While we recognize that DOD is
still working to define these concepts, we maintain our view that, once
defined, reporting these relationships with the FYDP provided to
Congress would improve congressional visibility of DOD resource
allocations.
DOD's comments are included in their entirety in appendix III.
Annotated evaluations of DOD's comments are also included in appendix
III.
We are sending copies of this report to the Secretary of Defense; the
Undersecretary of Defense (Comptroller); and the Director, Office of
Management and Budget. We will also make copies available to others
upon request. In addition, this report will be available at no charge
on the GAO Web site at http://www.gao.gov.
If you have any questions about this report, please contact me at (202)
512-9619. Major contributors to this report are listed in appendix IV.
Sharon L. Pickup Director, Defense Capabilities and Management:
List of Committees:
The Honorable John Warner:
Chairman:
The Honorable Carl Levin:
Ranking Minority Member:
Committee on Armed Services:
United States Senate:
The Honorable Ted Stevens:
Chairman:
The Honorable Daniel Inouye:
Ranking Minority Member:
Subcommittee on Defense:
Committee on Appropriations:
United States Senate:
The Honorable Duncan Hunter:
Chairman:
The Honorable Ike Skelton:
Ranking Minority Member:
Committee on Armed Services:
House of Representatives:
The Honorable Jerry Lewis:
Chairman:
The Honorable John Murtha:
Ranking Minority Member:
Subcommittee on Defense:
Committee on Appropriations:
House of Representatives:
[End of section]
Appendix I: Scope and Methodology:
We determined that the automated FYDP data was sufficiently reliable
for use in meeting this report's objectives. DOD checks the FYDP data
against its budget request sent to Congress at the appropriation
category level. We also compared the FYDP data with published documents
DOD provided to ensure that the automated data correctly represented
DOD's budget request. Specifically, we compared total budget estimates,
appropriation totals, military and civilian personnel levels, force
structure levels, and some specific program information. Based on our
and DOD's comparison, we were satisfied that the automated FYDP data
and published data were in agreement. GAO has designated DOD's
financial management area as high risk due to long-standing
deficiencies in DOD's systems, processes, and internal
controls.[Footnote 22] Since some of these systems provide the data
used in the budgeting process, there are limitations to the FYDP's use.
However, since we determined the FYDP accurately represents DOD's
budget request, it is sufficiently reliable as used for this report.
To determine whether the FYDP provides visibility over DOD funding
priorities we compared DOD reports and Secretary of Defense
congressional testimonies that supported the 2003 and 2004 budget
submissions against FYDP data. We also analyzed resource data from the
2003 and 2004 FYDPs for fiscal years 2004 - 2007 to identify trends. We
adjusted the current dollars to constant 2004 dollars using appropriate
DOD Comptroller inflation indexes to eliminate the effects of
inflation. To determine whether the FYDP provides visibility over
likely future budget requests, we reviewed other related GAO,
Congressional Research Service, and Congressional Budget Office reports
and interviewed program and budget officials at the Office of the
Secretary of Defense and service headquarters. In addition, we
summarized documents related to supplemental appropriations and
analyzed DOD officials' statements regarding plans for supplemental
appropriations in 2005.
To determine whether the FYDP is useful for implementing DOD's risk
management framework and capabilities based planning, we interviewed
appropriate officials at the Office of the Secretary of Defense,
service headquarters, and the Institute for Defense Analyses--the
organization currently under contract to make improvements to the FYDP,
and examined various DOD planning and budget documents including the
2001 Report of the Quadrennial Defense Review, DOD's 2003 Annual Report
to the President and the Congress, and DOD's fiscal year 2003 and 2004
budget submissions. We also examined the structure of the FYDP to
determine if it currently included, or was possible to include, a link
to the risk management framework or defense capabilities.
Our review was conducted between June 2003 and February 2004 in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: Comparison of DOD's 2003 and 2004 FYDPs by Primary
Appropriation Category:
Total obligation authority in millions of FY 2004 dollars.
Research, Development, Test and Evaluation;
FYDP: 2003;
2004: $56,891;
2005: $59,556;
2006: $56,823;
2007: $54,902;
Total: $228,172.
Research, Development, Test and Evaluation;
FYDP: 2004;
2004: $61,827;
2005: $66,001;
2006: $62,182;
2007: $61,304;
Total: $251,314.
Research, Development, Test and Evaluation;
FYDP: $ Change;
2004: $4,936;
2005: $6,445;
2006: $5,359;
2007: $6,402;
Total: $23,142.
Research, Development, Test and Evaluation;
FYDP: % Change;
2004: 8.7%;
2005: 10.8%;
2006: 9.4%;
2007: 11.7%;
Total: 10.1%.
Procurement;
FYDP: 2003;
2004: $73,297;
2005: $76,470;
2006: $82,638;
2007: $92,698;
Total: $325,103.
Procurement;
FYDP: 2004;
2004: $72,747;
2005: $75,949;
2006: $81,594;
2007: $89,985;
Total: $320,275.
Procurement;
FYDP: $ Change;
2004: $-550;
2005: $-521;
2006: $-1,044;
2007: $-2,713;
Total: $-4,828.
Procurement;
FYDP: % Change;
2004: -0.8%;
2005: -0.7%;
2006: -1.3%;
2007: -2.9%;
Total: -1.5%.
Military Construction;
FYDP: 2003;
2004: $5,102;
2005: $6,212;
2006: $10,426;
2007: $13,054;
Total: $34,794.
Military Construction;
FYDP: 2004;
2004: $5,123;
2005: $6,036;
2006: $10,048;
2007: $12,520;
Total: $33,727.
Military Construction;
FYDP: $ Change;
2004: $21;
2005: $-176;
2006: $-378;
2007: $-534;
Total: $-1,067.
Military Construction;
FYDP: % Change;
2004: 0.4%;
2005: -2.8%;
2006: -3.6%;
2007: -4.1%;
Total: -3.1%.
Military Personnel;
FYDP: 2003;
2004: $103,966;
2005: $105,025;
2006: $107,327;
2007: $107,638;
Total: $423,956.
Military Personnel;
FYDP: 2004;
2004: $98,956;
2005: $100,174;
2006: $101,447;
2007: $101,776;
Total: $402,353.
Military Personnel;
FYDP: $ Change;
2004: $-5,010;
2005: $-4,851;
2006: $-5,880;
2007: $-5,862;
Total: $-21,603.
Military Personnel;
FYDP: % Change;
2004: -4.8%;
2005: -4.6%;
2006: -5.5%;
2007: -5.4%;
Total: -5.1%.
Operation and Maintenance;
FYDP: 2003;
2004: $128,052;
2005: $130,367;
2006: $131,653;
2007: $130,407;
Total: $520,479.
Operation and Maintenance;
FYDP: 2004;
2004: $116,959;
2005: $119,002;
2006: $120,675;
2007: $121,356;
Total: $477,992.
Operation and Maintenance;
FYDP: $ Change;
2004: $-11,093;
2005: $-11,365;
2006: $-10,978;
2007: $-9,051;
Total: $-42,487.
Operation and Maintenance;
FYDP: % Change;
2004: -8.7%;
2005: -8.7%;
2006: -8.3%;
2007: -6.9%;
Total: -8.2%.
Family Housing;
FYDP: 2003;
2004: $4,322;
2005: $4,984;
2006: $4,734;
2007: $4,572;
Total: $18,612.
Family Housing;
FYDP: 2004;
2004: $4,371;
2005: $4,694;
2006: $4,904;
2007: $4,537;
Total: $18,506.
Family Housing;
FYDP: $ Change;
2004: $49;
2005: $-290;
2006: $170;
2007: $-35;
Total: $-106.
Family Housing;
FYDP: % Change;
2004: 1.1%;
2005: -5.8%;
2006: 3.6%;
2007: -0.8%;
Total: -0.6%.
Other DOD Programs[A];
FYDP: 2003;
2004: $12,259;
2005: $12,338;
2006: $12,629;
2007: $12,824;
Total: $50,050.
Other DOD Programs[A];
FYDP: 2004;
2004: $17,900;
2005: $17,773;
2006: $18,089;
2007: $18,402;
Total: $72,164.
Other DOD Programs[A];
FYDP: $ Change;
2004: $5,641;
2005: $5,435;
2006: $5,460;
2007: $5,578;
Total: $22,114.
Other DOD Programs[A];
FYDP: % Change;
2004: 46.0%;
2005: 44.1%;
2006: 43.2%;
2007: 43.5%;
Total: 44.2%.
Revolving and Management Funds;
FYDP: 2003;
2004: $2,115;
2005: $2,587;
2006: $2,198;
2007: $3,255;
Total: $10,155.
Revolving and Management Funds;
Revolving and Management Funds;
FYDP: 2004;
2004: $2,784;
2005: $1,379;
2006: $2,103;
2007: $1,030;
Total: $7,296.
Revolving and Management Funds;
FYDP: $ Change;
2004: $669;
2005: $-1,208;
2006: $-95;
2007: $-2,225;
Total: $-2,859.
Revolving and Management Funds;
FYDP: % Change;
2004: 31.6%;
2005: -46.7%;
2006: -4.3%;
2007: -68.4%;
Total: -28.2%.
Undistributed Contingencies;
FYDP: 2003;
2004: $0;
2005: $0;
2006: $0;
2007: $0;
Total: $0.
Undistributed Contingencies;
FYDP: 2004;
2004: $45;
2005: $47;
2006: $49;
2007: $51;
Total: $192.
Undistributed Contingencies;
FYDP: $ Change;
2004: $45;
2005: $47;
2006: $49;
2007: $51;
Total: $192.
Undistributed Contingencies;
FYDP: % Change;
2004: n/a;
2005: n/a;
2006: n/a;
2007: n/a;
Total: NA.
Total;
FYDP: 2003;
2004: $386,004;
2005: $397,539;
2006: $408,428;
2007: $419,350;
Total: $1,611,321.
Total;
FYDP: 2004;
2004: $380,712;
2005: $391,055;
2006: $401,091;
2007: $410,961;
Total: $1,583,819.
Total;
FYDP: $Change;
2004: -$5,292;
2005: -$6,484;
2006: -$7,337;
2007: -$8,389;
Total: $-27,502.
Total;
FYDP: %Change;
2004: -1.4%;
2005: -1.6%;
2006: -1.8%;
2007: -2.0%;
Total: -1.7%.
Source: GAO analysis of DOD data.
Note: Totals may not add due to rounding.
[A] Other DOD programs include chemical agent and munitions
destruction, the defense health program, drug interdiction and counter-
drug activities, and the Office of the Inspector General.
[End of table]
[End of section]
Appendix III: Comments from the Department of Defense:
Note: GAO comments supplementing those in the report text appear at the
end of this appendix.
PROGRAM ANALYSIS AND EVALUATION:
OFFICE OF THE SECRETARY OF DEFENSE:
1800 DEFENSE PENTAGON WASHINGTON, D.C. 20301-1800:
APR 3 2004:
Ms. Sharon Pickup:
Director, Defense Capabilities and Management:
U.S. General Accounting Office:
Washington, D.C. 20548:
Dear Ms. Pickup:
This is the Department of Defense (DoD) response to the GAO draft
report GAO-04-514, "FUTURE YEARS DEFENSE PROGRAM: Actions Needed to
Improve Transparency of DoD's Projected Resource Needs," dated March
10, 2004 (GAO Code 350395).
First, we would like to clarify the definition of the FYDP. The FYDP is
a report that lists DoD's planned resource allocations. While DoD
maintains a variety of databases to support decision-making, these
databases are not the FYDP itself. This misinterpretation pervades the
draft report and results in incorrect assertions and conclusions.
With regard to Recommendation l, DoD already provides to Congress
reliable information on the known costs for ongoing operations as soon
as it is available. DoD does not know the details of the future costs
of ongoing operations far enough in advance to report them in its
budget request and accompanying FYDP. Items funded through supplemental
appropriations are above and beyond resources budgeted and appropriated
for peacetime operations. The funding requirements for war-time and
contingency operations are driven by events and situations that DoD
cannot anticipate.
With regard to Recommendation 2, we nonconcur with the proposal to
"align the program elements in the FYDP to 1) defense capabilities ...
and 2) the dimensions of the risk management framework and include this
alignment with the FDYP provided to Congress." DoD is working to create
decision-support tools that will link resource allocations to
capability and performance metrics, and expects to be able to report on
those allocations as the tools and analyses mature.
The enclosed point paper elaborates on these issues and provides
technical comments on the report language. Thank you for the
opportunity to comment on the draft report.
Sincerely,
Signed by:
Ken Krieg:
Enclosure As stated:
GAO DRAFT REPORT - DATED MARCH 10, 2004 GAO CODE 350395/GAO-04-514:
"FUTURE YEARS DEFENSE PROGRAM: Actions Needed to Improve Transparency
of DoD's Projected Resource Needs":
DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS:
GENERAL COMMENT: We would like to clarify the definition of the FYDP.
The FYDP is a report, produced in hard copy and electronic form, which
lists DoD's planned resource allocations. While DoD maintains a variety
of databases to support decision-making, these databases should not be
confused with the FYDP itself. This misinterpretation pervades the
draft report and results in incorrect assertions and conclusions (For
example, Line 3, Page 4 "...the FYDP has a flexible database
structure..."). As further evidence of this definition, language in the
DoD 7045.7H, FYDP Structure Handbook, that referred to the FYDP as a
"database" has been changed to refer to the FYDP as a "report.":
RECOMMENDATION 1: In the interest of providing Congress greater
visibility over projected defense spending, GAO recommended that the
Secretary of Defense direct the Under Secretary of Defense
(Comptroller) to take the following actions:
provide Congress data on known or likely costs for ongoing operations
that are expected to extend into fiscal year 2005 for consideration
during its deliberation over DoD's fiscal year 2005 budget request and
accompanying FYDP and:
include known or likely projected costs of ongoing operations in the
fiscal year 2006 and subsequent budget requests and accompanying FYDPs.
(pgs. 19-20, GAO Draft Report):
DoD RESPONSE: DoD does provide data to Congress on the estimated costs
of continuing operations as soon as that information is sufficiently
reliable. However, at this point in the War on Terrorism, current
operations are simply too fluid to accurately determine a year in
advance the amount of additional funding that would be required. As
such, any attempt to include these estimates in DoD's budget request or
FYDP would unnecessarily complicate resource discussions and decisions.
RECOMMENDATION 2: To enhance the effectiveness of the FYDP as a tool
for planning and analysis in the current strategic environment, GAO
recommended that the Secretary of Defense direct the Office of Program
Analysis and Evaluation to take the following two actions:
align the program elements in the FYDP to (1) defense capabilities
needed to meet the defense strategy, as these capabilities are
identified and approved:
and (2) the dimensions of the risk management framework and include
this alignment with the FYDP provided to Congress, and:
report funding levels for defense capabilities and the dimensions of
the risk
framework in it summary FYDP report to Congress. (p. 20/GAO Draft
Report):
DoD RESPONSE: Nonconcur with the recommendation to "align the program
elements in the FYDP to 1) defense capabilities... and 2) the
dimensions of the risk management framework and include this alignment
with the FDYP provided to Congress.
As identified in the GAO report, DoD is in the process of transitioning
to "capabilities-based analysis." While this is a fundamental change in
process, the analytical output of the process will still result in
selection of certain programs over others. The current construct of the
FYDP system enables us to determine relevant program changes. A FYDP
construct that buys "long range precision strike" or other capabilities
would be less informative than the current system and would be
needlessly complex. DoD does not use the FYDP as a tool to conduct
analysis of capability or risk tradeoffs between systems. However, the
FYDP does inform those analyses and reflects the resource implications
of those tradeoffs.
* DoD does not intend to imbed capabilities or the risk management
framework in the FYDP. Both of these constructs are still in
development and may change significantly over time. However,
information on programs and platforms contained in the FYDP may be
aligned to capabilities or the risk management framework through other
analytical tools and processes. DoD is working to create decision-
support tools that will link resource allocations to capability and
risk management frameworks. As these tools and processes mature, DoD
may be able to report funding levels for defense capabilities and the
dimensions of the risk management framework to Congress.
SPECIFIC TECHNICAL COMMENTS ON REPORT LANGUAGE:
COMMENT 1: Cover page, "What GAO Found", line 6: " . . . DoD likely
understates the future costs of programs in the FYDP because it has
historically employed overly optimistic planning assumptions in its
budget formulations.":
DoD RESPONSE:
* Strongly object to this language and its repetition throughout the
report (page 3, line 2; pages 10-12). Although modified slightly in the
body of the report, the initial statements on the report's front page
and in the "Results in Brief' section are highly inflammatory and do
not reflect DoD's recent efforts to correct this problem.
Effective with the Fiscal Guidance provided to components in
preparation for development of the FYDP for Fiscal Years 2003-2007,
signed by the Deputy Secretary of Defense, DoD established guidance
that all major acquisition programs should be funded to the Cost
Analysis Improvement Group (CAIG) estimates. Although we do not yet
have auditable data that document the effects of this guidance in
execution, CAIG estimates have historically been far more accurate that
Service estimates. DoD expects its efforts in this regard to
significantly reduce future resource shortfalls and requests that this
initiative be properly credited in all relevant sections of this
report.
COMMENT 2: Page 2, Paragraph 3: " . . . the FYDP provides less
visibility over some important funding categories and may understate
some costs. For example, costs for some high priority items --such as
civilian personnel . . .":
DoD RESPONSE:
* Civilian personnel costs are included in the pricing of all programs
in the FYDP. Apparent "cost growth" of civilian personnel generally
results from Congressionally authorized pay raises that exceed the
planning assumptions used for outyear forecasts of civilian manpower
costs. The planning rates are developed in coordination with the Office
of Management and Budget.
Civilian Personnel are inputs to a program. Disassociating civilian
personnel costs from any program would decrease rather than increase
visibility of total program costs.
COMMENT 3: Page 3, Paragraph 2: " . . . DOD does not include the costs
of ongoing operations funded through supplemental appropriations, such
as the global war on terrorism... we are recommending that DOD provide
information on known or likely costs for ongoing operations to Congress
for consideration during its fiscal year 2005 and future budget
deliberations.":
DoD RESPONSE:
* DoD already provides to Congress reliable information on the known
costs for ongoing operations as soon as it is available. DoD does not
know enough of the details of the expected future cost of current
ongoing operations far enough in advance to report them in the FY 2005
budget request and accompanying FYDP.
Items funded through supplemental appropriations are above and beyond
resources budgeted and appropriated for peacetime operations. Many of
the funding requirements for war-time and contingency operations are
driven by events and situations that cannot be anticipated in any
scenario-driven, capabilities-based planning process employed by DoD.
COMMENT 4: Page 3, Paragraph 2: " . . . such as the cost of increased
Army force structure." Also referenced on page 15, lines 2-5.
DoD RESPONSE:
* Language in the report implies that DoD has fully identified the cost
of increased Army force structure and so should report these costs to
Congress in our budget request for FY 2005. In fact, we have not yet
fully identified the specific costs by fiscal year of the Army plan.
The work to define the particulars of this plan in sufficient detail to
support budget development is still in progress.
COMMENT 5: Page 11: "Cost increases have been a factor in the Air Force
substantially decreasing the number of F/A-22 Raptors to be purchased -
-from 648 to 276.":
AIR FORCE RESPONSE:
* Language in the draft report implies that the quantity reduction from
648 to 276 is largely due to affordability issues. In fact, much of the
quantity reduction stems from two DoD Quadrennial Defense Reviews
(QDRs), which in turn drove up the cost of the remaining units. The
1993 Bottom-up Review (BUR) and the 1997 QDR reductions accounted for
305 aircraft.
* The Air Force stands firmly behind the F/A-22 program and the
validated requirement of a minimum 381 Raptors to support the joint
warfighters' requirement for Air Dominance. The Raptor will enable
warfighters to counter advanced surface-to-air missile systems and
next generation fighters. The baseline Raptor includes a lethal ground-
attack capability--future capabilities will include supersonic JDAM and
Small Diameter Bomb. Air Force is on track for a Dec 2005 Initial
Operational Capability. The program has made tremendous progress in
avionics stability in the past 12 months. Current results from the most
recent installed software indicate we are exceeding the 5-hour
requirement. Air Force pilots and maintainers continue to be impressed
by the Raptor's capabilities-the F/A-22 is meeting, and in many cases
exceeding, key performance requirements, including stealth, speed, and
sensor performance during operational tests.
* Change text to read: "Cost increases have been a factor in the
reduction of the number of F/A-22 aircraft that can be acquired. The
major impact, however, was a result of two Quadrennial Defense Reviews
that accounted for 305 aircraft.":
COMMENT 6: Page 11: "Current budget estimates, which exceed mandated
cost limitations, are dependent on billions of dollars of cost offset
initiatives, which, if not achieved as planned, will further increase
program costs.":
AIR FORCE RESPONSE:
* Our Production Improvement Program savings achieved to date give us
confidence future cost savings will also be realized. The AF has no
intention of violating the Congressional cost cap.
* Add following additional sentences: "To date, the Air Force has
invested $512 M through FY03/Lot 3 and is planning to invest $182M in
FY04 with $30M more planned in FY05 & 06 in cost reduction initiatives.
Program Office and independent assessments confirm that the projected
savings are being realized (DCAA Summer/Fall 00, Draft AFAR Mar 04).
These assessments reaffirm that the PIP investment is essential to F/A-
22 affordability Additionally, the Air Force intends to seek
Congressional cost cap relief as part of the FY06 PB, well before the
cap is breached.":
REQUEST TO ADD TO AGENCY COMMENTS (P.21), AIR FORCE:
"The Department has made tremendous strides in incorporating a
capability-based mindset to its resource allocation process. For
example, the AF has found its capability-based process to be valuable
in informing key decisions during the resource allocation process. The
process, though new, is already having significant positive impact for
FY06 by assessing how well resource allocation meets capability
requirements. In time, this process will play a vital role in shaping
the POM from the outset. Thus, the Department is aggressively adapting
its processes to best meet national security needs, and the capability-
based approach is making valuable contributions to the Department's
resource allocation decisions. Much work needs to be done, however, and
the Department is not yet ready to realign program elements and major
force programs to the capability-based requirements.":
The following are GAO's comments on the Department of Defense's letter
dated April 13, 2004.
GAO Comments:
1. DOD objected to our observation that DOD has historically employed
overly optimistic planning assumptions in its budget formulations. In
response to its comments, we acknowledged DOD guidance to reduce future
resource shortfalls on page 11 of this report and noted the lack of
auditable data to document the effects of this guidance. We also
provided additional examples of GAO reports that continue to raise
questions about DOD's planning assumptions.
2. DOD provided a rationale for growth in civilian personnel costs. We
intended civilian personnel to be an example of costs not visible in
the FYDP, as opposed to an example of cost growth. Therefore, we have
clarified the language on page 2 of this report to reflect this point.
Further, we are not proposing that civilian personnel costs be
disassociated from programs, as suggested by DOD's comments.
3. DOD reiterated that it already provides Congress reliable
information on the known costs for ongoing operations as soon as it is
available. As we stated in our evaluation of agency comments on page 19
of this report, we are encouraged that DOD agrees with the principle of
providing these data to Congress as soon as they are sufficiently
reliable. However, we note that cost data is expected to become clearer
as the year progresses and some requirements that have associated costs
have already been identified. Therefore, we expect that DOD will be
able to provide such data to Congress for their fiscal year 2005 and
2006 budget deliberations.
4. DOD noted that our report implied that the cost of increased Army
force structure has been fully identified and asserted that, to the
contrary, the work to define the particulars of this plan in sufficient
detail to support budget development is still in progress. However, we
note that in February 2004, the Undersecretary of Defense (Comptroller)
outlined an Army force-restructuring plan that would be partially
funded through the existing fiscal year 2004 supplemental
appropriation. While DOD may not have fully defined the particulars of
this plan, since it has identified a funding timeline, we believe that
at least some of the cost of increased Army force structure can be
estimated at this time.
5. Based on comments from the Air Force, DOD asked that we clarify that
the reduction in the number of F/A-22 aircraft being purchased was not
largely due to cost increases, and it referred to the role played by
two Quadrennial Defense Reviews in the decision. Our report stated,
however, that cost increases have been one factor in the Air Force's
substantially decreasing the number of F/A-22 Raptors to be purchased -
from 648 to 276. Moreover, development costs have increased
dramatically and in a report that was issued after this draft was sent
to DOD for comment, GAO continued to observe that additional increases
in development costs for the F/A-22 are likely.[Footnote 23] We
maintain our view that the F/A-22 program illustrates that DOD's
funding needs in some areas exceed the estimates used in the FYDP.
Based on comments from the Air Force, DOD challenged our implication
that the F/A-22 program will exceed mandated cost limitations if
billions of dollars of cost offset initiatives are not achieved as
planned. In February 2003, we reported that the Air Force has had some
success in implementing cost reduction plans to offset cost
growth.[Footnote 24] However, production improvement programs, also
designed to offset costs, have faced recent funding cutbacks and
therefore are unlikely to offset cost growth as planned. The Air Force
stated that it has no intention of violating mandated cost limitations,
but that it does intend to seek relief from them as part of the fiscal
year 2006 President's budget. To the extent that the Air Force requests
additional funds for the F/A-22, our view that the FYDP understates
costs is further confirmed.
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
Gwendolyn R. Jaffe (202) 512-4691:
Acknowledgments:
In addition to the person named above, Patricia Lentini, Margaret Best,
Barbara Gannon, Christine Fossett, Tom Mahalek, Betsy Morris, Ricardo
Marquez, Jane Hunt, and Michael Zola also made major contributions to
this report.
FOOTNOTES
[1] Throughout this report, the term "resources" refers to forces,
manpower, and funding.
[2] Every 4 years, as directed by 10 U.S.C. §118 (2004), DOD conducts a
comprehensive examination of the national defense strategy, force
structure, force modernization plans, infrastructure budget plan, and
other elements of the defense program and establishes a defense program
for the next 20 years.
[3] Unless otherwise stated, the years and dollars shown in this report
are on a fiscal year basis and in constant fiscal year 2004 dollars.
[4] National Defense Authorization Act for Fiscal Years 1988 and 1989
(Pub. L. No. 100-180, Sec. 1203; Dec. 4, 1987). The FYDP reporting
requirement is currently codified at 10 U.S.C. § 221 (2004) and it
states that any such future-years defense program shall cover the
fiscal year with respect to which the budget is submitted and at least
the 4 succeeding fiscal years. The FYDP must also include the estimated
expenditures and the proposed appropriations, for each fiscal year of
the period covered by that program, for the procurement of equipment
and for military construction for each of the reserve components of the
armed forces. 10 U.S.C. § 10543 (2004).
[5] U.S. General Accounting Office, Executive Guide: Leading Practices
in Capital Decision-Making, GAO/AIMD-99-32 (Washington, D.C.: Dec.
1998). GAO reported that leading organizations it studied prepare long-
term capital plans to document specific planned projects, plan for
resource use over the long term, and establish priorities for
implementation. These capital plans usually cover a 5-, 6-, or 10-year
period and are updated either annually or biennially.
[6] Homeland Security Act of 2002 (Pub. L. No. 107-296, Sec.874, Nov.
25, 2002).
[7] Revolving Management Funds include accounts such as DOD's Working
Capital Funds and National Defense Sealift Fund. These funds are used
to conduct continuing cycles of business-like activity, in which the
fund charges for the sale of products or services and uses the proceeds
to finance its spending.
[8] The Army plans to develop a family of 18 systems under the Future
Combat Systems program.
[9] Section 214(b), Pub.L. No.108-136 (Nov. 24, 2003).
[10] Conference Report (H.R. Conf. Rep. No. 108-354, at 611 (2003)),
accompanying H.R. 1588 (Pub.L. No. 108-136).
[11] Conference Report (H.R. Conf. Rep. No. 108-354, at 613 (2003)),
accompanying H.R. 1588 (Pub.L. No. 108-136).
[12] U.S. General Accounting Office, Major Management Challenges and
Program Risks: Department of Defense, GAO-03-98 (Washington, D.C.: Jan.
2003). These amounts are in constant fiscal year 2003 dollars.
[13] U.S. General Accounting Office, Tactical Aircraft: Status of the
F/A-22 Program, GAO-03-603T, (Washington, D.C.: Apr. 2, 2003).
[14] U.S. General Accounting Office, Missile Defense: Knowledge-Based
Practices Are Being Adopted, but Risks Remain, GAO-03-441 (Washington,
D.C.: Apr. 30, 2003).
[15] U.S. General Accounting Office, Chemical Weapons: Better
Management Tools Needed to Guide DOD's Stockpile Destruction Program,
GAO-04-221T (Washington, D.C.: Oct. 30, 2003). These amounts are in
then-year dollars.
[16] U. S. General Accounting Office, Tactical Aircraft: Changing
Conditions Drive Need for New F/A-22 Business Case, GAO-04-391
(Washington, D.C.: Mar. 15, 2004) and Chemical Weapons: Destruction
Schedule Delays and Cost Growth Continue to Challenge Program
Management, GAO-04-634T (Washington, D.C.: Apr. 1, 2004).
[17] Congressional Budget Office, The Long-Term Implications of Current
Defense Plans, (www.cbo.gov, January 2003).
[18] Congressional Budget Office, The Long-Term Implications of Current
Defense Plans: Detailed Update for Fiscal Year 2004, (www.cbo.gov,
February 2004).
[19] U.S. General Accounting Office, Bosnia: Cost Estimating Has
Improved, but Operational Changes Will Affect Current Estimates, GAO/
NSIAD-97-183 (Washington, D.C.: July 28, 1997) and Omnibus Consolidated
Appropriations Act, 1997 (Pub. L. No. 104-208, Sept. 3, 1999).
[20] U.S. General Accounting Office, DOD Budget: Analysis of Options
for Funding Contingency Operations, GAO/NSIAD-94-152BR, (Washington,
D.C.: Apr. 26, 1994).
[21] Institute for Defense Analyses, DOD Force & Infrastructure
Categories: A FYDP-Based Conceptual Model of Department of Defense
Programs and Resources, IDA Paper P-3660, (Alexandria, Va.: September
2002).
[22] U.S. General Accounting Office, Major Management Challenges and
Program Risks: Department of Defense, GAO-03-98 (Washington, D.C.: Jan.
2003).
[23] U.S. General Accounting Office, Tactical Aircraft: Changing
Conditions Drive Need for New F/A-22 Business Case, GAO-04-391
(Washington, D.C.: Mar. 15, 2004).
[24] U.S. General Accounting Office, Tactical Aircraft: DOD Needs to
Better Inform Congress about Implications of Continuing F/A-22 Cost
Growth, GAO-03-280 (Washington, D.C.: Feb. 28, 2003).
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