Future Years Defense Program

By projecting significantly lower inflation rates, the Defense Department (DOD) calculates that its future purchases of goods and services will cost nearly $35 billion less than it projected a year ago. DOD plans to spend $19.5 billion of this newly found purchasing power on forces modernization and other programs through fiscal year 2001. However, the Congressional Budget Office estimates that the future cost of DOD's purchases through 2001 will decline by only about $10.3 billion--far less than the DOD projection. Resource allocations in the 1997 Future Years Defense Program (FYDP) vary considerably from those in the 1996 FYDP because of the lower inflation projections, program transfers, and program changes. The projected savings from the latest round of base closures and realignments dropped from $4 billion in the 1996 FYDP to $0.6 billion in the 1997 FYDP because (1) the 1996 FYDP projected savings on the basis of interim base closing plans that later changed and (2) military construction costs related to the environmental cleanup of closed bases are higher than anticipated. A comparison of the 1996 and 1997 FYDPs also shows that DOD expects to reduce active duty force levels.

GAO found that: (1) as a result of projecting significantly lower inflation rates, DOD calculated that its future purchases of goods and services in its 1997 FYDP would cost about $34.7 billion less than planned in its 1996 FYDP; (2) according to DOD, the assumed increased purchasing power that resulted from using the lower inflation rates: (a) allowed DOD to include about $19.5 billion in additional programs in FY 1997-2001 than it had projected in the 1996 FYDP; and (b) permitted the executive branch to reduce DOD's projected funding over the 1997-2001 period by about $15.2 billion; (3) the price measure the executive branch used in its inflation projections for future purchases in the 1997 FYDP had inherent limitations and has since been improved; (4) if the executive branch decides to use the improved price measure for its 1998 budget, DOD may need to adjust its program as a result of that transition; (5) Office of Management and Budget officials told GAO they have not decided what price measure they will use to forecast inflation for the 1998 FYDP; (6) using projected inflation rates based on a different price measure from that used by the executive branch, the Congressional Budget Office estimated that the future cost of DOD's purchases through 2001 would decline by only about $10.3 billion, or $24.4 billion less than DOD's estimate; (7) resource allocations in the 1997 FYDP vary considerably from the 1996 FYDP as a result of the lower inflation projections, program transfers, and program changes; (8) the projected savings from the latest round of base closures and realignments changed considerably from the 1996 FYDP to the 1997 FYDP; (9) in the 1996 FYDP, DOD estimated savings of $4 billion from base closures; however, the 1997 FYDP projects savings of only $0.6 billion because: (a) the 1996 FYDP projected savings based on interim base closing plans that subsequently changed; and (b) military construction costs related to environmental cleanup of closed bases are projected to be $2.5 billion higher than anticipated in the 1996 FYDP; (10) a comparison of the 1996 and 1997 FYDPs also shows that DOD plans to reduce active duty force levels; (11) the smaller force planned for FY 1998-2001 would bring force levels below the minimum numbers established by law; and (12) if DOD is precluded from carrying out its plan to achieve a smaller force, it will have to make other adjustments to its program.