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DOD Budget: Budgeting for Operation and Maintenance Activities (Testimony, 07/22/97, GAO/T-NSIAD-97-222).

GAO discussed the military services' budgeting for operation and
maintenance (O&M) activities, focusing on: (1) differences in the
services' budget estimates and obligations for some activities within
the services' O&M accounts; and (2) the flexibility the services have in
obligating O&M funds and congressional visibility over the movement of
those funds between various O&M activities.

GAO noted that: (1) the amounts the services obligate for O&M activities
rarely agree with the estimates reflected in the budget request and that
unplanned events often occur; (2) however, GAO's analysis of certain O&M
activities shows a pattern of differences between budget estimates for
some of the services' O&M activities and what the services obligate for
those O&M activities; (3) when such patterns consistently appear, GAO
questions whether the budget estimates accurately portray the services'
true needs; (4) the services have a great deal of flexibility as to how
they obligate O&M funds, and GAO recognizes the need for flexibility;
(5) however, Congress may wish to have greater visibility over
Department of Defense appropriations to identify and fully understand
variations-and recurring patterns among variations-between the services'
budget estimates and actual obligations; (6) greater visibility could
enhance and facilitate Congress' budget decision-making; and (7) whether
Congress decides to direct changes in the budget execution process
depends on the type of information that Congress believes it needs to
make its budget authorization and appropriation decisions.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-NSIAD-97-222
     TITLE:  DOD Budget: Budgeting for Operation and Maintenance 
             Activities
      DATE:  07/22/97
   SUBJECT:  Budget administration
             Budgeting
             Future budget projections
             Presidential budgets
             Budget authority
             Military appropriations
             Budget obligations
             Reprogramming of appropriated funds
             Military budgets
             Maintenance costs
IDENTIFIER:  DOD Overseas Contingency Operations Transfer Fund
             
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Cover
================================================================ COVER


Before the Subcommittee on Military Readiness, Committee on National
Security, House of Representatives

For Release on Delivery
Expected at
2:00 p.m., EDT
Tuesday,
July 22, 1997

DOD BUDGET - BUDGETING FOR
OPERATION AND MAINTENANCE
ACTIVITIES

Statement of Sharon A.  Cekala, Associate Director, Military
Operations and Capabilities Issues, National Security and
International Affairs Division

GAO/T-NSIAD-97-222

GAO/NSIAD-97-222t

DOD Budget

(703216)


Abbreviations
=============================================================== ABBREV

  DOD - Department of Defense
  O&M - operation and maintenance

============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

I appreciate the opportunity to be here today to discuss our work on
the military services' budgeting for operation and maintenance (O&M)
activities.\1 The O&M appropriation provides the services with funds
to carry out day-to-day activities such as the recruitment and
fielding of a trained and ready force, equipment maintenance and
repair, child care and family centers, transportation services,
civilian personnel management and pay, and maintenance of the
infrastructure to support the forces.  The Department of Defense's
(DOD) budget request of over $250 billion for fiscal year 1998
includes almost $94 billion, or 37 percent of the total, for O&M
activities.  The examples of budgeting issues I will describe may be
symptomatic of a pattern in the way the services estimate their
budgets for O&M activities.  That is, DOD submits budget estimates
that are often different from what the services ultimately obligate
for various O&M activities. 

My statement focuses on

  -- examples of differences in the services' budget estimates and
     obligations for some activities within the services' O&M
     accounts and

  -- flexibility the services have in obligating O&M funds and
     congressional visibility over the movement of those funds
     between various O&M activities. 


--------------------
\1 The words "activity" and "activities" are generally used in this
statement to refer to "items of expense," which is the term used in
appropriations law. 


   SUMMARY
---------------------------------------------------------- Chapter 0:1

We recognize that the amounts the services obligate for O&M
activities rarely agree with the estimates reflected in the budget
request and that unplanned events often occur.  However, our analysis
of certain O&M activities shows a pattern of differences between
budget estimates for some of the services' O&M activities and what
the services obligate for those O&M activities.  When such patterns
consistently appear, we question whether the budget estimates
accurately portray the services' true needs. 

The services have a great deal of flexibility as to how they obligate
O&M funds, and we recognize the need for flexibility.  However,
Congress may wish to have greater visibility over DOD appropriations
to identify and fully understand variations--and recurring patterns
among variations--between the services' budget estimates and actual
obligations.  Greater visibility could enhance and facilitate
Congress' budget decision-making.  Whether Congress decides to direct
changes in the budget execution process depends on the type of
information that Congress believes it needs to make its budget
authorization and appropriation decisions. 


   DIFFERENCES IN BUDGET ESTIMATES
   AND OBLIGATIONS
---------------------------------------------------------- Chapter 0:2

In several reports, we identified patterns of differences between
estimates in the services' budget submissions and the services'
obligations for particular O&M activities. 


      SERVICES CONSISTENTLY
      REQUEST MORE OR LESS FUNDS
      THAN THEY OBLIGATE FOR SOME
      O&M ACTIVITIES
-------------------------------------------------------- Chapter 0:2.1

In our April 1995 report on Army training,\2 we point out that about
$1.2 billion, or one-third, of the $3.6 billion budgeted for
operating tempo\3 for U.S.  Forces Command and U.S.  Army, Europe, in
fiscal years 1993-94 was used to fund other O&M activities.  These
other activities included base operations, real property maintenance,
and contingency operations in Somalia and Haiti.  According to Army
officials, funds were moved from operating tempo to the other O&M
activities because the activities were either unfunded (contingency
operations) or underfunded (base operations and real property
maintenance). 

The use of operating tempo funds for other O&M activities is an issue
that we have repeatedly pointed out in our annual O&M budget reviews. 
For example, the Army requests and receives funds to operate its
combat vehicles at 800 miles per vehicle per year to achieve a
prescribed readiness level.  However, since fiscal year 1992, the
Army has consistently operated at a reduced rate--about 642 miles per
vehicle per year in fiscal
year 1996--and obligated the remaining operating tempo funds for
other O&M activities. 

Similarly, in our July 1995 report on depot maintenance,\4 we
describe how for fiscal years 1993-94, the services obligated about
$485 million less than the amount requested and about $832 million
less than the amount received for depot maintenance.  The funds
requested but not obligated for depot maintenance were obligated for
military contingencies and other O&M activities such as real property
maintenance and base operations.  This pattern continues.  According
to the conference report accompanying the fiscal year 1996 DOD
appropriations act, Congress intended that the Army have $950.7
million for depot maintenance.  Nevertheless, the Army obligated only
$764.7 million.  Furthermore, the Army acknowledged that it will
obligate $91 million less than it received for depot maintenance for
fiscal year 1997. 

In addition, in our report on the fiscal year 1996 O&M budget,\5 we
note that the Air Force requested an increase of $470 million over
the fiscal
year 1995 funding level for real property maintenance.  According to
Air Force officials, the additional funds were needed to compensate
for prior years' underfunding.  However, real property maintenance
obligations in prior years were actually greater than the amount
appropriated because funds from other O&M activities had been
diverted to the real property maintenance account. 

We found similar examples of the services consistently obligating
more or less than they budgeted for certain O&M activities when we
analyzed groups of O&M activities.  In our June 1996 report,\6 we
show that the estimated needs reflected in the Army's and the Air
Force's budget requests for groups of O&M activities for fiscal years
1993-95 were often greater than the amounts they obligated for those
activities.  This pattern was particularly true for the Army, which
obligated less funds for its combat units than it estimated it would
need and less than the amount suggested for this activity in the
conference reports to the appropriations acts.  For fiscal years
1993-95, the amount of funds the Army obligated for O&M activities
related to combat forces and support of the forces was $900 million
less than the $11.9 billion estimated requirements reflected in its
budget request.  When training and recruiting funds are also
considered, the Army obligated about $1.3 billion less than the
budget estimates.  Conversely, the Army obligated more than it
estimated it would need for infrastructure and management activities,
again obligating more than the amounts suggested in the conference
reports.\7 Of the Army's fiscal years 1993-95 O&M budget requests,
about 64 percent was for infrastructure-type functions like base
support and management activities.  However, about 70 percent of the
Army's O&M funds were obligated for these purposes. 


--------------------
\2 Army Training:  One-Third of 1993 and 1994 Budgeted Funds Were
Used for Other Purposes (GAO/NSIAD-95-71, Apr.  7, 1995). 

\3 Operating tempo is the pace of unit training that the Army
believes it needs to conduct to maintain its fleet of tracked and
wheeled vehicles at a prescribed readiness level.  Operating tempo
funds cover the cost of fuel, reparable spare parts, and consumable
spare parts. 

\4 Depot Maintenance:  Some Funds Intended for Maintenance Are Used
for Other Purposes (GAO/NSIAD-95-124, July 6, 1995). 

\5 1996 DOD Budget:  Potential Reductions to Operation and
Maintenance Program (GAO/NSIAD-95-200BR, Sept.  26, 1995). 

\6 Operation and Maintenance Funding:  Trends in Army and Air Force
Use of Funds for Combat Forces and Infrastructure (GAO/NSIAD-96-141,
June 4, 1996). 

\7 In our analysis, we categorized O&M activities as being related to
combat forces and support of forces; training and recruiting; base
support; or management, command, and servicewide activities.  These
categories were based on criteria developed by the Institute for
Defense Analyses, the Joint Chiefs of Staff, and the Office of
Program Analysis and Evaluation.  However, these categories do not
always agree with those the services used in their budget requests. 
We compared the amount obligated to DOD's budget estimates but were
unable to compare the obligated amounts to the amounts appropriated
for the O&M activities because that information was not available at
the DOD or services' headquarters level. 


      SERVICES REQUEST BUDGET
      AMOUNTS THAT DIFFER IN
      GENERAL FROM THE AMOUNTS
      THEY OBLIGATE FOR OTHER O&M
      ACTIVITIES
-------------------------------------------------------- Chapter 0:2.2

For some O&M activities, the services have alternated between
requesting more funds than they obligated for those activities and
obligating more than they requested.  During our recent review of
defense infrastructure and demolition activities,\8 we analyzed the
services' budget estimates and subsequent obligations for real
property maintenance and base operations activities.\9 We found that
for fiscal years 1987 through 1996, the Army requested more than it
obligated for real property maintenance in 5 of the 10 fiscal years. 
The greatest variance occurred in fiscal year 1993, when the Army
obligated more than it requested by about 38 percent.  The Army
requested more than it obligated for base operations in only 3 fiscal
years, and the greatest variance occurred in fiscal year 1995, when
it obligated more than it requested by about 15 percent. 


--------------------
\8 Defense Infrastructure:  Demolition of Unneeded Buildings Can Help
Avoid Operating Costs (GAO/NSIAD-97-125, May 13, 1997). 

\9 Real property maintenance includes, for example, buildings,
railroads, surfaced areas, non-building facilities, and utility
systems.  For purposes of our analysis, base operations include
activities related to installation support, such as real estate
leases, transportation services, and laundry and dry cleaning
services. 


   VISIBILITY OVER THE SERVICES'
   MOVEMENT OF FUNDS FOR O&M
   ACTIVITIES
---------------------------------------------------------- Chapter 0:3

The services have a great deal of flexibility as to how they use
their O&M funds, which is evident from the O&M obligation patterns I
have just described.  However, that flexibility is limited somewhat
by actions taken by various congressional committees. 

The services' annual O&M budget requests to Congress are presented in
four broad categories referred to as budget activities:  operating
forces, mobilization, training and recruiting, and administrative and
servicewide activities.  Each budget activity is further broken down
into activity groups that, in turn, are broken down into subactivity
groups.  The subactivity groups are further broken down into program
element codes.  Although the program element codes are not part of
the budget presentation to Congress, they provide more details about
how the services plan to spend funds appropriated.  However, the
services do not allocate appropriated funds to the program element
level. 

For several years, including fiscal year 1997, congressional
committee reports have provided that if a service moves more than $20
million from one budget activity to another, for example, from
operating forces to mobilization, the move is subject to normal
reprogramming procedures.\10 Similarly, if a service moves $20
million or more from certain readiness-related subactivity groups
within the operating forces' budget activity, for example, from
combat units to depot maintenance, it is required to provide prior
notification to the congressional defense committees. 

Because the services do not allocate appropriated funds to the
program element level, Congress and the services' headquarters do not
have visibility over the amounts requested, appropriated, and
obligated at that level for O&M activities.  Congress and the
services have less visibility once funds are allocated to the base
commander.  Base commanders have discretion to use the funds as they
deem appropriate for mission needs.  However, base commanders do not
always fund the most critical needs.  For example, we reported that
base commanders with the Air Force Materiel Command and the Air
Mobility Command planned to spend over 30 percent of their real
property maintenance funds on facilities and projects that were not
the most critical mission needs of the base commanders.\11 Examples
include renovating an Air Force band recording studio, repairing a
baseball field that flooded when it rained, repairing a heating and
air conditioning system in a golf course clubhouse, and landscaping
an area surrounding visiting officers' quarters instead of other
projects deemed as higher priorities. 

In an effort to gain greater visibility over the costs of contingency
operations, much of which are financed with the services' O&M funds,
Congress established the Overseas Contingency Operations Transfer
Fund in the fiscal year 1997 defense appropriations act.  Congress
appropriates money to the fund, which DOD can transfer to the
services' O&M accounts as operations unfold.  DOD must report
quarterly to the defense appropriations subcommittees, detailing
amounts transferred from the fund and requirements funded.  In a
report that we will issue this month, we describe how the Department
has improved its process for estimating costs for contingency
operations like Bosnia and increased its visibility over those costs
at high levels within the Department. 

As an additional means through which Congress can have more
visibility over the services' movement of funds between O&M
activities, the defense authorization act for fiscal year 1998, H.R. 
1119, broadened notification and reporting requirements for transfers
of funds between subactivity group categories. 


--------------------
\10 Normal reprogramming procedures include, for example, advance
notification to congressional committees, and are outlined in
Department of Defense Financial Management Regulation 7000.14-R, vol. 
3, section 0604, dated December 1996. 

\11 1996 DOD Budget (GAO/NSIAD-95-200BR, Sept.  26, 1995). 


-------------------------------------------------------- Chapter 0:3.1

Mr.  Chairman, this concludes my prepared statement.  I would be
pleased to answer any questions that you or Members of the
Subcommittee may have. 


*** End of document. ***





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