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Military Base Closure: Questions Relating to Relocating Two Navy Activities To North Island, California (Letter Report, 04/30/98, GAO/NSIAD-98-90).

Pursuant to a congressional request, GAO reviewed the Navy's planned
relocation and consolidation of the Naval Air Technical Services
Facility and the headquarters of the Naval Aviation Engineering Service
Unit, located in Philadelphia, Pennsylvania, to the Naval Air Station at
North Island, California, focusing on the: (1) current plan's compliance
with the Base Closure and Realignment Commission's recommendations; (2)
effect of the new alignment on the original savings estimate; (3) cost
estimate associated with moving the Technical Services Facility and the
Engineering Service Unit functions to North Island; and (4) feasibility
of consolidating these functions at less cost in Philadelphia.

GAO noted that: (1) the Navy's current plan to combine the Technical
Services Facility and Engineering Service Unit complies with the
Commission's recommendations; (2) the Department of Defense (DOD)
believes, and GAO agrees, that the Commission's recommendations on
closing and moving the activities to North Island are legally binding
but that DOD has latitude in how it chooses to organize and manage
activities that have been realigned in accordance with the
recommendations; (3) however, GAO found no indication that Naval Air
Systems Command officials had assessed the cost impact or potential
savings to the Navy of consolidating the activities with the Naval
Aviation Depot; (4) as a result, the Navy may be missing an opportunity
to achieve greater savings by not merging the affected activities with
the Aviation Depot; (5) the estimated one-time implementation cost of
the planned relocation of the Technical Services Facility and the
Engineering Service Unit to North Island is $12.7 million, or about $4.1
million higher than the Commission initially estimated; (6) GAO's work
shows the current estimate is based on credible Navy plans and data; (7)
the increase over the Commission's estimate appears reasonable and is
primarily attributable to the unanticipated renovation of Naval Aviation
Depot facilities for housing Technical Services Facility employees and
equipment and realistic personnel cost estimates that exceeded the
standard cost factors used in the Commission's analysis; (8) although it
appears that the personnel costs would have been minimized or avoided by
consolidating the affected activities with other Navy activities in
Philadelphia, the Navy believes that the planned move provides
operational benefits that outweigh the cost of the move; and (9)
moreover, consolidation in Philadelphia is not an option because the
Commission's recommendations require that the activities be moved to
North Island.

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

 REPORTNUM:  NSIAD-98-90
     TITLE:  Military Base Closure: Questions Relating to Relocating Two 
             Navy Activities To North Island, California
      DATE:  04/30/98
   SUBJECT:  Base closures
             Naval bases
             Defense economic analysis
             Military cost control
             Cost effectiveness analysis
             Federal agency reorganization
             Base realignments
             Naval aviation

             
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Cover
================================================================ COVER


Report to the Honorable
Robert A.  Borski, House of Representatives

April 1998

MILITARY BASE CLOSURE - QUESTIONS
RELATING TO RELOCATING TWO NAVY
ACTIVITIES TO NORTH ISLAND,
CALIFORNIA

GAO/NSIAD-98-90

Military Base Closure

(709299)


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

  BRAC - Base Closure and Realignment
  DOD - Department of Defense

Letter
=============================================================== LETTER


B-278431

April 30, 1998

The Honorable Robert A.  Borski
House of Representatives

Dear Mr.  Borski: 

This report responds to your request that we review the Navy's
planned relocation and consolidation of the Naval Air Technical
Services Facility and the headquarters of the Naval Aviation
Engineering Service Unit, currently located in Philadelphia,
Pennsylvania, to the Naval Air Station at North Island, California. 
These actions are being taken in response to the recommendations of
the 1995 Base Closure and Realignment (BRAC) Commission.  You noted a
change to the Navy's original plan regarding how these functions
would be consolidated at North Island.  On the basis of questions
raised in your request and discussions with your office, this report
addresses (1) the current plan's compliance with the Commission's
recommendations, (2) the effect of the new alignment on the original
savings estimate, (3) the cost estimate associated with moving the
Technical Services Facility and the Engineering Service Unit
functions to North Island, and (4) the feasibility of consolidating
these functions at less cost in Philadelphia. 


   BACKGROUND
------------------------------------------------------------ Letter :1

As part of the Naval Air Systems Command, the Technical Services
Facility and the Engineering Service Unit have roles in the naval
aviation support and maintenance mission.  The Technical Services
Facility is responsible for the management of technical data,
engineering drawings, and technical manuals.  The Engineering Service
Unit is the headquarters component of a worldwide organization
providing engineering assistance and instruction to naval aviation
activities.  Both organizations are tenants of the Naval Inventory
Control Point in Philadelphia.  The 1995 BRAC Commission recommended
in July 1995 that the Secretary of Defense close both activities and
consolidate all necessary functions, personnel, and equipment with
the Naval Aviation Depot, North Island, California.  The Commission
estimated the consolidation would cost a total of about $8.6 million
and would result in annual recurring savings, based on personnel
reductions, of $4.6 million.  At the time, the Technical Services
Facility and the Engineering Service Unit headquarters had about 210
and 80 employees, respectively. 

The Navy originally planned to combine the Technical Services
Facility and the Engineering Service Unit with the Naval Aviation
Depot, a Defense Business Operations Fund activity.  However, in
January 1997, the Commander of the Naval Air Systems Command directed
the Technical Services Facility and the Engineering Support Unit to
combine and form a separate command--the Naval Air Technical Data and
Engineering Service Command--at the Naval Air Station, North Island. 
Necessary support functions are expected to be purchased from the
Naval Air Station or the Naval Aviation Depot.  Relocation of
Technical Services Facility and Engineering Service Unit activities
to North Island is scheduled to occur in late fiscal year 1998, and
termination of these activities in Philadelphia is expected to be
completed by mid-January 1999. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

The Navy's current plan to combine the Technical Services Facility
and Engineering Service Unit complies with the Base Closure and
Realignment Commission's recommendations.  The Department of Defense
believes, and we agree, that the Commission's recommendations on
closing and moving the activities to North Island are legally binding
but that the Department has latitude in how it chooses to organize
and manage activities that have been realigned in accordance with the
recommendations.  However, we found no indication that Naval Air
Systems Command officials had assessed the cost impact or potential
savings to the Navy of consolidating the activities with the Naval
Aviation Depot.  As a result, the Navy may be missing an opportunity
to achieve greater savings by not merging the affected activities
with the Aviation Depot. 

The estimated one-time implementation cost of the planned relocation
of the Technical Services Facility and the Engineering Service Unit
to North Island is $12.7 million, or about $4.1 million higher than
the Commission initially estimated.  Our work shows the current
estimate is based on credible Navy plans and data.  The increase over
the Commission's estimate appears reasonable and is primarily
attributable to the unanticipated renovation of Naval Aviation Depot
facilities for housing Technical Services Facility employees and
equipment and more realistic personnel cost estimates that exceeded
the standard cost factors used in the Commission's analysis. 

Although it appears that the personnel costs would have been
minimized or avoided by consolidating the affected activities with
other Navy activities in Philadelphia, the Navy believes that the
planned move provides operational benefits that outweigh the cost of
the move.  Moreover, consolidation in Philadelphia is not an option
because the Commission's recommendations require that the activities
be moved to North Island. 


   NAVY'S PLAN COMPLIES WITH THE
   COMMISSION'S RECOMMENDATIONS
------------------------------------------------------------ Letter :3

The Naval Air Systems Command's decision in January 1997 to
consolidate the Technical Services Facility and the Engineering
Service Unit into a new command at North Island Naval Air Station,
rather than integrating them with the Naval Aviation Depot, raised
questions about compliance with the BRAC Commission's
recommendations.  The Department of Defense (DOD) believes that the
establishment of the Naval Air Technical Data and Engineering Service
Command complies with the Commission's recommendations.  The Deputy
Under Secretary of Defense for Industrial Affairs and Installations
said that, although DOD is legally bound to implement the
Commission's recommendations, it is free to decide how a military
department will organize and manage a realigned activity once that
realignment has occurred. 

We agree with DOD's position.  Under the Base Closure and Realignment
Act of 1990, the Secretary of Defense is required to close or realign
all military installations recommended for closure or realignment by
the BRAC Commission.  The act does not define what is meant by
"close," but it defines "realignment" as any action that reduces and
relocates functions and civilian personnel positions.  The
Commission's recommendations for both the Technical Services Facility
and the Engineering Service Unit contain all of the elements of a
realignment.  Therefore, to satisfy its obligation under the
legislation, DOD must relocate the activities to North Island.  Once
this action has been accomplished, DOD may determine the appropriate
organizational alignment.  The definition of realignment does not
include a description of how a relocated function must be organized
and managed. 


   OPTION FOR POTENTIALLY GREATER
   SAVINGS HAS NOT BEEN ASSESSED
------------------------------------------------------------ Letter :4

The Naval Air Systems Command did not assess the total cost impact to
the Navy from consolidating the activities with the Naval Aviation
Depot.  Naval Air Systems Command officials told us that, before
their decision to establish a new command, a team of personnel from
the Technical Services Facility, the Engineering Service Unit, Naval
Air Systems Command headquarters, and North Island Naval Aviation
Depot analyzed the costs of various scenarios for accomplishing the
consolidation of the two functions as part of the Aviation Depot. 
According to Naval Air Systems Command officials, the ultimate
decision about the organizational alignment of the two units was
largely affected by considerations of how customers would be affected
by the change.  In Philadelphia, the units were funded by
appropriations.  Their customers (e.g., the Pacific Fleet) did not
pay for services.  The same arrangement will exist once the
activities are combined in a separate command at North Island. 

If the activities were consolidated with the Naval Aviation Depot,
they would have become part of the Navy's working capital fund, a
type of revolving fund.\1

Naval Air Systems Command officials were concerned that, under such
an arrangement, Technical Services Facility and Engineering Service
Unit customers would begin to pay for overhead expenses that are
unrelated to the activities.  Although this arrangement may have
resulted in higher costs to Technical Services Facility and
Engineering Service Unit customers, it may have reduced overall costs
to the Navy because the addition of these two activities might have
decreased charges to other customers. 

The Navy and the BRAC Commission originally anticipated annual
recurring savings of about $4.6 million once the realignment had been
completed.  Specifically, they expected to reduce staffing by 72
(adjusted to 69) civilian support positions.\2 Naval Air Systems
Command officials said that, by implementing innovative reengineering
practices within the new command, they will be able to accomplish the
organization's missions at the reduced funding and personnel levels. 
However, details on expected reengineering efforts were not available
at the time of our review. 


--------------------
\1 Under this arrangement, assets are capitalized, and all
income--from offsetting collections derived from the fund's
operations--is available to finance the fund's continuing cycle of
operations without fiscal year limitation.  Customers are billed a
proportional share of the activity's overhead costs. 

\2 We confirmed these reductions in our examination of preliminary
fiscal year 1999 budget submissions for the Technical Services
Facility and the Engineering Service Unit. 


   ESTIMATED COSTS FOR THE NORTH
   ISLAND CONSOLIDATION HAVE
   INCREASED
------------------------------------------------------------ Letter :5

The Navy's current cost estimate for relocating the Technical
Services Facility and Engineering Service Unit from Philadelphia to
North Island is about $12.7 million, as shown in table 1.  This
one-time relocation estimate is about $4.1 million higher than the
BRAC Commission originally estimated. 



                                Table 1
                
                Estimated One-Time Relocation Costs for
                    Technical Services Facility and
                  Engineering Support Unit Activities

                         (Dollars in millions)

                                   Technical
                                    Services   Engineering
Cost category                       Facility  Service Unit       Total
--------------------------------  ----------  ------------  ----------
Civilian personnel                      $6.0          $2.6        $8.5
Military construction                  1.5\a           0.4         2.0
Miscellaneous                            1.5           0.7         2.2
======================================================================
Total                                   $9.0          $3.7       $12.7
----------------------------------------------------------------------
\a The fiscal year 1999 amended budget estimate for the Technical
Services Facility, submitted to the Congress in February 1998,
includes $2.7 million for military construction.  However, according
to Navy budget officials, the actual figure is $1.5 million. 

Civilian personnel cost estimates include the cost of moving
personnel to North Island, severance pay, and voluntary separation
incentives.  These estimates, which are currently about $1.5 million
higher than the Commission's estimates, appear reasonable because
Naval Air Systems Command officials based these estimates on actual
workforce data and current personnel assumptions rather than standard
cost factors drawn from historical data and averages that were used
by the Commission in estimating costs. 

Military construction costs include renovation and modification to
existing facilities at North Island to accommodate the new command. 
Originally, no military construction funds were expected to be
needed.  However, funds were necessary to convert existing shop and
storage areas for use by the command.  These costs would have been
incurred even if the activities had been consolidated with the Naval
Aviation Depot.  The construction cost estimate appears reasonable
based on our discussions with the Naval Facilities Engineering
Command official that is monitoring the renovation process. 
According to this official, the Navy had recently awarded a $1.5
million contract for the renovation work, which is scheduled for
completion in late July 1998. 

Miscellaneous costs include installing dedicated communication lines,
disassembling and packing equipment and furniture, reinstalling the
items, and purchasing equipment to make existing computers compatible
with those at North Island.  The cost estimate for this category is
reasonable based on our review of supporting documentation. 


   CONSOLIDATION AT ANOTHER
   LOCATION IS NOT AN OPTION
------------------------------------------------------------ Letter :6

The Navy does not have the legal option to consolidate the Technical
Services Facility and Engineering Service Unit at another location in
Philadelphia because the BRAC Commission specifically recommended
that these activities be moved to North Island.  Changes to
Commission recommendations to close or realign facilities require
specific legislative authority.  Public Law 101-510 allowed DOD to
propose changes to previous Commission recommendations while it was
considering new base closures in rounds conducted in 1991, 1993, and
1995.  However, such authority expired in 1995.  DOD may close or
realign bases under 10 U.S.C.  2687, but this provision has not been
useful for that purpose.\3

You asked that we consider whether the Navy could have achieved
greater savings through other consolidation alternatives in the
Philadelphia area, although not a legal option.  Employee groups had
developed alternatives to the relocation, including consolidating the
Technical Services Facility with the Naval Inventory Control Point in
Philadelphia.  Under the assumption that space was available at other
Navy activities in the Philadelphia area and that necessary
renovation and modification costs would be relatively limited, as is
the case at North Island, the savings from such a consolidation in
Philadelphia would appear to be much greater because the majority of
the costs associated with relocating the Technical Services Facility
and Engineering Service Unit to North Island are personnel costs. 

Naval Air Systems Command officials agreed that the new command could
have been established in the Philadelphia area or, for that matter,
essentially anywhere else in the country.  However, the officials
believed that intangible benefits can be gained by relocating the
activities to a geographic location, such as San Diego, with close
proximity to one of their principal customers--the Pacific Fleet. 
The officials also believed that this advantage outweighs the
one-time moving costs.  Further, the officials stated that the
technical skill requirements for personnel in the new command are
different from the skills currently possessed by the
Philadelphia-based Technical Services Facility staff and that
remaining in Philadelphia would have necessitated other significant
costs, such as training, to meet the new workforce requirements. 


--------------------
\3 Our report, Military Bases:  Lessons Learned From Prior Closure
Rounds (GAO/NSIAD-97-151, July 25, 1997), noted that the
time-consuming processes associated with implementing the
requirements of
10 U.S.C.  2687 effectively stopped individual closure actions for a
number of years before implementing special legislative authorities
for BRAC rounds in 1988, 1991, 1993, and 1995. 


   RECOMMENDATION
------------------------------------------------------------ Letter :7

Because the Navy has not fully analyzed the savings potential
associated with the current consolidation plan, we recommend that the
Secretary of Defense instruct the Secretary of the Navy to conduct
such an analysis before finalizing consolidation plans for the two
activities and, if appropriate, adjust the plans. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :8

In commenting on a draft of this report, DOD agreed with our opinion
that the Navy's plan to combine the Technical Services Facility with
the Engineering Service Unit at North Island Naval Air Station
complies with the BRAC Commission's recommendation and that
relocation of these activities at another location is not a legal
option.  Also, DOD agreed with our recommendation that the Navy
conduct a cost and savings analysis before finalizing its
consolidation plans for these two activities and for them to adjust
those plans, if appropriate.  DOD's comments appear in appendix I. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :9

We made a comparative analysis of Naval Air Systems Command and BRAC
Commission realignment costs and savings estimates and plans for
moving Technical Services Facility and Engineering Service Unit
operations to North Island, California.  We also obtained DOD's
response to several questions, including the Navy's compliance with
the Commission's recommendations involving these activities. 

We reviewed pertinent documents and interviewed officials from the
Department of the Navy and Naval Air Systems Command headquarters at
the Naval Air Station, Patuxent River, Maryland, and in the
Washington, D.C., area.  We also visited officials and analyzed
documents at the Technical Services Facility and Engineering Service
Unit in Philadelphia, Pennsylvania.  We met with Technical Services
Facility representatives currently assigned to North Island and
officials from the Naval Aviation Depot at North Island.  We reviewed
documents on Navy and BRAC Commission work regarding the Technical
Services Facility's and Engineering Service Unit's relocation.  In
addition, we obtained available documentation from Naval Air Systems
Command officials concerning planned personnel authorization
reductions.  To determine the reasonableness of implementation cost
estimates, we examined documentation supporting those estimates and
discussed their rationale with officials from the Technical Services
Facility and Engineering Service Unit. 

We conducted our review between September 1997 and February 1998 in
accordance with generally accepted government auditing standards. 


---------------------------------------------------------- Letter :9.1

We are providing copies of this report to the Chairmen and Ranking
Minority Members of the Senate Committee on Armed Services and the
House Committee on National Security; the Director, Office of
Management and Budget; and the Secretaries of Defense and the Navy. 
We will also make copies available to others on request. 

Please contact me at (202) 512-8412 if you or your staff have any
questions concerning this report.  Major contributors to this report
are Barry W.  Holman; James R.  Reifsnyder; Raymond C.  Cooksey, Jr.;
and Joseph J.  Faley. 

Sincerely yours,

David R.  Warren, Director
Defense Management Issues




(See figure in printed edition.)Appendix I
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
============================================================== Letter 


*** End of document. ***