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Addressing the Deficit: Budgetary Implications of Selected GAO Work (Letter Report, 03/14/97, GAO/OCG-97-2).

GAO provided updated information on options that could be used to reduce
the deficit, focusing on the budgetary implications of selected program
reforms discussed in GAO's work but not yet implemented or enacted.

GAO noted that: (1) clearly, Congress has many available options for
dealing with the deficit; (2) under the Budget Enforcement Act (BEA), as
amended, the spending and revenue options included in the report could
be used either to reduce the deficit or to free up funds for other
programs; (3) under the pay-as-you-go rules of BEA, savings from direct
spending programs (entitlement and mandatory programs) or revenue
options would reduce the deficit unless these savings were used to
offset either direct spending program expansions or tax cuts; (4) for
discretionary spending programs, savings from changes would contribute
to additional deficit reduction if BEA caps on discretionary spending
were lowered; otherwise, the savings would be available for use in other
discretionary programs; (5) although GAO derived the options from its
existing body of work, there are similarities with other deficit
reduction proposals; and (6) the analytical framework for considering
individual deficit reduction options focused on reassessing objectives,
redefining beneficiaries, and improving efficiency.

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

 REPORTNUM:  OCG-97-2
     TITLE:  Addressing the Deficit: Budgetary Implications of Selected 
             GAO Work
      DATE:  03/14/97
   SUBJECT:  Budget deficit
             Deficit reduction
             Fiscal policies
             Budget cuts
             Budget outlays
             Budget administration
             Spending legislation
             Cost control

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


Report to the Congress

March 1997

ADDRESSING THE DEFICIT - BUDGETARY
IMPLICATIONS OF SELECTED GAO WORK
FOR FISCAL YEAR 1998

GAO/OCG-97-2

Addressing the Deficit

(935213)


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

  AFDC - Aid to Families With Dependent Children
  AIP - Airport Improvement Program
  AOC - Administrative Office of the U.S.  Courts
  ARS - Agricultural Research Service
  AWIPS - Advanced Weather Interactive Processing System
  BBS - broad-based, sustainable
  BEA - Budget Enforcement Act
  BLM - Bureau of Land Management
  BRAC - Base Realignment and Closure
  BUR - bottom-up review
  CBO - Congressional Budget Office
  CERCLA - Comprehensive Environmental Response, Compensation, and
     Liability Act
  CDR - continuing disability review
  CFO - Chief Financial Officer
  CHAMPUS - Civilian Health and Medical Program of the Uniformed
     Services
  COP - continuation-of-pay
  CVP - Central Valley Project
  DBOF - Defense Business Operations Fund
  DFAS - Defense Finance and Accounting Service
  DFSC - Defense Fuel Supply Center
  DI - Disability Insurance
  DLA - Defense Logistics Agency
  DOD - Department of Defense
  DOE - Department of Energy
  DOT - Department of Transportation
  DUR - drug utilization review
  EDWAA - Economic Dislocation and Worker Adjustment Assistance
  EM - Environmental Management
  EOS - Earth Observing System
  EOSDIS - Earth Observing System Data and Information System
  EPA - Environmental Protection Agency
  FAIR - Federal Agriculture Improvement and Reform Act of 1996
  FAA - Federal Aviation Administration
  FAS - Foreign Agricultural Service
  FDIC - Federal Deposit Insurance Corporation
  FDSL - Federal Direct Student Loan
  FECA - Federal Employees' Compensation Act
  FEMA - Federal Emergency Management Agency
  FFEL - Federal Family Education Loan
  FHWA - Federal Highway Administration
  FSN - foreign service national
  FY - fiscal year
  GAO - General Accounting Office
  GPS - global positioning systems
  GSA - General Services Administration
  HACCP - Hazard Analysis and Critical Control Point
  HCFA - Health Care Financing Administration
  HHS - Department of Health and Human Services
  HMO - health maintenance organization
  HPSA - Health Professional Shortage Area
  HUD - Department of Housing and Urban Development
  IDB - industrial development bond
  IFAD - International Fund for Agricultural Development
  INS - Immigration and Naturalization Service
  IRS - Internal Revenue Service
  JCS - Joint Chief of Staff
  JCT - Joint Committee on Taxation
  JFMIP - Joint Financial Management Improvement Program
  JROTC - Junior Reserve Officers' Training Corps
  JTPA - Job Training Partnership Act
  LRIP - low-rate initial production
  MAP - Military Airport Program
  MIP - Medicare Incentive Payment
  MRI - magnetic resonance imaging
  MTMC - Military Traffic Management Command
  MWR - morale, welfare, and recreation
  NASA - National Aeronautics and Space Administration
  NOAA - National Oceanic and Atmospheric Administration
  NORAD - North American Aerospace Defense Command
  NTC - non-time-critical
  NWS - National Weather Service
  OCSE - Office of Child Support Enforcement
  OMB - Office of Management and Budget
  O&M - operation and maintenance
  OST - Office of the Secretary
  OTC - over the counter
  PASS - plan for achieving self-support
  PAYGO - pay-as-you-go
  PHS - Public Health Service
  PILT - Payment in Lieu of Taxes
  PMA - Power Marketing Administration
  RHC - Rural Health Clinic
  RCRA - Resource Conservation and Recovery Act
  RFA - Radio Free Asia
  RFE/RL - Radio Free Europe/Radio Liberty
  RHS - Rural Housing Service
  RTC - Resolution Trust Corporation
  SAA - state approving agency
  SBU - strategic business unit
  SSA - Social Security Administration
  SSI - Supplemental Security Income
  SSN - nuclear-powered attack submarine
  TANF - Temporary Assistance for Needy Families
  TDY - temporary duty
  TRICARE - DOD's managed health care system
  UI - unemployment insurance
  USAID - U.S.  Agency for International Development
  USDA - U.S.  Department of Agriculture
  USIA - United States Information Agency
  USTF - Uniformed Services Treatment Facility
  USTRANSCOM - U.S.  Transportation Command
  USUHS - Uniformed Services University of the Health Sciences
  VA - Department of Veterans Affairs
  VOA - Voice of America

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


B-274810

March 14, 1997

To the President of the Senate and
the Speaker of the House of Representatives

This report is part of our continuing effort to help the Congress
identify options that could be used to reduce the deficit.\1 It
updates our previous work in this area with new information and
systematically identifies in a single document the budgetary
implications of selected program reforms discussed in our work but
not yet implemented or enacted.  Where available, budgetary savings
estimates provided by the Congressional Budget Office (CBO) or the
Joint Committee on Taxation (JCT) are presented for each of the
options. 

This year's report contains 147 options.  Nearly half of these
options--71--are new to this year's report; the remainder are updated
versions of options that appeared in last year's report.  To update
last year's options, we reviewed and analyzed congressional and
agency actions taken over the past year that affected the substantive
content of the option and/or its likely savings.  In fact, some
options from last year's report were not included in this year's
report (see appendix IV) because the Congress has already addressed
the relevant issues.  The remaining options from last year's report
have been updated and modified to reflect recent congressional or
agency actions. 

All of the options are based on key findings and issues developed in
our audits and evaluations.  Some of the options reflect our
recommendations.  Others do not, but rather represent one way to
address, in a budgetary context, some of the significant problems
identified in our reviews of federal programs and activities.  The
Congress has many available options for dealing with the deficit. 
Inclusion of a specific option in this report does not mean that we
endorse it as the only or most feasible approach, or that other
options are not also appropriate for consideration by the Congress.\2

This report is divided into four appendixes.  Appendix I discusses
the conventions used to provide estimates of cost savings or
additional revenues.  As in our previous report, appendix II provides
for congressional consideration an analytical framework of individual
options.  This framework provides one set of criteria that may be
used to assess goals, scope, and approaches for delivering federal
programs.  It is organized around the following three broad themes: 

  -- reassess objectives, that is, reconsider whether to terminate or
     revise services and programs provided;

  -- redefine beneficiaries, that is, reconsider who pays for or
     benefits from a particular program; and

  -- improve efficiency, that is, reconsider how a program or service
     is provided. 

Appendix III presents narrative descriptions of the options,
organized by budget function and receipts.  As mentioned above,
appendix IV lists options from last year's report that were not
updated for this year's volume. 

Although we derived the options from our existing body of work, there
are similarities with other deficit reduction proposals.  For
example, some options contained in this report have also been
included in past editions of CBO's annual publication, Reducing the
Deficit:  Spending and Revenue Options, House and Senate Budget
Resolution proposals, and the President's annual budget submission. 

We are sending copies of this report to the appropriate congressional
committees and every Member of the Congress.  Copies will be made
available to others upon request. 


--------------------
\1 See Addressing The Deficit:  Updating the Budgetary Implications
of Selected GAO Work (GAO/OCG-96-5, June 28, 1996); Deficit
Reduction:  Opportunities to Address Long-Standing Government
Performance Issues (GAO/T-OCG-95-6, September 13, 1995); Addressing
The Deficit:  Budgetary Implications of Selected GAO Work for Fiscal
Year 1996 (GAO/OCG-95-2, March 15, 1995); and Addressing The Deficit: 
Budgetary Implications of Selected GAO Work (GAO/OCG-94-3, March 11,
1994). 

\2 Under the Budget Enforcement Act (BEA), as amended, the spending
and revenue options included in this report could be used either to
reduce the deficit or to free up funds for other programs.  Under the
pay-as-you-go (PAYGO) rules of BEA, savings from direct spending
programs (entitlement and mandatory programs) or revenue options
would reduce the deficit unless these savings were used to offset
either direct spending program expansions or tax cuts.  For
discretionary spending programs, savings from changes would
contribute to additional deficit reduction if BEA caps on
discretionary spending were lowered; otherwise, the savings would be
available for use in other discretionary programs. 


---------------------------------------------------------- Letter :0.1

This report was prepared under the direction of Paul L.  Posner,
Director for Budget Issues, who may be reached at (202) 512-9573. 
Specific questions about individual options may be directed to the
GAO contact listed with each option.  Major contributors to this
report are listed in appendix V. 

James F.  Hinchman
Acting Comptroller General
of the United States


EXPLANATION OF CONVENTIONS USED TO
ESTIMATE SAVINGS AND REVENUE GAINS
=========================================================== Appendix I

Cost estimates for many of our options were provided by CBO and JCT. 
As in last year's report, if specific estimates could not be
provided, a brief explanation is included with the option.  Where
estimates are provided, the following conventions were followed:\3

  -- For revenue estimates, the increase in collections reflects that
     which would occur, over and above that due under current law, if
     the option were enacted. 

  -- For direct spending programs, estimated savings show the
     difference between what the program would cost under the CBO
     baseline, which assumes continuation of current law, and what it
     would cost after the suggested modification. 

  -- For nondefense discretionary spending programs, two estimates
     are provided.  One estimate is of savings compared to the actual
     fiscal year 1997 appropriations increased for projected
     inflation.  A second estimate is of savings compared to the
     fiscal year 1997 appropriations in nominal terms (held constant
     for the next 4 years). 

  -- For defense discretionary spending programs, estimates are of
     savings compared to the 1997 Defense Plan that CBO uses for its
     defense discretionary estimates.  CBO uses this plan because it
     provides the programmatic detail necessary to estimate the
     effects of changes in force structures and weapons systems. 

Specific assumptions made in estimating individual options are noted
in the option narratives in appendix III. 

Subsequent savings and revenue estimates provided by CBO and JCT may
not match exactly those contained in this report.  Differences in the
details of specific proposals, changes in assumptions which underlie
the analyses, and updated baselines can all lead to significant
differences in estimates.  Also, a few of our options--involving
sales of real estate and other government-owned property--constitute
asset sales.  Under the Balanced Budget and Emergency Deficit Control
Act of 1985, as amended, proceeds from asset sales are not counted in
determining compliance with the discretionary spending limits or
PAYGO requirements.  In order to provide policymakers the fullest
possible picture of the budgetary implications of our work, we have
included those options which constitute asset sales.  They are
clearly identified as such. 

Finally, some of the options could not be scored by CBO or JCT under
current scorekeeping conventions.  Several of these involve
management improvements that we believe can contribute to solving the
deficit problem but whose effects are too indirect for estimation
purposes.  A few options are not estimated because they concern
future choices about spending that is not currently in the baseline
used to calculate annual spending and revenue.  In other cases,
savings are likely to come in years beyond the 5-year estimation
period that CBO uses. 


--------------------
\3 For a complete discussion of the uses and caveats of the CBO
estimates, see CBO's August 1996 report, Reducing the Deficit: 
Spending and Revenue Options. 


A FRAMEWORK FOR DEFICIT REDUCTION
========================================================== Appendix II

The history of deficit reduction efforts suggests that basing
decisions on explicit policy rationales, rather than considering
separate program-by-program assessments, may improve chances for
success.  A consistent and systematic framework can be an effective
means to formulate and package broad-based deficit reduction
proposals.  Also, this kind of approach can be used regardless of any
other budgetary control mechanism (for example, discretionary
spending limits or sequestration procedures) or any given level of
desired deficit reduction. 

GAO's deficit reduction framework consists of three broad themes: 
reassess objectives, redefine beneficiaries, and improve efficiency
and accuracy.  These three fundamental strategies are based on an
implicit set of decision rules that encourage decisionmakers to think
systematically, within an ever-changing environment, about

  -- what services the government provides or should continue to
     provide,

  -- for whom these services are or should be provided, and

  -- how services are or should be provided. 

By using a policy-oriented framework such as this, choices can be
made more clearly and the results become more defensible. 


   REASSESS OBJECTIVES
-------------------------------------------------------- Appendix II:1

The first theme within our deficit reduction framework focuses on the
objectives for federal programs or services.  Our premise is that
periodically reconsidering a program's original purpose, the
conditions under which it continues to operate, and its
cost-effectiveness, is appropriate.  Our work suggests three decision
rules which illustrate this strategy. 

  -- Programs can be considered for termination if they have
     succeeded in accomplishing their intended objectives or if it is
     determined that the programs have persistently failed to
     accomplish their objectives. 

  -- Programs can be considered for termination or revision when
     underlying conditions change so that original objectives may no
     longer be valid. 

  -- Programs can be reexamined when cost estimates increase
     significantly above those associated with original objectives,
     when benefits fall substantially below original expectations, or
     both. 

For example, the Public Law 480 Title I Food Aid Program allows U.S. 
agricultural commodities to be sold to developing countries on
long-term credit at below-market interest rates.  The current goal of
the program is to promote U.S.  foreign policy by enhancing the food
security of developing countries.  The program is also designed to
expand markets for U.S.  agricultural commodities.  However, multiple
and sometimes competing objectives, as well as contradictory program
requirements, have hampered the program, and its contribution to
long-term, foreign market development for U.S.  agricultural
commodities has not been demonstrated. 


   REDEFINE BENEFICIARIES
-------------------------------------------------------- Appendix II:2

The second theme within our deficit reduction framework focuses on
the intended beneficiaries for federal programs or services.  The
Congress originally defines the intended audience for any program or
service based on some perception of eligibility and/or need.  To
better reflect and target increasingly limited resources, these
definitions can be periodically reviewed and revised.  Our body of
work suggests four decision rules that illustrate this strategy. 

  -- Formulas for a variety of grant programs to state and local
     governments can be revised to better reflect the fiscal capacity
     of the recipient jurisdiction.  This strategy could reduce
     overall funding demands while simultaneously redistributing
     available grant funds so that the most needy receive the same or
     increased levels of support. 

  -- Eligibility rules can be revised, without altering the
     objectives of the program or service. 

  -- Fees can be targeted at individuals, groups, or industries that
     directly benefit from federal programs.  Also, existing charges
     can be increased so that a greater portion of a program's cost
     is shared by the direct beneficiaries. 

  -- Tax preferences can be narrowed or eliminated by revising
     eligibility criteria or limiting the maximum amount of
     preference allowable. 

For example, at a time when federal domestic discretionary resources
are constrained, better targeting of grant formulas offers a strategy
to bring down federal outlays by concentrating reductions on
wealthier localities with fewer needs and greater capacity to absorb
cuts.  Federal grant formulas could be redesigned to lower federal
costs by disproportionately reducing federal funds to states and
localities with the strongest tax bases and fewer needs, as shown in
GAO's option on formula grants. 


   IMPROVE EFFICIENCY
-------------------------------------------------------- Appendix II:3

The third theme within our deficit reduction framework addresses how
the program or service is delivered.  This strategy suggests that
focusing on the approach or delivery method can significantly reduce
spending or increase collections.  Our body of work suggests five
decision rules which illustrate this strategy. 

  -- Reorganizing programs or activities with similar objectives and
     audiences can eliminate duplication and improve operational
     efficiency. 

  -- Using reengineering, benchmarking, streamlining and other
     process change techniques can reduce the cost of delivering
     services and programs. 

  -- Using performance measurement and generally improving the
     accuracy of available program information can promote
     accountability and effectiveness and reduce errors. 

  -- Improving collection methods and ensuring that all revenues and
     debts owed are collected can increase federal revenues. 

  -- Establishing market-based prices can help the government recover
     the cost of providing services while encouraging the best use of
     the government's resources. 

As an illustration of this theme, GAO has identified over 150 federal
programs and funding streams providing employment and training
assistance.  These programs are spread across 15 departments and
independent agencies with a total budget of about $20 billion.  Many
of these programs have similar goals and provide the same services to
similar populations using separate, parallel delivery structures. 
Consolidating these programs where it is appropriate can reduce
administrative costs as well as increase efficiencies in service
delivery.  GAO's option illustrates how opportunities to improve
efficiency and flexibility in employment and training programs can
provide a basis for reducing program funding. 


OPTIONS FOR DEFICIT REDUCTION
========================================================= Appendix III

This appendix describes each of GAO's options for deficit reduction,
organized by budget function and receipts.  For each option, we
provide, when relevant, information about the authorizing committee,
appropriations subcommittee, primary agency, budget account, spending
type, budget subfunction, and framework theme.  We then provide a
summary and description of budgetary implications, which is followed
by an estimate (when available) of savings or revenue increase,
relevant GAO reports, and a GAO contact. 



   050 NATIONAL DEFENSE
------------------------------------------------------- Appendix III:1

  -- Defense Infrastructure Reform

  -- Fiscal Year 1998 Defense Operation and Maintenance Budget

  -- Continental Air Defense

  -- Carrier Battle Group Expansions and Upgrades

  -- Army's Comanche Helicopter Program

  -- F/A-18E/F Fighter

  -- F-22 Fighter

  -- Air Force Bomber Force Requirements

  -- Air Force Fighter Squadrons

  -- C-17 Strategic Airlift

  -- Nuclear Submarine Force Reductions

  -- Major Weapon System Warranty Law

  -- Base Alignment and Closure Accounts

  -- Defense Inventories Reform

  -- Defense Transportation Restructuring

  -- Depot Maintenance Program Excess Capacity

  -- Military Exchange Stores Consolidation

  -- Budgeted Civilian Personnel Requirements

  -- Convert Some Support Officer Positions to Civilian Status

  -- Attrition of Enlisted Personnel from the Military Services

  -- Army National Guard Divisions

  -- Junior Reserve Officers' Training Corps

  -- DOD's Acquisition Workforce

  -- DOD's Finance and Accounting Infrastructure

  -- DOD's Training Infrastructure

  -- DOD's Transportation Migration Systems

  -- DOD's Materiel Management Migration Systems

  -- DOD's Bulk Fuel Budgeting

  -- Navy Financial Management of Operating Materials and Supplies

  -- Copayments for Care in Military Treatment Facilities

  -- Administering Defense Health Care

  -- Uniformed Services University of the Health Sciences

  -- Uniformed Services Treatment Facilities

  -- Department of Energy's Procurement of Laboratory Testing
     Services



   OPTION:
   DEFENSE INFRASTRUCTURE
   REFORMDEFENSE INFRASTRUCTURE
   REFORM
------------------------------------------------------- Appendix III:2


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Accounts                            Multiple

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
Although the Department of Defense (DOD) has in recent years
undergone substantial downsizing in funding, personnel, and force
structure, commensurate infrastructure support reductions have not
been achieved.  For fiscal 1997, DOD estimates that about $152
billion, or 60 percent of the Defense budget will still be needed for
infrastructure requirements which include installation support,
training, medical care, logistics, force management, acquisition
infrastructure, and personnel.  Despite progress in reducing excess
infrastructure through the Base Realignment and Closure (BRAC)
rounds, it is generally recognized that much excess capacity will
remain. 

Significant budget reductions could be achieved by streamlining the
command structure of the remaining forces; sharing medical facilities
and services; consolidating depots and shipyards; reforming
acquisition processes; consolidating and eliminating research,
development, and training facilities; using simulators for training
and exercises; and reducing dependence on government-owned housing. 

Savings for this option cannot be fully estimated until a
comprehensive consolidation and downsizing plan is specified. 
However, in an April 1996 report, GAO identified some specific
options for reducing defense infrastructure spending. 


      RELATED GAO PRODUCTS
----------------------------------------------------- Appendix III:2.1

Defense Infrastructure (GAO/HR-97-7, February 1997). 

Defense Acquisition Infrastructure:  Changes in RDT&E Laboratories
and Centers (GAO/NSIAD-96-221BR, September 13, 1996). 

Military Bases:  Update on the Status of Bases Closed in 1988, 1991,
and 1993 (GAO/NSIAD-96-149, August 6, 1996). 

Defense Infrastructure:  Costs Projected to Increase Between 1997 and
2001 (GAO/NSIAD-96-174, May 31, 1996). 

Military Bases:  Opportunities for Savings in Installation Support
Costs Are Being Missed (GAO/NSIAD-96-108, April 23, 1996). 

Military Bases:  Closure and Realignment Savings are Significant, but
Not Easily Quantified (GAO/NSIAD-96-67, April 8, 1996). 

Defense Infrastructure:  Budget Estimates for 1996-2001 Offer Little
Savings for Modernization (GAO/NSIAD-96-131, April 4, 1996). 

DOD Training:  Opportunities To Reduce the Training Infrastructure
(GAO/NSIAD-96-96, March 29, 1996). 

Military Bases:  Analysis of DOD's 1995 Process and Recommendations
for Closure and Realignment (GAO/NSIAD-95-133, April 14, 1995). 

Defense Infrastructure:  Enhancing Performance Through Better
Business Practices (GAO/T-NSIAD/AIMD-95-126, March 23, 1995). 


      GAO CONTACT
----------------------------------------------------- Appendix III:2.2

David R.  Warren, (202) 512-8412



   OPTION:
   FISCAL YEAR 1998 DEFENSE
   OPERATION AND MAINTENANCE
   BUDGETFISCAL YEAR 1998 DEFENSE
   OPERATION AND MAINTENANCE
   BUDGET
------------------------------------------------------- Appendix III:3


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Accounts                            Multiple

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
The military services' operation and maintenance (O&M) accounts are
used to fund a wide range of military and support activities
including training, purchasing spare and repair parts, and paying
civilian personnel. 

GAO analysis of selected O&M requests for fiscal year 1997 showed
that the budget for that year could have been reduced by $3.4 billion
without damaging defense operations and capabilities.  The largest
potential reductions, each for over $180 million, were associated
with improved inventory management, excess bulk fuel requirements,
excess unobligated funds, storage of unneeded aircraft, O&M
pass-throughs to the Defense Business Operations Fund (DBOF),
overstated civilian personnel requirements, and funds requested for
ground operation tempo that are not needed for training purposes.\4

Based on GAO's analysis regarding potential savings in the fiscal
year 1997 O&M budget, the Congress may wish to consider reductions of
a similar magnitude, $3.4 billion, when formulating fiscal year 1998
appropriations for O&M accounts.  It is important for the Congress to
be aware that savings for this option include savings for other
options involving the individual services' O&M accounts since the
problems GAO identified persist.  CBO estimated the following 5-year
savings. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 Defense Plan
----------------------------------------------------------------------
Budget authority                 3,400       0       0       0       0
Outlays                          2,530     677     112      37      17
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


--------------------
\4 Specific options related to bulk fuel (see "DOD's Bulk Fuel
Budgeting"), civilian personnel reductions (see "Budgeted Civilian
Personnel Requirements"), and Army spare parts (see "Defense
Inventories Reform") are contained in this report.  Therefore, the
projected savings from these specific options should not be added to
the $3.4 billion in potential savings shown here. 


      RELATED GAO PRODUCTS
----------------------------------------------------- Appendix III:3.1

1997 DOD Budget:  Potential Reductions to Operation and Maintenance
Programs (GAO/NSIAD-96-220, September 18, 1996). 

1996 DOD Budget:  Potential Reductions to Operation and Maintenance
Programs (GAO/NSIAD-95-200BR, September 26, 1995). 

1995 Budget:  Potential Reductions to the Operation and Maintenance
Programs (GAO/NSIAD-94-246BR, September 6, 1994). 


      GAO CONTACT
----------------------------------------------------- Appendix III:3.2

Mark E.  Gebicke, (202) 512-5140



   OPTION:
   CONTINENTAL AIR
   DEFENSECONTINENTAL AIR DEFENSE
------------------------------------------------------- Appendix III:4


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Accounts                            Multiple

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
The continental air defense mission evolved during the Cold War to
detect and intercept Soviet bombers attacking North America via the
North Pole.  The force that carries out that mission is within the
North American Aerospace Defense Command (NORAD), which is a joint
U.S.  and Canadian command.  As of the beginning of fiscal year 1997,
the force consisted of 150 primary aircraft (Air National Guard F-15
and F-16 aircraft in 10 dedicated units which stand alert for
NORAD).\5 The Air Force budgeted about $345 million in fiscal year
1997, to operate and support the continental air defense force. 

The former Soviet Union no longer poses a significant threat of a
bomber attack on the continental United States.  Further, internal
problems within Russia and other former Soviet Union countries have
extended the time it would take them to return to previous levels of
military readiness and capabilities.  Reflecting these changing
realities, the Chairman of the Joint Chiefs of Staff determined in
1993 that the United States no longer needed a large, dedicated air
defense force and that the dedicated force could be significantly
reduced or eliminated. 

Since the threat of a Soviet-style air attack against the United
States has largely disappeared, the air defense force now focuses its
activities on air sovereignty missions.  These missions provide
surveillance and control of territorial airspace, including
activities such as assisting aircraft in distress or intercepting
aircraft as part of antidrug smuggling efforts.  However, active and
reserve general-purpose and training forces could perform this
mission because they (1) have comparable or better aircraft, (2) are
located at or near existing air defense bases, and (3) have pilots
who possess similar skills or who could acquire the necessary skills
used by air defense and air sovereignty pilots. 

Based on our audit work, GAO has concluded that significant savings
could be achieved by dual-tasking the active, reserve, and training
forces.  If the dedicated continental air defense force were
eliminated, the following savings could be achieved. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 Defense Plan
----------------------------------------------------------------------
Budget authority                   153     314     322     331     341
Outlays                            126     278     309     322     333
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


--------------------
\5 DOD's 1997 plan reduced the number of dedicated continental air
defense Air National Guard aircraft from 150 to 90. 


      RELATED GAO PRODUCT
----------------------------------------------------- Appendix III:4.1

Continental Air Defense:  A Dedicated Force Is No Longer Needed
(GAO/NSIAD-94-76, May 3, 1994). 


      GAO CONTACT
----------------------------------------------------- Appendix III:4.2

Richard Davis, (202) 512-3504



   OPTION:
   CARRIER BATTLE GROUP EXPANSIONS
   AND UPGRADESCARRIER BATTLE
   GROUP EXPANSIONS AND UPGRADES
------------------------------------------------------- Appendix III:5


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Accounts                            Operation and Maintenance, Navy
                                    (17-1804)
                                    Military Personnel, Navy (17-
                                    1453)
                                    Procurement-funded Replenishment
                                    Spares (17-1506)

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
Aircraft carrier battle groups are the centerpiece of the Navy's
surface force and significantly influence the size, composition, and
cost of the fleet.  The annualized cost to acquire, operate, and
support a single Navy carrier battle group is from $1.7 billion to $2
billion (in fiscal year 1996 dollars) and will continue to increase. 
The Navy is embarking on several costly carrier-related
programs--procuring another carrier, refueling existing carriers, and
replacing/upgrading combat aircraft. 

GAO's analysis indicates that there are opportunities to use less
costly options to satisfy many of the carrier battle groups'
traditional roles without unreasonably increasing the risk that U.S. 
national security would be threatened.  For example, one less costly
option would be to rely more on increasingly capable surface
combatants, such as cruisers, destroyers, or frigates, for overseas
presence and crises response.  If the Congress chose to retire one
aircraft carrier and one active air wing in 1998, the following
savings could be achieved. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 Defense Plan
----------------------------------------------------------------------
Budget authority                   350     710   1,170     900   6,580
Outlays                            260     580     690     840   1,190
----------------------------------------------------------------------
Note:  Estimate includes savings from not buying a new carrier in
fiscal year 2002. 

Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
----------------------------------------------------- Appendix III:5.1

Navy's Aircraft Carrier Program:  Investment Strategy Options
(GAO/NSIAD-95-17, January 1, 1995). 

Navy Carrier Battle Groups:  The Structure and Affordability of the
Future Force (GAO/NSIAD-93-74, February 25, 1993). 


      GAO CONTACT
----------------------------------------------------- Appendix III:5.2

Richard Davis, (202) 512-3504



   OPTION:
   ARMY'S COMANCHE HELICOPTER
   PROGRAMARMY'S COMANCHE
   HELICOPTER PROGRAM
------------------------------------------------------- Appendix III:6


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Account                             Research, Development, Test and
                                    Evaluation, Army (21-2040)

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Reassess objectives
----------------------------------------------------------------------
The Comanche helicopter is to replace the Vietnam-era scout and
attack helicopters that the Army considers incapable of meeting
existing or future requirements.  The Comanche's overall program cost
has grown to approximately $50 billion, with an estimated program
unit cost of about $39 million.  Anticipated cost increases and other
unresolved technical risks indicate that future cost growth is
likely.  In December 1994, the Secretary of Defense decided to
restructure the Comanche program, reducing program cost by about $2
billion for fiscal years 1996 through 2001.  This action extended the
development phase until 2006 and deferred the production decision
until then. 

Although light attack missions are part of the Army's plan for the
Comanche, its lethality is now expected to rival or surpass that of
the Apache--the Army's premiere attack helicopter.  In addition, as
the Army reduces its total helicopter fleet, it plans to modify many
that will remain to increase combat capabilities.  For example, the
Army is arming its scout helicopter, the Kiowa, and modifying 227
basic model Apaches with the Longbow system, which includes a fire
control radar with a radar detector and a Hellfire missile with a
radio-frequency seeker.  These actions, collectively, tend to blur
the distinction in roles among the Army's helicopter fleet. 

GAO's work has pointed to real and probable development cost
increases, uncertain operating and support cost savings, questions
about the role of the Comanche compared to other more affordable Army
helicopters, and deferral of the production decision.  If the
Congress would elect to terminate the program, the following savings
would be achieved. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 Defense Plan
----------------------------------------------------------------------
Budget authority                   144     384     454     602     650
Outlays                             82     268     397     520     607
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
----------------------------------------------------- Appendix III:6.1

Comanche Helicopter:  Testing Needs To Be Completed Prior to
Production Decisions (GAO/NSIAD-95-112, May 18, 1995). 

Army Aviation:  Modernization Strategy Needs To Be Reassessed
(GAO/NSIAD-95-9, November 21, 1994). 

Comanche Helicopter:  Program Needs Reassessment Due To Increased
Unit Cost and Other Factors (GAO/NSIAD-92-204, May 27, 1992). 


      GAO CONTACT
----------------------------------------------------- Appendix III:6.2

Louis J.  Rodrigues, (202) 512-4841



   OPTION:
   F/A-18E/F FIGHTERF/A-18E/F
   FIGHTER
------------------------------------------------------- Appendix III:7


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Account                             Aircraft Procurement, Navy (17-
                                    1506)

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Reassess objectives
----------------------------------------------------------------------
In 1992, the Navy justified the F/A-18E/F Fighter to correct
operational deficiencies that were projected to occur in its
F/A-18C/D aircraft.  As of December 1995, the total program cost was
projected to be almost
$81 billion in then year dollars.  In its fiscal year 1996/1997
Biennial Budget, the Navy requested $236.882 million and $306.344
million to cover long lead requirements for the procurement of 12
F/A-18E/F aircraft in fiscal year 1997 and 24 aircraft in fiscal year
1998.  An F/A-18E/F low rate initial production (LRIP) milestone
decision is scheduled for the first quarter of calendar year 1997. 

In a report issued in June 1996, GAO concluded that the need for the
F/A-18E/F is questionable.  Operational deficiencies that in 1992 the
Navy stated existed in the current F/A-18C/D either have not
materialized as projected or can be corrected with nonstructural
changes to the F/A-18C/D.  Furthermore, operational improvements that
the E/F will have over the C/D would be marginal. 

GAO also reported that DOD's $43.6 million (in fiscal year 1996
dollars) unit recurring flyaway cost\6 for the F/A-18E/F is
understated because E/F procurement cost estimates are based on
annual (72 aircraft) and total procurement (1,000 aircraft) levels
that are overstated.  The Congress has indicated that an annual
production rate of 72 aircraft is not possible in the current budget
environment.  Also, total production of 1,000 aircraft is overstated
by 340 aircraft--the number of Marine Corps E/Fs that are included in
the total buy but which the Corps has decided it will not procure. 
GAO estimated that lowering the E/F annual production rate to a more
realistic level of 36 aircraft and procuring a total of 660 aircraft
would increase F/A-18E/F unit costs by about $10 million to $53
million in fiscal year 1996 dollars.  This compares to about $29.6
million for the current F/A-18C/D. 

GAO further reported that procuring 660 C/Ds rather than the E/F
would save almost $17 billion (fiscal year 1996 dollars).  Savings
would be greater if fewer than 660 C/Ds are needed to maintain Navy
tactical aircraft inventories.  Near term savings associated with
procuring the C/D rather than the E/F would be significant.  Through
fiscal year 2002 the unit recurring flyaway cost of the E/F averages
about $99.6 million (then-year dollars), or more than three times the
$29.6 million unit recurring flyaway cost of the F/A-18C/D over this
same period. 

Because continued procurement of the less expensive F/A-18C/D would
provide the Navy a capable tactical aircraft, the Congress may wish
to reconsider the need to procure the F/A-18E/F.  CBO estimates that
canceling the program would achieve the following budget savings
during the next 5 years. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 Defense Plan
----------------------------------------------------------------------
Budget authority                 1,812   2,116   2,233   1,654   2,410
Outlays                            252     932   1,630   1,886   1,943
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


--------------------
\6 Recurring flyaway costs include costs related to the production of
the basic aircraft and do not include all procurement costs.  DOD
consistently maintains that these costs are the most appropriate to
compare the costs of different aircraft. 


      RELATED GAO PRODUCTS
----------------------------------------------------- Appendix III:7.1

Navy Aviation:  F/A-18E/F Will Provide Marginal Operational
Improvement at High Cost (GAO/NSIAD-96-98, June 18, 1996). 

Naval Aviation:  F/A-18 E/F Acquisition Strategy (NSIAD-94-194,
August 18, 1994). 

Naval Aviation:  Consider All Alternatives Before Proceeding With the
F/A-E/F (NSIAD-93-144, August 27, 1993). 


      GAO CONTACT
----------------------------------------------------- Appendix III:7.2

Louis J.  Rodrigues, (202) 512-4841



   OPTION:
   F-22 FIGHTERF-22 FIGHTER
------------------------------------------------------- Appendix III:8


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Account                             Aircraft Procurement, Air Force
                                    (57-3010)

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Reassess objectives
----------------------------------------------------------------------
The Air Force's F-22 program was initiated in 1981 to replace F-15s
and to meet the evolving threat projected for the mid-1990s. 
Although the Department of Defense (DOD) procurement plans support
achievement of initial operational capability in 2004, our reports
issued in 1993 and 1994 indicated the need to replace F-15s with
F-22s was not urgent.  Our reports indicated that potential adversary
air forces are expected to include few fighters that have the
capability to challenge the F-15--a U.S.  frontline fighter. 

DOD is currently planning to procure a significant number of F-22s
before completing operational tests and evaluations, thereby
increasing the cost, schedule, and performance risks within the
system.\7 Initial operational tests and evaluations, which provide a
valid estimate of expected system operational effectiveness and
operational suitability, are not scheduled to be completed until
after the Air Force will have committed to procure 76 aircraft
involving an investment of nearly $11 billion.  Air Force plans call
for procurement of 4 aircraft a year, increasing to 12, 24, and 36 a
year before initial operational tests and their evaluation are
completed.  Many aircraft systems entering production before starting
operational testing have required major modification later, which is
often costly. 

Using DOD guidelines, F-22 program concurrency is high because the
F-22 program is scheduled to proceed into low rate initial production
well before any operational testing starts.  Furthermore, the F-22
program contemplates a higher commitment as a percentage of total
production prior to completion of initial operational testing than
most modern fighter programs. 

Since the need for the F-22 is not urgent, the Congress could choose
to restrict production of F-22s to six aircraft in 2000, eight
aircraft in 2001, and eight aircraft in 2002 until initial
operational tests and evaluations are completed in April 2002. 
Further, maintaining production quantities at eight or less aircraft
per year could defer the purchase of $282 million of production
tooling--$109 million in fiscal year 2000 to increase production to
12 aircraft per year, $116 million in fiscal year 2001 to increase
production from 12 to 24 aircraft per year, and $57 million in fiscal
year 2002 to increase production from 24 to 36 per year. 

If the Congress were to restrict funding in this way and restrict
procurement of tooling to limit production to eight aircraft a year,
the following budget savings could be achieved during the next 5
years. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 Defense Plan
----------------------------------------------------------------------
Budget authority                     0     127   1,340   2,608   3,810
Outlays                              0       8     114     527   1,332
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


--------------------
\7 In December 1996, the Air Force announced the results of a review
of the program by a joint cost estimating team.  Significant changes
to the program, including changes to the procurement plan, are being
considered as a result of that team's report. 


      RELATED GAO PRODUCTS
----------------------------------------------------- Appendix III:8.1

Combat Air Power:  Joint Mission Assessments Needed Before Making
Program and Budget Decisions (GAO/NSIAD-96-177, September 20, 1996). 

Tactical Aircraft:  Concurrency in Development and Production of F-22
Aircraft Should Be Reduced (GAO/NSIAD-95-59, April 19, 1995). 

Weapons Acquisition:  Low-Rate Initial Production Used to Buy Weapon
Systems Prematurely (GAO/NSIAD-95-18, November 21, 1994). 

Tactical Aircraft:  F-15 Replacement Is Premature as Currently
Planned (GAO/NSIAD-94-118, March 25, 1994). 


      GAO CONTACT
----------------------------------------------------- Appendix III:8.2

Louis J.  Rodrigues, (202) 512-4841



   OPTION:
   AIR FORCE BOMBER FORCE
   REQUIREMENTSAIR FORCE BOMBER
   FORCE REQUIREMENTS
------------------------------------------------------- Appendix III:9


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Accounts                            Multiple

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
Bombers currently in the force, B-2s, B-1Bs, and B-52Hs, were
initially designed and procured by the Department of Defense (DOD)
primarily to meet nuclear war-fighting requirements.  Since the end
of the Cold War, DOD has placed increased emphasis on the role of
bombers in future conventional conflicts while reducing the number of
bombers significantly from a total of about 360 in 1989 to a planned
retention of 187 bombers through the early part of the next century. 

Senior DOD officials have said that DOD cannot afford all of the
services' stated requirements and difficult decisions must be made on
which investment programs to cancel so that DOD can develop and
implement a long-term, sustainable recapitalization plan.  While DOD
believes it needs a level of redundancy to provide commanders in
chief with a safety margin and flexibility, it may not need to
upgrade its capabilities to the extent currently planned.  GAO's
analysis shows that DOD has not made a compelling case to retain and
upgrade 187 bombers to support future war-fighting requirements. 
While there are a number of ways to reduce capabilities to strike
ground targets, a smaller bomber force may be one option to reduce
overlap that would result in an acceptable loss to DOD's overall
war-fighting capabilities. 

Because DOD's plans to modernize combat airpower may be prohibitively
expensive, DOD is seeking ways to reduce costs.  With this in mind,
GAO has identified three options to reduce or restructure the bomber
force that would achieve cost savings yet enable DOD to retain
extensive aggregate airpower capabilities.  The first two
options--retiring all or a portion of the B-1B fleet--would result in
a smaller bomber force than DOD currently plans.  Retiring or
reducing the B-1B force may result in an acceptable decrease in DOD's
existing capabilities.  The third option--increasing the number of
B-1Bs in the Air National Guard--would not result in a smaller force
but would achieve some cost savings because reserve units are less
expensive to operate than active units.  Options two and three are
not mutually exclusive.  The three options and their projected cost
savings are detailed below. 


      RETIRE ENTIRE B-1B FORCE
----------------------------------------------------- Appendix III:9.1

Retiring the entire B-1B force of 95 aircraft would reduce DOD's
aggregate conventional airpower capabilities somewhat but would yield
significant cost savings.  Eliminating the B-1B force would decrease
DOD's inventory of long-range airpower assets.  However, B-2s and
B-52Hs would still be available for missions requiring long-range and
large payload capabilities.  Retiring the B-1B force also would have
no adverse effect on DOD's nuclear mission.  The B-1B will no longer
have a nuclear mission once B-2s enter the force. 

If the Congress directed DOD to retire the B-1B force, CBO estimates
it would save about $6 billion in budget authority and about $5.2
billion in budget outlays for fiscal years 1998-2002 as shown in the
following table. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 Defense Plan
----------------------------------------------------------------------
Budget authority                   750   1,190   1,220   1,300   1,490
Outlays                            430     950   1,130   1,290   1,440
----------------------------------------------------------------------
Note:  In estimating the cost savings of this option, CBO assumed
that the B-1B force would be retired over a 1-year period beginning
immediately, resulting in smaller savings for fiscal year 1998. 

Source:  Congressional Budget Office. 


      RETIRE 27 B-1BS IN
      RECONSTITUTION RESERVE
----------------------------------------------------- Appendix III:9.2

The Air Force currently has 27 B-1B aircraft in reconstitution
reserve that lack aircrews and funding for operations.  In fiscal
year 1997, the Air Force will begin reducing the number of unfunded
reconstitution reserve aircraft, will establish two new operational
B-1B squadrons using the aircraft that are currently in
reconstitution reserve, and will fund additional aircrews and flying
hours.  The Air Force has included the cost of upgrading
reconstitution reserve aircraft in the B-1B Conventional Munitions
Upgrade Program estimated to cost $2.4 billion from fiscal years 1996
through 2008. 

If DOD perceives that the risks to retire the entire B-1B fleet
outweigh the savings that could be realized, it could retire 27
reconstitution reserve B-1Bs and keep 68 B-1Bs in the force, 60 of
which would be funded for combat operations or training.  This option
would not result in as much loss in capability as retiring the entire
B-1B fleet.  If 27 B-1Bs were retired, DOD would still have numerous
other combinations of platforms and weapons to attack the types of
targets that the B-1B is planned to destroy.  Compared to retiring
all 95 B-1Bs, this option would provide commanders in chief with more
flexibility in planning air campaigns and basing aircraft in theater,
since B-1Bs would be based farther away from the theater of
operations and would not require refueling during a typical wartime
mission, unless operating from the United States. 

Retiring the 27 B-1Bs in reconstitution reserve would save about $750
million in budget authority for fiscal years 1998-2002. 
Reconstitution reserve aircraft place an increased maintenance
workload on the squadron and require the Air Force to authorize and
fund four additional maintenance personnel per reconstitution reserve
aircraft.  Savings in the near-term would reflect the immediate
termination of these positions.  Savings would increase significantly
in fiscal year 2000 because DOD would not establish two additional
operation squadrons and could eliminate the personnel and flying-hour
costs associated with these aircraft.  Retiring 27 B-1Bs also would
save procurement funds since DOD would upgrade only 68 B-1Bs for the
conventional mission instead of 95 B-1Bs.\8 If the Congress directed
DOD to retire the 27 B-1Bs in reconstitution reserve, CBO estimates
the following savings could be achieved. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 Defense Plan
----------------------------------------------------------------------
Budget authority                     2       4      80     270     390
Outlays                              2       4      64     230     350
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


--------------------
\8 According to CBO, savings from forgoing these upgrades would occur
after fiscal year 2002. 


      PLACE 24 ADDITIONAL B-1BS IN
      THE AIR NATIONAL GUARD
----------------------------------------------------- Appendix III:9.3

Placing more B-1Bs in the Air National Guard is an option that could
reduce the cost to operate DOD's bomber force while preserving the
war-fighting capability of DOD's planned bomber force.  By fiscal
year 1998, the Air Force will have 18 B-1Bs assigned to the National
Guard and fully trained in the conventional role.  B-1Bs will no
longer have a nuclear role in the near future, thus making the
transfer of B-1Bs to the Air National Guard somewhat easier than
transferring B-52s to the Air Force Reserve. 

Placing 24 more B-1Bs in the Air National Guard would save about $110
million in budget authority for fiscal years 1998 to 2002.  We
examined placing 24 more B-1Bs in the Air National Guard because this
would achieve a 50/50 active/reserve ratio when attrition and backup
aircraft are excluded and the Air Force has placed 50 percent or more
of some refueling and air mobility assets in the reserve component. 
Transferring additional B-1Bs to the Air National Guard is not likely
to degrade combat effectiveness or result in loss of war-fighting
capability.  Air Reserve combat units generally have readiness
similar to active-duty units and are required to be ready to deploy
within the same time as active units based in the continental United
States.  A major benefit of transferring bombers to the reserve
component is that reserve units traditionally are less expensive to
operate than active duty counterparts.  Air National Guard B-1B
squadrons will require fewer flying hours than active squadrons
because Air National Guard units are able to recruit more experienced
pilots who require less frequent training to maintain their
proficiency.  Also, in contrast to active duty units that rely
primarily on active military personnel, Air National Guard units rely
heavily on less costly civilians and part-time Guard personnel. 

If the Congress directed DOD to place an additional 24 B-1Bs in the
Air National Guard, CBO estimates cost savings of about $110 million
in budget authority for fiscal years 1998 through 2002 could be
achieved as shown in the table below. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 Defense Plan
----------------------------------------------------------------------
Budget authority                     0       0      10      40      60
Outlays                              0       0       9      37      59
----------------------------------------------------------------------
Note:  One additional Guard unit would be started in fiscal year 2000
and two additional units would be started in fiscal year 2001. 

Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
----------------------------------------------------- Appendix III:9.4

Air Force Bombers:  Options to Retire or Restructure the Force Would
Reduce Planned Spending (GAO/NSIAD-96-192, September 30, 1996). 

Embedded Computers:  B-1B Computers Must Be Upgraded to Support
Conventional Requirements (GAO/AIMD-96-28, February 27, 1996). 

B-1B Conventional Upgrades (GAO/NSIAD-96-52BR, December 4, 1995). 

B-1B Bomber:  Evaluation of Air Force Report on B-1B Operational
Readiness Assessment (GAO/NSIAD-95-151, July 18, 1995). 

Air Force:  Assessment of DOD's Report on Plan and Capabilities for
Evaluating Heavy Bombers (GAO/NSIAD-94-99, January 10, 1994). 

Strategic Bombers:  Issues Relating to the B-1B's Availability and
Ability to Perform Conventional Missions (GAO/NSIAD-94-81, January
10, 1994). 

Strategic Bombers:  Adding Conventional Capabilities Will Be Complex,
Time-Consuming, and Costly (GAO/NSIAD-93-45, February 5, 1993). 

Strategic Bombers:  Need to Redefine Requirements for B-1B Defensive
Avionics System (GAO/NSIAD-92-272, July 17, 1992). 

Strategic Bombers:  Updated Status of the B-1B Recovery Program
(GAO/NSIAD-91-189, May 9, 1991). 

Strategic Bombers:  Issues Related to the B-1B Aircraft Program
(GAO/T-NSIAD-91-11, March 6, 1991). 


      GAO CONTACT
----------------------------------------------------- Appendix III:9.5

Richard Davis, (202) 512-3504



   OPTION:
   AIR FORCE FIGHTER SQUADRONSAIR
   FORCE FIGHTER SQUADRONS
------------------------------------------------------ Appendix III:10


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Account                             Operation and Maintenance, Air
                                    Force
                                    (57-3400)

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
The Air Force accounts for its fighter force structure in wing
equivalents that represent 72 aircraft.  At the end of the Air
Force's planned drawdown, the Air Force's active component F-15 and
F-16 communities will make up about 10 fighter wing equivalents.  The
Air Force plans to organize these aircraft in 37 squadrons at 17
bases in the United States and overseas.  Until recently, Air Force
fighter wings were predominantly organized in 3 squadrons of 24
aircraft.  However, the Air Force has decided to reduce its squadron
size to 18, which consequently reduced its wing size to 54.  This
change in unit size increased the number of wings and squadrons to
more than would have been needed had the squadron size stayed at 24. 

The Air Force has not demonstrated that it needs additional
squadrons.  Air Force officials believe that more squadrons are
needed to provide the Air Force with additional flexibility to
respond to numerous potential conflicts across the globe.  Although
the Air Force considers smaller fighter squadrons beneficial, it had
not performed any analysis to justify its decision.  Further,
according to Air Force officials, Commanders in Chief, who are
responsible for conducting these operations, developed plans based on
the number of aircraft that are needed to execute
missions--regardless of squadron size. 

Keeping more squadrons than are needed increases operating costs and
may result in more base infrastructure than the Air Force needs.  GAO
developed several notional basing plans that the Air Force could use
in considering how to consolidate its fighter force into fewer
squadrons.  Implementing these plans could eliminate not only between
two and seven squadrons, but also a wing and/or fighter base.  CBO
identified operating and support cost savings ranging between $38
million and $149 million annually (in 1997 dollars).\9 Recurring
savings resulting from a base closure are estimated at an additional
$40 million annually (in 1997 dollars).  However, these savings would
not begin to accrue until 3 to 4 years after the base closure
decision.  If the Congress chose to consolidate the Air Force's
fighter force into fewer squadrons by eliminating seven of them, the
following operating savings could be achieved. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 Defense Plan
----------------------------------------------------------------------
Budget authority                    75     153     157     161     165
Outlays                             71     149     156     160     165
----------------------------------------------------------------------
Note:  Savings estimates do not include funds associated with the
base closure.  The savings could be significant depending on the base
selected for closure. 

Source:  Congressional Budget Office. 


--------------------
\9 The CBO savings estimate is based on GAO's personnel reduction
estimates.  Based on these reductions, GAO's work shows that
operating costs savings could range between $25 million and $115
million annually.  Differences between CBO and GAO estimates are
attributable to the larger infrastructure cost savings estimated by
CBO and not included in GAO's estimates. 


      RELATED GAO PRODUCT
---------------------------------------------------- Appendix III:10.1

Air Force Aircraft:  Consolidating Fighter Squadrons Could Reduce
Costs (GAO/NSIAD-96-82, May 6, 1996). 


      GAO CONTACT
---------------------------------------------------- Appendix III:10.2

Richard Davis, (202) 512-3504



   OPTION:
   C-17 STRATEGIC AIRLIFTC-17
   STRATEGIC AIRLIFT
------------------------------------------------------ Appendix III:11


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Account                             Aircraft Procurement, Air Force
                                    (57-3010)

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Reassess objectives
----------------------------------------------------------------------
The C-17 jet transport is being manufactured for the Air Force by
McDonnell Douglas Corporation.  The Air Force originally planned to
acquire 210 C-17s; however, as a result of the Major Aircraft Review,
that number was reduced to 120.  In 1993, because of ongoing problems
with the C-17 program, the Department of Defense (DOD) explored the
possibility of acquiring a mixed fleet of C-17s and nondevelopmental
commercial transport aircraft, such as Boeing 747-400s.  In November
1995, as a result of an Air Force study which considered a number of
possible mixes of C-17s and non-developmental airlift aircraft and a
Defense Acquisition Board decision, DOD decided that the advantages
of a transport fleet with only C-17s outweighed the cost savings of
acquiring a mixed fleet.  Thus, DOD is planning to acquire 120 C-17s
to replace the C-141s that are being retired. 

An option not considered by the Defense Acquisition Board, which may
also satisfy airlift requirements, would be to acquire 100 C-17s and
no nondevelopmental airlift aircraft.  This option could save over $7
billion in life cycle costs.  Airlift needs could be met with this
reduced number of C-17s if DOD implemented other individual measures,
such as increasing, by a small amount, prepositioning; using training
aircraft that were assumed to be unavailable in the analyses
presented to the Defense Acquisition Board; increasing the use of the
Civil Reserve Air Fleet aircraft, extending slightly the time frame
for delivery, or a combination of these measures. 

Because of the potential for cost savings, the Congress may wish to
consider funding only 100 C-17s rather than the 120 that are
currently planned for acquisition.  If the Congress chose to fund
only 100 C-17s, CBO estimates that the following budget savings could
be achieved. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 Defense Plan
----------------------------------------------------------------------
Budget authority                     0       0       0     240   2,974
Outlays                              0       0       0      15     242
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCT
---------------------------------------------------- Appendix III:11.1

Military Airlift:  DOD Could Meet Mobility Needs With Fewer C-17s and
Save Billions (GAO/NSIAD-97-38, December 30, 1996). 


      GAO CONTACT
---------------------------------------------------- Appendix III:11.2

Louis J.  Rodrigues, (202) 512-4841



   OPTION:
   NUCLEAR SUBMARINE FORCE
   REDUCTIONSNUCLEAR SUBMARINE
   FORCE REDUCTIONS
------------------------------------------------------ Appendix III:12


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Account                             Shipbuilding and Conversion, Navy
                                    (17-1611)

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Reassess objectives
----------------------------------------------------------------------
Nuclear-powered attack submarines (SSN) are the Navy's prime
antisubmarine warfare asset.  Today, faced with a changed world
threat and a new defense posture, the Navy is reducing the size of
its SSN fleet.  The Department of Defense's (DOD's) Bottom-Up Review
(BUR) determined that the Navy needed to maintain a force of 45 to 55
SSNs after fiscal year 1999 to meet the requirements of the defense
strategy, including both regional conflicts and peacetime presence
operations.  There are less costly alternatives than the approach the
Navy has chosen to maintain the required SSN force structure.  As we
have reported, these alternative approaches would save billions of
dollars and meet the Navy's force structure and threat requirements. 

In October 1994, we reported that there were less costly alternatives
than the Navy shipbuilding plan for maintaining DOD's approved attack
submarine force structure of 45 to 55 submarines.  Under two of the
three alternatives, the Navy could maintain a sustained low-rate
production, and under the third, the Navy could defer SSN
construction until early in the next century.  The Navy and the
Congress subsequently decided not to defer SSN construction. 

This alternative, would build only 25 SSNs through 2014, 6 fewer than
the Navy currently plans.  This alternative allows a force structure
of close to 55 submarines through 2014, before declining to 45 SSNs
in 2020.  The alternative would buy one submarine in each year from
1998 through 2002 and, eventually buy 3 submarines every other year
until 25 submarines are purchased.  If the Navy accepted this
alternative and bought 6 fewer submarines than currently planned, the
following savings would be achieved through 2002. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 Defense Plan
----------------------------------------------------------------------
Budget authority                     0     160     240     170   1,730
Outlays                              0      10      50     110     220
----------------------------------------------------------------------
Note:  Estimate includes savings from not buying a new submarine in
fiscal year 2002. 

Source:  Congressional Budget Office. 


      RELATED GAO PRODUCT
---------------------------------------------------- Appendix III:12.1

Attack Submarines:  Alternatives for a More Affordable SSN Force
Structure (GAO/NSIAD-95-16, October 13, 1994). 


      GAO CONTACT
---------------------------------------------------- Appendix III:12.2

Richard Davis, (202) 512-3504



   OPTION:
   MAJOR WEAPON SYSTEM WARRANTY
   LAWMAJOR WEAPON SYSTEM WARRANTY
   LAW
------------------------------------------------------ Appendix III:13


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Account                             Aircraft Procurement, Air Force
                                    (57-3010)

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
During the 1970s and the 1980s, the Congress was faced with an
acquisition process that delivered weapon systems that often failed
to meet their military missions, were operationally unreliable, and
had defective and poor workmanship and material.  As a result, in
1984 the Congress passed legislation requiring the Department of
Defense (DOD) to obtain warranties on major weapon systems.  The
warranties were expected to improve weapon system reliability by
providing a mechanism to hold contractors liable for poor
performance.  Prior to the warranty law, DOD was permitted but not
required to obtain a warranty. 

GAO estimated that the military services spend approximately $271
million annually obtaining weapon system warranties.  GAO found that
none of the warranties reviewed, where claim and price data were
available, were cost-effective.  For example, for the warranties
reviewed, the government only collected $5 million after paying $94
million for these weapon system warranties. 

Despite DOD's efforts to address administrative weaknesses, such as
failing to file all warranty claims or making use of adequate
cost-benefit analyses, DOD continues to have fundamental problems
managing the warranty program.  The administrative problems appear to
be unintended consequences of the warranty law.  Attempts to
administratively correct the warranty law have not been successful. 
Because of the potential for cost savings, the Congress should repeal
the warranty law (10 U.S.C.  2403).  Savings under this option would
depend on the extent the military departments still obtain warranties
for some programs after the law is repealed, therefore, CBO is unable
to provide a savings estimate at this time. 


      RELATED GAO PRODUCT
---------------------------------------------------- Appendix III:13.1

Weapons Acquisition:  Warranty Law Should Be Repealed
(GAO/NSIAD-96-88, June 28, 1996). 


      GAO CONTACT
---------------------------------------------------- Appendix III:13.2

Louis J.  Rodrigues, (202) 512-4841



   OPTION:
   BASE ALIGNMENT AND CLOSURE
   ACCOUNTSBASE ALIGNMENT AND
   CLOSURE ACCOUNTS
------------------------------------------------------ Appendix III:14


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Military Construction (Senate)
                                    Military Construction (House)

Primary agency                      Department of Defense

Account                             Base Realignment and Closure (97-
                                    0103)

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
Changing national security needs and the Department of Defense's
(DOD) recognition that its base structure was larger than required
led to a decision to close numerous bases around the country. 
Consequently, the Congress enacted legislation that instituted
closures of facilities identified by the Base Realignment and Closure
(BRAC) Commission as part of the base closure process. 

The Congress appropriates BRAC funds on a no year and lump sum basis. 
Funds can be used for a variety of purposes including construction,
family housing, and environmental restoration costs associated with
base closures and realignment.  Therefore, DOD is provided a
tremendous amount of flexibility to finance BRAC expenditures from
the BRAC account.  While DOD budget guidance directs services to
request only funds needed in the appropriation year, large
unobligated balances indicate the services have been requesting more
than necessary.  Because requirements lack the specificity of regular
DOD requirements, large unobligated balances represent funds the
Congress may wish to rescind.  The following savings represent a
rescission of the $148 million. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 Defense Plan
----------------------------------------------------------------------
Budget authority                   148       0       0       0       0
Outlays                             46      53      28      15       2
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:14.1

Military Bases:  Potential Reductions to the Fiscal Year 1997 Base
Closure Budget (GAO/NSIAD-96-158, July 15, 1996). 

Military Bases:  Update on the Status of Bases Closed in 1988, 1991,
and 1993 (GAO/NSIAD-96-149, August 6, 1996). 


      GAO CONTACT
---------------------------------------------------- Appendix III:14.2

David R.  Warren, (202) 512-8412



   OPTION:
   DEFENSE INVENTORIES
   REFORMDEFENSE INVENTORIES
   REFORM
------------------------------------------------------ Appendix III:15


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Accounts                            Multiple

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
Over 100 GAO reports have pointed out Department of Defense (DOD)
inventory management problems and have shown that DOD has accumulated
inventory that greatly exceeds its operational and war reserve needs. 
Systemic problems in determining requirements and inadequate
financial accountability and control have contributed to poor
inventory management practices.  Traditionally, DOD's culture has
emphasized overbuying and placed little value on economy and
efficiency, causing unneeded items to pile up in warehouses. 

DOD could be more aggressive in implementing private sector practices
that could reduce inventory costs.  DOD has implemented, in a limited
manner, certain commercial practices such as direct vendor delivery
for medical and food items.  However, these initiatives represent
only about 3 percent of the items for which this concept could be
used. 

Systemic reforms--such as improving the way inventory requirements
are determined, using commercial inventory management practices, and
changing financial management policies and practices--continue to be
needed to achieve further reductions in DOD's budget requirements. 
GAO estimates that, as of September 1995, only about half of DOD's
$69.6 billion in inventory had to be on hand to support current
operations and war reserves.  GAO's work has shown that several
private business have been able to reduce their on hand inventories
by more than 50 percent by implementing best practices. 

Unless DOD takes more aggressive actions, its inventory management
problems will continue into the next century.  We have identified
four specific inventory related options the Congress may wish to
consider for DOD budget reduction purposes. 


      USE PRIME VENDORS TO SUPPLY
      HIGH-VOLUME CLOTHING AND
      TEXTILE ITEMS
---------------------------------------------------- Appendix III:15.1

DOD spends over a billion dollars for clothing and textile items sold
to military service customers, primarily the services' 14 recruit
induction centers and over 300 military exchange stores.  GAO has
reported that while private sector companies are cutting costs by
minimizing inventories, DOD continues to store redundant levels of
clothing and textile inventories throughout its wholesale and retail
system.  Much of this inventory is aged; for about 26 percent of the
items, DOD had 10 years of supply on hand.  To maintain these stocks,
DOD employs a large operations infrastructure and thus incurs
unnecessary inventory storage and handling costs. 

Many private sector firms and some federal agencies with uniformed
employees are relying on prime vendors to manage their clothing
inventories.  Prime vendors provide timely and direct delivery
between customers and suppliers, and order additional stock from
manufacturers on short notice, with quick turnaround, to minimize
inventory holding costs and improve customer service.  GAO believes
that substantial opportunities exist to reduce DOD annual
expenditures on clothing and textile items by adopting best
commercial practices on a wide-scale basis.  For example, the
Congress may wish to direct DOD to adopt a primary vendor program for
supplying clothing and textile items to it's 14 recruit induction
centers.  Although CBO believes that initiating such actions would
save money, it was unable to calculate a savings estimate at this
time. 


      USE INNOVATIVE COMMERCIAL
      PRACTICES TO SUPPLY
      ELECTRONICS ITEMS TO
      MAINTENANCE AND REPAIR
      FACILITIES
---------------------------------------------------- Appendix III:15.2

The Defense Logistics Agency (DLA) manages over 1 million electronics
items such as resistors, fuses, and switches.  It stores this
inventory, valued at over $2 billion, at 28 distribution depots and
other storage locations.  This large level of inventory reflects
DLA's practice of buying and storing electronics supplies to ensure
they are available to customers--sometimes several years in advance
of when the supplies are actually needed.  The turnover of DLA's
electronics inventory is slow.  In fiscal year 1993, the wholesale
inventory of such items would turn over once every 4 years.  In
comparison, private sector suppliers often turn their stock over four
times a year. 

Many private sector companies have adopted modern inventory
management practices, including long-term relationships with
suppliers, direct delivery programs, and direct communication
channels between suppliers and end users.  With these practices,
companies do not store supplies at intermediate handling and storage
locations, as DOD does.  Instead, they arrange for suppliers to
deliver inventory items directly to the end user's facility at about
the time when the items are needed.  The result is a reduction in
inventories and related holding costs as well as improved customer
service. 

DLA has initiated several programs to adopt commercial practices for
electronics items, but overall progress is slow and projected results
are limited.  Substantial opportunities exist and significant savings
would result if electronics items were managed by adopting best
commercial practices on a wide-scale basis.  The Congress may wish to
direct DLA to adopt modern inventory management practices that would
result in a similar 50 percent decrease in electronics items
inventory.  Although CBO believes that initiating such actions would
save money, it was unable to calculate a savings estimate at this
time. 


      DOD SPARE AND REPAIR PARTS
      STORAGE LOCATIONS
---------------------------------------------------- Appendix III:15.3

The Army, Navy, and Air Force store the majority of their general
issue spare and repair parts inventories at a few locations with the
remaining inventory being stored at hundreds of other locations.  To
illustrate, over 95 percent of the Army's general issue inventory is
stored at 7 major locations and the remaining 5 percent is stored at
110 other locations.  The Navy stores 81 percent of its inventory at
6 locations and the other 19 percent at 52 locations.  The Air
Force's storage pattern is similar to that of the Army and Navy.  It
stores 96 percent of its inventory at 6 major locations and the other
4 percent at 105 locations. 

Most of the items stored at other than major locations had small
quantities of onhand inventory.  In fact, over 53 percent of the
items had onhand quantities of three or less, while only 25 percent
of the items had quantities of 11 or more.  Our analysis also showed
that many of the Army items\10 had infrequent issues over the 2-year
period ending August, 1996.  Over 53 percent of the inventory items
at other than major storage locations had no issues and, an
additional 33 percent of the items had less than five issues during
the same 2-year period.  The need for many of the items stored at
other than major locations is questionable. 

Maintaining inventory that is not needed is expensive and does not
contribute to an effective, efficient, and responsive supply system. 
Our analysis showed that $2.7 billion of the inventory was not needed
to meet the services' current operating and war reserve requirements. 
CBO agrees that DOD could save millions of dollars annually in
inventory holding costs by eliminating at other than major locations
inventory that is not needed to meet current operating and war
reserve requirements.  However, CBO could not provide a savings
estimate at this time. 


--------------------
\10 Information was not readily available from the Air Force and Navy
to determine the number of inventory issues on an item-by-item basis
at each storage location. 


      ARMY SPARE AND REPAIR PARTS
      BUDGET
---------------------------------------------------- Appendix III:15.4

The Army budget stratification reports which are used to determine
spare and repair parts budget requests are based on inaccurate data. 
When an item's available inventory is not sufficient to meet the
requirements, the item is considered to be in a shortage position,
and the aggregate value of shortage items is the basis for
determining the budget request. 

Our review of 258 items with a reported shortage value of $519
million showed that the shortage position for $211 million of the
items was incorrect.  If accurate requirements and inventory data had
been used, the inventory shortage for these items would have been $23
million rather than the $211 million reported.  As a result, the
fiscal year 1996 budget request included $188 million ($211 million
minus $23 million) for items that were not in a shortage position. 

Because corrective actions were not taken in time to affect the
fiscal year 1997 budget request, we believe the fiscal year 1997
request is also overstated.  Therefore, the Congress may want to
reduce the Army's fiscal year 1998 spare and repair parts budget
request by the $188 million it was overstated in fiscal year 1996. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 Defense Plan
----------------------------------------------------------------------
Budget authority                   188       0       0       0       0
Outlays                            143      35       6       2       1
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:15.5

Defense Inventory Management (GAO/HR-97-5, February 1997). 

Defense Inventory:  Spare and Repair Parts Inventory Costs Can Be
Reduced (GAO/NSIAD-97-47, January 17, 1997). 

1997 DOD Budget:  Potential Reductions to Operation and Maintenance
Program (GAO/NSIAD-96-220, September 18, 1996). 

Navy Financial Management:  Improved Management of Operating
Materials and Supplies Could Yield Significant Savings
(GAO/AIMD-96-94, August 16, 1996). 

Inventory Management:  Adopting Best Practices Could Enhance Navy
Efforts to Achieve Efficiencies and Savings (GAO/NSIAD-96-156, July
12, 1996). 

Defense Logistics:  Requirement Determinations for Aviation Spare
Parts Need to Be Improved (GAO/NSIAD-96-70, March 19, 1996). 

Best Management Practices:  Reengineering the Air Force's Logistics
System Can Yield Substantial Savings (GAO/NSIAD-96-5, February 21,
1996). 

Army Inventory:  Budget Requests for Spare and Repair Parts Are Not
Reliable (GAO/NSIAD-96-3, December 29, 1995). 

Inventory Management:  DOD Can Build on Progress in Using Best
Practices to Achieve Substantial Savings (GAO/NSIAD-95-142, August 4,
1995). 

Best Practices Methodology:  A New Approach for Improving Government
Operations (GAO/NSIAD-95-154, May 25, 1995). 

Commercial Practices:  DOD Could Reduce Electronics Inventories by
Using Private Sector Techniques (GAO/NSIAD-94-110, June 29, 1994). 

Commercial Practices:  Leading-Edge Practices Can Help DOD Better
Manage Clothing and Textile Stocks (GAO/NSIAD-94-64, April 13, 1994). 


      GAO CONTACTS
---------------------------------------------------- Appendix III:15.6

David R.  Warren, (202) 512-8412

Mark E.  Gebicke, (202) 512-5140



   OPTION:
   DEFENSE TRANSPORTATION
   RESTRUCTURINGDEFENSE
   TRANSPORTATION RESTRUCTURING
------------------------------------------------------ Appendix III:16


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Accounts                            Multiple

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
In 1993 and again in 1996, we reported that the Department of
Defense's (DOD) current transportation processes are fragmented,
inefficient, and costly.  Beginning in 1949, various studies,
commissions, and task forces have recommended changes in the defense
transportation system organizational structure.  In 1987, after the
Goldwater-Nichols Act of 1986 urged that actions be taken to unify
transportation management, the Secretary of Defense established the
U.S.  Transportation Command (USTRANSCOM).  USTRANSCOM's own study
shows that little has changed since it was created and charged with
responsibility for unifying DOD's transportation infrastructure. 

Our work shows that opportunities exist to reduce defense
transportation infrastructure and improve efficiency of cargo traffic
management operations.  For example, combining common-user traffic
management functions and positions under the direct command and
control of a single manager, USTRANSCOM, would reduce overhead and
eliminate duplicative functions.  Moreover, nearly all defense
surface cargo moves by commercial carriers during peacetime and
noncontingency operations.  More outsourcing of the traffic
management functions related to shipments by commercial carriers is
possible and would further reduce transportation costs. 

Overall, fixing the organizational structure is a mandatory first
step to substantially reduce transportation costs.  One logical way,
though not the only one, as related to surface traffic management
functions, would be to (1) place the Defense Business Operations
Fund-Transportation staff of the Navy's Military Sealift Command
staff worldwide together with the staff of the Army's Military
Traffic Management Command (MTMC), thereby eliminating duplicative
staff and overlapping layers of management, (2) consolidate or
eliminate the resulting continental United States area command
offices thereby eliminating duplicate staff functions, (3)
consolidate or eliminate the resulting overseas area offices, and (4)
consolidate or eliminate the resulting port command and area offices. 

Although MTMC, because of the recommendations of the 1995 Defense
Base Closure and Realignment Commission to close the Military Ocean
Terminal at Bayonne, New Jersey, and California's Oakland Army Base,
has announced plans to consolidate the continental United States area
command staff in a new location, opportunities still exist to reduce
infrastructure and improve efficiency of traffic management
operations.  If the Congress chose to restructure the organization as
noted, the following civilian personnel savings could be achieved. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 Defense Plan
----------------------------------------------------------------------
Budget authority                    16      33      51      70      73
Outlays                             16      32      50      69      73
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:16.1

Defense Transportation:  Reengineering the DOD Personal Property
Program (GAO/NSIAD-97-49, November 27, 1996). 

Defense Infrastructure:  Budget Estimates for 1996-2001 Offer Little
Savings for Modernization (GAO/NSIAD-96-131, April 4, 1996). 

Defense Transportation:  Streamlining of the U.S.  Transportation
Command Organization Is Needed (GAO/NSIAD-96-60, February 22, 1996). 

Defense Transportation:  Commercial Practices Offer Improvement
Opportunities (GAO/NSIAD-94-26, November 26, 1993). 


      GAO CONTACT
---------------------------------------------------- Appendix III:16.2

David R.  Warren, (202) 512-8412



   OPTION:
   DEPOT MAINTENANCE PROGRAM
   EXCESS CAPACITYDEPOT
   MAINTENANCE PROGRAM EXCESS
   CAPACITY
------------------------------------------------------ Appendix III:17


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Accounts                            Multiple

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
The Department of Defense's (DOD) annual $15 billion depot
maintenance program provides for the repair and overhaul of military
parts, weapon systems, and equipment.  This work is accomplished by
commercial contractors as well as by DOD employees in large
industrial depots maintained by the military departments. 

Factors such as threat changes, new war-fighting plans, force
structure reductions, and increased reliability and maintainability
of many military systems have significantly reduced depot maintenance
requirements over the past few years.  Faced with substantial excess
depot capacity and high infrastructure costs, DOD has been struggling
to implement initiatives to more cost effectively (1) utilize
existing maintenance resources at depots and operational units, (2)
reduce excess depot maintenance infrastructure, largely by closing
depots as a part of the base closure and realignment process, and (3)
reallocate workload from closing depots.  At the same time, DOD has
embarked on the implementation of a depot maintenance strategy that
will privatize much of the depot maintenance workload without
determining whether privatizing specific depot workloads will result
in savings. 

In previous reports and as a part of our ongoing review of DOD depot
maintenance operations and management, GAO has identified the
following shortcomings in these initiatives and has highlighted other
actions that could be taken to improve the cost-effectiveness of the
DOD depot maintenance program. 

First, DOD has not been successful in achieving an optimal balance
between maintenance work performed at operational units and at
depots.  Cost-benefit evaluations of competing alternatives that
consider infrastructure, personnel, material, transportation, and
equipment tradeoffs could result in significant savings. 

Second, the services continue to rely largely on their own service
depots rather than maximizing interservicing opportunities by
consolidating similar maintenance operations at a single location. 
On many occasions, we have pointed out that this approach leads to
unnecessary duplication of resources.  A greater use of
cross-servicing could eliminate costly redundancies and excess
capacity. 

Third, DOD plans to privatize-in-place depot maintenance activities
without evaluating other alternatives such as public-private
competitions or interservicing.  Such privatization-in-place
initiatives will do little to resolve the extensive excess capacity
problem that currently exists in both public and private sector
industrial facilities and may not be the most cost-effective
solution.  An option that could result in substantial savings would
be to reallocate core workload to remaining military depots when
determined to be more cost-effective and use competitive procedures
to include public and private entities to determine the
source-of-repair for noncore workload. 

Fourth, DOD is reluctant to use competitions between the public and
private sector to ensure that the privatization of maintenance
workloads will result in savings.  While there are opportunities to
achieve cost savings by privatizing depot maintenance workloads which
have commercial counterparts and where there is a substantial private
sector competitive market, it is less likely the private sector will
be more cost-effective in an uncompetitive environment.  A greater
reliance on public-private competitions as a means of depot
maintenance workload reallocations could produce significant savings. 

Fifth, while the four previous base realignment and closure (BRAC)
rounds have resulted in the identification of four naval shipyards,
three naval aviation depots and two warfare centers, three Air Force
depots, and five Army depots for closure or realignment, significant
excess capacity will remain in the public depot system, particularly
if DOD proceeds with its privatization-in-place plans.  Additional
closures and/or realignments could reduce costly excess capacity and
produce significant savings. 

Sixth, we have reported that reengineering the processes and
procedures for organic workloads that have been subjected to
competition resulted in significant efficiency gains and productivity
improvements.  Similar reengineering initiatives for other organic
workloads should also result in significant savings. 

One option the Congress may wish to consider is to direct DOD, prior
to privatizing any depot workloads at depots identified by the BRAC
for closure or realignment, to complete cost analyses that consider
the savings potential of consolidating those BRAC-identified depot
maintenance workloads at other DOD depots.  Such analyses should
include determining savings that can be achieved for existing
workloads by reducing overhead rates through more efficient capacity
utilization of fixed overhead at underused military depots.  The
magnitude of savings would depend on the resulting structure and size
of the depot maintenance system and workload split between the
private and public sectors.  CBO agrees that savings would occur but
were unable to provide a savings estimate at this time. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:17.1

Defense Infrastructure (GAO/HR-97-7, February 1997). 

Air Force Depot Maintenance:  Privatization-in-Place Plans Are Costly
While Excess Capacity Exists (GAO/NSIAD-97-13, December 31, 1996). 

Depot Maintenance:  Opportunities to Privatize Repair of Military
Engines (GAO/NSIAD-96-33, March 5, 1996). 

Closing Maintenance Depots:  Savings, Workload and Redistribution
Issues (GAO/NSIAD-96-29, March 4, 1996). 

Navy Maintenance:  Assessment of the Public-Private Competition
Program for Aviation Maintenance (GAO/NSIAD-96-30, January 22, 1996). 

Depot Maintenance:  The Navy's Decision To Stop F/A-18 Repairs at
Ogden Air Logistics Center (GAO/NSIAD-96-31, December 15, 1995). 

Military Bases:  Analysis of DOD's 1995 Process and Recommendations
for Closure and Realignment (GAO/NSIAD-95-133, April 14, 1995). 

Aerospace Guidance and Metrology Center:  Cost Growth and Other
Factors Affect Closure and Privatization (GAO/NSIAD-95-60, December
9, 1994). 

Correspondence to the Chairman, Subcommittee on Readiness, Senate
Committee on Armed Services, follow-up to April 12, 1994, Depot
Maintenance Testimony (GAO/NSIAD-94-242R, July 28, 1994). 

Navy Maintenance:  Assessment of the Public and Private Shipyard
Competition Program (GAO/NSIAD-94-184, May 25, 1994). 

Depot Maintenance:  Issues in Allocating Workload Between the Public
and Private Sectors (GAO/T-NSIAD-94-161, April 12, 1994). 

Depot Maintenance:  Issues in Management and Restructuring To Support
a Downsized Military (GAO/T-NSIAD-93-13, May 6, 1993). 


      GAO CONTACT
---------------------------------------------------- Appendix III:17.2

David R.  Warren, (202) 512-8412



   OPTION:
   MILITARY EXCHANGE STORES
   CONSOLIDATIONMILITARY EXCHANGE
   STORES CONSOLIDATION
------------------------------------------------------ Appendix III:18


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Accounts                            Multiple

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
GAO reviewed the morale, welfare, and recreation (MWR) program--a $12
billion dollar enterprise that provides service members, their
dependents, and eligible civilians with an affordable source of goods
and services like those available to civilians--and found that
revenue generated by the MWR activities is likely to decrease in the
1990's because of the downsizing of forces and increasing private
sector competition.  Appropriated funds--which now constitute 10
percent of MWR funding--are also expected to decline as overall
budgets decline. 

Exchange stores are the largest producer of MWR revenue.  The
Department of Defense's (DOD) decentralized approach to managing the
MWR program will not work well in this environment.  Since 1968,
studies by GAO, DOD, and others have recommended the consolidation of
exchanges into a single entity.  Each study predicted financial
benefits could be achieved through consolidation.  While the Army and
Air Force exchanges have been consolidated, the Navy and Marine Corps
retain independent exchanges.  Further consolidations could achieve
additional savings.  For example, consolidating the Navy and Marine
Corps exchange systems with the Air Force/Army exchange system would
eliminate entire headquarters operations and the corresponding
overhead costs.  The Congress may wish to direct DOD to consolidate
the Navy and Marine Corps exchange systems with the existing Air
Force/Army exchange system.  CBO estimated that the following 5-year
savings might be achieved. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 Defense Plan
----------------------------------------------------------------------
Budget authority                    40      60      60      60      60
Outlays                             30      50      60      60      60
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCT
---------------------------------------------------- Appendix III:18.1

Morale, Welfare, and Recreation:  Declining Funds Require DOD to Take
Action (GAO/NSIAD-94-120, February 28, 1994). 


      GAO CONTACT
---------------------------------------------------- Appendix III:18.2

David R.  Warren, (202) 512-8412



   OPTION:
   BUDGETED CIVILIAN PERSONNEL
   REQUIREMENTSBUDGETED CIVILIAN
   PERSONNEL REQUIREMENTS
------------------------------------------------------ Appendix III:19


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Accounts                            Multiple

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
The services determined their civilian personnel requirements for
fiscal year 1997 based on the estimated end-strength for fiscal year
1996 adjusted for program changes that are expected to occur during
fiscal year 1997.  Once the beginning and ending strength for the
budget year are determined, the services compute the estimated work
years and multiply the result by the average civilian personnel
salary cost.\11 If fiscal year 1996 actual end strength was less than
budgeted, the beginning point for determining the fiscal year 1997
requirement was overstated. 

Based on the actual number of civilian personnel on board as of April
1996 for the Navy and other DOD agencies and as of May 1996 for the
Army and Air Force, we estimated that the actual end strength at the
end of fiscal year 1996--the beginning figure for fiscal year
1997--would be 7,331\12 less than the figure used by the services for
determining their fiscal year 1997 budget request.  Because the
services used a larger beginning figure, the number of work years
used in the budget request is also overstated by 3,665 work years
($185.5 million).  In addition, our comparison of the civilian
personnel requirements shown in the President's Budget to the
justification documents prepared in support of the budget request
showed that the budget request was overstated $60 million.  Thus, the
total overstated personnel requirements equate to about $245.5
million. 

In view of the overstated personnel requirements, the Congress may
want to reduce the services' fiscal year 1998 budget requests for
civilian personnel by the amounts of the overstatements; the Army's
by $33.3 million, the Navy's by $108.3 million, the Air Force's by
$70 million, and other DOD agencies by $33.9 million. 

CBO agrees that the differences in proposed versus actual reductions
in personnel creates windfall surpluses in personnel accounts during
a single budget year.  More accurate reporting and subsequent
tightening of the O&M budget may produce savings; however, CBO is
unable to estimate a five-year cost savings for this option. 


--------------------
\11 The average salary cost includes an estimate of funds needed for
severance pay and separation incentives purposes as well as for
compensation. 

\12 This equates to 3,665 work years. 


      RELATED GAO PRODUCT
---------------------------------------------------- Appendix III:19.1

1997 DOD Budget:  Potential Reductions to Operation and Maintenance
Program (GAO/NSIAD-96-220, September 18, 1996). 


      GAO CONTACT
---------------------------------------------------- Appendix III:19.2

Mark E.  Gebicke, (202) 512-5140



   OPTION:
   CONVERT SOME SUPPORT OFFICER
   POSITIONS TO CIVILIAN
   STATUSCONVERT SOME SUPPORT
   OFFICER POSITIONS TO CIVILIAN
   STATUS
------------------------------------------------------ Appendix III:20


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Accounts                            Multiple

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
Commissioned military officers are required to provide leadership and
command military organizations.  The services use officers in such
warfighting positions as infantry commander and fighter pilot and
such support positions as civil engineer, personnel officer, and
veterinarian. 

Thousands of officers are staffing positions that could be converted
to civilian status without reducing operational forces.  GAO
evaluated about 32,000 officer positions in the Army, Air Force, and
Navy (about 30 percent of all officers in support positions), and
found that about 9,500 are performing work that could be performed by
civilians at lower cost.  Independently, the Army identified about
6,100 officer and enlisted positions that it believes could be
converted to civilian status and the Air Force found between about
15,200 and about 25,400 officer positions that it believes could be
converted. 

Savings can only be obtained if the military position is deleted from
end strength.  Also, the savings are partially offset by the need to
staff converted positions with civilian personnel, but GAO found that
civilians of roughly equal grade are less expensive than
corresponding military personnel.  GAO did not evaluate the potential
to use contractors rather than federal civilians in converted
positions although using contractors might produce greater savings. 

DOD is in the midst of an extensive drawdown of civilian personnel. 
Military to civilian conversions, however, do not necessarily
conflict with plans to reduce the size of government.  For example,
DOD currently plans to reduce civilian endstrength by 26 percent
between fiscal year 1993 and 2001.  If DOD reduced civilian
endstrength by about 25 percent (rather than 26 percent), it would
have enough civilian authorizations to replace the 9,500 officer
positions. 

If the Congress directed the Department of Defense to civilianize, at
a minimum, the 9,500 officer support positions identified by GAO and
then maintain the grade structure that existed prior to conversion,
the following budget savings could be achieved.  These savings assume
that the commissioned military officer positions are deleted from
DOD's force. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 Defense Plan
----------------------------------------------------------------------
Budget authority                    97     100     103     106     110
Outlays                             95     100     103     106     110
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCT
---------------------------------------------------- Appendix III:20.1

DOD Force Mix Issues:  Converting Some Support Officer Positions to
Civilian Status Could Save Money (GAO/NSIAD-97-15, October 23, 1996). 


      GAO CONTACT
---------------------------------------------------- Appendix III:20.2

Mark E.  Gebicke, (202) 512-5140



   OPTION:
   ATTRITION OF ENLISTED PERSONNEL
   FROM THE MILITARY
   SERVICESATTRITION OF ENLISTED
   PERSONNEL FROM THE MILITARY
   SERVICES
------------------------------------------------------ Appendix III:21


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Accounts                            Multiple

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
For at least the last decade, about one-third of enlistees in the
military services have failed to complete their first tours of duty. 
A large percentage of this attrition occurs in the first 6 months of
enlistees' first terms, before they have reported to their first duty
stations.  For example, more than 25,000 of the 176,000 recruits who
were enlisted in fiscal year 1994 were separated before they had
completed 6 months of service.  In fiscal year 1994, the services'
enlisted attrition rates at the 6-month point were as follows:  15.7
percent for the Army, 15.7 for the Navy, 12.5 for the Marine Corps,
and 11.6 for the Air Force. 

Thousands of recruits are separated in their first 6 months of
service because the services do not adequately screen applicants for
disqualifying medical conditions or for preservice drug use.  One
reason that this screening is inadequate is that recruiters do not
have sufficient incentives to ensure that their recruits are
qualified.  Thousands of recruits also are separated who fail to meet
minimum performance criteria.  Recruits have problems meeting
performance standards because they are not physically prepared for
basic training and because they lack motivation.  At present, DOD
lacks consistent and complete information on the percentage of
attrition that is unnecessary.  DOD's primary database for managing
attrition does not allow it to adequately determine the reasons that
enlisted recruits separate and set appropriate targets for reducing
attrition. 

In our recently issued report, to reduce the attrition of enlisted
personnel during the first 6 months of their terms of enlistment and
ensure that only qualified personnel are enlisted, we recommended
that the Secretary of Defense direct the services to

  -- strengthen their recruiter incentive programs to encourage
     recruiters to thoroughly prescreen potential recruits with
     medical histories;

  -- link recruiting quotas to recruits' successful completion of
     basic training;

  -- require potential recruits to provide the names of their medical
     insurers and providers and allow the services access to past
     medical information;

  -- revise their forms for collecting information from recruits; and

  -- use a newly proposed DOD database of medical diagnostic codes to
     determine whether medical screening tests should be added to
     preenlistment examinations. 

The recommendations, if implemented would help the services meet
their goals to reduce attrition in the first 6 months. 

All the services agree that reducing early attrition is desirable. 
To this end, three services have attrition-reducing targets ranging
from 4 to 10 percent.  If the services reach their goals, they would
realize immediate short-term annual savings because they would be
transporting, feeding, clothing, and paying fewer recruits.  We
estimated short-term annual savings would range from around $5
million to $12 million.  Even greater dollar savings could be
realized over time as the services began to reduce the infrastructure
associated with recruiting and training enlistees.  We estimated the
services possible long-term infrastructure savings could range from
$15 million to $39 million.  However, these long-term savings
probably would not be proportional to the decrease in attrition.\13

CBO could not provide a 5-year cost savings that might occur if DOD
reduced enlisted attrition by at least 4 percent because of
limitations with DOD's and the services' attrition data.  However,
CBO was able to calculate an estimated cost savings that might result
if DOD and the services reduced those attritions that result from
inadequate medical screenings designed to identify pre-existing
conditions.  Those estimated cost savings are shown in the table
below. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 Defense Plan
----------------------------------------------------------------------
Budget authority                     5       5       5       6       6
Outlays                              5       5       5       6       6
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


--------------------
\13 GAO's short-term cost savings are based on cost data provided by
the Navy and includes the cost to transport a recruit to basic
training; pay, feed, and house the recruit while at basic training;
provide the recruit's medical examination while at basic training;
and transport the recruit home after separation.  Long-term cost
savings are based on cost data provided by the Office of the
Secretary of Defense and includes the cost of recruiting and training
each new recruit up to the 6-month point in their first terms. 


      RELATED GAO PRODUCT
---------------------------------------------------- Appendix III:21.1

Military Attrition:  DOD Could Save Millions by Better Screening
Enlisted
Personnel (GAO/NSIAD-97-39, January 6, 1997). 


      GAO CONTACT
---------------------------------------------------- Appendix III:21.2

Mark E.  Gebicke, (202) 512-5140



   OPTION:
   ARMY NATIONAL GUARD
   DIVISIONSARMY NATIONAL GUARD
   DIVISIONS
------------------------------------------------------ Appendix III:22


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Accounts                            Multiple

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
In March 1996, we reported that the Army National Guard's combat
structure, with 42 combat brigades, exceeds projected requirements
for two major regional conflicts, according to war planners and
Department of Defense (DOD) and Army studies.  Although the National
Guard has state missions in addition to its federal role, RAND
studied the use of Guard forces for state missions and concluded that
even in a peak year, such missions would not require a large portion
of the Guard and therefore should not be used as a basis for sizing
the Guard's force. 

In our report, we noted that the Army has a shortage of support
troops for a two regional conflict strategy and was studying
alternatives to redesign the Guard's combat structure to meet
critical shortages that the Army identified in its support
capabilities.  We recommended that the Secretary of Defense validate
the size and structure of all the Guard's combat forces and that the
Secretary of the Army prepare and execute a plan to bring the size
and structure in line with validated requirements.  We further
recommended that the Secretary of Defense consider eliminating Guard
forces that exceed validated requirements.  DOD's Commission on Roles
and Missions had similar recommendations in their report. 

In January 1997, we reported on the study to redesign the Guard's
combat structure.  We stated that the study developed an option that
provides for the conversion of some Guard combat and supporting
forces to fill needed, but unresourced, support requirements. 
However, neither this study nor other studies deal with the critical
issues of validating the need for the remaining Guard combat
structure or eliminating any excess forces.  As a result, substantial
Guard combat structure is left in place that has no valid war
fighting missions.  We recommended that the Secretary of Defense, as
he guides the Quadrennial Defense Review, direct that the Review
process validate any requirement for Guard combat structure.  We
further recommended that once this validation is complete, the
Secretary of Defense, in concert with the Secretary of the Army,
eliminate any structure beyond validated requirements. 

If the validation process determines that there is structure beyond
validated needs, savings could be achieved by eliminating those
excess forces.  For example, the following savings could be achieved,
if the equivalent of one division were eliminated from the force
structure. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 Defense Plan
----------------------------------------------------------------------
Budget authority                   117     240     245     252     259
Outlays                            105     225     242     248     255
----------------------------------------------------------------------
Note:  For estimating purposes, CBO used the cost of an armored
division.  Since the Army has identified a shortage in its support
forces, this option would retain all support personnel indirectly
associated with the eliminated division.  The elimination of each
additional division would yield more or less savings, depending on
the type of division eliminated. 

Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:22.1

Army National Guard:  Planned Conversions Are A Positive Step, but
Unvalidated Combat Forces Remain (GAO/NSIAD-97-55BR, January 29,
1997). 

Army National Guard:  Validate Requirements for Combat Forces and
Size Those Forces Accordingly (GAO/NSIAD-96-63, March 14, 1996). 


      GAO CONTACT
---------------------------------------------------- Appendix III:22.2

Richard Davis, (202) 512-4032



   OPTION:
   JUNIOR RESERVE OFFICERS'
   TRAINING CORPSJUNIOR RESERVE
   OFFICERS' TRAINING CORPS
------------------------------------------------------ Appendix III:23


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Accounts                            Operation and Maintenance--Army,
                                    Navy, Marine Corps, and Air Force

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Reassess objectives
----------------------------------------------------------------------
The National Defense Act of 1916 established the Junior Reserve
Officers' Training Corps (JROTC) program for high schools and private
secondary schools.  The program's primary purpose was to disseminate
military knowledge among the secondary school population of the
United States.  The ROTC Vitalization Act of 1964 expanded the
program and required the Secretary of each military department to
establish and maintain JROTC units.  In the wake of the August 1992
Los Angeles riots, the President and the Chairman of the Joint Chiefs
of Staff made plans to double the size of the program within 5 years. 

The Army, Navy, Marine Corps, and Air Force Operation and Maintenance
(O&M) budget requests for fiscal year 1997 included $135.3 million
for the JROTC program.  This program was in place in over 2,300 high
schools in economically disadvantaged areas, affluent areas, private
schools, and Department of Defense (DOD) dependent schools at the
time of our review in 1996.  The program objectives are to teach
military and citizenship subjects.  The JROTC program is essentially
a "stay in school" program.  In addition, the Army runs a summer camp
and O&M funds are used to help pay instructors' salaries.  Service
officials emphasized that JROTC is not viewed as a recruiting tool. 

In our September 1995 report we stated that while the program may
provide worthwhile benefits to the community and the public in
general, the question is whether DOD should be involved in funding
this type program or if the program should be funded by a non-DOD
appropriation account.  Congress may wish to discontinue or phase out
the program.  If the program was eliminated, the following savings
could be achieved. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 Defense Plan
----------------------------------------------------------------------
Budget authority                   170     170     180     180     190
Outlays                            130     160     170     180     180
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCT
---------------------------------------------------- Appendix III:23.1

1996 DOD Budget:  Potential Reduction to Operation and Maintenance
Program (GAO/NSIAD-95-200BR, September 26, 1995). 


      GAO CONTACT
---------------------------------------------------- Appendix III:23.2

Mark E.  Gebicke, (202) 512-5140



   OPTION:
   DOD'S ACQUISITION
   WORKFORCEDOD'S ACQUISTION
   WORKFORCE
------------------------------------------------------ Appendix III:24


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Accounts                            Multiple

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
In November 1995, GAO reported that the Department of Defense (DOD)
had a combined acquisition workforce of about 464,000--398,000
civilians and 66,000 military personnel in fiscal year 1994.  The DOD
acquisition infrastructure consumes enormous resources that could
otherwise be utilized to meet modernization needs.  In 1994, DOD's
civilian acquisition workforce was 12 percent lower than in 1980;
however, these personnel reductions have not resulted in a
commensurate decline in civilian payroll costs.  This is due in part
to the significant decline in blue-collar workers and an increase in
white-collar workers.  In addition, DOD officials stated that
civilian payroll costs increased because of other factors, such as
the advent of locality pay and changes in grade structure. 

Despite declines in both the defense procurement budget and the
civilian workforce since 1990, the number of acquisition
organizations remains relatively constant.  Each acquisition
organization maintains similar occupational fields in common areas,
such as personnel, budgeting, computer specialists, and contracting,
and many of the duties performed in these occupations are not unique
to an acquisition organization's mission.  As a result, there are
significant opportunities to improve efficiencies in these areas,
such as consolidating, cross-servicing, and streamlining certain
functions. 

The National Defense Authorization Act for Fiscal Year 1996 contains
a provision (Title IX, section 906) that required DOD to provide a
plan to reduce the number of personnel (both military and civilian)
assigned to defense organizations by 25 percent, or 90,000 personnel
over a 4-year period.  The provision also required an actual
reduction of 15,000 personnel during fiscal year 1996.  In addition,
the Defense Authorization Act for 1997 reemphasized congressional
commitment to realizing significant reductions and increased
efficiencies from the defense acquisition infrastructure.  Although
the 1997 Act requires a specific reduction of 15,000 in the number of
personnel assigned to defense acquisition organizations during fiscal
year 1997, it also directs DOD to assess the impact of the reductions
prior to consideration of further cuts.  Stopping at the 30,000
person reduction level would amount to only one-third of the total
25-percent reduction required by Title-IX, section 906. 

The savings from a 90,000 person reduction in civilian personnel
salaries alone are estimated in the following table. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 Defense Plan
----------------------------------------------------------------------
Budget authority                   805   1,657   2,556   3,513   3,636
Outlays                            781   1,631   2,529   3,485   3,633
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:24.1

Defense Acquisition Organizations:  Changes in Cost and Size of
Civilian Workforce (GAO/NSIAD-96-46, November 13, 1995). 

Defense Infrastructure:  Budget Estimates for 1996-2001 Offer Little
Savings for Modernization (GAO/NSIAD-96-131, April 4, 1996). 


      GAO CONTACT
---------------------------------------------------- Appendix III:24.2

Louis J.  Rodrigues, (202) 512-4841



   OPTION:
   DOD'S FINANCE AND ACCOUNTING
   INFRASTRUCTUREDOD'S FINANCE AND
   ACCOUNTING INFRASTRUCTURE
------------------------------------------------------ Appendix III:25


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Accounts                            Multiple

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
After several false starts, in May 1994 the Department of Defense
(DOD) announced it would begin consolidating and reducing the size of
its finance and accounting infrastructure during fiscal year 1995. 
It plans to reduce the number of sites where finance and accounting
activities are conducted from over 300 to 26, which will result in a
major reduction in staff years.  The 26 sites are composed of 5 large
existing finance centers and 21 new sites that are called operating
locations.  To date, 16 operating locations have been opened. 

Despite these consolidation efforts, additional opportunities exist
to reduce the infrastructure and improve the efficiency of finance
and accounting operations.  In September 1995, we reported that the
process DOD used to identify the appropriate size and location of its
consolidated operations was flawed.  Not only would the planned
infrastructure be larger than necessary, but it would also perpetuate
the continued use of older, inefficient, and duplicative systems. 
With fewer people available to support the same operations and
systems at fewer locations, the consolidation could degrade, rather
than improve, customer service.  Moreover, DOD's plan does not
reflect leading-edge business practices and, therefore, may require
additional consolidations if business process reengineering
techniques are used to identify more productive business practices
for DOD finance and accounting operations. 

Because DOD's decision to open 21 new operating locations was not
based on current or future operating requirements, customer needs, or
leading-edge business practices, other consolidation alternatives
could produce substantial infrastructure savings.  The Defense
Finance and Accounting Service (DFAS) Consolidation Task Force showed
that savings could occur by retaining the 5 large centers plus 6, 10,
or 15 operating locations.  The Task Force concluded, however, that 6
new operating locations was the best alternative because it would
save more money and allow an optimum consolidation of finance and
accounting functions.  Based on this and other factors, we
recommended that DOD reassess the number of operating locations
needed to efficiently perform finance and accounting operations. 

DOD's subsequent reassessment concluded that 16 rather than 21
operating locations are needed to support its finance and accounting
operations.  Because of its interpretation of congressional intent,
however, DOD continues to support the opening of all 21 locations. 
In presenting this option, we relied on the analysis performed by the
DFAS Consolidation Task Force which identified 6 as the optimum
number of operating locations. 

Recognizing the costs DOD has incurred to open 16 centers, reducing
the number of operating locations from 16 to 6 could achieve savings
in several different ways.  First, a reduction in the infrastructure
would require fewer support and management personnel and related
items to operate the locations.  Second, military construction
funding for sites that would require extensive renovations would not
be necessary.  Third, in anticipation of the efficiencies and service
improvements that would be achieved under DOD's reengineering and
privatization efforts, annual funding could be reduced 10 to 15
percent.  If the Congress was to direct the Secretary of Defense to
reduce the existing 16 locations to 6, as recommended by the DFAS
Consolidation Task Force, the following savings could be achieved in
civilian personnel and military construction.  This represents the
optimum consolidation of locations according to the DFAS
Consolidation Task Force.  The savings estimate assumes that by
reducing the number of sites to six, 6,500 civilian personnel
positions would be eliminated.  This magnitude of personnel
reductions can only be attained if DOD achieves the productivity
gains it expects from reengineering and privatization/outsourcing
initiatives.  However, the Congress and DOD will need to reach an
agreement on the exact number of operating locations and reductions
in personnel.  Moreover, DOD may need to make investments in this
area to improve its financial management systems. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from 1997 Defense Plan
----------------------------------------------------------------------
Budget authority                   174     299     369     382     395
Outlays                            171     295     367     381     395
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCT
---------------------------------------------------- Appendix III:25.1

Defense Financial Management (GAO/HR-97-3, February 1997). 

DOD Infrastructure:  DOD's Planned Finance and Accounting Structure
Is Not Well Justified (GAO/NSIAD-95-127, September 18, 1995). 


      GAO CONTACT
---------------------------------------------------- Appendix III:25.2

David R.  Warren, (202) 512-8412



   OPTION:
   DOD'S TRAINING
   INFRASTRUCTUREDOD'S TRAINING
   INFRASTRUCTURE
------------------------------------------------------ Appendix III:26


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Accounts                            Multiple

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
Analysis of the Department of Defense's (DOD) end strengths, training
workloads, and overall training budgets between fiscal years 1987 and
1995 showed that end strengths and training workloads have decreased
at much greater rates than the training budget.  Between fiscal years
1987 and 1995, the number of Army, Navy, Marine Corps, and Air Force
active duty personnel decreased from about 2.2 million to about 1.5
million--a reduction of about 30 percent.  During the same period,
the training workloads for formal training and education programs
decreased from about 248,000 to about 178,000--a reduction of about
28 percent.  However, military personnel funding, which is used to
pay military students, instructors, and training support and
management personnel, decreased by only about 15 percent, and
operation and maintenance (O&M) funding, which is used to pay DOD
civilian and contractor instructors and to operate, maintain, and
support training facilities and equipment, increased about 30
percent. 

The cost of providing formal military training and education to
individuals increased significantly between fiscal years 1987 and
1995.  During this period, the training cost per student increased
from about $53,194 to $72,546.  (After considering the effects of
inflation, the cost per student increased about $4,200 a year.) This
cost differential when multiplied by the fiscal year 1995 training
workload shows that it cost about $745 million more to train students
in fiscal year 1995 than it would have taken to train the same number
of students in 1987, even after accounting for inflation.  Officials
told us that the primary reason that training had become more
expensive was the increased use of government civilian and
private-sector instructors and facilities rather than military
instructors. 

DOD and the services have completed several actions to reduce the
training infrastructure, and even more actions will be implemented
over the next several years.  The actions are intended to (1) reduce
the number of locations where a particular course is taught, (2)
increase interservice training, and (3) increase the use of private
sector instructors and facilities.  Also, actions by the Base
Realignment and Closure (BRAC) Commission to close and realign bases
where training is conducted are also expected to reduce the training
infrastructure.  However, an overall plan to guide and measure the
progress of reducing the training infrastructure is lacking. 

The lack of a management information system with reliable cost data
within the various training categories makes it difficult for DOD to
evaluate the overall effectiveness of alternate methods of providing
training and assess whether actions taken to reduce costs are
achieving the expected results.  The need for reliable data and a
system for evaluating it has become even more critical because excess
training infrastructure identified in the future will be difficult to
eliminate in the absence of a BRAC-like process. 

In view of the disparity between training workload and training
costs, Congress may want to cap the funding level for O&M-related
formal education and training at the fiscal year 1997 level until DOD
develops a management plan to guide and measure progress in reducing
the training infrastructure. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 Defense Plan
----------------------------------------------------------------------
Budget authority                   144     300     461     635     818
Outlays                            130     281     441     615     797
----------------------------------------------------------------------
Note:  The savings shown in the above table represent the amounts
estimated for O&M-related formal education and training above the
fiscal year 1997 funding level. 

Source:  Congressional Budget Office. 


      RELATED GAO PRODUCT
---------------------------------------------------- Appendix III:26.1

DOD Training:  Opportunities Exist to Reduce the Training
Infrastructure (GAO/NSIAD-96-93, March 29, 1996). 


      GAO CONTACT
---------------------------------------------------- Appendix III:26.2

Mark E.  Gebicke, (202) 512-5140



   OPTION:
   DOD'S TRANSPORTATION MIGRATION
   SYSTEMSDOD'S TRANSPORTATION
   MIGRATION SYSTEMS
------------------------------------------------------ Appendix III:27


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Accounts                            Multiple

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Reassess objectives
----------------------------------------------------------------------
In April 1994, DOD developed a structured approach to identify,
select, and implement transportation migration systems.\14 However,
in its haste to meet a March 1997 deadline, DOD selected these
systems without fully analyzing alternatives, such as acquiring new
systems or contracting for services.  Further, in making a quarter of
its transportation migration system selections, DOD relied on
incomplete and unverified cost data.  Finally, DOD did not assess how
making significant changes to transportation operations--through
reengineering and outsourcing--will affect its migration systems.  By
relying on such inadequate analyses in making its system selections,
DOD essentially gambled that systems migration would achieve
anticipated savings and resolve problems with transportation business
processes.  As a result, its selections may turn out to be poor
investments and preclude the use of better commercial alternatives. 

DOD has little assurance that its selection of 28 transportation
migration systems is cost effective.  At a minimum, had DOD followed
its own regulations and calculated investment returns, it would have
found--based on data available when the migration systems were
selected--that two of the selected systems would produce a negative
return if implemented as migration systems.  The Air Loading Module
would lose 67 cents out of every dollar invested and the Cargo
Movement Operations Systems would lose 4 cents out of every dollar
invested. 

Before proceeding with its systems migration effort, DOD should
immediately establish current cost, benefit, investment return, and
schedule baselines and terminate the migration of transportation
systems for which migration is shown to be a poor investment.  For
example, if the Air Loading Module and the Cargo Movement Operations
Systems were not deployed as migration systems, the following savings
could be achieved. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 Defense Plan
----------------------------------------------------------------------
Budget authority                     3       0       0       0       0
Outlays                              2       1       0       0       0
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


--------------------
\14 A migration system is an automated information system which
replaces several systems that perform similar functions. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:27.1

Defense IRM:  Strategy Needed for Logistics Information Technology
Improvement Efforts (GAO/AIMD-97-6, November 14, 1996). 

Defense Transportation:  Migration Systems Selected Without Adequate
Analysis (GAO/AIMD-96-81, August 29, 1996). 


      GAO CONTACT
---------------------------------------------------- Appendix III:27.2

Jack L.  Brock, Jr., (202) 512-6240



   OPTION:
   DOD'S MATERIEL MANAGEMENT
   MIGRATION SYSTEMSDOD'S MATERIEL
   MANAGEMENT MIGRATION SYSTEMS
------------------------------------------------------ Appendix III:28


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Account                             Defense Business Operations Fund
                                    (97-4930)

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Reassess objectives
----------------------------------------------------------------------
In December 1995, the Department of Defense (DOD) determined that its
goal of developing a standard suite of nine integrated systems to
improve various aspects of materiel management operations--including
asset management, requirements determination, and inventory
management--would cost much more than the $5.3 billion originally
estimated.  DOD abandoned its plan to deploy all nine systems as an
integrated suite across all inventory control points and now plans to
deploy the systems individually as they are developed at selected
sites.  It has also embarked on an accelerated deployment schedule to
provide these systems from fiscal year 1996 through 1999. 

As a result, DOD is embarking on a new strategy before taking a
number of steps to ensure that the hundreds of millions of dollars to
be spent on materiel management systems, as well as the monies
already invested, bring positive results.  Specifically, DOD did not
first conduct economic and risk assessments that would ensure its
strategy would be cost-effective.  DOD also did not incorporate
efforts to improve, consolidate, and privatize logistics operations
into its strategy.  Such changes will impact the processes the
systems are being developed to support.  Further, this strategy was
not justified within DOD's own oversight process, nor were documents
critical to defining the program's objectives, costs, goals, and risk
mitigation strategies prepared.  As a result, DOD decisionmakers were
not afforded an opportunity to thoroughly review the new program
before deploying new systems. 

Moreover, DOD is proceeding with deployments under the new strategy
without accommodating the time required for testing the new systems. 
This greatly increases the risk that DOD will experience problems
associated with shifting testing to system users and curtailing the
levels of testing normally done.  As a result, DOD is likely to incur
substantial additional costs to operate and maintain its current
systems and to correct deficiencies with the new systems. 

To provide more timely service, DOD made a major change in its
materiel migration system\15 policy.  In doing so, it is clearly on a
course to accelerate system deployments before critical steps are
taken that would help ensure that good business decisions are made
and that risks are minimized.  As a result, DOD is likely to deploy
systems that will not be significantly better than the hundreds of
systems already in place and could waste millions of dollars
resolving problems that result from the lack of developing and
implementing a clear and cohesive strategy.  Before proceeding with
any new strategy, it is imperative that DOD takes the necessary steps
to fully define its approach, plan for risks, ensure adequate
oversight, and complete testing of the new systems.  DOD must also
immediately establish current cost, benefit, investment return, and
schedule baselines and terminate materiel management migration
systems for which migration is shown to be a poor investment. 

Savings for this option cannot be estimated at this time.  The amount
of savings would depend on the outcome of DOD's review of its
systems. 


--------------------
\15 A migration system is an automated information system which
replaces several systems that perform similar functions. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:28.1

Defense IRM:  Strategy Needed for Logistics Information Technology
Improvement Efforts (GAO/AIMD-97-6, November 14, 1996). 

Defense IRM:  Critical Risks Facing New Materiel Management Strategy
(GAO/AIMD-96-109, September 6, 1996). 


      GAO CONTACT
---------------------------------------------------- Appendix III:28.2

Jack L.  Brock, Jr., (202) 512-6240



   OPTION:
   DOD'S BULK FUEL BUDGETINGDOD'S
   BULK FUEL BUDGETING
------------------------------------------------------ Appendix III:29


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Accounts                            Multiple

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
The Defense Fuel Supply Center (DFSC) has the primary responsibility
for providing the services with the fuel they need.  DFSC purchases
the fuel from commercial sources and sells it to the services. 
Although DFSC is the primary source, the services also buy a small
amount of fuel direct from commercial sources.  For fiscal year 1996,
the Army, Navy, and Air Force budget requests for bulk fuel totaled
$4.12 billion.  Of this total, the three services planned to buy $107
million, or 2.6 percent, from commercial sources.  Therefore, the
amount of funds requested to buy fuel from DFSC was about $4.01
billion. 

At the time that the Department of Defense (DOD) submitted its fiscal
year 1996 budget request, DFSC estimated that the services would
purchase about $3.68 billion of fuel in fiscal year 1996, or about
$330 million less than the amount requested.  During the
authorization and appropriation process, the Congress reduced the
budget request $100 million.  Based on historical usage data adjusted
for factors expected to occur in fiscal year 1996, DFSC estimated, in
February 1996, that the services' fuel purchases in fiscal year 1996
would be about $3.57 billion, or about $440 million less than the
amount the services requested in their budgets. 

For fiscal year 1997, the services have again requested more funds
for fuel than they will need.  The services budgeted for 117.8
million barrels of fuel at a cost of $3.796 billion.  However, DFSC
estimates that the services will buy 113.2 million barrels at a cost
of about $3.613 billion, or $183 million less than the services
estimate. 

Because the over budgeting for bulk fuel seems to be a recurring
practice, the Congress may want to reduce the services' fiscal year
1998 budget requests by the $183 million overbudgeted for fiscal year
1997. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 Defense Plan
----------------------------------------------------------------------
Budget authority                   183       0       0       0       0
Outlays                            136      36       6       2       1
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:29.1

1997 DOD Budget:  Potential Reductions to Operation and Maintenance
Program (GAO/NSIAD-96-220, September 18, 1996). 

DOD Bulk Fuel:  Budgeting for Bulk Fuel and Other Operation and
Maintenance Activities (GAO/T-NSIAD-96-208, July 30, 1996). 

DOD Bulk Fuel:  Services' Fuel Requirements Could Be Reduced and
Funds Used for Other Purposes (GAO/NSIAD-96-96, March 28, 1996). 


      GAO CONTACT
---------------------------------------------------- Appendix III:29.2

Mark E.  Gebicke, (202) 512-5140



   OPTION:
   NAVY FINANCIAL MANAGEMENT OF
   OPERATING MATERIALS AND
   SUPPLIESNAVY FINANCIAL
   MANAGEMENT OF OPERATING
   MATERIALS AND SUPPLIES
------------------------------------------------------ Appendix III:30


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Account                             Operations and Maintenance, Navy
                                    (17-1804)

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
The Chief Financial Officers Act of 1990, as amended, requires that
each agency Chief Financial Officer (CFO) develop an integrated
agency accounting and financial management system that complies with
applicable principles and standards and provides for complete,
reliable, consistent, and timely information that is responsive to
the agency's financial information needs.  The act also specifies
that each agency CFO should direct, manage, and provide policy
guidance and oversight of asset management systems, including
inventory management and control. 

Our broad-based review of various aspects of the Department of the
Navy's financial management operations and its ability to meet the
management and reporting requirements of the CFO Act identified
numerous deficiencies.  These deficiencies can have significant
budgetary implications.  For example, we found that, because of
inadequate systems, Navy item managers did not have sufficient
visibility over $5.7 billion in operating materials and supplies on
ships and at 17 Navy redistribution sites.  About $883 million, 15
percent of the $5.7 billion, was excess to current operating
allowances or needs. 

Lacking adequate visibility, item managers incurred unnecessary costs
of approximately $27 million in the first half of fiscal year 1995 as
a result of ordering or purchasing items that were already on-hand at
operating locations and classified as excess.  Also, our analysis of
planned purchases through the end of fiscal year 1997 showed that the
Navy could incur an estimated additional $38 million in unnecessary
costs by procuring items which are already in operating level stock
as excess. 

We recommended that the Navy could achieve savings by providing item
managers with full visibility over such materials and eliminating
redundant or unnecessary redistribution sites.  Almost half of the
excess items were stored at the Navy's 17 redistribution sites. 
These sites are often located in the same general area as other DOD
suppliers.  Eliminating the 17 sites would reduce associated
operating costs by $3 million annually and could reduce redundant
supply operations and streamline visibility efforts. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 Defense Plan
----------------------------------------------------------------------
Budget authority                     3       3       3       3       3
Outlays                              2       3       3       3       3
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:30.1

Defense Financial Management (GAO/HR-97-3, February 1997). 

Navy Financial Management:  Improved Management of Operating
Materials and Supplies Could Yield Significant Savings (GAO/AIMD-
96-94, August 16, 1996). 

CFO Act Financial Audits:  Navy Plant Property Accounting and
Reporting Is Unreliable (GAO/AIMD-96-65, July 8, 1996). 

Financial Management:  Control Weaknesses Increase Risk of Improper
Navy Civilian Payroll Payments (GAO/AIMD-95-73, May 8, 1995). 


      GAO CONTACT
---------------------------------------------------- Appendix III:30.2

Lisa G.  Jacobson, (202) 512-9542



   OPTION:
   COPAYMENTS FOR CARE IN MILITARY
   TREATMENT FACILITIESCOPAYMENTS
   FOR CARE IN MILITARY TREATMENT
   FACILITIES
------------------------------------------------------ Appendix III:31


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Account                             Defense Health Program (97-0130)

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Redefine beneficiaries
----------------------------------------------------------------------
Numerous GAO reports and testimonies have documented the problems of
controlling costs in the military health service system.  In
particular, we have reported that currently care received by military
beneficiaries in military hospitals and clinics is free.  However,
when care must be obtained through civilian providers, military
beneficiaries share in the costs of the care they receive.  This
uneven system has led to confusion, uncertainty, and inequity among
beneficiaries as to what their health care benefits are.  Further,
research has shown that free care leads to greater (and unnecessary)
use and, therefore, greater costs. 

The Department of Defense (DOD) managed care system--TRICARE--is
intended to make health care benefits uniform regardless of venue,
but some cost sharing is still based on where patients receive their
care.  Under TRICARE, beneficiaries pay the same enrollment fees
whether they are enrolled with a military or civilian primary care
manager.  However, subsequent cost-sharing--in the form of copays for
visits--is still not required for care provided in military clinics
but is required for care from civilian providers. 

The Congress may wish to establish beneficiary cost-sharing
requirements in military facilities that are similar to the cost
sharing for care that beneficiaries receive from civilian providers. 
CBO estimates that such a change would result in the following
savings. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 funding level
----------------------------------------------------------------------
Budget authority                   305     300     302     305     307
Outlays                            258     292     298     303     305

Savings from the 1997 funding level adjusted for inflation
----------------------------------------------------------------------
Budget authority                   305     300     302     305     307
Outlays                            258     292     298     303     305
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:31.1

Defense Health Care:  New Managed Care Plan Progressing, but Cost and
Performance Issues Remain (GAO/HEHS-96-128, June 14, 1996). 

Defense Health Care:  Despite TRICARE Procurement Improvements,
Problems Remain (GAO/HEHS-95-142, August 3, 1995). 

Defense Health Care:  DOD's Managed Care Program Continues to Face
Challenges (GAO/T-HEHS-95-117, March 28, 1995). 

Defense Health Care:  Issues and Challenges Confronting Military
Medicine (GAO/HEHS-95-104, March 22, 1995). 

Defense Health Care:  Lessons Learned From DOD's Managed Health Care
Initiatives (GAO/T-HRD-93-21, May 10, 1993). 

Defense Health Care:  Obstacles in Implementing Coordinated Care
(GAO/T-HRD-92-24, April 7, 1992). 

Defense Health Care:  Implementing Coordinated Care--A Status Report
(GAO/HRD-92-10, October 3, 1991). 

The Military Health Services System--Prospects for the Future
(GAO/T-HRD-91-11, March 14, 1991). 


      GAO CONTACT
---------------------------------------------------- Appendix III:31.2

Stephen P.  Backhus, (202) 512-7111



   OPTION:
   ADMINISTERING DEFENSE HEALTH
   CAREADMINISTERING DEFENSE
   HEALTH CARE
------------------------------------------------------ Appendix III:32


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Account                             Defense Health Program (97-0130)

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
Each of the three military departments (Army, Navy, and Air Force)
operates its own health care system, providing medical care to active
duty personnel, their dependents, retirees, and survivors of military
personnel.  To a large extent, these systems perform many of the same
administrative, management, and operational functions. 

Since 1949 over 22 studies have reviewed whether a central entity
should be created within the Department of Defense (DOD) for the
centralized management and administration of the three systems.  Most
of these studies encouraged some form of organizational
consolidation.  A Defense health agency would consolidate the three
military medical systems into one centrally managed system,
eliminating duplicate administrative, management, and operational
functions.  No specific budget estimate can be developed until
numerous variables, such as the extent of consolidation and the
impact on command and support structures, are determined. 

DOD's implementation of a systemwide managed care program--
TRICARE--adds to the advantages to be gained by eliminating the
separate medical systems within the department.  DOD has divided the
country into 12 regions, each with its own administrative staff
headed by a Lead Agent.  These Lead Agents have the responsibility
for administering TRICARE in their regions.  However, because all of
the operational control over medical facilities is still with the
separate services, the Lead Agents do not have the command and
control authority to manage the medical care delivered directly by
DOD, which is most of the care received by military health care
beneficiaries.  Presumably, a single Defense health agency would
incorporate this new regional structure and give Lead Agents genuine
control over all DOD care in their regions. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:32.1

Defense Health Care:  New Managed Care Plan Progressing, but Cost and
Performance Issues Remain (GAO/HEHS-96-128, June 14, 1996). 

Defense Health Care:  Medicare Costs and Other Issues May Affect
Uniformed Services Treatment Facilities' Future (GAO/HEHS-96-124, May
17, 1996). 

Defense Health Care:  Effects of Mandated Cost Sharing on Uniformed
Services Treatment Facilities Likely to Be Minor (GAO/HEHS-96-141,
May 13, 1996). 

Defense Health Care:  Despite TRICARE Procurement Improvements,
Problems Remain (GAO/HEHS-95-142, August 3, 1995). 

Defense Health Care:  DOD's Managed Care Program Continues to Face
Challenges (GAO/T-HEHS-95-117, March 28, 1995). 

Defense Health Care:  Issues and Challenges Confronting Military
Medicine (GAO/HEHS-95-104, March 22, 1995). 

Defense Health Care:  Lessons Learned From DOD's Managed Health Care
Initiatives (GAO/T-HRD-93-21, May 10, 1993). 

Defense Health Care:  Obstacles in Implementing Coordinated Care
(GAO/T-HRD-92-24, April 7, 1992). 

Defense Health Care:  Implementing Coordinated Care--A Status Report
(GAO/HRD-92-10, October 3, 1991). 

The Military Health Services System--Prospects for the Future
(GAO/T-HRD-91-11, March 14, 1991). 


      GAO CONTACT
---------------------------------------------------- Appendix III:32.2

Stephen P.  Backhus, (202) 512-7111



   OPTION:
   UNIFORMED SERVICES UNIVERSITY
   OF THE HEALTH SCIENCESUNIFORMED
   SERVICES UNIVERSITY OF THE
   HEALTH SCIENCES
------------------------------------------------------ Appendix III:33


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Accounts                            Multiple

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Improve efficiency
----------------------------------------------------------------------
With the end of the draft in 1972, the military services needed new
ways to obtain active duty physicians.  To address this need, Public
Law 92-426 established two complementary programs:  the Health
Profession Scholarship Program and the Uniformed Services University
of the Health Sciences (USUHS), a medical school operated by DOD. 

Under the scholarship program, DOD pays tuition and fees, plus a
monthly stipend for students enrolled in civilian medical schools. 
In return, the students incur an obligation to serve a year of active
duty for each year of benefits received, with a 2-year minimum
obligation.  Upon graduation, most scholarship program participants
go on active duty and begin graduate medical education (GME) in
military hospitals.  In 1994, 987 scholarship program participants
graduated from medical school. 

Students at USUHS enter active military service as medical students,
receive the pay and benefits of officers at the O-1 level, and incur
7-year service obligations.  In 1994, 155 medical students graduated
from the University.  Overall, USUHS graduates represent about 14
percent of military physicians on active duty. 

In the 2 decades since its legislative establishment, proposals have
been made to close USUHS.  Those who propose closing the University
assert that DOD's need for physicians can be met at a lower cost
using physicians educated at civilian medical schools under the DOD
scholarship program.  GAO's analysis shows that USUHS is a more
costly source of military physicians on a per graduate basis when
DOD's and total federal costs are considered.  With DOD education and
retention costs of about $3.3 million over the course of a
physician's career, the cost of a University graduate is more than 2
times greater than the $1.5 million cost for a scholarship program
graduate.  However, GAO estimates show that the annual costs of USUHS
graduates ($182,000) are comparable to scholarship graduates
($181,000) when total federal costs are amortized over the expected
years of military service because USUHS graduates are expected to
have longer military careers and the University receives less non-DOD
federal support than civilian medical schools.  USUHS graduates are
expected to serve for about 18.5 years, on average, while scholarship
program physicians serve for 9.8 years, on average. 

Those who propose retaining the University assert that it is needed
to provide a stable cadre of physicians trained to meet the unique
demands of military medicine.  GAO's analysis shows that USUHS
provides a medical education that compares well with that of other
U.S.  medical schools.  However, while USUHS graduates begin their
military medical careers with more readiness training than their
peers, the significance of the additional training is unclear. 

In addition, to help meet standards required for accreditation as an
academic institution, USUHS provides education and training for other
health care and related professions and engages in research,
consultation, and archival activities.  While these activities do not
directly contribute to the education of military physicians, they do
involve USUHS faculty and staff, and University officials believe
that DOD would continue to conduct these activities even if USUHS is
closed.  USUHS officials estimated the value of these activities to
be about $18.6 million--a figure that GAO did not validate. 

Given the changes in operational scenarios and DOD's approach for
delivering peacetime health care, new assessments of the military's
physician needs and the means to acquire and retain physicians are in
order.  If DOD continues to need a cadre of experienced career
physicians, alternative strategies, such as an additional scholarship
option with a longer service obligation, could be considered as a
potentially less expensive way to increase the length of selected
military physicians' careers. 

This option assumes that (1) the University would close at the end of
fiscal year 2000 after the current freshman class graduates, (2) the
scholarship program would be expanded to offset the loss of
physicians trained at USUHS, and (3) scholarship program participants
incur a 2-year service obligation for each year of benefits received. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from 1997 funding level
----------------------------------------------------------------------
Budget authority                    17      32      45      83      81
Outlays                             14      28      42      76      79

Savings from 1997 funding levels adjusted for inflation
----------------------------------------------------------------------
Budget authority                    19      37      53      94      94
Outlays                             16      33      49      86      92
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCT
---------------------------------------------------- Appendix III:33.1

Military Physicians:  DOD's Medical School and Scholarship Program
(GAO/HEHS-95-244, September 29, 1995). 


      GAO CONTACT
---------------------------------------------------- Appendix III:33.2

Stephen P.  Backhus, (202) 512-7111



   OPTION:
   UNIFORMED SERVICES TREATMENT
   FACILITIESUNIFORMED SERVICES
   TREATMENT FACILITIES
------------------------------------------------------ Appendix III:34


Authorizing committees              Armed Services (Senate)
                                    National Security (House)

Appropriations subcommittees        Defense (Senate)
                                    National Security (House)

Primary agency                      Department of Defense

Account                             Defense Health Program (97-0130)

Spending type                       Discretionary

Budget subfunction                  Department of Defense--Military

Framework theme                     Redefine beneficiaries
----------------------------------------------------------------------
In 1982, the Congress enacted legislation that designates nine former
Public Health Service hospitals now under civilian ownership as
Uniformed Services Treatment Facilities (USTF) and makes them part of
the Department of Defense's (DOD) health care system.  Between 1994
and 1997, DOD has spent over $1.3 billion on noncompetitive,
set-aside contracts with the USTFs to deliver health care to what now
totals about 124,000 beneficiaries.  This arrangement with DOD has
guaranteed the USTFs, in addition to their private health care
business, a stable revenue source by enabling them to provide care to
uniformed services beneficiaries.  The USTFs offer their members the
full Civilian Health and Medical Program of the Uniformed Services
(CHAMPUS)\16 benefit package plus additional preventive services not
covered by CHAMPUS.  But unlike CHAMPUS, USTF members do not lose
their eligibility when they reach age 65 and become
Medicare-eligible.  At the beginning of fiscal year 1996, 22 percent
(about 27,000) of the USTF members were Medicare-eligible. 

GAO and others have reported that the USTFs are not as cost-effective
as alternative federal sources of health care.  The Institute for
Defense Analyses estimated that the USTFs cost the government $110
million more per year than what costs would be if the beneficiaries
had to rely on the current military health services system and
Medicare for their care.  Also, the Institute reported that high
numbers of USTF beneficiaries have private insurance coverage, and
GAO found that many are receiving Medicare services outside the USTF,
even though DOD has already paid the USTFs in advance for all USTF
members' care.  In response to GAO's recommendations, DOD and the
Health Care Financing Administration have recently estimated about
$33 million in unnecessary costs to the government from USTF members'
use of Medicare between October 1993 and December 1995. 

The Congress included reforms in the fiscal year 1997 DOD
authorization act to reduce the relative costliness of the USTFs
compared with alternative programs, such as military hospitals,
TRICARE, and Medicare.  However, before any savings can be realized,
DOD must complete new sole-source contract negotiations with each
USTF.  An immediate, cost-effective, and equitable option would be to
terminate the USTF program by repealing the hospitals' status as
designated, sole-source providers of DOD health care.  Instead,
former USTF beneficiaries would be treated the same way all other DOD
beneficiaries are treated under DOD's managed care support contracts
and direct care system.  Such beneficiaries would retain their
eligibility for Medicare-financed care, as well as DOD's direct care
system.  And, as noted above, a high number of such beneficiaries
already have private insurance.  Ending the USTFs' current
sole-source, noncompetitive contractual relationship with DOD would
remove their decided business advantage over other, competitive
TRICARE providers. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 funding level
----------------------------------------------------------------------
Budget authority                   118     107      95      81      71
Outlays                            118     107      95      81      71

Savings from the 1997 funding level adjusted for inflation
----------------------------------------------------------------------
Budget authority                   121     122     123     128     128
Outlays                            121     122     123     128     128
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


--------------------
\16 CHAMPUS is a fee-for-service health insurance program that pays
for a substantial part of the health care that civilian hospitals,
physicians, and others provide to nonactive duty DOD beneficiaries. 
DOD is in the process of changing its military health services system
from the separate systems of direct care in military facilities and
CHAMPUS to TRICARE, a nationwide managed care program.  TRICARE
involves managing beneficiary care using all available military
hospitals and clinics, supplemented by contracted civilian services. 
TRICARE offers CHAMPUS-eligible beneficiaries choice between three
benefit plans--fee for service, preferred provider, and health
maintenance organization. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:34.1

Defense Health Care:  Medicare Costs and Other Issues May Affect
Uniformed Services Treatment Facilities' Future (GAO/HEHS-96-124, May
17, 1996). 

Defense Health Care:  Effects of Mandated Cost Sharing on Uniformed
Services Treatment Facilities Likely to Be Minor (GAO/HEHS-96-141,
May 13, 1996). 

Defense Health Care:  Uniformed Services Treatment Facility Health
Care Program (GAO/HEHS-94-174, June 2, 1994). 


      GAO CONTACT
---------------------------------------------------- Appendix III:34.2

Stephen P.  Backhus, (202) 512-7111



   OPTION:
   DEPARTMENT OF ENERGY'S
   PROCUREMENT OF LABORATORY
   TESTING SERVICESDEPARTMENT OF
   ENERGY'S PROCUREMENT OF
   LABORATORY TESTING SERVICES
------------------------------------------------------ Appendix III:35


Authorizing committees              Energy and Natural Resources
                                    (Senate)
                                    Resources (House)
                                    Commerce (House)

Appropriations subcommittees        Energy and Water Development
                                    (Senate and House)

Primary agency                      Department of Energy

Account                             Defense Environmental Restoration
                                    and Waste Management (89-0242)

Spending type                       Discretionary

Budget subfunction                  Atomic Energy Defense Activities

Framework theme                     Improve efficiency
----------------------------------------------------------------------
Both the Department of Energy (DOE) and the Environmental Protection
Agency (EPA) are responsible for large environmental cleanup efforts. 
A major component of DOE's cleanup program involves analyses of toxic
and radioactive contaminants.  DOE has estimated that these analyses
may cost the federal government more than $15 billion over the next
30 years.  While both agencies analyze nonradioactive organic and
inorganic chemicals using some of the same testing methods, the
agencies procure these commonly-used analyses in a different manner. 
EPA centrally contracts for them while DOE employs a decentralized
procurement approach that relies heavily on its operating contractors
to subcontract for them through commercial laboratories. 

Under its procurement approach, DOE pays higher prices to its
commercial laboratories than EPA does for the same analyses and
methods, partly because decentralized purchasing practices do not
produce price competition, volume discounts, and compliance with one
standard contract format.  Also, DOE's decentralized approach to
procuring commonly-used analyses results in duplication of contractor
efforts in the award and management of commercial laboratory
subcontracts, which adds inefficiencies and increases administrative
costs.  GAO's analysis indicates that if DOE contracted for these
services through one central procurement function, similar to EPA's
approach, it would receive substantially lower prices from commercial
laboratories by consolidating its overall buying power and greatly
reduce the inherent duplication in contract award and oversight
activities.  DOE is currently attempting to contract for these
services on a regional basis. 

DOE estimated that laboratory analyses costs are at least 15 percent
of its cleanup costs, and in fiscal year 1997, DOE was appropriated
about $6 billion for Defense Environmental Restoration and Waste
Management.  While we believe savings could be achieved through
centralization, a 5-year savings amount is difficult to estimate for
several reasons, including the lack of current and complete data and
the extent to which DOE's prices would be affected by the potential
for radioactivity in DOE's samples. 


      RELATED GAO PRODUCT
---------------------------------------------------- Appendix III:35.1

Nuclear Facility Cleanup:  Centralized Contracting of Laboratory
Analysis Would Produce Budgetary Savings (GAO/RCED-95-118, May 8,
1995). 


      GAO CONTACT
---------------------------------------------------- Appendix III:35.2

Victor S.  Rezendes, (202) 512-3841








   250 GENERAL SCIENCE, SPACE, AND
   TECHNOLOGY
------------------------------------------------------ Appendix III:48

  -- Space Station

  -- NASA's Earth Observing System Data and Information System



   OPTION:
   SPACE STATIONSPACE STATION
------------------------------------------------------ Appendix III:49


Authorizing committees              Commerce, Science and
                                    Transportation (Senate)
                                    Science (House)

Appropriations subcommittees        VA, HUD, and Independent Agencies
                                    (Senate and House)

Primary agency                      National Aeronautics and Space
                                    Administration

Account                             Human Space Flight (80-0111)

Spending type                       Discretionary

Budget subfunctions                 Space Flight, Research, and
                                    Supporting Activities

Framework theme                     Reassess objectives
----------------------------------------------------------------------
In 13 reports and testimonies issued since 1991, GAO has expressed
concerns about various aspects of the space station, including rising
cost estimates that have prompted several redesigns since the project
was first funded in fiscal year 1985.  In 1993, the station was
redesigned again and Russia was brought in as a partner.  The
National Aeronautics and Space Administration (NASA) believed that
Russian participation would improve the station's capabilities and
reduce the estimated cost to complete its assembly.  Subsequently,
annual funding through completion of assembly was capped at about
$2.1 billion and the total project cost was capped at $17.4 billion. 

Since 1993, GAO has reported that NASA has made some progress on the
space station, but it still has considerable challenges to overcome,
including lower financial reserves and significant risk related to
the space shuttle's ability to support the space station's launch and
assembly schedule.  Most recently, in July 1996, GAO reported that
the cost and schedule threats have continued.  The cost threat is
particularly severe over the next few years, due to the limited
reserves for additional cost risks such as possible reduced Russian
participation. 

The Congress may wish to closely monitor NASA's efforts to manage
station development to enable it to act quickly should estimated
costs to complete the project increase substantially.  Such actions
could include acceptance of the cost increases, further reduction in
the project's scope, or terminating the project.  If the project were
terminated, the following savings would result. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 Defense Plan
----------------------------------------------------------------------
Budget authority                 1,449   2,149   2,149   2,149   2,149
Outlays                            947   1,884   2,136   2,148   2,149

Savings from the 1997 Defense Plan adjusted for inflation
----------------------------------------------------------------------
Budget authority                 1,503   2,263   2,323   2,385   2,450
Outlays                            982   1,976   2,289   2,362   2,426
----------------------------------------------------------------------
Note:  This estimate assumes termination costs of $700 million. 

Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:49.1

Space Station:  Cost Control Difficulties Continue
(GAO/T-NSIAD-96-210, July 24, 1996). 

Space Station:  Cost Control Difficulties Continue (GAO/NSIAD-96-135,
July 17, 1996). 

Space Station:  Declining Budgets and Tight Schedules Could
Jeopardize Space Station Support (GAO/NSIAD-95-171, July 28, 1995). 

Space Station:  Estimated Total U.S.  Funding Requirements
(GAO/NSIAD-95-163, June 12, 1995). 

Space Station:  Plans to Expand Research Community Do Not Match
Available Resources (GAO/NSIAD-94-33, November 22, 1994). 

Space Station:  Update on the Impact of the Expanded Russian Role
(GAO/NSIAD-94-248, July 29, 1994). 

Space Station:  Impact of the Expanded Russian Role on Funding and
Research (GAO/NSIAD-94-220, June 21, 1994). 

Space Station:  Information on National Security Applications and
Cost (GAO/NSIAD-93-208, May 18, 1993). 

Space Station:  Program Instability and Cost Growth Continue Pending
Redesign (GAO/NSIAD-93-187, May 18, 1993). 

NASA:  Large Programs May Consume Increasing Share of Limited Future
Budgets (GAO/NSIAD-92-278, September 4, 1992). 

Space Station:  Status of Financial Reserves (GAO/NSIAD-92-279, July
20, 1992). 

NASA Budget:  Potential Shortfalls in Funding NASA's 5-Year Plan
(GAO/T-NSIAD-92-18, March 17, 1992). 

Questions Remain on the Costs, Uses, and Risks of the Redesigned
Space Station (GAO/T-NSIAD-91-26, May 1, 1991). 


      GAO CONTACT
---------------------------------------------------- Appendix III:49.2

Louis J.  Rodrigues, (202) 512-4841



   OPTION:
   NASA'S EARTH OBSERVING SYSTEM
   DATA AND INFORMATION
   SYSTEMNASA'S EARTH OBSERVING
   SYSTEM DATA AND INFORMATION
   SYSTEM
------------------------------------------------------ Appendix III:50


Authorizing committees              Commerce, Science and
                                    Transportation (Senate)
                                    Science (House)

Appropriations subcommittees        VA, HUD, and Independent Agencies
                                    (Senate and House)

Primary agency                      National Aeronautics and Space
                                    Administration (NASA)

Account                             Space, Aeronautics, and Technology
                                    (80-0110)

Spending type                       Discretionary

Budget subfunctions                 Multiple

Framework theme                     Reassess objectives
----------------------------------------------------------------------
NASA's Earth Observing System (EOS) is a comprehensive program to
study global change by gathering and analyzing data about how the
earth functions as a single, integrated system.  About a third of the
cost for EOS will go to the Earth Observing System Data and
Information System (EOSDIS), which will operate EOS satellites and
instruments and provide ground acquisition, processing, storage,
management, and distribution of the EOS data.  In addition to the EOS
data, EOSDIS will incorporate and make available data from previous
NASA missions, non-NASA systems, and atmosphere-, ocean-, and
land-based sensors.  Developing EOSDIS is a massive undertaking; its
intended scope far exceeds that of any previous civilian data
management system.  Over its lifetime, EOSDIS could accumulate
information comparable to more than 1,000 times the amount of text
stored in the Library of Congress.  A major objective of EOSDIS is to
make this enormous quantity of data easily accessible and usable to
many earth scientists. 

The bulk of EOSDIS development is being carried out under a single,
comprehensive contract, known as the EOSDIS Core System contract. 
The Core System contract was awarded to Hughes Applied Information
Systems in early 1993 and will cost NASA an estimated $930 million
through 2003.  Hughes is responsible for building and integrating the
major elements of EOSDIS, including hardware and software to be
installed at eight data centers around the country. 

In March 1995, GAO observed that NASA's emphasis on large-scale
development in the near term may be unwise and recommended deferring
full-scale development until technology and standards have further
advanced and user needs are better known.  Also, in 1995, the
National Research Council expressed its concerns about the EOSDIS
development effort and recommended a new approach to EOSDIS, which
would streamline some EOSDIS functions and transfer other functions
to a competitively selected federation of partners in government,
academia, and the private sector.  Since that time, NASA has been
changing its plans for EOSDIS to try to accommodate the vision of a
federation of partners recommended by the National Research Council. 
Given that these changes should lead to a less intensive near-term
systems development effort, it is reasonable to consider reducing
planned funding for EOSDIS.  However, GAO has not made a
determination of the exact size of the most appropriate reduction. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:50.1

Earth Observing System:  Funding Requirements for NASA's EOSDIS
(GAO/AIMD-95-153FS, June 8, 1995). 

Earth Observing System:  Concentration on Near-term EOSDIS
Development May Jeopardize Long-term Success (GAO/T-AIMD-95-103,
March 16, 1995). 


      GAO CONTACT
---------------------------------------------------- Appendix III:50.2

Jack L.  Brock, Jr., (202) 512-6240









   OPTION:
   DEPARTMENT OF ENERGY'S NATIONAL
   LABORATORIESDEPARTMENT OF
   ENERGY'S NATIONAL LABORATORIES
------------------------------------------------------ Appendix III:53


Authorizing committees              Energy and Natural Resources
                                    (Senate) Commerce (House)

Appropriations subcommittees        Energy and Water Development
                                    (Senate and House)

Primary agency                      Department of Energy

Account                             Energy Supply, R&D Activities
                                    (89-0224)

Spending type                       Discretionary

Budget subfunction                  Atomic Energy Defense Activities

Framework theme                     Reassess objectives
----------------------------------------------------------------------
The Department of Energy's (DOE) laboratory network is comprised of
approximately 30 labs, with a budget of about $8 billion and
employing over 25,000 scientists and engineers.  Recent shifts in
national priorities--principally, the dramatic reduction in the arms
race and proposed cutbacks in energy and nuclear research
funding--raise questions about the need for all these labs.  In
particular, DOE's three large defense labs, costing about $1 billion
annually, were created to design and test nuclear weapons, a role
which has greatly diminished over time.  Currently, these labs
allocate less than half their budgets to nuclear weapons design,
development, and testing--the principal reasons they were created. 
Yet, as GAO has reported, DOE still maintains a redundant structure
with respect to nuclear weapons work, an arrangement that may no
longer be the most efficient alternative for meeting defense
requirements. 

The 1995 Galvin Task Force, commissioned by DOE, also argued for more
focused missions for the national laboratories.  In addition, the
task force said that the national laboratory system is oversized for
its current mission assignments.  Several congressional bills have
been introduced in recent years calling for the creation of a
separate structure for determining the best way to streamline
national laboratories. 

Aside from deciding on the ideal number of labs, most experts GAO
consulted agree that the missions of the laboratories now need to be
clarified if their resources are to be used most effectively.  Some
are suggesting the current laboratory structure may not be the most
rational if the labs are to move into newer mission areas. 
Suggestions for restructuring range from converting some labs into
private or quasi-public entities, transferring labs to universities,
or assigning them to different agencies whose missions better match
lab strengths. 

In addition to supporting DOE's efforts to streamline individual
labs, the Congress should reconsider the role and mission of the
laboratories as a group, which could be restructured in various ways. 
For example, the Galvin Task Force examined a transfer of most of the
nuclear weapons functions of Lawrence Livermore to the Los Alamos
laboratory.  Los Alamos officials estimated that having both
facilities design weapons but only one engineer and test them would
eventually save about $200 million in annual operating costs.  The
table below reflects savings from phasing in such a consolidation
over a 5-year period. 



                           Five-Year Savings

                         (Dollars in millions)

                                  FY98    FY99    FY00    FY01    FY02
------------------------------  ------  ------  ------  ------  ------
Savings from the 1997 funding level
----------------------------------------------------------------------
Budget authority                    32      66     102     140     179
Outlays                             24      58      93     131     169

Savings from the 1997 funding level adjusted for inflation
----------------------------------------------------------------------
Budget authority                    33      70     110     156     205
Outlays                             25      60     100     144     192
----------------------------------------------------------------------
Source:  Congressional Budget Office. 


      RELATED GAO PRODUCTS
---------------------------------------------------- Appendix III:53.1

Federal R&D Laboratories (GAO/RCED/NSIAD-96-78R, February 29, 1996). 

National Laboratories Need Clearer Mission and Better Management
(GAO/RCED-95-10, January 27, 1995). 

DOE's National Laboratories:  Adopting New Missions and Managing
Effectively Pose Significant Challenges (GAO/T-RCED-94-113, February
3, 1994). 

Department of Energy:  Management Problems Require a Long-term
Commitment to Change (GAO/RCED-93-72, August 31, 1993). 


Nuclear Weapons Complex:  Issues Surrounding Consolidating Los Alamos
and Lawrence Livermore National Laboratories (GAO/RCED-92-98,
September 24, 1992). 


      GAO CONTACT
---------------------------------------------------- Appendix III:53.2

Victor S.  Rezendes, (202) 512-3841






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