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Report to Congressional Committees:

United States General Accounting Office:

GAO:

May 2004:

Future Years Defense Program:

Actions Needed to Improve Transparency of DOD's Projected Resource 
Needs:

DOD's Future Years Defense Program:

GAO-04-514:

GAO Highlights:

Highlights of GAO-04-514, a report to Congressional Committees 

Why GAO Did This Study:

Congress needs the best available data about DODís resource trade-offs 
between the dual priorities of transformation and fighting the global 
war on terrorism. To help shape its priorities, in 2001 DOD developed a 
capabilities-based approach focused on how future adversaries might 
fight, and a risk management framework to ensure that current defense 
needs are balanced against future requirements. Because the Future 
Years Defense Program (FYDP) is DODís centralized report providing DOD 
and Congress data on current and planned resource allocations, GAO 
assessed the extent to which the FYDP provides Congress visibility over 
(1) projected defense spending and (2) implementation of DODís 
capabilities-based defense strategy and risk management framework.

What GAO Found:

The FYDP provides Congress with mixed visibility over DODís projected 
spending for the current budget year and at least four succeeding 
years. On the one hand, it provides visibility over many programs that 
can be aggregated so decision makers can see DODís broad funding 
priorities by showing shifts in appropriation categories. On the other 
hand, in some areas DOD likely understates the future costs of programs 
in the FYDP because it has historically employed overly optimistic 
planning assumptions in its budget formulations. As such, DOD has too 
many programs for the available dollars, which often leads to program 
instability, costly program stretch-outs, and delayed program 
termination decisions. Also, the FYDP does not reflect costs of ongoing 
operations funded through supplemental appropriations. Since September 
2001, DOD has received $158 billion in supplemental appropriations to 
support the global war on terrorism, and DOD expects to request another 
supplemental in January 2005 to cover operations in Iraq and 
Afghanistan. While DOD officials stated they are uncertain of the 
amount of the request, some requirements they intend to fund with the 
supplemental appropriation have already been identified, such as 
temporarily increasing the Armyís force structure. Defining costs 
during ongoing operations is challenging and supplemental 
appropriations are sometimes necessary; however, not considering the 
known or likely costs of ongoing operations expected to continue into 
the new fiscal year as part of larger budget deliberations will 
preclude DOD and congressional decision makers from fully examining the 
budget implications of the global war on terrorism.

DODís Emergency Supplemental Appropriations for 2004: 

[See PDF for image]

[End of figure]

The FYDP provides Congress limited visibility over important DOD 
initiatives. While DOD is considering how to link resources to defense 
capabilities and the risk management framework, it does not have 
specific plans to make these linkages in the FYDP, in part because the 
initiatives have not been fully defined or implemented. Because the 
FYDP lacks these linkages, decision makers cannot use it to determine 
how a proposed increase in capability would affect the risk management 
framework, which balances dimensions of risk, such as near term 
operational risk versus risks associated with mid- to long-term 
military challenges.

What GAO Recommends:

GAO makes recommendations to provide Congress more data in fiscal year 
2005 and beyond on known or likely costs of operations, and to enhance 
the FYDP as a tool in the new strategic environment. In comments on a 
draft report, DOD stated it already provides reliable information on 
known costs of ongoing operations to Congress as soon as it is 
available, and did not concur with the proposal to enhance the FYDP. 
GAO believes its recommendations offer practical solutions that would 
provide better information for congressional decision-makers to use 
during budget deliberations.

www.gao.gov/cgi-bin/getrpt?GAO-04-514.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Sharon Pickup at (202) 
512-9619 or pickups@gao.gov.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

FYDP Provides Congress with Mixed Visibility of Projected DOD Spending:

The FYDP Has Not Been Linked to Important QDR Initiatives, Thereby 
Limiting Congressional Visibility:

Conclusions:

Recommendations for Executive Action:

Agency Comments and Our Evaluation:

Appendix I: Scope and Methodology:

Appendix II: Comparison of DOD's 2003 and 2004 FYDPs by Primary 
Appropriation Category:

Appendix III: Comments from the Department of Defense:

Appendix IVGAO Contact and Staff Acknowledgments:

Table:

Table 1: Emergency Supplemental Appropriations for DOD since September 
11, 2001:

Figure:

Figure 1: Total Dollar Changes in Appropriation Categories between the 
2003 and 2004 FYDPs for Fiscal Years 2004-2007:

Abbreviations:

CBO: Congressional Budget Office:

DOD: Department of Defense:

FYDP: Future Years Defense Program:

O&M: operation and maintenance:

QDR: Quadrennial Defense Review:

RDT&E: research, development, test and evaluation:

United States General Accounting Office:

Washington, DC 20548:

May 7, 2004:

Congressional Committees:

In light of the Department of Defense's (DOD) challenge of transforming 
its forces for the future while simultaneously fighting the global war 
on terrorism, decision makers need to have the best data available 
about resources[Footnote 1] to make trade-offs among these priorities. 
The Future Years Defense Program (FYDP), a DOD centralized report 
consisting of thousands of program elements, provides information on 
DOD's current and planned outyear budget requests and is one of the 
principal tools available to help inform DOD and Congress about 
resource data relating to these challenging trade-offs. In 2001, to 
help shape its priorities, DOD developed a new capabilities-based 
defense strategy focused on "how" future adversaries might fight, 
rather than specifically on "whom" they might be. Realizing that it 
could not achieve the goals of the new strategy without a new approach 
to managing different kinds of defense risks, such as near term 
operational risk, DOD identified an associated risk management 
framework to ensure that current defense needs are balanced against 
future requirements. These two concepts--the capabilities-based 
approach and the risk management framework--are key tenets in DOD's 
2001 Quadrennial Defense Review (QDR).[Footnote 2] Furthermore, DOD has 
emphasized the need to link resources to capabilities and the risk 
management framework.

We believe this report on the FYDP will be useful for your committees' 
oversight of DOD's future resource allocations between the dual 
priorities of transformation and fighting the global war on terrorism. 
We examined the utility of the FYDP as one of the principal tools 
providing DOD and Congress data on current and planned resource 
allocations. Specifically we assessed the extent to which the FYDP 
provides Congress visibility over (1) projected defense spending and 
(2) the implementation of DOD's capabilities-based approach and risk 
management framework outlined in the 2001 QDR.

In conducting our review, we determined that the automated FYDP data 
were sufficiently reliable for meeting our objectives. To assess 
congressional visibility of projected defense spending, we compared DOD 
reports and related 2003 and 2004 budget submissions, analyzed 2003 and 
2004 FYDP resource data, examined related reports, reviewed documents 
and officials' statements related to supplemental appropriations, and 
interviewed appropriate DOD program and budget officials. To assess 
DOD's implementation of its capabilities-based approach and risk 
management framework, we interviewed appropriate DOD officials, and 
officials from the Institute for Defense Analyses --the organization 
currently under contract to make improvements to the FYDP; examined 
various DOD planning and budget documents; and analyzed the FYDP 
structure for the feasibility of including links to defense 
capabilities and the risk management framework. We conducted our work 
between June 2003 and February 2004 in accordance with generally 
accepted government auditing standards. See appendix I for a more 
complete description of our scope and methodology.

Results in Brief:

The FYDP provides Congress with mixed visibility over DOD's projected 
spending. On the one hand, it provides visibility over many programs 
that can be aggregated so that decision makers can see DOD's broad 
funding priorities by showing shifts between and within appropriation 
categories. On the other hand, the FYDP provides less visibility over 
some important funding categories and may understate some costs. For 
example, the FYDP does not provide visibility over costs for some high 
priority items--such as civilian personnel, spare parts, and 
information technology--because, by design, these items are embedded in 
individual programs. Furthermore, as prior GAO reports have shown, DOD 
limits visibility in some areas because it likely understates future 
costs by employing overly optimistic planning assumptions in its budget 
formulations for programs, such as the long-term costs for weapon 
systems. Overly optimistic planning assumptions for programs not only 
limit visibility; they may have adverse implications, such as program 
termination, for the programs beyond the FYDP years.

In addition, DOD does not include the costs of ongoing operations 
funded through supplemental appropriations, such as the global war on 
terrorism. Since September 11, 2001, DOD has received $158 billion in 
supplemental appropriations--an amount that exceeds the $99 billion DOD 
received in supplemental appropriations throughout all of the 1990s and 
is more than DOD's fiscal year 2004 request for its entire Operation 
and Maintenance account.[Footnote 3] Further, the administration 
expects to request another supplemental in January 2005 to cover costs 
of operations in Iraq and Afghanistan. While DOD officials have stated 
their uncertainty about how much will be requested, some requirements 
they intend to fund with the supplemental appropriation have already 
been identified, such as the cost of increased Army force structure. We 
recognize that defining costs during ongoing operations is challenging 
and supplemental appropriations are sometimes necessary to cover these 
costs. Nonetheless, not considering the expected costs of ongoing 
operations as part of larger budget deliberations will mean that 
neither the administration nor congressional decision makers will have 
the opportunity to fully examine the budget implications of the global 
war on terrorism. Therefore, we are recommending that DOD provide 
information on known or likely costs for ongoing operations to Congress 
for consideration during its fiscal year 2005 and future budget 
deliberations.

The FYDP's current usefulness is limited in providing Congress 
visibility over the implementation of the capabilities-based defense 
strategy and associated risk management framework, important QDR 
initiatives. The Major Force Programs, initially developed as the 
fundamental framework of the FYDP, remain virtually unchanged and are 
not representative of DOD's capabilities-based approach. Because the 
FYDP has a flexible structure, DOD has modified it over time to capture 
the resources associated with special areas of interest, such as space 
activities. However, DOD has not established a link in the FYDP to 
either defense capabilities, the basis of its new approach to the 
defense strategy, or the risk management framework, developed to ensure 
that current defense needs are balanced against future requirements. 
Moreover, while DOD is considering how to link resources to these 
initiatives, it does not have specific plans to make these linkages in 
the FYDP, in part because the initiatives have not been fully 
developed. DOD is currently undergoing the complex process of fully 
defining the capabilities it needs to meet the defense strategy. 
Although the risk management framework is better defined, DOD has not 
completed its process of linking it to resources, and this process does 
not include creating a link in the FYDP. Therefore, although DOD makes 
funding decisions that affect defense capabilities and the risk 
management framework, the effects on capabilities and risk are not 
clearly identifiable in the FYDP. If they were, both DOD and 
congressional decision makers would have greater ability to assess how 
a proposed increase or decrease in capability would relate to the funds 
and other resources needed and how it would affect the risk management 
framework. Therefore, we are recommending that DOD align the program 
elements in the FYDP to defense capabilities and the risk management 
framework and include this alignment with the FYDP provided to 
Congress.

In written comments on a draft of this report, DOD stated that it 
already provides reliable information on the known costs of ongoing 
operations to Congress as soon as it is available and does not concur 
with our proposals to enhance the FYDP as a tool in the new strategic 
environment. We maintain our view that our recommendations offer 
practical solutions that would provide better information for 
congressional decision makers to use during budget deliberations and 
for improving congressional visibility over DOD's allocation of 
resources.

Background:

In 1962, DOD instituted the Planning, Programming, and Budgeting System 
to establish near-term projections in defense spending. This system was 
intended to provide the necessary data to assist defense decision 
makers in making trade-offs among potential alternatives, thereby 
resulting in the best possible mix of forces, equipment, and support to 
accomplish DOD's mission. The military services and other DOD 
components developed the detailed data projections for the budget year 
in which funds were being requested and at least the 4 succeeding years 
and provided them to the Office of the Secretary of Defense. The 
resulting projections were compiled and recorded in a 5-year plan. In 
1987, Congress directed the Secretary of Defense to submit the five-
year defense program (currently referred to as the future years defense 
program, or FYDP) used by the Secretary in formulating the estimated 
expenditures and proposed appropriations included in the President's 
annual budget to support DOD programs, projects and 
activities.[Footnote 4] The FYDP, which is submitted annually to 
Congress, is considered the official report that fulfills this 
legislative requirement.

The Office of Program Analysis and Evaluation has responsibility for 
the assembly and distribution of the FYDP. The Office of the Under 
Secretary of Defense (Comptroller) has responsibility for the annual 
budget justification material that is presented to Congress. These 
offices work collaboratively to ensure that the data presented in the 
budget justification material and the FYDP are equivalent at the 
appropriation account level.

The FYDP provides DOD and Congress a tool for looking at future funding 
needs beyond immediate budget priorities and can be considered a long-
term capital plan. As GAO has previously reported, leading practices in 
capital decision making include developing a long-term capital plan to 
guide implementation of organizational goals and objectives and help 
decision makers establish priorities over the long term.[Footnote 5] In 
2002, Congress directed the Department of Homeland Security to begin 
developing a future budget plan modeled after DOD's FYDP.[Footnote 6]

In the 2001 QDR Report, DOD established a new defense strategy and 
shifted the basis of defense planning from a "threat-based" model to a 
"capabilities-based" model. According to the QDR report, the 
capabilities-based model is intended to focus more on how an adversary 
might fight rather than specifically on whom the adversary might be or 
where a war might occur. The report further states that in adopting a 
capabilities-based approach, the United States must identify the 
capabilities required to deter and defeat adversaries, maintain its 
military advantage, and transform its forces and institutions.

The QDR report also outlined a new risk management framework to use in 
considering trade-offs among defense objectives and resource 
constraints. This framework consists of four dimensions of risk:

* Force management-the ability to recruit, retain, train, and equip 
sufficient numbers of quality personnel and sustain the readiness of 
the force while accomplishing its many operational tasks;

* Operational-the ability to achieve military objectives in a near-term 
conflict or other contingency;

* Future challenges-the ability to invest in new capabilities and 
develop new operational concepts needed to dissuade or defeat mid-to 
long-term military challenges; and:

* Institutional-the ability to develop management practices and 
controls that use resources efficiently and promote the effective 
operation of the Defense establishment.

These risk areas will form the basis for DOD's annual performance goals 
and for tracking associated performance results. Moreover, the QDR 
states that an assessment of the capabilities needed to counter both 
current and future threats must be included in DOD's approach to 
assessing and mitigating risk.

FYDP Provides Congress with Mixed Visibility of Projected DOD Spending:

The FYDP provides Congress visibility of broad DOD funding shifts and 
priorities regarding thousands of programs that have been aggregated, 
or grouped, by appropriation category. For example, we noted that DOD 
increases its Research, Development, Test and Evaluation (RDT&E) 
account category and decreases other account categories in the 2004 
FYDP. Other funding shifts/priorities are less visible because the FYDP 
report, organized by program, cannot display some specific costs that 
are important to decision makers, such as funding for DOD's civilian 
workforce. Moreover, the FYDP is a reflection of the limitations of 
DOD's budget preparation process. For example, as we have reported in 
the past, the FYDP reflects DOD's overly optimistic estimations of 
future program costs that often lead to costs being understated. Such 
understatements may have implications for many programs beyond the 
years covered by the FYDP. Finally, the costs of ongoing operations in 
Iraq and Afghanistan, which have been funded through supplemental 
appropriations, are not projected in the FYDP thereby limiting the 
visibility over these funds. The administration is expected to request 
additional supplemental funds in calendar year 2005 according to DOD 
officials. Although some costs are difficult to predict, DOD expects 
costs to become more predictable later this year. However, some 
requirements it plans to fund with the supplemental appropriation have 
already been identified.

Some Funding Shifts/Priorities Are Visible at the Appropriation 
Category Level in the FYDP; Others Are Less Visible:

The FYDP was designed to provide resource information at the program 
level that could be aggregated a variety of ways including up to the 
appropriation category level. For individual programs, this means that 
decision makers have visibility over planned funding for 4 or 5 years 
beyond the current budget year. Similarly, the programs can be 
aggregated in a variety of ways to analyze future funding trends. For 
example, our comparison of the 2003 FYDP to the 2004 FYDP provides 
visibility of funding shifts that DOD made at the appropriation 
category level, specifically showing that over the common years of both 
FYDPs, DOD plans to increase funding in its RDT&E appropriation 
category, while in most years decreasing funds to Procurement, Military 
Construction, Military Personnel, and Operation and Maintenance. 
According to DOD officials, this shift toward RDT&E reflects DOD's 
emphasis on transforming military forces. Since the FYDP does not 
clearly identify those programs DOD considers transformational, we 
could not validate this claim. Figure 1 shows the changes made between 
the 2003 and 2004 FYDPs to the department's appropriation categories 
for the common 4-year period, 2004-2007. Appendix II provides a more 
detailed table.

Figure 1: Total Dollar Changes in Appropriation Categories between the 
2003 and 2004 FYDPs for Fiscal Years 2004-2007:

[See PDF for image]

[A] RDT&E = research, development, test and evaluation:

[B] O&M = operation and maintenance:

[C] The "Other DOD accounts" category includes funding for the Other DOD 
Programs appropriation category (chemical agents and munitions 
destruction, the defense health program, drug interdiction and counter-
drug activities, and the Office of the Inspector General), as well as 
for the two appropriation categories Revolving Management Funds and 
Undistributed Contingencies.

[End of figure]

Compared to the 2003 FYDP, funding in the Operation and Maintenance 
appropriation category in the 2004 FYDP was reduced by at least $9 
billion per year from 2004 through 2007 for a total of $42 billion over 
that period. About $41 billion of that decrease is accounted for by the 
elimination of the Defense Emergency Response Fund, which had projected 
over $10 billion in funding each year for 2004 through 2007 in the 2003 
FYDP, but had no funding in the 2004 FYDP for those years. Over those 
same years, the "Other DOD accounts" category increased by a total of 
$19 billion. The increase in these categories was mainly fueled by a 
$22 billion increase in the Defense Health Program, which was offset 
somewhat by a decrease in Revolving Management Funds.[Footnote 7]

Although DOD's policy priorities can be discerned at the appropriation 
level, some important funding categories cannot be identified because 
program elements, the most basic components of the report, are intended 
to capture the total cost of the program, as opposed to individual 
costs that comprise the program. For example, funding for spare parts, 
civilian personnel, and information technology are included in funding 
for individual programs and cannot be readily extracted from them. 
Congress has expressed interest in all of these funding categories. We 
note that DOD officials stated that these funding categories are 
delineated in other reports to Congress.

Program elements that encompass multiple systems, such as the Army's 
Future Combat Systems and DOD's Ballistic Missile Defense System, could 
also limit visibility over funding trends and trade-offs in the FYDP. 
For example, in its 2004 budget justification material, the 
administration requested funding for the Army's Future Combat Systems-
-often referred to as a "system of systems"--under a single program 
element.[Footnote 8] In the National Defense Authorization Act for 
Fiscal Year 2004, Congress rejected the single program element and 
instead required the Secretary of Defense to break Future Combat 
Systems into three program elements.[Footnote 9] In the conference 
report accompanying the bill, the conferees noted that "the high cost 
and high risk [of the Future Combat System] require congressional 
oversight which can be better accomplished through the application of 
separate and distinct program elements for the [Future Combat 
System]."[Footnote 10] In another example, DOD had proposed that 
Congress repeal its requirement for specifying Ballistic Missile 
Defense System program elements. According to DOD's legislative 
proposal, this would coincide with the Secretary of Defense's goal to 
establish a single program that allows allocating and re-allocating of 
funds among competing priorities within the program. While Congress 
provided the administration flexibility for specifying program elements 
related to Ballistic Missile Defense, it nonetheless noted that budget 
reporting for Ballistic Missile Defense under one program element would 
be inappropriate.[Footnote 11]

FYDP Limits Visibility of Some Future Costs through Overly Optimistic 
Planning Assumptions:

Since the mid-1980s, we have reported a limitation in DOD's budget 
formulation--the use of overly optimistic planning assumptions. Such 
overly optimistic assumptions limit the visibility of costs projected 
throughout the FYDP period and beyond. As a result, DOD has too many 
programs for the available dollars, which often leads to program 
instability, costly program stretch-outs, and program termination. For 
example, in January 2003, we reported that the estimated cost of 
developing eight major weapon systems had increased from about $47 
billion in fiscal year 1998 to about $72 billion by fiscal year 
2003.[Footnote 12] We currently expect DOD's funding needs in some 
areas to be higher than the estimates in the FYDP. The following are 
some examples of anticipated cost increases based on recent reports 
where we made recommendations to improve the management and costs 
estimates of these programs.

* As we reported in April 2003, cost increases have been a factor in 
the Air Force substantially decreasing the number of F/A-22 Raptors to 
be purchased--from 648 to 276.[Footnote 13] Moreover, current budget 
estimates, which exceed mandated cost limitations, are dependent on 
billions of dollars of cost offset initiatives which, if not achieved 
as planned, will further increase program costs. In addition, GAO 
considers continued acquisition of this aircraft at increasing annual 
rates before adequate testing is completed to be a high-risk strategy 
that could further increase production costs.

* DOD has not required the services to set aside funds to support the 
procurement and maintenance of elements of the Ballistic Missile 
Defense System. Management of this "system of systems" was shifted from 
the services to the Department's Missile Defense Agency in January 
2002, but procurement and maintenance costs will be borne by the 
services as elements of the system demonstrate sufficient maturity to 
enter into full-rate production. In April 2003, we concluded that 
because DOD had not yet set aside funds to cover its long-term costs, 
the department could find that it cannot afford to procure and maintain 
that system unless it reduces or eliminates its investment in other 
important weapons systems.[Footnote 14] We recommended that the 
Secretary of Defense explore the option of requiring the services to 
set aside funds for this purpose in the FYDP. DOD concurred with this 
recommendation, noting that doing so would not only promote the 
stability of the overall defense budget but would also significantly 
improve the likelihood that an element or component would actually be 
fielded.

* Since its inception in fiscal year 1986, DOD's $24 billion chemical 
demilitarization program (a 2001 estimate) has been plagued by frequent 
schedule delays, cost overruns, and continuing management problems. In 
October 2003, we testified that program officials had raised 
preliminary total program cost estimates by $1.4 billion and that other 
factors, yet to be considered, could raise these estimates even 
more.[Footnote 15]

In written comments on a draft of this report, DOD strongly objected to 
our conclusion that DOD has historically employed overly optimistic 
assumptions and noted that these statements do not reflect recent 
efforts to correct this problem. In August 2001, DOD established 
guidance that all major acquisition programs should be funded to the 
Cost Analysis Improvement Group estimates, which, according to DOD, 
have historically been far more accurate than Service estimates. 
However, as DOD acknowledges in its written comments, there is 
currently no auditable data available to document the effects of this 
guidance; therefore, we could not analyze this claim. Further, GAO 
reports issued after a draft of this report was sent to DOD - such as 
our March 2004 report on the Air Force's F/A-22 program and our April 
2004 testimony on DOD's Chemical Demilitarization program - continue to 
raise questions about DOD's planning assumptions.[Footnote 16] For 
example, in our F/A-22 report, we continued to observe that additional 
increases in development costs for the F/A-22 are likely and in our 
report on DOD's Chemical Demilitarization Program, we observed that the 
program continues to fall behind schedule milestones.

Some of the examples listed above will have budgetary impacts beyond 
the 2009 end date of the 2004 FYDP. As the Congressional Budget Office 
(CBO) reported in January 2003, "programs to develop weapon systems 
often run for a decade or more before those systems are fielded, and 
other policy decisions have long-term implications; thus, decisions 
made today can influence the size and composition of the nation's armed 
forces for many years to come."[Footnote 17] In its February 2004 
update to that report, CBO projected that if the programs represented 
in the 2004 FYDP were carried out as currently envisioned by DOD, 
demand for resources would grow from the current projection in 2009 of 
$439 billion to an average demand for resources of $458 billion a year 
between 2010 and 2022.[Footnote 18] When CBO assumed that costs for 
weapons programs and certain other activities would continue to grow as 
they have historically rather than as DOD currently projects, CBO's 
projections increased to an average of $473 billion a year through 2009 
and an average of $533 billion between 2010 and 2022.

FYDP Does Not Provide Visibility Over Future Costs of Operations Funded 
through Supplemental Appropriations:

The FYDP does not include future costs for ongoing operations when 
these operations are funded through supplemental appropriations. Since 
the attacks of September 11, 2001, DOD has received supplemental 
appropriations totaling $158 billion in constant 2004 dollars to 
support operations in Iraq, Afghanistan, and elsewhere, as well as to 
initially recover and respond to the terrorist attacks. This amount 
exceeds the $99 billion DOD received in supplemental appropriations 
throughout all of the 1990s and is more than what DOD requested for its 
entire Operation and Maintenance account for fiscal year 2004. Table 1 
summarizes these supplemental appropriations.

Table 1: Emergency Supplemental Appropriations for DOD since September 
11, 2001:

2004 dollars in billions.

Fiscal year: 2004; 
Public law: Pub. L. No. 108-106 (Nov. 6, 2003). Emergency Supplemental 
Appropriations Act for Defense and for the Reconstruction of Iraq and 
Afghanistan, 2004; 
Supplemental amount appropriated to DOD: $65.2.

Fiscal year: 2003; 
Public law: Pub. L. No. 108-87 (Sep. 30, 2003). Department of Defense 
Appropriations Act, 2004: (Rescinded funds appropriated in Pub. L. No. 
108-11 (Apr. 16, 2003)); Supplemental amount appropriated to DOD: $-3.6.

Fiscal year: 2003; 
Public law: Pub. L. No. 108-11 (Apr. 16, 2003). Emergency Wartime 
Supplemental Appropriations Act, April 2003; 
Supplemental amount appropriated to DOD: $64.0.

Fiscal year: 2002; 
Public law: Pub. L. No. 107-206 (Aug. 2, 2002). 2002 Supplemental 
Appropriations Act for Further Recovery From Response to Terrorist 
Attacks on the United States; Supplemental amount appropriated to DOD: 
$14.0.

Fiscal year: 2001/ 2002; 
Public law: Pub. L. No. 107-38 (Sep. 18, 2001). 2001 Emergency 
Supplemental Appropriation For Recovery From And Response to Terrorist 
Attacks on the United States and Pub. L. No. 107-117 (Jan. 10, 2002). 
Department of Defense and Emergency Supplemental Appropriations for 
Recovery from Response to Terrorist Attacks on the United States Act, 
2002; 
Supplemental amount appropriated to DOD: $18.3.

Total; 
Supplemental amount appropriated to DOD: $158.0. 

Source: GAO analysis of supplemental appropriations.

Note: Numbers do not add due to rounding.

[End of table]

In presentations related to the 2005 President's budget submitted to 
Congress in early February 2004, DOD officials reported that the budget 
does not include funding for ongoing operations in Iraq and 
Afghanistan, and they expect another supplemental will be needed in 
January 2005 to finance incremental costs for these operations. Senior 
DOD officials indicated that operations in Iraq and Afghanistan will 
continue into fiscal year 2005, but the requirements and costs of these 
continued operations are difficult to estimate because of uncertainties 
surrounding the political situations in these regions. However, they 
noted that funding estimates will likely become clearer over the course 
of the year. For example, the Under Secretary of Defense (Comptroller) 
stated that by July 2004, the operations in Iraq and Afghanistan may be 
better defined and that having time to analyze expenditures will help 
in making more realistic projections. In addition, Service and DOD 
officials have already identified some requirements that have 
associated costs. For example, the Army has been authorized to 
temporarily increase its end strength by 30,000 soldiers. In briefings 
on the 2005 budget request, DOD and Army officials stated that they 
intended to partially fund this additional end strength with the 
supplemental appropriation anticipated for 2005.

DOD, with congressional approval, has used different approaches in the 
past to fund operations. For example, in the former Yugoslavia, DOD 
funded operations begun in fiscal year 1996 through a combination of 
transfers between DOD accounts, absorbing costs within accounts, and 
supplemental appropriations. However, in 1997, Congress established the 
Overseas Contingency Operations Transfer Fund, which provided funding 
to DOD rather than directly to the individual military services, and 
allowed DOD to manage the funding of contingency operations among the 
military services more effectively and with some flexibility.[Footnote 
19] In 2002, DOD determined that funding for operations in the former 
Yugoslavia were sufficiently stable to be included directly in 
appropriation account requests. GAO observed in a 1994 report that if 
an operation continued into a new fiscal year, it would seem 
appropriate that DOD would build the expected costs of that operation 
into its budget and allow Congress to expressly authorize and 
appropriate funds for its continuation.[Footnote 20] We continue to 
hold this view.

The FYDP Has Not Been Linked to Important QDR Initiatives, Thereby 
Limiting Congressional Visibility:

The FYDP, as currently structured, does not contain a link to defense 
capabilities or the dimensions of the risk management framework, both 
important QDR initiatives, limiting the FYDP's usefulness and 
congressional visibility of the initiatives' implementation. Further, 
although DOD is considering how to link resources to these initiatives, 
it does not have specific plans to make these linkages in the FYDP. The 
Major Force Programs, initially developed as the fundamental framework 
of the FYDP, remain virtually unchanged and are not representative of 
DOD's capabilities-based approach. Furthermore, additional program 
aggregations that DOD created in the FYDP's structure do not capture 
information related to capabilities-based analysis or the risk 
management framework in part because these concepts have not been fully 
developed.

FYDP Structure Does Not Reflect QDR Initiatives:

DOD has modified the FYDP over time to create new categories of program 
elements; however, it currently does not include categorizations that 
are intended to relate to the QDR's initiatives regarding defense 
capabilities and the risk management framework. Major Force Programs, 
originally established to organize the FYDP into the major DOD 
missions, have remained virtually the same in the five decades since 
their introduction, do not reflect how DOD combat forces and their 
missions have changed over time, and do not organize the FYDP by major 
defense capabilities. For example, the Major Force Program of General 
Purpose Forces includes large numbers of programs with varied 
capabilities that would complicate comparisons needed for understanding 
defense capabilities and associated trade-off decisions inherent in 
risk management. General Purpose Forces include virtually all 
conventional forces within DOD and slightly over one-third of DOD 
funding is allocated to this broad category. Ground combat units, 
tactical air forces, and combatant ships are among the wide array of 
forces considered General Purpose Forces. Including forces with such 
diverse capabilities in the same category diminishes the Major Force 
Program's usefulness to DOD and Congress for identifying trade-offs 
among programs. Additionally, all available resources with comparable 
capabilities are not categorized in the same Major Force Program. For 
example, the Major Force Program structure identifies Guard and Reserve 
forces separately despite the fact that today Guard and Reserve forces 
are integrated into their respective Service's force structure, deploy 
and fight with the general forces, and have some of the same 
capabilities.

Over time, as decision makers needed information not captured in the 
Major Force Programs, DOD created new aggregations of program elements 
and added attributes to the FYDP's structure. The most recent 
aggregation categorized the data by force and infrastructure 
categories, which were developed to relate every dollar, person, and 
piece of equipment in the FYDP to either forces or 
infrastructure.[Footnote 21] This model groups forces, the warfighting 
tools of the Combatant Commanders, into broad operational categories 
according to their intended use (such as homeland defense or 
intelligence operations), and groups infrastructure, the set of 
activities needed to create and sustain forces, based upon the type of 
support activity it performs (such as force installations or central 
logistics). DOD has also added attribute fields to the program elements 
for such activities as space and management headquarters in order to 
capture the resources associated with specific areas of interest. 
However, these new aggregations and attributes were not intended to 
relate the FYDP's resources to defense capabilities or the risk 
management framework.

DOD Does Not Have Specific Plans to Link the FYDP to Important QDR 
Initiatives:

According to officials, DOD does not have specific plans to link 
capabilities and the risk management framework to the FYDP, in part, 
because these concepts have not been fully developed. For example, 
capability-based analysis is still under development. DOD officials 
describe this as a complex process--representing a fundamental shift in 
the basis of defense planning and requiring the participation of all 
DOD components. In the past, DOD focused on whom an adversary might be, 
whereas the current approach focuses on how future adversaries might 
fight. DOD's April 2003 Transformation Planning Guidance states that 
joint operating concepts will provide the construct for a new 
capabilities-based resource allocation process. To date, these joint 
operating concepts have not been formalized. According to DOD 
officials, while some concepts may be completed near-term, the overall 
initiative is expected to take 4 to 5 years to complete.

Furthermore, although the risk management framework has been better 
defined than the capabilities have, it also has not been fully 
implemented because it has not been fully linked to resources. In 
December 2002, DOD instructed its components to begin displaying the 
linkage of plans, outputs, and resources in future budget justification 
material based upon the four dimensions of its risk management 
framework. According to DOD officials, in the fiscal year 2005 budget 
submission, DOD provided this linkage for 40 percent of its resources. 
DOD plans to complete this process by fiscal year 2007, but does not 
currently have plans to link the risk management framework to the FYDP 
as part of this process. DOD's 2003 Annual Report provided an example 
of how the FYDP could be linked to the risk management framework using 
the Force and Infrastructure categories. However, according to DOD 
officials, this example was intended to be a rough aggregation for a 
specific performance metric and is not officially recognized as the 
most appropriate way to show how DOD's resources link to the risk 
management framework. Therefore, this linkage has not been integrated 
into the FYDP's structure.

Conclusions:

It is important for DOD and congressional decision makers to have the 
most complete information possible on the costs of ongoing operations 
as they deliberate the budget. In a previous report, we observed that 
if an operation continues into a new fiscal year, it would seem 
appropriate that DOD would build the expected costs of that operation 
into its budget and allow Congress to expressly authorize and 
appropriate funds for its continuation. We recognize that defining 
those expected costs is challenging and that supplemental 
appropriations are sometimes necessary. Nonetheless, the consequences 
of not considering the expected costs of ongoing operations as part of 
larger budget deliberations will mean that neither the administration 
nor congressional decision makers will have the opportunity to fully 
examine budget implications of the global war on terrorism. Indeed, the 
FYDP could be a useful tool for weighing the costs of defense 
priorities such as the global war on terrorism and DOD's transformation 
efforts. However, as a reflection of the budget, the FYDP is weakened 
in this regard because it does not include known or likely costs of 
ongoing operations funded through supplemental appropriations. Without 
a clear understanding of such costs, members of Congress cannot make 
informed decisions about appropriations between competing priorities.

Additionally, the FYDP as it is currently structured does not provide 
either DOD or Congress with full visibility over how resources are 
allocated according to key tenets of the defense strategy outlined in 
the QDR. As a result, resource allocations may not reflect the 
priorities of the defense strategy, including its new capabilities-
based approach and the risk management framework. Yet, the current 
strategic environment and growing demand for resources require that DOD 
and Congress allocate resources according to the highest defense 
priorities. Indeed, as the common report that captures all components' 
future program and budget proposals, the FYDP provides DOD an option 
for linking resource plans to its risk management framework and 
capabilities assessment and providing that information to Congress. 
Furthermore, this linkage could provide a crosswalk between 
capabilities and the risk management framework such that assessments of 
capabilities could be made in terms of the risk management framework, 
which balances dimensions of risk, such as near term operational risk 
versus risks associated with mid-to long-term military challenges.

Recommendations for Executive Action:

In the interest of providing Congress greater visibility over projected 
defense spending, we recommend that the Secretary of Defense direct the 
Undersecretary of Defense (Comptroller) to take the following two 
actions:

* provide Congress data on known or likely costs for ongoing operations 
that are expected to extend into fiscal year 2005 for consideration 
during its deliberation over DOD's fiscal year 2005 budget request and 
accompanying FYDP and:

* include known or likely projected costs of ongoing operations for the 
fiscal year 2006 and subsequent budget requests and accompanying FYDPs.

To enhance the effectiveness of the FYDP as a tool for planning and 
analysis in the current strategic environment, the Secretary of Defense 
should direct the Office of Program Analysis and Evaluation to take the 
following two actions:

* align the program elements in the FYDP to defense capabilities needed 
to meet the defense strategy, as these capabilities are identified and 
approved, and the dimensions of the risk management framework and 
include this alignment with the FYDP provided to Congress, and:

* report funding levels for defense capabilities and the dimensions of 
the risk framework in its summary FYDP report to Congress.

Agency Comments and Our Evaluation:

In written comments on a draft of this report, DOD provided some 
general overarching comments concerning our characterization of the 
FYDP as a database, as well as other comments responding to our 
specific recommendations.

First, DOD noted that it had redefined the FYDP as a report rather than 
a database, and stated that it maintains a variety of databases to 
support decision making that should not be confused with the FYDP 
itself. DOD stated that our characterization of the FYDP as a database 
resulted in a misinterpretation that pervades our draft report and 
results in incorrect assertions and conclusions. We have updated our 
report to refer to the FYDP as a report rather than a database in 
response to the definition change provided in DOD's April 2004 guidance 
- issued after our draft report was sent to DOD for comment. However, 
we disagree with the DOD statement that characterizing the FYDP as a 
flexible database structure leads to incorrect assertions and 
conclusions. Whether the FYDP is referred to as a database or a report, 
it is an existing tool used to inform analyses, as DOD acknowledged in 
its written comments, and it has been modified over time to capture 
resource information associated with special areas of interest. 
Although a variety of databases are maintained by DOD to support 
decision making, the FYDP is submitted annually to Congress, as 
required. Therefore, we believe that our recommendations that DOD 
provide Congress with greater information in fiscal year 2005 and 
beyond on known or likely costs of operations, and enhance the FYDP as 
a tool in the new strategic environment provide practical solutions for 
improving congressional visibility of DOD's allocation of resources, as 
discussed below.

DOD neither concurred nor nonconcurred with the recommendations that 
the Undersecretary of Defense (Comptroller) provide Congress data on 
known or likely costs for ongoing operations that are expected to 
extend into fiscal year 2005 and beyond. DOD stated that it already 
provides this information to Congress as soon as it is sufficiently 
reliable and that, at this point in the war on terrorism, current 
operations are too fluid to permit an accurate determination of the 
amount of funding required a year in advance. In response to our 
statement that DOD does not include the costs of ongoing operations 
funded through supplemental appropriations, DOD further stated that 
items funded through supplemental appropriations are above and beyond 
resources budgeted and appropriated for peacetime operations and that 
funding requirements for wartime and contingency operations are driven 
by events and situations that DOD cannot anticipate. We are encouraged 
that DOD agrees with the principle of providing these data to Congress 
as soon as they are sufficiently reliable. As we reported, DOD 
indicated that operations in Iraq and Afghanistan will continue into 
fiscal year 2005; therefore, it is reasonable that DOD would anticipate 
some costs associated with these operations. However, DOD did not 
budget any funds for these operations in its fiscal year 2005 budget 
request or accompanying FYDP submitted to Congress. Based on statements 
by the Undersecretary of Defense (Comptroller) that cost data will 
become clearer as the year progresses, we expect that DOD will be able 
to provide such data to Congress for both the fiscal year 2005 and 2006 
budget deliberations. In addition, some requirements that have 
associated costs, such as the Army's temporary increase in endstrength, 
have already been identified. We acknowledge in our report the 
challenges associated with estimating costs for ongoing operations. 
Although DOD states that including these estimates would unnecessarily 
complicate resource discussions and decisions, we maintain that the 
challenges of estimating costs for ongoing operations must be weighed 
against Congress's responsibility for balancing government-wide 
funding priorities using the best available data at the time of its 
budget deliberations.

Lastly, DOD nonconcurred with our recommendations for the Office of 
Program Analysis and Evaluation to align the program elements in the 
FYDP with defense capabilities and the risk management framework and 
include this alignment with the FYDP provided to Congress. DOD stated 
that it does not use the FYDP as a tool to conduct analyses of 
capability or risk trade-offs between systems, as such a tool would be 
relatively uninformative and needlessly complex, though the FYDP does 
inform those analyses. DOD also said it does not intend to embed 
capabilities or the risk management framework in the FYDP, as these 
constructs are still being developed and may change significantly, but 
it is working to create decision-support tools that will link resource 
allocations to capability and performance metrics, and it may be able 
to report on those allocations as the tools and processes mature. We 
maintain our view that the FYDP is the ideal vehicle for providing 
information on these new concepts to Congress. First, since the FYDP 
already exists as a legally mandated reporting mechanism, it avoids the 
creation of any duplicative reporting. Second, because the FYDP cuts 
across all the services and agencies, it provides a macro picture of 
DOD resource allocations in terms of both missions and appropriations. 
Third, as we note in our report, because the FYDP is flexible, DOD has 
periodically built new categories of program elements into it to 
provide decision makers with resource information as needed. Currently, 
Congress cannot use the FYDP to identify the results of DOD's resource 
analyses of capabilities or risk trade-offs between programs because 
these relationships are not aligned with the program elements in the 
FYDP. We recognize that the FYDP is not the only tool available for 
defense resource decision making; however, we note, as DOD has stated 
in its written comments, that the FYDP informs analyses and reflects 
the resource implications of decisions. While we recognize that DOD is 
still working to define these concepts, we maintain our view that, once 
defined, reporting these relationships with the FYDP provided to 
Congress would improve congressional visibility of DOD resource 
allocations.

DOD's comments are included in their entirety in appendix III. 
Annotated evaluations of DOD's comments are also included in appendix 
III.

We are sending copies of this report to the Secretary of Defense; the 
Undersecretary of Defense (Comptroller); and the Director, Office of 
Management and Budget. We will also make copies available to others 
upon request. In addition, this report will be available at no charge 
on the GAO Web site at http://www.gao.gov.

If you have any questions about this report, please contact me at (202) 
512-9619. Major contributors to this report are listed in appendix IV.

Sharon L. Pickup Director, Defense Capabilities and Management:

List of Committees:

The Honorable John Warner: 
Chairman: 
The Honorable Carl Levin: 
Ranking Minority Member: 
Committee on Armed Services: 
United States Senate:

The Honorable Ted Stevens: 
Chairman: 
The Honorable Daniel Inouye: 
Ranking Minority Member: 
Subcommittee on Defense: 
Committee on Appropriations: 
United States Senate:

The Honorable Duncan Hunter: 
Chairman: 
The Honorable Ike Skelton: 
Ranking Minority Member: 
Committee on Armed Services: 
House of Representatives:

The Honorable Jerry Lewis: 
Chairman: 
The Honorable John Murtha: 
Ranking Minority Member: 
Subcommittee on Defense: 
Committee on Appropriations: 
House of Representatives:

[End of section]

Appendix I: Scope and Methodology:

We determined that the automated FYDP data was sufficiently reliable 
for use in meeting this report's objectives. DOD checks the FYDP data 
against its budget request sent to Congress at the appropriation 
category level. We also compared the FYDP data with published documents 
DOD provided to ensure that the automated data correctly represented 
DOD's budget request. Specifically, we compared total budget estimates, 
appropriation totals, military and civilian personnel levels, force 
structure levels, and some specific program information. Based on our 
and DOD's comparison, we were satisfied that the automated FYDP data 
and published data were in agreement. GAO has designated DOD's 
financial management area as high risk due to long-standing 
deficiencies in DOD's systems, processes, and internal 
controls.[Footnote 22] Since some of these systems provide the data 
used in the budgeting process, there are limitations to the FYDP's use. 
However, since we determined the FYDP accurately represents DOD's 
budget request, it is sufficiently reliable as used for this report.

To determine whether the FYDP provides visibility over DOD funding 
priorities we compared DOD reports and Secretary of Defense 
congressional testimonies that supported the 2003 and 2004 budget 
submissions against FYDP data. We also analyzed resource data from the 
2003 and 2004 FYDPs for fiscal years 2004 - 2007 to identify trends. We 
adjusted the current dollars to constant 2004 dollars using appropriate 
DOD Comptroller inflation indexes to eliminate the effects of 
inflation. To determine whether the FYDP provides visibility over 
likely future budget requests, we reviewed other related GAO, 
Congressional Research Service, and Congressional Budget Office reports 
and interviewed program and budget officials at the Office of the 
Secretary of Defense and service headquarters. In addition, we 
summarized documents related to supplemental appropriations and 
analyzed DOD officials' statements regarding plans for supplemental 
appropriations in 2005.

To determine whether the FYDP is useful for implementing DOD's risk 
management framework and capabilities based planning, we interviewed 
appropriate officials at the Office of the Secretary of Defense, 
service headquarters, and the Institute for Defense Analyses--the 
organization currently under contract to make improvements to the FYDP, 
and examined various DOD planning and budget documents including the 
2001 Report of the Quadrennial Defense Review, DOD's 2003 Annual Report 
to the President and the Congress, and DOD's fiscal year 2003 and 2004 
budget submissions. We also examined the structure of the FYDP to 
determine if it currently included, or was possible to include, a link 
to the risk management framework or defense capabilities.

Our review was conducted between June 2003 and February 2004 in 
accordance with generally accepted government auditing standards.

[End of section]

Appendix II: Comparison of DOD's 2003 and 2004 FYDPs by Primary 
Appropriation Category:

Total obligation authority in millions of FY 2004 dollars.

Research, Development, Test and Evaluation; 
FYDP: 2003; 
2004: $56,891; 
2005: $59,556; 
2006: $56,823; 
2007: $54,902; 
Total: $228,172.

Research, Development, Test and Evaluation; 
FYDP: 2004; 
2004: $61,827; 
2005: $66,001; 
2006: $62,182; 
2007: $61,304; 
Total: $251,314.

Research, Development, Test and Evaluation; 
FYDP: $ Change; 
2004: $4,936; 
2005: $6,445; 
2006: $5,359; 
2007: $6,402; 
Total: $23,142.

Research, Development, Test and Evaluation; 
FYDP: % Change; 
2004: 8.7%; 
2005: 10.8%; 
2006: 9.4%; 
2007: 11.7%; 
Total: 10.1%.

Procurement; 
FYDP: 2003; 
2004: $73,297; 
2005: $76,470; 
2006: $82,638; 
2007: $92,698; 
Total: $325,103.

Procurement; 
FYDP: 2004; 
2004: $72,747; 
2005: $75,949; 
2006: $81,594; 
2007: $89,985; 
Total: $320,275.

Procurement; 
FYDP: $ Change; 
2004: $-550; 
2005: $-521; 
2006: $-1,044; 
2007: $-2,713; 
Total: $-4,828.

Procurement; 
FYDP: % Change; 
2004: -0.8%; 
2005: -0.7%; 
2006: -1.3%; 
2007: -2.9%; 
Total: -1.5%.

Military Construction; 
FYDP: 2003; 
2004: $5,102; 
2005: $6,212; 
2006: $10,426; 
2007: $13,054; 
Total: $34,794.

Military Construction; 
FYDP: 2004; 
2004: $5,123; 
2005: $6,036; 
2006: $10,048; 
2007: $12,520; 
Total: $33,727.

Military Construction; 
FYDP: $ Change; 
2004: $21; 
2005: $-176; 
2006: $-378; 
2007: $-534; 
Total: $-1,067.

Military Construction; 
FYDP: % Change; 
2004: 0.4%; 
2005: -2.8%; 
2006: -3.6%; 
2007: -4.1%; 
Total: -3.1%.

Military Personnel; 
FYDP: 2003; 
2004: $103,966; 
2005: $105,025; 
2006: $107,327; 
2007: $107,638; 
Total: $423,956.

Military Personnel; 
FYDP: 2004; 
2004: $98,956; 
2005: $100,174; 
2006: $101,447; 
2007: $101,776; 
Total: $402,353.

Military Personnel; 
FYDP: $ Change; 
2004: $-5,010; 
2005: $-4,851; 
2006: $-5,880; 
2007: $-5,862; 
Total: $-21,603.

Military Personnel; 
FYDP: % Change; 
2004: -4.8%; 
2005: -4.6%; 
2006: -5.5%; 
2007: -5.4%; 
Total: -5.1%.

Operation and Maintenance; 
FYDP: 2003; 
2004: $128,052; 
2005: $130,367; 
2006: $131,653; 
2007: $130,407; 
Total: $520,479.

Operation and Maintenance; 
FYDP: 2004; 
2004: $116,959; 
2005: $119,002; 
2006: $120,675; 
2007: $121,356; 
Total: $477,992.

Operation and Maintenance; 
FYDP: $ Change; 
2004: $-11,093; 
2005: $-11,365; 
2006: $-10,978; 
2007: $-9,051; 
Total: $-42,487.

Operation and Maintenance; 
FYDP: % Change; 
2004: -8.7%; 
2005: -8.7%; 
2006: -8.3%; 
2007: -6.9%; 
Total: -8.2%.

Family Housing; 
FYDP: 2003; 
2004: $4,322; 
2005: $4,984; 
2006: $4,734; 
2007: $4,572; 
Total: $18,612.

Family Housing; 
FYDP: 2004; 
2004: $4,371; 
2005: $4,694; 
2006: $4,904; 
2007: $4,537; 
Total: $18,506.

Family Housing; 
FYDP: $ Change; 
2004: $49; 
2005: $-290; 
2006: $170; 
2007: $-35; 
Total: $-106.

Family Housing; 
FYDP: % Change; 
2004: 1.1%; 
2005: -5.8%; 
2006: 3.6%; 
2007: -0.8%; 
Total: -0.6%.

Other DOD Programs[A]; 
FYDP: 2003; 
2004: $12,259; 
2005: $12,338; 
2006: $12,629; 
2007: $12,824; 
Total: $50,050.

Other DOD Programs[A]; 
FYDP: 2004; 
2004: $17,900; 
2005: $17,773; 
2006: $18,089; 
2007: $18,402; 
Total: $72,164.

Other DOD Programs[A]; 
FYDP: $ Change; 
2004: $5,641; 
2005: $5,435; 
2006: $5,460; 
2007: $5,578; 
Total: $22,114.

Other DOD Programs[A]; 
FYDP: % Change; 
2004: 46.0%; 
2005: 44.1%; 
2006: 43.2%; 
2007: 43.5%; 
Total: 44.2%.

Revolving and Management Funds; 
FYDP: 2003; 
2004: $2,115; 
2005: $2,587; 
2006: $2,198; 
2007: $3,255; 
Total: $10,155.

Revolving and Management Funds; 
Revolving and Management Funds; 
FYDP: 2004; 
2004: $2,784; 
2005: $1,379; 
2006: $2,103; 
2007: $1,030; 
Total: $7,296.

Revolving and Management Funds; 
FYDP: $ Change; 
2004: $669; 
2005: $-1,208; 
2006: $-95; 
2007: $-2,225; 
Total: $-2,859.

Revolving and Management Funds; 
FYDP: % Change; 
2004: 31.6%; 
2005: -46.7%; 
2006: -4.3%; 
2007: -68.4%; 
Total: -28.2%.

Undistributed Contingencies; 
FYDP: 2003; 
2004: $0; 
2005: $0; 
2006: $0; 
2007: $0; 
Total: $0.

Undistributed Contingencies; 
FYDP: 2004; 
2004: $45; 
2005: $47; 
2006: $49; 
2007: $51; 
Total: $192.

Undistributed Contingencies; 
FYDP: $ Change; 
2004: $45; 
2005: $47; 
2006: $49; 
2007: $51; 
Total: $192.

Undistributed Contingencies; 
FYDP: % Change; 
2004: n/a; 
2005: n/a; 
2006: n/a; 
2007: n/a; 
Total: NA.

Total; 
FYDP: 2003; 
2004: $386,004; 
2005: $397,539; 
2006: $408,428; 
2007: $419,350; 
Total: $1,611,321.

Total; 
FYDP: 2004; 
2004: $380,712; 
2005: $391,055; 
2006: $401,091; 
2007: $410,961; 
Total: $1,583,819.

Total; 
FYDP: $Change; 
2004: -$5,292; 
2005: -$6,484; 
2006: -$7,337; 
2007: -$8,389; 
Total: $-27,502.

Total; 
FYDP: %Change; 
2004: -1.4%; 
2005: -1.6%; 
2006: -1.8%; 
2007: -2.0%; 
Total: -1.7%. 

Source: GAO analysis of DOD data.

Note: Totals may not add due to rounding.

[A] Other DOD programs include chemical agent and munitions 
destruction, the defense health program, drug interdiction and counter-
drug activities, and the Office of the Inspector General.

[End of table]

[End of section]

Appendix III: Comments from the Department of Defense:

Note: GAO comments supplementing those in the report text appear at the 
end of this appendix.

PROGRAM ANALYSIS AND EVALUATION:

OFFICE OF THE SECRETARY OF DEFENSE:

1800 DEFENSE PENTAGON WASHINGTON, D.C. 20301-1800:

APR 3 2004:

Ms. Sharon Pickup:

Director, Defense Capabilities and Management: 
U.S. General Accounting Office:

Washington, D.C. 20548:

Dear Ms. Pickup:

This is the Department of Defense (DoD) response to the GAO draft 
report GAO-04-514, "FUTURE YEARS DEFENSE PROGRAM: Actions Needed to 
Improve Transparency of DoD's Projected Resource Needs," dated March 
10, 2004 (GAO Code 350395).

First, we would like to clarify the definition of the FYDP. The FYDP is 
a report that lists DoD's planned resource allocations. While DoD 
maintains a variety of databases to support decision-making, these 
databases are not the FYDP itself. This misinterpretation pervades the 
draft report and results in incorrect assertions and conclusions.

With regard to Recommendation l, DoD already provides to Congress 
reliable information on the known costs for ongoing operations as soon 
as it is available. DoD does not know the details of the future costs 
of ongoing operations far enough in advance to report them in its 
budget request and accompanying FYDP. Items funded through supplemental 
appropriations are above and beyond resources budgeted and appropriated 
for peacetime operations. The funding requirements for war-time and 
contingency operations are driven by events and situations that DoD 
cannot anticipate.

With regard to Recommendation 2, we nonconcur with the proposal to 
"align the program elements in the FYDP to 1) defense capabilities ... 
and 2) the dimensions of the risk management framework and include this 
alignment with the FDYP provided to Congress." DoD is working to create 
decision-support tools that will link resource allocations to 
capability and performance metrics, and expects to be able to report on 
those allocations as the tools and analyses mature.

The enclosed point paper elaborates on these issues and provides 
technical comments on the report language. Thank you for the 
opportunity to comment on the draft report.

Sincerely,

Signed by: 

Ken Krieg: 

Enclosure As stated:

GAO DRAFT REPORT - DATED MARCH 10, 2004 GAO CODE 350395/GAO-04-514:

"FUTURE YEARS DEFENSE PROGRAM: Actions Needed to Improve Transparency 
of DoD's Projected Resource Needs":

DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS:

GENERAL COMMENT: We would like to clarify the definition of the FYDP. 
The FYDP is a report, produced in hard copy and electronic form, which 
lists DoD's planned resource allocations. While DoD maintains a variety 
of databases to support decision-making, these databases should not be 
confused with the FYDP itself. This misinterpretation pervades the 
draft report and results in incorrect assertions and conclusions (For 
example, Line 3, Page 4 "...the FYDP has a flexible database 
structure..."). As further evidence of this definition, language in the 
DoD 7045.7H, FYDP Structure Handbook, that referred to the FYDP as a 
"database" has been changed to refer to the FYDP as a "report.":

RECOMMENDATION 1: In the interest of providing Congress greater 
visibility over projected defense spending, GAO recommended that the 
Secretary of Defense direct the Under Secretary of Defense 
(Comptroller) to take the following actions:

provide Congress data on known or likely costs for ongoing operations 
that are expected to extend into fiscal year 2005 for consideration 
during its deliberation over DoD's fiscal year 2005 budget request and 
accompanying FYDP and:

include known or likely projected costs of ongoing operations in the 
fiscal year 2006 and subsequent budget requests and accompanying FYDPs. 
(pgs. 19-20, GAO Draft Report):

DoD RESPONSE: DoD does provide data to Congress on the estimated costs 
of continuing operations as soon as that information is sufficiently 
reliable. However, at this point in the War on Terrorism, current 
operations are simply too fluid to accurately determine a year in 
advance the amount of additional funding that would be required. As 
such, any attempt to include these estimates in DoD's budget request or 
FYDP would unnecessarily complicate resource discussions and decisions.

RECOMMENDATION 2: To enhance the effectiveness of the FYDP as a tool 
for planning and analysis in the current strategic environment, GAO 
recommended that the Secretary of Defense direct the Office of Program 
Analysis and Evaluation to take the following two actions:

align the program elements in the FYDP to (1) defense capabilities 
needed to meet the defense strategy, as these capabilities are 
identified and approved:

and (2) the dimensions of the risk management framework and include 
this alignment with the FYDP provided to Congress, and:

report funding levels for defense capabilities and the dimensions of 
the risk 
framework in it summary FYDP report to Congress. (p. 20/GAO Draft 
Report):

DoD RESPONSE: Nonconcur with the recommendation to "align the program 
elements in the FYDP to 1) defense capabilities... and 2) the 
dimensions of the risk management framework and include this alignment 
with the FDYP provided to Congress.

As identified in the GAO report, DoD is in the process of transitioning 
to "capabilities-based analysis." While this is a fundamental change in 
process, the analytical output of the process will still result in 
selection of certain programs over others. The current construct of the 
FYDP system enables us to determine relevant program changes. A FYDP 
construct that buys "long range precision strike" or other capabilities 
would be less informative than the current system and would be 
needlessly complex. DoD does not use the FYDP as a tool to conduct 
analysis of capability or risk tradeoffs between systems. However, the 
FYDP does inform those analyses and reflects the resource implications 
of those tradeoffs.

* DoD does not intend to imbed capabilities or the risk management 
framework in the FYDP. Both of these constructs are still in 
development and may change significantly over time. However, 
information on programs and platforms contained in the FYDP may be 
aligned to capabilities or the risk management framework through other 
analytical tools and processes. DoD is working to create decision-
support tools that will link resource allocations to capability and 
risk management frameworks. As these tools and processes mature, DoD 
may be able to report funding levels for defense capabilities and the 
dimensions of the risk management framework to Congress.

SPECIFIC TECHNICAL COMMENTS ON REPORT LANGUAGE:

COMMENT 1: Cover page, "What GAO Found", line 6: " . . . DoD likely 
understates the future costs of programs in the FYDP because it has 
historically employed overly optimistic planning assumptions in its 
budget formulations.":

DoD RESPONSE:

* Strongly object to this language and its repetition throughout the 
report (page 3, line 2; pages 10-12). Although modified slightly in the 
body of the report, the initial statements on the report's front page 
and in the "Results in Brief' section are highly inflammatory and do 
not reflect DoD's recent efforts to correct this problem.

Effective with the Fiscal Guidance provided to components in 
preparation for development of the FYDP for Fiscal Years 2003-2007, 
signed by the Deputy Secretary of Defense, DoD established guidance 
that all major acquisition programs should be funded to the Cost 
Analysis Improvement Group (CAIG) estimates. Although we do not yet 
have auditable data that document the effects of this guidance in 
execution, CAIG estimates have historically been far more accurate that 
Service estimates. DoD expects its efforts in this regard to 
significantly reduce future resource shortfalls and requests that this 
initiative be properly credited in all relevant sections of this 
report.

COMMENT 2: Page 2, Paragraph 3: " . . . the FYDP provides less 
visibility over some important funding categories and may understate 
some costs. For example, costs for some high priority items --such as 
civilian personnel . . .":

DoD RESPONSE:

* Civilian personnel costs are included in the pricing of all programs 
in the FYDP. Apparent "cost growth" of civilian personnel generally 
results from Congressionally authorized pay raises that exceed the 
planning assumptions used for outyear forecasts of civilian manpower 
costs. The planning rates are developed in coordination with the Office 
of Management and Budget.

Civilian Personnel are inputs to a program. Disassociating civilian 
personnel costs from any program would decrease rather than increase 
visibility of total program costs.

COMMENT 3: Page 3, Paragraph 2: " . . . DOD does not include the costs 
of ongoing operations funded through supplemental appropriations, such 
as the global war on terrorism... we are recommending that DOD provide 
information on known or likely costs for ongoing operations to Congress 
for consideration during its fiscal year 2005 and future budget 
deliberations.":

DoD RESPONSE:

* DoD already provides to Congress reliable information on the known 
costs for ongoing operations as soon as it is available. DoD does not 
know enough of the details of the expected future cost of current 
ongoing operations far enough in advance to report them in the FY 2005 
budget request and accompanying FYDP.

Items funded through supplemental appropriations are above and beyond 
resources budgeted and appropriated for peacetime operations. Many of 
the funding requirements for war-time and contingency operations are 
driven by events and situations that cannot be anticipated in any 
scenario-driven, capabilities-based planning process employed by DoD.

COMMENT 4: Page 3, Paragraph 2: " . . . such as the cost of increased 
Army force structure." Also referenced on page 15, lines 2-5.

DoD RESPONSE:

* Language in the report implies that DoD has fully identified the cost 
of increased Army force structure and so should report these costs to 
Congress in our budget request for FY 2005. In fact, we have not yet 
fully identified the specific costs by fiscal year of the Army plan. 
The work to define the particulars of this plan in sufficient detail to 
support budget development is still in progress.

COMMENT 5: Page 11: "Cost increases have been a factor in the Air Force 
substantially decreasing the number of F/A-22 Raptors to be purchased -
-from 648 to 276.":

AIR FORCE RESPONSE:

* Language in the draft report implies that the quantity reduction from 
648 to 276 is largely due to affordability issues. In fact, much of the 
quantity reduction stems from two DoD Quadrennial Defense Reviews 
(QDRs), which in turn drove up the cost of the remaining units. The 
1993 Bottom-up Review (BUR) and the 1997 QDR reductions accounted for 
305 aircraft.

* The Air Force stands firmly behind the F/A-22 program and the 
validated requirement of a minimum 381 Raptors to support the joint 
warfighters' requirement for Air Dominance. The Raptor will enable 
warfighters to counter advanced surface-to-air missile systems and 
next generation fighters. The baseline Raptor includes a lethal ground-
attack capability--future capabilities will include supersonic JDAM and 
Small Diameter Bomb. Air Force is on track for a Dec 2005 Initial 
Operational Capability. The program has made tremendous progress in 
avionics stability in the past 12 months. Current results from the most 
recent installed software indicate we are exceeding the 5-hour 
requirement. Air Force pilots and maintainers continue to be impressed 
by the Raptor's capabilities-the F/A-22 is meeting, and in many cases 
exceeding, key performance requirements, including stealth, speed, and 
sensor performance during operational tests.

* Change text to read: "Cost increases have been a factor in the 
reduction of the number of F/A-22 aircraft that can be acquired. The 
major impact, however, was a result of two Quadrennial Defense Reviews 
that accounted for 305 aircraft.":

COMMENT 6: Page 11: "Current budget estimates, which exceed mandated 
cost limitations, are dependent on billions of dollars of cost offset 
initiatives, which, if not achieved as planned, will further increase 
program costs.":

AIR FORCE RESPONSE:

* Our Production Improvement Program savings achieved to date give us 
confidence future cost savings will also be realized. The AF has no 
intention of violating the Congressional cost cap.

* Add following additional sentences: "To date, the Air Force has 
invested $512 M through FY03/Lot 3 and is planning to invest $182M in 
FY04 with $30M more planned in FY05 & 06 in cost reduction initiatives. 
Program Office and independent assessments confirm that the projected 
savings are being realized (DCAA Summer/Fall 00, Draft AFAR Mar 04). 
These assessments reaffirm that the PIP investment is essential to F/A-
22 affordability Additionally, the Air Force intends to seek 
Congressional cost cap relief as part of the FY06 PB, well before the 
cap is breached.":

REQUEST TO ADD TO AGENCY COMMENTS (P.21), AIR FORCE:

"The Department has made tremendous strides in incorporating a 
capability-based mindset to its resource allocation process. For 
example, the AF has found its capability-based process to be valuable 
in informing key decisions during the resource allocation process. The 
process, though new, is already having significant positive impact for 
FY06 by assessing how well resource allocation meets capability 
requirements. In time, this process will play a vital role in shaping 
the POM from the outset. Thus, the Department is aggressively adapting 
its processes to best meet national security needs, and the capability-
based approach is making valuable contributions to the Department's 
resource allocation decisions. Much work needs to be done, however, and 
the Department is not yet ready to realign program elements and major 
force programs to the capability-based requirements.":

The following are GAO's comments on the Department of Defense's letter 
dated April 13, 2004.

GAO Comments:

1. DOD objected to our observation that DOD has historically employed 
overly optimistic planning assumptions in its budget formulations. In 
response to its comments, we acknowledged DOD guidance to reduce future 
resource shortfalls on page 11 of this report and noted the lack of 
auditable data to document the effects of this guidance. We also 
provided additional examples of GAO reports that continue to raise 
questions about DOD's planning assumptions.

2. DOD provided a rationale for growth in civilian personnel costs. We 
intended civilian personnel to be an example of costs not visible in 
the FYDP, as opposed to an example of cost growth. Therefore, we have 
clarified the language on page 2 of this report to reflect this point. 
Further, we are not proposing that civilian personnel costs be 
disassociated from programs, as suggested by DOD's comments.

3. DOD reiterated that it already provides Congress reliable 
information on the known costs for ongoing operations as soon as it is 
available. As we stated in our evaluation of agency comments on page 19 
of this report, we are encouraged that DOD agrees with the principle of 
providing these data to Congress as soon as they are sufficiently 
reliable. However, we note that cost data is expected to become clearer 
as the year progresses and some requirements that have associated costs 
have already been identified. Therefore, we expect that DOD will be 
able to provide such data to Congress for their fiscal year 2005 and 
2006 budget deliberations.

4. DOD noted that our report implied that the cost of increased Army 
force structure has been fully identified and asserted that, to the 
contrary, the work to define the particulars of this plan in sufficient 
detail to support budget development is still in progress. However, we 
note that in February 2004, the Undersecretary of Defense (Comptroller) 
outlined an Army force-restructuring plan that would be partially 
funded through the existing fiscal year 2004 supplemental 
appropriation. While DOD may not have fully defined the particulars of 
this plan, since it has identified a funding timeline, we believe that 
at least some of the cost of increased Army force structure can be 
estimated at this time.

5. Based on comments from the Air Force, DOD asked that we clarify that 
the reduction in the number of F/A-22 aircraft being purchased was not 
largely due to cost increases, and it referred to the role played by 
two Quadrennial Defense Reviews in the decision. Our report stated, 
however, that cost increases have been one factor in the Air Force's 
substantially decreasing the number of F/A-22 Raptors to be purchased - 
from 648 to 276. Moreover, development costs have increased 
dramatically and in a report that was issued after this draft was sent 
to DOD for comment, GAO continued to observe that additional increases 
in development costs for the F/A-22 are likely.[Footnote 23] We 
maintain our view that the F/A-22 program illustrates that DOD's 
funding needs in some areas exceed the estimates used in the FYDP.

Based on comments from the Air Force, DOD challenged our implication 
that the F/A-22 program will exceed mandated cost limitations if 
billions of dollars of cost offset initiatives are not achieved as 
planned. In February 2003, we reported that the Air Force has had some 
success in implementing cost reduction plans to offset cost 
growth.[Footnote 24] However, production improvement programs, also 
designed to offset costs, have faced recent funding cutbacks and 
therefore are unlikely to offset cost growth as planned. The Air Force 
stated that it has no intention of violating mandated cost limitations, 
but that it does intend to seek relief from them as part of the fiscal 
year 2006 President's budget. To the extent that the Air Force requests 
additional funds for the F/A-22, our view that the FYDP understates 
costs is further confirmed.

[End of section]

Appendix IV: GAO Contact and Staff Acknowledgments:

GAO Contact:

Gwendolyn R. Jaffe (202) 512-4691:

Acknowledgments:

In addition to the person named above, Patricia Lentini, Margaret Best, 
Barbara Gannon, Christine Fossett, Tom Mahalek, Betsy Morris, Ricardo 
Marquez, Jane Hunt, and Michael Zola also made major contributions to 
this report.

FOOTNOTES

[1] Throughout this report, the term "resources" refers to forces, 
manpower, and funding.

[2] Every 4 years, as directed by 10 U.S.C. ß118 (2004), DOD conducts a 
comprehensive examination of the national defense strategy, force 
structure, force modernization plans, infrastructure budget plan, and 
other elements of the defense program and establishes a defense program 
for the next 20 years.

[3] Unless otherwise stated, the years and dollars shown in this report 
are on a fiscal year basis and in constant fiscal year 2004 dollars.

[4] National Defense Authorization Act for Fiscal Years 1988 and 1989 
(Pub. L. No. 100-180, Sec. 1203; Dec. 4, 1987). The FYDP reporting 
requirement is currently codified at 10 U.S.C. ß 221 (2004) and it 
states that any such future-years defense program shall cover the 
fiscal year with respect to which the budget is submitted and at least 
the 4 succeeding fiscal years. The FYDP must also include the estimated 
expenditures and the proposed appropriations, for each fiscal year of 
the period covered by that program, for the procurement of equipment 
and for military construction for each of the reserve components of the 
armed forces. 10 U.S.C. ß 10543 (2004).

[5] U.S. General Accounting Office, Executive Guide: Leading Practices 
in Capital Decision-Making, GAO/AIMD-99-32 (Washington, D.C.: Dec. 
1998). GAO reported that leading organizations it studied prepare long-
term capital plans to document specific planned projects, plan for 
resource use over the long term, and establish priorities for 
implementation. These capital plans usually cover a 5-, 6-, or 10-year 
period and are updated either annually or biennially.

[6] Homeland Security Act of 2002 (Pub. L. No. 107-296, Sec.874, Nov. 
25, 2002).

[7] Revolving Management Funds include accounts such as DOD's Working 
Capital Funds and National Defense Sealift Fund. These funds are used 
to conduct continuing cycles of business-like activity, in which the 
fund charges for the sale of products or services and uses the proceeds 
to finance its spending.

[8] The Army plans to develop a family of 18 systems under the Future 
Combat Systems program.

[9] Section 214(b), Pub.L. No.108-136 (Nov. 24, 2003).

[10] Conference Report (H.R. Conf. Rep. No. 108-354, at 611 (2003)), 
accompanying H.R. 1588 (Pub.L. No. 108-136).

[11] Conference Report (H.R. Conf. Rep. No. 108-354, at 613 (2003)), 
accompanying H.R. 1588 (Pub.L. No. 108-136).

[12] U.S. General Accounting Office, Major Management Challenges and 
Program Risks: Department of Defense, GAO-03-98 (Washington, D.C.: Jan. 
2003). These amounts are in constant fiscal year 2003 dollars.

[13] U.S. General Accounting Office, Tactical Aircraft: Status of the 
F/A-22 Program, GAO-03-603T, (Washington, D.C.: Apr. 2, 2003).

[14] U.S. General Accounting Office, Missile Defense: Knowledge-Based 
Practices Are Being Adopted, but Risks Remain, GAO-03-441 (Washington, 
D.C.: Apr. 30, 2003).

[15] U.S. General Accounting Office, Chemical Weapons: Better 
Management Tools Needed to Guide DOD's Stockpile Destruction Program, 
GAO-04-221T (Washington, D.C.: Oct. 30, 2003). These amounts are in 
then-year dollars.

[16] U. S. General Accounting Office, Tactical Aircraft: Changing 
Conditions Drive Need for New F/A-22 Business Case, GAO-04-391 
(Washington, D.C.: Mar. 15, 2004) and Chemical Weapons: Destruction 
Schedule Delays and Cost Growth Continue to Challenge Program 
Management, GAO-04-634T (Washington, D.C.: Apr. 1, 2004).

[17] Congressional Budget Office, The Long-Term Implications of Current 
Defense Plans, (www.cbo.gov, January 2003).

[18] Congressional Budget Office, The Long-Term Implications of Current 
Defense Plans: Detailed Update for Fiscal Year 2004, (www.cbo.gov, 
February 2004). 

[19] U.S. General Accounting Office, Bosnia: Cost Estimating Has 
Improved, but Operational Changes Will Affect Current Estimates, GAO/
NSIAD-97-183 (Washington, D.C.: July 28, 1997) and Omnibus Consolidated 
Appropriations Act, 1997 (Pub. L. No. 104-208, Sept. 3, 1999).

[20] U.S. General Accounting Office, DOD Budget: Analysis of Options 
for Funding Contingency Operations, GAO/NSIAD-94-152BR, (Washington, 
D.C.: Apr. 26, 1994).

[21] Institute for Defense Analyses, DOD Force & Infrastructure 
Categories: A FYDP-Based Conceptual Model of Department of Defense 
Programs and Resources, IDA Paper P-3660, (Alexandria, Va.: September 
2002). 

[22] U.S. General Accounting Office, Major Management Challenges and 
Program Risks: Department of Defense, GAO-03-98 (Washington, D.C.: Jan. 
2003).

[23] U.S. General Accounting Office, Tactical Aircraft: Changing 
Conditions Drive Need for New F/A-22 Business Case, GAO-04-391 
(Washington, D.C.: Mar. 15, 2004).

[24] U.S. General Accounting Office, Tactical Aircraft: DOD Needs to 
Better Inform Congress about Implications of Continuing F/A-22 Cost 
Growth, GAO-03-280 (Washington, D.C.: Feb. 28, 2003).

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