Trends in Operation and Maintenance Spending by the Department of - PowerPoint PPT Presentation

Congressional Budget Office July 1, 2016 Trends in Operation and Maintenance Spending by the Department of Defense 91st Annual Conference of the Western Economic Association International Portland, Oregon Derek Trunkey National Security Division The research and analysis for this presentation was conducted in collaboration with Adebayo Adedeji (of CBO) and Dan Frisk (formerly of CBO). The information in this presentation is preliminary and is being circulated to stimulate discussion and critical comment as developmental work for analysis for the Congress.

The Department of Defense’s (DoD’s) operation and maintenance (O&M) account, the largest single appropriation category, funds DoD’s day-to-day operations, from equipment maintenance to health care. 1 CONGRESSIONAL BUDGET OFFICE

Over the past few decades, funding for O&M has increased significantly, accounting for a growing share of DoD’s budget. O&M funding for defensewide agencies and programs has grown the most. 2 CONGRESSIONAL BUDGET OFFICE

Trends in O&M Funding Billions of 2015 Dollars 350 300 Overseas Annual Real Contingency Growth (Percent) Operations 250 1980– 2001– 2000 2015 Total DoD 200 1 2 Desert Storm Navy -1 1 Marine Corps 3 4 150 Air Force 0 1 100 Army 1 1 50 Defensewide 7 5 0 1980 1985 1990 1995 2000 2005 2010 2015 3 CONGRESSIONAL BUDGET OFFICE

O&M funding has been increasing as measures of force size have been decreasing. 4 CONGRESSIONAL BUDGET OFFICE

Trends in O&M Funding and Number of Active Duty Service Members Billions of 2015 Dollars Thousands 250 2,500 200 2,000 150 1,500 O&M Spending Number of Active-Duty (Left axis) Service Members 100 1,000 (Right axis) 50 500 0 0 1980 1985 1990 1995 2000 2005 2010 2015 5 CONGRESSIONAL BUDGET OFFICE

O&M funding is used to purchase thousands of different goods and services that are often purchased at relatively low cost per unit. 6 CONGRESSIONAL BUDGET OFFICE

CBO used the subactivity groups (SAGs) in DoD’s budget and their associated object class codes to group O&M funding into four categories. The categories represent the activities supported, goods and services purchased, and source of those goods and services. 7 CONGRESSIONAL BUDGET OFFICE

Categories CBO Used to Organize O&M Data Category Description Examples Activity or Function The relation of the activity to Combat forces, training, combat forces health care, administration Commodity Class Goods, services, property- The type of purchase related management Commodity Maintenance, equipment, A more detailed description transportation, professional of the type of purchase services Provider The source of the goods or Private sector, DoD working services capital funds, nondefense government agencies and organizations, DoD's civilian employees 8 CONGRESSIONAL BUDGET OFFICE

In the activity category, a relatively small portion of the $198 billion in O&M funding in 2012 was for what CBO defined as forces (combat units)—$24 billion, or 12 percent. 9 CONGRESSIONAL BUDGET OFFICE

Nearly half of O&M funding in 2012 ($91 billion) was for services. Those services include maintenance, medical services, technical and research services, and transportation. Maintenance accounted for one-third of funding for services ($32.4 billion). 10 CONGRESSIONAL BUDGET OFFICE

Base Budget O&M Purchases, 2012 Billions of 2012 Dollars Total base budget O&M: $198 billon Activity Provider Commodity Forces Private Sector Class (24.3) (87.7) Goods Support and (33.3) Individual Working Training Capital Fund (74.1) (37.6) Services Administration (90.6) (33.5) Other Government Agencies (5.2) Infrastructure Property (34.7) (4.3) Domestic DoD Civilians Health Care Civilians (53.6) (31.4) Civilian Foreign Compensation, National Non-WCF Civilians (53.6) Classified (14.8) 11 CONGRESSIONAL BUDGET OFFICE

Base Budget O&M Purchases, Including Commodities, 2012 Billions of 2012 Dollars Commodity Total Base Budget O&M: $198 Billon Provider Equipment (8.8) Activity Commodity Private Sector Fuel Supplies and (87.7) Class Materials Forces (20.8) (24.3) Goods Medical (33.3) (19.2) Equipment and Support and Weapon Systems Maintenance Individual Maintenance Training Working Property (32.4) (74.1) Maintenance Capital Fund (37.6) Transportation People Transport (10.0) Services Administration (90.6) Materiel (33.5) Transport Technical and Research Services (11.9) Other Government Professional and Infrastructure Agencies Other Services (34.7) (5.2) (7.9) Property Installation (4.3) Support (4.9) Health Care Other and (31.4) Uncategorized (12.2) Domestic Civilian DoD Civilians Civilians Compensation, (53.6) Non-WCF Foreign National (53.6) Civilians Classified (14.8) 12 CONGRESSIONAL BUDGET OFFICE

Working capital funds (WCFs), which DoD uses to carry out businesslike activities, provide a large amount of goods and services to DoD. 13 CONGRESSIONAL BUDGET OFFICE

A significant portion of the revenue for WCF activities comes from O&M accounts. In 2012, O&M accounts (including both base budget and OCO funding) provided $72.2 billion, or 66 percent, of total WCF external revenues. 14 CONGRESSIONAL BUDGET OFFICE

Flows of Working Capital Funds for All Appropriations, in Base Budget and OCO Funding, 2012 Billions of 2012 Dollars Input Category Source of Revenue Services (17.8) Military Personnel, Military Construction, Family Housing, and Miscellaneous Accounts (11.9) Other and Unknown (22.2) RDT&E (5.2) All DoD Working Goods Capital Funds Procurement (53.1) (130.0) (7.4) Operation and Maintenance (72.2) WCF Purchases Civilian Pay From Other WCFs (15.5) (20.4) Non-DoD Research and Customers Development (12.5) (1.0) 15 CONGRESSIONAL BUDGET OFFICE

CBO analyzed growth in O&M spending between 2000 and 2012. The total growth during that period was $63 billion (47 percent), after removing the effects of inflation. 16 CONGRESSIONAL BUDGET OFFICE

The two largest contributors to O&M growth were the Defense Health Program (DHP) and activities that support combat forces. Among DoD’s components, defensewide activities accounted for the largest share of the growth. 17 CONGRESSIONAL BUDGET OFFICE

Growth in Base Budget O&M from 2000 to 2012 by Service, Defensewide Organizations, and Activity Billions of 2012 Dollars 35 Support 30 Infrastructure Forces 25 Defense Health Program DHP 20 Administration 15 10 5 0 Army Air Force Navy Marine Corps Defense Wide Defensewide -5 18 CONGRESSIONAL BUDGET OFFICE

Identifying the causes of growth in O&M funding is complicated by the diverse nature of the programs and activities supported by that appropriation. The O&M budget can be divided into a few large accounts and a collection of much smaller accounts that are more difficult to track. 19 CONGRESSIONAL BUDGET OFFICE

O&M Funding in the 2012 Base Budget DHP Civilian DHP, Excluding Compensation, Civilian $6 Billion Compensation, (3%) $26 Billion Remaining O&M (13%) comprises many smaller categories. Civilian The causes of Compensation Remaining O&M, growth in those Excluding $110 Billion categories are DHP and WCF, (56%) difficult to track. $48 Billion (24%) CBO can explain the causes of growth in these four large categories. Fuel, $8 Billion (4%) 20 CONGRESSIONAL BUDGET OFFICE

CBO can explain about half of the growth in O&M funding, including funding for the DHP and civilian compensation. CBO is working to explain the causes of growth within the remaining O&M categories. Those with significant growth include contracted facilities maintenance and contracted equipment maintenance. 21 CONGRESSIONAL BUDGET OFFICE

Growth in Base Budget O&M for Equipment Maintenance and Property Maintenance, 2000 to 2012 Change in Billions of 2012 Dollars Areas of circles Contracted 8 Contracted correspond to the Facilities amount of spending 7 Non-Depot Sustainment, for each category in Equipment Restoration, and 2012. 6 Maintenance Modernization ($8 billion) ($11 billion) 5 4 Contracted Depot Maintenance of 3 Weapon Systems Organic Depot Pentagon Reserve 2 ($9 billion) Maintenance of Maintenance Weapon Systems Revolving Fund 1 0 -50 0 50 100 150 200 -1 Other Equipment and Facility -2 Percentage Change in 2012 Dollars Maintenance 22 CONGRESSIONAL BUDGET OFFICE

CBO’s next step will be to focus on specific areas of growth such as WCFs, the cost of operating weapon systems, and training. CBO is working with DoD to obtain better data on O&M spending for those follow-on analyses. 23 CONGRESSIONAL BUDGET OFFICE