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Testimony:

Before the Subcommittee on Readiness, Committee on Armed Services, 
House of Representatives:

United States General Accounting Office:

GAO:

For Release on Delivery Expected at 1:00 p.m. EST:

Thursday, March 25, 2004:

MILITARY BASE CLOSURES:

Observations on Preparations for the Upcoming Base Realignment and 
Closure Round:

Statement of Barry W. Holman, Director, Defense Capabilities and 
Management:

GAO-04-558T:

GAO Highlights:

Highlights of GAO-04-558T, a report to Subcommittee on Readiness, 
Committee on Armed Services, House of Representatives 

Why GAO Did This Study:

The National Defense Authorization Act for Fiscal Year 2002 authorized 
an additional Base Realignment and Closure (BRAC) round in 2005. The 
legislation requires the Department of Defense (DOD) to provide 
Congress in early 2004 with a report that addresses excess 
infrastructure and certifies that an additional BRAC round is needed 
and that annual net savings will be realized by each military 
department not later than fiscal year 2011. GAO is required to assess 
this information as well as the selection criteria for the 2005 round 
and report to Congress within 60 days of DODís submission. The 
legislation also retains the requirement for GAO to assess the BRAC 
2005 decision-making process and resulting recommendations.
 
This testimony addresses (1) the BRAC process from a historical 
perspective, (2) GAOís role in the process, and (3) GAOís initial 
observations on key issues DOD is required to address in preparation 
for the 2005 round. Because DOD had not submitted its required 2004 
report at the time we completed this statement, this testimony relies 
on our prior work that addressed issues associated with excess capacity 
and BRAC savings.

What GAO Found:

GAOís work in examining lessons learned from prior BRAC rounds found 
that the prior legislation and the framework it outlined served the 
process well, and that it should provide a useful framework for a 
future round. Furthermore, the legislation and its implementation 
provided for checks and balances to ensure the integrity of the 
process.

GAO has played a long-standing role as an independent and objective 
observer of the BRAC process. GAO has operated in a real-time setting 
and has had access to significant portions of the process as it has 
evolved, thus affording DOD an early opportunity to address any 
concerns GAO might identify. GAOís role in the 2005 round remains the 
same, and GAO has been observing the process since DOD began work on 
the 2005 round. Timely access to DOD data is key to fulfilling GAOís 
role. 

GAOís initial observations on key issues DOD is required to address in 
its 2004 report are as follows:

* The selection criteria for the 2005 round are basically sound and 
provide a good framework for assessing alternatives. Nevertheless, GAO 
provided DOD with comments on the draft criteria that focused on the 
need for clarification of how DOD intends to consider total costs to 
DOD and other federal agencies and environmental costs in its analyses. 
The department has indicated that it would be issuing clarifying 
guidance. 

* DOD plans to estimate its excess capacity using a methodology that it 
used in 1998 for similar purposes. While this methodology provides a 
rough indication of excess capacity for selected functional areas, it 
has a number of limitations that create imprecision when trying to 
project a total amount of excess capacity across DOD. A more complete 
assessment of capacity and the potential to reduce it must await the 
results of the current BRAC analyses being conducted by DOD during the 
2005 round.

* DOD financial data suggest that, assuming conditions similar to those 
in the 1993 and 1995 BRAC rounds, each military department could 
achieve annual net savings by 2011. While we believe that the potential 
exists for significant savings to result from the 2005 round, there are 
simply too many unknowns at this time to say conclusively to what 
extent annual net savings will be realized by 2011. For example, in 
2005 DOD is placing increased emphasis on jointness and transformation 
and is likely to use BRAC to incorporate any force redeployments from 
overseas locations that may result from ongoing overseas basing 
reassessments. This suggests a need for caution in projecting the 
timing and amount of savings from a new BRAC round.

What GAO Recommends:

www.gao.gov/cgi-bin/getrpt?GAO-04-558T.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Barry W. Holman (202) 
512-8412 or holmanb@gao.gov.

[End of section]

Mr. Chairman and Members of the Subcommittee:

I am pleased to have the opportunity today to provide you with an 
overview of our work involving the Department of Defense's (DOD) base 
realignment and closure (BRAC) process. The National Defense 
Authorization Act for Fiscal Year 2002[Footnote 1] extended the 
authority of the Defense Base Closure and Realignment Act of 
1990,[Footnote 2] with some modifications, to authorize an additional 
BRAC round in 2005. The legislation required, among other things, that 
DOD provide the Congress in 2004, as part of its fiscal year 2005 
budget justification documents, a discussion of categories of excess 
infrastructure and infrastructure capacity, an economic analysis of the 
effects of BRAC, and a certification that there is a need for an 
additional BRAC round in 2005 and that annual net savings will be 
realized by each military department not later than fiscal year 2011. 
If the required certifications are provided, GAO is required to 
evaluate DOD's submission and provide a report to Congress with its 
assessment within 60 days. Finally, the legislation also retains the 
requirement for GAO's involvement in assessing the 2005 BRAC decision-
making process by requiring that GAO provide the BRAC Commission and 
congressional defense committees a detailed analysis of the Secretary 
of Defense's recommendations and selection process for the 2005 round, 
as we have done during the previous four BRAC rounds.

My testimony today addresses (1) the BRAC process from a historical 
perspective, (2) GAO's role in the process, and (3) key issues DOD is 
required to report on in preparation for the 2005 round. In preparing 
this testimony, we relied on our prior work related to assessing BRAC 
decision-making processes and the implementation of the previous four 
rounds. Because DOD had not submitted its required 2004 report at the 
time we completed this statement, this testimony relies on our prior 
work that addressed issues associated with excess capacity, BRAC 
savings, and economic impact. Any comments regarding the 2005 round 
will of necessity be somewhat limited because of nondisclosure 
requirements in place as DOD works toward the issuance of proposed 
realignment and closure recommendations in May 2005. Our work was 
performed in accordance with generally accepted government auditing 
standards.

Summary:

Closing unneeded defense facilities has historically been difficult 
because of public concern about the economic effects of closures on 
communities and the perceived lack of impartiality in the decision-
making process. However, with the enactment in 1988 of 
legislation[Footnote 3] that supported the tasking of a special 
commission chartered by the Secretary of Defense to identify bases for 
realignment and closure, relief was provided from certain statutory 
provisions that had hindered previous DOD base closure and realignment 
efforts. Congress later passed the Defense Base Closure and Realignment 
Act of 1990, which created an independent commission and authorized 
three BRAC rounds in 1991, 1993, and 1995. As we observed in our 
previous report regarding lessons learned from prior BRAC 
rounds,[Footnote 4] we found general agreement that the legislation and 
the framework it created served the process well, and that the 
legislation should provide a useful framework for a future round. 
Furthermore, the legislation and its implementation provide for checks 
and balances to keep political influences to a minimum, but the success 
of these provisions requires that all participants in the process 
adhere to the rules and procedures.

GAO has played a long-standing role in the BRAC process. First, as 
requested by congressional committees (1988 BRAC round) or mandated by 
law since 1990, we have served as an independent and objective observer 
of the BRAC process and have assessed and reported on DOD's decision-
making processes leading up to proposed realignment and closure 
recommendations in each of the four prior rounds. To make informed and 
timely assessments, we have operated in a real-time setting since the 
1991 round and have had access to significant portions of the process 
as it has evolved, thus affording the department an opportunity to 
address any concerns we raised on a timely basis. Our role in the BRAC 
2005 round is similar, and we have been observing the process since DOD 
began work on the 2005 round.

Because DOD had not submitted its required 2004 report at the time we 
completed this statement, our observations on excess capacity, 
certification of annual net savings by 2011, and economic impact are 
based on our prior work. Since DOD has published its selection criteria 
for the 2005 round, I can provide you with our observations in that 
area:

* The selection criteria essentially follow a framework that is similar 
to that employed in prior BRAC rounds, with more specificity in 
selected areas--especially in those that speak to military value. In 
this regard, the criteria give priority to military value and 
incorporate such factors as joint warfighting, training, readiness, and 
the ability to accommodate contingency and mobilization requirements, 
as is called for in the fiscal year 2002 legislation.[Footnote 5] 
Although we believe the criteria are basically sound and provide a good 
framework for assessing alternatives, we did provide the department 
with some comments on the criteria while they were in draft form. Those 
comments focused on the need for clarification of how DOD intends to 
consider (1) total costs to DOD and other federal agencies and (2) 
environmental costs in its analyses. The department subsequently 
indicated that it will be issuing clarifying guidance on these topics.

* To give some indication of excess capacity, DOD officials indicated 
that they would build on the approach they used in a 1998 
report[Footnote 6] to estimate excess base capacity and address other 
BRAC issues. As we reported in 1998,[Footnote 7] DOD's capacity 
analysis provided a rough indication that excess base capacity existed, 
but the methodology used to identify excess capacity had a number of 
limitations, particularly in trying to project a total amount of excess 
capacity across DOD. For example, the methodology did not consider to 
what extent excess capacity might have existed in 1989, the baseline 
year used in that analysis. Moreover, a similar analysis completed 
today would not reflect the results of efforts currently underway in 
BRAC to look at many functions on a cross-service basis. A more 
complete assessment of capacity and the potential to reduce it must 
await the results of the current BRAC analyses being conducted by DOD.

* DOD projects that it is now realizing approximately $7 billion yearly 
in net savings from prior BRAC rounds. As to savings from the 2005 BRAC 
process, DOD financial data suggest that, assuming conditions similar 
to those of the 1993 and 1995 round, annual net savings for each of the 
military departments for the 2005 round could be realized by 2011. That 
is, by 2011 savings could exceed closure-related costs for that year. 
At the same time, our analysis of 1995 round data indicates that the 
point at which cumulative net savings are realized would likely occur 
later.[Footnote 8] Our prior assessments have consistently confirmed 
that the prior BRAC rounds have generated substantial savings--
primarily in the form of future cost avoidances--for the department. 
However, we have also noted that these savings estimates have been 
imprecise for a variety of reasons, including weaknesses in DOD's 
financial management systems, the exclusion of BRAC-related costs 
incurred by other agencies, and inadequate periodic updating of savings 
estimates.

While we certainly believe that the potential exists for significant 
savings and efficiencies to result from the 2005 BRAC round, we are not 
in a position to say conclusively at this point to what extent DOD will 
realize annual net savings by 2011. There simply are too many unknowns 
at this time, such as the specific timing of individual closure or 
realignment actions that affect savings estimates, the implementation 
costs that may be required, and the extent to which transformation 
initiatives or potential redeployment to the United States of some 
forces currently based overseas might impact savings. At the same time, 
we believe it is critically important that the department act to 
implement our previous recommendation to improve its capabilities for 
estimating and updating estimates of savings from BRAC decisions. If 
the department does not take steps to improve its estimation of savings 
in the future, then previously existing questions about the 
reliability, accuracy, and completeness of DOD's savings estimates will 
likely continue.

* As to economic impact, our work has shown that while some communities 
surrounding closed bases are faring better than others, most are 
continuing to recover from the initial economic impact of base 
closures, allowing for some negative impact from the economic downturn 
in recent years. The short-term effects from base closures can be very 
traumatic, but we have found that several factors, such as the strength 
of the national and regional economies, the diversity of the local 
economy, and successful redevelopment of base property play a role in 
determining the long-term impact of the closure process. Although the 
successful redevelopment of base property plays a role in the process, 
broader regional economic growth may also be key to economic recovery.

Background:

The National Defense Authorization Act for Fiscal Year 2002 extended 
the authority of the Defense Base Closure and Realignment Act of 1990, 
with some modifications, to authorize an additional BRAC round in 2005. 
The legislation also required that DOD provide Congress in 2004, as 
part of its budget justification documents, a 20-year force structure 
plan, a worldwide infrastructure inventory, a description of the 
infrastructure necessary to support the force structure plan, a 
discussion of categories of excess infrastructure and infrastructure 
capacity, an economic analysis of the effect of BRAC on reducing excess 
infrastructure, and a certification that there is a need for BRAC in 
2005 and that annual net savings will be realized by each military 
department not later than fiscal year 2011. The legislation also 
stipulated that if the certification is provided in DOD's submission to 
Congress, GAO is to prepare an evaluation of the force structure plan, 
the infrastructure inventory, the final selection criteria, and the 
need for an additional BRAC round, and to report to Congress not later 
than 60 days after the force structure plan and the infrastructure 
inventory are submitted to Congress.

The 2002 legislation also required the Secretary of Defense to publish 
in the Federal Register the selection criteria proposed for use in the 
BRAC 2005 round and to provide an opportunity for public comment. The 
proposed selection criteria were published on December 23, 2003, with a 
public comment period ending January 30, 2004. The final criteria were 
published on February 12, 2004.

Historical Context of BRAC:

Closing unneeded defense facilities has historically been difficult 
because of public concern about the economic effects of closures on 
communities and the perceived lack of impartiality in the decision-
making process. Legislative restrictions effectively precluded bases 
from being closed between 1977 and 1988. However, legislation enacted 
in 1988[Footnote 9] supported the tasking of a special commission 
chartered by the Secretary of Defense to identify bases for realignment 
and closure and provided relief from certain statutory provisions that 
had hindered DOD's previous efforts. With this legislation, a base 
realignment and closure round was initiated in 1988.

Congress later passed the Defense Base Closure and Realignment Act of 
1990, which created an independent commission and authorized three BRAC 
rounds in 1991, 1993, and 1995. The four commissions generated 499 
recommendations--97 major closures, and hundreds of smaller base 
realignments, closures, and other actions.[Footnote 10] However, DOD 
recognized at the time it was completing its recommendations for the 
1995 BRAC round that excess infrastructure would remain after that 
round and that additional closures and realignments would be needed in 
the future. Subsequent Defense Science Board and Quadrennial Defense 
Review studies, and others, echoed the need for one or more future 
additional BRAC rounds, but congressional action to authorize a future 
BRAC round did not occur for several years, in part because of concerns 
over how some decisions were made in the 1995 BRAC round. Ultimately, 
the National Defense Authorization Act for Fiscal Year 2002 extended 
the authority of the Defense Base Closure and Realignment Act of 1990, 
authorizing another round of base realignments and closures in 2005.

Some key requirements mandated by the 1990 act or procedures adopted by 
DOD in implementing it to ensure the fairness and objectivity of the 
base closing process include:

* All installations must be compared equally against selection criteria 
and a current force structure plan developed by the Secretary of 
Defense.

* Decisions to close military installations with authorization for at 
least 300 civilian personnel must be made under the BRAC process. 
Decisions to realign military installations authorized for at least 300 
civilian personnel that involve a reduction of more than 1,000, or 50 
percent or more of the civilian personnel authorized, also must undergo 
the BRAC process.

* Selection criteria for identifying candidates for closure and 
realignment must be made available for public comment before being 
finalized.

* All components must use specific models for assessing (1) the cost 
and savings associated with BRAC actions and (2) the potential economic 
impact on communities affected by those actions.

* Information used in the BRAC decision-making process must be 
certified--that is, certified as accurate and complete to the best of 
the originator's knowledge and belief. This requirement was designed to 
overcome concerns about the consistency and reliability of data used in 
the process.

* An independent commission is required to review DOD's proposed 
closures and realignments and to finalize a list of proposed closures 
and realignments to be presented to the President and, subject to the 
President's approval, to Congress.

* The BRAC Commission is required to hold public hearings.

* The BRAC process imposes specific time frames for completing specific 
portions of the process (see app. I for time frames related to the 2005 
BRAC round).

* The President and Congress are required to accept or reject the 
Commission's recommendations in their entirety.

* In addition to GAO's role in monitoring the BRAC process, service 
audit agencies and DOD Inspector General (IG) personnel are extensively 
involved in auditing the process to better ensure the accuracy of data 
used in decision-making and enhance the overall integrity of the 
process.

Our work in examining lessons learned from prior BRAC rounds found 
general agreement that the prior legislation and the framework it 
outlined served the process well, and general agreement that it should 
provide a useful framework for a future round.[Footnote 11] That is not 
to say that the previous process was perfect or entirely devoid of 
concerns over the role of politics in the process. As we have 
previously noted, we recognize that no public policy process, 
especially none as open as BRAC, can be completely removed from the 
U.S. political system. However, the elements of the process noted above 
provide several checks and balances to keep political influences to a 
minimum. That said, the success of these provisions requires that all 
participants of the process adhere to the rules and procedures.

GAO Has Had a Long-standing Role in the BRAC Process:

GAO has played a long-standing role in the BRAC process. As requested 
by congressional committees (1988 BRAC round) or mandated by law since 
1990, we have served as an independent and objective observer of the 
BRAC process and have assessed and reported on DOD's decision-making 
processes leading up to proposed realignment and closure 
recommendations in each of the four prior rounds. To make informed and 
timely assessments, we have consistently operated in a real-time 
setting since the 1991 BRAC round and have had access to significant 
portions of the process as it has evolved, thus affording the 
department an opportunity to address any concerns we raised on a timely 
basis. By mandate, our role in the BRAC 2005 round remains the same, 
and we have been observing the process since DOD began work on the 2005 
round. Finally, I also want to recognize the important role played by 
the DOD Inspector General and the military services' audit agencies in 
the BRAC process.

GAO has been called upon to examine various issues associated with 
prior BRAC rounds, including the one held in 1988.[Footnote 12] The 
1990 BRAC legislation, which governed the 1991, 1993, and 1995 rounds, 
specifically required that we provide the BRAC Commission and Congress 
a detailed analysis of the Secretary of Defense's recommendations and 
selection process. Legislation authorizing the 2005 BRAC round retained 
the requirement for a GAO review of the Secretary's recommendations and 
selection process, with a report to the congressional defense 
committees required no later than July 1, 2005, 45 days after the 
latest date by which the Secretary must transmit to the congressional 
defense committees and the BRAC Commission his recommendations for 
closures or realignments.

The tight time frame under which we have to report our findings on the 
department's BRAC selection process and recommendations necessitates 
that we have access to the BRAC decision-making processes as they are 
unfolding within DOD. During the past rounds, DOD and its components 
have granted us varying degrees of access to their processes a year or 
more in advance of the Secretary's public release of his 
recommendations for closures and realignments. This has greatly 
facilitated our ability to monitor the process as it was unfolding and 
has provided us with opportunities to address issues and potential 
problem areas during the process. Furthermore, it has aided our ability 
to complete some detailed analysis of individual recommendations in the 
time available after the Secretary's proposed closures and realignments 
were finalized and made public.

We have been observing the 2005 BRAC process since DOD's initial work 
began on the 2005 round. From our vantage point, we are looking to see 
to what extent DOD follows a clear, transparent, consistently applied 
process, one where we can see a logical flow between DOD's analysis and 
its decision-making. Although we do not attend or participate in 
deliberative meetings involving BRAC, we are permitted access to the 
minutes of these meetings and to officials involved in the process.

I also want to acknowledge the key roles played by the DOD Inspector 
General and service audit agencies to help ensure the accuracy of data 
used in BRAC decision-making. These agencies play a front-line role in 
checking the accuracy of data obtained in BRAC data calls, as well as 
verifying data entries and output pertaining to the cost and analytical 
models used as part of the BRAC process. They also identify and refer 
any errors to defense components on a real-time basis, to facilitate 
corrective actions. We coordinate regularly with these other audit 
agencies, and in selected instances we observe the work of these audit 
agencies in checking the data used as part of BRAC decision-making.

Another part of our role involves assessing and reporting on the status 
of prior BRAC recommendations. These reports provide insights into the 
long and tedious process of transferring unneeded base property to 
other federal recipients and communities for future reuse. While the 
actual closures and realignments of military bases in the prior rounds 
were completed by 2001, the processes of environmental cleanup and 
property transfer continue today and will most likely continue for 
several more years. As of September 30, 2003, DOD data show that the 
department has transferred over 280,000 acres of unneeded property to 
other users but has about 220,000 acres that have yet to be 
transferred. While the progress of property transfer varies among the 
affected bases and is dependent upon a number of factors, our work has 
shown that environmental cleanup has long been a key factor in slowing 
the transfer process. We are currently in the process of updating our 
prior work on the implementation actions associated with the prior BRAC 
rounds.

Our key BRAC reports, which can be accessed at www.gao.gov, are listed 
in appendix II of this statement.

Observations on Key Issues DOD Is Required to Report on in Preparation 
for the 2005 Round:

The legislation authorizing a BRAC round in 2005 also requires that DOD 
provide information on a number of BRAC-related issues in 2004, and 
that GAO report to Congress not later than 60 days after the department 
submits this information to Congress. Since DOD has published its 
selection criteria for the 2005 round, I can provide you with some 
observations in that area. We expect to complete our full assessment of 
other issues within 60 days of receiving DOD's report. Therefore, I can 
make only preliminary and general observations about some of the 
issues, such as excess capacity, certification of annual net savings by 
2011, and economic impact.

Selection Criteria for 2005 BRAC Round Continue Sound Framework Used in 
Prior Rounds:

The department's final selection criteria essentially follow a 
framework similar to that employed in prior BRAC rounds, with 
specificity added in selected areas in response to requirements 
contained in the 2002 legislation. The 2002 legislation required that 
DOD give priority to military value and consider (1) the impact on 
joint warfighting, training, and readiness; (2) the availability and 
condition of training areas suitable for maneuver by ground, naval, or 
air forces throughout diverse climates and terrains, and staging areas 
for use by the armed forces in homeland defense missions; and (3) the 
ability to accommodate contingency, mobilization, and future force 
requirements. The legislation also required DOD to give consideration 
to other factors, many of which replicated criteria used in prior BRAC 
rounds. Further, the legislation required DOD to consider cost impacts 
to other federal entities as well as to DOD in its BRAC decision-
making. Additionally, the National Defense Authorization Act for Fiscal 
Year 2004[Footnote 13] required DOD to consider surge requirements in 
the 2005 BRAC process. Table 1 compares the 1995 BRAC criteria with 
that adopted for 2005, with changes highlighted in bold.

Table 1: BRAC Criteria from 1995 and Those Adopted for 2005:

[See PDF for image]

Source: DOD (emphasis bolding added by GAO to denote changes from 
1995).

[End of table]

Our analysis of lessons learned from prior BRAC rounds affirmed the 
soundness of these basic criteria and generally endorsed their 
retention for the future, while recognizing the potential for improving 
the process by which the criteria are used in decision-making.[Footnote 
14] Adoption of these criteria adds an element of consistency and 
continuity in approach with those of the past three BRAC rounds. The 
full analytical sufficiency of the criteria will best be assessed 
through their application, as DOD completes its data collection and 
analysis.

Notwithstanding our endorsement of the criterion framework, on January 
27, 2004, we sent a letter to DOD that identified two areas where we 
believed the draft selection criteria needed greater clarification in 
order to fully address the special considerations called for in the 
2002 legislation. Specifically, we noted that the criterion related to 
costs and savings did not indicate the department's intention to 
consider potential costs to other DOD activities or federal agencies 
that may be affected by a proposed closure or realignment 
recommendation. Also, we noted that it was not clear to what extent the 
impact of costs related to potential environmental restoration, waste 
management, and environmental compliance activities would be included 
in cost and savings analyses of individual BRAC recommendations. We 
suggested that DOD could address our concerns by incorporating these 
considerations either directly, in its final criteria, or through later 
explanatory guidance. DOD decided to address our concerns through 
clarifying guidance.

DOD's Prior Analysis Provided a Rough Measure of Excess Base Capacity:

DOD faced a difficult task in responding to a congressional mandate 
that it report on excess capacity, without compromising the integrity 
of the 2005 BRAC process. In this regard, DOD opted to use a 
methodology that would give some indication of excess capacity but 
would not be directly linked to the capacity analysis being performed 
as part of the 2005 BRAC process. DOD officials indicated that they 
would build on the approach they used in their 1998 report[Footnote 15] 
to estimate excess base capacity and address other BRAC issues. In 
November 1998,[Footnote 16] we reported that DOD's analysis gave only a 
rough indication of excess base capacity because it had a number of 
limitations. In addition, the methodology did not consider any 
additional excess capacity that might occur by looking at facilities or 
functions on a cross-service basis, a priority for the 2005 round.

To estimate excess capacity in 1998, the military services and the 
Defense Logistics Agency (DLA) compared capacity for a sample of bases 
in 1989 with projected capacity for a sample of bases in 2003, after 
all scheduled BRAC actions were completed. The services and DLA 
categorized the bases according to their primary missions, and they 
defined indicators of capacity, or metrics, for each category. Varied 
metrics were used to depict capacity. For example, metrics included 
maneuver acres per brigade for Army training bases, square feet of 
parking apron space for active and reserve Air Force bases, or capacity 
direct labor hours as compared with budgeted or programmed direct labor 
hours for Navy aviation depots. DOD officials are building on this 
methodology to compare 1989 data with more recent data in order to 
estimate current excess capacity as a means of meeting their 2004 
reporting requirement.

That methodology, while providing an indication of excess capacity, has 
a number of limitations that make it difficult to be precise when 
trying to project a total amount of excess capacity across DOD. In 
addition to the factors already noted, GAO and the Congressional Budget 
Office[Footnote 17] previously reported that by using 1989 as a 
baseline DOD did not take into account the excess capacity that existed 
in that year, which was prior to the base closures of the prior four 
rounds. As a result, the percentage of excess increased capacity 
reported may be understated or overstated for functional areas 
considered. Furthermore, the Congressional Budget Office reported that 
the approach could understate the capacity required if some types of 
base support were truly a fixed cost, regardless of the size of the 
force. Another limitation of DOD's methodology is that each 
installation could be counted only in one category even though it might 
have multiple functions. For example, an Air Force base that has a 
depot and a fighter wing could only be categorized in one functional 
area.

While the prior BRAC rounds have focused solely on reducing excess 
capacity, DOD officials have stated this is not the sole focus of the 
2005 BRAC round. DOD officials have noted that the 2005 round aims to 
further transform the military by rationalizing base infrastructure to 
the force structure, enhancing joint capabilities and seeking 
crosscutting solutions and alternatives for common business-oriented 
support functions, as well as eliminating excess capacity. A complete 
assessment of capacity and opportunities to reduce it must await the 
completion of DOD's ongoing official analyses under BRAC 2005. 
Nevertheless, we believe sufficient indicators of excess capacity 
exist, as well as opportunities to otherwise achieve greater 
efficiencies in operations, to justify proceeding with the upcoming 
round.

Certification of BRAC 2005 Round Annual Net Savings by 2011:

DOD financial data indicate that the department has generated net 
savings of about $17 billion through fiscal year 2001--the final year 
of the prior BRAC rounds---and is accruing additional, annually 
recurring savings of about $7 billion thereafter. We have consistently 
affirmed our belief that the prior BRAC rounds have generated 
substantial net savings--primarily in the form of future cost 
avoidances--for the department. While these amounts are substantial, we 
have, at the same time, viewed these savings estimates as imprecise for 
a variety of reasons, such as weaknesses in DOD's financial management 
systems that limit its ability to fully account for the costs of its 
operations; the fact that DOD's accounting systems, like other 
accounting systems, are oriented to tracking expenses and 
disbursements, not savings; the exclusion of BRAC-related costs 
incurred by other agencies; and inadequate periodic updating of the 
savings estimates that are developed. DOD, in its 1998 report to 
Congress, indicated that it had plans to improve its savings estimates 
for the implementation of future BRAC rounds. We have also recommended 
that DOD improve its savings estimates for future BRAC rounds, such as 
the 2005 round.[Footnote 18] DOD has not yet acted on our 
recommendation, but DOD officials told us that they intend to implement 
a system to better track savings for the upcoming round.

As required by the fiscal year 2002 legislation, DOD is required to 
certify for the upcoming 2005 BRAC round that it will achieve "annual 
net savings" for each military department by 2011. Using precise 
terminology is critical in statements regarding BRAC savings, because 
it can make a big difference in specifying when savings will actually 
occur and the nature of those savings. According to DOD officials, 
"annual net savings" essentially refer to the estimated savings that 
are generated from BRAC in a given year that are greater than the costs 
incurred to implement BRAC decisions in that same year.

Another way of looking at net savings is to consider the point at which 
cumulative savings exceed the cumulative costs of implementing BRAC 
decisions over a period of years. Experience has shown that the 
department incurs significant upfront investment costs in the early 
years of a BRAC round, and it takes several years to fully offset those 
cumulative costs and begin to realize cumulative net savings. The 
difference in the terminology is important to understand because it has 
a direct bearing on the magnitude and assessment of the savings at any 
given time. For example, as shown in table 2, initial annual net 
savings reported by the department as a whole in the 1995 BRAC round 
did not begin to occur until fiscal year 2000, or the fifth year of 
implementation; in each of the prior years, the costs had exceeded the 
estimated savings.

Table 2: DOD-wide Costs and Savings for the BRAC 1995 Round:

(Dollars in millions).

Total costs; 
Fiscal years: $1996: $943; 
Fiscal years: $1997: $1,318; 
Fiscal years: $1998: $1,314; 
Fiscal years: $1999: $1,249; 
Fiscal years: $2000: $706; 
Fiscal years: $2001: $1,012; 
Fiscal years: $2002: $648.

Total savings; 
Fiscal years: $1996: $614; 
Fiscal years: $1997: $597; 
Fiscal years: $1998: $981; 
Fiscal years: $1999: $1,058; 
Fiscal years: $2000: $1,332; 
Fiscal years: $2001: $1,591; 
Fiscal years: $2002: $1,619.

Annual net savings; 
Fiscal years: $1996: -$329; 
Fiscal years: $1997: -$721; 
Fiscal years: $1998: -$333; 
Fiscal years: $1999: -$192; 
Fiscal years: $2000: $626; 
Fiscal years: $2001: $579; 
Fiscal years: $2002: $971.

Cumulative net savings; 
Fiscal years: $1996: -$329; 
Fiscal years: $1997: -$1,050; 
Fiscal years: $1998: -$1,384; 
Fiscal years: $1999: -$1,575; 
Fiscal years: $2000: -$949; 
Fiscal years: $2001: -$371; 
Fiscal years: $2002: $600. 

Source: GAO analysis of DOD Fiscal Year 2005 Budget Estimates, February 
2004.

Note: Numbers in parenthesis are negative. Totals may not add because 
of rounding.

[End of table]

On the other hand, as shown in table 2, there were no cumulative net 
savings as of fiscal year 2001, the sixth and final year of BRAC 
implementation. Cumulative net savings did not occur in this case until 
fiscal year 2002, based on DOD's data.

DOD financial data suggest that, assuming conditions similar to those 
of the 1993 and 1995 rounds, annual net savings for each of the 
military departments for the 2005 round could be achieved by 2011--that 
is, by 2011 savings could exceed closure-related costs for that year. 
While we believe that the potential exists for significant savings to 
result from the 2005 BRAC round, we are not in a position to say 
conclusively at this point to what extent DOD will realize annual net 
savings by 2011. In addition to the imprecision of DOD's data, there 
simply are too many unknowns at this time, such as the specific timing 
of individual closure or realignment actions that affect savings 
estimates and the implementation costs that may be required. The 
savings to be achieved depend on the circumstances of the various 
recommended closures and realignments as put forth by the 2005 BRAC 
Commission and on the implementation of those recommendations. Further, 
DOD has gone on record stating that the upcoming round is more than 
just an exercise of trimming its excess infrastructure. DOD is also 
seeking to maximize joint utilization and further its transformation 
efforts. To what extent these goals may affect savings is also unknown 
at this point. And finally, to what extent forces that are currently 
based overseas may be redeployed to the United States and what effect 
that redeployment may have on BRAC and subsequent savings remain 
unknown as well.[Footnote 19]

Notwithstanding the issues we raise that could affect savings, and the 
point at which savings would exceed the costs associated with 
implementing recommendations from a 2005 BRAC round, we continue to 
believe that it is vitally important for DOD to improve its mechanisms 
for tracking and updating its savings estimates. DOD, in its 1998 
report to Congress on BRAC issues, cited proposed efforts that, if 
adopted, could provide for greater accuracy in the estimates. 
Specifically, the department proposed to develop a questionnaire that 
each base affected by future BRAC rounds would complete annually during 
the 6-year implementation period. Those bases that are closing, 
realigning, or receiving forces because of BRAC would complete the 
questionnaire. DOD would request information on costs, personnel 
reductions, and changes in operating and military construction costs in 
order to provide greater insight into the savings created by each BRAC 
action. DOD suggested that development of such a questionnaire would be 
a cooperative effort involving the Office of the Secretary of Defense, 
the military departments, the defense agencies, the Office of the DOD 
Inspector General, and the service audit agencies. This proposal 
recognizes that better documentation and updating of savings will 
require special efforts parallel to the normal budget process. We 
strongly endorse such action. If the department does not take steps to 
improve its estimation of savings in the future, then previously 
existing questions about the reliability, accuracy, and completeness of 
DOD's savings estimates will likely continue. We intend to examine 
DOD's progress in instituting its proposed improvements during our 
review of the 2005 BRAC process.

Most Affected Communities Are Recovering from BRAC Actions:

While the short-term impact can be very traumatic, several factors, 
such as the strength of the national and regional economies, play a 
role in determining the long-term economic impact of the base 
realignment or closure process on communities. Our work has shown that 
recovery for some communities remains a challenge, while other 
communities surrounding a base closure are faring better. Most are 
continuing to recover from the initial economic impact of a closure, 
allowing for some negative effect from the economic downturn in recent 
years.

Our analysis of selected economic indicators has shown over time that 
the economies of BRAC-affected communities compare favorably with the 
overall U.S. economy. We used unemployment rates and real per capita 
income rates as broad indicators of the economic health of those 
communities where base closures occurred during the prior BRAC rounds. 
We identified 62 communities surrounding base realignments and closures 
from all four BRAC rounds for which government and contractor civilian 
job losses were estimated to be 300 or more.

We previously reported that as of September 2001, of the 62 communities 
surrounding these major base closures, 44 (71 percent) had average 
unemployment rates lower than the (then) average 9-month national rate 
of 4.58 percent.[Footnote 20] We are currently updating our prior 
assessments of economic recovery, attempting to assess the impact of 
the recent economic downturn on affected BRAC communities we had 
previously surveyed. What we are seeing is that, in keeping with the 
economic downturn in recent years, the average unemployment rate in 
2003 increased for 60 of the 62 communities since 2001. However, the 
year 2003 unemployment rate data indicated that the rates for many of 
these BRAC communities continue to compare favorably with the U.S. rate 
of 6.1 percent. That is, 43 (69 percent) of the communities had 
unemployment rates at or below the U.S. rate.

As with unemployment rates, we had also previously reported that annual 
real per capita income growth rates for BRAC-affected communities 
compared favorably with national averages. From 1996 through 1999, 53 
percent, or 33, of the 62 areas had an estimated average real per 
capita income growth rate that was at or above the average of 3.03 
percent for the nation at that time. Data included in our 2002 report 
were the latest available at that time, recognizing time lags in data 
availability. Our recent analysis has also noted that changes in the 
average per capita income growth rate of affected communities over time 
compared favorably and were similar to corresponding changes at the 
national level. Our more recent analysis indicates that 30 of the 62 
areas examined (48.4 percent), had average income growth rates higher 
than the average U.S. rate of 2.2 percent between 1999 and 2001, which 
represents a drop from the rate during the previous time period.

We have previously reported on our discussions with various community 
leaders who felt the effects of base closures. These discussions 
identified a number of factors affecting economic recovery from base 
closures, including:

* robustness of the national economy,

* diversity of the local economy,

* regional economic trends,

* natural and labor resources,

* leadership and teamwork,

* public confidence,

* government assistance, and:

* reuse of base property.

If history is any indicator, these factors are likely to be equally 
applicable in dealing with the effects of closures and realignments 
under BRAC 2005.

This concludes my statement. I would be pleased to answer any questions 
you or other Members of the Subcommittee may have at this time.

Contacts and Acknowledgments:

For further information regarding this statement, please contact Barry 
W. Holman at (202) 512-8412. Individuals making key contributions to 
this statement include Paul Gvoth, Michael Kennedy, Warren Lowman, Tom 
Mahalek, David Mayfield, James Reifsnyder, Cheryl Weissman, and Dale 
Wineholt.

[End of section]

Appendix I: BRAC 2005 Timeline:

[See PDF for image]

[End of figure]

[End of section]

Appendix II: Key GAO Reports on DOD's Base Realignments and Closures:

U.S. General Accounting Office, Military Base Closures: Better Planning 
Needed for Future Reserve Enclaves (GAO-03-723, June 27, 2003).

U.S. General Accounting Office, Military Base Closures: Progress in 
Completing Actions from Prior Realignments and Closures (GAO-02-433, 
Apr. 5, 2002).

U.S. General Accounting Office, Military Base Closures: Overview of 
Economic Recovery, Property Transfer, and Environmental Cleanup (GAO-
01-1054T, Aug. 28, 2001).

U.S. General Accounting Office, Military Base Closures: DOD's Updated 
Net Savings Estimate Remains Substantial (GAO-01-971, July 31, 2001).

U.S. General Accounting Office, Military Bases: Status of Prior Base 
Realignment and Closure Rounds (GAO/NSIAD-99-36, Dec. 11, 1998).

U.S. General Accounting Office, Military Bases: Review of DOD's 1998 
Report on Base Realignment and Closure (GAO/NSIAD-99-17, Nov. 13, 
1998).

U.S. General Accounting Office, Military Bases: Lessons Learned From 
Prior Base Closure Rounds (GAO/NSIAD-97-151, July 25, 1997).

U.S. General Accounting Office, Military Bases: Closure and 
Realignments Savings Are Significant, but Not Easily Quantified (GAO/
NSIAD-96-67, Apr. 8, 1996).

U.S. General Accounting Office, Military Bases: Analysis of DOD's 1995 
Process and Recommendations for Closure and Realignment (GAO/NSIAD-95-
133, Apr. 14, 1995).

U.S. General Accounting Office, Military Bases: Analysis of DOD's 
Recommendations and Selection Process for Closures and Realignments 
(GAO/NSIAD-93-173, Apr. 15, 1993).

U.S. General Accounting Office, Military Bases: Observations on the 
Analyses Supporting Proposed Closures and Realignments (GAO/NSIAD-91-
224, May 15, 1991).

U.S. General Accounting Office, Military Bases: An Analysis of the 
Commission's Realignment and Closure Recommendations (GAO/NSIAD-90-42, 
Nov. 29, 1989).

FOOTNOTES

[1] P.L. 107-107, Title XXX, (Dec. 28, 2001).

[2] P.L. 101-510, Title XXIX, (Nov. 5, 1990). 

[3] P.L. 100-526, Title II, (Oct. 24, 1988).

[4] See U.S. General Accounting Office, Military Bases: Lessons Learned 
From Prior Base Closure Rounds, GAO/NSIAD-97-151 (Washington, D.C.: 
July 25, 1997). 

[5] P.L. 107-107, section 3002 (Dec. 28, 2001).

[6] The Report of the Department of Defense on Base Realignment and 
Closure, April 1998. Section 2824 of Public Law 105-85 required the 
Secretary of Defense to submit a report to the congressional defense 
committees on the costs and savings attributable to the rounds of base 
realignments and closures under special legislative authorities between 
1988 and 1995 and on the need, if any, for additional rounds.

[7] See U.S. General Accounting Office, Military Bases: Review of DOD's 
1998 Report on Base Realignment and Closure, GAO/NSIAD-99-17 
(Washington, D.C.: Nov. 13, 1998).

[8] According to DOD officials, cumulative net savings represent the 
total accrued savings over time, minus the cumulative costs incurred 
over that same time period. Annual net savings, on the other hand, are 
the savings accrued in a given year compared with the costs incurred in 
that same year.

[9] P.L. 100-526, Title II, (Oct. 24, 1988).

[10] The number of recommendations may vary, depending on how they are 
categorized. Recommendations may include closures, realignments, 
disestablishments, relocations, and redirections. In a closure, all 
missions carried out at a base either cease or relocate, while in a 
realignment, a base remains open but loses and sometimes gains 
missions. "Disestablishments" and "relocations" refer to missions; 
those disestablished cease operations, while those relocated are moved 
to another base. "Redirections" refer to cases in which a BRAC 
commission changes the recommendation of a previous commission. 

[11] See GAO/NSIAD-97-151.

[12] At the request of the Chairmen and the Ranking Minority Members, 
House and Senate Committees on Armed Services, we examined the 
Commission's methodology, findings, and recommendations.

[13] P.L. 108-136, section 2822, (Nov. 24, 2003). 

[14] See GAO/NSIAD-97-151.

[15] The Report of the Department of Defense on Base Realignment and 
Closure, April 1998.

[16] See U.S. General Accounting Office, Military Bases: Review of 
DOD's 1998 Report on Base Realignment and Closure, GAO/NSIAD-99-17 
(Washington, D.C.: Nov. 13, 1998).

[17] See Congressional Budget Office: Review of the Report of the 
Department of Defense on Base Realignment and Closure (Washington, 
D.C.: July 1, 1998).

[18] See U.S. General Accounting Office, Military Base Closures: 
Progress in Completing Actions from Prior Realignments and Closures, 
GAO-02-433 (Washington, D.C.: Apr. 5, 2002). In this report GAO 
recommended that for the upcoming BRAC 2005 round, DOD "develop (1) a 
defense-wide systematic approach for the periodic updating of initial 
closure savings estimates and (2) an oversight mechanism to ensure that 
the military services and components update such estimates in 
accordance with the prescribed approach." 

[19] DOD has noted that, as a parallel action, the Secretary of Defense 
has already undertaken a comprehensive study of global basing and 
presence--the Integrated Global Presence and Basing Strategy (IGPBS). 
It further noted that BRAC will accommodate any decisions from that 
study that relocate forces to the United States, and that DOD will 
incorporate its global basing strategy into a comprehensive BRAC 
analysis, thereby ensuring that any overseas redeployment decisions 
inform its recommendations to the BRAC Commission. See Analysis of 
Public Comments in 69 F.R. 6948, Feb. 12, 2004: DOD Final Selection 
Criteria for Closing and Realigning Military Installations Inside the 
United States. 

[20] GAO-02-433.