Summary: What GAO Found
Our analysis of DOD’s fiscal year 2011 update relating to the BRAC 2005 budget submission to Congress shows that one-time implementation costs grew from $21 billion originally estimated by the BRAC Commission in 2005 to about $35.1 billion, an increase of about $14.1 billion, or 67 percent, largely due to increased construction costs. We compared the BRAC Commission’s 2005 estimates to DOD’s fiscal year 2011 budget submission and found that 14 of 182 BRAC recommendations accounted for about 72 percent of the cost increase, or about $10.2 billion. Our analysis of those 14 recommendations shows that increased construction costs resulted primarily from additional building projects and additions to planned projects, which DOD deemed necessary after implementation began. For example, one-time costs for realigning the National Geospatial-Intelligence Agency more than doubled from $1.1 billion to $2.6 billion, with military construction accounting for nearly $726 million of that increase due to additional supporting facilities the agency identified as essential to the mission. Overall, military construction costs for the BRAC 2005 round increased 86 percent, from $13.2 billion estimated by the BRAC Commission to $24.5 billion according to DOD’s fiscal year 2011 BRAC budget, while over the same time period, general inflation increased by 13.7 percent. In contrast, military construction costs for the four prior BRAC rounds combined amounted to less than $7 billion. Other reasons for implementation cost increases included increased operation and maintenance costs, such as for furnishings to outfit new and renovated buildings and information technology needed to equip additional facilities, and higher environmental restoration costs.
Due primarily to the large increase in one-time implementation costs, the 20-year net present value DOD can expect by implementing the 2005 BRAC recommendations has decreased by 72 percent, and our analysis of net annual recurring savings shows a decrease of 9.5 percent compared to the BRAC 2005 Commission’s estimates. The 20-year net present value—that is, the present value of future savings minus the present value of up-front investment costs—of $35.6 billion estimated by the Commission in 2005 for this BRAC round has decreased by 72 percent to about $9.9 billion.15 We believe that the 20-year net present value of BRAC recommendations is a good measure of the net result from up-front implementation costs and the resulting savings because it takes into account the time value of money; that is, it considers when a dollar amount, such as savings, is received during the 20-year period. In 2005, the BRAC Commission approved 30 recommendations that were expected to produce a negative 20-year net present value (in other words, at the end of the 20-year period, those 30 recommendations would result in net costs). Based on our analysis, currently 75 out of the 182 Commission-approved recommendations, about 41 percent, are now expected to result in a negative 20-year net present value. Nine recommendations have seen their net present value decrease by over $1 billion each. Also, our analysis of DOD’s fiscal year 2011 update of the BRAC 2005 budget submission to Congress shows that DOD’s net annual recurring savings estimates have decreased by $400 million to about $3.8 billion, a 9.5 percent decrease from the Commission’s estimate of $4.2 billion
Why GAO Did This ReportThe Department of Defense’s (DOD) cost estimates to implement recommendations from the most recent Base Realignment and Closure (BRAC) round have increased and estimated savings resulting from the round have decreased compared to the estimates from the 2005 BRAC Commission. BRAC 2005 was the fifth round of base closures and realignments undertaken by DOD since 1988, and it was the biggest, most complex BRAC round ever.
To implement this round, DOD executed hundreds of BRAC actions involving over 800 defense locations and the planned relocation of over 125,000 personnel. By law, BRAC 2005 recommendations were to be implemented by September 15, 2011.
At the outset of BRAC 2005, the Office of the Secretary of Defense (OSD) indicated that DOD viewed BRAC 2005 as a unique opportunity to reshape its installations and realign its forces to meet defense needs for the next 20 years. In accordance with the statute authorizing BRAC 2005, DOD proposed the selection criteria to be used to develop and evaluate the candidate recommendations, and Congress subsequently codified those criteria.
As in prior BRAC rounds, criteria relating to the goal of enhancing “military value” were to be given priority consideration, with other criteria to be considered including the extent and timing of potential costs and savings, economic impact to local communities, and other considerations. When applied in the context of the transformational goals set by the Secretary of Defense for BRAC 2005, these criteria resulted in many of the BRAC 2005 recommendations involving complex realignments, such as designating where military forces returning to the United States from overseas bases would be located; establishing joint military medical centers; creating joint bases; and reconfiguring the defense supply, storage, and distribution network.
Nevertheless, anticipated savings resulting from implementing the recommendations remained an important consideration in justifying the need for another BRAC round. In a 2001 testimony before Congress, the Secretary of Defense stated that another BRAC round would generate recurring savings the department could use for other defense programs. However, as we have previously reported, the 2005 round is unlike previous BRAC rounds because of OSD’s emphasis on transformation and jointness, rather than just reducing excess infrastructure. Before DOD could begin to realize savings from BRAC 2005, it needed to invest billions of dollars in facility construction, renovation, and other up-front expenses. The BRAC Commission estimated that these one-time implementation costs would total about $21 billion; in contrast, DOD spent about $25 billion to implement the four previous BRAC rounds combined. The Commission also calculated that, taking into account the time value of money, over a 20-year period ending in 2025, DOD would achieve a positive net present value of about $36 billion, and it estimated that the net annual recurring savings that would accrue from implementing BRAC 2005 recommendations would be around $4.2 billion.
In December 2007, we reported that DOD planned to spend more and save less than the BRAC Commission expected, and DOD’s 20-year net present value would be less than half of the Commission’s original estimate. That report also found that DOD’s BRAC cost and savings estimates were likely to continue to evolve due to uncertainties surrounding implementation details and potential increases in military construction. In each of two subsequent GAO reports and a recent testimony covering BRAC 2005 costs and savings, we found that DOD’s estimated one-time BRAC implementation costs had further increased, net annual recurring savings estimates had further decreased, and the 20-year net present value was diminishing.
The House Armed Services Committee report accompanying the National Defense Authorization Act for Fiscal Year 2008 directs us to monitor the implementation of recommendations for the 2005 round of closures and realignments of military installations.agencies to provide assistance to communities and individuals impacted by BRAC. DOD’s budget submission is reported in current dollars (i.e., it includes projected inflation). This report updates the costs and savings associated with BRAC 2005 through the end of the implementation period. We will continue to analyze BRAC 2005 implementation and will issue a lessons learned report to conclude our reporting in response to this congressional directive later this year. For this report, our objectives were to evaluate (1) how DOD’s costs to implement BRAC 2005 recommendations compared to the BRAC Commission’s estimates and the factors that contributed to cost increases, and (2) what 20-year net present value and net annual recurring savings DOD can expect by implementing the 2005 BRAC recommendations and what factors have contributed to the overall decrease in savings from this round.
We are not making recommendations in this report.
For mroe information, contact Brian J. Lepore at (202) 512-4523 or by e-mail at leporeb@gao.gov.
