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Roughly half of the budget for the Department of Defense pays for annual operation and support (O&S) costs including payments for salaries, fuel, maintenance, and many other types of recurring expenses. O&S spending is often associated with the maintenance of military readiness. Readiness is defined as the ability of U.S. armed forces to fight well early in a war, a capability that could be critical to success in a major conflict.

Each year, the Congress must decide how much funding to allocate for O&S activities. Some Members of Congress have expressed concern that, with defense spending limited because of high deficits and other problems, future O&S funding might not be adequate since these funds must compete with investment funds that pay for high-priority military weapons. This analysis by the Congressional Budget Office (CBO) uses several methods to estimate how much O&S funding could be required to pay for weapons that have already been bought or will be purchased under current investment plans. The study also explores how indicators of military readiness compare with previous funding for O&S activities and how the Congress might hold down O&S costs. The study was requested by the House Budget Committee. In keeping with CBO's mandate to provide objective analysis, the study contains no recommendations.

Lane Pierrot of CBO's National Security Division prepared the study under the general supervision of Robert F. Hale and Neil M. Singer; preliminary estimates during earlier stages of the analysis were provided by Robert Kornfeld and Robert E. Mechanic. Michael Miller, of CBO's Budget Analysis Division, prepared descriptions of one of the models discussed in the study and Eugene Bryton, also of that division, provided several extensive cost estimates. The author gratefully acknowledges the contributions of Michael Berger, Bonita Dombey, William Kostak, Frances Lussier, David Moore, Jack Rodgers, Stephan Thurman, and R. William Thomas, all of CBO. Amanda Balestrieri edited the manuscript. Rebecca J. Kees, Nancy H. Brooks, and Kathryn Quattrone prepared the report for publication.
 

James L. Blum
Acting Director
July 1988
 
 

SUMMARY

I. INTRODUCTION

• Definition of O&S Costs

II. FUTURE REQUIREMENTS FOR OPERATION AND SUPPORT FUNDING

• Basis for Projections
• Models and Projections
• Comparing the Estimates

III. LIMITING OPERATION AND SUPPORT FUNDING

• Reducing the Number of Forces
• Mandating Efficiencies
• O&S Funding and Military Readiness
• Weighing the Effects of Limiting O&S Funding

APPENDIXES

A. Models Used in This Study
B. Other Operation and Support Models
 

TABLES
1.	Operation and Maintenance Funding by Major Activity
2.	Operation and Support Funding
3.	Real Growth in O&S Funds Assuming Latest Available Administration Plans for Forces and Weapons
4.	Assumed Number of Selected Forces in Defense Resources Model
5.	Summary of Models That Estimate O&S Costs for the Individual Services
6.	Capital Stock Values Under Alternative Procurement Assumptions
7.	Retirements Needed to Hold Capital Value to Zero Real Growth from Fiscal Year 1988 to 1989
8.	Examples of Efficiency Recommendations Made by Appropriations Committees
9.	Selected Components of Readiness
10.	Per Capita Compensation for Active Forces
11.	Personnel Readiness in Selected Fiscal Years
12.	Materiel Readiness in Selected Fiscal Years
A-1.	Structure of the Defense Resources Model
FIGURES
S-1.	O&S Costs as a Percentage of Capital Value
1.	Department of Defense Budget Shares by Account
2.	O&S Costs as a Percentage of Capital Value
3.	Values of Major Weapons
A-1.	O&S Costs as a Percentage of Three Capital Value Measures
A-2.	O&S Costs and Capital Stock: Fitted Values Compared with Actuals, Fiscal Years 1975-1988
A-3.	O&S Costs as a Percentage of Major Weapons Values in the Services

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