Here are a couple interesting excerpts from former deputy Comptroller Don Shycoff’s book, The Business of Defense:
Historically, procurement appropriations funded equipment for DOD support activities. Military construction appropriations funded new facilities. The operations and maintenance appropriations at some activities and overhead at some revolving fund activities funded software development.
The same accounts that funded equipment needed by the operating forces (radars, sonars, countermeasures, communications equipment, and the like) also funded equipment for the support establishment. In that competitive arena, equipment for the support establishment did not fare well. When funds were constrained, industrial and shop equipment purchases were routinely deferred.
As a result, the rate of investment in these activities was well below that in the private sector, a sector often criticized for a low rate of investment. A study my office did in the early 1980s revealed that DOD industrial activities were investing at the rate of 1.5 percent of sales, compared to a rate of 5 percent in the private sector. No wonder DOD productivity gains were disappointing. I doubt that many would buy stock in a company whose rate of investment is so shortsighted.
Software
A couple of interesting things there. First, software was developed under the O&M accounts, which are far more flexible than RDT&E and Procurement accounts. I’d be interested to go back to military programs in the 1980s and before and see how many were automated information systems.
Today, a significant number of acquisition programs are for software, which brings in the problem of “investment vs. expense” definitions. Large new developments occur under RDT&E. Buying of software licenses under Procurement. Maintenance and minor upgrades of software under O&M.
DoD’s BA 8 pilot seeks “colorless” money to get rid of these funding misalignment problems. Software is never done. Arbitrary distinctions hamper programs. But this BA 8 pilot, which the breaks has been put on by Congress due to a lack of quantifiable and qualitative information, appears to have been unnecessary in the past. The restrictions were fewer.
Facilities
The second interesting thing is the lack of investment in facilities and equipment. It appears the same trends from the 1980s extend to today. For example, in 2019 the Air Force had a $33 billion backlog of maintenance at 180 installations. The department was below its “minimum” goal of 2 percent per year. Moreover, installations have been substantially reduced over time.
Between FY 2015 and FY 2016, the number of DoD facilities in “failing” condition rose from 7 percent to 18.9 percent. Trends that cannot persist indefinitely eventually break. There was a HASC hearing in 2022 on the facilities, energy, and environmental programs. FY 2022 appropriations increased facilities sustainment and modernization by 11 percent, 15 percent, and 9 percent for the Army, Navy, and Air Force, respectively.
I wouldn’t be surprised to find that justification for the increase, particularly in the Navy, related more towards the climate change narrative than other narratives. But this also comes at a time where the Navy shipyards, Army organic industrial base, and S&T infrastructure and test ranges, are all severely undercapitalized. This returns to the major problem of the DoD budget — when line items expose weapons end items, no one is willing to trade those outputs for enabling infrastructure and tools in the acquisition and sustainment support structure.
Hmmm. In the 1960’s, Robert Anthony (DoD Comptroller under McNamara), as part of his otherwise unsuccessful “Project Prime” initiative, did succeed in shifting DoD “industrial activities” (depot-level maintenance activities doing major-system repairs and overhauls) from appropriated funding to revolving-fund funding. In the 1990’s, with his establishment of the Defense Business Operations Fund (DBOF), Donald Shycoff tried once again to do what Anthony tried to do in Project Prime: put ALL of DoD’s support activities under revolving-fund financing. (Indeed, that’s what his book, “The Businesses of Defense,” is about.) Mr. Shycoff believed that support activities would operate more efficiently and effectively if they were “run like businesses” (i.e., activities whose performance could and would be evaluated using balance sheets and income statements) – an idea the Congress bought in 1990 when it passed the CFO Act requiring all revolving-fund activities to begin doing private-sector-style financial accounting and reporting. (Robert Anthony’s motivation was, I believe, different. Anthony thought that sufficient funding for support activities could be guaranteed by making “mission activities” – i.e., the activities who “use’ weapon systems to do what they do, i.e., train (and fight when called upon) – responsible for support-activity funding as well, because they would have to ask for funding not just for new weapons systems but also to pay for the support of those systems over time given the “bills” the would have to pay to support activities to keep the systems operating properly.0
In the early 1980’s, therefore, when Mr. Shycoff found that DoD’s industrial activities – after being “industrially funded” for more than 20 years – were significantly under-investing in internal shop equipment compared to their private-sector counterparts, he might have concluded (but didn’t) that using balance sheets and income statements to evaluate the performance of DoD’s depot-maintenance activities might not be, it turns out, the best way to make those activities more effective and efficient in supporting mission activities.
Pretending that any DoD activity (support or mission) is a “business” – by requiring it to do private-sector-style accounting and reporting – is a fool’s errand, which the DoD (at the Congress’ and GAO’s insistence) continues to pursue, unfortunately, at a cost of roughly a billion dollars a year (counting what is being spent on financial-statement auditors and the long lists of “Notices of Findings and Recommendations” they keep issuing every year).
Giving critical support activities a fighting chance to hold their own in the annual budget battles inside the Pentagon is certainly one of the challenges facing the ongoing PPBE Reform effort, but there are better ways to do that than simply continuing to hope and believe (in the face of 30 years of non-progress) that the “CFO-Act-compliance” approach is still, somehow, going to pay off eventually.
In the 1980’s, detailed, data-based, resources-to-readiness-and-sustainment models gave repair and support activities one way to make their case successfully for funding in the annual Pentagon budget battles. They could again.