[House Report 113-102]
[From the U.S. Government Publishing Office]
113th Congress Rept. 113-102
HOUSE OF REPRESENTATIVES
1st Session Part 2
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NATIONAL DEFENSE AUTHORIZATION ACT FOR FISCAL YEAR 2014
_______
June 11, 2013.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. McKeon, from the Committee on Armed Services, submitted the
following
SUPPLEMENTAL REPORT
[To accompany H.R. 1960]
[Including cost estimate of the Congressional Budget Office]
This supplemental report shows the cost estimate of the
Congressional Budget Office with respect to the bill (H.R.
1960), as reported, which was not included in part 1 of the
report submitted by the Committee on Armed Services on June 7,
2013 (H. Rept. 113-102, pt. 1).
Congressional Budget Office Estimate
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, the cost estimate prepared by
the Congressional Budget Office and submitted pursuant to
section 402 of the Congressional Budget Act of 1974 is as
follows:
June 11, 2013.
Hon. Howard P. ``Buck'' McKeon,
Chairman, Committee on Armed Services,
U.S. House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 1960, the National
Defense Authorization Act for Fiscal Year 2014.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is David Newman.
Sincerely,
Douglas W. Elmendorf,
Director.
Enclosure.
H.R. 1960--National Defense Authorization Act for Fiscal Year 2014
Summary: H.R. 1960 would authorize appropriations totaling
$632 billion for fiscal year 2014 for the military functions of
the Department of Defense (DoD), for certain activities of the
Department of Energy (DOE), and for other purposes. That total
includes $86 billion for the cost of overseas contingency
operations, primarily in Afghanistan. In addition, H.R. 1960
would prescribe personnel strengths for each active-duty and
selected-reserve component of the U.S. armed forces. CBO
estimates that appropriation of the authorized amounts would
result in outlays of $618 billion over the 2014-2018 period.
The bill also contains provisions that would increase or
decrease the costs of defense programs funded through
discretionary appropriations in 2015 and future years. Those
implicit authorizations would affect force structure, DoD
compensation and benefits, DoD's use of multiyear procurement
authority, and other programs and activities. CBO has analyzed
the costs of a select number of those authorizations and
estimates they would, on a net basis, lower the amount of
appropriations needed to implement defense programs relative to
current law by about $9 billion over the 2015-2018 period.
Those savings are not included in the total amounts of outlays
in the previous paragraph because funding for those activities
would be covered by specific authorizations in future years.
In addition, H.R. 1960 contains provisions that would
affect direct spending. CBO estimates that, on net, those
provisions would decrease direct spending by $18 million over
the 2014-2018 period and by $2 million over the 2014-2023
period. Enacting the bill would have an insignificant effect on
revenues. Because enacting the legislation would affect direct
spending, pay-as-you-go procedures apply.
The bill would impose intergovernmental and private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA)
on mortgage lending institutions and state governments. CBO
estimates that the costs to public entities of complying with
the mandates would be small and well below the annual threshold
established in UMRA for intergovernmental mandates ($75 million
in 2013, adjusted annually for inflation). CBO estimates that
the costs to private entities of complying with the mandate
would probably fall below the annual threshold established in
UMRA for private-sector mandates ($150 million in 2013,
adjusted annually for inflation).
Estimated cost to the Federal Government: The estimated
budgetary impact of H.R. 1960 is summarized in Table 1. Almost
all of the $632 billion that would be authorized by the bill is
for activities within budget function 050 (national defense).
Some authorizations, however, fall within other budget
functions, including: $219 million for cemetery expenses and
for activities within the Department of Veterans Affairs
(function 700--veterans benefits and services); $173 million
for the Maritime Administration (function 400--transportation);
$68 million for the Armed Forces Retirement Home (function
600--income security); $20 million for the Naval Petroleum
Reserves (function 270--energy); and an estimated $20 million--
over the 2015-2018 period--primarily for programs within the
Department of the Interior (function 300--natural resources and
environment).
The provisions that would affect direct spending are
primarily for activities within budget functions 050, 400, 600,
700, 550 (health), and 650 (Social Security).
TABLE 1--BUDGETARY IMPACT OF H.R. 1960, THE NATIONAL DEFENSE AUTHORIZATION ACT FOR FISCAL YEAR 2014
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By fiscal year, in millions of dollars--
-----------------------------------------------------------------
2014-
2014 2015 2016 2017 2018 2018
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SPENDING SUBJECT TO APPROPRIATION
Specified Authorization of Regular
Appropriations for 2014, Primarily for the
Departments of Defense and Energy
Authorization Level....................... 545,349 0 0 0 0 545,349
Estimated Outlays......................... 346,613 116,014 43,302 19,336 8,122 533,387
Estimated Authorization of Regular
Appropriations for 2014 for Accrual Paymentsa
Estimated Authorization Level............. 580 0 0 0 0 580
Estimated Outlays......................... 580 0 0 0 0 580
Specified Authorization of Appropriations for
Overseas Contingency Operations
Authorization Level....................... 85,766 0 0 0 0 85,766
Estimated Outlays......................... 43,345 27,417 9,531 3,179 813 84,284
Other Authorizations of Appropriationsb
Estimated Authorization Level............. 0 11 3 3 3 20
Estimated Outlays......................... 0 9 4 3 3 19
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Total
Estimated Authorization Level......... 631,695 11 3 3 3 631,715
Estimated Outlays..................... 390,538 143,440 52,837 22,518 8,938 618,270
CHANGES IN DIRECT SPENDINGc
Estimated Budget Authority.................... -28 -37 4 1 5 -55
Estimated Outlays............................. -26 -27 14 11 10 -18
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Notes: Except as noted below, the authorization levels in this table reflect amounts that would be specifically
authorized by the bill. The bill also would implicitly authorize some defense activities in 2015 and future
years; those authorizations are not included above (but estimates for a select number of them are shown in
Table 3) because funding for those activities would be covered by specific authorizations in future years.
Numbers may not sum to totals because of rounding.
a. This authorization reflects CBO's estimate of the added cost of certain accrual payments required under
current law but not fully reflected in the amounts specifically authorized by the bill.
b. For 2015, this authorization level has two components: an estimated $8 million for extending certain benefits
to federal civilian workers who perform official duty in a combat zone and are employed by departments and
agencies other than DoD; and an estimated $3 million for Department of Interior activities related to the
Sikes Act. For 2016 to 2018, the authorization levels reflect estimates for implementing the Sikes Act.
(Current law contains authorizations for those activities in 2014; thus, no authorizations for that year are
reflected here.)
c. In addition to the changes in direct spending shown above, H.R. 1960 would have effects beyond 2018. CBO
estimates that over the 2014-2023 period, H.R. 1960 would decrease direct spending by $2 million (see Table
4).
Basis of estimate: For this estimate, CBO assumes that H.R.
1960 will be enacted near the start of fiscal year 2014 and
that the authorized and estimated amounts will be appropriated.
Spending Subject to Appropriation
The bill would authorize appropriations for 2014 totaling
$632 billion, of which $546 billion would be authorizations of
regular appropriations for ``base budget'' costs (not directly
related to overseas contingency operations). Of the funding
that would be authorized for base budget costs, nearly all
($545 billion) would be specifically authorized as follows:
$527 billion for DoD and $18 billion for atomic energy defense
activities within DOE and for various other programs (see Table
2).
The funding that would be authorized for DoD's base budget
represents an increase of $32 billion (7 percent) relative to
appropriations enacted for 2013 and adjusted to reflect the
effects of the March 2013 sequestration. Authorized funding
would increase for all major categories of spending: operation
and maintenance would increase by $15 billion (8 percent),
procurement by $10 billion (11 percent), research and
development by $5 billion (7 percent), military personnel by $2
billion (2 percent), and military construction and family
housing by $1 billion (11 percent). For those comparisons, the
amount authorized for DoD's base budget also reflects CBO's
estimate of the additional amount needed--$580 million--to
fully fund certain accrual payments required under current law
but not fully reflected in the amounts specifically authorized
by the bill.
For DOE and other programs, the $18 billion that would be
authorized for 2014 represents a $2 billion (10 percent)
increase over the level appropriated for 2013, adjusted to
reflect the March sequestration.
The $86 billion that would be authorized for 2014 overseas
contingency operations represents a $3 billion (4 percent)
increase relative to the post-sequestration amounts for 2013.
Authorized levels would increase by $10 billion (17 percent)
for operation and maintenance, but would decrease by $4 billion
(31 percent) and $2 billion (22 percent) for military personnel
and procurement, respectively. Changes in other accounts would
be less than $0.1 billion.
TABLE 2--SPECIFIED AUTHORIZATIONS IN H.R. 1960
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By fiscal year, in millions of dollars--
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2014 2015 2016 2017 2018 2014-2018
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Authorization of Regular Appropriations
Department of Defense
Military Personnela
Authorization Level............... 136,896 0 0 0 0 136,896
Estimated Outlays................. 127,490 8,126 587 38 0 136,241
Operation and Maintenance
Authorization Level............... 208,558 0 0 0 0 208,558
Estimated Outlays................. 149,151 43,309 9,453 2,402 823 205,138
Procurement
Authorization Level............... 100,723 0 0 0 0 100,723
Estimated Outlays................. 21,261 31,245 23,853 13,405 5,350 95,114
Research and Development
Authorization Level............... 68,079 0 0 0 0 68,079
Estimated Outlays................. 33,444 24,604 5,075 2,234 1,318 66,675
Military Construction and Family
Housing
Authorization Level............... 10,640 0 0 0 0 10,640
Estimated Outlays................. 1,249 3,387 3,241 1,258 636 9,771
Revolving Funds
Authorization Level............... 2,277 0 0 0 0 2,277
Estimated Outlays................. 1,853 334 48 27 10 2,272
General Transfer Authority
Authorization Level............... 0 0 0 0 0 0
Estimated Outlays................. 175 -70 -53 -35 -17 0
Subtotal, Department of Defense
Authorization Level........... 527,173 0 0 0 0 527,173
Estimated Outlays............. 334,623 110,935 42,204 19,329 8,120 515,211
Atomic Energy Defense Activities
Authorization Levelb.............. 17,696 0 0 0 0 17,696
Estimated Outlays................. 11,600 5,008 1,082 4 2 17,696
Other Programs
Authorization Levelc.............. 480 0 0 0 0 480
Estimated Outlays................. 390 71 16 3 0 480
Subtotal, Authorization of Regular
Appropriations
Authorization Level........... 545,349 0 0 0 0 545,349
Estimated Outlays............. 346,613 116,014 43,302 19,336 8,122 533,387
Authorization of Appropriations for Overseas
Contingency Operations
Military Personnel
Authorization Levela.................. 9,853 0 0 0 0 9,853
Estimated Outlays..................... 9,222 602 5 1 0 9,830
Operation and Maintenance
Authorization Level................... 68,362 0 0 0 0 68,362
Estimated Outlays..................... 32,151 24,116 7,919 2,641 635 67,462
Procurement
Authorization Level................... 7,169 0 0 0 0 7,169
Estimated Outlays..................... 1,743 2,598 1,561 530 183 6,615
Research and Development
Authorization Level................... 117 0 0 0 0 117
Estimated Outlays..................... 55 45 10 3 1 114
Working Capital Funds
Authorization Level................... 265 0 0 0 0 265
Estimated Outlays..................... 99 86 58 19 1 263
Special Transfer Authority
Authorization Level............... 0 0 0 0 0 0
Estimated Outlays................. 75 -30 -23 -15 -8 0
Subtotal, Overseas Contingency
Operations
Authorization Level........... 85,766 0 0 0 0 85,766
Estimated Outlays............. 43,345 27,417 9,531 3,179 813 84,284
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Total Specified Authorizations
Authorization Level....................... 631,115 0 0 0 0 631,115
Estimated Outlays......................... 389,958 143,431 52,833 22,515 8,935 617,671
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Notes:
This table summarizes the authorizations of appropriations explicitly stated in the bill in specified amounts.
Various provisions of the bill also would authorize activities and provide authorities that would result in
additional costs in 2015 and in future years. Because the bill would not specifically authorize appropriations
to cover those costs, they are not reflected in this table. Rather, Table 3 contains the estimated costs of a
select number of those provisions.
Numbers may not sum to totals because of rounding.
a. The authorizations of appropriations for military personnel (in sections 421 and 1505) include $6,677 million
and $164 million, respectively, for accrual payments to the Medicare-Eligible Retiree Health Care Fund. CBO
estimates, however, that section 421 understates--by $580 million--the amount required for those payments,
thus that amount has been added to the estimated cost of the bill as reflected in Table 1.
b. This authorization is primarily for atomic energy activities within the Department of Energy.
c. This authorization is for veterans benefits and services ($219 million), the Maritime Administration ($173
million), the Armed Forces Retirement Home ($68 million), and the Naval Petroleum Reserves ($20 million). The
authorized level reflected in this estimate for the Maritime Administration does not include the amount
specified in the bill for payments to shipping companies under the maritime security program because that
program is authorized under current law for 2014.
H.R. 1960 also contains provisions that would affect the
cost of various discretionary programs in future years. Most of
those provisions would change end strength, military
compensation and benefits, and acquisition programs using
multiyear procurement authorities. The estimated effects of a
select number of those provisions are shown in Table 3 and
discussed below. The following discussion does not address the
timing of outlays from those estimated authorizations. All such
spending would be subject to appropriations action consistent
with the bill.
Force Structure. The bill would affect the force structure
of the various military services by setting end-strength levels
for 2014 and modifying the minimum end-strength levels
authorized in permanent law.
Under title IV, the authorized end strengths in 2014 for
active-duty personnel and personnel in the selected reserves
would total 1,361,400 and 842,700, respectively. Of those
selected reservists, 78,386 would serve on active duty in
support of the reserves. In total, active-duty end strength
would decrease by 40,160 and selected-reserve end strength
would decrease by 8,180 when compared with levels authorized
under current law for 2014. The specified end-strength levels
for each component of the armed forces are detailed below.
Active-Duty End Strengths. Compared with end-strength
levels authorized under current law for 2014, section 401 would
authorize reductions in active-duty personnel across three of
the four services: 32,100 fewer for the Army; 7,100 fewer for
the Marine Corps; and 1,860 fewer for the Air Force. In
contrast, the Navy would increase strength by 900. CBO
estimates that the total net reduction in active-duty personnel
of 40,160 servicemembers would decrease costs to DoD by $24.9
billion over the 2014-2018 period, assuming appropriations are
reduced by the same amount. Those decreases reflect reductions
in pay and benefits from fewer personnel, as well as reductions
in costs for operation and maintenance.
Selected-Reserve End Strengths. Sections 411 and 412 would
authorize the end strengths for reserve components, including
those who serve on active duty in support of the reserves.
Under this bill, four of the six reserve components would
experience decreases in end strength: 4,000 fewer for the Army
National Guard, 3,400 fewer for the Navy Reserve, 300 fewer for
the Air National Guard, and 480 fewer for the Air Force
Reserve. The other reserve components would see no change to
the levels already authorized for 2014. Those numbers include a
small net increase (21 reservists) in the number of full-time
reservists who serve on active duty in support of the reserves
compared with the authorized end-strength levels for 2014. CBO
estimates that the net result of implementing those provisions
would be a decrease in costs for salaries and expenses for
selected reservists of $1.1 billion over the 2014-2018 period,
assuming appropriations are reduced by the same amount.
Reserve Technicians End Strengths. Section 413 would
authorize the minimum end-strength levels for dual-status
military technicians, who are federal civilian personnel
required to maintain membership in a selected-reserve component
as a condition of their employment. The bill would lower the
minimum number of technicians required by 276 relative to the
levels currently authorized. CBO estimates that such a
reduction would decrease costs for civilian salaries and
expenses by $131 million over the 2014-2018 period.
TABLE 3--ESTIMATED AUTHORIZATIONS OF APPROPRIATIONS FOR SELECTED PROVISIONS IN H.R. 1960
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By fiscal year, in millions of dollars--
-----------------------------------------------------------------
2014a 2015 2016 2017 2018 2014-2018
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FORCE STRUCTURE
Active-Duty End Strengths..................... -3,037 -4,808 -5,468 -5,712 -5,900 -24,925
Selected-Reserve End Strengths................ -91 -203 -252 -281 -289 -1,116
Reserve Technicians End Strengths............. -13 -28 -29 -30 -31 -131
Active Status for Inactive National Guard 8 26 44 64 63 205
Members......................................
COMPENSATION AND BENEFITS
Expiring Bonuses and Allowances............... 935 582 336 293 150 2,296
TRICARE Prime Service Areas................... 164 154 146 139 132 735
Civilian Benefits in a Combat Zone, Department 0 72 0 0 0 72
of Defenseb..................................
OTHER PROVISIONS
Multiyear Procurement Contracts
C-130J Aircraft Variants.................. 1,594 1,044 1,815 800 537 5,789
E-2D Aircraft............................. 965 935 981 1,003 699 4,582
Ground-based Interceptors................. 367 364 375 384 393 1,883
East Coast Missile Defense Site............... 700 700 700 100 100 2,300
Increased Cost Cap for CVN-78 Aircraft Carrier 132 777 0 0 0 909
Repair of Vessels in Foreign Shipyards........ 36 36 37 38 39 186
Incrementally Funded Construction Projects.... 373 195 0 0 0 568
Mental Health Assessments..................... 25 45 45 45 50 210
Sikes Act, Department of Defenseb............. 0 2 2 2 2 6
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Notes: Amounts shown in this table for 2015 through 2018 are not included in amounts that would be specifically
authorized by the bill and would be covered by specific authorizations for defense programs in future years
(and therefore are not reflected in Tables 1 and 2).
Figures shown here may not add up to numbers in the text because of rounding.
a. Amounts shown in this table for 2014 are included in amounts specifically authorized to be appropriated by
the bill (as reflected in Table 2 and summarized in Table 1).
b. This provision also would increase costs for agencies other than DoD. Those costs are included in Table 1
under ``Other Authorizations of Appropriations.''
Coast Guard Reserve End Strength. The bill also would
authorize an end-strength level of 9,000 servicemembers in 2014
for the Coast Guard Reserve. Because this authorization is the
same as that under current law, CBO does not estimate any
change in costs for this provision.
Active Status for Inactive National Guard Members. Section
513 would provide temporary authority to create a new active
status for certain members of the inactive National Guard
(ING). Members transferred to that status would continue to
receive their current level of pay and benefits; however, they
would no longer count towards the end strength level for
Selected Reserve Personnel. The bill would limit the number of
guardsmen in the new active status to 4,000 at any time.
Based on information from DoD, CBO expects that the Army
National Guard (ARNG) would use this authority to transfer to
the new status soldiers who are not eligible to be deployed
because they are being evaluated under the Integrated
Disability Evaluation System (IDES). As of April of this year,
there were a little over 4,000 ARNG members in IDES being
evaluated for their injuries or illnesses to determine whether
they will return to duty or be discharged.
Based on information from DoD, CBO estimates that the ARNG
would implement this authority starting in April of 2014, and
that the number of members on the active status list of the ING
would grow from about 1,000 members in 2014 to 4,000 by the end
of 2017. That number would then decline to zero by December 31,
2018, when the authority would expire. By omitting those
members of the ARNG from counting toward Selected Reserve end
strength set in section 411 of this bill, and thus making room
under the limit to hire additional part-time ARNG members, CBO
estimates that this provision would effectively raise the
authorized end strength by that same amount. CBO estimates that
the resulting increase in ARNG personnel would cost $205
million over the 2014-2018 period.
Compensation and Benefits. H.R. 1960 contains several
provisions that would affect compensation and benefits for
uniformed personnel and civilian employees of DoD. The bill
would specifically authorize regular appropriations of $137
billion for the costs of military pay and allowances in 2014.
For related costs resulting from overseas contingency
operations (primarily in Afghanistan), the bill would authorize
the appropriation of an additional $10 billion for 2014.
Expiring Bonuses and Allowances. Sections 611 through 616
would extend for another year DoD's authority to enter
agreements to pay certain bonuses and allowances to military
personnel. The authority to enter into such agreements is
currently scheduled to expire on December 31, 2013. Some
bonuses are paid in a lump sum, while others are paid in annual
or monthly installments over the period of obligated service.
Based on DoD's budget submission for fiscal year 2014, CBO
estimates that extending that authority for one year would cost
$2.3 billion over the 2014-2018 period.
TRICARE Prime Service Areas. At the beginning of fiscal
year 2014, several TRICARE Prime Service areas are scheduled to
be eliminated. About 170,000 Prime beneficiaries will need to
convert to TRICARE Standard, obtain a waiver to use TRICARE
Prime providers in a nearby service area, or use some other
form of health coverage (such as employer sponsored
insurance).\1\ Section 711 would require DoD to continue to
make the TRICARE Prime benefit available to beneficiaries
currently residing in those affected areas. DoD would be
allowed to phase-out Prime in those areas as those
beneficiaries either move, opt out of Prime, or reach the age
of eligibility for TRICARE-for-Life.
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\1\The military's health care program, TRICARE, comprises nine
health plans that cover uniformed servicemembers, retirees, and their
dependents in the United States and abroad. Two of the most commonly
used plans are TRICARE Prime--a managed care option, and TRICARE
Standard--a fee-for-service option. Medicare-eligible TRICARE
beneficiaries use the TRICARE-for-Life benefit, which acts as Medicare
wrap-around coverage.
---------------------------------------------------------------------------
Because it has low out-of-pocket costs, TRICARE Prime is
typically more expensive to DoD than other health options,
including TRICARE Standard; thus, any attempt to maintain or
expand enrollment in TRICARE Prime would result in added costs
to the government. Based on an analysis of the proximity of the
affected Prime service areas to areas unaffected by the new
policy, CBO estimates that about a third of the affected
beneficiaries will seek the waivers available under current law
and travel the added distance to remain in Prime. Therefore,
the net cost to the government of health benefits for those
people will remain approximately the same. For the other two-
thirds of that population, CBO estimates that the requirement
to maintain the Prime benefit would result in added costs for
the government.
The average annual cost for a Prime beneficiary is about
$5,400. CBO estimates that eliminating Prime would decrease
that cost by over 25 percent. That estimate takes into account
the lower costs for Standard, as well as the possibility that
those beneficiaries would begin using another source of
funding--such as employer-sponsored insurance--for part or all
of their health care costs. Initially, CBO estimates that
enacting section 711 would cost DoD more than $150 million
annually, although costs would decrease over time as the
affected beneficiaries drop out of Prime for various reasons.
In total, CBO estimates that implementing section 711 would
increase the need for appropriations by $735 million over the
2014-2018 period.
In addition, CBO estimates section 711 would increase
mandatory spending for retiree health benefits of the Other
Uniformed Services. A discussion of those costs can be found in
the ``Direct Spending'' section of this estimate.
Civilian Benefits in a Combat Zone. Section 1102 would
extend for one year the authority to grant certain benefits to
federal civilian employees who perform official duty in a
combat zone. Those benefits, which expire under current law on
September 30, 2014, include death gratuities, paid leave and
travel for one trip home, and up to three leave periods per
year for rest and recuperation. Based on information from DoD
and the Office of Personnel Management, CBO estimates that
about 5,000 civilian employees of DoD and 600 employees of
other federal agencies will work in a designated combat zone in
2015 and, under this provision, would receive an average
benefit that would cost about $14,500 a year. Thus, CBO
estimates that in 2015, section 1102 would increase the costs
of civilian employees of DoD by about $72 million and of other
federal employees by $8 million.
Other Provisions. Various other provisions of H.R. 1960
would increase the cost of discretionary programs over the
2014-2018 period, CBO estimates.
Multiyear Procurement Contracts. The bill would authorize
the military departments to enter multiyear procurement
contracts for four major acquisition programs. Multiyear
procurement is a special contracting method authorized in
current law (title 10, United States Code, section 2306b) that
permits the government to enter into contracts covering
acquisitions for more than one year but not more than five
years, even though the total funds required for all years are
not appropriated at the time the contracts are awarded.
Additional legislative authorization is required for multiyear
contracts costing more than $500 million.
Multiyear procurement contracts are used to acquire
multiple assets--such as ships, planes, and other weapons--
under one agreement. As part of such a contract, the government
commits to purchase all items specified at the time the
contract is signed, including those to be produced and paid for
in subsequent years. Budget authority is provided in advance
only for the cost of the items that will be ordered in the
upcoming budget year. Because multiyear procurement allows a
contractor to plan for more efficient production, such a
contract can reduce the cost of an acquisition compared with
the cost of buying the items through a series of annual
contracts. If such contracts are cancelled before completion,
an agency usually has useable assets, albeit fewer than were
envisioned under the contract.
Multiyear contracts frequently include provisions that
require DoD to pay for unrecovered fixed costs in the event
that the contract is canceled before completion. In practice,
DoD does not budget for, obtain, or obligate funds sufficient
to pay for those contractual commitments at the time they are
incurred. Thus, should the contracts be cancelled at the end of
the first year, DoD could owe the contractors for unrecovered
fixed costs, but the department does not request budget
authority for that amount. The amount of cancellation liability
declines in subsequent years, as increasing portions of the
fixed costs are covered by annual contract payments, falling to
zero in the final year of the contract.
CBO believes that the full cost of such liabilities should
be recorded in the budget at the time they are incurred. The
failure to request funding for cancellation liabilities may
distort the resource allocation process by understating the
cost of decisions made today and possibly requiring a future
Congress to pay for those decisions.
Section 131 would authorize the Air Force to enter
a multiyear contract beginning in fiscal year 2014 to purchase
several variants of the C-130J aircraft for the Air Force and
the Marine Corps. The C-130 is a medium-sized transport
aircraft that performs a broad variety of airlift and support
missions. CBO estimates that under such a contract, the Air
Force would buy 72 aircraft for its active and reserve
component squadrons and seven aircraft for the Marines over the
2014-2018 period at a cost of $5.8 billion. The services
estimate that a single multiyear contract would cost about $600
million less than five annual contracts.
Section 121 would authorize the Navy to pursue a
multiyear contract beginning in fiscal year 2014 to purchase E-
2D Advanced Hawkeye aircraft. The E-2D is an airborne command,
control and surveillance aircraft. CBO estimates that the Navy
would buy 32 aircraft over the 2014-2018 period at a cost of
$4.6 billion. The service estimates that a single multiyear
contract would cost about $520 million less than five annual
contracts.
Section 141 would authorize the Missile Defense
Agency (MDA) to enter into one or more multiyear contracts for
the procurement of ground-based interceptors. In addition, the
provision would allow MDA to enter into contracts for advance
procurement associated with those interceptors. The bill would
authorize $107 million in advance procurement authority in 2014
to purchase long-lead items associated with the interceptors.
CBO estimates that the MDA would use the multiyear contract
authority to purchase 14 additional interceptors for the Fort
Greely site and 20 interceptors for the East Coast Missile
site. CBO estimates that those 34 interceptors would require
additional appropriations of nearly $1.9 billion over the 2014-
2018 period. An additional $500 million would be required
beyond 2018 to complete the purchase of the 34 interceptors.
CBO estimates that purchasing those interceptors under multiple
annual contracts would cost about $300 million more than a
multiyear procurement contract.
Section 142 would authorize the Department of
Defense to enter one or more multiyear contracts over the 2014-
2018 period for a variety of medium and heavy tactical
vehicles. The services have no plans for such a multiyear
contract, but requested $240 million to purchase 1,057 such
vehicles in 2014. CBO has no basis on which to estimate the
cost of a multiyear contract for those and additional vehicles
in subsequent years.
East Coast Missile Defense Site. Section 232 would require
that the Secretary of Defense ensure that a missile defense
site on the East Coast of the United States is constructed and
operational by 2018. Based on information from the Missile
Defense Agency, CBO estimates that preparing and operating the
site would require appropriations of $2.3 billion over the
2014-2018 period. That $2.3 billion amount includes the costs
for buying ground equipment ($1.2 billion), building the
facilities and constructing the silos (nearly $900 million),
and operations ($200 million).
CBO estimates that DoD would purchase 20 ground-based
interceptors to deploy to the new East Coast site. The costs of
those interceptors are included above under the discussion of
the multiyear contract authority provided under section 141.
Increased Cost Cap for the CVN-78 Aircraft Carrier. Section
122 of the bill would increase, to $12.9 billion, the cost cap
for acquiring the CVN-78 aircraft carrier, the lead ship of the
Ford class of nuclear aircraft carriers. That amount is
currently capped at nearly $11.8 billion. Public Law 109-364
established a cost cap of $10.5 billion that was later revised
to $11.8 billion in 2010 under the authority of the Secretary
of the Navy to make adjustments to the cap for costs incurred
primarily because of inflation through fiscal year 2010. Under
that same authority, the cap can be further increased to $12
billion to reflect inflation since 2010. The Congress has
appropriated more than $11.5 billion for the CVN-78 through
2013. CBO expects that DoD will use its current-law authority
to increase the cost cap to $12 billion; thus, we estimate that
raising that cap to $12.9 billion would increase the need for
appropriations for constructing the CVN-78 by $0.9 billion over
the 2014-2015 period.
Repair of Vessels in Foreign Shipyards. Section 1023 would
require all vessels that are part of the Military Sealift
Command (MSC) to be treated as though they are assigned to home
ports in the United States or Guam. MSC vessels are often
stationed overseas for two or more consecutive years. During
such deployments, the Navy considers those ships to be
forwarded deployed (that is, to not have a home port), allowing
maintenance and repair work on those ships to be performed in
foreign shipyards. Because they do not have to transit back to
the United States during their deployments, those ships have
lower fuel costs and are able to spend more time on station. In
contrast, ships that are homeported in the United States are
required to have all maintenance and repair work performed
domestically, except in emergencies.
Implementing this provision would require all MSC vessels
that are stationed overseas to transit back to the United
States or Guam for routine repairs. The Navy reports that about
35 ships would be affected by this provision. Based on
information from the Navy, trips back to the United States for
repairs would increase fuel costs by $35 million to $40 million
annually, and reduce the time each vessel can spend on station.
The Navy estimates that the cost for repairs and maintenance
performed domestically would, on average, be higher that the
costs charged overseas. However, CBO does not currently have
the information needed to estimate that increased cost.
Incrementally Funded Construction Projects. Division B
would authorize DoD to begin two construction projects while
authorizing appropriations for a portion of the cost in
advance. The bill would authorize $373 million for those
projects in 2014; an additional $195 million in authorizations
and appropriations would be required in subsequent years to
complete those projects. Additionally, the bill would authorize
the appropriation of $1,261 million for subsequent increments
of 10 projects that were authorized in prior years.
Mental Health Assessments. Two sections would increase the
number of mental health assessments administered to military
personnel. CBO estimates that the combined cost of those
additional assessments would be $210 million over the 2014-2018
period.
Section 701 would require DoD to administer a mental health
assessment to deployed personnel once every six months. Based
on current deployment levels, CBO estimates DoD would need to
deploy an additional 20 mental health professionals to conduct
those assessments. Based on information from DoD, CBO estimates
the cost to deploy each of those additional personnel would be
about $150,000 per year. In addition, there would be a cost to
DoD to replace those personnel in the continental U.S. (CONUS),
so that current mental health caseload demands can be met. CBO
estimates DoD would need to pay for an additional 25,000 hours
per year of mental health services in CONUS to compensate for
the loss of the deployed mental health professionals, at a cost
of over $100 per hour. In total, CBO estimates section 701
would cost about $5 million per year, or about $25 million over
the 2014-2018 period.
Section 702 would require DoD to administer a person-to-
person mental health assessment to all active duty members on a
periodic basis. Based on discussions with DoD, CBO believes the
department would administer the assessments during a service
member's annual health assessment. While certain aspects of
mental health are already addressed during the periodic health
assessment, it is not clear whether the current approach is
sufficient to meet the requirements of section 702. For this
estimate, CBO assumes health professionals would need to add an
additional 15 minutes per assessment to fully meet the
requirements. The total number of personnel requiring mental
health assessments each year would be about 1.3 million
(excluding deployed personnel and those already receiving pre-
and post- deployment mental health assessments). At an
additional cost of about $25 per assessment (the billing rates
for health professionals are about $100 per hour), CBO
estimates section 702 would cost $185 million over the 2014-
2018 period.
Sikes Act. Section 313 would extend by five years--from
2015 to 2019--authorizations of up to $4.5 million annually for
activities related to the Sikes Act, which promotes cooperation
between the Department of Interior (DOI) and DoD in planning
and developing fish and wildlife resources on military land.
Under current law, the authorizations for those activities will
expire in 2014. CBO estimates that through 2018, authorizations
in H.R. 1960 for the DOI and DoD would total $12 million and $6
million, respectively.
Direct Spending and Revenues
Several provisions in H.R. 1960 would affect direct
spending. CBO estimates that those provisions would decrease
net direct spending by $2 million over the 2014-2023 period
(see Table 4).
Retired Pay Inversion. In 1975, a law was enacted that
required DoD to recalculate the annuities of military retirees
to take into account any additional cost-of-living adjustments
(COLA) that would have occurred had members retired at earlier
dates, if they were eligible to do so; this provision is
referred to as the Tower Amendment. In instances where an
earlier retirement would have resulted in a larger annuity, DoD
was directed to recalculate using that earlier date.\2\
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\2\For military personnel who entered service prior to 1981,
retirement pay is based on their final annual pay at the time they
retired. In certain instances, it would have been more advantageous,
from a financial perspective, if the member had retired at an earlier
date. For example, assume the member retired in the month of October
after exactly 20 years of service. If the member's initial annuity was
$1,000 per month and his first COLA was 3 percent, his retired pay the
following January would have been $1,030. However, if the member waited
until that January to initially retire and in the intervening three
months received a pay raise of 1.5 percent, the member's initial
retired pay in January (including the impact of the additional three
months of service) would have only been $1,028. The member would have
been better off retiring the previous October.
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Subsequently, a new method of computing retired pay was
enacted into law. The new method (known as ``High-36 Average'')
applies to all personnel who entered the service after 1980.
DoD believed that the Tower Amendment did not apply to that new
provision of law. However, a recent audit concluded that the
Tower Amendment does apply to those who retire using the High-
36 Average method of computation and that a number of those
retirees stand to benefit from its application. DoD believes
they are now required to make retroactive retirement payments
back to the year 2000 (the year in which retirees started
receiving annuities under the High-36 plan), and that they will
also have to recalculate payments to future retirees to
determine if those payments should be increased. Section 622
would prevent most of those higher payments from taking place,
by specifying that the Tower Amendment applies to High-36
retirees only in very limited circumstances.
Based on an analysis of DoD retirement statistics and COLAs
published by the Defense Finance and Accounting Service (DFAS),
CBO estimates that about 370,000 former members have retired
using the High-36 Average method of computation since 2000, and
that, under current law, about 15 percent of those will benefit
from application of the Tower Amendment. Of those who will
benefit, CBO estimates the average retroactive payment should
be about $1,000 per person, or almost $60 million in total.
Section 622 would prevent those retroactive payments from being
made.
TABLE 4--ESTIMATED IMPACT OF H.R. 1960 ON DIRECT SPENDING
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By fiscal year, in millions of dollars--
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2014- 2014-
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2018 2023
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Retired Pay Inversion
Estimated Budget Authority.............................. -38 -49 -12 -13 -14 -15 -16 -17 -18 -20 -126 -212
Estimated Outlays....................................... -38 -49 -12 -13 -14 -15 -16 -17 -18 -20 -126 -212
Special Immigrant Visas for Iraqi and Afghan Allies
Estimated Budget Authority.............................. 2 5 10 10 15 15 15 15 15 15 42 117
Estimated Outlays....................................... 2 5 10 10 15 15 15 15 15 15 42 117
TRICARE Prime Service Areas
Estimated Budget Authority.............................. 4 4 4 3 3 3 3 3 3 3 18 33
Estimated Outlays....................................... 4 4 4 3 3 3 3 3 3 3 18 33
Servicemember Qualification for Mortgage Refinancing
Estimated Budget Authority.............................. 4 3 2 1 1 1 1 2 2 2 11 19
Estimated Outlays....................................... 4 3 2 1 1 1 1 2 2 2 11 19
National Defense Stockpile
Estimated Budget Authority.............................. 0 0 0 0 0 0 0 0 0 0 0 0
Estimated Outlays....................................... 2 10 10 10 5 4 0 0 0 0 37 41
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Total Changes in Direct Spending
Estimated Budget Authority.......................... -28 -37 4 1 5 4 3 3 2 0 -55 -43
Estimated Outlays................................... -26 -27 14 11 10 8 3 3 2 0 -18 -2
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Note: H.R. 1960 also would affect revenues. However, CBO estimates that effect would be insignificant.
In addition, CBO estimates section 622 would reduce future
payments by more than $10 million annually over the next 10
years. That amount includes both the added payments to current
retirees (which would average about $200 a year each), as well
as increased payments for those who will retire during that
period and stand to benefit from application of the Tower
Amendment. In total, CBO estimates that enacting section 622
would reduce spending from the Military Retirement Fund by $212
million over the 2014-2023 period.
Special Immigrant Visas for Iraqi and Afghan Allies.
Section 1216 would amend the Afghan Allies Protection Act of
2009 (8 U.S.C. 1101 note) to extend by four years (through the
end of fiscal year 2018) the period during which special
immigrant visas can be provided to certain Afghans. Eligible
immigrants under that provision are Afghans who were employed
by the United States Government at some point since 2001 and
are experiencing an ongoing serious threat as a consequence.
The provision also would make available to those
individuals 435 additional visas in each year from 2014 to
2018; their spouses and children would not count against that
number. Because those special immigrants (including their
spouses and children) are eligible for public benefits to the
same extent as refugees, they could receive subsidies through
health insurance exchanges, Medicaid benefits, nutrition
benefits, and Supplemental Security Income, if otherwise
eligible, upon arrival in the United States. CBO estimates that
direct spending for those benefits would increase by $117
million over the 2014-2023 period.
TRICARE Prime Service Areas. At the beginning of fiscal
year 2014, several TRICARE Prime Service areas are scheduled to
be eliminated. Section 711 would require DoD to continue to
make the TRICARE Prime benefit available to beneficiaries
currently residing in those areas. Most of the 170,000 affected
beneficiaries are retirees of the Army, Navy, Air Force, and
Marine Corps, and their dependents. Health benefits for those
personnel are paid by the Defense Health Program, which is
subject to annual appropriations. However, about 2.5 percent of
the population are retirees and dependents of retirees of the
Coast Guard, National Oceanic and Atmospheric Administration,
and the Uniformed Corps of the Public Health Service. Health
benefits for those beneficiaries are paid from mandatory
appropriations. Based on information from DoD, CBO estimates
section 711 would increase direct spending for those
beneficiaries by $33 million over the 2014-2023 period.
For a more complete overview of section 711, as well as
additional details about CBO's estimating methodology, see the
related discussion in the ``Spending Subject to Appropriation''
section of this estimate.
Servicemember Qualification for Mortgage Refinancing.
Section 553 would make it easier for certain servicemembers to
refinance mortgages on homes that they do not occupy. Under
current law, borrowers must occupy a home to be eligible for a
guarantee from the Department of Veterans Affairs (VA) on cash-
out refinancing loans. Further, private-sector lenders
generally charge higher interest rates for loans on homes that
are not occupied by the borrower, which discourages some of
those borrowers from refinancing. Section 533 would require
servicemembers to be treated as if they occupied the home when
they refinance, if they left the home because of change-of-
station or deployment orders. As a result, some additional
borrowers would qualify for cash-out refinancing loans that are
guaranteed by VA. Others would choose to refinance loans that
they would otherwise not have because they would receive lower
interest rates; some of those loans also would be guaranteed by
VA.
VA guarantees lenders a payment of up to 25 percent of the
outstanding loan balance (subject to some limitations on the
original loan amount) in the event that the veteran defaults.
Such guarantees enable veterans to get better loan terms such
as lower interest rates or smaller down payments. The subsidy
costs of VA loan guarantees are paid from mandatory
appropriations.\3\ Guaranteeing additional loans would increase
subsidy outlays. Based on the annual number of loan guarantees
that VA currently provides for servicemembers, CBO expects that
over the next 10 years, VA would guarantee an additional 10,000
loans under this provision. Those guarantees would increase
direct spending by $19 million over the 2014-2023 period, CBO
estimates.
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\3\Under the Federal Credit Reform Act of 1990, the subsidy cost of
a loan guarantee is the net present value of estimated payments by the
government to cover defaults and delinquencies, interest subsidies, and
other expenses, offset by any payments to the government, including
origination fees, other fees, penalties, and recoveries on defaulted
loans. Such subsidy costs are calculated by discounting those expected
cash flows using the rate on Treasury securities of comparable
maturity. The resulting estimated subsidy costs are recorded in the
budget when the loans are disbursed.
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National Defense Stockpile. Section 1411 would modify the
purchasing authority for the National Defense Stockpile by
authorizing the recovery of strategic and critical materials
embedded in excess components owned by the U.S. military or
other federal agencies before those components are sold for
scrap.
Section 1412 would allow the Stockpile Manager to spend up
to $41 million from the National Defense Stockpile Transaction
Fund to purchase six new materials over the 2014-2019 period.
All of those materials have been identified as necessary to
meet military needs. Based on information from DoD, CBO
estimates that enacting sections 1411 and 1412 would increase
direct spending by $41 million over the 2014-2019 period.
Other Provisions. Other provisions in the bill would have
insignificant effects on direct spending or revenues, generally
because few people would be affected, or because the net
budgetary impact would be small.
Section 512 would modify rules related to the
selective early retirement of reserve personnel. In certain
circumstances, those changes might affect the number of former
reserve members drawing retired pay in a given year.
Section 527 would enhance protections for military
whistleblowers from acts of reprisal and also would require
that the service records of victims of reprisal action be
corrected. CBO estimates that correcting those records would
result in some individuals receiving retroactive payments,
benefits, or awards that were improperly denied.
Section 528 would allow certain requirements for
medical examinations to apply to proceedings conducted under
the Uniform Code of Military Justice. CBO estimates that under
that provision some servicemembers would receive a higher
characterization of discharge and, therefore, become eligible
for certain benefits administered by VA.
Section 585 would award the Purple Heart to
servicemembers who were killed or wounded in the attacks at a
recruiting station in Little Rock, Arkansas, on June 1, 2009,
and at Fort Hood, Texas, on November 5, 2009. Receipt of the
Purple Heart is directly tied to eligibility for Combat-Related
Special Compensation (CRSC), which is a mandatory benefit. CBO
estimates that some of those servicemembers who would receive
the Purple Heart under this provision would as a result earn
CRSC. In addition, members of the Armed Forces or civilian
employees of DoD who were killed or wounded in those attacks
would be deemed to have been killed or wounded in a combat zone
or while serving with the Armed Forces in a contingency
operation. Awarding that status would provide eligibility for
certain benefits that would increase direct spending and
decrease revenues.
Section 592 would allow the Army to enter into
contracts with private entities to provide certain services at
Arlington National Cemetery, such as transportation. Some of
those contracts could include third-party financing of capital
assets that, in CBO's judgment, should be recorded up front in
the federal budget.
Section 594 would establish a Commission on
Service to the Nation and allow the Commission to collect and
spend gifts, bequests, and devises of services or property.
Section 714 would create a pilot program to
improve the collection of third-party reimbursements at
military treatment facilities. In certain circumstances,
expenses associated with third-party collection activities are
recorded as direct spending.
Section 1061 would allow the Secretary of Defense
to accept and spend contributions for the operation of the
Conflict Records Research Center.
Sections 1084 and 3502 would allow the federal
government to insure without premium, private entities that
transport U.S. cargo and personnel in the event that the
private planes and vessels used are damaged in an act of war.
CBO estimates that the probability of paying claims on such
insurance would be negligible.
Section 1303 would extend by three years the
authority that allows DoD to spend contributions received from
the private sector and foreign governments for use on
activities associated with the Cooperative Threat Reduction
program. The current authority to accept and spend those
contributions will expire on December 31, 2015. Under section
1303, any amounts not spent by December 31, 2018 would be
returned to the donor.
Section 2803 would make available for spending by
DoD an insignificant amount of collections in a moribund
account for military housing.
Pay-as-you-go considerations: The Statutory Pay-As-You-Go
Act of 2010 establishes budget-reporting and enforcement
procedures for legislation affecting direct spending or
revenues. The net changes in outlays that are subject to those
pay-as-you-go procedures are shown in the following table.
Enacting H.R. 1960 would have no significant effect on
revenues.
CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 1960 AS REPORTED BY THE HOUSE COMMITTEE ON ARMED SERVICES ON JUNE 7, 2013
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By fiscal year, in millions of dollars--
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2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2013-2018 2013-2023
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NET INCREASE OR DECREASE (-) IN THE DEFICIT
Statutory Pay-As-You-Go Impact............... 0 -26 -27 14 11 10 8 3 3 2 0 -18 -2
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Intergovernmental and private-sector impact: The bill would
impose intergovernmental and private-sector mandates as defined
in UMRA on mortgage lending institutions. The bill would
require mortgage lenders to consider active-duty servicemembers
who have been relocated for certain reasons to be considered
the occupants of the residences that secure mortgages for the
purpose of refinancing. Because of the small number of loans
that would be affected, CBO estimates that the costs of
complying with the mandate would be small and well below the
annual threshold established in UMRA for intergovernmental
mandates ($75 million in 2013, adjusted annually for
inflation). Based on information about current industry
practices, CBO estimates that the costs to private lending
institutions of complying with the mandate would probably fall
below the annual threshold established in UMRA for private-
sector mandates ($150 million in 2013, adjusted annually for
inflation).
Section 552 would preempt state laws governing child
custody if those laws are inconsistent with or provide less
protection to the rights of a parent who is a servicemember
than those provided under the bill. That preemption would be an
intergovernmental mandate as defined in UMRA. While the mandate
would limit the application of state laws, it would impose no
duty on states that would result in additional spending.
Estimate prepared by: Federal Costs: Defense
Authorizations--Kent Christensen, Military Construction and
Multiyear Procurement--David Newman, Military and Civilian
Personnel--Dawn Regan, Military Retirement and Health Care--
Matthew Schmit, Operation and Maintenance--Bill Ma, Kent
Christensen, and Jason Wheelock, Missile Defenses, Ships, and
Stockpile--Raymond J. Hall; Impact on State, Local, and Tribal
Governments: J'nell L. Blanco, Impact on the Private Sector:
Elizabeth Bass.
Estimate approved by: Theresa Gullo, Deputy Assistant
Director for Budget Analysis.