By Katherine G. Hammack, Assistant Secretary of the Army (Installations, Energy and Environment)September 30, 2014
In today's fiscally constrained environment, the Army cannot afford to keep and maintain excess infrastructure and overhead.
Congress, the Department of Defense (DoD) and the Department of the Army have taken actions to adjust for decreased resources.
In the Installations Community, the Army is already partnering with housing, lodging, utility and energy efficiency developers. By leveraging private sector core competencies, the Army gains efficiencies, focuses limited resources on critical missions and training, and operates within tightening budgetary authority. However, budgets continue to shrink. Money wasted on overhead distorts the Army's priorities and leaves holes in our critical requirements, contributing to a "hollow" force that puts Soldiers at risk in future conflicts. Therefore, in pursuit of continuing to enhance core competencies, it is critical to exercise another tool in our toolbox -- Base Realignment and Closure (BRAC).
Current challenges and responses…
With each new budget programming year, the Army's challenge is to balance critical facility requirements against recently announced and emerging force structure decisions, modernization and readiness. Budgetary projections currently require the Army to downsize from a wartime high Active Component end-strength of 570,000 Soldiers to below 490,000 Soldiers.
The Army started its belt-tightening overseas first, reducing force structure and its corresponding footprint in both Europe and Asia over many years. Since 2006, Army end-strength in Europe has declined 45 percent. Supporting infrastructure, overhead and operating budgets have shrunk by more than 50 percent. In Korea, the Army similarly decreased the number of Soldiers by about a third (10,000 Soldiers) and is on pace to shrink the footprint by about half.
But the Army is not resting on its laurels. In 2013, the Secretary of Defense directed a European Infrastructure Consolidation review to coordinate cross-service and cross-agency opportunities to further reduce "expenses by eliminating excess capacity in Europe while ensuring our remaining base structure supports our operational requirements and strategic needs." The DoD is employing the principles of capacity and military value analysis originally developed for BRAC. Current Army capacity analysis reflects 10 to 15 percent excess capacity in Europe. The Army has the tools it needs to reduce excess infrastructure and overhead overseas.
By way of comparison, in the US, a facility capacity analysis of the Army total infrastructure estimated that the magnitude of excess capacity, from announced end-strength reductions to 490,000, will result in excess Army capacity ranging between 12 - 28 percent, depending on facility category group, with an average of 18 percent (more than 160 million square feet) by 2019. This excess capacity is estimated to cost the Army more than $500 million a year in unnecessary operations and maintenance.
Additional end-strength reductions below 490,000 will further increase the Army's excess capacity in the US. The Army does not have the authorities needed to optimize that infrastructure.
Why BRAC and further consolidation?
Historically, there have been two purposes for which BRAC authority has been used -- maximizing military value (i.e. transformation) and cost savings (i.e. efficiency).
Efficiency BRAC recommendations, evidenced in the rounds conducted in years 1988, 1991, 1993 and 1995, cumulatively produce $943 million in annual recurring savings, with a 46 percent annual return on investment and a 2.2 year payback period. The main goal was cost savings "peace dividend" and a more efficient use of underutilized infrastructure as the Cold War ended, leading to major force structure reductions.
BRAC 2005 occurred during two major wars, as force structure increased and thousands of Soldiers returned back to the US from overseas. Its main goal was transformation, although it also contained significant efficiency recommendations that are saving the Army a net $1 billion per year. BRAC 2005 was a success; it accomplished major transformation goals, like the modularization of Brigade Combat Teams, repositioned the Reserve Components into joint and optimized Armed Forces Reserve Centers, and created Centers of Excellence at places like Fort Benning, Ga., and Fort Lee, Va. Nearly half of the recommendations focused on taking advantage of opportunities to enhance military value by moving forces and functions to where they made sense, even if doing so would not save much money.
The cost of the BRAC 2005 round for the Army adds up to about $18 billion. After subtracting the almost $5 billion in immediate one-time savings and the annual $1 billion net cost savings, the payback period for BRAC 2005 is approximately 12.6 years. The Army's investment is earning annual returns exceeding 7.7 percent, which is a better average annual return than the S&P 500 Index, the Russell 1000 Index, and the Lipper Large Cap Core Index over the past 10 years.
Where the Army sought efficiency recommendations, they worked -- the "efficiency" portion of BRAC 2005 produced about $575 million in annual recurring savings (30 percent annual return on investment) and a 3.4 year payback period.
What we cannot afford…
As the Army's installation populations shrink, so do facility requirements. Like Swiss cheese, holes are created on our installations consisting of various building types and uses.
Additional force structure cuts directed by the Quadrennial Defense Review will only increase the amount of excess capacity. At roughly $3 per square foot for sustainment, the "empty space tax" of under-utilized facilities rapidly compounds and erodes the Army's purchasing power. If left unaddressed, the "empty space tax" distorts Army investments over time and contributes to a "hollow" Army with imbalances in its end-strength, readiness and modernization.
While waiting for BRAC, the Army has significantly reduced our Military Construction program to invest limited budget dollars in readiness and training. This has real consequences for communities, because distributing less sustainment and maintenance over a fixed number of installations and facilities will result in a rapid decline in the condition of Army facilities. Multiple years of underinvestment will transform an asset, which could otherwise be repurposed, realigned or returned to the community, into a liability eventually requiring demolition.
Benefits of BRAC…
Fiscal: Using the average of actual costs and savings from previous rounds (BRAC 1993/1995 data), the DoD estimates that another efficiency BRAC, authorizing a 4 to 5 percent reduction in plant replacement value over a six-year implementation period, would cost $5.8 billion. This is roughly equal to the cumulative implementation period savings of $5.7 billion. The DoD projection also anticipates annual recurring savings (after implementation) of approximately $2 billion per year. The Army would represent a portion of that, depending on the recommendations. Thus, another BRAC could reap hundreds of millions of dollars in annual return on investment with a nominal payback period.
Environmental: The Army has an Environmental Restoration Program for active installations. It is managed by the U.S. Army Environmental Command and its mission is to return Army lands to usable condition and protect human health and the environment by performing appropriate, cost-effective cleanup of contamination resulting from past practices. It is part of the DoD Defense Environmental Restoration Program (DERP). The Army has two active-installation restoration programs funded under DERP. These are the Installation Restoration Program (IRP) and the Military Munitions Response Program (MMRP). The comprehensive IRP identifies, investigates and cleans up hazardous substances, pollutants and contaminants at active Army installations that pose environmental health and safety risks. The MMRP addresses non-operational range lands suspected to or known to contain unexploded ordnance, discarded military munitions or munitions constituent contamination. The Army is committed to protecting human health, sustaining the resources DoD holds in the public trust, meeting its environmental requirements, and supporting the military mission. As a result of these great efforts, our installations require less environmental clean-up to close or transfer to public use.
Energy: The Army spends over $1.3 billion annually on installation utility bills. During the next 30 years, absent efficiency gains and lower cost energy, the Army projects that the total utility bill will be over $40 billion. The Army works diligently to leverage efficiency gains through Energy Savings Performance Contracts. However, we must ensure that reductions in facility use, as a result of force reduction equate to a reduction in energy consumption. Closing buildings, demolishing failing buildings and transferring bases to the private sector for re-use all have the benefit of reducing our energy costs.
Socio-economics: Without BRAC, communities will experience adverse economic impact from force reductions and shrinking installation populations. By contrast, BRAC-impacted communities have benefited from leveraging DoD planning grants and technical assistance, as well as special authorities for property transfer. For example, an Economic Development Conveyance at Fort Monmouth, N.J., resulted in the construction of a 275,000-square foot facility to expand capacity of CommVault, a software data storage firm. This is the first of several planned expansions by CommVault, with the potential to create over 1,500 jobs and put property back onto the tax-rolls.
Vision for the future…
Although we do not know what missions our Nation will ask of the Army in the future, we know that to remain 'cost-effective' we must carefully manage limited resources to ensure facility utilization to the fullest potential. Sustainably operating our installations enables us to properly organize, equip, train and deploy Soldiers. Sustainability is necessary both in an operational and installation environment. It ensures future operational flexibility by giving the Army of tomorrow the same access to energy, water, land and natural resources as today's Army.
A future BRAC allows the Army to dispose of excess infrastructure. Without a future round of BRAC, the Army will be constrained in closing or realigning any 4
installation to reduce overhead. The longer we wait, the worse the problem gets. The "empty space" tax on Soldiers will result in cuts to capabilities elsewhere in the budget. Delays in efforts to identify inefficiencies and eliminate unused facilities divert scarce resources away from training, readiness and Family programs.
BRAC is a proven tool that is already saving the Army $2 billion a year. It is necessary to keep our Army balanced and operationally effective. The alternative is an Army that is out of balance and "hollow," which puts the lives of Soldiers at risk in the future.