Privatization Panned

January 6, 1997

THE DAILY FED

Privatization Panned

Closing Air Force depots instead of privatizing them and speeding up the closure of two Air Force bases could save the Defense Department more than $1 billion over the next four years, the General Accounting Office said.

A GAO report released Tuesday found that privatization-in-place at two Air Force maintenance depots will cost the Defense Department $200 million a year more than it would to close them and consolidate their aircraft maintenance and equipment operations with the three remaining depots. An Air Force Materiel Command analysis found the consolidation could save $367 million by reducing inefficiency and another $322 million because the remaining depots pay employees less.

Privatization-in-place is a method of lessening the harm of base realignments and closures on communities near military installations. "Privatization-in-place does not substantially reduce infrastructure and excess capacity," GAO officials said. "It just moves some of it to the private sector."

GAO studied the results of privatization-in-place at the Sacramento and San Antonio Air Force depots. It concluded that the depots were not operating at their full capacity because demands for repair and upgrading of aircraft and equipment have fallen over the last decade. The five depots reported approximately 57.2 million direct labor hours for fiscal 1996, but did only 31.5 million hours of work, leaving 25.8 million hours wasted. That means nothing gets done during 45 percent of the labor hours at Air Force depots. Privatization-in-place simply transfers some of the inefficiency to contractors because contractors do the same work as DoD employees, GAO said.

The Air Force spends about $4 billion a year on depot maintenance work.

Privatization-in-place is made even more inefficient by a congressional mandate that 60 percent of depot workloads must be performed by Defense Department employees, according to GAO. The so-called 60/40 rule is meant to protect federal workers. However, it also prevents the Air Force from efficiently dividing up depot work between DoD employees and private contractors.

In 1995, the Base Realignment and Closing Commission recommended realigning Kelly Air Force Base in San Antonio by moving many of its functions to other locations and closing McClellan Air Force Base near Sacramento, Calif. The 20-year savings of those two actions would be $3.5 billion.

President Clinton sent the commission's report to Congress with a recommendation that the closings be delayed until 2001 to lessen the economic impact on base employees. That decision will cost the Air Force $644.4 million between 1997 and 2001, according to GAO.

The GAO report, entitled "Air Force Depot Maintenance: Privatization-in-Place Plans Are Costly While Excess Capacity Exists," can be downloaded from the GAO Web site.