|
|
|
|
|
|
|
|
|
|
Estimate of Direct Spending and Revenue Effects for H.R. 1588, National Defense Authorization Act for Fiscal Year 2004 (except) |
|
|
|
(Source: Congressional Budget Office; issued Dec. 2, 2003)
(EDITOR’S NOTE: Although the US Air Force’s tanker lease was frozen on Dec. 2 pending an investigation by the Pentagon Inspector-General, the proposed acquisition process as detailed below by the CBO provides the most detailed look to date of the deal’s internal mechanics)
|
|
|
|
Acquisition of Aerial Refueling Aircraft.
Section 135 authorizes the Air Force to acquire up to 100 KC-767 aerial refueling tankers through a hybrid acquisition strategy where the Air Force would lease no more than 20 tanker aircraft and purchase as many as 80 additional aircraft under multiyear procurement authority.
It is unclear how this authority will affect direct spending: if the Air Force proceeds with a plan to acquire all 100 planes under a single pending contract, section 135 will effectively increase direct spending by nearly $18 billion over the 2004-2013 period--covering the costs for all 100 planes. Alternatively, if the acquisition is split between 20 aircraft under the pending contract and the remaining 80 aircraft under a new contract with payments subject to the availability of future appropriations, then the direct spending under section 135 would be limited to $4 billion (for the cost of the first 20 planes).
In implementing this authority the Air Force could lease the 20 tankers authorized by subsection (a) of section 135 using a financing mechanism similar to the one proposed for the lease of 100 tankers. The Air Force could buy the remaining 80 tankers using multiyear procurement authority and requesting appropriations before ordering each annual lot of tankers. Alternatively, the Air Force may interpret section 135 as authorizing it to enter into one contract to acquire 100 tankers using a financing mechanism similar to the one proposed for the lease of 100 tankers. As of the date of this estimate, DoD has not yet decided which approach it will take and has indicated that it might be as late as the end of calendar year 2003 before it decides which approach to pursue.
For the purpose of this estimate, CBO assumes that the Air Force will use the latter approach and sign a contract it negotiated with Boeing in May 2003 to acquire all 100 planes. Absent a clear statement from the Administration to the contrary, CBO assumes that DoD will carry out the plans it has laid out thus far. Under those plans, the Air Force would use the special-purpose entity that was established to facilitate the original proposal to lease the first 20 tankers and purchase the last 80 tankers.
The special-purpose entity would make payments to Boeing as it builds the aircraft, then buy the tankers from Boeing once they were built. It would lease the first 20 tankers to the Air Force using the financing arrangement developed for the lease of 100 tankers and sell the last 80 tankers to Air Force at the time of delivery at the prices specified in the existing contract. The Air Force would request budget authority in the year it intends to make the necessary payments, even though the tankers had been ordered several years earlier. Because the special-purpose entity that has been established to buy the aircraft would, in fact, be substantially controlled by and act on behalf of the federal government, its transactions should be reflected in the federal budget. CBO has concluded that the transactions of the special-purpose entity would essentially be a purchase of all 100 tankers by the federal government.
If it signs the pending contract, the Air Force would obligate the government to acquire 100 tankers--in advance of the appropriations necessary to make lease and purchase payments required under the contract. (The contract would be liquidated in subsequent years as appropriations are provided to make the lease payments and purchase payments.) Based on the aircraft delivery schedule provided by the Department of Defense, CBO estimates that implementing this provision in this manner would increase direct spending by $164 million in 2004, $7.1 billion over the 2004-2008 period, and $17.9 billion over the 2004-2013 period.
The First 20 Aircraft.
Section 135 authorizes the Air Force to lease no more than 20 tanker aircraft. CBO believes the proposed transaction for the first 20 aircraft would not qualify as an operating lease, however, but rather a purchase of the tankers by the federal government. Since the special-purpose entity is an instrument of the government, the government will effectively be buying the aircraft (via the special-purpose entity) and then leasing them to itself. To accurately reflect the nature of that arrangement, the federal budget should report the transactions between the special-purpose entity and Boeing, and between the special-purpose entity and its bondholders, not the essentially intragovernmental transfers between the special-purpose entity and the Air Force. Thus, when the special-purpose entity pays Boeing for the aircraft, those payments should be reflected as federal outlays. Subsequent interest payments on the special-purpose entity's borrowing should also be reflected as outlays when those payments are made.
CBO expects that the Air Force will exercise the option in the contract to purchase the leased aircraft at the end of the lease term. Since signing the contract effectively obligates the Air Force to pay for the 20 leased planes, the authorization to sign the contract, as granted by section 135, provides $3.6 billion in budget authority in 2004, and, in total, $4 billion in budget authority over the 2004-2013 period.
Additional Aircraft.
If it signs the pending contract for 100 tankers, the Air Force would commit to purchase the remaining 80 planes as well. Because it appears that the department intends to pay for the purchased tankers at the time of delivery (see Secretary Wolfowitz's letter of November 5, 2003), the Air Force would not need to request appropriations for each annual production lot of aircraft until construction was substantially complete. Instead, the special-purpose entity would order the aircraft and make progress payments on the government's behalf. Since the special-purpose entity is an instrument of the government, its obligations to pay for the tankers should be recorded in the federal budget at the time those obligations occur.
Thus, CBO believes that budget authority for each lot of purchased aircraft--approximately $2 billion each year over the 2006-2012 period--should be recorded in the year that construction begins on each lot of aircraft. Budget authority for all 80 purchased aircraft would total $14.2 billion.
Alternatively, it is possible that DoD may pursue the option of using two contracts to acquire these tanker aircraft--one for the 20 leased aircraft and another to purchase the remaining 80--and procure the 80 tankers using the normal procurement process.
If that were the case, then CBO estimates that section 135 would increase direct spending by $164 million in 2004, $3.2 billion over the 2004-2008 period, and $4 billion over the 2004-2013 period. Those costs would cover the acquisition of the first 20 aircraft; the costs for the other 80 aircraft would be covered by future appropriation actions under this multi-contract option.
-ends-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
