Assets and Liabilities

By John Liang / December 4, 2008 at 5:00 AM

Just as big defense contractors like Lockheed Martin and Boeing release an annual financial report to their shareholders, summarizing their income and outflows as well as projections for the following year, the Defense Department this week did the same thing.

The "FY 2008 DOD Agency Financial Report (AFR)," has a cover letter dated Nov. 17 and written by Deputy Defense Secretary Gordon England. In it, England writes:

At the end of each fiscal year, the Department of Defense (DOD) provides an accounting to the American people for the funds appropriated by act of Congress and signed into law by the president during the previous budget cycle.

The Agency Financial Report (AFR) is a concise and easy-to-understand summary of DOD's use of those tax dollars to maintain and modernize America's defenses -- including expenditures to pay, train, equip, and supply the men and women who wear the nation's uniform, and to cover the costs of the Global War on Terror and other military operations.

Some notable passages from the report include:

The Department’s total resources primarily consist of carried forward budget authority of $112.0 billion for unfilled commitments from FY 2007 and received additional appropriations of $736.4 billion in FY 2008 to support the Global War on Terror (GWOT), train and equip our warfighters, and ensure broad national security priorities are met.

Of the $736.4 billion, the report sports a pie chart that breaks down that figure, with 25 percent of that amount ($186.8 billion) going toward the GWOT, 24 percent ($175.5 billion going toward "strategic modernization," 19 percent ($143.4 billion) going toward "operations, readiness & support," 18 percent ($129.2 billion) going for "military pay and benefits," 10 percent ($73.1 billion) for "military retirement benefits," 3 percent ($20.2 billion) for "family housing & facilities," and 1 percent ($8.1 billion) for "civil works and cemeterial." Additionally:

Most ($1.0 trillion or 91%) of the total budgetary resources for FY 2008 were spent or reserved for specific purposes. The remaining resources relate to receipt of multi-year appropriations and supplemental funding that were received late in the fiscal year with insufficient time to fully obligate and outlay. The Department’s total FY 2008 obligations incurred are in support of present and future initiatives such as establishing the Africa Command (AFRICOM), building partnership capacity with foreign partners, realigning the ballistic missile defense sites in Europe, and strengthening cyberspace security. Obligations incurred presented in Figure 1-6 are shown separate between mandatory and discretionary funding.

Additionally, the report states that DOD owned assets worth $1.7 trillion during fiscal year 2008, having increased by 13 percent from the previous year. "This increase is largely attributable to increases in Fund Balance with Treasury (FBWT), Investments, and Military Equipment," the report states.

As for liabilities (emphasis added):

In contrast, the Department has significant unfunded liabilities consisting primarily of actuarial liabilities related to military retirement pension and health care benefits. While the liability presents the Department with a negative financial position, the majority of the unfunded portion will come from annual appropriations outside the Department’s budget. The FY 2008 actuarial liability estimate totaled $2.0 trillion of which $1.3 trillion will come from the U.S. Treasury to cover liabilities existing at inception of the programs. Approximately $378.9 billion is currently covered with invested U.S. Treasury securities. Due to the significant growth in liability in recent years, the Board of Actuaries accelerated the liquidation of the initial unfunded liabilities by reducing the amortization period thus increasing the annual contribution amounts from the U.S. Treasury.