An Analysis of the Army's Arsenal Support Program Initiative

July 21, 2010

The Congress created the Arsenal Support Program Initiative (ASPI) in 2001 to help maintain the functional capabilities of the Armys three manufacturing arsenals, which are located in Rock Island, Ill., Watervliet, N.Y., and Pine Bluff, Ark. A primary goal of the program is to enable commercial firms to lease vacant space at the arsenals once it has been renovated, thereby encouraging collaboration between the Army and commercial firms as well as reducing the costs the government incurs to operate and maintain the arsenal facilities. Since the ASPIs inception, a number of commercial tenants have leased unused property at the arsenals; however, the financial benefits generated by the program have proved to be small relative to the programs funding.

To determine whether the ASPI is meeting certain of its objectives, the Congress directed CBO to conduct a business case analysis of the program. In response to that directive, today CBO released a study examining the costs, return on investment, and economic impact of the program.

The ASPI has received more than $87 million in funding from its inception in 2001 through 2010. As of the end of 2009, a total of $54 million had been disbursed. Most of the funds have been used to renovate and improve arsenal properties and infrastructure. Funding for the ASPI is not used to pay employees who work for the office that manages the program; those costs are paid out of the Armys operation and maintenance account

The principal outcome of the ASPI to date is that commercial tenants have begun to lease unused property at the arsenals, typically vacant buildings or portions of buildings that the Army has renovated specifically for that purpose. Tenants compensate the arsenals mostly in the form of negotiated rental payments or services in lieu of rent. As of 2009, a total of 46 tenants were leasing more than 200,000 square feet of space at the arsenals under the ASPI; payments and services provided to the government totaled $1.3 million in that year.

CBOs analysis shows that the total stream of financial benefits that the ASPI has generated for the government so far and can be expected to generate in the future will fall short of the up-front investment required to ready the arsenal properties for tenants. In making this determination, CBO first estimated the revenues and other financial benefits that the program has generated for the government so far and those that might be generated in the future. CBO then compared the present value of those revenues and benefits to the outlays required to make space available to tenants. That calculation measures the economic value, in 2010, of projected future cash flows and noncash benefits using a discount rate that attaches a market price to the risk associated with those flows.

Under the assumptions that the ASPI receives no additional appropriations for renovations after 2010 and that the government continues to pay for marketing and administering the program, CBO estimates that, measured in 2010 dollars, the economic value of outlays for the program would total $99 million through 2075 and the economic value of the financial benefits that the program will generate for the government would total $47 million. The resulting net present value is negative $52 million, effectively translating into a government subsidy of about 50 cents for every dollar spent on the program.

In terms of the programs broader economic impact, the ASPI positively affects the local economies in two ways: government spending for the program probably leads to additional jobs for civilians and income for area businesses; and commercial tenants who relocate to the arsenal regions because of the program buttress economic activity in the area. On a national basis, the ASPI has had little if any net economic impact, in CBOs judgment, because the program primarily causes a shift in resources from one region of the country to another.

This study was prepared by Daniel Frisk of CBOs National Security Division.