INFLATION STUDY FROM FY 1967 - FY 1973

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85-00988R000600150001-0
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 74
• Document Creation Date: December 15, 2016
• Document Release Date: August 19, 2003
• Sequence Number: 1
• Publication Date: April 8, 1975
• Content Type: REPORT

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TAB
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The Information Systems Analysis Staff has been involved
in several activities where savings have occurred this
fiscal year.
Although the Staff has been involved in studying the use
of office copiers/duplicators in the Agency for over 18 months,
a concerted effort to reduce costs began on 1 July 1974 with
the assignment of DCI Objective A57002 to ISAS which, among
other things, called for an 8% reduction in expenditures
this fiscal year measured in FY-74 dollars. Although it is
unlikely that we will achieve the 8% goal, the attention
given to this project throughout the Agency has made people
more conscious of copying costs. We anticipate# an FY-75
savings of approximately 2.5 - 3.0% and an annual savings rate
of 4-5%. The inventory of copiers/duplicators in the Headquarters
area has decreased from 341 to 314 since 1 July 1974.
ISAS has been involved to a lesser degree in the word
processing program than in copying. Efforts have been devoted
to familiarization with the concept and equipment on the
market and developing a handbook for use in evaluating the need
for word processing equipment. Numerous equipment demonstrations
have been arranged in-house and at vendor's offices for Agency
personnel. We have been involved to a small degree with the
OTR Word Processing Center and have had discussions with other
components regarding possible Centers.
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We have also been involved in a program to reduce the
number of Agency forms in use by 5%. So far, we have eliminated
8.9% of those on hand 1 July 1974. Printing costs saved
are available for only half of these forms at this time and
amount# to approximately $15,000.
We are also involved in reviewing requests for filing
equipment. and supplies to ensure that the most effective and
economical items are purchased.
One major program sponsored by ISAS is an effort to
ensure that Agency Records Management Officers provide a
return on investment equal to their salaries during FY-75.
These Officers are encouraged to look for more economical
methods and equipment for use in their offices. For example,
if office record holdings can be reduced by destruction or
transfer to the Agency Records Center, perhaps the filing
equipment storing this material can be returned to stock for
re-issue. They can look for and recommend less expensive
filing equipment, file folders, copiers, supplies, etc. For
the past eight months of the fiscal year, the return equals
about 96% of the RMO salaries.
This office also conducts records management surveys in
Agency components to identify where more efficient and
economical procedures can be implemented.
The results of much our activity cannot be directly
measured in dollars and cents, particularly when certain
procedural improvements are recommended. Nevertheless, they
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can result in manpower savings.
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OFFICE OF COMMUNICATIONS
A. BACKGROUND
1. The Office of Communications budgets shown in this
Annex reflect adjustments from the actual OC budgets for the
years shown. The reason for these adjustments is to permit
comparability from year to year by eliminating items from
the budgets which were not common to all budget years shown.
Briefly, the following items are excluded:
a. Covert collection, Covert RFD, and Communi-
cations R&D have been deleted for FY-1967 through
1973. All of these functions were transferred from
OC to DD/O and DD/S&T beginning in FY-1974.
b. Cable dissemination has been deleted for
FY-1972 through FY-1975. This function was trans-
ferred to OC beginning in FY-1972.
c. Telephone facilities has been deleted for
FY-1974 and FY-1975. This function was transferred
to OC beginning in FY-1974. (A separate paragraph
discussing telephone costs is included in para B.2.
d. DD/O Agent Support has been deleted for
FY-1974 and FY-1975. Responsibility for budgeting
this function was initiated by OC in FY-1974.
ILLEGIB
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2. After the above adjustments, it will be seen that
25X1A1A the OC budget has increased fromi in FY-1967 to
25X1A1A
in FY-1975. However, these dollar statistics are
in current dollars. In constant dollars, after considering
the deflation of the dollar over this period, OC's budget
has actually declined considerably. OC.'s FY-1967 budget
25X1A1A of
current dollars equates to only
in 25X1A1A
FY-1975 constant dollars, which is considerably less
than the 1967 budget in terms of buying power.
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3. As can be seen from the display of OC budgets, OC's
buying power remained fairly level from FY-1967 through
FY-1971, rose in FY-1972, and then declined considerably to
its present level. There are two principal reasons why OC
has been able to expand and improve its services over these
years despite a significant decline in constant dollars,
without inflation causing serious problems, until recently.
First, OC has received accumulative current dollar budget
increases of 59% from 1967 through 1975. However, most
importantly, improvements in management and productivity
have yielded excellent results - OC gets much more for its
dollar than in past years. Productivity has increased 50%
since 1967. The productivity increases are due mainly to
automation and technoligical advances which have permitted
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economical improvements in performing certain functions.
4. Productivity improvements over the years 1967-1975
have resulted in the deletion of
OC positions formerly
devoted solely to the operation of the Agency communications
network. The positions eliminated through FY-1975 rep-
25X1A1A resent a savings of approximately per year at
today's costs. Unfortunately, this savings is not visible
in today's budget because the average cost per OC employee
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has risen from
0
attributable mostly to increases in the Federal pay scale.
(The above
0
in FY-1967 to 0 in FY-1975,
positions should not be confused with the
positions transferred to DD/O and =positions trans-
ferred to DD/S&T in FY-1974). It should also be noted that
the ratio of OC personnel costs to costs of goods and ser-
vices has remained fairly constant because of personnel
reductions/productivity improvements.
5. The above illustrates how OC has maintained opera-
tions and expanded services despite a reduction of
0
constant dollars between 1967 and 1975. Unfortunately,
although productivity continues to increase, the rapid
escalation of inflation since FY-1973 has created serious
problems. OC projects further decreases in positions over
future years, but the cost savings can no longer offset the
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declining value of the dollar at the higher inflation rates.
Programs for new and expanded services have been cut or
delayed in recent years.
B. DISCUSSION
1. OC is now in the position of not being able to respond
favorably to all new requirements as it did in earlier years.
The costs of initiating programs for expanded secure voice,
data, facsimile, and imagery handling are extremely high and
OC is having difficulty funding for these programs, despite
customer requests. Increases in costs run the gamut from
small items such as wire and tools to computer and trans-
mission systems, leased lines, etc. Further, the cost of
supporting personnel overseas has risen over 19% in FY-1975
over FY-1974. Overseas fuel, education, utilities, travel,
and indigenous labor costs have risen similarly. FY-1976
will see another large rise in overseas costs in many cate-
gories. The decline in the value of the dollar also affects
the buying power of the dollar abroad. Thus, OC, being
heavily engaged in overseas operations, is finding overseas
expenses in some areas rising more rapidly than in the
CONUS.
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2. Some specific cost increases over the past two
fiscal years affecting OC are shown below:
a. Equipment
Previous Cost
Present Cost
% Increa
(1) 50 Kilowatt Generator
$6,700
$9,100
36%
(2) Radio Transmitter Exciter
7,302
9,660
32%
(3) Radio Transmit Antenna
1,890
2,794
47%
(4) Installation Rack/Crypto
3,715
4,830
30%
(5) Crypto Control Unit
3,558
4,501
26%
(6) Radio Receiver
4,650
4,984
7%
(7) Frequency Shift Converter
1,153
1,246
8%
(8) Test Message Generator Set
936
1,025
9%
(9) Crypto Equipment Safe
1,640
1,887
15%
(10) Patch Panel
660
757
14%
(11) Low-level Power Supply
620
1,500
141%
(12) 700 Kilowatt Generator
215,000
265,000
23%
(13) 2/3 Kilowatt Generator
265
450
69%
(14) Voltage Regulator
1,732
1,865
7%
(15) Power Switch
1,0.13
1,22.6
21%
(16) Telephone Cable
.14 per ft.
.27 per ft.
92%
(17) Coax Cable
2.65 per ft. 3.12 per ft.
17%
(18) Loop Antenna
3,965
5,320
34%
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(19) Antenna Patch Panel
203 411
102%
(20) Equipment Rack
300 404
34%
(21) Rack Assembly
5,531 7,000
26%
b. Expendables
In addition to the above, a survey of costs for
100 line items of expendables, i.e., transistors,
capacitors, resistors, switches, vacuum tubes, etc.,
show an average of 30% increase in cost.
c. Telephones
The Agency black and red telephone costs
(excluding personnel services) have increased from
$1,865K in FY-1967 to $2,947K in FY-1975. Costs of
at least $3,036K are projected for FY-1976. This
.amounts to a 62% increase in 10 years, most of it
occurring since FY-1971. Most of this increase is
attributable to rising costs of rates, surcharges,
etc., and not to expansion of services. The number
of black lines has increased only 15%, red lines
have increased only 12%, and the total number of
instruments has increased only 8%. A number of
additional rate increase requests are presently
under consideration. Undoubtedly, some will be
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FY
1967
1968
1969
1970
1971
1972
1973
1974
1975
(2) In a memorandum dated 18 March 1975, the
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Agency Office of
Finance of the reasons for the recent escalation
of costs. Depending upon geographic area, 1975
global increases for rents and transportation ran
anywhere from 25% to 65%; increases for fuels and
electricity range from 25% to 100%; in one year.
creases can be expected for 1976 and 1977. Thus,
not only is the DD/A a victim of domestic infla-
tion, which is not specifically visible, per se,
in Office budgets by line item, it is also a major
victim of the almost unbelievable high overseas
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inflation rates. These latter inflation rates
are visible in the office of Communications yearly
budget increases for funds used
I
in advance for inflation overseas, OC, which has
a vast majority of the DD/A personnel assigned
overseas, has experienced consistently large
shortages in its budget
as each year OC budgets for inflation already ex-
perienced, and not for inflation which is antici-
pated. Yearly deficits in this area must then be
made up by reprogramming Agency funds originally
intended for other purposes.
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C. CONCLUSIONS
1. The Office has accomplished much in fighting infla-
tion, mostly by reducing operating costs and increasing
productivity. As stated earlier, significant personnel
reductions have reduced costs considerably, but in recent
years our ability to reduce personnel and simultaneously
continue essential services has not kept pace with inflation.
Indeed, OC is doing "much more, with less" in terms of con-
stant dollars. In addition to personnel reductions, the
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for support costs. By not budgeting
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closure of three Major Relay Stations in recent years has
reduced costs considerably, and many other steps taken have
kept costs to a minimum. However, it is a fact of life that
implementation and continued use of modern technology is
expensive, and there is no alternative to our employment of
this technology if we are to provide transmission services
for secure voice, facsimile, data, imagery, ELINT, etc.
2. On a daily basis the Office, including overseas
activities, strives to keep costs to a minimum. These
efforts help, but it must be recognized that the larger
dollar amounts in the OC budget are prices for technology,
hardware and software beyond our control. Contracts for
new systems are negotiated to what are considered minimum
levels, and high equipment costs are virtually impossible
to negotiate downwards.
3. In summary, it is fair to say that OC.has done much
to offset inflation, and we will do more. However, the costs
of large, new systems can only be offset partially by pro-
ductivity increases. If the Agency is to continue its pro-
gress in handling more volume and variety of information elec-
tronically, additional funds must be made available, at least
in quantities sufficient to offset inflationary pressures.
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THE IMPACT OF INFLATION ON THE OFFICE OF MEDICAL SERVICES
I. Background
a. The problem is to assess the impact of inflation on
the Office of Medical Services over the period FY 1967 -
FY 1974, and to estimate the impact of continued or future
inflation.
b. Attached is a tabulation of Obligations, Current and
Constant :Dollars for the OMS, with an added column showing
the number of OMS personnel paid each year in the series.
Also attached is a graph of this tabulation. Since FY 1970
the OMS authorized (staff) personnel ceiling has been reduced
each year. Personnel compensation rates, supergrade personnel
excepted, have been increased steadily over this period.
II. Discussion
a. OMS, as an office, has not been seriously directly
affected by inflation except in one area, the area of
physician recruitment. Our ability to attract physicians
has been somewhat compromised as the incomes of physicians
in the private sector have forged ahead of salaries of
Government physicians. For example, whereas salaries of
our medical officers may not exceed $36,000, the median
salary for general practitioners in the United States is
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$46,750, and salaries for emergency room physicians are well
over $50,000 (Medical Economics, November 1974).
b. The impact of inflation has been recognized by the
US military services. In October 1974 the pay and special
allowances for military medical officers were substantially
increased (Executive Order 11812) so that the compensation,
particularly in the higher grades, greatly exceeds the
compensation of their civilian counterparts in the Federal
Government.
c. Recent serious shortages of physicians in the Veterans
Administration have led to the submission in January 1975 of
a bill (HR 1545) which, if enacted, will provide a flat 25%
increase in VA medical officer salaries.
d. There has been an indirect impact of inflation on the
OMS. As the OMS ceiling authorization has decreased and more
funds have been required to pay the same or fewer employees,
justifiable requests for additional personnel needed for
additional requirements have had to be denied. For example,
current new requirements from the Science and Technology
Directorate levied on our Psychological Services Staff for
Human Factors research, require four (4) additional full-
time psychologists. The inability, because of ceiling
restraints, to provide appropriate professional response to
such requirements has had a deleterious effect on program
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development.
e. There is also a real and direct personal impact of
inflation on individual OMS employees, and particularly on
senior supergrade personnel, some of whom are receiving the
same compensation they received in 1968.
f. There is currently no provision of course for compen-
sating for inflation in our budget requests. Our current
practice in physician recruitment, when we cannot meet the
salary demands of an applicant, is to seek out another appli-
cant in the hope that whatever advantages Agency employment
may offer will attract a physician despite our inability to
compete with salaries in the private sector.
g. In the area of physician recruitment no alternative
to our present procedures is apparent. Over the long run,
Federal salaries for physicians must, in our judgment, be
raised if competent physicians are to be attracted and retained.
h. With regard to not being able to accept apparently
genuine new requirements because of personnel/funds limita-
tions., a theoretical alternative might be the adoption of
a policy whereby the requester of such assistance involving
significant additional resources be required to provide for
or in some way pay directly for the costs of undertaking the
requirements. This however would amount to shifting the
burden and would not be an economically rational solution for
the Agency as a whole. It would also be inconsistent with
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our traditional service philosophy.
III. Conclusions
a. The direct impact of inflation on the OMS has not
been serious. Over the long run, however, we are concerned
about the implications of inflation on (1) physician recruit
ment, and (2) program development.
b. Our recommendations are:
(1) The Agency make appropriate representation,
along with other Federal agencies, toward increasing
the salaries of Federal physicians.
(2) Some means be provided whereby OMS may continue
to accept requirements in areas such as Human Factors
research.
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I. Focusing on Inflation
II. Impact of Inflation on Financial Services
III. Effect of Personnel Reduction to Obtain
Level Budget
IV. Dealing with Inflation through Restraints
and Program Postponement
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OFFICE OF FINANCE
THE PROBLEM OF INFLATION
I. Focusing on Inflation
A. Inflation can be identified in the Office of Finance as a
condition of generally rising personnel costs due primarily to
pay act adjustments for cost of living increases. While the
manpower resources have been decreasing over the past ten years,
STATINTL a high of OA. E. in FY 1967 to a projected low of STATINTL
FY 1977, there has been a net increase of 34% in personal services
dollars.
B. The major portion of the Office of Finance Budget, approximately
95o provides for personal services. In this one area the greatest
impact of inflation from wage increases is visible to all, recog-
nizing that goods and services generally rise more rapidly than
personal services.
C. Inflation fighting requires considerable planning to obtain
maximum utilization of reduced manpower resources. From this
utilization we expected productivity gains which could partially
offset the rising costs of wages.
II. Impact of Inflation on Finance Services
A. Productivity gains, however, have been more than offset by new
and one-time requirements levied on our Compensation and Tax
Division (retroactive pay adjustments; FLSA procedure for payment
to employees retroactive to May 1974) and delays in processing
of claims in Certification and Liaison Division.
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B. Full impact of inflation on financial services becomes
apparent to management when functions are reduced or eliminated
due to a reduction in personnel in an effort to decrease personal
services costs. Our concern would then be the proper manning
of those jobs required to maintain the integrity of financial
operations in the Agency in accordance with Federal Statutes.
Further reduction in personnel to combat inflation without re-
duction in workloads would seriously jeopardize our ability to
carry out the statutory requirements.
C. Illustrations of financial services affected by inflation
fighting are:
1. Delay in implementation of further work saving
computer systems.
2. Claims and vendor invoices backlogged with a
delay in payment.
3. Reduced number of field positions providing
professional finance employee in direct support
of operations.
III. Effect of Personnel Reduction to Obtain Level Budget
A. In keeping with the Agency policy of fighting inflation by
maintaining a level budget through adjusting programs and re-
ducing the personnel ceiling, the Office of Finance has already
reached a personnel level which is too low. The current
personnel ceiling is not adequate to meet all work requirements
satisfactorily.
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B. By reducing positions in those areas where new computer
systems were to reduce workloads, we have found added require-
ments and/or delays in systems development thereby causing a
shortage of qualified personnel to perform basic tasks. This
shortage has created backlogs in voucher processing and requires
the added cost of overtime to maintain an acceptable workload
level. Approximate four (4) man years were required in FY 1974
and a projected six (6) man years will be required in FY 1975.
Temporary personnel are being hired to perform mandatory staff
work and will increase the Budget level thereby defeating the
purpose of personnel reduction. We have also seen the increase
in the offices' budget level to provide for TDY assistance at
the field stations due to a heavy volume of work.
C. Another illustration of the overall effect of personnel
reduction was the requirement for detail assignment of finance
careerist involving 13 man years in calendar 1974 to provide
support to Agency operations.
IV. Dealing with Inflation Through Restraints and Program Postponements
A. Our contribution to dealing with inflation is limited to the
restraints placed on procurement of goods and services and the
postponement of certain programs. With high cost of supplies and
the use of available manpower on high priority programs, we have
asked the office managers to delay purchasing certain equipment
and to hold the time on development of future computer programs.
B. An increased use of Temporary Employees may be less costly
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than payment of overtime rates to permanent staff employees and
a method we recommend. Further personnel reduction is not the
way out of the dilemma and would seriously affect the capability
of this office to effectively support the statutory requirements
for which the Director is accountable.
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0 9 APR 1975
Inflation and the Office of Joint Computer Support
1. Background
a. OJCS activities are directed at the operation of a
central computer facility to satisfy the needs of the Agency
for computer services for scientific, intelligence, and
administrative functions. The technology that one finds in
the computer field has a considerable bearing on how infla-
tion affects OJCS and other computer organizations, both
industrial and governmental. The computer is relatively new
and its growth has been dynamic over the past fifteen years.
The effects of inflation in this type of situation are far
more subtle and complex to assess than in more established
industries such as the automobile industry and public utilities.
In the latter industries, long records of costs for relatively
standard products and services can be used to track changes in
cost.
b. The computer industry, perhaps more than any other
new industry, has been able to tap advanced science and tech-
nology to improve the capacity and function of computers, at
the same. time reducing the cost per unit of capacity or function.
on the other hand. electric utilities, for example, have been
slow (for legal, environmental, and social reasons) in putting
to use new technology, such as nuclear energy, to increase capa-
city and reduce unit costs.
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c. One asks, "If computers are providing rr.cre for less
cost, why are the budgets for computer activities increasing
each year in the Agency and elsewhere?" The answer lies in the
fact that another phenomenon has evolved in parallel with
the development of computers. This phenomenon has been
called "the information explosion." The demand for storing,
analyzing and retrieving information of all kinds has grown
at a tremendous rate during the past fifteen years. Whether
the demand has led to the development of computers or com-
puters have led to the demand may be argued. Although the cost
per unit of computer service has gone down, the workloads have
increased and produced rising OJCS budgets. Organizational
changes, i.e., the merger of CRS an S' computer activities
and budgets into OJCS, are aatrher fact. the growth of the
OJCS budget4.. In addition, budgets have risen because
some elements in the OJCS budget, for example, personnel costs,
travel, and certain supplies and materials,nare subject to the
Au~
same impact from inflation as they would in any organization.
tion in OJCS, the OJCS budget for FY-73 through FY-76 is attached.
The major elements in this budget are discussed below:
a. Personnel
STATINTL
Since personnel costs account for approximately one-
third of the OJCS budget (an average of over
per
year during the period FY-73 through FY-76, inflation in
personnel costs results in a significant increase in the
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total funds that must be programmed to carry out office
functions. The facts are clear and unassailable. Federal
government pay raises have inflated the cost of person!e,lEG1B
I L L
since 19 6 7 ~ ' / I
~,
btal._ 54.4
It is interesting to note that for philosophical reasons
we do not plan or budget for these increases. Instead -L
,
.e;cl we plan for a 1% increase in personnel costs each year,
and then make up for the inevitable shortages in funds
by reprogramming funds from goods and services, elimi-
nating projects, or reducing manpower.
b. Equipment Rental and Equipment Purchases
Equipment accounts for over 45% of the OJCS budget
--over in FY 1975. While inflation is unques-
tionably having an effect on the price we pay for equip-
ment, it is impossible to gauge the full impact. This is
because new models of computer equipment are frequently
introduced which provide a new range of functions, increased
speed, and increased capacity that makes it difficult to
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identify the inflation factor in the new models. OJCS
cannot determine how much of the increased price is the
direct result of the additional performance specifications
built into the system and how much is the result of in-
creased manufacturing costs from inflation. Normally,
the productivity of the new models is less expensive in
terms of unit cost per function performed than the older
models. In FY i-9% IBM, our largest equipment vendor,(in
what is believed to have been an unprecedented action for
this company) raised rental prices for existing equipment
models by 3%. IBM equipment prices were raised another 2%
in FY 1975. An 8% price increase was also announced for
IBM's commercial customers in September 1974, and we can
expect.this price increase to be applied to the Federal
Government beginning 1 July 1975. This increase would
normally have increased equipment funding by $150,000 in
FY 1975 and $350,000 in FY 1976, but OJCS eet en~ertj5hB
ILLEGIB
into long-term equipment leasing4contracts tat
the fundir_a impact substantially in FY 1975 and
nf~c= _~.'~. ~ ,}ee kac-rea?es= ter: --?-9-7-." These long-term
contracts not only offer protection against price increases,
but also eliminate extra use rental charges. Thus the IBM
marketing and pricing strategy has had the effect of driv-
ing some users to long-term contracts to avoid price in-
creases. These long-term contracts protect installed IBM
equipment from replacement by competitive equipment which
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STATINTL
enables IBM to offer lower prices. IBM competitors, bent
on getting a larger share of the computer market, have not
followed suit with price increases for equipment.
c. Contract Services
Contract services account for 15% of the OJCS budget
FY 1975. These contracts are generally
related to ADP systems analysis and programming activities.
The main elements of cost in these contracts are labor
costs and management and administrative overhead. On the
average the cost for a manyear of contractor support has
risen from $30,000 in FY 1967 to $55,000 in FY 1975, an
83% increase.
d. Maintenance and Repairs
Maintenance and repairs account for 2% of the OJCS
STATINTL budget--less thani FY 1975. A number of
vendors provide maintenance service for various types of
computer equipment. IBM has increased.its charges 2% in
FY 1975 and an increase of 8% is anticipated for FY 1976.
Increases by other vendors have also occurred. The average
increase during the period FY 1975 through FY 1976 is esti-
mated at 10%.
e. Supplies and Materials
Supplies and materials account for 2% of the OJCS bud-
STATINTL get--less than Prices for paper products, IBM
cards and continuous form paper, have increased because of
the paper shortage and increased manufacturing costs. For
example:
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Continuous Forms
Forms
Price Per Box
Stock No.
Parts
Per Box
FY 1973
FY 1974
7530-HO2-8602
1
2500
$ 7.70
$14.58
7530-H05--4038
1
5000
9.91
14.17
1 y
7530-943-7083
2
1500
13.81
27.22
2722,
7530-944-4159
1
3900
8.56
13.98
7530-944-4160
2
1800
11.57
11.57
20.3
7530-944-4161
3
1100
14.27
18.28
22.27
7530-944-4162
4
800
13.82
13.82
17.91
Tabulati is Cards
7530-205-2195
(Salmon)
11.23
18.75
20.67
7530-HO5-1866
(Yellow)
10.19
10.19
18.76
Paper prices in FY 1974 were 41% higher than in FY-73 and
23% higher in FY 1975 than in FY 1974.
During FY 1974 through FY.1975 magnetic tape prices have
risen 25%, from $9.03 each to $11.25.
3. Summary
,,'1 "?,icr.
The i-np;Ra from inflation is most recognizable in personnel
and contract services where the costs have increased by and
83%, respectively, since 1967. While there have been significant
increases during the last several years in the prices for equip-
ment rentals, purchases, and maintenance, OJCS has been able to
offset these increases by greater use of long-term leases and
purchases to reduce equipment costs. Paper products (IBM cards
and continuous forms) and magnetic tapes have risen in price,
but since supplies account for such a small portion of the OJCS
budget, 2%, the overall impact on OJCS funds is minor.
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For OJCS, the greatest improvement in programming procedures
would come from a new policy whichoallowo us to budget for the
anticipated annual increases in salary costs (5% to 6%) instead
of the 1% currently allowed,
I oJCs STATINTL
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Problem:
The Office of Logistics (OL), like other components of the Agency and
most segments of our society, has been sorely straitened by the inflationary
trend that has advanced in our economy over the past 2 years. Fortunately,
our requests for budget increases to meet rampantly rising costs have been
awarded, and our internal innovations have helped to offset many of the
deleterious effects of price increases on our operations. Together, these
actions to date have allowed OL to maintain its level of services. As a
practical matter, though, continuing after-the-fact funding for inflation
is inadequate and contrary to modern programming techniques. In order to
remain a viable service organization, the time is ripe for our reassessing
the traditional constraint on budgeting for inflation, exploring past methods
of reducing costs and extending cost-reduction techniques in the future, and
considering curtailing some services if warranted by future, long-range in-
flationary trends.
Background:
According to the deflator schedule developed for Agency use by OER, FY
1974 saw a general inflation rate of approximately 50 percent from the FY 1967
base period; nearly half of this price skyrocketing has occurred within the
past 2 years. Such a sudden and drastic reduction in purchasing power obviously
could not be completely ignored or absorbed without effect. The following graphs
compare Congressional budget dollars and constant dollars for the Office of
Logistics as a whole and then illustrate the same comparison from the standpoints
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cl,
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STAT
Although these graphs are helpful in forming a framework, a straight
mathematical comparison of constant dollars over the years to the base FY
1967 period will not reflect the true picture of inflation's impact on OL
operations. A myriad of factors have impacted on our budget over the past
several years; quite simply, the Office has not necessarily been performing
the same functions in the same ways over the past 8 years. For instance:
a. Following Agency payment in FY 1967 of a full-year's rent on
Agency-occupie Rosslyn buildings, GSA absorbed these
rental fees for the next several years. Then, in FY 1974, SLUC was in-
stituted by GSA, and the Agency is now paying rent on all space it occupies,
Government-owned and -leased buildings alike.
b. In the period FY 1969-70, substantial amounts of funds were
required for the Agency-wide replacement of obsolete telephone key-box
sets by modern call directors. Now, the entire Telephone Facilities
Branch which carried out the replacement program has been transferred
to the Office of Communications and is no longer a consideration in our
programming.
25X1A6A
d. Since FY 1970 and the total blackout of the Headquarters Building,
sizeable amounts of funds have been spent in increasing the capacity and
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improving the reliability of our Headquarters power systems. The early
1970's also saw mammouth renovation projects and chain-reaction space
moves in our Headquarters buildings. A new garage facility on the
Headquarters compound has even been erected. In addition, many dif-
fering nonrecurring, capital-equipment expenditures have been made
(printing and photographic equipment, warehousing and motor pool equip-
ment, etc.).
The above examples of our response to changing requirements and modernization
of support operations over the past 8 years clearly indicate the difficulty of
strictcomparisonof Congressional budget figures. Lengthy comparisons of the
past 8 years would not prove particularly useful in meeting our present chal-
lenge of beating or at least alleviating the effects of inflation on our cur-
rent and future operations, especially since the earliest of those years do
not reflect significant rates of inflation. Therefore, we are limiting our
detailed cost comparisions to the past 2 to 3 years, the period during which
it is almost universally agreed that inflation has had its greatest impact.
Discussion:
As a consumer of goods and services in the American economy, OL is subject
to the trends of American industry. Our experience in the recent past has been
closely related to the periodic shortages, both real and artificial, which have
struck the economy in general. Along that same line, our expectations for the
next few years are based on forecasts for a continuing high (though somewhat
lesser than the past year), overall inflationary rate in the economy.
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Many of the products and services provided by this Office are of the
kind which are basic to the smooth operation of the Agency's physical environ-
ment, are highly visible, and are easily taken for granted. Many of these
same products are those which have been hit hardest by inflation, i.e., paper,
fuel, utilities costs, etc. In some instances, we have been able to absorb
increased costs with few outward signs of their impact on our budget
and operations. At other times, however, we have been the victim of short-
term, real and artificial shortages and concomitant exploding costs. At one
point in the past 2 years, a 40-percent inflation factor was experienced in
purchasing consumable supplies. Some major areas in which the OL has severely
suffered from the effects of inflation are discussed below:
Paper Products:
In January 1974, we investigated the increasing cost and difficulty being
encountered in purchasing common stocks of paper. We concluded that, for a
number of reasons beyond our control, a serious shortage of paper and the raw
materials from which it is made would affect procurement and supply for at
least 3 years. We decided upon two simultaneous courses of action--increasing
our leadtimes and stock levels of needed paper products (including, of course,
increasing our funding for this surge buying), and encouraging paper saving
and acceptance of suitable substitute paper items throughout the Agency. For
several months the paper crunch remained intense. The paper industry and GSA
both placed allocation limitations on purchases, many suppliers would not
respond in bidding for Government contracts, firm delivery dates or prices
would not be quoted by vendors, some products simply disappeared from the market,
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and prices jumped by staggering proportions. Our paper-saving campaign and
innovations were reasonably successful during this time, and we found that
Agency customers were fairly receptive to the need for conserving paper and
accepting substitute items.
In the latter part of 1974, though, the current suddenly reversed, and
many types of paper products became available in almost unlimited quantities.
By this time, of course, our shift to increased stockage and longer leadtimes
was running smoothly; we then found ourselves with a warehouse abounding in
paper and creating a storage problem. At the same time, demands for paper
from had diminished as a result of both the paper-saving campaign
and increased paper stockage at individual office levels. Still, we feel we
are in a reasonably good position. GSA is in a similar paper-abundant stance
and has circulated a paper-sale bulletin; in many cases, the paper products we
were able to buy on the open market during the paper crunch are still less
expensive than the GSA sale prices for those items. We have, though, paid
drastically higher prices for paper products in the past 2 years, resulting
in serious budgetary repercussions. For instance, the cost of paper used in
the printing operation (purchased both through GPO and commercial sources)
jumped an average of 53.9 percent from FY 1973 to FY 1974 and another 9.8
percent from FY 1974 to FY 1975. Cost comparisions for some common supply-
room paper items are shown below:
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Item and Unit
of Issue
FY 1973
Price
FY 1974
Price
Percent
of Inc.
FY73-74
FY 1975
Price
Percent
of Inc.
FY 74-75
Percentage
of Total
Increase
Stenographic notebook,
package of 12
$1.62
$2.75
69.8
$ 4.20
52.7
159.3
White ruled pad, package
of 12
1.70
3.94
131.8
5.66
43.7
232.9
Yellow ruled pad, package
of 12
1.90
3.75
97.4
5.08
35.5
167.4
Yellow unruled pad, each
.25
1.17
368.0
1.17
0
368.0
White letterex, box of
500 sheets
1.10
1.84
67.3
2.00
14.5
81.8
Xerox bond, 8 x 10-1/2
ream
.87
1.16
33.3
1.61
38.8
85.1
Kraft file folders, legal
size, without fasteners,
hundred
1.63
1.75
7.4
12.03
587.4
638.0
Our experience in purchasing paper products over the past few months
indicates that prices are starting to level off and, in a very few instances,
have even decreased. The end result of the entire paper-crunch exercise, then,
is likely to be a stabilization of prices at an extremely high plane. For
that reason alone, we are continuing our efforts at paper conservation. The
conversion from sheet to roll paper in the printing operation substantially
reduces paper waste and results in sizeable cost savings. The increased
printing of forms by the Agency is also contributing to considerable cost
reductions.
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Administrative Office Supplies:
Continuing with consumable office-type supplies, our experience generally
indicates that the most drastic price increases have occurred within the past
year. Some examples are:
Binder clip, box
$ .29
$ .31
6.9
$ .50
61.3
72.4
Paper clip, box of 1,000
.50
.66
32.0
4.00
506.1
700.0
Rubber band, box
.16
.19
18.8
.30
57.9
87.5
Cheesecloth, roll
1.15
1.15
0
2.50
117.4
117.4
As a means of combating the increased costs in administrative office supplies,
we are discontinuing approximately 90 items from the supply-room selection when
present stocks are depleted; on-hand stocks of about half these items have
been exhausted thus far. Discontinuance of these articles from issue in our
supply rooms will not materially affect any office operations but will merely
reduce some selections. Savings are being realized through substitution of
walnut-based for onyx-based executive desk-pen sets as a standard item of
issue. The double pen set in onyx currently costs $37.80 while the walnut-based
set costs $20.70. In the single pen set, the prices are $19.50 and $12.60
respectively for the onyx- and walnut-based sets. We expect to save nearly
$1,000 per year by this substitution alone. Similarly, cost reductions will
be realized by standardizing our stock to a less expensive carafe set. In-
novations such as these, while seemingly insignificant in themselves, collec-
tively constitute remarkable cost reductions.
Printing and Photographic Supplies:
This is an area in which there are few options open to us for varying the
products we use. We must satisfy customer requirements with high-quality
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printing and photographic work; we must, therefore, use high-quality products
and pay the going market price for them. From FY 1973, average chemical
costs rose 7.6 percent in FY 1974 and another 16.6 percent in FY 1975.
Similarly, film increased in cost by an average of 8.4 percent in FY 1974
and again by 19.1 percent in FY 1975. The average cost of printing inks rose
in nearly like amounts in both years, i.e., 19.7 percent in FY 1974 and another
17.0 percent in FY 1975. Since quality must not be compromised in the printing
and photographic fields, real savings could be accomplished only through a
reduction in the quantity of customer requirements for these services.
Packing and Crating Supplies:
Another area in which the amounts and kinds of materials are determined
by customer requirements is the preparation of supplies and equipment for
shipment to overseas stations. Here, costs of packing and crating supplies
have escalated sensationally:
Item and Unit
of Issue
FY 1973
Price
FY 1974
Price
Percent
of Inc.
FY 73-74
FY 1975
Price
Percent
of Inc.
FY 74-75
Percentage
of Total
Increase
Plywood, 4'x8'xl/4" (skid)
$366.00
$584.00
59.6
$643.00
10.1
75.5
Plywood, 4'x8'x3/8" (skid)
351.00
553.00
57.5
608.00
9.9
73.2
Lumber, 1"x12"x16'
(bundle)
334.88
644.80
92.5
644.88
0
92.6
Lumber, 2"x4"x16'
(bundle)
352.00
806.40
129.1
714.24
(11.4)
102.9
Nails (thousand)
3.10
3.25
4.8
3.25
0
4.8
Strapping (thousand pounds)
148.00
197.60
33.5
242.90
22.9
64.1
Air-cap cushioning, 3/16"
(roll)
6.90
6.90
0
41.40
500.0
500.0
Air-cap cushioning, 1/2"
(roll)
21.40
-
-
54.20
-
153.3
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Polyurethene, 1" (sheet)
.58
.65
12.1
.95
46.2
63.8
Polyurethene, 2" (sheet)
1.15
1.36
18.3
1.89
39.0
64.3
Polyurethene, 3" (sheet)
1.42
1.66
16.9
2.84
71.1
100.0
Vermiculite (bag)
2.80
3.00
7.1
6.50
116.7
132.1
25X1A
25X1A
25X1A
Transportation Costs:
in FY 1974, and is $1,135 in FY 1975. These costs are still less expensiveAv
Cargo shipments
have increased in cost quite dramatically
over the past 2 years. The cost was $519 per short ton in FY 1973, rose to $943
5X1 A
so some savings can be made by taking advantage of
shipments for orders with short leadtimes. All air shipments consitute
a premium mode of transportation, though, and our greatest savings in the area
of transportation can be made through increased usage of sea transportation,
which increased in cost by 25 percent in FY 1973 but has remained but has remained
relatively constant since that time because of the greater use of containerization in sea
25X1A2D2 shipments. During the past year, the cost of running has
Postage Rates: jumped by approximately 100 percent.
Postage rates were last increased in March 1974; although the increase in
first-class mail was about 25 percent, the overall effect of the increase on our
mailing operations was approximately 15 percent. We have managed to economize
in the mail and courier service through some substantive changes in operation:
STATSPEC
formerly mailed to selected US Government
agencies and foreign embassies in the Washington metropolitan area, are
now carried by couriers on their regular trips to these addressees.
Although mailing costs have decreased as a result of this procedure,
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total savings have, unfortunately, been offset by the increased postage
use we are reporting to the US Postal Service as a result of our more
accurate mail-counting procedures. Still, mailing costs would have
increased by a far greater amount were it not for the substantial re-
STATSPEC duction in
bulk mailings.
The consolidation of the Agency's mail and courier operations within
OL (now nearly completed) will result in considerable savings for the
Agency as a whole. Approximately 10 personnel positions will be reduced
Agency wide as a result of this consolidation; six to eight vehicles will
be eliminated from the courier fleet.
These actions, designed to increase efficiency and economy, constitute
major accomplishments in the mail and courier service. However, postage
constitutes the largest single budgetary item for mail and courier operations,
and that is an inflexible cost. We understand from the US Postal Service
that rates for all classes of mail are likely to increase by approximately
30 percent in FY 1976, and we have read that an additional 20 percent increase
is expected in FY 1977.
Petroleum Products and Vehicle Parts:
Understandably, the operation of motor vehicles, with its heavy usage of
petroleum products, has been severly affected by inflation. The recent history
of some vehicle-related costs is shown below:
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Item and Unit
of Issue
FY 1973
Price
Percent
FY 1974 of Inc.
Price FY 73-74
FY 1975
Price
Percent
of Inc.
FY 74-75
Percentage
of Total
Increase
Gasoline (gallon)
$ .194
$ .215 10.8
$ .355
65.1
83.0
Diesel Fuel (gallon)
.138
.222 60.9
.372
67.6
169.6
Tire, 8:74 x 16.5 (each)
37.75 -
63.24
67.5
67.5
Tire, 10:00 x 20 (each)
--
102.71 -
138.22
34.6
34.6
Radial tire, FR 78-14 (each)
--
39.43 -
56.80
44.1
44.1
Motor oil (gallon)
1.12
1.12 0
1.50
33.9
33.9
Battery (each)
17.80
21.08 18.4
25.25
19.8
41.9
Prestone antifreeze (gallon)
2.00
2.50 25.0
8.00
220.0
300.0
Bus tire, 9:00 x 20 (each)
--
70.55 -
99.81
41.5
41.5
Spark plug (each)
.188
.21
.543
In addition to the normally accepted methods of reducing fuel consumption
(maintaining 55-mile-per-hour speed limits, encouraging shuttle usage by restricting
reimbursement for use of privately owned vehicles on official business, etc.), we
are reducing fuel consumption and, thereby, fuel costs, by other means:
All newer automobiles in the motor pool have been equipped with radial
tires, an action which reduces fuel usage by 5 to 10 percent. (Nonradials
will continue to be used on older vehicles in the fleet until it is neces-
sary to replace these tires.) In order to implement the tire conversion, we
purchased 442 radial tires for our fleet in April 1974; our timiing in this
quantity purchase represents another example of cost effectiveness. As
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an example, one type of radial tire purchashed at a cost of $39.43,1 year
ago now costs $56.80 (both excluding Federal excise tax).
A pilot program which began in March using a 10-percent mixture of
methanol in two motor pool vehicles will, hopefully, prove effective in
increasing gasoline mileage and improving engine performance. The cost
of methanol itself, although increased from $.14 to $.99 per gallon in
the past few years, is not a primary consideration to our objectives. We
expect the cost of methanol will stabilize or eventually decrease since
the product (essentially wood alcohol) can be made from nearly any organic
substance (wood, garbage, etc.). Unfortunately, one of the vehicles being
used in our experiment has been disqualified from the research results for
the first barrel of the 10-percent methanol mixture because its ignition
time-advance mechanism malfunctioned. The other vehicle in the experiment
showed an increase in gasoline mileage from 10.86 to 13.60 miles per gallon.
The performance of this vehicle in the first phase of the pilot program
shows promise and, having repaired the malfunctioning vehicle, the experi-
ment is continuing.
Completion of the new Headquarters garage has in itself resulted in in-
creased efficiency, less wasted mileage, and cost savings:
a. A wheel-alignment machine installed in the new garage at a capital
cost of about $5,000 now allows a staff mechanic (whose salary is $6.48 per
hour) to carry out the wheel-alignment task in about one-half hour per
vehicle. Formerly, this maintenance was accomplished at a commercial garage
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in Falls Church at a cost of $12.50 per vehicle. In addition to the cost
of the alignment itself, then, the efficiencies now being realized in
lessened mileage and time wasting are incalcuable.
b. A car-wash and -wax installation (costing approximately $6,000)
at the new Headquarters garage has also resulted in incalculable savings.
Since its installation, as many as 29 Agency vehicles have been washed in
1 day, with each driver responsible for his own vehicle. Previously, a
car wash and wax at a commercial station (again involving wasted mileage
and waiting time) cost $1.65.
Vehicles and Heavy Equipment:
As an average, the prices for vehicles purchased in the past 2 years have
increased as follows:
Item and Unit FY 1973
of Issue Price
Sedans $2,870
Station Wagons 3,346
FY 1974
Percent
of Inc.
FY 1975
Percent
of Inc.
Percentage
of Total
Price
FY 73-74 Price FY 74-75
Increase
$3,084
7.5
$4,000
29.7
39.4
3,448
3.0
4,500
30.5
34.5
Even considering these prices, however, we believe it would be more effective
in the long run to replace several gas-burning vehicles in the Agency fleet with
more compact, operationally economical vehicles. Vehicle-replacement constraints
placed by GSA and lack of funding prevent our taking such action though.
Two replacement shuttle buses are being purchased this year; these buses
will cost $66,000 instead of the initially programmed $50,000. Incidentally,
these buses will use diesel fuel, resulting in more economical operation.
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A recent effort at vehcile rehabilitation merits mentioning as a suc-
cessful cost saving. An open-backed truck driven approximately 10,000 miles 25X1A
was declared excess I land was scheduled for turn-
in to GSA. Instead, the truck was painted and tuned up at the Headquarters
garage, and an enclosure purchased for $2,000 was permanently emplaced on the
open back. The truck is now used for daily mail deliveries II Failure
to take advantage of the presence of that truck would have necessitated the
purchase of a new truck for the mail and courier operation.
During FY 1975, we are deferring procurement of two pieces of material-
handling equipment for the Headquarters supply-room operation because of un-
expectedly high costs.
Skilled and Unskilled Labor Rates:
GSA rates for both skilled and unskilled laborers involved in renovations,
mechanical and engineering tasks, and cleaning and moving have fluctuated over
the past 2 years. Quite unexpectedly, some of these hourly rates have declined
recently:
Total
Aug 73 Oct 74 Percent Feb 75 Percent Percent
Mechanic $8.41 $11.54 37.2 $9.23 (20.0) 9.8
5.65 6.56 16.1 6.42 ( 2.1) 13.6
Significantly, the 8.4 percent administrative fee previously added to all GSA
projects was discontinued in February 1975. Not all GSA labor rates have declined.
The charge for GSA movers ($7.10 per hour in FY1974) remains at $8.62 so far in
FY 1975.
those in
Like/GSA, some reimbursement rates for technicians who accomplish secure-
voice and other engineering projects in our metropolitan area buildings under our
STATINTL contract
have been reduced of late:
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FY 1973
FY 1974
Percent
FY 1975
Percent
Total
Percent
Level I
$8.53
$9.01
5.6
$10.16
12.8
19.1
Level II
8.25
8.89
7.8
7.96
(10.5)
(3.5)
Level III
7.70
7.98
3.6
6.02
(24.6)
(21.8)
No Level I technicians (the level which has seen a continued hourly increase) are
presently assigned under the contract.
We are not certain of the meaning of the unexpected reductions in charges
for labor in the mechanical and technical crafts and in one unskilled category
of labor. Conservatively, we feel it is too soon to draw any conclusions from
these fairly isolated reductions. In other instances, costs continue to rise.
Our service agreement with GSA for electrician monitoring of the NPIC utilities
systems has significantly risen in cost. This service, which was charged at
$106,000 in FY 1971, rose to $136,000 in FY 1973, $156,000 in FY 1974, nearly
$159,000 for FY 1975, and is projected at nearly $175,000 for FY 1976. SLUG
charges for the buildings we occupy in the Washington a^ea have continued to in-
crease buts since much of the increase is caused by GSA's upgrading of the valu-
ation of the space, we are not able to isolate stright inflationary trends.
Building Construction:
Our future construction (within 5 to 10 years) of a new building on the
Headquarters compound will surely be affected by annual inflation. For planning
purposes, the construction industry uses an average of lOpercent per year as an
inflationary factor.
Service Contracts:
Contracts for services such as office machine repair have consistently
risen in the past year. Remington Rand's labor charge for calculator repair
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increased from $18 in FY 1974 to $19 per hour in FY 1975. The IBM typewriter
repair contract for the Agency increased from $127,000 in FY 1974 to $135,000
this fiscal year. We understand informally that the contract cost will remain
at $135,000 in FY 1976 but that routine typewriter maintenance service will be
reduced from two inspections to one inspection per year. Service under the
A. B. Dick contract for repair of mimeograph machines has increased from $22.50
in FY 1974 to $27 per hour this fiscal year; !J der contract with that same firm,
offset repair has risen from $27 in FY 1974 to $32.25 per hour in FY 1975. Flexo-
writer repair, $22.50 per hour in FY 1974, is now $29 per hour. Even the costs
for refurbishing class A furniture at Lorton has increased approximately 100 per-
cent in the past two fiscal years.
Personnel:
In the area of our own personnel costs, the graph shown on page indicates
that OL has taken substantial cuts in ceiling over the years and is rapidly
for GS employees
reaching core level. The increase in average-salary costs/is a problem shared
with other Offices and other Directorates. However, the average-salary levels for
non-GS personnel have increased within a range of 19-29 percent in the past two years,
while GS personnel average-salary increases have been held to about 5 percent per year.
Conclusions:
Because the services provided by OL are so basic in nature and are primarily
reactions to customer requirements, our requests for budgetary relief to meet the
demands of inflation have largely been met.
Many internal Office innovations have partially offset price increases and
have held our requests for aid to a minimum.
Some costs appear to be stabilizing or at least increasing at lower rates.
Nonetheless, the inflationary trend will likely continue for the next few
years.
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For our planning purposes, a reasonable rate of inflation for the next few
years is 12 percent annually. This figure constitutes a noticeable reduction
average
from the/40 percent inflation factor we were previously experiencing for many
items.
Though costs for many of the goods and services provided by OL are inflexi-
ble, there is still room for exercising some leverage in their provision, ad-
mittedly with possible negative customer reaction.
Though it is entirely possible that requests for budgetary relief occasioned
by inflation would continue to be met on an ad hoc basis, the tradition of ignor-
ing inflation in the budget exercise is an outdated concept and constitutes a
choice to live in fantasyland. Realistically, modern programming techniques
do not allow head-in-the-sand, after-the-fact funding for situations which can
be foreseen and at least estimated.
Recommendations:
A 12-percent inflation factor be acknowledged and used in our planning
and budgetary estimates for the next few years. This rate can be modified as
necessary in subsequent budget exercises as dictated by future economic fore-
casts.
OL will continue to actively seek and implement methods of improving
efficiency and reducing costs through internal innovation. Initially, some
areas for further cost reductions are still possible:
Further paper conservation and acceptance of substitutes for standard
but expensive paper products and administrative office supplies.
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Choice of less than premium modes of cargo transportation. (This
recommendation implies the need for longer customer leadtimes.)
Office-space renovations be held to an absolute minimum.
It is noted that many potential areas for holding down costs require an
Agency-wide commitment and cannot be unilaterally instituted by this Office.
Ideally, many cost-reduction programs (in order to insure full participation)
require policy directives from the Agency's executive level.
inflation
In the/event again takes off in a skyward direction at a higher annual
rate than our anticipated 12 percent, we identify and consider implementing
drastic moratoriums or permanent reductions in the level of services provided
by this Office.
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 CQNFIDLN I IAt (Inflation Paper)
28 May 1975
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OFFICE OF PERSONNEL
Background:
Since FY 1967, the budget for personal services in the Office of
Personnel, as measured in constant dollars, has been reduced by 20 per-
cent and the ceiling by the same amount. Budgetary constraints on the
Office have impacted on ceiling, for more than 90 percent of the Office's
budget is for personal services.
The Agency's Invitee Travel Program, which is administered by the
Office of Personnel, is another major area where the effects of inflation
are noticeable. Travel costs in this program have been sky-rocketting
in the last eighteen months. The FY 1975 operating budget for this
program I I represents a 31% increase over the amount in the
FY 1974 operating budget. Even with this increase the program is still
not adequately funded. Extreme selectivity is being exercised regarding
whom is brought to Washington and some delays have occurred due to
budgetary restraints. The inflationary factors involved in this in-
crease are a 25% increase in airline fares in the last eighteen months;
the imposition of a security charge for each aircraft boarding; and a
10 to 25% increase in taxi fares in the D.C. metropolitan area in the
last year.
Inflation has also affected the Agency's Overseas Medical Program.
This program, which is administered by the Office of Personnel, has
experienced a similar increase in foreign air fares for medical patient 2 5X1 C
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CONFIDENTIAL
 CONFHDENTIAL
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and the charge for
medical evacuation flights has.also been
increased. Inflated costs are also felt in field recruiters' travel
and telephone charges; acquisition of equipment and furnishings; and
external training.
Discussion:
Some of the personnel reductions have been accommodated because of
lower activity levels in recruiting and other personnel functions--as
would be expected in a shrinking Agency--and some because of personnel
functions being performed at the component level. Also there has been
some reduction in the staffing of such personnel services as the pro-
cessing of insurance claims.
In the future there will be less prospect of offsetting future in-
creases in pay costs by additional cuts in ceiling. We now are experi-
encing some increase in recruiting in order to replace a higher per-
centage of those who separate and are being required to maintain the
present level of other personnel functions.
Conclusions:
1. The Office of Personnel will not be able to achieve significant
reductions of personnel in the future and will require supplementary
funds to offset Pay Act increases.
2. The Invitee Travel Program is vulnerable to future increases
in travel costs and will require augmentation of funding as such
increases occur.
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CN~JF IF~ ~;ITIA_!
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15 April 1971
OS SPEAKS ABOUT INFLATION
PERSONAL SERVICES
1. Personnel costs are a major portion of the Office of
Security budget, representing approximately 62% of total annual
expenditures. During the period from FY 1967 through FY 1975,
inflation has increased salary costs by 71% whereas funds
available to defray these costs have increased by only 47%.
This disparity has significantly reduced the number of personnel
we are able to employ from available funds. Accordingly, during
the eight years after FY 1967, it was necessary to reduce our
average employment by a total of 24%, with a reduction of 20%
in the last four years alone.
2. Our personnel strength is now at the minimum level
essential to carry out the functions and responsibilities assigned
to the Office of Security. If the divergence between salary in-
creases and funding increases is allowed to expand further, the
ability of the Office of Security to function effectively may be
seriously eroded. If we are to avoid a general deterioriation of
the Agency's security posture and prevent a substantial increase
in security case processing time, it is imperative, therefore,
that any further increases in salary costs be accompanied by
proportionate increases in available funds.
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GOODS AND SERVICES
A8.00988R000600150401-0
3. Even though the cost of goods and services represents
a full 38% of the total Office of Security budget, there is
actually little flexibility available in managing or reallo-
cating funds within this category.' Guard salaries reimbursable
to the General Services Administration account for more than
one-half of total expenditures for goods and services. Travel
costs in connection with field investigations, physical security
surveys and counteraudio inspections, as well as payments to
Confidential Correspondents and contract stenographers, are
necessarily dependent upon externally generated requirements
and cannot, therefore, be readily reduced. Because the pro-
curement and replacement of supplies and equipment offer the
greatest discretionary latitude with respect to the postponement
of expenditures, it is the procurement of audio countermeasure
and physical security equipment which has been most directly
affected by the inflationary shrinkage of funds available for
goods and services.
4. During the FY E.7 through 75 period, the rate of inflation
has significantly exceeded the availability of additional funds
for goods and services, resulting in major decreases in our net
purchasing power. Since FY 72 alone, the cost of goods and ser-
vices has increased by 38% while available funds have increased
by only 10%. Absorbing the resulting dimunition of purchasing
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power within a narrow area of the OS budget has created signi-
ficant long-range problems for the Office. When the replacement
of outmoded equipment is deferred or the procurement of new
equipment if foregone, not only do higher ultimate costs result,
but the quality of associated work suffers. Funds have not been
available to develop and stock audio countermeasures equipment
which. is both precisely suited to our needs and consistent with
the most modern technology. In too many instances, purchases
have been postponed, quantities reduced and suitability approxi-
mated. As a result, we are now several years behind in the
development, purchase and use of several types of audio counter-
measures equipment. We have, for example, been unable in recent
years to replace our outdated portable audio countermeasures
receivers. These replacements have now been reprogrammed for
FY 1976, yet it is already questionable whether, in view of
continuing inflation, FY 1976 funds will be adequate to accomplish
this objective.
5. The effects of inflation on the Secure Access Control
System or badge machine program have been disastrous. This
major program included fiscal years 1974 to 1976 and was intended
to provide secure access to all major Agency buildings in the
Headquarters area. Costs in FY 1975 are now approximately double
our original estimates, primarily because of price inflation.
Costs estimates for FY 1976 are already double our earlier
NFI 1! $.
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-4-
projections and may well increase further. As a result, this
much needed program is being totally re-evaluated and is in
serious jeopardy.
6. It is essential that future inflation be fully com-
pensated for by increased funding. Otherwise, the large and
relatively inflexible portion of our goods and services budget
will soon absorb all available funds and our already inadequate
capability not only to institute needed improvements, but to
purchase and replace equipment may be eliminated entirely.
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 ILLEGIB
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The impact of inflation on the Office of Training.
Background
STATINTL
STATINTL
Agency training falls into three categories: OTR
conducted or sponsored, external training and component
training. This report focuses on OTR-conducted training
with a few comments about external training and a table
related to component-conducted training. All training
expenditures have increased during the period FY 67 to
FY 75.
The FY 75 ceiling is contract. This
represents a reduction since June of 1968 (see
Table 1). During is period, more students have attended
OTR courses than at any time in the past (see Table 2).
OTR's budget has remained essentially level during this
period (see Table 3). This has been achieved by reducing
personnel expenditures and deferring maintenance expenditures.
Discussion
The longer term consequences of inflation have been
hidden in OTR until recently by a more dramatic impact of a
sizable ceiling reduction and by the fact that personnel
services are not in the strict sense budgeted by OTR. The
past year, of course, has been a different story. The
sudden increase in cost of fuel and electrical services at
STATINTL the has resulted in the need to
request a al Iona fun as. the same time the requirement
to train and house military officers at the Station has
highlighted the significant increase in cost for goods and ILLEGIB
services. Required renovations to classroom space and
housing have been significantly higher than had been originally
Over the years budget proposals for maintenance ac-
STATINTL tivities have been regularly deferred. With each
succeeding year, the maintenance costs have increased. Most
dramatic have been the cost of road maintenance which used
petroleum-based products. A reduced maintenance work force
at the Station has led to the need for acquiring these
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Conclusions
Training is an activity that can be reduced or even
eliminated with no immediate impact on the organization.
Historically, training programs are among the first to go
during periods of retrenchment. Following this course
ignores the significant role training programs play in
improving productivity, maintaining employee morale during
periods of organizational stress and serving as a communi-
cations mechanism between management and employees. In-
flationary periods call for the most careful review of
program effectiveness and productivity. Training programs
should be reviewed using the same criteria as any other
program. In the case of training, however, failure to pass
the review should lead to redirection and revitalization,
not reduction or elimination. OTR as a case in point has
undergone a significant reduction in size since FY 1967.
That reduction continues through FY 1976. The ability of
the office to redirect and revitalize its programs becomes
more and more difficult. Ongoing training programs which
are productive are in competition with the need for new
programs.
Essentially the same rules must apply to the Agency's
external and component training programs. As external
training programs increase in cost, it is possible that
increased pressure will be placed on OTR to provide equiva-
lent and cheaper internal programs. As indicated above,
OTR's capability for providing these services is limited.
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