[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]



 
         THE CLINTON DEFENSE PLAN: SHIPSHAPE OR TREADING WATER?

=======================================================================

                                HEARING

                               before the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                               __________

             HEARING HELD IN WASHINGTON, DC, MARCH 11, 1999

                               __________

                            Serial No. 106-3


                               



           Printed for the use of the Committee on the Budget

                                ---------


                     U.S. GOVERNMENT PRINTING OFFICE
 55-438cc                   WASHINGTON : 1999



                        COMMITTEE ON THE BUDGET

                     JOHN R. KASICH, Ohio, Chairman
SAXBY CHAMBLISS, Georgia,            JOHN M. SPRATT, Jr., South 
  Speaker's Designee                     Carolina,
CHRISTOPHER SHAYS, Connecticut         Ranking Minority Member
WALLY HERGER, California             JIM McDERMOTT, Washington,
BOB FRANKS, New Jersey                 Leadership Designee
NICK SMITH, Michigan                 LYNN N. RIVERS, Michigan
JIM NUSSLE, Iowa                     BENNIE G. THOMPSON, Mississippi
PETER HOEKSTRA, Michigan             DAVID MINGE, Minnesota
GEORGE P. RADANOVICH, California     KEN BENTSEN, Texas
CHARLES F. BASS, New Hampshire       JIM DAVIS, Florida
GIL GUTKNECHT, Minnesota             ROBERT A. WEYGAND, Rhode Island
VAN HILLEARY, Tennessee              EVA M. CLAYTON, North Carolina
JOHN E. SUNUNU, New Hampshire        DAVID E. PRICE, North Carolina
JOSEPH PITTS, Pennsylvania           EDWARD J. MARKEY, Massachusetts
JOE KNOLLENBERG, Michigan            GERALD D. KLECZKA, Wisconsin
MAC THORNBERRY, Texas                BOB CLEMENT, Tennessee
JIM RYUN, Kansas                     JAMES P. MORAN, Virginia
MAC COLLINS, Georgia                 DARLENE HOOLEY, Oregon
ZACH WAMP, Tennessee                 KEN LUCAS, Kentucky
MARK GREEN, Wisconsin                RUSH D. HOLT, New Jersey
ERNIE FLETCHER, Kentucky             JOSEPH M. HOEFFEL III, 
GARY MILLER, California                  Pennsylvania
PAUL RYAN, Wisconsin                 TAMMY BALDWIN, Wisconsin
PAT TOOMEY, Pennsylvania

                           Professional Staff

                    Wayne T. Struble, Staff Director
       Thomas S. Kahn, Minority Staff Director and Chief Counsel



                            C O N T E N T S

                                                                   Page
Hearing held in Washington, DC, March 11, 1999...................     1
Statement of John J. Hamre, Deputy Secretary of Defense, 
  accompanied by William J. Lynn III, Under Secretary of Defense, 
  Comptroller....................................................     4
Prepared Statement of Hon. William S. Cohen, Secretary of 
  Defense, in connection with the Fiscal Year 2000 Defense Budget 
  (prepared for Defense Subcommittee of the House Committee on 
  Appropriations hearing, March 3, 1999).........................    10
Mr. Hamre's response to question posed by Mr. Spratt.............    20
Additional questions posed by Messrs. Spratt and Markey..........    21
Mr. Hamre's responses to questions posed by Messrs. Spratt and 
  Markey.........................................................    23
Mr. Hamre's response to question posed by Mr. Gutknecht..........    40
Statement of Andrew F. Krepinevich, Executive Director, Center 
  for Strategic and Budgetary Assessments........................    47
Prepared statement of Mr. Krepinevich............................    50
Statement of Robert B. Zoellick, President and CEO, Center for 
  Strategic and International Studies............................    60
Prepared statement of Mr. Zoellick...............................    63



         THE CLINTON DEFENSE PLAN: SHIPSHAPE OR TREADING WATER?

                              ----------                              


                        THURSDAY, MARCH 11, 1999

                          House of Representatives,
                                   Committee on the Budget,
                                                    Washington, DC.
    The committee met, pursuant to call, at 10 a.m. in room 
210, Cannon House Office Building, Hon. John R. Kasich 
(chairman of the committee) presiding.
    Members present: Representatives Kasich, Chambliss, Shays, 
Smith, Hoekstra, Gutknecht, Knollenberg, Thornberry, Collins, 
Wamp, Fletcher, Spratt, McDermott, Rivers, Minge, Markey, 
Clement, Moran, Lucas, and Baldwin.
    Chairman Kasich. This morning's hearing obviously will be 
on national defense. And although we have heard a lot in recent 
weeks from the Joint Chiefs of Staff sounding the alarm that 
the defense budget is $150 billion short over the next 6 years, 
it is not the purpose of the hearing to simply take that on 
faith.
    I just read the first paragraph, John.
    Mr. Spratt. OK. I beg your pardon.
    Chairman Kasich. That is OK. I was going to finish mine and 
let you go.
    Rather, we want to take the broadest possible look at 
defense. Here are the main questions we are going to be asking: 
Is the underlying strategy sound? Does concentrating most of 
our defense dollars on fighting two regional wars make sense, 
or does the post-cold war world pose a different set of 
challenges, such as weapons proliferation, terrorism and 
information warfare? Are all the deployments, Somalia, Haiti, 
Bosnia, Southwest Asia, potentially Kosovo, undermining 
readiness and hurting retention without any clear advancement 
of the national interest? Is the administration solution to the 
retention problem a cure or a Band-Aid?
    Is Pentagon reform alive or dead? It has been over a decade 
since the media reported on the $600 hammer, one of which I 
found. I am not sure what sort of progress it is, but I can 
report to you that a new improved Pentagon has traded in the 
$600 dollar hammer for a $75 set screw.
    We will be hearing from two panels. One will be the Deputy 
Secretary of Defense, John Hamre, who has done an outstanding 
job and is an outstanding public servant, and the Pentagon 
comptroller, William Lynn. They are going to present the 
administration's view on defense.
    And, John, you may also want to comment on the status of 
infrastructure in America, and in addition to that perhaps 
whether the services have all been disappointed about the 
Congress of the United States ordering the buying of systems 
that the military doesn't want. I mean, you have full range.
    And then panel No. 2 will look at national defense in 
broader terms: Do we have the right strategy? Is it an 
affordable strategy? What alternative strategies, if any, 
should we be thinking about? We will have Bob Zoellick and we 
will have Larry Korb\1\ and we will have Dr. Krepinevich, and 
there will be witnesses that would represent both the 
Democratic and the Republican requests for witnesses. So I look 
forward to your testimony.
---------------------------------------------------------------------------
    \1\ Lawrence J. Korb is Vice President/Maurice R. Greenberg Chair, 
Director of Studies of the Council on Foreign Relations. Due to a 
schedule conflict, Dr. Korb was obliged to leave before he could 
testify. There was no unanimous consent to insert his statement.
---------------------------------------------------------------------------
    Mr. Spratt. Mr. Chairman, I apologize for being late, but I 
appreciate your allowing me to make an opening statement. I 
just want to take a minute to put things in context.
    You have heard some of this in the House Armed Services 
Committee, but particularly in light of the testimony of 
Director Crippen last week, which had some serious flaws in it, 
I want to put defense spending in context. The first point I 
want to make is that the President has proposed more for 
defense in each of the past 3 years.
    Back in 1996 when your side was trying to put through a 
budget that would balance the budget by the year 2002, you put 
forth a budget resolution for fiscal year '97 which included 
for, budget function 050, $1.371 trillion between fiscal year 
'98 and fiscal year 2002.
    The next year, 1997, the President sent up his budget for 
fiscal year '98. It requested $1.383 trillion for defense over 
that same period, which was $12.3 billion more than the 
Republicans requested over the same period in your fiscal year 
'90 budget resolution.
    That year, 1997, we did the Balanced Budget Agreement, the 
BBA. We added to the President's request $4.4 billion 
altogether in the BBA, which meant that it was $16.7 billion 
more for 050 for defense then you were able to get into your 
concurrent resolution the previous year, over the same 5-year 
period of time.
    The next year, 1998, the President's budget for fiscal year 
'99 included $2.9 billion more in budget authority for defense 
than either the House or the Senate budget resolutions. There 
was no concurrent budget resolution provided for that year.
    And this year, 1999, calendar year 1999, setting up this 
budget for fiscal year 2000, the President has provided $54.9 
billion more in budget authority for the period fiscal year 
2000 through fiscal year 2003 than either the House or the 
Senate budget resolution last year provided over the same 
period of time.
    That is point No. 1. It is a matter of record.
    Point No. 2. We all, I think, voted for the Balanced Budget 
Agreement of 1997. We all set the level of spending that we 
have been at since then, so we all have a hand in determining 
how much defense got. It was not a liberal allotment, but in 
truth the BBA, the Balanced Budget Agreement, gave defense a 
pretty fair shake when you compare it to nondefense 
discretionary spending, and defense gets an even better deal in 
the President's fiscal year 2000 budget.
    Basically, the President's budget for fiscal year 2000 
provides discretionary spending levels through 2009. Before 
making any allocation of the surpluses that are anticipated 
over this time, defense outlays, that budget is going to grow 
from 2000 to 2009, from $277 billion in fiscal year '99 to $374 
billion in 2009, an increase of nearly $100 billion over that 
10-year period of time; that is an average rate of increase of 
3 percent.
    The anticipated rate of inflation over that period of time 
is, CPI, 2.3 percent. So that means in this budget that the 
President is putting forth we are seeing real growth in defense 
over a sustained period of time for the first time since the 
mid-1980's.
    By contrast, nondefense discretionary spending in this same 
budget grows from $304 billion to $325 billion, $21 billion. 
The rate of increase is .7 percent, as compared to 3 percent 
for defense.
    Now the President says once we have resolved Social 
Security for the long run, Medicare for the long run, he sees 
11 percent left over to be allocated to discretionary spending, 
and he would put most of this money, $206 billion, in 
nondefense, but $112 billion more in defense, which would raise 
this rate of growth to 3.3 percent over that 10-year period of 
time. That is a 1-percent real rate of increase over a 
sustained period of time, and that is a pretty substantial 
commitment.
    Now we have got a problem this year. The firewalls have 
come down, and they have been substantially increased, proposed 
by the President this year, and we are going to have to figure 
out how we get that under the caps and what gets displaced in 
order to accommodate the increase in defense. It is going to be 
difficult on our side. I don't know if you have tried to push 
your numbers on your side, but it is going to be difficult. And 
if you go beyond the President's level of increases that the 
Senate has, I really don't know where we are going to come up 
with the offsets in order to accommodate in a budget with no 
increase in the caps.
    Let me say one other thing about inflation, because CBO 
tends not to give the President credit for inflation, but in 
truth when we pass something like the BBA and provide budget 
allocations over a 5- or 6-year period of time, and inflation 
is less than we assume, then the outyear money actually buys 
more goods than services than we anticipated at the time. This 
is a real phenomenon; it is more spending power. In the case of 
the Pentagon, this trend, lower inflation than we have 
projected, has produced tangible savings, and if the trend 
holds, it will produce more savings over the fiscal year '99 to 
fiscal year '05 time period.
    Let me just give you a sample of what the savings we have 
already realized are. From fiscal year '95 to fiscal year '98, 
according to CBO, they equaled $23.6 billion. In '99 alone they 
are $15.4 billion. The total savings over the period '95 to '03 
come to $75 billion over and above the amount that we thought 
we were providing when we expressed the budget in nominal sums. 
These are CRS numbers and not CBO numbers. We requested the 
out-calculation. They did it in a memo dated February 17.
    Now one of the things we have done in the past when we have 
had a problem with defense spending, as everybody in the room 
who has had a hand in trying to shim these budgets knows, 
particularly Mr. Hamre because he has been at this business for 
a long time, is we increase BA and we shave outlays. That way 
the outlay number, which is the deficit number, stays in the 
ball park that we are trying to keep it in, but the BA number 
goes up.
    And the BA is the number that we use for display, and the 
outlay number is the number that we use to claim that we have 
achieved our success. And it works the first year, sometimes it 
works the second year, but sooner or later you get to the 
outyears and the misalignment between BA and outlay becomes a 
serious problem.
    I will tell you how serious a problem it has become. Last 
year what we did, we had a $3.7 billion outlay problem, what 
did we do? By legislative fiat we said it doesn't exist. This 
year CBO tells us that the problem is $10 billion. Sooner or 
later we have got to deal with that.
    Finally, Mr. Chairman, and I will----
    Chairman Kasich. Some places, Mr. Spratt, where we think 
OMB does a good job.
    Mr. Spratt. Well, we did it ourselves last year with just a 
magic wand.
    Let me just comment on one final thing because Dr. Crippen, 
I don't think he did this deliberately, but he was referring in 
his most recent testimony to the amount of increase over the 
baseline. The CBO baseline is derived from prior years' 
spending, in this case fiscal year '99 spending, adjusted each 
year for inflation. That is baseline spending.
    And if we measure each year's request and each year's 
appropriation against that baseline, the problem of using 
actual defense spending in fiscal year '99 as a baseline is 
that it includes $8.3 billion in emergency spending, so it is 
swollen by that amount.
    If you carry it forward, you are miscalculating or 
misrepresenting the baseline because this is not recurring 
money. It happened that year; these items, Bosnia and Iraq, 
which were emergencies last year, can't be classified as 
emergencies this year. They have to be included in the regular 
budget, and a baseline shouldn't have $8.3 billion. If you 
exclude that from the baseline, the President's request is $40 
billion more in budget authority over the period 2000 to 2004.
    That is just to set the record straight, Mr. Chairman, and 
I appreciate your indulgence in letting me put it in the record 
and inform the members.
    Chairman Kasich. Mr. Hamre, you have got the floor.

   STATEMENT OF JOHN J. HAMRE, DEPUTY SECRETARY OF DEFENSE, 
ACCOMPANIED BY WILLIAM J. LYNN III, UNDER SECRETARY OF DEFENSE, 
                          COMPTROLLER

    Mr. Hamre. Thank you very much, Mr. Chairman. We are very 
grateful to be invited. I know in the rush to make sure you got 
through your statement, you skipped the part about Bill Lynn 
being a great American as well. He is not as great as I, of 
course, but he is a great American, and I wanted to make sure 
that everybody knew that.
    Mr. Chairman, I have a brief statement, and I am a little 
alarmed that Mr. Spratt thinks I am a great shimmer, but I take 
that as a compliment rather than as a criticism. I would like 
to go through briefly to show you our budget request, but I 
know we will move very quickly so we can to get into questions 
because I think that is your primary interest.
    So let's go to the first chart, please. Mr. Chairman, we 
are really at a pivot point. We are ending this century and we 
are looking at the first budget request for the next century. 
So I think there are two questions that we need to put to you 
and to discuss as a government: Where are we at the end of this 
century? And how well postured are we for dealing with the 
challenges that we face in the next century?
    First, let's look where we are right now. And I am not 
going to give you just a Pollyanna-ish report, but I do want to 
go through. We had a number of important operations last year, 
just last fall, in October, November, and December. I was 
astounded at how well the troops did. It was a flawless 
operation in the Persian Gulf in December. I know of only one 
mission that we had to cancel because of mechanical problems. I 
mean it just went in a splendid manner.
    The accuracy of our strikes was unprecedented. We had 
virtually no collateral damage, and we worked very hard to make 
that the case. But I think that it says that the troops, 
despite 10, 12 long tough years of drawdown, are really 
performing well. We share pride, and I know you should too 
because you made this possible with the--the rather splendid 
way in which the troops have behaved.
    We remain the glue that holds together the international 
security order. You see that every day, and frankly you are 
going to confront that today when we talk about Kosovo, and you 
are going to be talking about it on the floor. Like it or not, 
the United States still is the glue that holds NATO together.
    Many of us, of course, would prefer to have stronger 
leadership in Europe, and I think you are starting to see that 
emerge. But dealing with the crisis in Bosnia, dealing with the 
crisis in Kosovo, would not happen without the United States' 
leadership, and I think it is an important dimension that we 
have to acknowledge.
    There are no peer competitors to the United States right 
now on the global stage. That doesn't mean there wouldn't be 
one in 10 years or 15 years. We have to look to that, and I 
think there are very, very important and troubling signals that 
we have to watch for. But right now we have an important and 
unprecedented posture in the international security order.
    We, of course, want to keep it that way as long as we can.
    I am astounded at the excellence of our combat forces, and 
also the innovation in our officer corps. We are dramatically 
better than we were just 5 years ago in thinking about the 
craft of warfare, and we are going to be dramatically better in 
5 more years.
    We have innovation that is going on just explosively 
throughout the department. You would see it at the Joint 
Experimentation activity that is underway down in the Tidewater 
area. Each of the services have set up innovation battle labs, 
really doing exciting things, and to be able to do that at a 
time when we are 10 years after the fall of the Berlin Wall, I 
think testifies to the strength and the vitality of this 
remarkable officer corps and NCO corps that we have built over 
the last 20 years.
    Finally, I would say it is American forces. We are the only 
military where we can go around the world and we are welcomed 
around the world. There are an awful lot of countries, when the 
army rolls in, they hide their families. But when the Army 
rolled into Honduras, when we had the flooding and relief 
activities, they came out to greet us and to welcome us, and I 
think we should all take great pride in that.
    Are we ready for the next century? And, Mr. Chairman, you 
raised those questions in your opening statement. Some people 
criticize us for being conservative to hold on to a two-major-
regional contingency strategy. I would agree that that is 
conservative, but three times in the last 5 years we had two 
nearly simultaneous regional contingencies. We were able to 
deter both of them, but I think it validated the fact that we 
need to retain this capability right now.
    Which theater do you want to say you are going to neglect? 
The Persian Gulf theater or Northeast Asia? I don't think 
anybody is prepared to say we are prepared to walk away from 
that right now.
    We have initiated a number of major initiatives in this 
budget and from the last couple of years to deal with this new 
threat of chemical, biological warfare, especially brought 
home, homeland defense. It is a major initiative of the 
department. The Secretary really made this one of his premier 
initiatives when we did the Quadrennial Defense Review 2 years 
ago, and we would be glad to discuss any of that.
    We are dealing with the cyber threats. A year ago we 
wouldn't have known we were under attack, frankly; today we do, 
and we have done a great deal to defend ourselves. We have 24-
hour-a-day watch centers. We have intrusion detection devices 
in all of our networks. We have strong firewalls in all of our 
networks. We have created forensic and diagnostics laboratories 
to track down what is happening and to come up with corrective 
actions. We have strengthened our counterintelligence 
activities in the department.
    We have done a great deal in the Department of Defense, but 
America as an entity is not protected in this environment, and 
this is a very new and significant challenge we all have to 
deal with. It is largely the vulnerability in the private 
sector that is most worrisome to us, and we can talk about any 
of that.
    The budget we have submitted to you funds the deployment of 
a national missile defense system when a decision is made to 
deploy it. We have not had that in the past, and I think we 
have been criticized for that. I frankly think that we have 
undercut our own credibility with our program by not funding 
the deployment side. We now have done that, and we put forward 
to you a program that at least would fund it when a President 
decides we should make a deployment decision.
    Let me go on to the next chart, because I covered the other 
points. I do want to say, despite these very positive things at 
this pivot point of the century, there are things that worry us 
a great deal as well.
    It is tough to recruit in this environment. It is really 
tough to recruit in this environment. We are not after the 
young men and women who really don't have options in life, you 
know, and are just kind of looking at hanging around the bus 
stations. We are after quality young men and women, and it is 
tough to recruit them. They are heading off to college at 
unprecedented levels in American history, and we are trying to 
attract them to come into the military. We need that kind of 
quality, and it is tough getting them right now, to be honest, 
and it is tough holding onto people.
    Any young man or woman in the military right now that has 
computer skills, 2 months before they get to the reenlistment 
point, gets job offers at two to three times their salary. I 
mean it is really hard to hold onto them. So this is a major 
problem, especially when the economy is so strong. There are so 
many opportunities. It is not just pilots. We are seeing this 
problem across the board in lots of career fields.
    Our pace of activity and, Mr. Chairman, you mentioned this, 
our pace of activity is a real strain on us. We are managing 
it, but I will tell you it is tough. It is tough keeping forces 
in Bosnia, and it is tough having forces in the Middle East, 
and sending 1,500 folks to Honduras and Guatemala for relief 
activities. It is a strain on the Department. We are working 
it.
    It contributes to the difficulty of holding onto people, 
but it is a real challenge in this environment. And it is one 
of the reasons why it was very difficult for us to come to this 
decision that we could support a deployment to Kosovo, because 
it will be a challenge for our troops. We know that.
    After 14 years of drawdown, we have a very threadbare 
infrastructure here in the United States. We have had four 
rounds of base closures. Those have been very important to us. 
We are now saving about $5 billion a year because of the base 
closures. A tremendous amount of controversy, and the chairman 
jabbed me a bit when I was back saying hello on what happened 
in California; I understand that.
    I think we have worked our way through that, but we really 
do need, and I hate to say it, we need to come back to you 
again and ask for authority to be able to do a couple more 
rounds of base closures, partly so we can turn those dollars 
back and replenish the infrastructure that we have. It is 
tough, and you have seen it. I mean those of you who have 
installations know that our infrastructure is getting fragile, 
especially the underground infrastructure, the stuff you can't 
see, the utilities, you know, the water systems, things of that 
nature.
    Let me give you an example. We have about 300,000 housing 
units that the Department of Defense operates, you know, for 
our personnel. The average age is 35 years old. I mean that is 
the average, I mean, and we are only buying replacement 
housing, about 5,000 houses a year. You can do the math. We are 
not keeping up with this kind of stock. So we need to do 
something.
    Chairman Kasich. Would you suspend? I think what we ought 
to do is get over there and vote.
    Mr. Spratt. We have got a series of votes.
    Chairman Kasich. OK. Do you want to----
    Mr. Hamre. We will wait.
    Chairman Kasich. How much----
    Mr. McDermott. Two votes on Ed-Flex and then three 
suspension votes, so you have got five votes.
    Chairman Kasich. John, if you can, go ahead and wrap it up.
    Mr. Hamre. I will pick up the pace. Let's go down two 
charts, Ken, to the line chart, and here I want to just show 
you what our budget is.
    The President gave us $112 billion more to spend. It is 
real, and here is how we did it. First of all, the dashed blue 
line that is right in the middle, that was our 5-year plan that 
we had last year, and that is the one that Mr. Spratt was 
talking about.
    Now, inflation has come in lower and fuel prices are lower, 
and so it has lowered that bar to the solid blue line. That is 
what it costs to buy the program we had a year ago. Now, we 
were given additional dollars. As you can see, we were given an 
additional $84 billion. This area here was added to our top 
line. The $28 billion was purchasing power we were allowed to 
keep. So altogether we got another $112 billion of real 
purchasing power that we could spend.
    Now let's go to the next chart. What is really 
controversial about that is that while we got dollars in the 
outyears--and that is that additional topline that you see, the 
third line down, and that adds up to $84 billion--the real 
problem is in '00, because the problem we had in '00 was we had 
to get under the caps. So the problem you see is we only got 
$4.1 billion of additional topline in '00, even though we got 
$12 billion worth of extra purchasing power.
    OK, how did we do that? Now some people say it is a 
gimmick. It is not a gimmick because you could do it. You could 
legislate this and it could be real, unlike I think the 
traditional motion of gimmicks: It is something to get you 
through a press release and then you have got to figure out 
what you can really do. You can really do it. Some people don't 
think it is necessarily a good idea, but it is doable.
    First is the economic changes and that is the inflation 
savings that we talked about. Then there is the MILCON advance 
appropriation. Now what this in essence--we didn't change a 
single MILCON project, it is the same MILCON projects but we 
put only the dollars to do '00 part of the MILCON project in 
'00, and then there is the $3.1 billion that is added in '01 to 
do the remaining funding of the same projects.
    Mr. Spratt. It is taken out, isn't it? You said it was 
added, it was taken out.
    Mr. Hamre. I don't know why it shows as a negative on this 
chart.
    Mr. Lynn. The money is actually in '01 but the purchasing 
power is '00, is what that means. The sign is confusing, but 
that is the point.
    Mr. Hamre. I think it is part of that shimming stuff that 
we talked about, Mr. Chairman. So to do this program, in order 
to buy it, what we really need you to do is to legislate 2 
years' worth of appropriations, legislate the MILCON dollars in 
both '00 and '01, and you can buy this program. It is not a 
gimmick. It is real, and we do this in other accounts. You know 
we don't traditionally do it in DOD.
    We do it in other accounts. We do it in the Department of 
Energy, for example. And we have done it in cases in DOD, 
primarily hospitals and things of that nature. But it is real, 
although it is not our preference for the way to do business. 
We would much prefer to do full funding. That would be our 
preference, but we couldn't get under the cap, and this way it 
brought purchasing power under the caps.
    And then there are $1.6 billion worth of rescissions. Now, 
coming up to the Hill and talking about rescissions when you 
just gave us the money last year, that is a little like 
inviting the undertaker to show up at the 70th anniversary of 
your high school reunion. Nobody is looking forward to doing 
that. It is real. But it does mean we would have to sit down 
and go through a process with you to identify what those 
programs are.
    Our preference is that we don't have to sit down and do 
that with you, but we will do that if we are asked to. But the 
only reason we went through that was because we had the caps. I 
mean once we are past the caps, we have got new budget 
authority. Now the new budget authority, of course, is only 
unlocked when you pass a budget resolution. I mean we do have 
to have, in order to execute this program, we do have to have a 
budget resolution that gives us new dollars throughout the 5-
year plan.
    So I would ask you please, I know you are getting very 
close to that and we are very grateful that you are moving it 
so fast this year, but that really becomes very important both 
for the larger program that you are working on and the defense 
program we are trying to build.
    OK, Ken, let's go on. We put our highest priority on 
people; 50 percent of all the dollars that--$112 billion that 
we added, 50 percent of it went to people because that is our 
highest priority. About another 40 percent went to readiness.
    Chairman Kasich. We have got 5 minutes. I think we better 
suspend and get over there and vote.
    Mr. Hamre. Yes, sir. We will be here.
    Chairman Kasich. Whenever we can get here, we will get 
here.
    [Recess.]
    Chairman Kasich. Let's get started.
    Mr. Hamre. Yes, sir. And I just have three charts, 2 
minutes. It won't take any longer than that.
    Contingency funding, of course we have funded the costs of 
Bosnia operations and the cost of Southwest Asia, that is, 
Northern Watch, Southern Watch. That is included in our budget. 
We do not have any money in our budget if we do have to go into 
Kosovo. And we cannot do Kosovo without getting some 
supplemental funds, otherwise it is going to come at the 
expense of our readiness activity. I just needed to mention 
that. I know you have got a big debate going on on that 
subject.
    Ken, next chart. This is where we are on modernization. You 
know, you look back at where we were here when Secretary Cohen 
got over there, we were down in the 40's--actually when he 
first came we were at $42 billion. This year we are--as you can 
see, the top line is our goal. We wanted to be at $54 billion 
in '00. This year we only made $53 billion; even though we 
added $12 billion, we didn't make our procurement target. We 
wanted to be at $54 billion; we only got to $53 billion because 
we put most of our money in O&M and personnel.
    As you can see, once you get past '00, we get up, and you 
go to '05, we plan on spending about $75 billion here on 
procurement. Now I know people will ask will that really hold 
true, and I think that is always a fair question to put to us, 
because we have had falloff on procurement over the years. That 
has been the lowest priority of all of our high priorities. But 
I do want you to see what those numbers look like.
    Ken, let's go to the last one. Mr. Chairman, I am only 
showing this one because of your question, are we still doing 
business reform? And I think the answer is very much yes. As a 
matter of fact, I don't think we have any credibility coming to 
you and asking for another $112 billion dollars if I can't 
demonstrate to you that I am doing everything we can internally 
to streamline our activities.
    We want to close some more bases. We are asking permission 
to do two more rounds of base closures. We want to compete 
jobs. We are not simply privatizing it at all costs, we want to 
allow government workers to compete for those jobs, and we plan 
on doing 229,000 of those. And I can bore you endlessly with 
the other things, the business practice reform. But we were 
very working very hard to become a more streamlined 
organization.
    Mr. Chairman, let's turn at this stage to questions, I know 
the hour is getting late.
    [The statement submitted by Mr. Hamre follows:]

 Prepared Statement of Hon. William S. Cohen, Secretary of Defense, in 
          Connection With the Fiscal Year 2000 Defense Budget

     (Prepared for Defense Subcommittee of the House Committee on 
                 Appropriations Hearing, March 3, 1999)

    Mr. Chairman, members of the Committee, it is a pleasure to be here 
to present President Clinton's fiscal year (FY) 2000 Department of 
Defense (DOD) budget request. Special greetings particularly to new 
members of this committee. My department and I look forward to 
developing a productive and cordial relationship with you as together 
we work to secure America's future.
    We convene at the twilight of a century in which military power 
came to dominate much of human affairs. Through world wars, crises, and 
the cold war, America learned the folly of appeasement and wishful 
thinking and the wisdom of preparedness and resolve. Now we meet to 
consider the defense budget of the nation that good fortune has cast as 
the one most able to lead the world toward a more peaceful century.
    A prudent security strategy and defense posture remain essential to 
America's global leadership and its ability to foster a favorable 
international order. Our aim is an environment in which critical 
regions are stable, peaceful, and free from domination by hostile 
powers; the global economy and trade are free to grow; democratic norms 
and respect for human rights are widely accepted; and nations cooperate 
to prevent and, if necessary, respond to calamitous events.
    The FY 2000 DOD budget advances these goals. It reflects my 
Department's May 1997 Quadrennial Defense Review (QDR)--a comprehensive 
analysis of our nation's defense posture, strategy, policies, and 
programs. In view of the security threats and opportunities facing the 
United States, both today and well into the future, the QDR developed 
many far-reaching recommendations on force structure, readiness, 
modernization, infrastructure, and more. It presented a new strategy 
that can ensure America's military superiority as well as implement the 
defense requirements of the President's National Security Strategy for 
a New Century, which stresses global engagement and leadership.
    In support of our strategy, America's armed forces continue to 
excel in the multitude of missions given them. From Desert Storm to 
Desert Fox, our forces have performed with skill and precision in the 
vital Persian Gulf region. In Korea our troops maintain their 
relentless vigil against aggression from the north. In Bosnia our 
forces are adeptly accomplishing the military tasks needed to foster a 
permanent peace there. In humanitarian crises from Rwanda to Central 
America, our military has delivered relief whatever the obstacles. 
Around the globe our uniformed men and women are operating with high 
effectiveness, training hard, keeping our weapons and systems in good 
shape, and mastering all the other essentials of our defense strategy.
    Over the past year our national security leadership has become more 
and more concerned that this military excellence could begin to wane 
without substantial new investments. Although our forces continue to 
accomplish their missions splendidly, there are warning signs of 
potential problems. Recruiting and retention are increasingly 
difficult, readiness harder to maintain, and modernization tougher to 
fund sufficiently. General Shelton, the Service Chiefs, and I conveyed 
our concern to President Clinton, and he agreed that corrective action 
was needed. The President decided to propose substantial increases in 
military compensation and the first sustained long-term increase in 
defense resources in over a decade. His action meets the most pressing 
requirements identified by our uniformed leaders and will enable us to 
continue the military excellence that has become our nation's pride.
    This statement highlights how the President's FY 2000 budget 
proposes to keep America's defense posture strong. It emphasizes how 
the FY 2000 budget:
    1. Supports the QDR strategy of Shape, Respond, Prepare
    2. Provides substantial new resources through a higher topline and 
reapplied savings
    3. Puts people first with the largest military pay raise in a 
generation and increases in military retirement benefits
    4. Protects readiness priorities with increased funding for 
operations, training, repair parts, and maintenance
    5. Achieves QDR modernization aims including $60 billion per year 
Procurement by FY 2001
    6. Reaffirms our commitment to streamlining and reform of DOD 
infrastructure and support
    7. Continues the strengthening of our critically important Reserve 
components

                  Supporting the QDR Defense Strategy

    The QDR defense strategy has three elements:
    1. The United States must shape the international security 
environment in ways favorable to its interests. We work to do this by 
promoting regional stability, preventing conflicts, deterring 
aggression, and reducing threats. Especially crucial are the overseas 
deployment and superior capabilities of U.S. forces, our international 
alliances, and our peacetime engagement with selected nations with the 
aim of them being friends, not adversaries in the future.
    2. The United States must respond to the full spectrum of crises. 
America's military must be capable of responding effectively to crises 
in order to protect our national interests, demonstrate U.S. resolve, 
and reaffirm our role as a global leader. U.S. forces must be able to 
execute the full spectrum of military operations--from deterring 
aggression and coercion, to conducting concurrent smaller-scale 
contingency operations, to fighting and winning major theater wars.
    3. The United States must prepare now for an uncertain future. 
Among our efforts to do this, we must pursue focused modernization to 
replace aging systems and incorporate cutting-edge technologies to 
ensure U.S. military dominance. We must streamline and improve our 
Defense infrastructure and support activities. And we must hedge 
against the possible emergence of a major unanticipated threat through 
such priorities as carefully targeted research and development.
    The essence of this defense strategy is balance between current 
dangers and opportunities versus those we might face in the future. We 
need sufficient forces and capabilities to meet today's requirements, 
while at the same time investing wisely for the future. The FY 2000 
budget provides balanced support of the QDR strategy of Shape, Respond, 
Prepare. All three elements benefit from proposed funding of our top 
priorities--people, readiness, and modernization.
    The requirements of the QDR strategy determine the size, 
composition, and posture of U.S. forces. Our forces are configured not 
only to meet current threats, but also to succeed in a broad range of 
missions and environments. The Defense program seeks to ensure that the 
U.S. military has the capabilities to dominate future foes and give 
national leaders a range of attainable options for promoting and 
protecting America's interests in peace, crisis, and war.
    Our defense strategy and program includes a major focus on 
countering the serious threat of weapons of mass destruction (WMD). 
Efforts to reduce this threat include the Cooperative Threat Reduction 
(CTR) program to support the destruction and nonproliferation of 
weapons of mass destruction in nations of the former Soviet Union, the 
Chemical Weapons Convention, and various other measures to discourage 
the proliferation of these weapons. The FY 2000-2005 budget to address 
WMD dangers includes: $2.9 billion for the CTR program; almost triple 
the previously planned spending for National Missile Defense (NMD); and 
additions to other programs to counter WMD threats, particularly those 
associated with the Special Operations Command.

                      Increasing Defense Resources

    Proposed budget authority for FY 2000-2005 reflects President 
Clinton's plan to make available to DOD $112 billion in additional 
resources, which will enable DOD to fund the most critical priorities 
identified by our military leaders. This constitutes the first 
sustained long-term increase in defense funding since the end of the 
cold war. The additions are being made to resource levels planned at 
the time of last year's FY 1999 budget request.
    The added $112 billion consists of an $84 billion increase to last 
year's planned topline and $28 billion in savings from lower inflation, 
lower fuel prices, rescissions, and other adjustments - savings the 
President directed DOD to retain and allocate to pressing needs. 
President Clinton's $84 billion topline increase reflects his proposal 
in the State of the Union address to allocate to defense spending a 
portion of the projected federal budget surplus once a resolution on 
Social Security is achieved.
    For FY 2000 the budget includes $12.6 billion in additional 
resources--$4.1 billion from a topline increase and $8.5 billion from 
economic adjustments and other provisions. These added resources 
enabled DOD to increase military compensation, provide balanced support 
to readiness and modernization priorities, and fund the expected cost 
of Bosnia and other operations.
    The allocation of the total $112 billion reflects our balancing of 
current and future needs:
     $35 billion to Military Personnel accounts, primarily for 
higher pay and retirement benefits
     $49 billion to Operation and Maintenance accounts for 
various readiness enhancements, Bosnia costs, higher civilian pay 
raises, and CTR increases
     $28 billion to modernization (primarily Procurement and 
RDT&E accounts) for funding increases for weapons, facilities, and 
support systems, plus added funding for NMD

                          Putting People First

    Providing a good quality of life for our uniformed people and their 
families remains essential to sustaining U.S. military strength. 
Reflecting that reality and to address mounting warnings about 
retention and recruiting, this year's budget includes the largest 
increase in military compensation in a generation. The compensation 
package proposals:
    1. The REDUX change in military retirement would be reversed by 
raising benefits from 40 percent to 50 percent of base pay for members 
retiring after 20 years. Also proposed are changes to ensure that 
retirees get cost-of-living (COLA) increases during periods of low 
inflation. Restoring military retirement benefits was the military 
leadership's top priority. For FY 2000-2005, these changes cost $6 
billion.
    2. Military base pay in FY 2000 would be raised 4.4 percent--the 
largest military pay increase since FY 1982. This raise exceeds the 
forecasted rate of civilian wage growth (employment cost index or ECI) 
and is more than two percentage points above the general inflation rate 
as reflected in the Consumer Price Index, projected at 2.3 percent for 
FY 2000. Planned FY 2001-2005 raises are 3.9 percent per year, which 
matches the projected ECI. For FY 2000-2005, the incremental cost of 
these higher pay raises compared with the lower raises planned for 
these years in the President's FY 1999 budget request is about $14 
billion.
    3. Pay also would rise in connection with military pay table 
changes to increase the raises associated with promotions. This change 
will reward performance, compensate people for their skills and 
experience, and encourage them to continue their service. These 
targeted increases will range up to 5.5 percent, and will be in 
addition to the across-the-board raises. For FY 2000-2005, these pay 
table changes will cost $4.5 billion.
    4. For FY 2000-2005, the budget also includes another $2 billion 
for initiatives to improve recruiting and retention. For example, DOD 
is proposing higher compensation for military members possessing 
critical military skills.
    From the $112 billion in additional resources for FY 2000-2005, the 
Department allocated a total of $36.5 billion to ``put people first.'' 
This includes these four military pay and retirement increases plus $10 
billion for higher pay raises for DOD civilians.

                          Protecting Readiness

    The readiness of our first-to-fight forces remains high, and 
overall our forces continue to be fully capable of executing the 
National Military Strategy. However, the intensity of operations, the 
less-ready posture of some later deploying forces, and other concerns 
require extra measures to ensure sufficient readiness in the years 
ahead.
    Readiness continually needs monitoring and refreshing. Over the 
past 12 months, added funding has been needed to preclude our readiness 
being eroded from unbudgeted costs and other unforeseen requirements. 
To protect readiness in FY 1998, DOD proposed and Congress supported an 
emergency supplemental of $1.8 billion for Bosnia and other unbudgeted 
costs, plus a reprogramming of $1 billion--primarily into key readiness 
accounts. For FY 1999, Congress approved the President's request for 
emergency funding of $1.9 billion for Bosnia and $1.1 billion for 
readiness needs. This responsiveness by the Congress demonstrated its 
appreciation of the importance of quick and substantial action when 
readiness concerns arise.
    Bolstered by added resources, the FY 2000 budget funds the 
training, exercises, maintenance, supplies, and other essentials needed 
to keep U.S. forces prepared to achieve their combat missions 
decisively. Most of this readiness-related spending comes in the 
Department's Operation and Maintenance (O&M) accounts. When adjusted 
for today's lower troop strengths, O&M funding in FY 2000 is well above 
levels during the 1980s.
    The FY 2000 budget funds the military services' most pressing 
readiness requirements--those that could put readiness seriously at 
risk. It supports traditionally high OPTEMPO, flying time, and other 
readiness enhancers; readiness-related maintenance and improvements at 
DOD facilities; and readiness-related modernization, in areas like 
electronics and maintainability.
    For FY 2000 the budget includes $1.8 billion for ongoing Bosnia-
related operations and $1.1 billion for operations in Southwest Asia 
(SWA) at the force level and operating tempo in place last September. 
The Department has also incurred unbudgeted FY 1999 costs from 
providing assistance to Central America in the aftermath of Hurricane 
Mitch and from Operation Desert Fox in SWA. The FY 2000 budget contains 
an allowance to deal with these kinds of unanticipated emergencies.
    The Department will continue to work to ensure that unexpected 
funding requirements, such as unbudgeted military operations or 
recovery from natural disasters, do not force us to divert funds away 
from readiness, modernization, and other priorities. We appreciate 
Congress's strong support of our requirements during the past year.

                     Achieving Modernization Goals

    As reconfigured by the QDR, the Department's weapons modernization 
plans include development of cutting-edge capabilities as well as cost-
effective upgrades to existing systems. Helped substantially by the 
President's addition of resources, the FY 2000 budget meets the QDR 
recommendation to increase Procurement funding to $60 billion per year 
by FY 2001. The complete Procurement funding profile:

                                        DEPARTMENT OF DEFENSE PROCUREMENT
                                                 ($ in billions)
----------------------------------------------------------------------------------------------------------------
                    Budget Authority                       FY 99   FY 00   FY 01   FY 02   FY 03   FY 04   FY 05
----------------------------------------------------------------------------------------------------------------
QDR Goal................................................   $49     $54     $60     (*)     (*)     (*)     (*)
FY 2000 budget..........................................    49.0    53.0    61.8   $62.3   $66.6   $69.2   $75.1
----------------------------------------------------------------------------------------------------------------
* QDR did not specify funding goals beyond 2001.

    For FY 2000, our full funding of readiness and personnel needs left 
us $1 billion short of the QDR's Procurement goal. Still, in real terms 
Procurement at $53 billion is nearly 7 percent higher than the FY 1999 
level, and it will grow another 15 percent in FY 2001.
    America's military preeminence depends on investments in new 
technologies. A high priority for achieving this is DOD's science and 
technology program, which funds research that should help field 
superior weapons and support systems at affordable prices. Also 
critical are advanced concept technology demonstrations (ACTDs), which 
link relatively mature technology with new operational concepts and 
enable us to expeditiously evaluate important innovations.
    The $112 billion addition of resources will enable DOD to make 
important augmentations to its previous modernization plans. It will 
enable the Department to:
     Include $6.6 billion more for NMD deployment (includes FY 
1999 supplemental funding)
     Add 8 ships to the Navy's shipbuilding plan
     Procure additional aircraft such as the F-16, C-17, T-45, 
and V-22.
     Fix underfunding shortfalls for the LPD-17, NAVSTAR GPS 
Satellite, and evolved expendable launch vehicle (EELV).
     Increase funding for the Army's training ammunition 
requirements and invest $2 billion in critical combat service support 
equipment
     Add $1 billion to the Marine Corps budget for critical 
Procurement needs
     Address bow wave funding challenges in the years beyond 
2003
                         major service programs
    The ambitious DOD modernization program is especially critical for 
achieving the needed transformation of U.S. forces to reflect new 
technologies and other military-related trends. Transforming U.S. 
forces requires implementation of Joint Vision 2010, our new concept 
for how U.S. forces will fight and achieve what we call ``full spectrum 
dominance.'' At the heart of JV 2010 is the ability to collect, 
process, and disseminate information to U.S. forces, while denying the 
enemy the ability to gain and use battle-relevant information.
    DOD's long-term campaign to exploit such advanced technology to 
ultimately bring about fundamental conceptual and organizational 
improvements to U.S. forces is called the Revolution in Military 
Affairs (RMA). This transformation promises to enable our forces to 
attack enemy weaknesses directly and with great precision--and 
therefore with fewer munitions, less logistics strain, and less 
collateral damage. Our RMA campaign is a critical way in which we seek 
to prepare for an uncertain future, derive maximum military capability 
from constrained defense resources, and exploit America's human and 
technological advantages. To advance these aims DOD is exploring new 
war-fighting concepts and capabilities, and establishing a new joint 
RMA experimentation program. Also key is the planned acquisition of new 
command, control, communications, computers, intelligence, 
surveillance, and reconnaissance (C4ISR) capabilities.
    Modernization of aviation forces includes DOD's largest acquisition 
program: the Joint Strike Fighter (JSF). The aim is a family of 
aircraft, with variants configured to meet several sets of 
requirements. The JSF will replace the F-16 in the Air Force, F/A-18C 
in the Navy, and F/A-18C/D and AV-8B for the Marines. The JSF will 
continue in its concept demonstration phase into FY 2001, in 
preparation for procurement to commence in FY 2005.
    The F-22 will replace the F-15C/D in the air superiority role and 
have substantial air-to-ground capability as well. Aircraft testing is 
continuing, and F-22 production is expected to build to 36 aircraft per 
year by FY 2004. The Navy's F/A-18E/F will provide much greater 
survivability and payload over earlier F/A-18 models. Initial 
operational capability is planned for FY 2001. For the longer term the 
Navy plans to transition from F/A-18E/F to JSF procurement at a time 
based on the pace of JSF development.
    Modernization of ground forces will stress upgrades of primary 
combat platforms like the Army's Abrams tank, Bradley Fighting Vehicle, 
and Apache Longbow helicopter. Major development efforts include the 
Comanche helicopter and Crusader artillery system. Marine Corps 
modernization features the V-22 tilt-rotor aircraft, the Advanced 
Amphibious Assault Vehicle, and upgrades of utility and attack 
helicopters and the AV-8B.
    Modernization of naval forces includes procurement of the DDG-51 
Destroyer, LPD-17 amphibious transport dock ship, T-ADC(X) logistics 
support ship, and New Attack Submarine (NSSN). The tenth Nimitz-class 
carrier (CVN-77) is fully funded in FY 2001. The budget also supports 
development of the next generation aircraft carrier and destroyer.
    The FY 2000 budget advances the QDR-stressed capability of 
projecting military power to distant regions. Procurement of 120 C-17 
aircraft will be completed by FY 2003, and further purchases are 
planned for FY 2004-2005. The C-5 transport and KC-135 tanker will 
receive major avionics upgrades and other enhancements.
    The new budget continues the QDR's emphasis on precision 
munitions--both with new systems and upgrades to existing missiles, 
bombs, etc. Also supported are the scores of lesser-known programs 
needed to ensure the decisive combat superiority of America's armed 
forces.
    To get the most for our modernization dollars, it is important to 
institutionalize acquisition reform so we can improve our ability to 
provide effective weapon systems. It also is necessary to modernize 
logistics to cut costs, infrastructure, and cycle time, thereby 
providing better support to our 21st century forces.
                       ballistic missile defense
    The FY 2000 budget continues DOD's strong ballistic missile defense 
(BMD) programs, which remain critical to a broader strategy seeking to 
prevent, reduce, deter, and defend against WMD and missile threats. The 
Department remains committed to advancing its missile defense efforts 
as fast as technology risks allow.
    We continue to emphasize theater air and missile defense programs--
aimed at meeting today's regional threats. The primary goal is to 
develop, procure, and deploy systems that can protect forward-deployed 
U.S. forces, as well as allies and friends. Our plan envisions the 
phased acquisition of a multi-tier, interoperable, defense-in-depth 
capability against ballistic and cruise missiles. To defeat shorter-
range missiles, our key lower-tier programs include the Patriot PAC-3 
and Navy Area systems. Key upper-tier programs are the THAAD and Navy 
Theater Wide systems. To defeat theater-range missiles during their 
boost phase, we are developing an Airborne Laser system.
    This budget includes substantial new resources for the National 
Missile Defense (NMD) program. It increases NMD funding by $6.6 
billion, including $600 million in FY 1999 supplemental appropriations. 
Total NMD funding for FY 1999-2005 is $10.5 billion. This substantial 
investment includes funding for NMD deployment and underscores the 
administration's commitment to NMD. However, no deployment decision has 
been made. A decision about deployment is planned for June 2000 and is 
expected to be based primarily on the maturity of NMD technology as 
demonstrated in development and testing.
    The primary mission of the NMD system being developed is the 
defense of the United States--all 50 states--against a limited 
strategic ballistic missile attack such as could be posed by a rogue 
nation. Such a system also would provide some capability against a 
small accidental or unauthorized launch of strategic ballistic missiles 
from more nuclear-capable states.
    In order to deploy a technologically capable system as quickly as 
possible, we will phase key decisions to occur after critical 
integrated flight tests. As a result, instead of projecting a 
deployment date of 2003 with exceedingly high risk, we are now 
projecting a date of 2005 with a more manageable, but still high risk. 
If the testing goes flawlessly, we could seek to deploy sooner.

       Streamlining and Reforming DOD Infrastructure and Support

    My Defense Reform Initiative (DRI) continues to spearhead a 
comprehensive DOD campaign to streamline and reform our support 
activities. Our goal is to substantially improve these activities and 
get them to consume a smaller portion of the defense budget. This 
effort is smart in and of itself; but it also is imperative in order to 
free up funds to help pay for high priorities like weapons 
modernization.
    During its first year DRI made major progress. For example, we have 
nearly completed a one-third size reduction in the Office of the 
Secretary of Defense (OSD) and are advancing similarly ambitious 
streamlining in other DOD components. We are incorporating successful 
private sector processes and practices. We are shifting from paper to 
electronic transfer of information. We are using public-private 
competition to improve functions and cut costs. This competitive 
sourcing will save $11.2 billion from 1997 to 2005, and $3.4 billion 
per year thereafter. For FY 1997-2005 about 229,000 DOD positions are 
expected to be competed. Having developed momentum with DRI, new ideas 
have been added to improve processes affecting the quality of life and 
professional development of our military people and DOD civilians.
    The resources added by the President for FY 2000-2005 in no way 
diminish DOD's resolve to shrink the portion of its budget consumed by 
infrastructure. They especially do not alleviate the critical need for 
congressional approval of two more rounds of base closure and 
realignment (BRAC). Without such approval, scarce defense dollars will 
continue to be spent on excess infrastructure, rather than on the vital 
needs of America's armed forces.
    Between 1988 and 1995 four BRAC Commissions proposed the closure or 
realignment of 152 major installations and 235 smaller ones. Complete 
implementation of those decisions is projected to net $14.5 billion in 
savings by FY 2001. After FY 2001 recurring savings from them will be 
about $5.7 billion per year.
    The estimated up-front costs for implementing decisions of BRAC 
rounds in FY 2001 and 2005 are included in the FY 2000-2005 budget. 
These BRAC actions could begin to generate savings by 2005 and 
ultimately save over $20 billion by 2015. I realize that some in 
Congress are dissatisfied with aspects of past BRAC implementation. But 
in writing legislation for new BRAC rounds, the Congress can tailor the 
law to address such concerns. Please join me in working to shift 
resources from redundant infrastructure to military muscle.

                    Strengthening Reserve Components

    The FY 2000 budget reflects the essential role of the Reserve 
components in America's defense strategy, and it continues the 
critically important integration of the Active and Reserve components. 
The National Guard and Reserve were closely involved in resource 
decisions.
    The FY 2000 budget provides $20 billion for Reserve component 
personnel, operations, and facilities accounts. For FY 2000, over $1 
billion was added to previous plans for crucial training and other 
requirements including added funds for Active/Reserve integration, 
OPTEMPO, base operations, Reserve component support to combatant 
commanders, and programs to engender critical employer support required 
as a result of increased utilization of the National Guard and Reserve. 
This budget advances DOD's goals for equipment modernization and 
interoperability for the Reserve components by providing over $1.6 
billion in FY 2000. It funds special youth development initiatives such 
as the National Guard Youth ChalleNGe Program and the Starbase program. 
And it continues funding of the Innovative Readiness Training Program, 
providing valuable military training while benefiting America's 
civilian communities.
    Strong support was given to the larger role that Reserve components 
are to play in increasing DOD's capabilities to support federal, state, 
and local agencies in responding to domestic incidents involving 
weapons of mass destruction (WMD). The Department has begun to train 
and equip members of the Reserve components to better support civilian 
authorities in mitigating the consequences of a WMD attack.
    The FY 2000 budget promotes the Department's objectives in 
supporting the Reserve components as fully integrated partners within 
the Total Force, and seeks to use specific talents of the Guard and 
Reserve in new and innovative ways.

                                Closing

    I look forward to continued cooperation as together we work to 
reinforce America's military strength and global leadership.

    Chairman Kasich. Mr. Hamre, let me just ask you, 4 years 
ago this committee was told by the Department of Defense that 
robust actions to improve bookkeeping and auditing had been 
taking place, but 3 months ago the IG said, ``The DOD remains 
unable to comply with the various laws requiring auditable 
financial statements for its major funds and for the Department 
as a whole. We do not anticipate a significant difference in 
financial statement audit results in the near future.'' What is 
that all about?
    Mr. Hamre. Sure. Let me ask Bill. Bill is the Under 
Secretary for Financial Management. I would ask him to give you 
the response, sir.
    Mr. Lynn. Mr. Chairman, the IG and the GAO, which has done 
similar studies, are right that at the current time we are not 
able to produce an auditable financial statement. That is 
largely because the systems that we have put in place frankly 
over 200 years were never designed to do that. They were 
designed to provide assurance that the money that we were 
allocated by Congress was spent in the way Congress directed.
    We have recently, over the past several years, been asked 
to meet commercial audit standards. We were endeavoring to do 
that, but what that will require is to change our systems. We 
have a plan over the next 5 years to make those changes, to 
upgrade those systems and to produce an auditable financial 
statement.
    Since that is I think too long a period of time in 
Washington, we also have an interim plan where we are going to 
try work-arounds, using the systems we have to try and produce 
auditable statements, working closely with the auditors both at 
OMB, at GAO, and at the Inspector General. And we have 
developed a series of plans that should produce some 
improvement over the next couple of years.
    Chairman Kasich. It is pretty unbelievable, though, isn't 
it?
    Mr. Hamre. Can I put it in perspective though, sir? The one 
thing--when I first went to the Department as the comptroller, 
we had about $50 billion worth of what we call problem 
disbursements where we had difficulty, kind of like balancing 
your checkbook. We were off by $50 billion. Over the next 3 
years that got whittled down so it is now I think about $8 
billion. Now that still is a big number. But I have got to tell 
you that is 8 billion of the dollars that have been spent over 
the last 7 years, so it is $8 billion over a base of about $1.7 
trillion.
    If you do the math you will find out we have done it right 
99.5 percent of the time. It is that .5 percent where we have a 
problem, where we transposed numbers or we did something. We 
researched $35 billion over the last 3 years and have not found 
wide-scale problems; that is not to say we are free of 
problems. We have some. We actually had to arrest a couple of 
people, but that is a very small percent of where we have had 
problems, sir.
    Chairman Kasich. Mr. Spratt.
    Mr. Spratt. Thank you both for a good presentation. I am 
sorry for the interruption.
    Let me ask you about the President's personnel 
recommendations. You were saying that half of the increase of 
$112 billion goes to people.
    Mr. Hamre. Roughly.
    Mr. Spratt. As you break it down, as I recall, there is 
about $29 billion for modernization, which is procurement and 
R&D about $35 billion for personnel; and then about $48 
billion for O&M. Is that a roughly right allocation?
    Mr. Hamre. Yes, that is right. I misspoke. It is roughly 
half went into the readiness money.
    Mr. Spratt. I was wondering if there was some personnel 
money in the O&M package when you said there is $48 billion for 
O&M.
    Mr. Hamre. Go ahead, Bill.
    Mr. Lynn. The civilian pay raise would largely be in the 
O&M package, so in that sense, yes, there would be some pay, 
but no military pay to speak of in O&M.
    Mr. Spratt. But to the extent of the inflation savings, 
then they would be realized in operating costs, O&M, and in 
procurement costs?
    Mr. Hamre. Yes, sir.
    Mr. Spratt. So that $28 billion in programmatic savings and 
inflation savings were largely to the benefit of the goods and 
services package rather than the people package?
    Mr. Hamre. These dollars are fungible and you can book them 
wherever you want. I mean the point is the $112 billion was all 
real. It was all extra purchasing power, and we used it both to 
buy better benefits for people, make sure we had the readiness 
problems fixed, about half of it was for readiness, and then we 
put as much as we could into modernization.
    Mr. Spratt. Now the Senate took the President's pay and 
personnel package which came to, as I recall, about $35 
billion, and added to it over 10 years about $21.2 billion. 
Over the next 7 years the increase comes to about $7.7 billion, 
and I think that is roughly divided between discretionary 
programs and mandatory programs; and some of it would be, I 
believe, Veterans Administration costs, wouldn't be your costs.
    How do you accommodate those additional expenses?
    Mr. Hamre. Mr. Spratt, at the time that the bill was on the 
floor in the Senate, the Secretary wrote I thought a very 
strong letter saying, you know, until you pass a budget 
resolution that accommodates this increase, this bill 
represents an unpaid IOU that can only be paid by cutting the 
readiness of the forces or cutting modernization.
    And that is where we still are. We still need to have a 
budget resolution that is passed that would accommodate this 
higher level of resources for personnel costs. Now, we are not, 
you know, we are not opposed to doing better by our troops, 
don't get me wrong, and I don't think anybody in the Senate is 
that way. But right now it is not paid for.
    And unlike other parts of the Federal Government, you put 
in a pay raise now for the troops and it is higher, we are 
going to book that through the next 5 years. We have to do that 
because we are programmed for 5 years. And if there isn't a 
topline adjustment that accommodates it, we are going to have 
to unload, cut other things in the budget, more likely than not 
procurement.
    Mr. Spratt. With respect to the $112 billion as a $28 
billion item, it is $84 billion in new money and $28 billion in 
new values, so to speak. How much of that is in programmatic 
savings that you propose to achieve through various management 
measures, and how much of it is just pure inflation adjustment?
    Mr. Hamre. The $28 billion, and Bill should correct me, I 
believe is entirely an economic adjustment based on economic 
cost adjustments. There is a very important reason. We did 
not--there are some management efficiencies that we put into 
this budget where it specifically identified primarily base 
closures and A-76 competitions. Those are the two big ones.
    We have not tried to identify savings from individual 
management reform initiatives, largely to not take the 
incentive away from organizations to do the change. As soon as 
you identify here is how much we plan on saving in this 
organization by say going to paper-free contracting, what 
happens around this town is you lose the money, and we are not 
trying to take money away from people. We want them to reform.
    Mr. Spratt. You are trying to say if you will do this, you 
can free up money that we will let you have in return to spend 
on other projects?
    Mr. Hamre. Absolutely, and the services have control over 
that money and we want it to be that way.
    Mr. Spratt. There is a little bit of disdain for the $28 
billion on the grounds it is kind of funny money, it is just an 
inflation adjustment, as you put it. Is it real? Can you 
actually spend it?
    Mr. Hamre. Oh, yes, sir and we programmed it. I mean it is 
a little like saying when you sit down with your architect, say 
``I want to build a house,'' and the house is going to cost 
$200,000. When you get done adding up the all the bills and the 
bills come in and it is $190,000, you got 10,000 more and you 
can say, ``OK, let's take and put that bathroom that we didn't 
think we could afford when we were first building the house.'' 
It is real and we are spending it.
    Mr. Spratt. Are you actually seeing these savings turn up 
in your procurement accounts? In particular, are you seeing 
cost projections come in lower because inflation is lower?
    Mr. Hamre. Well, yes, sir.
    Mr. Spratt. Actual costs incurred coming in lower?
    Mr. Hamre. Yes, sir, but I am going to be honest, I think 
most calculations in inflation are highly abstract. You are 
looking at data that is quite removed from an individual 
program manager, so an individual program manager, he doesn't 
have an item in his budget that says ``inflation.'' I mean he 
budgets what he thinks is the costs for all the things he has 
to do, and sometimes those costs aren't, you know, everything 
he wants to do; he doesn't have the dollars to cover it. 
Sometimes he has more, he can get more done. But individual 
program managers don't have a line item that says 
``inflation,'' so when we take dollars from them because we say 
inflation has gone down, to me that looks like a real cut and 
that frankly is causing a problem.
    Chairman Kasich. Do you have off the top of your head the 
number of systems that were--weapons systems or any 
expenditures that the Pentagon did not want, that the Congress 
added to your request? Do you know offhand?
    Mr. Hamre. You have just invited me to shoot myself in the 
head or the foot, I am not sure where.
    Chairman Kasich. Why is that?
    Mr. Spratt. Why doesn't the comptroller do it, then?
    Mr. Hamre. I will spare him. There is no place in the 
Constitution that says the comptroller appropriates money, and 
that is clearly reserved for the Congress. The Congress 
appropriates it, and sometimes you put in things that we don't 
think are the highest priority, but I can't say that that is 
wrong.
    Now I can give you a list of things that we didn't ask for 
and I can tell you we think those are lower priority than 
things we asked for, but I am not going to say to you that they 
are unimportant. Actually, you are the ones that decide what it 
is that we are supposed to have every year. And I am trying to 
be honest. I used to work up here for you and that is the way I 
viewed it at the time. I would----
    Chairman Kasich. You are really getting good, John. You 
keep at this, you could run for office pretty soon. Seriously, 
you are really getting good. So what is the answer to my 
question?
    Mr. Hamre. The answer is I will give you a list of all the 
things that were added that we didn't ask for, and I will 
identify which of those things that we added that are in our 
future budgets so you could argue it is simply buying earlier 
what we would like to ask for. But I will see that you get that 
list.
    Chairman Kasich. OK.
    Mr. Spratt. Let me ask you again about Kosovo. You 
indicated that the Kosovo deployment, if it occurs, is not 
included in your budget request for the forthcoming fiscal 
year.
    Mr. Hamre. Right.
    Mr. Spratt. What is the incremental cost?
    Mr. Hamre. Sir, it is obviously a good deal more expensive 
to get in because you got the costs of deploying the forces, 
getting the infrastructure in place, et cetera. So we think the 
cost here in this fiscal year, if we have to do it, could be 
between $1.5 billion and $2 billion, depending on timing, when 
it happens and that kind of thing.
    Mr. Spratt. Is that fiscal year 2000 or the current fiscal 
year?
    Mr. Hamre. That is '99. We would need a supplemental to 
help us with that. Of course, we will not go in if we don't 
have a peace agreement. So this is going to be in a benign 
environment, but it will be expensive. I don't want to mislead 
anyone. It is going to be expensive if we have to go in. I 
don't think that should really dictate whether we think it is a 
good idea or not. We ought to decide that on its merits.
    Mr. Spratt. Over the next fiscal year, 2000, it would be--
--
    Mr. Hamre. Probably roughly the same range, you know, for--
--
    Mr. Spratt. The initial cost of getting them in there is 
the same cost?
    Mr. Hamre. The initial cost is heavy but we only have half 
of the year left, so it is a steady state cost. We just 
patterned it after Bosnia. It is roughly going to be comparable 
to the Bosnia cost, and I think you saw the chart. I think it 
is $1.8 billion for Bosnia in this year.
    Mr. Spratt. In submitting the list that the chairman 
requested, I think it would be useful if we could show how much 
you downsized since the end of the cold war. You can pick the 
date----
    Mr. Hamre. OK, sure.
    Mr. Spratt [continuing]. When that begins and give us the 
number of civilian personnel and DOD and related agencies, the 
number of active duty personnel, the number of Reserve 
component personnel, and then the changes from the baseline 
year to the current year that----
    Mr. Hamre. We will certainly do that.
    [The information follows:]

    DOD's FY 1999 personnel levels are substantially below 
levels in FY 1997, the post-Vietnam war peak for end strength 
of both active duty military and DOD civilians, as shown below:

                                  DEPARTMENT OF DEFENSE PERSONNEL END STRENGTHS
                                        (End of Fiscal Year in Thousands)
----------------------------------------------------------------------------------------------------------------
                                                                     Cold War         Current     Percent Change
                                                                 -----------------------------------------------
                                                                      FY 1987         FY 1999      FY 1987-1999
----------------------------------------------------------------------------------------------------------------
Active Military.................................................           2,174           1,390             -36
Selected Reserves...............................................           1,151             877             -24
DOD Civilians...................................................           1,133             724             -36
----------------------------------------------------------------------------------------------------------------


    Mr. Spratt. If you can also give us an indication of what 
the average pay and benefit package for a DOD civilian and 
active duty person is, I don't know if you can average that, 
but if you can give us some notional accounting of how much has 
been saved in personnel because of these reductions, it would 
be helpful to have.
    Mr. Hamre. All right. We may have to call back to the staff 
just to make sure we have your question properly framed, but we 
will be glad to provide any of that.
    Mr. Spratt. OK, fine. Thank you very much.
    [Questions submitted on behalf of Mr. Spratt and Mr. Markey 
follow:]

    Additional Questions Posed by Representatives Spratt and Markey

                   representative john m. spratt, jr.
    1a. Please specify the reductions that have occurred in military 
personnel, civilian personnel, and National Guard and Reserve personnel 
from their peak levels in the 1980's to your estimate of what they will 
be by the end of FY 1999.
    b. How much would the FY 2000 DOD budget have to be increased if 
those personnel levels had not been reduced?
    2. By my staff's calculations, the FY 2000 budget will provide, in 
constant FY 1999 dollars, more than $73,000 in O&M funding per active-
duty member. This is 3.8 percent more than the FY 1999 level, and 48 
percent more in real terms than in 1985, the peak year of the Reagan 
defense build-up.
    a. What accounts for this increase?
    b. Specifically, to what extent does higher op-tempo and 
deployments contribute to this increase?
    c. Specifically, to what extent does higher repair and maintenance 
of older weapons contribute to this increase?
    d. Specifically, to what extent does personnel reductions since 
1985 that are disproportionate to overhead/infrastructure reductions 
contribute to this increase?
    3. The ``tagline'' often used to defend and justify new weapons 
systems like the F-22 or the Joint Strike Fighter is ``technology 
overmatch.'' However, it is generally true that the more one ``pushes 
the envelope'' for these systems, the greater the risk of cost 
overruns, technical shortfalls, and schedule slips.
    a. Are you concerned about bringing these major acquisition systems 
in on-cost, on schedule, and on specification?
    b. Are there major systems that are now indicating major cost 
growth in the future? If so, please identify and describe the potential 
for cost growth both in terms of program cost, program unit-cost, and 
procurement ``fly-away'' cost.
                    representative edward j. markey
    1. As I understand it, the budget request is based upon an 
assumption that the United States must be prepared to fight two major 
wars in different parts of the globe simultaneously. In his testimony, 
Mr. Korb argued that this assumption had been developed initially by 
the Joint Chiefs back in 1990 in order to preserve as much of the 
existing force structure as possible following the collapse of the 
Soviet Union. Isn't Mr. Korb correct, and isn't is also true that the 
two-war assumption is really just a rationalization for the status quo 
that bears little if any relationship to the real military challenges 
facing America in the 21st Century?
    2. If you believe the two-war assumption is still valid, please 
explain what you believe to be the most realistic future scenarios in 
which the United States would have to fight two simultaneous wars.
    3. Isn't it true, as Mr. Korb's testimony suggests, that both 
former Secretary William Perry and former Air Force Chief of Staff Tony 
McPeak have both concluded that this assumption is unrealistic?
    4. Why is it that the civilian leadership over at the Pentagon has 
not really challenged this assumption?
    5. Don't we really need to do a full ``bottom up'' review of our 
real national security needs for the post-cold war era before we 
proceed with the major increases in Pentagon funding contemplated in 
the administration's budget request?
    6. It is my understanding that many critics of the Quadrennial 
Defense Review believe that the QDR essentially looked backward in time 
and determined what is needed to better fight a war like Operation 
Desert Storm, rather than determining whether the next military 
conflict the United States enters into will be different than Desert 
Storm (and if so, what forces and equipment would be needed). How do 
you respond to this criticism? How have you addressed the possibility 
that future wars might be smaller, and located in more urban 
environments where the enemy is difficult to identify?
    7. Have any of the major QDR assumptions changed since the last 
time the Pentagon attempted to reassess the size and scope of U.S. 
Armed Forces since the end of the cold war? If not, why does the 
administration's budget request include such a large increase for 
defense?
    8. Are the underlying assumptions of the QDR valid and realistic? 
Are there any assumptions that, if changed, will reduce force 
requirements and/or costs without degrading our national security?
    9. I understand that the levels of defense spending provided for in 
the Balanced Budget Act were derived directly from figures provided by 
the administration and the Pentagon. Now, less than two years later, 
the President is asking for a substantial increase in defense spending. 
Why was it that the Pentagon was apparently so far off the mark two 
years ago regarding its estimates of the amounts needed for defense?
    10. Given the fact that the Department was apparently off the mark 
two years ago regarding the amounts needed for defense, how can we be 
sure that it is not now overestimating the spending levels needed for 
defense today?
    11. Mr. Korb estimates in his testimony that ``if DOD adopted a one 
war plus policy, it could safely reduce its Total Force from 2.3 
million men and women to 2 million.'' Do you agree with this estimate? 
If the Congress were to adopt such a force structure, how much money 
could be saved compared to the current baseline level? How much could 
be saved compared to the administration's 5-year defense plan?
    12. Mr. Korb's testimony also suggests that the United States could 
reduce its strategic forces to a level of 1,000 strategic nuclear 
weapons. How much money could be saved compared to the current baseline 
and compared to the administration's proposed five year defense plan if 
we would to make such reductions?
    13. Mr. Korb's testimony suggests that the United States move to a 
one war plus strategy, reduce troop deployments to Europe and Asia by 
at least 75,000, employ a tiered readiness posture, adopt a realistic 
procurement strategy and take account of various defense spending 
``myths'' which he outlines in some detail in his testimony. He 
estimates that if such a strategy were to be pursued, an adequate 
national security budget would be about $230 million a year. Has the 
Department undertaking any assessment of the merits of this proposal 
and its potential cost savings? If now, why not? If so, do you concur 
with Mr. Korb's conclusions?
    14. In your presentation to the Committee, you indicated that the 
administration is seeking to nearly double the budget for National 
Missile Defense over the next few years, beginning with a request for 
$1.3 billion in Star Wars weaponry in FY2000. As you know, the Russians 
have warned against U.S. deployment of missile defenses that violate 
the ABM Treaty, and it is quite possible that if the United States 
proceeds down the path to deployment that it will endanger prospects 
for the Russian Duma to ratify START II or to conclude a START III 
agreement. Isn't it in our national interest to maintain the ABM 
Treaty, secure Russian ratification of START II, and conclude a START 
III Treaty that provided for additional reductions? Why should we 
jeopardize the national security benefits these agreements represent 
for an expensive missile defense scheme that may not even work?
    15. How likely is it that the United States may be attacked with a 
ballistic missile? For decades, the United States relied upon our 
nuclear forces to deter any missile attack by Russia or China. Why 
wouldn't deterrence continue to work against these nations should they 
become hostile or to other potential attackers?
    16. How likely is it that a country like Iraq or North Korea would 
attack the United States with a weapon of mass destruction (i.e., 
nuclear, chemical, biological) delivered by a ballistic missile, when 
it could hide such a weapon on a cargo ship, a disguised civilian 
airliner, smuggle such a weapon into the country, drop biological 
weapons into a reservoir, or deliver a chemical attack in a crowded 
subway?
    17. In light of the comparative costs and ease of delivering a 
weapon of mass destruction to a U.S. target, what is the justification 
for spending billions on a missile defense that would be ineffective 
against such weapons delivery mechanisms?
    18. The Department's budget request includes a request for actual 
procurement funding to field a ground-based missile defense. Why have 
you asked for procurement funding for a missile defense that hasn't 
even been tested yet?
    19. In his prepared testimony to the Committee, Mr. Korb indicated 
that the Department is still spending roughly the same amount of money 
each hear on missile defenses as it was spending during the Reagan 
years, when there was still a Soviet Union. In light of the end of the 
cold war, why hasn't the budget for missile defenses been adjusted 
downward?
    20. According to Mr. Korb's testimony, the Department has spent 
about $50 billion on missile defense research over the last 15 years, 
and ``to date the billions have yielded no tangible results.'' In light 
of this rather sorry record, what is the justification for accelerating 
spending for this same program?

 Responses to Questions Submitted by Representatives Spratt and Markey

             responses to questions submitted by mr. spratt
    Question 1a: Please specify the reductions that have occurred in 
military personnel, civilian personnel, and National Guard and Reserve 
personnel from their peak levels in the 1980's to your estimate of what 
they will be by the end of FY 2000.
    Answer 1a: The peak year for military and civilian personnel levels 
is FY 1987. The following table shows the reduction in military and 
civilian personnel from FY 1987 to FY 2000:


------------------------------------------------------------------------
                                   FY 1987       FY 2000        Delta
------------------------------------------------------------------------
Active Military...............     2,174,217     1,384,806      -789,411
Reserve/Guard Military........       150,855       865,298      -285,557
Civilians.....................     1,127,052       700,219      -426,833
                               -----------------------------------------
      Total...................     4,452,124     2,950,323    -1,501,801
------------------------------------------------------------------------

    Question 1b: How much would the FY 2000 DOD budget have to be 
increased if those personnel levels had not been reduced?
    Answer 1b: The cost of adding 1,501,801 end strength to the FY 2000 
column of the budget cannot be easily quantified. However, increasing 
the force structure in FY 2000 by 51 percent (1,501,801 end strength) 
would likely require the DOD budget to be increased by a similar 
percentage of 51 percent (or $137.0 billion). The cost of pay and 
benefits alone would be approximately $63.0 billion. The cost to 
procure weapons systems for a significantly increased force structure 
would drive the costs even higher.
     Question 2a: By my staff's calculations, the FY 2000 budget will 
provide, in constant FY 1999 dollars, more than $73,000 in O&M funding 
per active-duty member. This is 3.8 percent more than the FY 1999 
level, and 48 percent more in real terms than in 1985, the peak year of 
the Reagan defense build-up.
    What accounts for this increase?
    Answer 2a: The primary focus for the Department continues to be the 
protection of the near-term readiness of deployed forces. Recently, 
maintaining the readiness of deployed forces has become increasingly 
challenging. The FY 2000 budget includes increases in Defense funding 
to reverse the signs of degradation in the readiness of deployed 
forces.
    The O&M increase from FY 1999 to FY 2000 includes a program growth 
of $3.6 billion. Some of the significant program increases include the 
following:
     Increase for ongoing contingency operations in Bosnia and 
Southwest Asia. These amounts fund the force structure and operating 
tempo in place as of the end of FY 1998.
     Increase in Land Forces to fully fund Army's ground 
OPTEMPO and the replacement of existing M1 tank tracks.
     Increase in Air Operations to adequately fund all aspects 
of flying hour program, particularly spare and repair parts.
     Increase in Real Property Maintenance to repair aging 
facilities which have been inadequately funded in the past (repair of 
barracks, work places and other quality-of-life facilities).
     Increase in Defense Health Program that includes two 
congressionally directed projects to test new health care options for 
over-65 military beneficiaries as well as a redesigned pharmacy 
benefit.
    A meaningful comparison between 1985 and the current O&M costs per 
active-duty member needs to recognize the significant number of 
functions that are now paid from the O&M appropriations. For instance, 
from FY 1999 to FY 2000, the Department transferred $2.2 billion, from 
Defense Commissaries and Pentagon Renovation programs into O&M. Some of 
the other notable O&M funding changes that have occurred over the 
decade which should be considered include the following:
     Increased operation and maintenance support for more 
advanced and sophisticated weapon systems. Technology enhancements have 
and continue to increase our maintenance, training and other operating 
costs. At the same time, more sophisticated equipment is usually less 
manpower intensive. Therefore, a per capita measure of cost will 
increase.
     Transfer of Depot Level Repairables (DLRS) funding from 
various procurement accounts to O&M accounts to introduce more 
efficiency into spare parts management.
     Transfer of funding from procurement accounts to O&M 
accounts due to changes in expense/investment criteria. For instance, 
the expense, investment threshold was $3,000 in FY 1985 but the current 
threshold has been increased to $100,000.
     Increased government contribution into civilian retirement 
plan with the establishment of the Federal Employee Retirement System 
in FY 1987. a Increased O&M funding for Voluntary Separation Incentive 
Pay (VSIP)/Voluntary Early Retirement Account (VERA) due to force 
structure reductions associated with the Defense drawdown and the Base 
Realignment and Closures (BRAC).
    Question 2b: Specifically, to what extent does higher op-tempo and 
deployment contribute to this increase?
    Answer 2b: Higher OPTEMPO and deployment will have a minor impact 
on the increased per capita cost between FY 1999 and FY 2000. The Army 
increased OPTEMPO funding to restore their readiness accounts to the 
800 mile metric. Otherwise, budgeted OPTEMPO and deployments are 
relatively the same from FY 1999 to FY 2000.
    Question 2c: Specifically, to what extent does higher repair and 
maintenance of older weapons contribute to this increase?
    Answer 2c: The DOD has experienced increased operating and support 
costs at least in part due to increasing age of weapon systems. As 
systems age, resources needed to extend the service life and provide 
the necessary logistics and engineering support to maintain an aging 
weapon system may also continue to rise. These costs are visible as 
either maintenance or additional spare and repair parts, but the 
Services have difficulty in segregating those costs related to aging 
equipment from other maintenance and support costs.
    Question 2d: Specifically, to what extend do personnel reductions 
since 1985 that are disproportionate to overhead/infrastructure 
reductions contribute to this increase?
    Answer 2d: Reducing personnel more quickly than the associated 
infrastructure results in higher O&M funding per average manpower 
strength. As stated in the Quadrennial Defense Review (QDR), the total 
active duty military end strength since 1989 will be reduced 36 percent 
by FY 2003. However, the worldwide base infrastructure will only be 
reduced by 26 percent. Therefore, more O&M resources are funding 
infrastructure with less number of people than previous years.
    Although significant infrastructure has been eliminated, future 
rounds of base closure are essential to further reduce excess capacity, 
reshape our infrastructure, and apply our scarce resources to 
modernization and recapitalization.
             responses to questions submitted by mr. markey
    Question: I understand that the levels of defense spending provided 
for the Balanced Budget Act were derived directly from figures provided 
by the administration and the Pentagon. Now, less than two years later, 
the President is asking for a substantial increase in defense spending. 
Why was it that the Pentagon was apparently so far off the mark two 
years ago regarding its estimates of the amounts needed for defense?
    Answer: We have had some shortfalls in recruiting and a couple of 
the services are having retention trouble in second and third term re-
enlistments. While else are not across the board problems they are 
warning signs which we don't want to let fester. If we let the quality 
people we have now in the force leave; it will take us not years but 
decades to restore. So our highest priority is to take steps to address 
the recruiting and retention issues, followed by increasing readiness 
and improving our modernization program.
    The package we came up with is the so-called triad with three major 
provisions which starts with the Chief's highest priority to restore 
the 50 percent retirement benefit, to provide a large pay raise which 
puts more dollars in the pocket or our personnel, and to reform the pay 
table whereby we reward performance. In addition, although not formally 
part of the triad but an important incentive, is targeted specialty 
pays and bonuses for surface warfare offices, nuclear officers, special 
operators as well as increasing enlistment and reenlistment bonuses so 
that we can target these areas where we see recruiting and retention 
problems. We have addressed the full gamut of readiness issues such as 
non-deployed readiness in the Air Force and the Navy and National 
Training Center issues in the Army. Finally, we're moving towards the 
QDR modernization goal of $60 billion and have significantly increased 
procurement budgets to deal with the coming bow wave in procurement as 
more and more systems go into production.
    Question: Given the fact that the Department was apparently off the 
mark two years ago regarding the amounts needed for defense, how can we 
be sure that it is not now overestimating the spending levels needed 
for defense today?
    Answer: In addition to the additional funding provided to the 
Department, we assume two major initiatives from which we can realize 
savings. The first is additional rounds of BRAC. The prior four BRAC 
rounds have generated substantial savings, recently ratified by GAO. 
Our procurement funding begins to increase when we begin to realize the 
savings from these BRAC rounds. The other major source of savings is in 
the competitive sourcing area. We had an order of magnitude increase in 
the number of jobs we've been able to compete. We're hoping to continue 
this over the next several years because whether the private sector or 
the public sector wins the competition we realize 20-25 percent 
savings.
    12. Mr. Korb's testimony also suggests that the United States could 
reduce its strategic forces to a level of 1,000 strategic nuclear 
weapons. How much money could be saved compared to the current baseline 
and compared to the administration's proposed five year defense plan if 
we would (sic) to make such reductions?
    Answer: The Department has not estimated potential savings 
associated with a reduction to 1,000 strategic nuclear weapons because 
that posture does not provide a reasonable deterrent force. The risks 
associated with such a force reduction preclude its serious 
consideration. Before possible cost savings could be calculated, 
analysis evaluating the possible weapons and platform mix 
alternatives--along with risk assessments would have to be done. From 
an analytic perspective, there is no easy answer.

    Chairman Kasich. Gentlemen, let me just ask you one other 
question, and that is, is the administration contemplating any 
action in regard to the recent revelations regarding the 
transfer of technology to China, whether it is the WTO, where 
are we on that right now?
    Mr. Hamre. Well, sir, this is probably a little longer 
answer than you want. I will try to keep it short.
    As to the specific question regarding what Secretary 
Richardson did here recently in terms of firing the guy and 
that sort of thing, I really don't know enough about that. I 
will find out. But I would like to say I think that we thought 
about this problem the right way when it got to the satellite 
launches, and we designed a security system where we thought we 
were able to control technology loss.
    Now, we had a breakdown. We didn't police it as well on the 
ground as we should have, and that is where the problems came. 
But I think the basic concept, yes, we can let American 
companies do business with China as long as for sensitive 
technology we design the security conditions properly. We 
thought we did that, we tried to do it, and we failed in terms 
of some of the implementation. I think that is one of the real 
messages that is embedded in the Cox Commission report. And I 
would be happy to sit down and go through that with you.
    As to additional steps, let me come back, if I may. I will 
find out what is going on, because it really largely isn't in 
our area. Everything in the Cox Commission that they told us to 
do, DOD, there were eight recommendations, we have already done 
them. But I will find out what extra is going on.
    Mr. Spratt. Mr. Chairman, I was on the Cox Committee, if I 
can say just a word about it. One of the things that we found 
is that it would be useful if DOD carved out a group of people 
who were dedicated for a particular period of time. I know you 
had people from time to time for these security details, the 
company, for the launches.
    Mr. Hamre. Yes.
    Mr. Spratt. Just a little bit of emphasis and more 
continuity. It is not the greatest unit in the world, but it 
shouldn't be one of these things where punching your ticket 
doesn't count for anything if you pull this kind of duty. It 
needs to be enhanced.
    Mr. Hamre. We heard you say that loud and clear last fall. 
We actually incorporated that in the budget that we built as 
basically the execution of '99. We already started hiring those 
people, and we agree with you on that.
    Mr. Spratt. Basically the technology transfers occurred, to 
the extent that they did, in the failure analysis process----
    Mr. Hamre. That is exactly right.
    Mr. Spratt [continuing]. Not in really having somebody 
derelict in duty and not watching the satellite while it was 
sitting in a building somewhere in China.
    Mr. Hamre. I think our concept for controlling our 
technology was right but we executed it poorly. And that is--we 
do owe responsibility for that.
    Chairman Kasich. Mr. Chambliss has 5 minutes.
    Mr. Chambliss. Thank you, Mr. Chairman.
    And John, let me just start out by saying I couldn't help 
but see a little humor in your statement about the fact that 
the United States Army is welcomed all around the world. You 
know, I liken that to Santa Claus being welcome in my house, 
but come January the 20th, I don't look forward to getting 
those bills, and having to scrape and scrounge to try and pay 
for it.
    I mean if we are going to send a billion dollars over to 
Kosovo, I can understand why they would welcome us coming in 
there, and we as a Congress need to have serious reservations 
about whether we do that. I hope the White House is having 
those same serious reservations.
    You also mentioned in your opening statement that with 
respect to base closure, that we have achieved some $5 billion 
in savings to this point. I have seen your figures and I have 
also seen GAO's figures, and frankly I don't feel comfortable 
with either one of them. I think it would be a good idea to get 
some independent audit of exactly what we have achieved, and I 
would think that you would welcome that, as well as GAO would 
welcome that, and Congress and the administration would be 
better served by having that done.
    Let's find out what we are saving before we go through the 
pain and the agony of additional base closure. And if we are 
not saving big dollars like we think we are going to save, then 
for goodness sakes, let's figure out another way to achieve the 
end result that you are talking about to get to those savings.
    I was also pleased to hear your statement with respect to a 
national missile defense system and the priority of that system 
in this budget. But I am a little bit puzzled by that, because 
if I understood what you said, that the administration has done 
an about-face on the need for deployment of a national missile 
defense system; am I quoting you correctly, John?
    Mr. Hamre. I didn't say we did an about-face. I would like 
to give--I think what we did, we always said there were two 
conditions that had to be met: one, you had to have a threat 
that is immediate that you needed to act on; and the other was 
if you had to have the work, you had to have the technology in 
hand.
    I think we feel, because of the Taepo Dong launch and other 
things, that we have seen that first condition largely met, and 
that is why we got the dollars in the budget. Now, we still 
have big questions about will it work. I think there are huge 
risks associated even with the program we put in front of you, 
and some people would like us to go even faster.
    So I wouldn't characterize it as an about-face. I think it 
is really funding the program we said would be there before 
when the threat came, and I think we have honored that. But I 
realize that from your perspective we made quite a change in 
direction.
    Mr. Chambliss. But I guess maybe it is because you have not 
seen the threat, when I say the about-face, at least one of the 
conditions that you have out there has been met. What bothers 
me about that is that you are taking--in this budget you are 
taking $230 million out of the national missile defense program 
to pay for Wye River. What possible connection could the Wye 
River peace accord have with the national missile defense 
system?
    Mr. Hamre. Sir, we of course were given a billion dollars 
in the supplemental last fall which was supposed to go for 
missile defense. We could do it from national missile defense, 
we could do it for theater, whatever. It was up to us. We had 
to come back and tell you what we wanted to do.
    The administration felt that in order to get the Wye River 
Plantation going without having made--declaring it an emergency 
was to use some of those funds. But they gave us every bit of 
it back, and it is included in the extra $112 billion that we 
got when added to our topline. We didn't give away that $230 
million. It was a phasing issue. We got everything we needed in 
'99, everything we needed in '00, and that $230 million shows 
up in the outyears. So we actually did exactly what you told 
us. It was simply a timing.
    Mr. Chambliss. Well, but the fact of the matter is that you 
want to take that $230 million out of the current appropriated 
money for the national missile defense system to pay for part 
of Wye River, which I think is going to be difficult, John.
    Mr. Hamre. Sir, I know it is difficult. It just doesn't 
have any effect in the field. We couldn't have spent it in the 
time that we had it right now, and it was coming back when we 
did need the dollars. I understand your perception of it, but I 
actually think on the ground it doesn't have an impact.
    Mr. Chambliss. OK.
    Mr. Hamre. I would be glad to go through that with you.
    Mr. Chambliss. The other real red flag that sticks out at 
me or jumps out at me with respect to your budget is regarding 
the funding for Bosnia. Now, there has not been any funding in 
the budgets, previous budgets, for Bosnia. I appreciate the 
fact that you have come forward this year, put money in there. 
But as I look at your budget, basically you funded Bosnia for 
'00 and for 6 months of '01, but there is no money in there 
after about the first 6 months of '01.
    Is that by design, that we are going to be out of there by 
then, or is there some other underlying reason why we are not 
funding it, such as this President will be out of the White 
House by the time we get to the end of that money?
    Mr. Lynn. It is certainly not the latter. The approach we 
took to Bosnia was, as you suggested, was to fund it in the 
budget request, I think as really requested or directed by 
Congress, and not to seek an emergency designation for Bosnia 
this year. We embedded it in the budget. We would plan to do it 
again in '01, which is a budget this President in fact will 
submit to the Congress.
    We don't know how long or how large a presence we are going 
to have in Bosnia in '01, so we have put $1 billion in the 
planning level right now, with an agreement with OMB that next 
fall when we are building the '01 budget, we will revisit that. 
I think there is some prospect that our presence in Bosnia 
might at least be smaller at that point and therefore costs 
less. But we will revisit what the actual costs are and we will 
budget for those actual costs in '01.
    Mr. Chambliss. I hope you are right, Mr. Lynn, that it is a 
smaller presence. Thank you.
    Mr. Hamre. Mr. Chairman, could I say--it will take 30 
seconds, sir. You pinned me on BRAC, and I know that BRAC is a 
hard decision. You asked how real were the savings.
    The two organizations that estimated the savings 
independent of us, it is the Congressional Budget Office and it 
is the General Accounting Office, and they are both 
congressional organizations. They don't report to us. I think 
they are an independent report, and they showed that frankly 
the savings are higher than we had estimated and the costs were 
less than we thought they were.
    So I would be glad to sit down and go through it and see if 
there is some other area that we need to estimate here to try 
to find out, to reassure you. We are saving real money. That 
doesn't make it an easier political problem to face. It is a 
tough problem, and you have had to live through it. I know it 
has been very hard. So I would be glad to sit down and go 
through it with you.
    Chairman Kasich. Ms. Rivers.
    Ms. Rivers. Thank you, Mr. Chairman. I have several 
questions, some having to do with policy and some having to do 
with particular decisions.
    You mentioned early on in your testimony that you felt that 
leadership in Europe has been hard coming but it is starting to 
emerge. I get a lot of questions about the expenditure of 
American dollars defending other parts of the world. Is this 
kind of leadership likely to emerge as long as we continue to 
take the lead role in all of these places? As long as we put 
the most troops in, we use our equipment, as long as the 
American taxpayers underwrite defense of other countries and 
peacekeeping, why would anybody come forward and take over that 
role?
    Mr. Hamre. Ms. Rivers, first let me say we are not over 
there defending them. We are over there defending us. I mean we 
are there because we think it is in our interests not to have a 
conflict in Kosovo explode and drag all of NATO into a bigger 
fight or create fights, frankly, inside of NATO.
    Now, there has been definite progress. When we went into 
Bosnia, we were 35 percent of the force that went into Bosnia; 
on this one we are 16 percent of the force, and the leadership 
role is actually with other countries in Europe. They are 
needing our help as we are formulating it and building it, but 
frankly I think we are heading in the right direction, exactly 
what you articulated.
    Ms. Rivers. I was talking about two separate issues, 
peacekeeping being one, but also our role relative to Japan, 
for example, roles that we have historically taken and 
underwritten. And now as we look at a budget that is making it 
increasingly difficult to be in many places at the same time, 
my question is really whether we can expect help from any of 
our allies in this area or if it is our intention as a policy 
to maintain that role, no matter what it costs us.
    Mr. Hamre. Well, our forces in Japan, the Japanese 
Government pays for everything except for the salary of the 
troops. They build the buildings. They pay for the heat that 
goes into the buildings. I mean it is a huge contribution on 
the part of the Japanese, and they have been doing that for 
years.
    Ms. Rivers. Those are just the troops that are in Japanese 
territory or in the region in general?
    Mr. Hamre. No, it is in Japanese territory. Now in Korea, 
we have a cost-sharing thing with the Koreans and the Koreans 
contribute substantially to our forces, not 100 percent, as do 
the Japanese, but the Koreans help extensively. Again let me 
say we are there because we think we need to be there, not 
because we are just trying to give them a handout. This isn't 
foreign aid, this is national security, and we think it is 
important for us.
    Ms. Rivers. OK. I have another question about a specific 
decision that is moving its way through Congress. When we were 
talking about the package that was passed in the Senate, you 
mentioned that it was not paid for from your view.
    Mr. Hamre. Right.
    Ms. Rivers. I am less interested in whether it is paid for 
at this point than if it is justified. And I am particularly 
interested in the pension proposal, given that REDUX was 
supposed to be implemented to increase retention. Is there 
anything to suggest that increasing pensions is actually going 
to pay off in increased retention, particularly when we are 
dealing with the claim as you made that people at the lower 
ranks of pay are the ones who are leaving?
    Mr. Hamre. Ma'am, the military we have today is 
dramatically different compared to the military that we had in 
1986 when REDUX was first legislated. Back then we had a much 
bigger military, the employment wasn't as strong, frankly 
people had good jobs being in the military. And now we are 
having a hard time holding on to folks.
    We implemented--everybody that was in was grandfathered. 
And so all of a sudden we were looking at a situation where 
people who had been in 12 years were at a critical reenlistment 
point, the economy is booming, they can double their salaries 
by walking out the door. And we are saying we are trying to 
hold them, and one of the things that they say, ``You really 
don't respect me because you are lowering my retirement, and I 
am standing side-by-side with another guy who has 50 percent 
and I am at 40 percent.''
    It is enormously corrosive. Had we not made that change, I 
think we would have had a hemorrhage in our senior NCO corps. I 
think we did the right thing, and I think that the data is very 
clear if you talk to people. It is a lot harder to see 
analytical, machine readable data from. And there we felt there 
was a much higher payoff for providing changes to the pay 
tables so that more senior people got paid better, that is, 
where they were really underpaid. Our junior people, E-1s, E-4s 
are not so badly underpaid. It is the E-5s through E-9s that 
are underpaid.
    Ms. Rivers. Right. Doesn't the salary proposal raise 
everybody's salary, including the people at the very highest 
ranks where there is no indication that that was necessary?
    Mr. Hamre. Everyone is getting a cost-of-living adjustment. 
The President proposed 4.4 percent, and that is going across 
the board. The pay table reform increases pay for those in the 
grades where the analytic data is very clear we are underpaying 
them and where we really have retention problems, and that is 
the more senior NCOs, E-5s and up, and field grade officers. 
That is where we have the biggest additional increase beyond 
the 4.4 pay raise.
    Ms. Rivers. You are saying outside of those two groups, the 
pay increase would not--other than cost-of-living, would not 
impact any other troops? It would not have--you would not have 
colonels, like colonels, generals, majors, getting pay 
increases?
    Mr. Hamre. They may. I will have to get the pay tables and 
get it to you. They get the 4.4 percent. I will have to find 
out what they get beyond that.
    Ms. Rivers. In terms of retention, if somebody has got 18 
years invested, I mean are we having a problem that they are 
washing out just a couple of years before they would draw 
retirement because salaries aren't high enough?
    Mr. Hamre. No, no, clearly not. But we are also really 
cheating them. These people are working enormously hard. The 
data is very clear. I would like you to get this briefing from 
the Rand Corporation that shows that the people who are badly 
underpaid are our senior NCOs and our officers, and that is 
part of the reason we wanted to hold them, that is the biggest 
productivity advance, that we can give them a pay adjustment. 
But I will get both the pay tables to you and that study.
    Ms. Rivers. OK, good. The last question--I am out of time. 
I apologize.
    Chairman Kasich. You can have one more. Go ahead.
    Ms. Rivers. The last question I have is about peacekeeping 
in general. In the time I have been in Congress, since '94, 
even though we have had peacekeeping forces deployed in other 
parts of the world with an expectation that they would continue 
on beyond a single fiscal year, we have not had line items in 
the budget to pay that cost. Do you think it would be 
reasonable to have a peacekeeping line item in your budget and 
put the onus on you to make those--to handle that within the 
general spending that you do?
    Mr. Hamre. Congresswoman, we tried that back in 1983 and we 
got shot down. Excuse me, '93. We tried that, and we got shot 
down badly. We asked for a line item of $300 million to do 
exactly that, and we just can't get it appropriated. The reason 
is that Congress doesn't want to give us a line. We don't know 
where our peacekeeping activities are going to be 18 months 
from now.
    So we proposed to have an entry that would cover the costs 
of that, and we can't get it funded, and it is because 
Congress--I understand this, by the way. I don't quarrel with 
this. I think this is one of those fault lines in the 
Constitution, and I can understand why the legislative branch 
doesn't want to preposition dollars for us to go off and do 
exercises without their having oversight. That is what you are 
really debating on Kosovo.
    Ms. Rivers. Which brings me to my last question relative to 
peacekeeping, which is, if in fact supplemental funding was not 
available, do you think the recommendations would be different 
about deploying troops in these peacekeeping places? In other 
words, if the money had to be found within the existing budget, 
you said it shouldn't be an issue but I am asking you if it 
would be an issue.
    Mr. Hamre. Ma'am, I was a comptroller for 4 years, and 
every time the Secretary came to me and said ``Can we afford 
this?'' I said, ``It doesn't matter. We will find a way to pay 
for it.'' If the Commander in Chief gives us an order to 
undertake a mission, if it is to go to war or to go impose 
peace, we are going to do that in the Department, and it is up 
to the political back and forth between the administration and 
the Congress to decide is that a good idea or not, and under 
what terms should we do this. But from our standpoint this is a 
military exercise, a military operation. We are going to do it. 
We will find it. We will have to give something up.
    Ms. Rivers. Thank you.
    Thank you, Mr. Chairman.
    Chairman Kasich. Mr. Thornberry is recognized for 5 
minutes.
    Mr. Thornberry. Thank you, Mr. Chairman.
    Dr. Hamre, I want to go to your second big question that 
you posed, ``Are we ready for the challenges of the next 
century?'' There are a number of people who believe that we are 
in or about to be in a revolution in the way warfare is 
conducted, on such a scale that has only occurred maybe a dozen 
times over the last 800 years or so, where it is not just the 
tools that we have or could have that are changing but also the 
threats and the security environment we operate in.
    Do you think that that is where we are historically? And 
are you haunted, as I am in a way, by these historical 
analogies which may be precedents, that sometimes a country 
seems to be on top of the world and they can't ride this wave 
of change and warfare, and in the blink of an eye nearly they 
are under somebody's boot?
    Mr. Hamre. Sir, two ways I would like to answer. First of 
all, I agree, I think we are at an historic point.
    And let me use the analogy: We had so many casualties 
during the Civil War for one reason, and that was the 
technology of communications lagged badly behind the technology 
of firepower. So all of the troops had to be close enough so 
that the commanding officer could yell an order to them or they 
could hear a drum beat or a bugle, you know. So everybody was 
close by, and of course firepower just exploded at that time 
with the breech-loading musket--I mean rifles and cannon, et 
cetera, and we just had astounding casualties because of it.
    We have exactly the reverse condition that is right in 
front of us, where our troops don't have to be anywhere close 
and can be well out of harm's way and can bring precise fire on 
the bad guy through information technology. We are in a--I hate 
to say in an exciting time, but an exciting time from the 
standpoint of efficient military operations where we can 
minimize our casualties, impose maximum leverage on the bad guy 
and get it over with fast.
    Now the question you have asked--and nobody has worked at 
this harder than you have, and I really respect everything you 
have been doing the last 8 months. There are other what we call 
assymetric threats that we are facing, because we are so good 
on the battlefield and people aren't close to us right now, and 
I don't think they are going to get close any time soon. But 
there are other ways the bad guys want to get at us, and that 
is things like chemical or biological acts by a terrorist here 
in the United States.
    This is a heck of a problem, and this is one where we need 
to spend a lot of time and a lot of energy. We have started. I 
don't think we have got it all in hand yet, but it is really 
where we need to put some emphasis here.
    Mr. Thornberry. But aren't you concerned, I hope like I am, 
that it seems like that we are spending so much of our time, 
effort, money, intellectual energy on worrying about problems 
of today, that we are not giving the attention that we need in 
the future? If you look at where our money goes in the budget, 
for example, the things that seem to be out there which can 
give us enormous advantages like arsenal ship, carrier-after-
next, get pushed back or go away. We heard last week, Joint 
Strike Fighter pushed back, I understand in your budget the R&D 
funding goes down nearly 20 percent over the FYDP. So are we 
really doing what we need to in the future? Aren't we 
mortgaging that really for today?
    Mr. Hamre. Well, sir, I guess I don't think so. But I would 
have to sit down with you and go through what we need to spend 
on this face-to-face and look at specifics and try to give you 
an answer. I think that we have some really very exciting work 
going on in the services. You have seen it, frankly you pushed 
us into it with the Joint Experimentation down at Tidewater. 
Each of the services is designed battle labs, and they are 
doing very exciting things.
    It is a little bit like yeast in dough. You know, you don't 
need a lot of it for the whole thing to get better, and I 
really think that is where we are right now as a Department.
    Are we diverting efforts from the future in order to 
sustain the present? That is a big question. Frankly, we are 
fighting in the present, and it is hard to know if you are 
prepared to make trade-offs. I don't know of things I don't 
want to do today, that I am willing to set aside simply to 
invest more in the future that I can't predict, and I think 
that becomes the dilemma.
    Mr. Thornberry. I think that is one of many concerns that 
people may have with the vote that we are going to have today, 
and our continued deployments in other places around the world 
that cost in so many ways beyond dollars even, and what that 
takes away from what we need to do.
    I might just mention to you, and I know you have looked 
into this far more than I have, but historically it is usually 
not the technology that causes the problem, it is the failure 
to have the organization and the concepts to take advantage of 
the technology that causes the problem, and that worries me 
where we are.
    Let me ask you one last question, if I may. Following up on 
Ms. Rivers, if we cannot establish by some convincing standard 
of evidence that changing the retirement system is going to 
help our retention this year, do you think it would be a better 
idea to hold off for a year at least on that part of it, and 
study and try to know the effects of what we are doing before 
we commit such an enormous amount of money which may not really 
help the problem that we are trying to solve?
    Mr. Hamre. Sir, I actually think it will help the problem, 
and you feel it every day when you go out and talk to the 
troops. Failing to change it now I think would have a 
devastating effect.
    I think there are other elements of the Senate bill which I 
think are problematic. I would ask you to take a hard look at 
some of the things that were proposed to change veterans' 
benefits. For example, one of the things that was proposed was 
to let a veteran pass on his GI bill benefits to his kids. That 
sounds good in the abstract, but what is it going to be to 
recruit those kids in 15 years if they can inherit their GI 
benefits rather than earn them?
    I think there are some real questions that we need to take 
a look at, and so we would be happy to go through any of that 
with you. Your point is right, we need to study this before we 
jump off with both feet.
    Mr. Thornberry. Thank you.
    Mr. Chambliss [presiding]. Now is Ms. Baldwin.
    Ms. Baldwin. In your presentation you outlined some of the 
reasons for celebration and some issues of concern. What I 
would like first in sort of outline form, but also if you can 
follow up in writing, is some sense of how much of the increase 
is directed at responding to those concerns.
    Let me follow up on a couple of the pieces of information 
or questions that have been asked regarding recruitment and 
retention. You talked about having some recruitment issues, 
particularly with regard to some highly skilled positions. Are 
any of the increased funds aimed at people specifically focused 
on the issue of addressing those recruitment issues that you 
are challenged by right now?
    I know a lot of the things that we have been talking about 
are across the board, pay increases across the board, benefit 
issues, which will certainly help incrementally, but you have 
some specific problems. Are there initiatives specifically 
focused on those?
    Mr. Hamre. Yes, there are. What I would like to do is give 
a list of those, but there are, for example, targeted bonuses 
for enlistment. There are, especially in the retention area, 
there are targeted bonuses to try to hold onto people. And we 
have a long list of things that we added and asked for in the 
budget request, and I would like to submit that to you, if I 
may.
    Ms. Baldwin. OK. With regard to another concern you 
address, equipment aging at an unacceptable pace, I would like 
to see a breakdown of the procurement budget, and what 
percentage roughly would you say right now is aimed at that 
particular challenge and that particular concern versus 
expansions or--you know, I guess basically expansions?
    Mr. Hamre. We can get more detail. I don't know, Bill, if 
you have a sense of how much is new procurement versus, say, 
upgrades.
    Mr. Lynn. I don't have those numbers in my head.
    Mr. Hamre. We are not buying nearly enough things. What we 
are--our budget has a fair amount for upgrading existing 
weapons systems, so we will put on a new radar or we will put 
on a new fire control system or this sort of thing. I will get 
you a breakdown on what that is like in the budget. I don't 
have that off the top of my head.
    Ms. Baldwin. And you know, if you look at the spectrum of 
remedial work versus maintenance versus expansion----
    Mr. Hamre. Yes.
    Ms. Baldwin [continuing]. You know, that type of pay 
breakdown----
    Mr. Hamre. Yes.
    Ms. Baldwin [continuing]. With some specifics would be 
helpful.
    Mr. Hamre. Of course.
    Ms. Baldwin. One other question relating to--you were 
indicating that in terms of missile defense, national missile 
defense, now a condition has been met that wasn't previously 
there. But the questions relating to the technology, we are 
shortly going to be considering a resolution on the floor, my 
understanding is that there is no cost estimate associated with 
that. But I would like to hear, you know, your thoughts right 
now on how much deployment and operation is going to cost, you 
know, in the next 5 years.
    Mr. Hamre. Well, we have budgeted I think a total of $10 to 
$11 billion for both development and deployment. But may I say, 
I think that while there were two basic conditions that were 
important, that there had to be a threat and that this thing 
has to work, there is also a big debate going to emerge here 
this week or maybe next week in the Senate, and probably over 
here as well, and that is over the impact this might have on 
arms control treaties under the ABM treaty.
    This is a big deal, and it is not one that we ought to 
sidetrack. This is the centerpiece, I think, of dispute between 
the various groups up here on the Hill: Should we retain the 
ABM treaty? Is retaining the ABM treaty holding us back from 
deploying a missile defense system we need for the country? Can 
you deploy a viable NMD system and do it within the terms of an 
ABM treaty? If not, what do you need to change in the ABM 
treaty?
    I think those are all the crucial questions, and I think 
the administration's view is there are definitely things that 
we need to do that probably will require an amendment to the 
ABM treaty, and we need to start talking with the Russians 
right now to do that.
    We don't intend to deploy a system that is designed to 
counter--kind of the old ``Star Wars'' against a huge, huge, 
missile threat coming from outside. We are trying to deal with 
a system that is effective against small numbers from a rogue 
state or from an unauthorized launch, some individual that has 
kind of grabbed control of a bunch of missiles.
    That is not a threat to Russia, we believe. We believe that 
actually this sort of a capability would be reassuring to 
Russia. And it is very possible to do this, but we will have to 
amend the ABM treaty to do it. We think we ought to start and 
talk with them about that now, and we think it is possible to 
get them to agree with us that it is in their interests and our 
interests to do it. But I think it is a very important issue we 
have to talk about together.
    Ms. Baldwin. Thank you.
    Mr. Chambliss. Mr. Collins.
    Mr. Collins. Thank you, Mr. Chairman.
    Mr. Hamre, I want to go back to this $28 billion in 
reapplied savings. What portion of that is available in this 
current fiscal year?
    Mr. Hamre. Oh, I think about $3.9 billion of it, sir, 
something like $3.8, $3.9 billion.
    Mr. Collins. If those funds are available, then why are we 
behind in modernization a million dollars?
    Mr. Hamre. Well, because frankly we needed the dollars to 
put against our O&M costs and our personnel costs. They were a 
higher priority. So we put the dollars against--we funded the 
Bosnia operations, the operations in Southwest Asia. We had 
higher personnel costs because of the pay raise, things of that 
nature. So all of those things had a higher priority when we 
were going through and spending the $12.5 billion, and that was 
part of how we got the $12.5 billion. So we fell a billion 
short.
    Mr. Collins. You have $3 billion that is available this 
year of the $28 billion?
    Mr. Hamre. Yes, sir. We diverted it and put it on to other 
things that were a higher priority.
    Mr. Collins. OK. You have a list of suggestions on $1.6 
billion in rescissions for '00?
    Mr. Hamre. No, sir, not yet. You know, we certainly are 
holding back to make sure that we are able to execute on that 
when we get a clear direction. Most of the direction we have 
had from the first day we said we were going to propose it is 
that Congress has said, ``No way.'' And so we don't think we 
ought to develop a list if the clear guidance says ``We are not 
going to agree to it, no way.'' So right now we have not built 
a list.
    Mr. Collins. How did you arrive at the figure?
    Mr. Hamre. We needed that amount of money. I mean it was--
we knew that we would have to dig in, and in some cases it 
wouldn't be a hard decision to make, and in some cases it would 
be a hard decision to make. How we really did it was, we took 
the total request that the Chiefs felt that they needed to 
have, we narrowed that down as much as we could, deferred the 
things that we thought were deferable, we got the list as small 
as we could get it. I think that was in the neighborhood of $14 
billion initially. We then went through some further policy 
changes that got it down to about $12.5 billion, and then we 
said, OK, how are we going to pay for the $12.5 billion?
    We then had dollars, topline adjustment we got from OMB. We 
were allowed to keep the inflation money. We had this change in 
concept for military construction, and what was left over we 
said, well, we will just have to propose a rescission and find 
the dollars that way. So it wasn't derived from individual 
programs per se.
    Mr. Collins. But it is an admission that there were $1.6 
billion in rescissions that could be made?
    Mr. Hamre. Yes, sir. Yes, sir, that is right.
    Mr. Collins. If you needed $3.6 billion, would you have put 
$3.6 billion?
    Mr. Hamre. Yes, sir, but I think it would have been a lot 
harder. I think it would be a lot harder to come up with a list 
of $3.6 than $1.6 billion.
    Mr. Collins. It is interesting that you would concede that 
there are moneys that could be rescinded, and not rescind them 
in your budget when you submit.
    Mr. Hamre. Well, sir, what we actually submitted, and there 
isn't anybody up here that likes this idea, but what we 
actually submitted was a provision that lets the Secretary of 
Defense decide which $1.6 billion were the things he doesn't 
want to do. Now nobody up here likes that idea, Republican, 
Democrat, House or Senate. I mean that is basically saying the 
Secretary of Defense gets to decide, has a second bite of the 
apple as to what we just appropriated, and that is why of 
course nobody likes it.
    Mr. Collins. Would you not have that decision when you make 
a decision--or could you not make that decision when you submit 
the budget?
    Mr. Hamre. For a rescission?
    Mr. Collins. Yes.
    Mr. Hamre. If we were directed to do it, we would do that, 
yes, sir.
    Mr. Collins. When you submit a budget you are proposing to 
spend X number of dollars. You can say, ``We don't want to 
eliminate this program,'' and ``include this program.'' You do 
have that authority?
    Mr. Hamre. We have the authority to do it if we were 
directed to do it that way. We were not directed to do it that 
way. Instead it was a provision we asked for 2, 3 years ago. It 
was basically I guess two times, and we simply reproduced 
exactly the same proposal that we had before. Congress didn't 
approve it then either.
    Mr. Lynn. Congressman, if I can add, Congress actually has 
the last several years approved rescissions; $1.6 billion is 
somewhat larger. The rescissions have been generally in the 
half-a-billion to a billion-dollar range. So this is not 
inconsistent with some of the actions Congress itself has taken 
in the last several years.
    It is somewhat larger and therefore a little bit more 
aggressive. And the reasons for that--the reasons Dr. Hamre 
gave having to do with the requirements that we thought were at 
an irreducible minimum.
    Mr. Collins. My point is, if you are going to produce a 
budget and you admit you have $1.6 billion of rescissions that 
you could make, why not put through rescission requests in the 
budget that you present?
    Mr. Hamre. Sir, you could do that. We were not directed to 
do that, and instead we submitted a legislative proposal that 
would give the Secretary the authority to do it. Again, I would 
rather doubt that Congress is going to give us that, but that 
is what we proposed in the budget.
    Mr. Collins. We were talking about two different things, in 
my mind, maybe different to you.
    Thank you, Mr. Chairman.
    Mr. Chambliss. Mr. Minge.
    Mr. Minge. Thank you, Mr. Chairman.
    It is nice to see you, Dr. Hamre.
    Mr. Hamre. Good to see you. Thank you.
    Mr. Minge. Even though I am from Minnesota, I don't handle 
the ice too well. So I am trying to struggle through this. I 
have read with interest comments by Lawrence Korb from the 
Council on Foreign Relations, and I would like to start by 
asking you about the weapons systems that have been challenged 
in his briefing paper. I expect you are familiar with that.
    Mr. Hamre. I am, and he is sitting right behind me, so I 
will be polite in how I respond if I disagree with him. I am 
not sure I do, I don't know yet.
    Mr. Minge. Well, there is a chart in there, and they detail 
a whole series of adjustments in both the configuration, the 
size of the Armed Forces, and also the weapons systems that 
would be necessary. One of the suggestions, just to give you a 
specific, is to reduce the size, I believe it is of the Marine 
Corps, to 150,000 personnel, which is the number suggested by 
the former Chief, Chairman of the Joint Chiefs of Staff, Gen. 
Colin Powell, and generally to reduce the size of the force 
from 2.3 million to 2 million.
    Going beyond that, there is a great deal of discussion 
about specific weapons systems: Just as an example, to reduce 
the number of Seawolf submarines being purchased to those 
currently in the pipeline, and challenging the purchase of 30 
new submarines at a cost of $64 billion. The Nimitz carriers. 
The Comanche helicopters, as I understand it there is a request 
to purchase 1,292 of these at a total cost of $48 billion. And 
the list goes on and on.
    And one concern that I have is that we are sort of in the 
``guns or butter'' situation here in the country, and by 
``butter'' I guess I am referring to the collapse of the farm 
economy and sort of a matter of priorities, and what we can 
afford to try to handle through our budget and what can be 
deferred.
    The question I would like to ask is, to what extent could 
the Defense Department accept a reduction in the outlays in the 
next 5 years for these weapons systems in order to allow us to 
try to deal with some of the other pressing problems that we 
face in areas such as the agricultural economy, while at the 
same time maybe having budget authority so that as we work 
through these other problems, the Defense Department knows that 
there is support for adequate hardware.
    But just a question, do we have to invest in this hardware 
at this point in time? So I would just like to pose that more 
general question based upon the report from the Council on 
Foreign Relations.
    Mr. Hamre. Yes, sir. First, the question you posed was 
exactly the one that President Clinton posed to the Secretary 
and the Chairman when we sat down with him this fall and said 
``We need $148 billion added to our budget,'' and he said, ``I 
don't know that I can afford $148 billion for the budget right 
now. I need you to go through and parse out what do you have to 
have right now and what can you defer.''
    And that led us to the process where we backed down our 
request to go from $148 billion down to $112 billion, and 
almost everything that we took off the list was in the area of 
procurement and installations. That is why the highest amount, 
75 percent of it, is all for basically ongoing operations, 
readiness-related spending, and we did indeed defer on the 
procurement side.
    We feel that we have really deferred a long time on 
procurement. We have now had 12 years of making that the 
primary place where we have drawn down, and you are seeing 
very, very tough aging problems in our aircraft and in our 
fleets, for example. We should be buying in the neighborhood of 
9 to 10 ships a year in order to maintain the average age of 
our fleet, and instead we are buying six and seven ships a 
year. We should be buying several hundred aircraft a year, and 
we are buying in the dozens of aircraft a year.
    So I fully appreciate the problem that you pose, and it is 
a ``guns-butter'' time. The President basically decided that of 
the surplus, he was going to put roughly one-third of the 
surplus in the discretionary account to the guns side, us, and 
two-thirds to the butter side, the domestic side. The domestic 
side in the Presidents program is about twice what he was 
proposing to increase to us. I think he tried to take 
consideration of the point that you made and still realize that 
we do have to have some increases in DOD.
    Mr. Minge. In that regard, I have not had a chance to read 
all of this testimony, I didn't benefit from some of the 
earlier comments, but is there a table in here that shows what 
the caps are, what they would be for fiscal year 2000 if we 
simply continued from 1999 without anything other than an 
inflation adjustment?
    Mr. Hamre. Sir, there could be, and Mr. Spratt went through 
some of that in his opening statement as well. I don't have 
those numbers under my belt.
    Mr. Minge. OK.
    Mr. Hamre. We are barely above kind of a ``hold the line'' 
sort of budget. There is a little bit of growth in this 5-year 
plan that we submitted to you, but it is not a dramatic 
reversal; and you would see that where we are at, you know, an 
historically low point in terms of gross domestic product that 
we are devoting to the national defense, even in the 
President's budget with an increase. It still is around 3 
percent and, boy, we are in the late '30's when we were at that 
level. So I don't think it is an unacceptable burden on the 
American economy.
    Mr. Minge. You talked about the 4.4 percent increase for 
inflation for the personnel, 4.4 inflation increase, I think 
you said.
    Mr. Hamre. No, sir. That we have paid for, but across the 
board how much extra dollars we added for DOD and does that 
keep us even with inflation, what it does, it puts us slightly 
ahead of inflation, which is the first time in 12, 14 years 
where we are slightly ahead of inflation.
    Mr. Minge. I was under the impression when you used the 
term 4.4 it was related to the compensation package.
    Mr. Hamre. That is right, it is pay.
    Mr. Minge. Over what period of time was that 4.4 percent?
    Mr. Hamre. The 4.4 is for fiscal year 2000, and then it 
drops down to 3.9 percent all the succeeding years in the 5-
year plan.
    Mr. Minge. How would that compare to the civilian work 
force?
    Mr. Hamre. Well, the civilian work force it is----
    Mr. Minge. That is, not the entire U.S. economy but the 
Federal civil service.
    Mr. Hamre. Oh, that is the same. It would be comparable. We 
budgeted the same amount for civil servants. But if you say 
what is the comparability to the private sector, it is based on 
private sector wage rates. That is how we got to the 4.4 
percent. And in both cases it is above the rate of inflation, 
but that is because frankly right now there is a scarcity of 
skilled labor in the country, and you have to pay higher than 
the rate of inflation in order to get people right now.
    Mr. Minge. Well, I know one thing I run into when we talk 
about people who are retired and are on Social Security, they 
are told they have a 1.3 percent inflation factor, they are 
quite upset. And then they ask what is happening with 
compensation with the Federal employees, and if the inflation 
factor used for the Federal employees is higher than for 
themselves, they begin to see red. I am wondering if you had 
any discussion about that.
    Mr. Hamre. Yes, sir. They really are measuring different 
things. In the case of the retirees, you know, that is a case 
of how do their costs of goods compare, last year to this year, 
and their cost-of-living adjustment ought to be with the change 
of the prices they pay. When it comes to pay comparability the 
question is, what does it cost you to get that kind of talent, 
and frankly right now there is such a scarcity in the economy 
of talented labor that you have to pay more than the cost-of-
living adjustment for just goods and services.
    So we are really measuring two different things, which 
accounts for the disparity, even though politically I realize 
lots of people say they ought to be the same.
    Mr. Minge. On one of the charts here there is--I guess it 
appears throughout the budget material, the outlays and of 
course above that, the budget authority. I notice that the 
budget authority appears to be substantially greater than 
outlays in almost every year. At what point does that catch up 
with us?
    Mr. Hamre. Well, sir, it has caught up with us several 
years in the past, and it is really a function of the relative 
proportion of dollars that are going into procurement versus in 
operations. Because there is big increase in our procurement 
budget here over the next 5 years, budget authority is going to 
outstrip outlays over this 5-year period, because frankly we 
are putting dollars into accounts that aren't going to be spent 
as fast.
    But I think as you are talking about the outlays, sir, this 
is--I know there is a controversy about a disconnect between 
OMB's estimate of outlays and CBO's estimate of outlays. It 
isn't any more money for DOT. We are not getting another penny 
if you were to agree to a higher outlay estimate. It is simply 
the dollars are spent faster under CBO's estimate than under 
OMB's, but there is no more money coming to DOD.
    Mr. Chambliss. Mr. Minge, we are going to need to move on. 
We will try to get back to you.
    Mr. Gutknecht.
    Mr. Gutknecht. Thank you, Mr. Chairman. I got a meeting I 
am late to, Dave.
    Mr. Minge. I wasn't watching the clock. Sorry.
    Mr. Gutknecht. I want to follow up, though, with my 
colleague from Minnesota, what he was talking about, because 
you know he is talking about there are only two options, guns 
or butter. I think there is a third option, and I think we in 
the United States have been slow to pursue that, and that Ms. 
Rivers talked about, essentially about cost sharing.
    Do you recall what the total cost of the Desert Storm 
operation was?
    Mr. Hamre. Well, I think about $62 billion.
    Mr. Gutknecht. And what proportion did ultimately the 
United States taxpayer have to shoulder?
    Mr. Hamre. It was--I don't remember the precise numbers. I 
can get it for you, but it was overwhelmingly paid for by 
contributions both from Arab allies in the region and then also 
from others overseas. We received significant contributions, 
some in kind, but from other countries, Japan, Germany and 
others.
    Mr. Gutknecht. But approximately what, 95 percent was paid 
by taxpayers?
    Mr. Hamre. Let me get the number. I don't have it off the 
top of my head. It was a very high percentage.
    [The information follows:]

    Incremental U.S. costs of Operation Desert Shield/Desert 
Storm totaled $61.1 billion. About $56.4 billion, or 92 percent 
was offset by contributions from U.S. allies ($53.8 billion) 
and by minor other offsets ($2.6 billion). Net U.S. cost was 
about $4.7 billion.

    Mr. Gutknecht. That was my understanding, it was close to 
95 percent.
    Since we started bombing Iraq again on December 16, 
approximately what has been the cost of that operation? And 
those bombing raids continue as we speak.
    Mr. Hamre. Sir, the number I have in my mind is one that 
includes both the November-December operation--Bill knows it--
Bill, why don't you.
    Mr. Lynn. It is approximately $200 million, and that 
doesn't----
    Mr. Gutknecht. That seems a little light. How many cruise 
missiles did we fire? I thought they were half a million to 
fire.
    Mr. Lynn. If you included the cost of munitions, which 
traditionally we haven't done when we asked for supplementals, 
but if you were to do that, the cost would approximately 
double. It would be in the $400 million range.
    Mr. Gutknecht. Have we gotten any help from our allies on 
that expense?
    Mr. Hamre. Sir, we feel that is our obligation. We have not 
asked for it. Now, our ongoing presence in the region, in Saudi 
Arabia, for example, the Saudi government substantially pays 
for our forces there. They pay for fuel, they pay for food, 
they pay for lodging, so----
    Mr. Gutknecht. Are we getting any help from the European 
allies? The reason I ask that is, now my understanding is we 
get very little oil from the Middle East; is that correct?
    Mr. Hamre. Well, I don't know the answer to that.
    Mr. Gutknecht. I am told that almost all the oil from the 
Middle East either goes to Asia or Europe.
    Mr. Lynn. It is correct that we get more from Venezuela and 
others, although we get I think more than--I think we are 
approaching over 50 and up to 60 percent of our oil from 
foreign sources, and that any disruption in the Middle East oil 
would obviously have a worldwide impact and would disrupt the 
flow of oil into the United States.
    Mr. Gutknecht. Well, the point that I am making is that we 
did a very effective job back when we fought Desert Storm of 
getting our allies to help shoulder the costs, and it seems to 
me that is an idea that is beginning to slip away.
    And I want to come back to you. You mentioned in Kosovo we 
would supply only 16 percent of the ground troops. I believe 
that is correct, but I don't think it is correct to assume that 
16 percent of the costs would be borne by the American 
taxpayers. I understand that if there are air raids that they 
will be heavily--that the brunt of the aircraft and all that 
goes with any kind of air raids that might take place would be 
American aircraft; is that correct?
    Mr. Hamre. On the combat side, sir, I think that is right.
    Mr. Gutknecht. I mean 95 percent?
    Mr. Hamre. Probably.
    Mr. Gutknecht. Would we get any help from our allies? Would 
NATO help cover some of the costs?
    Mr. Hamre. I mean they were contributing in other ways, if 
there is to be an air operation. We don't know if that is going 
to be the case. And obviously with the ground operation, we 
tend to resource our forces more handsomely, give them better 
protection and that sort of thing, so that is why the bill is 
different for us.
    Mr. Gutknecht. Well, I do hope that the folks in DOD and 
policymakers here in Congress will not forget the lesson that 
hopefully was learned in Desert Storm, that it is not all, you 
know, that it is all our responsibility and all the expenses 
have to be borne by the American taxpayers.
    Finally, and I would encourage any Members who have not 
spent some time meeting with our troops, I had the privilege 
last year of going out on an aircraft carrier for a weekend. I 
will tell you what, the greatest salesman that you have are 
those kids that work out on the deck. Average age of 19, I 
mean, what we pay them and what we get back in return for the 
taxpayers, I mean I felt guilty when I got on that plane and 
came back.
    Clearly we have got a problem, and I understand we are 
14,000 sailors short. But the other issue I think we have got 
to address, and it seems to me that this will not happen 
without the prompting of the Congress and frankly this 
committee, and that is the issue of bureaucratic inertia. I 
mean at the same time I think we are 14,000 sailors short, I 
submit we probably are not one admiral short.
    And I know that we had a Speaker until a few months ago who 
had said on many occasions that it was his intent to turn the 
Pentagon into a triangle. Implicit in that comment was that 
bureaucratic inertia happens in every organization, and the 
Pentagon is certainly not exempt from that.
    I think at some point we do have to do a better job of 
trying to see if, in fact, compared to any other corporation 
that has gone through downsizing and restructuring, that 
perhaps we have become a bit top-heavy over the last 20 or 30 
years.
    I think here is one question, and I don't expect to have 
the answer today, but I have been told, and I don't know if it 
is true or not, but I would like to know the exact numbers, the 
numbers of generals and admirals one star and above that are 
currently in the Armed Forces, compared to the number that were 
in the Armed Forces at the peak of World War II. Now I am told 
that we actually have more generals and admirals today than we 
had at the peak of World War II, and I would really like to 
know the exact number, because I think each one of those has 
their own staff and their own little bureaucracy and so forth.
    I am not saying what is right or wrong, but I think we do 
have to monitor the tendency of every bureaucracy to sort of 
become extremely top-heavy. I think we probably have that 
problem in the Armed Forces today and it is something that, as 
I say, I think this committee above all has got to do 
everything we can to make certain that we combat. So if you can 
get that information for me, I would very much appreciate it.
    Thank you, Mr. Chairman.
    Mr. Hamre. Can I just say we will absolutely get the 
information for you, and I hope I might be able to sit with you 
and give you some context for it. We probably do have as many 
admirals and generals as we had in World War II----
    Mr. Gutknecht. I am told it is more.
    Mr. Hamre. Maybe. I hope there is, frankly, because in part 
you mobilize people to bring them on board. But back in World 
War II, we didn't have people worrying about developing a 
national missile defense. We didn't have the sophisticated 
weapons systems we have now. We turned it over to industry. We 
weren't managing that like we have to do that now. We want that 
kind of talent. I would like to talk to you about it because I 
know it is, on its face--people say why in the world do we have 
as many or more flag officers today than we had in World War 
II? I think there are very good reasons. I may not convince 
you, but I would like to talk to you.
    Mr. Gutknecht. I will certainly listen. Thank you.
    Mr. Chambliss. Can I take that statement to mean we are 
going to have less privatization in the military?
    Mr. Hamre. No, no, sir. I don't think so, because we are 
pushing----
    Mr. Chambliss. I am asking somewhat facetiously, since you 
and I have been fighting over that for 4 years.
    Mr. Hamre. I think we have got a flag down there that is 
running one of the better depots in the country.
    Mr. Chambliss. I agree.
    Mr. Clement.
    Mr. Clement. Thank you, Mr. Chairman.
    Deputy Secretary, Under Secretary, I'm pleased to have you 
before the Budget Committee. I think we do have a real 
opportunity, a wonderful opportunity for a substantial increase 
in the defense budget this year and for the future years, and I 
think we need a substantial increase. I am for a strong 
national defense.
    I am a veteran myself and proud of it, and realize we are 
spread extremely thin and the cold war is over. We have got 
more regional ethnic conflicts in the world, and I expect that 
to continue. I did want to ask you about the National Guard and 
the Reserve as well. You know we have that so-called total 
force concept now.
    Mr. Hamre. Yes, sir.
    Mr. Clement. And I know in the National Guard and Reserve 
you are utilizing the support elements, the service support 
units, but you are not using the combat arms in various places 
around the world. If we are going to have this total force 
concept, are we going to start utilizing them as well, or are 
we still going to depend strictly on the service of the service 
support units in the Guard and the Reserve?
    Mr. Hamre. Sir, we utilize reservists in combat arms. For 
example, the Air Force extensively deploys reservists, for 
example, in Bosnia or in Southwest Asia or wherever. It is a 
lot harder for ground units, although we are trying something 
very bold, and I give great credit to General Rymer for this. 
One of the rotations in Bosnia is going to be done by a Reserve 
brigade.
    That is going to be a real challenge, because that means 
that whole unit has now got to go through an incredible buildup 
period for the next 6 months or so and then deploy as a unit. 
That is hard for Reservists and it is difficult in the 
community. All of a sudden we are going to take out everybody 
and say for the next 6 months or next 10 months I am going to 
take out all the guys who do bus maintenance for the school 
district or whatever, because these guys tend to be in 
government-related service jobs as well. So it is harder to do 
but it is something that we are trying to do, but it is a 
challenge.
    But if I could say, there is an absolutely new important 
role that is coming for the Guard and the Reserve, and that is 
this homeland defense role where we are trying to find ways to 
protect this country against acts that could be both chemical 
or biological terrorist incidents. In this case we have our 
forces--the entire thing is on its head. The forward deployed 
forces for homeland defense are Guardsmen and Reservists. They 
are the forward deployed element, and we need to find ways to 
utilize them for this mission. And it is a mission of honor and 
it is one we know they are going to be in the forefront of 
dealing with.
    Mr. Clement. I also want to ask you about Kosovo. I was in 
Bosnia last year and realized the importance and significance 
of the United States' presence. Whether we like it or not, we 
are the superpower, and I don't want us to be the big brother 
of the world. I do like other countries coordinating with us, 
and I do like burden sharing; it has been mentioned as well.
    But I also know that Milosevic watches and observes 
everything we are doing or fail to do, and now we have got a 
vote today on Kosovo. Senator Dole just said yesterday before 
the House International Relations Committee, ``I would rather 
have the vote come after the agreement between the Kosovar 
Albanians and the Serbs.'' Do you agree with that?
    Mr. Hamre. It is very much our preference that we not 
confound the negotiations right now with a vote. It would be 
our preference not to have this vote, because it is very 
delicate ongoing discussions about how we can land this. We do 
need to find a peaceful resolution for the problem in Kosovo, 
and we think that could very well involve ground troops, part 
of--the United States is a small contributor, but the United 
States and others. We need to land these negotiations 
successfully, and they are tough. And frankly it would be a lot 
better if we didn't have the vote, but I understand Congress 
needs to be consulted and be a part of this decisionmaking.
    Mr. Clement. Aren't we also sending mixed messages to NATO? 
NATO has been through a lot since the cold war, so there were a 
lot of changes, a lot of organizational, structural changes and 
all, and now we seem to be giving very confused messages 
concerning Kosovo and even our presence in the entire area.
    Mr. Hamre. Yes, sir. I mean the guidance that we received 
in all of our informal discussions with Congress was that this 
is an operation that ought to be under NATO control, not UN 
control. You remember how things got fouled up in Bosnia when 
it was UN control, and we got that straightened out; we went 
into Bosnia under NATO auspices. And we do need to do this 
under NATO auspices.
    That means NATO as an alliance is making this decision and 
as an alliance, it is a consensus process. I mean we would be 
really letting people down in a damaging way if we walked away 
from this now, because we have been working very closely with 
them, dealing with a security threat that is important to NATO 
as an alliance and to us. And this isn't something that we are 
doing, as you said, out of the generosity of our heart. We have 
real security interests to ourselves that are at risk here.
    Mr. Clement. Thank you.
    Mr. Chambliss. Mr. Knollenberg.
    Mr. Knollenberg. Mr. Chairman, thank you very much.
    And welcome again, gentlemen. I appreciate your being here. 
I have a couple of questions, but I appreciated your revisiting 
the Civil War in terms of what the conditions were then.
    It seems to me that today firepower versus technology is 
not the clash. It would seem to me that technology plays such a 
huge role, whether it is offense or defense, whether it is 
firepower, whether defensive-type techniques that are used. And 
I know that one of the challenges that you face and we face is 
the defense against ballistic missiles, any attack.
    As you know very well, the American people are finding out 
that there is no defense that we have against incoming 
ballistic missiles. It appears to be that now a need has been 
shown, North Korea being the one in question, the rogue state, 
that we have to worry about. Russia, it seems that her weakness 
threatens us more than her strength, because now we have these 
potentialities occurring around the world. And it is not just 
North Korea, it is Iraq, it is Iran, as you know, and we seem 
to be--the administration, which has held to a policy of being 
against deployment, seems to be moving more favorably in the 
direction of doing something.
    The question is, what and when? North Korea claims that, 
through U.S. intelligence sources, and some of this gets into 
the classified arena, that there may be other sites, and we 
have urged in my other subcommittee, the Foreign Operations, to 
look at those other potential sites. But in revisiting our 
failed policy, which I feel is failed regarding the Kyoto 
agreement, of rewarding Korea, right now they are holding out 
in a fashion that demands that we give them a carrot, that 
being the $300 million, to allow us to get in and to see what 
is taking place what actually is happening on-site.
    There is a bipartisan bill in Congress that I was an 
original or a very strong cosponsor, the original cosponsor, 
and I know that many people in this committee probably are as 
well. Congressman Spratt, the ranking member, I believe is one 
of the original cosponsors of that bill as well, and it 
declares that the U.S. policy should be to deploy a missile 
system.
    The questions I have for you, and I hope that the 
Department of Defense will join us, join Congress in bringing 
about something as soon as possible, does the Department of 
Defense sincerely support the idea of making this commitment?
    And as a secondary question--this may have been asked 
previously but I wasn't in attendance--what is the possibility 
of doing it within the next 2 years, if in fact you do support 
it?
    Mr. Hamre. You are talking about deployment in the next 2 
years for NMD?
    Mr. Knollenberg. Yes.
    Mr. Hamre. Sir, you said that you felt the administration 
was against deploying an NMD system. I don't think that they 
were.
    Mr. Knollenberg. Let me correct that and say that there 
hasn't been a system put in place.
    Mr. Hamre. Well, we were developing it, but we didn't have 
dollars allocated in the budget for the deployment of it until 
this year. I mean basically we had a program to develop a 
system, and we have been working at that pretty hard.
    Mr. Knollenberg. Then go to the second question, which is, 
could we do something, do you think, within 2 years?
    Mr. Hamre. Sir, I think that the risks would be so 
astounding that it would be rushing to failure if we were to 
try to do that. I think we absolutely need to press ahead to 
develop this capability, not a question in my mind, and I don't 
think there is a question in the administration's mind now.
    I don't think that we press ahead in order so fast that we 
throw all discipline overboard and then end up with a failed 
program. We kind of did that on the THAAD missile system. We 
said, ``We are just pressing ahead as fast as we possibly can, 
come hell or high water,'' and what did we get? Six failures in 
a row in the test shots. We don't want that here in national 
missile defense.
    Mr. Knollenberg. Do you agree there is a problem in North 
Korea?
    Mr. Hamre. Sir, we believe that we are either at it now or 
very soon confronting a problem that we want to have a national 
missile defense to confront, I don't think that is a question 
any longer.
    Mr. Knollenberg. We reached that----
    Mr. Hamre. I think that is right, sir. May I say that we 
now have to have a system that will work, and we want to do it 
in the manner where we can still retain the value of the ABM 
treaty so we don't have a bigger problem downstream with 
Russia.
    Mr. Knollenberg. Do you think that we are doing enough 
right now in North Korea to prevent any further actions by 
North Korea? I refer back to the three-stage rocket. The 
Rumsfeld report indicated very strongly that, back prior to 
that event taking place back in midsummer, that we are 
vulnerable to those rogue states. No one really thought it 
would come about quite so soon, but it has happened, and you 
can say that it hasn't gotten to us yet but the potentiality 
for that is there, to get to the U.S. coastline.
    I think that that alone would begin to accelerate the 
action that the Department of Defense would take. Certainly 
Congress is moving in that direction, and I think it is a 
bipartisan idea here that I believe needs to be fulfilled 
sooner than later. And I know money is an issue, but can we do 
anything in the meantime, while we are struggling to put this 
thing together, to neutralize North Korea in particular and 
other rogue states who might sneak up on us and do it quicker 
than we thought? Technology, again, isn't unavailable to them.
    Mr. Hamre. Sir, we were surprised that it turned out to be 
a three-stage launch. I don't know that anybody forecasted 
that. Clearly we do have a problem in that they were moving 
faster than we had thought. And having said that, I don't think 
it was faster than was contemplated when the three-plus-three 
strategy was developed, in the sense that we would have the 
capacity to deploy something in 3 years. It is still an 
enormously high risk to try to do that.
    I would also say that while we--and I don't want this to be 
interpreted in the wrong way--we absolutely do want to deploy 
an effective national missile defense system once we can work 
out the details with Russia in terms of modifying the ABM 
treaty, but frankly there are a lot of other ways that the bad 
guys can get at us besides ICBMs. If I were a bad guy, I 
wouldn't do it with ICBMs because it is unequivocal where they 
came from. It is a lot easier just to sail a ship into New York 
Harbor, you know. If you wanted to do it with a nuclear weapon 
or if you wanted to do with chemical or biological, there are a 
lot of easier ways to get at it than to do it with an ICBM.
    Now we still want to be able to protect ourselves against 
an ICBM threat, because I think it is more important from the 
continuum of deterrence, to be able to maintain that 
deterrence, to have an effective NMD system. But I mean we have 
got bigger problems that I think are more realistic from a 
warfighting standpoint today than this. But we are still 
pressing ahead with the program.
    Mr. Knollenberg. I appreciate those responses. I do have 
some additional questions I will submit for the record, rather 
than asking you now.
    Mr. Chairman, thank you.
    Chairman Kasich. John, do you have anything further?
    Mr. Spratt. I have two questions for the record, that is 
all. Thank you very much.
    Mr. Hamre. You have got another panel here.
    Chairman Kasich. Gentlemen, yes, we do. And we are going to 
go vote and come back. And to Mr. Krepinevich and Mr. Zoellick, 
we appreciate your patience. And to Dr. Hamre and Mr. Lynn, 
thank you very much for your time, for being here and for your 
service to your country.
    Mr. Hamre. Thank you so much, sir. Thank you, sir.
    Mr. Chambliss. We will stand in adjournment pending these 
two votes.
    [Recess.]
    Chairman Kasich. I understand Mr. Spratt is not going to 
make it back, so, gentlemen, it is going to be us.
    Mr. Krepinevich and Mr. Zoellick, we are pleased to have 
you all here. And we look forward to hearing your opening 
statements, and then we will proceed from there. So I don't 
know who would like to go first, but all right.

STATEMENT OF ANDREW F. KREPINEVICH, EXECUTIVE DIRECTOR, CENTER 
    FOR STRATEGIC AND BUDGETARY ASSESSMENTS; AND ROBERT B. 
     ZOELLICK, PRESIDENT AND CEO, CENTER FOR STRATEGIC AND 
                     INTERNATIONAL STUDIES

               STATEMENT OF ANDREW F. KREPINEVICH

    Mr. Krepinevich. I will lead off.
    Chairman Kasich. Dr. Krepinevich, that is great.
    Mr. Krepinevich. Thank you. As you know, I have submitted 
prepared testimony for the record and will summarize my 
remarks.
    Mr. Chairman, the purpose of any strategy is to apply the 
resources available to the Defense Department so as to minimize 
the overall risks of the national security; that is, not only 
to address the threats we see today but also to prepare for the 
kinds of challenges and threats we will see tomorrow.
    This is particularly important right now, and especially 
stressful for defense planners, because, as many believe, we 
are in a period of transformation, a period of discontinuous 
change in the threat environment. So it is not self evident 
that the forces we buy to be effective against the threats of 
2000 or 2002 are necessarily going to have the same level of 
efficacy in 2012 or 2022. And yet our major systems are 
intended to last 20 or 30 years or longer.
    In examining the defense budget, the defense planners 
typically address two questions: First, how much is enough to 
execute the strategy and protect our security at a certain 
level of risk? And, second, how wisely are we investing? In 
other words, is this strategy likely to minimize the near-term 
and long-term risk to our strategy? I would like to briefly 
address these two questions, with emphasis on the latter.
    So, first, you have the $112 billion increase proposed by 
the administration warranted? In order to support the full 
increase, one would have to assume that the QDR represents the 
optimal defense strategy, which I believe it does not, for 
reasons I will elaborate upon in a moment. However, whatever 
strategic flaws may characterize the existing defense posture, 
we should ensure the immediate readiness of our existing 
forces.
    Along these lines, therefore, I believe that additional 
funding to cover maintenance backlogs, training shortfalls, and 
the 4.4 percent pay raise proposed for year 2000, is warranted. 
On the other hand, it is not clear to me that other proposed 
increases, such as locking in long-term future pay raises or 
returning to the pre-REDUX retirement system, offer the best 
way of addressing recruitment and retention problems in 
particular, or our readiness problems in general.
    I now would like to move on to my second, and what I 
consider to be more important, issue, the issue of how wisely 
we are investing our defense resources. Again, we assume that 
we have an optimal strategy, that a dollar invested in this 
strategy will produce a good result. However, if we have the 
wrong strategy, we may find ourselves investing very 
efficiently, but not getting a very effective military force in 
return.
    Simply stated, I am concerned that the QDR focuses far too 
much emphasis on creating an improved version of today's force, 
when what we will actually need are very different kinds of 
forces and capabilities to meet the very different challenges 
our military will encounter in the coming years.
    Now, in my testimony I mentioned a number of these emerging 
threats. I would like to concentrate on the power projection 
challenge, because this really drives most of our requirements 
and much of our modernization program.
    I would like to consider, for example, the growing 
disconnect in terms of how we utilize our forces in power 
projection operations. That is to say, I think over the next 10 
or 15 years we are going to find our access, our ability to use 
forward bases and fixed facilities, increasingly problematic. 
This will invalidate to a significant extent the way that we 
have projected power over the last century.
    Typically, we mobilize forces here in the United States, 
and then move them through major nodes overseas, such as ports 
and air bases. Next we build up supplies, and then go on the 
offensive. Whether it was in France in World War I, Australia 
and Britain in World War II, Pusan in Korea, or the ports along 
the Gulf, that is how we projected power.
    I am concerned that the diffusion of military technology is 
going to make this an increasingly problematic proposition. 
Simply put, over the next 10 or 15 years or so, other 
militaries are going to gain the ability to do what our 
military showed it could do 10 or 15 years ago. As a 
consequence of the proliferation of satellite technology and 
satellite availability, potential adversaries will be able to 
stare at a fixed point on the earth's surface for a protracted 
period of time, to focus on key ports and airfields, and even 
choke points in the littoral area. And with the diffusion of 
ballistic missile and cruise missile technology, they will 
acquire the ability, over time, to hold these large, fixed 
nodes at increasing risk.
    This is something that not only concerns me, it is 
something that has concerned our senior military leaders to an 
increasing extent. As General Fogleman pointed out when he was 
Chief of Staff of the Air Force, this emerging threat could 
even deter us from deploying forces into theater in the first 
place. Admiral Jay Johnson, Chief of Naval Operations, observed 
a little over a year ago that he considers this challenge, and 
I quote, ``the single most crucial challenge in projecting and 
sustaining U.S. military power where it is needed in the early 
part of the 21st century.''
    In essence, our competitors will fulfill the prophecy of 
Joint Vision 2010, which says it is not the symmetric 
competitor, the enemy that will attempt to build a better air 
force or a better army than ours, that we have to concern 
ourselves about. Rather, we must prepare for an adversary that 
will admit it can't beat us on a technological plane or a scale 
in terms of the forces that we can deploy. They will try and 
defeat us by having a better strategy.
    This strategy, which some have called the ``anti-access'' 
strategy, does not invest in an air force, but creates a 
missile force, to hold fixed facilities at risk. When this 
challenge emerges and comes to pass, how will the Army be able 
to deploy its heavy digitized divisions into theater? How will 
we be able to forward base our short-range tactical Air Force 
that we are in the process of modernizing at great expense?
    In fact, a number of our senior military leaders have 
indicated to me that this base access problem already exists, 
in embryonic form, on the Korean Peninsula. We have no clear 
way of getting at the numerous ballistic missiles that the 
Northern Koreans possess. If they choose to mate these missiles 
with chemical warheads to threaten some of the key ports and 
airfields--Osan, Kimpo, Pusan--it could really throw an 
enormous monkey wrench into our ability to quickly resupply and 
reinforce our forward-based forces.
    In effect, the enemy will say to us, ``I can't shoot down 
your F-22s. I can't outgun your upgraded M-1 tanks. I am going 
to practice virtual attrition by denying you the ability to get 
such forces into theater or resupply them.
    Now, in examining this threat and in looking at the budget, 
we are essentially putting the budget cart before the strategy 
horse. We are now engaged in a rampup of our procurement 
program, increasing it by about 37 percent over the period of 
the FYDP, while simultaneously necking down to relatively few 
new systems, ``buying in bulk.'' That is the way to buy new 
equipment efficiently. But we are locking ourselves in to 
single point solutions inconsistent with the military's 
strategic vision document, Joint Vision 2010, which says the 
future is going to be characterized by uncertainty and by these 
asymmetric kinds of challenges.
    In a sense, our budget offers a false efficiency, because 
we have a modernization program that does not take this kind of 
uncertainty into account--the uncertainty of not knowing who 
the next challenger will be, when they will appear, and how 
they will compete, or whatever a symmetric form they might take 
and how they may use this rapidly diffusing technology.
    A good budget strategy would take uncertainty into account. 
It would do so through at least two means. First, it would 
avoid locking us into large numbers of new systems before we 
have identified how we are going to meet these very different 
emerging challenges.
    Secondly, it would support a program of vigorous 
experimentation with a wide range of systems to find out what 
works, what kind of new capabilities we will need to develop, 
and what kind of old capabilities we will need to sustain. We 
would be buying ourselves options that we could exercise once 
the threat comes into clearer focus. But this is not what we 
are currently doing.
    Look at some of the options that we have denied ourselves: 
We have canceled the arsenal ship. The B-2 has been terminated. 
Conversion of the Trident submarines into cruise missile 
carriers is presently under review, and it is unclear whether 
the Pentagon is going to move forward. Development of unmanned 
aerial vehicles and UCAVs is proceeding, but at a relatively 
slow pace.
    Mobile offshore bases have been discussed for at least 5 or 
6 years now. While we have talked about them, there has been 
little experimentation involved. And the same issue may apply 
to the Sea Shadow, a stealthy surface combatant which the Navy 
calls their ``street fighter.''
    The Army strike force, which was touted as the experimental 
force that would lead the service to the Army-After-Next, has 
been reduced down to a headquarters element. Sea Dragon, the 
Marine Corps' initiative, is sustained on chewing gum, string, 
and paper clips.
    Atlantic Command which, as Dr. Hamre mentioned, assumed the 
responsibility for Joint Experimentation in 1998, received only 
$40 million this year, and its first really significant joint 
experiments won't begin until 2004.
    In my estimation there is very little sense of urgency 
here. Yet we should be conducting the experiments on how to 
meet new threats before buying the equipment, before committing 
to purchasing equipment that we expect to maintain for 20 or 30 
or 40 years.
    As procurement increases by 37 percent, it essentially 
locks us into systems before we get answers, while at the same 
time RDT&E, which is designed to address questions and give you 
answers, is programmed to go down about 17 percent in real 
dollars over the course of the new FYDP.
    In conclusion, let me say, Mr. Chairman, that in minimizing 
the overall risks to our security, both in the near and long 
term, the challenges are not principally budgetary in nature, 
they are strategic. To be sure, some additional funding is 
certainly warranted to maintain the near-term readiness of our 
forces.
    The greatest gains, though, in terms of reducing the risks 
to our security, are not going to come from accelerating a 
modernization process that will allow us to arrive in the wrong 
future more quickly. Rather, what we need is a modernization 
strategy that focuses on addressing tomorrow's challenges, as 
opposed to preparing yesterday's; a strategy that reduces 
uncertainty surrounding future investments rather than assuming 
it away; and a strategy that buys capability options we can 
execute quickly when the future threats come into clearer 
focus.
    In short, there is much to be gained from questioning the 
fundamental defense strategy and the resources needed to 
accomplish it, as opposed to simply adding money to the current 
approach.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Krepinevich follows:]

Prepared Statement of Andrew F. Krepinevich, Executive Director, Center 
                for Strategic and Budgetary Assessments

                Defense Strategy and the Defense Budget

    A defense strategy's principal purpose is to minimize the overall 
risk to national security, both by addressing those challenges that 
exist in the near term, and by preparing now for those challenges that 
will emerge over the longer term. A defense strategy does this by 
informing the allocation of resources--the means available to achieve 
the strategic end of minimizing the nation's security risks. The 
strategy that currently informs the allocation of our defense resources 
was developed in the Pentagon's Quadrennial Defense Review (QDR).
    As it serves as the blueprint for resource allocation, it is 
extremely important to ``get the strategy right.'' Unfortunately, 
nearly all of the recent debate over the defense budget has concerned 
``How much is enough?'' to fund the QDR program. Very little discussion 
has focused on the more critical question of ``How wisely are we 
spending?'' our defense dollars.
    This is regrettable, as the QDR strategy that guides the use of 
defense funding has some major flaws. The Defense Department continues 
to focus the vast majority of its resources on familiar threats, 
requiring ``traditional'' kinds of forces, despite the fact that future 
challenges to our security are likely to be very different from those 
we face today, and thus require very different kinds of forces and 
equipment. This prospective change is the result of both the 
geopolitical revolution marked by the end of the cold war, and the 
ongoing military revolution (or ``revolution in military affairs ''). 
The latter is related especially to the dramatic advances being made in 
information-related technologies.
    My testimony provides some observations on the two questions raised 
above: ``How much is enough?'' and ``How wisely are we investing?'' 
with emphasis on the latter. It concludes that:
     The additional funding proposed by the Clinton 
administration to shore up the readiness of today's force is, in many 
respects, warranted. However, it is far from clear that locking in 
future pay raises for the military, and returning to the pre-REDUX 
retirement system offer the best ways of attracting and retaining 
quality people for our Armed Forces.
     The administration's modernization plan does not take into 
sufficient account the very different security challenges (and 
capabilities) that are emerging as a consequence of the ongoing 
geopolitical and military revolutions. Far too much emphasis is placed 
on modernizing U.S. forces to meet today's threats, and far too little 
on preparing for the very different emerging threats that will confront 
us in the not-too-distant future. This can be seen in a procurement 
budget that focuses on producing a few major systems in large numbers, 
and in an RDT&E budget that is projected to decline by 17 percent in 
real terms over the Future Years Defense Program (FYDP).
     A budget strategy is needed that will allow the military 
to reduce the high level of uncertainty that exists with respect to 
future threats and emerging capabilities, and that creates capability 
options that can be quickly exercised once the future threat 
environment comes into clearer focus.

                          How Much Is Enough?

    In May 1997 the Clinton administration unveiled the results of its 
Quadrennial Defense Review. In doing so, the administration determined 
that essentially flat defense budgets would be sufficient to fund the 
Quadrennial Defense Review (QDR) defense plan over the long term. That 
conclusion was reaffirmed only a year ago when the FY 1999 defense 
budget request was submitted. Yet, this February the administration 
announced plans to add $112 billion to the defense budget over the next 
six years. Why, in such a short span of time, has the administration so 
substantially changed its assumptions about the QDR's funding 
requirements? There are three main factors that have contributed to 
this sudden about-face.
              higher operation and maintenance (o&m) costs
    First, after years of ``O&M migration''--shifting funds intended 
for modernization accounts to cover O&M funding shortfalls--the 
administration has taken a more realistic view of funding requirements 
for O&M activities. O&M funding covers the costs of fuel, spare parts, 
depot maintenance and other activities critical to the day-to-day 
operation of the military, as well as most Department of Defense (DOD) 
infrastructure activities, such as base operations and health care. 
Over the years this has been the area of greatest cost growth within 
the Defense Department. Given this trend, last year's Future Years 
Defense Program (FYDP) appeared to substantially underfund O&M. This 
fact became increasingly apparent over the course of last year. For 
example, in 1998 Air Force mission capable rates for major weapon 
systems fell to about 10 percent below their 1991 levels, due to spare 
parts shortages and other factors. Likewise, in 1998 Army tank crews 
fell short of their training goals by some 22 percent (measured in tank 
miles per year), while Navy aircraft crews fell 15 percent below their 
goals for flying hours.
    The administration's new request represents a reasonable estimate 
of the funding required to sustain high levels of readiness in FY 2000. 
At $103.5 billion, it would provide far more O&M funding per troop than 
the Defense Department provided in FY 1990, the year the United States 
began sending forces to the Persian Gulf in preparation for Operation 
Desert Storm. This is true even if one subtracts that portion of the 
O&M budget allocated to tasks which some observers have argued are not 
closely related to traditional military missions, such as contingency 
operations, environmental clean up at military bases and drug 
interdiction.
    It is less clear whether the funding levels projected for the 
latter years of its FY 2000-05 defense plan will be adequate. In real 
terms, O&M costs per troop have tended to increase over time. Moreover, 
the idea that O&M costs will continue to increase might find support in 
DOD's projection that the average age of many aircraft, ships and other 
weapon systems in its inventory will grow by 20-25 percent over this 
period. The military's O&M costs would also obviously increase if U.S. 
forces are deployed to Kosovo for peacekeeping duties. On the other 
hand, the administration's latest budget proposal clearly provides far 
more for O&M activities over the next six years that was projected to 
be provided in last year's defense plan. And, if DOD's plans for 
outsourcing and other reforms are aggressively pursued and successful, 
the level of funding projected in the administration's plan for O&M 
over the longer term may prove to be adequate.
                  declining recruitment and retention
    Second, recent problems with recruitment and retention have 
persuaded the administration to increase military compensation. Both 
the Navy and the Army fell short of their recruitment goals last year, 
and the Navy and the Air Force have experienced declines in retention, 
especially among pilots. Although these problems are centered primarily 
in certain military skill categories, the administration is right to 
take these trends seriously. The administration has decided to address 
these personnel problems, in part, by providing substantially higher 
military pay raises and improved retirement benefits. Figures released 
by the Congressional Budget Office (CBO) suggest that this plan could 
add some $37 billion to DOD's costs over the next 10 years. The Senate 
recently passed a bill, S. 4, that would provide even more generous pay 
raises and retirement benefits. CBO has estimated that this plan would 
cost about $55 billion over the coming decade.
    There are some very positive elements in the administration's 
proposed compensation package. These include the 4.4 percent across-
the-board pay raise in FY 2000, substantial targeted pay raises, and 
various initiatives to improve recruitment and retention. Taken 
together, these measures would add some $10 billion to the Defense 
Department's costs over the next six years. They would also send a 
powerful signal to the men and women of the Armed Forces about the 
commitment of the administration and Congress to ensuring adequate 
compensation, not only next year, but over the long term as well.
    Perhaps the most problematic element of the administration's plan 
is its proposed repeal of REDUX, the Military Retirement Reform Act of 
1986. Under current law, personnel who joined the military on or before 
July 31, 1986 can retire after 20 years of service at 50 percent of 
their basic pay. Under REDUX, those who joined after that date will be 
able to retire after 20 years at only 40 percent of basic pay. The 
administration's proposal would raise retirement benefits back to 50 
percent of pay after 20 years for all military personnel. This change 
would cost about $6 billion over the next six years and some $1.5 
billion a year thereafter.
    However, according to recent studies by CBO and the General 
Accounting Office (GAO), there is very little evidence that the 
existence of REDUX has been responsible for the recent declines in 
retention. We should also be cautious about repealing REDUX, in part, 
because its provisions closely track the recommendations of seven 
different commissions and study groups in its treatment of retirees 
with 20 years of service. The recommendations of these groups, which 
met between 1947 and 1986, differed in many respects. But every one of 
the groups recommended that the immediate retirement benefits received 
by personnel leaving after 20 years of service be reduced to less than 
50 percent of basic pay. They made this recommendation because they 
believed that providing this annuity was seriously harming the 
Services' ability to retain individuals beyond their 20-year service 
point.
    It is possible that, nevertheless, REDUX should be repealed 
(perhaps on equity grounds). But any change in the military retirement 
system of this magnitude should be made only after the likely effect of 
the change and other possible options for changing military retirement 
have been thoughtfully, and deliberately, considered. This probably 
means deferring any action on retirement benefits until next year.
    The Senate bill would provide even more generous benefits for 
military personnel who retire after 20 years. It would also create a 
thrift savings plan for certain military personnel and increase funding 
for veteran's readjustment benefits by nearly $5 billion over the next 
six years and by some $2.5 billion a year over the longer term. As with 
the administration's plans for changing military retirement, it would 
be a mistake for Congress to act on the proposed changes in the Senate 
bill before it has had time to thoughtfully review those proposals.
    The other main flaw in the Senate bill is that it contains a 
provision that would lock the Services into providing what may turn out 
to be excessively large military pay raises in future years. It would 
do so by requiring, by law, that future pay raises be set at one-half a 
percentage point above the employment cost index (ECI), a measure of 
salary changes within the overall civilian workforce. To be sure, pay 
raises larger than those called for in the administration's proposal 
may prove necessary in coming years. But it is also possible that the 
Services' problems with recruitment and retention will be stemmed by 
the raises included in the administration's plan, the use of improved 
deployment patterns that reduce personnel tempo (such as the Air 
Force's Air Expeditionary Force concept), and other non-pay related 
changes, or by a downturn in the civilian economy. In any event, the 
Services should not be legally locked into providing what could turn 
out to be overly large pay raises for the indefinite future--especially 
on the basis of a measure as suspect, in terms of its relevance to 
military pay, as the ECI.
                         more for modernization
    Third, the administration has decided to expand some acquisition 
programs and, in particular, to more fully fund its national missile 
defense (NMD) efforts. Acquisition funding accounts for the smallest 
share (about 25 percent) of the administration's proposed $112 billion 
increase for defense. As noted above, the administration's latest 
defense plan provides substantially more for O&M than the previous 
plan. However, if history is any guide, it is likely that future O&M 
costs will prove at least somewhat higher than projected, even under 
the latest plan. Military personnel costs may also prove higher if S. 4 
is adopted or, even if it is not, if higher pay raises prove necessary 
in the future in order to stem persistent declines in recruitment and 
retention. As such, it is unlikely that the Defense Department will be 
able to increase military procurement by 37 percent over the FYDP, as 
projected in the administration's plan, unless the topline for defense 
is further increased, or cuts in force structure or readiness are 
accepted. Nevertheless, because of the substantial plus-ups provided in 
the new plan for the O&M and military personnel accounts, there may be 
less ``migration'' from procurement to these other accounts in the 
future than there has been in the recent past.
              other ways of tackling the funding shortfall
    As noted above, if one assumes the QDR provides us with the optimal 
blueprint, or strategy, for minimizing the overall risk (i.e., near- 
and long-term risk) to our national security interests, then increased 
funding for defense may be the appropriate response to the plans-
funding mismatch. However, in addition to increasing the budget, there 
are also several other means for addressing the problem.
    One is to increase the efficiency with which currently programmed 
funding is used. Initiatives designed to squeeze greater efficiencies 
out of the defense budget have been staples of DOD management, 
particularly since the end of the Reagan defense buildup. While such 
endeavors are laudable, they have typically only yielded a small 
fraction of the savings projected for them. The QDR, for example, 
called for two additional rounds of base closures to reduce excess 
infrastructure. It also argued that greater efficiencies could be 
realized by competing more of the work that has, in the past, been 
reserved for government depots. Several such efficiency initiatives are 
currently under way in the Pentagon, with Secretary Cohen's Defense 
Reform Initiative at the forefront. Unfortunately, the current program-
funding mismatch is, in part, a product of the Defense Department's 
``banking'' of hoped-for efficiency savings before they are realized.
    Another means for reducing the program-funding mismatch is to 
convince our allies to shoulder a greater share of the burden of 
providing for our common security interests. Always a difficult 
proposition, ally burdensharing does not seem to have been a 
significant element in the QDR's funding strategy, or in more recent 
efforts by the Defense Department, to redress its budget problems.
    Still another way to shrink the Pentagon's program funding deficit 
is through more innovative approaches to operating. This is different 
from trying to meet existing requirements more efficiently. Rather, it 
involves meeting existing requirements by operating in very different 
ways. A good example is the opportunity the Navy currently has before 
it to adopt innovative ways of conducting forward presence operations 
by periodically substituting converted Trident SSBNs (SSGNs, or 
conventional precision-missile carriers) for carrier battle groups.
    Finally, we might agree to accept some increased risk in our 
ability to execute the existing strategy. For example, we might accept 
a higher level of risk in our ability to respond in the event that two 
major theater wars (MTWs) erupt nearly simultaneously. Or we might 
decide to be more selective in that part of the administration's 
strategy of Engagement and Enlargement that pertains to U.S. 
involvement in peacekeeping operations.
                                summary
    The above discussion suggests that the administration's latest 
budget proposal may go a significant way toward addressing near-term 
readiness concerns and closing DOD's long-term plans/funding mismatch. 
However, the fact that there is a significant funding gap in the 
current defense plan does not necessarily mean that more money should 
be provided for defense, even if the emergence of significant budget 
surpluses make such increases appear more feasible than in the recent 
past. Indeed, if one believes the QDR strategy is seriously flawed, 
then the remedial courses of action described above may not increase 
our security, or will do so in a very ineffective way. Indeed, a strong 
case can be made that the long-term risks to U.S. security could be 
better minimized with a revised defense strategy and plan that would 
require little additional funding.
    My principal concern here is that we are not implementing the 
changes in our approach to modernization that these revolutionary times 
demand. While there appears to be a consensus among senior national 
security officials that transformational change is needed, it is not 
yet adequately reflected in our modernization strategy or programs. For 
example, the QDR yielded three future U.S. force ``options'' for 
consideration. But these options did not represent different U.S. 
modernization programs; rather, they essentially offered the choice of 
executing essentially the same modernization program at three different 
rates of change. It is a modernization program that emphasizes the pre-
transformation threat environment, while according insufficient 
attention to what is likely to be a far more dangerous post-
transformation conflict environment.
    Consequently, our modernization effort will produce a force that is 
likely to depreciate rapidly over the next two decades, while its 
principal value will be realized during a period of relatively low risk 
to the national security. If this occurs, the consequences may be 
severe. At best, we would probably be forced to recapitalize the force, 
at great expense. At worst, we could see our vital security interests 
placed in jeopardy. In short, while the current modernization program 
likely suffers from a serious program-funding mismatch, the primary 
problem with our approach to defense modernization is not, at its core, 
budgetary in nature, it is strategic.

                      How Wisely Are We Investing?

                          why transformation?
    There are two fundamental factors driving the need for 
transformation. The first is that, over the next decade or two, our 
military will likely confront very different challenges from those we 
faced during the cold war, or during the Gulf war. Potential 
adversaries have strong incentives to present us with different 
military problems than did Saddam Hussein during the Gulf war, and 
increasingly, with the diffusion of military technology, they will have 
the capability to do so.
    The need for a transformation strategy also is being stimulated by 
a growing awareness on the part of a number of leading military 
organizations, ours included, that the world is entering into a period 
of military revolution. This century has witnessed two such periods of 
military revolution. The most recent is the nuclear weapon-ballistic 
missile revolution of the 1940s and 1950s. An earlier revolution 
occurred in the 1920s and 1930s, and was characterized by the 
transformation of warfare on land, which culminated in the blitzkrieg; 
at sea, with the rise of naval aviation and carrier battle groups; and 
in the air, with the emergence of strategic aerial bombardment. Such 
periods are characterized by discontinuous leaps in military 
effectiveness, the result of an integration of new military 
capabilities, doctrine and organizations. With respect to 
modernization, there are dramatic shifts in the military ``tools'' 
available to commanders: carriers displace battleships, tanks displace 
horse cavalry, etc. Moreover, entirely new capabilities and 
corresponding new military operations arrive on the scene: the 
submarine and strategic submarine blockade; bombers and strategic 
aerial bombardment; radar and integrated air defenses are but a few 
examples.
    We must ask ourselves: What are the emerging and declining systems 
of this military revolution? How do we ensure that the emerging 
dominant ``sunrise systems'' get into the hands of our commanders? How 
do we avoid investing too early in promising new systems that may 
quickly depreciate in effectiveness, as the technologies on which they 
are based continue to advance rapidly, or as the challenges to our 
security change? How do we divest ourselves of declining ``sunset'' 
systems, or at least avoid locking ourselves into large quantity 
purchases of such systems, with their 30- or 40-year life spans? How do 
we hedge against the uncertainty of not knowing which new systems will 
prove decisive and which will decline in value?
    These issues take on greater importance given that the Defense 
Department confronts this era of transformational change with limited 
resources. There is the risk that if the wrong transformation path is 
chosen for modernization (or if no attempt is made at transformation), 
it will prove difficult, if not impossible, for the Pentagon to buy its 
way out of its mistakes.
    Moreover, it is important to begin the transformation process soon. 
It is no exaggeration to say that, given the time it takes to field new 
military systems, develop new doctrine, and field test new combat 
organizations, the U.S. military twenty years hence is already being 
formed (and limited) by decisions being made today. Regrettably, the 
Defense Department's modernization effort remains predominantly focused 
on improving its capabilities to conduct power-projection operations 
against a threat similar to that which was encountered during the 
Persian Gulf war, both in terms of scale and character.
    In summary, rather than undertaking a military transformation, we 
continue to pursue a modernization strategy that was set principally by 
the momentum developed over forty years of cold war with the Soviet 
Union, and that severely discounts the revolutionary changes under way 
in the geopolitical environment and in military-related technologies. 
The result is that the current defense program will produce a slightly 
smaller, but similar U.S. military as compared to the one called for by 
the QDR's proximate ancestors, the Clinton administration Bottom-Up 
Review (BUR) force, and the Bush administration Base Force.
          modernization for what? identifying emerging threats
    How should we think about modernization in a period of 
transformational change? Of primary importance is a sense of the 
emerging threats to our security, and the operational challenges it 
will pose to the U.S. military. Only then is it possible to get a sense 
of the optimal mix of military capabilities commanders will need in 
order to be effective in the future. If the new operational challenges 
are not identified, the Defense Department may persist in 
``baselining'' its future requirements based on its Gulf war 
experience. Indeed, much of the wargaming that supported both the 1993 
Bottom-Up Review and the 1997 QDR were oriented on Desert Storm-like 
contingencies in the Persian Gulf and on the Korean Peninsula.
 new challenges: the case of power projection and the ``anti-access'' 
                               challenge
    Take the case of power-projection operations. Joint Vision 2010 
states that ``power projection * * * will likely remain the fundamental 
strategic concept of our future force.'' However, relying on 
experiences from an eight-year old conflict to determine forces for 
future contingencies in a rapidly changing competitive environment 
seems unlikely to provide the kind of insights needed for a 
modernization program to support military transformation. The U.S. 
military's traditional method of deploying air and ground forces at or 
through ports and airfields is almost certain to be invalidated by the 
growing proliferation of national and commercial satellite services and 
missile technology. National and commercial satellite services will 
allow even regional rogue states to monitor U.S. deployments into 
forward bases, and (unless one makes heroic assumptions regarding 
advances in missile defenses) hold them at risk through the deployment 
of large numbers of ballistic and cruise missiles. Senior U.S. military 
leaders have already voiced strong concern over our ability to deal 
with such a contingency. General Ronald Fogleman, then Air Force Chief 
of Staff, observed that

          Saturation ballistic missile attacks against littoral forces, 
        ports, airfields, storage facilities, and staging areas could 
        make it extremely costly to project U.S. forces into a disputed 
        theater, much less carry out operations to defeat a well-armed 
        aggressor. Simply the threat of such enemy missile attacks 
        might deter U.S. and coalition partners form responding to 
        aggression in the first instance.

    The Navy's Chief of Naval Operations, Admiral Jay Johnson, 
expressed very similar concerns when he declared

          Over the past ten years, it has become evident that 
        proliferating weapon and information technologies will enable 
        our foes to attack the ports and airfields needed for the 
        forward deployment of our land-based forces.
          I anticipate that the next century will see those foes 
        striving to target concentrations of troops and materiel ashore 
        and attack our forces at sea and in the air. This is more than 
        a sea-denial threat or a Navy problem. It is an area-denial 
        threat whose defeat or negation will become the single most 
        crucial element in projecting and sustaining U.S. military 
        power where it is needed.

    Perhaps most revealing, however, are the comments of a retired 
Indian brigadier general, who observed that future access to forward 
bases

          [I]s, by far the trickiest part of the American operational 
        problem. This is the proverbial ``Achilles heel.'' India needs 
        to study the vulnerabilities and create covert bodies to 
        develop plans and execute operations to degrade these 
        facilities in the run up to and after commencement of 
        hostilities. Scope exists for low cost options to significantly 
        reduce the combat potential of forces operating from these 
        facilities.

    According to a recent study by the Defense Science Board, a 
regional power's development of this kind of anti-access capability by 
2010 is certainly plausible, even given relatively severe resource 
constraints. According to some senior U.S. military leaders, North 
Korea already possesses a significant base denial capability. And Iran 
seems far more interested in fielding anti-access systems, such as 
ballistic and cruise missiles, anti-ship cruise missiles, submarines, 
and advanced antiship mines, than military systems such as tanks and 
combat aircraft that proved largely ineffective for the Iraqis during 
the Gulf war. Indeed, what Third World regime today is looking to 
create its version of the Republican Guard? Furthermore, a major power 
like China may not choose to increase its military leverage in East 
Asia by aping the U.S. Navy's affinity for carrier battle groups. 
Rather, Beijing might follow an asymmetric competitive path, developing 
an ability to isolate Taiwan through long-range blockade forces 
comprising precision-guided ballistic and cruise missiles, and close-
range blockade forces centered on submarines and advanced anti-ship 
mines.
                       other emerging challenges
    In its report to the Congress, the National Defense Panel 
identified several other new operational challenges the U.S. military 
will likely encounter in a post-transformational world. These 
challenges were derived from an examination of major geopolitical, 
military-technical, demographic, and economic trends. They include:
     Projecting power far inland;
     Defending U.S. assets in space, and denying enemy access 
to space;
     Defending the U.S. homeland from nontraditional forms of 
attack, to include irregular force use of weapons of mass destruction 
(WMD), and attacks on the information infrastructure; and
     Evicting enemy forces from, and controlling, urban 
terrain.
    Correspondingly, U.S. forces might seek to exploit the potential of 
what may be new forms of military operations, to include precision and 
electronic strike, information superiority, and space control.
                  elements of a modernization strategy
    A modernization strategy that supports military transformation must 
take into account the fact that transformations typically take several 
decades to play out. Indeed, today even those military systems that are 
placed on a ``fast track'' for development and fielding often take ten 
years or more to reach forces in the field. Considerable additional 
time is required to determine how best to employ new military systems, 
and to make the appropriate force structure adjustments. Periods of 
military revolution also are characterized by an increased risk of 
strategic surprise, such as that which occurred, for instance, with 
submarine warfare early in this century, and which might occur again 
with the onset of anti-access capabilities and competition in space. 
Given these considerations, senior Defense Department leaders must 
begin now to develop and execute a transformation strategy if the U.S. 
military is to be prepared for the very different kinds of challenges 
they see confronting the Armed Forces over the long-term future.
    Finally, military revolutions typically find the effectiveness of 
certain military systems in rapid decline. The displacement of the 
battleship by the aircraft carrier is but one example. However, it is 
far from clear in advance which military systems, operational concepts, 
or new force structures will work, and which will not. Put another way, 
not only will a transformation strategy need to be initiated soon, it 
also will have to take into account military-technical uncertainty. How 
might a modernization strategy account for this?
    For a start, the military services will have to tap into rapidly 
advancing technologies to develop new military systems that can be 
applied within the framework of new operational concepts (e.g., long-
range precision strike) executed by new kinds of military 
organizations. It is this combination of technology, emerging military 
systems, new operational concepts and force restructuring that often 
produces the discontinuous leap in military effectiveness 
characteristic of military revolutions. Thus greater emphasis should be 
placed on our R&D efforts in support of ``wildcatting'': experimenting 
with a limited (but operationally significant) number of a wide variety 
of military systems, as well as operational concepts, and force 
structures, with the goal of identifying those that are capable of 
solving emerging strategic and operational problems, or exploiting 
opportunities, and of eliminating those which are not.
    Wildcatting has been a hallmark of successful modernization 
transformation strategies. For example, the 19th century military 
transformation at sea saw wooden ships powered by sail yield to ships 
constructed with metal hulls and powered by turbine engines. During 
that transformation, among the 30 vessels of the Royal Navy fit to take 
a place in the line of battle in 1870, there were three types of steam 
engines, four screw arrangements, 16 varieties of armor protection, 18 
hull models, and no fewer than 20 scales of armament. Similarly, during 
the rapid advances in aviation technology that occurred in the 1920s 
and 1930s, the U.S. military developed and flight-tested 12 medium and 
heavy bombers, and nearly 70 attack, fighter and trainer aircraft. 
None, however, were produced in great numbers.
    This reveals a second element of a successful modernization 
strategy for transformation: to avoid being ``locked in.'' Lock-in 
occurs when limited resources are spent to purchase a system in large 
numbers. The result both narrows the range of options (as fewer types 
of systems are procured) for dealing with emerging challenges, and 
locks the force into the current state of technological advancement. 
Resources that could have supported exploring a wider range of systems 
and sustaining continued advances in technology are, instead, locked 
into the existing force. This may work well if we ``guess right'' 
(i.e., if the fielded force serendipitously turns out to be the 
``right'' force to meet the post-transformation challenges), and if the 
rate of technological advance slows. If not, we will have committed 
ourselves to a single-point solution in a very uncertain world. We will 
have either bought the wrong systems, or the ``right'' systems 
prematurely--before the rapidly advancing technologies that enable them 
have matured.
    The U.S. Navy understood this well in the 1920s and 30s, during the 
transformation from a battle fleet centered around battleships to one 
focussed on carrier battlegroups. It was unclear whether naval aviation 
would be optimized by spreading it throughout the fleet (e.g., having a 
few aircraft on every surface combatant), or concentrated on aircraft 
carriers. Moreover, it was also unclear what kind of carrier would be 
optimal. Consequently, the Navy created options for itself by 
wildcatting. It invested in three classes of carriers, but only 
produced four carriers in all. It also experimented with aircraft on 
carriers and on surface ships, and even tried working with dirigibles.
    On the other hand, Britain's Royal Navy, which emerged from World 
War I with a dominant lead in carrier aviation, chose to lock itself in 
to existing technology by keeping its carrier force. The result is that 
the Royal Navy had to absorb operations, maintenance and personnel 
costs, which limited funding for R&D on naval aviation (which was 
progressing rapidly), and on new carriers that might have optimized the 
potential of air power at sea. Moreover, Royal Navy carriers 
depreciated rapidly in effectiveness as more powerful naval aircraft 
(requiring bigger carriers) came on the scene. The Royal Navy also saw 
U.S. Navy and Imperial Japanese Navy, who entered the competition in 
naval aviation at a much later date, become dominant in this new form 
of warfare.
    Not only has wildcatting been an effective element of a 
modernization transformation strategy within Services, but increasingly 
among them as well. Thus the Army, Navy and Air Force each had 
ballistic missile programs in the 1950s. The Air Force program led, 
ultimately, to the Minuteman ICBM, a key element of the U.S. nuclear 
strike mission force. The Army program was instrumental in the birth of 
the space program, and the Navy program led to the Polaris submarine 
and the nuclear ballistic missile submarine force, a cornerstone of 
U.S. nuclear deterrence.
    The end result of each of these wildcatting efforts was the 
creation of strategic ``options'' on a range of military capabilities. 
These options could be used both to dissuade prospective competitors 
from resuming a high level of military competition and, in the event 
dissuasion or deterrence failed, exercising those options to prevail in 
the competition itself. It is important to note that creating such 
options need not involve a defense budget ``train wreck.'' Recall that 
the U.S. military developed the foundation for strategic aerial 
bombardment, the carrier navy, modern amphibious warfare, and 
mechanized air-land operations during the relatively lean budget years 
of the 1920s and 1930s. What it does imply, however, is a different set 
of strategic--and budget--priorities.
    For example, it is not yet clear how the military will surmount the 
``anti-access'' challenge to power-projection. A solution may be found 
in Air Force long-range aerospace precision-strike operations. Or 
strikes from a Navy task force comprising a ``distributed'' capital 
ship (i.e., from carriers, arsenal ships and Trident ``stealth 
battleships'' fitted with hundreds of vertical launch systems for long-
range PGMs, all linked by an expanded version of the Navy's Cooperative 
Engagement Capability battle-management network and Marine Hunter 
Warrior ``infestation'' forces) may be critical to defeating enemy 
anti-access forces. Perhaps a critical role will be performed by highly 
networked, distributed Army forces employing long-range missiles, 
dispersed air and missile defenses, and unmanned combat aerial vehicles 
(UCAVs). Or it may be that a combination of these capabilities is 
needed to meet the challenge, or perhaps something quite different. Our 
modernization strategy must provide for an opportunity for the Services 
to experiment--alone and in combination--with a wide variety of systems 
in an attempt to solve this problem before it emerges as a threat to 
our interests.
    Unfortunately, the administration's modernization effort seems to 
be at odds with historical precedent. The Defense Department's FYDP 
proposes ramping up serial production of a relatively few systems, thus 
exacerbating the lock-in effect, while cutting RDT&E funding by roughly 
17 percent in real terms over the FYDP, thereby reducing opportunities 
to engage in wildcatting.
    Wildcatting is often informed by a vigorous level of field 
experimentation. Properly done, such experimentation can help reduce 
uncertainty by determining what systems and forces are best able to 
meet emerging operational challenges. Supporting experimentation and 
innovation in a period of great change and uncertainty also implies a 
heightened tolerance of honest failure. If a ``no mistakes'' approach 
to transformation is adopted, the result will likely be a smaller, but 
similar, U.S. military, as strong incentives will exist to deviate as 
little as possible from what is ``proven'' to be effective in today's 
military. In effect, the misplaced desire to maximize efficiency may 
well crowd out the innovation that will enable transformation.
    Having said this, what remains unclear is how several of the major 
pillars of the Defense Department's current modernization program will 
help the military meet emerging operational challenges. If forward 
bases, ports and airfields are at high risk of destruction or pre-
emption early in a conflict, how will we forward deploy our relatively 
short-range tactical air forces? Our heavy digitized divisions? Will we 
be able to move our new class of carriers through choke points like the 
Strait of Hormuz, or even the Taiwan Strait, at an acceptable risk? Yet 
our modernization program calls for the military to spend tens--and in 
some cases--hundreds of billions of dollars to deploy new tactical 
aircraft, upgrade our tank fleet and launch a new class of carriers.
    There is a profound disconnect here. As our military leaders have 
said, future adversaries will almost certainly present us with a very 
different set of problems than we saw over eight years ago in the 
Persian Gulf. In pursuing the current modernization strategy, we may be 
locking ourselves in to military capital stock that will depreciate 
rapidly in value far in advance of its expected life cycle. At the same 
time we are also crowding out investment in wildcatting opportunities, 
such as going forward with the arsenal ship and Trident conversion, 
fielding a dramatically different Army division, exploring more fully 
the systems that could enable the Marine ``Hunter Warrior'' concept, 
and facilitating the Air Force's transformation to a ``space and air 
force.'' In short, our current modernization strategy risks locking us 
in to single-point solutions that assume away uncertainty, instead of 
investing in options that hedge against it.
    A transformation modernization strategy should also take into 
account the need to create incentives for industry to support the 
military's efforts in this area. The recent consolidation of the 
industry has actually reduced such incentives. Fewer competitors means 
less competition, and hence less innovation. Today in the name of 
efficiency the Defense Department has attempted to settle on a 
relatively few number of systems and to produce them in fairly large 
quantities, so as to minimize cost. Defense firms have strong 
incentives to lock in long production runs on these relatively few 
systems, thereby guaranteeing a steady stream of revenue, and little 
incentive to experiment with their own R&D funds to develop new 
military systems. A transformation modernization strategy would place a 
higher priority on providing a wider range of systems to our 
commanders. However, industry consolidation has made this a difficult 
proposition, and it is not clear what approach to modernization might 
undo its more pernicious effects.
    Over the past two centuries the commercial sector has played an 
important role in successful transformation modernization strategies. 
Commercial advances in steam engines helped fuel the naval 
transformation of the nineteenth century. The rapid rate of 
technological growth in aviation, radio, and mechanization in the 
commercial sector during the interwar years helped underwrite a 
transformation in war. Joint Vision 2010 declares that ``the emerging 
importance of information superiority will dramatically impact how well 
our Armed Forces can perform its [sic] duties in 2010.'' Consequently, 
a modernization strategy for transformation will have to exploit the 
rapid advances that are being made in the commercial sector in 
information technologies.
    This should not be surprising. Each military transformation over 
the last hundred years or so has seen a corresponding transformation of 
the defense industrial base, as new firms with new skills have entered 
the field (much as new military systems and organizations characterize 
transformation).
    Moreover, any transformation modernization strategy also should 
explore how we might tap into the ``dual-use'' capabilities being 
created in the commercial sector. For example, the armies of the mid-
nineteenth century exploited the commercial sector's construction of 
railroad and telegraph networks to boost their effectiveness. So, too, 
should we consider how we might best exploit the ``information 
railroad'' being put into space, the fiber optic networks being created 
on earth, and the ``armor plating'' being developed by the commercial 
sector to defend its information assets, among other things.
    A core competence of our transformation modernization strategy will 
be our ability to dominate time-based competition. With the 
technologies that underwrite transformation being far more broadly 
available than those that supported the nuclear transformation (i.e., 
nuclear weapons and ballistic missiles), it will likely be increasingly 
important to translate commercial technologies into military 
capabilities more rapidly and effectively than our enemies. Moreover, 
with geopolitical and military-technical uncertainty being so high, we 
may have relatively little warning of the appearance of post-
transformational threats. The more our transformation modernization 
strategy allows us to avoid ``lock in,'' the more wildcatting we do to 
create an array of options, and the more innovative our defense 
industrial sector, the greater will be our ability to meet the post-
transformation threats to our security. As noted above, however, our 
defense modernization effort actually promotes lock-in, and discourages 
wildcatting. Compounding the problem, the time elapsed from program 
inception to initial operational capability often stretches beyond a 
decade.
    To be sure, a transformation modernization strategy will require 
additional funding. The National Defense Panel, in advocating a 
transformation strategy, called for $5-10 billion a year to begin the 
process. Of course, some of this funding might be offset if the Defense 
Department avoids premature lock-in to serial production of new systems 
(save in those instances where such systems offer a true ``leap ahead'' 
improvement in military effectiveness), and as military system 
divestiture candidates are identified. To date, however, promising new 
capabilities are being put on the back burner or, worse yet, cancelled 
in an attempt to sustain a modernization strategy that cannot likely be 
maintained without a major increase in modernization funding. Even if 
fully funded, however, such a strategy could fail precipitously when 
confronted by post-transformation challenges.

                               Conclusion

    It is likely that at least some funding will have to be added to 
DOD's O&M and military personnel accounts in FY 2000 to address near-
term readiness problems. However, DOD's procurement plans should be 
subjected to a rigorous strategic review. The purpose of such a review 
should be to determine not only how well major new modernization 
programs contribute to meeting today's challenges, but also how well 
they will contribute to meeting the emerging threats that will 
characterize the post-transformation security environment.
    The administration's current modernization plan (which the Defense 
Department would apparently like to accelerate) would see us purchasing 
major new weapons platforms with life spans measured at 20-30 years or 
longer, without having determined how effective they might be against 
emerging threats. To be sure, we may continue to rely heavily on our 
legacy forces--tanks, short-range tactical aircraft, and carriers--far 
into the future. On the other hand, we will almost certainly need to 
develop new kinds of systems and forces needed to sustain our military 
effectiveness. What we do not need is to put the modernization budget 
cart before the strategy horse. Rather than investing in modernization 
along traditional lines, we need to take counsel of our own words: we 
are living in revolutionary times, both in a geopolitical and in a 
military-technical sense. We must take the change, the uncertainty, and 
the opportunity that such times offer in crafting a budget strategy to 
modernize the U.S. military.
    What this means is that, before proceeding with its modernization 
strategy, the Defense Department needs to explain to Congress and the 
American people how it plans to meet tomorrow's challenges, as well as 
today's. A collaborative effort by DOD and congressional leaders 
provides one example of how to do just that. Last year Atlantic Command 
was given the responsibility for joint experimentation. The goal of 
such experimentation should be to determine how the U.S. military can 
best organize, train, and equip itself to deal with the very different 
challenges noted above before they emerge, and before we ramp up our 
procurement spending. That will mean placing a wide range of military 
systems in the hands of commanders. An accelerated program of joint and 
Service experimentation focused on future challenges can best inform 
how U.S. forces will need to operate, and what mix of forces will be 
needed. This, in turn, can provide DOD and Congress with a far better 
sense of those current programs that should be sustained, those that 
should be terminated or put on the back burner, and those new military 
systems whose development should be accelerated.
    In summary, it is neither necessary, nor prudent, to accelerate the 
modernization of U.S. forces as currently called for in the QDR, or in 
the Joint Chiefs' proposal. The key is to fund a robust--but far from 
``budget busting''--program of vigorous experimentation (to include 
prototyping some systems not in the current plan) to ensure that both 
today's and tomorrow's forces will be ready for the challenges that 
will confront them.

    Mr. Chambliss. Thank you, Dr. Krepinevich.
    Mr. Zoellick.

                STATEMENT OF ROBERT B. ZOELLICK

    Mr. Zoellick. Thank you, Mr. Chairman. I am pleased to be 
here with you. I appreciate the time you have taken personally. 
I will summarize my written statement and ask that it be put in 
the record.
    Mr. Chairman, there has been a significant disconnect 
between the Pentagon's security strategy and the defense 
budgets that are supposed to fund that strategy, and frankly, 
one or the other is going to need to change if plans and 
resources are going to be aligned. Now, estimates of the size 
of this gap vary, but all of the numbers are very significant.
    Costs have been boosted by the increased pace and frequency 
of so-called small-scale contingencies, another one of which 
you are debating today. Over the fiscal year 1990 to '97 
period, the U.S. military has deployed in 45 of these small-
scale contingencies, compared to only 16 in the cold war. That 
averages out for the Clinton administration to about one every 
9 weeks.
    Now in the face of this gap, the Pentagon has made an 
understandable but troublesome choice of trying to fund present 
needs at the expense of future capabilities. We are not 
investing in the weapons and defenses that the United States is 
going to need for the future. The administration's proposal for 
increased defense spending, while welcome, leaves many 
questions about the availability and allocation of future funds 
for modernization.
    The procurement allocation in this year's budget actually 
falls $1 billion below the amount that was projected in last 
year's budget, and as others mentioned here, the numbers for 
research and development have fallen. Mr. Collins, I believe, 
asked the question about how much of the $12.6 billion goes to 
modernization. The number is about $3 billion, but that $3 
billion is primarily for spare parts and training munitions, so 
you are not really buying modernization.
    Now, a failure to modernize is especially risky because of 
the aging of the military's current weapons. Frankly, we have 
been living off the planes, helicopters, tanks and other assets 
that we purchased in the buildup of the late 1970's and 1980's. 
And wheels come off this equipment, all about the time around 
2010, requiring sizable purchases of either replacement or 
successor weapons.
    As one Marine general said to me, if parents are 
uncomfortable sending their sons and daughters to college in 
25-year-old cars, what would they think about sending them into 
battle with 25-year-old helicopters? The average age of all Air 
Force aircraft will be 20 years in fiscal year 2000. That is up 
from 13 years in 1990, and the average age in 2010 is projected 
to be 28 years.
    Old equipment costs more to maintain and is out of service 
longer, pulling even more money from investment to fund current 
operations, the nature of Ms. Baldwin's question. Last year, 
Under Secretary of Defense Gansler called this downtrend a 
death spiral. General Shelton referred to it as a nose dive. 
Those are strong words.
    The squeeze on modernization and procurement will make it 
hard or perhaps impossible to invest in the so-called 
Revolution in Military Affairs, the point that Dr. Krepinevich 
was talking about here, an approach that would draw on a 
combination of sophisticated sensors, information technology, 
real-time communication and precision target weapons that could 
assure U.S. military dominance into the future.
    I just came from spending 5 years in the financial sector, 
which I rejoined after leaving the Bush administration, and one 
thing that was striking to me is that U.S. companies that did 
not incorporate the revolutionary advances in information and 
communications technology were swept away with surprising 
rapidity. A possible winning strategy by potential enemies is 
to invest asymmetrically. They don't have to win everywhere. 
They have to focus on the development of new weapons, to 
develop a particular location or type of conflict, even for a 
limited purpose or point in time, and they only need to win 
once.
    The urgency of today's needs is also likely to drive out 
investment in homeland defense to meet the increased threat 
that more enemies of different types will have the capabilities 
to wreak catastrophic destruction on the United States. The 
failure in preparedness will come around the end of the next 
decade, a period when the Pentagon forecasts stronger and more 
regional adversaries. And as this committee knows well, that is 
also the time that the baby boom generation starts to retire, 
increasing the demand for entitlement expenditures.
    So it is imperative that the United States take a longer 
term view about its defense strategy and budgetary planning. 
The United States has been living off depreciating assets and 
taking from investments that are supposed to buy the means to 
protect the country in the future. It is not only a question of 
whether we spend as the consensus is building, but asking the 
question about how we spend.
    Now my statement offers eight suggestions. First, to assist 
long-term planning, I suggest that the executive and the 
Congress state a policy of devoting a minimum percentage of 
GDP, at least 3 percent, for defense over the next decade.
    Now, I recognize that any floor involves an element of 
arbitrariness. Nevertheless, given the critical modernization 
choices the country faces over the next 10 years, I think such 
a figure would give important guidance for planning. And given 
the fact that our current budget is about 3 percent of GDP, I 
don't think this minimum is excessive. At some point, a policy 
of doing more with less just becomes doing less with less.
    Second, as a general matter, the U.S. defense strategy 
should seek to align our military strength with our Nation's 
strength, its technology and its people. The United States 
should harness its skill at developing new technologies and, 
equally important, applying these technologies.
    Third, the United States should accelerate the acquisition 
of a transformational RMR force, which will lead the way for a 
gradual recapitalization of the defense base and force 
structure that draws on these new capabilities. Now, in many 
respects technology is the easy part. The challenge is learning 
how to integrate it into operational concepts. In June 1940 the 
French Army had more and better quality tanks than the 
Wehrmacht, but the Panzer leaders knew how to use the 
blitzkrieg to overwhelm France within weeks.
    Fourth, the United States will need to complement its 
ability to project power with the capability to defend America. 
The country should be developing an end-to-end strategy to 
counter weapons of mass destruction, missile, and information 
technology threats both to the U.S. forces and to the homeland. 
A comprehensive plan should include better intelligence 
systems, covert and special operations capabilities, steps to 
lower the likelihood of penetration, preemptive options, 
counterforce capabilities, and an integrated theater missile 
and national missile defense systems as well as nuclear 
deterrent.
    Fifth, to achieve integration and to use limited resources 
effectively, U.S. defense planning is going to have to become 
more joint, integrating all the services to the development of 
strategy, plans, procurement and budget. Now, today the 
military regional commands are committed to joint operations, 
but joint budgeting is still an experiment at best.
    Given the uncertainty and diversity of potential threats, 
the U.S. military probably need fewer assets but ones which can 
handle more missions. The strategic procurement goal should be 
to develop a capability which could draw on any weapon from any 
platform to support any unit, regardless of service or 
location. Whether a target is artillery, a SAM or a SCUD site, 
or a terrorist unit or a weapons of mass destruction facility, 
and whether it is identified by satellite or airborne radar or 
marine patrol, the United States should be able to destroy it 
with precise, highly destructive weapons, whether from a 
submarine an arsenal ship, unmanned or standoff aircraft, or a 
more agile armored vehicle.
    Sixth, the United States is going to need to draw more from 
each person. To supplement and complement the regulars, the 
United States will need to draw on the National Guard and 
Reserve forces effectively, especially for homeland defense in 
smaller scale operations. Pay should be targeted to officers, 
the senior enlisted ranks and people with critical skills. 
Career links, pension systems and health care provisions are 
going to have to adjust as well.
    But the administration also needs to recognize that the new 
compact with the military will have to involve more than money. 
Especially in a world of frequent but often long-lasting peace 
operations, a voluntary military will need a balance of 
opportunities, rewards and considerations for families along 
with sacrifices.
    Seventh, it is important that the executive and Congress 
revisit the possibility of saving money by cutting 
infrastructure.
    Then, eighth, the Pentagon can still a learn a great deal 
from the private sector about cutting costs. Like other 
professional organizations, the Defense Department must focus 
on its primary missions and outsource supporting activities.
    America has the best military in the world. But it also has 
the greatest number and the hardest missions. Moreover, its 
unmatched power is based on equipment that has finite life 
spans, and at some point the existing assets are going to have 
to be replaced.
    Now, at times in the past the United States and other great 
powers have taken their security for granted. We, and they, 
paid for hubris or complacency many times over. Some powers 
never recover from their mistakes.
    After the Vietnam war, a group of reforming officers trying 
to learn from the past published a book entitled ``America's 
First Battles.'' Each chapter described a defeat, America's 
traditional way of starting wars.
    Now, the nature of war and weaponry today, combined with 
the present world of alliances, coalitions and partnerships, 
all underpinned by the United States, no longer affords America 
the leeway to bounce back from early defeats. Having learned 
the lesson of America's first battles, the U.S. military was 
prepared to win the Gulf war in its first campaign. But in the 
past, great military victories have made it hard for countries 
to shake off self-satisfied attitudes and to prepare for the 
next challenge.
    Today America's military is being run ragged in reactive 
operations of all types in all quarters of the globe. If the 
U.S. defense strategy and budget remains preoccupied with the 
current environment, the country will be risking the world's 
stability, our home territory and population, and the young men 
and women who put their lives on the line to safeguard our 
country. Most of all, it will be risking America's greatest 
cause, the future.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Zoellick follows:]

Prepared Statement of Rober B. Zoellick, President and CEO, Center for 
                  Strategic and International Studies

    Chairman Kasich, Representative Spratt, and Members of the 
Committee:
    I am pleased to have the opportunity to appear before the Committee 
today to comment on national security strategy and the defense budget.
    After making initial summary points, my statement addresses three 
topics:
     The threats the United States security strategy needs to 
address.
     The risk of a ``defense budget train wreck''.
     Suggestions for the Committee's consideration.

                             A. The Danger

    The U.S. defense spending strategy will lead to a dangerous future.
     There has been a significant disconnect between the 
Pentagon's security strategy planning and the defense budgets that were 
supposed to fund the strategy. One or the other needs to change if 
plans and resources are going to be aligned.
     Estimates of the size of the expected gap vary. By way of 
illustration, the Center for Strategic and International Studies (CSIS) 
has estimated that in FY2000 the Pentagon needs a budget of about 3.8 
percent of GDP to fund the operations, maintenance of quality, and 
modernization of the force associated with the Defense Department's 
Quadrennial Defense Review strategy; in fact, the United States is 
spending about 3.0 percent of GDP on defense, and the Pentagon's 1998 
5-year budget plan proposed a reduction to about 2.6 percent by FY 
2003. This mismatch produces shortfalls estimated in a range of $20 
billion to $100 billion a year.
     In the face of this gap, the Pentagon has made the 
understandable but troublesome choice of trying to fund present needs 
at the expense of future capabilities. The extra expenditures in the 
administration's most recent proposal are focused primarily on just 
keeping up with today's requirements. As a result, the United States is 
creating a problem different from the hollow force of the 1970's; it is 
a failure of preparedness. We are not investing in the weapons and 
defenses the United States will need for the future.spending, while 
welcome, leaves unanswered many questions about the availability and 
allocation of future funds for modernization. Indeed, the optimistic 
assumptions about ``savings'' and offsetting sources increase the risk 
that R&D and procurement will continue to be crowded out. It is worth 
noting that the procurement allocation in this year's budget actually 
falls $1 billion short of the amount projected in last year's budget.
     A failure of preparedness is especially risky because of 
the aging of the military's current weapons. We have been living off 
planes, helicopters, tanks, and other assets purchased in the buildup 
of the late 1970s and 1980s. The wheels come off these weapons at about 
the same time--around 2010--requiring sizable purchases of either 
replacement or successor weapons. As one Marine general said to me, 
``If parents are uncomfortable sending their sons and daughters to 
college in 25-year old cars, what will they think about sending them 
into conflict in 25-year old helicopters?'' Old equipment costs more to 
maintain and is out of service longer, pulling even more money from 
investment to fund current operations as time goes on.
     The squeeze on modernization and procurement will make it 
hard or perhaps impossible to invest in the so-called Revolution in 
Military Affairs (RMA), a combination of sophisticated sensors, 
information technology (IT), real-time communication, and precision-
targeted weapon systems that could assure U.S. military dominance into 
the future. U.S. companies that did not incorporate the revolutionary 
advances in information and communications technology were swept away 
by their competition with surprising rapidity. A possible winning 
strategy by potential enemies is to invest ``asymmetrically''--to focus 
on the development of new capabilities to dominate a particular 
location or type of conflict. They only need to win once.
     The urgency of today's needs is also likely to drive out 
investment in a ``homeland'' defense to meet the increased threat that 
more enemies, of different types, will have capabilities to wreak 
catastrophic destruction on the United States.
     The failure in preparedness will come around the end of 
the next decade, a period when the Pentagon forecasts stronger and more 
threatening regional adversaries. It will also be the time when the 
baby boom generation moves into retirement, increasing the demand for 
entitlement expenditures.
     Given the time it takes to develop, test, and procure new 
weapons systems, the United States must be acting now to prevent a 
``defense train wreck'' that would occur by 2010, or earlier. (CSIS has 
produced an extensive briefing, which I would be pleased to make 
available to the Committee, that explains the case behind these points 
in detail.)

                    B. Threats and Defense Strategy

    The U.S. defense strategy should begin with an assessment of the 
threats that we must address. The amount the United States spends on 
its security--and how it does so--must of course be related to the 
risks the country faces.
    We are operating in an era of flux, and there is considerable 
uncertainty about the security challenges for which we must plan. There 
is no doubt that the United States is by far the dominant power in the 
world. There are concerns, however, about how that power translates 
into capabilities to deal with current or potential threats to our 
country and its allies. The Pentagon must prepare for a broad range of 
possible missions in an environment that is more complex and less 
predictable.
    The U.S. defense strategy needs to account for three security 
challenges.
    First, shifting relations among large powers can generate fears or 
challenges to peace. Thucydides ascribed the cause of the Peloponnesian 
War to the rise of Athens and the fear it inspired in Sparta. 
Throughout the subsequent centuries, including at the start of this 
one, people were forced to relearn the lesson that the peace of the 
moment can be shattered by the rivalries among powers; these 
competitions have been and might be again fueled by the perceptions of 
danger stimulated by shifts in relative influence. To take an example 
from last year, India's nuclear test, which triggered Pakistan's 
nuclear breakout, can be traced in part to India's perception of 
China's ascendancy.
    Second, nations might threaten or attack neighbors in order to 
dominate a region of interest to the United States. Aggression in the 
Persian Gulf, the Mideast, or Northeast Asia would trigger chain 
reactions of destruction that would draw in America.
    Third, the United States will have to determine the need--and its 
capacity--to intervene when local killers incite large-scale violence, 
whether within a society or against others. The violence might be 
driven by ethnic or religious hatreds, a design to divide and conquer, 
a scheme to control narcotics trafficking, or moves to dominate 
organized criminal networks. The result in each case is a breakdown of 
civil society and the intimidation of and assault on innocent people. 
Chaos and anarchy may create spillover dangers to others, including the 
United States. Some transnational groups even seek to take over 
sovereign states as a base for operations. Fanatics and thugs may 
target America--out of resentment, to make money, or to keep the United 
States away from their home turf.
    Over the FY 1990-97 period, the U.S. military deployed to cope with 
45 so-called Small Scale Contingencies (SSCs), as compared to only 16 
during the whole cold war. During the Clinton administration, the 
United States has committed U.S. forces to a new deployment for these 
contingencies, on average, once every nine weeks. Not only has the 
number of SSCs increased but the durations were extended, often lasting 
years. The unexpected and uncertain nature of these operations, 
combined with the pace and frequency of operations (optempo), places 
enormous stress on personnel.
    The weaponry that can be used by or against the United States in 
the context of all three of these challenges is changing rapidly.
    One development is the so-called RMA, an effort to combine new 
capabilities to radically change warfare in a fashion analogous to the 
way IT transformed the business world. The proponents of these 
capabilities foresee networked forces relying on real time intelligence 
that will dominate battlefield awareness. The forces would have greater 
range, speed, flexibility, and lethality; they also would be designed 
to complement one another more effectively.
    A second development is the increased availability of weapons of 
mass destruction. In particular, nuclear and biological weapons supply 
a strategic capability to cause enormous damage and paralyze opponents. 
As recently reported by the Rumsfeld Commission established by the 
Congress, the United States and its allies either are or will soon be 
vulnerable to attack by ballistic missiles, which could be armed with 
weapons of mass destruction. Even without missiles, small terrorist 
cells--whether or not backed by states--can use these weapons to 
frightening effect.
    Third, opponents and even hackers may try to target America's 
information infrastructure, which is increasingly central to the 
provision of finance, power, communications, transportation, public 
health, and indeed basic needs of our society. (Just consider the 
effects on parts of local Maryland and Virginia after the recent ice 
storm blacked out electricity services for a matter of days.)
    Although the United States dominates all others in its capability 
to use most of these weapons (except biological and chemical), 
potential opponents might prevail with so-called asymmetric strategies: 
achieving superiority in a particular locality or with particular 
weapons systems, even if only for a limited purpose or time. This 
superiority might place the United States in checkmate, preoccupy us, 
or raise the stakes of conflict to a point that America is fearful of 
action.
    To cope with these security challenges, given these developments in 
weaponry, the United States' defense strategy should concentrate on 
three core capabilities.
    First, the United States needs to be able to defend its homeland, 
including from missiles and catastrophic terrorism. Except for nuclear 
scenarios, the country has been fortunate not to have had to think 
about this topic for many years. If the United States does not have 
this defense, the fear of retaliation is likely to make the United 
States increasingly unwilling to project power to prevent or counter 
other threats. All potential enemies need to be reminded of the young 
United States' resolve: ``Don't tread on me.'' There are steps the 
country can take to limit the prospects of successful attack, which 
when combined with enormous retaliatory capabilities, will help deter 
potential opponents.
    Second, the United States needs modern and well-trained forces, in 
sufficient size, to project power rapidly to key regions of the world 
in the face of possible countermoves of opponents. The very existence 
of this capability will help America to deter challenges to vital and 
important interests; the United States wants to maintain enough 
superiority to dissuade potential rivals from even initiating a serious 
competition.
    Third, the United States should seek, over time, to transform its 
key alliance relations into stronger partnerships. Both our NATO and 
Pacific allies can be integrated to a much fuller degree to better 
address problems of weapons of mass destruction, missiles, terrorists, 
and other threats. In addition, the United States and its allies need a 
combined effort to maintain peace and stability in regions of 
traditional national interest.
    America should also promote its NATO allies' capability and will to 
handle local issues of conflict--for example in Bosnia and Kosovo. The 
United States will need the ability to act in concert with others on 
these and other contingencies--including operations providing 
humanitarian assistance, disaster relief, and peacekeeping--but these 
missions should not divert the country's preparations and resources 
from primary threats. Our alliance strategy must lead our partners to 
accept greater responsibility for these operations.
    At times, unilateral tactics will seem much more appealing than 
working and compromising in order to lead coalitions; indeed, in some 
cases, the United States will have to act alone. Yet the United States 
will not be able to deal with all--or even many--of tomorrow's 
challenges by itself. The United States should aim to extend its 
influence and strengthen its reach by drawing others to our standard.

                 C. The ``Defense Budget Train Wreck''

    The United States is on its way to a ``defense budget train 
wreck.'' One expert summarized the outlook as follows:

          We are trapped in a ``death spiral.'' The requirement to 
        maintain our aging equipment is costing us more each year * * * 
        But we must keep the equipment in repair to maintain readiness. 
        It drains * * * resources we should be applying to 
        modernization * * * So, we stretch out our replacement 
        schedules to ridiculous lengths and reduce the quantities of 
        the new equipment we purchase--raising their costs and still 
        further delaying modernization. Compounding this problem is the 
        increased operations tempo * * * which more rapidly wears out 
        the old equipment. And, if this weren't bad enough, we must 
        deal with the uncertainty of unanticipated crises such as the 
        Y2K computer problem * * *

    The rhetoric of ``death spiral'' is not from a hawkish critic of 
the administration; these are the observations, from August of last 
year, of Jacques Gansler, the Under Secretary of Defense for 
Acquisition & Technology, to the administration's own Defense Science 
Board.
    Last September, General Shelton, the Chairman of the Joint Chiefs, 
told the Congress:

          In my view, we have ``nosed over'' and our readiness is 
        descending. [W]e should apply corrective action now. We must 
        ``pull back on the stick'' and begin to climb before we find 
        ourselves in a nosedive that might cause irreparable damage * * 
        *

    Death Spiral. Nosedive. These are strong words. What is going on? 
After all, the administration's February 1998 budget request was 
designed to ensure the implementation of the administration's 1997 
Quadrennial Defense Review (QDR). The QDR plan and budget was supposed 
to ensure security well into the future based on annual budgets of 
about $260 billion (in constant FY99 dollars). The temperature of the 
Pentagon appears to have risen intensely between last February and 
August/September.
    I suspect that two factors contributed to the administration's 
recognition that its own QDR defense strategy was unsustainable under 
its own budget. First, the Pentagon realized that its earlier forecasts 
of costs for operations-maintenance and acquisition were unrealistic, a 
conclusion supported by 50 years of historical data on costs. Second, 
the administration had not been willing to make hard choices to limit 
the overall budget, and relied instead on ``savings'' from factors such 
as improved purchasing power because of falling inflation. The 
administration's most recent proposal for increased spending appears to 
repeat this technique by ``funding'' new expenditures through 
assumptions about lower inflation and declining oil prices.
    It is expensive to have large, ready, active, and deployed forces. 
It is unrealistic not to budget for operations like Iraq and Bosnia. If 
the U.S. security strategy is going to be viable, the funds need to 
match the plans.
    The point of these observations is not to criticize honorable 
public servants seeking to balance multiple concerns. After all, the 
Pentagon was willing to admit that the country faces a serious problem 
that no one likes to hear about. In assessing future defense needs, 
however, the lesson needs to be that we must examine budgetary 
components carefully to analyze the assumptions and possible 
disconnections among various interrelated items.
                        1. operations & support
    The primary budget item for the Department of Defense is Operations 
and Support (O&S). These funds pay for the salaries and benefits of all 
military and civilian personnel as well as the operation and 
maintenance of the Armed Forces and military installations. In FY 1998, 
this category accounted for 65 percent of the Department's budget and 
was expected to fall, under the Pentagon's 1998 plan, to 62% by FY 
2003. In fact, the newest Pentagon proposal would increase this 
percentage to 66% by FY 2004. Given the likelihood that O&S share will 
increase, not decrease, we must expect that these expenditures will 
crowd out investment, modernization, and procurement.
    After cutting back the size of forces to accord with the Bush 
administration's 1991 Base Force, the Clinton administration's two 
planning reviews (1993, 1997) led to relatively modest cuts in 
numbers--except for naval forces. Given the many demands on the U.S. 
military around the world--including a heightened optempo and extended 
deployments--the reluctance to cut personnel further is understandable. 
But then the budget must fund them.
    Moreover, for the past 40 years, the O&S costs have risen (on a per 
capita active-duty person basis) at an annual rate of 1.3 percent. In 
fact, the percentage growth rate increased slightly during the Clinton 
administration. Pay hikes and readiness increases will push it up 
further, as will the demands for maintaining older equipment, covering 
health care costs for an aging beneficiary profile, and performing new 
functions (e.g., drug interdiction, on-site nuclear inspection, 
environmental tasks).
                           2. infrastructure
    The reductions in the Pentagon's infrastructure--its base 
capacity--did not keep pace with the force structure changes made at 
the end of the cold war. In FY 1997, the Department's infrastructure 
base occupied roughly 40,000 square miles, an area the size of 
Virginia.
    Last year, the Pentagon estimated that it had excess base capacity 
of 23 percent at 259 major military installations. According to the 
Defense Department, this extra capacity would correspond to about 55 
additional military bases.
    The Congress is well aware of the sensitivity of base closings. The 
successful 1988 Base Realignment and Closure Commission spawned three 
more rounds, which unfortunately floundered when the Congress sensed 
that the administration's actions in 1995 and 1998 undermined the 
integrity and shared political burden of the process.
    Given the breakdown of this process, any new savings would be 
delayed until later years. It requires on average seven years from the 
time a decision is made to close a base until net savings are achieved. 
And while helpful, further reductions will not provide a ``magic 
bullet'' to save the other accounts.
                     3. pricing the defense budget
    As this Committee knows well, when government accountants cannot 
cut personnel and infrastructure, they will be especially inventive 
with pricing. This has been the case during the Clinton administration. 
Working from President Bush's January 1993 budget projections for FY 
1994-99, the Clinton administration has been able to ``save'' $119 
billion. It turns out that an estimated 92 percent ($109 billion) of 
those savings can be attributed to lower inflation, smaller pay raises, 
and positive economic and defense industry variables generally outside 
the ``control'' of Pentagon planners and budgeteers. I applaud saving 
money through lower costs. I question, however, whether we can 
reasonably expect more such ``savings'' in the future.
    If we cannot--if low inflation estimates ``straightlined'' into 
future operations and procurement plans do not hold--the current 
defense budget planning will be ``underpriced''. The Pentagon either 
will need more money or will have to cut back its plans for forces, 
operations, or procurement.
              4. from green to gray: old & aging hardware
    The last account in this budgetary summation is RDT&E (research, 
development, testing and evaluation) and procurement--the account that 
buys the equipment. It has not fared well.
    The United States military has been living off the assets it bought 
in the 1980s (or even earlier). The ``procurement holiday'' of the 
1990s will leave America with a bad hangover.
    Consider a few examples:
     The Air Force recently reported that the average age of 
all its aircraft will be 20 years in FY 2000, up from 13 years in FY 
1990. The average age is projected to rise to 28 years in FY 2010. (The 
QDR posited a ``steady-state'' average age of 15 years, an assumption 
clearly in trouble.)
     From FY 1990 to FY 2002, there will have been large 
increases (5 or more years) in the average age of strategic bombers 
(average age of 28 years in 2002), the Abrams main battle tank (15 
years), the Bradley fighting vehicle (14 years), and Apache helicopters 
(13 years).
     Of the ten major Pentagon weapons classes, seven will be 
near or well in excess of their estimated service half-lives in 2002.
    Moreover, in categories where the average age is forecast to 
increase, but less dramatically, the difference is usually due to 
cutting assets by removing the older ones; few new ones are added.
    At times in the past, other administrations also deferred defense 
expenditures, piling up problems for their successors. But the 
particular danger this time is that the vast majority of the existing 
military hardware will reach the end of its ``useful'' life almost at 
once--about 30 or more years after the start of the last modernization 
and procurement phase.
    The implications for this graying military are enormous. As Marine 
Corps Commandant Krulak stated before the Senate Armed Services 
Committee:

          Each successive year this equipment, much of which has 
        exceeded its projected service life, breaks down more often, 
        and must spend more time awaiting and undergoing repair. It is 
        lost to the unit for training. The associated maintenance costs 
        continue to rise * * * [W]e must take money from our 
        procurement, research and development, military construction 
        and quality of life accounts * * * In many cases we have passed 
        the point where this equipment has consumed more dollars * * * 
        than would be spent in procuring new equipment. Even within our 
        O&M accounts * * * money which would normally be dedicated to 
        training * * * is currently being spent to maintain this aging 
        equipment. It is a vicious cycle, and one that becomes 
        increasingly expensive to stop with time.

    One could add to this rueful account that the aging equipment has a 
higher incidence of failure or accidents and leaves less flexibility 
for operational planners who must prepare to adjust to unforeseen 
events. For example, the 1997 report of the National Research Council 
Committee on Aging of U.S. Air Force Aircraft expressed serious 
concerns about aircraft structural safety in the future.
    Those reports are based on real-life problems. Imagine that as you 
check in at an airport the airline announces that for the past six 
months your 27-year old plane has been flying at twice the FAA's 
recommended use rate--but that new aircraft are expected in 8 to 13 
years. That was what happened to a C-130 squadron in Germany in 1996-97 
after it had been employed continually in Bosnia and the Gulf; it had 
to be supplemented by a North Carolina squadron that was supposed to be 
available in the United States and devoted to fly the 82nd Airborne 
Division at a moment's notice.
    This budget strategy is leaving a dreadful legacy. When future 
defense officials are compelled to act to meet replacement or 
modernization needs, they are likely to choose equipment that can meet 
quick near-term necessities and be delivered quickly. They will have to 
continue to mortgage the future.
    Investment in new capabilities--for example those associated with 
RMA, missile defense, or other anti-proliferation strategies--is likely 
to be squeezed tightly.
                               5. in sum
    In sum, the U.S. defense budget has lived off past investments in 
equipment and borrowed from the future in a vain effort to keep up with 
present needs. As it has become increasingly clear that even these 
``future-is-now'' budgets could not fund present operations, the 
procurement and modernization account has received more and more IOUs. 
As these liabilities have grown, net worth has shrunk.
    Furthermore, the defense budget strategy has had little left to 
fund programs that the United States will need to remain the world's 
leading-edge force and to counter the threats in this new environment.
    The consequences of a persistent mismatch between plans and 
funding, as well as between operations and funding, will be serious. 
This path will compel America to choose between an obsolete force, 
unable to modernize itself to meet new threats safely, or a smaller 
military unable to meet U.S. obligations around the world. Even worse, 
the U.S. military could turn out to be both overstretched and out-of-
date.

                        D. A Suggested Approach

    It is imperative that the United States take a longer-term view 
about its defense strategy and budgetary planning. I recognize that 
this Committee faces many demands and is asked to treat numerous 
problems as ``top priority.'' If the United States assumes a near-
sighted posture toward its security, however, the type of threats and 
weapons we face today could overwhelm America's safety before the 
country could rely on its traditional resilience to catch up.
    Others may reasonably debate questions about the size of the 
defense shortfall and forecasts of costs and savings. You will hear 
different perspectives about whether the United States should invest in 
the RMA, and if so, how it should do so. Experts will also have various 
ideas about how to handle homeland defense under these new 
circumstances.
    The fundamental problem, however, cannot be avoided: The United 
States military has been both living off depreciating assets and taking 
from investments that are supposed to buy the means to protect the 
country in future. This is a failure of preparedness.
    I will close with eight suggestions to help remedy this troubling 
situation.
    First, to assist long-term planning, I suggest that the Executive 
and the Congress state a policy of devoting a minimum percentage of 
GDP--at least 3 percent--for defense over the next decade. I recognize 
that any such floor involves an element of arbitrariness. Nevertheless, 
given the critical modernization choices the country faces over the 
next ten years, such a figure would give important guidance for 
planning. This percentage would require the Pentagon to spend smarter, 
not just proceed with more of the same. It might also compel the 
Executive to weigh more carefully whether to commit the military to 
more current operations that will squeeze out modernization; if an 
administration wants more resources for smaller scale operations, it 
should make the case for them to the Congress so the money for them 
will be on top of the core security needs.
    In return for this long-term funding commitment, the administration 
should overhaul its QDR plan. The Pentagon's statements last year, and 
the administration's FY2000 budget request, are acknowledgements that 
the administration has been unable to fund its own defense plan. 
Piecemeal increases in funding run the risk of failing to remedy 
faulty, underlying assumptions. The mistaken assumptions are likely to 
lead to a continuing underestimation of demands for current spending, 
thereby creating an ongoing pressure to fund present needs out of 
resources that should be allocated to the future.
    Since the current defense budget is about 3 percent of GDP, my 
proposed minimum certainly is not excessive. Indeed, this is the lowest 
level since 1940, before we faced up to a different preparedness 
challenge. At some point, a policy of doing more with less just becomes 
doing less with less. We have reached that point.
    Second, as a general matter, the U.S. defense strategy should seek 
to align military strength with the nation's strengths: its technology 
and people. The United States should harness its skill at developing 
new technologies and, equally important, applying these technologies 
through superior doctrines, operational methods, platforms, and weapons 
systems. America must also draw on and sustain the high quality and 
professionalism of the all-volunteer force with its heavy emphasis on 
rigorous training and military education. The aim should be to have 
more teeth and less tail.
    Third, the United States should accelerate the acquisition of a 
``transformational'' RMA force, which will lead the way for a gradual 
recapitalization of the defense base and force structure that draws on 
these new capabilities. The U.S. military needs to have the ability to 
identify diverse types of targets with a variety of sophisticated 
sensors and then to destroy them with extreme precision from any number 
of platforms at long range. As a corollary, a fully integrated and 
networked RMA force can be smaller, quicker, and should need fewer 
sorties to destroy targets. It will not need the long time for building 
up forces which a shrewd foe, after observing Desert Storm, will 
prevent; it should be less dependent on distant bases that may not be 
available if enemies have missiles and weapons of mass destruction and 
terror.
    This transformation will take time. In many respects, the 
technology is the easy part. The challenge is its integration into new 
operational concepts, doctrines, organizational structures, and 
practice. In June 1940, the French army had more and better quality 
tanks then the Wehrmacht, but the panzer leaders knew how to use the 
blitzkrieg to overwhelm France within weeks.
    It is likely to take 10 to 15 years for the United States to retool 
its forces along these lines. (Consider that it took a decade or more 
for U.S. businesses to figure out how to integrate IT into their 
business processes effectively enough to really boost productivity.) In 
the meantime, the U.S. military will need many of the ships, planes, 
tanks, and other assets--plus trained troops--that have characterized 
U.S. might in past decades.
    Fourth, the United States will need to complement its ability to 
project power with a capability to defend America. The country should 
develop an end-to-end strategy to counter WMD-missile-IT threats, both 
to U.S. forces and the homeland. The comprehensive planning should 
include better intelligence systems, covert and special operations 
capabilities, prevention steps to lower the likelihood of penetration, 
preemptive options, counterforce capabilities, an integrated Theater 
Missile and National Missile Defense system, and nuclear deterrence. It 
needs to include a major research effort on WMD, especially related to 
biotechnology, genetic design, and computer viruses. As a country, we 
will also need to prepare to respond--psychologically and 
operationally--once a biological or nuclear weapon is used.
    Fifth, to achieve effective integration and to use limited 
resources more effectively, U.S. defense planning will need to become 
more ``joint''--throughout the development of strategy, plans, 
procurement, and budgets. Today, the military's regional commands are 
committed to joint operations, and there is an effort to match future 
forces to a ``Joint Vision 2010.'' But ``joint budgeting'' is still an 
experiment at best, and the services remain legally obligated and 
authorized to spend over 85 percent of the defense budget as they see 
fit.
    Given the budgetary limitations, the Pentagon must avoid the path 
of least resistance: letting each service develop large-ticket weapons 
systems independently, then imposing an across-the-board percentage cut 
when the Defense Department realizes that the systems are unaffordable. 
This route will produce a future military that is both smaller and only 
partly modernized.
    Given the uncertainty of and diversity in potential threats, the 
U.S. military will probably need fewer assets, but ones which can 
handle more missions. The strategic procurement goal should be a 
capability to draw on any weapon from any platform to support any 
unit--regardless of service or location. Whether a target--say 
artillery, a SAM or Scud site, or a terrorist unit or WMD facility--is 
identified by a satellite, airborne radar, or a Marine patrol, the 
United States should be able to destroy it with precise, highly 
destructive weapons from a submarine, arsenal ship, unmanned or 
standoff aircraft, or more agile armored vehicle.
    Sixth, the United States will need to get the most from each 
person. We need to recognize that a budget at a level of 3 percent of 
GDP would probably require a cut in the size of the overall force. (It 
would be more prudent, and in my view preferable, to devote more to 
defense to maintain force levels until the benefits of the move to RMA 
capabilities are clear, but if those expenditures cannot be made the 
force levels will need to reflect a balance among competing demands.)
    To support and complement the regulars, the United States will need 
to draw on National Guard and Reserve forces effectively, especially 
for homeland defense and smaller scale operations. (They will also need 
to be integrated with local, state, and federal law enforcement and 
civil disaster authorities to cope with the threat of catastrophic 
terrorism.) The Executive branch will need to recognize that extensive, 
frequent, and long deployments on peacekeeping, policing, and 
humanitarian missions are wearing down equipment, training, and 
ultimately people. Each mission may appear to be for a worthy cause, 
but at these budgetary levels, the U.S. military cannot do all of them 
and still be prepared for the future.
    If U.S. forces are reduced in size, each soldier, sailor, airman, 
and Marine will matter even more and deserves the proper pay and 
support. Pay should be targeted on officers, the senior enlisted ranks, 
and people with critical skills; career lengths, pension systems, and 
health care provisions will need to adjust as well. The 
administration's recent recommendations for compensation increases is 
an effort to address some of these needs.
    The administration needs to recognize, however, that the new 
compact with the military will need to involve more than money. Civil-
military relations will become more complex as even less of America has 
contact with its military. Especially in a world of frequent but often 
long-lasting peace operations, a volunteer military will need a balance 
of opportunities, rewards, and consideration for families along with 
the sacrifices.
    Seventh, it is important that the Executive and the Congress 
revisit the possibility of saving money by cutting infrastructure. I 
expect that to rebuild trust in a revived base closings process, the 
administration will need to demonstrate that it is willing to pay a 
fair share of the political costs of base closings and cuts in 
personnel.
    Eighth, the Pentagon will need to learn more from the private 
sector about cutting costs. Although the cost of civilian IT systems 
has fallen tremendously, the prices of analogous military IT systems 
have not. Like other professional organizations, the Defense Department 
must focus on its primary missions and outsource supporting activities. 
Outsourcing of a host of activities is critical to efficiency. For 
example, off-the-shelf software purchases may both save money and 
prepare the way for more rapid upgrades. Even many repair and 
maintenance tasks may be performed by contractors.
    At least in the area of IT--and perhaps with other leading edge 
technologies--the Pentagon should be able to leverage civilian 
commercial R&D. This represents a major shift in thinking from the era 
when the Pentagon's R&D led the civilian sector. The challenge, I 
suspect, will be to develop hybrid efforts that draw on civilian work 
while customizing for or focusing additional efforts on unique Pentagon 
needs.
    America has the best military in the world. It also has the 
greatest number of and hardest missions. Moreover, its unmatched power 
is based on equipment with finite life spans; at some point, the 
existing assets will need to be replaced.
    At times in the past, the United States, and other great powers, 
have taken their security for granted. We, and they, paid for hubris or 
complacency many times over. Some powers never recovered from their 
mistakes.
    After the Vietnam war, a group of reforming officers, trying to 
learn from the past, published a book titled America's First Battles. 
Each chapter describes a defeat, the American way of starting wars. The 
nature of war and weaponry today--combined with the present world of 
alliances, coalitions, and partnerships underpinned by the United 
States--no longer affords America the leeway to bounce back from early 
defeats.
    Having learned the lesson of America's First Battles, the U.S. 
military was prepared to win the Gulf war in its first campaign. But in 
the past, great military victories have made it hard for countries to 
shake self-satisfied attitudes and to prepare for the next challenge.
    Today, American's military is being run ragged in reactive 
operations of all types in all quarters of the globe. If the U.S. 
defense strategy and budget remains preoccupied with the current 
environment, the country will be risking the world's stability, its 
home territory and population, other vital interests, and the young men 
and women who put their lives on the line to safeguard their country. 
Most of all, it will be risking America's greatest cause: the future.
    I would be pleased to try to answer any questions.

    Mr. Chambliss. Gentlemen, again I thank you, both of you, 
for being here. And I am not going to keep you just to dialogue 
with me, but just a comment or two and a question or two.
    You know, General Electric Co. is one of the best-run 
companies in the United States of America, and if they need a 
new airplane they call up Cessna, they call up Gulfstream and 
say, ``I need me a new airplane. Be here next week. Make me a 
proposal.'' They come in, and they have an airplane with 90 to 
120 days.
    For us to get an airplane, it takes us 15 or 20 years, and 
there is absolutely nothing efficient about that, and I think, 
Dr. Krepinevich, you somewhat alluded to that in your comments 
there. You know, we are trying to make some improvements in 
acquisition that will hopefully help save some money down the 
road.
    Do either of you have any comment about what we are doing 
from the standpoint of acquisition or forms, or anything that 
we are not doing that you feel like we ought to be doing from 
an acquisition standpoint?
    Mr. Krepinevich. I would just say, Mr. Chairman, that 
given, as you mentioned, the length of time it takes to get new 
military systems into the inventory, and given what we know 
from history, it really does place a premium on what people in 
the business community call ``time-based competition.'' One way 
to deal with uncertainty is to build options, and to be able to 
execute them more quickly than your competitor, once the future 
becomes clear. General Estes, who recently retired as 
CINCSPACE, had a great way of putting it: ``It can't be that a 
President will come to one of my successors in 2012 and tell 
him or her that we need to be able to control space by 2016. If 
we are going to control space in 2016, we need to begin to 
think about and plan to develop the capability for that in 
1998.''
    Look at the transformation, for example, from a battleship 
Navy to a carrier Navy. We were still very much a battleship 
Navy going into World War II, but we had conducted 20 years of 
experiments with different kinds of carriers. We had actually 
built three different classes of carriers, but only four 
carriers in all. The Navy continued to build naval aircraft, 
but only in small numbers because the technology was moving so 
fast.
    And what they avoided doing was locking into rapidly 
changing technology before the threat emerged. Therefore, when 
the war began, our Navy had the industrial base in place to 
provide them with the capability, both in terms of ships and 
aircraft, they had a doctrine for how to fight, and they had an 
officer corps and sailors trained in how to operate carriers, 
how to launch aircraft off of carrier platforms, and how to 
recover aircraft on board. These are things that took the Navy 
20 years to develop.
    The issue is how do you prepare for future challenges? When 
I talk about our adversaries holding bases at risk, this is a 
demonstrated capability. Our ability to defeat that threat 
hasn't been demonstrated yet.
    In meeting the challenge we are giving our commanders very 
few tools to work with, when in fact we need to give them a 
wide range of tools to work through the problem.
    Take one option: Dr. Hamre has said that if we had a 
converted Trident submarine that could carry 150 cruise 
missiles, and launch all 150 within 6 minutes, we would not 
have lost the element of surprise in the Desert Fox operation. 
This is an option we didn't have. We have the option to convert 
these boats now. If we fail, it is an option we may not have in 
the future because people will say that it doesn't fit into the 
Navy's procurement plans right now; that there just isn't 
enough money to buy this sort of option.
    I am not an expert on the details of acquisition reform and 
what we can do to speed up the process. I will only observe 
that, in the past, whether it was the arsenal ship prototyping 
that was on a fast track, or the construction of the F-117 
aircraft which proceeded from initial negotiations to a 
prototype in about 4 years, we have demonstrated that we can 
develop new systems quickly. I think it is a matter of 
empowering the Defense Department to undertake, No. 1, this 
kind of development and, No. 2, to do it in a way that allows 
us to buy options.
    Mr. Zoellick. Mr. Chairman, since I don't consider myself 
an expert on procurement, I will just make a couple of brief 
points on this. I have served in the government, a number of 
departments, I have been in the private sector in a number of 
different capacities, and what always strikes me is that the 
Pentagon is basically a command form of economy that tries to 
operate in a market economy, and the disconnect is always 
striking.
    Now, it might have made sense in an era of particularly 
specialized purchases from a limited number of sellers, where 
the Pentagon and the defense establishment was often the leader 
in technology and had to be on the cutting edge. But I think 
with some of the changes that we have talked about, where the 
strength of the United States is to draw on the strength of the 
country, the strength of our military in information 
technology, I would strongly endorse the idea of trying to get 
the Pentagon to focus on its core missions and trying to see 
what could be outsourced and drawn from the private economy.
    And here let me talk about information technology in 
particular. Thirty years ago the Pentagon led the United States 
in many aspects of information technology. That is no longer 
true today, and I think there would be ample opportunities to 
draw on what is happening in the private sector in different 
types of information technology and to customize it as 
appropriate and probably save a significant sum of money.
    Now, to be fair to the Pentagon, they live in a world of 
regulations that were also developed for a different age and 
developed for a very important purpose, to save the taxpayers 
money. But I suspect that if we are going to give the Pentagon 
additional flexibility to not do pure specifications, allow the 
bids, monitor the bids, but actually engage with the private 
economy somewhat more, one might need to give them some 
flexibility and then perhaps do it in an experimental fashion, 
and where one might audit it in that degree.
    So I think part of this will have to come from the side of 
the Congress and those who justifiably want to be concerned 
about how the Pentagon spends its money because, as you know 
from your experience, if an institution just becomes defensive 
and worried about the auditor, then it is less likely to be 
flexible in changing methods, and I think it will have to 
change methods to get the advantage of the full scope of 
developments in the private economy.
    Mr. Chambliss. With respect to base closure, I think you 
all were probably sitting here when I asked Dr. Hamre about 
whether or not that $5 billion he keeps referring to is 
realistic, and I assume you all maybe have seen those numbers 
also. I frankly am a little bit concerned about that. I don't 
know whether we are really saving that money or not.
    Do either of you have a thought on whether or not that 
number is correct, if we really are saving any money, and 
whether or not any kind of independent audit would be 
advantageous to us to think in terms of?
    Mr. Krepinevich. My understanding, Mr. Chairman, is that 
the estimates are derived based on numerous assumptions about 
what is included and how you cost out the various assumed 
savings. Beyond that, I am not an expert in any great detail. 
An outside audit would be helpful to at least give transparency 
to the assumptions that were made, with respect to how the 
savings are generated.
    Mr. Zoellick. Mr. Chairman, in the course of preparing for 
my testimony, I looked into some of these, and some of my facts 
are in my full written statement. I was struck that the land 
under Defense Department control is roughly the size of the 
State of Virginia, my State where I now live, and that is a 
healthy piece of territory. As you probably know, the Defense 
Department estimates that they have about 23 percent 
overcapacity in bases, works out to about 55 bases.
    I think the important point here in the base closing area 
is that--you would know this better than I would--that the 
process broke down because the very important political 
arrangement that had been struck between the executive and the 
legislative, which we all know is critical to make this go 
forward, eroded because the executive was seen as trying to 
slant things in their own direction in the case of some 
particular bases. I think that was a real tragedy.
    And to come to your point, I think if the administration 
would like to go forward with this again, people like Senator 
McCain, who I worked with on things, wants to go forward with 
it again, anything that gives the Congress some additional 
confidence on the benefits of this, an extra form of audit, is 
worth it, whether you have money to put into it, because I am 
afraid the process broke down for political reasons. To get 
that restarted, we are going to have to get all sides 
comfortable there is a merit.
    The problem, from again the analysis I have looked at, is 
that the payoffs tend to be over 5 or 6 or 7 years and often 
there is an initial cost, and so that also makes it harder for 
anyone making the decision. I do feel that we are going to need 
to cut infrastructure if we are going to be able to pay for 
these other things that we are asking to pay, and I think it 
will involve the executive and the legislative rebuilding that 
confidence, and if that audit is a way to do it, you know, I 
would highly recommend it.
    Mr. Chambliss. Well, gentlemen, again I thank you for being 
here. Thank you for your patience this morning, and we have 
your full written statements in the record, and we appreciate 
your comments. Thank you. Thank you very much for coming.
    Mr. Zoellick. Thank you.
    Mr. Krepinevich. Thank you, Mr. Chairman.
    Mr. Chambliss. We will stand adjourned.
    [Whereupon, at 2:03 p.m., the committee was adjourned.]

                                
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