[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



                         DEPARTMENT OF DEFENSE
                   FISCAL YEAR 2003 BUDGET PRIORITIES

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

                                HEARING

                               before the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

           HEARING HELD IN WASHINGTON, DC, FEBRUARY 12, 2002

                               __________

                           Serial No. 107-23

                               __________

           Printed for the use of the Committee on the Budget


  Available on the Internet: http://www.access.gpo.gov/congress/house/
                              house04.html


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                        COMMITTEE ON THE BUDGET

                       JIM NUSSLE, Iowa, Chairman
JOHN E. SUNUNU, New Hampshire        JOHN M. SPRATT, Jr., South 
  Vice Chairman                          Carolina,
PETER HOEKSTRA, Michigan               Ranking Minority Member
  Vice Chairman                      JIM McDERMOTT, Washington
CHARLES F. BASS, New Hampshire       BENNIE G. THOMPSON, Mississippi
GIL GUTKNECHT, Minnesota             KEN BENTSEN, Texas
VAN HILLEARY, Tennessee              JIM DAVIS, Florida
MAC THORNBERRY, Texas                EVA M. CLAYTON, North Carolina
JIM RYUN, Kansas                     DAVID E. PRICE, North Carolina
MAC COLLINS, Georgia                 GERALD D. KLECZKA, Wisconsin
ERNIE FLETCHER, Kentucky             BOB CLEMENT, Tennessee
GARY G. MILLER, California           JAMES P. MORAN, Virginia
PAT TOOMEY, Pennsylvania             DARLENE HOOLEY, Oregon
WES WATKINS, Oklahoma                TAMMY BALDWIN, Wisconsin
DOC HASTINGS, Washington             CAROLYN McCARTHY, New York
JOHN T. DOOLITTLE, California        DENNIS MOORE, Kansas
ROB PORTMAN, Ohio                    MICHAEL E. CAPUANO, Massachusetts
RAY LaHOOD, Illinois                 MICHAEL M. HONDA, California
KAY GRANGER, Texas                   JOSEPH M. HOEFFEL III, 
EDWARD SCHROCK, Virginia                 Pennsylvania
JOHN CULBERSON, Texas                RUSH D. HOLT, New Jersey
HENRY E. BROWN, Jr., South Carolina  JIM MATHESON, Utah
ANDER CRENSHAW, Florida
ADAM PUTNAM, Florida
MARK KIRK, Illinois

                           Professional Staff

                       Rich Meade, Chief of Staff
       Thomas S. Kahn, Minority Staff Director and Chief Counsel

                            C O N T E N T S

                                                                   Page
Hearing held in Washington, DC, February 12, 2002................     1
Statement of:
    Hon. Paul Wolfowitz, Deputy Secretary, U.S. Department of 
      Defense....................................................     8
    Lawrence Korb, Vice President and Director of Studies, 
      Council on
      Foreign Relations..........................................    48
Prepared statements and additional submissions of:
    Chairman Jim Nussle, a Representative in Congress from the 
      State of Iowa..............................................     7
    Secretary Wolfowitz:
        Prepared statement.......................................    15
        Response to Mr. Nussle's question regarding war funding..    24
        Fiscal year 2003 DOD budget chart, as requested by Mr. 
          Thornberry.............................................    30
        Responses to Mr. Collins' questions regarding:
            U.S. Army South......................................    38
            Army Maneuver Center.................................    38
    Hon. Dov S. Zakheim's, Under Secretary of Defense 
      (Comptroller), response to Mr. Collins' question regarding 
      the GAO report.............................................    39
    Mr. Korb.....................................................    49

 
      DEPARTMENT OF DEFENSE BUDGET PRIORITIES FOR FISCAL YEAR 2003

                              ----------                              


                       TUESDAY, FEBRUARY 12, 2002

                          House of Representatives,
                                   Committee on the Budget,
                                                    Washington, DC.
    The committee met, pursuant to call, at 2 p.m. in room 210, 
Cannon House Office Building, Hon. Jim Nussle (chairman of the 
committee) presiding.
    Members present: Representatives Nussle, Gutknecht, 
Thornberry, Collins, Fletcher, Watkins, Schrock, Culberson, 
Brown, Kirk, Spratt, Davis, Clayton, Price, Moran, McCarthy, 
and Moore.
    Chairman Nussle. The House Budget Committee will come to 
order. Today we have a full committee hearing on the 
President's budget for the Department of Defense for fiscal 
year 2003. Today's hearing will examine the Defense 
Department's budget request. Our witnesses will be the 
Honorable Paul Wolfowitz, Deputy Secretary of Defense, who has 
appeared before this committee before. We welcome him back. 
Accompanying Secretary Wolfowitz today will be Dov Zakheim. Am 
I pronouncing that correctly?
    Mr. Zakheim. Close enough for government work. It is 
Zakheim.
    Chairman Nussle. The Under Secretary of Defense and the 
chief financial officer. Also appearing today will be Lawrence 
Korb, who is the vice president and director of studies at the 
Council on Foreign Relations. He was assistant Secretary of 
Defense for Manpower Reserve Affairs, Installations and 
Logistics from 1981 to 1985. We welcome all of our witnesses 
here today. We also welcome Pete Geren, a former Member and 
colleague to the Budget Committee, in his new role as well.
    The United States is obviously at war, and therefore we 
should have no doubt that we have been presented with a wartime 
budget by the President of the United States. Providing for the 
common defense is our first constitutional responsibility, even 
in times of peace, and it is all that much more urgent now that 
our country has suffered an attack of unprecedented scale on 
innocent civilians. Let no one doubt that we are prepared to do 
whatever it takes, and yes, spend whatever it takes in order to 
prevail. The task is made more difficult, however, by the 
recession. The economic downturn and the war coming at the same 
time mean a temporary return to red ink.
    But as the President has said, there are only three reasons 
why the Federal Government should ever go into deficit: a 
national emergency, a recession, and a war. And now, of course, 
we have that as a trifecta. While that may force us into 
temporary deficits, there will be a plan to get us back on 
track in paying down the debt as soon as possible. Accordingly, 
the administration has submitted a defense budget that, if 
enacted, would be the largest 1-year increase in two decades. 
Given the war that this country faces, those increases strike 
many of us as entirely appropriate. But it is equally 
appropriate to examine the budget request in light of three 
principles: First, setting aside all abstract theorizing about 
how--quote, unquote--``big'' the Pentagon budget ought to be. 
The real question ought to be, does the budget do the job? Does 
it have the right mix of programs to move the Department away 
from the legacy of the cold war and effectively prosecute this 
current cold war on terrorism? Second, and I think a related 
question this committee must decide, whether the administration 
has made the right trade-offs in setting priorities between the 
Department of Defense and other domestic agencies concerned 
with the security of our homeland.
    It is appropriate for the Pentagon to have a strategy 
requiring nearly 100,000 troops, but should they be garrisoned 
in Europe while border patrol is lucky to get 700 more agents 
to patrol thousands of miles of our border? That is a good 
question. I say not to be critical of the Defense Department 
budget, but to raise the question about the new reality of 
terrorist warfare. September 11 showed us that our homeland is 
no longer a sanctuary. Accordingly, we need to make sure that 
the Pentagon adapts fully to the needs of homeland security in 
this new century.
    Finally, the third principle, the administration has placed 
a strong emphasis on management reform throughout the 
government. We need to assure those reforms are taking place at 
the Department of Defense. Some may say that efficient 
management is a minor concern during wartime. But even during 
World War II, the most terrible war of our history, then-
Senator Harry Truman chaired a committee that ferreted out 
inefficiencies in the defense establishment and saw to it that 
the system responded.
    Secretary Rumsfeld himself has frequently commented on the 
need for reform. He has said, and I quote, ``waste drains 
resources from training and tanks, from infrastructure and 
intelligence and from helicopters and housing. We must change 
for a simple reason--the world has--and we have not yet changed 
sufficiently.''
    That said, I want to repeat my assurance that this 
committee and the Congress will do everything in its power to 
assure that the men and women of our Armed Forces will receive 
the tools and the training they need to defeat terrorism and to 
assure the safety of this Nation. I look forward to the 
testimony of our witnesses. I welcome them back to the 
committee, and turn now to my friend, John Spratt, for any 
opening comments he would like to make.
    Mr. Spratt. Mr. Chairman, thank you very much. And I join 
you in welcoming our two distinguished witnesses, the Deputy 
Secretary of Defense, Paul Wolfowitz, and the Department of 
Defense comptroller, the Under Secretary, Dov Zakheim. We are 
pleased that you would come and testify today. I am going to 
put some questions to you at some length in the opening 
statement, which I hope you will address and I hope you will 
take them in the right vein. They are made in all respect, but 
frankly when we have an agency that has a 10-year budget of 
$4.5 trillion and they come and ask for $600 billion more, we 
think we have a duty to ask for justification and seek the 
reasons for it. It is part of our job.
    We also look forward to the testimony of the former 
Assistant Secretary of Defense in the Reagan administration, 
Larry Korb, who, after the testimony of Mr. Wolfowitz and Mr. 
Zakheim, will testify himself as to his views on the defense 
budget.
    Mr. Wolfowitz when you came here last July, you argued that 
DOD should get a normative share of the budget of about 3.5 
percent of GDP. This year you got your wish, though I doubt it 
is for the reasons that you wanted when you were here last 
July. It is for what has happened in the interim. Your request 
this year by our calculations is about $379 billion. That 
represents about 3\1/2\ percent of GDP. Unfortunately one 
reason the Department's budget is 3\1/2\ percent of GDP is that 
GDP has gone down while DOD has gone up.
    Last year, the Congressional Budget Office forecasted that 
in 2003, we would have a GDP that is actually $587 billion more 
than we will actually have now according to their latest 
forecast. That is what happens when you have a recession. If 
the economy stayed on track, DOD's share of the total GDP now 
would just be 3.3 percent.
    I mention all that because I think it is important to keep 
in mind that our economy is a powerful instrument of national 
defense. It is one of the first instruments of national 
defense. Without a strong economy founded on a strong fiscal 
policy, it is hard to maintain a strong national defense. That 
is why the chairman said we need to have a plan for the budget 
to recover when the economy recovers, so we can put the budget 
back on track and begin saving the Social Security surpluses 
that we planned just a year ago or just as recently as last 
July when you were last here.
    Since you were here in July, a lot has changed. We are 
waging a war on terrorism. I join the chairman and I assure you 
as a Democrat, when it comes to this war and homeland security, 
you can count on bipartisan support on this committee and other 
committees and in the Congress as a whole. As I look through 
your budget, though, I was a little surprised to see that these 
activities, homeland security and war on terrorism take up a 
smaller wedge than I would have guessed if the question were 
put to me. About 10 percent of the total request is for 
homeland security and the war on terrorism.
    Much of the funding that you are seeking, as we understand 
the budget for 2003 and beyond, isn't really linked to the war 
on terrorism or homeland security--not directly anyway. 
Defense, to begin with, takes a steep upward path over the next 
10 years, partly because of some arcane accrual accounting 
changes, some of which were mandated by Congress in TRICARE for 
Life, some of which you proposed yourself for the treatment of 
our defense personnel costs.
    But even if these accounting changes are netted out, the 
2003 budget is larger than the average DOD budget during any 
cold war decade, except for the 1980's. I put this chart up 
here because I was surprised to see it myself. Hugh Brady 
prepared the chart and went back and got the numbers. We are 
using constant 2002 dollars. As you will see, the 2003 budget 
in 2002 constant dollars is $365 billion. That is more than any 
decade except the decade of the 1980's when we averaged about 
$395 billion in constant 2002 money--365 billion. That gives 
you a relative historical profile of how substantial this 
particular budget is. And that nets out--incidentally, the 
nonprogrammatic changes, the accrual changes and things like 
that.
    The budget I am referring to is a budget for the Department 
of Defense solely, not the budget that we deal with for 
defense, which is function 050, the full defense budget that 
includes principally the Department of Energy. If you add all 
of the extra elements that go into function 050, the budget 
comes up to $396.8 billion. If we rummage through the budget 
for all the other accounts that relate to defense--function 550 
for example--where we have shifted the TRICARE for Life health 
care costs, taking it out of the discretionary money in DOD and 
put it in a mandatory program unconnected with DOD--when you 
add all that together and throw in the Veterans' 
Administration, those costs in the budget annually which are 
directly related to national defense, come to about $495.5 
billion. That is about 25 percent of all Federal spending 
except for interest.
    So we are talking a lot of money, 4\1/2\ percent of GDP. 
And that is why what we are doing is very, very important. Any 
way you count it, the request for defense adds up to a 
substantial sum. And yet when we go to the full structure that 
you propose to maintain, this may surprise some, but the force 
structure in your QDR. The Quadrennial Defense Review is about 
the same as the force structure that the Clinton administration 
proposed. The chart is up there now. You will see that it shows 
scarcely any difference for the essential force structure, 10 
Army divisions, active, 8 reserve, and 11 carrier wings. It is 
basically the same force structure.
    Now you have added an additional element which will be 
quite substantial and significant over time, and that is 
ballistic missile defense, which is not broken out here 
separately. CBO has just finished a study analyzing the cost of 
different components in a layered missile defense system, and 
they found that in 2001 constant dollars, a ground-based 
intercept would cost 23 to $64 billion; a sea-based intercept 
system would cost 43 to $54 billion, and a constellation of 24 
space-based lasers would cost 56 to $68 billion. That is a 
recent study by CBO.
    The budget detail we have so far doesn't indicate how much 
of these costs are comprehended in this budget--this 10-year 
budget. But I have a strong impression that it is only a 
fraction, which to me begs the question, can we build two mid-
course interceptors, a ground-base system and a ship-based 
system, and at the same time build a boost phase interceptor 
within this budget that you have laid before us, without making 
major trade-offs such as Navy surface ships?
    We are not facing the situation we faced in the 1980's when 
we had massive Soviet forces poised at the folder gap ready to 
drive through there at any provocation. But ironically, the 
defense budget that you have submitted presents us with about 
the same sized budget, even though the threat has changed 
dramatically from a symmetric threat where we are concerned 
about balance of forces at a very high level to an asymmetric 
threat.
    Now don't get me wrong. I am not passing judgment on these 
numbers. I support much of what you are seeking, but I do 
think, as I said, we have a duty to examine carefully this 
request because of its enormous impact on the budget over the 
next 10 years. Let me direct your attention to a table that 
overlays the 10-year defense plan on the CBO base line for 
defense. This chart summarizes the results. You can see 
basically what the DOD increase is, what the extra increase in 
interest will be as a result of adding that to the budget over 
and above the CBO base line, which is the current services base 
line and the impact on the budget over 10 years, is $645.2--a 
lot of money. It involves necessarily trade-offs. One of the 
trade-offs is probably Medicare prescription drugs.
    So, as an opportunity cost and real dollar cost by any 
measurement, this is a lot of bucks. Your defense plan has been 
adjusted to back out the accrual accounting changes. This is a 
ballpark estimate, but there will be some minor differences. 
Basically, we got about a $645 billion request here that has to 
be accommodated with a lot of other interests and a lot of 
other needs of this country. Now, if we go down this path, I 
have to wonder if this is a sustainable fiscal course if we 
can, indeed, sustain this level of spending for a 10-year 
period of time.
    There is not much question about next year's request given 
the circumstances we are in. Everybody feels the urgency of the 
situation, the compelling nature of the threat we are facing 
right now. But looking out 10 years, I have to ask, is this a 
sustainable budget proposal?
    When the Bush administration came to office, it had what 
appeared to be the most advantageous fiscal situation of any 
administration in recent times. Surpluses are stretched out for 
10 years and increased every year. No administration in recent 
history has ever come to office with that kind of fiscal 
advantage. Those surpluses are now virtually all but gone, and 
we seem doomed to deficit for years to come. There is no doubt 
about it, we are wholly unprepared for 77 million baby boomers 
who are going to start drawing their Social Security as soon as 
2008.
    Let me say again, we stand behind the President and we 
stand behind you when it comes to funding the war on terrorism 
and homeland security, but this is a small share of the DOD 
budget. Last year when you were here and we were still trying 
to fit $18.4 billion in the budget and worried about the 
downstream consequences of that, and I asked you how are we 
going to do this without invading Social Security? And your 
answer was, and I am quoting, ``we think we should be able to 
find significant savings.''
    I have looked through the budget to the extent that we can 
with the detail we have got, and I don't find a lot of evidence 
of significant savings. The Navy's area ballistic missile 
defense system is cancelled, but the mission hasn't gone away 
and aerial defense will come back up, I firmly believe, in 
another form. The DD-21 seems to have been cancelled, but 
sooner or later, we'll have to build a replacement destroyer. 
As large as your budget is, too, I think you would admit that 
it underfunds Navy procurement for the surface ship Navy, and 
sooner or later we will have to address that need and add on to 
what you are requesting here. The Army legacy programs have 
been cancelled. I am not really sure what they all are, but 
they don't amount to a lot in a $380 billion budget.
    I turn to the strategic nuclear account. You would expect 
significant savings there in light of the change in the cold 
war. The peacekeeping is being required, but there aren't big 
savings there either. So I hope in your testimony you can point 
to significant savings that indicate there has been a real 
scrub-down of the budget, try to husband all the resources you 
can before asking for big increases. If this administration has 
a theme to national defense, it is transformation. And part of 
the promise of transformation, is that with stealth and 
digitization and all these modern technological miracles, we 
can buy more tooth and less tail. As somebody said, we can ship 
money from the bureaucracy to the battlefield. And I know that 
this won't take place over night.
    I know that the cost at the front end is going to be higher 
in the hopes that the costs at the far end can be lower. We can 
achieve some savings. I would think, though, if we have really 
got transformation built into this budget, that by the 10th 
year, the 9th to 10th year, we begin to see some savings in 
transformation. I can't discern those savings in this budget as 
I look at it. For example, if we were really in earnest about 
transformation, technological change, then it ought to show up, 
it seems to me, in the science and technology accounts, in the 
R&D budgets of the four different services.
    But when I look in the science and tech accounts, I find 
that though there is a $5 billion increase in research and 
development, the S&T accounts are frozen at $9.9 billion. And 
when you back out the increase for biochemicals, which I think 
we need to spend, there is $300 million less next year than 
this year in science and technology. That is, not to me, the 
earmarks of a transformation budget. As I said, this budget is 
large by historic standards. And it is also large in comparison 
to other nations of the world. I want to show you a simple 
chart here. We spent $295 billion in 2000 on national defense. 
Our allies, 15 different industrialized nations--that is the 
industrialized countries of the world, really, except for 
Russia and China, our allies, NATO, all of Europe, Japan, South 
Korea--spent $226.9, and I don't believe that. I don't think 
they effectively are spending that much money. But I would 
think in looking through a budget like this in the world we 
have got today. Wse all should be looking for burden-sharing 
opportunities for new ways to divide the burden of labor and 
defending the world and getting our allies to do more of what 
we have done.
    We are seeing in Afghanistan that the wedge or gap between 
us and them is getting wider and wider and wider, to the point 
where we may not be able to form a field of comparable forces. 
Another concern, Mr. Zakheim, is that this is a big budget, but 
you have got some big projects about to come to fruition, some 
of which are going to be devilishly difficult to bring in on 
cost. The JSF would probably be the first on my list, you still 
got the F-22, the V-22, the Comanche, the Crusader.
    I read yesterday in a wire release that--and I haven't seen 
much else--but it indicated that since 2001, we have seen a 
$105 billion increase in the 22 major weapon programs now in 
advanced development or procurement; 105 billion since 2001. If 
we have similar escalation throughout this 10-year period of 
time, this budget won't begin to buy what you want. So we would 
like your assurance that we can get a grip on the cost of these 
systems, that you have got new management systems that can make 
sure that we can bring them on cost, on spec and on schedule so 
that the money we put up can indeed buy the systems that we are 
seeking.
    Let me finally say that what concerns me most about this 
budget is not the money you request. I understand the need. It 
is not the systems you want. I understand them. It is certainly 
not the personnel pay raise. I wholly support that. I had my 
differences here and there. We have had differences in 
ballistic missile defense. And I support most of this request. 
What concerns me, and I think should concern Congress and this 
committee, is that the increases you seek will not just come 
from taxpayers' money, they will come from trust fund money. 
They will come from payroll taxes that workers have hard-earned 
and paid to the government expecting that they will support 
their retirement system in the future. I understand the need to 
do that in the short run when you have a recession or a war or 
a national emergency, but we are looking at a 10-year budget. 
This is the additional impact of this 10-year budget on the 
deficit or surpluses that may be in those particular years and 
most of those years is an on budget deficit. That means the 
additional impact, the increase alone, will have on the 
invasion of Social Security. I think it is fair to ask--I can 
support the whole amount of your request, but still fairly ask 
should we be paying for this out of the Social Security trust 
fund?
    I put all these questions out to you, but these are the 
kinds of questions that concern me as we move with this largest 
increase in the defense budget in the years that I have been 
Congress. I look forward to your testimony and thank you again 
for coming.
    [The prepared statement of Chairman Nussle follows:]

Prepared Statement of Hon. Jim Nussle, Chairman, House Committee on the 
                                 Budget

    Today's hearing will examine the Department of Defense budget 
request for fiscal year 2003. Our witness will be the Honorable Paul D. 
Wolfowitz, Deputy Secretary of Defense. Appearing with Secretary 
Wolfowitz will be Dov Zakheim, the Under Secretary of Defense and Chief 
Financial Officer. Also appearing will be Lawrence J. Korb, who is Vice 
President and Director of Studies at the Council on Foreign Relations. 
He was Assistant Secretary of Defense for Manpower, Reserve Affairs, 
Installations and Logistics from 1981 to 1985.
    The United States is at war, and therefore, we should have no doubt 
that we have been presented with a war-time budget. Providing for the 
common defense is our first constitutional responsibility even in times 
of peace; it is all the more urgent now that our country has suffered 
an attack of unprecedented scale on innocent civilians. Let no one 
doubt that we are prepared to do whatever it takes, and yes, spend 
whatever it takes in order to prevail.
    The task is made more difficult, however, by the recession. The 
economic downturn and the war coming at the same time mean a temporary 
return to red ink. But, as the President has said, there are three 
reasons the Federal Government should ever go into a deficit: a 
national emergency, a recession, and a war. Now we have all three. And 
while that may force us into temporary deficits, there will be a plan 
to get us back on track and paying down the debt.
    Accordingly, the administration has submitted a defense budget 
that, if enacted, would be the largest 1-year increase in two decades. 
Given the war this country faces, that increase strikes many of us an 
entirely appropriate. But it is equally appropriate to examine the 
budget request in the light of three principles:
    First, setting aside all abstract theorizing about how ``big'' the 
Pentagon budget ought to be, does this budget do the job? Does it have 
the right mix of programs to move the Department away from the legacy 
of the cold war and effectively prosecute the war on terrorism?
    Second, and a related question, this Committee must decide whether 
the administration has made the right trade-offs in setting priorities 
between the Department of Defense and other domestic agencies concerned 
with homeland security. Is it appropriate for the Pentagon to have a 
strategy requiring nearly 100,000 troops to be garrisoned in Europe 
while the Border Patrol is lucky to get 700 more agents to patrol 
thousands of miles of our border? I say this not to be critical, but to 
raise discussion about the new realities of terrorist warfare. 
September 11 showed that our own homeland is no longer a sanctuary; 
accordingly, we need to be sure that the Pentagon adapts fully to the 
needs of homeland security in this new century.
    Finally, the administration has placed a strong emphasis on 
management reform throughout government. We need assurance that those 
reforms are taking place in DOD. Some may say that efficient management 
is a minor concern during wartime. But even during World War II, the 
most terrible war in history, then-Senator Harry Truman chaired a 
committee that ferreted out inefficiencies in the defense establishment 
and saw to it that the system responded. Secretary Rumsfeld himself has 
frequently commented on the need for reform. He has said, and I quote: 
``Waste drains resources from training and tanks, from infrastructure 
and intelligence, from helicopters and housing * * * We must change for 
a simple reason: the world has, and we have not yet changed 
sufficiently.''
    That said, I want to repeat my assurance that this Committee will 
do everything in its power to assure that the men and women of our 
armed forces will receive the tools and the training they need to 
defeat terrorism and assure the safety of this nation. I look forward 
to the testimony from our witnesses.

    STATEMENTS OF HON. PAUL D. WOLFOWITZ, DEPUTY SECRETARY, 
  DEPARTMENT OF DEFENSE; ACCOMPANIED BY DOV S. ZAKHEIM, UNDER 
SECRETARY OF DEFENSE (COMPTROLLER); AND LAWRENCE J. KORB, VICE 
   PRESIDENT AND DIRECTOR, STUDIES AT THE COUNCIL ON FOREIGN 
                           RELATIONS

    Chairman Nussle. Welcome, Mr. Secretary. We will accept 
your testimony at this point, your entire testimony as 
submitted will be part of the record and you may proceed as you 
wish. And without objection, all members will have 7 days to 
submit a written statement for the record at this point as 
well. Mr. Secretary, welcome.

                 STATEMENT OF PAUL D. WOLFOWITZ

    Mr. Wolfowitz. Thank you Mr. Chairman, Congressman Spratt, 
members of the committee. Given the many difficult choices that 
you are faced with in this budget year, I appreciate the 
opportunity to return to this committee to testify in support 
of the 2003 defense request. Since we met last summer, of 
course a great deal has changed. I look forward to addressing 
some of these changes with you. The greatest and the gravest 
change was brought about by September 11, a day that changed 
our Nation forever. September 11 has taught us once again, that 
when it comes to America's defense, we must spend what is 
necessary to protect our freedom, our security, and our 
prosperity, not just for this generation, but to preserve peace 
and security for our children and our grandchildren.
    Today we are engaged in the enormous task of fighting a 
global war on terrorism. As difficult as it is to think at the 
same time about other challenges in the middle of waging this 
war, we must think beyond our current effort if we are to face 
the security challenges and conflicts that are certain to come 
throughout this coming century. The 2003 defense budget request 
meets the challenges of the current campaign as well as other 
priorities that are essential to assuring that America's Armed 
Forces can manage the threats and challenges of the future.
    When the cold war ended, the United States began a very 
substantial drawdown of our defense forces and our budgets. We 
cashed a large peace dividend, lowering the level of our 
defense burden by half from the cold war peak, lowering the 
total size of our defense establishment by almost that much. 
Much of that reduction was an appropriate adjustment to the 
great improvement in our security resulting from the end of the 
cold war.
    That drawdown, however, ultimately went too far. While our 
commitments around the world in many places stayed the same and 
even grew in some cases, our country spent much of the 1990's 
living off of investments made during the cold war, 
particularly in the 1980's instead of making new investments to 
address the threats of this new century. As I discussed with 
this committee last year, even before September 11, we faced an 
urgent need to replenish critical accounts. After September 11, 
we find ourselves facing the additional challenges of 
accomplishing three significant missions at the same time. 
First, to win the global war on terrorism; second, to restore 
capabilities by making investments and procurement, people, and 
modernization; and third, to prepare for the future by 
transforming our forces for the 21 century. We can only 
accomplish those three missions with proper investments over a 
sustained period.
    And we must do so, Mr. Chairman and members of the 
committee, in an environment of rising costs, costs that rise 
particularly for that element of the force, our people, which 
is perhaps--which is most critical for our success. I will come 
back to this later, but I believe many of--forgive me, to my 
mind, not very relevant comparison to what we were spending in 
the 1970's, the differences have to do with these great 
increases in what we have to pay our people. If we don't pay 
our people properly, we are going to lose that element of the 
force that is critical, and it is not just a matter of pay, it 
is health care, it is housing, it is taking care of them in 
many ways.
    The 2003 budget must pay bills in those categories 
including retiree health care and pay raises. It comes to an 
increase of $14.1 billion. Inflation comes to a total of $6.7 
billion, and allowing for what we believe is more realistic 
costing of systems than we did in the past, another $7.4 
billion. Added to the $19.4 billion that is included for the 
war on terrorism, those bills come to some $47.6 billion. That 
is why President Bush sent to Congress a 2003 defense budget 
request of $379 billion, a $48 billion increase from the 2002 
budget and the largest increase since the early 1990's. Our 
2003 budget request was guided by the results of last year's 
strategy review and the Quadrennial Defense Review.
    Both of these were the products of an unprecedented degree 
of very intense debate among the senior leaders of the 
Department. I think it came to some very important conclusions, 
and I would say that our conclusions did not go unnoticed. One 
foreign observer wrote that the QDR contains, ``the most 
profound implications of the four major defense reviews 
conducted since the end of the cold war.''
    What is compelling about that analysis is that it appeared 
in a Chinese journal. That Chinese observer thinks the QDR 
conclusions are important as a blueprint for where the United 
States is going from here, and we think it is also. My 
statement today will focus on how the President's budget meets 
this blueprint shaped by the needs of the environment we face 
today.
    Among the new directions said in the QDR, I would single 
out as three particularly important. First, we decided to move 
away from the two major theater war force sizing construct to a 
new approach that places greater emphasis on deterrence in four 
critical theatres backed by the ability to swiftly defeat two 
aggressors at the same time while reducing the option for major 
offensive to one major offensive that would give us the option 
to occupy an aggressor's capitol and replace its regime. We 
believe that by doing so, we provide some flexibility for 
resources that permit us to meet various lesser contingencies 
and also to be able to invest more for the future. Second, to 
confront the world mark by surprise and substantial 
uncertainty. And certainly, September 11 brought home that that 
is the world we live in.
    We agreed even before September 11 that we needed to shift 
our planning from a threat-based model that guided our thinking 
in the past, to a capabilities-based model for the future. We 
don't know who may threaten us or when or where, but we do have 
some sense of what they may threaten us with and how, and we 
also have a sense of what capabilities can provide us important 
unique advantages.
    Third, this capabilities-based approach places great 
emphasis on defining where we want to go with the 
transformation of our forces. Transformation, as Secretary 
Rumsfeld has said, is about much more than bombs and bullets 
and dollars and cents. It is about new approaches, it is about 
culture, it is about mindset and ways of thinking of things.
    During the QDR, we identified six key transformational 
goals that define our highest priorities for investment in the 
03-07 FYDP. I would like to discuss some of the major features 
of our budget against those six major priorities. We reached 
those conclusions before September 11, but much of our 
experience in the war on terrorism since then has validated 
many of those conclusions and reinforced the importance of 
moving forward more rapidly in those new directions.
    The budget requests $53.9 billion for research development 
test and evaluation, a $5\1/2\ billion increase over fiscal 
year 2002. It requests $71.9 billion for procurement, that is 
68.7 billion in the procurement title and 3.2 billion in the 
defense emergency response fund, together, a $10.8 billion 
increase over 2002. It funds three new transformational 
programs and accelerates funding for 22 more existing programs.
    All together, our investment and transformation in 2003 
accounts for roughly $21.1 billion or 17 percent of combined 
RDT&E and procurement out of the 2003 budget request, and it 
will rise to some 22 percent by the end of the FYDP. Let me 
discuss the details of that 21.1 billion in each of the six 
categories we identified as critical.
    First, and obviously perhaps most important, is protecting 
our bases of operation in homeland defense. To meet our 
objective in making homeland defense the Department's top 
priority, the President's 2003 budget funds a number of 
programs, including biological defense, homeland security 
support program, revitalized missile defense research and 
testing program, and some $8 billion to support defense of the 
U.S. Homeland and forces abroad, for total of $45.8 billion 
over the FYDP, an increase of 47 percent from the previous 
FYDP.
    In addition, the budget funds combat air patrols over major 
U.S. cities and other requirements that are part of the war of 
terrorism, but related to this transformation goal. Second, the 
President's budget funds a number of programs to provide us the 
capability to deny enemy sanctuaries and to ensure that 
adversaries know if they attack us, they will not be able to 
escape the reach of the United States.
    As we root out al-Qaeda and members of the Taliban, it is 
readily apparent how important that capability is to enable us 
to rob our enemies of places to hide and function. Key to 
denying sanctuaries, is the development of new capabilities for 
long-range precision strike. That is not just about heavy 
bombers, but it is about linking ground and air assets 
together, including unmanned capabilities. It is about 
developing the ability to insert deployable ground forces into 
denied areas and allow them to network with our long-range 
precision strike assets. This is something we have seen in the 
campaign in Afghanistan.
    Our special forces mounted on horseback have used modern 
communications to communicate with and direct strikes from 50 
year-old B-52s. Introducing the horse cavalry back into modern 
warfare, as Secretary Rumsfeld said, was all part of the 
transformation plan. Indeed it is. Transformation is not always 
about new systems, but using old systems in new ways with new 
doctrines, new types of organization and new operational 
concepts. The President's program funds a number of programs 
designed to help us meet our objective of denying sanctuaries 
to enemies, and includes about a billion dollars of increased 
spending on unmanned aerial vehicles, including $141 million 
for accelerated development of new types, $620 million for 
Global Hawk.
    It includes funding to increase our capability to deliver 
precision munitions at long ranges including $54 million for a 
small diameter bomb that would substantially increase the 
capability of our B-2 bombers. And it includes a billion 
dollars to convert four Trident nuclear submarines from a cold 
war nuclear mission into stealthy high endurance conventional 
strike submarines.
    The 2003 budget, in total, requests $3.2 billion for 
programs to support this objective of denying sanctuary to 
America's adversaries, and 16.9 billion over the FYDP, an 
increase of 157 percent. Third, projecting power in anti-axis 
areas. Projecting and sustaining power in the face of enemy 
efforts to deny us bases of operation is another key objective 
of our transformation. In the case of the Afghanistan campaign, 
circumstances force us to operate from very great distances, 
particularly in the early stages.
    In many other cases, U.S. Forces will depend on vulnerable 
foreign bases to operate creating incentives for adversaries to 
develop access denial capabilities to keep us out of their 
neighborhoods. Indeed, that is a major emphasis in North Korean 
military planning today. We must, therefore, reduce our 
dependence on predictable and vulnerable base structure by 
exploring a number of technologies, including longer-range 
aircraft, unmanned aerial vehicles and stealthy platforms, as 
well as reducing the amount of logistical support needed by our 
ground forces.
    The President's 2003 budget includes increased funding for 
a number of programs in this area, including about $500 million 
for the STOVL version of the joint strike fighter, a number of 
investments to accelerate Army transformation and $630 million 
for an expanded upgraded military and GPS. The 2003 budget, in 
total, requests $7.4 billion for programs to support our goal 
of protecting power and $53 billion over the 5-year FYDP, an 
increase of 21 percent.
    Fourth is leveraging information technology. That is a key 
to combining many of these other capabilities. Indeed, one 
can't really arbitrarily separate our ability in Afghanistan, 
to combine the intelligence we got from unmanned aerial 
vehicles with the extraordinary skill and bravery of special 
forces on the ground. It would not have been possible without 
some remarkable modern communications, but those communications 
as they stand now are limited. There is a substantial 
investment in this budget to improve our capability to 
communicate at long ranges.
    One of the most exciting developments--and I am mentioning 
this, it is not noted specifically in my testimony--one of the 
most exciting developments, and potentially quite 
revolutionary, is the development of laser communications, 
which would allow us to achieve through space systems, the kind 
of broad band high volume data transmission that we currently 
achieve on ground with fiberoptic systems only. The 2003 budget 
requests $2\1/2\ billion for programs to support this objective 
of leveraging information technology, and of $18.6 billion over 
the FYDP, an increase of 125 percent.
    Fifth, conducting effective information operations in an 
era where everyone will increasingly depend on high quality and 
high volume information, the ability to predict our own 
information systems and to attack those of enemies is going to 
be critical. This is, perhaps, of all our six objectives, the 
one that is still in its infancy. The 2003 budget requests $174 
million for programs to support that objective, and 773 million 
over the FYDP, an increase of 28 percent.
    Finally, strengthening space operations. Although this was 
not a capability that was stressed very much on the war in 
Afghanistan, space is the ultimate high ground. One of our top 
transformational goals is to harness the U.S. advantage in 
space to enable us to see what adversaries are doing around the 
world and around the clock. As we move operations to space, we 
must also ensure the survivability of those space systems. The 
2003 budget requests about $200 million to strengthen space 
capabilities, and $1\1/2\ billion over the FYDP, an increase of 
145 percent.
    Of course, transformation is not something that happens in 
1 year, nor is it something that drives the entire force. 
Rather, the goal over time is to transform between 5 and 10 
percent of the force, turning it into a leading edge of change 
that will, over time, lead the rest of the force into the 21st 
century.
    As an historical example, Mr. Chairman, if one goes back to 
an earlier and very dramatic transformation that took place in 
the 1920's and 1930's when the Germans--and it, unfortunately, 
was the Germans and not the British and the French--mastered 
the transformational concepts of armored warfare. At the time 
of the battle of France, only some 10 or 15 percent of the 
German Army was actually armored forces, but it was the wedge 
that permitted the rest of the German force, what we would 
today call the legacy force, to be decisive. As Secretary 
Rumsfeld has emphasized, transformation is not an event but an 
ongoing process.
    Let me conclude briefly, Mr. Chairman, with a few other 
points. First, about people and personnel. As I said earlier, 
this is our most valuable resource, the men and women who wear 
our Nation's uniform. Military service, in its nature, has 
considerable risk and sacrifices to those who serve. We should 
not ask those who put themselves in harms way or spend long 
times--long periods deployed away from home to forgo 
competitive pay and quality housing. The President's 2003 
budget requests $94.3 billion for military pay and allowances. 
That includes 1.9 billion for an across-the-board 4.1-percent 
pay raise, and $300 million for targeted pay raises.
    Among the other important things funded in this budget is 
$4.2 billion to improve military housing. That funding will 
also lower out-of-pocket housing costs for those living in 
private housing from 18.8 percent where it was in 2001, to 7.5 
percent in the 2003 budget, putting us on a track to eliminate 
all out-of-pocket housing costs for men and women in uniform by 
the year 2005. Congressman Spratt asked about cost savings. It 
is an important subject, it is one we are working hard on, it 
is one that takes time. We have taken a realistic approach in 
looking at a number of programs and found some areas where we 
can save money already. We have proposed terminating a number 
of programs over the next 5 years that were not in line with 
the defense strategy or were having program difficulties.
    We have focused modernization efforts on programs that 
support transformation. We restructured certain programs such 
as the V-22 Osprey, Comanche and SBIRS programs that were not 
meeting hurdles. I believe, correct me, Dov Zakheim, that for 
the first time ever, we declared a program on security breach 
and canceling the Navy aerial missile defense program. We are 
working to generate savings and efficiency in other programs as 
well.
    For example, today the B-1 bomber does not operate 
effectively in a combat environment where there is a serious 
anti-aircraft threat. So the Air Force is reducing that fleet 
by about a third, using the savings from retiring those 30 B-1s 
to modernize their remaining aircraft with new precision 
weapons, self protection systems and reliability upgrades. That 
will add some $1\1/2\ billion of advanced combat capability to 
today's aging B-1 fleet making it a truly capable system.
    The budget reflects over $9 billion in redirected funds 
from acquisition program changes, management improvements and 
other initiatives, savings that had been critical to enabling 
us to fund transformation and other pressing requirements. And 
we are putting a considerable emphasis on putting our financial 
house in order, and Secretary Zakheim can speak to that in more 
detail.
    I must note with some dismay that the decision to put off 
base closure for two-additional years means that the Congress--
that the Department will have to continue supporting between 20 
to 25-percent more infrastructure than we believe we need to 
support the force. That decision will be a costly one for 
taxpayers. It is more costly because post September 11, we have 
had to substantially increase forced protection around all of 
those bases, and as I noted, we are protecting 25-percent more 
bases than we actually need. The two-year delay in base closure 
should not be taken as an opportunity to try to BRAC-proof 
certain bases and facilities. We need to protect that process.
    Throughout this budget process, we did make tough trade-
offs--we were forced to. We could not meet our objective in 
lowering the age of tactical aircraft. However, we are 
investing an unmanned aircraft in the F-22 and the joint strike 
fighter, but those will not come on line for several years. 
While the budget proposes faster growth in science and 
technology, we are not able to meet our goal of 3 percent of 
the budget. And we have not been able to fund ship building at 
replacement rates in 2003.
    To sustain the Navy at acceptable levels, we need to build 
eight or nine ships annually, and we don't reach that level 
until the 2006, 2007 time frame.
    Before concluding, Mr. Chairman, if I might just make a few 
observations quickly in answer to some of the questions that 
were put in the opening, and we can obviously get into them in 
more detail. I think comparing our forces today to what they 
cost in the cold war, and what those forces cost really doesn't 
address the question of what we need in this era and what 
things cost in this era. The truth is that if we had to buy our 
cold war forces today, our budget would be hundreds of 
billions, I believe, more than it is now, but those, of course, 
would not be the appropriate forces.
    It is also true if we had to buy China's forces, our 
budgets would be considerably bigger than China's. Comparing 
our military budget with the military budgets of other 
countries, I think isn't terribly relevant at the end of the 
day. We didn't fight the Taliban's military budget, we fought 
the Taliban. We fought them and we beat them decisively because 
we had capabilities that allow us to overwhelm enemies of that 
kind, not to meet them at an equal level, not to meet them in a 
budgetary playground.
    While it is true that only 10 percent of the budget is 
identified as specifically associated with the cost of the war, 
that is really the marginal costs from additional operation. It 
wouldn't be possible to get anything out of that if we didn't 
have the large investment in people and equipment that allow us 
to take the war to the terrorist. It doesn't include the cost 
of building and operating aircraft carriers. It only includes 
the additional costs of extra steaming time. It doesn't include 
the costs of training and grooming outstanding special forces 
operators over the course of a career. It only includes the 
additional gasoline to get them into the theater.
    So it is misleading, I think to say, that only 10 percent 
of this budget is addressing the war on terrorism. A very large 
percentage of this budget addresses the war on terrorism. We 
wouldn't be able to conduct it without that large investment. 
Indeed, I think that is a fundamental point. It is a bit too 
easy, I think, to talk about tooth versus tail. The truth is 
that we count our training establishment as part of the tail. 
But without that training establishment, the tooth would be of 
very little value. I am not sure how true the tooth-to-tail 
ratios are on an armed predator with no pilot in it operating 
over Afghanistan with people sitting in offices thousands of 
miles away directing strikes. I imagine those people in offices 
are counted as part of the tail.
    In the case of some of the modern capabilities we are 
developing, it is not a very meaningful distinction. I think 
the important point is that the capabilities that we have in 
our military today are expensive. There is no denying it. They 
are also unequaled. There is no denying that. And I think after 
September 11, there is no denying that they are indispensable. 
If they can help us to prevent a disaster like September 11 in 
the future, they are obviously worth it. But if they also help 
us respond when a surprise occurs to help us react in the way 
we have been able to react in the last three months, they are 
obviously worth it.
    The costs to our economy alone, I believe, justifies it. 
But the cost in human lives and the pain and suffering of so 
many thousands of Americans who lost loved ones in that 
disaster on September 11 is incalculable. The President's 
budget addresses our country's need to fight the war on terror, 
to support our men and women in uniform, and to modernize the 
forces we have and prepare for the challenges of the 21st 
century.
    This committee and the Congress provided our country strong 
leadership in providing for the national defense and ensuring 
the taxpayers' dollars are wisely spent. We appreciate the 
bipartisan support. I have to admit we appreciate the tough 
questions. They are in part trying to manage this large 
enterprise efficiently. We look forward to working with this 
committee and achieving both of these critical goals. Thank 
you.
    Chairman Nussle. Mr. Secretary, thank you for your 
testimony.
    [The prepared statement of Paul Wolfowitz follows:]

    Prepared Statement of Hon. Paul D. Wolfowitz, Deputy Secretary, 
                         Department of Defense

                              INTRODUCTION

    Mr. Chairman and members of the committee, given the many difficult 
choices with which you are faced, I appreciate the opportunity to 
return to this committee to help you in your task by addressing the 
2003 defense budget. Since we met last summer, a great deal has 
changed, of course. I look forward to addressing some of these changes 
with you.
    One of the greatest--and gravest--changes was brought by September 
11--a day that changed our nation forever. September 11 has taught us 
once again that when it comes to America's defense, we must spend what 
is necessary to protect our freedom, our security and prosperity--not 
just for this generation, but to preserve peace and security for our 
children and our grandchildren.
    Today, we are engaged in the enormously preoccupying task of 
fighting a global war on terrorism. As difficult as it is to think 
about other challenges in the middle of waging this war, it is 
essential that we think beyond this great effort if we are to face the 
security challenges and conflicts that are certain to arise throughout 
this century.
    The 2003 Defense Budget request meets the challenges of the current 
campaign as well as other priorities that are essential to ensuring 
that America's Armed Forces can manage the threats and challenges of 
the decades ahead.
    When the cold war ended, the United States began a very substantial 
draw down of our defense forces and our budgets. We cashed a large 
``peace dividend,'' lowering the level of our defense burden by half 
from the cold war peak. Much of that was an appropriate adjustment to 
the great improvement in our security that resulted from the end of the 
cold war. The draw down, however, ultimately went too far.
    While our commitments around the world stayed the same and even 
grew in some cases, our country spent much of the 1990's living off 
investments made during the cold war, instead of making new investments 
to address the threats of this new century. As I discussed with this 
committee last year, even before September 11, we faced the urgent need 
to replenish critical accounts. After September 11, we find ourselves 
facing the additional challenges of accomplishing three significant 
missions at once:
     We must win the global war on terrorism;
     We must restore capabilities by making investments in 
procurement, people and modernization; and,
     We must prepare for the future by transforming for the 
21st Century.
    It will be difficult and demanding to tackle all three of these 
missions at once, but we must do it--and without delay. Even as we 
fight the war on terror, potential adversaries study our methods and 
capabilities, and they plan for how they can take advantage of what 
they perceive to be our weaknesses and vulnerabilities. Now is 
precisely the moment we must begin to build forces that can frustrate 
those plans and provide us with the capabilities we need to win the 
wars of the coming decades.
    We can only accomplish the Defense Department's three missions--
fighting the war on terror, supporting our people and selectively 
modernizing the forces we have now, and transforming our Armed Forces 
for the wars of the future--with proper investments over a sustained 
period. And we must accomplish these missions in an environment of 
rising costs, particularly for that most critical element of the 
force--our people--so vital to our success. The 2003 budget addresses 
``must pay'' bills such as retiree health care and pay raises ($14.1 
billion); and other bills such as realistic costing ($7.4 billion); 
inflation ($6.7 billion); and the war on terror ($19.4 billion). Added 
together, these bills come to $47.6 billion. That is why President Bush 
sent to Congress a 2003 defense budget request of $379 billion--a $48 
billion increase from the 2002 budget, and the largest increase since 
the early 1980's.

                          NEW DEFENSE STRATEGY

    The 2003 budget request was guided by the results of last year's 
strategy review and the Quadrennial Defense Review (QDR), both of which 
involved an unprecedented degree of debate and discussion among the 
Department's most senior leaders. Out of this intense debate, we 
reached agreement on the urgent need for real changes in our defense 
strategy.
    I might add that our conclusions have not gone unnoticed. One 
foreign observer reports that the QDR contains ``the most profound 
implications'' of the four major defense reviews conducted since the 
end of the cold war. What is most compelling about this analysis is 
that it appears in a Chinese journal. That Chinese observer thinks the 
QDR's conclusions are important as a blueprint for where we go from 
here--and we think so, too.
    My statement today addresses how the President's budget intends to 
meet this blueprint, shaped by the needs of the environment we face 
today and the environment we could face in the decades to come.
    Among the new directions set in the QDR, the following are among 
the most important:
    First, we decided to move away from the two Major Theater War (MTW) 
force sizing construct, which called for maintaining forces capable of 
marching on and occupying the capitals of two adversaries and changing 
their regimes--at the same time. The new approach instead places 
greater emphasis on deterrence in four critical theaters, backed by the 
ability to swiftly defeat two aggressors at the same time, while 
preserving the option for one major offensive to occupy an aggressor's 
capital and replace the regime. By removing the requirement to maintain 
a second occupation force, we can free up resources for various lesser 
contingencies that might face us and also be able to invest for the 
future.
    Second, to confront a world marked by surprise and substantial 
uncertainty, we agreed that we needed to shift our planning from the 
``threat-based'' model that has guided our thinking in the past to a 
``capabilities-based'' model for the future. We don't know who may 
threaten us or when or where. But, we do have some sense of what they 
may threaten us with and how. And we also have a sense of what 
capabilities can provide us important new advantages.
    Third, this capabilities-based approach places great emphasis on 
defining where we want to go with the transformation of our forces. 
Transformation, as Secretary Rumsfeld has said, ``is about an awful lot 
more than bombs and bullets and dollars and cents; it's about new 
approaches, it's about culture, it's about mindset and ways of thinking 
of things.''
    We identified six key transformational goals that define our 
highest priorities for investments in the '03-'07 FYDP.
     First, to protect the U.S. homeland and forces overseas;
     Second, to project and sustain power in distant theaters;
     Third, to deny enemies sanctuary, or places where they can 
hide and function.
     Fourth, to protect information networks from attack;
     Fifth, to use information technology to link up U.S. 
forces so they can fight jointly; and
     Sixth, to maintain unhindered access to space--and protect 
U.S. space capabilities from enemy attack.
    We reached these conclusions before September 11, but our 
experiences since then have validated many of those conclusions, and 
reinforced the importance of continuing to move forward in these new 
directions. The 2003 budget request advances each of the six 
transformational goals by accelerating funding for the development of 
the transformational programs and by funding modernization programs 
that support transformation goals.
    The budget requests $53.9 billion for Research, Development, Test, 
and Evaluation (RDT&E)--a $5.5 billion increase over fiscal year 2002. 
It requests $71.9 billion for procurement--$68.7 billion in the 
procurement title--a $7.6 billion increase over fiscal year 2002--and 
$3.2 billion in the Defense Emergency Response Fund. It funds 13 new 
transformational programs, and accelerates funding for 22 more existing 
programs.
    All together, transformation programs account for roughly $21.1 
billion, or 17 percent, of investment funding (RDT&E and procurement) 
in the President's 2003 budget request--rising to 22 percent over the 5 
year FYDP. Let me discuss the details of the $21.1 billion in each of 
the six categories that follow.
    1. Protecting Bases of Operation/Homeland Defense. It is obvious 
today that our first goal, protecting our bases of operation and 
homeland defense, is an urgent priority--especially since we know that 
both terrorists and state-supporters of terrorism are actively looking 
to build or buy nuclear, chemical and biological weapons of mass 
destruction.
    To meet our objective of making homeland defense the Department's 
top priority, the President's 2003 budget funds a number of programs. 
These include:
     $300 million to create a Biological Defense Homeland 
Security Support Program to improve U.S. capabilities to detect and 
respond to biological attack against the American people and our 
deployed forces.
     $7.8 billion for a refocused and revitalized missile 
defense research and testing program that will explore a wide range of 
potential technologies that will be unconstrained by the ABM Treaty 
after June 2002, including:
     $623 million for the Patriot PAC III to protect our ground 
forces from cruise missile and tactical ballistic missile attack.
     $3.5 million for the Mobile Tactical High-Energy Laser 
that can be used by U.S. ground forces to destroy enemy rockets, cruise 
missiles, artillery and mortar munitions.
     $598 million for the Airborne Laser (ABL), a speed of 
light ``directed energy'' weapon to attack enemy ballistic missiles in 
the boost-phase of flight--deterring an adversary's use of WMD since 
debris would likely land on their own territory.
     $534 million for an expanded test-bed for testing missile 
intercepts;
     $797 million for sea, air and space-based systems to 
defeat missiles during their boost phase;
    The budget invests $8 billion to support defense of the U.S. 
homeland and forces abroad--$45.8 billion over the 5 year Future Years 
Defense Plan (2003-7), an increase of 47 percent from the previous 
FYDP. In addition, the budget funds combat air patrols over major U.S. 
cities ($1.2B) and other requirements related to this transformation 
goal.
    2. Denying Enemies Sanctuary. The President's budget funds a number 
of programs to ensure adversaries know that if they attack, they will 
not be able to escape the reaches of the United States. As we root out 
al Qaeda and members of the Taliban, it is readily apparent how 
important it is to rob our enemies of places to hide and function--
whether it be in caves, in cities, or on the run.
    Key to denying sanctuary is the development of new capabilities for 
long-range precision strike, which is not just about heavy bombers, but 
about linking ground and air assets together, including unmanned 
capabilities. It also includes the ability to insert deployable ground 
forces into denied areas and allow them to network with our long-range 
precision-strike assets.
    This is something we have seen in the campaign in Afghanistan. Our 
Special Forces, mounted on horseback, have used modern communications 
to communicate with and direct strikes from 50-year-old B-52s. 
Introducing the horse cavalry back into modern war, as Secretary 
Rumsfeld has said, ``was all part of the transformation plan.'' And it 
is. Transformation isn't always about new systems, but using old 
systems in new ways with new doctrines, new types of organization, new 
operational concepts.
    The President's 2003 budget funds a number of programs designed to 
help us meet our objective of denying sanctuary to enemies. They 
include:
     $141 million to accelerate development of UAVs with new 
combat capabilities.
     $629 million for Global Hawk, a high-altitude unmanned 
vehicle that provides reconnaissance, surveillance and targeting 
information. We will procure three Air Force Global Hawks in 2003, and 
accelerate improvements such as electronics upgrades and improved 
sensors, and begin development of a maritime version.
     $91 million for the Space-Based Radar, which will take a 
range of reconnaissance and targeting missions now performed by 
aircraft and move them to space, removing the risk to lives and the 
need for over-flight clearance;
     $54 million for development of a small diameter bomb, a 
much smaller, lighter weapon that will allow fighters and bombers to 
carry more ordnance and thus provide more kills per sortie;
     $1 billion for conversion of four Trident nuclear 
submarines into stealthy, high endurance SSGN Strike Submarines that 
can each carry over 150 Tomahawk cruise missiles and up to 66 Special 
Operations Forces into denied areas;
     $30 million for advanced energetic materials and new earth 
penetrator weapons to attack hardened and deeply buried targets.
     $961 million for the DD(X), which replaces the cancelled 
DD-21 destroyer program and could become the basis of a family of 21st 
Century surface combat ships built around revolutionary stealth, 
propulsion, and manning technologies. Initial construction of the first 
DD(X) ship is expected in fiscal year 2005.
    The 2003 budget requests $3.2 billion for programs to support our 
objective of denying sanctuary to America's adversaries, and $16.9 
billion over the 5 year FYDP (2003-7)--an increase of 157 percent.
    3. Projecting Power in Anti-access Areas. Projecting and sustaining 
power in anti-access environments is another necessity in the current 
campaign; circumstances forced us to operate from very great distances.
    In many other cases, U.S. forces depend on vulnerable foreign bases 
to operate--creating incentives for adversaries to develop ``access 
denial'' capabilities to keep us out of their neighborhoods.
    We must, therefore, reduce our dependence on predictable and 
vulnerable base structure, by exploiting a number of technologies that 
include longer-range aircraft, unmanned aerial vehicles, and stealthy 
platforms, as well as reducing the amount of logistical support needed 
by our ground forces.
    The President's 2003 budget includes increased funds for a number 
of programs designed to help us project power in ``denied'' areas. 
These include:
     $630 million for an expanded, upgraded military GPS that 
can help U.S. forces pinpoint their position--and the location of their 
targets--with unprecedented accuracy.
     $5 million for research in support of the Future Maritime 
Preposition Force of new, innovative ships that can receive flown-in 
personnel and off-load equipment at sea, and support rapid 
reinforcement of conventional combat operations. Construction of the 
first ship is planned for fiscal year 2007.
     $83 million for the development of Unmanned Underwater 
Vehicles that can clear sea mines and operate without detection in 
denied areas;
     About $500 million for the Short Takeoff/Vertical Landing 
(STOVL) Joint Strike Fighter that does not require large-deck aircraft 
carriers or full-length runways to takeoff and land.
     $812 million for 332 Interim Armored Vehicles--protected, 
highly mobile and lethal transport for light infantry--enough for one 
of the Army's transformational Interim Brigade Combat Teams (IBCT). The 
fiscal years 2003-2007 Future Years Defense Program (FYDP) funds six 
IBCTs at about $1.5 billion each.
     $707 million for the Army's Future Combat System--a family 
of advanced-technology fighting vehicles that will give future ground 
forces unmatched battlefield awareness and lethality.
     $88 million for new Hypervelocity Missiles that are 
lighter and smaller (4 ft long and less than 50 lbs) and will give 
lightly armored forces the lethality that only heavy armored forces 
have today
    The 2003 budget requests $7.4 billion for programs to support our 
goal of projecting power over vast distances, and $53 billion over the 
5 year FYDP (2003-7)--an increase of 21 percent.
    4. Leveraging Information Technology. A key transformation goal is 
to leverage advances in information technology to seamlessly connect 
U.S. forces--in the air, at sea and on the ground so they can 
communicate with each other, instantaneously share information about 
their location (and the location of the enemy), and all see the same, 
precise, real-time picture of the battlefield.
    The President's 2003 budget funds a number of programs designed to 
leverage information technology. These include:
     $172 million to continue development of the Joint Tactical 
Radio System, a program to give our services a common multi-purpose 
radio system so they can communicate with each other by voice and with 
data;
     $150 million for the ``Link-16'' Tactical Data Link, a 
jam-resistant, high-capacity, secure digital communications system that 
will link tactical commanders to shooters in the air, on the ground, 
and at sea--providing near real-time data;
     $29 million for Horizontal Battlefield Digitization that 
will help give our forces a common operational picture of the 
battlefield;
     $61 million for the Warfighter Information Network (WIN-
T), the radio-electronic equivalent of the World Wide Web to provide 
secure networking capabilities to connect everyone from the boots on 
the ground to the commanders.
     $77 million for the ``Land Warrior'' and soldier 
modernization program to integrate the small arms carried by our 
soldiers with high-tech communications, sensors and other equipment to 
give new lethality to the forces on the ground;
     $40 million for Deployable Joint Command and Control--a 
program for new land and sea-based joint command and control centers 
that can be easily relocated as tactical situations require.
    The 2003 budget requests $2.5 billion for programs to support this 
objective of leveraging information technology, and $18.6 billion over 
the 5 year FYDP (2003-7)--an increase of 125 percent.
    5. Conducting Effective Information Operations. As information 
warfare takes an increasingly significant role in modern war, our 
ability to protect our information networks and to attack and cripple 
those of our adversaries will be critical.
    Many of the programs supporting this objective are classified. But 
the President's 2003 budget funds a number of programs designed to 
provide unparalleled advantages in information warfare, such as $136.5 
million for the Automated Intelligence, Surveillance and Reconnaissance 
System, a joint ground system that provides next-generation 
intelligence tasking, processing, exploitation and reporting 
capabilities.
    The 2003 budget requests $174 million for programs to support this 
objective--$773 million over the 5 year FYDP (2003-7)--an increase of 
28 percent.
    6. Strengthening Space Operations. Space is the ultimate ``high 
ground.'' One of our top transformational goals is to harness the 
United States' advantages in space where we can see what adversaries 
are doing around the world and around the clock. As we move operations 
to space, we must also ensure the survivability of our space systems.
    The President's 2003 budget includes funds for a number of programs 
designed to provide unmatched space capabilities and defenses. These 
include:
     $88 million for Space Control Systems that enhance U.S. 
ground based surveillance radar capabilities and, over time, move those 
surveillance capabilities into space;
     $103.1 million for Directed Energy Technology to deny use 
of enemy electronic equipment with no collateral damage, to provide 
space control, and to pinpoint battlefield targets for destruction.
    The 2003 budget requests about $200 million to strengthen space 
capabilities--$1.5 billion over the 5 year FYDP (2003-7)--an increase 
of 145 percent.
    Of course, we cannot transform the entire military in 1 year, or 
even in a decade--nor would it be wise to try to do so. Rather, we 
intend to transform between 5-10 percent of the force, turning it into 
the leading edge of change that will, over time, lead the rest of the 
force into the 21st Century. As Secretary Rumsfeld has emphasized, 
``transformation is not an event--it is an ongoing process.''
    People/Military Personnel
    While we transform for the future, we must take care of our most 
valuable resource: the men and women who wear our nation's uniform. 
Military service by its nature asks our service members to assume 
certain risks and sacrifices. But, we should not ask those who put 
themselves in harm's way to forego competitive pay and quality housing.
    The President's 2003 budget requests $94.3 billion for military pay 
and allowances, including $1.9 billion for an across-the-board 4.1 
percent pay raise and $300 million for the option for targeted pay-
raises for mid-grade officers and NCOs.
    The budget also includes $4.2 billion to improve military housing, 
putting the Department on track to eliminate most substandard housing 
by 2007--several years sooner than previously planned. It will also 
lower out-of-pocket housing costs for those living in private housing 
from 11.3 percent today to 7.5 percent in 2003--putting us on track to 
eliminate all out of pocket housing costs for the men and women in 
uniform by 2005. This represents a significant change--before 2001, 
out-of-pocket costs were 18.8 percent.
    We stand by our goal of reducing the replacement rate for DOD 
facilities from the current and unacceptable 121 years, to a rate of 67 
years (which is closer to the commercial standard). We have dedicated 
some $20 billion over the 2003-7 FYDP to this end. But most of those 
investments have been delayed until the out-years, when BRAC is finally 
implemented and we will know which facilities will be closed.
    The budget also includes $10 billion for education, training, and 
recruiting, and $22.8 billion to cover the most realistic cost 
estimates of military healthcare.
    Cost Savings
    We have taken a realistic approach in looking at a number of 
programs, and have found areas where we can save some money. We have 
proposed terminating a number of programs over the next 5 years that 
were not in line with the new defense strategy, or were having program 
difficulties. These include the DD-21, Navy Area Missile Defense, 18 
Army Legacy programs, and the Peacekeeper Missile. We also accelerated 
retirement of a number of aging and expensive to maintain capabilities, 
such as the F-14, DD-963 destroyers, and 1000 Vietnam-era helicopters.
    We have focused modernization efforts on programs that support 
transformation. We restructured certain programs that were not meeting 
hurdles, such as the V-22 Osprey, Comanche, and SBIRS programs. 
Regarding the V-22, the production rate has been slowed while attention 
is focused on correcting the serious technical problems identified by 
the blue ribbon panel and a rigorous flight test program is to be 
conducted to determine whether it is safe and reliable. The 
restructured programs reflect cost estimates and delivery dates that 
should be more realistic.
    We are working to generate savings and efficiency in other programs 
as well. For example, today, the B-1 bomber cannot operate effectively 
in combat environment where there is a serious anti-aircraft threat. So 
the Air Force is reducing the B-1 bomber fleet by about one third, and 
using the savings to modernize the remaining aircraft with new 
precision weapons, self-protection systems, and reliability upgrades 
that will make the B-1 suitable for future conflicts. This should add 
some $1.5 billion of advanced combat capability to today's aging B-1 
fleet over the next 5 years--without requiring additional dollars from 
the taxpayers. These are the kinds of tradeoffs we are encouraging 
throughout the Department.
    We are also proceeding toward our goal of a 15-percent reduction in 
headquarters staffing and the Senior Executive Council is finding 
additional ways to manage DOD more efficiently.
    The budget reflects over $9 billion in redirected funds from 
acquisition program changes, management improvements, and other 
initiatives--savings that help to fund transformation and other 
pressing requirements.
    Currently, to fight the war on terrorism and fulfill the many 
emergency homeland defense responsibilities, we have had to call up 
over 70,000 guard and reserves. Our long term goal, however, is to 
refocus our country's forces, tighten up on the use of military 
manpower for non-military purposes and examine critically the 
activities that the U.S. military is currently engaged in to identify 
those that are no longer needed.
    The Secretary of Defense and the Defense Department have made one 
of the highest reform priorities to put our financial house in order. 
We have launched an aggressive effort to modernize and transform our 
financial and non-financial management systems--to include substantial 
standardization, robust controls, clear identification of costs, and 
reliable information for decision makers. Especially key is the 
creation of an architecture that will integrate the more than 674 
different financial and non-financial systems that we have identified.
    Congress's decision to put off base-closure for two more years 
means that the Department will have to continue supporting between 20-
25-percent more infrastructure than needed to support the force. The 
decision to hold up the process another 2 years will be a costly one 
for taxpayers. Additionally, because of the post-September 11 force 
protection requirements, DOD is forced to protect 25-percent more bases 
than we need.
    The 2-year delay in base-closure should not be taken as an 
opportunity to try to ``BRAC-proof'' certain bases and facilities. 
Earmarks directing infrastructure spending on facilities that the 
taxpayers of America don't need and that eventually could be closed 
would be compounding the waste that the delay in BRAC is already 
causing.

                               TRADE OFFS

    Throughout this budget process, we were required to make some tough 
tradeoffs.
     We were not able to meet our objective of lowering average 
age of tactical aircraft. However, we are investing in unmanned 
aircraft, and in the F-22 and JSF, which require significant upfront 
investments, but will not come on line for several years.
     While the budget proposes faster growth in Science and 
Technology (S&T), we were not able to meet our goal of 3 percent of the 
budget.
     And we have not been able to fund shipbuilding at 
replacement rates in 2003--which means we remain on a downward course 
that, if not unchecked, could reduce the size of the Navy to a clearly 
unacceptable level in the decades ahead. To sustain the Navy at 
acceptable levels, the U.S. needs to build eight or nine ships 
annually. The proposed Future Years Defense Plan budgets for 
procurement of 5 ships in fiscal year 2004, 7 ships in 2005, 7 ships in 
2006 and 10 ships in 2007.

                               CONCLUSION

    A budget of $379 billion represents a great deal of money. But, 
consider that the New York City comptroller's office estimated the 
local economic cost of the September 11 attacks on New York City alone 
will add up to about $100 billion over the next 3 years. Estimates of 
the cost to the national economy range from about $170 billion last 
year--and estimates range as high almost $250 billion a year in lost 
productivity, sales, jobs, airline revenue, and countless other areas. 
The cost in human lives, and the pain and suffering of so many 
thousands of Americans who lost loved ones that day is incalculable.
    The President's budget address our country's need to fight the war 
on terror, to support our men and women in uniform and modernize the 
forces we have, and to prepare for the challenges of the 21st Century. 
This committee has provided our country strong leadership in providing 
for the national defense and ensuring that taxpayers' dollars are 
wisely spent. We look forward to working with this committee in 
achieving both of these critical goals.

    Chairman Nussle. And we meet today far enough away from 
what happened on September 11 that maybe we have forgotten--we 
haven't forgotten, but certainly it would be a different--maybe 
a different hearing if this was on September 12 or October 12 
as opposed to all the way now into February. I think I speak 
for the entire committee when I say thank you. Not only to you, 
but to all of the great people that work in our Defense 
Department. You have been on the front line of this in more 
ways than one, starting on September 11, when your offices were 
bombed. And talk about transformation. You had to make the 
mother of all transformations from what you were doing that day 
to fighting a global war on terrorism, a war that no one has 
probably ever tried to strategize in all of the planning and 
reviews that go on.
    So let me thank you and all of the fine people that work 
for us in defending our Nation. Certainly we are going to have 
some tough questions as part of it, but we meet in that context 
and we don't want to start this hearing without thanking you 
and the men and women that defend our Nation on a day-to-day 
basis.
    That having been said and talking a little bit about trade-
offs, we are going to have to make that decision about trade-
offs. Congress makes those decisions. The President has made 
that decision in his budget. We are not here to ask you to make 
decisions about trade-offs between your budget and other 
budgets. That is for us to decide. You have come here today. 
You have presented your budget to the President and the 
President on your behalf has presented the budget on behalf of 
our defense and those trade-offs are implicit and explicit 
within that budget.
    As Mr. Spratt said--and trust me when I say that his 
questions and his comments on the subject are far more learned 
than mine. He lives this on a day-to-day basis. I might be able 
to run circles around him on farm policy, but when it comes to 
defense policy, there is nobody who is a greater expert than 
Mr. Spratt. I want to try to explain this to my constituents 
back home. I have got to go home, as we all do next week, and I 
probably am no different than many representatives who are 
going to have town meetings and public forums where we try and 
describe to our constituents what has been happening. If we 
told them $400 billion for a defense budget, they would 
probably join with us and say yes. If we said $350 billion was 
appropriate, they would probably say yes.
    It is not the aggregate number, but it is what we are doing 
with those numbers. It is what we are doing with the Treasury 
of the United States in order to try and accomplish some 
things. So I am trying to get my arms around this budget so I 
can explain this. Your testimony was very specific, but let me 
bring you back to the bigger picture for just a moment and try 
and get you or Mr. Zakheim to give us an idea of how we would 
break this budget down in the Defense Department by 
percentages, let us say, what are we using to fight the war. A 
percentage of 10 percent was being used.
    I mean, obviously, the entire budget is being used to fight 
the war. But how much of it is new and how much of it is to 
fight the war? How much of it is for homeland security? What 
part of it are the must pays: health care, training, 
maintenance, pay raises, those things? And what part of it is 
in the area of transformation? Can you help me get my arms 
around this so when we go home and explain this to our 
constituents, we have an idea of how to break this down for the 
average American who wants to know what are we using this money 
to do.
    Mr. Wolfowitz. Mr. Chairman, I will make a start at it and 
I will ask Mr. Zakheim to help me. Then I will also try to go 
back and think of categories that are better than the ones as I 
am thinking about, the way you are putting it, how do I explain 
to somebody who wants to know what it is actually being used 
for. I am not sure the categories we intend to account for 
things necessarily help, but here is a start. The kinds of 
accounts we normally break it down into have some 19.6 percent 
for military personnel. That does not include the full cost to 
people, by the way. It is just the military pay accounts.
    There is 34.9 percent for operation and maintenance, which 
includes not only the cost of operating the forces, but the 
cost of maintaining bases. Some 18.1 percent for procurement; 
14.2 percent for research and development; 3.9 percent for 
defense health program; 6.1 percent for accruals for retirement 
accounts. That leaves about 3.2 percent left over in odds and 
ends in other categories.
    If you take the transformation investments which I went 
through, and this is defining it fairly strictly in terms of 
what our Office of Program Analysis and Evaluation, which 
applies a pretty strict standard as to what is 
transformational, the programs they identified in that category 
is some $21.1 billion. That is out of a total of what we call 
investment, which is research and development, tests and 
evaluation at $53.9 billion and another 71.9 billion for 
procurement. So if I am doing the numbers correctly, that is 
$125.8 billion in the investment account, research and 
development and procurement put together.
    Dov, do you want to add anything about other ways of 
looking at the numbers?
    Mr. Zakheim. Sure. First of all, one thing that we have to 
bear in mind is that if one takes into account everything that 
relates to our people, not just pay, not just retirement 
accruals, not just the defense health program but family 
housing for example, training for example, that cuts across the 
traditional appropriation lines that goes to about 50 percent 
of our budget.
    So one way or another, one out of two cents in the budget, 
50 cents on the dollar, is going to people and, as I think you 
know, Mr. Chairman, right now we have about 85,000 reservists 
that have been called up. They are under tremendous pressure. 
They are away for a long time. Their jobs are at risk, and it 
is really tough and there is a lot of pressure to add to our 
end strength, which we pretty much have not done.
    So those nearly 1.4 million people we have in uniform as 
well as the approximately 670,000 civilians, they account for 
about half the budget. Particularly on the military side, there 
is pressure to add to the actives that we are keeping down. As 
the Deputy Secretary just said, the transformation funds tend 
to lie heavily in research and development but not entirely. 
They are in procurement as well. So one needs to look at the 
calculus somewhat differently. One must account for the 
training and for the transportation, as the Deputy Secretary 
said, the guy who operates or the woman that operates that 
Predator has to be trained. That should really be part of 
transformation, too. So as we transform, we have to start 
transforming the way we think about budgeting for these things 
and quite frankly we are lagging behind, which is probably 
right. Let's get the stuff out there and then we will figure 
out how to change funding categories. But this is a 
transformation across the board.
    Chairman Nussle. Mr. Spratt had a different number and I 
don't want to quibble about numbers. I think he was using 2000 
on his chart if I'm not mistaken, but my understanding is that 
if you take the 2002 baseline basically what we are adding over 
the next, I think it is 10 years, as a result of your request--
no, over the next 5 years, excuse me, is about $400 billion to 
the original 2002 baseline from last year. What percentage, 
break that down if you would, as far as how much of that is 
going to fight the war? I mean, again I understand these are 
difficult percentages because it is all going to fight the war. 
Every penny is in some way, shape or another being used to 
defend the Nation, but how much of that extra is a result of 
the war, homeland security, transformation, and increases in 
must pay areas? Is there a way to break those down, that $400 
billion increase that is part of this request?
    Mr. Wolfowitz. We could do it, and let me take a first stab 
and we will do a more complete one for the record, but looking 
at those transformation accounts alone, there is some $136 
billion total although that is a--if you are taking a $400 
billion increase, there is some $68.9 billion that we would 
consider either transformational programs or transformation 
supporting programs over the----
    Mr. Zakheim. That is the addition.
    Mr. Wolfowitz. That is the addition, but I am saying 
against the--if $400 billion is the correct additional amount. 
We have 10 billion, I believe, through the 5-year program, 10 
billion a year added covering the sort of underlying structure 
for conducting the war on terrorism. So that would be $50 
billion. A significant portion of that 400 billion is increased 
procurement and we by the end of the FYDP will have our 
procurement accounts up to--is it $98 billion----
    Mr. Zakheim. It is about $99 billion.
    Mr. Wolfowitz. And that is probably going to account for 
the single largest fraction of increase, and I imagine the 
Defense Health Program accounts for a very large fraction. We 
will get you the exact numbers, Mr. Chairman, but if that is 
helpful as a first stab.
    Do you have any more to point out?
    Mr. Zakheim. No, other than to point out, to give you a 
sense of defense health, unless we can get our arms around the 
problem, as things stand right now we will double our defense 
health costs within 6 years. Since the total value of the 
program now is approximately $22 billion, then you are talking 
a significant amount of money just for defense health.
    [The information referred to follows:]

Response to Chairman Nussle's Question Concerning the War on Terrorism 
                                Funding

    Chairman Nussle, you asked about the funding added over the next 5 
years to fight the war on terrorism.
    For the next 5 years, fiscal years 2003-2007, President Bush's 
fiscal year 2003 budget request is about $400 billion higher than the 
level projected when he took office. In formulating his fiscal year 
2003 request, the President added about $50 billion for requirements 
directly related to the war on terrorism. For fiscal year 2003, he also 
added another $10 billion contingency amount to be available if, as 
expected, the war continues into fiscal year 2003. Thus, of the funding 
the President added to his fiscal year 2003 request for fiscal years 
2003-2007, about $60 billion is for the war on terrorism.

    Chairman Nussle. There is no way in 5 minutes to ask all 
the questions I have. Let me end with one, and that is you went 
through and explained in answer to Mr. Spratt's question--and I 
am sure he will pursue this as well--about savings as part of 
the transformation, as part of not having this cold war, Soviet 
style bureaucracy. Certainly everybody understands and there is 
nobody who is going to be very critical in the short term about 
making this transition, you have a war to fight, we have a war 
to fight, not just you, we do. We have got to win this and we 
are going to do whatever it takes and that may mean setting 
some priorities aside that we would like to work on but are 
just not able to accomplish as a result of what is necessary 
and immediate. However, I have listened to Secretary Rumsfeld, 
and he seems still very optimistic about taking on this 
challenge of transformation.
    What is realistic? I am not sure I am convinced, and I am 
hoping you can help me with this. I am not convinced that what 
I have seen necessarily demonstrates short-term success in the 
area of transformation. Is that because of the need to 
prosecute the war and the inability to take on that project at 
this time? Is it because of those obstacles that Congress has 
thrown in the way, as you indicated, with regard to BRAC? What 
is going on here? What can our reasonable expectations be from 
your vantage point as we review the budget with regard to 
transformation and transition?
    Mr. Wolfowitz. Let me answer that question. I just see a 
fairly good breakout of the increase that shows $82 billion for 
military personnel. This is over the 5-year program. This will 
answer to your previous question. There is $146 billion for 
operations and maintenance, which includes costs of the war, 
$52 billion for procurement and $99 billion for research 
development, tests and engineering. I think that comes out to a 
total of about 382. So I think that is the $400 billion that 
Congressman Spratt referred to.
    On the question you just asked about transformation, I 
think there are really two different kinds of transformation 
and they may be related and they may not be. Transformation in 
terms of introducing new capabilities that dramatically 
increase the effectiveness of our forces may or may not save 
money. It will certainly increase the capability of those 
forces, and that is what it is aimed to do. In some cases in 
fact probably one of the reasons why our forces today are more 
expensive than they were 20, 25 years ago is not just the 
people are more expensive but the kinds of equipment they have 
are much more expensive, but the capabilities they deliver are 
multiples in that increase.
    At the same time, and particularly if we are going to pay 
for those kinds of increases, the Secretary and I have 
repeatedly talked about the need to transform the way we do 
business, and I think that was where your question was leading 
more emphatically. And I would say there are--we are certainly 
determined to make significant additional progress. We wouldn't 
claim that where we are today is a spectacular result or the 
end of what we think can be accomplished. I do think that the 
war in many ways has made it more difficult. Certainly having, 
for example, 70,000 reservists called up to fill jobs that we 
didn't think we needed to cover before makes it a lot harder to 
look at how to find efficiencies. But it really makes it more 
urgent to find efficiencies and the Secretary has repeatedly 
emphasized every time he meets with his military or civilian 
leadership that we can't use the war as an excuse for not 
making those difficult decisions. In fact, because of the war, 
we need to stop doing things we don't need to do, and it is an 
opportunity. I think particularly in some cases abroad, we are 
looking at places where we can tell allies, look, we have a lot 
of work to do somewhere else so it is time to reduce our 
presence--it is time to shift some of our burdens to other 
people.
    Secondly, the delay in BRAC is unfortunate. I think one of 
the places where we can achieve some significant savings over 
the long term is by reducing that base structure. But finally, 
I have to say it is very difficult work and the people we are 
counting on particularly to do that work are new service 
secretaries and their leadership didn't start getting into 
place until about 6 months ago. They really have sort of taken 
the first bite at that apple. I hope we will have a lot more to 
report by the end of 12 months. I can't say, and I just repeat, 
we can't say because we are fighting a war it is too hard to 
do, we can't do it. We have really got to keep the pressure on.
    Chairman Nussle. We will help with that because I agree it 
is a good short-term excuse, but long term we want to help you 
with this. I think on September 10 of last year, we were 
talking about whether or not there was a need for that $18.6 
billion, and whether or not that was going to be tied to a plan 
of restructuring. All of a sudden September 11 happened, and 
then not only was there the $18 billion, but there was an 
additional $20 billion. Now there is a $10 billion reserve in 
this budget, and unless I am mistaken, an additional 
possibility of a supplemental over and above all of that.
    At some point in time, more than just the war has got to be 
used as the explanation for this. We look forward to working 
with you to try to ensure that that happens, and that we can 
effectively answer for our constituents exactly where the 
treasure of our country is going and making sure that it is 
used as effectively as possible.
    Mr. Spratt.
    Mr. Spratt. Just a couple of quick questions because I have 
a lengthy statement and you addressed many of them in your 
statement. First of all, with respect to the $10 billion that 
you have requested for contingency, I suppose you would say, 
what would trigger the use of that money? Would we get prior 
review or would the appropriators get prior review of it? What 
kind of accountability would be provided Congress both before 
the use of it and after the use of it?
    Mr. Wolfowitz. The notion, Congressman Spratt, was that if 
we look to--as the President has emphasized, the Secretary has 
emphasized, this is an operation that is going to continue for 
quite a while. It is not just in Afghanistan. It is worldwide 
and even in Afghanistan, although the Taliban collapsed some 
few months ago, our level of operations there remains quite 
high. Every day we are engaged in new and sometimes frequently 
difficult and dangerous operations. What we tried to say is it 
would be irresponsible in this fiscal year to pretend that we 
are not going to have any costs in the war in the next fiscal 
year and that, secondly, it would send a very bad message to 
our adversaries, and to our allies for that matter, to leave 
the impression that we think this is all going to be over in 12 
months and that we therefore took a guess and it is a pretty 
arbitrary guess.
    It is basically saying that if our military operations 
continue at the level they are at today, $10 billion could get 
us into the fourth or fifth month of 2002. That would allow us 
to plan into 2002 before we had to come back for more specific 
appropriations based on what exactly we are doing.
    Obviously if there is a major new commitment of some kind, 
that amount of money might last a much shorter period of time. 
If on the other hand the fighting winds down, it might last a 
lot longer than 4 or 5 months, but we thought it was important 
both as a matter of responsible budgeting and as a matter of 
sending a message to our friends and enemies abroad that we 
make some provision for continuing this war into the next 
fiscal year.
    Mr. Spratt. With no offense we found, I think, over the 
years, regardless of the government agency, if you put money 
up, it is likely to be spent. So what kind of walls or 
restrictions do we put upon this money so that it is genuinely 
spent for the war on terrorism and not for unrelated purposes?
    Mr. Zakheim. As I understand it, the President has to 
inform the Congress that he deems it essential to spend the 
money. So it is not as if the administration would unilaterally 
go off and start spending into those $10 billions. I don't know 
and we will check for the record whether that is going to be 
mandated by law, but I know that is the intention.
    Mr. Spratt. Would it be like on the second tranche of the 
$20 billion, the $40 billion that we provided----
    Mr. Zakheim. I will check for the record on that. I know 
the intention is there. Whether it be the second tranche or not 
I will have to get that answer for you.

Editor's note: No response received at press time.

    Mr. Spratt. Mr. Zakheim, it would be useful to us, I know 
you have got all kinds of demands on your time and your staff 
does, if your staff could meet with our staff so we could have 
a better understanding of the actual cost of the war. If you 
say it's a billion five, a billion eight, we would have a 
better notion of how much the incremental cost is and how you 
are accounting for it.
    Mr. Zakheim. I will be happy to do that. We do prepare 
reports for OMB. We would be happy to share that information 
with your staff.
    Mr. Spratt. You mentioned the cost of health care doubling.
    Mr. Zakheim. Yes.
    Mr. Spratt. But you did get a break in a sense that the 
TRICARE program has been moved into function 550 out of your 
budget.
    Mr. Zakheim. But as you say, Congressman Spratt, it is only 
a break in a sense, because what happened by creating this 
accrual fund, we pay $8.1 billion into it, and the transfer to 
function 550 is actually what is actually paid out, which is 
something like $5 billion. So in fact we took a $3 billion hit. 
So we were helped only in a sense, sir.
    Mr. Spratt. Well, you didn't get an $8 billion hit, you got 
a $3 billion hit.
    Mr. Zakheim. It is all relative, sir.
    Mr. Spratt. When you say it doubles, are you including the 
$8 billion in the number or $3 billion?
    Mr. Zakheim. I was giving you an absolute number.
    Mr. Spratt. I agree we ought to look at it globally. It is 
coming out of the same pot ultimately, but----
    Mr. Zakheim. It is an absolute number in the sense that the 
cost of the medical care is growing at 12 percent a year, so 
the rule is 72, as you know, will double it in 6.
    Mr. Spratt. Thank you both for your testimony.
    Chairman Nussle. Mr. Thornberry.
    Mr. Thornberry. Thank you, Mr. Chairman. Gentleman, I have 
tried to listen carefully since the budget came out, and 
frankly, I don't hear a lot of people who are second guessing 
the number. There are a few people who think we need to spend 
more for various things. There are, I guess, a few who think we 
are spending too much, but very few people, it seems to me, are 
saying no, 369 is the wrong number, it ought to be 360 or 
something like that.
    I think the issues that do come up are more the question of 
how that money is spent, not the overall amount of spending. 
And Dr. Wolfowitz, I would like to get you to address the 
criticism that has been made that there is not enough reform, 
there is not enough change or transformation in this budget. I 
worry a little bit about using the word ``transformation'' 
because I think it is a label that is being slapped on all 
sorts of things these days and quickly loses its meaning. It is 
being used by people in the building to justify things they had 
been planning for years, and it is also used by people outside 
the building as an attack, I think, in some ways. It has got to 
save money, it has got to be high tech or so forth.
    But let me give you a couple of examples, and I don't mean 
to limit your response to this but there is an article in Time 
Magazine that says we have all this attention on UAVs. UAVs is 
going up about 13 percent but fighter aircraft is going up way 
more than that, something like 30 percent in this budget. Is 
that really transformation? You disparage the argument on the 
tooth-to-tail ratio but one specific that was listed in an op-
ed you may have seen was that the Pentagon spent $7 billion on 
a travel budget, $2 billion of that is spent on administrative 
overhead. I don't know if that is right or not, but I guess the 
concern that some people have expressed is that--and maybe it 
is legitimate--while you have got a war to fight, you can't 
shake up things too much. But in order to make sure we are 
getting the most out of the money we spend and to be prepared 
for the challenges in the future, we have got to shake some 
things up and maybe we are not moving fast enough.
    Mr. Wolfowitz. First of all, let me thank you, Congressman 
Thornberry, for the interest you have shown in general in 
transformation and pushing what we are doing here. There is a 
substantial increase in those accounts that we think are truly 
transformational, and you are right that there are people who 
say any program they happen to like is a transformational 
program. We have drawn that definition quite tightly, and we 
include in it things like the conversion of four Trident 
submarines to conventional platforms, and I have to tell you 
from personal experience that was a very difficult thing for 
the Navy to do and to find the money for. We have accelerated 
the Army's transformation, which is one way of thinking about 
it that I like to put it. It is taking the kind of dramatic 
capability that we saw in Afghanistan that is unique to Special 
Forces and putting them to more deployable conventional ground 
forces that linked up with our long range strike capability 
which should give us a substantial capability.
    On UAVs I know the total increase is a billion dollars. I 
am sure that is more than 13 percent. Do you know where it 
stands on total?
    Mr. Zakheim. I think you talked about growth of 13 percent. 
It seems a little low to me. I think the growth was 
considerably higher than that, particularly with programs like 
UAV and Predator as well but we can check for the record on 
that.

Editor's note: No response received at press time.

    Mr. Wolfowitz. The base would have to be $10 billion and it 
is not--and one of the reasons why you get some of these 
disparities is that when programs are new, there is only so 
much money you can spend on them intelligently, and we have 
tried to be intelligent about it. Just the rate of increase, 
which I believe is in the transformational categories I have 
mentioned, if we just take strictly transformation, not just 
what they call transformational supporting, there is a $5.4 
billion increase on a $15 billion base. That is a 33-percent 
increase. That is a really fast ramp-up and if you start to go 
up faster on some of these programs you would be throwing money 
at these things that by definition are still in their infancy.
    We are not counting F-22 as transformational. The Air Force 
would like to say it is transformational and it certainly 
brings capabilities that were not dreamed of before, but 
frankly, part of the reason for investing as heavily as we are 
in that program is it is the only program that we have 
available to start to bring some new aircraft into the Air 
Force. And I go back to my comment earlier, if transformation 
is successful we will at the end of the decade have transformed 
maybe 10 percent of the force. The other 90 percent of the 
force that is the backbone of what we do today, the aircraft 
carriers that enable us to fly over Afghanistan, the Army 
divisions or Marine divisions that enable us to do some of the 
work there, and at the same time I would emphasize enabling us 
to meet commitments elsewhere in the world, those we call the 
legacy forces, are still going to be some 85, 90 percent of the 
force and require modernization.
    Dov, did you want to add something about space?
    Mr. Zakheim. Yes. If you actually add in the money--new 
money we are putting in for a host of different space programs 
that tie in directly with transformation--as the Deputy 
Secretary said, for example, you need wide band solutions to 
support a larger number of UAVs, you have probably added 
another $4 billion, maybe 4\1/2\ billion to the 5\1/2\ billion 
that we calculate as really new transformation. That brings you 
up to $10 billion out of a procurement and research budget of 
$120 billion, give or take. That amounts to \1/12\, or 8.5 
percent for transformation. For a start-up ramp up that really 
is not bad and will continue to increase.
    So in aggregate even under narrow definitions we are making 
a significant commitment to transformation.
    Mr. Thornberry. Mr. Chairman, my time is up so I won't ask 
this question of the witnesses, but I think it would be helpful 
if we could request the witnesses to submit for the record a 
chart they have used before that shows the increase in the 
defense budget for more accurate estimates of what things are 
going to cost. For example, they have evidence that we have 
systematically underestimated the cost of weapons systems year 
after year. What they have done is adjusted the budget to 
reflect how it is really going to go and that is part of the 
increase.
    Health care is another example that has been used, 
systematically we have underestimated in the budget request. We 
have to fill in the gap in Congress every year, and they put it 
in right to begin with here. So those moneys do add up. I think 
it is important for the Budget Committee that we have those 
numbers, and I hope you could make those available to us.
    Mr. Wolfowitz. We will submit that for the record. The 
total is $7.4 billion, and we hope we don't have to keep doing 
this over and over again, although things do have a way of 
sneaking up.
    [The information referred to follows:]

                   Chart Requested by Mr. Thornberry



    Chairman Nussle. Mr. Davis.
    Mr. Davis. Thank you, Mr. Chairman. I think, as Mr. Spratt 
and the chairman have mentioned, it is terribly important we 
provide to you the funds you need and it is equally important 
we don't provide you any more money than you do need. I have 
two concerns about the magnitude of this request. First is the 
invariable bureaucratic inertia which tends to minimize the 
integrity of any request of this magnitude. The second is the 
tremendous pressure that everybody faces here for us to 
continue to fund weapons systems for the sake of economic 
development throughout the country, rather than because they 
are genuine serious needs of the defense of our country.
    I would like to start with graphic No. 2. Mr. Spratt was 
very specific, Secretary Wolfowitz, in characterizing our 
analysis of your OMB numbers as suggesting that less than half 
of your requested increase is related to the war on terrorism, 
as we see it, and less than 10 percent of your entire fiscal 
year 2002 budget falls in that category. If you do not agree 
with that characterization, what do you think is a fair 
characterization of the proportions?
    Mr. Wolfowitz. First of all, as to the increase itself, if 
we look at the increased elements of the program, as I said in 
my opening testimony, Congressman Spratt's numbers are roughly 
accurate and the other half is filled up with inflation, 
realistic costing, and health care and retirement accruals. The 
only way we have actually some $10 billion or so of new 
investment in this budget is by the $10 billion we have been 
able to take out of killing programs or restructuring programs.
    But on the question of what part of this budget goes for 
the war on terrorism, I think it is misleading to say that only 
that part that is identified as the increased cost of the war 
is the cost of the war. We couldn't conduct this war without a 
large fraction of the military that is our investment today, 
and when we, for example, put up a figure about the cost of the 
war we don't put in anything about the cost of building 
aircraft carriers, building the planes that go on those 
aircraft carriers, maintaining those planes. We just allow for 
the increased wear and tear and the increased operating costs 
that come from extra flying hours.
    So I guess the difference between marginal and fixed costs, 
but you can't say the war on terrorism could be conducted for 
just $10 billion. It takes a very large fraction of the defense 
budget to make it possible.
    Mr. Davis. Can you give us a rough characterization of what 
percentage of your increase represents our reaction to the 
events of 9-11?
    Mr. Wolfowitz. Specific reaction to the events of 9-11? Do 
you want to----
    Mr. Zakheim. Honestly, Congressman, I think it is an apple 
and an orange. The reason I say that is that given the must pay 
bills that the Deputy was talking about, which take up a chunk 
of that increase, given the realistic costing which take up a 
chunk of that increase, if one then adds what we call ``must 
pays,'' accruals, pay raises, plus the realistic costing that 
the Secretary just mentioned, we are at $21.5 billion right 
there, of the 48 that we have talked about. Add inflation to 
that and one is now at $28 billion, which isn't all that 
different because, if one takes the 10 billion we set aside as 
what Mr. Spratt calls contingency, that leaves $38 billion and 
I have just given you $28 billion. There is the 10 and it is 
not all going to the war on terrorism. It is going to 
transformation and some other things. So that is why I say it 
is an apple and an orange, sir.
    Mr. Davis. Let me move to graph No. 8, which represents a 
comparison of the 1997 QDR to your current plan, and I would 
say a remarkable similarity. Does this represent that a 
substantial portion of your budget and your increase is simply 
a continuation of the policy we have been following since 1997 
and particularly in this area?
    Mr. Wolfowitz. The changes in force structure are modest 
and we have said from the beginning that is not the main--that 
is not where the main differences lie. The change in strategy 
that we developed in the QDR makes the difference that we are--
for the goals of the old QDR that force structure was judged to 
be high risk. With the new force sizing concept, we have a 
force structure that can meet those requirements, but I would 
say most importantly what we faced a couple of years ago was a 
force structure that was really stretched very thin and was 
seriously underfunded in operating accounts and health care 
accounts and where simply maintaining adequate levels of 
rotation base to support relatively high rates of operation was 
difficult.
    So, yes, it is true that we have a force structure that is 
roughly the same as the one 4 years ago. It is, I think, being 
equipped and trained and paid and funded quite substantially 
better than it was before, and in terms of transformation 
accounts I think we have a very significant investment, as I 
went through in my testimony, in new categories.
    Dov, do you want to add to that?
    Mr. Zakheim. A couple of things. For example, just to pick 
up where the Deputy left off, the USA had fighter wings that 
won't address Predators or Global Hawks or anything like that. 
They are totally off the chart. If you want to look at surface 
combatants, this wouldn't account for the new DDX program and 
what we are trying to do there. And as the Deputy said as well, 
the O&M side, particularly the health care side, which has 
grown significantly; training--we are at much higher tank miles 
than we were in 1997--civilian costs, health care reimbursement 
as well as the military health costs are all up. Obviously 
force protection costs, which you might lump into 
counterterrorism, if you will, did not start with this 
administration. They have grown significantly, by about 75 
percent, from where we were in 2001 but it didn't start with 
this administration, and those costs were really quite low in 
1997.
    So you have a host of elements that simply don't show up on 
your chart, sir.
    Mr. Davis. Thank you. Thank you, Mr. Chairman.
    Chairman Nussle. Mr. Gutknecht.
    Mr. Gutknecht. Thank you, Mr. Chairman. If you want to 
leave that chart up, I think there is one point you should have 
mentioned. We were all concerned. I think it was after our 
little air war with Slobodan Milosevic, that we were virtually 
down to scraping the bottom in terms of some of our smart 
weapons. So when you talk about a hollow force, I think it 
became painfully aware to many of us where we were.
    First of all, let me say particularly to Dr. Wolfowitz, 
thank you for all you have done. The briefings that you have 
given us have been very much appreciated, and frankly I think 
it is very reassuring to virtually every Member of Congress the 
level of professionalism that you have brought to the job, and 
we are very appreciative.
    I think I speak for all of this committee, and virtually 
all of the Congress when we do say that we want to give you 
everything you need to win this war and to prevent the next, 
and so that clearly is a very important part of the 
responsibility we have in Congress. There are some in this 
room, and some in Congress who have a difference of opinion 
about strategic defense and whether or not we need to build a 
system like the administration envisions. I strongly support 
it, and let me explain one real quick reason maybe for the 
benefit of some of my colleagues. I may be one of the few 
Members of Congress who has visited a little place called 
Peenemunde, and I would hope all Members would see Peenemunde 
themselves. What it was, was a German base along the Baltic 
Ocean where they literally built and designed the B-2s, and 
this was 2 years ago. They still have on one of the laboratory 
walls a little cartoon of a two-stage rocket raining down on 
New York City and that cartoon and those plans were drawn in 
1942. That was 60 years ago and if they could conceive that in 
1942, it is not unreasonable that people in other parts of the 
world today are working on exactly the same plan. So the next 
time someone questions you about the need to build a strategic 
defense, just remind them what happened in Peenemunde.
    But I do want to come to a very important point, and this 
is that whole issue of transformation because I think we are 
going to have a lot of discussion about that in this committee, 
and I think we should. I am told that, and I believe this is 
true, that we currently have--and there is a tendency in every 
bureaucracy to start to get top heavy and I have appreciated 
the interaction that I have had with both the junior officers, 
the admirals, the generals over the years. We are so fortunate 
to have the people who serve us not only who are out there in 
the field but the general officers. We have some of the top-
notch people. But I do have a concern that we are becoming 
increasingly top heavy. Let me give you a statistic and this is 
one that I think you could help us as we go forward, and that 
is that we now have more generals and admirals in the military 
today, with the total number of people in uniform, is something 
like 1.9 million. I think that is what we were told earlier, 
that we had, at the peak of World War II when we had 16 million 
Americans in uniforms. We now have more generals and admirals 
than we had then. I know there is discussion about 
transformation, but let me give you an example.
    It is not even in my district, but in my State. We have a 
situation, for example, where at the same airport side-by-side 
we have a National Guard air base and we have a Reserve air 
base. They both do exactly the same thing. They both fly C-
130's. Now, one has newer models than the other. One of the 
officers in the National Guard came up with a pretty good idea, 
and that is you could combine the two into one, and it has 
received sort of a mixed review. This is the kind of 
transformation that I, as a Budget Committee member, say this 
is a good idea because what we have is a duplication there. We 
have got two bases side-by-side and that basic concept has 
received mixed reviews, I would have to say, within the 
Pentagon, and it seems to make an awful lot of sense to me and 
it is the kind of thing we want to see more of here on the 
Budget Committee.
    I don't want to blind-side you and I don't expect you to 
know much about that, Dr. Wolfowitz, but I would like to give 
you a memo, a one-pager, to explain what they are talking about 
and see if there aren't some ways that we can generate more 
interest in, A, making the Pentagon and military less top heavy 
and, B, finding transformation where there can be real savings 
for the military.
    Mr. Wolfowitz. I would be happy to look at that or any 
other ideas. I have a feeling that if it is a good idea that we 
are probably going to run into people who say, well, not in my 
district. I mean the difficult decisions are going to come on 
both ends of Pennsylvania Avenue. I think we saw that with the 
B-1 consolidation, which I hope, knock on wood, is now in some 
state of agreement.
    If I might go back for a minute, too, I think I may have 
slightly missed the point of this question about the force 
structure isn't very different. I don't think of transformation 
in terms of how much you have cut the force structure, and I 
sometimes think people are measuring transformation by how many 
programs you have killed or how many people you have fired. We 
are trying to measure in terms of new capabilities that allow 
us to protect the country better, and I think if we had in fact 
said let us have a force structure that is 20-percent smaller, 
if we had made that decision 6 months ago, we would be 
scrambling now to rebuild it.
    One of the things that proved to be a significant 
constraint on looking at smaller force structures when we did 
the QDR was how do you maintain the rotation base to have 
significant deployments all around the world, significant 
deployments away from home for training. It is one of the 
biggest constraints on how we manage the force, and we think 
that there are some opportunities to get more efficient. We 
think there are opportunities to reduce some of the things we 
do.
    As you probably know from reading newspapers, the Secretary 
has been trying for nearly as long as he has been Secretary of 
Defense this time around, to remove or at least reduce the 
forces that we have in the Sinai Desert and keeps being told it 
is not a good time, and he keeps saying there is never a good 
time.
    We have succeeded, I think, in reducing our presence in 
Bosnia from some 4,000 a couple years ago down to 1,800 and 
bringing costs down with it, and we are going to look at 
everything we do, particularly because of the strengths on 
fighting this war, and see where there are things that can be 
rearranged. But I don't think of transformation in terms of 
what we cut. I think of it in terms of the new capabilities 
that we build.
    Chairman Nussle. Mrs. Clayton.
    Mrs. Clayton. Thank you, Mr. Chairman, and thank you, 
Secretary Wolfowitz, and Secretary Zakheim. I think we will 
probably resound this chorus of saying that our national 
defense is certainly important, and one of the most important 
functions of government is to defend this Nation. So when one 
looks at the defense budget, it is viewed in that sense, but 
that does not remove the responsibility for us to question the 
appropriateness of the size, the appropriateness of the 
function in relationship to other things as well. Let me thank 
you for not only the information that you are providing, but 
your testimony here, and your willingness to answer those 
questions that we raise.
    My concern is the size. The size in light of our total 
resources or lack thereof, and our obligation to our total 
population, including defense. So if defense is indeed our 
number one priority, it is not our only priority. So, it has to 
be looked at, at least in this Member's view, as budget 
priorities, plural. So it is looked at in the sense of where do 
we get those resources, or what is the impact on our total 
budget.
    The other concern is looking within the defense budget. The 
questions--you have heard some of them--are talking about the 
terms of the new strategies, or the word you used was 
``transformation,'' to meet the current threat. I think--in 
respect to your effort--that this effort has been undergoing 
for this new strategy for some while. It is not really just 
after September 11. You were in a process of trying to justify 
the request for the $18 billion that we had in reserve for some 
time. There have been several commissions on security that have 
raised a whole potential of terrorism. So that wasn't a new 
idea either because I think the Commission on Security 
recommended to you that our new threats were not going to be 
those great missiles, but were going to come from an unexpected 
source. So, I assume you were making those adjustments or 
thinking through strategically as to what would be appropriate 
choices.
    My questions are on both of those fronts. First of all, the 
largeness and the impact--can someone please put up slide No. 
6? If we spend at the rate that you have proposed, I am not 
sure what would happen to not only Social Security but even 
some of the retired military people. In fact, according to the 
budget, the deficit that will occur as a result of the proposed 
budget of the administration--if I am interpreting this 
correctly--would account for an additional $110 billion; is 
that correct?
    Mr. Wolfowitz. Judging from that chart, that looks like a 
2012 number and I am not sure--that must be a projection 
because we only----
    Mrs. Clayton. I am sorry. I was just corrected. It would be 
600 some billion. This is for the year 2012. I am sorry. I 
apologize. So it would be more than that. Let me ask you, does 
that chart reflect the correct percentage for that number of 
years?
    Mr. Wolfowitz. We aren't projecting budgets beyond 2007, so 
I assume that must be a straight line extrapolation from a 5-
year program.
    Mrs. Clayton. It is. Just take 5 years. That would be what, 
2000 and----
    Mr. Wolfowitz. Year 2007.
    Mrs. Clayton. Year 2007.
    Mr. Wolfowitz. I mean you are taking me into territory that 
is really the OMB's domain to look at how this fits in the 
overall budget.
    Mrs. Clayton. Right. I was just advised that it really is 
over 5 years about 400 billion rather than----
    Mr. Wolfowitz. I think it is about a $380 billion increase 
over the 5 years, I believe, total.
    Mrs. Clayton. For the deficit?
    Mr. Wolfowitz. Whether it is a deficit or surplus depends 
on a larger projection, but----
    Mrs. Clayton. I guess we can make that assumption since 
there is no surplus, we are all spending in deficits not only 
for defense but everything else. So what did you say it is?
    Mr. Wolfowitz. I think 380----
    Mr. Zakheim. It is 423.
    Mr. Wolfowitz. OK, 423--sorry--of increased spending over 
that period.
    Mrs. Clayton. I beg the question, how do we keep our other 
obligations? For example, our trust fund is also important to 
us. I think Social Security would be equally important to you 
as well. How do we keep our obligations with the government, 
when we continue to spend at this rate?
    Mr. Wolfowitz. I am tempted to say that I think I will let 
Mr. Daniels answer that question, but I think his answer really 
comes down to the fact that I think there are different 
projections about where we are going to be in terms of surplus 
and deficit in the outyears. So much depends, as you know 
better than I, I think, that small changes in our projections 
of economic growth turn things from surplus to deficit, but I 
agree very strongly, Congresswoman, that we have got to manage 
these dollars tightly and efficiently and we can't just say 
because we are fighting a war that we no longer need to be 
careful about how we spend money. We are trying to be very 
careful about it. But many of these increases are increases, as 
I said in my opening testimony, that are simply unavoidable. 
They are pay raises that we have got to pay, they are health 
care costs that we have got to pay, inflation that we have got 
to pay----
    Mrs. Clayton. What would that represent of the total 
increase you are giving? The quality of, I guess, personnel, 
health care----
    Mr. Wolfowitz. Out of the 48 billion in 2003, some 28 
billion is in those categories, so more than half.
    Mrs. Clayton. Out of the total, 423?
    Mr. Wolfowitz. No. I don't have the 5-year total.
    Mrs. Clayton. Oh, out of this year's----
    Mr. Wolfowitz. Out of this year's 48, some 28 is in those 
categories and the other 20 is in the cost of the war and 
presumably also, by the way, some of the costs of the war money 
hopefully we might be----
    Mrs. Clayton. My time has expired. Can we submit questions 
to get answers further for that?
    Chairman Nussle. Yes, you can. For the record?
    Mrs. Clayton. Yes, for the record. So you can benefit from 
it as well.
    Chairman Nussle. I would certainly look forward----
    Mrs. Clayton. I want your farmers to understand what my 
farmers understand.
    Mr. Wolfowitz. I would be happy to answer it.
    Chairman Nussle. Thank you. Mr. Collins.
    Mr. Collins. Thank you, Mr. Chairman. Thank you, Mr. 
Secretary. As was mentioned early on, there is a lot of 
expertise on this committee when it comes to budgeting and 
particularly the Defense Department budget. I consider that 
expertise probably more political than I do substance because 
when I look at the substance--I appreciate the comments you 
made in reading through your testimony as you were going 
through it. As you were going through it, I thought it was very 
supportive of real substance in budgeting for the Department of 
Defense. It was also mentioned as to what do we tell our 
constituents about the defense budget, about the overall 
operation of the government.
    Let me just tell you what my constituency told me back in 
the early part of January 2001, as I returned to the air of 
Columbus, GA, home of the infantry in Fort Benning, GA. I was 
asked the question do you know the difference between 
President-elect Bush's Cabinet pick or picks, and those of the 
previous administration? And I said I don't know quite where 
you are coming from, but I will be glad to listen to your 
answer. The answer was it is good to see the adults are back in 
charge, and I could not agree more.
    September 11 reinforces the fact that I am glad to see that 
we do have the adults back in charge, in the way that things 
are being handled here in Washington by this administration, by 
the people that the President has chosen to support him in his 
efforts to be the President of this country. People are very 
concerned about national security. They are well pleased with 
the way things are being handled, but they still have a fear of 
what could happen and what possibly may happen.
    I hear no complaints about what the Department of defense 
is doing, what you are proposing to do and how you are going 
about it and expectations of what you will do in the future. I 
hear no complaints from those in the Guard and Reserve about 
the deployments that they are now under or potentially will be 
and those who have been. I think as long as we continue to move 
forward with an approach to the defense of this country, the 
national security, by putting into place smart budgets, smart 
weapons, and using them smartly, we will be able to offer the 
security this country needs and its people.
    When you look at funding history of the Department of 
Defense that was shown in the chart early on by the decades, 
you see the peaks and valleys of funding. You will also see the 
eras of problems. And those problem eras came in the years, the 
decades, that we had quite a reduction in funding, particularly 
in the late seventies, when the seventies dropped--I believe it 
was down from $352 billion average in the sixties to $313 
billion in the seventies. I recall some very bad instances that 
occurred in that period of time, particularly dealing with the 
hostages in Iran.
    Then you look back in the eighties and how we peaked again 
to $395 billion average when we built the force back and 
defeated the Evil Empire in the cold war, and in the nineties 
we began to see the defense Department budget again go on a 
decline. Again I recall problems. In fact, I was at a movie 
just a week ago that emphasizes one of those problems that took 
place in Mogadishu. We are building it back. We started after 
1997 increasing the defense budget and I think for good reason.
    It has also been mentioned, Mr. Secretary, that the economy 
is one of the most important factors in how we fight this war 
and how we fund this defense. What is referenced here is the 
fact that we have been in a recession. We are down from what 
people call surplus; I call it a cash flow. Where we had a 
positive cash flow, now we have a negative cash flow, and most 
of it came from the recession. What we need now is a strong 
economy; in other words, we need a stronger cash flow in the 
marketplace. And we have tried to do some things and the 
President has offered some things and in fact in this budget 
are some incentives that will help to build the marketplace and 
create jobs and create activity in the marketplace, and that is 
how you build a strong cash flow and strong economy, is 
focusing on the cash flow of the private sector, the individual 
and the business, and not so much on the cash flow of the 
Treasury because if you focus on the right cash flow, this cash 
flow will take care of itself.
    There has been reference that--an indication to the seniors 
of this country that we are writing checks out of the trust 
fund to fund the Department of Defense and other areas of 
government. Nothing could be farther from the truth. The fact 
of the matter is, all of the positive cash flow of each trust 
fund is used to invest in government securities. The very first 
dollar beyond the amount of money that it takes to operate any 
trust fund for any program, the funds are used to buy 
government securities. They are entitlement programs and under 
an entitlement program Social Security and Medicare will be 
funded when the day comes ahead of defense. That is the reason 
it is so much needed that we move forward with the reforms that 
the President has also put forth on both of those programs. 
Reform the Social Security, reform the Medicare program to 
where you do have self-sustaining and possibly programs that 
won't be put ahead and to jeopardize the defense and security 
of this country.
    I submitted to you some questions that I hope you will be 
able to get me some answers back on. I do have another 
question, too, about depots, operation maintenance and depots, 
and how the operation and maintenance of the contracting hired 
lies with the private sector. So I hope you will be able to get 
me those, and I will get your question on that one, too. But we 
do appreciate your testimony and the substance of your 
testimony and what you all are doing for the national security 
of this country.
    Thank you, Mr. Chairman.
    [The information referred to follows:]

            Responses to the Questions Posed by Mr. Collins

                            U.S. ARMY SOUTH

    Congressman Collins: When is the Secretary of Defense going to 
announce his Unified Command Structure Concept? And, if you know, when 
is the Army going to officially announce that they are planning to 
relocate US Army South Headquarters from Fort Buchanan, Puerto Rico to 
the continental United States?
    Secretary Wolfowitz: Congressman Collins, the Army is studying the 
necessity of moving United States Army South (USARSO). Currently, 
studies are underway by the Office of the Secretary of Defense and the 
Joint Staff looking at the restructuring and streamlining of Service 
Component Commands throughout the world. After these restructuring 
studies are finalized and decisions made, the Department of the Army 
will conduct a detailed examination of the relocation of USARSO from 
Puerto Rico.
    Congressman Collins: Is the Secretary of Defense aware of this 
relocation, and if so, when does the Army plan to make the announcement 
on which base will receive the Headquarters?
    Secretary Wolfowitz: Congressman Collins, The Secretary of Defense 
is aware of the possible relocation of United States Army South 
(USARSO) and The Department of the Army is currently examining the 
future structure and stationing of Headquarters, USARSO. No decision 
has been made, nor is there a projected timeline associated with these 
decisions.

                          ARMY MANEUVER CENTER

    Congressman Collins: I have heard a lot of talk about the Army 
Maneuver Center Combat Training Operations Command (TRADOC) that is 
being discussed within the Army at TRADOC and with the Chief of Staff, 
but Congressional Members have yet to be briefed on this initiative. I 
am very disappointed in the lack of communication between the Army and 
Congress on this particular issue--an issue that may impact training, 
may impact military bases across the country, and most importantly may 
have a dramatic impact on how we fight wars, especially our fine men 
and women in uniform. With that in mind I would like to know if your 
office has coordinated with the Army on this concept? I have asked 
General Abrams from TRADOC to brief me on this initiative, and I have 
yet to get any feedback * * * what are your thoughts?
    Secretary Wolfowitz: TRADOC is charged with the missions to prepare 
the Army for war and be the architect of the future Army. As the Army's 
institutional training base, TRADOC is the largest university in the 
world, conducting training and education across 15 installations and 27 
schools, one of those being the Infantry Center and School at Fort 
Benning, GA. It is the unique and synergistic nature of the 
institutional training base that brings the power of the entire 
organization to bear on its ability to perform its major missions. 
These dynamics are linked to Army Transformation as it moves to the 
Objective Force, and TRADOC is taking a broad, introspective look at 
how it performs its major missions.
    This introspective look underway is to ensure two things. First, 
TRADOC must continue to provide leaders and soldiers for today's 
operational force and posture itself to accomplish this mission for the 
Objective Force. Second, TRADOC must ensure the powerful vehicle for 
moving the Army into future, TRADOC's combat developments mission as 
the architect of the future Army, supports key Army Transformation 
initiatives on its road to the Objective Force. TRADOC is exploring the 
creation of warrior development centers focused on combined arms war 
fighting within three force functions: maneuver, maneuver support, and 
maneuver sustainment. These centers will conduct combined arms training 
and system of systems development in line with Department of Defense 
evolving policy. No decisions have been made at this time, nor do we 
foresee any decision in the near future, on the location of a Maneuver 
Center.

                               GAO STUDY

    Congressman Collins: Are you aware of the GAO study that was 
conducted in February 2000; a report to the subcommittee on Defense 
Appropriations entitle ``Defense Budget--Should DOD Further Improve 
Visibility and Accountability of O&M Fund Movements?'' What 
improvements are you making with this Budget to ensure funding is not 
raided from one account to pay for something, not intended by Congress, 
in another account?
    Under Secretary Zakheim: Yes, the Department has taken actions to 
comply with GAO's recommendations to further improve the visibility and 
accountability of O&M fund movements. For instance, the Department 
developed formal guidance for fact-of-life funding adjustments to the 
Components in order to provide more visibility and to better explain 
realignment of funds from one O&M subactivity group to another in the 
budget and congressional reports. The Department also provided 
additional funding in the fiscal year 2003 President's Budget to areas 
such as base support, second destination transportation, and training 
enablers (e.g., training range operations) to prevent migration of 
funds out of these areas, which had been the most common receivers of 
adjustments during the execution year. We anticipate that these actions 
will allow commanders to better protect readiness programs and minimize 
the necessity of funding realignments during execution.

    Chairman Nussle. Thank you. Mr. Price.
    Mr. Price. Thank you, Mr. Chairman. Mr. Secretary, Mr. 
Zakheim, let me welcome you both. Thank you for your testimony, 
and I also join in thanking you for the service to this country 
that you and your colleagues have rendered, especially over the 
last 5 months.
    Mr. Wolfowitz. And I might reply to you and many others 
that the real thanks has to go to the men and women in uniform, 
and frankly those of us who serve back in the Pentagon feel 
honored and privileged to be able to help them. They are a 
fantastic bunch of people.
    Mr. Price. I think you should feel that way, and we are 
indebted to all of you. Let me get some perspective on this 
budget by suggesting that had September 11 not occurred, you 
would have gotten a much lower number from OMB. In light of the 
Treasury review and the Quadrennial Defense Review, I think you 
would now be looking at a relatively modest increase in the 
overall defense budget, and I think you would be looking 
probably also at more trade-offs or at least a kind of forced 
choosing of priorities. But of course September 11 did occur, 
and the result is, first of all, greater spending, a huge 
increase that translates into $645 billion sustained over the 
next 10 years.
    Secondly, more emphasis on terrorism and homeland security, 
although not as great a share of the increase as might have 
been expected, something like 46 percent of the programmatic 
increase, although I know there has been some discussion of how 
accurate that percentage might be.
    The third result is perhaps a less rigorous consideration 
of priorities, fewer trade-offs. That is what I want to take up 
with you and ask you to reflect on.
    Secretary Wolfowitz, before our committee you said that 
President Bush had told the Department leadership to engage 
your brains before you open the taxpayers' wallet. Well, in 
this year's budget, the taxpayer is indeed being asked to open 
up his or her wallet, but you have essentially adopted the 
force structure as the Clinton administration adopted it after 
the last quadrennial review in 1997.
    Mr. Korb will testify later today--and I am quoting here: 
``The real reason for the increase in this year's budget is not 
the war on terrorism or the state of our military. This massive 
increase is necessary because the Bush administration failed to 
carry out its campaign promises to transform the military and 
the Secretary of Defense failed to make the hard choices that 
are necessary in formulating a defense budget. Rather, he 
simply layered his programs on top of the Clinton programs that 
he inherited.''
    So my question has to do with your response to that. Where 
in this budget is the evidence of hard choices? Is the layering 
choice justified?
    Let me suggest a couple of ways you might approach this. 
One would be--and this is probably the more difficult way to 
frame this--if we assume the importance of the $19.7 billion 
antiterrorism and homeland security increases, what might have 
proved dispensable or what would have been the last items 
adopted had that additional $23 billion not been available?
    Another, and somewhat more focused, way to approach this 
would be to address some of the specific budget items that do 
have the appearance of layering, full funding for the Crusader, 
full funding for three short-range fighter programs, even 
though the Quadrennial Defense Review played down the need for 
more fighter jets and called for developing more long-range 
bombers.
    So I don't know exactly how, in the few minutes we have, 
you can approach this, but I think you are aware of this line 
of criticism and I would be interested in how you deal with it.
    Mr. Wolfowitz. First of all, I think it is important to 
recognize that most of the increase that doesn't go for 
specifically funding the costs of the war goes for, as we have 
said over and over again, must-pay bills; and if we had to pay 
them within the much smaller increases that you suggest would 
have been there, absent September 11. We would have been facing 
essentially real reductions in defense spending, significant 
ones.
    The question is: Where would you take them? We took quite a 
few as it was. We did kill the DD-21. We killed a number of 
Army programs to help fund Crusader, and by the way, Crusader 
itself is not fully funded. The size of the program has been 
cut very substantially, I think from 1,300 to 400-and-
something. You get to the aircraft, and here you have sort of a 
crucial point, which is that our aircraft are getting old and 
particularly in the case of the Air Force, aircraft dangerously 
old. The aging not only makes them to some extent unsafe, but 
it substantially increases the cost of operations and 
maintenance, and that is one of the things that has been eating 
our budgets in recent years. We had to get on with the business 
of building new Air Force fighters and the F-22 is what was 
available. People who say it would be nice to kill it, I think 
are wrong in understanding the value of that capability in this 
new environment. But in any case, we didn't have abundant 
alternatives on the drawing boards with which to maintain or 
with which to reduce the aging of the Air Force fighter force.
    Joint strike fighters is one of the--hopefully, if it comes 
in, will be the low-end option that will allow us to keep 
aircraft age at a reasonable level without the expense of an F-
22. But that plane isn't here for some 10 years.
    So you come down to the way you save money in the 
Department of Defense. The way you could save it substantially 
would be big force structure cuts, cutting tens of thousands of 
people out of the force, cutting out a couple of aircraft 
carriers, cutting out a couple of divisions. I think as I said 
earlier, if we had done that, started doing that 6 months ago, 
we would be scrambling to reverse course today. We would find 
we don't have enough people to maintain aircraft carriers 
operating at the intensity they operate, because, remember, 
unless you want to force people to spend 12-15 months away from 
their families, which is going to clean out the volunteer Navy 
pretty quickly. If you limit what is itself a pretty long 
deployment away from home for 6 months, you need a substantial 
Navy in order to maintain the kind of capability, the kind of 
presence that we are absolutely depending on today in the 
Indian Ocean and the Persian Gulf.
    The fact is that so far, being able to cut people from the 
force--and the numbers keep growing, I had 72,000 in my head--
Reservists to active duty--we are at 85--what we are fighting 
with, Congressman Price, is to keep those numbers from 
migrating into permanent end strength in the force structure. 
There are a lot of proposals that are on the Secretary's desk 
not literally but figuratively to add strength to all of the 
services. And what he said, ``Before I agree to any of those, I 
want to find out what you are doing today that you don't have 
to continue doing.''
    But the pressure is all toward growth. It comes back to the 
point, I believe, that--and it is the reason why in the QDR we 
didn't cut force structure significantly--that to maintain the 
kinds of commitments we have worldwide and the kinds of 
commitments that allow us to conduct a global war on terrorism, 
you need a significant amount of force just to provide the base 
that keeps those deployments going.
    So I guess to come back to your question, faced with the 
choice between airplanes that continue getting older and older 
and cutting the size of the Air Force, cutting the size of the 
Navy in a way that would have put us in danger, I am not sure 
we would have made those choices.
    We did make hard choices. We did make a choice not to 
invest in shipbuilding at a rate that we think in the long term 
we are going to need to do. That is because the age of our 
ships is relatively young and it permits us some flexibility 
to--and it is tricky, but some flexibility to postpone those 
investments.
    We made hard choices to push the Navy, and I have to say 
somewhat reluctantly, to invest in this new capability that the 
Trident conversion will provide them. I could go down a long 
list of things. It has not been easy to do even though it looks 
like there is a lot of money. There is not a lot of money by 
the time you finish covering the pay raise, covering inflation, 
covering realistic costs, and covering the costs of the war. 
You are really almost flat.
    Mr. Price. Well, it may be that there were certain 
unrealistic expectations that accompanied the QDR. But if that 
is true, I think that is partly attributable to the kinds of 
things the President said in his campaign, the kinds of things 
that the Secretary repeatedly said that led many people to 
expect larger changes, more sharper trade-offs than we see in 
this budget and perhaps than we would have seen in any case. 
But if that is true, if there were some unrealistic 
expectations, I do think it is incumbent on the administration 
to make this defense very explicit and very strong and to deal 
with that accusation of layering and that accusation that 
somehow this whole transformational effort has been derailed by 
9-11.
    Mr. Wolfowitz. Let me add one other thing. I think we did 
underestimate just how much was being added to the defense 
budget by this health care, rising health care costs, and I 
think we underestimated how much had to be done to get the 
accounts up to date. So getting that force structure healthy 
turned out to be more expensive than we figured on.
    Chairman Nussle. Mr. Schrock.
    Mr. Schrock. Thank you, Mr Chairman, Dr. Wolfowitz, 
Secretary Zakheim, thank you for coming, and let me echo the 
chorus you have heard around here that I thank everybody 
associated with the Defense Department, uniformed and civilian, 
for the wonderful job they are doing. I will tell you, people 
are placed where they belong at a certain time in history, and 
the people that are in the Pentagon are there for a very 
specific reason. Never could I have imagined when I was 
privileged to serve in the Pentagon in the seventies that the 
Secretary of Defense would be known as a sex symbol in this 
country. But the----
    Mr. Wolfowitz. That is transformation.
    Mr. Schrock. That is the ultimate transformation. But the 
point is, Secretary Rumsfeld is out there every day, talking to 
the American people every day about what we are doing and why 
we are doing it, and I think that rings well for what is going 
on. He is running this war well, and I am very proud of the man 
in the White House for the way he is handling it. He has given 
him the task, he has backed off and let the military do what 
they do best, and that is why we are succeeding. As long as 
that continues, we will win this war on terrorism, no question.
    I think we need to understand why we are spending all this 
money. As has been repeated many times, Mr. Collins probably 
said it better than anybody, but we have neglected the military 
for so long, for so many years in the nineties, we are trying 
to play catch-up ball. I know that for a fact because I live in 
probably the area that has more military installations and 
military personnel than anybody, and I hear it all the time 
from top admirals all the way down to the enlisted people. We 
are trying to play catch-up ball, and of course 9-11 didn't 
help matters, and I think we are doing a good job.
    Transformation, yes, I think transformation can go on while 
we are conducting a war, and it simply must because we need to 
find efficiencies, we need to do more interruptibility, and we 
need to be more purple. When I was in the Navy, the Navy had 
their programs, the Army had theirs, the Air Force had theirs, 
and there in between shall meet. Nobody worked together. I 
think the more we go on and become more purple, I think the 
better.
    Of course, as I said, even though we are in a war, we need 
to do the transformation. I am glad to hear you talk about the 
quality-of-life issues and pay for our service men and women. 
They have always been underpaid, and it is high time they get 
up to par with their counterparts in the civilian community and 
to make sure their pay is good, their health care is good, and 
their housing is good. It is going to make them stay in.
    I have seen housing that is actually deplorable and no 
human being should have to live in. Finally, that trend is 
starting to change. I was privileged to travel with three other 
Members of Congress, two Republicans and two Democrats, on a 4-
day, 12-State, 25-base tour in August. If you had seen some of 
the things we saw, it would make your blood boil.
    We have to make sure our troops are treated a lot better 
than they had been in the past or we are going to lose them. If 
mom and the kids aren't happy, pop is not going to stick around 
very long. And I think the sooner we can make that happen, the 
better.
    You might wonder why someone who represents so much 
military would be in favor of BRAC but I am. On base after 
base, post after post that we went to around the country, the 
post commanders would tell us this building over here we 
haven't used in 3 years but we have to maintain it. Time after 
time after time, we heard it. I hear the figure coming from the 
Pentagon that we have 25-percent more infrastructure than we 
need. I think it is probably more than that. And I think it is 
high time we do it.
    But I want a BRAC where the Joint Chiefs and the Secretary 
come to the Secretary of Defense and say, this is what we 
cannot live without and everything else is on the table. And I 
think that would bode very well. Of course, somebody's ox is 
going to be gored and I understand that, but if we are going to 
truly use the money efficiently like everybody around here 
wants us to do, then we simply have to do that.
    I was a little disappointed about the BRAC being delayed as 
well. I didn't understand why there were so few ships being 
built until secretary Gordon England had a little ``come to 
Jesus'' meeting with me in my office and made me understand 
why, and I do understand why now. I think in time we are going 
to see those numbers go up, and I feel confident that will 
happen.
    The only thing I am concerned about is the year delay in 
the carrier keeling for No. 77. That is the only thing I am 
little puzzled about. I was hoping we could do that a little 
sooner. But other than that, I congratulate you all on what you 
have done, and thank you for putting up with us in everything 
we ask. And just keep going. I think you are doing a wonderful 
job.
    Mr. Wolfowitz. There are hard choices throughout this 
budget. As I said in my opening statement, we are trying to do 
three things at once: to prosecute this war on terrorism, to 
support our existing force and particularly our people 
adequately, and to build a force that our men and women are 
going to need 10 years from now. It is expensive. It isn't 
easy, and we can't do everything. I mean, that is why the 
carrier slips. That is why shipbuilding slips. That is why some 
of the things we like to do slip.
    I think overall we have done a pretty good job of balancing 
and we are going to work harder in this coming year in trying 
to find some of those savings that are so important in funding 
our priorities.
    Chairman Nussle. Mrs. McCarthy.
    Mrs. McCarthy. Thank you. I am going to go into something 
that is a little bit different and maybe hopefully it will save 
money. I have absolutely no idea on the answers so I hope you 
might be able to supply them, especially when it comes to 
health care.
    I spend a lot of time talking to our men and women in the 
service and especially those that are in the health care end of 
it. I know some years down the road, there was a lot of 
privatization going on inside our military hospitals for cost-
effective savings. I don't know if that is working or not.
    Let me just give you an idea of what those who serve in the 
military in these hospitals feel about it. They feel there is 
no chain of command. They don't feel it is efficiently used. 
You have to remember, a CT scan is open at 2 a.m. in the 
morning. They will not schedule CT scans at 2 a.m. in the 
morning unless it is an emergency. Most hospitals today will 
schedule them. If you want to have a CT scan, instead of 
waiting 4 months you are going to go in at 2 o'clock in the 
morning.
    So what I am asking, if you could do a cost analysis, and I 
think if you start looking into it you might find you actually 
could save money if you went back to the old way. Mainly 
because if we keep those who we train to be in the health care 
field with our military, they know their job well, they will 
stay in the service; because if you do a cost analysis of what 
it costs to train someone versus what it costs to pay someone 
from the private field to come onto the military base and work, 
I think you will see that our military people can do a very 
good job at certainly at a better price and you are not going 
to have that turnover.
    I think the saddest thing I saw over the last four years 
with talking to people, are you going to re-up? No. They are 
all leaving. I don't blame them. We weren't paying them enough. 
The housing was terrible. And certainly I will speak for 
myself, but since I have been here I certainly have been voting 
to make sure that every one of our service people get an 
increase. I don't feel the increase we are giving them is 
enough. I think we have to look--because looking at the budget, 
even though it looks like a lot, I don't think it is enough for 
the housing costs that we need. I don't have a lot of bases in 
my district. I only have one or two that certainly need some 
improvement.
    But if we are going to retain our people to stay in the 
service, and if you do a cost analysis what it costs us, I 
think we can save money that way.
    I don't have the answers. I actually would be curious to 
see--I am sure someone has done a cost analysis on this 
somewhere, but I think it is time to bring that back up again 
to retain our people in the service, to give our military 
people the best health care, that they deserve by the way. But 
I think in the end, you are going to see that you can save 
money that way.
    If you look at the formulas in the regular hospitals, they 
have do everything in the world to give good service but to cut 
costs. And when you are working with military and private 
organizations, I don't see how you can save money in the end, I 
really don't. It has got to be one or the other. That is the 
way I look at it.
    With that being said, I am sorry that at times everybody 
gets very partisan around here. Most of us don't. When our men 
and women went to war on September 12, they were well prepared. 
They were ready, and they did their job, and they have done 
their job admirably. And they have. This is a new world. No one 
could have seen this coming and we have to prepare for it. I 
think that you will find the majority of Congress will stand 
with you on that.
    But again, we can't keep fighting the old cold war either. 
It is a new world--I am not an expert on it, but I know where 
our moneys and resources should go for the future, and 
obviously that is to protect this country. I think everybody 
understands protecting our country, even if it means going into 
debt, is something that we will have to do. And if that means--
which is a heartbreaker for me in what I want to do with health 
care and education. It is not going to mean anything unless we 
have a safe Nation, and I think we have to start looking at it 
that way. If you have a response, I would love it.
    Mr. Zakheim. First of all, I think we both appreciate your 
sentiment and recognize that the support on the Hill has been 
bipartisan. Not surprisingly, we were all affected. The 
terrorists don't distinguish between Democrats, Republicans, or 
anybody else. They just blow people up.
    On the question of health care, my colleague David Chu, who 
is one of the country's leading experts in health care, is 
actually reviewing these issues. One of his concerns, for 
example, is just on the managed care side of the ledger, to 
renegotiate contracts and give us a much better deal and 
provide service.
    As comptroller, I also have a problem because I currently 
have tremendous difficulty in actually tracking the money that 
is spent on health care. There have been complaints, rightfully 
so, from many Members of Congress as to the visibility and the 
viability of our accounts, and this is a 30-year mess, I 
couldn't agree more. And so we are approaching my colleague 
David Chu, and I am saying to him, as part of the deals you 
cut, the new contracts you sign, we need visibility. The 
taxpayer doesn't deserve anything less.
    You are right, our men and women in uniform are not being 
paid as much as their counterparts in the civilian world. 
Congress told us to go beyond the comparability index and add 
an additional half percent to pay increases, and we did that. 
We have added money to family housing, so that we are 
supporting our personnel in a lot of different ways. Let me add 
training to the mix; people who feel they are not being trained 
properly, are not being supplied with the right equipment, tend 
to want to leave whatever job they are in. The military is no 
different. I know you know this. We have talked to people in 
uniform today, and they will tell you that when they say we are 
putting people first, we really mean it.
    Mr. Wolfowitz. I could not agree with you more. The cold 
war is over. This is a different era. I think we also have to 
recognize 10 or 15 years from now is going to be very different 
from today. The hard part, I think, of this transformation 
business is trying to think ahead to a world that is likely to 
be different, the threats are likely to be different, and to 
invest wisely in those. I do think the approach that we have 
developed in the QDR, focusing on capabilities rather than 
trying to imagine specific threats, I think is a more 
constructive way to go at it. But I could not agree with you 
more that we can't be thinking in the past. We have got to be 
ready to change.
    Chairman Nussle. Thank you. The Budget Committee leads by 
example. And so I would like to turn to our own ready Reserve 
Member, Commander Mark Kirk.
    Mr. Kirk. Thank you, Mr. Chairman. I noted that Secretary 
England came to my district on Friday and said that after he 
was sworn in and took office, he reported the Navy had three 
weeks of aviation funding left the day he took office.
    When I see the lack of procurement numbers on the 
minority's chart there, what it hides is the reality that I 
faced in our squadron, which is we had hollowed out the 
military over the previous 8 years. In my own squadron--a power 
squadron is four aircraft--we used one as a hangar queen that 
we just pulled spare parts off. She never--500 never flew.
    On John C. Stennis, I had 33 IS enlisted working for me. 
Thirty-two of them were deciding not to reenlist for obvious 
reasons. At DM, when they left the Navy running a 71 gigabyte 
hard drive on the carrier, which go to work for PRC Corporation 
and triple their pay, be back on the ship 3 weeks later, 
obviously, you need to get out of the Navy. In Allied Force, I 
remember we nearly ran out of HARMs. There was one day mid-
campaign where General Short had to consider a 48-hour pause 
because we were running out of precision-guided munitions and 
the critical air defense munitions we were using.
    So I applaud the direction of your budget. There are armies 
of lobbyists up here for the ``Iron Triangle'' that will fight 
for the procurement accounts. What you have done is fill up the 
O&M accounts, that I can tell you from the fleet perspective 
have been depleted completely. I want to look at two things 
that I know you want to go in the direction of. And by the way, 
I am very pleased, Secretary Wolfowitz, that you are here, 
architect of our Iraq policy.
    If I would look at the future, I would say to the military, 
get ready, I would think, for what is coming. I think part of 
this budget is what is coming. And in that sense, every dollar 
that we cannot waste or save will help the transformation in 
the coming campaign.
    With regard to base closings, 85,000 reservists called up, 
roughly 10 percent on security detail. That would be 8,000 
reservists. We estimate 25 percent of our bases are unneeded. 
That means at least 2,000 reservists were called to protect 
bases that we did not need, pulling valuable resources away 
from the campaign. Do we have an estimate of how much we would 
save if we were to get a base closings process moving forward?
    Secondly, on tooth-to-tail, I think the Secretary is 
mentioning 14 layers of decision-making in the Quadragon, and 
what can we expect as far as the Department's rollout of a 
tooth-to-tail initiative that would save resources for the 
coming campaign?
    Mr. Wolfowitz. On the--first of all, thank you for what you 
said about base closing. I appreciate the support that we have 
gotten. We wish we could have gotten more and wish we could 
have started that process earlier. We can get you the figures 
on what the long-term savings would be.

Editor's note: No response received at press time.

    Mr. Wolfowitz. The sad fact is, as you note, we have called 
up a lot of people to protect bases we wish we closed. I 
believe that the figure for what we are spending on additional 
force protection measures as a result of the war on terrorism 
is somewhere in the neighborhood of 4 to 5--excuse me, 3 to 4 
billion, which means we may be spending close to a billion 
dollars in force protection measures that are unnecessary.
    One of the things on the question of trying to reduce 
layering and improve efficiency, the Secretary has been pushing 
very hard on headquarter staff reductions. It may not surprise 
you that people have come back and said we have even more work 
to do than we did before, so how can we possibly reduce our 
staffs? And his reply is, I don't know how, but you figure it 
out, because there has got to be some people that are doing 
things that are lower priority.
    There is that tendency, and we do have a lot more work to 
do. People are a lot busier. There is a tendency to simply add 
things on top. We are trying to keep the pressure on to not 
increase in strength and in fact reduce headquarters staff. I 
can't tell you exactly when we will be able to announce those 
results, but I can tell you the Secretary is very serious about 
it.
    Mr. Kirk. Dov.
    Mr. Zakheim. Just to add to that, we reduced headquarters 
since 1999 by 11.1 percent. But to give you another look that 
perhaps hasn't been mentioned too frequently, you know in the 
mid-1990's, our civilian personnel stood at about 700,000. It 
stood at 687,000 in fiscal 2001. This year for fiscal 2003, we 
are predicting another 23,000 cut. So it was reduced roughly 
13-or-so thousand between 1995 and 2001. Just in the last 2 
years, we are going to almost double that. And we will continue 
that reduction. I mean, we can't eliminate civilians entirely, 
but there have been significant reductions there. Of course in 
the 1980's, we had a million civilians. So we have made 
significant reductions there.
    We are improving our financial management programs. I 
talked about this earlier in one of the previous responses in 
that we have to put our arms around a massive problem. We have 
670 different systems that look at pay, that look at medical 
issues, that look at logistics and so on, and they don't talk 
to one another. And the Congress--I thank the Congress for 
giving us $100 million this past year to get started on the new 
architecture to try to get this down. We are asking for another 
97 million this year. We are about to let our first contract on 
this. We have to get our arms around the financial management 
problem, too, and that is part of--it is a small part, but a 
significant part of what the Deputy Secretary is talking about 
in terms of overall management, changes, and controls.
    Mr. Kirk. Mr. Chairman, I note the Secretary unveiled his 
tooth-to-tail caucus initiative on September 10. And given the 
pressures, I can understand how we spent time in other places, 
but we are looking forward to renewing the momentum there and 
look forward to supporting you on that.
    Chairman Nussle. Thank you. Mr. Secretaries both, thank you 
very much for your testimony and your assistance in working 
through the defense budget. I am sure, as you heard today, 
there are other questions that we will have from time-to-time. 
We appreciate your being forthcoming in the past about your 
answers and giving us that information, and we look forward to 
that again in the future. Thank you very much for your 
testimony.
    Chairman Nussle. Our second panel for today's hearing--
allow for the change in witnesses. Our second panel for today 
is Lawrence Korb, who is the vice-president and director of 
studies for the Council on Foreign Relations. We welcome you to 
the Budget Committee. We are pleased to put your entire 
testimony into the record and you may summarize as you wish. 
Welcome.

                 STATEMENT OF LAWRENCE J. KORB

    Mr. Korb. Thank you very much, Mr. Chairman. It is a real 
privilege to be here. I will put my statement----
    Chairman Nussle. You need to push the button on the 
microphone. We are learning about this new sound system 
ourselves.
    Mr. Korb. I thank you very much, Mr. Chairman. It is a 
privilege to be here. I am just going to make a few points--my 
statement will be in the record and the hour is late--that I 
think are important in listening to what happened before.
    First of all, the military that this administration 
inherited was not in as bad a shape as people have led you to 
believe. If it were, it would not have performed so 
magnificently in Afghanistan. Remember, this administration has 
had no impact on the military. I think it is very important not 
to think that they inherited this horrible military and within 
a couple of months were able to change it. This is the military 
that we funded and built in the nineties that went to war in 
Afghanistan.
    Second, President Bush in his campaign said he would add 
$4.5 billion a year to the program that he inherited. That was 
less--that was less than 2 percent. People have sort of danced 
around it today. It was he who said they would skip a 
generation of technology, and it was the President who said 
that at the end of August--as I quoted in my testimony--that we 
were simply not going to fund all of these programs.
    That is really what is driving up the budget, not just this 
year--because there are a lot of expenditures in there for 
terrorism--but, as Congressman Spratt pointed out, what will 
happen over the next couple of years. I would argue that even 
the program that they have presented with the build-up between 
now and 2007 is underfunded. You cannot do what they are 
claiming to do within those numbers. As General Myers told the 
Armed Services Committee, that budget before you, if you accept 
it, you are going to have to spend more money.
    Arguments about GDP are meaningless. GDP is much more a 
statement of what our economy is doing. And we are not going to 
go to war. George Bush's military is not going to go to war 
with the military that was built by 10 percent of the GDP back 
in the sixties and the seventies. What you need to look at is 
what do you want to do and what is the threat that you are 
facing.
    And then finally, it didn't come up at all because we 
focused a lot on weapons systems quite correctly, but this 
administration had a panel headed by former vice-chairman of 
the Joint Chiefs of Staff, Dave Jeremiah, to look at the 
military health compensation system, including health care and 
housing. Nothing came of that. I know that there were proposals 
in there which would enable us to get the proper people and 
keep them at a much lower cost. That was all washed up. They 
worked on this for 8 months. That was one of the panels. I see 
nothing in this budget that deals with that.
    Let me stop there and take whatever questions or comments 
you may have.
    [The prepared statement of Lawrence J. Korb follows:]

 Prepared Statement of Lawrence J. Korb, Vice President and Director, 
              Studies at the Council on Foreign Relations

    Mr. Chairman, members of the House Budget Committee, I appreciate 
the opportunity to appear before you today to discuss the Bush 
administration's proposed fiscal year 2003 defense budget and the 
fiscal years 2003-2007 defense program. It has been my privilege to 
appear before the Budget Committee of both houses of Congress at 
various times over the past 22 years, both as a government official and 
as a private citizen and at the request of both parties.
    When looking at the proposed fiscal year 2003 defense budget and 
the fiscal years 2003-2007 defense program, the Congress and the 
American people should ask two simple questions:
     First, can a budget of about $400 billion for national 
security in fiscal year 2003 be justified?
     Second, is the proposed fiscal years 2003-2007 defense 
program properly funded? In my view the answer to both these questions 
is no.
    The fiscal year 2003 defense budget for national defense requests 
$396 billion--which is an increase of $48 billion, or 14 percent, over 
the fiscal year 2002 budget. By any reasonable standard, this is a huge 
budget and an enormous increase. If enacted it will mean that:
     Defense spending will have risen by $88.2 billion, or 30 
percent since fiscal year 2001.
     Spending will be 15-percent higher in real terms than what 
we spent on average to win the cold war.
     This will be the largest real increase since the Vietnam 
War.
     It will mean that the U.S. alone will consume about 40 
percent of the world's total military expenditures.
     The U.S. will spend more on defense than the next 15 
countries in the world combined.
     The proposed increase of $48 billion alone is more than 
the total military budgets of every nation in the world.
     The proposed budget is more than the total GDP of 23 
nations, including Saudi Arabia and Pakistan.
    I recognize that the size of the U.S. defense budget cannot be 
compared directly to that of other nations, because the U.S. is a 
global power with worldwide interests. But surely, there is more of a 
relationship between what the U.S. and its potential adversaries spend 
on defense than what percentage of our GDP the nation has allocated to 
defense over the past 50 years.

                             JUSTIFICATIONS

    In justifying the size of this budget, Secretary Rumsfeld is fond 
of pointing out that when he came to Washington, the U.S. was spending 
about 10 percent of its GDP on defense, as opposed to the 3.3 percent 
he is requesting for fiscal year 2003. However, he fails to mention 
that in constant dollars, his fiscal year 2003 defense budget request 
is higher than any budget sent to Congress by the Presidents he served, 
Nixon and Ford. Nor does he point out how much our economy has grown 
since the mid-1970's, that is from $1.5 trillion in 1975 to $10.3 
trillion in 2001. Finally, comparison to what was spent by previous 
administrations is meaningless since the Bush military will not be 
going to war with that of Kennedy, Johnson, Nixon, Ford, Carter, or 
Reagan.
    Administration officials, including the President, offer two 
specific justifications for such a large increase: the nation is at war 
and they inherited a military that was, in Secretary Rumsfeld's words, 
``overused and under funded.''
    1. The War on Terror. There is no doubt that the U.S. military 
should have all the money it needs to fight the war on terrorism. But 
does the war against terrorism justify such an increase? Hardly.
    The Pentagon has already received a $20 billion supplement to its 
2002 budget to prosecute the war, far more than it will spend on that 
conflict. So far, the cost of the military campaign against Afghanistan 
has been about $6 billion, or $1.5 billion a month. Now that the 
military campaign is winding down, the monthly cost to the Pentagon 
will drop. Bush's proposed 2003 budget estimates that the cost of the 
war next year will be about $10 billion, or less than a billion a 
month. It is therefore clear that we've already budgeted for the 
military's role in the war against terrorism.
    The war against terrorism cannot be compared to the wars that the 
U.S. fought in the last half of the 20th Century. The Korean War, the 
Vietnam War, and the Persian Gulf War were primarily military conflicts 
in which large numbers of American military forces were pitted against 
significant armed forces on the other side. In 1950, the U.S. sent more 
than 300,000 men and women to confront some two million North Korean 
and Chinese forces; the American military buildup in Vietnam peaked at 
579,000 in 1968; and nearly 500,000 Americans were sent to battle 
Iraq's million man Army in 1991.
    In addition, during the Korean and Vietnam wars, the U.S. military 
significantly expanded the number of people in the armed forces. During 
the Korean War, the number of people on active duty grew from 1.5 
million to 3.6 million. In the war in Vietnam, the force grew from 2.7 
to 3.6 million.
    The U.S. military has been able to drive the Taliban from power 
with less than 5,000 people in Afghanistan and flying fewer sorties 
that it did in Kosovo. In the 76 days between October 7 and December 
23, 2001, when the sustained bombing campaign ended, the U.S. flew 
about 6,500 sorties and dropped about 17,500 bombs against the Taliban 
and Al Qa'eda forces, 60 percent of which have been satellite guided 
JDAMS or laser guided. In Kosovo, in 70 days of bombing, the U.S. flew 
8,500 sorties. Moreover, unlike Korea and Vietnam, where the U.S. 
military added millions to its active duty force, the only addition to 
the U.S. force for the war against terrorism has been the call up of 
50,000 reservists.
    This should not be surprising. Unlike the conflicts in Korea, 
Vietnam, and the Gulf, over the long run the military's instrument in 
the war against terrorism will be less important than the financial 
diplomatic, intelligence, and law enforcement tools.
    Paradoxically, as a result of the war against terrorism, the 
traditional military threats from such potential American foes as 
Russia and China have decreased markedly. The Russians have not only 
shared intelligence with us, they have also persuaded the former Soviet 
republics of Uzbekistan and Kyrgyzstan, which border Afghanistan, to 
allow U.S. troops to launch attacks against al-Qaida and the Taliban 
from their territory.
    The Chinese have been especially cooperative. The rulers in Beijing 
have shared intelligence on al-Qaida and the Taliban, and have leaned 
on their long-time ally Pakistan to support the U.S. campaign in 
Afghanistan and clamp down on terrorists at home.
    2. The State of Our Military. The war in Afghanistan has also shown 
that the claims that the President made in his campaign and his 
Secretary of Defense continues to make about the sad state of our 
military, allegedly because of 8 years of overuse and under funding, 
are simply false. The military has performed magnificently in 
Afghanistan as it did in Kosovo in 1999 and as it continues to do in 
the Balkans.
    The fact of the matter is that Bill Clinton spent more on the 
military than the elder Bush had projected upon leaving office and that 
during the decade of the 1990's, the U.S. spent only 8-percent less 
than what it spent on average during the cold war. Bill Clinton left 
Donald Rumsfeld with a defense budget that in real terms was $25 
billion higher than the one President Ford bequeathed to him in his 
first term as Secretary of Defense in 1975.
    Nor was the military overused in the last 8 years. On average 
during the 1990's, only 15 percent of the active force was deployed 
outside the U.S. In the Reagan years, 25 percent of the force was 
deployed outside this country. Moreover, at the beginning of the Bush 
administration only 35,000 people were deployed outside of the routine 
and long-standing deployments to Europe and Asia.

                      SO WHY THE MASSIVE INCREASE?

    The real reason for the increase in this year's budget is not the 
war against terrorism or the state of our military. This massive 
increase is necessary because the Bush administration failed to carry 
out its campaign promises to transform the military, and the Secretary 
of Defense failed to make the hard choices that are necessary when 
formulating a defense budget. Rather, he simply layered his new 
programs on top of the Clinton programs he inherited. As retired Navy 
Captain Larry Seaquest told the Christian Science Monitor, ``They [the 
Bush administration] plan to pour more fertilizer on the same old 
crops.'' Nor did the Secretary follow through on his proposed reforms 
of the military compensation system.
    Thus, the fiscal year 2003 budget fully funds three new tactical 
aircraft, the technologically challenged V-22, the ponderous Crusader, 
the unneeded Virginia class submarines, and a robust national missile 
defense system. In the upcoming fiscal year, these programs alone will 
consume about $30 billion. And over the fiscal year 2003-2007 period, 
they will consume well over $100 billion.
    According to the Pentagon's own figures, spending for the three 
tactical aircraft jumps 37 percent while funding for the unmanned 
aircraft that did so well in Afghanistan grew by only 13 percent; 
additions as a result of the war against terrorism will consume only 
$9.4 billion and the transformation effort only $6.5 billion. Thus, the 
new programs will consume less than half as much as the legacy systems 
that Rumsfeld and the President criticized in the early months of the 
Bush administration. For Example, in August of 2001, President Bush 
said:
    ``There is no question that we probably cannot afford every weapons 
system that is now being designed or thought about. And you should ask 
the Secretary [of Defense] this question, if you care to, because he is 
going to bring to my desk, in a reasonable period of time, what the 
Pentagon recommendations are as to what weapons systems should go 
forward and which should not. One of the things that happens inside the 
Pentagon is people are encouraged to think outside the box, so to 
speak, and help design systems that could or could not affect security 
in the long term. There are many good ideas, but this administration is 
going to have to winnow them down. We can't afford every single thing 
that has been contemplated. And when we make decisions, they will fit 
into a strategic plan. And we need one. And there is going to be one 
and it's coming this fall.''

                         POTENTIAL CONSEQUENCES

    The situation will get worse before it gets better. The 
administration is projecting that for fiscal year 2004, the defense 
budget will rise by less than $9 billion or 2.2 percent, in nominal 
terms, to $405 billion. This is not enough even to keep pace with 
inflation! If the fiscal year 2004 budget grows at the same rate as the 
budgets of the last 5 years, the fiscal year 2004 budget should be 
about $440 billion and the fiscal year 2007 budget about $580 billion 
rather than the projected $470 billion. General Richard Meyers, the 
Chairman of the Joint Chiefs of Staff, admitted as much in testimony 
before the Senate Armed Services Committee when he said the current 
program is under funded by about $30-40 billion a year.
    By throwing all this money at the Pentagon and refusing to make 
choices, the Bush administration is removing any incentive for the 
Pentagon to become more efficient or for military leaders to focus 
their resources on innovative systems. According to the Bush 
administration's own executive branch scorecards, which grade the 
performance of each Cabinet department, the Pentagon is unsatisfactory 
in all five areas that were measured. As Admiral William Owens, former 
Vice Chairman of the Joint Chiefs of Staff recently noted: ``new money 
for the armed forces may well become an excuse to maintain inefficient 
old habits.''

                            RECCOMMENDATIONS

    In order to prevent this, the Congress must make the choices the 
Pentagon was unable or unwilling to make. Specifically, it should:
     reduce the number of strategic offensive weapons to 1,000 
immediately rather than waiting 10 years to cut them to 2,200;
     limit production of the F-22 to 100;
     retire 40 B-1's;
     halt production of the Trident D-5 SLBM;
     keep the National Missile Defense program in development 
(and not rush toward deployment);
     limit production of the F/A-18 E/F to 200;
     terminate the V-22, the SSN-74, the Crusader, and the 
Comanche helicopter programs.
    In addition, the U.S. should:
     reduce its troops in Europe by 75,000;
     change the military retirement system from a deferred 
benefit to a defined contribution plan (like that of Federal civilian 
servants);
     privatize the military housing system;
     and move the dependents of military people into the 
Federal employees health benefits program.
    These reductions will implement Bush's campaign promise to skip a 
generation of technology and create a more agile, mobile, innovative 
military, will free up money for other areas of homeland security, and 
will not undermine the military's role in the war against terrorism. 
The Special Forces who performed so magnificently in Afghanistan 
consume about 1 percent of the defense budget and the JDAM's cost only 
$25,000 a piece. In the regular fiscal year 2002 budget, the Congress 
authorized DOD to purchase 9,880 JDAMS, about the number that have been 
dropped in Afghanistan to date. The $20 billion supplemental will allow 
them to purchase even more in fiscal year 2002.

                               CONCLUSION

    Last fall, Harry Stonecipher, vice chairman of Boeing Co., one of 
the nation's largest defense contractors, captured the essence of the 
President's approach to this budget. Stonecipher said that before 
September 11, the military services had to make ``some hard choices'' 
about what to buy, but ``the purse is now open'' and any Member of 
Congress who argues that ``we don't have the resources to defend 
America * * * won't be there after November of next year.''
    Lest anyone think that in opposing the Pentagon, a member would be 
considered unpatriotic or would be in danger of losing his or her job, 
I urge you to consider the example of then Senator Harry S. Truman: in 
March 1941, Senator Truman convinced the Senate and President Roosevelt 
to set up a Special Committee to Investigate the National Defense 
Program. The Truman Committee, which continued its work throughout the 
war, even after the attack on Pearl Harbor, issued 51 reports 
documenting waste, mismanagement, and fraud in the defense buildup. 
These reports not only saved the country hundreds of billions of 
dollars, they catapulted Truman to the Vice Presidency in 1944 and the 
White House a year later.

    Chairman Nussle. Well, I guess--you know, it is certainly 
not falling on deaf ears, in a time when we are trying to 
figure out ways to balance the budget and ways to get us back 
on some kind of fiscal track that makes sense, as well as 
trying to figure out ways to rein in a Pentagon that I think 
most people would agree, has grown very quickly in many 
different ways, and in a way that maybe has not been as 
fiscally prudent, that some of the costs have been extravagant 
and some of the waste has certainly been prevalent.
    But, having said that, we are in a war. And there is this--
you seem to be, well, certainly the lone voice today, so far--
this willingness to spend just about whatever it takes in order 
to get the job done.
    Could you turn to your recommendations and just go through 
some of the recommendations that you would make to this 
committee. Some of them I am sure we can try and employ in the 
short term. So if you could at least hit some of the high 
points of the recommendations you would make as we examine this 
budget and as we look into the future how we can gain some 
control, particularly as we look at transformational issues. If 
you could help us with that, that would be appreciated.
    Mr. Korb. Certainly, Mr. Chairman. If you take a look, for 
example, at the tactical air program, there is nearly $13 
billion in there to fund three new fighter aircraft. The most 
logical candidate to stop would be the F-22. Every indication 
we had up until September 11 was that that program would not go 
forward. I am not privy to any inside information in the 
Pentagon, but if you just read the newspapers and all of the 
various panels that Secretary Rumsfeld had set up.
    If you take a look at this year's budget and you compare, 
for example, $5.3 billion to buy 23 F-22s, you are spending 
$100 million to buy these unmanned aircraft that did so well in 
Afghanistan. And don't let anybody tell you that the Pentagon 
didn't realize until this war that they needed them. There have 
been those of us who have been saying that for many years, that 
that is the direction they ought to go. So I would--and you 
talk about the age of the aircraft. You got the joint strike 
fighter coming. The F-16 Block 60's were six times more 
effective than the original F-16s. You could have gotten those 
for $30 million a copy. You could have gotten the F-18s, C and 
D rather than E and F model, at half the price, and then you 
would not have the problem of these aging aircraft. It wasn't 
that we didn't have enough money in the nineties, or it is not 
that we don't enough money now.
    It is doing things like that. This is certainly the biggest 
area. The Crusader, we have talked about whether it is fully 
funded. Every panel that Secretary Rumsfeld set up recommended 
getting rid of that. It was just too big and too ponderous. You 
are going to go ahead with that because they didn't cancel it. 
You got close to $500 million, this year but it is going to 
grow over the next couple of years. If you don't stop it now, 
you are going to have to pay those bills, because what happens 
is once the program gets going, you got so much money invested 
in it, you don't want to go ahead.
    Look at the V-22. This is something Secretary, now Vice 
President, Cheney said had technological problems and was too 
expensive. It has more technological problems and it has grown 
more in the last decade than when the Vice President was 
Secretary of Defense, and yet we got $2 billion in the budget 
for it this year. And we have put ourselves in the position 
where we have alternative or fall back, and that is the 
argument they make. We needed to go ahead with the V-22 because 
we don't have anything else. They deliberately structured it 
that way.
    We talk about troops being overused. Why do we still have 
100,000 troops in Europe? Now, I am not talking about the 
Balkans, I am talking about the people that are routinely 
there. The European Union as it expands is going to have a 
larger GDP than the United States. The Europeans are not doing 
very much on defense because they know that we will do it. It 
is time for us to let them take their share of the 
responsibility. Those men and women can be used in other places 
of the world or taken out of the force structure.
    Chairman Nussle. If we take your recommendations that you 
make without any changes, most of them I think appear on page--
well, most of them appear on page 10 of your statement--do you 
have any idea of what this would add up to in savings? You 
mentioned some of these in here that you just--and I appreciate 
that you would do that. Do you have any idea what kind of 
budget we would be looking at for the Defense Department if 
your recommendations were put into effect?
    Mr. Korb. I think in this particular year--and I can give 
you the exact figures--you would probably save at least $10 
billion in fiscal 2003. But more importantly, you would relieve 
that upward pressure on the budget and close that gap that 
General Myers talked about, the 30 to $40 billion that you are 
underfunded.
    Chairman Nussle. A $10 billion worth of savings out of the 
$369 billion budget proposed.
    Mr. Korb. That is correct.
    Chairman Nussle. So, $359 billion would be your 
recommendation for what the budget ought to look like?
    Mr. Korb. For this particular year. But if you take the 
other things, in terms of the military retirement system, you 
could save $5 billion a year if the military retirement system 
had the same type of system that Federal civil servants have, 
where you basically make your own choices. We documented that 
on the Defense Science Board panel I was on 3 years ago. I came 
before this committee in 1999 and made that recommendation. The 
longer we wait, the longer it is going to take us to save the 
money.
    Chairman Nussle. OK. Thank you very much.
    Mr. Spratt. Mr. Korb, thank you for coming. We appreciate 
it. For the record, I think we should make clear you are a 
former naval officer, retired.
    Mr. Korb. That is correct.
    Mr. Spratt. A-6 pilot.
    Mr. Korb. No, sir. I was a naval flight officer in patrol 
planes.
    Mr. Spratt. And a former Assistant Secretary of Defense 
during the Reagan administration.
    Mr. Korb. That is correct.
    Mr. Spratt. Manpower reserve personnel.
    Mr. Korb. As well as bases and logistics.
    Mr. Spratt. I agree with some of what you had to say and 
disagree with other parts of it. For example, I don't think the 
F-22 was anywhere near dead before 9-11. I think it had a lot 
of momentum behind it. Politically, I think the Air Force would 
have gotten the air superiority fighter whether 9-11 had 
occurred or not.
    Looking at what you propose here, I think you underestimate 
the savings that would result from the enormous number of 
things you propose. Some of them, as you know, are really a 
reach. I remember when President Reagan appointed Peter Grace, 
the Grace Commission, to ferret out all of the waste in the 
Federal Government and come up with recommendations for major 
reduction in the costs of the Federal Government. The single 
biggest cost reduction items in the Grace report went to the 
Federal Civil Service Retirement system and the military 
retirement system, and he basically proposed something like 
what you are proposing, a defined benefit and a contributory 
plan, I believe--both.
    Mr. Korb. That is correct. You know, the great irony is the 
late Les Aspen and I were very close to getting that, but the 
Joint Chiefs of Staff refused to allow the military to have the 
option like civilian civil servants. Had they done that, they 
would be better off now and we would be better off. Instead, we 
compounded the problem by repealing reducts, going back to the 
50 percent when we had not put any money aside for that over a 
15-year period.
    Mr. Spratt. The single accomplishment Les made was to get 
the reducts provisions in it, and then we repeal that so we are 
back to where we started. But the Grace Commission report had 
barely hit the street. General Vessey and Secretary Weinberger 
were before the House Armed Services Committee to testify on 
the annual defense budget request. And the first question out 
of the box was, ``Mr. Secretary, have you seen the Grace 
Commission report and do you support the recommendations with 
respect to the military retirement system?'' and Casper 
Weinberger said, ``Absolutely not,'' whereupon Vessey said, 
``If he answered differently, I would have resigned on the 
spot,'' which gives you an idea of just of what the hurdle is 
to get over to change anything as significant as that is.
    One of the things you did pinpoint which I did mention in 
my testimony is the strategic nuclear account. You would think 
that, here we are more than 10 years after the end of the cold 
war, that at least in the strategic nuclear accounts we would 
see deeper reductions than we see proposed here. You say we 
should go immediately to a thousand warheads.
    Mr. Korb. That is correct. I think if you--and this is, 
interestingly enough, this is where the military would support 
you. The military, except for a very small group of them, 
basically want to get down to that number and to free up those 
resources, and there is no conceivable list of targets that you 
couldn't handle with a thousand weapons. And rather than 
waiting 10 years to go down to the number that President Bush 
and President Putin agreed on, I don't see why we don't do it 
right away.
    Mr. Spratt. You also recommend retiring 40 B-1s. I think 
the administration made that recommendation last year.
    Mr. Korb. That is correct. Because they had not laid the 
ground work for it, it didn't go anywhere.
    Mr. Spratt. And you would halt production of the Trident D-
5. If you do that, one concern is that is the last of the 
ballistic missile lines we got in the country. You dissipate 
the technology base, and the engineers go somewhere else, and 
Lockheed missiles in space does something else. They still 
build missiles and rockets for space launch and stuff like 
that, but this is the last of the missile systems for which we 
have a production line and engineering base and everything 
else. Does that give you pause?
    Mr. Korb. Well, I think the point that you made about these 
people will be working on similar technologies, and I mean the 
world is moving with us and the Soviet Union to--former Soviet 
Union, Russia, to less and less weapons. I think they would 
maintain those skills working on those other missile systems.
    Mr. Spratt. Let me ask you about burden sharing. I don't 
know if you saw the simple bar graph that we put up, but if you 
add up what all the 15 of the largest industrialized countries 
in the world are spending, which are our allies, Japan, South 
Korea, all the European countries, 15 altogether, excluding 
China and Russia, they are spending about, oh, $326 billion, 
27--$227 billion, and we are spending or we spent in 2000 about 
295. There is about a $70 billion disparity between us and 
them. I really think their number is inflated, and ours is 
probably conservative. I think the spread between us is greater 
than that, and certainly in terms of quality, ability, agility, 
mobility and things like this, we are way ahead of our allies. 
What do we do to get our allies to do more so that we can have 
a better burden sharing, a better division of labor between us 
in policing the world?
    Mr. Korb. Well, I think you can't have it both ways. The 
United States cannot act unilaterally and then expect other 
nations to do their fair share. I think we made a big mistake 
in not letting the Europeans get more involved in the war in 
Afghanistan, because if we did, then we could go to them and 
ask them to spend more on defense. I mean that is one thing. 
And I think with Europe, as long as we keep those large numbers 
of troops there, they will continue not to do their fair share.
    So I think particularly with Europe, particularly as the 
European Union grows and they talk about a common foreign and 
security policy--let me give you a specific example of where we 
made a terrible mistake in 1997. The French were willing to 
come back into the military portion of NATO. They said as part 
of that, they would like to take over the Southern Command. We 
should have said, that is a great idea. You guys get the ships, 
you and other the countries there, and we can move our Navy 
into the Persian Gulf or the western Pacific where it is much 
more needed.
    We didn't do that. We insisted on keeping the Southern 
Command, so they have not developed the naval assets they 
should to relieve the pressure on us in that part of the world.
    In this war, NATO invoked Article 5 after the horrible 
events of September 11. We should have then followed through 
with that and got them more involved; and this way, they would 
be able to go back to their own parliaments and say, we need to 
build up our forces because of the way we are being used. But 
that did not happen. I think we are missing a very, very--we 
missed a tremendous opportunity. We have since the end of the 
cold war.
    Mr. Spratt. Let me ask you about transformation. Do you 
believe in transformation or is it just a slogan?
    Mr. Korb. I certainly do, and I think that President Bush 
in the campaign when he talked about skipping a generation of 
technology, that was something I have argued for the longest 
time. Not go to the F-22, for example; continue with the 16 and 
maybe go to the joint strike fighter, which is not skipping a 
generation, but that was the way to go, to get a more agile 
military. You know, the Army actually became heavier in the 
nineties. Divisions became heavier, which meant that they were 
less and less able to do what they needed to do. I had great 
hope when I saw all of the panels that Secretary Rumsfeld had 
put into being to get us to move in that direction.
    Mr. Spratt. Do you think we can get more tooth with less 
tail and end up saving money while still enhancing our military 
capabilities?
    Mr. Korb. Very definitely. If you saw the article that 
Admiral Owens and Stanley Weiss had in the New York Times last 
week, I subscribe to that position. And Bill Owens, when he was 
vice chairman argued that, and he has since he has come out, 
that we have really got to move in that direction; because, as 
they point out, only 3 out of every $10 is getting to the point 
of the spear or the fighting person. The other seven is being 
lost.
    He makes some of the same recommendations I do. Get out of 
the housing business. This is not the government--the 
government shouldn't be doing this. We ought to let the private 
sector do this for military people. And I do agree with the 
administration, we need to close more bases. I think that that 
certainly needs to be done. Modernize our acquisition system, 
all of those things that we talked about for the longest time, 
but we really haven't taken steps.
    I was hoping that this administration could do it because 
they had the credibility, given the fact that they had brought 
so many people who had been in this business for a long time. 
Secretary Rumsfeld was coming back again. Pete Aldridge, people 
like that, David Chu, they had been there, and so I was hopeful 
they could move in that direction. And they were making an 
attempt in that, but they were being thwarted by the 
bureaucracy even before September 11.
    Mr. Spratt. Do you see this as a transformation budget?
    Mr. Korb. I do not. I think it is a token transformation 
budget basically, but it is by and large Clinton-plus. You have 
taken the Clinton programs, you funded them all, and then put a 
few things on top.
    Mr. Spratt. Thank you very much.
    Chairman Nussle. Mr. Collins, do you have questions?
    Mr. Collins. I just wanted to hang around a few minutes and 
see what Mr. Korb had to say. I found a lot of his comments 
very interesting in both ways, good and bad. As usual, we spent 
some time together in other times. I can't help but chuckle, 
though, when I think about NATO and how we went through the 
bombing of Kosovo, and it seems as though each morning you had 
to have a meeting, over the telephone or through some type of 
system, of 17 nations to figure out who you are going to bomb 
that day. I could just see Secretary Rumsfeld on the phone with 
16 other nations trying to determine where we are going to drop 
the next bomb. I don't believe that would have worked too well.
    Thank you Larry for coming.
    Mr. Korb. Can I comment on what you said, because I think 
it is a very important point. I don't know if you have seen the 
article that General Clark, who was the NATO commander, wrote 
in the Washington Post. He points out that that was not true. 
The problem was the U.S. Government, not the allies. I wasn't 
there. I don't know, but this is what Clark had said, and it is 
spelled out pretty much in his book. So I would agree with you 
if that is the way you had to do it, you shouldn't have done 
it. But General Clark says that is not what happened, that is 
the myth. The problem was the U.S. Government was divided about 
how to fight that war.
    Mr. Collins. Well, I am sure that gets to the politics of 
most any kind of engagement. You know, I had the opportunity to 
visit with General Clark on a couple of occasions when he was 
in Europe during the Kosovo episode. I will never forget that 
this was not in a classified meeting that he made this comment, 
because it was always of concern to a lot of us why we were 
engaged in the Kosovo conflict there or the bombing. But as I 
say, this was not classified, because he told it in a luncheon 
that--and our spouses and others were there--that he personally 
made a trip to Belgrade to meet with Milosevic and he poked his 
finger in Milosevic's chest and says, ``I am not here from 
NATO, I am here from Washington. And I am here to tell you that 
I am going to bomb you and I will bomb you good.'' That was 
what we were all afraid of. It was a Washington event, not a 
NATO event.
    Thank you.
    Chairman Nussle. Thank you very much for your testimony. 
Appreciate you coming today.
    Mr. Korb. Thank you for allowing me the opportunity.
    Chairman Nussle. Our pleasure. And with that, the committee 
stands adjourned.
    [Whereupon, at 4:50 p.m., the committee was adjourned.]

                                
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