    [Senate Hearing 108-241]
    [From the U.S. Government Publishing Office]

                                                     S. Hrg. 108-241, Pt. 6

    DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR
                                      2004

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

                                    HEARINGS

                                   before the

                          COMMITTEE ON ARMED SERVICES
                              UNITED STATES SENATE

                          ONE HUNDRED EIGHTH CONGRESS

                                 FIRST SESSION

                                       ON

                                    S. 1050

         TO AUTHORIZE APPROPRIATIONS FOR FISCAL YEAR 2004 FOR MILITARY
    ACTIVITIES OF THE DEPARTMENT OF DEFENSE, FOR MILITARY CONSTRUCTION, AND
       FOR DEFENSE ACTIVITIES OF THE DEPARTMENT OF ENERGY, TO PRESCRIBE
    PERSONNEL STRENGTHS FOR SUCH FISCAL YEAR FOR THE ARMED FORCES, AND FOR
                                 OTHER PURPOSES

                                   ----------

                                     PART 6

                                   PERSONNEL

                                   ----------

                             MARCH 11, 19, 27, 2003

             Printed for the use of the Committee on Armed Services
    DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR
                            2004--Part 6  PERSONNEL

                                                     S. Hrg. 108-241, Pt. 6

    DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR
                                      2004

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

                                    HEARINGS

                                   before the

                          COMMITTEE ON ARMED SERVICES
                              UNITED STATES SENATE

                          ONE HUNDRED EIGHTH CONGRESS

                                 FIRST SESSION

                                       ON

                                    S. 1050

         TO AUTHORIZE APPROPRIATIONS FOR FISCAL YEAR 2004 FOR MILITARY
    ACTIVITIES OF THE DEPARTMENT OF DEFENSE, FOR MILITARY CONSTRUCTION, AND
       FOR DEFENSE ACTIVITIES OF THE DEPARTMENT OF ENERGY, TO PRESCRIBE
    PERSONNEL STRENGTHS FOR SUCH FISCAL YEAR FOR THE ARMED FORCES, AND FOR
                                 OTHER PURPOSES

                                   __________

                                     PART 6

                                   PERSONNEL

                                   __________

                             MARCH 11, 19, 27, 2003

             Printed for the use of the Committee on Armed Services

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                          COMMITTEE ON ARMED SERVICES

                        JOHN WARNER, Virginia, Chairman

    JOHN McCAIN, Arizona                 CARL LEVIN, Michigan
    JAMES M. INHOFE, Oklahoma            EDWARD M. KENNEDY, Massachusetts
    PAT ROBERTS, Kansas                  ROBERT C. BYRD, West Virginia
    WAYNE ALLARD, Colorado               JOSEPH I. LIEBERMAN, Connecticut
    JEFF SESSIONS, Alabama               JACK REED, Rhode Island
    SUSAN M. COLLINS, Maine              DANIEL K. AKAKA, Hawaii
    JOHN ENSIGN, Nevada                  BILL NELSON, Florida
    JAMES M. TALENT, Missouri            E. BENJAMIN NELSON, Nebraska
    SAXBY CHAMBLISS, Georgia             MARK DAYTON, Minnesota
    LINDSEY O. GRAHAM, South Carolina    EVAN BAYH, Indiana
    ELIZABETH DOLE, North Carolina       HILLARY RODHAM CLINTON, New York
    JOHN CORNYN, Texas                   MARK PRYOR, Arkansas

                        Judith A. Ansley, Staff Director

                 Richard D. DeBobes, Democratic Staff Director

                                     ______

                           Subcommittee on Personnel

                       SAXBY CHAMBLISS, Georgia, Chairman

    SUSAN M. COLLINS, Maine              E. BENJAMIN NELSON, Nebraska
    ELIZABETH DOLE, North Carolina       EDWARD M. KENNEDY, Massachusetts
    JOHN CORNYN, Texas                   MARK PRYOR, Arkansas

                                      (ii)

                                C O N T E N T S

                                  ----------

                        CHRONOLOGICAL LIST OF WITNESSES
          Active and Reserve Military and Civilian Personnel Programs
                                 march 11, 2003

                                                                       Page

    Chu, Dr. David S.C., Under Secretary of Defense for Personnel and
      Readiness; Accompanied by Dr. William Winkenwerder, Jr.,
      Assistant Secretary of Defense for Health Affairs; and Hon.
      Thomas F. Hall, Assistant Secretary of Defense for Reserve
      Affairs........................................................     3
    Le Moyne, Lt. Gen. John M., USA, Deputy Chief of Staff for
      Personnel, United States Army..................................    40
    Hoewing, Vice Adm. Gerald L., USN, Chief of Naval Personnel,
      United States Navy.............................................    52
    Parks, Lt. Gen. Garry L., USMC, Deputy Chief of Staff for
      Manpower and Reserve Affairs, United States Marine Corps.......    65
    Brown, Lt. Gen. Richard E., USAF, Deputy Chief of Staff for
      Personnel, United States Air Force.............................    75
    Barnes, Joseph L., National Executive Secretary, Fleet Reserve
      Association....................................................   123
    Raezer, Joyce W., Associate Director of Government Relations,
      National Military Family Association, Inc......................   130
    Anderson, Steve, Legislative Counsel, Reserve Officers
      Association....................................................   142
    Lokovic, James E., Deputy Executive Director and Director,
      Military and Government Relations, Air Force Sergeants
      Association....................................................   143
    Schwartz, Susan, PhD, Deputy Director of Government Relations/
      Health Affairs, Military Officers Association of America.......   153

      National Guard and Reserve Military and Civilian Personnel Programs
                                 march 19, 2003

    Hall, Hon. Thomas F., Assistant Secretary of Defense for Reserve
      Affairs; Accompanied by Bob Hollingsworth, Executive Director,
      National Committee for Employer Support of the Guard and
      Reserve........................................................   171
    Schultz, Lt. Gen. Roger C., ARNG, Director, Army National Guard..   196
    Rees, Major Gen. Raymond F., ARNG, Acting Chief, National Guard
      Bureau.........................................................   196
    James, Lt. Gen. Daniel, III, ANG, Director, Air National Guard...   198
    Helmly, Lt. Gen. James R., USAR, Chief, Army Reserve; Accompanied
      by Command Sergeant Michelle Jones, Army Reserve...............   215
    Totushek, Vice Adm. John B., USNR, Chief, Naval Reserve..........   223
    McCarthy, Lt. Gen. Dennis M., USMCR, Commander, Marine Forces
      Reserve........................................................   229
    Batbie, Major Gen. John J., USAFR, Vice Commander, Air Force
      Reserve Command................................................   232

                  Compensation for Disabled Military Retirees
                                 march 27, 2003

    Reid, Hon. Harry, U.S. Senator from Nevada.......................   260
    Abell, Hon. Charles S., Principal Deputy Under Secretary of
      Defense for Personnel and Readiness............................   263

                                     (iii)

    Cooper, Hon. Daniel L., Under Secretary for Benefits, Department
      of Veterans' Affairs...........................................   271
    Jennings, Sarah, Principal Analyst, Defense Cost Estimate Unit,
      Congressional Budget Office....................................   281
    Merck, Carolyn L., Former Specialist in Social Legislation,
      Congressional Research Service (CRS), The Library of Congress
      (and Coauthor of the CRS Report, Military Retirement and
      Veterans' Compensation)........................................   293
    Bascetta, Cynthia, Director, Veterans Health and Benefits,
      General Accounting Office......................................   297
    Strobridge, Col. Steve, USAF (Ret.), Director of Government
      Relations, Military Officers Association of America............   312
    Butler, Master Gunnery Sergeant Benjamin H., USMC (Ret.), Deputy
      Legislative Director, National Association for the Uniformed
      Services.......................................................   318
    Duggan, Col. Dennis M., Deputy Director for National Security-
      Foreign Relations, American Legion National Headquarters.......   321

    DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR
                                      2004

                                  ----------

                            TUESDAY, MARCH 11, 2003

                                   U.S. Senate,
                             Subcommittee on Personnel,
                                   Committee on Armed Services,
                                                        Washington, DC.

          ACTIVE AND RESERVE MILITARY AND CIVILIAN PERSONNEL PROGRAMS

        The subcommittee met, pursuant to notice, at 2:37 p.m. in
    room SR-232A, Russell Senate Office Building, Senator Saxby
    Chambliss (chairman of the subcommittee) presiding.
        Committee members present: Senators Warner, Collins,
    Chambliss, Dole, E. Benjamin Nelson, and Pryor.
        Committee staff members present: Judith A. Ansley, staff
    director; and Cindy Pearson, assistant chief clerk and security
    manager.
        Majority staff members present: William C. Greenwalt,
    professional staff member; Gregory T. Kiley, professional staff
    member; Patricia L. Lewis, professional staff member; Scott W.
    Stucky, general counsel; and Richard F. Walsh, counsel.
        Minority staff members present: Gerald J. Leeling, minority
    counsel; and Peter K. Levine, minority counsel.
        Staff assistants present: Michael N. Berger, Leah C.
    Brewer, and Andrew W. Florell.
        Committee members' assistants present: James P. Dohoney,
    Jr., assistant to Senator Collins; James W. Irwin, assistant to
    Senator Chambliss; Henry J. Steenstra, assistant to Senator
    Dole; Russell J. Thomasson, assistant to Senator Cornyn; Eric
    Pierce, assistant to Senator Ben Nelson; and Terri Glaze and
    Walter Pryor, assistants to Senator Pryor.

         OPENING STATEMENT OF SENATOR SAXBY CHAMBLISS, CHAIRMAN

        Senator Chambliss. Good afternoon. The subcommittee will
    come to order. The subcommittee meets today to receive
    testimony on active and Reserve military and civilian personnel
    programs under review, the Fiscal Year Defense Authorization
    Request for 2004. This is the first meeting of the subcommittee
    this year, and we have a very ambitious agenda before us today.
        Before we get started, I want to take the opportunity to
    let Senator Ben Nelson know how pleased I am to have him as
    ranking member of this subcommittee. Senator Nelson is a man
    who I have come to have a great respect for and have a great
    friendship with. I am truly pleased that you are here. I look
    forward to working in a very bipartisan way to make sure that
    our military personnel, active, Guard, and Reserve and their
    families, are well-taken care of as we move into this
    authorization process.
        As Senator Nelson knows, this subcommittee has a strong
    tradition of operating in a bipartisan spirit on behalf of
    soldiers, sailors, airmen, and marines. I look forward to
    working with him on matters of such critical importance to the
    mission of our armed services and to the welfare of its great
    personnel, military, civilian, and their families.
        In recent years, Congress, working closely with the
    Department of Defense, and in partnership with private groups
    like those represented here today, has accomplished a great
    deal to better compensate our personnel for their service and
    sacrifices, and to enhance the attractiveness of military
    service. These efforts have been successful. Recruiting and
    retention are strong. The caliber of our people has never been
    higher, and the Armed Forces are ready for the challenges that
    they will face, but we are mindful of the high tempo of
    operations and extended deployments that have been sustained
    for so long. We appreciate the sacrifice of the heavy reliance
    on the Guard and Reserve and the personal sacrifices being made
    all over our Nation by our active duty, National Guard, and
    Reserve personnel and their families.
        At this critical moment in our Nation's history, when our
    Nation depends so heavily on the performance of the men and
    women of the Armed Forces, it is vital that we continue to
    provide the support and quality-of-life programs that
    demonstrate our commitment to the well-being of our troops and
    their families. This hearing is designed to be a broad overview
    of the proposed budget for fiscal year 2004, and the
    legislative recommendations of the Secretary of Defense, the
    military services, and the advocates for those who rely on the
    personnel programs of the Department of Defense.
        While in the past recruiting and retention have been issues
    before this subcommittee, I believe our focus this year will be
    a little bit different. Reserve call-ups increase by the week.
    Programs for family members have taken on increased importance.
    Protection against chemical and biological hazards is foremost
    in our thoughts. The readiness of our Armed Forces and how we
    provide for them and their families is at the forefront of our
    minds.
        We have three panels before us this afternoon. First, we
    will hear from Dr. David Chu, Under Secretary of Defense for
    Personnel and Readiness. Joining Dr. Chu will be Dr. William
    Winkenwerder, Assistant Secretary of Defense for Health
    Affairs; and Thomas Hall, Assistant Secretary of Defense for
    Reserve Affairs.
        Our second panel will consist of the personnel chiefs of
    the military services. They will be followed by a third panel
    of representatives of The Military Coalition who will present
    the concerns and interests of military personnel, active,
    Reserve and retired, and their family members.
        Before we hear from the witnesses, I would like to call on
    my friend and colleague, Senator Ben Nelson, for any comments
    he might have.

                STATEMENT OF SENATOR E. BENJAMIN NELSON

        Senator Ben Nelson. Thank you very much, Mr. Chairman. I,
    too, look forward to working with you and the members of this
    subcommittee as we spend time dealing with some very important
    personnel issues with our military and civilian personnel
    attached to and supporting the military. I know that we will
    work together. This has been a very bipartisan subcommittee in
    the past, and will be no less bipartisan this year, and I
    respect you. I will certainly enjoy working with you as we take
    on this mutual challenge.
        Working together I think it will be privilege to address
    issues that impact directly on the quality of life of our
    soldiers, sailors, airmen, and marines, active and Reserve,
    currently serving and those retired. These young men and women
    are prepared to lay down their lives in service to our Nation,
    and we therefore must make sure that we take care of them and
    their families.
        Our job is to make sure that service members are adequately
    compensated for their duties, and that we offer them a
    meaningful career progression. We must ensure that their
    families are well taken care of, that they receive quality
    medical care, their children receive a quality education, and
    their spouses and children have a quality of life that is at
    least comparable to what they would experience in the civilian
    world, and we have similar responsibilities for the careers of
    the Department of Defense civilian workforce.
        I want to thank our witnesses today for appearing before
    us. I am very anxious to hear what you have to say about the
    status of the personnel system of our Services, and how we can
    help to make those systems even better. Senator Chambliss and I
    may be new to this subcommittee, but I think that you will find
    that we are every bit as dedicated to our military personnel as
    our predecessors have been, and I look forward to your
    testimony.
        I thank you, Mr. Chairman, and at this point the ball is in
    your court.
        Senator Chambliss. Thank you, Senator.
        Dr. Chu, I understand you will be making a joint statement
    for the panel, and we will take your full statement into the
    record, and we will turn it over to you now for any comments
    you want to make to move us forward.

    STATEMENT OF DR. DAVID S.C. CHU, UNDER SECRETARY OF DEFENSE FOR
          PERSONNEL AND READINESS; ACCOMPANIED BY DR. WILLIAM
     WINKENWERDER, JR., ASSISTANT SECRETARY OF DEFENSE FOR HEALTH
       AFFAIRS; AND HON. THOMAS F. HALL, ASSISTANT SECRETARY OF
                      DEFENSE FOR RESERVE AFFAIRS

        Dr. Chu. Thank you, Mr. Chairman, Senator Nelson, Senator
    Dole. It is a great privilege for myself and my colleagues, Tom
    Hall and Bill Winkenwerder, to appear before you this
    afternoon. This committee and its members in their various
    roles over the years have given the Department of Defense
    tremendous support and have helped make successful what I would
    argue is one of the great military transformations of the
    second half of the 20th century in the United States, and that
    was the advent of the All-Volunteer Force.
        It has been 30 years now since that began. It had a rough
    first 10 or 15 years, as we all know. It has now become so
    successful that I think it is the envy of the world, and many
    other nations are emulating the American approach to the
    manning of their military forces.
        I am very pleased that this subcommittee and Congress as a
    whole have supported efforts of the Department to build on that
    record, have supported recommendations that we target military
    pay increasingly to areas of greatest need. We are very much
    appreciative of what you have done in that regard, because I
    think it has helped solve some of the recruiting and retention
    problems we suffered through in the late 1990s.
        Indeed, as you note from the President's budget request,
    the civil sector is seeking to emulate this precedent with the
    President's desire to create a central $500 million fund in
    which civil employees would be rewarded on the basis of
    performance, starting in fiscal 2004.
        It is our ambition to continue with the transformational
    agenda that history has bestowed upon us. I have, of course, a
    number of specific programmatic requests to advance in this
    testimony, but I would like to speak, if I might, to the
    broader picture for just a few moments.
        On the miliary side, and specifically for serving officers
    in active status, we are desirous of encouraging longer careers
    than are now typically the norm. A good deal of this can be
    accomplished through administrative steps. It would be very
    helpful to have some changes in statute, specifically lifting
    or raising the maximum age for service, increasing the maximum
    tenure, and reducing time and grade restrictions for general
    and flag officers.
        Likewise, we would like to be sure that our management of
    joint specialty officers is more nimble, more responsive to
    actual needs. In that regard, we would like the authority to
    allow qualification based upon receipt of both education and
    experience in whatever order that might occur, not just in the
    sequence specified by statute. We also would like the tour
    length to be determined by the normal policies of the
    Department, not mandated, as it currently is in the present
    law.
        On the Reserve front, I will ask my colleague, Tom Hall, to
    speak to this in more detail. I believe the current
    mobilization demonstrates, as you suggested in your opening
    remarks, Mr. Chairman and Senator Nelson, that we indeed have
    one force today, and the Reserves are just as much part of this
    volunteer force as the active element.
        I do think there are a number of things that we could do to
    encourage what we would like to call a continuum of service for
    our Reserve personnel that would facilitate their movement back
    and forth between active and Reserve status, that would make
    the provision of benefits more alike between active and Reserve
    members. I am also pleased to report that today we will be
    announcing that we will make reservists called up for more than
    30 days eligible for TRICARE Prime. Just as you have in the
    recent past mandated they are made eligible for TRICARE Prime
    Remote, we are going to take that further step, effective
    immediately. We will also be refining the definition of
    ``resides with,'' which is an important element in terms of how
    this force can benefit from eligibility.
        But there are some things that require statutory
    organization to assist establishing this kind of continuum.
        That continuum might also include the ability of members of
    the active military who would like to take 2 or 3 years off, so
    to speak, but maintain their tie to the Nation's uniformed
    forces to do so, and then return to an active career.
        On the civilian side, we have a terrific set of civilians,
    as I think Senator Nelson intimated in his comments, in the
    Department of Defense, but we believe for the future, as a
    matter of national security, we need to have improved
    flexibility and strengthened powers to deal with the issues in
    front of us, to transform our civil personnel system as far as
    the Department of Defense is concerned.
        The Secretary of Defense has spoken in terms of a national
    security personnel system, and I think that goes immediately to
    the reason for these requests. We also hope will be coming to
    you in the form of legislative language within the next 2 weeks
    or so, and that is, we will need greater agility than the
    present system provides us. We need greater agility so we can
    convert posts that are now taken by uniformed personnel that
    could be performed easily by civilians to Civil Service status,
    if that is appropriate, greater agility because, as we all
    appreciate, within the next 10 years we must replace a
    significant fraction of the present generation of serving Civil
    Service members.
        At present, it takes the Department of Defense an average
    of 90 days to hire someone from the time the supervisor decides
    that he or she has a need to fill. That is inadequate in
    today's market for talent. If you go to a college job fair,
    often you are competing with a firm that has a form for the
    individual to sign right there accepting the post that you have
    offered. We cannot do that today. Instead we tell the young man
    or woman, you can take our test, you can fill out our forms,
    and in 3 months or so we will let you know. You can imagine how
    successful we are competing in that environment.
        We need greater agility to adjust job responsibilities as
    circumstances change. That is one reason why in the Secretary's
    judgment so many posts have migrated to the uniformed force,
    because that is a force where you can adjust job
    responsibilities promptly. We do not want to be in the position
    when people's response to an entreaty from their supervisor is,
    ``that is not in my job description.''
        What do we want? We would like greater hiring flexibility.
    You might call it categorical ranking plus. We would like
    authority to hire on the spot in the case of college job fairs.
    We would like more flexible powers to hire senior Americans and
    those who are already annuitants from the Federal Service.
        We would like to build on the kind of demonstration project
    that Congress authorized for us at China Lake, where pay
    banding has been used better to reward the workforce and also
    to position the salary structure so it is competitive with the
    civil sector. It allows a supervisor to adjust job
    responsibilities promptly as circumstances change without the
    need to recompete the position and put at risk the ability to
    achieve the mission.
        I do think that we want to begin a dialogue about the right
    to bargain on certain human resource issues at the national
    level. Two years after we started an effort to put in place
    collections from civil servants for misuse of travel cards, we
    are still negotiating with a number of unions over that
    specific remedy and cannot put it fully into place.
        I think there is ample evidence for the propositions we
    will be advancing in terms of Civil Service improvement.
    Congress has given this Department over the last 20 years a
    great deal of opportunity to demonstrate principles like this.
    We have touched over 30,000 civil servants very successfully. I
    think that record can speak for itself.
        We spent the last year, since March 2002, reviewing what we
    would call the best practices as far as those civil personnel
    demonstrations are concerned, and we will be using the full
    extended authority that you have already given us to apply
    those best practices, which importantly affects the acquisition
    workforce of the Department of Defense.
        Again, Mr. Chairman, my colleagues and I feel privileged to
    be here to explain the programs for which we seek your support.
    We want to express our appreciation for the support you have
    given us. It has made the civil and military force of the
    Department of Defense of the United States the finest in the
    world.
        Thank you.
        [The prepared statement of Dr. Chu follows:]

                    Prepared Statement by Dr. David S.C. Chu

                                  INTRODUCTION

        Mr. Chairman and members of this distinguished subcommittee, thank
    you for the opportunity to be here today and thank you for your
    continuing support of the men and women who serve in our Armed Forces.
        A recent Volker Commission report noted that ``Executive
    Departments should be . . . given the authority to develop management
    and personnel systems appropriate to their missions.'' Today, I will
    discuss a wide array of initiatives that do just that.
        I will begin with the ``Defense Transformation for the 21st Century
    Act of 2003'' (DT-21), a proposal that is under review in the
    administration. This four-part legislative proposal will change the way
    we manage people, acquisition processes, installations, and resources.
        In DT-21, personnel changes are based on one concept: agility.
    Agility is our response to the extreme uncertainty of the national
    security environment. In obtaining that agility, we propose to change
    the processes by which we manage military and civilian personnel, even
    as we keep the value systems embodied in existing legislation including
    the Civil Service Reform Act. The values continue to be relevant, but
    the processes, many of them legislated, have not kept pace with
    national security realities.

    Transforming Civilian Personnel
        For civilians, the Department is considering a National Security
    Personnel System (NSPS) as a key part of our transformational agenda.
    We are working to promote a culture in the Defense Department that
    rewards unconventional thinking--a climate where people have freedom
    and flexibility to take risks and try new things. Most would agree that
    to win the global war on terror, our Armed Forces need to be flexible,
    light and agile--so they can respond quickly to sudden changes. Well,
    the same is true of the men and women who support them in the
    Department of Defense. They also need to be flexible, light and agile--
    so they can move money, shift people, and design and buy weapons
    quickly, and respond to sudden changes in our security environment.
    Today, we do not have that kind of agility.
        Congress has recognized these shortcomings by consistently
    advancing the cause of flexibility and competitiveness in DOD civilian
    human resources management. Congressional action paved the way 20 years
    ago for the groundbreaking work in pay banding at the Navy's China Lake
    facility, enacted the first Federal program of separation buyouts that
    avoids the human and economic toll of reduction in force, authorized
    critical personnel demonstration projects in the defense acquisition
    workforce and in defense laboratories and centers, provided flexibility
    in paying for degrees, and created scholarships to attract, advance,
    and keep those with information assurance skills. These innovations and
    experiments over many years have demonstrated that a more flexible and
    collaborative system of human resources management, providing greater
    opportunity for employees and more responsibility for managers, can
    lead to higher productivity and improved morale that are critical to
    mission support. In a related action, Congress recognized the need for
    much greater flexibility in the management of national security
    personnel in the enactment of the new Department of Homeland Security.
        The Department now needs to fold these innovative pieces into a
    more joint, flexible, and expanded plan of civilian human resources
    management. The Department cannot continue to operate effectively or
    efficiently with the current fragmentation of civilian personnel
    management authorities. The National Security Personnel System will
    give the Department the flexibility to manage its civilian personnel--
    so we can attract and retain and improve the performance of our
    700,000-plus civilian work force.

    Transforming Military Personnel Management
        Modernizing and streamlining officer management for both the active
    and Reserve components is key to defense transformation. As with
    Department of Defense civilians, we need flexibility for our military
    personnel, and we need to be able to assure a prompt response to
    changing circumstances. We seek to accomplish this by modernizing and
    streamlining officer management, and creating a ``continuum of
    service'' in our Reserve component.

    General and Flag Officer Management
        The Secretary of Defense has underscored the need for greater
    flexibility in managing job tenure and career length for general and
    flag officers with a view toward longer time in a job and longer
    careers. Present laws frequently operate against those objectives.
        The current system rapidly rotates general and flag officers
    through their positions. Moving senior officials through career paths,
    as private sector organizations do, provides experiences that develop
    leadership and management skills. But officials must serve in these
    positions long enough to acquire these skills, to demonstrate their
    capabilities, and to manage the organization effectively. CEOs average
    more than 8 years in a job and many serve more than a decade. In
    contrast, the average tour length for the military senior leadership is
    between 22 and 31 months.
        We are proposing several provisions that would allow longer tours
    and longer careers by eliminating mandatory retirement for time in
    service, time in grade, and age; mandatory time-in-grade requirements
    for retirement in grade; and mandatory tour lengths. We propose to
    eliminate the authorized general and flag officers serving in the grade
    of O-7 distribution cap to allow flexibility in filling O-7 and O-8
    jobs. Other proposals would sanction the President's authority to
    immediately reassign senior general and flag officers, who were
    initially confirmed in grade, to another position authorized to carry
    the same grade.

    Joint Officer Management
        We are requesting several provisions to streamline joint officer
    management. The Secretary of Defense requires the authority to define
    the standards for joint tour lengths and have the discretion to
    recognize situations in which officers should receive full joint
    credit. We also require greater flexibility in assigning officers
    following graduation from joint education institutions. Another
    requested provision concerns lengths of joint officer duty assignments.
        We are refining our strategic plan for joint officer management,
    education and training. As part of this effort, the Department is using
    an on-going, congressionally mandated, Independent Study of Joint
    Management and Education to help evaluate and validate our ideas for
    transformation. The study will determine which processes have ``added
    value,'' and which ones do not. Ultimately we look forward to working
    with Congress to strengthen joint management and training.
        We are proposing now two modest changes: creating a single standard
    for achieving joint credit (i.e., 24 months); and eliminating the
    sequencing requirement for Professional Military Education (PME) and
    joint tours.
        The Department is assessing the entire career continuum of officer
    education with the goal of reducing the amount of in-residence time
    required, maximizing viable advanced distributed learning (ADL)
    opportunities and integrating joint requirements. We want to train and
    develop our leaders like we fight--in a joint environment.

    Measuring the Force
        We believe there is a better way to manage and measure personnel
    strength. We propose to change the metric used to measure authorized
    force levels to average strength measured across the entire fiscal
    year, rather than reporting strength attainment on the last day of the
    fiscal year. Using average strength will improve visibility on the
    actual force manning and improve personnel readiness. A one-day
    reporting metric can conceal force shortfalls in the 364 days a year
    not captured in the end-year snapshot, and actually leads to
    inefficient management practices.

    Recruiter Access to High Schools
        Through coordination with the Department of Education, Congress
    included language requiring military recruiter access to high schools
    in the 2002 No Child Left Behind Education Act. Having the benefit of
    this coordinated Defense and Education emphasis on the importance of
    this issue has engendered profound improvement in the access our
    recruiters have received.
        Currently, however, there is a disconnect between titles 10 and 20
    that cause confusion among both recruiters and secondary schools as to
    what is actually required by law. Title 10 permits schools to deny
    access to high school student directory information if a school board
    policy restricts release; title 20 does not provide that exception for
    school districts. We would like to correct this conflict by making
    title 10 read as title 20 does, thereby allowing military recruiters
    access to all secondary school information unless the school maintains
    a bona fide, verifiable religious objection to service in the Armed
    Forces.

    Continuum of Service
        As we meet the challenges of today and the future, it is essential
    that the Reserve components be part of this transformation. Over the
    past year, my office has worked with other agencies inside and outside
    the Department to address contributions of the Guard and Reserve--in
    both new and traditional roles and missions. The ``Review of Reserve
    Component Contributions to the National Defense,'' establishes
    strategic principles to guide future structure and use of the Reserve
    components and proposes innovative management initiatives to meet the
    requirements.
        A key element in transforming our military forces is to ensure
    efficiency and effectiveness in the use of our part-time Reserve
    Forces. There is a need for streamlined personnel management practices
    that offer greater flexibility in accessing and managing personnel
    throughout a military career that may span both active and Reserve
    service--in other words, a career that spans a ``continuum of
    service.''
        Levels of military service and mission support can vary
    substantially throughout a military career and between the extremes of
    non-participating individual reservists and the 365 days per year
    performed by members serving on full-time active duty. We know some
    Reserve members are willing to serve more than the 39 days of training
    (drill periods and annual training) required in law, but less than
    full-time. This variable pool of reservists could be more effectively
    managed to better support certain selected mission areas and functional
    requirements.
        Operating within a continuum of service paradigm necessitates
    simplifying the rules for employing Reserve component members,
    enhancing combined active component/Reserve component career
    development, and creating conditions for the seamless flow of personnel
    from active to Reserve and Reserve to active over the course of a
    military career. Barriers to such service must be minimized, thereby
    eliminating the need for the workaround solutions often in effect
    today. A more flexible Reserve compensation and benefit system can
    serve to encourage volunteerism.
        Managing within a continuum of service can help to attain and
    retain skills that are hard to acquire and maintain in the military,
    including those in cutting edge technologies. It will provide
    opportunities to establish new and innovative affiliation programs and
    DOD partnerships with industry. Adopting a new availability and service
    paradigm as the basis for managing Active and Reserve Forces would
    allow individuals to change levels of participation with greater ease
    and better leverage the DOD investment in training and education to
    meet operational requirements.
        Today the Department is limited to using active component forces to
    provide assistance to civil authorities during emergency situations. In
    an age of competing resource requirements, the Department would like to
    enable all Reserve component members to assist local first responders
    in a domestic natural or manmade disaster, accident, or catastrophe.
    The Department is reviewing the possibility of creating Service
    auxiliaries, based on the Coast Guard auxiliary model, to address
    potential personnel tempo problems.

    Range Sustainment
        A critical element to sustaining requisite force readiness levels
    is unimpeded access to test and training ranges. However, a number of
    encroachment issues expose our military personnel to increased combat
    risks as their ability to train as they expect to fight is compromised.
    These influences may be urban sprawl, loss of frequency spectrum,
    restrictions on air space, and endangered species-related restrictions
    on training lands. Loss or restricted use of combat training ranges and
    operating areas force units in all Services to use either less
    effective workarounds or in extreme cases to forego needed training
    altogether. Loss of radio frequency spectrum reduces the Department's
    ability to test new weapons, increasing program risk and potentially
    raising the cost of acquisition. Urban encroachment pressures around
    training areas inhibit development of new tactics to meet emerging
    threats, restrict altitudes for flight training, limit application of
    new weapons technologies, complicate night and all-weather training,
    and reduce live fire proficiency. Ranges in the southwest United States
    (for example, San Diego, Camp Pendleton, and San Clemente Island) are
    prime examples of how endangered species critical habitat designations,
    frequency spectrum restrictions, clean air compliance, maritime
    encroachment, and other externalities can cumulatively constrain the
    use of combat training ranges and operating areas. Such constraints
    force the Services to alter or compromise training regimens. This
    increasingly inhibits the ability to ``train as we fight,'' eventually
    degrading combat readiness.
        Solutions to this broad issue are being pursued through a variety
    of Department of Defense internal initiatives, interagency means, and
    administration legislative proposals. Ongoing DOD policy, organization,
    and programming changes support range sustainment efforts, with
    increased emphasis placed on outreach and stakeholder involvement to
    resolve encroachment issues. DOD is working with other Federal agencies
    on regulatory or administrative solutions to issues that can be
    addressed without changing existing Federal law.
        In 2002, the administration submitted the DOD Readiness and Range
    Preservation Initiative (RRPI) to Congress, which included eight
    legislative proposals that addressed a number of encroachment concerns.
    We are grateful to Congress for the three provisions enacted last year,
    including addressing the serious readiness concerns raised by the
    Migratory Bird Treaty Act. The Department of Defense intends to work
    with the Department of the Interior on a lasting solution to this act's
    unintentional takes issue within the framework of Congress' temporary
    exemption provision. However, the other five elements of our Readiness
    and Range Preservation Initiative remain essential to range sustainment
    and will continue to be addressed. This year's RRPI continues to seek
    clarifications to aspects of the Marine Mammal Protection Act (MMPA),
    the Endangered Species Act (ESA), the Clean Air Act (CAA), and two
    solid waste management and disposal laws known as the Resource
    Conservation and Recovery Act (RCRA) and the Comprehensive
    Environmental Response, Compensation, and Liability Act (CERCLA). For
    example, the proposal to clarify the Endangered Species Act would
    enable our installation commanders to work more effectively with the
    U.S. Fish and Wildlife Service to continue to protect imperiled species
    without compromising military testing and training. My office will
    remain committed to working with stakeholders in this multi-year plan
    of action to develop viable solutions that appropriately balance our
    environmental stewardship and military readiness responsibilities.
        We believe that this year is the appropriate time to implement the
    transformation initiatives I have just discussed. Our world has
    changed. As a consequence, people and personnel systems must be agile
    and responsive.

                    FORCE MANAGEMENT RISK BALANCED SCORECARD

        There is much change being worked in personnel and readiness. As
    diverse as these efforts are, we have aligned outcomes associated with
    many of our efforts under the new Force Management Risk Balanced
    Scorecard. The Balanced Scorecard strategically aligns our personnel
    management objectives, the variety of current and planned research
    efforts, human capital plans, and policy revisions within personnel and
    readiness under five major goals. These goals include: maintain a
    quality workforce; ensure a sustainable military tempo; maintain
    workforce satisfaction; maintain reasonable costs; and shape the force
    of the future. Our goals focus on accomplishing the initiatives set
    forth in the President's Management Agenda, with particular emphasis,
    of course, on the Strategic Management of Human Capital initiative. The
    Balanced Scorecard will allow us to track progress toward short- and
    long-term objectives like meeting high quality recruit goals,
    commitment of members and spouses to the military lifestyle; costs per
    enrollee for health care; transforming training; shortening the
    civilian hire fill time; and implementing the new active component/
    Reserve component management paradigm. In turn, the Force Management
    Risk Balanced Scorecard serves as one quadrant of four risk areas
    within a Secretary of Defense instrument panel of metrics that will be
    used to balance force management risks, operational and institutional
    risks, as well as future challenges across the Department. This is an
    ambitious charter, but we are committed to this strategic course.

                               MILITARY PERSONNEL

        Last year the Department presented a comprehensive Human Resource
    Strategic Plan. With direction from the Quadrennial Defense Review and
    Defense Planning Guidance, we collaborated with the secretaries of the
    military departments and the component heads to develop a strategic
    human resource plan that encompasses military, civilian, and contractor
    personnel. The plan identified the tools necessary to shape and size
    the force, to provide adequate numbers of high-quality, skilled and
    professionally developed people, and to facilitate a seamless flow of
    personnel between the Active and Reserve Forces.
        The Department continues to refine the Human Resources Strategy
    designed to provide the military force necessary to support our
    national defense strategy. We face an increasingly challenging task to
    recruit, train, and retain people with the broad skills and good
    judgment needed to address the dynamic challenges of the 21st century,
    and we must do this in a competitive human capital environment.
    Consequently, we seek a mix of policies, programs, and legislation to
    ensure that the right number of military personnel have the requisite
    skills and abilities to execute assigned missions effectively and
    efficiently.

    End Strength
        At the end of fiscal year 2003, the Department of Defense as a
    whole exceeded its end strength target for the Active and Reserve
    Forces by approximately 31,400 service members, or 2.3 percent. This
    was due to the number of personnel still in stop loss status at the end
    of the fiscal year.
        The requested active duty military end strength for fiscal year
    2004, as reported in the Service budget submissions, show a net
    decrease of 1,600 spaces from the fiscal year 2003 authorization. The
    Army continues at an end strength of 480,000; the Navy projects a
    decrease of 1,900 from 375,700 to 373,800; the Marine Corps remains
    steady at 175,000; and the Air Force increases slightly from 359,000 to
    359,300.
        The fiscal year 2004 Defense budget recognizes the essential role
    of the Reserve components in meeting the requirements of the National
    Military Strategy. It provides $31.3 billion for Reserve component
    personnel, operations, maintenance, military construction, and
    procurement accounts, which is approximately 1 percent above the fiscal
    year 2003 appropriated level.
        Significantly, this is only 8.2 percent of the overall DOD budget,
    which represents a great return on investment. Included are funding
    increases to support full-time and part-time personnel, and the
    required sustainment of operations. It also continues last year's
    effort toward Reserve component equipment modernization and
    interoperability in support of the total force policy.
        These funds support nearly 863,300 Selected Reserve personnel. The
    Selected Reserve consists of the following: Army National Guard
    350,000; Army Reserve 205,000; Naval Reserve 85,900; Marine Corps
    Reserve 39,600; Air National Guard 107,000; and Air Force Reserve
    75,800, Coast Guard Reserve 10,000 (funded by DOT). Our total Ready
    Reserve, which also includes the Coast Guard Reserve, Individual Ready
    Reserve and Inactive National Guard is 1,190,009 personnel.
        Maintaining the integrated capabilities of one force is key to
    successfully achieving the Defense policy goals of assuring allies,
    dissuading military competition, deterring threats against U.S.
    interests, and decisively defeating adversaries. Only a well-balanced,
    seamlessly integrated military force is capable of dominating opponents
    across the full range of military operations. DOD will continue to
    optimize the effectiveness of its Reserve Forces by adapting existing
    capabilities to new circumstances and threats, and developing new
    capabilities needed to meet new challenges to our national security.
        The Reserve components exceeded their 2002 recruiting and strength
    goals in spite of market challenges. The success the Reserve components
    experienced in achieving end strength was a combination of recruiting
    successes and excellent retention in most components (only the Army
    National Guard exceeded its programmed losses). Although limited stop
    loss will assist in managing departures, the Reserve components will
    continue to optimize use of retention incentives while sustaining their
    recruiting efforts.

    Stop Loss
        Stop loss is the involuntary extension on active duty of service
    members beyond their date of separation in times of war or national
    emergency when the need arises to maintain the trained manpower
    resident in the military departments. During fiscal year 2002, 5,800
    personnel were effected by the stop loss. For officers, the Army
    continued a limited program impacting only pilots and special
    operations officers. Affected Navy officers include the special
    operations community, limited duty security officers, physicians in
    certain specialties and the nurse corps. In addition to C-130 aviators
    and infantry officers, the Marine Corps expanded their program to
    include the newly formed Antiterrorism Brigade. The Air Force released
    all members from stop loss over the course of the year.
        For the enlisted forces, the Army implemented a limited skill-based
    program in increments. The initial increment included soldiers
    primarily assigned in Special Forces specialties; the second increment
    expanded the program to include Ready Reserve personnel in the same
    specialties already stopped in the Active Force and added three
    additional specialties (enlisted and officer psychological operations,
    and enlisted supply and services) to the program. The Army released
    certain skills throughout the year and adjusted its policy from an
    indefinite hold to a 12 month maximum time period. The Army is
    currently working on the details of lifting more skills from stop loss.
        The Navy enlisted program affected sailors in five different
    specialties deemed critical to current operations, including SEALs,
    special warfare combatant craft crewman, explosive ordnance disposal
    specialists, and certain linguists. The Navy ended their program in
    August and all affected sailors were released by the end of 2002.
        The Marine Corps implemented an incremental program that coincided
    with current operations that the Marine Corps was tasked to support.
    The first increment addressed marines assigned to Marine Forces
    Atlantic, as they were needed to staff the anti-terrorism brigade. The
    second increment included marines assigned to C-130 aircrew positions
    across the Corps. The third increment was used to meet force protection
    requirements.
        The initial Air Force program applied to all enlisted skills. As
    with its officer program, the Air Force released all enlisted
    specialties from the program.
        Fiscal year 2003 stop loss programs brought about new programs in
    light of the continuing war on terrorism, as well as the build up for a
    possible war with Iraq.

    ------------------------------------------------------------------------
                      Service                          Stop Loss Plan
    ------------------------------------------------------------------------
    Marine Corps..............................   Applies to entire
                                                 Corps and addresses growing
                                                 number of units already
                                                 engaged in operations.
                                                 Provides
                                                 stabilization of units
                                                 while potential operational
                                                 demands of an Iraqi
                                                 scenario are evaluated.
    ------------------------------------------------------------------------
    Army......................................   Focuses exclusively
                                                 on members of units alerted
                                                 for deployment. This
                                                 approach places a premium
                                                 on unit cohesion and
                                                 trained teams.
                                                 Incrementally
                                                 executed only for Army
                                                 forces in Southwest Asia.
    ------------------------------------------------------------------------
    Air Force.................................   Ensures units
                                                 remain adequately manned
                                                 for all current and future
                                                 operational requirements.
                                                 Applied to most
                                                 stressed officer and
                                                 enlisted specialties.
                                                 Specialties will be
                                                 evaluated every 60 days to
                                                 align force mix to
                                                 identified operational
                                                 demands.
    ------------------------------------------------------------------------
    Navy......................................   No plan to use at
                                                 this time.
    ------------------------------------------------------------------------

        While the Services have used stop loss authority to some degree
    during the past year, the Department expects this ebb and flow of
    specialties and the use of the program to insure unit cohesion and
    enhanced readiness to be included in the Service stop loss programs to
    continue until appropriate force manning adjustments are achieved.

    Conscription
        There has been some debate recently about this Nation returning to
    conscription. Throughout most of American history, our military has
    been composed of volunteers. However, conscription was the primary
    means of obtaining sufficient numbers of military personnel during
    World Wars I and II and the Korean Conflict, to the point that its
    renewal became perfunctory. In the late 1960s, a presidential
    commission studied how best to procure military manpower--retain the
    draft or institute a volunteer military. After much debate within the
    administration, Congress, and across the country, it was decided that
    an All-Volunteer Force was feasible, affordable, and would enhance the
    Nation's security. The debate concluded that, under a draft in which
    not all served, it was inequitable for only some to bear the burden and
    responsibility of military service. Thus, the authority for
    conscription was allowed to lapse on July 1, 1973.
        The All-Volunteer Force has served the Nation for more than a
    quarter century, providing a highly effective military that continues
    to exceed the expectations of its framers. It has also proven more
    cost-effective than a conscripted force according to many studies,
    including an external review by the congressional auditing arm, the
    U.S. General Accounting Office. The Department respectfully seeks your
    support to ensure that our fighting force comprises individuals who
    have voluntarily made the decision to defend this Nation.

    Recruiting
        We are optimistic that all active Services will achieve their
    recruiting goals this fiscal year. Through November 2002, all Services
    were ahead of their year to date recruiting goals as they entered
    fiscal year 2003 with a sizable delayed entry program. The Department,
    however, will continue to face stiff competition for high-quality youth
    from both private sector industry and colleges.

    Expanding the Target Market
        The Department continues to identify ways to expand our target
    market. Of particular interest this year is the new short-term
    enlistment option offered in the National Defense Authorization Act for
    Fiscal Year 2003. This program, the National Call to Service, is
    designed to promote national service. This is in keeping with the
    increased awareness of the value of service to the Nation, as
    highlighted by the President's USA Freedom Corps initiative. It allows
    the Services to enlist high-quality young men and women for 15 months
    of active duty following initial entry training, with a 2-year Selected
    Reserve obligation after that active duty. Uniquely, this program
    allows participants to serve a portion of their 8-year service
    obligation in another national service program, such as Americorps or
    the Peace Corps. We hope that this program will expand the recruiting
    market to young Americans interested in alternatives to more
    traditional terms of enlistment.
        Today, nearly two-thirds of high school seniors enroll in college
    immediately after graduation. Enlistment often is viewed as an
    impediment to further education. To address this trend, the Army
    launched its ``College First'' test program in February 2000. This
    program is designed to identify better ways to penetrate the college-
    oriented market. In fiscal year 2002, the Army had over 600 program
    participants. We appreciate congressional support of ``College First''
    in permitting increases in the monthly stipend, authorizing a loan
    repayment incentive option, and allowing a recoupment clause for those
    who default on their ``College First'' responsibilities. These program
    improvements should make the ``College First'' program more viable, and
    we hope that Congress will remain open to further changes that will
    enhance the program's chance of success.
        In addition to targeting the college market, we have several on-
    going pilot programs designed to tap the high aptitude, non-high school
    diploma graduate market. The National Defense Authorization Act for
    Fiscal Year 1999 directed a 5-year project to attract more home
    schooled graduates and ChalleNGe-GED holders to the military by
    treating them as high school diploma graduates for enlistment purposes.
    Early analysis indicates that results in those experiments are mixed.
    As the sample size continues to increase throughout the pilot test, we
    will assess the military performance and attrition behavior of the home
    schooled and ChalleNGe recruits to determine their appropriate
    enlistment priority.
        The Army will continue the GED Plus test program in fiscal year
    2003. This program provides for up to 4,000 individuals who left high
    school before obtaining their diploma with an opportunity to earn a GED
    and enlist in the military. GED Plus applicants have to meet stricter
    screening criteria than high school diploma graduate applicants. They
    must all be Armed Forces Qualification Test score category I-IIIA (top
    50th percentile), they must score well on an Assessment of Individual
    Motivation (AIM) test (which is correlated to attrition), and they
    cannot require a waiver for morals or drug and alcohol. Because GED
    Plus graduates are required to have above average enlistment test
    scores, job performance should not be adversely affected. The GED Plus
    program is scheduled for completion in fiscal year 2004.

    Fiscal Year 2002 Enlisted Recruiting Results
        During fiscal year 2002, the military Services recruited 259,290
    first-term enlistees and an additional 84,312 individuals with previous
    military service for a total of 343,602 recruits, attaining 104 percent
    of the DOD goal of 331,622 accessions. All active and Reserve
    components achieved their numeric goals.
        The quality of new recruits remained high in fiscal year 2002.\1\
    DOD-wide, 93 percent of new recruits were high school diploma graduates
    (against a goal of 90 percent) and 68 percent scored above average on
    the Armed Forces Qualification Test (versus a desired minimum of 60
    percent).
    ---------------------------------------------------------------------------
        \1\ Although the Army National Guard and Naval Reserve fell short
    of the desired high school diploma graduate (HSDG) rate.
    ---------------------------------------------------------------------------
        The Montgomery GI Bill continues to be an extremely popular
    recruiting incentive. Over 96 percent of all new accessions enroll in
    this program which provides over $35,000 in benefits to a new active
    duty recruit in return for a $1,200 contribution from current pay. An
    additional option allows a service member an opportunity to contribute
    up to an additional $600 in return for $5,400 of potential benefits
    over a 36-month period. The Department continues to view the MGIB as
    one of our Nation's best investment programs--a military recruiting
    tool for the Services today, and a more educated veteran for our
    country in the future.

    Fiscal Year 2003 Year-to-Date Results
        Through the first quarter of this fiscal year (October to December
    2002), the Services achieved 99 percent of their ``shipping mission,''
    enlisting 71,194 young men and women. All active components met or
    exceeded their first quarter goals. The Reserve components achieved 97
    percent of their first quarter mission, with the Army National Guard
    achieving 86 percent. It is too early to determine if the Army National
    Guard shortfall is an anomaly or a trend; but plans are already in
    place to monitor it. Overall, recruit quality in both the active and
    Reserve components remains high.
        Unlike the active component, the Reserve components do not
    routinely contract recruits for accession into a future period. So,
    while the active components entered fiscal year 2003 with healthy
    delayed entry programs, the Reserve components must recruit their
    entire goal in this current fiscal year. The recruiting goals for
    fiscal year 2003 are higher for 4 of the 6 Reserve components, with a
    total Reserve component recruiting goal of 141,450 (a 3.8 percent
    increase over the fiscal year 2002 goal).
        The trend of increasing the percentage of Reserve component
    recruits without prior military service continues. Approximately 50
    percent are now expected to come from civilian life. This is a result
    of high active component retention and lower Individual Ready Reserve
    populations.
        For 2003, all Reserve components are continuing to focus their
    efforts on maintaining aggressive enlistment programs by targeting both
    enlistment and re-enlistment incentives in critical skill areas.
    Emphasis will be placed on the prior service market for both officers
    and enlisted personnel. The Reserve components will expand their
    efforts to contact personnel who are planning to separate from the
    active component long before their scheduled separation and educate
    them on the opportunities available in the Guard and Reserve. In
    addition, the Reserve components will increase their efforts to manage
    departures.

    Officer Programs
        All Services met their numerical commissioning requirements in
    fiscal year 2002. However, both the Navy and Air Force continued to
    experience shortfalls in certain specialties, usually those that
    require a specific educational background. The Navy missed its goals
    for pilots, naval flight officers, civil engineers, chaplains, and most
    medical and medical support specialties. The Air Force was short
    navigators, intelligence officers, weather officers, physicists, and
    engineers. Many of these career fields offer higher pay and more
    opportunity in the civilian workforce. Also, these career fields are
    academically challenging and it takes more people on scholarships to
    produce just one graduate. Both Services have faced this problem for
    the past several years and continue to utilize the various incentives
    available, such as scholarship for specific degree programs, to ensure
    they attract enough individuals with the required prerequisites.
        Overall in fiscal year 2002, the Reserve components achieved over
    97 percent of their officer accession goals. The Services continue to
    work on reducing shortfalls in the Reserve officer ranks through
    emphasis on both recruiting and retention.
        Active duty officer accessions are on track in all Services for
    numerical success this year, but the Navy and Air Force continue to pay
    special attention to the specialty mix.

    Retention
        Retention results for 2002 were strong and the positive trends
    continue. Each Service met or exceeded its aggregate retention goals.
    The improved result for all Services is due importantly to strong
    retention programs, including the targeted pay raises Congress has
    approved in the last 2 years.
        The enlisted retention outlook for fiscal year 2003 is good,
    although the full effects of stop loss are yet to be felt. For example,
    some service members previously affected by stop loss, who had planned
    to separate may decide to reenlist; while others who had planned to
    extend their tours of duty may not want to be involuntarily extended
    again under a future stop loss program.
        Despite success in meeting the numeric goals, shortages in a number
    of technical enlisted specialties persist in all Services. Examples of
    shortage skills include special operations, aviation maintenance,
    information technology specialists, electronics technicians,
    intelligence linguists, and air traffic controllers. We will continue
    to depend on judicious use of bonuses and special pays to achieve
    desired retention levels in these skills. The Army is targeting
    experienced noncommissioned officers with special operations skills
    with the Critical Skills Retention Bonus (CSRB) program.
        Officer retention challenges from fiscal year 2002 are expected to
    continue into fiscal year 2003. This primarily involves career fields
    whose technical and scientific skills are easily transferable to the
    private sector. The Army, Navy, and Air Force are banking on the CSRB
    program, enacted by Congress in the National Defense Authorization Act
    for Fiscal Year 2001, to help improve retention in targeted critical
    skills. But appropriations for these bonuses were cut in the past 2
    years. We hope Congress will support these important investments this
    year. Targeted skills include: developmental engineers, scientific/
    research specialists, acquisition program managers, communication-
    information systems officers, civil engineers, surface warfare and
    submarine support officers, and designated health professionals across
    all the Services.

    Compensation
        Attracting and retaining high caliber individuals for a trained and
    ready All-Volunteer Force requires a robust, competitive, and flexible
    compensation system. In addition to basic pay, compensation includes
    all pays and allowances, such as housing and subsistence allowances,
    and special and incentive pays.
        Targeted pay raises are needed because increased educational
    attainment on the part of the enlisted force has made the existing
    military pay structure less competitive. We appreciate Congress'
    direction on the 2002 and 2003 pay raises to target additional raises
    for NCOs, as well as mid-level officers. We recommend Congress adopt
    our proposed targeted pay raises for our mid-level and senior NCOs and
    warrant officers for fiscal year 2004.
        In addition to maintaining efforts to achieve competitive pay
    tables, the Department recommends continuing to increase military
    housing allowances significantly, with the goal of eliminating average
    out-of-pocket costs by 2005. Building on the current year's increases,
    the fiscal year 2004 budget requests further improvements in the
    allowance, reducing the average out-of-pocket costs from 7.5 to 3.5
    percent.
        In January 2002, the Department implemented a new authority
    provided by Congress to allow the uniformed forces to participate in
    the Thrift Savings Plan (TSP). This opportunity represents a major
    initiative to improve the quality of life for our service members and
    their families, as well as becoming an important tool in our retention
    efforts. In its first year of operation, TSP attracted nearly 303,000
    enrollees, 241,000 active duty and 62,000 Guard and Reserve members.
    The Department projected that 10 percent of active duty members would
    enroll in the first year; in fact, we had 17 percent sign up, exceeding
    our expectations.
        The National Defense Authorization Act for Fiscal Year 2003
    provided a new Combat-Related Special Compensation for military
    retirees with combat-related disabilities. Eligible recipients are
    those retirees who have 20 years of service for retired pay computation
    and who either have disabilities because of combat injuries for which
    they have been awarded the Purple Heart or who are rated at least 60
    percent disabled because of armed conflict, hazardous duty, training
    exercises, or mishaps involving military equipment. We are working
    closely with the Department of Veterans Affairs to identify potentially
    eligible members and establish and implement application procedures and
    requirements. We intend to have applications and instructions available
    by late spring so eligible retirees can begin applying. The retiree
    newsletters for each branch of Service should provide the first
    information about when and where eligible retirees may submit claims
    for compensation. We will keep the Service-related associations and
    other appropriate organizations informed as well.
        In 2003, we are examining compensation programs for Reserve
    component members. The current and anticipated military environments
    require employment of Reserve Forces in ways not imagined when current
    compensation programs were designed. Current thresholds for housing
    allowances, per diem, some special skill and duty pays, and a range of
    benefits may not fully support the manner in which Reserve component
    members may be employed in the future. Compensation programs must be
    sufficient to attract and retain capabilities to meet continuous, surge
    and infrequent requirements. As we examine options and formulate
    alternatives, we will adjust DOD regulations and include proposed
    statutory changes as part of the Department's legislative program.

    Managing Time Away From Home (PERSTEMPO)
        Although the provisions of law that require specific management
    oversight, tracking and payment of PERSTEMPO per diem have been waived
    during the current national emergency, the Services are continuing to
    track and report PERSTEMPO data. We understand the effects of excessive
    time away from home on the morale, quality of life and, ultimately, the
    readiness of service members even during wartime conditions. That is
    why we have asked the Services to continue efforts to improve their
    data tracking and to explore ways to further reduce PERSTEMPO while
    still meeting mission objectives.
        Despite our best efforts, however, a number of specialties in each
    Service will continue to experience high deployment rates until we can
    fully adjust our force structure, force stationing and deployment
    practices. We are recommending changes to the current law that provide
    a better way to manage this challenge and compensate the individuals
    affected. The proposal would replace the current $100 High Deployment
    Per Diem with a progressive monthly High Deployment Allowance (HDA),
    authorize the Services to compensate members for excessive deployments
    based upon the duration as well as the frequency of their deployments,
    and set the statutory limit for HDA at $1,000 per month.

    Training Transformation
        Our ability to successfully defend our Nation's interests relies
    heavily upon a military capable of adapting to rapidly changing
    situations, ill-defined threats, and a growing need to operate across a
    broad spectrum of missions. The Services have been highly successful
    for many years by possessing a training superiority over all real and
    potential adversaries. We intend to maintain that critical edge in the
    future by continuing to move our training methods and capabilities
    beyond those of the Cold War. We will no longer simply deconflict or
    synchronize unique Service warfighting instruments, but rather
    integrate them into a single, focused capability. We will also expand
    ``jointness'' beyond the Services and into intergovernmental,
    interagency, and coalition realms so that, as Secretary Rumsfeld has so
    often noted, ``we train like we fight and fight like we train.''
        Transformed training is a key enabler to transforming this fighting
    force. DOD plans to link joint training and readiness assessments and
    reporting through the Defense Readiness Reporting System (DRRS) and
    continue development of a core on-line curriculum for expanded access
    to joint military education and training. Our offices will also review
    and update acquisition and maintenance policies, plans, programs, and
    procedures related to training to include embedded training in
    operational systems.
        As we have witnessed in the skies above and on the ground within
    Afghanistan during Operation Enduring Freedom, it is not easy to plan
    and execute complex combat operations when the Services have not fully
    trained in accomplishing those tasks. We are committed to meeting joint
    mission requirements of our regional combatant commanders and must
    ensure that headquarters and component staffs deploying to a combatant
    command are fully trained to joint standards and in the concepts of
    network-centric warfare. The Department of Defense is implementing its
    Strategic Plan to transform training, with the establishment of a Joint
    National Training Capability by October 2004 as a key component. The
    U.S. Joint Forces Command will work with the military Services and
    Joint Staff to achieve a realistic, global combat training and mission
    rehearsal capability that incorporates interagency, intergovernmental,
    and coalition partners. Our focus is to better enable joint operations
    so that we never conduct an operation for the first time in combat.

    Readiness Assessment and Reporting
        We are currently in the process of transforming how we report and
    assess the readiness of our forces to meet the challenges of today's
    defense environment. Our new Defense Readiness Reporting System (DRRS),
    is an output focused, near-real time assessment system that measures
    the capabilities of our military units, defense agencies, and
    supporting infrastructure to perform their assigned missions. We have
    already established the policy and direction, and are now developing
    the methodologies and analytic tools to enable rapid readiness
    evaluation and risk assessment across the entire Defense enterprise.
    DRRS builds upon the best characteristics of our current readiness
    systems, and uses information technology to capture key transactional
    data from our personnel and equipment management systems. DRRS uses
    modeling and simulation to test the feasibility of our operational
    plans, and helps to frame the significant risk and planning issues. We
    expect to have an initial capability for DRRS in late 2004, with a
    fully operational system by 2007.

                                QUALITY OF LIFE

        A partnership exists between the American people and the military
    community that is built on the understanding that both service members
    and their families are vital to the readiness and strength of our Armed
    Forces. Today, over 60 percent of today's military service members have
    family responsibilities, necessitating a firm commitment to underwrite
    family support. President Bush has repeatedly stressed the need to
    improve the quality of life of our men and women in uniform, and in one
    of his first presidential directives upon taking office, he asked the
    Secretary of Defense to ``undertake a review of measures for improving
    quality of life for our military personnel.'' The sentiment was later
    echoed in the 2001 Quadrennial Defense Review, which declared that the
    Department ``must forge a new compact with its warfighters, and those
    who support them.''
        The fruit yielded by those early instructions is the new Social
    Compact, an ambitious review and long term plan for quality-of-life
    programs that renews the Department's commitment to our Service men and
    women and their families. Unprecedented in its scope, the Social
    Compact is built on the input from each of the Services as well as the
    Office of the Secretary of Defense. It seeks to address the issues of
    greatest importance in the lives of our service members and their
    families.
        As we move forward, the military departments will improve family
    support to meet the needs of the changing demographics of the force,
    with specific emphasis given to meeting the needs of the off-base
    population and Reserve components families. Delivery of services and
    information by exploiting technology will be a priority. Further,
    today's issues of spousal careers and quality education for military
    children are family concerns of high importance.

    Family Assistance/Toll Free
        When our service members deploy around the world, whether to
    Afghanistan, Iraq, or one of numerous other posts, their families on
    the home front are first and foremost in their thoughts. They want to
    know how the family is getting along, how the kids are doing in school,
    if the bills are being paid, and if there's someone to lend a hand when
    problems arise.
        With the majority of the force having family responsibilities, we
    must ensure that the families have the support and assistance they need
    when they need it, or our war-fighters might arrive on the battlefield
    distracted by concerns for the welfare of their loved ones. This is not
    an acceptable risk. That is why we must reach out to every military
    family, be they active duty, Reserve or National Guard. We want every
    service member to have a lifeline to support and assistance and to know
    that the same is available to his or her family. Someone they can call
    on, day or night, who will help them solve the crises they often face
    alone.
        We have begun implementation of a toll-free 24 hour, 7 day a week
    family assistance service. This service puts families and service
    members in contact with experienced, professional counselors who can
    provide immediate assistance with issues ranging from parenting and
    child care to financial counseling to how to find a plumber at
    midnight. Ultimately, this service will provide all of our service
    members and families with immediate information on support available on
    the installation or in their community. This will include, among a
    range of services: child care, domestic violence prevention and family
    advocacy, educational opportunities, and spouse employment resources.

    Domestic Violence
        The Department continues to make significant progress in addressing
    the issue of domestic violence within military families. We have
    reviewed two reports from the Defense Task Force on Domestic Violence
    and anticipate receipt of the final report shortly. We fully support
    more than three quarters of the recommendations, and anticipate that we
    will support 90 percent of them when we have completed studying a few
    issues. We have created an implementation team that is working to
    ensure that these Task Force recommendations are incorporated into DOD
    policy. The Task Force is preparing key response and intervention
    protocols for law enforcement and commanders and we are preparing to
    implement these in Service training programs. To improve DOD's response
    to domestic violence in the community, the Department will develop a
    confidentiality policy to protect appropriate communications.
        The Army reviewed the domestic violence tragedies at Fort Bragg and
    identified some policies and practices that may need changing. The
    Department is looking at which of these apply to all Services, and if
    so they will be changed in the implementation process.

    Family Support and Spouse Employment
        There is a symbiotic link between family readiness and force
    readiness. We have worked hard this past year to reinforce the family
    and personal readiness posture of the active and Reserve component
    members.
        We continue to support the families of military personnel involved
    in Operation Enduring Freedom. This includes deployment support
    programs for spouses, children, parents and extended family whose loved
    one has deployed as part of the global war on terrorism. In
    anticipation of a major contingency, DOD established a working group
    with representatives from all active and Reserve components and several
    Defense agencies. The purpose of the group is to assess the family
    support capability of each organization and make recommendations to
    strengthen programs and services for the families. As a result, we
    issued comprehensive guidance to reinforce the importance of family
    support, focus on specific areas based on proven practices, and
    encourage creative responses to new challenges. Most important, the
    family support strategy is one force-based, which is critical to
    overall success.
        We know that providing accurate information is the most supportive
    effort we can make to assist families. As a result, we are making
    maximum use of Web sites to communicate important information to
    families affected by deployment and family separation. Each of the
    military Services and the office of Reserve Affairs have established
    comprehensive and effective Web sites to support the families as well.
    The most popular of these pages attract over 2 million hits per
    quarter. We are also using other technologies, such as e-mail, to help
    maintain contact between deployed service members and their families.
    Our goal is to ensure that every family of a deployed service member
    has direct access to the support and services they need.
        Our ``Guide to Reserve Family Member Benefits'' is designed to
    inform family members about military benefits and entitlements,
    including medical and dental care, commissary and exchange privileges,
    military pay and allowances, and reemployment rights of the service
    member. Additionally, a Family Readiness Event Schedule was developed
    to make training events and opportunities more accessible for family
    support volunteers and professionals. It also serves to foster cross-
    Service and cross-component family support, which supports the desired
    end-state of any service member or family member being able to go to a
    family support organization of any Service or component and receive
    assistance or information.
        The family readiness ``tool kit'' is available to assist
    commanders, service members, family members and family program managers
    with pre-deployment and mobilization information.
        At the same time, long-range recruiting and retention roles
    continue to drive family readiness programs such as spouse employment.
    Recent initiatives, like the Navy's partnership with an international
    staffing firm and entrepreneurial initiatives focused on virtual
    business opportunities, have begun to yield significant results in
    terms of spouse employment and spouse morale. In addition, new
    measurement strategies at the installation and national level promise
    better, real-time assessment and analysis of spouse employment program
    effectiveness.
        Financial well-being of military families is seen as a critical
    part of the Department's new Social Compact. The military Services have
    provided financial training and counseling services to aid military
    families in using their resources wisely. However, we have found that
    our junior enlisted service members and families continue to experience
    financial problems in larger numbers than their civilian counterparts.
    As a result, the Department is engaging in a financial literacy
    campaign focused on improving financial management abilities and
    changing behavior to improve resource management for current and future
    needs. The primary market for this campaign will be the junior enlisted
    member and the spouse, who though often the primary financial manager
    for the family, may not have received any guidance in managing home
    finances. Several Federal agencies and non-profit organizations have
    pledged their support to accomplish these goals through the financial
    literacy campaign. Their participation will enhance our expertise and
    also provide an avenue for the American public to support its troops.

    Employer Support
        A Guard and Reserve employer database was established in late 2001
    to enable the Department and others to communicate directly with
    employers on appropriate Reserve component issues. In addition to the
    Department's need for employer information, military leadership
    continues to express interest in the civilian-acquired skills and joint
    operations experience of Guard and Reserve members. Building employer
    support requires a strong network comprised of both military and
    civilian-employer leaders, capable of providing communication,
    education and exchange of information. Employers need to understand
    their legal requirements for Guard and Reserve employees and also the
    importance of the Reserve components' contribution to our national
    defense.
        Since most Reserve component members have a full-time civilian job
    in addition to their military duties, civilian employer support is a
    major quality-of-life factor. The Department recognizes the positive
    impact employer support has on Reserve component readiness, recruiting
    and retention, and accomplishment of the Department's missions. The
    National Committee for Employer Support of the Guard and Reserve (ESGR)
    is charged with enhancing employer support and coordinating the efforts
    of a community based national network of 55 committees consisting of
    4,200 volunteers in every State, the District of Columbia, Europe,
    Guam, Puerto Rico, and the Virgin Islands to meet their important
    requirement.
        ESGR has greatly expanded its ``Statement of Support'' Program in
    the past year, which highlights the public signing by an employer of a
    statement pledging to publish and implement personnel policies
    supportive of employee service in the National Guard and Reserve.
    Forty-four Governors have signed Statements of Support and two more are
    scheduled to sign very soon. Many nationally known companies have also
    signed Statements of Support and hundreds of small and mid-sized
    companies, communities, and local chambers of commerce have also
    publicly signed ESGR Statements of Support in the past year.

    Child and Youth Development
        Affordable, quality child care remains one of the most pressing and
    persistent needs of families throughout the Department. The Department
    considers child care to be a workforce issue with direct impact on the
    effectiveness and readiness of the force. The fiscal year 2004 budget
    request continues to maintain child development programs at over 300
    locations with 900 child development centers and over 9,200 family
    child care homes. Even with this vast system of support, we still
    project a need for an additional 40,000 spaces. Expansion efforts are
    continuing.
        As contingency operations increase, Services are customizing and
    expanding child care programs to meet specific mission requirements.
    Various installations offer extended hours care, care for mildly ill
    children, and child care so that both service members and spouses can
    attend deployment briefings.
        Partnerships with other agencies have really paid off for our
    youth. One example is the dynamic collaboration with Boys & Girls Clubs
    of America. DOD youth programs benefited from expanded scholarships
    opportunities and marketing initiatives. Program upgrades of computer
    centers allow youth and children to stay in touch with a mom or dad
    deployed many miles away. To address the concerns of youth at risk, we
    improved the Military Teens on the Move Web site for youth relocation
    issues and deployed the Community Assessment for Youth tool to assess
    community issues and to assist commanders to find solutions.

    Educational Opportunities
        With the support of Congress, last year the Department provided $30
    million to heavily impacted school districts serving military dependent
    students and an additional $3.5 million to eligible school districts to
    reduce the cost of providing services to military children with severe
    disabilities.
        The Department has reached out to public school districts and State
    education authorities to engage them in helping ensure military
    dependent students receive a quality education. We have asked districts
    to share best practices with one another to help eliminate problems
    experienced by children of military personnel who are forced to change
    schools frequently due to the reassignment of the parent or guardian.
    Within the last 2 years we have brought together over 300 students,
    parents, military leaders, school personnel and State policy makers to
    address and give visibility to these issues which affect about 600,000
    children. We will soon activate a Web site that will provide
    information to help make transfers smoother.
        Once we begin the base realignment process, a careful look at the
    quality of life of civilian communities where our military families
    live is warranted. We owe children a good education no matter where
    their parents may serve, as well as good child care, homes, and spousal
    career opportunities. It will be important to tie base closure and
    realignment discussions to the quality of life in the local community.
        The Department continues to operate one of the Nation's largest
    post-secondary education programs. Service members' participation in
    the off-duty voluntary education program remains strong with annual
    enrollments exceeding 600,000 courses. Last year, service members were
    awarded over 30,000 higher education degrees by hundreds of colleges
    and universities. Policy increasing tuition assistance became effective
    October 1, 2002. New levels of support virtually eliminate service
    members' out-of-pocket costs for earning a degree. Army, Air Force and
    Marine Corps have implemented the new policy. Navy has indicated it has
    insufficient funds to implement the policy and has restricted sailors
    to a maximum of 12 credits for which tuition assistance has been
    authorized.

                       RESERVE MOBILIZATION AND TRAINING

        Reserve Forces continue to exhibit their willingness and
    preparedness to support the one force during rapid mobilizations and
    deployments in the various ongoing contingencies and emerging
    operations around the globe. In addition to the traditional methods of
    employing Reserve Forces, the Department has engaged in some visionary
    new projects that have expanded the capabilities to support combatant
    commanders virtually.
         We are in the midst of one of the longest periods of mobilization
    in our history. The men and women of the National Guard and Reserve
    have responded promptly and are performing their duties, as the Nation
    requires. For the past 18 months, we have mobilized over 230,000
    Reserve personnel, who are performing and have performed magnificently
    throughout the world. We are managing these call-ups in a prudent and
    judicious manner, assuring fair and equitable treatment as we continue
    to rely on these citizen-soldiers.
        As of 7 March 2003, there are 178,886 mobilized under 10 U.S.C.
    (12302).

             Army National Guard (ARNG): 67,652
             Army Reserve (USAR): 60,764
             Air National Guard (ANG): 12,762
             Air Force Reserve (USAFR): 10,957
             Navy Reserve (USNR): 8,005
             Marine Corps Reserve (USMCR): 15,798
             Coast Guard Reserve (USCGR): 2,948

    Support to Mobilized Reservists
        Taking care of our mobilized Guard and Reserve members and their
    families is a top priority for the Department. While we can draw on our
    experience from past call-ups, we continue to examine our policies and
    programs to ensure that our mobilized reservists do not feel
    disenfranchised and that we have systems in place that support
    families.

    Screening and Key Employee Exemption Process
        To preclude conflicts between Ready Reserve members' military
    mobilization obligations and their civilian employment requirements
    during times of war or national emergency, the Department conducts a
    ``screening'' program to ensure the availability of Ready reservists
    for mobilization. Once a mobilization is declared, all screening
    activities cease and all Ready Reserve members are considered
    immediately available for active duty service. At this time, no
    deferments, delays, or exemptions from mobilization are granted because
    of civilian employment.
        However, due to the unique situation that was created by the events
    of September 11, the Department immediately recognized that certain
    Federal and non-Federal civilian employees were critically needed in
    their civilian occupations in response to the terrorist attacks on the
    World Trade Center and Pentagon. Accordingly, the Department
    established a special exemption process to help accommodate overall
    national security efforts.
        We are developing new policies that would require members of the
    Ready Reserve, especially the Selected Reserve, to provide the
    Department with limited information about their civilian employers.
    Having employer information will not only assist us in improving our
    employer outreach programs, but more importantly, it will provide a
    better understanding during mobilization planning of the impact
    mobilizations will have on local communities and industries. The need
    for better employer-related information is a priority for us in the new
    threat environment we are facing. Additionally, obtaining accurate and
    current employer information is critical for the Department to comply
    with our statutory responsibilities for continuous screening of Reserve
    units and individuals.

    Training
        Training is a fundamental pillar of readiness and Reserve component
    issues and concerns must be addressed as an integral part of defense
    training--specifically that Reserve component training issues must be
    developed concurrently with active issues and included in new training
    transformation initiatives. We have made a concerted effort to ensure
    that the unique requirements of our reservists are highlighted and
    given every consideration as we implement Reserve component training
    under a one force approach. This approach will continue to pay great
    dividends, not only for the Reserve component, but for the entire force
    as the Reserve components blaze the trail for distributed learning and
    other ``virtual'' approaches.
        In the past year, we've experienced some very exciting developments
    in the training environment that will leverage use of new technologies
    to ``just in time'' training, and training oriented to improved job
    performance. This focus on distributed learning strategies and
    employing more robust communications tools will continue to pay great
    dividends for the total force. The National Defense Authorization Act
    for Fiscal Year 2002 included changes that allow the Reserve components
    to receive compensation for completion of electronic distributed
    learning, adding significantly to the opportunities of our personnel to
    embrace these concepts. We are undertaking a study to develop policy
    recommendations for the implementation of a Department-wide
    compensation policy for the completion of training required by
    individual Services. These new and emerging technologies provide
    exciting training opportunities across all components--not just the
    Reserve component.

                   MODERNIZING CIVILIAN PERSONNEL MANAGEMENT

        On September 27, 2002, the Department completed deployment of the
    modern Defense Civilian Personnel Data System (DCPDS), DOD's enterprise
    civilian human resources information system. With the final deployment,
    the system reached full operational capability, and has now been
    fielded to all DOD civilian human resources (HR) Regional Service
    Centers and Customer Support Units. The system supports over 800,000
    civilian employees in the Department worldwide, including appropriated
    fund, non-appropriated fund, demonstration project, and local national
    employees in 13 host countries. DCPDS also provides operational and
    corporate-level information management support to all management levels
    within the Department. The deployment of DCPDS caps the largest HR
    transformation initiative in the Federal Government: the DOD HR
    Regionalization and Systems Modernization Program, which has generated
    savings through the consolidation of DOD civilian HR operations into a
    regionalized environment, based on standardized and reengineered
    business processes, supported by a single HR information system.
        The Human Resources Strategic Plan for Fiscal Year 2002-2008 is a
    living document. Adjustments are made on a continual basis, with the
    changes published in an annual annex. Twenty-six performance indicators
    were completed during fiscal year 2002, including implementing HR
    system changes to enhance recruitment; benchmarking HR processes and
    practices against industry best practices; promoting diversity
    initiatives; and maintaining high-level strategic alliances with other
    public and private HR organizations. DOD experienced successful
    completion of the first year goals and we are well on the way with the
    fiscal year 2003 accomplishments.
        An excellent method to develop, nurture and sustain the best and
    brightest members of our current workforce is the Defense Leadership
    and Management Program (DLAMP). DLAMP is the premier leadership
    development program for senior DOD civilians and a key component of the
    succession planning program. Full and complete funding of this program
    is vital to DOD to ensure the proper development and education of
    future senior civilian leaders, prior to the departure of any eligible
    senior executives.
        Additionally, DOD is continuing efforts to improve the academic
    quality and cost-effectiveness of the education and professional
    development provided to its civilian workforce. We have made good
    progress towards obtaining accreditation for DOD institutions teaching
    civilians. DOD anticipates that all but one of these institutions will
    have gained accreditation by the end of this year. We are also working
    towards implementing the academic quality standards and metrics and
    associated data collection system developed last year. These will
    provide our institutions a mechanism for performance benchmarking and
    will give decision-makers accurate and timely information on the
    quality and cost-effectiveness of our institutions. Finally, we have
    progressed well in our research to identify the lessons learned and
    best practices used by educational institutions, corporate
    universities, and government agencies; we are applying those lessons
    and practices to improving the academic quality and cost-effectiveness
    of DOD civilian education and professional development.

                                  HEALTH CARE

    Military Health System Funding
        In the President's budget request for fiscal year 2004, the Defense
    Health Program (DHP) submission is based on realistic estimates of
    delivering health care. It includes assumptions for growth rates in
    both pharmacy (15 percent) and private sector health costs (9 percent).
    Still, we need flexibility to manage our resources. We seek your
    assistance in restoring the contract management flexibility you
    provided in the National Defense Authorization Act for Fiscal Year 2002
    and in alleviating restrictions on moving resources across budget
    activity groups. Our beneficiaries who are not enrolled in TRICARE
    PRIME make their own choices about where they receive their health
    care. When they choose purchased care, and our private sector care
    costs go up, we need to be able to realign funds to cover these bills.
    If the Department has to wait several months for a prior approval
    reprogramming, contractors and providers are essentially ``floating''
    the government a loan. This is contrary to good business practice and
    harms our relationships with our contracting partners and participating
    providers. Health care costs for the TRICARE for Life benefit will be
    received from the Medicare-eligible Health Care Accrual Fund, and are
    not reflected in this appropriations request.
        The Department has developed, and is implementing, a 5-year
    strategic plan for the Military Health System. The plan was developed
    using a balanced scorecard methodology and focuses on the successful
    implementation of the dual mission of providing support for the full
    range of military operations and sustaining the health of all those
    entrusted to our care. Key measures in the plan include readiness,
    quality and efficiency.

    Force Health Protection and Medical Readiness
        Even before the global war on terrorism, the Military Health System
    (MHS) had numerous activities underway to ensure force health
    protection and medical readiness. These efforts include development of
    a joint medical surveillance capability, joint medical response
    operations, and an aggressive immunization program to counter possible
    exposure to anthrax or smallpox. The fiscal year 2004 budget continues
    to support these efforts.

    TRICARE
        TRICARE's success relies in part on incorporating best business
    practices into our administration of the program, specifically in
    regard to how our managed care contracts operate. We have carefully
    coordinated and planned for the next generation of TRICARE contracts
    (T-Nex). A basic tenet of the T-Nex acquisition is to exploit industry
    best practices to support the basic benefit structure of the TRICARE
    program. We enter this new generation of contracts with a commitment to
    our beneficiaries to earn their satisfaction, and to provide a near-
    seamless transition to our future providers.
        Delivery of TRICARE for Life benefits continues to be a great
    success. In the first year of the program, we processed over 30 million
    claims; the overwhelming majority of anecdotal information we receive
    is that our beneficiaries are extremely satisfied with TRICARE for
    Life. They speak very highly of the senior pharmacy program as well.
    This program began April 1, 2001, and in the first year of operation,
    11.6 million prescriptions were processed, accounting for over $579
    million in drug costs.

    Reserve Component Health Care Benefits
        The Department has introduced several health care demonstration
    programs since September 11, 2001, to provide an easier transition to
    TRICARE for the growing number of Reserve component members and their
    families who are called to active duty. These demonstrations have
    helped to preserve continuity of medical care and reduce out-of-pocket
    costs for these families. We are revising our administration of Reserve
    benefits to ensure that families are not arbitrarily excluded from
    benefits that were intended for them. We have also revised our policies
    to ensure that family members of reservists who are activated are
    eligible for TRICARE Prime Remote benefits when they live more than a
    one hour's commuting distance from a military medical facility,
    regardless of the mobilization site of the service member. In addition,
    reservist families can enroll in TRICARE Prime if a member is activated
    for 30 days or more.

    Coordination, Communication, and Collaboration
        The MHS has built many strong relationships among other Federal
    agencies, in addition to professional organizations and beneficiary and
    military service associations. The Department's relationship with the
    new Department of Homeland Security will demand effective cooperation
    across the spectrum of functions across the Department.
        MHS collaboration with the Department of Veterans Affairs dates
    back many years, but we are especially proud of recent accomplishments.
    We have made great strides this year in partnering to provide health
    care to DOD and VA beneficiaries in areas such as North Chicago/Great
    Lakes and Southern Texas. We are pursuing other opportunities for
    resource and facility sharing and will report on them to Congress over
    the next few months as required by the National Defense Authorization
    Act (PL 107-314). We have experienced remarkable success in our joint
    pharmaceutical-related efforts. In fiscal year 2002, our joint
    pharmaceutical contracting resulted in over $100 million in cost
    avoidance for the Department. We continue to collaborate with the VA
    through the VA-DOD Joint Executive Council, where senior healthcare
    leaders proactively address potential areas for further collaboration
    and resolve obstacles to sharing. The Department has worked with the
    Department of Veteran's Affairs throughout the past year as an active
    participant on the President's Task Force to Improve Health Care
    Delivery for Our Nation's Veterans. The Task Force has reviewed many
    aspects of each department's health care business. As stated in their
    Interim Report released in July 2002, the Task Force ``is encouraged by
    the establishment of the VA/DOD Joint Executive Council . . . (which)
    recently agreed to undertake a strategic planning initiative, the first
    time such a joint planning endeavor has been initiated." We look
    forward to receiving their final recommendations.

    Military Medical Personnel
        The added flexibility for administering health professions'
    incentives that you included in the National Defense Authorization Act
    for Fiscal Year 2003, including increasing the cap for clinical
    professions up to $50,000/year for some of our accession and retention
    bonuses, and improving the Active Duty Health Professions Loan
    Repayment Program authority, are greatly appreciated. The Services are
    working with Health Affairs to develop plans for future targeted pay
    increases in those clinical areas where there is difficulty in filling
    requirements.

                                   CONCLUSION

        Mr. Chairman, this concludes my statement. I thank you and the
    members of this subcommittee for your outstanding and continuing
    support for the men and women of the Department of Defense.
        I would like to take this opportunity to note that the joint
    efforts of Congress and the Department are beginning to pay off.
    Service members who completed the web-based 2002 Status of Forces
    Survey opinion survey expressed greater satisfaction with almost all
    aspects of service life than they had 3 years earlier. For instance,
    results show a significant gain in satisfaction over compensation. This
    is directly attributed to the annual pay raises that exceeded wage
    growth in the private sector, and housing allowance hikes set higher
    than the yearly rise in local rents. Congress was instrumental in
    making this happen.
        Even better news is that more than 80 percent feel they are ready
    to perform wartime duties. This is certainly a positive endorsement for
    the programs that you have helped us enact. I am hopeful that I can
    count on your support in the future. I look forward to working with you
    closely during the coming year.

        Senator Chambliss. Thank you very much, Dr. Chu, and we
    appreciate your brevity and your directness with respect to
    these issues. First of all, let me just say that the budget
    request for 2004 for active duty end strength is very similar
    to last year's. Most notable is the Navy's reduction of some
    1,900 sailors.
        As the service chiefs testified before the full committee
    last month, the real challenge appears to be finding the right
    mix of active, Reserve, and civilian personnel to best
    accomplish this mission. What is your view about the adequacy
    of the end strength being requested to successfully support the
    wartime operational demand being placed on the Armed Forces?
        Dr. Chu. Sir, we think it is adequate. It is important to
    be able to shift the application of that end strength. That is
    one of the reasons the Secretary of Defense would like a
    national security personnel system, because he would like to
    move some of the posts that are now uniformed to civil status
    and allow that head room to be applied to new missions that
    only a uniformed force can discharge. We believe that the
    numbers in the budget request for military personnel, active
    and Reserve, are adequate to our need.
        Senator Chambliss. Secretary Hall, let me ask you a
    question along that same line. We are calling up the Guard and
    Reserve at a greater pace than ever before. It is not something
    new just for this current potential conflict, but over the last
    several years we have certainly called on the Guard and Reserve
    more and more. What is your opinion as to whether or not the
    Active-Duty Forces are sufficient to fight the battles that
    need to be fought without continuing to rely heavily day to day
    on both the Guard and Reserve?
        Secretary Hall. I think the active duty end strength is
    adequate, and with our Reserve end strength and Guard of about
    870,000. When you add the IRR to it, it comes to about 1.2
    million. I think that is adequate for both the Guard and
    Reserve.
        I think the real issue is if the balance is exactly right,
    and we have over a period of the past 10 years called up our
    Guard and Reserve about seven times. We have examined the ones
    that have been called up, and in many specialties those are the
    ones that might get called up the most often. What I think we
    need to do is perhaps look at rebalancing. A small amount of
    those that should perhaps move to the active side, and a small
    amount from the active side doing other missions move to the
    Reserve. I think we can rebalance within current end strength
    on both the active and Reserve side, and we are looking at
    that, of not requesting any more, but obtaining the proper
    balance between the two.
        Senator Chambliss. Dr. Chu, I hear you talking about the
    modifications in hiring of civilian personnel, and you and I
    talked about this in my office a week or so ago. I was thinking
    about that this morning as I was contemplating what we are
    going to be discussing here today.
        I had a gentleman in my office yesterday applying for a
    staff position, and admittedly we had 24 hours to check out his
    resume and his references but we hired him yesterday. As we
    move into the proposed changes that are going to be forthcoming
    from a legislative standpoint to try to give you this
    flexibility, tell us what it takes you to hire somebody for a
    Civil Service position in whatever circumstances you want to
    use as an example.
        Dr. Chu. The average is 3 months. At the Secretary's town
    hall meeting just this week, a young lady stood up who works
    for the General Counsel's Office and complained that she is
    trying to place college graduates, and she lamented it took her
    8 weeks. I actually congratulated her for coming in below our
    usual number.
        You first must write the job description, you must post it
    correctly, you must compete the position, you must consider the
    applicants, and then you can finally make a choice. It is a
    lengthy process both from the individual's perspective and from
    the supervisor's perspective. I think it deters the use of the
    Civil Service as one of our key instruments for staffing the
    Department, and it makes it hard for the Civil Service to be a
    responsive instrument, as needs change quickly, particularly
    the description of what your job entails.
        In your office I suspect what you do is, you tell a young
    man or young woman, here is what I want you to do. If we do
    that, we have to go and rewrite the job description, recompete
    the job, and we must hope that the current incumbent, if that
    is the manager's desire, successfully win, that revamped post.
        Senator Chambliss. The flexibility you are going to be
    asking for, is that going to have to be done legislatively, or
    can we do any of it by regulation?
        Dr. Chu. Largely, sir, this is a legislative issue in terms
    of powers that would need to be given to the Department of
    Defense in order to move in that way. I think Congress has
    blazed a path here, with the homeland security bill, which
    contains some of these elements, and some of these elements are
    Government-wide in scope and will be applied, but we would like
    to go a bit further than that bill does.
        I would mention specifically the right to make prompt--on-
    the-spot, if possible--job offers at college job fairs. I think
    that is going to be important as the market tightens again for
    talented young men and young women, as it was during the so-
    called dot com bubble. We were frankly not competitive in that
    environment.
        Senator Chambliss. Thank you. Senator Nelson.
        Senator Ben Nelson. Thank you, Mr. Chairman, and thank you,
    Dr. Chu.
        The first question I have relates to the President's
    budget, and the budget request combines the active and Reserve
    pay accounts into a single appropriation with separate budget
    activities. Can you explain the rationale for this budgeting
    change, and also what safeguards will exist to preclude the
    active Services from utilizing Reserve training and pay
    accounts in the last quarter of the fiscal year?
        Dr. Chu. I am going to let Secretary Hall also offer his
    views if I may, sir. I pointed out to the Reserve community
    that that opportunity works both ways, and they might be the
    beneficiary of that.
        Senator Ben Nelson. I think they are more worried about
    being on the short end.
        Dr. Chu. I understand that, sir. Each side is always
    worried that it is going to be the billpayer. I do think, all
    levity aside, that the safeguard is the fact that there still
    would be separate budget activities, so this is not something
    where one could raid one in order to support the other, in my
    judgment.
        It would enhance our ability to manage the Department and I
    think that is really the key. Flexibility in fund transfers,
    which are now problematic, given the limited transfer authority
    available to the Comptroller, could be managed better.
        Tom, did you want to add a word or two?
        Secretary Hall. I think it gives more flexibility to the
    Secretary of Defense, and when I commanded the Reserve from
    1992 to 1996, one of my worries was always not having the
    flexibility within all of my accounts to manage, so on that
    micro scale, I worried about that.
        I think the Secretary of Defense worries about it on the
    macro scale, and certainly we have no indication that this
    would not work, and I think part of my obligation and all of
    ours is, if we see what you indicated, that the accounts are
    migrating in the wrong way, we have the obligation to look at
    that and make that known, but I do not see at the present time
    that we should not try this. It gives more flexibility, and
    then we should report back to you if it does not work and
    monitor it ourselves.
        Senator Ben Nelson. How would you determine what is
    migrating to the wrong way, because if you have the
    flexibility, anything you do by definition will be right.
        Secretary Hall. I think as Dr. Chu said, the appropriations
    accounts will still be maintained. We will have visibility on
    them, and as they start out the year by quarter monitor, and
    see if you should see any one move to the other, I do not think
    there is a right or wrong. You can just monitor the movement
    and make a judgment on it.
        Senator Ben Nelson. With respect to civilian personnel
    policies, Dr. Chu, the Department has made it known that it
    wants to implement this national security personnel system for
    DOD civilian employees, and of course, as you make these
    changes and envision these changes, do you plan to negotiate
    these proposed changes with the personnel of the affected
    employees in the process of making the changes?
        Dr. Chu. Of course, in those cases where we are subject to
    union bargaining, we will respect that. This is not in any way
    an attempt to change that relationship, except insofar as I
    indicated about bargaining on future issues is concerned. We
    are intent on preserving merit principles, on preserving
    veterans' preferences, on preserving equal opportunity
    protections, but what we do need, in our judgment, is a system
    that can respond more promptly, more agilely both to changes in
    needs and changes in job requirements.
        As we move to try to hire this replacement generation of
    Federal Civil Service workers, most estimates suggest the next
    5 years, a quarter of the present Federal workforce could
    retire without waivers, a second quarter could retire with
    waivers within 5 years. Not everyone will seek to retire the
    first year he or she is eligible. I understand that, but it
    certainly means in the next decade we have to hire several
    hundred thousand people, a new generation of talent. It is
    going to be very hard to do that and compete successfully in
    the marketplace with what we have today.
        Senator Ben Nelson. But you envision that raising the age
    will encourage less retirement? In other words, more people
    continuing in their positions because of the increased age?
        Dr. Chu. I am delighted, and I think it is a tribute to
    their dedication to the mission that not every, in fact most
    defense civil servants do not retire the first year they are
    eligible. Generally, they wait a period of time. Now, they
    eventually do retire, and that is why we cannot ignore this
    problem, or put it off forever. We have time, I think, to
    consider what changes you in the legislative branch think are
    meritorious and to put in place a system that will serve us
    well in these early years of the 21st century.
        Senator Ben Nelson. With respect to deployment policies--
    compensation issues continue to be of paramount concern to both
    the Guard and Reserve members, especially those who have been
    ordered to active duty. Many report significant cuts in pay.
    Some are more fortunate than others because civilian employees
    have supplemented their military pay.
        What can we do to assist members of the Guard and Reserve
    who lose income because of their activation and because the
    activation can be for a continued and sustained period of time
    and/or reactivation at other periods of time? This becomes more
    important. Do you have any thoughts about what we could do to
    help in that regard?
        Dr. Chu. I think obviously we want to start policy debates
    with a clear view of what is actually happening out there. I
    think it is interesting that if we look at the survey results
    from the recent past the Department has undertaken, that at
    least one-third, the most recent survey is perhaps as much as a
    half, say that their household income is actually slightly
    greater under mobilization than in their civil occupation.
        In the earlier survey, about a third say it is less, a
    third say it is about the same, if I remember these numbers
    correctly, Tom, so the reduced pay is not something everyone
    suffers.
        Second, in the end it is the lifetime compensation that
    counts. Reservists who complete 20 good years are eligible for
    an annuity at age 60 and for TRICARE for Life, which is a
    terrific benefit enacted by Congress just a few years ago.
    There is a set of lesser benefits, commissary privileges, and
    exchange privileges. I do think we have to take a lifetime view
    of what the compensation effect on the reservists might be. In
    my judgment it is the decision of that individual reservist to
    the question: are we being fair to him or her in terms of what
    we are offering versus what they are asked to do. I think the
    answer can be seen in our Reserve recruiting results over this
    last year or so.
        Despite all the burdens, and those burdens started right on
    September 11, 2001, and indeed to some extent reached back
    before that year, with the deployment to the Balkans. Despite
    those burdens, our Reserve community has maintained its
    recruiting and retention success. Our Reserve components are
    right up there at their authorized numbers, so to me that
    argues we are about right. We may need to make some small
    changes at the margin. We are studying, as Congress directed,
    Reserve compensation programs.
        I believe, Tom, you are planning to have that study ready
    at the middle or late summer period. You might want to say a
    word about that.
        Secretary Hall. We are undertaking now a pay and
    compensation study to look at the full collage of benefits,
    from retirement to the ones that you mentioned, and we hope to
    have that ready by August, and we will report back to you. One
    other thing, Senator, that I have a great deal of interest in
    is the issue of whether our reservists and guardsmen lose any
    money. As Dr. Chu said, it looks like almost 66 percent
    actually hold even or gain some, and we took a look at--I did
    it in Nebraska from the Department of Labor statistics, and
    just looked at firemen, policemen, and teachers, because many
    of our people are in those particular areas, and the Department
    of Labor statistics indicated about $36,000, $37,000 for those
    particular ones.
        We took an E-5, and we took an 03 and an 04, because in the
    E-5 and 03 and 04, those are many ones that are in those
    particular specialties, and asked ourselves, what would they do
    when they went on active duty? An E-4 or an E-5 with 7 years
    would actually get about $37,000, so they would be just the
    same if they were a fireman, policeman, or a teacher. An 03
    with 7 years would have $60,000, an 04 with 12 years would have
    $70,000. We see in those specialties in your State, and I think
    it is representative of others, that in fact many of them would
    get a pay raise.
        Senator Ben Nelson. You might get an aberration where
    someone has a high income and has a mortgage and ongoing
    expenses, as was recently pointed out in a story that probably
    highlighted the difficulties of individual cases. They would
    take a substantial pay cut, even though their obligations would
    continue, and create quite a hardship for the family.
        Secretary Hall. We have looked at that, and one of the
    exciting things is that with the employer's support of the
    Guard and Reserve we have now pulled some statistics, and
    almost 300 of our companies in America today are supplementing
    the differential in pay and are paying health benefits for the
    time that those guardsmen and reservists are on active duty.
    Over 44 of our Governors within the different States have
    signed statements of support, and I know in Oklahoma and
    Florida and others, if you are a State employee and also in the
    Guard and Reserve, the State is paying the differential in your
    pay and health care benefits. Many of our private and
    Government industries are stepping up to the plate to assist in
    that.
        Senator Ben Nelson. Thank you very much. I would like to
    turn it over so others can ask their questions. Thank you, Mr.
    Chairman.
        Senator Chambliss. Senator Dole.
        Senator Dole. Mr. Chairman, I certainly want to welcome all
    of our witnesses, but I especially want to mention Dr.
    Winkenwerder, because he is a fellow North Carolinian. I know
    his family well in Asheville, North Carolina. I dare say that
    you enjoyed that Duke-Carolina basketball game more than I did
    Sunday afternoon.
        Dr. Winkenwerder. I did. It was great. [Laughter.]
        Senator Dole. Dr. Winkenwerder, I would like to ask you
    about an issue that relates to the relationship between the
    Department of Defense and the Department of Veterans Affairs.
    This has to do with a memorandum of understanding that was
    signed last year with regard to medical and health records. I
    am interested in how well that memorandum is working. Is it
    accomplishing the goal?
        Mr. Chairman, I would like to ask that our staff also make
    this request of the VA chief information officers so that we
    could determine what their view is of this memorandum as well.
        Dr. Winkenwerder. Senator, thank you for saying that, and
    thank you for asking that question. We are very committed to
    improving the relationship, the working relationship between
    the DOD and the VA with respect to a wide variety of health
    care issues. Most particularly and very importantly with
    respect to the transfer of information, because it is very
    difficult for care to take place once a service member's
    service is terminated and he or she becomes eligible for VA
    benefits, unless that information is there from the prior
    history.
        I am pleased to say that both our Chief Information Officer
    within the DOD health care system and the Chief Information
    Officer within the VA health care system have worked very
    closely together and now we are, as recently as about 3 months
    ago beginning to regularly transfer information as soon as
    service members are discharged so that those medical records
    are available. It is not the complete composite medical record,
    but it is the basic information, and they indicate that they
    are using it, it is helpful, and so we are pleased about that.
        Senator Dole. So we have made some real progress.
        Dr. Winkenwerder. Yes, we have.
        Senator Dole. That is great.
        I understand the estimate for the current fiscal year for
    health care costs is in the range of 24 to $28 billion, and I
    would like to ask you what the Department of Defense is
    planning to do to control costs? Are there plans under
    consideration to consolidate the health care systems of the
    Services, and is that actively being discussed at this point?
        Dr. Winkenwerder. The cost of care for all of the
    Department of Defense health programs is a very important issue
    for me personally and for all of us to manage. We consume
    increasing resources with each year, and now we are spending
    into the tens of billions every year. I believe that money is
    being well spent, and that we are getting very good value for
    it.
        That said, we have to be mindful of continually improving
    the way we do business so that, not unlike the personnel system
    changes that Dr. Chu described, we are agile and we can make
    changes and adjustments, whether that relates to where our
    services are provided, the benefit itself, the way we manage
    things.
        For example, pharmacy, which I think everyone knows is
    probably the fastest-growing segment of health care. We have
    taken some changes just in the past year to consolidate all of
    our pharmacy management to create one national mail order
    pharmacy operation. We are soon to release a bid, request for
    proposal, which we will award several months from now for a
    consolidated national single retail pharmacy benefit. Those are
    competitively bid business activities.
        With that buying power aggregated and, frankly, working
    together with the VA, this is one of the great benefits of our
    relationship with the VA. We aggregate-buy together and save
    hundreds of millions of dollars. I think there is more money to
    be saved in that area, and that would probably top the list of
    opportunities in terms of saving dollars and maintaining
    quality, improving quality at the same time.
        There are some other things that we can do in terms of our
    fixed infrastructure to better use that, if we are not fully
    utilizing facilities to make them clinics, or not to have a
    fixed facility if we do not need it.
        Senator Dole. Right.
        Dr. Winkenwerder. So those are a couple of things that we
    are doing, but it is very important to us that we manage those
    dollars.
        Senator Dole. Good. Thanks very much.
        Dr. Chu, I would like to ask you a question that is a
    follow-up from my visit to a number of our bases in North
    Carolina last week. I was at Seymour Johnson Air Force Base and
    Marine Corps Air Station Cherry Point, Fort Bragg, and I met
    with the commanders, with the enlisted personnel, met with the
    spouses separately, and, where I could just one-on-one talk to
    them about the various issues. One thing that I was interested
    in is the issue of special stresses of repeated deployments for
    families that may be under stress already, where supervisors
    have determined this may be a marriage in stress, and when the
    young person comes back from that deployment, are there some
    special procedures in place to handle those kinds of
    situations?
        If you could describe to me how you handle what might be
    called high stress cases, both from the perspective of the
    military member and the family member. I am interested in that
    particularly with what happened at Fort Bragg, with the
    terrible tragedy there.
        Dr. Chu. Yes, ma'am, we have the tragic lessons of that
    experience very much in mind. I think we recognize now that
    when the individual returns home, if there is a high stress
    situation, we need to provide the right support both to the
    family and to the returning service member. We cannot count on
    their seniority as giving them sufficient insight to know
    exactly how to manage that situation.
        More broadly, we think we need to put more tools in place
    that military families can use easily with confidentiality. We
    are running a major pilot, as you may be aware, of a nationwide
    1-800 number where families can call up for a wide range of
    family services, including issues at the high stress end.
        The Marine Corps has--and General Parks who is going to
    testify later this afternoon has been a leader in advancing
    that idea, and the entire Marine Corps is going to try that
    out, or is really on the road already to trying that out. We
    will evaluate that. We think that is a significant potential
    help to us in these kinds of situations, but we also believe
    there is a strong role for the classic family assistance center
    and its staff.
        We are particularly attentive to the support that needs to
    be offered to our Reserve families, who often may be the only
    persons in their small local circle with this experience and do
    not have the same kind of resources that someone living on or
    near a military base might possess. We are trying to think
    through what we need to do for those families as well.
        Senator Dole. From your comments about the 800 number, I
    assume that across a broader spectrum, too, our Services are
    talking to each other and determining what the best practices
    are.
        Dr. Chu. Absolutely, ma'am. We hold a quarterly meeting on
    quality-of-life issues, a Quality-of-Life Council. I am pleased
    the combatant commanders, including General Franks, have made a
    point of coming personally to discuss with us what works in
    their theater for their command, for their people. I think it
    is a very healthy dialogue within the Department. It is a
    dialogue that allows us to try to construct what we call our
    social compact, the set of understandings between us and our
    people as to what we offer them as they take up the significant
    burdens they bear for the Nation.
        Senator Dole. Again, having visited with these families
    just recently, something that came up often was the fact that
    with these repeated deployments, one thing that they want to
    feel certainty about is that their children are going to have a
    quality education in well-funded schools. My view is that if
    these young men and women are going into harm's way to protect
    our freedoms, they certainly deserve to have certainty about
    that, and I wonder, is the Department of Defense looking to
    find ways to restore the funding for impact education in the
    2004 budget?
        Dr. Chu. I think we are all dedicated to the same outcome,
    which is that each child of a military family has the
    opportunity for a first-class education wherever he or she may
    go.
        On the specific issue raised, a decision was made by the
    Office of Management and Budget and Department of Education in
    submitting its budget, where those funds reside, that they
    would only seek funds to support impact aid for those children
    of families living on military posts. As you appreciate, the
    children of families living off military posts pay property
    taxes, pay taxes in local communities through the sales tax and
    other instruments.
        This is an old issue where Congress and the executive
    branch have had different views over the years, I recognize.
    Ultimately it is going to be for Congress to decide whether you
    agree with the executive branch proposition in this regard, and
    it is ultimately a Department of Education budget issue in the
    end, because that is where those funds are lodged.
        Senator Dole. I think I have made it clear where I stand.
    Thank you.
        Dr. Chu. I hear you, ma'am. Thank you.
        Senator Chambliss. I think we all understand and take your
    position, Senator Dole.
        We are very pleased to be joined by--I hate to say he is an
    ex officio member, because as far as Senator Nelson and I are
    concerned, Senator Levin and Senator Warner are very official
    parts of this subcommittee, but Senator Warner, we are pleased
    to have you with us.
        Senator Warner. Thank you, Mr. Chairman.
        Senator Chambliss. I will be glad to turn it over to you
    for any questions or comments.
        Senator Warner. Thank you. I would like to take a few
    minutes, if I may, Senator Chambliss, Senator Nelson.
        Gentlemen, the subject which I would like to address today
    is the Air Force Academy. You are aware that I wrote a letter
    to the Secretary regarding my deep and grave concern about this
    problem. Senator Allard joined me on that, and he has worked
    along with me, as Senator Ben Nighthorse Campbell has also. I
    have kept him informed of my views on this.
        I would like to take a few minutes to talk with you about
    this situation, and I do so with a deep sense of humility,
    because I have had over 30 years of responsibility for the
    military academies, over 5 years in the Navy Secretariat during
    the war in Vietnam, and now my 25th year here in the Senate.
    Like my colleagues, I have taken enormous pride in working with
    the young people, men and women, by the hundreds that approach
    each Member of Congress seeking those coveted appointments, so
    the academies are very special to the Congress of the United
    States. They are symbols of recognition all throughout our
    Nation, not only just in the educational sector, but for the
    excellence and the standards that they uphold for the men and
    women of our respective military Services. I really wanted to
    ask just what participation the Secretary of Defense and
    yourself are currently undertaking, and what participation you
    may anticipate to be taking as this investigation unfolds.
        I have received a number of letters on this, and I am going
    to forward to the Secretary of the Air Force and the Secretary
    of Defense several letters which I think are quite pertinent. I
    would urge other Members who are receiving correspondence to
    likewise, within the parameters of permission of people who
    write to us in confidentiality, to share this information,
    because as a Nation, we have to come to grips with this
    problem.
        So I draw on the experience of when I was Secretary of the
    Navy. When we had a major problem with any one of the
    academies, the three Secretaries of Defense under whom I served
    for that period of 5-plus years, at least two of them convened
    the three Service Secretaries together and said, I want a joint
    addressing of this problem.
        Now, for example, one of the issues related to the honor
    codes, and a cheating scandal at another time. Those problems
    just happened. They are facts of life, and we did work as a
    team and make recommendations to the Secretary of Defense. That
    is just a thought that you might entertain as Secretary
    Rumsfeld and you look at this situation.
        In no way do I suggest that the Secretary of the Air Force
    is not handling this thing correctly, but the other Service
    Secretaries have their respective academies, and I happen to
    know from our hearing the other day that one of the other
    academies is now looking into situations comparable to this. It
    is not of the magnitude, but comparable, and I think the policy
    of the Secretary of Defense with regard to this type of offense
    should really be uniform among the three academies.
        So my first question to you is, given that the Department
    of the Air Force is now conducting its own investigation, and I
    presume the Secretary of Defense in response to my letter will
    entertain the Inspector General reviewing the Secretary of the
    Air Force investigation at some appropriate time, and he then
    may decide to institute his own separate investigation, so the
    proper steps are being taken, but was any consideration given
    to transferring the Superintendent and the Commandant of Cadets
    out of their chain of command for such period as these
    investigations are underway, transfer them in such a manner in
    no way to prejudice their rights under the Uniform Code of
    Military Justice, or the eventual determination as to whether
    or not they are in any way in part accountable for these tragic
    situations? Was any consideration given to that?
        Dr. Chu. Senator, let me begin by agreeing with your great
    concern. It is a matter of great concern to the Secretary of
    Defense. I spoke, in fact, to Secretary Roche and General
    Jumper just today again about this situation and how we are
    approaching the very disturbing reports that have been
    received. I do want to say that we would welcome, consistent
    with whatever privacy or confidential restrictions the letters
    to you might impose, any information about specific situations
    to be communicated to us, because one of our challenges is,
    indeed, getting our arms completely around the situation.
        We anticipate receiving both the Air Force report and the
    Inspector General's review before the end of this month.
    Obviously, we would like to receive this just as soon as we
    could. That will be our basis for action, and I think we do not
    wish to do anything that is prejudicial to anyone until that
    set of reports is received and, obviously, what that set of
    reports says, whether it gives us an understanding of what has
    caused this tragic situation, will determine what course of
    action is most appropriate to take.
        Let me, if I might, personally and officially, agree with
    you that the academies are repositories of standards and values
    for the military specifically and society as a whole. The
    alleged conduct is unacceptable. There is no excuse for this
    kind of conduct, and we are determined to get to the bottom of
    this and to take appropriate corrective action.
        Senator Warner. So the issue of a temporary transfer out of
    the direct chain of command was reviewed, and you decided not
    to take that step, is that correct?
        Dr. Chu. I think I would like to emphasize that we have
    considered a wide range of alternatives, that at the moment we
    are staying with leaving everything in place as it is while the
    investigation proceeds. As it concludes, which we expect it to
    conclude in a very short period of time, we will decide what
    action is appropriate.
        Senator Warner. All right. Having conducted some of these
    investigations myself, there is always the question of the
    whole framework of subordinates, not the cadets, but the
    subordinates in that chain of command as they are approached by
    the inspectors and the manner in which they feel free to reply
    to the inquiries by the, now the IG for the Air Force, but for
    the moment I would hope that you would reflect on this.
        Dr. Chu. I will sir, and we appreciate the suggestion.
        Senator Warner. Now, in today's paper--this is The
    Washington Post as of today. Did you see page A2, male and
    female cadets to be separated in dorms?
        Dr. Chu. I have discussed that with both General Jumper and
    Secretary Roche, yes, sir.
        Senator Warner. Two observations on that. First, it seems
    to me before you take actions like this you want to look at the
    totality of the reports and review them, because this is a very
    significant action and the other two academies will have to now
    examine their policies as a consequence of this step, wouldn't
    you think?
        Dr. Chu. I think so, at least from my discussion with
    General Jumper, and I certainly agree with you, and that is why
    in general I would prefer, as I suggested, that we wait for the
    reports so, as you suggest, we understand fully what we have in
    front of us.
        Senator Warner. So in other words, your thinking is in
    parallel with mine that remedial actions should await the
    totality of the report to be examined so as to not let this
    situation persist and to prevent it in the future?
        Dr. Chu. Yes, sir, and I think on the specific issue what
    General Jumper is contemplating has been a bit overdescribed in
    the news article. As I appreciate his description, what he
    would like to do is in the future think about grouping more of
    the women's rooms together for----
        Senator Warner. I do not need to get into those details. I
    just suggest that until the entire report has been reviewed,
    and until the action that I and others request, that the
    Department of Defense IG review the work of the Department of
    the Air Force, it would seem to me premature to take steps like
    this.
        Dr. Chu. I agree, sir.
        Senator Warner. This article infers by the verb tense, the
    two leaders yesterday outlined for the first time steps they
    expect to take in response to, so forth and so forth--I would
    suggest that actions await the orderly review of these reports,
    because as I said from my own experience, this impacts on the
    other academies, which do not have this degree of separation.
        As a matter of fact, with the one exception, Mr. Chairman
    and other members of the committee, the military Services have
    tried the integration of males and females throughout training
    periods. The only exception is one that I fully understand,
    having gone to Parris Island, to some extent myself, but Parris
    Island I think for the first initial period the males and
    females are separated, but elsewhere, throughout the training
    command of the three Services, there is pretty much a degree of
    integration, am I not----
        Dr. Chu. Absolutely, sir, and there is no--again, I do not
    want to get mired in details. There is no intent here to think
    about changing that in any way. What is being contemplated is a
    change in how the dormitory arrangements are structured, a
    little different issue than the training arrangements. But I
    fully agree with you, sir, we ought to wait to take action
    until we have the full reports in front of us, understand the
    problem that we face, its causes as best we can know them, and
    what the preferred remedies will be.
        Senator Warner. Well, then, I conclude. I am very
    encouraged by your responses.
        Dr. Chu. Thank you, sir.
        Senator Warner. I would say that Congress, given its unique
    role with regard to the academies, should be thoroughly
    consulted before decisions of this type should be made with
    respect to addressing this problem, and that you should also be
    prepared to respond as to how such decisions with respect to
    this problem with the Air Force might impact on the other two
    Service academies. Are we clear on that?
        Dr. Chu. Agreed, sir. Thank you.
        Senator Warner. I thank the chair and I thank the ranking
    member. That concludes my remarks.
        Senator Chambliss. Thank you very much, Mr. Chairman, for
    your leadership on this issue and other issues relative to our
    military men and women, and let me just assure you that this
    subcommittee is going to move forward to do everything within
    our jurisdiction to make sure that when appointments to
    academies are made, that the parents of those young men and
    women who receive those appointments are going to take
    continued great comfort in knowing that they are well looked
    after and that these situations are going to be discontinued
    and are going to be taken care of.
        Senator Warner. I thank you for your leadership, Mr.
    Chairman, and that of your Ranking Member.
        Senator Chambliss. I will tell you, too, that Senator
    Nelson and I have already discussed the fact of having the
    three Service Secretaries testify because even though the Air
    Force Academy has this problem now, we have had it at the Naval
    Academy. It has been public. The U.S. Military Academy also is
    subject to having this, and we are going to have all three of
    those gentlemen before us to testify.
        Senator Warner. That is the way we did it in the old days.
        Senator Chambliss. Senator Pryor.
        Senator Pryor. Thank you, Mr. Chairman, and I also share in
    the concerns that Senator Warner just expressed. I have a
    follow-up from Senator Dole's question, and I do not know which
    of the three should best handle this, so I will just throw it
    out openly. You mentioned prescription drug costs and the high
    cost of prescription drugs, and in most health care plans in
    the private sector, that seems to be the leader in the growth
    cost of those plans, and I am certain that is true in the
    military as well, and I would like to know what you are doing.
        You mentioned a systematized mail order, and then more of a
    systematized retail situation, and it seems to me that we as
    the Government and as the military have quite a bit of
    bargaining power when it comes to purchasing these drugs, and I
    would just like to hear your experience and where you think we
    are going with that.
        Dr. Chu. Let me defer to Dr. Winkenwerder.
        Dr. Winkenwerder. I mentioned a couple of our key
    initiatives. There are others. One of the changes we plan to
    implement about this time next year will be the institution of
    a formulary, and with that a change in the benefit that creates
    three tiers: a generic choice, a brand, and then kind of a
    superbrand, and with that high end being the one where members
    would have the most cost-sharing for the most expensive drug.
    Those are very important initiatives.
        Mass purchasing is also very important, and right now, as I
    alluded to, we do joint purchasing with the VA. With our large
    numbers and their large numbers added in together for a
    particular drug or drug class, we feel like we get very good
    deals. In fact, our prices are probably among the very best
    anywhere.
        Senator Pryor. Yes, I think that is true.
        Dr. Winkenwerder. We want to continue that. Our main
    strategies are the assimilation of a national contract for mail
    order retail, continuing what we think is very good cost and
    service in our military treatment facilities, and then the
    institution of a formulary and a tiered copayment system. If we
    get all that done within the next 14 months, we think we will
    have put into place the basic building blocks to better control
    pharmacy costs.
        Senator Pryor. Do you think some of what you are doing may
    work out in the private sector for general health insurance
    plans, or is the military organized in such a way that it just
    really does not transfer out to the private sector?
        Dr. Winkenwerder. Having just come from the private sector
    and managing a large health plan in New England, I can tell you
    what we are trying to do is just what most plans in the private
    sector, the well-run plans, are already doing, but that said,
    even in spite of all that they are doing, I think that they are
    still struggling to stay up with this issue.
        Senator Pryor. Sure.
        Dr. Winkenwerder. New drugs bring great innovations. In
    some cases they save lives and keep people out of hospitals.
        On the other hand, where it is possible for a
    pharmaceutical company to place a very high price on a drug and
    make that work, they do and they will, and so we have a number
    of drugs that are very expensive today, and I think we have
    also learned that drug producer advertising to everybody is
    effective, causing people to want to go to their doctor and get
    a drug to treat something.
        In some cases that is needed. In other cases it is probably
    not needed.
        Senator Pryor. Right.
        Dr. Winkenwerder. Part of our program also is to educate
    doctors for cost-effective prescribing and also to educate our
    own service members in terms of things that they can get more
    cheaply for the same cost or lower.
        Senator Pryor. Do you internally, with the people that
    access the program, push generics with them?
        Dr. Winkenwerder. Absolutely. Absolutely we do.
        Senator Pryor. Do you feel like, even with the new drugs
    that are coming online, that are much more expensive--some are
    much more expensive, not all, but for those that are much more
    expensive, do you still feel like you are getting the best, or
    about the best price you can possibly get for those?
        Dr. Winkenwerder. We are in our military treatment
    facilities. We have that authority in law to extend that both
    to our retail and the mail order, but the actual transition to
    using that pricing power awaits the transition of this whole
    program. It takes quite a lot of work to set these national
    contracts up, but when they go into effect, we plan to use that
    pricing power.
        Senator Pryor. Great. Dr. Chu, did you have something to
    add? It looked like you were about to say something there a
    minute ago.
        Dr. Chu. Yes. I realize that some of this will be a change
    for some of our military members in terms of how we do things.
    We think it is necessary in order to get people the right drug
    for their disease problem. As Dr. Winkenwerder indicates, the
    advertising may sometimes lead you to something inappropriate
    that may have side effects that are not really the best for
    your particular case.
        We do review--the establishment of this formula is the
    product of a review by our best minds in terms of what is the
    right drug for your problem, and I think channeling our
    patients into the right place is ultimately our objective,
    because in the end it is their health care status we care most
    about.
        Senator Pryor. Right. That is all I have, Mr. Chairman.
        Senator Chambliss. Dr. Winkenwerder, probably the most
    consistent complaint I get from personnel and their families
    when I have the opportunity to visit with them is the issue of
    TRICARE, and it seems that TRICARE Prime has answered a lot of
    the concerns that we have had since the original implementation
    of TRICARE, but the standard TRICARE program appears to
    continue to have difficulties with respect to providers, and
    that is primarily due to the low reimbursement rates. Can you
    tell us where we are going as we are looking at a point in our
    history now where we have so many spouses who have been
    deployed and separated from their families. One concern we do
    not want them to have is the fact that their families are going
    to have access to good quality medical care. Can you tell us
    where we are with respect to ensuring that providers are going
    to be there for TRICARE Standard participants, and what are we
    doing with respect to reimbursement rates?
        Dr. Winkenwerder. Yes, sir. Let me just touch on again the
    issue that Dr. Chu raised, the change that we are implementing
    as of now for the reservists, because we believe this is a very
    important change.
        Senator Chambliss. Before you leave that, you said
    reservists. What about guardsmen?
        Dr. Winkenwerder. Guardsmen would also be covered--yes.
        Dr. Chu. May I--if they are called to active duty for more
    than 30 days.
        Dr. Winkenwerder. Correct. If they are called to active
    duty for more than 30 days they are now eligible for TRICARE
    Prime. There was a 180-day or 179-day hurdle that people had to
    get over until now, so that caused that group of people to have
    to utilize Standard as a benefit, and now they will be able to
    utilize Prime, which is a better benefit in terms of its not
    having copayments and deductibles and so forth associated with
    it, so that is a real positive, we think, for the reservists
    and the guardsmen.
        The other change relates to this, resides with, so we have
    had in all the call-ups, frankly maybe it is self-imposed, but
    we have had some confusion about what does that mean for the
    family, having to reside with a service member, and did that
    mean that they had to actually be residing with them at the
    mobilization site or when they got deployed somewhere.
        No. What it means is, if a serviceman or servicewoman is
    from South Dakota and then goes to Nebraska to mobilize, they
    do not have to move. They are eligible right there in South
    Dakota, where they have been living with their family, and then
    they could get into TRICARE Prime at that place. That will
    improve things.
        Now, as to the issue of TRICARE Standard, what are we
    doing? We do face some challenges. We have about 2.5 million
    people. It is an entitlement, so people have eligibility for
    this benefit, but one of our challenges, we do not know who
    those individuals are. We do not require an annual, or some
    kind of, enrollment into Standard. It is something they could
    choose to use at any time, and that poses some challenges.
        There is also the challenge you mentioned of payment rates,
    and ensuring that the doctors who would care for these
    individuals are paid sufficiently. I think that was
    particularly a concern here recently when Medicare was looking
    at reducing payment rates to providers by another, whatever it
    was, 4.5 percent, and it ended up that a change was made to
    increase it slightly. We believe that helps us as well, because
    our payment rate is tied to Medicare, so that is a concern.
        It is also a concern, without knowing who those
    beneficiaries are, our ability to communicate with them and
    make them aware of their benefits, make them aware of where
    doctors are located so as to ease any access to care issues
    that they might have.
        So the bottom line is, we are going to be taking a look at
    that whole TRICARE Standard. I am assembling a group of people
    to provide a report to me that I will in turn share with you
    and Members of Congress about what we need to do to improve
    TRICARE Standard, making some changes in it that will better
    hit the mark.
        Senator Chambliss. What is your time line for that report?
        Dr. Winkenwerder. I think it is weeks to months. We are not
    talking next year. I have asked for this to be done promptly.
        Secretary Hall. Senator, can I add one thing to that? On
    behalf of the Guard and Reserve, after September 11 and before
    I got to this job, the TRICARE demonstration project for our
    Guard and Reserve was implemented, and it basically said that
    for TRICARE Standard and Extra, what we will do for our
    guardsmen and reservists recalled, we will waive the family
    deductible part for you, the $300, we will also waive the
    requirement for nonavailability statements to have to go out,
    and third, we will provide up to 115 percent of pay to
    providers who are not in the system, so that greatly assisted
    them.
        The next thing we did, not tied directly to that, but which
    is in effect today, upon demobilization, recognize that as
    guardsmen and reservists you might need some time to transition
    to your civilian health care plan. We allowed up to 60 days for
    a segment of the people to transition, for others that had
    served a longer time on active duty, 120 days, so that has
    provided a lot of flexibility for our guardsmen and reservists.
        We have extended that demonstration project for the current
    mobilization so that our guardsmen and reservists and their
    families will be taken care of. That has been well-received
    within that community.
        Dr. Winkenwerder. Just to be clear about that, even though
    we have made these new changes that I described earlier for
    TRICARE Prime, we are going to extend the demonstration project
    so we do not adversely affect anyone who is now taking
    advantage of that demonstration project through until its end,
    which is in November 2003, so we implemented that last year and
    will continue it until it ends.
        Senator Chambliss. Senator Nelson.
        Senator Ben Nelson. Thank you, Mr. Chairman.
        Dr. Winkenwerder, following the conclusion of the Gulf War,
    many service members and veterans experienced a variety of
    different kinds of medical illnesses, the causes of which have
    really never been determined. The National Defense
    Authorization Act for Fiscal Year 1998 requires the Secretary
    of Defense to establish a system to assess the medical
    condition of members of the armed services, including members
    of the Reserve components, who were deployed outside the United
    States on a contingency operation.
        This system is to include the use of predeployment medical
    examinations and the drawing of blood samples to record the
    medical condition of service members before their deployment,
    and then any changes in their medical condition during their
    deployment.
        Does every deploying service member receive a complete
    predeployment medical examination at the present time?
        Dr. Winkenwerder. Every member of the armed services who is
    deploying should receive a health assessment. That is how we
    have interpreted the law, and we believe that is the
    appropriate way to interpret the law. A full laying-on-the-
    hands physical examination, we believe, is probably not the
    most appropriate or most effective way to screen those
    individuals.
        We believe--and we have a questionnaire which we are glad
    to share with you that we use, where people are very carefully
    questioned about their current health status. All questions are
    asked to make sure they are up to date with their
    immunizations, and that their blood sample has been given. If
    it has not been given, we would obtain it at that time.
        So it is a careful review. If there is any concern on the
    part of the service member about a current or recent problem,
    he or she then would receive a more comprehensive and complete
    examination, and the same kind of thing is done on the back end
    of the deployment.
        Senator Ben Nelson. Then is blood drawn on every individual
    in that case?
        Dr. Winkenwerder. It would have either been drawn as a
    matter of routine--we screen people every year, or 2 years for
    HIV, so that blood has already been drawn. If, again, it is out
    of date, then it should be drawn at that predeployment
    assessment time.
        Senator Ben Nelson. Then I assume that sample is retained
    so that if there needs to be further testing in the future it
    is available for that type of testing.
        Dr. Winkenwerder. That is exactly right.
        Senator Ben Nelson. Not just about HIV, but other----
        Dr. Winkenwerder. That is the purpose for maintaining it.
        Senator Ben Nelson. What you are doing is establishing a
    medical baseline, and then any variation from that would be
    more easily chronicled as the additional tests at a later date
    are taken.
        Dr. Winkenwerder. That is exactly right, and that was a big
    problem in the Gulf War. We really did not know the baseline
    health status of people, so it was very difficult to compare
    when they came back, as to what their status had been before
    they left. We believe we are in a much better position today
    with respect to that baseline health information.
        Senator Ben Nelson. Thank you, doctor.
        Dr. Winkenwerder. Thank you.
        Senator Ben Nelson. Dr. Chu, in your prepared statement you
    describe the DOD screening program designed to preclude,
    attempting to preclude, conflicts between ready Reserve
    members' military mobilization obligations and their civilian
    employment, and although screening normally ceases once a
    mobilization is declared, you indicate that DOD has established
    a special exemption process to address the circumstances where
    certain Federal and non-Federal civilian employees were
    critically needed in their civilian occupations in response,
    for example, to the terrorist attacks on the World Trade Center
    and the Pentagon.
        Now, obviously, this is consistent with our concerns about
    mobilizing first responders, the firefighters, police officers,
    paramedics, and others, who would be needed for home town
    defense in the case of a terrorist attack. Can you give us some
    examples of the kinds of civilian occupations that are
    considered for this special exemption? I have named a few, but
    are there some others?
        Dr. Chu. Yes, sir, I would be delighted to.
        First of all, let me go back, as you have suggested, to the
    underlying system, which has been available since 1979, and
    that is that you can screen your employees, designate someone
    as key or critical, essential--various terminology is used.
        Senator Ben Nelson. That is not new.
        Dr. Chu. That is not new. That has been on the books for a
    long time. I should acknowledge that I think some employers or
    employees have been a little reluctant to use that system,
    because it does require the individual member of the Guard or
    Reserve to transfer out and into an essentially inactive
    status. It makes it much harder to earn your 20 good years for
    retirement, so it does require the individual to make a choice.
    Are you available for mobilization, which is the basic compact
    between us and that member? Would you respond when the Nation
    calls? Or are you in a position that you cannot respond? If you
    cannot respond, you need to acknowledge that up front--that is
    the whole spirit of the system--and put yourself in a different
    situation.
        It does not mean you can't come back to Reserve service at
    a later date. It does not mean you cannot take courses or do
    certain other things that would still accumulate you some
    credits.
        We did recognize on September 11, 2001, this is very
    different from before. We want to be sensitive to those
    differences across the board. I have been impressed at the good
    sense of employers, both Federal and non-Federal, in terms of
    whom they ask to be excused. We have had just over 200 formal
    applications in that period of time.
        We have granted about 50 exemptions in that period of
    time--granted, there has been a large number of delays. We work
    with each case. This is a case-by-case process, in which we
    understand the individual's situation, the military
    department's situation, et cetera, and it boils down in the end
    to balancing the competing needs of the Nation against the
    particular Federal or non-Federal agency.
        If there is a compelling civil need--the key linguist at an
    intelligence agency, for example--we defer to that civilian
    need, if it really is weightier than the military need.
        In many cases, what really works for a civilian
    organization is delay, enough time so that the organization can
    identify the replacement, train that person, put them in place,
    and continue to function. I indicated with these figures, that
    has been the most frequent outcome of these adjudications, and
    I think that system is working.
        I think the concerns of first responders, while
    meritorious, reflect the worst case. If we mobilized the entire
    Selected Reserve, that would be close to 900,000 people. I do
    not think anyone believes we are going to those kinds of
    numbers. I think we do have a process that will be sensitive to
    local needs, should a local agency find itself with everybody
    gone, as the extreme situation. We are sensitive to that.
        Senator Ben Nelson. It would be difficult to be home alone,
    so I appreciate that reaction.
        Secretary Hall. Could I add just one comment to that? Of
    that group of people, the 209 or so that have asked for
    exemptions, we have further broken that down to look at first
    responders and have said, how many of that group are first
    responders, firemen, policemen, and only about 10 percent of
    that group qualified. So, not a large amount of the first
    responders, the employers, and the individuals, have actually
    asked for exemptions under that authority. We wanted to take a
    particular look at those first responders, and it is only about
    10 percent.
        Senator Ben Nelson. We could be in a situation, though,
    where they would not ask for the exemption, and you could
    create a critical shortage back in the home town because of the
    number of firefighters and/or police officers who are also part
    of the Guard, or other first responders.
        Dr. Chu. I think, sir, that requires us--and we are
    proposing to take that step to make it mandatory that you tell
    us who your employer is. Under current law, we cannot mandate
    that information. It is not so we go back to the employer and
    check up on you. It is so that we can understand exactly what
    you propose, what is the dimension of the issue, do we need to
    take any special steps in this regard, do we need to guard
    against any untoward outcomes? We would look forward to this
    subcommittee's support for that proposal, because I think it is
    critical to managing this issue going forward.
        But we are very comfortable with where we are. We think we
    have good safeguards in place. We think we will be careful
    about any unfortunate outcome as some fear.
        Senator Ben Nelson. Thank you. Thank you, Mr. Chairman.
        Senator Chambliss. Mr. Pryor, do you have anything else?
        Senator Pryor. I do not, thank you.
        Senator Chambliss. All right, gentlemen. We appreciate your
    testimony before this subcommittee, and we thank you and look
    forward to continuing to work with you.
        Dr. Chu. Thank you, Mr. Chairman.
        Senator Chambliss. I would like to welcome our next panel,
    which consists of the personnel chiefs of our respective
    military Services. With us today is Lieutenant General John Le
    Moyne, United States Army, Deputy Chief of Staff for Personnel;
    Vice Admiral Gerald Hoewing, United States Navy, Chief of Naval
    Personnel; Lieutenant General Garry Parks, United States Marine
    Corps, Deputy Chief of Staff for Manpower and Reserve Affairs;
    and Lieutenant General Richard Brown, United States Air Force,
    Deputy Chief of Staff for Personnel. Thank you all for being
    here.
        We have received your written statements. They will be
    incorporated into the record. We look forward to your testimony
    today, and we would appreciate a brief summary of any comments
    you want to make. General Le Moyne, we will start with you.

     STATEMENT OF LT. GEN. JOHN M. Le MOYNE, USA, DEPUTY CHIEF OF
                STAFF FOR PERSONNEL, UNITED STATES ARMY

        General Le Moyne. Mr. Chairman, thank you very much,
    Senator Nelson, sir, it was good to see you this morning. Sir,
    nice to see you here also. Thank you for this opportunity to
    give you an update on America's Army, and I would ask that you
    do accept my written statement for the record, and let me
    start, sir, by expressing our thanks to you for your assistance
    in the major successes in the human resource environment of
    your Army this past year.
        Right now, sir, you have over 198,000 soldiers deployed in
    forward stations in 120 countries. Soldiers from both the
    active and Reserve components remain on point for our Nation,
    and let me assure you, sir, that they are committed, they are
    disciplined, and they are focused on the mission that is at
    hand.
        Today's threats to security and our commitments throughout
    the world highlight the critical importance of manning our
    forces. This manning begins with recruiting. We have been very
    successful in the past 3 years in both numbers and the quality
    of our new soldiers. In addition, our retention goals in all
    categories reflect the same success.
        This year, for the fourth year in a row, we are on track to
    fulfill both the accession mission and our retention goal. At
    the same time, our attrition rates continue to show
    improvements, and officer attrition is at the lowest in over 15
    years.
        Sir, the Army appreciates Congress' continued support for
    our soldiers and our families. Survey after survey reflects the
    positive aspects of the congressional initiatives to increase
    our military pay, benefits, and the efforts to improve the
    overall well-being of our soldiers and their families. These
    increases not only improve quality of life and retention, but
    greatly embrace our recruiting effort by making us more
    competitive with the private sector. Recruiting will continue
    to be our first priority for manning the force in the future.
        The resources, sir, that you have provided to the Army for
    these missions are some of the most important reasons for our
    recent successes. In the past, when manpower programs were
    successful, resources were cut to the point of hurting manning
    efforts. Together, sir, we need to avoid this pitfall, and
    carefully manage our resources to ensure the long-term
    continued success of our volunteer force.
        Sir, the Army is proud of our progress, we are grateful for
    the strong congressional support that you have given us to help
    us offer these opportunities for America's youth. We ask for
    your continued support and assistance as we demonstrate our
    commitment to fulfilling the manpower needs of the Army,
    active, Guard, Reserve, Department of the Army civilians, and
    our retirees.
        Sir, thank you for the opportunity to appear before you
    today. I look forward to your questions.
        [The prepared statement of General Le Moyne follows:]

              Prepared Statement by Lt. Gen. John M. Le Moyne, USA

        Mr. Chairman and distinguished members of the subcommittee, on
    behalf of the men and women of the United States Army, thank you for
    this opportunity to appear before this subcommittee today to give you a
    military personnel overview of America's Army. I would like to start by
    publicly expressing our thanks for your support and assistance in the
    major successes and achievements in the human resources environment
    this past year.
        Since before the birth of the Nation, American soldiers have
    instilled hope in a noble dream of liberty. Magnificent in their
    selfless service, long in their sense of duty, and deep in their
    commitment to honor, soldiers have kept the United States the land of
    the free and the home of the brave. This is our legacy. While helping
    to fight the global war on terrorism, the Army is in the midst of a
    profound transformation. Personnel transformation remains our constant
    imperative--today, tomorrow, and for the future.
        After 3\1/2\ years of undiminished support from the administration
    and Congress, and the incredible dedication of soldiers and Department
    of the Army civilians, we have begun to deliver the Army's Vision. With
    continued strong support, we will win the war against global terrorism,
    meet our obligations to our friends and allies, remain ready to prevail
    over the unpredictable, and transform ourselves for decisive victories
    on future battlefields.
        Today, more than 198,000 soldiers remain deployed and forward
    stationed in 120 countries around the globe, conducting operations and
    training with our friends and allies. Soldiers from both the active and
    the Reserve component have remained ``on point'' for the Nation.

                                  END STRENGTH

        While the congressionally-mandated fiscal year 2002 active Army end
    strength was 480,000, the Army exceeded this end strength target, as
    well as the budgeted average strength of 474,000 manyears. The Army
    finished fiscal year 2002 with an end strength of 486,543 (78,158
    officers, 404,305 enlisted, and 4,080 cadets). Stop loss accounted for
    2,217 of the total fiscal year 2002 end strength. Our average strength
    was 482,733 manyears. Stop loss accounted for 827 of the total fiscal
    year 2002 manyears. The Army recruited 79,585 new soldiers and met its
    accession quality marks. The Army exceeded its retention goals by 1,437
    for initial term, mid career, and career categories and 2,961 for end
    term of service category.

                                   RECRUITING

        Today's threats to security and military commitments throughout the
    world highlight the critical importance of manning our Army, which
    begins with recruiting. The Army continues to recruit in a tough
    environment. The private and public sectors, to include post-secondary
    educational institutions, are all vying for high quality men and women.
    Additionally, the propensity of America's youth to enlist is at one of
    the lowest levels since we started measuring. Despite these challenges,
    Army recruiting was extremely successful for the past 3 years. The
    resources provided to the Army for this important mission are some of
    the most important reasons for our recent success. In the past when
    recruiting was successful, resources were diminished to the point of
    hurting the recruiting effort. Together we need to avoid this pitfall
    and manage the resources to ensure continued success and economy of
    resources. Recruiting will continue to be our first priority for
    manning the force.
        The Army's recruiting requirements are developed from projected
    needs based on a steady state of 480,000 soldiers. Even with the
    slowing economy, youth unemployment remains relatively steady. This
    makes for a very tight labor market. The Army must recruit far more
    than any other Service. To make this possible, the Army must continue
    to be equipped and resourced to succeed in this task. Properly
    resourced, the Army will meet its recruiting goals.
        For the third year in a row, the Army made mission and met or
    exceeded all three DOD quality goals in fiscal year 2002 with 91.1
    percent having a High School Diploma, 68.0 percent scoring in the top
    50th percentile on the Armed Forces Qualification Test (categories I-
    IIIA) and only 1.4 percent scoring in category IV (26th to 30th
    percentile).
        To fulfill the fiscal year 2003 enlisted accession mission, the
    active component must write 71,200 net contracts to cover the 73,800
    accession requirements and build an adequate Delayed Entry Program
    (DEP) of 35 percent to start fiscal year 2004. The lower contract
    requirement is because we had a large DEP going into this year and we
    want to accomplish that again. The Army Reserve must access 42,400, and
    the Army National Guard 62,000. We are on track to meet our goals. We
    are fully engaged to meet this year's accession missions and believe we
    can accomplish all three components' missions.
        We are implementing initiatives to expand the recruiting market in
    cost effective ways, without degrading the quality of the force.
    Hispanics are underrepresented in the Army relative to their share of
    the U.S. population. We made efforts through marketing and our
    recruiters to expand this market and have seen improvement. Enlistments
    from the Hispanic population increased from 9.1 percent of the Army in
    fiscal year 2000 to 9.7 percent in fiscal year 2001 and 11.5 percent in
    fiscal year 2002.
        We implemented the ``College First'' test program to further
    increase our recruitment from the bound-for college market. As of 13
    February 2003, 1,393 college students contracted to enlist in the Army
    after they finish college through this program. You granted us changes
    to the College First program for fiscal year 2003 that will improve the
    test and the ability to determine expansion to the bound-for college
    market.
        You gave us the opportunity to provide a 15-month enlistment option
    as part of the National Call to Service. We look forward to executing
    this program in fiscal year 2004 to help penetrate new markets and
    increase the participation of prior-service soldiers in the Reserves
    and provide motivated young men and women for continued volunteer
    service to our Nation. We will target this enlistment option at the
    college and quality markets. This option will be offered to 24 of our
    military occupational skills.
        Additionally, you directed us to conduct a test of contract
    recruiters replacing active duty recruiters in 100 recruiting
    companies. The Army is implementing this initiative. The 10 companies
    are on mission and will run the full test from fiscal year 2003 through
    fiscal year 2007.
        We have awarded this pilot program to two independent contractors
    each receiving contracts to perform the full complement of recruiting
    services, including prospecting, selling, and pre-qualifying
    prospective applicants for the Regular Army and Army Reserve, and
    ensuring that contracted applicants ship to their initial entry
    training. We estimate it will take at least 18 months of production
    evaluation to make an accurate assessment on the effectiveness of this
    program.
        The Army placed 300 Corporal Recruiters on recruiting duty in 1999
    and this program has brought a total number of on-production recruits
    to 6,161. This program has proven effective by using young leaders to
    recruit young soldiers. The Special Forces Candidate ``Off the Street''
    Enlistment Initiative will continue its highly successful program in
    fiscal year 2003. This effort seeks to enlist motivated, highly
    qualified, and dedicated individuals desiring the adventure and mission
    focus inherent in the U.S. Army Special Operations Forces. In fiscal
    year 2002, the Army exceeded its assigned mission of 400 applicants,
    enlisting 465 candidates. Capitalizing on the success of this program,
    the fiscal year 2003 mission has increased to 600.
        Army University Access Online offers soldiers access to a variety
    of on-line, post-secondary programs and related educational services.
    Hyperlink ``http://www.eArmy.U.com'' www.eArmyU.com is a comprehensive
    web-portal widely accessible to soldiers, including those in
    Afghanistan, Bosnia, and Kuwait.
        Competition for America's young people is intense. The enlistment
    incentives we offer appeal to the dominant buying motive of young
    people and allow us to fill the skills most critical to our needs at
    the time we need them most. The flexibility and improvements you
    provided to our incentives in the past have helped us turn the corner
    regarding recruiting.
        Last year we achieved 99.9 percent MOS accuracy, which was
    significantly better than any previous year. The combination of all
    incentives will help fill critical specialties as the Army continues
    its personnel transformation. The combined Montgomery GI Bill and Army
    College Fund, along with the Army's partnership with education, remain
    excellent programs for Army recruiting and an investment in America's
    future. While the actions we have taken will help alleviate some of the
    recruiting difficulties, we also know more work has to be done to meet
    future missions. We must continue to improve the recruiting efforts
    from developing a stable, robust resourcing plan to improving our core
    business practices. We must capitalize on the dramatic improvements in
    technology from the Internet to telecommunications and software. We
    must improve our marketing and advertising by adopting the industry's
    best business practices and seeking the most efficient use of our
    advertising dollars. As we improve our efficiency, we are able to
    reduce the size of our recruiting force and return seasoned soldiers to
    other parts of the Army that need their skills and leadership. We are
    in the first year of a 3-year plan of reducing Army recruiters by 1,166
    positions.
        Business practices, incentives and advertising are a part of
    recruiting, but our most valuable resource is our recruiters. Day in
    and day out, our Army recruiters are in the small towns and big cities
    of America and overseas, reaching out to young men and women, telling
    them the Army story. We have always selected our best soldiers to be
    recruiters and will continue to do so. These soldiers have a demanding
    mission. We owe it to these recruiters and their families to provide
    them the resources, training, and quality of life that will enable them
    to succeed.
        The Army appreciates Congress's continued support for its
    recruiting programs and for improving the well-being of our recruiting
    force. We are grateful for recent congressional initiatives to increase
    military pay and benefits and improve the overall well-being of our
    soldiers. We believe these increases will not only improve quality of
    life and retention, but will greatly enhance our recruiting effort,
    making us more competitive with private sector employers.

                               ENLISTED RETENTION

        The Army's retention program continues to succeed in a demanding
    environment. Our program is focused on sustaining a trained and ready
    force. Our retention efforts demand careful management to ensure that
    the right skills and grades are retained at sufficient levels that keep
    the Army ready to fulfill its worldwide commitments. Our selective
    retention budget, though significantly reduced in fiscal year 2003,
    continues to provide this advantage, which ensures a robust and healthy
    retention program.
        Over the past decade, retention has played an essential role in
    sustaining manning levels necessary to support our force requirements.
    This past year was an excellent example of the delicate balance between
    our recruiting and retention efforts. Through a concerted effort by the
    Department of the Army, field commanders and career counselors, the
    Army not only achieved it's fiscal year 2002 recruiting mission, but
    finished the year by retaining 1437 soldiers above mission for a
    reenlistment percentage of 102.5 percent. Our Reserve component
    transition results in fiscal year 2002 were equally successful. We
    transferred 9,545 active component soldiers into Reserve component (RC)
    units against a mission of 9,500 for a 100.4 percent success rate.
        This year's retention mission of 54,000 soldiers requires us to
    retain 67 percent of all separating soldiers. Although the annual
    mission is less than the 56,000 soldiers who reenlisted last year, the
    decreasing separating soldier population will make the annual mission
    just as difficult.
        At the heart of our retention mission, we concentrate efforts on
    our first-term and mid-career soldiers. The foundation for the career
    force is built upon these two mission categories. Retention decisions
    are influenced in significantly different ways between these two
    groups. First-term soldiers cite educational opportunities and
    availability of civilian employment as reasons for remaining in the
    Army or separating. Mid-career soldiers are affected more by health
    care, housing, compensation, and availability of commissary, exchange,
    and other post facilities. Consistent with these influencing factors, a
    higher percentage of mid-career soldiers are married, although the
    number of married first-term soldiers continues to increase. We closely
    monitor both groups for change in reenlistment behaviors, as they are
    the keys to continuing a successful retention program. Our results tell
    their own positive story. First-term retention rates during fiscal year
    2000, fiscal year 2001, and fiscal year 2002 exceeded the 52 percent
    historic achievement levels. Mid-careerists are staying at a roughly 78
    percent rate, again well above early to mid-1990s pre-draw down levels.
    At the senior end of the spectrum, 98 percent of all non-retirement-
    eligible career soldiers continue to Stay Army.
        The ultimate success of our retention program is dependent on many
    internal and external factors. External factors beyond our ability to
    influence include: the economy, the overall job market, and the world
    situation. While the economy has not been the strongest, our soldiers
    continue to be highly marketable. The global war on terrorism and other
    missions are also key factors. We are well aware that these factors
    play heavily on the minds of soldiers when it comes time to make
    reenlistment decisions. Our force today is increasingly family
    oriented. Our current Army is 52 percent married. Army spouses are
    equally affected by these external factors and have great influence
    over reenlistment decisions.
        The internal factors that we can influence include: benefit
    packages, promotions, the number of deployments, adequate housing,
    responsive and accessible health care, attractive incentive packages,
    and reenlistment bonuses. Not all soldiers react the same to these
    factors. These factors challenge our commanders and their retention
    non-commissioned officers (NCOs) to provide incentives to qualified
    soldiers that encourage them to remain as part of our Army. In order to
    address the total spectrum of soldier and family member needs, our
    incentive programs provide both monetary and non-monetary inducements
    to qualified soldiers looking to reenlist. These programs include: the
    Selective Reenlistment Bonus, or SRB, offers money to eligible
    soldiers, primarily in the grades of Specialist and Sergeant, to
    reenlist in skills that are critically short or that require
    exceptional management. The Targeted Selective Reenlistment Bonus
    program, or TSRB, is a sub-program of the SRB that focuses on 11
    installations within the continental United States and Korea where
    pockets of shortages have historically existed in certain military
    occupational specialties (MOS). The TSRB pays a reenlisting soldier a
    higher amount of money to stay on station at a location in the program
    or to accept an option to move. The Critical Skills Retention Bonus or
    CSRB offers soldiers in critical MOS a bonus at 18 to 24 years of
    service. The CSRB pays a lump sum bonus to career soldiers serving in
    MOS that have projected shortages and low continuation rates. Special
    Forces Sergeants First Class and Master Sergeants are currently
    receiving the CSRB. This program has experienced great success and has
    significantly benefited our Special Forces soldiers who are on the
    front line in the war on terrorism.
        All of these programs, paid from the same limited budget, play key
    roles in force alignment efforts to overcome or prevent present
    shortfalls of mid-grade and senior NCOs that would negatively affect
    operational readiness of our force. We have used the SRB/CSRB program
    with tremendous success to increase reenlistments in such critical
    specialties such as Infantry, Armor, Special Forces, Intelligence,
    Communications, Maintenance, and Foreign Languages.
        Non-monetary reenlistment incentives also play an important role in
    attracting and retaining the right soldiers. We continue to offer
    assignment options such as current station stabilization, overseas
    tours, and CONUS station of choice. Training and retraining options
    offer qualified soldiers yet another alternative incentive to reenlist.
    By careful management of both the monetary and non-monetary incentive
    programs, we have achieved a cost-effective program that has proven
    itself in sustaining the Army's career force.
        The Army's retention program today is healthy. Well into the 2nd
    quarter of fiscal year 2003, we have reenlisted 105 percent of our
    year-to-date mission and are on track to make the 54,000-reenlistment
    mission required to sustain a 480,000 soldier Army. We likewise expect
    to exceed our RC transition mission again this year. In fiscal year
    2003 year-to-date, we have transferred 3,008 soldiers into RC units
    against a mission of 2,766 for a rate of 109 percent. The Army is
    retaining the best qualified, and correct number of, soldiers necessary
    to maintain the highest levels of readiness that we have ever
    experienced. This is due in large part to the great support from
    Congress to protect existing incentive programs, and the continued
    involvement of Army leaders at all levels.

                               OFFICER RETENTION

        The Army today has the lowest officer attrition rate since 1997. It
    is anticipated that the Army will finish fiscal year 2003 above our
    officer budgeted end strength of 77,800. Retention in all Army
    Competitive Category (ACC) officer ranks, from lieutenant to colonel,
    improved in fiscal year 2002. Specifically, the ACC captain due-course
    loss rate was 11 percent in fiscal year 2002. This represents a
    significant reduction over the captain due-course loss rate of 12.5
    percent in fiscal year 2001 and a return to the 11 percent loss rate in
    fiscal year 1999. This results in an overall company grade loss rate
    improvement from 8.1 percent in fiscal year 2001 to 6.5 percent in
    fiscal year 2002. Over the same period the major loss rate fell from
    3.4 percent to 2.7 percent, the lieutenant colonel loss rate fell from
    14.1 percent to 10.8 percent and the colonel loss rate fell from 19.0
    percent to 15.9 percent. While the inventory of company grade officers
    exceeds requirements, minor shortages still remain at the field grade
    ranks.
        The Army has successfully used increased accessions and enhanced
    promotion rates to maintain manning levels and overcome the impact of
    under-accessed cohorts during the draw down years. The Army steadily
    increased basic branch accessions beginning in fiscal year 2000 with
    4,000, capping at 4,500 in fiscal year 2003, to build a sustainable
    inventory to support captain requirements. The Army has been promoting
    to captain at or above the DOPMA goal of 90 percent since fiscal year
    1995. Higher than DOPMA promotion rates will continue for the next 2 to
    4 years depending on attrition behavior.
        Army initiatives to improve retention among its warrant officer
    AH64 (Apache) pilot population have stabilized attrition trends
    resulting in an attrition reduction from 12.9 percent in fiscal year
    1997 to 7.5 percent in fiscal year 2002. Since fiscal year 1999 we have
    offered Aviation Continuation Pay to 1,765 eligible warrant officers,
    of which 1,590 accepted (90 percent take rate). Additionally, we have
    recalled 272 warrant officer pilots since 1997, and have five Apache
    pilots serving on active duty in selective continuation status. The
    Warrant Officer Corps is healthy in the aggregate with inventory
    slightly exceeding the budgeted end strength of 11,800.

                              LEADERSHIP/TRAINING

        The Army is a profession--the Profession of Arms. The development
    of each member of the Army is the foundation of lifelong devotion to
    duty--while in uniform and upon returning to the civilian sector.
    Profession of Arms must remain firmly grounded in constitutional values
    and constantly change to preserve its competitive advantage in an
    evolving strategic environment. At all levels, our military and
    civilian leaders--must apply their professional knowledge in
    increasingly varied and unique situations that are characteristic of
    today's strategic environment. Ultimately, we must grow professional
    Army leaders who provide judgments founded on long experience and
    proven professional expertise. This capacity is developed only through
    a lifetime of education and dedicated service--in peace and in war.
        Soldiers serve the Nation with the full realization that their duty
    may require them to make the supreme sacrifice for others among their
    ranks. Soldiers fighting the war on terrorism today, those who will
    fight our future wars, and those who have fought in our past wars are
    professional soldiers and a precious national asset. To ensure we
    remain the greatest land power in the world defending our Nation, the
    Army and the Nation rely upon our soldiers' unique and hard-earned
    experiences and skills. To develop the operational skills required to
    defend the Nation, training must remain our number one priority.
        The evolving strategic environment, the gravity of our
    responsibilities, and the broad range of tasks the Army performs
    require us to review and update the way we educate, train, and grow
    professional warfighters. The Army's strategic responsibilities to the
    Nation and Combatant Commanders now embrace a wider range of missions.
    Those missions present our leaders with even greater challenges than
    previously experienced. Therefore, leader development is the lifeblood
    of the profession. It is the deliberate, progressive, and continuous
    process that trains and grows soldiers and civilians into competent,
    confident, self-aware, and decisive leaders prepared for the challenges
    of the 21st century in combined arms, joint, multinational, and
    interagency operations.
        In June 2000, we convened the Army Training and Leader Development
    Panel (ATLDP) to assess the ability of current training and leader
    development systems and policies to enhance these required skills of
    soldiers and civilian leaders. In May 2001, the Army Training and
    Leader Development Panel Phase I (Officer Study) identified strategic
    imperatives and recommendations. From those, we validated the
    requirement to transform our Officer Education System (OES)--from the
    Officer Basic Course through the Command and General Staff Officer
    Course. Additionally, the panel reconfirmed the value of Joint
    Professional Military Education II (JPME II) in preparing our leaders
    for joint assignments.
        ATLDP Phase I (Officer Study) identified three high-payoff
    institutional training and education initiatives for lieutenants,
    captains, and majors. The first of these is the Basic Officer Leader
    Course (BOLC). BOLC will provide a tough, standardized, graduate-level,
    small-unit leadership experience for newly commissioned officers. The
    second of these initiatives is the Combined Arms Staff Course (CASC)
    for staff officers, and the Combined Arms Battle Command Course (CABCC)
    for company commanders. Both courses will capitalize on advanced
    distributed learning and intensive resident training methods. The third
    initiative, Intermediate Level Education (ILE), will provide all majors
    with the same common core of operational instruction, and it will
    provide additional educational opportunities that are tailored to the
    officer's specific career field, branch, or functional area. Beyond
    ILE, Army officers continue to attend Joint or Senior Service Colleges
    to develop leader skills and knowledge appropriate to the operational
    and strategic levels of the profession.
        Completed in May 2002, the ATLDP Phase II (NCO Study) resulted in
    findings and recommendations--Army culture, NCO Education Systems
    (NCOES), training, systems approach to training, training and leader
    development model, and lifelong learning. Among others, the ATLDP Phase
    II recommended building new training and leader development tools for
    NCOs to replace current methods, as required. The ATLDP Phase III
    (Warrant Officer Study) culminated with recommendations to clarify the
    warrant officer's unique role in the Army and improve the Warrant
    Officer Education System (WOES) to ensure timely training and
    promotion.
        The Army Civilian Study is Phase IV of the largest self-assessment
    ever done by the Army. Completed in January 2003, the Army Civilian
    Study panel's purpose was to identify training and leader development
    requirements for current and future Army civilians. The panel
    emphasized Army civilians are part of the total force--active, Reserve,
    Guard, retirees, and family members--and serve to support soldiers. The
    study concludes that growing civilian leaders has fallen short of the
    Army Plan that states the Army requirement with respect to people is to
    ``Train soldiers and civilians to grow them into leaders through
    training and leader development programs.'' The study also concludes
    that Army policies are out of balance with the expectations of Army
    civilians. It believes that the future environment, in which Army
    civilians will operate, will require a higher level of adaptability and
    self-awareness.
        The study culminated with recommendations and imperatives
    surrounding accountability--we need to make developing civilians a high
    priority, tie personal and professional and job performance together,
    accomplish this study's recommendations, and evaluate their
    effectiveness. Lifelong Learning--make it the standard, revamp career
    management with ``gates'' for progression, and build an effective
    Civilian Education System (CES). Interpersonal Skills--acknowledge they
    are pivotal to leader competence, teach them, and select leaders that
    exhibit them. Army Culture--integrate civilians fully into the Army
    culture--recognizing differences but embracing commitment to our
    national defense mission.
        The study highlighted five recommendations, which the panel said
    were especially significant: first, make Army civilian training,
    education and leader development a priority; second, integrate civilian
    and military individual training, education, and development where and
    when appropriate; third, improve the relationship among the four Army
    cohorts (officer, noncommissioned officer, warrant officer, civilian);
    fourth, create a training and development paradigm that incorporates
    lifelong learning; and last, make interpersonal skills development a
    priority.
        The Panel completed Phase I (Officer Study) in May 2001, Phase II
    (NCO Study) in May 2002, and Phase III (Warrant Officer Study) in July
    2002. The Army instituted a management process under the proponency of
    the Army G3 to determine the feasibility, suitability, and
    acceptability of the recommendations. The Army integrated the
    recommendations into its Transformation Campaign Plan and has
    implemented a number of the recommendations and developed actions,
    decisions and resources required to implement the others.
        The ATLDP will conclude its mission by developing a final report on
    training and leader development for the Army that fosters battlefield
    and operational success and develops our operational commanders and
    leaders to meet the demands of our National Military Strategy.

                                   PERSTEMPO

        To meet the demands of the current national emergency, the Army has
    experienced substantial increases in Personnel Tempo (PERSTEMPO). By
    necessity, due to global operational commitments, soldier deployments
    and Reserve component mobilizations have combined to increase the
    turbulence and uncertainty felt by soldiers and their families who
    serve our Nation. In defense of our Nation, soldiers in all components
    are being tasked to spend significant time away from home, for missions
    both foreign and domestic. We have not yet turned the tide in the
    upward spiral of these requirements, but wish to assure you that the
    Army is doing what it can to track and monitor deployments at the
    individual soldier level.
        The Army employs various measures to actively manage and minimize
    the effects of PERSTEMPO and coordinates with OSD to manage force
    requirements. The Army seeks to reduce PERSTEMPO by rotating units, by
    selectively using Reserve component forces, and through a post-
    deployment stabilization policy. The Army endeavors to manage
    contingency operations requirements through global sourcing, as well as
    through use of career and contract civilians where feasible.
        We considered the effects of PERSTEMPO and implemented tracking and
    reporting the number of days a soldier is deployed in fiscal year 2000.
    The statutes surrounding PERSTEMPO for tracking, reporting and payment
    procedures were imposed to encourage the Services to reduce, where
    possible, excessive individual deployments vice payment of an
    entitlement for the soldier. The Army places priority on our mission
    requirements over the high deployment per-diem and will not compromise
    readiness nor unit cohesion to avoid future potential high deployment
    per diem payments. Army deployments will continue based on the needs of
    the Nation, the Army and the best interest of the soldier, in that
    order. The Army has a duty to comply with PERSTEMPO requirements and to
    manage them for the welfare of our soldiers, their families and the
    future of the Army.
        The Army will continue to manage deployments with an emphasis on
    maintaining readiness, unit integrity, and cohesion while meeting
    operational requirements.

                                   STOP LOSS

        The present national emergency warrants that certain soldier skills
    are essential to the national security of the United States under the
    provisions of 10 U.S.C. 12305. Selected soldier skills and officer/
    warrant officer specialties will be retained on active duty and will
    not otherwise be separated or retired. Those affected by the order
    cannot retire or leave the Service as long as Reserves with those same
    skills are called to active duty or until otherwise released by proper
    authority.
        On 30 November 2001, the Assistant Secretary of the Army for
    Manpower and Reserve Affairs (ASA (M&RA)) approved a limited stop loss
    for soldiers of the active Army (Stop Loss 1). On 27 December 2001, the
    ASA (M&RA) expanded Stop Loss 1 to include the Ready Reserve and
    additional skills and specialties for both the active Army and the
    Ready Reserve (Stop Loss 2). On 8 February 2002, a third increment of
    stop loss was approved to include additional skills and specialties for
    both the active Army and the Ready Reserve (Stop Loss 3). On 4 June
    2002, the ASA (M&RA) approved partially lifting stop loss for skills
    and specialties affected by Stop Loss 1-3, and approved a fourth
    increment of stop loss to include additional skills and specialties for
    both the active Army and the Ready Reserve (Stop Loss 4). Stop Loss 4
    ensured a zero sum gain against fiscal year 2002 end strength. Active
    component soldiers who have completed their obligation under the Army's
    12-month, skilled-based stop loss will not be subject to this new stop
    loss (soldiers however, will be given the choice to continue serving).
    Active component (AC) unit stop loss, for selected forces that deploy
    in support of operations in the CENTCOM AOR, was approved on 14
    February 2003. Potential impact to fiscal year 2003 Army end strength
    if this stop loss initiative is approved ranges from 492.7K to 504.6K
    (2.7 percent to 5 percent over 480K end strength). Partial Lift #3 is
    for the MP Corps.
        The global war on terrorism is projected to take years to
    successfully complete. Stop loss was not designed to preclude soldiers
    from voluntarily separating for an indefinite period of time. The time
    has come to provide soldiers affected by stop loss more predictability
    on when it will be lifted.

                                   STOP MOVE

        Stop move for selected AC units supporting operations in the
    CENTCOM AOR was announced 22 December 2002. Units in support of
    Operations Enduring Freedom (OEF) or Noble Eagle (ONE) are currently
    not affected by stop move. The intent of the Army's stop move program
    is to maintain personnel operating strengths, readiness, and cohesion
    for deploying units, while ensuring we do not deplete the rest of the
    Army (i.e., Korea) effective 21 December 2002. Soldiers in deploying
    units with PCS report dates between 31 Dec 02 and 28 Feb 03 continued
    to PCS while enlisted soldiers with report dates of 1 Mar 03 or later
    will deploy with the a unit. Officers and warrant officers with report
    dates between 1 Mar and 31 May 03 will be initially deferred for 90
    days; additional deferrals and modifications for these officers with
    report dates 1 Jun 03 or later may be made pursuant to future
    operational assessment.
        Stop move will affect Korea through the Involuntarily Foreign
    Service Tour Extensions (IFSTE) for up to approximately 2,900 soldiers
    in Korea for 90 days beyond DEROS. Soldiers involuntarily extended will
    not be further extended for operational reasons or be required to meet
    service remaining requirements for PCS back to CONUS. Soldiers who
    would undergo undue hardship because of short-notice IFSTE (e.g.,
    already shipped HHG, started terminal leave, or moved family members)
    are also exempt.

                                  UNIT MANNING

        Unit manning seeks to synchronize the life cycle of a unit with the
    life cycle of the soldier within that unit. Soldiers and leaders will
    be stabilized, resulting in a significant increase in cohesion and
    combat readiness over our present individual replacement system. Such a
    system has significant second and third order effects across the
    force--training and leader development, recruiting and retention, unit
    readiness levels, and total Army end strength, among others. All of
    these systems are being studied intensively.
        The objective of our manning strategy is to ensure we have the
    right people in the right places to fully capitalize on their
    warfighting expertise. Correctly manning our units is vital to assuring
    that we fulfill our missions as a strategic element of national policy;
    it enhances predictability for our people; and it ensures that leaders
    have the people necessary to perform their assigned tasks. In fiscal
    year 2000, we implemented a strategy to man our forces to 100 percent
    of authorized strength, starting with divisional combat units. The
    program expanded in fiscal year 2001 and fiscal year 2002 to include
    early deploying units. Fiscal year 2002 represented the third year of
    implementation for the Army manning strategy and we have maintained our
    manning goals and continued to fill our Divisions, Armored Cavalry
    Regiments, and selected Early Deploying Units to 100 percent in the
    aggregate, with a 93-95 percent skill and grade-band match. We remain
    on target to accomplish our long-term goal of filling all Army units to
    100 percent of authorized strength. Our manning initiatives have filled
    our line divisions and other early deploying units to reduce the
    internal turbulence of partially filled formations and help put a
    measure of predictability back into the lives of our families.

                            PERSONNEL TRANSFORMATION

        At war and transforming, the Army is accelerating change to harness
    the power of new technologies, different organizations, and revitalized
    leader development initiatives that enable flexible, cost effective
    personnel policies for reshaping the Interim and the Objective Force
    for 2015.
        To accomplish this, we must transform our current personnel systems
    to meet the Army's vision of being more strategically responsive across
    the full spectrum of military operations. While the Army's eight
    Personnel Life Cycle functions (acquire, distribute, develop, deploy,
    compensate, sustain, transition, and structure) do not change under the
    Army vision, how we do them does change as we migrate legacy systems to
    web-based technology.
        New capabilities under Army eHR will include paperless electronic
    workflow, digital signature, passive personnel tracking, predictive
    analytics, unobtrusive record keeping, and a variety of on-line
    services. Overall customer service to the soldier, staff officer, and
    commander on the battlefield will be significantly more timely and
    accurate.
        In preparation for the Objective Force, and with the infusion of
    enterprise commercial off-the-shelf (COTS) technology, a complete
    realignment of the personnel structure and workforce is well underway.
    Implementing new technology is absolutely key therefore we must invest
    in HR systems through fiscal year 2005. This will enable the reshaping
    of personnel units to become more responsive to the needs of commanders
    from a smaller footprint in the battle space.
        As the integrating framework, five personnel transformation themes
    synchronize the personnel life cycles to form the sync matrix for
    concept development, decision-making, and resourcing. These five themes
    are Personnel Enterprise System, which forms the operational
    infrastructure and the knowledge architecture, which is the vehicle for
    revolutionizing the delivery of personnel services to soldiers and
    commanders and enhancing operational readiness. The resulting
    capabilities include online services, transactional capabilities, and
    analytical decision support with accurate and timely data. Second,
    Manning is the key and essential part of readiness. Our plan is to man
    the future force employing a Rotational Unit Manning concept. A major
    change in the way we do business is necessary given a dramatic increase
    in deployments, the global war on terrorism, coupled with the fielding
    of an increasingly complex force. Significant changes in how we
    structure, recruit, manage our personnel, develop soldiers and leaders
    must be reconsidered to create degrees of freedom currently resident in
    the individual, equity based personnel system. Third, Force Structure
    changes are already underway, especially in the personnel community's
    workforce and organizations. From HQDA to unit level, a variety of
    multi-functional units are being structured and redesigned to meet the
    future needs of the Army. Fourth, Training and Leader Development must
    be mutually supportive. We will work diligently to develop policies
    that meet the readiness goals inherent in unit manning while at the
    same time support the professional development needs of our Army and
    our people. Fifth, Well-Being is key to both individual and unit
    readiness. It is also critical to sustainment of our Army of today as
    well as that of the Objective Force. More specifically, it is an
    integrated system that: recognizes the institutional needs of the Army;
    designed and resourced to successfully account for the dynamic nature
    of the Army's operational challenges; maximizes outcomes such as
    performance, readiness, retention, and recruiting; and contributes to
    an institutional strength that enables the Army to accomplish its full
    spectrum mission.
        Our efforts in transforming the Army's personnel system are
    progressing. To date, we have successfully used technology to webify or
    digitize various personnel systems (i.e. OMPF On-Line and 2X Citizen,
    PERSCOM Online, PERSTEMPO, automated selection boards, etc.). Working
    together with all components, we are confident that when the Army gets
    to the Objective Force in 2015, the personnel and pay communities will
    be transformed and ready. One of the five personnel enterprise systems,
    Unit Manning deserves additional attention as a significant factor of
    personnel transformation.

                                   WELL-BEING

        Well-Being is the Strategic Human Capital Management System for the
    Army. When applied at every level of leadership, this system provides
    the focus for balancing the needs of the Army and the expectations of
    our people--soldiers, retirees, veterans, DA civilians, and their
    families. Well-Being is oriented on developing strategic outcomes
    within the human dimension, and measuring progress and results in
    achieving those strategic ends.
        To measure these results, the Army designed a Well-Being Status
    Report (WBSR). The WBSR serves as a feedback mechanism designed to
    track the current and future status of Well-Being as it impacts the
    personnel dimension of readiness, enabling the senior leadership of the
    Army to make informed decisions.
        The Army is testing the concept at five locations for an entire
    year (June 2002 to May 2003). Additionally, the National Guard Bureau
    has funded a Well-Being laboratory site to explore methods to improve
    the effective delivery and receipt of Well-Being services and products
    to guardsmen, civilians, and their family members. The NGB site is
    scheduled to stand up the first week of April 2003.
        Well-Being initiatives over fiscal year 2002 have resulted in the
    largest pay raise for soldiers in a generation, as well as a 4.6
    percent pay raise for civilians. There was an 18 percent increase in
    military construction for new barracks, family housing and medical
    facilities. The medical component of Well-Being resulted in full
    funding for TRICARE military health care--a $6 billion increase over
    the past year. Included in this initiative is TRACARE for Life for
    Medicare-eligible uniformed services retirees, family members and
    survivors. Well-Being's impact on our Reserve and National Guard
    constituents resulted in improved pay, benefits and quality-of-life
    initiatives for Reserve component soldiers and their families, such as
    TRICARE eligibility for the military sponsor beginning on the effective
    date of their orders to active duty. For those soldiers ordered to
    active duty for more than 30 consecutive days, their families are
    eligible for health care under TRACARE Standard or TRICARE extra.
        Given the competing demands for limited resources we must ensure
    the Well-Being of the force by making informed decisions about which
    Army Organizational Life Cycle functions provides largest ``payoff'',
    in terms of Well-Being of its people, while achieving the tasks to
    assess, recruit, train, retain and meet the Army's mission. Well-Being
    allows the Army leadership to focus the application of resources with a
    measurable result.

                            RETIREE/SURVIVOR SUPPORT

        Our Army retirees and their families are highly valued partners
    with our active duty and Reserve component soldiers. Their rich legacy
    of sacrifice and service inspires today's soldiers. Many continue to
    serve America in a wide variety of positions both in and out of
    government and are a strong bridge between the Army and their
    communities.
        The Army remains committed to insuring that retirees and their
    families, as well as soldiers and families about to retire are well
    provided for. Insuring that health care systems remain robust for those
    who have borne the brunt of battle continues to be a major goal. The
    Army is very appreciative of recent congressional support in this arena
    and hopes that congressional commitment never wanes. Likewise, it's
    very important to insure that surviving family members of retirees, as
    well as soldiers who die on active duty, receive the strongest possible
    financial support. This is especially true for our soldiers who die in
    combat related incidents. The Army urges strong support of the Survivor
    Benefit Plan, especially in situations where small children suffer the
    loss of a parent in service to country. Severely disabled retirees
    deserve continued recognition of their precarious financial situation,
    especially if that disability resulted from a combat related incident.

                               CIVILIAN PERSONNEL

        As of fiscal year 2002, the Army employed 277,786 civilian
    personnel. To forecast future civilian workforce needs with precision,
    we developed the Civilian Forecasting System (CIVFORS), a sophisticated
    projection model that predicts future civilian personnel requirements
    under various scenarios. The Army is working closely with the Office of
    the Secretary of Defense (OSD) and other Federal agencies to
    demonstrate the power of this system so they can fully leverage its
    capabilities, as well.
        The Civilian Personnel Management System XXI (CPMS XXI) has
    identified the reforms necessary to hire, train, and grow a civilian
    component that supports the transforming Army. To achieve this, we have
    redefined the way civilians are hired, retained, and managed. Mandatory
    experiential assignments will become the vehicle by which we develop
    future leaders. CPMS XXI fully responds to current mandates in the
    President's Management Agenda and incorporates the results of the Army
    Training and Leader Development Panels. Here are two initiatives for
    recruiting well-trained civilians, The Army Civilian Training,
    Education, and Development System (ACTEDS)--a centrally managed program
    that accesses and trains civilian interns and grows a resource pool of
    personnel who can accede to senior professional positions and second
    the Direct Hire Authority for critical, hard-to-fill medical health
    care occupations which reduces in average fill-time for these positions
    to 29 days.
        The Army is firmly moving in the right direction to provide greater
    flexibility and opportunity for employees, supervisors, managers, and
    executives in the area of human resources management. We will transform
    the way we recruit, compensate, assess, assign, and separate defense
    civilians.

                               DOMESTIC VIOLENCE

        As you recall in June-July 2002, five homicides occurred at Fort
    Bragg North Carolina and the Army took action at both the local and
    Department of Army level. Fort Bragg conducted a review of the existing
    responses to domestic violence and developed a strategy focused on
    increasing awareness of domestic violence incidents and reviewed the
    existing support programs for victims and families. Additionally, Fort
    Bragg leadership encouraged and expanded outreach to victims and
    families residing in the surrounding area and promoted community
    accountability and responsibility.
        The ASA (M&RA) directed a review and evaluation of Army domestic
    violence prevention and intervention programs/policies. The team
    focused their efforts on study conclusions of what the Army did well,
    what areas needed improvement, and recommendations that pave the way
    ahead for the Army. Team efforts are targeted at developing an Army-
    wide domestic violence program and culture that is compassionate,
    responsive, accountable, career safe and targets prevention and early
    intervention for high-risk groups. Additionally, ASA (M&RA) engaged the
    services of civilian consultants to evaluate Army programs/policies and
    make recommendations for program enhancement.
        The Chief of Staff of the Army directed the G-3, Deputy Chief of
    Staff for Operations, to look at developing a program to facilitate the
    reintegration of soldiers returning from contingency operations into
    their family and domestic environments. The intent is to provide
    redeploying soldiers with proper psychological screening, debriefing,
    mandatory briefings, and more importantly, identify those ``at risk''
    soldiers that require immediate and longitudinal services. Army teams
    will continue to develop and then execute an action plan that addresses
    the key issues identified.

                                   THIRD WAVE

        The primary objective of the Third Wave is to make sure we are
    properly utilizing the military manpower we have before asking for
    additional resources. This is necessary because we are operating within
    fixed constraints, a 480K-end strength, in an environment where there
    may be increasing demands for military capabilities for the global war
    on terrorism and worldwide contingencies. We will leverage our current
    end strength by converting non-core military positions to civilian
    employees or contract, where appropriate. We will pay for these
    conversions through savings generated from public-private competition
    and divestitures. The Third Wave supports the President's Competitive
    Sourcing Initiative, which is one of five government-wide initiatives
    on the President's Management Agenda. The Third Wave analysis is based
    on the Inventory of Commercial and Inherently Governmental Activities
    (which includes functions in the FAIR Inventory) and Senior Executive
    Council memorandum, subject: Using Core competencies to Determine DOD's
    Sourcing Decisions. Third Wave study costs will be programmed in POM
    05-09.

        ACTIVE GUARD AND RESERVE SEPARATE PROMOTION COMPETITIVE CATEGORY

        Army promotion policy requires mandatory Reserve components
    centralized promotion selection boards to consider all eligible
    officers of a grade and competitive category regardless of the Ready
    Reserve component to which they may be assigned. This policy further
    requires that mandatory boards address Army mobilization requirements,
    rather than consider specific Selected Reserve vacancies.
        The Reserve component promotion competitive categories remain the
    same as those in effect prior to October 1, 1996, the implementation
    date for the Reserve Officer Personnel Management Act. Even though the
    act authorizes the Secretary of the Army to establish separate
    promotion competitive categories for Reserve component officers, to
    include those serving in an AGR program, the Army has elected not to do
    so.
        The Army has twice considered proposals to initiate a separate U.S.
    Army Reserve AGR promotion competitive category. There has been no
    proposal for a separate Army National Guard AGR promotion competitive
    category. Army National Guard AGR officers may be promoted to fill AGR
    positions of the higher grade under the Title 32, U.S. Code, Federal
    recognition process. U.S. Army Reserve AGR officers may be promoted to
    fill AGR positions of the higher grade under the Title 10, U.S. Code,
    position vacancy board process.
        The Army Staff reviewed both proposals to initiate a separate U.S.
    Army Reserve AGR promotion competitive category. It did not give a
    favorable endorsement to either request. The Army Staff did not
    favorably consider establishing a separate U.S. Army Reserve AGR
    promotion competitive category, because of a number of management and
    parity concerns. The Office of the Judge Advocate General, in its
    independent review of the concept, expressed concern that a separate
    U.S. Army Reserve AGR promotion competitive category might be contrary
    to the congressional intent authorizing the Secretary of a Military
    Department to establish a separate promotion competitive category.
        There is an on-going study of the pending implementation of the
    Reserve components Officer Personnel Management System XXI. Part of its
    study, is reviewing the Reserve components officer promotion selection
    system. This officer promotion selection system review is intended to
    determine whether current promotion selection policy meets the needs of
    the Army and, if not, what changes need to be made. Included in this
    promotion selection system review are consideration of an Office, Chief
    Army Reserve request for the Army to initiate a separate U.S. Army
    Reserve AGR promotion competitive category, and alternatives to that
    proposal, to include extensive use of statutory position vacancy boards
    to meet specific U.S. Army Reserve AGR position vacancy needs.

                                   IMPACT AID

        Impact Aid funds are an important source of Federal income for
    school districts that educate federally connected children. These funds
    help to ensure our military children are provided quality education.
    Education has always been and continues to be a very high priority for
    not only the Army, but for our soldiers. This is keenly evidenced by
    results from our yearly Army Family Action Plan (AFAP) conferences
    where education issues consistently rank among the top issues that our
    soldiers and their families vote as the most important to resolve. As
    you are no doubt aware, the Impact Aid program is a U.S. Department of
    Education (DoED) function and responsibility. The Army supports the
    Department of Defense (DOD) position that Impact Aid funding and
    management is correctly positioned within DoED.
        The Army's strategy is to continue to work with DoED and DOD, to
    find solutions to current issues with Impact Aid. Recognizing the
    importance of Impact Aid funding to our local schools, the Army has
    funded 117 ``dedicated'' School Liaison Officer (SLO) positions
    effective fiscal year 2003. One of the functions of the SLO is to
    ensure installation commanders and parents understand the Impact Aid
    program and serve as informed consumers for the funding of programs/
    services that address the specific needs of our military children.
    Through School Liaison Services, the Army supports partnerships with
    school systems and school boards to facilitate opportunities to notify
    school personnel, parents, and community leaders about the importance
    and potential benefits of Impact Aid. In July 2002, the Military
    Impacted Schools Association (MISA) partnered with the National
    Military Family Association (NMFA) to brief the Army's School Liaison
    Officers on the Impact Aid program to include funding, legislation, and
    developing effective partnerships.
        The Army has made great strides in finding ways to institutionalize
    strong partnerships among our military communities and our local
    education agencies. We will continue to work with our local schools and
    partner organizations to find creative solutions for the often-unique
    school transition and educational issues that our mobile military
    children face. We are committed to doing everything we can to ensure
    our children receive the quality education that they deserve.

                                   CONCLUSION

        We are proud of our progress. We are grateful for the strong
    congressional support that has helped offer tremendous opportunities to
    America's youth. Our soldiers return to America's communities better
    educated, more mature and with the skills and resources to prepare them
    for a productive and prosperous life. They make valuable contributions
    to their communities.
        We are hopeful that your support and assistance will continue as we
    demonstrate our commitment to fulfilling the manpower and welfare needs
    of the Army; active, Reserve, civilian, retirees, and families.
        Again, thank you for the opportunity to appear before you today.

        Senator Chambliss. Thank you, General.
        Admiral.

     STATEMENT OF VICE ADM. GERALD L. HOEWING, USN, CHIEF OF NAVAL
                     PERSONNEL, UNITED STATES NAVY

        Admiral Hoewing. Good afternoon, Mr. Chairman, Senator
    Nelson, Senator Pryor. It is truly an honor to be here as the
    Chief of Naval Personnel to represent those dedicated men and
    women of our United States Navy. Our CNO, Admiral Clark, made
    manpower his number one priority, and since that time we have
    showed tremendous success. Today we have more than 382,000
    sailors out there doing our Nation's work.
        In fact, as of today, we have 76,600 active duty sailors
    forward-deployed on ships, squadrons, and submarines, ready to
    support the war on terrorism. 165 of those ships and
    submarines, 54 percent of the fleet, are forward-deployed as we
    speak. In addition to that, we have over 8,000 mobilized
    reservists supporting us back here, mostly in the States.
        Our budget for fiscal year 2004 will continue the momentum
    that we have seen over the last couple of years. We have, as we
    speak, with those seven carrier battle groups, two-thirds of
    our amphibious force forward-deployed. Every single one of
    those battle groups and amphibious readiness groups is fully
    manned and ready for combat.
        Our CNO challenged us to improve readiness, reduce
    attrition, and create a positive environment with opportunities
    for the personal growth and development of our sailors. We have
    increased our retention rates to the highest we have seen in
    the history of the United States Navy, while simultaneously
    reducing our attrition rates to the lowest that we have seen in
    the last decade.
        Our recruiting has met its mission now for the last 4
    consecutive years, and in our higher objective, new contract
    objective, with greater quality and greater number of high
    school diploma graduates. We have grown our Top Six of the Navy
    from less than 70 percent to now 72.5 percent, and will
    continue to grow over the next several years to not only
    increase our experience, but increase the technical ability of
    our force. In spite of these accomplishments, we can and will
    do better.
        I want to make a short announcement here that our strategic
    principle is ``mission first, sailors always.'' Everything we
    do in manpower and personnel is focused on accomplishing the
    mission and, at the same time, we want to make sure that our
    sailors are well taken care of, including their families.
        Our request for fiscal year 2004 will ask to help us shape
    the force even better than we have in the past. We want to
    thank you for the opportunity to pilot a program called
    assignment incentive pay. We will be transforming the way we
    assign, distribute, and train our sailors in fiscal year 2004
    with a system we call Sea Warrior that is fundamental to the
    application of the CNO's sea power vision for the 21st century,
    and meaningful, positive experience for our Navy.
        We call it quality of service. Quality of service includes
    both quality of life and the quality of work environment. The
    pay raises, the bonus and incentive programs, BAH buy-down to
    reduce out-of-pocket expenses, spouse employment and other
    morale, welfare, and family support initiatives fit into this
    category.
        At the same time, we also want to make sure that we bring
    our civilians at even a greater rate into our process, to grow
    and develop our civilians in the same manner that we grow and
    develop our military people.
        We look forward to the challenges ahead, working with Navy,
    the Department of Defense, under the direction of the Commander
    in Chief, and with the guidance and support from Congress. The
    challenges are many, but the potential for success abounds.
        Thank you, Mr. Chairman, for the opportunity to address you
    today.
        [The prepared statement of Admiral Hoewing follows:]

             Prepared Statement by Vice Adm. Gerald L. Hoewing, USN

        Mr. Chairman, and distinguished members of this subcommittee, I am
    deeply honored to have been chosen last year to take the helm as the
    53rd Chief of Naval Personnel, a career opportunity that permits me the
    honor of leading a team of consummate professionals responsible for
    providing direct support to sailors and civil servants world-wide who,
    together, comprise the most formidable force in the history of naval
    warfare.
        I also want to express my sincere gratitude for the outstanding
    support Congress, especially this subcommittee, continues to show for
    all military personnel and their families during this unprecedented
    time in our Nation's history.
        Two years ago the Chief of Naval Operations (CNO) established
    manpower as his number one priority. As a direct result of this
    commitment, we commenced the war against terrorism in a very high state
    of readiness. As I speak to you today, over 380,000 active duty and
    156,000 Reserve personnel are participating in preserving freedom and
    ensuring our Nation's security as volunteers in the world's premier
    Navy--your Navy! Nearly 70,000 of those active duty sailors are
    currently forward deployed on over 150 ships and submarines in direct
    support of the war on terror bolstered by a dedicated cadre of
    approximately 8,000 mobilized naval reservists, among the finest to
    ever serve.
        The pay raises, both across the board and targeted; enhancements to
    special and incentive pays, especially career sea pay; efforts to
    improve housing and reduce out-of-pocket housing expenses; the
    authorization to participate in the Thrift Savings Plan and
    improvements in medical care and retirement reforms are among the most
    significant factors that have helped us attract and retain the sailors
    we need today, many of whom will form the core of tomorrow's Navy
    leadership. As a result of these and other accomplishments, battle
    groups deploying to execute the Nation's global objectives are better
    manned than at any time in recent history--departing homeport at or
    above 99 percent manned.
        The Fiscal Year 2004 Navy Military Personnel budget request of
    $25.7 billion (Active $23.6 billion/Reserve $2.1 billion) seeks to
    continue building momentum as we pursue our Vision as the world's most
    powerful maritime force, of becoming the premiere military and
    governmental institution, attracting and retaining the Nation's most
    talented, service-seeking men and women.

                             PAST YEAR ACHIEVEMENTS

        Last year the Chief of Naval Operations challenged us to improve
    retention, reduce attrition, and create an environment that offers
    opportunities, encourages participation, and promotes personal and
    professional growth. We have met that challenge--recruiting, training,
    and retaining a more qualified and educated workforce--but these
    successes are about more than numbers. They are about real people being
    encouraged to succeed by real leaders who appreciate their service and
    their commitment to our Nation.

             Recruiting. In fiscal year 2002, recruiters met all
            accession requirements every month throughout the year. As of
            February 2003, Navy Recruiting Command met all accession
            requirements for 19 straight months. The fiscal year 2003
            beginning of year Delayed Entry Program was at the highest
            level (54 percent) since record keeping began in 1980, and the
            quality is very good. Last year we accessed 92 percent high
            school graduates (up from 90 percent), and nearly 6 percent of
            new recruits had some college education prior to joining.
             Retention. Record reenlistment rates allowed us to
            retain vital fleet experience. In fiscal year 2002 Zone A (0-6
            years of service) reenlistment was 58.7 percent; Zone B (6 to
            10 years of service) reenlistment was 74.5 percent; and Zone C
            (11 to 14 years of service) reenlistment was 87.4 percent.
            Improved retention reduced at-sea manning shortfalls by more
            than 36 percent last year and reduced our fiscal year 2002
            recruiting goal from 54,000 to 46,150; saving precious
            recruiting resources.
             Attrition. Here too, the trend is positive. In 2002,
            we reduced Zone A attrition by over 23 percent. Also, Recruit
            Training Command (RTC) drug losses declined more than 27
            percent, largely due to drug testing within 24 hours prior to
            shipping to RTC.
             Advancement. Last year, advancement opportunities were
            20.1 percent for E-5, 19.3 percent for E-6, 26.7 percent for E-
            7, and 13 percent for E-8. Through careful management of Top
            Six (E-4 to E-9) growth, high year tenure, retirements, and
            reenlistment rates, we anticipate advancement opportunity will
            remain stable through fiscal year 2007 as we work toward a more
            senior force. Toward that end, in fiscal year 2002 we increased
            the overall number of E-4 to E-9s in our Navy by 2.5 percent to
            71.4 percent, heading toward 73.3 percent in fiscal year 2004
            and ultimately 75.5 percent by fiscal year 2007.

        As impressive as these gains are, there are still areas where we
    can do better, and we will. The challenge comes in prioritizing
    resources and implementing programs and initiatives, many of them truly
    transformational, which will ensure our Vision is achieved and
    sustained. I recently conveyed my 2003 guidance to my team of
    professionals that comprise the manpower and personnel directorate of
    the Chief of Naval Operations staff and each of our integral field
    activities, following a Navy Military Personnel Strategy we developed
    last year. Among the more significant challenges facing Navy Manpower
    this year are:

             Shaping our Inventory Profiles. We must maintain a
            balanced inventory of qualified people to meet fleet needs as
            well as ensure the proper levels of experience at sea and
            ashore.
             Satisfying the demands of an All-Volunteer Navy in the
            21st century. We must apply our concepts for sailor advocacy
            and Distribution Transformation.
             Determining Total Force Requirements. We must balance
            our inventory of people with valid billet requirements, reduce
            the overhead in officer and enlisted personnel accounts, and
            validate proper active/Reserve/civilian/contractor work force
            mix.
             Growing a more Experienced and Technical Force. We
            must enrich our current force knowledge and experience levels
            to meet the demands of our advanced combat systems.
             Providing Meaningful Work. We must adopt alternative
            strategies to positively influence our levels of general
            sailors assigned to meet non-technical requirements.

        Our fiscal year 2004 budget request fully supports these objectives
    and every member of my personnel team clearly understands their role in
    supporting Navy's bottom line of delivering combat capability, whenever
    required, anywhere in the world. That capability starts and ends with a
    fully trained force of highly educated sailors. As we move forward, we
    carry with us a simple strategic principle that we internalized last
    year:

                       ``Mission First, Sailors Always''

        This principle means that we evaluate our plans and actions against
    two complimentary criteria:

             Does this meet mission needs?
             Does this meet sailors' needs?

                            A VISION FOR THE FUTURE

        I mentioned that there is much that remains to be done. I'd like to
    share with you my vision of where Navy's manpower and personnel
    programs are headed over the next few years.
        As part of the CNO's Sea Power 21 initiative, we are developing and
    implementing a program, called ``Sea Warrior''. This web-based, human
    resource management system reflects an unprecedented commitment to the
    growth and development of our people. It serves as a foundation of
    warfighting effectiveness by ensuring that sailors with the right
    skills are in the right place at the right time. Sea Warrior will
    develop naval professionals who are highly skilled, powerfully
    motivated, and optimally employed for mission success. Historically,
    our ships have relied on large crews to accomplish their missions.
    Future all-volunteer service members will be employing new combat
    capabilities and platforms that feature dramatic advancements in
    technology and reductions in crew size. The crews of modern warships
    will be streamlined teams of operational, engineering, and information
    technology experts who collectively operate some of the most complex
    systems in the world. As optimal manning policies and new platforms
    further reduce crew size, we will increasingly need sailors who are
    highly educated and expertly trained. Introducing our people to a life-
    long continuum of learning will be key to achieving this vision.
        Within the next few years, I want sailors and their families to be
    able to easily access an enhanced wide range of professional
    information to assist them in making better career decisions. We will
    have in place a process by which advancements will be achieved through
    a performance-based system, and enlisted members will be detailed in a
    manner similar to how our officers are currently detailed. The ratings
    in which sailors serve will be fully manned, and personnel readiness
    for all deploying units will be at the highest levels.
        Unrestricted line officer's career paths will better train, educate
    and develop them to meet operational requirements and lead our sailors.
    Our officer corps will fully represent the talents of our society, as
    we penetrate and access a greater share of the college-graduate
    minority market and retain those officers at a rate on par with all
    others.
        Our sailors and officers serving at sea will be supported ashore by
    a leaner, more efficient manpower team that is optimally manned for
    mission success. New IT solutions will provide more information to
    sailors and civilians and provide leaders with more accurate, real-time
    data upon which to make better manpower, personnel, and financial
    decisions all yielding improved combat effectiveness. People will also
    be an integral factor in the acquisition process, as investment
    decisions will consider life-cycle manpower costs in our acquisition
    programs. Families will have an increasingly more active role in our
    Navy as their direct inputs are used to produce a continuum of new
    family related initiatives. Spouse employment will be an even greater
    element of the sailor assignment process. When a leader says, ``We
    recruit a sailor, but we retain a family,'' every sailor and family
    member will nod their head in agreement.
        I foresee our sailors being supported by a dedicated civilian
    community that has been developed through our ability to recruit top-
    notch people to serve in a structured program that provides superb
    training and education, personal development and pathways to success.
    We will integrate the civilian leaders of this talented group, members
    of the Senior Executive Service, with their uniformed flag officer
    counterparts, to take better advantage of their collective knowledge,
    skills and abilities.
        Within the next 3 years, our personnel strategy will be fully
    transformed into an effective human resources strategy that ensures the
    readiness of tomorrow's integrated force structure. Fusing currently
    segregated manpower, personnel, and training processes into a single
    integrated human resources (HR) philosophy will allow us to more
    acutely focus on the clear relationships between Navy's work (manpower)
    and our sailors (personnel and training). The transformational HR
    process will build and enhance these relationships through integration
    of positions, knowledge, skills, abilities, tools (KSAT), and personnel
    competencies. Ultimately, the HR integration will allow Navy to frame
    manpower requirements, as well as recruit, distribute, train, and
    professionally develop our sailors based on a common competency
    network.
        Many of the items I've just mentioned are already close to
    realization. As I stated earlier, the focus of these initiatives will
    be a tangible improvement in combat readiness and mission execution.
    Improvements in the recruiting, manpower, and personnel business will
    further reduce gaps at sea, gain efficiencies necessary to fund valid
    requirements and give every commanding officer, afloat and ashore, the
    talent needed to carry out any assigned mission.

                             A FRAMEWORK FOR TODAY

        Shaping the Force: In fiscal year 2003, we are executing
    approximately 3,900 in strength higher than authorized--consistent with
    our need to fill Antiterrorism/Force Protection (AT/FP) and readiness
    requirements, yet well within the +3 percent authority provided by
    Congress. Our end strength request for fiscal year 2004 reflects a
    reduction in strength (1,900 active and 2,044 Reserve) that is largely
    the result of the manning delta associated with planned
    decommissioning/disestablishment of older ships and squadrons. For the
    Reserves, we have decommissioned one F/A-18 squadron to conform with
    the Navy/USMC TACAIR integration/reduction plan and have taken cuts in
    Seabee and medical personnel in order to rebalance the active/Reserve
    mix. We have embarked upon various efforts to help improve manpower
    efficiency and reduce future manpower requirements. This year, as we
    continuously evaluate our evolving strength requirements, we will seize
    upon the opportunity to shape the force, improve overall quality and
    enhance the skill mix. The result will be increased mission readiness
    and better advancement opportunity across all ratings.
        - Meeting the Recruiting Challenge. As previously stated, our
    fiscal year 2002 recruiting efforts were unprecedented and this success
    has continued through the beginning months of 2003. Although recruiting
    has benefited somewhat from current economic conditions, the positive
    results of the recruiting effort can be attributed to a professional
    recruiting force, properly supported to achieve their mission
    objectives.
        Fiscal year 2002 marked the fourth consecutive year in which Navy
    met its enlisted accession mission, including a string of 18
    consecutive months (through January 2003) in which Navy attained new
    contract objective--a feat the Navy has not accomplished in at least
    two decades. Meeting new contract objective is important because it
    builds the number of recruits in the Delayed Entry Program (DEP) to a
    level that provides a higher probability of long term recruiting
    success.
        Improving Quality. This strong DEP position, far better than it has
    been in the recent past, has given Navy a strategic opportunity to
    improve recruit quality. Our data indicates that a higher quality
    recruit is less likely to attrite in the first term of enlistment. A
    higher quality recruit is also better suited for today's highly
    technical Navy that requires sailors to develop and maintain
    increasingly complex skill sets through higher levels of education and
    a broader range of training. In this context, we measure recruit
    quality by:

             the percentage of High School Diploma Graduates
            (HSDGs),
             the percentage scoring in the upper half of the Armed
            Forces Qualification Test (AFQT),
             the number enlisting with college credits, and
             the number requiring waivers of standards.

        Nearly 92 percent of fiscal year 2002 accessions were HSDGs, a
    significant improvement over the DOD minimum of 90 percent achieved in
    fiscal year 2001. We are confident that we can continue this trend and
    have established a stretch goal of 94 percent in fiscal year 2003--
    which we are on track to achieve. We have also increased the percentage
    of recruits who scored in the top half of the AFQT from 63 percent, in
    fiscal year 2001, to 65 percent, in fiscal year 2002. We shipped nearly
    2,500 applicants with college experience in fiscal year 2002, and the
    percent of non-prior service recruits with college experience improved
    from 4.5 percent, in fiscal year 2001, to 5.6 percent, in fiscal year
    2002. To find the most cost-effective ways to attract these high
    quality recruits, we are exploring college-market penetration pilots as
    well as increased enlistment incentives specifically targeted to
    attract applicants with college experience. We have also tightened
    waiver standards. On a case-by-case basis, we approve waivers for high-
    quality individuals who have minor inconsistencies with Navy enlistment
    standards in areas such as physical standards, age, and number of
    dependents. The number of recruits requiring waivers dropped to just
    17.8 percent in fiscal year 2002.
        Officer Recruiting. Fiscal year 2002 was also a very successful
    year for officer recruiting. We met all requirements in the Nuclear
    Officer, Unrestricted and Restricted Line and Staff communities. Among
    healthcare providers, Medical and Nurse Corps met their respective
    goals, while the Dental Corps and several Medical Service Corps
    specialties narrowly missed their requirements. Overall, this
    represented a significant improvement over the previous year.
        We have already met fiscal year 2003 requirements for pilots,
    surface warfare officers (conventional and nuclear), SEAL and Explosive
    Ordnance Disposal officers, aviation maintenance duty officers,
    oceanographers, intelligence officers, public affairs officers and
    supply corps officers. We still have some work to do to find the
    required number of Naval reactor nuclear power instructors, Medical
    Corps, Dental Corps, and Medical Service Corps officers.
        Diversity. At the start of fiscal year 2003, Navy Recruiting
    committed to making officer diversity recruiting a top priority,
    another example of how recent recruiting success has allowed us to
    focus on more than just the numbers.
        Navy's fiscal year 2002 enlisted accession cohort generally matched
    the diversity of the American population. However, fiscal year 2002
    officer new contracts statistics fall short of minority representation
    among those Americans receiving Bachelor's Degrees.

                                    [Percent]
    ------------------------------------------------------------------------
                                                               Asian/Pacific
                                      African                    Islander/
                                      American     Hispanic       Native
                                                                 American
    ------------------------------------------------------------------------
    Fiscal Year 2002 Enlisted             18.1         15.5             9.7
     Accession Cohort.............
    16-24 year old data (2000             15.1         15.2             5.2
     census)......................
    Fiscal Year 2002 Officer New           5.1          4.8             8.0
     Contracts....................
    Bachelor Degrees in the                5.6          5.8            13.4
     Engineering Field (2000
     Digest of Education
     Statistics)..................
    ------------------------------------------------------------------------

        We are aggressively pursuing new strategies and policies to aid our
    diversity recruiting goals. Instructors at Navy Recruiting Orientation
    Unit (NROU) are now presenting diversity programs briefings to all
    recruiters attending training, and we are emphasizing the importance of
    diversity throughout curriculum courses. Additionally, the NROU
    National Training Team (NTT) has incorporated diversity into the
    Command Inspection Checklist to ensure that each Naval Recruiting
    District implements a systemic approach to diversity planning and
    production.
        Campbell-Ewald of Detroit, MI, our strategic partner in advertising
    and marketing, is also increasing its focus on diversity. Agency
    representatives are currently conducting research to identify any
    misperceptions among minority communities about Navy service. The
    results of these research studies will help shape and direct future
    marketing and advertising efforts designed to target minority recruits
    and their influencers.
        Statistical evidence demonstrates that increased focus on diversity
    is producing results. A comparison of new contract percentages attained
    through the first quarter of fiscal year 2003 to the entire 2002 fiscal
    year reflects improvements in all areas.

                                    [Percent]
    ------------------------------------------------------------------------
                                                               Asian/Pacific
                                      African                    Islander/
                                      American     Hispanic       Native
                                                                 American
    ------------------------------------------------------------------------
    Fiscal Year 2003 1st Quarter           6.8          5.0            11.1
     Officer New Contracts........
    Fiscal Year 2002 Officer New           5.1          4.8             8.0
     Contracts....................
    ------------------------------------------------------------------------

        Advertising. Navy's ``Accelerate Your Life'' advertising campaign
    was rolled out approximately 2 years ago and has been an unquestionable
    success, winning over 38 competitive awards spanning the entire
    spectrum of the advertising and marketing field. The campaign
    communicates Navy as a hands-on adventure that will accelerate one's
    life to the highest level of achievement. Its objectives have included
    building awareness and consideration of the Navy as a career option and
    generating leads for recruiter follow-up. During the campaign's second
    year, the strategy has continued to focus on media channels and
    creative solutions targeted at the 18-24 year-old audience.
        The centerpiece of our campaign is the Interactive Life Accelerator
    found on the NAVY.COM Web site. During the 2002 International Web
    Awards Best Of Industry Awards competition, the site took home Best Of
    Show and Best Of Government Agency Web Awards. This prestigious
    recognition placed NAVY.COM among the best in the world in a
    competition featuring 3,600 entries from 19 countries. The site enables
    individuals to indicate their likes and dislikes, and then translates
    their interests into a range of possibilities for a rewarding Navy
    career. Leads are captured and sent directly to the National
    Advertising Leads Tracking System, providing recruiters with timely and
    invaluable prospect information. Since its launch in March 2001, over
    540,000 people have logged on to the Life Accelerator with 85 percent
    completing the assessment. Many recruiters report prospects walking
    into recruiting offices with Life Accelerator results in hand. Today,
    the NAVY.COM Web site averages over 24,500 visitors per day.
        The advertising campaign is a key tool in increasing Navy's ability
    to attract recruits from both the college and the high quality
    diversity markets. For example, in recent months, we tested an
    accredited junior college marketing course centered on Navy recruiting.
    The test clearly showed this approach to be extremely helpful to
    recruiters' efforts to engage with junior college students and their
    influencers. We have also completed specific research in attracting
    African Americans who score in the top half of the AFQT, and the
    resulting advertising is in development for release in late spring or
    early summer. Finally, Navy's recognition of rapid growth in the
    Hispanic community has led to measured research resulting in messages
    that recognize the community's unique language, culture and areas of
    interest within Navy.
        The success of our recruiting efforts, coupled with outstanding
    retention has allowed us to make some strategic reductions in both our
    advertising budget and the number of recruiters we have in the field.
    The fiscal year 2004 budget request for recruiting advertising is $87.9
    million, essentially the same as the fiscal year 2003 advertising
    budget. I feel comfortable with what amounts to a reduction in real
    buying power, but have asked recruiting command to closely watch for
    any indication of a change in our overall recruiting success as we try
    to attract approximately 43,900 accessions in fiscal year 2004.
        National Call to Service. One final subject that falls under the
    category of recruiting is the National Call to Service (NCS) program.
    Navy is proactively engaged with the Office of the Secretary of Defense
    in developing NCS policies as we prepare to make this option available
    to those entering into an enlistment contract in fiscal year 2004. As
    currently envisioned, NCS will be made available to approximately 450
    of the fiscal year 2004 accession mission across a variety of ratings.
    To qualify, participants must have no prior military service; meet
    existing physical, aptitude, and moral standards for enlistment; and be
    both a HSDG, possibly with some college, and score in the top half of
    the AFQT. Navy plans to make the program available to ratings that will
    best facilitate meeting out-year SELRES accession requirements.
        - Retention. As important as new recruits are to our organization,
    we invest a great deal of resources in each sailor's personal and
    professional development. It is imperative that we receive optimal
    return on that significant investment in people. Upon assuming his
    assignment as our Chief of Naval Operations in 1999, Admiral Vern Clark
    challenged Navy leadership to retain our best and brightest sailors in
    order to achieve Navy's long-term personnel readiness success. In fact,
    he made it his Number 1 priority. Increased retention results in
    reduced training costs, fewer recruiting requirements and, most
    importantly, improved mission readiness. The greatest challenge to
    retention is attrition--sailors lost to the Service before fulfilling
    their service obligation. Historically, 10-15 percent attrition rates
    were the norm among initial-term sailors. With renewed vigor, we are
    providing our people compelling reasons to stay early in their service,
    developing and mentoring every sailor with an eye for potential
    productive performance, and providing them every opportunity to
    succeed. We have been successful in this endeavor. For example, in Zone
    ``A'', attrition declined by 23 percent in fiscal year 2002 alone. This
    means that we retained around 4,700 sailors with less than 6 years of
    service who would have been previously lost to our rolls. In the first
    quarter of fiscal year 2003, we have already seen another 11 percent
    reduction in Zone ``A'' attrition, to 7.6 percent. Our vision is to
    cultivate a Navy-wide personnel climate that offers plentiful
    opportunities, encourages participation and is conducive to personal
    and professional growth.
        Center for Career Development (CCD). Admiral Clark brought with him
    a new vision and directed establishment of a Center for Career
    Development to focus on improving retention and reducing attrition.
    Enhanced professional training for command retention teams and Navy
    Career Counselors, Career Decision Fairs (CDFs) for sailors and their
    families, and comprehensive, user-friendly, interactive products using
    the latest information technology are helping sailors and their
    families to make informed decisions. Statistics show that the Stay Navy
    Web site is becoming increasingly more relevant as it accrued over
    889,000 visitors during calendar year 2002. Direct involvement of the
    CCD staff with command-level leadership continues to be the key to
    maintaining focus and shaping Navy's retention culture.
        Reenlistments. Proactive and personalized leadership involvement,
    as well as across-the-board and targeted compensation initiatives,
    additional career choices and availability of quality career
    information have resulted in historically high numbers of sailors
    deciding to stay Navy. While overall reenlistment rate improvements
    have been modest over the past 2 years, the trend continues to be
    positive as we are on track to attain fiscal year 2003 Retention
    Targets.
        Selected Reenlistment Bonus (SRB). Although substantial
    improvements in the quality of service have been obtained through items
    such as pay raises and housing allowance increases, the most important
    reenlistment tool we have is the SRB program. This force shaping tool
    allows us to pay bonuses to specific sailors in return for an extension
    of time on active duty. Through constant and precise management of this
    program, bonuses are targeted to specific skill sets, taking into
    account overall retention of all members within that specific skill and
    the cost-benefit of replacing an existing service member with a new
    recruit. The fiscal year 2004 budget request for SRB new payments is
    $192 million, which should cover approximately 18,000 reenlistments.
    This year's submission also includes a request to raise the maximum
    bonus award ceiling by $30,000 to allow much needed maneuvering room
    for our future efforts to retain the Navy's most critical and highly-
    trained sailors.
        As a result of our enhanced retention and reduced attrition, we
    have achieved a relatively stable end-strength. This affords us the
    opportunity to concentrate on ``shaping the force'' in order to ensure
    Navy has sailors with requisite skills who are properly placed,
    enhancing not only our daily mission accomplishment but also ultimately
    our overall combat readiness.
        Perform To Serve. ``Mission First, Sailors Always'' is the concept
    behind the ``Perform to Serve'' (PTS) initiative. The Navy must balance
    its skill inventory with its billet requirements to optimize fleet
    readiness. PTS will strive to accomplish this while simultaneously
    providing increased promotion opportunity and professional growth for
    today's sailors. A significant improvement in reenlistments and reduced
    attrition, coupled with recruiting success, has presented us with an
    opportunity to improve the skill mix of our force. With PTS, we are
    centralizing reenlistment authority using a fully automated system that
    will align Navy requirements and personnel by providing sailors with
    reenlistment options. While the majority of sailors will be granted
    reenlistment authority within their current rating, others will be
    guided to convert to undermanned ratings. In those cases requiring
    conversion, sailors will be provided formalized training to ensure
    success in their new rating.
        Lateral Conversion Bonus. The fiscal year 2004 submission also
    includes a request to establish a new Lateral Conversion Bonus
    authority. Where PTS is focused at rating conversions at the end of a
    member's initial obligation, the lateral conversion bonus would be
    targeted at encouraging non-EAOS, career sailors (second term and
    beyond) to convert to undermanned ratings. These types of conversions
    would help us retain valued experience while avoiding additional costs
    incurred by recruiting and training a new service member.
        Active Reserve Force Mix. Another important element of force
    shaping concerns the overall Active and Reserve Force mix. The CNO has
    initiated a major review to examine the desired active and Reserve mix
    for the future, specifically addressing potential shortfalls and high
    demand-low density unit demands. To date, the major area of change in
    Active/Reserve Force mix has been with antiterrorism/force protection
    personnel. To complement the 1,888 active members being converted into
    Master At Arms (MA) ratings (with a future goal of growing the MA force
    to approximately 9,000), the Reserve Force is growing an additional
    3,085 MAs in order to meet the requirements of higher threat
    conditions. Additionally, newly established active component security
    force assets are being created to provide a unit/point defense
    capability to the fleet, a mission previously filled by Naval Reserve
    NCW forces. Integration of the active mobile security force with
    existing Naval Reserve coastal warfare forces is underway.

                     TRANSFORMING SAILOR CAREER MANAGEMENT

        Sea Warrior Project. Borrowing the name from CNO's overall concept
    for personnel development within the Sea Power 21 initiative, the Sea
    Warrior project is the key enabler that drives the systematic
    transformation of our current Manpower, Personnel and Training (MPT)
    Strategy to meet changing missions and workforce environments. It is a
    web-based, comprehensive, career management system, which incorporates
    current and future human resource products, including Task Force Excel
    (Excellence Through Education and Learning), Project SAIL (Sailor
    Advocacy through Interactive Leadership), and Improving Navy's
    Workforce, exploiting advanced technology and best business practices,
    to enable rapid sequential prototype development. A synchronization
    plan for an end-to-end transformation of Navy's Human Resource system
    began in July 2002 through a formal partnership between the OPNAV
    manpower and personnel directorate, Commander Naval Reserve Force, and
    the Naval Education and Training Center, with collaboration of Navy
    Personnel Development Command, SYSCOM, fleet representatives, and
    community managers.
        Just last week, we demonstrated the first Sea Warrior prototype,
    Career Management System (CMS), to the Chief of Naval Operations. CMS
    is a web enabled single entry point into a self-service information-
    rich environment. The system employs a market place approach
    incorporating dynamically applied monetary and non-monetary incentives
    to place the right sailor in the right billet at the right time with
    the right motivation, resulting in an increase to combat/mission
    readiness.
        We will continue refining milestones, focusing vital resources and
    leveraging investments in world-class information technology to realize
    the combined benefits of new technology and business best practices.
        - Distribution. ``Sailor Advocacy'' aptly captures the fundamental
    philosophical change that we have injected into the distribution
    process. For example, seeking to give sailors a stronger voice and
    greater control over their career decisions, we have fully implemented
    the ``Team Detailing'' program by establishing Command Teaming
    Coordinators who facilitate coordination between each command and Navy
    Personnel Command throughout an individual's detailing process. This
    results, systematically, in better pairing of every sailor with the
    right job. We are convinced that the pay off for Navy will be improved
    manning, an even more motivated force and increased readiness.
        - Assignment Incentive Pay. We are just about ready to implement
    our new Assignment Incentive Pay (AIP) program that was authorized last
    year. AIP is intended to help attract qualified volunteers to
    difficult-to-fill jobs. Our initial pilot will be focused overseas in
    Naples and Sigonella, Italy and Misawa, Japan and will be structured in
    a format that will allow the market to drive the applicable level of
    financial incentivization (within established controls).
        - ``Noble Eagle'' Sailor Advocacy Team: Improved Mobilization.
    Through our Noble Eagle Sailor Advocacy (NESA) team at Navy Personnel
    Command we are managing mobilized Reserve personnel more professionally
    through inter-active career counseling and assistance. This team
    provides professional career management advice and assistance to
    mobilized members, and assists order writers through a database that
    reflects current career choices and preferences of mobilized members.
    We have also standardized and streamlined our mobilization and
    demobilization processing through the development of a new, web-based,
    Navy-Marine Corps Mobilization Processing System (NMCMPS), leveraging
    an existing and proven Marine Corps system and adapting it for use
    throughout DON.

                            POSITIVE NAVY EXPERIENCE

        Sailor Satisfaction. The Navy is a positive lifestyle, which also
    becomes a lifetime influencer. Every sailor, and former sailor, as well
    as their families, are potential Navy recruiters. Our sea service is
    challenging, and deployments away from loved ones are never easy. We
    must make the naval experience a rewarding one--a period of time in
    which sailors and their families embrace the Navy as an essential
    element of their identities. We must provide services that minimize the
    stress on them during deployments, enhancing their Quality-of-Life
    (QOL) when at home, and making the transition between the two less
    stressful.
        The fiscal year 2004 budget request includes $473 million to
    continue Pay Table Reform for both active and Reserves. Sailors will
    receive an average 4.1 percent increase in Basic Pay with some rates
    receiving slightly more, others slightly less (2 percent for E1s to
    6.25 percent for E9s). The budget also includes $210 million to fund
    increased BAH rates and reduce out-of-pocket housing expenses to 3.5
    percent.
        - Personnel Tempo (PERSTEMPO). Fiscal year 2000 legislation
    established the PERSTEMPO program, the intent of which was for Services
    to improve the quality of life and retention of their service members
    by reducing/eliminating excessive deployments. Since implementation, we
    have been carefully managing our sailors time away from home, closely
    monitoring deployment periods consistent with operational requirements.
        Although suspended by OSD following 11 September 2001, Navy has
    continued to track and report the deployments of its members throughout
    the national security waiver timeline. The following table provides
    detailed Navy (active and Reserve) PERSTEMPO data based on including
    PERSTEMPO days accumulated during the suspension period (Included), as
    well as eliminating those days (Eliminated).

    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                    At least
                                                                                                                                            400 &      one
                Suspension days              >=600   500-599  400-499  300-399  220-299  182-219   100-181    1-99        0       Total     more     ITEMPO
                                                                                                                                                       day
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Included..............................    3,469    2,830    4,933   25,873   51,707   24,943    44,104   110,881   223,421   492,161    11,232   268,740
    Eliminated............................        0        0        0        0    2,702   16,099    44,740   131,311   297,309   492,161         0  194,852
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Data as of 10 Jan. 2003.

        We strongly support the fiscal year 2004 alternative legislative
    proposal that would replace the current PERSTEMPO HDPD of $100 per day,
    with a progressive, monthly high deployment allowance of up to $1,000.
    The revised payment schedule fairly compensates members for both
    excessively frequent and excessively long deployments. The inclusion of
    both a ``frequency piece'' and a ``duration piece'' for the proposed
    high-deployment allowance is more reflective of sailor hardships
    produced by ``burdensome'' deployments, especially since extended
    deployments often occur suddenly, in response to a crisis or
    warfighting necessity.
        - Fleet and Family Support Center Programs. Navy Fleet and Family
    Support Centers (FFSCs) exist to provide services that facilitate
    fleet, force and family readiness. The primary mission is to assist
    commands in achieving operational readiness, superior performance,
    member retention and an optimal quality of life for service members and
    their families. Navy operates 55 FFSCs, providing services at 67
    service delivery sites throughout the United States and 9 foreign
    countries. A new Navy-wide marketing campaign that emphasizes specific
    programs and services is expected to steadily increase command, sailor
    and family knowledge and use of services.
        - Morale, Welfare, and Recreation (MWR). Navy MWR continues to
    provide a wide array of recreation, social and community support
    activities at U.S. Navy facilities, worldwide. Our mission is to
    provide quality support and recreational services that contribute to
    the retention, readiness, mental, physical, and emotional well being of
    our sailors. The estimated fiscal year 2004 funding of $843 million
    (includes non-appropriated and appropriated funds) will provide active
    duty, Reserve, and retired Navy personnel and their families with
    sports and physical fitness activities, outdoor recreation, value-
    priced tickets to entertainment and tours, and a variety of food and
    beverage services. Child development and youth programs provide safe,
    affordable, quality childcare for over 44,000 children of Navy
    families. In an effort to meet the demands of our mission, to include
    increased shift work, changing schedules, and deployments, the Navy has
    instituted a 24/7 childcare pilot in Norfolk and Pearl Harbor. Under
    this pilot project, childcare will be provided after hours and on
    weekends. MWR has been very active in supporting sailors and their
    families and has focused its efforts in four key areas:

             support for deployed and isolated forces;
             child development and youth programs;
             the Navy Movie program; and
             entertainment/special events.

        In the past year, Navy MWR has continued its rich tradition of
    offering sailors and their families exceptional opportunities. We:

             Hired and assigned civilian Afloat Recreation and
            Fitness Specialists in major fleet units to provide state of
            the art programs and availability of fitness and recreation
            gear in deploying ships.
             Increased live entertainment opportunities for afloat
            forward-deployed personnel by 60 percent.
             Provided every sailor a free phone card permitting
            sailors to stay in touch over the holidays with loved ones back
            home.
             Initiated a ``sneak preview'' program allowing sailors
            and their families to advance-screen major motion pictures.
            Provided early release videotaped movies to ships in the
            Persian Gulf and Mediterranean Sea. Created ``Theater-in-a-
            Box'', a self-contained unit that takes videotapes, screens,
            and players direct to the front lines.
             Offered contests and special events through the
            ``Saluting Sailors and their Families Program'' in appreciation
            of the sacrifices of Navy personnel.
             Developed extended-hour childcare programs to help
            families cope with long hours and night shift work.

        All these programs are aimed at improving the readiness and quality
    of life of our sailors and their families to meet the challenges they
    face every day. MWR is also a major contributor to retention by making
    the Navy lifestyle attractive to both married and single sailors. MWR's
    focus on readiness and retention will become even more important in the
    years ahead. As Navy deals with the challenges of allocating limited
    resources, MWR will continue to show its value as a vital tool in
    helping retain the best sailors and keeping them, and their families,
    physically and mentally fit.
        - Family Advocacy. The Navy Family Advocacy Program (FAP) functions
    within Navy Fleet and Family Support Centers. This organizational
    structure provides maximum coordination of efforts at the installation
    level for families who are at risk of family violence and decreases the
    stigma associated with seeking professional assistance. As such, the
    Navy provides a continuum of response to troubled families that is in
    keeping with recommendations in the Fort Bragg Epidemiological Report.
        Navy FAP is also working closely with the Department of Defense and
    Service FAP Counterparts on implementation of Defense Task Force on
    Domestic Violence (DTFDV) recommendations. Navy FAP is increasing and
    formalizing partnerships in communities where Navy installations are
    located to increase access to services not provided by the military and
    to ensure seamless community coordination when responding to alleged
    family violence. Further, FAP has increased efforts to market the full
    range of prevention and intervention services available to sailors and
    their families, which includes publicizing resources for domestic
    violence victims seeking information and confidential support. Navy FAP
    has also moved forward on Task Force recommendations pertaining to
    increased awareness, education and training.
        - Spouse Employment Assistance Program. The Spouse Employment
    Assistance Program (SEAP) has made great strides in continuing to reach
    out to spouses seeking help in training and employment opportunities.
    Over 99,000 spouse contacts occurred at our 67 sites in fiscal year
    2002, and we intend to help even more spouses by increasing the number
    of contacts to over 100,000 in fiscal year 2003. We also engaged with
    the world's leading employment agency, Adecco to provide temporary and
    full-time employment and training for our spouses. Building
    partnerships will be our watchword this year as SEAP explores
    agreements with industry leaders and conducts forums on a local and
    national level to encourage mobile careers. Other initiatives include
    assisting spouses in updating professional credentials to meet state
    requirements, collaborating with detailers during the assignment
    process, and advising them of the potential for spouse employment in
    the assignment areas being considered.

                     TECHNOLOGY-BASED HUMAN RESOURCE SYSTEM

        Human Resource Computer Programs. In concert with our deployment of
    a comprehensive Total Force Management Strategy, we have developed a
    supporting information technology strategy. Information technology is
    the essential enabler that must be employed quickly, efficiently and
    smartly to carry out the Total Force strategy, improve quality of
    service for sailors, and achieve CNO's Sea Warrior vision. Much of the
    existing Navy manpower and personnel information systems infrastructure
    consists of a patchwork of stove-piped systems, some more than 25 years
    old, with duplicative collection and storage of data. These legacy
    systems are difficult to maintain, resistant to change, and expensive
    to operate. They hinder decision-making and represent a significant and
    unnecessary obstacle to our transformation efforts. If we hope to
    transform our force management processes in order to provide our
    sailors with the interactive web-based tools and training they need, we
    must first transform our information infrastructure.
        - Single Integrated Human Resource Strategy (SIHRS). SIHRS is our
    vision and strategy for this transformation. It was developed in
    response to recommendations of the Recruiting, Retention, Training, and
    Assignment (RRTA) working group of the Revolution in Business Affairs
    (RBA), which found that many manpower and personnel functional problems
    result directly from systemic problems in the IT infrastructure.
    Designed to break down legacy stovepipes and respond to those systemic
    problems, the strategy is composed of essentially three parts:
    modernization of field collection systems, development of a single
    authoritative data source, and the reengineering and/or migration of
    applications to this authoritative data source. The vision/goal is
    single data entry to a single authoritative data source; icon driven
    access to integrated applications; self-service, wherever it makes
    sense; and broad access to data at all levels, from sailors and their
    families to commands and headquarters. We have developed this strategy
    and we are working systematically to transform the manpower and
    personnel business and achieve the single integrated IT capability
    through business process reengineering, technology insertion, and by
    leveraging DOD and DoN enterprise initiatives. Implementation of this
    strategy will allow us to streamline internal practices and provide
    unprecedented access for all of our customers. This access will
    dramatically reduce routine administrative requirements at headquarters
    and increase the quality of time spent focusing on communication and
    practices that result in providing the fleet motivated, dedicated, and
    combat ready sailors. The Navy Human Resources Board of Directors
    (NHRBOD) has adopted SIHRS as the ``Way Ahead''.
        - Navy Standard Integrated Personnel System (NSIPS). NSIPS is the
    Navy's initiative to consolidate active and Reserve field personnel
    data collection systems into a single integrated personnel system.
    NSIPS has already deployed worldwide at 103 Personnel Support
    Activities or Detachments, 278 Reserve Centers, and 178 ships serving
    Navy Active and Reserve Forces. This month, the web version of NSIPS
    will begin incremental deployment. When fully deployed (first quarter
    2004), web NSIPS will allow approximately 600,000 users (with a
    projected daily user rate of 60,000 to 75,000 users) to access their
    personnel records. The Electronic Service Record (ESR) is being fully
    integrated into the web-enabled version of NSIPS. This initiative
    completely automates the service record and provides full electronic
    forms, viewing, and updates via NSIPS, providing a virtually paperless
    field service record. ESR is scheduled for deployment in May 2003.
    NSIPS is scheduled for final milestone decision this month, which will
    provide full pay and personnel functionality.
        - The Defense Integrated Military Human Resources System (DIMHRS).
    DIMHRS (Personnel and Pay) is a joint Services program to provide a
    single, fully integrated, military personnel and pay system for all
    military components. DIMHRS goal is to provide the military Services
    and their components the capability to effectively manage personnel
    across the full operational spectrum--during peacetime and war, through
    mobilization and demobilization capturing accurate and timely data
    throughout. DIMHRS will collect, store, pass, process, and report
    personnel and pay data for all active, Reserve, Guard, and retired
    personnel. It will provide Joint Commanders with access to accurate and
    timely data on the number, characteristics, location, and status of all
    deployed personnel. With the new system, actions such as changing
    personnel location, personnel status and unit assignment updates for a
    member of any Service or component could be accomplished by a servicing
    technician from any other Service or component. DIMHRS' scope
    encompasses core functionality required by all Services and any
    Service-specific functionality required to turn off their legacy
    systems.
        Navy fully supports DIMHRS program objectives and considers it to
    be the Navy HR system of the future. DIMHRS will provide core personnel
    and pay functionality and a common Enterprise Resource Planning
    software platform, PeopleSoft Human Capital Management (HCM), for
    integration across Navy HR functions. A governing principle of our IT
    strategy is to leverage the infrastructure to accelerate the
    transformation of Navy HR. This strategy capitalizes on DIMHRS
    enterprise software to extend industry best practices to Navy functions
    outside the scope of DIMHRS. To that end, we are currently engaged in
    data cleansing, Business Process Reengineering and prototyping to align
    our processes with the DIMHRS enterprise COTS processes. When fully
    developed, the PeopleSoft enterprise solution will enable sailors to
    access their personal information, track their training and manage
    their career paths from their home, ship, or base--all through a web
    browser.
        Over the past year, I have been engaged in a collaborative effort
    with PEO-IT, SPAWAR, SPAWAR Information Technology Center, Naval
    Reserve Force, Navy Personnel Command, and the Naval Education and
    Training Command to develop a plan to accelerate SIHRS, and the
    migration to a single integrated capability. The cornerstone of SIHRS,
    and the focus of the migration planning, is an architecture that
    provides a single authoritative source for all manpower and personnel
    data. The SIHRS migration strategy developed by this partnership will
    capitalize on existing acquisition programs and ease the Navy's
    transition to DIMHRS. DIMHRS current schedule calls for the replacement
    of Navy personnel systems by fiscal year 2007. In the interim, we will
    use NSIPS and the Electronic Military Personnel Records System (EMPRS),
    the Navy's personnel records repository, as the staging ground for the
    transition to DIMHRS. This migration strategy will position Navy
    manpower and personnel systems to transition to DIMHRS and allow us to
    work toward a single authoritative data source as the IT foundation for
    Sea Warrior in advance of DIMHRS availability. Consistent with CNO's
    direction, it will consolidate and reduce the number of legacy systems
    from 78 to 9 modernized systems.
        - Web-Enabled Systems. Improved communications capability and web-
    enabling technology offer the opportunity to radically improve customer
    service and access to Navy HR data for headquarters, commands,
    individual sailors and Navy families. Industry has shown both the
    direction and the potential gains from enterprise adoption of web
    technology and data consolidation. As Task Force Web's Capstone
    Document notes, ``while their [industry's] line of business processes
    such as manufacturing and supplier relations have been deeply affected,
    the true revolution is in administrative processes.'' Broad access to
    data is a key enabler for the Sea Warrior cultural change. The
    combination of NMCI and Task Force Web are establishing the foundation
    for Navy's goal of integrated and transformational data exchange and a
    web-based business and operations capability.
        Navy's Task Force Web project team has cited our Task Force Web
    Team for its progress toward web-enablement. Six BUPERS applications
    have migrated to the Navy's pilot portal, an additional 19 applications
    have achieved a basic level of web accessibility. These web
    applications are making available the information needed by sailors to
    track, manage and make decisions about their careers, and moving us
    toward a sailor-centric career management process. Sailors are able to
    access their physical readiness test scores, performance summary
    records and promotion lists online, keep up-to-date on retention and
    distribution programs and incentives, and view and apply for jobs via
    the Web. In addition, the BUPERS Online Media Modernization initiative,
    a collaborative effort between BUPERS and the SPAWAR Information
    Technology Center (SITC), has converted over 95 percent of all paper-
    based personnel, distribution, and manpower reports produced by
    mainframe systems to online access. The reports, which previously were
    available only in hard copy, represent an annual volume of 800 million
    lines of print. Currently, we have deployed a web-based Mobilization
    Tracking System with a centralized order writing capability for
    deployment at headquarters and Naval Reserve Activities. The system
    will replace a paper-based, manpower-intensive process and allow end-
    to-end tracking of recalled/mobilized reservists as they move through
    mobilization and demobilization processes.

                                    SUMMARY

        I have informed my team that vision without execution is a recipe
    for disappointment; and that our number one customer is the Combatant
    Commander requiring combat capability when requested, anywhere in the
    world. Our Navy Sea Warriors deliver that combat capability. Our fiscal
    year 2004 budget request fully supports our personnel policies and
    programs and will help to improve operational readiness and ensure
    mission success.
        I look forward to the challenges that lie ahead, working with Navy
    and Defense leadership, under the direction of our Commander in Chief
    and with guidance and support from Congress. The challenges are many,
    but the potential for success abounds. Together--we must win; America
    and the free world are counting on it; and, they deserve nothing less
    than our total commitment.

        Senator Chambliss. Thank you, Admiral.
        General Parks.

      STATEMENT OF LT. GEN. GARRY L. PARKS, USMC, DEPUTY CHIEF OF
     STAFF FOR MANPOWER AND RESERVE AFFAIRS, UNITED STATES MARINE
                                 CORPS

        General Parks. Mr. Chairman, Senator Nelson, Senator Pryor,
    it is my pleasure to report on the personnel status and future
    manpower picture of your Marine Corps. Thank you for your
    support of our marines and their families.
        Today, our Corps is comprised of men and women of character
    with a strong work ethic and a desire to be challenged, and
    certainly we do not disappoint them. They are obviously very
    busy today. These are demanding times for our Armed Forces. As
    my colleagues have mentioned, we have 63 percent of our
    operating forces currently deployed and, as of yesterday,
    17,716 Reserve marines have been mobilized in support of the
    global war on terrorism. Our selected Marine Corps Reserve and
    Individual Ready Reserve are instrumental in the support that
    we need to have a total force warfighting organization.
        Again, like my colleagues, our current picture is very
    healthy. Our superb recruiters have met their mission for the
    past 7\1/2\ years. Our first term retention program will cap
    its 10th year of success this year. A new program we
    established for career marines will also meet its target this
    year, and we will have an 18-year high on retention for our
    officers.
        Last year, Congress upon our request granted us a 2,400
    marine increase. That could not have come at a better time,
    based on the demands placed on our force, and with the
    accession and retention postures that I have described, we are
    well situated to enter the environment that we are currently
    in.
        In large part, marines join and remain because of the
    institutional culture and the core values that we have, but
    they also expect and rate reasonable pay and compensation. The
    fiscal year 2004 budget continues to raise basic pay and reduce
    out-of-pocket expenses for housing, and provides valuable
    funding for our retention and recruiting programs.
        Currently, in addition to the things I have outlined, we
    are obviously very focused on taking care of those marines who
    are not forward-deployed, and also for their wonderful families
    who are so supportive. Thank you for your support, and
    everything that you do for your Marine Corps, and I look
    forward to answering your questions.
        [The prepared statement of General Parks follows:]

              Prepared Statement by Lt. Gen. Garry L. Parks, USMC

        Chairman Chambliss, Senator Nelson, and members of the
    subcommittee: I am honored to appear before you today to provide a
    personnel overview on the United States Marine Corps. The continued
    commitment of Congress to increasing the warfighting and crisis
    response capabilities of our Nation's Armed Forces and to improving the
    quality of life of marines is central to the strength that your Marine
    Corps enjoys today. We thank you for your efforts to ensure that
    marines and families are poised to respond to the Nation's call in the
    manner Americans expect of their Corps.

                                  INTRODUCTION

        Marines are fully engaged around the world proudly meeting our
    commitments in support of national security requirements. Today 63
    percent of our operating forces are forward deployed. In support of
    this and other requirements, 15,022 Reserve Marines are mobilized. As
    with all the Armed Forces, it is a demanding time for the Corps.
    However, this is what marines train for and this is why we serve, to be
    ready to answer our Nation's call. As busy as we have been, and are
    today, indicators for the health of the Corps remain strong.

             Our superb recruiters continue to meet their mission,
            as they have month after month for the last 7\1/2\ years.
             As has been the case for the past 9 years, we are on
            track to meet our annual retention goal for first term marines
            electing to become members of the career force. This year,
            6,014 first term marines will reenlist, 26 percent of the
            eligible population.
             Last year we implemented specific targets for
            subsequent retention within the career force to further manage
            the health of our Corps; targets we met. We are well on our way
            to meeting the fiscal year 2003 career force retention goal of
            6,172.
             Last year we achieved an 18-year high in officer
            retention, 92.8 percent.

        Obviously, the recognition of and support by Congress to ensure
    reasonable pay and compensation improvements provides the environment
    crucial to the success experienced to date.
        The end strength increase for the Marines Corps authorized by
    Congress for fiscal year 2003, to 175,000, complements the demanding
    environment we face. By the end of this fiscal year we will essentially
    complete the ``making'' of these additional 2,400 marines, allowing for
    redistribution of the marines pulled from other requirements to
    activate the 4th Marine Expeditionary Brigade (Antiterrorism).
        The fiscal year 2004 budget funds a force of 175,000 active duty
    marines and 39,558 Reserve marines. Roughly 70 percent of our manpower
    personnel budget funds basic pay and retired pay accrual. Essentially
    all of the remaining funds address regulated and directed items such as
    Basic Allowance for Housing, Defense Health Care, Subsistence,
    Permanent Change of Station relocations, and Special and Incentive
    pays. Only 1 percent of the manpower budget is available to pay for
    discretionary items such as our Selective Reenlistment Bonus, Marine
    Corps College Fund recruitment program, and Aviation Continuation Pay.
    While this is a manageable amount, it is one with little flexibility.
        The Marine Corps appreciates the efforts by this committee to raise
    the standard of living for our marines. Being a marine is challenging
    and rewarding. America's youth continue to join the Marine Corps, and
    remain, in a large part because of our institutional culture and core
    values. However, it is important that the environment--the other
    factors in the accession and retention decision--remain supportive, to
    include compensation. Compensation is a double-edged sword in that it
    is a principle factor for marines both when they decide to reenlist and
    when they decide not to reenlist. Private sector competition will
    always seek to capitalize on the military training and education
    provided to our marines--marines are a highly desirable labor resource
    for private sector organizations. The support of Congress to continue
    reasonable increases in basic pay, eliminating ``out of pocket''
    expenses associated with the Basic Allowance for Housing, and ensuring
    sound compensation and entitlements will greatly assist efforts to
    recruit and retain the quality Americans you expect in your Corps.

                                   RECRUITING

        In fiscal year 2002, the Marine Corps realized unprecedented
    recruiting success, achieving 102.6 percent of enlisted contracting and
    100.1 percent of enlisted shipping objectives. Over 97 percent of those
    shipped to recruit training were Tier 1 high school diploma graduates,
    well above the Department of Defense (DOD) and Marine Corps standards
    of 90 percent and 95 percent, respectively. In addition, 69.6 percent
    were in categories I-IIIA; again well above the DOD and Marine Corps
    standards of 60 percent and 63 percent, respectively. For officers,
    over 100 percent of objectives in all categories were achieved.
        The Marine Corps is grateful to Congress for the legislation
    enabling recruiter access to high school student directory information.
    As a result, the number of high schools not providing directory
    information has decreased 99 percent. America's youth can learn of
    career opportunities in both the public and private sectors now that
    our recruiters are afforded access equal to other prospective
    employers. We look forward to your continued support as we strive to
    meet the increasing challenges of a dynamic recruiting environment.
        The key tenants of our fiscal year 2003 recruiting strategic plan
    are:

             Exploiting success through focused leadership;
            selecting the Corps' best for recruiting duty and innovative
            marketing;
             Achieving the next level of organizational efficiency
            and effectiveness with a renewed emphasis on fiscal
            accountability and comprehensive organizational review and
            restructure;
             Recruiting our own recruiters, by making recruiting
            duty a place where marines want to be assigned; and
             Improving safety and quality of life for marines and
            families.

    Exploiting Success
        The Marine Corps' recruiting environment is dynamic and
    challenging, particularly as regards market propensity. Nevertheless,
    we have met the challenges of this dynamic environment for 7\1/2\ years
    and we plan to ``Sustain Success,'' the motto for our strategy. Our
    success, as we face the challenges of the future, will hinge on our
    ability to overcome the low propensity of our target market that enlist
    and the increased cost of advertising, while maintaining innovation in
    our marketing campaign. Marketing by its very nature requires constant
    change to remain virulent and relevant. While our brand message of
    ``Tough, Smart, Elite Warrior'' has not changed in theoretical
    perspective, the Corps continues to explore the most efficient manner
    to communicate and appeal to the most qualified young men and women of
    the millennial generation; our target market.
        This year, as in the past, our core programs that generate leads
    and provide effective sales support materials are augmented with
    several innovative programs. The new Marines.com Web site is already
    attracting attention and recently received a Gold ``ADDY'' award from
    the American Advertising Association in the Southeast regional
    competition. The new Public Service Announcement, ``Origins,'' was also
    recognized with a Bronze ``ADDY'' award in the same competition.
        All aspects of our marketing strategy encompass diversity. It is
    this approach, combined with exploiting success of past years, that
    will sustain success in fiscal year 2003.

    Achieve the Next Level of Organizational Efficiency and Effectiveness
        The structure of our recruiting organization is an essential
    foundation for success, particularly in operating effectively and
    efficiently. Therefore, we have completed the reorganization of Marine
    Corps Recruiting Command (MCRC) Headquarters to mirror that of our
    subordinate commands and other operational commands in the Marine
    Corps. In fiscal year 2002, MCRC assumed responsibility for prior
    service Reserve recruiting operations, to truly become a total force
    recruiting service. Combining Reserve prior service recruiting with
    regular recruiting produces a synergistic effect, which allows MCRC to
    ``by all means available'' seek out and close with our target market,
    in the face of uncertain economic and world political events.

    Recruit the Recruiter
        Because recruiters who volunteer for this demanding duty perform
    better and subsequently experience a better quality of life, MCRC has
    taken some cost effective measures to recruit our own recruiters.
    Incorporating some of the marketing techniques and web design that have
    supported our regular recruiting efforts, we have been able to reach
    out to the remainder of the Marine Corps with a message capturing the
    benefits and rewards of recruiting duty. As a result of this ``Recruit
    the Recruiter'' initiative, our recruiter volunteer rate in fiscal year
    2002 rose by nearly 10 percent over that realized in previous years.

    Safety and Quality of Life
        Marine Corps recruiting remains committed to improving the health
    and safety of all marines, sailors, civilian marines, and members of
    the officer and enlisted entry pools. Operational risk management and
    traffic safety are emphasized at all levels and in both on and off duty
    activities. Our goal is to continue to attain the recruiting mission
    while minimizing risk, and the potential for loss of life and
    equipment.
        Continuous improvement in quality of life for our personnel is
    vitally important as well. Our marines and families are dispersed
    throughout America, away from the traditional support systems of our
    bases and stations. Therefore, we expend great effort to ensure
    awareness of numerous support programs adapted for their benefit. One
    such program is a DOD pilot, MCCS One Source, being offered Marine
    Corps wide. MCCS One Source offers assistance, advice, and support on a
    wide range of everyday issues. This 24/7, 365 day-a-year, enhanced
    employee assistance service can be accessed anytime via toll free
    numbers, email, or the Internet and is especially useful for remote
    marines, such as recruiters.
        Our success in recruiting hinges on our recruiters whose efforts
    and dedication to the task provide our institution with its next
    generation of warriors. Our recruiters are the Corps' ambassadors to
    the American public and represent the virtues of the Marine Corps in a
    single individual.

                                   RETENTION

        A successful recruiting effort is but one part of placing a
    properly trained marine in the right place at the right time. The
    dynamics of our manpower system must match skills and grades to our
    Commanders' needs throughout the operating forces. The Marine Corps
    endeavors to attain and maintain stable, predictable retention
    patterns. However, as is the case with recruiting, civilian
    opportunities abound for our marines as employers actively solicit our
    young Marine leaders for private sector employment. Leadership
    opportunities, our core values, and other similar intangibles are a
    large part of the reason we retain dedicated men and women to be active
    duty marines after their initial commitment. Of course retention
    success is also a consequence of the investments made in tangible forms
    of compensation and in supporting our operational forces--giving our
    marines what they need to do their jobs in the field, as well as the
    funds required to educate and train these phenomenal men and women.

    Enlisted Retention
        Our enlisted force is the backbone of our Corps and we make every
    effort to retain our best people. Although we are experiencing minor
    turbulence in some specialties, the aggregate enlisted retention
    situation is extremely encouraging. Primarily because these young
    Marines remain in high demand in the civilian sector, some shortages
    exist in high-tech Military Occupational Specialties that represent an
    important part of our warfighting capability.
        We are a young force, making a continued flow of quality new
    accessions of foundational importance to well-balanced readiness. Of
    the 156,912 active duty enlisted force, over 25,000 are still teenagers
    and 104,000 are on their first enlistment. As noted at the outset, in
    fiscal year 2003 we will reenlist approximately 26 percent of our first
    term eligible population. These 6,014 marines represent 100 percent of
    the career force requirement and will mark the 10th consecutive year
    that the Corps will achieve this objective. Prior to fiscal year 2002,
    we recognized a slight increase in the number of first term marines
    that we needed to reenlist. To counter this rising first term
    reenlistment requirement, the Corps focused greater attention on
    retaining marines during their 6th through 12th years of service.
    Specifically, in fiscal year 2002 we introduced the Subsequent Term
    Alignment Plan (STAP) to focus on retaining experience. The first year
    of STAP proved to be a huge success meeting our goals and achieving a
    96 percent MOS match. A stabilized continuation rate ensures manageable
    requirements for first term reenlistments. Given the strong draw from
    the civilian sector, further emphasis in retention of our career force
    was achieved by effectively targeting 40 percent of our Selective
    Reenlistment Bonus program resources to maintain this experience level
    on par with previous years.
        A positive trend is developing concerning our first term non-
    Expiration of Active Service (EAS) attrition. As with fiscal years 2001
    and 2002, we continue to see these numbers decrease. The
    implementation, now nearly 7 years ago, of the Crucible and the Unit
    Cohesion programs is contributing to improved retention among our young
    marines who assimilate the cultural values of the Corps earlier in
    their career. The impact of lower non-EAS attrition allowed a reduced
    accession mission in both fiscal year 2002 and fiscal year 2003.
        The Marine Corps fully expects to meet our aggregate personnel
    objectives, and we continue to successfully maintain the appropriate
    balance of first term and career marines. The management of youth and
    experience in our enlisted ranks is critical to our success and we are
    pleased with the accomplishments thus far.
        Specialty shortages are addressed with the highly successful
    Selective Reenlistment Bonus (SRB) program. Shortages persist in some
    highly technical specialties, such as intelligence, data communications
    experts, and air command and control technicians. The Marine Corps
    allocated $51.7 million in fiscal year 2003 toward new SRB payments to
    assist our reenlistment efforts. These payments, just one-half of 1
    percent of our manpower personnel budget, are split 60/40 between first
    term and career force reenlistments, respectively. The SRB program
    greatly complements reenlistment efforts and clearly improves retention
    within our critical skill shortages. In fiscal year 2003, the Corps
    continues to pay lump sum bonuses, thus increasing the net present
    value of the incentive and positively influencing highly qualified, yet
    previously undecided, personnel. It is a powerful incentive for the
    undecided to witness another marine's reenlistment and receipt of his/
    her SRB in the total amount. With the added benefit of the Thrift
    Savings Program, our marines can now confidently invest these funds
    toward their future financial security.

    Officer Retention
        Overall, officer retention continues to experience great success.
    In fiscal year 2002, our aggregate officer retention rate reached an
    18-year high of 92.8 percent. The significant increase in our officer
    retention rate involves a reduction in voluntary separations. This has
    likely been positively influenced by the terrorist attacks of September
    11 and the current economic conditions. As with the enlisted force, we
    have some skill imbalances within our officer corps, especially
    aviation, intelligence, and command and control.
        Although we are cautiously optimistic, fixed wing pilot retention
    remains a concern. Fixed wing pilot ``take rates'' for the fiscal year
    2002 Aviation Continuation Pay plan did not meet retention targets due
    to an inadequate eligible population resultant from previous years'
    losses. We will likely meet the aggregate fiscal year 2003 retention
    target for aviators based on ``take rates'' from the rotary wing and
    naval flight officer communities. Retaining aviators involves a
    concerted effort in multiple areas. Recent retention initiatives (i.e.,
    Marine Aviation Campaign Plan, reducing the time to train, and pay
    reform) provide corrective steps to strengthen the Marine Corps'
    position toward retaining aviation officers. Additionally,
    supplementary pay programs such as Aviation Continuation Pay provide a
    proactive, long-term aviation career incentive to our field grade
    aviators. We remain focused on retaining mid-grade aviators (junior
    majors and lieutenant colonels) and will continually review our overall
    aviation retention posture to optimize all our resources. Overall, the
    Marine Corps' officer and enlisted retention situation is very
    encouraging. Through the phenomenal leadership of our unit commanders,
    we will achieve every strength objective for fiscal year 2003 and
    expect to start fiscal year 2004 poised for continued success. Even
    though managing our retention success offers new challenges--sustaining
    quality accessions, maintaining the appropriate grade mix, and
    balancing occupational specialties--we will press forward and
    effectively manage this process. In this challenging recruiting and
    retention environment, the Marine Corps remains optimistic and
    anticipates these positive trends will continue, thanks in large
    measure to the continued support of Congress.

                                  END STRENGTH

        The congressionally-authorized increase in Marine Corps end
    strength to 175,000 allows us to sustain the increased missions
    associated with the activation of the 4th Marine Expeditionary Brigade
    (Anti-Terrorism), in response to the global war on terrorism. As
    previously noted, we are well along the way in ``making'' these 2,400
    marines. Yet it will take the remainder of fiscal year 2003 to complete
    this process. This additional end strength allows us to replace marines
    in the active units that we ``borrowed'' standing up the Brigade, which
    not only provides the Nation with a robust, scalable force option
    specifically dedicated to anti-terrorism, but also a fully mission
    capable Marine Corps. The timing of the increased end strength could
    not have been more fortuitous given world events and demand for Marine
    forces. The increased end strength, our recruiting success, the strong
    retention of our first term population as well as the career force, our
    18-year high retention rate for officers--these factors combine to
    allow your Marine Corps to be well postured for the uncertain times
    that lie ahead as we continue to prosecute the war on terror and
    respond to the call of our Nation.

                 MARINE CORPS RESERVE--PARTNERS IN TOTAL FORCE

        The integration of active and Reserve components of the Marine Air-
    Ground Task Force (MAGTF) into a Total Force Marine Corps is the
    foundation of our operational fighting force. We advance this Total
    Force capability by ensuring the integration of the active and Reserve
    components in all aspects of our training and operations, to include
    the primary mission of augmentation and reinforcement. Reserve units
    and Individual Ready Reserve Marines provided over 1.8 million man-days
    in fiscal year 2002 through support at all levels within the Marine
    Corps and within the Joint communities, to include Joint Task Forces,
    Combatant Commands, and Interagency Staffs.
        Reserve participation in the South American UNITAS exercise,
    security assistance at Guantanamo Bay, KC-130 support of the 13th MEU
    (SOC) in Afghanistan, ``on call'' forces to support the Federal
    Emergency Management Agency's role in homeland security and support of
    Joint Task Force 6, and Joint Interagency Task Forces--East and West in
    our Nation's continued counter drug effort are but a few examples of
    our Reserve's involvement and commitment to the Total Force effort.
        The Marine Forces Reserve will retain their current basic
    structure. However, we are currently working to transform this
    structure and create new capabilities through a comprehensive review
    designed to adapt the Reserve Force to the changing demands of the war
    on terrorism and conflicts of the future.

    Active Duty Special Work
        The Active Duty Special Work (ADSW) Program funds short tours of
    active duty for Marine Corps Reserve personnel. This program continues
    to provide critical skills and operational tempo relief for existing
    and emerging augmentation requirements of the Total Force. The demand
    for ADSW has increased in order to support pre-mobilization activities
    and will be further challenged during post mobilization. In fiscal year
    2002, the Marine Corps executed 907 work-years of ADSW. Continued
    support and funding for this critical program ensures our Total Force
    requirements are fully met.

    Reserve Recruiting
        As presented earlier, fiscal year 2002 marked the first year that
    Marine Corps Recruiting Command assumed responsibility for recruiting
    prior service marines. The synergy achieved by placing all Reserve
    recruiting within Marine Corps Recruiting Command will keep our Reserve
    Force strong and manned with the proper MOS distribution. The fiscal
    year 2002 recruiting goals were met, accessing 5,904 non-prior service
    marines and 4,213 prior service marines. Fiscal year 2002 success in
    prior service accessions is significant as our active component
    retention rates are at historic highs, reducing the number of marines
    leaving active duty and concurrently reducing the pool for prior
    service recruiting. This successful accession rate reflects the
    professionalism of our Marine Forces Reserve, a professionalism that
    attracts these individuals.
        Our most challenging recruiting and retention issue is manning our
    Selected Marine Corps Reserve units with qualified company grade
    officers--lieutenants and captains. The Marine Corps recruits Reserve
    officers almost exclusively from the ranks of those officers who have
    first served an active duty tour. This practice ensures our Selected
    Marine Corps Reserve unit officers have the proven experience,
    knowledge, and leadership abilities when we need them the most--during
    mobilization. However, at the same time, this limits the recruiting
    pool we can draw from to staff our units. We are attempting to improve
    Reserve participation of company grade officers through increased
    recruiting efforts, greater command focus on Reserve participation upon
    leaving active duty, and Reserve officer programs for qualified
    enlisted marines.

    Marine for Life
        The Marine For Life Program is an initiative reinforcing the value
    of honorable service and commitment to our ethos ``Once A Marine,
    Always A Marine.'' Annually, we transition back to society nearly
    27,000 marines who have served honorably. The Marine For Life Program
    enhances the transition support for these marine citizens and utilizes
    our Marine Corps Reserve serving in local communities around the
    country to act as hometown links. These links build relationships with
    veteran marines and marine-friendly organizations that have a desire to
    help transitioning marines. We realize that we will all spend more time
    as marines out of uniform than we will spend in uniform. Marine For
    Life embraces this reality, to the benefit of marines and society.

                                  MOBILIZATION

        Since the tragic attacks of September 11, the Marine Corps
    judiciously activated Individual Ready Reserve (IRR) marines in
    response to both internal and joint operational requirements. The
    Marine Corps maximized the use of volunteers to meet these
    requirements, primarily in the areas of staff augmentation and force
    protection. In addition, Selected Marine Corps Reserve (SMCR) units
    were activated for force protection requirements in support of homeland
    security. In late February 2002, the Marine Corps reviewed requirements
    and reduced the number of reservists on active duty from a high of
    4,445 to approximately 3,900. We held this prudent course until early
    in this calendar year. Due to the emerging requirements associated with
    the war on terrorism, it was necessary to involuntarily recall some
    IRRs beginning January 17, 2003. As of March 5, 2003 we have 15,022
    marines mobilized; 13,189 SMCR, 1,132 IRRs, 668 Individual Mobilization
    Augmentees, 25 voluntary retired recalls, and 8 SMCR ADSW-Contingency
    Operations. For further specificity, we have 404 volunteer IRR marines
    in their second year of mobilization.
        The Marine Corps sincerely appreciates the support of the public
    and private sector employers of our men and women serving in the
    Reserve component. Their sacrifices and commitment to these special men
    and women are exceptional, and often at levels that far exceed their
    mandates. Without this supportive environment it would be difficult to
    envision the ability to properly man our critical Reserve Forces.

                                   STOP LOSS

        As we did with mobilization, the Marine Corps consciously exercised
    judicious use of its Stop Loss authority. Between September 11, 2001
    and January 15, 2003, the Marine Corps retained only 337 marines beyond
    their end of active service. At any point in time this number averaged
    approximately 100. However, driven by prudent planning and a dynamic
    situation, on January 15, 2003, the Marine Corps instituted Stop Loss
    across the Corps to meet the emerging requirements associated with the
    expanding war on terrorism. Stop Loss was initiated to provide unit
    stability/cohesion, sustain small unit leadership, maintain unit
    readiness, meet expanded force protection requirements, and to reduce
    the requirement to activate IRR personnel. We will ensure judicious use
    of this authority and continue to discharge marines for humanitarian,
    physical disability, administrative, and disciplinary reasons. We have
    instructed our general officers to continue to use a common sense
    approach and have authorized them to release marines from active duty
    if it is in the best interest of the Marine Corps and the marine.
    Currently, we have 1,566 active and 2,668 Reserves on Stop Loss. Only
    197 of the reservists on Stop Loss have been mobilized.

           MANAGING TIME AWAY FROM HOME--(PERSONNEL TEMPO--PERSTEMPO)

        The Marine Corps is in compliance with PERSTEMPO legislation, and
    continues to maintain the OSD tracking and reporting criteria. We
    remain committed to maintaining the proper balance between operational
    deployments and the quality-of life of our marines and their families.
    Having said this, marines join to train and deploy, and we do not
    disappoint them. Service in the Marine Corps requires deployments for
    readiness and mission accomplishment. The existing PERSTEMPO
    legislation is inconsistent with the Marine Corps' expeditionary,
    forward deployed nature and could have adverse effects on our unit
    cohesion, stability, training, and readiness. We support changes that
    retain the original intent of the legislation, better balance the needs
    of the Services with the needs of the service members and their
    families, and provide compensation to members for excessive deployments
    that is better aligned with similar payments for burdensome duties.
    Currently, we have 382 marines in excess of the 400-day threshold
    identified in the original legislation.

                            NATIONAL CALL TO SERVICE

        The Marine Corps is working with DOD to establish implementation
    guidance for the National Call to Service (NCS) requirement contained
    in the Bob Stump National Defense Authorization Act for Fiscal Year
    2003. We desire to link active and Reserve service periods together to
    meet the needs of the Corps, primarily in the homeland security areas.
    Marines accessed via the NCS program would serve their 15 months of
    active duty with the 4th MEB AT Battalion, Chemical Biological Incident
    Response Force, Marine Security Forces, or base/station AT/FP units.
    Reserve service would be aligned to the counterpart units of the active
    component. We are also considering providing a limited number of the
    NCS accessed marines with training in high demand/low density Reserve
    MOSs, such as intelligence, linguists, and aerial navigation. These
    marines would spend their active duty period primarily in training, but
    then would be assigned to SMCR units where their skills could be
    readily utilized. We anticipate commencing the recruiting for this
    program in October 2003.

                                 IT INNOVATION

        To properly manage the resources entrusted to us, it is necessary
    to have and maintain capable tools. Planning for and managing manpower
    requirements--including addressing mobilization challenges, determining
    stop loss requirements, and tracking PERSTEMPO information mentioned
    previously--requires effective and relevant automation and IT systems
    for manpower modeling, manpower management, and personnel servicing.
    When competing with weapons systems and near term resource
    requirements, it is easy to bypass proper investment in these
    management systems. However, though not perfect, we are proud of the
    portfolio in place to support our manpower processes and are committed
    in the budget to continuing appropriate reinvestment.
        The Marine Corps benefits from a fully integrated pay and personnel
    system. This system, the Marine Corps Total Force System (MCTFS),
    incorporates all active, Reserve, and retired pay and personnel
    records. Having an integrated Total Force System minimizes difficulties
    for our Reserves as they are mobilized. The MCTFS serves as the
    foundation for ongoing re-engineering of our administrative
    occupational field into the Total Force Administration System (TFAS).
    This TFAS will execute a web-based, virtually paperless self-serve
    capability for all marines via our web portal, Marine On-Line.
        We have also integrated data via MCTFS by leveraging the
    information contained in the Operational Data Store Enterprise and the
    Total Force Data Warehouse to create the foundation of a shared data
    environment. This allows full integration of our digitized personnel
    files with the Marine Corps promotion board process, giving us the most
    advanced and comprehensive promotion process among the Services.
        In addition, the Marine for Life and Civilian Marine Web sites
    provide valuable tools to our uniformed and civilian marines. Marine
    for Life provides an electronic reach back to those Marines who
    honorably leave the Corps as they return to civilian life. The maturing
    Civilian Marine Web site will provide a ``one-stop'' site to allow our
    civilian marines to manage their careers from their desktops.

                                CIVILIAN MARINES

        Civilian marines are integral to the Corps' Total Force concept. We
    have approximately 25,000 civilian marines, of which 13,000 are
    appropriated fund (APF) employees and about 12,000 are nonappropriated
    fund (NAF) employees. Our APF civilian marines comprise just 2 percent
    of the total DOD civilian workforce. The Marine Corps has one APF
    civilian marine per 12 active duty marines. The remaining half of our
    civilian marines, our NAF personnel, are primarily resourced by
    revenue-generating activities and services such as exchanges, clubs,
    golf courses, bowling centers, gas stations, and dry cleaners. Our
    civilian marines fill key billets aboard Marine Corps bases and
    stations, thus freeing active duty marines from supporting
    establishment responsibilities to perform their warfighting
    requirements in the operating forces.
        This past December we introduced our Civilian Workforce Campaign
    Plan, covering the period 2002-2007, that outlines the Corps' strategy
    to enhance civilian workforce management and development. As with the
    challenge faced across the Federal Government, 30 percent of our APF
    civilian marines will be retirement eligible within the next 5 years.
    Though we project that just 25 percent of those eligible will retire,
    our growing retirement eligible population further necessitates prudent
    planning and consideration. By investing up front in our civilian
    marine workforce, we believe we can recruit, develop, and retain
    quality workers in both the near and long term.
        To increase the technical expertise and improve career
    opportunities for our civilian marines, we have established 21 civilian
    ``Communities of Interest'' with a senior civilian heading each
    community. Similar to our military occupational fields, these career
    communities have identified job competencies and training requirements,
    and defined career paths. Through a corporate approach to attract,
    develop, and retain an expert civilian workforce, and with the
    concentrated effort of the general officers and senior executives in
    our Corps, we will successfully ensure the needs of the Marine Corps
    and our civilian marines are met.
        We continue to make strides in how we recognize the value of our
    civilian workforce and its contributions to the success of the Corps.
    From the symbolic, such as our Marine Corps Civilian Service Pin, to
    the investment we are making in civilian career and leadership
    development, our efforts will support our positioning to be the
    employer of choice.

                        CARING FOR MARINES AND FAMILIES

        The Marine Corps cultivates an ethos of taking care of marines and
    their families. Our continuum of care begins with the ``yellow
    footprints'' at basic training and continues throughout the life of a
    marine. Marines are marines for life. Legendary hallmarks of ``Once A
    Marine, Always A Marine'' and ``Semper Fi'' prove our long-term
    commitment and provide convincing testimony from marines that they are
    forever changed and a part of a society that is sustained through self-
    perpetuation and shared culture.
        Beyond the superb quality of our recruiters, accomplishment of our
    recruitment mission is enhanced by our study and knowledge of the
    demographics of the American public--the potential market for our
    Corps. As it is with recruiting, our ability to sustain or take care of
    marines and their families is based on a thorough understanding of
    Marine Corps demographics. Consider the following facts that outline
    the Marine Corps as the youngest, most junior, and least married of the
    four Military Services.

             66 percent of marines are 25 or younger.
             27 percent of marines are under 21.
             42 percent of marines are Lance Corporals (pay grade
            E3) or below.
             40 percent of marine spouses are age 25 or younger.
             Average marine is 23 years old at the birth of his/her
            first child.
             Only 5,300 marines are single parents.
             Average age of a married enlisted marine is 28.
             44 percent of active duty marines are married.

                     Among Privates and Lance Corporals, 19 percent
                    are married.
                     Among Corporals and Sergeants, 51 percent are
                    married.
                     Among Staff Non-Commissioned Officers, 84
                    percent are married.

        Understanding these marine specific demographics helps us
    effectively identify needs and target support. It also orients our
    program planners and ensures we balance the support provided between
    groups, younger versus older, and married versus single. In this way,
    we stay connected and maintain our leading edge.
        Quality of Life (QOL) in the Marine Corps has been studied for over
    10 years. Our third administration of the Marine Corps Quality of Life
    Study was conducted in 2002 and we are now beginning the hard work of
    in-depth analysis. The results of this study and our subsequent work
    are important given the qualitative and quantitative link between QOL
    satisfaction and recruitment, retention, and readiness. Over the last
    decade, the Marine Corps, through congressional support, invested
    resources designed to increase income and standard of living,
    revitalize housing, and enhance community services for our marines. The
    living conditions for our marines and families have been objectively
    improved by almost any measure. Yet, a significant finding from the
    2002 study was an ``across-the-board'' decrease in the QOL satisfaction
    of marines when compared to measurements from the 1998 QOL Study, most
    substantial for junior enlisted marines (Sergeant and below).
        The reasons for this decline will be closely examined. However, one
    important finding identified that ``expectations'' are a relevant
    dynamic to QOL satisfaction. When measuring QOL satisfaction, we in
    large part measure the delta between what the Marine Corps provides and
    the internal expectations marines and their families have as they
    compare themselves to peers, civilian counterparts, or family members.
        Understanding what drives expectations and determining the
    appropriate response is clearly a challenge in taking care of marines
    and their families. We accept the challenge and believe that our
    efforts will help shape the future of QOL support. We expect to gain
    knowledge of the influence of generational and societal changes on the
    Marine Corps and the subsequent impact to QOL support and the manner of
    service delivery. This knowledge will assist with better definition of
    the ``benefit package'' provided by the Corps. Additionally, we will
    assess the relationship of QOL to other human resources strategies to
    ensure we are achieving our goals.
        While it is important to plan for the future of Marine Corps QOL,
    it is equally important to evaluate the current state. With 63 percent
    of our operating forces forward deployed, our ``taking care'' mission
    is both expeditionary to support them, and fixed at needed levels
    aboard Marine Corps bases and stations to sustain the marines and
    families left behind. Depending on the intensity and duration of the
    deployment or contingency, deployment recreation support kits (``mount
    out blocks'') are provided to meet operational command requirements and
    can include fitness equipment; sports equipment; electronic equipment;
    and leisure items. In addition, Tactical Field Exchanges, ``theaters in
    a box,'' and miscellaneous books and recreational supplies may also be
    provided to embarked or ``in-country'' marines depending on the
    operational command requirements. By February of this year, five Marine
    Corps Exchange/Army Air Force Exchange Tactical Field Exchanges had
    been established in Southwest Asia.
        When deployed, marines depend upon the Corps to support their
    families. Our major bases and stations provide the needed comfort and
    support specifically designed to address the challenges of the military
    lifestyle. Supporting reservists on active duty provides an added
    challenge as their families are spread throughout America. The Key
    Volunteer Program serves as the official communication link between the
    deployed command and the families. To build awareness of life in the
    Marine Corps, our Lifestyle Insights, Networking, Knowledge and Skills
    (L.I.N.K.S.) Program is provided to new marine spouses to acquaint them
    with military lifestyle and the Marine Corps. We are currently
    preparing an online and CD-ROM version of L.I.N.K.S., which we expect
    to make available early this summer. Special deployment support links
    have been built on Marine Corps Web sites to connect families and
    provide information. Finally, we are proud to be the Department of
    Defense pilot for implementation of an enhanced employee assistance
    program. Marine Corps Community Services One Source is a 24/7, 365 day-
    a-year, information and referral service designed to reach both active
    duty and Reserve families wherever they may be located. It can be
    accessed anytime via toll free numbers, email, or the Internet. The
    support includes parenting and childcare, education services, financial
    information and advice, legal, elder care, health and wellness, crisis
    support, and relocation. The Corps just implemented its pilot program
    across the United States and overseas in December 2002. We are excited
    about the possibility of extended support capabilities and how that
    will contribute to the well being of marines and their families.
        For Marine Corps families, Marine Corps Family Team Building
    (MCFTB) and other Marine Corps Community Services programs provide
    support for the whole family: the marine, the spouse, new parents, and
    children. General counseling, personal financial management assistance,
    family advocacy programs, and substance abuse avoidance are just some
    of the support programs available.
        Every day, regardless of duty assignment or mission, the Marine
    Corps takes care of marines and their families. We work hard to provide
    program support that is relevant to the QOL improvement of marines and
    their families. In addition, taking care of marines and their families
    through QOL and community services programs contributes to readiness
    and thus is relevant to the operating forces. As the Marine Corps is
    predominantly comprised of young, single, junior marines, we have
    specifically built programs to support their development and growth.
        The Single Marine Program provides needed recreation and stress
    outlets that are both wholesome and support development of social
    skills. Just as importantly, the Single Marine Program stresses the
    responsibility that young single marines have to identify solutions to
    QOL issues and resolve them through working with the chain of command.
        Many young marines joined the Corps for a challenge. This desire
    for physical and mental challenge is met through our world-class health
    and fitness program, Semper Fit, and our Lifelong Learning program.
    Tuition assistance is part of the Lifelong Learning program and in
    fiscal year 2002, approximately 20,000 marines enrolled in almost
    60,000 courses.
        Within the Corps taking care of marines and their families is a
    point of pride and constancy. As the Commandant has charged all
    marines, we will proceed with boldness, intellect, and confidence in
    our mission. Today, we know more than we ever have about the
    demographics and needs of marines and their families. We will use our
    knowledge of marines and their families to properly frame expectations
    and forge an even stronger compact that continues to support the legacy
    of taking care of our own.

                                   CONCLUSION

        Through the remainder of fiscal year 2003 and into fiscal year 2004
    our Nation will likely remain challenged on many fronts as we conduct
    the global war on terrorism. Services will continue to be pressed to
    meet commitments, both at home and abroad. Marines, sailors, airmen,
    and soldiers are the heart of our Services, our most precious assets,
    and we must continue to attract and retain the best and brightest into
    our ranks. Transformation will require that we blend together the
    ``right'' people and the ``right'' equipment as we design our ``ideal''
    force. Manpower associated costs are a major portion of the DOD and
    Service budgets, and our challenge is to effectively and properly
    balance personnel, readiness, and modernization costs to provide
    mission capable forces. The DOD is undertaking numerous studies in the
    area of human resources strategy designed to support an integrated
    military, civilian, and QOL program, within which we must balance the
    uniqueness of the individual Services. In some cases a one-size fits
    all approach may be best, in others flexibility to support service
    unique requirements may be paramount. Regardless, we look forward to
    working with Congress to ``do what's right'' to maintain readiness and
    take care of your marines.
        The Marine Corps continues to be a significant force provider and
    major participant in joint operations. Our successes have been achieved
    by following the same core values today that gave us victory on
    yesterday's battlefields. Our active, Reserve, and civilian marines
    remain our most important assets and with your support, we can continue
    to achieve our goals and provide what is required to accomplish
    assigned tasks. Marines are proud of what they do. They are proud of
    the ``Eagle, Globe, and Anchor'' and what it represents to our country.
    It is our job to provide for them the leadership, resources, QOL, and
    moral guidance to carry our proud Corps forward. With your support, a
    vibrant Marine Corps will continue to meet our Nation's call as we have
    for the past 227 years. Thank you for the opportunity to present this
    testimony.

        Senator Chambliss. Thank you, General Parks.
        General Brown.

     STATEMENT OF LT. GEN. RICHARD E. BROWN, USAF, DEPUTY CHIEF OF
              STAFF FOR PERSONNEL, UNITED STATES AIR FORCE

        General Brown. Mr. Chairman, Senator Nelson, Senator Pryor,
    it is my honor to come before you to address our current
    challenges and key initiatives on behalf of the dedicated men
    and women in the United States Air Force. First and foremost,
    you need to know our airmen are ready, willing, and able to
    meet any contingency. Patriotism is high, morale is up, in
    spite of very high increased tempo.
        We exceeded our enlisted recruiting goals and our line
    officer accession targets in fiscal year 2002, and we expect to
    do that again here in fiscal year 2003. We found the high
    OPTEMPO in response to the global war on terrorism has not
    impacted retention, as one might think. In fact, our retention
    is healthier than it has been in the last 2 or 3 years.
        Much of the credit for this goes to this committee and your
    staunch support to improve military pay and compensation, and
    continued support of bonus authorities. I thank you on behalf
    of every airman.
        Today, we continue to face one of our greatest challenges.
    How do we adapt to what we see as the new steady state of
    accelerated operations in personnel tempo? We cannot conduct
    business as usual. We must transform our forces to be
    successful. One of our top priorities is shaping our force mix
    with the skills required to make optimal use of our finite
    personnel resources, which, in fact, is our greatest asset.
        This is a complicated and difficult task, and over the long
    term, we envision that conversion of substantial numbers of
    military Air Force positions to civilian or contract will
    enable us to realign military end strength to satisfy our core
    competency requirements, which are developing airmen,
    technology for warfighting, and integrating operations.
        We will continue to need your support as we work to relieve
    our most stressed specialties. For example, we recently
    partnered with the Army to deploy Army National Guardsmen and
    Reserve Forces to augment Air Force protection force
    operations. We thank you for this. We thank you for the needed
    authority, and we thank the Army for their support, and this is
    just one example of the joint effort we do together.
        We continue to develop programs and initiatives that are
    helping us now and in the future, as we adapt our force to the
    demands of the global war on terrorism. We greatly appreciate
    Congress', and especially this committee's, tremendous support
    and recognition of our troops by providing them a top-notch
    quality of life.
        I look forward to discussing our challenges and our
    progress with you. Thank you.
        [The prepared statement of General Brown follows:]

           Prepared Statement by Lt. Gen. Richard E. Brown III, USAF

                                  INTRODUCTION

        Mr. Chairman and distinguished members of the committee, it is a
    tremendous honor to appear before you to present our Air Force
    personnel priorities on behalf of the dedicated men and women of the
    United States Air Force. Today, we are facing one of our greatest
    challenges--how we adapt to the new steady state of accelerated
    operations and personnel tempo. The Secretary of Defense understands we
    can't conduct business as usual; we must transform our forces for new
    and unexpected challenges. As part of our transformation process,
    senior Air Force leadership conducted a complete review of what makes
    us the preeminent air and space force in the world, our ``Core
    Competencies.'' They agreed our institutional air and space core
    competencies are: Developing Airmen, Technology-to-Warfighting, and
    Integrating Operations. In personnel, we concentrate on developing
    airmen. Currently, one of our top priorities is shaping our force
    content with the skills required to make optimal use of finite
    personnel resources. By concentrating on what constitutes core tasks,
    we will in turn provide leadership with the critical information needed
    to free up resources and realign those resources into stressed core
    warfighting areas.

    Developing Airmen: The Heart of Combat Capability
        The ultimate source of combat capability resides in the men and
    women of the Air Force. This competency is fundamentally about
    transformation--taking our Nation's youth, our citizenry, and shaping
    them into airmen-warriors. These aspirants represent the full range of
    our Nation's diversity of culture and geography. Diversity of thought
    and experience at all levels of the organization unleashes the talents
    of the total workforce to guard America with patriotism, intelligence,
    and passion. In spite of disparate backgrounds, these young people grow
    into one team made up of young airmen and officers. They embrace and
    internalize our core values. They leave behind that which they were and
    become, first and foremost, America's airmen. The Air Force helps shape
    their identity and becomes a way of life. Our civilians also undergo a
    transformation from mere employees--holders of a job--to civilian
    airmen who share our core values and our ethos of service. Our total
    force of active, Guard, Reserve, and civilian personnel represent a
    large and long-term investment and our most critical asset. While we do
    this better than anyone, we are currently facing several challenges in
    getting the right person, with the right training, to the right place
    at the right time in support of our national security mission.

    Challenge: Adapting to New Steady State Workload and TEMPO
        The number one crisis we face is ``Adapting to the New Steady
    State'' which has both PERSTEMPO/WORKTEMPO and skill mix dimensions.
    The current OPTEMPO is driving personnel pressures causing uneven
    workload and deployment taskings. To meet mission requirements after
    September 11, we mobilized the Air Reserve component (ARC) and
    implemented Stop Loss. Both mobilization and Stop Loss are very serious
    actions that pose many difficult challenges for our people and their
    families. We intentionally built in ARC capability as part of our total
    force construct to be used when Air Force mission taskings exceeded the
    capacity of active component forces and available ARC volunteers. We
    mobilized ARC units according to these deliberate plans. In addition,
    we activated Stop Loss to enhance our ``steady state'' accession and
    retention programs to give us time to fill units with adequate numbers
    of people possessing the requisite skills and experience needed to
    operate successfully in the new expeditionary steady state environment.
    As we adapted to the current OPTEMPO after the tragic events of
    September 11, we began to demobilize. However, there are areas where
    the ARC continues to meet Air Force mission needs through extensions of
    its members, in critical specialties, into their second year of
    mobilization as we continue to prosecute the global war on terrorism.
        The Air Force remains committed to returning our ARC members to
    their roles as citizen-airmen. For each new mobilization order or
    extension request, we now require the gaining command to develop and
    submit to the Assistant Secretary of the Air Force for Manpower and
    Reserve Affairs (SAF/MR) a plan for accomplishing assigned tasks
    without reliance on long term ARC mobilization. Our current plan is to
    fill the majority of future requirements with active duty, ARC
    volunteers and limited period mobilization. If world conditions
    escalate to a higher level, we plan to invoke Stop Loss for selected
    career fields beginning with the most stressed.
        We are carefully reviewing our Air Force active end strength to
    ensure it is sufficient to meet missions; we know we have skill mix
    challenges. To meet these challenges, the Air Force is conducting an
    extensive manpower review. We critically scrubbed all our functions to
    determine which ones are needed for success on the battlefield to
    fulfill our role as being truly expeditionary and deployment-based. We
    identified candidate positions to help resolve the stressed military
    career field problem and begin to buy-down manpower requirements
    associated with new or growing missions in the global war on terrorism.
    The additional cost to implement these new requirements is under active
    consideration within our Air Force corporate structure. Over the long
    term, we ultimately envision that conversion of substantial numbers of
    military Air Force positions to civilian or contract will enable us to
    realign military end strength to satisfy our core competency
    requirements--Developing Airman, Technology-to-Warfighting, and
    Integrating Operations. The result will be an Air Force that
    ``transforms'' into a more flexible, higher tech force--postured for
    21st century warfare, and consisting of the right total force mix of
    active duty, Reserve, Guard, Government civilian, and contract
    personnel.
        Parallel to this review, we developed a formula to quantify stress
    in each career field. This tool provides the analytical foundation to
    allow us to begin redirecting manning to the most critical specialties,
    increasing our training pipelines and expanding our schoolhouses where
    needed. In addition, we've aggressively pursued accession adjustments
    during fiscal year 2002-2003 to increase manning in the most stressed
    specialties. The ARC has identified the need to shift more traditional
    reservists and guardsmen to full-time status in critically manned
    career fields (e.g. Security Forces). To relieve the significant burden
    placed on our Security Forces, both in-garrison and deployed locations,
    the Secretaries of the Army and Air Force signed a Memorandum of
    Understanding in December 2002, to deploy Army National Guard and
    Reserve Forces to augment USAF force protection operations worldwide
    for a period of 2 years. The temporary authority provided in the
    National Defense Authorization Act (NDAA) for Fiscal Year 2003 for
    contractor performance of security-guard functions has helped us meet
    our increased requirements since September 11, and we thank you for the
    much needed flexibility. We would appreciate your continued support to
    allow us to contract for the performance of a firefighting function for
    a period of 1 year or less to fill vacant positions created by deployed
    military fire fighters. The end result of our actions is to ensure we
    have a ready, trained force available to meet the mission needs.
        We are also reviewing our manpower requirements determination
    program in an effort to streamline processes and align with the Air
    Expeditionary Force construct. This new effort will incorporate a
    quicker method of determining manpower requirements that focus on
    wartime capabilities first, and then work back to the home station
    peacetime requirement. The process turns around our current Cold War
    in-garrison focus and adapts to the expeditionary nature of today's
    operations. This will give us increased visibility to any shortfalls or
    deficiencies in required capabilities. The Secretary of the Air Force
    has also begun an innovative effort to examine the distribution of
    airmen assigned to organizations outside the Air Force.
        These, and similar initiatives will show us how to adapt our force
    to the demands of the global war on terrorism, or, alternatively, to
    provide the compelling rationale needed to justify any increase in end
    strength. The bottom line is we must reengineer, reorganize, reinvent,
    rework, and revisit how we utilize active duty military, ARC,
    civilians, and contractors.
        Civilian Issues
        Since 1989, we've eliminated or realigned over 100,000 positions as
    we downsized our civilian force. We constrained civilian hiring to
    minimize the impact of downsizing on our existing employees. We now
    have a civilian workforce that requires refreshing and re-skilling.
    Within 5 years, approximately 42 percent of the officer equivalent
    civilian force will be eligible to retire either through voluntary
    retirement or early out--an estimated 20 percent of this force will
    retire by 2005.
        The Air Force is finding it challenging to retain its mid-career
    employees and to attract younger candidates who possess state-of-the-
    art technical skills. In addition to positions that have been
    traditionally hard-to-fill (environmental engineers, bench scientists,
    medical personnel), we are finding it difficult at specific locations
    to recruit support personnel such as contracting specialists and
    aircraft mechanics. One of the factors contributing to civilian
    recruitment and retention problems is the civilian personnel management
    system. The current system was developed to meet the challenges of the
    early 20th century and cannot quickly or adequately respond to the
    needs of the 21st century. The hiring process, classification system,
    pay authorities and performance management programs reflect a
    different, less technical environment and impede our ability to recruit
    and retain the best and the brightest.
        For several years now, the Department of Defense has been actively
    testing many management flexibilities, such as pay banding, pay for
    performance and simplified classification. Acknowledging the success of
    the demonstration projects and alternate personnel systems, the Under
    Secretary of Defense for Personnel and Readiness began a review of
    personnel management flexibilities already in use within the Federal
    Government. Multi-component, multi-functional work teams and senior
    functional executives completed this year long review that identified
    ``best practices''--those with the highest rate of success. The
    Department is now reviewing how to incorporate these best practices.
    Challenge: Creating Air and Space Leaders for the 21st Century
        Force development is a concept that will guide our investments in
    human capital. To prepare for the future more ably, we introduced a
    systemic, deliberate force development construct that develops
    professional airmen to instinctively leverage their respective
    strengths in concert. We envision a transition in total force
    development from rigid, ``one size fits all,'' functionally independent
    career path pyramids to flexible, competency-based, deliberate
    development model that rests on institutional needs and requirements
    and responds to corporate guidance. The force development construct is
    focused on the systematic, deliberate development of the necessary
    occupational skills and enduring competencies required to be an
    effective leader in today's and tomorrow's expeditionary air and space
    force. As we transform our Cold War structure into an Air and Space
    Expeditionary Force, it follows that we transition the way we train,
    educate, promote, and assign our total force for the contingency world
    we find ourselves in today. Training and development are critical to
    this transition. Our goal is to invest in all ranks, according to
    institutional requirements a significant improvement over today's
    approach to prepare us for the future.
        Force development will be executed in three parts--Officer,
    Enlisted, and Civilian across the active and Reserve components. The
    construct focuses on training, education, and experience, with special
    focus on how we assign a member to gain that experience. We will tailor
    each program to meet the different needs of our varied career paths. We
    will also design each development program to insure the individual's
    experience emphasizes a breadth of exposure to the Air Force mission
    while focusing on the depth of experience an individual needs to
    perform in his or her functional area of expertise.
        Education and Technical Training: Emphasis on Joint Leadership/
            Warfare
        We've been able to meet current challenges and take advantage of
    advancing technologies because of our investment in education and
    training. Initial investment and reinvestment in aggressive and
    innovative initiatives to enhance the abilities and breadth of our
    force are the keys to our success.
        Force development provides individuals with tailored, connected
    education and training. It focuses on three levels: (1) Tactical--
    gaining knowledge and experience in primary skill, combined with
    education and training experiences; (2) Operational--continued widening
    of experience and increased responsibility within a related family of
    skills; and (3) Strategic--breadth of experience and leadership
    perspective at the joint, inter-government, and international levels.
        We will develop programs that provide our airmen the opportunity to
    pursue skill sets and experiences through regional and international
    study degree programs, foreign languages, and overseas assignments. The
    Air Force Chief of Staff recognizes we need to produce airmen who are
    professionally diverse. In his words:

            ``The global war on terrorism reinforces the reality that
            future missions and contingencies will require greater
            sophistication and understanding of our international security
            environment. Just as we need pilots, intelligence specialists,
            satellite operators, and jet engine mechanics, our
            expeditionary force requires airmen with international insight,
            foreign language proficiency and cultural understanding. To be
            truly successful at sustaining coalitions, pursuing regional
            stability and contributing to multi-national operations, our
            expeditionary forces must have sufficient capability and depth
            in foreign area expertise and language skills.''

        To keep abreast and to prepare for future needs, we increased our
    funding for graduate education at the Air Force Institute of Technology
    (AFIT), the Naval Post Graduate School, and civilian institutions
    beginning in the summer of 2003. Also in August 2002, we initiated the
    enlisted to AFIT Program. This program offers commanders a diverse and
    renewable resource of highly proficient career airmen, technically
    experienced in career field service and highly educated through
    resident graduate degree programs, contributing to greater innovation
    and improved readiness. Another important tool is Advanced Distributed
    Learning. This program efficiently delivers agile and flexible training
    and is our ``training multiplier.'' It provides our expeditionary
    forces anytime, anywhere training using various delivery methods
    including CD-ROM, paper-based, web-based, and satellite.

    Challenge--Sustaining Our Recruiting and Retention Successes
        The current recruiting and retention initiatives are imperative to
    replenishing our force, and they must be fully funded or we risk
    failing to meet our goals. Our greatest recruiting competition comes
    from colleges offering numerous financial incentives. In addition, the
    general public has less military experience than past generations,
    which makes recruiting more challenging. Increases in advertising, an
    expanded recruiting force with broader access to secondary school
    students and competitive compensation prepare the Air Force to meet its
    recruiting goals. We achieved our fiscal year 2002 enlisted recruiting
    goals, although we fell short in our technical areas, and are currently
    on target to meet our goal for fiscal year 2003. For officers, we have
    met our overall recruiting goals; however, we continue to fall short in
    scientists and engineers.
        Because about one third of our force is eligible to reenlist each
    year, we continually have an opportunity to influence their decision at
    key career phase points to or not to reenlist. There are numerous
    intangible factors such as leadership and job satisfaction, and
    tangible factors such as pay and compensation and quality of life
    issues that affect an airman's decision, which we must constantly and
    proactively manage.
        For fiscal year 2002, officer and enlisted retention rates are
    slightly inflated due to Stop Loss. Our retention is healthy; however,
    we must continue to monitor our stressed career fields and provide
    adequate compensation and quality of life initiatives to maintain our
    capability. Although the current economy doesn't have the pull it did
    pre-September 11, we anticipate the high OPTEMPO/WORKTEMPO will affect
    our members' career decision in all components. We are addressing the
    tempo issues and will continue to monitor pay and compensation as they
    play a vital role in retaining our enlisted force.
        To compensate members for increasing levels of deployments, the
    NDAA for Fiscal Year 2001 mandated the Services pay a high deployment
    per diem amount of $100 per day with a progressive monthly allowance.
    However, the Services suspended payment due to the global war on
    terrorism, and pursuant to the Presidential Declaration of a National
    Emergency. As we continue to track tempo, we find that there has been a
    significant increase in tempo levels across the total force when
    comparing levels from fiscal year 2001 to fiscal year 2002. For
    example, on average those who were away from home station were gone 38
    days in fiscal year 2001 and 48 days in fiscal year 2002 (21 percent
    increase). Further, in fiscal year 2001 crews from only 6 of our 38
    major weapon systems were away from home station above 25 percent of
    their available time. In fiscal year 2002 that number increased to 17.
    Reserve components have seen similar increases. For the ANG there was
    an increase in days away from home station from 34 to 74 between fiscal
    year 2001 and fiscal year 2002. In the same timeframe the Air Force
    Reserves increased from 35 to 66 days. According to our data, if High
    Deployment Pay were in affect today, 1,586 total force personnel (519
    active duty, 403 ANG, 664 Air Force Reserve) would receive High
    Deployment Pay.
        We ask your support in changing the current law to provide the
    flexibility to compensate members for long and or frequent deployments
    at thresholds that better meet the Service's unique mission
    requirements. Our proposal would range from $100-$600 per month;
    eliminate the current 182-day and 211-day thresholds; and reduce the
    level of oversight required to the first general in the member's chain
    of command.
        Retention remains a concern for active duty officers in key
    specialties. The continued downturn in airline hiring will help slow
    the pull of our experienced pilots to the airlines; however our pilot
    shortage is projected to continue for at least the next decade until we
    fully realize the effects of the 10-year active duty service commitment
    for undergraduate flying training and increased pilot production. We've
    been able to fill the gap caused by the pilot shortage with navigator
    rated expertise. Navigators, backfilling for pilots raised overall
    rated Headquarters level staff manning from 58 percent to 76 percent.
    However, 48 percent of the current navigator force will be eligible to
    retire within the next 4 years. We are closely monitoring navigator
    retention and distribution, especially large numbers of senior
    navigators on the rated staffs currently or soon to be retirement
    eligible as well as low production year groups. In addition, we have an
    acute problem with Air Battle Managers driven by extraordinarily high
    OPTEMPO.
        The Air Force has taken a number of steps to address rated
    shortfalls. We increased the pilot training active duty service
    commitment to 10 years (8 years prior to 1 Oct 99) and pilot production
    to a steady state of 1,100 new pilots per year. Legislation such as the
    Permanent Rated Recall program has allowed nearly 260 pilots to return
    to active duty in fiscal year 2002, helping to offset rated shortfalls.
    Bonuses continue to be an effective tool in retaining our members.
        For the first time, we are offering Aviation Continuation Pay (ACP)
    in fiscal year 2003 to select groups of active duty navigators and air
    battle managers and continue to offer aviation continuation pay bonuses
    to pilots who have completed their initial pilot training active duty
    service commitment. In addition, we implemented in fiscal year 2003 the
    Critical Skills Retention Bonus (CSRB) authorized by the NDAA for
    Fiscal Year 2001 for the ``Big 5'' active duty officer specialties
    (Developmental Engineers, Scientists, Acquisition Program Managers,
    Comm/Info, and Civil Engineers). The Air Force now is offering $10,000
    per year up to 4 years to eligible officers who agree to an active duty
    service commitment contract; we expect retention to improve by 15
    percent or more as a result.
        In April 2002, the Air Force completed its initial ``re-
    recruiting'' the force test program. The program concentrated on
    developmental engineers entering critical career decision points. The
    Air Force is institutionalizing the ``re-recruiting'' program and
    expanding it to other critical Air Force specialties such as air battle
    managers and acquisition managers.
        Quality of Life
        How our airmen perceive their quality of life directly and
    fundamentally impacts recruiting and retention. We place intense
    demands on our mission-focused total force and it is imperative that we
    provide our airmen and their families with the quality of life they
    have earned and deserve. We are reviewing our manning and workload to
    realign resources across the Air Force to alleviate stress on our high
    demand assets. We seek to improve workplace environments; provide fair
    and competitive compensation and benefits; provide safe, affordable,
    and adequate housing; enhance community and family programs; improve
    educational opportunities; and provide quality health care, as these
    have a direct impact on our ability to recruit and retain our people
    and sustain a ready force.
        We thank Congress for approving another significant overall pay
    raise to include targeting for our military personnel in the NDAA for
    Fiscal Year 2003. We support the proposed pay raise for fiscal year
    2004 plus targeting. Targeted pay is important in meeting our toughest
    retention challenges. In addition, you improved the Basic Allowance for
    Housing (BAH) rates effective 1 Jan 03, based on 7.5 percent out-of-
    pocket for the National Median Housing Cost for each grade and
    dependency status, continuing toward our goal of eliminating out of
    pocket expenses. The NDAA for Fiscal Year 2003 also authorizes
    increases in minimum caps on health profession special and incentive
    pays, increases to Reserve component prior service enlistment bonus
    amounts, and several additional travel and transportation entitlements
    that will continue our effort to reduce other out-of-pocket expenses
    for our military personnel. These critical compensation initiatives are
    keys to meeting our retention challenges, and directly improve the
    readiness of our force.
        The NDAA for Fiscal Year 2003 also provides many TRICARE
    initiatives designed to improve the quality of service for our
    beneficiaries. The NDAA for Fiscal Year 2003 extends TRICARE
    eligibility to Reserve dependents residing in remote locations without
    their Reserve sponsors. Additionally, eligibility for the TRICARE
    Dental Program is expanded to surviving dependents, providing much
    needed dental benefits to surviving family members. It also approves
    the use of Medicare providers as TRICARE providers, expanding provider
    availability to improve beneficiary access to care.
        Providing safe and adequate housing enhances readiness and
    retention. The NDAA for Fiscal Year 2003 included $125 million to
    construct and renovate more than 1,500 rooms toward the Dormitory
    Master Plan. Our fiscal year 2004 budget includes nearly $190 million
    to construct and renovate another 1,900 rooms. We are on track to
    provide all unaccompanied E-1s to E-4s private rooms on base by 2009.
    The NDAA for Fiscal Year 2003 also included more than $680 million to
    replace, improve, and privatize nearly 8,500 family housing units. The
    fiscal year 2004 budget request includes $700 million to replace,
    improve, and privatize another 10,500 units. With the exception of only
    four U.S. locations, the AF will meet OSD's goal to eliminate
    inadequate housing in the U.S. by 2007.
        Programs like child development, child-care, youth programs,
    fitness centers, libraries, skills development, clubs, golf courses,
    and bowling centers all offer programs and services that support and
    enhance the sense of community and meet our members' needs for
    relaxation and stress reduction. The Air Force invested nearly $211
    million in fitness centers between fiscal year 2000-2003 and will
    continue this focus with more than $40 million in fiscal year 2004. The
    Air Force supports its families by setting the standard in providing
    affordable, quality child-care in child development centers, school age
    programs, and family child-care homes. Air Force child-care centers and
    all of its before- and after-school programs for children 6-12 are 100
    percent accredited. Over the last 2 years, the Air Force expanded its
    family child-care program so it can offer free emergency child-care for
    its members who have to work late, on the weekends, or who experience
    shift changes. This program also serves parents who are assigned to
    missile sites and need around-the-clock care. The most recent variation
    of this program, spurred by Operation Enduring Freedom, provides a
    limited number of hours of free child-care for members who are
    returning home after an extended TDY. Beyond these benefits, on-base
    programs are part of the non-pay benefit system providing savings over
    the cost members would pay to receive similar services off base.
        We strongly support voluntary education; we increased tuition
    assistance from 75 to 100 percent, provided distance-learning
    initiatives through the Air Force Portal and civilian institutions, and
    increased Learning Resource Centers at forward deployed sites. In
    addition, the NDAA for Fiscal Year 2002 provided the transfer of
    educational benefits to family members; we began a 1-year test program
    on 26 Sep 02 to select career fields.
        The Air Force continues to support the commissary and exchange as
    vital non-pay compensation benefits upon which active duty, retirees,
    and Reserve component personnel depend. Commissaries and exchanges
    provide: value, service, and support; significant savings on high
    quality goods and services; and a sense of community for airmen and
    their families.
        Taking a more collaborative approach to community and family
    service delivery, we created the Community Action Information Board and
    Integrated Delivery System working groups at Air Staff, MAJCOM, and
    Installation levels. The Community Action Information Board brings
    together senior leaders to review and resolve individual, family and
    installation community issues that impact military readiness and
    quality of life. The Integrated Delivery System working group brings
    together all community and family agencies to ensure our military
    members and their families have access to the services and activities
    they need. We continue to encourage the use of Air Force Crossroads as
    an excellent tool to promote community and family programs:
    www.afcrossroads.com.

    Challenge: Seamless Integration of Total Force
        We've already touched on the fact that the Guard and Reserve are
    fully integrated partners of the Air Force--and that we are
    interdependent on each other for mission accomplishment. Operationally,
    we've seamlessly integrated the ARC into our business. We've created
    unit equipped, associate, and blended units and we'll continue to
    innovate. We must review and streamline the process of mobilization and
    volunteerism to facilitate the utilization of our ANG and Reserve
    members. It is important to destroy the Cold War paradigm (and
    lingering perceptions) of the strategic Reserve ``weekend warrior.''
    The next step is to revise our laws, policies, and practices to
    accommodate the new steady state of the ARC.
        The Air Force is working to identify the right force mix and
    capability to maintain in the active, Guard, and Reserve. The new
    steady state will require examination of capabilities spread between
    the active Air Force and the Air Reserve components (e.g. MC-130s,
    AWACS, CSAR, etc). For example, of the total force realignment of
    scarce Low Density/High Demand resources, the 939th Rescue Wing's HC-
    130s and HH-60s will transfer to the active component in order to
    reduce the PERSTEMPO in the Low Density/High Demand Combat Search and
    Rescue (CSAR). The transfer of these assets to the active component
    increased full-time personnel without increasing already high
    volunteerism rates or having to mobilize a significant number of CSAR
    reservists. The activation of the 939th Air Refueling Wing, Portland,
    OR, addresses the need for more aerial refueling assets on the West
    coast enhancing our ability to rapidly respond to any crisis. The Air
    Force continues to review our force mix.
        Another key component in our strategy is to reduce the complexity
    of Reserve Force volunteer employment. Our process should consist
    simply of validating the requirement, and identifying the Reserve
    resource to meet mission demand, whether that is through volunteerism
    or mobilization for wartime surge. We are reviewing these issues to
    determine the optimal use of our active military, ARC, civilian, and
    contractor mix.

    Challenge: Transformation of Air Force Business Practices
        The process of transformation begins and ends with people. We are
    confident in the ability of our warriors to innovate, adapt and lead
    the enemy in development of operational concepts, doctrine and tactics.
    Implementing the warfighter's visions through development and delivery
    of forces, systems and support demands equal flexibility and agility in
    the Air Force's business operations--our personnel, finance,
    acquisition, technology, and supply systems. If we are to keep pace
    with and support innovation in the methods and modes of air and space
    combat, we must break out of ``industrial-age'' business processes and
    embrace ``information-age'' thinking.
        In other words, we must be as business efficient as we are combat
    effective. We seek--relative to today's status quo:

             An improvement in the effectiveness of operations
            resulting in higher customer satisfaction ratings;
             A reduction of average process cycle time by 75
            percent;
             Work processes and work loads enabling our people to
            accomplish routine (non-crisis, non-exercise) organizational
            missions within a 40 to 50 hour work week;
             Empowerment of personnel and enrichment of jobs; and
             A 20 percent shift in business operations resources
            (dollars and people) to warfighting operations and new/modern
            warfighting systems.

        Fundamentally transforming our application of technology, concepts
    and organizational structures will produce dramatic results. This
    departure from business as usual is not a luxury, but a necessity.
    While we are not a business, many of the challenges we face have been
    met and mastered in America's private sector. We must adopt their best
    business practices, ``de-layer'' our organization, push decisions down
    to the level best able to make the call, and manage for results.

                                    SUMMARY

        The Air Force is the master of warfare in the domain of air and
    space. We are stressed by the challenges of asymmetric threats, but
    adapting and innovating to meet these challenges and guarantee success.
    Regardless of AEF deployment or home station missions, our airmen
    accomplish their duties with firm commitment and resolute action. We,
    in turn, are taking action to shape our force for the future under an
    innovative competency-based force development construct focused on our
    core competencies. We do this because we know whom we do it for--those
    who cannot help themselves and those who defend and cherish freedom.
        The global war on terrorism has imposed a new steady state of
    radically accelerated operations and personnel tempo as well as a
    demand for unprecedented speed, agility, and innovation in adapting to
    unconventional and unexpected threats. While our tools and technology
    are impressive, it is our airmen who will fight and win the Nation's
    wars.
        We will continue to rely on Congress as we seek to improve and
    innovate the total force to meet the challenges of the ``new steady
    state.''

        Senator Chambliss. Thank you very much. I told the Chiefs
    the other day, as I get around to visit all the bases around
    the country, in every branch I continue to be impressed with
    the quality of young men and women that each of you are
    recruiting. We are truly getting our fair share of America's
    finest out of our educational institutions at different levels,
    and we appreciate your comment about the small part this
    committee plays, but it is you gentlemen and your leadership
    that is allowing that to happen. On behalf of all of us we
    appreciate the great job you all are doing in making our job a
    lot easier.
        General Le Moyne, I want to talk to you about an issue that
    I have a particular interest in, and that is the situation in
    Korea with respect to the level of pay. General LaPorte, the
    Commander of U.S. Forces in Korea, has described the difficult
    leadership challenge in motivating soldiers to accept orders to
    Korea, indicating, for example, that officers eligible for
    command have been prone to retire or resign rather than accept
    an assignment to Korea.
        While both General Schwartz and General LaPorte have
    emphasized the need for construction of new barracks and family
    housing, they have underscored the fact that the duty in Korea
    results in soldiers taking a pay cut in terms of future
    incentive pays and allowances.
        Would the Department support an initiative to increase the
    compensation given to personnel who are assigned to Korea, and
    do you have any recommendations on how to best proceed on this
    particular issue?
        General Le Moyne. Sir, if I may, a couple of points. We
    have studied this very closely with General LaPorte and his
    predecessor, and we did have a spike 2 years ago in some
    declinations of command, but a couple of things to keep in
    mind. You have a single declination of command in Korea, and
    that is 5 percent compared to the rest of the Army, and he had
    a total of five that one year, and it did surprise us.
        We took that into consideration and, in fact, we reviewed
    our command policy and how we slate people for command, and
    this year there has been a significant change in the
    declinations to Korea. On average, sir, across the Army, we
    average about 6 percent declinations of command for lieutenant
    colonel and colonel level. I think that Korea will come very
    close to this.
        In addition, sir, we have looked at offering to our members
    of the Armed Forces what we call a high school senior
    deferment, and so if you come up for orders and you have one of
    your children in high school who is going to be a senior that
    following year, it is a no-cost and no-penalty waive, and we
    defer everything for a year. That is also having a major impact
    on our success rate.
        This carries over into the no-show rate in Korea and, in
    fact, sir, today, although Korea still is one of our highest
    no-show rates, but that also includes people we take off orders
    to send to other priority assignments. Fort Hood and Fort Bragg
    are higher no-shows than Korea right now. It is averaging about
    17 percent total, sir.
        On the point about pay, sir, General LaPorte and I have
    talked about this a number of times in great detail. The point
    I have made to General LaPorte, sir, is that Korea is not like
    Bosnia or Kosovo or Macedonia, where they cannot go off the
    base and they are restricted to just the base. We have
    recognized the hardship duty that our soldiers take in Korea
    and, in fact, give them a hardship duty allowance for location,
    and if you are north of the Han River it is $150 a month, if
    you are south of it, it is $50 a month.
        We are looking at that again, sir, to see, if we should
    make some adjustments on this. Having said that, sir, it is a
    joint issue. I have to work this with OSD. I can assure you,
    sir, we are very sensitive to it. I visit there every year, and
    I have members of my staff who visit there every quarter.
        Senator Chambliss. Admiral Hoewing, I noted with some
    concern the Navy's request for an additional $326 million in
    fiscal year 2004 to cover increased costs associated with
    personnel. This includes work year costs for almost 1,500
    sailors, shortfalls in various pays and allowances, and
    additional funding for a new personnel management system called
    the Sea Warrior. In your judgment, which are the most pressing
    requirements that should be funded by Congress, and are you
    satisfied that you have the effective means to effectively
    control these costs in both 2003 and 2004?
        Admiral Hoewing. Sir, as we end up fiscal year 2003, we
    have been operating approximately 2 percent above the end
    strength floor, and we will enter fiscal year 2004 slightly
    above the program of record. I would say our most pressing need
    as we move into fiscal year 2004 will be the requirement for
    what we call work year funding. There is a difference between
    end strength, which we have used to manage for many years, and
    the work years. That is what you actually have to pay sailors.
        We manage through the end strength process. What we are
    finding is that our processes do not necessarily or adequately
    reflect the work years in order to meet the end strength needs,
    so these dollars that you mentioned are largely due to work
    year funding that does not necessarily match the strength as
    you come down. As you get a little bit smaller, the work years
    will exceed the end strength costs.
        As far as the most pressing, I would say work year funding
    is the most pressing. You mentioned the Sea Warrior project, of
    which we are extremely proud. In fact, we have had the
    opportunity to show this web-based human resource system to
    some of the staff members so that they would become familiar
    with it.
        This is a very high priority system for us, because it
    invests in the growth and development and the assignment and
    the career perspective of each of our sailors, so I would say
    that that career management system associated with Sea Warrior
    is also a pressing need for our fiscal year 2004 budget.
        Senator Chambliss. Thank you.
        Senator Nelson.
        Senator Ben Nelson. Thank you, Mr. Chairman.
        Admiral, most members of the Reserve components who are
    ordered to active duty are being ordered to active duty for a
    year, with the possibility of being extended longer, and we
    have been informed that the Navy is issuing multiple 29-day
    orders to some Navy reservists who agree to serve on active
    duty. It appears that the Navy is asking them to reschedule all
    drills for the year into a 29-day block. Issuing orders this
    way precludes the reservist's family members perhaps from
    qualifying for TRICARE, and therefore creates some awkward
    situations for their employers.
        Can you tell me, is the Navy practice to encourage
    reservists to combine all their drills into 29-day blocks so
    that they can be ordered to active duty?
        Admiral Hoewing. Senator Nelson, sir, we have mobilized a
    majority of our reservists for 1 year and, in fact, one of the
    things we are very proud of is the fact that when we were in
    the demobilization process, about a year or so after the
    September 11 event, we had many of our mobilized reservists
    that did not, in fact, want to go home. They were just true
    patriots, and we really appreciate that. We have some
    reservists that, because they have volunteered to do so, are
    actually staying more than 1 year, or staying on the second
    year.
        Regarding the 29-day orders, I am going to have to take
    that question for the record. I do not believe that it is our
    policy to do that unless we are working with the individual to
    specifically be able to group those drill days together in
    order to help the benefit of the sailor, so let me take that
    question for the record, and we will get back to you, sir.
        Senator Ben Nelson. It would not be to try to negate the
    qualification under TRICARE. It would be to try to block the
    time frame to, in fact, help the sailor's interest in becoming
    part of the Active-Duty Force.
        Admiral Hoewing. Yes, sir. We believe that if a sailor does
    have the opportunity to do his drills together for a longer
    period of time, there is more synergy associated with that, but
    I believe there is no intent to avoid having that sailor be
    able to reap the benefits of the TRICARE process. That would be
    counter to our ethics.
        Senator Ben Nelson. It seems like it would be
    counterproductive and counter to the efforts that you are
    taking, so we would appreciate a response, if you would,
    please.
        [The information referred to follows:]

        No. Normal training is conducted one weekend a month using drill
    (IDT) periods, and two weeks a year using Annual Training (AT).
    However, the Navy recognizes that every naval reservist has unique
    civilian work schedule requirements, and that their active gaining
    command may require support throughout the year. Therefore, naval
    reservists are authorized and many times are encouraged to drill on a
    ``flexible schedule.'' This may include single or multiple drills
    during the week, or they may combine drills and other periods of active
    duty for an extended time of training or contributory support. These
    blocks of additional active duty for training (ADT) may be as short as
    1-2 days for flight training, or 1-3 weeks for school training, or
    multiple months at time to fill a critical contributory support
    requirement for a gaining command. Active duty for special work (ADSW)
    may run for a few weeks up to 179 days. Also, it is Navy policy to
    mobilize reservists for a period of 365 days. If the requirements for a
    mobilized reservist change prior to the expiration of their
    mobilization orders, Navy policy is to either reassign the mobilized
    reservist to meet other requirements or to demobilize them. In either
    case,  reservists receive full mobilization benefits. Since a 365-day
    mobilization is so disruptive to a reservist's family and civilian job,
    when a requirement can be fulfilled by a shorter period of active duty,
    we will utilize that option. For example, there have been instances
    where naval reservists performed short duration training periods to
    meet requirements and take advantage of exceptional training
    opportunities. There are also instances in which a reservist's
    contributory support role may require flexibility in performing
    scheduled drill periods to accommodate the needs of his/her gaining
    command. None of these variations are in any way intended to prevent or
    circumvent the reservist from obtaining access to entitlements,
    including TRICARE.

        Senator Ben Nelson. General Brown, obviously we are
    concerned about reports that the Air Force extended some
    mobilized reservists for a second year of active duty at the
    same time the Air Force was releasing active component
    personnel of the same grade and scale, some of whom left active
    duty to take the civilian jobs vacated by reservists who were
    being extended, sort of an interesting turn of events here.
        Is the Air Force releasing from active duty active
    component airmen with the same grade and scales as mobilized
    reservists who are being extended for a second year?
        General Brown. Sir, when we initiated mobilization right
    after September 11, we very quickly put on a stop loss for our
    entire active and Guard and Reserve Air Force. We then analyzed
    in 60-day increments how long we needed to continue in a stop
    loss effect, where we effectively take the volunteer force and
    tell them they cannot separate or retire in their personal
    plans. We eventually weaned ourselves of stop loss over about a
    1-year time period, and so our stop loss was taken off of our
    force in about October or so 2002.
        Now, we tried to also bring down the mobilization effort,
    which got up in the neighborhood of around 38,000 airmen, both
    Guard and reservists, at its high water mark in about June
    2002, and we brought almost, the vast majority of those back
    off of mobilization at the 1-year point. There were some who
    reextended for a second year. Most of those, because they
    wanted to extend for a second year, much like what Admiral
    Hoewing described with the Navy. It was to their benefit.
        Now, if it was to an individual's benefit and our force
    needed that kind of skill, then we extended for a second year.
    We certainly are now facing somewhere in the next few months,
    in the late summer, early fall, a point when those folks will
    hit their 2-year mark and must go home. That is of concern to
    us, especially in critical skills.
        We are on the edge of enacting, potentially--another stop
    loss in the critical skill areas, which would be the similar
    skills where we have needed to mobilize, in many of our rated
    skills, and some of those high-density, low-demand--low-
    density, high-demand efforts.
        I will have to get back with you on specifics and take for
    the record if there are exact AFSCs and/or ranks mixes where we
    have released, but did not stop, because I just do not have
    data that would indicate that problem exists, so I can tell you
    we are generally very concerned about how we mix the release of
    the Active Force when we are mobilizing in great numbers the
    Guard and Reserve.
        Senator Ben Nelson. I can appreciate, General, that it is
    probably a byzantine exercise to try to make it all work
    appropriately. That is why we will appreciate your getting back
    to us on that answer.
        [The information referred to follows:]

        The answer is yes. However, we are addressing two separate
    and distinctive elements of the law. In its enabling
    legislation, Congress recognizes the difference between
    mobilization and Stop Loss. The law specifies mobilization as a
    pre-condition for Stop Loss (S/L), but allows mobilization to
    occur on its own. These two force management tools are not
    welded together because they serve two separate purposes.
        Mobilization is effected to augment the Active Force with
    fully trained, fully equipped and fully manned Reserve
    component units or UTCs to enhance the combat capability of the
    Air Force. Reserve personnel are fulfilling their agreement
    with the Service by being available when their unit (UTC) is
    mobilized. Reserve personnel, under the current partial
    mobilization, may be required to remain on active duty for up
    to 24 months. Mobilization is not initiated because active duty
    members are separating from the Air Force and need to be
    replaced. Mobilization is used to meet exigent requirements.
        Stop Loss, on the other hand, is a tool the armed services
    use to ensure units are adequately manned for emergency
    requirements, and it applies equally to the total force--
    active, Guard, and Reserve members. By invoking Stop Loss we
    involuntarily extend the agreement between the Service and the
    member. We do this to ensure there are adequate numbers of
    people having the requisite skills, experience, and maturity
    needed to operate successfully in a wartime, expeditionary
    environment. Since this is an ``involuntary'' extension of the
    agreement, we use Stop Loss as a last resort and strive to lift
    the restrictions as quickly as practical to preserve the ideals
    of a ``volunteer'' force. The good news, many of those
    individuals previously under the restrictions of Stop Loss
    choose to re-enlist and stay with the Air Force. For those who
    have met their obligation and choose to separate, we backfill
    them with trained individuals who have been recruited by the
    active, Guard, or Reserve units, accordingly.
        Air Force leaders are acutely aware of the stress caused by
    the continuous mobilization of the ARC. We are committed to
    reducing the number of ARC units and personnel needed to meet
    the current emergency. The Assistant Secretary of the Air Force
    has ordered that every new mobilization order or extension
    request be accompanied with a plan for accomplishing assigned
    tasks without reliance on long term mobilization of the ARC. It
    is also required that a demobilization timeline be included to
    assure the plan is executed and in compliance with the
    directive. Air Force leadership is committed to returning our
    ARC members to their roles as citizen-airmen.
        The total force has responded well to the global war on
    terrorism. Both active and Reserve components have been
    stretched, and in our policies, we will continue to pursue a
    balanced and even-handed approach to ensure its viability in
    the future.

        Senator Ben Nelson. General Brown, last week, when asked
    about Air Force end strength, Secretary Roche testified that
    there are 12,000 airmen not working for the Air Force, and that
    he was seeking to have them returned to the Air Force, which
    seemed an appropriate thing. Do you know what kind of duties
    these 12,000 airmen might be performing, and where they are if
    they are not working for the Air Force?
        General Brown. Yes, sir. What our Secretary is referring
    to--and really all of our Services have a similar pattern. We
    each would have our own set of numbers. These are, in our case,
    Air Force people wearing a blue suit uniform who are not
    working for or in a direct Air Force unit. Now, many of them
    are doing very important work in a joint command.
        Senator Ben Nelson. They could be detailed to another
    Service, apparently.
        General Brown. They could be in CENTCOM. They might be
    stationed right now in McDill, or maybe forward in Southwest
    Asia, or they may be at STRATCOM. Some of these are in Joint
    Command and some of them are off in some of the agencies, the
    Defense agencies. Some of them are in other parts of our
    Nation, in assignments that are listed as duty to be filled by
    Air Force officers and enlisted, but our Secretary has asked us
    to review where we have airmen stationed outside of the
    mainstream Air Force.
        All 12,000 will not come back to the Air Force, because we
    need Air Force presence in many of those, but where we might
    have too much Air Force presence, or could it be done in some
    other way, civilian or contractor, or some other effort, we
    would like to try to get those blue suits back into the tooth
    and out of tail, which is an effort we are doing within the Air
    Force also, as well as those outside.
        Senator Ben Nelson. General Le Moyne, do you have something
    you want to add?
        General Le Moyne. Senator Nelson, if I may, sir, because
    all four of us have scrubbed this hard this past year under OSD
    guidance. We looked at the personnel, commissioned,
    noncommissioned, and enlisted who are detailed or pulling
    duties away from our parent Service, and as General Brown says,
    those that are on Nation-type duties, those that have been
    certified are still there.
        The ones that are, as we say, detailed on a nonreimbursable
    basis away from our Services, we have reduced that number. All
    four of us, over this past year significantly, and in our case,
    sir, by about half, and we are still working that hard.
        Senator Ben Nelson. There is no suggestion that there is
    something inappropriate about it. There could be a good basis
    for having them detailed off somewhere else. We do not suggest
    that, but I appreciate your answers.
        General Le Moyne, it is clear that the Army has a shortage
    of military police officers. Your active duty military
    policemen are constantly deployed, and some Reserve and
    National Guard military policemen have been ordered to take
    active duty more than once because of the shortage and, of
    course, we discussed this during our meeting earlier today.
        Could you tell the committee what you and Mr. Brown told me
    this morning about how we got to where we are with respect to
    MP mobilizations and deployments? What is the Army doing to
    attempt to correct this shortage?
        General Le Moyne. Thank you, sir, I will.
        We build our force structure based upon a procedure that we
    try to forecast what our Nation's needs are 4 to 10 years in
    advance, and so we develop a structure to show that, but we
    have incidents like September 11 that pop up that we had not
    anticipated to that degree, and we have to, as a result,
    mobilize some elements of the Armed Forces to a higher number
    for a longer period of time than we had ever anticipated, and
    then you run into a problem like we are today, to where MPs are
    in short supply.
        Let me emphasize, MP units. Within the Guard, the Reserve,
    and the Active Force, the individual MP numbers are very
    healthy. In the Active Force right now, we are running about
    109 percent. We just took the MP Active Force off the stop loss
    restrictions. Their departure rates are in keeping with
    historical norms. We did not see a large spike in their
    departure, as thought. These young men and women served an
    additional year beyond their obligated service, and they are
    staying. We anticipate the same thing in the Guard and Reserve.
        What we are doing now is, we have added to our force
    structure in the outyears, starting with 2004, to increase the
    number of MP units we are going to have on the books. We are
    looking for, inside our current structure, the units and
    positions that we can change to give us that structure. That
    will start in 2004, sir. It is on the books through 2009, and I
    anticipate it will continue in the outyears.
        Senator Ben Nelson. I appreciate your response, General.
        Mr. Chairman, those are my questions, and I turn it back to
    you.
        Senator Chambliss. General Brown, I have not followed this
    issue in detail, but I know that Senator Allard and other
    Members are concerned that we do not have in the Air Force or
    the other Services the expertise and experience needed to
    oversee the development of very sophisticated space systems. I
    understand that the Air Force was tasked almost 2 years ago in
    the National Defense Authorization Act for Fiscal Year 2002 to
    develop a space career field for officers involved in space
    operations, and the development of space systems, doctrine, and
    concepts of operations. What is the status of that effort, and
    why is it taking so long?
        General Brown. Sir, Air Force Space Command and General
    Lord specifically, who is the Commander of Air Force Space, he
    is the lead, and has a group that has been meeting on a regular
    basis and determining exactly how we would come about with a
    Space Force, and studying the personnel aspects of that.
        We have an AFSC today for a space officer. We have missile
    officers who very often move back and forth from the space and
    missile business, so we have in existence today a force within
    our Air Force that cares for and watches the capability of the
    space business, but taking a report that came from the
    commission, General Lord is leading the effort, and I know he
    is, I think very close to sending the report to the Chief of
    Staff and to the Secretary with some ideas of what we can do
    different, the ways ahead to make for a better, improved----
        Senator Chambliss. Do you have any time line on that
    report?
        General Brown. Sir, I believe it is within the next 3 to 4
    months, and it could be even sooner than that, but I think it
    is very soon, from one of the reports that I received recently.
        Senator Chambliss. Okay. General Parks, you mentioned in
    your written statement the Marine Corps quality of life study,
    which I compliment you on having initiated in 2002. I noted,
    however, the initial analysis of the survey showed an across-
    the-board decrease in quality of life satisfaction of marines
    compared to the 1998 study. Can you give us some additional
    insight into the significance of that finding, and how it
    should be interpreted, and what is the next step for review of
    that survey, and when can we expect some responses by the
    Marine Corps?
        General Parks. I can, sir. What we have found is, just as
    you outlined from having read my testimony and statement, is
    that we saw an across-the-board reduction in satisfaction with
    quality of life. We are now, having only recently received a
    report, in the process of analyzing that report and trying to
    determine what were the pertinent reasons behind that. From a
    speculation standpoint, was it an expectations issue, wherein
    the individual marine thought they would get something, or had
    their expectation been much higher than what the reality was?
        An example of that could be that when you are satisfied
    with the Government quarters that you are in, but when you see
    the private-public venture results of another base across town,
    or across the country, you realize all of the sudden that the
    expectation is a lot different from what you are currently
    looking at.
        Another piece is, we are a very young force, as you are
    aware, and we bring in because of that a youthful population,
    some call it the millennial generation, whose expectations and
    ideas of success and what their standard point of departure is
    much higher. Many terms have been associated with them from the
    standpoint of the baby-on-board generation, and those who have
    the soccer moms or dads who continue to reward them, and
    therefore, the expectations may be higher because of that. That
    may be a factor that we are dealing with.
        We believe that the end product to it is just to ensure
    that we articulate fully what we provide in our quality of life
    services, as Dr. Chu alluded to, to provide a social compact
    that is articulated as to what they can expect, and better
    present that to them so that in the future, they know what they
    can expect. We can judge accordingly from that, and how we will
    resolve it.
        As far as the latter part of your question as to when you
    can expect the results of that, we hope to do that within the
    next 6 months as we analyze the information and assess what the
    findings are from our perspective.
        Senator Chambliss. Can you give us an update on that at the
    time you get it?
        General Parks. I would be happy to, sir.
        [The information referred to follows:]

        Senator Chambliss. What did you say, 6 months, you think?
        General Parks. Just estimated it at 6 months, sir.
        Senator Chambliss. All right.
        Gentlemen, thank you all very much. We appreciate your
    continued efforts.
        We welcome the representatives from The Military Coalition
    for their participation and testimony today. It is critical we
    hear the views of the members you represent so that we can
    appropriately respond to issues of importance to them. With us
    today is Joseph Barnes, National Executive Secretary of the
    Fleet Reserve Association--Mr. Barnes, thank you for being
    here. Joyce Raezer, Associate Director of Government Relations
    for the National Military Family Association--Ms. Raezer, thank
    you for being here. Steve Anderson, Legislative Counsel for the
    Reserve Officers Association. Mr. Anderson, thank you for being
    here. James Lokovic, Deputy Executive Director and Director,
    Military and Government Relations of the Air Force Sergeants
    Association. Mr. Lokovic, thank you for being here. Dr. Susan
    Schwartz, Deputy Director of Government Relations/Health
    Affairs of the Military Officers Association of America. Dr.
    Schwartz, thank you for being here.
        Your prepared statements will be entered into the record,
    and it is important we get to your specific issues, as we have
    already consumed a lot of time here, but we appreciate your
    patience. We thank you for being here, and we look forward to
    your remarks.
        [The prepared statement of the Military Coalition follows:]

               Prepared Statement by The Military Coalition (TMC)

        Mr. Chairman and distinguished members of the subcommittee. On
    behalf of The Military Coalition, a consortium of nationally prominent
    uniformed services and veterans' organizations, we are grateful to the
    subcommittee for this opportunity to express our views concerning
    issues affecting the uniformed services community. This testimony
    provides the collective views of the following military and veterans'
    organizations, which represent approximately 5.5 million current and
    former members of the seven uniformed services, plus their families and
    survivors.

             Air Force Association
             Air Force Sergeants Association
             Air Force Women Officers Associated
             AMVETS (American Veterans)
             Army Aviation Association of America
             Association of Military Surgeons of the United States
             Association of the United States Army
             Chief Warrant Officer and Warrant Officer Association,
            U.S. Coast Guard
             Commissioned Officers Association of the U.S. Public
            Health Service, Inc.
             Enlisted Association of the National Guard of the
            United States
             Fleet Reserve Association
             Gold Star Wives of America, Inc.
             Jewish War Veterans of the United States of America
             Marine Corps League
             Marine Corps Reserve Officers Association
             Military Chaplains Association of the United States of
            America
             Military Officers Association of America
             Military Order of the Purple Heart
             National Guard Association of the United States
             National Military Family Association
             National Order of Battlefield Commissions
             Naval Enlisted Reserve Association
             Naval Reserve Association
             Navy League of the United States
             Non Commissioned Officers Association
             Reserve Officers Association
             Society of Medical Consultants to the Armed Forces
             The Retired Enlisted Association
             United Armed Forces Association
             United States Army Warrant Officers Association
             United States Coast Guard Chief Petty Officers
            Association
             Veterans of Foreign Wars
             Veterans' Widows International Network

        The Military Coalition, Inc., does not receive any grants or
    contracts from the Federal Government.

          EXECUTIVE SUMMARY--RECOMMENDATIONS OF THE MILITARY COALITION

    Active Force Issues
        Personnel Strengths and Operations Tempo. The Military Coalition
    strongly recommends Service end strengths be increased immediately to
    balance today's operational requirements with the personnel resources
    needed to perform these missions. The force was already stressed before
    September 11 and the pace of operations--especially for those serving
    in low density, high demand skills--has only increased, worsening the
    operational and personal stresses on active, National Guard and Reserve
    personnel, and their families.
        Pay Raise Comparability and Pay Table Reform. The Coalition urges
    the subcommittee to restore full pay comparability on the quickest
    possible schedule and to revise the permanent law that caps annual
    military pay raises below comparable private sector wage growth,
    effective in 2007. The Coalition also urges the subcommittee to ignore
    requests from the administration to cap future military raises. The
    Coalition believes all members need and deserve annual raises at least
    equal to private sector wage growth. To the extent targeted raises are
    needed, the Department of Defense needs to identify the ultimate
    ``objective pay table'' toward which the targeted raises are aimed.
    Specific objectives for inter-grade relationships must be established,
    publicized, and understood, or members will perceive repeated
    differential pay raises as unfair. The Coalition is also extremely
    disappointed that the administration is proposing to cap the pay of
    NOAA and USPHS officers at 2 percent. The Military Coalition strongly
    objects to this disparate treatment of members in those uniformed
    services and urges you to intercede in their behalf with your
    colleagues on the appropriate oversight committees for NOAA and USPHS
    personnel.
        Basic Allowance for Housing (BAH). The Military Coalition urges the
    subcommittee to adjust grade-based housing standards to more accurately
    reflect realistic housing options and members' current out-of-pocket
    housing expenses. The Coalition further urges the subcommittee to
    accelerate the plan to eliminate service members' out-of-pocket housing
    expenses from fiscal year 2005 to fiscal year 2004.
        Basic Allowance for Subsistence (BAS). The Military Coalition urges
    the subcommittee to repeal the statutory provision limiting BAS
    eligibility to 12 percent of single members residing in government
    quarters. As a long-term goal, the Coalition supports extending full
    BAS eligibility to all single career enlisted members, beginning with
    the grade of E-6 and extending eligibility to lower grades as budgetary
    constraints allow.
        Permanent Change of Station (PCS). The Military Coalition urges
    continued upgrades of permanent change-of-station reimbursement
    allowances in fiscal year 2004 to recognize that the government, not
    the service member, should be responsible for paying the cost of doing
    the Government's business.
        Education Benefits for Career Service Members. The Military
    Coalition urges the subcommittee to provide those career service
    members, who have not had an opportunity to sign up for a post-service
    educational program, an opportunity to enroll in the Montgomery GI Bill
    (MGIB).
        Family Readiness and Support. The Military Coalition urges improved
    education and outreach programs and increased childcare availability to
    ensure a family readiness level and a support structure that meets the
    requirements of increased force deployments for active, National Guard
    and Reserve members.
        Commissaries. The Military Coalition opposes privatization of
    commissaries and strongly supports full funding of the benefit to
    sustain the current level of service for all commissary patrons.

    National Guard and Reserve Issues
        Support of Active Duty Operations. The Military Coalition urges
    continued attention to ensuring an appropriate match between National
    Guard and Reserve Force strengths and missions. The Coalition also
    urges further improvements to the Soldiers and Sailors Civil Relief Act
    (SSCRA) to protect National Guard and Reserve families from economic
    disruption when they are called to extended active duty.
        Healthcare for Members of the National Guard and Reserve. The
    Military Coalition urges making the TRICARE medical program available
    for members of the National Guard, Reserves, and their families on a
    cost-sharing basis in order to ensure medical readiness and provide
    continuity of coverage to members of the Selected Reserve. In addition,
    to further ensure continuity of coverage for family members, the
    Coalition urges allowing activated Guard/Reserve members the option of
    having the Department of Defense pay their civilian insurance premiums
    during periods of activation.
        Selected Reserve Montgomery GI Bill (MGIB) Improvements. Basic
    benefits under the MGIB program (Title 38) have increased almost 50
    percent over the last 3 years, but during the same period, have not
    increased, proportionally, in the Reserve MGIB program (Title 10). The
    Military Coalition recommends that the Reserve MGIB authority be
    transferred to Title 38 so that those benefits are applied consistently
    and equitably to all members of the total force.
        Tax issues. The Military Coalition urges restoration of full tax-
    deductibility of non-reimbursable expenses related to military
    training. The Military Coalition urges authorization of tax credits for
    employers of National Guard and Reserve employees.
        Retirement Credit for All Earned Drill Points. The Military
    Coalition recommends lifting the 90-point cap on the number of Inactive
    Duty Training (IDT) points earned in a year that may be credited for
    National Guard and Reserve retirement purposes.
        Unlimited Commissary Access. The Military Coalition recommends
    doing away with the 24-visit access cards and extending unrestricted
    commissary access to members of the National Guard and Selected
    Reserve.
        Academic Protections for Mobilized Guard and Reservists. TMC
    recommends that the committee endorse legislative proposals to afford
    academic and financial protections to National Guard and Reserve post-
    secondary students activated into extended Federal service.

    Retirement Issues
        Concurrent Receipt of Military Retired Pay and Veterans Disability
    Compensation. The Military Coalition thanks the subcommittee leaders
    and members for the National Defense Authorization Act for Fiscal Year
    2003 provisions that eliminate the disability offset for combat and
    operations-related disabilities, and urges continued progress to
    eliminate the offset for all disabled retirees. The Coalition
    specifically requests the immediate inclusion of deserving National
    Guard and Reserve retirees, Early Retirement Authority retirees, and
    enlisted retirees with high decorations for extraordinary valor--all of
    whom completed careers and suffered combat, or operations-related,
    disabilities.
        Final Retired Pay Check. The Military Coalition strongly recommends
    that authority be provided to allow the survivors to retain the final
    retired pay check received during the month in which the retiree dies.
    Current policy requires the final check to be returned and a prorata
    check be reissued based on the number of days the retiree was alive in
    that final month--an agonizing and arduous experience for many
    survivors.
        Former Spouse Issues. The Military Coalition strongly recommends
    corrective legislation be enacted to eliminate inequities created
    through years of well-intended, piecemeal legislative action initiated
    outside the subcommittee.
        Involuntary Separation Pay. The Military Coalition urges
    reinstatement of involuntary separation pay eligibility for officers
    twice deferred from promotion who decline continuation to 20 years.
        Tax Relief for Uniformed Services Beneficiaries. The Military
    Coalition urges the subcommittee to support legislation to provide
    active duty and uniformed services beneficiaries a tax exemption for
    premiums and enrollment fees paid for TRICARE Prime, TRICARE Standard
    supplements, the active duty dental plan, TRICARE Retiree Dental Plan,
    FEHBP and Long-Term Care.

    Survivor Program Issues
        Age 62 SBP Offset. The Military Coalition strongly recommends
    elimination of the age-62 Survivor Benefit Plan annuity reduction. To
    the extent that immediate implementation may be constrained by fiscal
    limitations, the Coalition urges enactment of a phased annuity increase
    as envisioned in S. 451 and H.R. 548.
        30-Year Paid-Up SBP. The Military Coalition strongly recommends
    accelerating the implementation date for the 30-year paid-up SBP
    initiative to October 1, 2003.
        Active Duty SBP. The Military Coalition recommends that payments of
    benefits to children of active duty members, who die while serving on
    active duty, be authorized if the surviving spouse remarries, as is the
    case for the children of retired members.
        Death Gratuity. The Military Coalition strongly recommends the
    death gratuity paid to survivors of members who die on active duty, be
    raised from $6,000 to $12,000.
        SBP-DIC Offset. The Military Coalition strongly recommends that the
    current dollar-for-dollar offset of Survivor Benefit Plan (SBP)
    benefits by the amount of Dependency and Indemnity Compensation (DIC)
    be eliminated, recognizing that these two payments are for different
    purposes.

    Health Care Issues
        Adequate Funding For The Defense Health Budget. The Military
    Coalition strongly recommends the subcommittee continue its
    watchfulness to ensure full funding of the Defense Health Program, to
    include military medical readiness, TRICARE, and the DOD peacetime
    health care mission. The Defense Health Budget must be sufficient to
    provide financial incentives to attract increased numbers of providers
    needed to ensure access for TRICARE beneficiaries in all parts of the
    country.
        TRICARE For Life Implementation
        Claims Processing for Under-65 Medicare-Eligible Beneficiaries. The
    Military Coalition urges the subcommittee to change the law to require
    that all Medicare-eligible uniformed services beneficiaries, regardless
    of age or status, shall be entitled to the same TFL benefits, claims
    processing treatment, and benefits information notification currently
    afforded to Medicare-eligible beneficiaries over age 65, effective upon
    enactment.
        Education for Under-65 Medicare-Eligible Beneficiaries. The
    Military Coalition urges the subcommittee to require DOD to develop a
    mechanism to inform retiree beneficiaries of the Part B requirement and
    to continue their TRICARE benefit until the first date their Medicare
    coverage can take effect, contingent on the beneficiary's participation
    in the next Part B open enrollment period.
        Medicare Part B Penalty. The Military Coalition recommends that
    individuals who attained age 65 prior to October 1, 2001, who would
    otherwise be subject to a Medicare Part B late enrollment penalty,
    should have the ability to enroll in Medicare Part B during a special
    enrollment period and to have penalties waived.
        Dual-Eligible DOD-VA Beneficiaries. The Coalition urges the
    subcommittee to remain vigilant in its efforts to ensure that military
    retirees also eligible for VA care should not be forced to make an
    election between VA and DOD health care and to take further steps to
    permit dual eligibles access to both systems.
        TRICARE Improvements
        Distinction between TRICARE Prime and Standard. The Military
    Coalition urges the subcommittee to focus its primary energies on
    revitalizing the TRICARE Standard program. To this end, the Coalition
    recommends requiring that any reports from the Department of Defense,
    the Comptroller General or other sources specify separate assessments
    of TRICARE Prime and TRICARE Standard statistics, problems, policies,
    procedures, and impacts on beneficiaries.
        Provider Reimbursement. The Military Coalition requests the
    subcommittee's support of any means to raise Medicare rates to more
    reasonable standards and to support measures to address Medicare Part
    Bs flawed reimbursement formula.
        The Military Coalition most strongly urges the subcommittee to
    institute a pilot project at several locations of varying
    characteristics to test the extent to which raising TRICARE Standard
    rates increases the number of providers who are willing to accept new
    Standard patients.
        The Military Coalition urges the subcommittee to further align
    TRICARE with Medicare by adapting the Medicare Disproportionate Share
    payment adjustment to compensate hospitals for the care of TRICARE
    beneficiaries.
        Network and Standard Provider Availability. The Military Coalition
    urges the subcommittee to require DOD and its MCSCs to assist Standard
    beneficiaries in finding providers who will accept new TRICARE Standard
    patients, including interactive on-line lists and other means of
    communication.
        FEHBP Option. The Military Coalition urges the subcommittee to
    authorize a demonstration program to test interest, feasibility, and
    cost-effectiveness of providing uniformed services beneficiaries,
    family members, retirees and survivors under the age of 65 an option to
    enroll in FEHBP on the same basis as their Federal civilian
    counterparts.
        Administrative Burdens. The Military Coalition urges the
    subcommittee to continue its efforts to make the TRICARE claims system
    mirror Medicare's, without extraneous requirements that deter providers
    and inconvenience beneficiaries.
        Prior Authorization. The Military Coalition urges the
    subcommittee's continued efforts to narrow and ultimately eliminate
    requirements for pre-authorization.
        TRICARE Prime (Remote) Improvements. The Military Coalition
    requests that the subcommittee authorize TRICARE Prime Remote
    beneficiary family members to retain their eligibility when moving to
    another remote area when such move is funded by the government and
    there is no reasonable expectation that the service member will return
    to the former duty station.
        The Military Coalition urges the subcommittee to expand TRICARE
    Prime Remote coverage to include reservists called to active duty for
    31 to 179 days who reside within MTF catchment areas.
        The Military Coalition recommends that subcommittee authorize
    extension of TRICARE Prime Remote coverage to retirees and their family
    members and survivors at the same locations where it is established for
    active duty families.
        Healthcare for Members of the National Guard and Reserve. The
    Military Coalition urges making the TRICARE medical program available
    for members of the National Guard and Reserve component and their
    families on a cost-sharing basis in order to ensure medical readiness
    and provide continuity of coverage to members of the Selected Reserve.
    Alternatively, the Coalition urges allowing activated Guard/Reserve
    members the option of having the Department of Defense pay their
    civilian insurance premiums during periods of activation.
        Coordination of Benefits and the 115 Percent Billing Limit Under
    TRICARE Standard. The Military Coalition strongly recommends that the
    subcommittee direct DOD to eliminate the 115 percent billing limit when
    TRICARE Standard is second payer to other health insurance and to
    reinstate the ``coordination of benefits'' methodology.
        Nonavailability Statements under TRICARE Standard. The Military
    Coalition strongly recommends that all requirements for Nonavailability
    Statements be removed from the TRICARE Standard option and that all
    waivers be eliminated, effective upon enactment. Should the
    subcommittee deem this impractical at this time, the Coalition urges
    the subcommittee to build on the maternity care precedent by
    incrementally eliminating NAS authority for additional kinds of care.
        TNEX--TRICARE Next Generation of Contracts. The Military Coalition
    recommends that the subcommittee strictly monitor implementation of the
    next generation of TRICARE contracts and ensure that Beneficiary
    Advisory Groups' inputs are sought in the implementation process.
        Uniform Formulary Implementation. The Military Coalition urges the
    subcommittee to ensure a robust uniform formulary is developed with
    reasonable medical-necessity rules along with increased communication
    to beneficiaries about program benefits, pre-authorization
    requirements, appeals, and other key information.
        Fully Implement Portability and Reciprocity. The Military Coalition
    strongly urges the subcommittee to direct DOD to expend the resources
    it needs to facilitate immediate implementation of portability and
    reciprocity to minimize the disruption in TRICARE services for
    beneficiaries.
        TRICARE Benefits For Remarried Widows. The Military Coalition urges
    the subcommittee to restore equity for military widows by reinstating
    TRICARE benefits for otherwise qualifying remarried widows whose second
    or subsequent marriage ends in death or divorce.
        Deduct TRICARE Prime Enrollment Fees From Retiree Pay. The Military
    Coalition urges the subcommittee to require DOD to implement existing
    authority to deduct TRICARE Prime enrollment fees from enrollees'
    retired pay.
        Codify Requirement to Continue TRICARE Prime in BRAC Areas. The
    Military Coalition urges the subcommittee to amend Title 10 to require
    continuation of TRICARE Prime network coverage for all uniformed
    services beneficiaries residing in BRAC areas.
        TRICARE Retiree Dental Plan. The Military Coalition urges the
    subcommittee to consider providing a subsidy for retiree dental
    benefits and extending eligibility for the retiree dental plan to
    retired beneficiaries who reside overseas.
        Commonwealth of Puerto Rico CONUS Designation. The Military
    Coalition urges the subcommittee to support administrative inclusion of
    the Commonwealth of Puerto Rico with the CONUS for TRICARE purposes, so
    that retired beneficiaries in Puerto Rico may be eligible to enroll in
    TRICARE Prime.
        Tax Relief for Uniformed Services Beneficiaries. The Military
    Coalition urges the subcommittee to support legislation to provide
    active duty and uniformed services beneficiaries a tax exemption for
    premiums paid for TRICARE Prime enrollment fees, TRICARE Standard
    supplements and FEHBP premiums.
        Custodial Care. The Military Coalition recommends the
    subcommittee's continued oversight to assure that medically necessary
    care will be provided to all custodial care beneficiaries; that
    Congress direct a study to determine the impact of the new legislation
    upon all beneficiary classes, and that beneficiary groups' inputs be
    sought in the development of implementing regulations.

    Personnel Issues
        Mr. Chairman, The Military Coalition thanks you and the entire
    subcommittee for your unwavering support for fair treatment of all
    members of the uniformed services and their families and survivors. We
    are most grateful to the subcommittee for its strong support of
    significant improvements in military pay, housing allowances, and other
    personnel programs for active, Guard, and Reserve personnel and their
    families. The Coalition is especially grateful for the subcommittee's
    support of last year's authority to eliminate the offset of retired pay
    for veterans' disability compensation for certain disabled retirees,
    even though the final authority was significantly narrower than we had
    hoped. These and the many other important provisions of the National
    Defense Authorization Act for Fiscal Year 2003 will pay strong
    retention and readiness dividends in the years ahead.
        Congress has clearly made military compensation equity a top
    priority and has accomplished much over the past several years to
    improve the lives of men and women in uniform, and their families.
        But this year, we have heard recommendations from some in the
    administration to return to the failed policies of the past by capping
    future military pay raises below private sector wage growth.
    Shortchanging compensation for military personnel has exacted severe
    personnel readiness problems more than once in the last 25 years--
    problems that led the Joint Chiefs to testify before you in September
    1998 about a significant pay gap that threatened the ability to sustain
    a quality All-Volunteer Force.
        Although the President rejected the pay cap proposal this year, we
    expect it will resurface in the future as it has in the past. When it
    does, we trust that you will again recognize the fallacy and personnel
    readiness risks inherent in any such ill-considered recommendation.
        Today's reality is simple--the uniformed services still find
    themselves facing significant personnel challenges, with ever-smaller
    numbers of service members and their families being asked to incur
    ever-greater workloads and ever-greater sacrifices. They need relief.
        While progress has been made in improving active duty, Guard and
    Reserve members' compensation and benefit package, the hard fact is
    that we don't have a large enough force--in any component--to
    adequately carry out all current missions and still be prepared for new
    contingencies that may arise elsewhere in the world. In the historical
    sense of the term, the country no longer has a Reserve Force, as we
    must routinely use a substantial share of our Reserves to accomplish
    day-to-day defense missions.
        Significant inequities also persist for retirees and survivors,
    whose service preserved the freedoms we enjoy today. Congress made
    significant strides in restoring lifetime health coverage for this
    population, and last year passed significant ``first-ever'' legislation
    to eliminate the disability offset for a select group of disabled
    retirees. But hundreds of thousands of disabled retirees and survivors
    continue to experience unfair reductions in their retired pay and
    survivor annuities. Correcting those problems remains a major Coalition
    priority.
        In testimony today, The Military Coalition offers its collective
    recommendations on what needs to be done to address these important
    issues and sustain long-term personnel readiness.

    Active Force Issues
        Since the end of the Cold War, the size of the force and real
    defense spending have been cut more than a third. In fact, the defense
    budget today is just 3.2 percent of this Nation's Gross National
    Product--less than half of the share it comprised in 1986. But national
    leaders also have pursued an increasingly active role for America's
    forces in guarding the peace in a very dangerous world. Constant and
    repeated deployments have become a way of life for today's service
    members, and the stress is taking a significant toll on our men and
    women in uniform and their families, as well.
        Despite the notable and commendable improvements made during the
    last several years in military compensation and health care programs,
    retention remains a significant challenge, especially in technical
    specialties. While some service retention statistics are up from
    previous years' levels, many believe those numbers are skewed by post-
    September 11 patriotism and by Services' stop loss policies. That
    artificial retention bubble is not sustainable for the long term under
    these conditions, despite the reluctance of some to see anything other
    than rosy scenarios.
        From the service members' standpoint, the increased personnel tempo
    necessary to meet continued and sustained training and operational
    requirements has meant having to work progressively longer and harder
    every year. ``Time away from home'' has become a real focal point in
    the retention equation. Service members have endured years of longer
    duty days; increased family separations; difficulties in accessing
    affordable, quality health care; deteriorating military housing; less
    opportunity to use education benefits; and more out-of-pocket expenses
    with each military relocation.
        The war on terrorism has only heightened already burdensome mission
    requirements, and operating--and personnel--tempos continue to
    intensify. Members' patriotic dedication has been the fabric that
    sustained this increased workload for now, and a temporarily depressed
    economy also may have deterred some losses. But the longer-term outlook
    is problematic.
        Experienced (and predominantly married) officers, NCOs and petty
    officers are under pressure to make long-term career decisions against
    a backdrop of a demand for their skills and services in the private
    sector, even through the recent economic downturn. In today's
    environment, more and more service members and their families debate
    among themselves whether the rewards of a service career are sufficient
    to offset the attendant demands and sacrifices inherent in uniformed
    service. They see their peers succeeding in the civilian world, and
    when faced with repeated deployments, the appeal of a more stable
    career and family life, often including an enhanced compensation
    package with far less demanding working conditions, is attractive. Too
    often, our excellent soldiers, sailors, airmen, and marines are opting
    for civilian career choices, not because they don't love what they do,
    but because their families just can't take the stresses any more.
        On the recruiting front, one only needs to watch prime-time
    television to see powerful marketing efforts on the part of the
    Services. But this strong marketing must be backed up by an ability to
    retain these talented men and women. This is especially true as the
    Services become more and more reliant on technically trained personnel.
    To the subcommittee's credit, you reacted to retention problems by
    improving military compensation elements. We know you do not intend to
    rest on your well deserved laurels and that you have a continuing
    agenda in place to address these very important problems. But we also
    know that there will be stiff competition for proposed defense budget
    increases. The truth remains that the finest weapon systems in the
    world are of little use if the Services don't have enough high quality,
    well-trained people to operate, maintain and support them.
        The subcommittee's key challenge will be to ease service members'
    debilitating workload stress and continue to build on the foundation of
    trust that you have established over the past 4 years--a trust that is
    being strained by years of disproportional sacrifice. Meeting this
    challenge will require a reasonable commitment of resources on several
    fronts.
        Personnel Strengths and Operations Tempo. The Coalition has been
    dismayed and deeply disappointed at the Department of Defense's
    reluctance to accept your efforts to increase Service end strength to
    meet today's much-increased operations tempo. The Department's response
    is to attack the problem by freeing up resources to realign to core
    warfighting skills. While the Department's transformation vision is a
    great theory, its practical application will take a long time--time we
    don't have after years of extraordinary OPTEMPO that is already
    exhausting our downsized forces.
        Administration and military leaders warn of a long-term mission
    against terrorism that will drive more service members' deployment to
    Central Asia and other foreign countries. The Services simply do not
    have sufficient numbers to sustain the global war on terrorism,
    deployments, training exercises, and other commitments, so we have had
    to recall significant numbers of Guard and Reserve personnel. Service
    leaders have tried to alleviate the situation by reorganizing
    deployable units, authorizing ``family down time'' following
    redeployment, or other laudable initiatives, but such things do little
    to eliminate long-term workload or training backlogs, and pale in the
    face of ever-increasing mission requirements. For too many years, there
    has always been another major contingency coming, on top of all the
    existing ones. If the administration does not recognize when extra
    missions exceed the capacity to perform them, Congress must assume that
    obligation.
        The Coalition strongly believes that earlier force reductions went
    too far and that the size of the force should be increased,
    commensurate with missions assigned. The force was already overstrained
    to meet its deployment requirements before September 11, and since then
    our forces have absorbed major contingency requirements in Afghanistan
    and Iraq.
        Deferral of meaningful action to address this problem cannot
    continue without risking serious consequences. Real relief is needed
    now. With no evidence of declining missions, this can only be achieved
    by increasing the size of the force.
        This is the most difficult piece of the readiness equation, and
    perhaps the most important under current conditions. Pay and allowance
    raises are essential to reduce other significant career dissatisfiers,
    but they can't fix fatigue and rising family separations.
        Some argue that it will do little good to increase end strengths,
    questioning whether the Services will be able to meet higher recruiting
    goals. The Coalition believes strongly that this severe problem can and
    must be addressed as an urgent national priority, with increases in
    recruiting budgets if that proves necessary.
        Others point to high reenlistment rates in deployed units as
    evidence that high operations tempo actually improves morale. But much
    of the reenlistment rate anomaly is attributable to tax incentives that
    encourage members to accelerate or defer reenlistment to ensure this
    occurs in a combat zone, so that any reenlistment bonus will be tax-
    free. Retention statistics are also skewed by stop loss policies. Over
    the long run, past experience has shown that time and again smaller but
    more heavily deployed forces will experience family-driven retention
    declines.
        Action is needed now. Failing to do so will only deepen the burden
    of already over-stressed troops and make future challenges to sustain
    retention and recruiting worse.
        The Military Coalition strongly recommends restoration of Service
    end strengths consistent with long-term sustainment of the global war
    on terrorism and fulfillment of national military strategy. The
    Coalition supports application of recruiting resources as necessary to
    meet this requirement. The Coalition urges the subcommittee to consider
    all possible manpower options to ease operational stresses on active,
    Guard and Reserve personnel.
        Pay Raise Comparability. The Military Coalition appreciates the
    subcommittee's leadership during the last 5 years in reversing the
    routine practice of capping service members' annual pay raises below
    the average American's. In service members' eyes, all of those previous
    pay raise caps provided regular negative feedback about the relative
    value the Nation placed on retaining their services.
        Unfortunately, this failed practice of capping military raises to
    pay for budget shortfalls reared its head again earlier this year when
    the Director of the Office of Management and Budget proposed capping
    2004 and future military pay raises at the level of inflation. The
    Coalition was shocked and deeply disappointed that such a senior
    officer could ignore 25 years of experience indicating that pay caps
    lead inevitably to retention and readiness problems. Not only was the
    proposal ill timed as troops are massed for a potential war with Iraq--
    it's just bad, failed policy.
        The President rejected his senior budget official's advice for five
    of the seven uniformed services--but, unfortunately, the
    administration's budget for fiscal year 2004 proposes to cap the pay of
    NOAA and USPHS officers at 2 percent. The Military Coalition strongly
    objects to this disparate treatment of members in those uniformed
    services. The Coalition urges the subcommittee to intercede in their
    behalf with colleagues on the appropriate oversight committees for NOAA
    and USPHS personnel to ensure that these commissioned officers receive
    the same treatment as their fellow comrades-in-arms.
        Pay raise comparability with private sector wage growth is a
    fundamental underpinning of the All-Volunteer Force, and it cannot be
    dismissed without severe consequences for national defense.
        When the pay raise comparability gap reached 13.5 percent in 1999--
    resulting in a predictable readiness crises--this subcommittee took
    responsible action to change the law. Largely because of your efforts
    and the belated recognition of the problem by the executive branch, the
    gap has been reduced to 6.4 percent as of 2003.
        Fortunately, the President rejected his budgeteers' advice, and has
    proposed an average 4.1 percent raise for fiscal year 2004, which would
    shrink the gap another full percentage point to 5.4 percent. Even at
    that rate, it would take another 5 years to restore full comparability.
    So this is no time to reinstitute pay caps.
        On the contrary, we urge the subcommittee to consider that the law
    mandating increased military raises will expire in 2006, after which
    military raises will again be capped one-half percentage point per year
    below private sector wage growth (see chart below).

        The Military Coalition urges the subcommittee to restore full pay
    comparability on the quickest possible schedule, and to change the
    permanent law to ensure all future military raises match private sector
    wage growth, as measured by the Employment Cost Index.
        Pay Table Reform. The subcommittee also has worked to address some
    shortcomings within the basic pay table by authorizing special
    ``targeted'' adjustments for specific grade and longevity combinations
    in recent years. The Coalition has supported these raises to recognize
    the education and technical expertise of certain career officers and
    enlisted members. However, the Coalition is concerned about potential
    perceptions of creating annual ``haves and have nots'' among members in
    different grades.
        Service members have a right to know and understand the objectives
    of such differential raises, or they will be perceived as arbitrary,
    capricious and unfair. Once the objective of such targeting has been
    achieved, equal-percentage annual raises should be restored for all
    service members.
        The Military Coalition believes all members need and deserve annual
    raises at least equal to private sector wage growth. To the extent
    targeted raises are appropriate, the Department of Defense needs to
    identify the ultimate ``objective pay table'' toward which the targeted
    raises are aimed.
        Basic Allowance for Housing (BAH). The Military Coalition supports
    revised housing standards that are more realistic and appropriate for
    each pay grade. As an example, enlisted members are not authorized to
    receive BAH for a 3-bedroom single-family detached house until
    achieving the rank of E-9--which represents only one percent of the
    enlisted force. TMC believes that as a minimum, this BAH standard
    should be extended to qualifying service members in grades E-7 and
    above, immediately.
        The Coalition is most grateful to the subcommittee for acting in
    1999 to reduce out-of-pocket housing expenses for service members.
    Responding to the subcommittee's leadership on this issue, the
    Department of Defense proposed a phased plan to reduce median out of
    pocket expenses to zero by fiscal year 2005. Through the leadership and
    support of this subcommittee, these commitments have been put into law.
    This aggressive action to better realign BAH rates with actual housing
    costs is having a real impact and providing immediate relief to many
    service members and families who were strapped in meeting rising
    housing and utility costs.
        We applaud the subcommittee's action, and hope that this plan can
    be accelerated as we near the completion date. Housing and utility
    costs continue to rise, and we are years away from closing the existing
    pay comparability gap. Members residing off base face higher housing
    expenses along with significant transportation costs. Relief is
    especially important for junior enlisted personnel who live off base
    and do not qualify for other supplemental assistance.
        The Military Coalition urges the subcommittee to direct adjustments
    in grade-based housing standards to more adequately cover members'
    current out-of-pocket housing expenses and to accelerate the plan to
    eliminate out of pocket housing expenses from fiscal year 2005 to
    fiscal year 2004.
        Basic Allowance for Subsistence (BAS). The Coalition is grateful to
    the subcommittee for establishing a food-cost-based standard for BAS
    and ending the one percent cap on BAS increases. But more needs to be
    done to permit single career enlisted members more individual
    responsibility in their personal living arrangements. In this regard,
    the Coalition believes it is inconsistent to demand significant
    supervisory, leadership and management responsibilities of
    noncommissioned and petty officers, but still dictate to them where and
    when they must eat their meals.
        The Military Coalition urges the subcommittee to repeal the
    statutory provision limiting BAS eligibility to 12 percent of single
    members residing in government quarters. As a long-term goal, the
    Coalition supports extending full BAS eligibility to all single career
    enlisted members, beginning with the grade of E-6 and extending
    eligibility to lower grades as budgetary constraints allow.
        Permanent Change of Station (PCS). The Military Coalition is most
    appreciative of the significant increases in the Temporary Lodging
    Expense (TLE) allowance authorized for fiscal year 2002 and the
    authority to raise PCS per diem expenses to match those for Federal
    civilian employees in fiscal year 2003. These are very significant
    steps to upgrade allowances that had been unchanged in over 15 years.
    Even with these much-needed changes, however, service members continue
    to incur significant out-of-pocket costs in complying with government-
    directed relocation orders.
        For example, PCS mileage rates have not been adjusted since 1985.
    The current rates range from 15 to 20 cents per mile--significantly
    lower than the temporary duty mileage rate of 36 cents per mile for
    military members and Federal civilians. PCS household goods weight
    allowances were increased for grades E-1 through E-4, effective January
    2003, but weight allowance increases are also needed for E5s and above
    and officers as well, to more accurately reflect the normal
    accumulation of household goods over the course of a career. The
    frequency of PCS moves coupled with the spotty quality record of many
    carriers requires continued improvements to the household goods
    movement process, to include an increased emphasis on measurable
    accountability standards for the evaluation of carriers. In addition,
    policies are needed to promote full replacement value reimbursements
    for lost or damaged household goods.
        The overwhelming majority of service families own two privately
    owned vehicles, driven by the financial need for the spouse to work, or
    the distance some families must live from an installation and its
    support services. Authority is needed to ship a second POV at
    government expense to overseas' accompanied assignments. In many
    overseas locations, families have difficulty managing without a family
    vehicle because family housing is often not co-located with
    installation support services.
        Last, with regard to families making a PCS move, members are
    authorized time off for housing-hunting trips in advance of PCS
    relocations, but must make any such trips at personal expense, without
    any government reimbursement such as Federal civilians receive.
    Further, Federal and state cooperation is required to provide
    unemployment compensation equity for military spouses who are forced to
    leave jobs due to the service member's PCS orders. The Coalition also
    believes continuation of and adequate funding for the Relocation
    Assistance Program is essential.
        We are sensitive to the subcommittee's efforts to reduce the
    frequency of PCS moves. But we cannot avoid requiring members to make
    regular relocations, with all the attendant disruptions of childrens'
    schooling, spousal career sacrifices, etc. The Coalition believes
    strongly that the Nation that requires them to incur these disruptions
    should not be requiring them to bear the resulting high expenses out of
    their own pockets.
        The Military Coalition urges continued upgrades of permanent
    change-of-station reimbursement allowances in fiscal year 2004 to
    recognize that the Government, not the service member, should be
    responsible for paying the cost of government-directed relocations.
        Education Benefits for Career Service members. Active duty career
    service members who entered service during the VEAP-era (1977--30 June
    1985) but who declined to take VEAP are the only group of currently
    serving members who have not been offered an opportunity to enroll in
    the Montgomery GI Bill (MGIB). There are about 115,000 service members
    in this situation. Many actually were discouraged from signing up for
    VEAP as it was acknowledged to be a woefully inferior program compared
    to the Vietnam-era GI Bill and the subsequent MGIB that started on 1
    July 1985. As the backbone of today's force, these senior leaders are
    critical to the success of ongoing and pending military operations.
    When they complete their careers, they should have been afforded at
    least one opportunity to say ``yes'' or ``no'' to veterans' education
    benefits under the MGIB.
        TMC strongly recommends allowing a MGIB sign-up window for career
    service members who declined VEAP when they entered service.
        Family Readiness and Support. The family continues to be a key
    consideration in the readiness equation for each service member. The
    maintenance of family readiness and support programs is part of the
    cost of performing the military mission. We must ensure that families
    have the opportunity to develop the financial and readiness skills
    needed to cope with deployment situations. It is important to meet the
    childcare needs of the military community including National Guard and
    Reserve members. Overall family support programs must meet the needs of
    National Guard and Reserve members being called to active duty in ever-
    increasing numbers.
        The Military Coalition urges improved education and outreach
    programs and increased childcare availability to ensure a family
    readiness level and a support structure that meets the requirements of
    increased force deployments for active duty, National Guard and Reserve
    members.
        Commissaries. The fiscal year 2003 budget reduced Defense
    Commissary Agency funding by $137 million and envisioned eliminating
    over 2,600 positions from stores and headquarters staff by September
    30, 2003. While DeCA indicates there will be no loss in service to the
    customer, the Coalition is concerned that the size and scope of the
    reductions may negatively impact quality and service to customers,
    including additional store closings, reduced hours, longer cashier
    lines and reduced stock on store shelves. This would have a
    significantly adverse impact on the benefit, which is widely recognized
    as a valuable part of the service member's compensation package and a
    cornerstone of quality of life benefits. As it has in the past, The
    Military Coalition opposes any efforts to privatize commissaries and
    strongly supports full funding of the benefit in fiscal year 2004 and
    beyond.
        The Military Coalition opposes privatization of commissaries and
    strongly supports full funding of the benefit to sustain the current
    level of service for all commissary patrons.

    National Guard and Reserve Issues
        The Military Coalition applauds the longstanding efforts of this
    subcommittee to address the needs of our Nation's National Guard and
    Reserve Forces, to facilitate the total force concept as an operational
    reality, and to ensure that National Guard and Reserve members receive
    appropriate recognition as full members of the Armed Forces readiness
    team.
        Support of Active Duty Operations. National Guard and Reserve
    members and units shoulder ever-greater day-to-day operational
    workloads. They increasingly have come to face many of the same
    challenges as their active counterparts.
        Compounding the problem for National Guard and Reserve personnel,
    their increasing support of day-to-day active duty operations also has
    placed greater strains on the employers of these members. Employer
    support was always strong when National Guard and Reserve members were
    seen as a force that would be mobilized only in the event of a major
    national emergency. That support has become less and less certain as
    National Guard and Reserve members have taken longer and more frequent
    leaves of absence from their civilian jobs. Homeland defense and war-
    on-terror operations continue to place demands on citizen soldiers that
    were never anticipated under the total force policy.
        The Coalition understands and fully supports the total force policy
    and the prominent role of the National Guard and Reserve Forces under
    this policy. Still, the Coalition is concerned that ever-rising
    operational employment of National Guard and Reserve Forces is having
    the practical effect of blurring the distinctions between the missions
    of the active and National Guard/Reserve Forces. National Guard and
    Reserve members could eventually face resistance with employers and
    increased financial burdens when activated which would negatively
    impact their ability to perform assigned missions and reduce their
    propensity to remain in Reserve service.
        The Military Coalition urges continued attention to ensuring an
    appropriate match between National Guard and Reserve Force strengths
    and missions.
        Healthcare for Members of the National Guard and Reserve. Health
    insurance coverage has an impact on Guard and Reserve medical readiness
    and family morale. Progress has been made during transitional periods
    after call-ups but more needs to be done to provide continuity of care
    coverage for Reserve component members.
        Health insurance coverage varies widely for members of the Guard
    and Reserve: some have coverage through private employers, others
    through the Federal Government, and still others have no coverage.
    Reserve families with employer-based health insurance must, in some
    cases, pick up the full cost of premiums during an extended activation.
    Although TRICARE ``kicks in'' at 30 days activation, many Guard and
    Reserve families would prefer continued access to their own health
    insurance. Being dropped from private sector coverage as a consequence
    of extended activation adversely affects family morale and military
    readiness and discourages some from reenlisting.
        In 2001, DOD recognized this problem and announced a policy change
    under which DOD would pay the premiums for the Federal Employee Health
    Benefit Program (FEHBP) for DOD reservist-employees activated for
    extended periods. However, this new benefit only affects about 10
    percent of the Selected Reserve. As a matter of morale, equity, and
    personnel readiness, more needs to be done to assist reservists who are
    being called up more frequently in support of national security
    missions.
        The Military Coalition urges making the TRICARE medical program
    available for members of the National Guard and Reserves and their
    families on a cost-sharing basis in order to ensure medical readiness
    and provide continuity of coverage to members of the Selected Reserve.
    In addition, to further ensure continuity of coverage for family
    members, the Coalition urges allowing activated Guard/Reserve members
    the option of having the Department of Defense pay their civilian
    insurance premiums during periods of activation.
        SSCRA Issues. The Coalition very much appreciates the
    subcommittee's approval of the change in law to permit SSCRA
    protections for National Guard service members activated by State
    Governors under Title 32, at the request of the President, in support
    of homeland defense missions.
        The Military Coalition recommends that the SSCRA be brought up to
    date to fully protect Guard and Reserve families from economic
    calamity.
        Selected Reserve Montgomery GI Bill (MGIB) Improvements.
    Individuals who first become members of the National Guard or Reserve
    are eligible for the Selected Reserve Montgomery GI Bill (MGIB-SR).
        Unlike the basic MGIB authorized under Title 38, the Reserve GI
    Bill program is governed by Chapter 1606 of Title 10. The problem is
    that the Reserve MGIB-SR program competes with National Guard and
    Reserve pay accounts for funding. Over the last 3 years, there have
    been no increases to MGIB-SR benefits.
        During the same period, basic benefits for full-time study under
    the regular MGIB (Title 38) have gone up 46 percent. In October 2003,
    the monthly rate will increase to $985.
        In addition, the MGIB-SR is paid out of the National Guard and
    Reserve personnel appropriations, and the Reserve chiefs are forced to
    absorb any MGIB-SR increases out of these accounts. The Coalition
    believes that total force equity requires automatic proportional
    adjustments to the MGIB-SR whenever benefits rise under the regular
    MGIB. One way to facilitate this objective is to transfer the MGIB-SR
    program to Title 38.
        The Military Coalition recommends transfer of the Reserve MGIB-SR
    authority from Title 10 to Title 38 to permit proportional benefit
    adjustments in line with the basic MGIB program and to ensure this
    program is applied consistently and equitably to all members of the
    Total Force.
        Tax Issues. The Coalition understands that tax matters fall under
    the purview of a different committee. But there are unique issues
    affecting members of National Guard and Reserve Forces, and we hope
    that members of the subcommittee will seek the support of the Ways and
    Means Committee in addressing them.
        Guardsmen and reservists are being asked to train more to enhance
    their readiness to support contingency missions, and are incurring
    considerable unreimbursed expenses for such training-related items as
    travel, overnight lodging, meals and uniforms. Prior to the 1986 tax
    code revision, these expenses were fully deductible; under current law,
    they are only deductible to the extent they exceed two percent of
    adjusted gross income. In a case where the member and spouse combined
    earn $40,000, the member must absorb the first $800 per year of
    training-related expenses. A member and spouse earning $30,000 each
    must absorb $1,200 per year. This is a significant financial penalty
    for members who serve their country, and needs to be corrected.
    National Guard and Reserve members should not be required to subsidize
    their own military training.
        The Military Coalition urges the subcommittee's active support for
    restoration of full tax-deductibility of non-reimbursable drill-related
    expenses for Guard and Reserve members.
        With today's increasing operations tempo, the support of National
    Guard and Reserve members' employers is more essential than ever. Yet
    more frequent absence of National Guard and Reserve employees for
    training or operations is undermining that support, as mentioned above.
    The subcommittee's help is needed to foster additional incentives for
    employers to help offset their costs associated with their employees'
    military activities.
        The Military Coalition urges authorization of tax credits for
    employers of National Guard and Reserve employees.
        Retirement Credit for All Earned Drill Points. The role of the
    National Guard and Reserve has changed significantly under the total
    force policy. During most of the Cold War era, the maximum number of
    inactive duty training (IDT) points that could be credited was 50 per
    year. The cap has since been raised on three occasions to 60, 75 and
    most recently, to 90 points in fiscal year 2001. The Coalition is most
    appreciative of Congress' approval of the increases.
        However, the fundamental question is why National Guard and Reserve
    members are not permitted to credit all the training that they've
    earned in a given year towards their retirement. The typical member of
    the National Guard and Reserve consistently earns IDT points above the
    90-point maximum. Placing a ceiling on the amount of training that may
    be credited for retirement serves as a disincentive to professional
    development and takes unfair advantage of National Guard and Reserve
    service members' commitment to mission readiness.
        The Military Coalition recommends lifting the 90-point cap on the
    number of Inactive Duty Training (IDT) points earned in a year that may
    be credited for National Guard and Reserve retirement purposes.
        Unlimited Commissary Access. National Guard and Reserve members are
    authorized 24 commissary visits per year. Visits are tracked by a
    cumbersome and costly access card that must be reissued each year by
    Reserve component commands. The process of issuing, checking, and
    accounting for these separate cards contradicts DOD's policy of a
    ``seamless, integrated total force'' symbolized by the issuance of
    green ID cards to all members of the Selected Reserve. Because only 35-
    40 percent of National Guard and Reserve members live close enough to
    commissary stores to be able to use them conveniently, there is little
    chance of excessive use by National Guard and Reserve members. In fact,
    the 24-visit limit is tantamount to full privileges for the vast
    majority of National Guard and Reserve personnel. Thus, the sole effect
    of the 24-visit limit is to treat National Guard and Reserve members as
    second-class citizens and to impose burdensome administrative
    requirements on Guard and Reserve units. Equal access to commissary
    stores by the National Guard and Reserve is an imperative that
    recognizes the increased responsibility of National Guard and Reserve
    Forces for the national security.
        The Military Coalition recommends doing away with the 24-visit
    access cards and extending unrestricted commissary access to members of
    the National Guard and Selected Reserve.
        Academic Protections for Mobilized Guard and Reserve Service
    members. TMC is aware of a growing number of cases of denied academic
    credit, lost academic status, and financial difficulties experienced by
    student-reservists called to extended active duty. The problem is not
    new and occurred widely during the Gulf War, but no corrective action
    has been taken since then. If the Nation is to routinely mobilize large
    numbers of Guard and Reserve service members, they must be assured of
    reasonable protections when their academic work is interrupted.
    Comparable economic and legal protections are available under the
    Soldiers and Sailors Civil Relief Act and the time has come to
    authorize similar protections for reservists who lose their academic
    standing through no fault of their own.
        TMC recommends that the committee endorse legislative proposals to
    afford academic and financial protections to National Guard and Reserve
    post-secondary students activated into extended Federal service.

    Retirement Issues
        The Military Coalition is grateful to the subcommittee for its
    historical support of maintaining a strong military retirement system
    to help offset the extraordinary demands and sacrifices inherent in a
    career of uniformed service.
        Concurrent Receipt of Military Retired Pay and VA Disability
    Compensation. The Coalition was disappointed that agreement could not
    be reached by last year's conference committee to provide unconditional
    concurrent receipt in the National Defense Authorization Act for Fiscal
    Year 2003, but appreciates the ``first ever'' provisions that were
    provided to eliminate the disability offset for certain retirees who
    were severely disabled by combat and operations-related incidents. The
    subcommittee's action to establish a ``beachhead'' in law is very
    significant in recognizing that military retired pay and veterans
    disability compensation are paid for different purposes, and one should
    not offset the other.
        The Coalition has long held that retired pay is earned compensation
    for completing a career of arduous uniformed service, while veterans
    disability compensation is paid for loss of function and future earning
    potential caused by a service-connected disability.
        Previous attempts to fix this inequity have all been met with the
    same response--the cost is too large. But, the cost to men and women in
    uniform who have been injured while serving this Nation is far greater.
    Because of cost concerns, last year's authority was limited to a very
    special group of disabled retirees--those injured in combat, or other
    combat related operations. But there are thousands of deserving
    disabled retirees who have been left behind.
        No one disabled in the course of serving his or her country should
    have to forfeit an earned retirement--for years of faithful and
    dedicated service--in order to receive VA disability compensation for
    the wounds, injuries, or illnesses incurred in such service.
        The Coalition believes strongly that the 90 percent cosponsorship
    support that existed in the 107th Congress was inconsistent with the
    outcome, and that further action is essential to address the grossly
    unfair financial penalties visited for so long on those who already
    have suffered most for their country--military retirees disabled as a
    result of their service.
        The Coalition is particularly concerned that, during last-minute
    final negotiations on the National Defense Authorization Act for Fiscal
    Year 2003, changes in eligibility language inadvertently omitted three
    classes of disabled retirees who otherwise fall within the criteria
    enacted into law.
        First, technical language in last year's limited concurrent receipt
    provision effectively excluded virtually all National Guard and Reserve
    retirees with 20 years of creditable service and combat-related
    disabilities. There are many retired reservists who were awarded Purple
    Hearts and have combat-related disabilities. Their Guard and Reserve
    status did not protect them from being wounded on the battlefield, and
    they should not be discriminated against by this legislation.
        Second, there are a very limited number of retirees who received
    nondisability retirements with 15 to 19 years of service during the
    drawdown of the early 1990s and who also have otherwise-qualifying
    combat-related disabilities. These members earned their military
    retirement independently of their disability and should be eligible to
    receive the special compensation if their disabilities would otherwise
    qualify.
        Finally, enlisted retirees who were awarded one of the top two
    decorations for valor are authorized an extra 10 percent in retired pay
    (within the maximum limit of 75 percent of basic pay). The Coalition
    believes strongly that the modest extra retired pay awarded these
    members for their combat heroism should not be subject to the
    disability offset.
        The Military Coalition urges subcommittee leaders and members to
    expand on last year's concurrent receipt provision and eliminate the
    disability offset for all disabled retirees. As a priority, the
    Coalition urges the subcommittee to amend last year's authority to
    include certain otherwise-qualifying Guard and Reserve retirees, early
    retirement authority retirees, and enlisted retirees with high
    decorations for extraordinary valor.
        Final Retired Pay Check. The Military Coalition believes the policy
    requiring the recovery of a deceased member's final retired pay check
    from his or her survivor should be changed to allow the survivor to
    keep the final month's retired pay payment.
        Current regulations led to a practice that requires the survivor to
    surrender the final month of retired pay, either by returning the
    outstanding paycheck or having a direct withdrawal recoupment from his
    or her bank account. The Coalition believes this is an insensitive
    policy coming at the most difficult time for a deceased member's next
    of kin. Unlike his or her active duty counterpart, the retiree will
    receive no death gratuity. Many of the older retirees will not have
    adequate insurance to provide even a moderate financial cushion for
    surviving spouses. Very often, the surviving spouse has had to spend
    the final retirement check/deposit before being notified by the
    military finance center that it must be returned. Then, to receive the
    partial month's pay of the deceased retiree up to the date of death,
    the spouse must file a claim for settlement and wait for the military's
    finance center to disburse the payment. Far too often, this strains the
    surviving spouse's ability to meet the immediate financial obligations
    commensurate with the death of the average family's ``bread winner.''
        The Military Coalition strongly recommends that surviving spouses
    of deceased retired members should be allowed to retain the member's
    full retired pay for the month in which the member died.
        Former Spouse Issues. The Military Coalition recommends corrective
    legislation be enacted to eliminate inequities in the Uniformed
    Services Former Spouse Protection Act (USFSPA) that were created
    through years of well-intended, piecemeal legislative action initiated
    outside the subcommittee.
        The Coalition supports the recommendations in the Department of
    Defense's September 2001 report, which responded to a request from this
    committee for an assessment of USFSPA inequities and recommendations
    for improvement. The DOD recommendations to allow the member to
    designate multiple survivor benefit plan beneficiaries would eliminate
    the current unfair restriction that denies any SBP coverage to a
    current spouse if a former spouse is covered, and would allow dual
    coverage in the same way authorized by Federal civilian SBP programs.
    The Coalition also recommends that the Defense Finance and Accounting
    Service (DFAS) be required to make direct payments to the former
    spouses, regardless of length of marriage; the one-year deemed election
    period for SBP eligibility be eliminated; and if directed by a valid
    court order, DFAS should be required to deduct SBP premiums from the
    uniformed services retired pay awarded to a former spouse. Also, DOD
    recommends that prospective award amounts to former spouses should be
    based on the member's grade and years of service at the time of
    divorce--rather than at the time of retirement. TMC supports this
    proposal since it recognizes that a former spouse should not receive
    increased retired pay that is realized from the member's service and
    promotions earned after the divorce.
        In addition, with the exception of the National Military Family
    Association and the Association of the United States Army, the
    Coalition supports legislation planned to be introduced by Rep. Cass
    Ballenger (R-NC) that would limit the duration of payments to former
    spouses whose marriage to the service member did not encompass 20 years
    of the member's uniformed service. This proposal would limit the period
    of a former spouse's retired pay payments to the number of years the
    former spouse's marriage overlapped with a retired member's uniformed
    service. The Coalition believes strongly in the simple equity premise
    of this legislation--that if a service member must serve 20 years to
    acquire lifetime retirement benefits, a former spouse should meet the
    same standard to acquire a lifetime share in those benefits.
        The Military Coalition recommends corrective legislation as
    envisioned by Rep. Ballenger and the proposals submitted by the
    Department of Defense be enacted to eliminate inequities in the
    administration of the Uniformed Services Former Spouse Protection Act.
        Tax Relief for Uniformed Services Beneficiaries. To meet their
    health care requirements, many uniformed services beneficiaries pay
    premiums for a variety of health insurance programs, such as TRICARE
    supplements, the active duty dental plan or TRICARE Retiree Dental Plan
    (TRDP), long-term care insurance, or TRICARE Prime enrollment fees. For
    most beneficiaries, these premiums and enrollment fees are not tax-
    deductible because their health care expenses do not exceed 7.5 percent
    of their adjusted gross taxable income, as required by the IRS.
        This creates a significant inequity with private sector and some
    government workers, many of whom already enjoy tax exemptions for
    health and dental premiums through employer-sponsored health benefits
    plans. A precedent for this benefit was set for other Federal employees
    by a 2000 Presidential directive allowing Federal civilian employees to
    pay premiums for their Federal Employees Health Benefits Program
    (FEHBP) coverage with pre-tax dollars.
        The Coalition supports legislation that would amend the tax law to
    let Federal civilian retirees and active duty and retired military
    members pay health insurance premiums on a pre-tax basis. Although we
    recognize that this is not within the purview of the Armed Services
    Committee, the Coalition hopes that the subcommittee will lend its
    support to this legislation and help ensure equal treatment for all
    military and Federal beneficiaries.
        The Coalition urges the subcommittee to support legislation to
    provide active duty and uniformed services beneficiaries a tax
    exemption for premiums or enrollment fees paid for TRICARE Prime,
    TRICARE Standard supplements, the active duty dental plan, TRICARE
    Retiree Dental Plan, FEHBP and Long Term Care.
        Involuntary Separation Pay. A law change enacted in 2000 denies
    separation pay to officers twice deferred for promotion who decline
    continuation to 20 years of service.
        The Coalition urges the subcommittee to reconsider. This
    legislation is particularly unfair to officers deferred a second time
    for promotion to 0-4 (at approximately 13 years of service), who can
    find themselves coerced into an untenable choice between serving an
    additional 7 years without advancement opportunities or separating
    after more than a decade of service without any separation pay.
    Previously, officers could decline such an offer and still receive
    separation pay, in recognition of the inconsistency between deeming an
    officer noncompetitive for advancement in the military and
    simultaneously creating financial barriers to allowing the officer to
    pursue civilian career opportunities.
        The Coalition believes such an insensitive practice can only
    encourage officers to leave service early rather than risk investing 13
    years of service and be treated so unfairly if deemed noncompetitive.
    Perceptions of this unfairness have led to varied applications in
    different services, which only heightens the inequity.
        The Military Coalition urges reinstatement of involuntary
    separation pay eligibility for officers twice deferred from promotion
    who decline continuation to 20 years.

    Survivor Program Issues
        The Coalition thanks the subcommittee for past support of
    improvements to the Survivor Benefit Plan (SBP); most recently the
    provision in the National Defense Authorization Act for Fiscal Year
    2002 that extended SBP eligibility to members killed on active duty,
    regardless of years of service. This action helped a great deal in
    addressing a long-standing survivor benefits disparity.
        But serious SBP inequities remain to be addressed. The Coalition
    hopes that this year the subcommittee will be able to support an
    increase in the minimum SBP annuity for survivors age 62 and older, and
    consider a more equitable paid-up SBP implementation schedule for pre-
    1978 SBP enrollees.
        Age-62 SBP Annuity Increase. Since SBP was first enacted in 1972,
    retirees and survivors have inundated DOD, Congress and military
    associations with letters decrying the reduction in survivors' SBP
    annuities that occurs when the survivor attains age 62. Before age 62,
    SBP survivors receive an annuity equal to 55 percent of the retiree's
    SBP covered retired pay. At age 62, the annuity is reduced to a lower
    percentage, down to a floor of 35 percent of covered retired pay. For
    many older retirees, the amount of the reduction is related to the
    amount of the survivor's Social Security benefit that is attributable
    to the retiree's military service. For members who attained retirement
    eligibility after 1985, the post-62 benefit is a flat 35 percent of
    covered retired pay.
        Although this age-62 reduction, or offset, was part of the initial
    SBP statute, large numbers of members who retired in the 1970s (or who
    retired earlier but enrolled in the initial SBP open season) were not
    informed of it at the time they enrolled. This is because the initial
    informational materials used by DOD and the Services to describe the
    program made no mention of the age-62 offset. Thus, thousands of
    retirees signed up for the program in the belief that they were
    ensuring their spouses would receive 55 percent of their retired pay
    for life. Many retirees who are elderly and in failing health, with few
    other insurance alternatives available at a reasonable cost, are
    understandably very bitter about what they consider the government's
    ``bait and switch'' tactics.
        They and their spouses are also stunned to learn that the survivor
    reduction attributed to the retiree's Social Security-covered military
    earnings applies even to widows whose Social Security benefit is based
    on their own work history.
        To add to these grievances, the originally intended 40-percent
    government subsidy for the SBP program--which has been cited for more
    than two decades as an inducement for retirees to elect SBP coverage--
    has declined to less than 25 percent. This is because retiree premiums
    were established in statute in the expectation that retiree premiums
    would cover 60 percent of expected long-term SBP costs, based on the
    DOD Actuary's assumptions about future inflation rates, interest rates,
    and mortality rates. However, actual experience has proven these
    assumptions far too conservative, so that retiree premiums now cover 75
    percent of expected SBP benefit costs. In effect, retirees are being
    charged too much for the long-promised benefit, and the Government is
    contributing less to the program than Congress originally intended.
        This is not the first time the subsidy has needed to be addressed.
    After the subsidy had declined to similar low levels in the late 1980s,
    Congress acted to restore the balance by reducing retiree premiums. Now
    that the situation has recurred, the Coalition believes strongly that
    the balance should be restored this time by raising the benefit for
    survivors.
        The chart below highlights another significant inequity--the much
    higher survivor annuity percentage and subsidy percentage the
    government awards to Federal civilian survivors compared to their
    military counterparts.

              FEDERAL CIVILIAN VS. MILITARY SBP ANNUITY AND SUBSIDY
                                    [Percent]
    ------------------------------------------------------------------------
                                         CSRS \1\     FERS \2\     Military
    ------------------------------------------------------------------------
    Post-62 percent of Ret Pay.......          55           50           35
    Gov't Subsidy....................          48           33          25
    ------------------------------------------------------------------------
    \1\ Civil Service Retirement System
    \2\ Federal Employees Retirement System

        Because service members retire at younger ages than Federal
    civilians, retired service members pay premiums for a far longer
    period. The combination of greater premium payments and lower age-62
    benefits leave military retirees with a far less advantageous premium-
    to-benefit ratio--and therefore a far lower Federal survivor benefit
    subsidy than their retired Federal civilian counterparts.
        The National Defense Authorization Act for Fiscal Year 2001
    included a ``Sense of Congress'' provision specifying that legislation
    should be enacted to increase the SBP age-62 annuity to ``reduce and
    eventually eliminate'' the different levels of annuities for survivors
    age 62 and older versus those for younger survivors. But that statement
    of support remains to be translated into substantive relief.
        The Military Coalition strongly supports legislation sponsored by
    Sen. Olympia Snowe and Rep. Jeff Miller (S. 451 and H.R. 548,
    respectively) that, if enacted, would eliminate the disparity over a 5-
    year period--raising the minimum SBP annuity to 40 percent of SBP-
    covered retired pay on October 1, 2004; to 45 percent in 2005; and to
    50 percent in 2006 and finally to 55 percent in 2007.
        We appreciate only too well the cost and other challenges
    associated with such mandatory spending initiatives, and believe this
    incremental approach offers a reasonable balance between the need to
    restore equity and the need for fiscal discipline. The cost could be
    partially offset by authorizing an open enrollment season to allow
    currently non-participating retirees to enroll in the enhanced program,
    with a late-enrollment penalty tied to the length of time since they
    retired. A similar system was used with the last major program change
    in 1991.
        The Military Coalition strongly recommends elimination of the age-
    62 Survivor Benefit Plan annuity reduction. To the extent that
    immediate implementation may be constrained by fiscal limitations, the
    Coalition urges enactment of a phased annuity increase as envisioned in
    S. 451 and H.R. 548.
        30-Year Paid-Up SBP. Congress approved a provision in the National
    Defense Authorization Act for Fiscal Year 1999 authorizing retired
    members who had attained age 70 and paid SBP premiums for at least 30
    years to enter ``paid-up SBP'' status, whereby they would stop paying
    any further premiums while retaining full SBP coverage for their
    survivors in the event of their death. Because of cost considerations,
    the effective date of the provision was delayed until October 1, 2008.
        As a practical matter, this means that any SBP enrollee who retired
    on or after October 1, 1978 will enjoy the full benefit of the 30-year
    paid-up SBP provision. However, members who enrolled in SBP when it
    first became available in 1972 (and who have already been charged
    higher premiums than subsequent retirees) will have to continue paying
    premiums for up to 36 years to secure paid-up coverage.
        The Military Coalition is very concerned about the delayed
    effective date, because the paid-up SBP proposal was initially
    conceived as a way to grant relief to those who have paid SBP premiums
    from the beginning. Many of these members entered the program when it
    was far less advantageous and when premiums represented a significantly
    higher percentage of retired pay. In partial recognition of this
    problem, SBP premiums were reduced substantially in 1991, but these
    older members still paid the higher premiums for up to 18 years. The
    Coalition believes strongly that their many years of higher payments
    warrant at least equal treatment under the paid-up SBP option, rather
    than forcing them to wait five more years for relief, or as many
    retirees believe, waiting for them to die off.
        The Military Coalition recommends accelerating the implementation
    date for the 30-year paid-up SBP initiative to October 1, 2003.
        Active Duty SBP. Active duty SBP provisions in the National Defense
    Authorization Act for Fiscal Year 2002 gave active duty members a
    significantly enhanced SBP benefit. However, the law inadvertently set
    different rules for active duty and retired members and survivors
    regarding payment of SBP benefits to eligible children. Currently, in
    the case of survivors of retirees with ``spouse and child'' coverage,
    the payments transfer from the spouse to the minor child(ren) if the
    spouse remarries before the children lose their dependent status. But
    an inadvertent inconsistency in the fiscal year 2002 law change does
    not allow such transfer in the case of a remarriage of a survivor of a
    member who died on active duty. In such cases, the children can receive
    SBP payments only if the surviving spouse dies.
        Payment of benefits to children should be authorized if the
    surviving spouse remarries, regardless of whether the member died on
    active duty or in retirement.
        In addition, SBP eligibility should switch to the children if a
    surviving spouse is convicted of complicity in the member's death.
        The Military Coalition recommends authorizing transfer of SBP
    payments to surviving children in the event that any surviving spouse
    remarries or is convicted of complicity in the service member's death.
        Death Gratuity. The current death gratuity amount was last
    increased in 1991 when it was raised from $3,000 to $6,000. This amount
    is insufficient to cover costs incurred by families responding to the
    death of an active member. The Coalition believes the subcommittee was
    correct last year in seeking to double the death gratuity and making it
    tax-free.
        The Military Coalition recommends increasing the military death
    gratuity from $6,000 to $12,000, and making the gratuity tax-free.
        SBP-DIC Offset. Currently, SBP survivors whose sponsors died of
    service-connected causes have their SBP annuities reduced by the amount
    of Dependency and Indemnity Compensation payable by the VA.
        The Coalition believes this offset is not appropriate, because the
    SBP and DIC programs serve distinct purposes. SBP is a retiree-
    purchased program, which any retiring member can purchase to provide
    the survivor a portion of his or her retirement. DIC, on the other
    hand, is special indemnity compensation to the survivor of a member
    whose service caused his or her death.
        The Coalition believes strongly that the government owes extra
    compensation (``double indemnity compensation,'' in essence, rather
    than ``substitute compensation'') in cases in which the member's death
    was caused by his or her service.
        Although the survivor whose SBP is reduced now receives a pro-rata
    rebate of SBP premiums, the survivor needs the annuity, not the premium
    refund. Award of DIC should not reduce award of SBP any more than it
    reduces payment of SGLI life insurance benefit.
        The Military Coalition recommends eliminating the DIC offset to
    Survivor Benefit Plan annuities, recognizing that the two compensations
    serve different purposes, and one is not substitutable for the other.
    Health Care Testimony 2003
        The Military Coalition is most appreciative of the subcommittee's
    exceptional efforts to honor the government's health care commitments
    to uniformed services beneficiaries, particularly for Medicare-
    eligibles and active duty members and families. These and other
    subcommittee-sponsored enhancements represent the greatest military
    health care advancements in a generation and save uniformed services
    beneficiaries thousands of dollars a year. The Coalition also thanks
    the subcommittee for its continuing efforts to facilitate improvements
    in TRICARE claims processing, portability, and access.
        However, much remains to be done. Today, we wish to address certain
    chronic problem areas, and some additional initiatives that will be
    essential to providing an equitable and consistent health for all
    categories of TRICARE beneficiaries, regardless of age or geography.
        We urge the subcommittee to particularly turn its attention to the
    situation of beneficiaries under age 65. While the subcommittee has
    substantially eased cost burdens for Medicare-eligibles and for active
    duty families in TRICARE Prime and Prime Remote, 3.2 million TRICARE
    Standard beneficiaries still face increasingly significant provider
    accessibility challenges.
        The Coalition looks forward to continuing its productive and
    cooperative efforts with the subcommittee's members and staff in
    pursuit of this common objective.

    Adequate Funding for the Defense Health Budget
        Once again, a top Coalition priority is to work with Congress and
    DOD to ensure full funding of the defense health budget to meet
    readiness needs and deliver services, through both the direct care and
    purchased care systems, for ALL uniformed services beneficiaries,
    regardless of age, status, or location. An adequately funded health
    care benefit is essential to readiness and the retention of qualified
    uniformed service personnel.
        The subcommittee's oversight of the defense health budget is
    essential to avoid a return to the chronic underfunding of recent years
    that led to execution shortfalls, shortchanging of the direct care
    system, inadequate equipment capitalization, failure to invest in
    infrastructure and reliance on annual emergency supplemental funding
    requests as a substitute for candid and conscientious budget planning.
        While supplemental appropriations were not required last year, we
    are concerned that the current funding level only meets the needs of
    the status quo and does not address the growing requirement to support
    the deployment of forces to Southwest Asia and Afghanistan. Addressing
    funding for these increased readiness requirements; TRICARE provider
    shortfalls and other needs will require additional funding.
        The Military Coalition strongly recommends the subcommittee
    continue its watchfulness to ensure full funding of the Defense Health
    Program, to include military medical readiness, TRICARE, and the DOD
    peacetime health care mission. The Defense Health Budget must be
    sufficient to provide financial incentives to attract increased numbers
    of providers needed to ensure access for TRICARE beneficiaries in all
    parts of the country.

    TRICARE for Life Implementation
        The Coalition is pleased to report that, thanks to this
    Subcommittee's focus on beneficiaries, TMC representatives continue to
    be engaged in an OSD-sponsored action group, the TFL Working Group. The
    Working Group has broadened its scope from its original TFL focus, and
    has been redesignated accordingly as the TRICARE Beneficiary Panel. The
    group continues to meet on a regular basis to further refine TFL and
    tackle other TRICARE beneficiary concerns. We are most appreciative of
    the positive working relationship that has evolved between the
    Beneficiary Panel and the staff at TMA. This collegiality has gone a
    long way toward making the program better for all stakeholders. From
    our vantage point, DOD continues to be committed to implement TFL
    consistent with congressional intent and continues to work vigorously
    toward that end.
        The Coalition is concerned that some TFL implementation
    ``glitches'' remain. The Beneficiary Panel has provided a much-needed
    forum to exchange DOD and beneficiary perspectives and identify
    corrective actions. The majority of issues, especially with regard to
    TFL claims processing appear to be resolved. The Coalition will
    continue to work closely with DOD to monitor remaining issues and any
    others that may arise.
        The Coalition has identified certain statutory limitations and
    inconsistencies that we believe need adjustment to promote an equitable
    benefit for all beneficiaries, regardless of where they reside.
        Claims Processing for Under-65 Medicare-Eligible Beneficiaries.
    When TFL was enacted, the Coalition believes Congress intended that ALL
    Medicare-eligible beneficiaries should receive the same benefit and the
    same claims-processing treatment. Unfortunately, this has not turned
    out to be the case as DOD has interpreted and implemented the TFL
    statute.
        The Coalition is very concerned about claims processing limitations
    that persist for the estimated 48,000 under-65 Medicare-eligible
    population. These TRICARE beneficiaries (who are eligible for Medicare
    due to disability) continue to be left out of the electronic claims
    processing--the standard for TFL beneficiaries over 65. Eligibility for
    automated claims is essential to make TFL work smoothly, since it
    allows TFL beneficiaries access to any Medicare-participating provider.
    In this regard, Medicare providers incur no extra paperwork with TFL
    patients, because Medicare automatically processes the claims to TFL.
    Without inclusion in the electronic claims process, younger disabled
    beneficiaries must still find a provider who accepts TRICARE in
    addition to Medicare, and their providers are still saddled with filing
    individual paper claims with TRICARE for each episode of care. Since
    this entails much slower processing and payment, many providers are
    unwilling to care for under-65 Medicare-eligibles or require payment
    upfront at the time of service.
        House report language accompanying the NDAA for Fiscal Year 2003
    (P.L. 107-107) directs DOD to provide Medicare-eligibles under 65 the
    ability to participate in the electronic claims process and to provide
    a report by March 31, 2003. However, DOD has shown little initiative to
    expedite a fix for these deserving beneficiaries. The Department has
    indicated its intent to delay inclusion of under-65 retired Medicare-
    eligible beneficiaries in the electronic claim system until the new
    TRICARE contracts are implemented at some point in 2004. This means
    disabled Medicare-eligibles under age 65 face a delay of over three
    years in receiving the benefit of Congress' action. The Coalition
    believes this situation is extremely unfair and imposes an undue burden
    on these disabled beneficiaries who most need care and often endure
    financial hardship because of their disability.
        The Military Coalition urges the subcommittee to change the law to
    require that all Medicare-eligible uniformed services beneficiaries,
    regardless of age or status, shall be entitled to the same TFL
    benefits, claims processing treatment, and benefits information
    notification currently afforded to Medicare-eligible beneficiaries over
    age 65, effective upon enactment.
        Education for Under-65 Medicare-Eligible Beneficiaries. Unlike
    Medicare-eligibles over the age of 65, disabled beneficiaries under 65
    receive no formal communication from DOD about how their TRICARE
    benefits change upon becoming eligible for Medicare Part B. (Under-65
    Medicare eligibles retirees must enroll in Part B in order to keep
    their TRICARE benefits.)
        Many beneficiaries are unaware of this requirement, only to find
    their TRICARE claims denied when it is discovered they are also
    eligible for Medicare. The Coalition values TMA's willingness to make
    good faith payments for these beneficiaries and to provide a 5 day
    grace period where the claims are paid to date and the benefit is
    terminated on day five. However, this is not enough. The annual open
    enrollment season for Medicare is the 1st quarter of the year, with
    benefits beginning in the 3rd quarter. Therefore, many who are in the
    greatest need of care are now having their TRICARE benefit terminated
    and being left in the lurch without coverage until the following July
    1st.
        The Coalition does not understand why the beneficiary is
    subsequently cut off from TRICARE before they can get into CMS's
    arbitrary open enrollment season--especially when they were
    inadequately informed of the Part B requirement in the first place.
        Through the Beneficiary Panel, the Coalition has continued to urge
    DOD to take a more proactive stance in aggressively educating this
    group about the benefits changes associated with Medicare eligibility.
    While the revision of the September 2002 TRICARE Handbook was a
    monumental effort, the education of dual eligibles about the Part B
    requirement as stated on page 9 remains woefully inadequate and there
    still remains NO effort to contact these beneficiaries.
        The Military Coalition urges the subcommittee to require DOD to
    develop a mechanism to inform retiree beneficiaries of the Part B
    requirement and to continue their TRICARE benefit until the first date
    their Medicare coverage can take effect, contingent on the
    beneficiary's participation in the next Part B open enrollment period.
        Medicare Part B Penalty. Currently, an estimated 6 percent of the
    Medicare-eligible beneficiaries residing in the United States would be
    subject to a Medicare Part B late enrollment penalty if they desire to
    participate in TFL. The penalty, which increases by 10 percent per
    year, is particularly onerous for more elderly retirees (principally
    the veterans of World War I and World War II), lower grade retirees and
    survivors. Last year, the House passed H.R. 4546 to authorize an open
    enrollment season to relieve TFL-eligibles from this penalty,
    recognizing that many older military beneficiaries (especially those
    residing overseas, where Medicare does not pay) had no previous
    incentive to enroll in Medicare Part B. Unfortunately, the Senate did
    not complete action on a similar bill. The Coalition strongly supports
    this initiative, but recognizes that jurisdiction over any aspect of
    the Medicare program is outside the purview of the Armed Services
    Committees. We ask for the subcommittee's support for new legislation
    to provide for a special enrollment period.
        The Military Coalition recommends that individuals who attained age
    65 prior to October 1, 2001, who would otherwise be subject to a
    Medicare Part B late enrollment penalty, should have the ability to
    enroll in Medicare Part B during a special enrollment period and to
    have penalties waived.
        Dual-Eligible DOD-VA Beneficiaries. The Coalition is very grateful
    to the subcommittee for the National Defense Authorization Act (NDAA)
    for Fiscal Year 2002 (P.L. 107-107) provision that prohibits the
    Secretary of Defense from forcing DOD beneficiaries who are also
    eligible for Veterans Administration (VA) medical care to choose
    between DOD and VA care.
        We support the subcommittee's rational approach, and its resistance
    to the efforts of those who would force disabled retirees to choose one
    system or the other, or who would try to merge parts or all of the two
    systems. We agree strongly with the subcommittee that the right
    approach is to avoid trying to solve the government's budgetary and
    oversight issues by restricting beneficiary options or forcing them
    into a health care system that was not designed to meet their needs.
        However, the Coalition was distressed to learn that Chapter 10, Sec
    1.1 and Chapter 13, Section 12.1 of the TRICARE Policy Manual state
    that when an individual is entitled to VA services because of a
    service-connected disability and is TRICARE-eligible, the individual
    must choose the program to use for each episode of care. Once that
    individual has selected the program of choice, crossover is not
    permitted for that episode of care. DOD will not care for a TRICARE
    beneficiary who has been receiving VA care for their service-connected
    disability for that episode of care. The Coalition appreciates the
    subcommittee's effort in the NDAA for Fiscal Year 2003 to takes steps
    to address access for dual-eligible beneficiaries and better define the
    term ``episode of care'' for this purpose.
        The Coalition contends that dual-eligibles should be allowed access
    to both systems and the two agencies should resolve reimbursement
    issues. This situation is made more complex because of the long waiting
    times for VA care. The VA has no enforceable access standards to speak
    of, while Prime beneficiaries have the right to stringent access
    standards. In addition, the Coalition is not aware of any circumstances
    where beneficiaries are educated about the limitations in their TRICARE
    benefit--should they coincidentally have a service-connected
    disability.
        The Coalition rejects DOD's rationale for this egregious policy--
    which it is allegedly meant to preserve continuity of care. When the
    Coalition has sought to abolish Nonavailability Statements (NAS) based
    on continuity of care concerns, DOD vigorously argues the other side of
    the case.
        The Coalition is concerned about the double standard that is in
    place:

             If you are a service connected disabled Veteran--
            despite your wishes to be treated elsewhere, continuity of care
            keeps you out of TRICARE.
             If you are a Standard beneficiary, your desire for
            continuity of care is disregarded and you are forced into the
            military's direct care system.
             If you have other health insurance, you can get
            continuity of care wherever you want, and DOD will bill your
            other insurance should you use the TRICARE benefit.

        The Coalition believes that the reality of the situation is that
    DOD selectively supports or opposes continuity of care depending on
    which position is to DOD's financial advantage, regardless of
    beneficiary inconvenience or continuity of care concerns.
        The Military Coalition urges the subcommittee to remain vigilant in
    its efforts to ensure that military retirees also eligible for VA care
    should not be forced to make an election between VA and DOD health care
    and to take further steps to permit dual eligibles access to both
    systems.

    TRICARE Improvements
        Access to Care. Access to care is the number one concern expressed
    by our collective memberships. More and more beneficiaries report that
    few, if any, providers in their area are willing to accept new TRICARE
    Standard patients. Enhanced benefits for our seniors and decreased cost
    shares for active duty beneficiaries will be of little consequence to
    beneficiaries who cannot find a TRICARE provider.
        Distinction between TRICARE Prime and Standard. The Coalition
    believes that a further distinction must be made between TRICARE
    Standard and Prime in evaluation of the TRICARE program. Our members
    report increased problems and dissatisfaction with the Standard benefit
    that far exceed complaints about Prime. There certainly are success
    stories to be told about the Prime benefit, but glowing reports from
    TMA on the Prime benefit in documents such as the TRICARE Stakeholder's
    Repot obscure the very real and chronic problems with the Standard
    benefit.
        The Coalition thanks the subcommittee for their efforts in Sec. 712
    of the NDAA for Fiscal Year 2003 (P.L. 107-314) to require a
    Comptroller General report evaluating TRICARE network provider
    instability, along with the effectiveness of the MCSCs' efforts to
    measure and alleviate the issue. But here again, we are concerned that
    the report may focus on Prime networks, when the real problem concerns
    access for over 3.2 million beneficiaries to TRICARE Standard
    providers. We are hopeful that this report will delve into the unique
    problems associated with the latter issue.
        The Military Coalition urges the subcommittee to focus its primary
    energies on revitalizing the TRICARE Standard program. To this end, the
    Coalition recommends requiring that any reports from the Department of
    Defense, the Comptroller General or other sources specify separate
    assessments of TRICARE Prime and TRICARE Standard statistics, problems,
    policies, procedures, and impacts on beneficiaries.
        Provider Reimbursement. The Coalition is greatly troubled that
    because of a flaw in the provider reimbursement formula, the Centers
    for Medicare and Medicaid (CMS) have cut Medicare fees 9.8 percent over
    the past 2 years. Changes to the Medicare fee schedule directly affect
    uniformed services beneficiaries. Since 1991 by statute (10 U.S.C.
    1079(h)), DOD is required to establish TRICARE Maximum Allowable
    Charges (TMAC) based on Medicare's fee schedule. Cuts in Medicare
    provider payments, on top of providers' increasing overhead costs and
    rapidly rising medical liability expenses, seriously jeopardizes
    providers' willingness to participate in government programs like
    TRICARE and Medicare. Provider resistance is much more pronounced for
    TRICARE than Medicare for a variety of social, workload, and
    administrative reasons. Provider groups tell us that TRICARE is the
    lowest-paying program they deal with, and often poses them the most
    administrative problems. This is a terrible combination of perceptions
    if you are a TRICARE Standard patient trying to find a doctor.
        The Coalition is seriously concerned that the war on terrorism and
    the war in Southwest Asia are straining the capacity of the military's
    direct health care system, as large numbers of medical corps members
    are deployed overseas. As a result of this increased activation, more
    and more TRICARE patients will have to turn to the civilian sector for
    care--thus putting more pressure on civilian providers who already have
    absorbed significant fee cuts for providing care to TRICARE
    beneficiaries.
        The Coalition firmly believes that our deployed service men and
    women need to focus on their mission, without having to worry whether
    their family members back home can find a provider. Uniformed services
    beneficiaries, their family members, and survivors deserve the Nation's
    best health care, not the cheapest.
        We are grateful that the 108th Congress took action to pass
    legislation P.L. 108-7 (H.J. Res 2) to increase Medicare and TRICARE
    payment rates. Congress did the right thing by reversing the erroneous
    4.4 percent provider payment cut due to be implemented March 1, 2003,
    providing a 1.6 percent payment increase and giving the Centers for
    Medicare and Medicaid (CMS) the authority to fix the flawed Medicare
    reimbursement formula. The Coalition is aware that jurisdiction over
    the Medicare program is not within the authority of the Armed Services
    Committees, but believes it has a particular interest in raising
    Medicare rates because of the adverse impact of depressed rates on all
    TRICARE beneficiaries, not just Medicare-eligibles.
        The Military Coalition requests the subcommittee's support of any
    means to raise Medicare rates to more reasonable standards and to
    support measures to address Medicare Part B's flawed reimbursement
    formula.
        In order to achieve parity and encourage participation, both
    Medicare and DOD have the ability to institute locality-based rates to
    account for geographical variation in practice costs as necessary to
    secure sufficient providers to meet beneficiary needs. DOD has had
    statutory authority (10 U.S.C. 1097 (b)) to raise rates for network
    providers up to 115 percent of TMAC in areas where adequate access to
    health care services is severely impaired.
        To date, the Secretary of Defense has resisted using his existing
    authority to increase participation by raising reimbursement levels.
    The Coalition is eager to see the evaluation of the use of this
    authority in the Comptroller General report mandated in Sec. 712 of the
    NDAA for Fiscal Year 2003 (P.L. 107-314). But here again, the focus on
    Prime networks can obscure the larger problems with Standard providers.
        The Coalition believes that raising TRICARE payment rates to
    competitive levels with other insurance is essential to solving the
    TRICARE Standard access problem. We appreciate the cost implications of
    doing this, and understand the preference in both the executive and
    legislative branches to focus on administrative issues rather than
    payment levels. But providers indicate overwhelmingly that it is a
    money issue. They may be willing to accept low payments from Medicare
    out of a sense of obligation to the elderly and the volume of elderly
    patients, and because Medicare has a reasonably reliable electronic
    payment system. They are not so willing to accept low TRICARE payments.
        The Coalition supports past and current efforts to improve TRICARE
    administrative issues, and believes headway is being made. But
    providers know, as we do, that these problems have persisted for
    decades, and they are skeptical about the likelihood of significant
    change in the near term. Meanwhile, TRICARE beneficiaries need access
    to doctors, and they should not have to wait years in hopes of getting
    it.
        Other insurance programs pay providers rates that are significantly
    higher than TRICARE Standard's. The Coalition is very doubtful that
    access problems can be addressed successfully without raising rates. We
    believe the only way to assess the merits is to institute a pilot
    project to test if raising TRICARE Standard payment rates improves
    access for beneficiaries.
        The Military Coalition most strongly urges the subcommittee to
    institute a pilot project at several locations of varying
    characteristics to test the extent to which raising TRICARE Standard
    rates increases the number of providers who are willing to accept new
    Standard patients.
        Medicare has recognized that in order to ensure continued access
    for its beneficiaries, it must supplement its basic reimbursement rates
    in a variety of specific areas. This summer, DOD will make an
    additional step toward the same understanding with a commitment to pay
    a 10 percent quarterly bonus to both Standard and network providers in
    Health Professional Shortage Areas (HPSAs).
        The Coalition is pleased that DOD plans to make these bonus
    payments that parallel Medicare's HPSA program. By adapting this plan,
    DOD makes the same commitment to access for TRICARE beneficiaries, as
    does Medicare. TRICARE's medically underserved areas will be the same
    as those determined by the Secretary of Health and Human Services for
    the Medicare program.
        The Coalition urges the subcommittee to further align TRICARE with
    the Medicare program by authorizing increased payments to hospitals in
    areas, which serve a disproportionately large number of TRICARE
    beneficiaries, thus mirroring Medicare's Disproportionate Share (DSH)
    payment adjustment. Since TRICARE rates are based upon Medicare, it
    makes sense that TRICARE follow this supplemental payment concept of
    Medicare, as it is every bit as important that DOD safeguard access to
    care for uniformed services beneficiaries as does Medicare.
        The Military Coalition urges the subcommittee to further align
    TRICARE with Medicare by adapting the Medicare Disproportionate Share
    payment adjustment to compensate hospitals for the care of TRICARE
    beneficiaries.
        FEHBP Option. The Coalition is the first to acknowledge the ongoing
    interest and effort being invested in improving TRICARE. But the
    Coalition is also frustrated that many of TRICARE's difficulties are
    chronic ones with which TRICARE beneficiaries have been struggling with
    for many years. If past experience is any indicator, solving the
    TRICARE provider access problem is years away from reality. In the
    meantime, military beneficiaries need an additional option for access
    to health coverage that larger numbers of providers will accept in all
    areas of the country.
        One ``off the shelf'' option that is available immediately, with
    legislative authority, is to allow uniformed services beneficiaries the
    option of enrolling in the same Federal Employees Health Benefits
    Program the government already provides for Federal civilian employees
    and retirees. FEHBP requires a substantial premium payment, so we do
    not expect military beneficiary participation would be widespread. But
    an FEHBP option would provide one way for beneficiaries to improve
    their access to health care immediately, particularly in areas (e.g.,
    Idaho and certain areas of Colorado) where there are virtually no
    providers accepting new TRICARE patients.
        Uniformed services beneficiaries who now have limited access to
    participating providers should not have to wait years for necessary
    TRICARE improvements. Authorizing an FEHBP option is one important way
    to provide them immediate access.
        The subcommittee previously authorized a test demonstration for
    Medicare-eligible beneficiaries, who now are served by TRICARE For
    Life. Now, the FEHBP option deserves consideration to meet the needs of
    younger beneficiaries who are having difficulty using their TRICARE
    coverage.
        The Military Coalition urges the subcommittee to authorize a
    demonstration program to test interest, feasibility, and cost-
    effectiveness of providing uniformed services beneficiaries, family
    members, retirees and survivors under the age of 65 an option to enroll
    in FEHBP on the same basis as their Federal civilian counterparts.
        Network and Standard Provider Availability. Large numbers of
    beneficiaries continue to report increased difficulty locating
    providers who will accept new TRICARE patients, even though the
    Department of Defense indicates that the number of TRICARE providers is
    at near an all-time high.
        Clearly, there is a problem with how provider participation is
    measured and monitored. The current participation metric is calculated
    as the percent of claims filed on an assigned basis. Nowhere does DOD
    or its support contractors ask or track whether participating or
    authorized providers are accepting new patients.
        Since participation is fluid, providers are permitted to accept or
    refuse TRICARE patients on a day-by-day basis; therefore, beneficiaries
    often must make multiple inquiries to locate a provider who is taking
    patients on that day.
        Allegedly, current TRICARE contracts require MCSCs to help Standard
    patients find providers, but this is not the actual practice. Further,
    there is no such requirement in the new TNEX contracts. MCSCs are under
    no obligation to recruit Standard providers or provide up-to-date lists
    of Standard providers, leaving beneficiaries on their own to determine
    if a provider is willing to accept Standard patients. We believe this
    issue is too critical to depend upon the ``chance'' that the civilian
    contractors will voluntarily elect to provide this service in all
    regions.
        As one beneficiary said, ``The TRICARE Standard provider handbook
    list is now the Yellow Pages, and Standard beneficiaries are forced to
    call provider after provider asking, `Do you take TRICARE patients?' ''
    Another beneficiary reported, after calling every provider in the area
    without success, ``It's as if doctors are hanging up signs that say
    `Dogs and service members not allowed.' ''
        The Coalition believes MCSCs must have an obligation to assist
    Standard beneficiaries as well as Prime beneficiaries. Options may
    include providing interactive on-line lists of Standard providers, with
    indications of which ones are currently accepting new Standard
    patients. Where a beneficiary cannot find a provider, the MCSC should
    help them do so.
        The Military Coalition urges the subcommittee to require DOD and
    its MCSCs to assist Standard beneficiaries in finding providers who
    will accept new TRICARE Standard patients, including interactive on-
    line lists and other means of communication.
        Administrative Burdens. Despite many initiatives to improve the
    program, we continue to hear complaints from providers of low and slow
    payments, as well as burdensome administrative requirements and
    hassles. Only by decreasing the administrative burden placed on
    providers and building a simplified and reliable claims system that
    pays in a timely way can Congress and DOD hope to establish TRICARE as
    an attractive program to providers and a dependable benefit for
    beneficiaries.
        Once providers have left the TRICARE system, promises of increased
    efficiencies have done little to encourage them to return. Lessons
    learned from TFL implementation demonstrate the effectiveness of using
    one-stop electronic claims processing to make automatic TRICARE
    payments to any Medicare-participating provider.
        The Coalition is grateful to the subcommittee for its actions in
    the NDAA for Fiscal Year 2003 designating Medicare providers as TRICARE
    authorized providers and requiring DOD to adopt claims requirements
    that mirror Medicare's, effective with TNEX. TFL dramatically improved
    access to care for Medicare-eligibles by relying on existing Medicare
    policies to streamline administrative procedures and claims processing,
    make the system simple for providers, and pay claims on time.
        The Coalition remains concerned with the caveat under Sec. 711 of
    the NDAA for Fiscal Year 2003 that claim information is limited to that
    required for Medicare claims ``except for data that is unique to the
    TRICARE program.'' We believe that the proposed requirements are still
    more complex than that of private sector practices. We do not know how
    this extraneous information contributes to effective claims processing,
    but we do know that the private sector adjudicates claims more cost
    effectively and efficiently without such additional requirements. We
    also know that the more requirements the TRICARE claims system imposes
    on providers, the less willing they are to put up with it.
        The claims system should be designed to accommodate providers and
    beneficiaries' needs rather than compelling them to jump through
    additional administrative hoops for TRICARE's convenience. The
    Coalition is hopeful that the Comptroller General report on obstacles
    in claims processing will address this issue.
        The Military Coalition urges the subcommittee to continue its
    efforts to make the TRICARE claims system mirror Medicare's, without
    extraneous requirements that deter providers and inconvenience
    beneficiaries.
        Prior Authorization. While the TNEX request for proposals
    purportedly removes the requirement for preauthorization for Prime
    beneficiaries referred to specialty care, the TRICARE Policy Manual
    6010.54-M August 1, 2002, Chapter 1, Section 7.1, and I., G belies
    that, stating:

            ``Each TRICARE Regional Managed Care Support (MCS) contractor
            may require additional care authorizations not identified in
            this section. Such authorization requirements may differ
            between regions. Beneficiaries and providers are responsible
            for contacting their contractor's Health Care Finder for a
            listing of additional regional authorization requirements.''

        The Coalition believes strongly that this regulation undermines the
    long-standing effort of this subcommittee to simplify the system and
    remove burdens from providers and beneficiaries. It is contrary to
    current private sector business practices, the commitment to decrease
    provider administrative burdens, and the provision of a uniform
    benefit. DOD has told the Coalition that they do not believe the
    civilian contractors will impose such limitations in their proposals,
    as it does not make good business sense. If so, why allow them that
    authority? The Coalition does not believe the provision of a uniform
    benefit should be left to the whims of the contractors. The Coalition
    believes it is the intent of Congress that uniformed services
    beneficiaries have earned and deserve a uniform benefit.
        The Military Coalition urges the subcommittee's continued efforts
    to narrow and ultimately eliminate requirements for pre-authorization.
        TRICARE Prime (Remote) Improvements. The Coalition is grateful for
    the NDAA for Fiscal Year 2003 provision (sec. 702) that addresses
    continued TRICARE eligibility of dependents residing at remote
    locations when their sponsor's follow-on orders are an unaccompanied
    assignment. Sec 702 also provides further Prime eligibility for certain
    dependents of Reserve component members ordered to active duty.
        This provision allows these families to retain the TRICARE Prime
    Remote benefit (TPR) and will go a long way to provide support for
    families remotely assigned who face a period of time living without
    their sponsor. The Coalition requests the subcommittee to make an
    additional consideration to enhance this provision. As written, TPR
    benefits are authorized only if the dependents remain at the former
    duty site. In such circumstances, there can be many good reasons why
    the family may wish to relocate to another area while awaiting the end
    of the sponsor's unaccompanied tour. Many dependents wish to relocate
    to be with their families during this time or to another area where
    they can best wait for the service member to return. In those cases
    where the government is willing to pay for the family's relocation for
    this purpose, it seems inappropriate to force the family out of the
    Prime Remote program if TRICARE Prime is not available at the location
    where the family will reside.
        The Military Coalition requests that the subcommittee authorize
    TRICARE Prime Remote beneficiary family members to retain their
    eligibility when moving to another remote area when such move is funded
    by the government and there is no reasonable expectation that the
    service member will return to the former duty station.
        Sec. 702 extends TPR to dependents of Reserve component members
    residing in remote areas when called to active duty for more than 30
    days. While we applaud this enhancement, we would ask the subcommittee
    to consider extending this to dependents that reside within Military
    Treatment Facility (MTF) catchment areas if the sponsor is called to
    active duty for 179 days or less. In such cases, the family members are
    not eligible for enrollment in TRICARE Prime. For them, there is no
    practical difference than if they lived in TRICARE Prime remote area.
    Under MTF optimization, these beneficiaries will most likely be unable
    to receive care from the military's direct care system. The Coalition
    believes the Prime Remote benefit should be standardized for ALL
    Reserve families when the sponsor is called to active duty for 31 to
    179 days, regardless of whether the family resides in a catchment area
    or not.
        The Military Coalition urges the subcommittee to expand TRICARE
    Prime Remote coverage to include reservists called to active duty for
    31 to 179 days who reside within MTF catchment areas.
        The great strides made in recent years to improve benefits for
    Medicare-eligibles and active duty families stand in contrast to the
    continued shortcomings of the TRICARE system for retirees under 65.
    Many of these beneficiaries live in areas not serviced by Prime, thus
    relying on the more expensive and cumbersome Standard benefit. Many,
    especially those who live in rural or metropolitan areas that are
    medically underserved, have great difficulty in locating TRICARE
    Standard providers. This presents a dilemma for members who have no
    choice but to rely on providers who can charge higher prices and demand
    their fees ``up front'' at the time of service. Obviously, this places
    an undue financial burden upon these deserving beneficiaries.
        In the light of the enhancements recently provided to the over-65
    retirees (TFL) and active duty beneficiaries, extra steps are needed to
    provide a more consistent benefit to the under-65 retirees whose needs
    are not currently being met by TRICARE Standard.
        The Military Coalition recommends that subcommittee authorize
    extension of TRICARE Prime Remote coverage to retirees and their family
    members and survivors at the same locations where it is established for
    active duty families.
        Healthcare for Members of the National Guard and Reserve. Health
    insurance coverage has an impact on Guard--Reserve (G-R) medical
    readiness and family morale. Progress has been made during transitional
    periods after call-ups, but more needs to be done to provide continuity
    of care coverage for Reserve component members.
        Health insurance coverage varies widely for members of the G-R:
    some have coverage through private employers, others through the
    Federal Government, and still others have no coverage. Reserve families
    with employer-based health insurance must, in some cases, pick up the
    full cost of premiums during an extended activation. Although TRICARE
    eligibility starts at 30 days activation, many G-R families would
    prefer continued access to their own health insurance. Being dropped
    from private sector coverage as a consequence of extended activation
    adversely affects family morale and military readiness and discourages
    some from reenlisting.
        In 2001, DOD recognized this problem and announced a policy change
    under which DOD would pay the premiums for the Federal Employee Health
    Benefit Program (FEHBP) for DOD reservist-employees activated for
    extended periods. However, this new benefit only affects about 10
    percent of the Selected Reserve. The Coalition believes this philosophy
    could be extended to pay health insurance premiums for activated G-R
    members who are not Federal civilian employees.
        As a matter of morale, equity, and personnel readiness, more needs
    to be done to assist reservists who are being called up more frequently
    in support of national security missions. They deserve options that
    provide their families continuity of care, without having to find a new
    doctor or navigate a new system each time the member is activated or
    deactivated.
        The Military Coalition urges making the TRICARE medical program
    available for members of the National Guard and Reserve component and
    their families on a cost-sharing basis in order to ensure medical
    readiness and provide continuity of coverage to members of the Selected
    Reserve. Alternatively, the Coalition urges allowing activated Guard/
    Reserve members the option of having the Department of Defense pay
    their civilian insurance premiums during periods of activation.
        Coordination of Benefits and the 115 percent Billing Limit Under
    TRICARE Standard. In 1995, DOD unilaterally and arbitrarily changed its
    policy on the 115 percent billing limit in cases of third party
    insurance. The new policy shifted from a ``coordination of benefits''
    methodology (the standard for TFL, FEHBP and other quality health
    insurance programs in the private sector) to a ``benefits-less-
    benefits'' approach, which unfairly transferred significant costs to
    service members, their families, and survivors.
        Although providers may charge any amount for a particular service,
    TRICARE only recognizes amounts up to 115 percent of the TRICARE
    ``allowable charge'' for a given procedure. Under DOD's previous, pre-
    1995 policy, any third party insurer would pay first, and then TRICARE
    (formerly CHAMPUS) would pay any remaining balance up to what it would
    have paid as first payer if there were no other insurance (75 percent
    of the allowable charge for retirees; 80 percent for active duty
    dependents).
        Under its post-1995 policy, TRICARE will not pay any reimbursement
    at all if the beneficiary's other health insurance (OHI) pays an amount
    equal to or higher than the 115 percent billing limit. (Example: a
    physician bills $500 for a procedure with a TRICARE-allowable charge of
    $300, and the OHI pays $400. Previously, TRICARE would have paid the
    additional $100 because that is less than the $300 TRICARE would have
    paid if there were no other insurance. Under DOD's new rules, TRICARE
    pays nothing, since the other insurance paid more than 115 percent of
    the TRICARE-allowable charge.) In many cases, the beneficiary is stuck
    with the additional $100 in out-of-pocket costs.
        DOD's shift in policy unfairly penalizes beneficiaries with other
    health insurance plans by making them pay out of pocket for what
    TRICARE previously covered. In other words, beneficiaries entitled to
    TRICARE may forfeit their entire TRICARE benefit because of private
    sector employment or some other factor that provides them private
    health insurance. In practice, despite statutory intent, these
    individuals have no TRICARE benefit.
        DOD and Congress acknowledged the appropriateness of the
    ``coordination of benefits'' approach in implementing TRICARE For Life
    and for calculating pharmacy benefits. TFL pays whatever charges are
    left after Medicare pays, up to what TRICARE would have paid as first
    payer. The Coalition believes this should apply when TRICARE is second-
    payer to any other insurance, not just when it is second-payer to
    Medicare.
        The Military Coalition strongly recommends that the subcommittee
    direct DOD to eliminate the 115 percent billing limit when TRICARE
    Standard is second payer to other health insurance and to reinstate the
    ``coordination of benefits'' methodology.
        Nonavailability Statements under TRICARE Standard. The Coalition is
    grateful for the provision in the NDAA for Fiscal Year 2002 that waives
    the requirement for a beneficiary to obtain a Nonavailability Statement
    (NAS) or preauthorization from an MTF in order to receive treatment
    from a civilian provider and appreciates that the time line for
    implementation of this provision has been moved up from the NDAA for
    Fiscal Year 2001 plan. However, except for maternity care, the law
    allows DOD broad waiver authority that diminishes the practical effects
    of the intended relief from NAS. These loopholes provide a great deal
    of leeway for the reinstatement of NAS at the Secretary's discretion.
    NASs can be required if:

             The Secretary demonstrates that significant costs
            would be avoided by performing specific procedures at MTFs;
             The Secretary determines that a specific procedure
            must be provided at the affected MTF to ensure the proficiency
            levels of the practitioners at the facility; or
             The lack of an NAS would significantly interfere with
            TRICARE contract administration.

        The Coalition is disappointed that except for maternity care, the
    waiver of the TRICARE Standard NAS requirement seems to be a ``road
    paved with good intentions,'' but little more.
        The rationale for a complete waiver of NAS requirements remains
    compelling. By choosing to remain in Standard, beneficiaries are
    voluntarily accepting higher copayments and deductibles in return for
    the freedom to choose their own providers. The Coalition appreciates
    that the intent of the NAS system, when CHAMPUS was an evolving
    program, was to maximize the use of MTFs. However, when TRICARE was
    created, it offered beneficiaries a choice in how to exercise their
    health care benefit.
        The Coalition is pleased to note that the TRICARE Reserve Family
    Demonstration Project (TRFDP) provides for increased access to health
    care for family members of activated reservists and guardsmen--
    including a total waiver of NAS requirement for ALL inpatient services.
    While this group of beneficiaries is most worthy of a robust health
    care benefit and deserves to maintain established relationships with
    their health care providers, the Coalition believes this benefit should
    be extended to all uniformed services beneficiaries--active duty and
    retired--as well.
        DOD must honor the decision made by beneficiaries and not insist
    that they ``jump through administrative hoops'' to exercise this
    choice, particularly since most care in MTFs and clinics is being given
    on a first priority basis to Prime enrollees anyway. More importantly,
    this capricious policy frequently denies TRICARE Standard
    beneficiaries, who have chosen the more expensive fee-for-service
    option, one of the most important principles of quality health care,
    continuity of care by a provider of their choice.
        The Military Coalition strongly recommends that all requirements
    for Nonavailability Statements be removed from the TRICARE Standard
    option and that all waivers be eliminated, effective upon enactment.
    Should the subcommittee deem this impractical at this time, the
    Coalition urges the subcommittee to build on the maternity care
    precedent by incrementally eliminating NAS authority for additional
    kinds of care.
        TNEX--TRICARE Next Generation of Contracts. This year, DOD will
    award the next round of managed care support contracts. The Coalition
    agrees that this is a critically important step, both for the
    Department and for beneficiaries. We acknowledge the complexity of this
    process, are committed to working with Congress and DOD to make
    implementation as effective as possible, and will be vigilant that the
    current level of service is not compromised. As these contracts are
    implemented, a seamless transition and accountability for progress are
    the Coalition's primary concerns.
        The Coalition is anxious that massive system changes are being
    implemented at a time of great stress for uniformed services
    beneficiaries, especially active duty members and their families.
    Transitions to new contractors, even when the contract design has not
    dramatically changed, has historically been tumultuous to all
    stakeholders, and especially to beneficiaries. The Coalition believes
    systems must be put in place that will make the transition to new
    contracts as seamless as possible to the beneficiary.
        One concern with awarding different contract functions to a variety
    of vendors is that beneficiaries should not be caught in the middle as
    they attempt to negotiate their way between the boundaries of the
    various vendors' responsibilities. DOD must find ways to ensure
    beneficiaries have a single source of help to resolve problems
    involving the interface of multiple vendors.
        The Military Coalition recommends that the subcommittee strictly
    monitor implementation of the next generation of TRICARE contracts and
    ensure that Beneficiary Advisory Groups' inputs are sought in the
    implementation process.
        Uniform Formulary Implementation. The Coalition is committed to
    work with DOD and Congress to develop and maintain a comprehensive
    uniform pharmacy benefit for all beneficiaries mandated by Section 701
    of the NDAA for Fiscal Year 2000. We will particularly monitor the
    activities of the Pharmacy and Therapeutics Committee. The Coalition
    expects DOD to establish a robust formulary with a broad variety of
    medications in each therapeutic class that fairly and fully captures
    the entire spectrum of pharmaceutical needs of the millions of
    uniformed services beneficiaries.
        The Coalition is grateful to this subcommittee for the role it
    played in mandating a Beneficiary Advisory Panel to comment on the
    formulary. Several Coalition representatives are members of the
    Beneficiary Advisory Panel and are eager to provide input to the
    program. While we are aware that there will be limitations to access of
    some medications, our efforts will be directed to ensuring that the
    formulary is as broad as possible, that prior authorization
    requirements for obtaining non-formulary drugs and procedures for
    appealing decisions are communicated clearly to beneficiaries; and
    administered equitably.
        The Coalition is particularly concerned that procedures for
    documenting and approving ``medical necessity'' determinations by a
    patient's physician must be streamlined, without posing unnecessary
    administrative hassles for providers, patients, and pharmacists. The
    Coalition believes the proposed copayment increase from $9 to $22 for
    non-formulary drugs is too steep and presents an undue financial burden
    upon all classes of beneficiaries. Beneficiaries' trust will be
    violated if the formulary is excessively limited, fees rise
    excessively, and/or the administrative requirements to document medical
    necessity are overly restrictive.
        DOD must do a better job of informing beneficiaries about the scope
    of the benefit and it works (to include prior authorization
    requirements, generic substitution policy, limitations on number of
    medications dispensed, and a listing of the formulary). The Coalition
    is pleased to note that the Department has improved its beneficiary
    education via the TRICARE Web site. However, we remain concerned that
    many beneficiaries do not have access to the Internet, and this
    information is not available through any other written source. As DOD
    approaches the uniform formulary implementation, it will be critical to
    make this information readily available to beneficiaries and providers.
        The Military Coalition urges the subcommittee to ensure a robust
    uniform formulary is developed with reasonable medical-necessity rules
    along with increased communication to beneficiaries about program
    benefits, pre-authorization requirements, appeals, and other key
    information.
        Fully Implement Portability and Reciprocity. Section 735 of the
    NDAA for Fiscal Year 2001 required DOD to develop a plan, due March 15,
    2001, for improved portability and reciprocity of benefits for all
    enrollees under the TRICARE program throughout all regions. DOD has
    issued a memorandum stating that DOD policy requires full portability
    and reciprocity. Despite the efforts of this subcommittee, enrollees
    still experience a disruption in enrollment when they move between
    regions and are still not able to receive services from another TRICARE
    region without multiple phone calls and much aggravation.
        The lack of reciprocity presents particular difficulties for
    TRICARE beneficiaries living in ``border'' areas where two TRICARE
    regions intersect. In some of the more rural areas, the closest
    provider may actually be located in another TRICARE region, and yet due
    to the lack of reciprocity, these beneficiaries cannot use these
    providers without great difficulty. This problem suffers especially by
    comparison with TFL, as TFL beneficiaries have full portability and
    reciprocity of their benefits. Meanwhile, active duty and under-65
    retired beneficiaries remain tied to the region where they reside.
        It is unfathomable that, despite years of focus on the need for
    portability and reciprocity, and the obvious disruptions and financial
    problems imposed on beneficiaries in the interim, this same problem
    persists year after year. Something is seriously wrong when our
    government requires nationwide mobility of military families, but has
    such little sense of urgency about making sure their health benefits
    can follow them.
        The Military Coalition strongly urges the subcommittee to direct
    DOD to expend the resources it needs to facilitate immediate
    implementation of portability and reciprocity to minimize the
    disruption in TRICARE services for beneficiaries.
        TRICARE Benefits for Remarried Widows. The Coalition believes there
    is an inequity in TRICARE's treatment of remarried surviving spouses
    whose second or subsequent marriage ends in death or divorce.
        Such survivors have their military identification cards reinstated,
    as well as commissary and exchange privileges. In addition, they have
    any applicable Survivor Benefit Plan annuity reinstated if such payment
    was terminated upon their remarriage. In short, all of their military
    benefits are restored--except health care coverage.
        This disparity in the treatment of military widows was further
    highlighted by enactment of the Veterans Benefits Act of 2002, which
    reinstates certain benefits for survivors of veterans who died of
    service-connected causes. Previously, these survivors lost their VA
    annuities and VA health care (CHAMPVA) when they remarried, but the
    Veterans Benefits Act of 2002 restored the annuity--and CHAMPVA
    eligibility--if the remarriage ends in death or divorce.
        The Military Coalition urges the subcommittee to restore equity for
    military widows by reinstating TRICARE benefits for otherwise
    qualifying remarried widows whose second or subsequent marriage ends in
    death or divorce.
        Deduct TRICARE Prime Enrollment Fees from Retiree Pay. Years ago,
    Congress gave DOD the authority to deduct TRICARE Prime enrollment fees
    from retired members' pay. However, the Department has not moved
    forward to make this service available to retirees.
        Many retirees and their families have paid significant penalties
    because of DOD's delay in implementing this authority, because of MCSC
    enrollment and billing errors, primarily in TRICARE Region 1. Because
    the contractor failed to send bills to Prime enrollees, many enrollees
    did not realize their payments were due until the contractor notified
    them that their families had been disenrolled from Prime.
        If DOD had used its authority and permitted retirees to pay for
    Prime through their pay, it could have saved thousands of beneficiaries
    from the hassles encountered when they were disenrolled from Prime
    because the Region 1 contractor failed to develop an adequate billing
    control system. It also would have saved the government thousands of
    the dollars that it took to address this problem.
        Health care is too important to military families to allow it to be
    disrupted by DOD's failure to implement a routine pay deduction that
    will save time, money, and administrative problems for the
    beneficiaries, the government, and the managed care contractors.
        The Military Coalition urges the subcommittee to require DOD to
    implement existing authority to deduct TRICARE Prime enrollment fees
    from enrollees' retired pay.
        Codify Requirement to Continue TRICARE Prime in BRAC Areas. In
    addition to our concerns about current benefits, the Coalition is
    apprehensive about continuity of future benefits as Congress and DOD
    begin to consider another round of base closures.
        Many beneficiaries deliberately retire in localities in close
    proximity to military bases, specifically to have access to military
    health care and other facilities. Base closures run significant risks
    of disrupting TRICARE Prime contracts that retirees depend on to meet
    their health care needs.
        Currently, under current TRICARE Managed Care Support Contracts and
    under DOD's interpretation of TNEX, TRICARE contractors are required to
    provide the Prime benefit in Base Realignment and Closure (BRAC) areas.
    However, these contracts can be renegotiated, and the contracting
    parties may not always agree on the desirability of maintaining this
    provision.
        The Coalition believes continuity of the TRICARE Prime program in
    base closure areas is important to keeping health care commitments to
    retirees, their families and survivors, and would prefer to see the
    current contract provision codified in law.
        The Military Coalition urges the subcommittee to amend Title 10 to
    require continuation of TRICARE Prime network coverage for all
    uniformed services beneficiaries residing in BRAC areas.
        TRICARE Retiree Dental Plan. The Coalition is grateful for the
    subcommittee's leadership role in authorizing the TRICARE Retiree
    Dental Plan (TRDP). While the program is clearly successful,
    participation could be greatly enhanced with two adjustments.
        Unlike the TRICARE Active Duty Dental Plan, there is no government
    subsidy for retiree dental premiums. This is a significant dissatisfier
    for retired beneficiaries, as the program is fairly expensive with
    relatively limited coverage. The Coalition believes dental care is
    integral to a beneficiary's overall health status. Dental disease left
    untreated can lead to more serious health consequences and should not
    be excluded from a comprehensive medical care program. As we move
    toward making the health care benefit uniform, this important feature
    should be made more consistent across all categories of beneficiaries.
        Another problem with the TRDP is that it is only available within
    the continental United States (CONUS). The Coalition requests that the
    subcommittee extend the TRDP to uniformed services beneficiaries
    residing overseas.
        The Military Coalition urges the subcommittee to consider providing
    a subsidy for retiree dental benefits and extending eligibility for the
    retiree dental plan to retired beneficiaries who reside overseas.
        Commonwealth of Puerto Rico CONUS Designation. The Commonwealth of
    Puerto Rico is included in the TRICARE Overseas Program, which means
    TRICARE Prime is available only to active duty service members and
    their families. Retirees living in Puerto Rico are excluded from this
    benefit. Under OCONUS regulations, the more expensive TRICARE Standard
    is the only available option for retired military personnel, their
    families and survivors. DOD has very limited direct care facilities, a
    limited benefit structure, and a severely limited contract provider
    network to serve this growing population.
        We are pleased to note that the Department has finally instituted
    TRICARE network pharmacies for all beneficiaries in Puerto Rico, but
    believe these beneficiaries are deserving of the option of enrollment
    in the Prime benefit.
        In light of the large number of retired beneficiaries residing in
    Puerto Rico and the importance of the Commonwealth as a source for
    recruitment and an initiative for retention, the Coalition believes it
    would be productive for all concerned to extend the Prime benefit to
    retired beneficiaries who reside there.
        The Military Coalition urges the subcommittee to support
    administrative inclusion of the Commonwealth of Puerto Rico with the
    CONUS for TRICARE purposes, so that retired beneficiaries in Puerto
    Rico may be eligible to enroll in TRICARE Prime.
        Tax Relief for Uniformed Services Beneficiaries. To meet their
    health care requirements, many uniformed services beneficiaries pay
    premiums for a variety of health insurance, such as TRICARE
    supplements, the active duty dental plan or TRICARE Retiree Dental Plan
    (TRDP), long-term care insurance, or TRICARE Prime enrollment fees. For
    most beneficiaries, these premiums and enrollment fees are not tax-
    deductible because their health care expenses do not exceed 7.5 percent
    of their adjusted gross taxable income, as required by the IRS.
        This creates a significant inequity with private sector and some
    government workers, many of whom already enjoy tax exemptions for
    health and dental premiums through employer-sponsored health benefits
    plans. A precedent for this benefit was set for other Federal employees
    by a 2000 Presidential directive allowing Federal civilian employees to
    pay premiums for their Federal Employees Health Benefits Program
    (FEHBP) coverage with pre-tax dollars.
        The Coalition supports legislation that would amend the tax law to
    let Federal civilian retirees and active duty and retired military
    members pay health insurance premiums on a pre-tax basis. Although we
    recognize that this is not within the purview of the Armed Services
    Committee, the Coalition hopes that the subcommittee will lend its
    support to this legislation and help ensure equal treatment for all
    military and Federal beneficiaries.
        The Military Coalition urges the subcommittee to support
    legislation to provide active duty and uniformed services beneficiaries
    a tax exemption for premiums paid for TRICARE Prime enrollment fees,
    TRICARE Standard supplements and FEHBP premiums.
        Custodial Care. Once again, the Coalition thanks the subcommittee
    for its continued diligence in support of those beneficiaries who fall
    under the category of ``Custodial Care''. We are most appreciative of
    the generous enhancements offered in the NDAA for Fiscal Year 2002. We
    anxiously await the publication of DOD's interim report defining the
    implementing regulations.
        It has been over 2 years since the enactment of these requirements,
    and we hope that these beneficiaries do not have to wait much longer
    for this benefit.
        The Military Coalition recommends the subcommittee's continued
    oversight to assure that medically necessary care will be provided to
    all custodial care beneficiaries; that Congress direct a study to
    determine the impact of the new legislation upon all beneficiary
    classes, and that beneficiary groups' inputs be sought in the
    development of implementing regulations.
    Conclusion
        The Military Coalition reiterates its profound gratitude for the
    extraordinary progress this subcommittee has made in securing a wide
    range of personnel and health care initiatives for all uniformed
    services personnel and their families and survivors. The Coalition is
    eager to work with the subcommittee in pursuit of these goals outlined
    in our testimony.
        Thank you very much for the opportunity to present the Coalition's
    views on these critically important topics.
        Senator Chambliss. We will start with Mr. Barnes.

     STATEMENT OF JOSEPH L. BARNES, NATIONAL EXECUTIVE SECRETARY,
                       FLEET RESERVE ASSOCIATION

        Mr. Barnes. Thank you. Mr. Chairman, Senator Nelson,
    distinguished members of the subcommittee, thank you for the
    opportunity to present The Military Coalition's views on key
    personnel and compensation issues.
        I also extend the Coalition's congratulations on your
    selection to serve as the chairman and ranking member
    respectively of this important subcommittee, and gratitude for
    the pay and benefit enhancements enacted last year. These
    improvements convey a powerful positive message to all
    uniformed services personnel, and will pay high retention and
    readiness dividends in the future.
        I will discuss several personnel issues, followed by my
    colleagues, who will address issues from the family, Guard and
    Reserve, retiree, and survivor and health care perspectives.
        The Military Coalition again recommends increasing service
    end strengths to balance today's demanding operations
    requirements with the personnel needed to perform these
    missions. The Services need adequate personnel to sustain the
    war on terrorism and demanding operational commitments. With
    regard to pay, the Coalition is concerned about the renewed
    interest in capping military pay raises at the inflation level
    due to budget concerns.
        Fortunately, the President rejected this plan for five of
    the seven uniformed Services. However, the administration's
    budget request proposes capping pay adjustments at the
    inflation level for NOAA and the PHS officers. The Coalition
    strongly opposes this. All uniformed services members deserve
    equitable pay increases at least equal to private sector wage
    growth.
        The Coalition strongly supports the targeted plan that
    would authorize average pay increases of 4.1 percent with
    targeted pay hikes for career enlisted and certain officer
    grades. This would reduce the pay gap to 5.4 percent.
        The Coalition also urges a change in the permanent law to
    ensure that at a minimum, all future military raises match
    private sector wage growth, as measured by the employment cost
    index. The Coalition also urges the subcommittee to accelerate
    the plan to eliminate service members' out-of-pocket housing
    expenses and to authorize adjustments in grade-based housing
    standards.
        Education benefits are very important, and the Coalition
    strongly recommends authorizing an MGIB sign-up window for
    senior career service members who declined participation in the
    veterans education assistance program, or VEAP.
        Finally, the Coalition restates its strong commitment to
    maintaining the commissary benefit as an integral part of the
    total military compensation package, and its continuing
    opposition to privatizing the benefit. The tangible and highly
    valued aspect of this benefit is not quantifiable solely in
    monetary terms.
        Again, thank you for this opportunity to present our views.
    Joyce Raezer will now discuss family issues.
        [The prepared statement of The Naval Reserve Association
    follows:]

              Prepared Statement by The Naval Reserve Association

        Chairman Chambliss, Senator Nelson, and distinguished members of
    the subcommittee, on behalf of the 86,000 active naval reservists and
    the mirrored interests of all members of the Guard and Reserve
    components, we are grateful for the opportunity to submit testimony.
        A popular fad in the press is to write about the plight of the
    mobilized reservist. These articles emphasize the anxiety of being away
    from work and or family. As was stated in The Wall Street Journal,
    ``The activation of tens of thousands of military reservists is
    beginning to interrupt careers and disrupt workplaces on a scale not
    seen in more than a decade.'' \1\
    ---------------------------------------------------------------------------
        \1\ Massive Call-Up of Reservists Disrupts Careers, Workplaces;
    Kemba J. Dunham, Kris Maher and Greg Jaffe, The Wall Street Journal,
    Feb. 18, 2003.
    ---------------------------------------------------------------------------
        A climate of despair is being painted about the reservist. Focus is
    being placed on the needless hardship for too many members of the Guard
    and Reserve, for their families and for their employers. The Naval
    Reserve Association would like to dispel this myth. In defense of the
    reservists, let it be said that it is a statistical few that complain
    about their circumstances. Portrayed as a predicament by the press,
    most reservists, instead, view mobilization as an opportunity to serve
    their country.
        If reservists have an Achilles' heel, it is how often they are
    willing to sacrifice family and employment to serve their country.
    Reservists have shown us time and time again that they'll volunteer
    when asked, despite the impact of their personal and professional life.
    This service beyond self is not appreciated by many on the active side
    or in DOD.
        Since 1990, the active-duty services have grown languorous from a
    diet of contributory assistance, recall, and mobilization support. The
    number of contributory man-days has risen from 1 million in the late
    1980s to nearly 13 million a year over the past few years. Rather than
    confront budget appropriators, the active components have been content
    to fill their force shortfalls with Reserve manpower.
        ``Part-time reservists are being turned into full-time soldiers and
    airmen through extended and unpredictable active-duty assignments,''
    Congressman David Hobson (OH-7) said in a letter to Secretary of
    Defense Rumsfeld, last year. ``The Services are not properly manned to
    conduct this new type of war in which we now find ourselves, and the
    Reserves are bearing the brunt.'' \2\
    ---------------------------------------------------------------------------
        \2\ Citizen Soldiers Report Long Tours, Little Support, Gregg
    Zoroya, USA Today, Jan. 16, 2003.
    ---------------------------------------------------------------------------
        If we want to have a total force, if we want that concept to work,
    we've got to be respectful of the fact that people in the Reserves and
    the Guard have jobs. They're perfectly willing to be called up, but
    they only want to be called up when they're needed and for something
    that's a real job. They prefer not to get jerked around and called up 2
    or 3 or 4 months before they're needed and then found they're not
    needed and sent back home with a `sorry about that,' said Secretary of
    Defense Rumsfeld in a speech in late January.\3\
    ---------------------------------------------------------------------------
        \3\ Remarks by Secretary of Defense Donald H. Rumsfeld to the
    Reserve Officers Association 2003 Mid-Winter Conference and 18th Annual
    Military Exposition, Washington, DC, January 20, 2003.
    ---------------------------------------------------------------------------
        If there is a raw nerve among reservists, it is caused by how
    individuals are being utilized, and how often that individual is being
    called up. Pride and professionalism is a large factor in the profile
    of a reservist. They want to be used how they have been trained, and
    they want to complement the Active Forces. Too often, they have been
    called up to do a marginal job, or stand weekend or night watches
    allowing active members time off. In situations like this, we often
    hear from our members that the active-duty personnel of a particular
    command are not working overtime. The model used by the Navy calls for
    active-duty personnel to be working a 60-hour work week before
    reservists would be involuntarily recalled to active duty. Quite often,
    the requirement for recall is nothing more than to fill in the gaps in
    existing active-duty manning. Recall and proper use of reservists needs
    constant monitoring and attention.
        Another raw nerve among reservists is attempts by the Navy to deny
    individuals their full entitlements. Over and over, reservists are
    asked to make a voluntary mid- to long-term commitment of combining
    drills with multiple sets of 29 day orders. There is an institutional
    bias to issuing reservists one set of orders for longer than 30 days
    thereby denying them greater entitlements. We strongly believe that
    this is an injustice to the individual and his/her employer that
    Congress should question.
        Over a year ago, Principal Deputy Assistant Secretary of Defense
    for Reserve Affairs met with the Military Reserve Associations and
    asked how frequently is it acceptable to recall reservists? His hope
    was an answer measured in years that could be programmed into a
    formula. Reservists are not inventory numbers, but individuals. On the
    first recall they will answer smartly, on the second recall they will
    do their duty, by the third they start believing the press reports.
        In today's American way of war, the way a reservist is used and
    recalled is vital to successful military operations, and essential to
    gaining the will of America. As Deputy Secretary of Defense Paul
    Wolfowitz has said, ``How we manage our Reserve components will
    determine how well we as a Nation are prepared to fight, today and
    tomorrow.'' \4\
    ---------------------------------------------------------------------------
        \4\ Remarks by Deputy Secretary of Defense Paul Wolfowitz, to the
    Reserve Officers Association 2002 National Conference, Philadelphia,
    PA, June 20, 2002.
    ---------------------------------------------------------------------------
        The question we are asking is: ``Are the DOD legislative
    initiatives taking us in the right direction for a sound military and a
    strong national defense?'' We hope that DOD is learning lessons from
    the past to avoid repeating mistakes in the future, and the Naval
    Reserve Association stands ready to assist in turning lessons learned
    into improved policy.
        Again, thank you for this opportunity. Details of specific concerns
    by our Association on DOD initiatives follow, we hope you can help
    address them:

                       DEPARTMENT OF DEFENSE INITIATIVES

    Roles and Missions
        A Pentagon study has highlighted that the Guard and Reserve
    structure, today, is an inherited Cold War relic. As a result, the
    Guard and the Reserve organization has become the focus of
    ``transformation.'' While it won't be denied that there could be a need
    for change, transformation for transformation sake could be
    disadvantageous. Visionaries need to learn lessons from the past,
    assimilate the technology of the future, and by blending each, and
    implement changes that improve warfighting.

        The Reserve component as a worker pool.
        Issue: The view of the Reserve component that has been suggested
    within the Pentagon is to consider the Reserve as of a labor pool,
    where reservists could be brought onto active duty at the needs of a
    service and returned, when the requirement is no longer needed. It has
    also been suggested that active-duty members could be rotated off
    active duty for a period, spending that tenure as a reservist,
    returning to active duty when family problems, or educational matters
    are corrected.
        Position: The Guard and Reserve should not be viewed as a
    temporary-hiring agency or as a personnel depot. Too often the active
    component views the recall of a reservist as a means to fill a gap in
    existing active-duty manning. Voluntary recall to meet these
    requirements is one thing, involuntary recall is another.
        The two top reasons why a reservist quits the Guard or Reserve is
    pressure from family, or employer. The number one complaint from
    employers is not the activation, but the unpredictability of when a
    reservist is recalled, and when they will be returned.
        The structure of the Guard and Reserve is a system of billet
    assignments that are tied to progressive training tiers. To yank
    individuals out, or drop in active members who are in hiatus would
    impair training and personnel readiness.

        100 percent mission ownership.
        Issue: Department of Defense is looking at changing the Reserve and
    active component mix. ``There's no question but that there are a number
    of things that the United States is asking its forces to do,'' Rumsfeld
    said. ``When one looks at what those things are, we find that some of
    the things that are necessary, in the course of executing those orders,
    are things that are found only in the Reserves.''\5\
    ---------------------------------------------------------------------------
        \5\ Secretary of Defense Donald H. Rumsfeld made this observation
    Nov. 4, 2002 to the Pentagon press corps amid questions of reports that
    Reserve and National Guard soldiers were being overtaxed with
    mobilization requirements since last year's terrorist attacks on this
    Nation.
    ---------------------------------------------------------------------------
        Position: America is best defended through a partnership between
    the Government, the military, and the people. The Naval Reserve
    Association supports the continued recognition of the Abrams Doctrine,
    which holds that with a volunteer force, we should never go to war
    without the involvement of the Guard and Reserve, because they bring
    the national will of the people to the fight. While a review of mission
    tasking is encouraged, the active component should not be tasked with
    every mission, and for those it shares, no more heavily than their
    Reserve counterparts.
        Historically, a number of the high percentage missions gravitated
    to the Reserve components because the Active Forces treated them as
    collateral duties. The Reserve has an expertise in some mission areas
    that are unequaled because reservists can dedicate the time to
    developing skills and mission capability, and sharing civilian
    equivalencies, where such specialization could be a career buster on
    active duty.

        Augmentees.
        Issue: As a means to transform, a number of the Services are
    embracing the concept that command and unit structure within the
    Reserve component is unnecessary. Reservists could be mustered as
    individual mobilization augmentees and be called up because often they
    are recalled by skills and not units.
        Position: An augmentee structure within the Naval Reserve was
    attempted in the 1950s/1960s, and again in the 1980s. In one word:
    Failure. An idle force, reservists of that period could not pass the
    readiness test. The image of the selected reservists, sitting in a
    Reserve Center reading a newspaper originates from the augmentee era.
    Some semblance of structure is needed on a military hierarchy. Early
    on, Naval reservists created their own defense universities to fill the
    training void caused by mission vacuum.

        Combining Active and Reserve Appropriations.
        Issue: The fiscal year 2004 Defense budget request makes it clear
    that OSD intends to consolidate all pay and O&M accounts into one
    appropriation per Service. These consolidations would require various
    legislative changes before they would become law. The rationale for the
    consolidations is to provide greater flexibility for the active chiefs
    to move monies from the Reserve and Guard pay accounts to fund active
    component pay and O&M shortfalls. Managing fewer appropriations would
    also make managing pay and O&M easier.
        Position: The Naval Reserve Association strongly opposes the
    proposed consolidation of all Guard, Reserve, and active pay into one
    service pay appropriation. We similarly oppose the proposed
    consolidation of all Guard, Reserve, and active operations and
    maintenance accounts into one service O&M appropriation. While we
    support seeking efficiencies wherever possible, we view the proposed
    ``business'' consolidation as ill conceived, misrepresented as
    inefficient, and as an attempt to reduce congressional oversight. We
    oppose it for a variety of other reasons, as well.
        Under current law, the Reserve chiefs are the directors for their
    respective Reserve pay and O&M appropriations. Public Law 90-168, as
    amended by the NDAA for Fiscal Year 1997, vested in the Reserve chiefs
    full management and control of their respective Reserve financial
    resources. Consolidating Reserve and active pay into one appropriation
    would divest the Reserve chiefs of this authority and preclude their
    executing the programs and responsibilities, and maintaining the
    readiness mandated by Congress.
        Much of the Guard and Reserve annual training occurs during the
    fourth quarter of a fiscal year, the same time frame when the active
    components are most likely to run short of funds and may desire to use
    Reserve pay and O&M to fund their own shortfalls. Allowing the active
    components the ``flexibility'' to use Reserve funds whenever they need
    to pay active component bills means that somewhere a Reserve soldier or
    sailor will not be paid, a Reserve unit will not be trained for
    mobilization, or reservist will not receive the specialized training
    needed for promotion, and ultimately retention. The active component
    will have flexible funding at the cost of Reserve readiness.

        Inferred Changes to DOPMA and ROPMA.
        Issue: It has been suggested within a DOD Roles and Missions study
    that promotions in the Reserve component need not be tied to active-
    duty promotion rates. It was further stated that allowing a skilled
    reservist to remain at a certain mid-grade rank enlisted or officer
    rank longer would allow that individual to perform a vital mission
    longer.
        Position: While NRA might support a change to the ``promote up or
    out'' policy; we in no way endorse having the Selected Reserve become
    an advancement wasteland.
        Issue: Secretary Rumsfeld has also publicly stated that he has the
    Personnel and Readiness office looking at how DOD can get the benefit
    of people in a specific job longer, and how we can have people increase
    the number of total years they serve if they want to. He is willing to
    extending military careers beyond 60 years of age.
        Position: While current policy permits individual waivers to retain
    certain skill sets, the Naval Reserve Association feels that
    authorizing changes to the length of tenure would have a negative
    impact and a rippling effect. History has shown time and again, if
    senior leaders are not encouraged to retire, there will be a retention
    collapse in the middle ranks, which erodes the long-term future of a
    component force. Few are so skilled, that a junior member can't fill
    the position with similar qualifications.
    Pay and Compensation
        Issue: A premature release of information in the form of a Naval
    Reserve survey, revealed a DOD initiative to end ``2 days' pay for 1
    day's work,'' and replace it with a plan to provide 1/30 of a month's
    pay model, which would include both pay and allowances. Even with
    allowances, pay would be less than the current system. When concerns
    were addressed about this proposal, a retention bonus was the suggested
    solution to keep pay at the current levels.
        Position: Allowances differ between individuals and can be affected
    by commute distances and even zip codes. Certain allowances that are
    unlikely to be paid uniformly including geographic differences, housing
    variables, tuition assistance, travel, and adjustments to compensate
    for missing healthcare.
        The Naval Reserve Association holds reservations with a retention
    bonus as a supplemental source. Being renewed annually bonuses tend to
    depend on the national economy, deficit, and political winds. Further,
    would this bonus just be grandfathered to current reservists, with some
    future generation forfeiting the bonus as an income source?
        As one reservist said, ``With the nonreimbursed expenses for
    commuting and training, I couldn't afford to drill at 1 day's pay.''
    Healthcare
        Healthcare readiness is the number one problem in mobilizing
    reservists. The government's own studies show that between 20-25
    percent of guardsmen and reservists are uninsured.
        We applaud the efforts of the TRICARE Management Activity. TMA has
    a strong sense of who the customer is. They emphasize communications,
    and are proactive at working with the military associations. NRA would
    like to see a continued effort at:

            - Ensuring quality coverage for mobilized reservist to provide
            continuity of healthcare.
            - Seeking consistency of how TRICARE is implemented for
            mobilized reservists and families between regions, and
            - Establishing a TRICARE Health plan for uninsured drilling
            reservists, similar to the successful SELRES Dental Program.
    Business Initiative
        Issue: Many within the Pentagon feel that business models are the
    panacea to perceived problems within military structure.
        Position: Reservists have the unique perspective of holding two
    careers; many with one foot in business and one foot in the military.
    The Naval Reserve Association suggests caution rather than rush into
    business solutions. Attempted many times in the past, business models
    have failed in the military even with commands that proactively
    support.
        Among the problems faced are:

            Implementing models that are incompletely understood by
            director or recipient.
            Feedback failure: ``Don't tell me why not; just go do it!''
            The solution is often more expensive than the problem.
            Overburdened middle management attempting to implement.
            Cultural differences.
            While textbook solutions, businesses, too, are frustrated by
            numerous ``false starts'' with these models.
    Retirement: Age 55.
        Issue: A one-sided debate is being held through the press on
    whether changes should be allowed to Guard and Reserve to lower the
    retirement payment age. At a recent Pentagon press conference, Thomas
    F. Hall, the Assistant Secretary of Defense for Reserve Affairs, said
    he has ``thought a lot about'' lowering Reserve retirement age. Hall
    said it would be ``expensive'' and might encourage reservists to leave
    the workforce at too young an age. The Defense Department is now
    studying the issue to be part of a report to Congress next year.
        Position: Over the last two decades, more has been asked of
    guardsmen and reservists than ever before. The nature of the contract
    has changed; Reserve component members would like to see recognition of
    the added burden they carry. Providing an option that reduces the
    retired with pay age to 55 years carries importance in retention,
    recruitment, and personnel readiness.
        Most military associations are hesitant to endorse this because
    they envision money would be taken out of other entitlements, benefits,
    and Guard and Reserve equipment budgets. The Naval Reserve Association
    suggests an approach to this issue where neither cost nor expense would
    be an issue.
        The Naval Reserve Association recommends that Reserve retirement
    with pay be allowed prior to age 60, but it be treated like Social
    Security retirement offset, at lower payments when taken at an earlier
    age. If a reservist elects to take retired pay at age 55, it would be
    taken at an actuarially reduced rate, keeping the net costs at zero.
        Most of the cost projected by DOD is for TRICARE healthcare, which
    begins when retirement pay commences. Again following the Social
    Security example, Medicare is not linked to Social Security payments.
    NRA suggests that TRICARE for reservists be decoupled from pay, and
    eligibility remains at age 60 years
        With Social Security as a model, reservists understand the nature
    of offsetting payments. The only remaining expense in this proposal
    would be the administrative startup costs and adjustments to retirement
    accrual contributed to the DOD retirement accounts.
        Retention concerns should be set aside. Commissioned officers
    typically reach ROMPA limits at age 53. While enlisted are allowed to
    drill to age 60, many in the Navy are limited by High Year Tenure
    policies that take them out of pay before then. Drilling without pay
    motivates many to submit their retirement requests. By age 50, an
    enlisted has either already retired or is a ``career'' sailor.
        At a minimum, hearings should be held to broaden the debate.

                       DEPARTMENT OF THE NAVY INITIATIVES

    Restore Reserve Promotions to Reserve Officers on Temporary Recall (3
            Years or Less)
        Issue: In the Navy, there is a different promotion system for
    recalled and mobilized Naval Reserve officers. Officers who are
    recalled to active duty are placed on the Active-Duty List (ADL) for
    statute promotions. Mobilized officers are kept on the Reserve Active
    Status List (RASL).
        To properly match the Reserve officer's exclusion from the active-
    duty list as provided for by 10 U.S.C. 641(1)(D) with a corresponding
    exclusion from the authorized grade strengths for active-duty list
    officers in 10 U.S.C. 523. Without this amendment, the active component
    would have to compensate within their control grades for temporary
    recalled Reserve officers who are considered, selected and promoted by
    RASL promotion selection boards. This compensation causes instability
    in promotion planning and a reduction in ``career'' ADL officer
    eligibility and promotion for each year a Reserve officer remains on
    ``temporary'' active duty. Therefore, Naval reservists are temporarily
    recalled to active duty and placed on the ADL for promotional purposes.
    End result--failure of selection due to removal from RASL peer group.
        Position: The Naval Reserve Association strongly supports language
    changes to Title 10 U.S.C. 523 that would enable the Navy to recall
    reservists for 3 years or less and allow them to remain on the RASL
    under 10 U.S.C. 641. A ULB to correct is being submitted by DOD. This
    provides the Services grade strength relief for the small percentage of
    Reserve officers who would possibly be promoted while serving on
    temporary active duty. Granting relief is a win-win situation. By
    removing the instability in promotion planning for the active
    component, Reserve officers can be issued recall orders specifying 10
    U.S.C. 641(1)(D) allowing them to remain on the RASL for promotion
    purposes.

    Equipment Ownership
        Issue: An internal study by the Navy has suggested that Naval
    Reserve equipment should be returned to the Navy. At first glance, the
    recommendation of transferring Reserve component hardware back to the
    active component appears not to be a personnel issue. However, nothing
    could be more of a personnel readiness issue and such transfer is ill
    advised. Besides being attempted several times before, the impact of
    this issue needs to be addressed if the current National Security
    Strategy is to succeed.
        Position: The overwhelming majority of Reserve and Guard members
    join the RC to have hands-on experience with equipment. The training
    and personnel readiness of Guard and Reserve members depends on
    constant hands-on equipment exposure. History shows that this can only
    be accomplished through Reserve and Guard equipment, since the training
    cycles of active components are rarely, if ever, synchronized with the
    training or exercise times of Guard and Reserve units. Additionally,
    historical records show that Guard and Reserve units with hardware
    maintain equipment at or higher than average material readiness and
    often better training readiness. Current and future warfighting
    requirements will need these highly qualified units when the Combatant
    Commanders require fully ready units.
        Reserve and Guard units have proven their readiness. The personnel
    readiness, retention, and training of Reserve and Guard members will
    depend on them having Reserve equipment that they can utilize,
    maintain, train on, and deploy with when called upon. Depending on
    active component hardware has never been successful for many functional
    reasons. The NRA recommends strengthening the Reserve and Guard
    equipment in order to maintain highly qualified trained Reserve and
    Guard personnel.

    Closure of Naval Reserve Activities
        Issue: A proposal has been made, suggesting that a large number of
    Naval Reserve Centers and Naval Air Reserve Activities be closed, and
    that Naval reservists could commute to Fleet Concentration Areas to
    directly support gaining commands and mobilization sites.
        Position: The Naval Reserve Association is opposed to this plan for
    the following reasons:
        A. The Naval Reserve is the one Reserve component that has Reserve
    activities in every State. To close many of these would be cutting the
    single military tie to the civilian community.
        B. The demographics of the Naval Reserve is that most of the
    commissioned officers live on the coasts, while most of the enlisted
    live in the hinterland, middle America. The Naval reservists who are
    paid the least would have to travel the farthest.
        C. The active-duty concept of a Naval Reserve is a junior force, a
    structure based upon enlisted (E1-E3s) and officers (O1-O2s): billets
    that can't be filled because the individuals haven't left the fleet
    yet. When the Coast Guard ``transformed'' its Reserve Force, it forced
    a restructuring that RIFFed many senior officers and enlisted
    leadership from the USCGR ranks, and caused a number of years of
    administrative problems.
        D. If training at fleet concentration centers was correctly
    implemented, the Navy should bear the expense and burden of
    transportation to, and housing while on site. Additionally, at
    locations such as Naval Station Norfolk, the overlap of active-duty and
    Reserve training has shown an increased burden on bachelor quarters and
    messing facilities. Frequently, reservists must be billeted out on the
    economy. With these extra costs, training would prove more expensive.
        E. Such a plan would devastate the Naval Reserve; retention would
    plummet, training and readiness would suffer.
    Replacement of Full Time Staff (TARs) with Active-Duty ``Station
            Keepers''
        Issue: Another suggested initiative would to the replacement of
    Full Time Staff (TARs) with active-duty ``Station Keepers.''
        Position: This has failed in the past, because the active Navy
    doesn't commit its best or it's brightest to administer reservists.
    Such duty is not viewed as career enhancing, and those who complete the
    assignments tend to do poorly before competitive promotion boards. The
    assignments tend to often gravitate to unqualified second and third
    string players who are dead-ended in their careers, and reservists
    retention, recruitment, readiness and morale tend to suffer.

                                   CONCLUSION

        The Four ``Ps'' can identify the issues that are important to
    reservists: Pay, Promotion, Points, and Pride.
        Pay needs to be competitive. As reservists have dual careers, they
    have other sources of income. If pay is too low, or expenses too high,
    a reservist knows that time may be better invested elsewhere.
        Promotions need to be fairly regular, and attainable. Promotions
    have to be through an established system and be predictable.
        Points reflect a reservist's ambitions to earn retirement. They are
    as creditable a reinforcement as pay; and must be easily tracked.
        Pride is a combination of professionalism, parity and awards: doing
    the job well with requisite equipment, and being recognized for ones
    efforts. While people may not remember exactly what you did, or what
    you said, they will always remember how you made them feel.
        If change is too rapid with any of these four, anxiety is generated
    amid the ranks. As the Reserve component is the true volunteer force,
    reservists are apt to vote with their feet. Reservists are a durable
    resource only if they are treated right. Current conditions about the
    world highlights the ongoing need for the Reserve component as key
    players in meeting National Security Strategy, we can't afford to
    squander that resource.

    STATEMENT OF JOYCE W. RAEZER, ASSOCIATE DIRECTOR OF GOVERNMENT
         RELATIONS, NATIONAL MILITARY FAMILY ASSOCIATION, INC.

        Ms. Raezer. Thank you, Mr. Chairman, for your attention to
    the quality-of-life of our military service members and their
    families. Recently in testimony, the senior enlisted leaders of
    the Services spoke about one of the most critical ingredients
    in ensuring service members' readiness, that is, making sure
    those service members know their families are being taken care
    of. Service members look to the Nation to understand that their
    families often drive retention decisions. The family's quality-
    of-life is a readiness requirement.
        Quality-of-life is not just about pay. It is about having a
    safe, well-maintained place to live. It is about a quality
    education for their children. It is about meeting the
    aspirations of a spouse for a career, and a couple for a secure
    retirement. It is about respect for a job well done.
        Service members need to know that their families are as
    prepared as possible to handle the stresses of deployment, that
    they can access vital support services wherever they live, and
    that the volunteers and family support personnel on the front
    line of family support have the back-up and resources they need
    to assist families over the long term and in crisis situations.
        Adequate resourcing and staffing for family support is
    especially important for our Guard and Reserve families.
    Despite improvements over the past year, these families still
    tell us that they too often do not receive the information they
    need, or know who to call when there is a question, and that
    they feel isolated from other military families. The total
    force concept has not yet reached the family support arena.
        Service members look for continued upgrades to the
    permanent change of station allowances, and to the process
    itself, so that they are not footing the cost of Government-
    ordered moves. Increased weight allowances for E-5s and above,
    full replacement value for lost or damaged goods, and
    authorization to ship a second car overseas at Government
    expense would be most helpful.
        Service members look for the Nation to make sure that their
    children's schools have the funding they need to provide a
    quality education in a safe environment, and provide the extra
    help military children need in dealing with the deployment of a
    parent to a dangerous place in the world.
        Service members need access to quality child care. In
    recent testimony, the Sergeant Major of the Army stated that 27
    percent of enlisted soldiers reported they had lost duty time
    during 2002 because they lacked child care. Resources are
    needed to assist families of all service members called to
    support contingency operations, including the Guard and
    Reserve, in accessing and paying for child care.
        Service members need to know that the resources are
    available to provide vital morale, welfare, and recreation
    programs both to the deployed service member and to the family
    they left behind. They need to know that a spouse does not have
    to put career aspirations on hold because of their service to
    their country. Service members deployed on the Nation's
    business need to know their spouse can get a doctor's
    appointment for their sick child, even when military medical
    personnel deploy.
        Now, more than ever, mission readiness is tied to service
    member readiness, which is tied to family readiness. Military
    members and their families look to you for continued support
    for the task they face. Please do not let them down.
        Now, Steve Anderson will talk about Guard and Reserve
    issues.
        [The prepared statement of Ms. Raezer follows:]
                       Prepared Statement by Joyce Raezer
        Mr. Chairman, the National Military Family Association (NMFA)
    thanks you for the opportunity to present this testimony on behalf of
    military families. We thank you and the members of this distinguished
    subcommittee for your attention to issues affecting the quality-of-life
    of service members and their families and for your understanding of the
    link between quality-of-life and the retention of a quality force. We
    thank you, especially, for your efforts in the 107th Congress, which
    included:

             A pay package that provided an across-the-board
            increase of 4.1 percent and targeted increases up to 6.5
            percent;
             Funding increases for the Basic Allowance for Housing
            (BAH) to decrease average out-of-pocket costs for the DOD
            standard for each grade to 7.5 percent;
             Improvements and adequate funding for the Defense
            Health System, including a needed change in eligibility for
            TRICARE Prime Remote;
             Appropriation of $30 million in DOD supplemental
            Impact Aid funding for civilian schools serving large numbers
            of military children, as well as additional funding to help
            them serve military children with special education needs; and
             Permanent authority for DOD to provide additional
            family support, child care, and youth programs, especially for
            families of deployed servicemembers.

        These improvements have not gone unnoticed or unappreciated in the
    military community. NMFA believes, however, that the most important
    message we can bring to you today is that these improvements are not
    enough. The critical issues facing military personnel and families
    prior to September 11, 2001--pay, housing, health care, family support,
    and education for their children--have not gone away. The families we
    represent, including our 120 installation NMFA representatives who
    report to us regularly, say they recognize the support Congress has
    given them over the past few years and see the very real benefits of
    your actions. They also tell us, however, that military families today
    face great challenges.
        Military families are resilient, show amazing strength of spirit
    and energy in times of crisis, and understand the importance of the
    jobs their government is asking their service members to perform. They
    understand the risks of life in today's military and will support the
    service members, their country, and each other however they can for as
    long as a crisis lasts. Unfortunately, many have been providing this
    support for a very long time, without much relief. In recent testimony,
    the Chief Master Sergeant of the Air Force, Gerald Murray, described
    the concern he hears in every visit with airmen about the effects of
    the high operations tempo: ``Wherever I go, our airmen clearly
    demonstrate to me they're highly motivated and ready, but they're also
    tired.'' NMFA believes that CMSAF Murray's statement about the airmen
    he met also most accurately sums up the state of military families
    today: supportive of the mission, but tired, and growing more so.
        NMFA endorses the provisions as outlined in the testimony submitted
    by The Military Coalition, which provides a wide-ranging discussion of
    the issues affecting our active and Reserve component military
    personnel, retirees, and their families and survivors. In this
    statement, we will expand on some of the most urgent needs of military
    families as they support a wartime military mission, including: family
    readiness, the special challenges facing families of mobilized National
    Guard and Reserve members, health care, family member education, and
    child care.

                        FAMILY READINESS IN TIME OF WAR

        The all-volunteer military today is predominantly a young, married
    force with children. Currently, 53 percent of the military is married
    and studies show that military members tend to marry younger and begin
    to have children at a younger age. Nearly one million children, or 73
    percent of all military children, are under age 11; 40 percent are 5
    years of age or younger. Approximately 6 percent of military members
    are single parents, ranging from a low of 3 percent of Marines to a
    high of almost 8 percent of Army members.
        Today, the military family's lifeline--its community--is feeling
    the strain that comes from multiple missions with no end in sight.
    Family services are important even to an installation not pressured by
    high PERSTEMPO or war-related deployments. Family centers, military
    chaplains, and installation mental health professionals help ease the
    transition to the military environment for newly-arrived families. They
    provide financial counseling, information on accessing local social
    services, parenting classes, opportunities to learn about the
    community, as well as opportunities to volunteer to help others.
    Military youth programs offered by installation youth services and
    chaplains provide meaningful activities for many military youth,
    especially in the vulnerable preadolescent years. Additional services
    set up to support families when units deploy include counseling
    services, e-mail and video teleconferencing centers, and special family
    activities. These services ease the strain of deployment for families
    left behind and reassure the service member of the family's well-being.
        Too often, the funding provided for contingency operations does not
    include enough for the support services needed at home. Essential
    family support includes the proper staffing and funding for MWR
    programs at the home installation. During the early years of the Bosnia
    operation, NMFA heard from families in Germany that installation MWR
    programs were cut back in order to make more resources available for
    the service members in Bosnia. While pleased that deployed service
    members had access to a wide range of MWR programs, families faced
    shortened hours for bowling alleys, swimming pools, and other
    activities they depended on to keep children active and their attention
    diverted from their separation from the service member. NMFA hopes that
    the current deployments will not again pull key MWR personnel and
    resources out of communities that rely on the services they provide.
    Commanders should not have to choose between funding recreation
    programs for deployed service members or for the service members'
    children at a time when, as one military spouse told NMFA, we ``have
    the stress of a deployed spouse, single-parenting stressed-out kids, no
    maintenance on our quarters, lots of `isn't this war horrible' news and
    demonstrations and all the `normal' deployment stresses.'' This spouse
    said what we've heard from many other families: ``Keeping the quality-
    of-life programs viable is necessary to counter depression, horrid
    morale, and ultimately prevent soldiers from getting out due to the
    discontent of their families.''
        NMFA is grateful to Congress for granting DOD permanent authority
    to provide additional child care, education, and youth services to
    families of service members deployed or ordered to active duty in
    connection with Operation Enduring Freedom and other contingency
    operations. The intent of this provision was to ensure that DOD had the
    authority not only to provide the types of family support services
    provided during the Persian Gulf War, but whatever new types of support
    services are needed in the current environment. Some resources for
    information and support are more accessible now, thanks to the Internet
    and e-mail, than they were in Operation Desert Storm and more units
    have family readiness groups with a network of better-trained
    volunteers than those who rallied to support the troops and each other
    in Operation Desert Storm. Operation Desert Shield and Operation Desert
    Storm came at the end of a decade of military build-up and increased
    resources, but by the end of the war, most observers noted that the
    family support structure was stretched to the end of its limits. The
    current operations tempo began at the end of a decade of military
    downsizing and increased missions. Many volunteers and installation
    support staff were already strained before September 11, 2001--NMFA
    wonders where the back-up is for these dedicated front-line family
    support workers when we will need to rely on them for a long term
    measured in years rather than months.
        NMFA applauds the Office of Military Community and Family Policy in
    the Office of the Secretary of Defense (OSD) for its creation of a
    Joint Family Support Contingency Working Group to promote better
    information-sharing and planning among OSD and the military Service
    headquarters family support staff, including the Reserve components.
    NMFA appreciates the invitation to participate in this working group,
    an innovative concept that grew out of the successful collaboration in
    the operation of the Pentagon family assistance center after the attack
    on the Pentagon. The working group recognizes that most military
    families live off-base and is encouraging better communication and new
    ways of helping families that are not all centered on an installation
    family center. NMFA has long promoted more outreach by family centers
    and installation support personnel into the civilian communities where
    most military families live so that family members unable to get to the
    installation for these programs can still receive the assistance they
    provide. The possibility of further incidents that could heighten the
    demand for support programs while, at the same time, causing
    installations to restrict access makes this outreach even more
    imperative. We are encouraged that outreach to all families is now a
    high priority.
        One new vehicle for communicating with family members and helping
    them access assistance when needed wherever they are located is being
    tested by Marine Corps Community Services (MCCS). The new program
    ``MCCS One Source,'' provides 24 hour-a-day, 7 days-a-week, telephone
    and online family information and referral, situational assistance, and
    links to military and community resources. Since February 1, the
    service has been available to active duty and Reserve Marines and their
    family members. The Army has also made this service available to
    soldiers and families at select installations. Employee Assistance
    Programs such as ``One Source'' provide an accessible source of
    information for service members and families and, if properly
    coordinated with other support services, should allow Service family
    support professionals to devote more time and attention to supporting
    unit volunteers and assisting families with more complicated problems.
        NMFA also applauds the high quality coordination between the
    religious ministries and many MWR and other family support programs.
    Religious ministries are active participants in the life of military
    communities. Religious youth programs, for example, supplement the
    program offerings available from the Youth Centers and are highly-
    praised in many communities. Religious programs also draw retirees and
    their families back to the installations. A program offered by Army
    Chaplains, ``Building Strong and Ready Families'' is targeted at
    improving relationship skills and assisting initial-entry soldiers and
    their families with making the transition into military culture. The
    skills gained through this program support both mission readiness and
    strong families. Coordination between chaplains, their staff, and other
    recreational and support programs enhances the stability of the
    military communities. Unfortunately, military judge advocates have
    indicated that current guidelines, regulations and laws do not
    establish clear authority for the use of appropriated funds to pay for
    soldiers and immediate family members' meals, lodging, transportation,
    conference fees, and other expenses associated with command-sponsored,
    chaplain-lead training and conferences. The Defense Appropriations Act
    for Fiscal Year 2003 contained a provision clarifying the legal
    authority surrounding the use of appropriated funds in supporting
    military chaplains' programs for strong and ready families. NMFA
    requests that this subcommittee make this language permanent in the
    National Defense Authorization Act for Fiscal Year 2004.
        One very necessary improvement needed in the family support arena
    is closer collaboration between all the various helping individuals and
    agencies who assist in the development and maintenance of strong
    emotional and mental health in both individuals and families in the
    military community. As was seen in the Fort Bragg (NC) domestic
    violence cases during the summer of 2002, not all military family
    members or service members make use of the counseling and support
    services available to them. While the TRICARE benefit is rich by the
    standards of many health plans, it does not have a preventive care
    component. For TRICARE to pay for services, there must be a medical
    diagnosis, thus discouraging many family members from seeking care.
    Many members and families also believe that seeking counseling services
    through military programs may harm their careers or that these services
    are only intended for families identified as having problems. The
    authors of the report examining the Fort Bragg domestic violence
    incidents noted that the various agencies that could have provided
    support to the service members and families do not often coordinate
    their activities. Medical personnel, family centers, chaplains,
    schools, and local civilian agencies must communicate and work together
    to help families deal with stress and promote better mental health.
    NMFA also believes that the TRICARE mental health benefit must include
    a wider range of preventive care services. Just as the TRICARE medical
    benefit covers preventive services such as well baby checks,
    immunizations, and mammograms in order to prevent beneficiaries from
    getting sick and needing more costly care, so should the mental health
    benefit be geared toward helping beneficiaries learn how to cope with
    stress and improve their well-being so that they do not need more
    costly outpatient care. An emphasis on emotional health rather than
    treatment may also make beneficiaries more likely to seek appropriate
    services earlier.
        NMFA applauds efforts to enhance inter-Service coordination on
    family support and readiness issues and to leverage technology and the
    best practices in the civilian sector to provide easily accessible
    information and referral to families regardless of geographic location.
    Since quality family support contributes to the readiness of the
    mission, NMFA believes that the cost of family support must be factored
    into the cost of the contingency and appropriate funding budgeted and
    provided upfront. NMFA also requests that the Services receive the
    authority to allow appropriated funds to be used to support command-
    sponsored family training and conferences conducted by military
    chaplains.

                      NATIONAL GUARD AND RESERVE FAMILIES

        As of March 5, 176,533 National Guard and Reserve members were on
    active duty in support of contingency operations around the world. Our
    Guard and Reserve families are meeting the challenge of our rapidly-
    changing times and increasing military demands with varying degrees of
    success. While many of the challenges they face are similar to those of
    active component families, these families must face them with a less-
    concentrated and mature support network and in many cases without prior
    experience with military life. Although there is much talk within OSD
    and the Services about the ``total force'' comprised of the active and
    Reserve component melded together to accomplish the mission, NMFA hears
    from Guard and Reserve families that the ``total force'' concept has
    not yet fully reached the family support arena.
        Unlike active duty units located on one installation with families
    in close proximity, Reserve component families are often miles from the
    service member's unit. Therefore, when the unit conducts a pre-
    deployment briefing, family members are not afforded an opportunity to
    attend unless they pay their own way. NMFA has heard the frustrations
    family members experience when trying to access information and
    understand their benefits. The lack of accurate benefit information and
    unrelenting communication difficulties are common themes among Guard
    and Reserve families.
        NMFA thanks the State family readiness coordinators and unit
    volunteers for helping to provide family members with basic
    information. Unfortunately, some units do not have adequate programs
    because of the lack of volunteers. Additional family readiness staffing
    and support for the unit level volunteers during emergency
    contingencies could ensure information is forwarded the families who
    are unable to attend unit briefings. Guard and Reserve unit volunteers,
    even more than many of their active duty counterparts, are stressed
    because of the numbers of families they must assist and the demands
    placed on them. At the very minimum they ask for funding for child care
    to enable them to more efficiently perform their expected tasks.
    Funding to enable families to attend a pre-deployment briefing would
    also help strengthen the ties between the units and the families and
    the families with each other.
        DOD has developed several key initiatives that address the needs of
    Guard and Reserve families. NMFA applauds this effort, but there is
    still much to be done. For example, the OSD Reserve Affairs office
    maintains an excellent Web site. Its Family Readiness Toolkit and
    Deployment Guide provide practical information; however, many families
    report it difficult to use. Guard and Reserve families ask for
    standardized materials that are appropriate to all Services, so that if
    an Army Reserve member happened to live close to a Navy installation,
    he or she would understand how to access services there. The
    establishment and funding of a joint Family Readiness program would
    facilitate the understanding and sharing of information between all
    military family members within any single community. NMFA suggests that
    DOD also strengthen and perhaps formalize partnerships with national
    organizations such as the American Red Cross and U.S. Chamber of
    Commerce to enlist their assistance through their local chapters in
    setting up community-based support groups for military family members.
    The groups could include not only spouses and significant others of
    deployed members, but also the parents of service members. Involving
    the local community leaders in setting up these support groups would
    address two of the common concerns expressed by some of these isolated
    families: the feeling that they are the only families in town going
    through the strain of deployment and the sentiment that people not
    associated with the military do not appreciate their sacrifice.
        Through our contact with Guard and Reserve families and family
    support personnel over the past year, NMFA has heard wonderful stories
    of individual States, units, and families caring for and supporting
    each other. NMFA is aware of leadership involvement at all levels to
    help ease the challenges faced by service members and families. NMFA is
    especially proud of the efforts of the Employer Support for Guard and
    Reserve (ESGR) as an advocate for the Reserve component member facing
    employment issues. ESGR is encouraging employers to set up their own
    family support programs and to provide information to employers and
    their other employees about the legal rights of Reserve component
    members. By providing this information in the workplace, ESGR is
    helping civilian communities gain a better understanding of the
    valuable role the Guard and Reserve play in the defense of our Nation.
        Compensation issues continue to be of paramount concern among Guard
    and Reserve members. Many have taken cuts in pay, without their
    employer volunteering to pay the difference between their civilian pay
    and the Guard or Reserve salary. In addition to earning less, some
    Guard and Reserve members have experienced some problems with pay
    processing. For some families, the delay in receiving a paycheck has
    led to overdue payments on bills, and occasional threats to foreclose
    on their mortgage or turn them over to collection. Pay and personnel
    systems for activated Guard and Reserve members must work in
    coordination so families do not have to deal with bill collectors.
        The cost of meeting unique family readiness needs for National
    Guard and Reserve families must be calculated in Guard and Reserve
    operational budgets and additional resources provided. These resources
    must include support, training, and assistance with some of the costs
    incurred in the course of their duties by unit family readiness
    volunteers. DOD must partner with other organizations and explore new
    means of communication to provide information and support to
    geographically dispersed Guard and Reserve families.

                    HEALTH CARE GAINS FOR MILITARY FAMILIES

        After a rocky start over several years, the TRICARE system is
    providing most of the promised benefit for most active duty military
    families. Recent legislative provisions have improved the benefit,
    especially by providing the correction to the TRICARE Prime Remote
    Program enabling family members in the program to maintain eligibility
    when the service member receives orders for an unaccompanied assignment
    overseas. NMFA is waiting for news of how the new provision opening
    Prime Remote to family members of activated National Guard and Reserve
    members will be implemented. We are concerned, however, that the
    legislation made these family members eligible for Prime Remote if the
    service member is on active duty orders of more than 30 days while
    Guard and Reserve families living in areas where Prime Remote is not
    available can only receive the Prime benefit if the service member has
    orders for more than 179 days. NMFA believes that a goal for the
    Department of Defense and Congress should be that active duty
    families--all active duty families--must have access to the cost
    savings of the TRICARE Prime benefit.
        NMFA is also pleased to report that the partnership established
    between the DOD Office of Health Affairs, the TRICARE Management
    Activity (TMA), and the beneficiary associations continues, to the
    benefit of both beneficiaries and the Department. NMFA appreciates the
    information received in these meetings and the opportunity for dialogue
    with the persons responsible for managing DOD health care policies and
    programs. Through this collaboration, NMFA and other organizations have
    been able to raise areas of concern, provide feedback on the
    implementation of new programs and benefits, and help to provide better
    information to beneficiaries about their health care benefit.

                         HEALTH CARE CHALLENGES REMAIN

        However grateful we are for recent benefit improvements, program
    implementations, and for the increased opportunities for beneficiary
    input, NMFA remains apprehensive about several issues: funding,
    beneficiary access to health care, the implementation of a new
    generation of TRICARE contracts, and the ability of National Guard and
    Reserve families to transition easily into TRICARE when the service
    member is called to active duty. Although the fiscal year 2004 budget
    request calls for what is believed to be an accurate level of funding
    for the Defense Health Program, NMFA urges this subcommittee to
    continue its efforts to ensure full funding of the entire Defense
    Health Program, to include meeting the needs for military readiness and
    of both the direct care and purchased care segments of TRICARE.
        Although recent TRICARE surveys highlight improvements in
    beneficiary access to care, NMFA continues to hear of problem
    geographic locations and scenarios that point to unresolved access
    issues. TRICARE Prime beneficiaries, including active duty members,
    continue to tell NMFA they are unable to obtain an appointment at their
    Military Treatment Facility (MTF) within the Prime access standards. At
    some locations, we suspect that the full range of resources needed for
    MTF optimization have not been provided; we have also been concerned
    about reports of staffing shortages within military Service health care
    specialties. At other locations, we suspect the problem is rooted in
    the alternative financing provisions in the TRICARE regional contracts.
    In TRICARE Regions 1, 2, and 5, the contract calls for the MTF rather
    than the managed care support contractor to pay for care received by a
    Prime beneficiary enrolled to the MTF who must be sent for care in the
    civilian sector. The TRICARE Prime access standard for a specialty
    appointment is 30 days. Beneficiaries tell us, however, they often are
    told by clinics and appointment clerks at the MTFs that appointments
    are not available and that they should ``call back next month.'' They
    are not offered the option to schedule an appointment with a TRICARE
    network provider downtown. They report that when they use the magic
    words ``access standard'' or ask to be referred to a civilian provider,
    an appointment often becomes available. NMFA is concerned that the
    alternative financing contract provision creates a barrier to the
    cooperation needed between the MTF and the managed care support
    contractor to ensure beneficiaries receive care within TRICARE Prime
    access standards.
        Today, NMFA's greatest concern about access is prompted by reports
    from the field that the deployment of military medical personnel is
    causing more MTFs to exceed the promised access standards for families
    enrolled in TRICARE Prime. Access standards are part of the promise
    made to service members and their families when they accepted
    enrollment in Prime. The public-private partnership of TRICARE was
    specifically set up so those enrolled could be referred to civilian
    providers when access standards could not be met using military
    providers. We strongly believe that allowing access standards to go by
    the wayside, even for a short period of time, has the potential to
    negatively harm the readiness of military members who are deployed. A
    soldier in the field who receives an e-mail from his or her spouse that
    the MTF has no appointment for their 6-month old child cannot focus
    completely on the military mission.
        When MTFs cannot meet access standards due to the deployment of
    personnel and are unable to supplement their staffs with Reserve
    component members or contract providers, they must work with the
    managed care support contractors to enable their beneficiaries to
    obtain care in the civilian sector. A robust civilian provider network
    is essential in ensuring that the TRICARE public-private partnership
    works as intended. Although the TRICARE contractors' lists of network
    providers in many communities seem adequate at first glance,
    beneficiaries who call these providers for an appointment are often
    told that they are taking no new TRICARE patients. MTF commanders and
    the managed care support contractors must work together to ensure that
    the proper provider mix is available in the community to handle patient
    demand. MTF staff must also understand the importance of the agreement
    made with Prime patients to provide care within the access standards.
    Anecdotal evidence suggests to us that Prime beneficiaries are more
    likely to be referred to the civilian sector for care within access
    standards when appointments are made through the managed care
    contractors. Prime patients should not be asked to delay health care
    simply because their MTF has deployed staff; families are already
    supporting the war effort in countless other ways. Where civilian
    assets exist in the network, they should be used. Where the number of
    civilian providers is too small to handle the overflow, MTFs must be
    provided the staff and other resources needed to provide this care in
    house.
        This scarcity of providers is not just a problem for TRICARE Prime
    patients. Beneficiaries using TRICARE Standard also report that
    providers are unwilling to have too high a proportion of TRICARE
    patients in their caseloads. Providers cite problems with TRICARE
    claims processing, low reimbursement rates, and the hassles associated
    with becoming authorized as a TRICARE provider as reasons not to
    participate. Beneficiaries look both to DOD and the TRICARE contractors
    to ease the administrative burden on providers, fix the claims
    problems, and ensure that reimbursement rates are set at the proper
    level. On paper, TRICARE is a very robust health care program and
    benefit compared to many other insurance plans; however, a robust
    benefit is no benefit if the beneficiary cannot find a provider willing
    or able to provide the needed health care.
        As we watch DOD prepare to implement a new round of TRICARE
    contracts, NMFA is concerned that some of the issues affecting
    beneficiary access, provider satisfaction, and costs to the government
    may remain unresolved. A clear line of command and accountability must
    be established so that beneficiaries with problems accessing care or
    with concerns about the quality of their care can be assured their
    problem will be fixed. Both MTFs and civilian contractors must be held
    to high standards for meeting access standards. Beneficiary and
    provider education must be consistent across regions and must include
    information not just for Prime beneficiaries and network providers, but
    also for TRICARE Standard beneficiaries and non-network providers.
    Although DOD has made progress in improving portability and providing a
    uniform benefit across the regions, the elimination of regional
    differences and barriers to portability remains a challenge for the new
    round of contracts.
        As the military Services deploy medical personnel to support
    overseas missions, beneficiary access to health care must be
    maintained. Robust provider networks and adequate reimbursement levels
    to encourage providers to treat TRICARE Standard beneficiaries are
    needed in the purchased care segment of TRICARE to provide care to
    beneficiaries unable to obtain care within the MTFs. In the new TRICARE
    contracts, the rules governing beneficiaries' access to the TRICARE
    benefit must be standardized across all regions and communicated in
    multiple formats to beneficiaries and providers.

                   HEALTH CARE FOR GUARD AND RESERVE FAMILIES

        Accessing providers willing to accept TRICARE patients and
    understanding the benefit and the rules inherent in the military
    medical system are especially worrisome issues for some of TRICARE's
    newest beneficiaries: the families of Guard and Reserve members called
    to active duty. The varieties of Guard or Reserve orders, the
    complexities of the TRICARE system, and the geographic dispersion of a
    unit's members and families combine to make communication about the
    benefit and access to assistance when there is a problem very
    difficult. TRICARE contractors and representatives of the TRICARE
    region Lead Agents routinely conduct TRICARE briefings for members of
    units about to mobilize; unfortunately, in most cases, family members--
    the people who will actually have to deal with the system once the
    service member deploys--are not in attendance. If the service member
    lives in a different TRICARE region from where his or her unit is
    located, he or she will receive the wrong region's information for the
    family at the briefing. A service member's enrollment in Prime at his
    or her mobilization site can also have consequences for family members'
    options for and costs of receiving care.
        DOD eased the transition of Guard and Reserve families into TRICARE
    by creating a demonstration project to help patients maintain the
    continuity of care and continue seeing the family's civilian doctor at
    minimal cost. Many families have not heard about the demonstration, and
    thus are unable to make an informed choice about whether to join
    TRICARE Prime, the lowest cost option in TRICARE. Because Prime is
    managed care, and Prime patients must go to a provider in the Prime
    network, the patient may not be able to continue to see their current
    doctor. The pregnant spouse of a Guard or Reserve member activated for
    over 179 days should be offered the option of remaining in TRICARE
    Standard (with no deductible and higher reimbursements under the
    demonstration) so that she could stay with her civilian doctor even if
    the doctor is not part of the TRICARE network. Unfortunately, because
    all families are not being told about this option, some women are
    signing up for Prime, and then told in the middle of their pregnancies
    that they must switch providers.
        NMFA believes that activated Guard and Reserve members and their
    families deserve access to the same TRICARE benefit as any other active
    duty families. We urge this subcommittee to ensure that legislative
    barriers to this access be eliminated and that it direct DOD to remove
    regulatory barriers, such as the 179-day requirement for eligibility in
    TRICARE Prime. NMFA also believes that the continuity of the health
    care provided to many families of activated Guard and Reserve members
    could also be enhanced if DOD could do on a larger scale what it is
    already doing for its own civilian employees who are called to Guard or
    Reserve duty: paying the cost of their civilian premiums.
        Because of the complexity of the TRICARE system, Guard and Reserve
    families need accurate information tailored for their needs. The number
    one complaint NMFA hears from Guard and Reserve families about TRICARE
    is that they do not understand it and thus may be making costly or
    unwise decisions about how to obtain health care once the service
    member is activated. NMFA applauds the efforts of the TRICARE
    Management Activity, regional Lead Agents, and the managed care support
    contractors for their educational efforts to the Guard and Reserve
    population and have been working with them to ensure that both service
    members and their families receive understandable, accurate, and
    appropriate information concerning their TRICARE benefit and how to use
    it. NMFA believes that every TRICARE region's Lead Agent should have a
    Guard and Reserve liaison to improve the flow of accurate information
    to beneficiaries and provide a reliable source of assistance should
    beneficiaries experience difficulties.
        All families of National Guard and Reserve members mobilized for
    more than 30 days should have access to a Prime-like benefit or the
    option of remaining in their civilian health care plan, with premiums
    paid by the Department of Defense.

                SUPPORTING THE SCHOOLS THAT SUPPORT OUR CHILDREN

        Congressional assistance for schools--both DOD and civilian--that
    educate military children will be very important this year. Schools'
    mission to ensure military children are focused on learning became more
    complicated with the terrorist attacks and the subsequent deployments.
    Children are affected by the absence of a parent, even when the parent
    is just on a civilian business trip. Knowing the parent is away on a
    military mission that is featured on the nightly news adds tremendously
    to the stress for the child. Children under stress may ``act out'' in
    class or may not be able to concentrate on school work. The uncertainty
    of deployment length and, in some cases, the uncertainty about the
    whereabouts of the deployed member raises the stress level even
    further. Fears about possible further terrorist acts in the United
    States make things worse as children ask: ``Why did Mom or Dad have to
    leave when we might be in danger here?''
        NMFA thanks this subcommittee for its support of schools operated
    by the Department of Defense Education Activity (DODEA). DOD schools
    have received a wealth of favorable publicity during the past year on
    their test scores, minority student achievement, parent involvement
    programs, and partnership activities with the military community. The
    quality of these schools is a testament not only to the generous
    support provided by the government, but also military families'
    commitment to quality education. Reports of DODEA cutbacks,
    necessitated by across-the-board rescissions within DOD, raised
    concerns among parents of children in DOD schools that the traditional
    high level of support services and program offerings might not be
    available just when they are most needed. We ask this subcommittee to
    help ensure that DOD schools have the resources necessary to provide
    quality education to military children in this difficult environment.
        Because approximately 80 percent of military children attend
    civilian public schools, NMFA is also grateful for congressional
    support of quality education for these children and their civilian
    classmates. Congressional authorization and appropriations for DOD
    funding to supplement Impact Aid, and the additional funding for
    schools educating severely-disabled military children, helps those
    districts most affected by the military presence. Given the continued
    underfunding of the Impact Aid program as well as the demands placed on
    these schools and the children they serve, NMFA recommends this funding
    be increased to $50 million for fiscal year 2004, with at least 10
    percent designated to support districts educating severely-disabled
    military children. NMFA also encourages the members of this
    subcommittee to communicate the importance of quality schools in the
    military community to others in Congress and seek inclusion of Impact
    Aid funding for all categories of military students in the fiscal year
    2004 budget resolution. Now, in the wake of increased deployments and
    State education budget crises, is not the time to add to military
    parents' stress level by threatening to pull funding away from their
    children's schools.
        Schools near military installations that educate many military
    children understand what happens in a deployment situation, but need to
    ensure that additional counseling and other resources are available to
    help. They often have access to family support personnel at the
    installation for assistance. On the other hand, schools with children
    of now-activated Guard and Reserve members are often dealing with
    ``military children'' for the first time and are doing it without that
    safety net of the installation family center, chaplains, health
    professionals, and counselors. While there have been some recent
    stories in the press about school personnel who have harassed or
    allowed the harassment of military children in their charge, NMFA knows
    that most school personnel are doing whatever they can to help children
    during this difficult time. They are calling us, looking for resources
    on how to set up support groups for children and families or on how to
    be aware of problems associated with a parent's deployment. Usually,
    the stresses facing families did not originate with the schools;
    however a school's inability to support a child through the stresses
    will affect that child's ability to learn. School can become the one
    stable element in a family's life during a deployment.
        NMFA also urges Congress to be aware that several school
    districts--both DOD and civilian--are also facing challenges caused by
    the DOD initiative to privatize military family housing. As more
    housing for military families is built either on a military
    installation or in a part of the civilian community, the school
    district serving that committee may see shifts in enrollment and be
    called upon to provide more school facilities. NMFA believes that DOD
    and the Services must share in the solution to the school facility
    problem caused by the privatization initiative. Many schools will not
    have the resources to provide adequate school facilities or even buses
    to move children from the new housing to existing schools within the
    shortened construction timeline under the privatization ventures. NMFA
    believes that the increase in the DOD supplement to Impact Aid we have
    proposed could help school districts deal with facility or
    transportation needs caused by housing privatization. Additional
    funding may also be needed for DOD schools at CONUS installations
    undergoing privatization.
        NMFA urges Congress to ensure that the schools educating military
    children have the resources they need to provide high quality education
    in a secure setting. They must also have the resources to provide
    counseling and other assistance to students and families and training
    to teachers on the issues facing families of deployed service members.

                              MILITARY CHILD CARE

        The military's child care system remains the national benchmark
    against which other programs are measured. High rates of accreditation,
    quality facilities, and well-trained staff are a testament to the
    priority given military child care by Congress and DOD. Despite
    considerable progress, NMFA sees some continuing challenges for DOD in
    meeting the child care needs of the force without breaking the bank or
    compromising quality. Approximately 63 percent of military spouses are
    in the work force. Dual-military members with children make up 2.5
    percent of the force; 6.1 percent of service members are single
    parents. In 2002, the Services met approximately 65 percent of the
    reported child care need and expected to meet only 80 percent of that
    need by 2007.
        NMFA hears of ever-increasing demand for child care and youth
    services from service members and families. In recent testimony, for
    example, Sergeant Major of the Army Jack Tilley noted that during 2002,
    27 percent of enlisted soldier parents reported lost duty time due to a
    lack of child care. Demand is especially growing for after-hours care
    or care closer to families' homes off the installations. Some
    installations have responded with extended duty child care, both at
    Child Development Centers and in Family Child Care homes, or are even
    waiving families' co-payments for these extended hours. As of September
    2002, the Marine Corps, for example, had approved installation requests
    totaling more than $200,000 to support child care needs resulting from
    Operation Enduring Freedom and related contingencies.
        Child Development Centers and Family Child Care homes, however,
    cannot meet all of the need, especially for families living off the
    military installation. Most Guard and Reserve families do not live near
    a military installation where they can access a military Child
    Development Center, even if it had space for their child. Approximately
    53 percent of Selected Reserve members are married with children; 5.4
    percent of Reserve component members are single parents, compared with
    6.2 percent of the Active Force. When the service member is not home to
    help care for children, the family needs more child care. In some
    cases, military spouses are quitting their jobs or dropping out of
    school because they cannot find the child care they need at an
    affordable rate.
        Since 2000, DOD has had the flexibility to increase the
    availability of child care and youth programs through partnerships with
    civilian agencies and other organizations. The Services set up pilot
    programs to take advantage of this flexibility and obtain more care for
    children off the installation; however, less than 10 percent of DOD
    child care is provided off-base. Guard and Reserve families, as well as
    active duty families living and/or working longer distances from an
    installation need assistance not just with finding quality child care
    near their homes, but also in paying for that care. When a military
    family enrolls their child in a military Child Development Center or
    Family Child Care home, the cost of that child's care is shared between
    the government through appropriated funds and the service member. When
    a military family who cannot access child care through the military
    places their child in a civilian child care facility, that family bears
    the entire cost.
        Because the Reserve components are essential to today's military
    mission, the child care needs of activated Guard and Reserve members
    must be calculated in DOD estimates of demand for child care services
    and assistance must be given to these families in accessing child care.
    This should start with referral services, but will probably also need
    to include subsidies for certain members. Another possible way to
    assist service members in paying for child care would be to set up
    flexible spending accounts through which military families could pay
    child care expenses with pre-tax dollars.
        NMFA urges DOD to intensify its efforts to increase access to child
    care for military families unable to use Child Development Centers and
    Family Child Care providers located on military installations. NMFA
    urges Congress to provide the resources necessary to assist families of
    all service members called to support contingency operations in
    accessing and paying for necessary child care services.

                          SSI AND THE COSTS OF SERVICE

        Supplemental Security Income (SSI) is a special monthly payment
    from the Social Security Administration based on disability or
    blindness for persons with limited income and resources. Children under
    age 18 who are disabled or blind and have limited income and resources
    are also eligible. In many States, qualification for SSI automatically
    enables recipients to qualify for extended Medicaid services for the
    disabled. Some of the approximately 78,000 military family members
    enrolled in the Exceptional Family Member Program also qualify for SSI.
    Military families report that, while they appreciate the extra income,
    the real benefit to SSI qualification is that their disabled child can
    receive Medicaid. In many States, Medicaid will cover items such as
    personal care support, respite care, medical supplies, and certain
    therapies that TRICARE does not provide. Although TRICARE pays first
    for covered benefits for military beneficiaries, Medicaid is the safety
    net that enables these families to receive the extra support they often
    need to support the disabled child at home.
        Because SSI eligibility is income-based, the complexities of the
    military pay and allowance system often create difficulties for
    families in qualifying for SSI or for retaining the payments and the
    accompanying Medicaid services. Families understand why they might lose
    certain safety net benefits as they receive pay raises. What puzzles
    them and NMFA is why they lose SSI benefits because of a DOD
    requirement related to the service member's service. Two DOD
    requirements currently threaten some of the most vulnerable military
    families' eligibility for the services they need. When military housing
    is privatized, by law, the service member must be paid Basic Allowance
    for Housing (BAH). When the BAH shows up on the service member's Leave
    and Earnings Statement (LES), it appears that the family income has
    increased even though the family is living in the same house and the
    BAH is immediately paid as an allotment to the developer of the housing
    for rent. Other military members find that, when they are deployed on
    contingency missions, the additional allowances and special pays, such
    as Family Separation Allowance and hazardous duty pay, will also remove
    the child from SSI eligibility.
        Military families are not asking for more benefits than those to
    which they are entitled. They believe, however, that a DOD requirement
    such as payment of BAH for privatized housing or orders to deploy in
    service to their country should not disqualify their disabled child
    from receiving the services he or she needs. Service members look for
    Congress to understand that their child should not be penalized by
    their military service.
        NMFA urges this committee to work with committees with oversight
    over Social Security to help protect service members with severely-
    disabled family members from losing access to SSI and other safety net
    programs and benefits when their income is changed due to requirements
    of the Department of Defense.

                           MILITARY SPOUSE EMPLOYMENT

        NMFA looks forward to seeing the DOD report requested in the NDAA
    for Fiscal Year 2002 and still owed Congress on the status of military
    spouse employment programs. A military spouse's ability to gain job
    skills and maintain a career despite multiple moves contributes to the
    financial well-being of the military family and its satisfaction with
    military life. A spouse who is provided with opportunities for
    employment and career advancement will be more likely to encourage the
    service member to remain in the military. Conversely, the prospect that
    the spouse would have to give up a good job--found with difficulty--and
    start over again after the next move with no assistance in finding
    employment may prompt a family decision that the service member should
    leave the military. NMFA is not asking DOD to create a jobs program for
    every military spouse; DOD is needed most to facilitate the transition
    of mobile military spouses into already existing opportunities and to
    target efforts where spouses are having the greatest difficulty
    accessing educational programs or employment.
        Sixty-three percent of military spouses are in the labor force,
    including 87 percent of junior enlisted spouses (E-1 to E-5). The loss
    of the spouse's income at exactly the time when the family is facing
    the costs of a Permanent Change of Station move is further exacerbated
    when a spouse is unable to collect unemployment compensation due to
    provisions of State laws. In many States, the military spouse is not
    eligible to collect unemployment compensation when unemployment is due
    to the service member's change of duty location. States frequently
    determine that the decision of a military spouse to move with the
    service member is a ``voluntary quit'' and the benefit is denied.
    Spouses need the assistance of the military leadership and possibly
    friends in Congress to help raise the level of awareness about the
    inequities of these determinations so that more States will approve
    unemployment compensation for military spouses.

                          FORMER SPOUSE PROTECTION ACT

        NMFA supports the proposals included in the 2001 DOD report on the
    Former Spouse Protection Act (FSPA), including changes to make the
    treatment of survivor benefits fairer to both the current and former
    spouse. For example, under current law if a former spouse is awarded
    benefits under the Survivor Benefit Plan (SBP), a current spouse is not
    also eligible for SBP. NMFA recommends the subcommittee approve a
    prospective provision to permit multiple payments of SBP based on a
    proportional share of the retired pay received by the former spouse(s)
    and the retiree. Thus, if the former spouse is awarded 50 percent of
    the retired pay, a retiree may make an election to award the remaining
    50 percent to the current spouse. NMFA supports a related proposal to
    permit a former spouse to waive SBP coverage. Also under current law,
    even if the retiree and spouse agree and the court issues an order
    directing that SBP premiums be withheld from the former spouse's share
    of retired pay, the Defense Finance and Accounting System (DFAS) will
    not honor the court order. NMFA recommends a change in statute to
    direct DFAS to honor such court orders. Finally, under FSPA, DFAS must
    be properly served with an SBP selection in a divorce decree within 1
    year of divorce or SBP is forever waived. NMFA recommends repeal the
    so-called 1-year deemed election period to permit a former spouse to
    obtain SBP coverage beyond the 1-year limitation.
        We also encourage this committee to seriously consider providing
    medical, commissary, and exchange benefits to 20-20-15 spouses. These
    former spouses were, for the most part, married to enlisted members and
    often have low incomes and a real need for opportunities for savings on
    the necessities of life. As referenced in The Military Coalition's
    testimony, NMFA strongly opposes any provision that would impose
    restrictions on retired pay awarded as property to former spouses in a
    divorce, such as limiting the number of years they could receive the
    retired pay. We believe the DOD proposal of basing property awards on
    the service member's rank and years of service at the time of divorce
    rather than time of retirement more accurately and fairly considers the
    length of marriage.

                        TAX RELIEF FOR MILITARY FAMILIES

        NMFA is pleased that legislation is before Congress that would
    correct the oversight in the 1997 tax law that changed the capital
    gains on the sale of a personal residence without providing specific
    remedies as the previous law had done. We certainly hope that this year
    will finally see the oversight corrected.

          MILITARY FAMILIES AND COMMUNITIES--READY TO MEET THE MISSION

        Members of the Uniformed Services--active and Reserve component--
    are doing the Nation's work today all over the world. They ask the
    Nation to give them the tools they need to do that job: equipment,
    training, and leadership. They also look to the Nation for recognition
    that their job is not nine to five and that it involves their families
    in ways few other jobs demand. Military members and their families want
    the Nation to understand that the military family drives retention
    decisions, that the family's quality-of-life is a readiness
    requirement, and that even a community as strong as the military
    community will fall apart if it is asked to do too much with too little
    for too long. They also look to the Nation to understand that quality-
    of-life is not just about pay. It is about having a safe, well-
    maintained place to live. It is about access to quality health care
    without bureaucratic complexities. It is about a quality education for
    children. It is about meeting the aspirations of a spouse for a career
    and a couple for a secure retirement. It is about respect for a job
    well done.
        We thank this subcommittee and Congress for your advocacy for pay
    and benefit improvements necessary to retain the quality force that now
    protects our homeland and wages war against terror. Your actions have
    helped to rebuild military members' trust and to ease the crisis in
    recruiting and retention. We ask you to remember that in time of war,
    even more than during peacetime deployments, mission readiness is tied
    to service member readiness, which is tied to family readiness. The
    stability of the military family and community and their support for
    the force rests on the Nation's continued focus on the entire package
    of quality-of-life components. Military members and their families look
    to you for continued support for that quality-of-life. Please don't let
    them down.

       STATEMENT OF STEVE ANDERSON, LEGISLATIVE COUNSEL, RESERVE
                          OFFICERS ASSOCIATION

        Mr. Anderson. Mr. Chairman, Senator Nelson, I am pleased to
    have this opportunity to present the Coalition's legislative
    priorities for the Reserve components of our Armed Forces and
    their families to you today.
        Today, there are more than 175,000 Reserve component
    sailors, soldiers, marines, and airmen on active duty overseas
    in the anticipation of action in Iraq, and serving here at
    home, providing security against terrorism within our own
    borders. Today, more than ever, our Reserve Forces are a
    critical element to the total force equation.
        We stand at a crossroads in the history of the total force,
    a point where we seek to redefine the relationship of the
    Reserve Forces to our national defense establishment. Today, we
    find ourselves considering how to balance Reserve participation
    in a steadily rising number of contingency missions, along with
    the realities of reservists' civilian duties and occupations
    and familial obligations.
        It is imperative that we optimize Reserve missions and, to
    the greatest degree possible, enhance service in the Reserve to
    make it meaningful, rewarding, and attractive for service
    members and their families. To this end, we recommend that the
    committee consider the following provisions for inclusion in
    the National Defense Authorization Act for Fiscal Year 2004.
        Reserve income protection. In the past, Congress has
    recognized the need for some kind of income security
    legislation for mobilized reservists whose military income does
    not match their civilian income. With the prospect of continual
    periodic mobilizations of uncertain length becoming the norm
    rather than the exception in the Reserve careers of our
    soldiers, some provision must be made to ensure that a call to
    active duty is not a call to financial disaster for mobilized
    reservists.
        If reservists see bankruptcy looming behind every
    mobilization, they will not continue to be reservists. If we
    want them to continue to serve, we must find a way, based on
    best business practices, to provide income security for those
    who serve. Failure to do so will fatally undermine the
    readiness of the Reserve components of the Armed Forces and,
    with them, the total force.
        The second issue I would speak to today is academic
    protection for mobilized reservists. The Coalition is aware of
    a growing number of cases of denied academic credit, lost
    academic status, and financial difficulties experienced by
    service members mobilized or deployed in support of contingency
    missions.
        The problem is not new. It occurred widely during the Gulf
    War, but no formal corrective action has been taken since then.
    If the Nation is to routinely mobilize and deploy large numbers
    of service members, they must be assured of reasonable
    protections when their academic work is interrupted.
        Comparable economic and legal protections are available
    under the Soldiers' and Sailors' Civil Relief Act. The time has
    come to authorize similar protections for service members whose
    academic status and standing is threatened through no fault of
    their own. The Military Coalition recommends that the committee
    endorse legislative proposals to afford academic and financial
    protections to military post secondary students mobilized or
    deployed in support of contingency missions.
        That concludes my opening statement. I would be happy to
    answer any questions you may have.
        Senator Chambliss. Thank you.
        Mr. Lokovic.

     STATEMENT OF JAMES E. LOKOVIC, DEPUTY EXECUTIVE DIRECTOR AND
        DIRECTOR, MILITARY AND GOVERNMENT RELATIONS, AIR FORCE
                         SERGEANTS ASSOCIATION

        Mr. Lokovic. Mr. Chairman, Senator Nelson, my comments will
    briefly reflect on the Coalition views on two important retiree
    issues from our written statement that we submitted earlier.
    The first pertains to a Survivor Benefit Plan, and the second
    is to briefly underscore the commitment of the Coalition on the
    concurrent receipt issue. These two issues call for immediate
    attention, in light of the current posture of our Armed Forces
    and our ability to deal with those who may pay a severe price,
    or the ultimate price.
        First, the Coalition supports repeal of the age 62 Survivor
    Benefit Plan (SBP) annuity reduction. As a matter of fact,
    Coalition representatives visited several congressional offices
    this morning to underscore that need.
        As this committee knows, when an SBP-enrolled military
    retiree passes away, if the surviving spouse is younger than
    age 62, the survivor continues receiving 55 percent of the
    military member's retirement pay. However, once the survivor
    reaches age 62, that annuity is reduced to 35 percent of that
    retirement base. The Coalition asks this committee to eliminate
    the 20 percent age-62 offset, and while we prefer that this
    offset be removed immediately, S. 451, introduced by Senator
    Snowe recently, is a reasonable approach that would phase out
    the offset increments between the bill's enactment on October
    1, 2007.
        The Coalition urges elimination of the SBP offset for three
    important reasons. First, many retirees who signed up for SBP
    in the 1970s and the early 1980s were not adequately informed
    about the offset. Second, and perhaps most important, the
    Pentagon admits that the 40 percent DOD subsidy that Congress
    intended for SBP has now dropped to approximately 17 percent.
        Let me reiterate that. By congressional intent, under the
    SBP program, DOD was to pay 40 percent and the retirees were to
    pay 60 percent. DOD is now paying approximately 17 percent. The
    retirees are paying approximately 83 percent. I can only
    imagine, if it were the other way around, that there would be
    calls for quick action. Accordingly, we ask for quick action on
    behalf of the retirees and their survivors in eliminating this
    offset.
        Another reason to get rid of the offset, and the final one
    I will mention, is that when you compare the military SBP
    program to that which is available for Federal retirees, they
    enjoy a much higher subsidy, 33 to 48 percent, and receive a 50
    to 55 percent program without any reduction at age 62. We urge
    this committee to work to eliminate that age 62 survivor
    annuity reduction.
        Finally, as regards the concurrent receipt issue, there is
    little that we can say to you. No need to spell the issue out.
    You are well aware of the details of it, and you certainly get
    more mail than we do on the subject.
        While the Coalition regrets that more comprehensive
    concurrent receipt legislation fell by the wayside at the end
    of the 107th Congress, we are grateful that some progress was
    made, and we anxiously await the details of DOD's
    determinations on eligibility and application procedures and so
    forth for the special compensation for the combat-disabled.
    Senator Warner referred to that as the beachhead upon which to
    build towards full concurrent receipt, and we certainly agree
    with that.
        We hope that DOD makes the process as wideranging and fair
    and simple as possible when they announce the details in the
    coming months, and this Coalition will continue to work to
    restore full retired pay for those with VA service-connected
    disabilities, an effort supported during the 107th Congress by
    90 percent of the Members, and certainly the vast majority of
    the retired veterans. With this committee's help, we believe
    that we will ultimately succeed on the effort.
        Mr. Chairman, that concludes my portion. Dr. Schwartz will
    now speak briefly about health care issues.
        [The prepared statement of Mr. Lokovic follows:]

              Prepared Statement by CMSGT (Ret.) James E. Lokovic

        Mr. Chairman and distinguished committee members, on behalf of the
    136,000 members of the Air Force Sergeants Association (AFSA), thank
    you for this opportunity to offer our views on the military personnel
    programs that affect those serving our Nation. AFSA represents active
    duty, Guard, Reserve, retired, and veteran enlisted Air Force members
    and their families. Your continuing effort toward improving the quality
    of their lives has made a real difference for those who devote their
    lives to service, and our members are grateful.
        107th Congress Accomplishments: From the standpoint of enlisted
    members, a few of the more-notable accomplishments of this committee
    during the 107th Congress included:

        (1) higher-than-mandated-by-law military pay raises, with further
    targeting for senior NCOs;
        (2) increased housing allowance dollars for most personnel;
        (3) improvement in permanent change of station (PCS) move out-of-
    pocket reimbursement and policy changes;
        (4) an extension of the length of the Selective Reserve Montgomery
    GI Bill program from 10 to 14 years;
        (5) expanded protections for Guard and Reserve members who are
    called up;
        (6) a permanent reduction from 8 to 6 years for the number of years
    of continuous Reserve component service needed immediately before
    retirement;
        (7) inclusion in the Special Compensation for Severely Disabled
    Retirees those who had at a 60-percent or higher VA disability rating
    within 4 years of retirement and who served at least 20 years of
    service;
        (8) coverage of active duty dependents in the Service members Group
    Life Insurance program;
        (9) the provision of Survivor Benefit Plan (SBP) coverage to
    survivors of service members who die on active duty prior to reaching
    retirement age;
        (10) your prohibition against DOD forcing military retirees to
    choose between DOD and VA health care;
        (11) further refinements to TRICARE related to travel, TRICARE
    Prime Remote, and transitional health care benefits; and
        (12) your action to ensure that the retiree health care trust fund
    covers all retired Medicare-eligibles, regardless of age, in private
    sector or military facilities.

        107th Congress Disappointments: AFSA members are well aware that
    this committee worked very hard on some issues that resulted in
    success, and others which we hope you will readdress. Areas that
    various members of Congress pursued on behalf of our members which,
    unfortunately, did not come to fruition during the 107th Congress
    included ``failures'' to:

        (1) allow those receiving VA disability compensation to collect
    full military retirement pay. This was especially disappointing to
    hundreds of thousands of veterans since the legislative branch was
    almost unanimous in its support, but with the executive branch
    prevailing at the 11th hour;
        (2) eliminate the 20-percent reduction in the SBP survivor annuity
    that occurs at age 62, and to accelerate the SBP ``paid-up'' provision
    for those 70 years old who have paid into SBP for at least 30 years;
        (3) provide a waiver of the Medicare Part B late enrollment penalty
    to facilitate TRICARE for LIFE participation;
        (4) reduce the earliest Guard and Reserve retirement age from 60 to
    55; and
        (5) improve the quality of the program used to ship military
    household and personal belongings changing the selection of carriers
    from ``low bid'' to ``high quality and customer satisfaction;'' and
    failure to treat service members fairly and equitably by repealing the
    Uniformed Services Former Spouses Protection Act.

        Mr. Chairman, below are several specific goals that we hope this
    committee will pursue on behalf of current and past enlisted members
    and their families. I will present them in categories with a brief
    explanation for each. Of course, we are prepared to present more detail
    and to discuss these issues with your staff and those of the members of
    this committee as you desire. Our members have tasked us with pursuing
    the following goals through e-mails, letters, phone calls, and personal
    visits throughout the year.

                         MILITARY PAY AND COMPENSATION

        Mr. Chairman, although military members obviously do not serve
    their Nation to gain wealth, we do owe them a decent standard of
    living. This is even more important today because America's is an All-
    Volunteer Force, and because this Nation increasingly tasks military
    members and often separates them (for greater lengths of time) from
    their families. We ask this committee to seriously consider the
    following comments relative to military pay and compensation.
         Continue Enlisted Pay Reform. We applaud your efforts in
    recent years to ensure that all military members get the minimum annual
    pay raise in accordance with congressional intent by formula
    (Employment Cost Index [ECI] plus one-half percent). AFSA supports
    further targeting. However, we caution the committee on the perception
    among the force that might be created if the lowest ranking enlisted
    members receive below the congressional formula--so that dollars can be
    transferred to the higher ranking members. We support higher senior NCO
    pay raises, but believe that if a ``rob Peter to pay Paul'' approach is
    to be used, it should not be by taking pay away from the lowest ranking
    military members; perhaps it should come from above.
         Resist Efforts to Change the Military Pay Formula. This
    committee was instrumental in protecting the troops by tying military
    pay growth to the growth of wages in the private sector (by focusing on
    the ECI). Recent administration suggestions to tie future annual
    military pay raises to the Consumer Price Index (CPI) alarm military
    members with the prospect of significantly lower annual pay
    adjustments. AFSA urges this committee to resist administration efforts
    to lower military pay raises by abandoning the current formula.
         Reform the Basic Allowance for Housing (BAH). There is
    room for significant correction and improvement in the methodology used
    to determine BAH. Enlisted members most significantly feel the brunt of
    these problems. For example, the only enlisted members whose BAH
    square-footage and, therefore, dollar amount are based on stand-alone
    dwellings are E-9s. The BAH amount for all enlisted grades below E-9 is
    based on apartments and townhouses. Several BAH-related complaints we
    receive:

             Local commanders should be given significant influence
            in determining which housing areas should be incorporated in
            the ``surveys'' that determine BAH amounts. The housing
            ``surveys'' are done (by a DOD-contracted company) using a
            limited ``catchment area'' (usually 20 miles) around each base/
            post, regardless of where the population of the base actually
            resides. For example, half of the base population of Mountain
            Home AFB, Idaho, lives in Boise, Idaho, about 45 miles away
            from the base. They live in Boise because that is where
            adequate housing, malls, stores, schools, job opportunities,
            etc., are located. However, the only town and, therefore,
            surveyed housing that falls within the survey catchment is
            Mountain Home, Idaho, a very small town with very limited
            housing. Therefore, the dollar amounts that Mountain Home AFB
            base personnel receive under the BAH system are clearly
            inadequate for their needs. Also, within given local
            ``catchment'' areas, there may be unsafe, relatively depressed
            areas where commanders do not want their people to reside.
            These commanders should be able to exclude these areas from
            survey consideration. Once again, AFSA urges this committee to
            give commanders significant input into what areas should be
            incorporated in the surveys that determine BAH amounts.
            Additionally, we ask this committee to mandate that the
            contracted company which accomplishes the surveys should be
            required to make details of their surveys (i.e., what housing
            in which areas were surveyed, when, how, etc.) available to the
            public.
             Increase the square footage standard used to determine
            BAH for enlisted members. Frankly, the BAH system is designed
            in such a way that it relegates part of the force to the
            ``wrong side of the tracks.'' Because the amount of BAH for
            each grade is based on designated amounts of square-footage
            (fewer square-feet for lower grades), the housing available in
            a given area to include in the survey is usually far more
            limited (and usually of more inferior quality) for the lower
            grades. E-1s through E-4s, receive amounts based on more
            limited, lower standard housing--because that is all that is
            available within the survey area with the limited square-
            footage allocated to them. Each time Congress has increased BAH
            ``to eventually eliminate average out-of-pocket expenses,''
            some lower ranking service members saw little to no increase in
            BAH because the inferior housing used to determine their BAH
            level does not increase in value like it does in the more-
            affluent areas. Remember, the BAH system is designed to provide
            higher square footage to the higher ranking personnel; it is
            these members whose BAH is based on better housing in more
            affluent areas that offer homes with the square-footage that
            applies to them in the survey.
             Provide those stationed in Korea the same tax
            advantages and special pays afforded to those stationed in
            ``hostile'' areas. With the challenges and austere conditions
            service members face in Korea, the daily threat from North
            Korea, and the risks inherent in the geopolitical situation
            relative to the Korean peninsula, it is only fair to provide
            equitable tax and pay for these members who, in a real sense,
            are serving on the tip of the sword. We urge this committee to
            take action on this now in recognition of those who we station
            in Korea.
             Reduce the threshold of eligibility for CONUS COLA
            from its current level of 108 percent of the national median.
            Several large city areas (such as Washington, DC) do not
            receive CONUS COLA. We urge this committee to take another look
            at which municipalities receive CONUS COLA.
             Provide Guard and Reserve members equity in Career
            Enlisted Flier Incentive Pay (CEFIP). It is unfair that members
            of the Guard and Reserve receive a fractioned CEFIP (based on a
            1/30 formula for each day flying). CEFIP recognizes the
            extraordinary challenges and risks associated with military
            flight. As such, Guard and Reserve fliers should be paid on the
            same ``whole month'' basis as other military fliers.
             Establish a standard, minimum re-enlistment bonus for
            all re-enlistments. Air Force enlisted members (particularly
            those in leadership positions) have told us several times that
            there ought to be a minimum re-enlistment bonus. Selective re-
            enlistment bonuses are paid to those with between 21 months and
            14 years of service. Those who re-enlist after the 14-year
            point receive no re-enlistment bonus. Remember, an enlisted
            member can serve as long as 30 years. Because we want to keep
            leaders in critical skills and they must lead those who are
            receiving these, sometimes lucrative, bonuses, it would help
            morale to provide some type of re-enlistment bonus to all who
            re-enlist.
             Pay Hazardous Duty Incentive Pay (HDIP) to military
            firefighters. Regardless of service, there is no military job
            inherently more hazardous than firefighters. Civilian
            firefighters who serve side-by-side with military firefighters
            already have this risk factored into their Federal civilian
            wage scale. Military firefighters get no such additional
            compensation to recognize their extraordinary risk. At a cost
            of about $9 million per year to cover the military firefighters
            (those whose AFSA, MOS, or NEC is primarily as a firefighter)
            for all services, this would be an equitable, relatively
            inexpensive addition to those entitled to receive HDIP.

                               EDUCATION BENEFITS

        Although some educational programs for military members fall under
    the primary jurisdiction of the Veterans' Affairs Committee, some are
    at least partially a matter of concern of this committee and the
    jurisdiction of the Department of Defense. As we travel to bases around
    the world, AFSA members most often ask us to convey the following
    desires to this committee:

         Provide an enrollment opportunity for those who turned
    down the Veterans Educational Assistance Program (VEAP) to enroll in
    the Montgomery GI Bill. Over 100,000 currently serving military members
    (35,000 in the Air Force alone) turned down the VEAP program when it
    was offered to them. VEAP was a relatively poor, insufficient, poorly
    counseled educational program which preceded the Montgomery GI Bill
    (MGIB). In contrast, the MGIB is a much more realistic, more-beneficial
    program that would help these members in their transition back into
    civilian life after their time in the military. Unfortunately, many of
    those who turned down the VEAP program are now leaving service with no
    transitional education program. The CBO has set the worst-case cost for
    this offering at $143 million over a 5-year period. We believe that
    these members, many of whom brought us through conflicts including the
    Persian Gulf War, Somalia, Bosnia, Kosovo, worldwide peacekeeping
    missions, conflicts not publicly reported, and the more-recent
    worldwide war on terrorism, deserve an opportunity to enroll in the
    MGIB. Many of these men and women would lead us into battle in Iraq if
    that eventuality comes about.
         Increase the value of the MGIB to cover the costs of
    tuition, books, and fees at an average 4-year college or university.
    Just as the World War II MGIB transformed an entire generation and is
    credited with creating the middle class in this Nation, a
    transformation of the MGIB would also have a significant impact on our
    Nation's economy. It is often said that $3 are returned to the economy
    in terms of taxes, productivity, quality, etc., for every dollar the
    Nation invests in education. United States citizens who join the
    military with the understanding that their employer may ask them to
    give up their lives deserve a fully paid education, similar to that
    provided by many companies in civilian industry.
         Ensure that all MGIB enrollees have the same program with
    the same benefits. Due to changes and additions to the law, only some
    MGIB enrollees may transfer a portion of their benefit to family
    members. Similarly, only some MGIB enrollees may pay more into the
    program to increase the value of their program. We urge this committee
    to exert its influence to standardize the MGIB so that it is the same
    for all who are enrolled in the program.
         Allow members to enroll in the MGIB at any time during
    their first enlistment. Regrettably, military members are given only
    one opportunity to enroll in the MGIB. That opportunity occurs very
    quickly during Basic Military Training when most would least appreciate
    the opportunity and can least afford it. Additionally, they must
    ``pay'' to have this educational benefit; to enroll in the MGIB they
    must agree to give up $100 per month for the first 12 months of their
    career. Many military members are surprised by this $1,200 fee and view
    it as an insincere military benefit offering because of the one-time
    irrevocable decision--when they are least prepared to take advantage of
    it. However, so long a $1,200 DOD payroll reduction for each MGIB
    enrollee is part of the program, AFSA believes we should at least
    provide young military members an opportunity to enroll at any time
    during their first enlistment. Of course, elimination of the $1,200
    MGIB DOD payroll deduction would make the time of enrollment a moot
    point. We urge this committee to help work to allow members to enroll
    in the MGIB after Basic Military Training.
         Provide military members and their families in-state
    tuition rates at federally supported state universities immediately
    upon arrival at the gaining station. Military members are moved to
    stations around the world at the pleasure of the government. Yet, they
    are treated as visitors wherever they go. Fairness would dictate that,
    for the purposes of the cost of higher education, they be treated as
    residents so that they can have in-state rates at federally supported
    colleges and universities in the state where they are assigned. Some
    States provide in-resident rates after the military member has lived
    there at least 1 year despite the fact that most members are, at a
    minimum, going to be there at least 3 years. Remember, we are talking
    about military members, many of whom are serving their Nation at
    relatively low compensation levels. We would ask this committee to
    exert the necessary influence to require federally-supported
    institution to consider military members assigned in their state as
    ``residents,'' for the purposes of tuition levels.
         Remove the annual Tuition Assistance (TA) cap. Military
    members are offered TA to help them advance their civilian educations.
    However, an annual cap of $4,500 is placed on the amount of TA they may
    receive. For those who are working on graduate programs or whose
    programs have laboratory segments, for example, the $4,500 cap may not
    be sufficient. Because the few individuals we are talking about are
    demonstrating the desire to improve themselves and their value to their
    given jobs would most likely be enhanced, it would be a good investment
    to allow them the full TA needed to pursue their educational
    objectives. We ask this committee to remove the annual TA cap.
         Ensure full Impact Aid funding. We would ask this
    committee to closely scrutinize the funding levels for Impact Aid as
    presented in the administration's fiscal year 2004 budget plan which
    has submitted levels that underfund needed Impact Aid by approximately
    $127 million. This is a 9-percent reduction from fiscal year 2002
    levels. 15 million students in 1,331 school districts nationwide
    benefit from this program. Funding is used for a variety of expenses,
    including teacher salaries, text books, computers, after-school
    programs, tutoring, advanced placement classes, and special enrichment
    programs. This money is to compensate local school districts for the
    impact of military bases in their communities. Local schools primarily
    are funded through property taxes. However, those who reside on a
    military reservation do not pay into the property tax base. This
    becomes a burden on local schools if military dependent children attend
    local, off-base schools. We ask this committee to ensure that
    sufficient Impact Aid is provided so that the children of military
    members are not put at risk, or that the military member be required to
    pay tuition.

                                  HEALTH CARE

        As AFSA representatives visit bases, one complaint we often hear is
    that the dependent dental insurance plan is a very, very poor one.
    Additionally, in many areas, there is a significant lack of providers.
    Retirees complain that the retiree dental plan is overpriced, provides
    inadequate coverage, and is not worth the investment. This is
    especially upsetting to military retirees since they were led to
    believe they would have free/low cost, comprehensive, lifetime military
    dental care. We would ask this committee to address the quality and
    adequacy of the military dependent and the retiree dental plans.
    Additionally, we ask you to consider:

         Increase provider reimbursement rates to ensure quality
    providers in the TRICARE system. Perhaps the greatest challenge this
    committee faces toward keeping the military health care system viable
    is retaining health care providers in the TRICARE networks. This
    challenge goes hand-in-hand with that which is faced by Medicare. If we
    do not allow doctors to charge a fair price for services performed,
    they will not want to participate in our program. If they do not
    participate, the program will fail. We urge this committee to consider
    increasing the CHAMPUS Maximum Allowable Charge to higher levels to
    ensure quality providers stay in the system. Otherwise, military
    beneficiaries will not be provided adequate health care.
         Provide for a waiver of the Medicare Part B late
    enrollment penalty to facilitate TRICARE for Life participation. When
    this committee wisely created the TRICARE for Life (TFL) program, it
    significantly enhanced the quality of the lives of thousands upon
    thousands of military retirees, families, and survivors. It, in effect,
    eliminated the need for Medicare-eligible military retirees, family
    members, and survivors, to carry a Medicare supplement policy. One
    requirement for participation in TFL is that the member be enrolled in
    Medicare Part B. While the basic Part B enrollment cost is not onerous,
    many military retirees residing near bases declined Part B (some for
    many years). In order for these retirees, family members, and survivors
    who did not enroll in Part B when they were first eligible to
    participate in TFL, they must pay a substantial penalty in order to
    enroll in Part B. We urge this committee for a one-time enrollment
    period where those eligible for TFL who are not enrolled in Medicare
    Part B may do so without penalty. When they declined Medicare Part B
    when it was first offered, they had no way of knowing that a program
    like TFL would be offered in the future.
         Upgrade the dental benefit programs for active duty,
    Guard, and Reserve members, retirees, and their families, especially in
    localities where inadequate facilities and/or insufficient providers
    are available. While this committee has no control over the number of
    providers in a particular locality, it can enhance the programs to
    promote participation. This can be done by (1) ensuring that providers
    are treated fairly in terms of reimbursement for the care they provide,
    and (2) by getting military beneficiaries to (i.e., providing travel
    to) caregiver locations when dental care (especially specialized care)
    is needed. In that regard, S. 336, by Senator Pete Domenici, R-NM,
    would be a good step toward protecting military family members.
         Make all TRICARE enrollment fees and co-payments, TRICARE
    for Life Medicare Part B payments, and military dental plan enrollment
    fees and premium payments tax exempt (pre-tax dollars). In those cases
    where the military member, retiree, family member, or survivor has to
    pay co-payments for medical care, the exemption of the amount they must
    pay would be a great benefit enhancement. This would be particularly
    true for those who are older and on fixed incomes.
         Provide Guard and Reserve members and their families with
    a comprehensive TRICARE benefit. This is critical to ensure the
    deployability of the member, and it is important that his/her family is
    protected when the military member is away from home serving his/her
    Nation. We owe these patriots a comprehensive program.

                            GUARD AND RESERVE ISSUES

         Provide full payment of lodging costs to a lodging
    facility for the duration of a mobilization order when a guardsman or
    reservist is called to active duty by section 12301, 12302, or 12304 of
    Title 10. This adjustment is needed because the payment of lodging per
    diem is not authorized for members on Temporary Duty (TDY) during
    periods of leave or a return to the Place from Which Called (or
    Ordered) to Active Duty (PLEAD). When per diem is not paid, the
    reservist who departs the area, however briefly, has to check out of
    lodging or pay lodging expenses out-of-pocket. For example, we are
    penalizing them if they want to briefly return home to address the
    concerns of the families from which they have been separated by the
    mobilization. This has an extremely negative financial impact,
    particularly for lower-ranking members. It also could have an impact on
    the retention of mobilized members following demobilization.
    Additionally, it is extremely disruptive to lodging facility
    contractors with the members' constantly checking in and out of
    quarters; this can cause financial problems for the facility managers
    who have an expectation of continuous occupancy for a finite period of
    time. Of special significance to this committee, there would be no/
    negligible cost to implementing this suggestion since all mobilization
    expenses are budgeted and set aside for the duration of mobilization
    orders.
         Reduce the earliest retirement age (with full annuity) for
    Guard and Reserve members from 60 to 55. These members are the only
    Federal retirees who have to wait until age 60 to enjoy retirement
    benefits. These citizens who fight for our Nation deserve to have a
    better retirement program. Lowering the retirement age would more
    adequately reward their service, and provide for upward mobility in the
    force (ANG and Reserve members are primarily promoted by vacancy). Keep
    in mind that Reserve retirement is significantly lower than that
    provided to active duty members. Reservists accumulate points based on
    their service and training. They must accumulate sufficient points in a
    given year for it to be a ``good year.'' They must achieve 20 ``good
    years'' to qualify for retirement. The amount of their retired pay is
    based on the total points they have accumulated. AFSA believes that
    these members ought to be able to retire upon completion of their
    ``good years'' requirements. However, considering funding limitations,
    the least, fair thing that should be done is to provide them Federal
    retirement equity by letting them retire as soon as age 55. We urge
    this committee to do so. Since DOD has conducted and contracted studies
    of reserve compensation in recent years, we believe there is little to
    be gained by the DOD study mandated in the NDAA for Fiscal Year 2003
    other than to delay serious consideration of the issue. We urge this
    committee to support the provisions in H.R. 742 and its pending Senate
    companion legislation. Introduced last year as S. 2250 by Senator Jon
    Corzine, D-NJ, his staff tells us that he will soon reintroduce the
    measure. We urge this committee to support the effort.
         Eliminate the annual cap on inactive duty training points
    creditable for retirement. Guard and Reserve members accumulate points
    based on their service and training. These points eventually determine
    the member's level of retirement pay. However, there is a cap in each
    given year on how many points a member can apply toward retirement. In
    recent years, that cap was increased from 60 to 75, then from 75 to 90
    (where it currently stands). AFSA believes that the member should be
    able to apply all points accumulated toward retirement pay
    calculations. We ask the committee to examine this and, if possible, to
    eliminate the annual point cap.
         Address the concerns of those who employ Guard and Reserve
    members. As members of this committee know, employer support of the
    Guard and Reserve is a critical element of Guard and Reserve success.
    At a time when over 200,000 such members have been called to active
    duty to support the war on terrorism and the impending war in Iraq, we
    need to act now. We urge the committee to provide tax credits to
    employers who employ members of the Guard and Reserve and to self-
    employed Reserve component members.
         Reduce out-of-pocket expenses of those who serve. We ask
    this committee to restore full tax-deductibility of non-reimbursed
    expenses related to military training and service for Guard and Reserve
    members. The cost of military service for a guardsman or reservist
    should not be financial.
         Enhance Air Reserve Technician (ART) retirement
    eligibility. ARTs are both military members and civil servants. These
    unique patriot/citizens need unique retirement criteria recognizing
    their singular contribution to our military's success. We urge this
    committee to make all Air Reserve Technicians eligible for an unreduced
    retirement at age 50 with 20 years of service, or at any age with 25
    years of service, if involuntarily separated.
         Provide full Basic Allowance for Housing (BAH) to TDY
    Guard and Reserve members, and those activated (even if less than for
    139 days). Guardsmen and reservists are generally removed from their
    civilian employment when ``called up.'' Once deployed, their need to
    protect their family does not go away nor does their obligation to make
    their full house payments. This committee can greatly assist these
    military members by ensuring that they can continue to provide homes
    for their families through the provision of full BAH.
         Eliminate the Commissary Privilege Card (CPC) requirement
    and provide full, year-round commissary benefits for Guard and Reserve
    members. At the present time, members of the Guard and Reserve are
    limited to 24 visits per year in military commissaries. Allowing full,
    year-round access is a benefit long overdue. The CPC (a card to track
    commissary visits) costs millions of dollars to administer each year;
    we have seen estimates from $2 to $13 million per year. Whatever the
    specific cost, providing full, year-round commissary benefits for
    guardsmen and reservists would eliminate this unnecessary
    administrative expense of the CPC. More important, it would be the
    right thing to do. These military members are critical members of this
    military nation's team; it is time to treat them as such. We urge this
    committee to give them full, year-round commissary benefits.
         Apply the 44-day contingency leave rules for Air Reserve
    Technicians at CONUS locations stationed in response to homeland
    defense taskings. The 44-day leave policy first came out to be used
    only outside of the continental United States (CONUS), its territories,
    and its possessions for noncombatant operations. This ``military
    leave'' is a time set aside for Federal Civil Servants who are military
    members to perform military duty without civil service pay penalties.
    Public Law 106-65, section 1105 (the NDAA for Fiscal Year 2000)
    eliminated most restrictions on the use of 44 workdays of military
    leave. The new law can include any type of operations, combat or
    noncombatant, outside the U.S., its territories and possessions. It is
    time to make this 44-day contingency leave rule apply within CONUS as
    well. It would allow these citizen soldiers to avoid having to use
    Leave Without Pay, and make it more efficient for them to serve and, at
    the same time, protect their families by more easily satisfying their
    financial obligations. We urge this committee to apply the 44-day
    contingency leave rules for Air Reserve Technicians at CONUS locations
    stationed in response to homeland defense taskings.
         Expand the Soldiers' and Sailors' Civil Relief Act (SSCRA)
    to fully protect Guard and Reserve members who are activated, including
    mortgage and interest payment relief. Attention in this area is
    critical at this time. As members of the Guard and Reserve are
    increasingly activated and sent away from their primary civilian
    occupation and their home, they must be adequately protected. We urge
    that this committee expedite consideration of full protection of the
    rights of guardsmen and reservists by their full inclusion in the
    SSCRA.

                                MILITARY STORES

         Ensure the quality of service in military commissaries. In
    the NDAA for Fiscal Year 2003, this committee tasked DOD with ensuring
    that the quality and level of service not be reduced. Your mandate in
    this regard was in response to independently-generated DOD cuts in
    manpower and its own Defense Commissary Agency (DeCA) budget last year.
    AFSA members were alarmed by DOD's decision to cut 2,600 manpower
    positions and its own DeCA budget by over $100 million. During base
    visits, we have received several comments about longer lines, fewer
    registers open, and shelves less stocked. While these comments should
    not be used to indict the entire system, they do suggest that the DeCA
    cuts may be starting to impact the quality of the benefit. AFSA is most
    concerned that once this benefit starts to erode (by DOD actions) such
    a decline in the benefit might continue. We again urge this committee
    to require some type of independent (independent of DOD) assessment of
    the consistency and maintenance of the quality of the commissary
    benefit. We also ask the committee to resist DeCA policy/practice
    changes that would reduce the benefit, increase the surcharge, or
    transfer the program costs to beneficiaries.
         Work to provide full base exchange and commissary benefits
    to retirees at overseas military locations. Overseas commissary and
    base exchange access arrangements are generally the product of Status
    of Forces Agreements (SOFA). At several locations, retirees (who may be
    overseas for government jobs, etc.) are denied access in base
    exchanges, or commissaries, or both on U.S. military reservations. For
    example, retirees in Turkey may not use the commissaries on U.S.
    military reservations. There are many other such examples. While
    adjustments will require changes when each SOFA comes up for review, we
    would urge this committee to communicate with the Department of State a
    desire that such reviews promote the inclusion of full use of these
    facilities by military retirees at overseas locations.

                           MILITARY SHIPMENT PROGRAMS

        One of the greatest complaints from military members during their
    careers is the way their household goods are mistreated during
    permanent change of station (PCS) moves. Current arrangements force DOD
    to select carriers based on the lowest bid, rather than on quality or
    customer satisfaction. Frankly, AFSA considers this a very, very poor
    way to do business; and it sends an extremely negative message to those
    who serve this Nation. It is time to rectify this long-time, clearly
    unacceptable situation. We urge this committee to:

         Improve the quality of the DOD household goods shipment
    program. The Military Traffic Management Command (MTMC) developed a
    test program that was extremely successful. It protected the military
    member's goods, held carriers more accountable, and had extremely high
    satisfaction levels among military members and their families. With
    that test project complete and time passing without DOD implementation
    of an enhanced household goods shipment program, it is time for
    Congress to act. Military members should not be faced with having their
    goods destroyed, lost, or stolen without adequate safeguards and/or
    compensation.
         Increase the household goods weight allowance for
    professional books, papers, and/or equipment to accommodate employment
    support for military spouses. Currently, only the military member is
    entitled to an additional shipment weight allowance for professional
    books, papers, and/or equipment. In recent NDAAs, DOD has been tasked
    by Congress to come up with ways to provide military spouses with
    education, training, and employment assistance. Providing spouses some
    consideration by giving them a shipment allowance to support their
    employment would be a good step forward. For example, a dependent
    spouse (of a military member who is being reassigned) who maintains
    supplies to support a job as a Government-certified family in-home day
    care provider, should not have to sell, discard, or give away his/her
    supplies. Most likely they will perform the same job at the next
    assignment. Similarly, a spouse who is a massage therapist,
    hairstylist, lawyer, etc., ought to be given a shipment weight
    allowance to make them more employable at the next military assignment
    location. This would be in keeping with the congressional mandate to
    help spouses in their employment efforts. As a start, we ask this
    committee to consider adding up to an additional 500 pounds to a
    member's household/personal shipment weight allowance to accommodate
    the needs of their spouse. An alternative approach would be to create a
    new shipment weight category for specific use by the spouse. We ask
    this committee to take action to provide this potentially important
    quality-of-life enhancement.
         Provide all military members being assigned to OCONUS
    locations the option of Government-funded POV shipment or storage.
    Currently, DOD will only store a POV for a member if DOD reassigns that
    member to a location where DOD will not ship the member's POV. AFSA
    believes that this shipment option should be extended to all members
    being stationed anywhere outside of the continental United States
    (CONUS). We believe that a significant part of such storage cost would
    be offset by DOD not having to ship the vehicle. We ask this committee
    to authorize this quality-of-life improvement.

                              RETIREMENT/SURVIVORS

         Allow military members who are also receiving VA
    disability compensation to fully collect their military retired pay.
    AFSA believes this is the right thing to do. Every member of this
    committee is aware of the arguments on this issue, so we will not
    restate them here. However, we do urge this committee, as part of the
    legislative branch of government, to stand fast in finally getting this
    ``right thing to do'' legislation completed this year.
         Uniformed Services Former Spouses Protection Act (USFSPA)
    Reform (from PL-97-252). The members of this association strongly urge
    this committee to conduct hearings on needed USFSPA changes, both to
    gather all inputs needed for appropriate corrective legislation and to
    guard against inadvertently exacerbating current inequities via well-
    intended, piecemeal legislative action initiated outside of this
    committee. A military member must serve 20 years to earn a lifetime
    retirement annuity. However, under the USFSPA, any and all former
    spouses of a military members have claim to a portion of the military
    member's eventual retirement pay. Such a former spouse could have been
    married to the military member only for a relatively short period of
    time; yet he/she will have a lifetime annuity if the military member
    goes on to retire. Our members have clearly communicated that this
    anachronistic statute, specifically targeted at military members, is
    not needed to protect former spouses. Provisions in law that apply to
    all other U.S. citizens should apply to the former spouses of military
    members. In that sense, full repeal of the USFSPA would be the fair
    thing to do. While we would favor full repeal of the act; fairness
    would dictate that at a minimum, the ``windfall provision'' of the act
    be amended. This provision bases the portion of retirement that is
    given to a former spouse on the member's military pay at the time of
    retirement, and not that which the member earned at the time of the
    divorce. We would also favor termination of the former spouse's claim
    to part of the military retired pay if/when the former spouse
    remarries.
         Reduce or Eliminate the Age-62 SBP Reduction: Before age
    62, SBP survivors receive an annuity equal to 55 percent of the
    retiree's SBP-covered retirement pay. At age 62, however, the annuity
    is reduced to a lower percentage, down to a floor of 35 percent. For
    many older retirees, the amount of the reduction is related to the
    amount of the survivor's Social Security benefit that is potentially
    attributable to the retiree's military service. For member who attained
    retirement eligibility after 1985, the post-62 benefit is a flat 35
    percent of covered retired pay. Although this age-62 reduction was part
    of the initial SBP statute, large number of members who retired in the
    1970s (or who retired earlier but enrolled in the initial SBP open
    season) were not informed of the reduction at the time they enrolled.
    As such, many still are very bitter about what they view as the
    government changing the rules on them in the middle of the game. Thus,
    thousands of retirees signed up for the program in the belief that they
    were ensuring their spouses would receive 55 percent of their retired
    pay for life. They are further ``stunned'' to find out that the
    survivor reduction attributed to the retiree's Social Security-covered
    military earning applies even to widows whose Social Security benefit
    is based on their own work history. To add further to the need for
    changes in this program, the DOD actuary has confirmed that the 40-
    percent government subsidy for the SBP program, which has been cited
    for more than two decades as an enticement for retirees to elect SBP
    coverage, has declined to less than 25 percent. Clearly, this benefit
    has become more beneficial and less costly for the government, and more
    costly and less beneficial for the retirees and survivors the program
    was created to protect. We urge you to step in and correct some of
    these inequities.
         Accelerate the SBP provision so that enrollees aged 70 who
    have paid into the SBP for at least 30 years be considered ``paid-up.''
    The paid-up SBP initiative enacted in 1998 set an implementation date
    of 2008. We urge this committee to change that implementation date to
    ``this year.'' As a practical matter, any SBP enrollee who retired on
    or after October 1, 1978, would enjoy the full benefit of the paid up
    provision. However, members who enrolled in SBP when it first became
    available in 1972 (and who have already been charged higher premiums
    than subsequent retirees) will have to continue paying premiums for up
    to 36 years to secure paid-up coverage if they survive that long. It is
    time to act now. We urge this committee to pass legislation to
    accelerate the ``paid-up'' provision of the Survivor Benefit Program.

        Mr. Chairman, thank you once again for this opportunity to present
    the views of those we represent. We respectfully request your action on
    the items we've explained above. Each of them fall into the arena of
    ``quality-of-life'' issues the primary focus of this important
    congressional committee. We are ready to respond to any questions on
    this testimony and, as always, are ready to support your efforts on
    matters of mutual concern.

    STATEMENT OF SUSAN SCHWARTZ, PhD, DEPUTY DIRECTOR OF GOVERNMENT
      RELATIONS/HEALTH AFFAIRS, MILITARY OFFICERS ASSOCIATION OF
                                AMERICA

        Dr. Schwartz. Mr. Chairman, Senator Nelson, and
    distinguished members of the subcommittee, The Military
    Coalition appreciates this opportunity to present our views on
    the defense health care program. I would like to reiterate our
    appreciation for the landmark health care initiatives that this
    subcommittee has initiated over the past few years, especially
    for Medicare eligibles and active duty families.
        The Coalition urges the subcommittee to now turn your
    attention to revitalizing the TRICARE Standard program. We ask
    you to distinguish between Standard and Prime in your efforts
    to improve TRICARE. Complaints from those in Standard far
    exceed those in Prime. The Prime benefit certainly deserves its
    success stories. However, continued focus on Prime only serves
    to obscure the very real and chronic problems with the Standard
    benefit.
        Simply stated, Standard beneficiaries are neglected by DOD.
    No effort is made to reach out to these beneficiaries, to
    educate them about the extent of the Standard benefit, or to
    support them in locating a provider. The new TRICARE round of
    contracts contains no requirement or incentives to assist
    Standard beneficiaries, to recruit Standard providers, or to
    provide up-to-date Standard provider lists. This leaves
    beneficiaries on their own to use the Yellow Pages as a
    handbook to determine if providers are willing to accept them
    as a patient. We believe the managed care support contractors
    have the same obligation to assist Standard beneficiaries as
    they do Prime.
        Despite the numerous initiatives that this subcommittee has
    promoted, members in many areas still have difficulty finding
    providers willing to accept TRICARE because of low and slow
    payments and burdensome administrative requirements.
        TRICARE rates are tied to Medicare, that have been
    declining despite provider costs. As more providers are
    refusing to take new Medicare patients, or dropping out of the
    program, they are even more reluctant to be TRICARE providers,
    based on past difficulties with the TRICARE/CHAMPUS program.
        We appreciate the recent action that this Congress has
    taken to prevent further cuts in Medicare and TRICARE payment
    rates. Our TRICARE beneficiaries deserve the best health care
    this Nation has to offer, not the cheapest available. We ask
    for the subcommittee's support of any means to raise Medicare
    and TRICARE rates in underserved areas, and to reduce and
    remove administrative impediments to provider participation.
        Your requirements in last year's authorization act to make
    TRICARE forms and procedures match Medicare are good examples
    of needed actions. The Coalition urges the subcommittee to
    consider additional steps to improve provider participation.
        Specifically, we hope you will urge DOD to use their
    existing authority to raise TRICARE reimbursement as necessary
    to track providers, and to further reduce TRICARE
    administrative requirements. We ask the subcommittee consider
    authorizing a demonstration project where we can test if
    raising fees for Standard providers can actually increase
    participation in certain areas.
        The Coalition was dismayed to learn that, despite Congress'
    clear intent to limit the requirement for nonavailability
    statements, DOD affirmed in the fine print of the President's
    fiscal year 2004 budget their intent to pursue the use of these
    statements. This means that DOD will continue to support
    denying Standard beneficiaries who accept higher copayments and
    deductibles in return for the freedom to choose their own
    providers, one of the most important principles of quality
    services, continuity of care by a provider of their choice.
        The Coalition is pleased to hear Dr. Chu's announcement
    today that activated Guard and Reserve families will be
    eligible for Prime and Prime Remote when called to active duty
    for greater than 30 days. However, we urge the subcommittee to
    authorize TRICARE coverage options for Reserve and National
    Guard members before mobilization. In some cases, Reserve and
    Guard families have no healthcare coverage when not activated.
    In others, families experience considerable problems when they
    have to switch from civilian coverage to TRICARE and back to
    civilian coverage again when deactivated.
        During this time of enhanced mobilization of the Guard and
    Reserve, providing improved continuity of care is not only a
    matter of equity, but a recruitment and retention issue as
    well. Another possible alternative to achieve such continuity
    would be to have the Department reimburse the activated
    guardsmen and reservists for part or all of their civilian
    health premiums, as we do now for DOD civilian reservists who
    have FEHBP.
        Mr. Chairman, Mr. Nelson, and distinguished members of the
    subcommittee, we thank you for your strong continued efforts to
    meet the health care needs of the entire uniformed services
    community. I look forward to addressing your questions.
        Senator Chambliss. Thank all of you for that very fine
    presentation by each one of you. Dr. Schwartz, you have
    addressed an issue that is of peculiar concern to me, and that
    is health care. As I said earlier, it is the single most
    consistent complaint I get from families, as well as active
    duty personnel. In listening to the remarks from Dr.
    Winkenwerder earlier, it appeared that we may be making some
    progress there, but listening to you now, it appears we have
    made no progress at all.
        First of all, let me take it one step at a time. With
    respect to Dr. Chu's announcement that now we are going to
    provide active Guard and Reserve personnel with the
    availability of TRICARE Prime after 30 days of deployment, is
    that going to be well-received? Does it address the concerns? I
    understand what you are saying about predeployment,
    preactivation. I think that probably would be difficult
    contractwise, but with a 30-day period there, is that going to
    address the concerns of your folks?
        Dr. Schwartz. Yes, it will, Mr. Chairman. It takes it a
    step further from last year's authorization act. This
    subcommittee authorized the Prime benefit for those Guard and
    Reserve beneficiaries who lived outside of the catchment areas,
    and what this does is, to take the legislation a step forward
    and provides it to all activated Guard and Reserve family
    members called up for greater than 30 days, so we are most
    appreciative of that, and it certainly is a step forward.
        Our concern is before mobilization. We do not have the
    exact numbers of how many guardsmen and reservists lack health
    care, lack that safety net, but we know that 40 million
    Americans do not, and we estimate that about 20 percent of the
    Guard and Reserve families, as the entire population, lack
    health care coverage.
        I believe there is a GAO report that came out last year
    that alluded to that, and there is another study coming out
    later this year that we are looking forward to.
        It certainly is helpful, we appreciate it, but we ask you
    to look at them before mobilization. When our guardsmen and
    reservists do not have health care before mobilization, then
    the service member is not ready to deploy when the time comes,
    or to be activated when the time comes, so we ask you to look
    at that.
        We ask you to look at it like as the dental benefit. They
    can buy into the dental benefit on a percentage basis, so we
    ask that you look at, perhaps they could buy into the TRICARE
    benefit, and then when they become activated, they simply no
    longer have to pay premiums and roll into the program as an
    active duty service member, and their family would.
        Senator Chambliss. I have bases in my State that are
    located both in metropolitan areas and rural areas. From a
    TRICARE Standard standpoint, those participants seem to have
    more problems if the base is located in a rural area versus a
    metropolitan area. Does that appear to be a common situation
    with respect to the availability of providers under TRICARE
    Standard?
        Dr. Schwartz. Absolutely, and it also reflects our society
    as well. In those small communities, there probably are not a
    lot of providers to begin with. There probably are not a lot of
    gastroenterologists, and so as our service members go out and
    try to find these physicians there are just less of them in the
    community to begin with, and as we become the lowest payer,
    Medicare is the lowest payer. Sometimes even Medicaid pays more
    than Medicare, but Medicare, Medicaid, and TRICARE are all
    along the same continuum.
        In that community there probably are not a lot of DOD
    beneficiaries, and so there is no incentive for that provider,
    except for a sense of patriotism, which we believe they all
    have, but in that town, it is probably easy for that provider
    to turn away DOD beneficiaries because it is a rural town and
    there just is not that critical mass to make his or her
    practice buoyant enough. They can turn those beneficiaries
    away.
        Senator Chambliss. Let me ask this, and I am not sure who
    this ought to be directed to, whoever feels compelled to
    answer, because it is another area which I am particularly
    sensitive to, having served 8 years on the MWR panel on the
    House side. There has been a great deal of concern recently
    over the potential privatization of our commissary system, and
    we have opposed it.
        We are going to continue to fight the DOD on this issue,
    but over the course of the past year, DOD has implemented
    improved management practices throughout the commissary system
    to try to improve the financial status and competitiveness of
    the program.
        Let me assure you I understand the importance of this
    system to all of our members and their families, but with
    respect to the implementation of these new business practices
    in commissaries over the course of the past year, what are you
    hearing from your membership about the current operation of the
    commissaries? Are we getting better, or are we still not doing
    the job we need to be doing, or where are we there with respect
    to the services that are being given there?
        Mr. Barnes. Mr. Chairman, I will take a first try at
    answering this. With regard to the benefit, we are tracking
    this very closely and, as noted in our testimony last year, the
    Defense Commissary Agency (DCA) was implementing a multiyear
    staff reduction and a significant budget reduction, and that
    was the result of implementation of some additional management
    reforms.
        We were very concerned about the potential for negatively
    impacting the benefit. However, at this point in time, a year
    later, we only are aware of spotty concerns with regard to
    this, some minor issues with regard to stocking shelves. We
    continue tracking this very closely, but we are encouraged by
    the fact that some of the more negative aspects of implementing
    the cuts have not taken place, but we continue tracking that
    very closely.
        Both Joyce Raezer and myself sit on the DECA Patron
    Council. We meet twice a year with the leadership, and we also,
    as members of the Coalition, solicit input from the 33 member
    organizations within the Coalition, so again we track this very
    closely, and the management initiatives seem to be working
    fairly smoothly at this time.
        Ms. Raezer. Mr. Chairman, I can add to that. We looked at
    the GAO report that talked about some of this. We have heard
    the reduction from the full-time staff to part-time staffing
    caused some concerns. DECA is a good hirer of military spouses,
    and so we were tracking that issue from that angle as well, but
    what we are hearing is that this is running fairly smoothly,
    with just a few exceptions, as Mr. Barnes said.
        We are a little worried--some commissaries in Europe, for
    example, have a little more problem with hiring. Small stores
    seem to have more of a problem with getting the right staffing,
    but the flexibility has helped some stores actually work
    operating hours to be more convenient to the beneficiaries,
    which is something that we have always taken from beneficiaries
    to the DECA leadership. Let us look at how we operate our
    stores to make sure the stores are open when the beneficiaries
    need to shop.
        The flexibility on the part-time actually helps a lot of
    military spouses, especially if they are dealing with
    deployments and child care, and a part-time job fits better
    into their life demands, so we are encouraged that the
    commissary agency appears to be looking at using these staffing
    realignments to add some flexibility to respond to customer
    demands.
        The other thing that we noticed in the GAO report that
    talked about measuring this, and what we hoped that DOD would
    follow, would be to start surveying customers who do not use
    the commissary. DECA talks about the surveys it uses to survey
    commissary shoppers in the commissary, but as we look at how to
    get more of our beneficiaries using this wonderful benefit, we
    need to find out why they do not use the benefit, and so we
    were glad to see that encouragement to go out and survey people
    who do not currently use their benefit to find out why.
        Senator Chambliss. If I am hearing you right, the changes
    being made do appear to have a positive effect on those folks
    using the commissaries.
        Ms. Raezer. Yes, sir. In some small communities we are a
    little worried, but we are going to keep tracking it.
        Senator Chambliss. While I say I am opposed to the
    privatization of it--I am, but that is primarily from a price
    perspective. That is a benefit that our folks need and deserve
    with the pay that they are getting, but by the same token, if
    we are not providing the services there, I am not happy about
    that. I appreciate your comments, and that is an issue we are
    going to continue to follow.
        Ms. Raezer. Thank you.
        Senator Chambliss. Senator Nelson.
        Senator Ben Nelson. Thank you, Mr. Chairman.
        Dr. Schwartz, I was trying to follow what you were
    suggesting about maybe an alternative to TRICARE. If I
    understood you, were you suggesting that perhaps it might be
    advantageous for somebody who was being deployed to be able to
    continue?
        Dr. Schwartz. Not for the service member, sir. The service
    member would come right on to the TRICARE program. We are
    talking about the family, allow the family member to stay in
    the previous program, rather than hopping to TRICARE, out of
    TRICARE, back and forth, those kinds of things.
        Senator Ben Nelson. I see.
        Dr. Schwartz. As a suggestion.
        Senator Ben Nelson. As the family. In other words, you get
    into the situation where you have two different groups, but I
    suspect that could be handled. It is something that is worth
    considering if it is for the family members as opposed to the--
    --
        Dr. Schwartz. Right. As we have done for the dental
    program. It is the same theory.
        Senator Ben Nelson. Given the fact that all but perhaps the
    Marine Corps has indicated that morale is high, and the
    recruitment and retention rates are rising, and then listening
    that perhaps the Marine Corps is experiencing a decrease in
    satisfaction with the quality-of-life, not suggesting that
    their morale is not high, but their concern about the lack of
    quality, or of a decreasing quality-of-life, do you have any
    ideas as to why that has happened, or any suggestions as to
    what might be accomplished to change that concern about the
    quality-of-life? Obviously, increasing the quality of life is
    the answer. Do you have any specific ideas, any of you?
        Mr. Lokovic. If I may, Senator, since November we visited
    about 16 or 17 bases and spoke to a lot of folks. Speaking to
    Air Force alone at this point, our troops are working very long
    hours, and we are talking 12 to 16 hours, and you know that
    from your area.
        That is telling, and the kinds of family issues and the
    implications on quality-of-life are inseparable when you start
    talking about those kinds of impacts of manpower, and you
    cannot separate them, and the kinds of family issues that Joyce
    was talking about have to be addressed.
        Good examples are those folks working missile duty, for
    example. Those folks work incredibly long hours, and in effect
    are deployed in place, although not receiving any of the
    monetary benefits, for 4 days out of the week, return to base,
    and then go back out again, and the stress on those families is
    incredible.
        Senator Ben Nelson. But would that be related to the Marine
    Corps, or would it be true of all the Services? It sounds to me
    like it might be true of all the Services.
        Mr. Lokovic. I am speaking of the Air Force in particular,
    and I would imagine it has to be for all of the Services.
        We can talk about recruiting goals and successes. Our
    retention, I think, would be a clearer indicator of the impact
    of the quality of the life that the folks are experiencing.
        Senator Ben Nelson. The suggestion is that there is not a
    problem with retention in the Services, as nearly as I have
    been able to follow the numbers.
        Ms. Raezer. We are very concerned at what happens when
    things quiet down a little bit. You have a lot of service
    members who now are reupping when they are in a zone where the
    reenlistment pay is, they get that tax-free, where there are
    other incentives to reenlist while they are in a deployment
    situation.
        I think looking at some of the surveys of members only
    tells one side of the story. I think we need to ask the
    families how they feel about what is going on. I think that
    some of the Marine Corps surveys have included family members
    in their surveys.
        I think General Parks' reference to expectations is a very
    important one, and that can carry through with all Services and
    families. There are certain things happening in the pay and
    benefits front that are raising expectations. General Parks
    referenced the PPV housing, the public-private venture, getting
    more housing out there. It is wonderful if you are in it. It is
    not wonderful if there is no prospect that you are going to be
    in it.
        With increases in the basic allowance for housing, there is
    a perception created, for example, that by 2005, nobody is
    going to have any out-of-pocket costs for their housing. When
    2005 comes and people are still paying out-of-pocket for
    housing because everybody has been talking about averages and
    basing your housing allowance on a standard for your rank, if
    you have three kids, and you are living in a house a little
    bigger than your standard, so you are paying out-of-pocket, the
    expectation is going to be no out-of-pocket, the reality is
    going to be still housing expenses.
        So I think everybody has to be very careful at counting the
    definite improvements that have been made against the realities
    that people continue to face, and when those two do not mesh,
    you are going to have some of the concerns that showed up on
    the Marine Corps survey.
        Dr. Schwartz. Senator, may I interject? I am an active duty
    Marine spouse, and I filled out one of those surveys, and I put
    on the survey, I am tired of moving every 3 years. I am tired
    of them breaking my stuff. I am tired of pulling up stakes. I
    have a career. I am established. I am a successful
    professional, and if we have to move again, I have to start
    over.
        So I would say that the spousal employment, especially for
    the senior people--my husband is senior, and I am established
    in my career, and I do not want him to move, and decisions are
    made at the dinner table, in terms of where Marine families go,
    and other families, too.
        Mr. Barnes. Senator, if I could add something that has not
    been referenced, General Parks and my colleagues here have made
    some excellent points with regard to expectations. Also, the
    retention levels are very high, and very impressive. However, a
    key part of this is the impact of the negative economy, and
    that should be part of the discussions here with regard to the
    whole overview.
        Senator Ben Nelson. If there is more competition for jobs
    and things like that, then that is probably going to show. It
    is going to be a part of the equation, ultimately.
        Mr. Barnes. Yes.
        Senator Ben Nelson. Dr. Schwartz, you heard that Dr.
    Winkenwerder said that one of the problems reaching out to
    TRICARE Standard beneficiaries is that there is no registration
    requirement, and that DOD does not know who they are, therefore
    it is very difficult to reach out. Do you have any suggestions
    about that, and what would you think of a requirement for
    registration of TRICARE Standard beneficiaries as a means of
    maintaining a list and therefore being able to reach out to
    them?
        Dr. Schwartz. The Military Coalition has not taken a
    position on this. I can tell you as a former hospital
    administrator I do not know how they can manage the program
    until they count the heads, until they know how many people are
    there.
        Senator Ben Nelson. Who they are? Where they are?
        Dr. Schwartz. Yes. Unless I register, how can they know to
    send me the booklet?
        Now, one of the ways they could do it, they could take all
    the Prime beneficiaries that are enrolled and subtract them
    from DEERS, and by default, send out handbooks, but quite
    frankly, I think if we are asking for beneficiaries to be
    communicated with, I think we are going to have to consent to
    enrolling, but we have not taken a formal position on that.
    That is my position on that.
        Senator Ben Nelson. Any of the other advocates have any
    thoughts? There is no magic way without obtaining some sort of
    identity to be able to do it.
        Ms. Raezer. If it would help DOD provide a better benefit,
    and if it would get me my beneficiary information, I would sign
    a card and say yes, I want to stay TRICARE Standard. TRICARE is
    the only, or one of the few health plans, or health benefits
    that do not communicate with all of their beneficiaries on a
    regular basis.
        It is very hit-and-miss, and when I hear families talk
    about, we do not know how to access the benefit, we do not
    understand the benefit, what is our benefit, that tells me we
    need better communication. If the price of better communication
    is getting that beneficiary to say, yes, I am still here, and
    want to use this benefit, then I think that may be a reasonable
    thing to talk about.
        Senator Ben Nelson. What are the stumbling blocks in
    getting that kind of information that follows the location and
    the identity of the members, outside of the obvious, and that
    is the mechanical, or the means of obtaining and keeping it
    current, but beyond that, are there any other inhibitors?
        Dr. Schwartz. I would say distrust of the system. There is
    a distrust. The uniform formulary that Dr. Winkenwerder talked
    about, it is certainly a marvelous way to manage cost and to
    manage utilization. If I were in his shoes, I would say, that
    is great, but you look at the retiree who says, oh well, now
    you have given me this benefit, and now, oh well, 2 years
    later, all of a sudden the pill that costs me $9 today is going
    to cost me $22 tomorrow, and they feel they have earned this
    benefit.
        These are people that have given 20, 30 years of their life
    to their country, and they feel a sense of entitlement that
    goes beyond that of the average citizen, so I think there is
    somewhat of a distrust of the program. If I do this, will I
    still get a better benefit? A lot of them feel burned. They
    cannot find providers.
        So that is what I would think. I do not know if the panel
    has other views.
        Ms. Raezer. I think that is part of it, but probably the
    biggest is going to be the mechanical, just finding everybody--
    people have been able to use Standard on a catch-as-catch-can
    basis. A lot of them use it as a supplement to their private
    insurance, if they have another job, so I think finding people
    is going to be a big thing, and this is very important. If we
    are going to find people and ask them to sign up so that they
    get information, the first thing we have to do is find them and
    notify them that this is what is happening.
        So I think as we have seen in any kind of communication
    plan--TRICARE for Life, the dental contract to the Guard and
    Reserves--a basic problem is with finding all the beneficiaries
    to let them know about changes in their benefit.
        Mr. Barnes. I would just add, Senator, that The Military
    Coalition organizations stand ready to assist in any way with
    the communications effort, as we have done with implementation
    of TRICARE for Life and some of the other major enhancements.
        Just an observation about other health insurance, which was
    an issue with regard to TRICARE for Life implementation. There
    was a challenge with regard to the beneficiaries that had other
    health insurance, getting that data.
        A final point, it would appear that the technology we have
    today could make this fairly simple with regard to
    beneficiaries. I know that is a very simplistic overview, but
    there are possibilities.
        Senator Ben Nelson. It may be nearly impossible to track
    everyone, but one would expect that you could track a
    significant number to at least improve the situation from where
    it is at the moment. You could do a better job than is
    currently being done, if an effort is made to continue to track
    or start the process and then continue it.
        That is all of my questions. I appreciate very much the
    panel's response. Thank you.
        Senator Chambliss. Let me thank all of you again, too, and
    we appreciate your recognition that some improvements have been
    made.
        I remember 8 years ago, when I was first elected to the
    House, we were making the conversion from CHAMPUS to TRICARE,
    and you all remember what a nightmare that was. We made some
    great progress in 8 years on that program, which obviously has
    a direct effect on every military family.
        We are going to continue, and look forward to working with
    each of you to make sure that the quality-of-life of all of our
    men and women is absolutely what it needs to be so that that
    retention issue and that recruiting issue are not a problem,
    because Ms. Raezer, I share with you the sentiment that
    patriotism is at a high right now, has been since September 11.
    Where are we going to be 3 years from now? We want to make sure
    that we do not still have recruiting and retention problems,
    and with help from you all and your continued good work, we are
    going to make sure we don't.
        Again, thank you very much. This hearing is adjourned.
        [Questions for the record with answers supplied follow:]

                  Questions Submitted by Senator Susan Collins

                               GUARD AND RESERVE

        1. Senator Collins. Dr. Chu and Secretary Hall, historically the
    Guard and Reserve have attracted a number of citizens already engaged
    in public service. Local police officers and firefighters, as well as
    other first responder personnel, often serve proudly as part-time
    soldiers, sailors, and airmen. With the high rate of activations, many
    of these individuals have been called to duty. They do so with the
    dignity and honor that we have come to expect from our Guard and
    Reserve. However, they oftentimes leave huge gaps in the first
    responder capabilities of their local communities. For example, in
    Maine, it is not uncommon for some police departments to consist of
    only a few officers. Removing one officer can create a tremendous
    hardship on the city government. How is the Pentagon ensuring that, in
    the course of Guard and Reserve activations, we don't devastate local
    first responder capabilities?
        Dr. Chu and Secretary Hall. We wholeheartedly agree with your
    comments about how those Reserve members, as well as the rest of our
    reservists, have responded to the Nation's call to duty with dignity
    and honor. They have served well and reflect extreme dedication and
    patriotism.
        However, we must admit that right now we just don't know how many
    of our dedicated Reserve members are actually first responders. We have
    recently overcome Privacy Act concerns and initiated a process that
    will allow us to answer that question in the future. But it will take
    at least several months, or possibly even longer--depending on just how
    quickly we can get members to provide the required information. This
    information will enable us to determine whether we need to establish
    new policies, processes, and procedures to manage our reservists who
    are also first responders.
        However, we think the real issue is the Department's ability to
    ensure that ``we don't devastate local first responder capabilities''
    as Reserve call-ups continue. First, we have a well-established
    process, initiated in 1979, to screen individuals out of the Ready
    Reserve who are in critical civilian positions effecting national
    security and the safety of the American population. Though we can only
    proactively screen the 2.7 million Federal employees in the ``Ready
    Reserve Screening Program,'' it is available to State/local government
    agencies, as well as the private sector. It requires proactive
    management by employers and the support of the Department in processing
    employer requests.
        Second, recognizing the unique situation created by the events of
    September 11, 2001, we immediately established another program to
    address certain individuals who may not have been screened out of the
    Ready Reserve because of their civilian jobs and may occupy civilian
    positions now regarded as critical to national security and safety.
    This new program processes requests for delay/exemption from
    mobilization for Ready Reserve members who are first responders (as
    well as other critical civilian employees). These requests to delay or
    exempt members of the Ready Reserve based on the critical nature of
    their civilian employment are considered on a case-by-case basis. The
    first case we processed was a request from the New York City Office of
    Emergency Management, in which we accommodated their request not to
    mobilize 17 of their first responders for 90 days. To date, we have
    only received 26 cases on first responders.
        Last, we must emphasize the role of the employer. They must share
    the burden. They must deal with their employees, and, in those cases
    where it is necessary, they must preclude critical civilian positions
    from being filled by Ready reservists. Failure to take these
    precautionary actions will hurt both the civilian and the military
    communities during crises. Reserve duty is not just weekend duty. Our
    Reserve Forces are a critical element of our military and we cannot
    afford to have them be ``unavailable'' when called.
        We will continue to work with State and local governments to more
    proactively facilitate and support the screening of their critical
    employees.

                                POST-WAR ILLNESS

        2. Senator Collins. Dr. Winkenwerder, a sad part of modern warfare
    is the illnesses that have cropped up after our Nation's last two major
    conventional conflicts. Many of the men and women who served during the
    Vietnam War were afflicted with Post Traumatic Stress Syndrome. As we
    saw over the years, Agent Orange has had devastating long-term impacts
    on some veterans of that conflict. Following our last war against Iraq,
    some veterans suffered as a result of what we now call Gulf War
    Syndrome. There is still debate about its causes. As we stand
    potentially on the brink of another conflict in the Middle East, what
    steps are you taking to adequately track the health of those serving in
    the Persian Gulf?
        Dr. Winkenwerder. The vigorous requirements of medical entrance
    physical examinations, periodic physical examinations, periodic HIV
    screening, annual dental examinations, regular physical training and
    testing, and regular medical record reviews are parts of a continuum of
    care that help us identify any health issues. Improved medical
    surveillance measures will create a database of information that will
    inform us of any health trends.
        The DOD has instituted a deployment health surveillance program
    that includes pre-deployment and post-deployment health assessments
    that validate individuals' medical readiness to deploy and address
    health concerns upon their return. During deployment, improved
    occupational and environmental health surveillance programs protect
    service members' health.
        In the past few months, DOD has developed and implemented the Joint
    Medical Work Station. This is the most recent addition to our
    capability to monitor the health status of our deployed forces. Using
    the Force Health Protection portal to our classified system, DOD now
    has the electronic capability to capture and disseminate near real-time
    information to commanders about in-theater medical data, patient
    status, environmental hazards, detected exposures and critical
    logistics data such as blood supply, and bed and equipment
    availability.
        When service members return home, health care focused on post-
    deployment problems and concerns is available through military and VA
    providers using the jointly-developed Post-Deployment Health Clinical
    Practice Guideline. It was designed specifically to address deployment-
    related health concerns. The guideline provides a structure for the
    evaluation and management of service members, their families, and
    veterans with deployment-related concerns. It provides access to expert
    clinical support to physicians and other health care professionals for
    patients with difficult symptoms and illnesses, and may provide a
    useful platform for research into post-deployment health concerns.
    Through the use of these guidelines, our medical system will be alerted
    to any illness or health anomaly that appears related to this
    deployment.

        3. Senator Collins. Dr. Winkenwerder, if there is a conflict, will
    we have an adequate foundation of data to ensure that if another
    illness should appear, like Gulf War Syndrome, that we will be able to
    adequately diagnose its causes?
        Dr. Winkenwerder. First, I must point out that no unique and
    previously unrecognized ``Gulf War Syndrome'' has been identified among
    ailing Gulf War veterans. Most veterans who have been clinically
    evaluated have been found to have readily recognizable medical
    diagnoses. We recognize that Gulf War veterans report a wide array of
    chronic symptoms at a rate two to three times higher than service
    members who did not deploy. Medically undiagnosed physical symptoms
    occur in both military and civilian populations. Post-deployment health
    assessments and post-deployment health clinical practice guidelines
    enable us to provide medical care for each individual's health concerns
    or problems at the earliest possible time. With environmental
    surveillance data, unit tracking data, and medical surveillance data,
    health care providers will be able to appropriately address health
    concerns.
                                     ______

                    Questions Submitted by Senator Jack Reed

             PRE-DEPLOYMENT AND POST-DEPLOYMENT MEDICAL EXAMINATION

        4. Senator Reed. Dr. Winkenwerder, following the conclusion of the
    Gulf War in 1991, many service members and veterans experienced a
    variety of medical illnesses, the causes of which are still under
    investigation. Because there was no systematic collection of blood
    before and after deployment, and no comprehensive pre- or post-
    deployment medical and mental examinations conducted, there is no way
    of accurately determining how these illnesses occurred, and whether or
    not the cause of these illnesses can be traced to vaccinations our
    service members received before they deployed, or any chemical or
    environmental threat they encountered in the Gulf.
        The National Defense Authorization Act for Fiscal Year 1998 (H.R.
    1119 and Public Law 105-85) required the Department of Defense to
    establish a system by which all service members deploying outside of
    the United States in support of a contingency or combat operation are
    given a pre- and post-deployment medical examination, to include the
    drawing and storage of a blood sample for future study and a complete
    mental examination. Is the law being adhered to by all the Services
    with respect to the current deployment of forces to the Gulf for a
    potential war in Iraq?
        Dr. Winkenwerder. Deploying personnel receive individual health
    assessments that are documented on the DD Form 2795, Pre-Deployment
    Health Assessment. Individual pre-deployment health assessments include
    eight questions and further include reviews by medical providers of
    tuberculosis skin test screenings, prescribed medications, serum (HIV)
    samples (preserved in the DOD serum repository), and dental
    classification prior to determining deployability. Briefings on
    deployment-specific health threats and countermeasures are also
    provided prior to deployment.
        Re-deploying personnel receive individual health assessments that
    are documented on the DD Form 2796, Post-Deployment Health Assessment.
    These assessment forms include six questions on health and exposure
    concerns. Medical personnel review the forms and positive responses
    result in a review of deployment health records and appropriate
    referral for follow-up medical evaluation, testing, and care.

        5. Senator Reed. Dr. Winkenwerder, does every service member in the
    Army, Navy, Air Force, Marine Corps, and Coast Guard receive a complete
    physical and mental examination?
        Dr. Winkenwerder. Each service member receives a complete
    examination as they enter the military and then receives periodic
    follow-up examinations.

                                 BLOOD TESTING

        6. Senator Reed. Dr. Winkenwerder, is blood being drawn, and stored
    for future study, from every deploying member of the military?
        Dr. Winkenwerder. The Department of Defense maintains a blood
    sample at the National Serum Repository from every HIV screening test
    done on service members.

        7. Senator Reed. Dr. Winkenwerder, is this blood draw and storage
    separate and distinct from the blood that is periodically drawn to test
    for HIV and catalogue the DNA in all our service members?
        Dr. Winkenwerder. The serum sample in the serum repository is from
    HIV screening samples. Prior to deployment, each individual's health
    record is reviewed to assure an HIV screening has been done within 12
    months, or 6 months for Reserve component personnel. If it has not been
    done, one is done at the time of deployment. DNA samples are taken once
    for each service member.

        8. Senator Reed. Dr. Winkenwerder, is there a plan to conduct a
    complete physical and mental examination of these troops, to include
    another blood draw, upon there return to the United States?
        Dr. Winkenwerder. Our continuum of care, DNA samples, serum
    samples, and pre-deployment assessments give us excellent pre-
    deployment health information on each service member. We collect
    medical and environmental surveillance data during deployments. Post-
    deployment, service members receive physical or mental examinations as
    called for, based on the judgment of clinicians after a review of post-
    deployment health assessments. We are currently reviewing post-
    deployment procedures to assure all health concerns are actively
    addressed.

                              END-STRENGTH NUMBERS

        9. Senator Reed. General Le Moyne, Admiral Hoewing, General Parks,
    and General Brown, I would like to thank you all for your efforts in
    improving the quality-of-life for our service members and their
    families. During consideration of last year's Defense Authorization
    bill, there was a great deal of debate about the active duty end
    strengths of each Service. We received indications that perhaps the
    Services required greater numbers than were provided for in the budget
    submission. Are the end strength numbers provided for in this year's
    budget submission optimal to meet our Nation's military requirements?
        General Le Moyne. The congressionally-mandated fiscal year 2002
    active Army end strength was 480,000. However, nothing has changed
    since the budget was submitted--the Army is too small for its current
    mission profile. The reality is that our operations tempo (OPTEMPO),
    already challenging prior to September 11, has increased dramatically
    in the post-September 11 environment. Over the past 18 months,
    mobilizations have maintained a steady state of approximately 30,000
    Reserve component soldiers, effectively increasing our active duty
    strength to approximately 510,000. We recognize the necessity to ensure
    we look internally to obtain all possible efficiencies prior to making
    any determinations on potential end strength increases. A study is
    currently underway to review Army non-core competencies--the Third
    Wave--with the expectation that some personnel savings will be
    generated for use in mitigating ``force stress.'' Additionally, we are
    fully cognizant of the stress that this steady state mobilization is
    placing on our Reserve components. Studies are underway to determine
    the correct balance of Active and Reserve Forces, including an analysis
    exploring options for mitigating the current stress to the Reserve
    component by ensuring that the correct type units are resourced within
    the active component.
        Admiral Hoewing. Navy's end strength numbers are determined, and
    continually refined, during a process that takes into account current
    and future manning requirements of our ships, aircraft, and associated
    supporting functional areas. Based on current events these numbers may
    need to be revised; however, at the time the fiscal year 2004 budget
    was submitted, these end strength numbers reflected our best estimate
    of our requirements.
        General Parks. The Marine Corps asked for and was granted an end
    strength increase of 2,400 marines for fiscal year 2003. This increase
    was greatly appreciated and came at the right time. The 2,400 marines
    were used to replenish units depleted by standing up the 4th MEB (MEB
    Hqtrs/AT Battalion/Chemical Biological Incident Response Force/Security
    Force Company). Coinciding with the end strength increase to 175,000,
    the USMC continues to look at ways to return marines to the operating
    forces. We believe that 175,000 active component end strength is
    sufficient to meet our current mission requirements.
        General Brown. In total, Air Force active duty end strength levels
    are sufficient to meet our missions. However, we have some skill mix
    challenges. To address these, we have conducted studies to clearly
    identify the core military competencies we need in our post-September
    11 steady state. We are in the early stages of realigning military
    positions from our lowest to highest priority missions.
        Though we cannot definitively tell you we will not need additional
    military end strength until we are confident we have our skills mix
    issue resolved, there is little doubt ``solving'' this issue will
    require additional resources. We will look for creative ways to source
    the increase in contractor costs or civilian pay dollars to pay for the
    non-core competency work that is currently being performed by the
    military we will reassign.

                                QUALITY-OF-LIFE

        10. Senator Reed. General Le Moyne, Admiral Hoewing, General Parks,
    and General Brown, in recent years we have made great strides in
    improving the quality-of-life for our soldiers. Pay raises, improved
    housing, and educational benefits have clearly played a role in
    improving recruiting and retention. Of course, there is always room for
    improvement. In particular, I would like to get your thoughts on how we
    can improve the support we provide to the families of our troops. With
    the high rate of deployment, more and more of them are left at home
    while their family members go abroad in service to our Nation. Do you
    have any specific recommendations that this subcommittee might pursue?
        General Le Moyne. Part of our overall strategy to improve the total
    force family support service provided to the families of our troops is
    the Army Well-Being program. Army Well-Being brings the proponents and
    managers of our various programs together under one umbrella, providing
    an integrated holistic approach to the well-being of the force.
        Contributing significantly to this process are programs that are
    managed by the Army's Community and Family Support Center. The Family
    Assistance Hotline is a recent development used to assist our family
    members. This hotline is set up with 16 stations, each equipped with
    current phone lists, resources, a Smart Book, and useful Web links.
    Presently, Army Community and Family Support Center personnel, spouses,
    and volunteers man these phone lines.
        Other initiatives that have been integrated into the Well-Being
    architecture include the ability to provide Army families the knowledge
    to manage their personal finances, make informed decisions, and develop
    self-sufficiency. Also, family member education is being addressed to
    ensure that family member students maintain quality education without
    disruptions through appropriate funding and staffing of Department of
    Defense Education Agency Schools to meet or exceed academic standards.
        The Army is also taking steps to improve our Family Advocacy
    Program to prevent spouse and child abuse. An Army task force is
    conducting a thorough review and analysis of current polices,
    resources, organizations, and standards relative to domestic violence
    from DA level down through selected `Go-To-War' installations. The Army
    is working in conjunction with the Department of Defense to create a
    cultural shift of non-tolerance for domestic violence, holding
    offenders and commanders accountable.
        In addition, the Army is currently formulating the Deployment Cycle
    Support (DCS) Contingency Plan. The coordinated and resourced plan for
    the total force will provide decompression operations for IRR, RC, and
    returning AC individuals and units. Recommendations will be briefed to
    the senior Army leadership in May 2003.
        We can improve the total force support services to the families of
    our troops by continuing with the aforementioned initiatives through
    funding and support. Continue to eliminate pay gaps for soldiers and
    DOD civilians as compared to the private sector and maintain
    comparability for the future. Continue to advocate for the Employer
    Support for the Guard and Reserve programs. For soldiers and their
    families; modernize barracks and family housing, both in the
    continental United States and abroad. Fully fund sustainment,
    restoration and modernization, and base operations requirements; and
    assist in protecting families living in privatized military housing on
    Federal property. For the Reserve component, provide tax relief for
    Reserve component soldiers and tax credits for their employers and
    adequately resource Reserve component medical and dental readiness.
        Provide unemployment benefits based on a military relocation for
    the service member's spouse; retain Domestic Dependent Elementary and
    Secondary Schools in the Department of Defense Dependent Schools;
    adequately resource Impact Aid in the Department of Educations budget;
    and adequately resource child care needs of service members unable to
    access military Child Development Centers. Additionally, protect the
    gains in benefits under the TRICARE and TRICARE for Life systems.
        Army Well-Being is ``well,'' but it can and must become even
    better. While the Army applauds the passage of recent legislation
    supporting Well-Being initiatives, the gains of the last several years
    will be negated if we do not stay the course and adequately fund and
    support Well-Being programs to their conclusion.
        Admiral Hoewing. Among the proposals DOD has submitted for
    inclusion in the National Defense Authorization Act for Fiscal Year
    2004, are a number of amendments that will provide support, directly or
    indirectly, to family members of deployed troops. For instance:

             The proposed increase in basic pay for fiscal year
            2004 provides for varying pay raises among military members in
            further pursuit of reaching the 9th Quadrennial Review of
            Military Compensation (QRMC) benchmark to have military
            compensation approximate the 70th percentile of earnings of
            civilians with comparable education and years of experience.
             Allow two members of the uniformed services in pay
            grades below E-6, who are married to each other, have no other
            dependents, and are simultaneously assigned to sea duty, to
            each receive a Basic Allowance for Housing at the without
            dependents rate for the pay grade of the member. Currently only
            one is authorized to draw the allowance.
             Extend to members serving in contingency operations
            the same tax filing delays currently provided to members
            serving in a combat zone or qualified hazardous duty area.
             Allow military dependents, who are students, to store
            authorized baggage one time per fiscal year, at a time of their
            choosing, vice, only during their annual trip from school to
            the military sponsor's overseas duty location.
             Allow military members to retain up to 120 days leave,
            vice 90, if they serve at least 120 days in areas entitling
            them to receive hostile fire payor imminent danger pay.
             Streamline current management thresholds and required
            actions for high deployments (PERSTEMPO) to, among other
            things, offer a progressive monthly high deployment allowance
            and permit compensating members for excessive deployments based
            upon duration as well as frequency of deployments. This
            approach strikes a more appropriate balance between our
            commitment to preclude requiring members to deploy excessively
            and properly compensating them when it becomes necessary to do
            so to meet mission requirements.

        General Parks. The Marine Corps is an expeditionary force and is
    structured to provide support to deployed marines and their families
    that stay behind. It is possible that the demand placed on our family
    support programs may be stressed somewhat, depending on the intensity
    and duration of current deployments and contingencies, thus your
    continuing support for quality-of-life and family support programs is
    greatly appreciated.
        General Brown. The Air Force has long believed one of its most
    important attributes is a sense of community among its members and
    their families. Air Force families are extremely resilient. We believe,
    positively affecting family life, positively impacts mission readiness.
    The Air Force takes pride in its ongoing and continuous programs that
    directly assist our families--especially those that provide heightened
    support to their needs and concerns during times of national and family
    emergencies. As with any organization, there are programs where we feel
    further expansion is warranted and we look forward to working these
    issues as appropriate with the Office of the Secretary of Defense as
    well as you and other members of the committee.
        Improved Spouse Employment--An Air Force objective is to improve
    retention of military personnel by increasing the employability of
    military spouses. We do that by providing financial support and other
    job assistance training. Although we do not provide job placement for
    spouses or other family members our Family Support Centers do sponsor a
    plethora of employment assistance workshops, skills-building volunteer
    opportunities and counseling, as well as a job bank analysis and spouse
    networking.
        Expanded Spouse Education--It is important for spouses to pursue
    their educational aspirations and given the rising cost of college
    tuition, financial aid in the form of a spouse tuition assistance
    program would likely enhance participation in college-level academic or
    vocational programs.
        Stronger Personal Financial Management Education--Air Force
    Personal Financial Management Program trends show an increasing need
    for comprehensive financial planning and consumer education early in
    the military lifecycle. We continue to look for opportunities to
    strengthen these worthwhile financial management programs to ensure our
    young airmen remain financially solvent.
        Increased Family Advocacy--The Air Force has a special interest in
    the potential impact of separation on families with regard to
    relationship issues and family violence. We assist families with issues
    associated with deployment, separation, and reunion.
        Enlarged Youth Programs--During the air war over Serbia, Congress
    approved funds that permitted our youth programs to offer a variety of
    summer camps for children of our deployed members in such areas as
    archery, cooking, computers, golf, leadership, etc. These camps were
    provided free to children of our deployed members. Similar funding to
    provide homework and other school assistance to children of deployed
    parents would prove beneficial. Also, the Air Force is testing
    purchased childcare at five locations for Air National Guard members
    who are deployed, and will work to expand that program based on test
    results.
        Your continued support in these various program areas not only
    allow us to expand needed services, but ensures Air Force families are
    taken care of and our warriors are as free from worry as possible.
    Subsequently, our Nation directly benefits from the commitment of a
    fully-focused fighting force.

        [Whereupon, at 5:13 p.m., the subcommittee adjourned.]

    DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR
                                      2004

                                  ----------

                           WEDNESDAY, MARCH 19, 2003

                                   U.S. Senate,
                             Subcommittee on Personnel,
                                   Committee on Armed Services,
                                                        Washington, DC.

      NATIONAL GUARD AND RESERVE MILITARY AND CIVILIAN PERSONNEL PROGRAMS

        The subcommittee met, pursuant to notice, at 3:25 p.m. in
    room SH-216, Hart Senate Office Building, Senator Saxby
    Chambliss (chairman of the subcommittee) presiding.
        Committee members present: Senators Chambliss and E.
    Benjamin Nelson.
        Majority staff members present: Patricia L. Lewis,
    professional staff member; Scott W. Stucky, general counsel;
    and Richard F. Walsh, counsel.
        Minority staff member present: Gerald J. Leeling, minority
    counsel.
        Staff assistants present: Michael N. Berger, Andrew Kent,
    and Nicholas W. West.
        Committee members' assistants present: D'Arcy Grisier,
    assistant to Senator Ensign; James W. Irwin, assistant to
    Senator Chambliss; Mieke Y. Eoyang, assistant to Senator
    Kennedy; Eric Pierce, assistant to Senator Ben Nelson; and
    Terri Glaze, assistant to Senator Pryor.

         OPENING STATEMENT OF SENATOR SAXBY CHAMBLISS, CHAIRMAN

        Senator Chambliss. Good afternoon. The subcommittee will
    come to order. The subcommittee meets today to receive
    testimony on the military and civilian personnel programs of
    the National Guard and Reserve in review of the Defense
    Authorization Request for Fiscal Year 2004.
        I will tell you that we've just come off a vote, and my
    colleagues are going to be joining us here from time to time.
    We're going to proceed without Senator E. Benjamin Nelson being
    here, but we may get interrupted when he comes. Your testimony
    may get interrupted if he wants to make a statement at that
    time, or we'll allow him to make it whenever.
        Our subcommittee hearing last week provided important
    insights into the legislative agenda and priorities of the
    Department of Defense. The DOD and military coalition witnesses
    gave us a broad overview of active duty and Reserve component
    military and civilian personnel programs and offered various
    suggestions for legislation.
        Secretary Hall, you were present with Under Secretary of
    Defense for Personnel and Readiness, Dr. David Chu, at that
    hearing, and you provided very helpful testimony. Thank you for
    returning today to assist the subcommittee in focusing more
    directly on issues affecting the National Guard and Reserve.
        It is well understood that this Nation's reliance on the
    Guard and Reserve to ensure successful achievement of our
    national security mission has never been greater. The Reserve
    components comprise 1.2 million service members, approximately
    47 percent of the Nation's total military force. While they are
    integrated into the total military force, these service members
    are citizen soldiers who play a dual role as both professional
    military personnel and responsible citizens in their
    communities.
        I will say that I am extremely proud of the 116th Air
    Control Wing based at Robins Air Force Base in my former
    congressional district and in my State. This is a program and a
    unit of which I am personally very proud. The blended unit, the
    integrated unit, between the Guard and the Active Force is
    working extremely well. It was a very seamless integration and
    accepted by both sides for exactly what it is, and that is to
    provide a greater benefit for the men and women of every branch
    of our Armed Forces who need the services of the Joint Stars
    Program.
        More than 90,000 reservists have supported Operation Noble
    Eagle and Operation Enduring Freedom alone. They continue to be
    involved in many ongoing contingency operations worldwide and
    represent critical elements in our homeland defense efforts. In
    fact, the contribution of the Reserve has increased
    dramatically since the mid-1980s, from approximately 1 million-
    man-days of mission support to nearly 13 million-man-days in
    recent years.
        Several key issues are associated with the activation of
    increasing numbers of reservists. These include potential
    earning reduction, family support issues, and access to
    healthcare. I would like to commend the Department of Defense
    for a rapid implementation of policy changes for Reserve
    members and their families that simplify access to healthcare
    through the TRICARE program.
        Our hearing today will enable us to further examine
    departmental policy regarding the mobilization of reservists
    and the nature of duties they are performing. Additionally, it
    will allow us to focus on the unique problems being experienced
    by Reserve component soldiers, sailors, airmen, and marines,
    and their families as they answer once again the Nation's call
    to action. I anticipate we will learn more about the support
    being provided to Guard and Reserve personnel by their service
    and by their employers.
        I want to emphasize again today, our country has the best
    military force in the world, and that force includes members
    who, in addition to their regular careers and family
    obligations, have agreed, when called upon, to set their lives
    aside and serve their country. The numbers of mobilized
    reservist guardsmen are staggering. From my State of Georgia,
    the 221st Military Intelligence Battalion from Atlanta, the
    94th Airlift Wing from Dobbins, and the 4th Supply Battalion
    from Albany are just a representative few of the many
    components that have been called upon to support this
    contingency. We truly appreciate the service of these men and
    women.
        It is our obligation and responsibility to ensure that the
    transition to and from military service is as least disruptive
    as possible. We must provide the support and quality-of-life
    programs that show our Guard and Reserve members that we will
    take care of them and their families.
        I look forward to hearing the testimony today. We have
    three panels before us this afternoon. First we will hear from
    Tom Hall, Assistant Secretary of Defense for Reserve Affairs,
    and Bob Hollingsworth, Executive Director of the National
    Committee for Employer Support of the Guard and Reserve.
        Mr. Hall, we welcome you back this afternoon, and let me
    assure you that your presence before the subcommittee is not
    going to be required every week. We'll give you a break every
    now and then. We also welcome you, Mr. Hollingsworth.
        Our second panel will be the chiefs of the Guard, and our
    third panel is the Reserve components.
        As I said, if Senator Nelson comes in during the middle of
    your testimony, we'll interrupt or wait, depending on what he
    desires to do.
        So, gentlemen, thank you for being here today, and since
    this hearing is getting started a little bit late, we would
    appreciate your keeping your remarks as brief as possible, but
    we look forward to hearing from you. Thank you.

       STATEMENT OF HON. THOMAS F. HALL, ASSISTANT SECRETARY OF
    DEFENSE FOR RESERVE AFFAIRS; ACCOMPANIED BY BOB HOLLINGSWORTH,
    EXECUTIVE DIRECTOR, NATIONAL COMMITTEE FOR EMPLOYER SUPPORT OF
                         THE GUARD AND RESERVE

        Secretary Hall. Thank you, Mr. Chairman. I have a combined
    very short statement from Mr. Hollingsworth and myself.
        I thank you for the opportunity to appear again before this
    subcommittee. Today, as we meet, there are almost 212,000
    guardsmen and reservists activated and serving alongside their
    active duty counterparts in virtually every operation or
    military undertaking throughout the world. These young men and
    women are proud to serve and are prepared to meet any demand
    placed upon them. It is our deep commitment to the mothers and
    fathers of America that have entrusted the lives of these young
    men and women to us that we ensure each and every one of the
    guardsmen and reservists are given the right training, the
    right equipment, and the support they need to serve their
    country. In accomplishing this, we don't want to have one more
    or one less guardsman or reservist than we need on active duty
    at any one time. We want to return them to their families and
    to their jobs the moment they are not needed. We are totally
    committed to serving them, their families, and their employers.
        As you mentioned, I am pleased to be accompanied today by
    Bobby Hollingsworth, who is our Executive Director of the
    National Committee for Employer Support of the Guard and
    Reserve. He brings a very unique perspective on the employers
    of America and the challenges we face in this area. In
    addition, I'm happy to report that with Mr. Hollingsworth, as a
    retired two-star Marine General, and me, you have today a Navy
    and Marine Corps team representing 76 years of combined service
    to our Nation.
        Senator Chambliss. Thanks to both of you for that.
        Secretary Hall. We're both very proud of every day of our
    service, and we're both proud to be serving today.
        With that, Mr. Chairman, that's the end of my statement,
    and we stand ready to answer any questions.
        [The prepared statement of Secretary Hall follows:]

                   Prepared Statement by Hon. Thomas F. Hall

                                  INTRODUCTION

        Good morning Mr. Chairman and members of the subcommittee. Thank
    you for the invitation to testify before you today. Today, I will
    provide you with information to assist you in making the critical and
    difficult decisions you face over the next several months. This
    committee has been very supportive of our National Guard and Reserve
    members and on their behalf, I want to publicly thank you for all your
    help in strengthening our Reserve components. The Secretary and I
    appreciate it, and our military personnel are grateful. Thank you.

                                 ASD/RA MISSION

        The mission of the Assistant Secretary of Defense for Reserve
    Affairs (ASD/RA), as stated in Title 10 USC, is the overall supervision
    of all Reserve components' affairs in the Department of Defense. I take
    this responsibility very seriously because our Guard and Reserve
    perform vital national security functions and are closely interlocked
    with the states, cities, towns, and every community in America. During
    my short time in this position, I have made it my business to get out
    to the field--to see and listen to the men and women in our Guard and
    Reserve. My staff and I have spent time with them and we have listened
    carefully to their comments and concerns. We are continuing to closely
    monitor the impact of increased use of our Guard and Reserve members,
    their families, and their employers.
        These circumstances lead me to what I call ``My Acid Test for the
    Guard and Reserve.'' That is to ``Ensure that the Guard and Reserve
    are: assigned the right mission; have the right training; possess the
    right equipment; are positioned in and with the correct infrastructure;
    are physically, medically, and operationally ready to accomplish the
    assigned tasks; are fully integrated within the active component; and
    are there in the right numbers required to help fight and win any
    conflict!''

            RESERVE COMPONENTS ARE FULL PARTNERS IN THE TOTAL FORCE

        Because the Reserve components now comprise almost 50 percent of
    the Total Force, they are an essential partner in military operations
    ranging from homeland defense and the global war on terrorism to
    peacekeeping, humanitarian relief, small-scale contingencies, and major
    crises. The new defense strategy proposed in the Quadrennial Defense
    Review (QDR) calls for a portfolio of military capabilities. This
    capabilities-based approach will continue to find the Reserve
    components supporting the Active Forces across the full-spectrum of
    military missions.
        The fiscal year 2004 defense budget recognizes the essential role
    of the Reserve components in meeting the requirements of the National
    Military Strategy. It provides $31.3 billion for Reserve component
    personnel, operations and maintenance, military construction, and
    procurement accounts, which is approximately 1 percent above the fiscal
    year 2003 appropriated level. Significantly, this is only 8.2 percent
    of the overall DOD budget, which represents a great return on
    investment. Included are funding increases to support full-time and
    part-time personnel, and the required sustainment of operations. It
    also continues last year's effort toward RC equipment modernization and
    interoperability in support of the Total Force policy. These funds
    support more than nearly 863,300 Selected Reserve personnel. The
    Selected Reserve consists of the following: Army National Guard
    350,000; Army Reserve 205,000; Naval Reserve 85,900; Marine Corps
    Reserve 39,600; Air National Guard 107,000; Air Force Reserve 75,800;
    and Coast Guard Reserve 10,000 (funded by DOT). Our total Ready
    Reserve, which also includes the Coast Guard Reserve, Individual Ready
    Reserve, and Inactive National Guard is 1,190,00 personnel.
        Maintaining the integrated capabilities of the Total Force is key
    to successfully achieving the Defense policy goals of assuring allies,
    dissuading military competition, deterring threats against U.S.
    interests, and decisively defeating adversaries. Only a well-balanced,
    seamlessly integrated military force is capable of dominating opponents
    across the full range of military operations. DOD will continue to
    optimize the effectiveness of its Reserve Forces by adapting existing
    capabilities to new circumstances and threats, and developing new
    capabilities needed to meet new challenges to our national security.

                 COMPREHENSIVE REVIEW OF THE RESERVE COMPONENTS

        The Reserve component (RC) continues to make significant and
    lasting contributions to the Nation's defense. As the Total Force
    transforms to meet the challenges of today and the future, it is
    essential that the Reserve components be part of the transformation.
    Over the past year, my office has worked with other agencies inside and
    outside the Department to address how the contributions of the Guard
    and Reserve--in both new and traditional roles and missions--can
    enhance the capability of the Total Force. The report, titled ``Review
    of Reserve Component Contributions to the National Defense,''
    establishes strategic principles to guide future structure and use of
    the Reserve components and proposes innovative management initiatives
    to meet the requirements. Some of our management initiatives were
    included as legislative initiatives that listed later in this
    statement.
        The report looks at ways to address the rebalancing of the Active
    and Reserve Force mix and mission assignments to enhance capabilities
    and to develop management policies that are more flexible. My staff is
    continuing to work hard to find ways and explore ideas to bring about
    meaningful change in the rebalancing effort and the process of
    developing transformational management policies that achieve that
    flexibility.

    A Continuum of Service
         A significant portion of the comprehensive review focused on the
    way we utilize the Reserve Force. Building on the past successes to
    fully integrate the Active and Reserve Forces, the next step is to make
    it easier for individual members to move back and forth between active
    and Reserve service, and to leverage the strengths of the National
    Guard and Reserve. We call this the ``continuum of service.'' The
    concept behind a continuum of service sets aside the traditional
    definitions of active and Reserve components and recognizes that
    service may range from full-time duty to individuals who are available
    in the event of mobilization but do not participate in military
    training or perform duty on a regular basis. In between these extremes
    is a pool of individuals who can be involved at any level of
    participation who may move along the continuum as circumstances in
    their lives and needs of the Department evolve, and who may move from
    part-time Reserve to full-time active service and back, several times
    during a career. The advantages of such an approach are many:

             Service members could change the level of
            participation easily, and as a result, may be more likely to
            stay engaged and serve the Department at some level for a
            longer period of time.
             It would provide the Department with better access to
            and management of trained, skilled service members--the ability
            to capitalize on the investment it has made in individuals
            during the course of their career. It may also be possible to
            build new pools of skilled talent at the ``low end'' of
            participation, such as military retirees, and members of the
            Standby Reserve and the Individual Ready Reserve.
             It could help the Department attain skills and
            talented individuals from the civilian labor market.
            Increasingly, the civilian labor market contains people who may
            be able to arrange blocks of time away from school or job for
            active duty or extended duty in the Reserves.

        The continuum of service offers a model for addressing the changing
    demographics of a workforce that is increasingly more educated and
    inclined to migrate between jobs in pursuit of enhanced career
    opportunities.

    New affiliation programs
        Our recently completed and soon to be released ``Review of Reserve
    Component Contributions to the National Defense'' identified
    specialized civilian skills and civilian-acquired skills as a Reserve
    component core competency. The study recommended several new forms of
    affiliation to attract individuals on a part-time basis for skills that
    may be hard to grow, train, and retain in the regular force. This has
    led to several new initiatives.
        For example, we have just succeeded in getting duty in the Guard or
    Reserve approved as one of the alternative forms of service-payback for
    recipients of information assurance scholarships that are now being
    awarded to college juniors and seniors who are pursuing a degree in
    information technology, as well as students working toward a post-
    graduate degree in fields relating to information assurance. This is a
    wonderful opportunity for people to pursue study programs at academic
    centers of excellence around the country in exchange for affiliation
    with the Guard or Reserve.
        We have also introduced a business process improvement initiative
    to ``fast-track'' civilians, who have special training or
    qualifications, directly into the Individual Ready Reserve (IRR). These
    uniquely-skilled individuals could participate in the Reserves on a
    very limited basis, but would be available when needed for short
    periods of active duty or longer emergency situations to perform
    specific tasks. Medical, linguist, information technology, and other
    technical skills are examples of those being considered for the IRR
    Direct Entry program.
        We are also looking for ways to better partner with industry to
    further leverage civilian-acquired skills into the military. Such
    partnerships present opportunities to save or reduce overall training
    costs while providing the military with ready access to individuals
    with specialty skills and experience in cutting edge technology. We are
    currently working closely with the Department's spectrum management
    experts in Command, Control, Communications, and Intelligence (C\3\I)
    to develop a pilot program that will allow us to establish a better
    partnership with the wireless industry in order to address our future
    radio frequency spectrum management needs. One of the options under
    consideration includes a Direct Entry program that carves out a portion
    of the IRR to perform duty on an intermittent basis as needs arise.
        We are developing new policies that would require members of the
    Ready Reserve, especially the Selected Reserve, to provide the
    Department with limited information about their civilian employers.
    Having employer information will not only assist us in improving our
    employer outreach programs, but more importantly it will provide a
    better understanding during mobilization planning of the impact
    mobilizations will have on local communities and industries. The need
    for better employer-related information is a priority for us in the new
    threat environment we are facing. Additionally, obtaining accurate and
    current employer information is critical for the Department to comply
    with our statutory responsibilities for continuous screening of Reserve
    units and individuals.

          MOBILIZATION, CONTINGENCIES, AND THE GLOBAL WAR ON TERRORISM

        Today, we are in the midst of one of the longest periods of
    mobilization in our history. However one certainty remains--that when
    called upon, the men and women of the National Guard and Reserve will
    respond promptly and perform their duty. For the past 18 months, we
    have mobilized over 230,000 Reserve personnel, who are performing and
    have performed magnificently throughout the world. As we prepare to
    give the Nation more options in the global war on terrorism, additional
    guardsmen and reservists are being mobilized. We are managing these
    call-ups in a prudent and judicious manner, assuring fair and equitable
    treatment, as we continue to rely on these citizen-soldiers.
        As of March 5, 2003, just over 178,0000 Reserve component personnel
    are on active duty--here at home and in every theater around the world
    supporting the global war on terrorism. They are providing a very broad
    range of capabilities, from Special Operations and Civil Affairs to
    personnel and finance support.
        Morale is high. Reservists do not mind being called to active
    service and they respond positively to multiple call-ups as long there
    is meaningful work and we only keep them on duty for the absolute
    essential period of time. The men and women with whom I have spoken are
    proud of their involvement, fulfilling meaningful missions and
    contributing to the needs of their country. We know there is a clear
    correlation between job satisfaction and proximity to the action and it
    is our intent to make sure when we call guardsmen or reservists we
    assign them to the full range of military missions.
        Reserve personnel (29,944) continue to provide the majority of
    force protection to military personnel and installations worldwide with
    8,200 Army National Guard soldiers currently protecting Air Force
    bases. A good news story of cooperation between the Services, this
    extra effort has relieved some of the burden on the Air Reserve
    component members who have been on duty for over a year.
        Our success in integrating the Reserve components into the Active
    Force continues. It is now routine for the Army Guard to plan and
    execute Bosnia missions. They are scheduled to relieve the active Army
    in Kosovo and have consistently maintained about 529 guardsmen in the
    Sinai. The Army Reserve provides most of the logistics support in
    Kosovo.
        The Guard and Reserve are important partners in daily military
    operations and will play a major role in any future operations while
    maintaining its traditional role as citizen soldiers providing the
    Nation with strategic hedge.

    Support to Mobilized Reservists
        Taking care of our mobilized Guard and Reserve members and their
    families is a top priority for the Department. While we can draw on our
    experience from past call-ups, we continue to examine our policies and
    programs to ensure that our mobilized reservists do not feel
    disenfranchised and that we have systems in place that support
    families.

             When the President authorized the mobilization of the
            Ready Reserve, the Department published detailed personnel
            policy guidance, which included a limit on the duration of
            initial orders to active duty of no more than 12 months to
            reduce disruption for reservists, their families, and their
            employers. Although we have had to extend reservists into a
            second year of mobilization--most notably as security forces at
            Air Force bases, it is worth noting that more have volunteered
            for a second year. More importantly, we are taking steps to
            minimize the number of reservists who are involuntarily serving
            for a second year by taking a critical look at requirements,
            identifying alternative manpower resources, and reviewing
            possible force structure changes. We have asked the Services to
            husband this valuable resource and consider the effect of
            mobilization on families and employers and to release their
            Reserve component members as soon as they have completed their
            mission.
             The Department also established a healthcare
            enhancement package, which is designed to reduce out-of-pocket
            expenses for Reserve family members and makes it easier for
            them to maintain continuity of care with existing providers.
             A comprehensive mobilization information and resources
            guide and a family ``tool kit'' are available on DefenseLink's
            Reserve Affairs website for access by military members,
            families, and employers. It is routinely updated to add
            information that is useful to mobilized reservists and their
            families.
             The Department is also engaged in more in-depth
            studies to strengthen employer support, to review alternatives
            for ensuring continuity of healthcare for the families of
            reservists, and to more effectively address Reserve component
            quality-of-life concerns.

    Screening and Key Employee Exemption Process
        To preclude conflicts between Ready Reserve members' military
    mobilization obligations and their civilian employment requirements
    during times of war or national emergency, the Department conducts a
    ``screening'' program to ensure the availability of ready reservists
    for mobilization. Once a mobilization is declared, all screening
    activities cease and all Ready Reserve members are considered
    immediately available for Active Duty service. At this time, no
    deferments, delays, or exemptions from mobilization are granted because
    of civilian employment.
        However, due to the unique situation that was created by the events
    of September 11, the Department immediately recognized that certain
    Federal and non-Federal civilian employees were critically needed in
    their civilian occupations in response to the terrorist attacks on the
    World Trade Center and Pentagon. Accordingly, the Department
    established a special exemption process to help accommodate overall
    national security efforts.
        This special exemption process provides for Federal and non-Federal
    agencies to submit mobilization exemption or delay requests for their
    employees, who are Ready reservists, based on the critical nature of
    their civilian employment. The Department considers those requests on a
    case-by-case basis and accommodates those requests when it is able to
    and when it is in the best interests of the Nation. While there have
    been over 1,000 requests from Federal and non-Federal agencies, we have
    worked with these agencies to reduce the number of cases actually
    adjudicated to just over 200. To date, these adjudications have
    resulted in 53 reservists being exempted from mobilization, 88
    mobilizations were delayed--typically for 90 days, and 51 requests were
    denied. We continue to process exemption requests and have several
    pending final decision.

    RC Support to Civil Authorities
        The National Guard has played a prominent role supporting local and
    State authorities in terrorism consequence management. At its core is
    the establishment of 32 Weapons of Mass Destruction Civil Support Teams
    (WMD CSTs), each comprised of 22 highly-skilled, full-time, well-
    trained, and equipped Army and Air National Guard personnel. To date,
    the Secretary of Defense has certified 31 of the 32 teams as being
    operational and the remaining 2 teams are nearing certification.
        The WMD CSTs will deploy, on order of the State Governor, to
    support civil authorities at a domestic chemical, biological,
    radiological, nuclear, or high yield explosives (CBRNE) incident site
    by identifying CBRNE agents/substances, assessing current and projected
    consequences, advising on response measures, and assisting with
    appropriate requests for additional State and Federal support. These 32
    strategically placed teams will support our Nation's local first
    responders as a State response in dealing with domestic incidents. The
    Reserve components WMD CST funding for fiscal year 2003 is $136
    million, and the budget request for fiscal year 2004 is for $135
    million. In the 2003 NDAA, Congress directed the Secretary of Defense
    to develop a plan to establish an additional 23 WMD-CSTs, in order to
    have at least one in each State and territory.
        The Department is also leveraging the capabilities of existing
    specialized Reserve component units for potential domestic use in
    support of civil authorities. During fiscal year 2001, DOD completed
    the training and equipping of 25 Army Reserve chemical decontamination
    companies and 3 chemical reconnaissance companies to support civil
    authorities in responding to domestic incidents. This enhanced training
    and equipment will improve the readiness of these units to perform
    their warfighting mission, while allowing them to respond effectively
    to a domestic emergency, if needed. A budget request of $12.4 million
    is submitted for fiscal year 2004 to continue training Army Reserve
    chemical soldiers to perform these domestic decontamination and
    reconnaissance missions and also to sustain the specialized equipment.
    Some of this money will also be used to provide training to Army
    Reserve medical soldiers that will better enable them to support a
    domestic medical response to a chemical, biological, radiological, or
    nuclear incident.

    Medical
        Nearly 50 percent of the Department's medical personnel are in the
    Reserve components, thus the Reserve components play a significant role
    in the Federal response to any consequence management incident
    requiring assistance from the military. Although not considered first
    responders to civilian emergencies, the active and Reserve component
    assets can provide a full-spectrum of medical support to the civilian
    community, up to and including definitive care facilities.

                             MANPOWER AND PERSONNEL

    Recruiting and Retention
        It is still too early into this mobilization to determine the long-
    term impacts on National Guard and Reserve recruiting. But through the
    first quarter of 2003, the Reserve components, in the aggregate, are
    within 3 percent of their recruiting goals. Attrition is below
    established ceilings and in line with 2001 and prior years.
        All of the Reserve components achieved their authorized end
    strength in 2002. This represents a significant achievement in a very
    difficult recruiting environment. The Naval Reserve experienced an
    especially remarkable turnaround in strength achievement following
    several difficult years. During the years immediately following the
    Operation Desert Storm involuntary call-up, when nearly 266,000
    personnel were activated, the Reserve components were still able to
    achieve 97 percent of their authorized end strength. In the aggregate,
    Reserve component attrition has decreased to its lowest level in 16
    years. However, this macro view of overall Reserve component attrition
    may mask problems in high demand units, so we must continue to focus on
    attrition in units that have been used frequently to support
    contingency operations. We must also continuously monitor the effects
    of Stop Loss and other factors affecting career decisions.
        Historically, the recruiting market for the Reserve components has
    been a mix of prior service personnel who recently separated from
    active duty and individuals with no previous military experience. Both
    market segments now present significant recruiting challenges. A
    smaller Active Force (36 percent smaller than in 1989) means a smaller
    number of prior service military members available for the Reserve
    Force--a force that is only 26 percent smaller than in 1989.
        The Reserve components previous year's success at achieving their
    end-strength objective in the face of these challenges was due to
    exceptional efforts by our Guard and Reserve recruiters and excellent
    retention by all components. Moreover, the quality of recruits
    increased overall with several components realizing significant quality
    improvement in both high school diploma graduates and mental aptitude
    categories. All components achieved or exceeded the DOD benchmark for
    upper mental aptitude group accessions.
        In achieving this level of success, the components used a
    combination of tools that included: an increase in the recruiter force,
    expanded bonus programs, enhanced advertising campaigns, increased
    focus on retention resources, and increased use of the Montgomery G.I.
    Bill-Selected Reserve kicker benefit.
        For 2003, all Reserve components are continuing to focus their
    efforts on maintaining aggressive enlistment programs by targeting both
    enlistment and re-enlistment incentives in critical skill areas.
    Emphasis will be placed on the prior service market for both officers
    and enlisted personnel. The Reserve components will expand their
    efforts to contact personnel who are planning to separate from the
    active component long before their scheduled separation and educate
    them on the opportunities available in the Guard and Reserve. In
    addition, the Reserve components will increase their efforts to manage
    departures.

    Compensation Issues For Guard and Reserve Personnel
        In 2003, we are examining compensation programs for Reserve
    component members. The current and anticipated military environments
    require employment of Reserve Forces in ways not imagined when current
    compensation programs were designed. Current thresholds for housing
    allowances, per diem, some special skill and duty pays, and a range of
    benefits may not fully support the manner in which Reserve component
    members may be employed in the future. Compensation programs must be
    sufficient to attract and retain capabilities to meet continuous, surge
    and infrequent requirements. As we examine options and formulate
    alternatives, we will adjust DOD regulations and include proposed
    statutory changes as part of the Department's legislative program.

    Health Care Enhancements
        Dependents of Reserve component members who are ordered to active
    duty for more than 30 days are eligible for TRICARE Standard or Extra--
    and for TRICARE Prime if the member is ordered to active duty for more
    than 179 days. Recognizing that changing healthcare systems can be
    disruptive, the Department developed and the Secretary approved a new
    TRICARE Demonstration Program specifically to assist mobilized
    reservists with the transition to TRICARE. The Demonstration Project is
    designed to reduce out-of-pocket expenses for Reserve family members
    and to make it easier for them to maintain continuity of care with
    existing providers.
        The Demonstration Project provides for three important enhancements
    for mobilized Reserve members. First, it waives the annual deductible
    (up to $300 per family) for those members who do not or cannot enroll
    in TRICARE Prime. Second, the requirement to obtain a non-availability
    statement to receive inpatient care outside a military treatment
    facility is waived so Reserve family members can maintain continuity
    with their existing local providers, if they wish. Finally, the
    Department will pay up to 15 percent above TRICARE maximum allowable
    charges for family members receiving care from providers not
    participating in TRICARE, who bill in excess of TRICARE maximum
    allowable charges.
        The TRICARE Dental Program, which was implemented in February 2001,
    offers reservists and their families a comprehensive and affordable
    dental program. The normal minimum 12-month service commitment to
    enroll in this program is waived for Reserve members ordered to active
    duty in support of a contingency operation such as Operations Noble
    Eagle and Enduring Freedom. In an effort to reach out to family
    members, we are developing educational tools such as brochures and
    command briefings, establishing a toll-free number for Reserve
    component families, and constructing a Reserve component TRICARE
    website, all specifically designed to help reservists and their
    families make informed choices about their healthcare options.

    Family Readiness
        One of the lessons learned from the Persian Gulf War was the need
    to improve family readiness within the Guard and Reserve. Our first
    initiative was the 1994 publication of a DOD Instruction that provided
    the framework for improving Reserve component family readiness. The
    next major milestone was publication of the first-ever Guard and
    Reserve Family Readiness Strategic Plan 2000-2005, which was developed
    through the collective efforts of the Office of the Secretary of
    Defense (OSD) staff, the military Services, and family readiness
    program managers. In addition to serving as a blueprint for providing
    greater support to National Guard and Reserve families and assisting in
    coping with the stresses of separations and long deployments, the plan
    established a clean link between family readiness and unit mission
    readiness.
        Beginning in 2002 the OSD Office of Family Policy, Reserve Affairs,
    the Services and numerous Federal agencies have been meeting regularly
    in a Joint Service Family Readiness Contingency Assessment Working
    Group. The group representatives work to anticipate challenges and
    disseminate information during ongoing operations such as Operations
    Noble Eagle and Enduring Freedom. The foundation for support of family
    members lies in the preparation and education of professionals and
    family members alike well before a reservist is called to active duty
    or actually deployed. The ability of Reserve component members to focus
    on their assigned military duties is directly affected by the
    confidence a member has that his family can readily access family
    support services.
        From our previous survey of spouses of deployed Reserve component
    members, we know that information and communication are essential to
    Reserve families. In addition to information concerning their deployed
    spouse, family members request information on available benefits,
    services, and programs, to include locations of commissaries,
    exchanges, healthcare, and other facilities.
        Our ``Guide to Reserve Family Member Benefits'' is designed to
    inform family members about military benefits and entitlements,
    including medical and dental care, commissary and exchange privileges,
    military pay and allowances, and reemployment rights of the service
    member. Additionally, a Family Readiness Event Schedule was developed
    to make training events and opportunities more accessible for family
    support volunteers and professionals. It also serves to foster cross-
    Service and cross-component family support, which supports the desired
    end-state of any service member or family member being able to go to a
    family support organization of any Service or component and receive
    assistance or information.
        The family readiness ``tool kit'' is available to assist
    commanders, service members, family members, and family program
    managers with pre-deployment and mobilization information.

    Personnel and Pay Information Technology Initiatives
        The evolving missions and operations of the Department are creating
    a wider gap between current system capabilities and the Department's
    policy and process needs. Existing systems require improvement to fully
    support the needs of current operations and to provide seamless support
    to active, Guard, and Reserve mobilization or multi-component
    operations. The Defense Integrated Military Human Resource System
    (DIMHRS) will provide an opportunity to plan, develop, and implement
    military personnel and payroll modernization with the overall DOD
    objective of establishing an integrated military personnel and pay
    system. The goal of DIMHRS is to provide the Services and their
    components the capability to effectively manage their members across
    the full operational spectrum--during peacetime and war, capturing
    accurate and timely data as members move between duty statuses such as
    mobilization and demobilization. The system will support the full range
    of personnel life-cycle activities from accessing members to separation
    or retirement. Key functions include ensuring proper pay and benefits,
    tracking personnel in theater, and transferring individuals to other
    Services or components. DIMHRS design will include the capability for
    rapid implementation of system changes to support emerging
    requirements.

    Employer Support
        The National Committee for Employer Support of the Guard and
    Reserve (ESGR) is a Department of Defense Field Operating Activity,
    first chartered in 1972. Its mission is to gain and maintain active
    support from all public and private employers for the men and women of
    the National Guard and Reserve as defined by demonstrated employer
    commitment to employee military service. We provide a bridge between
    employers and their employees that serve in the Reserve components. Its
    role is to ensure the transition from civilian employee, to military
    member, then back to civilian employee is as smooth as possible.
        ESGR Headquarters, located in Arlington, Virginia, is a multi-
    service organization composed of active duty, National Guard, and
    Reserve component members. We work with a community-based volunteer
    network of 55 committees with over 4,200 members. These local
    committees are in every State, the District of Columbia, Guam, Puerto
    Rico, Europe, and the Virgin Islands.
        There are about 1.3 million men and women in the Guard and Reserve.
    This figure represents nearly 50 percent of our total military
    strength; that's 50 percent, almost half of the force trying to balance
    military duty with civilian employment. This critical balance, between
    military commitments and civilian job commitments, is why it is so
    important for all reservists to have the support of their employers.
    Developing and sustaining this support is the reason ESGR was
    established.
        ESGR programs and services help educate employers and community
    leaders about the important role the National Guard and Reserve play in
    a strong national defense. Other programs educate Reserve component
    members concerning their employment and reemployment rights relative to
    military service, and the actions they can take to build and foster
    good relations with their employers. We strive to build and strengthen
    the employer/employee partnerships essential to ensuring that Reserve
    component members are available and ready when needed. ESGR, along with
    top military leaders, develops solutions to problems that arise because
    of employee participation in the National Guard and Reserve.
        The Statement of Support Program highlights the public signing
    commitment by an employer of a statement pledging to publish and
    implement personnel policies supportive of employee service in the
    National Guard and Reserve. The signing of a Statement of Support
    clearly demonstrates the employer understands the importance of the
    Guard and Reserve and, even more importantly, it sends a clear signal
    to reservists that their participation in the Guard and Reserve does
    not put their civilian job at risk. Forty-four Governors have signed
    Statements of Support and 2 more are scheduled to sign very soon. Many
    nationally known companies have also signed Statements of Support, to
    include Goldman Sachs, UBS Paine Webber, NYSE, American Stock Exchange,
    NASDAQ, NASD, Dell, Oracle, Pfizer, Xerox, Tyson Foods, Commonwealth
    Edison, Boeing, and numerous others, as have hundreds of small and mid-
    sized companies.
        Briefings with the Boss (BWBs) bring together employers, unit
    commanders, ESGR members, and community leaders to discuss military
    topics in general and issues relevant to employee participation in the
    National Guard and Reserve in particular. BWBs are a tremendous forum
    for building rapport and support at the local level for Reserve
    component participation. A companion employer outreach program,
    Bosslifts, transports employers and supervisors to military training
    sites where they observe their employees as Guard and Reserve members
    on duty, performing training missions or essential military taskings.
        ESGR's employer awards recognition program centers on Reserve
    component members nominating their supervisors or their companies for
    recognition for their support. As the first level award, the ``My Boss
    is a Patriot'' award recognizes supervisors and employers who support
    National Guard and Reserve employees, and who practice at least those
    personnel policies required by law to support employee participation in
    the Reserve components. From these ``My Boss is a Patriot'' award
    nominees, State local committees select candidates for higher-level
    State awards culminating in the end for consideration for the National
    Committee's Employer Support Secretary of Defense Freedom Award. The
    Employer Support Secretary of Defense Freedom Award was established in
    1996. This award recognizes the Nation's top employers who have
    provided outstanding support to their National Guard and Reserve
    employees far outreaching what is required by law. Each year the
    Secretary of Defense recognizes up to five employers with this
    prestigious award during a formal ceremony in Washington, DC. The
    following employers were selected as Employer Support Freedom Award
    winners in 2002:

    ------------------------------------------------------------------------
                      Region                            Organization
    ------------------------------------------------------------------------
    Southeast.................................  United Parcel Service
                                                 Airlines--Kentucky
    North Central.............................  General Dynamics Land
                                                 Systems--Michigan
    Northeast.................................  Public Service Co. of New
                                                 Hampshire--New Hampshire
    West......................................  Autoliv, Inc.--Utah
    South Central.............................  State of Wyoming--Wyoming
    ------------------------------------------------------------------------

        In addition to the Employer Support Freedom Awards, two ``Home
    Front Awards'' were also presented this year to Wal-Mart and Dell
    Computer for their outstanding support of their employees who were
    specifically called up for Operations Noble Eagle and Enduring Freedom.
        ESGR's Military Member Support and Ombudsman Services Directorate
    provides an informal mediation service to assist in resolving employer/
    employee conflict relative to participating in the National Guard and
    Reserve. The Ombudsman staff has been averaging over 500 calls a week
    since the end of the first week in January of 2003. This is an increase
    of nearly 100 percent over the call volume received in previous months.
    Most of the calls today concern Reserve component members being
    mobilized. The real test will come when reservists and guardsmen return
    and are demobilized, looking to return to the civilian jobs they left
    when called to serve their country.
        The Uniformed Services Employment and Reemployment Rights Act,
    Title 38 USC, Chapter 43, commonly referred to as (USERRA), outlines
    the employment and reemployment rights of service members. This Federal
    law, among other things, provides the legal basis for employment and
    reemployment rights of Reserve component members called to serve their
    country in an active or inactive duty status, as a volunteer or as non-
    volunteer. The Ombudsmen strive not to use the law as a threat when
    mediating conflict, preferring instead to find the common ground of
    fair play. The law does provide the basis for explaining minimum legal
    requirements to both the Reserve component members and their employers.
        Our Marketing and Employer Services Directorate is charged with
    developing awareness of ESGR and its services in the public and private
    employer communities. With the recent recognition that nearly 30
    percent of all reservists are engaged in some form of higher education,
    the community of higher education institutions has recently been added
    as an additional target audience, as well. In January of 2003 the
    Marketing team released a 2-minute Video News Release focused on these
    target audiences. This release is a pre-packaged story featuring
    interviews with Montgomery County, MD, Police Chief Charles A. Moose
    (who is also a Major in the Washington, DC, Air National Guard), and
    Dick Grasso, Chairman and CEO of the NY Stock Exchange. Key messages of
    the release alert employers to the USERRA law and the reasons employer
    support of Guard and Reserve is vital to our national defense.
        ESGR is increasingly proactive in creating forums of exchange
    between business leaders and Reserve component commanders to identify
    and resolve areas of potential friction. In addition to an airline
    industry symposium that has been ongoing for several years, we
    organized two general employer symposia in 2002, and in February 2003
    brought together a symposium for ``First Responders'' (Law Enforcement,
    Corrections Officers, and Fire Fighters) Law Enforcement and first
    responders. The response to these symposia has been extremely positive,
    and is leading to improved dialogue and better understanding between
    all parties affected by Reserve component mobilizations.
        Despite the increased utilization of our Reserve Forces since the
    events of September 11, for the global war on terrorism and the obvious
    impact that the call-up of more than 200,000 reservists has had on our
    Nation's employers, they have responded in overwhelmingly positive
    fashion. Many employers have extended benefits for their reservists
    mobilized to support Operations Enduring Freedom and Noble Eagle,
    provided pay differential while they serve, continued their civilian
    health programs, and given both financial and moral support to their
    families, wives, and children. Although many communities have been
    impacted, the dominant response has been to pull together and make it
    work, and to stand behind those called to serve. Our Nation's employers
    have overwhelmingly supported the Guard and Reserve in this war on
    terrorism throughout this challenging time in our Nation's history, and
    we are extremely appreciative of their support to the Nation and to
    those men and women who are engaged in this effort.

                                    TRAINING

        Training, based on tough, demanding, and relevant performance
    standards, is the cornerstone of readiness and dominance of our Armed
    Forces in today's evolving world. As a fundamental pillar of readiness,
    the quality of training directly affects our ability to fight and win,
    particularly in the rapidly changing environment of the global war on
    terrorism (GWOT) and the compressed lifecycles of new equipment
    technologies.
        Training must evolve to a lifelong, continuous learning environment
    that also provides as needed, anywhere-anytime learning to improve and
    enhance job performance. Training for dominance in future conflicts
    will depend on dedicating scarce resources of time, funding, and
    availability of our Reserve component personnel, to training that
    aggressively exploits technology and provides both traditional school-
    house and distributed performance-enhancing training. Realizing that
    our Reserve component personnel now comprise almost 50 percent of the
    Total Force and are full partners in the prosecution of the global war
    on terrorism, we are working to ensure that the Reserve component is
    fully integrated in DOD's Training Transformation initiatives.
        Cutting edge opportunities are more available for Reserve component
    training than ever before. They include deployment of mobile classrooms
    that, through global reach-back capability, can provide training from
    subject matter experts, embedded interactive modeling and simulation in
    weapons platforms and other equipment that enable ``see, learn, do''
    training reinforcement.
        This focus on distributed learning strategies and employing more
    robust communications tools will continue to pay great dividends for
    the Total Force. The Fiscal Year 2002 National Defense Authorization
    Act, which included changes to Title 37, will allow our reservists to
    receive compensation for completion of electronic distributed learning
    curricula, adding significantly to the opportunities of our personnel
    to embrace these concepts. We are currently undertaking a study to
    develop policy recommendations for the implementation of a Department-
    wide compensation policy for the completion of necessary training.
        An important part of training is the ability of our forces to
    operate effectively and efficiently in a joint environment with other
    governmental agencies and within a multinational framework. Ultimately,
    these joint opportunities, with Reserve component personnel fully
    involved, will result in a significantly improved overall capability of
    our Armed Forces.
        With the use of technology, innovative concepts, and improved joint
    training experiments, we can sustain the well-deserved reputation as
    the best-equipped, best-trained, and best-led Reserve components and
    military in the world.

                            CIVIL MILITARY PROGRAMS

        In support of the President's call for Americans to serve, the
    Department continues to fund two youth outreach programs, Challenge and
    STARBASE. Both programs help improve the lives of children by
    surrounding them with positive civilian and military role models and
    helping them not just dream big dreams, but achieve them. The budget
    request for fiscal year 2004 is $65.2 million for Challenge and $13.8
    million for STARBASE.
        Operating in 25 States, the Challenge program has successfully
    given young high school dropouts the life skills, tools, and guidance
    they need to be productive citizens. The STARBASE program, operating at
    44 military facilities located in 27 States, the District of Columbia,
    and Puerto Rico, has enhanced military-civilian community relations and
    reached approximately 300,000 young children. Active, Guard, and
    Reserve members volunteer their time to the STARBASE program in order
    to provide a military environment/setting in which local community
    youth, especially the disadvantaged, are provided training and hands-on
    opportunities to learn and apply mathematics, science, teamwork,
    technology, and life skills. These two successful DOD outreach programs
    were identified in support of the USA Freedom Corps' effort to provide
    opportunities for Americans to become more involved with serving their
    communities.
        The third Civil Military program is the Innovative Readiness
    Training (IRT) program. IRT is similar to the overseas deployment
    exercise program in that it provides valuable military training that is
    compatible with mission essential training requirements. IRT projects
    help address serious community needs within the 50 States, U.S.
    territories, and possessions. The program is a partnership effort
    between local communities and active, Guard, and Reserve units.
    Individuals and units involved are primarily from medical, dental, and
    engineering career fields.
        All IRT projects are compatible with mission essential training
    requirements. IRT projects must be conducted without a significant
    increase in the cost of normal training and are designed to enhance
    training in a real world scenario without deploying overseas. Program
    expenditures for fiscal year 2003 are $30.9 million. The budget request
    for fiscal year 2004 is $20.0 million.

                        EQUIPMENT AND FACILITY READINESS

    National Guard and Reserve Equipment
        The fiscal year 2004 budget includes $1.56 billion to procure
    needed equipment for the Reserve components. In the past the Reserve
    components relied on cascaded equipment from the active to help with
    shortfalls, however, given the fact that the majority of the support
    functions are in the Reserve components there is little equipment
    available to flow from the active component. We are convinced that only
    by the continued equipment modernization of our Reserve Forces will the
    Department reap the full potential of a capabilities based force in the
    future.
        Key equipment items planned for the Reserve components included in
    the fiscal year 2004 President's budget request are:

             Army National Guard and the Army Reserve: Global Air
            Traffic Management aircraft modifications, airborne
            communications, HMMWV, Family of Medium Tactical Vehicles
            (FMTV), Family of Heavy Tactical Vehicles (FHTV), data
            distribution systems, float ribbon bridges, tactical bridging,
            generators, and rough container handling systems.
             Air National Guard and Air Force Reserve: Aircraft
            modifications for the F-16, C-5, C-130, KC-135, and H-60,
            common aircraft support equipment, vehicles, air traffic
            control systems, tactical communications, and base
            communications infrastructure.
             Naval Reserve: C-40 aircraft, tactical vehicles, and
            mobile sensor platforms.
             Marine Corps Reserve: High mobility artillery rocket
            system, towed howitzer, night vision equipment, and materiel
            handling equipment.
                     national guard and reserve facilities
    Military Construction
        The fiscal year 2004 military construction investment for new
    facilities affecting all Reserve components is $369 million and
    represents approximately 3.8 percent of the overall military
    construction requests of $9.5 billion. The President's budget request
    will provide new Armed Forces Reserve Centers, vehicle maintenance
    facilities, organizational maintenance shops, and aircraft maintenance
    facilities for the Reserve component missions. These new facilities
    begin to address the needed replacement of the Reserve components'
    infrastructure in support of military transformation programs. The
    fiscal year 2004 budget request continues the Department's efforts to
    improve the quality of life for the Guard and Reserve which for the
    reservist is not normally housing and barracks but rather where they
    work and train.

    Sustainment, Restoration, and Modernization
        The Reserve components' fiscal year 2004 facility sustainment,
    restoration, and modernization (SRM) request is approximately $800
    million. Even with the Department's commitment toward restoring and
    modernizing existing facilities, the Reserve component's
    recapitalization rate ranges from 12 years to as high as 475 years. The
    fiscal year 2004 request reflects a concerted effort by the Department
    to reduce the SRM backlog and improve the Guard and Reserve facility
    readiness rating.

    Environmental Program
        The installation environmental programs managed by each Reserve
    component continue to be a good news story of professionalism and
    outstanding efforts to protect, preserve, and enhance the properties
    entrusted to the Reserve Forces. The fiscal year 2004 environmental
    programs are budgeted at $253.6 million, which includes $125.2 million
    for environmental compliance requirements that provide 75 percent of
    the overall validated Reserve and National Guard environmental
    requirements for fiscal year 2004.

    Joint Construction Initiatives
        The Reserve components are at the forefront of creating innovative
    ways to manage scarce MILCON dollars. They continue to pursue land
    exchanges and joint construction, wherever practicable. Joint
    construction is the practice of building one consolidated facility that
    fills the needs of two or more components. If we are to organize as a
    capabilities-based force, then our infrastructure should be designed to
    support that concept, also. Jointly constructing facilities of similar
    functions and eliminating the need for multiple buildings in the same
    geographic area, helps to transform our infrastructure toward
    operational capabilities and efficiencies. The savings and benefits of
    joint construction go far beyond the concept, intuitively. Most would
    agree one building costs less than two of similar size and function,
    but the benefits extend to reductions in force protection, sustainment
    dollars, contracting costs, and cross-service cultural understandings.
    I thank Congress for their support of this effort and will continue
    pursuing more land exchanges and joint construction opportunities in
    the future.
           legislative initiatives included in the omnibus submission
        Sec 511 - Ready Reserve participation requirement specifies a
    minimum of 38 days of participation (exclusive of travel) each year.
        Sec 512 - Streamlines the process to continue officers on the
    Reserve active status list.
        Sec 513 - Extends the authority to the Federal Long Term Care
    Insurance program to ``Grey Area Retirees.''
        Sec 562 - Provides for a reduction of the basic training
    requirement for certain credentialed individuals e.g., medical, health
    care profession or occupation, or those accessed through a direct entry
    program.
        Sec 563 - Provides the option for a reduced military service
    obligation for certain individuals with specialized skills to be
    accessed in a direct entry program.
        Sec 564 - Authorizes the IRS to release taxpayer address
    information on members of the Reserve components to the Services for
    use in mobilization.
        Sec 614 - Extends hostile fire and imminent danger pay to Reserve
    component members on inactive duty under certain conditions to ensure
    eligibility based on the nature of the danger faced, not based on the
    duty status they serve in.
        Sec 618 - Extends the Ready Reserve enlistment and reenlistment
    bonus authorities that allow the Reserve components to target
    individuals who possess skills that are under-subscribed, but are
    critical in the event of mobilization.
        Sec 1007 - Establishes permanent reimbursement for Guard and
    Reserve personnel providing intelligence and counterintelligence
    support to DOD.
        Sec 1010 - Permits DOD to allocate funds for Reserve component
    Special Operations activities related to clearance of land mines.
        Sec 1105 - Allows position vacancy promotions in time of war or
    national emergency when the member is not mobilized with his or her
    unit.
        Sec 1106 - Provides 22 workdays of military leave for Federal
    civilian employees when serving in support of a contingency operation.

                                   CONCLUSION

        This administration views a mission-ready National Guard and
    Reserve as a critical element of our National Security Strategy. As a
    result, the National Guard and Reserve will continue to play an
    expanded role in all facets of the Total Force. While we ask our people
    to do more, we must never lose sight of the need to balance their
    commitment to country with their commitment to family, and to their
    civilian employer.
        Thank you very much again for this opportunity to testify on behalf
    of the greatest Guard and Reserve Force in the world.

        Senator Chambliss. Has a Navy man ever been that short?
    That's pretty good, Mr. Secretary. [Laughter.]
        Thank you very much. Again, we appreciate both of your
    being here. Senator Nelson, we went ahead and started since we
    were running behind.
        Senator Ben Nelson. Absolutely.
        Senator Chambliss. I would like, at this time, to call on
    my good friend and my colleague, Senator Ben Nelson, from
    Nebraska, with whom we have already been working very closely
    to make sure that we do what's necessary from the Personnel
    Subcommittee standpoint to see that our soldiers, sailors,
    airmen, and marines are looked after.
        Ben, any comments you'd like to make at this time?

                STATEMENT OF SENATOR E. BENJAMIN NELSON

        Senator Ben Nelson. Thank you, Senator Chambliss. Mr.
    Chairman, it's really a pleasure to be here. I apologize for
    being a little tardy trying to get out of the vote and get back
    here.
        I want to thank you for being here as part of this panel
    this afternoon. Obviously, it's a very important hearing and a
    very critical time for our military Services. We're here today
    to discuss the future of our Reserve components, National Guard
    and Reserves, as our Nation is prepared to go to war. Our
    Reserve components are almost half of our total military
    forces, and it's common knowledge that our Nation can't carry
    out any significant military operation without the
    participation of the National Guard and Reserves. The Reserve
    components are, without a doubt, full partners in the total
    force.
        In the past 18 months, we've mobilized more than 230,000
    Reserve component personnel for service all over the world, and
    they have performed magnificently. Today we've mobilized almost
    212,000 Guard and Reserve personnel who stand alongside our
    active component personnel poised for war.
        Our troops have responded remarkably well to the call to
    service. Despite the fact that many received what appears to be
    and seems to be unrealistically short notice of their call to
    active duty and some suffered a loss in pay and all had to
    leave their jobs and their families, by and large our Reserve
    component service members have enthusiastically reported for
    duty to do what they've been trained to do, and we are all very
    proud of them.
        Overall, I think that we can grade this mobilization as a
    huge success. However, that doesn't mean that we let down our
    guard and call it good enough. I believe that there are lessons
    to be learned from this mobilization that will help us to do
    even better in the future should we ever have another large-
    scale mobilization. I trust that our witnesses will help us
    discern these lessons so that we can learn them and we can
    prepare to respond to them.
        Mr. Chairman, I want to welcome all of the witnesses. I
    look forward to working with you not only today, but in the
    many days ahead on this and other important Reserve and
    personnel issues.
        Thank you.
        Senator Chambliss. Thank you.
        Secretary Hall, you've indicated in your statement filed
    with the committee that the Department is studying pay and
    compensation for reservists, but I'd like to get your thoughts
    today on the importance of the Selected Reserve Montgomery GI
    Bill and the need for improvements in that rate of payment. How
    important do you think the Selective Reserve Montgomery GI Bill
    benefit is in recruiting individuals for service in the
    Reserve? Do you agree that the current rate of payment needs to
    be increased?
        Secretary Hall. The Montgomery GI Bill has always been one
    of our most important tools. We owe a lot to ``Mr. Reserve,''
    as we call him, Congressman Sonny Montgomery, who introduced
    this. Throughout the time it's been in effect, it's been an
    important recruiting and retention tool. The Department has
    always supported modifications to this bill. We applauded the
    extension of the eligibility period that happened last year,
    from 10 to 14 years.
        The Reserve portion of the bill is different from the
    active duty portion, and it's been tied to a slightly different
    index, the consumer price index. Thus, as we proceeded through
    the economy over the years, there was a gap which has
    developed. A couple of years ago, the gap was about 47 percent
    of the active duty. That is about 30 percent now because of the
    CPI. Senator Collins is going to introduce a bill which might
    move that percentage back to 50 percent. We agree that we need
    to take a look at that percentage and that gap, and we're
    committed in the Department to examining it, because we think
    this bill is one of our finest pieces of legislation throughout
    the years to support the Guard and Reserve. So we're committed
    to looking at it, seeing if the gap is right, and working with
    you, if it's not, to make it right.
        Senator Chambliss. All right, thank you.
        Mr. Hollingsworth, in your written statement, you described
    the efforts of the Military Support and Ombudsmen Services
    Directorate and the informal mediation service that it
    provides. I noted the volume of calls you received, over 500
    calls a week since January 2003. What are the problems between
    employers and reservist employees that typically lead to
    requests for informal mediation? How are we doing, generally,
    with that particular aspect of this program?
        Mr. Hollingsworth. Sir, I have good news to report. As this
    thing has unfolded, the closer we get to the war effort here,
    the more positive the calls have become. In the last week or
    so, they have become, ``What can we do to help?'' That's great
    news from what our employers think of our Guard and Reserve out
    there today and just the incredible job that they're doing.
        Just to give you a synopsis of what happens on a daily
    basis as we get calls that do create some controversy out
    there, most of them are simple misunderstandings of the law
    either on one side or the other, and our job is to mediate
    those. We have 4,200 incredible volunteers throughout the
    country and in Europe that do our mediation for us. We run them
    through our ombudsmen course. A lot of them have some really
    good personal attorney training. Beyond that, these guys are
    really dedicated Americans who care about the young men and
    young women, and they care about the fact that the employers
    tremendously support our Guard and Reserve.
        As we go through the process, when they call our office, we
    refer these young men and young women or the employers back to
    the States so that it can be handled on a local level, because
    that's where we want to develop those personal relationships
    between our ESGR membership and the employers that support our
    Guard and Reserve. So then as they resolve the issues, which in
    over 95 percent of the cases they do, then they can resolve it
    at the local level.
        If there's something that becomes so untenable that there's
    a situation where nothing can be resolved by mediation, then we
    take that, send it to the Department of Labor, and let those
    folks do the litigation part.
        But we're happy to report that those cases are a small
    percentage and the wonderful employers supporting the Guard and
    Reserve guys out there do an incredible job of mediating these
    situations.
        Senator Chambliss. Secretary Hall, in your written
    testimony, you discuss the ongoing examination within DOD of
    the Reserve component to better organize and equip it to
    contribute to national defense. You've had an extensive
    background with the Naval Reserve, and I'd like to know your
    views on the Navy's request to reduce the Selective Reserve end
    strength by 1,900, as well as your views on necessary
    organizational changes. What do you think is the justification
    for the 1,900 reduction? What are your personal views about
    changes needed in the organization and manning of the Naval
    Reserve to better augment the Active Force, achieve the correct
    skills balance, and best contribute to missions assigned to the
    Navy?
        Secretary Hall. I commanded the Naval Reserve for 4 years,
    from 1992 to 1996, and during that time participated in a
    downsizing from about 132,000 to 96,000 when I left. It now
    rests at 86,000. I have spoken with the CNO, Admiral Clark,
    about his views, and what I can tell you is that his
    commitment, I think the Navy's commitment, is to ensure that
    the Naval Reserve is structured correctly, is fully integrated
    on the active side, and meets the mission demands of the Navy.
    In some cases, that will involve change. It will be different
    than when I commanded it 6 years ago.
        I think the ideas that have been proposed that I know
    about, which the Navy could speak to better than me, involve
    better integration of the selected reservists within units. In
    some cases, it involved blended units very much like the Air
    Force has very successfully, blended the units together, flying
    the same kind of equipment with the same training standards. I
    believe it is a commitment on the part of the Navy that that
    particular end strength that they have asked for best supports
    both the active and Reserve side, better integrates the Reserve
    to meet the mission commitments of the Navy.
        Senator Chambliss. Does it have anything to do with the
    lesser number of ships that we're floating in the Navy now?
        Secretary Hall. You would have to ask Admiral Clark that,
    but not in my view. What it is, is an attempt, I think, to
    better use and better integrate the Guard and Reserve, but
    nothing that I know of has to do with less ships.
        Senator Chambliss. Okay.
        Mr. Hollingsworth, I'm sure you'll agree that it's
    troubling that some reservists who are in college and are
    mobilized may be losing credits and tuition. This has been a
    constant problem that we've had to face. I'm glad to see that
    some States have taken action to prevent abuse, but more action
    may be necessary. Please share with us your view of the extent
    of this problem. How responsive have colleges and universities
    been to requests for relief for students? What's the Committee
    on Employer Support to the Guard and Reserve doing to address
    this problem?
        Mr. Hollingsworth. Yes, sir. We'd not deny that there is a
    problem with that, but I would be happy to report, sir, that
    it's not as serious as some think. We don't get many calls on
    that--people think of us as employer support. We try to get the
    word out to the young men and young women that if you do have a
    problem in that area, we're going to take that on for you. As
    we did our strategic planning last year, we looked at where we
    were as an organization and how we were supposed to support all
    those people out there. We found out about one-third of these
    young men and young women are involved in some type of higher
    educational process. We had no programs to support that, so we
    really jumped ourselves into high gear to really start looking
    at that.
        Senator Nelson, you'd be happy to know that one of the
    things I'm trying to do is develop these personal relationships
    with the college and university presidents. I've spoken to the
    University of Nebraska president there in Lincoln, and he's
    really been supportive. What we're trying to do, sir, is beyond
    just getting the folks back their tuition and their room and
    board and the other things that apply there. One of the most
    valuable things we have as human beings is our time, and if you
    take a young man or young woman who spends a certain amount of
    the semester in college trying to earn college credits and
    suddenly we pull them away from there, he's lost that time. We
    can give the money back, but that doesn't solve the whole
    problem.
        We think that we should go further than that. We have the
    capability, from an information technology perspective, that we
    could continue their education through distance learning. Those
    are the things we're approaching. We have a model program
    that's been established that we're going to develop more fully
    and take it to all the States and all the universities, and, so
    far, everyone that I have talked to at the college-president
    level is extremely supportive of this.
        The devil is always in the details, and the people that
    would really make this work or not work are the professors.
    They're the ones who are going to have to do the extra work to
    develop the curriculum that goes into an IT perspective so it
    can push this out.
        This won't work in all cases, because if you're taking a
    chemistry lab you can't do that with the IT. Certainly if a
    young man or young woman is taking some of the humanities
    courses, economics, English, geography, these things lend
    themselves very well to the continuation of their education
    while they're on active duty. Not all the people, because some
    of them are in pretty severe combat conditions, can take
    advantage of that, but if someone is doing things in the Sinai,
    if they're in Kosovo, they have access to IT and they can
    continue their education. That's what we're pursuing, from the
    Employer Support of the Guard and Reserve perspective. We want
    to be proactive. We don't want to wait until problems come
    along and then have to deal with them. We want to take care of
    these before they become an issue with the students and with
    the colleges and universities.
        So you can rest assured, sir, that we're going to attack
    this problem. We're not just going to sit by and wait for
    something to develop. We're going to be really out in the front
    of this thing. It needs to be done, because these folks need
    that kind of protection.
        Secretary Hall. Mr. Chairman, I might say there's another
    element to attack this problem, and it's called the
    Serviceman's Opportunity College. I don't know whether you have
    heard about that, but it's a consortium of about 1,350
    colleges, that have signed up throughout the country. The
    Serviceman's Opportunity College--it's a strange name for it;
    it probably ought to be named something different--but it's a
    group of 1,350 colleges and representatives that have signed up
    to be willing to arbitrate any of the problems with tuition. We
    have used that. We used it in the Gulf War, in the post-Gulf
    War period, and we're using it now, and we refer cases to them,
    and we've been very effective locally, because they see the
    professor, they talk to the college. About 90-percent-plus have
    been arbitrated in favor of the students--in fact, near 100
    percent. We're using that mechanism, and it's a consortium that
    signed up, of 1,350, which blankets the country.
        Senator Chambliss. Thank you.
        Senator Nelson.
        Senator Ben Nelson. Thank you, Mr. Chairman.
        Secretary Hall, in your prepared statement, you discuss a
    DOD legislative initiative to extend hostile fire and imminent
    danger pay to Reserve component members on inactive duty. Now,
    the reason provided for this proposal is to ensure eligibility
    for these special pays based on the nature of the danger faced,
    not based on the duty status of the service member. Can you
    tell us a little bit more about what ``inactive duty status''
    means and how someone in this status could be in a position
    that would warrant hostile fire and imminent danger pay?
        Secretary Hall. I was not in the Pentagon on September 11,
    but perhaps that tragic event is the one to reference as the
    beginning of this idea while on inactive duty there are many
    different categories that reservists can be in, such as IDT or
    inactive duty for training. You could be in a drill period and
    in the Pentagon--we had people at that time who were on drills,
    they had not been recalled, who could either have been killed
    or maimed--so it is to allow, in those circumstances where you
    might be in an area that no one predicted would be subject to
    hostile fire. No one predicted that would happen. By
    circumstances, you're caught in hostilities on a drill, and
    unless we had this legislation, then those benefits would not
    be available to you and your family.
        I think it came from the tragic events of September 11 and
    a recognition that we must protect our young men and women no
    matter what status they're in.
        Senator Ben Nelson. So the determination would have been
    made after the fact, not prior to the fact.
        Secretary Hall. That's right. We could not, I guess,
    anticipate what would happen, but we would want to in the
    future.
        Senator Ben Nelson. Right.
        Secretary Hall. When that is declared after the fact by
    competent authority, then you would get your benefits.
        Senator Ben Nelson. I understand.
        In your prepared statement, you talk about the challenge in
    STARBASE civilian military programs that you administer, and
    these programs are obviously very highly regarded here in the
    Senate. They are great examples of the how the Department of
    Defense can reach out to disadvantaged youth and guide them
    toward becoming good citizens. Could you describe briefly for
    us these programs and tell us whether State funding shortages
    are having any impact on them at the present time?
        Secretary Hall. Both of you gentlemen, of course, have them
    in your States. They're wonderful groups. I visited them. The
    Challenge Program, which with the 22 weeks of training for our
    at-risk youth, has $65 million in the budget for this year for
    that program. It's been a very successful program.
        Part of the challenge is the State funding. What we're
    discovering is, in many of the States, because of the severe
    pressure on the State budgets, this program is beginning to
    compete with other kinds of programs, and that the State's
    share might not be able to be borne by the State. That should
    be of concern certainly to them, because these are local
    youths. The Federal Government is committed to its share. That
    $65 million appears to be appropriate.
        STARBASE is a little bit different in that that program, in
    which participating young men and women who are also at-risk,
    learn in the area of math and science and go once a week for 5
    weeks to a program which assists them in getting those skills
    in math and science and also in becoming productive citizens.
    We have a little over $13 million in that program.
        I strongly support both of these programs. In Louisiana,
    when I traveled there as the Chief of Naval Reserve, I visited
    the Challenge people on site and I saw those young men and
    women becoming better, productive citizens. I think part of the
    challenge will be for the States to be able to make sure their
    budgets support their share of it.
        Senator Ben Nelson. If they fail to support it, through
    their budgets, does that mean the demise of the program?
        Secretary Hall. We try to help them. They have to make that
    judgment call, and there are a couple of ways you could do
    that, and we have recently talked to a couple of States. You
    might scope down the number of children in the program and be
    able to accomplish it within the funding that you have left.
    What I think would be a mistake would be to cancel the program,
    because these young men and women need that example. We need to
    help them be productive citizens, but the States have to
    decide, do you scope it down and have less people, or do you
    make that tough decision to not support it? I hope we keep
    those programs going.
        Senator Ben Nelson. Secretary Hall, yesterday, I heard that
    top Federal officials have asked many of the 50 States to
    deploy the National Guard or some State Police programs to
    protect sensitive sites across the Nation from possible attack.
    If the National Guard is deployed for this homeland security
    mission, do you know what their status will be for personnel
    purposes?
        Secretary Hall. I read the same thing, and I know Secretary
    Ridge talked to all of the Governors. I know they have
    developed an extensive list of the different facilities that
    need to be looked at, both Federal and State, critical
    infrastructure throughout the country, and to develop the plan
    by which we protect those. Of course, the military force is not
    a first responder. DOD is not. The other agencies are. We're in
    support of that.
        I think there's adequate flexibility within Title 10, Title
    32, or State active duty, using any of those three that is
    appropriate as determined by the Governor in consultation with
    Federal authorities to get the people on scene from DOD that
    you need to support the first responders.
        So I think there's flexibility within those three
    provisions, Senator, to handle what we need, and we are
    cooperating in that review.
        Senator Ben Nelson. In that regard, a number of the States
    have indicated that they don't have the funds to be able to
    activate the Guard. If a State doesn't do it because of the
    lack of money, is there the possibility that the Federal
    Government would reimburse the States for any call to active
    duty?
        Secretary Hall. I guess I can only go back to the past,
    what has happened, and I wasn't here during that time. It's my
    understanding that if it's determined to be a requirement that
    we need those troops, and if it's determined that the
    appropriate way is to take Federal funds to reimburse them to
    go meet that mission, then I think that'll be done. I think
    that's a consultation between the State Governor and the
    Federal Government and a determination how we best get them
    there to do the job. There are provisions, and I think that
    will work.
        Senator Ben Nelson. So you do believe that the Federal
    Government could step up to the plate in those situations?
    Would there be a situation where the Federal Government might
    refuse to?
        Secretary Hall. I couldn't conjecture on that, sir. I think
    the provisions are there, and I have confidence that we'll do
    what's called for to protect that critical infrastructure.
        Senator Ben Nelson. Okay.
        Finally, Mr. Hollingsworth, in June 2002 the GAO reported
    that the DOD does not have complete information on civilian
    employers of the Guard and Reserve members, and this lack of
    information limits the ability of the Department to reach out
    to some of these employers to inform them of their rights and
    obligations and to help mitigate the temporary loss of
    employees who are mobilized. The GAO reported that the
    Department believes that the Privacy Act prevents them from
    requiring members of the Reserve components to provide this
    information. The GAO also recommended that the Department
    reexamine the provisions of the Privacy Act and determine
    whether requiring reservists to report information about their
    civilian employers is consistent with the act.
        Based on your dealings with the service members as well as
    your dealings with employers, can you support a requirement
    that reservists provide information to the Department of
    Defense on their civilian employment so if there is an
    exception as required as part of the Privacy Act or if it's
    determined that an amendment is not necessary to require that?
        Mr. Hollingsworth. Sir, I've got another good news story.
    Since that GAO report has been out, Secretary Hall and his
    staff have been working real diligently with Dr. Chu to bring
    that to fruition, and we're there. We have gotten authority to
    do that. Now we're in the process of establishing the technical
    ability to capture that data. I think by the first of June or
    so, we should start being able to have our ADP systems in place
    to make this happen. So that is a great story, and that's a
    tremendous help to us in ESGR, sir.
        Secretary Hall. I might comment on that. In fact, we will
    in June. Part of our problem--and we get asked questions from
    various sources, how many of your people in the Reserve are
    first responders? How many of them are firemen or policemen?
    Because we want to know. We can't tell now, because we've had
    no requirement for guardsmen or reservists, to tell us their
    occupations and their employers.
        What we intend to do is to make sure the information
    collected is minimal, we protect their privacy rights and only
    collect what we need to know so that we can tell who your
    employer is to make judgments on things like are we mobilizing
    lots of firemen and policemen. We've had no way to do that
    until now--we'll start collecting that in June.
        Senator Ben Nelson. Thank you, both of you, gentlemen.
    Thank you.
        Mr. Chairman?
        Senator Chambliss. Secretary Hall, the Youth Challenge
    Program in my State is one of the most important programs, I
    think, that has ever been implemented, and I commend the
    National Guard on a regular basis for putting that program in
    place.
        I've spoken to one of the graduation classes, and my
    favorite story about them is a day that I happened to be there
    on a Friday afternoon when they were allowing the kids to go
    home. A gentleman came up to me after I spoke to the whole
    group--with parents in attendance who were waiting on their
    kids to take them home for the weekend--a gentleman in overalls
    came up to me with tears in his eyes, and he said,
    ``Congressman, I just want you to know were it not for this
    program, my son would be dead.'' Boy, you talk about something
    getting to you. That was about as powerful as it gets, and he
    meant it, and I knew he meant it. That's how important that
    program is.
        Secretary Hall, active duty physicians, nurses, and other
    healthcare providers receive significant compensation through a
    series of special medical pays. Many of these special pays
    require a service commitment; therefore, Guard and Reserve
    healthcare professionals are not eligible for these pays. I
    understand that one of the categories of reservists with the
    greatest income loss when activated is these healthcare
    professionals. Is the Department considering any type of
    medical special pay authorities to address the significant gap
    between active and Reserve healthcare providers?
        Secretary Hall. We are going to be examining that question
    in the pay and compensation study that the Department is
    undertaking. We hope to complete that by August. It's going to
    be a very broad look.
        Some of the things that we need to examine are recruiting,
    retention, and use of medical professionals, where we have
    shortages, and the effect of bonuses or incentive pay and other
    compensation where appropriate, and we're going to look at that
    comparing the Reserve to the active. That will be examined in
    that overall pay and compensation study for Guard and Reserve,
    which we hope to complete by August and report the results to
    you and others.
        Senator Chambliss. Good.
        Medical and dental readiness is a key to having deployable
    personnel, and a significant problem arose during the Gulf War
    when Reserve component service members were not dental-ready.
    This caused delays in the service member's deployment until
    dental issues were resolved, costly alternatives for DOD to
    provide the appropriate dental response, and often dramatic
    measures to correct problems that under other circumstances
    could have been handled with less severe treatment. Mr.
    Secretary, based on the experience gained during the Gulf War,
    what steps have been taken to ensure that dental readiness is
    not a problem this time? What steps still remain to be
    resolved?
        Secretary Hall. You hit upon it. Dental readiness is much
    bigger than just the medical, although it's all medical in
    nature. Based upon the Gulf War, a lot of attention has been
    given to the issue, but it still probably remains the number
    one.
        One of the issues that we have looked at is when are the
    guardsmen and reservists available to get dental care? One of
    the initiatives is to provide a low-cost dental insurance plan
    for our guardsmen and reservists. It's a self-pay, but I think
    the cost is--if I'm not right, we'll get back to you--$8.35 a
    month. Through this dental plan, it affords them the
    opportunity to buy that insurance to get themselves generally
    ready.
        Now, that's only a portion of it. The second is, how can we
    work on those young men and women at other times--can it only
    be when they're on active duty? We're examining the rules about
    being able to, as I've often said, not make light of it--
    ``drill'' them while they're on drill. So when they're
    drilling, can we provide our dentists to work on them? Because
    that would be very helpful.
        So we're examining a number of those alternatives
    recognizing it's probably our number one problem all with the
    goal of getting better in this mobilization than we were, but I
    don't think that better is quite good enough. Those are
    initiatives we'll look at to continue attacking the problem.
        Senator Chambliss. Ben, do you have anything?
        Senator Ben Nelson. Just one more.
        Senator Chambliss. Okay.
        Senator Ben Nelson. We've all heard stories of reservists
    who have experienced financial difficulty in being called up.
    There have been stories in the paper. Just recently there was
    one in a television program about the challenges that are
    there, what will happen to a family if it loses 60 percent of
    its income with 100 percent of its expenses continuing. Most
    families can't withstand that kind of a shock to their personal
    economy, and obviously it does create quite a challenge in the
    event of mobilization.
        Do you have any thoughts on what we might do in terms of
    dealing with that kind of a challenge?
        Secretary Hall. I have some, and then I would ask Mr.
    Hollingsworth to talk to you a little bit about what some of
    our employers and other people are doing.
        It's a problem which you hear a lot about, and what we're
    attempting to do is get our arms around the truth, because I
    read the same reports that go out about guardsmen and
    reservists that are losing tremendous amounts of money. We have
    attempted to come at it as analytically as we can.
        We have had a couple of surveys, and I add the caution of
    saying one of them was in 2000, one of them was in 2002. They
    surveyed a lower-amount database than we wanted, but we think
    they're statistically relevant. They generally show that about
    one-third of our guardsmen and reservists lose money when they
    go on active duty. About two-thirds, however, hold themselves
    even or actually gain.
        After I was here before, Mr. Chairman, I reviewed for your
    State some of the wages. In some cases--and I hate to say it,
    because I think our teachers are underpaid throughout the
    country in all of our States--our guardsmen and reservists
    would almost double their pay from being a teacher, if they're
    an officer, when they go on active duty.
        So we believe the two studies statistically validate each
    other, that about one-third lose some sort of pay. Of course,
    we'd rather not anyone. But many of our companies have stepped
    up to the plate, and I might ask Mr. Hollingsworth to tell you
    what is being done privately across the board, what is being
    done by some of the States that are picking up the difference
    in the pay.
        Mr. Hollingsworth. Yes, sir. A great news story, and it
    just makes me beam with pride in what our employers are doing
    as they step up to the plate and support our young men and
    young women across the country.
        Now, I have a list here of about 300. Lists are strange
    things around this town, because you have to be careful with
    getting lists because you don't want to have some people not
    wanting their name on a list. We're trying to take the people
    that really care about our Guard and Reserve and make them
    aware of just how proud we are of them. In many cases--we've
    done the surveys, and as we touch people every day in both the
    public and the private sector, we continue to learn about what
    they're doing to support the Guard and Reserve.
        I just heard one case that came out of a company that
    covers six States in New England for their folks in the Guard
    and Reserve who belong to that company, they're going to
    provide the difference in salary. They're going to continue the
    medical benefits. They're going to form, or they have formed,
    family support programs so that if their yards need mowing, if
    their children need to be taken to the doctor, and so forth,
    they can provide babysitting. There's really incredible things
    being done out there. But these people went one step beyond.
    They say if you have a spouse that's in the Guard and Reserve
    and you've been mobilized, we'll give you an opportunity
    without using vacation time--we'll buy you a ticket to wherever
    that person is, if he's in the United States, and let you go
    visit him or her.
        So those are the kind of things people are stepping up to
    the plate to do, and it's a really exciting time to be a part
    of this because the employers really are stepping up to the
    plate.
        I would encourage Congress to just continue to acknowledge
    what our folks are doing. That's both in the private and the
    public sector. We have young businesses in the small townships
    that are really hurting because of the financial situation that
    they may be in. From a tax-base perspective, when their folks
    are mobilized out of their townships, they're meeting their
    salary differential, continuing their medical benefits. It's a
    great news story, sir.
        Secretary Hall. The other thing, if I just might, we also
    want to make sure, and it is a complex problem, but our young
    men and women that are mobilized in the foxhole are earning the
    very same as their active duty people right alongside of them.
    So we have to be careful to balance all of the factors so that
    each and every E-5 Reserve or active are earning the very same
    salary, and we monitor that. It's also something you have to
    consider.
        Senator Ben Nelson. Is there any idea or a ballpark
    estimate of how many people and what percentage of their income
    they're losing? If you're losing only a slight part of your
    income, it's one thing. But the story the other evening of
    losing 60 percent, that's another, you may not have as many
    suffering the hardship, but you could have the few suffering a
    great hardship. I wonder if there's any way of determining what
    hardship is being suffered and by how many.
        Secretary Hall. We haven't had the fidelity that we need
    within our systems. That's one reason we need an employer-based
    system, so we can accurately slice that and cut that and take
    information away from it. Generally, our experience tells us
    that in certain fields, a vast amount of loss is not being
    realized in the firemen and policemen and other skills. In
    doctors, perhaps lawyers, and some of the other information
    technology specialists that are very high-earning there may be
    greater losses.
        Senator Ben Nelson. If they run a solo practice?
        Secretary Hall. Yes.
        Senator Ben Nelson. With an office full of backup
    personnel, they would be more detrimentally hurt, as would
    others, if they had to give up the----
        Secretary Hall. I think that's where you see--and that's
    where the larger differentials--and we need to do a better job
    of cutting it the way you indicated and getting the exact
    ground truth on it. It's hard to come at. I suspect it's in the
    ones that were typically very high wage earners, perhaps
    physicians, and then they would suffer a bit more.
        Senator Ben Nelson. I suspect you're not trying to figure
    out a way, for those who are actually earning more, to give it
    back.
        Secretary Hall. We have seen no one willing to do an income
    distribution so far within that 66 percent----
        Senator Ben Nelson. Redistributions like that happen in
    government, not out there. Yes.
        Secretary Hall. Sir, I've talked to many guardsmen and
    reservists as I travel around the country. They say, ``Yeah,
    we're suffering hardships, but we know it's important for our
    country.'' In large part, they're silent, they're doing what's
    fundamentally right because they know that when they signed up
    to stay in the Guard and Reserve that there's an obligation to
    their country's defense there that they're willing to accept,
    and they know that there's a risk involved, and that makes you
    even prouder to be an American, to see what they're doing.
        Senator Ben Nelson. I think it's important for the record
    to indicate that we are not undersiege by report after report
    by any of the reservists or their families about this
    situation. They will suffer silently because of their sacrifice
    and their commitment to their country. It's because of that
    that I think it's important we bring it up, since they're
    certainly not going to bring it up or raise the issue
    significantly. I think it is important that we make sure we're
    doing everything we can to deal with that issue.
        I think it's also important, as you would agree, to the
    future of the Reserve or Guard components because of the fact
    that if you're going to lose a solo practice or you're going to
    lose a great deal of money and risk financial challenges, you
    may decide that you can't be a part of the process.
        Secretary Hall. Clearly, for recruiting and retention for
    the future, we're all going to be competing for a smaller
    demographic pool of people. We're competing against business,
    and we have to think through this thing regarding total pay and
    compensation for the future. As we compete for that smaller
    base of manpower to retain and recruit people, we're going to
    have to consider that, and that's our commitment in looking at
    this in a very broad-based way with respect to compensation and
    pay for all of the guardsmen and reservists.
        Senator Ben Nelson. Thank you, again.
        Senator Chambliss. Secretary Hall, just one other question
    that I'd like to get you to comment on, and that is the
    proposed merger of the military personnel accounts, Guard and
    Reserve, with the active force. Obviously, this has generated a
    lot of controversy inside and outside of Congress, and I would
    appreciate any comment you would like to make on this proposal.
        Secretary Hall. Certainly, what Congress decides on it
    ultimately will be what we will do on it. I think, if I can
    best characterize the management initiative--and it does
    parallel my experience when I commanded the Reserve and in my
    other military billets--and that was that any commander,
    businessman, or anyone would like to have flexibility within
    their accounts. You would like to have control of all of the
    different kinds of pots, be able to apply those as you best see
    fit, and flexibility.
        The Department feels that there would be more flexibility
    combining the Guard, Reserve, active duty accounts to be able
    to move money from active to Guard or Reserve, or vice versa,
    based upon the need. It could move either way. They will still
    maintain the visibility by appropriation, however, so that it
    could be viewed by the Department, myself, and you to see if a
    balance is being maintained.
        I think it is certainly--from Secretary Rumsfeld's
    position, he would like more flexibility in all of his accounts
    to be able to manage the money in a more flexible way. That is
    what's behind it. There's a lot of concern on behalf of
    associations, guardsmen, and reservists, ``Will this mean
    migration of large amounts of money from Reserve accounts over
    to the active side?'' I don't see that. I think should those
    kinds of things occur, it would be incumbent on all of us to
    explain why, to provide visibility on that, and to make sure
    the right thing is being done.
        We have no indication that this system would not provide
    more flexibility and would not work at this point. I think we
    have to see.
        Senator Ben Nelson. Mr. Chairman, I have one follow-up
    question to that.
        Senator Chambliss. Sure.
        Senator Ben Nelson. In terms of having the flexibility
    here, would this still protect the accounts as it might relate
    to the availability of the Guard at the local level to deal
    with emergencies, or will I be getting a call from the Nebraska
    Adjutant General saying that, ``I'd like to help my Governor,
    I'd like to help the people in the State of Nebraska, but they
    pulled the money out of my account. It's over in another
    account, and I can't mobilize to deal with an emergency?''
        Secretary Hall. I would hope you wouldn't get that call,
    and the panel that follows us might be the first one to get
    that. It certainly would not affect the State funds which the
    Governor could use. I do not think it would affect the overall
    pot of money available in Federal funds to support either Title
    32 or Title 10 requirements, and I don't think that's at all
    the intent of it; it's more one of flexibility.
        Senator Ben Nelson. I understand it wouldn't be the intent;
    I just wanted to make sure it wasn't the unintended
    consequence.
        Secretary Hall. I hope you don't get that call, sir.
        Senator Ben Nelson. All right. Thank you.
        Senator Chambliss. Gentlemen, thank you very much for your
    testimony today. We appreciate your being here.
        I'd now like to ask our second panel to come forward, Major
    General Raymond Rees, Acting Chief, National Guard Bureau;
    Lieutenant General Daniel James, Director, Air National Guard;
    and Lieutenant General Roger Schultz, Director, Army National
    Guard.
        Gentlemen, thank you for being here today, and we look
    forward to any opening statements you have to make.
        General Schultz, we'll start with you.

     STATEMENT OF LT. GEN. ROGER C. SCHULTZ, ARNG, DIRECTOR, ARMY
                             NATIONAL GUARD

        General Schultz. Thank you, Mr. Chairman.
        Mr. Chairman, if I could, I'd like to introduce the senior
    enlisted member of the Army National Guard, Command Sergeant
    Major Frank Lever. He's with us today. He looks after our
    soldiers in the field, and I just want you to know, Mr.
    Chairman, I'm honored to serve with that soldier.
        Mr. Chairman, today we have over 80,000 members of the Army
    National Guard in a partial mobilized status. That's in
    addition to the other deployments that we have around the
    world. We've already discharged over 20,000 members from
    previous years' mobilization duty. So we had over a third of
    the Army Guard on some duty status since the September 11
    attacks just a couple of years ago.
        Mr. Chairman, I appreciate your interest in looking after
    our team in the field. Today, in a special way, it's not just
    our soldiers; it's our families and our employers, as well.
    ``Trained and ready'' is the theme that we carry throughout our
    work. Mr. Chairman, with your support and members of the
    committee's support, that's exactly what we have.
        Mr. Chairman, I'm honored to represent their interests here
    today. Thank you.
        Senator Chambliss. Thank you.
        General Rees.

     STATEMENT OF MAJOR GEN. RAYMOND F. REES, ARNG, ACTING CHIEF,
                         NATIONAL GUARD BUREAU

        General Rees. Mr. Chairman, I'm grateful to be here and
    have this opportunity to talk about the Guard, and pleased to
    be here with both the Director of the Army Guard, General
    Schultz, and the Director of the Air Guard, General James, and
    their senior enlisted noncommissioned officers that are here
    with us.
        I want to also thank you very much for your support and
    this subcommittee's support. The magnificent effort that's
    going on in the Guard and Reserve right now all across the
    globe couldn't have been done without the help that's been
    given to us over the years.
        I have prepared a written statement that provides detail,
    and would offer that for the record. I just want to take a
    moment here to highlight some key points.
        Perhaps more than any time in modern American history, both
    the Army and the Air National Guard have been responding to the
    call of America. Even prior to the events of September 11,
    2001, the Guard was performing, in unprecedented numbers, in
    support of military operations worldwide and military support
    to civil authorities at home. Since that time, the numbers have
    gone even higher.
        The Guard is well-suited to be flexible and responsive in
    its ability to provide personnel to both combatant commanders
    and Governors in the various duty statuses available to meet
    each need. My written testimony details these duty statuses and
    the means in which they can be employed, and the success in
    which these duty statuses have been used I believe are well-
    documented.
        I would also add that at least one of them, in Title 32,
    U.S. Code, in which national guardsmen are under the command
    and control of the Governor but paid for with Federal funds, is
    a template that we believe should be considered for other
    missions as they relate directly to homeland defense.
        I would like to also highlight some success stories of our
    National Guard. While it is true that both the Army and the Air
    National guardsmen that are being called away from careers and
    families for extended periods, that the members are out there
    and are proud to serve. Given a large number of guardsmen that
    are called to duty, as General Schultz just mentioned, 80,000-
    plus of the Army National Guard and nearly 17,000 Air National
    Guard, are mobilized. We have individuals in other statuses at
    this moment that, when we look at the complete picture, there
    are over 140,000 national guardsmen that are involved in one
    way or another either in the Gulf, someplace around the globe,
    or in the domestic service. They train for their missions.
    They're ready, willing, and able to perform these missions when
    called upon to do so.
        I'm sure that General Schultz, myself, and General James
    can give you many anecdotes about meeting troops in the field,
    but General James can give you even more detail because of a
    mobilization survey that was just conducted by his
    organization.
        Importantly, in that survey, 89 percent of the Air National
    guardsmen indicated satisfaction with their amount of time in
    uniform, and 82 percent indicated that they intend to stay in
    the Air National Guard. When asked what would increase their
    likelihood of staying, the number one incentive was increased
    pay and benefits. This highlights that our guardsmen are proud
    of what they do and like doing it, and it's pay and parity
    issues that remain to be resolved.
        My written testimony also addresses other issues, such as
    disparity in benefits of national guardsmen serving under Title
    32 who are not protected under the Soldiers' and Sailors' Civil
    Relief Act.
        I'd also like to mention that the increased use of the
    Guard has also intensified our need for more full-time manning.
    That's a very big issue for us across the board.
        The fight against terrorism and the protection of our
    homeland will be a protracted effort. Many policy experts,
    reports, and studies have advocated an expanded role for the
    National Guard in homeland defense. We'd like to think that
    we've been doing this since 1636, and we will continue to do
    so. Our mission under the Constitution is to repel invasions,
    suppress insurrection, and execute the laws of the Union.
    Certainly under both Title 10 and Title 32, our mission there
    is to be an integral part of the first line of defense of this
    Nation.
        The reality is that the National Guard is an integral part
    of the Army and Air Force total mission capability, and that
    role is vital to the Nation. The Guard Bureau is going to work
    with the States, with the Northern Command, with the Services,
    with the new Assistant Secretary of Homeland Defense, and so on
    to identify whatever additional homeland defense capabilities
    are needed, and we plan to consolidate and validate the stated
    requirements and help find solutions. In this capacity, the
    National Guard Bureau, we believe, can serve as a very useful
    channel of communications to all of those entities that I have
    mentioned, as well as be the channel of communication that we
    are traditionally seen as with the Department of the Air Force,
    the Department of the Army, and our role as the Reserve of
    those Services.
        The men and women of the Army and the Air National Guard
    are well-engaged in every aspect of our national response to
    the threats facing our country. They are making significant
    sacrifices. They are enthusiastic about serving and do so with
    pride and determined competence. They prove every day that when
    America needs the Guard, the Guard is there.
        I thank you for this opportunity to testify, and I stand
    ready to take your questions, sir.
        Senator Chambliss. Thank you.
        General James.

      STATEMENT OF LT. GEN. DANIEL JAMES III, ANG, DIRECTOR, AIR
                             NATIONAL GUARD

        General James. Mr. Chairman, I, too, would like to thank
    you for this opportunity to appear before you today.
        Before I get into my remarks, I also would like to
    introduce the Command Chief Master Sergeant of the Air National
    Guard, Chief Master Sergeant Val Benton, who's in attendance
    here today. Master Sergeant Benton serves as my senior enlisted
    advisor and my link between the Air National Guard directorate
    and the enlisted airmen in the field, and does so very well.
        As we enter yet another phase of challenging times for our
    Nation, the Air National Guard is more involved in global
    operations and the defense of this Nation than any time since
    the Korean War. General Rees pointed out, there are tens of
    thousands of airmen around the globe this afternoon serving
    their country very well.
        Our new motto in the Air National Guard is ``ready,
    reliable, and relevant'' and it is perhaps an understatement of
    the great things our men and women are doing in service of our
    Nation. We have quite a story to tell, and I'm very proud to be
    the conduit of that story on behalf of over 109,000 patriots
    that comprise your Air National Guard today.
        The close relationships we have maintained with our
    members, their families, and their employers are key to the Air
    National Guard's accessibility and reliability during the
    global war on terrorism. We would like to thank Congress for
    recently passing two pieces of legislation that will
    significantly aid the Air National Guard's future recruiting
    and retention efforts--significantly allowing to us to increase
    the prior service accession bonus from $5,000 to $8,000, and
    your initiative to increase the eligibility period for the
    Montgomery GI Bill benefits from 10 to 14 years. We believe
    that both of these programs will pay the Air National Guard and
    the National Guard substantial dividends in the years to come.
        We're striving to retain the core of the Air National
    Guard, our midterm airmen. Those are those members who are
    serving between the 6-year and the 12-year point. By doing so,
    we'll be able to substantially mitigate pressures on our
    training pipeline caused by the projected surge in non-prior-
    service members.
        Our retention is the lowest in the mid-career airmen
    category. Currently, our re-enlistment bonus for critical
    specialties is capped at $5,000. We believe a more appropriate
    limit would be $10,000. This would help us sustain our
    readiness posture for rapid mobilization and deployment
    required by today's operations tempo.
        While we strive to ensure parity of pay and benefits for
    all of our members, with deployments at historically high
    levels we must also keep a watchful eye over the families they
    leave behind. The post-September 11 challenges and operations
    tempo of the Air National Guard not only increased our reliance
    on our people, but ultimately placed increased pressures on
    families. We continue to recognize the importance of the family
    as the key tenet of readiness and retention. Family support is
    a readiness issue, and we address it accordingly. We have been
    successful in improving family support because you have given
    us the necessary resources to fund a full-time contracted
    family-readiness position at each wing and combat readiness
    training center.
        Our employers are also a key component of our ability to
    put the right person in the right place at the right time to
    support our national security objectives. The Air National
    Guard could not function without the support of America's
    employers. With the increased utilization of Reserve component
    personnel, employers are being impacted now more than ever.
        In closing, we do not know what the future holds for our
    dedicated men and women. We do know that they have a proven
    track record of rising to every challenge and answering every
    call. We are busier than ever, and we are needed now more than
    ever, and we most certainly need the equipment and resources to
    perform our mission; however, our most precious resource
    remains our people. We are confident that working with you, we
    will remain a premier military organization serving in the
    communities throughout this land, protecting America, at home
    and abroad.
        I thank you again for the opportunity to appear before you
    here today. I look forward to working with you and to answering
    your questions.
        [The prepared joint statement of General Rees, General
    Schultz, and General James follows:]
      Prepared Joint Statement by MG Raymond F. Rees, ARNG; LTG Roger C.
               Schultz, ARNG; and Lt. Gen. Daniel James III, ARNG
        Mr. Chairman and members of the subcommittee, as always we are
    extremely grateful for this opportunity to talk about the National
    Guard and what it needs to stay strong for America.
        Title 10 of the United States Code invests the Chief of the
    National Guard Bureau with many responsibilities for administering,
    training, organizing, and equipping the National Guard nationwide. I
    appear here today in my capacity as the Acting Chief of the National
    Guard Bureau. I am joined by the Director of the Army National Guard,
    LTG Roger Schultz and the Director of the Air National Guard, Lt. Gen.
    Danny James. Both of them are charged with the statutory duty to assist
    the Chief of the National Guard Bureau in carrying out the functions of
    the National Guard Bureau. They will talk in detail about Army and Air
    National Guard matters respectively. Before they do that, however, I
    would like to mention a few joint, over-arching concerns that apply to
    both the Army and the Air National Guard.
        The issues we address today and many others are covered in the 2004
    National Guard Posture Statement. This document is in the final stages
    of completion and will be available to you and your staff members
    shortly.

                          JOINT NATIONAL GUARD ISSUES

        Perhaps more than at any time in modern American history, both the
    Army and the Air National Guard has responded to the call of America.
    Even prior to September 11, 2001, the National Guard was performing an
    unprecedented amount of duty in support of military operations
    worldwide. Since that time, national guardsmen have come forward in
    huge numbers to fight the war on terrorism both overseas and here at
    home.
    The National Guard as a State/Federal Asset--The three duty statuses
        The National Guard can be employed in three separate duty statuses
    and members of the National Guard have been employed heavily in every
    one of them. First is State active duty. State governors call their
    National Guard members to full-time State active duty to provide
    disaster relief or help law enforcement preserve civil order. Since
    September 11, States have also put guardsmen on duty under State-funded
    orders to fight terrorism. They have performed myriad homeland security
    tasks at the State level including guarding ports, bridges, power
    plants, and other key facilities.
        Second, national guardsmen can be employed under 32 USC 502(f) for
    duties funded by the Federal Government but executed under State
    command and control. Nearly all National Guard training is done in this
    status. Civil Support Teams and the National Guard Counter Drug program
    not only train but also conduct operational missions under this status.
        Civil Support Teams use military assets to help State and local
    authorities identify and deal with chemical, biological, radiological,
    nuclear, and high explosive hazards. They are jointly manned by both
    Army and Air National guardsmen. Over the past year the value of these
    teams--and the wisdom of congressional support for them--has been
    demonstrated over and over again. Of the 32 Civil Support Teams that
    have been established, the Secretary of Defense has operationally
    certified 31 of them. We expect the remaining team to be certified
    within days.
        National Guard Counter Drug activities use military assets to help
    law enforcement fight the war on drugs. In many cases, drug money funds
    terrorism. In addition to fighting terrorism indirectly, some of our
    National Guard counterdrug assets have also proven helpful in fighting
    the war on terrorism. Because the military assets are employed by State
    governments, the restrictions of Posse Comitatus do not apply. The
    unique structure of the program allows national guardsmen to provide
    this support to law enforcement without diminishing the readiness of
    National Guard units to perform their Federal mission. Recently we have
    taken steps to ensure that support provided by national guardsmen for
    this mission is reflective military tasks so that doing these missions
    actually strengthens wartime readiness. This program is a valuable tool
    for merging military capabilities with law enforcement. It has
    successfully helped fight drugs. A similar program based on this model
    might be valuable in fighting terrorism.
        Since September 11 the National Guard has also successfully
    performed even more homeland security operations under the Title 32
    duty status as well. When the President asked State governors to employ
    the National Guard to secure America's airports, this was done using
    Title 32 duty. This was highly successful. In addition, Title 32 duty
    is being used to employ national guardsmen for added force protection
    at National Guard facilities nationwide. For homeland security matters
    in which States and the Federal Government have a shared interest, the
    use of the National Guard under Title 32 duty has proven to be a highly
    valuable tool for putting boots on the job.
        The third duty status for national guardsmen, of course, is Federal
    active duty under Title 10 to provide units to the active Army and Air
    Force for war or other national security requirements. This is what we
    train, organize, and equip for. National Guard contributions to the
    Army and the Air Force over the past year will be covered in their
    respective sections below but in both cases, it has been historic.
    Mobilization Effects on both Army and Air National Guard
        While it is true that both Army and Air National guardsmen are
    being called away from careers and families for extended periods, the
    members of the National Guard are proud to serve. Given the large
    numbers of guardsmen called to duty, there have been relatively few
    complaints. They train for the mission. They are ready, willing, and
    able to perform the mission when the time comes.
        Even so, there are some issues. One of the negative impacts of the
    increased level of mobilizations has been the disparity in benefits.
    Members of the National Guard mobilized under Title 10 are protected
    under the Soldiers and Sailors Civil Relief Act. Those serving under
    Title 32 are not protected.
        The increased use of the National Guard has intensified our need
    for more full-time manning. We are a force largely of traditional part-
    time citizen-soldiers and airmen. The few full-time people we do have
    are crucial to performing the administration and training preparation
    necessary to make productive use of the limited training time available
    to the traditional drilling members.
        We are working successfully with both Services to establish a truly
    joint State headquarters. This will enhance jointness in the National
    Guard right down to the State level. More importantly it has the
    potential to greatly strengthen mobilization as well as operational
    capabilities here in the United States.

    Homeland Security
        The National Guard is poised to play important roles in homeland
    defense including missile defense, air sovereignty, and information
    operations among others. In addition to these military missions here
    inside the United States, the National Guard Bureau will also
    facilitate military support to civil authorities by the Army and Air
    National Guard. Military support to civil authorities includes domestic
    disaster relief operations that occur during fires, hurricanes, floods,
    and earthquakes. Our support also includes counter-drug operations and
    incident management assistance, such as would occur after a terrorist
    event employing a weapon of mass destruction.
        Under Title 10, the National Guard Bureau is the official channel
    of communications between the States and the Departments of the Army
    and the Air Force. Recently we have coordinated with the Combatant
    Commander of U.S. Northern Command to perform that same role for
    NORTHCOM. As part of this, the National Guard Bureau provides
    situational awareness on State-commanded National Guard operations to
    the Commander of U.S. Northern Command to augment his ability to
    effectively plan for and manage the overall role of his command.
        The National Guard Bureau's capability as a two-way channel of
    communication to the National Guard of the several States is a valuable
    tool in the homeland defense and homeland security environment. We are
    pursuing some discussions and initiatives inside the Department of
    Defense to better exploit that capability for all segments of the
    Department of Defense.
        The fight against terrorism and the protection of our homeland is
    expected to be a protracted endeavor much like the Cold War. To that
    end, many policy experts, reports, and studies have advocated an
    expanded role for the National Guard in homeland security. While some
    have suggested that the National Guard should be reoriented,
    reequipped, and retrained for the homeland security mission, the
    reality is that the National Guard is an integral part of the Army and
    Air Force Total Force mission capability and that role is vital to the
    survival of the Nation. In the past the resources, personnel,
    equipment, and training provided for the wartime mission were
    sufficient to allow the National Guard to also fulfill its local and
    State support role by responding to local disasters and military
    support to civilian authorities. Times have changed, however. The
    threat posed by well-financed, sophisticated, and determined
    international terrorist groups has raised the bar as to what the
    National Guard must be able to do. While the National Guard will
    continue to maintain a high state of readiness for overseas operations,
    it must also better prepare itself to respond to the homeland security
    mission within the United States. Both at the National Guard Bureau and
    in the States, the National Guard is working hard to find ways to meet
    the increased demands of the homeland security mission while still
    maintaining its ability to execute its Total Force requirements.
        The National Guard Bureau will work with the States as they
    identify what additional homeland security capabilities they need. We
    plan to consolidate and validate the stated requirements and help find
    solutions.
        The road ahead also includes a transformation of National Guard
    counterdrug efforts into an integrated Counter Narcotics/Homeland
    Defense Counterterrorism program. These mission areas employ many of
    the same tactics, techniques, and procedures, as well as equipment,
    training, and skills. Therefore, a great deal of cross-skill transfer
    will begin immediately once the change is effected, and a quick,
    effective, seamless transition between and across mission sets will
    allow Guard troops to readily take their places on the front lines of
    the war against terrorism at home and abroad.

    Conclusion
        The men and women of the Army and Air National Guard are extremely
    busy. Thousands are away from their families and their careers, serving
    in uniform for their State or the Nation in the global war on
    terrorism. They are making significant sacrifices. Even so, they are
    enthusiastic about serving and do so with fierce pride and determined
    competence. They prove everyday that when America needs the National
    Guard, the National Guard is there. We have a non-negotiable contract
    with the American people to win our Nation's wars and are entrusted
    with their most precious assets, America's sons and daughters. These
    sons and daughters are proud and patriotic members of the Army National
    Guard family.

                              ARMY NATIONAL GUARD

        The Army National Guard plays a crucial role in providing security
    to the Nation, the Nation's citizens, and the interests of the country
    overseas. We fulfill our role in the National Military Strategy by
    supporting combatant commanders and conducting exercises around the
    world. Within our borders, Guard soldiers continue to provide
    assistance to victims of disaster and protection from our enemies. Our
    soldiers always stand ready to support the United States and its
    citizens whenever and wherever they are needed.

    Operations Noble Eagle and Enduring Freedom
        From September 2001 to September 2002, the Army National Guard
    alerted and mobilized more than 32,000 soldiers throughout the country
    and around the world, fighting the global war on terrorism and
    defending freedom with our engagement in numerous operations. Operation
    Noble Eagle has mobilized in excess of 16,000 soldiers from 36 States
    and Territories to provide force protection at various Department of
    Defense facilities and at our Nation's borders. Operation Enduring
    Freedom has mobilized about 16,100 soldiers from 29 States and
    Territories to support the global war on terrorism in Southwest Asia
    through the U.S. Central Command area of operations. Army National
    Guard soldiers are also involved in other peacekeeping operations
    throughout the world.

    Army National Guard Anti-Terrorism Force Protection
        In fiscal year 2002, the Army National Guard provided soldiers for
    deployments in the continental United States and overseas. Almost
    20,000 soldiers worked 1,490,000 mandays conducting force protection
    missions and executing border security missions at 83 sites owned by
    the Army Material Command, the U.S. Army Training and Doctrine Command,
    the U.S. Army Forces Command, the Immigration and Naturalization
    Service, and the U.S. Customs Service. The National Guard supported
    homeland defense missions by guarding airports, nuclear power plants,
    domestic water supplies, bridges, and tunnels in support of the State
    Governors.
        The Army National Guard's Anti-Terrorism Force Protection and
    Physical Security programs provide for security and protection of
    facilities, personnel, and equipment, as well as the monitoring and
    maintenance of intrusion detection systems that detect and assess
    threats at 397 critical sites. Intrusion systems, closed circuit
    television, and access control systems decrease the number of personnel
    needed to guard facilities as well as prevent personnel from exposure
    to potentially harmful situations. Increasing security systems saves on
    personnel costs, requiring fewer soldiers to guard Department of
    Defense facilities, equipment, and property and are channeled instead
    into mission deployment or crisis management.

    Contingency Operations
        The Army National Guard has assumed the lead as the stabilizing
    force in the Balkans and in Southwest Asia. Six Army National Guard
    brigades and numerous battalions participated in rotations as part of
    the Multinational Force Observers in the Sinai, and in Southwest Asia,
    providing support to the Air Defense Artillery units in Kuwait and
    Saudi Arabia. The Army National Guard is scheduled to provide Division
    Headquarters and maneuver units to four of the next six rotations to
    Bosnia.

    Military Support to Civilian Authorities
        Since September 11, 2001, Army National Guard soldiers have
    responded to 263 requests for emergency support for a total of 645,419
    mandays. These soldiers provided security, logistics support,
    transportation, and family care centers. They worked in support of
    World Trade Center relief, the Winter Olympics, and security at
    American icons such as Mount Rushmore, the Boston Marathon, and the
    Superbowl in Louisiana. Major wildfires involving 21 States and
    consuming over 6.6 million acres required 47,519 mandays of support.
    The Army National Guard provided aviation support with water-bucket
    drops, security, and command and control as needed. The Guard's
    soldiers supported flood recovery operations in Kentucky, West
    Virginia, Tennessee, and Texas for a total of 23,882 mandays.

    Extensions of Mobilizations Beyond One Year and Repeat Mobilizations
        More than 6,100 ARNG soldiers currently are affected by either
    repeat mobilization or extension of their mobilization for a second
    year. A total of 41 units have been or currently will be mobilized for
    a second time since January 2001. These repeat mobilizations affect
    units either in whole or significant part. These repeat mobilizations
    include units mobilized under Presidential Reserve Callups for Bosnia,
    Kosovo, and Southwest Asia, as well as under Partial Mobilization for
    MFO-Sinai and Operations Enduring Freedom and Noble Eagle. The most
    affected unit type is Military Police. Of the total 41 units and 5,600
    soldiers concerned, more than half--23 units and 3,090 soldiers--are
    Military Police. Other affected unit types include Aviation (Air
    Ambulance), Army Oil Analysis Program Lab, Engineer, Military
    Intelligence and Air Defense.
        The number of soldiers currently in their second year of continuous
    mobilized service is 531. A total of 354 have been extended for
    Operation Enduring Freedom; 177 have been extended for Operation Noble
    Eagle. Extensions primarily are due to High Demand/Low Density nature
    of affected units, or due to the specialized nature of the skills
    required. Units and skills affected include Military Police, Special
    Operations Forces, Military Intelligence, Military History Detachments,
    Chaplains, and Information Operations.

    Recruiting and Retention
        The United States cannot undertake any worldwide military
    contingency or operational effort without the National Guard. The
    events of September 11, 2001 have placed increased demands on the Army
    National Guard. Manning and maintaining a viable force is our number
    one priority. There are new challenges today--the unknown impact of
    war, the lowered propensity for enlistment, retention challenges for
    soldiers returning from mobilization, and the continued competition
    with civilian sector all impact our ability to recruit and retain. But
    there are always challenges. Over the course of the last 8 years, the
    Army National Guard has maintained a quality force, meeting our
    congressionally mandated end strength objectives. We will continue to
    be successful in fiscal year 2003 and in the future.
        Last year, fiscal year 2002, we achieved an end strength of
    351,078, representing 36,441 officers and 314,629 enlisted soldiers.
    The Army National Guard met our accession goal, recruiting 32,811 non-
    prior service and 30,448 prior service soldiers. We exceeded both our
    first-term and career retention goals.
        In fiscal year 2003, we must enlist 62,000 soldiers, 32,865 non-
    prior service enlistments, and 29,935 prior service soldier contracts.
    To date, we are experiencing a slight decrease in both non-prior
    service and prior service accessions. These challenges are not
    insurmountable. We are making adjustments to our national and by-State
    strength plans to meet our objectives. We are not seeing an increase to
    our attrition and retention numbers, based on increased demands. We
    are, however, working plans to address the possibility of higher
    attrition rates upon demobilization of our soldiers. There is no
    current indication that this will be problematic.
        How we treat our mobilized soldiers, and more specifically, their
    families, will determine if our soldiers stay or leave the service
    after deployment. Family readiness, family assistance centers, and
    overall family care is critical to our long-term success. Many of the
    Guard families are not located in close proximity to military
    facilities. We are aggressively establishing and manning family
    assistance centers across America to ensure our family needs are met.
    Our outreach programs are not optional, we have an obligation to
    provide assistance to our Guard dependents. Our goal is to have 100
    percent contact with every family member through active outreach.
    Continued support of these programs is critical.
        Our inducement programs--bonuses, incentives, and education
    programs have been successful in attracting quality enlistments to
    critical positions, and retaining trained, qualified, and ready
    soldiers. As in the past, the Guard places great emphasis on our
    educational benefits which include Federal tuition assistance,
    Mongomery GI Bill, tuition assistance within the States, and
    specialized education programs to assist our soldiers in degree
    planning and lifelong learning. Education increases the wellbeing of
    the soldier, their families, and their potential in society. Soldiers
    that participate in education programs are much less likely to leave
    our ranks.
        Today, we offer a non-prior service and prior service bonus for
    critical skills. We also offer a retention bonus for qualified
    soldiers. These programs have allowed us to meet our strength
    objectives while tailoring the force to meet specific manpower
    requirements. We see continued funding of these incentives as critical
    to our success today and in the future.
        The Army National Guard is active in the Army's Well-Being
    initiative. As Lieutenant General Le Moyne, the Army G-1, testified
    before this committee last week, ``we recruit soldiers, but retain
    families''. The well-being of our soldiers, retirees, veterans,
    civilian workforce, and their families is important to our ability to
    meet the Nation's call to arms. No where else is this more important
    than with our citizen-soldiers. We will continue to work hand-in-hand
    on this important initiative.

    Accelerated Officer Candidate School Program
        The Army National Guard initiated a very successful accelerated
    Officer Candidate School Program in 1996. This accelerated program cuts
    11 months off the traditional course duration (8 weeks of full-time
    versus 13 months of part-time training). This is particularly
    beneficial to States experiencing large company-grade officer
    vacancies. Class sizes were increased to 200 students in 2001 and to
    400 students in fiscal year 2002 to meet the forecasted training
    requirements submitted by the States. Moreover, an additional class was
    conducted beginning in January 2003 to support the current war effort.
    The Army National Guard will continue to grow the program to address
    the shortage of company-grade officers.
    Initial Entry Training Management
        The Chief of Staff of the Army has provided guidance to the Reserve
    component to have at least 85 percent of assigned soldiers qualified in
    their duty specialties by fiscal year 2005. The Army National Guard
    fully intends to meet or exceed this goal, funding this program at 95
    percent of validated requirements for fiscal year 2004. In the past,
    the Army National Guard has had difficulty getting the proper Initial
    Entry Training quotas to meet the demands of the force. As a result,
    the Army National Guard has been lacking in qualified personnel in
    certain occupational specialties. These shortages affect its ability to
    mobilize and/or deploy.
        In order to meet the quota goal, the Army National Guard has taken
    input from the Adjutants General and has developed a new Initial Entry
    Training management system. This system has refined the Army National
    Guard's ability to accurately forecast Initial Entry Training
    requirements. These forecasts will more closely match those necessary
    to meet Army National Guard readiness goals than previous methods.

    The Army School System and Qualifying Army National Guard Soldiers
        The Army School System is a multi-component organization of the
    United States Army Training and Doctrine Command, the Army National
    Guard, and the U.S. Army Reserve that has been organized to deliver
    Military Occupation Skills Qualification Reclassification,
    Noncommissioned Officer Education System, Officer Education System, and
    functional military courses. This system provides the National Guard
    with the means to train and retain quality soldiers and leaders who are
    so essential to rapidly and effectively responding to the Federal
    mission or to missions of homeland defense.
        The Army National Guard has developed an In-Unit Training program
    that has enhanced the ability to produce a larger number of soldiers
    who have achieved Duty Military Occupational Skill Qualification. The
    Army National Guard has also provided Mobile Training Teams overseas to
    sustain the training of its soldiers who are deployed around the world.
    The Army Guard and Reserve instructional, training development, and
    budget management staffs are combining efforts to build a future United
    States Army Training and Doctrine Command that can deliver seamless
    training to standards as part of the institutional training within the
    Army.
        The Army National Guard supports the initiative by the Army Deputy
    Chief of Staff for Personnel to hold selective retention boards that
    will allow selected captains and majors to be retained so that they may
    reach 20 years of active service. The Army National Guard also supports
    the Deputy Chief's initiative to select captains for promotion who do
    not possess a baccalaureate degree or military education certification.
    The actual promotion to the next higher grade will become effective
    once the individual completes the required civilian or military
    education.

    Army National Guard Medical and Dental Readiness
        Individual medical readiness of Army Guard soldiers has become a
    heightened priority since September 11, 2001. Individual medical
    readiness requirements include immunizations, dental, and medical
    screenings. The speed at which units deploy today places significant
    time constraints on the Guard to properly identify or correct medical
    or dental deficiencies at mobilization stations.
        In October 2001, the Army National Guard initiated the Medical
    Protection System, an automated tracking system for medical and dental
    records. This system also tracks physical exam readiness data, as well
    as HIV and DNA readiness data on file at the Army and Department of
    Defense repositories; it is used at mobilization stations to verify
    individual medical readiness in the Mobilization Level Application
    Software. When fully implemented, the system will allow commanders and
    human resource managers to monitor individual medical readiness of
    their soldiers. Resources can then be directed where needed, and early
    decisions can be made regarding the readiness of individuals and units
    to be deployed.
        It is important to understand that with very few exceptions, Army
    National Guard soldiers are not entitled to medical or dental care for
    pre-existing disorders, only for injury or illness incurred in the line
    of duty. Dental readiness is particularly problematic. Both Congress
    and Department of Defense have attempted to positively influence dental
    readiness, but the remedy is not yet available. Units are still
    arriving at mobilization stations with soldiers in need of dental care
    to bring them to deployment standards.
        If the Nation continues to utilize the Army National Guard and Army
    Reserve in support of the global war on terrorism, it must ensure that
    these Reserve components maintain the same high level of medical
    readiness as the active component.

    Full-Time Support
        Recent events, including fighting the global war on terrorism,
    underscore the vital role full-time support personnel have in preparing
    Army National Guard units for a multitude of missions both in the
    homeland and abroad. Full-time support is a critical component for
    achieving unit-level readiness during this period in the Nation's
    history. To meet readiness requirements, the Chief, National Guard
    Bureau, in concert with the State Adjutants General, has placed
    increasing full-time support authorizations as the number one priority
    for the Army National Guard. Those full-time Guard members are
    responsible for organizing, administering, instructing, training, and
    recruiting new personnel, as well as the maintenance of supplies,
    equipment, and aircraft. Full-time support personnel are critical links
    to the integration of the Army's components and remains the Army
    National Guard's number one priority.
        Three years ago the Army conducted an extensive review of its
    Reserve component FTS requirements. As part of this process, the Army
    developed a FTS ``high risk'' requirement, defined as ``the level of
    FTS below which units cannot maintain minimum standards for
    readiness''. The ASA (M&RA) and Army G3 approved an incremental ramp in
    fiscal year 2000 to achieve the high risk level of support NLT fiscal
    year 2012. Funding for incremental growth along the ramp was programmed
    in POM fiscal year 2004-2009. The ramp increase funds an additional 724
    Active Guard and Reserve (AGR) and 487 Non-dual Status Military
    Technicians each year until the high-risk level is achieved.
        Requirements for ARNG FTS requirements have increased commensurate
    with the global war on terrorism and homeland security. Consequently,
    the ASA(M&RA) and the Army G-3 and have approved a 798 AGR requirement
    increase to support high priority emerging missions/initiatives. These
    requirements have been leveraged across the ARNG AGR FTS ramp, with the
    ramp now reflecting spikes in given years corresponding to respective
    implementation timelines. These increases are in addition to annual
    increases programmed in POM 04-09 for the high risk ramp. Categories
    with FTS increases include Ground-Based Midcourse Defense, NGB Homeland
    Security and Liaison Offices, Weapons of Mass Destruction--Civil
    Support Teams, and Transformation Installation Management.

    Mobilizing Active Guard and Reserve Soldiers Under Title 32
        The Active Guard and Reserve program is designed to ensure that the
    training and readiness of Army National Guard soldiers are maintained
    at a high level. These codes have very specific limits on how the Army
    or the States and territories can utilize their Active Guard and
    Reserve Force in times of need.
        The events of September 11, 2001, brought these limitations to the
    forefront. Under Title 32, Active Guard and Reserve soldiers are not
    authorized to support State missions after 72 hours unless specific
    criteria are met, such as the imminent loss of life. The inability of
    State Governors and Adjutants General to utilize all of their full-time
    soldiers caused some significant organizational and leadership problems
    within affected formations.
        Active Guard and Reserve members are critical assets to the force,
    enabling units to rapidly respond to State emergencies and homeland
    defense efforts.

    Ground-Based Midcourse Defense Program
        The National Guard is playing a significant role in the defense
    against ballistic missile threat by organizing, manning, and deploying
    Ground-Based Midcourse Defense Units. The Army National Guard received
    approval to activate a Missile Defense Brigade, based on the results of
    the Total Army Analysis 2009. The Brigade Headquarters will be located
    in Colorado and the first Battalion will be located in Alaska. These
    organizations will serve as the cornerstone for the Ground-Based
    Midcourse Defense program.
        The Missile Defense Agency, Ground-Based Midcourse Defense-Joint
    Program Office has agreed to provide pay and allowance for initial
    personnel required for this program in preparation for Initial
    Defensive Operations beginning in fiscal year 2004.
        As critical as this mission component is to the national defense,
    it requires adequate full-time manning to achieve full operational
    capability. By offering the needed manpower to the Army Space Command
    and the Space and Missile Defense Command, the Army Guard will provide
    this primary land-based homeland defense system.

    Guard Knowledge Management
        The Guard Knowledge Management Initiative and the Distributive
    Training Technology Project support the Army National Guard's ability
    to maintain and improve individual and unit readiness, the ability to
    mobilize, and quick, efficient deployment.
        Through the effective integration of information technology
    programs and implementation of Knowledge Management initiatives, the
    Army Guard is enhancing its capability to identify, distribute, and
    access critical information that directly impacts the Army Guard's
    ability to meet readiness goals and mission objectives.
        For example, the Army National Guard saves money and resources and
    heightens readiness by providing increased foreign language sustainment
    and enhancement training using distance-learning technologies.
    Courseware is being developed at several sites throughout the United
    States, including Iowa, Pennsylvania, Arizona, Arkansas, and New
    Jersey. In addition, the Vermont Army National Guard has been
    conducting Information Operations training since February 1999 for all
    components of the Army. The Army National Guard made full use of its
    Knowledge Management capabilities to conduct extensive pre-deployment
    training for the 29th Infantry Division (Light) Headquarters for their
    peacekeeping rotation in Bosnia.
        The Army Guard has also partnered with the National Air and Space
    Administration to deliver a wide array of educational content to young
    people to stimulate interest in science, math, and technology. The Army
    National Guard is building on these and other success stories to help
    increase readiness through a vigorous implementation of Knowledge
    Management principles.

    Army National Guard Restructuring Initiative
        On September 8, 2002, the Secretary of the Army, Honorable Thomas
    E. White, introduced the Army National Guard Restructuring Initiative
    at the 2002 National Guard Association of the United States Annual
    Conference. Mr. White stated that ``in light of our new plan for
    national defense [we] are now undertaking a new initiative which we
    will call the Army National Guard Restructuring Initiative. Whereas the
    original initiative Army Division Redesign Study converts combat
    formations to support structure, the new initiative restructures a
    sizeable portion of the National Guard combat formations to better
    support our combatant commanders' requirements.''
        The concept is to convert existing heavy and light combat structure
    to new designs that better support Combatant Commanders (including the
    new Northern Command) under the new defense strategy. Tentatively
    called Multi-Functional Divisions and Mobile Light Brigades, these new
    organizations will be first and foremost warfighting organizations
    prepared for full spectrum operations. The first unit could begin
    conversion as early as fiscal year 2005.
        The conversion to these new organizations, combined with efforts
    already under way as part of the Army National Guard Division Redesign
    Study effort, will result in a 30 percent decrease in the current
    number of tracked vehicles in Army Guard Combat Divisions and Brigades.
    Although this constitutes a reduction of heavy assets, the National
    Guard is determined to ensure that the Army Guard does not maintain
    obsolete systems that are inconsistent with future Army operational
    concepts including unit design, support, and sustainment.

    Army National Guard Aviation Transformation and Modernization
        Army National Guard aviation is one of the Nation's highest value
    assets for both wartime and peacetime missions. In wartime, these Army
    National Guard aviation units provide the sustaining and reinforcing
    power required for successful execution of the National Military
    Strategy, as well as the most readily available Army aviation assets
    for homeland defense. In peacetime, these critical aviation assets are
    equally important for the widest possible range of missions at both the
    State and regional levels. These peacetime missions range from Air
    Ambulance, Search and Rescue, and Counterdrug support in areas having
    no such civilian capacity, to wide-scale and timely response to both
    natural and man-made disasters.
        The Army National Guard's aviation units continue to contribute
    almost half of the Army's aviation structure, including Counterdrug
    Reconnaissance and Aerial Interdiction Detachments in 37 States and
    Territories, which use specially modified OH-58 observation aircraft to
    support Federal, State, and local law enforcement agencies with
    counterdrug efforts in the U.S. These units are also postured to
    support homeland defense efforts. Six of these units were deployed
    along the northern border supporting the U.S. Border Patrol and
    Operation Noble Eagle during fiscal year 2002.
        Since fiscal year 2002, the Army's aviation transformation effort,
    coupled with other aviation modernization and recapitalization
    improvements, has not only significantly improved the readiness and
    capabilities of Guard aviation units, but also has reduced the overall
    aviation footprint.
        While significant quantities of modern series UH-60, CH-47, and AH-
    64 aircraft have been cascaded from active Army units to Army Guard
    units, the associated equipment (tool set, tool kits, test equipment,
    and parts) critical for the successful support of these aircraft has
    not kept pace. Current Army procurement levels will leave the Army
    Guard permanently short of its required number of aircraft. In
    addition, many of the remaining allocated aircraft are not scheduled
    for upgrade to the most current standard configurations.

    Army National Guard Permanent Electronic Records Management System
        The Army National Guard's Permanent Electronic Records Management
    System is a web-based system utilizing digital imagery to store and
    retrieve personnel records. The importance of the Permanent Electronic
    Records Management System lies in its seamless records management
    capability throughout the Army, enhancing both mobilization and
    personnel readiness.
        By consolidating the administrative operations of human resources
    in one place, the Permanent Electronic Records Management System allows
    personnel records to follow a soldier regardless of component. In the
    past, the system was slow and labor-intensive, resulting in pay
    problems, promotion delays, difficulties in making new assignments, and
    low personnel morale. Fixing the problem involves the conversion of
    paper files to electronic files; and is a practice currently used by
    the Department of the Army for all of its personnel actions. At present
    the Army National Guard is the only military component that lacks
    electronic records storage capability.
        Under the Department of Defense's vision for a ``paperless
    environment,'' the Army National Guard will be required to provide
    electronic capabilities for personnel records in the 50 States, 3
    Territories, and the District of Columbia.
        The Army National Guard will adopt an Automated Selection Board
    System to support and improve the process under which information and
    votes regarding personnel actions are processed by military personnel
    boards.
        Departing from an obsolete ``paper'' system to a digital system
    that views data and images from the Permanent Electronic Records
    Management System and the Department of the Army Photo Management
    Information System. However, once the Automated Selection Board System
    is adopted, it will save the Army National Guard more than $150,000 per
    year in microfiche production and postage costs.
        This system is essential to achieve and fully support personnel
    transformation. The Army National Guard must remain interoperable with
    the Army and the Army Reserve by adopting this system. The conduct of
    boards at the State level will become extremely cumbersome due to
    unavailability of routine printed information. By failing to adopt the
    Automated Selection Board System, the Army National Guard will be
    required to download paper copies of an automated viewing and storing
    system.

    Conclusion
        The Army National Guard comprises diverse individuals from all
    walks of life united by the desire to keep the American people safe and
    secure. Many soldiers in the Guard leave behind promising career tracks
    and loving families to serve their country without compromise or
    hesitation. These soldiers lead dual lives; their sacrifices are
    overwhelming and should not be forgotten nor discounted.
        While it has succeeded on many fronts, certain challenges still
    face the Army National Guard. The issues of recruitment, retention, and
    subsequent development of junior officers continue to be areas of
    discussion. Dental and medical care remains lacking for many soldiers
    in the Guard.
        Army National Guard soldiers have accomplished much work in the
    past fiscal year, providing relief to victims of catastrophes, security
    at numerous vulnerable locations, and mobilization to various military
    operations world-wide. The Army National Guard, the crucial foundation
    of the Army, reinforces and augments the efforts of fellow soldiers to
    ensure that objectives are achieved and initiatives are met.

                               AIR NATIONAL GUARD

        We are pleased to report that your Air National Guard is truly more
    relevant and more involved in global operations and defense of this
    Nation than anytime since the Korean War. The fruits of many years of
    training, preparation, and commitment to combat readiness--made
    possible in no small part by this committee's support--have come to
    fruition in a scope of participation even the most ardent of Total
    Force advocates may not have envisioned.
        Today, nearly 50 percent of the Air National Guard, including
    16,000 plus mobilized members or volunteers are serving around the
    world. Our new motto ``Ready, Reliable, and Relevant'' is perhaps an
    understatement of the great things our women and men are doing in
    service of our Nation. We have quite a story to tell, and are proud to
    be the conduit of our story on behalf of over 110,000 patriots that
    comprise your Air National Guard today.
        The close relationships we have maintained with our communities
    throughout our history make it possible for us to answer our Nation's
    call during this global war on terrorism. Our communities' support, and
    the unselfish support of our employers, has truly been awe-inspiring.
    To provide a historical perspective, our mobilized numbers over the
    last year and a half, totaling over 30,000 people, exceed our
    involvement in all other conflicts in the last 25 years combined. Only
    the Korean War has involved more Air National Guard members in a
    mobilized status. We are proud to serve and solicit your continued
    support as we perform our dual mission as citizen airmen protecting our
    country here at home and around the globe, filling Aerospace
    Expeditionary contingency and steady state requirements. Our members'
    service is not without sacrifice and their sacrifice is not without
    meaning.
        The role of the Air National Guard has evolved dramatically since
    the end of the Cold War to our current war on terrorism. The Department
    of Defense Total Force policy requires a greater integration of the
    Active and Reserve Forces. Our members continue to be to called upon at
    an unprecedented frequency and durations.
        For fiscal year 2002, the Air National Guard's programmed end
    strength was 108,400. For the first time in over 10 years, our assigned
    strength exceeded the programmed end strength throughout the entire
    fiscal year. In fact, the Air Guard's average assigned strength
    throughout fiscal year 2002 was 102.5 percent and we ended this fiscal
    year at 103.4 percent of our programmed strength.
        This situation was primarily a result of two factors; first, the
    implementation of Stop Loss during fiscal year 2002 that served to
    reduce separations; and second, the outstanding work of our recruiting
    force which exceeded their recruiting goal during a very difficult
    year.
        With regard to Air National Guard retention, our rate since fiscal
    year 1997 has averaged approximately 89.5 percent. At the conclusion of
    fiscal year 2002, the Air Guard's retention rate stood at 92.7 percent.
    Personnel shortages remain in some critical specialties, primarily our
    aircraft maintenance career fields. We have placed emphasis on these
    and other career fields by offering enlistment and reenlistment
    bonuses, and other incentives such as the Student Loan Repayment and
    Montgomery GI Bill Kicker programs. As a result, in many of our
    critical maintenance specialties, we have seen real strength growth
    from 2 to 6 percent over the last 2 fiscal years. These incentives have
    contributed greatly toward enticing and retaining the right skill for
    the right job. Your continued support for the Student Loan Repayment
    and Montgomery GI Bill Kicker programs is critical to our success in
    attracting and retaining people in critical skills.
        We would like to thank Congress for recently passing two pieces of
    legislation that will significantly aid the Air National Guard's future
    recruiting and retention efforts. Specifically, allowing us to increase
    the prior service accessions bonus from $5,000 to $8,000. Our
    recruiting depends heavily on our ability to attract former service
    members into the Air Guard, and our combat readiness is greatly
    enhanced through the use of their prior training and acquired skills.
    Second, your initiative to increase the eligibility period for the
    Montgomery GI Bill from 10 to 14 years should be of tremendous
    assistance in further improving the retention of our airmen. Both of
    these programs will pay the Air National Guard substantial dividends
    for many years to come.
        However, for the Air National Guard to adequately compete for
    today's youths and reach prior service members, it is paramount that
    adequate resources be devoted to marketing our message. At our present
    funding level, we are unable to establish or launch any paid broadcast
    advertising for the Air Guard. As a result, we have not optimized the
    opportunity to connect with the American public or to enhance the image
    of the Air National Guard. In today's mass media advertising
    environment, to effectively compete we need to use this medium. The
    next 5 years for the Air National Guard's recruiting and retention
    programs will be crucial. Approximately 47 percent of our Air Guard
    members currently have 16 or more years of service. Without additional
    resources for our advertising and awareness programs, our ability to
    motivate and attract young Americans into the Air National Guard will
    be severely curtailed.
        We must also strive to retain the backbone of the Air Guard--our
    mid-term airmen. Our lowest retention rate among the three enlisted
    career status categories (first term airmen, mid-career airmen, and
    career airmen) is an airman with between 6 and 12 years of service.
    Currently, a reenlistment bonus for critical specialties is capped at
    $5,000. We believe a more appropriate limit would be $10,000. Raising
    this limit would allow us to pay those personnel who have shown a
    commitment to serve a bonus equal to or greater than the amount of that
    allowed for prior service members initially entering the Air Guard.
    Consideration to enhancing the reenlistment bonus is also vital from
    the standpoint of the Air National Guard's recent change in the
    accession force mix. In fiscal year 1997, the Air National Guard
    recruited 64 percent prior service personnel. In the last 5 years
    ending in fiscal year 2002, that figure had dropped to 49 percent. As a
    result, recruiting more non-prior service personnel became the norm in
    order to meet our programmed end strength, and impacted our ability to
    obtain sufficient training slots. Further, with recent declines in our
    School Workday Program, every airman we retain reduces costs and
    relieves the pressure on an already strained training environment. This
    enhancement is essential if we are to retain our highly trained,
    experienced, and skilled mid-term airmen and to sustain our readiness
    posture for rapid mobilization and deployment. By keeping our
    experienced personnel, we reduce recruiting and training requirements
    and continue to build and maintain our technical expertise.
        Despite the current operations tempo, I am confident our retention
    rates will remain high. We have just completed an Air National Guard-
    wide survey, and the results indicate that at least 82 percent of our
    people are committed to stay, 7 percent said they will leave, and the
    remaining 11 percent are unsure. The survey also revealed that quality
    of life issues--pay, support for the families, and support for and from
    the employers--are important factors regarding retention, not tempo.
    This is a good news story because it has the potential to positively
    impact those members committed to stay and influence those separating
    or who are unsure, with the proper support. The survey also highlights
    that the most critical element of retention--quality of life--with the
    support of this committee, is within our control.
        We thank Congress for the many TRICARE initiatives outlined in the
    fiscal year 2003 NDAA that were designed to improve the quality of
    service to our beneficiaries. The fiscal year 2003 NDAA extended
    TRICARE eligibility to Reserve dependents residing in remote locations
    without their Reserve sponsors.
        During the past year the Air National Guard continued to see an
    increase in Aviator Continuation Pay (ACP) take rates. Currently 508
    out of 618 eligible (82 percent), Air National Guard Active Guard
    Reserve pilots have signed up for the bonus. ACP has accomplished its
    goal by retaining qualified instructor pilots to train and sustain our
    combat force--a critical force enabler in today's crisis environment.
        The increased emphasis on the Total Force and expanding reliance on
    the Reserve component necessitates equitable pays for equitable work.
    Consideration for payment of special and incentive pays for Reserve
    component personnel, at the same level as their active duty
    counterparts, should be given to those members who meet the same
    thresholds of proficiency.
        Although the Air National Guard received the majority of all formal
    training allocations requested for fiscal years 2004-2006, including
    significant increases in Security Forces, Intelligence Applications, F-
    16 Crew Chief and Communications, current fiscal year 2003 execution
    year allocation shortfalls continue in 18 Air Force Specialty Codes.
    Even with the increased allocations in these and other Air Force
    Specialties commencing in the fiscal year 2004 execution year, it
    remains questionable if demand will continue to outpace supply in these
    or other areas in the future.
        We have taken major steps to help offset the training capacity
    shortfalls the Total Force is seeing during these transformation years.
    These include the standup of the following graduate level flying
    training units: KC-135E at McConnell AFB, KS; F-16 units at Kelly
    Field, TX and Springfield, OH; and the F-15C unit at Klamath Falls, OR,
    107th. The Air Control Squadron in Phoenix, AZ has converted to a
    schoolhouse to train Air National Guard and active duty air weapons
    controllers. However, the shortfall in the search and rescue aircrew
    training capacity is a major constraint today and in the foreseeable
    future. This shortfall will negatively impact the operational readiness
    and manning of our operational units. Search and rescue unit readiness
    should be a top priority for all our forces, especially today during
    our ongoing fight against terrorism, when there could be a downed
    aircrew member at any moment. We need to have the resources, parts, and
    manning available to alleviate these training shortfalls.
        The Air National Guard continues to expand Advanced Distributed
    Learning (ADL) as a prime training vehicle for our members. As a
    forerunner in this dynamic medium, the satellite-based Air National
    Guard Warrior Network transports training and information to our
    members at 203 downlink sites throughout the Nation. The Air National
    Guard also uplinks training from three production studios in Knoxville,
    TN; Panama City, FL; and Andrews AFB, MD. In addition to training
    delivery and production, these studios also serve as full communicative
    links to the states and territories in times of national and local
    contingencies. The Andrews studio provided timely updates to the field
    in support of Operation Noble Eagle. From the Air National Guard
    Training and Education Center in Knoxville, TN we transported critical
    information for the F-16 community concerning their new wheel and brake
    assembly. This training saved over $480,000 in costs associated with
    travel and time away from maintainer's home stations. We also continue
    to enjoy good working relations with the Federal Judiciary Training
    Network, providing the uplink for their training to all the Federal
    courts. The Air National Guard has joined with the Army National Guard
    in sharing electronic classrooms and training development in our common
    communities. These partnerships serve to establish a ``Total-Guard''
    learning network, and are saving millions of dollars by avoiding
    duplication of training systems and products. Furthermore, the Air
    National Guard Warrior Network will serve as a valuable asset to
    homeland security teams, where vast audiences can be connected for
    timely information or training.
        Many National Guard units are developing cooperative agreements
    with local industry and academia to share development of Advanced
    Distributed Learning products and reinforce community relations.
    Project Alert in Nebraska (one such agreement) completed the conversion
    of 23 training courses to CD-ROM and Web-based training during the past
    calendar year, and is currently working to convert 28 more courses.
    These courses not only benefit the National Guard, but are applicable
    to other Federal agencies as well. The Defense Equal Opportunity
    Management Institute will receive the lion's share of these courses for
    use in the upcoming academic year.
        We continue to work with the DOD and all the Federal training
    communities in developing and delivering expedient learning pieces.
    These cooperative efforts are helping to increase unit and member
    readiness. The Air National Guard needs to be positioned to compensate
    learners, to assist with computer acquisition (or accessibility),
    Internet access, and to convert courses into a deliverable format.
        The Air National Guard has continually recognized the importance of
    family readiness as a vital component of overall mission readiness and
    personnel retention. There is a strong connection between how well
    members of the Air National Guard function when called to duty and
    their level of assurance that their families are being well cared for
    at home. The mandate of the Family Program is to help families prepare
    in every way. We have been successful in improving family support
    because you have given us the necessary resources to fund a full-time
    contracted family readiness position at each Wing and Combat Readiness
    Training Center. The post-September 11 changes in operational tempo of
    the Air National Guard increased the reliance on our members and the
    subsequent demand being placed on their families.
        In order to enhance family support and sustain overall readiness,
    the Air National Guard Family Program has identified the need to
    maintain a viable infrastructure and properly staffed family outreach
    program that promotes physical, emotional, mental, and behavioral
    health and well-being. While the relationship between the National
    Guard and their family members is important at all times, it is
    critically necessary today with increasing mobilizations and
    deployments. The Air National Guard Family Program must ensure that
    needed resources are provided during all phases of deployment, from
    preparation, through separation, and reunion. In order to continue to
    promote overall family readiness and subsequently improve military
    readiness and retention, the Air National Guard Family Program needs
    sustained resources to provide outreach directly to family members and
    maintain a support structure for the Wing Family Program Coordinators
    and Combat Readiness Training Center personnel.
        The Air National Guard could not function without the support of
    our Nation's employers. With the increased utilization of Reserve
    component personnel, employers are being impacted more than ever. As a
    result, DOD programs such as the Employer Support of the Guard and
    Reserve are key to our efforts in gaining and maintaining the support
    of our civilian employers. Employer Support of the Guard and Reserve
    helps civilian employers manage their Guard and Reserve employees by
    providing information, rewarding them for their sacrifices, and if
    necessary, resolving disputes. We appreciate your continued support of
    these important programs.
        Outside of our collective efforts to preserve the delicate synergy
    of the member, family, and employer, the Air National Guard needs
    assistance with separation and transition benefits. With the expiration
    of force management transformation authorities in December 2001, the
    Air National Guard lacks the force shaping tools to effectively address
    skill rebalancing and its effect on the current personnel assigned. A
    prime example of this is the 116th Air Control Wing, at Robins AFB,
    Georgia. In addition to being the only Joint Surveillance Target Attack
    Radar System unit, the 116th is the only blended active duty Air Force
    and Air National Guard wing in the Total Force. The flexibility to re-
    balance workforce skills, due to mission changes, unit conversions, as
    well as programmatic and/or operational reductions in specific skills,
    presents the need to execute these authorities.
        We look to the future and wonder what more may be asked of our
    brilliant women and men. Our proven track record of rising to every
    challenge and answering every call is the bedrock of our organization.
    We are busier than ever, and we most certainly need ample tools and
    resources to perform our mission. We are confident that working with
    you we will remain a premier military organization, serving in
    communities throughout this great land, protecting America at home and
    around the world.

        Senator Chambliss. Thank you very much, gentlemen.
        To both of your sergeants major, thank you all very much
    for being here and for the great work you all do for our
    country. We know that, just like with the Active Force, you're
    the heart and soul of the Guard and Reserve and we thank you
    for your service to our country.
        Gentlemen, I'll have to tell you, I was in Bosnia a couple
    of years ago when the Georgia National Guard was over there
    doing their tour of duty. I have been to Guantanamo several
    times. We have several Guard units on active duty down there
    from all over the country. Obviously I was particularly
    interested in what was happening with our Georgia folks. Morale
    has always been high. They do a great job. They are there to do
    a job which they know they hired on to do, and you're doing a
    great job in preparing those young men and women to serve their
    country when they are called on.
        General Schultz, Congress has taken the initiative in the
    last 3 years to provide the funding and authorization for
    additional full-time support personnel, both officer and
    enlisted, in the Army National Guard and Reserve units.
    Consistent with an agreed-on plan within the Army, this
    additional manpower is intended to improve the readiness of
    National Guard and Reserve units. How are these additional
    full-time support personnel being used? How do they contribute
    to unit readiness?
        General Schultz. Mr. Chairman, the voucher that I signed
    instructing the Adjutant General on how to distribute these new
    full-time support soldiers authorized basically says this: The
    priority for assigning these soldiers is to deploying units. So
    I'm coaching an adjutant general to put the soldiers in the
    right places, I'm following the intent of what I believe
    Congress has stated to me, and that is, ``Put the soldiers in
    the field.'' Our instructions in the manpower vouchers I send
    to States say just exactly that.
        Senator Chambliss. General James, back in January or
    February 2001, we had an order that came from the Pentagon to
    move the B-1s out of the 116th Wing at Robins. You heard my
    comments, I hope, earlier about the integration of the Guard
    and the active force on JSTARS. From what I see on the ground,
    that is working extremely well. Would you give me the Guard
    perspective on how you think that particular integration is
    working?
        General James. Certainly. I agree that it is working very
    well, especially since it is a landmark initiative. This is the
    first time that the Air National Guard and the active component
    have combined in what we call the ``blended unit,'' as you
    described it earlier, and it has been successful. We've had to
    coordinate a number of different issues because it is the first
    time, but, in fact, I find the morale was very high when I
    visited. I had a town-hall meeting with them. Both the active
    and the Guard folks are getting used to working together.
    They've had different working routines before; the Guard, of
    course, being predominantly a traditional part-time force. But
    the active part of the Guard's force and the active component
    are working very well to solve any challenges that come up.
        There is one issue that remains on the table, and I think
    you're familiar with that, and that is the ability of a Guard
    commander placed in command of an active-duty airman to be able
    to give lawful orders and hold that active-duty airman
    accountable under the UCMJ. If he goes on Title 10, he can do
    that. Once he goes into Title 10 status, however, then he loses
    his ability to do the same thing under Title 32 status, which
    many of his Guard airmen are operating under. That still needs
    to be addressed, and it will take some change in law, in the
    statute.
        However, the other issues that we look at on a daily basis,
    the funding, who the airplanes will belong to, contract and
    logistical maintenance, and all those issues we're working with
    and we solve them just one at a time as they come up. It is a
    success story, and the Secretary is fully committed to that
    continuing to be successful and maybe be a blueprint for the
    future for some of the other organizations we're going to have
    to look at combining in the future.
        Senator Chambliss. I think, without question, it will be,
    and we are working that issue on making sure that the power for
    command and control is there.
        General Rees, successful recruiting for your service I know
    is a key responsibility, and it's a mission you can't be
    complacent about. With a downsized Active-Duty Force, Stop
    Loss, and a demanding operations tempo, this challenge is only
    getting harder for you all as well as for the Active Force.
    What are your biggest concerns about your ability to
    successfully recruit qualified personnel? Tell us some of your
    plans for advertising that you have.
        General Rees. Mr. Chairman, we have a very vigorous program
    out there, and I'm going to have to defer to both of the
    directors here to get into the details of this. But we are
    continuing to be very sensitive to what is termed ``the
    propensity for enlisting, propensity for service.'' We're doing
    a lot of market research. We are working hard to make sure that
    the story of the Guard is out there and in front of everyone as
    to what the benefits are for service in the Guard.
        Certainly with current world events, we are getting a lot
    of additional help from the media. I think there is, despite
    some of the stories of hardships, also a lot of stories here
    that have to do with patriotism and pride in service.
        As far as the specific issues about advertising, let me
    turn to General Schultz.
        Senator Chambliss. Sure.
        General Schultz. Mr. Chairman, we depend on a good
    relationship with State broadcasting associations, I mean,
    that's the team that really holds together our advertising
    account across the Nation, so our return on the investment is
    time and again beyond what we invest in those accounts across
    the country. So we have an agreement of sorts that they look
    after the Guard image, the Guard marketing, for a whole lot
    more value than we currently send them, in terms of an
    investment. That's how the advertising works, and it's a
    success story, to be sure.
        Mr. Chairman, today the Army Guard is short of our
    programmed end strength. Not a crisis, but I want you to know I
    am concerned. We have assembled all the recruiters across the
    Guard today in a single meeting, and we're talking now about
    making certain here that we're focused toward our target of
    350,000 members. I'm short 2,800 members against our program
    strength.
        A couple of points I think have caused that condition. One,
    we spend a certain amount of time getting units ready on very
    short mobilization. Some of our recruiters helped us do that.
    Some of our recruiters also helped with one of the tasks in
    their job description, that is looking after families. So in
    this process, we lost focus on production.
        So if you look at the Army Guard strength today, our
    retention really is at or near the target or the program
    figures; production is where we need to dial the attention, and
    we will meet our 30 September target of 350,000 soldiers.
    Without a doubt, we'll do it. But it requires States'
    attention, adjutant generals, and others to help get there.
        General Rees. Mr. Chairman, there is also, I think, an
    advertising issue in the Air National Guard of significance
    here. Several years ago, the Air Guard did not advertise at
    all, but they've done a magnificent job, and I think there's
    some additional information here from General James.
        General James. Thank you, just very briefly, we have been
    very fortunate to make our end strength. As a matter of fact,
    we're over end strength right now. I would like to say that
    it's all due to the recruiting and retention efforts of all our
    commanders and our recruiting force. But there are a couple of
    other factors that impact that, of course--the Stop Loss that
    the Air Force put in place, and, of course, a somewhat weaker
    economy than many people would like to see.
        However, we were very fortunate, in a way, in that we could
    make our end strength and make our recruiting goals. As a
    matter of fact, we've not missed our recruiting in 5 of the
    last 6 years. We see a need to, as I said, focus on the midterm
    airmen from the 6- to 12-year group.
        Before, we did public service announcements and those kinds
    of things and, because of plus-ups, generally from Congress and
    sometimes additional funds made available to us from the active
    component, we have decided to do some more advertising. We have
    purchased national radio spots for 8 weeks, 2 per week, and
    we've purchased paid ads in all of our base papers and so
    forth. We have looked at using the same advertisement that the
    Air Force uses and purchasing nationwide paid TV advertising of
    $8.7 million and increasing the purchased nationwide paid radio
    advertising of up to $5 million.
        Senator Chambliss. Senator Nelson.
        Senator Ben Nelson. Thank you, Mr. Chairman.
        Now, you all heard my question earlier about the combining
    of the Active and Reserve pay accounts into a single
    appropriation with separate budget activities, and the concern
    that I raised is more specifically directed to you. Was the
    National Guard Bureau given a meaningful opportunity to provide
    input on this policy change?
        General Rees. Senator Nelson, in this particular instance,
    we found out about this particular change after the fact, and
    we were not part of the process.
        Senator Ben Nelson. Then let me ask it this way. Would the
    concern that I raised regarding the ability of the Guard to be
    able to deal with local matters--in emergencies as part of the
    responsibilities of the adjutant general to deal with local
    issues, would those activities be adversely affected?
        General Rees. Senator Nelson, if they were dealt with as
    State active duty, clearly those would be done with State funds
    out of State general treasury and would not be impacted by
    this.
        Senator Ben Nelson. There are some funds at the Federal
    level that assist the States with some of those obligations so
    that some are shared liability, if you will, shared
    responsibility. What about that? Or do you know?
        General Rees. The best way that I think I can answer this,
    Senator, is that in the past I think we have had a successful
    relationship with the States in dealing with the fiscal issues
    that have come up and particularly meeting all of our readiness
    requirements. We have a system we believe works.
        Senator Ben Nelson. Then dealing strictly with the Federal
    level, without regard to State funds or State requirements with
    respect to emergencies, but at the Federal level, if this
    proposal were in effect today, can you determine who would
    stand to gain? Would it be the National Guard or the active
    component?
        General Rees. Senator, I don't believe I could even
    speculate on that. We're in a situation where it has been
    described as creating more flexibility, and that would appear,
    from the larger DOD perspective, to deliver more flexibility.
        Senator Ben Nelson. I'm all in favor of flexibility; I just
    always want to know what consequences flow from flexibility.
    You've answered my question. I understand. I won't put the
    other two of you through the agony. Thank you very much,
    General Rees. [Laughter.]
        That takes care of my questions, Mr. Chairman.
        Senator Chambliss. All right. Gentlemen, we will put your
    full statement in the record. We thank you very much for being
    here. Thank you for your service to our country.
        General Rees. Thank you.
        Senator Chambliss. Our next panel consists of Lieutenant
    General James Helmly, Chief of the Army Reserve; Vice Admiral
    John B. Totushek, Chief, Naval Reserve; Lieutenant General
    Dennis M. McCarthy, Commander, Marine Forces Reserve; and Major
    General John J. Batbie, Vice Chief of the Air Force Reserve.
        Gentlemen, thank you for being here. We welcome these
    representatives of our Reserve components.
        Before I introduce, once again, these gentlemen that are
    appearing on this panel, let me just say, General Batbie, that
    I just learned about General Sherrard's health problems
    yesterday, and I'm sorry Jimmy couldn't be with us today.
    Please, when you get back, let him know that he's in our
    thoughts and our prayers and we wish him a very speedy
    recovery. I understand he's up and about some, but we will sure
    keep him in our prayers.
        I promise you that it will not be held against you that
    you're a close friend of Congressman Steven Buyer. I will not
    let that enter into our thought process here. [Laughter.]
        Gentlemen, we are glad to have you here today. We look
    forward to your statements and your answering questions.
        General Helmly, we'll start with you.

       STATEMENT OF LT. GEN. JAMES R. HELMLY, USAR, CHIEF, ARMY
     RESERVE; ACCOMPANIED BY COMMAND SERGEANT MICHELLE JONES, ARMY
                                RESERVE

        General Helmly. Thank you, Mr. Chairman.
        Mr. Chairman, Senator Nelson, members of this distinguished
    subcommittee, thank you for the opportunity and the privilege
    and, indeed, the honor to testify on behalf of the soldiers,
    civilian employees, and family members of the United States
    Army Reserve.
        I previously submitted a written statement, and I would
    respectfully request that that be entered into the record.
        Senator Chambliss. Certainly.
        General Helmly. I'm accompanied today by Command Sergeant
    Michelle Jones, the other half of the command team for the
    United States Army Reserve. She represents our enlisted
    soldiers. I'll be happy to take your questions at the end of my
    opening statement.
        Currently, over 69,000 Army Reserve soldiers are mobilized
    serving courageously, skillfully, and proudly around the world.
    These modern-day patriots willingly answered the call to duty
    as part of a responsive and relevant force, the world's
    greatest ground combat force, the United States Army.
        This committee, through its dedicated support to the men
    and women in the Army Reserve, has played a major role in
    maintaining the relevance and strengthening the readiness of
    the Army Reserve. Your concern for our people, our most
    precious resource, who dedicate a significant part of their
    life to defending our Nation, in addition to honoring
    commitments to employers and families, is appreciated and
    highly respected. Thank you for that.
        Historically, our Nation and its military have placed a
    heavy reliance on its Reserve components as a force in Reserve.
    During the Cold War, the Army Reserve as well as the Army's
    active component and, indeed, the components of the other armed
    services, was not used as heavily as we have experienced in the
    last decade.
        In Operations Desert Shield/Desert Storm, the Army Reserve
    was mobilized heavily--84,000 soldiers answered the call to
    duty and performed with distinction and then demobilized and
    returned home. The success of that operation, to include the
    use of the Nation's Reserve components, became a much forgotten
    issue.
        Now, however, the Army Reserve has been in a continuous
    state of mobilization since December 1995. Since 1996, the
    average number of Army Reserve soldiers mobilized has exceeded
    9,200 per annum. Our soldiers are part of the rotational forces
    keeping the peace in Eastern Europe by providing ongoing
    capabilities in Bosnia and Kosovo. It was not a noticeable
    challenge to mobilize for Bosnia and Kosovo, because the
    requirement was predictable, small in number, and stable. While
    the process we used was not perfect, we were able to accomplish
    our mission of providing trained units and qualified persons
    without stress.
        On September 11, the changing security environment that
    existed in the remainder of the world came rapidly home. The
    very nature of this war--long duration, fluid, and volatile--
    dictates that major changes are required to practices,
    procedures, and policies related to how we organize, man,
    train, mobilize, and use our Army Reserve. We are discovering
    that the processes and policies in place were designed for a
    very different time and a very different type of war than we
    are engaged in today. As a result, we have been challenged.
        Further, many have questioned our ability to respond early
    in a contingency operation, to sustain mobilization, and still
    continue to attract and retain quality young men and women such
    as the ones who populate our force today.
        There is an ongoing debate concerning the wisdom of
    reliance on the Nation's Reserve components for operations of a
    smaller scale and early reliance on the Reserve in the opening
    phases of a larger-scale contingency operation. Today, 33
    percent of your Army Reserve strength is mobilized, but raw
    troop-strength numbers are not an accurate indication. There
    are pockets within that force of much greater stress. The Army
    Reserve has been able to meet the challenges to date, but
    clearly our structure requires change to meet the demands for
    capabilities that the Army Reserve excels in. We will do this.
        While changing industrial age mobilization and personnel
    assignment policies is necessary, restructuring our force so
    that we can implement predictable and sustainable rotations
    based upon depth and capability is also necessary. We
    acknowledge that there is no time out from war or preparation
    from war to make these changes. Confronting these dual
    challenges, transforming while at war, is a very necessity
    given the gravity of the world situation as it exists today.
        The accepted sacrifice of our people demonstrated by their
    willingness to serve the Nation when asked to do so deserves
    our courage to make rotation policies more predictable, to
    restructure our force, and to change and refine our
    mobilization, training, and compensation policies and
    processes. The Army Reserve is engaged in developing plans to
    attack each of these issues.
        Thank you again for the opportunity to appear before you
    today. I look forward to answering any questions that you have.
        [The prepared statement of General Helmly follows:]

              Prepared Statement by Lt. Gen. James R. Helmly, USAR

                                  INTRODUCTION

        Mr. Chairman, members of this distinguished subcommittee, thank you
    for the opportunity and the privilege to testify on behalf of the
    205,000 soldiers; 11,150 civilian employees, both Department of the
    Army Civilians and Military Technicians; and all of their family
    members in the United States Army Reserve.
        Currently, over 61,000 Army Reserve soldiers are mobilized in
    America's global war on terrorism, serving courageously and proudly
    around the world. These modern day patriots have willingly answered the
    call to duty to perform the missions they have trained for and to honor
    their commitment as part of a responsive and relevant force, an
    indispensable component of the world's finest ground force, the United
    States Army.
        This committee, through its dedicated support of the men and women
    in the Army Reserve, has played a major part in maintaining the
    relevance and strengthening the readiness of the Army Reserve. Your
    concern for the Reserve soldier and employee who dedicates a
    significant part of his or her life to defending our Nation, in
    addition to honoring commitments to employers and families, is
    evidenced by your invitation to review the present state of the United
    States Army Reserve. I am honored by that opportunity.
        The occasion to testify before this subcommittee comes at a time of
    profound importance and immense change in our Nation's history, as well
    as an immense challenge in the international security environment. We
    are engaged with a wily, determined enemy, intent on destroying our
    very way of life; confronting regional powers and potential use of
    weapons of mass destruction at home and abroad; and struggling with the
    challenges of how to secure our homeland while preserving our precious
    rights and freedoms. It is within this very challenging environment
    that the Army Reserve serves with excellence today. Excelling in
    current missions is not sufficient by itself. It is necessary that we
    concurrently confront today's challenges while preparing for
    tomorrow's. The Army must maintain its non-negotiable contract to fight
    and win the Nation's wars as we concurrently transform to become more
    strategically responsive and dominant at every point on the spectrum of
    military operations. The concurrence of these dual challenges,
    transformation while fighting, winning, and preparing for other wars,
    is the crux of our challenge today--transforming while at war.
        This is my first opportunity to address this subcommittee as the
    Chief, Army Reserve. I am humbled and sobered by the responsibility
    bestowed to me. The Army Reserve is an organization that demonstrates
    its ability to be a full and equal partner, along with the active
    component of the Army and the Army National Guard, in being the most
    responsive dominant ground force the world has seen.
        The strength and goodness we bring to that partnership is drawn
    from unique characteristics within the Army Reserve. The Army Reserve
    is the most ethnically and gender diverse force of all the armed
    services. Overall, 92 percent of our force holds high school diplomas.
    Our force consists of individuals who are community and industry
    leaders, highly trained and educated professionals, experts in their
    chosen field who give of their time and expertise to serve our Nation.
    As good as our people are, we are not without serious challenges.
        The Army Reserve has been in a continuous state of mobilization
    since December 1995. Prior to that, our contribution to Operations
    Desert Shield/Desert Storm numbered over 84,000 soldiers. The Army
    Reserve also mobilized over 2,000 soldiers in support of Operation
    Uphold Democracy in Haiti. Since 1996, the average number of soldiers
    mobilized has been 9,265 soldiers per year. Our soldiers are part of
    the rotational forces that are keeping the peace in Eastern Europe.
    Military police, medical, and public affairs soldiers provide ongoing
    capabilities in Operation Joint Endeavor and Operation Joint Guardian
    in Bosnia and Kosovo.
        The attacks of September 11 intensified the pace of operations.
    Within hours of those attacks, the Army Reserve alerted and mobilized a
    mortuary affairs company from Puerto Rico--a company that 10 years
    earlier performed its mission with distinction in Operations Desert
    Shield/Desert Storm--to deploy to the Pentagon to assist with searching
    and recovering the remains of the victims of the attack. They proved to
    be so invaluable to the recovery efforts that they did not return to
    their homes until September 2002, after cataloging not only all of the
    personal effects of the dead but items from the Pentagon as well.
        In downtown Manhattan, Army Reserve soldiers were also assisting
    with the recovery efforts after the attack on the World Trade Center.
    Emergency Preparedness Liaison Officers were on site shortly after the
    attack to assist with rescue and later, recovery efforts. Army Reserve
    units provided equipment, Army Reserve center space, and other
    logistical support throughout the days and months that followed.
        This global war on terrorism is unique for Americans because its
    battlefronts include not only far-off places like Afghanistan and the
    Philippines but our own homeland. What was once a ``force in Reserve''
    has become a full partner across the spectrum of operations to satisfy
    the demand and need for Army Reserve soldiers and units around the
    world. Wherever the Army committed forces in the world--Afghanistan,
    Uzbekistan, Pakistan, the Philippines, Kuwait, and anywhere else--Army
    reservists are an integral part, providing critical support, force
    protection, and augmentation.
        In the time that has followed those days, our military has been
    engaged in fighting the global war on terrorism around the world.
    Operation Anaconda in Afghanistan seriously impaired Al Qaeda's ability
    to continue to spread terror and ousted the Taliban. While it would
    have been easy for the Nation to walk away after ousting the Taliban,
    it chose to stay and help the nation rebuild itself. Civil Affairs
    units consisting of Army Reserve soldiers who possess civilian acquired
    and sustained skills in the fields of engineering, city planning, and
    education were deployed to the region to assist in these efforts.
    Numerous new schools were built and medical aid offered to the
    Afghanistan people. These soldiers represent the goodwill of the
    American people with every ailment they cure, every classroom they
    build, and every contact they make with the native population. They are
    doing an incredible job.
        Currently, over 61,000 Army Reserve soldiers and more than 500
    units have been mobilized and are serving on active duty in support of
    both Operation Noble Eagle, the mission to defend the homeland and
    recover from the terrorist attacks, and Operation Enduring Freedom, the
    mission of taking the war to the terrorists. The depth of the current
    mobilization reflects a higher percentage of the force since Operations
    Desert Shield/Desert Storm and still our soldiers are raising their
    hands to re-enlist in the Army Reserve, making our enlisted troop
    retention rates the best they have been since 1992.
        Clearly our priorities have changed. We must and will win the war
    on terrorism. But the nature of this very war dictates that major
    changes are required to practices, procedures, and policies relating to
    use of our force. We are discovering that the processes and policies in
    place were designed for a different time and a different type of war
    than we are engaged in today. As a result, we have been challenged
    about our ability to respond early in a contingency operation,
    sustaining continuous mobilization and continually attracting quality
    young men and women such as the ones we currently have with the
    knowledge that almost for certain, they will be mobilized at some point
    in their service.
        The Army Reserve is currently reviewing mobilization processes that
    no longer match the realities we face. We are restructuring how we
    train and grow leaders within the Army Reserve by establishing a
    Trainee, Transient, Holdee, and Student (TTHS) Account, much like the
    active Army, to manage our force more effectively. We are addressing
    the continuum of service concept that would allow ease of movement
    between Army components as dictated not only by the needs of the Army
    but also by what is best for the soldier developmentally and
    educationally.

    Civilian Acquired Skills
        Our Civil Affairs units are filled with soldiers that possess
    skills acquired in their civilian occupations or as we refer to them,
    civilian acquired skills. Civil Affairs units perform such functions as
    public works administrators, power plant operators, and public health
    specialists. Their expertise and experience is gleaned from their
    civilian occupations then willingly used when these professionals are
    called to perform their military duties. The very citizens that keep
    our cities lit and our water potable volunteer to do the same, as
    soldiers, when mobilized.
        In the Army, 96 percent of all Civil Affairs units are in the Army
    Reserve. This force is designed to take advantage of civilian skills
    that would be difficult to train and sustain in the active component.
    Civil Affairs units are perfect examples of how the Reserve component
    creates a link to the American People for the Army. Civil Affairs is
    but one example of a central premise that the Army Reserve has
    capabilities that draw from the civilian experience of our soldiers.
    This concept is a cost effective way for the Army to maintain skills
    needed for a variety of missions extending from humanitarian and
    peacekeeping missions to homeland security to wartime operations. It
    makes good business sense to employ soldiers in Army Reserve Civil
    Affairs units with Doctorate Degrees in Curriculum Development to
    assist countries in rebuilding educational systems within a country in
    order to use highly skilled soldiers when needed. Employing the
    civilian acquired skills of our citizen soldiers is a cost effective
    way to accomplish support, humanitarian, and peacekeeping missions.

                              MOBILIZATION ISSUES

        The Nation's existing mobilization process is designed to support
    the linear, gradual build-up of trained forces, equipment, and
    expansion of the industrial base over time. It follows a construct of
    war plans for various threat-based scenarios. It was designed for a
    world that no longer exists. In actuality today, our current multiple,
    limited scale mobilization and new vision for agile, swift, and
    decisive combat power, forward presence, and smaller scale contingency
    operations, demand a fundamentally different approach to the design,
    use, and rotation of the Army Reserve. Rather than a force in Reserve
    it has become and serves more as a force of both individuals and unique
    building blocks for teams and units of capabilities all essential to
    force generation and sustainment. The authority, administration, and
    notification to employ these forces must be streamlined, flexible, and
    responsive to the Army's needs yet support the soldier, family, and
    employer.
        As I stated before, the Army Reserve has been in a continuous state
    of mobilization since December 1995. Rotations in Bosnia and Kosovo,
    participation in East Timor and since September 11, 2001, mobilizations
    and deployments as part of Operations Noble Eagle and Enduring Freedom
    have all become part of what it means to serve in the Army Reserve.
    These recurring deployments have given our units a great deal of
    experience in being able to mobilize quickly and effectively.
        There is an ongoing debate concerning the wisdom of reliance on the
    Nation's Reserve components both for operations of a smaller scale
    nature, such as the Balkans rotations and early reliance in the opening
    phases of a contingency operation. As of March 5, 2003, only 30 percent
    of the Army Reserve troop strength is currently mobilized. But raw
    troop strength numbers are not an accurate indication. Often Army
    Reserve capabilities in Civil Affairs and Medical support are cited as
    examples of over reliance on the Reserve components. There are specific
    types of units that have been used more than others. The demand for
    certain type units to meet the mission requirements of the global war
    on terrorism is higher in some more than others. Military Police, Civil
    Affairs, Military Intelligence, Transportation, and Biological
    Detection and Surveillance capabilities are the highest in utilization.
    As an example, the Biological Detection and Surveillance units consist
    of one active component unit and one Army Reserve unit. The Army
    Reserve unit has mobilized five times since 1997 and is currently in
    their second year of mobilization. A second Army Reserve unit will be
    organized in September 2003 and there are future plans for additional
    units in both the Army Reserve and the active component. This is just
    one example of a high demand, low density unit. Currently, 313 Standard
    Requirements Codes (types of units) are exclusively in the Army
    Reserve. The Army Reserve has been able to meet the challenges to date
    with this structure but clearly the structure requires changing to meet
    the continuing demand of these capabilities--we will do this.

    Transformation
        The Army Reserve has been transforming its force since 1993 when it
    reorganized to produce a smaller, more efficient infrastructure. Our
    overall strength was reduced by 114,000 soldiers, or 36 percent,
    leaving us with 205,000 soldiers today. In our transformation from a
    Legacy Force Army Reserve (or a Cold War Force) to an Interim Force, we
    are poised to put changes in place that will keep us moving on the path
    of transformation to the Objective Force. In the 1990s, we cut the
    number of our Army Reserve commands by more than half and re-invested
    that structure into capabilities such as medical and garrison support
    units as well as Joint Reserve Units. We reduced the number of our
    training formations by 41 percent and streamlined our training
    divisions to better meet the needs of the Army and its soldiers. Our
    transformation journey actually began 10 years ago and is accelerating
    today.
        The response to the September 11 attacks in the form of the global
    war on terrorism has exposed our mobilization process as one that is
    more suited for yesterday's requirements and war in a different time.
    The luxury of time when mobilizing for Operations Desert Shield/Desert
    Storm does not exist for current operations. The relatively slow build-
    up of forces over a 5-month period for the 1991 liberation of Kuwait is
    a thing of the past. The mass over time concept no longer applies.
    Instead, in its place, is a new standard of mobilizing that is slowed
    and restricted by processes and policies that have not changed with the
    rest of our force. In order for the Army Reserve to provide campaign
    quality units, we must change our mobilization processes.
        Changing the way we mobilize starts with changing the way we
    prepare for mobilization. The current process is to alert a unit for
    mobilization, conduct the administrative readiness portion at home
    station, and then send the unit to the mobilization station to train
    for deployment. This process, mobilize-train-deploy, while successful
    in Operations Desert Shield/Desert Storm, today inhibits
    responsiveness. By changing to train, mobilize, and deploy, we will
    reduce the time needed to bring a unit to a campaign quality level
    needed for operations.
        The Army Reserve is the Nation's repository of experience,
    expertise, and vision regarding soldier and unit mobilization. We do
    have forces capable of mobilizing in 24 hours and moving to the
    mobilization station within 48 hours, as we did in response to
    September 11. This demonstration of quick and precise mobilization
    ability will become institutionalized in the processes and systems of
    the future and give our forces the ability to mobilize as rapidly as
    possible. We will overcome challenges posed by units manned with
    untrained soldiers through initiatives that strengthen soldier
    readiness and leader development.
        One such initiative is the creation of an individuals account:
    Transient, Trainee, Holdee and Student (TTHS). The TTHS account will
    enable our units to be ready before they are mobilized. The intent is
    for the TTHS account to be the management tool to account for all
    officers, enlisted, and warrant officers in resident training (over 139
    days), currently in troop program units (TPU) but unqualified, or in
    transition to fill Selected Reserve (SELRES) authorized positions. The
    concept of training soldiers without impacting end strength
    authorization or unit readiness is the standard in the active
    component. Our soldiers need to be Military Occupational Specialty
    Qualified (MOSQ) before occupying an authorized space. Our junior
    leaders require dedicated time to develop leadership skills and we can
    no longer afford to do this in an environment constrained by current
    practices of balancing untrained soldiers and leaders against unit
    readiness.
        The Army Reserve will reduce over-structure and provide for a TTHS/
    Individuals Account within the current Selected Reserve end strength.
    Members of the Selected Reserve who are not qualified for duty in a
    unit, or who are enrolled in professional development education
    courses, or might in a few cases be non-ready due to temporary medical
    holds, transition, or similar statuses will be assigned to the
    Individuals Account. This will increase the readiness of the Army
    Reserve, and the TTHS account will give a true picture of military
    readiness and manpower by using the same methods as the active Army.
        While changing industrial age mobilization and personnel assignment
    policies is necessary, restricting our force so that we can implement
    predictable and sustainable rotation based upon depth in capabilities
    is also necessary. Predictable and sustainable utilization is a key
    factor for campaign quality support. One of the goals of transforming
    our force is to change policies that are harmful to soldiers and
    families. Predictable rotation schedules will allow the Army Reserve to
    continue to be a valued source for small contingency conflicts and
    follow-on operations. It will provide our units with operational
    experience; provide deployment relief for the active Army; impart a
    sense of predictability for our soldiers, and evens out the work load
    across the force. We must begin now to implement new strategies in
    building a force with rotational capabilities.
        This current period of mobilization has had some challenges of
    calling on soldiers to mobilize on short notice, on rare occasions with
    less than 24 hours notice. A rotational strategy for operations and
    force planning policy would begin to overcome this challenge. For the
    short term, I have set in place a policy for the Army Reserve that no
    one moves with less than 5 days notice. This is basic soldiering--
    taking care of your people. Despite all of the challenges faced by our
    force during this mobilization period, everyone called to duty has
    shown up, ready to honor their commitment to our Nation. That is what
    the Army Reserve is--great people bending over backwards to serve their
    country.

                            RECRUITING AND RETENTION

        Recruiting and retention is an area of the highest importance to
    the Army Reserve and a volunteer force. Our responsibilites require the
    best soldiers America can provide. In this regard, we are most
    appreciative of the help your subcommittee has provided us. We would be
    remiss if we did not thank you for the attention you have paid to our
    recruiting needs in recent legislation. With your help we have met our
    recruiting mission for 3 straight years from 2000 to 2002. In fiscal
    year 2003, however, we are 213 accessions short of expected year-to-
    date mission. While cause for concern, I am not alarmed over this.
        Although generally successful in overall mission numbers, we
    continue to experience difficulty in attracting and retaining qualified
    individuals in certain critical wartime specialties, particularly
    within the Army Medical Department. Your continued support on behalf of
    recruiting and retention incentives, allowing for innovative readiness
    training, and the funding of continuing health and educational
    opportunities will help us with this difficult task.
        The Army Reserve, in partnership with the United States Army
    Accessions Command (USAAC), conducted a thorough review of Army Reserve
    recruiting. This review has helped us forge a stronger relationship
    with the Accessions Command and has streamlined our processes to
    support the symbiotic relationship between recruiting and retention. To
    that end, we will seek to ensure that all Army Reserve soldiers are
    involved in recruiting and retention activities--we all are a part of
    the Army's accessions efforts. We are removing mission distracters
    allowing the Accessions Command to focus on their core competency of
    recruiting non-prior service applicants; we are focusing on life cycle
    personnel management for all categories of Army Reserve soldiers and
    our retention program seeks to reduce attrition, thereby improving
    readiness and reducing recruiting missions.
        During 2003, the responsibility for the entire prior service
    mission will transfer from the Accessions Command to the Army Reserve.
    Tenets of this transfer include: establishment of career crosswalk
    opportunities between recruiters and retention transition NCOs;
    localized recruiting, retention, and transition support at Army Reserve
    units, and increased commander awareness and involvement in recruiting
    and retention efforts.
        To support recruiting and retention, the Army Reserve relies on
    non-prior service and prior service enlistment bonuses, the Montgomery
    GI Bill (MGIB) Kicker, and the Student Loan Repayment Program in
    combinations that attract soldiers to fill critical MOS and priority
    unit shortages. The Army Reserve must be able to provide a variety of
    enlistment and retention incentives, for both officer and enlisted
    personnel, in order to attract and retain quality soldiers. Fully
    funded incentive programs must be made available to ensure success in
    attaining recruiting goals and maintaining critical shortages and
    skills.
        Our retention program is a success. Faced with an enlisted
    attrition rate of 37.5 percent at the end of fiscal year 1997, we
    adopted a corporate approach to retaining quality soldiers. Retention
    management was an internal staff responsibility before fiscal year
    1998. In a mostly mechanical approach to personnel management, strength
    managers simply calculated gains and losses and maintained volumes of
    statistical data. Unfortunately, this approach did nothing to focus
    commanders on their responsibility of retaining their most precious
    resource--our soldiers.
        The Army Reserve developed the Commander's Retention Program to
    correct this shortcoming. A crucial tenet of this program places
    responsibility and accountability for retention with commanders at
    every level of the organization. Commanders now have a direct mission
    to retain their soldiers and must develop annual retention plans.
    Additionally, first line leaders must ensure all soldiers are
    sponsored, receive delivery on promises made to them, and are provided
    quality training. In this way, the Commander's Retention Program
    ensures accountability because it establishes methods and standards and
    provides a means to measure and evaluate every commander's performance.
    Since the introduction of the Commander's Retention Program, the Army
    Reserve has reduced enlisted Troop Program Unit attrition by nearly 9
    percentage points. The enlisted attrition rate in fiscal year 2002 was
    27 percent. Current projection for fiscal year 2003 with an increase of
    28.6 percent, due to demobilization, and a program to reduce the burden
    of non-participants and increased retirements.
        The Army Reserve is experiencing a 4,200 company grade officer
    shortfall. Retention goals focus commanders and first line leaders on
    junior officers. The establishment of a sound leader development
    program is a cornerstone of Army Reserve transformation. Providing
    young leaders the opportunity for school training and practiced
    leadership will retain these officers. A transformed assignment policy
    will enhance promotion and leader development. Increased Army Reserve
    involvement in transitioning officers from active duty directly into
    Army Reserve units will keep young officers interested in continuing
    their Army career. Allowing them managed flexibility during their
    transition to civilian life will be a win for the Army.
        Overall, the Army Reserve successfully accomplished the fiscal year
    2002 recruiting mission while achieving the Department of the Army and
    Department of Defense quality marks. This year our enlisted recruiting
    mission will stabilize at approximately 20,000 non-prior service due to
    the success of our retention efforts. The accomplishment of the
    recruiting mission will demand a large investment in time on the part
    of our commanders, our retention NCOs, and our recruiters as they are
    personally involved in attracting the young people in their communities
    to their units.
        However, the same environmental pressures that make non-prior
    service recruiting and retention difficult affect prior service
    accessions. With the defense drawdown we have seen a corresponding
    decrease in the available prior service market in the IRR. This impacts
    Army training costs, due to the increased reliance on the non-prior
    service market, and an overall loss of knowledge and experience when
    soldiers are not transitioned to the Army Reserve. Consequently, the
    Army Reserve's future ability to recruit and retain quality soldiers
    will continue to be critically dependent on maintaining competitive
    compensation and benefits.
        Special attention needs to be placed on the recruiting budget, for
    advertising, to meet our requirements in the next several years. Young
    people of today need to be made aware of the unique opportunities
    available in the different military components. The best way to get
    this message out is to advertise through the mass media. Funding our
    critical advertising needs is imperative if we are to be honestly
    expected to meet our recruiting goals. Your continued support of our
    efforts to recruit and retain quality soldiers is essential if we are
    to be successful.

                          INDIVIDUAL AUGMENTEE PROGRAM

        Under the current Army posture, there is a growing need to
    establish a capability-based pool of individuals across a range of
    specialties who are readily available, organized, and trained for
    mobilization and deployment as individual augmentees. In spite of
    numerous force structure initiatives designed to man early deploying
    active Army and Reserve component units at the highest possible levels,
    a requirement remains for individual fillers for contingencies,
    operations, and exercises. Therefore, I have authorized the
    establishment of an Individual Augmentee Program within the Selected
    Reserve to meet these needs.
        The purpose of the Individual Augmentee Program is to meet real-
    world combatant commander requirements as validated in the Worldwide
    Individual Augmentation System (WIAS). Additionally, this program will
    preclude the deployment of individual capabilities from active or
    Reserve component units adversely impacting their readiness, cohesion,
    and future employment possibilities. It will allow soldiers to
    participate at several levels of commitment and supports the Office of
    the Secretary of Defense proposal for a continuum of service.
        Continuum of service offers the Army flexibility in accessing and
    managing personnel. Soldiers can serve through a lifetime in different
    ways from active duty to troop program unit to individual augmentee to
    retiree. The ability to move seamlessly through components and statuses
    can only benefit the Army and the soldier. Matching the right soldier
    in the right status at the right time makes sense. The Army Reserve
    will lead the way in making a reality of the phrase ``Once a Soldier,
    Always a Soldier''.
        Our initiatives concerning the management of individuals in the
    Army Reserve are the catalyst of Army Reserve transformation--the
    Federal Reserve Restructuring Initiative (FRRI). We developed these
    programs to meet the FRRI objectives: add operational depth to the Army
    through unit readiness and relevance, sustain mobilization to execute
    the global war on terrorism, relieve Army operational tempo through
    rotational force initiatives, and transform the Army Reserve to the
    Objective Force. The Chief of Staff, Army has stated that what will
    really transform the Army will be people. Our Army Reserve
    transformation plan will directly impact our ability to recruit, train,
    sustain, and deploy a ready and capable Federal Reserve Force. Your
    awareness of and congressional support of our efforts is invaluable.
    Summary
        In our current military environment, the Army Reserve has many
    challenges that we accept without hesitation. These challenges are
    imbedded the current wisdom of early reliance on the Reserve component
    in early contingency operations and the wisdom of the use of the
    Reserve components in scheduled operational rotations such as Bosnia
    and Kosovo. Historically our Nation has placed great reliance on the
    Reserve components of soldiers, sailors, airmen, and marines, to expand
    the Armed Forces for operations during time of war. The nature of
    warfare has changed drastically and we must also change. This global
    war on terrorism, as our President has described, is a long-term
    campaign of inestimable duration, fought in many different places
    around the planet. The issues we have brought to you today--changing
    how we recruit, prepare, maintain, and resource our force recognizes
    the Commander in Chief's intent, to prepare for future wars of unknown
    duration in places we have yet to fight.
        We are grateful to Congress and the Nation for supporting the Army
    Reserve and our most valuable resource, our soldiers--the sons and
    daughters of America.
        I cannot adequately express how proud I am of our soldiers. They
    are in the hearts and prayers of a grateful Nation and will continue to
    stay there until we finish the job at hand.
        Thank you.

        Senator Chambliss. Thank you, General.
        Admiral.

      STATEMENT OF VICE ADM. JOHN B. TOTUSHEK, USNR, CHIEF, NAVAL
                                RESERVE

        Admiral Totushek. Thank you, Mr. Chairman, Senator Nelson.
        It's also a real pleasure for me also to be here today to
    talk to you just for a few minutes about the Naval Reserve
    Force. I, too, have submitted a written statement and I'd like
    that put in the record.
        I would like to, instead of my usual summary of the
    accomplishments and the challenges that the Naval Reserve has
    had over the last few years, just talk to you about three myths
    that I think are out there. I think they apply to all the
    Reserve components.
        The first myth that's becoming popular around town is the
    idea that we're overused. The Naval Reserve Force, like the
    Army Reserve and the rest of the components, has been tasked
    over the last few years, but I would tell you that the opposite
    is true. The people that are being used are happy being used.
    They feel like they're contributing to the country, and they
    know that what they're doing is important.
        My attrition in the Naval Reserve Force runs around 28
    percent at the present time. For the people that have been
    mobilized, attrition is less than half of that. So I think that
    data backs up the statement that the people are proud of what
    they're doing, and they feel that they're doing something
    important when they're serving the country, even if they're
    asked to do it once or twice in their lifetime.
        The second myth is that we should not put 100 percent of
    any capability in any one of the components. In the Naval
    Reserve, I think we have the poster child for a successful
    program that we've been able to provide Navy 100 percent of the
    capability, and that's our logistics airlift. Our airplanes
    provide inter-theater airlift for a commander that is in a
    theater such as CINCUSNAVEUR or our NAVCENT folks. All those
    airplanes are flown by naval reservists, they're all owned by
    the Naval Reserve. Through the help of Congress, we've been
    able to upgrade some of those airplanes to the new C-40s, which
    is a 737 variant.
        We do that without even having to mobilize them in great
    numbers. Even with the taskings that we have over in Middle
    East today, we're able to provide that kind of service over
    there day in and day out primarily using people that are on 2-
    week detachments or even longer rotations. We do have one
    squadron mobilized, and yet we're able to provide logistics
    airlift support not only in Europe and in the Middle East, but
    also in Japan and at the same time, in the Pacific.
        The third myth is that it takes us too long to mobilize.
    General Helmly referred to the fact that we have outdated
    processes. The problem oftentimes is that the mobilization
    clock seems to start when the requirement is put in, as far as
    the combatant commander is concerned. It goes through several
    levels inside of the Department of Defense before it gets down
    to the Reserves to actually mobilize their people. Once we get
    the requirement, we're able to turn people on in very short
    order. Three days to a week is our nominal processing time.
        So I just want to highlight those three myths I think that
    are out there, and we can talk about them more if you'd like
    to. I think those things have gotten too much play in the
    press, and I wanted to try and set those to rest in the record.
        I look forward to your questions and thank you for your
    support over the years.
        [The prepared statement of Admiral Totushek follows:]

             Prepared Statement by Vice Adm. John B. Totushek, USNR

        It has been a remarkably challenging and successful past year for
    the Naval Reserve. We are continuing at an unprecedented pace in
    support of the war on terrorism, while at the same time navigating the
    Naval Reserve through the complex process of transformation. Today,
    Navy's ability to surge rapidly and decisively to new crisis points
    rests primarily on active force capabilities with some Naval Reserve
    augmentation. Yet, any new crisis could potentially strain Navy's
    ability to sustain existing commitments, thus increasing the value of
    maintaining--and using, when needed--flexible operational capabilities
    resident in the Naval Reserve.
        The Naval Reserve provides Navy with necessary operational and
    organizational agility.

             Operational readiness
             Parallel capability--reinforcing/sustaining/optimizing
            for crisis
             Incubating new capabilities
             Stand alone missions

        We ask a lot from our individual reservists. They have responded
    heroically. As Operation Noble Eagle demonstrates, mobilized Naval
    Reserve capabilities are often required to meet the risks associated
    with surge, and to sustain Navy commitments. Despite various opinions
    to the contrary, my Reserve force has not been overtasked during the
    continuing global war on terrorism. We've recalled over 8,000 Naval
    reservists to-date, or approximately 10 percent of our force. We've
    recalled entire commissioned units as well as individuals with unique
    skills. While attrition across my force has been averaging in the high
    20 percentile, our Career Decision Surveys targeted to those personnel
    demobilizing indicate that their attrition is holding at a mere 12
    percent. We are confident that we have policies in place to manage and
    mitigate the strains we place on our sailors and their employers. The
    bottom line is that Naval Reserve personnel are staying Navy, and we
    were able to reduce our enlisted recruiting goal by 2,000 end strength
    this year.
        The Naval Reserve: a proven source of Navy flexibility

             Mobilization for war on contingency
             Relieving stress on active PERSTEMPO
             Warfighting and support capability at reduced cost

        Observing the work performed by our Naval reservists over the past
    year, I have concluded that heroes are just ordinary people who do
    extraordinary things.
        Among the Naval Reserve heroes who represent the extraordinary
    sacrifices made by all of our members in support of Operations Enduring
    Freedom and Noble Eagle are people such as these:

             Petty Officer Second Class John Mason, a police
            officer from New York City whose patrol areas included the
            World Trade Center. He mobilized to Rota, Spain, to join a
            Naval security force there and decided to extend for a second
            full year.
             Commander Neal Bundo, from Crofton, Maryland, and
            members of Navy Command Center Unit 106 at the Pentagon
            mobilized and drilled around-the-clock to maintain the watch in
            the aftermath of the destruction of the center and the murder
            of fellow sailors.
             Utilityman Second Class Marianne Johnson, who lives in
            San Diego and is a single parent of two daughters and an
            accounts receivable clerk for Pepsi. She was mobilized to Pearl
            Harbor with Construction Battalion Maintenance Unit 303 to
            provide security support for Commander, Navy Region Hawaii.
            Although she could have waived her commitment, she arranged for
            a friend to take her apartment and temporary custody of her
            children for a whole year.

        There are Naval Reserve heroes among the spouses of our reservists.

             The husband of Susan Van Cleve was also recalled with
            Construction Battalion Maintenance Unit 303. Without any formal
            Ombudsman training, Mrs. Van Cleve took on the task of
            representing the dependents and relatives of more than 180
            mobilized SeaBees. What's remarkable is that the Van Cleves,
            from Lake Elsinore, California, have five children at home
            under age five.

        Ordinary people. Summoned to do extraordinary things. I call them
    heroes. Anyone associated with the Reserve components of this Nation
    could go on and on with such stories because there are thousands of
    them. They are the people whose dedication we honor and must support.
        At the height of the mobilization in 2002, we activated almost
    10,600 Naval reservists, and, as mentioned earlier, we have more than
    8,000 sailors providing support around the world today. A perfect
    example of this is Strike Fighter Squadron (VFA) 201, based at Naval
    Air Station Joint Reserve Base, Fort Worth, Texas, which was ordered to
    active duty by President George W. Bush, as a unit of Carrier Air Wing
    (CVW) 8 embarked aboard the U.S.S. Theodore Roosevelt (CVN 71). Reports
    indicate that the ``Hunters'' of VFA 201 are leading the Air Wing in
    every measurable category.
        The majority of naval reservists that have been mobilized are
    individuals with unique specialties. They included significant numbers
    of law enforcement officers and security specialists. Medical, supply,
    intelligence, and other specialties continue to be heavily tasked.
    Entire units of the Naval Coastal Warfare commands were activated.
        Naval Reserve fighter pilots flew combat air patrol over our great
    cities. P-3C Orion pilots and crews are still flying surveillance
    missions. Logistics aircraft crews maintain a continuous presence in
    Bahrain and their operations tempo has increased by 25 percent, most of
    which is being done without mobilization.
        Top Five Priorities. While our deckplate sailors continue training
    to support combatant commanders, at the headquarters level we are still
    adhering to our top five priorities for the Naval Reserve. Let me
    briefly review highlights of these goals to illustrate how we are
    making progress.

        The Fiscal Year 2003 Top Five Priorities for the Naval Reserve

             Manpower
             Training
             Equipment and Information Technology Compatibility
             Force Shaping
             Fleet Support

        Manpower. Our recruiting numbers look good, and we are meeting
    goal. A continuing challenge is to fill targeted rates. While we
    initially saw that the percentage of prior service Navy entering the
    Naval Reserve bottomed out after September 11, it quickly rebounded,
    and we finished the year over end strength. Our attrition rate hovers
    near 25 percent, sharply down from a few years ago but short of our
    goal of 22 percent. One major improvement is that we are consolidating
    our recruiting efforts with the active Navy and expect that benefits
    will accrue to both.
        Training. Our training emphasis is on supporting the Chief of Naval
    Operation's Task Force Excel and Commander, Naval Education and
    Training, through integration of Naval Reserve personnel at all levels
    in the Navy Training Organization. This integration will enable the
    Naval Reserve to be in a position to take advantage of training
    initiatives underway throughout the Navy. We are also providing Joint
    Professional Military Education and ultimately building a cadre of
    Reserve Officers with joint experience and designated as Fully Joint
    Qualified. This will involve working closely with joint gaining
    commands to identify billets requiring joint experience to be filled by
    Reserve Officers, an opportunity that has previously been non-existent.
    Additionally, in order to take advantage of current and future training
    available through Distance Learning, we have been working hard to
    develop and implement a policy to provide drill pay to those personnel
    completing Distance Learning courseware at the direction of their
    Commanding Officer.
        Equipment and Information Technology Compatibility. In fiscal year
    2004 we see a continuation of the decline in procurement of equipment
    for the Naval Reserve. Total Naval Reserve equipment procurement
    steadily decreased from $229 million in fiscal year 1997 to about $91
    million in fiscal year 2003.
        Among the few bright spots in the fiscal year 2004 equipment budget
    is funding for the acquisition of one new C-40A logistics aircraft.
    These aircraft are of vital importance to fleet logistics since the
    Naval Reserve provides 100 percent of the Navy's organic lift
    capability and direct logistics support for combatant commanders in all
    operating theaters. In addition, the fiscal year 2004 budget calls for
    the procurement of another C-40A aircraft.
        Other programs slated to receive procurement funding in the fiscal
    year 2004 budget include: the C-130T Aviation Modernization Program
    that will make 18 logistics aircraft compliant to fly worldwide;
    surveillance equipment upgrades and small boats for Naval Coastal
    Warfare forces; and ground and communication equipment for the Naval
    Construction Force.
        Despite these welcome Reserve acquisition adds, essential F/A-18
    modifications, P-3C upgrades, and SH-60B helicopters still require
    substantial investments. Currently one squadron of Reserve F/A-18A
    aircraft lack the capability to deliver precision-guided munitions and
    need ECP-560 upgrades to avionics, software, and accessories. Under the
    Navy-Marine Corps TACAIR integration plan, a Naval Reserve squadron is
    slated for disestablishment in fiscal year 2004.
        P-3C aircraft used by the Naval Reserve constitute approximately 40
    percent of the Navy's capability. Currently, these aircraft provide
    only limited support to operational commanders because they lack the
    Aircraft Improvement Program (AIP) upgrade. Active component AIP
    aircraft were used extensively in Afghanistan due to their improved
    communication and surveillance capabilities. To enable our P-3C
    squadrons to fully participate and integrate with the active component
    in support of operational requirements, an investment needs to be made
    to upgrade our 42 P-3C aircraft in the Naval Reserve's 7 P-3C
    squadrons. Improving Reserve squadron integration with active forces
    will reduce active component's operational tempo and increase overall
    Navy mission capability. Spending to achieve equipment compatibility
    and equivalent capability between active and Reserve components is
    always a wise investment.
        Finally, the Littoral Surveillance System (LSS) provides timely
    assured receipt of all-weather, day/night maritime and littoral
    intelligence, surveillance, and reconnaissance data. For fiscal year
    2003, Congress appropriated funds for a second LSS to support Naval
    Coastal Warfare. I'm encouraged that the emerging homeland security
    requirement to secure land and sea borders from potential terrorist
    attack is an emerging mission to which LSS capability can contribute.
    It is joint, transformational, and is consistent with Naval Reserve
    capabilities. I look forward to working with our Coast Guard friends in
    assisting them in protecting our coastal waters and ports.
        In the Information Technology area, we have implemented the New
    Order Writing System (NOWS) online, and it is up and running smoothly.
    Within budget constraints, we continue with implementation of the Navy
    Marine Corps Intranet (NMCI). By the end of 2003, 100 percent of the
    Naval Reserve Force will be on the NMCI. Our goal is a seamless
    information and communication systems integration between the active
    Navy and the Naval Reserve. To meet our primary mission of delivering
    sailors, equipment, and units to combatant commanders requires
    information technology improvements in the manpower, personnel,
    communications, training, and financial management areas.
        Force Shaping. On July 20, 2002, the Naval Reserve stood up the
    Naval Reserve Forces Command. In doing so, it eliminated the old title
    of Commander Naval Surface Reserve Force and merged separate Naval
    Reserve air and surface chains of command. This ongoing alignment,
    which is examining every facet of Naval Reserve operations--is making
    the Naval Reserve more flexible and responsive, improving its systems,
    and focusing on customer service. The alignment of the New Orleans
    headquarters staff allows one-stop shopping for the active duty Navy to
    reach the Naval Reserve Force and has provided additional full time
    support to the fleet.
        Fleet Support. Earlier I mentioned the direct support we have been
    providing to combatant commanders, and we are prepared to do more.
    While we continue monitoring potential risks of sustained and repeated
    recalls, to date we have seen improved retention rates of recallees
    measured against the rest of the force. Every one of our 86,000 naval
    reservists wants to participate in winning the war on terrorism. We
    must ensure that they have the tools to do their jobs and integrate
    smoothly into the Fleet.
        Transformation. Within the think tanks of Washington and in the E-
    ring hallways, there is much talk about how the Navy will participate
    in the DOD-wide transformation process. Though the Naval Reserve's
    traditional mission of reinforcing Active Forces and sustaining
    capabilities has always been valid, there are additional ways in which
    we can support transformation.
        The Naval Reserve is the `flex' Navy needs to navigate, and even
    accelerate its passage through a challenging and uncertain future. As
    it did throughout the Cold War, post-Operation Desert Storm and post-
    September 11 periods, the Navy will continue to depend on its Reserve
    as a mobilization asset, affordably extending Navy's operational
    availability. At the same time, the Navy will continue to rely on Naval
    Reserve units and individuals to provide day-to-day `peacetime'
    operational capabilities and to reduce the stress on active personnel
    tempo. The extensive operational warfighting and service support
    experience resident in the Naval Reserve will be crucial to assisting
    Navy in achieving its Sea Strike, Sea Shield, and Sea Basing
    capabilities.
        Some of our terminology will change as we transform. We no longer
    talk about CINCs; we talk about combatant commanders. We don't talk
    about TARs; we talk about Full Time Support personnel. We're not using
    the phrase Total Force, but we are talking about a transformational
    force that is simply one Navy.
        The Navy is shaping itself in the 21st century in an environment of
    competitive resources, fluid planning assumptions, and operational
    uncertainty. As it begins the transformation, the Navy is also fighting
    the war on terrorism and maintaining a challenging global forward
    presence. Juggling such priorities involves risk.
        The Naval Reserve's traditional function as a reservoir of
    capabilities that are not needed continuously in peacetime, but are
    needed in crisis, is crucial to mitigate such risks.
        As one example, Naval Coastal Warfare forces have been called upon
    to provide a security framework on the home front as well as overseas.
    The mission--protection of strategic shipping, shallow water intrusion
    detection, traffic control, and harbor defense--has resided exclusively
    in the Naval Reserve for more than 10 years. Today, this force
    protection presence is made up of 100 percent naval reservists, who
    conduct fully integrated command, control, communications,
    surveillance, and harbor defense missions around the globe. Because
    these are ongoing requirements in this mission area, we will be
    integrating an active Mobile Security Force with existing Naval Reserve
    Coastal Warfare forces.
        Another example is also tied to the aftermath of September 11: the
    immediate requirement for Master-at-Arms and law enforcement specialist
    to provide force protection to the Navy. This was a very small mission
    area for the Navy that, when the need arose, they were unable to fill
    with active duty sailors. The Naval Reserve took care of the
    requirement until the Navy could implement long-term measures.
        However, the Naval Reserve can do more. Our agility can spread
    across a spectrum of other challenging areas: manpower, operations,
    planning, force structure, and mix. We can be a great reservoir for
    experimentation and innovation. In these and many other ways, the Naval
    Reserve can mirror and complement the Chief of Naval Operation's
    visions in Sea Power 21: to project power, protect U.S. interests, and
    enhance and support joint force operations.
        Myths. Before I close, since this is probably the last opportunity
    I will have to appear before this committee, I would like to take this
    opportunity to briefly comment on several myths about the Naval Reserve
    that I have encountered during my tour as the Chief of Naval Reserve.
        The first myth is the popular opinion of many that Reserve Forces
    have been overused during the GWOT. As I mentioned in the beginning, I
    can assure you that the Naval Reserve has not been overused and is
    ready and able to do more to support the Navy. I know this not only
    because of the conversations that I have had with Naval reservists on a
    daily basis, but also because of some very interesting statistics that
    have come out of our September 11 mobilizations, such as the one
    measure that indicates our current attrition rate for those mobilized
    for the GWOT is approximately 12 percent, which is considerably lower
    than our historical attrition rate. I'm a firm believer that the Naval
    Reserve Force needs to be used to be relevant.
        The second myth is that it is unwise to place 100 percent of a
    mission within the Reserve. I firmly believe that certain missions are
    designed perfectly for the Reserve and are very cost effective. A
    perfect example is the 14 Naval Reserve squadrons of our Fleet
    Logistics Support Wing which have very successfully provided 100
    percent of the Navy's worldwide intra-theatre airlift support on a
    continuous basis for over a decade. There are currently 14 Naval
    Reserve logistics aircraft deployed outside the continental United
    States, which is a 230-percent increase since September 11, yet we have
    done this while only mobilizing one airlift squadron.
        You may have heard discussions about changing the mix of active
    component versus Reserve component. The Naval Reserve is working
    closely with the Navy to address High Demand/Low Density type units.
    Through innovative sharing of assets and essential skill sets, Reserve
    personnel have been used to train new active component crews as well as
    carry some of the load of the deployment rotation. VAQ 209, flying EA-
    6B electronic warfare jets based at NAF Washington, deployed overseas
    for 45 days this past summer flying combat patrols in support of
    Operation Northern Watch, their fifth such deployment in the last 7
    years. Yet when they were here at home, they provided personnel and
    aircraft to the fleet to support multi-week flight training
    detachments. By doing this they maximize the value of the dollars Navy
    has already spent to train and equip them while sustaining and
    exercising their warfighting skills. The renewed demand for Naval
    Coastal Warfare units, as mentioned before, has caused Navy to
    reevaluate the requirement and to create active component units. Naval
    Reserve, in this case, has served to provide the storehouse of skills
    so that as the demands of warfighting changed Navy was able to quickly
    meet the new challenge. These are just two examples of how your Naval
    Reserve Force provides the organizational flexibility needed to
    navigate the rapid changes of a transforming world.
        A myth that certainly has to be dispelled is that Naval reservists
    cost more than their active duty counterparts. A cost comparison done
    for a 7 year period from fiscal year 2003 through fiscal year 2009
    shows that a selected reservist, not mobilized at any time during that
    period, costs approximately 21 percent of the cost of an active member.
    The cost of a selected reservist mobilized for a 2 year period during
    that time frame still reflects a considerable savings--less than half
    of that of an active member. In 2002, Navy estimated that it costs
    $1.26 million to train an F-18 pilot, taking that ``nugget'' pilot from
    ``street to fleet.'' By the time that same pilot will become a member
    of the Reserve Force, Navy will have invested many more millions of
    dollars to hone his or her skills. When that pilot joins a Naval
    Reserve squadron we will have recaptured every one of those training
    dollars. My point is that the cost of a valuable mobilization asset
    should not be looked at only in the limited context of the period
    during mobilization, but, rather in the larger context; that of an
    amazingly cost effective force multiplier available both during periods
    when the Nation's active forces are able to handle the PERSTEMPO and
    OPTEMPO without Reserve augmentation and during those periods of crisis
    that require citizen-sailors to leave their civilian lives and jobs and
    be mobilized.
        An additional myth is that the Naval Reserve should only be
    employed for full mobilization scenarios. Much like VAQ 209, which I
    mentioned earlier, our Naval Special Warfare units and Naval Special
    Warfare helicopter squadrons, either by providing personnel or by
    providing deploying units, have participated in smaller scale
    contingency operations such as Operation Uphold Democracy in Haiti. Our
    Naval Reserve intelligence community is contributing daily to the
    processing and evaluation of intelligence information. Our maritime
    patrol squadrons and Naval Reserve Force frigates are continuously
    employed in the war on drugs. These scenarios do not involve full
    mobilization, they involve ad hoc contributions that keep our Naval
    reservists engaged in something that is important to them--the safety,
    security, and preservation of our country. If we want to continue the
    capable Reserve Force we have today, we must utilize their talents or
    they will not stay.
        The last myth is that it takes too long for us to mobilize and be
    ready. Fortunately, I have a timely example to use to dispel this myth.
    On October 4, 2002, a mobilization order was issued to VFA-201. Within
    72 hours 100 percent of squadron personnel had completed the
    mobilization process, and within 90 days, all refresher training had
    been completed and the squadron was deployed on board the U.S.S.
    Theodore Roosevelt. Every aviator has cruise experience, over 1,000
    flight hours, and many have over 1,000 or 2,000 hours in type. Squadron
    aviators provided leadership to the air wing in strike planning, flight
    execution, and carrier operations. Their experience in operations
    around the world and in adversary tactics continue to aid increased air
    wing readiness. Since mobilization, the Hunters of VFA-201 have flown
    more than 990 sorties, 1,650 hours, and recorded 629 day and 392 night
    arrested landings. Not only were we ready to respond to the call
    quickly, but, I am pleased to report that VFA-201 pilots had the
    highest qualification grades in the Air Wing and were awarded the
    Squadron ``Top Hook'' award. I am also pleased to report that VFA-201s
    12 F-18A+ aircraft are equivalent to F-18C aircraft primarily because
    of funding for equipment upgrades provided by Congress via the NG&RE
    appropriation.
        Running Myths about the Naval Reserve

             Naval Reserve forces are being overused
             It is unwise to place a mission entirely in the Naval
            Reserve
             The Active/Reserve Force mix for High Demand/Low
            Density units should be changed
             The Naval Reserve should be used only for full
            mobilization scenarios
             It takes too long for the Naval Reserve to mobilize
            and get ready

        Summary. The Naval Reserve is meeting big challenges with a force
    that is remarkably fit and ready to continue doing the heavy lifting
    for the Navy Marine Corps team. If we are successful at procuring the
    compatible equipment we need, we can become even more effective at
    world-class service to the fleet. We look forward to meeting the
    challenges ahead, both within the Naval Reserve and in support of the
    Navy's strategic vision.
        As I review the state of our Naval Reserve Force over the past
    year, I take pride in what the Naval Reserve has accomplished. All
    things considered, it has been a remarkable year.

        Senator Chambliss. Thank you, Admiral. There are a lot of
    myths going around town about Members of Congress, too, and
    most of them are true. [Laughter.]
        General McCarthy.

      STATEMENT OF LT. GEN. DENNIS M. McCARTHY, USMCR, COMMANDER,
                         MARINE FORCES RESERVE

        General McCarthy. Senator Chambliss, Senator Nelson, thank
    you very much for the opportunity to appear on behalf of the
    Marine Corps Reserve.
        General Mike Hagee, the Commandant of the Marine Corps, was
    in visiting marines in the theater a month or so ago, and he
    was quoted as saying, ``I understand that two thirds of you,''
    in this group that he was talking to, ``are Reserves. I know
    you simply as marines. Looking at performance, I can't tell the
    difference.'' That is the quintessential statement of our
    success as the Marine Corps Reserve.
        I'm very grateful for the support that Congress has
    provided, because it's helped us to do the things that we need
    to do to meet that standard. I'm enormously proud of the almost
    20,000 marines who are currently mobilized. That's about half
    of the selected Reserve in the Marine Corps Reserve.
        It's a combat force. Seventy-five percent of those marines
    and the sailors who serve with us are forward deployed in the
    Central Command area of operations. They're doing what they
    know how to do. They're not overstressed. They're well
    prepared, and, as both General Helmly and Admiral Totushek have
    said, they are glad to be doing what it is they're doing.
        I do thank you for your support, and I look forward to
    answering your questions.
        [The prepared statement of General McCarthy follows:]

            Prepared Statement by Lt. Gen. Dennis M. McCarthy, USMCR

        Chairman Chambliss, Senator Nelson, and distinguished members of
    the subcommittee, it is my privilege to report on the status and the
    future direction of your Marine Corps Reserve as a partner in the Total
    Force. On behalf of marines and their families, I want to thank the
    committee for its unwaivering support. Your efforts reveal not only a
    commitment for ensuring the common defense, but also a genuine concern
    for the welfare of our marines and their families.

                                 CURRENT STATUS

        Today's Marine Reserves are ready, willing, and able to support the
    active component and to serve our communities in peace or war. During
    the global war on terrorism, Reserve units have filled critical roles
    in our Nation's defense--whether deployed to Afghanistan, Djibouti, or
    Kuwait or on standby at U.S. bases to quickly respond to homeland
    security crises.
        As of February 27, approximately 15,000 marines were activated as
    part of units or individual augments in support of Operations Noble
    Eagle and Enduring Freedom. This represents approximately 40 percent of
    the Selected Marine Corps Reserve (SMCR) and 1.7 percent of the
    Individual Ready Reserve (IRR). The number has risen sharply since the
    beginning of 2003 in response to the deployment orders for marines to
    reposition to Southwest Asia for possible future contingency
    operations. Roughly 75 percent of the SMCR marines currently activated
    are or will be forward deployed into the U.S. Central Command area of
    operations.
        Reserve integration can readily enhance Marine Corps operational
    capabilities, however, recognizing the Reserve as a finite resource the
    Commandant has insisted on its judicious use. In the first year of
    Operations Noble Eagle and Enduring Freedom we activated no more than
    11 percent of the SMCR (units and Individual Mobilization Augmentees)
    and less than 2 percent of the IRR. All of the IRR members were
    volunteers.
        The men and women in Marine Forces Reserve have responded
    tremendously to the call to duty. Only 1.1 percent of those receiving
    orders have requested delay, deferment, or exemption from duty.
        Mobilization readiness is our number one priority all the time. The
    hard work and dedication of the marines and sailors of Marine Forces
    Reserve to this task has resulted in the efficient execution of the
    mobilization. During the first 2 months of 2003 we moved 7,860
    passengers and 136,220 short tons of cargo directly from Reserve
    training centers to embarkation points using 605 tractor-trailers and
    210 chartered buses and flights--without missing a designated arrival
    date. More than 12,000 Reserve personnel have initiated the anthrax
    vaccine series at their home training centers and most smallpox
    vaccinations are being administered at the gaining force command within
    48 hours of deployment. No Reserve unit has had to ask for relief to
    enter theater without the required inoculations.
        Reserve integration is important to our operational capabilities,
    we have been careful not to over commit our Reserves. In the first year
    of Operation Enduring Freedom we activated less than 3 percent of our
    approximately 57,000 Marine Individual Ready Reservists (IRRs). All of
    the those IRRs were volunteers. These numbers are expected to increase
    as we intensify our efforts. Of the approximately 39,558 marines in
    Selected Marine Corps Reserve (SMCR), no more than 3,700 were mobilized
    in 2002. Even though that number has increased sharply since the
    beginning of 2003, approximately 28,000 SMCR members remain ``in
    Reserve'' as of the first week of February.
        The ability of the Reserve to rapidly mobilize and integrate into
    the active component in response to the Marine Corps' operational
    requirements is a tribute to the dedication, professionalism, and
    warrior spirit of every member of Marine Forces Reserve--both active
    and Reserve. Our future success relies firmly on the Marine Corps' most
    valuable asset--our marines and their families.
        We continue to evaluate personnel policy changes regarding
    entitlements, training, and employment of Reserve Forces, and support
    for family members and employers to minimize the impact of mobilization
    on our marines. Our success in this area will enhance our ability to
    retain the quality marines needed to meet our emerging operational
    requirements.
        We need your continued support to attract and retain quality men
    and women in the Marine Corps Reserve. Our mission is to find those
    potential marines who choose to manage a commitment to their family,
    their communities, their civilian careers, and the Corps. While such
    dedication requires self-discipline and personal sacrifices that cannot
    be justified by a drill paycheck alone, adequate compensation and
    retirement benefits are tangible incentives for attracting and
    retaining quality personnel. This challenge will be renewed when
    mobilized units return from active duty and begin the process of
    reconstitution.
        Last year, the Marine Corps Reserve achieved its recruiting goals,
    accessing 5,900 non-prior service and 4,213 prior service marines. This
    is particularly significant as the historic high rate of retention for
    the active component reduced the pool for prior service recruiting.
    Enlisted attrition rates for fiscal year 2002 decreased approximately
    2.8 percent from our historical 4-year average. Marine Corps Reserve
    officer attrition rates were slightly higher than historical averages
    which can in part be attributed to Reserve officers leaving non-
    mobilized SMCR units in order to be mobilized in support of individual
    augmentation requirements.
        The incentives provided by Congress, such as the Montgomery GI Bill
    (MGIB) and the MGIB Kicker (Kicker) educational benefits, enlistment
    bonuses, medical and dental benefits, and commissary and PX privileges,
    have helped us to attract and retain capable, motivated, and dedicated
    marines, which has contributed to the stability of our force.
    Congressional enhancements allowed us to increase our recruiting and
    retention incentive programs during fiscal year 2001. We continued to
    fund these programs to the same levels in fiscal year 2002 and fiscal
    year 2003 through internal realignment. The increase is also reflected
    in our fiscal year 2004 budget request. The tangible results of your
    support for these incentives are the decreased attrition and recruiting
    successes I have just highlighted.
        The Marine Corps is the only service that relies almost entirely on
    its prior service population to fill the ranks of its Reserve officer
    corps. Although the Marine Corps Reserve exceeded its recent historical
    SMCR unit officer accession rates in fiscal year 2002, manning our unit
    officer requirements at the right grade and MOS continues to be our
    biggest recruiting and retention challenge. We are exploring ways to
    increase the Reserve participation of company grade officers.
        The long-term impact of mobilization on recruiting and retention is
    still undetermined. More than 2,000 of our activated Reserves have now
    exceeded the 1-year mark. We will not know the overall retention impact
    until we demobilize a significant number of these marines and they have
    an opportunity to assess the impact of mobilization on their families,
    finances, and civilian careers.
        Combat readiness and personal and family readiness are inseparable.
    Marine Forces Reserve Marine Corps Community Services is working
    aggressively to strengthen the readiness of our marines and families by
    enhancing their quality of life (QOL). Our many MCCS programs and
    services are designed to reach all marines and their families
    regardless of geographic location--a significant and challenging
    undertaking considering the geographic dispersion of our marines and
    their families throughout the U.S. and Puerto Rico. During the current
    partial mobilization we are seeing the payoffs of our significant
    investment over the past several years in family readiness programs.
    Key volunteers and site support personnel are assisting families and
    keeping communities informed.
        In December 2002, the Marine Corps began participating in a 2-year
    Department of Defense demonstration project providing 24-hour
    telephonic and online family information and referral assistance.
    ``MCCS One Source'' is similar to employee assistance programs used by
    many of the Nation's leading major corporations as a proven HR strategy
    to help employees balance work and life demands, reduce stress, and
    improve on-the-job productivity. Already we are receiving positive
    feedback from users.
        The support our Reserve Marines receive from their employers has a
    major impact on their ability to serve. We have partnered with the
    National Committee for Employer Support of the Guard and Reserve to
    foster a better mutual understanding and working relationship with
    employers. During the current partial mobilization many employers have
    voluntarily pledged to augment pay and extend benefits which has
    greatly lessened the burden of activation on our servicemembers and
    their families. I would like to acknowledge and thank the public and
    private sector employers of our men and women serving in the Marine
    Corps Reserve for their continued support.
        Like the active component Marine Corps, the Marine Corps Reserve is
    a predominantly junior force with historically about 70 percent of SMCR
    marines on their first enlistment. Many of our young marines are also
    college students. Currently, there are no laws that would provide
    academic and financial protections for students and schools affected by
    mobilization. We support ESGR's new initiative to improve communication
    between Reserve component personnel and their educational institutions.
        In addition to supporting Operations Noble Eagle and Enduring
    Freedom, Marine Reserves continued to provide operations tempo relief
    to the active forces during 2002. Notably, more than 300 Reserves
    volunteered to participate in UNITAS 43-02, creating the first Reserve
    Marine Forces UNITAS. From August to December, the marines sailed
    around South America conducting training exercises with military forces
    from Brazil, Colombia, Ecuador, Argentina, Peru, Chile, and other
    countries. Marine Forces Reserve also provided the bulk of Marine Corps
    support to the Nation's counter drug effort, participating in numerous
    missions in support of Joint Task Force 6, Joint Interagency Task
    Force-East, and Joint Interagency Task Force-West. Individual marines
    and units support law enforcement agencies conducting missions along
    the U.S. Southwest border and in several domestic ``hot spots'' that
    have been designated as High Intensity Drug Trafficking Areas.
        The Active Duty Special Work (ADSW) Program funds short tours of
    active duty for Marine Corps Reserve personnel. This program continues
    to provide critical skills and operational tempo relief for existing
    and emerging augmentation requirements of the Total Force. The demand
    for ADSW has increased to support pre-mobilization activities during
    fiscal year 2002 and fiscal year 2003 and will be further challenged
    during post mobilization. In fiscal year 2002, the Marine Corps
    executed 1,208 work-years of ADSW. Continued support and funding for
    this critical program will ensure our Total Force requirements are
    fully met.
        Maintaining overall SMCR end-strength at current levels will ensure
    the Marine Corps Reserve's capability to provide operational and
    personnel tempo relief to Active Marine Forces, maintain sufficient
    full-time support at our small unit sites, and retain critical aviation
    and ground equipment maintenance capabilities. SMCR units are
    structured along the Marine Air Ground Task Force model, providing air
    combat, ground combat, and combat service support personnel and
    equipment to augment and reinforce the active component. Less than 1
    percent of our SMCR unit strength represents a Reserve-unique
    capablility. The current Marine Forces Reserve Force structure also
    reflects a small tooth-to-tail ratio with a minimal number of active
    duty and Reserve personnel in support roles, and a majority of our
    Reserve and active marines and sailors as deployable warfighters.
        The Marine Corps Reserve also provides a significant community
    presence in and around our 187 sites nationwide. One of our most
    important contributions is providing military funerals for our
    veterans. The active duty staff members and Reserve marines at our
    sites performed approximately 6,170 funerals in 2002 and we project to
    support as many or more this year. The authorization and funding to
    bring Reserve marines on active duty to perform funeral honors has
    particularly assisted us at sites like Bridgeton, Missouri, where we
    perform several funerals each week. We appreciate Congress exempting
    these marines from counting against active duty end strength.

                           FUTURE ROLES AND MISSIONS

        The value of the Marine Corps Reserve has always been measured in
    our ability to effectively augment and reinforce the active component.
    Over the next several years, the overall structure of Marine Forces
    Reserve will remain largely the same, however, we are working to create
    new capabilities to adapt and orient the Reserve Force to the changing
    strategic landscape. The capabilities were identified as part of an
    internal comprehensive review begun in 2001 and do not involve any
    changes to the number of Reserves or the geographic laydown of the
    force.

             Foremost among these capabilities will be the creation
            of two Security Battalions and an Intelligence Support
            Battalion. The Security Battalions will provide a dual-use
            capability consisting of eight Anti-Terrorism Force Protection
            platoons and an augmentation unit for the Marine Corps Chemical
            Biological Incident Response Force (CBIRF).
             Recognizing the increased requirements at Marine Corps
            and Joint Commands for rapid, flexible Staff Augmentation, the
            Marine Corps Reserve is enhancing and modifying the Individual
            Mobilization Augmentee program to increase the quantity and
            distribution of Augmentee billets to better support the
            Warfighting Commander's needs.
             Additional Reserve capabilities involve Information
            Technology, Environmental Protection, and Foreign Languages.

                                    SUMMARY

        In early February this year while visiting a group of marines in
    Qatar, the Commandant of the Marine Corps made the following comment:
    ``I understand from the numbers that two-thirds of you here are
    reservists--I know you simply as marines--and looking at performance I
    can't tell the difference.'' Testaments like this tell the real story
    of our success. Our greatest asset is our outstanding young men and
    women in uniform. Your consistent and steadfast support of our marines
    and their families has directly contributed to our success. The Marine
    Corps appreciates your continued support and collaboration in making
    the Marine Corps and its Reserve the Department of Defense model for
    Total Force integration and expeditionary capability.

        Senator Chambliss. Thank you, General McCarthy.
        General Batbie.

    STATEMENT OF MAJOR GEN. JOHN J. BATBIE, USAFR, VICE COMMANDER,
                       AIR FORCE RESERVE COMMAND

        General Batbie. Mr. Chairman, Senator Nelson, I want to
    thank you for allowing me to be here today and testify on
    behalf of General Sherrard and the nearly 76,000 members of the
    Air Force Reserve. Over 13,000 citizen airmen are mobilized
    today, and, due to our one tier of readiness, they're
    performing brilliantly in today's total force.
        I want to acknowledge that this committee took the lead in
    some key legislation for us this year, including the repealing
    of the prohibition on Active Guard and Reserve (AGR) Forces
    personnel performing installation security functions. Like the
    other witnesses have said, extending from 10 to 14 years the
    time to use the Montgomery GI Bill Selected Reserve
    entitlement, as well as many other initiatives which help us
    recruit and retain our quality people are greatly appreciated.
    With your help, the Air Force Reserve will remain a viable
    force for the future.
        I look forward to answering any questions you might have,
    sir.
        [The prepared statement of General Batbie follows:]

           Prepared Statement by Maj. Gen. John J. Batbie, Jr., USAFR

        Mr. Chairman, Senator Nelson, and distinguished members of the
    subcommittee, I appreciate the opportunity to appear before you today
    and I certainly want to thank you for your continued support, which has
    helped your Air Force Reserve address vital recruiting, retention,
    modernization, and infrastructural needs. Your passage of last year's
    pay and quality of life initiatives sent a clear message to our citizen
    airmen that their efforts are not only appreciated and supported by
    their families, employers, and the American people, but also by those
    of you in the highest positions of governing.

                               HIGHLIGHTS OF 2002

        We culminate 2002 and begin 2003 focused on transforming our air
    and space capabilities as well as streamlining the way we think about
    and employ our forces. We continue to develop our airmen into leaders,
    bring technology to them at their units and in the battlespace, and
    integrate operations to maximize our combat capabilities. These three
    basic core competencies are critical to the Air Force Reserve as we
    become more and more relevant in the future total force.
        The Air Force, with the Air Force Reserve Command (AFRC), has
    enjoyed over 30 years of unparalleled Total Force integration success.
    We were the first to establish associate units which blend Active and
    Reserve Forces into the correct mix. Our members perform in almost
    every mission area and seek involvement in all future mission areas, as
    those areas become relevant. Key to our successes, to date, is the fact
    that AFRC is a very dynamic organization in a dynamic environment,
    still putting our airmen first, and using new technology to seamlessly
    integrate all our forces, whether associate or unit equipped, in both
    peace and war.

                             DEVELOPING OUR AIRMEN

        I am pleased to tell you that the Air Force Reserve continues to be
    a force of choice for the Air Force and the warfighting commanders, as
    we respond swiftly to each phase of the global war on terrorism (GWOT).
    We focus our attention on our people to assure they are provided the
    full spectrum of training opportunities, enhancing their warfighting
    skills, the capabilities of the Air Force Reserve, and thus, the
    capabilities of the Air Force.
        As we strive to retain our best and brightest, we must continue to
    reward them through compensation and benefits. We continue to challenge
    our family support personnel, commanders, and first sergeants to find
    improved ways to look after the families who remain while our members
    deploy. We reach out to their employers with our thanks for their
    sacrifice and support. We encourage open dialogue among the troops, and
    from the troops, through their chain of command, to me, to exchange
    ideas and receive feedback. Finally, it is critical to partner with you
    to ensure we remain the strongest air and space force in the world.
        The Air Force is a team--we train together, work together, and
    fight together. Wherever you find the United States Air Force, at home
    or abroad, you will find the active and Reserve members working side-
    by-side, trained to one tier of readiness, READY NOW! and that's the
    way it should be.

                                   RECRUITING

        In fiscal year 2002, Air Force Reserve Command (AFRC) exceeded its
    recruiting goal for the second year in a row. This remarkable feat was
    achieved through the outstanding efforts of our recruiters, who
    accessed 107.9 percent of the recruiting goal, and through the superb
    assistance of our Reserve members who helped tell our story of public
    service to the American people. Additionally, AFRC was granted
    permission by the Assistant Secretary of the Air Force, Manpower and
    Reserve Affairs, in coordination with the Under Secretary for Defense
    (Personnel and Readiness), to surpass its fiscal year 2002 end-strength
    due to the ongoing support of current operations. AFRC end strength
    reached 102.59 percent of congressionally authorized requirements.
        Several initiatives contributed to Air Force Reserve recruiters
    once again leading the Department of Defense in annual accessions per
    recruiter. For example, in fiscal year 2001, AFRC permanently funded 50
    recruiter authorizations through accelerated authorizations and
    appropriations by Congress, we extended the much appreciated
    congressional action through the Programmed Objective Memorandum
    process. Further, they instituted a new 1-800 call center, redesigned
    the recruiting web site, launched an advertising campaign targeting
    those accessed from other services, and re-energized the ``Get One''
    program, whereby Air Force Reserve members receive incentive awards for
    referrals and accessions given to recruiters.
        Moreover, AFRC received permanent funding for an ``off-base'' real
    estate program to set up offices in malls and other high visibility
    areas. This initiative was desperately needed to provide recruiters
    greater exposure in local communities and access to non-prior service
    (NPS) applicants--a significant recruiting requirement since the active
    duty drawdown.
        While fiscal year 2002 was an outstanding year for recruiting,
    fiscal year 2003 is shaping up to be a very challenging year. A
    personnel management program, ``Stop Loss,'' was implemented for Air
    Force members. Historically, Reserve recruiting accesses close to 25
    percent of eligible separating active duty Air Force members (i.e. no
    break in service), accounting for a significant portion of annual
    accessions. Although Stop Loss has since been terminated, the continued
    high OPS/PERS tempo may negatively impact our success in attracting
    separating airmen. As a result, recruiters will have a difficult task
    accessing through other sources, including NPS, Air Force separatees
    with a break in service, and accessions from other services' former
    members.
        Additionally, one of the biggest challenges for recruiters this
    year is a shortage of basic military training (BMT) and technical
    training school (TTS) quotas. BMT and TTS allocations have not kept
    pace with increasing NPS recruiting requirements. Specifically,
    Recruiting Services enlisted almost 1,500 applicants in fiscal year
    2002 without BMT and TTS dates. We are working closely with Air Force
    Specialty Code Functional Managers (FAMs) and the personnel community
    to increase the future number of BMT and TTS quotas available. In the
    interim, when we cannot match basic training and technical training
    schools back-to-back, new airmen can complete basic training, report
    back to their unit for orientation and local training, then attend
    their technical school at a later date convenient to both the Air Force
    Reserve and the applicant.
        Finally, while overall end strength of the Air Force Reserve
    exceeds 100 percent, some career fields are undermanned. To avoid
    possible readiness concerns, recruiters will be challenged to guide
    applicants to critical job specialties. To assist in this effort, we
    continually review enlistment bonus listings to achieve parity with
    active duty listings for our airmen in these critical career fields. It
    is an ongoing management process involving all levels from career
    advisors to those of you on this committee to look into the future,
    anticipate the high demand specialties, and increase bonuses to balance
    supply and demand.

                                   RETENTION

        Retention is a major concern within the Air Force Reserve. With the
    lifting of Stop Loss and extended partial mobilizations, the full
    impact on Reserve retention remains to be seen. Nevertheless, our
    overall enlisted retention rate of 86 percent for fiscal year 2002
    exceeded the 5 year average. For officers, retention remains steady at
    approximately 92 percent.
        We continue to look at viable avenues to enhance retention of our
    reservists. We are exploring the feasibility of expanding the bonus
    program to our Active Guard Reserve (AGR) and Air Reserve Technician
    (ART) members; however, no decision has yet been made to implement. In
    addition, the Aviation Continuation Pay (ACP) continues to be offered
    to retain our rated AGR officers. The Reserve has made many strides in
    increasing education benefits for our members, offering 100 percent
    tuition assistance for those individuals pursuing an undergraduate
    degree and continuing to pay 75 percent for graduate degrees. We also
    employ the services of the Defense Activity for Non-Traditional
    Education Support (DANTES) for College Level Examination Program (CLEP)
    testing for all reservists and their spouses. These are our most
    notable, but we continue to seek innovative ways to enhance retention
    whenever and wherever possible.

                          QUALITY OF LIFE INITIATIVES

        In an effort to better provide long-term care insurance coverage
    for its members and their families, the Air Force Reserve participated
    in the Federal Long-Term Care Insurance Program (a commercial insurance
    venture sponsored by the Office of Personnel Management). This program
    affords members of the Selected Reserve insurance coverage for a
    variety of home and assisted living care requirements. Legislative
    changes are being pursued to open program eligibility to those members
    who are ``gray area.'' The Air Force Reserve expanded its Special Duty
    Assignment Pay program to include an additional 17 traditional, 7
    Active Guard and Reserve (AGR), and 10 Individual Mobilization
    Augmentee (IMA) Air Force Specialty Codes, and continues to advance
    staff efforts to mirror the active duty SDAP program. Additionally, an
    initiative to pay congressionally authorized SDAP to members performing
    inactive duty for training was approved on the 13th of February, this
    year.

                                THE BIG PICTURE

        We have learned much from the events of September 11, 2001, as it
    illustrated many things very clearly, not the least of them being the
    need for a new steady state of operations demanding more from our
    people and our resources. Within hours, and in some cases within
    minutes of the terrorist attacks, Air Force Reserve Command units
    throughout the country were involved in transporting people and
    resources to aid in the massive humanitarian relief effort. Air Force
    Reserve aeromedical evacuation (AE) aircrews were among the first to
    respond and provided almost half of the immediate AE response provided.
    However, the larger need was mortuary affairs support, of which the Air
    Force Reserve provides 75 percent of Air Force capability. Again, 186
    trained reservists immediately stepped forward, in volunteer status,
    for this demanding mission. Reserve airlift crews were among the first
    to bring in critical supplies, equipment, and personnel, including
    emergency response teams from the Federal Emergency Management Agency
    (FEMA), fire trucks, search dogs, and earth moving equipment. F-16
    fighters and KC-135/KC-10 air refueling tankers immediately began
    pulling airborne and ground alert to provide combat air patrol support
    over major U.S. cities.
        In direct support of Operation Enduring Freedom, Air Force
    reservists have flown a multitude of combat missions into Afghanistan.
    Most notably, the 917th Wing at Barksdale AFB, Louisiana (B-52s), the
    419th Fighter Wing at Hill AFB, Utah (F-16s), the 442d Fighter Wing at
    Whiteman AFB, Missouri (A-10s), and the 926th Fighter Wing at NAS Joint
    Reserve Base, New Orleans (A-10s). Reserve aircrews have flown C-17
    airdrop missions into Afghanistan delivering humanitarian aid, provided
    refueling tanker crews and support personnel from the 434th Air
    Refueling Wing at Grissom ARB, IN, and 349th Air Mobility Wing at
    Travis AFB, California (KC-10). Additionally, Air Force Reserve F-16
    units have been involved in support of Operation Noble Eagle by flying
    combat air patrols over American cities (301st Fighter Wing, JRB NAS
    Fort Worth, Texas, 482d Fighter Wing, Homestead ARB, Florida, and 419th
    Fighter Wing, Hill AFB, Utah). Our AWACS associate aircrew from Tinker
    AFB, OK, flew 13 percent of the Operation Noble Eagle sorties with only
    4 percent of the Total Force crews. Air Force Reserve C-130s with their
    aircrew and support personnel, under the direction of NORAD, in support
    of Operation Noble Eagle, provided alert for rapid CONUS deployments of
    Army and Marine Quick Response Forces and Ready Response Forces.
    Reserve units were also refueling those combat air patrol missions with
    refueling assets from various Reserve wings. Also in direct support of
    Operations Enduring Freedom/Noble Eagle, Air Force space operations'
    reservists have conducted Defense Meteorological Satellite Program
    (DMSP), Defense Support Program (DSP), and Global Positioning Satellite
    (GPS) operations, providing critical weather, warning, and navigation
    information to the warfighter. Additionally, Air Force reservists have
    supported Aerospace Operations Center efforts providing COMAFSPACE with
    situational awareness and force capabilities to conduct combat
    operations at all levels of conflict.
        What makes these units unique is the fact that our reservists have
    demonstrated time and time again, the success of an all volunteer
    force. In fact, many of those who were mobilized, had volunteered to
    perform duty, and day to day, a significant percentage of Air Force
    missions are performed through or augmented by AFRC. We are no longer a
    force held in reserve solely for possible war or contingency actions--
    we are at the tip of the spear. The attacks on our freedom--on our very
    way of life--cemented the Total Force concepts already in place and
    AFRC continues to work shoulder-to-shoulder with the active duty (AD)
    and Air National Guard (ANG) components in the long battle to defeat
    terrorism.
        Effective modernization of Air Force Reserve Command (AFRC) assets
    is our key to remaining a relevant and combat ready force. It is
    apparent to all that the Reserve component is crucial to the defense of
    our great Nation and our modernization strategy is sound, but is
    dependent upon lead command funding. AFRC has had limited success in
    getting the lead commands to fund our modernization requirements (CCIU
    and C-17 sim are two examples), but unfortunately lead command funding
    of AFRC modernization priorities remains below the level needed to
    maximize our capabilities. Although the National Guard and Reserve
    Equipment Appropriation (NGREA) funding helps offset some of these
    modernization shortfalls, the level of funding precludes us from
    addressing our larger modernization priorities. Success in meeting our
    modernization goals depends on robust interaction with the lead
    commands and in keeping congressional budgeting authorities informed of
    AFRC initiatives.

                             INTEGRATING OPERATIONS

        Air Force Reserve Command made major Air Expeditionary Force (AEF)
    contributions in fiscal year 2002. We met virtually 100 percent of both
    aviation and combat support commitments, by deploying over 20,700
    volunteers overseas and another 12,600 supporting homeland defense, in
    volunteer status. The challenge for 2003 will be to meet ongoing AEF
    commitments with volunteers from a Reserve Force which has had much of
    its operations and combat support mobilized for homeland defense and
    the war on terrorism. As of today, over 12,000 Air Force reservists are
    mobilized, and thousands more continue to provide daily support as
    volunteers. Over 1,500 of those mobilized are Individual Mobilization
    Augmentees (IMAs), providing critical support to the Unified Commands,
    active component MAJCOMs, and various defense agencies supporting
    homeland security and Operation Enduring Freedom. Required support
    functions span the entire breadth of Reserve capabilities including
    security forces, civil engineering, rescue, special operations,
    strategic and tactical airlift, air refueling, fighters, bombers,
    AWACs, command and control, communications, satellite operations,
    logistics, intelligence, aerial port, services, mission support, and
    medical.

                              AEF CY02--IN REVIEW

        2002 ended as it began, in transition. It began with surging
    requirements brought on by the GWOT. To manage the surge, we remained
    true to the AEF concept to hold the negative impact of operations and
    personnel tempos to a minimum. AFRC was meeting the new taskings
    brought on by the war and the associated mobilizations while at the
    same time meeting AEF commitments we made prior to September 11. From
    the AFRC AEF Cell perspective it was a magnificent effort by all the
    wings in the command to meet the challenges. The full impact is
    appreciated when it is understood we did not ask to be relieved of any
    AEF tasking, met all new ONE/OEF taskings, and were still able to find
    volunteers to help fill other identified shortfalls. As the year ended,
    we transitioned to a lower activity level through demobilizations, but
    continued to plan for a potential new demanding operation. The constant
    is that we still have our AEF commitments, we are still meeting them,
    and we do not have any shortfalls. For next year we expect the number
    of AEF requirements to reflect the increase brought on by the war on
    terrorism. The culture change to an expeditionary Air Force is being
    realized through all levels of the command and is demonstrated in
    action as well as words by the response to the AEF, ONE, and OEF
    taskings of the past year.
        Air Reserve component participation is central to the AEF
    construct. The ARC normally contributes 10 percent of the Expeditionary
    Combat Support and 25 percent of the aviation for steady-state
    rotations. Air National Guard (ANG) and Air Force Reserve Command
    (AFRC) forces make up nearly half of the forces assigned to each AEF,
    with the ARC making up the majority of forces in some mission areas.

                          TECHNOLOGY TO THE WARFIGHTER

    F-16 Fighting Falcon
        Air Combat Command and AFRC are upgrading the F-16 Block 25/30/32
    in all core combat areas by installing a Global Positioning System
    (GPS) navigation system, Night Vision Imaging System (NVIS) and NVIS
    compatible aircraft lighting, Situational Awareness Data Link (SADL),
    Target Pod integration, GPS steered ``smart weapons'', an integrated
    Electronics Suite, Pylon Integrated Dispense System (PIDS), and the
    Digital Terrain System (DTS).
        The acquisition of the LITENING II targeting pod marked the
    greatest jump in combat capability for AFRC F-16s in years. At the
    conclusion of the Persian Gulf War, it became apparent that the ability
    to employ precision-guided munitions, specifically laser-guided bombs,
    would be a requirement for involvement in future conflicts. LITENING II
    affords the capability to employ precisely targeted Laser Guided Bombs
    (LGBs) effectively in both day and night operations, any time at any
    place. LITENING II was designed to be spirally developed to allow
    technology advances to be incorporated as that technology became
    available, and provides even greater combat capability. This capability
    allows AFRC F-16s to fulfill any mission tasking requiring a self-
    designating, targeting-pod platform, providing needed relief for
    heavily tasked active duty units. These improvements have put AFRC F-
    16s at the leading edge of combat capability. The combination of these
    upgrades are unavailable in any other combat aircraft and make the
    Block 25/30/32 F-16 the most versatile combat asset available to a
    theater commander. Tremendous work has been done keeping the Block 25/
    30/32 F-16 employable in today's complex and demanding combat
    environment. This success has been the result of far-sighted planning
    that has capitalized on emerging commercial and military technology to
    provide specific capabilities that were projected to be critical. That
    planning and vision must continue if the F-16 is to remain usable as
    the largest single community of aircraft in America's fighter force.
    Older model Block 25/30/32 F-16 aircraft require structural
    improvements to guarantee that they will last as long as they are
    needed. They also require data processor and wiring system upgrades in
    order to support employment of more sophisticated precision attack
    weapons. They must have improved pilot displays to integrate and
    present the large volumes of data now provided to the cockpit.
    Additional capabilities to include LITENING II pod upgrades, are needed
    to nearly eliminate fratricide and allow weapons employment at
    increased range, day or night and in all weather conditions. They must
    also be equipped with significantly improved threat detection, threat
    identification, and threat engagement systems in order to meet the
    challenges of combat survival and employment for the next 20 years.

    A/OA-10 Thunderbolt
        There are five major programs over the next 5 years to ensure the
    A/OA-10 remains a viable part of the total Air Force. The first is
    increasing its precision engagement capabilities. The A-10 was designed
    for the Cold War and is the most effective Close Air Support (CAS)
    anti-armor platform in the USAF, as demonstrated during the Persian
    Gulf War. Unfortunately, its systems have not kept pace with modern
    tactics as was proven during Operation Allied Force. The AGM-65
    (Maverick) is the only precision-guided weapon carried on the A-10.
    Newer weapons are being added into the Air Force inventory regularly,
    but the current avionics and computer structure limits the deployment
    of these weapons on the A-10. The Precision Engagement and Suite 3
    programs will help correct this limitation. Next, critical systems on
    the engines are causing lost sorties and increased maintenance
    activity. Several design changes to the accessory gearbox will extend
    its useful life and reduce the existing maintenance expense associated
    with the high removal rate. The other two programs increase the
    navigation accuracy and the overall capability of the fire control
    computer, both increasing the weapons system's overall effectiveness.
    Recent interim improvements included Lightweight Airborne Recovery
    System (LARS) and LITENING II targeting pod integration.
        With the advent of targeting pod integration, pods must be made
    available to the A-10 aircraft. Thirty LITENING II AT pods are required
    to bring advanced weapon employment to this aircraft. AFRC looks
    forward to supporting the Precision Engagement program to futher
    integrate targeting pods. Looking to the future, there is a requirement
    for a training package of 30 PRC-112B/C survival radios for 10th Air
    Force fighter, rescue, and special operations units. While more
    capable, these radios are also more demanding to operate and additional
    units are needed to ensure the aircrews are fully proficient in their
    operation. One of the A-10 challenges is resources for upgrade in the
    area of high threat survivability. Previous efforts focused on an
    accurate missile warning system and effective, modern flares; however a
    new preemptive covert flare system may satisfy the requirement. The A-
    10 can leverage the work done on the F-16 Radar Warning Receiver and C-
    130 Towed Decoy Development programs to achieve a cost-effective
    capability. The A/OA-10 has a thrust deficiency in its operational
    environment. As taskings evolved, commanders have had to reduce fuel
    loads, limit take-off times to early morning hours, and refuse taskings
    that increase gross weights to unsupportable limits. Fifty-two AFRC A/
    OA-10s need upgraded structures and engines (2 engines per aircraft
    plus 6 spares for a total of 110 engines).

    B-52 Stratofortress
        In the next 5 years, several major programs will be introduced to
    increase the capabilities of the B-52 aircraft. Included here are
    programs such as a Crash Survivable Flight Data Recorder and a Standard
    Flight Data Recorder, upgrades to the current Electro-Optical Viewing
    System, Chaff and Flare Improvements, and improvements to cockpit
    lighting and crew escape systems to allow use of Night Vision Goggles.
    Enhancements to the AFRC B-52 fleet currently under consideration are:

             Visual clearance of the target area in support of
            other conventional munitions employment;
             Self-designation of targets, eliminating the current
            need for support aircraft to accomplish this role;
             Target coordinate updates to JDAM and WCMD, improving
            accuracy; and
             Bomb Damage Assessment of targets.

        In order to continue the viability of the B-52 well into the next
    decade, several improvements and modifications are necessary. Although
    the aircraft has been extensively modified since its entry into the
    fleet, the advent of precision guided munitions and the increased use
    of the B-52 in conventional and Operations Other Than War (OOTW)
    operation requires additional avionics modernization and changes to the
    weapons capabilities such as the Avionics Midlife Improvement,
    Conventional Enhancement Modification (CEM), and the Integrated
    Conventional Stores Management System (ICSMS). Changes in the threat
    environment are also driving modifications to the defensive suite
    including Situational Awareness Defense Improvement (SADI) and the
    Electronic Counter Measures Improvement (ECMI), and integration of the
    LITENING II targeting pod. Five LITENING II AT pods are required to
    support this important new capability.
        The B-52 was originally designed to strike targets across the globe
    from launch in the United States. This capability is being repeatedly
    demonstrated, but the need for real time targeting information and
    immediate reaction to strike location changes is needed. Multiple
    modifications are addressing these needs. These integrated advanced
    communications systems will enhance the B-52 capability to launch and
    modify target locations while airborne. Other communications
    improvements are the Global Air Traffic Management (GATM) Phase 1, an
    improved ARC-210, the KY-100 Secure Voice, and a GPS-TACAN Replacement
    System (TRS).
        As can be expected with an airframe of the age of the B-52, much
    must be done to enhance its reliability and replace older, less
    reliable or failing hardware. These include a Fuel Enrichment Valve
    Modification, Engine Oil System Package, and an Engine Accessories
    Upgrade, all to increase the longevity of the airframe.

    MC-130H Talon
        In 2006, AFRC and Air Force Special Operations Command will face a
    significant decision point on whether or not to retire the Talon I.
    This largely depends on the determination of the upcoming SOF Tanker
    Requirement Study. Additionally, the MC-130H Talon II aircraft will be
    modified to air refuel helicopters. The Air Force CV-22 is being
    developed to replace the entire MH-53J Pave Low fleet, and the MC-130E
    Combat Talon l. The CV-22 program has been plagued with problems and
    delays and has an uncertain future. Ultimately, supply/demand will
    impact willingness and ability to pay for costly upgrades along with
    unforeseeable expenses required to sustain an aging weapons system.

    HC-130P/N Hercules
        Over the next 5 years, there will be primarily sustainability
    modifications to the weapons systems to allow it to maintain
    compatibility with the remainder of the C-130 fleet. In order to
    maintain currency with the active duty fleet, AFRC will accelerate the
    installation of the APN-241 as a replacement for the APN-59.
    Additionally, AFRC will receive two aircraft modified from the `E'
    configuration to the Search and Rescue configuration. All AFRC assets
    will be upgraded to provide Night Vision Imaging System (NVIS) mission
    capability for C-130 combat rescue aircraft.

    HH-60G Pave Hawk
        Combat Search and Rescue (CSAR) Mission Area modernization strategy
    currently focuses on resolving critical weapon system capability
    shortfalls and deficiencies that pertain to the Combat Air Force's
    Combat Identification, Data Links, Night/All-Weather Capability, Threat
    Countermeasures, Sustainability, Expeditionary Operations, and
    Pararescue modernization focus. Since the CAF's CSAR forces have
    several critical capability shortfalls that impact their ability to
    effectively accomplish their primary mission tasks today, most CSAR
    modernization programs/initiatives are concentrated in the near-term
    (fiscal year 2000-2006). These are programs that:

             Improve capability to pinpoint location and
            authenticate identity of downed aircrew members/isolated
            personnel
             Provide line-of-sight and over-the-horizon high speed
            LPI/D data link capabilities for improving battle space/
            situational awareness
             Improve Command and Control capability to rapidly
            respond to ``isolating'' incidents and efficiently/effectively
            task limited assets
             Improve capability to conduct rescue/recovery
            operations at night, in other low illumination conditions, and
            in all but the most severe weather conditions
             Provide warning and countermeasure capabilities
            against RF/IR/EO/DE threats
             Enhance availability, reliability, maintainability,
            and sustainability of aircraft weapon systems

    WC-130J Hercules
        The current WC-130H fleet is being replaced with new WC-130J
    models. This replacement allows for longer range and ensures weather
    reconnaissance capability well into the next decade. Once conversion is
    complete, the 53rd Weather Reconnaissance Squadron will consist of 10
    WC-130Js. Presently, there are seven WC-130J models at Keesler AFB, MS
    undergoing Qualification Test and Evaluation (QT&E). The remaining
    three aircraft have been transferred to AFRC and are currently at
    Lockheed Marietta scheduled for delivery to Keesler AFB. Deliveries are
    based on the resolution of deficiencies identified in test and will
    impact the start of operational testing and the achievement of interim
    operational capability (IOC). Major deficiencies include: propellers
    (durability/supportability), radar modification to correct (range to
    range inconsistencies), tilt and start up blanking display errors, and
    SATCOM transmission deficiencies. AFRC continues to work with the
    manufacturer to resolve the QT&E documented deficiencies.

    C-5 Galaxy
        Over the next 5 years, there will be sustainability modifications
    to the weapon system to allow it to continue as the backbone of the
    airlift community. The fleet will receive the avionics modernization
    which replaces cockpit displays while upgrading critical flight
    controls, navigational, and communications equipment. This will allow
    the C-5 to operate in Global Air Traffic Management (GATM) airspace.
    Additionally, the C-5B models and possibly the C-5As, will undergo a
    Reliability Enhancement and Re-engining program which will not only
    replace the powerplant, but also numerous unreliable systems and
    components. The 445th Airlift Wing at Wright Patterson AFB, OH will
    transition from C-141 Starlifters to C-5As in fiscal year 2006 and
    fiscal year 2007. Finally, the 439th Airlift Wing at Westover ARB, MA
    will modernize its C-5 fleet in fiscal year 2007 and fiscal year 2008
    when it transitions from C-5As to C-5Bs.

    C-17 Globemaster
        Beginning in fiscal year 2005, the Air Force Reserve Command will
    enter a new era as the 452nd Air Mobility Wing at March Air Reserve
    Base, CA transitions from C-141s to C-17 Globemasters. Although
    reservists have been associating with active C-17 units since their
    inception in the active Air Force, March ARB will be the Command's
    first C-17 Unit Equipped Unit and will aid in maintaining diversity in
    the Reserve Command's strategic mobility fleet.

    C-141 Starlifter
        For the past 30 years, the C-141 has been the backbone of mobility
    for the United States military in peacetime and in conflict. In the
    very near future, the C-141 will be retired from the active-duty Air
    Force. However, Air Force Reserve Command continues the proud heritage
    of this mobility workhorse and will continue to fly the C-141 through
    fiscal year 2006. It is crucial that AFRC remains focused on flying
    this mission safely and proficiently until units convert to follow-on
    missions. Replacement missions must be more than the insertion of
    another airframe. They must be a viable mission that includes
    modernized equipment.

    C-130 Hercules
        AFRC has 127 C-130s including the E, H, J, and N/P models. The
    Mobility Air Forces (MAF) currently operates the world's best theater
    airlift aircraft, the C-130, and it will continue in service through
    2020. In order to continue to meet the Air Force's combat delivery
    requirements through the next 17 years, aircraft not being replaced by
    the C-130J will become part of the C-130X Program. Phase 1, Avionics
    Modernization Program (AMP) program includes a comprehensive cockpit
    modernization by replacing aging, unreliable equipment and adding
    additional equipment necessary to meet Nav/Safety and GATM
    requirements. Together, C-130J and C-130X modernization initiatives
    reduce the number of aircraft variants from 20 to 2 core variants,
    which will significantly reduce the support footprint and increase the
    capability of the C-130 fleet. The modernization of our C-130 forces
    strengthens our ability to ensure the success of our warfighting
    commanders and lays the foundation for tomorrow's readiness.

    KC-135E/R Stratotanker
        One of Air Force Reserve Command's most challenging modernization
    issues concerns our unit-equipped KC-135s. Five of the seven air
    refueling squadrons are equipped with the KC-135R, while the remaining
    two squadrons are equipped with KC-135Es. The KC-135E, commonly
    referred to as the E-model, has engines that were recovered from
    retiring airliners. This conversion, which was accomplished in the
    early mid-1980s, was intended as an interim solution to provide
    improvement in capability while awaiting conversion to the R-model with
    its new, high-bypass, turbofan engines and other modifications. AFRCs
    remaining two E-models units look forward to converting to R-models in
    the very near future (fiscal year 2004-2005).
        The ability of the Mobility Air Forces (MAF) to conduct the air
    refueling mission has been stressed in recent years. Although total
    force contributions have enabled success in previous air campaigns,
    shortfalls exist to meet the requirements of our National Military
    Strategy. AMC's Tanker Requirements Study-2005 (TRS-05) identifies a
    shortfall in the number of tanker aircraft and aircrews needed to meet
    global refueling requirements in 2005. There is currently a shortage of
    KC-135 crews and maintenance personnel. Additionally, the number of KC-
    135 aircraft available to perform the mission has decreased in recent
    years due to an increase in depot-possessed aircraft with a decrease in
    mission capable (MC) rates. An air refueling Mission Needs Statement
    has been developed and an Analysis of Alternatives (AoA) will be
    conducted to determine the most effective solution set to meet the
    Nation's future air refueling requirements.

                                 FUTURE VECTOR

        As we think about our future, the nature of warfighting, and the
    new steady state, we anticipate many challenges. While this new mission
    activity continues, we need to keep our focus--assess the impact of
    Stop Loss on our operations, provide adequate funding for continuing
    activations, and keep an eye on sustaining our recruiting efforts. The
    challenge will be to retain our experience base and keep our prior
    service levels high. With your continued support, and that which you
    have already given, we will be able to meet each new challenge head-on,
    without trepidation.
        Our citizen airmen, alongside the active duty and the Air National
    Guard, continue to step through the fog and friction as we prosecute
    the GWOT. Our support for them is not just in the battlespace, but at
    home. We will continue to refine the ways we support their families,
    their employers, and the members themselves as we keep the lines of
    communication open to you. We must ensure that we are doing as much for
    them through increased pay, benefits, and finding the right mix between
    equity and parity with their active duty counterparts, as we continue
    to ask more and more of them. We must continue to think outside the
    box, to protect their rights as students who are called away from an
    important semester, as employees who must turn that big project over to
    someone else in the company for a while, and just as critically, as
    sons, daughters, husbands, wives, and parents who will miss birthdays,
    graduations, and a litany of other events many of us take for granted.
        We are making strides at leveling the operations tempo by finding
    the right skill mix between the ARCs and the AD. In a Total Force
    realignment of scarce LD/HD resources, the 939th Rescue Wing's HC-130s
    and HH-60s will transfer to the active component in order to reduce the
    Total Force PERSTEMPO in the LD/HD mission of Combat Search and Rescue.
    The transfer of these assets to the active component increases full-
    time personnel without increasing already high volunteerism rates or
    having to mobilize a significant number of CSAR reservists. The
    activation of the 939th Air Refueling Wing, Portland, OR, addresses the
    need for more aerial refueling assets on the West coast enhancing our
    ability to rapidly respond to any crisis.
        Additionally, AFRC has assumed responsibility for supporting the
    National Science Foundation Deep Freeze mission. The next 3 years, the
    men and women of the 452nd AMW at March ARB, CA, will be flying C-141
    support missions in support of this Antarctic operation. We have also
    assumed 16 percent of the Total Force Undergraduate Pilot Training
    programs at seven bases around the United States and we continue to
    balance, assume, and relinquish missions or parts of missions to
    accommodate the goals of the Air Force and Department of Defense as
    world events unfold and dictate change, and as necessary to lessen the
    burden on our members and the AD.
        All of the distinguished members on the committee, and we in the
    Air Force and Air Force Reserve, have been given an incredible
    opportunity and an incredible responsibility to shape not only the
    structure of the world's premiere air and space force, but to shape its
    environment . . . its quality people, and the quality of their lives.
    Our mission will continue to be accomplished more accurately, more
    timely, and with an even greater pride, as we focus on our best
    resource.
        These and other evolving missions are just some of the areas into
    which we hope to continue to expand, keeping Reserve personnel
    relevant, trained, and ready now when we are called. I'd like to extend
    my thanks again to the subcommittee for allowing me the opportunity to
    testify before you here today and for all you do for the Air Force
    Reserve.

        Senator Chambliss. Thank you, General. We don't have to ask
    for that new headquarters building anymore.
        General Batbie. No, sir. We're half finished right now.
        Senator Chambliss. We're getting there now. There you go,
    and we're proud to have it at Robins, too.
        Admiral Totushek, I appreciated the profiles of the
    individual Naval Reserve sailors that you set forth in your
    written statement and endorse your description of them as true
    heroes, because you're absolutely right. I couldn't agree with
    you more that the ordinary people in the Guard and Reserves
    certainly do extraordinary things day in and day out.
        I asked Secretary Hall this question about the
    justification for the proposed reduction of 1,900 sailors in
    the Navy's Selected Reserve personnel for fiscal year 2004, and
    I'd like your response to that same question. What concerns, if
    any, do you have about this reduction?
        Admiral Totushek. Senator, I am a little bit concerned that
    it might be the beginning of a trend that I would not like to
    see continue. Basically, what happened is, we were doing the
    POM 2004 deliberations. Navy had started to work with the
    Marine Corps on Navy/Marine Corps aviation integration. The
    first steps in that were to do away with a couple of Reserve
    squadrons, a Naval Reserve squadron and a Marine Corps Reserve
    squadron. Part of those reductions are as a result of that
    action. The other parts come from decommissioning of several
    Reserve platforms that were done over the last couple of years.
    Those, all totaled, left us with a net reduction. We don't
    think that is a trend, but we certainly are going to work hard
    to make sure it's not.
        Senator Chambliss. I understand that the Navy and Marine
    Corps are undertaking a TACAIR integration effort to
    consolidate the Department of the Navy's F-18 squadrons and
    prepare the way for the Joint Strike Fighter (JSF). While I
    applaud the effort to create greater efficiencies and I know
    that JSF is going to be a great addition to the Air Force,
    Navy, and Marine Corps, I am concerned about the potential
    impact on the Naval Air Station at Atlanta, particularly given
    the unique arrangement we have at Dobbins Air Reserve Base with
    both Air Force and Navy Reserve personnel and aircraft. The
    presence of both Services allows us to take advantage of common
    runways, facilities, and transportation corridors supporting
    the base.
        What can you tell me about how the Department of the Navy
    is approaching the TACAIR integration effort? Where are you in
    the process? Are you taking into account existing efficiencies
    at installations that have multiple operational missions?
        Admiral Totushek. Yes, sir. We are looking at any place we
    site any of our squadrons to try and make them as joint as
    possible. All of our Naval Reserve installations are joint
    Reserve bases, and we have oftentimes all the Reserve
    components represented there.
        In the case of Robins, the initial reduction was to be one
    Naval Reserve squadron and one Marine Corps Reserve squadron.
    We have not yet determined which Naval Reserve squadron that
    will be. We have undertaken a study at my request at the end
    game of the POM 2004 submission, because I didn't feel like we
    had done enough analysis to get us to the right answer of which
    squadron should go, if at all, because it may turn out, as we
    get through this process that we're doing with Navy right now,
    that it would make more sense for us to keep the three Reserve
    squadrons and do away with an active squadron, for instance.
        So those negotiations are ongoing right now. We brief the
    Vice Chief of Naval Operations within the month, and we'll see
    where we go from there.
        Senator Chambliss. What's your timetable for that? Do you
    know?
        Admiral Totushek. It'll be done here very quickly, because
    we need to put it in for PR-05 to make sure that we have the
    right proposal throughout the FYDP.
        Senator Chambliss. Okay.
        General McCarthy, in your written statement, you indicate
    that the Marine Corps Reserve is preparing to create two new
    security battalions that will provide a dual-use capacity
    consisting of eight antiterrorism force protection platoons and
    an augmentation unit for the Marine Corps' Chemical/Biological
    Instant Response Force (CBIRF). Please explain how these Marine
    Corps reservists will be augmented into these units, what area
    will the marines involved come from, and when will the
    capability be realized.
        General McCarthy. Senator Chambliss, the security
    battalions will be stand-alone Marine Corps Reserve units, and
    the only integrated part of that will be, as you've indicated,
    the augmentation cell that's a part of one of the security
    battalions that will go to CBIRF. We anticipate that most of
    those marines will come from the metropolitan Washington area.
    They will need to drill and work closely with CBIRF, which is
    down at Indian Head, Maryland. So the recruiting draw, the best
    place for us to draw marines for that detachment, will be in
    the metropolitan Washington area. The rest of the two security
    battalions will be scattered all over the country. They'll be
    in about 20 different locations, I think. They will not be a
    blended or integrated unit; they'll be stand-alone Marine Corps
    Reserve units.
        Senator Chambliss. I'd like each of you to comment on this.
    Many of our Guard and Reserve members and their families are
    experiencing extended separation and, in some cases, hardship
    due to reduced earnings and other factors. The stresses that
    are currently at work on many active duty and Reserve personnel
    are severe. We've seen some situations of domestic violence and
    other types of violent activity on the part of some of our
    personnel as a result of the heavy stress that they've all been
    under. What are you doing to ensure that necessary family
    support services are in place to reach out to all Guard and
    Reserve family members? How reliant are you on volunteers to
    perform these outreach efforts?
        General Helmly?
        General Helmly. Thank you, Senator.
        First of all, in the preparation for a mobilization and
    deployment we go through an extensive briefing to families, as
    well as the members. As some of my fellow chiefs have noted,
    the current mobilization tempo with regard to very short notice
    has not provided us the amount of time that we would have
    desired to conduct those activities, but that includes
    briefings by members of the Chaplain Corps, which explains what
    happens to spouse groups or to families upon separation. We
    also provide them briefings before the member returns and
    coaching. I've sat through these myself. The chaplain members
    coach the family members, ``Expect changes in your spouse and
    your father and your mother,'' et cetera.
        We're very reliant on volunteers. Probably 99 percent of
    our family readiness people who do the work, the heavy lifting
    are volunteers. They are, themselves, family members, loved
    ones of members of the Army Reserve.
        We have about a $4 million shortfall, that we should be
    able to make up, in staffing support for family readiness.
    During Operations Desert Shield/Desert Storm, we had virtually
    no family readiness program in place. Now, it is extensive. It
    is functioning. It is working.
        We are concerned about the stresses that you noted. About
    4,000 of our people are on a second consecutive year of
    mobilization. That adds to that challenge.
        I don't want to take up the time from my fellow chiefs, but
    we are addressing the very issues you cited with regard to the
    stresses and strains of the separation, and we prepare them on
    the front end through briefings, through coaching, through
    pamphlets, and we prepare them on the back end before the
    member returns home.
        Senator Chambliss. Admiral Totushek?
        Admiral Totushek. We didn't do a very good job of this in
    Operation Desert Storm and we learned a lot from that. After
    September 11, when it was evident that we were going to start
    mobilizing a lot of people, we put a lot of time and effort
    into establishing groups to make sure that we had the support
    systems in place.
        A couple of things I'll highlight. First of all, we do use
    a lot of volunteers. All of our ombudsmen--and they probably
    should be called ombudspersons, because we do have women doing
    it now, as well--are volunteers. They're at the unit level.
    They're the people that have the information or can get the
    information so that the family member has a point of contact at
    every one of our Reserve centers.
        We also have fallen in on a Navy system to use a web-
    enabled product called Family Lines that allows our people to
    go online and find out the question to virtually anything that
    they would need to know, including if you want to talk to
    somebody, some counseling lines, so that you can call and get
    24 hours a day of support.
        I think the systems have been bolstered very well. I'm very
    proud of the effort we've taken to make sure that our folks
    aren't left hanging out there, especially out in the middle of
    the country where there isn't a base around to get that kind of
    support.
        Senator Chambliss. General McCarthy?
        General McCarthy. Senator, I'm in exactly the same
    situation. We are all responding to what we learned 10, 12
    years ago. I think we responded very well. We built a key
    volunteer network in each unit. We require each unit to have a
    key volunteer network and a trained key volunteer coordinator.
    We've just, in the last year or so, started to buttress that in
    another Marine Corps program called Links, which is a spouse-
    to-spouse mentoring program, and we're pushing that out in a
    kind of a ripple effect and have gotten that out fairly well to
    the force. We still have a lot more work to do on that.
        We, like everybody else, depend tremendously on volunteers,
    on spouses and mothers and fathers to be these key volunteers,
    and they've responded tremendously. We also require that each
    unit have an officer, and, upon mobilization, have an officer
    who is on active duty, to serve as the family readiness
    officer. That officer becomes a link between the deployed
    commander and the families back home. We feel that that's been
    a pretty effective communications tool.
        Then the last thing, we were given the opportunity, and
    jumped at it, to participate in a Department of Defense-
    sponsored and paid-for effort that is called One Source. One
    Source is an 800-telephone number program, like civilian
    employee assistance programs, that enables family members to
    call in and be referred by telephone to professionals around
    the country. We're just getting started with that, but the
    preliminary indications are very good, and I think that's going
    to be a huge plus for us.
        So the proof will be in the pudding when we've been in it a
    while longer and when people start coming back. But in terms of
    doing some things proactively, I'm pleased with where we are.
        General Batbie. Sir, like the others, we didn't do very
    well during Operation Desert Storm. Since that time, we added
    in a bunch of full-time and part-time people that we can call
    up. Last year, we called up 29 family support people and
    brought them to duty along with our full-time people to manage
    some of these issues.
        When the Fort Bragg incidents started happening, we sent
    our medical folks down there to participate in some of the
    panels to learn what we could about what was the root cause of
    those problems. We decided to team up with the medical, the
    family support, and the chaplain folks to be there when the
    people started coming home after the major part of Afghanistan
    was over to try to see if we could short-circuit some of those
    issues that might pop up. I don't know if it's been successful.
    We haven't had any major things pop up in the Air Force Reserve
    since that time.
        We have a critical care or critical incident intervention
    team that we put out there for major things that may happen
    with the unit, if we have major loss of life or something
    overseas, and try to get back to the local unit with experts
    that will come in from the headquarters or from other units to
    try to short-circuit some of the things that might pop up in
    that regard.
        Senator Chambliss. Okay. Thanks very much.
        Senator Nelson?
        Senator Ben Nelson. Thank you, Mr. Chairman.
        This is just a general question for any of you. As you saw
    your Reserve airmen, soldiers, and marines being mobilized and
    as you saw them come into active duty in support of the global
    war on terrorism, did you find that the current statutory
    mobilization authorities were adequate? In other words, was the
    law adequate to permit you to do this, or are there any changes
    that we might consider as it might relate to what you've
    learned from the war on terrorism and mobilization there?
        General Helmly. Senator Nelson, if I may, in my judgment
    the current statutory authorities are adequate. Our
    implementation of those statutory authorities has, candidly,
    been flawed and it has resulted in very short notice--in many
    cases, less then 5 to 10 days' notice. In those cases, the part
    that bothers me is that I had visibility over those
    requirements ahead of time; but without the authority, I could
    not hand a set of orders to the Army Reserve soldier.
        Without those official orders, Reserve members are somewhat
    powerless in terms of official documentation to inform their
    employer, to go to the issues that you discussed with the first
    panel on tuition at school, with regard to severing of
    contracts, rental agreements, leases, placing into abeyance,
    getting a power of attorney, making those kinds of arrangements
    to enter active duty and to subsequently deploy.
        So that's my judgment, that the authorities and legislation
    are adequate. We have to move a World War II linear
    mobilization process to a 21st century model that gives us some
    flexibility, as my peers noted, down at the working level so
    that we can make it more predictable for our members and
    provide them more advanced notice.
        Admiral Totushek. I would agree, Senator Nelson, that
    General Helmly has it right. The thing I would add is that OSD
    is working on the process. I don't think anybody's really happy
    with it, and we are trying to tackle it.
        Senator Ben Nelson. Good, thank you.
        General McCarthy. I adopt entirely the statement of General
    Helmly. The only point I would make in addition is, I'd give
    the administration great credit for going to partial
    mobilization when they did, rather than trying to go through
    the PSRC sort of a stair-step process. That enabled us to
    mobilize people from the Individual Ready Reserve, which was a
    big help, and I think was the right call under the
    circumstances. We do have some execution work to do.
        General Batbie. I can't disagree with anything that's been
    said, but I would point out one thing. We learned during this
    mobilization that it's additive up to the 2-year mark, so you
    can call reservists for 2 months now, let them off, call them 2
    months next year and up to 2 years. We're starting to get into
    that a little bit, but I don't know what kind of long-range
    effect that would have if we did that over an extended period.
        Senator Ben Nelson. Thank you.
        Thank you, Mr. Chairman.
        Senator Chambliss. Thank you.
        We just had another vote called, so we're going to call
    this hearing to a conclusion.
        I appreciate the testimony of all of our witnesses today.
    It's been an excellent review of critical issues that are of
    concern to us every day as we prepare for what is going to be
    an extended war.
        We'll keep your comments and concerns in mind as we review
    the Fiscal Year 2004 Defense Authorization Request, and I look
    forward to working with you and thank you for your
    participation today.
        We do have all of the statements of the respective
    witnesses. They will be entered into the record. They're very
    informative, and we'll consider those as we move forward.
        I'd also like to enter into the record a GAO report titled
    ``Preliminary Observations Related to Income, Benefits, and
    Employer Support for Reservists During Mobilizations.'' This
    GAO report was just released today, Wednesday, March 19, 2003.
        [The information referred to follows:]

      Preliminary Observations Related to Income, Benefits, and Employer
                  Support for Reservists During Mobilizations

                          Prepared by Derek B. Stewart

        Mr. Chairman and members of the subcommittee: We are pleased to
    have the opportunity to comment on Reserve personnel income, benefits,
    and employer support. My remarks focus on the more than 870,000
    ``selected'' reservists \1\ who generally drill and train part-time
    with their military units (referred to in this testimony as drilling
    unit members). These reservists may be involuntarily called to Federal
    active duty under various provisions of law. They may also be placed
    voluntarily on active duty for training and other purposes. Since the
    1991 Persian Gulf War, reservists have been mobilized or deployed to a
    number of contingency operations, including Operations Noble Eagle and
    Enduring Freedom and operations in Kosovo, Bosnia, Southwest Asia, and
    Haiti. As of early March 2003, 193,270 reservists were supporting
    current contingency operations.
    ---------------------------------------------------------------------------
        \1\ Unless specified, we use the terms ``reserves'' and
    ``reservists'' to refer to the collective forces of the Air National
    Guard, Army National Guard, the Army Reserve, the Naval Reserve, the
    Marine Corps Reserve, and the Air Force Reserve. We did not include the
    Coast Guard Reserve in our review.
    ---------------------------------------------------------------------------
        Citing the increased use of the Reserves to support military
    operations, House Report 107-436 accompanying the Fiscal Year 2003
    National Defense Authorization Act directed us to review compensation
    and benefit programs for reservists. Our review is ongoing, but today I
    would like to present preliminary observations based on our review in
    three areas: (1) income protection for reservists called to active
    duty, (2) family support programs, and (3) health care access.\2\ All
    three of these issues are potential areas of concern to a reservist
    called to active duty for a contingency operation. We plan to issue a
    final report on these three issues later this year. In addition, you
    have asked us to discuss the results of our recently completed review
    concerning employer support for reservists, another potential area of
    concern to mobilized or deployed reservists.\3\ Finally, Mr. Chairman,
    while the legislation directed us to review the retirement system for
    the Reserves, we have not yet begun that work. As discussed with your
    offices, we plan to review the Reserve retirement system in the future.
    While we have not conducted a detailed review of this issue, I would
    like to offer some observations.
    ---------------------------------------------------------------------------
        \2\ We plan to address compensation issues in other reviews. For
    example, we have an ongoing review of special and incentive pays for
    reservists who perform duty in the polar regions.
        \3\ U.S. General Accounting Office, Reserve Forces: DOD Actions
    Needed to Better Manage Relations between Reservists and Their
    Employers, GAO-02-608 (Washington, DC: June 13, 2002).
    ---------------------------------------------------------------------------
        Before discussing these issues in more detail, I would like to note
    that one of the Department of Defense's (DOD) guiding principles for
    military compensation is that servicemembers--both reservists and
    active component members--be treated fairly. Military compensation for
    reservists is affected by the type of military duty they perform. In
    peacetime--when a reservist is on active duty for training or on
    military duty not related to a contingency operation--certain
    thresholds are imposed at particular points in service before a
    reservist is eligible to receive the same compensation as a member
    serving full-time. For contingency operations, these same thresholds
    generally do not apply. Reservists activated for contingency operations
    such as Operation Noble Eagle and Operation Enduring Freedom are
    generally eligible to receive the same compensation and benefits as
    active component personnel. I should also note here that in a recent
    report comparing the benefits offered by the military with those
    offered in the private sector, we found no significant gaps in the
    benefits available to military personnel.\4\
    ---------------------------------------------------------------------------
        \4\ U.S. General Accounting Office, Military Personnel: Active Duty
    Benefits Reflect Changing Demographics, but Opportunities Exist to
    Improve, GAO-02-935 (Washington, DC: Sept. 18, 2002).
    ---------------------------------------------------------------------------
        To date, we have met with and gathered information from DOD
    officials in the Office of the Assistant Secretary of Defense for
    Reserve Affairs, the Office of Military Compensation, the Office of
    Family Policy, the National Guard Bureau, the Army National Guard, the
    Air National Guard, the Army Reserve, the Air Force Reserve, the Naval
    Reserve, the Marine Corps Reserve, the TRICARE Management Activity, the
    National Committee for Employer Support of the Guard and Reserve, and
    other organizations. We obtained the results and DOD's preliminary
    analysis of the 2000 Survey of Reserve Component Personnel.\5\ We
    reviewed DOD proposals concerning income loss. We also reviewed DOD's
    progress in implementing recommendations that we made in prior reports.

    ---------------------------------------------------------------------------
        \5\ The population of interest targeted by the survey consisted of
    all Selected Reserve members of the Reserve components below flag or
    general officer rank, with at least 6 months of service when the
    surveys were first mailed in August 2000. The sample consisted of
    74,487 members. Eligible respondents returned 35,223 completed surveys.
    ---------------------------------------------------------------------------
        Let me turn now to the specific issues.

                                    SUMMARY

        The preliminary results of our review indicate that reservists
    experience widely varying degrees of income loss or gain when they are
    called up for a contingency operation. While income loss data for
    current Operations Noble Eagle and Enduring Freedom were not available,
    data for past military operations show that 41 percent of drilling unit
    members reported income loss, while 30 percent reported no change and
    29 percent reported an increase in income. This information is based on
    self-reported survey data for mobilizations or deployments of varying
    lengths of time. DOD's analysis of the data shows that, as would be
    expected, certain groups, such as medical professionals in private
    practice, tend to report much greater income loss than the average
    estimated for all reservists.
        Although reservists called up to support a contingency operation
    are generally eligible for the same family support and health care
    benefits as active component personnel, reservists and their families
    face challenges in understanding and accessing their benefits. Among
    the challenges, reservists typically live farther from military
    installations than their active duty counterparts, are not part of the
    day-to-day military culture, and may change benefit eligibility status
    many times throughout their career. Some of these challenges are unique
    to reservists; others are also experienced by active component members
    but may be magnified for reservists. Outreach to reservists and their
    families is likely to remain a continuing challenge for DOD in the
    areas of family support and health care. We will continue to look at
    DOD's outreach efforts as we complete our study.
        Outreach is also a critical component of maintaining and enhancing
    employers' support for reservists. Although DOD has numerous outreach
    efforts in this area, we found that a sizable number of reservists and
    employers were unsure about their rights and responsibilities. For
    example, a 1999 DOD survey found that 31 percent of employers were not
    aware of laws protecting reservists. Our recent work has shown that
    several factors, such as the lack of data on reservists' employers,
    have hampered DOD's outreach efforts to both employers and reservists.
    However, DOD is taking positive actions in this area, such as moving
    ahead with plans to collect employer data from all Reserve personnel.
        Reservists have identified income loss, family burdens, and
    employer support as serious concerns during prior mobilizations and
    deployments. However, it is unclear how the problems reservists
    experience in these areas affect their overall satisfaction with
    military life and, ultimately, their decision to stay in the military
    or leave.

                                   BACKGROUND

        Since the end of the Cold War, there has been a shift in the way
    Reserve forces have been used. Previously, reservists were viewed
    primarily as an expansion force that would supplement Active Forces
    during a major war. Today, reservists not only supplement but also
    replace Active Forces in military operations worldwide.\6\ In fact, DOD
    has stated that no significant operation can be conducted without
    Reserve involvement. As shown in figure 1, Reserve participation in
    military operations spiked in fiscal years 1991 (Operations Desert
    Shield and Desert Storm) and 2002 (Operations Noble Eagle and Enduring
    Freedom).
    ---------------------------------------------------------------------------
        \6\ The average reservist trains 38 or 39 days per year. In
    addition to this training, some reservists provide support for counter-
    drug operations, domestic emergencies, exercises, and established and
    emerging operations, including those involving either presidential
    call-ups or mobilizations.
    ---------------------------------------------------------------------------

        There have been wide differences in the operational tempos \7\ of
    individual reservists in certain units and occupations. Prior to the
    current mobilization, personnel in the fields of aviation, special
    forces, security, intelligence, psychological operations, and civil
    affairs were in high demand, experiencing operational tempos that were
    two to seven times higher than those of the average reservist. Since
    September 2001, operational tempos have increased significantly for
    reservists in all of DOD's Reserve components due to the partial
    mobilization in effect to support Operations Noble Eagle and Enduring
    Freedom.
    ---------------------------------------------------------------------------
        \7\ For this testimony, operational tempo refers to the total days
    reservists spend participating in normal drills, training, and
    exercises, as well as domestic and overseas operational missions.
    ---------------------------------------------------------------------------
        For each year between fiscal years 1997 and 2002, the Reserves on
    the whole achieved at least 99 percent of their authorized end
    strength. In 4 of these 6 years, they met at least 100 percent of their
    enlistment goals. During this time period, enlistment rates fluctuated
    from component to component. Overall attrition rates have decreased for
    five of DOD's six Reserve components.\8\ Between fiscal years 1997 and
    2002, only the Army National Guard experienced a slight overall
    increase in attrition. The attrition data suggest there has not been a
    consistent relationship between a component's average attrition rate
    for a given year and the attrition rate for that component's high
    demand capabilities (which include units and occupations). Attrition
    rates for high demand capabilities were higher than average in some
    cases but lower for others. Aviation in the Army National Guard, for
    instance, has had higher than average attrition for 4 of the 5 years it
    was categorized as a high demand capability.
    ---------------------------------------------------------------------------
        \8\ Attrition is the total number of personnel losses from the
    selected Reserves divided by the average selected Reserve end strength
    for the year.
    ---------------------------------------------------------------------------
     RESERVISTS HAVE REPORTED WIDELY VARYING DEGREES OF INCOME LOSS OR GAIN

        Preliminary analysis of income changes reported by reservists who
    mobilized or deployed for past military operations indicates that they
    experienced widely varying degrees of income loss or gain. The source
    for this analysis is DOD's 2000 Survey of Reserve Component Personnel,
    which predates the mobilization that began in September 2001. The data
    show that 41 percent of drilling unit members reported income loss
    during their most recent mobilization or deployment, while 30 percent
    reported no change and 29 percent reported an increase in income (see
    table 1).

       TABLE 1: DRILLING UNIT MEMBERS' TOTAL REPORTED CHANGE IN INCOME FOR
                   MOBILIZATIONS OR DEPLOYMENTS PRIOR TO 2001
    ------------------------------------------------------------------------
                            Income change                         Percentage
    ------------------------------------------------------------------------
    Decreased $50,000 or more...................................         0.9
    Decreased $25,000 to $49,999................................        1.5
    Decreased $10,000 to $24,999................................         4.1
    Decreased $5,000 to $9,999..................................         6.0
    Decreased $2,500 to $4,999..................................         8.9
    Decreased $1 to $2,499......................................        19.5
    No change in income.........................................          30
    Increased $1 to $2,499......................................        16.6
    Increased $2,500 to $4,999..................................         6.8
    Increased $5,000 or more....................................        5.7
    ------------------------------------------------------------------------
    Source: DOD 2000 Reserve Component Survey

        Based on the survey data, DOD estimated that the average total
    income change for all members (including losses and gains) was almost
    $1,700 in losses. This figure should be considered with caution because
    of the estimating methodology that was used and because it is unclear
    what survey respondents considered as income loss or gain in answering
    this question.\9\ Further, reservists are mobilized or deployed for
    varying lengths of time, which can affect their overall income loss or
    gain. About 3 percent of all reservists who had at least one
    mobilization or deployment had been mobilized or deployed for less than
    1 month. For the entire population, members spent an estimated 3.6
    months mobilized or deployed for their most recent mobilization.
    ---------------------------------------------------------------------------
        \9\ The 2000 survey asked respondents: ``Please estimate your (and
    your spouse's) total income change from all sources as a result of your
    most recent mobilization and deployment. If you (and your spouse) have
    continuing losses from a business or practice, include those in your
    estimate.''
    ---------------------------------------------------------------------------
        DOD's preliminary analysis of the survey data show that certain
    groups reported greater losses of income on average. Self-employed
    reservists reported an average income loss of $6,500. Physicians/
    registered nurses, on the whole, reported an average income loss of
    $9,000. Physicians/registered nurses in private practice reported an
    average income loss of $25,600. Income loss also varied by Reserve
    component and pay grade group. Average self-reported income loss ranged
    from $600 for members of the Air National Guard up to $3,800 for Marine
    Corps Reservists. Senior officers reported an average income loss of
    $5,000 compared with $700 for junior enlisted members. When asked to
    rank income loss among other problems they have experienced during
    mobilization or deployment, about half of drilling unit members ranked
    it as one of their most serious problems.\10\ DOD's preliminary
    analysis presents little data on those groups who reported overall
    income gain. Two groups who were identified as reporting a gain were
    clergy and those who worked for a family business without pay.
    ---------------------------------------------------------------------------
        \10\ The survey listed 22 possible problems and asked respondents
    to choose their top 3 most serious problems experienced during
    mobilization or deployment.
    ---------------------------------------------------------------------------
        Concerns were raised following the 1991 Gulf War that income loss
    would adversely affect retention of reservists. According to a 1991 DOD
    survey of reservists activated during the Gulf War, economic loss was
    widespread across all pay grades and military occupations. In response
    to congressional direction,\11\ DOD in 1996 established the Ready
    Reserve Mobilization Income Insurance Program, an optional, self-funded
    income insurance program for members of the Ready Reserve ordered
    involuntarily to active duty for more than 30 days. Reservists who
    elected to enroll could obtain monthly coverage ranging from $500 to
    $5,000 for up to 12 months within an 18-month period. Far fewer
    reservists than DOD expected enrolled in the program. Many of those who
    enrolled were activated for duty in Bosnia and, thus, entitled to
    almost immediate benefits from the program. The program was terminated
    in 1997 after going bankrupt. We reported in 1997 that private sector
    insurers were not interested in underwriting a Reserve income
    mobilization insurance program due to concerns about actuarial
    soundness and unpredictability of the frequency, duration, and size of
    future call-ups.\12\ Certain coverage features would violate many of
    the principles that private sector insurers usually require to protect
    themselves from adverse selection. These include voluntary coverage and
    full self-funding by those insured, the absence of rates that
    differentiated between participants based on their likelihood of
    mobilization, the ability to choose coverage that could result in full
    replacement of their lost income rather than those insured bearing some
    loss, and the ability to obtain immediate coverage shortly before an
    insured event occurred. According to DOD officials, private sector
    insurers remain unsupportive of a new Reserve income insurance
    mobilization program and the amount of Federal underwriting required
    for the program is prohibitive. The Department has no plans to
    implement a new mobilization insurance program.
    ---------------------------------------------------------------------------
        \11\ See section 512, National Defense Authorization Act for Fiscal
    Year 1996 (P.L. 104-106, Feb. 10, 1996).
        \12\ U.S. General Accounting Office, Reserve Forces: Observations
    on the Ready Reserve Mobilization Income Insurance Program, GAO/T-
    NSIAD-97-154 (Washington, DC: May 8, 1997).
    ---------------------------------------------------------------------------
        A 1998 study by RAND found that income loss, while widespread
    during the Gulf War, did not have a measurable effect on enlisted
    retention.\13\ The study was cautiously optimistic that mobilizing the
    Reserves under similar circumstances in the future would not have
    adverse effects on recruiting and retention. However, the effects of
    future mobilizations can depend on the mission, the length of time
    reservists are deployed, the degree of support from employers and
    family members, and other factors.
    ---------------------------------------------------------------------------
        \13\ RAND, The Effect of Mobilization on Retention of Enlisted
    Reservists After Operation Desert Shield/Storm, MR-943-OSD (1998). The
    study did not include officers.
    ---------------------------------------------------------------------------
        Certain Federal protections, pay policies, and employer practices
    can help to alleviate financial hardship during deployment. For
    example, the Soldiers' and Sailors' Civil Relief Act caps debt interest
    rates at 6 percent annually. Income that servicemembers earn while
    mobilized in certain combat zones is tax-free. For certain operations,
    DOD also authorized reservists to receive both full housing allowances
    and per diem for their entire period of activation. In addition, some
    employers make up the difference between civilian and military pay for
    their mobilized employees. This practice varies considerably among
    employers. Servicemembers can also obtain emergency assistance in the
    form of interest-free loans or grants from service aid societies to pay
    for basic living expenses such as food or rent during activation. DOD
    is exploring debt management alternatives, such as debt restructuring
    and deferment of principle and interest payments, as ways to address
    income loss. The Army has proposed a new special pay targeting critical
    health care professionals in the Reserves who are in private practice
    and are deployed involuntarily beyond the established rotational
    schedule.

      RESERVISTS AND THEIR FAMILIES FACE CHALLENGES IN UNDERSTANDING AND
                       ACCESSING FAMILY SUPPORT SERVICES

        Reservists who have been activated for previous contingency
    operations have expressed concerns about the additional burdens placed
    on their families while they are gone. More than half of all reservists
    are married and about half have children or other legal dependents.
    According to the 2000 survey, among the most serious problems
    reservists said they experienced when mobilized or deployed are the
    burden placed on their spouse and problems created for their children.
        The 1991 Gulf War was a milestone event that highlighted the
    importance of Reserve family readiness. Lessons learned showed that
    families of activated reservists, like their active duty counterparts,
    may need assistance preparing wills, obtaining power of attorney,
    establishing emergency funds, and making child care arrangements. They
    may also need information on benefits and entitlements, military
    support services, and information on their reemployment rights. DOD has
    recognized that family attitudes affect Reserve member readiness,
    satisfaction with Reserve participation, and retention. Military
    members who are preoccupied with family issues during deployments may
    not perform well on the job, which in turn, negatively affects the
    mission. Research has shown that families of reservists who use family
    support services and who are provided information from the military
    cope better during activations. Under a 1994 DOD policy, the military
    services must ``ensure National Guard and Reserve members and their
    families are prepared and adequately served by their services' family
    care systems and organizations for the contingencies and stresses
    incident to military service.''
        Although activated reservists and their family members are eligible
    for the same family support services as their active duty counterparts,
    they may lack knowledge about or access to certain services. The 2000
    DOD survey suggests that more than half of all reservists either
    believe that family support services are not available to them or do
    not know whether such services are available. Table 2 shows drilling
    unit members' responses on the availability of selected programs and
    services.

        According to DOD officials, Operations Noble Eagle and Enduring
    Freedom have highlighted the fact that not all Reserve families are
    prepared for potential mobilization and deployment. They told us that
    since many families never thought their military members would be
    mobilized, families had not become involved in their family readiness
    networks. DOD has found that the degree to which reservists are aware
    of family support programs and benefits varies according to component,
    unit programs, command emphasis, Reserve status, and the willingness of
    the individual member to receive or seek out information. Results from
    the 2000 DOD survey show that about one-fourth of drilling unit members
    said their arrangements for their dependents were not realistically
    workable for deployments lasting longer than 30 days. Furthermore,
    about 4 of every 10 drilling unit members thought it was unlikely or
    very unlikely that they would be mobilized or deployed in the next 5
    years. Again, this survey predates the events of September 11, 2001,
    and the ensuing mobilization.
        Among the key challenges in providing family support are the long
    distances that many reservists live from installations that offer
    family support services, the difficulty in persuading reservists to
    share information with their families, the unwillingness of some
    reservists and their families to take the responsibility to access
    available information, conflicting priorities during drill weekends
    that limit the time spent on family support, and a heavy reliance on
    volunteers to act as liaisons between families and units. In 2000,
    about 40 percent of drilling unit members lived 50 miles or farther
    from their home units.
        DOD has recognized the need for improved outreach and awareness.
    For example, the Department has published benefit guides for reservists
    and family members and has enhanced information posted on its Web
    sites. DOD published a ``Guide to Reserve Family Member Benefits'' that
    informs family members about military benefits and entitlements and a
    family readiness ``tool kit'' to enhance communication about pre-
    deployment and mobilization information among commanders,
    servicemembers, family members, and family program managers. Each
    Reserve component also established family program representatives to
    provide information and referral services, with volunteers at the unit
    level providing additional assistance. The U.S. Marine Corps began
    offering an employee assistance program in December 2002 to improve
    access to family support services for Marine Corps servicemembers and
    their families who reside far from installations. Through this program,
    servicemembers and their families can obtain information and referrals
    on a number of family issues, including parenting; preparing for and
    returning from deployment; basic tax planning; legal issues; and
    stress. Notwithstanding these efforts, we believe, based on our review
    to date, that outreach to reservists and their families will likely
    remain a continuing challenge for DOD.

      CHALLENGES IN ACCESSING DOD HEALTH CARE BENEFITS ARE MAGNIFIED FOR
                                   RESERVISTS

        Reservists who are mobilized for a contingency operation are
    confronted with health care choices and circumstances that are more
    complex than those faced by active component personnel. Reservists'
    decisions are affected by a variety of factors--whether they or their
    spouses have civilian health coverage, the amount of support civilian
    employers would be willing to provide with health care premiums, and
    where they and their reservists dependents live. If dependents of
    reservists encounter increased future difficulties in maintaining their
    civilian health insurance due to problems associated with longer
    mobilizations and absence from civilian employment, they may rely on
    DOD for their health care benefits to a greater degree than they do
    today.
        When activated for a contingency operation, reservists and their
    dependents are eligible for health care benefits under TRICARE, DOD's
    managed health care program. TRICARE offers beneficiaries three health
    care options: Prime, Standard, and Extra. TRICARE Prime is similar to a
    private HMO plan and does not require enrollment fees or co-payments.
    TRICARE Standard, a fee-for-service program, and TRICARE Extra, a
    preferred provider option, require co-payments and annual deductibles.
    None of these three options require reservists to pay a premium.
    Benefits under TRICARE are provided at more than 500 military treatment
    facilities worldwide, through a network of TRICARE-authorized civilian
    providers, or through non-network physicians who will accept TRICARE
    reimbursement rates.
        Reservists who are activated for 30 days or less are entitled to
    receive medical care for injuries and illnesses incurred while on duty.
    Reservists who are placed on active duty orders for 31 days or more are
    automatically enrolled in TRICARE Prime and receive most care at a
    military treatment facility. Family members of reservists who are
    activated for 31 days or more may obtain coverage under TRICARE Prime,
    Standard, or Extra.\14\ Family members who participate in Prime obtain
    care at either a military treatment facility or through a network
    provider. Under Standard or Extra, beneficiaries must use either a
    network provider or a non-network physician who will accept TRICARE
    rates.
    ---------------------------------------------------------------------------
        \14\ Until last week, family members of reservists generally became
    eligible for Prime when the reservist was activated for 179 days or
    more. Legislation passed in December (P.L. 107-314, Sec. 702) made
    family members of reservists activated for more than 30 days eligible
    for the Prime benefit if they reside more than 50 miles, or an hour's
    driving time, from a military treatment facility. Last week, the
    Defense Department altered TRICARE policy such that all family members
    of reservists activated for more than 30 days are eligible for the
    Prime benefit.
    ---------------------------------------------------------------------------
        Upon release from active duty that extended for at least 30 days,
    reservists and their dependents are entitled to continue their TRICARE
    benefits for 60 days or 120 days, depending on the members' cumulative
    active duty service time. Reservists and their dependents may also
    elect to purchase extended health care coverage for a period of at
    least 18, but no more than 36, months under the Continued Health Care
    Benefit Program.
        Despite the availability of DOD health care benefits with no
    associated premium, many Reserve family members elect to maintain their
    civilian health care insurance during mobilizations. In September 2002,
    we reported that, according to DOD's 2000 survey, nearly 80 percent of
    reservists reported having health care coverage when they were not on
    active duty. Of reservists with civilian coverage, about 90 percent
    maintained it during their mobilization.\15\ Reservists we interviewed
    often told us that they maintained this coverage to better ensure
    continuity of health benefits and care for their dependents. Many
    reservists who did drop their civilian insurance and whose dependents
    did use TRICARE reported difficulties moving into and out of the
    system, finding a TRICARE provider, establishing eligibility,
    understanding TRICARE benefits, and knowing where to go for assistance
    when questions and problems arose. While Reserve and active component
    beneficiaries report similar difficulties using the TRICARE system,
    these difficulties are magnified for reservists and their dependents.
    For example, 75 percent of reservists live more than 50 miles from
    military treatment facilities, compared with 5 percent of active
    component families. As a result, access to care at military treatment
    facilities becomes more challenging for dependents of reservists than
    their active component counterparts.
    ---------------------------------------------------------------------------
        \15\ U.S. General Accounting Office, Defense Health Care: Most
    Reservists Have Civilian Health Coverage but More Assistance Is Needed
    When TRICARE Is Used, GAO-O2-829 (Washington, DC. Sept. 6, 2002).
    ---------------------------------------------------------------------------
        Unlike active component members, reservists may also transition
    into and out of TRICARE several times throughout a career. These
    transitions create additional challenges in ensuring continuity of
    care, reestablishing eligibility in TRICARE, and familiarizing or re-
    familiarizing themselves with the TRICARE system. Reservists are also
    not part of the day-to-day military culture and, according to DOD
    officials, generally have less incentive to become familiar with
    TRICARE because it becomes important to them and their families only if
    they are mobilized. Furthermore, when reservists are first mobilized,
    they must accomplish many tasks in a compressed period. For example,
    they must prepare for an extended absence from home, make arrangements
    to be away from their civilian employment, obtain military
    examinations, and ensure their families are properly registered in the
    Defense Enrollment Eligibility Reporting System (DOD's database system
    maintaining benefit eligibility status). It is not surprising that many
    reservists, when placed under condensed time frames and high stress
    conditions, experience difficulties when transitioning to TRICARE.
        We recommended in September 2002 that DOD (1) ensure that
    reservists, as part of their ongoing readiness training, receive
    information and training on health care coverage available to them and
    their dependents when mobilized and (2) provide TRICARE assistance
    during mobilizations targeted to the needs of reservists and their
    dependents. DOD has added information targeted at reservists to its
    TRICARE Web site and last month, in response to our recommendation,
    developed a TRICARE Reserve communications plan aimed at outreach and
    education of reservists and their families.
        The TRICARE Web site is a robust source of information on DOD's
    health care benefits. The Web site contains information on all TRICARE
    programs, TRICARE eligibility requirements, briefing and brochure
    information, location of military treatment facilities, toll free
    assistance numbers, network provider locations, and other general
    network information, beneficiary assistance counselor information, and
    enrollment information. There is also a section of the Web site devoted
    specifically to reservists, with information and answers to questions
    that reservists are likely to have. Results from DOD's 2000 survey show
    that about 9 of every 10 reservists have access to the Internet.
        The TRICARE Reserve communications plan's main goals are to educate
    reservists and their family members on health care and dental benefits
    available to them and to engage key communicators in the active and
    Reserve components. The plan identifies a number of tactics for
    improving how health care information is delivered to reservists and
    their families. Materials are delivered through direct mailing
    campaigns, fact sheets, brochures, working groups, and briefings to
    leadership officials who will brief reservists and to reservists
    themselves. The plan identifies target audiences and key personnel for
    information delivery and receipt. The plan identifies methods of
    measurement which will assist in identifying the degree information is
    being requested and received. We plan to look at the TRICARE Reserve
    communications plan in more detail as we continue our study.
        Under DOD authorities in the National Defense Authorization Acts
    for 2000 and 2001, DOD instituted several demonstration programs to
    provide financial assistance to reservists and family members. For
    example, DOD instituted the TRICARE Reserve Component Family Member
    Demonstration Project to reduce TRICARE costs and assist dependents of
    reservists in maintaining relationships with their current health care
    providers. Participants are limited to family members of reservists
    mobilized for Operations Noble Eagle and Enduring Freedom. The
    demonstration project eliminates the TRICARE deductible and the
    requirement that dependents obtain statements saying that inpatient
    care is not available at a military treatment facility before they can
    obtain non-emergency treatment from a civilian hospital. In addition,
    DOD may pay a non-network physician up to 15 percent more than the
    current TRICARE rate. As we continue our study, we plan to review the
    results of the demonstration project and its impact on improving health
    care for reservists' family members.

     DOD ACTIONS NEEDED TO BETTER MANAGEMENT RELATIONS BETWEEN RESERVISTS
                              AND THEIR EMPLOYERS

        Most reservists have civilian jobs. The 2000 survey shows that 75
    percent of drilling unit members worked full-time in a civilian
    job.\16\ Of those with civilian jobs, 30 percent of reservists worked
    for government at the Federal, State, or local level; 63 percent worked
    for a private sector firm; and 7 percent were self-employed or worked
    without pay in their family business or farm. The 2000 survey shows
    that one of the most serious problems reported by reservists in
    previous mobilizations and deployments was hostility from their
    supervisor. It should be noted, however, that many employers changed
    company policies or added benefits for deployed reservists after
    September 11, 2001. In a small nonprojectable sample of employers, we
    found that more than half provided health care benefits and over 40
    percent provided pay benefits that are not required by the Uniformed
    Services Employment and Reemployment Rights Act of 1994.\17\
    ---------------------------------------------------------------------------
        \16\ This figure does not include reservists who work as civilian
    military technicians.
        \17\ Pub. L. 103-353 (Oct. 13, 1994), 38 U.S.C. secs. 4301-4333.
    ---------------------------------------------------------------------------
        Maintaining employers' continued support for their reservist
    employees will be critical if DOD is to retain experienced reservists
    in these times of longer and more frequent deployments. DOD has
    activities aimed at maintaining and enhancing employers' support for
    reservists. The National Committee for Employer Support of the Guard
    and Reserve serves as DOD's focal point in managing the Department's
    relations with reservists and their civilian employers. Two specific
    functions of this organization are to (1) educate reservists and
    employers concerning their rights and responsibilities and (2) mediate
    disputes that may arise between reservists and their employers.
        Although DOD has numerous outreach efforts, we have found that a
    sizable number of reservists and employers were unsure about their
    rights and responsibilities. For example, a 1999 DOD survey found that
    31 percent of employers were not aware of laws protecting reservists.
    In a recent report, we listed several factors that have hampered DOD's
    outreach efforts to both employers and reservists.\18\ DOD has lacked
    complete information on who reservists' employers are; it does not know
    the full extent of problems that arise between employers and
    reservists; and it has no assurance that its outreach activities are
    being implemented consistently. We recommended that DOD take a number
    of actions to improve the effectiveness of outreach programs and other
    aspects of reservist-employer relations.
    ---------------------------------------------------------------------------
        \18\ GAO-02-608.
    ---------------------------------------------------------------------------
        DOD concurred with most of these recommendations and has taken some
    actions. Most notably, DOD is moving ahead with plans to collect
    employer data from all of its Reserve personnel. The data, if collected
    as planned, should help DOD inform all employers of their rights and
    obligations, identify employers for recognition, and implement
    proactive public affairs campaigns. However, DOD has not been as
    responsive to our recommendation that the Services improve their
    compliance with DOD's goal of issuing orders 30 days in advance of
    deployments so that reservists can notify their employees promptly.
    While our recommendation acknowledged that it will not be possible to
    achieve the 30-day goal in all cases, our recommendation was directed
    at mature, ongoing contingency mobilization requirements, such as the
    requirements that have existed in Bosnia since 1995. We believe that
    DOD needs to return to its 30-day goal following the current crisis or
    it will risk losing employer support for its Reserve Forces.
        I would like to take a moment, Mr. Chairman, to address the issue
    of reservists who are students. Almost one-fourth of drilling unit
    members responding to DOD's 2000 survey said they were currently in
    school. While DOD has an active program to address problems that arise
    between reservists and their civilian employers, there is no Federal
    statute to protect students. Student members of the Reserves are not
    guaranteed refunds of tuition and fees paid for the term they cannot
    complete, and there is no Federal statute for partial course credit or
    the right to return to the college or university upon completion of
    active service. Based on our recent work, we recommended that DOD add
    students as a target population to the mission and responsibilities of
    the National Committee for Employer Support of the Guard and Reserve,
    study in depth the problems related to deployments that student
    reservists have experienced, and determine what actions the National
    Committee for Employer Support of the Guard and Reserve might take to
    help students and their educational institutions. We feel DOD is giving
    this issue an appropriate amount of attention given its resources.
    Employer Support of the Guard and Reserve volunteers are directing
    students to available resources and the Office of the Assistant
    Secretary of Defense for Reserve Affairs has added student information
    and hyperlinks to its official Web site. One available resource, for
    example, is the Servicemembers Opportunity  Colleges, which has
    volunteered to mediate any disputes that arise between reservists and
    their schools.\19\ In addition, 12 States have enacted laws or policies
    to protect student reservists since our report was issued last June,
    making a current total of 15 States with such laws or policies.
    ---------------------------------------------------------------------------
        \19\ The Servicemembers Opportunity Colleges is a consortium of
    national higher education associations and more than 1,500 colleges.
    The organization helps to coordinate postsecondary educational
    opportunities for servicemembers through voluntary programs that are
    funded by the military services.
    ---------------------------------------------------------------------------
                     OBSERVATIONS ON RESERVE RETIREMENT AGE

        The current Reserve retirement system dates back to 1948 with the
    enactment of the Army and Air Force Vitalization and Retirement
    Equalization Act.\20\ The act established age 60 as the age at which
    Reserve retirees could start drawing their retirement pay. At the time
    the act was passed, age 60 was the minimum age at which Federal civil
    service employees could voluntarily retire. Active component retirees
    start drawing their retirement pay immediately upon retirement.
    ---------------------------------------------------------------------------
        \20\ June 29, 1948, ch. 708, 62 stat. 1081.
    ---------------------------------------------------------------------------
        Several proposals have been made to change the Reserve retirement
    eligibility age. In 1988, the 6th Quadrennial Review of Military
    Compensation concluded that the retirement system should be changed to
    improve retention of mid-career personnel and encourage reservists who
    lack promotion potential or critical skills to voluntarily leave after
    20 years of service. The study recommended a two-tier system that gives
    Reserve retirees the option of electing to receive a reduced annuity
    immediately upon retirement or waiting until age 62 to begin receiving
    retirement pay. Recent legislative proposals have called for lowering
    the retirement pay eligibility age from 60 to 55, establishing a
    graduated annuity, or establishing an immediate annuity similar to that
    in the active duty military retirement system.
        Mr. Chairman, I would like to make two observations about reforming
    the Reserve retirement system.
        First, equity between reservists and active duty personnel is one
    consideration in assessing competing retirement systems, but it is not
    the only one. Other important considerations are the impact of the
    retirement system on the age and experience distribution of the force,
    its ability to promote flexibility in personnel management decisions
    and to facilitate integration between the active and Reserve
    components, and the cost. Changes to the retirement system could prove
    to be costly. Last year, the Congressional Budget Office estimated that
    lowering the retirement pay eligibility age from age 60 to 55 would
    cost $26.6 billion over 10 years.
        Second, DOD currently lacks critical data needed to assess
    alternatives to the existing retirement system. According to a 2001
    study conducted for the 9th Quadrennial Review of Military
    Compensation,\21\ DOD should (1) assess whether the current skill,
    experience, and age composition of the Reserves is desirable and, if
    not, what it should look like now and in the future and (2) develop an
    accession and retention model to evaluate how successful varying
    combinations of compensation and personnel management reforms would be
    in moving the Reserves toward that preferred composition. DOD has
    contracted with RAND and the Logistics Management Institute to study
    military retirement. RAND will review alternative military retirement
    systems recommended by past studies, develop a model of active and
    Reserve retirement and retention, analyze their likely effects on the
    retirement benefits that individuals can expect to receive, and
    identify and analyze the obstacles and issues pertaining to the
    successful implementation and therefore the viability of these
    alternatives. The Logistics Management Institute will assess
    alternative retirement systems with a focus on portability, vesting,
    and equity. These studies are looking at seven alternatives to the
    Reserve retirement system. Preliminary results from these studies are
    expected later this year. As discussed with your offices, we plan to
    review the Reserve retirement system in the future.
    ---------------------------------------------------------------------------
        \21\ RAND, Reforming the Reserve Retirement System, PM-1278-NDRI
    (Dec. 2001).
    ---------------------------------------------------------------------------
    Contacts and Acknowledgments
        For future questions about this statement, please contact Derek B.
    Stewart at (202) 512-5140 (e-mail address: stewartd@gao.gov) or Brenda
    S. Farrell at (202) 512-3604 (e-mail address: farrellb@gao.gov).
    Individuals making key contributions to this statement include
    Christopher E. Ferencik, Michael Ferren, Thomas W. Gosling, Chelsa L.
    Kenney, Krislin M. Nalwalk, and Timothy Wilson.

        Senator Chambliss. Gentlemen, once again, thank you for
    your splendid service to our country. We appreciate your being
    here today.
        This hearing is adjourned.
        [Questions for the record with answers supplied follow:]

                Questions Submitted by Senator Lindsey O. Graham

                              COMPENSATION PACKAGE

        1. Senator Graham. Secretary Hall, is it time to revisit the
    overall compensation package (pay, health, retirement incentives, tax)
    in light of the new post September 11 operation tempo?
        Secretary Hall. Yes, we believe it is. The Department has examined
    a number of compensation issues over the past 2 years in the context of
    our Military Human Resources Strategic Plan, and as part of our review
    of Reserve Component Contributions to National Defense. Based on
    preliminary results of our examination, and at the request of this
    committee, we have begun an internal review of Reserve compensation
    issues. In addition, we have contracted for a separate study by RAND of
    the Reserve retirement system. We expect initial results from these
    studies in the late summer and early fall of this year.

                      EFFECTS ON RECRUITING AND RETENTION

        2. Senator Graham. Secretary Hall, how has the increased tempo
    affected recruiting and retention?
        Secretary Hall. To date, we have seen no significant negative
    effects of the post-September 11 use of our Reserve components on
    recruiting and retention. All of the Reserve components achieved their
    recruiting and strength objectives for 2002. Attrition for 2002 was low
    but some of this is attributable to Stop Loss that was in effect for
    much of the year. 2003, year-to-date, provides a better indication of
    the effects of mobilization on attrition, since most Stop Loss was
    lifted during the first quarter. We see that attrition for the first
    part of this year is comparable with previous years and well within
    acceptable limits. All of the Reserve components are exceeding their
    end strength objectives year-to-date, and in the aggregate, they have
    achieved 97 percent of their recruiting goals. However, recruiting and
    strength management continue to present challenges, and we must be
    diligent in watching for trends in both recruiting and retention.

        [Whereupon, at 5:11 p.m., the subcommittee adjourned.]

    DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR
                                      2004

                                  ----------

                            THURSDAY, MARCH 27, 2003

                                   U.S. Senate,
                             Subcommittee on Personnel,
                                   Committee on Armed Services,
                                                        Washington, DC.

                  COMPENSATION FOR DISABLED MILITARY RETIREES

        The subcommittee met, pursuant to notice, at 2:30 p.m. in
    room SH-216, Hart Senate Office Building, Senator Saxby
    Chambliss (chairman of the subcommittee) presiding.
        Committee members present: Senators Collins, Chambliss, E.
    Benjamin Nelson, and Pryor.
        Also present: Senator Harry Reid.
        Majority staff members present: Patricia L. Lewis,
    professional staff member; and Richard F. Walsh, counsel.
        Minority staff member present: Gerald J. Leeling, minority
    counsel.
        Staff assistants present: Michael N. Berger, Jennifer Key,
    and Sara R. Mareno.
        Committee members' assistants present: James P. Dohoney,
    Jr., assistant to Senator Collins; James W. Irwin and Clyde A.
    Taylor IV, assistants to Senator Chambliss; Eric Pierce,
    assistant to Senator Ben Nelson; and Terri Glaze and Walter
    Pryor, assistants to Senator Pryor.

         OPENING STATEMENT OF SENATOR SAXBY CHAMBLISS, CHAIRMAN

        Senator Chambliss. Good afternoon. The subcommittee will
    come to order. The subcommittee meets today to receive
    testimony on compensation for disabled military retirees in
    review of the National Defense Authorization Act for Fiscal
    Year 2004. Today, we are very much aware of the peril our
    military men and women are facing in Operation Iraqi Freedom.
    Our thoughts and prayers go out to all our military personnel
    in Iraq and their families, and especially those whose sons and
    daughters in uniform have been captured, wounded, or killed.
        The lethality of modern warfare and the physical and mental
    demands placed on our troops provide a harsh backdrop for the
    subject we will consider today. Often referred to as concurrent
    receipt, this issue was of key importance in the formulation of
    last year's Defense Authorization Act. Concurrent receipt is a
    shorthand term for proposals that would eliminate a century-old
    barrier in the law to military retirees receiving both their
    retired pay and veterans' disability compensation.
        The arguments for and against the required dollar-for-
    dollar offset of military retired pay must be evaluated to
    assess these proposals. The action taken by Congress last year,
    namely, the establishment of a new form of special compensation
    for certain combat-related disabled uniformed service retirees
    is due to become effective on June 1 of this year. It was
    intended to provide additional compensation to those military
    retirees whose VA-related disability is the result of combat,
    combat training, or combat preparation. We look forward to
    hearing about the plans underway in the Department of Defense
    and the Services to implement a program for administering this
    special compensation, and how this program may affect the
    Department of Veterans' Affairs (VA).
        Additionally, we will receive testimony that should inform
    all of those who are concerned about disability and retirement
    systems, and hopefully identify the best path for future
    solutions. Our goal is to ensure that those military retirees
    with disabilities and their families have access to continuing
    health care, receive an equitable level of compensation for
    their sacrifices, in some cases heroic sacrifices, they have
    made and the military service they have rendered, and continue
    to be motivated, like all Americans with disabilities, to lead
    productive, rewarding lives.
        I would like to welcome today Senator Harry Reid of Nevada.
    He has been at the forefront of the efforts to eliminate the
    offset and recently introduced legislation, S. 392, the Retired
    Pay Restoration Act of 2003, to this effect.
        Our second panel will include Secretary Charles Abell,
    Principal Deputy Under Secretary of Defense for Personnel and
    Readiness; and Secretary Daniel Cooper, Under Secretary for
    Benefits of the Department of Veterans' Affairs. These
    witnesses are responsible for administration of the current
    compensation programs within the DOD and the VA for disabled
    military retirees.
        Our third panel will consist of representatives from the
    Congressional Budget Office, the Government Accounting Office,
    and a former member of the Congressional Research Service, now
    retired, Carolyn Merck, who coauthored an important study on
    today's topic. These witnesses will provide important
    perspectives on the history and operation of various benefits
    systems and an explanation of the estimated costs associated
    with changes to existing law and, I anticipate, assist us
    greatly in evaluating the arguments for and against legislative
    changes.
        Our fourth panel is comprised of three representatives of
    private organizations that advocate for military retirees and
    veterans, and who possess extensive experience with military
    disability and compensation programs. We welcome Steve
    Strobridge, of the Military Officers Association of America;
    Master Gunnery Sergeant Benjamin Butler, United States Marine
    Corps, Retired, of the National Association for the Uniformed
    Services; and Michael Slee, of the American Legion. We welcome
    all of our witnesses this afternoon, and we look forward to
    hearing from you.
        Before we turn to Senator Reid, I, of course, would like to
    turn to my colleague, my friend, and my ranking member, Senator
    Ben Nelson of Nebraska, for any comments he might have.

                STATEMENT OF SENATOR E. BENJAMIN NELSON

        Senator Ben Nelson. Thank you, Mr. Chairman. It is really a
    pleasure to serve on this subcommittee and to be working with
    you.
        The topic before this hearing today is a very significant
    one. It is one that is vitally important to military retirees
    who are disabled as a result of their military service. Current
    law prohibits concurrent receipt of military retirement pay and
    VA disability compensation. This law, which dates back to 1891,
    is fundamentally unfair. Military retirement pay and VA
    disability compensation were earned and awarded for different
    purposes. Military retirement pay is awarded for a career of
    service in the armed services. Disability compensation is
    awarded to a veteran to compensate for disability incurred in
    the line of military duty.
        It is clear that Congress recognizes the inequity of this
    prohibition. Each year for the last several years legislation
    has been introduced in both the House and the Senate to appeal
    this inequitable prohibition. Our good friend, Senator Harry
    Reid, our first witness, is the primary sponsor of this
    legislation in the Senate, and an overwhelming majority of
    Senators and Representatives have cosponsored these legislative
    initiatives. Last year, Senator Reid's bill, S. 170, had 82
    cosponsors. H.R. 303, the companion bill in the House, had 403
    cosponsors. This year, Senator Reid's bill, S. 392, has 50
    cosponsors, and obviously that number will likely grow. I am
    privileged to be a cosponsor of this bill.
        Despite this overwhelming congressional support and the
    fact that the Senate has already passed this legislation
    several times, it has not been enacted because it always gets
    dropped or compromised during our conference with the House.
    Last year, the Senate was forced to yield because of a
    threatened veto from the administration. We were put in the
    position of having no defense bill or working out an
    alternative to appealing the prohibition on concurrent receipt.
        Although we have not been successful in repealing the
    prohibition against concurrent receipt, we have chipped away at
    the inequity. In the National Defense Authorization Act for
    Fiscal Year 2000, Congress enacted a limited special
    compensation for military retirees with disabilities rated at
    70 percent or higher. In the National Defense Authorization Act
    for Fiscal Year 2002, we increased the amount of compensation
    and included retirees with disabilities rated at 60 percent,
    and although we still have not repealed the prohibition on
    concurrent receipt, we did enact a new special compensation for
    military retirees with combat-related injuries in last year's
    National Defense Authorization Act. The amount of this special
    compensation is equal to the amount of retirement pay that
    these retirees forfeit as an offset for the amount of VA
    disability compensation they receive.
        That means this limited class of military retirees, those
    with combat-related disabilities, will receive the same amount
    of money through this special pay as they would receive if we
    were successful in repealing the prohibition on concurrent
    receipt, but this is not good enough. We still have thousands
    of retirees who are forfeiting part of their retirement pay
    earned through years of service to their Nation because they
    also receive VA compensation for a service-connected
    disability. We will continue to work at this until we fix it.
        Mr. Chairman, I am most anxious to hear from our witnesses,
    particularly our good friend Senator Harry Reid from Nevada.
        Senator Chambliss. Thank you, Senator Nelson. Senator Reid
    is an advocate of changing the concurrent receipt provision
    similar to what you had proposed on the Senate side while I was
    in the House. I thank you for your strong leadership in this
    area. You have been a great advocate for our retired men and
    women, and you are to be commended for that. We are pleased you
    are here today, and we look forward to hearing from you.
        Senator Harry Reid.

         STATEMENT OF HON. HARRY REID, U.S. SENATOR FROM NEVADA

        Senator Reid. Mr. Chairman, Senator Nelson, I would ask
    unanimous consent of the subcommittee that my full statement be
    made part of the record.
        Senator Chambliss. Without objection, certainly.
        Senator Reid. You two Senators have outlined very clearly
    the objective that we have here. I talked earlier today about
    Senator Pat Moynihan having passed away. What a lot of people
    do not know about Pat is, he was a naval veteran, and he had
    injuries as a result of being in the Navy, and he had surgery
    on his back. You lose track of time, but sometime ago when he
    was still in the Senate, but recently, right before he left.
        You have that example, and then you have in a little place
    called Tonopah, Nevada, a young man who went to high school
    there, who was killed in Iraq. The first fatality we had in
    Nevada was Frederick Pokorney, who died as a result of being
    ambushed, one of nine marines killed at the same time.
        The point I made earlier today that I made to you
    gentlemen, and I know that you understand this, is that the
    pictures we see on TV are not movies. They are not make-
    believe. They are real. People are getting shot and injured in
    many different ways in Iraq, and that is the way wars are.
        If you go back to the first Gulf War and you keep tracing
    back through the whole modern period of war, Vietnam, Korea,
    the Second World War, lots of people have been hurt and, of
    course, killed. That is why this is bipartisan legislation. The
    chairman is a Republican. The ranking member is a Democrat.
    Congressman Bilirakis from Florida and I have been working on
    this together for a long time. We have the vast majority of the
    support of Congress, and we need to do this.
        As I mentioned also earlier today, the supplemental has $9
    billion for foreign aid. I support that, but if we can spend $5
    billion on foreign aid for the next 6 months--that is what the
    supplemental is--I think we could spend a few bucks to make
    sure our veterans are treated fairly. There is no reason that a
    veteran who has the ability to retire by virtue of his service
    in the military and who is disabled cannot draw both. That is
    why we have these rules and regulations, so I appreciate both
    of you being supporters of this legislation, but you are going
    to have to help me when we come to the further authorization of
    this. We did very well, and I appreciate your help on the
    Senate floor this week.
        What we have done on the Senate floor this week on the
    budget, we can get this up to where we are covering almost
    100,000 military retirees. We still have about 400,000 to go,
    but we need to do this. We need to phase in up to 100 percent
    of the disability, and you are going to have to help me in the
    authorizing process and also when it comes time for
    appropriations.
        This is something I feel very strongly about. This is
    something that would affect a Pat Moynihan and a Frederick
    Pokorney all wrapped up into one. It is what our country is all
    about, taking care of our soldiers, sailors, airmen, and
    marines who have dedicated their lives to protecting us. I
    recognize that we have a lot of responsibilities as Members of
    Congress, but other than my immediate family, the people who
    have done the most to protect me and allow me to have the
    wonderful life that I do is the American veteran, and that is
    what I hope we tend to remember as we are squeezing dollars
    toward the end of this financial period, which ends October 1.
    I hope we will do what is right for the American veteran.
        [The prepared statement of Senator Reid follows:]

                    Prepared Statement by Senator Harry Reid

        Mr. Chairman, members of the subcommittee, I appreciate the
    invitation to be here with you today to speak about ending an injustice
    impacting hundreds of thousands of our disabled military retirees.
        The events of recent days in Iraq have brought to everyone's
    attention the vital role that our armed services play in the very
    fabric of our Nation; and indeed, how our very way of life is indebted
    to the sacrifices and heroism of military personnel throughout the
    Nation's history.
        These ongoing sacrifices struck my home state of Nevada earlier
    this week in a very personal way with the death of Marine 2nd
    Lieutenant Frederick E. Pokorney, Jr. from Tonopah. He served Nevada
    and our Nation so proudly. Our thoughts and prayers are with his family
    and the families of all of our service members who have been killed or
    captured in Iraq.
        But we also remember the sacrifices of our military retirees who
    have nobly served in times of war, as well as in times of relative
    peace.
        We must never forget that military jobs are not routine 9-to-5
    jobs. Military jobs often entail frequent and prolonged family
    separations, long hours with no additional compensation, exposure to
    unusually harsh conditions, isolated assignments, exposure to diseases
    in third-world countries, contact with toxic substances, exposure to
    loud noise, and loss of many daily freedoms that all other Americans
    take for granted.
        Because the military environment is so unique and many medical
    conditions may stem from that environment, the law authorizes VA
    compensation for disabilities that begin during service, are aggravated
    by the service, or are linked to it. The law, however, has an inherent
    unfairness when applied to hundreds of thousands of disabled military
    retirees.
        As you are aware, present law requires military retirees to waive
    an amount of their hard-earned retired pay to offset dollar-for-dollar
    the amount of the VA disability compensation they have been awarded for
    service-connected disabilities. For example, a military retiree with no
    dependents who has been rated 100 percent disabled by the VA will be
    forced to forfeit $2,193 of his retired pay every month in order to
    receive $2,193 in VA disability compensation. This forfeiture consumes
    most, and in many cases ALL, of the retiree's retired pay. The end
    result is that the disabled military retiree loses all of the value of
    his 20 or more years of arduous service to our Nation.
        It is important for us to keep in mind the separate and distinct
    purposes of military retired pay and VA disability compensation. I
    cannot overemphasize the importance of these distinctions. Military
    retired pay is the promised reward for serving 20 or more years of
    uniformed service; it is based on the length of service. VA disability
    compensation is unrelated to the length of service. It is intended to
    recompense the ``pain and suffering'' that results from service-
    connected disabilities, and the lost or diminished future earning
    capacity that a typical person with those disabilities would
    experience.
        We must be honest--there can be no ``compensation'' when the
    retiree pays for it by forfeiting retired pay that was earned for
    longevity.
        No other Federal retiree forfeits Federal retired pay to reimburse
    the government. Apparently, other departments recognize that retired
    pay is earned for longevity of employment, and has nothing to do with
    VA disability compensation.
        The disabled military retirees that I hear from in Nevada and
    across the country feel betrayed by this system and this very outdated
    and unjust law. They feel cheated because they lose the vested value of
    their years of service when the government every month seriously
    shortchanges their retirement checks; in many cases, the severely
    disabled do not even receive one penny of their retired pay.
        With the Fiscal Year 2000 National Defense Authorization Act,
    Congress did recognize that our present law is bad, and established the
    Severely Disabled Compensation Program that provides a modest payment
    to severely disabled military retirees.
        In the most recent National Defense Authorization Act, we took
    another small step forward by establishing Combat-Related Special
    Compensation programs, which pertain to Purple Heart recipients, and
    other longevity retirees who are rated at least 60 percent disabled
    because of armed conflict, hazardous duty, training exercises, or
    mishaps involving military equipment. The estimated number to benefit
    from this compensation is somewhere between 15,000 to 30,000 disabled
    retirees. While I welcome even this modest step forward, I say to the
    subcommittee, there is much work remaining to correct this injustice.
        This week, I was grateful that the Senate strongly supported my
    amendment to the budget resolution, which allowed for new budget
    authority and outlays for national defense in order to permit phased-in
    concurrent receipt of retired pay and veterans' disability compensation
    for retirees with service-connected disabilities rated at 60 percent or
    higher.
        While the provisions of this amendment fall short of what I believe
    would be a complete solution, I am pleased that this funding authority
    will benefit close to 90,000 military retirees with VA disability
    ratings between 60 and 100 percent. Surely we can provide relief to
    this especially deserving group.
        The support for this issue in Congress is clear. About 90 percent
    of the entire 107th Congress was on record as supporting full
    concurrent receipt in the 2003 National Defense Authorization Act.
    Disabled military retirees were extremely disappointed when the
    legislation fell short after a veto threat by the White House.
        But let me state for the record that the veterans organizations in
    this country did such incredible work and rallied our Congress to get
    403 cosponsors for H.R. 303 and 82 cosponsors for S. 170. Even the bill
    I just introduced in the Senate for full concurrent receipt--S. 392--
    has over 50 cosponsors to date. I congratulate the veterans groups for
    their outstanding legislative advocacy and for their service to this
    country.
        In closing, I urge that, at a minimum, the Committee authorize the
    phased-in concurrent receipt provisions, as now included in the budget
    resolution, for military retirees with 60 to 100 percent service-
    connected disabilities.
        It is time for us to demonstrate a sense of fairness,
    proportionality, and balance in how we use the taxpayer dollars that
    have been entrusted to us. Let's take care of our military retirees as
    we recall, day-by-day, how much they have done for us and for people
    seeking freedom around the world.
        Thank you again for the opportunity to be here with you today.

        Senator Chambliss. Thank you very much, Senator. Again, we
    appreciate your leadership, and we look forward to continuing
    to work with you.
        Secretary Abell and Secretary Cooper, and while you are
    coming up, Charlie, it is nice to see you sitting out there. I
    am used to seeing you sitting behind the chairman in the
    conferences between the House and Senate, so we are glad to
    have your expertise where you are.
        Secretary Abell. Thank you, sir.
        Senator Chambliss. All your friends in Georgia send their
    regards to you, and Secretary Abell, we will start with you. We
    look forward to your statement. Whatever written statement you
    want to insert in the record, obviously we will accept that in
    full.

      STATEMENT OF HON. CHARLES S. ABELL, PRINCIPAL DEPUTY UNDER
            SECRETARY OF DEFENSE FOR PERSONNEL AND READINESS

        Secretary Abell. Thank you, sir. Good afternoon, Senator
    Nelson. I appreciate the opportunity to appear before this
    subcommittee and discuss our plans for the combat-related
    special compensation. With your indulgence, Mr. Chairman, I
    will make a slightly longer statement than I might otherwise
    give in order to describe our plans to implement the combat-
    related special compensation program.
        Section 636 of the Fiscal Year 2003 National Defense
    Authorization Act, which was enacted on December 2, 2002,
    provides a new entitlement for certain disabled military
    retirees. While the law is clear that this special compensation
    is not retired pay, this pay does equal the retired pay offset
    resulting from receipt of a VA disability compensation for
    certain retirees.
        A military retiree qualifies if the VA compensation is
    based on either a Purple Heart injury compensated at 10 percent
    or greater, or if the VA compensation is based on a combat
    disability of 60 percent or greater. A combat disability is
    defined as one incurred either as a direct result of armed
    combat, while engaged in hazardous service, while performing a
    duty under war simulation conditions, or through an
    instrumentality of war.
        In developing our procedures, we have met with
    representatives of the military services, the Defense Finance
    and Accounting Service, the Department of Veterans' Affairs,
    and the service associations. We intend to meet with the
    veterans' support organizations and the military support
    associations one more time again before we announce our final
    procedures so that they have an opportunity to review and
    comment one last time.
        Our concept of operations is twofold. For retired members,
    we are identifying potentially eligible members by compiling as
    much qualifying information as possible. Our colleagues at VA
    are helping us in this regard. We are identifying retired
    members with a VA disability of 60 percent or greater. VA has
    shared their list of veterans who have been awarded the Purple
    Heart. VA has provided us a listing of diagnostic codes,
    percentages applicable, and effective date of benefits for
    those that we believe might qualify. We are reviewing the
    records to see what is in them and how best to conduct an
    efficient review.
        For currently serving members, we are developing a system
    to continuously document potentially qualifying injuries over
    their career. As Senator Reid said, some of our soldiers
    unfortunately are suffering injuries today that would qualify
    them for this should they stay in until retirement. This
    applies to those who are in Operation Enduring Freedom and
    Operation Iraqi Freedom. We are trying to document medical
    events, assignments, exercise events, and personal declarations
    so that when they retire we will be able to transition them to
    this pay expeditiously.
        We have developed a draft application form. Our target is
    to have this form available by May 1. We intend to have an
    electronic variation of this form. This will be a form that can
    be completed and printed. Unfortunately at this time we do not
    have the ability to accept electronic filing.
        We have asked the military services to publish the form and
    the accompanying instructions for completing the form in their
    retiree newsletters. I hope that the veterans' support
    organizations and the military support associations will
    publish the form and the instructions in their publications as
    well. It is all part of our outreach to qualified veterans.
        The Defense Manpower Data Center website will include the
    electronic version of the form and instructions for completing
    the application. I hope to enlist the assistance of the
    veterans' support organizations and the military support
    associations to permit their members to visit the local chapter
    and use their computers to help fill out the form.
        As part of the application, we will ask the retired member
    to provide as much information as he or she has to assist us in
    verifying their disability and linking the disability to a
    combat-related incident. We are encouraging retirees not to
    bombard the VA with requests for records. If we need to look at
    a VA record, we will make the request to the VA for their
    review or, if necessary, to retrieve the actual records for a
    service review.
        The military services will process the applications for
    those who retired from their service. The Services already have
    boards and processes to make disability determinations, so this
    will not be a new experience for them. These boards will use
    service and, if necessary, VA records to make their
    determination. Approved claims will be forwarded to the Defense
    Finance and Accounting Service for payment. Claims that cannot
    be verified will be returned to the applicant with an
    explanation of why it could not be verified, describing what
    steps could be taken to provide better information, and also
    what steps are available to appeal the decision.
        We are working with the VA and the Services to conduct a
    preliminary review of a trial group of 100 records. This review
    will assist us in determining how to review records
    efficiently, and how to find pertinent data when it is not
    readily obvious. We are working towards a May 31 effective date
    for this process. The statute specified that we implement
    within 180 days of enactment. We intend to meet that deadline.
    I anticipate that the first payments could begin as early as
    July of this year, and payments for those who are currently
    retired will be retroactive to June 1 without regard to when
    the application is processed.
        Before I close, Mr. Chairman, I would like to take a minute
    to address an issue that Senator Nelson discussed with me at a
    hearing last year. Sir, you may recall that you urged me to
    ensure that we had an effective way to apprise military
    personnel of the value of their benefits. We discussed
    occasional mailings, attachments to their pay vouchers, and
    other means.
        I want to report that in December of last year we initiated
    a website that any service member can access that lists the
    many benefits available to a service member. The site also
    includes calculators that permit the service member to input
    his or her specific data and determine the actual value of
    their retirement or certain other benefits. I heard your
    admonition, and we have taken action to provide our service
    members a user-friendly means to review their benefit package
    whenever they want.
        Thank you, Mr. Chairman. I am prepared to respond to your
    questions.
        [The prepared statement of Secretary Abell follows:]

                  Prepared Statement by Hon. Charles S. Abell

                                  INTRODUCTION

        Mr. Chairman and members of this distinguished subcommittee, thank
    you for the opportunity to be here today and thank you for your
    continuing support of the men and women who serve in our Armed Forces.
    Last year the Department developed a comprehensive Human Resource
    Strategic Plan. With direction from the Quadrennial Defense Review and
    Defense Planning Guidance, we collaborated with the Secretaries of the
    Military Departments and the component heads to develop a strategic
    human resource plan that encompasses military, civilian, and contractor
    personnel. The plan identified the tools necessary to shape and size
    the force, to provide adequate numbers of high-quality, skilled and
    professionally developed people, and to facilitate a seamless flow of
    personnel between the Active and Reserve Forces.
        The Department continues to refine the Human Resources Strategy
    designed to provide the military force necessary to support our
    national defense strategy. We face an increasingly challenging task to
    recruit, train, and retain people with the broad skills and good
    judgment needed to address the dynamic challenges of the 21st century,
    and we must do this in a competitive human capital environment.
    Consequently, we seek a mix of policies, programs, and legislation to
    ensure that the right numbers of military personnel have the requisite
    skills and abilities to execute assigned missions effectively and
    efficiently.

                                  COMPENSATION

        Attracting and retaining high caliber individuals for a trained and
    ready All-Volunteer Force require a robust, competitive and flexible
    compensation system. In addition to basic pay, compensation includes
    all pays and allowances, such as housing and subsistence allowances,
    and special and incentive pays. Over the past several years the
    administration and Congress have worked closely together to make
    significant strides in improving the pay and allowances of our men and
    women in uniform. We look forward to working together again this year
    to continue this effort that is so important to our troops and their
    families.
    Military Pay
        As noted by the 9th Quadrennial Review of Military Compensation,
    increased educational attainment on the part of the enlisted force made
    the existing military pay structure less competitive. We appreciate
    Congress' direction on the 2002 and 2003 pay raises to target
    additional raises for NCOs, as well as mid-level officers. Targeted pay
    raises are again needed but can be more narrowly focused to NCOs and
    some warrant officers. We are proposing raises of up to 6.25 percent
    for NCOs, with most other members getting 3.7 percent, or Employment
    Cost Index (ECI) + \1/2\ percent. The average raise would be 4.1
    percent. We recommend Congress adopt our proposed targeted pay raises
    for our mid-level and senior NCOs and warrant officers for fiscal year
    2004.

    Housing Allowance
        In addition to maintaining efforts to achieve competitive pay
    tables, the Department intends to continue significantly increasing
    military housing allowances, with the goal of eliminating average out-
    of-pocket costs by 2005. Only a few years ago, members' average out-of-
    pocket costs were more than 20 percent. Building on the current year's
    increases, the fiscal year 2004 budget requests further improvements in
    the allowance, reducing the average out-of-pocket costs from 7.5 to 3.5
    percent. Further, continued refinements in data collection processes
    have led to improved allowances in numerous local areas where the
    measured housing costs were understating the costs borne by our members
    in obtaining safe and adequate housing.

    Special and Incentive Pays
        While comparability of basic pay and adequate allowances are
    extremely important, special and incentive pays provide the critical
    flexibility for military compensation to be competitive in highly
    technical, scientific areas where we have shortages. Successful
    retention of enlisted members in vital skills such as special
    operations, aviation maintenance, information technology, electronics,
    intelligence, linguists, and air traffic control depend on judicious
    use of bonuses and special pays. Likewise, officer retention challenges
    exist in career fields whose technical and scientific skills are easily
    transferable to the private sector and demand high salaries. In the
    Fiscal Year 2001 National Defense Authorization Act, Congress enacted
    the Critical Skills Retention Bonus (CSRB) program, adding significant
    flexibility that allows the Services to more quickly react to emerging
    shortages and improve retention in targeted, critical skills. But
    appropriations for these bonuses were cut in fiscal year 2003, severely
    limiting the Services' ability to use this new authority. We hope
    Congress will support these important and cost-effective investments
    this year.

    Thrift Savings Plan
        In January 2002, the Department implemented a new authority
    provided by Congress to allow the uniformed forces to participate in
    the Thrift Savings Plan (TSP). This opportunity represents a major
    initiative to improve the quality of life for our service members and
    their families, as well as becoming an important tool in our retention
    efforts. In its first year of operation, TSP attracted nearly 303,000
    enrollees, 241,000 active duty and 62,000 Guard and Reserve members.
    The Department projected that 10 percent of active duty members would
    enroll in the first year; in fact, we had 17 percent sign up, exceeding
    our expectations.

    Reserve Compensation
        In 2003, we are examining compensation programs for Reserve
    component members. The current and anticipated military environments
    require employment of Reserve Forces in ways not imagined when current
    compensation programs were designed. Current thresholds for housing
    allowances, per diem, some special skill and duty pays, and a range of
    benefits may not fully support the manner in which Reserve component
    members may be employed in the future. Compensation programs must be
    sufficient to attract and retain capabilities to meet continuous, surge
    and infrequent requirements. As we examine options and formulate
    alternatives, we will adjust our regulations and include proposed
    statutory changes as part of the Department's legislative program.

                               RETIREMENT ISSUES

        Military retired pay is a key component of the military
    compensation system. Recent improvements enacted by Congress once again
    make military retirement a strong positive factor in the retention of
    career service members and their overall satisfaction with military
    service. But, one of the most difficult issues that the administration
    and Congress have dealt with over the past several years involves
    military retired pay and the issue of ``Concurrent Receipt.''

    Concurrent Receipt
        Concurrent receipt involves the long-standing prohibition against
    retired military personnel receiving both retired pay from the
    Department of Defense (DOD) and disability benefits from the Department
    of Veterans' Affairs (VA). Consistent with long-standing administration
    policy, DOD opposes members receiving both benefits concurrently
    because these two programs were intended for two entirely separate
    populations: retirees and non-retired veterans. Originally, the law
    provided that members, active or retired, could not receive VA
    disability compensation. In the 1940s the law was modified to ensure no
    retiree could get less than a similarly disabled veteran who had not
    retired. If VA compensation was more than military retired pay, the
    member could be paid the higher VA amount. If the military retired pay
    was greater, the retiree could receive all of the VA pay, which is tax
    free, and then any remaining military retired pay in excess of that
    amount. This change, which is reflected in the current law, allows
    retirees to obtain the best combination of tax free and taxable income.
    Unfortunately, some retirees interpret this long-standing provision as
    a denial of entitlements.
        Some military retirees strongly believe they deserve both benefits,
    claiming that one is for years of service and the other is for an
    injury or illness they received during that service. The Department's
    position has been that the purpose of disability compensation is to
    overcome the impact of lost income compared to the person who has no
    disability and should not be additive to retired pay. Providing both
    retired pay and disability compensation is contrary to the long-
    standing principle that no one should be able to receive concurrent
    retirement benefits and disability benefits based upon the same
    service. All Federal compensation systems aim for an equitable
    percentage of income replacement in the case of either work-related
    injury or retirement.
        Congress has considered numerous bills over the past few years to
    partially or completely repeal the prohibition against concurrent
    receipt. The 108th Congress so far has been presented with two bills
    that would allow full concurrent receipt for retirees with at least 20
    years of service: H.R. 303 sponsored by Congressman Bilirakis, and S.
    392 sponsored by Senator Reid. Both of these bills would remove the
    prohibition against concurrent receipt for all retirees with 20 plus
    years of service. However, any amount of disability retired pay that
    exceeds what the member would receive for longevity retirement remains
    subject to offset. In effect then, payments under H.R. 303 and S. 392
    would work in much the same way as the recently enacted Combat-Related
    Special Compensation program, but without the requirement that the
    disabilities be combat-related. No added benefits would apply to those
    retired for disability with less than 20 years of service. But, full
    repeal of the existing prohibition is very expensive--our previous
    estimate is $58 billion over 10 years. The administration is on record
    as strongly opposing the changes included in these bills. Last year,
    the President's senior advisors recommended that he veto such
    legislation if it were presented to him.
        Nonetheless, we all acknowledge a great debt of gratitude to all
    veterans, particularly those serving long and faithful careers. In
    response to the veterans' concerns over the last few years, Congress
    passed and the President signed legislation to provide special
    compensation to two groups of retirees. First, Special Compensation for
    Severely Disabled (SCSD) pays up to $300 a month to retirees with
    severe disabilities, those rated as 60 percent or more within 4 years
    of retirement. This is being paid to more than 30,000 of the most
    severely disabled retirees. More recently enacted and pending
    implementation in June, Combat-Related Special Compensation (CRSC) will
    allow many retirees to receive total compensation in an amount
    equivalent to both their military retired pay and their VA disability
    compensation. This program is described in detail below.

    Combat-Related Special Compensation (CRSC)
        The National Defense Authorization Act for Fiscal Year 2003
    provided a new Combat-Related Special Compensation for military
    retirees with combat-related disabilities. While this is not concurrent
    receipt of military retired pay and VA disability compensation, the new
    program will have the effect of providing the same total benefit for
    many qualifying retirees. To be eligible, retirees must have 20 years
    of service for retired pay computation and have disabilities resulting
    from combat injuries for which they have been awarded the Purple Heart
    or are rated at least 60 percent disabled resulting from armed
    conflict, hazardous duty, training exercises, or mishaps involving
    military equipment.
        We are working closely with the Department of Veterans' Affairs to
    identify potentially eligible members and establish and implement
    application procedures and requirements. We have so far identified
    16,500 retirees who have the requisite 20 years of service and have
    been awarded the Purple Heart. This list was drawn from a list of
    160,000 veterans who receive disability compensation from the VA and
    who identified themselves (and submitted supporting documentation) as
    Purple Heart recipients. We have thousands of retirees currently
    receiving Special Compensation for the Severely Disabled, many of whom
    will qualify for significantly higher payments of the Combat-Related
    Special Compensation. All of these retirees already meet the criteria
    of having 20 years of service and being rated at least 60 percent
    disabled. The remaining factor to be determined is whether their
    disability is combat-related.
        We intend to have applications and instructions available by late
    spring, as well as a website where members can complete and download
    their application, so eligible retirees can begin applying. The website
    and service retiree newsletters should provide the first information
    about when and where eligible retirees may submit claims for
    compensation. We will keep the service-related associations and other
    appropriate organizations informed as well.
        Of the hundreds of thousands of military retirees, many will
    believe that they qualify for the new payments. Consequently, we expect
    to receive a large number of applications. These will take some time to
    process and make a determination as to whether the retiree is eligible.
    The length of time will vary depending on the adequacy of the
    documentation the retiree is able to provide us or whether we have to
    seek additional documentation from the VA. While it will take us some
    time to process these thousands of claims, all retirees who qualify
    will be paid retroactive to the date they met all criteria for payment,
    but no further back then June 1, 2003, the beginning date of the
    program. We anticipate the first checks will go out in July. If it
    takes us additional time past the start date to approve a retiree's
    claim, their first check will include all payments back to June 1.
        We know there will be honest disagreements regarding this program
    and whether or not a particular retiree qualifies. Determining whether
    an illness or disability that may have been incurred decades ago is
    service connected will continue to be the role of the VA. DOD's role
    will be to make the determination of whether the cause of the
    disability is or is not combat related. We, like the VA, want to ensure
    disabled veterans receive all that they are due. If the retiree can
    show a proximate cause to armed conflict, hazardous duty, training
    exercises, or mishaps involving military equipment and they meet the
    other requirements, we will approve them for payments. We will also
    establish an appeals process so retirees who feel their claims were not
    correctly evaluated can have a venue for formal reconsideration and for
    providing more information.
        We estimate that in fiscal year 2004 we will have more than 33,000
    qualified retirees with total payments of about $327 million.

    Examples of Concurrent Receipt
        Because the subject of concurrent receipt can be confusing, I would
    like to show how the compensation of four different personnel of
    various pay grades and circumstances is currently computed, how it will
    change with the recently enacted Combat-Related Special Compensation,
    and what differences would occur under Congressman Bilarakis' or
    Senator Reid's proposals. (All examples are based on a member who
    qualifies for tax-exempt status of his special compensation (SCSD or
    CRSC) under the IRS code.)
        My first example is a mid-grade NCO (E-5) with 8 years of service
    who is totally disabled in combat and who is retired with 100 percent
    disability. He will receive retired pay equal to 75 percent of his
    basic pay, or $1,390 a month. He can apply for VA compensation as well.
    Assuming the VA awards 100 percent disability compensation, they will
    pay him $2,193 monthly tax-free, but his retired pay will be reduced to
    zero. Thus, his monthly income would be $2,193 tax-free.
        The second is an E-6 with 20 years of service, who is also totally
    disabled in combat and retired at 100 percent disability. He will also
    receive retired pay equal to 75 percent of his basic pay, or $1,855 a
    month. If he applies to VA for compensation and is awarded a 100
    percent disability, he too will receive $2,193 monthly on a tax-free
    basis. Like the E-5, his military retired pay will be reduced to zero
    because his retired pay is less than the VA's disability compensation.
    Since he has served 20 years, however, he is eligible for $300 per
    month in SCSD from DOD. Therefore, his total monthly income would be
    $2,493 tax-free.
        The third example is a senior NCO (E-7) with 20 years of service,
    who is also totally disabled and retires with 100 percent disability,
    but his condition is the result of injuries received in a car accident
    off duty. His retired pay will be 75 percent of his basic pay, or
    $2,123 monthly. This member may also apply for VA compensation and if
    rated at 100 percent would receive disability compensation of $2,193
    monthly on a tax-free basis, just like our two previous examples. This
    would reduce his retired pay to zero. However, like the E-6, this
    member can qualify for $300 per month in SCSD since he has served 20
    years. Thus, his total monthly income would also be $2,493 tax-free,
    the same as the E-6.
        My fourth example is an E-8 with 30 years of service who retires
    with no disability, but who is rated by the VA as 100 percent disabled
    shortly after retirement due to a heart problem first diagnosed in
    service. His military retired pay is equal to 75 percent of this basic
    pay or $2,822 monthly. His tax-free VA disability compensation of
    $2,193 will reduce his military retired pay to $629. However, because
    he has served more than 20 years, he will be eligible for the $300 per
    month in SCSD from DOD. His total monthly compensation, therefore, will
    be $3,122 of which $2,493 will be tax-free and $629 will be taxable
    income.
        The following tables will show you how the compensation of these
    four individuals will be affected under the recently enacted Combat-
    Related Special Compensation and under the two bills currently proposed
    by Congressman Bilirakis and Senator Reid.

                               E-5 WITH 8 YEARS OF SERVICE, 100 PERCENT COMBAT DISABILITY
    ----------------------------------------------------------------------------------------------------------------
                                   Pay                                Current System       CRSC       S 392 / HR 303
    ----------------------------------------------------------------------------------------------------------------
    VA Comp (Tax Free)..............................................          $2,193          $2,193          $2,193
    Retired Pay.....................................................           1,390           1,390           1,390
      Offset........................................................         (1,390)         (1,390)         (1,390)
    CRSC............................................................             N/A             N/A             N/A
      Offset........................................................
    Special Comp (SCSD).............................................             N/A             N/A             N/A
                                                                     -----------------------------------------------
      Total (Tax Free)..............................................          $2,193          $2,193          $2,193
    ----------------------------------------------------------------------------------------------------------------

        Here our E-5 with just 8 years of service receives no extra
    compensation under either Combat-Related Special Compensation or the
    two proposed bills since he did not serve 20 years of service. His
    total compensation remains $2,193 per month tax-free.

                               E-6 WITH 20 YEARS OF SERVICE, 100 PERCENT COMBAT DISABILITY
    ----------------------------------------------------------------------------------------------------------------
                                   Pay                                Current System       CRSC       S 392 / HR 303
    ----------------------------------------------------------------------------------------------------------------
    VA Comp (Tax Free)..............................................          $2,193          $2,193          $2,193
    Retired Pay.....................................................           1,855           1,855           1,855
      Offset........................................................         (1,855)         (1,855)           (618)
    CRSC............................................................             N/A           1,855             N/A
      Offset........................................................                           (618)
    Special Comp (SCSD).............................................             300               0             N/A
                                                                     -----------------------------------------------
      Total.........................................................          $2,493          $3,430          $3,430
    ----------------------------------------------------------------------------------------------------------------

        In the case of the E-6, since he completed 20 years of service, he
    would be eligible for the recently enacted Combat-Related Special
    Compensation. However, his CRSC benefit will be reduced, or offset,
    because he is receiving disability retired pay that exceeds what he
    would receive if he retired on the basis of length of service.

                             E-7 WITH 20 YEARS OF SERVICE, 100 PERCENT NON-COMBAT DISABILITY
    ----------------------------------------------------------------------------------------------------------------
                                   Pay                                Current System       CRSC       S 392 / HR 303
    ----------------------------------------------------------------------------------------------------------------
    VA Comp (Tax Free)..............................................          $2,193          $2,193          $2,193
    Retired Pay.....................................................           2,123           2,123           2,123
      Offset........................................................         (2,123)         (2,123)           (708)
    CRSC............................................................             N/A             N/A             N/A
      Offset........................................................
    Special Comp (SCSD).............................................             300             300             N/A
                                                                     -----------------------------------------------
      Total.........................................................          $2,493          $2,493          $3,608
    ----------------------------------------------------------------------------------------------------------------

        In the case of the E-7 whose disability is not combat related, he
    receives no additional compensation from the recently enacted Combat-
    Related Special Compensation. However, under the proposed bills in the
    House and Senate, he would receive all of his military retired pay,
    subject to the offset imposed for having his retired pay based on his
    disability rather than length of service.

                             E-8 WITH 30 YEARS OF SERVICE, 100 PERCENT NON-COMBAT DISABILITY
    ----------------------------------------------------------------------------------------------------------------
                                   Pay                                Current System       CRSC       S 392 / HR 303
    ----------------------------------------------------------------------------------------------------------------
    VA Comp (Tax Free)..............................................          $2,193          $2,193          $2,193
    Retired Pay.....................................................           2,822           2,822           2,822
      Offset........................................................         (2,193)         (2,193)               0
    CRSC............................................................             N/A             N/A             N/A
      Offset........................................................
    Special Comp (SCSD).............................................             300             300             N/A
                                                                     -----------------------------------------------
      Total.........................................................          $3,122          $3,122          $5,015
    ----------------------------------------------------------------------------------------------------------------

        In the case of our E-8 member, he receives no additional
    compensation under CRSC since his disability is not combat-related.
    However, under the Bilirakis/Reid proposals, he would receive all of
    his military retirement, with no offset, since he had completed 30
    years of service.
    Survivor Benefit Plan (SBP)
        SBP was intended from inception in 1972 to complement Social
    Security benefits and Dependency and Indemnity Compensation (DIC) from
    the Department of Veterans' Affairs (VA). Together, these programs
    ensure survivors' income is at least 55 percent of the member's retired
    pay. SBP has a two-tier payment structure and pays the full 55 percent
    when the spouse is under the age of 62, when a survivor becomes
    eligible for Social Security payments. At age 62 and later, SBP pays 35
    percent and Social Security benefits pay 20 percent or more. Retirees
    pay premiums for the SBP coverage, currently 6.5 percent of retired pay
    using pre-taxed dollars.
        VA pays DIC if the death is service-connected and requires no
    premiums or program participation. Therefore, if a survivor is also
    eligible for SBP, DIC benefits are subtracted from SBP, and the
    survivor gets a full refund of any SBP premiums paid for the offset
    amount of the SBP annuity. In other words, if DIC pays half of what the
    SBP payment would be, then half of all premiums paid for the SBP would
    be refunded. Also, since VA payments are tax free, only the half paid
    by SBP would be taxable. So, this survivor would be receiving a minimum
    of 55 percent of the member's retired pay, half of which is tax free.
        The original SBP had a dollar-for-dollar offset of Social Security
    payments. This offset is still available to those who retired (or were
    eligible to retire) as of October 1, 1985. The offset method is used if
    it pays the survivor more than the 35 percent benefit under the two-
    tier system. For example, it is possible that the Social Security
    payment derived from only the member's military earnings was about 10
    percent of current retired pay. Then using the offset would set the
    post-62 SBP payment at 45 percent instead of the two-tiered 35 percent.
    The survivor may in fact receive Social Security in his or her own
    right at 20 percent. So this survivor would actually receive a total of
    65 percent. Again, SBP has been designed from the beginning to work
    together with Social Security and DIC to ensure the survivor gets at
    least a total of 55 percent of the member's retired pay.
        It is important for military members to understand how the system
    works, and there are several sources of information available to help
    them understand this benefit, including mandatory retirement briefings,
    DOD and service websites, service retiree newsletters, military
    association magazines, and press articles. Also, every retiree receives
    an account statement at least once each year that lists his SBP
    coverage, the cost, base amount, 55 percent annuity amount, and 35
    percent annuity amount. Nonetheless, many retirees don't understand the
    program until later in life when they become more aware of and focus on
    their survivor's needs.
    SBP Subsidy
        SBP is a subsidized program; while participants pay premiums, a
    portion of the program benefits are paid directly by the Government.
    There is a concern whether the subsidy today is less than it should be,
    and even a question as to what it should be. Evidence suggests that the
    intended subsidy was about 40 percent, but exactly who was to be
    included or how it was to be computed were never specified.
        The idea of a 40 percent subsidy first surfaced when SBP was being
    developed in the early 1970s. We do know SBP was intended to have a
    subsidy similar to that of the Civil Service survivor program, thought
    to be about 40 percent at that time. Much has changed in the program in
    the last 30 years, and it is not clear whether this objective is still
    appropriate.
        One problem is that various groups have different expected
    subsidies as provided by the DOD Actuary and shown below:

                                  (Percentage)
    Overall....................................................       31.5
    Non-disabled...............................................       16.4
    Disabled...................................................       54.3
    Reserve SBP................................................       58.3
    RC-SBP \1\.................................................        0.0
    Active duty................................................     100.0

    \1\ RC-SBP program (pre-age 60) is by law not subsidized.

        We are currently reviewing options that could improve the subsidy
    and make it more equitable among these groups.

                                   CONCLUSION

        Mr. Chairman, this concludes my statement. I thank you and the
    members of this subcommittee for your outstanding and continuing
    support for the men and women of the Department of Defense.
        I would like to take this opportunity to note that the joint
    efforts of Congress and the Department are beginning to pay off.
    Service members who completed the web-based 2002 Status of Forces
    Survey opinion survey expressed greater satisfaction with almost all
    aspects of service life than they had 3 years earlier. For instance,
    results show a significant gain in satisfaction over compensation. This
    is directly attributable to the annual pay raises that exceeded wage
    growth in the private sector and housing allowance hikes set higher
    than the yearly rise in local rents. Congress was instrumental in
    making this happen.
        Even better news is that more than 80 percent feel they are ready
    to perform wartime duties. This is certainly a positive endorsement for
    the programs that you have helped us enact. I am hopeful that I can
    count on your support in the future. I look forward to working with you
    closely during the coming year.

        Senator Chambliss. Thank you, Mr. Secretary.
        Secretary Cooper.

        STATEMENT OF HON. DANIEL L. COOPER, UNDER SECRETARY FOR
               BENEFITS, DEPARTMENT OF VETERANS' AFFAIRS

        Secretary Cooper. Mr. Chairman, members of the
    subcommittee, thank you for the opportunity to testify today
    about the VA's role in assisting the Department of Defense
    implement the new combat-related special compensation benefit.
    I would appreciate it if my written statement could be entered
    into the record, sir.
        Senator Chambliss. Certainly.
        Secretary Cooper. VA has extensive experience in
    administrating benefit programs, and obviously we can help DOD
    identify the military retirees who are eligible for this
    benefit now and in the future. A primary criterion for
    eligibility is the veteran's disability rating, which is
    adjudicated by VA, and I would like to briefly explain VA's
    compensation program and how we assign disability ratings.
        The purpose of the VA's compensation program is to provide
    monthly payments and other related benefits to a veteran for
    any injury or disease incurred in or aggravated in the line of
    duty. This includes injuries or diseases that occurred any time
    while a veteran was on active duty. It also includes diseases
    that arise after discharge, which the VA presumes to be the
    result of a particular circumstance of duty. For instance,
    there are 22 presumptives as a result of Agent Orange in
    Vietnam.
        It includes compensation for mental conditions such as
    post-traumatic stress disorder that is linked to a stressful
    incident in the Service. It also includes compensation for
    secondary service disabilities such as, if you had a bad leg
    and later on as a result of that your back became bad, you
    would receive a disability for that also.
        Today, there are approximately 2,433,000 veterans receiving
    compensation benefits. The amount of compensation varies
    depending upon the disability, the severity of that service-
    connected disability. As of December 1, 2002, a single veteran
    receives $104 monthly for a 10 percent disability. A single
    veteran rated at 100 percent will receive $2,193 a month.
        The laws and regulations governing the VA's compensation
    program are complex, but the basic claims process is relatively
    simple. Most claimants file an application with the local VA
    regional office, frequently helped by a veterans' service
    organization. The VA then obtains the veteran's service medical
    records and, if necessary, the veteran's military personnel
    records. The VA then obtains any medical records and other
    evidence to substantiate that claim from the VA medical
    facilities, private physicians, and other Federal agencies.
        In most cases, the VA provides the claimant with a medical
    examination and obtains a medical opinion about the disability.
    This examination is useful to determine how disabling the
    veteran's conditions are. We then use a rating schedule to
    determine the disability evaluation assigned to that particular
    condition.
        The rating schedule is divided into sections for 15 body
    systems, such as respiratory system, muscular system,
    cardiovascular. Each disability is described in terms of its
    symptoms. The more severe the symptoms, the higher the
    disability rating assigned to it. The rating schedule itself
    then has 10 grades of disability, beginning with 10 percent, up
    to 100 percent.
        The percentages represent the average impairment of earning
    capacity resulting from similar injuries in civil occupations.
    VA has revised the rating schedule many times over the years to
    try to keep up with new medical principles. We are almost done
    with the comprehensive revision of the entire rating schedule,
    which, in fact, was begun in 1991. We hope to make the criteria
    more clear and objective and consistent with the medical
    advances we have seen.
        When a veteran has more than one compensable service-
    connected condition, the VA uses a combined rating table to
    determine the combined service-connected evaluation. This
    combined rating could include both combat-related and
    noncombat-related disabilities, particularly in the case of
    veterans with long military careers.
        To discuss briefly the effects of the CRSC benefit program,
    first, veterans can file for an increase in a disability rating
    when their condition worsens or the law changes. We expect to
    receive additional claims for increased evaluations from the
    military retirees now who are currently receiving compensation
    for conditions less than 60 percent. It is hard to estimate how
    many additional claims we will receive. We also expect to
    receive a number of additional Purple Heart claims for people
    who had not filed a claim, but did, in fact, get a Purple
    Heart. That could be as many as 50,000, as we figure right now.
        VA anticipates a full support role. We can provide DOD with
    the documents from a veteran's claims file, including his
    service medical records that show whether that veteran
    sustained an injury in armed conflict. We can provide military
    personnel records, including the DD Form 214, which will show
    if that veteran has received a Purple Heart, and we will show
    rating decisions that we have made that will show the
    evaluation that we had assigned to a specific condition and the
    effective date of that evaluation.
        We and the DOD have been cooperating fully in developing
    the plans for the most efficient way to get DOD the information
    that they would need to carry this out. We are testing imaging
    possibilities now, as well as other means to exchange this very
    important information. We understand this is a DOD program.
    Nonetheless, our concern is the veteran, and we will do
    everything necessary to ensure a successful deployment. Thank
    you, Mr. Chairman.
        [The prepared statement of Secretary Cooper follows:]

                  Prepared Statement by Hon. Daniel L. Cooper

        Mr. Chairman and members of the Senate Armed Services Committee,
    thank you for the opportunity to testify today concerning Section 636
    of the National Defense Authorization Act for 2003. As reflected in the
    language of this new law, enacted as 10 U.S.C. Sec. 1413a, VA's
    disability evaluation process is a major component in determining
    entitlement to Combat Related Special Compensation (CRSC) for certain
    defined combat-related disabled uniformed service retirees, and serves
    as a guide for DOD's own adjudication process.
        VA has extensive experience in administering benefit programs and
    stands ready to advise DOD as it implements the CRSC program. VA can
    assist in identifying the approximately 75,000 to 80,000 military
    retirees whom DOD estimates may be eligible for CRSC. We can also
    execute an ongoing support role as DOD processes applications for this
    benefit to eligible future retirees.
        A primary criterion for eligibility for this benefit is a
    disability rating by VA. My purpose today is to provide an overview of
    VA's service-connected compensation program, including its process for
    assigning disability ratings. I will discuss the important distinctions
    between VA's Compensation Program and the CRSC benefit enacted by the
    National Defense Authorization Act of 2003. We believe that VA can
    assist DOD's effort to ensure that all eligible military retirees
    receive the benefits to which they are entitled.

                      PURPOSE OF VA'S COMPENSATION PROGRAM

        The purpose of VA's Compensation Program is to provide monthly
    payments, or ``service-connected compensation,'' as well as ancillary
    benefits to a veteran, as specified by law, in recognition of the
    potential loss of earning capacity caused by disabilities incurred in
    or aggravated by active military service. The Compensation Program also
    provides monthly payments, as specified by law, to a surviving spouse,
    dependent children, and/or dependent parents in recognition of the
    economic loss caused by a veteran's death during active military
    service, or subsequent to discharge from military service if the death
    is a result of a service-connected disability.
        Today there are approximately 2,433,000 veterans receiving
    compensation benefits. The amount of the compensation varies depending
    on the combined degree of disability resulting from all service-
    connected disabilities. As of December 1, 2002, a veteran receives $104
    monthly for a service-connected condition evaluated as 10 percent
    disabling. This amount increases in increments for progressively higher
    disability evaluations, with a single veteran without dependents
    receiving over $2,000 monthly for a service-connected condition or
    conditions evaluated as 100 percent disabling.
        There is no minimum time period that a veteran must serve on active
    duty to qualify for service-connected compensation. However, any injury
    or disease must have been incurred in or aggravated in line of duty. VA
    law interprets line of duty very expansively. VA compensation is
    available not only for those injuries or diseases that were incurred in
    combat, but it is also available for any injuries or diseases that
    simply occurred during the time period in which the veteran was on
    active duty, including periods of leave. VA compensation is available
    for diseases that manifest long after discharge from military duty, but
    which VA considers, by presumption of law, to be a result of particular
    circumstances of service. One example is type II diabetes mellitus for
    which VA has established a presumption, based on National Academy of
    Science research, that this condition is associated with exposure to
    herbicides in Vietnam. Veterans who served in country in the Vietnam
    War who develop diabetes now are eligible for service-connected
    compensation based on this presumption of law. Compensation is also
    available for mental conditions, including post-traumatic stress
    disorder, that are linked to a stressful incident in service.
        Injuries or diseases incurred in line of duty do not, however,
    include any disabilities resulting from a veteran's own willful
    misconduct.
        Entitlement to CRSC, on the other hand, requires a qualifying
    combat-related disability. This includes a disability attributable to
    an injury for which the service member was awarded the Purple Heart
    commendation and which is rated as not less than 10 percent disabling.
    It also includes a disability incurred as a direct result of armed
    conflict, while engaged in hazardous service, in the performance of
    duty under conditions simulating war, or through an instrumentality of
    war. The Secretary of Defense is directed by statute to prescribe
    criteria for making such determinations. For any of these types of
    injuries, the service member must have a disability that is rated as
    not less than 60 percent disabling.

      OVERVIEW OF THE VA COMPENSATION CLAIM PROCESS AND THE SCHEDULE FOR
                              RATING DISABILITIES

        While the laws and regulations governing VA's Compensation Program
    are complex, the basic claims process is simple. Most claimants
    initiate compensation claims by filing an application with a local VA
    regional office, frequently with the assistance of a representative
    from a veterans' service organization. VA obtains the veteran's service
    medical records and, if relevant, the veteran's military personnel
    records. Based on information provided by the claimant, VA obtains
    information and evidence to substantiate the claim, most often in the
    form of medical records from VA medical facilities or private
    physicians or records from other Federal agencies. If necessary to
    decide entitlement to compensation, VA provides the claimant with a
    medical examination or obtains a medical opinion. This examination is
    useful to determine the disabling nature of the service-connected
    condition.
        Pursuant to statute, 38 U.S.C. Sec. 1155, VA uses a rating schedule
    to determine the disability evaluation to assign to a particular
    condition. The rating schedule determines ``reductions in earning
    capacity'' caused by a particular disease or injury, categorized into
    15 separate body systems, and assigns a disability percentage. The
    rating schedule, contained in 38 C.F.R. Part 4, provides for 10 grades
    of disability, beginning with 10 percent and ending with 100 percent,
    representing, as far as is practicable, the average impairment of
    earning capacity resulting from diseases and injuries and their
    residual conditions in civil occupations. ``[T]he degrees of disability
    specified are considered adequate to compensate for considerable loss
    of working time from exacerbations or illnesses proportionate to the
    severity of the several grades of disability.'' 38 C.F.R. Sec. 4.1.
        Under each body system are listed specific diseases and medical
    conditions, each assigned a diagnostic code. Each disease or medical
    condition is described in terms of its symptoms that signify degrees of
    disability. The greater and more severe the symptoms, the higher the
    disability rating. The maximum disability evaluation that can be
    assigned for a particular medical condition varies depending on the
    disabling effects of its symptoms. For instance, diabetes that is
    managed by a restricted diet warrants a 10 percent evaluation, whereas
    diabetes requiring a restricted diet, regulation of activities, and
    insulin injection merits a 60-percent evaluation.
        There are other regulations that provide for increases or decreases
    in the total evaluation assigned under the rating schedule criteria
    when there are multiple service-connected conditions. For instance, VA
    regulations limit the combined rating percentage that can be assigned
    for multiple disabilities of one arm or one leg. Other regulations
    increase the rating assigned when there is partial disability of both
    arms or both legs, because the combined effect of these impairments
    exceeds the average earning impairment reflected by the single
    disability evaluations for each condition in the rating schedule.
        There are also regulatory provisions that provide for compensation
    for secondary service-connected conditions, that is, those disabling
    conditions that are caused by a service-connected condition, but were
    not themselves incurred in or aggravated by service.
        When a veteran has more than one compensable service-connected
    condition, VA does not simply add up the disability rating percentages
    to arrive at a total evaluation percentage. Rather, it uses a combined
    ratings table to determine the combined service-connected evaluation.
    This combined rating often includes both combat-related and non-combat-
    related disabilities incurred in or aggravated by service, particularly
    in the cases of veterans with long military careers who served both in
    wartime and peacetime eras.
        Pursuant to its statutory authority in 38 U.S.C. Sec. 1155, VA has
    revised the rating schedule many times over the years to incorporate
    the increasingly sophisticated diagnostic tools of modern medicine and
    the knowledge that they provide. Most importantly, we are nearing
    completion of an ambitious and comprehensive revision of the entire
    rating schedule, begun in 1991, to incorporate more objective criteria
    for determining the degrees of disability for a particular medical
    condition, remove ambiguous language, clarify medical terminology, and
    add new disabilities under the respective body systems. VA has made
    steady progress in publishing final revised regulations pertaining to
    12 of the 15 body systems in the rating schedule. Public comments to
    the proposed changes to the rating schedule for the Musculoskeletal
    System, one of the most comprehensive sets of rating schedule changes
    we have proposed to date, are under review at the present time.

        EFFECT OF THE CRSC BENEFIT PROGRAM ON VA DISABILITY CLAIM FILING

        There is no limitation period for a veteran to file a claim for VA
    compensation. It is possible for a claimant to establish entitlement to
    compensation benefits regardless of how long after discharge from
    Service the claim is filed. The date a claim is filed does affect the
    period of entitlement.
        Just as there is no limitation period for the filing of an initial
    claim for VA disability compensation, there is no limitation on the
    number of times a veteran may claim entitlement to an increased
    evaluation for a service-connected condition. An increased evaluation
    may be warranted by a change in law, such as a revision to the rating
    schedule regulations, new medical knowledge, or a worsening of the
    service-connected condition.
        VA believes that it is likely that there will be an increase in
    claims for increased evaluations from military retirees who are
    currently receiving VA compensation for combat-related conditions whose
    evaluations combine to less than a 60-percent evaluation. However, we
    are unable to provide an estimate of the number of such claims. While
    VA records will show the number of retirees who served during various
    periods of war as well as whether they have a combined evaluation of at
    least 60 percent for all service-connected conditions, this data is not
    a good indicator of the number of claims we can expect from retirees
    who may seek an increase in their evaluation in order to qualify for
    CRSC. The fact is, the combined service-connected evaluation includes
    both combat-related and non-combat-related conditions. In addition, the
    detailed information DOD will require to determine such eligibility,
    such as whether a particular service-connected condition was sustained
    while a veteran was engaged in hazardous service or sustained through
    an instrumentality of war, is information not historically collected by
    VA. This information, however, may be documented in a veteran's VA
    claims file.
        In addition, we expect to receive new claims from military retirees
    who are not currently service connected for any medical conditions but
    who will file claims now that they may be eligible to receive
    additional compensation, instead of merely a percentage of military
    retirement pay tax free.

                       VA ANTICIPATES A FULL SUPPORT ROLE

        The VA claims folder of a military retiree receiving VA
    compensation will contain various types of records that would be of use
    to DOD in deciding whether a retiree is entitled to CRSC benefits. For
    instance, service medical records may show whether a veteran sustained
    an injury in armed conflict. Military personnel records, including the
    DD-214, usually show whether a veteran received the Purple Heart
    commendation. Rating decisions of record would indicate the evaluation
    VA assigned to a specific condition and the effective date of that
    evaluation. VA can make these types of records, or the information
    contained in them, available to DOD for the CRSC claims process.
        Shortly after the enactment of the National Defense Authorization
    Act for 2003, VA began discussions with DOD in anticipation of DOD's
    effort to implement the CRSC benefit program. VA has shared the
    following with DOD representatives:

             Information concerning the details of the claims
            process under VA's Compensation Program
             Feedback to DOD on its CRSC policy formulation
             Discussions on possible alternative procedures for
            information sharing
             Initial analysis of how different procedural scenarios
            could be adapted to VA's own work processes

        Ongoing discussions continue between VA and DOD in order that we
    can develop a process for information sharing that will result in the
    most efficient transfer of the VA claims data needed by DOD to effect
    the purpose of the CRSC benefit as envisioned by Congress. We
    understand clearly that this is a DOD program. Nonetheless, we want to
    assist in ensuring its successful deployment.

        Senator Chambliss. Thank you, Secretary Cooper. Let me make
    sure I understand something you just said. Did you just say
    that you think you will receive an additional 50,000
    applications from Purple Heart recipients who have not to this
    date filed an application for benefits?
        Secretary Cooper. Yes, sir. We expect 40,000 to 50,000
    applicants who have not filed yet.
        Senator Chambliss. Now, are you saying they have not filed
    yet because they do not think they are entitled to the benefits
    because of concurrent receipt?
        Secretary Cooper. No. I think they have not filed because
    it really was not worthwhile to file for 10 percent. These
    people are retired, so they had the same issue we have
    discussed before; namely, do they want to get just their
    retirement pay or have their retirement pay reduced so that
    they can get VA compensation. Under the new law, it would be
    worthwhile for them to file, so I can expect an increase of
    about 40,000 to 50,000, predicated on the number that we know
    who have been awarded the Purple Heart but have not filed.
        Senator Chambliss. So from the standpoint of trying to
    determine what the cost of this program might be, there is
    really no way to estimate what that number is, or what the
    amount of the benefits might be.
        Secretary Cooper. That is correct. Estimating is very
    difficult, because we have both the Purple Heart recipients and
    also some people who will want to be re-examined to possibly
    increase their disability rating 40 or 50 percent to 60
    percent. We have no idea of what that number might be.
        Senator Chambliss. Thank you.
        Secretary Abell, the subcommittee recognizes that
    implementation is a significant undertaking, but it sounds like
    you are well on your way to making sure that this is done in
    short order. I commend you for that. In working through the
    administration of the new program, have you encountered any
    legislative challenges that this subcommittee should address to
    either streamline the administration of the benefit or remove
    any inconsistencies in its application?
        Secretary Abell. Senator, we have looked at this at each
    one of the reviews in which I have participated on this, and at
    this point I do not see any. We have yet to receive our first
    application, so we may find some, but at this point we think we
    understand the legislation pretty clearly, and we think our
    implementation plan will implement it as you intended.
        Senator Chambliss. I realize you have not been in this
    position that long, but are you aware of whether or not the
    Department has considered any other approaches to providing
    long-term benefits for disabled military retirees?
        Secretary Abell. Senator, we have still on the book, as you
    may recall, a severely disabled special compensation which was
    sort of the first attempt of Congress to deal with overcoming
    the offset, which is still in place. We are paying that, as
    well as the combat-related special compensation that I have
    just discussed earlier. Those are the only two programs in
    which we are participating and those were both initiated in the
    legislative branch, sir.
        Senator Chambliss. Do you feel there is adequate and
    appropriate interaction between DOD and the Department of
    Veterans' Affairs in the area of coordination of health care
    benefits and compensation programs?
        Secretary Abell. I am happy to report that Secretary Cooper
    and his team have bent over backwards to help us. As a matter
    of fact, they have shown us where we, at times, when we first
    went to meet with them, were not asking the right questions,
    and they were able to help us by pointing us in directions that
    we had yet to think of.
        Senator Chambliss. Secretary Cooper, let me ask you that
    same question. Is the communication and dialogue between DOD
    and the Department of Veterans' Affairs what it should be on
    this issue?
        Secretary Cooper. Absolutely. We work very closely, our
    people, at every one of their meetings, so I have no complaints
    at all.
        Senator Chambliss. Secretary Abell, in the 2003 Defense
    Authorization Act, the Department was given the authority to
    establish criteria and procedures for implementing special
    compensation for the combat-related disabilities. Do you agree
    there should be one set of criteria and interpretive guidance
    for all the Services regarding eligibility for this
    compensation, and what is the Department doing to ensure that
    one set of criteria is all that will be used?
        Secretary Abell. We are developing a single set of criteria
    that all Services will use, and the Department's role is to
    monitor what each of the Services do. We plan an annual review
    at this point of the cases that they have adjudicated to make
    sure that we have consistency and common understanding.
        In addition, the appeal process to which I referred will be
    to the Office of the Secretary of Defense, although that part
    is not exactly worked out at this point, again to make sure
    that we have a uniform and consistent approach to this.
        Senator Chambliss. Senator Nelson.
        Senator Ben Nelson. Thank you, Mr. Chairman.
        Secretary Abell, first I want to thank you and congratulate
    you for responding to my suggestion from just a year ago. It is
    good to see that technology can be used to help people
    understand what they have and how they can access it, and I
    appreciate that.
        In your prepared statement, do I understand you to state
    that DOD opposes members receiving both benefits concurrently,
    ``because these two programs were intended for two entirely
    separate populations, retirees and nonretired veterans.'' The
    implication is that retirees are not authorized beneficiaries
    of the VA disability compensation system, and I do not think
    that is accurate. VA routinely provides VA disability
    compensation to military retirees. What is the basis, if I
    understand it correctly, to conclude that the programs are
    intended for two entirely separate populations when both
    populations by law and by practice are authorized to receive VA
    disability compensation?
        Secretary Abell. They are both authorized to receive it. If
    you are a retiree, of course, it is offset, as you accurately
    pointed out in your statement, by a law that was passed in
    1891. The position of the Department and, I believe, the
    administration is that this would be two pays for one Service,
    and that is the basis for my statement there. If I was not
    clear in my articulation, that was my intent.
        Senator Ben Nelson. You agree with that?
        Secretary Abell. Yes, sir.
        Senator Ben Nelson. That that is the way it ought to be?
        Secretary Abell. Yes, sir.
        Senator Ben Nelson. Secretary Cooper, Secretary Abell has
    suggested that military retired pay is for military retirees
    and VA disability compensation is for nonretired veterans, as
    we have just discussed. Does the VA agree with this statement,
    that the military retirement system and the VA disability
    compensation system are intended for two entirely separate
    populations?
        Secretary Cooper. That is for me a very difficult question.
    I am trying to deal with all the veterans.
        Senator Ben Nelson. It is hard to distinguish between
    categories of veterans?
        Secretary Cooper. For me it is, yes, sir. Yes, sir. Anybody
    who is a veteran then is eligible for any compensation, any
    program that we have, whether it is education, insurance, or
    disability compensation.
        Senator Ben Nelson. Well, then, I suspect a veteran, as
    specified by law, would include military retirees as well, if
    they have been veterans in the process.
        Secretary Cooper. Our definition of a veteran is a person
    who has been in the military.
        Senator Ben Nelson. I will not belabor the point, Secretary
    Abell. There is no sense in making it more difficult, but it is
    hard to understand an example of two people who are veterans in
    the Navy. They are both injured, both sailors, both injured
    incident to service, no question about that.
        One decides to leave the Navy but somehow is employed as a
    civilian employee by the Department of the Navy, and ultimately
    retires from that position. The other remains in the Navy and
    retires after 20 years plus of honorable service. Both have
    similar disabilities, but they may have different compensation.
    Am I misreading that, or is that the way the law is currently
    interpreted and applied?
        Secretary Abell. That is the way it is interpreted and
    applied, sir.
        Senator Ben Nelson. I do not think I have any further
    questions. Thank you, and thanks for taking care of that
    notification. That is a prompt response and I appreciate that.
    Thank you.
        Secretary Abell. Yes, sir.
        Senator Chambliss. He learned to be that prompt by serving
    on this committee. [Laughter.]
        That is where he got all that good training.
        Senator Collins.
        Senator Collins. Thank you, Mr. Chairman.
        Secretary Abell, without meaning to put you further on the
    spot, I am going to follow up on what Senator Nelson just asked
    you about, because I was going to give exactly the same
    scenario, only I was going to use two soldiers who had entered
    the Service at the same time.
        Senator Ben Nelson. It can be bipartisan.
        Senator Collins. That is right, but it is troubling that if
    you had two soldiers enter the Service at the same time, went
    through the same training, same deployment, were injured in the
    same way, and one soldier stays in the military for a career
    and the other leaves and goes into the private sector, that
    they are treated differently when it comes to retirement.
        That troubles me as a matter of fairness, but I would like
    to ask you a question about it from a different perspective. Is
    the current ban on full concurrent receipt a disincentive for
    members of our Armed Forces to remain in the military if they
    are injured early in their careers but not injured to the point
    where they would have to have a medical discharge?
        Secretary Abell. Ma'am, we have looked at this a number of
    different ways, and I can find no evidence that future
    compensation for an injury would influence the stay-or-go
    decision of a soldier or sailor or airman or marine.
        In fact, I do not know whether you saw it this morning.
    Three marines and two soldiers who had been injured in Iraq
    were interviewed by the press at Landstuhl Army Hospital. One
    of the questions they asked them was, are you going to stay in
    or get out? One Army sergeant who had served 12 years said that
    he was going to get out, but he quickly said, ``my wife and I
    made that decision before I was ever deployed, so I am going to
    get out.'' Both of the other two hoped that they would be
    allowed to stay in, that they wanted to serve even though they
    had injuries, both of which were potentially disabling. One had
    a severe hand injury and the other a severe foot injury, but
    they said they recognized that they may not be able to perform
    the same duties, but they both wanted to serve.
        All three are examples of great young Americans, but the
    point is that these are three anecdotes that reflect what I
    think we have found in our reviews. Most of these folks want to
    stay as long as they can, and their injury notwithstanding,
    they stay. They are not looking for future compensation at the
    time they make those decisions.
        Senator Collins. As Secretary Cooper knows, concurrent
    receipt is a top priority of our veterans' service
    organizations. In fact, every year, when our VFW and our
    American Legion and our disabled vets organizations come to
    Washington, that is always on the top of their list.
        Have you opened a dialogue with the advocacy groups for
    veterans to see if there is another approach to this issue, or
    a different way to work it that would satisfy their concerns
    for fairness, and yet address your understandable concerns
    about the impact on the budget?
        Secretary Abell. I think it is fair to say that over the
    years we have tried to engage in that dialogue and find some
    sort of middle ground on which we could both agree, and the
    situation is that we have agreed to disagree.
        Senator Collins. Secretary Cooper, any better luck on the
    VA side?
        Secretary Cooper. No.
        Senator Collins. Okay. Well, I thought I would ask.
        Secretary Cooper, do you believe that the eligible veterans
    are aware of the new compensation that we authorized last year?
        Secretary Cooper. I believe that the veterans' service
    organizations have done an awful lot in trying to make them
    aware. It is occasionally difficult to figure out across the
    total population all the benefits of which they might be aware.
    I would be very wary of judging that, but I will say I think
    the veterans' service organizations have done a tremendous job
    in trying to get that information out.
        Senator Collins. Is the VA embarking upon any sort of
    campaign to try to reach veterans who might be eligible?
        Secretary Cooper. We will be doing that as soon as we and
    DOD decide on exactly what the process is. We have informed our
    regional offices so they are aware and ready for when something
    happens, but right now we have made them aware of exactly what
    the rules are right now, but people are waiting to see what the
    application process is. I have not noted specifically any
    increase in claims coming to us because of the possibility of
    the CRSC.
        Senator Collins. Thank you, Mr. Chairman, and let me take
    this opportunity to thank you for your leadership in this area,
    for holding this hearing, and since I am going to leave to
    catch a plane to Maine, I would ask unanimous consent that a
    statement that I had be put in the record.
        Senator Chambliss. Absolutely.
        Senator Collins. Thank you.
        [The prepared statement of Senator Collins follows:]

                 Prepared Statement by Senator Susan M. Collins

        Thank you Mr. Chairman. I want to express my appreciation both to
    you, and the Chairman of the full committee, Senator Warner, for
    holding this hearing. I am proud to be a cosponsor of the legislation
    that Senator Reid has recently introduced that would allow disabled
    retirees to receive both their full retirement pay and their full
    disability compensation. It is a case of fundamental fairness that
    those who have honorably served our Nation should receive all the
    compensation that they have earned. Retirement pay and disability
    compensation are two separate items, and are provided based on separate
    criteria. Military retired pay is given based on length of service,
    while disability compensation is based on injuries incurred while on
    active duty. It is fundamentally unfair to offset these very different
    forms of compensation.
        Last year, this committee did take a step forward in correcting
    this inequity. The Fiscal Year 2003 National Defense Authorization bill
    included provisions that will, in effect, provide at least partial
    concurrent receipt for some veterans. Those retirees who have received
    a Purple Heart and have at least a 10 percent disability will receive
    payments equal to the amount of VA disability compensation they are
    owed. Also, those retirees with at least a 60 percent disability
    incurred in the line of duty will also receive the equivalent of their
    VA disability compensation. While I believe that we need to do better,
    this legislation provides an important first step to providing full
    concurrent receipt to our Nation's veterans.
        In recent years, the Senate has come out in strong support of full
    concurrent receipt. On a number of occasions, we have passed
    legislation by unanimous consent that was sponsored by Senator Reid.
    Each time, it was met with stiff resistance by the House of
    Representatives. Last year, and largely as a result of intense lobbying
    by the veterans' service organizations testifying before us today, as a
    part of the Fiscal Year 2003 Defense Authorization bill, the House
    approved a limited concurrent receipt provision that would have
    provided compensation for the most disabled veterans. However, the
    administration threatened a veto on this provision.
        We were faced with a very difficult situation. The Defense
    Authorization bill contained provisions vitally important to the well-
    being of our Armed Forces. It included a substantial pay raise,
    authorization for military construction projects, and other provisions
    aimed at improving the quality of life for our troops and their
    families. The only way to move forward, and provide the men and women
    of our military with the benefits they need, was to support the limited
    concurrent receipt provisions that were passed into law.
        We cannot allow this situation to be repeated. Our Nation's
    veterans deserve better. I understand that the costs of full concurrent
    receipt are daunting. However, we can never place a price tag on the
    heroic service of our Nation's veterans. It is incumbent on us to work
    with both the veterans' service organizations, as well as the
    administration, to find a solution that will ensure that those who have
    sacrificed so much for our Nation receive the compensation they have
    earned.

        Senator Chambliss. Do you have any follow-up, Senator?
        Senator Ben Nelson. No, I do not have any further
    questions, Mr. Chairman.
        Senator Chambliss. Gentlemen, thank you both for your
    continued cooperation and dialogue on this, and we look forward
    to staying in touch with the implementation of last year's
    provision as we move forward. Thank you.
        Secretary Abell. Thank you, Senator.
        Secretary Cooper. Thank you.
        Senator Chambliss. Our next panel, Sarah Jennings, the
    principal analyst from the Defense Cost Estimate Unit at the
    Congressional Budget Office; Carolyn Merck, former specialist
    in social legislation from the Congressional Research Service;
    and Cynthia Bascetta, Director of Veterans' Health and Benefits
    from the General Accounting Office.
        Ladies, thank you first of all for your work in this area.
    You are three of the real noted experts, and we appreciate your
    being here today, and we look forward to hearing from you. We
    will be glad to put in for the record any full statement that
    you want to submit, and we look forward to your comments. Ms.
    Jennings, we will start with you. Thank you.

     STATEMENT OF SARAH JENNINGS, PRINCIPAL ANALYST, DEFENSE COST
               ESTIMATE UNIT, CONGRESSIONAL BUDGET OFFICE

        Ms. Jennings. Thank you, Mr. Chairman.
        Mr. Chairman, members of the subcommittee, I am pleased to
    appear before you this afternoon to discuss the Congressional
    Budget Office estimate of the cost of allowing concurrent
    receipt to military retirees and to retirees from the other
    uniformed services. I do have a longer testimony that I would
    like to submit for the record.
        I would like to summarize my testimony by answering the
    following questions. What would it cost to allow concurrent
    receipt, and how many retirees are affected by the prohibition
    on concurrent receipt, and how disabled are they?
        The estimated cost of concurrent receipt: CBO most recently
    estimated the cost of allowing concurrent receipt of full
    retirement annuities and disability compensation in its cost
    estimate for the Retired Pay Restoration Act of 2001--that was
    S. 170--as it was incorporated into the Senate-passed version
    of last year's Defense Authorization Act.
        Senator Reid has introduced a similar bill in this
    Congress, S. 392, the Retired Pay Restoration Act of 2003, but
    we have not completed our estimate of that bill. Nevertheless,
    based on our previous estimates, we expect that legislation
    might increase direct spending for retirement payments and
    veterans' disability compensation by about $41 billion over the
    2004 to 2013 period. We estimate the annual increase in outlays
    would be about $3.3 billion in fiscal year 2004, increasing to
    about $5 billion in fiscal year 2013.
        I would like to refer you to table 1 in my testimony, also
    displayed on the chart here, to give you a brief overview of
    the preliminary estimate.
        [The information referred to follows:]

        The Retired Pay Restoration Act of 2001 would have allowed
    uniformed service retirees to receive concurrently veterans'
    disability compensation and a retirement annuity based on years
    of service. Last year, in our estimate for S. 170, we estimated
    that allowing concurrent receipt would have increased mandatory
    outlays by about $46 billion over the 2003 to 2012 period.
        To produce a preliminary estimate of the cost of S. 392 for
    this testimony, we adjusted that cost to account for our latest
    assumptions about cost-of-living adjustments and to encompass
    the 2004 to 2013 period. Our updated estimate of the full cost
    of concurrent receipt would be $49 billion over the 2004 to
    2013 period. The net cost of concurrent receipt, however, would
    be lower.
        Senator Reid's bill, S. 392, would repeal two special
    compensation programs, one for severely disabled retirees, and
    one for retirees with combat-related disabilities. These
    programs were enacted to partially address the concurrent
    receipt issue. CBO estimates that repealing these programs
    would reduce the cost of S. 392 by about $8 billion, to $41
    billion over 2004 to 2013. That spending would increase outlays
    for military retirement by 9 to 10 percent.
        These are preliminary estimates, however. We have not
    incorporated the latest population data from DOD, and even more
    importantly, though, DOD has yet to publish the regulations for
    implementing the program of special payments for combat-related
    disabilities. Once the details of that program are worked out,
    what causes of injuries and diseases will qualify a retiree for
    benefits? What will constitute sufficient documentation of
    those causes, it is very likely that we will adjust our
    estimate of its costs.
        Should we reduce our estimate for this special compensation
    program, the net cost of concurrent receipt would go up.
    Conversely, should our estimate increase, the net cost of
    concurrent receipt would go down.
        How many retirees would be affected by this legislation?
    According to DOD, in 2002, the prohibition on paying both
    retirement and VA benefits affected about 541,000 military
    retirees with normal length of service retirement, and about
    144,000 retirees of the uniformed services with disability
    retirements. These retirees had about $4 billion withheld from
    their annuity checks to offset their VA disability
    compensation. Most of the recent proposals to allow concurrent
    receipt, including S. 392 and S. 170, would offer that benefit
    to all retirees who are eligible to retire based on years of
    service. That includes all longevity retirees, and those who
    received a disability retirement after completing at least 20
    years of service.
        In fiscal year 2002, there were 1.9 million military
    retirees. Of these, over 563,000 would have qualified for
    concurrent receipt under these bills. I will refer to these
    qualifying retirees as eligible retirees.
        The largest and fastest-growing portion of these eligible
    retirees are members who retired from active duty based on
    their years of service, longevity, or, as they are often
    called, nondisability retirees. The number and percent of such
    retirees receiving veterans disability compensation have been
    growing steadily for at least the last 15 years. In 1988, 25
    percent of nondisability retirees from the active duty military
    received disability compensation from VA. That percentage grew
    steadily through the 1990s. By 2002, more than 36 percent of
    nondisability retirees were receiving VA disability benefits.
    This increase is a significant factor in the growth of the cost
    of concurrent receipt.
        CBO expects this growth trend to continue both in
    percentage terms and in the absolute number of retirees
    receiving VA disability benefits, in part because recent
    retiree cohorts are receiving VA disability compensation at
    rates considerably higher than the total retiree population.
        For example, 56 percent of the nondisability retirees from
    active duty in fiscal year 2000 were receiving veterans'
    disability compensation by the end of fiscal year 2002. As long
    as new retirees are receiving disability compensation at rates
    considerably greater than the full population, CBO expects the
    number of retirees receiving VA disability compensation to
    continue to grow, even as the retired population as a whole
    levels off and begins to decline.
        How disabled are these retirees who would be affected by
    this legislation? This first chart here shows the distribution
    of retirees who would be eligible to receive concurrent receipt
    under S. 392 distributed across VA disability ratings, and this
    is the population as of September 2001. This is the last year's
    data that I have totally analyzed the largest number rated at
    10 percent disabled, and over two-thirds are rated 30 percent
    disabled or less. Only 16 percent of these retirees are rated
    by VA as 60 percent or more disabled.
        The second chart, which is coming here, shows how the
    additional benefits that would be paid under concurrent receipt
    are more broadly distributed across ratings than are the
    retirees. While two-thirds of the retirees are rated 30 percent
    or less disabled, they account for only about one-third of the
    cost. The categories of 40 percent to 60 percent, and 70
    percent to 100 percent, each account for 35 percent of the cost
    of concurrent receipt.

        Overall, about half the additional benefits would go to
    those rated 50 percent or less, and half to those rated 60
    percent or greater.
        That concludes my statement, Mr. Chairman. I would be happy
    to answer any questions the subcommittee might have.
        [The prepared statement of Ms. Jennings follows:]

                      Prepared Statement by Sarah Jennings

        Mr. Chairman and members of the subcommittee, I am pleased to
    appear before you this afternoon to discuss the Congressional Budget
    Office's (CBO) estimate of the costs of allowing total or partial
    concurrent payment of retirement annuities together with veterans'
    disability compensation to retirees of the military, the Coast Guard,
    the Public Health Service (PHS), and the National Oceanic and
    Atmospheric Administration (NOAA) who have service-connected
    disabilities.
        I would like to summarize my testimony by answering the following
    three questions:

             What is concurrent receipt? Under current law,
            veterans who are retired from the military, the Coast Guard,
            PHS, or NOAA cannot receive both full retirement annuities from
            the Department of Defense (DOD) and disability compensation
            from the Department of Veterans' Affairs (VA). Allowing the
            receipt of both benefits is often referred to as ``concurrent
            receipt.'' Because of the prohibition on concurrent receipt,
            military retirees must choose between receiving a full, but
            generally taxable, retirement annuity, or accepting the
            nontaxable veterans' benefit and, in exchange, forgoing an
            equal amount of their retirement annuity.
             How many retirees are affected by this prohibition?
            According to DOD, in fiscal year 2002, the prohibition on
            receiving both retirement and VA benefits affected about
            545,000 retirees of the uniformed services with normal length-
            of-service retirements and about 147,000 retirees of the
            uniformed services with disability retirements; all together,
            those retirees had about $4 billion withheld from their annuity
            checks in that year to offset their VA disability compensation.
             How much would allowing concurrent receipt cost? CBO
            has not yet updated its estimates of the cost of allowing
            concurrent receipt to reflect the latest data. Last year, CBO
            estimated that providing concurrent receipt would increase
            direct spending by $46 billion over the 2003-2012 period. (All
            years referred to in this testimony are fiscal years.) In late
            2002, however, lawmakers enacted legislation that authorized
            some retirees with combat-related disabilities to receive
            special compensation equivalent to concurrent receipt; that
            special compensation would no longer be paid if Congress
            authorized concurrent receipt. Last December, CBO estimated
            that the special compensation program would cost $6 billion
            over the 2003-2012 period. After updating last year's estimates
            of full concurrent receipt to reflect our latest economic
            assumptions and to encompass the 2004-2013 period and
            subtracting our estimate of the costs associated with the
            recently enacted program, we estimate that the net cost of
            allowing concurrent receipt might be around $41 billion over
            the 2004-2013 period (see Table 1). The annual cost would start
            at about $3 billion in 2004 and grow to about $5 billion by
            2013. The estimated cost may change, however, once we
            incorporate the latest population data from DOD and the
            Department determines how it will implement the new program of
            special compensation for combat-related disabilities.

        I will now review several factors in more detail:

             The impact of the current prohibition on the
            concurrent receipt of those payments,
             Recent congressional actions to provide special
            payments to certain severely disabled retirees, along with
            their estimated costs,
             The populations affected by this prohibition and their
            degree of disability as rated by the Department of Veterans'
            Affairs, as well as their rate of growth over time, and
             How CBO estimated the costs of providing concurrent
            receipt to those retirees and the costs of recently enacted
            legislation that authorized some retirees to receive special
            compensation equivalent to concurrent receipt.

              THE EFFECT OF THE PROHIBITION ON CONCURRENT RECEIPT

        Data from the uniformed services indicate that in 2002, the
    prohibition on paying both retirement and veterans' disability
    compensation concurrently caused about $2.8 billion to be withheld from
    annuity payments to about 539,000 Department of Defense retirees with
    normal length-of-service retirements (also referred to as nondisability
    retirements) and about 6,000 Coast Guard, PHS, and NOAA retirees who
    fall into that category. That withholding is called the ``VA offset.''
    In addition, 144,000 DOD retirees and about 3,000 Coast Guard, PHS, and
    NOAA retirees with disability retirements had their annuities reduced
    by $1.3 billion in 2002 because of veterans' disability compensation.
        Beginning in 1999, Congress passed two measures to partially or
    totally compensate some retirees for those reductions in their
    annuities. When fully implemented, those measures would have offset
    about 11 percent of the $4 billion impact of those reductions in 2002.
    The first of those measures, enacted as part of the National Defense
    Authorization Act for Fiscal Year 2000 and enhanced in the Defense
    Authorization Acts for Fiscal Years 2001 and 2002, created a program of
    special compensation for certain severely disabled retirees of the
    uniformed services. Depending on a retiree's degree of disability, that
    program now provides a monthly stipend of between $50 and $325 to those
    retirees who were found, within 4 years of retirement, to have a
    service-connected disability that was rated as 60 percent or greater.
    In September 2004, the stipends will increase for eligible retirees
    whose disabilities are rated by VA or DOD at 70 percent, 80 percent, 90
    percent, or 100 percent by $25 a month to $125, $150, $250, and $350,
    respectively. The stipend for eligible retirees who are rated 60
    percent disabled will remain at $50 a month. According to DOD, that
    special compensation program paid an average monthly benefit of $167 to
    34,533 retirees in February 2003. Including retroactive benefits, the
    program will cost about $77 million in 2003, CBO projects, and an
    average of about $100 million a year over the 2004-2013 period.
        That program has been partially superseded by a second special
    compensation program that provides eligible retirees with a monthly
    benefit equal to the reduction in retirement benefits called for under
    current law, to the extent that the reduction is based on a qualifying
    combat-related disability. Retirees of the uniformed services who
    served for 20 or more years will be eligible to receive those payments
    if they have a service-connected disability that is related to the
    injury for which they received a Purple Heart or if they have a
    service-connected disability that was incurred as the result of certain
    duty-related activities and is rated as 60 percent or more disabling by
    the VA. This measure was enacted as part of the National Defense
    Authorization Act for Fiscal Year 2003 and is scheduled to take effect
    in June of this year. CBO estimates that as many as 40,000 retirees may
    qualify for the new benefit. Many of those retirees also qualify for
    the first special compensation program and will have to stop receiving
    those benefits to qualify for the larger benefits offered under the new
    program. Outlays for both programs will be about $350 million in 2004,
    CBO estimates, and $7.7 billion over the 2004-2013 period.
        Before I present CBO's cost estimates for concurrent receipt and
    the special compensation programs, I would like to give you a brief
    overview of the demographics of this retiree population because this
    data underpins our estimates of concurrent receipt proposals.

                        THE MILITARY RETIREE POPULATION

        Active-duty personnel retire from the uniformed services with
    either a disability retirement or a nondisability one. If DOD
    determines that a service member is unable to perform his or her duties
    for medical reasons, DOD may offer that person a disability retirement.
    Payments under such a retirement are based on the member's highest 3
    years of basic pay and on either the degree of disability or the number
    of years of service, whichever would result in a larger annuity. A
    disability retirement may be granted at any point in a person's
    military career. In 2002, 94,000 active-duty retirees who retired with
    a disability retirement received annuities totaling $1.2 billion from
    the Military Retirement Trust Fund.\1\ Most service members, however,
    do not receive a disability retirement--but rather a nondisability, or
    longevity, retirement. Nondisability retirees usually have 20 years to
    30 years of service, and their retirement annuity is based on both pay
    and years of service. In 2002, 1.4 million nondisability retirees were
    paid $29 billion in retirement annuities. About 75 percent of
    disability retirees and 36 percent of nondisability retirees have their
    annuities offset, or reduced, to account for disability compensation
    payments they receive from the Department of Veterans' Affairs. In the
    absence of those offsets, disability annuities for active-duty retirees
    in 2002 would have been $1.2 billion higher and nondisability annuities
    would have been $2.8 billion higher.
    ---------------------------------------------------------------------------
        \1\ Another 99,000 disability retirees received no annuity payments
    because their retirement annuities were totally offset by their VA
    disability compensation payments. The number of disability retirees who
    retire while on active duty includes reservists who receive disability
    retirements.
    ---------------------------------------------------------------------------
        Members of the National Guard and Reserve are also eligible for
    disability and nondisability retirements. However, while reservists may
    retire from active participation in the Reserves after completing 20
    creditable years of service, they cannot receive nondisability
    retirement annuities before reaching age 60. According to data from
    DOD, 249,000 retirees of the National Guard and Reserve were paid a
    total of $2.8 billion in retirement annuities in 2002. Elimination of
    the VA offset would have added $62 million to that figure.

        THE NUMBER OF RETIREES RECEIVING DISABILITY COMPENSATION FROM VA

        Upon leaving uniformed service, a veteran can apply to the
    Department of Veterans' Affairs for disability compensation if he or
    she believes that a physical or mental condition was caused or
    aggravated by uniformed service. If VA determines that to be the case,
    then it awards disability compensation to the veteran for the service-
    connected disabilities. Data provided by DOD indicate that a
    significant and growing proportion of retirees are found by VA to have
    compensable disabilities.
    Nondisability Retirees
        CBO's analysis of that DOD data indicates that, in 1988, before DOD
    and VA began working together to streamline the disability application
    process for service members separating from the military, almost
    289,000 (or 25 percent) of nondisability retirees from the active-duty
    military received disability compensation from VA. That percentage
    climbed steadily through the 1990s. By 2002, almost 527,000, or more
    than 36 percent, of the 1.4 million nondisability retirees were
    receiving VA's disability benefits.
        CBO expects that growth to continue, both in percentage terms and
    in the absolute number of retirees receiving VA's disability benefits
    because recent retiree cohorts are receiving VA's disability
    compensation at rates considerably higher than the total retiree
    population. For example, of the 36,584 nondisability retirements from
    active duty in 2000, 20,449 (or 56 percent) were receiving veterans'
    disability compensation by the end of 2002. As long as new retirees are
    receiving disability compensation at rates significantly greater than
    the full population of retirees, CBO expects the number of retirees
    receiving VA's disability compensation to continue to grow, even as the
    retired population as a whole levels off and begins to decline.

    Disability Retirees
        Disability retirements from the Active and Reserve Forces have been
    decreasing steadily for many years; the current number of disability
    retirees is about 193,000. At the same time that their total number has
    been declining, the percentage of disability retirees receiving
    veterans' disability compensation has been increasing, up to its
    current level of 75 percent. That growth may be due, at least in part,
    to the fact that the tax treatment of disability annuities has changed
    for members who entered the uniformed services after 1975. The
    disability retirement annuities of the older retirees were partially or
    totally tax free, providing less incentive for those retirees to apply
    for the offsetting, but tax free, veterans' benefits. Only retirees who
    thought the veterans' benefit might exceed their DOD annuity or who
    wanted to use the VA's hospitals had reason to apply to VA. For service
    members who retired after that date, only retirement annuities that
    have been awarded because of combat or combat-related injuries are tax
    free, and only to the extent that they are due to the disability and
    not to years of service. Thus, it appears that those more recent
    retirees have a greater incentive to apply to VA for disability
    compensation. Those two effects--a decreasing number of disability
    retirees, but an increasing percentage of them receiving disability
    compensation from VA--have tended to offset each other in recent years,
    resulting in a relatively stable number of disability retirees with a
    VA offset. CBO expects little change over the next several years.

    Reserve Retirees
        About 14,500 retired reservists received disability compensation
    from VA in 2002. That amounts to less than 6 percent of the 251,000
    nondisability Reserve retirees. Because Reserve retirees spend so
    little of their career on active duty, they find it more difficult than
    full-time active-duty retirees to prove that their disabling conditions
    are service-connected. They are also less likely to be injured while on
    active duty. The percentage of Reserve retirees receiving disability
    compensation decreased steadily through the 1990s, down from about 6
    percent in the mid-1980s to less than 5 percent in 1999, before
    increasing suddenly in 2000. Reservists do not receive retirement pay
    before they reach age 60, so there is a gap of 10 years to 20 years
    between the time they end their military service and when they show up
    on the retiree rolls. Thus, the recent increase may be a lagged
    reflection of the streamlined application process that seems to have
    fueled the growth in receipt of disability compensation among active-
    duty retirees. CBO expects that trend to continue for the foreseeable
    future.

                  DEGREE OF DISABILITY AMONG MILITARY RETIREES

        Most recent proposals to allow concurrent receipt would offer that
    benefit to all retirees who were eligible to retire on the basis of
    years of military service. That category would include all longevity
    retirees and those who received a disability retirement after
    completing at least 20 years of service. Figure 1 shows the
    distribution of such retirees across VA's disability ratings as of
    September 2001. The largest number (roughly 173,000) are rated at 10
    percent disabled, and more than two-thirds (nearly 358,000) are rated
    30 percent disabled or less. Only 16 percent of retirees (about 85,000)
    are rated by VA as 60 percent or more disabled.
        Figure 2 shows how the benefits from concurrent receipt would be
    distributed. When the total amount of the VA offset in 2001 is
    distributed over VA's disability ratings, it becomes clear that the
    aggregate additional benefits would be more broadly distributed across
    ratings than are the retirees. Those rated 30 percent or less account
    for about 30 percent of the cost as compared to two thirds of the
    retirees. The categories of 40 percent to 60 percent, and 70 percent to
    100 percent each account for 35 percent of the cost of concurrent
    receipt. Overall, about half the cost would go to those rated 50
    percent or less, and half to those rated 60 percent or greater.

               THE ESTIMATED COST OF PROVIDING CONCURRENT RECEIPT

        CBO most recently estimated the cost of allowing concurrent receipt
    of full retirement annuities and veterans' disability compensation in
    its cost estimate for the Retired Pay Restoration Act of 2001 (S. 170),
    as it was incorporated in the Senate-passed version of the 2002 Defense
    Authorization Act. Senator Harry Reid has introduced a similar bill in
    this session of Congress (S. 392, the Retired Pay Restoration Act of
    2003), but we have not completed our estimate of that bill as we have
    only recently received updated population data from the Department of
    Defense and are still awaiting information on how the Department will
    implement the new program of special compensation for combat-related
    disabilities. Based on our previous estimates, we expect that
    legislation to allow concurrent receipt might increase direct spending
    for retirement payments and veterans' disability compensation by about
    $41 billion over the 2004-2013 period. Those costs would increase
    outlays for military retirement by about 9 percent and spending for
    disability compensation by less than 1 percent over the 10-year period.
    That preliminary estimate reflects our last estimate for S.170
    (covering the 2003-2012 period), updated to reflect our latest
    assumptions about cost-of-living adjustments and adjusted to encompass
    the 2004-2013 period and the impact of the recently enacted program of
    special compensation for combat-related disabilities.

    CBO's Cost Estimate for the Retired Pay Restoration Act of 2001, or S.
            170
        The Retired Pay Restoration Act of 2001 would have allowed
    individuals who have service-connected disabilities and whose
    retirement annuity was based on their years of service to receive both
    benefits without the reduction called for under current law.
    Individuals whose retirement pay was based on their degree of
    disability would have continued to forego retirement pay equal to their
    disability compensation payment, but only to the extent that their
    disability had entitled them to a larger retirement annuity than they
    would have received solely on the basis of years of service.
        S. 170 would also have repealed the first program of special
    compensation mentioned earlier, which partially compensates certain
    severely disabled retirees for the reduction in their retirement
    annuities. (S. 392 would also eliminate the second special payment
    program that offers payments for combat-related disabilities.)
        CBO estimated that enacting S. 170 would have increased direct
    spending for retirement payments and veterans' disability compensation
    by about $46 billion over the 2003-2012 period (see Table 2). CBO's
    estimate of the total cost of S. 170 can be broken down into four
    components:

             increased payments for military retirement annuities,
             increased payments for veterans' disability
            compensation,
             loss of premium payments for the Survivor Benefit
            Plan, and
             savings from repealing special compensation payments
            for severely disabled retirees.

        In addition, the Department of Defense would have had to make
    payments of about $15 billion over the 2003-2012 period to the Military
    Retirement Trust Fund to cover the increase in future liabilities for
    current military personnel. The increased contributions to the
    retirement trust fund would have come from appropriated funds. CBO
    estimated the cost of this bill on the basis of uniformed services data
    from September 2001.

        I will now explain how CBO estimated the cost of each component of
    this cost estimate.
        Increased Payments for Military Retirement Annuities. Since S. 170
    would have treated retirees differently based on their type of
    retirement--normal length-of-service (nondisability) or disability--
    CBO's estimate of the potential costs of the legislation depended on
    the number of beneficiaries, their type of retirement, their disability
    levels, and the benefit amounts.
        Nondisability Retirees. A regular, or nondisability, retirement is
    granted on the basis of length of service--usually 20 or more years.
    Like all veterans, regular retirees are entitled to apply to VA at any
    time to receive disability compensation for injuries or conditions,
    incurred or aggravated during military service, that VA determines to
    be partially or totally disabling. The Retired Pay Restoration Act of
    2001 would have allowed those retirees to receive full retirement
    annuities and veterans' disability benefits with no offset. Data from
    the uniformed services indicated that in 2001, the prohibition on
    paying both benefits concurrently caused about $2.4 billion to be
    withheld from annuity payments to about 511,000 DOD retirees with
    nondisability retirements and about 5,200 Coast Guard, 900 PHS, and 50
    NOAA retirees that fall into the nondisability category. CBO estimated
    that caseload would rise to about 614,000 nondisability retirees in
    2004 and 670,000 by 2012. Under the assumption that future benefit
    payments would increase both from cost-of-living adjustments and
    because of growth in average disability levels, CBO estimated that
    implementing the legislation would increase direct spending for DOD
    nondisability retirement annuities by about $40 billion over the 2003-
    2012 period. The cost to the other uniformed services (non-DOD) would
    be $430 million over the 2003-2012 period, CBO estimated (see Table 3).

        Disability Retirees. Service members who are found to be unable to
    perform their duties because of service-connected disabilities may be
    granted a disability retirement. S. 170 would have allowed disability
    retirees to receive retirement annuities based on their years of
    service and veterans' disability benefits with no offset.
        A disability retirement annuity is usually the product of an
    individual's basic pay and his or her degree of disability. However, if
    the individual has 20 or more years of service and thus is also
    eligible for a nondisability retirement, the disability annuity may be
    calculated on the basis of years of service, if that calculation yields
    a greater annuity. Under S. 170, retirees whose disability retirement
    annuity is greater than the amount they are entitled to receive based
    on years of service would have continued to have that portion of their
    annuity tied solely to their disability, reduced dollar-for-dollar by
    the amount of their VA disability benefit. However, the offset against
    the rest of their retirement annuity would have been eliminated. (We
    will refer to this as partial concurrent receipt.) Disability retirees
    whose annuities are based solely on their disability (that is, those
    retirees with less than 20 years of service) would have continued to
    have their full annuities subject to reduction by the amount of the VA
    disability benefit.
        According to DOD, 145,000 disability retirees had their annuities
    reduced by $1.2 billion in 2001 because of VA disability payments. Of
    those retirees, 22,000 who would have been eligible for partial
    concurrent receipt under S. 170 had their annuities reduced by $253
    million. An analysis of retiree records by DOD indicates that, under
    criteria set forth in the legislation, those retirees would have been
    eligible to receive about 95 percent of their retirement annuity
    concurrently with their VA disability benefit. Assuming continuation of
    current trends in population and benefit growth, CBO estimated that, of
    the disability retirees who would be receiving VA disability benefits
    in 2003, about 23,000 would have been entitled to an additional $254
    million in retirement annuities. CBO estimated the cost of partial
    concurrent receipt would have been almost $3 billion over the 2003-2012
    period. In addition, approximately 850 disability retirees from the
    other uniformed services would have been entitled to an additional $120
    million over the 2003-2012 period.
        Increased Payments for Veterans' Disability Compensation. Enactment
    of the Retired Pay Restoration Act of 2001 would have provided an
    incentive for some military retirees who are eligible for, but not
    currently receiving, veterans' disability to apply for those benefits.
    Before VA and DOD began to work together to make applying for VA
    benefits a part of the separation process, retirees who felt that they
    had a compensable disability had to apply to VA after leaving the
    military and arrange for a VA physical. If retirees were successful in
    obtaining the disability benefit, they would be able to partially
    offset their retirement pay with an equal amount of nontaxable
    veterans' benefits. But if retirees felt that they were likely to
    receive a low disability rating, the tax advantage might not have been
    a sufficient motive for them to go through the VA's approval process.
    If concurrent receipt was approved, however, the incentive for retirees
    to apply to VA for disability benefits would grow significantly. CBO
    estimated that, as a result, outlays for veterans' disability
    compensation under S. 170 would have increased by just over $3 billion
    over the 2003-2012 period.
        CBO expects that those additional benefits would have gone to two
    groups:

             disability retirees who had little incentive to go to
            VA as their retirement annuity was already nontaxable, and
             nondisability retirees with relatively minor
            disabilities.

        Data from DOD indicate that 54,000 disability retirees of the
    uniformed services--52,000 from DOD and about 2,000 from the other
    uniformed services--do not currently receive disability benefits from
    VA that they are probably qualified to receive. Because many disability
    retirees are not taxed on their annuities, they have no incentive under
    current law to apply for the tax-free VA benefits, as they would be
    offset, dollar for dollar, against their retirement annuities. S. 170
    would have provided a significant incentive for the more disabled of
    those individuals to apply for disability benefits from VA. CBO
    estimated that about 15,300 disability retirees might have been
    eligible for concurrent receipt under the Retired Pay Restoration Act
    of 2001, but, because many of those retirees are both disabled and
    quite elderly, CBO expected that only about half of that number would
    become aware of this improved benefit and successfully complete the
    application process. On the basis of retirees' DOD-assessed degree of
    disability, CBO estimated that outlays for disability compensation
    would have increased by $1.5 billion over the 2003-2012 period for
    increased benefits for disability retirees.
        CBO also assumed that, had S. 170 passed, additional nondisability
    retirees would also apply for and receive disability compensation. CBO
    estimated that enacting S. 170 might cause the percentage of
    nondisability retirees receiving disability benefits from VA to
    increase gradually from its 2001 level of 34 percent to 45 percent by
    2012. Although CBO's baseline already anticipated that type of rise
    over the next 10 years without concurrent receipt, CBO assumed that
    under S. 170, that level would be reached some years sooner. CBO
    estimated the increased outlays for veterans' disability compensation
    payments to nondisabled military retirees would have been $1.6 billion
    over the 2003-2012 period.
        Loss of Receipts from Premium Payments for the Survivor Benefit
    Plan. Many retirees have a Survivor Benefit Plan (SBP) premium payment
    deducted from their retirement annuity. The SBP was established in
    Public Law 92-425 to create an opportunity for military retirees to
    provide annuities for their survivors. Those retirees who are not
    receiving a paycheck from DOD because their retirement annuity is
    totally offset by their VA disability benefit may still participate in
    the SBP by paying the monthly premium to the U.S. Treasury. Those
    payments are recorded as offsetting receipts (a credit against direct
    spending) to DOD. According to DOD, approximately 34,000 military
    retirees paid $23 million in SBP premiums to the Treasury in 2001. DOD
    also indicated that about $14 million of that amount was paid by about
    15,300 retirees who would begin to receive annuity checks under S. 170.
    CBO's estimate of the increase in retirement outlays presented above
    assumes that the SBP premiums of retirees who benefit from the
    legislation would be deducted from the retirees' annuities, and their
    payments to the Treasury would cease. Under the assumption that current
    trends in population and benefit growth would continue, CBO estimated
    that those offsetting receipts would decrease by about $190 million
    over the 2003-2012 period.
        Repeal of Special Compensation for Severely Disabled Retirees. The
    Retired Pay Restoration Act of 2001 also would have repealed a special
    compensation program for disabled retirees that was then paying a fixed
    benefit of $50 to $300 a month to certain uniformed services retirees
    who were determined to be 60 percent to 100 percent disabled within 4
    years of their retirement. On the basis of information from DOD and the
    assumption that population growth trends would continue, CBO estimated
    that about 36,000 DOD retirees and about 600 retirees of the other
    uniformed services would receive an average monthly benefit of $150 in
    2002 and higher amounts in subsequent years. The savings from repealing
    this program would have been $710 million over the 2003-2012 period,
    CBO estimated.
        Effect of Enacting the Retired Pay Restoration Act of 2001 on
    Spending Subject to Appropriation. The military retirement system is
    financed in part by an annual payment from appropriated funds to the
    Military Retirement Trust Fund, based on an estimate of the system's
    accruing liabilities. If S. 170 had been enacted, the yearly
    contribution to the trust fund would have risen to reflect the added
    liability from the expected increase in annuities to future retirees.
    Using information from DOD, CBO estimated that enacting this
    legislation would have increased such payments by about $15 billion
    over the 2003-2012 period, assuming appropriation of the necessary
    amounts.

    CBO's Cost Estimate for the Program of Special Compensation for Certain
            Uniformed Services Retirees with Combat-Related Disabilities
        Some of the potential costs of S.170 were eliminated by enactment
    of section 636 of the National Defense Authorization Act for Fiscal
    Year 2003, which mandated payments from the personnel accounts of the
    uniformed services to certain of their retirees who are affected by the
    ban on concurrent receipt. Under the special compensation program,
    which DOD must implement by June 2003, retirees of the uniformed
    services will be eligible to receive payments if they served for 20
    years or longer, have a service-connected disability that is related to
    the injury for which they received a Purple Heart, or have an injury
    that was incurred as a result of certain duty- or combat-related
    activities. Last December, CBO estimated that the cost of the new
    combat-related program, net of the savings from the other special
    compensation program, will be about $6 billion over the 2003-2012
    period. We estimated these costs before DOD had the opportunity to
    develop the regulations needed to implement the program. Thus, our
    estimate of the cost of implementing the program could change
    significantly depending on the type of injuries DOD decides to cover
    and the amount of documentation the Department requires retirees to
    submit.
        Under current law, retirees who are eligible for compensation under
    this program and under a similar program that partially compensates
    certain severely disabled retirees would not be allowed to receive both
    benefits. Because the older program offers compensation that is
    significantly less than the full VA offset offered by the program that
    provides compensation for combat-related disabilities, costs of the
    older program should decrease, as retirees who are eligible for both
    switched to the newer program.
        The law authorizes benefits for two categories of retirees from the
    uniformed services. Both groups must have served for 20 or more years
    and have a qualifying combat-related disability. The first group is
    composed of Purple Heart recipients whose disabilities are rated at 10
    percent or greater and are related to the injury for which they
    received the Purple Heart. The second group is composed of retirees
    whose disabilities are rated as 60 percent or greater and whose
    service-connected disability can be attributed to one of the following
    causes or situations:

             as a direct result of armed combat,
             while engaged in hazardous service,
             in the performance of duty under conditions simulating
            war, or
             through an instrumentality of war.

        CBO estimates that about 35 percent of the benefits paid under this
    special compensation program would go to about 20,000 Purple Heart
    recipients; the remainder would be paid to about 20,000 other retirees.
    Other Adjustments
        CBO also updated last year's cost estimate for S. 170 to reflect
    our latest economic assumptions and to encompass the 2004-2013 period.
    Our estimates of increases in the consumer price index, which drive our
    assumptions for cost-of-living adjustments applied to retirement pay
    and veterans' disability compensation have fallen from what we assumed
    in last year's estimate. That change reduces our estimate of full
    concurrent receipt by $500 million over the 10-year period. Conversely,
    dropping the relatively low costs for 2003 and adding the higher costs
    for 2013 adds $2.9 billion to the estimate.

        Senator Chambliss. Thank you, Ms. Jennings.
        Ms. Merck.

      STATEMENT OF CAROLYN L. MERCK, FORMER SPECIALIST IN SOCIAL
    LEGISLATION, CONGRESSIONAL RESEARCH SERVICE (CRS), THE LIBRARY
         OF CONGRESS (AND COAUTHOR OF THE CRS REPORT, MILITARY
                 RETIREMENT AND VETERANS' COMPENSATION)

        Ms. Merck. Good afternoon, Mr. Chairman and members of the
    subcommittee. My name is Carolyn Merck, and I am pleased to
    have the opportunity to present my statement to you today. I
    recently retired from my position as a specialist in social
    legislation with the Congressional Research Service. Therefore,
    today I am representing myself.
        Ten years ago, when concurrent receipt was an issue before
    Congress, the conference report accompanying the Fiscal Year
    1993 National Defense Authorization Act required CRS to prepare
    a report analyzing precedents for concurrent receipt of
    military retired pay and veterans compensation. I participated
    in preparing that report, and my statement today draws from it.
        Although the CRS analysis was done 10 years ago, program
    rules have not changed. Therefore, the study remains valid.
    Under proposals to permit full concurrent receipt of military
    retired pay and veterans disability compensation, the two
    benefits would flow to an individual based on the same period
    of employment, the same job, and the same employer. This
    employment period concept is key to the issue.
        It is instructive to ascertain if concurrent receipt is
    permitted for beneficiaries of other public programs,
    particularly whether disabled Federal civilian employees may
    receive concurrently a Civil Service retirement benefit and a
    disability benefit based on the same period of Government
    service.
        The CRS study identified 25 pairs of programs under which
    individuals might be eligible for benefits from both programs.
    Of these, 17 program pairs pay benefits derived from the same
    period of employment. In 13 of those 17 program pairs, Congress
    legislated offsets or limits on combined payments in order to
    avoid overly generous benefits or to prevent program abuse.
    Only four program pairs for which benefits flow from the same
    employment permit full concurrent receipt. In these cases,
    Congress expressly combined benefits under two programs in
    order to achieve what they consider to be income adequacy, or
    gave little thought to the effect of the combined benefits.
        In addition, the study notes that benefits from nonmilitary
    disability programs are virtually always limited in some way
    when a disabled person is also eligible for retirement benefits
    or has other income. However, Congress has excluded VA
    compensation from limitations or income caps applicable to
    other disability beneficiaries. Unlike all other disability
    programs that are intended to compensate for lost earnings or
    earning capacity, VA compensation is not reduced if the
    recipient has earned income. The policy is intended to preserve
    the work incentives of disabled veterans.
        Some advocating full concurrent receipt say that disabled
    Federal Civil Service workers may receive concurrently both
    disability and retirement benefits. This is not accurate.
    Federal workers who became disabled from any cause and who are
    determined by the Office of Personnel Management to be unable
    to perform their Federal job may retire, regardless of age, and
    draw a fully taxable retirement annuity. Retirement benefits
    based on disability are payable for the duration of the
    disability or life, but end if the annuitant has earnings above
    a certain amount.
        Benefits for disabled Federal civilian workers whose
    disability is directly related to their Federal job are payable
    under the Federal Employees Compensation Act, or FECA. FECA is
    the Workers' Compensation program for Federal personnel, and is
    administered by the U.S. Department of Labor. Benefits are tax-
    free.
        There are two types of FECA benefits. Most FECA payments,
    known as nonschedule awards, are earnings replacement benefits,
    and paid monthly as a percentage of prior salary for the term
    of the disability or until death. Because payments are intended
    to replace lost earnings, they are reduced by the amount of any
    earned income. Recipients who also qualify for Federal
    retirement, based either on disability or age, must choose to
    receive either the FECA nonschedule award or the retirement
    annuity, but may not receive both. It is a strictly a one-or-
    the-other choice.
        So-called schedule awards under FECA are indemnity payments
    for permanent, specific physical losses generally resulting
    from injury such as loss of an arm. Unlike nonschedule FECA
    benefits or VA compensation, FECA schedule awards are not
    compensation for lost earnings. Payments are limited to a
    certain number of weeks, and the amount is based on the extent
    of the physical loss and the employee's previous Federal pay.
    They are paid regardless of whether the individual works and
    draws a salary, retires and draws a Civil Service annuity, or
    is also awarded nonschedule FECA benefits for lost earnings.
        A situation some say is a precedent for concurrent receipt
    applies to individuals who: (a) retire from a military career
    and draw retired pay; (b) are eligible for veterans
    compensation; and (c) become Federal Civil Service employees
    and work until eligible for retirement from the Civil Service.
    Such individuals may elect to combine their military service
    years with their civilian service years by waiving their
    military retired pay and applying their combined years of
    service to the computation of their Civil Service annuity.
        Although they must make a cash deposit into the civilian
    retirement system, it may be financially advantageous to do so
    for those whose civilian service started before 1984 and who
    are covered by the Civil Service Retirement System (CSRS). That
    is, their retirement income would be larger than their military
    retired pay and their CSRS if paid separately. Moreover,
    because such retirees do not receive benefits from the miliary
    retirement system once it is folded into their Civil Service
    annuity, there is no offset if they also receive veterans
    compensation.
        Some say it is inequitable to reduce military retired pay
    by the amount of VA compensation received by retirees who do
    not become Federal civilian workers or who do not waive their
    military retired pay while no offset applies to those with
    second careers in the Civil Service and who do waive their
    retired pay. They would resolve that inequity by paying both
    benefits concurrently and in full.
        Others disagree, and suggest two reasons why this atypical
    situation is not a precedent on which changing the offset
    system should be based. First, the group to whom it applies is
    small, and declining in size, and should eventually disappear
    because it benefits only military retirees who started their
    Civil Service jobs before 1984 and are covered under the now-
    closed CSRS.
        Those joining the Civil Service in 1984 and thereafter are
    covered by the newer Federal Employees Retirement System under
    which the low benefit accrual rate makes combining service
    years disadvantageous. Second, they suggest that, as an
    alternative, any inequities should be resolved at savings to
    the Government by applying the offset of VA compensation
    against the Civil Service annuities of those who benefit
    financially by combining their military and Civil Service
    years.
        Thank you. That concludes my statement. I would be glad to
    answer your questions.
        [The prepared statement of Ms. Merck follows:]

                     Prepared Statement by Carolyn L. Merck

        Good afternoon, Mr. Chairman and members of the subcommittee. My
    name is Carolyn Merck, and I am pleased to have the opportunity to
    present my statement today. I recently retired from my position as a
    Specialist in Social Legislation with the Congressional Research
    Service (CRS), but today I am representing only myself.
        Ten years ago, when concurrent receipt was an issue before
    Congress, the Conference Report accompanying the Fiscal Year 1993
    National Defense Authorization Act required CRS to prepare a report
    analyzing precedents for concurrent receipt of military retired pay and
    veterans' compensation. I participated in preparing that report, and my
    statement today draws from it. Although the CRS analysis was done 10
    years ago, program rules have not changed, and the study remains
    valid.\1\
    ---------------------------------------------------------------------------
        \1\ Military Retirement and Veterans' Compensation: Concurrent
    Receipt Issues, by Robert L. Goldich and Carolyn L. Merck, CRS Report
    95-469F, April 7, 1995.
    ---------------------------------------------------------------------------
        Under proposals to permit full concurrent receipt of military
    retired pay and veterans disability compensation, the two benefits
    would flow to an individual based on the same period of employment, the
    same job, and the same employer. This employment period is the key
    factor. It is instructive to ascertain if concurrent receipt is
    permitted for beneficiaries of other public programs, particularly
    whether disabled Federal civilian employees may receive concurrently a
    Civil Service retirement benefit and a disability benefit based on the
    same period of government service.

                               CRS STUDY FINDINGS

        The CRS study identified 25 pairs of programs under which
    individuals might be eligible for benefits from both programs. Of
    these, 17 program pairs pay benefits derived from the same period of
    employment. In 13 of those 17 program pairs, Congress legislated
    offsets or limits on combined payments in order to avoid overly
    generous benefits or to prevent program abuse.\2\
    ---------------------------------------------------------------------------
        \2\ The 13 program pairs under which benefits derive from the same
    employment and for which Congress legislated offsets, limits, or choice
    between benefits are: Civil Service retirement plus time-limited FECA
    scheduled awards; Federal, State, and local disability plus Social
    Security disability; FECA plus Federal judicial survivors benefits;
    unemployment compensation plus Social Security; FERS disability
    retirement plus Social Security disability; military SBP and Social
    Security survivor benefits for spouses age 62+; Federal CSRS plus
    Social Security based on military service for retirees age 62+;
    military retired pay plus veterans compensation; military SBP plus DIC;
    black lung benefits plus workers' compensation; unemployment
    compensation plus pension income; military nondisability retired pay
    and military disability retired pay; CSRS or FERS plus FECA non-
    schedule awards.
    ---------------------------------------------------------------------------
        Only four program pairs for which benefits flow from the same
    employment permit full concurrent receipt.\3\ In these cases, Congress
    expressly combined benefits under two programs in order to achieve what
    they judged to be income adequacy (e.g., VA/DIC plus Social Security
    survivor benefits for widow(er)s of deceased veterans), or gave little
    consideration to the effects of combined benefits (e.g., military
    retired pay plus Social Security retirement benefits).
    ---------------------------------------------------------------------------
        \3\ These four program pairs are: military retired pay plus Social
    Security; FERS retirement plus Social Security; DIC plus Social
    Security survivor benefits; veterans compensation plus unemployment
    compensation.
    ---------------------------------------------------------------------------
        In addition, the study notes that benefits from nonmilitary
    disability programs are virtually always limited in some way when a
    disabled person is also eligible for retirement benefits or has other
    income. (This is true for private disability benefits as well.)
    However, Congress has excluded VA compensation from limitations or
    income caps applicable to other disability beneficiaries.\4\ Unlike all
    other disability programs that are intended to compensate for lost
    earnings or earning capacity, VA compensation is not reduced if the
    recipient has earned income, a policy intended to preserve work
    incentives for disabled veterans.
    ---------------------------------------------------------------------------
        \4\ For example, the cap on Social Security disability benefits for
    persons with other public disability benefits does not take veterans
    compensation payments into account.
    ---------------------------------------------------------------------------
            PRECEDENTS IN FEDERAL CIVIL SERVICE DISABILITY PROGRAMS

        Some advocating full concurrent receipt say that disabled Federal
    Civil Service workers may receive concurrently both disability and
    retirement benefits. This is not accurate.
    Federal Civil Service Disability Retirement
        Federal workers who become disabled from any cause and who are
    determined by the Office of Personnel Management to be unable to
    perform their Federal job may retire regardless of age and draw a fully
    taxable retirement annuity. Retirement benefits based on disability are
    payable for the duration of the disability or for life, but end if the
    annuitant has earnings above a certain amount.
    Federal Employees' Compensation Act
        Benefits for disabled Federal civilian workers whose disability is
    directly related to their Federal job are payable under the Federal
    Employees' Compensation Act (FECA). FECA is the workers' compensation
    program for Federal personnel and is administered by the U.S.
    Department of Labor. Benefits are tax-free.
        There are two types of FECA benefits. Most FECA payments, known as
    ``non-schedule awards,'' are earnings replacement benefits, paid
    monthly as a percentage of prior salary for the term of the disability
    or until death. Because payments are intended to replace lost earnings,
    they are reduced by the amount of any earned income. Recipients who
    also qualify for Federal retirement, based either on disability or age,
    must choose to receive either the FECA non-schedule award or the
    retirement annuity, but may not receive both. It is strictly a one-or-
    the-other choice.
        So-called ``schedule awards'' under FECA are indemnity payments for
    permanent, specific physical losses generally resulting from injury
    (such as loss of an arm). Unlike non-schedule FECA benefits or VA
    compensation, FECA schedule awards are not compensation for lost
    earnings. Payments are limited to a certain number of weeks, and the
    amount is based on the extent of the physical loss and the employee's
    previous Federal pay. They are paid regardless of whether the
    individual works and draws a salary, retires and draws a Civil Service
    annuity, or is also awarded non-schedule FECA benefits for lost
    earnings.

        WAIVER OF MILITARY RETIRED PAY BY FEDERAL CIVIL SERVICE RETIREES

        A situation some say is a precedent for concurrent receipt applies
    to individuals who: (a) retire from a military career and draw retired
    pay; (b) are eligible for veterans compensation; and (c) become Federal
    Civil Service employees and work until eligible for retirement. Such
    individuals may elect to combine their military service years with
    their civilian service years by waiving their military retired pay and
    applying their combined years of service to the computation of their
    Civil Service annuity. Although they must make a cash deposit into the
    civilian retirement system, it may be financially advantageous to do so
    for those whose civilian service started before 1984 and who are
    covered by the Civil Service Retirement System (CSRS). That is, their
    retirement income would be larger than their military retired pay and
    their CSRS, paid separately. Moreover, because such retirees do not
    receive benefits from the military retirement system, there is no
    offset if they also receive veterans compensation.
        Some say it is inequitable to reduce military retired pay by the
    amount of VA compensation received by retirees who do not become
    Federal civilian workers, or who do not waive their military retired
    pay, while no offset applies to those with second careers in the Civil
    Service and who do waive their retired pay. They would resolve that
    inequity by paying both benefits concurrently, in full.
        Others disagree and suggest two reasons why this atypical situation
    is not a precedent on which changing the offset system should be based.
    First, the group to whom it applies is small and declining in size and
    should eventually disappear because it benefits only military retirees
    who started their Civil Service jobs before 1984 and are covered under
    the now closed CSRS. Those joining the Civil Service in 1984 and
    thereafter are covered by the newer Federal Employees Retirement System
    (FERS), under which the low benefit accrual rate makes combining
    service years disadvantageous. Second, they suggest that, as an
    alternative, any inequity should be resolved, at savings to the
    Government, by applying the offset of VA compensation against the Civil
    Service annuities of those who benefit financially by combining their
    military and Civil Service years.
        Thank you, Mr. Chairman. This concludes my prepared statement. I
    will be glad to answer your questions.

        Senator Chambliss. Thank you. Ms. Bascetta.

     STATEMENT OF CYNTHIA BASCETTA, DIRECTOR, VETERANS HEALTH AND
                  BENEFITS, GENERAL ACCOUNTING OFFICE

        Ms. Bascetta. Thank you, Mr. Chairman, Senator Nelson. I
    appreciate the opportunity to discuss the complex issues
    surrounding retirement pay and disability compensation for
    those who served our country in the military. We owe them all a
    huge debt. Our hearts and minds are certainly focused today on
    those engaged in combat in Iraq.
        To help in your deliberations on special compensation and
    concurrent receipt, I would like to talk briefly about the use
    of offset provisions in other programs, the estimated costs,
    including the potential impact on VA, and the broader issue of
    the need for fundamental disability reform that could serve as
    a context for your decisions.
        You have heard a lot today about offsets from Ms. Merck,
    and I will not repeat what she said. I would simply add that
    our work shows that these offsets that she is pointing out are
    very common not only in Federal, but in State and private
    sector programs as well.
        The cost of eliminating offsets would certainly be
    significant. You have heard CBO's 10-year estimate. Over
    longer-time horizons, the even greater financial liability
    heightens concerns about the long-term fiscal consequences of
    growing Federal entitlements.
        Moreover, eliminating the military retirement offset
    provision could establish a costly precedent for other Federal
    disability programs. Other costs we noted would take the form
    of increased demand on VA's claims processing system, which is
    currently struggling to improve longstanding problems with
    quality assurance and timeliness.
        While VA has made recent progress under Secretary Cooper's
    direction, it still takes about 200 days, on average, to
    process a veteran's disability claim. VA's administrative
    challenges and the costs of new benefits may not provide
    sufficient bases to retain the offset, but we believe they
    warrant consideration in weighing this matter.
        Finally, Federal disability programs, including VA's, face
    more fundamental problems that limit their ability to provide
    meaningful and timely support to their beneficiaries. This
    January, GAO placed these programs on our high risk list
    because they are in urgent need of attention and transformation
    to ensure that they function as efficiently and effectively as
    possible.
        We are concerned, for instance, that VA's disability rating
    schedule, the same schedule DOD uses, has not been updated
    since 1945, despite obvious changes in the nature of work. For
    example, in an increasingly knowledge-based economy, are mental
    impairments adequately compensated? Do physical impairments,
    such as the loss of an extremity, still reduce earnings
    capacity by 40 to 70 percent? These outdated concepts persist,
    despite advances in medicine and science that have redefined
    the relationship between impairments and the ability to work.
        At the same time, the projected slowdown in labor force
    growth and the Americans With Disabilities Act make it
    imperative that those who can work are supported in their
    efforts to do so. In this context, modifying concurrent receipt
    would add to the current patchwork of Federal disability
    policies at a time when modernization should be considered.
    While we are not taking a position on modifying the offset, we
    believe it would be appropriate to consider how it would affect
    the pursuit of more fundamental reform.
        That concludes my remarks, and I would be happy to try to
    answer your questions.
        [The prepared statement of Ms. Bascetta follows:]

                   Prepared Statement by Cynthia A. Bascetta

        Mr. Chairman and members of the subcommittee: Thank you for
    inviting me to discuss issues involved with the concurrent receipt of
    military retirement pay from the Department of Defense (DOD) and
    disability compensation from the Department of Veterans' Affairs (VA).
    Pending legislation would modify current law, which requires that
    military retirement pay be reduced by the amount of VA disability
    compensation benefit received. You asked us to discuss the treatment of
    concurrent benefit receipt in other programs as well as our broader
    work on Federal disability programs.
        To help you in your deliberations on this matter, I will explain
    the use of offset provisions in other Federal benefit programs as well
    as in state and private sector programs. I will also discuss some of
    the implications of modifying the concurrent receipt provisions for the
    VA disability compensation program. In addition, I will address the
    more fundamental problems facing VA's disability program. My statement
    is based on a review of GAO reports on Workers' Compensation, Social
    Security, and VA benefit programs and other literature relating to DOD
    retirement and VA disability compensation. I will also draw on our
    broader work on Federal disability programs, which we recently
    designated as high-risk because they are not well positioned to provide
    meaningful and timely support to Americans with disabilities (see
    Related GAO Products). Our work for this testimony was conducted in
    March 2003, in accordance with generally accepted Government auditing
    standards.
        In summary, three factors are important to weigh in your
    deliberations on the merits of modifying the military retirement offset
    provision. First, many benefit programs use offset provisions when
    individuals qualify for benefits from more than one program. The use of
    offset provisions in numerous benefit programs is a common method for
    dealing with the consequences of beneficiaries qualifying for more than
    one benefit program. The rationales for these offset provisions vary,
    but they are generally designed to treat beneficiaries of multiple
    programs fairly and equitably in relation to all other program
    beneficiaries, consistent with the program's purpose. Moreover,
    eliminating the military retirement offset provision could establish a
    precedent for other Federal benefit programs that could prove costly.
    Second, the proposed modifications to the concurrent receipt provisions
    in the military retirement system would have implications not only for
    DOD's retirement costs, but would also increase the demand placed on
    VA's claims processing system. This would come at a time when this
    system is still struggling to correct problems with quality assurance
    and timeliness. Third, the VA disability compensation program, along
    with other Federal disability programs, is facing the need for more
    fundamental reform. Modifying the concurrent receipt provision would
    add to the current patchwork of Federal disability policies and
    programs at a time when transformation and modernization should be
    considered. While we are not taking a position on whether the military
    retirement offset provision should be modified, as Congress and other
    policymakers deliberate this issue, it would be appropriate to consider
    how modifying the offset would affect the pursuit of more fundamental
    reforms.

                                   BACKGROUND

        Generally, DOD provides longevity retirement pay to military
    service members upon completion of 20 creditable years of active duty
    service. DOD also provides disability retirement pay to eligible
    service members who are determined unfit for duty--that is, unable to
    perform their military duties. To qualify for military disability
    retirement, the service member's disability must have been determined
    by DOD medical personnel to be permanent and the service member must
    have (1) at least 20 years of creditable service or (2) an evaluation
    board determination that the service member has a physical disability
    rating of at least 30 percent,\1\ and either at least 8 years of
    creditable service or a disability resulting from active duty. Nearly
    1.5 million retired service members received retirement and disability
    retirement pay in fiscal year 2002. In fiscal year 2000, the average
    disability retiree who had been an officer received about $2,022 per
    month, while the average enlisted disability retiree received about
    $698 per month.
    ---------------------------------------------------------------------------
        \1\ A disability rating is essentially an indication of medical
    severity of an impairment: the more severe the medical condition, then
    the higher the percentage of the disability rating, which can range
    from 0 to 100 percent.
    ---------------------------------------------------------------------------
        VA provides monthly disability compensation to veterans who have
    service-connected disabilities to compensate them for the average
    reduction in earnings capacity that is expected to result from injuries
    or diseases incurred or aggravated by military service. The payment
    amount is based on a disability rating scale that begins at 0 for the
    lowest severity and increases in 10-percent increments to 100 percent
    for the highest severity. Many veterans claim multiple disabilities,
    and veterans can reapply for higher ratings and more compensation if
    their disabilities worsen. For veterans who claim more than one
    disability, VA rates each claim separately and then combines them into
    a single rating. About 65 percent of compensated veterans receive
    payments based on a rating of 30 percent or less and about 8 percent
    are rated at 100 percent. Average monthly compensation payments in 2002
    ranged from about $100 for a 10-percent rating to over $2,100 for a
    100-percent rating.
        Military retirees with disabilities incurred during their military
    service may receive military retirement pay (based on either longevity
    or disability, whichever is more financially advantageous to the
    service member) from DOD and disability compensation from VA. For
    example, a service member who incurs a disability may still be fit for
    duty, depending on the nature and severity of the impairment. If that
    service member completes 20 years of creditable service, he or she may
    retire based on longevity and also qualify for VA disability
    compensation for the same impairment or a different impairment that is
    also service-connected. Similarly, a service member who incurs a
    disability and is found unfit for duty may receive military retirement
    pay based on disability if he or she meets additional eligibility
    requirements. This service member may also qualify for VA disability
    compensation for the same impairment or a different impairment that is
    also service-connected.
        Current law requires that military retirement pay be reduced
    (``offset'') by the amount of VA disability benefits received. In 1891,
    Congress passed legislation to prohibit what it regarded to be dual
    compensation for either past or current service and a disability
    pension. Despite the reduction in military retirement pay, it is often
    to a retiree's advantage to receive VA disability compensation in lieu
    of military retirement pay. These VA benefits provide an after-tax
    advantage because they are not subject to Federal income tax, as
    military retirement pay generally is. In addition, the disability
    compensation VA pays can be increased if medical reevaluation of the
    retiree's condition is found by VA to have worsened. Because VA
    disability compensation is based on the severity of the disability and
    not on actual earnings (as is military retirement pay), the VA benefit
    may, in some instances, be larger than the amount of military
    retirement pay.
        For certain retirees with serious disabilities, the National
    Defense Authorization Act of 2000 provides a cash benefit that is less
    than what they would have received through concurrent receipt of their
    military retirement pay and VA disability compensation. The statute
    states that these special compensation payments are not military
    retirement pay. As such, they are not subject to the offset provisions,
    and the legislation did not change the statute that prohibits
    concurrent receipt. The special compensation payments were reauthorized
    in 2001 and 2002.\2\
    ---------------------------------------------------------------------------
        \2\ The monthly dollar amounts of ``special compensation'' at each
    disability level of 70 percent or more will increase by $25 per month
    on October 1, 2004.
    ---------------------------------------------------------------------------
        In addition, the 2003 National Defense Authorization Act (P.L. 107-
    314) authorized a new category of ``special compensation'' for retirees
    with disabilities, including those who received a Purple Heart or have
    a disability due to ``combat-related'' activities. Under the new law,
    eligible retirees would now be able to receive the financial equivalent
    of concurrent receipt, although, again, the legislation did not repeal
    the statute prohibiting concurrent receipt.\3\ Military retirees may
    become eligible for this special compensation if (1) their disability
    is attributable to an injury for which the member was awarded the
    Purple Heart, and is not rated less than a 10-percent disability by DOD
    or VA; or (2) they receive a disability rating of at least 60 percent
    from either DOD or VA for injuries that were incurred due to
    involvement in ``armed conflict,'' ``hazardous service,'' ``duty
    simulating war,'' and through an instrumentality of war.\4\ Retirees
    who are eligible under this new special compensation category will no
    longer be entitled to the special compensation payments first enacted
    in 2000. The Congressional Budget Office (CBO) estimated that this new
    special compensation would cost about $6 billion over 10 years.
    ---------------------------------------------------------------------------
        \3\ As before, the statute states that these special compensation
    payments are not military retirement pay. As such, they are not subject
    to the offset provisions.
        \4\ To date, regulations have not been promulgated to implement
    this provision, including definitions for these terms.
    ---------------------------------------------------------------------------
        Table 1 shows the 2003 monthly payments amounts of the special
    compensation enacted in 2000 as well as the monthly payment amounts for
    the new category of special compensation.

        Current proposals before Congress pertaining to concurrent receipt
    would, if enacted, expand the number of those eligible to
    simultaneously receive the equivalent of their full retirement pay and
    compensation for a disability beyond the 2003 National Defense
    Authorization Act. CBO estimated that an earlier version of these
    proposals would cost about $46 billion over 10 years. Over a longer
    time horizon, the additional financial liability would be of even
    greater significance because of mounting concerns about the long-term
    fiscal consequences of Federal entitlements.

     MANY PROGRAMS USE OFFSET PROVISIONS WHEN INDIVIDUALS ARE ELIGIBLE FOR
                      BENEFITS FROM MORE THAN ONE PROGRAM

        Among the programs that provide benefits to individuals based on
    their previous work experience or their inability to continue working
    because of disability, many use offset provisions when an individual
    qualifies for benefits under more than one program. The specific
    rationales for these offset provisions vary, but they generally focus
    on restoring equity and fairness by treating beneficiaries of more than
    one program in a similar manner as beneficiaries who qualify for
    benefits under only one of the programs. Table 2 provides examples of
    benefit programs that include offset provisions. (See app. I for a
    description of these programs.)

        Some programs use offset provisions to ensure that the total
    benefits received from two programs do not exceed the total income
    received while working. For example, the Social Security Disability
    Insurance (DI) program provides benefits to insured persons to replace
    the income lost when they are unable to work because of physical or
    mental impairments. In addition to DI benefits, some individuals may
    also be eligible for workers' compensation (WC) if the illness or
    injury is work-related. WC benefits are designed to replace the loss of
    earnings resulting from work-related illnesses or injuries. Each state
    and the District of Columbia generally requires employers operating in
    its jurisdictions to provide WC insurance for their employees.\5\ The
    Social Security Administration (SSA) generally requires that DI
    benefits be reduced for persons who also receive WC.\6\ This offset
    applies when combined DI and WC benefits exceed 80 percent of the
    injured worker's average current earnings. The reduction can apply even
    if the DI and WC benefits are for unrelated injuries or illnesses. In
    1971, the Supreme Court validated the WC offset provision stating that
    it was intended to provide an incentive for injured employees to return
    to work because Congress did not believe it was desirable for injured
    workers to receive disability benefits that, in combination with their
    WC benefits, exceeded their preinjury earnings.\7\
    ---------------------------------------------------------------------------
        \5\ These programs established a mechanism to pay injured workers
    predictable levels of compensation without delay. Although WC programs
    exist in all states, the programs are not federally mandated,
    administered, or regulated. Rather, they evolved throughout the 20th
    century under state laws with the support of labor and management.
        \6\ SSA cannot offset disability benefits if the state WC program
    allows the insurers to reduce the amount of WC benefits they would
    normally pay to an injured worker when the worker also receives Social
    Security DI benefits. In 1981, Congress limited recognition of such
    exceptions to the 14 states that had established them by Feb. 18, 1981.
        \7\ Richardson v. Belcher, 404 U.S. 78 (1971).
    ---------------------------------------------------------------------------
        Some programs use offset provisions to adjust benefit computation
    formulas that were not originally designed to account for individuals
    or their dependents working under more than one retirement system. An
    example is Social Security's Government Pension Offset (GPO) provision,
    enacted in 1977 to equalize the treatment of workers covered by Social
    Security and those with government pensions not covered by Social
    Security. The Social Security Act requires that most workers be covered
    by Social Security benefits.\8\ In addition to paying retirement and
    disability benefits to covered workers, Social Security also generally
    pays benefits to spouses of retired, disabled, or deceased workers.
    Although state and local government workers were originally excluded
    from Social Security, today about two-thirds of state and local
    government workers are covered by Social Security.\9\ Prior to 1977, a
    spouse receiving a pension from a government position not covered by
    Social Security could receive a full pension benefit and a full Social
    Security spousal benefit as if he or she were a nonworking spouse. The
    GPO prevents spouses from receiving a full spousal benefit in addition
    to a full pension benefit earned from noncovered government
    employment.\10\
    ---------------------------------------------------------------------------
        \8\ Workers contribute to Social Security through payroll taxes.
        \9\ Starting in the 1950s, State and local governments had the
    option of selecting Social Security coverage for their employees or
    retaining their noncovered status. In 1983, State and local governments
    in the Social Security system were prohibited by law from opting out of
    it.
        \10\ If both spouses worked in positions covered by Social
    Security, each may not receive both the benefits earned as a worker and
    a full spousal benefit; rather each member of the couple would receive
    the higher amount of the two.
    ---------------------------------------------------------------------------
        Offset provisions are also used by state governments. For example,
    29 states and the District of Columbia permit insurers to reduce WC
    cash payments when the beneficiary also receives other types of
    benefits, such as those from Social Security retirement, survivor, or
    disability programs or from government or private pension plans. In
    addition, as required by Federal law, states must deduct from
    unemployment compensation the value of pensions, retirement pay, or
    annuities based on previous work in certain situations. The purpose of
    this offset is to reduce the incentive for retirees who receive
    pensions to file for unemployment compensation and increase their
    incentive to seek work.
        Private sector insurers also use offsets. Our study of three large
    private disability insurers \11\ found that nearly two-thirds of those
    receiving private long-term disability benefits from the three private
    insurers also received DI benefits.\12\ In such cases, the private
    disability benefit payments were generally reduced by the amount of the
    DI benefit payment.
    ---------------------------------------------------------------------------
        \11\ In 1997, these three companies covered about half of the long-
    term U.S. private disability insurance market.
        \12\ U.S. General Accounting Office, SSA Disability: Other Programs
    May Provide Lessons for Improving Return-to-Work Efforts, GAO-01-153
    (Washington, DC: Jan. 12, 2001).
    ---------------------------------------------------------------------------
    MODIFYING THE CONCURRENT RECEIPT PROVISIONS HAS IMPLICATIONS FOR THE VA
                        DISABILITY COMPENSATION PROGRAM

        In addition to the cost of the benefits, allowing concurrent
    receipt would have implications for VA program management. Allowing
    concurrent receipt of military retirement pay and VA disability
    compensation could provide new incentives for military retirees to file
    for VA compensation or to seek increases in their disability ratings
    for VA compensation that they are already receiving. These new claims
    could further tax VA's claims processing system. We recently reported
    that VA faces long-standing challenges to improve the timeliness and
    quality of disability claims decisions. In addition to creating delays
    in veterans' receipt of entitled benefits, untimely, inaccurate, and
    inconsistent claims decisions can negatively affect veterans' receipt
    of other VA benefits and services, including health care, because VA's
    assigned disability ratings help determine eligibility and priority for
    these benefits.\13\ While the cost of these new benefits and VA's
    administrative challenges in processing the claims may not provide
    sufficient bases to retain the offset, they warrant consideration in
    weighing this matter.
    ---------------------------------------------------------------------------
        \13\ U.S. General Accounting Office, Major Management Challenges
    and Program Risks: Department of Veterans' Affairs, GAO-03-110
    (Washington, DC: Jan. 2003).
    ---------------------------------------------------------------------------
                VA DISABILITY PROGRAMS FACE FUNDAMENTAL PROBLEMS

        While VA has had difficulty making decisions in a timely and
    consistent manner, VA's disability programs also face more fundamental
    problems. Our concerns about the long-standing challenges that VA faces
    in claims processing contributed to our recent decision to place
    Federal disability programs, including VA's programs, on our high-risk
    list of programs that need urgent attention and transformation to
    ensure that they function in the most economical, efficient, and
    effective manner possible.\14\ This designation was based in part on
    our finding that these programs use outmoded criteria for determining
    disability. For example, VA's disability ratings schedule is still
    primarily based on physicians' and lawyers' judgments made in 1945
    about the effect service-connected conditions had on the average
    individual's ability to perform jobs requiring manual or physical
    labor. Although VA is revising the medical criteria for its Schedule
    for Rating Disabilities, the estimates of how impairments affect
    veterans' earnings have generally not been reexamined. As a result,
    changes in the nature of work that have occurred over the last half-
    century--which potentially affect the extent to which disabilities
    limit one's earning capacity--are overlooked by the program's criteria.
    For example, in an increasingly knowledge-based economy, one could
    consider whether physical impairments such as the loss of an extremity
    still reduce earning capacity by 40 to 70 percent.\15\
    ---------------------------------------------------------------------------
        \14\ U.S. General Accounting Office, High-Risk Series: An Update,
    GAO-03-119 (Washington, DC: Jan. 2003).
        \15\ GAO-03-110. VA recognizes that there have been significant
    changes in the nature of work, but does not believe that these changes
    need to be reflected in the disability ratings. VA contends that the
    disability rating schedule, as constructed, represents a consensus
    among Congress, VA, and the veteran community, and that the ratings
    generally represent an equitable method to determine disability
    compensation. We continue to believe, as we have said in the past, that
    the current estimates of the average reduction in earning capacity
    should be reviewed. Further, we believe that updating disability
    criteria is consistent with the law. U.S. General Accounting Office,
    SSA, and VA Disability Programs: Re-Examination of Disability Criteria
    Needed to Help Ensure Program Integrity, GAO-02-597 (Washington, DC:
    Aug. 9, 2002).
    ---------------------------------------------------------------------------
        These outdated concepts persist despite scientific advances and
    economic and social changes that have redefined the relationship
    between impairments and the ability to work. Advances in medicine and
    technology have reduced the severity of some medical conditions and
    have allowed individuals to live with greater independence and function
    in work settings. Moreover, the nature of work has changed as the
    national economy has become increasingly knowledge-based. Without a
    current understanding of the impact of physical and mental conditions
    on earnings given labor market changes, VA and other agencies
    administering Federal disability programs may be overcompensating some
    individuals while undercompensating or denying benefits to other
    individuals because of outdated information on earning capacity. At the
    same time, the projected slowdown in growth of the Nation's labor force
    makes it imperative that those who can work are supported in their
    efforts to do so.
        In reexamining the fundamental concepts underlying the design of
    Federal disability programs, approaches used by other disability
    programs may offer valuable insights. For example, our prior review of
    three private disability insurers shows that they have fundamentally
    reoriented their disability systems toward building the productive
    capacities of people with disabilities, while not jeopardizing the
    availability of cash benefits for people who are not able to return to
    the labor force. As we previously reported, to fully incorporate
    scientific advances and labor market changes into the disability
    programs would require more fundamental change, such as revisiting the
    programs' basic orientation from incapacity to capacity. Reorienting
    programs in this direction would align them with broader social changes
    that focus on building and supporting the work capacities of people
    with disabilities. Such a reorientation would require examining complex
    program design issues such as beneficiaries' access to medical care and
    assistive technologies, the benefits offered and their associated
    costs, and strategies to return beneficiaries to work. Moreover,
    reorientation of the Federal disability programs would necessitate the
    integration of the many programs and policies affecting people with
    disabilities, including those of DOD and VA.
        Mr. Chairman, this concludes my prepared remarks. I would be happy
    to answer any questions that you or the other subcommittee members
    might have.

                          CONTACTS AND ACKNOWLEDGMENTS

        For further information regarding this testimony, please contact me
    at (202) 512-7101 or Carol Dawn Petersen at (202) 512-7215. Suit Chan,
    Beverly Crawford, and Shelia Drake also contributed to this statement.

        Senator Chambliss. Ladies, I thought I understood this
    issue, and you all have scrambled my brain. [Laughter.]
        Ms. Merck, I want to go back to your comments about FECA.
    Who actually participates in this program, and walk through
    with me what you said with respect to credit of military
    service under this program, what they do, and what would happen
    if we provide for full concurrent receipt?
        Ms. Merck. Starting with what the FECA program is?
        Senator Chambliss. Yes, ma'am.
        Ms. Merck. The FECA is the work-related disability program
    for Federal employees. It is somewhat analogous to veterans'
    compensation.
        Senator Chambliss. Is it a Workers' Compensation for
    Federal employees?
        Ms. Merck. Workers' Compensation for Federal employees,
    since Federal employees are not covered by their State Workers'
    Compensation programs in their Federal jobs.
        Senator Chambliss. Okay.
        Ms. Merck. Therefore, it compensates them for illness or
    injury incurred on their Federal job.
        Senator Chambliss. Okay.
        Ms. Merck. There are two components of that program. One is
    intended to be strictly indemnity payments, and generally these
    are for loss of a physical extremity, for example, and that is
    paid for a limited number of weeks. You can almost think of it
    as a lump sum payable in installments over some period of time
    that ends.
        The other is, the nonschedule awards is for lost earning
    capacity, not necessarily for loss of a physical member or part
    of your body. It is intended to be replacement, income
    replacement, and is payable for the duration of the disability
    or to death, and is similar to Workers' Comp.
        With regard to the other group of people who are military
    retirees who do their 20 or more years, retire from the
    military, draw their retired pay, then become a Federal Civil
    Service employee, under a provision in current law. When they
    become eligible to retire from their Federal Civil Service job,
    which is a minimum of 5 years (very often it is much more in
    actual service), they may take Civil Service retirement. Again,
    let us say hypothetically it is a 20-year military career. Let
    us say they have had 15 years in the Civil Service. Instead of
    continuing to receive their military retired pay from the DOD
    based on their 20 years in the military and getting a Civil
    Service annuity based on only 15 years of service, they can
    have a combined benefit based on 35 years of service computed
    using their high-three pay as a Federal employee.
        They no longer receive a check, so to speak, from the
    Department of Defense. They waive that. They waive it because
    the combination of their 15-year Civil Service and their 20
    years of military gives them a Civil Service annuity under one
    program. The CSRS, a now-closed program, that is larger than
    the combination of their military retired pay had they
    continued to receive it, plus a 15-year annuity from the Civil
    Service.
        Senator Chambliss. What does Senator Reid's bill do to that
    individual?
        Ms. Merck. I do not believe it would do anything to that
    individual.
        The issue here is, once a retiree, but military/Civil
    Service retiree has waived retired pay and is getting only one
    retirement income through the Civil Service Retirement System,
    he or she may draw in full their veterans compensation without
    any offset.
        It is claimed by some that this is unfair, since part of
    that retirement benefit is based on military service. It is
    just the fact that it no longer flows through the DOD and
    through the military retirement system, but because there is no
    longer any benefit flowing from the DOD to the person. There is
    no provision in law to offset a Civil Service annuity by the
    amount of the veterans compensation, and at this point that is
    all a person is getting in terms of retirement income.
        Senator Chambliss. When does a Federal employee start
    becoming vested under the current retirement system?
        Ms. Merck. Five years for both the CSRS, which as I said is
    a closed system now, although many people are still in it--it
    is 5 years for both CSRS and the Federal Employees Retirement
    System, or FERS, as it is known.
        Senator Chambliss. Okay. Ms. Jennings, with respect to the
    assumptions which you have used in your numbers, and by the
    way, what would the total number be for the light blue bar
    graphs that you have there? Do you have that number, as to what
    the cost would be?
        Ms. Jennings. For that year, September--that was 2001. I
    believe the cost was around $2.6 to $2.8 billion.
        Senator Chambliss. With respect to the assumptions that you
    used in developing your numbers, I assume you heard what
    Secretary Cooper said about these 50,000 additional claimants
    that may be forthcoming under the VA. Was anything like that
    factored in, or did you just use the basic numbers that we have
    of people on the rolls today?
        Ms. Jennings. I did include some analysis, or some
    additional people that would have a new incentive. This is just
    a snapshot of what the actual costs would have been in 2001, so
    no, that would not have changed, but going forward in my cost
    estimate, I assumed a couple of different groups of people
    might decide to apply for veterans disability.
        The first group were people that are receiving a military
    disability retirement. Many of those individuals, the
    retirements are partially or totally tax-free, so unless they
    expected to get a larger benefit from VA than they were getting
    from their retirement, there would be no tax incentive to apply
    to VA for a disability benefit from them, so they would not
    have had cause to apply. Under concurrent receipt they would
    have good cause to apply, and I discovered how many of them
    there were at the current time and the current growth rate of
    that population. I assume those individuals would indeed apply
    for veterans compensation.
        I also looked at the population of nondisability retirees.
    As I mentioned in my testimony, the rate of nondisability
    retirees applying for veterans compensation has been growing
    quite substantially, and so in my baseline of costs I assumed
    that continued growth rate regardless of whether concurrent
    receipt passes or not.
        Under concurrent receipt, I assumed that the growth rate
    would accelerate somewhat, but by the end of the decade we
    would still be where I was predicting that we would be without
    concurrent receipt. That would be that 45 percent of the entire
    nondisability population would be receiving veterans
    compensation.
        We have just gotten into the most recent data, the 2002
    data, and I have slightly underestimated the cost in my last
    year's estimate. This year's estimate, when we put the new
    population in and look at the growth rates, will actually go up
    a little bit. We will see even higher growth rates than I was
    predicting.
        Senator Chambliss. Significantly higher, or minimally?
        Ms. Jennings. Not a huge jump, but I think the 2001 cost
    was around $2.6 billion, if I recall. It looks to me from a
    preliminary look at the data that for 2002 population, had they
    been receiving concurrent receipt, it would have been over $3
    billion, so that is a handsome growth rate, and we are
    projecting that that will continue.
        In the late 1980s, the VA and the DOD started working
    together to make it easier for individuals separating from the
    military to apply for veterans disability. It became part of
    the separation process. An individual from the VA will come
    over to the bases and there will be a class, part of your
    checklist of separating is, you will go to this class with a VA
    individual who will explain all your benefits.
        VA began to use the DOD separation physical as their
    physical so you did not have to go over to VA and arrange for a
    separate physical, and they assisted you before you had
    separated in filing your application to VA. Looking at the data
    since that time there has been a really great increase in the
    percent of retirees that are applying for those benefits and
    receiving them, and as those new cohorts move into the
    population, of course, the population of military retirees is
    people dating back to World War II, and this is just cohorts
    joining that population since the late 1980s.
        As they become a larger and larger part of that population,
    I have been expecting that the percentage would go up to
    something resembling what the current cohorts are receiving,
    but maybe--the most recent one at 56 percent, I just got that
    data, and that is what is making me consider that maybe 45
    percent is too low, and that there will be even more people.
        This is without concurrent receipt being passed, so it
    seems that it is not necessary for concurrent receipt being
    passed for lots of people to be applying to the VA, so I did
    not have an exceptionally large group of additional
    nondisability retirees applying. I think it got up to about
    70,000 in 2006, and after that, I let that group kind of tail
    off. They were already represented within my baseline.
        Senator Chambliss. Senator Nelson.
        Senator Ben Nelson. Thank you, Mr. Chairman.
        Ms. Merck, it seems to be true that a Federal employee
    injured in his or her own Federal employment may not receive
    both disability and retirement benefits, but what about someone
    who is injured while serving in the military who then goes to
    work as a civilian employee of the Federal Government? If this
    employee retires, does he or she forfeit part or all of his or
    her retirement the same way that a military retiree might?
        Ms. Merck. If I follow your question, you are asking if a
    veteran who goes--not a military retiree, but someone who did
    less than 20 years goes to work for the Civil Service, that
    person during his or her employed years draws the VA
    compensation concurrently with the Civil Service salary, and
    then upon retirement from the Civil Service continues to draw,
    draws the Civil Service annuity plus the veterans compensation.
    If the person is injured on the Federal job and draws FECA
    payments and the person is eligible for either disability
    retirement under the Federal program or retirement based on
    age, they must choose either the FECA benefit or the retirement
    benefit, but they may not receive both.
        Senator Ben Nelson. They can choose to their benefit, if
    one is higher than the other?
        Ms. Merck. Absolutely. That is the nature of the choice,
    yes.
        Senator Ben Nelson. Of course, FECA is the Federal approach
    to a State Workers' Comp program or private enterprise
    employment that involves Workers' Comp.
        Ms. Merck. Yes.
        Senator Ben Nelson. Then your report, although it was
    written in 1995, the distinction between military retired pay
    and pensions, I think that is an important distinction. Can you
    help us understand the distinction between military retired pay
    and a pension. Tell us how this distinction should be
    considered in determining whether a military retiree should be
    required to forfeit part of his or her retired pay versus what
    they might receive in a pension?
        Ms. Merck. Now, you are talking about pensions not in the
    VA program sense, which is an earnings based, an income-
    determined program.
        Senator Ben Nelson. That is correct.
        Ms. Merck. Military retired pay is not called a pension
    because it is considered reduced pay for reduced duties in some
    ways, and up to a certain age the retiree is eligible, is
    subject to potential recall.
        It is payable earlier, military retired pay, is payable
    without an age constraint. It is only based on years of
    service, 20 years. Virtually all pension programs, as we think
    of them, using that term somewhat generically, as in retirement
    benefit for a retired worker, is virtually always age-
    conditioned as well as years-of-service conditioned, 55 being
    occasionally the age for retirement, 62. It is usually timed
    with Social Security, which is first payable under the Social
    Security Retirement System at age 62, so the military retiree,
    as early as age 38, for example, for someone who joins at 18,
    is payable immediately upon completion of 20 years and for
    life.
        Senator Ben Nelson. Even though it is applied in a
    different way, is there truly a meaningful distinction between
    pension and retired pay, a meaningful distinction? I think they
    can be calculated. You can have a benefits-based, or you can
    have contribution-based pensions, and they are different, but I
    fail to see a significant difference between what a pension is
    and what retired pay truly is. They may kick in at different
    time frames and under different circumstances, but the result
    is still the same.
        Ms. Merck. This is an artifact of the military system, in
    that they have never--the term pension, which actually goes
    back to the Revolution when I did the history of these things,
    has been used differently to mean different things, and in the
    military world that word has come to be associated with some
    sort of a disability benefit. It has never been used in the
    military to describe retired pay, because they do--it is said
    that the military retired pay is actually reduced pay for
    reduced duties, given that you are subject to recall for a
    certain period of time. They do not refer to it as a pension.
        Senator Ben Nelson. But even with Social Security you could
    have retired benefits based on early retirement. In other
    words, you retire at 62, you take reduced benefits.
        Ms. Merck. That is right.
        Senator Ben Nelson. Very similar in that regard. I am
    having trouble understanding why the military draws this
    distinction, because the result is the same, but the way in
    which it seems to be applied is different.
        Ms. Merck. Let me see if I understand your question; you
    are asking why the military distinguishes retired pay from a
    pension and they do not consider----
        Senator Ben Nelson. From Social Security, because it has a
    same, similar type of application. It may be different ages
    where it kicks in, it may be different levels of contribution,
    or no contribution.
        Ms. Merck. You could apply the word pension, no reason you
    could not, to the military retirement system. It is just that
    they do not. It is a term that is used in the veterans programs
    already, and so it has a certain meaning within the whole
    sphere of military service and veterans benefits.
        It is, as I said, distinct from pension programs, which we
    call defined benefit pension programs, that is, programs under
    which the benefit is determined only by a formula, not by an
    accumulating account balance of contributions.
        Senator Ben Nelson. As opposed to a defined contribution.
        Ms. Merck. As opposed to a defined contribution plan.
        The military system has only one criteria, and that is
    years of service, which is 20 years of service. Virtually all
    other pension programs--programs that refer to themselves as
    pension programs--have both an age and service requirement
    before benefits are payable. The military sort of implicitly
    has that because of the earliest age at which you----
        Senator Ben Nelson. Just at an earlier retirement----
        Ms. Merck.--can join the military--yes.
        Senator Ben Nelson. Right.
        Ms. Merck. Yes, but they do not require that you wait until
    some older age, as most pension programs in the private and
    civilian public sector do.
        Senator Ben Nelson. Okay. Thank you, Mr. Chairman.
        Senator Chambliss. We keep directing these questions to
    you, Ms. Merck, but I want you ladies to feel free to jump in.
    All of you have so much more expertise than we do.
        Let me give you an example, going back to this situation of
    accumulation of years. Let us say you get an 18-year-old who
    goes into the military, stays there 20 years, goes to work then
    in a Civil Service position for 10 years. That 10 years that
    person is in that Civil Service position, are they eligible to
    draw military retirement?
        Ms. Merck. Yes.
        Senator Chambliss. They do draw it?
        Ms. Merck. Yes.
        Senator Chambliss. Now, at the end of that 10 years, they
    go into the private sector, they are still drawing their
    military compensation, they are actually eligible for Civil
    Service retirement with 30 years of work history.
        Ms. Merck. They may elect to do that.
        Senator Chambliss. Are they eligible to then draw their
    Civil Service retirement?
        Ms. Merck. Yes, if they then move on to a private sector
    employer?
        Senator Chambliss. Right.
        Ms. Merck. Yes, and if they become eligible under that
    employer's retirement system, they may draw a benefit from it
    the way anybody changing jobs throughout life, for employers
    that have retirement programs, you may always draw the benefit
    to which you are entitled, in addition to all your others.
        Senator Chambliss. Okay. Now, in addition to that, they
    draw retirement from their employer, but they have also paid
    into the Social Security system for those 15 years, so they are
    also eligible for Social Security benefits. Now, is there any
    offset other than being able to claim the 20 years in military
    service, to get the Civil Service retirement? Is there any
    other offset involved in that scenario?
        Ms. Merck. This gets very complex. Let us take a simple
    case. The answer is basically no.
        When Congress decided in 1956 to cover active duty military
    service under the Social Security system, they did so primarily
    to improve the adequacy of widows or widowers benefits for
    veterans as I recall in reading through the history of the
    committee's consideration of covering military service with
    Social Security. They wanted, as a result of the Second World
    War, to improve the survivor benefits to the spouses of
    disabled veterans, or veterans who were killed in the war, they
    covered active duty Civil Service with Social Security.
        They realized in the backs of their minds that that would
    mean eventually that an active duty individual could retire,
    could stay for the full 20 years, draw military retirement, and
    draw Social Security. They decided not to think about that at
    the time, and so full Social Security benefits are payable in
    addition to full military retirement benefits based on the same
    period of service.
        Interestingly enough, when that person dies, and if that
    person leaves a surviving spouse, then there is an offset.
        Senator Chambliss. Okay. Let me give you the same basic
    scenario with one exception. Let us say, instead of serving 20
    years, that same individual serves 19 years and then has a
    significant injury that is a 40 or 50 percent disabling injury,
    but the same follow-on scenario is there, that they go to work
    in Civil Service, they are drawing a disability claim then, not
    a retirement claim, and then they ultimately go into the
    private sector. Is there an offset that would take place under
    that scenario since it is a disability claim versus a military
    retirement claim?
        Ms. Merck. Let me--if a person is drawing disability from
    which, the military----
        Senator Chambliss. Let us say, instead of retiring at the
    end of 20 years, at the end of 19 years.
        Ms. Merck. The person leaves the military before being
    vested at 20 years.
        Senator Chambliss. Yes, and he had a limb blown off or
    something, so he has a disability claim.
        Ms. Merck. Against which program, the veterans compensation
    program?
        Senator Chambliss. Yes.
        Ms. Merck. Or the military disability retirement?
        Senator Chambliss. A military disability claim, instead of
    a military retirement claim.
        Ms. Merck. If it is a case of military disability
    retirement, then that person draws a retirement benefit--there
    are two different formulas under which the military computes
    the benefit for the individual. It is one or the other,
    whichever is higher, but that person is treated like a military
    retiree.
        Senator Chambliss. So there is no difference.
        Ms. Merck. There is no difference in that.
        Senator Chambliss. There is no offset in either scenario?
        Ms. Merck. No.
        Senator Chambliss. Okay. Anything else? Ladies, we could
    probably sit here and listen to you all afternoon. You all are
    a great brain trust, and we appreciate very much your being
    here today and giving us your expertise. This issue is not
    going away, and it is an issue we are going to resolve somehow,
    and we would sure appreciate your continued dialogue with us,
    and letting us call on your expertise down the road.
        Ms. Bascetta. If I may just make a quick comment, obviously
    the intricacies are overwhelming, and I can understand why you
    feel like your brain is a bit scrambled, but if I could just
    for a minute offer this, I think the discussion we have just
    been having is a perfect example of why there are three basic
    things we have to keep in mind when we are trying to assure
    fairness, not only for military retirees and veterans, but for
    anybody who is in a situation where they retire with a
    disability.
        Those three things are, what is the underlying purpose of
    the compensation. How do we feel about the adequacy of the
    benefits? What are the rationales for the offsets and are they
    consistent across programs? What are the interactions between
    the programs? In some of these cases where we have been talking
    about a situation where VA disability is not offset, perhaps
    the answer is not concurrent receipt. Looking at whether there
    ought to be an offset in another program to be fair. So that is
    why again we say that we are concerned about adding another
    patch to a disability policy system that really at this point
    is very fragmented. It could have lots of unintended
    consequences.
        Senator Chambliss. I agree with you. If we are going to
    look at this aspect of it, it makes sense probably to look at
    all other forms of compensation to see where the equities and
    inequities are. You make a good point.
        Ladies, again, thank you very much.
        Our next panel, Mr. Strobridge, Mr. Butler, and I think I
    mentioned Mr. Slee, but instead of Mr. Slee, he is being
    replaced by Colonel Dennis Duggan, which I am sorry I did not
    mention that earlier, Colonel Duggan, but we are sure glad to
    have all three of you gentlemen with us today. Thanks to you
    also for your significant interest in this issue, as well as
    your expertise. As I told our previous panels, we certainly
    will be glad to put into the record any written statement you
    would like to have inserted, and we look forward to your
    abbreviated oral comments.
        Colonel Strobridge, we will start with you.

     STATEMENT OF COL. STEVE STROBRIDGE, USAF (RET.), DIRECTOR OF
     GOVERNMENT RELATIONS, MILITARY OFFICERS ASSOCIATION OF AMERICA

        Colonel Strobridge. Thank you, Mr. Chairman and
    distinguished members of the subcommittee. On behalf of the 33
    associations of the military coalition, I do want to thank you
    for holding this important hearing. Going on the last panel,
    when you hear things you want to add your 2 cents, and I have
    been scrambling through my oral notes trying to cut out some
    things so that I have a little more time to respond to a few of
    the things that I think are important.
        We are encouraged that through the efforts of the committee
    and the committee's leaders that we have at least begun to
    address the current inequity in a substantive way, and we are
    encouraged from our discussions with Defense officials, as
    Secretary Abell said, that they intend to implement by the 1st
    of June. We do hope that there will be an aggressive outreach
    program. We certainly will participate in that, and we hope
    that the Department will work to mail applications to certain
    identifiable people who have high probability of being
    eligible.
        On the legislation itself, we are concerned that last-
    minute changes in the eligibility language made last year
    excluded combat-disabled Guard and Reserve retirees. The DOD
    general counsel has ruled that those retirees must have 7,200
    retirement points to qualify. That is the equivalent of 20
    years of full-time active duty, and the coalition believes this
    is an unreasonable and a discriminatory requirement, given that
    those members by law cannot accumulate more than 90 points in
    any given year.
        Many retired reservists, including some from Desert Storm,
    have been awarded Purple Hearts and have serious combat-related
    disabilities. Their Guard and Reserve status certainly did not
    protect them from being wounded, and the coalition believes
    strongly that they should not be discriminated against by this
    legislation.
        Looking to the future, we share Senator Warner's view that
    last year's authority was a beachhead, and that much more
    remains to be done. A member is no less disabled in his or her
    quality of life, and future earnings power is no less
    compromised because the disability was caused by military
    duties that do not involve combat or weaponry.
        Last year, for example, an Air Force senior NCO lost her
    hands when a person she had disciplined sent her a mail bomb.
    Other examples of disabled retirees who probably will not be
    covered by the current law, include a hospital corpsman who was
    exposed to HIV in the course of his or her duties, an MP
    injured while responding to an incident, or a firefighter
    injured in the line of duty.
        The coalition's ultimate objective remains the same as that
    endorsed by 90 percent of the House and 83 percent of the
    Senate last year--full concurrent receipt.
        I would like to take issue with a few of the comments made
    by the previous panel. Many of the offsets mentioned in the
    GAO's study involve welfare aspects of Social Security and
    other programs that are progressive programs that are designed
    specifically to protect people with low incomes. Military
    retired pay and VA disability compensation are very different
    from those programs. Those are both 100 percent earned programs
    as a result of an individual's service, and we do not think
    that that is a good comparison.
        Second, military service to our country is fundamentally
    different from civilian service. The conditions of service are
    much different, and so we are not convinced of the issue of
    consistency between military and civilian treatment. The
    Government has different obligations to military people than a
    private employer does to its workers.
        Third, we do not accept the rationale of administrative
    burdens on the VA claims system as a rationale not to make
    change. That is like saying we do not want to give a pay raise
    because it is too hard to reprogram the computers. In our view,
    the clerk's workload is certainly not more important than
    taking care of the disabled retirees.
        Finally, on the issue of VA reform, reasonable people have
    been arguing over VA reform for decades. Secretary Cooper
    testified that the VA has, in fact, been updating their
    process, and are going to continue to adjust those processes.
    Very frankly, people are going to continue to debate these, and
    there will always be some people who think the VA should go
    farther. To us, we should not wait until that is resolved to
    take care of disabled retirees, because we will wait a very
    long time.
        The other issue that I would like to address is the issue
    about the impact of concurrent receipt on retention. Very
    frankly, people on active duty, most of them do not realize
    that they will lose part of their retired pay if they become
    disabled in the course of service. What they are told, and I
    used to write those retention brochures when I was in the
    Service, if you stay 20 years, you will receive your retired
    pay. There is no asterisk that says, except if you become
    disabled. Retirees are shocked to find out there is a
    disability offset.
        Senator Nelson, you hit the nail on the head when you were
    talking about a veteran who serves a few years and becomes
    eligible for a Federal civilian retirement. It does not take
    very much for that person to roll those few years of military
    service into the Federal retirement. They talk about not
    drawing two benefits for the same service. That is exactly what
    happens in those cases. They are receiving full Government
    retirement and their VA disability compensation, so you are
    very accurate in identifying that situation.
        Sir, that took more time than I had intended to. I
    apologize, and I appreciate your attention.
        [The joint prepared statement of Colonel Strobridge and
    Sergeant Lokovic follows:]

    Joint Prepared Statement by Col. Steven P. Strobridge, USAF (Ret.) and
                      CMSgt. James E. Lokovic, USAF (Ret.)

        Mr. Chairman and distinguished members of the subcommittee. On
    behalf of The Military Coalition, a consortium of nationally prominent
    uniformed services and veterans' organizations, we are grateful to the
    subcommittee for this opportunity to express our views concerning
    issues affecting the uniformed services community. This testimony
    provides the collective views of the following military and veterans'
    organizations, which represent approximately 5.5 million current and
    former members of the seven uniformed services, plus their families and
    survivors.

             Air Force Association
             Air Force Sergeants Association
             Air Force Women Officers Associated
             AMVETS (American Veterans)
             Army Aviation Association of America
             Association of Military Surgeons of the United States
             Association of the United States Army
             Chief Warrant Officer and Warrant Officer Association,
            U.S. Coast Guard
             Commissioned Officers Association of the U.S. Public
            Health Service, Inc.
             Enlisted Association of the National Guard of the
            United States
             Fleet Reserve Association
             Gold Star Wives of America, Inc.
             Jewish War Veterans of the United States of America
             Marine Corps League
             Marine Corps Reserve Officers Association
             Military Chaplains Association of the United States of
            America
             Military Officers Association of America
             Military Order of the Purple Heart
             National Guard Association of the United States
             National Military Family Association
             National Order of Battlefield Commissions
             Naval Enlisted Reserve Association
             Naval Reserve Association
             Navy League of the United States
             Non Commissioned Officers Association
             Reserve Officers Association
             Society of Medical Consultants to the Armed Forces
             The Retired Enlisted Association
             United Armed Forces Association
             United States Army Warrant Officers Association
             United States Coast Guard Chief Petty Officers
            Association
             Veterans of Foreign Wars
             Veterans' Widows International Network

        The Military Coalition, Inc., does not receive any grants or
    contracts from the Federal Government.

           RESTORING EQUITY FOR DISABLED UNIFORMED SERVICES RETIREES

        The Military Coalition is grateful to the subcommittee for its
    historical support of maintaining a strong military retirement system
    to help offset the extraordinary demands and sacrifices inherent in a
    career of uniformed service.
        We are particularly appreciative of your strong support in last
    year's effort to win concurrent receipt of retired pay and veterans
    disability compensation. The bipartisan support in the subcommittee and
    the full committee, and especially the personal intervention of Senator
    Warner with the White House, was essential to ensuring a positive
    outcome on this long-standing and hard-fought inequity.
        Clearly, the Coalition was disappointed that agreement could not be
    reached by last year's conference committee to provide unconditional
    concurrent receipt in the Fiscal Year 2003 National Defense
    Authorization Act, and we believe the subcommittee shares that
    disappointment. But we very much appreciate the ``first ever''
    provisions that will effectively eliminate the disability offset for
    certain retirees who were severely disabled by combat and operations-
    related incidents. This successful action to establish a ``beachhead''
    in law is very significant in recognizing that military retired pay and
    veterans disability compensation are paid for different purposes, and
    one should not offset the other.
        The Coalition has long held that retired pay is earned compensation
    for completing a career of arduous uniformed service, while veterans
    disability compensation is paid for loss of function and future earning
    potential caused by a service-connected disability.
        Previous attempts to fix this inequity have all been met with the
    same response--the cost is too large. But, the cost to men and women in
    uniform who have been injured while serving this Nation is far greater.
    Because of cost concerns, last year's authority was limited to a very
    special group of disabled retirees--those injured in combat, or other
    combat related operations. But there are thousands of deserving
    disabled retirees who have been left behind.
        No one disabled in the course of serving his or her country should
    have to forfeit an earned retirement--for years of faithful and
    dedicated service--in order to receive VA disability compensation for
    the wounds, injuries, or illnesses incurred in such service.
        The Coalition believes strongly that the 90 percent cosponsorship
    support that existed in the 107th Congress was inconsistent with the
    outcome, and that further action is essential to address the grossly
    unfair financial penalties visited for so long on those who already
    have suffered most for their country--military retirees disabled as a
    result of their service.
        The Coalition has three particular concerns as we move forward.
        First, we are hopeful that the Department of Defense will exercise
    the full authority provided in the new law, that it will be implemented
    on time, and that the application and approval process will be
    transparent and timely.
        Second, we are concerned that, during last-minute final
    negotiations on the Fiscal Year 2003 Defense Authorization Act, changes
    in eligibility language inadvertently omitted certain classes of
    disabled retirees who otherwise fall within the criteria enacted into
    law.
        Third, we believe that implementation of the new law will highlight
    significant new inequities that illustrate why broader legislative
    authority is essential to provide fair treatment to those retired
    members who became disabled from service-connected causes during the
    course of their military careers.
    Implementing the New Authority
        Last December, representatives of the Coalition and other
    associations had an opportunity to meet with Defense and VA officials
    to discuss the numerous issues of principle and process that will have
    to be addressed in implementing the new special compensation rules. In
    the course of that meeting, we offered a number of recommendations for
    consideration by the Departments in constructing their implementation
    plan. These recommendations addressed seven different areas, as
    follows:
        Qualification Criteria
        The Coalition believes qualification guidelines:

              a. Should use a rule of ``substantial evidence,'' consistent
            with VA guidelines rather than placing the full burden of proof
            on the disabled retiree;
              b. Should use VA presumptions on disabilities already
            determined by the VA to be associated with Agent Orange, Gulf
            War Syndrome, Post-Traumatic Stress Disorder, and atomic/
            nuclear testing;
              c. Should cover any disability incurred in a combat zone;
              d. Should cover secondary conditions determined by the VA to
            be related to b. and c. above; and
              e. The Government should bear responsibility for mining DOD/
            VA records data for verifying information.
        Due Process
        The Coalition believes:

              a. There should be a three-stage decision process on
            applications (initial decision, appeal, and review by the Board
            for Correction of Military Records); and
              b. The applying member should have the right of
            representation if he/she chooses.
        Timeliness
        The Department of Defense:

              a. Should establish a reasonable timeliness standard for
            completion of the approval process once an application is
            received; and
              b. Should seek to identify types of cases in which a
            qualifying disability is readily verifiable and automate
            approval in such cases.
        Consistency
        The Department must establish guidelines and feedback mechanisms to
    ensure consistency of approvals among all Services and locations.
        Outreach
        The Departments of Defense and Veterans' Affairs should make
    concerted efforts to notify potentially eligible retirees of the new
    special compensation program by letter, pay statement notice, retiree
    newsletter items, and all other means of communication. Coalition and
    other associations will provide maximum publicity as well, but there
    are many disabled retirees who are not members of such associations.
    This program is too important to them not to make every effort to
    ensure all eligibles are informed of it.
        Payments
              a. Payments should be retroactive to the date of qualifying
            disability award or June 1, 2003, whichever is later,
            regardless of when a member applies for the compensation. The
            precedent should be the previous implementation of the
            Forgotten Widows Survivor Benefit Plan, which also required an
            application and approval process. Qualifying disabled retirees
            should not be penalized financially because they were late in
            hearing about the program.
              b. If an applicant dies before processing of the application
            is completed, processing should be continued for payment to the
            survivor of any amounts (retroactive to the date of the
            disability award or June 1, as indicated above) the member
            would have been due up to the date of death.
              c. If a disabled retiree dies after June 1, 2003, but before
            applying for the new special compensation, his or her survivor
            should be eligible to apply for any amounts that otherwise
            would have been payable to the disabled member between the
            effective date and the date of death.

        The Coalition urges the subcommittee to request an advance letter
    report from the Department of Defense on its implementation progress,
    including the extent to which it plans to incorporate the above
    Coalition recommendations in that process.
    Technical Exclusions from Eligibility
        The Coalition is very concerned that eleventh-hour technical
    changes in the eligibility language of last year's special compensation
    compromise effectively--and we hope inadvertently--excluded certain
    categories of disabled retirees who otherwise meet all the criteria for
    payment.
        First, the language change resulted in excluding virtually all
    National Guard and Reserve retirees with 20 years of creditable service
    and combat-related disabilities. This is because the DOD General
    Counsel has interpreted the language of the law as requiring combat-
    disabled Guard and Reserve retirees to have accumulated 7,200
    retirement points (the equivalent of 20 years of full-time active duty)
    to be eligible for the special compensation. This is an unreasonable
    and discriminatory requirement, given that members in Guard and Reserve
    status may not, by law, accumulate more than 90 points per year unless
    recalled to full-time active duty. Until a few years ago, the annual
    limit was 75 points.
        There are many retired reservists--including many who were recalled
    for Operation Desert Storm--who have been awarded Purple Hearts and who
    have serious combat-related disabilities. Their Guard or Reserve status
    did not protect them from being wounded on the battlefield, and the
    Coalition believes strongly that they should not be discriminated
    against by this legislation.
        Second, there is a very limited number of otherwise qualifying
    disabled retirees who received nondisability retirements with 15 to 19
    years of service during the drawdown of the early 1990s and who also
    have otherwise-qualifying combat-related disabilities. In some cases,
    these members qualified under the temporary early retirement authority
    for additional military service credit based on their subsequent
    employment in certain DOD-designated public service positions. These
    members earned their military retirement independently of their
    disability and should be eligible to receive the special compensation
    if their disabilities would otherwise qualify.
        Finally, enlisted retirees who were awarded one of the top two
    decorations for valor are authorized an extra 10 percent in retired pay
    (within the maximum limit of 75 percent of basic pay). The Coalition
    believes strongly that the modest extra retired pay awarded these
    members for their combat heroism should not be subject to the
    disability offset.
        The Military Coalition urges subcommittee leaders and members, as a
    minimum, to amend last year's authority to include certain otherwise-
    qualifying Guard and Reserve retirees, Early Retirement Authority
    retirees, and enlisted retirees with high decorations for extraordinary
    valor.
    Looking to the Future
        The Coalition agrees strongly with the words Senator Warner used
    last year in describing the new special compensation authority as a
    ``beachhead'', recognizing that more remains to be done to ensure fair
    treatment for thousands of deserving disabled retirees whose service-
    connected disabilities did not happen to occur because of combat- or
    operations-related conditions.
        A member is no less disabled, and his or her quality of life and
    future earnings power are no less compromised, because the immediate
    cause of a significant disability was a circumstance of service that
    did not directly involve weaponry or enemy action. The Coalition is
    convinced that the implementation of the new special compensation
    authority will highlight both the difficulties and the inequities
    associated with attempts to make such distinctions among members with
    equally severe disabilities.
        We know the subcommittee looks forward, as the Coalition does, to
    assessing the kinds of cases that qualify under DOD's implementation
    rules versus those that do not, and identifying ways to address the new
    inequities we believe are certain to arise.
        The Coalition's ultimate objective remains the same as that
    endorsed by 90 percent of the House and 83 percent of the Senate last
    year--full concurrent receipt of uniformed services retired pay and
    veterans disability compensation. If an interim step is required, the
    Coalition believes special compensation eligibility should be extended
    to otherwise qualifying disabled retirees whose disabilities are
    directly related to their performance of their assigned military
    duties.

                                   CONCLUSION

        The Military Coalition reiterates its profound gratitude to the
    subcommittee and to the committee's leadership for the important
    philosophical breakthrough achieved last year in taking such a
    significant step toward easing the unfair financial penalties imposed
    on disabled uniformed services retirees. The Coalition is eager to work
    with the subcommittee in continued pursuit of this key goal.
        Thank you very much for the opportunity to present the Coalition's
    views on this very important topic.

        Senator Chambliss. Thank you.
        Master Gunnery Sergeant Butler.

     STATEMENT OF MASTER GUNNERY SERGEANT BENJAMIN H. BUTLER, USMC
     (RET.), DEPUTY LEGISLATIVE DIRECTOR, NATIONAL ASSOCIATION FOR
                         THE UNIFORMED SERVICES

        Sergeant Butler. Thank you, Mr. Chairman.
        Mr. Chairman, the National Military Veterans Alliance is
    very grateful for the invitation to testify before you today. I
    want to talk about the combat-related professional compensation
    in a bit, but I would like to talk about full concurrent
    receipt, since our legislative priority continues to be
    concurrent receipt.
        Prevention of concurrent receipt became a law back in 1891
    related to Mexican War veterans. As we all know, the issue of
    pay for Mexican War veterans is now resolved, so it is time for
    a change. It is simply not right that the monthly compensation
    for a service-connected 100 percent disabled retiree, E-8,
    Master Sergeant, with 23 years of service, is $16 per month
    less than that of a Corporal E-4 who served 4 years, and has a
    VA disability of 100 percent for falling off a motorcycle.
        On the new special compensation, and I have heard it called
    CRSC today, and I will call it that, the law for CRSC passed
    late last year, and it gave DOD 180 days to design and
    implement the program. That puts the action date around 1 June
    for implementation. Based on that looming date, I would like to
    make a couple of recommendations.
        First, we would like to provide more input to DOD from our
    constituents as they develop the implementation procedures. So
    far, we have had one very good meeting with the Pentagon. We
    would encourage more. We found that one of the best examples of
    interaction between DOD and the beneficiary associations was
    during the implementation of TRICARE for Life. The TRICARE
    management activity hosted close to 60 meetings, and provided
    us updates, and asked for our input. That interaction we feel
    was very valuable for both parties, and we offer this as a
    model that DOD might consider in their current undertaking, and
    from what I understand, we have one more meeting scheduled
    right now.
        Second, we are concerned about the burden of proof that
    will fall on retirees. Especially those older folks that fought
    in World War II and Korea. We feel the burden to produce
    evidence that may fall on them will be a heavy one. I have
    heard some discussion today about some of the ways they are
    looking at doing that, and it sounds like we are headed in the
    right direction. It is something we need to keep a watchful eye
    on. Really, we would like to see the majority of that burden of
    proof placed on those who have easier access to the records.
        Finally, there is a very worthy group that Colonel
    Strobridge mentioned. I would like to talk about it a little
    bit. That is our retired reservists. As it stands right now, a
    reservist needs 7,200 points to qualify for this special
    compensation. To put that in perspective, a member who spends 3
    years on active duty and then switches to the Reserves, in
    addition to the normal Reserve time of 1 weekend per month and
    2 weeks during the summer, would have to spend 41 percent of
    each year on active duty for 27 years. That is simply
    unattainable. It is particularly outrageous that this includes
    those reservists who have received the Purple Heart.
        Representative Bilirakis has been working with the National
    Military Veterans Alliance and the Military Coalition on
    Language to correct this inequity. We strongly recommend that
    the law be changed to allow any reservist who qualifies for
    retirement and also qualifies for the CRSC to be awarded the
    compensation.
        The bottom line on this is that although it is not full
    concurrent receipt, there continues to be a legislative
    priority for our members. Who among us can deny that the
    combat, combat-related disabled retirees should take the first
    bite of the fruit of our collective efforts. The bottom line
    is, it is a good start, but there is a lot of work left to do.
        On one last related topic, the first group, we always must
    include is our widows. One recent topic that has gained much of
    our interest is concurrent receipt of the survivor benefit
    plan, and dependency and indemnity compensation, or DIC, and
    how it affects our widows. We call this the other concurrent
    receipt issue. The husbands pay for a survivor benefit plan,
    and when the service member dies of a service-related
    condition, the Government offsets this survivor benefit plan
    dollar for dollar by the amount of dependency and indemnity
    compensation the widow receives. We strongly support ending
    this offset.
        There is a bill recently introduced by Senator Nelson from
    Florida. This bill, S. 585, would end the offset. The National
    Military Veterans Alliance strongly supports this legislation,
    and any legislation that takes care of those that we leave
    behind.
        Thank you, Mr. Chairman.
        [The prepared statement of Sergeant Butler follows:]

                 Prepared Statement by Sgt. Benjamin H. Butler

                                  INTRODUCTION

        Mr. Chairman and distinguished members of the subcommittee, the
    National Military Veterans Alliance (NMVA) is very grateful for the
    invitation to testify before you and present our views and suggestions
    concerning current and future issues of concern to the military
    community.
        The Alliance was founded in 1996 as an umbrella organization to be
    utilized by the various military and veteran associations as a means to
    work together towards their common goals. The Alliance's organizations
    are:

            American Logistics Association
            American Military Retirees Association
            American Military Society
            American Retiree Association
            American World War II Orphans Network
            AMVETS National Headquarters
            Catholic War Veterans
            Class Act Group
            Gold Star Wives of America
            Korean War Veterans Foundation
            Legion of Valor
            Military Order of the Purple Heart
            National Association for Uniformed Services
            National Gulf War Resource Center
            Naval Enlisted Reserve Association
            Naval Reserve Association
            Society of Medical Consultants to the Armed Forces
            Society of Military Widows
            The Retired Enlisted Association
            TREA Senior Citizens League
            Tragedy Assistance Program for Survivors
            Uniformed Services Disabled Retirees
            Veterans of Foreign Wars
            Vietnam Veterans of America

        The preceding organizations have almost 5 million members who serve
    our Nation, or who have done so in the past and their families.
        The National Military and Veterans Alliance would like to thank the
    Personnel Subcommittee and the Full Armed Services Committee for its
    leadership in passing legislation last year that provides special
    compensation for combat, combat-related disabled military retirees and
    the committee's continued support of full concurrent receipt for all
    disabled military retirees. I would like to address these topics
    briefly.

                               CONCURRENT RECEIPT

        Even with special compensation for combat, combat-related disabled
    military retirees, our collective efforts continue towards full
    concurrent receipt. The current law, which has its genesis in 1891,
    long before the military had a longevity based retirement system, is
    unfair, inequitable, and in many cases, results in disabled retirees
    with high VA disability ratings receiving no retired pay. For example,
    the monthly compensation for a service connected 100 percent disabled
    retiree in pay grade E-8 with 23 years of service is $16 per month less
    than that of an E-4 with 4 years of service whose VA 100 percent
    disability rating is for falling off a motorcycle.
        It is unfair that the compensation for the retiree's years of
    military service, achievement, and disability resulting from harm's way
    exposure is discounted. It is especially unfair since the forfeiture
    requirement applies to only military retirees and not the rest of
    society including Federal employees and retirees of the Federal
    Government. This group includes the Civil Service, staff and Members of
    Congress, Federal judges, and members of the administration. None of
    them are required to forfeit their earned retirement benefits to
    receive veterans disability compensation payments.
        We believe that retired pay is a benefit earned by completing 20 or
    more years of qualifying service; and, VA disability payments are
    compensation for loss of a body function or part. They are two separate
    benefits and should be paid in total separately.
        Mr. Chairman, concurrent receipt became a law back in 1891, related
    to Mexican War veterans. As we all know, the issue of pay for Mexican
    War veterans is now resolved, and it is time for a change. The National
    Military Veterans Alliance strongly supports two key bills that will
    make this change, S. 392, introduced by Senator Reid from Nevada, and
    H.R. 303, introduced by Representative Bilirakis from Florida--both
    long time champions on this issue. The bottom line goal of these bills
    is to ensure that service-connected disabled retirees receive the full
    value of their earned retired pay and veterans disability compensation
    without an offset of either.
        One final group we must always include is our widows. One recent
    topic that has gained much of our interest is concurrent receipt of the
    survivor benefit plan (SBP) and dependency and indemnity compensation
    (DIC) and how it affects military widows. We call this ``the other
    concurrent receipt issue''. Their husbands pay for a survivor benefit
    plan, and when the service member dies of a service-related condition
    the government offsets this survivor benefit plan dollar for dollar by
    the amount of dependency and indemnity compensation the widow
    receives--we strongly support ending this offset. There is a bill
    recently introduced by Senator Nelson from Florida. This bill, S. 585,
    would end this offset. The National Military Veterans Alliance strongly
    supports this legislation and any legislation that takes care of those
    that we leave behind.

       SPECIAL COMPENSATION FOR COMBAT, COMBAT-RELATED DISABLED MILITARY
                                    RETIREES

        The Fiscal Year 2003 Defense Authorization Act provides special
    compensation for recipients of the Purple Heart with a disability of 10
    percent or higher, and retirees with a disability rating of 60 percent
    or higher that received that disability for illnesses, injuries
    attributable to combat, combat-related training, hazardous service,
    under conditions simulating war, or caused by an instrumentality of
    war. The law also retains the previously passed special pay provisions
    for retirees with VA disability ratings of 60 percent or more awarded
    within 4 years of retirement.
        The law, passed late last year, gave DOD 180 days to design and
    implement the new program. That will put the action date for
    implementation around the first of June 2003. Based on this looming
    date--less than 3 months away, we would like to offer the following
    suggestions:
        First, we would like to provide input to DOD, from our constituents
    as they develop the implementation procedures. So far, we have had one
    meeting with officials at the Pentagon. We would encourage more. We
    have found that one of the best examples of interaction between DOD and
    the beneficiary associations was during the implementation of TRICARE-
    for-Life. The TRICARE Management Activity hosted close to 60 meetings
    with us providing updates on the implementation process and asking for
    our input. This interaction was very valuable for both parties and we
    offer this as a model that DOD might consider for their current
    undertaking.
        Second, we are concerned about the burden of proof that will fall
    on the retirees--especially those older veterans that fought in WWII
    and Korea. We feel that the burden to produce evidence that may fall on
    retirees might be a heavy one, as the records may no longer exist, or
    the retirees may be unaware of the process of attaining such records.
    We would like to see the burden of proof removed and placed on those
    that have easier access to the records.
        Finally, there is a very worthy group that has been left out of all
    special pay provisions. This group is our retired reservists. As it
    stands right now, a reservist needs 7,200 points to qualify for the
    special compensation. To put this in perspective, a member who spends 3
    years on active duty and then switches to the Reserves, in addition to
    the normal Reserve time of one weekend per month and 2 weeks during the
    summer, would have to spend 41 percent of each year on active duty for
    27 years. This is simply unattainable. It is particularly outrageous
    that this includes reservists who have been awarded the Purple Heart.
    Representative Bilirakis has been working with the NMVA and the
    Coalition on language to correct the inequity. We strongly recommend
    that the law be changed to allow any reservist who qualifies for
    retirement and also qualifies for the special compensation to be
    awarded the compensation.
        The bottom line is while this law is not the full concurrent
    receipt that continues to be a legislative priority for our members,
    who among us would deny that the combat, combat-related disabled
    retirees should take the first bite of the fruit of our collective
    efforts. This is a good start, but there is more work to do.

                                    SUMMARY

        Mr. Chairman and distinguished members of the subcommittee, we want
    to thank you for your leadership on these issues in past years and for
    holding these important hearings this year. You have made it clear that
    our military personnel, past and present, continue to be a high
    priority and you have our support in seeking successful implementation
    and funding of these initiatives this year.

        Senator Chambliss. Thank you.
        Colonel Duggan, we are glad to have you and look forward to
    your comments.

        STATEMENT OF COL. DENNIS M. DUGGAN, DEPUTY DIRECTOR FOR
     NATIONAL SECURITY-FOREIGN RELATIONS, AMERICAN LEGION NATIONAL
                              HEADQUARTERS

        Colonel Duggan. Thank you very much, Mr. Chairman, and
    distinguished members of the subcommittee. On behalf of its 3
    million membership, the American Legion expresses its sincere
    gratitude to you for the opportunity to present its views with
    regard to the issue of the concurrent receipt of military
    retired pay and veterans disability compensation.
        Frankly, concurrent receipt is viewed by our disabled
    retirees as an equity issue and frankly somewhat ironic, in
    that disabled military retirees who have dedicated over 20
    years of service and sacrifices, including engaging America's
    enemies on foreign battlefields, are the only group of
    Government retirees that I know of not authorized to receive
    disability compensation from a grateful Nation. Instead, these
    Americans must pay for their own disability compensation from
    their own retirement pay, earned from longevity of service for
    medical retirement over 20 years.
        Our disabled retirees in the American Legion hail from
    every State in the Union. Many of them retired as
    noncommissioned officers who on the average receive, we
    believe, on the order, say as an E-5, E-6, or E-7 on the order
    of $1,000 perhaps or more a month, which is well below the
    poverty level. In a number of cases, their disability
    compensation would be twice, or even more, their actual
    military retirement pay.
        Just last night, at a well-attended American Legion
    National Security Forum held at the Parkville, Maryland Post,
    which is actually the second-largest post in the United States,
    it is one of 15,000 posts in the American Legion, the issue of
    concurrent receipt became not only the top priority, but the
    most egregious issue still. This is the grassroots level, the
    blue cap legionnaire, and invited congressional representatives
    were present as well, hearing from their constituents. This is
    a very pervasive issue. It will not go away, it will not die
    out, it will not disappear, as the injustice inherent therein
    appears perpetuated as we speak, on the battlefield.
        How many of these would-be careerists in the Army, Navy,
    Air Force, Marine Corps, and Coast Guard are aware, as Steve
    Strobridge pointed out, that if they are wounded or injured or
    sickened, that any disabilities sustained would not be
    adequately compensated?
        We are particularly grateful early on with Senator Harry
    Reid, for his adopted amendment to the Senate's budget
    resolution that includes language to phase out the ban on
    concurrent receipt for service-related injuries or illnesses
    rated at 60 percent or higher. Hopefully, this action by the
    Senate is the expansion of the so-called beachhead, brokered by
    Senator Warner last year, in which the combat-related special
    compensation pay became authorized.
        With regard to that CRSC, we will analyze the implementing
    instructions to ensure that there is an appellate process for
    applicants and, in fact, whether things like PTSD, Agent
    Orange, and Gulf War illnesses are included in these
    instructions.
        Mr. Chairman, we would like to report back to you at about
    this time next year as to the fairness and timeliness of
    applicants' evaluations in this process being conducted by the
    DOD and supported by the VA.
        The American Legion believes the disabled retiree
    reservists and guardsmen also should be able to apply for both
    forms of special compensation pays. These activated reservists
    and guardsmen are serving shoulder-to-shoulder with their
    active duty counterparts and are subject to the same
    disabilities, illnesses, or cancers as their active duty
    component.
        CRSC will only cover a small percentage of disabled
    military retirees. We need not wait to see how this goes. We
    must continue to press on and pass concurrent receipt.
        Thank you.
        [The prepared statement of Colonel Duggan follows:]

                  Prepared Statement by Col. Dennis M. Duggan

        Mr. Chairman and distinguished Members of the Subcommittee. The
    American Legion is grateful for the opportunity to present its views
    regarding compensation for disabled military retirees in review of the
    Defense Authorization Request for Fiscal Year 2004. The American Legion
    salutes your leadership in addressing the existing unfair law, which
    prohibits the receipt of both military retirement pay and VA disability
    compensation for disabled military retirees.
        In 1892, Congress enacted a law to prohibit the receipt of military
    pay, not retirement pay, and disability compensation. At that time,
    there was no retirement system and careerists continued on the rolls to
    retain what income they had for as long as they could. Soldiers who
    were wounded and injured, however, were paid compensation for their
    disabilities. The military retirement system, as we know it today, was
    formalized between the World Wars. This new retirement system provided
    a means to maintain the vigor of the force by allowing voluntary
    retirement after a minimum of 20 years active service or equivalent
    creditable, Reserve or National Guard service and mandatory retirement
    at 30 years service. Because the 1892 law only applied to military pay
    and not retirement pay, those disabled military retirees could draw
    both meager retirement pay and disability compensation.
        The current law was passed in May 1944, just before the Normandy
    Invasion, and is the law we have today. The law continued the
    prohibition against military pay and disability pay, but more notably,
    it extended the prohibition to include military retired pay. It allowed
    disabled military retirees to elect to waive an amount of their
    retirement pay equal to their VA disability compensation payments. The
    only benefit from this offset is that VA disability compensation
    portion is not subject to Federal income tax. To most disabled
    retirees, this tax break is minor and in no way compensates for the
    loss of retirement pay offset from VA disability compensation. Disabled
    military retirees are the only government ``employees'' who pay for
    their own disability compensation. This is discriminating, wrong, and
    must be changed. There are those who argue concurrent receipt was never
    promised to military retirees; however, every service member who served
    20 or more years of active military service was promised, at minimum,
    50 percent of earned base pay upon retirement. By withholding, dollar-
    per-dollar, military retirement pay for like amounts of VA disability
    compensation, that promise is being violated.
        Military retired pay is compensation for longevity of honorable
    military service and the associated individual hardships and
    sacrifices. VA service-connected disability compensation is for medical
    conditions incurred or aggravated while on active duty. Each earned
    benefit is an award by a grateful Nation for two distinct, different
    reasons.
        Any veteran can receive VA disability compensation without any
    offsets, reductions, or limits with unemployment compensation; Social
    Security; Federal Civil Service pay; pay from a private sector job;
    Federal Civil Service retirement (including disability retirement);
    retirement pension from non-Federal jobs; and, Federal workers
    compensation (benefits for work-caused disability or illness provided
    under FECA). Only a military retiree faces an offset between military
    retirement pay and VA disability compensation.
        America has a daily reminder from Iraq and Afghanistan of the grave
    sacrifices of life and limb that military men and women must endure.
    Each soldier, sailor, airman, or marine placed in harm's way is another
    potential victim of the inequity known commonly as ``concurrent
    receipt.'' With legislation introduced entitled the ``Retired Pay
    Restoration Act of 2003,'' S. 392, this subcommittee has an opportunity
    to correct the unfair law which prohibits these brave men and women
    from receiving both full disability compensation and military
    retirement pay which they justly earned and deserve.
        The American Legion is ever mindful of what happened to the
    concurrent receipt issue during the last session of Congress. The House
    version of the Fiscal Year 2003 National Defense Authorization Act
    (NDAA) authorized concurrent receipt for those with a VA disability of
    60 percent or higher and a phased-in implementation over 5 years, as
    funded by the adopted House Budget Resolution. The Senate version
    authorized full concurrent receipt for all disabled military retirees
    effective October 1, 2003. Congressional leaders, in the face of a
    threatened presidential veto that could have killed the Fiscal Year
    2003 NDAA, convinced the administration to accept a reduced package
    focused only on retirees with disabilities attributable to armed
    conflict, while engaged in hazardous service, in the performance of
    duty under conditions simulating war or through instrumentality of war.
    This newly authorized Combat-Related Special Compensation (CRSC)
    authorizes those with an award of the Purple Heart with a VA disability
    rating of at least 10 percent or those with a 60 percent disability
    rating or higher for other illnesses/injuries attributable to combat
    situations, combat-oriented training, hazardous duty, or the
    instrumentality of war.
        Clearly, the guidelines (as described in DOD Instruction 1332.38)
    allow for judgment, so it is uncertain how many disabled military
    retirees may qualify. Different sources have offered estimates ranging
    from 10,000 to 30,000 eligible disabled military retirees. The
    authorized CRSC is preferable to the alternative of getting nothing,
    but it falls far short of what The American Legion believes is fair.
    There are still too many disabled military retirees paying for their
    own VA disability compensation.
        The American Legion will analyze the implementing instructions when
    they are published and will track implementation of the new plan
    closely to ensure the rules are clearly written and interpreted
    reasonably. We will be apprised if there is an established appeal
    process as well as the fairness and timeliness of Department of Defense
    evaluations. We have already urged DOD to include PTSD, Agent Orange
    and Gulf War illnesses in their implementing instructions. Unlike the
    special compensation already in law, which provides $50 to $300 per
    month for certain severely disabled retirees, this new special
    compensation will not be capped at a specific dollar amount, and it
    will rise each year as the offset rises. Unlike the current $50 to $300
    special compensation, which requires that a qualifying disability must
    have occurred within 4 years after retirement, eligibility for the new
    version will not be restricted by any time limit. Qualifying members
    will be eligible to receive either the ``new'' or the ``old'' special
    compensation amount, whichever is higher.
        The American Legion will continue to argue that simple, equitable
    justice is one reason to allow concurrent receipt. Military retirees
    are the only Federal employees who must offset their retired pay with
    VA disability compensation. Also, proponents claim that the unique
    nature of military service, given their sacrifices and hardships,
    should merit these retirees receiving both military retired pay and VA
    disability compensation. For the past decade, many veterans' programs
    have been pared to the bone in the name of balancing the budget. Now
    military retirees must pay premiums to TRICARE for full health care
    coverage for themselves and their immediate family members. Many
    veterans' advocates feel it is time that retirees receive compensation
    for these fiscal sacrifices.
        Often, VA service-connected disability compensation is awarded for
    disabilities that cannot be equated with disabilities incurred in
    civilian life. Military service rendered in defense, and on behalf of
    the Nation, deserves special consideration when determining policy
    toward such matters as benefits offsets. The American Legion believes
    it is a moral and ethical responsibility to award disability
    compensation to the needs of disabled veterans, given the sacrifices
    and hardships they incurred during honorable military service to the
    Nation. We are also aware that many of the disabled retirees receive
    retirement pay that is beneath established poverty levels and by
    definition in Title 38 are ``indigent'' veterans.
        The American Legion would like to take this opportunity to express
    its sincere gratitude to Committee Chairman John Warner, Ranking
    Democratic Member Carl Levin, and Democratic Whip Harry Reid for their
    advocacy of concurrent receipt and the CRSC. Senator Reid, once again,
    has sponsored legislation calling for full concurrent receipt, which
    the American Legion strongly advocates. Senator Warner acknowledged
    that the final agreement on CRSC was much less than what the Armed
    Services Committees had hoped to achieve but he described it as ``an
    essential beachhead in law'' which the Committees hoped to expand in
    the future.
        The provision for CRSC needs to be more inclusive as well. It does
    not remove the artificial difference between service retirement (active
    duty) and age retirement (Guard/Reserves) which is defined only in
    regulations and not in law, and it does not remove the artificial
    7,200-point threshold which, also, is defined in regulations and not in
    law. All disabled retired reservists and guardsmen should be able to
    apply for either the CRSC or the severely disabled special
    compensation, if they are qualified by virtue of the nature and extent
    of their disabilities. Despite guardsmen and reservists serving
    shoulder-to-shoulder with their active-duty counterparts, and incurring
    the same disabilities, illnesses, or cancers as the active duty
    component, they will not be eligible to even apply for the special
    compensation payments authorized for their active duty retiree
    counterparts. The provisions for authorizing the special compensation
    pays must be amended to include the eligibility of disabled retired
    reservists and guardsmen.
        Mr. Chairman, that future is now. The American Legion urges this
    subcommittee, and indeed Congress, to once again adopt legislation
    calling for the full and rightful concurrent receipt of military
    retirement pay and VA disability compensation to demonstrate the
    Nation's gratitude to the disabled military retirees for their
    sacrifices. What better time, what better occasion, to express our
    gratitude to these veterans than during this epic war on terrorism
    being fought in Iraq and Afghanistan? Frankly, such an expression is
    long overdue.
        Mr. Chairman, this concludes The American Legion's statement.

        Senator Chambliss. Thank you, gentlemen, and on behalf of
    Senator Nelson, Senator Pryor, and all other members of not
    just this subcommittee or this full committee, but of the
    United States Senate we want to say thank you to each and every
    one of you and all of your colleagues that have made America
    the greatest and freest country in the world.
        Today we are reminded of the sacrifices that men and women
    like you who served with you were willing to make to ensure
    that America remains the great and free country that it is. I
    visited with somebody this morning, a pastor friend of mine
    from Georgia, and I told him that every day now I get a list,
    first thing every morning, of all of the wounded, captured, or
    killed members of our Armed Forces that are serving in Iraq
    today.
        It is not a very pleasant thing to start out your day that
    way, but I just thank goodness that we have the dedicated men
    and women, that we have had them in the past, and we have them
    today. I think that sense of patriotism is what drives the
    three of us and every other Member of the House and Senate to
    try to do what we need to do to make sure that our entire
    veterans community receives the benefits to which they are
    entitled.
        We have a package that we are working on now with respect
    to the Guard and Reserve to try to modernize things. As a part
    of rethinking all of our military compensation we are going to
    continue to work on this particular issue. We thank the three
    of you individually for your service, and for your work on
    this.
        Let me ask one question to all three of you. Does the
    Purple Heart plus other provisions that we had in the 2003
    authorization bill get the benefits from a concurrent receipt
    standpoint to those members of your respective organizations
    that you represent that need it the most? Are these, the folks
    who are 60 percent or greater disabled, who got the Purple
    Hearts, the ones that need these benefits the most?
        Colonel Strobridge. I think the answer to that is yes, sir.
    We have discussed this at some length last year, recognizing
    when it was unlikely we would get the entire package. We had a
    great deal of discussion. I think there is a broad consensus
    that the people who are most severely disabled are the ones
    that we need to take care of first.
        Certainly the combat disabled have the greatest emotional
    response. The one thing I think we would urge is, let us not
    forget that we do have very severely disabled people who did
    not happen to get it in combat. We believe those folks--
    including the people, the examples that I mentioned, are the
    next priorities.
        Sergeant Butler. It is a great first step, as I said in my
    testimony. They should be the ones to take the first bite of
    the fruit of our collective efforts, we support that, but it is
    just a beginning.
        Colonel Duggan. I think I would echo that, also. It is a
    small number, comparatively speaking, particularly in the
    American Legion. However, the 60 percent or more disabled are,
    in fact--there are a lot of them. There are just an awful lot
    of them, and unfortunately, or fortunately as the case may be,
    they are not combat-related in many cases, but every bit as
    disabled.
        Senator Chambliss. Senator Nelson.
        Senator Ben Nelson. Thank you, Mr. Chairman. I want to
    thank each of you for your commitment to advocacy for this very
    important issue on behalf of your colleagues. I want to assure
    you that we will continue to work on this. It is pretty clear,
    with the troops in combat right now, with an all-voluntary
    military, with an emphasis on recruitment and retention, that
    we want to take care of the kind of benefits and the kind of
    support that is necessary and send a clear message that we
    truly do care. If there is a disability as a result of military
    combat, whereas, and you say a disability that occurs while you
    are in the military, that this country cares enough to take
    care of its veterans. I hope you will take the message back to
    your members that we are very sincere about this. We are going
    to work hard and diligently to get something accomplished.
        It seems from time to time we get a bite out of the apple,
    and we get another bite out of the apple--we are going to
    continue to do that until we have consumed the apple. Please
    bear with us but also continue to put the pressure on. It is
    important.
        Thank you, Mr. Chairman.
        Senator Chambliss. Thank you.
        Senator Pryor.
        Senator Pryor. Thank you, Mr. Chairman. I just have one
    general question really for all three of you. You have heard
    the Department of Defense rationale for why they are opposed to
    this. I do not need to go into the various reasons, there are
    four or five reasons they are opposed to it. I would just like
    to hear your comments on why you--I hate to say why you think
    the Department of Defense is wrong, but why you disagree with
    the Department of Defense? Why you think we should pass the
    concurrent receipt?
        Colonel Strobridge. Sir, I think you can discuss a lot of
    details and compare a lot of things, but it all boils down to,
    are you comparing apples and oranges. We believe military
    service is fundamentally different from Civil Service. From
    civilian service that when you earn your retired pay, you have
    earned your retired pay, and you have not earned it any less if
    you happen to become disabled. That whatever compensation we
    provide for a disability on top of retirement should be paid on
    top of the retirement, and most of the other issues are
    rationales for, we do not want to pay for it.
        Sergeant Butler. As Secretary Abell said, we do agree to
    disagree on this issue, but from our standpoint it is simply
    the right thing to do.
        Colonel Duggan. I do not have much more to add to that. The
    cost thing is just incredible. The costs have been paid
    already, and they are paying for their own disability
    compensation. I can't see a cost part. It is going to cost, and
    the longer it is put off, the more expensive it is going to
    cost. Although we are losing disabled retirees, too, at a
    tremendous rate, World War II vets, Korean vets alone on the
    order of 1,500 or so a day, give or take. That is a lot of
    people.
        Senator Pryor. Yes, I agree with you.
        Colonel Duggan. So that is one way the problem will go
    away. It is not the right way to take care of it, though.
        Senator Pryor. I just want you all to know that I agree
    with the three of you, and as much respect as I have for the
    DOD and all the great things they do and we work with them
    every day in this committee and we are proud of what they do,
    not just right now, but all the time, but I agree with you all
    on this, and I want to try to help you.
        Mr. Chairman.
        Senator Chambliss. Again, gentlemen, thank you very much
    for your testimony. I appreciate the testimony of all of our
    witnesses today. This has been an excellent review of the
    issue, and a good opportunity to hear some new perspectives on
    a key issue affecting military retirees. We will keep your
    comments and concerns in mind as we review the Fiscal Year 2004
    Defense Authorization Request. I look forward to working with
    you down the road, and thank you for your participation today.
        I want to close our hearing by expressing support for our
    troops during these challenging times and ensuring them and
    their families that this subcommittee is going to strive to
    provide them with the most comprehensive support package
    possible.
        I would like to also state that Senator McCain was unable
    to be here today, but he has sent a statement in full support
    of concurrent receipt. He has been a strong advocate of this
    for many years. That statement will be inserted in the record.
        [The prepared statement of Senator McCain follows:]

                   Prepared Statement by Senator John McCain

        Mr. Chairman, my distinguished colleagues, for over 10 years now I
    have been engaged in fighting for a cause which I feel strongly about--
    the discrimination of disabled veterans who must forego retirement
    benefits. Current law requires a career military service member who
    retires for length of service and is disabled, to offset his or her
    retirement pay with any VA disability compensation the member receives.
    Because the career military service member receives no separate payment
    for his service connected disability, our government is effectively
    requiring career military retirees to fund their own disability
    benefits. I believe it is our duty, as elected officials, to correct
    this gross inequity.
        I first introduced legislation on concurrent receipt all the way
    back in 1992. Then again in 1993, then again in 1994, then again in
    1995. In 1999, I drafted legislation that became law--as a compromise
    measure--that paid special compensation pay for severely disabled
    military retirees with disabilities greater than 50 percent. Here we
    are in 2003 with an opportunity to rectify a problem that has plagued
    our veterans and to rectify it, once and for all, for all military
    retirees who have become disabled during their military service.
        I know personally the character of Americans who take up arms to
    defend our Nation's interests and to advance our democratic values. I
    know of all the battles, all the grim tests of courage and character,
    that have made a legend of the Army, Navy, Marine Corps, and Air Forces
    devotion to duty.
        Let me remind this subcommittee of the grave sacrifice that our men
    and women who risk their lives for their country must endure. The
    United States has exerted military force more than 280 times since the
    end of World Ward II. We are even now engaged not only in the war on
    terrorism, but in combat operations in Iraq that may well continue for
    some time.
        Once again our young men and women are defiantly heading into harms
    way with the understanding that we, as the lawmakers of this great
    Nation, will ensure they are taken care of as citizens and as veterans
    for their actions above and beyond the call of duty.
        We now have an opportunity to show a measure of our gratitude to
    the brave men and women who have served this country in the past, and
    to make a statement to those men and women who continue to serve,
    especially now, during military operations to liberate Iraq.
        The existing law as it stands is simply discriminatory and wrong.
    Concurrent receipt is, at its core, a fairness issue, and present law
    simply discriminates against career military people who have been
    injured or disabled while in conduct of their duties while in defense
    of this great Nation. Retired veterans are the  group of Federal
    retirees who are required to waive their retirement pay in order to
    receive VA disability compensation.
        In my view, the two pays are for very different purposes: One for
    loyal and selfless 20-year service to our country. The other for
    physical or mental `pain and suffering' occurred in that service to
    country.
        For years, Mr. Bilirakis introduced legislation in the House of
    Representatives to correct this long-standing inequity. I first drafted
    concurrent receipt legislation as ranking member of this very
    subcommittee in 1991, and introduced it with my dear friend and former
    chairman of the Personnel Subcommittee, Senator John Glenn, in 1992.
        The Retired Pay Restoration Act has received strong bipartisan
    support in Congress with 396 cosponsors in the House and 82 cosponsors
    in the Senate.
        The Military Coalition, an organization of 33 prominent veterans'
    and retirees' advocacy groups representing 5.5 million veterans,
    supports this legislation, as do many other veterans' service
    organizations, including the Veterans of Foreign Wars, American Legion,
    and Disabled American Veterans.
        For the brave men and women who have selected to make their career
    in the U.S. military, they face an unknown risk. If they are injured,
    they will be forced to forego their earned retired pay in order to
    receive their VA disability compensation. In effect, they will be
    paying for their own disability benefits from their retirement checks.
        We have a unique opportunity to redress the unfair practice of
    requiring disabled military retirees to fund their own disability
    compensation. We need full concurrent receipt for all military
    retirees. It is time for us to show our appreciation to the men and
    women who have sacrificed so much for our great Nation.
        I thank the Chairman for calling this hearing today for all service
    members past and present. The testimony by our witnesses may provide
    the critical foundation to how this committee will act later this year
    when we draft the National Defense Authorization Act for Fiscal Year
    2004.

        Senator Chambliss. Also, we have a statement from the Fleet
    Reserve Association that also will be inserted in the record.
        [The information referred to follows:]

              Prepared Statement by the Fleet Reserve Association

                                  INTRODUCTION

        Mr. Chairman and other distinguished members of the subcommittee:
    The Fleet Reserve Association (FRA) is grateful for the opportunity to
    present its views on the concurrent receipt of military retired pay and
    veterans disability compensation.
        First, however, the Association extends sincere gratitude to the
    subcommittee for its outstanding efforts these past 4 years in
    enhancing life in the military for the Nation's service members and
    their families. The result has been nearly miraculous. Recruiting and
    retention is at its highest since the advent of the all-volunteer
    force. The ``magic'' spun by this subcommittee has enriched quality of
    life for the men and women who serve or will serve or have retired from
    the Armed Forces of the United States.
        With 135,000 members strong, FRA presents a well-deserved salute to
    the subcommittee for, among others, adopting the repeal of the 1986
    retirement system, providing ``targeted'' pay increases for NCOs and
    Petty Officers in the grades of E5 thru E9, and initiating the Tricare
    for Life program of health care.
        The subcommittee's commitment to service members, their families,
    and retired military veterans is unmatched. Thanks for doing a superb
    job.

                               CONCURRENT RECEIPT

        The Fiscal Year 2003 National Defense Authorization Act (NDAA)
    authorizes a special compensation that establishes a `beachhead' to
    authorizing full concurrent receipt, a term for the payment of both
    military non-disability retired pay and any VA compensation for
    service-connected disabilities without a reduction in one or the other
    payment.
        Currently, the receipt of VA compensation causes a like reduction
    to a retired service member's military retired pay. This leads to the
    belief that retired service members, earning retired pay as a result of
    20 years or more of service, are forced to pay for their own
    disablement.
        Most disabilities are recognized after the service member retires.
    Some are discovered while the member is still on active duty or as the
    result of a retirement physical. However, it is to the benefit of the
    Department of Defense to retire the member without compensation for any
    disability. Instead, the member is directed to the Department of
    Veterans' Affairs for compensatory relief for the damages incurred by
    the member while serving the Nation in uniform.
        Prior to 1975, all military disability pay was tax exempt. A
    perception of abuse to the system, mostly in the Armed Forces senior
    grades, caused Congress to amend the Internal Revenue Code. The Tax
    Reform Act of 1976 forced the Department of Defense to change the rules
    so that only a percentage of the member's disability retired pay
    attributable to combat-related injuries would be tax-exempt.
    Subsequently, many retiring service members petitioned the VA for
    relief for service-connected injuries.
        Service members, whether in uniform or retired, are considered
    Federal employees subject not only to Title 10, U.S. Code, but Title 5,
    U.S. Code, regulating the conduct and performance of government
    employees, on the job or retired. When retired they are not entitled to
    VA compensation payments for their disabilities without forfeiting an
    equal amount of their retired pay with one exception. Military retirees
    may go on the Federal employee rolls and subsequently retire using
    military service time to calculate their Federal retirement annuity.
    They, then, may receive veterans' compensation as well as Federal Civil
    Service retirement payments with no offsets, reductions, or limits. FRA
    questions why the current law discriminates against the military
    retiree?
        Recommendation: The Fleet Reserve Association encourages Congress
    to take the helm and fully authorize and fund concurrent receipt of
    military non-disabled retirement pay and veterans compensation program
    as currently offered in S. 392, introduced by Sen. Harry Reid (NV), and
    H.R. 303, a bill introduced by Rep. Mike Bilirakis (FL). Congress
    should remember that U.S. service members not only had a major hand in
    the creation of this Nation, but have contributed more than any group
    to the military and economic power of the United States for more than
    200 years. Those who have served in the Armed Forces for 20 years or
    more certainly deserve the opportunity to have equity with their
    counterparts in the Federal service who can earn both without a penalty
    to one or the other.

                                   CONCLUSION

        FRA is grateful for the opportunity to submit this statement. If
    there are questions or the need for further information, please call
    Bob Washington, FRA Director of Legislative Programs, at 703-683-1400.

        Senator Chambliss. With that, the hearing will stand
    adjourned.
        [Questions for the record with answers supplied follow:]

                   Questions Submitted by Senator Mark Pryor

                           ACCURACY OF DISABILITY PAY

        1. Senator Pryor. Secretary Abell and Secretary Cooper, this may be
    a question more appropriately addressed to both of you. I have some
    understanding of the procedures followed to determine eligibility for
    disability pay. Would you both give a broad outline of the procedures
    and mechanisms in place both at the field level and at the Department
    level to ensure those who receive disability pay are those who are
    meant to receive disability pay?
        Secretary Abell. The Department of Defense (DOD) Disability
    Evaluation System is comprised of: medical evaluation, physical
    disability evaluation, appellate review, counseling, and final
    disposition. The two major elements are the Medical Evaluation Board
    (MEB) and the Physical Evaluation Board (PEB). Members with a medical
    condition that may not be appropriate for continued military duty are
    referred to the local Medical Treatment Facility (MTF) who initiates an
    MEB. The MEB, consisting of three medical doctors, reviews the entire
    record and ensures all required testing is completed and documented.
    The MEB does not make any fitness determination. It merely determines
    if the member meets medical retention standards. The MEB provides
    documentation of the member's complete medical status.
        If the member does not meet retention standards, the case is then
    referred to an informal PEB. The PEB consists of two line officers and
    one doctor who conduct a review of the record and make a finding of
    fit/unfit based on whether the medical condition prevents the service
    member from performing his or her duties. The PEB also determines
    rating of the disability based on DOD guidance and from the Veterans'
    Affairs Schedule for Rating Disability, as required by law.
        If the service member accepts this determination, he or she is
    separated or retired with compensation as appropriate. The member has a
    statutory right to appeal the finding and request a formal PEB with the
    member, counsel, and witness in attendance (if the member desires).
    Appeals after the formal PEB may be made through the Service Disability
    Agency, Board for Correction of Military Records, or through the court
    system.
        Once the Service has processed a member for disability retirement,
    there is a well-established process that the Service follows to provide
    a detailed transmission of information from the branch of Service to
    the Defense Finance and Accounting Service (DFAS) to certify all
    retirement particulars used to set up a retirement account that will
    form the basis for continuing retired pay to the member. DFAS conducts
    extensive reviews for consistency and validity. If the member goes to
    the Department of Veterans' Affairs (VA) and receives disability
    compensation, a data exchange between VA and the Defense Department
    results in offsets to military retired pay. These data exchanges may
    also lead to a determination that a member is entitled to Special
    Compensation for Severely Disabled retirees.
        Secretary Cooper. VA has many systems and processes in place to
    ensure the accurate determination of service-connected disabilities and
    proper rate of payment of disability benefits.
        VA's claim process begins when a veteran initiates a compensation
    claim by filing an application with a local VA regional office. VA
    obtains the veteran's service medical records and, if relevant, the
    veteran's military personnel records. Based on information provided by
    the claimant, VA obtains information and evidence to substantiate the
    claim, most often in the form of medical records from VA medical
    facilities, private physicians, or records from other Federal agencies.
    If necessary, to decide entitlement to compensation, VA provides the
    claimant with a medical examination or obtains a medical opinion. This
    examination is useful to determine the degree of disability of the
    service-connected condition.
        After VA obtains all the information and evidence to substantiate a
    claim for service-connected compensation, VA uses a rating schedule to
    determine the disability evaluation to assign to a particular
    condition. The rating decisions are reviewed and signed by both the
    decision maker and another rating specialist. The award is entered into
    the Benefits Delivery Network (BON), VA's electronic payment processing
    system, by a Veterans Services Representative (VSR). During this
    process, the record is reviewed to verify certain critical facts; for
    example, the veteran's military retirement status. BON has system edits
    to prevent the entry of data that is inconsistent with the law and
    well-defined business rules.
        The award of benefits is reviewed and approved by a Senior VSR. If
    the award results in a retroactive payment of $25,000 or more, a third
    review and signature is required to release payment.
        VA has additional quality controls to ensure the appropriateness of
    current and future payments.
        a. Quality reviews are performed at both the local and national
    level.
        b. VA conducts data integrity matches with other departments and
    agencies, including the Defense Finance and Accounting Service, the
    Internal Revenue Service, and the Social Security Administration. Such
    efforts allow us to compare retired pay and SBP payment records, for
    instance, in order to reconcile discrepancies. .
        c. A physical record of all correspondence and evidence accumulated
    with respect to all claims filed by that veteran or his dependents is
    maintained in his/her VA claims file.

                   DETERMINING SERVICE-CONNECTED DISABILITIES

        2. Senator Pryor. Secretary Abell and Secretary Cooper, how do you
    determine ``service-connected disabilities'' at the base or on the
    battlefield and how are the ensuing reports turned into benefits at the
    Department of Veterans' Affairs? You might also add a few words about
    the graduated scale of disability, i.e. the difference between a 10
    percent disability and a 50 percent disability, and the benefits that
    result from those disabilities.
        Secretary Abell. A member separated (at the base or on the
    battlefield) as a result of disability, whether retired or not, may go
    to the VA and apply for disability compensation for any service-
    connected disabilities. Generally, the member's medical record forms
    the initial basis for determining VA disability compensation. The VA
    evaluates and determines what compensation is applicable from the
    Veterans' Affairs Schedule for Rating Disability (VASRD). Any VA
    payment results in offsets to military retired pay or has offsets to
    reflect any separation payments from the Service.
        The difference between a 10 percent disability and a 50 percent
    disability is the extent of the disability as measured against these
    VASRD standards, which were originally based on what impact the
    disability had on the veteran's income potential. A 10 percent
    disability has less impact on income potential than a 50 percent
    disability, thus resulting in less disability compensation. The VASRD
    schedule is also used to determine disability percentages for service
    disability retirements.
        Regarding benefits from DOD, a member found unfit for duty due to
    physical disability is entitled to disability severance pay or military
    retired pay. If the member has less than 20 years of service and the
    disability is less than 30 percent, the member will be separated with
    disability severance pay equal to 2 months of basic pay for each year
    of service, up to a maximum equal to 2 years of basic pay. If the
    disability is 30 percent or more or the member has over 20 years of
    service, the member receives military disability retirement pay based
    on the greater of either longevity (2.5 percent times years of service
    times the base-final pay or high-3 average) or disability (disability
    percentage times the base). Disability retired pay is tax-exempt if the
    member was in service or retired before September 25, 1975. For those
    who were not qualified on that date, their disability retired pay is
    tax-exempt if their disability meets certain criteria for being combat-
    related or the member could have obtained compensation from the VA.
        Secretary Cooper. For some service members whose claims are
    processed at VA's Benefits Delivery at Discharge (BDD) sites, VA makes
    the determination that certain disabilities are service connected at or
    around the time of discharge. Otherwise, determinations on veterans'
    claims are made at VA regional offices based on service military
    records. These records generally contain evidence of disabilities that
    may have been incurred in Service, including locations at military
    bases or on the battlefield.
        A determination that a medical condition is service connected
    requires all of the following:
        a. The applicant must be discharged from active duty under
    conditions other than dishonorable;
        b. Evidence must show that the applicant has a current disability
    incurred in or aggravated by military service;
        c. The in-service incurrence or aggravation is documented in the
    service medical records or other proper documentation. However, for
    combat-related disabilities where documentation may be limited or
    missing, certifications of fact by service persons having personal
    knowledge of the incident are acceptable;
        d. Presumptions of service connection may be applied to certain
    kinds of disabilities, that have been determined to be related to
    particular kinds of service, such as the POW experience, Gulf War and
    Vietnam service, or exposure to radiation in service.
        e. Once the evidence has established a service connection, a Rating
    VSR uses the VA Schedule of Rating Disabilities to determine the degree
    of disability.
        The rating schedule provides for ten grades of disability,
    beginning with 10 percent and ending with 100 percent, representing as
    far as is practicable, the average impairment in earning capacity in
    civil occupations resulting from disability. It is organized by a body
    system, with each system containing lists of specific diseases and
    medical conditions, each assigned a diagnostic code. Each disease or
    medical condition is described in terms of its symptoms signifying
    degrees of disability. The greater and more severe the symptoms, the
    higher the disability rating. The maximum disability evaluation that
    can be assigned for a particular medical condition varies depending on
    the disabling effects of its symptoms. For instance, diabetes that is
    managed by a restricted diet warrants a 10-percent evaluation, whereas,
    diabetes requiring a restricted diet, regulation of activities, and
    insulin injection would merit a 60 percent evaluation.

          INCREASED WORKLOAD WITH THE ENACTMENT OF CONCURRENT RECEIPT

        3. Senator Pryor. Secretary Cooper, what changes would be necessary
    for your Department to handle the increased workload the enactment of
    concurrent receipt would create?
        Secretary Cooper. VA would require additional full-time employees
    to handle the increased workload associated with the enactment of full
    concurrent receipt benefits. While there is no certain way to quantify
    the number of new claims we can expect, we know that out of a total
    military retiree population of about 2,000,000, almost 700,000 retirees
    or about 35 percent receive VA compensation. In our cost estimating for
    last year's concurrent receipt proposal we assumed that tax advantages
    and the general awareness of concurrent receipt would result in 700,000
    new claims for compensation over a 5-year period. Additionally, we
    estimate that approximately 118,000 retirees currently receiving
    benefits would apply for an increased evaluation due to concurrent
    receipt over a 5-year period. Collectively, this level of claims
    activity would require a cumulative FTE of 5,027 employees to process
    the increased workload. The first year following enactment would
    require 2,514 FTE of that total to process the initial claims activity.
        VA's experience is that lengthy military service (i.e., more than
    13 years) is highly correlated with the incurrence of service-connected
    disabilities. Having large numbers of additional retirees placed in VA
    pay status will also mean a significant increase in account maintenance
    activities.

        [Whereupon, at 5:50 p.m., the subcommittee adjourned.]