    [Senate Hearing 109-320]
    [From the U.S. Government Publishing Office]

                                                     S. Hrg. 109-320, Pt. 7

                                                            Senate Hearings

                                     Before the Committee on Appropriations

    _______________________________________________________________________

                                Military Construction and Veterans Affairs,

                                                       and Related Agencies

                                                             Appropriations

                                                           Fiscal Year 2007

                                             109th CONGRESS, SECOND SESSION

                                                                  H.R. 5385

    PART 7

      DEPARTMENT OF DEFENSE
      DEPARTMENT OF VETERANS AFFAIRS

    Military Construction and Veterans Affairs, and Related Agencies, 2007
                              (H.R. 5385)--Part 7

                                                      S. Hrg. 109-320, Pt 7

       MILITARY CONSTRUCTION AND VETERANS AFFAIRS, AND RELATED AGENCIES
                      APPROPRIATIONS FOR FISCAL YEAR 2007

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

                                    HEARINGS

                                    before a

                              SUBCOMMITTEE OF THE

                COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                           ONE HUNDRED NINTH CONGRESS

                                 SECOND SESSION

                                       on

                                   H.R. 5385

      MAKING APPROPRIATIONS FOR MILITARY QUALITY OF LIFE FUNCTIONS OF THE
        DEPARTMENT OF DEFENSE, MILITARY CONSTRUCTION, THE DEPARTMENT OF
       VETERANS AFFAIRS, AND RELATED AGENCIES FOR THE FISCAL YEAR ENDING
                   SEPTEMBER 30, 2007, AND FOR OTHER PURPOSES

                                   __________

                                     PART 7

                             Department of Defense
                         Department of Veterans Affairs

                                   __________

             Printed for the use of the Committee on Appropriations

      Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                                   index.html

    For Sale by the Superintendent of Documents, U.S. Government Printing Office
    Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512�091800
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                                   __________

                          COMMITTEE ON APPROPRIATIONS

                      THAD COCHRAN, Mississippi, Chairman
    TED STEVENS, Alaska                  ROBERT C. BYRD, West Virginia
    ARLEN SPECTER, Pennsylvania          DANIEL K. INOUYE, Hawaii
    PETE V. DOMENICI, New Mexico         PATRICK J. LEAHY, Vermont
    CHRISTOPHER S. BOND, Missouri        TOM HARKIN, Iowa
    MITCH McCONNELL, Kentucky            BARBARA A. MIKULSKI, Maryland
    CONRAD BURNS, Montana                HARRY REID, Nevada
    RICHARD C. SHELBY, Alabama           HERB KOHL, Wisconsin
    JUDD GREGG, New Hampshire            PATTY MURRAY, Washington
    ROBERT F. BENNETT, Utah              BYRON L. DORGAN, North Dakota
    LARRY CRAIG, Idaho                   DIANNE FEINSTEIN, California
    KAY BAILEY HUTCHISON, Texas          RICHARD J. DURBIN, Illinois
    MIKE DeWINE, Ohio                    TIM JOHNSON, South Dakota
    SAM BROWNBACK, Kansas                MARY L. LANDRIEU, Louisiana
    WAYNE ALLARD, Colorado
                        J. Keith Kennedy, Staff Director
                  Terrence E. Sauvain, Minority Staff Director
                                     ------

    Subcommittee on Military Construction and Veterans Affairs, and Related
                                    Agencies

                     KAY BAILEY HUTCHISON, Texas, Chairman
    CONRAD BURNS, Montana                DIANNE FEINSTEIN, California
    LARRY CRAIG, Idaho                   DANIEL K. INOUYE, Hawaii
    MIKE DeWINE, Ohio                    TIM JOHNSON, South Dakota
    SAM BROWNBACK, Kansas                MARY L. LANDRIEU, Louisiana
    WAYNE ALLARD, Colorado               ROBERT C. BYRD, West Virginia
    MITCH McCONNELL, Kentucky            PATTY MURRAY, Washington
    THAD COCHRAN, Mississippi
      (ex officio)

                               Professional Staff
                                 Dennis Balkham
                                  Sean Knowles
                           Christina Evans (Minority)
                             B.G. Wright (Minority)
                            Chad Schulken (Minority)

                                C O N T E N T S

                                  ----------

                           Wednesday, March 29, 2006

                                                                       Page

    Department of Veterans Affairs...................................     1

                              Tuesday, May 9, 2006

    Department of Defense............................................    57

       MILITARY CONSTRUCTION AND VETERANS AFFAIRS, AND RELATED AGENCIES
                      APPROPRIATIONS FOR FISCAL YEAR 2007

                                  ----------

                           WEDNESDAY, MARCH 29, 2006

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 2:35 p.m., in room SD-124, Dirksen
    Senate Office Building, Hon. Kay Bailey Hutchison (chairman)
    presiding.
        Present: Senators Hutchison, Craig, Allard, Feinstein,
    Johnson, Landrieu and Murray.

                         DEPARTMENT OF VETERANS AFFAIRS

    STATEMENT OF HON. R. JAMES NICHOLSON, SECRETARY
    ACCOMPANIED BY:
            JONATHAN B. PERLIN, UNDER SECRETARY FOR HEALTH
            DANIEL L. COOPER, UNDER SECRETARY FOR BENEFITS
            WILLIAM F. TUERK, UNDER SECRETARY FOR MEMORIAL AFFAIRS
            TIM S. McCLAIN, GENERAL COUNSEL
            ROBERT J. HENKE, ASSISTANT SECRETARY FOR MANAGEMENT

                   statement of senator kay bailey hutchison

        Senator Hutchison. The subcommittee will come to order. Our
    hearing today, of course, is to review the fiscal year 2007
    budget request for the Department of Veterans Affairs.
        I'm very pleased to welcome the Secretary of Veterans
    Affairs, Jim Nicholson; Under Secretary for Health, Jonathan
    Perlin; Under Secretary for Benefits, Daniel Cooper; Under
    Secretary for Memorial Affairs, William Tuerk; General Counsel,
    Tim McClain; and Assistant Secretary for Management, Robert
    Henke.
        We are facing a time when our servicemen and women are
    returning from the Global War on Terror in Iraq and
    Afghanistan, and many of them are coming home wounded.
    Sometimes it would be a loss of limb, sometimes a brain injury
    or post-traumatic stress syndrome. The VA will have its hands
    full for years to care for those who have defended our country.
        Mr. Secretary, I want to say that you have demonstrated
    leadership not only in the war on terror and coming forward
    last year and saying, ``We need more money,'' working with us
    to make that happen in the very best possible way. We
    appreciate that forthrightness that you gave, and also what you
    did during Hurricanes Katrina and Rita. When we look back on
    the emergency planning for the Veterans Affairs, you really did
    everything right. Under your watch, the VA did not lose a
    patient, and I saw many of those evacuees, myself, in Houston.
    And I want to say, especially, thank you to Dr. Perlin for your
    real creativity not only for the planning for the hurricanes
    but also the electronic health records, which really made a
    huge difference for those veterans who were displaced so
    quickly. They never lost a record. Everybody was ready to treat
    them, it was seamless. And HealtheVet is a terrific system that
    you are credited with, and we thank you for that.
        Mr. Secretary, I think it's a wonderful news story that the
    veterans healthcare system is now getting so much good
    publicity, and the care is renowned to be among the best in the
    country. And I know that also has caused problems, because now
    more veterans, who wouldn't have come to the veterans system
    before, now are coming. So, that is creating a bigger workload.
        Certainly, the VA's budget request for this year is $80.6
    billion in budget authority for fiscal year 2007, $42 billion
    is mandatory programs, and discretionary is $38.5 billion. I
    think this is a good budget. Most of the increases, however,
    are based on increased collections and savings that rely on
    enacting legislative proposals that are in your budget request,
    including an annual enrollment fee of $250, a pharmacy
    copayment increase to $15 for priority 7 and 8 veterans. And
    without the proposed legislation, the increase in the medical
    services budget would be $2.7 billion, or 8.7 percent. So, we
    want to work with you, but I think you know that the committee
    is not supportive of the revenue requirements in the budget.
    So, we want to talk with you, work with you to try to see how
    we can address these issues, and perhaps look for some other
    options for revenue.
        I also want to mention the Gulf War Illness research, which
    is certainly a great area of interest to the committee. And I
    note that your research budget is 3.16 percent below last
    year's level, so I will want to hear how you plan to do Gulf
    War Illness research and the other prosthetic research that I
    know you're also looking at doing with that lower budget.
        Last year, the subcommittee directed the VA to consolidate
    its IT project with procurement, hardware, software, under one
    organization overseen by the Office of Information Technology.
    And we would like to have an update on how that reorganization
    is going. There is also a reduced request for the major
    construction account, which I hope that you will also be able
    to address.
        So, overall, I think, Mr. Secretary, we have a budget with
    which we'll be able to work on and we look forward to working
    with you. And we do appreciate the leadership that you have
    shown at the Department of Veterans Affairs.
        With that, I would like to ask my very wonderful colleague
    and friend--I started to say my ranking member, but I feel like
    she's one of our most productive and equal members of our
    committee. And so, I'll call on my colleague Senator Feinstein.

                     statement of senator dianne feinstein

        Senator Feinstein. Thank you very much, Madam Chairman.
        And welcome, Mr. Secretary and gentlemen. I wish I could
    say ``ladies and gentlemen.'' But at least I can say
    ``gentlemen.'' Welcome.
        I sincerely hope this will be a smoother year than last
    year, and that we do not have the repeat of the shortfalls that
    we saw last year. As you all well know, California's home to
    the largest number of veterans in America. And I think Texas is
    either second or third. Certainly,--second?--and then, I guess,
    Florida is third. So, this is a major concern to both the
    chairman and to myself.
        While I believe the fiscal year 2007 budget is a good
    starting point from which to formulate the appropriations bill,
    I have some concerns in some areas.
        The first, and most glaring, are the fee proposals
    contained in the budget request. This budget assumes savings
    and fee collections of over $795 million by doubling
    prescription drug copayments and imposing a $250 enrollment fee
    on middle-income veterans, many of whom are struggling to make
    ends meet on incomes as low as $26,903 a year. More than
    200,000 veterans would be adversely affected by these
    proposals. I believe they are unrealistic assumptions. Congress
    has rejected them in the past. And I, for one, hope we will
    continue to reject them.
        Additionally, I remain concerned by the savings the budget
    has assumed regarding efficiencies. This year, the President's
    budget request contains over a billion in anticipated resource
    savings associated with so-called efficiencies. As you know,
    last year this subcommittee directed the VA to provide detailed
    justification for management efficiencies. It remains clear, to
    this day, what those efficiencies actually are. I understand
    that this year the VA has termed these savings ``clinical
    efficiencies'' rather than ``management efficiencies.'' Mr.
    Secretary, I hope in your testimony you will shed some light on
    the difference between these two and exactly how you're going
    to achieve these efficiencies, or savings, without cutting
    services.
        I'm also very concerned about the special needs of those
    veterans returning from combat in Iraq and Afghanistan. Roughly
    505,000 Iraq and Afghanistan veterans have separated from
    military service following their tour of combat. The latest
    figures show the VA having treated over 144,000 of these for a
    variety of healthcare problems. The VA has estimated that it
    would treat 110,556 of these veterans in 2006. However,
    according to VA statistics, through January the VA had already
    treated almost 75,000. And, at that time, there were still 8
    months left to go in the fiscal year. In 2007, the VA is
    estimated it will treat 109,191 Iraq and Afghanistan veterans.
    This seems somewhat low, considering the trend that's upward.
        Now, I know, Mr. Secretary, these are tough issues, but I
    hope you'll address them. And, if you don't, we certainly will
    in our questions. But I want to welcome you, and I want to
    thank all of you for the service to our country.
        Thanks, Madam Chairman.
        Senator Hutchison. Thank you. In order of arrival--Senator
    Johnson.
         Senator Mitch McConnell has submitted a statement to be
    entered into the record.
        [The statement follows:]

                 Prepared Statement of Senator Mitch McConnell

        Senator McConnell will continue to work with the Kentucky
    Congressional delegation to advocate vigorously on behalf of the
    Commonwealth's veterans.
        American bravery and courage have been demonstrated in the heroic
    efforts of our Nation's veterans since the founding of our country.
    That rich tradition continues in the stalwart efforts of today's
    generation of American soldiers. In the continued struggle to rid the
    world of terrorism, our fighting men and women have time and again
    demonstrated their willingness to stand guard against the enemy and
    defend our way of life. This protection has come at a great cost,
    however, with over 2,600 soldiers having paid the ultimate price for
    our freedom. Furthermore, many more soldiers have also sacrificed of
    themselves, and as a result, bear the lasting scars--both physical and
    mental.
        As the nearly 18,000 wounded soldiers who have bravely served our
    country in Iraq and Afghanistan return home, it is important that they
    receive the first-rate medical care they need. These soldiers--many
    from Kentucky--will be dependent on the Department of Veterans Affairs
    (VA) to provide them with the proper care.
        The VA's CARES Stage I Summary Report for Louisville points out
    that there are over 117,000 enrolled veterans living within the
    Northern Market of VISN 9--an area that encompasses most of Central and
    Eastern Kentucky. Unfortunately, the report also details that only 61.6
    percent of those enrolled veterans, many living in Kentucky, have a VA
    primary care facility that is readily accessible to them. This is a
    full eight percentage points lower than the threshold the VA has deemed
    acceptable. Given this fact, and that there are nearly 400,000 veterans
    living in Kentucky, it is troubling that the VA has not requested
    funding for construction of new veterans' healthcare facilities for any
    community within the Commonwealth for the next fiscal year.
        As we begin to examine the issues facing our Nation's veterans in
    the upcoming year, I will continue to work with my colleagues from
    Kentucky here in Congress to advocate vigorously on behalf of the
    Commonwealth's noble veterans. All of us are interested in ensuring
    that the VA follows through with its proposals to create several new
    facilities throughout the State.

                        STATEMENT OF SENATOR TIM JOHNSON

        Senator Johnson. Well, thank you, Madam Chairman. Welcome,
    Secretary Nicholson.
        I have just come from South Dakota, where we had an
    interesting roundtable discussion with returning Afghan and
    Iraq veterans, with a particular focus on PTSD and other
    emotional mental health issues, and I look forward to your
    testimony in that regard.
        In order to expedite things this morning, Madam Chairman, I
    will submit an opening statement for the committee record, and
    I look forward to the testimony of the Secretary.
        [The statement follows:]

                   Prepared Statement of Senator Tim Johnson

        I would like to thank Chairwoman Hutchison and Ranking Member
    Feinstein for calling today's hearing on the fiscal year 2007 budget
    for the Veterans Administration (VA). Your continued efforts on behalf
    of our Nation's veterans are greatly appreciated, and I look forward to
    working with you both as we move forward with this year's VA budget.
        I would also like to thank Secretary Nicholson for appearing before
    the Subcommittee, and for your willingness to serve. As Secretary of
    the VA, you have a very difficult job and an incredibly important
    responsibility to our veterans.
        Ensuring that our Nation's veterans receive the benefits they have
    earned and deserve is one of my most important duties as a Senator, and
    one I do not take lightly. While the President's fiscal year 2007
    budget request is a step in the right direction, I am concerned we will
    fail to meet our obligations unless additional money is appropriated
    above the level requested by the President.
        Recently, I had the privilege of meeting with a number of veterans
    in South Dakota who have returned from serving in Iraq and Afghanistan.
    One young man shared with me the difficulties he has had readjusting to
    civilian life following his tour of duty. He was currently attending
    college in South Dakota after serving in Iraq with the 82nd Airborne,
    and had been waiting months for an appointment with the VA. He required
    treatment because he was experiencing stress-related problems following
    his deployment.
        Even though he wasn't able to schedule an appointment in a timely
    fashion, he wasn't resentful. Rather, I was struck by his positive
    attitude. Like many soldiers, he was proud of his service in Iraq and
    thankful for the opportunity to serve his country. In fact, he said it
    made him a better person.
        We are all proud of our men and women in uniform, and we must do
    all we can to ensure that those returning from combat zones are getting
    the help they need. In addition to making certain that the VA has
    adequate funding for mental health services and readjustment
    counseling, we must also guarantee that the budget is properly funded
    each fiscal year and not subjected to emergency supplemental
    appropriations.
        As you are well aware, the primary reason for the budget shortfall
    last year was because the VA underestimated the projected costs of
    caring for soldiers returning from Iraq and Afghanistan. In my opinion,
    the funding crisis last summer underscored the necessity of mandatory
    funding. That is why I introduced S. 331, the Assured Funding for
    Veterans Health Care Act of 2005. I firmly believe the VA budget cannot
    be subjected to the whims of discretionary spending, and the only
    solution to this problem is to support my bipartisan mandatory funding
    legislation.
        In addition to new veterans enrolling in the VA, we must also
    remember those who have served our country in past conflicts. Often
    times, these veterans rely upon the VA as their only source of health
    care. That is why I am deeply concerned by the Bush Administration's
    continued insistence on implementing annual enrollment fees and
    increased prescription drug co-payments for our Priority 7 and 8
    veterans.
        These fees are designed to generate revenue in order to help offset
    VA expenditures. However, some veterans may be forced to seek health
    care elsewhere because they cannot afford either the annual enrollment
    fees or the increased co-payment costs. Rather than relying on budget
    proposals aimed at driving veterans out of the VA in order to save
    money, we should focus our efforts on providing adequate funding to
    ensure all those who have defended our country receive the health care
    they have earned and deserve.
        Without question, we are facing tough budget choices this year.
    However, if we are serious about our national security, and recruiting
    the best and brightest to defend our country, we must make honor our
    commitment to our Nation's veterans.
        Once again, thank you Madam Chairwoman for calling today's hearing.
    I look forward to working with my colleagues on the Subcommittee as we
    begin consideration of the fiscal year 2007 Military Construction and
    Veterans' Affairs Appropriations bill.

        Senator Hutchison. Thank you very much.
        Senator Allard.

                       STATEMENT OF SENATOR WAYNE ALLARD

        Senator Allard. Madam Chairman, thank you. Thank you
    specifically for holding this hearing. It's a necessary
    hearing, because we are in the appropriation process, and I'm
    looking forward to hearing from the witnesses today before the
    committee.
        And I would like to especially welcome a good friend of
    mine, and a fellow Coloradoan, the Secretary of the Veterans
    Administration, Secretary Nicholson. Jim, it's good to see you
    here, and thank you.
        Clearly, this committee has many new challenges before us
    this year. In addition to the roles of veterans from World War
    II, Korea, Vietnam, and Desert Storm that the VA already cares
    for, the number of men and women injured while performing their
    duties in Iraq and Afghanistan grows daily and will only add
    continued stress to the Veterans Health Administration. Now,
    while these needs increase, the United States also faces a
    challenge in reining in Federal spending and reducing our
    Federal debt over the next few years. This is a precarious
    balancing act that must always focus on answering the call for
    those men and women who have served their country courageously.
        And, Mr. Secretary, I just look forward to discussing these
    issues with you further today.
        And, with that, I'd like to, again, reiterate my thanks for
    appearing in front of us today, and look forward to your
    testimony.
        And thank you, Madam Chairman.
        Senator Hutchison. Thank you, Senator Allard.
        Senator Murray.

                       STATEMENT OF SENATOR PATTY MURRAY

        Senator Murray. Thank you very much, Chairman Hutchison and
    Ranking Member Feinstein, for holding today's hearing.
    Secretary Nicholson, it's good to see you again before one of
    our committees.
        And I just want to say, before I do my opening statement,
    that I want to just thank Congressman Lane Evans, who announced
    his retirement yesterday, for his tremendous service to all
    veterans. He owes--we all owe him a debt of gratitude for the
    tremendous job he's done, and we will miss him as a Member of
    Congress. And I know many people here share that sentiment with
    me.
        Madam Chairman, I do want to start with the good news in
    this budget proposal. After years of seeing inadequate budgets
    in a massive shortfall, last year we finally, I think, have a
    decent budget proposal for VA healthcare from this
    administration, and I want to commend you, Secretary Nicholson,
    for the focus you give to the wellness initiatives in your
    budget.
        But, overall, I have to say, I am still very concerned that
    the President's fiscal year 2007 budget doesn't fix the funding
    problems and is built around denying care instead of meeting
    the real needs. It seems to me this budget takes one step
    forward by providing a good number overall for VA healthcare,
    but takes two steps backwards in limiting access and not being
    based on real needs.
        This budget plan actually locks the hospital doors to 1.1
    million deserving veterans, and will keep another 200,000
    veterans from accessing the VA, and that is on top of the
    260,000 veterans that were denied access last fiscal year. So,
    while the bottom-line number looks good, how you get there is
    troubling.
        The Bush administration, as Senator Feinstein mentioned, is
    imposing new fees and copayments and blocking access for
    veterans to reach that funding number, and I just think that's
    wrong.
        I know that many times in a budget we rob Peter to pay
    Paul, but in this case what we're actually doing is denying
    care to 1.1 million veterans to provide care for others. And,
    to me, that's just morally wrong. And that is on top of the
    VA's efforts to cut back on outreach to 25 million veterans, of
    which only 5 million currently access care.
        I'm very concerned about the lack of outreach, that it is
    keeping many of our veterans who have service-related injuries
    out of the VA, and it's especially troubling when many of those
    veterans have illnesses specific to their service, like
    veterans who suffer from the impacts of Agent Orange or Gulf
    War syndrome.
        We all know that when veterans signed up to serve, they
    were promised healthcare. There wasn't any asterisk. There was
    no fine print saying ``exclusions apply.'' We made a promise to
    every veteran, and we need to keep that for every veteran.
        And I'm also very concerned about the other step backward I
    see, and that this budget is still not based on actual demands
    so that we can know what we need to see, in terms of numbers,
    for fiscal 2007. Everyone in this committee remembers what
    happened last year with the tremendous shortfall, and we could
    be setting ourselves up again for the same kind of shortfall if
    we don't have a budget that's based on real numbers. Now, I
    will recognize that the VA is making progress. And I want to
    commend Secretary Nicholson for that. He has told us that he's
    been asking for discharge numbers from the Department of
    Defense, and, under the law that we passed last year, he is
    meeting with us quarterly to review those numbers. And I really
    appreciate that.
        But I am concerned that the VA's model still leaves out
    some very critical factors that will impact a number of
    veterans. We continue to underestimate the number of veterans
    from Iraq and Afghanistan. This--the model does not account for
    the many seniors who are today being steered into the VA when
    they seek access to the new Medicare drug program. This budget
    doesn't take into consideration the influx of Vietnam veterans,
    who are now, as they age, increasing their need to have
    healthcare and are accessing the VA system for the first time.
    It doesn't account for all the veterans who are today in this
    country losing their employer-based healthcare and are, for the
    first time, turning to the VA for care. And, probably most
    importantly, the VA may give the VISNs adequate funds to
    provide care, but then it doesn't budget for various programs
    that they're mandated to enact, like increased mental health
    care. VA should take these programmatic efforts into account
    when they do their budgeting to ensure that we do not face any
    shortfalls.
        So, Madam Chairman, for these reasons, I think we still
    don't have an accurate model, and that is really disconcerting
    to me. Like many of my colleagues, I spent the March recess
    going out, talking to a number of veterans, and I talked to a
    representative from the Washington State Department of Veterans
    Affairs who told me that they had just completed a voluntary
    survey of Guard members in Washington State who recently
    separated after serving in Iraq and Afghanistan. And of the
    5,300 surveys they sent out, 1,700 responded, 370 of them were
    still unemployed since separation. That is 22 percent of them.
    And 416 said they were underemployed. That's 46 percent of our
    Guard members who are unemployed or underemployed. Veterans
    Service officers have told me about veterans coming back from
    Iraq and Afghanistan who were able to get an initial
    appointment with the VA within 1 to 3 months upon their return,
    but then they had to wait 6 months for a consultation, and
    another 7 months for surgery. So, it is taking our veterans
    still today over a year before they're getting the care that
    they are seeking from the VA.
        So, Madam Chairman, I will be looking closely at these
    numbers and to the Secretary's response today, but our veterans
    and our VA staff, as I have said many times, deserve to have a
    budget that is based on real numbers and on real demand, and
    not on gimmicks and fees that are designed to limit care.
        Thank you very much.
        Senator Hutchison. Thank you, Senator Murray.
        Senator Landrieu, did you have an opening statement?
        Senator Landrieu. Madam Chair, I will submit the statement
    for the record. I'd like to save my time for some questions on
    some specific matters. So, thank you very much.
        [The statement follows:]

                 Prepared Statement of Senator Mary L. Landrieu

        Madame Chairman, Senator Feinstein, thank you for calling the
    hearing today to discuss the Veterans Affairs fiscal year 2007 budget
    submission. I would also like to thank Secretary Nicholson for joining
    us today and for answering any questions this Subcommittee may have
    regarding the VA's fiscal year 2007 budget submission.
        When Americans put on military uniforms and go to the front line,
    our Nation makes a long term promise to care for them during their term
    of service and long after the battle is over. Unfortunately, over the
    years our government has not kept its promise to our Nation's veterans.
    Over the past years the Veterans Administration has seen an
    overwhelming increase in enrollees, while support for medical services
    and benefits has barely increased--not nearly enough to keep pace with
    increased need and demand. And, as we all know, some veterans are not
    allowed to enroll in the VA health care system at all.
        Each of us has a responsibility to ensure that the VA health care
    and benefits system receives full authorized funding, and do so without
    increasing the out-of-pocket fees paid by veterans. We all have an
    obligation to the men and women who serve our Nation, and we must
    ensure that the Veterans Administration receives the support it so
    desperately needs to meet these goals.
        While the VA's fiscal year 2007 request, shows an increase, but
    there are a number of red flags raised. In particular, a few areas for
    concern are: the proposed increase in prescription co-payment,
    establishment of a $250 enrollment fee, mental health, State War
    Veterans Homes, burial benefits, and blinded veterans care.
        As of this month we have more than 17,000 wounded military men and
    women who have earned Purple Hearts in Operation Iraqi Freedom. Coupled
    with those who have been wounded in Afghanistan we could see over
    21,000 combat wounded by the end of the year. The physical wounds
    sustained by our soldiers heal, however, there is mounting evidence
    that demonstrates for many of our veterans, the injuries of war never
    end.
        I would like to commend the VA on setting aside $3.2 billion in the
    fiscal year 2007 discretionary funding request for mental health care.
    While today's soldier sees an increased chance of survival due to
    advances in things such as Kevlar body armor, mental health is not
    given the proper attention it requires.
        Mental health issues largely manifest themselves in the form of
    Post Traumatic Stress Disorder (PTSD) which touches both the active
    duty as well as the citizen-soldiers of the National Guard and
    Reserves. These brave patriots who fought for this country's ideals
    were raised in communities to which they will return to seek comfort
    and healing. Because of the silently devastating effects of PTSD,
    family members, friends, and members of the community may never know
    the extent of the damage caused by a soldier's experience in the war.
        If we are not vigilant and continue to seek solutions at the VA
    level regarding mental health issues, veterans returning from war will
    potentially be under siege for the rest of their lives.
        My home State of Louisiana is proud to operate and maintain three
    war veteran's homes in Jackson, Monroe, and Jennings. These homes have
    been innovative and important to the long term care of many veterans
    that live in these three distinct parts of the State. In order to
    preserve the fiscal healthcare of these tenants it is critical that we
    increase VA per diem payments to State Veterans Homes. VA per diem
    payments are authorized to cover up to 50 percent of the average daily
    cost of care, the current rate ($63.40 for skilled nursing care) covers
    less than 30 percent of that cost. As the number of veterans health
    care needs increase the Federal Government must meet its responsibility
    to provide the best resources to our veterans.
        The per diem program needs protection from attempts to compromise
    its future. Congress thwarted an attempt last year by the
    Administration to severely restrict per diem payments which, if
    enacted, would have cut per diem payments for up to 70 percent of
    veterans in State Homes.
        There are a range of concerns regarding blinded veterans that
    include issues like lengthy delays in admissions at Blind
    Rehabilitation Centers (BRC's) to the expansion of Blind Rehabilitative
    Outpatient Services (BRO's). Veterans who have lost their vision
    deserve first class treatment and a commitment by the VA to address the
    issues which will lighten the heavy burden they will endure for a
    lifetime.
        As with other areas that need improvement, the goal for the VA
    should be to deliver the highest quality of care in a timely manner.
    Unfortunately, goals often fall short from 400,000 people in a logjam
    with claims pending at the Board of Veterans Appeals to blinded
    veterans waiting an average of close to 19 weeks to enter one of ten
    BRC's. This rehabilitation is essential to assisting blinded veterans
    in adjusting to their blindness. We must do better.
        Madame Chairman, thank you for you and the ranking member's
    leadership and I look forward to the remarks from our guest.

                        STATEMENT OF R. JAMES NICHOLSON

        Senator Hutchison. Secretary Nicholson, welcome.
        Secretary Nicholson. Thank you, Madam Chairman, members of
    the committee. I have a written statement that I would also
    like to submit to the committee to be entered into the record.
        Senator Hutchison. Without objection.
        Secretary Nicholson. You know, as Secretary, it's a great
    privilege, and responsibility, of course, to lead the
    Department of Veterans Affairs.
        Earlier this year, President Bush announced a landmark
    budget for the Department of Veterans Affairs, a budget of
    $80.6 billion. That's truly historic in its scope of service to
    veterans.
        Behind the figures is a great story, one of America's truly
    good-news stories. And I'd be remiss, I think, if I didn't
    recount one of the best news stories, and one of the least
    known, of 2005, although, gratefully, you did mention it, Madam
    Chairman, and that is the heroic efforts of the VA employees
    during Hurricanes Katrina and Rita. Not only did our staffs
    evacuate several hundred patients to other hospitals out of the
    Gulf Coast area quickly and efficiently, they did so at great
    personal risk and considerable personal loss. One woman, who is
    a nurse, caught up with, in a hospital in Houston, where we had
    relocated many of her patients off of her ward at the New
    Orleans Hospital, said she could see her house during the 4
    days they were in there, before we finally got them evacuated,
    and all she could see was the roof and the chimney. And she
    didn't know the disposition of her own family, but she stayed
    right with her patients, and then relocated with her patients,
    got on an airplane, actually, and didn't know where she was
    going to end up. And that was--that's quite typical of scores
    of VA health caregivers in that great catastrophe.
        And, Madam Chairman, the citizens of the great State of
    Texas opened their hearts, as well, to our veterans that we
    relocated there, and their health caregivers, welcomed them to
    cities like Houston and San Antonio in their time of need, and
    Dallas.
        The DeBakey VA Medical Center provided much-needed care and
    comfort to all of the displaced citizen soldiers moved there,
    that were affected by the hurricane, and they did so in true
    Texas style. They were made to feel at home. And we are very
    grateful to all of those who made that possible.
        It's also a fact that the VA knows how to protect our
    veterans' vital health information against this kind of
    catastrophic event that swept over the Gulf Coast region.
    Because veterans healthcare records are electronic, no matter
    where our New Orleans veterans were eventually relocated, their
    complete health records were available for them, and for their
    givers, in an uninterrupted manner.
        Following a decade-long healthcare transformation, the VA
    is now at the forefront of America's healthcare industry. And
    that's not just a proud Secretary saying that, but, more
    importantly, it's being said by a host of organizations within
    and outside of the healthcare community.
        Let me mention just a few examples. The Journal of American
    Medical Association has applauded VA's dedication to patient
    safety. Since you're sitting down, I will say even the New York
    Times recently characterized the VA as a model for our Nation.
    And just recently--I think it was the week before last--the
    ``NBC Nightly News'' aired a story on the VA that described our
    healthcare system as, quote, ``the envy of healthcare
    administrators and a model for healthcare nationwide,'' end of
    quote.
        Our veterans--these are the people that really count to us,
    the people that we take care of--they rank our care a full 10
    percentage points above their counterparts in the private
    sector. For the sixth consecutive year, the American Customer
    Satisfaction Index reports that veterans are more satisfied
    with their healthcare than any other patients in America.
        Because our first-rate, high-quality healthcare--because of
    that, veterans are coming to us in ever-greater numbers. Fully
    7.6 million veterans are now enrolled for our care. And this
    year we expect to see approximately 5.4 million of them. Last
    year, we had 55 million patient encounters in our system.
        Madam Chairman, President Bush, in his 2007 budget proposal
    for the Department of Veterans Affairs, is fulfilling his
    promise to our veterans with a strong budget that respects
    their service to our country and takes a significant step
    toward redeeming America's debt for our heroes. The President's
    total request is for $80.6 billion. This is an increase of 12.2
    percent over last year's record amount. It is $8.8 billion
    above the level of last year. This budget contains the largest
    dollar increase in discretionary funding for the VA ever
    requested by a President.
        Madam Chairman, our written statement presents a detailed
    description of the President's proposal for 2007. But I would
    like to take a few moments to highlight several of the key
    components of this historic budget.
        Let's start with veterans healthcare. During 2007, as I
    said, we expect to treat approximately 5.4 million patients,
    including more than 109,000 combat veterans who served in
    Operation Enduring Freedom and Operation Iraqi Freedom. The 3.8
    million veteran patients in priorities 1 through 6 will
    comprise 72 percent of our total patient population in fiscal
    year 2007. This will be an increase of 2.1 percent in the
    number of patients in this core group, and will represent the
    fourth consecutive year during which those veterans who count
    on us the most will increase as a percentage of all patients
    treated.
        The President's 2007 budget request includes our funding
    request for the three medical-care appropriations: $27.5
    billion for medical services, including $2.8 billion in
    collections; $3.2 billion for medical administration; and $3.6
    billion for medical facilities. The total proposed budgetary
    resources of $34.3 billion for the medical-care program
    represent an increase of 11.3 percent, or $3.5 billion over the
    level for last year, and it is 69.1 percent higher than the
    funding available at the beginning of the Bush administration.
        Madam Chairman, I want to emphasize VA's commitment to
    pursue the Gulf War Illness research through our new $15
    million a year research partnership over the next 4 years with
    the University of Texas Southwestern Medical School. Our Under
    Secretary for Health, Dr. Jonathan Perlin, will be joining you
    in Dallas soon, with other members of our staff, to discuss
    this newest avenue of investigation into what is certainly a
    pressing healthcare issue, a consistent, persistent, pressing
    issue for our Gulf War veterans, and for their families.
        Madam Chairman, the VA is focused on delivering timely,
    accurate, and consistent benefits to veterans, and their
    families, as well. The volume of claims receipts has grown
    substantially during the last few years, and is now the highest
    that it's been in 15 years as we received over 788,000 claims
    during fiscal year--or during calendar year 2005, last year.
    This trend is expected, most assuredly, to continue. We are
    projecting the receipt of over 910,000 compensation and pension
    claims in 2006, and nearly as many in 2007.
        One of the key drivers of new claims activity is the
    increase in size of the Active Duty military force, now
    including reservists and National Guard members who have been
    called to Active Duty to support Operation Enduring Freedom and
    Operation Iraqi Freedom. Another is the aging of our veteran
    population. This has led to a sizable growth in the number of
    new claims, and we expect this pattern to continue.
        A natural outcome of this increasing claims workload is
    growth in our mandatory spending accounts, which are growing
    even faster than VA's discretionary budget. We estimate that
    mandatory spending will increase by 14.5 percent, to over $42
    billion, from an estimated fiscal year 2006 spending level of
    $36.7 billion.
        Regarding burials, our veterans are leaving this life at an
    ever-increasing pace. In fact, 1,800 a day now pass away.
    Buglers will play Taps for more than 107,000 veterans in our
    national cemeteries in 2007. That is a 5.4 percent increase
    over the 2006 estimate, and 15 percent more than the number of
    interments in 2005.
        The President's 2007 budget request for the VA includes
    $160.7 million in operations and maintenance funding for the
    National Cemetery Administration. This represents an increase
    of $11.1 million, or 7.4 percent, over the estimate for last
    year.
        We will expand access to our burial program by increasing
    the percent of veterans served by a burial option in a national
    or State veterans cemetery within 75 miles of their residence,
    to 83.4 percent in 2007. This is an increase of 6.7 percent
    over last year. Our plan is for the biggest expansion of the
    national cemetery system since the Civil war. And we are on
    track.

                               PREPARED STATEMENT

        Madam Chairman, I started out my testimony by saying that
    this budget is historic, that this is a landmark proposal of
    funding unmatched by any previous VA budget ever. And I also
    said that VA's 235,000 employees are doing a terrific job
    throughout our country in taking care of our veterans. Veterans
    don't seek the spotlight of approval, so, as Secretary of
    Veterans Affairs, it's my privilege to lead our national
    applause in grateful thanks for every gift our veterans have
    given us. This proposed budget for VA is President Bush's
    appreciation for them, our heroes.
        Thank you, Madam Chairman.
        [The statement follows:]

                    Prepared Statement of R. James Nicholson

        Madam Chairman and members of the Committee, good afternoon. I am
    pleased to be here today to present the President's 2007 budget
    proposal for the Department of Veterans Affairs (VA). The request
    totals $80.6 billion--$42.1 billion for entitlement programs and $38.5
    billion for discretionary programs. The total request is $8.8 billion,
    or 12.2 percent, above the level for 2006. This budget contains the
    largest increase in discretionary funding for VA ever requested by a
    President.
        With the resources requested for VA in the 2007 budget, we will be
    able to strengthen even further our position as the Nation's leader in
    delivering accessible, high-quality health care that sets the national
    benchmark for excellence. Whether compared to other Federal health
    programs or private health plans, the quality of VA health care is
    unsurpassed. In addition, this budget will allow the Department to
    maintain its focus on the timeliness and accuracy of claims processing,
    and to expand access to national and State veterans' cemeteries.
        As an integral component of our 2007 goals, we will continue to
    work closely with the Department of Defense (DOD) to fulfill our
    priority that service members' transition from active duty to civilian
    life is as seamless as possible.
    Ensuring a Seamless Transition from Active Military Service to Civilian
            Life
        The President's 2007 budget request provides the resources
    necessary to help ensure that service members' transition from active
    duty military status to civilian life is as smooth and seamless as
    possible. Last year through our aggressive outreach programs, VA
    conducted nearly 8,200 briefings attended by over 326,000 separating
    service members and returning Reserve and National Guard members. We
    will continue to stress the importance of an informed and hassle-free
    transition for all of our forces coming off of active duty, and their
    families, and especially for those who have been injured.
        If active duty service members, Reservists, and members of the
    National Guard served in a theater of combat operations, they are
    eligible for cost-free VA health care and nursing home care for a
    period of 2 years after their release from active military service
    provided that the care is for an illness potentially related to their
    combat service. VA has already facilitated transfers from military
    medical facilities to VA medical centers several thousand injured
    service members returning from Operation Enduring Freedom and Operation
    Iraqi Freedom.
        There are many other initiatives underway that are aimed at easing
    service members' transition from active duty military status to
    civilian life. Within the last year, VA hired an additional 50 veterans
    of Operation Enduring Freedom and Operation Iraqi Freedom to enhance
    outreach services to veterans returning from Afghanistan and Iraq
    through our Vet Centers. They joined our corps of Vet Center outreach
    counselors hired earlier by the Department to brief servicemen and
    women about VA benefits and services available to them and their family
    members. They also encourage new veterans to use their local Vet Center
    as a point of entry to VA and its services. Our outreach counselors
    visit military installations, coordinate with military family
    assistance centers, and conduct one-on-one interviews with returning
    veterans and their families.
        Last year VA signed a memorandum of agreement with Walter Reed Army
    Medical Center to give severely injured service members practical help
    in finding civilian jobs. Under this agreement, VA offers vocational
    training and temporary jobs at our headquarters in Washington, DC to
    service members recovering at the Army facility from traumatic
    injuries.
        VA and DOD are working together to establish a cooperative
    separation exam process so that separating service members only need to
    have one medical exam that meets both military service separation
    requirements and VA's disability compensation requirements.
        Separating military personnel receive enhanced services through the
    Benefits Delivery at Discharge (BDD) program. This program enables
    separating service members to file disability compensation claims with
    VA staff at military bases, complete physical exams, and have their
    claims evaluated before, or closely following, their military
    separation. With the assistance of VA staff stationed at 140 military
    installations around the Nation as well as in Korea and Germany,
    service members can begin the VA disability compensation application
    process 180 days prior to separation. These applications are now
    processed at two locations to improve efficiency and the consistency of
    our claims decisions. In addition, our employees conduct transition
    assistance briefings in Germany, Italy, Korea, England, Japan, and
    Spain.

                                  MEDICAL CARE

        The President's 2007 request includes total budgetary resources of
    $34.3 billion for the medical care program, an increase of 11.3 percent
    (or $3.5 billion) over the level for 2006 and 69.1 percent higher than
    the funding available at the beginning of the Bush Administration. The
    2007 budget reflects the largest dollar increase for VA medical care
    ever requested by a President and includes our funding request for the
    three medical care appropriations--medical services ($27.5 billion,
    including $2.8 billion in collections); medical administration ($3.2
    billion); and medical facilities ($3.6 billion).
        The cornerstone of our medical care budget is providing care for
    veterans who need us the most--veterans with service-connected
    disabilities; those with lower incomes; and veterans with special
    health care needs. A key element of this effort is to make sure every
    seriously injured or ill serviceman or woman returning from combat in
    Operation Enduring Freedom and Operation Iraqi Freedom receives
    priority consideration and treatment.
    Initiatives
        The 2007 budget includes two provisions that, if enacted, will be
    instrumental in helping VA meet our primary goal of providing health
    care to those who need our medical services the most. The first
    provision is to implement an annual enrollment fee of $250 and the
    second is to increase the pharmacy co-payment from $8 to $15 for a 30-
    day supply of drugs. Both of these provisions apply only to Priority 7
    and 8 veterans who have no compensable service-connected disabilities
    and do have the financial means to contribute modestly to the cost of
    their care. Priority 7 and 8 veterans typically have other alternatives
    for addressing their medical care costs, including third-party health
    insurance coverage and Medicare, and were not eligible to receive VA
    medical care at all or only on a case-by-case space available basis
    until 1999 when new authority allowed VA to enroll them in any year
    that resource levels permitted.
        As you know, these two initiatives are not new, and I recognize
    that Congress has not enacted them in the past. However, we are
    reintroducing them because I believe they are justifiable, fair, and
    reasonable policies. They are entirely consistent with the priority
    health care structure enacted by Congress several years ago, and would
    more closely align VA's fees and co-payments with other public and
    private health care plans. The President's budget includes similar,
    small incremental fee increases for DOD retirees under age 65 in the
    TRICARE system. The VA fees would allow us to focus our resources on
    patients who typically do not have other health care options.
    Furthermore, these two provisions reduce our need for appropriated
    funds by $765 million as a result of the additional collections they
    would generate, and a modest reduction in demand.
        The 2007 budget also includes a provision to eliminate the practice
    of offsetting or reducing VA first-party co-payment debts with
    collection recoveries from third-party health plans. Veterans receiving
    medical care services for treatment of nonservice-connected
    disabilities would receive a bill for their entire co-payment. If
    enacted, this provision would yield about $30 million in additional
    collections that could be used to provide further resources for the
    Department's health care system.
        The combined effect of all three provisions reduces our need for
    appropriated funds by $795 million in 2007. I want to work with your
    committee and the rest of Congress to gain your support for these
    proposals.
    Workload
        During 2007, we expect to treat nearly 5.3 million patients, of
    which 4.8 million are veterans, including over 100,000 combat veterans
    who served in Operation Enduring Freedom and Operation Iraqi Freedom.
    Among the remaining patients we will treat are qualified dependents and
    survivors eligible for care through the Civilian Health and Medical
    Program of the Department of Veterans Affairs (CHAMPVA), VA employees
    receiving preventive occupational immunizations, and patients receiving
    humanitarian care.
        The 3.8 million veteran patients in Priorities 1-6 will comprise 79
    percent of our total veteran patient population and 72 percent of our
    overall total patient population in 2007. This will be an increase of
    2.1 percent in the number of patients in Priorities 1-6 and will
    represent the fourth consecutive year during which those veterans who
    count on us the most will increase as a percentage of all patients
    treated.
        We have made significant improvements to the actuarial model that
    was used to support our 2007 budget request, including development of
    an enhanced methodology for determining enrollee morbidity and a more
    detailed analysis of enrollee reliance on VA health care compared to
    other medical service providers. Also, we have added new data sources,
    including the Social Security Death Index, which resulted in a more
    accurate count of enrolled veterans. Finally, we have more accurately
    assigned veterans into the income-based enrollment priority groups by
    using data from the 2000 decennial census.
        VA continues to take steps to ensure the actuarial model accurately
    projects the needs of veterans from Operation Enduring Freedom and
    Operation Iraqi Freedom. However, many unknowns can impact the number
    and type of services the Department will need to provide these
    veterans, including the duration of the military action, when these
    veterans are demobilized, and the impact of our enhanced outreach
    efforts. Therefore, we have made additional investments in key
    services, such as mental health, prosthetics, and dental care to ensure
    we will be able to continue to meet the health care needs of these
    returning veterans and veterans from other eras seeking more of these
    same services.
    Funding Drivers
        There are three key drivers of the additional funding required to
    meet the demand for VA health care services in 2007:
      --inflation;
      --expanded utilization of services; and
      --greater intensity of services provided.
        The impact of the composite rate of inflation within the actuarial
    model increased our resource requirements for medical care by $1.2
    billion, or 3.9 percent. This includes the effect of additional funds
    needed to meet higher payroll costs as well as the influence of growing
    costs for supplies, as measured in part by the medical Consumer Price
    Index.
        VA will experience a significant increase in the utilization of
    health care services in 2007 as a result of four factors. First,
    overall utilization trends in the U.S. health care industry continue to
    increase. Veterans who previously came to VA for a single medical
    appointment now more typically require multiple appointments in many
    different specialty clinics. And, they return more often for follow-up
    appointments in any given year. To illustrate, in 2005 we treated about
    5.3 million individual patients but had a total of over 58 million
    outpatient visits. These trends expand VA's per-patient cost of doing
    business. Second, we expect to see changes in the demographic
    characteristics of our patient population. Our patients as a group will
    continue to age, will have lower incomes, and will seek care for more
    complex medical conditions. These projected changes in the case mix of
    our patient population will result in greater resource needs. Third,
    veterans are displaying an increasing level of reliance on VA health
    care as opposed to using other medical care options they may have
    available. This increasing reliance on VA medical care is due at least
    in part to the positive experiences veterans have had with the
    Department's health care system and is a reflection of our status as
    the Nation's leader in delivering high-quality care. And fourth,
    veterans are submitting compensation claims with more, as well as more
    complex, disabilities claimed. Our Veterans Health Administration does
    the majority of disability examinations required in order to evaluate
    these claims. This results in the need for a disability compensation
    medical examination that is more complex, costly, and time consuming.
        General medical practice patterns throughout the Nation have
    resulted in an increase in the intensity of health care services
    provided per patient, due to the growing use of diagnostic tests,
    pharmaceuticals, and other medical services. This rising intensity of
    care is evidenced in VA's health care system as well. This has
    contributed to higher quality of care and improved patient outcomes,
    but it requires additional resources to provide this greater intensity
    of services.
        The combined impact of expanded utilization and greater intensity
    of services increased our resource requirements for medical care by
    nearly $1.2 billion.
    Quality of Care
        VA's standing as the Nation's leader in providing safe, high-
    quality health care is evident and has been well documented. For
    example:
      --in December 2004 RAND investigators found that VA outperforms all
            other sectors of American health care across a spectrum of 294
            measures of quality in disease prevention and treatment;
      --the Department's health care system was featured in the January/
            February 2005 edition of Washington Monthly in an article
            titled ``The Best Care Anywhere'';
      --the May 18, 2005, edition of the prestigious Journal of the
            American Medical Association noted that VA's health care system
            has ``. . . quickly emerged as a bright star in the
            constellation of safety practice, with system-wide
            implementation of safe practices, training programs and the
            establishment of four patient-safety research centers'';
      --the July 18, 2005, edition of the U.S. News and World Report
            included a special report on the best hospitals in the country
            titled ``Military Might--Today's VA Hospitals Are Models of
            Top-Notch Care;'' and
      --on August 22, 2005, The Washington Post ran a front-page article
            titled ``Revamped Veterans' Health Care Now a Model.''
        It should be noted that for the 6 consecutive year, VA set the
    public and private sector benchmark for health care satisfaction based
    on the American Customer Satisfaction Index survey conducted by the
    National Quality Research Center at the University of Michigan. VA's
    inpatient index was 83 compared to 73 for the private sector, and our
    outpatient index was 80 compared to 75 for the private sector.
        These external acknowledgments of the superior quality of VA health
    care when compared to other public and private health plans reinforce
    the Department's own findings. We use two primary measures of health
    care quality--Clinical Practice Guidelines Index and Prevention Index.
    These measures focus on the degree to which VA follows nationally
    recognized guidelines and standards of care that medical literature has
    proven to be directly linked to improved health outcomes for patients.
    Our performance on the Clinical Practice Guidelines Index, an internal
    accountability measure focusing on high-prevalence and high-risk
    diseases that have a significant impact on veterans' overall health
    status, is expected to reach 78 percent in 2007, or a 1 percentage
    point rise over the 2006 estimate. Similarly, VA's Prevention Index, a
    set of measures aimed at preventive health care, including
    immunization, health risk assessments, and cancer screenings, is
    projected to remain at the estimated 2006 high rate of performance of
    88 percent.
    Access to Care
        With the resources requested for medical care in 2007, the
    Department will be able to both maintain its current high performance
    dealing with access to medical care as well as seek ways to continually
    reduce waiting times for non-urgent care. In 2007 we expect that 93.7
    percent of appointments will be scheduled within 30 days of the
    patient's desired date. For primary care appointments, 96 percent will
    be scheduled within 30 days of the patient's desired date and for
    specialty care, 93 percent of all appointments will be scheduled within
    30 days of the patient's desired date. No veteran will have to wait for
    emergency care.
        VA is also committed to ensuring that no veteran returning from
    service in Operation Enduring Freedom and Operation Iraqi Freedom has
    to wait more than 30 days for a primary care or specialty care
    appointment.
        We have achieved these waiting times efficiencies by developing a
    number of strategies to reduce waiting times for appointments in
    primary care and specialty clinics nationwide, to include implementing
    state-of-the-art appointment scheduling systems, standardizing business
    processes associated with scheduling practices, and ensuring that
    clinicians focus on those tasks that only they can perform to optimize
    the time available for treating patients. To further improve access and
    timeliness of service, VA will fully implement Advanced Clinic Access
    nationally, an initiative that promotes the efficient flow of patients.
    This program optimizes clinical scheduling so that each appointment or
    inpatient service is most productive. In turn, this reduces unnecessary
    appointments, allowing for relatively greater workload and increased
    patient-directed scheduling.
    Major Changes in Funding
        VA's 2007 request includes over $4.3 billion for long-term care
    ($229 million more than the 2006 level). I can assure you that the
    patient and cost projections associated with long-term care have been
    checked to ensure that they represent our real need in this area. While
    we aim to expand all types of extended care services, we plan to
    increase the rate of growth of non-institutional care funding about
    twice as much as that for institutional care. With an emphasis on
    community-based and in-home care, the Department can provide extended
    care services to veterans in a more clinically appropriate setting,
    closer to where they live, and in the comfort and familiar settings of
    their homes surrounded by their families. During 2007 we will increase
    the number of patients receiving non-institutional long-term care, as
    measured by the average daily census, to about 36,700. This represents
    a 14.4 percent increase above the level we expect to reach in 2006 and
    a 33.7 percent rise over 2005.
        The Department's 2007 request includes nearly $3.2 billion ($339
    million over the 2006 level) to provide comprehensive mental health
    services to veterans, including our effort to improve timely access to
    these services across the country. These additional funds will help
    ensure that VA continues to realize the aspirations of the President's
    New Freedom Commission Report as embodied in VA's Mental Health
    Strategic Plan and to deliver exceptional, accessible mental health
    care.
        The Department will continue to place particular emphasis on
    providing care to those suffering as a result of their service in
    Operation Enduring Freedom and Operation Iraqi Freedom from a spectrum
    of combat stress reactions, ranging from readjustment issues to Post-
    Traumatic Stress Disorder (PTSD). An example of our firm commitment to
    provide the best treatment available to help veterans recover from
    these mental health conditions is our increased outreach to veterans of
    the Global War on Terror, as well as increased readjustment and PTSD
    services. This includes the December 2005 designation of three new
    centers of excellence in Waco (Texas), San Diego (California), and
    Canandaigua (New York) devoted to advancing the understanding and care
    of mental health illness.
        VA's medical care request includes $1.4 billion ($160 million over
    the 2006 level) to support the increasing workload associated with the
    purchase and repair of prosthetics and sensory aids to improve
    veterans' quality of life. VA has already provided prosthetics and
    sensory aids to military personnel who served in Operation Enduring
    Freedom and Operation Iraqi Freedom and the Department will continue to
    provide them as needed.
    Medical Collections
        As a result of improvements in our medical collections processes
    and the initiatives presented in this budget request, we expect to
    collect over $2.8 billion in 2007 that will substantially supplement
    the resources available from appropriated sources. In 2005 we collected
    just under $1.9 billion. The collections estimate for 2007 is $779
    million, or 37.9 percent, above the 2006 estimate. About 70 percent of
    the projected increase in collections is due to the provisions calling
    for implementation of a $250 annual enrollment fee, an increase to $15
    in the pharmacy co-payment, and elimination of the practice of
    offsetting VA first-party co-payment debts with collection recoveries
    from third-party health plans. The remaining 30 percent of the growth
    in collections will result from continuing improvements in billing and
    collections.
        We have several initiatives underway to strengthen our collections
    processes. These include:
      --the Department is implementing a private-sector-based business
            model pilot, tailored to our revenue operations, to increase
            third-party insurance revenue and improve VA's business
            practices. The pilot Consolidated Patient Account Center will
            address all operational areas contributing to the establishment
            and management of patient accounts and related billing and
            collections processes;
      --we are working with Centers for Medicare/Medicaid Services
            contractors to obtain a Medicare-equivalent remittance advice
            for veterans who are covered by Medicare and are using VA
            health care services. This project will result in more accurate
            payments and better accounting for receivables through use of
            more reliable data for claims adjudication;
      --our Insurance Identification and Verification project is providing
            VA medical centers with an automated mechanism to obtain
            veterans' insurance information from health plans that
            participate in the electronic data exchange;
      --we are testing the e-Pharmacy Claims software that provides real-
            time claims adjudication for outpatient pharmacy claims; and
      --VA is implementing the Patient Financial Services System pilot that
            will increase the accuracy of bills and documentation, reduce
            operating costs, generate additional revenue, reduce
            outstanding receivables, and decrease billing times.

                                MEDICAL RESEARCH

        The President's 2007 budget includes $399 million to support VA's
    medical and prosthetic research program. This amount will fund more
    than 2,000 high-priority research projects to expand knowledge in areas
    critical to veterans' health care needs, most notably research in the
    areas of mental illness ($51 million), aging ($40 million), health
    services delivery improvement ($36 million), heart disease ($30
    million), central nervous system injuries and associated disorders ($29
    million), and cancer ($28 million).
        The requested funding for the medical and prosthetic research
    program will position the Department to build upon its long track
    record of success in conducting research projects that lead to
    clinically useful interventions that improve veterans' health and
    quality of life. Examples of some of the recent contributions made by
    VA research to the advancement of medicine are:
      --use of the antidepressant paroxetine decreases symptoms related to
            Post-Traumatic Stress Disorder and improves memory;
      --physical activity and body-weight reduction can significantly cut
            the risk of developing type II diabetes;
      --new links have been discovered between diabetes and Alzheimer's
            disease; and
      --vaccination against varicella-zoster (the same virus that causes
            chickenpox) decreases the incidence and/or severity of
            shingles.
        In addition to VA appropriations, the Department's researchers
    compete and receive funds from other Federal and non-Federal sources.
    Funding from external sources is expected to continue to increase in
    2007. Through a combination of VA resources and funds from outside
    sources, the total research budget in 2007 will be almost $1.65
    billion, or about $17 million more than the 2006 estimate.

                           GENERAL OPERATING EXPENSES

        The Department's 2007 resource request for General Operating
    Expenses (GOE) is nearly $1.5 billion. It is $131 million, or 9.7
    percent, above the 2006 current estimate. Within the 2007 total funding
    request, $1.168 billion is for the management of the following non-
    medical benefits administered by the Veterans Benefits Administration
    (VBA)--disability compensation; pensions; education; housing;
    vocational rehabilitation and employment; and insurance. This is an
    increase of $114 million (or 10.8 percent) over the 2006 level. Our
    request for GOE funding also includes $313 million to support General
    Administration activities, an increase of $17 million, or 5.7 percent,
    from the current 2006 estimate.
    Compensation and Pensions Workload, Performance, and Staffing
        VA is focused on delivering timely and accurate benefits to
    veterans and their families. Improving the delivery of compensation and
    pension benefits has become increasingly challenging during the last
    few years due to a steady and sizeable increase in workload. This
    growing workload is the result of several factors--more claims are
    being filed; we are experiencing more direct contact with veterans and
    service members, particularly those who served in Operation Enduring
    Freedom and Operation Iraqi Freedom; the complexity of claims is
    increasing; and more appeals are being filed.
        The volume of claims receipts has grown substantially during the
    last few years and is now the highest it has been in the last 15 years
    as we received over 788,000 claims in 2005. This trend is expected to
    continue. We are projecting the receipt of over 910,000 compensation
    and pension claims in 2006 (which includes over 98,000 claims resulting
    from the special outreach requirements of recently enacted legislation)
    and more than 828,000 claims in 2007.
        One of the key drivers of new claims activity is the size of the
    active duty military force. The number of active duty service members
    as well as Reservists and National Guard members who have been called
    to active duty to support Operation Enduring Freedom and Operation
    Iraqi Freedom have increased. This has led to a sizeable growth in the
    number of new claims, and we expect this pattern to persist. An
    additional reason that the number of compensation and pension claims is
    climbing is the Department's commitment to increase outreach efforts.
    Our outreach efforts are critical to the men and women who are entitled
    to VA benefits and services. We have an obligation to extend our reach
    as far as possible and to spread the word to veterans about what VA
    stands ready to provide.
        Disability compensation claims from veterans who have previously
    filed a claim comprise almost 60 percent of the disability claims
    receipts each year, and the number of such claims is climbing at a rate
    of 2 to 3 percent annually. Many veterans now receiving compensation
    suffer from chronic and progressive conditions, such as diabetes,
    mental illness, and cardiovascular disease. As these veterans age and
    their conditions worsen, we experience additional claims for increased
    benefits.
        The growing complexity of the claims being filed also contributes
    to our workload challenges. Since the beginning of 2000, the number of
    veterans receiving compensation has increased 14 percent, from slightly
    over 2.3 million to more than 2.6 million. However, the total number of
    disabilities for which veterans are being compensated has increased 37
    percent during this time, from nearly 6.0 million disabilities to 8.2
    million disabilities. In addition, we expect to continue to receive a
    growing number of complex disability claims resulting from Post-
    Traumatic Stress Disorder, environmental and infectious risks,
    traumatic brain injuries, complex combat-related injuries, and
    complications resulting from diabetes. Each claim now takes more time
    and more resources to adjudicate. Additionally, as the Department
    receives and adjudicates more claims, this results in a larger number
    of appeals from veterans and survivors.
        In addition to the growing complexity of compensation and pension
    claims, there are special outreach requirements that will have a
    significant impact on our workload and program performance. These
    outreach requirements will result in nearly 100,000 additional claims.
    As a result of the increasing volume and complexity of claims, the
    average number of days to complete compensation and pension claims is
    now projected to rise from 167 days in 2005 to 185 days in 2006, and to
    fall slightly to 182 days in 2007. In addition, we anticipate that our
    pending inventory of disability claims will climb throughout 2006 as we
    receive new claims, reaching nearly 418,000 by the end of this year.
    The inventory will fall by 5 percent during 2007 to around 397,000.
    Despite these significant workload challenges, we remain committed to
    reaching our strategic goal of processing compensation and pension
    claims in an average of 125 days.
        We will address our ever-growing workload challenges in several
    ways. First, we will continue to improve our productivity as measured
    by the number of claims processed per staff member. Second, we will
    continue to move work among regional offices in order to maximize our
    resources and enhance our performance. Third, we will simplify and
    clarify benefit regulations and ensure our claims processing staff has
    easy access to the manuals and other reference material they need to
    process claims as efficiently and effectively as possible. And fourth,
    we will further advance our efforts to improve the consistency and
    quality of claims processing across regional offices.
        Even though we will implement several management improvement
    practices, we will need additional staffing in order to address our
    workload challenges in claims processing. Our 2007 budget includes
    resources to support over 13,100 staff members (including nearly 7,900
    staff in direct support of the compensation and pensions programs), or
    about 170 above the staffing supported by our 2006 budget.
    Education and Vocational Rehabilitation and Employment Performance
        Key program performance will improve in both the education and
    vocational rehabilitation and employment programs. The timeliness of
    processing original education claims will improve by 8 days during the
    next 2 years, falling from 33 days in 2005 to 25 days in 2007. In
    addition, the rehabilitation rate for the vocational rehabilitation and
    employment program will climb to 69 percent in 2007, a gain of 6
    percentage points over the 2005 performance level.
    Funding for Initiatives
        The 2007 request for VBA includes $3.4 million to continue
    development of comprehensive training and electronic performance
    support systems. This ongoing initiative provides technical training to
    compensation and pension staff through a multimedia, multi-method
    training approach that has a direct impact on the accuracy and
    consistency of our claims processing.
        The 2007 resource request for VBA includes $2.0 million to continue
    the development of a skills certification instrument for assessing the
    knowledge base of current and new veterans' service representatives and
    will also result in a skills certification module for a variety of
    program staff. This initiative will help identify those employees who
    need additional training in order to better perform their duties and
    will allow us to improve our screening process involving applicants for
    higher-level positions.

                        NATIONAL CEMETERY ADMINISTRATION

        The President's 2007 budget request for VA includes $160.7 million
    in operations and maintenance funding for the National Cemetery
    Administration (NCA). This represents an increase of $11.1 million (or
    7.4 percent) over the 2006 current estimate. The additional funding
    will be used to meet the growing workload at existing cemeteries by
    increasing staffing and augmenting funds for contract maintenance,
    supplies, and equipment. We expect to perform over 107,000 interments
    in 2007, or 5.4 percent more than the 2006 estimate and 15.1 percent
    more than the number of interments in 2005.
        Our resource request also has $9.1 million to address gravesite
    renovations as well as headstone and marker realignment, an increase of
    $3.6 million from our funding for 2006. These improvements in the
    appearance of our national cemeteries will help us maintain the
    cemeteries as shrines dedicated to preserving our Nation's history and
    honoring veterans' service and sacrifice.
        We will expand access to our burial program by increasing the
    percent of veterans served by a burial option in a national or State
    veterans cemetery within 75 miles of their residence to 83.8 percent in
    2007, which is 6.7 percentage points above the 2005 level. In addition,
    we will continue to increase the percent of respondents who rate the
    quality of service provided by national cemeteries as excellent to 97
    percent in 2007, or 3 percentage points higher than the 2005
    performance level.
                  capital (construction and grants to states)
        The President's 2007 budget request includes $714 million in
    capital funding for VA. Our request includes $399 million for major
    construction projects, $198 million for minor construction, $85 million
    in grants for the construction of State extended care facilities, and
    $32 million in grants for the construction of State veterans
    cemeteries.
        The 2007 request for construction funding for our medical care
    program is $457 million--$307 million for major construction and $150
    million for minor construction. All of these resources will be devoted
    to continuation of the Capital Asset Realignment for Enhanced Services
    (CARES) program to renovate and modernize VA's health care
    infrastructure and to provide greater access to high-quality care for
    more veterans. When combined with the $293 million that was enacted in
    the Hurricane Katrina emergency funding package in late December 2005
    to fund a CARES project for a new hospital in Biloxi, Mississippi, the
    total CARES funding since the 2006 budget totals $750 million and since
    the 2004 CARES report amounts to nearly $3 billion.
        Our major construction request for medical care will fund the
    continued development of two medical facility projects--$97.5 million
    to address seismic corrections in Long Beach; and $52.0 million for a
    new medical facility in Denver. In addition, our request for major
    construction funding includes $38.2 million to construct a new nursing
    home care unit and new dietetics space, as well as to improve patient
    and staff safety by correcting seismic, fire, and life safety
    deficiencies at American Lake (Washington); $32.5 million for a new
    spinal cord injury center at Milwaukee; $25.8 million to replace the
    operating room suite at Columbia (Missouri); and $7.0 million to
    renovate underutilized vacant space located at the Jefferson Barracks
    Division campus at St. Louis as well as provide land for expansion at
    the Jefferson Barracks National Cemetery.
        We are also requesting $53.4 million in major construction funding
    and $25.0 million in minor construction resources to support our burial
    program. Our request for major construction includes funds for cemetery
    expansion and improvement at Great Lakes, Michigan ($16.9 million),
    Dallas/Ft. Worth, Texas ($13.0 million), and Gerald B. H. Solomon,
    Saratoga, New York ($7.6 million). Our request will also provide $2.3
    million in design funds to develop construction documents for gravesite
    expansion projects at Abraham Lincoln National Cemetery (Illinois) and
    at Quantico National Cemetery (Virginia). In addition, the major
    construction request includes $12 million for the development of master
    plans for six new national cemeteries in areas directed by the National
    Cemetery Expansion Act of 2003--Bakersfield, California; Birmingham,
    Alabama; Columbia-Greenville, South Carolina; Jacksonville, Florida;
    Sarasota County, Florida; and southeastern Pennsylvania.

                        INFORMATION TECHNOLOGY SERVICES

        The President's 2007 budget for VA provides $1.257 billion for the
    non-payroll costs associated with information technology (IT) projects
    across the Department. This is $43.2 million, or 3.6 percent, above our
    2006 budget.
        The 2007 request for IT services includes $832 million for our
    medical care program, $55 million for our benefits programs, $4 million
    for our burial program, and $366 million for projects managed by our
    staff offices, most notably non-payroll costs in our Office of
    Information and Technology and Office of Management to support
    department-wide initiatives and operations.
        The most critical IT project for our medical care program is the
    continued operation and improvement of the Department's electronic
    health record system, a Presidential priority which has been recognized
    nationally for increasing productivity, quality, and patient safety.
    Within this overall initiative, we are requesting $51.0 million for
    ongoing development and implementation of HealtheVet-VistA (Veterans
    Health Information Systems and Technology Architecture) which will
    incorporate new technology, new or reengineered applications, and data
    standardization to continue improving veterans' health care. This
    system will make use of standards that will enhance the sharing of data
    within VA as well as with other Federal agencies and public and private
    sector organizations. Health data will be stored in a veteran-centric
    format replacing the current facility-centric system. The standardized
    health information can be easily shared between facilities, making
    patients' electronic health records available to all those providing
    health care to veterans.
        Until HealtheVet-VistA is operational, we need to maintain the
    VistA legacy system. This system will remain operational as new
    applications are developed and implemented. This approach will mitigate
    transition and migration risks associated with the move to the new
    architecture. Our budget provides $188 million in 2007 for the VistA
    legacy system.
        In support of the Department's education program, our 2007 request
    includes $3 million in non-payroll costs to continue the development of
    The Education Expert System. This will replace the existing benefit
    payment system with one that will allow the Department to automatically
    process education claims received electronically.
        VA's 2007 request provides $57.4 million for cyber security. This
    ongoing initiative involves the development, deployment, and
    maintenance of a set of enterprise-wide security controls to better
    secure our IT architecture in support of all of the Department's
    program operations.

                                    SUMMARY

        In summary, Madam Chairman, the $80.6 billion the President is
    requesting for VA in 2007 will provide the resources necessary for the
    Department to:
      --provide timely, high-quality health care to nearly 5.3 million
            patients, including 4.8 million veteran patients of which 79
            percent are among those who need us the most--those with
            service-connected disabilities, lower incomes, or special
            health care needs;
      --address the large growth in the number of claims for compensation
            and pension benefits; and
      --increase access to our burial program by ensuring that nearly 84
            percent of veterans will be served by a burial option in a
            national or State veterans cemetery within 75 miles of their
            residence.
        I look forward to working with the members of this committee to
    continue the Department's tradition of providing timely, high-quality
    benefits and services to those who have helped defend and preserve
    freedom around the world.

        Senator Hutchison. Thank you very much. We appreciate that
    testimony.

                        MEDICAL AND PROSTHETIC RESEARCH

        And I would like to ask you a question, with my time, on
    the research budget, the area that we discussed, and you
    addressed, the Gulf War syndrome research, but the other area
    would be the ``smart limb'' technology, prosthetics, and other
    research efforts. And I just wanted to get a read from you on
    how that is progressing and what other priorities you see. I so
    appreciate your commitment to Gulf War, because I think we can
    do so much, not only for the veterans who have symptoms, but
    for prevention for future potential chemical warfare that might
    have a causal connection. But on the area of prosthetics, and
    then what other priorities do you see with your research
    budget? And are you okay with that slight decrease?
        Secretary Nicholson. I'll answer the last part first by
    saying, yes, we have--in the last two budget cycles, have had
    significant increase in research for prosthetics and for mental
    health and post-traumatic stress disorder. In the area of
    prosthetics, I think you mentioned ``smart limbs'' or C-limbs,
    we call the legs, the below-the-knee prosthetic now, which is a
    phenomenal device made of microprocessors that somehow has
    figured out how to think like the other leg and function
    accordingly. It's just astonishing. It's a product of research
    and compassion.
        I visit Walter Reed, in Bethesda, regularly, and, every
    Friday night that I can, I get together, my wife and I, for
    dinner with the wounded folks that are ambulatory enough to go
    to a restaurant that--we meet in here, and they are--they are
    just amazing. And the work that's being done for them is
    amazing, as well. And our commitment to the--you know, to the
    research, both in its--it's both clinical and practical,
    because we have the opportunity to monitor them, these new
    returnees, so closely--is--I think it's just--it's world class.
        As to the specific details that inquiries of chemicals and
    so forth, I'll defer to Dr. Perlin and ask him if he would
    flesh that out with more detail.
        Dr. Perlin. Thank you, Mr. Secretary, and thank you, Madam
    Chairman.
        The research that's being done in VA is truly spectacular.
    The Secretary mentioned things like the C-leg, but one of the
    products I'm most excited about is the artificial retina. I'm
    sure this committee has heard about the cochlear implant that
    was developed for hearing for people with loss of the outer
    ear, but with the nerves intact. Two of our sites have really
    brought the retinal implant to fruition. It's actually being
    tested in some patients, and, we believe that--for some
    individuals, it will be able to do things as exciting as
    restoring vision.
        In the area of combat-related research, we will actually
    conduct over $160 million of activity in things ranging from
    acute and traumatic injury to sensory loss, military
    occupational exposures, bioterrorism, and pathogens, brain
    disorders, and brain injury. And as the Secretary mentioned, on
    top of that our prosthetics program for the delivery of these
    devices actually increases to $1.4 billion, an increase of $160
    million, 2006 to 2007.

                         POST-TRAUMATIC STRESS SYNDROME

        Senator Hutchison. In my remaining time, would you just
    elaborate a little bit on your post-traumatic stress syndrome,
    the centers of excellence, progress on that. Is it making a
    difference, putting caregivers with that expertise into one
    facility that can be a regional magnet? I'd just like to have a
    progress report on that.
        Secretary Nicholson. The short answer is, yes, indeed. We
    now have put a certified post-traumatic stress disorder, PTSD
    expert at each one of our 154 medical centers so that we have
    at least one in each of our centers. We have positioned others
    in some of our vet centers and in some clinics. Because we're
    forward-looking, we're--we want to outreach to these young
    people who are coming back, and even be suggestive that if
    they're experiencing any of these symptoms, that they should
    come in and see us, and see one of these experts, because what
    they are experiencing is a common reaction to the uncommon
    experience they've just been through, and that if we can begin
    to treat them early enough, there's a great probability of
    success and recovery from any long-term effects of this. And we
    also are doing a considerable amount of research, that's being
    funded generously by you all, at our National PTSD Research
    Center, which is in White River Junction, Vermont.
        Senator Hutchison. Thank you very much.
        Senator Feinstein.

                  PROPOSED LEGISLATION ON FEES AND COPAYMENTS

        Senator Feinstein. Thank you very much, Madam Chairman.
        Mr. Secretary, let me take on the issue of fees. As you
    know, last year Senator Burns moved an amendment on the floor
    which actually received a vote, a unanimous vote, to reject the
    fee proposal. And you've put it back again this year. The $250
    annual enrollment fee, a doubling of the pharmaceutical
    copayments, eliminating the practice of offsetting or reducing
    copayments with collections recovered through third-party
    insurers. How many veterans does the VA estimate will be
    affected by this policy? These are, I guess, the priority 7 and
    8 veterans.
        Secretary Nicholson. I think the number, Senator, would be
    approximately 200,000. I think it's 198,000.
        Senator Feinstein. Okay. That's both priority 7s and 8s.
        Secretary Nicholson. Yes.
        Senator Feinstein. Is that correct? Okay.
        Secretary Nicholson. And we also know, about them, that
    about 95 percent of them have insurance. But I think that----
        Senator Feinstein. In those--these are people that make
    under $26,000 a year, and you're saying----
        Secretary Nicholson. Not all of them. Some of them might.
    It depends on where they live.
        If I might, I would sort of frame it. Because I happen to
    personally believe in this. And I'm not just being a good
    soldier, putting this in the budget. I think that there's a
    real equity in this. And, you know, they--by the way, the
    people that enter into the armed services are never told
    they're going to have lifetime healthcare. The people who are
    told they're going to have lifetime healthcare, and who were
    told that, are those that stay in a career. And those that stay
    in for a career, maybe 30 years, and do two or three combat
    tours, when they come out of the military, they get TRICARE,
    which is a program with which they're quite pleased. And I was
    involved in that in another way at another job, getting that.
    It's a good benefit. But they have a copay and enrollment fee,
    which is significantly higher than this, that we are asking
    for, for veterans, only for categories 7 and 8, which are
    veterans that have had no service-connected disabilities and
    who have jobs, and they have served 2 years----
        Senator Feinstein. Okay. But let me talk to you about the
    real world. This was last year, the Burns amendment. It passed
    100 to nothing. This is an election year. Somebody is sure to
    make the same amendment again. You're going to lose--if that
    happens, what is the total amount that you would lose? Is it
    $795----
        Secretary Nicholson. $795.
        Senator Feinstein [continuing]. Million dollars. What would
    your plan be, then, if you lose $795 million? I mean, I think
    you've been forewarned. That happens, 100 to zero. Pretty good
    warning that somebody's going to try it again. And the
    opportunity for it passing is certainly very high.
        Secretary Nicholson. I wouldn't argue with that, Senator,
    but I--that doesn't mean that it's not the right and equitable
    thing to do. But I will tell you, the question is a good one,
    about the $795 million, because that's important, because we--
    that is assumed in this budget. And if we do not get those
    policy proposals, we would need--we will need that money, to do
    what we think we have to do in this budget year.
        Senator Feinstein. So, what would you do?
        Secretary Nicholson. Well, what we would do is ask you to--
    if you don't approve that, to increase the appropriation by
    that amount.
        Senator Feinstein. Okay. Has the VA worked with the Defense
    Department to run any kind of actuarial modeling to determine
    the impact of these fees on VA patient loads?
        Secretary Nicholson. I think the answer is, no, we've not
    worked with the Defense Department, but we've certainly worked
    with our own actuaries to see what----
        Senator Feinstein. Because the----
        Secretary Nicholson [continuing]. The effect of----
        Senator Feinstein [continuing]. DOD is also requesting
    these fees on the DOD healthcare system.
        Secretary Nicholson. Yes.
        Senator Feinstein. So, I would--so, no modeling has been
    done to show what the effect of that is.
        Secretary Nicholson. Well, they're two separate systems.
    And----
        Senator Feinstein. Understand that.
        Secretary Nicholson [continuing]. We have----
        Senator Feinstein. But you're one government,
    theoretically.
        Secretary Nicholson. We have not. I think we have not. But
    we've certainly modeled it ourself to know what it--the patient
    impact would be.
        Senator Feinstein. Okay. I have another question. I see the
    light is on. Perhaps we could have a second round.
        Thank you----
        Senator Hutchison. Yes, we will----
        Senator Feinstein [continuing]. Madam Chairman.
        Senator Hutchison [continuing]. We will have a second
    round.
        Senator Allard.
        Senator Allard. Thank you, Madam Chairman.

                         ROCKY MOUNTAIN REGION COLORADO

        The hospital plans for the Rocky Mountain region, for
    veterans I want to address that a little bit. The Fitzsimons
    Hospital there in Denver--and it was designed some 50 years
    ago, and obviously a lot of what people envisioned for
    healthcare then, and what we're getting now, is lot of needs in
    the hospital simply can't be met with an older facility. And
    so, you are moving ahead with the Rocky Mountain facility. And
    I truly appreciate that. My question is, how are you moving
    forward with that particular facility? And how does it fit into
    the Capital Assessment Realignment for Enhanced Services,
    commonly known as the CARES plan?
        Secretary Nicholson. Well, thank you, Senator Allard. The
    CARES plan is the predicate for the determination that there is
    a need for a new hospital in Denver. And that takes into
    account current projected patient loads and capacity to serve.
    And we are moving forward with that. We are moving forward. We
    are--need to build a new hospital in Orlando, in Las Vegas, in
    Denver. And we have a recent agreement with the authority that
    has control over the land at the old--the Fitzsimons Army
    General Hospital. We've agreed to a site and a price, and we
    are in stages of seeking approval for getting the money
    authorized to acquire the land. And the planning--the site
    planning and space planning for the hospital is ongoing. So,
    it's moving--it's moving well, but we now need to acquire the
    land here----
        Senator Allard. And the----
        Secretary Nicholson [continuing]. Shortly.
        Senator Allard [continuing]. Authorization language, that
    would come out of the Veterans Committee itself. And you're
    working on that.
        Secretary Nicholson. Yes, we are working on it.
        Senator Allard. And then, I notice that the President also
    has in his budget here some money to begin to finance the new
    facility there in Denver.
        Secretary Nicholson. Yes. And that's----
        Senator Allard. And----
        Secretary Nicholson [continuing]. And that's----
        Senator Allard. So, right now you don't see any real
    hitches. I mean, things are--seem to be moving along pretty
    good at this point?
        Secretary Nicholson. Yes, they do.
        Senator Allard. Okay. That's good news. And thank you for
    that effort.

                        NATIONAL CEMETERY ADMINISTRATION

        The other question I have to--has to deal with cemeteries.
    How is it that we establish whether an area needs cemeteries--
    or is appropriate to put a cemetery in that area? How do we
    determine that?
        Secretary Nicholson. I have Under Secretary Tuerk here with
    me, who is responsible for Memorial Affairs. And I'll let him
    give you the detail. Essentially, there are criteria which set
    out a goal for the VA to have a cemetery within 75 miles of 90
    percent of the veterans in our country. And as I said in my
    testimony, we are in the greatest expansion of cemeteries since
    the Civil War, because our veterans are aging, and they're
    passing on at a pretty rapid rate. We need to be there. And
    there is another criteria of distance, and I'll ask Secretary
    Tuerk if he'd like to address that.
        Senator Allard. Mr. Tuerk.
        Mr. Tuerk. Yes, Senator. Generally speaking, we look at a
    given site and determine whether there is a national or State
    cemetery option available in proximity to that site, defined by
    75 miles away. That number is based on our own internal studies
    of the distance beyond which veterans tend not to view a
    cemetery as a practical alternative.
        Over the years, using that 75-mile criterion, we have
    identified cities and locations and ranked them according to
    the number of veterans who are unserved. For example, starting
    back in 1987, Chicago was at----
        Senator Allard. Yeah.
        Mr. Tuerk [continuing]. The top of the list, with----
        Senator Allard. Now----
        Mr. Tuerk [continuing]. A million----
        Senator Allard [continuing]. Let me get down to specifics,
    as my time's about ready to run out here.
        Mr. Tuerk. Okay.
        Senator Allard. There is a population number that goes into
    that--those statistics that you look at, isn't correct?
        Mr. Tuerk. Correct, Senator.
        Senator Allard. And my information is that this--they're--
    they go back quite a distance. What is it? Clear back to the
    2000 Census.
        Mr. Tuerk. As we have come down the list of----
        Senator Allard. Or do they go back to the 1990 Census?
        Mr. Tuerk. They are based on the 2000 Census.
        Senator Allard. Census, okay.
        Mr. Tuerk. And we have come down the list, and the most
    recent newly-mandated cemeteries--we had come down to the point
    where we're selecting cities that had veteran populations of
    about 170,000 that didn't have a cemetery in proximity.
        Senator Allard. Yeah. That--you know, I've--some areas of
    the country, they really had a--not only have they had a rapid
    growth in the population there, but the veteran population has
    probably increased even more. And then, on top of the--because
    of the war, and then also because of their aging and just the
    fact the demographics of people are moving into the area--and
    so, if you have an area that, say, is maybe on the borderline
    in change, is there a mechanism in there, or do you have to
    wait til the next Census before that whole area gets
    reevaluated?
        Secretary Nicholson. You know, I think the answer, Senator
    Allard, is, absent a showing of some kind of an exponential
    growth spurt or something, we would have to wait for the next
    Census, yes.
        Mr. Tuerk. And I'm advised, Senator, that we do have
    actuaries retained who try to estimate population changes
    between the Censuses every 10 years, but they're not precise
    numbers.
        Senator Allard. I would just like to solicit your
    cooperation in, kind of, working with this formula. We've got
    one of those areas in Colorado Springs.
        Mr. Tuerk. I would also mention, Senator, that the formula
    itself, if it can be properly called that, is not set in stone.
    And, as a matter of fact, we are undergoing a program
    evaluation right now to examine the underlying assumptions of
    that formula and see if it's an appropriate way to proceed
    henceforth.
        Senator Allard. Well, yeah, I would just ask that Secretary
    Nicholson, and maybe you, Mr. Tuerk, would just kind of work
    with us a little bit and just see where we are. We've got
    somebody that's going to donate land, and there's a huge
    growing population in there. And, looking from the Census, it's
    probably grown a little bit. I need to kind of work with the
    Veterans Affairs to see where you stand on that proposal, and
    all I need from you is a commitment to, kind of, work with us a
    little bit on that, and work with that formula, and see if
    there's a potential need there that--for a cemetery, that
    perhaps qualifies, that we've somehow or the other ignored.
        Mr. Tuerk. I'm happy to do that, Senator.
        Senator Hutchison. Senator Murray.

                                 VA HEALTHCARE

        Senator Murray. Mr. Secretary, I just--I want to clarify a
    response that you gave to Senator Feinstein. Are you saying
    that VA military recruiters are not using VA healthcare as a
    recruiting tool?
        Secretary Nicholson. No, I didn't say that. I said that
    there is no undertaking in the law to provide a recruit for a
    lifetime of VA healthcare----
        Senator Murray. Right. Well, it's my understanding that
    healthcare is the number one tool that recruiters are using
    today, in terms of veterans having healthcare. Is that not
    accurate?
        Secretary Nicholson. I don't--I couldn't--I couldn't tell
    you whether it is or not. I----
        Senator Murray. Well, I would just submit to this committee
    that most of our soldiers who are serving in Iraq and
    Afghanistan are under the assumption, having been told by a
    recruiter that they would get healthcare, that, indeed, they
    would get healthcare. So----
        Secretary Nicholson. Well, every member of the Armed Forces
    who serves in the combat zone is eligible for VA healthcare.
        Senator Murray. That's correct. And they are not told
    anytime by a recruiter that they are going to be based on what
    income they have when they return.
        Secretary Nicholson. They--it shouldn't be, because they're
    eligible for it, for----
        Senator Murray. Right.
        Secretary Nicholson [continuing]. For 24 months, the----
        Senator Murray. Because I misunderstood what you said to
    Senator Feinstein, then, because I thought you said that
    soldiers were not----
        Senator Hutchison. He did. He said they're not required to
    provide it for a lifetime.
        Secretary Nicholson. Right.
        Senator Murray. Right. But they are being told by
    recruiters that healthcare is part of what they will get for
    their service. So, I think----
        Secretary Nicholson. Well, I don't know what the recruiters
    are telling them. If they're injured--if they're injured in
    their service, they would be provided----
        Senator Murray. Right. I understand that. But----
        Secretary Nicholson [continuing]. Healthcare.
        Senator Murray [continuing]. I would just say that we--if
    we were not going to guarantee them healthcare, we'd better
    tell our recruiters to say something else.

                                VA BUDGET MODEL

        But, anyway, what I really wanted to ask you about was the
    model that you have for the 2007 budget. We went through a
    tremendous challenge last year, as you will recall. Have you
    changed the model for how you project how much money will be
    needed by the VA?
        Secretary Nicholson. The answer, Senator Murray, is that,
    no, we haven't changed the model. We used the same modeling
    consultant, but we've certainly supplemented it and looked
    outside of it in a--you know, in a subjective way with
    looking--more inputs and more intuitive elements. But the basic
    model is the same.
        And I'll ask Dr. Perlin if he wants to expand on that,
    because he is----
        Senator Murray. Well, what I'd really like to know is why
    you don't base the budget on demand.
        Secretary Nicholson. Well, of course, we do base it on
    demand. What we're trying to do is project what the demand will
    be.
        Senator Murray. And you're using the same model as you had
    before we had a war in Iraq and Afghanistan?
        Secretary Nicholson. Yes. But if you'll remember my
    testimony of last year, when I--that we were working on the
    2005 budget, it was based on 2002 data. And in 2002 there was
    no war. That's just a victim of our cycling times. We're
    working 2007 right now, and this--the 2007 data is based on--
    you know, on 2004 numbers.
        Senator Murray. Well, I just remain sincerely concerned
    that the--what we--the demands on the VA today are dramatically
    different than they were 5 years ago, on OIF and OEF soldiers
    returning, on increasing number of Vietnam veterans who are
    accessing it, on the increased cost of healthcare overall, on
    the fact that many people are losing healthcare and going into
    the VA that weren't, necessarily, before. Why are we not
    changing the model so that we don't end up in shortfall come
    next July or August here?
        Secretary Nicholson. Well, we use the best predictive tools
    that are available. That is the model that we use. It's used by
    almost all the major healthcare providers and integrated
    systems. It's--and then we've supplemented it by some of our
    own unique offerings, like long-term care and dental, and so
    forth. But it is a dynamic field. I would tell you that. And it
    is growing. But let me say that the patient loads are
    increasing considerably, but as to the combat, the OIF/OEF,
    we--you know, we see about 5.4 million people a year right now;
    and, of that number, about 110,000 to 120,000 are those
    combatants. That's about 2 percent of----
        Senator Murray. Are they----
        Secretary Nicholson [continuing]. That total.
        Senator Murray. How many OIF and OEF veterans have you
    budgeted for this year?
        Secretary Nicholson. For 2007, 109,000.
        Senator Murray. How many did you see in the first half of
    2006?
        Secretary Nicholson. Which is about to end--we will have
    seen, I think, 85,000.
        Senator Murray. How many did you expect to see in 2007,
    which you based your budget on?
        Secretary Nicholson. 109,000.
        Senator Murray. So, in the first half of the year, you saw
    85,000, and you're budgeting a whole year on 109,000?
        Secretary Nicholson. Budget next year on 109,000, yes.
        Senator Hutchison. Did you--you're--I'm not sure I
    understand. Are you saying that there were 85,000 just in half
    a year?
        Senator Feinstein. Yes, that's right.
        Senator Hutchison. I don't think that's what you----
        Senator Murray. Well, let--you saw 85,000 in 6 months. Your
    whole budget for 2007, you said, is--you're basing it a
    hundred-and-----
        Secretary Nicholson. Nine.
        Senator Murray [continuing]. 109. I do not----
        Senator Hutchison. Well, wait a minute, let me go back and
    then ask--What was the full year, the year before?
        Secretary Nicholson. Last year?
        Senator Murray. Last year.
        Senator Hutchison. Yes.
        Secretary Nicholson. It was about--it was, like, at
    119,800.
        Senator Murray. And we're looking at 2007, and the budget
    is based on less than that, 109,000. That's my point. I'm very
    concerned about that, obviously.
        Senator Hutchison. Well, let's let him answer why that
    would be.
        Secretary Nicholson. Yeah, sure. Dr. Perlin will.
        Dr. Perlin. Thank you, Senator Murray. Your question makes
    logical sense, but I want to make sure that we distinguish the
    cumulative number of patients we've been from the annual
    number. Indeed, the 2007 budget budgets for about 109,000, and
    2006 will see--we project about 110,000. And we're running
    about 38 percent ahead. I should explain two things. First--and
    something that we're really very proud of is that we have much
    better hand-in-glove relationship with the Department of
    Defense that is reaching out to returning combat veterans,
    something I think we all want. And that has increased. And that
    gets to the model. The base of the model predicts about 25
    percent of the OIF/OEF veteran utilization. The remainder is
    the experience in reality. Because, as the Secretary said, the
    model, of necessity, is based on experience of a couple of
    years back, we don't want to put all of our eggs in that one
    basket and ever suffer a repeat of not coming up to the right
    numbers.
        Senator Murray. But from what I can see is that you are
    basing 2007 on less numbers than you saw in 2006. What you're
    asking for, for funding, is based less, yet we know that there
    are more soldiers returning, more accessing the VA, and more
    coming. So, I just have a serious concern about the reality of
    the numbers that we're going to see----
        Dr. Perlin. I think----
        Senator Murray [continuing]. Based on your budget.
        Dr. Perlin. I think, certainly, this is one of the things
    that we will discuss during our quarterly meetings, are
    discussing now, that it's running slightly ahead. I should say
    that is line with that. We are actually running below the
    projected expenses. So, in point of fact, the budget is----
        Senator Murray. Well, and----
        Dr. Perlin [continuing]. Completely robust----
        Senator Murray. I know you----
        Senator Hutchison. No, I----
        Senator Murray [continuing]. I've used my time----
        Senator Hutchison. No, I want to go ahead----
        Senator Murray [continuing]. But they're asking----
        Senator Hutchison [continuing]. And finish this thought,
    because it--I just am not----
        Senator Murray. We're asking our----
        Senator Hutchison [continuing]. I think there's a
    disconnect.
        Senator Murray [continuing]. To do more, in terms of Gulf
    War syndrome and reaching out, and we're seeing more veterans,
    but we're being asked to fund them at less. So, I'm--I just
    think we have a real problem with what we're seeing requested
    here.
        Senator Hutchison. I think the--there's an increase in the
    amount, but you are saying that you expect to see fewer
    patients----
        Senator Murray. Than we will----
        Senator Hutchison [continuing]. This year that we're
    talking about, 2007----
        Senator Murray. The budget is based on that, that's what--
    --
        Senator Hutchison [continuing]. Than what you are going to
    have in 2006. And I don't think that's what you mean, or else
    there's an explanation that's not there.
        Secretary Nicholson. Let me try to clarify. The--you're
    talking OIF/OEF returnees. And, as I said, that's about 2
    percent of our total projected patient load. In total patients,
    we are predicting to see an increase. In----
        Senator Murray. That's because Vietnam veterans are aging.
    It's because a number of people are accessing the VA system for
    other reasons.
        Secretary Nicholson. Right.
        Senator Murray. So, that doesn't surprise me. And that's
    good. But for OIF/OEF, you are projecting we will see less than
    last year. I'm very worried that is not going to be reality.
    And I doubt that's what you're going to see.
        Secretary Nicholson. We're--we are projecting that we'll
    see about 11,000 fewer than we saw last year. That is, in 2007,
    we'll see that, fewer than 2006.
        Senator Murray. And I think that's----
        Senator Hutchison. What do you base that on, I think is the
    question? Is it because you have had the major part of the
    injuries or----
        Secretary Nicholson. Well----
        Senator Hutchison [continuing]. There some--must be some--
    --
        Secretary Nicholson. It's a question of the cumulative
    versus new patients, and the uniques.
        I'll ask Dr. Perlin if he can explain that.
        Dr. Perlin. Thanks. I think it's important, as was
    mentioned at the beginning, there are about half a million
    veterans who have separated, having served in combat in OIF/
    OEF. And, thus far, about 144,500 have come to VA since the
    inception. And so, I think we should put that number aside for
    a moment.
        Not all of those veterans will come back for return
    service, because, by and large, most veterans, fortunately, are
    younger and healthier. There will be some that will carry
    forward. And so, the way the projection goes is, it's based on
    how many veterans will come forward from previous years and how
    many new OIF veterans will come into the system.
        I think you are absolutely correct that there are, at this
    point in the year, more veterans than we had initially
    anticipated. And I make this point, because this is part of
    Department of Defense's going out and not only doing post-
    deployment health assessment, but a reassessment. We're
    tracking that number. We are well within budget. And, as the
    Secretary says,--because these are obviously extremely
    significant veterans and all veterans are significant, we place
    particular attention here. The overall budget cares for 98
    percent other veterans. And we are absolutely within the
    resources, not only as budgeted for this population, but as
    budgeted for the entire population, as well.
        Senator Murray. Well, Madam Chairman, I have other
    questions, but we'll get back to them.
        Senator Hutchison. Okay, we certainly will.
        Senator Landrieu.

                        NEW ORLEANS REPLACEMENT HOSPITAL

        Senator Landrieu. Thank you, Madam Chair.
        My question is specific to the supplemental that was just
    passed by the House, Mr. Secretary, that included the $550
    million for the new hospital, which, at our agreement, was
    taken out of the previous supplemental and put on hold until we
    could do a little bit more groundwork on standing up the
    medical complex in New Orleans after Katrina and Rita. And I
    think we're making some progress on that. And I know you all
    have been working very closely with Secretary Leavitt and--as
    we try to develop a new system there.
        But the House inserted $275 million that could be taken out
    of this account for, I guess, quote, ``unanticipated medical
    costs of returning veterans fighting global war on terror.'' Do
    you support that inclusion of $275 million? Does the
    administration support that?
        Secretary Nicholson. We did not ask for that, Senator, no.
        Senator Landrieu. Is it your intention to use any of that
    $550 million for the new hospital with this line item?
        Secretary Nicholson. No. We currently do not plan to have
    to use any of that for operational purposes, no.
        Senator Landrieu. Now, let me be clear. Is it your
    intention to use any of this $550 million, which is earmarked,
    at your request, for the hospital to use for the $275 million
    that the House added into this supplemental?
        Secretary Nicholson. No. The answer is, no, we do not.
        Senator Landrieu. Okay.
        Secretary Nicholson. Which is another way of saying that we
    plan to use the $550 million plus the $75 million for the
    hospital.
        Senator Landrieu. For the purposes in which we have
    basically all agreed we need to move forward----
        Secretary Nicholson. Right.

                                 MENTAL HEALTH

        Senator Landrieu [continuing]. And only postponed it last
    time because we agreed with you that it wasn't--it's critical,
    but it wasn't critical 3 months ago. It's critical now, as we
    only have--just for reference of this committee, I just
    learned, today, we only have--let me get these--I'll get the
    numbers; I don't want to give the wrong ones--but of the 3,000
    beds we had open pre-Katrina--hospital beds--I think we only
    have 400 open in the whole metropolitan area, of a city that
    had 3,000 hospital beds, of which this hospital is, of course,
    closed down. We need to stand it up. So, it's quite urgent, in
    terms of healthcare for this whole region.
        Let me ask something on mental health. I understand this is
    the first year that we've earmarked in the budget, in
    discretionary budget, something specific for mental health, or
    is that not true? Is it $2.2 million for mental health? It's
    not the first time?
        Secretary Nicholson. It wouldn't be the first time.
        Senator Landrieu. It wouldn't be the first time?
        Secretary Nicholson. No.
        Senator Landrieu. But we have a slight increase for mental
    health?
        Secretary Nicholson. We have, I think, $3.2 billion in
    the----
        Senator Landrieu. $3.2 billion.
        Secretary Nicholson [continuing]. Budget for mental health.
        Senator Landrieu. Okay. I want to commend you for trying to
    push these numbers slightly higher for mental health. It's been
    something that many of us on the committee have worked on. What
    concerns me is part of the GAO report that was just recently
    issued about the lack of assessment teams at the hospitals that
    will actually make the determination as to who might be
    eligible for these services. I understand that we only piloted
    three programs last year--one in California, one in Texas, and
    one in New York. So, is there money in this budget to establish
    the assessment teams so that we can make the proper assessments
    for these veterans to give them the mental health counseling
    that has become so obvious?
        Secretary Nicholson. Well, they're--absolutely. That's one
    of the reasons that, you know, we've--asking for $3.2 billion,
    which is an increase of $339 million. And, as I stated earlier,
    Senator, we have, in every one of our 156 major medical
    centers, like--New Orleans would be one of those--was--we have
    a PTSD expert that we've posted in each of these to head those
    teams for assessment. And we have a very comprehensive
    assessment----
        Senator Landrieu. But according to the report, that there
    are only three complete teams, and then a coordinator, is that
    not true?
        Secretary Nicholson. That is not true. I gather that you--
    that you--there may be confusion, because you mentioned
    California and New York and Texas. What has happened is that
    the Congress, you all, in the last few months, have designated
    three locations to be centers of excellence----
        Senator Landrieu. Okay.
        Secretary Nicholson [continuing]. For mental healthcare.
    Those are Canandaigua, New York; Waco; Texas, and San Diego,
    California.
        Senator Landrieu. To coordinate the efforts nationally----
        Secretary Nicholson. But those----
        Senator Landrieu [continuing]. For these----
        Secretary Nicholson [continuing]. Those will just be
    supplemental to a vast system now.

                         GRANTS FOR STATE EXTENDED CARE

        Senator Landrieu. Okay. And one final, on the VA nursing
    homes, we have a total of $85 million nationally in the budget.
        Secretary Nicholson. Yes, I think that's correct. Yes,
    ma'am.
        Senator Landrieu. The budget was $104 million, last year?
    And there's earmarked a fairly large center in California. What
    is the total amount of that money, and how will it affect the
    building of the other centers around the country?
        Secretary Nicholson. I'm going to ask Dr. Perlin to respond
    to that particular area you've asked.
        Senator Feinstein. Don't think of taking it from
    California.
        Dr. Perlin. Well, first, thank you very much for the
    question. Let me confirm, as the Secretary said, the budget is
    $85 million, asked for in the 2007 budget. California is a
    large project, unequivocally. We have a few mandates in front
    of us. First, we also have to pay attention to life safety. And
    we will fund those. In fact, there is conference language that
    asked that we do that. And we have not released the ultimate
    2007 decision, in terms of priorities. But, obviously, we've
    already set aside funding for the California project very
    substantially--in fact, $68.2 million--in 2006. And we are
    working with California to make sure that we can, obviously,
    complete the project in which we both have mutual interests,
    and meet needs elsewhere in the country, including not just new
    projects, but also life safety.
        Senator Landrieu. And I want to say that I most certainly
    support it, and I'm sure that the Senator who's given great
    leadership to this committee, could justify every penny for
    this project. I just raise it that there's a whole country out
    there of other veterans' homes that are long on the waiting
    list. And to limit the budget to only that, and also try to
    accommodate a large project like this, I think, is a disservice
    to the rest of the country.
        So, I'm going to--my time is up, but let me also just say,
    for the record, I'm going to submit a suggestion on the ratios
    of how these can be funded in a little bit fairer system than
    having every State to have to come up with a match, regardless
    of the economic need of the community.
        Thank you.
        Senator Feinstein. The chairman went down to vote. She's
    coming back. And then I'll go. But you're up. So, why don't you
    go ahead?
        Senator Craig [presiding]. Thank you very much, Madam
    Chairman.
        Let me submit my full statement for the record and deal
    with a couple of questions that I think are legitimate. And
    some of them go back to what Senator Murray was discussing
    earlier, as it relates to how we get the record straight.
        [The statement follows:]

                   Prepared Statement of Senator Larry Craig

        Thank you Madame Chair. My comments will be brief. Mr. Secretary,
    good afternoon and welcome. You and I have already spoken at some
    length about your budget proposal in my capacity as Chairman of your
    authorizing Committee. First, I want to compliment you and the
    President once again for making veterans one of the highest priorities
    in your budget. This historic request of nearly $80 billion
    demonstrates this Nation's commitment to our veterans.
        As you know, I supported your budget request in my ``views and
    estimates'' letter to the Budget Committee this year. As you also know,
    my authorizing Committee only has to comment on your budget. This
    Committee, on the other hand, has the responsibility of balancing your
    request against all of the other needs of the Federal Government. Mr.
    Secretary, quite frankly, that balancing act is becoming increasingly
    difficult.
        If this Committee follows the recommendations set forth in the
    budget resolution we've just passed, including the Burns amendment, we
    will provide VA's health care system with a 12.4 percent increase in
    direct appropriations. That would mean that since 2001, VA's health
    care budget has increased by nearly 70 percent.
        I know we all strongly support our veterans, especially in a time
    of war. The care of our veterans is not a partisan issue. But, this
    Committee is the place where the ``rhetoric meets the road.'' If we do
    not make some serious decisions about VA's health care spending rates,
    its budget will double every 6 years and will eventually collide with
    all other areas of Federal spending--things like agriculture, parks,
    and education. That is not a disputable fact. It's a mathematical
    reality.
        I know many of you on this Committee are not prepared to begin
    charging certain veterans or increasing the copayments many of them
    already pay for medications. I understand that. But, I strongly believe
    that the time is coming for us to take the necessary steps to properly
    manage VA's health care system even if that means charging $21 per
    month for certain veterans to access the system.
        I say to my colleagues: we are charged with the oversight and
    funding of what is now considered to be one of the Nation's best health
    care systems. It is a system of first choice, not one of last resort.
    Today's veterans enjoy good access to high quality medical care. Now we
    have a responsibility to ensure that its financial footing is sound and
    sustainable so that tomorrow's veterans will also receive the benefits
    of VA's enormous success.
        Those management decisions will not be easy. Good management rarely
    is easy. But, failure to make the decisions will be even harder on
    tomorrow's veterans than it is on us today. I am prepared to talk or
    work with any of you on ways to address this issue. In my capacity as
    Chairman of the authorizing committee, I have already challenged our
    VSOs to work with me. What I am not prepared to do is ignore this issue
    and simply pass it on to the next guy. The challenge is too real and
    the consequences too serious.
        Mr. Secretary, thank you again for being here. Thank you Madame
    Chair.

        Senator Craig. And I know Louisiana and California feed
    over money, but right now----
        Senator Feinstein. Well, I made it pretty clear.
        Senator Craig. She's got to understand who runs this
    committee. No.

                                OIF/OEF VETERANS

        During the floor debate in the Senate budget resolution, I
    heard many of my colleagues express concerns about certain
    facts. It has reemerged again today as it relates to OIF and
    OEF veterans and numbers coming in. And I think it's important
    that we get the record as clear as we can in light of this
    historic budget. And it is a historic budget in size and scope.
    You are comfortable with the 2 percent figure at this moment as
    it relates to veterans coming into the system out of these two
    conflicts.
        Secretary Nicholson. Yes, sir, we are. The size of the
    force over there is also somewhat diminished. And so, we're
    comfortable, based on the experience that we've had, yes.
        Senator Craig. More importantly, the funds that VA has
    budgeted for in OIF and OEF veterans in this fiscal year, how
    do you--how do actual expenditures compare with what VA
    budgeted for thus far?
        Secretary Nicholson. They are running less, by about 34
    percent, than we had budgeted for this category of patients.
        Senator Craig. So, in light of where the money seems to be
    headed at this moment, based on your projections, you feel
    you're on target.
        Secretary Nicholson. Yes, I do. We're, I think, in good
    shape. We are seeing somewhat more at this point, the halfway
    point in the year, but our costs are less. So, we think that we
    will be able to see--care for those that we see.
        Senator Craig. And this also includes the outreach that DOD
    is currently doing.
        Secretary Nicholson. Yes, sir.
        Senator Craig. Could you explain the distinction between
    the cumulative number of OIF and OEF veterans who have been
    treated at the VA since budget assumes will seek treatment in
    the current year--the current fiscal year of 2007?
        Secretary Nicholson. Yes. Because we see--let's say, in the
    beginning, we--you know, we see X number, and then in the next
    year, or the next measuring unit, we would see Y. But some of Y
    are made up of those that we had already seen. So, in terms of
    unique patients--that is, individual patients--it would be
    different.
        Senator Craig. Okay. Madam Chairman, I have some additional
    questions I want to ask. Are you prepared to recess, and we'll
    run and vote and come back?
        Senator Feinstein. I thought--the chairman's going to come
    back. But I thought I'd go down. And that way, we'd just keep
    it going.
        Senator Craig. All right.
        Senator Feinstein. We'll do a second round.
        Senator Craig. Okay.
        Senator Feinstein. But if you're not finished, and would
    like to do more, I can run and vote, and--well, you have to
    vote, too.
        Senator Craig. Well, why don't you go ahead, and I'll stay
    here until the--until the chairman gets back. And if I find I'm
    at risk, I'll recess it until she gets here.
        Senator Feinstein. All right, excellent.
        Senator Craig. Thank you.
        Senator Feinstein. I will go, because I don't want to miss
    you. We've got to talk reprogramming the money, which I know
    you'll be delighted about.

                        QUARTERLY REPORTING TO CONGRESS

        Senator Craig. I think, for the record, it's also important
    to establish, based on, I think, the frustration of those on
    the authorizing committee and the appropriating subcommittee
    here, had in light of the past fiscal environment and the
    shortfalls that became obvious, at our request, and your
    urgence, we have established a quarterly reporting system so
    that we can effectively monitor both outlays and anticipations
    of movement beyond where the budget was established. We've had
    that--we've had the first quarter report, and those will
    continue.
        Would you wish to comment on that as it relates to that
    process, the modeling process, and, frankly, a new tracking
    mechanism that you've incorporated that includes those kinds of
    outputs to us?
        Secretary Nicholson. Yes, Senator. Yes, Senator, I would. I
    welcome the chance to comment on that, because, as I've said
    earlier, this is a dynamic arena that we are in, with a war
    going on and a large number of patients and potential patients
    for this large system. So, we are very glad that we've gone to
    a quarterly reporting system with you, the oversight people,
    the Congress. With OMB, we're doing it monthly. And we've
    instituted that. So, to do that monthly, we have, you know, an
    almost daily tracking system, from a management point of view.
    So, we have a--we have a much better feel for what is going on
    at any given time than we've had in the past. And if we see not
    just red lights, but yellow lights, we plan to be as fully
    transparent as possible with you all about this, and the fact
    that we may need your help to help the veterans.
        Senator Craig. Well, I think that's important, that the
    record show that, from that which some have a reason to be
    concerned and have--and are making judgments to where we are
    today, it is significantly different than how we have operated
    in the past, and, I think, appropriately so, as we deal with a
    dynamic process and the potential that that might change in
    relation to conflict and activities and the outreach programs
    the DOD is working in, in relation to that 24-month window in
    which those coming out of Iraq and Afghanistan have opportunity
    of services beyond what might be connected to actual injury or
    problems arising from their service in the theater.
        For the sake of me not missing a vote, or prolonging it,
    I'm going to recess the subcommittee for a few moments. The
    chairman will return, and I will return, also. So, the
    subcommittee will stand in recess.

                  INFORMATION TECHNOLOGY SYSTEMS CONSOLIDATION

        Senator Hutchison [presiding]. I want to reconvene the
    hearing. There were two, and possibly three Senators who do
    plan to come back for a second round. But I wanted to ask if
    you could give me an update on the IT consolidation.
        Secretary Nicholson. Yes, I can, Madam Chairman. By way of
    background, we've done a spectacular job at the VA--and I say
    ``we,'' it's really the people who proceeded me; we're sitting
    on their shoulders--and, you know, our electronic medical
    records, it's a phenomenal achievement. But now we need to
    bring the rest of the information technology of the VA into the
    21st century. And it's a very spread-out system. It covers this
    Nation--Hawaii, Alaska, Philippines, Guam. And there are a
    lot--there have been a lot of individual kinds of systems and
    applications out there, which is very inefficient, very
    expensive, and not effective.
        And so, we hired a very prestigious consultant to come in
    and look at that, and make a set of recommendations to us. And
    they have done that. And we have chosen to implement
    essentially what they recommended, which is to centralize the
    IT in this big bureau. And that is underway. I've signed the
    implementing documents to do that. It involves the transference
    of thousands of people in the Department from where they have
    been into the governance of the chief information officer, the
    Assistant Secretary for IT.
        Senator Hutchison. Have you been able to see any results
    yet, or is it just premature to see if there are savings or
    efficiencies?
        Secretary Nicholson. Well, it's just--it has just begun.
        Senator Hutchison. Just begun.
        Secretary Nicholson. Uh-huh.

                            RIO GRANDE VALLEY, TEXAS

        Senator Hutchison. I wanted to ask you something on a
    parochial level. The veterans in South Texas, as you know, have
    been very concerned about their lack of a hospital there, and a
    major clinic. You have, I think, come out with a terrific
    proposal for a clinic in conjunction with a medical facility
    that I think is going to be--it sounds, by the description,
    like it's going to be a wonderful service for our veterans. But
    then, on the subject of the hospital, I had had a
    recommendation from a city council member that there was a
    facility that had been closed that should be suitable for a
    hospital. And you agreed to look into it. Has there been any
    result from that yet, or is that still in progress, as well?
        Secretary Nicholson. That is in progress. What I agreed to
    was to do a study, an assessment of the needs in that Rio
    Grande----
        Senator Hutchison. Valley.
        Secretary Nicholson [continuing]. Valley area to, number
    one, try to assess what the populations of veterans were, what
    their needs are, and what we have there available to serve
    them, and what is possible that we could add. But that is an--
    --
        Senator Hutchison. In progress.
        Secretary Nicholson [continuing]. Ongoing progress, yes.
        Senator Hutchison. Well, that's what I asked for. And then
    I did make the suggestion, which is in your office, of just
    looking at this facility. I haven't seen it myself, so I'm not
    saying it's appropriate, but if it is something that would be
    feasible and lower cost and be more efficient, and if the
    population warrants it in your priority list. Today, they have
    to travel several hundred miles from that lower Rio Grande
    Valley to San Antonio VAMC to Audie Murphy VAMC, if they are
    going to need day surgery or day care, but some of it would be
    overnight, as well. So, I would just look forward to hearing
    about that.
        The other area was your major construction account, which
    is also somewhat reduced. And I just wanted to ask what your
    thinking was on being able to justify a reduction in the major
    construction account.
        Secretary Nicholson. Well, we have, as I mentioned, several
    ongoing projects, big projects. You know, the VA has not built
    a hospital--not opened a new hospital now, I think, in 13
    years, but we need to some new hospitals, and we're ongoing in
    that process. But you can't spend all the money at one time.
    And so, while we're going forward with Las Vegas and going
    forward with Orlando, they really didn't need a lot of money in
    the 2007 budget. So, we have in there the other projects. We
    have several that need seismic repair. They're--it's just one
    of those things, doesn't add much value to--it's like putting
    new plumbing in your house, but you have to do it, if it's
    needed. And, in this case, we have some properties that are
    subject to earthquake vulnerabilities, and we're having to
    spend, as you can see there, considerably amount of money for
    seismic. And so, it--you know, it's a matter of those felt
    safety needs versus some of the projects that needed some money
    to keep them moving in this process.
        Senator Hutchison. Are you looking, in the next 5 years, at
    a 5-year plan for new hospitals, where you do see significant
    needs? Is that part of your assessment, both for the Rio Grande
    Valley, but for other places?
        Secretary Nicholson. Yes. In fact, the CARES process, which
    is a major comprehensive assessment to the capital assets of
    the agency, versus projected populations, projected out to, I
    think, the year 2012, and we have that data, and that's been
    the basis for the decisions for new hospitals, in the case of
    those that I've mentioned.
        Senator Hutchison. And, of course, I know that I'm--I'm
    dealing right now with the supplemental, and we have a major
    commitment for New Orleans. And then there will be a major
    commitment for the Armed Forces Retirement Home in Gulfport and
    then a major commitment in Biloxi for facilities, as well. So,
    I suppose that those are going to be coming into the regular
    budget after they are built and able to operate.
        Secretary Nicholson. Well, for operating, the--indeed, they
    will. But New Orleans is in a supplemental----
        Senator Hutchison. Right.
        Secretary Nicholson [continuing]. Mode at--I think right
    now we have requested $600 million and $75 million has
    previously been appropriated.
        Senator Hutchison. Right.
        Secretary Nicholson [continuing]. It's only 8 miles away.
        Senator Hutchison. Right. And that is going to be more a
    regional center, as I understand it.
        Secretary Nicholson. Yes.
        Senator Hutchison. We're working right now on the
    supplemental for what we can do with that--the land there at
    Gulfport. I think we have a good solution for compensating the
    Veterans Affairs for that land.
        Secretary Nicholson. At Gulfport?
        Senator Hutchison. Yes.
        Secretary Nicholson. Uh-huh, yes.
        Senator Hutchison. Yes.

                               CLAIMS PROCESSING

        Can you give us an update on the progress the VA is making
    on reducing the backlog of benefit evaluations?
        Secretary Nicholson. Yes. I'll give you a--you know, kind
    of the big picture. Then I'm going to ask Under Secretary
    Cooper to, if he would, give you the detail.
        But we are hiring new people, and training them, in the
    effort to bring down the backlog. I just visited a--one of our
    major regional offices in St. Paul last week. They're hiring
    and training. There is a training gap with these people. It
    takes about 15 months to really qualify a claims adjudicator,
    you know, to do this, and do it carefully and accurately.
        And, with that, I'd ask Admiral Cooper if he'd have
    anything to add.
        Admiral Cooper. Yes. We're attempting to attack that every
    way we possibly can. We are hiring more people, and we're going
    to do centralized training to ensure that we get them trained
    properly to do the same thing across the country at 57
    different regional offices. So, training is one of the main
    things.
        We're looking at some consolidation. We have a program
    called Benefit Delivery at Discharge, which is for those people
    coming out of the service at the end of their careers, and we
    have consolidated that activity at two sites--one in Winston-
    Salem, North Carolina, and other in Salt Lake City--so that
    those two regional offices are doing those particular claims
    and, therefore, hopefully doing them better and eventually a
    little bit faster.
        We do a lot of brokering. We try to look at those regional
    offices which have a little bit more capacity. And as soon as a
    claim is ready to rate, we broker it to those offices, so we
    don't have an issue of not having enough people to rate the
    claim at a specific site.
        So, we're doing a lot of moving around. Primarily, however,
    it is through training and hiring that we hope to eventually
    succeed.
        The major problem, however, is that we can do a lot for
    output, but incoming is something we can't control. And as long
    as the incoming keeps increasing, then we're sort of fighting
    against it. But eventually we will get there.
        Senator Hutchison. Senator Craig.
        Senator Craig. Thank you very much, Madam Chairman.

                                   VA BUDGET

        Let me make a few comments, and then I have one last
    question. I'll stay within our time limits here that are--I
    think are important to make, because what I think I have said,
    and others have said, and I think it's important that the
    record show, that under this precedent we are looking at a
    historic request of nearly $80 billion for veterans in this
    country. That is a phenomenal prioritizing of resource, and it
    demonstrates, without any question, in my opinion, the
    commitment of this administration.
        I also want to tell you that I've had a bite at this apple
    prior to this subcommittee getting it. As chairman of the
    authorizing committee, I have the responsibility of doing views
    and estimates in a letter to the Budget Committee for the
    purpose of establishing the level of funding that we will deal
    with here, and that you in this committee must allocate. And,
    in doing so, I think it is important to understand that we have
    a problem growing here that we chose not to face this year on
    the floor. And I think the Senator from California, in part,
    touched it when she talked about the Burns amendment, stepping
    back from the fees for 7s and 8s, and also the pharmaceutical
    fee.
        Here's the reality, though. This is a 12.4 percent increase
    over last year. And I think it's important to understand that.
    That means that, since 2001, VA healthcare budgets have
    increased by 70 percent. That's also to suggest that if we
    continue this trend, VA budgets will double every 6 years. And
    I must tell this committee, that is not a sustainable course.
    No matter how much we want for our States, or expect, or try to
    find and get unique services, we cannot sustain by continuing
    to ask at the level we're asking unless we ask something
    different.
        So, I chose this year to accept the administration's
    approach, and to suggest that 7s and 8s, who have no
    connection, in the sense that they are service-connected or
    disabled--and, as you've already heard the Secretary say, of
    which many of them already have healthcare--to pay less than a
    carton of cigarettes a month to have access to the best
    healthcare system in the country. And every VSO said no. And
    the Congress said no.
        Well, what the Congress is failing to recognize is that
    they cannot sustain what they're doing. And we have to change
    that. And I'm willing now to stand up and speak out and say
    it's time to change. I accept what we've done. I accept what
    this committee's been handed. And we will monitor and try to
    act as wisely as we can. But we have a phenomenal collision on
    course at this moment, because we are dealing, as I think we
    all recognize, with largely discretionary funding that collides
    with everything else we want to do. And mathematically the
    reality at hand is the reality of great complication.
        I've challenged all of the VSOs to work with me in the
    coming year, because there was a time not long ago when they
    accepted exactly what they rejected this year. And what we have
    to look at are a variety of different approaches, I think, to
    find revenue sources, the some $790 million that we decided not
    to fund through these kind of new revenues. And, therefore,
    because we decided not to fund them, and by funding them,
    199,000, or somewhere near that, of that large number would
    have dropped off from the 7s and 8s, because they have
    alternative healthcare. That would have changed the real value
    of this--of revenue in the reality of savings over--to well
    over $800 million.
        Well, we've chosen not to do that, so it's real dollars. It
    isn't the $795 million that we would have gained by the new
    revenue sources. It's actually over $800 million. I say that. I
    think it's important that it be said for the record. It is my
    opinion. And I will speak it as loudly as I can, recognizing
    that my priority is to serve veterans, and the priority of this
    committee and the Congress is to serve veterans, is to suggest
    that we must find a sound and sustainable course of funding for
    VA, not just for today's veterans, but for tomorrow's veterans,
    in a very real problem that we have out there.
        And I'm going to fight awfully hard over the course of the
    next 12 months as to our--the priorities we establish and how
    they get funded, because there is a reality that I think can--
    that all of us can withstand the test of. Those who are in
    need, those who deserve treatment, are being treated, and
    they're being treated by the best healthcare system in the
    world. And we've extended, to 24 months out, for those coming
    out of Iraq and Afghanistan, services that heretofore they had
    not had unless they were directly connected to a theater of a
    war and a disability involved. It's important that, I think, we
    say that.
        Now, in saying that, let me ask this question. Mr.
    Secretary, in my analysis of, and your feedback, over the
    period of the last several months as we've looked at this
    budget in dealing with 7 and 8 priority veterans, and
    anticipating that by the action of raising a monthly fee so
    that they could gain access, or be eligible for access, that
    there would have been a certain number who would have left,
    simply stepped back from it, because they had alternative forms
    of healthcare, they would choose not to pay the $21 a month. Is
    that correct?
        Secretary Nicholson. That's correct, Senator.
        Senator Craig. And we believe that was about how many?
        Secretary Nicholson. About, I think, 199,000--200,000.
        Senator Craig. And it is an--it is believed, based on your
    surveys, that 95 percent of those had healthcare, and that's
    why they would have stepped back.
        Secretary Nicholson. Yes, sir.
        Senator Craig. And so, the reality of the $790 million
    raised by both pharmaceuticals and prescription drug copay and
    also the fee would have been $790 million, but this loss, in
    total benefit to the budget, would have been over $800 million.
    Is that not correct?
        Secretary Nicholson. $795 million is the amount.
        Senator Craig. In new revenue.
        Secretary Nicholson. No. It's the----
        Senator Craig. Oh----
        Secretary Nicholson [continuing] Combination.
        Senator Craig [continuing]. Combination of, okay.
        Secretary Nicholson. Revenue plus----
        Senator Craig. I wanted to make sure I--I was dancing off
    the top of my head in memory, and I wasn't quite sure. So, 795.
        Secretary Nicholson. $795 million.
        Senator Craig. $795 million.
        Well, Madam Chairman and Ranking Member, that's a reality
    check. And that's why I say what I say, because we're going to
    squeeze these budgets, and squeeze them hard, to maximize
    service to our veterans. At the same time, we are on an
    unsustainable course. I do believe that. Because I think the
    three of us will be presiding over $100 billion budget to the
    VA in a very short time, and certainly within our tenure, at
    the current rate.
        And my suggestion to you is that you're going to have a
    budget chairman at some point in time tell this committee that
    that money simply is no longer available at that level of
    increase.
        Thank you, Madam Chairman.
        Senator Hutchison. Thank you, Senator Craig.
        I appreciate what you have said. It is--it's a tough
    situation. And I am working with my staff on some potential
    alternatives, that are not this one, but maybe other things,
    that wouldn't hit a $28,000 level of annual income. But I would
    look forward to working with you, Senator Feinstein, with the
    VA, to see if there are other options besides the ones that are
    envisioned in the bill that might be acceptable to the VSOs and
    the committee, as well.
        Senator Craig. Well, Madam Chairman, thank you. I know that
    you and I have had those discussions. I really appreciate that
    kind of thinking, because I think to continue to serve at the
    level of service we want to provide for our veterans, we're
    going to have to become creative in looking at a variety of
    approaches to resolve this issue.
        Thank you.
        Senator Hutchison. Senator Feinstein.
        Senator Feinstein. Thank you very much, Madam Chairman.
        And I think, Senator Craig, what you've said is both wise
    and sobering. The question is really whether somebody on the
    floor comes up with something, whether there are enough
    lemmings that are going to follow along. And--oh, I'm--
    shouldn't have said that word.
        But I'm really concerned, because we have a lot of wounded,
    and we have a lot of people now that are going to be using
    veterans services for a long, long time, and many with, you
    know, terrible injuries. And so, we have to be ready for it.

                         MEDICAL SERVICES REPROGRAMMING

        And I'm concerned with the planning model used, Mr.
    Secretary. And let me tell you how I'm concerned. You've
    submitted a reprogramming request, which is what I want to talk
    about. And that proposal is to transfer $370 million from the
    medical services account to the medical administration account.
    You say that it's needed to perfect the distribution of funds
    between these two accounts as a result of requesting and
    receiving the 2005 supplemental of $1.5 billion, and the 2006
    budget amendment of $1.452 billion, entirely in the medical
    services account. Both of those came to the medical services
    account.
        Now, what concerns me is that you're transferring this
    money, but you're not annualizing the cost, and you're saying
    that it was known at the time that this was going to be done.
    It was never told to us that this was going to be done, when
    last year's budget was considered. And this is going to fund
    salaries in the new account, but, as I understand it, it isn't
    annualized.
        Would you please comment on what impact this is going to
    have on the delivery of healthcare services? Do we now figure
    that you're going to be short $370 million for healthcare
    services? And, also, as you know, one budget affects the other,
    so does this mean that you're going to need, at some point
    during the year, an additional $370 million above the
    President's 2007 figure? Your comments are very important.
    They're going to be inscribed----
        Secretary Nicholson. Yes, I--thank you, Senator Feinstein.
    I hope that I can allay your apprehensions about this, because
    there should be none. Zero. This will have no impact on the
    delivery of healthcare. This is an accounting issue.
        The Congress authorized us three accounts: a medical--a
    services account, an administration account, and a facilities
    account. And we were given money and--through a supplemental.
    And it was deposited into one account, although the
    justification that we gave for it was the detail of how we're
    planning to use the account. But the money was deposited into
    one account. This is not new, by the way. This has happened in
    previous years.
        Now what we're asking is that we transfer this money, which
    happens to be in the--I think about 1.2 percent of the total;
    it's $370 million--into the medical administration account. And
    that--you're right, that is where we pay the help there. But it
    was--it is not a diminution of the resources needed for medical
    services. It was just that it was all put into one account. It
    would be like if you had, you know, gotten your paycheck into
    one account, but you use it out of three to run your
    operations. That's all it is.
        Senator Feinstein. Okay. So, it's just going to be an
    accounting. We will asterisk the record, and hopefully will not
    have to send it to you later in the year.

                             MENTAL HEALTH FUNDING

        Okay. One of my concerns is that, once again, you may--and
    I don't know that you are, but you may be underfunding. And if
    I look at just one thing, veterans patients in fiscal year 2005
    and the first 4 months in 2006--these are mental disorders. In
    2005, from October 1, 2004 to September 30, 2005, there were
    31,860. In 2006, from October 1, 2005 to January 30, 2006--
    that's just 4 months--you almost reach that number. There's
    24,268. My question is--I hope your modeling is dynamic enough
    to pick up the increase, and do it accurately.
        Secretary Nicholson. Okay, I--that's a good question, and
    I'm going to ask Dr. Perlin to give you the detail on it.
        Dr. Perlin. Thank you, Mr. Secretary.
        Senator Feinstein, that's a great question. As you know,
    here we are in 2006, talking about 2007. And, of course, we're
    using data from the completed year of 2004. And that's the
    reality of the budget cycle. Now, the model is, as the
    Secretary said, really a terrific model. It's used by over 100
    million--or used to predict the costs of over 100 million
    beneficiaries, including in all the Blue Cross programs, Aetna,
    Cigna, public programs, DOD components, Medicaid programs, et
    cetera. So, it's very good. But obviously there is a lag time
    inherently. And so, I think what we've tried to say is, with
    your encouragement, we have the quarterly meetings, so, on top
    of the model, we superimpose the reality. And, in fact, the
    mental health budget is, as the Secretary has discussed,
    extremely robust, $3.2 billion, up $339 million. And, in fact,
    it actually is not only sufficient to meet the needs of those
    veterans, but to anticipate even--and improve--services to
    really the height of world-class service. So, it is a solid
    budget, but it is the reality on top that's much more dynamic
    than the model could ever be.
        Senator Feinstein. So, in other words, you've corrected the
    planning model that you had used before that got us into the
    problems where we were, and you can assure us that there isn't
    going to be a problem this year, this next year.
        Dr. Perlin. There will not be a problem this year. It's a
    solid model. And----
        Senator Feinstein. Well, this next--the 2007 year.
        Dr. Perlin [continuing]. And as changes--as changes, or if
    world conditions that can't be foreseen by any of us this
    moment change, that's the purpose of the quarterly meeting. But
    we stand by this model, these projections, and our comfort in
    them is solid.
        Senator Feinstein. Okay. I know we have a vote, Madam
    Chairman. I think that's it for me.

                                OIF/OEF VETERANS

        Why--one last question--why is the VA estimating a decrease
    of Iraq/Afghanistan veterans in 2007, when the trends suggest
    you might see more, rather than fewer?
        Secretary Nicholson. Senator, we've, you know, looked at
    that carefully. We now have several years of data also to look
    at. And the--you know, the size of the force is actually
    diminished in the deployment in the combat zone. That
    influences that number, as well. It is diminished by about
    11,000 that we're projecting in the 2007 budget from what we're
    projecting that we will see in 2006.
        Senator Feinstein. I have 109,191 in 2007.
        Secretary Nicholson. Right.
        Senator Feinstein. And for the entire fiscal year, VA has
    estimated we treated a total of 110,556 Iraq and Afghanistan
    war veterans. Is that wrong?
        Secretary Nicholson. For 2006?
        Senator Feinstein. For the entire fiscal year.
        Secretary Nicholson. Yeah.
        Senator Feinstein. That's this fiscal year, right? Yeah, in
    this fiscal year, 110,000. You're estimating, for the next
    fiscal year, 109,000. So, you're cutting it back. Now, you're
    saying there are fewer troops?
        Secretary Nicholson. Cutting it back by 1,000.
        Senator Feinstein. Right.
        Secretary Nicholson. Uh-huh.
        Senator Feinstein. It's the----
        Secretary Nicholson. It's based on--you know, we're
    consulting much closer with DOD on deployments, and it's--you
    know, it's not materially different. It's about 1,000. The
    number I gave you before was based on our 2005 experiences.
        Senator Feinstein. Well, I hope so. I hope that comes true,
    that there is not going to be some other event that's going to
    greatly increase the numbers. But----
        Secretary Nicholson. Well, I'd like to----
        Senator Feinstein [continuing]. I guess my overall----
        Secretary Nicholson [continuing. Comment on that.
        Senator Feinstein [continuing]. Point is that you--even a
    12.4 percent increase, you are really closely budgeted.
        Secretary Nicholson. I would agree with that, Senator
    Feinstein. And, as I've said, and I would say again, that I
    think we're doing, you know, an able and a careful job of
    trying to predict this. But it is a dynamic situation. We are
    at war. And there are a lot of veterans out there that are
    eligible for VA care who have not yet, you know, made it
    available--or taken advantage of it. So, it is dynamic. And
    that's why I think that we all ought to recognize that this
    could change, which is why we've instituted these quarterly
    reviews with the Congress, and a monthly review with the OMB.
        Senator Feinstein. Well, I think it'd be very useful--and
    I'm glad you're doing this quarterly--for us to know, because,
    you know, post-traumatic stress disorder is only a $5.5 million
    increase over last year, and I just cross my fingers and hope
    that this is adequate and that we don't run into the same
    problem.
        So, I thank you very much. And I thank you. The facilities
    really, I think, are greatly improved in their management and
    their care and concern, and I very much appreciate that, and--
    --
        Secretary Nicholson. Thank you.
        Senator Feinstein [continuing]. I want you to know that.
        Senator Hutchison. Secretary Nicholson has asked to leave
    at 4:30. Obviously, Senator Murray, you just returned. Would
    you be able to wrap up in 5 minutes? And would you be able to
    stay, Secretary--Mr. Secretary----
        Secretary Nicholson. Sure.
        Senator Hutchison [continuing]. For another 5 minutes or
    so?
        Have you voted already on final passage? I think I'm going
    to go ahead and leave, if you will wrap up. And just know that
    he was trying to leave at 4:30, and then end the hearing. I
    would appreciate it.
        Senator Murray [continuing]. Your answers, the shorter my
    time.
        Senator Hutchison. All right. Thank you.
        Senator Murray [presiding]. No, I do have a couple of quick
    issues and really appreciate your bearing with us as we go back
    and forth on votes.

                             BELLINGHAM, WASHINGTON

        But, Mr. Secretary, I wanted to ask you about the CBOC
    situation in Bellingham, Washington. We got a white paper--
    actually sent one to this committee--about evaluating those in
    the context of fiscal year 2007 budget. If I could just ask you
    real quick what the timeline is on that, and when can our
    veterans expect to see progress on the Bellingham CBOC?
        Secretary Nicholson. Senator Murray, we have that on our
    list, and we're--we have it under review. But I would be unable
    to commit to you today when we might do that.
        Senator Murray. Okay. If I could follow up with you on
    that, I was home over the recess and got asked about that
    constantly, so I told my vets I would be seeing you and I would
    ask the question. So----
        Secretary Nicholson. We have committed one to--a new one to
    North Central Washington, as you know.
        Senator Murray. Right. Right. And I was there, and that's
    why everybody in Bellingham wanted to know.

                              TRIBAL MENTAL HEALTH

        On tribal veterans, as you know, our tribal veterans have
    participated in the armed services in a higher per-capita rate
    than any other minority group. And I met with a number of
    tribal veterans over the recess, as well, who were very
    concerned about getting access to culturally relevant services.
    And I'm especially worried that out in VISN 20 Camp Chapparal,
    which is a tribal mental health camp--I don't know if you're
    aware of the services that are there--they're--they've lost
    half their funding. And they're really disappointed. And many
    tribal veterans expressed to me that they thought the VA was
    trying to--had made--actually made a conscious decision to
    ignore their needs. So, I just wanted to raise that with you.
    And if we could explore with you how we can make sure that that
    is funded----
        Secretary Nicholson. Thank you, Senator. I'm going to ask
    Dr. Perlin if he'd respond to that.
        Dr. Perlin. Thank you, Senator Murray.
        And, as you know, we make a serious commitment. Secretary
    Nicholson, in fact, in this budget, supports a $339 million
    increase to bring the mental health budget to $3.2 billion. We
    take this very seriously. And I've been driving a mental health
    strategic plan, and we appreciate your support.
        I appreciate your bringing that to my attention. I will
    look into it and we'll be back to you----
        [The information follows]

        The Veterans Integrated Service Network (VISN) 20 and its
    predecessor organizations provided funding for a week for Camp
    Chaparral from 1992 through 2004 for as many as 75 participants each
    year. Over the years, VA funding climbed from $10,000 to $50,000 per
    year.
        In fiscal year 2005, funding was discontinued for Camp Chaparral
    due to budgetary concerns and the need to direct all discretionary
    funding to direct patient care, with an agreement to reconsider funding
    the Camp in fiscal year 2006. The Yakima Tribe was able to secure
    funding elsewhere for a smaller version of the Camp and VISN 20
    facilities sent 15 participants.
        For fiscal year 2006, the Camp is a project that VISN 20 intends to
    support. Planning for this year's Camp Chaparral is proceeding, and it
    will be held in August 2006. To adjust for continued budgetary
    restraints and tight staffing levels, a smaller number of primarily
    clinical VA staff will attend in a shorter time frame, allowing VA
    staff to have this valuable experience without an entire week away from
    their duty stations. VISN 20 staff has been working directly with
    members of the Yakima Tribe on the planning of this year's Camp.

        Senator Murray. If you can--if we could have a conversation
    about that, if you could let me know, because it's an extremely
    important out there in VISN 20.
        Dr. Perlin. Right.
        Senator Murray. So, if we could follow up with you on that?
        Dr. Perlin. Absolutely.
        Senator Murray. Okay.

                             GULF WAR RESEARCH DATA

        I wanted to ask about Gulf War research data, because, at
    the end of the year, VA is going to reach its deadline for data
    collection on Gulf War veterans. We are still learning an awful
    lot about the exposure issues to our veterans from the Gulf
    War, and I wondered if you would be willing to extend, or
    eliminate, that deadline so we could continue the data
    collection.
        Secretary Nicholson. Well, we, you know, have just
    committed, and have entered into an agreement with the
    University of Texas Southwest Medical Center in Dallas, to
    extend our research endeavors with them. They've had a team of
    people there working on it for a long time under a Dr. Haley.
    And that commitment that we have is a 4-year commitment at $15
    million a year. I mean, that presupposes that--you know, the
    approval of that, although we would be able to, I think, manage
    that within our overall research budget. So, we're very
    committed to continuing that research.
        Senator Murray. Okay. Even though the deadline is this
    year? So, you'd be willing to continue to collect data past
    this year?
        Secretary Nicholson. Yeah, the answer is yes. We're very
    committed--I'm going to ask Dr. Perlin, though, because I may
    be missing the important point of the deadline.
        Dr. Perlin. Thank you, Senator Murray.
        I think one of the things that now exists that didn't exist
    10 years ago when we were first looking at how to capture
    information about Gulf War veterans and their health outcomes
    was that then one tried to establish a one-off registry. As
    you've heard a lot of discussion, and we appreciate your
    support for the electronic health record, but there is no
    better mechanism for capturing data, not just the facts that
    are in one registry, but across the entire spectrum of whatever
    the individual comes in with, than the electronic health
    record. And so, our commitment to understanding the health
    outcomes of Gulf War veterans will actually be realized in far
    better ways than we could have envisioned 10 years ago. We use
    the health record, and you actually generate a cohort of every
    Gulf----
        Senator Murray. So, you will----
        Dr. Perlin [continuing]. War veteran.
        Senator Murray [continuing]. Still be collecting that data,
    in a--but in a different way?
        Dr. Perlin. We will be collecting data that actually
    supercedes and augments in the health record.
        Senator Murray. Okay. I think that's really important,
    because we're still learning a lot.
        Dr. Perlin. Yes, ma'am.

                  STANDARDIZING DIABETES MONITORING EQUIPMENT

        Senator Murray. Let me quickly ask you about the diabetes
    monitoring issues, the standardization of that. I am hearing a
    lot of concern from our folks back at home. And I know you were
    asked by the chairman in the House, but I'm not sure I knew the
    answer, that, as you know, Congress has reaffirmed its support
    for the current system on a number of occasions, and most
    recently in the fiscal year 2006 Military Quality of Life Act.
    I want to read it to you, because it's important. Section 220
    of that bill said, ``None of the funds available to the
    Department of Veterans Affairs in this act or any other act may
    be used to replace the current system by which the Veterans
    Integrated Service Networks select and contract for diabetes
    monitoring supplies and equipment.''
        As we look at your budget request, I want to take a moment
    for us--I think it's important to understand--to confirm that
    the clear congressional direction is not to allow--or not to
    have standardized diabetes equipment purchases. To your
    knowledge, in the months that has been passed, has your
    Department or any of your staff continued to pursue a proposal
    to standardize diabetes monitoring supplies and equipment?
        Secretary Nicholson. No.
        Senator Murray. Well, okay. To your knowledge, no one has
    been told to do this.
        Secretary Nicholson. No. The--no.
        Senator Murray. Okay. Well, it----
        Secretary Nicholson. Dr. Perlin, you can comment further,
    if you like.
        Dr. Perlin. Thank you, Mr. Secretary.
        Senator Murray, in fact, I think what's worth noting is
    that the ability to educate veterans well about their diabetes,
    to achieve benchmark outcomes, as in the TRIAD study, where
    diabetic patients in VA get better care than in other health
    systems in the country, comes from some degree of consistency
    and use. But the concern, as we've understood it, is that no
    veteran be forced to abandon the equipment they're using, or
    for us to have a rigid one-device type of activity.
        Senator Murray. Right.
        Dr. Perlin. So, that guidance, in terms of not transforming
    from where we are, has been well received and well understood.
    But I think I would be remiss if I didn't acknowledge that
    there is some degree of consistency so that there can be
    consistent training and supplies availability. But we are not--
    --
        Senator Murray. Well, they are--it has been reported, and I
    think it's true, that a number of VISN directors still believe
    that there is direction from your Department, despite
    congressional attention, to go to a standardized approach.
    Could you write a letter to each of your VISN directors and
    tell them that the--reaffirming the current process for
    selecting diabetes monitoring equipment? And, if you could, if
    you could provide us with a copy of that correspondence, so we
    can let them----
        Dr. Perlin. Well, I would like to look into the issue,
    because there has not been instruction to--instruction has been
    to follow the precepts of what was provided.
        Senator Murray. I'm sorry----
        Dr. Perlin. I will be happy to look into the issue.
        [The information follows:]

        The Department of Veterans Affairs (VA) is not pursuing a proposal
    to standardize self monitoring blood glucose equipment through a single
    national contract. Clear communication has been provided to VA Central
    Office pharmacy program managers and VISN Formulary Leaders regarding
    the prohibition to pursue standardization contracting. This direction
    to VA came from the fiscal year 2006 Appropriation Bill, which
    prohibits VA from expending funds to pursue a national contract.

        Dr. Perlin. To the best of my knowledge----
        Senator Murray. Okay.
        Dr. Perlin [continuing]. There has not been additional----
        Senator Murray. Okay.
        Dr. Perlin [continuing]. Standardization.
        Senator Murray. Okay. If we could have a conversation with
    you about that, I'd really appreciate it, because I think there
    is confusion out there on that issue.

                     VETERANS INTEGRATED SERVICE NETWORK 20

        I will just ask one more question. And I know you are over
    your time limit. But I just want you to know that as a person
    who represents VISN 20, I am concerned about us being
    consistently the worst VISN for outcomes in primary and
    specialty care, and would just like your assurances that you
    will work with us to try and address this issue. And I'd love
    to hear your response, maybe in writing, about what we can do
    to try and get better care out there.
        Secretary Nicholson. We'd be happy to do that. We have a
    new VISN director, as you know, and have charged him with, you
    know, some certain performance expectations for improvement.
    And we're very hopeful. He's a very capable person. So----
        Senator Murray. Yeah.
        Secretary Nicholson. But we'd be happy to discuss it----
        Senator Murray. Good. I----
        Secretary Nicholson [continuing]. With you at any time.
        [The information follows:]

        As of May 5, 2006, VISN 20 has 6,443 veterans waiting for primary
    care appointments. This is an 11 percent decrease since April 1, 2006,
    when 7,246 veterans were waiting.
        The newly appointed Network Director, Mr. Dennis M. Lewis, FACHE,
    is providing aggressive leadership to improve access both for primary
    and specialty Care. In fiscal year 2005 and 2006 to date, he has
    committed over $31 million to increase operating rooms and intensive
    care units and medical/surgical beds to rebuild VISN 20's
    infrastructure and increase inpatient capacity.
        In December 2005, each facility director in VISN 20 was assigned as
    the ``champion'' of an initiative to address the challenge of
    increasing access and improving quality. The VISN has now developed
    strategies for improving performance in clinical measures of care;
    increasing enrollment in care coordination home tele-health; breaking
    the cycles of peaks and valleys in specialty care capacity, and fully
    implementing panel management.
        The initiatives are closely monitored for progress, and facility
    leadership is required to update the VISN on the results of actions
    taken. In addition, the VISN is tracking the aggressive recruitment and
    hiring of staff that will also increase capacity. More recently, each
    facility has been required to implement group clinics by the end of May
    2005 to increase capacity and to identify what services patients
    require. In all of the strategies that have been developed and are
    being implemented, the Network Director has emphasized that quality
    care requirements must be paramount in any approach that increases
    capacity and access.

                         ADDITIONAL COMMITTEE QUESTIONS

        Senator Murray. We would all like to understand why it's
    the case, and what's contributing to that, and make sure we're
    focused on doing better. So, I appreciate your response.
        And thank you very much, Mr. Secretary, Dr. Perlin, and
    everyone. We really appreciate your patience with all of us.
        [The following questions were not asked at the hearing, but
    were submitted to the Department for response subsequent to the
    hearing:]

              Questions Submitted by Senator Kay Bailey Hutchison

        Question. I'm a little concerned the VA is presenting a research
    budget of $399 million, a 3.16 percent decrease from fiscal year 2006.
    It is even below the fiscal year 2005 appropriated level. Last year, we
    asked the VA to place a high priority on Gulf War Illness research,
    smart limb technology, prosthetics, and other research efforts. This is
    a time when your research budget should fully fund research and
    development for advanced medical technologies and prostheses.
        Would you please tell us how the VA will meet these research
    obligations, even though your budget request for research is less than
    last year's level?
        Answer. The Department of Veterans Affairs (VA) is committed to
    improving the impact of its research program by ensuring that resources
    are targeted to projects with the highest scientific merit and most
    relevance to the needs of veterans.
        VA is projecting total resources of $1.649 billion in fiscal year
    2007 which is an increase of $17 million or 1.1 percent over the 2006
    level. These resources consist of $399 million in direct appropriation;
    $366 million in medical care support funding; $676 million in other
    Federal grants such as from Department of Defense and the National
    Institute for Health; and $208 million from private or university
    funding.
        In fiscal year 2007, VA expects to fund about 2,045 direct projects
    and 2,839 full-time equivalents. In fiscal year 2006 and 2007, the
    research account no longer pays for its Information Technology (IT)
    equipment because the central IT Systems appropriation now pays for
    this type of equipment. The funding which will support IT projects for
    research is about $15 million in each of these fiscal years. The goals
    for research are to ensure a balance among the competing needs for
    meritorious projects, to evaluate and fund existing programs at
    appropriate levels, and to fund new projects to ensure the advancement
    of health care for our veterans. Strategies to accomplish these goals
    include using attrition, transitioning to shorter durations of awards,
    and conducting competitive reviews of research centers. VA is using
    performance-based criteria to decide whether to modify, terminate, or
    expand programs.
        For example:
      --Evaluation of Centers of Excellence.--Centers of Excellence (CoEs)
            are established only on a competitive basis and their
            performance is regularly reevaluated through explicit review.
            In the past year, the Health Services Research and Development
            Service (HSR&D) closed a HSR&D Center of Excellence because it
            was not contributing sufficiently to scientific advances. In
            addition to freeing $458,000 per year for more productive
            activities, this action is expected to stimulate increased
            productivity among other CoEs.
      --Evaluation of Research Enhancement Award Programs.--The Biomedical
            Laboratory and Clinical Science Research and Development
            Services reduced the number of Research Enhancement Award
            Program (REAP) sites from 34 to 19. This was done to maintain
            program quality (a REAP application success rate of 25
            percent), improve program focus by making REAP awards for study
            of diseases that are most commonly treated within the VA health
            care system, and to match resources to those research groups
            that have contributed most to scientific productivity. The
            resulting savings of $3.75 million was used to fund an
            increased number of individual merit review applications.
        Clinical Research Productivity.--Developing and implementing small
    clinical trials within the Medical Research Service was not resulting
    in larger clinical trials. To address this problem, the Medical
    Research Service was reorganized into the Biomedical Laboratory and
    Clinical Science Research and Development Services. The management of
    small clinical trials was transferred into the Clinical Science
    Research and Development Service (CSR&D) and the Cooperative Studies
    Program (CSP) was merged into CSR&D. As a result, the CSP clinical
    trials planning groups can now assist individual investigators planning
    small clinical trials. This is expected to significantly increase
    clinical research productivity.
        Question. The Subcommittee feels strongly that the VA establishes
    specialized medical treatment facilities for mental health and Post
    Traumatic Stress Disorder as ``Centers of Excellence.'' These centers
    will allow the VA to consolidate its specialists in personnel,
    training, and resources to reach the best results for our veterans. For
    Mental Health/PTSD, in particular, the VA was directed to establish
    three centers located in the Medical Centers in Waco, Texas; San Diego,
    California; and Canandaigua, New York.
        Please tell us what progress has been made in each of these
    centers. Are any of these Centers operational?
        Answer. While none of these sites are currently operational, the
    Office of Mental Health Services has been working closely with
    individuals from Central Texas VA Health Care System (CTVHCS) at WACO
    and VISN 17; Canandaigua VA Medical Center and VISN 2; and San Diego VA
    Medical Center and VISN 22 to develop and refine plans for implementing
    the Centers of Excellence on mental health and Post- Traumatic Stress
    Disorder. Each of the Centers will include Research and Educational as
    well as clinical missions to allow them to work toward developing new
    knowledge and new care providers, as well as to meet current care
    needs. Each of the Centers will be multifaceted in their activities.
    Nevertheless, it is possible to summarize their areas of focus:
    Canandaigua will focus on best practices for treatment of PTSD and
    other stress-related disorders and for prevention of complications.
    CTVHCS will focus on both smooth transition from the Armed Forces to
    the community and the VA and on rehabilitation and recovery. San Diego
    will focus on the clinical neuroscience underlying the onset of PTSD
    and related conditions as well as their response to treatment. The
    implementation of these Centers will proceed in steps with the early
    selection and funding for leadership and administrative staffing. This
    will be followed by expedited development and interactive review of the
    research, educational, and clinical plans, and full funding of the
    Centers to implement these programs.
        Question. The purpose of the CARES program is to systematically
    renovate and modernize the VA's health care infrastructure and to
    provide greater access to high-quality care for more veterans. The VA
    is requesting $399 million for Major Construction, a 52 percent
    decrease from the budget request level in fiscal year 2006. There are
    now 17,000 OIF/OEF wounded soldiers, sailors, Marines, airmen, National
    Guard and Reserve forces requiring medical care.
        With many of these many men and women requiring long-term care and
    rehabilitation, what impact will this increased workload have on the
    CARES decisions made in 2004?
        Does the VA have any plans for a new CARES evaluation or study?
        Answer. Since the 2004 CARES decisions were made, VA has modified
    the VA Enrollee Health Care Projection Model (VAEHCPM) to include OIF/
    OEF workload projections. This additional workload has been and with
    each model update will be integrated into decisions regarding the level
    and types of services OIF/OEF veterans need, including long-term care
    and rehabilitation services. In light of the enhancements to the
    VAEHCPM and the emphasis on services to OIF/OEF veterans, we do not
    anticipate a separate evaluation or study regarding long-term care/
    rehabilitation services for this group of veterans.
        Question. For the Compensation and Pension programs, the VA is
    requesting $38 billion, $4.1 billion above the fiscal year 2006 level
    or a 12 percent increase. In fiscal year 2005, the VA's average days
    pending in rate-related actions was 122; the projections for fiscal
    year 2006 is 150 and for fiscal year 2007 is 141, with a strategic
    target of 78.
        What efforts will VA make to decrease their claims from 150 in
    fiscal year 2006 to 141 in fiscal year 2007?
        Answer. In the fiscal year 2007 budget submission, VA projected a
    significant increase in the volume of incoming disability compensation
    claims as a result of the special outreach mandated in the Military
    Quality of Life and Veterans Affairs Appropriations Act for 2006. The
    increased workload is projected to be received in fiscal year 2006 and
    to continue to impact our pending workload and timeliness of processing
    into fiscal year 2007. Timeliness of processing is projected to begin
    to improve toward the end of fiscal year 2007 as these additional
    claims are processed and the pending claims inventory is returned to
    more normal levels.
        VBA is currently in the process of a major hiring initiative that
    will add over 850 new employees this year. Our aggressive fiscal year
    2006 hiring plan will allow us to enter fiscal year 2007 at or above
    our requested level for fiscal year 2007 of 13,104 FTE. We anticipate
    that the training and experience these new employees will receive this
    year will enable them to have a positive impact on workload reduction
    efforts in fiscal year 2007, resulting in improved timeliness of
    processing.
        Training for all of our employees continues to be enhanced to
    ensure they have the necessary skills and tools to perform their duties
    timely and effectively. An annual core training curriculum for all
    decision makers is now in place that includes special broadcasts on
    current issues and training on the more complex aspects of claims
    processing.
        Question. How will you reach your strategic target of 78 average
    days for claims processing?
        Answer. We are continuing to evaluate the feasibility of a 78-day
    strategic goal for the average age of claims in our pending inventory
    (``average days pending''). Last year, VA changed the strategic goal
    for average days to process a rating decision from 100 days to 125 days
    based on recent changes in the law and in the nature and number of
    disabilities being claimed that have significantly lengthened the
    disability decision process. Our review will determine whether a
    similar change is appropriate in the strategic goal for ``average days
    pending.''
                                     ______

                 Questions Submitted by Senator Mitch McConnell

        Question. Since May 2004, when the Capital Asset Realignment for
    Enhanced Services (CARES) decision was released,
    PricewaterhouseCoopers' consultants have been working with the VA and
    the local community to determine the future healthcare facility needs
    for people living near Louisville, Kentucky. It is my understanding
    that its report and recommendations have been submitted to the VA.
        When do you expect the decision to be made on the future of the
    Louisville medical facility?
        Answer. The Secretary is reviewing and making his decisions
    concerning Stage I Reports for each study site independent of one
    another. This will result in multiple announcements in the near future.
        Question. Louisville and Lexington, Kentucky's two largest cities
    are part of VISN 9 which are not scheduled to receive any funding for
    fiscal year 2007 for constitution projects.
        Why is this?
        Answer. There are two reasons the Louisville and Lexington VAMCs
    are not scheduled to receive Minor Construction funding in fiscal year
    2007:
      --Of the five Minor Construction projects submitted by VISN 9 for
            fiscal year 2007, one was from a medical center within these
            two cities--Louisville VAMC. The rest of VISN 9's projects were
            for the other medical centers within the VISN.
      --Louisville's project is a Research project, ``Renovate Building 8B
            for Research.'' Although Research projects receive
            approximately 5 percent of the Minor Construction funding,
            there were 25 Research projects competing for the resources.
            Based on the anticipated appropriations, this will most likely
            fund the top two Research projects; Louisville's Research
            project ranked in the middle of the list.
        Question. The CARES study recommends seven Community Based
    Outpatient Clinics for VISN 15, which includes Daviess, Hopkins, and
    Graves Counties in Kentucky. Although the budget request includes three
    projects for VISN 15, none of the fiscal year 2007 funds will be spent
    on any of the proposed projects in Kentucky.
        Please explain why Kentucky is not slated to receive any of the
    VISN 15 funding for fiscal year 2007.
        Answer. The Capital Asset Realignment for Enhanced Services (CARES)
    study proposed three Community Based Outpatient Clinics (CBOC) for
    Kentucky that are in the VISN 15 service area. One of the locations,
    the Hanson CBOC (Hopkins County, KY) was activated in August 2005. The
    other two CBOCs for Daviess and Graves Counties, KY, remain pending.
        Contingent upon funding available in fiscal year 2007, Marion (IL)
    VAMC will submit a business plan proposal for an additional Kentucky
    CBOC. Activation will be contingent on VHA review and VA approval.
        Question. Does the VA have criteria in place for determining the
    order in which the recommendations made in the CARES study will be
    implemented? If so, please provide those criteria to the Committee.
        Answer. The VA has a long-standing process to prioritize
    infrastructure projects. Projects are evaluated against a CARES-
    specific decision model comprised of the following criteria (in
    priority order):
      --Service Delivery Enhancements (includes realignments)
      --Safeguard Assets
      --Special Emphasis Programs
      --Capital Asset Priorities/Portfolio Goals
      --Departmental Alignment
      --Financial Priorities
        Public Law 108-170, the Veterans Health Care, Capital Asset, and
    Business Improvement Act of 2003, required VA to evaluate projects
    based on a methodology that prioritizes realignments and safety
    projects in the first and second priorities. The VA decision model
    described above has been validated by OMB and Congress as a tool for
    judging competing needs for scarce capital asset project funds in
    Agency budget requests to Congress. A more detailed description of the
    decision criteria can be found in Appendix C of Volume 3, Construction
    and 5 Year Capital Plan, of the fiscal year 2007 Congressional Budget.
                                     ______

                Questions Submitted by Senator Dianne Feinstein

        Question. The Death Pension is a benefit paid to eligible
    dependents of deceased wartime veterans. However, it is clear that
    under the current income eligibility formula, death pension does not
    meet its original intent of covering the living expenses of dependents
    of deceased wartime Veterans.
        Can you describe the current formula and income eligibility levels
    that are now employed to determine whether a dependent of a deceased
    wartime Veteran may receive compensation through the VA?
        Answer. Under the provisions of Public Law 95-588, VA's Improved
    Pension is an income maintenance program designed to assure a level of
    income to wartime veterans and their survivors. To be eligible, a
    claimant may not have income countable for VA purposes that exceeds the
    yearly income limit (maximum annual pension rate) shown in the chart
    below. The maximum pension rate is higher for veterans than for
    survivors.
        The claimant's countable income determines the amount of VA
    benefits paid. There is a dollar-for-dollar reduction from the maximum
    rate for all income received by a claimant (excluding other needs-based
    program payments such as SSI or welfare). Medical expenses that exceed
    5 percent of the maximum annual pension rate and for which the claimant
    is not reimbursed are deducted from the claimant's countable income to
    increase the amount of pension payable. The monthly rate payable is
    calculated by subtracting the claimant's countable annual income from
    the maximum annual pension rate and dividing the difference by 12.

    ----------------------------------------------------------------------------------------------------------------
                                                               Maximum Annual
                         Death Pension                        Pension Rate (as   Minimum Monthly    Maximum Monthly
                                                                of 12/1/05)          Payment            Payment
    ----------------------------------------------------------------------------------------------------------------
    Surviving Spouse--Without Dependents...................             $7,094                 $1               $591
    Surviving Spouse--With One Dependent...................              9,287                  1                774
    Surviving Spouse Aid & Attendance--Without Dependents..             11,340                  1                945
    Surviving Spouse Aid & Attendance--With One Dependent..             13,529                  1              1,127
    Surviving Spouse Housebound--Without Dependents........              8,670                  1                723
    Surviving Spouse Housebound--With One Dependent........             10,860                  1                905
    Child Only.............................................              1,806                  1                151
    ----------------------------------------------------------------------------------------------------------------

        Question. What do you believe would be a more acceptable and
    appropriate yearly income threshold that would ensure that low-income
    dependents of wartime Veterans receive adequate compensation through
    death pension benefits?
        Answer. In December 2004, the Evaluation of the VA Pension Program
    concluded that survivors receiving pension are worse off, on average,
    than similarly situated low-income female and elderly Americans. On the
    other hand, veterans receiving pension were found to be generally
    better off than their peers. According to the report, this situation
    exists because veterans are eligible to enroll in VA healthcare,
    whereas survivors are not. Consequently, very few veterans in receipt
    of pension are also receiving Medicaid or SSI benefits. A much larger
    number of survivors, more than 40 percent, receive SSI and Medicaid.
        VA has not determined what, if any, changes should be made to the
    income threshold for the death pension program. It is possible that
    raising the maximum annual pension rate for survivors, especially those
    not entitled to Medicare, could jeopardize their continued eligibility
    for Medicaid. An increase in the death pension rate could potentially
    worsen some pension beneficiaries' overall financial position due to
    the loss of healthcare coverage. We believe that any proposal being
    considered by Congress to raise the income limit for death pension
    eligibility should take this factor into consideration.
        Question. Does VA have any plans to alter the current income
    threshold and eligibility formula to better provide for the needs of
    dependents of wartime Veterans through the death benefits program?
        Answer. Legislation would be required to change the current income
    threshold and eligibility formula for the death pension program. VA
    does not have any current plans to propose legislative changes to the
    death pension program.
                                     ______

                Questions Submitted by Senator Mary L. Landrieu

        Question. I would like to ask you a question regarding the New
    Orleans VA Medical Center. In the House of Representatives' passed
    version of the Hurricanes of the Gulf Coast Supplemental #4, $550
    million was appropriated to reconstruct the New Orleans VA Medical
    Center. Included in this appropriation was language allowing you to
    transfer up to $275 million to the VA Medical Services account for
    unanticipated medical costs of returning veterans fighting the Global
    War on Terror.
        Do you support the inclusion of this language?
        Answer. VA appreciates the House action in this matter; however, VA
    does not expect to utilize this authority for either the remainder of
    fiscal year 2006 or fiscal year 2007 for the medical costs of returning
    veterans fighting the Global War on Terror because these requirements
    are already funded in the fiscal year 2006 and proposed fiscal year
    2007 budgets. VA needs the referenced funds to construct a new medical
    facility for New Orleans to replace the one severely damaged by the
    Hurricanes last year.
        Question. Is this a warning sign that maybe the VA has
    miscalculated funding needs, yet again, and will need additional money
    to cover the unanticipated medical costs of returning Global War on
    Terror veterans?
        Answer. The President's amendment to the fiscal year 2006 budget
    request provided an additional $1.977 billion for the current fiscal
    year. These resources will enable VA to continue to provide the high-
    quality health care to our Nation's veterans. The President's 2007
    request includes total budgetary resources of $34.3 billion for the
    medical care program, an increase of 11.3 percent (or $3.5 billion)
    over the level for 2006 and 69.1 percent higher than the funding
    available at the beginning of the Bush Administration. The cornerstone
    of our medical care budget is providing care for veterans who need us
    the most--veterans with service-connected disabilities; those with
    lower incomes; and veterans with special health care needs. A key
    element of this effort is to make sure every seriously injured or ill
    serviceman or woman returning from combat in Operation Enduring Freedom
    and Operation Iraqi Freedom receives priority consideration and
    treatment. These resources will enable VA to continue to provide the
    high-quality health care to our Nation's veterans.
        Question. If this money is transferred, it is a sure possibility
    this will prevent the final completion on the rebuilding of the new New
    Orleans VA Medical Center.
        If this is happens, how would the VA plan on funding the completion
    of the hospital?
        Answer. As previously stated, VA needs these funds for the
    construction of a new medical center for New Orleans.
        Question. Would you replace the funds in the VA's annual
    appropriations budge?
        Answer. Again, VA does not expect a need to do this. The entire
    $561 million will be required to rebuild the New Orleans VA Medical
    Center.
        Question. Many concerns regarding mental health stem from
    nondisclosure by Service members. This nondisclosure has the potential
    to disrupt early intervention and see an underestimation of future
    demand for VA mental health services.
        With an ever-growing focus on mental health, in your estimation,
    how well-equipped is the VA to deal with this problem?
        Answer. In terms of capacity to provide mental health services to
    those who do disclose problems, I have reviewed the capability of the
    Veterans Health Administration (VHA) to meet the needs for inpatient
    and outpatient Post-Traumatic Stress Disorder (PTSD) diagnosis and
    treatment as well as diagnosis and treatment of other mental health and
    substance abuse concerns of veterans. This review has included
    monitoring on a quarterly basis the mental health diagnosis and
    treatment needs of recently discharged service members from Operation
    Iraqi Freedom and Operation Enduring Freedom. I have found that VHA has
    adequate capabilities to serve their needs.
        In anticipation of any unmet needs or capabilities, VHA identified
    significant additional resources in fiscal year 2005 and fiscal year
    2006 in a variety of mental health programs, including specialized PTSD
    and Readjustment Counseling Center programs to supplement current
    services. Since PTSD often coexists with substance abuse disorder,
    depression, and homelessness, VA supplemented programs in those areas
    in fiscal year 2005 and fiscal year 2006. In fiscal year 2005, new and
    enhanced PTSD programs received funding of $9,953,186, and a new class
    of programs specifically designed for early identification and care for
    returning veterans (Returning Veterans Outreach Education and Care
    (RVOEC) programs were provided funded of $6,676,312. In addition, in
    fiscal year 2005, $7,987, 505 was provided for substance use disorder
    treatment programs; $8,249,348 was provided for Homeless Domiciliary
    programs; and $4,500,000 was provided for homeless grant and per diem
    programs. In fiscal year 2006, $10,865,874 will be provided for new/
    enhanced PTSD programs; $6,932,646 will be used for new RVOEC programs;
    and $16,651,698 will be spent on substance use disorder treatment
    programs. Readjustment Counseling Service hiring of counselors who are
    veterans of the Global War on Terror will be provided up to $1,100,000
    in fiscal year 2006.
        Your question also addresses a more subtle issue, which is how to
    encourage self-disclosure of mental health concerns on the part of
    returning service members and veterans. You are correct that our system
    can only provide services when individuals do self-disclose and then
    can be guided in terms of how the system can best respond to the
    problems they are experiencing. There are several issues embedded
    within this overall concern. Generally, there are three major issues we
    can address: efforts to destigmatize mental health problems; efforts to
    help veterans progress in terms of readiness to change; and efforts to
    educate veterans and their families about resources available if they
    do self-disclose.
        First, concerning destigmatization, the Mental Health Strategic
    Plan, which is based in large part on the President's New Freedom
    Commission on Mental Health report as adapted for VA, suggests a wide
    array of activities to combat stigma in relation to mental health. Many
    of these have already been completed, including various educational
    efforts with VA staff. Ultimately, it is the larger society that needs
    to change in terms of reducing the stigma of mental health problems,
    but VA is committed to taking a leading role in that effort. VA also
    supports the efforts of the Department of Defense to deal with this
    issue in relation to active service members.
        Second, there is a large and important literature on the importance
    of understanding and respecting the process of becoming ready to seek
    help and change for mental health problems. Individuals progress from
    an early period of unawareness of and inability to identify developing
    concerns through stages to a point of readiness to engage in action to
    change the problem. It is important to match clinical services provided
    to this level of readiness in order to accomplish optimal outcomes. We
    have designed our programs to follow that natural progression, with
    outreach and educational efforts designed to help those who are earlier
    in the process and a variety of active clinical programs, as described
    in the opening paragraphs, for those who are ready to act and receive
    clinical care for their mental health concerns.
        Third, veterans may fail to self-disclose problems if they are not
    aware of the availability of services to meet their needs.
    Understanding this, we have developed the new class of programs
    described above, the Returning Veterans Outreach Education and Care
    (RVOEC) programs. These are specifically designed to meet the needs of
    newly returning veterans. As the title suggests, efforts are made to do
    outreach to identify such veterans, to educate them about available
    mental health services and the process of accessing these services, and
    to be supportive and contribute to destigmatization by normalizing
    adjustment concerns veterans may have. Similar efforts are made through
    the Veterans Readjustment Counseling programs; the RVOEC teams work
    with and through medical facilities so that such services are available
    to veterans throughout the system. These and other efforts ultimately
    are designed to teach veterans, their families, and the community at
    large that effective treatments are available for PTSD, depression, and
    other stress-related conditions and that VA has the ability to offer
    those treatments to them, if they present themselves for care.
    Ultimately, veterans are more likely to self-disclose if they know that
    their concerns will be handled respectfully, sensitively, and by
    offering appropriate, effective treatment.
        Question. Last year the Administration proposed to restrict per
    diem payments to only a small fraction of veterans living in State
    Homes and placed a moratorium on construction grants. As you also know,
    Congress restored construction grant funding to $85 million last year.
    However, this was almost a $20 million cut from fiscal year 2005
    levels. Although, the fiscal year 2007 budget request did not repeat
    these ill-advised proposals, the construction grant request was only
    for $85 million. It has been expressed to me, by the National
    Association of State Veterans Homes, that although $85 million is
    better than $0 funding, they wish to see the budget restored back to
    $104.3 million.
        Did you consult with the National Association of State Veterans
    Homes before you submitted your request for the fiscal year 2007
    budget?
        Answer. VA program staff regularly participates in the bi-annual
    national meetings of National Association of State Veterans Homes
    (NAVSH), and the Secretary has met with the organization's executive
    leadership. NAVSH interests and concerns are well known to VA through
    these continuing interactions.
        Question. How many construction grants will be given with this $85
    million, how many Homes will see a piece of the $85 million?
        Answer. It is not possible to predict how many construction grants
    will be given until: (1) the fiscal year 2007 Priority List is
    finalized and approved in September 2006; (2) the final price of the
    projects in Priority Group 1 is determined; and (3) the amount of
    carryover of fiscal year 2006 funds, if any, is established.
        Question. How will the construction of the new State Home in
    California affect availability of funds to award other contracts? How
    will it affect the repairs and such at other State Homes?
        Answer. Under the current regulations, VA's conditional award of a
    grant for the construction of the new State home in California before
    the end of this fiscal year would preclude the award of any other
    construction grants in fiscal year 2007 except those that are
    conditionally awarded a grant this fiscal year.
        Question. State Veterans Homes are critical to the healthcare needs
    of veterans throughout the United States. As critical as State Veterans
    Homes have been in my State, I have worked hard to insure the proper
    fiscal attention is given them.
        Do you share the critical need for State Homes and, if so, do you
    agree that Congress should mandate new consultation and reporting
    requirements for VA prior to the implementation of any proposed changes
    to the current per diem system?
        Answer. State Veterans Homes are an important option for veterans
    in considering their health care needs. We do not agree that Congress
    should mandate new consultation and reporting requirements for VA. VA
    consults extensively with individual State homes, with the National
    Association of State Veterans Homes (NASVH), and with the National
    Association of State Directors of Veterans Affairs (NASDVA) and
    provides relevant information regarding State Veterans Home programs to
    all of those stakeholders when it is cleared for public release.
        Question. Blinded Veterans have limited mobility and, oftentimes,
    insufficient infrastructure to deal with their specific needs. There
    are only 10 VA Blind Rehabilitation Centers across the country with a
    waiting list that causes an average waiting time of more than 9 weeks.
        How is the VA working to improve the efficiency and availability of
    care for blind veterans?
        Answer. VA Blind Rehabilitation Service is making significant
    improvements in both the efficiency and availability of care for
    blinded veterans. The VA Blind Rehabilitation Service Program Office,
    in conjunction with the Visual Impairment Advisory Board, has developed
    a continuum of care model. This model is designed to ensure that the
    visual needs of veterans are addressed throughout the progression of
    the vision loss in settings most convenient to the patient. When
    possible, services are provided in the veteran's local community. The
    inpatient Blind Rehabilitation Centers will continue to provide
    advanced rehabilitation services. The intensity of the intervention is
    tailored to the complexity of the patient's needs and additional
    services at the next level of care can be provided as the patient's
    vision rehabilitation needs increase. Placement of the services will be
    determined by patient demographics.
        Under the CARES planning process, two Blind Rehabilitation Centers
    at Biloxi and Long Beach will be created. In addition, Cleveland VAMC
    is adding a new Center. The new Centers will significantly reduce
    waiting times and service patients in those demographic areas.
        To further reduce waiting times for admission to a Blind
    Rehabilitation Center, Blind Rehabilitation Service developed a
    community-based Computer Access Training program to augment the
    inpatient Computer Access Training that is provided in the Blind
    Rehabilitation Centers. In this program, local service providers teach
    Computer Access Training to veterans in their home area, where
    feasible. Locally provided Computer Access Training has proven to be a
    cost effective alternative, which reduced waiting, increased access,
    and benefited blinded veterans.
        Blind Rehabilitation Service has expanded services to blinded
    veterans in their local communities with the establishment of Blind
    Rehabilitation Outpatient Specialist (BROS) positions at VA medical
    centers. There are now 28 BROS positions.
        Since initiating these efforts, the waiting times for admission to
    an inpatient Blind Rehabilitation Center have decreased 37 percent from
    fiscal year 2004 through fiscal year 2005. Waiting times for admission
    to a Blind Rehabilitation Center Computer Access Training program
    decreased 23 percent for the same time period.
        The VA Blind Rehabilitation Service Program Office is working with
    the Information Technology Office to develop a new national database to
    monitor all aspects of blind rehabilitation service delivery including
    waiting times. The anticipated release date is during the fall of 2006.
    This database will increase the efficiency of patient care for blinded
    veterans.

                              SUBCOMMITTEE RECESS

        Senator Murray. This Subcommittee is recessed.
        [Whereupon, at 4:38 p.m., Wednesday, March 29, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

       MILITARY CONSTRUCTION AND VETERANS AFFAIRS, AND RELATED AGENCIES
                      APPROPRIATIONS FOR FISCAL YEAR 2007

                                  ----------

                              TUESDAY, MAY 9, 2006

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 2:28 p.m., in room SD-124, Dirksen
    Senate Office Building, Hon. Kay Bailey Hutchison (chairman)
    presiding.
        Present: Senators Hutchison, Allard, and Feinstein.

                             DEPARTMENT OF DEFENSE

    STATEMENT OF HON. TINA W. JONAS, UNDER SECRETARY OF
                DEFENSE (COMPTROLLER)
    ACCOMPANIED BY PHILIP W. GRONE, DEPUTY UNDER SECRETARY OF DEFENSE
                (INSTALLATIONS AND ENVIRONMENT)

               OPENING STATEMENT OF SENATOR KAY BAILEY HUTCHISON

        Senator Hutchison. I will call our hearing to order and
    thank you very much for being with us today. We have the
    Honorable Tina Jonas, the Under Secretary of Defense,
    Comptroller, and of course the Honorable Philip Grone, the
    Deputy Under Secretary of Defense for Installations and
    Environment. We have certainly worked well with you and
    appreciate all the efforts that you are making.
        The Defense Department is executing a very bold
    restructuring plan. I would have to say that I feel very good
    about what you are doing because I think our committee started
    really focusing on overseas basing and wanting to look at the
    overseas bases at the same time that we were looking at our
    domestic bases, and I think that the Department of Defense has
    now determined, because of that look, that we should have
    50,000 or perhaps even as much as 70,000 troops, mostly Army,
    coming back to the United States.
        The Army is in the midst of a huge reorganization effort to
    make its brigades more combat ready and we have the global war
    on terror, which is being fought, of course, in Iraq and
    Afghanistan and around the world. It is against this backdrop
    that we began to examine the budget request for military
    construction. At first glance it appears to be a robust
    request. The total requested is $16.7 billion, a 37.8 percent
    increase from last year's request. However, $3.75 billion of
    this is an increase in the BRAC account, which provides for
    realignment of troops, but does not address the backlog of
    facilities that need to be replaced or rebuilt.
        In the military construction budget, the Army's $2.06
    billion request is 39.2 percent over last year's request. I
    stated in our MILCON hearing last year that the Army should be
    investing in more infrastructure, so I am pleased to see this
    development. The Army continues to bear the brunt of the
    fighting in Iraq. Much is being asked of our soldiers and we
    need to be doing as much as possible to provide facilities that
    will help the Army recruit and retain quality soldiers and
    families.
        I am also pleased to note that the Army National Guard and
    Army Reserve requests have continued last year's trend with
    good growth. The Guard and Reserve have been underfunded for so
    long and really have been asked to do a lot. So we have a long
    way to go to bring them into the right level, but their
    military construction budgets are improving.
        The Navy has requested $1.162 billion for 2007 and that is
    a 12.9 percent increase over last year. This includes an
    increase in Marine Corps funding, including facilities for the
    newly established Marine Corps Special Ops Command and a
    special emphasis on barracks projects. Given the level of
    sacrifice our young marines have made in Iraq, I think it is
    most appropriate that we focus on providing them the quality
    housing for when they return.
        The growth of the Air Force's budget has slowed this year
    and I think that too is the right approach. Most of this budget
    is traditional construction to provide housing at bases where
    privatization is not viable. I do hope the Air Force is going
    to continue to fully examine all of the tools available,
    including privatization and build to lease authorities to
    provide quality housing, before making large financial
    commitments such as housing projects, and we can certainly go
    into that in further detail later.
        With that, I would like to call on my distinguished
    colleague Senator Feinstein, the ranking member of this
    committee.

                     STATEMENT OF SENATOR DIANNE FEINSTEIN

        Senator Feinstein. Thank you very much, Madam Chairman, and
    thank you for your leadership of this subcommittee. As you
    know, it is a great pleasure to work with you.
        I also am pleased to welcome Secretary Jonas and Mr. Grone
    and look forward to their testimony. Obviously, the first
    consideration of this committee is to meet the needs of our
    military personnel, and hopefully that we pay particular
    attention, not only to mission support projects, but also the
    quality of life issues that are so important.
        I note the very large amount that is added to our budget
    for the BRAC, the new round of BRAC, and I would like to
    commend the Department for the advances that it has made in
    military housing through privatization and express the hope
    that you will track this carefully and maintain careful
    oversight to ensure that projects are not only well planned and
    executed, but that it achieves its potential. My experience of
    this has been that you have to watch it over time and make some
    judgments based on a time line that is more than the time you
    cut the ribbon.
        I also am concerned about the execution of the BRAC program
    and particularly about the pace of environmental remediation. I
    have been concerned about this for years and do the best I can
    to include additional dollars for remediation. My State,
    California, has huge needs in terms of environmental
    remediation and it has dramatically slowed down the
    transitioning of closed bases into the private sector. So I
    think it is very important that the Department finishes what it
    starts in terms of BRAC cleanup and do it as expeditiously as
    possible before we have a whole new host of requirements from
    the BRAC 2005 round.
        I think Senator Hutchison has said it very clearly on
    global rebasing. I will not go over it again, but I think we
    are interested in an update on this with regard to recent
    agreements reached with Japan, Romania, and Bulgaria. I am
    interested in your assessment of recent Italian elections and
    whether that would impact any of the basing that the United
    States does in Italy and particularly to expansions at Vicenza.
        Thank you very much and I look forward to the testimony.
        Senator Hutchison. Well, thank you, Senator Feinstein.
        One of the things that we are hearing in the underground, I
    guess you would say, is that the implementation of the BRAC
    recommendations is moving more slowly than predicted. There
    are, as you know, some major areas where there are going to be
    relocations. Two happen to be in my State, Fort Bliss, which
    will be taking some of the troops that will be coming home from
    Germany, and Fort Sam Houston, which is going to take so many
    of the medical training responsibilities from other areas of
    the country and consolidate them.
        My question for you, Secretary Grone, is, are we moving as
    expeditiously as we need to be moving? Are you concerned that
    we are not going to be able to provide housing and facilities
    for the people to comply with the BRAC recommendations?
        Mr. Grone. Madam Chairman, that is a very important and
    comprehensive question. Let me provide the subcommittee with a
    sense of where we are today----
        Senator Hutchison. My staff just reminded me that I did not
    let you make your opening statements. I apologize. Please, let
    me let both of you make your opening statements, and then you
    already know what the question is, so we will start the
    questioning right after. Excuse me.
        Mr. Grone. I thought that was a statement on value added.
        Senator Hutchison. So Secretary Jonas.

                           STATEMENT OF TINA W. JONAS

        Ms. Jonas. Maybe we can make this quick. I will just submit
    my statement for the record if that is all right with you. I
    just want to thank this committee for its support of our fiscal
    year 2007 budget request. Just to put in context where we are,
    our overall Department of Defense budget request was $439.3
    billion, which of course is divided among the various
    committees. This committee has responsibility for $16.7 billion
    of military construction and family housing included in our
    request. I would just urge that the committee view this request
    favorably and I am going to submit the balance of the statement
    for the record.
        [The statement follows:]

                      Prepared Statement of Tina W. Jonas

        Madam Chairman, members of the Committee, I am pleased to be here
    today to discuss the military construction component of President
    Bush's fiscal year 2007 budget request for the Department of Defense.
        I would like to begin by saying thank you to the Committee for your
    continued strong support for the men and women of America's Armed
    Forces and their families. The Department looks forward to continuing
    to work with this Committee to ensure that our service members have
    everything they need to accomplish their mission.
        The President's fiscal year 2007 budget request is $439.3 billion
    for the Department of Defense. This is a 7 percent increase over the
    fiscal year 2006 enacted level of $410.8 billion.
        This Committee has jurisdiction over $16.7 billion for military
    construction and family housing. This is a $4.7 billion increase over
    the fiscal year 2006 enacted level of $12 billion.

                              STRATEGIC PRIORITIES

        The budget supports the President's 2005 National Security
    Strategy, the long war against terrorist extremists, and the strategic
    priorities of the 2006 Report of the Quadrennial Defense Review. The
    budget invests in the capabilities and forces the Nation needs to:
      --prevail in irregular warfare operations, including wars of long
            duration, like the global war on terror;
      --defend the homeland, especially against catastrophic terrorism and
            other advanced threats;
      --maintain America's military superiority, to ensure our ability to
            deter or defeat threats from other nation-states; and
      --continue the Department's strong support of our military men and
            women and their families.

               MILITARY CONSTRUCTION AND FAMILY HOUSING OVERVIEW

        The military construction and family housing portion of the
    President's fiscal year 2007 request supports the Department's most
    pressing facilities requirements.
        Through the maintenance and modernization of existing facilities,
    the request improves working and living conditions, replaces facilities
    that are no longer economical to repair, and advances the restructuring
    of bases and facilities, at home and abroad.
        The budget funds 48 new barracks projects for unmarried personnel
    living on-base, as well as meets the Department's goal of funding the
    elimination of remaining inadequate military family housing units in
    the continental United States by 2007.
        The Department's privatization program has been central to
    achieving our housing goal of providing high-quality accommodations for
    military families much sooner than would otherwise be possible. By the
    end of fiscal year 2007, the Department will have privatized 186,000
    family housing units.

                      BASE REALIGNMENT AND CLOSURE (BRAC)

        The fiscal year 2007 budget provides $5.6 billion to implement the
    decisions of the 2005 Base Realignment and Closure Commission.
        Those decisions, which became law on November 9, 2005, support
    several of the Department's goals including: force transformation; a
    rebasing of our forces to address new threats, strategy, and force
    protection concerns; the consolidation of business-oriented support
    functions; and the promotion of joint and multi-Service basing.

                                    CLOSING

        Madam Chairman, I thank you for this opportunity to describe these
    components of the President's budget for fiscal year 2007. These funds
    will enhance the well being of our service members and their families,
    strongly support current requirements and missions, and provide needed
    streamlining and recapitalization of DOD facilities. I urge the
    Committee's support for the President's request.
        Thank you.

        Senator Hutchison. Thank you. I will say I have read your
    opening statements, so that might be why I was not focusing on
    your giving them. But I do want it to be a part of the record,
    so please, Mr. Secretary.

                          STATEMENT OF PHILIP W. GRONE

        Mr. Grone. Madam Chairman, I will likewise be brief and
    will also submit both the written and the oral statement for
    the record. I do want to make a couple of points, if I might.
        You spoke of the robustness of budget request in general
    terms, but also spoke about the condition of facilities. I
    think it is important to point out that the budget request
    supports a facilities recapitalization rate of 72 years, which
    nearly achieves the Department's goal of a 67-year
    recapitalization rate cycle for our real property assets. In
    2001 that rate stood at 192 years. So with the assistance of
    the Congress, we have brought our regular program very much
    with BRAC and with other investments here we are making to
    improve assets generally; and while we still have a lot of work
    to do, we are making significant progress with the support of
    this subcommittee.
        You also spoke about, you and Senator Feinstein both spoke
    about, the importance of military housing privatization and
    certainly that remains a central part of our overall strategy
    to improve the quality of life for servicemen and women and
    their families. In the end state we expect about 89 percent of
    the Department's military family housing inventory to be
    privatized, and the response we are getting from a perspective
    of competition, new entrants to the market, we are very
    satisfied with what we are seeing in the market in terms of
    interrelationship with the services and I hope we will have an
    opportunity to explore some of the thoughts Senator Feinstein
    had in her opening remarks as we continue this afternoon.
        With regard to BRAC, it's important to point out a couple
    of points. First, as you know, we are going to carry out 25
    major base closures, 24 major realignments, and over 760 other
    actions across the total force, active, guard, and reserve, as
    a result of the recommendations that are now law. That is
    nearly twice the number of actions undertaken in all prior
    rounds of BRAC combined. So this is an important and extensive
    effort at installation transformation that supports the mission
    transformation of the armed forces.
        Importantly in that regard, 40 percent of the
    recommendations affect more than one component. So there is a
    high level of cross-service, inter-service joint activity that
    is deeply embedded in the BRAC recommendations that we must
    carry out. So too, as the chairman spoke of, our global posture
    efforts and BRAC are also linked in the return of forces from
    abroad to places like Fort Bliss, Fort Riley, Fort Carson, and
    other locations. It is critically important that we are able to
    proceed with the resources on the time and the schedule that we
    have laid out in order to accomplish everything that needs to
    be accomplished by September 15, 2011, which is the legal
    deadline.
        Importantly in relation to BRAC, because I know it is an
    interest of members, just last week we conducted our first
    comprehensive conference with communities that are affected by
    this round of BRAC, both those communities that will go through
    closure and downsizing as well as those communities that are
    going to grow as a result of realignment activities. We brought
    together nearly 950 people from across the country, members of
    the Federal inter-agency, a full array of the Department's
    assets, to begin to work with communities in a comprehensive
    way to plan both for the transition of assets to effective
    civilian economic reuse, as well as to plan for the future for
    those assets and those installations that are going to be
    enduring to the Department's mission over the long term.

                               PREPARED STATEMENT

        The investments that we have requested for BRAC are
    critical in that regard and we look forward to the support of
    the subcommittee and of the Senate for that request. In the
    end, we are working very hard, as both of you have indicated,
    working with you to reposition, reshape, and sustain our
    installations for the future, and we look forward to continuing
    to work with you to ensure that we can realize those objectives
    in the most cost efficient and effective way possible.
        Thank you, Madam Chairman.
        [The statement follows:]

                     Prepared Statement of Philip W. Grone

        Madam Chairman, Senator Feinstein, and distinguished members of the
    Subcommittee, I appreciate the opportunity to appear before you today
    to address the President's Budget request for fiscal year 2007 and the
    management approach the Department of Defense has undertaken to
    reposition, to reshape, and to sustain the Nation's military
    installation assets.
        In 2001, the Department issued its first ever Defense Facilities
    Strategic Plan. Three years later, in September 2004, a comprehensive,
    capabilities-based, and performance-oriented Defense Installations
    Strategic Plan was in place. The 2004 plan addressed recommendations
    made by the Government Accountability Office (GAO) and was approved by
    OMB as being consistent with the guiding principles of the Federal Real
    Property Council in meeting the objectives of the President's
    Management Agenda. An update in 2005 reflected ongoing efforts, recent
    progress, and the changes resulting from decisions that produced the
    fiscal year 2006 President's Budget. The next full issue of the plan
    will be published in the fall of 2006. This new plan will more fully
    integrate environmental management systems, safety, and occupational
    health into a comprehensive approach to asset management.
        For the past several years, the Department of Defense has been
    vigorous in its pro-active efforts in managing the Department's
    facilities and infrastructure. DOD's infrastructure investment strategy
    rigorously utilizes key metrics to provide the quality facilities that
    directly support mission and readiness. To that end, DOD developed
    advanced business processes that align more closely to warfighter
    mission area requirements. The rigor provided by these practices in
    planning, managing, and maintaining DOD installations improves overall
    efficiency while improving investment decision-making.
        The President's budget request for fiscal year 2007 will permit the
    Department to continue its efforts to manage installation assets
    comprehensively and efficiently. Along with continued improvement in
    business practices and a focus on environmental sustainability, the
    Department is improving the quality of military installations.
    Global Defense Posture Realignment
        While the Department addresses better business practices, it is
    also working to realign infrastructure to effectively address military
    transformation and 21st Century security challenges. The Defense
    posture of the past 50 years reflected the Cold War strategy, with
    United States. forces forward deployed primarily to fight near where
    they were based. Today's challenges require a more agile, faster, and
    leaner force that can project power into areas further from where they
    are based. This agility requires not only a shift in military forces,
    capabilities and equipment, but also a new strategy for United States
    global defense posture.
        In September 2004, the Department completed a 2-year comprehensive
    review of its global posture strategy. This review led to the most
    thorough restructuring of U.S. military forces overseas since the major
    elements of the U.S. Cold War posture were set in 1953. The new posture
    will enable the Department to respond more quickly to worldwide
    commitments and make better use of its capabilities.
        The Department has already begun the process of realigning or
    closing a number of large permanent bases in favor of small and more
    scalable installations better suited for rapid deployments. In July
    2005, the return of eleven Army bases in Germany was announced as part
    of the 1st Infantry Division headquarters' redeployment plan, scheduled
    to occur in the summer of this year. The United States signed an
    agreement with the Government of Romania in December 2005 that will
    allow access for U.S. forces to Romanian training facilities. The
    United States and Japan issued the Security Consultative Committee
    document entitled, ``U.S.-Japan Alliance: Transformation and
    Realignment for the Future,'' on October 29, 2005, outlining several
    initiatives, including posture realignments that will adapt the
    Alliance to today's regional and global security environment. In Korea,
    we are working closely with our partner to implement the 2004 Amended
    Land Partnership Plan and the Yongsan Relocation Plan. These efforts
    are reshaping United States presence on the peninsula significantly in
    recognition of the Republic of Korea's increasing lead in the
    conventional defense of the ROK and the evolving role of U.S. forces.
        The Global Defense Posture realignment identified an overall plan
    for returning overseas forces back to military installations in the
    United States. This plan was integrated into the BRAC process regarding
    relocations from overseas to domestic bases during the prescribed BRAC
    time period. All Services factored requirements of returning forces
    into their domestic infrastructure requirements and this resulted in
    recommendations to accommodate forces at U.S. installations. Some
    overseas changes have already been implemented in accordance with
    ongoing Service transformation efforts and within the framework of
    negotiations with host nations. In many cases, the changes involve
    units that are inactivating or transforming with no significant BRAC
    impact. As we begin implementing the BRAC recommendations there are
    overseas changes still being developed or being phased to be
    implemented after the BRAC implementation period. DOD will continue to
    consult with Members of Congress on its plan and will seek your support
    as we implement these far-reaching and enduring changes to strengthen
    America's global defense posture.
    Base Realignment and Closure 2005
        The Department has effectively accounted for the domestic
    implications of the global posture review--with forces and personnel
    either returning to or moving forward from U.S. territory--within the
    BRAC decision-making process. Even though global posture changes will
    be executed over several years and will continue to be adjusted as
    strategic circumstances change, the Department will incorporate
    projected overseas posture changes into the BRAC implementation
    process.
        The 2005 Base Realignment and Closure (BRAC) process was designed
    to rationalize the Department's base infrastructure within the United
    States in support of the Department's long-term strategic capabilities.
    The Department's BRAC process addressed five key goals:
      --Transforming the current and future force and its support systems
            to meet new threats,
      --Eliminating excess physical capacity,
      --Rationalizing the base infrastructure with defense strategy,
      --Maximizing both warfighting capability and efficiency; and
      --Examining opportunities for joint activities.
        The Secretary of Defense transmitted his recommended closures and
    realignments to the 2005 Defense Base Closure and Realignment
    Commission and to the Congress on May 13, 2005, and published them in
    the Federal Register on May 16, 2005, pursuant to Public Law 101-510,
    as amended. The recommendations strengthen national security by
    reshaping the domestic installations at which U.S. military forces
    perform their assigned missions and aligns the Department's base
    structure with the force structure that is expected to be needed over
    the next 20 years, an unprecedented long view. Additionally, the
    recommendations accommodate the Department's global reposturing of its
    forces; facilitate the ongoing transformation of U.S. forces to meet
    the challenges and opportunities of the 21st Century; and restructure
    important support functions to capitalize on advances in technology and
    business practices.
        The BRAC Commission reviewed the 222 recommendations submitted by
    the Secretary and accepted, without change, about 65 percent. The
    Commission's resulting recommendations will affect over 800 locations
    through 25 major closures, 24 major realignments, and 765 lesser
    actions. On November 9, 2005, the Department became legally obligated
    to close and realign all installations so recommended in the
    Commission's report to the President because the President accepted
    those recommendations and the congressional review period lapsed
    without enacting a resolution of disapproval. Although these
    recommendations are estimated to save the Department tens of billions
    of dollars over 20 years and significant amounts annually after
    implementation, the investment needed to support the transformation of
    domestic military infrastructure in support of the Total Force is
    substantial--estimated, based on our COBRA-based assessment of the
    Commission's actions, at $22.8 billion.
    BRAC Implementation
        The large number of transformation recommendations, particularly
    recommendations to establish joint operations, present significant
    implementation challenges. To meet these challenges, the Department
    initiated a process to develop Business Plans that lay out the
    requisite actions, timing of those actions, and associated costs and
    savings associated with implementing each recommendation. The Business
    Plans will serve as the high level foundation for the complex program
    management necessary to ensure BRAC 2005 recommendations are
    implemented efficiently and effectively.
        The Department recently delivered its report describing the
    specific programs, projects, and activities for the $1.46 billion
    appropriated in fiscal year 2006 to begin implementing the BRAC
    recommendations. This initial spending plan will begin the planning and
    design and environmental studies that serve as the foundation for
    constructing and renovating facilities to accommodate missions at
    receiving sites. For fiscal year 2007, the Department is requesting
    $5.62 billion for BRAC 2005 implementation and $191.22 million for
    previous rounds.
        The Department recognizes it has an obligation to assist
    communities affected by BRAC 2005; communities that have an honored
    heritage of support to the Armed Forces. The Defense Economic
    Adjustment Program will continue to assist communities to plan for the
    civilian redevelopment of available real and personal property; and
    implement local adjustment actions to assist impacted workers,
    businesses, and other affected community interests. The Department
    actively partners with affected communities as we both seek
    opportunities for quick civilian reuse of former military
    installations. For communities engaged with installations that will
    receive new missions, the Department also recognizes the importance of
    ensuring communities have the capacity to support the Defense mission
    with adequate planning, housing, education, infrastructure, and
    community services, and the Department is working with these
    communities to enhance their ability to support DOD installations and
    our men and women in uniform. To facilitate these actions, resources
    from 22 Federal Agencies have been drawn together through the
    coordination of the Economic Adjustment Committee (EAC). The Secretary
    of Defense, through the DUSD (I&E), chairs the EAC. Secretaries of
    Commerce and Labor, through their designees, are Co-Vice Chairs. For
    these purposes, the budget request contains $60 million for the
    Department's Office of Economic Adjustment to enable affected
    communities to plan and carry out adjustment strategies, engage the
    private sector in ventures to plan and undertake economic and base
    redevelopment, and partner with the Military Departments as they
    implement BRAC actions. An important milestone took place last week in
    Atlanta, GA, as the Department held the OSD/Military/Community
    Conference that brought together hundreds of State and local
    representatives of BRAC 05 communities to obtain information from OSD
    and Military Service representatives regarding BRAC implementation.
    Managing Infrastructure
        Managing DOD real property assets is an integral part of
    comprehensive asset management. The Department currently manages nearly
    507,000 buildings and structures with a plant replacement value of over
    $650 billion, and more than 46,000 square miles of real estate.
        The quality of infrastructure directly affects training and
    readiness. To that end, the Department is incorporating installations
    more fully into the Defense Readiness Reporting System. This will allow
    us to measure the capability of defense installations and facilities
    and other elements of our infrastructure to provide appropriate support
    to forces in the conduct of their wartime missions. To better manage
    infrastructure investments, the Department developed models and metrics
    to predict funding needs: Sustainment and Recapitalization.
        Facilities sustainment provides funds for maintenance and major
    repairs or replacement of facility components that are expected to
    occur periodically throughout the life cycle of facilities. Sustainment
    prevents deterioration, maintains safety, and preserves performance
    over the life of a facility. To forecast funding requirements, DOD
    developed the Facilities Sustainment Model using standard benchmarks
    for sustainment unit costs by facility type (such as cost per square
    foot of barracks) drawn from the private and public sectors. This model
    has been used to develop the Service budgets since fiscal year 2002 and
    for several Defense Agencies since fiscal year 2004. On January 24,
    2006, DOD joined 16 other Federal agencies in signing a Memorandum of
    Understanding (MOU) for Federal Leadership in High Performance and
    Sustainable Buildings. The MOU indicates a commitment to incorporate
    sustainable design principles through a comprehensive approach to
    infrastructure management.
        Full funding of facilities sustainment has been and continues to be
    the foundation of long-term facilities strategy and goal. In fiscal
    year 2006, the Department-wide sustainment funding rate is 92 percent.
    In balancing risk across the Department's program, the fiscal year 2007
    budget request reflects a slight decrease in the department-wide
    sustainment funding rate to 90 percent. Our long term goal remains a
    department-wide sustainment funding rate of 100 percent to optimize our
    investment in facilities.
        Recapitalization, which includes restoration and modernization,
    provides resources for improving facilities, and is the second element
    of our facilities strategy. Recapitalization is funded primarily with
    either operations and maintenance or military construction
    appropriations. Restoration includes repair and replacement work to
    restore facilities damaged by inadequate sustainment, excessive age,
    natural disaster, fire, accident, or other causes. Modernization
    includes alteration of facilities solely to implement new or higher
    standards, to accommodate new functions, or to replace building
    components that typically last more than 50 years.
        Similar private sector industries replace their facilities every 50
    years, on average. The current DOD goal is 67 years, based upon an
    assessment of the Department's inventory in the late 1990's. In fiscal
    year 2001, the Department's recapitalization rate was 192 years. This
    budget request supports a recapitalization rate of 72 years, and
    includes investments associated with BRAC and Global Defense Posture
    realignment. The Defense Department remains committed to achieving a
    rate of investment in facilities recapitalization that will improve,
    modernize, and restore its facilities consistent with expected future
    service lives. Currently, DOD is in the process of developing and
    fielding a new recapitalization model for assessing the replacement
    cycle that will improve upon the existing recapitalization metric
    through the inclusion of depreciation schedules and other benchmark
    improvements.

                    SUSTAINMENT AND RECAPITALIZATION REQUEST
                   [President's budget in millions of dollars]
    ------------------------------------------------------------------------
                                                        Fiscal year
                                             -------------------------------
                                               2006 Request    2007 Request
    ------------------------------------------------------------------------
    Sustainment (O&M-like) \1\..............           6,529           6,267
    Restoration and Modernization (O&M-like)           1,008             984
     \1\....................................
    Restoration and Modernization (MilCon)..           3,474           6,093
                                             -------------------------------
          Total SRM.........................          11,011         13,344
    ------------------------------------------------------------------------
    \1\ Includes O&M as well as related military personnel, host nation, and
      working capital funds.

        In 1998, the Department undertook a 6-year program to eliminate 80
    million square feet of obsolete and excess facilities. Six years later,
    DOD concluded that effort by exceeding its target--removing a total of
    86 million square feet. In a continuation of that effort, the
    Department completed a survey of disposal requirements in December
    2004. Based on that survey, the military services and selected Defense
    agencies have established new targets to rid the Department of an
    additional 50 million square feet of unneeded facilities by the year
    2013. These demolition targets are not included as part of BRAC
    disposal.
        The Department has established a common definition for Facilities
    Operation, formerly referred to as ``Real Property Services.'' The
    budget request includes $6.06 billion for this program, to address
    utilities, leases, custodial services, ground maintenance, and other
    related functions. A prototype model for Facilities Operation will be
    fielded in the coming year.
    Installations Support
        The Defense Installations Strategic Plan articulates the need to
    define common standards and performance metrics for managing
    installation support. Our objective is to introduce capabilities-based
    programming and budgeting within a framework for the Common Delivery of
    Installations Support framework which will link installation support
    capabilities to warfighter requirements. To that end, we are developing
    common definitions for Facilities Operation.
        The Common Delivery of Installations Support will form the basis
    for implementing guidance for twelve Joint Base sites identified in
    BRAC 2005. Guidance for implementing Joint Basing is being developed in
    coordination with the Military Components and using input from
    installation level leadership.
        During the past year, DOD made significant progress toward
    developing Common Output Level Standards for all other functions of
    Installations Support to include Environment, Family Housing Operations
    and Services, which were formerly knows as Base Operations Support.
    This effort is yielding common definitions and tiered performance
    output levels. These metrics are currently being further refined and a
    costing model initiative will soon be underway.
        The Military Construction appropriation is a significant source of
    facilities investment funding. The fiscal year 2007 Defense Military
    Construction and Family Housing appropriation request totals $16.7
    billion. This budget request will enable the Department to rapidly
    respond to warfighter requirements, enhance mission readiness, and
    provide for our people. This is done, in part, by restoring and
    modernizing enduring facilities, acquiring new facilities where needed,
    and eliminating those that are excess or obsolete.

         COMPARISON OF MILITARY CONSTRUCTION AND FAMILY HOUSING REQUESTS
          [President's budget in millions of dollars--budget authority]
    ------------------------------------------------------------------------
                                                Fiscal year
                                                   2006         Fiscal year
                                               appropriation   2007 request
    ------------------------------------------------------------------------
    Military Construction...................           6,161           6,385
    NATO Security Investment Program........             177             221
    Base Realignment and Closure IV.........             255             191
    Base Realignment and Closure 2005.......           1,504           5,626
    Family Housing Construction/Improvements           1,811           2,092
    Family Housing Operations & Maintenance.           2,206           1,990
    Chemical Demilitarization...............  ..............             131
    Family Housing Improvement Fund.........               3               3
    Energy Conservation Investment Program..              50              60
                                             -------------------------------
          Total.............................          12,167          16,698
    ------------------------------------------------------------------------

    Housing Revitalization
        At the outset of this Administration, the President and Secretary
    Rumsfeld identified elimination of inadequate family housing and
    revitalizing housing, largely through privatization, as a central
    priority for the Department. An aggressive target of 2007 was
    established to meet that goal. The Administration has relied on three
    pillars to improve housing thereby, enhancing the quality of life for
    our Service members: (1) Provide the basic allowance for housing (BAH)
    at zero-out-of-pocket expense for the average Service member living in
    private sector housing (achieved in 2005, now maintaining); (2)
    Privatization of family housing, where feasible; and, (3) Military
    Construction funding for all other domestic and all overseas locations.
    Sustaining the quality of life for our military families is vital to
    recruitment, retention, readiness, and morale.
        Through the expanded use of the privatization authorities granted
    under the fiscal year 1996 Military Housing Privatization Initiative,
    the Department has achieved the elimination of inadequate housing at
    U.S. based installations where those authorities apply. The fiscal year
    2007 budget funds elimination of all inadequate domestic family housing
    by 2007, and eliminates remaining inadequate houses overseas by 2009.
        The Department relies on a ``community first'' (private sector)
    policy to provide quality housing to its members and their families.
    Only when the private market demonstrates that it cannot supply
    sufficient levels of quality, affordable housing does the Department
    provide housing to our military families; first through the use of
    privatization, and where that is not feasible through government-owned
    and leased housing. For example, in the absence of privatization
    authorities overseas, we address our housing needs there through
    military construction and leasing.
        To ensure the Department is making the best investment decisions
    when determining the appropriate level of housing, the government
    provides a single and consistent methodology for calculating its
    housing requirement. This methodology was introduced in January 2003
    and is being utilized extensively by the Services. Currently, 75
    percent of military families living in CONUS, Alaska, and Hawaii
    receive Basic Allowance for Housing (BAH) (with 60 percent living in
    the local community, and 15 percent in privatized housing). An
    additional 22 percent of our military families are provided government-
    owned housing and 3 percent live in leased housing.
        The Department has skillfully used privatization to more quickly
    eliminate inadequate housing and to provide additional housing where
    shortfalls existed. As of May 2006, the Department has awarded 60
    privatization projects. This includes over 124,000 military family
    housing units privatized. The total number of units privatized has
    increased by more than 35 percent, over this same time last year. DOD
    policy requires that privatization yield at least 3 times the amount of
    housing as traditional military construction for the same amount of
    appropriated dollars. The 60 awarded projects have permitted the
    Department, in partnership with the private sector, to provide housing
    for about $1.2 billion in military construction investment. The same
    level of construction activity would otherwise have required over $14
    billion if the traditional military construction approach was utilized.
    This reflects an average ratio of over 14 to 1, well exceeding program
    expectations.
        Additionally, the private sector's cumulative contribution to the
    60 awarded deals totals over 90 percent of the $14 billion in total
    project costs. Prudent business practice requires the private sector to
    be committed to each project with a significant financial investment in
    the project's ultimate success. The Services have funded the remaining
    $1.2 billion in development costs primarily through equity investment
    or government direct loans. (The Total Project Funding graph (Enclosure
    1) depicts the cumulative total contribution of the private sector and
    government.)
        The Department's privatization plans in the fiscal year 2007 budget
    will ultimately result in the privatization of 87 percent of its
    domestic family housing inventory, or roughly 186,000 units privatized
    by the end of fiscal year 2007. By the end of fiscal year 2006, we will
    have privatized 153,000 housing units. The overall goal is to privatize
    89 percent of the domestic housing inventory or about 195,000 housing
    units by the end of fiscal year 2010.
        For fiscal year 2007, the Department requests $4.081 billion in new
    budget authority for family housing construction and operations and
    maintenance:
      --$1.94 billion to construct 3,073 new/replacement units and improve
            3,330 existing units.
      --$1.99 billion to operate and maintain approximately 95,052
            government-owned family housing units, and lease another 25,935
            units worldwide.
        Funding to support the privatization of family housing is
    programmed and budgeted in the family housing construction
    appropriations and is transferred to the DOD Family Housing Improvement
    Fund (FHIF) when the privatization projects are executed. The fiscal
    year 2007 construction account requests a total of $154 million in
    funding for privatization. This amount, anticipated to be transferred
    to the Family Housing Improvement Fund during fiscal year 2007 along
    with $261 million in previously appropriated construction funds. This
    $415 million will be used to finance the privatization of approximately
    32,377 units.
    Competitive Sourcing
        The Department of Defense continues to strongly support the
    President's Management Agenda Initiative for Competitive Sourcing.
    Introducing private sector competition into commercial functions
    performed by the Department improves business efficiency and reduces
    cost to the taxpayer. Public/private competitions using the procedures
    of OMB Circular A-76 have demonstrated substantial savings whether the
    in-house or private sector wins the competition. During the fiscal
    years 2000 through 2005, the Department completed 848 such competitions
    encompassing about 87,018 positions. These competitions will have
    resulted in over $10 billion in savings (cost avoidance) over the life
    of the resulting performance periods, normally about 5 years. The
    Department currently has an additional 2,800 positions undergoing
    competition and expects to increase competitions in fiscal year 2006.
        These new competitions use the procedures of the revised OMB
    Circular A-76, which evaluates public and private proposals
    concurrently using the Federal Acquisition Regulations. As the
    Department's designated Competitive Sourcing Official (CSO), my office
    is working to improve the competition process. For example,
    competitions that used to take up to 48 months to complete should now
    be completed in as little as 12 months. Such improvements will reduce
    stress on our workforce and will make savings available earlier to
    reinvest in priorities for our war fighters.
    Utilities Privatization and Energy Management
        The Department seeks to reduce its energy consumption and
    associated costs, while improving utility system reliability and
    safety. To that end, DOD developed a comprehensive energy strategy and
    issued updated policy guidance incorporating the new provisions and
    goals of the Energy Policy Act of 2005. This strategy will continue to
    optimize utility management by conserving energy and water usage,
    improve energy flexibility by taking advantage of restructured energy
    commodity markets when opportunities present themselves, and modernize
    our infrastructure by privatizing deteriorated and outdated utilities
    infrastructure where economically feasible.
        DOD, as the largest single energy consumer in the Nation, consumed
    over $2.97 billion of facility energy in fiscal year 2005. Conserving
    energy and investing in energy reduction measures makes good business
    sense and frees up resources for higher DOD priorities, such as
    readiness and modernization. Our program includes investments in cost-
    effective renewable energy sources or energy efficient construction
    designs, and aggregating bargaining power among regions and the
    Services to achieve more effective buying power.
        The Department's efforts to conserve energy are paying off. In
    fiscal year 2005, military installations reduced consumption by 3.3
    percent despite a 6 percent increase in the cost of energy commodities
    from fiscal year 2004. With a 28.3 percent reduction in standard
    building energy consumption in fiscal year 2005 from a 1985 baseline,
    the Department fell just short of the 2005 and 2010 facility energy
    reduction goals stipulated by E.O. 13123 (see Energy Progress Chart,
    Enclosure 2). This is mostly attributable to the lapse of Energy
    Savings Performance Contract (ESPC) authority in fiscal year 2004.
    Energy conservation projects accomplished through ESPC contracts
    typically account for more than half of all facility energy savings.
    However, with ESPC authority reauthorized in the fiscal year 2005
    National Defense Authorization Act and extended for an additional 10
    years in the Energy Policy Act of 2005, DOD has launched an aggressive
    awareness campaign and is well on its way to meeting the new goals
    established in the Energy Policy Act of 2005. DOD reduced energy
    consumption in energy intensive and industrial facilities by 21.6
    percent from the 1990 baseline, exceeding the 20 percent goal of E.O.
    13123 (See Energy Progress Chart, Enclosure 3).
        DOD has significantly increased its focus on purchasing renewable
    energy and developing resources on military installations. The
    Department has increased the use of Energy Conservation Investment
    Program (ECIP) funds for renewable energy projects from $5 million and
    $11 million in fiscal year 2003 and fiscal year 2004, respectively, to
    $13 million in fiscal year 2005, $17 million in fiscal year 2006, and
    $17 million in fiscal year 2007. The fiscal year 2007 program for ECIP
    also contains $2.6 million in hydrogen fuel cell projects. The
    Department easily exceeded the E.O. 13123 renewable energy goal of 2.5
    percent in fiscal year 2005. The Department's total renewable energy
    purchases and generation accounted for 8.3 percent of all electricity
    use. Also, while E.O. 13123 did not articulate a specific water
    reduction goal, the Department has saved an impressive 28.3 percent
    since the fiscal year 2000 baseline year.
        To improve utility systems, the Department has reaffirmed its
    preference to modernize military utility systems through privatization.
    The DOD Utilities Privatization Program has made solid progress over
    the past 2 years. The Services have greatly simplified and standardized
    the solicitation process for obtaining industry proposals. Of 2,601
    utility systems serving the DOD, the Department has privatized 512
    systems. When taken together with the 736 systems that were already
    owned by other entities, that reflects a significant portion of systems
    serving the Department that benefit from private sector ownership. Over
    475 additional systems are currently under evaluation as each Service
    and the Defense Logistic Agency continue aggressive efforts to reach
    privatization decisions on all systems.
    Environmental Management
        The Defense Department continues to lead in every aspect of
    environmental management. The Department is proud of and committed to
    its environmental program in support of the global basing mission.
    Developing natural infrastructure capacity tools and models for
    installation planning and sustainment is a priority.
    Environmental Management Systems
        DOD is implementing environmental management systems (EMS) as
    required by Executive Order 13148 at all appropriate facilities, except
    for six installations affected by hurricane Katrina. This
    transformation embeds environmental management as a systematic process,
    fully integrated with mission planning and sustainment and is essential
    for continued successful operations at home and abroad. Implementing
    EMS will help preserve range and operational capabilities by creating a
    long-term, comprehensive program to sustain capability while
    maintaining healthy ecosystems.

                  ENVIRONMENTAL PROGRAM--SUMMARY OF REQUEST \1\
          [President's budget in millions of dollars--budget authority]
    ------------------------------------------------------------------------
                                                        Fiscal year
                                             -------------------------------
                                               2006 request    2007 request
    ------------------------------------------------------------------------
    Environmental Restoration...............           1,370           1,403
    BRAC Environmental \2\..................             449             553
    Compliance..............................           1,561           1,527
    Pollution Prevention....................             143             128
    Conservation............................             205             195
    Technology..............................             206             200
    International \3\.......................               3               3
                                             -------------------------------
          Total.............................           3.934           4.006
    ------------------------------------------------------------------------
    \1\ Includes operations & maintenance, procurement, RDT&E, and military
      construction funding.
    \2\ Funding levels reflect total requirement.
    \2\ International is included in Pollution Prevention and Compliance.

        For fiscal year 2007, DOD's budget request includes $4.006 billion
    for environmental programs. This includes $1.403 billion for cleanup,
    $0.553 billion for BRAC environmental, $1.527 billion for compliance;
    about $0.1 billion for pollution prevention, and about $0.2 billion
    each for conservation and environmental technology.
    Managing Cleanup
        The Department is committed to cleaning up property that, as the
    result of past military activities, is contaminated with hazardous
    substances, pollutants, or military munitions. DOD has achieved
    ``remedy in place'' or ``restoration complete'' status at 78 percent
    (16,591 out of 21,192) of its contamination sites on active
    installations. As of the end of fiscal year 2005, 83 percent (4,287 out
    of the 5,183) of the contamination sites at BRAC locations closed or
    realigned by the first four rounds of BRAC have a cleanup remedy
    constructed and in place and operating successfully, or have had all
    necessary cleanup actions completed in accordance with Comprehensive
    Environmental Response, Compensation, and Liability Act (CERCLA)
    standards.
        Hazardous waste cleanup at Formerly Used Defense Sites (FUDS) has
    achieved ``remedy in place'' or ``restoration complete'' status at 49
    percent (2,263 out of the 4,668) of known sites.
    Leading Compliance through Pollution Prevention
        The Department continues its commitment to going beyond compliance
    in executing its environmental initiatives. Using compliance as the
    baseline the Department has instituted processes that effectively and
    efficiently execute compliance using pollution prevention (P2)
    strategies and focusing on sustaining the warfighter mission. The
    Department issued DOD Directive 4715.1E on Environment, Safety, and
    Occupational Health (ESOH) Management, delineating policies and
    responsibilities that enable the Department to invest in initiatives
    that support mission accomplishment, enhance readiness, reduce future
    funding needs, prevent pollution, prevent illness and injury, and
    ensure cost-effective compliance.
        One example is the Department's risk management approach to
    integrating ESOH considerations into systems acquisitions. DOD
    successfully integrated MIL-STD 882D (Standard Practice for System
    Safety) into the acquisition process to ensure that Program Managers
    identify know their ESOH risks and take the measures necessary to
    manage or mitigate those risks early in the design process, reducing
    environmental burdens and mission impacts throughout the life-cycle of
    the system.
        Another example is the DOD Green Procurement Program. The DOD Green
    Procurement Program was established to ensure DOD compliance with
    Federally mandated green procurement programs, yet DOD enlarged its
    program to consider such factors as energy use, conservation of
    resources, price, performance, and safety to support both DOD's mission
    and protection of the environment. DOD demonstrated its commitment to
    going beyond mere compliance by signing the Federal Agency Memorandum
    of Understanding on electronic stewardship; actively participating in
    the Federal Electronics Challenge; and participating in the Green
    Suppliers Network to incorporate process, energy, and material
    efficiencies into the supply chain--all of which can lead to
    substantial environmental benefits and reductions in costs.
    Range Sustainment
        The sustainability of military installations, particularly testing
    and training ranges, is critically important to readiness. The often
    accelerating pace of development in the vicinity of our installations
    and ranges poses ongoing challenges and leads to secondary effects
    including loss of habitat for endangered species; more noise complaints
    from new neighbors; diminished usable airspace due to new structures or
    increased civil aviation; and a compromised ability to test and train
    with the frequency resources needed in time of war.
        Exacerbating the encroachment challenge, the demands of the
    military mission are not static in nature and a number of factors are
    changing the way the Department will need to test and train in the
    future. Upcoming mission adjustments and relocations associated with
    the recent BRAC decisions and the return of large numbers of troops and
    their families to bases in the United States as a part of global
    rebasing will require expanded training opportunities and place a
    growing demand on receiving installations. And the integration of
    training opportunities necessary to satisfy joint mission requirements,
    combined with the increasing testing and training battlespace needs of
    new weapons systems and evolving tactics associated with force
    transformation, point to a military need for more, rather than less
    range space. The confluence of these competing trends makes it clear
    that encroachment remains a powerful challenge to military readiness,
    and requires a comprehensive and continuing response.
        Sustainable Ranges Initiative.--The White House Conference on
    Cooperative Conservation, held last summer in St. Louis, Missouri,
    brought together land managers and conservation advocates from Federal
    agencies, states, academia, and industry to look for a new path towards
    collaborative conservation of the Nation's natural resources.
        Consistent with its desire to balance its duty to conduct life-
    saving military training with its stewardship responsibilities, the
    Department has been very active in its efforts to mitigate encroachment
    effects and to ensure the long-term sustainability of both its military
    test and training missions and the natural resources entrusted to DOD's
    care. In 2006, DOD's range sustainment initiative will focus on
    addressing emerging encroachment issues and taking advantage of
    opportunities to extend our outreach and partnering gains. At the same
    time, DOD will build on past efforts to institutionalize capabilities,
    tools, and processes that will support range sustainment goals well
    into the future.
      --Conservation Partnering and Buffer Program Expansion.--
            Congressional support for DOD's Readiness and Environmental
            Protection Initiative has enabled DOD to establish an effective
            and growing program to partner with conservation entities to
            protect key lands in the vicinity of military ranges that offer
            the dual promise of preserving natural resource values and
            allowing more flexible use of DOD lands inside the fence line.
            In 2005, the first year of this funded program, DOD used the
            $11.5 millions appropriated by Congress to execute a number of
            landmark conservation buffer projects near Army and Marine
            Corps ranges and installations. Buffering successes at Fort
            Carson, CO; Marine Corps Base Camp Lejeune, NC; and the Navy's
            La Posta Mountain Warfare Training Facility, CA, are notable
            2005 program accomplishments. Congress has allocated $37
            million to expand the Conservation partnering program in fiscal
            year 2006. Projects are still being finalized, but will include
            a significantly greater number of projects supporting Army,
            Marine, and Navy buffering priorities across the United States.
      --Regional Partnering Initiatives.--In 2005, the Department
            participated in a pilot partnership effort called the Southeast
            Regional Partnership for Planning and Sustainability, or
            SERPPAS. Teaming Service flag officers with leaders from the
            State governments of Florida, Georgia, South Carolina, and
            North Carolina, this effort has demonstrated potential as a
            vehicle for effective communication and joint action to
            identify issues and implement solutions of mutual benefit to
            the partners. This pilot offers promise not only in the
            Southeast, but as a model for regional action elsewhere.
      --Range Assessments.--Military use of munitions on its ranges is an
            elemental aspect of effective testing and training. However, to
            ensure that the effects of our ongoing and legacy use of
            munitions do not harm public health or the environment, DOD is
            actively assessing all its ranges to ensure there is no off-
            range migration of munitions' constituents into surrounding
            lands or waters.
    Warfighter Support through Safety and Health
         The Nation's leading businesses see the prevention of injuries and
    illnesses as a core business value that reduces human, social,
    financial, and productivity costs and improves the bottom line. DOD
    also has a bottom line: operational readiness.
        The Department's efforts to integrate safety and health into every
    aspect of the mission, gives commanders the flexibility they need to
    make informed risk decisions--decisions that enable them to eliminate,
    modify, or accept risks based on the situation they are encountering.
    In March of 2005 DOD published policy requiring safety and occupational
    health management systems at all management levels. This industry
    proven approach horizontally integrates safety across all of our
    business areas. The Department is accelerating this initiative by
    partnering with the DSOC (Defense Safety Oversight Council) to
    establish a Center of Excellence to help installations achieve OSHA VPP
    (Voluntary Protection Program) recognition. DOD has also issued policy
    to include Military Flight Operations Quality Assurance. This process,
    gives pilots the ability to ``review the game tape'' of virtually every
    mission they fly and identify potentially dangerous tendencies that can
    be corrected before they become habits.
        The Department is also transforming explosives safety. The
    Department of Defense Explosives Safety Board (DDESB) continually
    assesses and improves explosives safety throughout the ammunition and
    explosives life cycle, proactively seeking early awareness and
    consideration of explosive safety in operational and contingency
    planning activities. This year DOD updated its policy to assist
    commanders in making informed risk decisions involving explosives while
    ensuring maximum operational capabilities and the protection of
    personnel, property, and the environment from the damaging effects of
    explosives.
    Integrating the Business Enterprise
        As our Nation's security challenges become more complex, our
    military must become an increasingly agile joint force that is dominant
    across the full spectrum of operations. The highly flexible, yet
    precise, Armed Forces of the 21st Century require an equally flexible
    and responsive business and financial support infrastructure that can
    adapt to rapidly changing conditions in both peace and war. Defense
    Business Transformation is being driven by a series of strategic
    objectives, which include: supporting a joint warfighting capability;
    enabling rapid access to information for strategic decisions; reducing
    the cost of Defense business operations; and improving the financial
    stewardship of assets.
        To support the Department's process of identifying joint needs,
    analyzing capability gaps, and implementing improvements, the DOD
    Business Mission Area is aligned with the warfighting mission. This new
    unifying framework, documented in the DOD's roadmap for transformation,
    the Enterprise Transition Plan, is a capabilities and lifecycle-based
    approach to enterprise business planning and execution, and consists of
    five integrated Core Business Missions, or CBMs: Human Resources
    Management; Weapon System Lifecycle Management; Real Property &
    Installations Lifecycle Management; Material Supply & Service
    Management; and Financial Management. The Deputy Under Secretary of
    Defense (Installations & Environment) is the leader of the Real
    Property & Installations Lifecycle Management CBM. Working with the
    Military Components, considerable progress has been made in
    transforming business processes over the last 2 years.
        Last year, DOD completed a Business Process Reengineering (BPR)
    effort for managing the Department's real property inventory. The
    inventory reform effort will provide the DOD warfighter and business
    mission with relevant access to needed information on real property.
    The Services and Defense Agencies have begun to re-architect their
    business processes and systems to ensure that they will be able to
    comply with the standard business processes and data elements
    identified during the BPR. Together, these processes and data elements
    will enable greater visibility of real property assets and associated
    financial resources. The Department has also completed a thorough
    assessment of information systems that will support the inventory. The
    Military Components are developing plans for economic and timely
    investment in, and achievement of, this new information environment.
        In addition to the inventory, these efforts led to development of a
    site-unique identifier, or UID registry that will improve the
    visibility of our real property assets. The process of assigning a UID
    to sites has already begun. This year the registry effort will be
    expanded to address real property assets, such as facilities, runways,
    and piers. Ultimately, this registry will provide a link between real
    property resources and their locations to our warfighting and business
    personnel and the property they operate.
        Organizing the Department's extensive geospatial and imagery assets
    through the Defense Installation Spatial Data Infrastructure program,
    or DISDI, has enabled business transformation on many fronts. For
    example, the innovative use of commercial satellite imagery combined
    with locally validated mapping features significantly heightened the
    quality of the fiscal year 2005 Base Realignment and Closure, or BRAC,
    deliberations. During this first year of operations, DISDI saved more
    than $20 million across the business mission simply by sharing
    commercial satellite imagery across the Department. 2005 also saw DISDI
    completing the first worldwide inventory of geospatial assets. This, in
    turn, is enabling Defense-wide software licensing agreements which will
    reduce future software costs by more than 25 percent.
        Reengineering of environment, safety, and occupation health focused
    on two initiatives. First, DOD completed reengineering associated with
    recognizing, valuing, and reporting environmental liabilities, and
    created a standard data model for the majority of these liabilities.
    The Department will finish the remaining environmental liabilities this
    year, resulting in a complete, accurate, and visible inventory of
    environmental liabilities reconciled with asset records. Completion of
    this project will also eliminate a material weakness. Second, DOD began
    re-engineering the management of hazardous materials throughout the
    Department. Although the Services and Agencies handle many hazardous
    materials, different processes are in place to manage the products and
    their support information. These reengineering efforts are designed to
    eliminate the costly, redundant, and ultimately unsafe practices
    associated with these multiple processes.
        The Department's plans for this fiscal year, also documented in the
    Enterprise Transition Plan, will see the continuation of the unique
    identification implementation through the continued population of the
    site registry. The DISDI program will complement the site registry
    development effort by accurately mapping the physical extent of DOD's
    sites, based on their legal descriptions. Of greater significance, the
    Department will build and deploy the infrastructure to manage asset
    UIDs, and begin the process of assigning them to facilities in our
    portfolio. In addition, two new reengineering efforts will be
    undertaken, focusing on construction in progress and explosives safety
    management.
    Conclusion
        In closing, Madam Chairman, I sincerely thank you for this
    opportunity to highlight our successes and outline our plans for the
    future. I appreciate your continued support of our installations and
    environment portfolio, and I look forward to working with you as we
    transform our plans into actions.

        Senator Hutchison. Thank you.
        Now, I will open with my questions on what seems to be a
    slow start, at least, in providing for the people who are going
    to be adding, as opposed to obviously you do need to take care
    of the people that are being subtracted from. But can you tell
    me how you are going to deal with people who are scheduled to
    be coming in and are not having the facilities for them and
    what are you doing to address that?
        Mr. Grone. Well, we are addressing that through our
    planning process. The planning process that we undertook,
    keeping in mind given where we are now in May 2006, the
    recommendations became law in November, our first Congressional
    appropriation was secured in December. In the intervening
    months we have gone about a fairly robust planning scenario for
    the execution, particularly for those moves that are involved
    in the fiscal 2006-fiscal 2007 timeframe. We have a number of
    critical approved business plans, and certainly for the Army,
    for everything that has been requested and appropriated for
    fiscal 2006, as well as for those things we are working through
    in fiscal 2007.
        We have business plans and a planning process that can
    begin to lay out the schedule and the expenditure of those
    funds. I fully expect that we are going to obligate all of the
    fiscal year 2006 money by the end of the fiscal year, based on
    what I know today. Certainly the fiscal year 2007 funds are
    critical in that regard as well.
        From a community perspective, the Army and the components
    are engaged, but particularly the Army, in a fairly intensive
    dialogue with local communities. It is important that we have
    facilities in place, ready to receive forces, with a minimal
    use of temporary facilities. We do not want temporary
    facilities to be the permanent solution. But we are also
    working critically with local communities, particularly in West
    Texas, but certainly not exclusively in West Texas, on key
    questions involving housing, schools, transportation, and the
    like. We believe that we have a very good handle working with
    the community there on what the needs are and how we might sort
    of tier that so that we schedule the moves in such a way that
    we can take the maximum use of the time that we have, the
    resources that we have, but parallel that with a community
    planning process which is very important to our overall
    success.
        Senator Hutchison. Well, I think we need to--I hope that
    you are going to be really carefully looking at that and
    monitoring it, because there are concerns.
        Secretary Jonas, your budget request for the NATO security
    investment program is up 25 percent from last year's enacted
    levels. Could you explain why there is such a large increase?
        Ms. Jonas. I will. My understanding of the increase of $14
    million is due to missions associated with Iraq and
    Afghanistan. Phil may be able to clarify further on those
    points, but that is my understanding of the increase over the
    enacted level.
        My understanding is that a number of projects of the
    funding is to support the infrastructure program are also not
    just for the standard infrastructure that we require for the
    capability packages that we build inherently, but also for
    those things that are needed to stand up and help stand up the
    NATO response force as a long-term NATO investment in alliance-
    wide security. We can certainly provide for the subcommittee in
    whatever level of detail is required the assumptions for that,
    for that increase.
        But in order to ensure that the alliance continues with its
    ongoing transformational activity to meet ongoing needs, needs
    of the United States and the allies for infrastructure, as well
    as to support the stand-up of the NATO response force, this was
    the level of funding that was judged to be necessary to support
    that. But certainly we can provide whatever else is necessary
    to help you with that.
        [The information follows:]

        NATO has substantially increased the amount of funds to support
    operations and missions. The NATO operations and missions in
    Afghanistan, Iraq and the Balkans directly support the GWOT.
        Below are the NSIP expenditures for NATO Missions/Operations for
    2005 and prior and the estimated expenditures for 2006 and 2007. The
    NSIP expenditures have increased and are expected to continue to do so.
    The total operations and mission expenditures (NATO-wide) are:
      --2002--$53 million
      --2003--$61 million
      --2004--$77 million
      --2005--$108 million
      --2006--$143 million (estimated)
      --2007--$226 million (estimated)
        In addition to the above, we also anticipate substantial
    expenditures during 2007 for two capability packages to provide the
    deployable assets to support the NATO Response Force (NRF). The NRF is
    NATO's immediate reaction force with Notice to Move of 5 days (concept
    briefed to the Staffers in April) and would be the initial forces
    deployed for any new GWOT operations. The total NSIP estimated
    expenditures are $244 million for NRF deployable communications assets
    (recently approved) and $176 million for the NRF deployable facilities
    (this CP under review not yet approved) and the anticipated NSIP
    expenditure profile is as follows:
      --2007--$31 million
      --2008--$124 million
      --2009--$223 million
        NATO's contribution to coalition operations could allow the United
    States to draw down forces in Afghanistan by as many as 3,000.
    Additional U.S. forces in Afghanistan could transition from a war-
    fighting to a peacekeeping role.

        Senator Hutchison. Well, I would want to be assured that
    these facilities would be used for the war on terror, for Iraq
    and Afghanistan, because I think, while NATO is beginning to be
    more helpful in Afghanistan and somewhat in Iraq, it has been a
    slow start. I do not want to build a lot more infrastructure
    for NATO that does not go for our mutual threat. I consider the
    war on terror our mutual threat, but NATO has been perfectly
    willing to let America carry the major share of this burden.
        So what I would like is backup that in fact this is all
    going for Iraq and Afghanistan and the war on terror, which is
    legitimate and I am hopeful that NATO will take a major role.
    But if it is for more NATO facilities that are just European-
    based, then I would have a problem. So I would like that backup
    and assurance that it is for the war on terror.
        My last question to you, Ms. Jonas, is, I have been working
    with General Hobbins, commander of the U.S. Air Forces, Europe,
    to get the Air Force to pursue more creative options for
    housing around Spangdahlem, and particularly to get the German
    government to be more helpful. He tells me that they are
    working on getting extensions of loan guarantees on build-to-
    lease housing agreements that would go up to 15 years, to make
    build-to-lease more attractive to private developers. The
    German standards are very high. It is very expensive. I have
    talked to General Hobbins on several occasions about it, as
    well as General Jones.
        I just want to ask you if you are also looking at this
    issue with the Air Force and at the Department-wide level
    trying to assure that we get some of the same help from the
    German government that the Army has gotten and that we have
    gotten from other governments where they desire our troops to
    be there?
        Ms. Jonas. Madam Chairman, I appreciate the question and of
    course the Secretary is very interested in making sure that we
    get proper host Nation support in all types of areas. So I'm
    sure this would be no different. My understanding is that
    legislation has been submitted to the Congress to extend the
    lease period to 15 years. Some of the committees I guess have
    acted on that already. But we will certainly do whatever we can
    to try to get the best deal for the taxpayers. So you have my
    assurance that we will work with the Air Force to try to get
    the very best outcome we can.
        Senator Hutchison. Thank you.
        Mr. Grone. Madam Chairman, if I might. There was one piece
    in the answer to your question I want to make sure that the
    subcommittee understands, the question of the dialogue and the
    oversight. When Ms. Jonas's deputy and I delivered the budget
    justification materials earlier this year, we committed to all
    of the oversight committees that we would periodically come
    back up and give you sort of an in-progress report on where we
    were, both in terms of where we were having successes and where
    we were hitting hard spots.
        It is my view that we not simply make that an annual
    discussion at the time of the budget request, but as a matter
    of our commitment we will be up here every quarter or so to
    have conversations with you and your staff about exactly where
    we are in the implementation process in order to address any
    questions or concerns that you may have. So I want to make sure
    that the subcommittee understands that we view this as an
    important part of the dialogue to ensure that we can execute
    implementation as effectively as we can. I neglected to mention
    that earlier and I appreciate the opportunity to clarify that.
        Senator Hutchison. Thank you very much.
        Senator Feinstein.
        Senator Feinstein. Thank you very much, Mr. Madam Chairman.
        I wanted to just ask you a question about northern Italy,
    particularly the Vicenza area and Camp Ederle, which I had the
    pleasure of visiting. It is my understanding that additional
    property has been acquired nearby because Ederle is just
    packed, and the new site, which runs as I understand it, next
    to an air strip, would also be very full.
        What is the position of the new Italian government, or is
    there a position, on these facilities and how do you see the
    MILCON coming down for this new base?
        Mr. Grone. Well, Senator Feinstein, I am not aware of any
    particular position, change in position, certainly. We have an
    understanding with the government of Italy for the rebasing of
    the 173d in the Vicenza area. I am certainly not aware of
    anything that would upset that, would upset that understanding
    and that commitment between allied partners.
        The combatant commander, EUCOM, and the Army looked very
    carefully at the siting for those units and came to the
    conclusion that for both purposes of efficiency, cost, and
    schedule and performance to be able to get those units based
    when they need to be resited, as well as the ability to access
    the savings that would accrue from getting out of non-enduring
    sites in Germany, which is about a $22 million a year savings,
    that the current siting in the Dal Molin area was the
    appropriate location.
        I understand that some of the members have, including
    yourself, have some questions about that and we will work with
    EUCOM to provide whatever backup you require. But it is the
    combatant commander and the Army's judgment that this is the
    right site for the mission as they see it for the foreseeable
    future.
        Senator Feinstein. It would be interesting to watch and see
    what happens.
        Let me ask you a BRAC question. You testified before the
    Armed Services Readiness Subcommittee in March on the outlook
    for funding in the 2005 BRAC program through completion. In
    response to a question as to whether the Pentagon had
    identified enough funding in its long-term spending plan to
    cover the cost of the program in the out years, you were quoted
    as saying, quote: ``I cannot tell you how short or imbalanced
    the program might be.''
        Have you now completed the detailed planning for the 2005
    round and can you tell this committee whether the Defense
    Department has allocated sufficient resources in the out years
    to fully fund the program?
        Mr. Grone. Well, Senator Feinstein, we have allocated
    significant resources over the program.
        Senator Feinstein. How much?
        Mr. Grone. $18 billion.
        Senator Feinstein. Is it not estimated at $23 billion?
        Mr. Grone. Yes. In the period in which I answered the
    question, although we know more today, we are not quite
    finished with all of the business plans. For those things that
    require near-term funding, in 2006 and 2007, to support the
    budget request we have very solid plans and planning processes
    to support the execution of those funds, as we have detailed to
    the committees in the budget justification documents. For those
    things that are beginning to be implemented 2008 and out, we
    were working through them and we are still in the tail end of
    working through all of the cost structure. I expect it will be
    somewhere around that $23 billion figure in the end, but
    whether it will be a little bit more or a little bit less we
    are still not yet prepared to say. We likely will be prepared
    to say so in a matter of weeks as we finish some of the more
    complex business plans.
        Senator Feinstein. Would you be willing to provide this
    committee with a detailed BRAC funding plan, much like a FYDP,
    essentially for the years 2005 to 2011?
        Mr. Grone. Well, we will be able to tell you in the near
    term an estimate of what we expect the total program costs to
    be. What we will sort out in the program review is exactly
    which money will go in what year, but the leadership is
    committed, after we have done all of this reestimation of the
    costs, to marry that up against detailed implementation plans
    to fully fund the program. So that when you receive the fiscal
    2008 budget request it will reflect a fully funded program from
    2008 to the balance of the program.
        We have resources in every year of the FYDP for BRAC today.
    We will have more when we bring up the next budget request. As
    I indicated to Senator Hutchison a few moments ago, this is
    part of the continuing dialogue between the Department and the
    oversight committees, to ensure that you have a sense of where
    we are at any one given point in time.
        So we will continue to work the costs. One of the issues
    here is that we want to make sure that BRAC dollars are being
    expended solely to execute BRAC decisions and that there are
    not other facility requirements or other things that sort of
    get in there as people see an opportunity here to perhaps get
    well at the installation level, which is understandable. But we
    owe it to ourselves and we owe it to the oversight committees
    to ensure that all we are doing with BRAC dollars is the things
    that are required from a facility perspective to implement the
    BRAC decisions, and that is what we are working through right
    now.
        Senator Feinstein. Well, now that people are beginning to
    come back from Iraq, are there adequate places to put them?
        Mr. Grone. Yes.
        Senator Feinstein. So you will not need any additional
    funds for that?
        Mr. Grone. I think that is a divisible question from the
    BRAC question.
        Senator Feinstein. It is different, I understand.
        Ms. Jonas. With regard to your overall question, Senator,
    about fully funding BRAC, I can assure you that this is one of
    the highest priorities of the Deputy Secretary as we begin to
    go into our programming period for the 2008 and beyond program.
    He is well aware of the requirements. So we commit to you to
    fully fund the program.
        Senator Feinstein. Okay. Let me ask you about the housing
    and particularly the GAO report on management issues involving
    the military housing privatization program. I gather they found
    that 36 percent of the 44 awarded housing projects had
    occupancy rates below expectations, rates below 90 percent. For
    example, the GAO flagged one Air Force project, Patrick Air
    Force Base in Florida, in which the occupancy rate by military
    families was only 29 percent. They raised the concern that
    significantly below expected occupancy rates could impact the
    financial viability of housing projects, private housing
    projects, and could impact the amount of money the Department
    needs to budget for military housing allowances.
        What are you doing to ensure that these privatization
    projects are really used fully?
        Mr. Grone. Well, certainly, Senator, housing privatization
    is a key to our overall strategy. In recent years we have
    continued to refine our housing requirements process to ensure
    that as we bring projects on line they fill in the gap between
    what is already provided by the private sector and what we
    truly require in terms of housing privatization.
        The occupancy rates are interesting in the sense that they
    give you sort of a snapshot in time of how well they are
    occupied by military families. But in no case of which I am
    aware, and I went back as recently as yesterday to look at this
    question--there is no project that is in fiscal or financial
    distress as a result of occupancy rates. Each of the projects
    has a waterfall associated with them that allows occupancy by
    non-military personnel, usually starting with DOD civilians,
    retired military personnel and the like.
        Senator Feinstein. So in other words, in the Florida case,
    that 29 percent is military families, the rest is replaced by
    others?
        Mr. Grone. Well, I do not know in that case and I would
    have to go back and look at it, and I would be happy to do that
    for the record----
        Senator Feinstein. Would you do that?
        Mr. Grone [continuing]. How many of the other units were
    off line due to renovation and reconstruction schedules. So to
    say that 29 percent or 30 percent or whatever, 80 percent or 90
    percent, is occupied by military families is only part of the
    snapshot. The question is what is happening in the rest of
    those units and is it along the schedule that the developer
    expected when they were turning the units over. That is
    something we would have to go back into each project and look
    at. We would be happy to do that.
        Generally, the work we have done with GAO, frankly, has
    been very positive. They have been very helpful, provided a
    very helpful oversight perspective on a number of aspects of
    the program, and we have improved program implementation,
    program evaluation and oversight over the months and years as a
    result of some of that independent look. So I actually view
    that GAO report a little bit more positively in terms of the
    direct suggestions that they have for program improvement, many
    of which we are going to take on board.
        [The information follows:]

        Patrick AFB housing privatization project was awarded in October
    2003, at that time, the Air Force transferred 960 inadequate housing
    units to the new ownership, who planned to replace 552 units and
    demolish 408 units without replacement. A total 592 family housing
    units were consistently ``online'' during the reporting period covered
    in the GAO Report (Military Housing: Management Issues Require
    Attention as Privatization Program Matures). The family housing units
    off-line at Patrick AFB were quickly demolished by the developer to
    clear an area for new construction prior to the GAO reporting period.
    The only other units off-line temporarily were those in transition
    between tenants for approximately 1 week for change of occupancy
    maintenance (COM). They are considered available/online for rental and
    were often rented while in COM.
        Responding to the larger question concerning construction/
    renovation schedules, MHPI developers have achieved 90 percent of their
    new construction goals and over 100 percent of their renovation goals
    identified in their original proposals. The achievement of over 100
    percent in renovations is related to some re-scoping of projects, in
    terms of shifting from deficit reduction (new unit construction) to an
    emphasis on accelerating renovations, as is the case at Fort Meade,
    Maryland.
        Please see the attached MHPI Project construction/renovation
    progress graph.

        Senator Feinstein. I do not want to waste a lot of time,
    but my point is that if you would take a look at this and get
    back to us I would appreciate it.
        Mr. Grone. Absolutely.
        Senator Feinstein. Let me ask one other question. Has the
    Department identified adequate resources to fully fund the
    environmental cleanup of the 2005 BRAC round?
        Mr. Grone. That will be part of the fully funded program as
    we bring it forward.
        Senator Feinstein. I bet the answer is no.
        Mr. Grone. In all honesty, Senator Feinstein, I understand
    from prior rounds of BRAC we expended about $24 billion to date
    on all activities associated with that. About $8 billion of
    that is in the environmental remediation category. For this
    round of BRAC, we are not closing significant operational
    ranges. Some of the installations that might have had some
    remediation challenges associated with them the commission
    chose to leave open. So we are frankly expecting in this round
    a far more manageable, far more understood in terms of the
    universe of environmental remediation challenge.
        I think the cost to complete, based on what we know today,
    is somewhat on the order of less than $1 billion. We would be
    happy to keep you up to date on that as we go forward. But I
    think----
        Senator Feinstein. Total cost is under $1 billion?
        Mr. Grone. For the 2005 decisions. That is not the cost to
    complete from prior rounds. That is a different question. We
    are looking at the discrete decisions that were made for the
    BRAC 2005 round. The environmental liability associated with
    that is far less than it was in prior rounds of BRAC, because
    of the nature of the installations that were closed and the
    investments we have made to date in environmental cleanup at
    those locations. They are two different sets of installations
    and we would be happy to parse that for you so you understand
    it as well as you can.
        Senator Feinstein. Thank you, Madam Chairman.
        Senator Hutchison. Senator Allard.

                       STATEMENT OF SENATOR WAYNE ALLARD

        Senator Allard. Thank you, Madam Chairman.
        Briefly, I just want to comment that people in Colorado and
    particularly around the Colorado Springs area, where we have a
    number of bases down there, are particularly pleased with the
    results of the BRAC round. They were apprehensive about it, and
    we were not all winners, there were some losers, but I think
    overall they were pleased with it.
        I think they are viewing that the implementation of that,
    at least up to this point, has been successful from their
    perspective. So I just wanted to let you know that.
        Colorado Springs as a community has been extremely
    supportive of their military personnel and they have a lot of
    supportive programs there. I think that Fort Carson in
    particular is one of the bases that is desirable as far as the
    Army is concerned and I think that is reflected in the
    reenlistment rate. Fort Carson has one of the highest
    reenlistment rates of any of the bases in the country. So there
    are a lot of positive things that are really happening there.
        One of the things that is being discussed is actually
    expanding Fort Carson, particularly expanding its training
    area. The head of the Fort Carson mentioned that possibility
    and I encouraged him to go ahead and begin to talk to residents
    that would be affected to expand the Pinion Canyon area. That
    is where a large--it is about 235,000 acres there for training.
        I do believe that there is a necessity there because of the
    increased number of Army units who will be coming into Fort
    Carson, as well as the high technology that is now on the
    ground. You have to have more training area in order to be able
    to train with the high technology. So I like the--I generally
    have encouraged them to move ahead with that, but with the
    caveat they need to talk with the land owners down in that
    area.
        They are looking at an area that is more than 5 times, I
    think, what the original training area down there. So there is
    a lot of land to look around. It is going to be difficult, I
    think, for any one ranch, for example, to block an expansion
    because you can always go in another direction.
        So acting on some assurances from the commander there at
    the Air Force, he said he did not think it was going to be
    necessary to require any eminent domain. They had enough
    choices there and enough different directions, he did not think
    that would be a problem.
        So the first question I want to place to you, Secretary
    Grone, has to do with land acquisitions as far as the Army is
    concerned. Eminent domain is not a good word as far as the West
    is concerned. I would like to know, do you support the use of
    eminent domain for expanding military installations?
        Mr. Grone. Senator, that is a very complex question. My
    view is--and we have done this, as you know, in the context of
    the readiness and environmental protection initiative, where we
    have recently as part of that program worked with some willing
    sellers around the Fort Carson, around Fort Carson proper----
        Senator Allard. Yes.
        Mr. Grone [continuing]. To provide buffer and some
    additional area within which----
        Senator Allard. That is moving along very successfully.
        Mr. Grone [continuing]. The service can conduct its
    mission.
        As a general rule we always prefer to work with willing
    sellers. I would not want to say that in all cases eminent
    domain should be ruled out as an option or a tool. Sometimes it
    is a necessary tool, depending on the circumstances, the
    specific circumstances of a case.
        Senator Allard. Sure.
        Mr. Grone. So I would never want to take any legally
    available tool to the Department for the execution of its
    national security mission off the table. But in general, as you
    know, our presumption as we have gone through a good deal of
    these activities has been to work with willing sellers, and we
    have had a lot of success in doing so.
        So I frankly would defer a specific answer to the question
    without knowing context.
        Senator Allard. I think that is a reasonable response and
    it is what I would have expected in response. So then, looking
    at the Pinon Canyon area, do you see any real need for using
    eminent domain in the Pinon Canyon area?
        Mr. Grone. Well, I cannot comment on that because I know
    what I have read in the press, frankly, about the case. The
    Army has not yet presented an option or a plan for acquisition.
        Senator Allard. So it has not been approved by DOD or
    anything like that?
        Mr. Grone. No, not at this time. The Secretary has not been
    presented with a set of options on that question.
        Senator Allard. Do you like the idea that when you make the
    property purchases that you go with fair market value?
        Mr. Grone. We have executed a good deal of our land
    acquisitions at fair market value.
        Senator Allard. Yes. The reason for my questions is that I
    have introduced some legislation that addresses the eminent
    domain issue, but it also says that you will not pay more than
    fair market value. The idea is that you do not want anybody
    holding out with the idea that they are going to get some super
    price over here. So if we legislatively say you are not going
    to get it, maybe that would discourage that type of behavior.
        We want this to be fair. We want a willing seller, we want
    a willing buyer. We want to be fair to the taxpayers. We do not
    want to overpay on some of the property in that. Do you have
    any concerns about that kind of approach?
        Mr. Grone. It is very difficult to comment specifically
    until we have a plan or a request to proceed from the Army. So
    I think I would like, frankly, to defer the answer to the
    question until we get to the point where we are actually
    talking about a specific proposal. We can have an appropriate
    discussion about it at that time. I just do not know enough
    about the context to know whether it is the right answer or the
    wrong answer. It is too early.
        Senator Allard. Okay. Madam Chairman, I see my time has
    expired.
        Senator Hutchison. No, go ahead and finish, because if you
    have something else----
        Senator Allard. Yes, there is another follow-up I wanted,
    if I might.
        Senator Hutchison. Sure.
        Senator Allard. Also in there, we have put in the
    legislation that you study the economics of the area, impact on
    the economics and the environmental impact on the area. I would
    assume this is something you are going to do anyhow. Am I
    correct in that?
        Mr. Grone. Certainly from an environmental perspective,
    with any major land acquisition we would have to conduct the
    appropriate NEPA analysis, whether it is a full EIS or an EA
    depending upon the circumstances and concerns. We would have to
    do an environmental analysis in any event.
        Senator Allard. Now, I am going to move on to another
    subject and that has to do with the Department of Defense's
    request for an assembled chemical weapons alternative program.
    You provided money here for the first year and we appreciate
    what you have done here in the first year. Again the question
    is on the out years, similar to what Senator Feinstein had
    brought up.
        Can I have some assurances that you are going to be looking
    at at least a similar amount of appropriations as you put in
    this year--I think it is $100 million if I am correct--and for
    the next 2 years trying to sustain that level of funding?
        Mr. Grone. I do not have the--go ahead.
        Ms. Jonas. Senator, we will be working with----
        Senator Allard. Yes, maybe it is Secretary Jonas. That
    should be directed to you.
        Ms. Jonas. Obviously, this is a high priority program, and
    I know Secretary Krieg has worked this very hard. So it will be
    one of the things that is on our mind as we work the 2008 and
    out process. I am not sure how that is going to turn out, but I
    know that the Deputy Secretary is well aware of your concerns
    on this and we want to move positively forward.
        Senator Allard. Now, also to Secretary Jonas, on the
    readiness and environmental protection initiative, which again
    was mentioned earlier here, about the buffer around Fort Carson
    so that we do not have urban encroachment onto that base and
    continue to carry out their missions there. I think you had $20
    million was put in there. I do not think that is adequate. From
    what I understand, there are a lot of bases that are beginning
    to understand the impact of urban encroachment on their bases
    and their mission.
        I am pleased that the House and Senate Armed Services
    Committee agreed to add $30 million to the program. I guess it
    brings it up to a total of $50 million altogether. Why did the
    Department of Defense provide only $20 million for the
    readiness and environmental defense initiative when there is a
    clear need for that money and agreed--not only would I agree
    with that, but the House Armed Services Committee as well as
    the Senate Armed Services Committee agreed that there was a
    greater need?
        Mr. Grone. Well, Senator, based on the resource trades we
    had to make as we were building the budget, $20 million was the
    amount that we came to in the last program review. I think you
    agree that it is proving to be a very effective program,
    although it is a young program.
        Senator Allard. Yes.
        Mr. Grone. A number of the activities we had--I do not want
    to call them pilots because they are beyond pilots. But it is a
    new program. We are having great success with it. Frankly, it
    is a program that I would like to continue to see us work to
    expand as necessary if we have defined requirements. That is
    one of the sort of key aspects of this.
        It is not the only way in which we resource that program
    because the components have the ability to marry those funds up
    or on their own initiative use their operations and maintenance
    funding to take advantage of unique opportunities that arise in
    the year of execution, working with willing sellers. We are
    building the program around the priorities of the components. I
    appreciate very much the support that the committees have given
    us for the program and I think as we mature the program,
    continue to have success with it, continue to build the right
    relationships locally and among the States for partnership and
    cooperation in this area, the program will settle in at a level
    that is reasonable.
        But for the purposes of the President's budget, looking at
    all the other requirements that we had in front of us, that was
    the amount of money we settled on for the President's budget. I
    understand what the authorizers have done and we will continue
    to work with you on that.
        Senator Allard. We are very pleased with the program, the
    way it is starting out with Fort Carson. We do have a lot of
    open space around there, but people are starting to build homes
    right up to the edge of the fort, and the next thing you know
    there are complaints about the gunfire and everything else that
    is going on. So I think this is a vital program and the sooner
    we can get to this and deal with it, not only in Colorado but I
    think throughout the country, we will sort of have a buffer
    zone and try and work out a relationship with the conservation,
    wildlife conservation groups and what-not, there might be a way
    of kind of coming to a solution here that would benefit the
    military as well as those who want open space. It is
    reasonable, I think, to say that somebody should not be
    building their home right next to a base and then complain
    about the loud noise when they do. But people do it. They build
    up to airports the same way. I do think that we need to do
    everything we can to prevent that from happening, to sustain
    the bases we have left, because there are fewer of them and
    they become more vital, I think, to the function of our
    military.
        Thank you, Madam Chairman.
        Senator Hutchison. Thank you, Senator Allard, and I thank
    this panel. I appreciate your time and the efforts you are
    making, and you are excused.
        Mr. Grone. Thank you, ma'am.
        Senator Hutchison. I would like to call the second panel:
    the Honorable Keith Eastin, the Assistant Secretary of the
    Army; the Honorable B.J. Penn, the Assistant Secretary of the
    Navy; and the Honorable William C. Anderson, the Assistant
    Secretary of the Air Force.
        Secretary Eastin, would you like to start.

    STATEMENT OF HON. KEITH E. EASTIN, ASSISTANT SECRETARY
                OF THE ARMY, INSTALLATIONS AND EQUIPMENT,
                DEPARTMENT OF THE ARMY
        Mr. Eastin. Yes, I have an opening statement and I also
    have a longer statement. I would request that be included in
    the record today.
        Senator Hutchison. Without objection.
        Mr. Eastin. In the interest of saving the committee's time,
    I will try to abbreviate what my clever staff has put here in
    these many, many pages, just to say that the Army has a very
    ambitious program. The BRAC program, which started last year,
    includes not only the traditional BRAC, which is closing bases,
    realigning bases, making things more efficient, but it also
    includes bringing back approximately 52,000 soldiers from Korea
    and Europe. It includes resetting the force from a division-
    centric force to a brigade-centric force. It also includes the
    actions bringing back and rotating troops in and out of Iraq
    and Afghanistan, as well as some other actions. So it is a very
    complicated process and, I might add, an ambitious process that
    I think the Army has well planned.

                               PREPARED STATEMENT

        It takes care of our soldiers. We see that they have places
    to come home to when they come home from Europe and Korea, and
    it takes care of our soldiers' families.
        So we would hope that you would see this as an integrated
    and ambitious plan, but one that is necessary in the pursuit of
    the defense of the Nation, and would support it as you have
    before, and we appreciate it. Thank you.
        [The statement follows:]

                     Prepared Statement of Keith E. Eastin

                                  INTRODUCTION

        Madam Chairman and members of the Subcommittee, it is a pleasure to
    appear before you to discuss the Army's Military Construction budget
    request for fiscal year 2007. We have a robust budget that is critical
    to the success of the Army's new initiatives and sustainment of ongoing
    programs of critical importance to the Army. We appreciate the
    opportunity to report on them to you. We would like to start by
    thanking you for your unwavering support to our Soldiers and their
    families serving our Nation around the world. They are and will
    continue to be the centerpiece of our Army, and they could not perform
    their missions so successfully without your steadfast support.

                                    OVERVIEW
              TRANSFORMING INSTALLATIONS WHILE THE ARMY IS AT WAR

        Installations are the home of combat power--a critical component of
    the Nation's force capabilities. Your Army is working to ensure that we
    deliver cost-effective, safe, and environmentally sound capabilities
    and capacities to support the national defense mission.
        The tremendous changes in our national security environment since
    the terrorist attacks on our Nation clearly underscore the need for a
    joint, integrated military force ready to defeat all threats to United
    States interests. To meet these security challenges, we require
    interrelated strategies centered on people, forces, quality of life,
    and infrastructure. Regarding infrastructure, we need a global
    framework of Army installations, facilities, ranges, airfields, and
    other critical assets that are properly distributed, efficient, and
    capable of ensuring that we can successfully carry out our assigned
    roles, missions, and tasks that safeguard our security at home and
    abroad.
        Army infrastructure must enable the force to fulfill its strategic
    roles and missions in order to generate and sustain combat power. As we
    transform our operational forces, so too must we transform the
    institutional Army and our installation infrastructure to ensure this
    combat power remains relevant and ready.

                                   STATIONING

        To transform from a forward-deployed to a U.S.-based power
    projection force, we are consolidating overseas units at enduring
    locations and bringing back units to the United States through the
    effort we collectively call ``stationing.'' Our stationing effort is an
    integrated plan driven by the convergence of three distinct
    initiatives: Base Realignment and Closure (BRAC) 2005, Integrated
    Global Presence and Basing Strategy (IGPBS), and the Army Modular Force
    (AMF) Initiative. Stationing will allow the Army to focus its resources
    on installations that provide the best military value and to best
    posture units for responsiveness and readiness. Eliminating Cold War
    era infrastructure and employing modern technology to consolidate
    activities allows the Army to free financial and human resources that
    we can then focus on our core warfighting mission. The stationing
    initiative is a massive undertaking, requiring the synchronization of
    base closures, realignments, military construction and renovation, unit
    activations and deactivations, and the flow of forces to and from
    current global commitments. Our decisions to synchronize activities
    associated with restationing and realigning our global basing posture
    have been guided by the following key criteria:
      --Meeting operational requirements
      --Providing economic benefits
      --Using existing infrastructure to reduce cost and excess capacity
      --Funding critical requirements to achieve unit mission
      --Compliance with applicable laws
      --Minimizing the use of temporary facilities
      --Giving facility priority to ranges, barracks, housing, vehicle
            maintenance shops, headquarters and operations, dining and
            instruction facilities
        The completion of this combined set of stationing initiatives will
    result in an Army that is better positioned to respond to the needs and
    requirements of the 21st Century security environment, with our
    Soldiers and families living at installations that are truly
    ``Flagships of Army Readiness.''

                             INFRASTRUCTURE QUALITY

        In addition to mission support, our installations provide the base
    of support for Soldiers and their families. The environment in which
    our Soldiers train, our civilians work, and our families live plays a
    key role in recruiting and retaining the high quality people the Army
    needs. Through efforts such as Barracks Modernization and the
    Residential Communities Initiative (RCI), the Army has made tremendous
    progress in improving the quality of life for Soldiers and their
    families. These efforts will combine with the Army's stabilization of
    the force to forge greater bonds between units, Soldiers, families, and
    the communities in which they live.
        The quality of our installations is critical to the support of the
    Army's mission, its Soldiers, and their families. Installations serve
    as the platforms we use to train, mobilize, and rapidly deploy military
    power. When forces return from deployments, installations enable us to
    efficiently reset and regenerate combat power for future missions. In
    the past year, the Army has made tremendous progress in enhancing
    training and improving its ability to generate and reset the force.
    Through its stationing plans, the Army will be able to focus future
    resources on key installations that provide the most value to our
    mission and provide the quality of life that our Soldiers and families
    deserve.

                    BASE REALIGNMENT AND CLOSURE (BRAC) 2005

        BRAC 2005 is the fifth round of BRAC actions that is now approved
    for implementation beginning in fiscal year 2006. BRAC 2005 actions are
    designed to optimize the Army's infrastructure assets in concert with,
    and in support of, the operational capacity and warfighting
    capabilities of the Army. BRAC 2005 is also designed to enhance the
    opportunities for joint activities with the creation of joint
    installations and joint operations that create more efficient and
    effective common business-oriented functions within the Department of
    Defense. As with prior rounds, the Army will achieve savings by
    divesting of installations that are no longer needed and are less
    efficient and effective in supporting a Joint and Expeditionary Army.
    BRAC 2005 goes beyond savings and provides transformational facilities
    and new opportunities for Joint operations and Joint business
    functions. As we reposition forces from overseas, our installations
    must support a Joint and Expeditionary Army.
        BRAC recommendations became law on November 9, 2005, and by law,
    all recommendations must be completed by September 14, 2011. The
    Department of Defense and the Army recommended 12 major and 1 minor
    Army base closures and 53 Army base realignments. In addition, 176 Army
    Reserve and 211 National Guard facilities will close across 39 States
    and territories whose units will relocate to 125 new Armed Forces
    Reserve Centers.
        BRAC execution should contribute to the following Army goals:
      --Reducing cost and generate savings which can be reinvested
      --Optimizing military value
      --Advancing the Army Modular Force Initiative
      --Accommodating the rebasing of overseas units
      --Enabling the transformation of both the Active and Reserve
            Components as well as rebalancing the forces
      --Contributing to joint operations

             INTEGRATED GLOBAL PRESENCE AND BASING STRATEGY (IGPBS)

        IGPBS will relocate over 50,000 Soldiers and their families from
    Europe and Korea to the United States over the next 5 to 6 years. These
    moves are critical to ensure Army forces are properly positioned
    worldwide to respond in support of our National Military Strategy. The
    majority of the moves/restationing actions are incorporated within the
    BRAC Budget, but IGPBS also includes intra-theater moves. These include
    moves within Korea relocating units from north of Seoul to Camp
    Humphreys; within Germany from numerous installations to our major hub
    at Grafenwoehr/Vilseck, and moves from Germany to Italy to support the
    standup of a full Airborne Brigade Combat Team in Vicenza.

                               ARMY MODULAR FORCE

        The fiscal year 2007 budget includes projects to ensure that our
    facilities continue to meet the demands of force structure, weapons
    systems, and doctrinal requirements. As of fiscal year 2006, we have
    funded 93 percent of the Military Construction requirements for the
    Stryker Brigade Combat Teams, including National Guard requirements in
    Pennsylvania. Remaining construction funding for both the Active Army
    and Army National Guard will be requested in future budget requests.
        The Army Modular Force (AMF) initiative transforms the Army from
    units based on the division organization into a more powerful,
    adaptable force built on self-sufficient, brigade-based units that are
    rapidly deployable. These units, known as Brigade Combat Teams (BCTs),
    consist of 3,500 to 4,000 Soldiers. BCTs increase the Army's combat
    power while meeting the demands of global requirements without the
    overhead and support previously provided by higher commands.
        New facility requirements for transforming units are being
    provided, where feasible, through the use of existing assets. Where
    existing assets are not available, the Army is programming high-
    priority projects to support Soldiers where they live and work. The
    Army is requesting $242 million in fiscal year 2007, to support BCTs.
    The remaining AMF requirements will be addressed in future budgets.

                       BRAC 2005 IMPLEMENTATION STRATEGY

        The Army will execute BRAC 2005 by implementing interrelated events
    starting with realignment of the operational forces of the Active Army,
    both inside and outside the United States, at installations DOD-wide,
    capable of training modular formations at home station. The Army will
    create Joint and Army Training Centers of Excellence to enhance
    coordination, doctrine development, training effectiveness, and improve
    operational and functional efficiencies.
        The Army will transform the Reserve Components by realigning and
    closing facilities to reshape the command and control functions and
    force structure and to create Joint or multi-functional installations.
    The Army will close 387 Army Reserve and National Guard facilities and
    build 125 new multi-component Armed Forces Reserve Centers distributed
    throughout the United States and Puerto Rico. The new Armed Forces
    Reserve Centers will improve the readiness and ability of Reserve and
    National Guard units to train, alert, and deploy in support of current
    and future contingency operations, including homeland defense. In
    addition, the Army will disestablish ten Army Reserve Regional
    Readiness Commands and establish four Regional Readiness Sustainment
    Commands and six new deployable warfighting units.
        In the United States, the Army will consolidate four Installation
    Management Agency regions into two and also consolidate the
    Installation Management Agency, Army Community and Family Support
    Center, and the Army Environmental Center in San Antonio, Texas.
        The Army will partner with DOD to consolidate DOD Research,
    Development, Test, and Evaluation organizations to enhance support of
    DOD transformation and Joint Operations and realign or close
    installations to co-locate headquarters with subordinate commands or to
    station organizations with their service counterparts to provide
    responsive, quality, and cost-effective medical and dental care.
    Finally, the Army will transform materiel and logistics operations by
    realigning or closing installations to integrate critical munitions
    production and storage, manufacturing, depot-level maintenance, and
    materiel management to enhance Joint productivity and efficiency and to
    reduce cost.

                                BRAC 2005 BUDGET

        The Army will apply all the necessary resources to accomplish the
    BRAC 2005 mission. In fiscal year 2006, the Army will execute over $865
    million to initiate both BRAC and IGPBS, and begin required National
    Environmental Policy Act actions for all BRAC 2005 requirements. The
    Army will begin planning and design for projects in fiscal years 2006,
    2007, and 2008, and begin construction of ten projects in fiscal year
    2006. The Army will execute $3,608 million to continue actions for BRAC
    2005 requirements in fiscal year 2007.

                                   PRIOR BRAC

        In 1988, Congress established the Defense Base Realignment and
    Closure Commission to ensure a timely, independent, and fair process
    for closing and realigning military installations. Since then, the
    Department of Defense has successfully executed four rounds of base
    closures to reduce infrastructure and align the military's
    infrastructure to the current security environment and force structure.
    Through this effort, the Army estimates approximately $10.7 billion in
    savings through 2006--more than $900 million annually from previous
    BRAC rounds..
        The Army is requesting $51.3 million in fiscal year 2007 for prior
    BRAC rounds ($6.2 million to fund caretaking operations of remaining
    properties and $45.1 million for environmental restoration). In fiscal
    year 2007, the Army will complete environmental restoration efforts at
    two installations, leaving eight remaining BRAC installations requiring
    environmental restoration.
        To date, the Army has spent $2.5 billion on BRAC environmental
    restoration. We have disposed of 229,129 acres (89 percent of the total
    acreage disposal requirement of 258,607 acres), with 29,478 acres
    remaining to dispose of at 15 installations.

                                 THE WAY AHEAD

        To improve the Army's facilities posture, we have undertaken
    specific initiatives or budget strategies to focus our resources on the
    most important areas--Range and Training Lands, Barracks, Family
    Housing, and Workplaces.
        Range and Training Lands.--Ranges and training lands enable our
    Army to train and develop its full capabilities to ensure our Soldiers
    are fully prepared for the challenges they will face. Our Army Range
    and Training Land Strategy supports Army transformation, and the Army's
    Sustainable Range Program. The Strategy identifies priorities for
    installations requiring resources to modernize ranges, mitigate
    encroachment, and acquire training land.
        Barracks.--Providing safe, quality housing is a crucial commitment
    the Army has made to its Soldiers. We owe single Soldiers the same
    quality housing that is provided to married Soldiers. Modern barracks
    are shown to significantly increase morale, which positively impacts
    readiness and quality of life. The importance of providing quality
    housing for single Soldiers is paramount to success on the battlefield.
    The Army is in the 14 year of its campaign to modernize barracks to
    provide 136,000 single enlisted permanent party Soldiers with quality
    living environments. The new complexes meet DOD ``1+1'' or equivalent
    standard by providing two-Soldier suites, increased personal privacy,
    larger rooms with walk-in closets, new furnishings, adequate parking,
    landscaping, and unit administrative offices separated from the
    barracks.
        Family Housing.--This year's budget continues our significant
    investment in our Soldiers and their families by supporting our goal to
    have contracts and funding in place to eliminate inadequate housing at
    enduring installations by fiscal year 2007 in the United States and by
    fiscal year 2008 overseas. For families living off-post, the budget for
    military personnel maintains the basic allowance for housing that
    eliminates out of pocket expenses.
        Workplaces.--Building on the successes of our family housing and
    barracks programs, we are moving to improve the overall condition of
    Army infrastructure by focusing on revitalization of our workplaces.
    Projects in this year's budget will address requirements for
    operational, administration, instructional, and maintenance facilities.
    These projects support and improve our installations and facilities to
    ensure the Army is deployable, trained, and ready to respond to meet
    its national security mission.

                              LEVERAGING RESOURCES

        Complementary to these budget strategies, the Army also seeks to
    leverage scarce resources and reduce our requirements for facilities
    and real property assets. Privatization initiatives such as the
    Residential Communities Initiative (RCI), Utilities Privatization, and
    build-to-lease family housing in Europe and Korea represent high-payoff
    programs which have substantially reduced our dependence on investment
    funding. We also benefit from agreements with Japan, Korea, and Germany
    where the Army receives host nation funded construction.
        In addition, Congress has provided valuable authorities to utilize
    the value of our non-excess inventory under the Enhanced Use Leasing
    program and to exchange facilities in high-cost areas for new
    facilities in other locations under the Real Property Exchange program.
    In both cases, we can capitalize on the value of our existing assets to
    reduce un-financed facilities requirements.
        The Army is transforming military construction by placing greater
    emphasis on installation master planning and standardization of
    facilities as well as planning, programming, designing, acquisition,
    and construction processes. Looking toward the immediate future, we are
    aggressively reviewing our construction standards and processes to
    align with industry innovations and best practices. In doing so, we
    expect to deliver quality facilities at lower costs while meeting our
    requirements more expeditiously. By encouraging the use of manufactured
    building solutions and other cost-effective, efficient processes, the
    Army will encourage non-traditional builders to compete. Small business
    opportunities and set-aside programs will be addressed, as well as
    incentives for good performance. Work of a repetitive nature coupled
    with a continuous building program will provide the building blocks for
    gaining efficiencies in time and cost.

                             MILITARY CONSTRUCTION

        The Army's fiscal year 2007 budget request includes $7.63 billion
    for Military Construction appropriations and associated new
    authorizations, Army Family Housing, and Base Realignment and Closure.

    ----------------------------------------------------------------------------------------------------------------
                                                                                 Authorization of
              Military Construction Appropriation              Authorization      Appropriations     Appropriation
                                                                  Request            Request            Request
    ----------------------------------------------------------------------------------------------------------------
    Military Construction Army (MCA).......................     $1,982,432,000     $2,059,762,000     $2,059,762,000
    Military Construction Army National Guard (MCNG).......                N/A        473,197,000        473,197,000
    Military Construction Army Reserve (MCAR)..............                N/A        166,487,000        166,487,000
    Army Family Housing Construction (AFHC)................        594,991,000        594,991,000        594,991,000
    Army Family Housing Operations (AFHO)..................        676,829,000        676,829,000        676,829,000
    BRAC 95 (BCA) \1\......................................         51,340,000         51,340,000         51,340,000
    BARC 2005 (BCA) \1\....................................      3,608,234,000      3,608,234,000      3,608,234,000
                                                            --------------------------------------------------------
          TOTAL............................................      6,913,826,000      7,630,840,000      7,630,840,000
    ----------------------------------------------------------------------------------------------------------------
    \1\ BRAC Fiscal Year 2007 Budget will be submitted by OSD in March 2006.

                       MILITARY CONSTRUCTION, ARMY (MCA)

        The Active Army fiscal year 2007 Military Construction budget
    request is $1,982,432,000 for authorization and $2,059,762,000 for
    authorization of appropriations and appropriation. These projects will
    provide the infrastructure necessary to ensure continued Soldier
    readiness and family well-being.
        Soldiers as our Centerpiece Projects.--The well-being of our
    Soldiers, civilians, and families is inextricably linked to the Army's
    readiness. We are requesting $934 million or 46 percent of our MCA
    budget for projects to improve well-being in significant ways.
        The Army continues to modernize and construct barracks to provide
    enlisted single Soldiers with quality living environments. This year's
    budget request includes 24 barracks projects to provide improved
    housing for 5,450 Soldiers and new barracks in support of major
    stationing moves. With the approval of $840 million for new barracks in
    this budget, 89 percent of our requirement will be funded at the
    ``1+1'' or equivalent standard.
        We are requesting the second increment of funding, $135 million,
    for four previously approved, incrementally funded, multiple-phased
    barracks complexes. In addition, we are requesting full authorization
    of $408 million for an incrementally funded brigade complex, but only
    requesting $102 million in appropriations for this project in fiscal
    year 2007. Our plan is to award this complex subject to subsequent
    appropriations, as single contracts to gain cost efficiencies, expedite
    construction, and provide uniformity in like facility types. The fiscal
    year 2007 budget also includes a $26 million physical fitness center,
    which incorporates a child development center, and eight additional
    child development centers for $68 million. This will provide more than
    1,800 child spaces to allow Soldiers to focus on their missions,
    knowing their families are being provided for.
        Overseas Construction.--Included in this budget request is $526
    million in support of high-priority overseas projects. In Germany, we
    continue our consolidation of units to Grafenwoehr as part of our
    Efficient Basing--Grafenwoehr initiative. This is our fifth and next to
    last year of funding. Funding requested this year will bring us to 89
    percent funded for this initiative. This initiative allows us to close
    numerous installations as forces relocate to the United States and
    within Europe saving base support and enhancing training. In Korea, we
    are again requesting funds to further our relocation of forces on the
    peninsula. This action is consistent with the Land Partnership Plan
    agreements entered into by the United States and Republic of Korea
    Ministry of Defense. Our request for funds in Italy is IGPBS related
    and relocates forces from Germany to Vicenza to create a full Airborne
    BCT as part of the Army's transformation to a modular force. The
    Airborne BCT complex also includes new barracks to house 570 Soldiers.
    Additional locations in Germany will close as construction is
    completed.
        Current Readiness Projects.--Projects in our fiscal year 2007
    budget will enhance training and readiness by providing deployment and
    maintenance facilities, brigade complexes and headquarters, other
    operational and administration facilities, and an overseas Forward
    Operating Site base camp for $34.8 million that will provide a brigade
    (minus)-sized operational facility to support rotational training,
    allow for increased U.S. partnership training, and promote new military
    to military relationships.
        We will also construct a battle seminar facility, combined arms
    collective training facilities, shoot houses, digital multipurpose
    training ranges, and purchase land to support collective training.
    These facilities will provide our Soldiers realistic, state-of-the-art
    live-fire training. We are requesting a total of $613 million for these
    high-priority projects. We are also requesting the second and final
    phase of funding of $13 million for a defense access road.
        Army Modular Force Projects. Our budget supports transformation of
    the Army to a modern, strategically responsive force. Our budget
    request contains $276 million for five brigade complexes and other
    facilities. Additionally, there are eight child development centers,
    and new barracks to house 1,130 Soldiers in support of the Army Modular
    Force.
        Other Support Programs.--The fiscal year 2007 MCA budget includes
    $192 million for planning and design of future projects. As executive
    agent, we also provide oversight of design and construction for
    projects funded by host nations. The fiscal year 2007 budget requests
    $21 million for oversight of approximately $800 million of host nation
    funded construction for all Services in Japan, Korea, and Europe.
        The fiscal year 2007 budget also contains $23 million for
    unspecified minor construction to address unforeseen critical needs or
    emergent mission requirements that cannot wait for the normal
    programming cycle.

                   MILITARY CONSTRUCTION, ARMY NATIONAL GUARD

        The Army National Guard's fiscal year 2007 Military Construction
    request for $473,197,000 (for appropriation and authorization of
    appropriations) is focused on Current Readiness, Transformation, and
    other support and unspecified programs.
        Current Readiness.--In fiscal year 2007, the Army National Guard
    has requested $161 million for eight projects to support current
    readiness. These funds will provide the facilities our Soldiers require
    as they train, mobilize, and deploy. Included are four maintenance
    facilities, two training projects, one Readiness Center, and an Armed
    Forces Reserve Center.
        Army Modular Force.--This year, the Army National Guard is
    requesting $234 million for 32 projects in support of our new missions.
    There are 12 projects for the Stryker Brigade Combat Team initiative,
    eight for our Army Division Redesign Study, seven Range projects to
    support the Army Range and Training Land Strategy, and five Aviation
    Transformation projects to provide facilities for modernized aircraft
    and change unit structure.
        Other Support Programs.--The fiscal year 2007 Army National Guard
    budget also contains $57 million for planning and design of future
    projects and $21 million for unspecified minor military construction to
    address unforeseen critical needs or emergent mission requirements that
    cannot wait for the normal programming cycle.

                      MILITARY CONSTRUCTION, ARMY RESERVE

        The Army Reserve's fiscal year 2007 Military Construction request
    for $166,487,000 (for appropriation and authorization of
    appropriations) is for Current Readiness and other support and
    unspecified programs.
        Current Readiness.--In fiscal year 2007, the Army Reserve will
    invest $125.1 million to construct five new Army Reserve Centers and
    two Armed Forces Reserve Centers; and invest $13.7 million to construct
    a general purpose warehouse--for a total facility investment of $138.8
    million. Construction of the seven Reserve Centers will support over
    3,800 Army Reserve Soldiers and civilian personnel. In addition, the
    Army Reserve will invest $5.2 million to construct three training
    ranges, which will be available for joint use by all Army components
    and military services.
        Other Unspecified Programs.--The fiscal year 2007 Army Reserve
    budget request includes $19.5 million for planning and design for
    future year projects and $3.0 million for unspecified minor military
    construction to address unforeseen critical needs or emergent mission
    requirements that cannot wait for the normal programming cycle.

                    ARMY FAMILY HOUSING CONSTRUCTION (AFHC)

        The Army's fiscal year 2007 family housing request is $594,991,000
    (for authorization, authorization of appropriation, and appropriation).
    It continues the successful Whole Neighborhood Revitalization
    initiative approved by Congress in fiscal year 1992 and our Residential
    Communities Initiative (RCI) program.
        The fiscal year 2007 new construction program provides Whole
    Neighborhood replacement projects at five locations in support of 538
    families for $241.8 million using traditional military construction.
        The Construction Improvements Program is an integral part of our
    housing revitalization and privatization programs. In fiscal year 2007,
    we are requesting $180.1 million for improvements to 1,084 existing
    units at four locations in the United States and three locations in
    Europe, as well as $156.8 million for scoring and direct equity
    investment in support of the privatization of 1,615 units at five RCI
    locations.
        In fiscal year 2007, we are also requesting $16.3 million for
    planning and design for future family housing construction projects
    critically needed for our Soldiers.
        Privatization.--RCI, the Army's Family Housing privatization
    program, is providing quality, sustainable housing and communities that
    our Soldiers and their families can proudly call home. This highly
    successful program is a critical component of the Army's effort to
    eliminate inadequate family housing in the United States. The fiscal
    year 2007 budget request of $156.8 million provides equity investment
    to privatize housing at two installations and revise development plans
    to build new housing at three previously privatized installations.
        We are leveraging appropriated funds and Government assets by
    entering into long-term partnerships with nationally recognized private
    sector real estate development/management and homebuilder firms to
    obtain financing and management expertise to construct, repair,
    maintain, and operate family housing communities.
        The RCI program currently includes 43 installations with a
    projected end state of over 82,000 units--over 90 percent of the family
    housing inventory in the United States. The Army has privatized over
    60,000 homes through December 2005, and by the end of fiscal year 2007,
    we will have privatized housing at 36 installations with an end state
    of more than 76,000 homes.

                     ARMY FAMILY HOUSING OPERATIONS (AFHO)

        The Army's fiscal year 2007 family housing operations request is
    $676,829,000 (for appropriation and authorization of appropriations),
    which is approximately 53 percent of the total family housing budget.
    This account provides for annual operations, municipal-type services,
    furnishings, maintenance and repair, utilities, leased family housing,
    demolition of surplus or uneconomical housing, and funds supporting
    management of the Military Housing Privatization Initiative.
        Operations ($125 Million).--The operations account includes four
    sub-accounts: management, services, furnishings, and a small
    miscellaneous account. All operations sub-accounts are considered
    ``must pay accounts'' based on actual bills that must be paid to manage
    and operate family housing.
        Utilities ($106 Million).--The utilities account includes the costs
    of delivering heat, air conditioning, electricity, water, and
    wastewater support for family housing units. While the overall size of
    the utilities account is decreasing with the reduction in supported
    inventory, per-unit costs have increased due to general inflation and
    the increased costs of fuel.
        Maintenance and Repair ($205 Million).--The maintenance and repair
    (M&R) account supports annual recurring projects to maintain and
    revitalize family housing real property assets. Since most Family
    Housing operational expenses are fixed, M&R is the account most
    affected by budget changes. Funding reductions result in slippage of
    maintenance projects that adversely impact Soldier and family quality
    of life.
        Leasing ($215 Million).--The leasing program provides another way
    of adequately housing our military families. The fiscal year 2007
    budget includes funding for 12,091 housing units, including existing
    Section 2835 (``build-to-lease''--formerly known as 801 leases) project
    requirements, temporary domestic leases in the United States, and 6,387
    units overseas.
        RCI Management ($26 Million).--RCI management program provides
    operating funds for the privatization of military family housing. RCI
    costs include pay and travel of Army personnel, selection of private
    sector partners, environmental studies, real estate surveys,
    consultants to assist with developing and implementing projects, and
    oversight and analyses of the privatized housing portfolio.

                           OPERATION AND MAINTENANCE

        The fiscal year 2007 Operation and Maintenance budget includes
    $2.384 billion in funding for Sustainment, Restoration, and
    Modernization (S/RM), $30.6 million for demolition, and $6.396 billion
    in funding for Base Operations Support (BOS). The S/RM and BOS accounts
    are inextricably linked with our Military Construction programs to
    successfully support our installations. The Army has centralized the
    management of its installations assets under the Installation
    Management Agency to best utilize this funding.
        Sustainment, Restoration, and Modernization (S/RM).--S/RM provides
    funding for the Active and Reserve Components to prevent deterioration
    and obsolescence and restore the readiness of facilities on our
    installations.
        Sustainment is the primary account in installation base support
    funding responsible for maintaining the infrastructure to achieve a
    successful readiness posture for the Army's fighting force. It is the
    first step in our long-term facilities strategy. Installation
    facilities are the mobilization and deployment platforms of America's
    Army and must be properly maintained to be ready to support current
    missions and future deployments.
        The second step in our long-term facilities strategy is
    recapitalization by restoring and modernizing our existing facility
    assets. Restoration includes repair and restoration of facilities
    damaged by inadequate sustainment, excessive age, natural disaster,
    fire, accident, or other causes. Modernization includes alteration or
    modernization of facilities solely to implement new or higher
    standards, including regulatory changes to accommodate new functions,
    or to replace building components that typically last more than 50
    years, such as foundations and structural members.
        Base Operations Support.--This account funds programs to operate
    the bases, installations, camps, posts, and stations for the Army
    worldwide. The program includes municipal services, government civilian
    employee salaries, family programs, environmental programs, force
    protection, audio/visual, base communication services, and installation
    support contracts. Army Community Service and Reserve Component family
    programs include a network of integrated support services that directly
    impact Soldier readiness, retention, and spouse adaptability to
    military life during peacetime and through all phases of mobilization,
    deployment, and demobilization.

                      HOMEOWNERS ASSISTANCE FUND, DEFENSE

        The Army is the DOD Executive Agent for the Homeowners Assistance
    Program (HAP). This program provides assistance to eligible military
    and civilian employee homeowners by providing some financial relief
    when they are not able to sell their homes under reasonable terms and
    conditions as a result of DOD announced closures, realignments, or
    reduction in operations when this action adversely affects the real
    estate market. For fiscal year 2007, HAP will maintain a baseline
    program. The fiscal year 2007 baseline program will be sustained with
    prior year unobligated funds and revenue from sales of acquired
    properties. The HAP baseline program assistance will be continued for
    personnel at installations that are impacted by non-BRAC DOD closure or
    realignment activities resulting in adverse economic effects on local
    communities.

                                    SUMMARY

        Madam Chairman, our fiscal year 2007 budget is a balanced program
    that supports our Soldiers and their families, the Global War on
    Terrorism, Army transformation, readiness, BRAC 2005, and DOD
    installation strategy goals. We are proud to present this budget for
    your consideration because of what this $7.63 billion fiscal year 2007
    budget will provide for our Army:
      --New barracks for 7,150 Soldiers
      --New housing for 1,622 families
      --Management of 76,668 privatized homes
      --Operation and sustainment of 45,454 government-owned and leased
            homes
      --New or improved Readiness Centers for over 3,300 Army National
            Guard Soldiers
      --New Reserve Centers for 3,800 Army Reserve Soldiers
      --$175 million investment in training ranges
      --Facilities support for two Stryker Brigades
      --Facilities support for the Integrated Global Presence and Basing
            Strategy, European Theater
      --Facilities support for six Modular Force Transformations
        Our long-term strategies for installations will be accomplished
    through sustained and balanced funding, and with your support, we will
    continue to improve Soldier and family quality of life, while remaining
    focused on Army and Defense transformation goals.
        In closing, we would like to thank you again for the opportunity to
    appear before you today and for your continued support for America's
    Army.

        Senator Hutchison. Secretary Penn.

    STATEMENT OF HON. B.J. PENN, ASSISTANT SECRETARY OF THE
                NAVY, INSTALLATIONS AND ENVIRONMENT,
                DEPARTMENT OF THE NAVY
        Mr. Penn. Madam Chairman, members of the subcommittee: I am
    honored to represent the sailors, marines, and civilians who
    serve in harm's way, along with those who provide critical
    support roles, to defend our freedom in far-away places and
    under difficult circumstances.
        I would like to talk about one specific aspect that is of
    great interest. That is implementation of BRAC 2005. BRAC 2005
    recommendations differ from previous rounds in that there are
    fewer closures and many more realignments. We have put in place
    the management structure, oversight, and funding to accomplish
    all our closures and realignment actions within the 6-year
    statutory timeframe. Once implemented, we predict savings in
    excess of $1 billion per year for the Department of the Navy.
        For those locations we are departing due to closure or
    realignment, the Department of the Navy is deeply grateful for
    the support communities have given us over the years. They
    understand our unique mission needs and made our sailors,
    marines, and their families feel at home and a part of the
    community during your typical 2- to 3-year assignment.
        Whether closing or realigning, change inevitably brings
    turbulence and uncertainty. That turbulence can be felt at
    bases we are saying goodbye to or at our new receiver base
    locations. To the affected communities, we will work with each
    of you to find equitable solutions during the 6-year statutory
    implementation period. To our sailors, marines, and
    particularly our dedicated civilian employees, we will work
    with you to ease your transition.
        I recognize the concern by some members of Congress and
    communities regarding whether the substantial revenues the
    Department of Navy has obtained from the sale of property
    closed under the four previous BRAC rounds will lead us to seek
    property sale as the primary or exclusive disposal method for
    BRAC 2005. I want to emphasize that we will tailor a disposal
    strategy for each individual closing base in close consultation
    with local community representatives. We will not resort to one
    size fits all pursuit of public sale.
        For example, in the less than 2 years since closing the
    former Naval Station Roosevelt Roads, Puerto Rico, the Local
    Redevelopment Authority has progressed rapidly in developing a
    reuse plan that uses just about all the disposal actions
    available--public benefit conveyances for conservation areas,
    port, airport, hospital and medical clinics, economic
    development conveyance for a science and research park,
    property transfer to the Army and the Coast Guard, along with a
    portion for public sale.

                               PREPARED STATEMENT

        For properties appropriate for sale, we will work with the
    local municipality regarding any entitlements, land use zoning,
    or timing concerns before initiating the sale. Any revenue from
    land sale will be deposited in the BRAC 2005 account and used
    to defray BRAC 2005 implementation costs.
        I look forward to working with the members of this
    committee and I wish to thank you for what you do for us. Thank
    you, ma'am.
        [The statement follows:]

                        Prepared Statement of B.J. Penn

        Madame Chairman and members of the committee, I am pleased to
    appear before you today to provide an overview of the Department of
    Navy's shore infrastructure.
        The Navy-Marine Corps team continues to operate in a complex,
    uncertain, and threatening global security environment. We must
    capitalize on our strengths as a rotational, forward-deployed, surge-
    capable force if we are to meet the challenges of a new era. We
    demonstrated our capabilities last year as we continued efforts to win
    the Global War On Terror while responding to major natural disasters,
    the Indonesian Tsunami and Hurricane Katrina, while continuing recovery
    efforts from Hurricane Ivan in 2004. We have a well skilled, highly
    motivated military, civilian and contract workforce; with the help of
    this committee, we must provide them the necessary tools to accomplish
    the mission.

                           HURRICANE RECOVERY EFFORTS

    Hurricane Ivan
        Ivan ravaged the Florida panhandle on mid September 2004, damaging
    570 housing units, 850 structures, and destroying 100 buildings across
    Naval Air Station Pensacola and Naval Air Station Whiting Field. A
    facilities task force, led by RADM Shear, worked rapidly to restore
    critical mission capabilities and initiated the deliberate planning
    required to restore both bases.
        As we look back, the Hurricane Ivan recovery is a tremendous
    success story. In parallel with initial recovery actions, we sought not
    simply to rebuild, but to reshape our facilities footprint to improve
    operational effectiveness, consolidate functions, and eliminate on-base
    excess capacity. Using the Navy Ashore Vision 2030 as a guiding vision
    and other strategic host and tenant planning documents, we project an
    overall 900,000 square foot reduction, along with reduced operating and
    maintenance costs, and efficiency improvements such as consolidating
    like functions from damaged facilities, and relocating destroyed
    facilities to more storm resistant locations.
        The fiscal year 2005 Disaster Supplemental provided $468 million in
    Operations and Maintenance and $139 million military construction funds
    for our recovery efforts. We have obligated all Operations and
    Maintenance funds, and five of the eight planned construction projects.
    We plan to award the remaining three construction projects by May 2006.
    Despite additional damage from Hurricane Katrina, NAS Pensacola and
    Whiting Field are fully mission capable.
    Hurricane Katrina
        Hurricane Katrina and subsequent storms severely impacted seven
    major bases, destroying buildings, rendering thousands homeless, and
    effectively shutting down operations for weeks while recovery began in
    earnest. Less than 20 percent of the 1,160 buildings across the seven
    affected bases escaped damage. Using techniques developed after
    Hurricane Ivan, we were prepared to promptly initiate recovery actions
    to ensure mission requirements were met while being good stewards of
    taxpayer funds.
        The Department of Navy has received $1.5 billion in Operations and
    Maintenance funds, of which $853 million provided immediate facility
    and base support needs. Over 60 percent of these funds have been
    obligated to date. We have received an additional $411 million in
    military construction to support 34 construction projects. We expect to
    award all of these construction projects by the end of this fiscal year
    and I am confident that our facility execution is on pace to meet
    requirements and support recovery efforts.
        The Administration recently requested a fourth Supplemental for
    Hurricane Recovery, which included $43 million in Operations and
    Maintenance and $78 million military construction. These funds will
    replace collateral equipment, complete facility repairs, and provide
    military construction funds at Naval Air Station Joint Reserve Base
    Belle Chase LA; Construction Battalion Center, Gulfport MS; and John C.
    Stennis Space Center, MS. This Supplemental request also includes
    important fund transfer authority that will allow us to more
    effectively use available funds as we continue recovery efforts.
    Task Force Navy Family
        The devastation to our infrastructure wrought by the recent spate
    of hurricanes has also left a wide swath of devastation in the personal
    lives of our military, civilian, retirees and their families as they
    tackle their own recovery efforts. The Navy established Task Force Navy
    Family immediately after the hurricane to provide personalized
    assistance to help our Navy family members return to a sense of
    normalcy. A case manager helps family and service members on all
    aspects of personal recovery, from securing accommodations, replacing
    vital documents, filing insurance claims, or reuniting with their pets.
    As we transition Task Force Navy Family functions into our existing
    Navy personnel support architecture, we will continue to help each
    member and family through this time of crisis until all needs are met.

                      THE NAVY'S INVESTMENT IN FACILITIES

        The Department of Navy's shore infrastructure is a critical factor
    in determining our operational capabilities and shaping our security
    posture. It's where we train and equip the world's finest Sailors and
    Marines, while developing the most sophisticated weapons and
    technologies. The Department of Navy manages a shore infrastructure
    with a plant replacement value of $180 billion on 4 million acres. Our
    fiscal year 2007 shore infrastructure budget totals $10.3 billion,
    representing about 8 percent of the Department of Navy's fiscal year 07
    request of $127 billion.
        The Base Operating Support request of $5.0 billion, excluding
    environmental, comprises the largest portion of the Navy's facilities
    budget request. This account funds the daily operations of a shore
    facility, e.g., utilities, fire and emergency services; air and port
    operations; community support services; and custodial costs.

        Our request for fiscal year 2007 of $5.0 billion reflects a $321
    million increase from the enacted fiscal year 2006 level. This change
    is due in part to pricing changes as well as transfer of Norfolk and
    Portsmouth Naval Shipyards to mission funding.
        Fiscal year 2007 military construction request of $1.2 billion is
    the same as the enacted fiscal year 2006 level. The request includes
    $48 million for Navy and Marine Corps reserve construction efforts.
    This level of funding keeps us on track to eliminate inadequate
    bachelor housing, and provides critical operational, training and
    mission enhancement projects.
        While our fiscal year 2007 Family Housing request of $814 million
    is about the same as fiscal year 2006 enacted level of $808 million,
    there are substantial changes within the account: construction funds
    increase, including seed funds for Navy and Marine Corps privatization,
    and operations and maintenance funds decline as government owned
    inventory falls by 4,820 homes due to privatization.
        Sustainment, Restoration and Modernization (S/RM) includes military
    construction and operation and maintenance funds. Our fiscal year 2007
    request of $1.7 billion represents only the amount of S/RM funded with
    Operations and Maintenance, and is $192 million below the enacted
    fiscal year 2006 level due to efficiencies.
        Our $897 million environmental program at active and reserve bases
    is comprised of operating and investment appropriations, which combined
    are $31 million below the fiscal year 2006 enacted level. Most of the
    reduction is due to reduced shipboard procurement needs and not
    continuing one-time Congressional adds in research and technology
    development.
        Our BRAC program consists of environmental cleanup and caretaker
    costs at prior BRAC locations, and implementation of BRAC 2005
    recommendations.
      --Our prior BRAC request is $334 million, an increase of $31 million
            over our fiscal year 2006 program of $303 million. The entire
            prior BRAC effort is financed with revenue obtained from the
            sale of prior BRAC properties.
      --This fiscal year 2007 budget continues to implement the BRAC 2005
            recommendations. The Department of Defense recently submitted
            the fiscal year 2006 plan to the Congress, including $247
            million for the Department of Navy. The fiscal year 2007
            request rises to $690 million.
        Here are some of the highlights of these programs.

                             MILITARY CONSTRUCTION

    Military Construction Projects
        The Department of Navy's fiscal year 2007 Military Construction
    program requests appropriations of $1.2 billion including $67.8 million
    for planning and design and $9 million for Unspecified Minor
    Construction. The authorization request totals $825.6 million. The Navy
    and Marine Corps Reserve Military Construction appropriation request is
    $48.4 million.
        The active Navy program consists of:
      --$85 million for four quality of life projects for Homeport Ashore,
            Great Lakes Recruit Training Command recapitalization and the
            Naval Academy.
      --$348 million for ten waterfront and airfield projects. $207 million
            of this is for six projects supporting new weapons platforms
            such as H60R/S, SSGN, F/A 18 E/F/G, and T-AKE.
      --$48 million for four special weapons protection projects.
      --$88 million for six Operational Support projects such as the Joint
            Deployment Communications Center in Norfolk, VA.
      --$29 million for two Research, Development, Testing and Evaluation
            (RDTE) projects supporting new VXX and MMA weapons platforms;
            and
      --$30 million for three training facilities supporting simulators for
            MH60 and a Damage Control Wet Trainer.
        The active Marine Corps program consists of:
      --$180 million for five bachelor quarters, three dining facilities
            and a battle aid station;
      --$85 million for seven operations and training facilities;
      --$33 million for continuing an environmental compliance project at
            Marine Corps Base Camp Pendleton;
      --$60 million to provide six maintenance facilities at Marine Corps
            Air Station New River, Camp Pendleton CA, and Marine Corps Air
            Ground Task Force Center Twentynine Palms CA;
      --$51 million for a variety of projects including land acquisition,
            armories, a missile magazine, ammunition supply point upgrades,
            and a fire station;
      --$62 million for the final settlement for acquiring Blount Island
            property
        The Navy and Marine Corps Reserve program consists of two
    Administrative and Boat Storage Facilities for Inshore Boat Units, five
    Reserve Centers, and an Aviation Joint Ground Support Facility.
    Incremental funding of Military Construction Projects
        Military construction projects are said to be incrementally funded
    when full authorization and only partial appropriation is sought in the
    first year. None of the annual appropriation requests provide a
    ``complete and usable'' portion of the facility. The Office of
    Management and Budget directed a new policy beginning with the fiscal
    year 2007 budget submission that permits incremental funding of new
    construction projects only on an exception basis. Previously approved
    incrementally funded projects, and construction projects for BRAC are
    exempted. This new policy replaces the previous policy, which allowed
    incremented projects in part if the cost exceeded $50 million and
    construction was expected to exceed 2 years. Our fiscal year 2007
    budget request includes only one new incrementally funded project, the
    National Maritime Intelligence Center.
    Marine Corps Special Operations Command (MARSOC)
        On 28 October 2005, the Secretary of Defense approved a Marine
    component within the Special Operations Command. The new Marine
    component will provide approximately 2,600 Marine and Navy billets
    within U.S. Special Operations Command (SOCOM), led by a Marine
    Brigadier General. The MARSOC will conduct direct action, special
    reconnaissance, counterterrorism and foreign internal defense. MARSOC
    will have an initial operational capability this fall and full
    operational capability by 2010. The budget request includes $152
    million for construction projects at Camp Lejeune and Camp Pendleton
    for the standup of MARSOC.
    Certification of fiscal year 2007 construction costs
        The Conference Report accompanying the Military Quality of Life and
    Veterans Affairs Appropriations Act of 2006 directed each Assistant
    Secretary with responsibility for installations to certify that the
    impact of natural disasters on project costs had been considered in
    preparing the budget submission. Our fiscal 2007 military construction
    request includes a directed 3.1 percent inflation cost adjustment.
    While we have been experiencing up to a 30 percent cost increase for
    construction costs in the Southeast and Gulf Coast, our fiscal year
    2007 request contains relatively few projects in this area. We expect
    that labor and material costs will stabilize by the time these projects
    are ready to be executed in fiscal year 2007.

                             FACILITIES MANAGEMENT

    Facilities Sustainment, Restoration and Modernization (SRM)
        The Department of Defense uses a Sustainment model to calculate
    life cycle facility maintenance and repair costs. These models use
    industry-wide standard costs for various types of building and
    geographic areas and are updated annually. Sustainment funds in the
    Operation and Maintenance accounts are used to maintain facilities in
    their current condition. The funds also provide for preventative
    maintenance, emergency responses for minor repairs, and major repairs
    or replacement of facility components (e.g. roofs, heating and cooling
    systems) that have reached the end of their service life. Both the Navy
    and the Marine Corps are budgeting and nearly achieving the Department
    of Defense goal of 95 percent sustainment.

                                                        [Percent]
    ----------------------------------------------------------------------------------------------------------------
                                                                                        Fiscal year
                           Percent sustainment                       -----------------------------------------------
                                                                           2005            2006            2007
    ----------------------------------------------------------------------------------------------------------------
    USN Budget......................................................              95              95              95
    USN Actual/Plan.................................................              90              92  ..............
    USMC Budget.....................................................              95              94              93
    USMC/Actual/Plan................................................              94              92  ..............
    ----------------------------------------------------------------------------------------------------------------

        Restoration and modernization provides major recapitalization of
    our facilities using Military Construction, Operation and Maintenance,
    Navy Working Capital Fund, and Military Personnel funds. The ``recap''
    metric is calculated by dividing the plant replacement value by the
    annual investment of funds and it is expressed as numbers of years. The
    Department of Defense goal is to attain a 67-year rate by fiscal 2008.
    This is a relatively coarse metric, as demonstrated by the dramatic
    improvement in execution from the substantial investment of the fiscal
    year 2005/2006 Hurricane Supplemental, which substantially improved
    only those bases affected by the storm. We are working with the Office
    of the Secretary of Defense and the other Components to develop a recap
    model similar to the Sustainment model.

    ----------------------------------------------------------------------------------------------------------------
                                                                                        Fiscal year
                               Recap years                           -----------------------------------------------
                                                                           2005            2006            2007
    ----------------------------------------------------------------------------------------------------------------
    USN Budget......................................................             136             105              83
    USN Actual/Plan.................................................              78              56  ..............
    USMC Budget.....................................................              95             102             112
    USMC Actual/Plan................................................              72              94  ..............
    ----------------------------------------------------------------------------------------------------------------

    Base Operating Support Models
        The Navy uses business-based models and capabilities based approach
    to budget for Base Operating Support costs. The models use defined
    metrics and unit costs that are benchmarked against historic
    performance and industry standards, and link resources to definable,
    variable levels of outputs. Funding requirements are identified for at
    least three levels of output (or capability level) for each major shore
    service and support function, and the cost and risk of each output
    level. This new CBB process allows us to set funding levels on needed
    output levels, deliverables, and associated risks rather than prior
    funding levels. In a resource-constrained environment, it is imperative
    that we program, budget and execute the right resources at the right
    time for the right service.
    Naval Safety
        Navy Secretary Winter has continued former Navy Secretary England's
    commitment to making mishap reduction one of the top five Department of
    Navy performance objectives. We want safety to be an active--not
    passive--aspect of our work and play. In addition to keeping our people
    safe, there are substantial cost avoidance through robust risk
    management. Fiscal year 2005 produced solid progress in Navy and Marine
    Corps mishap reduction. At the end of fiscal year 2005, we performed
    better than the 5-year average in two-thirds of the mishap categories.
        One very successful effort has been the Occupational Safety and
    Health Administration (OSHA) Voluntary Protection Program (VPP), which
    focuses on management leadership and employee involvement teaming
    together to improve safety. Portsmouth VA , Norfolk VA, and Puget Sound
    WA Naval Shipyards have successfully achieved VPP STAR recognition from
    OSHA, while Pearl Harbor Naval Shipyard's application is under review.
    Lost workday rates due to injury have been reduced by 50 percent at
    Norfolk and 60 percent at Puget Sound in 3 years, 37 percent at Pearl
    Harbor in 2 years, and Portsmouth has consistently exceeded the
    Department of Defense 50 percent mishap reduction goal.
    Facilities Management Consolidation
        Commander, Navy Installations (CNI) has now successfully completed
    its second year and has made significant improvements to Navy shore
    services. Among the many significant CNI efforts this year was the
    hurricane disaster recovery response in the Gulf Coast Region. Recovery
    and assessment teams responded promptly to restore infrastructure, make
    immediate repairs and capture critical data to plan for long term
    rebuilding of devastated bases like the Seabee Base in Gulfport, MS;
    Stennis Space Center in Bay St. Louis, MS; Naval Bases in New Orleans
    as well as several Reserve Centers in the Gulf Region.
        Similarly, the Marine Corps is transforming its bases from
    singularly managed and resourced entities to ones strategically managed
    in geographic regions. Our bases and stations (except recruit training
    depots) will fall under the direction of five Marine Corps Installation
    Commands with the majority of the installations under the oversight of
    Marine Corps Installation Command--East and Marine Corps Installation
    Command--West. Regionalization will enhance warfighter support, improve
    alignment, enhance the use of regional assets, return Marines to the
    Operating Forces, and reduce costs.
    Encroachment mitigation
        We are successfully applying the recent authority to enter into
    agreements with state and local governments and eligible non-government
    organizations to address potential development near our installations
    and ranges that could limit our ability to operate and train. In the
    past 2 years we have acquired restrictive easements from willing
    sellers covering over 3,360 acres in the vicinity of Marine Corps Base
    Camp Lejeune NC, Marine Corps Air Station Beaufort SC, Mountain Warfare
    Training Facility La Posta CA, Naval Air Station Pensacola FL, and
    Outlying Landing Field Whitehouse FL. We have used our Operation and
    Maintenance funds and Department of Defense Readiness and Environmental
    Protection Initiative (REPI) funds. Our partners have used our
    contributions together with their own resources to acquire property
    interests from willing sellers and re-conveyed restrictive easements to
    us.
        We expect that this program will continue to grow. Navy and Marine
    Corps are developing service-wide encroachment management programs to
    guide future priorities. Marine Corps is participating in conservation
    forums across the country with a variety of state and local governments
    and conservation organizations. The fiscal year 2007 President's budget
    includes $8.5 million for Navy and $5 million for Marine Corps
    encroachment protection initiatives, and we expect allocation of a
    share of the fiscal year 2007 $20 million REPI funds
    Energy
        Through the end of fiscal year 2005 the Department of Navy reduced
    its energy consumption, compared to a fiscal year 1985 baseline, by
    nearly 30 percent, thus meeting Executive Order 13123 goals.
        Last year the Navy opened a wind/diesel power plant at Naval
    Station Guantanamo Bay, Cuba. The four--950 KW windmills generate 30
    percent of the base's electrical needs. The Navy also awarded a
    geothermal power plant at NAS Fallon, NV that will generate a minimum
    of 30 MW of power. Similar to the Navy's existing 270 MW geothermal
    power plant at Naval Air Warfare Center China Lake, CA these power
    plants generate electricity from the earth's heat without creating
    pollution. The Navy is testing a wave power buoy off Marine Corps Base
    Kaneohe, HI and is finalizing the design of an Ocean Thermal Energy
    Conversion (OTEC) plant off Diego Garcia that will produce the island's
    electrical and potable water requirements using the temperature
    difference between warm surface water and cold, deep ocean water. These
    projects will reduce the Department of Navy's use of foreign oil,
    reduce greenhouse gas production and improve energy security.

                                    HOUSING

        Our fiscal year 2007 budget continues progress in improving living
    conditions for Sailors, Marines, and their families. We have programmed
    the necessary funds and expect to have contracts in place by the end of
    fiscal year 2007 to eliminate all of our inadequate family and
    virtually all inadequate unaccompanied housing.
    Family Housing
        Our family housing strategy consists of a prioritized triad:
      --Reliance on the Private Sector.--In accordance with longstanding
            DOD and DON policy, we rely first on the local community to
            provide housing for our Sailors, Marines, and their families.
            Approximately three out of four Navy and Marine Corps families
            receive a Basic Allowance for Housing and own or rent homes in
            the community.
      --Public/Private Ventures (PPVs).-- With the strong support from this
            Committee and others, we have successfully used statutory PPV
            authorities enacted in 1996 to partner with the private sector
            to help meet our housing needs through the use of private
            sector capital. These authorities allow us to leverage our own
            resources and provide better housing faster to our families.
      --Military Construction.--Military construction will continue to be
            used where PPV authorities don't apply (such as overseas), or
            where a business case analysis shows that a PPV project is not
            financially sound.
        As of March 1, we have awarded 19 projects totaling over 38,000
    units. As a result of these projects, over 24,000 homes will be
    replaced or renovated. Additionally, close to 3,000 homes will be
    constructed for Navy and Marine Corps families. Through the use of
    these authorities we have secured about $4 billion in private sector
    investment from $453 million of our funds for the 19 projects. This
    represents a leverage ratio of over nine to one.

        During fiscal year 2006 and 2007, we plan to award ten Navy and
    Marine Corps family housing privatization projects totaling almost
    28,000 homes. By the end of fiscal 2007, the Navy and Marine Corps will
    have privatized 97 percent and 98 percent, respectively, of their U.S.
    housing stock.

        Our fiscal year 2007 family housing budget request includes $305
    million for family housing construction and improvements. This amount
    includes $175 million proposed for use as a Government investment in
    family housing privatization projects planned for fiscal year 2007
    award. It also includes the replacement or revitalization of inadequate
    housing located at locations where privatization is not planned, most
    notably Guam and Japan. Finally, the budget request includes $509
    million for the operation, maintenance, and leasing of Government-owned
    inventory.
    Unaccompanied Housing
        Our budget request of $207 million for milli unaccompanied housing
    construction projects continues the emphasis on improving living
    conditions for our unaccompanied Sailors and Marines. There are three
    challenges:
      --Provide Homes Ashore for our Shipboard Sailors.--There are
            approximately 13,000 E1-E3 unaccompanied Sailors worldwide who
            live aboard ship even while in homeport. The Navy's goal
            remains to program funding through fiscal year 2008 to achieve
            its' ``homeport ashore'' initiative by providing ashore living
            accommodations for these Sailors. We intend to achieve this
            goal through a mix of military construction, use of
            privatization authorities and, for the interim, more intensive
            use of our unaccompanied housing capacity by assigning two or
            more Sailors per room. Our fiscal year 2007 budget includes one
            ``homeport ashore'' construction project for $21 million to
            complete Naval Station Everett, WA (410 Spaces).
      --Ensure our Barracks Meet Today's Standards for Privacy.--We are
            building new and modernizing existing barracks to increase
            privacy for our single Sailors and Marines. The Navy uses the
            ``1+1'' standard for permanent party barracks. Under this
            standard, each single junior Sailor has a private sleeping area
            and shares a bathroom and common area with another member. To
            promote unit cohesion and team building, the Marine Corps was
            granted a waiver to adopt a ``2+0'' configuration where two
            junior Marines share a room with a bath. The Navy will achieve
            these barracks construction standards by fiscal year 16; the
            Marine Corps by fiscal year 2012. We have also been granted a
            waiver to the ``1 + 1'' standard to allow us to build an
            enlisted unaccompanied housing project in Norfolk to private
            sector standards. We believe this will provide better housing
            for unaccompanied Sailors without increasing the average
            housing cost.
      --Eliminate gang heads.--The Marine Corps has programmed all
            necessary funding, through fiscal year 2005, to eliminate
            inadequate unaccompanied housing with gang heads \1\ for
            permanent party personnel. The Navy will achieve over 99
            percent of this goal by fiscal year 2007.
    ---------------------------------------------------------------------------
        \1\ Gang heads remain acceptable for recruits and trainees.
    ---------------------------------------------------------------------------
    Unaccompanied Housing Privatization
        We continue to pursue unaccompanied housing pilot privatization. We
    are in exclusive negotiations with a private partner for our first
    pilot project at San Diego. This project would build 700 apartments for
    unaccompanied E4s and above and privatize 254 existing Government-owned
    unaccompanied housing modules. Although the construction of new units
    does not directly target the Homeport Ashore requirement (unaccompanied
    E1-E3s assigned to sea duty), it will help by freeing up existing rooms
    as other Sailors move out of Government-owned unaccompanied housing and
    move into privatized housing. We expect to award this project this
    spring.
        We have also started procurement for a second pilot project at
    Hampton Roads, Virginia. This project would build 725 apartments at up
    to three different sites and privatize 806 existing unaccompanied
    housing modules. All housing will be targeted to unaccompanied
    shipboard E1-E3 personnel. We recently selected four highly qualified
    teams and invited them to submit detailed technical and financial
    proposals. We expect to award this project in April 2007.
        Last year we were evaluating the Pacific Northwest as a third pilot
    site. We have since concluded that the Pacific Northwest is not viable
    because the requirement is linked with one large ship (unlike San Diego
    and Hampton Roads which are fleet concentration areas), the private
    partner cannot recapitalize the housing over the long term given
    projected cash flows. We will now proceed to use the fiscal year 2005
    appropriated and authorized funds as a MILCON project at Bremerton. We
    are evaluating opportunities at other locations.

                                  ENVIRONMENT

    Marine Mammals/Sonar R&D investments
        The Navy recognizes the need to protect marine mammals from
    anthropogenic sound in the water and has budgeted $10 million in fiscal
    year 2006 and 2007 for research and development efforts. Funding will
    focus on techniques to track the location of marine mammals, their
    abundance and movement (particularly beaked whales); determining sound
    criteria and thresholds; and developing new mitigation and monitoring
    techniques. The Navy has expanded its research on the effects of mid-
    frequency sonar to include effects on fish. Navy's Protective Measures
    Assessment Protocol (PMAP) has become a routine operating procedure
    during all exercises. PMAP measures include surface vessels using
    trained look-outs in marine mammal areas, and submarines monitoring
    passive acoustic detection for vocalizing marine mammals.
    Shipboard Programs
        The Navy continues to convert air conditioning and refrigeration
    plants on its surface fleet from ozone depleting CFCs to
    environmentally friendly coolants. We plan to spend a total of $400
    million on this effort, including $22 million in fiscal year 2007. We
    expect to complete the conversion of nearly 900 CFC-12 plants by the
    year 2008, and over 400 CFC-114 plants by the year 2014.
        The Navy has also been installing pollution prevention equipment on
    16 ship classes. We will have spent $35 million to install suites of
    pollution prevention equipment (e.g., aqueous parts washers, cable
    cleaners/lubricators, paint dispensers) on ships upon completion this
    September.
    Natural and Cultural Resources
        The Department spends about $30 million per year on natural and
    cultural resources at Navy and Marine Corps installations. Resources
    are invested in preparing, updating, and implementing Integrated
    Natural Resources Management Plans (INRMPs). Protecting threatened and
    endangered species and their habitats is a major aspect of the INRMPS
    at many bases. The National Defense Authorization Act of 2004 included
    a provision that allowed the Secretary of Interior to forgo designation
    of critical habitat on military lands upon a determination that the
    INRMP provided sufficient species and habitat protection. I am pleased
    to report that all final critical habitat designations since 2004 have
    excluded designations on Navy and Marine Corps property.
        Our cultural resources provide a tangible link with our past while
    supporting the mission of today's Navy and Marine Corps warfighters.
    Both Navy and Marine Corps are developing Cultural Resources Management
    Plans similar to INRMP. A major effort is to prepare broad based
    programmatic alternatives to case-by-case consultation similar to the
    highly successful program comments on Capehart-Wherry era family
    housing. DON is also working to expand its efforts to make cultural
    resources management an integral part of our broader asset management
    program.
    Alternative Fuel Vehicles
        In fiscal year 2005 the Department of the Navy met or exceeded the
    Alternative Fuel Vehicle (AFV) acquisition mandates from the Energy
    Policy Act and Executive Order 13149. The Department was named winner
    of the National Biodiesel Board's National Energy Security Award and
    the U.S. Marine Corps won a White House Closing the Circle Award for
    meeting Executive Order 13149 requirements 3 years earlier than
    required. Among the AFV related initiatives are increased use of
    Biodiesel (B-20), increased fleet fuel economy, increased procurement
    of hybrid vehicles and increased use of neighborhood vehicles. Ethanol
    (E-85) is becoming a more significant alternate fuel. The Navy has
    approximately 7,000 vehicles capable of operating on E-85. We are also
    investigating the use of hydrogen fuel cell vehicles.
    Installation Restoration Program (IRP)
        The Department of the Navy has completed cleanup or has remedies in
    place at 75 percent of our 3,700 contaminated sites. We plan to
    complete the program by the year 2014. The cost-to-complete the
    installation restoration program continues a downward trend with
    efficiencies of $600 million over the past 10 years. Use of new
    technologies, land use controls, remedy optimizations, contract
    efficiencies, and a dedicated professional staff has contributed to
    these efficiencies. Our fiscal year 2007 request of $304 million
    consists of $219 million for IRP, $41 million for program management,
    and $44 million for Munitions response.
    Munitions Response Program (MRP)
        This relatively new program provides cleanup actions for Munitions
    and Explosives of Concern (MEC) and Munitions Constituents (MC) at all
    Department of the Navy locations other than operational ranges. We plan
    to complete preliminary assessments at all 213 known sites on 56 active
    installations by 2007. Site inspections (which include sampling) will
    be completed by 2010. We will not have credible cleanup cost estimates
    until these assessments are completed in 2010. We are conducting major
    cleanups at the former range on Vieques, Puerto Rico and at Jackson
    Park Housing Complex in Washington State, in addition to efforts at
    prior BRAC locations.

                     PRIOR BRAC CLEANUP & PROPERTY DISPOSAL

        The BRAC rounds of 1988, 1991, 1993, and 1995 were a major tool in
    reducing our domestic base structure and generating savings. The DON
    has achieved a steady state savings of approximately $2.7 billion per
    year since fiscal year 2002. All that remains is to complete the
    environmental cleanup and property disposal on portions of 17 of the
    original 91 bases.
        Last year we conveyed the last 427 acres at the former Naval
    Complex, Charleston, SC and the last acre at Naval Air Station, Key
    West, FL. Additionally, at the former Hunters Point Naval Shipyard in
    San Francisco, the DON conveyed the first parcel of 75 acres to the San
    Francisco Redevelopment Agency. Of the original 161,000 acres planned
    for disposal from all four prior BRAC rounds, we expect to have less
    than 5 percent (about 8,000 acres, excluding Roosevelt Roads) left to
    dispose by the end of this fiscal year.
    Land Sale Revenue
        We have continued our success in using property sales to assist in
    environmental cleanup and property disposal as well as recover value
    for taxpayers. We have used General Services Administration (GSA) on-
    site auctions, GSA Internet auctions, and Internet auctions using
    commercial real estate brokers. Through a combination of cost Economic
    Development Conveyances, Negotiated Sales, and Public Sales, the DON
    has received over $1.1 billion in revenues. We have applied these funds
    to finance and accelerate our entire fiscal year 2006 and fiscal year
    2007 environmental cleanup at the remaining prior BRAC locations.
        Last year the DON completed its largest public sale via Internet
    auction consisting of four parcels totaling 3,720 acres at the former
    Marine Corps Air Station, El Toro in Irvine, CA, for a total of $649.5
    million. The Internet auction public sale of 62 acres at the former San
    Pedro housing site in Los Angeles, CA, sold for $88 million. We also
    completed a GSA internet auction for the former Naval Hospital Oakland,
    CA. Known as Oak Knoll, we anticipate closing escrow for $100.5 million
    in early March 2006. These sales have provided the communities with
    taxpayer and community benefits by getting the property onto local tax
    rolls and redeveloped more quickly, with the local community
    controlling that development through traditional land use planning and
    zoning. It benefits DOD and the Federal taxpayer by divesting unneeded
    property sooner and reducing the environmental cleanup time and expense
    incurred by DOD. These sales enabled the buyers to work with the
    homeless assistance organizations to provide the type of services
    needed in that community, either in land and buildings or funds for
    needed programs. In addition, the El Toro sale enabled the community to
    fulfill its vision of creating a public park without using local tax
    dollars.
        We are pursuing disposal of the former Naval Station Roosevelt
    Roads through a mix of public benefit, economic benefit, property
    transfer to Army, as well as property sale planned for late 2007.
    Prior BRAC Environmental Cleanup
        The DON has spent over $2.6 billion on environmental cleanup at
    prior BRAC locations through fiscal year 2005. We estimate the
    remaining cost to complete cleanup at about $482 million for fiscal
    year 2008 and beyond, most of which is concentrated at fewer than
    twenty remaining locations and includes long-term maintenance and
    monitoring obligations for remedies already installed and operating at
    many locations. As we have done previously, the DON will use any
    additional land sale revenue beyond that projected in our fiscal year
    2006 budget to further accelerate cleanup at these remaining prior BRAC
    locations, which are primarily former industrial facilities that tend
    to have the most persistent environmental cleanup challenges.
        Significant environmental progress is planned for fiscal year 2006/
    2007, with nearly half of the funding planned for three bases. At
    Alameda Naval Air Station, progress will include funding environmental
    planning, design, and construction activities for the majority of
    active sites. Hunters Point Shipyard's progress will include completion
    of the radiological program for all land parcels and completion of all
    Remedial Investigations and Feasibility Studies. Progress at the former
    Moffett Federal Air Field includes completion of all remaining
    environmental construction activities.

                            BRAC 2005 IMPLEMENTATION

        The BRAC 2005 Commission recommendations became legally binding on
    the Department of Defense on 9 November 2005. In contrast to prior BRAC
    commissions, the BRAC 2005 recommendations have fewer closures and more
    realignments, particularly realignments that involve more than one
    military Service or Defense Agency. The Department of Navy has 6
    ``fence line'' closures and 81 realignment recommendations involving
    129 bases.
    BRAC 2005 Implementation Funds
        I am pleased to report that the Department of the Navy has fully
    financed its BRAC 2005 implementation plans across the FYDP. We have
    put in place the management structure, oversight, and funding to
    accomplish all closure and realignment actions within the 6 year
    statutory time frame.
        We are financing our implementation plans through a combination of
    (1) funds previously set aside by OSD for this purpose and recently
    allocated in all years of the FYDP (i.e., the BRAC wedge); (2)
    identification, capture, and reinvestment into the BRAC account of
    savings (primarily infrastructure and civilian personnel savings)
    generated by closure and realignment actions; (3) investment of $500
    million in Navy funds. Additional savings, notably MILPERS savings and
    realignment of Fleet Readiness Centers, are being used to finance other
    Department of the Navy priorities. Annual savings exceed annual costs
    in fiscal year 2010. The budget reflects only modest savings in fiscal
    year 2007, but it is expected that overall savings will exceed $1
    billion annually after fiscal year 2011.

    Preparing to Implement BRAC 2005
        Due to the complexity of the many joint recommendations, the
    Department of Defense is using detailed business plans for each BRAC
    recommendation to ensure consistent, timely execution and all necessary
    coordination across the Components. Each of our business plans, which
    averages 40 pages in length, includes extensive details on costs and
    savings, schedules, and supporting Form DD1391s for each construction
    project. Each business plan must be reviewed and approved by the
    Infrastructure Steering Group \2\ prior to any expenditure of funds for
    a given recommendation. We expect approval of the first Navy business
    plans in the near future. In the meantime, the first BRAC 2005 funds
    are being released by OSD to begin formal planning efforts, beginning
    construction design and prepare contracting documents, and initiate
    National Environmental Policy Act (NEPA) studies for disposal and
    receiver sites.
    ---------------------------------------------------------------------------
        \2\ The Infrastructure Steering Group is chaired by the Under
    Secretary of Defense for Acquisition and Technology and Logistics, and
    includes the Deputy Under Secretary of Defense and Service Assistant
    Secretaries for Installations and Environmental, and the Service Vice
    Chiefs of Staff.
    ---------------------------------------------------------------------------
        We prioritized our fiscal 2006 and fiscal year 2007 implementation
    plans to give priority to actions with higher savings, funding all NEPA
    requirements, initiating the necessary military construction planning
    and design, and incrementally funding larger MILCON projects based on
    how much work can be accomplished in each fiscal year. All construction
    projects in fiscal year 2006 use design/build as the acquisition
    methodology and qualify as a NEPA categorical exclusion. Fiscal year
    2007 projects are primarily design build, and require no more than a
    NEPA Environmental Assessment before construction can begin. We are
    working closely with the other Components to establish firm
    requirements, schedules, and the scope and funding for required
    military construction for implementing joint recommendations.
        The table below depicts our fiscal year 2006 and fiscal 2007 plans.
    At several receiver sites, design and construction will begin in 2006
    in conjunction with planning of closure actions at the respective
    closing installations. Realignments of several commands from leased
    space to owned space in the National Capital Region will begin in
    fiscal 2006. Five major realignments will start in fiscal 2007. Other
    smaller closure and realignments begin in fiscal yeaer 2006 and
    continue in fiscal year 2007.

                              [Millions of dollars]
    ------------------------------------------------------------------------
                                                        Fiscal year
               Significant Action            -------------------------------
                                                   2006            2007
    ------------------------------------------------------------------------
    BRAC planning, design and management....              60              59
    NEPA environmental planning & cleanup...              17               6
    Design/build MILCON & closure efforts:
        Naval Air Station Brunswick, ME.....              23              95
        Naval Support Activity New Orleans,               55             125
         LA.................................
        Naval Station Pascagoula, MS........              17               2
        Naval Station Ingleside, TX.........               5             103
        Closure efforts at Naval Air Station  ..............              36
         Atlanta, GA........................
        Closure efforts at Naval Supply       ..............              23
         Corps School Athens, GA............
    Initiate relocations from leased space    ..............              23
     in National Capitol Region.............
    Initiate realignments:
        Fleet Readiness Centers at various                 1              36
         locations..........................
        NAVFAC EFD/EFAs, various locations..              14              37
        Naval Station Newport, RI...........  ..............              28
        San Antonio Regional Medical Center,  ..............              49
         TX.................................
        Naval Integrated Weapons & Armaments  ..............              42
         RDAT&E Center......................
    Other closure/realignment efforts.......              23              49
                                             -------------------------------
          Total.............................             247             690
    ------------------------------------------------------------------------
    BRAC 2005 Significant Actions.

        We are building on our experience with cleanup and property
    disposal from prior BRAC rounds. A BRAC Program Management Office has
    overall responsibility for coordination of BRAC actions, as well as for
    completing cleanup and disposal of the remaining property from all BRAC
    rounds.
        Much has changed since the last BRAC round in 1995. Environmental
    contamination at remaining bases has largely been characterized, and
    cleanup has been completed or is now well underway. In contrast to
    prior BRAC, the cost to cleanup environmental contamination at BRAC
    2005 locations is about $60 million. Private sector capabilities have
    emerged and matured for ``brownfield'' redevelopment and insurance
    industry products to address environmental liabilities when there is a
    CERCLA early transfer of contaminated property. We expect to take
    advantage of these private sector capabilities.
        The Department will use a mix of public and economic benefit
    conveyances, transfers to other Components or Federal agencies, as well
    as public sale for property disposal. We expect developers with the
    experience and expertise to complete the cleanup during redevelopment.
    Communities get the property onto local tax rolls and redeveloped more
    quickly, and controls development through traditional land use planning
    and zoning.

                        MEETING THE EXECUTION CHALLENGE

        The ambitious programs I have outlined above, encompassing military
    and family housing construction, continuing recovery efforts in the
    Gulf Coast, and BRAC-related construction, represent an execution
    effort of over $3.4 billion over the fiscal year 2006/2007 timeframe. A
    daunting challenge, but one that the Navy is well-positioned to meet.
    The global pre-positioned presence of a highly trained workforce that
    offers the full spectrum of products and services allows us to shift
    execution outside of traditional regional boundaries to balance spikes
    in workload caused by events such as the natural disasters of 2004 and
    2005 and BRAC. The Navy has a wide array of contracting tools and in-
    place capacity to efficiently address substantial workload increases.
    We will work to master the challenges with the supply of a competitive
    contractor workforce, and market conditions affecting costs of
    materials and equipment.

                                   CONCLUSION

        We cannot meet the threats of tomorrow by simply maintaining
    today's readiness and capabilities of our physical plant. We must
    continue to transform and recapitalize for the future without
    jeopardizing our current readiness and the strides we have made--and
    continue to make--in managing our shore infrastructure. With our
    partners in industry, the acquisition community, and with the
    continuing support of the Congress, the Department of Navy will build
    and maintain installations that are properly sized, balanced--and
    priced for tomorrow.

        Senator Hutchison. Thank you.
        Secretary Anderson.

    STATEMENT OF HON. WILLIAM C. ANDERSON, ASSISTANT
                SECRETARY OF THE AIR FORCE, INSTALLATIONS,
                ENVIRONMENT, AND LOGISTICS, DEPARTMENT OF
                THE AIR FORCE
        Mr. Anderson. Madam Chairman and members of the committee:
    I will make my remarks brief here this afternoon.
        The Air Force has three main challenges: winning the long
    war on terror, developing and caring for our airmen, and
    recapitalizing and modernizing our air and space systems. I
    will quickly highlight how we plan to meet these challenges in
    military construction, environmental, and base realignment and
    closure programs.
        Our first challenge is winning the long war on terror. As I
    testify today we have approximately 2,400 deployed Air Force
    civil engineers. About a 1,000 of those are deployed outside
    the wire in direct support of coalition missions. To date the
    Air Force civil engineers have overseen repair of 469 schools,
    the construction of 11 clinics, the rebuilding of three
    airports and numerous military facilities such as barracks and
    dining halls.
        Our second challenge is developing and caring for our
    airmen. Our total force MILCON, family housing, sustainment,
    restoration and modernization programs are paramount to
    supporting operational requirements and maintaining a suitable
    quality of life for our men and women in uniform and their
    families.
        One program that is particularly successful for the troops
    is eliminating inadequate dorms. With your help, the Air Force
    is on track to replace all inadequate dorms and the budget
    request before you will complete the funding of those efforts.
        Another success story is family housing. The Air Force's
    budget request completes funding for stateside housing and
    continues our progress overseas. Combined with our highly
    successful privatization program, we think this is a good news
    story for the airmen and their families.
        Being good stewards of the environment is another way we
    develop and care for our airmen. For example, the Air Force is
    testing, evaluating, purchasing, and using green technologies
    with alternative non-hazardous products in aircraft painting,
    de-icing, and other operational areas to reduce the generation
    of waste and eliminate worker exposure to hazardous substances.
    We are expanding the usage of alternative fuels, like ethanol,
    in our military and Government fleet vehicles. In 2005 the Air
    Force was the Nation's largest purchaser of renewable power
    from wind, solar, geothermal, and other green sources.
        We are diligently implementing an Air Force-wide
    comprehensive safety and health program. By benchmarking
    industry best in class programs and to leverage our own
    experience, the Air Force is reducing the risk of injuries and
    keeping the environment free of contaminants.
        Finally, our military construction and realignment and
    closure programs are vital to optimizing our weapons systems
    capabilities and effects. The latest round of base realignments
    and closures will provide more opportunities to improve our Air
    Force. Our BRAC activities for fiscal years 2006 and 2007 are
    fully funded and we have begun implementation of these actions.
        In conclusion, Madam Chairman, I thank the committee for
    strong and continued support. The readiness of our airmen and
    the capabilities of our weapons systems depend upon the
    infrastructure we support with the Air Force's military
    construction, housing, environmental and safety programs. I
    welcome any questions the committee may have.
        [The statement follows:]

                   Prepared Statement of William C. Anderson

        Madam Chairman, Senator Feinstein, and distinguished members of the
    committee, as the Air Force continues to transform, we have three major
    priorities: winning the Global War on Terror, developing and caring for
    our Airmen, and maintaining, modernizing and recapitalizing our
    aircraft and equipment. The Quadrennial Defense Review (QDR) guides and
    supports Air Force transformation and enables us to deliver more
    sovereign options for the defense of the United States of America and
    its global interests. We will fund transformation through
    organizational efficiencies, process efficiencies, and reduction of
    legacy systems, which will ultimately reduce our manpower requirements.
    Our military construction (MILCON) and Base Realignment and Closure
    (BRAC) programs are vital to achieving our vision to develop and care
    for our Airmen, as well as optimizing our weapon systems' capabilities
    and effects. Quality bases, facilities and dwellings are the foundation
    of developing and caring for our Airmen.
        The Air Force fiscal year 2007 MILCON submission represents our
    commitment to these three priorities. A key and essential enabler in
    Air Force transformation, MILCON continues critical weapon system
    beddowns and improves the Quality of Life (QOL) of our Airmen. This
    year's Air Force MILCON budget request is the largest in 15 years, over
    $1.3 billion, with increases across the spectrum of air and space
    operations and throughout our Total Force. Our fiscal year 2007 family
    housing submission will keep us on target to eliminate inadequate
    housing and enables us to exceed our goal to privatize 60 percent of
    our CONUS housing by the end of fiscal year 2007. The risk taken in
    facility recapitalization and facility sustainment allows the Air Force
    to support modernization and transformation. However, even with the
    risks taken we continue to fund our most critical requirements: (1) new
    missions, (2) depot transformation, (3) housing and dormitories, (4)
    fitness centers and (5) child care centers. The facility
    recapitalization rate for fiscal year 2007 is 125 years. OSD's
    Strategic Planning Guidance directs meeting the 67-year recap rate
    metric in fiscal year 2008 and maintaining thereafter, and Air Force
    proposals over the remainder of the Future Years Defense Plan (FYDP)
    have us on track to meet that guidance.
        Sound investment in our installations allows us to take care of our
    people and their families through quality of life and work place
    improvements. We believe the fiscal year 2007 President's Budget (PB)
    proposal will provide the construction bedrock for continued success of
    our mission.
    Introduction
        Air Force facilities and housing are key components of our support
    infrastructure. At home, our installations provide a stable training
    environment and a place to equip and reconstitute our force. Both our
    stateside and overseas bases provide force projection platforms to
    support Combatant Commanders. Because of this, the Air Force has
    developed an investment strategy focused on supporting QDR
    transformational decisions, providing quality dorms for Airmen,
    providing quality family housing for our families, implementing BRAC,
    properly sustaining our infrastructure, striving to recapitalize our
    aging infrastructure, and working to build an appropriate installation
    support baseline. Our total force MILCON, family housing, and
    sustainment, restoration, and modernization programs are paramount to
    supporting operational requirements and maintaining a suitable quality
    of life for our men and women in uniform and their families.
        The Air Force fiscal year 2007 PB request of just over $1.3 billion
    for Total Force MILCON reflects our highest construction priorities. It
    balances transformation, QOL improvements, new mission requirements,
    future project designs, and limited funding for emergency requirements.
    This request includes $1.16 billion for active MILCON, $126 million for
    the Air National Guard, and more than $45 million for the Air Force
    Reserve.
        The Air Force's fiscal year 2007 PB request of $1.18 billion for
    the Military Family Housing investment program balances new
    construction, improvements, and planning and design work. Combined with
    our highly successful privatization program, we think this is a good
    news story for Airmen and their families. While we continue to strive
    to eliminate inadequate housing, we cannot allow more housing to fall
    into disrepair. We need your support to keep our housing operations and
    maintenance submission intact.
        In fiscal year 2007, we will bolster our operation and maintenance
    (O&M) investment in our facilities infrastructure. This investment has
    two components: Sustainment (S) and Restoration and Modernization
    (R&M), which we refer to together as our SRM program. Sustainment funds
    are necessary in order to keep ``good facilities good.'' R&M funding is
    used to fix critical facility deficiencies and improve readiness. In
    this request we have dedicated $1.68 billion to Total Force
    sustainment. That is 86 percent of the requirement from OSD's
    Facilities Sustainment Model. Additionally, in fiscal year 2007 the Air
    Force's Total Force R&M funds is only $310 million. This means we must
    defer some R&M requirements, which has a cumulative effect on Air Force
    facilities and infrastructure that we must reverse. In the out years we
    hope to invest more heavily in critical infrastructure maintenance and
    repair through our O&M program in order to achieve the Department of
    Defense goal of a facility recapitalization rate of 67 years by 2008
    and to fully fund facility sustainment by 2008. At the same time, we
    will incorporate the principles contained within the Air Force Smart
    Operations for the 21st Century (AFSO 21) to modernize tools we use to
    manage our infrastructure management function, thereby reducing costs.
    This effort will include a focus on operational efficiency and a
    holistic view of Air Force asset management.
    Accommodate Transformation
        Our Airmen are without a doubt the best in the world, but superior
    weapons have also played a key role in recent joint warfighting
    successes in the Global War on Terror. Transformational and advanced
    weapon systems enable our Combatant Commanders to respond quickly in
    support of national security objectives, and the military construction
    budget directly supports many of the transformational QDR decisions.
    The fiscal year 2007 Total Force military construction program consists
    of 29 projects that are essential to transformation, totaling $544
    million. The Global Hawk beddowns in Guam and Europe, and Predator
    beddowns at Creech AFB, Nevada; March ARB, California; Ellington Field,
    Texas; and Hector IAP, North Dakota support QDR decisions to vastly
    increase Unmanned Aerial Vehicle coverage and to boost Intelligence,
    Surveillance and Reconnaissance (ISR) capabilities to identify and
    track moving targets in denied areas. The Combat Search and Rescue
    Group headquarters at Davis-Monthan AFB, Arizona helps to enable our
    Special Operations Forces to perform the most demanding and sensitive
    missions worldwide. The Distributed Common Ground Systems at Langley
    AFB, Virginia; Beale AFB, California; and Osan AB, Korea harness the
    power of information and allow us to conduct integrated, net-centric
    warfare that our enemies cannot match. The C-130J tactical airlift
    beddown at Ramstein AB, Germany improves our Joint Mobility capability
    to operate in irregular warfare environments. Depot Maintenance
    Reengineering and Transformation at Hill AFB, Utah, and Robins AFB,
    Georgia is transforming our industrial base to support warfighter
    requirements more effectively. Integrated Global Presence and Basing
    Strategy projects at Andersen AFB, Guam provide the foundational
    infrastructure for our joint air strike and reconnaissance capabilities
    in the Pacific. F-22A Raptor aircraft beddown at Elmendorf AFB, Alaska;
    Hill AFB; and Tyndall AFB, Florida ensures fifth generation stealth
    capabilities are available when and where they are needed.
        The Global War on Terror has changed the role of Airmen in how we
    provide effects and capabilities to Combatant Commanders. Our Airmen
    now work and live ``outside the wire'', and to ensure our Airmen have
    the right skills and more efficiently wage the war on terrorism we are
    standing up the Common Battlefield Airmen Training Complex. Training
    will include weapons proficiency, land navigation, small units tactics,
    physical conditioning, and further instill the warrior mindset in our
    Pararescuemen, Combat Controllers, Tactical Air Control Party
    personnel, Battlefield Weathermen, and other Battlefield Airmen career
    fields. Additionally, to ensure seamless integration into the joint
    battlefield, we are constructing Tactical Aircraft Control Program
    facilities at Fort Bliss, Texas, and Fort Knox, Kentucky.
        A significant portion of our 2007 MILCON budget goes toward
    expediting our transformation into a fully integrated (joint and
    coalition) planning and operational environment. These facilities
    enable and enhance QDR requirements for improved Joint Command and
    Control capabilities. Strategic Planning facilities at Hurlburt Field,
    Florida for Air Force Special Operations Command, and Andrews AFB,
    Maryland for the National Capital Region are key links to our highly
    networked, virtual environment that enables real-time collaboration and
    rapid production of high quality planning products. At MacDill AFB,
    Florida the Air Force is constructing a consolidated Joint Intelligence
    Center for United States Central Command (USCENTCOM). USCENTCOM's area
    of responsibility is the geographic and ideological heart of the Global
    War on Terror. A war without borders, it spans 27 countries in the
    Central Asian region of the world. The Joint Intelligence Center
    provides the USCENTCOM Commander with the situational awareness and
    long range analysis needed to defeat adversaries within the AOR,
    promote regional stability, support allies, and protect United States
    national interests.
    Beddown new Missions
        In addition to the transformational new missions, we continue to
    beddown missions that capitalize on existing capabilities. One of the
    key enablers of the national defense is our strategic airlift
    capability. We are continuing our investment to beddown C-5s at Memphis
    IAP, Tennessee, and Martinsburg, West Virginia. The extensive beddown
    program for the C-17s continues at Elmendorf AFB; Travis AFB and March
    ARB, California; Dover AFB, Delaware; Hickam AFB, Hawaii; Jackson Air
    Guard Station, Mississippi; and Lakehurst Naval Air Station, New
    Jersey. Thanks to your support, the construction funding requirements
    for Charleston AFB, South Carolina, and McChord AFB, Washington are
    complete. The request for fiscal year 2007 includes thirteen C-17
    beddown projects worth over $184 million.
    Continue to Invest in Quality of Life Improvements
        The Air Force sees a direct link between readiness and quality of
    life. We strive to provide quality family housing for our families,
    quality ``Dorms-4-Airmen'', functional fitness centers, and safe child
    development centers. When Airmen deploy, time spent worrying whether
    their families are safe and secure is time not spent focusing on the
    mission. Our QOL initiatives are critical to our overall combat
    readiness and to recruiting and retaining our country's best and
    brightest. Our QOL initiatives reflect our commitment to our Airmen.
                Family Housing
        The Air Force Family Housing Master Plan details our housing
    MILCON, O&M, and privatization efforts. It is designed to ensure safe,
    affordable, and adequate housing for our members. To implement the
    plan, our fiscal year 2007 budget request for the family housing
    investment program is $1.9 billion, the largest in Air Force history.
    Department of Defense Strategic Planning Guidance is to eliminate
    inadequate family housing units in the United States by 2007 and
    overseas family housing units by 2009. The fiscal year 2007 budget
    request completes our efforts to meet the goal in the CONUS, and
    continues our progress overseas. In fiscal year 2007 our installations
    in Germany, Japan, and the United Kingdom have housing projects that
    not only support our Airmen directly, but also spur additional private
    investor interest to provide quality housing for years to come. We
    thank you for your assistance in helping keep us on the path to meet
    these goals.
        For fiscal year 2007, the $1.18 billion requested for our housing
    investment program will provide approximately 2,300 new homes at 10
    bases and improve more than 2,200 homes at 13 bases. An additional $755
    million will be used to pay for operations, maintenance, utilities and
    leases to support the family housing program.
                Dormitories
        We are just as committed to providing adequate housing for our
    unaccompanied junior enlisted personnel. We are making great progress
    in our Dormitory Master Plan, a three-phased dormitory investment
    strategy. Phase I, eliminating central latrine dormitories, is complete
    and we are now concentrating on the final two phases of the investment
    strategy. In Phase II, we are building dormitories in a new
    configuration called ``Dorms-4-Airmen,'' a four-person module, to
    eliminate our room shortage. This is a Chief of Staff approved standard
    for future dormitories. This new module design increases privacy by
    offering a private bathroom within the occupant's private living area
    and increases social interaction space in the kitchen and living room.
    Finally, in Phase III, we will replace existing dormitories at the end
    of their useful with the new Dorms-4-Airmen module to improve the QOL
    of our young Airmen.
        The total Air Force requirement for dormitory rooms is 60,200. With
    the fiscal year 2007 proposal, we are on track to replace all
    inadequate permanent party dormitory rooms by fiscal year 2007 and all
    inadequate technical training dormitories by fiscal year 2009. This
    request includes $159 million for nine dormitory projects--creating
    1,426 new rooms for unaccompanied personnel at both stateside and
    overseas bases. We anticipate our requests in fiscal year 2008 and
    fiscal year 2009 to only include technical training dormitories.
                Community Support
         Our MILCON program also supports the Air Force holistic approach
    to wellness. The four pillars of Air Force Wellness are social,
    emotional, physical and spiritual aspects of life. Our ``Dorms-4-
    Airmen'' design underpins on our Wingman concept by keeping our dorm
    residents socially and emotionally fit. Our fitness centers are a
    critical component of the Air Force's QOL and mission accomplishment.
    Our expeditionary nature requires that Airmen deploy to all regions of
    the world, and into extreme environments, and they must be physically
    prepared to deal with these challenges. In 2007, we will construct a
    fitness center at Eielson AFB, Alaska. Our focus on QOL improvements
    links directly with the Air Force overall modernization and
    transformation program and will support our Airmen and their families
    as they prepare to meet the challenges of an ever-changing world.
    Sustain, Restore, and Modernize our Infrastructure
        The Air Force remains focused on sustaining, restoring, and
    modernizing our infrastructure. As I stated previously, in 2007, we
    have focused sustainment funding on preserving our existing investment
    in facilities and infrastructure and targeted limited R&M funding to
    fix critical facility deficiencies to maintain readiness.
        Our sustainment program is aimed at maximizing the life of our
    infrastructure and preserving our existing investment. Without proper
    sustainment, our infrastructure wears out more rapidly. In addition,
    Commanders in the field use O&M accounts to address facility
    requirements that impact their mission capabilities.
        When facilities require restoration or modernization, we use a
    balanced program of O&M and MILCON funding to make them ``mission
    ready.'' Unfortunately, R&M requirements in past years exceeded
    available O&M funding, causing us to defer much-needed work. It is
    important for us to steadily increase the investment in restoration and
    modernization in order to halt the growth of this backlog, while fully
    funding sustainment to maximize the life of our good infrastructure.
        The Air Force Total Force fiscal year 2007 sustainment funding is
    $1.68 billion and R&M funding is $310 million. This budget carefully
    balances SRM, and MILCON programs to make the most effective use of
    available funding in support of the Air Force mission.
        I am concerned about the potential impact of a change in the
    appropriation acts that separates the SRM Account from the rest of the
    O&M appropriation. This would, in effect, create a fence around SRM. In
    past years, all O&M was funded from the Defense Appropriation.
    Commanders used the flexibility to move money between O&M accounts to
    effectively manage budget shortfalls and unexpected requirements such
    as utility rate increases, natural disasters, infrastructure failures,
    or mission-driven requirements. Without legislation that would permit
    the movement of funds between all O&M accounts, Commanders would face
    serious challenges addressing these emergent requirements. Let me say,
    I share the concern expressed by members of Congress about the use of
    SRM or Base Support accounts as ``bill payers.'' However, for 19 of the
    past 21 years the Air Force has obligated more in SRM than was
    requested in the President's Budget. Air Force Commanders are committed
    to taking care their mission, people, AND facilities. Accordingly, if
    any legislative action is necessary, I believe combining legislative
    language allowing free movement of funds among all O&M accounts, with
    obligation floors for SRM and Base Support is the most effective
    solution. In this way, Commanders will have the ability to best
    allocate resources to meet an increasing set of challenges, including
    support for critical facility repairs. A critical component of the
    Commander's effort will include driving greater efficiencies and higher
    productivity by reforming our business practices under AFSO 21, there
    by driving more value out of every taxpayer dollar we spend.
    Continue Demolition of Excess, Obsolete Facilities
        In addition to modernizing and restoring worn out facilities, we
    also demolish excess and obsolete facilities. This ensures funds are
    focused on facilities we need, not on sustaining ones we do not. For
    the past eight years, the Air Force has aggressively demolished or
    disposed of facilities that were unneeded or no longer economically
    viable to maintain. From fiscal year 1998 through fiscal year 2005, we
    demolished 20.3 million square feet of non-housing facilities and
    infrastructure at a cost of $238 million in O&M funding. This is
    equivalent to demolishing more than three average size Air Force
    installations and has allowed us to target our infrastructure funding
    on facilities we need for the long-term mission. For fiscal year 2007
    and beyond, the Air Force will continue to aggressively identify
    opportunities to eliminate excess and obsolete facilities.
    Mission Support
        The Air Force MILCON program is carefully shaped to reflect the
    most urgent priorities. We have decentralized the process for existing
    mission projects so that MAJCOM Commanders have more input into which
    construction priorities get executed. We provide them a funding target
    based on their percentage of Air Force Plant Replacement Value, and
    they have flexibility in prioritizing the projects most important to
    their mission. This is appropriate because they are closer to the
    missions and uniquely situated to determine priorities. The 2007 MILCON
    program has 16 mission support projects worth $155.3 million. These
    projects range from the most basic electrical and water distribution
    infrastructure on one end of the spectrum to high tech space test and
    evaluation facilities on the other end of the spectrum.
    Planning and Design/Unspecified Minor Construction
        This year's Air Force MILCON request includes $124.6 million for
    planning and design (P&D), of which $13.2 million is for military
    family housing. The request includes $87.5 million for active duty,
    $18.8 million for the Air National Guard, and $5.1 million for the Air
    Force Reserve. These funds will allow us to complete the design work
    for fiscal year 2007 construction programs and to start the designs for
    fiscal year 2008 projects, allowing us to award contracts in the year
    of authorization and appropriation.
        This year's request also includes $25.5 million for the Total Force
    unspecified minor construction program which is our primary means for
    funding small, unforeseen projects that cannot wait for the normal
    military construction process. Because these projects emerge over the
    course of the year, it is not possible to predict the total funding
    requirement. When unspecified minor construction requirements exceed
    our funding request, we augment them by reprogramming available MILCON
    construction funds.
    Optimize use of Public and Private Resources
                Housing Privatization
        Air Force Airmen and their families appreciate your staunch
    commitment to their quality of life. We have used privatization
    authorities to accelerate our housing program. To date, we have awarded
    17 privatization projects providing 16,200 privatized homes for our Air
    Force families. That translates to the Air Force leveraging an
    investment of $209 million with private sector funding to provide $2.4
    billion in total development, yielding a leverage of approximately $11
    of private investment for each public tax dollar.
        Since last year, the Air Force completed construction of our fifth
    privatization project, Phase I of the Wright-Patterson AFB, Ohio,
    privatization project, joining the four previously completed projects
    at Dyess AFB, Texas; Elmendorf AFB (Phase I); Lackland AFB (Phase I),
    Texas; and Robins AFB (Phase I), providing a total of 3,856 homes for
    our Air Force families. Additionally, the Air Force has eight projects
    under various stages of construction at Buckley AFB, Colorado;
    Elmendorf AFB (Phase II); Hanscom AFB, Massachusetts; Hickam AFB (Phase
    I); Kirtland AFB, New Mexico; Little Rock AFB, Arkansas; Moody AFB,
    Georgia; and Patrick AFB, Florida. When these eight ongoing projects
    are complete, we will have 12,352 more new homes available for
    families. Recently, the Air Force awarded four more privatization
    projects at Dover AFB, Hill AFB, Offutt AFB, Nebraska, and Scott AFB,
    Illinois, which are mobilizing for construction this Spring.
        Three years ago the Air Force committed to a goal of privatizing 60
    percent of U.S.-based family housing by 2007; we are proud to say we
    will eclipse that mark by an additional 15 percent and will privatize
    75 percent of our (government-owned) housing in the United States and
    its territories. In total, the Air Force will leverage $575 million in
    MILCON dollars, yielding total construction development expenditures on
    and around Air Force installations exceeding $7.9 billion and providing
    over 47,000 quality homes for our Air Force families.
                Utility Privatization
        In addition to privatizing housing, the Air Force is interested in
    privatizing utilities where it makes economic sense and does not
    adversely affect readiness, security, or mission accomplishment. Our
    installations are key to our operational capabilities. Our network of
    bases provides necessary infrastructure for deploying, employing, and
    sustaining air and space operations and re-deploying and reconstituting
    the force afterwards. Our bases are also the training platforms from
    which skilled Airmen learn their trades and prepare for deployment.
    Reliable utility services are essential to operations at every Air
    Force base.
        To date, the Air Force has conveyed 16 utility systems: 10 under
    OSD's utilities privatization program (10 U.S.C. 2688) and 6 under
    previous efforts. Some 275 systems are currently in the solicitation
    process. By the time the program is complete, we anticipate as many as
    100 of about 500 systems could be privatized. During the course of this
    process, we expect that many competitive solicitations will end up as
    sole source procurements from local utility companies.
    Base Realignment And Closure 2005
        The Secretary of Defense transmitted his recommended closures and
    realignments, to include those recommendations developed by and
    affecting the Department of the Air Force, to the Defense Base Closure
    and Realignment Commission and to the Congress on May 13, 2005, and
    published them in the Federal Register on May 16, 2005, pursuant to
    Public Law 101-510, as amended. The Air Force recommendations
    reaffirmed the Department of Defense's commitment to defend the
    homeland, to establish a capabilities-based defense strategy, and to
    challenge the military departments to transform themselves to better
    meet new threats in a changed security environment. Consistent with the
    goals outlined by the Secretary of Defense, the Department of the Air
    Force established four BRAC goals to support right-sizing of its force
    and to enhance its capabilities:
      --Maximize warfighting capability efficiently,
      --Transform the Total Air Force by realigning infrastructure to meet
            future defense strategy,
      --Maximize operational capability by eliminating excess physical
            capacity, and
      --Capitalize on opportunities for joint activity.
        These goals were formulated with a Total Force perspective--active
    duty, Air Force Reserve and Air National Guard--to optimize operational
    capability in response to a projected declining force structure given a
    20-year view. In turn, these facilitated ongoing transformation within
    the Air Force to meet the challenges and opportunities of the 21st
    Century, and restructure important support functions that capitalize on
    advances in technology and business practices. Of the 222
    recommendations submitted by the Secretary of Defense, the BRAC
    Commission accepted, without change, about 65 percent. In all, the
    Commission revised 34 percent of the recommendations regarding the Air
    Reserve Component, and 37 percent of the Joint Cross-Service Group
    recommendations that affected Air Force installations. While the
    Commission's final decisions fell short of the Air Force's overall
    goals for BRAC--particularly in eliminating excess physical capacity--
    they did, however, help us take a major step towards reshaping our
    Total Force structure. For example, as a result of BRAC, Air Reserve
    Component flying squadrons are increased to a more effective
    operational size, such as from 15 aircraft per fighter squadron to 18
    per squadron after BRAC, and from 8 aircraft per mobility squadron to
    12 after BRAC. This increases the percentage of Reserve Component
    squadrons that are optimally-sized from the current 4 percent to 59
    percent. Additionally, the Air Force will cease flying operations at 23
    locations in response to a declining fighter and mobility force, and
    the Air Force will realize new operational synergies through Joint
    recommendations that pair Air Force and Army forces at locations such
    as Eglin AFB, Florida and Shaw AFB, South Carolina. As the Air Force
    continues to transform, BRAC is but one tool we will use to align our
    force to future defense strategy.
    Brac Implementation
        The Air Force has begun to develop an implementation schedule for
    its BRAC 2005 recommendations, and is working in close partnership with
    the Air National Guard, the Air Force Reserve, and our active duty
    major commands to further develop and refine this schedule. In the
    previous four rounds of BRAC, the Commission recommended 22 major
    closure and 17 major realignment actions of Air Force installations. In
    comparison, the 2005 BRAC Commission recommended 5 major closures and
    12 major realignments of Air Force installations. Additionally, there
    were numerous other smaller realignment actions at Air Force
    installations, many of which were transformational in nature. Given the
    transformational nature of this BRAC round, these types of
    recommendations, particularly those that consolidate or co-locate joint
    activities, or those that establish joint operations, pose new
    implementation challenges for the Air Force. To implement these joint
    recommendations, and to best realize their full intent and operational
    payoff, we are working hand-in-hand with our sister Services, the
    affected defense agencies, and the Office of the Secretary of Defense.
    As directed by the Deputy Under Secretary of Defense (Installations and
    Environment), we are developing 64 BRAC Business Plans to effect those
    actions for which the Air Force was designated as the lead military
    department for implementation. These Business Plans serve as a high-
    level foundation to outline required actions, the timing of these
    actions, and the associated costs and savings associated with
    implementing each recommendation, and will ensure our BRAC 2005
    recommendations are implemented efficiently and effectively.
        The Department of Defense recently delivered its budget
    justifications reports describing the specific programs, projects, and
    activities for the $1.46 billion appropriated in fiscal year 2006 to
    begin implementing its BRAC actions. This figure includes $231 million
    for Air Force BRAC 2005 activities during fiscal year 2006, which will
    begin the P&D phases and requisite National Environmental Policy Act
    (NEPA) environmental studies that precede the construction and
    renovation of facilities needed to relocate functions, missions, and
    weapons systems.
        Our fiscal year 2007 BRAC MILCON program includes a robust 76
    projects totaling $508.8 million, including P&D and the Air Force share
    of Joint Cross-Service Group projects.
        With respect to the BRAC Commission's language on Cannon AFB, New
    Mexico, the Air Force is leading the Department of Defense's review on
    potential reuse of the installation. This action is consistent with the
    Commission's recommendation that, after disestablishing the host
    fighter wing, the Air Force ``shall establish an enclave at Cannon Air
    Force Base that shall remain open until December 31, 2009 during which
    time the Secretary of Defense shall seek other newly-identified
    missions with all military services for possible assignment to Cannon
    Air Force Base. If the Secretary does not find a mission for Cannon Air
    Force Base by December 31, 2009, Cannon Air Force Base and the enclave
    shall be closed.'' The Air Force has aggressively pursued the
    Commission's direction to seek potential re-use, and expects to provide
    the Secretary of Defense with its findings and recommendations this
    summer.
        As the Air Force begins to gauge the impact of other processes
    external to BRAC, such as the results of the QDR and the Air Force's
    Total Force Integration implementation plan, it will continue to refine
    its facility requirements needed to implement BRAC actions as a direct
    result of these and other transformational influences. While it is yet
    unknown what impact the projected end strength reductions might have,
    or the exact facility requirements that are needed for emerging Total
    Force missions, be assured the Air Force will continue to adjust its
    infrastructure footprint to best align its infrastructure as
    efficiently for the future in full compliance with all statutory
    obligations.
        Downsizing infrastructure during BRAC was a difficult task, as all
    Air Force bases are outstanding installations that stand as a credit to
    our Nation and to the exceptional communities that support them.
    However, we had to make hard infrastructure decisions to posture
    ourselves for new security challenges, and to preserve limited
    resources for readiness and modernization. As such, the Air Force
    recognizes it has an obligation to assist its partner communities
    affected by BRAC 2005. In previous rounds of BRAC, the Air Force
    established an excellent record of closing bases as quickly as
    possible. This aggressive approach provided the quickest savings to the
    Air Force and assisted local communities in their efforts to begin
    economic revitalization. The Air Force will continue to maximize
    savings at closure installations and work closely with local
    communities to facilitate a prompt transition and the best reuse
    opportunities. The Defense Economic Adjustment Program will continue to
    assist communities to plan for the civilian redevelopment of available
    real property, and implement local adjustment actions to assist
    impacted workers, businesses, and other affected community interests.
    The Air Force also recognizes the importance of ensuring that those
    communities whose Air Force installations gain new missions under BRAC
    have the capacity to support these new missions with adequate planning,
    housing, education, infrastructure, and community services. The Air
    Force is working with these communities to plan and carry out
    adjustment strategies that will enhance their ability to support both
    our Airmen and other uniformed men and women at the receiving
    installations.
    Environmental Cleanup And Property Transfer
        Environmental clean up and transfer of BRAC real property is often
    technically challenging and has involved extended timeframes to
    complete. At the end of fiscal year 2005, the Air Force has deeded
    approximately 75 percent of 87,000 acres of BRAC property from previous
    BRAC rounds. Our real property disposal efforts have led to the
    creation of over 54,000 reuse jobs in the affected communities. To
    complete the clean up and transfer of the remaining property, the Air
    Force is attempting to leverage private sector experience in developing
    former industrial property similar to Air Force facilities.
    Privatization and guaranteed fixed price contracting are two promising
    examples of this type of process innovation. Our objectives remain
    clear: (1) providing reuse opportunities that best meet the needs of
    the Air Force and local communities, (2) moving the process along
    smartly in each situation to get property back into commerce as soon as
    practical and (3) providing transparency in the process.
        As we transfer BRAC real property for civic and private reuse, the
    Air Force has a continuing responsibility for environmental clean up
    from past industrial activities. The Air Force takes our responsibility
    to protect human health and the environment seriously, and, since 1991,
    we have spent more than $2 billion on environmental clean up at our
    BRAC installations. For fiscal year 2007, the Air Force is requesting
    $116 million for clean up activities.
        At our remaining non-BRAC facilities, the Air Force is reshaping
    our infrastructure to meet the demands of the 21st century. The Air
    Force will utilize new tools to optimize our resources and obtain value
    from our excess capacity. We are developing enhanced use leasing as a
    means of returning value from underused Air Force property and as a
    flexible alternative to property disposal or demolition.
    Conclusion
        In conclusion, Madam Chairman, I thank the committee for its strong
    support of our military construction, housing and transformational
    efforts. The near and long term readiness of our Airmen depends upon
    this infrastructure. We will continue to be good stewards of our
    installations' assets and the environment and will continue to work
    hard to ensure Air Force infrastructure is properly distributed to
    optimize military readiness as well as meet our Nation's defense needs.
    At the same time we will continue to modernize our infrastructure
    management processes, within the overall Air Force transformation
    process, to ensure we are good stewards of the taxpayer's dollars. I
    would be pleased to take your questions.

        Senator Hutchison. Thank you very much.
        I want to start, Mr. Eastin, with the question that was
    brought up by Senator Feinstein regarding Vicenza, Italy. The
    Army is proposing to invest almost $500 million over the next 2
    years to consolidate the 173d Airborne Brigade, including $223
    million for this next fiscal year. I am told that the 173d
    deploys out of Aviano, which is 3 hours away, and that a large
    portion of the Vicenza consolidation would be housed at Dal
    Molin, which is a small piece of land that has no force
    protection.
        My question is, have you thought this through?
        Mr. Eastin. We have thought it through greatly. We have
    looked at various other places to accomplish this. Right now
    the 173d of course is in three places. It is part at Ederle,
    part at Bamberg, and part at Schweinfurt in Germany. Ever since
    Hannibal, I do not think it has been particularly good to have
    part of your force on one side of the Alps and the other part
    on the other. So the intention is to bring it all in one place,
    that place being south of the Alps, which operationally I am
    told--I do not propose to be the combatant commander in this
    case, but I am told that it significantly eases the ability to
    deploy from having to get only one clearance for airspace from
    one country rather than several, which would happen up in
    Germany.
        Senator Hutchison. Why was Aviano not considered as the
    place for consolidation, since the airfield is there?
        Mr. Eastin. You would think that, but the government of
    Italy has offered up the site at Dal Molin and there is enough
    land there to accomplish the mission with keeping two of the
    battalions over at Ederle. The Aviano site would require the
    purchase of more land from, I might add, probably less than
    willing sellers. I do not know what their eminent domain
    activity is in Italy. I suspect it is a little broader than
    ours is here.
        We have also looked at Sigonella. We have the same problem
    with land there. We have looked at Amendola; the same problem
    with land there. Just it is a very land-intense operation and
    it would require the purchase of more land in the other places,
    and with the additional expense entailed.
        So while it may not be intuitive to deploy from Aviano, it
    is but a couple or 3 hours away on a rather super highway and
    can easily be done, and for training purposes they can train in
    Ederle and at Dal Molin and then when they need aircraft, go to
    Aviano.
        Senator Hutchison. We will certainly want to keep looking
    at that. Your $500 million to consolidate at Vicenza--for
    another couple of hundred million you might be able to
    consolidate everything where people could live, have force
    protection, and the airfield. It sounds like you have made the
    decision, but it is something I hope you will continue to
    monitor.
        Mr. Anderson, Spangdahlem. As I mentioned earlier, the Air
    Force is requesting another $39 million for more housing at
    Spangdahlem and $70 million at Ramstein. Are you looking at the
    housing market in these locations and the options that would be
    the most efficient for housing our people, particularly at
    Spangdahlem, where it just seems like an awfully high price
    with no effort so far from the German government.
        Mr. Anderson. Yes, Ma'am, we are. I actually, knowing of
    course that this was a looming issue, last winter I went over
    there myself to take a firsthand look and talk with local
    leaders, local German leaders, and our base commanders. I was
    actually hoping to link up with you on your trip and I
    understand that for other reasons you could not join us in
    Spangdahlem.
        Senator Hutchison. Yes, we had votes late that night.
        Mr. Anderson. I was hoping to walk it with you and we could
    talk as we went.
        But anyway, the Air Force has been working very closely
    with Carl Peter Bruch, who is the state secretary of the German
    state in that area, looking at various options. There are
    obviously, as you know, numerous different options: build-to-
    lease, true privatization, MILCON. Each of the two locations
    are very different, Ramstein being much more suburban-urban,
    with Spangdahlem being a very rural location. They both have
    two very different issues. Ramstein, because of the build-up of
    the military in that area because of the Rhein-Main closure and
    movement, the fact that it is not only U.S. military in that
    area but some of our coalition partners, allies are also using
    the base and in need of housing, and the housing that is in
    most need, enlisted family housing, is identical to the type of
    housing stock that the young German family needs, which is also
    apparently their biggest need.
        The local community, the State, is working with us to look
    at options for either privatization or build-to-lease. They
    believe that they can potentially deal with part of our need.
    We already have 2,000 housing units in stock that we use
    already. They believe they can take care of part of our need,
    but not all of it. The MILCON request would in essence take
    care of the difference.
        Spangdahlem, in a rural area, we need 860, I believe it is
    863--I may be off a few--housing units per our estimations. The
    community believes that it can absorb about 360 of those in
    that rural community along with some other housing that they
    are building for local German nationals, and plans are moving
    ahead to work with the German government to make that happen.
    The remainder of the housing would have to be covered, we
    believe, on base through MILCON. But the German government is
    stepping up and trying to help us through this. It is not an
    easy equation for them, and I realize it is not an easy
    equation for you either.
        Senator Hutchison. Well, I appreciate that you did that. I
    wish I could have been there as well. And I know it is a rural
    area, which makes it more difficult. But if the German
    government is in fact being encouraged, that is a good sign,
    and I hope that you will continue to pursue the most efficient
    situation.
        Mr. Anderson. We will, Ma'am.
        Senator Hutchison. Mr. Penn, I wanted to ask you about the
    area around Naval Air Station Kingsville. There is apparently a
    need to expand training ranges at Kingsville and there is some
    acreage for sale which maybe the National Guard of Texas is
    looking at buying. But the Department of the Navy might also be
    looking at that.
        That base is I think well positioned to grow in the future,
    particularly if there is encroachment on other training bases
    around the country that are still in flux. My question is, to
    what extent is the Department of Navy looking at that before it
    might go--and let me say, I do not know who owns the property.
    I do not have any idea, except that the community is very
    supportive of expanding the training capabilities of Naval Air
    Station Kingsville. So I wondered if Navy is looking seriously
    at doing that before it goes somewhere else.
        Mr. Penn. Yes, Ma'am, we are. In fact, I visited Kingsville
    the end of last year and the Navy--it may end up being a
    bidding war between the Navy and my friend from the Army here.
    But the ECUs, we are looking at for expansion of ECUs. As you
    mentioned earlier, the encroachment is--Kingsville, when I was
    going through flight training Kingsville was--nothing was
    around it. But now within a mile or so there are houses and
    developments springing up.
        Senator Hutchison. Well, as you know, it is a unique area
    where you can have live fire training. There is a lot of
    potential for it. It would be good for a training base for
    reserve, but it also has such, I think, a higher level of use
    for Navy for the potential expansion of the training air.
        Mr. Penn. They have unencumbered air space, which is
    something we need.
        Senator Hutchison. Well, I hope that you are looking at
    that, because I think from the standpoint of the strength of
    the Navy base it would be better to have that be Navy-owned
    than if it were turned into a Guard base and then it might end
    up being the whole thing a Guard base. So not that that is bad,
    but it is not the highest use when air space that is
    uncongested is so rare for the Navy. So I want to make sure
    that that is on your radar screen.
        Mr. Eastin, Red River Army Depot. Red River, as everyone
    knows, was taken off the closure list by the BRAC last year and
    we are going to add one military construction project to Red
    River that was not on the President's request. But I want to
    ask you if you are now in the Army looking at really upgrading
    Red River so that it can continue with the great work force it
    has to do the best possible job on the tanks and trucks that it
    has the unique capability to repair and upgrade?
        Mr. Eastin. As you know, Madam Chairman, Red River was
    initially thought of as being part of the BRAC process. That
    has been taken off the table. It is now an active Army
    installation and we intend to support it fully and support its
    mission.
        Senator Hutchison. Thank you.
        That is all the questions I have. Senator Allard.
        Senator Allard. Thank you, Madam Chairman.
        I just would like to follow up on some of my comments I
    made earlier. Again, I could not be more pleased with the
    presence of Fort Carson in Colorado and the people in Colorado
    Springs and the way they cooperate. I had an opportunity to get
    down there and personally visit with all the men and women that
    have served us so ably in Iraq, and they are just wonderful,
    courageous people. I do not think we really recognize the great
    service they are doing for this country enough. They have
    served in some of the toughest areas in Iraq and Afghanistan
    and, as I mentioned earlier, have a reenlistment rate, and I
    want to do everything I can to make sure they get the adequate
    training they need and to make sure that we can make life as
    appealing as we possibly can in the bases that we have in
    Colorado Springs.
        As you gathered from my earlier comments, I am supportive
    of the expansion of the training facilities there in Fort
    Carson. Kind of the hangup on all this is eminent domain. It
    seems to me that with all the acres that are around the current
    training site that there is going to be plenty of options for
    the Army and probably they do not need to use eminent domain. I
    have been assured that that is not your intention.
        So my colleague Senator Salazar is holding a public meeting
    down in Pueblo and they will be talking about the expansion. I
    think you are going to have a representative there. I wonder if
    you can share with us some of your thoughts about Pinon Canyon.
        Mr. Eastin. First, it is DOD policy, as well as that of the
    Army, not to discuss land acquisition until decisions have been
    made. Somehow or other the cat got out of the bag here and I
    think the cat has left the building already. The Pinon Canyon
    area is very important to the Army. It supplies a vast and open
    space to do training with, as you said, modern weapons that
    shoot accurately at a greater distance. We have a proposal in
    the works--I have not seen it yet--as to acquiring land in the
    Pinon Canyon area. We have some 250,000 acres there now. I
    think what I have seen about this, it will probably add
    somewhere about slightly north of 400,000 more acres.
        Senator Allard. Out of 1 million, 1 million acres.
        Mr. Eastin. It is nice to have an area where you have 1
    million lying around somewhere.
        Senator Allard. Yes.
        Mr. Eastin. As you know, back in 1982 to 1987 we acquired
    the Pinon Canyon area. Half of those acquisitions were done by
    open purchases and another roughly half were done through
    condemnations. Of those condemnations, there are several ways
    to condemn things. You can argue over nickels and dimes and
    finally settle the issue rather than arguing in a major way by
    condemning it. Other times, property owners have come to us and
    said, for tax purposes please condemn this land from us.
        Senator Allard. So you will do condemnation just because
    you have a willing seller and a willing buyer, but you will do
    it to provide some tax benefits for the seller.
        Mr. Eastin. And in the current exercise we are going
    through in Pinon Canyon some of that was actually started by a
    couple landowners who wanted to sell to us.
        Senator Allard. Yes.
        Mr. Eastin. Clearly the preferred way is to handle this
    through a willing seller and a willing buyer and we will do
    that. I do not think to take off the table the possibility of
    condemnation as a way to handle some recalcitrant--we call them
    ``doughnut holes.'' We acquire friendly all the land around the
    outside and one guy is left in the middle, and you have to have
    air rights to shoot over his property or something. It is hard
    to train that way.
        But on to the issue of fair market value, basically even in
    a condemnation action you would be getting fair market value as
    determined by one or more appraisals. But I want to just
    emphasize to you that our firm intention is to buy this from
    people who want to sell it to us, not some other way.
        Senator Allard. Well, your comments are encouraging and,
    like I say, we have so much land there in order to meet your
    needs, and if you have a plan over 20 years or 10 years I
    cannot help but think at some point in time you will reach an
    environment where you can have a willing seller, a willing
    buyer. There is nothing pressuring--down in Pinion Canyon,
    there is nothing really pressuring. Nobody is out there--there
    are no urban areas pressing on it or anything like that and it
    is a relatively undeveloped area, just ranches out in that
    area. I think with time, with patience, you can probably
    acquire those without eminent domain.
        Of course, I had not thought about the possibility that an
    owner may request that you do an eminent domain for tax
    purposes, and I think we will take a second look at our piece
    of legislation to make sure we do not take that opportunity
    away.
        Mr. Eastin. We do appreciate that, according to a survey
    that someone in my office had done, there were 2,000 people in
    the million acres.
        Senator Allard. That includes the heavily populated towns
    we have there, too.
        Secretary Anderson, about the Air Force, I want to talk a
    little bit about the academy there. I just finished a board of
    visitors meeting there and they presented to us a plan to
    recapitalize the facilities at the Air Force Academy. Most of
    the buildings there are over 50 years old. They were built all
    at once and they are over 50 years old, so now they need to
    begin to think to cycle them through over time.
        Some of them were not built there in a way to endure our
    temperature changes, for example, so we have problems with
    cracking cement in some areas and not holding up like expected.
    Many of the buildings right now are incurring some pretty high
    operational costs there at the academy. So they have begun to
    talk about some kind of recapitalization plan there.
        Do you have any idea when the Air Force might look at these
    facilities at the academy in a serious way and look at the
    possibility of putting together a plan there or working with
    the academy and putting together a plan?
        Mr. Anderson. Senator, having walked the academy and looked
    at the buildings like you did, I understand what you are
    talking about and I agree with some of the issues you discuss.
    As you rightly mentioned, the academy is beginning to take a
    look at the strategy for recapitalization. It has not yet risen
    to my level for review. I do not offhand know the time frame.
    We would be happy to get back with you on that in a written
    response if you would like.
        But I do understand that that process has begun and yes,
    the civil engineering organization within the Air Force and my
    office will be looking at that as soon as it is available.

                         ADDITIONAL COMMITTEE QUESTIONS

        Senator Allard. I would appreciate a written response as to
    kind of what you are thinking about as far as long-term
    planning to make sure that we are thinking--I think it is time
    for us to begin to consider those buildings that are most at
    risk and those that are least at risk and put them on a
    priority list and begin to see, look at the dollars they might
    incur to keep it up. I think we want to keep the academy in
    good shape if we possibly can.
        Thank you for your responsiveness, both of you. I
    appreciate it.
        Thank you, Madam Chairman.
        [The following questions were not asked at the hearing, but
    were submitted to the Department for response subsequent to the
    hearing:]

                     Question Submitted to Philip W. Grone

               Question Submitted by Senator Kay Bailey Hutchison

                                 BUSINESS PLAN

        Question. Mr. Grone, I understand Department of Defense is
    requiring the Services and defense agencies to develop business plans
    for each of the approved BRAC recommendations. Among other things,
    these plans develop updated costs and savings for each recommendation
    and an implementation schedule for each recommendation.
        When do you expect to have all the business plans approved?
        Answer. The Department is aggressively developing, reviewing and
    approving the Business Plans supporting the Base Realignment and
    Closure (BRAC) recommendations. The Department anticipates these plans
    will be approved on a time schedule which allows them to inform the
    program review process this summer in advance of developing the fiscal
    year 2008 President's Budget.
                                     ______

                Questions Submitted by Senator Dianne Feinstein

                            BRAC PROPERTY APPRAISALS

        Question. Since the Defense Base Closure and Realignment Act of
    1990, as amended, does not require appraisals prior to the conveyance
    of pre-2005 properties, why is the Department requesting such
    appraisals for pre-2005 properties?
        Answer. In anticipation of the 2005 BRAC round, the Department of
    Defense revised its regulation at 32 CFR Part 174 and subsequently
    issued the Base Redevelopment and Realignment Manual (BRRM) March 1,
    2006 (the BRRM replaces and cancels the Base Reuse Implementation
    Manual (BRIM), December 1, 1997). These two new issuances provide
    revised and updated procedures to be followed by the Military
    Departments in the disposition of BRAC property. It is not the intent
    nor is it the expectation of the Department that actions from past BRAC
    rounds which have been largely completed should be reopened to comply
    with the new procedures. In some instances, e.g., the requirement to
    seek to obtain fair market value for Economic Development Conveyances,
    the statutory changes and their regulatory implementation only apply to
    the 2005 BRAC round. To the extent an action from a prior round is
    still largely open and an appraisal could be accomplished without
    impairing a mostly complete action, it would be perfectly appropriate
    to do such an appraisal. But this will have to be determined on a case-
    by-case basis depending on the status of the disposal action.
        Question. Please provide the Committee with a BRAC 2005 FYDP for
    the fiscal year 2007 through fiscal year 2011.
        Answer. The BRAC 2005 FYDP for the fiscal year 2007 through fiscal
    year 2011 period is as follows:
      --fiscal year 2007 ($5,626.223 million);
      --fiscal year 2008 ($5,696.754 million);
      --fiscal year 2009 ($2,996.036 million);
      --fiscal year 2010 ($1,563.785 million); and
      --fiscal year 2011 ($921.615 million).
        This distribution of resources over the program and related
    information was included in the budget justification materials provided
    to Congress in support of the President's fiscal year 2007 budget
    request, specifically the ``DOD Base Realignment and Closure 2005
    Commission Executive Summary Fiscal Year 2007 Budget Estimates Program
    Year 2007.''

                                GLOBAL REBASING

        Question. Mr. Grone, would you update the committee on the status
    of the Pentagon's global rebasing plan? I understand that the
    Government of Japan has reached agreement with the United States to
    cover 60 percent of the cost of moving approximately 8,000 Marines from
    Okinawa to Guam instead of the 75 percent that the U.S. originally
    counted on, leaving the U.S. share of the relocation cost at about $4.2
    billion.
        Answer. On May 1, 2006, the U.S.-Japan Security Consultative
    Committee (SCC), consisting of the Secretaries of Defense and State and
    their Government of Japan counterparts, released the ``U.S.-Japan
    Roadmap for Realignment Implementation'' document detailing the
    schedules and timelines for implementing the realignment initiatives in
    the October 29, 2005 SCC document, ``U.S.-Japan Alliance:
    Transformation and Realignment for the Future''. One of the several
    initiatives contained therein concerns the move of approximately 8,000
    Marines and their approximately 9,000 dependents from Okinawa to Guam.
    The implementation plan for this initiative provides that the United
    States will fund approximately $4.18 billion out of an estimated
    development cost of $10.27 billion, or about 40 percent. The total U.S.
    cost to develop the facilities and maintain the forces on Guam will be
    somewhat higher when we factor in O&M costs associated with the move,
    the cost of closing down facilities in Okinawa, the procurement costs
    to equip new facilities on Guam, and the costs for leasing real estate
    on Guam.
        The total package of realignments of United States forces in Japan
    involves several other initiatives for which Japan will pay nearly all
    the facilities development costs and that will result in a more secure
    and capable forward presence for our forces. These initiatives include
    a new plan to relocate the capabilities of Marine Corps Air Station
    Futenma out of urbanized Ginowan city to the rural areas near Camp
    Schwab that is politically and technically feasible where previous
    plans were not. These initiatives also include agreement on a plan to
    relocate the jet aircraft from Carrier Air Wing Five out of the
    urbanized Atsugi area to Marine Corps Air Station Iwakuni, which is in
    a much less developed area of Japan. Although the Japanese Government
    has not provided an official estimate of the total costs it will bear
    for the entire package of realignments in Japan and on Guam, we
    understand that the Government of Japan's preliminary estimates are in
    the range of $15-$20 billion.
        Question. Given the increasing pressure on the defense budget how
    does the Pentagon plan to pay its share of the cost of that move? Is
    the funding built into the current FYDP?
        Answer. The fiscal year 2007 President's Budget contains $15
    million for planning activities and initial environmental study actions
    relating to the move of 8,000 Marines and their dependents from Okinawa
    to Guam. In addition, the fiscal year 2007 President's Budget contains
    funding for force posture adjustments on Guam that are not directly
    associated with the U.S.-Japan Alliance Transformation and Realignment
    effort, such as additional submarines, Global Hawk, tankers, and
    rotational fighters and bombers. Funding for the development costs for
    relocating the Marines from Okinawa to Guam is not yet reflected in the
    FYDP. The department continues to define the requirements and refine
    the development cost projections. We plan to examine and analyze
    funding issues during the fiscal year 2008-2013 Program Budget Review
    this year.

                              ENERGY CONSERVATION

        Question. Mr. Grone, we are all aware of the current crisis at the
    gas pumps. This committee has had a long-standing concern about the
    dependence on foreign oil by the Defense Department, as it relates both
    to cost and to national security, and has actively encouraged DOD to
    pursue the use of alternative energy at military installations.
        Last year, the Defense Department submitted a report, as requested
    by this committee, on the potential of increasing the use of
    alternative energy at U.S. military installations. What steps has the
    Defense Department has taken, as a result of that study, to increase
    reliance on alternative energy sources, particularly wind and
    geothermal power, at U.S. military bases?
        Answer. In March 2005, DOD completed an $8.5 million renewable
    energy assessment at all military installations. As indicated in our
    fiscal year 2005 annual energy management report, 8.8 percent of DOD's
    electricity portfolio is now composed of renewable energy. We have
    additionally published a stretch goal of 25 percent by 2025 that we are
    working steadily toward. Senate Report 109-105, accompanying the
    Military Construction Appropriations Act for fiscal year 2006,
    requested the Secretary of Defense report on the steps the Department
    has taken to execute the implementation plan contained in the
    Department's March 2005 Renewable Energy Assessment. On April 4, 2006,
    DOD forwarded an update to the congressional defense committees. Rather
    than replicate that report in this response, a complete copy of that
    report, which will answer your question in greater detail, is available
    at http://www.acq.osd.mil/ie/irm/Energy/Energy.htm. However, I would
    like to take the opportunity to highlight a few key points. Since our
    assessment, we have methodically increased the amount of our Energy
    Conservation Investment Program (ECIP) budget that we are devoting to
    renewable energy generation projects from about $5 million in fiscal
    year 2003 to about $19 million in the fiscal year 2007 President's
    Budget. Of the $19 million in fiscal year 2007, $2.6 million in
    hydrogen fuel cell projects is included.
        Question. Water conservation is another very important issue in
    many States, including my state of California. Would you provide this
    committee for the record with your recommendations as to how the
    Defense Department can take advantage of new technologies to improve
    water conservation at military installations?
        Answer. Important to sustaining Department of Defense (DOD)
    operations is our commitment to the protection of our natural
    resources. Water is an essential natural resource that supports the
    installation mission, and water conservation is key for protecting that
    resource. DOD strives to increase water conservation awareness and
    reduce water use, particularly where scarce water supplies may impact
    mission accomplishment. Reducing use of potable water can decrease
    water pollution, increase energy savings, and create more efficient use
    of water resources. DOD is committed to the protection and sustainment
    of our water resources. From fiscal year 2000 to fiscal year 2004, DOD
    installations decreased portable water consumption by 15.6 percent. In
    2005, DOD updated its energy management policy in DOD Instruction
    4170.11, ``Installation Energy Management.'' This Instruction is based
    on the Energy Policy Acts of 1992 and 2005, and Executive Order 13123,
    ``Greening of the Government Through Efficient Energy Management.'' It
    requires DOD Components to ``maximize energy and water conservation
    efforts'' on existing installations and, as part of DOD's sustainable
    building design requirement, in new building construction and major
    renovation projects. Under DOD's water conservation effort,
    installations develop water management plans, conduct water audits, and
    implement cost-effective water reduction and conservation practices.
    After implementing basic water conservation measures, installations
    focus on water reuse and reclamation projects. Typical projects are on-
    site recycling for vehicle wash facilities and cooling towers, and
    reclaimed water for irrigation, landscaping, and dust control. DOD
    facilities will continue to utilize life-cycle cost analysis to make
    decisions about investments in new products, services, technologies,
    and construction, that will lower DOD costs and reduce energy and water
    consumption.

                                 BUSINESS PLAN

        Question. How do the implementation schedules proposed in the
    business plans compare with those originally proposed by the
    Department?
        Answer. The Department is fully committed to implementing all BRAC
    2005 recommendations in accordance with the statutory 6-year period.
    The Cost of Base Realignment Actions (COBRA) model used to analyze
    these recommendations typically front loaded the implementation
    schedule to initiate actions in the first few years in order to
    adequately compare basing options. BRAC implementation for some actions
    is being delayed compared to the schedule implied by COBRA of the
    previous rounds, primarily due to the complexity and large number of
    joint recommendations.
                                     ______

                     Questions Submitted to Keith E. Eastin

                Questions Submitted by Senator Dianne Feinstein

                                     KOREA

        Question. Last year the Committee was told by the Services that
    costs had increased and that there would be no savings, yet, we find
    this year that the opposite is true.
        Can each of you validate these costs and provide the Committee with
    a more realistic estimate of the amount needed for these facilities?
        Answer. The fiscal year 2007 Korea barracks cost estimates have
    been adjusted to take advantage of the favorable bid climate existing
    in Korea for the past several years. Unit costs were adjusted from $138
    per square foot (SF) to $79 per SF by taking into account actual bid
    data over the last 3 years. This permits the Army to buy down the
    barracks requirements at Camp Humphreys earlier for approximately 710
    soldiers.
        This table compares barracks projects for Korea over the past 4
    years and includes scope and unit costs. There were no barracks
    projects in fiscal year 2005 in Korea.

                                                     BASIS FOR ESTIMATING COST OF BARRACKS PROJECTS IN KOREA
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                          Unit cost at award
                                                            Programmed scope   Project amount ($   Project award ($     Programmed Unit        unit cost
               Fiscal year                  Location           (barracks)          millions)           millions)      cost (barracks) ($/   (barracks) ($/
                                                             (square feet)                                               square foot)        square foot)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    2003............................  Camp Carroll.......            107,940               20.0                11.5              142.77               98.38
    2003............................  Camp Henry.........             53,970               10.2                 7.7              142.80              132.12
    2003............................  Camp Humphreys.....             94,163               36.0                28.2              146.32              135.25
    2004............................  Camp Humphreys.....             53,970               25.0                15.6              142.92               99.44
    2004............................  Camp Humphreys.....            134,032               40.0                30.3              143.21              102.47
    2006............................  Camp Humphreys.....            134,032               25.0                13.1              137.59               88.13
    2006............................  Camp Humphreys.....            189,768               42.6                25.6              137.59              104.91
    2006............................  Camp Humphreys.....            134,032               37.5                23.1              137.58               87.34
    2007............................  Camp Humphreys.....            268,064               42.0                 TBD               79.00                 TBD
    2007............................  Camp Humphreys.....            268,064               35.0                 TBD               79.00                 TBD
    --------------------------------------------------------------------------------------------------------------------------------------------------------

                             HOUSING PRIVATIZATION

        Question. The GAO also found deficiencies with the management of
    Army and Air Force housing privatization projects, including lower than
    anticipated occupancy rates.
        Would you comment on what you are doing to improve housing
    requirement analyses and oversight?
        Answer. The Army largely was pleased with the results of the GAO
    review on housing privatization. While noting some areas where
    improvements were needed, GAO recognized the Army's ``robust and
    comprehensive'' oversight, and did not find any oversight concerns in
    the Army projects it reviewed. The lower than expected occupancy at
    projects noted by GAO does not pose a challenge to the effectiveness or
    long-term viability of those projects. The Army has in place a rigorous
    portfolio and asset management process to carefully monitor each
    project's compliance with the development schedule, as well as the
    financial condition and credit-worthiness of the project. GAO expressed
    concerns that lower than expected occupancy at the Fort Meade project
    had the potential to create a financial risk in the long term. The Army
    already was engaged with the development partner to re-size that
    project in light of the revised housing requirement due to changes in
    local market conditions. That effort continues, and the Army is
    confident in the long-term viability of the project. The GAO also
    recommended the Under Secretary of Defense for Installation and
    Environment expedite issuance of revised guidance to improve the
    reliability of housing requirements assessments. The Army will work
    with the Under Secretary's office to improve the housing requirements
    analysis process where practical.
                                     ______

                        Questions Submitted to B.J. Penn

                Questions Submitted by Senator Dianne Feinstein

                       ENVIRONMENTAL CLEANUP ACCELERATION

        Question. I want to commend the Navy on its efficient use of
    proceeds from the sales of previously BRAC'd properties toward
    environmental remediation. It is my understanding that about $1 billion
    in Navy cleanup remains and that proceeds from these sales will fully
    cover any remaining costs the Navy will have regarding environmental
    cleanup, is that correct?
        Answer. Thank you for recognizing our efforts. The Navy BRAC
    environmental program has been using proceeds from land sales to fund
    all environmental studies and cleanup at prior BRAC locations. While we
    continue striving to keep the prior-BRAC program self sustaining,
    revenue that the Department has received to date from completed sales
    is insufficient to pay for the projected cost to complete of all
    environmental cleanup and property disposal at prior BRAC locations.
    Future sales, notably the former Naval Station Roosevelt Roads PR, may
    provide additional funds, however additional appropriated funds may
    also be required in the future.
        Question. Because the Navy essentially has its own funding for
    cleanup, is there any reason why it cannot accelerate cleanup actions
    across the country?
        Answer. The Navy has already accelerated cleanup actions across the
    country, executing a program on the order of $300 million/year. The
    speed of the cleanup is regulated by many factors including technical
    staffing expertise, contract capacity, regulatory oversight, CERCLA
    process rate-limiting steps and public participation timeframes, to
    name a few. The Navy has found that consistent execution of a program
    of this size exercises the limits of many of these factors. We do not
    believe it would be prudent to further accelerate cleanup across the
    country. We are, however, prepared to invest additional BRAC funds to
    support efforts for early property transfers, should such an
    opportunity arise.

                             POINT LOMA, CALIFORNIA

        Question. Are you aware of the situation at Point Loma, and does
    the Navy need any funding this year or additional authorities to
    protect the land surrounding the tank farm?
        Answer. Yes, we are aware of the fuel plume at Naval Base Point
    Loma. The Navy and Defense Energy Support Center (DESC) have been
    working together to address this issue, prevent any further migration,
    and clean the site. The Navy does not need any additional funds or
    authorities.
        Question. Do you agree with the DLA's assessment that the tank
    replacement project could not be executed in fiscal year 2007?
        Answer. The Navy agrees with the DLA's assessment. The DLA fiscal
    year 2008-10 MILCON Project is a 3-phased project for $125 million to
    replace all existing bulk storage infrastructure at the Defense Fuel
    Support Point, Pt. Loma with modern tanks and equipment. It is at the
    35 percent design stage. Due to the magnitude, scope, current design
    phase and the National Environmental Policy Act (NEPA) environmental
    impact/statement requirements, the Navy agrees with DLA that
    acceleration of the fiscal year 2008 MILCON is not feasible and would
    likely compromise both the design and Federal environmental protection
    requirements.

                             HOUSING PRIVATIZATION

        Question. The Government Accountability Office's recent report on
    military family housing privatization management included strong
    criticism of the Navy's oversight of its program. For example, GAO
    noted that although the Navy established a portfolio management group
    in 2004 which was supposed to prepare consolidated portfolio summary
    reports, no report had been submitted as of January 2006. GAO also
    reported that inaccurate project status information was reported to OSD
    for five of eight Navy and Marine Corps projects that the agency
    reviewed. This included data on projects at San Diego and Camp
    Pendleton.
        What is the Navy doing to improve oversight of its housing
    privatization program and ensure that DOD and Congress have accurate
    information on the performance of the Navy's housing privatization
    projects?
        Answer. As GAO indicates in their report, the Navy had begun a
    comprehensive review of potential enhancements to portfolio management
    prior to initiation of the GAO review. Navy and Marine Corps
    representatives have met with their counterparts in the Army and Air
    Force to review their portfolio management approaches and are working
    to incorporate best industry practices. In recognition of the
    Government's minority role in privatization projects, the Navy is
    striving to achieve a balance between the appropriate level of
    Government oversight while maintaining limited Governmental
    involvement.
        We recognize the need to improve the portfolio management system to
    ensure accurate reporting. The Navy is committed to working with OSD
    and the other Services to improve the accuracy and timeliness of
    privatization evaluation reports and, where necessary, establish clear
    definitions for use in reporting.
        Question. The Navy has undertaken a pilot program to privatize
    bachelor enlisted housing at three locations, including San Diego. What
    is the Navy doing to ensure that these projects are being adequately
    monitored and do not experience the same management shortfalls that
    have affected the Navy's family housing privations program?
        Answer. The Navy has begun a comprehensive review of potential
    enhancements to the management of the privatized housing portfolio.
    This includes portfolio summary reports and briefings for key Navy and
    Marine Corps leadership. The process, including enhancements, will be
    applicable to both privatized family and unaccompanied housing.

                            BRAC PROPERTY APPRAISALS

        Question. Secretary Penn, since the Defense Base Closure and
    Realignment Act of 1990, as amended, does not require appraisals prior
    to the conveyance of pre-2005 properties, why is the Navy delaying the
    negotiation and conveyance of NAS Alameda and NS Treasure Island until
    such appraisals are completed?
        Answer. The Navy is dedicated to the disposal of all BRAC
    properties under its jurisdiction and at no time has delayed
    negotiations nor conveyance of properties based upon the completion of
    appraisals.
        The appraisals are required by current DOD regulations (32 CFR
    174.9) implementing the Economic Development Conveyance (EDC) process.
        In the case of NAS Alameda, negotiations had been renewed with the
    Alameda Reuse and Redevelopment Authority in March 2004 to reflect
    changes in its redevelopment plan within the context of an EDC. Both
    parties determined that the current Memorandum of Agreement for an EDC
    would need to be amended to reflect the changes and provide adequate
    consideration for the transfer. During these negotiations, the DOD
    implementing regulations were revised and the Navy recognized that a
    formal appraisal would be required to convey the property. An estimate
    of fair market value had already been determined and the Navy has been
    working with OSD to ensure that the estimate can be applied to meet the
    new appraisal requirement.
        In the case of Treasure Island, similar to Alameda, the
    redevelopment plan has continued to evolve and the same changes in the
    implementing regulations requiring an appraisal apply. The Navy is
    awaiting supplemental information from the Local Reuse Authority (LRA)
    in support of an EDC Application. The Navy is prepared to evaluate the
    application as soon as the information has been submitted by the LRA.
    In the interim, the Navy is continuing its remediation efforts (50
    percent of the property is currently environmentally suitable for
    transfer) and is moving forward with an appraisal.
                                     ______

                   Questions Submitted to William C. Anderson

              Questions Submitted by Senator Kay Bailey Hutchison

                                 BRAC PROJECTS

        Question. Mr. Anderson, the final 2005 BRAC recommendations
    included the realignment of March (California), Hector (North Dakota),
    and Ellington (Texas) Air National Guard bases. The BRAC Commission
    noted that the Air Force could assign a new mission to these bases, to
    include unmanned aerial vehicles. The Air National Guard fiscal year
    2007 military construction budget request includes $17.5 million for
    projects to bed down Predators at these bases. While I support these
    projects, and am very pleased to see the Predator coming to Ellington
    Field, I don't understand why these projects are requested as military
    construction and not BRAC projects.
        Can you explain this to me?
        Answer. Regarding the Air National Guard units at March Air Reserve
    Base, California, Hector Field, North Dakota, and Ellington Field, the
    BRAC Commission recommendation states these units may assume a mission
    relevant to the security interests of their respective states and
    consistent with the Air Force's Total Force Integration effort to
    include, but not limited to, the unmanned aerial vehicle (UAV) mission.
    For these Predator UAV beddowns as subsequently identified by the Air
    Force, the acquisition program funds the full life-cycle costs of the
    weapon system, to include construction costs. Therefore, these costs
    are not paid for by BRAC. Costs directly related to BRAC actions are
    being clearly tracked and executed to ensure compliance in accordance
    with BRAC statute.
        Question. Does this not obscure the cost of BRAC?
        Answer. No, in the case of Predator, the acquisition program funds
    the full life-cycle costs of the weapon system, including construction
    cost. Therefore, these costs are not paid for by BRAC. Costs directly
    related to BRAC actions are being clearly tracked and executed to
    ensure compliance in accordance with BRAC statute.

                                     KOREA

        Question. Last year the Committee was told by the Services that
    costs had increased and that there would be no savings, yet, we find
    this year that the opposite is true.
         Can each of you validate these costs and provide the Committee
    with a more realistic estimate of the amount needed for these
    facilities?
        Answer. The significant savings are due to a temporary, highly
    competitive bid climate in Korea expected to subside by the end of
    fiscal year 2006.
        Due to the delayed decisions on the U.S.-Korean Land Partnership
    Plan and the Department of Defense (DOD) announcement to move U.S.
    Soldiers south of the Han River, many major U.S. military construction,
    Non-Appropriated Fund (NAF), and Host Nation Fund Construction (HNFC)
    projects were cancelled or delayed. Korean contractors were hard hit by
    the loss of tens of millions of dollars in business. Therefore, Korean
    contractors have been submitting very competitive proposals for the few
    large fiscal year 2004, fiscal year 2005 and early fiscal year 2006
    military construction projects. This is especially true for dormitories
    where we have standardized our dormitory designs and contractors have
    become very familiar with and efficient in their construction.
        With the reduction in U.S. military construction, we expected
    Korean contractors would shift their resources to the local economy.
    This did not happen because U.S. military type construction is a niche
    industry, in which successful contractors recruit, train, and retain
    personnel literate in English and U.S. building codes and standards.
    The temporary ``buyers'' construction market is reflected in two fiscal
    year 2006 dormitory projects receiving 24 and 21 bids, respectively.
    Typically, only three to five bids are received. Thus, contractors are
    providing competitive bids until the major flood of Army relocation
    construction starts in late fiscal year 2006. In fiscal year 2006, it
    is expected land promised by Korea to the United States will be ready
    for construction. At Kunsan Air Base alone, by September 2006, over
    $450 million of HNFC facility projects will be ready to advertise to
    support relocating two Army Aviation Battalions. This contracted
    construction amount is expected to grow to over $780 million by
    December 2006. Also, relocation of Yongsan Garrison to south of Seoul
    is scheduled at the same time at a total cost of approximately $3
    billion. Korean contractors expect a building boom and the cost of
    military construction projects will increase due to less bid
    competition and a tightened labor and construction supply market.
    Despite the projections above, the fiscal year 2007 dormitory project
    at Kunsan Air Base was programmed to match bid data from the two fiscal
    year 2006 dormitories. We analyzed the ``per room'' cost for each
    dormitory and programmed the fiscal year 2007 dorm to be in line with
    those figures. The fiscal year 2007 Kunsan dormitories project cost was
    based on the best available information. The existing construction
    climate, plus the anticipated construction climate in fiscal year 2007
    and beyond, makes it a challenge to program projects.

                             HOUSING PRIVATIZATION

        Question. The GAO also found deficiencies with the management of
    Army and Air Force housing privatization projects, including lower than
    anticipated occupancy rates.
         Would you comment on what you are doing to improve housing
    requirement analyses and oversight?
        Answer. The Government Accountability Office (GAO) Report on
    Military Housing, Management Issues Require Attention as the
    Privatization Program Matures, states ``we found that the Army and the
    Air Force have robust, well-developed portfolio oversight programs to
    help top management monitor implementation of their privatization
    programs. Both of these services collected and analyzed detailed
    performance information on each project.'' The report further states
    ``the Army and the Air Force also prepared quarterly portfolio summary
    reports, which monitored project execution, analyzed trends,
    highlighted current and potential performance issues, and documented
    recent and planned actions to address any project concerns.''
        Several projects in the Air Force portfolio have occupancy levels
    less than originally projected. As the GAO report indicates, this is
    due to several factors, one being accurate determination of housing
    requirements.
        Most of our privatization Housing Requirement and Market Analysis
    (HRMA) documents were published in 2003. We are now updating the HRMAs
    at bases scheduled for privatization just prior to solicitation. The
    new housing requirement will be included in the request for proposals
    (RFP). This will ensure the developer bids on the most current
    anticipated housing requirement for each privatization effort.
                                     ______

                Questions Submitted by Senator Dianne Feinstein

                                 MC CLELLAN AFB

        Question. The nationwide need for BRAC environmental cleanup
    funding is great. I have worked very hard to increase the level of BRAC
    funding to ensure that, despite other pressures on the Federal budget,
    cleanup schedules do not fall behind. It is imperative that we keep the
    promises made to these local communities when their bases were closed.
    With respect to McClellan, I am troubled that the funds intended for
    McClellan are going elsewhere and in result this is putting McClellan
    at a clear disadvantage. For example, in fiscal year 2006 $37.4 million
    was required for ongoing cleanup efforts at McClellan. However, the Air
    Force Real Property Agency, and the Air Force, have stated that they
    expect to use only $22.7 million of these required funds.
        Where is the remaining $14.7 million being spent?
        Answer. Based on previous inquiries from the committee staff, we
    believe your reference to $37.4 million is a transposition error and
    should read $34.7 million. We framed our response based upon our $34.7
    million reference.
        McClellan received $31.9 million of the $34.7 million requirement.
    The fiscal year 2006 requirement was funded across multiple years. We
    had the opportunity to forward fund $9.2 million of the fiscal year
    2006 activity, funded through fiscal year 2005 and prior year funds,
    and we did so to accelerate the project. We then funded an additional
    $22.7 million with fiscal year 2006 appropriations, for a total of
    $31.9 million. As on all major Air Force projects, we continually look
    for cost savings opportunities. As relates to the fiscal year 2006
    activities at McClellan, our environmental engineering team was able to
    generate $2.6 million in savings opportunities to date. We anticipate
    an additional $200,000 in contract savings as well, bringing the total
    to $34.7 million. These savings represent permanent reductions on cost
    of the overall project, directly benefiting the taxpayer.
        Question. Can you please provide the Committee with a timetable and
    full accounting of past and projected BRAC funding for this site
    through the completion of the remediation process.
        Answer. Thank you, Ma'am, for your continued commitment to BRAC
    clean up funding. We appreciate the long-term view and continued
    emphasis on our program.

                              [Millions of dollars]
    ------------------------------------------------------------------------
                           Fiscal year                            Amount
    ------------------------------------------------------------------------
    2001....................................................            25.7
    2002....................................................            39.1
    2003....................................................            20.1
    2004....................................................            26.3
    2005....................................................            37.1
    2006....................................................            22.7
    2007....................................................            25.1
    2008....................................................            33.5
    2009....................................................            52.1
    2010....................................................            71.4
    2011....................................................            72.2
    ------------------------------------------------------------------------
    Fiscal year 2001-fiscal year 2005 obligated amounts by execution year
      for McClellan AFB.

        Source: DFAS, as of March 31, 2006.
        The Air Force is currently on target to obligate $22.7 million for
    McClellan in fiscal year 2006 and $25.1 million in fiscal year 2007 as
    noted in the fiscal year 2007 President's Budget request.
        The current Air Force estimates for fiscal year 2008-11 and the
    remaining cost for completion (fiscal year 2012 to fiscal year 2034)
    estimate of $415.7 million were recently published in the Defense
    Environmental Programs Annual Report to Congress fiscal year 2005
    (page. J-1-50). These estimates are likely to change as the Air Force
    is pursuing initiatives that are expected to impact these estimates and
    the funding distribution over time. The Air Force is currently in the
    annual cost preparation and validation cycle, which will result in
    revised numbers to reflect these initiatives. The initiatives are:
      --62-Acre Pilot Privatization Project.--McClellan has been working
            with the County of Sacramento and regulatory agencies to
            execute environmental cleanup of 62 acres using a Firm Fixed
            Price Privatization agreement. Agreement in principle has been
            reached and efforts are underway to complete documentation to
            execute the agreement by the end of calendar year 2006. The Air
            Force prefers privatization, because it reduces and controls
            cost, speeds property transfer, and links the cleanup with
            property development activities. This pilot project will serve
            as the template for future privatization discussions for the
            remainder of the base.
      --Focused Strategic Sites Record of Decision.--A Feasibility Study
            and Proposed Plan are in preparation for the 11 highest cost
            sites on the former McClellan AFB. These sites represent
            approximately 38 percent of the McClellan cleanup cost. Costs
            vary depending on cleanup alternatives, but the Feasibility
            Study shows that environmentally protective remedies are
            available at costs less then currently projected. The Record of
            Decision is scheduled for
      --Integrated Air Force Real Property Agency BRAC Master Plan.--The
            Air Force is in the final stage of developing revised cleanup
            and property disposal plans that will restructure cleanup
            program execution. The plans will alter traditional execution
            approaches, and identify streamlined methods to accomplish the
            work. The preferred alternative for most bases is cleanup by
            privatization, or multi-base Guaranteed Fixed Price Remediation
            (GFPR) contracts. The Air Force has seen success at sites such
            as the Davis Transmitter site where cost and time to clean up
            were significantly reduced through GFPR and introducing new
            technologies. These plans are scheduled for completion and
            agency approval during summer 2006.

                             CONCLUSION OF HEARINGS

        Senator Hutchison. That concludes our questions. I thank
    all of you for making very good presentations and we look
    forward to working with you through the year. The meeting is
    recessed.
        [Whereupon, at 3:46 p.m., Tuesday, May 9, the hearings were
    concluded, and the subcommittee was recessed, to reconvene
    subject to the call of the Chair.]

           LIST OF WITNESSES, COMMUNICATIONS, AND PREPARED STATEMENTS

                                  ----------
                                                                       Page
    Allard, Senator Wayne, U.S. Senator From Colorado, Statements of. 5, 83
    Anderson, Hon. William C., Assistant Secretary of the Air Force,
      Installations, Environment, and Logistics, Department of the
      Air Force, Department of Defense...............................   109
        Prepared Statement of........................................   110
        Questions Submitted to.......................................   129

    Cooper, Daniel L., Under Secretary for Benefits, Department of
      Veterans Affairs...............................................     1
    Craig, Senator Larry, U.S. Senator From Idaho, Prepared Statement
      of.............................................................    32

    Eastin, Hon. Keith E., Assistant Secretary of the Army,
      Installations and Equipment, Department of the Army, Department
      of Defense.....................................................    87
        Prepared Statement of........................................    87
        Questions Submitted to.......................................   125

    Feinstein, Senator Dianne, U.S. Senator From California:
        Questions Submitted by.......................51, 122, 125, 127, 130
        Statements of................................................ 2, 58

    Grone, Philip W., Deputy Under Secretary of Defense
      (Installations and Environment), Department of Defense.........    57
        Prepared Statement of........................................    62
        Question Submitted to........................................   122
        Statement of.................................................    61

    Henke, Robert J., Assistant Secretary for Management, Department
      of Veterans Affairs............................................     1
    Hutchison, Senator Kay Bailey, U.S. Senator From Texas:
        Opening Statement of.........................................    57
        Questions Submitted by.................................48, 122, 129
        Statement of.................................................     1

    Johnson, Senator Tim, U.S. Senator From South Dakota:
        Prepared Statement of........................................     4
        Statement of.................................................     4
    Jonas, Hon. Tina W., Under Secretary of Defense (Comptroller),
      Department of Defense..........................................    57
        Prepared Statement of........................................    60
        Statement of.................................................    59

    Landrieu, Senator Mary L., U.S. Senator From Louisiana:
        Prepared Statement of........................................     8
        Questions Submitted by.......................................    52

    McClain, Tim S., General Counsel, Department of Veterans Affairs.     1
    McConnell, Senator Mitch, U.S. Senator From Kentucky:
        Prepared Statement of........................................     4
        Questions Submitted by.......................................    50
    Murray, Senator Patty, U.S. Senator From Washington, Statement of     6
    Nicholson, Hon. R. James, Secretary, Department of Veterans
      Affairs........................................................     1
        Prepared Statement of........................................    12
        Statement of.................................................     9

    Penn, Hon. B.J., Assistant Secretary of the Navy, Installations
      and Environment, Department of the Navy, Department of Defense.    95
        Prepared Statement of........................................    96
        Questions Submitted to.......................................   127
    Perlin, Jonathan B., Under Secretary for Health, Department of
      Veterans Affairs...............................................     1

    Tuerk, William F., Under Secretary for Memorial Affairs,
      Department of Veterans Affairs.................................     1

                                 SUBJECT INDEX

                                  ----------

                             DEPARTMENT OF DEFENSE

                                                                       Page
    Army Family Housing:
        Construction (AFHC)..........................................    93
        Operations (AFHO)............................................    93
    Additional Committee Questions...................................   122
    Army Modular Force...............................................    89
    BRAC 2005:
        Budget.......................................................    90
        Implementation...............................................   106
            Strategy.................................................    89
    Base Realignment and Closure (BRAC)..............................60, 88
        Projects.....................................................   129
        Property Appraisals........................................122, 128
    Business Plan..................................................122, 125
    Environment......................................................   104
    Energy Conservation..............................................   124
    Environmental Cleanup Acceleration...............................   127
    Facilities Management............................................   100
    Global Rebasing..................................................   123
    Homeowners Assistance Fund, Defense..............................    94
    Housing..........................................................   101
        Privatization.........................................128, 127, 130
    Hurricane Recovery Efforts.......................................    96
    Infrastructure Quality...........................................    88
    Integrated Global Presence and Basing Strategy (IGPBS)...........    89
    Korea..........................................................125, 129
    Leveraging Resources.............................................    91
    Military Construction............................................91, 98
        Army.........................................................    91
            National Guard...........................................    92
            Reserve..................................................    93
    McClellan AFB....................................................   130
    Meeting the Execution Challenge..................................   108
    Military Construction and Family Housing Overview................    60
    Operation and Maintenance........................................    94
    Prior BRAC Cleanup & Property Disposal...........................   105
    Point Loma, California...........................................   127
    Prior BRAC.......................................................    90
    Stationing.......................................................    88
    Strategic Priorities.............................................    60
    The Navy's Investment in Facilities..............................    97
    The Way Ahead....................................................    90
    Transforming Installations While the Army is at War..............    87

                         DEPARTMENT OF VETERANS AFFAIRS

    Additional Committee Questions...................................    48
    Bellingham, Washington...........................................    44
    Capital (Construction and Grants to States)......................    19
    Claims Processing................................................    37
    General Operating Expenses.......................................    17
    Grants for State Extended Care...................................    32
    Gulf War Research Data...........................................    45
    Information Technology Services..................................    19
    Information Technology Systems Consolidation.....................    35
    Medical:
        And Prosthetic Research......................................    20
        Care.........................................................    13
        Research.....................................................    16
        Services Reprogramming.......................................    41
    Mental Health....................................................    30
        Funding......................................................    42
    National Cemetery Administration.................................18, 24
    New Orleans Replacement Hospital.................................    30
    OIF/OEF Veterans.................................................33, 42
    Post-Traumatic Stress Syndrome...................................    21
    Proposed Legislation on Fees and Copayments......................    21
    Quarterly Reporting to Congress..................................    34
    Rio Grande Valley, Texas.........................................    36
    Rocky Mountain Region Colorado...................................    23
    Standardizing Diabetes Monitoring Equipment......................    46
    Tribal Mental Health.............................................    44
    VA:
        Budget.......................................................    38
        Healthcare...................................................    26
        Model........................................................    26
    Veterans Integrated Service Network 20...........................    47

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