[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]


 
           LONG-TERM SUSTAINABILITY OF CURRENT DEFENSE PLANS 

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

                                HEARING

                               before the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

            HEARING HELD IN WASHINGTON, DC, FEBRUARY 4, 2009

                               __________

                            Serial No. 111-2

                               __________

           Printed for the use of the Committee on the Budget


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                        COMMITTEE ON THE BUDGET

             JOHN M. SPRATT, Jr., South Carolina, Chairman
ALLYSON Y. SCHWARTZ, Pennsylvania    PAUL RYAN, Wisconsin,
MARCY KAPTUR, Ohio                     Ranking Minority Member
XAVIER BECERRA, California           JEB HENSARLING, Texas
LLOYD DOGGETT, Texas                 SCOTT GARRETT, New Jersey
EARL BLUMENAUER, Oregon              MARIO DIAZ-BALART, Florida
MARION BERRY, Arkansas               MICHAEL K. SIMPSON, Idaho
ALLEN BOYD, Florida                  PATRICK T. McHENRY, North Carolina
JAMES P. McGOVERN, Massachusetts     CONNIE MACK, Florida
NIKI TSONGAS, Massachusetts          K. MICHAEL CONAWAY, Texas
BOB ETHERIDGE, North Carolina        JOHN CAMPBELL, California
BETTY McCOLLUM, Minnesota            JIM JORDAN, Ohio
CHARLIE MELANCON, Louisiana          CYNTHIA M. LUMMIS, Wyoming
JOHN A. YARMUTH, Kentucky            STEVE AUSTRIA, Ohio
ROBERT E. ANDREWS, New Jersey        ROBERT B. ADERHOLT, Alabama
ROSA L. DeLAURO, Connecticut,        DEVIN NUNES, California
CHET EDWARDS, Texas                  GREGG HARPER, Mississippi
ROBERT C. ``BOBBY'' SCOTT, Virginia
JAMES R. LANGEVIN, Rhode Island
RICK LARSEN, Washington
TIMOTHY H. BISHOP, New York
GWEN MOORE, Wisconsin
GERALD E. CONNOLLY, Virginia
KURT SCHRADER, Oregon

                           Professional Staff

            Thomas S. Kahn, Staff Director and Chief Counsel
                 Austin Smythe, Minority Staff Director

































                            C O N T E N T S

                                                                   Page
Hearing held in Washington, DC, February 4, 2009.................     1

Statement of:
    Hon. John M. Spratt, Jr., Chairman, House Committee on the 
      Budget.....................................................     1
        Questions for the record.................................    72
    Hon. Paul Ryan, ranking minority member, House Committee on 
      the Budget.................................................     2
    Hon. Rick Larsen, a Representative in Congress from the State 
      of Washington, prepared statement of.......................     3
    Stephen Daggett, specialist in defense policy and budgets, 
      Congressional Research Service.............................     3
        Prepared statement of....................................     9
        Responses to questions for the record....................    57
    J. Michael Gilmore, Assistant Director, Congressional Budget 
      Office.....................................................    20
        Prepared statement of....................................    26
        Responses to questions for the record....................    72
    Hon. Steve Austria, a Representative in Congress from the 
      State of Ohio, questions for the record....................    56
    Hon. Rosa L. DeLauro, a Representative in Congress from the 
      State of Connecticut, questions for the record.............    56
    Hon. James R. Langevin, a Representative in Congress from the 
      State of Rhode Island, questions for the record............    73


                      LONG-TERM SUSTAINABILITY OF
                         CURRENT DEFENSE PLANS

                              ----------                              


                      WEDNESDAY, FEBRUARY 4, 2009

                          House of Representatives,
                                   Committee on the Budget,
                                                    Washington, DC.
    The committee met, pursuant to call, at 10:05 a.m. in room 
210, Cannon House Office Building, Hon. John Spratt [chairman 
of the committee] presiding.
    Present: Representatives Spratt, Schwartz, Becerra, 
Blumenauer, McGovern, McCollum, Melancon, Scott, Larsen, 
Doggett, Berry, Yarmuth, Connolly, Kaptur, Tsongas, Etheridge, 
Langevin, Ryan, Hensarling, Simpson, Nunes, Harper and Lummis.
    Chairman Spratt. Call the meeting to order.
    I first would thank our witnesses and, for that matter, 
everyone else for coming to the hearing this morning on the 
long-term sustainability of our current defense plans.
    Our object in this hearing is a better understanding of 
defense spending increases over the last 8 years and some 
notion, at least we hope to come out with, of the 
sustainability of concurrent defense plans for 2010 and beyond.
    Over the past 8 years, the defense funding level has 
enjoyed a--defense spending has enjoyed a rather permissive 
environment; and it has increased at a rapid rate. The so-
called base, or our non-war budget, increased between 7 and 8 
percent; and the cost of our deployments in Iraq and 
Afghanistan increased steadily each year, surpassing $185 
billion in the year 2008. As a result, total defense spending, 
Function 050, more than doubled over this period, rising from 
$335 billion in 2001 to $691 billion in 2008.
    Defense spending in real terms is now at its highest level 
since World War II. So it is reasonable to ask, can this trend 
continue? Given our fiscal condition, the receding economy, 
surging deficits, annual increases in defense on par with what 
we have seen over the last 8 years are not going to be easy to 
accommodate in the budget.
    Secretary Gates implied as much himself. In his testimony 
recently before the House and Senate Armed Services Committees, 
he told the committee, and I quote, the spigot of defense 
spending opened by 9/11 is closing. He also said that the 
Defense Department is going to have to differentiate between, 
quote, those things that are desirable as opposed to those 
things that are truly needed.
    Now, let there be no mistake about it. I have been on the 
Armed Services Committee for all of the 26 years I have been 
here, and I have been a stalwart supporter of national defense. 
We will spend whatever we need to see that our national 
security needs are met. Only now more than ever, given the 
budget we have got, we must ensure that we do so in a fiscally 
sound manner.
    For the government to make fiscally sound, responsible 
decisions it must first have a full accounting of its policies, 
including both DOD's base defense plans and its prospective war 
plans. Over the past 8 years, such an accounting has been 
lacking.
    The government must also assess options, identify cost 
pressures, explore tradeoffs and assess opportunity costs; and 
this is what we want to begin exploring today. We have two 
excellent witnesses for this purpose. Michael Gilmore is the 
Assistant Director for National Security at the Congressional 
Budget Office; and Steve Daggett, an expert in defense policy, 
and budgeting in particular, at the Congressional Research 
Service.
    I welcome you both, and I thank you for your willingness to 
come before the committee and for your excellent testimony, 
which I have read. I think you will be two good witnesses to 
help us understand past trends in defense spending and any 
implications for the future, long-term cost implications of the 
defense plans that we have in place now.
    But before turning to either one of you, I want to turn to 
Mr. Ryan, the ranking member from Wisconsin, and ask him for 
any opening statement he cares to make.
    Mr. Ryan. Thank you, Mr. Chairman.
    Our conference is just winding down, so I expect our 
members to start coming soon.
    Clearly, the bulk of Congress' attention has been focused 
on and remains to be focused on addressing the current crisis 
in our economy. But dealing with the economic crisis does not 
excuse or even diminish Congress' responsibility to the primary 
role of the Federal Government, and that is our national 
defense. So even as the economy has replaced the global war on 
terrorism on the front page, it does not replace our commitment 
to those on the front lines. Our job, as it has always been, is 
to ensure that American soldiers have the best available to 
them.
    But as this hearing will point out, DOD's plan far exceeds 
what has been budgeted. Just as in the civilian sector, DOD's 
health care spending is increasing at an unsustainable rate; 
and, just as in the rest of the budget, these costs are 
beginning to eat into their discretionary budget. So I have a 
particular interest in hearing from both witnesses about what 
DOD is doing or at least planning to do to address this 
particular problem.
    Finally, as everyone on the committee is well aware, DOD 
did not receive a clean audit last year. It has, in fact, been 
on GAO's high-risk list for as long as I can personally 
remember; and, regrettably, I have not heard any indication 
that these problems will be resolved in the near future.
    My point here is that, while we must ensure our troops are 
fully funded, we cannot simply throw money at the Pentagon 
without proper oversight and accountability. I look forward to 
exploring our witnesses and the drivers behind DOD's growing 
budgets and how, together with Congress, it might be more 
efficiently transparently met in this important mission.
    Thank you.
    Chairman Spratt. Thank you, Mr. Ryan.
    One further housekeeping detail, I ask unanimous consent 
that all members be allowed at this point to submit an opening 
statement for the record.
    Hearing no objection, so ordered.
    [The prepared statement of Mr. Larsen follows:]

 Prepared Statement of Hon. Rick Larsen, a Representative in Congress 
                      From the State of Washington

    Chairman Spratt, thank you for holding today's hearing on the Long-
Term Sustainability of Current Defense Plans. I appreciate your 
dedication to thoroughly examining all aspects of our nation's fiscal 
future.
    The previous Administration has left us with defense spending plans 
that are both unsustainable and unrealistic. The Pentagon's base budget 
has already reached its highest levels since World War II, and 
executing current defense plans will result in the dramatic defense 
spending increases for the foreseeable future. Plans to increase the 
size of the military, maintain aging facilities and equipment, procure 
new weapons, and develop more sophisticated technology all contribute 
to unsustainable growth in defense spending.
    Unbudgeted costs for wars in Iraq and Afghanistan will further 
strain our defense budget in the coming years. The Congressional Budget 
Office estimates that funding for these operations will cost nearly 
$900 billion over the next ten years in addition to the Pentagon's base 
budget.
    Earlier this month, media outlets reported that officials within 
the Department of Defense were preparing a request for $587 billion in 
defense spending in fiscal year 2010, a dramatic increase over the $513 
billion provided by Congress in fiscal year 2009. The Bush 
Administration projected that a defense budget of $527 billion in 
fiscal year 2010 would be sufficient, and other media reports have 
indicated that the Office of Management and Budget plans to adhere to 
this budget cap. To be clear, an internal Defense Department document 
requesting $587 billion is not a budget, it is a Christmas wish-list 
from the military services. Congress will write and enact the defense 
budget based on thorough discussions with military leaders, the 
civilian leadership of the Defense Department, and the White House.
    In the coming year, the Department of Defense and Congress must 
make tough choices regarding future defense spending. As Secretary of 
Defense Gates has said, we cannot buy everything and do everything. Our 
nation faces enormous fiscal deficits, and our current recession will 
only make budget shortfalls worse. Facing this budgetary reality, we 
will need to scrutinize each major weapons program to reduce costs 
while ensuring that our military personnel have the tools they need to 
meet the threats we face.
    I look forward to working with you, Chairman Spratt, both here on 
the Budget Committee and on the Armed Services Committee, to ensure 
that our future defense spending plans are both sustainable and 
consistent with our national security objectives.

    Chairman Spratt. In addition, for the record, let me note, 
if there is no objection, we will have the full written 
statement of Mr. Daggett and Mr. Gilmore entered in the record, 
so that you can summarize it as you see fit.
    But, today, we have one panel, two witnesses and some 
excellent testimony, so I encourage you to take your time to 
give us a thorough review of what you have said.
    And, Mr. Daggett, let us begin with you, sir. Or Mr. 
Gilmore. I will let the two of you settle it out.
    Mr. Gilmore. It is your preference, Mr. Chairman.

STATEMENT OF STEPHEN DAGGETT, SPECIALIST IN DEFENSE POLICY AND 
            BUDGETS, CONGRESSIONAL RESEARCH SERVICE

    Mr. Daggett. I am glad to start out.
    Mr. Chairman, thanks very much for the invitation to 
testify.
    Mr. Spratt, you and I go back I think 25 years or so now, 
so it is really a pleasure to see you. But I have to say I 
particularly appreciate you asking me to be on a panel with 
Mike today. I know that, whatever question you ask, one of us 
at least will be able to answer it. Mike has done--Mike's work 
at CBO really has been the definitive work on the cost of long-
term defense plans that all of us in town really use for 
further analysis.
    Chairman Spratt. Let me interrupt you here at this point, 
Stephen.
    Recall when we launched the second Persian Gulf War against 
Iraq, CBO was the first to say, if this going to be a long 
undertaking, you have got manpower and rotational problems that 
the DOD did not acknowledge to us. CBO was on the front lines 
of that. You have done some excellent work also in projecting 
defense budgets. So we have got two good, disinterested experts 
here; and we are glad to have both of you.
    Mr. Daggett. Thanks.
    Mr. Chairman, if you look at what the leaders of the 
military services have said, what defense industry analysts 
have said, what analysts in think tanks have said, you come 
away with a strong sense that there is a real gap in the 
defense budget, a real mismatch between the cost of planned 
programs and what most are projecting will be the likely trend 
in the defense budget.
    The Chairman of the Joint Chiefs has said that defense 
spending ought to be kept to a floor of 4 percent of GDP, which 
by my calculations would mean adding about $100 billion in 2010 
to the defense budget to accommodate. Each of the military 
services has said similar things.
    The Chiefs of Staff and the Secretary of the Air Force for 
the past couple of years have been saying that the Air Force 
needs about $20 billion more per year in acquisition accounts 
to accommodate its planned program. To put that into context, 
the overall Air Force acquisition budget, which is weapons 
procurement plus R&D, was scheduled to go from about $63 
billion in 2009 up to about $70 billion by 2013. So, in effect, 
they are saying they are about 30 percent short in the amount 
of money available for the program that they want.
    The Army has said similar things. They are projecting about 
130 or $140 billion base budget, and they are saying that their 
annual requirements are on the order of 170 to $180 billion. A 
big piece of that is for war costs that they are concerned 
might not be funded if the war is financed out of the base 
budget without an accommodating increase in it.
    The Navy has just increased estimates of the cost of its 
30-year shipbuilding plan quite substantially and says now that 
there is a shortfall over the next few years in fighter 
aircraft procurement. So, by all accounts, there appears to be 
a gap between projected budgets and the cost of the program.
    If you look, on the other hand, at the overall level of 
defense spending, you have to ask why that is true. If I look 
at defense in a historical context, as you noted, the 2008 
budget is high by any historical standard. It is actually about 
20 percent bigger after adjusting for inflation than the budget 
in 1985, which was the peak in the post Cold War period, except 
for one year in Korea.
    The overall defense budget, just the base defense budget, 
excluding supplemental appropriations, has increased by 43 
percent above inflation since 1998, which is about as large as 
the buildup in the first Reagan administration. By the middle 
of the Reagan administration the Defense Department felt that 
programs were pretty well-funded, and we really did 
recapitalize the force with budgets in the 1980s.
    A comparison that I like to do--and if we have slides up it 
would be one of the first slides--this is a slide that just 
shows the trend, the historical trend in the base defense 
budget, not including war-related funding going back to the end 
of the Korean War. And what it shows is that, on average, the 
defense budget has increased by about 2.1 percent per year 
above inflation year after year. In some years, the trend has 
been above the average; in some years, it has been below. In 
2009, which is a measure I use, the budget is actually about 8 
percent above the historical trend.
    So, again, by historical standards, the budget appears 
relatively high. So the question I pose is, why the disconnect? 
Why on the one hand do the budgets appear relatively robust and 
on the other hand we hear from the military services that 
budgets are very tight and getting tighter?
    I have six answers to that question, and I will just 
briefly go over each of them, and then I will leave that as a 
basis for discussion.
    The first factor is just the increasing cost of military 
personnel, and if you look at the next slide that tracks it. 
This is a slide that shows the cost of a military service 
member, active duty military service member, index to inflation 
and then index to 1972, which is the inception of the all-
volunteer force.
    If you look at the trend, it tracks with what you would 
think. The cost of a service member declined in the 1970s 
because pay raises didn't keep up with inflation.
    There were big catch-up pay raises in 1980 under the Carter 
administration; in 1981, under Reagan, 11.7 percent and then 
14.3 percent. So about a 25 percent pay raise over a 2-year 
period.
    The trend in the 1980s and 1990s was a very modest 
increase, if any increase at all, but then it shot up like a 
rocket after about 1999. By my numbers, a military service 
member in 2009 is 45 percent more expensive above inflation, in 
addition to inflation, than in 1998. And there are a lot of 
factors that went into that.
    There were pay raises of the employment cost index plus 
one-half percent in 7 of the last 8 years. There were three 
rounds of pay cable reform in which people in the middle grades 
got larger pay raises to improve retention. There were very big 
increases in the basic allowance for housing to eliminate on-
base versus off-base discrepancies in housing costs. That is on 
the take-home-pay side of the equation.
    There were also very big increases in deferred benefits, 
particularly in retirement benefits, the biggest one being 
TRICARE for Life in which 65 and over military retirees may now 
use TRICARE as a second care to Medicare for military medical 
care; and that is a pretty expensive benefit. DOD pays into the 
military retirement fund about $10 billion a year for the cost 
of TRICARE for Life, which is 10 percent of the entire military 
pay and benefits package. So a hugely expensive benefit.
    The second factor driving up costs is reflected in the next 
slide, and that is the ongoing trend in operation and 
maintenance costs. Operation and maintenance is one of the 
titles of the Defense Appropriations Act.
    If you go back again to the end of the Korean War, take out 
recent war costs, index it for inflation and look at what the 
trend is relative to the size of the force per active duty 
troop, it increases over time at a pace of about 2-\1/2\ 
percent per year above base inflation. The question is, is that 
a problem? And my answer is I think you can make a strong case 
that it is.
    That rate of growth above inflation is not as high as in 
some sectors of the economy, like health care, but we are all 
concerned that health care costs are eating into Federal 
budgets and undermining efficiency in lots of areas of the 
economy. And while the trend in defense operation and 
maintenance isn't as high it is still significant, and it is at 
odds with trends in the overall economy in which the trend has 
generally been in the opposite direction, the direction of 
improved efficiency, rather than less efficiency.
    There are a lot of factors that explain that. Part of it is 
that a large part of the O&M budget is comprised of pay of 
civilian personnel, and pay of civilian personnel has increased 
over time in real terms above inflation, as it should. But in 
return for that you would also look for increased deficiency; 
fewer people doing more work. We don't seem to have achieved 
that across the board.
    Another factor is increasing medical costs, which are a big 
part of the operation and maintenance account. DOD is terribly 
concerned about that.
    Another factor is the cost of weapons operation and 
maintenance. The Air Force has complained for many years that, 
as its aircraft have aged, the cost of operating and 
maintaining them has climbed. It also appears to be the case 
that newer generations of weapon systems are more expensive 
rather than less expensive to operate and maintain, which again 
is at odds with the trend in the civilian sector.
    What appears to be happening is that, although DOD is to 
some degree pursuing improvements in reliability and 
maintainability, when the final decision is made on what to 
procure they are really going after performance. And 
performance comes at a price, including difficulties in 
operational and maintenance accounts.
    The fourth factor--a third factor, excuse me, driving up 
the cost of defense which is reflected in a table that I showed 
you is increasing intergenerational costs in major weapons 
programs. Again, that is the next slide.
    This is a slide that compares the number of various--number 
of weapon systems in various categories procured in fiscal year 
1985 and in fiscal year 2008. Those years are quite comparable 
in that the total acquisition budget in both years--that is, 
again, the amount of procurement plus R&D--is pretty close. It 
was about $240 billion in 2008 and, if you adjust for 
inflation, about $220 billion in fiscal year 1985. So pretty 
comparable amounts of money. But, in 2008, the budget is buying 
many, many fewer units of many different categories of weapon 
systems--aircraft, ships, missiles--pretty much across the 
board. That is a very simple measure of intergenerational cost 
growth in major weapons programs.
    If you consider, for example, the F-35 fighter aircraft, 
which is going to be the mainstay both for the Air Force and 
for the Navy and Marine Corps in the future, the unit flyaway 
cost of the F-35 is now projected to be $83 million a copy. In 
1985, the low-cost fighter for the Air Force, which is the kind 
of equivalent of the F-35, was the F-16. In today's prices, in 
1985 the F-16 cost about $30 million apiece. So an increase 
from 30 million to 80 or $85 million a copy. That is not 
atypical of trends in weapons costs.
    There certainly is a rationale for spending more on weapons 
over time because you get more capability in return. The issue 
is, has the tradeoff between the number of systems you can buy 
and the capability gotten to a point of diminishing returns? 
Secretary Gates is arguing really that it has and that we need 
to take, therefore, a very close look at the investment cost of 
weapons and the capabilities we are trying to build into new 
generations of weapons.
    A fourth and very closely related factor that I look at 
independently from intergenerational cost growth in major 
weapons programs is systematic underestimation of costs on the 
part of DOD. The General Accounting Office has for the last 6 
years taken a careful look at the status of major weapons 
programs in DOD, and this is a table that GAO provided, which 
shows what is going on in cost estimation, and it is not moving 
in the right direction.
    One way to look at this slide is in what they did was 
compare the portfolio of what we call major defense acquisition 
programs. That is the major weapons programs above certain 
thresholds in cost in the system in 2000, 2005 and then in 
2007. And if you compare cost estimation in 2000 with the 
accuracy of cost estimation in 2007, it has gotten worse over 
time. On average, in 2000, DOD underestimated the R&D cost of 
weapons programs by about 27 percent, which in itself is not 
very good. But, in 2007, they underestimated R&D costs by an 
average of 44 percent. If you look at it from the point of view 
of the impact on the overall budget, cost growth in the 2007 
inventory of major weapons is projected now to total about $300 
billion, which is more than a year's worth of weapons 
acquisition, and it is about 18 percent cost growth over 
initial projections. So, in effect, we are losing almost one-
fifth--we are losing our ability to acquire almost one-fifth of 
the weapons we plan to buy because we underestimate cost.
    The fifth factor driving costs up has been the 
reorganization in the Army. The Army was criticized in the 
1990s for not reorganizing itself very rapidly to be a more 
deployable force. Throughout the 1990s, it still had pretty 
much a kind of Cold War-oriented force which was designed to be 
mobilized for one big war, rather than to be able to be 
deployed on a rotational basis or expeditionary basis, as we 
say, abroad. Just as the war in Iraq was beginning, they were 
beginning to reorganize into a more modular force; and then the 
war in Iraq also had some lessons with it.
    All of that has conspired to really drive up the cost of 
the Army, much of it as I think a one-time cost but some of it 
ongoing cost as well. Modularization in the Army is projected 
to cost in all about $50 billion. Much of that has been paid 
for already, mainly in supplemental appropriations, but there 
remains some costs to be accommodated for finishing the 
modularization of the Army.
    There has also been an increase of 92,000 troops in the 
Army and the Marine Corps, 65,000 in the Army and 27,000 in the 
Marine Corps. Once that is fully in place, that will add to 
military personnel and directly related operation and 
maintenance costs about $13 billion a year. So that is built 
into long-term budgets as a long-term increase.
    And then, in addition to that, the lesson of the war has 
been that the Army has taken away as one of the lessons of the 
war that it systematically underfunded what we used to call 
minor procurement for things like force protection equipment, 
communications and transportation. So that to outfit the Army 
in the future on an ongoing basis requires a substantially 
larger ongoing capital investment.
    Add to that the need to provide equipment for Army National 
Guard combat units at a much higher level than we used to do in 
the past. Then you further increase costs. In the past, 
National Guard units were regarded as likely to be mobilized 
only very rarely in the event of a major war, and they were 
equipped largely with material cascaded from the active duty 
forces. Well, now they are part of the rotation base, so they 
need to be equipped at a level much closer to that of active 
duty forces. So all that is driving the cost of the Army 
substantially higher.
    And then a final factor which is much harder to quantify is 
an expanded range of, as DOD puts it, challenges for which they 
think we need to prepare. And that is the next chart. This is 
what DOD calls the quad chart or the four challenges chart.
    And what it does is--it is an interesting beginning point 
for discussion, I think. What it does is break down the kinds 
of challenges DOD thinks we will face in the future into 
various categories, and it organizes them according to 
vulnerability and the likelihood that they may materialize.
    So DOD's official assessment is that the likelihood of what 
they call traditional state-on-state, force-on-force conflict 
is relatively low; and we are relatively not vulnerable to that 
because we are so militarily capable in those areas.
    Irregular warfare has a high likelihood, 100 percent 
likelihood. We are engaged in it now. But they also argue our 
vulnerability to it being damaging to the U.S. per se is 
relatively low because we can manage it.
    Catastrophic dangers, terrorists armed with weapons of mass 
destruction are, they say, a high likelihood and also high 
vulnerability. So that obviously would be a focus of additional 
investment in the future.
    And then a new category that is interesting for discussion 
they refer to as disruptive challenges. Others, including near 
peer competitors in the future, trying to identify areas of 
U.S. weakness and exploit those militarily. So things like 
anti-satellite weapons or cyber warfare or other efforts to 
exploit the vulnerabilities of our communications networks and 
energy dependence and so on.
    The investment implications of this, part of it is clear 
and part of it is not. Presumably, what this suggests is we 
should invest less money over time in traditional capabilities, 
because the likelihood of that kind of conflict is low and we 
are pretty strong in that area. That is hard to do. That 
involves taking a very hard look at the kinds of weapon systems 
we are currently building and making some choices among them. 
Whether we will actually be able to do that to what extent 
therefore to me is very unclear.
    For the rest, most of these additional challenges appear to 
me to be primarily additive to the base budget we already have; 
and the cost of some of them could in the future be fairly 
high.
    There is an ongoing discussion of what disruptive 
challenges we might face in the future. With China, it would be 
likely to challenge us directly in a force-on-force way or more 
likely to challenge us, if they do, with disruptive threats. 
And there is a lot of thinking that suggests they are more 
likely to challenge us in areas of our vulnerability.
    With that, Mr. Chairman, those are what I see at least as 
the main things driving the cost of defense higher over the 
long term; and we can discuss further what we might want to do 
about it in some questions.
    Chairman Spratt. Thank you for an excellent presentation.
    [The prepared statement of Stephen Daggett follows:]

Prepared Statement of Stephen Daggett, Specialist in Defense Policy and 
                Budgets, Congressional Research Service

    Mr. Chairman, Members of the Committee, thank you very much for 
inviting me to testify this morning on the sustainability of current 
defense plans. This is an issue that appears to be rising very rapidly 
toward the top of the defense policy agenda, even at a time when the 
agenda is very crowded. Certainly, when you listen to the senior 
leaders of the military services, you are hearing a great deal of 
concern about the potential for a more or less severe mismatch, 
beginning now and extending as far ahead as you care to look, between, 
on the one hand, the cost of currently planned defense programs and, on 
the other hand, what most see as the likely trend in the defense 
budget.
    Admiral Mullen, the Chairman of the Joint Chiefs, has urged 
repeatedly that the defense budget should stay at a floor of about 4% 
of GDP, which, is about the current level of defense spending with war-
related supplementals included.\1\ Department of Defense outlays in 
FY2008, including war costs, were $595 billion, which was 4.2% of GDP. 
Outlays for the overall national defense budget function were about 
4.4% of GDP. If you apply the 4% target just to the Department of 
Defense base budget, not including war costs, which is what Admiral 
Mullen appeared to endorse in earlier statements, it would entail an 
increase of about $100 billion in FY2010 compared to last year's 
projection, and of even larger amounts in future years.
    For their part, each of the military services has echoed Admiral 
Mullen's plea for more money. The former Secretary and Chief of Staff 
of the Air Force, for example, argued for the past couple of budget 
cycles that the Air Force alone needed $20 billion more per year for 
weapons acquisition.\2\ To put that into perspective, in last year's 
six-year defense plan, acquisition funding--that is, procurement plus 
R&D--in the Air Force base budget was scheduled to grow from $63 
billion in FY2009 to $70 billion in FY2013. So the senior leaders of 
the Air Force appeared to be saying, in effect, that their budget was 
30% short of the amount they thought necessary for equipment.
    The Army reportedly is now projecting ongoing budget requirements 
of $170 to $180 billion a year, which is $30 to $40 billion per year 
higher than currently projected base funding.\3\ The Navy has not been 
so explicit, but last year increased substantially its estimates of the 
cost of its 30 year shipbuilding plan, and it has warned of a 
substantial shortfall in fighter aircraft inventories as well.
    If you look at defense industry projections you'll get the same 
message, as you will if you survey the spectrum of views among the 
various Washington defense think tanks--most of them using CBO's 
numbers, by the way--though prescriptions for what to do about it vary.
    Part of the widespread concern about a budget shortfall has to do 
with expectations about the trend in the overall defense budget--or 
what defense budget planners refer to as the defense top line. Analysts 
generally assume, first, that as the war in Iraq winds down, war-
related supplemental appropriations will decline and ongoing war costs 
will be absorbed into the regular, annual defense budget, and, second, 
that the regular budget itself will be constrained because of budget 
deficits and competing spending demands. Secretary of Defense Gates 
said just last week before the Senate Armed Services Committee that 
`the spigot of defense spending that opened on 9/11 is closing.'
    For our part, CRS would rather not speculate about the top line 
trend. We can all do the budget arithmetic--and the arithmetic 
certainly leads you anticipate baseline budget deficits that exceed 
what, in the past, led to limits on defense spending. But, how much to 
spend for defense is, in the final analysis, a political decision for 
Congress to make and there's no value added in our guessing about that.
    Instead I want to focus on the other side of the equation, which is 
the cost side--why things cost as much as they do, and what the 
implications are for addressing the budget mismatch now and in the 
future.
                why does the defense budget seem tight?
    If you look just at the total amount of money available for defense 
in recent years--and projected for the next several years--it is not at 
all apparent why there should be a budget shortfall of the magnitude 
the military services are warning about. The overall, enacted 
Department of Defense budget for FY2008 amounts to $656 billion, 
including a base budget of $484 billion and supplemental appropriations 
of $171 billion. We don't know the final FY2009 amount yet, because we 
still have a supplemental funding request to consider.
    After adjusting for inflation, the FY2008 total is about 20% higher 
than the DOD budget in FY1985. FY1985 was the peak year of the buildup 
of the 1980s and also the second highest DOD budget in the Cold War era 
(the highest was in FY1952, during the Korean War). And the FY2008 
amount is for an active duty force which was about 1/3 smaller than the 
force in the 1980s. For weapons acquisition, that is, for procurement 
plus research and development, the total in FY2008, when you include 
supplemental funding, was about $240 billion. That is about the same as 
the peak in FY1985, which was $220 billion in FY2008 prices--and the 
FY2008 amount is, again, for a force about 1/3 smaller. So the FY2008 
budget appears comparable to earlier peaks in defense spending.
    Other measures suggest the same thing. One approach is to compare 
current spending to the average trend in defense over time. If you 
track the total DOD budget per active duty troop, excluding war costs, 
funding has grown by a bit more than 2% per year above inflation on 
average since the end of the Korean War (see Figure 1). In some years, 
actual budgets were above the trend line, in other years, below it. In 
FY2009, the overall DOD base budget, not including war costs, is about 
8% above this historic trend line.

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    Another reference point is simply the growth of the defense budget 
over the past few years. Considering just the base defense budget, 
without including war-related funding, there has been a very large 
increase in defense spending over the past ten years. In all, the DOD 
base budget has grown by 43% above inflation since it reached its 
lowest post-Cold War level in FY1998. That buildup is about the same as 
the increase at the end of the Carter and beginning of the Reagan 
Administrations--which was about 40% above inflation from FY1980-
FY1985.
    If you take all of this together, you come away with the impression 
that today's defense budget appears, by most historical standards, to 
be quite robust. But listening to the military services, to defense 
industry, to defense budget analysts in the think tanks you get a very 
different impression--that even now the budget is tight, and that if 
spending does not continue to climb, planners will face tougher and 
tougher choices. So why the disconnect? CRS's analysis, quite bluntly, 
is that the budget seems tight because the cost of almost everything we 
been doing in defense has been accelerating upward too fast even for 
growing budgets to keep up.
    And what is driving the cost of defense higher? In what follows, I 
will propose six answers to that question, and I will mention each of 
them at least very briefly. Following that, I will very briefly discuss 
a couple of themes that emerge from this analysis of defense cost 
trends.
                the growing cost of uniformed personnel
    The first factor driving up the price of defense is, simply, the 
growing cost of uniformed military personnel. If you take the amount 
provided for active duty military personnel in annual defense 
appropriations bills, exclude supplemental appropriations, adjust for 
inflation using the Consumer Price Index (CPI), and divide by the 
number of active duty troops, again excluding war-related increments, 
you will find that an average military service member is about 45% more 
expensive, after adjusting for inflation, in FY2009 than in FY1998. 
This does not include the cost of medical care for service members, 
dependents, and recent retirees, which is financed in the operation and 
maintenance accounts, and which also has grown substantially. Nor does 
it include benefits that are not part of the national defense budget, 
and which are not, therefore, among the cost tradeoffs that planners 
directly face. These include tax advantages for service personnel and 
veterans benefits, including VA medical and educational benefits.
    A long term perspective on the price of military personnel is 
reflected in Figure 2, which shows the cost of an individual active 
duty service member indexed to the inception of the all volunteer force 
in 1972. In brief, pay and benefits of military personnel declined in 
the 1970s because annual pay raises didn't keep up with inflation; 
jumped up in FY1980 and FY1981 with catch up pay raises of 11.7% and 
then of 14.3%--that is, more than 25% over a two-year period; climbed 
very modestly in the remainder of the 1980s and '90s; and then rocketed 
up dramatically beginning in about FY1999.
    The main increases over the past ten years include:
     Congressionally mandated annual pay raises equal to the 
Employment Cost Index (ECI) plus \1/2\ percent in seven of the last 
eight years. The ECI is a measure of the average cost of pay and 
benefits in the civilian economy. Since FY1982, pay raises had fallen 
behind the growth of the ECI and the `ECI plus \1/2\' formula was 
designed to catch up over a period of several years.
     Three rounds of `pay table reform,' requested by the 
Defense Department, which provided additional pay raises, sometimes of 
as much as 10%, to middle grades in order to improve retention of 
experienced personnel.
     Substantial increases over several years, requested by the 
Clinton Administration, in the non-taxable Basic Allowance for Housing 
(BAH), intended to eliminate differences in out-of-pocket on-base and 
off-base housing costs.

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    Those increases, along with changes in subsistence pay for 
officers, bonuses and special pays, and some other things, are 
reflected in higher take home paychecks of military personnel. In 
addition, there have been very large increases in retirement benefits, 
including
     Tricare-for-Life, enacted by Congress as part of the 
FY2001 national defense authorization act, and implemented in FY2003, 
which makes the military Tricare medical insurance system into a second 
payer for Medicare for 65-and-older military retirees. DOD pays $10 to 
$11 billion a year into the military retirement fund to cover future 
costs of this new benefit for current uniformed personnel, which is 
about 10% of the entire military pay and benefits package.
     Concurrent receipt of military retired pay and veterans 
disability payments for those with disabilities of 50% or more. Another 
congressional initiative, this is paid for out of the national defense 
budget function as a mandatory amount of about $5 billion a year.
     Repeal of the `Redux' retirement plan, which had provided 
somewhat lower retirement benefits to military personnel who enlisted 
after 1986 than to earlier enlistees.
     The elimination of social security offsets in pensions of 
62 and older survivors of military retirees who chose dependent 
benefits as part of their retirement.
    Figure 3 shows the relative growth per troop in the major elements 
of both take-home pay and deferred compensation in the military 
personnel accounts, adjusted for inflation, between FY1998 and FY2009. 
As noted earlier, with everything included, these elements of 
compensation grew by 45% above inflation. Even if you leave out the 
cost of Tricare-for-Life and concurrent receipt, military pay and 
benefits would still have grown by 30% above inflation.

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    Before I go on with this discussion let me emphasize one point. The 
purpose of doing this analysis is not to address whether military pay 
and benefits are adequate or more than adequate or less than adequate. 
A discussion of that question is certainly important, but it goes way 
beyond the point I am making. The only purpose of this analysis is to 
address the issue of budget tradeoffs. If only a given amount of money 
is available for defense, the growing cost of personnel necessarily 
comes at the expense of something else. Moreover, others have addressed 
the issues of pay comparability, the value of deferred compensation, 
promises of medical care in retirement, and other matters at great 
length. Last year's Quadrennial Review of Military Compensation, for 
example, can give you chapter and verse on all of the key measures of 
compensation comparability.
    That said, a couple of other points may also be worth noting. One 
has to do with analyses which show that there has been a military `pay 
gap'--i.e., that military pay has lagged behind average increases in 
compensation in the civilian economy. Usually, the pay gap is measured 
by comparing cumulative raises in military basic pay with a trend line 
that starts with pay in FY1982, after the catch up raises of FY1980 and 
FY1981, and adjusts upward annually by the amount of the Employment 
Cost Index. Using this measure, there was a significant pay gap by the 
end of the 1990s, which ECI plus + raises have been intended to 
correct.
    In measuring military pay, however, it is important to note that 
the amount service members take home every month includes both basic 
pay and the basic allowance for housing--and you might also want to 
include amounts for subsistence, which is provided both as pay and as a 
direct service. While increases in basic pay may still fall somewhat 
short of growth in the Employment Cost Index, when very large increases 
in the basic allowance for housing are included, the pay gap, measured 
as the FY1982 level adjusted for cumulative growth in the ECI, has been 
made up in recent years.
    One other issue may be a matter for some further discussion. A 
frequently asked long-term budget question is whether it might be 
cheaper to rely more on reserve than on active duty forces. In the 
past, when Army National Guard (ARNG) combat units were, for the most 
part, regarded as a strategic reserve that would be called up only in 
the event of a major war, it was reasonable to calculate that Guard 
units were cheaper than active duty forces. Personnel and operating 
costs were typically 25-35% of those of active duty units, and 
investment costs were less, as well, because Guard units were often 
equipped with older material cascaded from active duty forces. Now, 
however, ARNG units are no longer regarded as a strategic reserve, but 
as an operational reserve available for regular deployment abroad. In 
that role, Guard units no longer appear much cheaper per day of 
availability--and might even be more expensive--than active duty 
forces, since they are available for deployment for only a fraction of 
the time of active units, and equipment levels must come closer to 
matching those of active forces.
          continued growth in operation and maintenance costs
    A second cost driver is the continued, steady growth of operation 
and maintenance budgets. If you put together a spread sheet that shows 
defense funding back to end of the Korean war, exclude recent war 
costs, divide annual O&M budgets by the number of active duty troops, 
and adjust for inflation, you will come up with a trend line that grows 
by somewhere between 2.5% and 3.0% above inflation every year--year 
after year after year (see Figure 4).

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    It is a bit difficult to analyze why O&M grows at such a 
relentless, steady pace, because the O&M budget covers all kinds of 
very different activities--advertising and recruiting; basic and 
advanced individual and unit training; professional military education; 
fuel costs; transportation; medical care for service members, their 
dependents, and some retirees; utility bills; facility maintenance and 
repair; warehouse and supply operations; purchases of spare and repair 
parts; day-to-day operation of weapons and equipment; overhauls, 
including sometimes extensive upgrades, of weapons and equipment; 
defense think tank studies of strategy and of trends in O&M pay and 
financial management; and management of much of the Defense Department.
    There are, however, a few pieces of the picture that collectively 
explain in very large part why O&M costs keep climbing.
    One is that a very large share of the O&M budget goes to pay 
civilian Department of Defense personnel. In the FY2009 base budget, 
civilian pay in the O&M accounts was projected to total $53 billion, 
about 30% of total O&M funding. While federal civilian pay and benefits 
have not grown as rapidly as those of uniformed personnel, they have 
outpaced the growth of inflation--as in most skilled occupations, 
compensation of federal civilian workers has grown in real terms over 
time.
    Second, the O&M budget includes costs of operating and maintaining 
major weapon systems. Those costs also appear to have increased faster 
than base inflation, though the reasons are complicated. Military 
service officials, particularly in the Air Force, have long argued that 
aging equipment becomes progressively more and more expensive to 
operate and maintain. CBO found some time ago that this was not a major 
factor in O&M. On the other hand, though it may not add up in itself to 
a huge amount of money, it may be one of a large number of individually 
minor factors that should be considered in concert to explain the 
larger trend.
    Most observers also agree that new weapons are typically more 
expensive to operate and maintain than earlier generations of similar 
systems. Why this should be the case is very hard to explain. It is 
certainly at odds with trends in the civilian sector, in which 
reliability and maintainability of all kinds of goods have improved 
dramatically--consider automobiles, household appliances, and, 
especially, consumer electronics (leaving aside battery replacement). 
It appears, however, that while military developers promise lower 
operating costs, in the end they choose to pursue advances in 
performance instead.
    Third, the O&M budget includes most of the annual funding for 
providing medical care to service members, their dependents, and many 
retirees (it does not include $5-6 billion a year in military personnel 
accounts for pay and benefits of unformed health care providers). DOD 
officials see growing medical costs, which have climbed much faster 
than overall inflation, as a critical long-term budget issue.
    Fourth, and finally, the O&M budget finances operation and repair 
of military facilities. As the quality of life in the civilian sector 
improves, defense facilities also, in general, are expected to keep up, 
which, in turn, also may drive up costs in real terms.
    This list is by no means exhaustive, but may help to understand 
some of the principal factors behind the continued growth of O&M costs. 
The corollary question, then, is whether this is a problem. Some may 
say no--that this is the cost of doing business and as long as growth 
isn't excessive, it is simply a fact of life for which budgets need to 
be adjusted. On the other hand, continued steady growth in the day-to-
day cost of doing business appears to be at odds with experience in 
many parts of the private sector, in which improved productivity is the 
norm. The trend in defense O&M prices appears to be more similar to the 
trend in health care costs--which is universally seen to be a problem--
than to the trend in other economic activities.
    Most importantly, within limited budgets, higher O&M costs will 
crowd out other things. The effect of growing O&M costs on trade-offs 
within the defense budget in the 1990s illustrates the issue. Defense 
advocates often complain about the dramatic decline of weapons 
procurement funding in the 1990s. Then-Secretary of Defense William 
Perry, at the time, agreed, saying that the `procurement holiday' of 
the early '90s had gone on long enough and needed to be reversed. The 
Defense Department's target for many years was to get the procurement 
budget up from the $45 billion range to at least $60 billion. While $60 
billion for procurement appears quite constrained by today's standards, 
achieving even that target proved elusive. The reason was the 
continuing growth of overall O&M costs. Successive long-term defense 
plans generally assumed that O&M costs would level off in future years. 
When they did not, within limited budgets, the Defense Department 
shifted funds from procurement to cover must pay O&M bills. Year after 
year, therefore, planned increases in procurement funding were deferred 
due to the growth in O&M accounts.
    As a side note, the problem should not be attributed only to the 
Clinton Administration. Underestimation of O&M costs, rather, was 
something the Clinton defense team inherited from the outgoing Bush 
Administration's defense plan and then was unable to correct. After 
adjusting for lower than expected trends in inflation, over the FY1994 
to FY1999 period, for which we can compare Bush and Clinton defense 
plans in detail, the total amount the Clinton Administration spent on 
defense was, in terms of real purchasing power, not much lower than the 
previous Administration projected in its final six year defense 
program.\4\ O&M spending, however, was much higher, and procurement 
much lower.
    CRS' conclusion is that steadily growing O&M costs devoured the 
budget for weapons modernization through most of the 1990s. The danger, 
of course, is that we will face the same tradeoffs again if budgets in 
the next decade are as tight as in the '90s.
        intergenerational cost growth in major weapons programs
    A third cost factor, and one that is a matter of extensive 
discussion today, is the apparently accelerating pace of 
intergenerational cost growth in major weapons programs. The issue of 
intergenerational cost growth in weapons programs often considered in 
conjunction with discussions of the growth in costs of programs 
compared to initial development estimates--but the two factors are 
really quite distinct. The systematic underestimation of weapons 
acquisition costs is an independent factor, which I'll mention next.
    Examples of very large intergenerational leaps in weapons costs are 
all around. The F-35 fighter, which is the new `low-end' fighter for 
the Air Force, is now projected to have a unit flyaway cost of $83 
million each and a total unit acquisition cost of over $100 million.\5\ 
In FY1985, the Defense Department procured 150 F-16s fighters, the 
previous low-end fighter, at a then-year price of $16 million apiece, 
which is about $30 million in FY2009 prices. In later years, F-16 
prices climbed as new models incorporated more and more advanced 
technology. Still, the leap in costs is dramatic.
    It is not, however, by any means atypical. Below is a quite 
illustrative table, prepared by Cecil Black of the Boeing Corporation, 
which compares numbers of major weapons in selected categories procured 
in FY1985 with numbers bought in FY2008 (with funding both in the base 
DOD budget and in war-related appropriations). As I noted earlier, in 
FY1985, acquisition funding (again, procurement plus R&D) totaled about 
$220 billion in FY2008 prices. In FY2008, acquisition funding totaled 
about $240 billion.

           TABLE 1.--RECAPITALIZATION RATES: FY1985 VS FY2008
                    [Quantities of weapons procured]
------------------------------------------------------------------------
                                           1985       2008    Difference
------------------------------------------------------------------------
Tactical Fighters.....................        338         56        -282
Bombers...............................         34          0         -34
Other Fixed Wing......................        211        153         -58
Rotary Wing...........................        354        373         +19
Missiles..............................     87,113     13,471     -73,642
Tracked Combat Vehicles...............      2,414      1,258      -1,156
Tactical Vehicles.....................     56,551     32,276     -24,275
Satellites (Unclassified).............         10          1          -9
Ships.................................         23          7         -16
------------------------------------------------------------------------
Source: Cecil Black, Boeing Corporation.

    The growing price of weapons does much to explain why the expense 
of maintaining even a smaller force structure than in the past has 
climbed so high. At current prices of major weapon systems, the `steady 
state' cost of replacing platforms as they reach the end of their 
planned service lives has become very difficult to afford, even with 
budgets that exceed previous peaks.
    Why this is the case--and what to do about--is a matter that is far 
beyond the scope of this brief survey. In some cases, at least, cost 
has been driven up by an attempt to build systems to perform multiple 
missions with maximum capabilities in every dimension. The DDG-1000, 
which I cite only because it has been a focus of debate for the past 
year, and may well be terminated, may be a informative example.
    In brief the DDG-1000 (formerly DDX) destroyer is a 15,000 ton 
ship. This is about the size of a World War II cruiser, and it is half 
again as large as the earlier generation DDG-51 destroyer it is 
intended, in part, to replace. Why is it so large? It incorporates the 
most advanced Aegis air defense radar and anti-air missile systems; the 
anti-submarine warfare capabilities of a dedicated ASW frigate; the 
ability to provide long-range fire support to forces ashore from two 
guns and from vertically launched missiles; a full flag officer 
communications capability; the ability to deploy two helicopters or one 
helicopter and two UAVs for multiple missions, such as mine-sweeping 
and ASW; and the ability to carry aboard and deploy ashore either a 
marine unit or a special forces detachment. It also includes an 
advanced drive and multiple systems intended to reduce the required 
number of sailors. In short, it is all things to all requirements 
writers. The result is a ship that is now projected to cost between 
$3.5 and $4.0 billion each, and that cannot, therefore, be afforded in 
substantial numbers.
    The rationale for developing a ship like the DDG-1000 is apparent. 
A large multi-mission ship has considerable advantages, including an 
ability to absorb future growth in capabilities. With a smaller force 
in prospect, it is understandable that the Navy would want some of its 
newer ships to be as flexible as possible. Still, the resulting cost of 
the ship has led the Navy to an internal debate about terminating the 
program and resuming DDG-51 procurement in its place. And, in any case, 
the DDG-1000 is too expensive to be produced in large numbers.
    How typical is this of recent development efforts? Secretary Gates, 
at least, thinks it has become the norm. In his article on defense 
policy in the January/February issue of Foreign Affairs he wrote:
    When it comes to procurement, for the better part of five decades, 
the trend has gone toward lower numbers as technology gains have made 
each system more capable. In recent years, these platforms have grown 
ever more baroque, have become ever more costly, are taking longer to 
build, and are being fielded in ever-dwindling quantities. Given that 
resources are not unlimited, the dynamic of exchanging numbers for 
capability is perhaps reaching a point of diminishing returns. A given 
ship or aircraft, no matter how capable or well equipped, can be in 
only one place at one time.\6\
                    underestimation of program costs
    Systematic underestimation of weapons costs has become such a 
significant element of defense costs that it can easily be seen as an 
independent factor driving up the overall price of defense. For the 
past six years, GAO has done annual overviews of cost trends in major 
defense acquisition programs based on a review of Department of Defense 
Selected Acquisition Reports. In the review it reported last March, GAO 
provided a very clear summary of what has been happening--and it is, 
frankly, not going in the right direction. Table 2 is a summary of 
GAO's findings.

 TABLE 2.--GAO ANALYSIS OF MAJOR DEFENSE ACQUISITION PROGRAM COST GROWTH
                     [Amounts in constant FY2008 $]
------------------------------------------------------------------------
                                       2000         2005         2007
                                    portfolio    portfolio    portfolio
------------------------------------------------------------------------
Number of programs...............           75           91           95
Total planned commitments........         $790         $1.5         $1.6
                                       Billion     Trillion     Trillion
Commitments outstanding..........         $380         $887         $858
                                       Billion      Billion      Billion
Portfolio performance (change to    27 percent   33 percent   40 percent
 total RDT&E costs from first
 estimate).......................
Change in total acquisition cost     6 percent   18 percent   26 percent
 from first estimate.............
Estimated total acquisition cost   $42 Billion         $202         $295
 growth..........................                   Billion      Billion
Share of programs with 25 percent   37 percent   44 percent   44 percent
 or more increase in program
 acquisition unit cost...........
Average schedule delay in            16 months    17 months    21 months
 delivering initial capabilities.
------------------------------------------------------------------------
Source: Government Accountability Office, Defense Acquisitions:
  Assessment of Selected Weapon Programs, GAO-08-467SP, March 31, 2008.

    To summarize the results: GAO compared the average acquisition 
performance of all the Major Defense Acquisition Programs (MDAPs) on 
which DOD reported in 2000, 2005, and 2007. There were 75 MDAPs in 
2000, 91 in 2005, and 95 in 2007. On average, DOD underestimated R&D 
costs of MDAP programs in the 2000 program by 27 percent and in 2007 by 
40%. It underestimated total acquisition costs of MDAPs in the 2000 
program by an average of 6 percent, and it underestimated total 
acquisition costs of MDAPs in the 2007 plan by an average of 26 
percent. In the 2007 program, 44 percent of the programs had cost 
growth of more than 25%, a thresholds established by the Nunn-McCurdy 
amendment, which triggers requirements for a thorough program review.
    Most significantly, total cost growth in the 2007 programs is now 
expected to total $295 billion, which is 18% of the overall $1.6 
trillion value of the major weapons programs in the acquisition plan. 
Such substantial unplanned cost growth undermines efficiency, further 
increases costs, and creates a need to restructure acquisition programs 
across the all the services. Some programs may have to be cancelled and 
many stretched out to adjust the overall budget to accommodate the 
resulting gap on funding.
                   new requirements for ground forces
    A fifth factor driving up defense costs is the apparent need to 
restructure the Army, in particular, and the Marine Corps to some 
degree, to be able to respond to new missions that have been adopted in 
response to the attacks of 9/11. The decision to engage first in 
Afghanistan and then in Iraq led the Army to accelerate plans to 
restructure its basic organization. Instead of a force designed for 
wholesale mobilization for a major war, the Army has become a modular 
force organized around fully manned and readily deployable Brigade 
Combat Teams (BCTs) designed for rotational deployment abroad. The 
Defense Department, with broad support in Congress, has also decided to 
increase the size of the Army by 65,000 active duty troops, mainly to 
add six additional brigades, and of the Marine Corps by 27,000. When 
fully phased in, the addition of 92,000 active duty troops will cost 
more than $13 billion a year in increased personnel and operating 
expenses of the Army and Marine Corps.
    The modularization of the Army in itself will cost more than $50 
billion, mainly to fill out equipment requirements for the force.\7\ 
The conflicts in Iraq and Afghanistan have also led the Army to 
redefine its requirements for equipment in all its units. To fight the 
wars in Iraq and Afghanistan the Army has, in effect, established new 
standards that it sees necessary for force protection equipment, 
transportation equipment, and communications equipment for almost every 
unit in the force. And these requirements now extend not only to active 
duty units but also to National Guard combat units that have become 
part of the regular rotation base for deployment abroad, and therefore 
require largely the same equipment as active duty forces.
    The cost of reorganizing ground forces to be more flexible and 
deployable is a significant factor that has driven the overall cost of 
defense somewhat higher. The Army's case for reorganizing and for 
adding to the size of the force is based on anticipated requirements 
for rotating forces abroad. Following the 2004 Quadrennial Defense 
Review, the goal to be able to deploy 18 or 19 brigade combat teams 
abroad on a recurring basis. Later, the force generation goal was 
increased to as many as 23 forward deployed brigades.
    If active duty units are available for deployment one year out of 
every three, then 48 active brigades, as is now planned, would provide 
16 deployable brigades a year. Additional brigades would be generated 
from the Army National Guard, which requires Guard units to be trained 
and equipped for regular deployments.
             a broader array of global security challenges
    A final, and much less easily quantifiable factor that may affect 
the defense budget has to do with entirely new security challenges that 
planners have only begun to characterize. A good starting point in 
thinking about the range of new challenges is what has come to be 
called the `Quad Chart' in the Pentagon. I have attached one version of 
the Quad Chart at the end of this statement.
    In brief, the Quad Chart divides security challenges into four 
categories: Traditional military conflicts between states with 
conventional military forces; irregular conflict such as insurgencies 
in Iraq, Afghanistan and elsewhere, catastrophic challenges posed by, 
for example, state-sponsored or not-state terrorist groups with access 
to weapons of mass destruction; and, a the newest category, disruptive 
threats from a range of competitors, including peer or near-peer 
regional or global actors, who would not attempt to compete with 
traditional U.S. military forces directly, but would instead try to 
identify and attack U.S. vulnerabilities. The quad chart divides these 
challenges according to likelihood and vulnerability. The premise is 
that traditional military threats are unlikely and the United States 
has such overwhelming capabilities that it is not vulnerable to them. 
Catastrophic challenges are seen as likely to appear, and vulnerability 
as high. Irregular threats are likely, but vulnerability low. 
Disruptive threats are regarded as unlikely, but vulnerability high.
    The quad chart has important implications for the allocation of 
resources. If traditional challenges are unlikely, and U.S. 
vulnerability is low, the implication is that resources might be 
shifted away from investments in such capabilities in favor of other, 
higher, priorities. Much of what Secretary Gates has said in recent 
articles and speeches reflects this perspective. An effort to reduce 
investments in traditional military capabilities, however, implies a 
willingness to accept greater risks to U.S. security in some potential 
areas of conflict. While direct state-on-state conflict may appear less 
likely than in the past, assessments of the international security 
environment nonetheless point up the potential for future conflicts 
over many issues, including access to resources, economic and social 
dislocations caused by climate change, and remaining unresolved 
regional disputes. So traditional challenges could reappear in the 
future, and planners must decide in the present how much to invest as a 
means of hedging against them.
    The apparent need to prepare for a broader array of new challenges 
than planners had assumed at the end of the Cold War may prove to have 
a very big effect on budgets--or it may not. It is not clear to what 
extent the new challenges may shape spending in the future. Some more 
spending to counter anti-satellite weapons and cyberwarfare may prove 
necessary--but it is very difficult to anticipate how much money will 
be required to counter other `disruptive' challenges that remain to be 
defined.
    So far, the main effect of identifying new challenges seems to have 
been to push budget requirements marginally higher, though there may 
later be offsetting trade-offs.
                        themes and implications
    A few themes--with some implications for policy--emerge from this 
review of the things that are driving up defense costs. One important 
theme is that the price of defense is driven in very large part by the 
cost of people--including both uniformed and civilian personnel in the 
Defense Department. This, in itself, does not imply that we should trim 
the defense budget by reducing pay and benefits or by abandoning 
increases in the number of troops in the Army and Marine Corps. It may, 
however, serve to point up the importance of considering other means of 
reining in personnel costs. This could mean reducing the size of the 
other services, or pursuing more vigorously than in the past reductions 
in the number of uniformed personnel performing support functions.
    In general, when defense budgets are tight, the variable part of 
the budget, which bears the brunt of most cut drills, is investment, 
both in weapons and in facilities. You can certainly trim the budget by 
reducing investment without dire consequences for a few years. But 
ultimately, simply slowing the pace of weapons modernization will lead 
to an aging and less capable force, and skimping on facilities can 
leave you with a backlog of problems.
    This may suggest that if defense budget shortfalls continue, we 
will, later if not now, have to consider reductions in the number of 
personnel. And from a budgeting perspective, if you are going to 
eliminate something in the long run, the sooner policy-makers decide to 
do so, the better, because it saves money in the interim for other 
important things.
    A second theme is that the military services have, to varying 
degrees, been caught in a budget bind that is by no means entirely of 
their own making. Rather, it is a result, in part of growing personnel 
costs and, in part, of changing guidance on priorities from senior 
decision-makers, including Congress. In the first few years after the 
end of the Cold War--and in the wake of the first Persian Gulf War--the 
guidance, implicitly if not explicitly, was that our technology would 
save us--particularly information technology that would give U.S. 
forces a critical advantage in seeing an arena of conflict. Now, faced 
with irregular warfare in Iraq and Afghanistan, the emphasis is on 
larger numbers of highly trained and flexible foot soldiers--the 
`strategic corporal' as a former Marine Commandant put it. High tech 
forces for `traditional' state on state, force on force conflicts are 
becoming a lesser priority.
    The implications of that theme are varied. The Air Force, lately, 
has been subject to some criticism--to put it mildly--on a number of 
grounds. One complaint is about the growing cost of many of the 
programs the Air Force manages--including a large share of space and 
other programs that are fundamentally joint in nature, that are 
essential to all of the services. In its defense, however, the Air 
Force was, for many years, only doing what its leaders thought was the 
key task, which was to exploit U.S. technological advantages as much as 
possible in order to maintain military strength even if, as was 
commonly expected, the size of the overall force would continue to 
decline.
    Another implication has to do with funding for the Army. As 
discussed earlier, one factor that has driven up the cost of defense in 
recent years is the urgent restructuring of the Army. At the end of the 
1990s, the Army was being criticized because it had not adjusted, as 
the other services had, to the post-Cold War era. It was still 
organized, not for expeditionary, rotational operations abroad, but to 
fight one big war. As it became engaged in Iraq and Afghanistan, 
however, the Army embraced the need to reorganize itself into a very 
different, modular force with fully manned, more readily deployable 
units.
    For the most part, the costs of modularization and the initial 
costs of adding to the size of the force have been financed with 
supplemental appropriations. A question now on the agenda is whether 
large supplementals should continue. To the extent there remain some 
additional Army restructuring costs, as there may well be, particularly 
to better equip National Guard units, Congress may want to consider 
whether to continue using supplemental funding for at least a limited 
additional period to cover one-time expenses associated with continued 
Army reorganization.
    For the Budget Committee, this may present something of a dilemma. 
On the one hand, these requirements have long since gone past the point 
of being uncertain, unpredictable, and unplanned costs that should be 
financed through emergency appropriations exempt from caps on 
discretionary spending. On the other hand, to the extent that these 
investments are seen as one-time expenses, then it may make more sense 
to continue to pay for them with presumably temporary war-related 
appropriations, rather than build them into the base budget.
    I'll be happy to address any questions you may have.
                                endnotes
    \1\ Most recently Admiral Mullen reiterated his views in a Pentagon 
press briefing on November 17, 2008--see Department of Defense News 
Transcript, `Department of Defense News Briefing with Admiral Michael 
Mullen at The Pentagon, Arlington, Va.,' November 17, 2008.
    \2\ Author's notes on a presentation by then-Secretary of the Air 
Force, Michael Wynne, at an Aviation Week Defense Technology and 
Requirements Conference, February 13, 2008.
    \3\ John T. Bennett, $40B Price Tag for Larger Army: U.S. Service 
Predicts Cost of 1.1 Million-Soldier Force, Defense News, December 15, 
2008, p. 1.
    \4\ The bulk of the reduction can be traced to two things--a cut of 
about 150,000 in active duty troops and reductions in missile defense 
funding. This discussion is based on CRS Report 95-20, `A Comparison of 
Clinton Administration and Bush Administration Long-Term Defense Budget 
Plans for FY1994-99,' Dec. 20, 1994, by Stephen Daggett, and on 
subsequent unpublished update information. Both are available to 
congressional offices from the author on request.
    \5\ Data from F-35 Selected Acquisition Report, June 2008.
    \6\ Robert M. Gates, `A Balanced Strategy: Reprogramming the 
Pentagon for a New Age,' Foreign Affairs, January/February 2009.
    \7\ See CRS Report RL32476, U.S. Army's Modular Redesign: Issues 
for Congress, by Andrew Feickert, updated January 24, 2007.

    Chairman Spratt. Mr. Gilmore.

     STATEMENT OF J. MICHAEL GILMORE, ASSISTANT DIRECTOR, 
                  CONGRESSIONAL BUDGET OFFICE

    Mr. Gilmore. Mr. Chairman, Congressman Ryan, members of the 
Committee, I appreciate the opportunity to discuss the 
sustainability of the defense plan this morning.
    My remarks are going to be based on the report that CBO 
released early last month on the long-term implications of the 
2009 future years defense program. So if I could have the first 
chart, please.
    In these charts that I am going to show you this morning, 
funding is going to just be displayed in constant 2009 dollars. 
So the effects of inflation are removed and you can compare the 
buying power of past budgets, which is on the left of the 
chart, to projected future budgets, which is on the right of 
the chart.
    In CBO's projection, DOD funding averages about $549 
billion annually in the period from 2014 to 2026, which is the 
projection period we considered. And that is more than the peak 
of the 1980's buildup, which is shown on the left of the chart, 
about $485 billion. So a $549 billion annual average in the 
future versus $485 billion during the peak of the Reagan 
buildup, and that is to pay for a force one-half to two-thirds 
the size of the force we had during the mid-1980s.
    Now, including what we label on this chart as potential 
unbudgeted costs, that could push that average in the future to 
$652 billion a year, 35 percent more than the 1980's peak. And 
what we include in that unbudgeted cost category are, first of 
all, funding for continued operations overseas in the near term 
and the long-term. And in the long-term we made a somewhat 
arbitrary assumption of 75,000 troops deployed somewhere in the 
world 2013 and thereafter, and that would cost about $60 
billion a year. So that is $60 billion worth of the unbudgeted 
cost.
    And then the remainder of the unbudgeted cost is associated 
with historical experience in cost growth in major weapon 
systems, and that is about $43 billion. So we project that in 
order to buy the current program without cutting back on the 
number of aircraft or ships or other major weapon systems 
bought, which, by the way, is typically the way the Department 
has handled the problem with cost growth, if you wanted to pay 
for the programs as they are currently laid out that would cost 
another $43 billion a year, on average.
    The sustained relatively high level of funding in our 
projection is due to, as Steve Daggett has already alluded to, 
growing costs of pay and benefits for military personnel and 
plans to increase of size of U.S. ground forces, as well as 
plans to purchase new systems, including systems with the 
advance capabilities the Department associates with military 
transformation that are turning out to be much more expensive 
than the systems that they are going to replace.
    Let me say a little bit more about each of the areas, the 
two areas of funding that are indicated on the chart, 
investment and operations and support. And let me turn first to 
operations and support, which currently is about 60 percent of 
the budget and which under our projections will grow to almost 
67 percent of the budget over time in real growth. So let me 
turn first to operations----
    Excuse me, next chart.
    Let me show you another way of looking at defense 
expenditures. This showed you spending or funding. This looks 
at past and projected defense spending as a share of the 
economy. Defense spending averaged about 5.6 percent of gross 
domestic product in the 1980s. It declined to 3.8 percent of 
GDP in the 1990s; and it is currently about 4.5 percent of GDP, 
including the costs of the wars in Iraq and Afghanistan.
    Now, in our projection, which shows relatively flat 
constant funding, defense spending would decline to 2.5 percent 
to 3 percent of GDP by 2026, excluding and including unbudgeted 
costs. And that assumes the GDP continues to grow. Right now, 
it is not.
    Next chart.
    Now let me turn to operations and support in more detail, 
currently about 60 percent of the budget. About 40 percent of 
this funding is for military pay; and the remaining 60 percent 
is for operations and maintenance, which is running units, 
maintaining equipment, and providing other benefits, including 
medical care, to military personnel.
    In our projection, operations and support funding rises 
steadily in real terms, from $307 billion in 2009 to $380 
billion in 2026, excluding that unbudgeted cost category, and 
$443 billion, including those unbudgeted costs, which in this 
projection are associated mostly with continued operations 
overseas, because most of the costs of operations overseas are 
in the operations and support category. Not all of them, and I 
will say more about that in a minute.
    Now, what is driving this growth is continued real pay 
increases and real increases in the cost of benefits, 
particularly medical benefits, and I will say more about that 
in a minute.
    However, another source of growth is the increasing cost to 
operate both new equipment, which turns out to be more complex 
and more expensive to operate overall than the equipment it 
replaces, as well as aging equipment. The cost of aging 
equipment--maintaining and operating aging equipment are 
growing as well.
    Let me have the next chart.
    This is to bore in a little bit on the medical care cost 
dilemma that the Department is facing that, as already has been 
mentioned, is similar to the medical cost dilemma that the 
economy as a whole is facing. DOD's budget for health care, 
including accrual payments for care that will be provided to 
future retirees, so-called TRICARE for Life, is now about 
double the amounts budgeted in the 1990s, as shown on this 
chart. And CBO and DOD's own actuaries project that the 
Department's health care costs will increase steadily, $5 
billion in real growth from 2009 to 2013 and $32 billion in 
real growth, or 79 percent, through 2026.
    Unfortunately, the situation could be worse than that 79 
percent growth if faster than projected medical inflation--and 
certainly history tells us we frequently underestimate the 
growth in medical costs--if faster than projected medical 
inflation occurs, that could cause a real increase in these 
accounts of 126 percent; and that is depicted by the dash line 
labeled unbudgeted costs.
    The accrual payment growth is 6.25 percent on an annual 
basis nominal growth. Per capita pharmaceutical cost growth is 
9 percent, and per capita direct care and purchase care growth 
is about 6 percent nominal growth. So all of those areas 
contributing to substantial growth in the Department's medical 
care costs.
    Let me have the next chart.
    This is a reprise of a chart that Steve showed. This is a 
somewhat truncated version showing per capita, meaning per 
active duty service member growth, in operations and 
maintenance funding. Measured on a per-service-member basis, 
DOD's O&M funding has grown steadily during the past 20 years, 
averaging $2,100, 2009 dollars, per active duty member per 
year--that is shown here on this chart--which does not remove 
the current war costs which causes that large increase there 
over the last 5 years.
    Then, in the future, we project that the 20-year trend will 
continue. And the fact that in the period there labeled FYDP, 
or future years defense program, that that black line above the 
dash line indicates that in DOD's plans, at least in the 2009 
future years defense program, there isn't an indication there 
in its base program DOD was underfunding its readiness 
accounts. If it were doing that, then you would expect that 
black line to be below the dash line. So there is no evidence 
when you look at this metric that DOD was actually paying for 
peacetime readiness in the supplemental appropriations as 
opposed to its base program. And we currently project the per 
capita O&M funding will increase by another 20 percent through 
2026 relative to today's level.
    Next chart.
    Let me turn to the investment accounts. I have given you an 
overview of operations and support, which was 60 percent of the 
budget. Let me turn to the other 35 percent of the budget. This 
shows past and projected funding for investment.
    In our projection investment, which is funding to develop 
and purchase new weapons, would average about $187 billion 
during 2014 to 2026; and that is about 10 percent below the 1-
year peak in investment that occurred during the 1980's buildup 
of about $207 billion.
    Accommodating historical trends in cost growth would 
increase funding demands in our projection by about $30 billion 
annually, or about a 15 percent increase overall, to pay for 
the program if we continued to try and buy it but historical 
trends and cost growth were realized. And the cost of 
purchasing new equipment to support continued contingency 
operations--remember, our projection assumes that we continue 
to be engaged overseas--could cause funding to advance and 
increase by another $22 billion annually, on average, based on 
experience in Iraq and Afghanistan.
    Next chart.
    Chairman Spratt. You got--if I could interrupt you there--
two items: total unbudgeted costs, as opposed to contingency 
unbudgeted costs. What is the difference between them?
    Mr. Gilmore. Contingency unbudgeted costs are associated 
with paying for refurbishing equipment and buying new equipment 
to replace worn-out equipment and damaged equipment if we 
continue to be involved in operations overseas. So our 
projection included an assumption that over the long run we 
would have 75,000 troops involved somewhere overseas, not 
necessarily Iraq and Afghanistan, although it could be there. 
So if you continued to have 75,000 troops involved overseas 
with the kind of operational tempo that we have been 
experiencing over the last couple of years, then that would, in 
our projection, imply an additional $22 billion in investment, 
mostly procurement, annually to continue to replace and repair 
equipment associated with maintaining those operations. And 
then historical cost growth is the remainder of the unbudgeted 
cost.
    So there is contingency unbudgeted cost, which is the first 
dash line, and then there is with total unbudgeted cost, which 
is the second dash line. And the difference between the two is 
just historical trends in cost growth.
    If we take today's investment program and we experience 
what we have seen in the past with regard to growth in the cost 
of major weapon systems that are preproduction, then that would 
add another $30 billion annually to the cost of the program on 
our projection. That assumes that you don't cut back on the 
amount of weapons that we are currently planning to purchase so 
that you don't further reduce joint strike fighter purchases in 
the Air Force below any aircraft year. You try to buy those 
aircraft, but costs go up as they have in the past and you just 
pay for those increased costs.
    Have I made that at all clear?
    Next chart.
    Those two dash lines will be on every one of these 
investment charts, and it is most noticeable in the case of the 
Army because the Army would bear the brunt of these continued 
operations overseas. So you see that there is a large amount of 
unbudgeted costs--a relatively large amount of unbudgeted costs 
associated with contingency operations in this chart. That is 
because the Army would bear the brunt of those operations if 
they occurred.
    One of the--this is Army investment, so I just showed you 
investment overall for the Department of Defense past and 
projected. Now I am going to show you past and projected 
investment for each one of the services, beginning with the 
Army.
    One of the most noticeable features on this chart is that 
recently, due to funding provided in supplemental 
appropriations to replace and repair equipment associated with 
operations in Iraq and Afghanistan, the Army has received as 
much investment, mostly procurement funding, in supplementals 
as it has requested in the base budget. And that is shown by 
that spike there, which, by the way, is well above the peak in 
investment that occurred during the Reagan buildup in the 
1980s.
    Now, in the future, CBO's projection of Army investment 
averages about $36 billion annually, so that is towards the 
right hand part of the chart, excluding unbudgeted costs and 
$58 billion including them. Historical trends in cost growth 
for Army systems, particularly for combat vehicles such as 
those being developed under the future combat systems program, 
account for about 40 percent of those unbudgeted costs. And the 
remaining 60 percent is associated with paying for the costs of 
equipment used in continued operations overseas if that were to 
occur.
    Now, saying a little bit more about the future combat 
systems program, which as you can see there takes up a good 
deal of the funding in our projection, FCS funding exceeds $100 
billion through 2026, about 6 to $8 billion annually in the 
projection. That would buy 13 brigade sets of equipment through 
2026, with another two planned to be purchased beyond 2026. But 
that is about one-half of what may be needed for the Army, 
because the Army will have 19 active heavy brigades, seven 
heavy brigades in the Army National Guard according to current 
plans, and three to five prepositioning sets of heavy equipment 
that may have to be replaced with FCS.
    The plan now is to eventually replace all of the equipment 
in the heavy brigades with FCS. So something will have to--if 
that doesn't occur and if they stick with the plan to buy 15 
brigade sets, as opposed to more than twice that amount, 
something will have to be done to maintain the existing 
equipment, the Bradley fighting vehicles and the Abrams tanks 
that they will have in several thousands of numbers. So CBO's 
projection includes more than $3 billion annually to replace an 
upgrade to combat vehicles that will not be replaced by the 
future combat system.
    Let me show you the next chart, which illustrates one of 
the challenges the Department faces overall but in particular 
the Army faces with its combat vehicle fleet.
    The top part of this panel shows on the left the weapon 
systems that were purchased during the 1980s and the 1990s, and 
in the 1980s a lot of Abrams tanks and Bradley fighting 
vehicles were bought. And then on the right hand part of the 
chart, on the top, it shows the number of vehicles that will be 
procured under the future combat systems program current plans, 
one brigade set a year.
    Then, on the bottom, the chart shows funding to buy those 
weapon systems, the funding that was necessary during the 1980s 
to buy the number of tanks shown on the chart and then the 
funding that under current Army estimates will be required to 
buy future combat systems at a rate of one brigade set a year. 
And under current Army plans, which we hear, by the way, may 
change, development in some of the FCS combat vehicles 
contained in this projection may in fact be ended. They may end 
up developing a fewer number of those vehicles.
    The Army will spend at levels comparable to those in the 
1980s to purchase about one-quarter the number of new vehicles. 
Those purchases alone would not be sufficient to sustain its 
force, as I mentioned; and absent that $3 billion a year in 
annual funding that we include in our projection to upgrade and 
replace older systems, the FCS purchases displayed in the chart 
wouldn't be sufficient to sustain the force, as I said; and the 
aged Army combat vehicles would double over the long term from 
about 10 years currently to 20 years by 2026, which is about 
double the desired fleet wide age. So the additional $3 billion 
a year or something in that neighborhood will probably have to 
be spent if more FCS vehicles are not bought, and which is the 
current plan.
    Next chart.
    Let me turn to the Navy. This shows past and projected 
funding for investment in Navy systems.
    CBO's projection indicates that funding for investment in 
Navy and Marine Corps weapon systems will average about $58 
billion annually during 2014 to 2026, which is slightly less 
than the average funding of $61 billion during the period of 
the 2009 FYDP, 2009 to 2013. And through 2018, in this 
projection anyway, funding will be comparable to that of the 
mid-1980s, and that is to support a fleet of about half the 
size of the ship fleet that we had during the 1980s.
    Funding for shipbuilding, excluding historical cost growth, 
so there is that ships' portion of the funding at the top of 
the chart, will average about $21 billion through 2026. That is 
about 40 percent greater than it is in 2009.
    Funding to develop new weapon systems, the bottom part of 
the chart, shows the development funding for new systems. And 
you can see that funding to develop new weapon systems would 
decline from $19 billion in 2009 to $11 billion in 2013 and 
eventually in our projection to about $7 billion by 2026. And, 
as seen in the chart, such a steady, substantial decline in 
RDT&E funding would be inconsistent with experience during the 
past 20 years. But, nonetheless, that is the implication of 
current plans. They will buy out the joint strike fighter 
program and F-18 EF and multi-mission maritime aircraft, and 
they will not begin to develop the replacements for those 
systems even though towards the end of this projection the F-18 
EFs that have been bought over the last several years will be 
nearing the end of their service lives.
    Next chart.
    Finally, let me show you our projection for Air Force 
investment that is shown on this chart. CBO projects that Air 
Force investment will average about $70 billion annually during 
2014 to 2026, versus about $64 billion annually during the 2009 
to 2013 period of the 2009 future years defense program. 
Accommodating historical cost growth would increase funding 
demands by about $6 billion annually. And note that a 
substantial portion of the other funding depicted in this chart 
is associated with intelligence activities that experienced 
substantially increased funding since 2001.
    Next chart.
    Let me just bore in here for a second on one of the 
particular challenges facing the Air Force, and that is the 
modernization of its tactical aircraft fleet. So this is the 
Air Force analog of that chart that I showed you a few moments 
ago for combat vehicles in the Army. On the left, we have the 
numbers of aircraft that were purchased in the past. So there 
were large purchases of F-16s, particularly F-16s and F-15s, 
during the 1980s. Then there was not much aircraft procurement 
during much of the 1990s. Then we began to buy the F-22, which 
are the pink bars on the chart. And then, in the future, we 
will buy in increasing numbers the joint strike fighter for the 
Air Force rising in this projection to 80 aircraft a year, 
although we have heard that part of the increase in funding in 
the fiscal year 2010 future years defense program that the 
Department has developed would be to buy an additional 30 joint 
strike fighters a year for the Air Force. That would raise that 
number to 110 a year if that were correct.
    Then on the bottom part of the chart you can see the 
funding, and you can see that recently and in the future we 
will be spending at levels roughly comparable to the levels 
that we spent during the 1980s but to buy substantially fewer 
aircraft. Those aircraft have gotten a lot more expensive.
    Let me just give you a bit more detail on that. During 1981 
to 1988, 1,877 aircraft were purchased, for a total of $54 
billion. That is an average unit cost of about $30 million. 
Most of those were F-16s. During 1993 to 2001, 105 aircraft 
were purchased for $9 billion, an average unit cost of $80 
million per plane. And during 2001 to 2008, 156 aircraft were 
purchased. Almost all of those were F-22s, although that is the 
beginning of joint strike fighter purchases as well, so about 
\1/10\th--less than \1/10\th the number of aircraft that were 
produced during 1981 to 1988. And those were purchased for $32 
billion and an average unit cost of $210 million.
    So during 2001 to 2008 we purchased about 60 percent of the 
aircraft that we did during the 1980s--excuse me, we spent 
about 60 percent buying aircraft in 2001 to 2008 that we spent 
during the 1980s, and we bought 10 percent of the aircraft. So 
60 percent of the funding, 10 percent of the aircraft.
    And then in the future the joint strike fighter which will 
replace those--well, not entirely replace those F-16s, those 
dark blue bars there that were purchased in the 1980s, we will 
be buying those at $80 million a plane, versus $30 million a 
plane during the 1980s.
    That concludes my remarks, and I am happy to take your 
questions.
    [The statement of Mr. Gilmore may be accessed at the 
following Internet address:]

   http://www.cbo.gov/ftpdocs/99xx/doc9972/02-04-Long-Term--Defense--
                             Testimony.pdf

    Chairman Spratt. Well, thank you both. We asked for 
numbers, and we got them back in spades.
    But, interestingly enough, the one thing you didn't mention 
was the one thing that 4 years ago or longer Senator Kerry and 
President Bush when they debated were put to the question, what 
do you think is the greatest threat facing the United States 
today? Kerry answered, a terrorist equipped with some kind of 
nuclear device; and President Bush readily concurred. It is the 
one thing they commonly agreed upon. You haven't touched upon 
that at all.
    By my calculation, if you scrub this budget down, go to DOE 
and scrub its budget down for CTR and for Nunn-Lugar and all 
the different components of nonproliferation, you come up with 
about $2 billion. Is my approximation pretty close to what you 
would approximate is what we are really spending on this 
particular threat, nonproliferation? Steve? Mike?
    Mr. Daggett. Well, there are two major categories in the 
defense account. One is cooperative threat reduction, which is 
in the DOD budget; and that has been running about $400 million 
a year. And then Department of Energy has a substantially 
larger nonproliferation program, counterproliferation program, 
largely to buy nuclear material and so on. I think you are 
right. I think it has been running about a billion and a half a 
year.
    There are other initiatives in the State Department as 
well. I mean, the whole counterproliferation, international 
counterproliferation efforts. But those don't involve lots of 
money. The money for it is really in Department of Energy. And 
so I think your total is about right.
    Chairman Spratt. And it has been pretty steady at that 
particular level for several years at least.
    Mr. Daggett. Yes.
    Chairman Spratt. How do you account for that? Do you think 
there is an underallocation here simply because it gets 
squeezed out by other programs, or this is all the Pentagon and 
the Department of Energy think can be sensibly applied?
    Mr. Daggett. Well, I know there is an ongoing program. The 
big budget driver, as I understand it, is purchasing nuclear 
material; and there are agreements, international agreements on 
how much we are going to purchase each year. You might be able 
to increase that to some extent, but I think that is what 
drives really the cost of it.
    You asked me are there other things we should be doing that 
we are not doing? I don't know. That is a bit beyond what I 
have looked at in detail. I can certainly get back to you.
    And Amy Wolf, who works with us, has worked very closely on 
counterproliferation programs. The Harvard Belfer Center does a 
study every year of the status of nonproliferation efforts, and 
they make a number of recommendations. They have made a number 
of recommendations for changes in policy.
    I have looked at it pretty closely a couple of years ago 
and didn't see many that required a lot more money. It was more 
international diplomatic initiatives and things of that sort 
that they were looking at. But I would be glad to look more at 
that and talk with you and with Scott about it.
    You can certainly identify, I think, some additional areas 
of possible investment. I am not sure it would be a huge amount 
of money.
    Chairman Spratt. Mr. Gilmore, if we cut through all of your 
charts and information here to the basics, to the bottom line, 
what are we spending today on the base defense budget for 
national defense and what are we spending typically in terms of 
supplementals for emergency purposes, primarily Iraq and 
Afghanistan?
    Mr. Gilmore. Let us see. In 2009, I think the Department 
requested $517 billion and the Congress appropriated about $515 
billion in the base budget; and there was about another $180 
billion or so in supplemental funding for operations in Iraq 
and Afghanistan and other purposes.
    Chairman Spratt. So that comes to nearly $700 billion?
    Mr. Gilmore. Pretty close.
    Chairman Spratt. And in real terms how does that compare to 
the post-war expenditure levels in the post-war period?
    Mr. Gilmore. It is a peak. I mean, if you look at a chart 
that is on our Web site that displays defense funding over the 
past 60 years, I think we are at a peak in inflation-adjusted 
spending.
    Chairman Spratt. Compared to Korea?
    Mr. Gilmore. It has been a pretty steady increase, so I 
think it is an overall peak.
    Chairman Spratt. Now, we have received from DOD from time 
to time bills for reset--renovation, repair, reconstitution and 
repurchase, really--of equipment that is either badly damaged 
or worn out due to the operating environment and the OPSTEMPO 
in the two war zones we find ourselves now, Afghanistan and 
Iraq. Have either of you paid any particular attention, spent 
any effort to try to unpack what is in those substantial 
requests that started at about 15, $16 billion?
    The Chiefs told us that if we stopped the war in Iraq 
tomorrow we would still have these costs for at least 2, 3, 
maybe 4 years at a substantial level. But the level has risen 
considerably from about 15 or $16 billion several years ago to 
around $50 billion today, just under $50 billion today.
    Mr. Gilmore. I think a year and a half or 2 years ago, 
Grant Lussier in our division produced a report on the Army 
reset program trying to, as you put it, unpack some of the 
details, which turns out to be a challenge to do, given the 
information that is available from the Department. 
Nonetheless----
    Chairman Spratt. Give me some examples under the 
acquisition of new equipment.
    Mr. Gilmore. Yes. A lot of the increase is associated with 
buying new equipment for the Army. Substantial numbers of up-
armored, high-mobility, multi-purpose wheeled vehicles, Humvees 
that were not in the force at the beginning of the conflict, as 
everyone knows.
    A substantial amount of money, about $20 billion, I think--
I could be wrong--for purchases of mine-resistant, ambush-
protected vehicles. Substantial amounts of money to purchase 
the most modern versions of Army trucks, the trucks built as 
part of the so-called Family of Medium Tactical Vehicles 
Program. A lot of those trucks were bought for National Guard 
units that lacked the most modern trucks. And, in fact, a large 
number of those trucks are just kept in the theater, and the 
units that come in haul in on those trucks.
    So a substantial portion of that growth has been associated 
with buying that kind of new equipment that was not in the 
force prior to the operation.
    Mr. Daggett. And I have one point. It really is unclear to 
me to what extent the Army has filled out its evolving 
requirements and plans for that kind of minor equipment. One of 
the tasks for the next administration, it seems to me, is to 
really unpack where the Army is going and what bills remain 
unfunded and try to distinguish what is to replace war 
equipment and what is to fill out modularization of the force 
and what additional kinds of equipment needs they might 
identify because of lessons of the war to equip the Army 
National Guard.
    They spent a lot of money on it already. I am just not sure 
how far along they are in meeting all of those additional 
requirements. It could require a substantial amount additional 
if you do everything the Army wanted. It could be almost all of 
it has already been spent. I just don't know the answer to 
that. And I don't know that anybody really----
    Mr. Gilmore. Well, I think the Army has indicated that, in 
fact, there are substantial additional bills that will come 
due. I read, anyway--I can't verify the accuracy of the 
reports--that the Army has claimed that they are about $40 
billion a year short in their investment accounts of where they 
would want to be if they could fully modernize and fully equip 
their force the way they want to. I have just read that; I 
haven't had a chance to get any information that would actually 
verify that figure.
    Chairman Spratt. These requests come not in the base 
budget, but in, primarily, largely in the supplemental.
    Mr. Gilmore. Well, it is a combination of the two. For 
example, some of the increases that occurred early on in the 
procurement requests in the supplementals were buying equipment 
associated with modular conversions, the conversion of the 
Army's combat brigades from division-centered to brigade-
centered, modular brigades that were more capable of 
independent operations. Although, now the Department claims 
that almost all those costs, if not all those costs, are being 
requested in the base budget. But, initially, there were 
amounts requested in the supplementals.
    So it is a combination of the two. But, as I pointed out on 
that chart, in Army procurement, the Army has gotten as much 
recently in procurement in the supplemental as it is requesting 
in its base budget.
    Chairman Spratt. Typically, when advocates or opponents 
speak of the percentage of defense expenditures as a percent of 
GDP, they talk basically about the defense budget and, to some 
extent, Function 050, which would include the DOE nuclear 
program as well. But they generally do not include some direct 
collateral costs, such as veterans. The veterans bill today is 
running about, for both mandatory and discretionary, about $95 
billion a year. They rarely mention homeland security, an 
account that didn't even exist in the budgets several years ago 
and today is at $35 billion to $40 billion, maybe half of which 
is really classified money, but there is at least a $20 billion 
to $25 billion increase there. And they rarely mention military 
aid under the 150 account for foreign purposes. And you could 
go down the list.
    Do you think, as we try to arrive at that measure, what 
percentage of our GDP are we allocating to national security, 
that these accounts should be included?
    Mr. Daggett?
    Mr. Daggett. Yes, it is really a policy issue for Congress.
    I will say, when I look at it--I have spent a lot of time 
talking about personnel costs. And when you are tracking 
personnel costs, if you just look at the defense budget, even 
the 050 account, as a whole--in whichconcurrent receipt, is 
part of 050, not 051--you don't get a whole picture of it, 
largely because of VA costs.
    So it may affect allocation decisions in this sense, that 
you are not capturing the full cost of personnel when you just 
talk about what the budget cost in DOD is, that the full cost 
of hiring somebody in the military is actually substantially 
higher than just the DOD cost because of future veterans' 
benefits and so on.
    So it is useful, in general, to keep that in mind. But 
whether you have an overall budget account for national 
security or whatever as a way of doing it, you know, I don't 
have an axe to grind on that. But I do think visibility of all 
those kinds of costs is certainly useful from a planning point 
of view.
    Chairman Spratt. I think the message that both of you bring 
us in great detail in your testimony today is that, typically 
when we think about cost growth in the defense business, we 
think about the investment accounts, R&D and procurement, 
because the percentage increases over and above baseline tend 
to be substantial over time.
    But now we have a defense budget where the personnel 
accounts are swelling just as much as the--or substantially, if 
not as much as the investment accounts. O&M, of course, is 
growing substantially because we have troops deployed in two 
theaters and still troops stationed at places throughout the 
world.
    It is hard to contain a budget which has got every account 
in it demanding substantial funding because of its level of 
engagement right now. Would you agree with that?
    Mr. Daggett. My discussion is that personnel costs really 
drive a large part of the defense budget and have really driven 
costs up across the board. The implication I draw, by the way, 
is, to the extent that there is a decision to cope with that by 
reducing spending in some way, if you just look at the 
investment accounts, you are really focusing on a relatively 
narrow part of the budget disproportionately.
    So you really do need to consider the cost of personnel, 
both uniformed personnel and civilian personnel, in this budget 
environment. If you think the budget is going to be tight for 
the foreseeable future, eventually you are going to have to 
look at the size of the force. And, from my point of view, just 
from a planning perspective, if you are going to draw down the 
size of the force in the future, the sooner you decide to do 
it, in a way, the better, because then you save resources in 
the interim for other investments.
    So, absolutely, I think it really is important to keep in 
mind that a big, big part of the budget is driven by the cost 
of people.
    Chairman Spratt. Mr. Gilmore, one final question. Some time 
ago we asked, after not getting the information from DOD, we 
turned to CBO and said, would you give us your best estimate of 
what our engagement in Iraq and Afghanistan has cost to date 
and what it is likely to cost over the future?
    Could I just put those two charts up to see if those 
estimates are still applicable in the eyes of CBO?
    This shows that, if you take funding all the way back to 
2001, primarily, solely almost, for the first couple of years 
for Iraq, and then for Iraq and Afghanistan together, from 2001 
through 2009, the total amount of war funding to date, the 
supplementals has been $864 billion. That is primarily a matter 
of record, and it is just a matter of which costs were 
allocated to that theater and which costs went elsewhere.
    Is that still----
    Mr. Gilmore. That seems correct to me.
    Chairman Spratt. Now, second chart. Picking up from there, 
we agreed that CBO would estimate a drawdown in troops over a 
5-year period of time to about 75,000 troops in both theaters 
in that zone of the world. And once the force level reached 
75,000, that would be the steady state, it would continue at 
that level for the next 5 years.
    The total then came to 867. Of course, that is a 
projection, not a record number. Is that still roughly what CBO 
would project for the costs under that scenario?
    Mr. Gilmore. That looks consistent to me with what was 
included in the recent outlook.
    Chairman Spratt. This is driving a large part of that O&M 
account that we saw swelling as you showed us the numbers 
earlier, then, and the reset and reconstitution account as 
well.
    Mr. Gilmore. Yes, although there are underlying reasons 
separate from operations in Iraq and Afghanistan that the 
operations and support costs have been growing, as both Steve 
and I have mentioned. But the recent rapid increase is 
obviously due to the need to fund those operations.
    Chairman Spratt. Thank you very much, both of you, for your 
fine testimony.
    Mr. Ryan?
    Mr. Ryan. Thank you, Chairman.
    This is a very interesting hearing. And for those of us who 
aren't on Armed Services or Approps, this is very helpful to 
us.
    Okay. A number of questions.
    Mr. Daggett, I want to go to your cost overrun chart. I 
think it is chart 6 of your testimony. The change in total 
acquisition cost from the first estimate, 6 percent increase in 
fiscal year 2000, 18 percent overrun in fiscal year 2005, and 
26 percent in fiscal year 2007. Is that right?
    Mr. Daggett. Right.
    Mr. Ryan. That is a staggering increase. Can you drill down 
into that number and give us a sense of why, how, and what 
direction are we headed now?
    Mr. Daggett. The question is, why is it getting worse? It 
seems to be getting worse, not better----
    Mr. Ryan. Right.
    Mr. Daggett [continuing]. In spite of really pretty serious 
efforts on the part of DOD to get a better handle on it. There 
is a cost-analysis improvement group at the Pentagon that 
really does go over cost projections very carefully.
    Mr. Ryan. So what is happening?
    Mr. Daggett. I think a couple of things. And this is drawn 
mostly from reading GAO's testimony on it. GAO really has 
looked very carefully at this, and this is from GAO's latest 
analysis.
    Part of it might just be cyclical. Typically, weapons cost 
growth is greatest as systems and full-scale engineering 
development begin to enter the production phase, because we are 
finally getting down to what it is going to take to produce it. 
So you get larger cost growth at the end of the development 
cycle. And it could be just that part of the inventory of 
weapons is in that part of the cycle. I have had some 
discussions with people at OMB who think that that is part of--
--
    Mr. Ryan. Is it the higher-tech nature of the equipment 
and, therefore, the less predictability?
    Mr. Daggett. Yes. The other issue that GAO, in particular, 
points to is a willingness to accept very high levels of 
technical risk in the development process. And DOD and GAO do 
measures of that. They call them TRLs, technical risk levels. 
And for each major development program, there are various 
elements of technology in the development effort, and they 
assign various TRL levels to it. And there does seem, just by 
that measure, to have been a greater willingness to accept 
higher levels of risk in the development process, which then 
leads to schedule delays and cost increases.
    Let me say, part of that is driven, by the way, by just the 
length of time it takes to develop a weapon. If you are going 
to develop something that is not going to be fielded for 10 or 
20 years, and you look at what is going on, say, in electronic 
developments in the civilian sector, it is proceeding so 
rapidly that what you say is, well, I can't afford to leave 
that behind; that new technology is going to be very helpful to 
the weapons system. So we have to assume its availability in 
the development process. So we will look ahead to what we think 
is technically reasonable and assume we can build it. But then, 
when you actually try to develop it or do it, it becomes more 
difficult than you think--the schedule slips, cost increases, 
and so on.
    But if you really look at what GAO is saying--and, again, 
they are looking at this very closely--that is one of the 
drivers of it, just a general across-the-board willingness--
again, not for bad reasons, not with an unreasonable view 
toward what is going on--to get into a program on the 
assumption that we will make it work later.
    Mr. Ryan. A 20 percentage point increase in 7 years, that 
is just staggering.
    A lot of people on our side of the aisle like this idea of 
a 4 percent GDP floor on spending. As a budgeteer, I don't like 
the idea of any floor on any program; caps, yes, but floors, 
no.
    But looking at the CBO's--your chart--you don't have your 
charts numbered here, and you had about 75, so looking at the 
one which is percentage of GDP----
    Mr. Gilmore. I think it was my second chart.
    Mr. Ryan. Yeah. I have them all detached here.
    So give me a sense for where we are headed, percentage GDP, 
if your health care projections go off. And then I want to ask 
you about that.
    Your TRICARE projection kicks in in, what, 2002, where it 
really starts taking off, your accrual projection? And that is 
probably chart 5 or 6.
    Mr. Gilmore. The program was initiated--I mean, prior to 
2001 or 2002, it was pay-as-you-go, and they just paid for 
expenses not on an accrual basis. Then TRICARE for Life was 
instituted, and it was decided to fund it on an accrual basis. 
So the funding every year is based on a projection of what you 
need to invest today in order to pay for future retirees, and 
that is when the costs began to increase.
    Mr. Ryan. We concur with accrual principles.
    I want to get at this. So, looking at the accrual rate of 
TRICARE and all of the other health care issues, what goes into 
your projection? How much of it is health inflation? What 
health inflation rate do you use? Do you use the same health 
inflation rate the trustees at Medicare use? And how much of it 
is demographics?
    So breaking that projection down, how much do you ascribe 
to demographics, how much do you ascribe to health inflation? 
And how do you arrive at your health inflation rate?
    Mr. Gilmore. I can't give you a breakdown on demographics; 
I would have to get back to you on that. But the demographics 
of the DOD retiree population, we will have to look at how much 
that is changing over time. You don't have exactly the same 
problem there that you do in the economy as a whole. I can't 
give you more detail on that off the top of my head, but I can 
get back to you on that.
    But, in any event, in terms of the growth rates that are 
assumed in these projections, the growth rate for the accrual 
costs and the TRICARE for Life accounts that we use is the same 
as the one that the DOD actuaries use. We have looked at it, 
and it seems reasonable to us, and that is 6.25 percent nominal 
growth.
    Mr. Ryan. Do they use the same rate that the Medicare 
trustees use?
    Mr. Gilmore. It is comparable.
    And then there are other things that are budgeted for in 
those health accounts, as was displayed in my fourth chart, I 
guess, including pharmaceutical costs. And per capita 
pharmaceutical nominal growth is 9 percent in 2014, which we 
assume slows to 6 percent by 2026. And that is consistent with 
the kinds of growth rates that CBO and others use when they 
project pharmaceutical costs for civilian----
    Mr. Ryan. And even with all that, your percent-of-GDP 
projection stays under 4 percent in the out-years?
    Mr. Gilmore. Yes, it does. On that second chart, ``Defense 
Resources as a Percentage of Gross Domestic Product,'' there is 
the dotted line, administration plan with unbudgeted costs. 
That includes all of the unbudgeted costs that I showed you on 
all those charts. You insert the upper end of the range in 
every case for all those dotted lines. And that includes the 
dotted line for total unbudgeted costs in the Military Medical 
System chart, which incorporated even faster growth than 6.25 
percent for accrual and 9 percent per capita pharmaceutical 
growth, cost growth, and 6 percent per capita for direct and 
purchase care cost growth.
    Mr. Ryan. What is the measurement of the crowd-out within 
the DOD budget in nominal terms with new health care costs 
versus all other military spending?
    Mr. Gilmore. Well, medical spending, I mean, that is one 
way to look at it----
    Mr. Ryan. You know how we do this all the time on mandatory 
versus discretionary with the entire budget, and how we show 
that the crowd-out is occurring so rapidly over the years. Give 
me an apples-to-apples comparison with the DOD budget.
    Mr. Gilmore. Well, about the best I can do off the top of 
my head is just return to chart 4, which shows funding for the 
military medical system of about $40 billion currently. And 
that could grow to as much as $90 billion by 2026, so more than 
a doubling over 17 years. So that is more than 100 percent cost 
growth over that period versus about a 7 percent growth overall 
in operations and support costs.
    So our projection for needed funding for the military 
medical system is growing seven, eight times more rapidly than 
O&S costs as a whole.
    Mr. Ryan. We have had these complaints in the last number 
of budgets about the administration trying to sneak, you know, 
what we would consider base spending into the supplemental 
bills. And they did a lot of this 3, 4 years ago. We kept 
criticizing them; they did a little less of it.
    Are you now saying that, from your estimation, they are not 
sneaking base spending into supplemental bills and that the 
supplemental bills themselves are pretty much truly 
supplementals?
    Mr. Gilmore. We really haven't taken a position----
    Mr. Ryan. Mr. Daggett, please feel free. I mean, either one 
of you can answer the question.
    Mr. Gilmore. We haven't taken a position on whether a 
certain kind of funding is appropriate in supplementals or the 
base budget. There are arguments on both sides of that.
    But in terms of--what many people have argued in the past, 
for example, that the costs for converting combat brigades from 
division-centered to a modular design should be part of the 
base budget, that was originally in the supplementals and it 
now seems to be part of the base budget.
    Other people have argued that the upgrades that are made to 
the Bradleys and Abrams when they return from the theater--
because the Army determined that they have to be torn apart 
completely, and since they were torn apart and we have to put 
them back together, we might as well upgrade them to the most 
modern configuration; not an unreasonable argument--but some 
people have argued that those costs ought to be borne in the 
base budgets since those kinds of upgrades had long been part 
of the Army's desired base program but not funded because of 
other constraints. Those kinds of upgrades still are in the 
supplementals, although there are fewer of them now because 
there are fewer tanks, for example, in the theater.
    So I think what you will find is what you stated, that over 
time the amount of money that is included in the supplementals 
that a number of people would argue should be, in other 
circumstances, funded in the base budget has been reduced, but 
I don't think it has been entirely eliminated.
    Mr. Ryan. And, last question, our airplanes, our fighters, 
what is the cost of a Joint Strike Fighter and an F-22?
    Mr. Gilmore. The Joint Strike Fighter, the current 
projection for the Air Force version is that it will cost about 
$80 million apiece. And the F-22 is on the order of $180 
million or $190 million apiece.
    Mr. Ryan. And the F-16--which, in my mind, I should think 
of Joint Strike Fighter as the new version of an F-16, right? 
F-16s were $30 million?
    Mr. Gilmore. They were $30 million when we bought them in 
the 1980s, although the more recent versions of the F-16s, 
which are more capable, which have been sold to some foreign--
--
    Mr. Ryan. These are in real dollars, right?
    Mr. Gilmore. Yes, these are in 2009 dollars. All the 
numbers I have given you are in 2009 constant dollars.
    The more recent versions of that plane that have been 
purchased, I think, by the United Arab Emirates, which are more 
capable--they have, for example, much better radar--have been 
more on the order of $40 million to $50 million.
    Chairman Spratt. You are talking flyaway costs as opposed 
to program unit cost, are you not?
    Mr. Gilmore. I am talking procurement unit costs. 
Procurement unit costs are a little bit more than flyaway.
    Chairman Spratt. Of course they are. They have the R&D in 
them.
    Mr. Gilmore. Well, no, Mr. Chairman, I am just talking 
about procurement. I am not including the R&D costs. The 
flyaway costs don't include things like initial spares and that 
sort of thing.
    So procurement unit costs are a little more than flyaway 
unit costs, which are both less than acquisition unit costs, 
which include the R&D.
    Mr. Ryan. Thank you.
    Chairman Spratt. Ms. Schwartz.
    Ms. Schwartz. Thank you, Mr. Chairman.
    And thank you for your testimony and information.
    I think all of us understand, and I think would agree, that 
protecting and defending our Nation and getting the size of our 
military and our costs in DOD right is one of our most 
significant responsibilities as Congress, and I certainly do. 
Certainly we are facing a budget that is the largest since 
World War II, at $527 billion. So we want to get this right, 
and appreciate your information.
    And I think, as both the chairman and the ranking member 
pointed out, that having information that is accurate from DOD 
is extremely important, and that has not been so easy, given 
the previous administration sometimes not sharing all of this 
information that we would like.
    Really, just one comment and one question. I did want to 
thank the chairman for his asking questions about the reset 
costs. I do recall, in a previous budget hearing, asking DOD 
whether all the reset costs for replacement of equipment and 
repair of equipment from the war zone in Iraq and Afghanistan 
have been accounted for, and his answer was yes, absolutely, 
100 percent. It was rather stunning. I am happy to get that 
testimony.
    But if, in fact, that is not correct, which is what you are 
suggesting, that is pretty important for this new 
administration to understand what the cost for replacement of 
equipment and repairing of equipment is going forward. And, of 
course, the war continues in Iraq and Afghanistan, as you 
project.
    My question really has to do with also some problems that I 
realize came out of the supplemental discussions more than DOD, 
but wondered if it related to DOD and whether you could speak 
to them. And that is, certainly there have been concerns about 
inefficiencies and overspending in contracting. And, again, the 
stories have come out, by and large, around the wars in Iraq 
and Afghanistan, particularly with private contractors.
    Could you speak to whether you have looked at--again, we 
are in tough economic times. We are looking for the greatest 
efficiency going forward, and that includes within DOD. And we 
have a new administration that is very keen on greater 
transparency and accountability for use of Federal dollars.
    So could you speak to whether there, in fact, have been 
problems in terms of contracting and costs that we might be 
able to rein in?
    And yet, again, I am coming at this from a point that we do 
want to and need to make sure that we are the right sized 
Department of Defense and that we are protecting both our 
troops in the field, of course, but then also, going forward, 
are prepared for the challenges and threats ahead.
    But given that, could you speak to any of the specifics you 
might on efficiencies and what greater transparency and 
accountability might lead to within DOD so that we might apply 
those costs where we need to?
    Mr. Gilmore. We have not--and it is not our function at CBO 
to do audits of these contracts. The Special Inspector General 
for Iraq has done that and published quite a bit of material 
about his findings. That is not something that we have done.
    What we have done and published last August is a report 
that summarized what we thought was the total amount of funding 
that had been spent in the Iraq theater on contractors that 
support military operations in Iraq and neighboring countries, 
such as Kuwait. And we concluded that, through late 2007, about 
$85 billion had been spent for those purposes, and that, if the 
current rate of spending continued, which was probably likely 
given that force levels weren't going to change that much--they 
were going to decline somewhat, but not dramatically, at least 
not at that time, not yet--that probably, by the end of 2008, 
about $100 billion would have been spent on contractor support 
of our operations.
    The other thing that we took a look at was whether it would 
have been cheaper for the military to perform those functions, 
those support functions itself. And what we concluded was it 
wouldn't have been, not unless we thought we were going to be 
continually involved in an occupation of Iraq of the size that 
we have had continually, meaning virtually always, in which 
case, then, yes, it would be cheaper for the military to do 
that itself, but----
    Ms. Schwartz. Is there a point at which, 10 years, 20 
years----
    Mr. Gilmore. Yeah, if you don't think you are going to be 
involved in it continually, then it is actually cheaper to hire 
contractors and then shed them when you are no longer engaged 
in those activities and only hire them when you are.
    Ms. Schwartz. That makes sense, although it has now been 8, 
9 years, and you projected out for another 10. So it is much 
longer than temporary. We hope it is temporary, too, of course.
    Mr. Gilmore. I won't dispute that.
    But with regard to your specific question about 
efficiencies, we have not looked at that, but the Iraq 
Inspector General has and I think GAO has. They have reached 
the conclusions that they have.
    Ms. Schwartz. Well, you get a sense of $100 billion out 
of--it is not the $527 billion. It is out of the supplemental; 
it is out of the $800 billion.
    Mr. Gilmore. At that time, it probably would have been on 
the order of $100 billion out of $600 billion or $700 billion 
was spent on contractors.
    Ms. Schwartz. Maybe it is something for us to continue to 
consider going forward.
    Mr. Gilmore. Yes, but I would point out that probably about 
two-thirds of the defense budget is spent on contractors, one 
way or another. Contractors develop the weapons systems. There 
are a lot of contractors that perform other functions. And so 
if you look at that $515 billion, there is a third of it that 
is spent on military personnel, but----
    Ms. Schwartz. Well, I am not suggesting that we not use 
private contracting. I am just suggesting that--and I believe 
there is quite a bit of oversight. In some situations where I 
visited, certainly, Defense contractors said there is someone 
from DOD there auditing what they do all the time.
    So I am just saying that, under the previous 
administration, there were some real issues with this, again, 
to those audits, and that we ought to make sure that we are 
spending precious public dollars as efficiently and effectively 
as we might. So, maybe a question for another day and for 
someone else.
    Thank you.
    Chairman Spratt. Mr. Simpson.
    Mr. Simpson. Thank you, Mr. Chairman.
    I would just note that there has been a question of 
contract management under every administration, not just the 
previous administration. And, in fact, you don't go into 
whether contract management has been appropriate or not. I sit 
on the Energy and Water Subcommittee, and we have looked at a 
lot of the contracts that have been done with the Department of 
Energy and some of the programs. The waste treatment plant at 
Hanford that started off at $4 billion and went to $14 billion 
causes us a great deal of concern.
    I wonder about the relationship between the contractors who 
work for DOD, who have a close relationship with them. How much 
contract management oversight is there? And you don't go into 
that, do you?
    Mr. Gilmore. No, we don't.
    Mr. Simpson. Let me ask a couple of other questions. In 
your budget, when you are looking at your numbers here, do you 
take into account defense operations that are outside of the 
DOD? Department of Energy, for example, the weapons complex, 
the nonproliferation funds that the chairman was talking about, 
those types of things? Because those are certainly as much a 
part of defense as anything else we do.
    Mr. Gilmore. In the projections that I showed you, we 
focused just on budget function 051, which is the Department of 
Defense. Considering 050 would add another $18 billion to $20 
billion. And then there would be amounts in addition to that 
that Chairman Spratt mentioned, substantial amounts, associated 
with veterans affairs and other activities, homeland security, 
homeland defense. But my projections focused just on Department 
of Defense.
    Mr. Simpson. There is a proposal that this administration 
is currently looking at, is taking the weapons complex out of 
civilian management and putting it under DOD. Have you looked 
at that proposal at all?
    Mr. Gilmore. We have not.
    Mr. Simpson. Let me ask you about one of the costs that you 
mentioned, health care costs, as driving the O&M budget. How 
does that compare with private-sector health care increases 
that we are seeing in the private sector?
    Mr. Gilmore. In the projections that I showed you, the 
growth rates for the cost of DOD medical care and 
pharmaceuticals and so forth are all comparable to those that 
CBO uses in its projections for the costs in civilian health 
care.
    Mr. Simpson. That is surprising, seeing as how I thought 
government control of that was going to keep the cost down, and 
that is why we were going to go to universal health care, but 
that is another question.
    What about the long-term increase in inefficiency that you 
would expect when you have new technologies and so forth? We 
don't see that within--I think, Mr. Daggett, you said we don't 
see that within the Department of Defense as we do in the 
private sector. As an example, the first cell phone I bought 
cost $960. Today they will give you a cell phone.
    Why don't we see that type of thing within the Department 
of Defense?
    Mr. Daggett. There is a huge literature that discusses 
that, and the bottom line on it is seeking performance rather 
than reliability, availability, and maintainability, as they 
say.
    For its part, the DOD has been looking pretty hard at that 
in the last couple of years. There is a new team that is 
working at DOD to actually get involved in the operational 
testing or development testing of major systems, with a view 
toward identifying possible improvements in long-term 
maintainability of the system. But that is a new initiative. I 
mean, we will have to see how that plays out.
    DOD itself is very concerned about the fact that the cost 
of operating and maintaining weapons systems really hasn't come 
down as costs have come down in the civilian sector. And you 
look at any part of the civilian sector, not just electronics, 
but automobiles or aircraft operation and maintenance, the 
trends are not as good in DOD, and sometimes they are going the 
opposite direction in DOD from what is going on in the civilian 
sector.
    So, you know, it is certainly an area that DOD recognizes 
and that they are trying to work at. That said, if you go back 
to the 1980s, that was an issue back then, as well.
    But, again, what drives it here is, when you are developing 
a weapons system, what are you looking for? You are looking for 
performance, and you are trying to push the envelope, in a lot 
of cases. In electronics, you are trying to get a complete 
picture of the battlefield. And that involves--to the extent 
that you could use off-the-shelf consumer technology to do 
that, then it would get cheaper over time. But a lot of these 
are unique kinds of things that DOD alone does that there is 
not a parallel requirement for in the civilian sector, so they 
are left to do it themselves. And it becomes a very costly kind 
of thing to try to do it.
    Another aspect of the problem is, again, given that it 
takes so long to develop a weapons system, some of the old 
software and even the computer systems that you are using are 
getting pretty out of date. So when they do break, you have to 
go back to the manufacturers and get old systems or you have to 
replicate it in a way. So it is more expensive to replace it 
than it typically is in the civilian sector.
    So there are a lot of factors that drive this.
    Mr. Simpson. That is the one thing we found within the 
Department of Energy, is that they do unique things that are 
sometimes hard to do estimate the cost of because they have 
never been done before.
    I appreciate your testimony. As the chairman said, it is 
interesting to get the background on this, but an awful lot of 
this discussion depends on the policy decisions that we 
ultimately have to make.
    Chairman Spratt. Thank you, Mr. Simpson.
    Ms. McCollum.
    Ms. McCollum. Thank you, Mr. Chair.
    Gentlemen, we sit here today, and Congress and the new 
administration, as has been pointed out in other questions, 
must begin making smart decisions for best overall security 
strategy for the United States.
    As the DOD working paper states, capabilities based on 
planning should be apportionate to the risks that are across 
the challenges. Now, it seems our current defense strategy 
focuses on spending on the least likely scenarios, according to 
the quad chart that was put up. Clearly, an example of this was 
the money that was spent on missile defense. And I am afraid 
that we are not focused enough on high-risk, high-vulnerable 
scenarios.
    As we look to make the Pentagon more cost-efficient, one of 
the tools that we have in our national security strategy box is 
supporting the 3-D strategy: National security is defense, 
diplomacy, and development. And one of the things that I 
noticed that is missing on this quad chart is any discussion 
about how climate change--and we know that the Department of 
Defense is spending a lot of money with climate change 
scenarios out here.
    So what are some of the potential cost savings to our 
national security spending by increasing funding for 
development and diplomacy? What kind of savings could we see, 
doing that?
    Thank you, Mr. Chair.
    Mr. Daggett. I put the quad chart up, so I guess I am on 
for that.
    It is a hard question. As I said, Secretary Gates really 
has done a series of speeches recently in which he has raised a 
lot of precisely the kinds of questions that you have. Those of 
us who work in Washington, on defense policy in particular, 
discuss quite often very fundamentally different alternative 
approaches to national security; I mean, are there things you 
can do in prevention by building relations with allies that 
could then lead to reduced requirements over the long term for 
forces and so on. I mean, we talk academically about that all 
the time. They are now on the political agenda, and they are 
there because Secretary Gates has really put them on the 
political agenda. He is talking about a whole-of-government 
approach now to national security that involves all of the 
elements that you talked about. So, you know, it is a very 
lively discussion.
    I think in the short term, his priority, as he has 
articulated it, has been to reduce the emphasis on what he 
calls traditional systems and increase the emphasis, as he puts 
it, on the wars we are fighting now, by which he means 
irregular conflicts. So he is more focused on the fairly short 
term, not on the kind of longer-term issue so much immediately 
that you talked about, but on the shorter term. And that does 
involve some potential shifts in priorities. And I look for DOD 
to be discussing them even in the 2010 budget, and particularly 
in future budgets.
    But that, to me, is likely to mean tradeoffs in major 
weapons programs--are we going to continue to produce DDG-1000 
Destroyer or not--transformational communications satellites, 
things of that sort, all of which support capabilities for 
traditional conflicts.
    And in favor of what? He has been very focused on trying to 
find more resources for the immediate fight. Some of them are 
not necessarily low-tech. Some of those things are, certainly, 
UAVs and so on. But his argument has precisely been that we 
have not put sufficient resources into those areas.
    So I think there is going to be a big debate about the 
allocation of resources, or there is likely to be a big debate 
about the allocation of resources. And I am not sure how it 
will play out.
    I mean, you raised a much longer-term question. And I think 
there also certainly is a discussion in the government about 
allocation of resources between defense and nondefense. That 
gets way beyond what Mike and I work on, but it is a big part 
of the discussion.
    DOD has been involved now--there have been some increases 
in what DOD is doing in typical areas of foreign affairs. If 
you leave aside military assistance, security assistance, and 
even economic assistance in foreign countries, if you leave 
aside, though, what DOD is doing in Iraq and Afghanistan, that 
is not, by DOD standards, a huge amount of money. Global train 
and equip has become a big focus of attention. DOD, last year, 
asked for authority for $800 million, I think, for that. From 
the State Department's point of view, that is a lot of money. 
From the Department of Defense point of view, it isn't 
particularly.
    The appropriators then have taken some issue with that. 
They think that that should be handled primarily by the State 
Department rather than by DOD. And I think that, again, is an 
issue for, in a sense, this committee to address, and Congress.
    Ms. McCollum. Mr. Chair, I hope we have a chance to talk 
about those tradeoffs and balances later in the committee, 
especially as the reauthorization for State Department starts 
moving forward.
    Chairman Spratt. We will. Thank you very much.
    Mrs. Lummis, from Wyoming.
    Mrs. Lummis. Well, good morning. I appreciate very much 
your attendance today.
    I would like to start with a very basic question about the 
Department of Defense and its inability to produce a clean 
audit. I am curious why that is, what obstacles you think 
prevent that from happening?
    I support peace through strength. I support a robust, 
capable military. But I do find it interesting that earlier in 
this discussion we were talking about how military auditors are 
auditing contracts, but why can't they, in turn, produce a 
clean audit of the Department of Defense? Any thoughts in that 
regard?
    Mr. Gilmore. That is not an issue that CBO really looks at. 
You know, auditing is the forte of the Government 
Accountability Office.
    I guess the only thing I would observe--and this is by no 
means to try and make an excuse for the problems in DOD 
bookkeeping--but I think we have seen that many large 
organizations have problems keeping their books and accounting 
for every dollar that is spent, no matter how hard they try to 
do that. And DOD is another large organization, so it is not 
surprising that they have those problems, which is not to say 
that they shouldn't continue very hard to try and eliminate all 
of them.
    But that is not something that we have looked at 
specifically.
    Mrs. Lummis. Thank you, Mr. Chairman.
    My next question is perhaps more on point. One of the 
biggest tensions, I understand, that occurs in the budget 
process for DOD is the constant battle between funding current 
operations and long-term planning and acquisition.
    So my question is this: Based on your analysis, do the 
budget numbers give us an indication of where DOD is focusing? 
Is it more focused towards replenishing what we have or 
spending money on what we think we might need in the future?
    Mr. Gilmore. Well, I think that the base budget contains 
funding for both kinds of activities, although predominantly 
for systems in the future.
    So if you look at the investment program, it is dominated 
by things like the Joint Strike Fighter program, the Littoral 
Combatant Ship program, the DDG-1000, other systems like that 
that are going to come online in the future.
    But there are also requests in the base budget for billions 
of dollars' worth of procurement for what Steve and we at CBO 
refer to as minor equipment in the Army--ammunition, radios, 
other things like that--that are very important to current 
operations. And then, of course, there are also substantial 
amounts in the supplementals for those kinds of things.
    So the short answer is, it is a mixture of both. The base 
budget is primarily focused on the future, not surprisingly, 
and the supplementals are primarily focused on funding current 
operations.
    Mr. Daggett. Could I just make one point?
    Secretary Gates, again, has raised precisely that issue in 
those terms. He made a speech a few months ago in which he 
argued that we need to focus less on the war we are not 
fighting and more on the war we are fighting now. And I think 
that is partly where concern about that kind of issue comes 
from.
    You know, his argument is that a large part of investment 
has been in the direction of the systems for conflicts 20 or 30 
years down the road at a time when we are having a problem, in 
his view, finding sufficient resources for some of the things 
he wanted to do in Iraq and Afghanistan. And that drove it.
    It is not necessarily a big budget driver. The kinds of 
items he was talking about for Iraq and Afghanistan aren't 
necessarily going to drive the budget, in itself, much higher. 
But it is a matter of allocation. It is an issue in DOD.
    Mrs. Lummis. Thank you.
    And one more question, Mr. Chairman--and thank you very 
much for working so hard to pronounce my name right. I am 
struggling in both my own conference and with others to get it. 
And you got it right, so I deeply appreciate that.
    My last question is about the Army National Guard or 
National Guardsmen and -women deployed in both Iraq and 
Afghanistan. And this is a subject that is very close to home 
with me because, in April, over 940 Guardsmen and -women from 
Wyoming will be deploying to Iraq in what will be the largest 
mobilization in history of Wyoming's Army National Guard.
    So my question is, in terms of both manpower and machinery, 
in your opinion, have the DOD's budget numbers aligned with the 
increased burden on our National Guard around the country?
    Mr. Gilmore. They are beginning to. There have been 
substantial amounts of funding requested in the supplementals 
and increased amounts in the base budget associated with 
equipping the National Guard units, for the reasons that Steve 
mentioned: The National Guard is now being used as an 
operational force, and, before Iraq, for the prior 20 or 30 
years, it was not regarded that way. It was regarded as a 
strategic reserve, and equipment fill and personnel fill levels 
for the Guard were well short of those maintained for the 
active force--you know, 80 percent equipment fill versus 90 or 
95 percent for the active force, for example. And the budgets 
in those years prior to operations in Iraq and Afghanistan 
reflected that difference, that difference in priorities.
    But that has been changing. But I don't think the 
Department or the Army, in particular, would claim that they 
have filled all the shortfalls. And so there are still tens of 
billions of dollars' worth of shortfall that I am sure the Army 
would claim needs to be spent to fill those shortfalls.
    Mr. Daggett. Could I add just one point? There is another 
policy issue here, and that is, it is clear that what the Army 
wants is for all forward-deployed units to have the most modern 
equipment. They want units that are training to deploy to train 
on the same kind of equipment. Then the question becomes, what 
about the next in line after them? Do they have to be equipped 
with everything the next-to-deploy unit has? And the answer is, 
well, no, but we need to think through what the mix is.
    And then, for the fourth-to-deploy unit that is resetting, 
what kind of equipment levels do you need? And, you know, not 
every unit in the force is going to have all the most modern 
equipment all the time. The real policy issue for the Army that 
I think is still unresolved is, what are overall equipment 
requirements relative to our rotational policy?
    And, again, that is why I think there is still a need for a 
look at what Army investment requirements are and what have 
been met and what needs to be met as yet. And that applies, as 
well, in particular to our Army National Guard.
    Chairman Spratt. Mr. Blumenauer.
    Mr. Blumenauer. Thank you, Mr. Chairman.
    I would like to shift just a little bit, thinking about 
some of the long-term obligations that the Department of 
Defense has, where there is some potential significant savings, 
and if we don't do it right, it is going to cost us a lot of 
money.
    The Department of Defense is the largest manager of 
infrastructure in the world, the largest consumer of energy. We 
have, what, 10 million to 40 million acres potentially 
contaminated from past military operations, training. Yet it 
seems that, year after year after year--and I fault the 
Congress more than the Department of Defense--that we are sort 
of missing in action, that we don't really put significant 
resources to helping the military clean up after itself.
    I mean, ultimately, those munitions break down, the 
military chemicals get into the water supply. We spent I don't 
know how much in Massachusetts to protect the groundwater for 
Martha's Vineyard. Or something explodes, literally and 
figuratively. And so we throw a lot of money at Hawaii, but we 
find in front pages, just in the course of the last couple of 
weeks, that there is huge local resistance to expanding 
training facilities because we are not a very good steward, we 
are not a very good neighbor, people get stuck with stuff. I 
think in Sacramento it is going to be 2077 before the base that 
was closed in the first round of base closure is cleaned up and 
returned.
    Now, it would seem to me that this has significance in 
terms of just military readiness, that we are kind of stupid in 
terms of how we use energy. We make it hard to have energy 
savings contracts that would pay for themselves. We are not 
developing the technology that would help the military 
determine whether it is a hubcap or a 105 shell. That doesn't 
just mean that it is hard to clean up in Colorado or 
Pennsylvania or Wyoming. Every State in the Union has 
unexploded ordnance problems. But it has implications for those 
people in Wyoming that are going to be shipped overseas because 
we haven't developed it.
    Can you give me any sense of where you see indications with 
the development of future budgets going forward, that there is 
any indication that we are going to help the military save 
money by cleaning up after itself, help local communities avoid 
pollution and, frankly, explosions? Because three times since I 
have been in Congress we have had to pull firefighters out of 
national forests because the heat was exploding shells from 
prior training.
    Do you have a sense of where we might be going in this, in 
terms of budget categorization and strategy?
    Mr. Daggett. Just a couple of things.
    I can't, by any means, give you an overall picture of where 
DOD is going on environmental issues. They spend a substantial 
amount of money each year on environmental clean-up and 
compliance. And there are budget figures, and I can provide you 
with the data on the trend.
    I actually coauthored a report some years ago on trends in 
DOD environmental clean-up and compliance activities. DOD is 
subject to the same kinds of environmental compliance 
requirements as private industry is, really the Federal 
Government is.
    Mr. Blumenauer. Theoretically. Not in practice.
    Mr. Daggett. Let me speak to that point. And there have 
been a lot of debates about whether the investments that they 
are making in clean-up are sufficient.
    On the compliance end, and especially on things like energy 
efficiency, DOD has done some looking at that lately, and they 
are not satisfied with what they have invested in energy 
efficiency.
    It has a security component to it, actually. There was a 
Defense Science Board report done last year which discussed 
potential vulnerability of military facilities to loss of power 
from the public grid. And it affected potentially even mission-
critical activities. So it is a really natural area, when you 
think about it, for DOD to look at.
    So what is the solution to that? Well, part of the solution 
that the DSB discussed and that is being discussed much more 
extensively now inside the Defense Department as a whole is 
build green power production facilities for the base itself. 
Use wind power, use geothermal power if you have those kinds of 
things on the base.
    And it is not just a matter of being green for the sake of 
being green. It is being green for the sake of security 
interests.
    Mr. Blumenauer. Yeah. Well, I see my time has expired, but 
I would very much appreciate the report, the research that you 
are talking about.
    Mr. Chairman, I think Mr. Daggett's last words are very 
important. This is not just being green for the sake of being 
green. It has operational implications for security of our 
bases in terms of energy, in terms of the safety of our 
personnel, to protect them from military toxins and unexploded 
ordnance, building the technology and saving money.
    And because, Mr. Chairman, you wear two hats, both with 
Armed Services and with Budget, this is something that I would 
love to be able to pursue with you to make sure that we have 
the budget headroom but also we get the policies aligned.
    Chairman Spratt. Three hats. I represent a couple of 
bombing ranges, too.
    Mr. Scott of Virginia.
    Mr. Scott. Thank you, Mr. Chairman.
    And I would like to follow through on that, because it has 
a specific interest in Virginia on BRAC closings.
    Have the BRAC closing costs, including clean-up--I think 
you used the words ``systematic underestimate of costs''--have 
the real costs of closing these bases, including clean-up, been 
appropriately projected?
    Mr. Daggett. I can't speak to that. I just haven't looked 
at it closely enough. If you want, I will be glad to get back 
with you. We have looked at it some.
    Mr. Scott. Okay. Let me just say that the Fort Monroe 
closing and the clean-up may be off in the hundreds of millions 
of dollars. And if the systematic underestimate is system-wide, 
you are talking about many billions of dollars.
    Shipbuilding--under shipbuilding, I noticed you had 
significant acquisition costs there. What is our ship strength 
that we are projecting?
    Mr. Gilmore. Well, currently, in 2009, the information we 
have is that we have a 288-ship fleet. And by 2013, that would 
grow to 295 ships. And by 2026, that would grow to 319 ships; 
55 littoral combatant ships at that time. That would be the 
total buy that is currently planned, although there has been 
difficulty with that program, and it is being restructured. 
That included seven DDG-1000s. This projection was based on the 
2009 Future Years Defense Program that was put forward prior to 
the restructuring of the DDG-1000 program. That may reduce it 
to two or three ships.
    Fifteen CG(X)s, seven CG-47s, 62 DDG-51s, 62 submarines, 
including 12 ballistic missile submarines, 44 amphibs, and 54 
support ships, for a total of about 319 ships in 2026.
    Mr. Scott. Did you say aircraft carriers?
    Mr. Gilmore. Aircraft carriers are in there. I didn't 
mention them. But it was 11----
    Mr. Scott. Well, I am from Newport News, if you want to 
mention those.
    Mr. Gilmore. Eleven aircraft carriers. Sorry, that was an 
oversight.
    Mr. Scott. Ship repair--is there a backlog on maintenance 
of ships?
    Mr. Gilmore. We have not looked at that, so I can't say.
    Mr. Scott. Because you may have another systematic 
``misunderestimate'' on----
    Mr. Gilmore. I don't know what current DOD budgeting 
programming practice is, but many years ago when I worked there 
the practice was to program in future years any year beyond the 
budget year for 80 percent of ship depot maintenance 
requirements versus funding at what the Navy thought the real 
requirement was in the budget year, which meant that, when 
those future years became budget years, you had to find an 
additional substantial amount of money to pay for what was 
really going to happen. But whether the Navy still programs in 
that manner, I don't know.
    Mr. Scott. You mentioned the fact that the Defense budget 
kind of includes--you kind of have to think about the cost of 
veterans. You talk about veterans health care. Have we talked 
about the social services and other health care, like mental 
health, homelessness, unemployment, that we have systematically 
not addressed? Are we including those? Are we including 
business as usual on mental health, homelessness, and problems 
like that?
    Mr. Daggett. We have both focused really just on the 
Department of Defense budget, not on the VA budget. You know, 
my view is, in order to cover the complete cost of personnel in 
particular, you do need to take a look at the VA budget.
    Mr. Scott. On contractors, one of the problems of hiring 
contractors is you don't even know what law they are under, 
what chain of command they are under. I mean, you have problems 
like use of deadly force, and who makes those decisions. There 
are also financial complications, like they are actually 
competing for employees with the military. We train the guys on 
our dime, and if they hire them at a slightly higher pay grade, 
then we have to train and everything else.
    In addition to the complications on policy, have you looked 
at the financial implications of the unprecedented level of 
contractors we are using now in the Defense budget?
    Mr. Daggett. I have not.
    Mr. Gilmore. We have just done the analysis that I 
discussed previously of what the contract costs have been in 
Iraq, and that would total $85 billion to $100 billion.
    By the way, in the process of doing that work, we did 
interact with the Department and asked them whether the problem 
that you mentioned of people, for example, highly trained 
special operations personnel retiring and then being hired as 
contractors, what----
    Mr. Scott. Well, deciding not to re-up because they can 
get----
    Mr. Gilmore. Correct--whether that was, in their view, a 
problem, whether that was creating a problem for them. And they 
indicated it was not. And we have no independent way of 
checking to determine whether that is accurate, but they 
indicated it was not.
    Mr. Scott. Thank you. Thank you, Mr. Chairman.
    Chairman Spratt. Mr. Scott. Mr. Larsen.
    Mr. Larsen. Thank you, Mr. Chairman. The Defense News 
February 2nd headline, ``New Destroyer Emerges in U.S. Plans 
Options, Mulled as DDG-1000 Hits $6 Billion.'' I think your 
analysis still had it at merely $4 billion. And so another 
headline in this is, ``Presidential Helo Cost Growth Cracks 
Nunn-McCurdy ceiling.'' That is for Marine One replacement. It 
cracks the Nunn-McCurdy ceiling. And then, of, course Gates 
Foresees U.S. Cuts. Now, that is based on his testimony in the 
Senate Armed Services and the House Armed Services Committee. 
It just seems very difficult for me to understand that as much 
supplemental dollars we have provided to the Department of 
Defense, and I am a member of the House Armed Services 
Committee, so I have seen it all happen over the last 8 years, 
both given to them in supplemental and in base budgets that 
they are yet coming for even--asking for even more beyond what 
one projected increase is. And so I guess I would expect in 
Armed Services for us to be fairly tough over there.
    But something that Secretary Gates testified to last week, 
and I wonder if you have thought through these in looking at 
your numbers, he listed seven or eight separate steps, general 
steps that he planned to take to squeeze down on acquisition 
costs, purchasing systems at 75 percent solution rather than 99 
percent solution. We apparently are on--some programs are 
hitting stable rates for acquisition, freezing requirements on 
programs, and a few other things. Mr. Daggett and Mr. Gilmore, 
do either of you have some views on Secretary Gates' thoughts 
on how to keep costs--ameliorate increases? I won't say keep 
costs down. That seems impossible in the Department of Defense. 
Let us say ameliorate the cost increases. Mr. Daggett.
    Mr. Daggett. Let me begin by saying CRS really doesn't make 
recommendations on policy per se. We can assess the impact of 
alternatives though.
    Mr. Larsen. Assess away.
    Mr. Daggett. When I look at what is driving the cost of 
major weapons programs, I look, first of all, at just the 
requirements process. And I use in the testimony, written 
testimony I use DDG-1000 as an example. If you look at it, it 
is designed to be a multi-mission system with pretty much 
maximum capabilityin most areas. The air defense radar is not 
quite missile defense radar, but short of that, it is as 
capable as any system you will have across the board, but just 
has so many missions. Well, what drove that? Well, it was 
driven by the internal requirements writing process in the 
Navy. And when you--and now, you know, I mention it not because 
I have a view on whether you should buy it or not, but it is in 
trouble because it costs so much because it is such a big ship 
and so much has been added to it.
    So it, to me, is precisely the kind of example of a system 
that is a 95 percent solution or a 99 percent solution to a 
host of issues. And what Secretary Gates is saying is accept a 
75 percent solution in areas where that will work. Well, first 
of all, you need some oversight in the acquisition in the 
requirements process to ensure that. I am not sure where that 
is at this point. But it is a matter for organization and 
senior leadership to use the requirements development process 
really as a way of doing these cost tradeoffs. What is the role 
of the joint requirements oversight council and so on. I would 
look very hard at that.
    Another area you need to look at is are there some areas 
where you want maximum capability, others where you don't. For 
an air-to-air fighter, I can make an argument for having a very 
highly capable system with a view toward being in the service 
long down the road. For an airlift aircraft, I am not sure I 
need that, so why do you need the kind of acceleration 
requirements that you have in various systems. I think that is 
a matter for oversight.
    Mr. Larsen. As my time runs out, could I ask Mr. Gilmore to 
respond to that question.
    Mr. Gilmore. Well, we don't make policy recommendations 
either, but I would simply observe what common sense tells you 
that the actions the Secretary is proposing to take should all 
help reduce cost. But I think the most important thing for the 
Department to do is to be realistic in its initial estimates 
for the costs of these systems, whatever it thinks the 
requirements for the systems ought to be. And when it comes to, 
for example, the DDG-1000, we still think on the basis of past 
experience that that ship will cost between 4 and $5 billion. 
The $6 billion number, I think, includes some of the 
development cost, but I don't know for sure. I have read the 
article, but I haven't seen the details behind it. And the 
comparable number from the Navy previously was 3 to $4 billion, 
more like 3\1/2\.
    Originally, when it was the surface combatant of the 21st 
century, the SC 21 program, the fourth ship in the class was 
supposed to cost in today's dollars, $1.5 billion. Now, if you 
looked at the cost of that ship on a cost per ton of light ship 
displacement, you know the ship without any fuel or crew or 
anything else, that would have made it the cheapest surface 
combatant ever built, substantially cheaper than the DDG-51.
    So there were a lot of people in the building, I was in the 
building at the time, who knew that that initial estimate was 
unrealistic. So I would say that when you have initial cost 
estimates for systems like that, no program manager in the 
world is going to be able to manage the program in such a way 
that the costs will not grow. And it is not really so much cost 
growth as cost realism setting in. When you actually have to 
design the system and build it, it always ends up costing more 
than these initial very optimistic estimates where people sit 
down and think, well, if we did this differently and this 
differently and this differently, it will save substantial 
costs. Unfortunately history tells us that the problems that 
were experienced in the past may not occur, but different 
problems will occur and the optimism isn't warranted.
    And so a lot of what I think people characterize, and, in 
fact, I characterized in the charts I showed you as cost 
growth, really isn't cost growth so much as it is cost realism. 
It is reality setting in. And if you want to avoid having that 
problem, you need to have realistic initial estimates of the 
costs which the Department doesn't have in many instances.
    Mr. Larsen. Thank you.
    Chairman Spratt. Mr. Yarmuth.
    Mr. Yarmuth. Thank you, Mr. Chairman. Thanks to both of you 
for your testimony. On the question of the percentage of the 
GDP, that Defense Department budget constitutes, what kind of 
growth rate are you projecting in GDP over this term at the 
same time.
    Mr. Gilmore. It was a little over a couple of percent real 
growth long-term.
    Mr. Yarmuth. Some people might take solace from the 
standpoint that even with these projected increases in absolute 
cost that the percentage of growth--percentage of GDP does not 
grow, in fact, declines. But would you be familiar with what 
other costs, governmental costs would be rising out of the same 
time, because Defense is competing with obviously every other 
portion of the budget. So if say Medicare, Social Security, all 
the other cost sectors are increasing at a much higher rate, 
and I assume they would be.
    Mr. Gilmore. They are. CBO has done a number of projections 
of the long-term cost of those entitlement programs and over 
the long-run Social Security as a share of GDP will rise 
several percentage points. And the cost of paying for Medicare 
and Medicaid and other programs like that will rise by tens of 
percentage points. That is really the bigger problem areas; the 
future health care costs associated with those programs. But I 
would observe that you could set the defense budget at zero 
dollars and it would not materially affect the problem that the 
overall Federal budget faces in paying for Social Security and 
Medicaid, which is not to say that anyone who is reasonable 
doesn't think that because defense currently composes over half 
of domestic discretionary spending, that it isn't going to be 
under pressure. It obviously will be. And if you look at the 
long-term trend for overall Federal spending as a share of GDP 
and its components, what you see is that defense basically has 
been the bill payer. Its share of GDP has declined as the share 
of GDP associated with these entitlement programs has grown.
    Mr. Yarmuth. On that question, what would be comparable 
numbers of other industrialized nations in the world? What is 
the range that you would say it would spend of GDP.
    Mr. Gilmore. We are at 4\1/2\ percent of GDP. The Japanese 
are 2 percent or less.
    Mr. Daggett. Under 1.
    Mr. Gilmore. All the other countries in the world are much, 
much less, much less.
    Mr. Yarmuth. Mr. Simpson raised the issue of the health 
care costs and the growth rate that is projected and tried to 
make a connection between that and some kind of argument for or 
against universal health care. I suspect that one of the 
reasons that the growth rate in medical in Defense Department 
health care relates to factors that aren't present in the 
general population. Is that true? The nature of the injuries, 
the length of care that is going to be required because of many 
of the injuries concerned, you don't think those are factors, 
or would they be?
    Mr. Gilmore. Actually, those factors would apply more to 
the Department of Veterans Affairs health care costs because of 
the veterans who suffer those kinds of injuries and require 
long-term care. And there are obviously horrible injuries that 
occur, although thankfully, a relatively small number of people 
deployed who have suffered those injuries. But nonetheless 
those are costs that end up being borne by the Department of 
Veterans Affairs. Our projections for medical care costs from 
the Department of Defense are based upon the practices that the 
Department of Defense currently uses. And we did not speculate 
in the future in doing our projection about how the Defense 
Department might change its practices; you know, employing more 
health information technology and so forth and so on.
    So our current projections don't incorporate any savings 
from those kinds of practices because those are not, literally 
speaking, part of the current plan, which is not to say they 
may not be realized, but this is a projection of current policy 
not how it might change in the future.
    Mr. Yarmuth. One quick question before my time expires. So 
we are dealing primarily with TRICARE here. TRICARE employs a 
number of private insurers to administer the program, so in 
fact, it is really not fair to say that the TRICARE system is a 
single payer system as is often talked about with regard to the 
Federal Government.
    Mr. Gilmore. That is correct.
    Mr. Yarmuth. Thank you very much. Thank you, Mr. Chairman.
    Chairman Spratt. Ms. Kaptur.
    Ms. Kaptur. Thank you, Mr. Chairman, very much. Gentlemen, 
you have had a long morning and we thank you very much for your 
work. I wanted to go to Mr. Daggett and say that in your 
testimony on page 4, you touch on a subject I am very 
interested in. And that is the rising cost per average military 
service member. You state about it is 45 percent more expensive 
today than it would be 10 years ago. And that does not include 
the cost of medical costs. And nor retirees. Nor does it 
include benefits that are not part of the national defense 
budget. I am interested in your discussing that a little bit 
more. Does this have anything to do with the rising costs of 
recruitment bonuses and retention, and could you discuss that a 
little bit please? And the nature of that cost versus when we 
had a conscripted force as opposed to a volunteer force?
    Mr. Daggett. In these figures I just tracked cash income of 
personnel and deferred benefits, retirement benefits. I did not 
track noncash compensation, which is in the operation and 
maintenance accounts. And that includes medical care, family 
services, dependent education, commissaries, nor did I track 
family housing. So it is really just focused on the military 
personnel accounts. That is the kind of a technical answer. So 
it is only part of the compensation package, although it is the 
biggest share of the compensation package. I also did not track 
Veterans Administration benefits, either disability pensions or 
health care or any other aspect of VA educational benefits, 
again just because it is outside the Department of Defense. So 
what this tracks really is what has been happening in the DOD 
military personnel accounts in pay and benefits of military 
personnel. It does include retirement benefits in the sense 
that the accrual costs of military retirement are covered here.
    The DOD pays into the military retirement fund an 
actuarially determined amount for future retirement benefits 
for current personnel. And that is included here. That is part 
of the cost. And that has been increasing dramatically. But it 
has increased dramatically because of two programs; TRICARE For 
Life and concurrent receipt of military retired pay and VA 
disability benefits. Otherwise, it is increased just with basic 
pay. So what is driving it up? Lots of different things; 
increases in basic pay, increases in basic allowance for 
housing, bonuses. Retention bonuses are part of it, but that is 
not a big part of the overall account. Those have increased 
substantially in percentage terms, but they are not a big part, 
a huge part of the overall budget.
    Ms. Kaptur. So what is in that? Because when you look at 
the number of personnel, obviously your disbursements for 
personnel are your largest expenditure.
    Mr. Daggett. Look at page 3, which is on the next page. 
Page 6 actually. And that is just a bar graph that shows the 
major elements of the part of the compensation package I am 
looking at. So it includes basic pay subsistence and separation 
pay. The bulk of that is just day-to-day paychecks. The basic 
allowance for housing, people often miss how large a share of 
military compensation that is, and that is actually a part of 
take-home pay. And that has increased dramatically over time.
    Ms. Kaptur. Does this reflect a rental of the housing off 
base or the on base contracted-out housing situation? Why is 
that number going up?
    Mr. Daggett. Well, basic allowance for housing is given to 
personnel in their paychecks to pay for housing themselves. 
This does not track the part of military compensation that is 
for family housing for on base facilities. That is a different 
account. What I am tracking here is really the trend in cash 
income of military personnel.
    Ms. Kaptur. If I were to ask you the question since we had 
the draft versus today, and you look at this cross cut, can one 
make any judgments about how the current system is different or 
more expensive than when we had the draft?
    Mr. Daggett. I haven't specifically done those numbers. But 
suffice it to say, personnel are much more expensive on average 
now than draftees were. But then typically the draftees were in 
for a limited period of time. They were not part of the 
professional military. And the draftees were a larger part of 
the military, a very large part of the military force. The 
uniform force was actually the smaller part of it. They were 
paid at higher rates more comparable to this. But again, the 
bulk of the force being drafted, they were paid at much lower 
rates and were in for a shorter period of time. I don't know if 
that is responsive. But I can give you the numbers on it.
    Ms. Kaptur. I would like two pieces of information for the 
record, Mr. Chairman, if I might. My time is expired. Mr. 
Daggett, if you could provide the figure on, though you said it 
was small, the actual amount of reenlistment bonuses, bonus 
payments to retain and attract individuals to go into the 
military now versus 10 years ago. That would be very--it is 
billions of dollars. I would just like to see that. And then 
Mr. Gilmore, I would be very interested if you could provide 
for the record of the Federal deficit, the accumulated deficit 
in the last 10 years where we have had to borrow to cover that, 
how would one look at defense spending, and the war in 
particular, as a segment of that.
    Mr. Gilmore. That is something that the organization 
doesn't do, which is ascribe a particular part of defense 
spending to the deficit. We typically don't do that.
    Ms. Kaptur. You don't do that. Does the CBO do that? Excuse 
me, CRS do that?
    Mr. Daggett. No.
    Ms. Kaptur. You don't do that either? That is interesting. 
Who does do that?
    Mr. Gilmore. Well, we don't do it because we think there 
are good reasons not to do it, that you can't identify a 
particular dollar spent and say that is a deficit dollar versus 
another dollar that is not a deficit dollar.
    Ms. Kaptur. Well, there is over $850 billion that has been 
spent; $864 billion on the war funding has all been borrowed, 
so it can't be that hard a calculation. I thought there would 
be a chart on it or something.
    Mr. Gilmore. You can make a distinction like that, but it 
is not something the organization argues is a correct thing to 
do.
    Ms. Kaptur. All right. Thank you very much.
    Mr. Daggett. If you ask, we will be glad to take a cut at 
it. I mean, we respond to any of those.
    Ms. Kaptur. I would be very grateful for how you might 
arrange that mathematically. Thank you.
    Chairman Spratt. Mr. Etheridge.
    Mr. Etheridge. Thank you, Mr. Chairman. Thank you for 
holding this meeting. Thank you gentlemen for staying, and I 
appreciate your presentation. Let me ask a question a little 
different way because I represent Fort Bragg in North Carolina, 
and also have the privilege of having the headquarters of the 
30th heavy brigade that has been pulled up as an Old Hickory 
Unit pulled to Iraq and now getting ready to come back again. 
So thousands of brave men and women who are stationed in those 
areas and many who served multiple tours in Afghanistan and 
Iraq.
    But my question is a little different in that the new 
administration is now considering plans to substantially 
increase troop levels in Afghanistan. My question is, does 
future war cost projections that we saw, and you talked about 
them in some detail, do the charts and graphs and numbers give 
us any help in looking at future projections by the CBO as you 
put these numbers out? Do they take any kind of probable 
increase in the accounts or adjustments given this 
administrative change?
    Mr. Gilmore. The projections I showed you, which over the 
next few years, assume that troop levels decline from, in the 
total Iraq theater from 180 or 190,000 troops in Iraq and then 
another 30,000 or so in Afghan, that the total number deployed 
declined to 75,000.
    Mr. Etheridge. So you were using the 75,000 figure as the 
number?
    Mr. Gilmore. Yeah. That rampdown does not--we had to make 
an assumption so we just assumed. We had a beginning point 
which is the current size of the deployments in Iraq, the Iraq 
theater and Afghanistan, and then we had a somewhat arbitrarily 
chosen end point, 75,000, and we just linearly ramped it down 
over 3 or 4 years. That obviously does not account for how the 
detailed deployments might evolve over the next year or two. It 
certainly could end up being consistent with what happens. If 
there is a draw down in Iraq that proceeds at a more rapid 
pace, or is more substantial, larger than the increase in 
forces in Afghanistan, that somewhat arbitrary assumption could 
turn out to be roughly consistent with what happens, but that 
is not the way it was designed.
    Mr. Etheridge. Let me follow that because I hear from our 
men and women quite frequently, and you touched on it earlier 
on the reset cost. And we talk about a reset cost, but also you 
got that training piece if you don't have the equipment to 
train with, and we have been through this a number of times. Is 
that in the projections as well of getting equipment up to 
speed, because when we come home, we are assuming that it will 
wind up in Afghanistan? You got a little different environment 
in Afghanistan than you do in Iraq in the sands. It is still a 
tough environment. Is that included in these projections?
    Mr. Gilmore. The short answer is yes. We include in our 
projection an estimate of what it will cost to ``reset the 
equipment based on what our experience has been over the last 
year or so.'' So to the extent that that experience is a good 
predictor of the future we have accounted for it well. But 
there are many details of those costs that, notwithstanding our 
report of a year and a half ago, we still don't understand.
    So I am not going to sit here and say that I think that 
that projection is a real prediction of the future, but it is 
based on our experience in reset costs over the last year or 
so.
    Mr. Etheridge. One other point, and then I will yield back, 
Mr. Chairman. Because you touched on it and I had a note here 
on the health care costs that you responded earlier to two 
questions. Having had the opportunity to spend some time in the 
military, the days when the draft was active with a lot of my 
friends and neighbors. The health care issue that was raised in 
the current environment we find ourselves in with an all-
volunteer army, we really have a much younger force if you look 
from top to bottom than you would have in the general public at 
large, even with TRICARE, because you have got a selected force 
by and large that is fairly active, accustomed to staying 
physically fit by and large more so than the public at large.
    Mr. Daggett. But under 65 retirees do get access to the 
military.
    Mr. Etheridge. No, I understand that. But by and large, 
they normally would be a more physically fit group of people I 
would think.
    Mr. Gilmore. You are obviously correct that the enlisted 
force which composes the bulk of the force is going to be 
younger than the population as a whole, yes. Although as I 
mentioned before, we haven't really looked at the effect that 
the somewhat different demographics may have.
    Mr. Etheridge. That would be interesting to know as we go 
through this, not to call attention to either one, but show 
what happens if a person stays physically fit, what happens in 
life. I think we know the answer, but it sure would be good to 
quantify. Thank you, Mr. Chairman. I yield back.
    Chairman Spratt. Thank you, Mr. Etheridge. Just quickly one 
question before we turn to Mr. Langevin. Do you have a rule of 
thumb at CRS or CBO for what it costs to move a division or a 
brigade with full equipment sent back to the States from Iraq?
    Mr. Gilmore. No, I can't give you a number off the top of 
my head. But I can say that my recollection is in the past we 
have tried to estimate those transportation costs. And I am not 
going to claim that they are small in absolute terms, but as a 
percentage of the operations and maintenance bill, the total 
operations and maintenance bill that accrues every year which 
is probably 80 percent of that $180 billion or so, it is a 
small fraction of that.
    Mr. Daggett. We have tried to defer to CBO on cost 
estimates on forces abroad, on deployments abroad.
    Chairman Spratt. Could you submit, for the record, your 
growth estimation that--your rule of thumb for, division set, 
brigade set, whatever the proper unit is?
    Mr. Gilmore. I would say brigade set would probably be it.
    Chairman Spratt. You are able to caveat it for. Mr. 
Langevin.
    Mr. Langevin. Thank you, Mr. Chairman. And gentlemen, I 
want to thank you for your patience and your testimony here 
today and for what you do to make sure that we stay informed 
with good information. I sit on not only the Budget Committee, 
but also the House Armed Services Committee. And following the 
debate on the issue of the DDG-1000 versus the 51 that is going 
on right now, and just for my own knowledge and clarification 
for the record, when you talk about the range of potential 
costs, whether it is 4 or 5 to $6 billion for the DDG-1000, I 
would assume that you are talking about the first ship, which 
obviously is the most expensive and then costs moderate over 
time as you achieve economies of scale. Can you clarify that 
for the record?
    And also talk about your analysis on start-up costs if we 
were to start the DDG-51 line. And you estimate real costs of 
what that would be, what that ship would be per copy now with 
the add on technologies. And also the tradeoffs versus going 
with the DDG-1000 and the fact that these aren't supposed to be 
incorporating follow-on or transformational technologies that 
would, at a later point, be used on the cruiser or other 
platforms. So that it is kind of you can't just talk about the 
51 in a vacuum, you know, they have other follow-on 
technologies that would be applied to other platforms and would 
be of course useful as the cruisers is developed. So if you 
could just kind of talk about those for a few minutes.
    Mr. Gilmore. Well, the cost numbers that I quoted of 4 to 
$5 billion were, for the first ship, exclusive of the--so it 
excluded the development costs, the design costs for the ship, 
the cost of building the first ship. And then, yes, we do 
assume in our estimate that subsequent costs, subsequent ships 
costs less. That there is a learning effect that occurs.
    Mr. Langevin. So can you estimate what the following costs 
would be?
    Mr. Gilmore. I don't know off the top of my head, but I can 
certainly provide them to you.
    Mr. Langevin. That would be helpful.
    Mr. Gilmore. And as far as the start-up costs and the new 
ship costs for new versions of the DDG-51 are concerned, that 
is not something at which we have looked. And I would have to 
take a look at what the Department is claiming before I could 
actually decide whether we have enough information to do a cost 
estimate at this point. I don't know if there is sufficient 
information available from the Department of what it would 
actually put in new DDG-51s to do a definitive estimate.
    Mr. Langevin. They are making what they claim to be 
definitive estimates. So I think it would be helpful if you 
would look at that and get back to us for the record.
    Mr. Gilmore. All right.
    Mr. Langevin. And then have you looked at--this is the last 
part of my question--the value of the fact that the kind of 
technologies that the 51 would be incorporated--the DDG-1000 
would be incorporated and would be used on other platforms, and 
particularly for the cruiser.
    Mr. Gilmore. I don't mean to sound obtuse, and I probably 
will. I really don't know how to measure that value 
quantitatively. I certainly would admit that it exists. What 
analysis I could do that would generate numbers that would 
measure that value I fall short trying to think of. So I am not 
certain--in fact, I am fairly certain that I couldn't give you 
a--provide you with an analysis and a quantitative result that 
would measure that value. I think that that is a matter of 
judgment on the part of people in the Congress and people in 
the Department of Defense as to whether they think whatever 
costs will accrue to implement those new technologies is worth 
it.
    Mr. Langevin. Let me go back. Mr. Daggett, do you have a 
comment to that?
    Mr. Daggett. No.
    Mr. Langevin. Let me go back to a line of questioning that 
my colleague, Ms. McCollum, was asking. Obviously the country 
is facing an economic and fiscal crisis right now. And with the 
Department of Defense spending, we obviously need to do the job 
of keeping the country safe, but spend our dollars more wisely. 
Just as the QDR helps inform the FYDP, isn't it more important 
than ever right now that we look at security from a more global 
perspective. There are those who would argue that we need to do 
a better job at using our soft par assets, incorporating that 
in an overall national security strategy as opposed to just 
looking at it myopically from the point of view of the Defense 
Department.
    And so that something that I have thought about and have 
introduced legislation to that effect of calling for a 
Quadrennial National Security Review that would be done that 
would, I believe, better inform the QDR which would better 
inform the FYDP and overall defense policy and strategy, and 
would obviously make sure that we are spending our dollars in 
the best way most effective way possible. Can you talk about 
that?
    Mr. Daggett. A couple of points. A lot of organizations 
lately have been looking at improved interagency cooperation in 
National Security Affairs. There has been discussion of doing 
an overall national security strategy statement with guide 
budgeting for DOD as well as for other agencies for security 
purposes. We will see if this administration will propose that. 
It could be part of consideration of legislative measures as 
well if there are proposals to strengthen the inner agency. At 
the center of some of the proposals are--by the way, you will 
find some of the strongest advocates of this in DOD. Not just 
Secretary Gates, but other military commanders who have been 
involved in Iraq and elsewhere who argue that the whole 
interagency system needs to be bolstered across the board for 
prevention, but also for stability operations once they are 
involved overseas.
    A big focus of attention is on how do you build teams to 
work on national security issues like proliferation which cuts 
across agencies. It is a State Department issue, it is a DOD 
issue, it is a Department of Energy issue, it could be a 
Treasury issue to track funding flows. We are not very good or 
as good as we could be probably at building--we do build teams 
at the Assistant Secretary level to discuss policy issues, but 
at the implementation level, we don't do that on a regular 
basis. Or it doesn't work as well as it could because DOD is 
such a big agency it comes in and everybody defers to them. How 
do you build those kinds of structures across the board. That 
is a very big matter of discussion. And we have been looking at 
that a little bit. There is a whole commission that did a 
recent study on it that has a number of direct recommendations 
for team building. So absolutely a huge issue on the agenda.
    Mr. Gilmore. I think that the arguments in favor of a 
Quadrennial National Strategy Review, those arguments in 
principle are sound and they certainly make sense. I 
participated in the 1997 Quadrennial Defense Review and in the 
2001 Quadrennial Defense Review, when I worked at the Pentagon. 
And I observed the last Quadrennial Defense Review from my 
position as CBO. And I would observe the following. If you look 
at the reviews which went from lasting 3 or 4 months in 1997 to 
over a year in the most recent version, and if you look at then 
what changes were actually made in the program, defense program 
subsequent to the reviews, you find that virtually nothing 
changed.
    So in principle, I understand all the arguments in favor of 
these reviews. In practice, what I have seen happen is the 
reviews extend in length, expand in scope and have lesser 
impact or--it probably wouldn't be fair to say lesser, but not 
what I would characterize as significant effect on the actual 
defense program measured by what changed, what did I actually 
change in the program as a result of the review. And I would 
say probably not much in almost every instance. So going 
forward, if we can find a different way to do these reviews, 
perhaps it can be more successful in taking strategy and 
connecting them to the Future Years Defense Program and to 
spending in other departments.
    But when I look at the record, I haven't really seen that 
happen. And I measure that according to what are the 
differences between the program that existed before the review 
and after the review.
    Now, in principle, there could be good reasons why not much 
of anything changed. But all the arguments I have heard in 
favor of things like the Quadrennial National Strategy Review 
are, there are all these problems that we have left 
unaddressed, and the only way to address them is to have a 
broader scope more encompassing review. And when you look at 
what has happened in the past, not much has changed. And if not 
much has changed, then it would indicate to me that all these 
problems that people have identified haven't been addressed.
    Mr. Langevin. Like to go on, but I see my time has expired. 
Thank you for your input. If you have ways to suggest that we 
could change that to make those reviews more effective, I know 
I would be open to hear those thoughts. Thank you.
    Chairman Spratt. That concludes the hearing. I want to 
thank you once again for your excellent testimony. I think it 
speaks volumes about defense, but also about the value of 
analysis that we have valuable in CBO and CRS. Thank you very 
much indeed for coming in. Thank you for the effort you put in 
to make this hearing a useful venture. I also ask unanimous 
consent that members who did not have the opportunity to ask 
questions be given 7 days to submit questions for the record. 
Once again thank you for coming.
    [Questions for the record and their responses follow:]

      Questions for the Record Submitted by Hon. Steve Austria, a 
           Representative in Congress From the State of Ohio

    1. The successful completion of the most recent round of BRAC and 
military R&D are both very important to central Ohio. Can you tell me 
by service, whether BRAC is currently projected to achieve the savings 
that were envisioned? If the savings aren't realized, has DOD indicated 
how they will respond?
    2. I would like to discuss two Air Force programs--the F-22 and the 
Joint Strike Fighter (JSF). What is the status of these two systems? 
How can we get DOD to do realistic budgeting?

     Questions for the Record Submitted by Hon. Rosa L. DeLauro, a 
        Representative in Congress From the State of Connecticut

    1. As you are likely aware, the Navy recently declared a so-called 
Nunn-McCurdy violation for the VH-71 presidential helicopter 
replacement program. Last year, the Defense Department announced that 
the total acquisition costs for the program were projected to increase 
from $6.5 billion to $11.2 billion. Now, merely two years after 
submitting initial baseline estimates, the Navy is confirming that the 
cost per helicopter will be at least 50 percent higher than the 
original estimate.
    In recent testimony, Secretary Gates identified acquisitions as a 
chief challenge facing the Defense Department and specifically 
mentioned the VH-71 as a ``big ticket'' item experiencing contract or 
program performance problems, suggesting that ``the FY 2010 budget must 
make hard choices.'' As we examine cost growth in Defense programs, how 
do you think we should approach big contract issues such as this one? 
What policies are needed to control such egregious cost over-runs? On 
the VH-71 program in particular, with the modifications and the new 
requirements being as extensive as they are, and the fact that had 
these changes been clear from the outset competing firms would likely 
have submitted different proposals, do you think a re-competition of 
Increment II of the program is worthwhile to identify whether this 
helicopter can be made at a better value to the taxpayer?
    2. As with the controversial original award for the Air Force KC-X 
aerial refueling tanker contract, the Marine One contract was awarded 
to a consortium that involved a substantial amount of work being 
outsourced overseas. I believe such outsourcing of defense contracts 
runs against both U.S. national security and economic interests, 
eroding our defense industrial base, costing jobs and stunting economic 
growth. Do you believe, particularly in these very difficult economic 
times, that the Defense Department should consider adjusting its 
methodology to account for potential job creation and economic growth 
when considering proposals for major projects such as the KC-X and VH-
71?

          Mr. Daggett's Responses to Questions for the Record

subject: trends in dod reenlistment bonuses and other special pays and 
                               allowances
    This is in response to your request, in a question at a House 
Budget Committee hearing on February 4, for information on amounts the 
Defense Department has spent for enlistment and reenlistment bonuses. 
CRS testimony for the hearing shows that compensation of an average 
active duty service member increased by 45% above inflation between 
FY1998 and FY2009. Your question is how much of that increase can be 
attributed to bonuses intended to aid in recruiting and retaining 
personnel at a time when the military services were concerned about 
potential shortfalls in meeting personnel goals.
    A graph prepared for the testimony shows funding per active duty 
service member in FY1998 and FY2009 in constant, inflation-adjusted 
dollars, broken down into various categories within DOD's Military 
Personnel budget accounts.\1\ One of the categories is ``Incentive 
Pays, Special Pays, and Allowances.'' Funding for enlistment and 
reenlistment bonuses are included in subaccounts for ``Special Pays.'' 
As Figure 1 shows, overall funding for ``Incentive Pays, Special Pays, 
and Allowances'' per active duty service member grew from $3,387 per 
troop in FY1998 to $4,976 per troop in FY2009. This is an increase of 
47% above inflation, which about in line with the growth in overall 
personnel funding.
---------------------------------------------------------------------------
    \1\ The data reflect amounts provided in the DOD base budget for 
each year, not including war-related funding provided in ``bridge 
funds'' or in supplemental appropriations. The data are in constant 
FY2009 dollars--the FY1998 amounts are adjusted to reflect inflation.
---------------------------------------------------------------------------
    Table 1 shows funding for enlistment and reenlistment bonuses 
within the ``Special Pays'' subaccounts of each of the military 
services. It provides the amounts in current year dollars and in 
constant FY2009 dollars and then shows the total in constant FY2009 
dollars per active duty service member for comparison to the amounts 
shown in Figure 1. In all, after adjusting for inflation, funding for 
reenlistment bonuses grew from $229 per service member in FY1998 to 
$796 in FY2009, an increase of 248%, and for enlistment bonuses from 
$207 per service member in FY1998 to $371 in FY2009, an increase of 
79%. While these are large increases proportionally, enlistment and 
reenlistment bonuses represent less than 1.5% of cash compensation in 
FY2009. As a result, the increases are not a major factor explaining 
the overall growth of personnel costs.

                  TABLE 1.--FUNDING FOR ENLISTMENT AND REENLISTMENT BONUSES, FY1998 AND FY2009
                                   [Current year and constant FY2009 dollars]
----------------------------------------------------------------------------------------------------------------
                                                             FY1998                          FY2009
                                                 ---------------------------------------------------------------
                                                   Officer  Enlisted    Total    Officer   Enlisted      Total
----------------------------------------------------------------------------------------------------------------
Current Year Dollars (000s):
    Army:
        Reenlistment Bonus......................        0     50,650    50,650        0      339,030     339,030
        Enlistment Bonus........................        0     58,223    58,223        0      314,861     314,861
    Navy:
        Reenlistment Bonus......................        0    140,359   140,359        0      359,600     359,600
        Enlistment Bonus........................        0    144,761   144,761        0      108,797     108,797
    Marine Corps:
        Reenlistment Bonus......................        0     18,850    18,850        0      213,685     213,685
        Enlistment Bonus........................        0      2,750     2,750        0       70,803      70,803
    Air Force:
        Reenlistment Bonus......................        0     36,431    36,431        0      176,333     176,333
        Enlistment Bonus........................        0     16,966    16,966        0       12,986      12,986
    Total:
        Reenlistment Bonus......................        0    246,290   246,290        0    1,088,648   1,088,648
        Enlistment Bonus........................        0    222,700   222,700        0      507,447     507,447
Constant FY2009 Dollars (000s):
    Army:
        Reenlistment Bonus......................        0     66,124    66,124        0      339,030     339,030
        Enlistment Bonus........................        0     76,011    76,011        0      314,861     314,861
    Navy:
        Reenlistment Bonus......................        0    183,240   183,240        0      359,600     359,600
        Enlistment Bonus........................        0    188,987   188,987        0      108,797     108,797
    Marine Corps:
        Reenlistment Bonus......................        0     24,609    24,609        0      213,685     213,685
        Enlistment Bonus........................        0      3,590     3,590        0       70,803      70,803
    Air Force:
        Reenlistment Bonus......................        0     47,561    47,561        0      176,333     176,333
        Enlistment Bonus........................        0     22,149    22,149        0       12,986      12,986
    Total:
        Reenlistment Bonus......................        0    321,534   321,534        0    1,088,648   1,088,648
        Enlistment Bonus........................        0    290,737   290,737        0      507,447     507,447
Constant FY2009 Dollars per Active Duty Service
 Member:
    Total:
        Reenlistment Bonus......................        0        229       229        0          796         796
        Enlistment Bonus........................        0        207       207        0          371         371
----------------------------------------------------------------------------------------------------------------
Source: CRS based on data in military service Military Personnel budget justification books--FY1998 amounts are
  actual amounts reported in FY2000 justification books, FY2009 amounts reflect the original base budget
  request.

  subject: share of cumulative federal budget deficits due to defense 
                                spending
    This is in response to your request, in a question at a House 
Budget Committee hearing on February 4, for an estimate of the share of 
cumulative federal budget deficits attributable to defense spending. 
For a number of reasons, any answer to the question is problematic and 
may well raise objections on several grounds. This response, therefore, 
should not be taken as a definitive answer to your question, but, 
rather, as one illustrative approach to the issue.
    The conceptual difficulty of the question lies in the fact that 
deficits are, by definition, a result of an imbalance between spending 
on the one hand and revenues on the other, and it is very difficult to 
assign responsibility to one or the other. Deficits may grow from year 
to year either because spending increases, compared to some baseline, 
or because revenues decline, again relative to some baseline. But it is 
not clear what baseline to use in either case. It is certainly possible 
to calculate changes in spending or in revenues from year to year due 
to changes to standing law--i.e., to apply something like the baseline 
estimates calculated by the Congressional Budget Office (CBO) and the 
Office of Management and Budget (OMB). But then the problem is how many 
years ahead to continue attributing deficits either to changes in 
spending or to changes in revenues at one point in time. The issue is 
further complicated by the fact that both revenues and spending are 
affected by the state of the economy. Should, then, an economic 
downturn be held more responsible for deficits than changes in policy?
    Rather than try to unpack these issues, this memo approaches the 
question, not by calculating what changes in spending and revenues 
cause deficits, but, rather, by determining what proportion of deficits 
have financed defense compared to non-defense spending. Specifically, 
it calculates the national defense percentage of annual federal budget 
outlays and then attributes an equal percentage of annual deficits to 
defense. The defense share of cumulative deficits, then, equals the sum 
of defense-attributable annual deficits compared to total deficits 
(less surpluses) over the chosen period of time.
    Table 1 at the end of this memo, follows this approach for each 
year from FY1947 through FY2007. FY1947 was chosen as a starting point 
since it marked the first year of post-World War II outlays. Outlays in 
FY1946 still included a very large amount of money appropriated for the 
war, including funding carried over from prior years They also included 
funding to return forces home and to close down weapons production 
lines. FY2007 was chosen as an end-point because it is the latest year 
for which actual data on Budget Function 050 outlays are currently 
available.
    Please note that the table calculates the defense share of 
cumulative deficits over the FY1947-FY2007 period rather than the 
defense share of the national debt owed to the public. For purposes of 
comparison, the table also shows the debt owed to the public at the end 
of each year in the final column. Annual changes in debt owed to the 
public correlate only quite roughly with annual deficits or surpluses, 
since off-budget borrowing is also reflected in the amount of the debt.
    While this approach avoids some of the conceptual difficulties 
discussed earlier, it does not resolve them, and it raises some 
additional ones. One issue is whether it is appropriate to equate the 
share of deficits used to finance defense spending with the annual 
defense share of total federal outlays or whether, instead, annual 
increases in spending should be seen as financed by deficits. This 
issue is particularly acute with regard to supplemental appropriations. 
In years when supplemental appropriations were used to finance military 
operations, for example, without offsetting cuts in other spending or 
increases in revenues, one could very reasonably argue that the whole 
amount of war-related supplemental funding should be seen as an 
addition to the budget and therefore as responsible for an equal amount 
of the deficit (or for all of the deficit if the deficit is less than 
total war-related funding). If so, the cumulative share of deficits 
attributable to defense might appear significantly higher.
    Another issue is whether it would be better to assume that the debt 
owed to the public is amortized over a period of time--over 30 years, 
or so, for example--so that the burden of earlier deficits are 
progressively erased from the books. If that approach were taken, the 
current defense-related share of cumulative deficits would appear 
smaller in recent years because defense has declined as a share of 
federal outlays.
    Another alternative would involve assigning federal outlays for net 
interest on the debt differently. Table 1, in effect, treats interest 
on the debt as an element of total outlays, rather than allocating it 
in proportion to the defense or non-defense shares of cumulative 
deficits. If a share of net interest were attributed to defense, the 
defense share of cumulative deficits might appear somewhat larger.
    Table 1 follows. In brief, it shows that defense outlays in the 
post-World War II era declined as a share of Federal spending from a 
peak of almost 70% of the budget during the Korean War to a low of 16% 
in FY1999 and increased after that to about 20% in FY2007. Accordingly, 
the share of cumulative deficits that can be said to have financed 
defense spending has also declined. Between FY1947 and FY1959, the 
cumulative budgets showed a surplus. The cumulative share of defense 
spending that might be said to be financed with deficits has declined 
from 53% in FY1959, the first year of net cumulative deficits in post-
World War II budgets; to 23% in FY2007.
    If CRS can be of any further assistance, please contact Stephen 
Daggett at the phone number shown above.

               TABLE 1.--SHARE OF CUMULATIVE DEFICITS FROM FY1947-FY2007 USED TO FINANCE DEFENSE OUTLAYS AS SHARE OF TOTAL FEDERAL OUTLAYS
                                                      [Amounts in millions of current year dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Defense-                                       Defense-
                                                National                     Related Share                     Defense-        Related
                 National     Total Federal      Defense     Annual Surplus/   of Annual      Cumulative     Related Share  Percentage of    Note: Debt
 Fiscal year     Defense         Outlays      Percentage of      Deficit        Surplus/      Surpluses/     of Cumulative    Cumulative    Owed to the
                 Outlays                      Total Outlays                     Deficit        Deficits        Deficits     Deficits (7)/      Public
                                                 (2)/(3)                        (3)X(4)                                          (6)
--------------------------------------------------------------------------------------------------------------------------------------------------------
     1947          12,808          34,496         37.10%            4,018          1,492            4,018   ..............  .............       202,467
     1948           9,105          29,764         30.60%           11,796          3,608           15,814   ..............  .............       194,904
     1949          13,150          38,835         33.90%              580            196           16,394   ..............  .............       194,979
     1950          13,724          42,562         32.20%           -3,119         -1,006           13,275   ..............  .............       200,692
     1951          23,566          45,514         51.80%            6,102          3,159           19,377   ..............  .............       191,344
     1952          46,089          67,686         68.10%           -1,519         -1,034           17,858   ..............  .............       191,852
     1953          52,802          76,101         69.40%           -6,493         -4,505           11,365   ..............  .............       193,637
     1954          49,266          70,855         69.50%           -1,154           -802           10,211   ..............  .............       199,462
     1955          42,729          68,444         62.40%           -2,993         -1,869            7,218   ..............  .............       203,009
     1956          42,523          70,640         60.20%            3,947          2,376           11,165   ..............  .............       198,398
     1957          45,430          76,578         59.30%            3,412          2,024           14,577   ..............  .............       196,285
     1958          46,815          82,405         56.80%           -2,769         -1,573           11,808   ..............  .............       200,898
     1959          49,015          92,098         53.20%          -12,849         -6,838           -1,041            -554        53.20%         208,657
     1960          48,130          92,191         52.20%              301            157             -740            -397        53.60%         210,317
     1961          49,601          97,723         50.80%           -3,335         -1,693           -4,075          -2,090        51.30%         211,104
     1962          52,345         106,821         49.00%           -7,146         -3,502          -11,221          -5,591        49.80%         218,347
     1963          53,400         111,316         48.00%           -4,756         -2,282          -15,977          -7,873        49.30%         221,951
     1964          54,757         118,528         46.20%           -5,915         -2,733          -21,892         -10,605        48.40%         222,055
     1965          50,620         118,228         42.80%           -1,411           -604          -23,303         -11,210        48.10%         221,678
     1966          58,111         134,532         43.20%           -3,698         -1,597          -27,001         -12,807        47.40%         221,545
     1967          71,417         157,464         45.40%           -8,643         -3,920          -35,644         -16,727        46.90%         219,907
     1968          81,926         178,134         46.00%          -25,161        -11,572          -60,805         -28,299        46.50%         237,315
     1969          82,497         183,640         44.90%            3,242          1,456          -57,563         -26,842        46.60%         224,013
     1970          81,692         195,649         41.80%           -2,842         -1,187          -60,405         -28,029        46.40%         225,484
     1971          78,872         210,172         37.50%          -23,033         -8,644          -83,438         -36,673        44.00%         237,519
     1972          79,174         230,681         34.30%          -23,373         -8,022         -106,811         -44,695        41.80%         250,951
     1973          76,681         245,707         31.20%          -14,908         -4,653         -121,719         -49,347        40.50%         265,729
     1974          79,347         269,359         29.50%           -6,135         -1,807         -127,854         -51,155        40.00%         263,051
     1975          86,509         332,332         26.00%          -53,242        -13,859         -181,096         -65,014        35.90%         309,707
     1976          89,619         371,792         24.10%          -73,732        -17,773         -254,828         -82,787        32.50%         382,690
       TQ          22,269          95,975         23.20%          -14,744         -3,421         -269,572         -86,208        32.00%         398,807
     1977          97,241         409,218         23.80%          -53,659        -12,751         -323,231         -98,959        30.60%         444,100
     1978         104,495         458,746         22.80%          -59,185        -13,481         -382,416        -112,440        29.40%         491,646
     1979         116,342         504,028         23.10%          -40,726         -9,401         -423,142        -121,840        28.80%         524,712
     1980         133,995         590,941         22.70%          -73,830        -16,741         -496,972        -138,581        27.90%         591,077
     1981         157,513         678,241         23.20%          -78,968        -18,339         -575,940        -156,921        27.20%         664,944
     1982         185,309         745,743         24.80%         -127,977        -31,801         -703,917        -188,722        26.80%         790,078
     1983         209,903         808,364         26.00%         -207,802        -53,959         -911,719        -242,680        26.60%         981,741
     1984         227,413         851,853         26.70%         -185,367        -49,486       -1,097,086        -292,166        26.60%       1,151,853
     1985         252,748         946,396         26.70%         -212,308        -56,700       -1,309,394        -348,866        26.60%       1,337,454
     1986         273,375         990,441         27.60%         -221,227        -61,062       -1,530,621        -409,928        26.80%       1,549,767
     1987         281,999       1,004,083         28.10%         -149,730        -42,052       -1,680,351        -451,980        26.90%       1,677,713
     1988         290,361       1,064,481         27.30%         -155,178        -42,328       -1,835,529        -494,308        26.90%       1,822,398
     1989         303,559       1,143,829         26.50%         -152,639        -40,509       -1,988,168        -534,817        26.90%       1,970,628
     1990         299,331       1,253,130         23.90%         -221,036        -52,798       -2,209,204        -587,615        26.60%       2,177,147
     1991         273,292       1,324,331         20.60%         -269,238        -55,561       -2,478,442        -643,175        26.00%       2,430,408
     1992         298,350       1,381,649         21.60%         -290,321        -62,691       -2,768,763        -705,867        25.50%       2,703,341
     1993         291,086       1,409,522         20.70%         -255,051        -52,672       -3,023,814        -758,538        25.10%       2,922,744
     1994         281,642       1,461,907         19.30%         -203,186        -39,145       -3,227,000        -797,683        24.70%       3,077,915
     1995         272,066       1,515,884         17.90%         -163,952        -29,426       -3,390,952        -827,108        24.40%       3,230,264
     1996         265,753       1,560,608         17.00%         -107,431        -18,294       -3,498,383        -845,402        24.20%       3,343,149
     1997         270,505       1,601,307         16.90%          -21,884         -3,697       -3,520,267        -849,099        24.10%       3,347,826
     1998         268,207       1,652,685         16.20%           69,270         11,242       -3,450,997        -837,858        24.30%       3,262,917
     1999         274,785       1,702,035         16.10%          125,610         20,279       -3,325,387        -817,579        24.60%       3,135,719
     2000         294,394       1,789,216         16.50%          236,241         38,871       -3,089,146        -778,708        25.20%       2,898,391
     2001         304,759       1,863,190         16.40%          128,236         20,975       -2,960,910        -757,733        25.60%       2,785,480
     2002         348,482       2,011,153         17.30%         -157,758        -27,335       -3,118,668        -785,068        25.20%       2,936,235
     2003         404,778       2,160,117         18.70%         -377,585        -70,755       -3,496,253        -855,823        24.50%       3,257,327
     2004         455,847       2,293,006         19.90%         -412,727        -82,050       -3,908,980        -937,872        24.00%       3,595,203
     2005         495,326       2,472,205         20.00%         -318,346        -63,783       -4,227,326      -1,001,656        23.70%       3,855,852
     2006         521,840       2,655,435         19.70%         -248,181        -48,772       -4,475,507      -1,050,428        23.50%       4,060,048
     2007         552,568       2,730,241         20.20%         -162,002        -32,787       -4,637,509      -1,083,215        23.40%       4,255,497
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: CRS calculations based on data from Office of Management and Budget, Historical Tables: Budget of the United States Government, FY2009, February
  2008

 subject: cost of military personnel before and after the inception of 
                        the all volunteer force
    This is in response to your request, in a question at a House 
Budget Committee hearing on February 4, for information on the relative 
cost of military personnel under the draft compared to their cost since 
the inception of the All Volunteer Force (AVF) in 1972. During the 
hearing, I noted that personnel have become considerably more expensive 
since beginning of the AVF, but I did not have detailed information 
immediately at hand.
    This memo provides three tables and one figure in response to your 
request. Table 1 and Figure 1 show all compensation provided to active 
duty military personnel in military personnel budget accounts per 
service member from FY1955, following the Korean War, through FY2009, 
excluding war costs in FY1990-FY1992 and from FY2003 on. The amounts 
are shown both in current year prices and in inflation adjusted 
constant FY2009 prices, with figures adjusted for inflation using the 
consumer price index. These data are consistent with information I 
provided on the cost of personnel since FY1972 in written testimony on 
February 4. The amounts appropriated in the military personnel accounts 
provide cash compensation and deferred retirement benefits for 
uniformed personnel, but do not include either tax benefits that are 
not part of the Department of Defense budget nor benefits such as 
medical care and child care services, that are financed in DOD 
operation and maintenance accounts.
    Table 1 provides a reasonably complete picture of the relative cost 
of personnel under a draft compared to the cost of personnel since the 
inception of the All Volunteer force. The amounts in the table reflect 
all major elements of cash compensation of military personnel plus the 
value of retirement benefits. The final column of Table 1 shows that 
compensation per service member in constant FY2009 prices grew from 
about $36,000 in FY1955 to $49,000 in FY1970, just before the AVF was 
implemented, to $57,000 in FY1973, after the AVF was in place. 
Subsequently, compensation declined in the 1970s, as annual pay raises 
fell behind inflation, but grew to $61,000, again in FY2009 prices, in 
FY1983, following ``catch-up'' pay raises of 11% in FY1980 and of 14% 
in FY1981. Average compensation remained at about that level through 
the 1990s and then began to increase substantially, growing to about 
$80,000 per service member by FY2009--again, all in constant, inflation 
adjusted dollars, using the CPI as a measure of inflation. These 
elements of compensation grew by more than 40% above inflation between 
FY1998 and FY2009. Figure 1 illustrates the long-term trend.
 figure 1. military personnel funding per active duty service member, 
                             fy1955-fy2009

                [Constant FY2009 $ Adjusted Using CPI-U]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Source: CRS based on Department of Defense data for budget amounts 
and end-strength and Bureau of Labor Statistics for CPI-U inflation 
index.

    Notes: Funding amounts include all military pay and benefits 
financed in the military personnel accounts of annual appropriations 
bills, excluding pay and benefits of reserve personnel. These include 
basic pay, basic allowance for housing, subsistence, retired pay and 
medical benefits accrual contributions to the military retirement fund, 
bonuses and other special pays and allowances, permanent change of 
station travel allowances, and other cash allowances. The amounts do 
not reflect medical benefits or in-kind benefits funded in operation 
and maintenance accounts. Amounts are for the base defense budget only, 
not including war-related funding in FY1990-FY1992 and from FY2003 
through FY2009. End-strength levels also exclude reserves mobilized for 
military operations in those years.


  TABLE 1.--MILITARY PERSONNEL FUNDING PER ACTIVE DUTY SERVICE MEMBER,
                              FY1955-FY2009
[Budget authority in current year dollars and in constant FY2009 dollars
                              using CPI-U]
------------------------------------------------------------------------
                     Active     Active               Funding    Funding
                      Duty       Duty                  per        per
                    Military   Military    Active     Active     Active
                   Personnel  Personnel  Duty End-     Duty       Duty
   Fiscal year      Funding    Funding    Strength   Service    Service
                    (Current  (FY2009 $    (000s)     Member     Member
                   Year $ in      in                 (Current   (FY2009
                   Millions)  Millions)              Year $)       $)
------------------------------------------------------------------------
FY1955...........     11,060     89,707      2,935      3,768     30,565
FY1956...........     11,096     88,597      2,807      3,953     31,563
FY1957...........     11,008     85,229      2,795      3,938     30,494
FY1958...........     10,378     77,985      2,599      3,993     30,006
FY1959...........     11,313     84,391      2,504      4,518     33,703
FY1960...........     10,878     79,982      2,476      4,393     32,303
FY1961...........     11,439     83,505      2,483      4,607     33,631
FY1962...........     12,028     86,571      2,808      4,284     30,830
FY1963...........     12,400     88,006      2,700      4,593     32,595
FY1964...........     13,111     92,408      2,687      4,879     34,391
FY1965...........     13,827     95,480      2,656      5,206     35,949
FY1966...........     16,170    108,725      3,093      5,228     35,152
FY1967...........     19,170    124,787      3,375      5,680     36,974
FY1968...........     21,098    132,286      3,547      5,948     37,295
FY1969...........     22,837    135,696      3,460      6,600     39,218
FY1970...........     24,564    137,937      3,066      8,012     44,989
FY1971...........     24,595    132,294      2,714      9,062     48,745
FY1972...........     25,164    131,211      2,324     10,828     56,459
FY1973...........     26,300    129,223      2,253     11,673     57,356
FY1974...........     27,254    120,579      2,163     12,600     55,746
FY1975...........     28,976    117,512      2,129     13,610     55,196
FY1976...........     30,401    116,368      2,081     14,609     55,919
FY1977...........     31,870    114,687      2,075     15,359     55,271
FY1978...........     33,706    112,572      2,062     16,346     54,594
FY1979...........     36,080    108,135      2,031     17,765     53,242
FY1980...........     39,561    104,472      2,063     19,176     50,641
FY1981...........     46,418    111,098      2,101     22,093     52,879
FY1982...........     56,603    127,701      2,130     26,574     59,954
FY1983...........     60,349    132,069      2,163     27,900     61,058
FY1984...........     57,746    120,935      2,184     26,440     55,373
FY1985...........     60,002    121,430      2,207     27,187     55,020
FY1986...........     59,570    118,445      2,233     26,677     53,043
FY1987...........     65,620    125,823      2,244     29,242     56,071
FY1988...........     67,723    124,708      2,209     30,658     56,454
FY1989...........     69,351    121,781      2,203     31,480     55,280
FY1990...........     69,759    116,303      2,144     32,537     54,246
FY1991...........     75,007    119,964      2,077     36,113     57,758
FY1992...........     71,477    111,017      1,880     38,020     59,052
FY1993...........     66,499    100,239      1,775     37,464     56,473
FY1994...........     61,775     90,840      1,678     36,815     54,136
FY1995...........     62,090     88,750      1,583     39,223     56,064
FY1996...........     60,421     83,900      1,538     39,285     54,551
FY1997...........     60,924     82,688      1,504     40,508     54,979
FY1998...........     59,535     79,535      1,406     42,343     56,569
FY1999...........     61,347     80,175      1,386     44,262     57,846
FY2000...........     63,853     80,765      1,384     46,137     58,356
FY2001...........     66,568     81,868      1,386     48,029     59,068
FY2002...........     71,096     86,091      1,386     51,296     62,114
FY2003...........     80,506     95,339      1,386     58,085     68,787
FY2004...........     84,414     97,371      1,386     60,905     70,253
FY2005...........     91,396    101,973      1,386     65,942     73,573
FY2006...........     95,766    103,459      1,357     70,595     76,267
FY2007...........     96,247    101,094      1,328     72,451     76,100
FY2008...........    100,761    102,978      1,326     76,009     77,681
FY2009...........    109,469    109,469      1,368     80,004     80,004
------------------------------------------------------------------------
Sources: CRS using data from the Department of Defense and adjusted for
  inflation using the Consumer Price Index for Urban Wage Earners (CPI-
  U) from the Bureau of Labor StatisticsNotes: Amounts include all funding provided in military personnel
  accounts for active duty personnel. Amounts do not reflect medical
  care and in-kind benefits such as child care services, commissary and
  exchange privileges, and recreational facilities, financed in
  operation and maintenance accounts

    As a complement to the data in Table 1, Tables 2 and 3 show monthly 
basic pay of representative enlisted personnel and officers, at the 
most common grade levels, for selected years (the data go back to 1905 
for enlisted personnel and to 1922 for officers). These data are taken 
directly from tables in background papers prepared by the Library of 
Congress Federal Research Division for the Office of the Secretary of 
Defense in preparation for the Ninth Quadrennial Review of Military 
Compensation.\1\ The data are derived from annual pay tables, which 
show, within each grade, pay levels for personnel with increasing 
numbers of years of service. The Table 2 shows monthly basic pay of an 
``E-4'' enlisted service member, and Table 3 shows monthly basic pay of 
an ``O-3'' grade officer. These grades were chosen because they 
represent the most common ranks in today's force. The most common grade 
level of an enlisted service member in 2008 was ``E-4,'' which 
corresponds to a rank of corporal or specialist in the Army, corporal 
in the Marine Corps, senior airman in the Air Force, and Petty Officer 
Third Class in the Navy. The most common grade level of an officer in 
2008 was O-3, which corresponds to a rank of Captain in the Army, Air 
Force, and Marine Corps, and to Lieutenant in the Navy. Amounts are 
shown in current year dollars and in constant FY2009 prices, again 
adjusted for inflation using the CPI.
---------------------------------------------------------------------------
    \1\ Dr. Glenn Curtis, Military Compensation Background Papers: 
Sixth Edition, Federal Research Division, Library of Congress, 
Washington, DC, May 2005, http://www.loc.gov/rr/frd/pdf-files/
Military--Comp.pdf. The gaps in the table, which skip over most years 
until 1940, are as shown in the background tables--CRS did not alter 
the information in current year prices in any way. It would require 
additional research to fill in the figures for intervening years.
---------------------------------------------------------------------------
    It is important to note that basic pay is only a part of cash and 
deferred compensation. In FY2008, funding for basic pay was 49% of the 
total provided in military personnel budget accounts Other elements of 
cash compensation included housing and subsistence allowances, clothing 
allowances, special pays and bonuses, permanent change of station 
moving allowances, and a number of other smaller categories of 
compensation. In all, these parts of compensation totaled 23% of 
funding. Financing of future retirement benefits comprised the 
remaining 28%. Though they do not reflect a complete picture of 
military compensation, these tables of monthly basic pay are provided 
in order to present a more concrete comparison of military pay when the 
draft was in effect with pay of members of the current professional 
military force.
    If CRS can be of any further assistance, please contact Stephen 
Daggett by direct phone at 202 707-7642 or by e-mail at 
[email protected].

                             TABLE 2.--MONTHLY BASIC PAY SCHEDULE FOR E-4 ENLISTED PERSONNEL, SELECTED YEARS FROM 1905-2004
                                                       [Monthly pay at rank with years of service]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                           Under                                           Over    Over    Over    Over    Over    Over    Over    Over    Over    Over
                             2    Over 2  Over 3  Over 4  Over 6  Over 8    10      12      14      16      18      20      22      24      26      30
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  CURRENT YEAR DOLLARSJul-1905................      54      54      54      57      57      59      59      62      62      65      65      65      65      65      65      65
Oct-40..................      60      60      60      66      66      69      69      72      72      75      75      75      75      75      75      75
Aug-41..................      70      70      70      76      76      79      79      82      82      85      85      85      85      85      85      85
Jun-42..................      78      78      82      82      86      86      90      94      94      98     101     105     109     109     113     117
Jul-46..................     100     100     105     105     110     110     115     120     120     125     130     135     140     140     145     150
Oct-49..................     118     125     125     132     140     147     154     162     169     176     191     191     191     191     191     191
May-52..................     122     130     130     138     145     153     161     168     176     183     199     199     199     199     199     199
Apr-55..................     122     140     140     160     168     179     187     190     203     211     218     218     218     218     218     218
Jun-58..................     122     150     160     170     180     190     190     190     190     190     190     190     190     190     190     190
Oct-63..................     122     180     190     205     215     215     215     215     215     215     215     215     215     215     215     215
Sep-64..................     122     185     195     210     221     221     221     221     221     221     221     221     221     221     221     221
Sep-65..................     166     205     216     233     245     245     245     245     245     245     245     245     245     245     245     245
Jul-66..................     169     212     223     241     253     253     253     253     253     253     253     253     253     253     253     253
Oct-67..................     178     223     236     254     267     267     267     267     267     267     267     267     267     267     267     267
Jul-68..................     190     239     252     272     285     285     285     285     285     285     285     285     285     285     285     285
Jul-69..................     214     269     284     306     321     321     321     321     321     321     321     321     321     321     321     321
Jan-70..................     232     290     307     331     347     347     347     347     347     347     347     347     347     347     347     347
Jan-71..................     250     313     331     357     374     374     374     374     374     374     374     374     374     374     374     374
Nov-71..................     323     341     361     389     405     405     405     405     405     405     405     405     405     405     405     405
Jan-72..................     347     366     387     418     434     434     434     434     434     434     434     434     434     434     434     434
Oct-72..................     370     391     413     446     463     463     463     463     463     463     463     463     463     463     463     463
Oct-73..................     393     415     439     473     492     492     492     492     492     492     492     492     492     492     492     492
Oct-74..................     414     437     463     499     519     519     519     519     519     519     519     519     519     519     519     519
Oct-75..................     435     459     486     524     545     545     545     545     545     545     545     545     545     545     545     545
Oct-76..................     451     476     504     543     564     564     564     564     564     564     564     564     564     564     564     564
Oct-77..................     479     505     535     577     599     599     599     599     599     599     599     599     599     599     599     599
Oct-78..................     505     533     564     608     632     632     632     632     632     632     632     632     632     632     632     632
Oct-79..................     540     571     604     651     677     677     677     677     677     677     677     677     677     677     677     677
Oct-80..................     604     638     675     727     756     756     756     756     756     756     756     756     756     756     756     756
Oct-81..................     682     720     762     822     854     854     854     854     854     854     854     854     854     854     854     854
Oct-82..................     710     749     793     855     889     889     889     889     889     889     889     889     889     889     889     889
Jan-84..................     738     779     825     889     924     924     924     924     924     924     924     924     924     924     924     924
Jan-85..................     767     810     858     925     961     961     961     961     961     961     961     961     961     961     961     961
Oct-85..................     791     835     884     952     990     990     990     990     990     990     990     990     990     990     989     990
Jan-87..................     814     860     910     981   1,019   1,019   1,019   1,019   1,019   1,019   1,019   1,019   1,019   1,019   1,019   1,019
Jan-88..................     830     877     928   1,000   1,040   1,040   1,040   1,040   1,040   1,040   1,040   1,040   1,040   1,040   1,040   1,040
Jan-89..................     864     913     966   1,041   1,082   1,082   1,082   1,082   1,082   1,082   1,082   1,082   1,082   1,082   1,082   1,082
Jan-90..................     896     946   1,001   1,079   1,121   1,121   1,121   1,121   1,121   1,121   1,121   1,121   1,121   1,121   1,121   1,121
Jan-91..................     932     984   1,042   1,123   1,167   1,167   1,167   1,167   1,167   1,167   1,167   1,167   1,167   1,167   1,167   1,167
Jan-92..................     971   1,026   1,086   1,170   1,216   1,216   1,216   1,216   1,216   1,216   1,216   1,216   1,216   1,216   1,216   1,216
Jan-93..................   1,007   1,064   1,126   1,213   1,261   1,261   1,261   1,261   1,261   1,261   1,261   1,261   1,261   1,261   1,261   1,261
Jan-94..................   1,029   1,087   1,151   1,240   1,289   1,289   1,289   1,289   1,289   1,289   1,289   1,289   1,289   1,289   1,289   1,289
Jan-95..................   1,056   1,115   1,181   1,272   1,322   1,322   1,322   1,322   1,322   1,322   1,322   1,322   1,322   1,322   1,322   1,322
Jan-96..................   1,081   1,142   1,209   1,303   1,354   1,354   1,354   1,354   1,354   1,354   1,354   1,354   1,354   1,354   1,354   1,354
Jan-97..................   1,114   1,176   1,246   1,342   1,395   1,395   1,395   1,395   1,395   1,395   1,395   1,395   1,395   1,395   1,395   1,395
Jan-98..................   1,145   1,209   1,280   1,379   1,434   1,434   1,434   1,434   1,434   1,434   1,434   1,434   1,434   1,434   1,434   1,434
Jan-99..................   1,186   1,253   1,327   1,429   1,485   1,485   1,485   1,485   1,485   1,485   1,485   1,485   1,485   1,485   1,485   1,485
Jan-00..................   1,243   1,313   1,390   1,497   1,557   1,557   1,557   1,557   1,557   1,557   1,557   1,557   1,557   1,557   1,557   1,557
Jul-00..................   1,243   1,373   1,447   1,520   1,594   1,594   1,594   1,594   1,594   1,594   1,594   1,594   1,594   1,594   1,594   1,594
Jan-01..................   1,289   1,424   1,501   1,576   1,653   1,653   1,653   1,653   1,653   1,653   1,653   1,653   1,653   1,653   1,653   1,653
Jan-02..................   1,444   1,518   1,600   1,680   1,752   1,752   1,752   1,752   1,752   1,752   1,752   1,752   1,752   1,752   1,752   1,752
Jan-03..................   1,503   1,580   1,665   1,749   1,824   1,824   1,824   1,824   1,824   1,824   1,824   1,824   1,824   1,824   1,824   1,824
Jan-04..................   1,558   1,638   1,727   1,814   1,892   1,892   1,892   1,892   1,892   1,892   1,892   1,892   1,892   1,892   1,892   1,892                                                          CONSTANT 2009 $ ADJUSTED USING CPI-UJul-1904................   1,346   1,346   1,346   1,413   1,413   1,481   1,481   1,548   1,548   1,615   1,615   1,615   1,615   1,615   1,615   1,615
Oct-40..................     929     929     929   1,022   1,022   1,068   1,068   1,115   1,115   1,161   1,161   1,161   1,161   1,161   1,161   1,161
Aug-41..................   1,037   1,037   1,037   1,126   1,126   1,170   1,170   1,215   1,215   1,259   1,259   1,259   1,259   1,259   1,259   1,259
Jun-42..................   1,049   1,049   1,101   1,101   1,154   1,154   1,206   1,259   1,259   1,311   1,364   1,416   1,468   1,468   1,521   1,573
Jul-46..................   1,111   1,111   1,166   1,166   1,222   1,222   1,278   1,333   1,333   1,389   1,444   1,500   1,555   1,555   1,611   1,666
Oct-49..................   1,073   1,140   1,140   1,207   1,274   1,341   1,408   1,476   1,543   1,610   1,744   1,744   1,744   1,744   1,744   1,744
May-52..................   1,008   1,071   1,071   1,134   1,197   1,260   1,323   1,386   1,449   1,512   1,638   1,638   1,638   1,638   1,638   1,638
Apr-55..................     992   1,139   1,139   1,297   1,360   1,455   1,518   1,541   1,645   1,708   1,771   1,771   1,771   1,771   1,771   1,771
Jun-58..................     919   1,127   1,202   1,278   1,353   1,428   1,428   1,428   1,428   1,428   1,428   1,428   1,428   1,428   1,428   1,428
Oct-63..................     868   1,278   1,348   1,455   1,526   1,526   1,526   1,526   1,526   1,526   1,526   1,526   1,526   1,526   1,526   1,526
Sep-64..................     862   1,300   1,372   1,480   1,554   1,554   1,554   1,554   1,554   1,554   1,554   1,554   1,554   1,554   1,554   1,554
Sep-65..................   1,143   1,415   1,492   1,610   1,690   1,690   1,690   1,690   1,690   1,690   1,690   1,690   1,690   1,690   1,690   1,690
Jul-66..................   1,134   1,422   1,499   1,618   1,698   1,698   1,698   1,698   1,698   1,698   1,698   1,698   1,698   1,698   1,698   1,698
Oct-67..................   1,158   1,453   1,533   1,654   1,736   1,736   1,736   1,736   1,736   1,736   1,736   1,736   1,736   1,736   1,736   1,736
Jul-68..................   1,193   1,495   1,578   1,702   1,787   1,787   1,787   1,787   1,787   1,787   1,787   1,787   1,787   1,787   1,787   1,787
Jul-69..................   1,273   1,595   1,685   1,816   1,907   1,907   1,907   1,907   1,907   1,907   1,907   1,907   1,907   1,907   1,907   1,907
Jan-70..................   1,301   1,629   1,722   1,856   1,949   1,949   1,949   1,949   1,949   1,949   1,949   1,949   1,949   1,949   1,949   1,949
Jan-71..................   1,344   1,683   1,780   1,919   2,014   2,014   2,014   2,014   2,014   2,014   2,014   2,014   2,014   2,014   2,014   2,014
Nov-71..................   1,686   1,780   1,883   2,030   2,112   2,112   2,112   2,112   2,112   2,112   2,112   2,112   2,112   2,112   2,112   2,112
Jan-72..................   1,808   1,908   2,019   2,177   2,264   2,264   2,264   2,264   2,264   2,264   2,264   2,264   2,264   2,264   2,264   2,264
Oct-72..................   1,817   1,919   2,030   2,189   2,276   2,276   2,276   2,276   2,276   2,276   2,276   2,276   2,276   2,276   2,276   2,276
Oct-73..................   1,737   1,834   1,940   2,093   2,175   2,175   2,175   2,175   2,175   2,175   2,175   2,175   2,175   2,175   2,175   2,175
Oct-74..................   1,680   1,774   1,877   2,025   2,104   2,104   2,104   2,104   2,104   2,104   2,104   2,104   2,104   2,104   2,104   2,104
Oct-75..................   1,665   1,758   1,860   2,006   2,084   2,084   2,084   2,084   2,084   2,084   2,084   2,084   2,084   2,084   2,084   2,084
Oct-76..................   1,622   1,712   1,813   1,954   2,031   2,031   2,031   2,031   2,031   2,031   2,031   2,031   2,031   2,031   2,031   2,031
Oct-77..................   1,598   1,687   1,786   1,926   2,002   2,002   2,002   2,002   2,002   2,002   2,002   2,002   2,002   2,002   2,002   2,002
Oct-78..................   1,513   1,598   1,691   1,823   1,895   1,895   1,895   1,895   1,895   1,895   1,895   1,895   1,895   1,895   1,895   1,895
Oct-79..................   1,427   1,507   1,595   1,719   1,787   1,787   1,787   1,787   1,787   1,787   1,787   1,787   1,787   1,787   1,787   1,787
Oct-80..................   1,445   1,526   1,615   1,741   1,809   1,809   1,809   1,809   1,809   1,809   1,809   1,809   1,809   1,809   1,809   1,809
Oct-81..................   1,539   1,625   1,720   1,854   1,928   1,928   1,928   1,928   1,928   1,928   1,928   1,928   1,928   1,928   1,928   1,928
Oct-82..................   1,553   1,639   1,735   1,870   1,945   1,945   1,945   1,945   1,945   1,945   1,945   1,945   1,945   1,945   1,945   1,945
Jan-84..................   1,546   1,632   1,727   1,862   1,935   1,935   1,935   1,935   1,935   1,935   1,935   1,935   1,935   1,935   1,935   1,935
Jan-85..................   1,553   1,640   1,736   1,871   1,945   1,945   1,944   1,945   1,945   1,945   1,945   1,945   1,945   1,945   1,945   1,945
Oct-85..................   1,572   1,659   1,757   1,893   1,968   1,968   1,968   1,968   1,968   1,968   1,968   1,968   1,968   1,968   1,966   1,968
Jan-87..................   1,561   1,648   1,745   1,880   1,955   1,955   1,955   1,955   1,955   1,955   1,955   1,955   1,955   1,955   1,955   1,955
Jan-88..................   1,529   1,614   1,709   1,842   1,915   1,915   1,915   1,915   1,915   1,915   1,915   1,915   1,915   1,915   1,915   1,915
Jan-89..................   1,518   1,603   1,697   1,829   1,901   1,901   1,901   1,901   1,901   1,901   1,901   1,901   1,901   1,901   1,901   1,901
Jan-90..................   1,493   1,577   1,669   1,799   1,870   1,870   1,870   1,870   1,870   1,870   1,870   1,870   1,870   1,870   1,870   1,870
Jan-91..................   1,491   1,574   1,667   1,796   1,867   1,867   1,867   1,867   1,867   1,867   1,867   1,867   1,867   1,867   1,867   1,867
Jan-92..................   1,508   1,593   1,687   1,817   1,889   1,889   1,889   1,889   1,889   1,889   1,889   1,889   1,889   1,889   1,889   1,889
Jan-93..................   1,518   1,604   1,698   1,829   1,901   1,901   1,901   1,901   1,901   1,901   1,901   1,901   1,901   1,901   1,901   1,901
Jan-94..................   1,514   1,599   1,693   1,823   1,895   1,895   1,895   1,895   1,895   1,895   1,895   1,895   1,895   1,895   1,895   1,895
Jan-95..................   1,509   1,594   1,688   1,818   1,890   1,890   1,890   1,890   1,890   1,890   1,890   1,890   1,890   1,890   1,890   1,890
Jan-96..................   1,501   1,586   1,679   1,809   1,880   1,880   1,880   1,880   1,880   1,880   1,880   1,880   1,880   1,880   1,880   1,880
Jan-97..................   1,511   1,597   1,691   1,821   1,893   1,893   1,893   1,893   1,893   1,893   1,893   1,893   1,893   1,893   1,893   1,893
Jan-98..................   1,529   1,616   1,711   1,842   1,915   1,915   1,915   1,915   1,915   1,915   1,915   1,915   1,915   1,915   1,915   1,915
Jan-99..................   1,550   1,637   1,734   1,867   1,941   1,941   1,941   1,941   1,941   1,941   1,941   1,941   1,941   1,941   1,941   1,941
Jan-00..................   1,572   1,660   1,758   1,894   1,969   1,969   1,969   1,969   1,969   1,969   1,969   1,969   1,969   1,969   1,969   1,969
Jul-00..................   1,572   1,737   1,830   1,923   2,016   2,016   2,016   2,016   2,016   2,016   2,016   2,016   2,016   2,016   2,016   2,016
Jan-01..................   1,585   1,751   1,846   1,938   2,033   2,033   2,033   2,033   2,033   2,033   2,033   2,033   2,033   2,033   2,033   2,033
Jan-02..................   1,748   1,838   1,937   2,035   2,122   2,122   2,122   2,122   2,122   2,122   2,122   2,122   2,122   2,122   2,122   2,122
Jan-3...................   1,780   1,871   1,972   2,072   2,160   2,160   2,160   2,160   2,160   2,160   2,160   2,160   2,160   2,160   2,160   2,160
Jan-04..................   1,797   1,890   1,992   2,093   2,182   2,182   2,182   2,182   2,182   2,182   2,182   2,182   2,182   2,182   2,182   2,182
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: All data in current year dollars from Library of Congress, Federal Research Division, Military Compensation Background Papers, Volume 1, May
  2005. Data in constant FY2009 dollars calculated by CRS using CPI deflators from the Department of Commerce, Bureau of Labor Statistics for all years
  from 1913 on and, for years prior to 1913, from Professor Robert Sahr, Oregon State University, Inflation Conversion Factors for Dollars 1774 to
  Estimated 2018, available on line at: http://oregonstate.edu/cla/polisci/faculty-research/sahr/sahr.htm


                                  TABLE 3.--MONTHLY BASIC PAY SCHEDULE FOR O-3 OFFICERS, SELECTED YEARS FROM 1922-2004
                                                       [Monthly pay at rank with years of service]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                           Under                                           Over    Over    Over    Over    Over    Over    Over    Over    Over    Over
                             2    Over 2  Over 3  Over 4  Over 6  Over 8    10      12      14      16      18      20      22      24      26      30
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  CURRENT YEAR DOLLARSJul-22..................     200     200     210     210     220     220     230     240     240     250     325     338     350     350     363     375
Jun-42..................     200     200     210     210     220     230     230     240     240     313     325     338     350     350     363     375
Jul-46..................     230     230     242     242     253     265     265     276     276     344     358     371     385     385     399     413
Oct-49..................     314     314     314     328     342     356     371     385     399     413     428     428     442     442     442     442
May-52..................     326     326     326     341     356     371     385     400     415     430     445     445     459     459     459     459
Apr-55..................     326     326     351     374     406     421     437     452     468     484     499     499     515     515     515     515
Jun-58..................     326     346     372     415     440     460     480     510     525     525     525     525     525     525     525     525
Oct-63..................     326     440     470     520     545     565     595     625     640     640     640     640     640     640     640     640
Sep-64..................     354     451     482     533     559     579     610     641     656     656     656     656     656     656     656     656
Sep-65..................     428     478     511     565     592     614     647     679     695     695     695     695     695     695     695     695
Jul-66..................     442     493     527     583     611     633     667     701     718     718     718     718     718     718     718     718
Oct-67..................     466     521     556     616     645     669     705     740     758     758     758     758     758     758     758     758
Jul-68..................     498     557     595     659     690     715     753     791     810     810     810     810     810     810     810     810
Jul-69..................     561     627     670     742     777     805     848     890     912     912     912     912     912     912     912     912
Jan-70..................     606     678     724     802     840     870     917     962     986     986     986     986     986     986     986     986
Jan-71..................     654     731     781     865     906     939     989   1,038   1,064   1,064   1,064   1,064   1,064   1,064   1,064   1,064
Nov-71..................     654     731     781     865     906     939     989   1,038   1,064   1,064   1,064   1,064   1,064   1,064   1,064   1,064
Jan-72..................     701     784     838     927     971   1,007   1,061   1,113   1,141   1,141   1,141   1,141   1,141   1,141   1,141   1,141
Oct-72..................     748     836     894     989   1,037   1,074   1,131   1,188   1,217   1,217   1,217   1,217   1,217   1,217   1,217   1,217
Oct-73..................     794     888     949   1,050   1,100   1,140   1,201   1,261   1,292   1,292   1,292   1,292   1,292   1,292   1,292   1,292
Oct-74..................     838     937   1,001   1,108   1,161   1,203   1,268   1,331   1,363   1,363   1,363   1,363   1,363   1,363   1,363   1,363
Oct-75..................     880     984   1,052   1,164   1,219   1,263   1,331   1,397   1,431   1,431   1,431   1,431   1,431   1,431   1,431   1,431
Oct-76..................     912   1,019   1,090   1,206   1,263   1,309   1,379   1,448   1,483   1,483   1,483   1,483   1,483   1,483   1,483   1,483
Oct-77..................     968   1,083   1,157   1,280   1,342   1,390   1,465   1,538   1,575   1,575   1,575   1,575   1,575   1,575   1,575   1,575
Oct-78..................   1,022   1,142   1,221   1,351   1,415   1,467   1,545   1,622   1,662   1,662   1,662   1,662   1,662   1,662   1,662   1,662
Oct-79..................   1,094   1,222   1,307   1,446   1,515   1,570   1,654   1,736   1,779   1,779   1,779   1,779   1,779   1,779   1,779   1,779
Oct-80..................   1,221   1,365   1,460   1,615   1,692   1,753   1,847   1,939   1,987   1,987   1,987   1,987   1,987   1,987   1,987   1,987
Oct-81..................   1,396   1,561   1,668   1,846   1,934   2,004   2,112   2,216   2,271   2,271   2,271   2,271   2,271   2,271   2,271   2,271
Oct-82..................   1,452   1,623   1,735   1,920   2,012   2,084   2,196   2,305   2,362   2,362   2,362   2,362   2,362   2,362   2,362   2,362
Jan-84..................   1,510   1,688   1,804   1,997   2,092   2,168   2,284   2,397   2,456   2,456   2,456   2,456   2,456   2,456   2,456   2,456
Jan-85..................   1,570   1,755   1,877   2,076   2,176   2,254   2,376   2,493   2,555   2,555   2,555   2,555   2,555   2,555   2,555   2,555
Oct-85..................   1,617   1,808   1,933   2,139   2,241   2,322   2,447   2,568   2,631   2,631   2,631   2,631   2,631   2,631   2,631   2,631
Jan-87..................   1,666   1,862   1,991   2,203   2,308   2,391   2,521   2,645   2,710   2,710   2,710   2,710   2,710   2,710   2,710   2,710
Jan-88..................   1,699   1,900   2,031   2,247   2,354   2,439   2,571   2,698   2,765   2,765   2,765   2,765   2,765   2,765   2,765   2,765
Jan-89..................   1,769   1,978   2,114   2,339   2,451   2,539   2,676   2,809   2,878   2,878   2,878   2,878   2,878   2,878   2,878   2,878
Jan-90..................   1,832   2,049   2,190   2,423   2,539   2,630   2,773   2,910   2,981   2,981   2,981   2,981   2,981   2,981   2,981   2,981
Jan-91..................   1,907   2,133   2,280   2,523   2,643   2,738   2,886   3,029   3,104   3,104   3,104   3,104   3,104   3,104   3,104   3,104
Jan-92..................   1,988   2,222   2,376   2,629   2,754   2,853   3,008   3,156   3,234   3,234   3,234   3,234   3,234   3,234   3,234   3,234
Jan-93..................   2,061   2,305   2,464   2,726   2,856   2,959   3,119   3,273   3,353   3,353   3,353   3,353   3,353   3,353   3,353   3,353
Jan-94..................   2,106   2,355   2,518   2,786   2,919   3,024   3,188   3,345   3,427   3,427   3,427   3,427   3,427   3,427   3,427   3,427
Jan-95..................   2,161   2,417   2,583   2,858   2,995   3,102   3,270   3,432   3,516   3,516   3,516   3,516   3,516   3,516   3,516   3,516
Jan-96..................   2,213   2,474   2,645   2,927   3,067   3,177   3,349   3,515   3,601   3,601   3,601   3,601   3,601   3,601   3,601   3,601
Jan-97..................   2,279   2,549   2,725   3,015   3,159   3,272   3,449   3,620   3,709   3,709   3,709   3,709   3,709   3,709   3,709   3,709
Jan-98..................   2,343   2,620   2,801   3,099   3,248   3,364   3,546   3,721   3,812   3,812   3,812   3,812   3,812   3,812   3,812   3,812
Jan-99..................   2,428   2,714   2,902   3,211   3,365   3,485   3,674   3,855   3,950   3,950   3,950   3,950   3,950   3,950   3,950   3,950
Jan-00..................   2,544   2,844   3,041   3,365   3,526   3,652   3,850   4,040   4,139   4,139   4,139   4,139   4,139   4,139   4,139   4,139
Jul-00..................   2,544   2,884   3,113   3,365   3,526   3,703   3,850   4,040   4,139   4,139   4,139   4,139   4,139   4,139   4,139   4,139
Jan-01..................   2,638   2,991   3,228   3,489   3,656   3,840   3,993   4,190   4,292   4,292   4,292   4,292   4,292   4,292   4,292   4,292
Jan-02..................   2,797   3,170   3,422   3,699   3,876   4,070   4,232   4,441   4,550   4,550   4,550   4,550   4,550   4,550   4,550   4,550
Jan-03..................   2,911   3,300   3,562   3,884   4,070   4,274   4,406   4,623   4,736   4,736   4,736   4,736   4,736   4,736   4,736   4,736
Jan-04..................   3,019   3,422   3,694   4,027   4,220   4,432   4,569   4,794   4,911   4,911   4,911   4,911   4,911   4,911   4,911   4,911                                                            CONSTANT 2009 DOLLARS USING CPI-UJul-22..................     200     200     210     210     220     220     230     240     240     250     325     338     350     350     363     375
Jun-42..................     200     200     210     210     220     230     230     240     240     313     325     338     350     350     363     375
Jul-46..................     230     230     242     242     253     265     265     276     276     344     358     371     385     385     399     413
Oct-49..................     314     314     314     328     342     356     371     385     399     413     428     428     442     442     442     442
May-52..................     326     326     326     341     356     371     385     400     415     430     445     445     459     459     459     459
Apr-55..................     326     326     351     374     406     421     437     452     468     484     499     499     515     515     515     515
Jun-58..................     326     346     372     415     440     460     480     510     525     525     525     525     525     525     525     525
Oct-63..................     326     440     470     520     545     565     595     625     640     640     640     640     640     640     640     640
Sep-64..................     354     451     482     533     559     579     610     641     656     656     656     656     656     656     656     656
Sep-65..................     428     478     511     565     592     614     647     679     695     695     695     695     695     695     695     695
Jul-66..................     442     493     527     583     611     633     667     701     718     718     718     718     718     718     718     718
Oct-67..................     466     521     556     616     645     669     705     740     758     758     758     758     758     758     758     758
Jul-68..................     498     557     595     659     690     715     753     791     810     810     810     810     810     810     810     810
Jul-69..................     561     627     670     742     777     805     848     890     912     912     912     912     912     912     912     912
Jan-70..................     606     678     724     802     840     870     917     962     986     986     986     986     986     986     986     986
Jan-71..................     654     731     781     865     906     939     989   1,038   1,064   1,064   1,064   1,064   1,064   1,064   1,064   1,064
Nov-71..................     654     731     781     865     906     939     989   1,038   1,064   1,064   1,064   1,064   1,064   1,064   1,064   1,064
Jan-72..................     701     784     838     927     971   1,007   1,061   1,113   1,141   1,141   1,141   1,141   1,141   1,141   1,141   1,141
Oct-72..................     748     836     894     989   1,037   1,074   1,131   1,188   1,217   1,217   1,217   1,217   1,217   1,217   1,217   1,217
Oct-73..................     794     888     949   1,050   1,100   1,140   1,201   1,261   1,292   1,292   1,292   1,292   1,292   1,292   1,292   1,292
Oct-74..................     838     937   1,001   1,108   1,161   1,203   1,268   1,331   1,363   1,363   1,363   1,363   1,363   1,363   1,363   1,363
Oct-75..................     880     984   1,052   1,164   1,219   1,263   1,331   1,397   1,431   1,431   1,431   1,431   1,431   1,431   1,431   1,431
Oct-76..................     912   1,019   1,090   1,206   1,263   1,309   1,379   1,448   1,483   1,483   1,483   1,483   1,483   1,483   1,483   1,483
Oct-77..................     968   1,083   1,157   1,280   1,342   1,390   1,465   1,538   1,575   1,575   1,575   1,575   1,575   1,575   1,575   1,575
Oct-78..................   1,022   1,142   1,221   1,351   1,415   1,467   1,545   1,622   1,662   1,662   1,662   1,662   1,662   1,662   1,662   1,662
Oct-79..................   1,094   1,222   1,307   1,446   1,515   1,570   1,654   1,736   1,779   1,779   1,779   1,779   1,779   1,779   1,779   1,779
Oct-80..................   1,221   1,365   1,460   1,615   1,692   1,753   1,847   1,939   1,987   1,987   1,987   1,987   1,987   1,987   1,987   1,987
Oct-81..................   1,396   1,561   1,668   1,846   1,934   2,004   2,112   2,216   2,271   2,271   2,271   2,271   2,271   2,271   2,271   2,271
Oct-82..................   1,452   1,623   1,735   1,920   2,012   2,084   2,196   2,305   2,362   2,362   2,362   2,362   2,362   2,362   2,362   2,362
Jan-84..................   1,510   1,688   1,804   1,997   2,092   2,168   2,284   2,397   2,456   2,456   2,456   2,456   2,456   2,456   2,456   2,456
Jan-85..................   1,570   1,755   1,877   2,076   2,176   2,254   2,376   2,493   2,555   2,555   2,555   2,555   2,555   2,555   2,555   2,555
Oct-85..................   1,617   1,808   1,933   2,139   2,241   2,322   2,447   2,568   2,631   2,631   2,631   2,631   2,631   2,631   2,631   2,631
Jan-87..................   1,666   1,862   1,991   2,203   2,308   2,391   2,521   2,645   2,710   2,710   2,710   2,710   2,710   2,710   2,710   2,710
Jan-88..................   1,699   1,900   2,031   2,247   2,354   2,439   2,571   2,698   2,765   2,765   2,765   2,765   2,765   2,765   2,765   2,765
Jan-89..................   1,769   1,978   2,114   2,339   2,451   2,539   2,676   2,809   2,878   2,878   2,878   2,878   2,878   2,878   2,878   2,878
Jan-90..................   1,832   2,049   2,190   2,423   2,539   2,630   2,773   2,910   2,981   2,981   2,981   2,981   2,981   2,981   2,981   2,981
Jan-91..................   1,907   2,133   2,280   2,523   2,643   2,738   2,886   3,029   3,104   3,104   3,104   3,104   3,104   3,104   3,104   3,104
Jan-92..................   1,988   2,222   2,376   2,629   2,754   2,853   3,008   3,156   3,234   3,234   3,234   3,234   3,234   3,234   3,234   3,234
Jan-93..................   2,061   2,305   2,464   2,726   2,856   2,959   3,119   3,273   3,353   3,353   3,353   3,353   3,353   3,353   3,353   3,353
Jan-94..................   2,106   2,355   2,518   2,786   2,919   3,024   3,188   3,345   3,427   3,427   3,427   3,427   3,427   3,427   3,427   3,427
Jan-95..................   2,161   2,417   2,583   2,858   2,995   3,102   3,270   3,432   3,516   3,516   3,516   3,516   3,516   3,516   3,516   3,516
Jan-96..................   2,213   2,474   2,645   2,927   3,067   3,177   3,349   3,515   3,601   3,601   3,601   3,601   3,601   3,601   3,601   3,601
Jan-97..................   2,279   2,549   2,725   3,015   3,159   3,272   3,449   3,620   3,709   3,709   3,709   3,709   3,709   3,709   3,709   3,709
Jan-98..................   2,343   2,620   2,801   3,099   3,248   3,364   3,546   3,721   3,812   3,812   3,812   3,812   3,812   3,812   3,812   3,812
Jan-99..................   2,428   2,714   2,902   3,211   3,365   3,485   3,674   3,855   3,950   3,950   3,950   3,950   3,950   3,950   3,950   3,950
Jan-00..................   2,544   2,844   3,041   3,365   3,526   3,652   3,850   4,040   4,139   4,139   4,139   4,139   4,139   4,139   4,139   4,139
Jul-00..................   2,544   2,884   3,113   3,365   3,526   3,703   3,850   4,040   4,139   4,139   4,139   4,139   4,139   4,139   4,139   4,139
Jan-01..................   2,638   2,991   3,228   3,489   3,656   3,840   3,993   4,190   4,292   4,292   4,292   4,292   4,292   4,292   4,292   4,292
Jan-02..................   2,797   3,170   3,422   3,699   3,876   4,070   4,232   4,441   4,550   4,550   4,550   4,550   4,550   4,550   4,550   4,550
Jan-03..................   2,911   3,300   3,562   3,884   4,070   4,274   4,406   4,623   4,736   4,736   4,736   4,736   4,736   4,736   4,736   4,736
Jan-04..................   3,019   3,422   3,694   4,027   4,220   4,432   4,569   4,794   4,911   4,911   4,911   4,911   4,911   4,911   4,911   4,911
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Same as Table 2, above.

          Mr. Gilmore's Responses to Questions for the Record

                     question from chairman spratt
    Do you have a rule of thumb at CRS or CBO for what it costs to move 
a division or a brigade with full equipment sent back to the States 
from Iraq? Could you submit, for the record, your growth estimation 
that--your rule of thumb for, division set, brigade set, whatever the 
proper unit is?

    Answer: The Congressional Budget Office (CBO) estimates that it 
would cost approximately $50 million (in 2009 dollars) to transport a 
fully manned and equipped Army heavy brigade combat team (HBCT) from 
Iraq to the United States.
    CBO's estimate reflects several assumptions. First, since Kuwait is 
the primary entry and exit point for units deploying to and redeploying 
from the Iraqi theater of operations, CBO assumes that the brigade's 
equipment and personnel would leave the Iraqi theater of operations 
through Kuwait. In addition, CBO assumes that the brigade's equipment 
would be sealifted from Kuwait to the United States, and that personnel 
would be airlifted from Kuwait to the United States. Once the equipment 
reaches the United States, CBO assumes that the brigade's equipment 
would be moved by rail from the port of arrival to the brigade's final 
destination.
    Based on historical Department of Defense (DoD) cost factors for 
transporting equipment and personnel, CBO estimates that the sealift 
costs, including costs associated with handling the brigade's equipment 
at the departing and arriving ports, would be $33 million and would be 
the single largest cost associated with the transportation of an HBCT 
from Iraq to the United States. In addition, CBO estimates that the 
transportation of personnel from Iraq to the United States via Kuwait 
would cost $8 million. The remainder of the cost estimated by CBO is 
associated with the movement of equipment from Iraq to Kuwait and from 
the arriving port in the United States to its final destination.
    The cost to transport Army combat brigades from Iraq to the United 
States would not account for all of the transportation costs of 
withdrawing U.S. forces from Iraq. The U.S. military has many units in 
Iraq that are not Army combat brigades, and it has supplies and 
equipment not associated with any specific unit. In particular, the 
Army has a substantial number of forces in the Iraqi theater of 
operations that provide support to its combat brigades. Those support 
units contain more total personnel than do the Army's combat brigades. 
Moreover, the Navy, Air Force, and Marine Corps all have units in the 
Iraqi theater of operations that would need to be redeployed.
    DoD also maintains a substantial stock of additional equipment 
(primarily its so-called Theater-Provided Equipment pool) not directly 
associated with any single unit that would need to be redeployed, 
although DoD may have plans to leave some of that equipment pool behind 
in Iraq. Finally, DoD has a substantial stock of supplies and 
ammunition that would also be redeployed. The need to transport the 
personnel and equipment not associated with Army combat brigades means 
that the total transportation costs of withdrawing U.S. forces from 
Iraq will be greater than the costs of withdrawing the Army's combat 
brigades.
    Thus, the cost to re-deploy personnel and equipment not associated 
directly with HBCTs is likely to be significant.
                 questions from representative delauro
    1. As you are likely aware, the Navy recently declared a so-called 
Nunn-McCurdy violation for the VH-71 presidential helicopter 
replacement program. Last year, the Defense Department announced that 
the total acquisition costs for the program were projected to increase 
from $6.5 billion to $11.2 billion. Now, merely two years after 
submitting initial baseline estimates, the Navy is confirming that the 
cost per helicopter will be at least 50 percent higher than the 
original estimate.
    In recent testimony, Secretary Gates identified acquisitions as a 
chief challenge facing the Defense Department and specifically 
mentioned the VH-71 as a ``big ticket'' item experiencing contract or 
program performance problems, suggesting that ``the FY 2010 budget must 
make hard choices.'' As we examine cost growth in Defense programs, how 
do you think we should approach big contract issues such as this one? 
What policies are needed to control such egregious cost over-runs? On 
the VH-71 program in particular, with the modifications and the new 
requirements being as extensive as they are, and the fact that had 
these changes been clear from the outset competing firms would likely 
have submitted different proposals, do you think a re-competition of 
Increment II of the program is worthwhile to identify whether this 
helicopter can be made at a better value to the taxpayer?

    Answer: As I stated in my testimony, realistic cost estimates 
developed as early as possible in the life of a program are key to 
developing realistic budgets and to avoiding subsequent cost increases. 
A realistic estimate would use parametric analysis of past costs for 
programs with technical content analogous to the proposed program's 
content. A realistic estimate would also account not just for the 
requirements stated at a program's inception but for changes in 
requirements that might reasonably be expected.
    Whether it would be worthwhile to re-compete Increment II of the 
presidential helicopter program because of the changes in requirements 
that have occurred is a policy decision that must be made by the 
Congress and DoD. CBO does not make recommendations for how to decide 
such policy issues.

    2. As with the controversial original award for the Air Force KC-X 
aerial refueling tanker contract, the Marine One contract was awarded 
to a consortium that involved a substantial amount of work being 
outsourced overseas. I believe such outsourcing of defense contracts 
runs against both U.S. national security and economic interests, 
eroding our defense industrial base, costing jobs and stunting economic 
growth. Do you believe, particularly in these very difficult economic 
times, that the Defense Department should consider adjusting its 
methodology to account for potential job creation and economic growth 
when considering proposals for major projects such as the KC-X and VH-
71?

    Answer: Whether it would be worthwhile to account for potential job 
creation and economic growth when considering proposals for major 
projects such as the KC-X and VH-71 is a policy decision that must be 
made by the Congress and DoD. CBO does not make recommendations for how 
to decide such policy issues.

                 question from representative langevin
    I sit on not only the Budget Committee, but also the House Armed 
Services Committee. And following the debate on the issue of the DDG-
1000 versus the 51 that is going on right now, and just for my own 
knowledge and clarification for the record, when you talk about the 
range of potential costs, whether it is 4 or 5 to $6 billion for the 
DDG-1000, I would assume that you are talking about the first ship, 
which obviously is the most expensive and then costs moderate over time 
as you achieve economies of scale. Can you clarify that for the record?
    And also talk about your analysis on start-up costs if we were to 
start the DDG-51 line. And you estimate real costs of what that would 
be, what that ship would be per copy now with the add on technologies. 
And also the tradeoffs versus going with the DDG-1000 and the fact that 
these aren't supposed to be incorporating follow-on or transformational 
technologies that would, at a later point, be used on the cruiser or 
other platforms. So that it is kind of you can't just talk about the 51 
in a vacuum, you know, they have other modern technologies that would 
be applied to other platforms and would be of course useful as the 
cruisers develop. So if you could just kind of talk about those for a 
few minutes.
    Mr. Gilmore. Well, the cost numbers that I quoted of $4 billion to 
$5 billion were, for the first ship, exclusive of the development 
costs; so, they excluded the development costs, the design costs for 
the ship, the cost of building the first ship. And then, yes, we do 
assume in our estimate that subsequent costs, subsequent ships' costs, 
are less; that there is a learning effect that occurs.
    Mr. Langevin. So can you estimate what the following costs would 
be?

    Answer: The table displayed below, taken from CBO testimony before 
the Seapower Subcommittee of the House Armed Services Committee on July 
31, 2008, displays estimates of the costs of follow-on DDG-1000 ships 
and of buying one or two DDG-51s per year. The DDG-51s are assumed for 
this analysis to have the same design as the DDG-112, the last ship 
purchased in 2005.

                  PROJECTED COSTS OF CONSTRUCTING DDG-1000 AND DDG-51 DESTROYERS, 2009 TO 2013
                                           [Billions of 2009 Dollars]
----------------------------------------------------------------------------------------------------------------
                                                        2009      2010      2011      2012      2013      Total
----------------------------------------------------------------------------------------------------------------
DDG-1000 Zumwalt Class (One per year, 3rd through         3.7       3.8       3.6       3.7       3.6      18.5
 7th ships).........................................
DDG-51 Arleigh Burke Class:
    One per year starting in 2010...................      0.4       2.2       2.3       2.3       2.4       9.6
    Two per year starting in 2010...................      0.4       3.7       3.8       3.9       3.9      15.7
DDG-1000 (Navy's Estimate)..........................      2.5       2.5       2.2       2.3       2.0      11.4
----------------------------------------------------------------------------------------------------------------
Source: Congressional Budget Office.Notes: All estimates include outfitting and postdelivery costs of $50 million to $60 million per ship. The DDG-
  1000 cost estimate assumes a single ship would be ordered every year from one of two alternating shipyards.

    In its testimony from July 2008, CBO assumed the cost to restart 
DDG-51 production--which is separate from purchasing the ships 
themselves--would be about $400 million. Recently, a memorandum leaked 
to the trade press from John Young, Undersecretary of Defense for 
Acquisition, Technology, and Logistics, implied that the cost to 
restart the DDG-51 line would be $348 million.
    CBO cannot estimate the cost of future surface combatants that 
include new technologies at this time. The Navy has not determined 
which technologies, and at what pace, it will incorporate in future 
ships or how many of those types of ships it will buy. In addition, the 
Navy has not yet determined, officially, whether the future surface 
combatant would be based on a DDG-51 hull or a DDG-1000 hull. 
Determining which hull the Navy would use for a future surface 
combatant will have a substantial effect on the cost of those ships.
    For your reference, I am also providing the table below, which 
displays growth in the projected cost of the DDG-1000 program that has 
occurred since its inception as the DD-21 program in 1997.

 GROWTH IN THE ESTIMATED COSTS OF THE FIFTH SHIP OF THE DD-21/DD(X)/DDG-
                 1000 DESTROYER PROGRAM, SELECTED YEARS
------------------------------------------------------------------------
                                                           Billions of
                                                           2009 dollars
------------------------------------------------------------------------
1997 Navy Cost Goals (DD-21):
    Objective Goal.....................................             1.2
    Threshold Goal.....................................             1.4
2004 Future Years Defense Program......................             1.6
2009 Navy Estimate.....................................             2.1
2009 CBO Estimate......................................             3.6
------------------------------------------------------------------------
Sources: Department of the Navy, Fiscal Year 2009 Budget Estimates,
  Shipbuilding and Conversion (February 2008); Department of Defense,
  Future Years Defense Program for Fiscal Year 2004; and Department of
  the Navy, DD-21 Program Office, DD-21 Program Brief (October 19,
  1998).Notes: All years are federal fiscal years. For the historical
  comparison, the numbers exclude outfitting and postdelivery costs of
  about $60 million per ship.

                 questions from representative austria
    1. The successful completion of the most recent round of BRAC and 
military R&D are both very important to central Ohio. Can you tell me 
by service, whether BRAC is currently projected to achieve the savings 
that were envisioned? If the savings aren't realized, has DOD indicated 
how they will respond?

    Answer: Estimates of the savings generated by implementing the 2005 
base realignment and closure (BRAC) recommendations (the most recent 
round) have declined relative to initial projections. In 2005, the BRAC 
Commission estimated that annual recurring savings due to the 2005 BRAC 
round would be about $4.2 billion for fiscal year 2012 and beyond. 
DoD's 2009 budget submission indicates that net annual savings due to 
BRAC would be about $4 billion.
    Estimates of the costs to implement the 2005 BRAC round have 
increased relative to initial projections. The BRAC Commission 
originally estimated that the costs to implement the 2005 BRAC round 
would total about $21 billion. DoD's 2009 budget submission indicates 
that total costs to implement the 2005 BRAC round are now about of $32 
billion.
    Because of higher costs and smaller expected savings, estimates of 
the net savings attributable to BRAC over the 20-year period ending in 
2025 have declined. The BRAC Commission estimated in 2005 that total 
savings over that period would be about $36 billion (in constant 2005 
dollars). In 2009, the Government Accountability Office (GAO) 
calculated that total savings over that period would equal about $14 
billion (in constant 2005 dollars, see the GAO report, Military Base 
Realignments and Closures: DOD Faces Challenges in Implementing 
Recommendations on Time and Is Not Consistently Updating Savings 
Estimates, GAO-09-217, January 2009).
    Estimates of savings by service arising from BRAC are not available 
to CBO. Both DoD and GAO, which has published multiple reports on BRAC, 
should be able provide those data.
    CBO is not aware of a position taken by DoD on how the department 
would respond to realizing lesser BRAC savings. In testimony before the 
Subcommittee on Readiness of the House Armed Services Committee on 
December 12, 2007, the Deputy Undersecretary of Defense (Installations 
and Environment) acknowledged the difficulty of estimating savings due 
to BRAC. He stated, however, that ``the fact that BRAC has generated 
substantial savings has not been credibly questioned.''

    2. I would like to discuss two Air Force programs--the F-22 and the 
Joint Strike Fighter (JSF). What is the status of these two systems? 
How can we get DoD to do realistic budgeting?

    The F-22 Raptor is the newest Air Force fighter in service. Like 
the F-15C Eagle that it is replacing, the F-22 was designed primarily 
as an air-to-air fighter. However, the Air Force plans to make the F-22 
capable of launching some types of air-to-ground weapons. Since the 
retirement of the F-117 in 2007, the F-22 is the only stealthy fighter 
(able to elude detection by radar) currently in the Air Force 
inventory. The latest plans released by DoD call for fielding 183 F-
22s. The last of those aircraft were funded in the 2009 budget at a 
cost of about $150 million per aircraft. As of February 2009, 135 F-22s 
had been delivered to the Air Force. DoD also has indicated that it 
plans to spend approximately $8 billion to upgrade the F-22's 
capabilities.
    The Air Force has stated the need for no fewer than 381 F-22s, 
although recent remarks by the Chairman of the Joint Chiefs of Staff 
have indicated that requirement may be revised downward to around 240 
aircraft, about 60 more than in DoD's current plans. In the Department 
of Defense Appropriations Act, 2009 (Division C of Public Law 110-329), 
the Congress included $523 million for advanced procurement of 20 more 
F-22s (in addition to the 183 that are planned), pending a decision by 
the new Administration on whether to continue production. That decision 
is expected to be announced when DoD releases its detailed 2010 budget 
request in April 2009.
    The F-35 is currently under development for use by the Air Force, 
Navy, and Marine Corps. The F-35 has been designed as a stealthy 
multirole fighter with an emphasis on ground attack capabilities but 
incorporating substantial air-to-air capabilities as well. Three 
versions of the F-35 are being developed: the land-based F-35A, the 
short takeoff/vertical landing (STOVL) F-35B, and the aircraft carrier-
based F-35C. Under the latest plans released by DoD, the Air Force 
would purchase 1,763 F-35As by 2034 (at a maximum rate of 80 aircraft 
per year from 2015 to 2033), and the Navy and Marine Corps would 
purchase an unspecified mix of F-35Bs and F-35Cs totaling 680 aircraft 
by 2025 (at a maximum rate of 50 aircraft per year from 2014 through 
2022).
    Funding for production versions of the F-35 JSF began in fiscal 
year 2007. Through fiscal year 2009, funds had been appropriated for 14 
Air Force aircraft and 12 Navy Department aircraft. Current schedules 
call for the first F-35 squadrons to be operational in the Marine 
Corps, Air Force, and Navy by 2012, 2013, and 2015, respectively. As of 
December 2007, DoD estimated that slightly more than $200 billion in 
constant 2009 dollars would be needed from 2010 through 2034 to 
complete development and planned procurement of the F-35. Many 
observers remain concerned, however, that costs for the JSF will be 
higher than reported. (See, for example, the GAO report, Joint Strike 
Fighter: Recent Decisions by DOD Add to Program Risks, GAO-08-388, 
March 2008.)
    Two recent Congressional Research Service reports provide more 
detailed overviews of the F-22 and F-35 programs. See F-22A Raptor, 
Congressional Research Service, RL31673, December 19, 2008; and F-35A 
Lightning II Joint Strike Fighter (JSF) Program: Background, Status, 
and Issues, Congressional Research Service, RL30563, February 17, 2009.
    As I stated in my testimony, realistic cost estimates developed as 
early as possible in the life of a program are key to developing 
realistic budgets and to avoiding subsequent cost increases. A 
realistic estimate would use parametric analysis of past costs for 
programs with technical content analogous to the proposed program's 
content. A realistic estimate also would account not just for the 
requirements stated at a program's inception but for changes in 
requirements that might reasonably be expected.

    [Whereupon, at 12:40 p.m., the committee was adjourned.]

                                  
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