[Senate Hearing 112-]
[From the U.S. Government Publishing Office]



 
       DEPARTMENT OF DEFENSE APPROPRIATIONS FOR FISCAL YEAR 2012

                              ----------                              


                         TUESDAY, MARCH 1, 2011

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 10:34 a.m., in room SD-192, Dirksen 
Senate Office Building, Hon. Daniel K. Inouye (chairman) 
presiding.
    Present: Senators Inouye, Mikulski, Reed, Cochran, 
Alexander, Collins, and Murkowski.

                         DEPARTMENT OF DEFENSE

STATEMENT OF WILLIAM J. LYNN III, DEPUTY SECRETARY OF 
            DEFENSE
ACCOMPANIED BY ROBERT F. HALE, UNDER SECRETARY OF DEFENSE, COMPTROLLER


             opening statement of chairman daniel k. inouye


    Chairman Inouye. Good morning. This morning marks our first 
Defense Appropriations Committee hearing of the 112th Congress. 
And I would like to remind my colleagues and the new members of 
the subcommittee that our first defense hearing of the year is 
typically reserved for the rollout of the coming year's budget.
    However, this morning, we will hear from Deputy Secretary 
of Defense Mr. William Lynn and the Under Secretary of Defense, 
the Comptroller, Mr. Robert Hale regarding the impact of a 
long-term continuing resolution on the Department of Defense. 
Today marks the first 5 months into the fiscal year 2011 and 3 
days before the current continuing resolution expires.
    The path forward on completing the appropriations bills for 
fiscal year 2011 is still challenging. Unless cooler heads 
prevail and both houses of Congress begin to make progress on 
passing this year's budget, there remains the possibility that 
the whole Government could be funded through a full-year 
continuing resolution. This hearing is intended to examine the 
consequences of putting the defense budget on autopilot for the 
next 7 months.
    We have military men and women fighting a war in 
Afghanistan, training forces in Iraq so that we can safely draw 
down our forces there, and operating around the globe to 
protect our national security. Yet under the current funding 
situation, each of the military services has already been 
adversely impacted by the current continuing resolution.
    The readiness of our forces is beginning to be threatened 
as flying hours and steaming days are reduced, exercises and 
training events are canceled, equipment is foregoing much-
needed maintenance, and the list goes on and on.
    The Department's acquisition programs are also being 
adversely impacted. The Army has no funds to refurbish war-
torn, high-mobility, multipurpose Humvees, which means that 300 
personnel have been released from two critical Army maintenance 
depots. The Navy cannot award contracts for a second Virginia-
class submarine, a second DDG-51, or the first Mobile Landing 
Platform. The Air Force will not be able to procure additional 
MQ-9 Reaper unmanned aerial vehicles to increase the number of 
much-needed combat air patrols in Afghanistan. And these are 
just but a few examples.
    The military personnel accounts will face serious 
shortfalls if forced to operate at the fiscal year 2010 funding 
levels for the rest of the year. The Navy would be underfunded 
by $456 million, the Marine Corps by $468 million, and the Air 
Force would experience a $1 billion shortfall in military 
personnel accounts.
    The Defense Health Program would have to reduce the number 
of hours on patient care provider contracts and take other 
actions that will have an adverse effect on the quality and 
timeliness of medical care and resources for our military and 
their families.
    The list of affected programs and challenges goes on and 
on, but ultimately, it is the men and women in uniform that 
will pay the price. Secretary Gates summed it up best in late 
January when he said that continuing work under a continuing 
resolution would be ``the worst of all possible reductions.'' 
He went on to say, ``That is how you hollow out a military, 
even in wartime.''
    So, Mr. Secretary and Mr. Hale, I look forward to hearing 
more from you about the specific actions the Department will 
have to take if forced to operate under a continuing resolution 
for the remainder of the fiscal year.
    But first, let me turn to Vice Chairman Cochran for his 
opening remarks.


                   statement of senator thad cochran


    Senator Cochran. Mr. Chairman, I join you in welcoming our 
distinguished witnesses to the subcommittee today. We 
appreciate their service to the Government and their continued 
willingness to serve in these important positions of 
responsibility with respect to the Department of Defense.
    We are kind of up against it, as they say down home. When 
you look at the facts about the needs and the funds that are 
required to maintain our deployments in key places around the 
world that are important to our national security, and then 
compare that with the reality of the squeeze on the budget and 
the lack of funds being requested for some programs that really 
need more funding than are being requested by the 
administration.
    So we have a hill to climb. We have a big challenge. And 
your being here and keeping it in perspective for us, and 
letting us know what the realities are from your point of view 
is a very helpful part of the process, and we thank you for 
your cooperation with our committee and your presence here 
today.
    Chairman Inouye. Senator Mikulski.


                statement of senator barbara a. mikulski


    Senator Mikulski. Well, first of all, we want to welcome 
Secretary Lynn and Mr. Hale. I know we want to move right on to 
the hearing, but I am going to make two points.
    Number one, I really want to congratulate Secretary Gates 
on his reform effort in terms of really bringing the Department 
of Defense budget under control. I believe the reforms led by 
Secretary Gates, and that you and Dr. Carter have been 
pursuing, will give us a lot of guideposts for 2012. And you 
can count me on the reformer side of the ledger. But when we 
get into the areas of reform, I am going to talk about the 
impact on the continuing resolution and also the long-term.
    The other is--just as a general statement before we get 
into the specifics of the area--again, Mr. Lynn, if Secretary 
Gates were here, I would say this to him, and I would ask you 
to carry the message back.
    During the Walter Reed scandal, when it first broke, 
Secretary Gates responded with such swiftness that we all 
really appreciated that. He responded like a human being. He 
responded like a Secretary of Defense. He responded swiftly and 
effectively. We really are tremendously grateful for that as we 
worked in a very steadfast way to deal with that. Now we will 
be opening the new facility at Naval Bethesda, which will be a 
wonderful day.
    But so much remains on the area of military medicine, 
particularly how we deal with the post traumatic stress 
syndrome, the fact that I am calling it ``the 50-year war'' 
because the permanent wounds of war and the permanent impact of 
war will go on with these men and women and their families for 
years. So we want to continue that. I will reserve those 
questions for the separate hearing.
    But Gates really led the way. He is leading the way on 
reform. He is leading the way, he led the way, and we look 
forward to working with you at really trying to get highest 
value for our dollar, both to our troops when they fight over 
there, but for them and their families when they come back 
here.
    Chairman Inouye. Thank you.
    Senator Collins.


                   statement of senator susan collins


    Senator Collins. Thank you, Mr. Chairman. Let me thank you 
and the vice chairman for holding this very important hearing.
    Last fall, when it was evident that we had reached an 
impasse on many issues, I went to both the majority leader and 
the minority leader to suggest that we pass a combination of 
the DOD appropriations bill, the Homeland Security bill, and 
the VA/MilCon bill--a so-called ``minibus.'' I believe that 
such a package would have passed last fall and avoided the 
problems that we now face.
    I subsequently, this year, wrote to both leaders, and I am 
sending a second letter today that I would ask unanimous 
consent be included in the hearing record, urging them to 
immediately go to the defense appropriations bill.
    [The information follows:]
                                       U.S. Senate,
                Homeland Security and Governmental Affairs,
                                     Washington, DC, March 1, 2011.
Hon. Harry Reid,
Majority Leader, U.S. Senate,
Washington, DC.
Hon. Mitch McConnell,
Minority Leader, U.S. Senate,
Washington, DC.
    Dear Senator Reid and Senator McConnell: As we approach the March 4 
expiration of the resolution that is currently funding Government 
operations, I want to reiterate my strong belief that the Senate must 
pass, as soon as possible, a funding bill that provides the Department 
of Defense the resources it needs to sustain current operations and 
readiness and to prepare to meet future challenge.
    The leadership of the military services have warned repeatedly that 
a year-long CR at reduced funding levels could negatively affect both 
their effectiveness and efficiency. Equipment maintenance would be 
deferred; facility repairs and construction would be curtailed; and 
military acquisition would be hampered. Last week, Secretary Gates 
testified before the Senate Armed Services Committee that operating 
under a CR or substantially reduced funding would lead to procurement 
delays and increasing costs for high demand assets, such as Unmanned 
Aerial Vehicles.
    The Congressional Research Service confirmed that an extension of a 
``clean'' CR will result in insufficient funding for military personnel 
budgets and defense health programs, all of which are critical to 
supporting our men and women in uniform and their families. The 
operations & maintenance accounts would also face significant 
shortfalls, including a six percent reduction in war-related operations 
funding. For these reasons, Secretary Gates stated in his testimony 
that, ``Cuts in operations would mean fewer flying hours, fewer 
steaming days, and cutbacks in training for home-stationed forces--all 
of which directly impacts readiness. That is how you hollow out a 
military--when your best people, your veterans of multiple combat 
deployments, become frustrated and demoralized and, as a result, begin 
leaving military service.''
    The impact of a full-year CR on the $16 billion Navy shipbuilding 
budget, an account that makes up just three percent of the defense 
budget request for fiscal year 2011, is indicative of how a full-year 
CR would negatively affect the servicemen and women who rely on stable 
funding from Congress. The result would be higher costs for the 
taxpayers and fewer ships towards the Navy's goal of a 313-ship fleet.
    Admiral Gary Roughead, the Chief of Naval Operations, described 
this impact to me last week during a visit to Bath Iron Works in Maine. 
He said that, ``the lack of a final budget for the military could 
undermine the Navy's shipbuilding plans,'' including the Virginia-class 
attack submarine program and the DDG-51 destroyer program. The 
shipbuilding program faces executability challenges under the CR 
because of increases in fiscal year 2011 ship quantities and funding 
levels compared to fiscal year 2010 levels. Although the shipbuilding 
budget request for fiscal year 2011 is about $1.9 billion more than the 
amount appropriated in fiscal year 2010, the potential shortfall is 
actually $5.6 billion because a CR may not include transfer authority 
or provide funding increases in other budget lines. The disruptive 
impact of a full-year CR on the shipbuilding account is just one 
example of the result that congressional inaction is having on our 
military service members and their families.
    While there are a number of areas where our two parties may have 
significant differences, providing our military the funding it needs to 
succeed should not be among them. Traditionally, senators from both 
parties have been able to work together to provide our men and women in 
unifolin the resources they need to accomplish what is asked of them. 
It concerns me that this process of keeping security spending separate 
from the spirited disagreement regarding domestic spending appears to 
be over. I truly hope that is not the case, and I urge you to work 
together to bring the fiscal year 2011 funding bill to the Senate floor 
as soon as possible so that can work with our colleagues in the House 
to send a bill to the President for signature.
            Sincerely,
                                          Susan M. Collins,
                                                      U.S. Senator.

    Senator Collins. The patent reform bill, which is on the 
floor this week, is important legislation. But it is a bill 
that has been pending for years and does not have the urgency 
of the defense appropriations bill.
    So I join in the frustration of our military leaders and 
Secretary Gates that Congress has not completed its work in 
this vital area. That is what we ought to be doing on the 
Senate floor right now, in my view.
    Finally, let me just quote further from Secretary Gates's 
testimony before the Armed Services Committee last week. And it 
goes along with what the chairman said about hollowing out the 
force. He could not have been clearer. He said cuts in 
operations would mean fewer flying hours, fewer steaming days, 
and cutbacks in training for home station forces, all of which 
directly impacts our readiness.
    The Chief of Naval Operations was with me in Maine last 
week. He made very similar comments about the dramatic and 
draconian impact on the Navy if we continue to operate under a 
continuing resolution. So we need to get our job done, and I 
think we should bring this bill to the Senate floor as a 
separate bill today.
    Thank you, Mr. Chairman.
    Chairman Inouye. I thank you very much.
    And now may I call upon the Deputy Secretary, the Honorable 
Mr. Lynn.
    Mr. Lynn. Thank you very much, Mr. Chairman, Senator 
Cochran, members of the subcommittee.
    If it pleases the subcommittee, what I would like to do is 
summarize the written statement, enter the written statement in 
the--the full written statement in the record.
    Chairman Inouye. Your statement will be part of the record.
    Mr. Lynn. What I would start with is a few opening comments 
on the fiscal 2012 bill, but then turn to impact of the year-
long continuing resolution as the primary subject of the 
hearing.
    The fiscal year 2012 budget that we have submitted seeks 
$671 billion from Congress in discretionary budget authority. 
That is divided between $553 billion in the base defense 
program and nearly $118 billion in the overseas contingencies 
operation budget. In our judgment, this budget is both 
reasonable, in that it meets our national security needs, and 
prudent, in that it supports the administration's plans for 
deficit reduction.
    Through the efficiencies initiative that Senator Mikulski 
has already referenced, the services have identified $100 
billion in savings and then reinvested those savings into 
higher-priority programs that strengthen our warfighting 
capabilities. At the same time, we identified at a department-
wide level $78 billion from outside the service accounts in 
defense-wide efficiencies, and we devoted that savings to the 
administration's efforts to hold down the deficit across the 
period of fiscal year 2012 to 2016.
    The overall budget itself takes care of our people. It 
continues to rebalance the U.S. defense posture to ensure that 
we meet immediate warfighting needs, as well as longer-term 
modernization needs. And it provides our deployed forces with 
everything that they need to carry out their mission.
    And finally, it continues the Secretary's reform agenda by 
focusing on streamlining business operations. In short, it is 
our hope that the Congress will support this request and enact 
an appropriations bill for fiscal year 2012 at the start of the 
fiscal year in October.
    But as has been referenced by all the members of the 
subcommittee, even as we discuss the fiscal year 2012 budget, 
there is unfinished business that concerns us greatly. The 
Department of Defense has been operating under a continuing 
resolution for more than 5 months.
    If the Congress is unable to enact an appropriation, the 
Department would presumably continue to operate under a 
continuing resolution like the one currently in effect for 
months more, or perhaps even for the entire year. In our view, 
this is not a workable approach.
    The existing continuing resolution has caused regrettable 
complications. A year-long continuing resolution would have a 
further deleterious impact on the people who make up our 
fighting forces and their readiness to defend the Nation. 
Simply put, the continuing resolution would provide inadequate 
resources. It would put funding in the wrong places. In other 
words, we wouldn't have the money to pay must-pay bills in the 
medical and personnel area. And it would not allow for the 
management flexibility, particularly new start authority and 
the ability to start new military construction projects.
    With regard to the funding levels, a year-long continuing 
resolution would cut DOD's fiscal 2011 base budget by $23 
billion below the President's request of $549 billion, the 
request he made in February of last year. At this low base 
budget level, the services will be forced to reduce their 
operating tempo, and DOD would not receive even enough 
additional funds to cover must-pay bills, including $8 billion 
for military pay raises and increases in the costs of medical 
care, fuel, and inflation.
    To cover these unavoidable expenses, we would be forced to 
play a shell game. We would rob Peter to pay Paul. Moving funds 
in this way is detrimental to our readiness, our modernization, 
and to efficient business practices.
    For example, funding would likely be reduced for some or 
all of the three brigade combat teams that will be returning 
from Iraq and Afghanistan soon. The Navy would likely be forced 
to reduce flying hours and steaming days and to cancel 
exercises and training events. The Air Force would face a 10 
percent cut in its flying hours. Equipment maintenance would 
also have to be deterred--deferred, excuse me. All of these 
cuts would impact on readiness.
    Continuation of the current continuing resolution 
throughout the year would also prohibit us from starting new 
weapons programs or increasing production rates of existing 
ones. Already, the Navy was unable to purchase Government-
furnished equipment for the second DDG-51 destroyer as planned, 
and it has been unable to contract for the second Virginia-
class submarine.
    The Army has had to defer a contract for new Chinook 
helicopters and delay refurbishment of war-torn Humvees. If the 
current continuing resolution continues throughout the year, 
problems like these will snowball.
    The facilities we need to carry out our national security 
mission will also be affected. Under the continuing resolution, 
the services have had to delay 75 projects across the Nation. 
These delays not only affect our capabilities, but also the 
quality of life for our servicemen and women.
    Finally, there will be harmful management consequences 
associated with the year-long continuing resolution, many of 
them difficult to notice from here in Washington. But program 
managers will delay contracting actions out of necessity, only 
to be required at a later date to hastily make up for that by 
contracting too quickly without the appropriate safeguards.
    In the face of uncertainty, other managers will resort to 
short-term contracts that add expense for the taxpayer and 
instability for the industrial base. In a time of war, with 
soldiers, sailors, airmen, and Marines on the front lines, DOD 
needs an appropriations bill with the reasonable level of 
spending and the flexibility necessary to meet our warfighters' 
needs.

                           PREPARED STATEMENT

    In short, a year-long continuing resolution will damage 
national security. It presents the Department and the Nation 
with what Secretary Gates has aptly described as a crisis at 
our doorstep. For all of these reasons, we strongly urge 
Congress to enact the defense appropriations bill for fiscal 
year 2011.
    With that, Mr. Chairman, happy to take the subcommittee's 
questions.
    [The statement follows:]
               Prepared Statement of William J. Lynn III
    Mr. Chairman and members of the committee, thank you for this 
opportunity to discuss the fiscal year 2012 budget proposal for the 
Department of Defense, as well as the serious problems we face if we 
are required to operate under a Continuing Resolution for the remainder 
of fiscal year 2011.
                  budget proposal for fiscal year 2012
    The budget request, submitted to Congress 2 weeks ago to support 
the mission of the Department in fiscal year 2012, seeks about $671 
billion of discretionary budget authority--including $553.1 billion to 
fund base defense programs and $117.8 billion to support Overseas 
Contingency Operations (OCO), primarily in Afghanistan and Iraq.
    In our judgment, this budget is both reasonable, in that it meets 
national security needs, and responsible, in that it supports the 
administration's plan to hold down deficits. It is built around several 
broad themes:
  --The proposed budget takes care of our people. That is our top 
        priority, since the all-volunteer force is America's greatest 
        security asset. We propose a military pay raise of 1.6 percent, 
        which will match the Employment Cost Index and keep growth in 
        military salaries on a par with those in the private sector. We 
        are also asking for $8.3 billion for family support programs, a 
        sum that fully supports the President's military families 
        initiative. For military healthcare, we are asking for $52.5 
        billion, including $677 million for research and support for 
        traumatic brain injury and psychological healthcare, and more 
        than $400 million to continue medical research on behalf of 
        wounded, ill, and injured Service Members.
  --The proposed budget also continues to rebalance the U.S. defense 
        posture to provide the capabilities needed to fight current 
        wars while also building capability for potential future 
        conflicts. To support current war efforts, we plan substantial 
        investment ($4.8 billion) in intelligence, surveillance, and 
        reconnaissance capabilities, including various unmanned 
        aircraft, which are in high demand by Combatant Commanders. We 
        are also proposing to invest $10.6 billion in rotary wing 
        aircraft. In addition we are requesting funding for cyber 
        activities, chemical and biological defenses, and security 
        assistance programs to build up the capabilities of our allies.
  --To prepare our forces for potential future conflicts, our budget 
        proposal for fiscal year 2012 invests in advanced capabilities. 
        We request $9.4 billion for the Joint Strike Fighter (JSF) 
        program, including funds to purchase 32 aircraft and to support 
        continued development. We will also instill discipline in this 
        major program by imposing a 2-year ``probation'' period for the 
        STOVL (Short Take Off and Vertical Landing) variant while we 
        seek to fix various design challenges. Meanwhile, we plan to 
        buy 41 additional F/A-18 aircraft and extend production through 
        fiscal year 2014. We plan an aggressive shipbuilding program of 
        11 ships in fiscal year 2012 and 56 over the next 5 years, 
        investment in a family of long-range strike options, including 
        a new long-range bomber program, and $900 million for the KC-X 
        tanker program. We have a new family of armored vehicles in the 
        works, and we are requesting $10.7 billion for ballistic 
        missile defenses, including $8.6 billion for the Missile 
        Defense Agency.
  --The proposed budget provides our deployed forces with everything 
        they need to carry out their mission. It includes significant 
        expenditures for reset of damaged and destroyed equipment, for 
        purchases of force protection equipment, for high priority 
        infrastructure projects in Afghanistan that support 
        counterinsurgency objectives, for the Commander's Emergency 
        Response Program (CERP)--a valuable tool in theater--and for 
        funding to assist the transition to a civilian-led mission in 
        Iraq.
    In addition to these broad themes, our proposed budget continues 
the Secretary's reform agenda. That agenda began in fiscal year 2010 
and 2011, with a focus on the restructuring and termination of a number 
of weapons programs. Some programs, such as the F-22 and the C-17, were 
cancelled because we had already purchased enough of the capabilities 
they provide. Other programs, like the VH-71 Presidential helicopter, 
were terminated because of cost overruns, development problems, or 
because they would have provided what Secretary Gates has termed 
``exquisite'' capabilities that are not central to our current security 
challenges.
    Secretary Gates has continued his reform agenda in fiscal year 
2012-2016 by focusing on streamlining business operations. Through his 
Efficiencies Initiative, the Services have identified $100 billion in 
savings and reinvested those savings into high-priority programs that 
strengthen warfighting capability. These savings will be realized 
through better business practices, reorganizations, and by terminating 
or restructuring weapons programs. Examples of proposed changes include 
the elimination of unneeded task forces, combining of air operations 
centers, consolidation of e-mail servers, and cutting back on lower-
priority tasks associated with facilities sustainment and construction. 
The Services also propose terminating the Non-Line of Sight Launch 
System, the SLAMRAAM surface-to-air missile, and the Marine 
Expeditionary Fighting Vehicle (EFV).
    The EFV program alone would have consumed $12 billion in future 
procurement costs, including about half of all anticipated Marine Corps 
procurement funding from 2018 to 2025. While the planned EFV would have 
been a highly capable vehicle, its capability was needed only for a 
narrow range of high-end missions. After careful evaluation, both the 
Secretary of the Navy and the Commandant of the Marine Corps 
recommended termination of the EFV. The Marine Corps will sustain its 
amphibious assault mission by reinvesting EFV savings into upgrades of 
existing vehicles as well as a new amphibious vehicle designed to meet 
a more focused set of requirements.
    In addition, our budget identifies $78 billion in further defense-
wide efficiencies in fiscal year 2012 through 2016. These efficiencies 
allow the defense topline to be reduced in support of the 
administration's deficit-reduction efforts, beginning with a $13 
billion reduction in fiscal year 2012. This topline reduction was 
largely achieved through changes in the portion of our budget less 
directly related to warfighting capability. These changes include 
revisions in military healthcare, changes in the economic assumptions 
that underlie the budget, and defense-wide personnel changes, including 
a freeze on civilian pay and personnel levels through fiscal year 2013 
(with limited exceptions) and a reduction in the number of contractors 
who augment Government staffs. We are also reducing, over 2 years, the 
number of general and flag officer billets by about 100 and civilian 
senior executive billets by about 200.
    DOD's medical costs have shot up from $19 billion in fiscal year 
2001 to $52.5 billion in fiscal year 2012. We offer proposals in this 
budget to slow the growth in medical care costs while continuing to 
provide high-quality military healthcare for our troops and their 
families. We also propose changes in pharmacy co-pays designed to 
increase the use of generic drugs and mail-order delivery. We are also 
propose a modest increase in TRICARE enrollment fees for working-age 
retirees--the first such increase since the mid 1990s--and indexing of 
those fees to a medical deflator. We intend to phase out subsidies for 
a number of non-military hospitals where the Department pays premium 
claims rates.
    This budget also proposes a decrease in the permanent end strength 
of the Army and Marine Corps starting in fiscal year 2015. In one of 
his first acts in office 4 years ago, and in the midst of our 
engagements in Iraq and Afghanistan, Secretary Gates increased 
permanent end strength by 65,000 for the Army and 27,000 for the 
Marines. By 2014 we will have completed the military mission in Iraq 
and largely shifted the security mission in Afghanistan from allied to 
Afghan forces. As a result, we believe that, in fiscal year 2015 and 
fiscal year 2016, we can reduce active duty end strength by 27,000 
within the Army and by 15,000 to 20,000 in the Marine Corps with 
minimal risk. If our assumptions about Iraq and Afghanistan prove 
incorrect or global conditions change for the worse, there will be 
ample time to adjust the size and schedule of this change, or reverse 
it altogether.
    The budget also requests $524 million in fiscal year 2012 for the 
Office of Security Cooperation--Iraq (OSC-I), which will assist in 
executing foreign military sales. OSC-I will also support military-to-
military efforts to advise, train, and assist Iraq's security forces. 
The OSC-I is jointly funded with the State Department. In order to 
provide timely assistance, and help provide a timely transition to a 
civilian-led mission in Iraq, we need to begin funding OSC-I 
initiatives in fiscal year 2011 and then provide the requested funds in 
fiscal year 2012. DOD needs legislative authority to provide this 
assistance, and we ask Congress to include this authority in our 
appropriation bill for fiscal year 2011.
    Mr. Chairman, this is a thumbnail sketch of the Department's budget 
proposal for fiscal year 2012. We look forward to working with this 
Committee and the Congress as you consider our request. It is our hope 
that Congress will support this request and enact an appropriations 
bill for fiscal year 2012 before the start of the new fiscal year on 
October first.
   serious problems associated with a year-long continuing resolution
    Even as we start the debate over the fiscal year 2012 budget, there 
is unfinished business that concerns us greatly. The Department still 
needs an appropriation for fiscal year 2011. As members of this 
committee are aware, the Department of Defense has been operating under 
a Continuing Resolution (CR) for more than 5 months. The present CR is 
due to expire in 3 days.
    If the Congress is unable to enact an appropriation, the Department 
would presumably continue to operate for the remainder of the year 
under a CR like the one currently in effect--which I will refer to as a 
``year-long CR'' in the remainder of my statement. In our view, this is 
not a workable approach.
    A year-long CR would adversely affect the people who make up and 
support our fighting forces and their readiness to defend the Nation. 
Serious problems are already occurring. Both the Army and the Marine 
Corps have imposed temporary civilian hiring freezes. This means that, 
for example, when a maintenance position becomes open due to normal 
attrition, that position cannot be filled. Such decisions save money, 
but they also plant the seeds for future problems with essential 
equipment. Because of the CR, the Navy has had to reduce its notice of 
Permanent Change of Station moves from the usual 6 months to 2, which 
hurts Navy personnel and puts a greater strain on their families.
    If the current CR continues throughout the year, it will cause 
significantly more harm. While the exact effects depend on decisions 
yet to be made, the broad consequences are already known. A year-long 
CR would force the Services to reduce their operating tempo, harming 
both training and readiness. For example, funding would likely be 
reduced for some or all of three Brigade Combat Teams returning from 
Iraq and Afghanistan. This would mean reductions in training at a time 
when these units will need it most. The Navy would likely be forced to 
reduce flying hours and steaming days and to cancel exercises and 
training events. The Air Force is likely to face at least a 10 percent 
cut in flying hours. All of these cuts would have a significant impact 
on readiness.
    If there were a year-long CR, it would be necessary for each 
Service to defer equipment maintenance. The Army estimates that a 
reduction of $200 million in depot maintenance could be required, 
adversely affecting the Blackhawk and Kiowa Warrior helicopters, among 
other platforms. The Navy may need to reduce maintenance by $900 
million, which would result in the cancellation of as many as 29 
surface ship maintenance availabilities out of a total of 85. A year-
long CR would also mean deferred depot maintenance on as many as 70 
airframes and 290 aircraft engines, deferred maintenance on 
expeditionary equipment, and deferred torpedo and missile 
certifications. Deferring maintenance in this way does serious damage 
to the readiness of the world's finest military.
    A year-long CR would also seriously harm DOD acquisition programs--
first because of a lack of funding and second because continuation of 
the current CR would prohibit us from starting new weapons programs or 
increasing production rates of existing ones. These prohibitions cost 
us the flexibility necessary to meet warfighter needs.
    As a result of the CR serious acquisition problems are already 
occurring. The Navy was unable to purchase Government Furnished 
Equipment for the second DDG-51 destroyer as planned on January 31, 
which will delay the program and add to its cost. Nor could the Navy 
contract the second Virginia class submarine. We are struggling to 
avoid disrupting the workforce at the shipyard as a result. Meanwhile, 
the Army has had to defer a contract for new Chinook helicopters and 
delay refurbishment of war-torn Humvees.
    If the current CR continues through the year, problems like these 
will snowball. The Air Force would be unable to increase the buy of 
Reaper unmanned aircraft from 24 to 36, delaying receipt of these 
critical assets. Under our current planning, the Air Force would let 
the Joint Air-to-Surface Standoff Missile (JASSM) slip by 1 year, and 
the Army would cancel procurement of Sentinel radars, leaving four 
battalions without advanced air defense. The Navy would buy fewer 
helicopters. The Missile Defense Agency would face a delay in the 
production of Terminal High Altitude Defense interceptors (known as 
THAAD), and the Special Operations Command would slow rotary wing 
capability improvements.
    The facilities we need to carry out our national security mission 
would also be affected. Under the CRs passed to date, the Services have 
not been able to start any new major construction projects. About 75 
projects across the country have already been delayed. Among them are 
training facilities in California and Texas, a test and evaluation 
facility in Maryland, a fuel tank project at Hickam Air Force Base in 
Hawaii, a new mess hall at Camp Lejeune, North Carolina, and an 
environmental, safety, and occupational health facility in Ohio. These 
delays not only affect our capabilities, but also the quality of life 
for servicemen and servicewomen. And they have a negative impact on 
project costs.
    Under a year-long CR, the Department would have to protect 
readiness at the expense of long-term facilities sustainment. As a 
result, conditions on bases and installations would deteriorate. The 
Army would meet only 75 percent of its Facilities, Sustainment, 
Restoration, and Modernization (FSRM) requirements, including delays in 
upgrades to training barracks. The Navy would meet only half of its 
FSRM requirements, jeopardizing bachelor quarters projects, dry dock 
certifications, and air station improvements. The Air Force is likely 
to face a cut of $400 million to its FSRM, forcing the deferment of 
maintenance contracts, dormitory projects, and utilities privatization.
    Finally, there will be harmful management consequences associated 
with a year-long CR, many of them difficult to notice from inside the 
Beltway. Program managers will delay contracting actions out of 
necessity, only to be required to act hastily at a later time in an 
effort to catch up. In the face of uncertainty, other managers will 
resort to short-term contracts that add expense for the taxpayer and 
instability for the industrial base.
    Wartime funding for OCO would also be impacted. Although funding 
levels would remain roughly equivalent, the funds would not be in the 
categories that meet current warfighter needs. For example, there would 
be too much funding for Mine Resistant Ambush Protected (MRAP) vehicles 
and not enough for Afghan National Security Forces. In order to move 
funds to where they are needed for warfighter requirements, the 
Department would need special transfer authority of about $13 billion.
    Although we may be able to surmount the transfer problem for OCO 
funding, deficits in the base budget under a year-long CR cannot be so 
easily overcome. Such a CR would cut DOD's fiscal year 2011 base budget 
by $23 billion below the $549 billion requested in the President's 
budget a year ago. This level of funding would not permit us to carry 
out our national security commitments properly. At this low base budget 
level, with many cuts coming half way through the year, DOD would not 
even receive enough additional funds to cover must-pay expenses, 
including $8 billion for military pay raises and increases in the costs 
of medical care, fuel, and inflation. To cover these unavoidable 
expenses, we would be forced to play a shell game, ``robbing Peter to 
pay Paul.'' Investment accounts would be especially hard hit, and we 
would exacerbate the detrimental effects I have just described to our 
readiness, modernization, and business practices.
    In a time of war--with soldiers, sailors, airmen and Marines on the 
front lines--DOD needs an appropriations bill with a reasonable level 
of spending. Again, the President's defense budget request for fiscal 
year 2011 asks for $549 billion. Based on a number of factors that have 
changed since our initial budget submission a year ago--including 
policy changes that led to lower personnel costs and reduced activity 
forced by the Continuing Resolution--we believe that the Department can 
now operate effectively with a budget lower than our initial request. 
However, in our judgment the Department needs an appropriation of 
approximately $540 billion for the fiscal year, in order for the 
military to carry out its missions properly and to maintain readiness 
and prepare for the future.
    In short, a year-long CR will damage national security. It presents 
the Department--and the Nation--with what Secretary Gates has aptly 
described as ``a crisis at our doorstep.'' For all of these reasons, we 
strongly urge Congress to enact a Defense appropriation bill for fiscal 
year 2011, and to provide funding for the Government as a whole.
    This concludes my prepared remarks. I welcome the committee's 
questions.

    Chairman Inouye. Thank you very much.
    I shall begin the questioning. Let me preface by saying 
emphatically that we have no intention or desire to shut down 
the Government. But as you know, there are press accounts 
suggesting that this might be a possibility. Now, if that 
should take place, I would like to know what DOD will do about 
it.
    Mr. Lynn. We will certainly agree with the chairman that no 
one, we think, wants a shutdown. And we certainly hope and 
believe a shutdown can be averted. That said, DOD, like all 
other agencies, has plans for a shutdown. These plans are 
routinely updated.
    In the aggregate, it would mean that we would have to do an 
unannounced furlough of probably up to one-half of our 
employees. The other one-half of our civilian employees would 
be exempt and would be able to continue to work, as would all 
members of our military, but we would be unable to pay them.
    So that when the first pay dates came, which now come in 
the middle of March, we would be unable to make good on those 
pay dates. It would certainly cause enormous disruption. It 
would cause an enormous distraction. And it is something I 
think that the country would want to avoid when the Nation is 
at war.

                SHORTFALL IN MILITARY PERSONNEL ACCOUNTS

    Chairman Inouye. Under full continuing resolution, how much 
is the shortfall in the military personnel accounts?
    Mr. Lynn. We think that there are must-pay bills of about 
$8 billion. I think roughly one-half of those are in the 
military personnel accounts.
    Bob.
    Mr. Hale. Yes. I think best answer to say, given the fact 
that we won't have the pay raise funded and that we are seeing 
extraordinarily high retention, we would be short at least 
around $2.5 billion in the DOD personnel accounts. And since 
they are essentially entitlements--if you work for us, we are 
going to pay you--we would be forced into some really fairly 
brutal reprogramming actions to try to move that money into 
personnel in order to meet paydays.
    Chairman Inouye. And what about health programs?
    Mr. Lynn. There is a shortfall there, we think, of over $1 
billion, and we would have to find resources from other 
accounts to meet those bills because those, again, are must-pay 
bills we cannot avoid paying.
    Chairman Inouye. And my final question, a very important 
one, what impact would it have on readiness?
    Mr. Lynn. Well, I think the effect on readiness would be 
fairly far-reaching. We would reduce our operating tempo. We 
would be forced to reduce steaming days, flying hours, training 
days for the Army. So there would be a direct impact on 
readiness.
    There would be less direct, but equally problematic, 
impacts on equipment maintenance, which we would have to defer, 
and on base operating support and facility sustainment, which, 
over time, has an impact on quality of life and has an impact 
on readiness. So we think it would be a fairly far-reaching and 
broad-gauged effect on readiness.
    Chairman Inouye. Are you concerned about what is happening 
in Libya, Egypt, and Tunisia?
    Mr. Lynn. We are very concerned about what is happening 
across all of those nations. There is certainly an enormous 
amount of instability that has been caused by this, and we are 
trying to work with all those nations to ensure that the 
reforms are able to be made without further violence, that we 
end up with stable, broad-based governments in each of those 
states.
    Chairman Inouye. Senator Cochran.

                OPERATING UNDER A CONTINUING RESOLUTION

    Senator Cochran. Mr. Chairman, I wonder if the witnesses 
can tell us what the practical consequences of operating under 
a continuing resolution for 5 months will have on the 
Department of Defense and the programs that it administers?
    Mr. Lynn. Well, Senator, you indicate, we have already been 
operating for 5 months under a continuing resolution. We have 
operated under continuing resolutions in the past. But usually, 
it is for 1 or 2 months, and the short-term nature of those 
reduces the impact.
    Now that we are into a much longer term, we have had an 
impact on contracts. As I mentioned, we have been unable to 
contract for the second submarine, for equipment for a DDG-51, 
for Chinook helicopters.
    Those cost the Government money. When we do do this, we 
will have to do it at greater expense. And of course, it delays 
the influx of greater new capabilities and better technology 
into the force.
    Senator Cochran. Secretary Hale.
    Mr. Hale. Senator Cochran, picking up what Mr. Lynn said, 
there will be a variety of effects, and some of them are 
already occurring. The Army and the Marine Corps both have 
freezes, temporary freezes, on civilian hiring. So if a tank 
mechanic leaves, we can't fill the job. If a clerk handling 
training orders leaves, we can't fill the job.
    The Navy has decided to make people aware of Permanent 
Change of Station (PCS) moves, with only 2 months of notice 
rather than 6. That preserves funding flexibility for the Navy, 
and I understand why they are doing it. But, of course, it is 
hard on the members, and it puts greater strain on military 
families.
    And these kinds of changes are going to snowball if we have 
to continue under a continuing resolution. We will try, and we 
are trying now, to postpone those actions that would be most 
damaging to readiness as long as we can. But we are going to 
hold our breath so long, but we are starting to turn blue. We 
really do need help.
    Senator Cochran. I wonder, too, about the impact this has 
on recruiting and retention of well-qualified and experienced 
people to stay in the military. Is there any effect that you 
know that can be measured, or surmised even, with the fact that 
we are not able to have a predictable level of funding for 
these activities?
    Mr. Lynn. I think, in theory, you would be right, Senator. 
We haven't seen that yet. And in fact, at this point, we are 
blessed with extraordinarily high retention levels, and we are 
hitting all of our recruiting targets. So I would have to say 
we have not seen any immediate impact, but that type of erosion 
over time could occur.
    Mr. Hale. I think there is good news here, Senator Cochran, 
is that troops are paying attention to their job, and they are 
letting us worry about this, which is how they should do. We 
need to come through for them.
    Senator Cochran. Well, thank you very much for your service 
in helping manage these important functions of our Federal 
Government.
    Chairman Inouye. Thank you.
    Senator Mikulski.
    Senator Mikulski. Thanks.

                           MILITARY MEDICINE

    I am going to pick up on two issues. One, military medicine 
and the other on the must-pay bills. In terms of military 
medicine, you talked about the fact that it could be $1 
billion. Now we are talking about a $600 billion defense 
appropriations, $1 billion doesn't seem like a lot. But it 
seems a lot to doctors, nurses, lab technicians, the 
contractors who provide so many of the supplies necessary.
    Could you go into more detail, if we continue the 
continuing resolution, both at military hospitals, and then 
also what you think--and perhaps Mr. Hale could help--also the 
impact on TRICARE, where the troops really and their families, 
really are relying on this health infrastructure. Could you 
share with us what that means?
    Does it mean TRICARE won't get paid? Does it mean the 
nurses at Naval Bethesda won't get paid? Does it mean the 
people selling the bandages and the petri dishes and all that 
won't get paid? And so, we are going to ask them to work for 
nothing, or not get paid?
    Mr. Lynn. Senator, we consider the military, the health of 
our military force, particularly that of our wounded warriors, 
to be other than the war itself, frankly, the highest priority 
that we have.
    So that there would be shortfalls in the medical accounts 
if there were a year-long continuing resolution, frankly, we 
would transfer money from other accounts to ensure the medical 
accounts are fully funded. And so, the impact of the continuing 
resolution would more be on the accounts that we transferred 
from rather than the medical accounts themselves.
    As you indicated, $1 billion in a $600 billion or $550 
billion, $530 billion budget seems like a small amount of 
money. But, in fact, even with a budget that size, all of the 
money is spoken for. All of the money is dedicated to a 
particular mission, whether it is a readiness mission or an 
acquisition mission or a medical mission.
    So we would have to deprive one of those readiness or one 
of those acquisition missions of probably $1.3 billion in order 
to ensure that we paid our military medical bills.

                                TRICARE

    Senator Mikulski. Does that also mean that TRICARE will 
continue to be funded?
    Mr. Lynn. We would continue to fund TRICARE, but we would 
have to reprogram resources to do that. And that is a difficult 
process.

                             REPROGRAMMING

    Senator Mikulski. Then let us go to the reprogramming and 
then--first of all, thank you for that. Which means we will 
meet our obligation both to the wounded warriors and the 
troops, but also to their families who, in many instances, bear 
other kinds of wounds because of this repeated deployment. The 
impact on children, on mental health for both spouses and 
children, you know are quite severe.

                             MUST-PAY BILLS

    Now let me go to the must-pay bills. I was at a constituent 
meeting with small business yesterday with Senator Cardin. And 
one of the things that we heard from small business--it was 
going on with this SBA deal. That is another topic. But they 
were worried about what happens now in this contract world.
    So you hear from woman-owned veteran herself--disabled, 
female, small business contractor. She says, ``Wow, if we don't 
get paid, I have very thin margins in order to even compete.'' 
What happens now to these small to medium-size contractors, and 
will they get paid?
    And number two, as you talked about the reprogramming and 
so on that goes on, and perhaps Mr. Hale can provide it, you 
didn't give a dollar figure. You know, that one day we are 
going to have to do it. It is either going to be--in MilCon, it 
is going to be deferred maintenance. It is going to be deferred 
contracts, paying more for these contracts.
    So here is the question. Are the medium to small business 
contractors going to be paid, number one? And number two, if 
either you or Mr. Hale have a dollar figure on really what 
deferment means? That deferment isn't saving money. We are 
really burning money, and we will burn it later at a faster 
rate and perhaps even get into more of a jackpot on waste.
    Mr. Lynn. Well, let me, and then I will ask Mr. Hale to 
follow on. The first question is would we be paying small and 
other business owners? And the answer is we can't say 
precisely, but we would have to move resources from areas, 
particularly in contracts.
    So we would have to defer and cancel some contracts. 
Surely, some of those would be small and disabled businesses. 
That would be, I think, inevitable in order to pay those 
medical and personnel bills that the department is obligated to 
pay.
    So there would have to be some impact. It would require 
decisions at multiple levels to decide exactly which contracts 
you are going to defer and which contracts you are not. So I 
can't give you a precise answer.
    In terms of your second question, which was what does this 
cost? That is really impossible to answer because what you are 
talking about is friction at multiple levels. We are going to 
defer some contracts. We are going to cancel some contracts. 
Then we are going to reengage with contractors later on to do 
that same work.
    The charges are going to go up. We are going to lose 
options. We are going to lose the bids that we have. We are 
going to pay more. But trying to total that up, these are 
thousands and thousands of different contractors.

                      MILCON/DEFERRED MAINTENANCE

    Senator Mikulski. But what about in MilCon and deferred 
maintenance on the things that you really know are very 
specific?
    Mr. Lynn. Well, I think we can tell you right now we have 
deferred--because we don't have the authority to go forward--75 
military construction projects. And if this goes on, we will 
have to defer hundreds of millions of facility maintenance 
projects because we won't have the resources.
    Senator Mikulski. And then presuming, say, we pass the 
continuing resolution maybe around like April, and we kind of 
get into it before the Easter-Passover break. Do you have any 
sense about how, when you go back to do some of these must-do, 
must-pay projects what it will cost? In other words, won't it 
increase the cost?
    Mr. Lynn. It will certainly increase the cost, but I can't 
give you a precise figure. I don't know, Bob, whether you----
    Mr. Hale. Well, I can't give you a figure, either, but I 
know it will. I mean, it will do so in a variety of ways. We 
will have a contracting workforce that is essentially treading 
water to some extent right now. At least for some of these 
projects, they can't move forward.
    If, in April--and I hope it is before then, that we get a 
bill, they will have to catch up from the last 6 months and do 
the next 6 months of work. And it just inevitably means they 
will have less time to do good market surveys to find the best 
prices. And again, I can't give you a precise number, but it 
will be expensive.

                          REPROGRAMMING ISSUE

    Let me address the reprogramming issue. In the unfortunate 
event--I would call it tragic event--that we find ourselves 
under a year-long continuing resolution, we will have to 
reprogram extensively. I can't give you a precise number, but 
it would start with that $2.5 billion in personnel and the $1 
billion, $1.3 billion that we need in the healthcare program. 
And there will be many others.
    And we will need the help of the subcommittee at that point 
and all of the Congress in a couple of respects. First, there 
are some who believe we don't have the authority to reprogram 
in the absence of a budget. But we can't meet our national 
security needs without reprogramming if we did end up under a 
continuing resolution.
    And second, we will need help with agreement on sources, 
which is always very difficult. We will have to look to some 
probably acquisition programs and terminate them, or at least 
cut back significantly on them. And that is always very painful 
because we are affecting jobs and commitments that were made by 
the Congress, but we won't have a choice.
    So if we do end up under a year-long continuing resolution, 
we really will need the help of the committee and the Congress 
in order to make this work.
    Senator Mikulski. Thank you. Thank you.
    Chairman Inouye. Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.

                  IMPACT ON PRIVATE SECTOR EMPLOYMENT

    Secretary Lynn, Mr. Hale, I want to follow up on some of 
the issues that my colleague from Maryland has just raised with 
you. The military leaders and Secretary Gates have talked a lot 
about the extraordinarily adverse impact on the military 
itself. But there is also a very negative impact on the private 
sector.
    New starts won't occur. The new destroyer contract, the new 
submarine contract will not be signed. There is an impact on 
defense contractors and the thousands of people that they 
employ as well.
    We are at a time in our economy where we are very concerned 
that unemployment remains so high. Has the Department done any 
estimate of what the impact would be on private sector 
employment in terms of jobs lost if the Pentagon continues to 
operate under a continuing resolution? I know I saw a statistic 
that the Navy put together that indicated that thousands of 
jobs would be in jeopardy. Do you have an overall estimate?
    Mr. Lynn. We don't. I think the only thing that you could 
do to produce that kind of estimate is that if we requested 
$549 billion under the a year-long continuing resolution, that 
would go to something probably $23 billion lower than that. 
That has employment impacts.
    You could try and translate that number into employment 
impacts. We have not tried to do that, but clearly, you are 
right. You know, the economy is in something of a fragile 
state. The defense budget represents 3 percent or 4 percent of 
that economy, and so it would have an impact if we go to a 
year-long continuing resolution.

                              PAYING MORE

    Senator Collins. I also believe that another negative 
consequence is that the Pentagon would end up paying more for 
certain goods, services, and weapons than it would if we were 
funding you at an appropriate level. As we know from our 
experience in shipbuilding, if you don't have a sustainable 
procurement rate, you end up paying more per ship than if the 
contractors can plan the workload in an orderly way.
    Is it a concern of yours that we may end up having to spend 
more money if you do not receive the funding that you have 
requested in a timely way?
    Mr. Lynn. I think, Senator, you are absolutely right. I 
think there is no question that we will spend more money for 
the same goods if we don't receive the money in a timely way.
    Indeed, it goes in exactly the opposite direction of the 
efficiencies initiative that Secretary Gates is moving forward 
on, which is to try and get the same things for less money. 
This undercuts that greatly. And the instability that it 
creates and the friction that it creates costs the taxpayers 
real dollars.
    Mr. Hale. I think it has probably already happened, Senator 
Collins.
    Senator Collins. I think so, too.
    Mr. Hale. The GFE delay and the DDG-51, I think that will 
add to costs, not being able to award that second Virginia-
class submarine. The Army just issued a stop-work order on the 
Striker Mobile Gun System.
    These are costly actions that we will want to reverse. But 
we won't do it at the same price.
    Senator Collins. Mr. Hale, let me now switch to a provision 
in the President's budget request. The Department of Defense 
offers a managed care option that is known as the Uniformed 
Services Family Health Plan, through six specific healthcare 
providers in six geographic regions. I know that Johns Hopkins 
is one for Maryland. Martin's Point is one based in Portland, 
Maine.

                 UNIFORMED SERVICES FAMILY HEALTH PLAN

    And these have been very successful managed care providers 
that have helped to deliver, in my view, higher quality care at 
an effective price. Yet the Department's budget would preclude 
enrollment in the Uniformed Services Family Healthcare Plans 
for beneficiaries that reach 65 years of age and instead would 
ship them to Medicare.
    Now this sounds to me like an example of DOD just shifting 
costs to another agency. So we are going to end up paying in 
any event. But I would appreciate assurances from you that the 
Department is committed to working with these six managed care 
healthcare providers.
    First of all, it is my understanding that no current 
enrollee in the plan would be affected. Is that accurate?
    Mr. Hale. That is accurate. And moreover, they could 
continue to receive their care at the hospitals, and they would 
still be under TRICARE for life.
    But the major change that would occur is that they would be 
under Medicare, like all of our retirees are. They would need 
to pay Part B of the Medicare premiums, like all of our 
retirees. And the hospitals would be compensated, or payments 
would be made for claims, at the same level as for all of our 
hospitals, namely, at the Medicare rates.
    But we are committed to avoiding adverse effects on 
hospital care. And if those appear likely, we will work with 
the hospitals in terms of a phase-in plan.
    Senator Collins. And it is broader than hospital care, I 
might add. And I would really encourage you to take a look at 
the managed care that is being done by these organizations 
because I think you will find that the recipients are extremely 
satisfied.
    I have looked at the satisfaction rates. They are extremely 
high. And that particularly in the management of chronic 
diseases----
    Senator Mikulski. That is exactly right.
    Senator Collins [continuing]. Like diabetes, congestive 
heart failure, that they are able to actually hold down costs 
and deliver better care. So I look forward to working with my 
colleague from Maryland, since I know her State has the same 
program.
    Senator Mikulski. Mr. Chairman, I just would like to 
associate myself with the remarks from the Senator from Maine. 
We have, in these six managed care institutions, really iconic, 
world-class, internationally branded institutions taking care 
of our military and having spectacular results not only in 
treating acute care, but in managing chronic illness, which are 
lessons learned.
    So it is not--really, we want you to work with them not 
only if they are in trouble, but we want you to work with them. 
And I look forward to working with Senator Collins. Perhaps we 
could have a meeting with the leadership to see where we are 
going with this. We understand the fiscal reality, but they are 
really doing breakthrough stuff that are lessons learned even 
for the rest of the military and the VA.
    So thank you very much for raising it, Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.
    Mr. Hale. It is definitely not our goal to adversely affect 
the quality of care. But we would like to pay claims on a 
consistent basis across the Department.
    Chairman Inouye. Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman.
    Gentlemen, welcome.
    I recognize that today's hearing is on the impacts of a 
long-term continuing resolution, and I have been following 
closely the questions and the answers that have been provided. 
I think we all share those same concerns about the impact to 
the men and women who serve us and the level of care, whether 
it is while they are serving or whether they are home. And I 
appreciate your responses here today.

                             ENERGY ISSUES

    I will have to admit, I have been a little bit single-
focused this past week up in the State, focusing on energy 
issues. Mr. Chairman, you asked the Deputy Secretary if he is 
concerned about Tunisia, Egypt, Libya--I think we all are--and 
the implications of what is happening in the Middle East.
    We are seeing an increase in the price of oil, over $100 a 
barrel. We are seeing that translate at the local level, at the 
price at the pump. It is certainly getting the attention of 
folks.
    And in my State, where we have been providing a level of 
domestic supply of oil for the past 30-some odd years, at one 
point in time 20 percent of our domestic supply, we are now 
looking at a situation where, with lower throughput coming down 
through the line, that oil pipeline could actually be 
decommissioned because our throughput is so low.
    Which puts us in a situation, as a Nation, we are still 
reliant. Last time I checked, you still needed that product to 
get the planes in the air, to get the tanks moving, to move the 
trucks. And we know that within Department of Defense, one of 
the biggest consumers of energy is the Department.
    What we do to ensure, from a national security perspective, 
our opportunities as a Nation--and again, from a security 
angle--is critically import. I would like just a general sense 
from you, Mr. Secretary, in terms of the direction that we are 
going as a Nation in becoming more increasingly reliant on 
foreign sources of oil, while at the same time, we see the 
Middle East in a state of--it is beyond a state of unrest at 
this point in time.
    We can't predict which nation is going to be on the front 
page of the news next week, in terms of who is going to be 
overthrown. Can you give me just a sense from the Department of 
Defense's perspective, in terms of our national security 
implications with what is going on in the Middle East and what 
is happening domestically with our available supplies of oil?
    Mr. Lynn. As you indicated, Senator, the Department is one 
of the or perhaps the largest consumer of fuel. So we are very 
concerned both about the price in the short term. The price is 
now over $100 a barrel. And we have concerns about what that 
means for our working capital funds.
    In some of the marks, we think, that were originally placed 
in indicated that we would have lower fuel prices and could 
reduce working capital funds. We think that is not going to 
come through in current circumstances. So we want to ensure 
that as we move to enact a fiscal 2011 bill, we take account of 
those short-term fuel increases.
    Over the longer term, I think the instability in the Middle 
East just reinforces the direction the Department is already 
trying to move, which is to develop much greater and much 
broader approaches to fuel efficiency, to use the fuel that we 
have much more effectively, to develop more fuel-efficient 
vehicles, to develop more fuel-efficient practices in our bases 
so that we are able to deal with these kinds of instabilities 
by reducing the reliance that we have on that source of fuel.

                           ALTERNATIVE FUELS

    Senator Murkowski. One of the things that, of course, has 
been looked at with great scrutiny is the possibility of the 
synfuels, whether it is using natural gas or whether it is 
coal, using the Fischer-Tropsch process. What is the commitment 
from Department of Defense to go in this direction, to using 
these alternative fuels?
    Mr. Lynn. We have a very broad-gauged effort that includes 
synthetic fuels. It includes fuel cells. It includes trying to 
save on fuel. So we are trying to pursue an across-the-board 
approach and not rely on just a single avenue to address this 
issue.
    Senator Murkowski. We are looking at some proposals up 
north that I would like to be able to speak with some in the 
Department about in terms of opportunities to advance these 
synfuels and how we can really reduce that reliance on oil. So 
I look forward to working with you on that.
    Mr. Lynn. If you have something specific, Senator, I would 
be happy to take a look at that and get back to you.

                             ARCTIC POLICY

    Senator Murkowski. Yes. It is a little bit of a detour from 
the long-term continuing resolution. But last week, there was 
an article that was written. It came out of the Heritage 
Foundation. And the comment from the individual was it is time 
for the United States to jumpstart an Arctic policy that is as 
cold as a dead car battery.
    Well, coming from the Arctic and recognizing that the 
United States is an Arctic nation, that is somewhat disturbing 
to hear the policy described that way. I have been working with 
Secretary Clinton from the time that she was still here in the 
Senate, to her work now as Secretary of State, trying to do 
what we can to advance that Arctic policy.
    But again, from a national security perspective, do you 
think that, in fact, we do have a policy that is as dead as a 
car battery? And if so, how do we jumpstart that at a time when 
we are clearly concerned about budget implications?
    We are trying to get an icebreaker online. We have one 
functioning icebreaker in this country right now. China beats 
us considerably. What are your thoughts, very quickly, on where 
we are with the Arctic policy?
    Mr. Lynn. Well, I wouldn't say that we couldn't make 
improvements in our Arctic policy. I think that description is 
probably overblown.
    We have been working with the Canadians on Arctic policies 
and frankly, I think where you are going with the implications 
of global warming and the gradual opening of the Arctic, it has 
been part of, as NATO starts to reshape itself to focus on the 
new world, Arctic policy is an important piece of that. There 
are several Arctic nations involved, and they are very focused. 
And we have been working with them.
    I think we need to go further and shape those policies, but 
it is certainly a concern. And as I think you rightly 
indicated, Secretary Clinton and the State Department are 
certainly taking a lead internationally in developing the U.S. 
position on Arctic policy.
    Senator Murkowski. Thank you, Mr. Chairman.
    Chairman Inouye. Senator Reed.
    Senator Reed. Thank you, Mr. Chairman.
    Thank you, gentlemen.
    Just a point of clarification, Secretary Lynn. In your 
testimony, you essentially say that the overseas contingency 
operations funding is adequate, but it has to be reprogrammed 
to the tune of about $13 billion. And you would need authority 
to do that from us?
    Mr. Lynn. Yes.
    Senator Reed. And those are ongoing operations--Iraq and 
Afghanistan?
    Mr. Lynn. Yes, sir.

                 OVERSEAS CONTINGENCY OPERATIONS BUDGET

    Senator Reed. A related question. Mr. Hale was at the Armed 
Services Committee hearing with Secretary Gates and Admiral 
Mullen, where they talked very passionately about the overseas 
contingency operations budget for the State Department.
    Now if that is a casualty of this long-term continuing 
resolution, does that put pressure on you within your OCO funds 
to sort of compensate for the failure in transition? Or is 
there no coordination, or is it going to be just, sorry, you 
know, you are on your own? We get our funding, and we are 
headed out of town in Iraq, and we are doing what we should do 
in Afghanistan.
    Mr. Lynn. No, I don't think we can afford to take that 
attitude, Senator. This is an important partnership we have 
with State, in particular in the areas that you mentioned. We 
are at a critical juncture in Iraq, where we are handing over 
many of the functions that we have carried out for several 
years, such as police training.
    We are transitioning those to the State Department. If the 
State Department doesn't get adequate funding for things like 
police training, I think we risk losing the gains that we have 
made in Iraq at great sacrifice of not only dollars, but of 
lives.
    So I think it is critical that not only Congress address 
the defense needs, but address the State Department needs as 
well.
    Mr. Hale. If I could add to that briefly?
    Senator Reed. Yes, Mr. Hale.

                               COST-SHARE

    Mr. Hale. And that is in many cases, we don't have 
authority to help the State Department. And if I can take an 
opportunity to ask the committee's help on one specific 
instance, there is a group called the Officers Security 
Cooperation in Iraq, which overseas foreign military sales. We 
are trying to cost-share with the State Department as we move 
toward setting up that office and try to support the Iraqi 
military.
    And we need legislative authority to do that cost-sharing. 
We have been working with your staff to provide that. And I am 
hopeful that that might find its way onto an appropriations 
bill that I know you are going to pass soon for the Department 
of Defense.
    So if there is anything we can do to be helpful, we would 
like to. But there are authority issues in terms of our 
cooperation.
    Senator Reed. Clearly, under the agreements entered into in 
the Bush administration, our military presence is ending in 
Iraq in the end of this year. And we are on track to do that. I 
was there about 1 month ago.
    The problem I think is, is what you suggested, that on the 
ground, you are going to be faced with some ingenious ways to--
if we don't fully fund your accounts and give you the authority 
to move money around within DOD accounts, if we don't fund 
State, et cetera, you are going to have to figure out how we 
can keep the lights on literally and keep this effort going 
forward, which is going to be more expensive in the long run 
and less effective than passing the legislation, the 
appropriate appropriations.
    Is that a fair sort of judgment or estimate?
    Mr. Lynn. I think that is an entirely fair judgment, 
indeed. What we are trying to do--the transition we are trying 
to make between defense and State has not, at least at this 
scale, been done before. So it is going to be extraordinarily 
difficult in normal times to try and I think make this 
transition.
    And as you said, you were just there. I think the forces on 
the ground are working very closely with the Embassy. I think 
they have a terrific plan. I think that they understand the 
challenges, and they are working through those. But if they are 
forced to try and do it without adequate resources, I think you 
are really, really undercutting the likelihood that we will 
have success.
    Senator Reed. Let me just follow up with one final area. 
And that is we have just focused briefly on the overseas 
contingency operations fund. But you have got, as you have 
suggested before in your comments, a number, perhaps hundreds 
of different specific changes in reprogramming and issues, as 
Mr. Hale suggested, in terms of setting up this new office in 
Iraq.
    So, effectively, without a real bill, if we are just going 
with a year-long continuing resolution, this continuing 
resolution is going to be full of essentially what looks like, 
in some cases, a normal appropriations/authorization bill, full 
of different twists and turns, some of them coordinated, some 
of them just what you could get in the list, luckily enough, 
and some things falling by the wayside.
    That just doesn't strike me as a very efficient way to 
appropriate money, and particularly in the context of the 
Department of Defense.
    Mr. Lynn. No, I think it would be very strongly negative. 
As I said at the outset, if we had a year-long continuing 
resolution, we would not have enough money, we think, to meet 
the national security needs. The money that we do have wouldn't 
be in the right places. So we would have to move enormous 
amounts of money around, which is a very difficult process and 
causes great inefficiency.
    And then, finally, we wouldn't have the management 
authority that we would need to do new starts, to increase 
production, to do new military construction projects. So on all 
three of those grounds--it isn't just money. It is management 
and having the money in the right places.
    Mr. Hale. Did you see the movie ``Groundhog Day,'' Senator? 
I mean, that is what we are talking about here, the ``Groundhog 
Day'' of budgeting.
    Senator Reed. I am a big Bill Murray fan. And that was one 
of the great films.

                      CONTRACT OVERSIGHT AND AUDIT

    This follows, too, in terms of the context of managing, and 
the comment is that one of the problems we have, frankly, is 
contract oversight and audit. It is ubiquitous, but it is 
particularly ubiquitous when it is not clear what the contract 
is, who is in charge.
    It is just an opportunity really for, in some cases, not 
just inefficiency, but criminality. And I would assume that you 
are having problems developing good audit trails, good 
oversight, good contract enforcement if you are not quite clear 
what the contract is or whatever it is a short-term contract or 
it is something you are writing sort of just to get through the 
day.
    Is that fair? Or can you comment on the scope of this audit 
issue and contract supervision issue?
    Mr. Hale. Well, in terms of the audit, let me talk first 
about contract audits, which I think is what you were focusing 
on. We will certainly make every attempt, whether it is a 
continuing resolution or not, to maintain verifiable contracts. 
We will go ahead with the audit process.
    I hope it wouldn't be seriously adversely affected, 
although, frankly, the continuing resolution has caused us to 
slow hiring at the Defense Contract Audit Agency, which we are 
trying to grow modestly in size. And we have had to actually 
stop the increase in hiring for the moment there to preserve 
our funding flexibility.
    I am not sure whether you were asking the broader audit 
question, audit ability in the Department. Was that something 
of interest?
    Senator Reed. No, it just, strikes me that we have 
recognized over the last several years, particularly in these 
contingency operations, where there is a significant amount of 
money flowing into areas where there is not good tried and true 
practice locally.
    And yet, through principally, I have to say, Senator McCain 
and Senator Levin, their acquisition reforms, we started on a 
path of better oversight. That is going to be disrupted, as you 
suggest.
    Mr. Hale. I think that is fair. I mean, this will cause 
inefficient practices. It will leave our contracting officers 
with less time to do a good job. I can't see anything good 
coming out of that in terms of acquisition reform.
    Senator Reed. Secretary Lynn, any comment?
    Mr. Lynn. No, I just add to what Bob said by saying, we 
have tried to, in preparing for today's testimony, to identify 
the impacts that we can see and project. In many ways, since we 
have never had a year-long continuing resolution for DOD and 
certainly never had one during a war, it is, in many ways, the 
effects that we can't see that I am, in many ways, more worried 
about.
    And I think the kind of audits concerns and unintended 
consequences that you are talking about may well be the worst 
effects, rather than the ones that we have already described.
    Senator Reed. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman Inouye. Thank you.
    Senator Alexander.
    Senator Alexander. Thank you, Mr. Chairman.

                        RESEARCH AND DEVELOPMENT

    I would like to ask about research and development. There 
is I think I see about a $75 billion figure for R&D in the 
continuing resolution. Tell me a little bit about how research 
and development is affected by the continuing resolution. And I 
am especially interested in what is going on these days in 
Defense Advanced Research Projects Agency (DARPA), which is a 
small amount of money, and wondering what you can tell me about 
that.
    Over time, Defense Department R&D has been a big part of 
our country's sponsored research and development. And out of 
that has come a lot of remarkable inventions that affect our 
standard of living, like the Internet and other things.
    So what can you tell me about the effect of the continuing 
resolution on R&D generally? And what can you tell me about the 
condition of DARPA, especially as it might be exploring new 
ways to produce energy that might be useful to the military 
first and to the country second?
    Mr. Lynn. Senator, I think you could broadly say there 
would be three impacts on the research and development 
accounts. One is that the resources wouldn't be able to 
increase as they are projected to do. You would stay at the 
fiscal 2010 level.
    Second, you probably would not be able to keep all of those 
resources, even at that level, in the R&D account because, as 
in the discussion we talked about earlier, there would be must-
pay bills in the medical area and the personnel area. 
Undoubtedly, we would have to reach into some of the R&D 
accounts and pull resources from there, move them to medical 
and personnel accounts, in order to pay those bills that are 
the obligation of the department to pay.
    And then, finally, under a year-long continuing resolution, 
we wouldn't be able to any new starts. So any further ideas--
you mentioned DARPA. When DARPA has a new idea on energy, they 
would have to wait until they had a full appropriations bill 
before they could act on that request. And what happens to the 
research in that interim period is anybody's guess.
    Senator Alexander. What is the condition of DARPA these 
days? Is it healthy and functioning and innovating, as it did 
before?
    Mr. Lynn. They are. We have a terrific director in Regina 
Dugan, who had enormous amount of energy and is building on the 
success of the past and taking DARPA into new areas. In 
particular, in the fiscal 2012 request, we have moved about 
$500 million more into DARPA over a 5-year period to do 
research on cybersecurity.
    DARPA has--as you indicated, they were part of the origin 
of the Internet, and they have enormous expertise in 
information technology. And we want to build on that and try 
and get to the next level using DARPA's great resources.
    Senator Alexander. Recently, the Congress decided, through 
the America Competes Act, to try to emulate DARPA at the Energy 
Department with something called ARPA-E. And it is off to a 
good beginning.
    I think that--just as one voice, I think as we deal with 
this very tough challenge we are faced with, a Government that 
is spending $3.7 trillion and collecting $2.2 trillion, I want 
to make sure that we are smart and not cheap, and that we 
remember that it is out of our research and development in 
defense and in the universities, the laboratories, and these 
small agencies like DARPA and ARPA, which spend relatively very 
small amounts of money, out of which have come the ideas that 
have been a big part of our ability as a country to produce 
about 25 percent of all the money in the world each year.
    So as we wade through this unpleasant task over the next 
year or two, I am going to be one voice that keeps trying to 
put the spotlight on the importance of research and development 
and making it easier, not harder, to fund that as a priority 
within a reduced level of spending.
    Thank you, Mr. Chairman.
    Chairman Inouye. Thank you very much.
    I listened to the questions of Senator Mikulski and Senator 
Collins and Senator Alexander. And it just reminded me of the 
numbers of letters I receive on the same theme.
    Why are medical costs so expensive in the military, much 
more than nonmilitary sector of our country? I would like to 
point out that in World War II, most of the men and women in 
uniform were single. Today, most of the men and women are 
married and have dependents.
    Secondly, I would like to point out that it took 9 hours to 
evacuate me from the battlefield to the field hospital. Today, 
if I were injured in Afghanistan, I would be in a hospital 
within an hour.
    Third, the technology research that we have been doing is 
so successful that the survival rates have just increased 
tenfold. This is hard to believe, but in the regiment which I 
served with, with all the casualties, not a single double 
amputee survived. Today, double amputees are commonplace 
because of the speed of rescuing and the medical practices.
    However, we have one other problem that we did not see in 
World War II. Today, we have instant communication. Wives talk 
to their husbands on a daily basis by cell phone. Then in the 
evening, they watch CNN and see their husbands in action. And 
to top it off, they come home, and after 6 months go back 
again. I can't imagine what the stress is like.
    So I hope that the people of the United States would keep 
in mind that the sacrifices being made by men and women in 
uniform are intense, and they have consequences that we may not 
know about. I am always grateful to them for what they have 
done and what they are doing.
    So, with that, do you have any other questions?
    If not, thank you, Mr. Secretary, Under Secretary Hale, for 
your testimony. I will assure you that we look forward to 
continue working with you, especially on matters involving the 
continuing resolution.

                     ADDITIONAL COMMITTEE QUESTIONS

    It is my hope, however, that we can complete our work on 
this fiscal year 2011 defense appropriations bill and turn our 
attention to the fiscal year 2012.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]
            Questions Submitted to Hon. William J. Lynn III
               Questions Submitted by Senator Tom Harkin
    Question. As I understand it, the Department of Defense (the 
``Department'') intends to reduce its overhead costs by $54 billion 
over the next 5 years. The bulk of that reduction will come from a 
freeze of civilian employee pay and the size of the workforce. Are 
concurrent reductions being required of the service contractor 
workforce? If not, will such a one-sided approach just increase 
reliance on service contractors regardless of cost, given that the 
workforce freeze will make it very difficult to use civilian employees, 
even when it would be less costly or is required by law?
    Answer. The Secretary directed reductions to all overhead, 
including both planned growth in the civilian workforce and current 
levels of contract support. In particular, the Department will reduce 
service support contract levels, focusing on those contracts designed 
to augment the civilian workforce.
    The Department will strive to find the appropriate balance between 
civilian employees and contract staff, working to ensure that 
appropriate controls remain in place and that civilians remain 
responsible for the work best suited for Government employees.
    Question. I am interested in getting a better sense of how the 
Department reviewed its service contracts as part of the Efficiency 
Initiative. As I understand it, the Department limited its review to 
support service contracts. However, support service contracts are a 
relatively small portion of all service contracts. Given the 
Department's concern about the growth of contractor costs generally, 
can you explain why the review was so limited? How will the cuts in 
support service contracts be enforced? How will growth in non-support 
service contracts be constrained?
    Answer. The Department explicitly focused on service support 
contractors given the continued cost growth in this area over the past 
few years. These contracts, particularly those providing administrative 
and staff support, are lower priority and do not represent best value 
or practice for the Department.
    The President's fiscal year 2012 budget represents efficiencies in 
other areas as well, impacting a broad range of contract types. So 
while service support contracts received significant attention, the 
Secretary remains committed to broadening the scope of the initiative. 
Rather than a one-time reduction, these decisions as well as the 
ongoing work represent an effort to inculcate a ``culture of savings'' 
within the Department at all levels.
    In keeping with this approach, the Department will closely monitor 
the execution of the service support contract efforts in the future, 
through the established budget formulation and execution processes. The 
Secretary expects full adherence to the execution goals laid forth in 
the budget submission.
                                 ______
                                 
            Questions Submitted by Senator Dianne Feinstein
                           operations in iraq
    In accordance with a Status of Forces Agreement, by the end of 
calendar year 2011, all US military servicemembers will leave Iraq. A 
small cadre will remain, working in the Office of Security 
Cooperation--Iraq in order to facilitate foreign military sales and to 
provide training assistance to the Iraqi military. Many of the missions 
the military are currently leading will transition to the Department of 
State. I am specifically interested in the training of Iraqi police and 
the important work being done by the Provincial Reconstruction Teams. 
In multiple statements this year, both Secretary of Defense Gates and 
Chairman of the Joint Chiefs of Staff Admiral Mullen have reiterated 
the importance of funding the Department of State's transition 
activities in Iraq ahead of their assuming those missions. This was 
also addressed in the January 30, 2011 Special Inspector General for 
Iraq Reconstruction report.
    Question. Secretary Lynn, what would be the consequences if the 
Department of State is unable to assume those missions effectively?
    Answer. The United States' continued engagement in Iraq remains 
vital. We are now at the point where the strategic dividends of our 
sacrifice are within reach as long as we take the proper steps to 
consolidate them. A long-term strategic partnership with Iraq, based on 
mutual interests and mutual respect, presents many advantages for the 
United States. Recent turmoil in the Middle East highlights the 
importance of active U.S. engagement and building and maintaining 
relations with our key regional partners. U.S. support in recent years 
has proven critical to the emergence of a sovereign, stable, and self-
reliant Iraq that is a long-term strategic partner of the United 
States. We must stay focused on Iraq in order to advance our broader 
regional objectives of peace, prosperity, and security.
    Reduced funding for the State Department's Iraq program would 
severely affect our ability to meet national objectives in Iraq. As 
Secretary Gates has stated, these cuts threaten the enormous national 
investment and sacrifices the United States has made in Iraq. Fully 
resourcing the State Department mission to its completion is vital to 
ensuring that investment produces enduring results. We are 10 yards 
from the goal line and need one final push. A sovereign, stable, self-
reliant Iraq that is a partner with the U.S. and a force for stability 
in a strategically critical region is within reach.
    Question. If the Department of State is unable to successfully 
assume those missions in 2012 and a new agreement can be reached with 
the Government of Iraq, is the military prepared to stay longer?
    Answer. We should not engage in speculation. The Government of Iraq 
has not asked for a new agreement for U.S. forces to remain after 
December 31, 2011. In compliance with the U.S.-Iraq Security Agreement 
and consistent with Presidential direction articulated on February 27, 
2009, the United States is committed to completing the drawdown of U.S. 
forces from Iraq by the end of 2011.
    All departments and agencies of the U.S. Government have undertaken 
unprecedented levels of coordination and planning for the transition in 
Iraq to ensure that the Department of State is able to assume lead for 
the U.S. mission in Iraq successfully in 2012. As one would expect with 
a transition of this scope and complexity, challenges exist. DOD is 
working very closely with the State Department to ensure their success.
                    overseas contingency operations
    I am concerned that a year-long continuing resolution at 2010 
levels might jeopardize the operational readiness of our military and 
their ability to successfully conduct the missions we have asked them 
to do. In your statement, you said that a year-long continuing 
resolution at 2010 levels would require the services to defer equipment 
maintenance.
    Question. Secretary Lynn, how would this affect operations in Iraq 
and Afghanistan? I am not only concerned about the military currently 
operating in Afghanistan and Iraq, but units training for future 
deployments to those operations.
    Answer. Contingency Operations in Iraq and Afghanistan will be our 
highest priority and will be fully funded. Forward deployed forces and 
next to deploy forces are receiving, and will continue to receive, the 
gear and equipment needed to sustain current in theatre operations. 
Training for all other forces, and maintenance of equipment and weapons 
systems not assigned to next deploying forces would be reduced.
    Specific impacts on readiness include reductions in Army Depot 
Maintenance and High Mobility Multipurpose Wheeled Vechicle 
Recapitalization programs. The Navy will cancel ship maintenance, 
cancel participation in four Global Employment Force planned 
deployments, and reduce noncontingency flying hours and steaming days. 
The Air Force will defer depot maintenance and reduce weapon system 
sustainment. The USSOCOM has already delayed the implementation of the 
congressionally approved Underwater Systems Acquisition Strategy, and 
delayed other actions resulting in negative impacts to USSOCOMs ability 
to sustain flight testing, test support and analysis timelines for the 
MH-60 platform.
    Many of the Defense Agencies and Defense-wide Activities are 
restricting the hiring of civilians to fill only the most critical 
positions which slow the accomplishment of key areas such as contract 
management audits (DCAA and DCMA) and joint operational contract 
support planners to the Combatant Commands (DLA). While operations in 
Iraq and Afghanistan will be fully funded, operating under a year-long 
continuing resolution will negatively impact readiness during fiscal 
year 2011 and into fiscal year 2012.
                          defense procurement
    Department of Defense leaders have been clear that a year-long CR 
including defense will have disruptive impacts on every aspect of our 
national security infrastructure including our military personnel and 
both public and private sectors. One specific example is the inability 
under a continued CR to execute shipbuilding contracts for a number of 
fiscal year 2011 Navy and Marine Corps programs including the Mobile 
Landing Platform (MLP). The MLP shipbuilder in San Diego, our last 
full-service Navy shipbuilder on the West Coast, recently had to notify 
employees that it may have to lay-off up to 1,500 workers soon unless 
the Navy is able to execute the construction contract for the first-of-
three MLP ships. This program received initial funding in fiscal year 
2010 for design and long-lead material procurement. Failure to execute 
the MLP shipbuilding contract very soon will not only impact the 
shipyard and her employees but also the ultimate costs of acquiring 
this military capability.
    Question. Secretary Lynn, would you please comment on the impact 
the current CR has already had and what impact a year-long CR would 
likely have on the Navy's ability to execute the MLP and other major 
ship construction contracts in a timely and cost-efficient manner?
    Answer. In terms of major ship construction contracts, to date, the 
Department has not been able to award a second Virginia-class SSN as 
planned in January. Under a year-long CR, without authority to increase 
production levels, the Department would not be able to go from one to 
two DDG-51s and Virginia-class SSNs; without the authority for new 
starts, the Department would not be able to procure the Mobile Landing 
Platform, the LHA(R) and the Oceanographic Ship. Additionally, Carrier 
construction and refueling overhauls will face schedule and cost 
disruption because we will be constrained at fiscal year 2010 levels 
for CVN 79 ($425 million less than planned fiscal year 2011 funding) 
and Refueling Overhaul for USS Abraham Lincoln ($197 million less than 
planned fiscal year 2011 funding). The impact on CVN 79 will result in 
insufficient funding to accomplish planned work, affecting 
approximately 600 contractor employees. The impact on the Lincoln 
overhaul will delay the start of the RCOH and follow on RCOHs. All of 
these actions would disrupt workload across the shipbuilding industrial 
base, increase costs, and delay providing operational capabilities to 
the fleet.
    Question. Is it fair to assume that a year-long CR will add 
hundreds of millions if not billions cumulatively to the cost of 
procuring required defense systems including ships?
    Answer. Yes. It is fair to assume that a year-long CR will add 
hundreds of millions if not billions cumulatively to the cost of 
procuring required defense systems. In fact, a year-long CR will add 
approximately $15 billion in deferred requirements to the Future Years 
Defense Program, given the fiscal year 2010 enacted baseline 
restriction and the inability to reprogram funds to higher strategic 
priorities.
                           military equipment
    The January test flight of the Chinese J-20 stealth aircraft 
reiterated the need for our military forces to have the most capable 
equipment we can provide them. In the fiscal year 2012 budget, only 32 
F-35 Joint Strike Fighters are being procured. The shortfall in 
aircraft is being made up with F/A-18's and F-16's. The F-22 stealth 
program has been cancelled.
    Question. Secretary Lynn, will this aircraft mix provide our 
military with the necessary capabilities to counter threats like the J-
20 in the future?
    Answer. When the J-20 is just reaching its initial operating 
capability at the end of this decade, the U.S. will have procured 187 
F-22 Raptors and about 800 F-35 Joint Strike Fighters. The aero 
performance, stealth, and sensing of the F-22, combined with the sensor 
fusion, stealth, electronic warfare, and munitions capabilities of the 
F-35, will ensure our air supremacy for years to come.
    Question. How much funding is being dedicated to research and 
development of technologies aimed at countering emerging threat 
capabilities? How would a year-long continuing resolution affect that 
research and development?
    Answer. The Department does not have a precise definition of 
emerging threats for the purpose of identifying specific funds 
supporting emerging threat capabilities. However, within the 
Department, we have a Rapid Fielding office within Assistant Secretary 
of Defense (Research and Engineering) organization responsible for 
initiating programs countering new threats quickly.
    The impact would be severe because emerging threats require new 
starts; since new starts are not allowed, a one year CR means we lose 
12 months in a dynamic technology world. Without funding for new 
projects in fiscal year 2011, the Quick Reaction Special Projects and 
the Joint Capability Demonstration Programs will be unable to start 
more than 77 new projects totaling $71 million from their planned 
fiscal year 2011 funding. The delay in receipt of a fiscal year 2011 
appropriation is limiting opportunities to develop: unmanned systems 
command and control and unmanned resupply helicopters; protection from 
cyber attacks; automated processing and rapid distribution of very high 
volume wide area surveillance data; improved information operations; 
open source data exploitation; expanded red teaming; maritime security; 
surveillance capabilities that would afford our forces the ability to 
operate within the enemy's cycle of adaptation; increased force 
protection and situational awareness; and enhancing our understanding 
of networks that can threaten our security before they strike.
    Question. How would a year-long continuing resolution at fiscal 
year 2010 levels affect the procurement of these advanced aircraft?
    Answer. A year-long Continuing Resolution (CR) at fiscal year 2010 
levels would have a significant impact on F-35 procurement. The fiscal 
year 2011 President's budget requested procurement for 42 total 
aircraft as follows: 22 Conventional Take-Off and Landing (CTOL); 13 
Short Take-Off and Vertical Landing (STOVL); and 7 Carrier Variant 
(CV). However, because of production rate caps imposed by a CR, the 
Department would be limited to the fiscal year 2010 procurement rates, 
30 in total. This would limit the procurement of CTOL aircraft to no 
more than 10, and CV aircraft would be capped at 4, rather than the 7 
requested in the budget. The CR would not affect the procurement of 
STOVL aircraft because the Department seeks to buy fewer in fiscal year 
2011 (3) than the fiscal year 2010 procurement quantity (16).
    H.R. 1473, the Department of Defense and Full-Year Continuing 
Appropriations Act, 2011, was signed into law on April 15, 2011. H.R. 
1473 provides appropriations for up to 35 total F-35 aircraft. The 
Department is reviewing the adequacy of appropriated funding to 
determine the final quantity.
                     defense department budget cuts
    As a member of the Department of Defense Appropriations 
Subcommittee and Chairman of the Select Committee on Intelligence, I 
strongly believe that our first responsibility is to the safety and 
security of the United States and its citizens. While the Defense 
Department has and will be subject to some budget reductions, many 
other Government agencies, also involved in national security 
activities, have had their budgets deeply cut. I believe that we can 
make targeted, prudent reductions to the Defense portion of a 
continuing resolution that would provide billions in additional funds 
for the non-defense discretionary accounts with national security 
interests.
    Question. Secretary Lynn, please identify some lower priority 
Defense Department programs where that money can be applied to other 
national security activities outside of the Defense Department.
    Answer. The Department just completed a thorough program review 
that identified programs that should be eliminated or reduced in order 
to ensure that the Department can meet current and future operational 
requirements. While we will continue to look for more opportunities to 
improve both efficiency and effectiveness, we cannot recommend 
additional programs for elimination at this time.
    Question. Please identify programs in the Defense Department and 
the military services where activities are redundant and can be 
consolidated to achieve budget savings.
    Answer. The Department just completed a thorough program review 
that included the identification and elimination of redundant and low-
priority activities. While we will continue to look for more 
opportunities to improve both efficiency and effectiveness, we cannot 
recommend additional activities for elimination at this time.
                                 ______
                                 
            Questions Submitted by Senator Barbara Mikulski
    fiscal year 2012 legislative proposal on u.s. family health plan
    The U.S. Family Health Plan (USFHP) designed by Congress in 1996 
provides the full TRICARE Prime benefit for military beneficiaries in 
16 States and the District of Columbia for over 115,000 beneficiaries. 
Beneficiaries are highly satisfied with this healthcare option. In 
fact, the subcommittee understands that in 2010 over 91 percent of 
USFHP beneficiaries were highly satisfied with the care they received, 
making it the highest rated healthcare plan in the military health 
system. The fiscal year 2012 President's budget request includes a 
proposed legislative provision that future enrollees in USFHP would not 
remain in the plan upon reaching age 65.
    Question. Public Law 104-201 Sec. 726(b) mandates the Government 
cannot pay more for the care of a USFHP enrollee than it would if the 
beneficiary were receiving care from other Government programs. Is the 
Department of Defense (DOD) in compliance with this requirement? If you 
are not in compliance with the law or disagree with the above, please 
explain. In that this requirement implies that the offset to the DOD 
budget would be exactly offset by the cost increases to Medicare please 
elaborate in detail how the fiscal year 2012 USFHP legislative proposal 
will result in a net savings to the taxpayer?
    Answer. This proposal has no impact on current USFHP enrollees. The 
proposed change to USFHP would only affect future USFHP enrollees, once 
they attain Medicare eligibility. Upon reaching age 65, those enrolled 
in USFHP could enroll in Medicare Part B and receive the TRICARE for 
Life (TFL) benefit as a supplement to their Medicare coverage. USFHP 
beneficiaries are not required to pay Part B premiums as other 
Medicare-eligible beneficiaries must do to receive a comprehensive 
benefit from DOD. Under current law, these enrollees are allowed to 
remain in USFHP, whether they enroll in Medicare Part B or not.
    The administration estimates the proposal will save the Government 
$279 million over the next decade. Under the proposal, Medicare would 
see an increase in Part B premiums collected. While current law 
precludes DOD from spending more on USFHP than it would cost the 
Government to provide care through TFL and Medicare, the law requires a 
negotiation and mutual agreement between the Secretary of Defense and 
designated providers in determining payments to USFHP. Since the 
inception of this program in 1995, the rates provided to these plans 
have been based primarily on data from the general Medicare population. 
However, since the TFL program began in 2001, the Department has been 
able to gather detailed data specific to the Medicare-eligible TRICARE 
beneficiary population. The savings estimated for the proposal are 
based on the delta between the historically used rates and estimates 
derived from the actual data accumulated for Medicare-eligible TRICARE 
beneficiaries.
    More importantly, this proposal provides equitable treatment for 
all Medicare-eligible retirees by offering a single program design 
across the country. Most retirees do not live in one of the USFHP 
service areas, and their only option for healthcare is Medicare and TFL 
(requiring payment of their Medicare Part B premium).
    Question. Of the total DOD TRICARE population over the age of 65 
years, how many beneficiaries are covered under the USFHP? How many 
beneficiaries over the age of 65 are covered by a combination of 
TRICARE and Medicare Part A and B but not covered by USFHP?
    Answer. There are approximately 37,000 DOD beneficiaries over the 
age of 65 who are covered by the USFHP program. Approximately 1.9 
million DOD beneficiaries over the age of 65, who have both Medicare 
Part A and Part B, are not covered by USFHP.
    Question. The USFHP provides prevention and wellness programs as 
well as effective disease and care management programs designed to care 
for beneficiaries' healthcare needs over their lifespan. Given the 
longitudinal approach of the program in managing the healthcare needs 
of the USFHP beneficiaries, and the Department's interest in the 
medical home model, why would you not consider expanding such 
innovative techniques in healthcare delivery?
    Answer. The Military Health System (MHS) has embraced the Patient-
Centered Medical Home (PCMH) as the key paradigm for the provision of 
primary care services for all of our enrolled beneficiaries. Plans and 
activities are moving forward to implement the PCMH in multiple sectors 
of the MHS, with the target of providing this model of care to all of 
our enrolled beneficiaries over the next few years. Likewise, each of 
the Military Services are moving forward with transforming their 
primary care services to a PCMH model and options are being intensively 
explored for similar efforts in the Purchased Care Sector. In addition, 
the Centers for Medicare & Medicaid Services has launched PCMH 
demonstration projects for Medicare populations in several States. It 
is anticipated that those efforts will be expanded as well and provide 
even broader access to the PCMH for all of the Medicare population 
including Department of Defense beneficiaries enrolled in TFL.
    Question. The proposed legislation, if enacted, would force future 
enrollees to disenroll from this effective and well managed program 
upon reaching age 65. The remaining beneficiaries would be at risk 
because the ability to sustain disease management and prevention 
programs for them, a core aspect of the plan's success, would be 
compromised, effectively removing the option of long term participation 
in clinical programs aimed at actively engaging beneficiaries in 
managing their health. Is this consistent with the DOD's stated 
priorities of population health, improved health management and 
continuity of care?
    Answer. The MHS considers population health, optimal health 
management, and continuity to be high priorities for all of our 
beneficiaries. The TRICARE benefit, including the TFL provision, was 
dynamically designed to enforce those priorities and to optimize care 
and access for Department of Defense beneficiaries throughout their 
life. Beneficiaries who age out of TRICARE Prime will continue their 
relationship with their medical providers and continue disease 
management and prevention programs--hallmarks of quality patient 
management--just as other TRICARE enrollees who age out of Prime. 
Although Medicare becomes the primary payer when our beneficiaries age 
out of Prime, with TFL, our beneficiaries continue to be eligible for 
the much richer TRICARE benefit. TFL has been a valuable addition for 
our beneficiaries over age 65 and has greatly enhanced access and 
continuity beyond the basic Medicare benefit. More importantly, this 
proposal provides equitable treatment for all Medicare-eligible 
retirees by offering a single program design across the country. Most 
retirees do not live in one of the U.S. Family Health Plan service 
areas, and their only option for health care is Medicare and TFL 
(requiring payment of their Medicare Part B premium).
                                 ______
                                 
              Questions Submitted by Senator Thad Cochran
                         efficiency initiatives
    Question. Secretary Hale, how will the budget documents provided to 
Congress track savings from the Department's ``efficiency initiatives'' 
on a year-to-year basis?
    Answer. The fiscal year 2012 budget included efficiencies that 
contributed to the $78 billion reduction to the Department of Defense 
(DOD) projected budget over the next 5 years; and efficiencies that 
contributed to reinvesting $100 billion in key combat capabilities and 
higher than expected operating costs. The Department is currently 
working on new processes and metrics that will be used to monitor 
progress by Components in meeting these efficiency goals. As part of 
the efficiencies initiative we are specifically monitoring: service 
support contract reductions; report studies, boards and commissions 
reductions; senior leadership positions reductions; and the overall 
freeze in personnel levels. Actual performance will be reviewed by 
Department leadership throughout the year and results will be reflected 
in the prior year data submitted in budget documents.
    Tracking these efficiency savings from year-to-year will be part of 
the dynamic nature of the budget process. The Military Departments, 
Defense Agencies, and the Department are in a continuous process of 
planning and budgeting that reacts to execution realities and 
reprioritizes programs to balance capability with affordability. The 
Service specific efficiencies that contributed to reinvesting in key 
combat capabilities will be monitored and evaluated by the Services as 
they formulate the next year's plan and budget. Adjustments required 
due to execution realities will be reflected as program adjustments in 
the Service budget documents.
                        dod financial statements
    Question. Secretary Hale, the Department is one of the few cabinet 
level agencies not to produce auditable financial statements despite 
many years of investment by the Department. Do you have the necessary 
resources and people in place to meet the Department's goal for 
achieving fully auditable financial statements by September 2017?
    Answer. Yes. Until recently the Army and Air Force had not devoted 
sufficient resources to achieving auditable financial statements. We 
have remedied that and feel that the approximately $200 million to $300 
million we are investing to improve processes and internal controls 
over the next several years is the appropriate amount to achieve 
success. The Department is also investing significant amounts in modern 
systems to support auditability. While these systems have broad 
operational improvement goals they are also working to improve business 
processes in a way to support audited financial statements. The 
Department does not need further resources to achieve auditable 
financial statements at this time.
                             iraq drawdown
    Question. Secretary Lynn, as U.S. efforts in Iraq transition from 
the Department of Defense to the Department of State at the end of 2011 
will the Iraqi Government or contractors be able to provide the 
security, logistics and emergency medical care for Department of State 
personnel? If the Iraqi Government or contractors cannot provide the 
necessary security, logistics and other basic requirements for State 
Department personnel to operate in 2012, will the U.S. military be 
forced to make-up the capability shortfall? Is your Department doing 
any contingency planning for this eventuality?
    Answer. The Iraqi Government is not yet able to provide security, 
logistics, or emergency medical care for Department of State personnel. 
Although the Iraqi Government dedicates a significant portion of 
revenues to security, Iraq is still a post-conflict, developing country 
facing considerable fiscal challenges. The Iraqi Government's fiscal 
management is improving with each passing year, but its available 
fiscal resources are not yet sufficient to meet security requirements. 
Even with increases in oil production, Iraq may not see significant net 
revenue increases for the next 3 to 5 years.
    DOD and the State Department are working together to ensure that 
the State Department can execute the civilian-led mission in Iraq. With 
the exception of medical services, DOD will provide Embassy Baghdad 
basic life support, core logistics services, and contract management on 
a reimbursable basis through the U.S. Army Logistics Civil Augmentation 
Program (LOGCAP IV), and other contracted support.
    DOD plans for a whole variety of different contingencies, but the 
preponderance of effort has been on facilitating transition to the 
State Department. DOD is doing everything it can to help set up the 
State Department for success. The State Department, DOD, and other 
agencies and offices have undertaken unprecedented levels of 
coordination and planning for the transition in Iraq. The State 
Department and DOD have an excellent working relationship and are 
working together at all levels to achieve a successful transition. As 
one would expect with a transition of this scope and complexity, 
challenges exist.
                         efficiency initiatives
    Question. Secretary Lynn, the budget request includes a number of 
initiatives to streamline Department of Defense business operations and 
overhead. Does the Department have the tools and processes in place to 
measure the effectiveness of these initiatives and to determine if they 
achieve the saving assumed in the budget?
    Answer. The Department currently has a number of tools in place 
that will help to monitor both execution and effectiveness of the 
initiatives laid out in the President's fiscal year 2012 budget 
submission. Additionally, the various components have developed a 
number of internal processes and tools to assist with implementation, 
monitoring, and assessment. The Secretary and I are strongly committed 
to meeting the goals and to finding new ways to improve how the 
Department conducts business, thereby better using the scarce resources 
of the Nation.
                 decreased nasa funding--impact on dod
    Question. Secretary Lynn, has the Defense Department's budget for 
space capabilities been adjusted or impacted to compensate for the 
President's decision to freeze NASA funding at the 2010 level?
    Answer. No, the Defense Department's budget for space capabilities 
currently has not been adjusted or impacted to compensate for the 
President's decision to freeze NASA funding at the 2010 level.
     handheld global positioning systems (gps) for platoon leaders
    Question. Secretary Lynn, on page three of your prepared testimony, 
you state ``the proposed budget provides our deployed forces with 
everything they need to carry out their mission.'' However, I have been 
informed that Army platoon leaders deployed to Afghanistan do not have 
handheld GPS Receivers which would improve their situational awareness 
and targeting. Would you look into this and let the committee know if 
this useful piece of gear is being issued at the platoon level in 
sufficient quantities?
    Answer. The Global Positioning System (GPS) is issued at the 
platoon level according to Army authorizations. For an Infantry 
formation, a GPS capability is issued to commanders, S3/operations, S4/
logistics, platoon leaders, squad leaders and other vehicle platforms 
as well to include our Force XXI Battle Command Brigade and Below/Blue 
Force Tracker systems and Mine Resistant Ambush Protected vehicle 
platforms. All deploying forces are equipped with their required 
authorization quantity and if required, our industrial production line 
has ample quantities to support any shortfall. There is no current 
Operational Need Statement for GPS. There is no indication of any 
significant shortfall in Defense Advanced GPS Receiver (DAGR) in 
theater. Theater has a large number of the Precision Lightweight GPS 
Receivers (PLGR) devices which can augment the DAGR.
                                 ______
                                 
          Questions Submitted by Senator Kay Bailey Hutchinson
    Under a Continuing Resolution (CR) at fiscal year 2010 levels, the 
Army would be limited to acquisition of only 8 AH-64 Apache helicopters 
instead of the 16 requested in the fiscal year 2011 President's budget, 
and could not acquire the 1 combat loss replacement helicopter. Also, 
under a CR at fiscal year 2010 levels, the Army would be limited to 
acquisition of only 34 CH-47 Chinook helicopters instead of the 40 
requested in the fiscal year 2011 President's budget, and could not 
acquire the 6 helicopters added in the Overseas Contingency Operations 
(OCO) account.
    Question. Can you talk about how these limited acquisitions would 
affect adversely the Army's ability to carry out its missions?
    Answer. The limited acquisition of Apache Block III will delay the 
First Unit Equipped (FUE) by 6 months and delay that capability from 
deploying to theater as scheduled. While this will have minimal impact 
on the Army's ability to carry out its immediate missions in Operation 
Enduring Freedom (OEF) and Operation New Dawn (OND); it will extend the 
timeframe necessary to modernize the Apache fleet. Limiting fiscal year 
2011 quantities and funding levels to the fiscal year 2010 equivalents 
will also have cost and contract implications. It will result in a 
decrease in Low Rate Initial Production (LRIP) aircraft quantities and 
the reduced procurement in fiscal year 2011 will adversely affect the 
overall procurement unit cost of the helicopters by an unknown amount. 
The prime contractor has already submitted a proposal for the LRIP 
effort. Any decrement to aircraft quantities will invalidate the 
current contractor proposal. These resulting inefficiencies and the 
loss of cost and schedule synergies with current the Foreign Military 
Sales, will result in a total decrease of up to ten aircraft during 
LRIP .
    The limited acquisition of Chinooks due to a year-long continuing 
resolution will extend modernization of the Army National Guard's CH-
47D to CH-47F program by 3 months. The limited acquisition will have 
minimal immediate impact on the Army's ability to carry out its 
missions in OEF and OND. The ARNG's Chinook shortages will be filled by 
1st Qtr fiscal year 2013 with a mix of CH-47D and CH-47F aircraft. The 
ARNG's pure fleet to the CH-47F will extend to 1st Qtr fiscal year 2018 
vice 4th Qtr fiscal year 2017.
    The Texas and Mississippi National Guards need a fiscal year 2011 
programmatic increase of $654,200 to convert Apache ``A'' models to the 
``D'' models required for a deployment in Central Command. The House 
Defense Appropriations Subcommittee, the Senate Appropriations 
Committee, and the proposed defense omnibus appropriations bill all 
provide such funds. The CR does not.
    Question. How will this limitation on funding affect Central 
Command's ability to prosecute the wars in Afghanistan and Iraq?
    Answer. The absence of Apache conversion funding for elements of 
the Texas and Mississippi Nation Guard (1-149 TX/MS) in the fiscal year 
2011 CR will not impact U.S. Central Command's ability to conduct 
operations in Afghanistan and Iraq because 1-149 TX/MS will be deployed 
to Iraq or Afghanistan.
    The conversion (and training) for Apache ``A'' to ``D'' models for 
1-149 TX/MS is expected to be complete in fiscal year 2016. When the 
conversion and training is completed, 1-149 TX/MS will be ready for 
deployment and available for consideration to meet future operational 
requirements.

                          SUBCOMMITTEE RECESS

    Chairman Inouye. The Defense Subcommittee will reconvene on 
Wednesday, March 16, at 10:30 a.m. And at that time, we will 
receive testimony from the Navy and Marine Corps on the fiscal 
year 2012 budget request.
    And we now stand in recess. Thank you very much.
    Mr. Lynn. Thank you, Mr. Chairman.
    [Whereupon, at 11:42 a.m., Tuesday, March 1, the 
subcommittee was recessed, to reconvene at 10:30 a.m., 
Wednesday, March 16.]
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