[Senate Hearing 117-46]
[From the U.S. Government Publishing Office]

                                                         S. Hrg. 117-46



                               BEFORE THE

                        COMMITTEE ON THE BUDGET

                          UNITED STATES SENATE


                             FIRST SESSION


                              May 12, 2021


           Printed for the use of the Committee on the Budget

45-251                    WASHINGTON : 2021 
                        COMMITTEE ON THE BUDGET

                   BERNARD SANDERS, Vermont, Chairman
PATTY MURRAY, Washington             LINDSEY O. GRAHAM, South Carolina
RON WYDEN, Oregon                    CHARLES E. GRASSLEY, Iowa
DEBBIE STABENOW, Michigan            MIKE CRAPO, Idaho
MARK R. WARNER, Virginia             RON JOHNSON, Wisconsin
JEFF MERKLEY, Oregon                 MIKE BRAUN, Indiana
TIM KAINE, Virginia                  RICK SCOTT, Florida
CHRIS VAN HOLLEN, Maryland           BEN SASSE, Nebraska
BEN RAY LUJAN, New Mexico            MITT ROMNEY, Utah
ALEX PADILLA, California             JOHN KENNEDY, Louisiana
                                     KEVIN CRAMER, North Dakota
                Warren Gunnels, Majority Staff Director
                 Nick Myers, Republican Staff Director
                            C O N T E N T S


                        WEDNESDAY, MAY 12, 2021



Chairman Bernard Sanders.........................................     1
Ranking Member Lindsey Graham....................................     3


Statement of Lawrence J. Korb, Ph.D., Senior Fellow, Center for 
  American Progress..............................................     6
Prepared Statement of............................................    24
    Questions and Answers (Post-Hearing) from:
        Senator Chris Van Hollen.................................    63

Statement of William D. Hartung, Director, Arms and Security 
  Program, Center for International Policy.......................     8
Prepared Statement of............................................    31

Statement of Mandy Smithberger, Director, Center for Defense 
  Information, Project on Government Oversight (POGO)............    10
Prepared Statement of............................................    37
    Questions and Answers (Post-Hearing) from:
        Senator Chris Van Hollen.................................    65

Statement of Roger Zakheim, Director, Ronald Reagan Institute....    12
Prepared Statement of............................................    49

Statement of Lieutenant General (Ret.) Thomas Spoehr, Director, 
  Center for National Defense, The Heritage Foundation...........    14
Prepared Statement of............................................    56


Sustainable Defense: More Security, Less Spending, Final Report 
  of the Sustainable Defense Task Force of The Center for 
  International Policy, submitted by William D. Hartung..........    68



                        WEDNESDAY, MAY 12, 2021

                                       U.S. Senate,
                                   Committee on the Budget,
                                                   Washington, D.C.
    The Committee met, pursuant to notice, at 11:01 a.m., via 
Webex and in Room SD-608, Dirksen Senate Office Building, 
Honorable Bernard Sanders, Chairman of the Committee, 
    Present: Senators Sanders, Kaine, Van Hollen, Padilla, 
Graham, Grassley, and Crapo.
    Staff Present: Warren Gunnels, Majority Staff Director; 
Nick Myers, Republican Staff Director; Ethan Rosenkranz, 
Majority Senior Budget Analyst for National Defense; and Derek 
Gondek, Republican Professional Staff Member.


    Chairman Sanders. Good morning, and let me thank Ranking 
Member Graham and our colleagues on the Committee and our 
witnesses for being with us this morning.
    It is no secret that as a Nation we face enormous needs. 
Over 90 million Americans today are uninsured or underinsured. 
Almost 600,000 Americans are homeless. Our child care system is 
dysfunctional, and we have one of the highest rates of 
childhood poverty of any major country on Earth. And I think we 
are all in agreement that our roads and our bridges and our 
infrastructure are in terrible shape. And in my view, we face 
the existential threat of addressing climate change, which 
could wreak havoc on our country and the world.
    In other words, there is an enormous amount of work that 
has to be done, and much of that work will be very expensive. 
For that reason, we as Members of Congress have the 
responsibility to make sure that our taxpayer dollars are spent 
wisely and that they are spent cost-effectively, and that is 
true whether the issue is health care or education or anything 
    It is certainly true when it comes to the Department of 
Defense (DOD), an agency with a budget of $740 billion, by far 
the largest spending category in our discretionary budget, 
consuming more than half of all discretionary spending.
    In my view, the time is long overdue for us to take a hard 
look at the enormous amount of waste, at the cost overruns, at 
the fraud, and at the financial mismanagement that has plagued 
the Department of Defense and the military-industrial complex 
for decades. And today that is exactly what we will be doing.
    At a time when we have so many unmet needs in America, we 
have got to ask ourselves why we are spending more on the 
military than the next 12 nations combined. Why is it that the 
United States of America is now spending more on the military 
in real inflationary-adjusted dollars than we did during the 
height of the Cold War or during the wars in Vietnam and Korea? 
Why is it that the Pentagon remains the only agency in the 
Federal Government that cannot pass an independent audit, 30 
years after Congress required it to do so? How does it happen 
that about half of the $740 billion annual defense budget goes 
not to our troops--many people think that it does, but it does 
not--but to defense contractors while virtually all of them 
have paid huge fines for misconduct and fraud while making 
massive profits on those contracts? As it happens, since 1995, 
Boeing, Lockheed Martin, and Raytheon have paid over $5.4 
billion in fines or related settlements for fraud or 
    Further, I find it interesting that, despite the fact that 
the lion's share of revenue for some of the defense contractors 
comes from the taxpayers of the United States, these same 
companies provide their CEOs and executives excessive and 
extremely large compensation packages. Last year, Lockheed 
Martin paid its CEO over $23 million while 95 percent of its 
revenue came from defense contracts. Raytheon paid its CEO 
$19.4 million while 94 percent of its revenue came from 
defendant contracts. Boeing paid its CEO $21 million while 45 
percent of its revenue came from defense contracts. In other 
words, these companies for all intents and purposes almost 
function as Government agencies, the vast majority of their 
revenue coming from the public, and yet their CEOs make over 
100 times more than the Secretary of Defense of the United 
States of America.
    And I think one of the issues that we have to also take a 
look at is the whole question of the revolving door where many 
of our top military officials end up on the boards of directors 
of these major defense companies.
    Senator Grassley and I sent a letter to all three of these 
CEOs asking them to testify this morning. All of them declined 
to come.
    Further, as the General Accountability Office (GAO) has 
told us, there are massive cost overruns. This is a huge issue 
unto itself: cost overruns at the DOD acquisition budget that 
we have got to look at. According to the GAO, the Pentagon's 
$1.8 trillion acquisition portfolio currently suffers from more 
than $628 billion in cost overruns, with much of the cost 
growth taking place after production. GAO tells us, and I 
quote, ``Many DOD programs fall short of cost, schedule, and 
performance expectations, meaning DOD pays more than 
anticipated, can buy less than expected, and in some cases 
deliver less capability to the warfighter.''
    That has got to change, and let us be clear. As I stated 
earlier, a major reason why there is so much waste, fraud, and 
abuse at the Pentagon is the fact that the Defense Department 
remains the only Federal agency that has not been able to pass 
an independent audit 30 years after Congress required it to do 
    I think it is extremely important--and I do not know how 
familiar you may be with this quote. I have to admit that 
Donald Rumsfeld, Bush's Secretary of Defense, was not a hero of 
mine. But 1 day before 9/11--I do not know if you are familiar 
with this--he made some remarks, and this is what he said, and 
it did not get a lot of attention, obviously, because 9/11 came 
the next day. But this is what he said on September 10, 2001, 
and I quote, this is from Donald Rumsfeld: ``Our''--meaning the 
Pentagon's--``financial systems are decades old. According to 
some estimates, we cannot track $2.3 trillion in transactions. 
We cannot share information from floor to floor in this 
building''--the Pentagon--``because it is stored on dozens of 
technological systems that are inaccessible or incompatible.''
    And yet 20 years after Rumsfeld's statement, I wonder if 
the situation is any better today when the Pentagon has now 
received three failing audit opinions in a row.
    In 2011, the Commission on Wartime Contracting in Iraq and 
Afghanistan concluded that $31 to $60 billion spent in Iraq and 
Afghanistan had been lost to fraud and waste, and so forth and 
so on. In my view, it is time to hold the DOD to the same level 
of accountability as the rest of Government.
    And let me conclude by saying this: I think everybody in 
this Congress and in this Committee understands that we need a 
strong defense and that the men and women in the military and 
their families must be treated with the respect that they are 
due. But we do not need a defense budget that is bloated, that 
is wasteful, and that has in too many cases massive fraud.
    I hope that all of my colleagues remember what former 
President Dwight D. Eisenhower, a good Republican, said as he 
left office in 1961, and I quote: ``In the councils of 
government, we must guard against the acquisition of 
unwarranted influence, whether sought or unsought, by the 
military-industrial complex. The potential for the disastrous 
rise of misplaced power exists and will persist.'' And in an 
earlier speech, Eisenhower, remember, a four-star general who 
led the effort in Europe in World War II, this is what he said: 
``Every gun that is made, every warship launched, every rocket 
signifies in the final sense a theft from those who hunger and 
are not fed, those who are cold and are not clothed. This world 
in arms is not spending money alone. It is spending the sweat 
of its laborers, the genius of its scientists, the hopes of its 
children. This is not a way of life at all in any true sense 
under the cloud of threatening war. It is humanity hanging from 
a cross of iron.''
    What Eisenhower said was true then, and it is true today.
    Let me now turn the microphone over to the Ranking Member, 
Lindsey Graham, for his opening remarks.


    Senator Graham. Well, thank you, Mr. Chairman. I have 
really enjoyed the hearings we have had. I think you raise 
questions that the country needs to grapple with, so let me 
give you my view of things.
    I think Senator McCain, who both of us admired, was a big 
proponent of trying to make procurement more transparent, and 
cost-plus contracting really incentivizes spending more. The 
big problem I have seen with weapons system development is 
change orders. They will ask that the weapons system do things 
down the road they were not designed to do early on. And 
sometimes that is due to the threat we face from enemies. We 
have to adjust our new systems to counter their new systems. 
But count me in for looking at procurement reform and giving 
the Pentagon a good once-over in terms of its modernization of 
its computer systems and contractors and all that good stuff.
    But what I want to do is remind the American public that 
the number one goal, in my view, of the Federal Government is 
to protect us. Without national security, Social Security and 
every other social network hangs in the balance. There are 
people out there that would destroy our way of life if they 
could, and we need to make sure they cannot do that. So let us 
talk about defense spending in historical terms.
    First, let us talk about threats. Now, this is since April. 
We have had Russian bombers test us since March of 2021 in 
Alaska at historic levels. We had 25 Chinese war planes enter 
into Taiwan's defenses in April of 2021, a major escalation. 
There are 80,000 Russian troops amassed on the Ukrainian 
border. There were 100,000. They say they have withdrawn. They 
have gone from 100 to 80. From Somalia to Mali, Nigeria, and 
Mozambique, ISIS in that part of the world is on the rise. We 
just had over 80 people killed at a school in Kabul because 
radical Islamic terrorists are trying to destroy all the gains 
we have made for women in Afghanistan. North Korea just fired 
two short-range missiles for the first time in more than a 
year. The Chinese are trying to develop a deepwater blue navy. 
They are building aircraft carriers, and the Russians are on 
the prowl, and I fear ISIS and al Qaeda will come roaring back 
if we do not watch it. I have not mentioned anything about the 
current conflict between the Palestinians and the Israelis.
    So this is a time of great peril. What should we be doing? 
We should have a defense budget that deters war, and if you 
enter into one, you win it.
    Let us go to the next chart. Last year, the Defense 
Department produced a 5-year spending plan to keep 
modernization and replenish the weapons systems that have been 
worn out since 9/11. Mr. Chairman, our military men and women 
have been deployed more since 9/11 than any time since World 
War II. We have flown the wings off the planes. Our equipment 
has been heavily utilized, and our people have really borne the 
brunt of this war on terrorism and other conflicts. So they 
projected in the 5-year plan that we would be spending $722 
billion this year. The Biden budget is 715. My good friend 
Senator Sanders has an amendment to cut the defense budget by 
10 percent. It would put us at $660 billion, way below the 
projected defense needs, according to the Pentagon, over the 
next 5 years.
    Now, in terms of gross domestic product (GDP) spending, you 
spend on the defense what you need to protect the Nation. In 
World War II, we were up to 41 percent. We had a worldwide war. 
The world was at risk. Life as we know it was hanging in the 
balance, so we went all in to win World War II. Everybody did 
what they had to do.
    In Korea, we were 14 percent of GDP on that conflict. 
During the peak of the Cold War, it was about 10 percent to 
make sure that the Soviet Union did not gobble up the world and 
keep communism at bay, and I would say it worked.
    Now, from Vietnam up to the end of the Cold War, we were 
spending about 4.9 percent of GDP. When the Berlin Wall fell, 
we started coming down. On September 10, 2001, we were at 3.11 
percent of GDP, a historical low. The peace dividend did not 
last very long, did it? The global war on terror, something 
nobody really thought about, and how do our weapons systems 
relate to that conflict, we have been at about 4.6 percent. We 
are withdrawing our forces from Afghanistan. We are going to be 
at about 3.4 percent going towards 3.3 percent.
    So here is what I would say. We are on the low end of 
defense spending, but we are on the high end of the threat 
matrix. Personally, I have never seen more capability aimed at 
the United States than I do right now. You see Iran getting 
stronger, not weaker, when it comes to their military 
misadventures. You see them enriching--let us put that up. Iran 
is enriching at 60 percent. I want to remind you that just a 
few years ago we went through an event called ``sequestration'' 
where we were going to take $1 trillion out of the defense 
budget in some budget deal as a punishment for not reaching a 
budget number.
    Sequestration, according to General Mattis, for all the 
headaches caused by the loss of our troops during these wars, 
no enemy in the field has done more to harm the readiness of 
our military than sequestration. Remember the good old days of 
sequestration? They were horrible days. We were having to 
cannibalize weapons systems to keep them going. It was a 
nightmare for the Pentagon. I asked Secretary Panetta, a 
Democrat, who is a fine man, ``If we enact sequestration, would 
we be shooting ourselves in the foot?'' He said, ``We would be 
shooting ourselves in the head.'' Sequestration was an effort 
to just blindly cut $1 trillion from the Pentagon, and it made 
us less capable at a time we needed more capability.
    So to those who are watching today, half the money we spend 
virtually is on personnel costs; $50 billion in the Pentagon 
goes to health care costs. I think Senator Sanders is right to 
be asking the Pentagon to be more accountable and transparent. 
But I think it is a very dangerous idea to suggest that our 
defense footprint, given the threats we face, needs to be 
changed in terms of less. I think it needs to be more in terms 
of capability to deal with the multiple threats we face, but 
that ``more'' should be wisely spent.
    So this is a great debate we have been having for a long 
time, but the facts are the facts. Given the world we face, we 
are on the low end of spending at a time when our enemies are 
on the high end of misadventure and spending.
    The one thing you do not want to do, Mr. Chairman, is have 
the enemy miscalculate and entice them to make mistakes that 
could cost us all by not being ready to meet the challenges.
    Thank you very much.
    Chairman Sanders. Okay. Thank you, Senator Graham.
    We have an excellent panel today. I think we have four 
panelists who are here; one will be virtually.
    Larry Korb is a senior fellow at the Center for American 
Progress. He formerly served as President Ronald Reagan's 
Assistant Secretary of Defense from 1981 to 1985.
    Bill Hartung is the director of the Arms and Security 
Program at the Center for International Policy. He is the 
author of a number of books.
    Mandy Smithberger is the director of the Center for Defense 
Information at the Project on Government Oversight. She has 
previously worked in the House of Representatives and served as 
an analyst at the Defense Intelligence Agency and the U.S. 
Central Command.
    Roger Zakheim is the Washington director at the Ronald 
Reagan Presidential Foundation and Institute. He previously 
served as General Counsel and Deputy Staff Director at the 
House Armed Services Committee as well as Deputy Assistant 
Secretary of Defense for President George W. Bush.
    Lieutenant General Thomas Spoehr is the director of the 
Center for National Defense at the Heritage Foundation. He 
previously served in the U.S. Army for 36 years during which he 
was Commandant of the Army's Chemical, Biological, 
Radiological, and Nuclear School.
    So this is a very strong panel. Let us begin with Larry 
Korb. Larry?

                       AMERICAN PROGRESS

    Mr. Korb. Thank you very much, Mr. Chairman, Senator 
    Chairman Sanders. Larry, talk a little bit closer into the 
microphone, if you could, please.
    Mr. Korb. Thank you very much, Mr. Chairman, Ranking Member 
Senator Graham. It is really an honor to be here with you to 
talk about what I think is the more important thing in national 
defense, which is the budget, because in defense dollars are 
policy. So I think it is really important.
    I would also like to say that it is also an honor to be 
here with you, Senator Sanders, and Senator Grassley because I 
cannot think of two members who have worked harder to make sure 
that every dollar that the Defense Department spends is spent 
wisely and effectively. And Senator Grassley and I go back to 
the Reagan administration when we were trying to deal with 
those things.
    Now, I am going to make three points today.
    One, the size of the budget that President Biden has 
proposed I think is too much.
    Number two, there are at least three major programs that I 
think can be cut back, if not eliminated.
    And then, finally, the whole question of waste in the 
Pentagon itself.
    Let me begin with President Biden has proposed a budget for 
fiscal year 2022 which is essentially the same as the Trump 
budget and basically calls for spending more than $750 billion 
on defense.
    Now, it is important to keep in mind that under the Trump 
administration, the defense budget rose by $100 billion, and 
President Trump basically said that that was necessary because 
of the terrible state of the military he inherited. But that is 
not true. If you go back to the fall of 2016 and read the 
writings of individuals like General David Petraeus, who I 
think we all know, along with Mike O'Hanlon, a distinguished 
defense scholar, they point out that the state of our military 
was ``awesome.'' In an article in Foreign Affairs, in October 
2016, ``America's Awesome Military,'' they said the "United 
States has the best military in the world today by far.'' 
Therefore the Department of Defense did not need a major budget 
    It is also important to keep in mind, since we are dealing 
with this historically, that military retirement, which up 
until the middle of the Reagan administration used to be in the 
defense budget, is now outside, and that now totals over $100 
billion. And, finally, the Veterans Administration (VA) is 
about $260 billion. It is clear, therefore, that we are 
spending a large amount on national security, moreover, even if 
you control for inflation, the proposed Biden budget level is 
higher than at the height of the Reagan buildup, which I had 
the privilege of working on.
    And I might point out that in the second Reagan 
administration, when we began to have deficit problems and 
everything, we cut defense spending by 10 percent.
    It is also important to keep in mind that in President 
Biden's campaign, he talked about the Defense Department 
abandoning all fiscal discipline. Well, if he is going to go 
along with the Trump numbers, I do not see how that does not 
also abandon fiscal discipline.
    Finally, since we are withdrawing from Afghanistan, we 
should basically be able to cut defense spending more with the 
money we will have not have to spend on that conflict. I might 
also point out that, during sequestration the top-line defense 
number came down, but--and this is so important--the 
warfighting budget, according to the Pentagon Comptroller, was 
used as a slush fund to keep defense from being cut too much 
onto sequestration.
    Very quickly, what weapons? You have got the F-35, which 
the late Senator John McCain has called a ``scandal and a 
tragedy,'' and basically this is something that the nominee to 
be Air Force Secretary called ``Acquisition malpractice,'' he 
called it when he worked for Obama. So that is the first thing 
you really need to take a hard look at. And whatever else you 
do, do not do what Congress has done the last 5 years, which is 
basically add to what the Pentagon has requested for the F-35.
    I think Adam Smith put it very well. Pouring more money 
into F-35 is like pouring money down a rathole.
    Second, there is the ground-based missile defense, I agree 
with Bill Perry where he says we do not need it, and basically 
not only do we not need it to have deterrence, but it is 
dangerous because, as many of you know--and I saw it myself 
when I was on active duty and when I worked in the Pentagon, 
you have to launch them on warning because it is too late if 
they are hit because they are not movable. And what happens if 
it is a false positive, it is too late. So I do think that that 
is something that can be eliminated, and, again, remember we 
are talking about a weapons system that has gone up 20 percent 
in the last couple of years.
    And then there are large aircraft carriers, the Ford 
Aircraft Carrier. The first one came in twice the cost of the 
last Nimitz, and not only--and, again, I will quote Senator 
McCain: ``The era of the big carrier is over.'' So if you want 
to build them, you ought to build small ones.
    And then, finally, when you get to Pentagon Management. The 
Comptroller of the Pentagon admitted they waste $25 billion a 
year. They have not passed the audit. We need another Base 
Realignment and Closure (BRAC), which I had the privilege of 
starting with Senator Goldwater, and take a look at the 800 
bases we have around the world.
    Thank you.

        [The prepared statement of Mr. Korb appears on page 24]

    Chairman Sanders. Thank you very much, Larry.
    Now we are going to hear virtually from Bill Hartung, who 
is the director of the Arms and Security Program at the Center 
for International Policy. Bill?


    Mr. Hartung. Thank you. I want to thank Chairman Sanders, 
Ranking Member Graham, and members of the Committee for this 
chance to address you today. As was mentioned, I run the Arms 
and Security Program at the Center for International Policy, 
CIP, and our mission is to make a peaceful, just, and 
sustainable world the central pursuit of U.S. foreign policy. I 
will focus my remarks on the issue of Pentagon waste.
    I see four major types of waste at the Pentagon: misguided 
strategy, buying ineffective weapons systems, overpaying for 
basic items, and excess overhead.
    Let us start with strategy. A defense strategy that 
neglects our most urgent security challenges wastes tens of 
billions of dollars while making us less safe. The greatest 
threats to human lives are pandemics, climate change, nuclear 
weapons, and white supremacy. The tools needed to address these 
challenges are not primarily military in nature. Our budget 
should reflect that reality.
    CIP's Sustainable Defense Task Force has come up with a 
plan that could save $1.2 trillion over the next decade by 
putting diplomacy first, avoiding unnecessary and 
counterproductive wars, adopting a deterrence-only nuclear 
strategy, and cutting excess bureaucracy. Even after making 
these reductions, the United States would have by far the best-
funded military in the world, over 2-1/2 times what China 
spends and over 10 times what Russia spends. I ask that our 
report be submitted for the record along with my written 

               [The submitted report appears on page 68]

    The second area of waste is spending on weapons that are 
either unworkable, unnecessary, or unaffordable--and in some 
cases all three. As we mentioned, a case in point is the F-35 
aircraft. After 20 years of development, it is not fully ready 
for combat, and it may never be. The F-35 is immensely costly 
to purchase, operate, and maintain. The GAO has determined that 
it will cost billions more per year than current Air Force 
estimates and that nearly half of the fleet could be grounded 
by 2030 for lack of a functioning engine. That is quite an 
admission for a plane that is slated to cost $1.7 trillion over 
its lifetime. There should be a pause in production of the F-35 
until it can be made effective and affordable. If it cannot 
meet these requirements, the program should be phased out.
    The second case of unwise procurement is the new 
intercontinental ballistic missile (ICBM), a ground-based 
strategic defense system, or GBSD. Former Secretary of Defense 
William Perry has called ICBMs ``some of the most dangerous 
weapons in the world'' because the President would have just a 
matter of minutes to launch them on warning of an attack, 
greatly increasing the risks of an accidental nuclear war. We 
can maintain a robust deterrent without building a new ICBM, 
which will cost $264 trillion over its lifetime.
    The third area of concern is price gouging by contractors. 
An egregious case in point is TransDigm, which took profit 
level of over 4,000 percent--4,000 percent--on spare parts 
provided to the Pentagon. This kind of overcharging is routine 
and costs billions of dollars per year.
    Finally, there is the issue of excess overhead. The 
greatest source of redundancy is the Pentagon's employment of 
600,000 private contractors. Many of these contractors do jobs 
that can be done better by civilian Government employees at 
much lower cost. Cutting spending on private contractors by 15 
percent would save over $26 billion per year.
    Another source of overhead comes from major weapons 
contractors. As was mentioned before, in all more than half of 
the Pentagon budget goes to private contractors. The top five 
contractors alone received over $150 billion in Pentagon 
contracts last year, and Lockheed Martin made $8 billion in 
profits. Its CEO made over $20 million, 500 times what a 
beginning enlistee in the armed forces makes. If we want to 
save on Pentagon spending, we need to go where the money is. 
That is why I believe we should have an independent assessment 
of contractor compensation, profits, and overhead, ideally done 
by the GAO, which would be a tool for cutting corporate 
overhead and corporate misfeasance in Pentagon spending.
    I think all of us can agree that Pentagon waste benefits no 
one and does nothing to enhance our security. So I think there 
are measures we can take to eliminate that, but I think we have 
to look at both the waste from misguided policies as well as 
the waste from mismanagement.
    And so, with that, I will conclude my remarks, and I thank 
you again for the opportunity to testify, and I look forward to 
your questions.

       [The prepared statement of Mr. Hartung appears on page 31]

    Chairman Sanders. Well, thank you very much, Bill.
    Our next panelist is Mandy Smithberger, who is the director 
of the Center for Defense Information at the Project on 
Government Oversight. Mandy?


    Ms. Smithberger. Thank you, Chairman Sanders, Ranking 
Member Graham, and members of the Committee, for inviting me to 
testify before you today. I want to thank the Committee for 
holding this hearing and examining spending at the Department 
of Defense and to thank the Chairman for his leadership in 
forcing a debate on the size of the Pentagon's budget.
    While we await details on the fiscal year 2022 budget, what 
we know so far shows Pentagon spending continues to increase at 
an unsustainable rate. Testimony heard before this Committee 
nearly 40 years ago largely remains true. We are paying too 
much for too little capability. Buying unproven weapons systems 
in quantity before testing is complete, awarding contracts to 
companies with histories of waste and misconduct, and giving 
disproportionate funding to an agency that is years away from 
being able to pass an audit wastes taxpayer dollars and 
undermines readiness.
    Significant cuts to the Department's budget are necessary 
to create the incentives and pressure for reform, to address 
how the Department spends its money and how it fails to set 
priorities. Throwing even more money at the Department I fear 
is going to make these problems worse.
    As has been mentioned, the Department's most expensive 
program, the F-35, is an instructive case study of current 
problems and their expensive consequences. At the beginning of 
the F-35 program, the aircraft's public image was that it would 
be ``more Chevrolet than Porsche.'' This year, the Air Force 
Chief of Staff called it ``something closer to a Ferrari.'' 
While there are many lessons to be drawn from the F-35 program, 
there are four I want to highlight.
    First, we must fly before we buy.
    Second, we must insist on good data from the beginning of 
these programs.
    Three, we have to beware complexity in the cost that that 
brings onto our force.
    And, four, we must secure as much as possible the 
intellectual property rights to enhance competition.
    The conventional wisdom is that the F-35 program is 
politically untouchable due to sunk costs and because contracts 
are spread out across the country. I can think of no greater 
indictment of our current acquisition system if we cannot 
course-correct a program because of corruption in our system. I 
think we need to make sure that we are doing the right things 
for our warfighter.
    We also have an acquisition system designed to increase 
costs. The most significant problem, as you mentioned, 
Chairman, is the corrupting influence of the revolving door of 
senior Pentagon officials going to work for the defense 
industry. The end result is officials appearing to or actually 
confusing what is in the best interest of our national security 
with what is in the best financial interest of defense 
    Of course, the Department does not just pay too much for 
complex weapons systems. They also spend too much on spare 
parts. We get fleeced on spare parts like pins and drainpipes. 
The overpriced plastic toilet seat covers that cost $640 in the 
1980s now cost $10,000.
    One of the root causes of these overcharges is misuse of 
commercial item designations, which makes it difficult for the 
Government to obtain cost or pricing information to determine 
whether the prices contractors are charging are fair and 
reasonable. When an item is designated as commercial, 
contractors generally do not have to provide cost or pricing 
information to the Government. If something were truly 
commercial, prices would not be secret. Reforming the 
definition of ``commercial item,'' as the Obama administration 
previously proposed, is an overdue reform to reduce 
overpayments and waste.
    As Mr. Hartung mentioned, another opportunity for savings 
is service contracting. Last year, the Department spent $200 
billion on service contracts. POGO has found that service 
contractors can cost nearly three times more than civilian 
employees. Both the Defense Business Board and the Pentagon's 
own cost-estimating shop have identified this as a key 
opportunity for savings. Looking for those savings and 
improving data on that spending will go a long way to helping 
the Department.
    We must also make sure that taxpayer dollars do not go to 
risky contractors. Currently, companies that waste taxpayer 
funds or defraud the Government often continue to receive 
contracts. The Government could make more informed decisions 
about who wins those awards if reporting and transparency of 
responsibility information was improved. Chairman Sanders made 
sure that much of this information is available to the public, 
but it is a shadow of the information that we should have.
    One final danger is the opaque nature of beneficial 
ownership information. Hiding who really owns controls and 
financially benefits from an entity presents corruption risks 
and can undermine national security. Congress recently 
strengthened public disclosure of beneficial owners, but this 
disclosure should go farther.
    In summary, we recommend four major areas of reform.
    First, we must stop the revolving door between the Pentagon 
and the defense industry.
    Two, we most reform acquisition laws to empower the 
Department to make smarter buying decisions.
    Three, we must increase transparency and curtail the 
overuse of service contracting.
    And, four, we must enhance the Government's tools to ensure 
taxpayer dollars only go to responsible companies.
    Finally, I want to thank the Committee for continuing to 
conduct oversight over the Department's weak financial 
management and would urge the Committee to also look at how 
statutory requirements for wish lists undermine budget 
discipline overall. The importance of the Department of Defense 
mission along with its significant taxpayer resources means 
that it must be a model for efficiency and for accountability.
    Thank you again. I am happy to answer any questions you may 

     [The prepared statement of Ms. Smithberger appears on page 37]

    Chairman Sanders. Thank you very, very much.
    Our next panelist is Roger Zakheim, who is the Washington 
director of the Ronald Reagan Presidential Foundation and 
Institute. Roger?


    Mr. Zakheim. Chairman Sanders, Ranking Member Graham, and 
distinguished members of the Committee, thank you for inviting 
me to testify today. The following is a summary of my full 
statement, which I have submitted for the record.
    As Congress reviews the fiscal year 2022 defense budget 
request, this Committee should consider three things:
    Number one, providing a 3- to 5-percent real growth per 
annum increase in defense spending to ensure that the 
Department of Defense can execute its current strategy, mission 
requirements, and modernize the force.
    Two, end the repeated use of continuing resolutions and 
revisit the laws that incentivize ``use it or lose it'' 
spending, and continue to support DOD efforts to realize a 
comprehensive, clean audit.
    Three, ensuring that emergency spending measures before 
Congress do not leave the Department of Defense victim to 
reduced appropriations and harmful budget delays.
    Defense budgets must be strategy-driven and fiscally 
informed, not the reverse. Secretary Austin echoed this view 
during his Senate confirmation hearing saying, and I quote, our 
``resources need to match our strategy and our strategy needs 
to match our policy.''
    As the 2018 bipartisan National Defense Strategy (NDS) 
Commission outlined, Russia and China have embarked on massive 
military modernization initiatives that have diminished 
America's longstanding military advantages, and even surpassed 
the United States in some key capability areas.
    Accordingly, the NDS Commission's recommendation that a 3- 
to 5-percent real growth increase in defense spending remains 
an urgent priority for the U.S. military to project power and 
uphold alliance commitments. The Biden administration has 
nominated a Comptroller for the Department of Defense who just 
yesterday stood by this recommendation.
    Even before the economic downturn triggered by COVID-19, 
calls to reduce defense spending emerged from elements in both 
political parties. Now, with historic deficits following the 
Federal spending on COVID-19 relief and other proposed 
emergency measures, those calls are increasing.
    To examine the real consequences of cuts to the Pentagon's 
resources, the Reagan Institute along with the Center for 
Strategic and Budgetary Assessments hosted two Strategic 
Choices Exercises this past fall captured in this publication. 
The results of this bipartisan group effort were clear: Defense 
budget cuts would have a devastating consequence on our 
military and our national security. A 10-percent cut, something 
discussed today, would leave the United States with a military 
that is incapable of carrying out the current National Defense 
Strategy. It would compel the Department of Defense to 
reexamine its current standard of maintaining a force that can 
win one war while deterring another. In other words, ``With 
cuts of this magnitude, the United States could be reduced to a 
de facto hemispheric power by 2030.''
    The administration's $715 billion budget request for fiscal 
year 2022, when accounting for inflation, is a reduction from 
the previous fiscal year. While this may appear to be 
sufficient to maintain the status quo, readiness and 
modernization accounts will shrink as other budget lines, such 
as personnel and operations and maintenance accounts tend to 
demand continued real growth.
    Put differently, defense cuts do not equal defense reform; 
rather, as our strategic choices exercise makes clear, less 
resources result in a less capable fighting force.
    As this Committee considers how to reduce waste and 
inefficiency, it ought to consider one of the most consistent 
drivers of inefficiency in the Department of Defense: 
continuing resolutions (CR).
    As this Committee knows, the Department of Defense has 
started the fiscal year under a CR 15 of the past 20 years, 
creating unnecessary uncertainty that creates significant 
management challenges for the Department of Defense. Interim 
CRs create compressed timelines for expenditures and generate 
waste by requiring short-term contracts that must be re-signed 
once additional funding has been allocated. These 
inefficiencies cost real money, and the NDS Commission, which I 
referenced before, concluded CRs have had ``a grave material 
impact, encouraging inefficient, `use-it-or-lose-it' spending 
by the services at the end of the fiscal year, resulting in 
delays in acquisitions and modernization, and exacerbating 
readiness problems throughout the force.'' A more radical 
reform the Congress might consider is revisiting legal 
restrictions that incentivize ``use-it-or-lose-it'' spending.
    Last, this Committee should also consider how emergency 
spending measures before this Congress may impact the 
Department of Defense and the annual appropriations processes. 
In the aggregate these measures before the Congress would add 
up to the equivalent of over 4 years of Federal discretionary 
spending. Though the unprecedented crisis brought on by the 
COVID-19 pandemic justifies emergency spending, prioritizing 
multi-trillion, multi-year omnibus packages threatens to 
exhaust congressional appetite for spending during its regular 
consideration of the President's budget request leaving the DOD 
in a precarious funding position.
    Americans understand what it takes to sustain the peace and 
prosperity, and they are willing to make the investments 
necessary to support a strategy that delivers just that. It is 
imperative that this Congress balance domestic and national 
security priorities in a fashion that ensures our military is 
properly resourced to meet the demands of our national defense 
    Thank you for this opportunity. I look forward to answering 
your questions.

       [The prepared statement of Mr. Zakheim appears on page 49]

    Chairman Sanders. Thank you very much.
    Our next panelist is Lieutenant General Thomas Spoehr, who 
is the director of the Center for National Defense at the 
Heritage Foundation. General?


    General Spoehr. Chairman Sanders, Ranking Member Graham, 
other members of the Committee, good morning. Thank you for the 
opportunity to appear today.
    The Department of Defense, with its nearly 20 million 
employees, an annual budget of over $700 billion, and more than 
$3 trillion worth of assets, has a special obligation to be a 
good steward of the resources entrusted to it for the Nation's 
defense. No organization is perfect, and the DOD is no 
exception. But given the amount of oversight, safeguards, and 
reforms in place over the years, it is my opinion that the 
Pentagon today is one of the most scrutinized and reformed 
organizations in the Federal Government.
    In March 2021, the Government Accountability Office 
reported ``DOD continues to demonstrate a strong commitment, at 
the highest levels, to improving the management of its weapon 
system acquisitions,'' and that ``DOD leadership continued its 
commitment to financial management improvements.''
    Some argue that the Pentagon budget is overly large, indeed 
``bloated'' and riddled with waste. But just because something 
is big does not mean it is bloated. Dwayne ``The Rock'' Johnson 
is big, yet no one in the world would accuse him of being 
    National defense now consumes the smallest portion of the 
U.S. Federal budget in 100 years--15 percent--and continues to 
shrink. And except for a moment in 1999, spending today on 
national defense now consumes the smallest percentage--3.4 
percent--of the U.S. gross domestic product in modern history.
    Critics will use the statement DOD's funding is bigger 
``than the next ten nations' military budgets combined'' as 
grounds to argue that the budget is overly large and 
unnecessary. But added context and explanation is necessary.
    First, when adjusted for purchasing power parity, an 
internationally recognized method of equating economies, U.S. 
defense spending in terms of its purchasing power turns out to 
be roughly equal to that of two countries--China and Russia--
not ten.
    The second overlooked element is that the U.S.--for better 
or worse--is a global power with worldwide defense commitments 
to North Atlantic Treaty Organization (NATO), Japan, South 
Korea, Israel, Australia, New Zealand, sea lanes, and other 
areas. Other countries do not share these responsibilities, and 
it is misleading to compare the United States to others without 
that context.
    In the end, the best and, unfortunately, the most difficult 
way to determine the proper size of the U.S. defense budget is 
to understand how well that budget allows the Nation to execute 
its current National Defense Strategy.
    I would like to turn to the Pentagon's reform efforts. No 
other Federal department has undergone the number of reforms 
and efficiency drives as the Pentagon has in the last 5 years. 
Working in many cases at the direction of Congress, the DOD 
converted its defined benefit retirement plan to a hybrid 
defined contribution plan, cut headquarters sizes by 20 
percent, completely reorganized the delivery of its health 
care, and produced a new acquisition framework to acquire 
capabilities. Pentagon efficiency efforts, such as the Defense-
Wide Review or the famous ``Night Court'' review in the Army, 
saved billions of dollars.
    Finally, let me now turn to the DOD financial audit. Some 
point to the Pentagon's inability to pass an audit as evidence 
that the Pentagon is unworthy of its funding. Congress imposed 
the requirement for the DOD to pass a financial audit back in 
1990, even though passing an audit is no guarantee an 
organization is well managed or free from corruption. Indeed, 
Enron, the poster child for corporate abuse, passed all its 
financial audits, right up until the moment it imploded from 
massive fraud.
    The Pentagon has undergone three full audits in the last 4 
years without passing any of them. At a recent hearing, the 
Acting DOD Comptroller predicted that it would now take until 
2028 for the Pentagon to pass the audit.
    Albert Einstein is credited with saying that the definition 
of insanity is doing the same thing over and over again but 
expecting different results. It is not for lack of trying that 
the Pentagon has not passed the audit. The audit is larger in 
scope and size than any other attempted of its kind. The 2017 
audit cost nearly $1 billion dollars--$367 million to conduct 
it, $551 million to fix the issues it discovered. And 
subsequent years have carried similar costs.
    U.S. corporations by law undergo strict financial audits to 
assure potential investors of the soundness of their offerings. 
But the DOD is not a corporation and has no corresponding need.
    Conducting the audit is the law of the land and for that 
reason must be performed. But there should be more than a legal 
requirement to continue to spend $1 billion a year unless the 
payoff at the end is expected to outweigh the costs. But, 
unfortunately, most experts believe passing the audit will not 
cause the DOD to become appreciably more efficient nor better 
    The effort to audit the Pentagon should not be, however, 
discarded. There are some elements which, if tackled and fixed, 
would provide value-added like fixing problematic financial 
transactions and IT systems. But many elements of the audit, 
such as verifying physical property existence and valuations--
portions of which demand DOD recount physical property, such as 
World War II buildings, or the requirement to place a value on 
a 1960s-era armored personnel carry--carry no value. So the 
audit requirement should be modified. Congress should take the 
immediate opportunity to work with the Pentagon and the 
auditing community to narrow and focus the effort of the 
financial audit to include only those items which, if fixed, 
would add direct value to management and financial operations 
of the Pentagon.
    Thank you for the opportunity to testify. Nothing I have 
said should be taken to mean that the Pentagon deserves a free 
pass on efficiency. Indeed, the Pentagon must get better. There 
are no quick and easy solutions to making the Pentagon more 
efficient. But ``hard'' is not ``impossible,'' and nothing is 
more important to the long-term future of this country than an 
effective and efficient national security apparatus.
    Thank you.

[The prepared statement of Lieutenant General (Ret.) Spoehr appears on 
                                page 56]

    Chairman Sanders. Thank you.
    Okay. Now we will begin the questioning. Let me begin with 
Mandy Smithberger. Ms. Smithberger, in your written testimony, 
you talk about the Pentagon providing $334 billion to defense 
contractors that defrauded taxpayers over the recent 5-year 
period. You talk about defense contractors being found guilty 
of price gouging, providing poor-quality goods and services, 
and improperly disseminating sensitive military information. 
You talk about the Pentagon paying $10,000 for a plastic toilet 
seat, $71 for a pin that should have cost 5 cents, and paying 
nearly $2,300 for landing gear that should have cost $10.
    So my question is: How prevalent is fraud within the 
defense contracting industry?
    Ms. Smithberger. Thank you for the question.
    Chairman Sanders. Speak as close as you can to the 
    Ms. Smithberger. Yes, apologies for that. So we know 
anecdotally from these instances that you refer to that--and 
POGO maintains a Federal contractor misconduct database so that 
we can try and take advantage of what has been publicly 
reported. But I do think that we need to have a more 
comprehensive review on what the scale of these issues are that 
we have not had a review of how the Department is using its 
suspension and debarment system to prevent us from continuing 
to do business with other contractors. It is easily in the 
billions of dollars. I suspect it is in the tens of billions of 
dollars. But we really need to have an authoritative look from 
independent auditors.
    Chairman Sanders. Okay. Thank you.
    A question for Bill Hartung. Bill, you note in your 
testimony that at least half of the Pentagon budget goes to 
private contractors. Is that a problem in its own right? Or is 
the issue whether these corporations are held accountable to 
provide effective goods and services at a fair price?
    Mr. Hartung. Thank you, Senator Sanders, for the question. 
I think it is both. When you have five companies getting $150 
billion, about 20 percent of the Pentagon budget, it gives them 
immense bargaining power over the Pentagon. When you see 
examples like the new ICBM, where it was a sole-source contract 
because Boeing pulled out of the competition with Northrop 
Grumman because Northrop Grumman was allowed to purchase the 
biggest producer of solid rocket motors for ICBMs, and Boeing 
said, well, you know, this was the end of it, we cannot compete 
on this basis. So these big companies and these big mergers I 
think just tilted the balance in favor of the contractors 
against the taxpayers.
    Then, of course, there are many measures that should be 
taken, as Ms. Smithberger has noted in her testimony, including 
empowering contracting officers to challenge bogus pricing. I 
think we need to, as I said, have an audit of contractor 
overhead. So there is a whole series of things that could be 
done. I think fly before you buy so we are not buying planes 
like the F-35, which may never get off the runway in the 
numbers needed to meet our defense needs.
    So I think it is a combination of certainly not letting any 
more mergers happen, maybe looking at reducing and taking apart 
some of the prior ones, and then much more rigorous oversight. 
So I think it is the combination of the two.
    Chairman Sanders. Good. Thank you very much.
    Larry, you worked for the Defense Department under 
President Reagan. Is that correct?
    Mr. Korb. That is correct, yes.
    Chairman Sanders. All right. The bottom-line question here, 
I think, is all of us want a strong defense. Senator Graham 
says it is a dangerous world. It is a dangerous world. But just 
spending huge amounts of money does not make our military more 
effective. We could be wasting huge amounts of money, making it 
less effective, in fact.
    So my question to you is a very simple one. You mentioned 
during the Reagan years actually defense spending was cut. Do 
you believe that, given the enormous problems facing our 
country in terms of infrastructure and poverty and health care, 
et cetera, et cetera, do you believe that we can maintain the 
kind of strong military that we need and yet that we can cut 
defense spending?
    Mr. Korb. Very definitely I do, because basically no matter 
how much you spend on defense, you cannot buy perfect security, 
always going to make choices. And so, therefore, my experience 
in Government and out of Government--I wrote my doctoral 
dissertation on the role of the military in the defense budget 
process--basically is you do the best you can with the number 
that you have. And so, therefore, if you told me today to go 
back to the Pentagon and you have got $700 billion, I think I 
could provide security and deal with the deficit. And remember 
that the deficit is also a threat to national security. And so, 
therefore, if you are cutting defense to help deal with the 
deficit, you are actually improving national security.
    I think that there is no magic number for the defense 
budget. This current number is historically high, and as I 
mentioned--and no one pays much attention--we used to have 
military retirement in there with the numbers you are comparing 
from years ago. It is not there anymore. It is $100 billion 
that the Pentagon does not have to spend in this amount, but 
the taxpayer still spends it.
    Chairman Sanders. Good. Okay. Thank you very much.
    Senator Kaine? Oh, sorry, my apologies. Senator Graham.
    Senator Kaine. I want to go, but I am not rushing. Go 
    Chairman Sanders. I am sorry. My fault. Senator Graham.
    Senator Graham. Okay, I will be quick. Thank you. Thank 
you, Bernie.
    General Spoehr, are you available?
    General Spoehr. Yes, sir.
    Senator Graham. You said in your testimony, I believe, that 
we are about at 3.4 percent of GDP on defense spending, and 
that is the lowest in modern history except for 1999. Is that 
    General Spoehr. Yes, Senator.
    Senator Graham. Okay. So when people say that we are 
spending more on defense, the truth of the matter is, in terms 
of GDP, over the arc of time, we are the second-lowest level in 
modern history. Is that correct?
    General Spoehr. It is, Senator, yes.
    Senator Graham. Mr. Zakheim, do you agree with that?
    Mr. Zakheim. Yes, Senator.
    Senator Graham. Okay. Now, let us compare that to the 
Russian-Chinese defense budgets. In what direction are they 
headed, Mr. Zakheim?
    Mr. Zakheim. Senator, both China and Russia are 
significantly increasing their defense spending.
    Senator Graham. Okay. How many of you remember 
sequestration? Everybody? Mr. Korb--is that correct, sir.
    Mr. Korb. That is correct, Senator.
    Senator Graham. You mentioned General Petraeus. I have a 
quote here. This is in September 2016. ``It is also time to end 
the perennial threats of sequestration and place the Pentagon's 
budget on a general upwards path in real terms.'' September 
2016. But the statement that I would like to run by you, the 
Secretary of Defense said, ``For all the heartache caused by 
the loss of our troops during these wars, no enemy in the field 
has done more to harm the readiness of our military than 
    Do you agree with that statement?
    Mr. Korb. No, I do not.
    Senator Graham. Okay.
    Mr. Korb. Because as I mentioned, you had a slush fund in 
the Overseas Contingency Operations (OCO) account. For example, 
we pay in the warfighting budget----
    Senator Graham. Why would he say that? Why do you think he 
would say that?
    Mr. Korb. Well, I think that it could have that effect, if 
you did not use the warfighting budget as a slush fund to 
offset sequestration in the baseline budget.
    Senator Graham. Mr. Korb, here is what I would say. I lived 
through sequestration like Senator Kaine. It was great. It was 
devastating. Our readiness was affected. Our modernization 
program was robbed. We had to transfer money and equipment to 
front-line warfighting, and everything back home deteriorated.
    So let me ask you this: Do you support a 10-percent cut in 
our military budget as proposed by Senator Sanders?
    Mr. Korb. I think you could cut it 10 percent and still 
have an effective----
    Senator Graham. Okay. Ma'am, what would you say? I do not 
want to butcher your name. How do you say your last name?
    Ms. Smithberger. Oh, ``Smithberger.'' It is just a German 
    Senator Graham. Okay. I lived in Germany, and I was not 
very good at German then. So would you support a 10-percent 
    Ms. Smithberger. I think those are the kinds of numbers 
that we need to be talking about.
    Senator Graham. Okay. The other gentleman, Mr. Hartung, 
would you support a 10-percent cut?
    Mr. Hartung. Yes. I think with a realistic strategy and 
proper procurement, we could certainly defend the country with 
a 10-percent cut.
    Senator Graham. Mr. Zakheim, would you support a 10-percent 
    Mr. Zakheim. Senator, I would not.
    Senator Graham. General Spoehr, would you support a 10-
percent cut?
    General Spoehr. Senator, a 10-percent cut to the military 
today would not allow us to execute the National Defense 
Strategy nor allow us to counter the efforts of China.
    Senator Graham. And let me just give you my 2 cents' worth. 
I think if we cut our budget 10 percent militarily, our allies 
would freak out. NATO without the United States is not a whole 
lot. We appreciate all their contributions, but we saw that in 
Libya. So we are an indispensable partner in keeping the world 
stable. I just cannot imagine the ripple effect throughout the 
world if America chose to go below where we are today in terms 
of emboldening our enemies.
    Mr. Zakheim, what threat does Iran present to the region 
and to the world, in your view?
    Mr. Zakheim. Senator, Iran presents a threat to freedom 
across the world. It threatens our close allies----
    Senator Graham. Do you believe if they had a nuclear weapon 
they would use it?
    Mr. Zakheim. Senator, a threat is a combination of intent 
and capability. The mullahs in Iran have demonstrated that they 
intent to bully, and with that capability they would use it in 
lots of different----
    Senator Graham. Do you agree with that, General Spoehr?
    General Spoehr. I do, sir. They just lobbed ten ballistic 
missiles against U.S. forces in Iraq. Why would they stop at a 
nuclear weapon?
    Senator Graham. So pivoting to Asia is a great aspiration, 
but let me tell you right now, to any administration, if you do 
not understand the threats coming from the Mideast to our 
national security and that of our allies, you are making a very 
dangerous mistake. And it is right to want to challenge China 
because they are getting more robust. So the idea of pivoting 
from one threat area to another is not an option. You have to 
deal with all the threats. And I cannot think of a worse time 
in modern American history to be reducing our defense 
capability than right now.
    Thank you.
    Chairman Sanders. And now Senator Kaine.
    Senator Kaine. Thank you, Mr. Chair, and thank you for 
calling this hearing. It is an important matter for not just 
the Armed Services Committee to dig into but the Budget 
Committee as well.
    I have followed the historic data about defense spending as 
a percentage of GDP and other spending categories. We have 
often talked about that in the Committee. Most of our spending 
categories as a percentage of GDP are going down. Nondefense 
discretionary is going down. Defense spending is going down. 
Pension and health-related items are going up. Interest as a 
percentage of GDP is going up. And the thing that is really 
going up fast is tax expenditures. Tax collection as a 
percentage of GDP has been dropping, but the tax expenditures 
have been dramatically going up.
    And so I put it in that background. Even though defense 
spending as a percentage of GDP is going down, we ought to get 
rid of waste, fraud, and abuse. We should. How do you determine 
that and how do you do it is the issue.
    First, you ought to match what you are doing against the 
threat to the Nation's security. So what I would like to ask 
our five witnesses to do--and I will go to the three in person, 
starting with Dr. Korb, and then come to our two online--is: On 
a scale of 1 to 10, 1 being we should not be worried at all, 10 
being we should be very worried, give me your 1-to-10 rankings 
of how worried we should be about Russia and China on a 1-to-10 
    Mr. Korb. I would say no more than a 5. This is not the 
second coming of the Cold War.
    Senator Kaine. And you would say no more than 5 for either 
Russia or China?
    Mr. Korb. Yes. I would say no more than 5 for China, and 
Russia maybe a 2.
    Senator Kaine. Okay. And if you want to, you can say you 
have no opinion about this question, but I just want to now 
move to Ms. Smithberger.
    Ms. Smithberger. Thank you for the question. I would say a 
6, but I think it is important that we look at what is 
happening when we have such a large level of spending and 
whether we are actually spending money on combating those 
threats in an effective way.
    Senator Kaine. When you say 6, you would say for both 
Russia and China?
    Ms. Smithberger. Yes.
    Senator Kaine. Mr. Zakheim?
    Mr. Zakheim. Senator, I would put China ahead of Russia. 
You know, I do not want to make them 10 feet tall, but they are 
approaching that. So I would give them an 8 and then put Russia 
behind it. The distinction I would make and ask you to consider 
is that Russia's adventurism is a real near-term threat; 
whereas, China is a problem today and a bigger problem 
    Senator Kaine. Now if I could go to Dr. Hartung and General 
    Mr. Hartung. Yes, I would probably rank China at a 4 and 
Russia at a 2. We are more capable than China in virtually 
every major military, you know, capability. We spend three 
times as much. We have a more capable navy. We have 13 times as 
many warheads----
    Senator Kaine. I got you. If I could, I want to move to 
another question, but I want to hear General Spoehr's answer.
    Mr. Hartung. Sure.
    General Spoehr. Sir, I would give China a 9. We have never 
seen an adversary like them, and they are on a trajectory. They 
are growing their defense budget this year by 6.8 percent. I 
would give Russia a 7. Thank you.
    Senator Kaine. Thank you for that. I do think it is 
important to match spending to threat levels.
    Here is the next point I want to make. If we are going to 
make cuts--and we should always analyze whether we should--we 
should not make them non-strategically. I will give you a 
couple of examples.
    A few years ago, there was a big battle in the Armed 
Services Committee, and over my objection a decision was made 
to do across-the-board cuts to headquarters--not strategic 
cuts, just we imposed a percentage cut on headquarters. Thirty-
three percent of the Pentagon personnel that were overseeing 
military housing were laid off. And then 3 years later, we had 
a massive problem about nobody was overseeing military housing.
    We have in the last few years reduced significantly 
Pentagon staff that oversee MilCon construction projects. We 
know of overspending on weapons systems platforms, but if you 
looked at the MilCon budget for like 2017 and you looked at 
projects and you said what percentage of these came in on time 
and on budget, the answer is: Who knows? We do not have anybody 
there to do the analysis of this.
    So if we are going to make cuts, we should really try to 
find what is fraudulent, what is abusive, what is wasteful. The 
across-the-board stuff, you end up hurting yourself, and then 
it comes back to bite you later.
    And then the last thing I would like to say in my last 30 
seconds on this is I think it was you, Ms. Smithberger, who may 
have said something about inadequate testing. This is a huge 
problem with the Pentagon. On weapons systems, on construction 
projects, we do not set up the toll booths early enough and 
then test to see whether it is working before we just blow 
through them. And then the problems turn into massive problems 
that could have been solved much earlier.
    We had testimony recently in an Armed Services Committee 
hearing from the Office of Testing and Evaluation at the 
Pentagon, within the last 2 weeks, and they said every weapons 
system that they tested in 2020 flunked the, well, I guess it 
is vulnerable to a cyber attack. And that was because enough 
work was not done up front on the engineering and research and 
early testing to protect. And so I think there is significant 
ways that we can cut abuse or waste or inefficiency, but we may 
have to invest some dollars early in things like testing or the 
personnel to oversee construction or acquisitions if we are 
going to do it in a smart way rather than in an across-the-
board way that could hurt us.
    Thank you, Mr. Chairman.
    Chairman Sanders. Thank you, Senator.
    Senator Grassley.
    Senator Grassley. Thank you, Mr. Chairman and the 
witnesses, for this hearing on a very important issue. It is so 
    I would like to hear from the Defense Secretary to come and 
testify as well. Every year when a new defense authorization or 
funding bill is due, military leaders and my colleagues claim 
additional funding is crucial to countering our enemies and 
protecting our interests abroad. National defense is the number 
one priority of our Government, and Congress is often reluctant 
to deny money that military leaders say is greatly needed.
    However, Congress and the Pentagon need to reach an 
understanding that fiscal accountability and military readiness 
are not mutually exclusive. Earning a clean audit opinion would 
strengthen military readiness and boost support for increases 
to defense spending with both Congress as well as the taxpayer. 
It is crucial for our national defense that the Department of 
Defense can fully account for its spending.
    Yes, the Defense Department has completed three consecutive 
annual audits now. There are some signs of progress. However, 
the goalposts continue to shift, and we are told maybe, just 
maybe, we will have a clean opinion 7 years from now, nearly 40 
years after Congress first passed a law requiring a clean 
audit. While some findings have been closed, new ones seem to 
be raised.
    One of the key findings of the audit year after year is 
that internal controls are weak or nonexistent. Sloppy 
bookkeeping, antiquated accounting systems that cannot generate 
reliable transaction data lead to unaccountable spending and 
create an environment ripe for waste, fraud, and abuse. It is 
these underlying systems that must be fixed before any real 
progress on audit can be made.
    We have 3 minutes, Ms. Smithberger, for a couple questions 
for you. The Department of Defense has competing priorities, 
including supporting the National Defense Strategy of 2018. 
Audit remediation efforts are expensive. Do you think it is a 
worthwhile use of limited resources to support the efforts to 
get a clean opinion? And how do you think the audit efforts 
improve accountability in other areas such as defense contract 
oversight over bad actors?
    Ms. Smithberger. Thank you, Senator, for the question and 
for your leadership on these issues. I do think that the audit 
is worth it. I think we are already seeing the payoffs where we 
are discovering significant weaknesses in our real property 
management, discovering billions of dollars of assets and 
equipment that we did not know that we had, and being able to--
so I think in many ways it is going to pay for itself.
    There are other ways that we have seen real dividends in 
investing in these audit processes, as Senator Kaine was 
mentioning. There are a number of arenas where we are not doing 
enough when it comes to cybersecurity, and the audit is 
revealing a number of those vulnerabilities. And I think it has 
really been the Congress pushing the Department to prioritize 
the audit that has really led to making a number of overdue 
changes, and by having those more effective and reliable 
systems that we are going to be able to be better at 
identifying contractor fraud, we are going to be better at 
being able to identify systemic problems that are undermining 
our readiness and causing waste.
    Senator Grassley. Also for you, my final question. The 
Chief Financial Officers (CFO) Act was passed way back in 1990. 
It has taken decades for the Department of Defense to even 
begin conducting a full financial statement audit, and a clean 
opinion is supposedly still years away. What in terms of 
incentives or penalties would be effective to accelerate the 
pace of the audit effort and ensure that progress is made and 
that DOD is not simply conducting an audit every year that is 
doomed to fail?
    Ms. Smithberger. Thank you for the question. So POGO was 
very proud to support your amendment with Senator Sanders that 
would actually impose financial penalties to components who are 
not able to meet these goals. I think what is important about 
this is not only the accountability, but continuing to show to 
the Department how seriously you are taking these issues, and 
then you are empowering people within the Department to make 
sure that these problems are addressed and so that we can 
accelerate the rate so that we can get to a clean audit much 
    Senator Grassley. Yes. And then one final statement. Since 
Mr. Korb mentioned my name and I do appreciate working with him 
decades ago, we did accomplish something that particular first 
term--or I guess it was during the second term of Reagan, we 
got the False Claims Act passed that has brought $63 billion 
back into the Federal Treasury as a result of all of the waste 
and abuse and mismanagement that we pointed out in the Reagan 
administration first term.
    Thank you. I yield back.
    Chairman Sanders. Okay. Thank you, Senator Grassley.
    Is Senator Van Hollen available? I know he wants to 
communicate virtually. He may be tied up. Not now. All right.
    Well, with that, then we have a vote, I think, so let me 
just conclude by thanking our panelists. This is an issue, I 
think, that needs an enormous amount of work on the part of 
Congress. The amount of money that we are dealing with is 
staggering. The complexity of the DOD budget is quite 
unbelievable. And I think at the end of the day we want a 
strong defense, but we want to do it in a cost-effective way. 
And in my view, there is a lot of work that has to be done to 
make that agency much more cost-effective.
    So let me thank the panelists, let me thank the Senators, 
and this meeting is adjourned.
    [Whereupon, at 12:12 a.m., the Committee was adjourned.]


    [Prepared statements, responses to written questions, and 
additional material submitted for the record follow:]

               Prepared Statement of Mr. Lawrence J. Korb

              Prepared Statement of Mr. William D. Hartung

              Prepared Statement of Ms. Mandy Smithberger

                Prepared Statement of Mr. Roger Zakheim

     Prepared Statement of Lieutenant General (Ret.) Thomas Spoehr