[Congressional Record Volume 143, Number 99 (Monday, July 14, 1997)]
[Senate]
[Pages S7415-S7420]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
DEPARTMENT OF DEFENSE APPROPRIATIONS ACT, 1998
The Senate continued with the consideration of the bill.
Mr. McCAIN addressed the Chair.
The PRESIDING OFFICER. The Senator from Arizona is recognized.
Mr. McCAIN. Mr. President, once again, I find myself in the
unpleasant position of speaking before my colleagues about unacceptable
levels of unnecessary spending in the defense appropriations bill. I
fully understand the pressure facing the chairman and ranking member of
the committee, but I would be remiss in my responsibilities were I not
to go on record for those items in the bill of truly questionable merit
that appear to represent the usual practice of inserting programs
primarily for parochial reasons.
The total value of these programs is about $5 billion, about twice as
much as the Congress increased the President's overall defense budget
request and, incidentally, about the same amount of wasteful spending
added in the defense authorization bill. This amount does not include
the $300 million transferred from the Defense Department to the
Transportation Department for Coast Guard activities, a perennial
provision in defense appropriations bills.
Let me review some examples of items included in the bill and report
that are, in my view, wasteful, unnecessary and designed simply to
serve personal interests.
The bill not only funds an oceanographic research ship not requested
by the Defense Department, it throws in an extra $19.5 million for
oceanographic and meteorological research. Are we to honestly believe
the $209 million in the budget request for that function is inadequate
for the next fiscal year? Of course, the over $200 million for C-130J
aircraft--once again not requested and certainly not needed, as
emphasized by the Air Force Chief of Staff--represents a particularly
egregious waste of taxpayer money.
I wonder, Mr. President, if some day, some year we will stop buying
C-130 aircraft. Many years ago, the Air Force said they didn't need any
more C-130 aircraft. It is time--well, I say it every year. It gets a
little ridiculous.
An especially troublesome expense, neither budgeted for nor estimated
in any accompanying documentation provided by the Appropriations
Committee, is the amount associated with the various ``Buy America''
provisions included in the bill. Such expenses include restricting to
U.S. manufacturers procurement of shipboard anchor and mooring chain,
carbon, alloy and armor steel plate, and ball and roller bearings.
Consequently, there is an automatic and generally substantial unknown
cost tied to this bill that will only become known as contracts are
signed with American manufacturers despite the availability of less
expensive products from our trading partners.
Lest anyone feel that I am unsympathetic to American manufacturers, I
need only point out the protectionist measures our European allies and
customers are considering in retaliation for the ``Buy America''
statutes included in the appropriations bills that are routinely passed
by Congress. Britain, a major purchaser of American platforms and
systems, is understandably tired of the one-way street we pursue in
defense acquisitions. I am fully cognizant of the need to protect
certain vital industries for national security reasons, but the items
protected in this and other bills hardly qualify.
The costly and unnecessary practice of earmarking appropriations
continues: $35 million for the Kaho'olawe Island Conveyance,
Remediation and Environmental Restoration Fund; $250,000 for a pilot
project to ``facilitate the transfer of commercial cruise ship
shipbuilding technology and expertise to U.S. yards,'' provided the
Jones Act restrictions are rigorously applied to the Hawaiian Islands;
$5.4 million for establishment of a small business development center,
which is to focus on agricultural programs in Pacific islands; $2.7
million to investigate new technologies in such areas as hyperspectral
fluorescence imaging, work to be conducted at the Akamai project at
Tripler Army Medical Center in Hawaii, with another $10 million
earmarked that the Department will be expected to spend for these
programs; $2.7 million of the oceanographic spending to which I
referred earlier at the Naval Surface Warfare Center in south Florida;
$6.9 million for upgrading air traffic control simulators at Keesler
Air Force Base in Mississippi; and $8 million for continued activities
at the Pacific Disaster Center.
Mr. President, that barely scratches the surface of what is in this
bill: $3 million is earmarked for the Caribbean radiation early warning
system, which is to be spent at the Center for Monitoring Research,
which brings me to the issue of Congress' tendency to create new
centers for the study of every conceivable subject, research virtually
all of which is already performed elsewhere. The defense authorization
bill passed last week included $5 million to establish a center for the
study of the Chinese military. I can go to my office or the library and
find numerous examples of competent studies on the Chinese military
already available, whether from the Rand Corp., the American Enterprise
Institute, or various studies published by scholars at various
universities. The authorization bill also establishes a Center for
Hemispheric Defense Studies for no apparent reason.
The practice of earmarking funds for centers knows no bounds. S. 1005
includes $7 million for the Center of Excellence for Research in Ocean
Sciences, just in case there was any risk of funds being spent for a
center of mediocrity for research in ocean sciences; $4 million for the
Southern Observatory for Astronomical Research; $4 million for the
Center of Advanced Microstructure Devices; and on and on it goes. I do
not doubt for one second that the sponsors of these programs can come
before the Senate and offer an articulate and thoughtful defense of
their pet projects. I do doubt very seriously whether any of these
items properly belongs in the defense appropriations bill, especially
during a period when vital accounts are regularly taxed to pay for
ongoing and unforeseen contingencies, like Bosnia and Iraq.
Any time military equipment is prepared for shipment to and from
deployment, it is inspected for damage and, in the case of equipment
being returned to its home base, for foreign substances like dust that
could contain bacteria alien to our country. Do we really need to
earmark another $1 million to expand that research specifically for
brown tree snakes, which, to the best of my knowledge, are located only
in Guam? Yes, it is true that we base a large number of forces on that
island. It is also true that the brown snake is a dangerous snake. I
simply find it hard to believe that we need to spend any defense
dollars on an issue for which plenty of information already exists and
is readily available.
Mr. President, I have touched on the tip of the iceberg. There is
plenty more I could point to were time available. I only look forward
to the day when my trips to the floor to highlight wasteful and
unnecessary spending are no longer necessary.
Mr. President, I ask unanimous consent that a list of objectionable
add-ons in the Department of Defense appropriations bill be printed in
the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
Objectionable Add-ons in the Fiscal Year 1998 Department of Defense
Appropriations Bill
Procurement (in millions)
Army: C-XX........................................................$23.0
Navy:
SSN-21 Seawolf..................................................153.4
NSSN..........................................................2,599.8
Special Project Aircraft..........................................7.0
Oceanographic Ships (TAG-65).....................................73.0
LCAC Landing Craft...............................................17.3
Environmental Support Equipment for Oceanography..................6.0
T-45 Training Aircraft Earmarked for NAS Meridian................10.0
Port Security Unit Equipment.....................................13.5
Air Force:
C-17 (MYP)......................................................418.5
WC-130 Aircraft.................................................177.0
Small CVX (C-37)..................................................6.0
Supply Assets Tracking System.....................................5.0
Defense-Wide: Automatic Document Conversion System.................20.0
[[Page S7416]]
Reserves and National Guard: 653.0
Including the following aircraft:
C-9 Replacement aircraft.....................................(40.0)
WC-130 Spares/Support Equipment..............................(29.7)
C-130J.......................................................(95.8)
EC-130.......................................................(70.5)
KC-135 Re-Engining...........................................(52.0)
Research and Development (in millions)
Army:
Projectile detection and Cuing...................................$2.5
Shortstop Electronic Protection system............................3.0
Solid-State Laser Dyes............................................4.0
Combat Vehicle and Automotive Technology:
National Automotive Center......................................4.0
High-Output Diesel Engine Testing...............................1.0
HMMWV Engine rebuild Program....................................4.0
Alterntive Vehicle Propulsion System............................5.0
Environmental Quality Technology:
Radford Environmental Development Program.......................6.0
Plasma Energy Pyrolysis System..................................8.7
Environmental Compliance Projects (WETO)........................8.8
Pacific Island Ecosystems.......................................4.0
Establish Small Business Center.................................5.4
Bioremediation Science Center--for fragile Pacific Island Isolated
Ecosystems....................................................4.0
Resource Recovery Technology Center.............................4.0
Cold Regions Research Lab.........................................1.0
Center for Geosciences Atmospheric Research......................10.0
Medical Advanced Technology:
Intravenous Membrane Oxygenator technology......................1.0
MRE Nutrition Research..........................................3.6
Mustard Gas Research............................................1.0
Breast Cancer Research........................................175.0
Prostate Diagnostic Imaging.....................................5.0
Electronics and Electronic Devices:
Rechargeable Coin Cells.........................................0.5
AA Zinc Air Battery.............................................1.3
Rechargeable Battery System.....................................0.6
Reusable Alkaline Manganese Zinc................................1.0
Virtual Retinal Display...........................................2.0
Low Emissions Natural Gas Boiler Demo.............................2.0
Cold Regions Research Lab Repair..................................1.3
Management Headquarters--Akamai Project..........................26.5
Including:
Hyperspectral Florecence Imaging............................(2.7)
Theater Medical Infrastructure.............................(10.0)
Aerostat Development.............................................10.0
Instrumental factory for Gears Program............................4.0
Electronic Circuit Board Development Center.......................4.0
University and Industry Research Centers..........................7.3
Army Data Analysis Center.........................................5.0
Battle Integration Center........................................22.0
DoD High Energy Laser Test Facility..............................15.0
Navy:
Natural Gas Cooling Systems.......................................2.5
PMRF Sensors......................................................5.0
LASH Hyperspectral...............................................12.0
Computer Technology:
Second Source Carbon Fibers.....................................2.0
Photomagnetic Material Research................................0.35
Plasma Quench Technology........................................3.0
Advanced Material Intelligent Center............................2.5
Defense Research Sciences:
Marine Mammal Research Program..................................0.5
Oceanographic and Atmospheric Technology:
Natl. Oceanographic Partnership Program........................16.0
NCSW Test Facility.............................................2.75
Asbestos Thermochemical Conversion Pilot Plant--Puget Sound Naval
Shipyard........................................................2.0
Freeze-Dried Blood Research.......................................2.5
Photomagnetic Materials Research.................................0.35
Environmental Quality and Logistics Adv. Tech.:
Permanent Fuel Cell............................................1.75
Visualization of Technical Info. Project........................2.0
Smart Base.....................................................6.25
Industrial Preparedness:
Mantech........................................................50.0
Center for Integrated Manufacturing Studies.....................4.0
Exploratory Development:
Oceanographic and Atmospheric Technology......................18.75
Industrial Preparedness..........................................54.0
Air Force:
HAARP.............................................................5.0
Inorganic/Organic Optical Limiters................................1.0
Armstrong Lab Exploratory Development.............................3.0
Phillips Lab Explatory Development................................0.9
Defense-Wide:
U.S.-Japan Management Training--University Research Initiatives..10.0
Pacific Disaster Center...........................................8.0
Scorpius Support Technologies....................................10.0
Joint Theater Missile Defense:
Advanced Research Center........................................7.0
Kauai Test Facility.............................................5.0
Pacific Missile Range Facility upgrades........................33.4
Center of Excellence for Rsh. In Ocean Sciences...................7.0
Materials and Electronics Technology:
Life Support Trauma and Transport...............................4.0
3-D Electronics.................................................5.0
Cryogenic Electronics...........................................6.0
Electric Vehicles................................................15.0
Climate Fuel Cell Program.........................................5.0
Southern Observatory for Astronomical Research....................4.0
HAARP.............................................................3.0
Advanced Electronics Technologies:
Lithographic and Alternative Semiconductor Processing Techniques
Ctr..........................................................23.0
Point Source X-Ray Lithography..................................3.0
Defense Techlink Rural Tech. Transfer...........................1.0
Center for Advanced Microstructures Devices.....................4.0
Defense Research Initiatives.....................................14.0
Agile Port Demonstration.........................................10.0
Electric Vehicles................................................15.0
High Performance Computing Modernization Prgm....................25.0
Military Personnel (in millions)
Air Force: Additional B-52 Force Structure.........................$4.5
Reserve and National Guard:
C-130 Force Structure (Air Force Reserve).........................1.4
C-130 Force Structure (Air National Guard)........................4.0
Operations and Maintenance (in millions)
Army:
Roock Island arsenal Bridge......................................$5.0
North Star Borough Landfill.......................................5.0
Saddle Road--Pohakuloa, Hawaii Training Area......................3.0
Navy:
Naval Meteorology and Oceanography Command.......................19.5
Pacific Missile Range Facility...................................15.0
Fallon Naval Air Station..........................................3.2
Air Force:
Civil Air Patrol..................................................4.4
Spacetrack--Maui, Hawaii..........................................1.4
Manufacturing Assistance Technology Program.......................2.0
B-52 Attrition Reserve Aircraft..................................42.4
Defense-Wide:
Legacy...........................................................10.0
Repairs to Federally-Funded Schools..............................10.0
Exercise Northern Edge (PACCOM)...................................5.0
Partnership for Peace............................................44.2
Civil-Military Programs (Challenge)..............................32.0
National Guard:
C-130 Force Structure............................................13.0
C-130 Operations..................................................6.0
Other DOD Approps. (in millions)
Defense Health Program:
Hepatitis A Vaccine.............................................$25.0
Military Health Service System Info. Mgmt........................10.0
Uniformed Service Univ.-Health Sciences..........................13.0
Pacific Island Health Care Program................................5.0
Brown Tree Snakes.................................................1.0
Cancer Control Program--Charleston Navy Hospital..................9.0
Army Research Institute...........................................5.4
Military Nursing Research.........................................5.0
Disaster Management Training--Tripler Army Medical Center.........5.0
Health Care Cooperation between Military and Civilians--Holloman Air
Force Base......................................................7.0
Diagnostic Ctr. of Excellence for Breast Cancer & Prostrate Cancer--
Ft. Drum........................................................4.0
Related Agencies (in millions)
Kaho'olawe Island Conveyance, Remediation, and Environmental
Restoration Trust Fund..........................................$35.0
General Provisions (in millions)
Shipbuilding Industrial Base Enhancement..........................$0.25
Mr. McCAIN. Mr. President, finally, I want to again thank the Senator
from Alaska and the Senator from Hawaii for, as always, doing an
outstanding and dedicated job in preparation of this very difficult and
largest appropriations bill that we consider. We have had debate and
discussion over my objections for many years. I am sure that will
continue. But that debate and discussion has not been characterized by
a lack of respect on my part for the outstanding job that both the
Senator from Alaska and the Senator from Hawaii do.
I yield the floor.
Mr. STEVENS addressed the Chair.
The PRESIDING OFFICER. The Senator from Alaska.
Mr. STEVENS. Mr. President, I await, sometimes with trepidation, the
annual report of my good friend from Arizona. I know of no one who
spends more time, other than Senator Inouye and I do, than the Senator
from Arizona.
His comments are to the point. We do disagree on some of the issues.
But I
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want the Senate to know once again we are grateful to him for the
amount of time he puts into the bill. He has led, through his comments
from year to year, changes that we have tried to make in subsequent
bills to reflect his guidance. We again will examine this bill as we go
to conference to make sure that we have done the best we can to accept
his advice and counsel. But I deeply, truly am grateful to him for the
time he takes on the bill.
Mr. McCAIN addressed the Chair.
The PRESIDING OFFICER. The Senator from Arizona.
Mr. McCAIN. I thank the Senator from Alaska for his consideration of
my remarks and the context in which they are intended. I appreciate the
degree of cooperation he and the Senator from Hawaii have accorded me
and my staff in the examination of the pending amendments. I am
grateful for that.
Mr. President, I yield the floor.
The PRESIDING OFFICER. The Senator from Iowa.
Mr. HARKIN. Mr. President, parliamentary inquiry. What is the floor
situation right now? Is the bill open for amendments?
The PRESIDING OFFICER. A first-degree amendment is currently pending
to the bill.
Mr. STEVENS. Mr. President, I ask unanimous consent that my amendment
be put aside so we can consider the amendment of the Senator from Iowa.
The PRESIDING OFFICER. Without objection, it is so ordered.
Amendment No. 848
(Purpose: To prohibit the use of taxpayer funds to underwrite
restructuring costs associated with a business merger)
Mr. HARKIN. Mr. President, I have an amendment which I send to the
desk and ask for its immediate consideration.
The PRESIDING OFFICER. The clerk will report the amendment.
The bill clerk read as follows:
The Senator from Iowa [Mr. Harkin] proposes an amendment
numbered 848.
Mr. HARKIN. Mr. President, I ask unanimous consent that further
reading of the amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:
At the end of title VIII, add the following:
Sec. . None of the funds available to the Department of
Defense under this Act may be obligated or expended to pay a
contractor under a contract with the Department of Defense
for any costs incurred by the contractor when it is made
known to the Federal official having authority to obligate or
expend such funds that such costs are restructuring costs
associated with a business combination that were incurred on
or after July 15, 1997.
The PRESIDING OFFICER. The Senator from Iowa is recognized.
Mr. HARKIN. Mr. President, I will take just a few minutes here to
describe my amendment and what it does. I appreciate the chairman's
willingness to set aside his amendment to take up this one.
Mr. President, this is an amendment similar to one that I offered a
year ago to get the Government out of the business of paying defense
contractors for exercising their own best business judgment in merging
together to form larger corporations, because that is what we are doing
right now. Even though defense contractors want to merge--it is in
their own best business interest to do so--taxpayers are coming in and
subsidizing it.
This is new. We have never done this before. Prior to July 1993, the
Department of Defense had a longstanding practice of not permitting
defense contractors to charge restructuring costs to flexibly priced
contracts that were transferred from one contractor to another as a
result of a business combination.
That was the longstanding policy of DOD. The rationale for this
practice was that DOD should not have to pay increased costs merely
because one contractor is combining with another contractor. That
statement comes right out of a recent GAO report.
But in July 1993, DOD changed its longstanding practice and uniformly
began permitting defense contractors to charge restructuring costs to
the taxpayers of this country.
How did this come about? Did it come about because Congress passed a
law permitting it? No. Was there ever any debate on the Senate floor
about it? None whatsoever. Was there ever one hearing held on it? No,
there was not one hearing held on it.
What happened was that in 1993, then Undersecretary of Defense, Mr.
John Deutch by name, was Undersecretary for Procurement. He decided,
single-handedly, to change the longstanding policy and made this
change.
We raised the point at the time, I and others, that this was a change
in the Federal Acquisition Regulations, [FAR]. To get a change like
this in FAR, there was a process and procedure that one had to go
through. It had to be published in the Federal Register. There had to
be hearings on it. Congress had to act on it. None of that took place.
When we raised the point that regulations were not followed in
changing the FAR, Mr. Deutch testified that in fact this was not a
change in FAR, this was simply an explanation of existing law, that
indeed the Department of Defense or any Federal agency had the
authority to pay for the costs of mergers and acquisitions. So to get
out from underneath violating the law, which I believe is what Mr.
Deutch did at that time in terms of not going through the normal
process, he then said, well, this really was not a change in FAR, it
was simply an explanation of what was existing law.
That raised all kinds of questions, as I pointed out last year in the
debate.
If this had been existing law for all these years, then it does not
just affect the Department of Defense. It affects every agency of
Government. That means that if hospitals merge, if they have Government
contracts, can now come in and say, we want help for our mergers and
acquisitions.
This could go back years and years. People could come back from 20
years ago and say, Oh, well, we didn't know that that was existing law,
so now we need to be reimbursed for the mergers we made in the past.
So we are hung up on the twin horns of this sort of dilemma. On the
one hand, if it was indeed a change in FAR, then Mr. Deutch and the
Department of Defense did not go through proper procedures to
accomplish that. If, on the other hand, it was not a change in FAR,
then we have opened a Pandora's box for providing for taxpayer funding
for any merger or combination for any company that has any Government
contract.
But I want to point out this is the Department of Defense, DOD,
funding bill. And, you know, some of my colleagues argue that we are
tight for money in this bill. We tried last week to transfer some money
out of DOD to pay for veterans. We were told we did not have enough
money in DOD for that. Now we have a subsidy the likes of which we have
never seen in this country. I call it the ``money for nothing'' subsidy
because that is exactly what the taxpayers are getting.
Let us look at the mergers and acquisitions that we have had.
Just last week Lockheed Martin announced it would purchase Northrop
Grumman for an estimated $11.6 billion. Well, besides a nice stock
boost for Northrop Grumman, which closed up 21.12 cents on the stock
market when the merger was announced, these merging companies are also
eligible to receive millions of dollars from the American taxpayers
just for doing what is in their own best business interest. So that is
why I am offering this amendment, a commonsense amendment to prevent
these large and profitable companies from receiving taxpayer subsidies
simply for merging.
I am not saying they cannot merge. I am simply saying that the
taxpayer should not fund it.
For the life of me, I cannot see the wisdom in paying these
profitable companies for merging when they are doing it in their own
best business interest, when they are making a lot of money on the
stock market, and we are paying them with money that we just do not
have. I thought we were trying to balance the budget.
Again, this is not money for any goods that we are going to receive
at all. I just think that if these companies want to merge, fine--I
know the Department of Defense has been urging them to merge for
savings to the taxpayers, possible savings to the taxpayers. I do not
know whether that is true or not. There may be some savings, but I do
not think that has all been documented in terms of real savings. But
even if there are savings to the taxpayers, the fact is, these
companies are making a lot of money by
[[Page S7418]]
merging. These companies would not merge if it was not in their best
business interests to do so. There is no one at the Defense Department
holding a hammer over their heads saying, Lockheed, you must merge with
Northrop Grumman. There is no one holding a hammer over the head of
Boeing saying, You must merge with McDonnell Douglas. They are doing it
because it is increasing their profits, increasing their bottom line
for their stockholders. Otherwise they would never do it.
These mergers, aside from making more money for the companies, are in
fact decreasing the amount of competition that we have out there now
for Government procurements. But now they say that, well, these mergers
are going to save us money.
Let me read a couple of passages from a recent DOD inspector general
report, dated June 28, 1996. On page 9-- let me read it in its full
context:
Contractors' [meaning defense contractors] are submitting
cost proposals for activities called concentration,
transition, economic planning, and other terms that do not
immediately suggest restructuring and make the cost issues
difficult for the Government to review, administer, and
resolve.
On page 10 of the same IG's report--this is still the DOD inspector
general's report--they said that:
One contractor's restructuring proposal projected savings
over 10 years. But the contractor's projections are highly
speculative since the volume of Government business is not
guaranteed. The same contractor also proposed savings based
on ``synergies in the work force''--
How about that one?
a term that is not defined in the existing procurement
regulations, and is difficult at best to substantiate and
evaluate.
Not my words, this is the DOD inspector general's words.
On page 16 the same IG report:
Amortization based on the projection of extended savings
can almost make a marginal acquisition appear attractive by
spreading costs over a long period, and comparing them to the
projected savings to determine savings. In all cases, amorti-
zation periods were selected for arbitrary reasons. . . .
According to a GAO study of one business combination, they said:
The net cost reduction certified by DOD represents less
than 15 percent of the savings projected to the DOD 2 years
earlier when they sought support for the proposed
partnership.
So DOD said, here is the proposed savings. GAO did the study of it
and said the cost reduction was less than 15 percent of the proposed
savings.
So, I believe, Mr. President, this practice is clearly an abuse of
taxpayers' money. We never passed it in the Congress. I believe that if
this had ever come up for a vote in the Senate to say that we are now
going to pay for mergers and acquisitions for these companies who are
going to make these huge profits, I do not think it ever would have
passed.
If these companies are merging for business reasons, why do they need
a handout from the taxpayers? If they are not being ordered to do so by
the Government--and they certainly are not; encouraged, yes, not
ordered to do so--but if they are good, the mergers will happen anyway,
and the taxpayers will receive any savings without paying anything out.
I know that is the point that is going to be made. We know that we
can see some savings being made by these mergers. Fine. That is a great
savings for the taxpayer if that is happening. But there is no reason
we should have to pay for these mergers, because the companies are
making much higher profits, much more money than they were before.
So, therefore, we should not have to pay for them. Lawrence Korb,
former Under Secretary of Defense, pointed out that defense contracting
is still a profitable business. Over the past year, Lockheed Martin
stock increased 48 percent in value, Northrop Grumman stock is up 50
percent, and McDonnell Douglas went up a whopping 80 percent last year.
That is fine. That is good. But then why do we have to come in and give
taxpayers' money to them to merge?
You do not have to take it from me but from a very conservative think
tank, the Cato Institute, which said, ``The costs associated by mergers
should not be absorbed by Federal taxpayers. This is an egregious
example of unwarranted corporate welfare in our budget.''
Taxpayers for Common Sense said, ``It is time for the Pentagon to
drop this ridiculous money-for-nothing policy.''
The Project on Government Oversight said, ``The new policy is
unneeded, establishes inappropriate government intervention in the
economy, promotes layoffs of high-wage jobs, pays for excessive CEO
salaries, and is likely to cost the government billions of dollars.''
Mr. President, it is time for the Pentagon to drop this ridiculous
money-for-nothing policy. This policy is unneeded, it allows
inappropriate Government intervention in the economy, and is likely to
cost more because it will limit competition.
Mr. President, the GAO recently pointed out that in the last round of
mergers and acquisitions they found the following: One, GAO was unable
to account for savings for the Federal Government due to DOD's
subsidies for mergers; second, the GAO reported that the mergers have
led to the layoff of 15,000 workers, with an additional 4,000 expected.
GAO also offered no evidence that the subsidy had resulted in any
savings that would not have been achieved without Federal payments.
There is another effect that we have not factored in here: 15,000
hard-working blue-color Americans lost their jobs, most of them good
union people, making pretty good wages--15,000 of them out of work. I
suppose they belong to unions like the machinists and a lot of other
good unions, making good money. Fifteen thousand laid off because of
these mergers and acquisitions. How many went on food stamps? How many
drew unemployment compensation? That is another cost to the taxpayers
that was not picked up by these merger and acquisition costs or
factored into the studies.
Mr. John Deutch, in 1993, made a big mistake. We should not compound
that mistake. Already, we have paid out $179 million to pay for mergers
and acquisitions. There is pending right now on the books about $817
million that we can see. That is not counting the upcoming Boeing-
McDonnell Douglas merger. How many more hundreds of millions of dollars
will that add?
My amendment, Mr. President, says simply that all of those that we
have--and I want to make sure the managers of the bill understand
this--all of those with which we have contractual arrangements,
obviously have to be paid. What my amendment says is that those that
have not been contractually made, we will not pay for these mergers or
acquisitions. So if we have made the contracts, I guess we have to live
up to it. But my amendment says none in the future.
It is time to stop this ridiculous policy of paying highly profitable
companies to do what is in their own best interests and which they
would do anyway even if there were no Government subsidy.
I yield the floor.
Mr. STEVENS. Mr. President, I have discussed this matter with the
distinguished Senator. I want to specifically call his attention to two
sections that are in our bill that were in the bill the year before and
the year before. One says:
None of the funds available to the Department of Defense
under this Act shall be obligated or expended to pay a
contractor under a contract with the Department of Defense
for costs of any amount paid by the contractor to an employee
when--
(1) such costs are for a bonus or otherwise in excess of
the normal salary paid by the contractor to the employee; and
(2) such bonus as part of restructuring costs associated
with business combination.
Second, we have a provision in this bill on page 91 section 8090.
``None of the funds available to the Department of Defense under this
Act may be obligated or expended to reimburse a defense contractor for
restructuring costs associated with business combination of the defense
contractor that occurs after the date of enactment''--and it was in
last year's bill, also; so it covers all of the mergers and
consolidations that the Senator has mentioned--``unless:
(1) the auditable savings for the Department of Defense
resulting from restructuring will exceed the costs allowed by
a factor of at least two to one, or
(2) the savings for the Department of Defense resulting
from restructuring will exceed the costs allowed and the
Secretary of Defense determines that the business combination
will result in the preservation of a critical capability that
might otherwise be lost to the Department, and
[[Page S7419]]
(3) the report required by section 818(e) of Public Law
103-337 be submitted to Congress in 1996 is submitted.
Now, what we have done in the past is we have said that if clearly
there is a two-in-one savings resulting from the combination, the
buildings can be paid associated with restructuring. If it is a
situation where the savings and the costs are equal, then the
Department can pay costs associated with restructuring where it finds
that it is in the interests of the Department and the United States to
have the consolidation because of its impact on our industrial base.
That is the last part I want to mention to my friend.
We have reduced procurement costs by over 60 percent now of the
Department of Defense. In so doing, we faced the problem of what
happens to the industrial base. Many people have come to us and talked
to us about this, come to the committee and talked to us about it. You
have to maintain the industrial base that is necessary to provide this
Nation with the systems that will be required in our defense. We have
seen it in shipbuilding, in submarine building, in aircraft building,
in tanks; we have seen it across the spectrum of procurement.
In order to do that, in some instances, there have been incentives to
industry to consolidate in the past. In this time, however, in this go-
round, there have been no incentives paid, there has been the right of
the Department to pay a portion of the restructuring costs when they
meet these two tests. If the savings projected are twice as much as the
costs, then the Department may pay the costs.
I say to my friend, the problem of maintaining the industrial base is
a very difficult one in a global economy. We are part of a global
defense economy now, too. There are enormous entities in other nations
that are competing with our people to provide new equipment, military
equipment to nations throughout the world, that are able to purchase
and maintain sophisticated new technology for their own defense.
Senator Inouye and I have visited nations throughout the Pacific
almost annually, and we have seen that. We have seen the desire for the
acquisition of new high-performance aircraft for aircraft carriers, for
submarines. We have seen that in terms of the purchase from the Soviet
Union, some of the nations in the Persian Gulf.
The point I am making is, if we are to be able to maintain the
capability that we must have to compete, if necessary, once again, in
restructuring our own industrial base and making it possible to expand
any of these systems, we have to maintain the minimum amount of
industrial base necessary to do that. These restructurings that have
taken place, in my judgment, have enhanced the ability of the United
States to maintain an industrial base, primarily the ones that my
friend is talking about in the field of aviation and that have happened
just recently. Had those mergers, those consolidations not taken place,
we would have seen the problem of the industrial basics exacerbated by
some of those companies failing when they were under obligation to the
United States to complete existing contracts.
These mergers and consolidations have enabled these companies to come
together, and they will, in fact, fulfill existing contracts. There is
still enough of a competitive structure within our Nation to assure
competition for future contracts. I understand the Senator has a GAO
report on this matter.
I think it is premature, really, to assess the impact of the laws we
passed. By the way, there are other provisions in the authorization
bill for the years past, and also in this year. I do not have the
knowledge of every one of the items he mentioned on a personal basis,
but I have the belief that the Department has before it a series of
provisions that prohibit the reimbursement for the bonuses to start
with. They are not part of this at all. They cannot be paid. But beyond
that, there are limited cases when restructuring costs may be paid by
the Department, either when the savings are 2-to-1 over the costs or
where the Secretary finds it is at least equal savings to the costs,
that those costs are in the interests of the Government in maintaining
the industrial capacity to provide for our own defense.
I say to the Senator, I reluctantly have to again oppose his
amendment and I will do so. I do not stand here to say that there have
not been some excesses in American industry per se over the payment of
bonuses and costs upon merger and consolidations, but I do think in
terms of those that have taken place within the realm of industrial
base and supplies to the Department of Defense we have acted in the
past and we are maintaining again this year strict controls over what
can be paid by the Department from taxpayers' funds as a result of
costs resulting from such restructuring.
Mr. HARKIN. I appreciate my chairman's comments on this. I know that
the law was changed last year; Commerce put these provisions in there.
Let me respond by saying that I think the GAO report points out that
these are ephemeral, at best. It does say that you have to, if I could
just have the chairman's attention, have the savings, the restructuring
savings for DOD just has to be projected by at least 2-to-1.
Then here is what the GAO said about estimating these savings. It
said:
Restructuring savings, on the other hand, are not recorded
in a contractor's accounting records. Therefore, neither the
amount nor the nature of the savings can be determined by
reviewing the accounting records. Consequently, savings have
to be estimated. For example, Northrop-Grumman's estimated 5-
year savings from closing the Grumman corporate headquarters
of about $215 million, of which about $100 million represents
the labor and fringe costs that would be avoided over the 5-
year period by laying off approximately 250 workers. These
savings are, therefore, an estimate of a cost avoidance over
the 5 years, the cost of the additional people that would
have been needed had the headquarters not been closed.
The savings from restructuring activities we examined were
generally in the form of such future cost avoidances. The
initial estimate of restructuring savings is simple in
concept because it makes the critical assumption that
everything else, except for the restructuring, is the same
after a business combination as before. Because things are
never the same, it is difficult to precisely identify actual
savings several years after the initial estimate is prepared.
Basically, what they are saying is, all of this money is fungible. I
know the chairman says that we put a provision in there saying they
can't use any of this money to pay bonuses. Fine. But they can go ahead
and pay big bonuses and they can shift the cost over somewhere else,
and we pay for closing an office and laying off 250 workers, which is a
cost avoidance.
So this money is all fungible. The GAO says there is no accounting
principle that they can look to to determine that. So these are
projected savings, not actual.
I say to my friend from Alaska, the distinguished chairman, projected
savings, well, I can tell you, any defense industry that is going to
merge is going to show you that the savings to the taxpayers is much
more than 2-to-1 over the amount of money we are going to give them for
merging. That is an absolute because they are going to be able to show
those kinds of savings. That is not the point. The point is, they are
going to merge because it is in their best business interest to do so.
Last week, Northrop-Grumman stock went up $21.12 a share. That is a
lot of money. The stockholders or shareholders are happy about this.
They have the money to go ahead and merge. This is in their best
business interest to do so. If the taxpayers get savings out of it,
fine, I am all for it. We should get savings out of it. But why should
we pay them to do something that they are going to do anyway? Let us
get the savings. Let it be 2-to-1. I hope it is 3-to-1, or 4-to-1, or
5-to-1. But we don't have to give them this money to do it.
So that is in response to what the chairman just said. Yes, they have
to project that the savings will exceed the allowed costs--that is the
money we give them--by a factor of 2-to-1. Believe me, they are going
to show that without any problem whatsoever. But if they can't, there
is another loophole because if the projected savings to DOD exceeded
the costs allowed, the secretary can determine if the business
combination will result in the preservation of a critical capability.
So there is another loophole if, in fact, they can't meet that test.
Believe me they will meet that test.
My bottom line is still this: These defense contractors are merging
because it is in their best business interest to do so. It is not in
our best interest, I
[[Page S7420]]
don't think--not all the time--because I think we are destroying a lot
of competition that was out there. But there is no reason for the
taxpayers to subsidize it. That is what this amendment does. It simply
stops it.
I yield the floor.
Mr. INOUYE. Mr. President, I believe the measure before us has
addressed this problem. The problem in issue is rather painful. On one
hand, it is our intention, and the intention of our Department of
Defense, to maintain and retain an industrial base. How do we maintain
an industrial base if there are too many companies involved in one
scope of work, adding to the cost of defense? We have found that by
encouraging restructuring, they can bring about a definite reduction in
costs--a reduction in costs to the taxpayers, a reduction in costs to
the Department.
Mr. President, there is no question that when we do achieve cost
reduction brought about by restructuring, men and women will find
themselves without employment. And so we are faced with this
predicament: Do we subsidize a company by paying large sums of money
for services and products, knowing that it can be done less
expensively, but since we don't want men and women to lose their jobs,
we subsidize their company to maintain an overloaded work force?
We have decided that it would be in our national interest, in the
interest of the Defense Department, and in the interest of the
taxpayers that we bring down the cost of Government. We do have other
programs--not in the defense bill, but in other accounts--such as
labor, health and human services, Medicare, Medicaid, welfare to help,
to the extent possible, those who may have become victims of
restructuring. But we have, Mr. President--the chairman and I--the
responsibility of presenting to the Senate a measure that we are
confident would bring about the best service, the best product, at the
least cost.
Mr. HARKIN. Mr. President, I ask for the yeas and nays.
The PRESIDING OFFICER. Is there a sufficient second?
There is a sufficient second.
The yeas and nays were ordered.
Mr. STEVENS. Mr. President, I ask unanimous consent that there be no
further debate on the Senator's amendment and that it not be subject to
second-degree amendments.
The PRESIDING OFFICER. Is there objection?
Without objection, it is so ordered.
Mr. STEVENS. Mr. President, we are awaiting the arrival of another
Senator.
I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
Mr. STEVENS. Mr. President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
UNANIMOUS CONSENT AGREEMENT
Mr. STEVENS. Mr. President, I ask unanimous consent that at 11 a.m.
on Tuesday the Senate resume consideration of this bill, the DOD
appropriations bill, and that the following be the only remaining
amendments in order with relevant second-degree amendments in order:
First, there is a managers' package that we will offer;
There is a pending amendment, No. 846;
We have the Hutchison amendment on war criminals;
McCain amendment to strike section 8097;
The McCain amendment; we will call it the ``Buy America'' amendment;
The Dorgan amendment on flood relief;
A second Dorgan amendment on re-engining authority;
A Feinstein amendment on land transfer;
A second amendment on NATO expansion cost cap;
Graham amendment, which I believe is cosponsored by Senator Mack, on
electronic combat testing;
The Harkin amendment, which is the second pending amendment for which
the yeas and nays were just ordered on, amendment 848;
Senator Inouye may have a managers' amendment in addition to mine;
The Robb Marc card amendment;
And that, following the disposition of those amendments, S. 1005 then
be read a third time, the Senate proceed to vote on the passage of the
bill;
That further, when the Senate receives the House companion measure,
the Senate immediately proceed to its consideration.
I further ask that all after the enacting clause be stricken, and the
text of the Senate bill S. 1005 be inserted in lieu of the House-passed
bill, the bill be read a third time, and passed.
I further ask that the Senate insist on its amendment and request a
conference with the House, and that the Chair be authorized to appoint
conferees on the part of the Senate.
The PRESIDING OFFICER. Is there objection?
Without objection, it is so ordered.
Mr. STEVENS. Mr. President, it is my understanding that, other than
those amendments that have now been qualified under this unanimous-
consent agreement, no further amendments will be in order.
It will be our intention to try to move as quickly as possible once
we are on the bill tomorrow morning at 11 o'clock to dispose of the
amendments I have listed. And I would ask that all staff be notified
that we shall seek time agreements on those amendments when they are
called up.
Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
Mr. STEVENS. Mr. President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
____________________