```

[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]

       DEFENSE DEPARTMENT BUDGET PRIORITIES FOR FISCAL YEAR 2002

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

                                HEARING

                               before the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

             HEARING HELD IN WASHINGTON, DC, JULY 11, 2001

                               __________

                           Serial No. 107-13

                               __________

           Printed for the use of the Committee on the Budget

  Available on the Internet: http://www.access.gpo.gov/congress/house/
                              house04.html

                                _______

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                        COMMITTEE ON THE BUDGET

                       JIM NUSSLE, Iowa, Chairman
JOHN E. SUNUNU, New Hampshire        JOHN M. SPRATT, Jr., South 
  Vice Chairman                          Carolina,
PETER HOEKSTRA, Michigan               Ranking Minority Member
  Vice Chairman                      JIM McDERMOTT, Washington
CHARLES F. BASS, New Hampshire       BENNIE G. THOMPSON, Mississippi
GIL GUTKNECHT, Minnesota             KEN BENTSEN, Texas
VAN HILLEARY, Tennessee              JIM DAVIS, Florida
MAC THORNBERRY, Texas                EVA M. CLAYTON, North Carolina
JIM RYUN, Kansas                     DAVID E. PRICE, North Carolina
MAC COLLINS, Georgia                 GERALD D. KLECZKA, Wisconsin
ERNIE FLETCHER, Kentucky             BOB CLEMENT, Tennessee
GARY G. MILLER, California           JAMES P. MORAN, Virginia
PAT TOOMEY, Pennsylvania             DARLENE HOOLEY, Oregon
WES WATKINS, Oklahoma                TAMMY BALDWIN, Wisconsin
DOC HASTINGS, Washington             CAROLYN McCARTHY, New York
JOHN T. DOOLITTLE, California        DENNIS MOORE, Kansas
ROB PORTMAN, Ohio                    MICHAEL E. CAPUANO, Massachusetts
RAY LaHOOD, Illinois                 MICHAEL M. HONDA, California
KAY GRANGER, Texas                   JOSEPH M. HOEFFEL III, 
EDWARD SCHROCK, Virginia                 Pennsylvania
JOHN CULBERSON, Texas                RUSH D. HOLT, New Jersey
HENRY E. BROWN, Jr., South Carolina  JIM MATHESON, Utah
ANDER CRENSHAW, Florida
ADAM PUTNAM, Florida
MARK KIRK, Illinois

                           Professional Staff

                       Rich Meade, Chief of Staff
       Thomas S. Kahn, Minority Staff Director and Chief Counsel

                            C O N T E N T S

                                                                   Page
Hearing held in Washington, DC, July 11, 2001....................     1
Statement of:
    Paul Wolfowitz, Deputy Secretary, U.S. Department of Defense.     7
Prepared statement of:
    Chairman Nussle..............................................     6
    Hon. Jim Matheson, a Representative in Congress from the 
      State of Utah..............................................     7
    Mr. Wolfowitz................................................    12
    Hon. Darlene Hooley, a Representative in Congress from the 
      State of Oregon............................................    30
Additional questions submitted for the record by Mr. Gutknecht...    45
Additional questions submitted for the record by Mr. Spratt......    45

 
       DEFENSE DEPARTMENT BUDGET PRIORITIES FOR FISCAL YEAR 2002

                              ----------                              

                        WEDNESDAY, JULY 11, 2001

                          House of Representatives,
                                   Committee on the Budget,
                                                    Washington, DC.
    The committee met, pursuant to call, at 10:04 a.m. in room 
210, Cannon House Office Building, Hon. Jim Nussle (chairman of 
the committee) presiding.
    Members present: Representatives Nussle, Hoekstra, 
Hilleary, Thornberry, Collins, Fletcher, Hastings, Portman, 
LaHood, Granger, Schrock, Culberson, Crenshaw, Kirk, Spratt, 
McDermott, Bentsen, Price, Clement, Moran, Hooley, McCarthy, 
Moore, Honda, and Matheson.
    Chairman Nussle. Good morning. The Budget Committee will 
come to order.
    Today we are continuing a series of hearings reviewing the 
President's budget. Today is a hearing on the Pentagon budget 
amendment, reviewing the administration's additional funding 
request for fiscal year 2002. Today we are honored with the 
presence of Paul Wolfowitz, Deputy Secretary of Defense, 
accompanied by Under Secretary of Defense Zakheim.
    Am I pronouncing that correctly?
    Mr. Zakheim. Zakheim.
    Chairman Nussle. Zakheim. I apologize.
    Thank you very much, both of you, for coming today.
    Today's hearing will help us understand how a very vital 
component of the administration's agenda and a matter that is 
the government's first constitutional duty and responsibility 
fits into budget. After all, defense is half of all 
discretionary spending. At this point, it is appropriate to 
review what the budget resolution provided for defense and to 
place in context this latest request from the Department of 
Defense.
    The budget resolution recognized that the United States 
military has suffered from nearly a decade of over-deployments, 
confused priorities and underfunding, that under the previous 
administration increases were needed to correct some very 
urgent problems. The resolution provided basically three things 
with regard to defense.
    First, it accommodated a $6.5 billion supplemental 
appropriation for fiscal year 2002, nearly all of which is to 
address the immediate defense readiness issues. The 
supplemental recently passed the House and, of course, is now, 
currently, under consideration in the Senate.
    Secondly, it furnished a $14.5 billion defense increase for 
fiscal year 2002, consistent with the President's request. As 
described in the administration's initial budget submission,``A 
Blueprint for New Beginnings,'' quote, ``This funding increase 
will allow DOD to address its most pressing priorities. These 
include relieving some of the housing problems our military 
troops and their families are currently facing, addressing the 
need for increased military pay and undertaking a thorough 
review of research and development programs to determine the 
most promising investments for the future,'' unquote.
    Finally, the third provision in the budget accommodates the 
long-term modernization, funding the defense of the future. 
This would be based on the Pentagon's Strategic Review. Again, 
``A Blueprint for a New Beginning'' said, quote, ``The nation's 
defense strategy should drive decisions on defense resources, 
not the other way around.'' Let me repeat that, ``the nation's 
defense strategy should drive decisions on defense resources, 
not the other way around.'' I believe the President in his 
speech to the Congress suggested that the funding should follow 
the strategy and not the other way around.
    The budget resolution provided a reserve fund to 
accommodate these needs, and in the House, the amount for use 
for defense from that fund was to be determined by the chairman 
of this committee.
    Having supported two of the Pentagon's funding requests, 
members of the Budget Committee might have expected the third 
to consist of start-up financing for the long-range defense 
modernization that was set as a goal and promised. But 75 
percent of the administration's latest budget request for 2002, 
this latest amendment of $18.4 billion defense needs, is not 
for modernization but for security operations.
    A substantial part of the amendment funds items such as 
infrastructure, base operations support, depot maintenance, 
things which ought to have been part of the original request 
since they support ongoing operations rather than 
transformation strategy. And the administration's division 
review on which the modernization funding plan was to be based 
is not complete and will not be complete until this summer at 
the earliest, most likely this fall.
    Even in isolation, the $18.4 billion is a very significant 
sum. It is larger than the entire agricultural appropriations 
bill, as an example; and, rightfully so, more than twice 
Canada's entire annual defense budget--just this amendment 
itself.
    The need to review the request is clear. The budget 
resolution for 2002 created the reserve funds. Accordingly, the 
Budget Committee chairman, I believe, has a fiduciary 
responsibility to provide oversight in this area. I cannot 
simply open up reserve funds and disburse money without 
rigorous justification and an orderly oversight process. Yet, 
the Pentagon's request for new funds has come even before the 
supplemental has finished, not to mention its own Strategic 
Review.
    Finally, it is a matter of future funding. Both the 
administration and Congress agree that the days of deficit 
financing are over. But fully understanding the needs of our 
nation's servicemen and women and in complete agreement on the 
requirement of a transformation strategy, we must also have the 
assurance that our hard-won fiscal discipline will be 
maintained into the future in the context of a long-range 
budget plan. And today we look forward to that assurance from 
our witnesses.
    Let me say, finally, a couple of things about what I view 
as some fairly harsh criticism on my part. Number one, I did it 
because I was encouraged by the President's goal determining 
that the strategy would come first, that a review of the 
Pentagon and a review of our national defense needs would come 
first, before additional funds would be requested or before an 
additional budget request would be made, number one.
    Number two, at the same time, I knew it was going to be a 
very difficult--I was about to say almost impossible--task to 
do it within the time frame set. The President suggested during 
a speech to the Congress--he looked down, as I remember, at the 
Secretary of Defense and suggested he needed to get that done 
within 6 months, which at that time counted to about today. At 
the time, I think everyone thought while it was a worthy goal, 
a very difficult one.
    The witnesses that we have here today have been doing that 
work. One, as I understand, was not confirmed until March; the 
other was not confirmed until May. Try and do a 6-month review 
when you are not even on the job.
    I am not suggesting the task, the goal was one that was 
able to be completed within the time frame allotted, given the 
circumstances that they found at the Pentagon, let alone given 
the time frame after confirmation. But we need to know what the 
new process is going to be. If, in fact, a new deadline has 
been set, and if a new timetable is to be adhered to, we need 
to know what that is.
    There is a need, as I said in my opening statement, not 
only to put defense as a priority but as our number one 
priority. It is our first constitutional responsibility. We 
don't have Medicare, we don't have Social Security, we don't 
have tax cuts, we don't have anything if we can't defend our 
nation, and we can't preserve freedom into the future. And so 
this is probably one of the most important topics that we can 
discuss.
    I also understand why the Secretary of Defense would not be 
here personally today to discuss this. Having watched the 
hearing just yesterday over in the Senate where they were 
discussing the 2002 budget request, it digressed into an almost 
half-day hearing on Vieques and the shelling of Puerto Rico. 
You can see that the macro decisions of our national defense 
and national security are mired in special topics, special 
projects, special district initiatives, State initiatives for 
particular Senators and Representatives.
    That having been said, Congress has a responsibility in 
this as well. I am not suggesting that our national review--
Strategic Review is to be laid only at the feet of our 
administration. We in Congress have the first and foremost 
responsibility under Article 1 to make these decisions. And 
while the Secretary is not prepared to come here today to 
either propose or defend what that new strategy would be--and I 
can understand that--I would suggest to you publicly for the 
record today that before the 2003 request is made, before next 
year's budget is going to be enacted, the Secretary needs to 
come forward and needs to give us an update on what that 
Strategic Review has accomplished and how that has been 
incorporated into the administration's and the Department of 
Defense's 2003 request.
    That having been said, we have a lot of work to do today, a 
lot of questions, I know, from members discussing, hopefully, 
not Vieques, but hopefully talking about the macro issues of 
our national defense. As I said, it is half our budget. It 
deserves the oversight and attention of this committee. And 
that is the reason for the hearing today.
    At this time I would like to recognize a friend and 
colleague, John Spratt, for any opening remarks he would make.
    Mr. Spratt. Thank you, Mr. Chairman. Thank you for your 
comments. I will readily stipulate, if you wish, that we won't 
discuss Vieques today. I don't think we need to get into the 
minutia of the defense budget or even the major programs. We 
need to be talking mainly about the top line and how we fit it 
into the overall budget.
    What the defense department has done is split a request--
first of all, a placeholder request for, essentially, the 
Clinton-Cohen budget. It is only about $100 million more than 
what Clinton and Cohen had provided--$310 billion for DOD, 
another $13 billion for the Department of Energy for the 
nuclear program.
    Now the Pentagon has come forward with another request, 
which we anticipated at some point; we didn't know how much it 
would be, but it turns out it is $18.4 billion. That means, if 
it is provided--about a 7 percent real increase, about an 11 
percent nominal increase--it is a substantial increase in the 
budget for next year.
    Part of the problem I think we have got, and I think you 
have got, is that $18.4 billion is not really what you were 
seeking. You were seeking more and you expect to get more in 
the future. Every time, Mr. Wolfowitz, that we have met, I have 
presented you with a chart. And each time it has been a 
different chart, because the numbers won't sit still, but this 
is the predicament we found ourselves in.
    The budget for this year is what is done; thus, nuclear is 
shown in the first upper half of this chart that I have before 
you, and I have given you a copy of it so that you can see it. 
I can barely see what we have got on this chart from where I 
sit.
    Basically, if you look across the bottom line, the so-
called ``contingency reserve,'' the money left over after you 
account for all the puts and takes in the budget thus far--the 
tax cut, backing out the Social Security surplus, backing out 
the Medicare surplus, this year, next year, 2002--there will be 
a $25 billion bottom line according to the current estimates of 
revenues. If there is any deterioration in the bottom line, 
along the lines of what Mr. Lindsey indicated just a couple of 
weeks ago, then that number--it will evaporate. And the only 
reason it is there, as we know, there is an artificial timing 
shift, the corporate tax payment ordinarily due on September 
15th will instead, under the Tax Act, be due on October 1st. 
Therefore, it is shifted into 2002.
    But once you get beyond that gimmick, that tax shift, the 
bottom line is negative in 2003-04, it is a billion dollars in 
2005, $11 billion in 2006, $21 billion in 2007. You've got to 
get all the way out to 2008 before that bottom line, that so-
called ``contingency reserve,'' is adequate to absorb the 
request that you have this year adjusted for inflation.
    Now, we are taking your calculation of outlays. Frankly, we 
suspect that CBO's will be a bit higher, but we are taking your 
numbers for outlays. In every year, as you can see in the next 
subsection, subsequent action in every year from 2003 through 
$2007 there is a deficit, which means in those years, unless we 
make major adjustments in the out-year budget, you are spending 
Medicare Trust Fund money. And we have all agreed in the House, 
I think, Democrats and Republicans, that we are not going to do 
that.
    The administration suggested that this would be permissible 
for various reasons, and the chairman, after hearing them say 
this repeatedly under our cross-examination, took our position 
and said, no, we are not going to spend the Medicare Trust Fund 
money. If not, to fit the $18.4 billion into this budget, we 
have got to do some significant ``shimming,'' as we say in 
South Carolina. That is just for the $18.4 billion.
    When I first presented this chart to Mr. Rumsfeld over one 
of our breakfast meetings, it had a bigger number for defense. 
And we assumed, basically, that you would--initially would come 
in for a request for $20 billion, and each year that would 
staircase upwards by $5 billion until it reached $50 billion, 
and then it would increase with the rate of inflation.
    When I presented that to Mr. Rumsfeld, he shook his head 
vigorously and said, No, no, no, you are way too low. So I 
infer from that body language and inferential indications I 
have got from you, the $18.4 is for starters; you are really 
expecting something about twice that large.
    Indeed, when Mr. Rumsfeld was asked,``How much more will 
you be seeking in 2003--if your request for 2002 is the 18.4 
addition you are seeking now, how much more will you ask for in 
2003.'' He put the number at around $347 billion. You are 329 
there; 347 would mean you need another $18 billion.
    I don't know if these numbers are correct, where it is 
coming from, and if the top line deteriorates along the lines 
that Dr. Lindsey indicated recently, we have got a problem. 
That is why we are here today, because we are supposed to fit 
all of these big macro numbers into a budget that has a 
positive bottom line that stays out of the Medicare Trust Fund 
and stays out of the Social Security Trust Fund surplus as 
well.
    There is an important point I think, too, for you, if you 
are not going to get, or are unlikely to get because of this 
budget scenario, the increment that you expect in 2003. If the 
$18 billion you are getting now, plus inflation, is about all 
you can reasonably expect in the next few years, I think you 
probably need to rethink your budget request for 2002, because 
there are major efforts started. Spending $3 billion more on 
ballistic missile defense, a nearly 60 percent increase, that 
may not be sustainable in the outyears if that $18 billion 
addition on top of the $18 billion you are seeking this year 
can't be provided.
    So this is a serious hearing. We come here in good faith. I 
am a pro-defense Democrat. I want to see your $18 billion 
funded this year. But I have to tell you it is going to be hard 
to fit in this budget, and I don't know where the addition is 
coming from in the future.
    Chairman Nussle. I ask unanimous consent that all members 
be allowed to place in the record an opening statement at this 
point. Without objection, so ordered.
    [The information referred to follows:]

  Prepared Statement of Hon. Jim Nussle, a Representative in Congress 
                         From the State of Iowa

    The committee will come to order. Today's hearing will focus on the 
President's Defense Review, the Department of Defense budget request 
for fiscal year 2002, and the longer-term outlook for defense spending. 
Our witness will be the Honorable Paul Wolfowitz, Deputy Secretary of 
Defense. Appearing with Secretary Wolfowitz will be Dov Zakheim, the 
Under Secretary of Defense and Chief Financial Officer. Good morning, 
gentlemen.
    Today's hearing will help us understand how a vital component of 
the administration's agenda and a matter that is government's first 
Constitutional responsibility fits into the budget--after all, defense 
is half of all discretionary spending. At this point, it is appropriate 
to review what the budget resolution provided for defense, and to place 
in context the latest request from the Department of Defense.
    The budget resolution recognized that the United States military 
had suffered from nearly a decade of overdeployments, confused 
priorities, and underfunding under the previous administration, and 
that immediate funding increases were needed to correct the most urgent 
problems. The resolution provided three things:
    First, it provided room for a $6.5-billion supplemental 
appropriation for fiscal year 2001, nearly all of which was to address 
urgent defense readiness issues. The supplemental recently passed the 
House and is under consideration in the Senate.
    Second, it added a $14.5-billion defense increase for fiscal year 
2002, consistent with the President's request. As described in the 
administration's initial budget submission, ``A Blueprint for New 
Beginnings'': ``This funding increase will allow DOD to address its 
most pressing priorities. These include relieving some of the housing 
problems our military troops and their families are currently facing, 
addressing the need for increased military pay, and undertaking a 
thorough review of research and development programs to determine the 
most promising investments for the future.''
    Finally, it saw to the need for long-term modernization. This 
modernization would be built upon the Pentagon's strategic review. ``A 
Blueprint for New Beginnings'' said, ``The nation's defense strategy 
should drive decisions on defense resources, not the other way 
around.'' The budget resolution provided a reserve fund to accommodate 
these needs. In the House, the amount to be used for defense from that 
fund is to be determined by the Chairman of this Committee.
    Having supported two of the Pentagon's funding requests, members of 
the Budget Committee might have expected the third to consist of 
initial financing of the long-range defense modernization that was 
promised. But 75 percent of the administration's latest $18.4-billion 
defense proposal is not for modernization; it is for current 
operations. A substantial part of the amendment funds items such as 
infrastructure, base operations support, and depot maintenance, things 
which ought to have been in the original request, since they support 
ongoing operations rather than a transformation strategy. And the 
administration's Defense Review, on which modernization funding plan 
was to be based, is not yet complete and will not be until later this 
summer at the earliest.
    Even in isolation, $18.4 billion is a significant sum. It is larger 
than the entire agriculture appropriations bill, and more than twice 
Canada's entire annual defense budget. The need to review this request 
is clear.
    The budget resolution for 2002 created the reserve funds. 
Accordingly, the Budget Committee Chairman has a fiduciary 
responsibility. He cannot simply open up reserve funds and disburse 
money without a rigorous justification and an orderly oversight 
process. Yet the Pentagon's request for new funds has come even before 
the supplemental is finished, not to mention its own Strategic Review.
    Finally, there is the matter of future funding. Both the 
administration and Congress agree that the days of deficit financing 
are over. But fully understanding the needs of our nation's service men 
and women, and in complete agreement on the requirement of a 
transformation strategy, we must also have assurance that our hard-won 
fiscal discipline will be maintained into the future in the context of 
a long-range budget plan. Today, we will look for that assurance from 
our witness.

 Prepared Statement of Hon. Jim Matheson, a Representative in Congress 
                         From the State of Utah

    I would like to thank Chairman Nussle and Ranking Member Spratt for 
holding this hearing today to gain further insight from the Department 
of Defense regarding DOD budget priorities for Fiscal Year 2002. During 
the debate on the budget resolution, many concerns were raised 
regarding the ``placeholder'' that was used as a reference for 
allocating funds for DOD in FY 20002. Members of this committee offered 
amendments during consideration of the budget resolution to account for 
known shortfalls in the DOD health program. Unfortunately, these 
efforts failed in committee and the administration subsequently had to 
submit a supplemental request to fund these needs.
    During the Budget Committee mark-up, I said that there was little 
room for error in the budget resolution this committee approved, and 
now we are seeing the consequences. Along with my colleagues in the 
Blue Dog Coalition, I offered a budget alternative that put additional 
resources in the budget for defense rather than using a placeholder 
that relied on the surplus projections continuing to hold. With recent 
reports indicating that their budget surpluses are in jeopardy, we have 
some tough choices to make in order to ensure that we do not dip into 
the Social Security and Medicare surpluses in order to meet our 
nation's defense needs. I stand ready to work with the Chairman, Mr. 
Spratt and other members of this committee to find a way to meet our 
defense needs without jeopardizing our committee to protect the Social 
Security and Medicare trust funds.

    Chairman Nussle. At this point, we welcome to the committee 
Deputy Secretary of Defense Paul Wolfowitz, and we look forward 
to your testimony. Your written testimony will be in the record 
at this point, and you may proceed as you would like, 
summarizing your testimony.
    Again, as I said in my opening--my opening remarks, you 
have been asked to do a huge task, maybe one that is close to 
an impossible task, but I think we have the right person for 
the job. I have had a chance to review some of your background, 
had a chance to visit with you briefly yesterday. This is your 
third tour of duty, and in a similar position, so you've been 
there, done that. I think you have got two T-shirts; now you 
are working on your third, as they say.
    We welcome you before the committee to give us an update on 
the President's request for the defense budget for 2002.

STATEMENT OF PAUL WOLFOWITZ, DEPUTY SECRETARY, U.S. DEPARTMENT 
                           OF DEFENSE

    Mr. Wolfowitz. Thank you, Mr. Chairman, Congressman Spratt, 
members of this committee. I appreciate this opportunity to 
come here to discuss the President's 2002 amended budget 
request. I have with me the Under Secretary of Defense and 
Comptroller, Mr. Dov Zakheim. It is very nice to have some 
capable help, although I must say, we wish we had gotten him 
confirmed earlier than May.
    I will submit my testimony for the record and just try to 
summarize it here briefly. But I do want to make a number of 
points because I think it is important. You have raised some 
very important questions, Mr. Chairman.
    So have you, Mr. Spratt.
    The U.S. Armed Forces today are the world's best-trained, 
best-equipped, and most powerful in the world. However, we are 
not in such great shape. We spent much of the 1990's living off 
the investments of the 1980's. We allowed our military 
capabilities to be slowly degraded as we overused a shrinking 
and underfunded force.
    If I could just show you this chart, Mr. Chairman, which 
shows that over the decade of the 1990's, while the force came 
down in size by 30 percent, the average number of operations we 
sent them on on a monthly or yearly basis went up 105 percent. 
Some of those operations have names we all know, like Haiti and 
Kosovo and Bosnia and Iraq. Some of these will continue for a 
long time. There are many smaller ones that we don't even read 
about, maybe only temporary.
    To their enormous credit, America's dedicated servicemen 
and women dutifully did more with less. Many in Congress and 
many on this committee worked hard to give those service people 
more resources.
    Notwithstanding those efforts, that policy of overusing and 
underfunding the force has begun to take its toll. It has 
harmed our readiness to meet current threats, and it is 
undermining our ability to prepare for the threats of the 
future.
    As you said, Mr. Chairman, when President Bush took office, 
he asked the Defense Department to undertake a comprehensive 
review of the condition and direction of America's Armed 
Forces. He asked us to engage our brains before we opened the 
taxpayers' wallets. And so Secretary Rumsfeld initiated a broad 
strategy review soon after taking office.
    We have completed the first stage of that strategy review, 
and that forms the basis for our 2002 budget request. We are 
now starting the second stage, which we have merged into the 
congressionally mandated Quadrennial Defense Review (QDR), and 
that, Mr. Chairman, will form the basis for the 2003 budget in 
the new 5-year defense plan.
    Let me say just briefly a little bit about that second 
stage, which we are in the middle of right now, before I come 
back to the 2002 budget.
    From the completion of the initial strategy review, we have 
drawn two conclusions. The first is that the security 
environment America will face in the decades ahead is likely to 
be much more dangerous than the one we faced in the decade just 
past. The other is that the condition of our force today is 
even worse than we had previously expected.
    On that chart that we have shown to you, Mr. Chairman, 
there is just one example of the kinds of things that happen 
when, year after year, you defer maintenance, you defer 
replacement of things. On the left hand picture, you see a $500 
grate that should have been fixed--would have cost us $500 to 
fix it. Instead, because it was broken, a valuable airplane 
crashed into it, and we ended up with costs of $165,000 to fix 
the plane. That kind of example proliferates around our force.
    [The chart referred to follows:]

    
    
    We discussed with you yesterday, Mr. Chairman, the kinds of 
problems we have with military housing. Some of the housing is 
first-rate, but when you delay, year after year, repairing it, 
you have paint peeling in places, you have curling floors. If I 
might submit for the record--this is an example from just one 
service on living and working conditions in the U.S. Army 
today. It is not what our service people deserve.
    Those preliminary conclusions have formed the basis of the 
2002 budget and a starting point for preparing the Quadrennial 
Defense Review and the 2003 budget. We have done that with a 
rather extraordinary series of discussions among the Secretary, 
the Chairman of the Joint Chiefs, the Chiefs of the services 
and the service secretaries and under secretaries--in my 
experience in three tours at the Pentagon, I have never seen 
anything quite like that in terms of high-level discussions 
without staff present--and that provided the guidance going 
into this QDR and 2003 strategy review.
    Of the issues that group has identified, the most 
important, I think, is the need to assess what our forces can 
do on the basis of a broad assessment of risk. In the past, we 
have tended to evaluate risk exclusively on the basis of our 
ability to execute existing war plans, and those war plans were 
built around, by now familiar, two major regional 
contingencies.
    That focus, we concluded, while important, is much too 
narrow; other aspects of the force posture must be taken into 
account. And in particular, there are two additional dimensions 
of risk that must be considered and will be considered in this 
year's Quadrennial Defense Review which, as I say, is the 
second stage and final stage of our strategy review.
    These are, first, the risks imposed by the ongoing use of 
our forces in peacetime, that 105 percent increase that we kind 
of backed into without thinking about it; and secondly, the 
risks of not being prepared for emerging threats in the future. 
Because one of the problems when we use the force so heavily on 
a day-to-day basis is that it is very hard either to find the 
funds or, frankly, the intellectual resources to devote to 
where we will be 10 years from now. Our intention is that, by 
the end of the QDR, we will give more precise advice to the 
President and Congress on how to balance those three different 
needs and risks and present a new defense posture that is 
better suited for ourselves and for future generations.
    These final results of our strategy review, Mr. Chairman, 
will be incorporated into the fiscal year 2003 budget and the 
fiscal year 2003 to 2007 FYDP.
    While the first stage of our review is focused on the 
nature of threats and the condition of the existing forces we 
have, this stage will help us decide the exact kinds of forces 
we need to build; but it is clear already that we must urgently 
begin to repair the damage inflicted by the complacency of the 
1990's. The 2002 amended budget starts down a path toward 
transformation by undertaking urgently needed repairs to our 
existing force and by investing now in some the 
transformational technologies and R&D that we will need for the 
21st century force.
    Let me just briefly touch on those two aspects, using the 
2001 enacted budget of $296.3 billion as a baseline. The 
President, earlier this year, issued a blueprint budget that 
outlined a 2002 baseline of $310.5 billion. That included a 
$4.4 billion real increase to cover presidential initiatives 
for military pay, military housing, and research and 
development including missile defense. The request before you, 
proposes to raise that investment by $18.4 billion to a total 
of $328.9 billion.
    As I explained, the first stage of the strategy review has 
defined where we are today and outlined in broad terms the 
direction we must go to build a 21st century force. The QDR, 
the next and final stage of the strategy review, will tell us 
which mountain we need to climb and how high it stands, whether 
it is 6,000 feet or 12,000 feet high or perhaps even higher.
    But one thing is for certain, Mr. Chairman, we know from 
our first stage of review that we are starting in a hole. What 
the 2002 budget does for us is to begin the work of repairing 
the present force and building the force of the 21st century.
    Consider DOD's aging infrastructure, which the 2002 budget 
begins to address. In the private sector--we have handed out 
some slides indicating the condition of our infrastructure in a 
number of places, including that specific example of the F-15s.
    In the private sector, Mr. Chairman, the standard for 
replacing facilities is to replace your whole infrastructure 
every 57 years. If that sounds slow, well, we are a little 
slower; our target is 67 years, but under last year's budget, 
we were replacing facilities at an average rate of 192 years. 
That is simply unacceptable. It is a sign of how we paid for a 
high level of current operations without budgeting for them, we 
paid out of maintenance. The 2002 budget proposes to increase 
funding for facilities by $2 billion to $5.9 billion.
    Even substantial increases only gets us to an average 
replacement rate of about 98 years. In order to get down to 
acceptable levels, we need not simply more money, but we are 
going to need to come to the Congress for some way to get rid 
of excess infrastructure that we don't need.
    For example, if we could reduce our facilities by roughly 
20, 25 percent, which are estimates of excess, we could get the 
replacement rate with its current budget down to 76 years, much 
closer to something that is acceptable.
    Our people are the key to everything that we do, and this 
budget will help put us on the path to recovery for them in key 
areas including military pay, housing, readiness training, and 
health care--quality-of-life investments that tell our men and 
women in uniform that the nation truly values their service and 
sacrifice.
    But the 2002 budget, Mr. Chairman, does move beyond simply 
repairing the present force. It takes a major step toward 
transformation, with significant investment in new 
technologies. It boosts RDT&E by 14 percent in real terms from 
$41 billion in 2001 to $47.4 billion in 2002. It invests 
heavily in efforts to deter and defend against emerging 
threats, to dissuade potential adversaries from continuing to 
invest in these dangerous capabilities. The budget advances the 
President's commitment to build effective missile defenses for 
our territories, for our allies and deployed forces, against 
threats of all ranges, based on the best available technologies 
deployed at the earliest possible date.
    The chart, Mr. Chairman, that we have attached to the 
testimony gives some indication of the wide range of programs 
that we propose to invest in with this budget, some $13 billion 
on top of missile defense, that we identify as 
transformational. There are also a number of initiatives that 
address streamlining operations and saving us money. Many of 
these will require congressional support.
    The Peacekeeper deactivation is one such example. In the 
case of Peacekeeper, we will need the support of Congress to 
remove current restrictions that will allow us to get rid of a 
nuclear system that we no longer need that is a relic of the 
cold war that we have been continuing to carry on our budget.
    For many important reforms, reducing our excess 
infrastructure, reallocating functions, and giving the 
Department the ability to manage efficiently, we will need your 
help.
    One of the Secretary's top priorities is to transform the 
system of financial management. We recognize that we need to 
make fundamental changes that will save money, and we assure 
you, the Members of Congress, and also the American people, 
that we are allocating and using defense numbers properly and 
wisely.
    We are committed to operating more efficiently and thereby 
saving money in our daily operations. Indeed, I might say that 
is a major goal of our efforts now, not only in the Quadrennial 
Defense Review, but in the new Business Initiatives Council 
that the Secretary has formed, manned by our three outstanding 
service secretaries, who, I am sorry to say, were not confirmed 
until last month, but who are already hard at work, finding 
ways that we can pay for some of what we need out of what we 
have, instead of simply asking for more money.
    Finally and very importantly, this 2002 budget seeks to 
apply the principle of honest assessments of what it will take 
to do the job, to do realistic costing of areas such as flying 
hours, procurement and base operations, and to get away from 
the dysfunctional process of deliberately underbudgeting in 
anticipation of so-called ``emergency supplementals.'' It is 
our firm intent that, with the 2001 supplemental, we will put 
behind us the kind of supplemental budgeting that became a 
dysfunctional process not based on true estimates of 
anticipated needs.
    The increase in the 2002 budget is a significant, historic 
increase. It gets us started on the road to rehabilitation and 
transformation. But as we think about the issues of 
affordability that you raised, Mr. Chairman, and Congressman 
Spratt raised, I am reminded of another point in our history 
when there was a challenge to make a case for increased defense 
spending.
    In 1950, General Omar Bradley urged President Truman to 
spend at least $18 billion on defense. That was after he had 
scrubbed down the JCS estimate that we needed $23 billion, and 
the services were even higher at $30 billion. But the President 
said $18 billion was too much, $15 billion was all we could 
afford. I might note that in 1950 that represented 5 percent of 
the GDP. That was all we could afford.
    Six months later we were suddenly in a war in Korea. Just 
as suddenly, we found we had no choice but to budget some $48 
billion, a 300 percent increase. How much better it would have 
been to have made the investment earlier. Had we done so, Dean 
Acheson might not have been forced to define Korea outside the 
defense perimeter of the United States on the grounds that we 
did not have the forces to defend it.
    Historically, we have spent an average of about 8 percent 
of our GDP on defense, in large part because we have not spent 
enough in peacetime to prepare for and deter war. Today, we are 
more in the range of 3 percent. But I believe it would be 
reckless to press our luck or gamble with our children's 
future.
    To say that we can't afford an insurance policy of roughly 
3.5 percent of GDP today to deter the adversaries of tomorrow, 
underpin our prosperity, and, by extension, peace and stability 
around the globe, just doesn't make sense to me. If history is 
our guide, it suggests strongly that we are much wiser to pay 
the premium now than to pay in blood and treasure later.
    Much remains to be done, and we know that fixing and 
transforming our force is a joint responsibility, one that will 
require close partnership between Congress and the executive 
branch.
    We look forward to working with you, Mr. Chairman, with 
your committee, with the entire Congress, to rehabilitate 
today's force and to build the force of the future. We 
earnestly seek your support in this important and noble 
mission. Thank you.
    [The prepared statement of Mr. Wolfowitz follows:]

   Prepared Statement of Hon. Paul Wolfowitz, Deputy Secretary, U.S. 
                         Department of Defense

    Mr. Chairman, members of the Committee, thank you for this 
opportunity to discuss the President's 2002 amended budget for the 
Department of Defense.
    The U.S. Armed Forces are the world's best-trained, best-equipped, 
most powerful military force in the world. They provide the security 
and stability that make peace and prosperity possible across the world. 
Indeed, no force on earth can do what they do-from the speed with which 
they can mobilize, to their effectiveness once they are in theater.
    The preeminence of our military forces may lead some to ask, in 
this moment of peace, why do we need such an increase in the U.S. 
defense budget? The answer is simple, how long that peace lasts will 
almost certainly depend on our ability to defeat any adversary and 
maintain the unparalleled capabilities of the U.S. Armed Forces.
    However, we spent much of the 1990's living off the investments of 
the 1980's. We allowed our military capabilities to be slowly degraded 
as we overused a shrinking and underfunded force. To their enormous 
credit, America's dedicated servicemen and women dutifully did more 
with less--putting off needed investment in training, infrastructure, 
maintenance, and procurement to keep up with a proliferation of 
missions.
    Many in Congress--and on this Committee--worked hard to give them 
more resources. But notwithstanding those efforts, an imprudent policy 
of overworking and underfunding our troops continued--a policy that has 
now, not surprisingly, begun to take its toll. It has harmed the morale 
of our forces. It has harmed their readiness to meet current threats. 
And it is undermining our ability to prepare for the threats of the 
future-because defense decisions and investments can sometimes take 10 
to 15 years to reach fruition, especially when it comes to developing 
and fielding innovative new weapons systems.
    With this situation in mind, when President Bush took office, he 
asked the Defense Department to undertake a comprehensive review of the 
condition of America's forces. He asked us to engage our brains before 
we opened our wallets, and so Secretary Rumsfeld initiated a broad 
strategy review soon after he took office. We have completed the first 
stage of the strategy review and that forms the basis for the '02 
budget request. We are now starting the second stage, the Quadrennial 
Defense Review, which will form the basis for the '03 budget and the 
new FYDP. I'd like to briefly explain the process for you before I go 
into the specifics of the 2002 budget.
    In the first months of the administration, Secretary Rumsfeld 
commissioned a series of studies to look at a variety of issues, 
touching on subjects from space to missile defense, to morale and the 
quality of life of our troops. While these studies were wide-ranging, 
they basically covered two broad areas: first, the strategic 
environment and the challenges our forces will face in the future; and 
second, the condition of the U.S. military today.
    From the completion of those initial studies, we have drawn two 
conclusions. The first is that the security environment America will 
face in the decades ahead will be much more dangerous than the one we 
faced in the decade just past. The other is that the condition of our 
force today is even worse than we had previously expected.
    This exposed a dilemma. To meet emerging dangers, we know we must 
build a 21st Century force. But we are constrained in our ability to 
build the 21st Century force we need--because the 20th Century force we 
have is in such a serious state of disrepair.
    These preliminary conclusions have formed the basis of the 2002 
budget and a starting point for the second, more formal, round in the 
review process, the Congressionally-mandated Quadrennial Defense 
Review, which I'd like to address before I get into the budget.
    This is only the second time the Defense Department has conducted a 
QDR under the formal mandate of Congress. [However, it is not the first 
time the Department has taken a broad look at the size and nature of 
the force needed to meet national defense requirements.] Yet the 
process this time is unprecedented for the amount of time the Secretary 
of Defense and the senior military leaders of the Department have spent 
in carefully establishing the parameters of such a review at the 
beginning.
    Over the past 2 months the most senior officials in the 
Department--including Secretary Rumsfeld, the Chairman of the Joint 
Chiefs, the Vice Chairman, the Service Secretaries and Chiefs and 
myself have met for close to 35 hours, to discuss a possible new 
defense strategy for the 21st Century-and to give detailed guidance and 
parameters to the QDR. These carefully established parameters reflect 
conclusions drawn from the preliminary strategy reviews as well as the 
accumulated wisdom and years of experience in defense matters 
represented by those civilian and military leaders.
    The first stage brought to the surface a number of formal questions 
that will be addressed over the next several months; broadly, they 
target the size and character of the defense force structure. Of these 
issues, the most important we've identified is the need to assess the 
defense force posture on the basis of multiple dimensions of risk.
    In the past, we have tended to evaluate exclusively on the basis of 
our ability to execute existing war plans. That focus, we concluded, 
while important, is much too narrow. Other aspects of the force posture 
must be taken into account. For example, everyday we use our forces in 
ways that are unplanned, unbudgeted and unaccounted for-the ongoing 
operation in Bosnia is a prime example. It was supposed to last one 
year and cost $1 billion, but is now a significant ongoing feature of 
the Defense budget and should not continue to be managed with year to 
year ``emergency'' supplemental appropriations.
    Bosnia vividly illustrates the reality that our forces do more in 
peacetime than simply prepare to fight the conflict scenarios we 
anticipate in our war plans. At the same time, and in addition, we must 
also prepare for a future that is hazy and indistinct. We can be less 
certain of the specific scenarios we will face in the 21st Century. 
Nevertheless, we can discern the emergence of new and more formidable 
threats-threats we must begin to prepare for now. And to do that, we 
need new capabilities. These represent two additional dimensions of 
risk that must be considered along with the more commonly evaluated 
risks associated with current war plans: the risks imposed by the 
ongoing use of our forces in peacetime, and the risks of not being 
prepared for emerging threats in the future.
    Our intention is that by the end of the QDR, we may give more 
precise advice to the President and to Congress on how to balance those 
different needs and risks, and present a new defense posture that is 
better suited for ourselves and for future generations.
    While the first stage of our review has focused on the nature of 
threats and the condition of the existing forces we have, the QDR will 
help us decide the kinds of forces we need to build. But it is 
sufficiently clear, however, we urgently must begin to repair the 
damage inflicted by the complacency of the '90's.
    The 2002 amended budget starts us on a path toward transformation 
by undertaking urgently needed, immediate repairs to our existing 
force, and by investing now in some of the transformational 
technologies and R&D that we will need for the 21st Century force. That 
is what the President has sought to do with the 2002 defense budget.
    Getting started quickly is imperative because defense planning is a 
long-term process. And we have lost precious time. We've been digging 
ourselves into a hole for a decade, and we can't get out of that hole 
in a single year, so we need to get started now. Allow me to describe 
for you some of the key aspects of President Bush's 2002 budget--what 
it does, and what it does not do.
    The President has requested a historic increase to begin dealing 
with some of the immediate problems I've mentioned. The budget we have 
proposed is the largest peacetime increase in defense spending since 
the 1985 Reagan defense budget. Using the 2001 enacted budget of $296.3 
billion as a baseline, the President earlier this year issued a budget 
blueprint that outlined a 2002 baseline budget of $310.5 billion. This 
included a $4.4 billion real increase to cover presidential 
initiatives, including:
     $1.4 billion to increase military pay,
     $400 million to improve military housing, and,
     $2.6 billion for research and development.
    The request before you proposes to raise that investment still 
further to a total of $328.9 billion--$18.4 billion more than the 
President's February budget blueprint. Taken together, these increases 
amount to $22.8 billion real increase in defense expenditures for the 
Department in 2002.
    As I explained previously, the first stage of the strategy review 
has defined where we are today and outlined in broad terms the 
direction we must go in order to build a 21st Century force. The 
precise specification of where we need to get to will emerge from the 
second stage of the QDR. The QDR will tell us which mountain we need to 
climb and how high it stands, whether it is 6,000 feet high, 12,000 
feet high-or perhaps even higher. But, one thing is for certain, we 
know we're starting in a hole, and a hole that is below sea level at 
that. So, no matter how high the peak we must ultimately scale, we know 
we better start climbing now. And that is what the 2002 budget does for 
us-it begins our uphill journey.
    Allow me to give you an example of one way the 2002 proposed budget 
will begin to arrest some troubling declines. Consider DOD's aging 
infrastructure, which the 2002 proposed budget begins to address. It 
increases funding to meet current needs and begins a long-range plan to 
streamline, restructure, and upgrade DOD facilities.
    In the private sector, the standard for overall facility 
replacement is 57 years. DOD's target is 67 years. Under the 2001 
enacted budget, DOD was replacing facilities at an average rate of 192 
years. The 2002 budget proposes to increase funding for facilities from 
$3.9 billion to $5.9 billion. Even with this substantial increase, it 
only gets us to an average replacement rate of about 98 years-still not 
yet close to the 67-year target.
    However, as Secretary Rumsfeld has said, with a round of base 
closings and adjustments that would reduce unneeded facilities by, for 
example, 20-25 percent, we could focus more funds on those facilities 
we actually need and get the replacement rate down to 76 years at the 
2002 budget level-a substantial improvement.
    Our people are the key to everything we do. They are the foundation 
on which today's force is built, and they will be the foundation on 
which we will build the force of the future. Smart weapons require 
smart soldiers, sailors, airmen and Marines. And unless we can attract 
and retain the best people, no amount of technology can assure our 
safety and security in the new century.
    To ensure we are taking care of this most precious resource, this 
budget will help put us on the path to recovery in some key areas 
including military pay, housing allowances, readiness training, and 
health care-overall quality of life investments that tell our men and 
women in uniform we value their service and sacrifice.
    The 2002 budget, for example, begins to address previous shortfalls 
in the Defense Health Care program. We have anticipated a 12 percent 
growth in the costs of medical care and a 15 percent growth in the cost 
of pharmacy purchases. And so, by using for the first time realistic 
budgeting of health care costs, the 2002 amended budget proposes $17.9 
billion for defense health--to cover these costs, a $5.8 billion 
increase from $12.1 billion in FY 2001. And it includes $3.9 billion 
for prescription and medical care benefits for Medicare-eligible 
military retirees and their families.
    The 2002 budget moves beyond simply repairing the present force and 
takes a major step toward transformation with significant investment in 
new technologies-it begins to build the military of the 21st Century 
and it begins to address some of the more urgent threats identified in 
the first stage of the strategy review.
    To advance technologies with the greatest promise for transforming 
our forces to meet the threats of the 21st Century, the budget assigns 
appropriate funding for Research, Development, Test, and Evaluation 
(RDT&E) programs. These include, for example, technologies to protect 
and enhance our communications and computer capabilities. Reflecting 
the high priority of transformation, the FY 2002 budget boosts RDT&E by 
14 percent in real terms, up to $47.4 billion from $41.0 billion.
    Today's strategic environment is far different from that of the 
cold war. We have an obligation to plan for the changing circumstances 
we face today-to make sure that we are arranged to dissuade rash and 
reckless aggressors from taking or threatening action. One of the most 
disturbing areas of vulnerability, one frequently identified as an area 
where our opponents might seek to exploit so-called ``asymmetric'' 
approaches against us, is threats from ballistic missiles, armed with 
both conventional weapons and weapons of mass destruction.
    This budget invests heavily in efforts to deter and defend against 
existing and projected threats and to dissuade potential adversaries 
from continuing to invest in these dangerous capabilities. The budget 
advances the President's commitment to build effective missile defenses 
for our territories, for our allies and deployed forces against threats 
of all ranges, based on the best available technologies, deployed at 
the earliest possible date. It includes a total of $7.0 billion for 
Ballistic Missile Defense Organization (BMDO) programs and $1.3 billion 
for lower tier systems. And it emphasizes an expanded and flexible 
RDT&E program that is designed to pursue the most promising 
developments.
    In addition to this important initiative, the budget includes 
another $13.3 billion dollars of investments in a wide range of 
potentially transformational capabilities. The chart attached to this 
testimony gives some indication of the wide-range of programs that we 
propose this budget to invest in.
    There are also a number of initiatives in this budget proposal that 
are addressed at streamlining our operations and saving us money, many 
of which require congressional support. The Peacekeeper deactivation is 
one such example. As in so many other cases where we'll be looking for 
savings or cutting unnecessary programs, we have to spend money up 
front to realize those savings in the out years. In addition, in the 
case of the Peacekeeper, we will need the support of Congress to remove 
the current restrictions to get rid of a nuclear system that we no 
longer need-the system many intelligent observers have been 
recommending we get rid of for years.
    We can and must continue to take other such innovative measures. 
But, doing so will require congressional support. For many important 
reforms-reducing our excess infrastructure, in reallocating functions, 
and giving the department the ability to manage efficiently-we will 
need your help.
    One of Secretary Rumsfeld's top priorities is to transform the 
Department's system of financial management. We recognize that we need 
to make fundamental changes that will save money and assure you, the 
Members of Congress, as well as the American people, that we are 
allocating and using defense funds properly and wisely. One key 
improvement we anticipate is the connection of major areas of financial 
management, such as personnel, acquisition, logistics and financial 
systems. Through this end-to-end system, we hope to be able to access 
information ranging from readiness indicators and end strength numbers 
to personnel records and tracking acquisition programs, more 
accurately, sooner, and cheaper. And this system will allow the 
Department to meet prevailing financial management requirements.
    So this budget does a great deal. However, if we are to revitalize 
America's Armed Forces and transform for the 21st Century, it is clear 
that budget increases alone won't get us to where we need to be. We 
need to find ways to use the American people's tax dollars more 
efficiently. We can find savings with the management overhaul that 
Secretary Rumsfeld has already begun. And, we are committed to 
operating more efficiently, and thereby saving money, in our daily 
operations.
    Finally and very importantly, this 2002 budget seeks to apply the 
principle of honest assessments of what it will take to do the job, or 
what we call realistic costing, to other key areas such as flying 
hours, transformation and management issues, procurement and base 
operations. Realistic costing is designed to get us away from the 
dysfunctional process of deliberately under-budgeting in anticipation 
of ``emergency'' supplementals. It is our firm intent that with the '01 
supplemental, we will put behind us supplemental budgeting-a process 
that is, at times, wholly unconnected with true unanticipated needs.
    The increase in the 2002 budget is thus a significant, historic 
increase. It is devoted to beginning urgent rehabilitation of the 20th 
Century force that we have and begins building the force of the 21st 
Century. This 2002 budget gets us started on the road to 
rehabilitation. The 2002 budget proposal before you is a bridge budget 
to what we hope will be the transformation budget of 2003.
    I'm reminded of another point in our history when it was a 
challenge to make a case for increased defense spending. In 1950, 
General Omar Bradley urged President Truman to spend at least $18 
billion on defense. The Joint Chiefs gave an even higher estimate at 
$23 billion, and the services' estimate was higher still at $30 
billion. But the President said we couldn't afford that much--$15 
billion was as much as we could afford.
    Six months later, we were suddenly in a war in Korea. Just as 
suddenly, we found we had no choice other than to budget some $48 
billion-a 300 percent increase. How much better it would have been to 
have made the investment earlier. Then, Dean Acheson might not have 
been forced to define Korea as being outside the defense perimeter of 
the United States-on the grounds that we did not have the forces to 
defend it.
    We have spent an historical average of about 8 percent of GDP on 
defense, in part because we have not spent enough in peacetime to 
prepare for, and deter, war. We can't know who may challenge us in the 
future, or where, or when. Today, we are more in the range of 3 percent 
of GDP. But it is reckless to press our luck or gamble with our 
children's future. To think we can't afford an insurance policy of 
roughly 3.5 percent of GDP today to deter the adversaries of tomorrow 
and underpin our prosperity, and by extension, peace and stability 
around the globe, is simply wrong. When compared with the cost in 
dollars and human lives if we fail to do so, it is cheap at that price.
    It's interesting here to consider once again the situation in 1950. 
President Truman's bottom-line figure of $15 billion represented 32 
percent of the Federal budget, or just 5 percent of the GDP. The jump 
in spending to $48 billion the war necessitated represented more than 
15 percent of the GDP. If history is our guide, it is suggesting quite 
strongly that we are much wiser to make smaller investments now rather 
than pay the premium rate later on.
    Much remains to be done, and we know that fixing and transforming 
our force is a joint responsibility, one that requires a close 
partnership between Congress and the Executive Branch. It is a 
responsibility we have to our nation's service members; it is a 
responsibility we have to future generations. The force we build today 
will benefit our successors-and help ensure peace and prosperity for 
our children and grandchildren.
    We look forward to working with you to rehabilitate today's force, 
and build the force of the future. We earnestly seek your support in 
this important and noble mission. Thank you.

    Chairman Nussle. Thank you, Mr. Secretary. Let me begin by 
emphasizing a couple of points that I think are important to 
emphasize at this point in this budget discussion.
    Number one, this Congress will protect 100 percent of the 
Social Security and HI Trust Funds, period--no speculation, no 
supposition, no projection. The Congress has voted unanimously, 
or almost unanimously--there were a few that didn't see it this 
way--for lockboxes and all sorts of different mechanisms to 
make sure that this occurred. Both parties prepared budgets 
that did so. We will protect 100 percent of Medicare and Social 
Security.
    We passed tax relief. And after passing tax relief, there 
was plenty of room for our nation's priorities, including this 
new request for defense. I repeat that we passed a tax cut; 
there was plenty of room to fund our nation's priorities, 
including this defense request--in fact, more than has been 
requested here today.
    Third, let me just say that in every budget discussion and 
in every congressional cycle there are tough choices. Are there 
going to be tough choices this year? You bet. Mr. Spratt has 
outlined them, I have outlined them, the President has outlined 
them. We can all give an outline of what those tough choices 
will be.
    Some of them have already been made. We have passed some 
appropriations bills, some are yet to be made. But they are 
tough choices, and they need to be made if in fact we are going 
to continue to protect 100 percent of Social Security and 
Medicare and make sure that there is plenty of room for our 
priorities.
    That having been said, defense is an important priority. It 
is appropriate to question our defense needs for this country 
and the amount of money that is requested without jeopardizing 
our firm commitment. On every single one of our behalf's here 
today--there is not one person in this room who questions 
defense because we do not support defense, or questions defense 
because we do not support the men and women in uniform who are 
out there on the front line in a very tough position, defending 
our freedom that we take for granted every single day. Not one 
of us questions it because we take that for granted or because 
we don't support it; we question it because we are responsible 
to do so because of the job that we have been elected to do 
within the Congress, the assignment on this committee to 
balance those priorities with everything else. And it is in 
that context that I asked the questions at the last hearing and 
the one today.
    We were told a review would be completed in 6 months. 
Obviously, as you report today, the first part of that review 
has been completed, but the entire review has not yet been 
completed. Just for the record, would you state again when you 
believe that review will be completed, when the final review 
that the President requested of the Secretary will be 
completed?
    Mr. Wolfowitz. I believe the final review will be completed 
in the same time frame as the congressionally mandated 
Quadrennial Defense Review, which means at the end of this 
fiscal year; and the results will be reflected in the 2003 
budget, which will be submitted, I guess, in late January or 
early February. So essentially in the last quarter of this year 
we will be bringing in the final results.
    Chairman Nussle. Would you also tell us for the record, 
when did the timetable on this review change from ``6 months 
from the President's inauguration'' to ``consistent with the 
Quadrennial Defense Review?'' When did that priority or when 
did that timetable change?
    Mr. Wolfowitz. Mr. Chairman, I can't give you a precise 
time. It was something that more or less happened as we moved 
along. I think partly because the results of the studies--the 
initial studies that we were doing indicated the magnitude of 
the problem was a good deal bigger than we thought, and I think 
also because, frankly, the long delays in confirming people 
just kept a lot of work that needed to get done kept being 
delayed.
    Chairman Nussle. But at some point in time someone had to 
whisper across the table to someone and say, this isn't going 
to get done on time.
    Mr. Wolfowitz. Well----
    Chairman Nussle. I mean, are we misperceiving a deadline of 
July as requested or suggested or commanded by the Commander in 
Chief? Am I misperceiving that a deadline was given in July for 
the completion of this review?
    Mr. Wolfowitz. No. I think you are quoting him accurately.
    I think what happened was, we started working about 2\1/2\ 
months ago on taking the preliminary results from the strategy 
review to begin to develop a 2002 amended budget, which we knew 
we had to get up here by July. I can't say, I know consciously. 
I know when we said, we are now turning a 6-month review into 
two stages and something more like 9 months.
    Chairman Nussle. The concern I have, and I stated it to Mr. 
Daniels, the OMB Director, is that it appears to me that the 
time, what has been spent--and as I said in my opening 
comments, I am not suggesting to you that the deadline was one 
that was attainable, that it was a goal that was achievable. 
But at some point in time, someone knew it wasn't achievable, 
and that was not reported to the Congress, to the Budget 
Committee, to the committees of jurisdiction, to the general 
public. That was not reported.
    It was only last week--or 2 weeks ago, excuse me--when Mr. 
Daniels came forward to suggest that that defense review would 
not be completed on time. All of us felt that it was probably 
going to have a difficult time getting done, but no one 
reported that, number one.
    Second, it appears that during the period of time that has 
been taken already for review, one could simply suggest that 
instead of trying to look for the new needs of the defense of 
the future, what the Defense Department did was, it went back 
to its current culture, which has continued to play catch-up 
and defend or function in the defense of the past, and that 
basically the first 2 months were not spent in looking forward, 
but looking backwards and trying to play catch-up.
    What concerns me is not that that was done if that needs to 
be done. You have shown us the pictures; they are in the 
record. I am sure this isn't even the very tip of the iceberg. 
This is an ice cube on the iceberg of what is out there and is 
a problem.
    I am sure that it was a mess. But we didn't hear about 
that, and that needs to be discussed openly so that we can make 
the kind of changes that need to be made and move forward to 
the future. And what concerns me is that the next 6 months, 
during the QDR, the completion of the QDR, that more of the 
same will occur. And I think one example of that is what 
happened with the B-1 bomber and the fact that when reforms are 
reported and when reforms are suggested, they are shot down 
almost immediately by Congress. And so this is going to be a 
very difficult task to move forward with if, in fact, you don't 
use the time that you have as judiciously as possible.
    So my concern is that while the goal continues to be an 
important one and a lofty one, I have a real concern based on 
the track record that I have seen thus far--not suggesting that 
you personally or that people working with you have not been 
able to do a good job--but the task is even more enormous than 
one might have first believed, and that we may digress even 
against your statements today back to supplementals.
    And part of the reason I suggest that is, I have a 
difficult time believing that the health care needs of our 
defense and that the housing needs of our defense and that the 
material and spare parts needs of our defense and the 
infrastructure repairs of our defense weren't known until, all 
of a sudden, you walked in the front door or even, for that 
matter, Mr. Rumsfeld walked in the front door.
    These are things that are constantly under review by the 
colonels and others throughout the ranks. It just seems if it 
has taken this long to just find out what the problem is, it is 
going to be very difficult to fix it in the so-called ``second 
stage.''
    The final point I guess I would make, and it is in the form 
of a question, is there really a higher number? How realistic 
is the number that we are dealing with? And the reason I say 
this, we are not interested in just plugging in the number and 
then finding out in 6 more months that it can't be done, or it 
is bigger than we thought once again, or that the next budget 
request requires a supplemental because we didn't get 
everything that we needed in order to make the changes that 
were needed to defend our country.
    How are we going to know, based on what we have seen thus 
far, that the next request for 2003 is, A, going to happen in a 
timely fashion and, B, is accurate enough to fund the defense 
of the future which is the President's mission in all of this?
    Mr. Wolfowitz. Maybe the reason no one said we slipped the 
deadline is the fact that we did, in fact, complete a strategy 
review. What we didn't complete is a full look at exactly what 
force structure we think we need to have for the next decade.
    But we made extensive studies of the kinds of forces we 
need to have, of the kinds of new technologies that we need to 
have; one whole study on the subject of morale and quality of 
life of the services, one whole study on the broad national 
strategy. We have briefed these to many Members of Congress and 
we would be happy to have the study directors brief them to any 
members of your committee that are interested.
    So there was a lot of review work that was done and 
completed and completed on time. I think it is important to 
make that clear. And that guided a lot of what we are asking 
for in this 2002 budget.
    You are absolutely right that some of these needs, like 
health care, were known before. The problem was, they were 
known before, but they weren't budgeted for before. And part of 
the reason we have this increase here is because we are trying 
to do our best job of honestly funding health care; it is a $5 
billion increase just to do that.
    You have raised the issue of whether there are going to be 
more supplementals. We have tried to stop the practice of 
saying, we are going to deliberately underfund things like 
flying hours, because we know that if you get to the middle of 
the year and you don't have enough money to fund flying hours, 
Congress will consider that an emergency, and we will come up 
and ask for emergency funding.
    We have added how much? We have added roughly $2 billion to 
the readiness and training account so that we won't be coming 
up next year and asking for more in the middle of the year.
    So, to the extent that we can figure these things out, we 
have done honest budgeting for 2002. You have asked the 
question, now, sort of beyond that, can we be sure that what 
comes up next year won't ask for more. Until we finish this 
next stage of the strategy review, I really can't tell what we 
will need for next year.
    We can tell you what it takes to sustain the path that we 
are on. And the path that we are on only starts to get us, 
well, at I would say, an acceptable but not a terrific rate.
    If you take those numbers on repair facilities, for 
example, we move from replacing our facilities at 192 years 
to--which is absolutely unacceptable--to 98, which is really 
not acceptable compared to the 67 that we need to be at. But, 
hopefully, by the time we come up with a 2003 budget, instead 
of asking for more money, we will also be asking for some kind 
of process to get the base structure down so that we are not 
spending enormous amounts of money on unnecessary basing.
    Finally, I would say, too, Mr. Chairman, I would hope when 
the 2003 budget comes up, we will have a good deal more 
besides--in addition to the things that are there, like B-1 and 
Peacekeeper, we are getting rid of some old systems in order to 
invest the savings in modernization. When that happens, we are 
going to be counting on this committee particularly to plead 
the case with some of your colleagues, that these kinds of 
painful decisions are the only way we are going to be able to 
function as the kind of force we need for the 21st century.
    Chairman Nussle. Thank you.
    Mr. Spratt.
    Mr. Spratt. Mr. Secretary, we thought the delay was, as the 
chairman put it, to wait on the transformation study to be 
completed. But, in truth, it is not going to be completed until 
it has been through the digestive process of the QDR; and even 
then you have got a lot more work to do before you bring it to 
fruition and decide what the force structure is going to be.
    So we are still in a pretty uncertain state, it seems to 
me. Is that correct?
    Mr. Wolfowitz. No, I don't think it is correct. The 
transformation study was completed by the end of May, if I 
remember the date. And it gives rather extensive and detailed 
guidance as to what kinds of new capabilities we need to have, 
some $13 billion of which, in addition to missile defense, are 
proposed to be funded in this 2002 budget.
    Mr. Spratt. I wouldn't call that transformation. We thought 
the transformation was going to be digitization, use of stealth 
technologies and leap-ahead technologies.
    Mr. Wolfowitz. That is what that $13 billion, which I have 
appended to my testimony, Mr. Spratt----
    Mr. Spratt. I have looked at that. That is just reshuffling 
the same deck, it seems to me. I read this budget; it is 
basically a meat-and-potatoes budget, rather than a 
transformation budget.
    Mr. Wolfowitz. I think it is a mixture. We do need meat and 
potatoes. You are not going to change the whole force 
overnight.
    Mr. Spratt. I agree. I would buy the meat and potatoes 
before I bought the creme brulee.
    Mr. Wolfowitz. We are trying to do both.
    Mr. Spratt. When I think about transformation, I go 
directly to the science and technology account. That is where 
your leap-ahead technology gets funded. This year we are 
spending $9 billion on the science and technology account. Your 
budget asks for $8.8 billion; it actually cuts it $200 million.
    Mr. Wolfowitz. Some of that $9 billion includes things that 
have been added by the Congress, in its wisdom. I think they 
are probably good investments, but I think, as I think you 
know, they are targeted precisely at military needs. I think we 
would like to do better on the science and technology budget; 
there is no argument about that. Our research and development, 
overall, is about $7 billion.
    Mr. Spratt. $6.4 billion. That is a substantial increase.
    The problem is, R&D doesn't put any weapons in the field. 
You have to produce those weapons and buy them with procurement 
dollars before you actually deploy them. While you increase the 
R&D accounts by $6.4 billion, you cut the procurement account 
by $500 million. If you don't have the money in the procurement 
account proportional to the increase in the R&D account, you 
can't tech out these new weapons that you are researching and 
developing. And you have got some significant procurement 
commitments coming down the pike: F-22, Joint Strike Fighter, 
more C-17s.
    Your Navy budget, your shipbuilding budget, you keep 
repeating this replacement ratio for real estate. But if you 
look at ships in the line, warships and submarines, we are only 
buying enough to sustain a Navy in two-thirds of the seas. It 
is the objective force, 313 major combatants. And everybody 
acknowledges that you have to replace your 313-ship Navy at the 
rate of eight, nine, ten ships a year, but we are only 
providing here for five, six, seven ships a year. We are well 
below the norm that is needed for replacement of a major 
element of our force structure.
    Even though this is so--I don't find a lot of frothy, leap-
ahead technology here. I looked for it and don't see it. There 
is a little more money for digitization and a little more money 
for high-energy directed-energy technologies, but I am 
concerned about the fact that there is not enough provision, 
barely enough provision here made for our meat-and-potatoes 
basic defense.
    And what happens if you don't get the $18 billion? I don't 
see this budget, at this level, funding the kind of 
transformation I think you have in mind. Am I correct?
    Mr. Wolfowitz. Well, let me say a couple of things. First 
of all, the crucial pieces of information that we hope to get 
out of the QDR process are those that pertain particularly to 
the exact size of the forces that we need and the mix and 
makeup of those forces. And until you have done that work, it 
is hard to develop intelligent procurement plans because you 
don't know how big a force you are procuring for; and some of 
the estimates that one sees about DOD's modernization 
requirements simply calculate a fairly primitive one-for-one 
replacement.
    Mr. Spratt. I understand that. But what I am saying is, you 
have got $330 billion, just shy of that in this particular 
budget, and you are plussing up R&D by $5 or $6 billion. But 
eventually, if R&D is going to prove useful, you have got to 
plus up procurement too. I don't see where the plus-up is 
coming from unless you get more money over and above the level 
of this particular defense budget.
    Mr. Wolfowitz. Or unless, Mr. Spratt, we are able to find 
significant savings. We think that we should be able to find 
significant savings.
    Mr. Spratt. Well, look, I have been around here since the 
first BRAC. I helped craft the language of it. I have watched 
the results of it. The first BRAC, it took us 5 or 6 years 
before you could see any positive cash flow from it. So I mean, 
BRACs won't fund near-term budget increases. And you are not 
talking about big bucks anyway--you are talking about 
modification of Davis-Bacon. It is going to be politically 
problematic to get that done.
    You talk about implementing prospective payment rules, 
military health care--be awfully difficult to get that 
implemented. So I think some of these savings are illusory.
    In any event, they are not big-dollar items, and my basic 
question is, can you fund transformation at or near this level? 
And are you telling me then that you can, but you are--next 
year, 2003, you will take it out of your hide--you will pay for 
it out of our own accounts by reducing one account in order to 
fund the transformation account?
    Mr. Wolfowitz. I think at this stage I can't tell you with 
precision. I think we will probably have to find some ways to 
pay for it. We need more; I think that is clear. We will have 
to find some ways to pay for it.
    Some of these need to come from efficiencies in what we are 
doing. The fact is, if we can find 5 percent savings in our 
overall budget, that would pay for a heck of a lot of 
transformation.
    Mr. Spratt. You said in your testimony that you thought 3.5 
percent of GDP was not an unreasonable amount of money to 
expect for defense.
    Mr. Wolfowitz. Historically, it is not, sir.
    Mr. Spratt. That would be $380 billion. And the Secretary 
indicated in his testimony, as I recall it, that he would need 
$347 billion in 2003 as a follow-up to the $330 billion he is 
asking for 2002. Is that in the ball park of what you think you 
will need in 2003 to sustain the basic budget and also to begin 
transformation?
    Mr. Wolfowitz. I think it is in the ball park. But we 
really frankly do have ambitious hopes that with our new 
management structure, our new service secretaries, with the 
very searching look that is being taken in the QDR process, 
that we will come up with some significant ways to pay for 
transformation out of places where we are spending money today 
that we don't need to.
    Mr. Spratt. Let me underscore one thing that the chairman 
said for my side of the aisle. We have come too far, worked too 
hard to turn this budget around, then to take the first step 
down the slippery slope and being dipping into the Medicare and 
Social Security Trust Funds.
    So we stand together in saying, however this budget is 
finally put together, that is going to be the one cardinal 
principle. We are not going to simply dip into those trust 
funds. They are sacrosanct. We are not going to spend that 
money. We are not going to regress, having worked so hard to 
get to where we are. We are not going to step backwards into 
those trust funds in order to fund it.
    If that is true, you see my numbers, wouldn't you agree 
that we have got a pretty tough problem here to fit your budget 
this year and next year into this budget scenario?
    Mr. Wolfowitz. I would certainly agree on that scenario, 
Mr. Spratt. I mean, I also know--and I don't want to get too 
far into this because I am--for better or for worse, I'm not an 
economist, but I know those numbers sort of change with each 
economic estimate, and we will probably--as you said yourself, 
we will see new numbers.
    Mr. Spratt.  They could be worse.
    Mr. Wolfowitz. I understand.
    Mr. Spratt. Let's hope that they get better. But in the 
near term, I think that they get worse before they get better.
    I hope this top line is sustained and we have got enough 
money to do all of these things. But we are the first people 
who watch the punch bowl. And when things get a little too 
excited, we take it away and say, let's stay realistic. The 
reality of the situation is, now you are hearing Wall Street 
and the White House say, it looks like there may be some 
revenue shortfalls. If the top line deteriorates, the bottom 
line gets tougher than ever and makes it harder than ever to 
accommodate your budget.
    I may have some further questions, but other members here 
have some other questions as well. Let me yield.
    Chairman Nussle. Thank you, Mr. Spratt.
    Mr. Secretary, we have one vote now. We are told that there 
is an additional vote that will come right after that. And so 
what we will do is, we will recess, and we will come back as 
soon as that second vote is completed.
    So the hearing stands in recess subject to call of the 
Chair.
    [Recess.]
    Chairman Nussle. This resumes the Budget Committee hearing 
on the Defense Department budget request for fiscal year 2002.
    Mr. Thornberry.
    Mr. Thornberry. Thank you, Mr. Chairman.
    Mr. Secretary, welcome. I think, as the chairman discussed 
earlier, all of us have been struck by the difficult task which 
is before you, because whatever we may think of existing 
deployments and commitments, we can't just drop our rifles and 
walk away from them unilaterally. We have certain 
responsibilities as a world power, and we have been 
underfunding these activities. But, at the same time, the world 
is changing, and we can be attacked in more ways by different 
actors faster than ever before.
    And the thing that strikes me, Mr. Secretary, about the 
analogy you used with Korea is that we may not have time to re-
gather ourselves and dust off our clothes and increase the 
defense budget and prepare ourselves to meet the--to 
counterattack. We may not have the opportunity we had after 
Pearl Harbor. It may be over by then. So preparations 
beforehand are even more important now at a time when 
technology has taken warfare to new dimensions of speed.
    And so, to prepare for the future, we have to make changes, 
and there are costs to these changes. And yet, as the chairman 
was talking, there is a reluctance for change in the services, 
there a reluctance among the contractors, there is a reluctance 
on the Hill to make those changes. And yet I don't think any of 
us can stand by while, by some estimates, half of our defense 
budget goes for infrastructure and support, less than half by 
most estimates depending on what you include, goes for actual 
warfighting. So I think it is entirely appropriate to take some 
time out to study the situation.
    There has been criticism on both sides of the aisle in the 
past that we have had QDRs that are budget driven rather than 
strategy driven. So this administration has taken some time to 
think about strategy before we get into the QDR and the rest of 
the--and how much it costs to implement.
    I guess what I am most interested in is the--how you assess 
and balance this need to make up for deficiencies of the past 
and the demand that we prepare for the future. How do you make 
these trade-offs? In some ways, we can spend all of our defense 
or increased defense money fixing the problems, like you showed 
us. We are throwing away the future if we do that.
    On the other hand, we can't just ignore those problems and 
focus only on the future, because then we are going to lose our 
people.
    How do you balance those commitments now--and making up for 
the deficiencies versus preparing for the future?
    Mr. Wolfowitz. That is an incredibly important question, 
and I guess it goes to the heart of the problem. It is not one 
for which there is any easy answer.
    I think it is true, and the fundamental point that 
Secretary Rumsfeld has made many times is that even if you 
transform your forces at a fairly high rate, you are still 
most--for a very long time will be operating with the old 
force. This is not like turning some small vehicle on a dime. 
It is like turning a very big supertanker that you begin to 
make changes and they really turn up in their full 
implementation maybe a decade later.
    I do think that it is very hard to get the kinds of new 
thinking and the kinds of changes that we need to have when 
chiefs of services and commanders of divisions and air wings 
are dealing with some of these very basic problems that are 
driving their best people out of the service. So beginning to 
fix them is not only an investment in the present, it is also 
bringing out people who start thinking more ambitiously about 
the future.
    I guess I would say a final thing. That is, we need to find 
ways to allow the services to have more incentives for making 
these kinds of trade-offs themselves. Too often they are 
confronted with situations where, if they try to take some 
savings in order to make these kinds of investments in the 
future, what they find is, the savings are taken away and the 
investments don't happen. And the end result is they are in 
terrible shape.
    I know that happened in a dramatic way to the Navy about 5 
years ago. We are still living with some of the psychological 
wounds from that. So I think establishing, to a certain degree, 
a stable baseline is an essential step toward getting people to 
make these kind of trade-offs.
    Mr. Thornberry. Thank you.
    Chairman Nussle. Mr. Bentsen.
    Mr. Bentsen. Thank you, Mr. Chairman.
    And, Mr. Secretary, thank you for being here today. And I 
talked to Mr. Spratt. I guess if we are not going to talk about 
Vieques, then we won't talk about Kennedy County, Texas, 
either. And I notice that there were at least three Texans on 
the panel, at least two that are here now.
    But, seriously, I do want to talk to you about your 
testimony. Let me say at the outset that I agree with what the 
administration is doing with quadrennial review and trying to 
look at our force structure and how we plan for the next 20 
years in trying to get away from how our defense posture has 
been structured the previous 20 years, in getting away from the 
cold war structure and even this interim post-cold war 
structure. I think that is the right approach.
    What I am concerned about, though, and what I think this 
committee needs to be concerned about is the macro aspect of 
that and the cost.
    And it seems to me that at the same time the administration 
is proposing a plus-up in defense funding, in the R&D account, 
in the strategic defense or the ballistic defense missile 
account, you also are proposing what you call the ``repair''--
or ``repairing the damage,'' if you will--as the administration 
likes to characterize it from the previous 10 years. And it 
seems to me, at this point, you are on two tracks.
    You are on the track for rebuilding under the current force 
structure and defense posture, and somewhere you are on a 
track, although we don't have the exact numbers on this 
Quadrennial Defense Review and Strategic Review that the 
administration has undertaken. What concerns me is that rather 
than coming up with a singular approach with which this 
committee and Congress can determine what the appropriate 
amount of tax dollars are to put to that, we are going to be 
given a supplemental, or we are going to be given two 
approaches that will have supplemental moneys; and we will be 
paying for the old system and the new system, and we will see 
those increases--which are at 11 percent, I guess, in real 
terms this year--and seeing these types of increases over the 
next 10-year period, far more than this country can possibly 
afford, and we may be buying more than what we really need to 
buy.
    I guess the bottom line is, I am concerned, particularly 
given the fact that these numbers are coming in late, that we 
are going to be nickeled and dimed to death for what is a very 
serious expenditure.
    I think every member of this committee supports these 
expenditures in varying degrees. But I am just worried that it 
is, you know, $18.4 billion 2 weeks ago, later this summer or 
in early fall when the Strategic Review is completed, we may 
get--we know that, as you said, that will affect the 2003 
budget. But I am worried, what is going to be, what you are 
going to come back with for a 2002 supplemental in that regard.
    I realize that you all are--have not gotten your team in 
place yet, you are trying to do that. But it worries me that we 
are not taking a very strategic approach to budgeting. At the 
same time, you are trying to take a strategic approach to our 
defense posture, and we are going to end up overcommitting; and 
then we are going to find ourselves in some of the problems 
that we have gotten ourselves in in the past. So I do hope that 
as you come forward with the requests for more dollars--and I 
truly believe you will--that you are sincere and serious about 
the offsets that you are requesting.
    As one of our colleagues mentioned regarding the B-1 issue, 
you now have strong opposition because of parochial concerns of 
certain members of this body and members of the other body. And 
I think the administration has to be very serious that they are 
going to--that they are going to pursue these offsets even 
against strong political opposition.
    The same is said for base closure. I have some questions 
about your 192-year facilities replacement average, because 
that would indicate to me that you have, at least on the back 
end, properties that are in excess of 192 years, which I find--
you have some, but not too many, because we have only been 
around for about 225 years.
    But, on top of that, you have to--you are going to have to 
fight very hard on this base closure. And so I just hope that 
as the administration goes forward, it will stand up for the 
offsets and not put in offsets that are unrealistic, that won't 
see the light of day in Congress.
    Mr. Wolfowitz. On the small point, on the 192 years, that 
is not average age of facilities. That is the rate at which you 
would ultimately replace your infrastructure if you proceeded 
on the old budget level. Ninety-eight years is the rate at 
which you would replace everything on the present budgeted 
level; 67 years is replacement rate.
    That is not going to be the average age; it is different. 
In fact, because a lot of things were built in the build-ups of 
the 1960's and 1980's. That is probably where the average age 
is going to lie.
    But what we have done for too long when we needed to pay 
for things like current operations and flying hours and Bosnia 
and Haiti was, well, let's put off some maintenance for a year. 
We can find $1, $2, $3, $4 billion in these maintenance 
accounts. You can get away with that for a year, for 2 years. 
When you try to do it for 10 years, things start falling apart, 
which shouldn't fall apart; and people live in housing that 
they shouldn't have to live in.
    On the more general point that you raised, to which I don't 
have a lot to add because I think you put it very well, let me 
just say that I think there are two ways that you can approach 
the sort of situation that this country faces, which are, I 
think, very real defense needs and lots of other needs; and as 
big as our budget is and as big as our surplus is, we are 
talking about very difficult decisions.
    But clearly, to my way of thinking, the wrong way of doing 
it is to say, ``Well, we know what we really need, but we're 
going to, sort of, pretend that we can get by with less. We're 
going to pretend that things don't cost what they do cost. 
We're going to come up with supplementals that really aren't 
supplementals because we really knew when we put in the 
original budget that w'd need to come and get it. And we're 
going to say we have a strategy, but gee, can't you find out a 
way to. We know it really cost `X', but can't you find a way to 
do it for `X' minus $150 billion so we can save money somewhere 
else?''
    So I think what we have to do, the best we can, is move 
forward with honest assessments of what our real needs are and 
honest assessments of what it takes to carry out a national 
strategy. If the conclusions of the country collectively, 
meaning most importantly the President and the Congress, is 
more than we can afford because of all of the other things in 
the budget, then let's not pretend we can carry out that 
strategy with $150 billion less. Let's figure out what in the 
strategy needs to change, what commitments need to change, 
whether we can really manage with a smaller force.
    But what Secretary Rumsfeld is trying to do with this QDR 
process is to get those issues pushed up in a way that 
decision-makers can make those kind of assets of risk versus 
cost.
    Mr. Bentsen. Thank you.
    Chairman Nussle. Let me report to the committee that the 
Secretary will be with us until 12:15, and so I would just ask 
that we be as efficient as we can be.
    We appreciate the fact that you are with us today.
    Mr. Hoekstra.
    Mr. Hoekstra. Thank you.
    Welcome. It is good to have you here. We have done a lot of 
work on another committee that I sit on, taking a look at the 
Department of Education, which for the last 3 years hasn't been 
able to get a clean audit. Then I understand that the 
Department of Defense shares many of the same problems that we 
have with the Department of Education.
    I think the IG just notes that one of the audits that you 
went through of the 1999 financial statements included 
adjustments of $7.6 trillion--that is trillion--and accounting 
adjustments in which $2.3 trillion were supported by reliable 
doc--were unsupported by reliable documentations.
    You know, we are talking about a lot of money here. We are 
talking about a Department of Defense that spends $320 billion 
a year, and we are talking about $18 billion or $14 billion or 
$6 billion. But the bottom line is, I just find it amazing 
that--I have got to believe that it has to be awfully 
frustrating for you to be talking about those kinds of numbers, 
that when you go back to the financial statements and the 
financial records of the Department of Defense, it has to be 
fairly difficult to actually calculate what something may cost 
or what you are spending in different areas if you can't get 
clean financial records.
    I know, in the Department of Education, when you don't have 
the tight management controls in place that would enable you to 
get good financial records, you are also creating an 
environment that is ripe for waste, fraud and abuse. We have 
found a significant amount of waste and fraud within the 
Department of Education.
    Where is the Department of Defense on correcting a long-
standing problem and on an issue that we know is inherited from 
previous administrations? But, you know, is this a priority, 
and can we expect the Department of Defense at any time in the 
near future to get clean financial records?
    Mr. Wolfowitz. It is a horrendous problem. When Senator 
Byrd asked Secretary Rumsfeld about this in his confirmation 
hearing, Secretary Rumsfeld said, ``I'm beginning to think I 
should decline the nomination.'' It is that bad.
    It is a priority and we are trying to get our hands around 
it. Let me ask our comptroller, who has got the principal 
responsibility in this area, to tell you where we are and what 
his hopes are.
    Mr. Zakheim. First of all, I should say that very often, 
although the numbers seem large, it is not because we really 
don't know what happened with the transactions. The problem has 
tended to be that we just did not record them properly. I'm not 
making excuses at all.
    I spent 14 years in the private sector; and that is an 
inadequate response in the business I was in, and in any 
business that anyone else might be in.
    We are doing a number of things, because indeed it is a 
very high----
    Mr. Hoekstra. Let me just--I agree with your statement, 
that is inappropriate. You couldn't get away with that in the 
private sector saying, we know where we spent it, we just 
didn't record it. Come on, give me a break. I hope that is not 
the attitude of this administration.
    Mr. Zakheim. I sure hope not. Certainly it is not mine. As 
I said, anybody who would have told me that in my old business 
wouldn't have been around very long.
    Mr. Hoekstra. Thank you.
    Mr. Zakheim. The question is, what do you do when there is 
a situation where this has been ongoing for many years, where 
the priority has been that to the extent one reported numbers 
at all, they were budget-oriented as opposed to accounting and 
financial management oriented. In addition, as you rightly say, 
what might be called a management information system as you 
might see in private business just doesn't exist in the Defense 
Department that way.
    What we have done, and, again, in light of what all has 
been said about trade-offs, you can see how important it was to 
do this--what we have done in this budget amendment is to 
allocate $100 million toward fixing this problem.
    Now, this is only a small down payment. I have heard 
estimates of a billion, maybe $2 billion in terms of 
structuring all of the various systems so that they can talk to 
one another, so that you can track a voucher from one end of 
the system to the other, so that can you account for 
transactions. We have to find out exactly what that cost is. We 
are talking about building an architecture that will allow us 
to put together a system that does indeed come up with the 
right numbers and allows management to make decisions.
    Now, will that result in a clean audit immediately? No. In 
fact, I would even argue that far more important than an 
immediate clean audit. In this regard, the Comptroller General 
of GAO agrees with me that it is far more important than that 
is to get the system in place so that are indeed can make 
decisions, and track numbers. There would be then the kind of 
financial accountability that begins to resemble what we have 
in the private sector. That is what we are trying to attain.
    Mr. Hoekstra. That is the reason that they call them 
management information systems. There are just too many 
departments that don't have it. And I really believe that 
handicaps you in your ability to make the appropriate kinds of 
decisions, because you don't have the information.
    Thank you very much, Mr. Chairman.
    Chairman Nussle. Thank you.
    Ms. Hooley.
    Ms. Hooley. Thank you, Mr. Chair, and thank you for making 
that opening statement about how we all support defense. I 
appreciate that.
    Thank you for being here this morning. I have actually 
several questions. A couple of them have been asked. For 
example, I too am concerned about, how do we close facilities 
and close bases. So I hope you have a plan worked out so that 
can happen.
    I also had some questions about financial accounting which 
were asked, but I want to finish up with that question and--
what are you doing with contracting out and when do you expect 
to have your financial house in order?
    Mr. Wolfowitz. We have a new senior executive council which 
consists of myself, the Under Secretary of Defense for 
Acquisition and the three service secretaries, who are given 
the responsibility for looking at the various ways in which we 
might find savings and efficiencies. And contracting out is 
high on the list of these. In fact, you may have seen some 
press commentary on the fact that Secretary of the Army, Tom 
White, comes from a firm which had been in the business of 
trying to provide contracted utility services for our bases; 
and some people think that his experience there means that he 
should recuse himself from that kind of activity.
    My own very, very strong feeling from many conversations 
with Mr. White is, having been on the other end, he understands 
what we need to do in order to make this contracting-out 
process work efficiently and effectively, because everyone 
agrees a lot of taxpayer dollars that can be saved in that 
manner.
    On the question of getting our financial house in order, I 
guess I would really just repeat what Comptroller Zakheim just 
said.
    Unless, Dov, you want to add any more on that score.
    Mr. Zakheim. I think I made that reasonably clear. This is 
a very, very high priority for us. It will be critical if we 
are going to make the kinds of transformations in other areas 
that we are talking about. And I am certainly prepared to 
answer any detailed questions later or for the record.
    And one other point, we want to work very closely with 
those Members of Congress for whom this is a high priority. I 
have offered that to people in the other chamber. And anyone 
here who wants to work with us on that, we are glad for your 
advice and your support. We will work with you.
    Ms. Hooley. I am just trying to get a sense of whether it 
is 2 years, 5 years, 10 years when you will expect--obviously, 
I know you need some financial help to do that. This is--I 
mean, you have a huge organization. You have a real mess.
    I mean, how long do you think it might take just----
    Mr. Zakheim. For a clean audit, you mean?
    Ms. Hooley. Yes.
    Mr. Zakheim. It is not going to be a year. We have already 
some sections of the Department that have received clean 
audits. The idea is to have the entire Department to get this. 
All I want to do is be on a positive slope that every year at 
least one other element of the Department gets a clean audit.
    Ms. Hooley. So are you making progress continually?
    Mr. Zakheim. Yes.
    Ms. Hooley. I want to clarify on contracting out. My 
concern, at least according to the testimony that we heard last 
year in this committee, was that there are a lot of people not 
trained in contracting out; that is where a lot of problems 
have been in contracting out, so--that was as opposed to saving 
money by contracting out.
    I was trying to figure out, are we getting that whole 
situation under control where people know what they are doing 
when they are contracting out, we don't--we are not overpaying 
contractors, which seemed to be a huge problem? That was more 
the direction of my question, as opposed to using that as 
saving money. I think right now it is costing us a lot of 
money.
    Mr. Zakheim. There are two ways to deal with that. One is 
the A-76 process. In fact, there was just an A-76 competition 
that was won by the contractor. The A-76 process is cumbersome 
in many ways. But one thing it seems to do is to drive down the 
cost no matter who is the winner.
    A second element--you are quite right, in terms of 
training, we are working on that. Indeed, it would be very nice 
if the Department had more flexibility regarding what kind of 
qualifications it demanded of its people. But we are limited in 
a variety of ways in that regard. And I believe there will be 
some action taken in that matter.
    Ms. Hooley. Where do you see your biggest savings coming 
from, what area? I mean, as you look at your priorities and you 
look at those things that have now changed in this world that 
you need to change with the Defense Department, where do you 
see some of those savings coming from?
    Mr. Wolfowitz. It is a range of things, I would say. It 
includes the sort of better-business-practices kinds of things, 
where we are doing things inefficiently in the military that, 
if contracted out properly--and I take your point about if it 
is done improperly, you will end up just overpaying for 
something--but services that should be much more efficiently 
provided by the private sector. That is one large category 
where our new service secretaries believe strongly they can 
find efficiencies in overhead.
    Another area which we are looking hard at right now, sort 
of an obvious cold war function, which is our offensive nuclear 
forces. We built them up to deal with a country that no longer 
exists. We have brought them down some. But in the President's 
view and the Secretary's view, we can still bring them down a 
lot more. In this budget, in fact, you will see not only the 
Peacekeeper elimination, but four Tridents converted from 
nuclear missions to conventional, two to be converted to 
conventional missions, then two to be simply removed.
    And the B-1 force changed from 90 bombers designed for the 
nuclear era to a smaller force but that is conventionally 
capable.
    So that is an example of where you look for a function that 
you really don't need, or need much less of, and try to find 
savings by getting rid of things. And it is surprising that 
there are a lot of those things around.
    Where you would least like to take it is, take it in the 
tooth. And when I answered Congressman Bentsen's question 
earlier, I mean, that is when all--at the end of the day, you 
have done your honest budgeting, you have done things as 
efficiently as you can, you have made the investments you need; 
if you are going to actually have to--in order to pay for 
things, take it out of the fighting element of the force, then 
we really need to lay out very clearly what the strategic 
implications of that are.
    That would be one's last preference, obviously.
    Chairman Nussle. Thank you.
    Ms. Hooley. OK.
    [The prepared statement of Ms. Hooley follows:]

Prepared Statement of Hon. Darlene Hooley, a Representative in Congress 
                        From the State of Oregon

    Thank you Mr. Chairman. In the President's Budget Blueprint, he 
stated that the strategic review currently being done by the Pentagon 
would guide 2002 and the future budgets saying, ``The administration 
will determine final 2002 and outyear funding levels only when the 
review is complete.''
    Today, the review is not finished and we are told that it will not 
be ready until next year.
    However, the Department of Defense stands before this committee 
today and asks for an $18.4 billion increase when the review is not 
complete, contradicting the statement made by the President earlier 
this year.
    In addition, Secretary Rumsfeld before the House Armed Services 
Committee in June testified that the $18.4 billion increase will be 
needed for the foreseeable future, and that unspecified amounts above 
and beyond this increase would be necessary to implement the results of 
the review.
    Maintaining this $18.4 billion increase will put the Department of 
Defense's budget at over $328 billion in 2002, an 11 percent increase.
    In contrast, in the congressional budget resolution, domestic 
programs increase by only 2 percent.
    We are currently developing three new fighters, the F-22, which is 
seeing cost overruns in the billions, and 2 additional joint-strike 
fighters, not to mention a missile defense system whose merits are 
questionable at best.
    These programs are being developed at an extraordinary cost of 
billions of dollars a year.
    The estimates for the surplus have shrunk considerably over the 
past few months, and if we want to fund these Defense increases, we're 
going to have to dip into the Medicare surplus.
    If the Department of Defense is in desperate need for additional 
funds for pay increases, housing, infrastructure improvements and 
readiness, then I'd like to see the Pentagon trim other areas to fund 
these increases.
    With domestic programs spending not keeping up with inflation and 
defense being about one-half of discretionary spending, I fear our 
priorities are focused on bloating the Department of Defense when we 
should be dedicating more resources for education, healthcare, and long 
term solvency of Medicare and Social Security.
    I cannot, in good conscience go to my constituents and say we HAD 
to give the Pentagon another $18.4 billion dollars when their schools 
are in need of funds and our seniors cannot afford their prescriptions 
drugs.
    I look forward to today's hearing, and yield back the balance of my 
time.

    Chairman Nussle. Mr. Schrock.
    Mr. Schrock. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary and Dr. Zakheim, for being here.
    I was glad to hear the chairman say that defense is a 
number one priority. In my life it is, and the people I 
represent, I can assure you. And I am really glad the review is 
being done. But I am as impatient as the last person, and I 
want it done today. But it doesn't happen that way; it takes 
time.
    During my 24 years in the Navy, I spent several of those 
years in what we affectionately called the Puzzle Palace. I 
know that sounds like an odd thing to say, but that is what it 
was then and that is what it is now. I was over there recently, 
and I thought, my God, it hasn't changed since I was there a 
long time ago.
    So it is just going to take a long time to get this done 
and get it done right. We just have to be very, very patient.
    And frankly, I think the Defense Department has been 
neglected for most of the last decade. And that certainly shows 
up in the condition of our ships, our tanks, and our planes. 
Because I see them every single day, and I talk to the 
commanders, I know how badly they have been treated. We just 
have to turn that around.
    Readiness and maintenance has just been absolutely 
deplorable, as you have shown by that little picture over there 
and the resulting cost of that. A rust hole that big today 
costs $10 to fix; twice as big tomorrow costs $10,000. That is 
exactly what is happening. So we have to get maintenance money. 
It is so important, because if we are going to get these things 
operating, we have got to make sure that that stuff is in the 
budget.
    The quality-of-life issue is absolutely vital. That is 
probably number one. If we don't have good housing, the troops 
aren't going to stay in. That has been the case--that is the 
number one reason for people leaving the military because of 
that.
    As an example, in the district I represent, an Army post 
there, Fort Story, has 168 units. Every single one has been 
condemned. The sergeant major for Fort Story lived in a set of 
quarters that, the day after he moved out, they bulldozed, it 
was that bad; and none of them meet congressional standards.
    We have to make sure that we have proper housing, and that 
is something that I have been screaming about down there.
    The Navy is doing a pretty good job. We have to make sure 
that same thing occurs with all of the services. And we have to 
understand too over the last many years the last administration 
had us deployed in more places around the world than all 
Presidents since Franklin Delano Roosevelt combined. That costs 
us a lot of money. Rightly or wrongly, that costs money. That 
money came out of maintenance, that came out of housing and all 
of these things. So we have to make sure that that doesn't 
happen anymore, as well.
    Retention, we have got to buy good quality things if we are 
going to retain people. And of course I am concerned about the 
Navy in particular.
    I am concerned about all of the services; I am privileged 
to represent every service. And with the new lines that we have 
redrawn, I am going to have two more major bases, which means 
that I will have 8 major bases and 195 small commands. So all 
of the services are important.
    But shipbuilding is real important, too. As we are going 
now, we are fast approaching a 180-ship Navy. We can't do the 
missions now that we have been tasked to do, let alone a 180-
ship Navy. So the more money that we can find to build more 
ships, I think the better, as well.
    And transformation, I understand what Mr. Spratt was 
saying; it does look like a lot of it is just to maintain what 
we are doing now. But if we are going to keep this system 
afloat, we have to do that. I think that approach is correct.
    But looking to the future, I think the President is right, 
not to build for today and for tomorrow, but to build for the 
next 20 or 30 years. But we have to keep the system going now, 
and the people happy, that we have got in it now.
    Your testimony discussed strategic environment and the 
current condition of our armed forces. I appreciate that. And 
what global responsibilities do you see that will be 
jeopardized by a continued under-resourcing of our armed 
forces, and what do you see as risks associated with that 
under-resourcing as you go into the outyears?
    Mr. Wolfowitz. I think the greatest risk that we face today 
is that we see in many places around the world, countries 
investing in--they realize that--they watched Desert Storm. 
They realize the enormous technological capability of the 
United States, enormous military capability of the United 
States. But they look for weaknesses, and they look for ways to 
engage in so-called ``asymmetric responses,'' so instead of 
meeting us head on where we are strong, they find a place that 
we are weak. One of these places is in fact in the area of 
ballistic missiles.
    It is not just national missile defense, it is theater as 
well, it is at all ranges. In fact, the only Iraqi capability 
that we underestimated during the Gulf War was Saddam Hussein's 
Scud missile capability. We see heavy investments in that going 
on in a number of countries.
    Then I would say, more immediately, and particularly in 
Asia, we see concerted efforts, but also by Iran in the Persian 
Gulf, to develop the capabilities to deny the United States 
access to exert our influence, the ability to keep our fleet 
away from shores, the ability to threaten bases that we would 
use for reinforcement.
    So those are the kinds of threats that we see as 
particularly dangerous, emerging in the future. And if we are 
going to keep this powerful force of ours powerful, we have got 
to be able to deal with these attempts to undermine it through 
its weaknesses.
    Mr. Schrock. Thank you. I agree with that.
    I think the perception among the public is that we are at 
peace in the world. Nothing could be further from the truth, 
because you have these terrorists and rogue nations out there 
getting ready to hit us.
    You know, it was 60 years ago this December that a terrible 
thing happened in Hawaii. I pray to God it doesn't happen 
again. But if we are not careful it is going to. I think the 
USS Cole should have been a wake-up call for us. It was for me, 
and I think it was for a lot of Members of Congress. We just 
have to do everything that we can to make sure that that 
doesn't happen; and proper funding is going to solve a lot of 
that.
    Mr. Wolfowitz. I agree with you strongly. Thank you.
    Chairman Nussle. Ms. McCarthy.
    Ms. McCarthy. Thank you, Mr. Chairman.
    And thank you, Mr. Secretary. I find the testimonies very 
interesting. One of my colleagues talks of the Department of 
Education. And when we talk about our bases, all I can think of 
is a majority of my schools which are over 50 years old also 
and in great need of repair. So we have a lot in common on that 
issue.
    My concern is, and I am sure it is a concern of everybody 
here, when we started working on the budget, we had kind of a 
rosy outlook on the moneys that were going to be taken in, and 
so we were kind of looking at that. Now we know, or we are 
going to know shortly, you know, how much money we are actually 
going to have as far as for our future planning.
    We here--and I think I can speak for almost every single 
one on this committee--care about our defense very much. And we 
care about those that serve our country. And I am a great 
believer in those that have served our country, in trying to 
find moneys to take care of them on the health care issues, and 
concerned also for the health care issues of our men and women 
that are in the service today.
    What--the DOD additional funding requests, and I know you 
are going under Strategic Review. What I am concerned about is, 
will this review take into account the moneys that we might not 
have coming in in the future?
    But to follow that up, even, is the Department of Defense 
going to highlight the things that they want and then let us 
here in Congress determine how it fits in with a responsible 
budget, and--because you have to understand where we are. We 
have our budget that we hopefully will all stay within.
    We have to convince our colleagues on all of the other 
appropriations that we have to stay within these budget 
guidelines. And it is going to be hard, I think, for an awful 
lot of us, because so many of us do care for those in the 
military. If we start to overspend here, are we going to take 
it out of--I know Social Security and Medicare have been there, 
and we are talking about that. I don't think anybody is going 
to do that.
    But is it going to come out of our health care system? Is 
it going to come out of our education system? That is going to 
be the tough part, I think, for all of us.
    Your job, I think, is going to be extremely difficult, to 
say the least. But on the other end of it, I think that if we 
all try to work together and look at what is being done on all 
of our bases, trying to do the maintenance and everything else 
like that, I think that is really more accountability that has 
to come into play with that also.
    And I understand that our government, not just Defense but 
almost every department, we are way behind, way behind in the 
computer world and being able to track where money is going and 
everything else like that. So hopefully--I mean, it is amazing 
we get anything done; I will be honest with you.
    But beside that, we have a long way to go. And hopefully we 
can go forward with that for our accountability, for our 
citizens that we have to represent every time that we take a 
vote. That is our accountability. So hopefully that--we will 
follow up on that.
    But I am curious on that. When you come forward with your 
budget and what you want to do, are you going to leave it to 
all of us to make the decisions on where those moneys are going 
to go, actually go; and how are we going to make these 
decisions?
    Mr. Wolfowitz. Well, first of all, let me say I very much 
appreciate the sentiments you expressed and so many other 
members of this committee have expressed of supporting national 
defense and supporting the men and woman who serve. I think it 
is something that we all have in common. And these are 
difficult trade-offs.
    I think our job in the Defense Department is to present the 
President with what we think are the realistic choices, what he 
can get for more money, what he will sacrifice if he has less 
money. He is the one, in his own budget, who has got to make 
the trade-offs among the different, very important, pressing 
national needs. And then, of course, that is the dialogue that 
we have with the Congress.
    What we have got to get away from is basing that dialogue 
on either dishonest budgeting, where we are kidding ourselves 
and kidding you; or what is even worse, and it is almost an 
inevitable outcome of the dishonest budgeting, essentially 
doing it on the backs of servicemen and women.
    I mean, if we can't afford to pay for 10 Army divisions and 
12 aircraft carriers, but we want them because they meet our 
strategic needs and they allow us to exert influence around the 
world, so we end up having them, but underfunding them, and the 
people that pay for that are the people that serve, and the 
risks that are run are the people that serve.
    So what we are trying to do with this budget process and 
with this defense review is to make these choices consciously. 
If it turns out that it is going to cost a lot of money to have 
the capability that I think is important to deal with the 
threats that I was addressing to Congressman Schrock, I would 
argue strongly that that should be high on the priority list.
    In 1950, as I said, Dean Acheson gave a speech. Many people 
accused him, I think unfairly, of inviting the North Korean 
attack by saying that South Korea wasn't within the defense 
perimeter of the United States. But it was the Joint Chiefs who 
said we don't have the forces to defend South Korea, we didn't 
want to pay for them.
    Well, at least that issue was surfaced. People decided with 
some consciousness, OK, we are not going to pay for these 
forces. I think we paid terribly later.
    But what we can't do is fool ourselves and put it on the 
backs of the people who serve this country so admirably.
    Chairman Nussle. Ms. Granger.
    Ms. Granger. Thank you. I have a couple of comments and 
then a couple of questions.
    First of all, I applaud the process that you have said that 
you are taking. I think it is extremely important, first, that 
you assess the situation honestly and see where we are. But I 
would say to you--I would invite you, certainly, to keep us 
informed about what you are finding, so that you will help--we 
can be partners in assessing and also building our case for 
correct and appropriate funding, and then as you draw your 
plans for the future, see then what that future means and what 
it is going to cost. That is going to be a very important part 
of the QDR.
    I would ask you, how you are going to report to the 
Congress? Are you going to wait until the QDR is finalized, 
then report in a situation like this; or are you going to tell 
us along the way and give us some information, so we can keep 
making our plans?
    And then the last thing I would say, the Department has 
been criticized in reports about financial management. I am 
glad to hear you say that you are putting in the safeguards, or 
the changes, to correct that situation.
    But I would also say, as you are putting in processes and 
equipment to report and to keep records, I would hope you would 
also be looking for savings, because we have got to look at 
what we are willing--how we appropriately fund.
    But there are savings, and I would go back to the first 
year that I was in the Congress when some of us came together 
and said, we have got to find not only more money for defense, 
but also we have got to see how we are spending that money. In 
one of the meetings that occurred, we were told, primarily by 
the defense contractors, that in putting some safeguards in to 
see that we weren't having a $700 hammer, we were creating a 
$700 hammer because we were spending as much in shopping, or in 
buying the equipment.
    Let's say a plane, we spend as much to buy the plane as we 
do to build the plane. So what can we do about that?
    Thank you.
    Mr. Wolfowitz. On your last point, I think that there is no 
question that we have some processes in the Defense Department 
that seem to make it take as long as possible and be as 
expensive as possible to produce things. To be fair to us, I 
think some of those are responses to concerns the Congress has 
expressed over the years. And, not infrequently, I sort of have 
the feeling that if you excavate each layer of regulation or 
process that adds some cost or adds some time--and time is 
money--you will find that there was someone who misbehaved 15 
years ago. This was designed to keep anyone from doing that 
again.
    We operate under a lot more restrictions and safeguards 
than any private sector corporation does. And we certainly 
should. But we need to take a hard look at whether some of 
those are unnecessary, some of them have outlived their 
usefulness. In a big bureaucracy it is very easy to accept 
something, even--there must be. I mean, we know thousands of 
servicemen and women who know of things that can be done more 
efficiently, but we are told it has to be done that way because 
there is Regulation X or Y; and in this big system of ours, 
they don't know how to get these things fixed. Hopefully, we 
will get some of those things fixed.
    On the question of keeping the Congress informed, we are 
trying to do that. It--in fact, I think there is--we have 17 
hearings with the Defense Department witnesses up here this 
week alone. It is a particularly rich week, this week alone.
    The preliminary results of the QDR should be briefed to the 
Secretary by the end of July, beginning of August. And I 
presume that would open up the door for some conversations, 
when you come back from Labor Day, on where we think it is 
coming out before it is finally delivered.
    And then there is still sort of the implementation stage, 
taking those results and translating them into budget level 
detail in the 2003 budget which will be coming up here. So, 
hopefully, there will be a lot of opportunity during the fall 
months to discuss these issues.
    Chairman Nussle. Mr. Price.
    Mr. Price. Thank you, Mr. Chairman.
    Mr. Secretary, I would like to add my welcome. My 
congratulations on your appointment and welcome to the 
committee.
    Mr. Chairman, Paul Wolfowitz and I were colleagues 30 years 
ago, on a decidedly junior status, on the Yale University 
political science faculty. I don't expect either one of us 
would have anticipated that 30 years later we would be facing 
each other across the hearing table. Certainly I wouldn't have 
anticipated that. But, hey, it is a great country. Here we are.
    And I certainly have followed Mr. Wolfowitz's career with 
great interest and satisfaction and again want to congratulate 
him and thank him for appearing here today.
    I would like to return to some of the budget issues, some 
of which have been touched on. But I want to give it a 
particular slant in terms of the 2002 increase and how final 
these numbers are, or may not be, in terms of what we can 
anticipate.
    As you know, Mr. Secretary, many independent analysts, for 
example, William Dudley of Goldman Sachs and others believe 
that the 2002 revenues are in fact likely to be revised 
downward later this year which would make the 2002 surplus as 
much as $50 to $75 billion less than is currently forecast.
    In that case, then, this $18.4 billion increase that the 
administration requested for Defense for 2002 would require 
dipping into the Medicare surplus. None of us, of course, want 
to do that. So this does raise the question, to what extent are 
these budget requests being formulated, being shaped, by taking 
into account the availability of resources?
    So let me just ask three related questions along these 
lines:
    In the first place, what about the $18.4 billion request? 
How does that compare with what DOD was initially seeking? Did 
you request substantially more than that? As you know, there 
have been reports to that effect. I wonder if you could comment 
on that. Did you request substantially more than that from OMB? 
How adequate is the request to start with? To what extent has 
OMB already taken into account the availability of resources?
    Secondly, assuming that the original request was more than 
$18.4 billion, substantially more, can you give us assurances 
that that will be adequate, or should we expect a supplemental 
appropriations request down the road for 2002?
    And then thirdly, in terms of the future of the Strategic 
Review, what constraints in terms of available resources are 
affecting that review as we speak? What kinds of constraints 
are you anticipating? And how does that affect the proposals 
that come from the Strategic Review?
    Mr. Wolfowitz. Good questions. Good friend from a long time 
ago. It is good to see you, Congressman Price--or, David, if I 
may address you that way.
    First of all, we certainly identified more needs than we 
are coming up here asking for. The President ultimately has to 
make the decision on what he thinks are the highest priorities; 
and we would emphasize, we have gotten the largest real 
increase in defense expenditures in 15 years. It goes a long 
way toward starting to fix some of the serious problems that we 
identified in the first phase of the Strategic Review, and it 
has $13 billion plus another $7 for missile defense, some $20 
billion toward addressing the needs of the next decade, the 
needs of the future.
    So it is a very healthy investment. It is a start on this 
uphill path of rebuilding the present force, and I would 
emphasize, 10 years from now; I mean, 85 percent of the forces 
that we have today are going to be with us for 10 years or 
more. That is the rate at which things change in the defense 
business. So we think it is a good start on that path.
    Could we use more? Yes, we could use more. I suppose every 
department could tell you that. But you asked, then, a second 
question, would this be adequate or do we need a supplemental 
in 2002? We will not be asking for a supplemental in 2002, 
barring a genuine unforeseen emergency. These things do happen.
    But what seems to have begun as a kind of dysfunctional 
process for the last 5 or 6 years, it became so easy to get 
supplemental appropriations that people planned on them. They 
weren't for emergencies; they created the emergencies so they 
could get the funding.
    We are not doing that. That is why we are fully funding the 
defense health care program, and that is an extra $5 billion 
over what it was last year, because we think that is what it is 
really going to cost.
    We are adding $2.4 billion for flying hours. I think I 
incorrectly--earlier, Mr. Spratt, identified it as readiness as 
a whole. So $2.4 million just for flying hours to realistically 
reflect what those costs are.
    So, no, this is a budget that is built on the assumption of 
no supplementals, and the services understand that. They 
understand that that is how it will be done. That is why maybe 
there is more meat and potatoes in it than some people like. 
But if you leave out the meat and potatoes and just serve 
dessert, then people come back in the middle of the year, 
asking for a supplemental.
    Your final question had to do with, are we taking account 
of those projections? And I could be little impertinent and 
turn the question around and say how on earth can one take 
account of these projections when they change every month, and 
they go up and down; and the only thing you can say about this 
is, they are almost invariably wrong. I don't mean to be flip 
about it.
    But we do leave that responsibility to OMB. What we are 
trying to give to OMB and the President is a clear, honest, 
realistic assessment of what they are going to get at different 
levels of defense expenditure.
    The question of what the country can afford--which is 
partly a matter of doing this magic of divining what the 
revenue will actually be and is even more a matter of balancing 
many important domestic priorities against important defense 
priorities--is something--our contribution can be made to the 
President and the Congress by making the defense choices as 
clear and honest as we can make them.
    It is really, I hate to say it, up to you and to OMB to 
manage the results.
    Mr. Price. Thank you.
    Chairman Nussle. Mr. Collins.
    Mr. Collins. Thank you, Mr. Chairman.
    And thank you, Mr. Secretary, for being with us here this 
morning.
    You know, I heard you make the comment that the problem is 
bigger than you thought. I recall something very similar to 
that from the year 1993 when an administration took office and 
said, ``The deficit is bigger than I thought,'' and the result 
was a large tax increase. Folks in my district, instead of 
having that tax increase wanted to cut spending first.
    When this administration announced its cabinet, its 
leadership, folks in that same district said, great to see the 
adults back in charge.
    Well, when Mr. Daniels appeared before us last week, or 2 
weeks ago, and was talking about more spending, I am afraid we 
are going to hear the same thing from home--cut spending first.
    Now, Mr. Daniels is responsible for the entire budget, as I 
understand it, for the White House. You are here representing 
the Department of Defense--one segment of the budget, a very 
important segment and a very large segment.
    I understand that you have only been on board and confirmed 
in May. The 6-month review was to be conducted by you and 
others. You haven't had 6 months. I don't think that you can 
sit before us today and give us a true, accurate statement that 
says this is an honest assessment, that this is justifiable.
    We know there are problems. We visit the bases within our 
own districts. And we know, too, that we are having to do more 
with less in other parts of the world. And, in fact, I am going 
to one of these areas this weekend to visit the 48th Brigade in 
Bosnia.
    We know there has been delay in repairs to infrastructure 
as well as equipment, delay in preparation for readiness.
    We also know that there has been a 40 percent reduction in 
our uniformed personnel with only a 20 percent reduction in the 
base alignment. We also know that there is a lot of inside 
politics in the Department of Defense. We hear the rumors. In 
fact, some of them are not even rumors; they have actually been 
put on the table, realignment of units. I think some of that is 
inside politics and preparation for another possible round of 
base closures.
    Some of those people who are in party, in the leadership, 
the four stars and whoever, have certain areas of interest that 
they may want to protect rather than let the chips fall where 
they may.
    Mr. Secretary, I see a far greater risk to our Department 
of Defense in the outyears--not to our nation as a defense 
itself but the Department of Defense. And I go back to 1988 
when we had a President--a candidate for President who stood in 
New Orleans and said, ``Read my lips.'' 1990, he broke that 
promise, even though in 1991 he led us through the Gulf War and 
the display of a mighty Department of Defense, one that I think 
helped bring down a lot of other things that are problems 
around the world.
    But I also heard this President, less than 3 hours ago, 
talk about budget discipline. Budget discipline. And I believe 
when he commented before the nation, he said 4 percent growth 
is enough.
    What does this do to the 4 percent growth? What does this 
do to the budget discipline? Is this going to cause a reaction 
from the people that is the same as it did with Bush 41 on 
``read my lips,'' a one-term President?
    I like this President. I like his ideas. I think he has 
backbone. But I question the rationale of coming back and 
asking for more money when we have made a promise that 4 
percent growth is enough.
    It is not your place, it is Mr. Daniels' place, the Budget 
Director, to advise the President and come back here with 
recisions that will give you the funds needed to prop up our 
Department of Defense to make sure that we have adequate 
equipment, infrastructure, personnel. And--I will end with 
this--and I gave this same advice to the Speaker of the House 2 
years ago.
    There is a saying in Georgia and other parts of this 
country, Mr. Secretary, ``Money talks, BS walks.'' don't let 
the 4 percent growth be BS, sir. Pay attention to the words of 
budget discipline and to the people of this country who say, 
Cut spending first.
    Chairman Nussle. Thank you. We are at the point where I 
promised Mr. Wolfowitz that we would have you out of here. I 
have two more people that would like to ask questions. Could 
you--if we make them brief, would you be willing to----
    Mr. Wolfowitz. I will try to answer them briefly.
    Chairman Nussle. Mr. Moore.
    Mr. Moore. Mr. Secretary, congratulations and thanks for 
being here. I certainly agree with the Chairman's comments that 
every member of this committee is concerned about a strong 
national defense and frankly, if we don't have a strong 
national defense for this country, almost nothing else matters. 
So in that regard, I certainly support adequate pay and housing 
and medical care and research and development for our defense 
department, and for the people who serve in our defense.
    I want to ask you some questions very briefly about the 
submission that you made and the $7 billion for fiscal year 
2002 for national missile defense system. Can you tell me, is 
there anybody who knows right now what the estimated total cost 
of this so-called national missile defense system will be?
    Mr. Wolfowitz. We don't have a system yet. We have 
essentially a program to develop technologies. So we can't do 
the kind of thing that you might total up, and cost out as a 
whole architecture. Let me say that covers a wide range of 
capabilities, some of which are urgently needed in the theater 
today to deal with threats that are sort of out in the horizon 
that aren't there now.
    Mr. Moore. Thank you. I have heard and read from other 
defense experts that they have very real concerns about the 
threat that a terrorist attack on this country with chemical or 
biological weapons might represent. In that regard, how would 
you assess that kind of threat relative to the threat of a 
missile attack from a rogue nation?
    Mr. Wolfowitz. Basically, I would say they are both very 
serious. We spend a lot of money, some estimates are as much as 
$11 billion in countering terrorist threats. And I would spend 
more if I thought it could be spent usefully. I was in Israel 
during the Gulf War. Former President Bush sent me and Deputy 
Secretary of State Lawrence Eagleberger to persuade the 
Israelis to stay out of that war. I have been in a country 
under ballistic missile attack. It was 10 years ago, Mr. 
Congressman, and 10 years later we still don't have an 
effective defense against those primitive SCUD missiles that 
were landing on Israel.
    It is not what United States does when we are serious. We 
didn't get to the moon that way. We didn't build Polaris 
submarines that way. This is a real problem. It is not a future 
problem. We have got to get serious about it in my view. We 
have to be serious about both. You could even frame it this 
way: We lost--I am sorry, I don't remember these terrible 
numbers. I think we lost 19 people to a truck bomb in Khobar 
Towers in Saudi Arabia. We lost 24 people to a scud missile in 
Dahran in Saudi Arabia in the Gulf War. Those are both real 
threats. We need to work on both of them.
    Mr. Moore. You indicated to the chairman's request in 
response to one of his questions that you expected that this 
review that is being conducted at the Defense Department might 
be completed now in 9 months instead of the 6 months which has 
already come and gone. Is that realistic, say September, 
October time frame? And might we, in this committee, expect a 
report back in September, October about what this review, top 
to bottom of the Defense Department, shows?
    Mr. Wolfowitz. First of all, let me emphasize, we have 
completed a substantial review in the 6-month period. But the 
short answer to your question is yes. We think it is realistic. 
We have people working incredibly hard, very, very hard and 
long hours. But we think we can get it done.
    Mr. Moore. If you find in September or October that you 
can't get it done, are you going to let us know that and give 
us a new time frame?
    Mr. Wolfowitz. I take the chairman's point; if we find in 
August that we aren't going to make it in September or October, 
we will be up here and discussing with you what is realistic. 
We won't leave it to the last minute.
    Mr. Moore. One more question. And please take this as it is 
intended. I have looked at your bio, very, very impressive 
biography resume. But my question to you is, and this is not 
intended as a slap at you at all, but my question to you is 
would Secretary Rumsfeld come here and talk to us at some point 
in the near future?
    Mr. Wolfowitz. I will ask him. I would recommend that he do 
so.
    Mr. Moore. I know there are members of this committee who 
like to have an opportunity to discuss some of these things 
with him. Again, you may be perfectly qualified to be the 
Secretary, but you are the Deputy. That is the only reason I 
ask that question. So please take it that way. Thank you very 
much, Mr. Secretary.
    Chairman Nussle. Mr. Fletcher.
    Mr. Fletcher. Thank you, Mr. Chairman. And Mr. Secretary, 
thank you for coming. Certainly, I believe that the President 
has put together, the Department of Defense, one of the most 
experienced and best teams we have seen there in a number of 
decades. So I thank you for your work and what you are doing. 
And also, I believe you are doing an excellent job. You have 
got a very difficult task. I laud you and the administration 
for setting very aggressive goals and commend you for pushing 
to meet those as much as possible. I know because of 
circumstances outside your control, it was not entirely 
possible, but I commend you for getting the ball rolling and 
working very hard at looking at transforming our military and 
our defense.
    Mr. Wolfowitz. Thank you.
    Mr. Fletcher. So those that say that trying to pit defense 
spending against tax cuts and other things, it seems to be no 
matter what happens up here, they sing the same tune. They seem 
to be out of touch with the folks back home who are looking 
forward to getting some tax relief. I think we can certainly 
maintain a very strong national defense and get some tax relief 
if we have fiscal discipline.
    I served back and remember the Carter days. It was much 
like the Clinton years when it comes to defense and support for 
our troops and their equipment. I can remember a decrease in 
flying time. I can remember taxiing out on the--to fly 
Elmendorf and having all three struts go flat. I remember being 
at Nellis in 1978 at Red Flag and having a 50 percent delivery 
rate of F-15s at that time. We were cannibalizing aircraft. 
Crews were not and pilots were not getting the flight time they 
wanted, and we were bailing out going to civilian jobs. We got 
a lot of friends that went to the airlines, some of which are 
still flying.
    And so I want to thank you for putting in the money for 
more flying time. I think that is important. Nobody can 
understand the importance of that unless you have been there 
and know how important that is to keeping well-trained pilots. 
So I commend you on that. And the spare part, I think it is 
$2.6 billion for spares and other things. I saw three of my 
colleagues killed because of equipment breakdown because we 
weren't getting the spares. We were cannibalizing aircraft. We 
had old aircraft. And it is very difficult to watch your 
colleagues--there are going to be accidents. It is a very 
dangerous profession. But to see losses that didn't need to be 
there because Congress and the administration at that time 
would not support the Department of Defense's need is very 
troubling, and I trust we will not make that same mistake.
    You know I just read also Colonel Sam Johnson, who happened 
to be my wing commander in Homestead Air Force, ``Captive 
Warriors,'' and I look at the things that happened during 
Vietnam. How that differs from what happened in Desert Storm 
and Bosnia. How technology has brought us to make sure that we 
preserve the lives of our pilots. We are much more effective in 
our strikes.
    So again, I commend you for your effort in technology and 
transforming military. It is not going to be easy. It is not 
going to be cheap, but it will save lives and certainly improve 
our national defense. With that said, let me ask a few 
questions. I don't know if you all have right now what our 
delivery rate is or mission-ready rate for our aircraft are at 
that time for F-15s, F-16s.
    Mr. Wolfowitz. Do you have those figures, Dov?
    Mr. Zakheim. It may be more specific than we need. But I 
read it was pretty low, at least a year or 2 ago, and I haven't 
seen new update figures for that. If you wouldn't mind, I will 
get them for the record, but I certainly have a very clear 
picture of those charts that the Air Force is briefing us on, 
and there has been a very dangerous dip on the order of 20 
percentage point reduction in readiness rate.
    Mr. Fletcher. If we don't get the kind of support and 
equipment and flying time, we are going to lose very skilled 
pilots. I was down in Langley a year and a half, together with 
the first tactical fighter wing there, and we have got some of 
the best trained pilots, some of the most skilled individuals 
in the world. And we are not going to be able to keep those if 
we continue to provide them equipment that we can't deliver, 
cannibalizing aircraft and not offering the flight time. So I 
commend you again on your request to support those troops. That 
is very important.
    What are some of the impediments that you foresee to impair 
your ability to really modernize and transform our defense that 
you can immediately see that really there are major impediments 
to doing that?
    Mr. Wolfowitz. Well, I think, first of all, the 
difficulties of operating efficiently in a variety of ways, I 
alluded to this earlier, the fact that there are so many things 
that you know ought to be more cheaply provided through 
civilian sectors that specialize in those capabilities and you 
can't do it. I think another thing, which is sort of endemic to 
the way government does business, is that people have 
inadequate incentives to save money. I mean, you have, and I am 
not going to--every government official I know confronts at the 
end of the fiscal year if they have saved money, some budget 
officer will come in and say you have got to spend it because 
if you don't spend it now, they will cut our budget next year. 
We ought to find ways for people to do the opposite, for people 
to say I have got the savings, it is going to make me better 
next year than worse off.
    Mr. Fletcher. Is there a way of rewarding folks in that 
situation of turning over, having surplus that could----
    Mr. Wolfowitz. I think there is. I think if I can make a 
pitch here for what we have tried to do with the B1, I think we 
are taking 90 aircraft that have a 54 percent availability 
rate, that is a number I do remember, which is shockingly low, 
that are so vulnerable to air defenses that we didn't fly them 
in the Gulf War, and we only flew about three Sorties in Kosovo 
before we decided that even there they were vulnerable. They 
were basically built to fly a nuclear mission against the 
Soviet Union.
    We are getting rid of 30 of those 90. We are using the 
savings, the Air Force is going to use the savings to upgrade 
the 60, so they not only have advanced avionics and higher 
availability rates--respectable availability rates--but also 
have stand-off attack capability so they can stay 160 miles 
outside of air defenses. That is, in my view, a real way to 
find some of the money to do some of the things that we need. 
And we are taking eight aircraft out of Kansas and eight 
aircraft out of Georgia and eight aircraft out of Idaho. I 
understand the discomfort, to put it mildly, from the 
delegations from those States. But I hate to say it, I think 
there is going to have to be more of that in more states before 
we are finished.
    The only thing I can say is those savings are being put 
into much move productive uses. The 60 aircraft crews that are 
left and the people that are supporting them will feel like 
they are doing a meaningful mission instead of a 54 percent 
availability rate for an aircraft that doesn't go into combat. 
That is the kind of thing--there are a lot of opportunities 
around the Department, and we are going to be looking for them. 
We are going to be looking for help from you and your 
colleagues in making those painful choices, which they are 
painful at first, but I think, like so many adjustments that 
this country makes, we do understand that we are an incredibly 
adaptable country. And the pain you take up front really does 
pay off in the long run.
    Chairman Nussle. Mr. Spratt.
    Mr. Spratt. Dr. Wolfowitz, we don't do 1-year budgets 
anymore, we do 10-year budgets, precarious as that is. You do 
sort of a 6-year budget, a FYDP. I wonder if we could have a 
copy of your latest FYDP, which incorporates the $18.4 billion 
request.
    Mr. Zakheim. This year, as you know, Congressman Spratt, we 
simply have the 2002 budget proposal. There is no 5-year 
additional plan that goes with it. This is very similar to what 
happened in 1993. The same thing exactly occurred with the 2003 
budget--there will be the follow on outyears, as is normally 
the case.
    Mr. Spratt. When can we expect a FYDP, a truly updated, 
properly stated, future year defense plan?
    Mr. Zakheim. Well, as I just said, sir, when we submit the 
2003 budget, which is normally January, February time frame, as 
Dr. Wolfowitz said, there will be the outyears as well, the 
FYDP in its entirety. This year we have only submitted for 
2002. Again, that is not unusual. That is very, very common 
with a first year of a new administration.
    Chairman Nussle. Thank you to our witnesses. There are, I 
am sure, additional questions from members. We are far over the 
time that has been allotted, and apologize to members who came 
late and are interested in asking questions. There will be, I 
am sure, additional opportunities. If you would agree to 
possibly answer some of those questions in writing, that would 
be helpful, number one. Number two, we will take you up on the 
offer--I am sure members would appreciate a briefing, some have 
taken advantage of that, others may want to. We appreciate 
that. And then just in closing, I think you obviously got the 
point because I would suggest rule number 1 is plan your work 
and work your plan; and rule number 2 is if the plan changes, 
let us know. And we appreciate that. And we also appreciate the 
work that your staff does. We have a former graduate of the 
Budget Committee, Mary Beth and she has done an excellent job 
here, and we welcome here--Becky. Oh, yes OK. And Becky Schmidt 
is a former Budget Committee graduate. You have got some good 
folks working with you. We welcome them back.
    Mr. Wolfowitz. You run a good school up here.
    Chairman Nussle. We run it so well they go on to bigger and 
better things.
    Mr. Wolfowitz. I would be happy to take any questions in 
writing, or if people want to do an oral question, I will be 
happy to take a phone call. I am sorry, I have to leave now.
    [The information referred to follows:]

          Questions for the Record Submitted by Mr. Gutknecht

    I have been working with the Minnesota Air National Guard on a plan 
to modernize the Air Reserve Forces in Minnesota. The Air Force Reserve 
Command has not cooperated with the plan claiming they have their own 
plan to modernize the 934th Airlift Wing. In an attempt to support the 
administration's plan to reform the military to an effective and 
efficient force, does the Department have a plan for the 934th Airlift 
Wing? If not, can I get Department of Defense assistance to get the Air 
Force Reserve to cooperate with the Minnesota Air National Guard on the 
modernization plan? We look forward to an opportunity to present this 
plan to the Department of Defense.

            Response to Questions Submitted by Mr. Gutknecht

     Resourcing of Guard and Reserve units and fleet 
modernization is the responsibility of the Service Secretary.
     Active, Guard and Reserve tactical airlift units are 
addressed in the Total Air Force plan for tactical airlift called the 
``C-130 Roadmap''--with the 934th on top for the C-130J in the out 
years.
     The Guard and Reserve will continue to be full partners 
with their active counterparts, and their missions (current and future) 
will reflect that.
     DOD's oversight assures that unit resourcing will 
commensurate with missioning, given overall DOD fiscal constraints.
     Transforming our force is a joint responsibility and one 
that will require close partnership between Congress and the executive 
branch. By the end of the QDR, we will be able to give more precise 
advice on how we intend to balance our needs and present a new defense 
posture that is better suited for ourselves and for future generations.

            Questions for the Record Submitted by Mr. Spratt

    At a hearing before the House Armed Services Committee on June 28, 
Secretary Rumsfeld stated that just to maintain the $18.4 billion 
increase for 2002 into 2003 would require a Department of Defense 
budget of approximately $347 billion for 2003 (compared to $328.9 for 
2002). This appears to be more than the 2002 level adjusted for 
inflation. Please explain in detail why the 2003 level would be $347 
billion.

            Response to Questions Submitted by Mr. Gutknecht

    Using as a baseline the President's $328.9 billion request for FY 
2002, DOD would need $347.2 billion in FY 2003 just to cover the costs 
of inflation and realistic budgeting. This $18.3 billion increase is 
indeed more than inflation. Besides inflation, this increase includes 
added FY 2003 funding to:
     Fully account for in FY 2003 the pay proposals in the FY 
2002 budget request
     Realistically fund the Defense Health Program, whose costs 
in FY 2003 will be substantially higher than in FY 2002
     Realistically fund the currently planned acquisition 
program, which was estimated to have significant underfunding in FY 
2003.

    Chairman Nussle. We appreciate the time you have spent 
today. With that, the hearing is adjourned.
    [Whereupon, at 12:35 p.m., the committee was adjourned.]

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