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Testimony Prepared for Delivery on the 2002 Defense Department Amended Budget to the House Appropriations Committee
By Secretary of Defense Donald H. Rumsfeld , House Appropriations Committee , Monday, July 16, 2001

Introduction

Mr. Chairman, members of the Committee, I am pleased to present the President’s 2002 amended budget for the Department of Defense.

In discussing this budget, it is useful to begin by confronting some less than pleasant, but important facts: The U.S. Armed Forces have been under-funded over a sustained period of years. DoD has been living off of the substantial investments made during the 1980s. As a result, shortfalls exist in a number of vital areas, including readiness, intelligence, operations, procurement, maintenance, infrastructure, modernization and health care – shortfalls that are considerably worse than I had previously understood.

The U.S. Armed Forces are the best-trained, best-equipped, most powerful military force on the face of the earth. Peace, prosperity and freedom across the world are underpinned by the stability and security these men and women provide.

I recently visited our troops in Kosovo and in Turkey. They are dedicated men and women who are ready, willing and able to take on any mission our government may ask of them.

No force in the world can do what they do. Only the United States can quickly move large, effective combat forces across long distances, or conduct large-scale, all-weather precision strike operations.

The U.S. is unparalleled in conducting aerial operations at night, amphibious operations anywhere in the world, operating high endurance unmanned aerial vehicles (UAVs), or conducting corps-sized expeditionary operations and highly complex joint operations.

Our advantages in air-to-air combat and on the high seas have made it impractical for adversaries to use airplanes to attack us or send forces across oceans to threaten us.

So our country has many strengths. Indeed, in some ways, it is because our forces are so capable that we face the challenges we do. Over much of the 1990s, the U.S. has both overused and under-funded this force, and it has taken a toll. Asked to do more with less, they have saluted and done their best, but it has been at the cost of needed investment in infrastructure, maintenance, and procurement of equipment.

With the end of the Cold War, there was an appropriate draw down, but it went too far – overshooting the mark by a good margin. We are well past the time to take the necessary steps to arrest the declines and put the Armed Forces on a path to better health.

The problem goes well beyond operation tempo. For example:

  • Many facilities are dilapidated and in urgent need of repair and replacement.
  • Health care costs are rising at a much greater rate than the funds provided.
  • Outdated management and acquisition systems and processes add millions to the department’s costs each year.
  • Due to shortfalls in spare parts, training and personnel, and increased flying hour costs, Navy non-deployed force readiness is 43% -- down from 63% in 1991.
  • Only 69% of the Air Force’s total combat units are mission ready, down from 91% in 1996.
  • 75% of the Army’s major air and ground combat systems are beyond their half-life, and Army aviation "safety of flight" messages have increased 222% in the past four years.
  • 35% of Marine Corps infrastructure is over 50 years old and much of their primary equipment and weapons systems are reaching or exceeding their intended service life.
  • Sixty percent of all military housing is substandard.
  • Force protection capabilities have been under-funded.
  • Financial management systems are so poor that the Department can’t get a clean audit.
  • While DoD was operating at increased tempos, procurement of new equipment fell significantly below the levels necessary to sustain existing forces – leading to steady increases in the average age of equipment and the cost to maintain these aging systems. It was called a "procurement holiday." Some holiday!
  • Basic research funding has declined by 11% since 1992, and RDT&E funding levels have declined 7.4% in the same period.

Clearly, we need to arrest this deterioration and do a better job of balancing the risks we face.

The first responsibility of the Federal government is to defend the American people. That job is done by brave men and women, who wake up each morning and voluntarily put their lives at risk, so that the rest of us can go about our days in peace and freedom.

We have an obligation to make certain those men and women have decent training and facilities, and the most advanced equipment and technology available.

The current condition of U.S. Armed Forces didn’t happen overnight. Each individual action that caused this situation was hardly noticed -- a little less procurement here, purchases and repairs put off there -- until one day, the cumulative total shortfalls amount to tens of billions of dollars.

Even the best-built, best-engineered car in the world will eventually break down if you put off regular maintenance and repairs. A Ferrari on blocks will get beaten by an Edsel every time.

We are about to face new, emerging threats of the post-Cold War world. They are real, they are dangerous, and they are just over the horizon. If we are to meet them, we need to invest now to begin transforming our Armed Forces for the challenges of the 21st Century.

We need to get on a path to correct the most serious deficiencies; we need to stabilize the force and begin needed modernization; we need to restore DoD infrastructure; and we need to make progress toward transformation -- so that our forces are ready for the new and different threats of the new century.

The President’s budget

The President’s 2002 defense budget adds urgently needed funds to begin stabilizing the force.

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 $4.4 billion in proposed new money for Presidential initiatives, including:

  • $1.4 billion to increase military pay,
  • $400 million to improve military housing,
  • $2.6 billion for research and development.

The President’s 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 in proposed new money for the Department in 2002.

OMB concludes that this represents the largest peacetime increase in defense spending since the mid-1980s. So, if Congress approves this budget, by historical standards, it would represent a significant investment of the taxpayer’s money.

But let’s be clear: This increase, while significant, does not get us well. The systematic under-investment over past years went on far too long. There is no way it could be fixed in one year, or very likely, even in six years.

Mr. Chairman, allow me to provide an idea of the depth of the hole we are in. To get well -- to meet existing standards and steady state requirements in areas like readiness levels with proper flying time, training, and maintenance; equipment modernization; replacement of buildings and facilities that are falling apart; fixing family housing and restoring quality of life for the men and women of our Armed Forces – all of this together would cost the American taxpayers many tens of billions of dollars. And that would do little with respect to the investment needed to transform the force for the future.

So, yes, $22.8 billion is a large increase by historical standards. And, it is a huge commitment of the American people’s hard earned tax dollars. But DoD needs every cent of it, and it only begins to make a dent in the leftover problems we face today.

What the budget will and won’t do

I want to be very straightforward about what this budget will do – and what it won’t do.

  • This budget will put us on the path to recovery in some categories such as military pay, housing allowances, readiness training, and health care;
  • It will start an improvement but leave us short of our goals in others such as defense-related science and technology, maintenance of weapons systems and reaching best standards for facilities replacement;
  • And, in still other categories there will be continued shortfalls such as backlogs in property maintenance requirements.

Here are a few specific cases to illustrate the pattern. Take, for example, the Defense health program:

  • Today, overall health care costs are increasing at an annual rate of 13%.
  • The 2001 budget provided $12.1 billion -- falling short of what was needed to cover that rate of increase by $1.4 billion.
  • The 2002 amended budget proposes $17.9 billion for defense health – a $5.8 billion increase – that will allow us to cover a 12% growth in the costs of medical care and a 15% growth in the cost of pharmacy purchases.

So, for the first time in years, the 2002 budget should fund a "realistic" estimate of military health care costs. This is an area where we are getting well.

We are not getting as well, however, when it comes to the state of DoD facilities. Consider:

  • In the private sector, the standard for overall facility replacement is 57 years. DoD’s target is 67 years.
  • Here is the DoD reality: Under the 2001 enacted budget, DoD was replacing facilities at an unbelievably poor average rate of 192 years.
  • The 2002 budget which proposes to increase funding for facilities from $3.9 billion to $5.9 billion gets us closer. It would allow us to replace facilities at an average rate of 101 years – an improvement, but still well off the acceptable target of 67 years.
  • We could do better. With a round of base closings and adjustments that reduced unneeded facilities by, for example, 25%, we could focus the funds on facilities we actually need and get the replacement rate down to 76 years at the 2002 budget level.
  • Without base closings, to achieve the target 67-year replacement rate would require an additional $9 billion annually for a period of 9 years or a total of $81 billion. That is simply not going to happen. We absolutely need to close unneeded bases.

Or, take an example where things are continuing to decline -- shipbuilding:

  • The current standard based on the 1997 Quadrennial Defense Review is to maintain a steady state of 310 ships.
  • Here is the reality: Under the 2001 enacted budget, the U.S. is building 6 ships a year at a cost of $11.5 billion -- which puts us on course to reduce the size of the U.S. Navy to a clearly unacceptable steady state of 230 ships by 2030.
  • The 2002 budget, by providing for six ships at a cost of about $9.3 billion will keep the Navy on the same course toward a 230-ship steady-state Navy. We must reverse this trend of past years.
  • The cost of reversing the decline and "catching up" to, for example, the 310 ship steady state, increases by $3.0 billion every year it is put it off. To meet the target of 310 ships would require building at least 9 ships each year, at a cost of about $12 billion.
  • The Department intends to increase future shipbuilding to sustaining rates, but this is difficult in 2002 because of the following considerations:
    • Carriers are purchased at a rate of one every five to six years. With one purchased in 2001, there is no need for additional carrier procurement until 2006.
    • LPD-17 is the replacement for the LPD-4 class, which has an average age today of over 33 years. Although construction is underway, the LPD-17 program has experienced design and contractual problems that have led to schedule delays. Based on this and the Navy’s recommendation, we decided to defer LPD-17 procurement in 2002.
    • We budgeted for procurement of one Virginia Class Submarine in the 2002 budget. We considered advance procurement of nuclear components and other long-lead time equipment to support construction of two submarines in 2004, but there simply were not sufficient resources available this year to do so.
    • We budgeted for procurement of one T-AKE Auxiliary Cargo and Ammunition Ship in 2002, but neither the 2000 lead ship nor the 2001 T-AKE ships is under contract yet. At the Navy’s recommendation, the 2002 request has been limited to one ship, to allow construction experience on the lead ship to mature the ship design. We hope to increase quantities to two or more ships per year. These resources were used to procure the third DDG-51.
    • We have budgeted for procurement of one LHD-8 Amphibious Assault Ship. We will not need the LHA (R) (the next generation large deck amphibious assault ship) to replace a retiring LHD-type ship until well outside the FYDP.
  • Because of these considerations, we settled on a 6-ship request in 2002. As I have said, at this rate we cannot meet the 1997 Quadrennial Defense Review’s requirement to maintain a 310-ship Navy.
  • While the 2002 QDR may affect the Navy’s shipbuilding requirements somewhat, one thing is absolutely clear: We must increase ship procurement in the years ahead, or we will continue to decline towards an unacceptable steady state of 230 ships by 2030.

Or consider the aging of naval aircraft:

  • The desirable average age for naval aircraft is pegged at 11 years. Given the impact of continued low procurement, that average age has grown steadily to 18 years.
  • To meet the steady-state requirement of 4200 aircraft, the Department of the Navy needs 180 to 200 new aircraft per year at a cost of $11 to $12 billion per year.
  • The 2001 budget provided for 124 aircraft at a cost of $8.4 billion.
  • The 2002 budget would provide for 88 aircraft at a cost of $8.3 billion.
  • Even at the rate of 122 aircraft a year, the cost of reversing the decline and "catching up" to the 4200 plane steady state increases by $4 billion every year we put off the decision to invest.

Facility repair and maintenance:

  • The deferred maintenance for DoD facilities – the cumulative amount that has not been funded from year to year – currently stands at least $11 billion.
  • The 2001 budget included $4.9 billion for facility maintenance.
  • The 2002 amended budget would increase the facility maintenance budget by $0.9 billion for a total of $5.8 billion – an increase of 18.4%.
  • But this increase only funds facility maintenance at 89% of the requirement.
  • Even at this rate, the backlog will continue to grow, albeit more slowly.

These are some of the difficulties facing the U.S. Armed Forces. Despite a proposed increase in defense spending unmatched by any President since the mid 1980s, this budget still would not fix the problems we face as a result of many years of under-match between requirements and appropriations.

It is an indication of the depth of the hole we are in today that a $22.8 billion increase in defense spending makes just a good start in meeting the shortfalls our Armed Forces are facing.

And that is just the tip of the iceberg. Today, we are proposing a $328.9 billion defense budget. But to keep the department going next year on a straight-line – with no improvements, just covering the costs of inflation and realistic budgeting – DoD will need a budget of $347.2 billion. That is an $18.3 billion increase.

And beyond that we will need funds for the rest of the pressing needs. We simply must achieve cost savings.

Finding Cost Savings

We have an obligation to taxpayers to spend their money wisely. Today, we’re not doing that:

  • Despite some 128 acquisition reform studies, DoD has an acquisition system that since 1975 has doubled the time it takes to produce a weapon system -- while the pace for new generations of technology has shortened from years to 18 months. This guarantees that DoD’s newest weapons will be one or more technology generations old the day they are fielded.

Today, DoD has processes and regulations so onerous that many commercial businesses developing needed military technologies simply refuse to do business with the Department.

We simply owe it to the taxpayers to make sure we are operating with increased efficiency at the Department of Defense. I have asked the senior officials of the department to come up with a list of reforms and cost savings that we can undertake unilaterally in the coming months.

But we also will need Congress to give us greater freedom to find cost savings so we can assure the taxpayers that we are using their money more efficiently, and redirect funds to urgent priorities.

Today, we are proposing some immediate and significant savings and efficiencies. Take, for example, the B-1 bomber – a 20-year old system designed for the Cold War that has been headed towards expensive obsolescence. Last month, the Department proposed a plan to modernize the aging B-1 fleet, and turn it into a leaner, more potent weapon capable of contributing to 21st Century security – without requiring new money.

The Department has proposed cutting the size of the B-1 bomber fleet from 93 to 60 aircraft, and then take the remaining aircraft and concentrate them in the two largest B-1 bases (rather than the five bases where they are now scattered). The Air Force would then take the cost savings, and use them to rapidly modernize the remaining aircraft with new precision weapons, self-protection systems, and reliability upgrades so that they can remain viable for use in future conflict.

This reform will add some $1.5 billion of advanced combat capability to today’s aging B-1 fleet over the next five years -- without requiring additional dollars from the taxpayers. It would revive the B-1 force, so that it can provide America with the kind of all-weather, long-range strike capabilities that will be critical in the 21st century.

Mr. Chairman, this is the kind of efficiency we owe the American taxpayers. Congressional support for this plan would send an important signal to all of the Services, and give them an incentive to find further cost savings – by telling them that such efforts will be rewarded with freed up funds to improve capabilities. The failure of this proposal, though, would send a harmful signal across the defense establishment that if they step forward to find innovative ways to save money and increase efficiency, it will be a waste of time and work. It will lead to hostility to the Department. That is not the message we want to send. So a lot is riding on this decision. We need your support. This is a reform we must achieve if we have respect for the taxpayers’ dollars.

Another example is the proposed elimination of the Peacekeeper missile. The Peacekeeper is a missile whose time has come and gone. Yet, the previous Administration’s 2002 budget included $100 million to fund operations, maintenance, and personnel support for the Peacekeeper, plus $5 million more for procurement support in 2002 – but then included no follow-on funding for 2003 or beyond either to sustain the missile squadron, or to retire them.

Rather than continue spending taxpayer’s money on an unneeded system, we propose getting on with retirement. We have proposed deactivating the Peacekeeper system over a five-year period. Doing so should avoid costs of $320 million during the deactivation, and then an additional $150 million annually thereafter.

The warheads will be put into storage, until they receive software and minor hardware conversions that will make them compatible with the Minuteman III missile. They will then be used to update the warheads on the Minuteman III fleet. So by deactivating the Peacekeeper, we are freeing up our newest, safest warhead for use on Minuteman III – a weapon that is slated to be around for at least the next 20 years.

These are important first steps. But the Department needs even greater freedom to turn waste into weapons, so we can save the taxpayers’ money in areas such as:

  • Rationalization and restructuring of DoD infrastructure. A 20-25% reduction in excess military bases and facilities could generate savings of several billion dollars in later years. Legislation authorizing a new round of facilities rationalization will be transmitted later this year.
  • Increasing the thresholds in Davis-Bacon. If we could change the threshold for contracts subject to Davis-Bacon wage requirements from $2,000 to $1,000,000, it would permit the Department to achieve savings of $190 million in FY 2002 alone. We need that money for shipbuilding, for modernizing our aircraft fleets and ground equipment, and for transformation.
  • Contracting out commissaries, housing and other services that are not core military competencies and that can be performed more efficiently in the private sector. In FY 2002, the Department proposes a pilot program with the Army and Marine Corps to contract out certain commissaries, and another pilot program with the Navy to contract out refueling support including tanker aircraft.

Mr. Chairman, I have never seen an organization, in the private or public sector that could not, by better management, operate at least five percent more efficiently if given the freedom to do so.

Five percent of the 2002 proposed DoD budget is more than $16 billion! With those savings, we could do many of the following:

  • Increase ship procurement from six to nine ships a year, maintaining a steady state 310 ship Navy and protecting needed jobs at Navy shipyards at $3 billion annually;
  • Procure several hundred additional aircraft annually to help reach the steady state requirements for Navy, Air Force, Marine Corps and Army aircraft;
  • Meet the target of a 67-year facility replacement rate for $9 billion annually for 9 years;
  • Fund 100% of base operations requirements with an additional $1.4 billion annually;
  • Increase defense-related science and technology funding from 2.7% to 3% of the DoD budget at $1.2 billion annually;
  • Purchase needed UH-60 helicopters for $50 million;
  • Replenish precision munitions such as JSOW, JDAM and ATACMS for $200 million;
  • Buy three additional C-17 aircraft for $600 million, replenish Army trucks at $100 million; Buy HMMWVs for $50 million; Bomber upgrades of $730 million; purchase high-speed sealift for $122 million.

But today there is no real incentive to save a nickel. To the contrary, the way the Department operates, there are disincentives to saving money.

We must ask: how should we be spending taxpayer dollars? Do we want to keep paying for excess infrastructure that provides no added value to our national security? Or do we want to spend that money on new weapons and technologies that will help us extend peace and security into the new century? That is the choice.

Today:

  • First, we are not treating the taxpayers’ dollars with respect -- and by not doing so, we risk losing their support; they deserve better; and
  • Second, we are depriving the men and women of the Armed Forces of the training, equipment and facilities they need to accomplish their vital missions. They deserve better.

Conclusion

We have a sizable task ahead. It took years of under-funding and overuse to get us where we are. We won’t be able to dig out in a year.

Following the Cold War, the U.S. reduced forces and claimed a well-deserved peace dividend for the American taxpayers. But in the mid-1990s, the government began to overdraw that account, reducing U.S. forces, despite the fact that op-tempo had increased. We have been asking the Armed Forces to do more and more, with fewer resources.

The President’s budget proposes a large increase by any standard. It will allow us to make significant improvements to the readiness, morale and condition of our military.

Would all the Services prefer to have more money to get well faster? Of course.

But at the same time, the taxpayers have a right to demand that their government spend their money wisely. Today we can’t tell the American people we are doing that. I know I cannot.

To earn the support of the American people, we need to be able to prove that we are fixing these systemic problems and achieving significant cost savings.

Fixing these problems is a joint responsibility. It will require a new partnership between Congress and the Executive Branch. It is a responsibility we have not only to the men and women who serve in our Armed Forces today, but to future generations of Americans as well.

Because of the long lead times, almost none of the capabilities a President invests in during his tenure are available during his service. They are available to his successors. The force that won the Gulf War was built on the decisions of presidents and Congresses over the preceding three decades.

The Tomahawk cruise missile program, the F-15, F-18 and the F-16 aircraft flying today, were developed in the 1970s. And many other technologies, such as the current generation of space satellites that gave us dominant battle space awareness in Iraq, were developed in the 1980s.

One generation bequeaths to the next generation the capabilities to ensure its security. So today, we have the security of future generations of Americans in our hands. We have a responsibility to get it right.

Because of the long procurement holiday of the 1990s, we have been left a poor hand. We must resolve to leave a better hand to our successors.

I am anxious to work with you to achieve that goal. I know full well it will take the best of all of us.