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Washington, D.C.

The committee met, pursuant to notice, at 10:02 a.m., in room SD-608, Dirksen Senate Office Building, Hon. Kent Conrad (chairman of the committee) presiding.

Present: Senators Conrad, Stabenow, Corzine, and Domenici.

Staff Present: Mary Ann Naylor, staff director and Dakota Rudesill, analyst.

For the minority: G. William Hoagland, staff director and Winslow Wheeler, senior analyst for defense.


Chairman CONRAD. The hearing will come to order.

I first want to thank our witnesses very much for being here this morning. We appreciate them very much, especially in the case of Dr. O'Hanlon-whose wife is due any day now-for being here. We certainly appreciate that. I appreciate all of the witnesses' being here: Mr. Weston, who is the honorary chairman and former CEO of Automatic Data Processing and vice chairman of the Business Executives for National Security, and co-chairman of the Tail to Tooth Commission, which did really very important work helping us understand the defense needs of the country going forward; Michael O'Hanlon, a senior fellow at Brookings Institution, who is a recognized expert on the resources for defense; and Loren Thompson, the chief operating officer of the Lexington Institute. Welcome. It is good to have all of you here. We certainly appreciate your taking the time, and I can say that we look forward to your testimony. As we all know, the President indicated in the State of the Union that we will spend what it takes to win the war on terrorism, and let the message go forth from this hearing room that Congress is standing shoulder to shoulder with the President in that regard. No adversary should doubt that we are going to provide the resources necessary to defend this Nation and to win this war on terrorism. No adversary should take any comfort in the debate that we will have about what that level of necessity is. That is the strength of America, to have a debate, to have a discussion, so that we can do the things necessary to make certain that America is strong.

Unfortunately, we do face a budget situation that requires us to examine every part of Federal spending. We can't provide a blank check to any part of the Federal Government because, as the chart shows, we are facing trust fund deficits as far as the eye can see. If we look ahead, we can see red ink for the entire next decade. Understanding the long-term budget outlook requires focus on each of its major elements, including defense, which represents roughly half of all discretionary spending. For several years, I have been pushing for increases for spending in national defense. In the budget I presented last year, I had a larger increase for defense over 10 years than did the President's initial budget because I could see we needed to put more money into defense over the next decade.

And there is no question that a further defense increase is needed in 2003. However, serious questions deserve to be asked about the President's request, and I will discuss those in detail in the question and answer, but let me first turn to a couple of charts to frame the debate on defense spending.

Defense is clearly a major priority in the President's budget. Relative to baseline, national defense receives a $36 billion increase in 2003. Let me just indicate, as you can see, homeland security gets an increase over the baseline, and, remember, baseline is last year's spending plus inflation. That is roughly what constitutes the baseline. The President's increase above the baseline for homeland security is $5 billion; national defense is increased $36 billion. This will throw some people because they are familiar with a $48 billion increase, but part of that is in the baseline. International Affairs, a $400 million increase; All Other Domestic spending, a $23 billion reduction.

Let's go to that next chart.

In terms of trying to kind of put in perspective how large our defense expenditure is, I think this chart is useful. It shows that under the President's plan we will be spending as much as the next 18 nations combined. Mr. Wolfowitz, when he was here, the Deputy Secretary, indicated we don't fight budget to budget. We fight adversaries. And he is exactly right.

But I do think it is important in terms of assessing and putting in context what this level of expenditure is that we understand where we fit in with the rest of the world.

And, of course, the increases that are being proposed don't just have an effect on 2003. They have an effect for the next decade. And we see the President's budget proposal over the decade is $656 billion over the baseline. That is an enormous amount of money. And we have to ask the tough questions with respect to that dedication of resources.

During this hearing, we hope to better understand the President's defense request. In particular, we will focus on the following questions:

One, does the budget make the right assumptions about the war on terrorism?

Two, does the budget take the right approach to military transformation?

And, three, is additional funding becoming the priority at the expense of real reform? This is a concern which was expressed by the

former Vice Chairman of the Joint Chiefs of Staff, Admiral Owens, when the President's budget was released on February 4th. He said at that time, "A return to the defense spending heights of the mid1980s is not necessary to win the war on terrorism or to transform our armed forces. In fact, it could be quite counterproductive. Availability of such large sums of money will reduce incentives to eliminate costly redundancies in our force structure 'tooth,' but particularly in the 'tail' of defense bureaucracy and support organizations. The truth is," continuing to quote Admiral Owens, "that we already have all the money for defense we need, so long as we undertake real reform and spent it better."

Let me just say I think we also need more money for defense. I don't think it is going to work if we try to use just the existing resources dedicated to defense. I think it is going to take more money.

But Admiral Owens does raise very serious questions about whether if we give this amount of money, do we, in effect, stop the process of reform and eliminating the duplication that we all know exists in the military. I have had top military leaders say to me, look, you do have to provide some skepticism here. It is important because we have very significant duplication because of the various branches of the military. And if we were any business, if we were any business in America, we would look at those places where we have redundancies and duplication. So much of it is in the administrative area, not in the warfighting capability but in the so-called tail, the administrative support. And I think we all know that is true.

With that, I am very pleased that our ranking member is here, and I would recognize him for any statement that he would like to make. Then we will go to the witnesses, and we would ask each of you to testify, and then we will open it up, as is our usual practice, for questions.

Welcome, Senator Domenici.

OPENING STATEMENT OF SENATOR PETE V. DOMENICI Senator DOMENICI. Thank you, Mr. Chairman. I will be very brief. If you will put my remarks in the record?

Chairman CONRAD. Šure.

Senator DOMENICI. I look forward to your testimony. I have been listening to budgets now for defense for 25 years, 26, as a member of this committee. For many of those I have been sitting in that chair or this chair. This is a very unique one because we have right in front of us we have a situation where the United States military presented us a budget for war. They were doing some transition work, and all of a sudden had a brand-new war that was unexpected, one that we are not used to, one that we didn't plan for. Now this year we have the reality of this particular war on terrorism, which we can't quite grasp in terms of how long will it go on and how big will it get.

But I would assume it is realistic for all of us to anticipate that there might be some other engagement that we don't even contemplate during the next 12 months, 24 months, or 36 months. I would hope that we are not just preparing spending all this money

for war on terrorists. I would assume we are preparing for other kinds of protection to the American people internationally.

Then we have added to it a brand-new set of defense criteria that are going to have to be applied to the Defense Department for homeland defense. Just as we prepared for the defense in an international sense away from our borders, clearly there are going to have to be some new use of the military here in the United States, preparing the United States for terrorism here, some of which could only be handled by defense people and some aspects that could only be handled with defense equipment.

So I look forward to your testimony. I say to the chairman, whatever numbers we choose, it is pretty obvious to this Senator that what is going to happen, defense is going to be getting an awful big increase as compared with many domestic programs. And one of the difficult things we are going to run into is how do we make sure the money is spent for defense and not something else. I think that is a very serious problem. I am willing to raise it early. There are a lot of people that don't think it is a problem. I think it is. When you give defense as big an increase as this and you are trying to hold many of the other departments to much lesser numbers, there have got to be some way that you can be assured that most of the defense money will go to defense. And I will share that with you in more detail as we progress.

Thank you for the time, and thank you for your time.
Chairman CONRAD. Thank you, Senator Domenici.

With that, let's turn to our witnesses, and we will start with Mr. Weston, again, a very distinguished business leader in our country, the former chief executive officer of Automatic Data Processing, a remarkable success story in our country, and vice chairman of the Business Executives for National Security, and co-chairman, as I indicated before, of the Tail to Tooth Commission. And, by the way, I have the document-one of the documents, really a package that the Tail to Tooth Commission produced. And this really is-I commend it to anybody listening. I certainly commend it to our colleagues a lot of very thoughtful work went into the Tail to Tooth Commission "Arming the Pentagon to Change Its Business Practices." I don't think there is a single member of this committee that doesn't know we have got to improve management of our defense establishment. Senator Grassley has been a leading advocate of this for many years. I think every member of this committee understands the need for reform.

With that, welcome, Mr. Weston, and please proceed.


Mr. WESTON. Thank you, Mr. Chairman, and I thank the committee for this opportunity. I also thank you for that unpaid commercial about the Tail to Tooth Commission.

I am here today in a couple of capacities, which you have already

I might also add that my predecessor as CEO of ADP was one of your former colleagues, Frank Lautenberg. When he got elected to the Senate in 1982, that gave me the chance to become what I


First, as you cited, I am a vice chair of the Business Executives for National Security. We call it BENS for short, B-E-N-S. It is 20 years old. There are some 300 business executives with significant experience in our organization. We are absolutely nonpartisan, and our primary mission is to use our relevant experience to help the Pentagon improve its business practices and its management practices, which today govern over half of all the expenditures in the Pentagon.

BENS is not for more dollars. We are not for fewer defense dollars. We want to spend them better. We take no positions on strategies or weapons systems, and we are for effective planning and efficient implementation to provide appropriate national security. We must spend whatever it takes to defend our Nation, but I will add to that no likely amount will be adequate if we cannot spend our military dollars efficiently.

BENS has been well-received by senior Pentagon civilian and military leaders over the last four administrations, and although we haven't agreed on every issue, we think that relationship has been helpful. We have also had many useful exchanges with relevant congressional committees and their leaders.

In addition, BENS has been very deeply involved in promoting public-private partnerships to enhance homeland security. We did that well before September 11th, but that is not part of today's proceedings.

My second relevant hat, which the chairman has cited, was as co-chair, together with Warren Rudman, of the BENS Tail to Tooth Commission. And the Commission members in their various capacities included Sam Nunn, Bill Perry, Frank Carlucci, and many other well-known civilians and retired military. "Tail," as I am sure you deduced, stands in the military for overhead; "Tooth" means fighting forces. Almost 70 percent of DOD dollars are now spent on overhead and support functions. Any large organization does need logistics support. It does need infrastructure. But no well-run organization should be allocating up to 70 percent of its resources into overhead support. And to put it on a local basis, no local community would tolerate seven out of every ten police officers sitting behind desks while only three of them are out on the streets.

DOD is saddled with 20 to 25 percent excess capacity on our military bases. These are buildings that must be maintained, facilities that have to be guarded. That means using soldiers, sailors, and airmen who could be fighting a war on terrorism, instead supporting that excess capacity.

Nine hundred fifty thousand military and civilian workers perform activities that are commercial in nature at DOD—950,000— activities for which efficient providers can usually be found in what we call the Yellow Pages of the phone book.

The DOD logistics system currently spends over $80 billion a year, logistics, that is, employs over 1 million people on logistics, and still only achieves an average response time to fill a repair

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