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It seems to me in the 2003 budget, of the $46 or $48 billion increase that you were discussing earlier, Mr. Chairman, about $20 billion of that, of course, is for war-related costs. And I would propose those costs be pulled out of the budget and addressed separately as supplemental appropriations bills. I would have two main reasons for arguing that. One, of course, Congress' role in the process needs to be protected, and I don't believe that Congress should give a blank check, even in these times of national emergency, to the administration for possible wartime costs in 2003.

Secondly, I believe that we need to get the money that the troops require to them as soon as possible, and part of that $20 billion war-related cost request has to do with costs that have already been occurred or are being incurred right now. Why not consider that piece as part of the 2002 supplemental appropriations bill? This would have the added benefit of not inflating the 2003 defense baseline any more than necessary. I don't want to see that number artificially inflated myself because then every future year budget debate begins from a higher baseline. And it seems to me if we have war costs that are specific to this time of national crisis, we should identify them as such and put them into supplemental bills instead of implying that becomes the new baseline for future debate. So, therefore, I hope that that $20 billion of the 48 increase is pulled out and treated separately, perhaps some of it in the short term as part of the 2002 supplemental bill, and then the rest, if and when the money is needed for next year's military operations. That is my broad thought on the 2003 defense bill. Let me turn now to more substantive issues and just go through four main points for the four main budget areas of military pay, military procurement, research and development, and, finally, operations and maintenance. I just have a couple of thoughts on each one, and I might as well start with the most controversial, which may make the other ideas somewhat less visible. But, nonetheless, my idea is that military pay is now in reasonably good shape in this country. It is a counterintuitive thing to say. It is certainly not being commonly voiced in this time of national crisis. But because of the efforts of the Clinton administration and the Congress—and I don't want to sound partisan in implying one was more important than the other, but in the 1990s, in the late years, we improved military pay and benefits a great deal in this country. And the idea we need to continually increase pay above and beyond not just the inflation rate but the employment cost index I think is incorrect.

I think CBO and Rand have done very convincing studies that the idea of a systematic military-civil pay gap is a myth. There is no such pay gap across the force. Most of our forces work in a very brave way, not for large financial compensation, but nonetheless, if you compare their compensation, broadly defined, including all their benefits, to the benefits of and compensation of people at comparable age and experience and education levels in the private sector, most military people are not underpaid today. And that is just the econometric truth.

Now, we may want to say that military people should be paid better because they are risking their lives, they are serving their country, and there is certainly a reasonable argument to be made

along those lines. But I think people need to look back at the data and recognize that military pay today is in pretty good shape.

Therefore, I would concentrate pay on those specialties-future pay increases on those specialties where we are having a hard time recruiting and retaining, pilots, computer specialists, other technical specialists. These are the fields we still need more pay to have recruiting and retention be in good shape.

In general, we have solved a lot of the recruiting and retention problem in my judgment, and the numbers back me up. And I don't think that big across-the-board pay increases are necessarily required. So I would limit the pay increase to the rate of inflation for the next few years. There are additional benefits that are being conferred upon people in housing, in health care, so compensation overall is still going up above and beyond the rate of inflation. And, therefore, I don't think we need to burden the future budget as much as we now are with these increases.

Secondly, let me turn now briefly, Mr. Chairman, to operations and maintenance. This, of course, is the huge gorilla that we can never quite understand or get our arms around. It seems to have a life of its own. It seems very hard to limit this. There are a lot of reasons why. Mr. Weston, of course, has discussed many of these already. I won't try to add to his remarks. He understands this situation much better. But I would make a couple of additional comments.

One is that in the area of military health care we are going to add as much money as we have-add as much in the way of liabilities to the military health care system as we have. I think we have to think hard about reforming it and looking at that particular part of the operations and maintenance budget in very specific terms. We have four services that largely have their own infrastructures for military health care, much of their own administrative mechanisms. They don't really operate according to private sector principles, and I think we need to seriously reform the military health care system. It is primarily being sized and structured today for peacetime civil needs. And, therefore, we don't need to think in terms of this being primarily a deployable, mobile military health care system for combat. You need a certain piece of the system to be ready to do that. But most of the rest is treating retirees and family members and dependents and so forth, and it needs to be done more efficiently, according to more private sector principles. So this is a good time, as we are adding money to that account, it is a good time to look hard at military health care. I think the potential savings are $2 to $3 billion a year if you go to more market-oriented principles and consider a copayment requirement for people as well. That is my main comment on operations and maintenance.

Maybe one more point in the O&M budget. I think we need to find ways to give base commanders more incentives to look for reforms and look for efficiencies. Right now if they come up with an efficiency, it does them no good because they don't get the money or even a part of the money for their own local needs in general. We need to give them ways to benefit so that if they identify savings, they get to share in those savings for their local base needs. And I believe you will see a lot of the efficiencies being incentivized

if you take that approach. But if you have an O&M budget that is going up at 2 and 3 and 4 percent a year in real terms, it allows people the impression they can sort of buy their way out of their problems. So I think that is a mistake to have such an ambitious projection for future O&M spending.

Research and development. We are all in favor of research and development. I think the Bush administration has a lot of good initiatives in this area. I support much of what it is trying to do with transformation because I think most of what you want to do with transformation today is in the research and development stage. I think in general there is not a lack of effort here. But I think there may actually be a little too much effort because the research and development budget wasn't cut that much in the 1990s. It was selectively protected as we cut procurement, and now it is being increased drastically. Mr. Bush already increased the R&D budget in his 2002 amendment or adjustment to the President Clinton budget he inherited, and now he wants to add $4 or $5 billion a year more. I think that is more than is necessary. R&D spending is already pretty robust in the 2002 budget, and further large increases of $4 or $5 billion a year I don't think are called from. I would propose a couple of specific ways in which you might make those savings. If you like, we can discuss that subsequently.

Finally, procurement. Of course, this is the long-term driver of the overall Pentagon request. Right now we are at about $60 billion a year. The 2003 budget would get us up to 70. The 2007 budget would get us up to about 100. And that may sound exorbitant, but, of course, those of us who read CBO studies know that even CBO acknowledges that if you keep the current plan, you probably have to spend almost that much money on a sustainable basis to buy all the F-22 and joint strike fighters and Virginia Class attack submarines and so forth that are in that plan. Therefore, I would propose a different plan. I would propose a different approach to modernization. Loren probably will have a different approach himself, but it may not be quite the same as mine, so let me quickly spell out what I would advocate.

I would advocate largely a silver-bullet force where, in other words, you buy modest numbers of the best technology. You buy modest numbers of F-22s, modest numbers of joint strike fighters, maybe 100 or 150 F-22s. Otherwise, you buy the kind of technology you already know how to produce. It is already the best in the world. It is getting better all the time because we can upgrade it, we can put better munitions and better sensors on these weapons. We are already in very, very good shape against any possible major-power foe. I would buy 150 F-22s as an insurance policy. I don't think we need them against the Iraqi or North Korean air force, maybe against the Chinese air force in 2020. But that is why 150 would be enough, essentially a one-way capability worth of F22s. Otherwise, you keep buying weapons like F-15s and F-16s that you know how to buy.

Another example, the V22 Osprey. Assuming that the Marine Corps can solve the safety problem that tragically claimed some 23 lives in the last couple of years, if the Marines can solve that problem, I would advocate buying a modest number of V22s for specialpurpose commando raids, for the kinds of things we might have

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So I look forward to pour testimony. I say to the chairman, whatever minders we choose, sprey Cices to the Senator that Was it to happen, defense is going to be getting an awful ng morease as compared with many domestic programs. And one i te éffal things we are going to a mass bow do we make sure the money is spent for defense and not something else. I think that is a very senous procien I am wing to raise it early. There are a lot of people that don't think is a problem. I think it is. When you give defense as big an increase as this and you are trying to bold 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 detall 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 chef 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.

STATEMENT OF JOSH H. WESTON, HONORARY CHAIRMAN, AUTOMATIC DATA PROCESSING, INC., VICE CHAIRMAN, BUSINESS EXECUTIVES FOR NATIONAL SECURITY AND COCHAIRMAN, BUSINESS EXECUTIVES FOR NATIONAL SECURITY TAIL-TO-TOOTH COMMISSION

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

was.

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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