improved SSN-688 class submarines equipped with the AN/BSY-1 submarine combat system will join the fleet in 1988 realizing our goal of 100 attack submarines. To maintain this 100-ship force, with its qualitative superiority over Soviet submarines, will require the continued procurement of three to four submarines a year. The FY 1989 budget requests 2 additional SSN-688 submarines as well as the first SSN-21 Seawolf attack submarine.

The amphibious assault force program remains unchanged from last year, with the fourth LHD proposed for authorization in FY 1989.

The amended FY 1989 budget contains three AEGIS destroyers. Higher rates of procurement of Antiair Warfare (AAW) ships, such as the DDG-51, will be necessary in the future to offset projected retirements of older AAW ships. In the area of mine warfare, the FY 1989 budget continues to reflect the second and third MHC-51 minehunters and the remaining 7 MH-53E helicopters. Finally, the FY 1989 budget requests funds for the second of four planned AOE-6class fast support ships.

The MK-48 Advanced Capability (ADCAP) torpedo has completed a successful at-sea testing program and will proceed with limited production in FY 1989.

Research, Development, Test, and Evaluation

The FY 1989 RDT&E title request of $38.2 billion reflects no real growth over FY 1988 levels. Many programs have been restructured, reduced, deferred and, in some cases, terminated.

In the current resource environment, the Administration does not feel two mobile missiles to be affordable or cost effective. The PEACEKEEPER rail garrison concept is far more cost effective than Midgetman and is being fully funded. In the interest of maintaining a strategic consensus in the Congress, however, the budget proposes preserving the option of continuing the Small ICBM development program for a final decision by the next

administration. The budget reflects the $700 million appropriated in FY 1988 and requests $200 million in FY 1989 to support continued development of the Small ICBM and its basing mode through FY 1989. No funds have been included in the out years.

While the United States needs an operational ASAT to counter the Soviets and deter exploitation of their current monopoly, continuing congressional prohibition of testing of the air-launched miniature vehicle (ALMV) against targets in space has forced cancellation of the ALMV ASAT program. We believe the congressional restrictions represent an extremely unwise decision in terms of deterrent credibility, but we cannot afford to budget scarce resources on a program we are unable to test. The Soviets already have a deployed antisatellite (ASAT) system. Should the Congress allow us to test an effective deterrent to the Soviet ASAT capability, the Department would be prepared to reinstate the program immediately.

The MK-50 torpedo program, having been restructured in FY 1987, is now on track for fleet introduction in FY 1991. Development of the Sea Lance ASW standoff weapon has been limited to initial missile tests so that this program can be reviewed this summer before making any long term commitment.

In addition to continuing procurement of existing aircraft models, modernization efforts include the investigation of advanced

derivatives of the F-16 and the F/A-18 aircraft to complement the new generation tactical aircraft currently under development - the Air Force's Advanced Tactical Fighter (ATF) and the Navy's Advanced Tactical Aircraft (ATA). Consistent with congressional direction, both the ATA and the ATF programs are being developed jointly and will be designed to include the unique requirements of each service.

The budget includes $4.5 billion to continue the demonstration and validation program essential to a feasibility decision on advanced strategic defense. However, as a result of recent congressional reductions in FY 1987 and FY 1988, the SDI program has to be restructured. The options for accommodating substantial budget cuts, based on the essential need to maintain a strong technology research program, were limited to reductions in integrated experiments and/or shifting from the balance between mature and advanced technology. Since its inception, a series of technology developments and experiments have underscored the potential for using advanced technology to construct an effective defense. Most recently, the ability to intercept_targets within the atmosphere and space has been demonstrated. There have been significant advances in several directed energy and sensor technologies as well as in system architecture and operating concepts. Six major elements comprising a possible initial defense system were approved by the Defense Acquisition Board (DAB) for entry into the demonstration and validation phase. The purpose of this phase is to evaluate the feasibility of critical elements of a potential Strategic Defense System (SDS).

Military Construction/Family Housing

The budget requests $5.7 billion for military construction and $3.3 billion for family housing in FY 1989. This represents real growth of 2.5 percent over FY 1988 levels. The requested levels are considered the minimum necessary to support new weapon systems being deployed, to accomplish new or changed missions, and to provide adequate living and working conditions for servicemembers and their families. While essential mission and quality of life projects are funded, the backlog of facility requirements will continue to grow. The budget funds construction in support of major programs, such as the Advanced Technology Bomber, TRIDENT, TITAN, and PEACEKEEPER. It also provides funding for the Strategic Defense Initiative, the Navy's Strategic Homeporting Initiative, Fort Drum, New York, and Fort Wainwright, Alaska.

Family housing construction represents our commitment to improving the living conditions of military personnel and their families. The FY 1989 request funds construction of 3,226 new family housing units; improvements for over 16,900 existing units; and the leasing of more than 27,700 foreign housing units, 2,300 domestic units, and 7,100 Section 801 units under the build to lease program.

FY 1988 Funding Problem

I would also like to bring to your attention a serious FY 1988 operating issue. Sizeable FY 1988 O&M appropriation reductions, coupled with skyrocketing uncontrollable costs, have created problems in program execution that rob management of the flexibility needed to deal with program requirements or operations. Transfer authority is one of the most important management tools we have available to meet and respond to such changing situations. The FY 1988 transfer authority of $1.5 billion provided by Congress will be consumed rapidly by such requirements as implementation

costs of the INF Treaty, increased CHAMPUS costs, absorption of added costs of the 1988 military and civilian pay raises, and higher fuel costs. I sincerely urge your support for our request to increase the Department's level of transfer authority to $4 billion in FY 1988 and $3 billion in FY 1989. Also, approval is essential of our proposed legislation allowing utilization of prior year balances to offset increased foreign currency fluctuations and higher overseas station allowances resulting from the decline in the value of the dollar. Disapproval of this requested authority is a defacto cut in readiness programs of almost $2 billion annually. I also encourage your strong support for defense readiness efforts including prompt approval for must-pay readiness-related reprogramings. In this period of constrained resources, we must forge a partnership to protect the most critical of our defense needs and provide our managers with the flexibility to do their job.

INF Verification

Our operating accounts are also under stress from emerging requirements resulting from the INF Treaty. Support costs for INF Treaty Implementation are estimated to be $198 million in FY 1988 and $148 million in FY 1989. These costs include personnel, travel and transportation, contract support and supplies and equipment for management personnel and inspection and escort teams at sites in the United States, basing countries, and the U.S.S.R. They also include costs associated with destruction and elimination of missiles, launchers and facilities, and other activities conducted in conjunction with the implementation program.

Management of Defense Resources

One of the highest priorities within the Department under this administration has been to refine and improve upon our management practices to ensure that defense resources are spent wisely and effectively. Secretary Carlucci has stated in very certain terms that he intends to continue these efforts and has structured an acquisition strategy based on three underlying principles of stability, quality, and partnership.

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The cornerstone of this strategy is stability. Providing the Department of Defense with the degree of management authority and flexibility as well as timely authorization and appropriations so critical to efficient planning and program execution will require significant revisions to current attitudes and processes. These revisions can be realized through increased cooperation between the executive and legislative branches and between government and industry. First and foremost, we must achieve budget stability. It is impossible to plan and pursue a sensible acquisition strategy when resources remain an unknown variable until provided under continuing resolutions, often well into the fiscal year. We are pleased with the continued support within the Congress for the twoyear budget concept. It will provide the stability necessary for successful pursuit of such money-proven practices as baselining and multiyear procurement, which can provide the incentive for industry to make the investment so crucial to our nation's industrial base.

We intend to introduce a total quality management strategy in the Department and to its contractors. Quality should be the responsibility of the entire acquisition team from design through production to deployment and should be the primary consideration from the very first day of a program's life. Studies have shown that 95 percent of the effort involved in producing a product is related to efforts other than the actual physical production of the product. We will focus on the inefficient and costly practices that occur within this 95 percent. Further, 40 to 50 percent of the life-cycle costs of weapon systems lies in logistics support. If we can ensure that the original product is of high quality, then we should be able to reduce these costs. We want to break from the traditional idea that quality means merely conforming to specifications.

Implementation of any strategy to improve quality in defense products and in management requires the cooperative participation of industry. In recent years, aggressive efforts to improve the acquisition process within the Department have strained its relationships with industry. While the relationships should be at arms length, they should not be adversarial. We intend to seek positive and cooperative ways for the Department and industry to work together to cut costs and inspire quality. We will work to eliminate the burden of multiple reviews by contract officers and auditors. This does not mean that we are abandoning our commitment to reduce waste and fraud. Rather, we want to free contractors to pursue efficiency and quality. And, we need to reduce and clarify acquisition regulations throughout the system. To this end, we are working with the Congress and the Office of Management and Budget to replace the maze of acquisition legislation with a single, understandable law.

Conclusion

Budget stability is the key to the efficient and effective allocation, management, performance, and affordability of our defense program. Stable funding by the Congress is a prerequisite to meeting our defense goals and objectives, especially during a time of constrained resources. The amended FY 1989 defense budget before the Congress represents the Administration's commitment to the defense topline agreed to at the budget summit. I urge the Congress support this agreement and ensure that we do not reverse the substantial achievements in our military forces realized over the last seven years.

The 2 percent growth projected for defense over the next few years, while conservative, may well be optimistic in the current

fiscal climate. Nonetheless, it is critical that we use this opportunity arising from the budget summit to work together to provide realistic and stable funding levels for defense programs. We can successfully protect defense priorities within constrained resource levels only if those agreed upon levels are sustained and do not merely become another base from which further reductions are imposed, as has too often happened in the past.

Long-term stability cannot be achieved with only one budget, but must be part of a continuing shared responsibility between the Administration and the Congress. Next year we will maintain our commitment to budget stability by again presenting a two-year budget for defense. I ask the Congress to reaffirm its support for biennial budgeting. Only through two-year authorizations and appropriations can we begin to realize the stability so critical to rational and efficient planning and execution of defense programs.