In accordance with your request, we are forwarding our recommendations for the fiscal year 2004 budget resolution.

During his State of the Union address on January 28, President Bush reflected on the challenges faced and accomplishments achieved over the past two years. The President described the increases in defense spending that have been achieved over the past two years by stating, "Some might call this a good record; I call it a good start.”

We strongly support the fiscal year 2004 defense budget request of $379.9 billion, which represents a $15.3 billion increase over the fiscal year 2003 level -- and a $52 billion increase over the fiscal year 2002 level. Our Armed Forces are engaged around the globe in the on-going war on terrorism; continue to prepare for other possible conflicts, including a conflict with Iraq if diplomacy fails; and are undergoing a transformation of our military forces, infrastructure, and equipment to deal with future threats. The Bush Administration's proposed defense budget is intended, as Secretary Rumsfeld stated, to meet "today's threats while preparing for tomorrow's challenges."

The $379.9 billion defense budget request represents a 2.5% real increase over the fiscal year 2003 level. This level of funding will continue to improve the Department's ability to perform its mission of safeguarding our Nation, our allies, and our friends. Today, homeland security is our Nation's most urgent priority. But we must be ever mindful that, courageously, homeland defense begins at all the distant outposts manned by U.S. military personnel around the world. For every terrorist deterred, captured or crushed beyond our shores, there is one less that will bring harm to our Nation.

The proposed fiscal year 2004 defense budget continues the important emphasis on enhancing the quality of life of our service personnel and their families with critical pay raises, enhancements to basic allowances for housing, and full funding for health care for our military members, their families and military retirees. And, the budget keeps the Department on track to eliminate inadequate family housing in five years. These are critical initiatives which must be sustained to keep faith with our servicemen and servicewomen, our retirees, and their families.

The fiscal year 2004 budget request also provides funding for a key Congressional initiative concerning disabled military retirees. In last year's Defense Authorization Act, we included a provision that would allow all disabled military retirees whose disabilities are a direct result of combat, and those most severely disabled (60% or greater) military retirees whose disabilities are a direct result of a combat-related injury, to receive their full military retirement pay as well as special compensation equal to the amount of veterans' disability compensation -without offset. The current budget request includes approximately $300 million in mandatory spending for fiscal year 2004 for this "Purple Heart Plus Others" program. While the amount provided in the budget request appears adequate to fund this program for the coming fiscal year, the Administration's estimates of the costs of the program in the out years differ significantly from estimates provided by the Congressional Budget Office (CBO). The Administration's total request for mandatory spending for the next 10 years is $3.4 billion. CBO estimates that the new program alone will cost $5.1 billion over 10 years, with total mandatory spending for defense exceeding $7 billion over 10 years. We urge you to use the CBO's estimates for mandatory spending for defense to ensure that this critical program is fully funded.

While we are supportive of this budget request, we do have a number of concerns which we plan to address during the Armed Services Committee's formal review of the President's budget request. For example, the fiscal year 2004 budget proposes only a modest increase at a time when our military is engaged in one war --- the global war on terrorism -- and is planning for a full-scale war with Iraq, if diplomacy fails to persuade Saddam Hussein to disarm by peaceful means. As General Myers recently testified, “Our Nation's entire Armed Forces remain as engaged today as at any time since the Second World War." While we are blessed with a military that has responded to these demands with extraordinary success, even the best military in the history of the world has its limits. People, facilities, and equipment can only do so much with limited resources. We need to carefully analyze the effects of this long-term stress on our men and women in uniform and consider the investments needed to ensure that we have the people and the capabilities necessary for success both now and in the future.

As we review the fiscal year 2004 budget request, we must be mindful of the fact that the proposed defense budget contains no funding for the ongoing global war on terrorism, the forward deployment of forces into the Persian Gulf region in support of diplomacy, or the possible conflict with Iraq should diplomacy fail. The Department of Defense assesses the costs of the global war on terrorism at $1.6 billion a month, and preparation tasks associated with a possible war with Iraq at $2.5 billion to date. The Administration is expected to request supplemental appropriations for these current and future military operations. We urge the consideration of our colleagues for any such requests. We must show our strong support to our troops in the field.

In summing up his State of the Union address last month, our President said, “In two years America has gone from a sense of invulnerability to an awareness of great peril; from bitter division in small matters to calm unity in great causes." We look forward to working with you in that same sense of unity on a Budget Resolution for Fiscal Year 2004 that fully supports a strong national defense in these dangerous times.

This letter transmits the views and estimates of the Committee on Banking, Housing, and Urban Affairs regarding the funding of programs in our jurisdiction, as required by Section 301 of the Congressional Budget Act of 1974.

Mass Transit

The Committee has jurisdiction over the mass transit portion of the Highway Trust Fund program. As we enter the final year of the Transportation Equity Act for the 21st Century (TEA21), we seek your support for continued growth of the federal investment in mass transit as we move forward with a multi-year reauthorization. Mass transit is an essential part of the nation's surface transportation system that makes the entire system work better. The Committee urges that any increases in transportation investment maintain the historical balance between highways and mass transit to ensure that the maximum benefits of economic growth, reduced congestion, and improved air quality can be achieved. In addition, the Committee supports the continued split of gas tax revenues for highways and transit. This split is an important recognition that transit use has a strong impact on highway users.

As we all pursue methods of making the most efficient use of federal dollars, the Committee will examine ways to make the transit program more efficient while it serves everincreasing numbers of people. A growing demand exists for mass transit in communities of all sizes and in all areas of the country. Mass transit is also growing in importance in terms of meeting the needs of residents in less urbanized areas, particularly for the transportation needs of the disabled, poor and elderly. We urge the Budget Committee to include transit funding at levels sufficient to maintain vital transportation service to the nation.

Deposit Insurance Reform

Reform of the deposit insurance system is a priority for the Committee. Legislation is necessary to address some potentially destabilizing aspects of the current system. The