[House Hearing, 108 Congress]
[From the U.S. Government Printing Office]



 
      DEPARTMENT OF DEFENSE BUDGET PRIORITIES FOR FISCAL YEAR 2004
=======================================================================



                                HEARING

                               before the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

           HEARING HELD IN WASHINGTON, DC, FEBRUARY 27, 2003

                               __________

                            Serial No. 108-6

                               __________

           Printed for the use of the Committee on the Budget


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                        COMMITTEE ON THE BUDGET

                       JIM NUSSLE, Iowa, Chairman
CHRISTOPHER SHAYS, Connecticut,      JOHN M. SPRATT, Jr., South 
  Vice Chairman                          Carolina,
GIL GUTKNECHT, Minnesota               Ranking Minority Member
MAC THORNBERRY, Texas                JAMES P. MORAN, Virginia
JIM RYUN, Kansas                     DARLENE HOOLEY, Oregon
PAT TOOMEY, Pennsylvania             TAMMY BALDWIN, Wisconsin
DOC HASTINGS, Washington             DENNIS MOORE, Kansas
ROB PORTMAN, Ohio                    JOHN LEWIS, Georgia
EDWARD SCHROCK, Virginia             RICHARD E. NEAL, Massachusetts
HENRY E. BROWN, Jr., South Carolina  ROSA DeLAURO, Connecticut
ANDER CRENSHAW, Florida              CHET EDWARDS, Texas
ADAM PUTNAM, Florida                 ROBERT C. SCOTT, Virginia
ROGER WICKER, Mississippi            HAROLD FORD, Tennessee
KENNY HULSHOF, Missouri              LOIS CAPPS, California
THOMAS G. TANCREDO, Colorado         MIKE THOMPSON, California
DAVID VITTER, Louisiana              BRIAN BAIRD, Washington
JO BONNER, Alabama                   JIM COOPER, Tennessee
TRENT FRANKS, Arizona                RAHM EMANUEL, Illinois
SCOTT GARRETT, New Jersey            ARTUR DAVIS, Alabama
GRESHAM BARRETT, South Carolina      DENISE L. MAJETTE, Georgia
THADDEUS McCOTTER, Michigan          RON KIND, Wisconsin
MARIO DIAZ-BALART, Florida
JEB HENSARLING, Texas
GINNY BROWN-WAITE, Florida

                           Professional Staff

                       Rich Meade, Chief of Staff
       Thomas S. Kahn, Minority Staff Director and Chief Counsel






                            C O N T E N T S

                                                                   Page
Hearing held in Washington, DC, February 27, 2003................     1
Statement of:
    Hon. Paul D. Wolfowitz, Deputy Secretary, U.S. Department of 
      Defense....................................................     6
    Steven Kosiak, Director of Budget Studies, Center for 
      Strategic and Budgetary Assessments........................    46
Prepared statements and additional submissions of:
    Hon. John M. Spratt, Jr., a Representative in Congress from 
      the State of South Carolina:
        Prepared statement for Mr. Wolfowitz.....................     4
        Prepared statement for Mr. Kosiak........................    46
    Hon. Adam H. Putnam, a Representative in Congress from the 
      State of Florida...........................................     5
    Deputy Secretary Wolfowitz...................................    12
    Mr. Kosiak:
        Prepared statement.......................................    51
        Potential cost of a war with Iraq and its post-war 
          occupation.............................................    56


      DEPARTMENT OF DEFENSE BUDGET PRIORITIES FOR FISCAL YEAR 2004

                              ----------                              


                      THURSDAY, FEBRUARY 27, 2003

                          House of Representatives,
                                   Committee on the Budget,
                                                    Washington, DC.
    The committee met, pursuant to call, at 2:05 p.m. in room 
210, Cannon House Office Building, Hon. Christopher Shays (vice 
chairman of the committee) presiding.
    Members present: Representatives Shays, Gutknecht, 
Thornberry, Ryun, Hastings, Schrock, Crenshaw, Putnam, Wicker, 
Tancredo, Bonner, Garrett, Barrett, McCotter, Diaz-Balart, 
Hensarling, Brown-Waite, Spratt, Moran, Hooley, Moore, Edwards, 
Scott, Ford, Capps, Thompson, Baird, Cooper, Emanuel, Davis, 
Majette, and Kind.
    Mr. Shays [presiding]. The committee will come to order.
    Today's hearing will examine the Department of Defense 
budget request for fiscal year 2004. Our witness will be the 
Honorable Paul D. Wolfowitz, Deputy Secretary of Defense. 
Appearing with Secretary Wolfowitz will be Dov Zakheim, the 
Under Secretary of Defense, and Chief Financial Officer.
    Also appearing will be Steven Kosiak, Director of Budget 
Studies at the Center for Strategic and Budgetary Assessments.
    In the face of unprecedented threats to our domestic and 
international security, the defense budget must advance three 
overarching goals: to win the global war on terrorism, to 
invest in the procurements and people needed to sustain that 
effort, and to transform the cold war military structure to 
meet the 21st century demands.
    The President said his aim was, ``to move beyond marginal 
improvements, to replace existing programs with new 
technologies and strategies.'' He said, ``Securing our common 
defense will require spending more and spending more wisely.''
    The fiscal year 2004 defense budget requests more. This 
committee and others will have to decide if the Department is 
capable of moving beyond marginal, often glacial reforms to the 
wiser spending the President demands. We are at war. Terrorism 
is being uprooted in Afghanistan. It appears more likely, with 
each passing day, Saddam Hussein will persist in refusing to 
comply with the United Nations and that the United States will 
be required to lead a coalition of willing nations to disarm 
him.
    This budget reflects this committee's commitment and the 
commitment of every American that the brave men and women of 
our military will have every resource they need in the 
difficult months and years to come. One specific area raises 
concerns in that regard: individual protective equipment 
against chemical and biological weapons.
    The Government Reform Subcommittee on National Security, 
which I chair, was told last year of significant procurement 
shortfalls in key CB defense items. The Department's own 2002 
report on the CB defense program pointed to high risks now and 
the outyears due to a lag in procurements of modern protective 
garments--boots, gloves, and collective protection shelters.
    I am concerned this budget does little, too little, to 
close the gap between what it will take to protect U.S. forces 
on the contaminated battlefield of the future and the equipment 
we will be able to give them. Nor does this budget appear to 
take any bold, new steps toward solving the long-festering 
dilemma of how to pay for all of the tactical aircraft 
procurements now under way.
    More money for fewer planes is not a wise fiscal policy, 
nor will it address the problem of an aging air fleet. This 
committee has consistently provided the resources our Armed 
Forces have needed to do their job, including the $10 billion 
war reserve that was not appropriated until this month.
    Despite the controversy surrounding the appropriation of an 
undefined request, this committee was willing to step up to the 
plate and provide the Department of Defense with the 
flexibility it asked for, and to do it in a timely fashion.
    It is noteworthy and perhaps paradoxical that DOD officials 
have described the fiscal year 2004 budget request as a 
peacetime budget. The reason, of course, is that the 
administration's budget does not include the cost of potential 
conflict with Iraq. We all know there are great uncertainties 
about the cost of disarming Saddam Hussein, uncertainties that 
make it difficult to put a precise number on the cost of 
possible military operations. But this committee still needs to 
learn all it can about those costs.
    Just yesterday, the White House released Pentagon estimates 
that the war and its immediate aftermath will cost between $60 
[billion] and $95 billion. Today, the Washington Post reports 
that some internal administration estimates show the cost 
growing above $100 billion.
    It is worth noting that the 1991 Persian Gulf war cost 
$82.5 billion in current dollars, which brings me to another 
critical subject, burden sharing. In the gulf war, the United 
States received financial contributions of over $48 billion 
from our allies. This time we are being presented with a bill 
in advance from countries, I would argue, that will greatly and 
directly benefit from a regime change in Iraq. We have already 
agreed to a $15-billion aid package to Turkey in exchange for 
rights to base American troops there; and we may also be 
increasing our aid to Jordan, Israel, Egypt, and others.
    The bottom line is, we need a better and fuller 
understanding of the financial commitments we are undertaking, 
and how much of these costs our allies are willing to bear.
    Finally, there is the big picture. Is the Pentagon's budget 
plan the right one for a long-term operation? Will it achieve 
the bold transformation progress that the President envisions, 
or will service rivalries and entrenched inefficiencies soak up 
any additional spending to feed a sluggish but voracious status 
quo?
    That said, I want to repeat our assurance that this 
committee will do everything in its power to assure that the 
men and women of our Armed Forces will receive the tools and 
the training they need to defeat terrorism and assure the 
safety of this Nation.
    We look forward to your testimony, Mr. Secretary.
    At this time, I would like to recognize Mr. Spratt, and 
announce to our members that the Under Secretary needs to leave 
here at 4 o'clock. I will be very strong on the 5-minute rule, 
which doesn't mean you ask a question for 5 minutes and then 
give him 5 minutes to answer, alright?
    Mr. Spratt. Thank you.
    Secretary Wolfowitz, welcome to our committee. I usually 
see you in my other capacity as a member of the House Armed 
Services Committee, and since today I am wearing my budget hat, 
I want to express some budget and fiscal concerns.
    The Department of Defense is now in the middle of the 
largest sustained buildup in 20 years. Your 6-year plan--we 
call it the FYDP--associated with this 2004 budget would leave 
the defense budget one-third larger in real terms at the end of 
that plan in 2009, than it was when the administration took 
office.
    We haven't seen an increase of this size since the cold 
war, during President Reagan's first term. Much of that 
increase has already taken place. It is committed since the 
budget for national defense has increased from $300 billion in 
fiscal 2000 to at least $400 billion by the time we finish 
fiscal 2003, or 3 short years. This budget proposal, therefore, 
proposes to increase that to $500 billion by the year 2009.
    Let me make clear, all of us support a strong national 
defense. We certainly are going to put forward the funds 
necessary for the United States to work its policies in the 
world. And, most of all, we are going to support our men and 
women in uniform, and say, thank God there are such men and 
women who will go in an hour like this in harm's way and defend 
the United States of America. They are being asked to do 
Herculean feats around the world, night and day, and we will 
not let them down; we will support them.
    Unfortunately, the increases in defense that you are 
requesting are being financed by deficit spending. And the 
bills for national defense, ultimately, when you charge it to 
the deficit, get charged to our children and grandchildren. The 
fiscal year 2004 budget proposes the largest deficit in 
American history, $307 billion. That projects a deficit of over 
$300 billion in 2003 as well.
    The 10-year surplus of $5.6 trillion, which was projected 
back in 2001, has been wiped out. That is a message that CBO 
gave us just a few weeks ago, and then OMB confirmed it. 
Between now and 2011, the administration's policies and, 
particularly the new tax cuts, would add an additional $2 
trillion to that public debt.
    As bad as that sounds, it is likely to get worse. Data from 
the Treasury Department indicates that during the first few 
months of fiscal 2003, revenues are off 8 percent.
    You have sent us a budget that has nothing in it for the 
war in Iraq to which--I understand why you wouldn't make that 
particular request, but you also included nothing for the 
global war against terrorism and, in particular, Afghanistan. I 
am at a loss to understand why that was not included in this 
particular budget request.
    Yesterday's Wall Street Journal contains this news, that 
the Bush administration is preparing to submit supplemental 
spending requests totaling as much as $95 billion for a war 
with Iraq, its aftermath, and new expenses to fight terrorism. 
Today, the New York Times reported that Pentagon officials said 
yesterday that the military's part of the cost over the next 
several months, through fiscal year, this fiscal year at least, 
would be $60 billion. And, of course, these are just a portion 
of the costs.
    We are reading about deals that are being cut with Turkey 
and other allies that we have no way of scoring or keeping a 
tab on. We don't really know what the cumulative cost of this 
effort is likely to be.
    I hope that today's hearing will give us better insight 
into the real costs that we are facing because it is this 
committee's responsibility to put things in the stark light of 
fiscal reality. Today, we are not in position to do that, 
because there are so many significant things we just don't know 
about this budget.
    If the estimated cost of additional spending for Iraq of 
$95 billion turns out to be correct, that would push the 
deficit for 2003 up to $400 billion, by far the largest ever 
recorded. Even if the lower figure of $60 billion is more 
accurate, that will still give us the largest deficit, in 
constant dollars, since World War II was over.
    Finally, as bad as the situation is today, we have to think 
about the long term; and really, the retirement of the baby 
boomers is not long term, it begins in 2008. They draw Social 
Security then. In 2011, they start drawing Medicare. And we are 
going to see a demographic change in this budget that is going 
to be phenomenal.
    The question is, can we sustain this buildup in the face of 
the retiring baby boomers? I put these hard questions to you 
because these are questions we should be asking you, asking 
ourselves, and trying to resolve in the budgets that we will be 
preparing in the weeks ahead.
    Thank you for coming. We look forward to your answers to 
our questions.
    [The prepared statement of Mr. Spratt follows:]

  Prepared Statement of Hon. John M. Spratt, Jr., a Representative in 
               Congress From the State of South Carolina

    Thank you, Mr. Chairman. I join you in welcoming Deputy Secretary 
Wolfowitz and Dr. Zakheim. I usually see you in my other committee, 
Armed Services. Today, wearing my budget cap, I want to express some 
serious concerns.
    The Department of Defense is in the middle of the largest sustained 
buildup in 20 years. The Department's 6-year plan associated with this 
2004 budget request would leave the defense budget one-third larger, in 
real terms, at the end of that plan in 2009 than it was when this 
administration took office. We have not seen an increase of this size 
since the cold war, during President Reagan's first term. Much of this 
increase has already taken place, since the budget for national defense 
will have increased from $300 billion in fiscal year 2000, to at least 
$400 billion by the time we finish fiscal year 2003, in just three 
short years. This budget request then proposes to increase that to $500 
billion by fiscal year 2009.
    All of us support a strong national defense and a strong U.S. 
military that remains second to none. We all support our men and women 
in uniform. They are being asked to do Herculean feats around the world 
night and day, and we will not let them down.
    Unfortunately, these increases are being financed by deficit 
spending, and the bills for our national defense are being sent to our 
children. The fiscal year 2004 budget proposes the largest deficit in 
American history, $307 billion, and now projects a deficit over $300 
billion in 2003 as well. The 10-year surplus of $5.6 trillion projected 
in 2001 has been wiped out. Between now and 2011, the Bush 
administration's policies, in particular the new tax cuts, would add an 
additional $2 trillion to the public debt. This would represent an 
astounding turnaround, reducing the unified budget surplus by $7.8 
trillion over 10 years.
    And as bad as this sounds, the reality is, it's going to get worse, 
because this budget understates how big the deficits are likely to get:
    Data from the Treasury Department shows that revenues are coming in 
well below the levels assumed in this budget. For the first 4 months of 
fiscal year 2003, revenues are down 8 percent from the same period in 
the previous fiscal year.
    There is no money in this budget for the cost of our ongoing global 
war on terrorism in Afghanistan and other locations around the world.
    There is no money in the budget for the cost of a war in Iraq, nor 
any money for the costs associated with such a conflict, including 
post-war occupation and reconstruction, and aid to Turkey and other key 
allies.
    Yesterday's Wall Street Journal reports that, ``The Bush 
administration is preparing supplemental spending requests totaling as 
much as $95 billion for a war with Iraq, its aftermath, and new 
expenses to fight terrorism, officials said.'' Today's New York Times 
reports that, ``Pentagon officials said today that the military's part 
of the cost over the next 7 months, through the fiscal year, would be 
at least $60 billion.'' And of course the military's costs are only a 
portion, and perhaps not ultimately the largest portion, of these 
costs. So it appears the administration is aware of these costs, but 
they do not appear in the budget.
    I hope today's hearing will give us some greater insight into the 
real costs we are facing, because it is this committee's responsibility 
to put things in the stark light of fiscal reality. Today, we are not 
in a position to do that, because there are these significant hidden 
costs out there. And there is no plan, that I am aware of, for how to 
pay for all of this. If the administration has a plan for where all the 
money would come from to pay for all of this, I would like to hear it.
    If the estimated cost of additional spending for Iraq of $95 
billion turns out to be correct, that would push the deficit for 2003 
up to $400 billion, by far the largest ever recorded. Even if the lower 
figure of $60 billion is more accurate, that would still give us the 
largest deficit, in constant dollars, since World War II.
    Finally, as bad as the situation is today, we also have to think 
about the long term. Pretty soon we will not be able to call the 
retirement of the baby boomers a ``long term'' issue. That day is fast 
approaching. A few weeks ago the Congressional Budget Office released a 
study on the long-term implications of current defense spending plans. 
This study shows that, in order to carry out all the long-range plans 
DOD has to modernize its weapons systems: defense spending, in real 
terms, will probably have to be even higher 10 years from now, when the 
baby boomers are retiring, than it is today.
    This will put defense spending on a collision course with the 
rapidly rising costs of Social Security and Medicare. But even if we 
did not have that fiscal squeeze coming, to carry out these plans would 
require a period of sustained increases in defense spending that, if 
you look at your history books, just doesn't happen.
    I invite my colleagues, and our witnesses, to look over that study, 
because we all need to think seriously about whether we are on a path 
we can afford to sustain.
    I look forward to your testimony, Secretary Wolfowitz.

    [The prepared statement of Mr. Putnam follows:]

Prepared Statement of Hon. Adam H. Putnam, a Representative in Congress 
                       From the State of Florida

    Mr. Chairman, I am pleased that we have convened today to receive 
the fiscal year 2004 budget priorities for the U.S. Department of 
Defense from Deputy Secretary Paul D. Wolfowitz. I am honored to be 
here with you, Ranking Member Spratt, and the rest of the committee, to 
exchange views on the Department of Defense budget for the coming year. 
Thank you, Mr. Secretary, for appearing before this committee to 
present the priorities and plans of your Department. The Department of 
Defense is essential in this time of global uncertainty and I would 
like to commend DOD's commitment to keeping Americans safe in an era of 
evolving threats.
    Knowing the current and emerging threats to America, it is 
imperative that we continue to strive to reach the goals of the 21st 
century transformation of the U.S. Armed Forces outlined by Secretary 
of Defense, Donald Rumsfeld. We must prepare for new forms of 
terrorism, such as cyber attacks on our network infrastructure. At the 
same time, we must work to increase our own areas of advantages, such 
as the ability to project military power over long distances, 
precision-strike weapons, and our space, intelligence, and under-sea 
warfare capabilities. As it is difficult to predict every conceivable 
type of attack, we are required to prepare for new and unexpected 
challenges in order to continue to defend against terrorism and other 
emerging threats of the 21st century.
    Being prepared also includes the transformation of the military 
toward more efficient internal systems and weapons driven by 
information technology. Secretary Rumsfeld has said the transformation 
process will ``require a longstanding commitment'' but concurrently 
``must be embraced in earnest today'' because the Nation is under 
immediate threat.
    Military IT transformation is necessary to keep the U.S. military 
ahead of its adversaries. As stated in the Quadrennial Defense Review, 
the technological revolution in military affairs holds the potential to 
confer enormous advantages and to extend the current period of U.S. 
military superiority.
    Transforming the military largely involves changing its ``state of 
mind'' to one that is more business-like. It also involves using 
advanced technologies to gather intelligence and manage information. A 
secure, global information backbone of unlimited depth and global reach 
will be essential.
    A strong emphasis should be placed on the efficient use of 
technology. The services must protect critical infrastructure so that 
it is available to only our troops and not infiltrated. The 
transformation of the U.S. military is not just about weapons, but the 
unification of what were once isolated components into one 
technologically unified battlefield scheme.
    Mr. Secretary, I look forward to your testimony and I am sure you 
will provide all of us with a clear picture of the Department of 
Defense's strategy to lead our forces militarily and technologically 
into the 21st century.

    Mr. Shays. Mr. Secretary, we are going to hear from you. If 
we finish your statement in some time--we have an hour and a 
half for questions, we could potentially get everyone in this 
room being able to ask a question. But if you don't need to use 
the 5 minutes, please don't, OK?
    Mr. Wolfowitz, thank you so much for being here.

    STATEMENT OF PAUL D. WOLFOWITZ, DEPUTY SECRETARY, U.S. 
                     DEPARTMENT OF DEFENSE

    Mr. Wolfowitz. Thank you, Mr. Chairman. I will just read 
portions of my testimony and submit the entire testimony for 
the record.
    Mr. Shays. Without objection, that will happen.
    Mr. Wolfowitz. Mr. Chairman, this is a large budget that we 
are requesting, $379.9 billion. But I would like to begin by 
pointing out that by historical standards, this budget is a 
sustainable defense burden, one that is significantly less than 
the burden we sustained throughout the cold war.
    Moreover, this is a wartime defense budget, although it is 
fair to point out that some possible war costs are not 
included, particularly those that would be associated if we 
have a conflict in Iraq.
    But if I could have--and I think we have rearranged the 
charts in the wrong order. Could I have the chart that shows 
the percent of GDP that goes to defense historically? You will 
see that in fiscal year 2004, DOD outlays are projected, even 
with the unfortunate economic situation, to be at 3.4 percent 
of our gross domestic product. That is well below its level at 
any time during the cold war, much less the peak during the 
cold war. Similarly, if you compare it to total Federal 
outlays, it is 16.6 percent, again, well below its level at any 
time--I underscore, ``any time''--during the cold war.
    Another fact to remember, when one thinks about whether 
these are controllable costs, is that about 45 percent of the 
defense budget goes to cover the personnel costs for our 
magnificent men and women in uniform and for the civilians who 
support them. Despite great efforts to try to limit increases 
in personnel, we have had to activate a significant number of 
Reservists and National Guardsmen to meet our warfighting 
tasks. It is hard to imagine at this time how we could reduce 
costs by cutting force structure and people.
    The proposed $15.3-billion increase over last year is 
sizeable. But each year, much of any Defense Department 
increase is consumed by what we call, ``fact-of-life'' 
increases, specifically pay raises, and nonpay inflation. In 
the fiscal year 2004 request, over $8.5 billion of the $15-
billion increase goes to inflation and non--to nonpay inflation 
and the increases in military and civilian pay, $4.2 billion in 
pay increases and $4.3 billion in nonpay inflation.
    Some critics I read say the U.S. Defense budget is higher 
than it needs to be because it exceeds that of all our possible 
adversaries combined. But it is our task to defend against real 
threats, Mr. Chairman, not against budget accounts.
    The defense budget of the Taliban was an insignificant 
fraction of ours, yet that regime proved to be a major threat 
to the United States. And it was thanks to the overwhelming 
superiority of our forces that we were able to achieve our 
objectives in that country in miraculously short order, and 
with miraculously low casualties.
    Indeed, when we send our forces into combat, we want them 
to have that kind of overwhelming advantage that minimizes 
casualties and provides for decisive victories, not just the 
bare margin necessary for a close win. The only reasonable 
evaluation, the only reasonable evaluation of a U.S. Defense 
budget is its ability to cover the full range of uncertain 
risks that threaten America's vital interests.
    Besides the horrific toll, let's remember that the attacks 
of September 11 cost our Nation billions of dollars in both 
physical destruction and damage to our economy. The direct 
costs of September 11 are already estimated to exceed $100 
billion. Another such catastrophe could cost far more, 
especially if attackers use weapons of mass terror.
    The President's defense budget is sustainable because, 
first, we have insisted on realistic budgeting, especially for 
acquisition programs and readiness requirements; and secondly, 
because we have made many hard choices in this budget to ensure 
that our programs are executable within their projected top 
lines.
    For the FYDP of 2004-09, the Department has shifted over 
$80 billion from previous budget plans into acquisition 
programs that support a strategy of transforming our military.
    These hard choices will reduce the cost risk to the DOD top 
line that were highlighted in a recent Congressional Budget 
Office report. That report was done before it could reflect the 
work that we did in preparing this budget request.
    Our commitment to realistic budgeting includes properly 
funding investment programs based on independent cost 
estimates. This practice not only protects our future 
readiness, it also protects our near-term readiness, because 
training and operations funds are no longer a bill payer for 
underfunded investment programs, as they were throughout much 
of the last decade.
    Let me say a little bit about funding the cost of war. The 
same rigorous planning and tough decision-making used in our 
budget preparation are being applied to our execution of the 
war on terrorism and to plans and preparations for the 
possibility of a war in Iraq. Our military and civilian 
planners are working hard to ensure that our scarce personnel 
and budgetary resources are directed to the highest priorities 
and that all alternatives are exhaustively assessed.
    Nevertheless, any war is fraught with uncertainty, and that 
makes all projections of future war costs extremely uncertain. 
The President's proposed budget does not estimate the 
incremental cost of a possible war with Iraq, nor does it 
request contingency funding to cover them. Such estimates are 
so dependent on future, unpredictable circumstances as to be of 
little value. We are, however, doing everything possible in our 
planning now to make postwar recovery smoother and less 
expensive should the use of force become necessary. As in 
Afghanistan, we would seek and expect to get allied 
contributions, both in cash and in kind, particularly for the 
reconstruction effort in a post-Saddam Iraq.
    If I might digress for a moment, Mr. Chairman, from my 
prepared testimony, because there has been a good deal of 
comment--some of it quite outlandish--about what our postwar 
requirements might be in Iraq. That great Yankee catcher and 
occasional philosopher, Yogi Berra, once observed that it is 
dangerous to make predictions, especially about the future.
    That piece of wise advice certainly applies to predictions 
about wars and their aftermath, and I am reluctant to try to 
predict anything about what the cost of a possible conflict in 
Iraq would be--what the possible cost of reconstructing and 
stabilizing that country afterwards might be. But some of the 
higher-end predictions that we have been hearing recently, such 
as the notion that it will take several hundred thousand U.S. 
troops to provide stability in post-Saddam Iraq, are wildly off 
the mark.
    First, it is hard to conceive that it would take more 
forces to provide stability in a post-Saddam Iraq than it would 
take to conduct the war itself and to secure the surrender of 
Saddam's security forces and his army--hard to imagine.
    Second, in making predictions, one should at least pay 
attention to past experience. And in the case of Iraq, we have 
some recent experience to look to. The northern third of Iraq 
has been liberated from Saddam Hussein's grasp since Operation 
Provide Comfort, which we undertook just 1 month after the 
cease-fire of the Persian Gulf war in 1991.
    By the way, our current Supreme Allied Commander in Europe, 
Gen. Jim Jones, was a colonel commanding a Marine battalion in 
that operation.
    After that operation, we withdrew our ground forces from 
northern Iraq completely in the fall of 1991, and in the 12 
years since then, we have not had any forces--emphasize, ``any 
forces''--on the ground there. And yet the northern third of 
Iraq has remained reasonably stable even though, sadly, it is 
subjected to the same economic sanctions that have been applied 
to the rest of the country, and even though the people there 
live under daily threat from Saddam's military, from Saddam's 
security forces, and for the last year and a half, from an al 
Qaeda cell that operates in northeastern Iraq called Ansar al-
Islam.
    In fact, even the U.S. air presence, which we have 
maintained over northern Iraq, is not necessary to keep peace 
among the people of northern Iraq, but to keep Saddam Hussein 
out.
    There are other differences that suggest that peacekeeping 
requirements in Iraq might be much lower than our historical 
experience in the Balkans suggest. There has been none of the 
record in Iraq of ethnic militias fighting one another that 
produced so much bloodshed and permanent scars in Bosnia, along 
with a continuing requirement for large peacekeeping forces to 
separate those militias. And the horrors of Iraq are very 
different from the horrific ethnic cleansing of Kosovars by 
Serbs that took place in Kosovo and left scars that continue to 
require peacekeeping forces today in Kosovo.
    The slaughter in Iraq, and it is has been substantial, has 
unfortunately been the slaughter of people of all ethnic and 
religious groups by the regime. It is equal-opportunity terror.
    Third, whatever numbers are required--and I emphasize I am 
not trying to make a prediction, but I will say, there is no 
reason, there is simply no reason to assume that the United 
States will or should supply all of those forces.
    Many countries have already indicated to us, some of them 
privately, a desire to help in reconstruction of post-Saddam 
Iraq, even though they may not want to be associated with 
Saddam's forcible removal.
    Indeed, remember that we are talking about one of the most 
important countries in the Arab world, with not only enormous 
natural resources that we keep hearing about, but equally 
importantly, I would say more importantly, extraordinary human 
resources.
    I would expect that even countries like France will have a 
strong interest in assisting Iraq's reconstruction.
    Moreover, the Iraqis themselves can provide a good deal of 
whatever manpower is necessary. We are training free Iraqi 
forces to perform functions of that kind, including command of 
Iraqi units, once those units have been purged of their 
Baathist leadership.
    But the fourth and most fundamental point is that we go 
back to Yogi Berra. We simply cannot predict. We have no idea 
whether weapons of mass terror will be used. We have no idea 
what kind of ethnic strife might appear in the future, although 
as I have noted, it has not been the history of Iraq's past. We 
do not know what kind of damage Saddam Hussein will wreak on 
Iraq's oil fields or its other infrastructure.
    On the other side, we can't be sure that the Iraqi people 
will welcome us as liberators, although based on what Iraqi-
Americans told me in Detroit a week ago, many of them, most of 
them with families in Iraq, I am reasonably certain that they 
will greet us as liberators, and that will help us to keep 
requirements down.
    In short, we don't know what the requirements will be. But 
we can say with reasonable confidence that the notion of 
hundreds of thousands of American troops is way off the mark.
    I would like to add also, there is a danger in making 
single point estimates. It is not just an intellectual and 
analytical danger that you can't predict the future; this is a 
particularly bad time to be publishing specific numbers, 
because official numbers become part of our declaratory policy.
    And single point estimates right now about the possible 
costs of the conflict, or about the possible length and size of 
a postwar reconstruction effort, could be misinterpreted. Think 
about that issue. The best estimate of what we will need, post-
Saddam Hussein, is what the President and Secretary Powell and 
Secretary Rumsfeld have been saying: we will stay as long as 
necessary and leave as soon as possible.
    I understand that that is a frustrating estimate for people 
who want a single point estimate of the future. But, it is the 
truth. Moreover, stop and think about it from an Iraqi point of 
view. They want to know that they won't be abandoned, that we 
will do what is needed for postwar reconstruction.
    For that purpose, large numbers for long periods of time 
have a reassuring quality. On the other hand, they also want to 
know that we are coming as liberators and not as occupiers. 
From that point of view, they would prefer to hear that we 
won't be there in large numbers for very long.
    Fundamentally, we have no idea what is needed unless and 
until we get there on the ground. There will be appropriate 
times for making public estimates, along with a range of 
assumptions that lead to them. But this delicate moment, when 
we are assembling a coalition, when we are mobilizing people 
inside Iraq and throughout the region to help us in the event 
of war, and when we are still trying through the United Nations 
and by other means to achieve a peaceful solution without war, 
is not a good time to publish highly suspect numerical 
estimates and have them drive our declaratory policy.
    Let my say something else, if I may, Mr. Chairman, to put 
the costs of war into some context; and then I will wrap up 
with one other comment. The possible cost of war in Iraq ought 
to be considered in the context of America's other 
international undertakings of recent years. We must remember 
that there is a cost of containment in both dollars as well as 
risk to our national security. We have been doing some 
preliminary estimates--I emphasize they are preliminary, and 
until I am confident of the assumptions I wouldn't want to 
swear by them. But our preliminary estimate is that it has cost 
us slightly over $30 billion to maintain the containment of 
Saddam Hussein for the last 12 years. And it has cost us far 
more than money, because as I think many of you know, it is 
that American presence in the holy land of Saudi Arabia and the 
sustained American bombing of Iraq as part of that containment 
policy that have been Osama bin Laden's principal recruiting 
device, even more than the other grievances he cites. I can't 
imagine anyone here wanting to spend another $30 billion to be 
there for another 12 years to continue helping recruit 
terrorists.
    Furthermore, it is worthwhile to consider what we might 
spend on reconstruction in Iraq against what we have already 
spent in Bosnia and Kosovo.
    Again, these are very preliminary estimates, but the 
estimates already, so far, in Bosnia and Kosovo are that we 
have spent somewhere between $12 [billion] and $15 billion. I 
think that is a worthwhile expenditure, but our purposes in 
those two places are largely humanitarian. Iraq presents a case 
of direct threat to the security of the United States and our 
allies, and a key to the future of one of the most important 
regions in the world.
    Indeed, I believe the most significant cost associated with 
Iraq, which is very, very difficult to estimate, is the cost of 
doing nothing. The simple truth is, disarming Iraq and fighting 
the war on terror are not merely related; disarming Iraq's 
arsenal of terror is a crucial part of winning the war on 
terror. If we can disarm or defeat Saddam's brutal regime in 
Baghdad, it will be a defeat for terrorists globally, and the 
value of such a victory against a terrorist regime will be of 
incalculable value in the continuing war on terrorism.
    Mr. Chairman, let me spare a good deal of the rest, you can 
read it, but I would like to just have a minute on this 
business of transforming the business on defense. We are 
working hard not only to spend more, as we are doing, but to 
spend more wisely.
    Much has happened as the President directed us to do. Much 
has happened in the last 2 years within our department to 
realize the President's mandate. But we also have a challenge 
that we share with you. In consultation with Members of 
Congress, including members on this committee, and many more 
that we hope to talk to in coming weeks, we are trying to 
develop an agenda for change that both the executive branch and 
the Congress can agree on that will streamline and modernize 
how the Department of Defense manages people, buys weapons, 
uses training ranges and manages money.
    In an age when terrorists move information at the speed of 
an e-mail and money at the speed of a wire transfer, the 
Defense Department is bogged down in micromanagement and 
bureaucratic processes of the industrial age. We have created a 
culture that too often stifles innovation. The major obstacles 
faced by us all in making the broad transition that is 
necessary, include reforming an antiquated personnel structure, 
both civilian and military, increasing flexibility in managing 
money and managing the Department, reforming broken acquisition 
processes, and requirements and resource processes.
    Mr. Chairman, we are fighting the first wars of the 21st 
century with a Defense Department that was fashioned to meet 
the challenges of the mid 20th century. We have an industrial 
age organization, but we are living in an information age 
world, where new threats emerge suddenly, often without 
warning, to surprise us.
    Last year, Congress and the administration faced up to the 
fact that our government was not organized to deal with the new 
threats to the American homeland and created a new Department 
of Homeland Security. We must now address the Department of 
Defense.
    Many of the obstacles we face today are self-imposed. Where 
we have the authority to fix those problems, we are working 
hard to do so. For example, we are modernizing our financial 
management structures to replace some 1,900 information 
systems. We are doing many things, and even more than I have 
mentioned in my testimony. But to get the kind of agility and 
flexibility required in the 21st century security environment, 
we also need some legislative relief, and for that we need your 
help.
    We must work together, Congress and the administration, to 
transform not only the U.S. Armed Forces, but the Defense 
Department that serves them and prepares them for battle. The 
lives of the servicemen and -women in the field, and of our 
friends and families here at home, depend on our ability to do 
so.
    Mr. Chairman, let me conclude with that, I think you want 
to get to your questions.
    [The prepared statement of Deputy Secretary Wolfowitz 
follows:]

 Prepared Statement of Hon. Paul D. Wolfowitz, Deputy Secretary, U.S. 
                         Department of Defense

    Mr. Chairman and members of the committee, I welcome this 
opportunity to return this year to give you a brief overview of the 
fiscal year fiscal year 2004 defense budget request and address your 
questions at this critical time for America and the world.
                         defense budget topline
    The President's budget requests $379.9 billion for the Department 
of Defense for fiscal year 2004, a $15.3-billion increase over last 
year's enacted level. The budget projects that the DOD topline will, in 
real terms, grow about 2.5 percent per year through 2008.
    This fiscal year 2004 defense budget is indeed large and it will 
grow larger, even without factoring in likely costs for continuing the 
war on terrorism. But by historical standards, this budget is a 
sustainable defense burden--one that is significantly less than the 
burden we sustained throughout the cold war. Moreover, this is a 
wartime defense budget needed to help us wage the global war against 
terror. Fiscal year 2004 DOD outlays will be 3.4 percent of our gross 
domestic product (GDP) and 16.6 percent of total Federal outlays--both 
well below their levels at any time during the cold war. Another fact 
to remember is that about 45 percent of the defense budget goes to 
cover the personnel costs for our magnificent men and women in 
uniform--many of whom are now in harm's way as they fight the war 
against terror--and the civilians who support them. Despite great 
efforts to try to limit increases in personnel, we have had to activate 
a significant number of the reserve component to meet our warfighting 
tasks. It is hard to imagine how we could reduce costs by cutting force 
structure at this time.
    This proposed $15.3-billion increase is sizable. But each year much 
of any DOD topline hike is consumed by what could be termed ``fact of 
life'' increases--most significantly, pay raises and nonpay inflation. 
In the fiscal year 2004 request, over $8.5 billion of the $15-billion 
increase is for such increases: $4.2 billion for military and civilian 
pay raises and $4.3 billion to cover non-pay inflation.
    Some critics say the U.S. defense budget is higher than necessary 
because it exceeds that of all our possible adversaries combined. But 
we must defend against real threats, not budget accounts. The defense 
budget of the Taliban was an insignificant fraction of ours, yet that 
regime proved to be a major threat to America. Indeed, in an era of 
proliferation and asymmetric threats, we must have the ability to 
confront a potentially wide range of threats. Moreover, when we send 
our forces into combat, we want them to have the kind of overwhelming 
advantage that minimizes casualties and provides for decisive 
victories, not the bare margin necessary for a close win. Thus, 
comparative national defense budgets are an inappropriate standard for 
measuring whether our defense capabilities are adequate to confront a 
21st century security environment of uncertain and asymmetric threats.
    The only reasonable evaluation of a U.S. defense budget is its 
ability to cover the range of uncertain risks that threaten America's 
vital interests. Besides their horrific human toll, the September 11 
attacks cost our Nation billions, in both physical destruction and 
damage to our economy. Direct costs of September 11 already exceed $100 
billion. Another such catastrophe could cost much more--especially if 
attackers use weapons of mass destruction.
    The President's defense budget is sustainable. Within its topline, 
the proposed budget funds a strong, strategy-driven program that 
supports both short-term and long-term requirements. Our multi-year 
program is sustainable first because we have insisted on realistic 
budgeting--especially for acquisition programs and readiness 
requirements. Second, we made hard choices--most notably, by 
restructuring acquisition programs--to ensure that they are executable 
within our projected topline. For fiscal year 2004-09 the Department 
shifted over $80 billion from previous budget plans into acquisition 
programs that support a strategy of transforming our military. These 
hard choices in the fiscal year 2004 budget request will reduce the 
cost risks to the DOD topline that were highlighted in a recent 
Congressional Budget Office report, which does not reflect the work we 
did preparing this budget request.
    Our commitment to realistic budgeting includes properly funding 
investment programs based on independent cost estimates.
    This practice not only protects our future readiness, it also 
protects our near-term readiness because training and operations funds 
are no longer a billpayer for underfunded investment programs.
                        funding the costs of war
    The same rigorous planning and tough decision making used in our 
budget preparation are being applied to our execution of the war on 
terrorism and to preparations for a possible war in Iraq. Our military 
and civilian planners are working exceedingly hard to ensure that our 
scarce personnel and budgetary resources are directed to the highest 
priorities and that all alternatives are exhaustively assessed. Still, 
war is fraught with uncertainty and that makes all predictions of 
future war costs highly uncertain.
    The President's proposed budget does not estimate the incremental 
costs of a possible war with Iraq, nor does it request contingency 
funding to cover them. Such estimates are so dependent on future, 
unpredictable circumstances as to be of little value. However, we are 
doing everything possible in our planning now to make post-conflict 
recovery smoother and less expensive should the use of force become 
necessary. As in Afghanistan, we would seek and expect to get allied 
contributions, both in cash and in kind, particularly for the 
reconstruction effort in a post-Saddam Iraq.
    The possible cost of war in Iraq should be considered in the 
context of America's other international undertakings of recent years. 
We must remember that there is a cost of containment in both dollars as 
well as risk to our national security.
    While the United States has judged it worthwhile to expend some 
very significant amounts on the efforts in Bosnia and Kosovo where our 
purposes are largely humanitarian, Iraq presents a case of direct 
threat to the security of the United States and our allies. Indeed, I 
believe the most significant cost associated with Iraq is the cost of 
doing nothing. The simple truth is, disarming Iraq and fighting the war 
on terror are not merely related; disarming Iraq's arsenal of terror is 
a crucial part of winning the war on terror. If we can disarm or defeat 
Saddam's brutal regime in Baghdad, it will be a defeat for terrorists 
globally. The value of such a victory against a terrorist regime will 
be of incalculable value in the continuing war on terrorism.
     balancing near-term requirements and long-term transformation
    The President's budget is designed to do two very important things 
at the same time. First, it funds the readiness and capabilities needed 
to fight the war on terrorism and meet other near-term requirements. 
Second, it advances the long-term transformation of the U.S. military 
and defense establishment, both critical to enabling us to counter 21st 
century threats most effectively. Thus our challenge is to fight the 
war on terrorism at the same time we are transforming. We have to do 
both. Although facing near-term funding pressures, we nevertheless must 
invest for the future--otherwise we undoubtedly will have to pay more 
later--in dollars, in economic losses, and perhaps even in lives.
    Transformation overview: Transformation is a process that DOD is 
using to overhaul the U.S. military and defense establishment. 
Transformation is about new ways of thinking, fighting, and managing 
the Department's scarce resources.
    The fiscal year 2004 budget reflects the Department's new way of 
thinking, first articulated in our 2001 Quadrennial Defense Review and 
intensively developed since then. That new way of thinking is now being 
implemented in visionary warfighting operational concepts, a 
restructured unified command plan, and transformational military 
capabilities such as unmanned aerial vehicles and new generations of 
satellite communications.
    Transforming U.S. military capabilities: Transformation is more 
about changing the way people think, the way they do things, and what 
is commonly called ``culture'' than it is about budgets. But, of 
course, budgets matter. In DOD budgets, military transformation is 
reflected primarily in our investment programs--i.e., in programs 
funded in the appropriations titles of Research, Development, Test, and 
Evaluation (RDT&E) and Procurement. Through such funding, new military 
systems are being developed and fielded--to achieve a new portfolio of 
military capabilities to decisively combat the full spectrum of threats 
to U.S. security.
    To appreciate the impact of the Department's investment on 
transforming our military capabilities, one must look at programs, not 
simply funding levels. The key is not simply how much we are investing, 
but whether we are investing in the right areas.
    Given the immediate risk of terrorism and other non-traditional or 
asymmetric threats, we must be able to develop new capabilities while 
selectively modernizing current ones. The war on terrorism demonstrates 
that we need to be prepared to face both traditional and non-
traditional threats.
    We must be able to fight against conventional weapons systems as 
well as be prepared for the use of weapons of mass destruction against 
our troops or here at home. Countering such threats will require a 
carefully planned mix of capabilities.
    Indicative of the Department's strong emphasis on transformation, 
the military services have shifted billions of dollars from their older 
multi-year budget plans to new ones--as they have terminated and 
restructured programs and identified important efficiencies. For fiscal 
year 2004-09, the military services estimate that they have shifted 
over $80 billion to help them transform their warfighting capabilities 
and support activities.
    Some examples of cancellations, slow-downs or restructured programs 
include the following:
     The Army came up with savings of some $22 billion over the 
6-year FYDP, by terminating 24 systems, including Crusader, the Bradley 
A-3 and Abrams upgrades, and reducing or restructuring another 24 
including Medium Tactical Vehicles. The Army used these savings to help 
pay for new transformational capabilities, such as the Future Combat 
Systems.
     The Navy reallocated nearly $39 billion over the FYDP, by 
retiring 26 ships and 259 aircraft, and integrating the Navy and Marine 
air forces. They invested these savings in new ship designs and 
aircraft.
     The Air Force shifted funds and changed its business 
practices to account for nearly $21 billion over the FYDP. It will 
retire 114 fighter and 115 mobility/tanker aircraft. The savings will 
be invested in readiness, people, modernization and new system starts 
and cutting edge systems like unmanned aerial vehicles (UAVs) and 
unmanned combat aerial vehicles (UCAVs).
    Transforming the Business of Defense: We know we must become more 
efficient in our business practices and get more out of our defense 
budget by transforming the way we operate in the Department of Defense. 
President Bush gave the Department of Defense ``a broad mandate to 
challenge the status quo and envision a new architecture of American 
defense for decades to come.'' The goal, he said, is ``to move beyond 
marginal improvements--to replace existing programs with new 
technologies and strategies.'' Doing this, he said, ``will require 
spending more--and spending more wisely.'' Much has happened in the 
last 2 years to begin realizing that mandate.
    In response to this challenge, the Department of Defense is 
developing an agenda for change that--once approved by the President--
will require the concerted effort of many--both inside the Department 
and in Congress. The agenda advances the process of streamlining and 
modernizing how the Department of Defense manages people, buys weapons, 
uses training ranges and manages money.
    Most agree that to win the global war on terror, our Armed Forces 
need to be flexible, light and agile--so they can respond quickly to 
sudden changes. The same is true of the men and women who support them 
in the Department of Defense. They also need to be flexible and agile 
so they can move money, shift people, and design and buy new weapons 
quickly, and respond to sudden changes in our security environment.
    In an age when terrorists move information at the speed of an 
email, money at the speed of a wire transfer, and people at the speed 
of a commercial jetliner, the Defense Department is bogged down in the 
micromanagement and bureaucratic processes of the industrial age. Some 
of our difficulties are self-imposed, to be sure. Some are the result 
of law and regulation. Together they have created a culture that too 
often stifles innovation.
    We are working, instead, to promote a culture in the Defense 
Department that:
     Rewards unconventional thinking;
     Gives people the freedom and flexibility to take risks and 
try new things;
     Fosters a more entrepreneurial approach to developing 
military capabilities; and
     Does not wait for threats to emerge and be ``validated,'' 
but anticipates them before they emerge, and develops and deploys new 
capabilities quickly.
    The major obstacles faced by us all in making that broad a 
transition include:
     Antiquated personnel structure--both civilian and 
military;
     Lack of flexibility in managing money and managing the 
department;
     Support structures that are outdated, slow and inflexible; 
and
     Broken acquisition, requirements and resource processes.
    We are fighting the first wars of the 21st century with a Defense 
Department that was fashioned to meet the challenges of the mid-20th 
century. We have an industrial age organization, yet we are living in 
an information age world, where new threats emerge suddenly, often 
without warning, to surprise us.
    Last year, Congress and the administration faced up to the fact 
that our government was not organized to deal with the new threats to 
the American homeland. Congress enacted historic legislation to create 
a new Department of Homeland Security and rearrange our government to 
be better prepared for potential attacks against our homes and schools 
and places of work.
    We must now address the Department of Defense. Many of the 
obstacles we face today are self-imposed. Where we have authority to 
fix those problems, we are working hard to do so. For example, we are 
modernizing our financial management structures, to replace some 1,900 
information systems so we can produce timely and accurate management 
information. We are modernizing our internal acquisition structures to 
reduce the length of time it takes to field new systems and drive 
innovation. We are working to push joint operational concepts 
throughout the Department, so we train and prepare for war the way we 
will fight it, jointly. And we are taking steps to better measure and 
track performance.
    We are doing all these things, and more. But to get the kind of 
agility and flexibility that are required in the 21st century security 
environment, we also need some legislative relief. For that, we need 
your help. We must work together--Congress and the administration--to 
transform not only the U.S. Armed Forces, but the Defense Department 
that serves them and prepares them for battle. The lives of the service 
men and women in the field--and of our friends and families here at 
home--depend on our ability to do so.
    Getting more out of defense dollars: In summary, there is much we 
can and must do to get the most out of our defense dollars. Especially 
with budget pressures from the war on terrorism, we must be able to 
focus resources on the most critical priorities. The Department cannot 
do this without strong support from the Congress. Yes, we will need 
additional funds in order to prevail in the war on terrorism and 
transform our military to meet the challenges of the 21st century. But 
we also confront a historic challenge to make the maximum use of those 
funds by transforming how we carry out the business of defense. Now is 
an historic opportunity to ensure that we make the best possible use of 
taxpayers' money by transforming how we carry out the business of 
defense. We look forward to working closely with the Congress to meet 
this important and pressing challenge.
                               conclusion
    The President's fiscal year 2004 budget addresses our country's 
need to fight the war on terror, to support our men and women in 
uniform, and prepare to meet the threats of the 21st Century. It 
reflects hard choices to ensure sufficient funding for our most 
pressing requirements and to advance defense transformation. Those hard 
choices and our proposed transformation of the business of defense 
underscores our resolve to be exemplary stewards of taxpayer dollars.
    This committee has provided our country strong leadership in 
providing for the national defense and ensuring taxpayers' dollars are 
wisely spent. We look forward to continuing our work with you to 
achieve both of these critical goals.

    Mr. Shays. I do.
    Mr. Secretary, first, in my desire to be efficient, I 
didn't truly welcome you here. It is an honor to have you here. 
We thank you for your service to your country over so many 
years. I want to put that on the record.
    Given that I had an opening statement, I am going to pass 
on questions to give other members time. And I am going to go 
to Mr. Gutknecht, then Mr. Spratt, and then Mr. Thornberry. I 
will be strict with the 5 minutes, gentlemen and ladies.
    Mr. Gutknecht. Thank you.
    I think I speak on behalf of the entire committee, Mr. 
Wolfowitz. We appreciate your service to the country, and 
frankly, in your statement, I think you expressed as clearly, 
or probably far more clearly than any of us could, how 
important it is to do what needs to be done with the regime in 
Baghdad.
    And I think most Americans now believe that something has 
to happen, and unfortunately, I think it is left to us, the 
Americans, to do it.
    The chairman in his opening statement referred to two 
frustrating factors that I hope you will comment on. One is 
some of the other commitments. I realize that that has more to 
do with your colleagues down at the State Department, but we 
have all witnessed what I think is a rather unseemly auction 
with some of our allies, particularly with Turkey. And the 
concern we have is that there may be people inside the 
administration that are writing checks that the Congress may 
not be too eager to cash.
    Can you talk a little bit about some of those other 
commitments, and whether you and the people down at the 
Pentagon have had something to say about that?
    Mr. Wolfowitz. We have had a great deal to say about it. 
And let me say, I know some of what you read in the press 
sounds unseemly and some of what some other people say is 
unseemly. I think the notion that somehow we owe Turkey $92 
billion for the last 12 years of what they have been through is 
just way off the mark, way off the mark.
    But a great deal of what we are talking about is very 
seemly and quite appropriate in the context of fighting a war 
on terrorism with countries that really are standing up to the 
challenges, and sometimes countries that are not in a great 
position to do so.
    Think of Pakistan. Pakistan has done a great deal for us. 
We could not possibly have accomplished our objectives in 
Pakistan--at the moment, to be honest, we are behind in paying 
our bills to the Pakistanis for the support they are giving to 
our forces. We are working hard to get that done, and we are 
hoping, actually in this year's program to get a little more 
flexibility so that we don't fall behind in paying absolutely 
legitimate bills.
    The issue with Turkey, and I want to be cautious here 
because we are in an absolutely critical stage in our 
negotiations with them, and there is a tendency to take 
anything I say and use it for whatever purpose anyone wants to.
    But it isn't a question of how valuable Turkey is in 
bidding and auction and so forth. It is a fact that Turkey has 
great reason to be concerned, that if there is a conflict in 
Iraq, they are going to sustain some significant short-term 
economic costs and burdens. It is also a fact that they were 
promised some things in 1991, some by us and some by Arab 
countries, and only some of those promises were delivered. 
There has been a tendency to mythologize those afterwards, and 
they become much bigger. But there is some grounds for concern 
on their part.
    It does seem to me that we need to get out of the 
bargaining stage and get on with this, because the fact is that 
whatever short-term costs Turkey suffers, and there will be 
short-term costs, the long-term benefits to Turkey of ending 
the economic sanctions on Iraq--and let me emphasize that is 
another great benefit that will come to the whole region and 
the people of Iraq--is that there will no longer be economic 
sanctions with Saddam gone.
    The long-term benefits to Turkey's economy are enormous. 
And if Turkey helps us, they are not only helping us, they are 
helping themselves.
    We can achieve our objectives with or without Turkey, but 
we will achieve them much faster, with much less economic cost 
to the region, with much less political disturbance in the 
region and, most importantly, with less risk to American and 
other lives, if we can confront Saddam Hussein with a two-front 
war rather than just a one-front. That is why it is important 
to have Turkey with us.
    I think the Turks are close to understanding that. But it 
is, at the end of the day, about our mutual security and not 
about a bazaar.
    Mr. Gutknecht. Let me also mention something else the 
chairman mentioned. That is the burden sharing. That is 
something that I think we have been awfully slow to negotiate 
with many of our allies.
    I would remind you that in the last exchange we had with 
Saddam Hussein, we were able to get our allies to pick up, 
under some accounting, literally 100 percent of our direct 
costs.
    Have we had any luck to this point getting any of our 
allies to step forward and say they would be willing to help 
share some of the burden this time?
    Mr. Wolfowitz. We definitely had quite a bit of luck in 
Afghanistan, and Dr. Zakheim can go into more detail. He has 
been all around the world soliciting cash and assistance in 
kind.
    As you know, the international peacekeeping force in Kabul 
is entirely non-American, except for a few officers. It was led 
first by the British, then by the Turks, now by the Dutch and 
Germans. I played a very big role in the fund-raising effort 
the last time around.
    Mr. Shays. I am going to cut you off there, if you don't 
mind. Let me just say, if you can incorporate it in an answer, 
the burden sharing is out there. But the bottom line is a yes 
to him, and you will give us more details, hopefully fill it in 
to other questions.
    We are going to go to Mr. Spratt, then Thornberry and then 
Moran.
    Mr. Spratt. Mr. Secretary, yesterday the Washington Post 
said administration officials said the Pentagon's estimate of 
$60 [billion] to $95 billion for a war and its immediate 
aftermath was certain to be eclipsed when the long-term cost of 
occupation, reconstruction, foreign aid, and humanitarian 
relief were figured in.
    President Bush was briefed on the war cost Tuesday and is 
scheduled to receive detailed budget scenarios in the next week 
or two, officials said. Is that an accurate account?
    Mr. Wolfowitz. It may be an accurate account of what some 
anonymous administration official said.
    Mr. Spratt. Are we looking at the administration official?
    Mr. Wolfowitz. I don't think he or she knows what he is 
talking about. The idea that it is going to be eclipsed by 
those monstrous future costs ignores the nature of the country 
we are dealing with.
    It has got already, I believe, on the order of $15 
[billion] to $20 billion a year in oil exports, which can 
finally--might finally be turned to a good use instead of 
building Saddam's palaces. It has one of the most valuable 
undeveloped sources of natural resources in the world. And let 
me emphasize, if we liberate Iraq, those resources will belong 
to the Iraqi people. But they will be able to develop them and 
borrow against them.
    It is a country that has somewhere, I believe, over $10 
billion--let me not put a number on it--in an escrow account 
run by the United Nations. It is a country that has $10 
[billion] to $20 billion in frozen assets from the gulf war, 
and I don't know how many billions that are closeted away by 
Saddam Hussein and his henchmen.
    There is a lot of money there. To assume that we are going 
to pay for it is just wrong.
    Mr. Spratt. The $60 [billion] to $90-billion cost estimate 
is consistent with what staff on this committee have developed 
in the past year. It is just a bit above what the Congressional 
Budget Office projected would be the cost of such a war, based 
on the costs in 1990.
    Is it in your ball park also?
    Mr. Wolfowitz. Congressman Spratt, I would go back to what 
I said at greater length in my opening statement. The ball bark 
is so wide that it fits almost any number that you want to pick 
out of the air. It depends on the assumptions.
    It depends on how long the war lasts. It depends on whether 
weapons of mass destruction are used. It depends, very 
importantly, on whether the Iraqi army turns on Saddam Hussein, 
which I think is a distinct possibility, whether some important 
pieces of it decide to fight. It is so dependent on assumptions 
that picking a number, or even a range of numbers, is 
precarious.
    Furthermore, in answer to Congressman Gutknecht's question, 
before the gulf war in 1991, we had the whole world asking us 
to get--to do the job of liberating Kuwait, because the 
political situation at the time was such, my office initially 
proposed, let's get some help from our allies. We organized 
what became known as ``Operation Tin Cup.''
    We got, as I remember, $12 billion from the Japanese, a 
comparable number from the Germans. Huge amounts from the 
Saudis, from the Kuwaitis, from the United Arab Emirates. You 
know the Germans would be difficult people to approach today, 
but frankly, in the context of the reconstruction of one of the 
most important countries of the Arab world, I think we will 
approach the Germans and most other countries.
    Mr. Spratt. Well, what happened to the Germans before was, 
they got caught in a very, very embarrassing situation. They 
had exported some goods to Iraq that included machinery 
necessary for the production of unconventional weapons. They 
were very embarrassed by it, and part of the expiation for what 
they had done was about $8 billion.
    That raised the ante for everybody else, the Japanese, for 
example; and as a consequence, we were able to raise $60 
billion of the $64 billion out-of-pocket cost of that war.
    It looks like now we are in the reverse situation, whereas 
before the coalition members were paying us money, this time we 
are having to pay the coalition money, substantially.
    Mr. Wolfowitz. Congressman Spratt, 12 years ago, the weaker 
members of the coalition, such as Turkey, were getting 
assistance from outside. The difference, as you point out, the 
German position is different, but believe me, when Iraq is 
liberated, I think we are going to find a lot more of what you 
are referring to.
    In fact, Germany is one of the largest exporters to Iraq in 
the world today. Maybe that has something to do with their 
current position, but it will certainly lead to a lot of 
opportunity for expiation later.
    Believe me, from what I heard from Iraqi-Americans in 
Dearborn, the Iraqi people are going to demand it.
    Mr. Spratt. Well, let me ask you this: Was the President 
briefed on Tuesday on the war cost, in detail?
    Mr. Wolfowitz. I wasn't in the meeting, Congressman.
    Mr. Spratt. Do you know if he was? I mean----
    Mr. Wolfowitz. I know there was a meeting and I know they 
talked about----
    Mr. Spratt. You must have formulated some kind of cost.
    The reason I am pressing this issue is that we are getting 
ready to move a budget here, and the dollar amounts we are 
talking about for the likely cost of this war are pretty 
significant.
    That budget will probably contain reconciliation authority 
for two tax cuts, with total revenue reduction totals of $1.3 
trillion. It might be pertinent to everybody, both sides, to 
know what the likely cost is going to be before we pass a 
budget resolution, and certainly before we undertake tax cuts 
of that magnitude.
    Mr. Shays. Thank you. I am going to recognize Mr. 
Thornberry. Then we are going to go to Mr. Moran, and Mr. 
Hastings.
    Mr. Spratt. Normally I get--I am the ranking member, I get 
to----
    Mr. Shays. You are the ranking member. And I would----
    Mr. Spratt. I have got one last question.
    Mr. Shays. Do you want to take advantage of that?
    Mr. Spratt. I do.
    Mr. Shays. You want to deprive one of these--fair enough. 
The gentleman may continue.
    Mr. Spratt. Is anybody contributing money to us this time? 
Do we expect to get any mitigation in the way of money from our 
coalition allies?
    Mr. Wolfowitz. I expect we will get a lot of mitigation, 
but it will be easier after the fact than before the fact, 
unlike the last time.
    And let me underscore, too, what I said in that earlier 
intervention. Obviously, the Congress will need to know some 
numbers even though they are going to be estimates, because 
they are going to be dependent on assumptions, and whatever we 
send up here will be based on assumptions that will probably 
turn out within a couple of weeks not to be correct.
    But all of that is if we go to war. There is still some 
small chance that we won't go to war. We are at an extremely 
delicate point in everything that we are doing.
    And let me underscore it again: It is not just at the 
United Nations, we are working hard to try to get the U.N. to 
stand up to its responsibilities; it is also in putting 
together a coalition and getting a number of countries that are 
quite frightened of their own shadows, to put it mildly, and 
they are stepping up, though quietly, in a very bold way.
    And in some ways most important of all we are sending 
messages and signals to the people inside Iraq. This is part of 
our public diplomacy. And if you will forgive us for a few 
weeks, I think it is necessary to preserve what the diplomats 
call ambiguity about exactly where the numbers are. But 
obviously, the Congress is going to have to know sooner rather 
than later.
    Mr. Spratt. Thank you.
    Mr. Shays. Thank you.
    Mr. Thornberry, then Mr. Moran and then Doc Hastings.
    Mr. Thornberry. Mr. Secretary, I think that most people on 
this committee and most people in the country are willing to 
spend whatever is required to have a successful conclusion to 
Iraq, continuing to prosecute the war on terrorism, but I think 
we all also want to make sure that money is spent well.
    You were a little kinder than Secretary Rumsfeld has been. 
He said the Pentagon bureaucracy is like the old Soviet system, 
and he has promised to liberate DOD from institutional inertia.
    I guess I want to ask about some of these kind of little 
less sensational, but very important management-type reforms. 
One of the issues that affects this committee is the fact that 
you folks have to start working on a budget request to come 
before Congress about a year before it comes. Then it takes us 
about a year to pass it. And then, by the time you are spending 
the money, it is 2 to 3 years after you started putting that 
budget request together. And yet there are restrictions on how 
you can move money among accounts and spend it, and sometimes 
the world changes in 2 or 3 years.
    I guess I would like for you to elaborate somewhat on some 
of those management issues that you all are working on; and 
perhaps Mr. Zakheim can talk specifically about this, moving 
money around and the challenges that poses in a world that 
changes very quickly.
    Mr. Wolfowitz. I appreciate your asking that. It was a very 
important part of my testimony, and maybe if Congressman Shays 
had given me a little more time, I could have been as unkind as 
my boss. I mean, I have commented at times that we run the most 
efficient Stalinist system in the world. It is efficient by the 
standards of such centralized systems.
    But we need ability--for example, a budget in any business 
is a set of targets. It is a plan. No plan, as they say in the 
military, survives first contact with the enemy, and budgets 
don't survive contact with reality.
    When a business encounters changes, it moves money around. 
When we need to move money around, we are still living within 
antiquated limits currently in the procurement accounts. We 
need to go to eight different committees to get approval to 
move anything more than $20 million out of a $379 billion 
defense budget. That is just an invitation for the worst kind 
of micromanagement, not only up here, but among our 
proliferating staffs, to deal with things that none of you, 
none of us, are really going to have to look at.
    Congress has made enormous contributions to the management 
of the Defense Department, and I think it should be recognized. 
Go back--you can probably go back further--my memory goes back 
to the Polaris submarine, which I think would have died in its 
cradle if it had been up to DOD. It was forced through by this 
branch of the government.
    More recently, I think the success we have had with global 
positioning systems and with JDAMS is due in part to pressure 
from Congress insisting that these were programs that needed to 
be funded better than we were doing.
    I am not saying that all of the wisdom lies on one side of 
Pennsylvania Avenue, but it doesn't lie down in the 
capillaries, down in the weeds, where none of us, none of you, 
none of us are really going to have the time to look. At that 
level, we have got to get the right managers, empower them to 
run programs. When they are not running them right, as happened 
in a major DOD program recently, you fire them and you get new 
managers. But you don't try to have staffs run things. It just 
doesn't work.
    Dov, would you like to add to that?
    Mr. Zakheim. Yes, sir.
    Congressman, one of the difficulties we have, quite 
frankly, is that we have a budget that spends about $1 billion 
a day right now. We have the authority to move funds that would 
total 2 days' worth, $2 billion.
    Now, no business could survive that way. As the Deputy 
Secretary just said, budgets are simply estimates. We cannot 
manage cash that way.
    I know, for instance, that Congressman Shays has been very 
concerned about how we manage our cash. We have done a lot. We 
have brought down problem disbursements and we have addressed 
many other issues in a more direct way than in many years. But 
the fundamental problem of managing cash is that we simply 
cannot move funds around, and it creates all sorts of 
inefficiencies.
    I won't take up too much time, I will just give you one 
example. We are asking for 2 years to spend our operations and 
maintenance funds. Why? Because if you only have 1 year, as we 
do today, and there is an imbalance in the accounts, everybody 
wants to spend that money to get rid of it by the end the 
fiscal year. Now, that is nuts. We shouldn't be doing that.
    Mr. Shays. We are going to Mr. Moran, then Doc Hastings, 
then Ms. Hooley.
    Mr. Moran. Well, Mr. Under Secretary, you and the 
Comptroller are professionals. You know what you are doing, and 
we both know that you would not be proceeding with this war 
without having some estimate of the cost. But I think you are 
deliberately keeping us in the dark. We are finding out far 
more in the newspapers than we are from you in testimony.
    If you want to go into top secret, fine, do it. But we are 
the Budget Committee. We need to know what is going to be 
requested of us.
    There was, in fact, a meeting yesterday between the OMB 
Director and Secretary Rumsfeld and the President. We all know 
that. We don't know what was discussed. But the Turkish 
ambassador told me yesterday that there has been agreement on 
$14.5 billion--$6 billion directly, about $1-billion down 
payment, another $8.5 billion to come later. You could at least 
tell us what you are discussing.
    We talked with the Jordanian people. They have figures in 
mind. The Israelis have figures in mind; $12 billion has been 
cited for months--$4 billion directly and $8 billion in loans. 
Egypt is going to get money.
    We have to provide the money. We are being told now that 
there is no way that we are going to be told what it is going 
to cost until after you have begun military action. If you were 
on this side of the podium, you would be asking the same 
questions, and you would know that the Under Secretary and the 
Comptroller know far more than they are revealing.
    Now, you can respond to that if you want. I have got two 
other questions. But you know, we are not so naive as to think 
that you don't know more than you are revealing.
    With regard to Turkey, let me just make a point. You know 
the background in Turkey. I agree with you that Turkey is a 
terribly important ally, not just for its strategic location, 
but for all of the progress that they made there, their 
determination to stay secular, et cetera.
    But they think they are going to go into the northern part 
of Iraq, into the Kurdish zone. They say it is for humanitarian 
reasons; the Kurds feel it is anything but. And if we turn our 
backs on the Kurds, if we sell out the Kurds for the third or 
fourth time, it is wrong. And I trust that you are aware of 
that. I would like some assurance that we are not going to do 
that to the Kurds again.
    Now that is Turkey. I have got to speak up on two other 
quick questions too. If you don't want to address them now, we 
need them addressed for the record.
    We have been told by Secretary Rumsfeld that he is going to 
submit legislation calling for a brand new personnel system for 
DOD civilians. It is going to be basically the same personnel 
system that caused the Department of Homeland Security 
authorization to be held up for almost a year.
    You are going to take away the collective bargaining 
rights, et cetera, for civilian employees. I want to get some 
sense of what you have in mind for that new personnel system 
that is going to affect 600,000 civilian employees.
    And, secondly, you are in a unique position. You have 
people working side-by-side performing the exact same function, 
but under different forms of compensation.
    You are giving twice as much pay raise to uniformed 
personnel. You did that last year, you are proposing to do that 
again this year, as you are for civilian employees. I can't 
imagine that you are able to retain morale when you are doing 
that, when you are compensating one group twice as much as the 
other group who are performing exactly the same function.
    You have more civilian employees at DOD than in any other 
agency, and you are the one who is directly responsible for 
them.
    DOD already took the biggest hit under the reforming 
government initiative, over 100,000 jobs were eliminated; and 
we need to have some idea of what you plan in terms of not only 
retaining and recruiting the caliber of people that we need, 
instead of just castigating them publicly, because they are 
committed and they are doing a good job.
    And I would like to get some commitment from you that you 
are going to reward them properly, as though you were a CEO of 
a terribly important, well-functioning organization.
    Mr. Shays. Let me just step in. That was a 5-minute 
question with no time to answer. I am going to say that we have 
to decide whether we want all of the members to be able to 
participate.
    So, Mr. Secretary, I am going to ask you to answer one or 
two of those, and just leave those other charges unanswered, 
which a member can do. But you don't have 5 minutes to answer a 
5-minute question.
    So, you know, just please--I am sorry, but I hope members 
will give a question and time to answer.
    Mr. Moran. Mr. Shays, let me just say, this is terribly 
important. It is the biggest element in the entire budget 
resolution. And, you know, we have--to be limited to 5 minutes, 
I know that is at the Under Secretary's discretion, but it is 
not inappropriate to want answers to these questions.
    Mr. Shays. These are all extraordinarily important 
questions. But we have decided as a group, rather than just 
having five people or six people ask questions, that we will 
allow others to as well.
    I am going to, with all respect, just go to the next 
member. And the next member is----
    Mr. Wolfowitz. I will see if there is some duplication, I 
can try to work answers in.
    Mr. Shays [continuing]. Doc Hastings, and then Ms. Hooley 
and then Mr. Schrock.
    Mr. Hastings. Mr. Secretary, I am not going to take all of 
the time with my questions. So if you want to use some of my 
time to respond, I would be more happy.
    But I have to say, as one member, that certain budgetary 
issues are very important when we are in war. You mentioned 
that in your earlier statement, that we are in war. And I have 
to think back, what George Washington went through and what the 
Continental Congress had to do, wondering about the budget of 
the Revolutionary War that went on longer than they wanted.
    I have to think back to what Lincoln must have thought when 
the country divided. That war went on longer than what he had 
anticipated.
    But in the end, the support was there to fund both of those 
endeavors, thank goodness.
    And we are somewhat in that similar situation. So I wanted 
to just say that, because we are in a wartime situation, while 
budgetary issues are important, there certainly has to be some 
sort of flexibility if we are going to win. I think we intend 
to win.
    So with that, let me change--kind of change where I want to 
go or what I was talking about here.
    And, first of all, thank you for your efforts on the 
completion of the 767 effort as far as tankers for our Air 
Force. I know that is being worked on. I just urge you to 
continue to work to bring that to a final conclusion. I 
appreciate your efforts.
    You spent some time in your opening testimony talking about 
reorganizing the Defense Department in a variety of ways. And I 
want to focus on the new technology and perhaps newer players 
that could come in with new technology.
    You said you are going to reform the procurement. You said 
that several times in responses to questions of my colleagues. 
I would just like to simply say, can you give me a time line on 
that?
    And, first of all, are you going to have a process for new 
technologies, maybe perhaps smaller firms? It seems like all 
good ideas come from new ideas, new firms. Is there a time line 
on the reforms and specifically the procurement process as you 
go forward?
    Mr. Wolfowitz. I suppose like any process it is a 
continuing one. In fact, we have done a lot of reforms already.
    There was recently a major reform of just our acquisition 
regulations. I wish I could remember the numbers. But they cut 
it from a volume of about that thick down to about 54 pages, 
roughly. I will get that.
    But it was Pete Aldrich's work; it was impressive.
    I assume also that probably helps small contractors, 
because if you have got to bid on something and the price of 
entry is reading 2,000 pages of legal gobbledygook, you may go 
and do your business somewhere else.
    One of our big targets is, we are hoping, though, we are 
really still in the process of consulting not only with the 
Congress, but elsewhere, in the executive branch and with the 
President, to put together a package of major legislative 
initiatives.
    If I can answer you and Congressman Moran at the same time 
on at least one of his questions, one of the things we are 
looking at--and there has been no decision yet and we will be 
happy to brief any member of this committee that is interested 
on what things we are thinking about--is to get more 
flexibility, first of all, in how we hire civilians. Right now, 
it is such a burdensome and, in many ways, ludicrous process. 
No private company would do it the way that we do it through 
the civil service. It takes so long that good candidates are 
gone by the time you are able to make an offer to them, 
especially in a more competitive economy.
    One of the results of that is that we still have people in 
uniform doing jobs that civilians ought to do. Another result 
of it, I think, is, we probably use contractors a lot more than 
would be rational if you could actually get people on your 
professional payroll.
    And I want to emphasize too, as I said in my testimony, the 
civilians in the Department do magnificent work also. That is 
another reform we would like to work on, something that gives 
managers the flexibility to pay for good performance. We have 
had freedom from the Congress in a couple of places, the China 
Lake experiment notably, where I think some 30,000 people have 
been operating for quite a few years under a much more flexible 
pay system, and it has worked well. It not only gives people 
extra pay, but it also means that those people who don't 
perform and don't get the same increases often leave, and that 
boosts morale all around.
    These are things we are looking at. I think they can 
greatly improve our efficiency, greatly improve the way we 
spend the taxpayers' money, but they are not changes that we 
can make on our own. They obviously require agreement with the 
Congress, and we are in the process right now of consulting 
about them.
    Mr. Shays. Thank you.
    We will go to Ms. Hooley, then Mr. Schrock and then Mr. 
Moore.
    Ms. Hooley. Thank you, Mr. Chairman. Deputy Secretary 
Wolfowitz, thank you for joining us today about this budget. 
And let me tell you, before I get to my question, one of the 
things that I heard: that you actually know, or have a range of 
numbers for what the war is going to cost and reconstruction is 
going to cost.
    You are just not willing to tell us at this time?
    Mr. Wolfowitz. No. Can I correct that?
    What I am saying is, we can make many estimates. They are 
different, depending on what you assume about how long the war 
might last, how many munitions you are going to use, what the 
reconstruction requirements are afterwards.
    There is not a single number; that was my basic point. We 
don't know.
    Ms. Hooley. Now, wait a minute. If the President has been 
briefed on the numbers, you have indicated that you really 
don't want to--you want to keep it ambiguous until after there 
is some--the war starts. Then you will be able to tell us the 
numbers.
    I know there are really good people in the Department of 
Defense who have had lots of experience, and to not be able to 
give us a range--everybody understands circumstances are 
different, and when something happens you can say we didn't 
count on this happening; it is going to cost us this much more. 
But to not be able to give us, this is sort of a minimum and 
this is the top, you know, with everything going wrong, this is 
one that is going to cost us. To give us a range--I just think 
you can do better than that.
    Let me get on to the question that I have. We have--I have 
been going to a lot of mobilization ceremonies in Oregon for 
the National Guard and Reserves, and we have got them spread 
all over the Middle East. I am always amazed at how eager these 
people are to protect our freedom; and I, you know, appreciate 
their willingness to go into war and their families that are 
sending them off. I am very close to the Guard.
    I am deeply troubled by the administration's budget 
request. Based on what I have read, it appears that DOD is 
borrowing $1.5 billion a month from its active duty operations 
and personnel accounts to pay for the cost of the Reserves and 
National Guard in 2003. It is my understanding that Secretary 
of Defense Rumsfeld has testified that a supplemental 
appropriations will be required to pay for the activation and 
deployment of our Guard and Reserve units. Could you please 
explain to me why we are being forced to borrow $1.5 billion 
per month from a separate account to pay for the Guard and 
Reserve deployment and why don't we budget for these expenses 
when we know they are occurring?
    Also, I have a personal interest in many of these young 
soldiers. Can you assure me that the Guard and Reserve units 
will receive adequate funding for 2004? Can you identify where 
the funding will come from in the budget?
    Then the last question, very quickly, when are you going to 
be ready to go through an audit and get a clean financial 
statement?
    Mr. Wolfowitz. I will do the best I can in the time 
available.
    We have very good people who do cost estimates, and they 
depend on the assumptions you give them. There are even very 
legitimate issues about whether, for example, if you want to 
measure the cost of combat, whether the number of days, which 
is an old way of doing calculations, is in fact the appropriate 
measure in an era of precision guided munitions. It gets 
complicated, and some of it in fact gets classified. I think if 
I gave you a truly--a range that truly covered the range of 
possible numbers you would say, well, that is so wide a range 
it is not very helpful.
    Let me emphasize there will be an appropriate point when we 
will give you numbers and assumptions that go with the numbers, 
and the assumptions may probably prove not to be correct. We 
are not in a position to do that right now.
    On this issue about the $1.5 billion, I think what you are 
hearing is the estimate--I emphasize it is only an estimate--of 
what the ongoing operations in Afghanistan and elsewhere in the 
world are costing us in terms of operating expenses and extra 
people; and some chunk of that in fact is the money that we 
spend for the Guard and Reserve officers that we mobilize. We 
were able to stop borrowing, to use that phrase--we don't 
borrow, we call it cash flowing--when we got the extra $6 
billion out of the war reserve in the closing hours of the 
Appropriations Committee conference.
    At some point we--depending on how those numbers go--we may 
be back into having to cash flow and, therefore, coming back 
for more money. But this is one of those huge uncertainties. 
Even in an operation that has been ongoing now for 18 months 
and where would you think there is some predictability, we keep 
trying to find ways to push down the numbers of Guards and 
Reserve so that we don't have to mobilize people and pull them 
away from their families. We have had some success in doing 
that; and, as a result, some of our early estimates have proven 
to be too high.
    There is adequate funding for the Guard and the Reserve in 
the budget, and there will be adequate funding for--one way or 
another--for people we call up that are serving their country 
enormously well, and they certainly shouldn't have to pay for 
it any way out of their pocket.
    Mr. Shays. You did pretty well answering about 12 
questions. Excuse me. It wasn't 12, but a number.
    We are going to go to Mr. Schrock and then Mr. Moore if he 
is here. If not, it will be Mr. Edwards and Mr. Wicker.
    Mr. Schrock. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary, Dr. Zakheim, for being here. I 
will be very quick.
    Of all the things you said in here I think the most 
poignant was we need legislative relief probably in more ways 
than we realized before we came in here. But you need relief, 
and that is something we need to focus on.
    No. 1, the budget puts $98.6 billion in paying the 
benefits, which is an increase of a little more than 5.5 
percent; and it funds a raise. The pay raise is anywhere from 2 
percent to 6.5. The budget also reduces out-of-pocket expenses 
for moving from 75 to 35 percent for private housing, dropping 
to 0 pecent in 2005. This is a huge investment for the 
taxpayer.
    No. 1, is it accomplishing what you want? No. 2, are we 
keeping the best and brightest? And No. 3, do you think we need 
a draft?
    Let me add another thing here that I was asked to ask, and 
it is a good one because I am interested in this. This budget 
increase of Special Operation Forces by 47 percent--don't we 
wish--47 percent for a total of $4.52 billion. Can you give us 
what your vision would be for an enhanced role for the Special 
Operation Forces?
    Mr. Wolfowitz. Let me try quickly.
    First of all, I think the improvements we are making in 
covering base allowance for housing adequately and getting 
people out of inadequate housing are having hugely positive 
effects on morale. I hear about that from pretty much every 
commander I visit, and you probably hear it down in your 
district a lot. I think some of those things that indicate how 
you care about people and how you are treating people have a 
value that exceeds what a straight cash payment might have 
done.
    The--I am sorry. I should have taken a note.
    Mr. Schrock. Are we keeping the best and brightest?
    Mr. Wolfowitz. Oh, yes. I am sorry. I think we have made 
some great advances in the last few years with a lot of support 
from the Congress in being able to correct some of the gap that 
existed between those absolutely key middle enlisted officer 
ranks where some of our most valuable people are and where the 
private sector was bidding them away fiercely. Those are people 
who, by most measures I have seen of employment compensation 
equivalents, were hurting and the kinds of targeted pay raises 
the Congress has allowed us to apply have made a very big 
difference.
    Mr. Schrock. Do we need a draft?
    Mr. Wolfowitz. Right. You know, the short answer is, no, we 
don't. We have wonderful people who are volunteering. If we 
drafted everybody, we wouldn't know what to do with them, 
frankly. The numbers would just be beyond belief.
    You know, I will say one thing, and I think I am speaking 
for everyone in uniform in saying this. I am not in uniform, 
but anytime anybody makes the mistake of thanking me for 
working for the Defense Department I say that it goes the other 
way. At this time of national emergency to be able to feel that 
you are working on the problems that matter most to the country 
is of enormous satisfaction, and I think the men and women in 
uniform are volunteering because they feel good to be able to 
do something for the country. The more we can find ways for 
people not in uniform to help the country the better. But we 
don't need several million people under arms.
    Mr. Schrock. Special Operations Forces.
    Mr. Wolfowitz. And Special Operations Forces. We have taken 
a very broad look at thinking--a snapshot history. We had the 
disaster of so-called ``Desert One'' in 1980, the failed 
hostage rescue mission in Iraq--in Iran, excuse me. We learned 
a lot of lessons from that. We developed a Joint Special 
Operations Command. We developed the Delta Force. We developed 
the incredible ability to go to a specific place and rescue 
people.
    The war on terrorism has demonstrated that we need a 
different--an additional kind of capability that--not to go to 
just one place where you have a lot of time to prepare and plan 
with one specific force that is just trained to the edge for 
that, but the ability to respond on a global scale, to respond 
not within even a few days but sometimes within 30 minutes, to 
be able to go after those most critical terrorist targets if 
and when they pop up. I would say that is the short summary of 
how we are organizing. There are a lot of political and 
diplomatic and other considerations that go with that as well, 
but we definitely need our special operators in a way we have 
never imagined them before September 11.
    Mr. Shays. I think we are going to go to Mr. Edwards and 
then Mr. Wicker. Then if Mr. Scott isn't here, it will be Ms. 
Capps.
    Mr. Edwards. Secretary Wolfowitz, I have twice supported 
authorization of force against Iraq, and I applaud this Bush 
administration, and you, for fighting to increase defense 
spending that I think is necessary for our national security. 
But I was appalled at the recent administration proposal to cut 
$141 million from the important Impact Aid military education 
program.
    In my district, which includes Fort Hood, as you know, an 
installation where 12,500 troops have already been given orders 
to ship out any day now to the Iraqi theater, and which might 
have 30,000 soldiers leaving if 1st Cav Division is deploying 
that area, $31 million of funds would be cut from two public 
schools that educate the large majority of those soldiers' 
children.
    Frankly, last week, as I spent 3 to 4 days there at Fort 
Hood talking to the soldiers about to be deployed, the wives, 
the spouses, husband or wife, the children, frankly, I had a 
hard time explaining to the children that, as your mom or dad 
is getting on that airplane to go fight for our country, 
perhaps putting their life on the line, the administration is 
saying it is OK to be cutting the children's education funds 
back at home. And these cuts would be dramatic. Massive teacher 
layoffs, many educational programs would have to be reduced.
    Now, in fairness, you were not part of putting together 
that Impact Aid request. It came, I assume, either out of the 
Department of Education or OMB or collusion between the two of 
them. But while you didn't create the problem, I know you 
understand as much or more than anyone in this room that in a 
time of war we need high military morale. And our soldiers will 
have enough to worry about if they are fighting in Iraq. They 
shouldn't have to be--it would be immoral to have them worrying 
about their children's education back at home.
    My question to you, sir, would you be willing to use your 
influence to try to put this proposed cut--dramatic cut in 
Impact Aid to rest before we commence a possible war with Iraq, 
not after? We don't need to let this morale problem fester for 
the next 6 to 9 months. I think it could be devastating to 
morale. In fact, I think this just would cause a lot of our 
soilders to think that our country has a lot of gall to ask 
them to fight for us while we are not willing to educate their 
children back home.
    Any thoughts on that? Can you help us on that?
    Mr. Wolfowitz. As you correctly pointed out, Congressman, 
it is in a different department. I guess my first reaction is 
to say, absolutely, the morale of our families is a critical 
thing, and we need to think about it as we go to war. My second 
thought is, I know how hard it is balancing the priorities in 
the Defense Department with what some people think is a large 
but we don't think a large increase. The other departments are 
facing that challenge with more or less flat funding levels. So 
I don't know what the Department of Education had to balance.
    I think it is fair, and I don't want to go any further than 
that, for me to at least undertake to talk to them and see if 
they did think about that.
    Mr. Edwards. Well, I hope you would; and I hope you will do 
so aggressively. Because, while the Department of Education 
isn't under your direct jurisdiction, you are part of the 
leadership of this administration that the American people are 
entrusting to carry out this possible military conflict in 
Iraq. I think it has a direct impact on the morale of our 
soldiers.
    I can tell you that, having met with many of them, I think 
it is morally wrong to send soldiers and servicemen and women 
to war while we are cutting their education funds back home. I 
certainly couldn't look them in the face and say we could 
propose a $700-billion tax cut for people sitting here safely 
at home over the next year or two, while they are being asked 
to fight for our country, but yet we can't afford to educate 
their children. I would urge you to take whatever time you 
could to, during a very busy time for you, to pursue that.
    My final question would be this, if we have time to answer 
it. Given this administrations request for a $700-billion tax 
cut, does the Bush administration still oppose full funding of 
concurrent receipt for military retirees?
    Mr. Wolfowitz. The short answer is yes, and it is a long 
and difficult issue.
    Mr. Shays. We will have you give him the long answer later, 
OK?
    Mr. Wolfowitz. OK.
    Mr. Shays. I am sorry. We are going to go----
    Mr. Wolfowitz. Can I just say because at the end of the day 
it comes out of things that we need for our active duty people.
    Mr. Shays. Mr. Wicker, then Ms. Capps and then Mr. Putnam, 
if Mr. Barrett isn't here.
    Mr. Wicker. Thank you, Mr. Chairman.
    Dr. Wolfowitz, I want to try to squeeze in two questions.
    First of all, there is no question we are making 
significant increases in the defense budget as a result of our 
security needs. Indeed, out of the discretionary spending, 
defense is well over half of that figure. You testified in your 
prepared statement that 45 percent of the defense budget goes 
to cover personnel costs for our men and women, and I am sure 
that that is a proper amount.
    My first question is this. As larger increases go to 
personnel and operations, there is a concern that the 
percentage of the defense spending year after year for research 
and for procurement appears to be shrinking. Would you comment 
on the long-term implications of this pattern?
    Mr. Wolfowitz. I don't think--I think we are in fact 
bringing up overall our investment accounts. There is some 
debate about the S&T portion of that. But when we say 
investments accounts, we mean science and technology, research 
and development and procurement; and we have been bringing up 
those numbers not as fast as we would like because of the 
considerations you mention about the cost of people and the 
cost of readiness. But we have been bringing them up; and I 
think, by making some hard decisions, we have been able to move 
some of that money in the places where it is better needed.
    The Navy, for example, this year is retiring several quite 
usable surface ships early in order to save operating costs to 
invest in the Navy in the future. I think that was absolutely 
sound judgment. But we have to make some of those kinds of 
choices. Some of these numbers shift around because quite a few 
of our programs, especially tactical aircraft programs, were 
in--have been in R&D for a long time. The F-22 is just entering 
the procurement phase. The Joint Strike Fighter is still in the 
R&D phase, but it will soon be in the procurement phase. So you 
would expect money to shift between those accounts.
    But I would say overall we are increasing the investment 
accounts. Would we look to increase them faster? Yes. But I 
think we made the right set of decisions in balancing them 
among priorities.
    Mr. Wicker. Alright. Well, let me then shift to a question 
about Reserves. I know we have already talked about this in 
this hearing, but my concern is the overdeployment or the 
overuse of our Reserve forces. You and I have had a 
conversation earlier about this. And I agree with Mrs. Hooley. 
It is just amazing the enthusiasm that we see at these 
deployment ceremonies. But when you see units coming home from 
an 18-month deployment and then having to turn right around and 
go back again, I just wonder if we are going to have to look 
down the road at increasing our active duty force even more 
than you have projected so that people will be willing to stay 
in the Reserve for that occasional call-up that we have sort of 
been facing over time.
    Mr. Wolfowitz. Two comments. No. 1, one of the reasons we 
are making such a strong push to have more flexibility to hire 
civilians and to make better use of the civilian work force is 
our estimate that we have some 300,000 people in uniform who 
could be--who are basically performing civilian functions. And 
before we start adding to end strength, which is extremely 
expensive, I think we ought to look at whether more of that 
could be provided from the civilian side.
    The second point to make is that I think some of the worse 
stresses in the Reserves come from those units. We developed 
this euphemism in the Pentagon called low-density, high-demand, 
which Rumsfeld says that just means something we didn't buy 
enough of; and one of the things was a whole lot of units that 
come out of Reserves. So there is no other place to go for 
them, and we need to fix that. We need to have the right kind 
of density proportional demand, and I think we really need to 
rethink about some of these functions that were put largely or 
entirely in the Reserve forces.
    Mr. Shays. Thank you very much, Mr. Secretary.
    We will go to Ms. Capps, then Mr. Putnam; and I think, Mr. 
Ford, I might have skipped you. I think you are next, and then 
it will be Mr. Emanuel after that on your side.
    So, Ms. Capps, you have the floor.
    Mrs. Capps. Thank you.
    Mr. Secretary, I wish to turn to the conflict between 
Israel and the Palestinians, if I may. I strongly believe that 
U.S. concerted efforts to resolve the Israeli-Palestinian 
conflict today would help build international support for our 
efforts to disarm Iraq and to fight global terrorism. The 
biggest obstacle to peace is Palestinian terrorism. All forms 
of terrorism must cease once and for all.
    Another obstacle is Israeli settlement policy. The West 
Bank and Gaza lands given over to settlements make it more and 
more difficult to envision President Bush's vision which he 
articulated again last night, and I quote: ``Two states, Israel 
and Palestine, living side-by-side in peace.''
    Settlements are not only a political issue, but a 
tremendous drag on the Israeli economy and military. Last 
night, the President said very clearly settlement activity in 
the occupied territories must end. Last month, David Ignatius 
of the Washington Post reported that you favor, ``concrete 
measures'' such as dealing with Israel settlements. So I would 
like you to articulate how you think the United States can 
implement the President's desire to see a halt in settlements.
    Specifically, let me ask about one such concrete measure. 
What about linking settlement policy to the loan guarantees 
that Israel has requested from us?
    Now I am likely to support Israel's request for a 
substantial amount of U.S.-backed loan guarantees and 
supplementary military aid. Israel's dire economic straits and 
security challenges warrant this assistance. There is a 
proposal circulating in Congress to pre-condition the loan 
guarantees on an immediate credible freeze of all settlements. 
Mr. Secretary, can you just give me your views on this 
proposal? Does the Bush administration support an immediate 
settlements freeze and how does the President plan to make it 
clear to the Sharon government that settlements must stop?
    Thank you.
    Mr. Wolfowitz. Did she run out of her time, I hope?
    Mrs. Capps. You wish.
    Mr. Wolfowitz. Because, clearly, these are questions--I am 
sorry to cop a plea here. But these are clearly questions that 
the State Department has to answer. Their lives are difficult 
enough without people like me complicating them.
    But as you correctly said before you started to mention 
them, I was going to answer by quoting the President. He was 
quite clear last night. That was a very important statement. 
And he also said, and I don't--you made the point which many 
people make. It would be easier to deal with Iraq if we could 
settle the Arab-Israeli conflict first. With all respect, we 
don't have--I mean, I don't know how long that would take, but 
we certainly don't have that kind of time.
    Mrs. Capps. But, Mr. Secretary----
    Mr. Wolfowitz. Let me--you can use up the time.
    Mrs. Capps. No. Go ahead.
    Mr. Wolfowitz. OK. The comment works in reverse equally. I 
have always said progress on either one of these issues can 
help on the other. We are on the verge one way or another, 
peacefully still, if possible, or by force, if necessary, of 
getting rid of Saddam Hussein's weapons of mass terror. And if 
we get rid of the whole regime, think about what the impact of 
that is going to be on the Arab-Israeli peace process. It is 
not an accident at all that two of the biggest breakthroughs we 
have made in the last 50 years in negotiations between Arabs 
and Israelis happened after Saddam Hussein's defeat in 1991. It 
was right after that that we were able to get Arabs and 
Israelis sitting down face to face in Madrid for the first time 
ever, the first time that anyone except the Egyptians had met 
with the Israelis.
    It is not an accident. When Anwar Saddat made his brave 
trip to Jerusalem 25 years ago, it was Saddam Hussein who 
organized the Baghdad block to oppose him. With Saddam Hussein 
out of the picture, it will be a much better atmosphere for 
peace and a much better atmosphere to consider the kinds of 
issues that you are talking about. But, hopefully, we might 
come to some of them in a voluntary way, instead of necessarily 
by pressure.
    Mrs. Capps. But you beg my question and I think you sell 
yourself short. Because you have been a point person for the 
administration on Israeli-Palestinian conflicts, and you have 
made public statements.
    Mr. Wolfowitz. No, I haven't. I am sorry.
    Mrs. Capps. Well, I have watched your statements, and they 
have been very effective. It is clear that as we handle the 
Israeli request for aid, much as we negotiated with Turkey last 
week, this is directly related, as you mentioned, to our policy 
in Iraq. You are going from the back to the front. I want to 
start from the front and go to the back, and I would appreciate 
your personal views on this matter.
    Mr. Wolfowitz. I am not allowed personal views. But let me 
give you views that actually speak for the administration that 
are my deeply held personal views.
    I have spoken quite a few times, including I think near 
your district in Monterrey or maybe it is in your district.
    Mrs. Capps. North, that is close though.
    Mr. Wolfowitz. When I talk about bridging the dangerous gap 
with the Muslim world--for 3 years, I was the American 
ambassador to Indonesia, which has 200 million Muslims, more 
than any other country in the world. And I think fighting the 
war on terrorism, as the President said, is not only about 
killing terrorists. It is about building a just and peaceful 
world beyond the war on terror.
    There is simply no question that the ongoing, continuing 
violence between Israelis and Palestinians is one of the 
cancers of the Middle East. It is unquestionably a burden on 
our policy. You correctly said terrorism is a major part of the 
problem. I think settlements are also a problem, as the 
President said; and we have got to address both.
    Mr. Shays. Thank you, Mr. Secretary.
    We are going to go to Mr. Putnam, then Mr. Ford and then 
Mr. Hensarling.
    Mr. Putnam. Thank you, Mr. Chairman.
    Mr. Secretary, I have--I share Mr. Wicker's concerns about 
our continued investment in research and development. The 
Pentagon has given us some tremendous innovations that allow us 
to maintain our battlefield superiority because of investments 
that were made decades ago, so it is important that we continue 
that.
    By the nature of your high-risk research or the investments 
in that high-risk research, there will be some gray areas. 
There will be some pushing of the envelope by its very nature. 
And the Senate has expressed some concerns over our work on 
data mining. While I don't necessarily share those concerns I 
am curious about your thoughts on our oversight of high-risk 
research and whatever cost benefits can be applied to that type 
of high-level, questionable, high-risk type work.
    Mr. Wolfowitz. OK. I mean, there are many kinds of risks. 
You know, there is the risk that goes into space exploration. 
We have become totally too risk adverse, I think, in a lot of 
our technology developments, to the point where things take 
much longer, become much more expensive and we cancel things 
because one test went wrong. We would never have had many of 
the most available programs we have if we did that. But I have 
a feeling when you were talking about high risk and you 
mentioned data mining that you are most concerned about a 
particular project that some people think is going to invade 
American civil liberties.
    Let me be very, very clear. The project that we have in the 
Defense Advanced Research Project Agency on information 
awareness is not something that goes and procures data from 
anywhere. There is an impression that has been created in the 
press that this is a project to go and secure information on 
people's bank accounts or their credit card accounts or things 
of that kind. Those are activities that can only be done under 
very strict authorities by the Congress, either by the Justice 
Department and appropriate Justice authorities in the case--in 
domestic cases or, where it is overseas, by the CIA.
    We don't do it. The Defense Advanced Research Project 
Agency doesn't do it. At least--let me be more specific--the 
Defense Advanced Research Project Agency doesn't do it. We have 
intelligence agencies in DOD, obviously. The project that has 
gotten so much attention and controversy is to develop the kind 
of software that could be used by people who have the legal 
authority to look at that kind of data and to make those kinds 
of links. It is not data mining, therefore, in the sense of 
going out and securing data. It is a kind of data pattern 
recognition that allows people who have a data base, for 
example, collected by intelligence that puts together dirty 
telephone numbers of lots of terrorists.
    It is amazing how complicated it gets and how quickly. But 
if you stop and think about it, if you have the ability and a 
large mass of data to recognize that some bad guy has phoned 
somebody, who phoned somebody, who phoned somebody, who phoned 
somebody who has a relative, who phoned somebody else who is 
another bad guy, suddenly, wow, you have got two bad guys 
connected in a way that never really phoned each other. It is 
that kind of pattern in large masses of data that require new 
computing tools, and that is what--and that is only what the 
Defense Advanced Research Project Agency is working on.
    And let's be clear, too--I mean, we are fighting a war on 
terrorism in order to protect the civil liberties that we love 
and cherish in this country; and we do not want to, in the 
course of fighting terrorism, destroy those civil liberties. 
But it is also the case I think, that if we don't aggressively 
pursue terrorists, and end up, as a result, with some kind of 
catastrophic attack on the United States, that will be a much 
greater threat to civil liberties because people will be 
clamoring and saying, why indulge this kind of thing if you 
don't have to?
    I mean, just as my friend Jim Woolsey sometimes points 
out--just think about it--after the attack on Pearl Harbor, it 
was three of the great American civil libertarians--Justice 
Hugo Black; Governor, later Chief Justice, of California Earl 
Warren; and President Franklin Roosevelt--every one of them 
with reputations for civil liberties, who agreed to put 
Japanese in concentration camps.
    When you get a shock afterwards--I mean, I think we have 
been remarkably intelligent and calm as a country in reaction 
to September 11. I hope we can preserve that calm if something 
worse happens. But it is incredibly important if you want to 
protect civil liberties to prevent catastrophic terrorist 
attacks.
    Mr. Putnam. I am glad you had an opportunity to respond to 
that on the record because I was disappointed that the Senate 
slipped that into the omnibus. I think it is the DNA technology 
of the 21st century. It is something that people will take some 
time to get comfortable with, but it is a necessary law 
enforcement tool, and I am glad you had the opportunity to 
expand your vision for that.
    Mr. Shays. Thank the gentleman.
    Mr. Wolfowitz. Thank you for the question.
    Mr. Shays. We go to Mr. Ford and then Mr. Hensarling and 
then Mr. Emanuel.
    Mr. Ford. Thank you, Mr. Chairman. I will be brief.
    Thank you, Secretary Wolfowitz, for being here. A couple of 
questions. I know some of them have been asked, and I don't 
know if I heard the answers altogether.
    This coalition that we are building around the globe and 
particularly our efforts in Turkey, is the amount that they are 
asking for, is it $15 billion? Is that what it looks like the 
deal will end up being to gain access to their bases or access 
to their soil?
    Mr. Wolfowitz. No, although one of the things we are 
discussing with them is taking some of the money that we were 
prepared to provide in cash and enabling----
    Mr. Ford. What is the amount, Mr. Wolfowitz? I know our 
time is short.
    Mr. Wolfowitz. Well, we are still negotiating. It is in the 
range of--I mean, it is basically--I am hesitant about what is 
comfortable to say in public here. I think the press reports 
say it is $6 billion.
    Mr. Ford. It is the people's money, so we might as well say 
it publicly.
    Mr. Wolfowitz. Well, I know, but you are in the middle of a 
negotiation. That is the difficulty. The point is that we are--
it is roughly $6 billion. But, as we pointed out to the Turks, 
there are many other benefits that will come not only from the 
kind of direct expenditures that our troops will make in 
Turkey. But most importantly of all the big benefit to Turkey 
is not something we are paying for, not something we are paying 
the Turks for, it is something we are accomplishing by 
liberating Iraq, by ending the economic sanctions. Turkey 
stands to gain far more than the amounts that we are----
    Mr. Ford. Does that include the loan guarantees, too, this 
$6 billion figure?
    Mr. Wolfowitz. The $6 billion would be part of securing the 
loans that get you to some of those larger numbers, and I think 
the $15 billion you may have heard is based on borrowing 
against that cash.
    Mr. Ford. I read this morning that we now have a similar 
arrangement working with Saudi Arabia. Is there a dollar amount 
attached to that one as well?
    Mr. Wolfowitz. I am not aware of us paying the Saudis 
anything. They are helping us in many ways, and they can afford 
to.
    Mr. Ford. Let me ask you this, Mr. Chairman. I don't want 
to ask this to be critical. It just appears--I know it has been 
said over and over again--but this is becoming more of a 
coalition of people bought and paid for.
    Mr. Wolfowitz. That is not true.
    Mr. Ford. Well, there is certainly--I appreciate how 
emphatic you and the doctor are in denying that, but there is--
that perception certainly exists, and at least in my little 
district in Memphis people are asking the question.
    Mr. Wolfowitz. I would love to have a chance to respond, if 
I may.
    Mr. Ford. Sure, but let me finish my question. I hope that 
that is not the case, and I hope that we can indeed move beyond 
that. I would love to hear you answer that question as well one 
last one before we run out of time.
    In my district, the 164th Airlift Wing will play a role on 
the Reserve and Guard unit side. One of the challenges that we 
face--I saw in the President's budget there is a proposal for a 
20 percent cut for the C-17 aircraft. The C-917 will replace 
the C-5, as you well know--and this is all new to me and even 
new to many in my district--the C-5, which in turn will be used 
to replace the four-decades-old C-141, which is currently used 
by the 164th in my district. I would hope as you all think 
about your expenditures and where you allocate dollars at least 
be aware that the point has been made over and over again here 
on the committee about our Reserve units and the antiquated 
equipment that many of them are using. In light of all the 
other things that are mentioned here, the new spending and tax 
cuts and so forth, I would hope that you all would bear that in 
mind as you ask for monies in the supplemental and even as you 
look at the budget you presented to this Congress and make 
changes there.
    But I would love to hear your response to this perception 
which you and the doctor emphatically deny. But I can--as much 
respect as I have for the administration and I have for you, 
Dr. Wolfowitz, I am not going to accept you telling me what 
people in my district are saying. You can tell me that their 
impression is wrong. But to suggest that I am wrong in what I 
hear----
    Mr. Wolfowitz. I didn't mean to imply that for a minute. I 
am sorry. No, no. I understand where they might have gotten 
that impression. But, no, I am happy to have a chance to 
correct it.
    Mr. Ford. Sure.
    Mr. Wolfowitz. There are two countries that get a lot of 
attention, Jordan and Turkey, that are hurting badly and are 
going to hurt worse if there is a conflict. And they need 
economic support. There is no question about that. It is not a 
matter of being bought and paid for. It is a matter of 
cushioning them from some of the effects.
    On the other hand, to name one small country that stood up 
early, Qatar, the small Persian Gulf emirate, is not only 
giving us enormous basing rights but they are paying a very 
large fraction of the cost of expanding those bases for 
American forces.
    The Gulf Cooperation Council countries who have been very 
careful because these are countries whose survival could be 
threatened if Saddam Hussein is around 2 or 3 years from now to 
punish them have stepped up and said if there is a conflict 
they will come to the defense of Kuwait. They said that a 
little while ago. It is a hugely importantly step.
    Mr. Ford. We couldn't convince Turkey that they had the 
same interest as Qatar?
    I know. Yes, sir, Mr. Chairman. I thank you.
    Mr. Shays. Yes, sir.
    Mr. Wolfowitz. There are some 40-plus countries that have 
offered us basing rights or overflight rights or troops and----
    Mr. Shays. Maybe someone from our side of the aisle will 
give you a chance to answer this question. Why don't we do 
that, because this is an important question.
    Right now, it is Mr. Hensarling, it is Mr. Emanuel and Ms. 
Brown-Waite. And, Mr. Hensarling, maybe you could give him some 
opportunity to answer that question as well, if that is 
possible.
    Mr. Hensarling. Mr. Secretary, continue on.
    Mr. Shays. Is that alright, sir?
    Mr. Hensarling. Yes.
    Mr. Wolfowitz. Thank you.
    There are some 40-plus countries that have stepped up to 
the plate here.
    Most recently, I believe the Prime Minister of Latvia, who 
came out openly in our support, got a lot of attention a few 
weeks ago when first some eight heads of NATO governments and 
then joined later by 10 candidate countries came out openly in 
opposition to the French and German position. President Chirac 
of France told them they ought to shut up and behave themselves 
like good East Europeans, and that produced a wonderful 
reaction from those people. They are doing it because they 
believe in it. Believe me, we aren't offering them anything.
    If we want to talk about who is bought and paid for, it 
would be worth looking at who has big financial commercial 
interests in Saddam Hussein's regime, who are the big 
importers, who are the big oil developers.
    I get so tired of hearing chants of ``no war for oil.'' if 
we have to go to war--and I still hope we don't have to go to 
war--this will not be a war for oil. If we wanted Iraq's oil we 
could have had it years ago by dropping all the sanctions on 
Iraq. It is because we are concerned about a threat to the 
United States, and if we go to war it will be to eliminate that 
threat, and in the process we will be liberating Iraqi people.
    It is not accidental that, as she was quoted in the 
newspaper the other day, Angela Merkle, who is a leading figure 
in the German opposition who herself lived in East Germany for 
many years, is a physicist, said to my secretary, well, I am 
from the ``old'' Europe, but I have some of the ``new'' Europe 
in me. She meant by that the new Europe, that is, those people 
who were newly liberated from Communist tyranny and understood 
the importance of liberation.
    It is kind of ironic that you have all of these countries--
Latvia, Estonia, Poland, Bulgaria, Romania--who know what it is 
like to be under a dictator and because of that are stepping up 
to support the liberation of another people; and it is frankly 
disappointing that France and Germany, who had that experience 
themselves, seem to have other ideas in mind.
    Mr. Hensarling. Mr. Secretary, if I could go back and 
refocus on some dollars and cents here. I certainly personally 
believe there is nothing more important our Federal government 
does than protect us and our liberties from all enemies, 
foreign and domestic. But that doesn't mean that any government 
entity can't be more efficient with the use of dollars. In your 
own testimony you speak about the need to be more efficient in 
business practices. You alluded to it in some earlier 
questioning, but I want to make sure that it is very clear to 
myself and the rest of the committee that, in trying to run a 
more efficient Pentagon, what is it that you would need from 
this particular Congress that you do not have now that would 
allow you to run a more efficient and more productive 
operation?
    Mr. Wolfowitz. Let me sketch it in general terms. As we 
have been up around consulting, people say the devil is in the 
details. Show me the details. We don't have the details until 
we have done this kind of consultation and get some idea from 
you and your colleagues what is feasible, some idea from the 
President of what he is willing to try to get.
    But there are three principal areas. One is personnel, more 
flexibility in hiring, more flexibility to reward people for 
performance, more flexibility to manage some of the slightly 
odd restrictions we have on--we would like to be able to keep 
good performers in the senior ranks in the military in their 
positions longer. We think they go--circulate through too fast.
    Then, on the other hand, we think there are instances where 
people are forced to hang on for an unnecessary year or two 
when they ought to retire because of rules. We would like that 
kind of flexibility.
    Secondly, flexibility in the procurement system from a 
whole range of issues. Some of them are enormously 
controversial and may not be doable. But we are looking for 
ways to deal with them. Some of them are self-inflicted by us 
but in many cases now reinforced by law.
    The third area is some flexibility, not very much, in the 
application of environmental laws or, more importantly, it is 
not their current application but to protect us from what we 
think would be excessive extension of things like considering 
every use of an artillery piece on a military base as an act of 
waste dumping, which is a potential threat to our ability to 
train.
    Those are the three main areas.
    Mr. Hensarling. Thank you, Mr. Secretary.
    Mr. Shays. Thank you, Mr. Secretary, for really trying to 
cooperate on these 5 minutes here. You have been awesome.
    Going to Mr. Emanuel, Mr. Brown-Waite--excuse me, Ms. 
Brown-Waite and Mr. Scott.
    Mr. Emanuel. One statement about Turkey and then another 
question about your comments about Saudi Arabia, our troops 
based there as an impetus to al Qaeda.
    You know, in the very week that we negotiated with Turkey, 
the administration also told the Governors there wasn't any 
more money for education and health care. I appreciate this is 
aid being handled out of the State Department, not so much your 
area, but just so the facts are given, that I contacted CRS. 
They expect us to give about $24 billion in loans and grants, 
that you--we pay $11 billion in Pell grants now--so that would 
be, basically, double the size of Pell grants for what we are 
giving Turkey, as well as you could probably provide basic 
health care to all the working people who have no health 
insurance for over a 5-year period for $24 billion.
    So I would recommend to the Governors that they may want to 
hire the person that has been negotiating for Turkey on their 
behalf, because he has done a very good job.
    I understand what my colleague hears from Memphis, because 
that is what I am hearing at home. Whether it is true or not 
true, the perception is our negotiators haven't done a very 
good job as it relates to dealing with Turkey. I do think there 
is a serious matter as it relates to making sure that we have 
a, if we have a war, a second front here.
    I will tell you, though, for folks that are dealing with 
issues of education, health care, homeland security, what we 
are doing for Turkey vis-a-vis what we are telling our folks 
back home that we have, the two stories don't exactly gibe, 
especially in the week in which you are negotiating with Turkey 
and maybe improving the offer, telling our Governors who are 
dealing with police, firefighters, teachers and health care 
providers, we don't have the resources--just so you know what 
we are hearing and you feel the same sense of what we are 
hearing from the people who pay the bill.
    And your comments as it relates to troops in Saudi Arabia 
post the gulf war, that that was the impetus behind al Qaeda, 
which is true, my big worry about going into this effort is 
that if we don't broaden the coalition beyond what is perceived 
as an American-British-led effort, perceived American-British-
led effort, and we have 100,000-plus U.S. troops practicing 
basically community policing in Baghdad for over a year, that 
the very thing we are trying to snuff out, which is terrorism 
as well as change the region, is exactly the opposite effect 
that we will have.
    My concern is that if we go in there and occupy, given the 
size of the force of the American--the size of the force 
without other allies, without the perception of a broader 
coalition, that the very terrorism we are trying to hit will 
end up being an impetus for it, just like the U.S. troops in 
Saudi Arabia were for al Qaeda; and, B, the type of change we 
are trying to bring to the region, which I think is true and 
will have that impact, it will be set back because it doesn't 
seem like the coalition is broader and deeper, as you just 
mentioned the 40 countries.
    Mr. Wolfowitz. Let me be quick.
    First--on the first point, I hope our listeners in Turkey 
picked up your comments, because the President told them that 
what we have put on the table is all we can do. We have looked 
at some ways to make it more usable for the Turks, but that--
they think their negotiators didn't do very well.
    I have to tell you that that is what the big controversy is 
in their parliament. But we are not trying to bargain. We are 
trying to cover legitimate costs.
    On this other subject, you use the phrase ``American-
British-led coalition.'' Well, it was an American-British-led 
coalition in the first gulf war. It was an American-British-led 
coalition in the Kosovo war. There have to be some leaders. We 
are not even in the sole position as leader. Tony Blair has 
been heroic.
    But I said there are more than 40 countries that are going 
to participate. Many of them are Arab countries who do not want 
to be remembered by a Saddam who survives as somebody who spoke 
out against Saddam. Therefore, until they are absolutely sure 
where we are going, they are going to be cautious.
    But I will tell you, in the aftermath, I think if you want 
a glimpse of what it is going to be like, I would urge you to 
do what I did a week ago Sunday and go to Dearborn, MI, where 
the largest Iraqi-American community in this country lives, 
some 400,000 I was told. There were 300 to 400 people that 
turned up on a snowy Sunday on 4 days' notice to talk to me.
    The two things that were overwhelming was, first, one 
personal tragedy after another. And later they said, it is 
worse than we would say in public because we are afraid; we are 
still afraid here living in the United States that he may 
assassinate us. So, many people didn't want to talk; and nobody 
wanted to take talk openly about the widespread use of rape as 
an instrument of terror and yet was overpowering.
    The second thing, and I--these are almost all people who 
have families back in Baghdad. One of them even told of getting 
a call from a friend of his who is a son of a minister in the 
Iraqi Government. They are just unanimous in their hope that we 
will help to liberate Iraq. These are Arabs, 23 million of the 
most educated people in the Arab world, who are going to 
welcome us as liberators. When that message gets out the whole 
Arab world, it is going to be powerful counter to Osama bin 
Laden.
    The notion that we are going to earn more enemies by going 
in and getting rid of what every Arab knows is one of the worst 
tyrants--and they have many governing them--is just nonsense. 
To the contrary, we will have millions of people witnessing on 
our behalf; and we will finally be able to stop bombing Iraq 
every day, which we have been doing for more or less the last 
12 years. It will be a great step forward.
    Mr. Emanuel. Thank you.
    Mr. Shays. Thank the gentleman.
    Ms. Brown-Waite and then Mr. Scott and then Mr. McCotter.
    Ms. Brown-Waite. Thank you very much.
    Thank you, Mr. Deputy Secretary, for being here today.
    As you know, in Florida, we face many hurricanes; and, 
historically, the National Guard has been there to help. We are 
now down approximately 5,000 National Guardsmen and -women who 
have been transferred, some within our country, some going 
overseas. Tell me what backup plans you have should the 
National Guard actually be needed.
    My second question relates to the fact that I have National 
Guard units in my area, including a brand new helicopter unit 
at the Brooksville Airport. As the Department continues its 
intentions to transform the Guard and transform the entire 
Defense Department, tell me how the Guard is going to fit into 
this transformation.
    Also, are we going to have enough to--while we are sending 
the Guard overseas, are we going to have enough to help us with 
Homeland Security?
    Mr. Wolfowitz. Well, first of all, where the Guard fits in 
transformation is a crucial piece of it. I mean, we have 
depended so much on the Guard since September 11. We couldn't 
have managed many of the things we do without them. Clearly, if 
we are going to transform the military, the Guard is part of 
doing that. I think there are many lessons that we are learning 
already about mobilization procedures, about what kinds of 
tours we can expect people to undertake, about trying to 
avoided problems that were mentioned earlier of people being in 
low-density, high-demand units and getting called up right away 
over again.
    Clearly, just because of where they are located and their 
relationship to State governments the Guard needs to be, I 
think, one of the absolutely critical elements in developing 
the military's role in responding to attacks on the homeland; 
and that includes response to mass casualty attacks. It is, I 
guess, not an accident that Gen. Eberhart, who is the new 
commander of the new Northern Command, which is the first time 
we have had a commander for North America, has as his deputy a 
National Guard general. His links into the National Guard are 
absolutely critical.
    Something we have clearly got to look at is this assumption 
that if there is a war overseas the National Guard--we have 
been dual tasking the National Guard to an extraordinary 
extent, expecting them in wartime to do jobs overseas, in 
peacetime to be available for domestic emergencies. Frankly, 
before September 11, we didn't think nearly enough about the 
possibility that these two things will happen at the same time, 
not by accident but because our enemies will attack us in both 
places at once.
    We are facing that, for example, with the Coast Guard. We 
have always depended on the Coast Guard to perform harbor 
protection duties when the Navy deploys in emergencies as they 
are doing now, and we have called up Coast Guard Reservists to 
fill that gap. It may be the right thing to do. The Coast Guard 
people tell me that it is very important even for homeland 
security to have that integration with the Navy where the Navy 
does the long-range protection and the Coast Guard does the 
close-in.
    But we have got to look at every one of those assumptions 
where we assume that everything is nice and stable at home if 
we go to war overseas. That is not true anymore.
    Let me try for the record to get you a specific answer on 
where Florida stands. I mean, every State has this problem that 
Guardsmen have been called up. And there is a lot of backup. I 
don't know to what extent it is also available if there is an 
emergency. I know there are arrangements if there is an 
emergency in one State to provide it from another.
    Ms. Brown-Waite. We have been fortunate that we haven't had 
massive hurricanes since 1992. But it is almost--as you know, 
it is very, very cyclical; and I have had many people just 
express a concern that our numbers on the National Guard have 
been diminished so.
    Thank you. If you would get that information, I would 
appreciate it.
    Mr. Shays. I am sorry. Are we all done? Yes. Thank you.
    We may--Mr. Secretary, you may be able to help us out, 
because we only have three people left. We have Mr. Scott, we 
have Mr. McCotter, and we have Mr. Davis, and I think we would 
cover everybody. Do you think could you stay like 3 or 4 
minutes--oh, I am sorry. Mr. Baird. Well, let's do the four, 
and then let's see if you can just----
    Mr. Wolfowitz. I will try to talk fast.
    Mr. Shays. I am sorry, Mr. Scott. I took up too much time. 
You have the floor.
    Mr. Scott. Was that out of my time?
    Mr. Shays. No, it is not on your time. Starting right now. 
Let's go.
    Mr. Scott. Thank you, Mr. Chairman.
    Mr. Wolfowitz, it is good is see you.
    Mr. Secretary, in 1941, President Roosevelt signed an 
executive order prohibiting discrimination in employment in 
defense contracts. That has been the law of the land for over 
60 years. You don't have a problem complying with that, do you?
    Mr. Wolfowitz. I sure hope we don't.
    Mr. Scott. Thank you.
    The gentleman from Texas mentioned Impact Aid and 
concurrent receipts. I think you have responded to those. I 
just wanted to share the fact that I have the same concerns and 
hope we can deal with them effectively.
    Yesterday, it is my understanding that the CNO mentioned 
375 as an appropriate level of the number of ships in the Navy. 
How are we doing in closing the gap from where we are now? It 
is my understanding that we are actually decommissioning more 
than we are building. What are we going to do to close the gap?
    Mr. Wolfowitz. Well, the decommissioning is in fact to 
provide some money for building. I mean, it is a conscious 
decision that if we go down now we will have some money to go 
up faster in the future.
    The 375 number--I would like to see what the context was 
for that. If we ever get to that number, I think it was 
speculating in the context of some of the smaller ships the 
Navy is looking at for what they call the toro combat, close-in 
combat, where you would actually go to smaller ships in order 
to get higher numbers where numbers matter. I think we are 
still probably a couple of years from a decision on whether to 
buy those kinds of ships and what kinds they would be.
    The target, the number that we anticipate in fiscal year 
2009 as a result of this program will be 305. We dip down to a 
low in 2006 of 291. We are going down to 292 in 2004, as low as 
291 in 2006 and then coming back up to 305 in fiscal year 2009.
    Mr. Scott. Since we are anticipating the possibility of a 
war, is there any thing in the budget for maintenance of ships 
after they get back?
    Mr. Wolfowitz. That, frankly, is one of the costs that we 
are looking at in putting together what the cost of war would 
be. Again, it depends on how many of various kinds of things 
you send over.
    You know, my boss points out regularly that we sent--I 
don't know, what was it--300,000 people to Desert Storm and all 
kinds of stuff, and we brought 90 percent of it back unused. 
Gen. Myers points out--I am, quite frankly, with Gen. Myers on 
this one--it was a lot better not to have to use it. It may be 
that sending too much sometimes is the key.
    We are trying to get it right. We are trying to make sure 
we have everything we need. We are also trying to make sure 
that we don't have huge things that--bills that turn out to be 
unnecessary. But there will be some considerable wear and tear, 
I would say, in the single digit billions of dollars to fix 
things.
    Mr. Scott. And that will be requested.
    Mr. Wolfowitz. That would have to be part of any Iraq-
related request, yes.
    Mr. Scott. Could you say something about the effect that 
the multi-year procurement is having in helping the shipyards 
build ships?
    Mr. Wolfowitz. Dov, do you want to comment on that?
    Mr. Zakheim. Sure. As you know, there was an arrangement 
reached particularly with respect to building amphibious ships 
down in Mississippi and in Louisiana; and then Bath up in Maine 
was going to build the DDGs, the guided missile destroyers. 
Multiyear works well for everyone, simply because it allows the 
corporate planners to have a sense of the type of labor force 
they are going to have and what they need to have on their 
order books from subcontractors. It also allows the Navy to 
plan. It is an integral part of the plan that the Deputy 
Secretary just talked about that will start ramping us up above 
300 ships in the outyears.
    Mr. Scott. That is also happening with the Virginia-class 
submarines. You are doing that with them, too.
    Mr. Zakheim. It certainly is, sir.
    Mr. Scott. Thank you.
    Thank you, Mr. Chairman.
    Mr. Shays. Thank you.
    Mr. McCotter will have about 3 minutes, and then I am just 
going to ask--Mr. Davis and Mr. Barrett want to just make a 
comment to you before you leave, two wonderful members on the 
other side of the aisle.
    Mr. McCotter, you have 3 minutes.
    Thank you. Mr. McCotter, we have about 3 minutes. If Mr. 
Davis and Mr. Baird want to make a comment. Mr. McCotter, you 
have 3 minutes.
    Mr. McCotter. I will limit myself to a quick couple of 
observations of Dr. Wolfowitz. First, I represent Michigan, I 
border Dearborn, and I want to thank you for what you did by 
going down there and addressing the community.
    Mr. Wolfowitz. They are wonderful people. They are 
unbelievable.
    Mr. McCotter. Your visit was very helpful. I would like to 
make sure that I reiterate that the Caldean community is 
especially concerned in post Iraq, that they are allowed to 
participate in the government to protect their rights and 
status as a minority.
    Mr. Wolfowitz. Can I say for the record, Congressman Moran 
isn't here, I think it is very important that all communities 
in Iraq be protected, certainly including the Kurds who have 
suffered horribly over the years.
    Mr. McCotter. I would also like to say that, just for the 
record, my distinction on the question of whether this is a new 
war with Iraq. I believe it is just because military 
hostilities were stopped, ceased in 1991, there was never a 
real resolution of this war, because Iraq did not disarm, did 
not show that they had disarmed. In short----
    Mr. Wolfowitz. They did not comply with the conditions of 
the cease fire.
    Mr. McCotter. Yes. I would also like to point out that it 
is not a new war, because it is a new theatre in the continuing 
war on terrorism that started in the wake of September 11. This 
is the arsenal of al Qaeda, and it will be defeated. But, as 
all Americans must realize, that it is not the end of the war 
on terrorism with the defeat of Iraq, it will be the 
continuation, sadly. It will be just a battle, much as Tara was 
a stepping stone to eventually being able to bomb Japan.
    I am heartened by the fact that everyone is questioning the 
perception of the coalition. I did not hear anyone say that the 
coalition was bought and paid for, just that they had heard the 
perception. Now, as a firm believer in the fact that perception 
is not reality and the truth will set us free, I trust that 
after your testimony, everyone will go back to their districts 
and change that perception so that the truth will get out 
there, and assuage the concerns of our shared constituents in 
this country.
    I would also like to point out on a less glib note, your 
statement about no on data mining to Mr. Putnam. This is a 
country that was founded on the concept of give me liberty or 
give me death. It is not a question of whether we want to 
infringe civil liberties in protecting ourselves, it is a 
question that we must not.
    Data mining may have its uses, but all technology is 
morally neutral. It is only as good as those people who utilize 
it. And I am very concerned about data mining, because I think 
it was Churchill who said, those who seek to trade liberty for 
security will receive neither.
    So I would just ask that we be very careful with that. I 
thank you for your time.
    Mr. Wolfowitz. Thank you.
    Mr. Shays. I just say that Mr. Davis and Mr. Baird have 
been here the whole time. And we also have our colleague, Mr. 
McCotter. If they could just make a comment to you, an 
observation. They have been here the whole time. It won't be 5 
minutes. Gentlemen, just real quick.
    Mr. Davis. Thank you, Mr. Chairman. I appreciate your 
indulgence, Mr. Secretary, in letting us make a couple of 
observations to you. Let me make two in just the time that I 
have. One thing that I think explains some of the passion that 
you saw on this side of the aisle about the administration's 
indirection of the cost of the war is a contradiction that 
strikes me after being here yesterday and today.
    The Secretary of Health and Human Services testified in 
great detail about the amount of money that the administration 
wants for its Medicare program, about $450 billion over 10 
years. But the administration says it doesn't know the content 
of that plan.
    Now, today it is the administration's position that after 
spending elaborate amounts of time planning and doing various 
scenarios for war with Iraq, and thinking about various 
contingencies that we don't know the cost. So on one day we 
know the number, but don't know the plan, today it is the 
opposite. I think that is what explains some of the passion 
over here.
    Mr. Shays. Mr. Baird, let me just have you make your 
comment too.
    Mr. Baird. Mr. Secretary, nonrelated Iraq things. First of 
all, I am very concerned about the transfer of U.S. high 
technology overseas in the sense of chip manufacturing plants. 
Current there is the one custom chip fab in the United States. 
Many custom chip fabs are being relocated in mainland China. 
That is an economic problem for us, but it is a defense problem 
for you. I would like to work with you to try to correct that.
    Secondly, I have got a number of small contractors, small 
businesses at the cutting edge of among other things, laser and 
display technologies who are really concerned that the 
Department of Defense procurement procedures advantage greatly 
the very large military suppliers to the disadvantage of small 
suppliers, who may actually be more cutting edge and more cost 
effective, and I would like to work with you on that as well as 
I think it is both a defense and an economic issue. And I 
appreciate the chance to work with you.
    Mr. Shays. I thank the gentleman.
    Mr. Kind.
    Mr. Kind. Thank you. Thank you, Mr. Chairman. Mr. 
Secretary, you have been very generous with your time, I will 
be brief. Personal observation. To the extent that you have any 
discussions or influence over this, many of our guard units 
right now are being called up, deployed on very short notice. 
You know, sometimes less than 48 hours.
    The troops are ready, they are well-trained, well-
motivated, very impressive. The families, however, are going 
through a very difficult time. Anything you can do to try to 
give a little more notification so they can get their family 
affairs in order, I have been going to a lot of the farewell 
ceremonies.
    And then, finally, I think as we go forward in further 
hearings and testimony from the administration, we do need to 
be talking more about defense modernization, where we can 
realize some cost savings in the budget as far as the new 
generation of weapons systems that has to occur.
    Otherwise, in defining our country, we are also going to be 
bankrupting it at the same time. But thank you for your time.
    Mr. Shays. Mr. Secretary, let me just say you have been 
awesome. You have really tried to cooperate with the committee. 
You have spent wonderful time. I would be happy to have you 
make any closing comment you might want to make. But you have 
been a wonderful witness, and more importantly, you have been a 
terrific deputy secretary.
    Mr. Wolfowitz. I would just say quickly, I will compliment 
the questions. They were very good. I will tell Congressman 
Skelton, by the way, that you were nice but you were tough. I 
think that is probably what he wanted.
    If I can just say, very quickly, I share your concern about 
high tech. Let's see what we can do. The problem is, the most 
problematic thing is to keep our competitive edge.
    Congressman Davis isn't here, but I would just say a short 
answer is every time we go on a briefing on the war plan, it 
immediately goes down six different branches of what a scenario 
might look like. If we costed every single one of them, we 
would maybe give you a range between $10 billion and $100 
billion, you would say that is useless and you would right.
    Finally, on the National Guard issue, the Guard and Reserve 
issue, we are very aware, painfully aware that the system has 
had some major bugs in it, frankly it is one of our cold war 
relics. It was designed to get 10 divisions in Europe in 10 
days to meet a Soviet invasion. This is a more complex thing, 
and the result has been, we have given Guardsmen and Reservists 
too short a notice.
    The Secretary of Defense has spent several hours of his own 
time working on fixing it. We understand what a big problem it 
is.
    Thank you, Mr. Chairman. You have been a great chairman. I 
appreciate getting out of here on time.
    Mr. Shays. Thank you. We have another witness. And we are 
grateful to that witness. We have Mr. Steven Kosiak.
    And again, Mr. Secretary, thank you. Mr. Kosiak, if you 
would come up we will get you started. Mr. Kosiak, it is very 
good to have you. You are a very respected expert on defense 
issues, on strategic issues. And while we have a few members 
here, it will obviously be on the record. And you are speaking 
to more than just this room as well, I might add. Thank you for 
being here. Happy to hear your statement and then we will have 
some questions for you.
    [Prepared statement of Mr. Spratt:]

  Prepared Statement of Hon. John M. Spratt, Jr., a Representative in 
               Congress From the State of South Carolina

    I would like to welcome you to our hearing today, Mr. Kosiak, and 
we thank you for your testimony. The Center for Strategic and Budgetary 
Assessments is known for the high quality of its work on defense budget 
issues and on defense strategy as well, and we look forward to hearing 
from you.

  STATEMENT OF STEVEN M. KOSIAK, DIRECTOR OF BUDGET STUDIES, 
         CENTER FOR STRATEGIC AND BUDGETARY ASSESSMENTS

    Mr. Kosiak. Thank you very much for that very kind 
introduction. And I would like to tell the committee what an 
honor it is to be asked to testify here today, especially in 
the same hearing with Deputy Secretary of Defense Paul 
Wolfowitz and Dov Zakheim, two individuals for which I have a 
great deal of respect.
    I have submitted my remarks for the record, and with your 
permission, would like to summarize them now. I want to focus 
on three important topics related to defense planning, policy, 
and budgeting. The first issue is the current defense plan and 
the question of whether it is affordable and sustainable over 
the long term.
    The second question is whether the current defense plan 
adequately provides for the transformation of the U.S. 
military. And the third question isn't so such a question, but 
the third topic I want to look at is the cost or potential cost 
of a war in Iraq, and the cost of post-war peacekeeping 
operations and other related costs.
    First, I want to look at the affordability and 
sustainability of the current defense plan. During the 2000 
Presidential election campaign, then-candidate Bush suggested 
that the U.S. military should take a different more selective 
approach to modernization. Specifically, he said that the real 
goal should be to move beyond marginal improvements, to replace 
existing programs with new technologies and strategies. As he 
put it, to skip a generation of technology.
    That was an approach that the administration also 
reaffirmed in the 2001 Quadrennial Defense Review. However, in 
its most recent budget submission, it really backed away from 
that, and largely abandoned the notion of skipping a 
generation.
    With the exception of the Crusader artillery system which 
was canceled last year, the administration has basically 
decided to go ahead with all of the major modernization 
programs it inherited from the Clinton administration.
    This is a decision that has enormous implications for the 
Department of Defense, and enormous implications for the 
budgetary requirements for the Department of Defense. Under the 
President's latest plan, funding for the Department would 
increase to about $430 billion by 2009. That is $430 billion in 
today's dollars adjusting for inflation. That is a lot of 
money. That is 22 percent more than we spent on average during 
the cold war, and it is roughly equal, in fact, slightly above 
the level we spent in the 1980s, the decade of the Reagan 
buildup.
    But even those defense budgets would probably not be enough 
to pay for the administration's long-term defense plan. A 
recent report by the Congressional Budget Office estimated that 
we would have to bring funding up to something like $500 
billion a year to implement and execute the administration's 
long-term defense plan.
    And that is not just bringing it up to $500 billion for the 
next several years, that is bringing it to $500 billion and 
keeping it at roughly that level over a period of decades.
    Achieving that kind of increase, an increase of that 
magnitude and sustaining it over a period of not several years, 
but over several decades would be really unprecedented 
historically. It is not just historical precedence that 
suggests that this would be very difficult to accomplish, it is 
also the existing fiscal environment that we face.
    Two years ago we had a projection by the Congressional 
Budget Office that we would see surpluses of some $5.6 trillion 
over the 2000-11 period. In the last 2 years, that shrunk to a 
point now where over that same period CBO is now projecting a 
surplus of only $20 billion. So there has been a dramatic 
change in 2 years.
    It is likely that things will get even worse over the 
coming decade, because the CBO baseline doesn't take a lot of 
important things into account. It doesn't take into account 
calls for additional tax cuts, calls for more funding for 
defense, calls for more funding for homeland security, calls 
for more spending for prescription drug benefits, more spending 
for domestic programs like education, and perhaps most 
significantly, it only looks out to the end of this decade.
    Around the end of the decade we are going to see the 
beginning of the retirement of the baby boomer generation. This 
has enormous implications, as you all know, for spending on 
Social Security and Medicare, and it is likely to lead to 
substantially greater deficits in the years beyond this decade.
    So given that fiscal outlook, which I think is frankly 
pretty bleak, it is probably not wise to assume that we will be 
able to achieve and sustain budgets for the Department of $500 
billion a year. It is not just achieving them, it is sustaining 
them over a period of decades. Fortunately, I think there is 
good reason to believe that the United States can meet its 
security requirements at lower budget levels than the 
administration's plan, projects or would--or the Congressional 
budget office estimates would actually require.
    One important element in this strategy would be for the 
administration to re-embrace the notion of skipping a 
generation of military hardware to focus more on selective 
modernization.
    DOD is, in general, I think, the best equipped to make 
those kind of decisions, but I think one area where they 
clearly would have to make some harder choices than they have 
made to date, is in the area of tactical fighter modernization.
    We are still planning to build some 3,300 aircraft of three 
different types at a total cost that is likely to exceed $300 
billion over the next several decades. I think certainly some 
of that modernization is necessary, but I think there is good 
reason to believe that we could maintain a very effective 
capability with a reduced number of new aircraft and perhaps 
even cancelling at least one of these three next generation 
fighters.
    Another critical element that could, over the long term, 
help the U.S. military live within lower, or at least not quite 
as high defense budget levels as are currently projected, would 
be the transformation of the U.S. military.
    Importantly for our discussion today, the ability to 
transform the military over time is likely to help DOD control 
costs and possibly even reduce costs, because by definition a 
transformed military, if it is successfully transformed, should 
be more cost effective than the military it is replacing.
    This notion of transformation, has been a central theme of 
this administration over the past couple of years. But I think 
there is some reason to question whether we are really headed 
in the right direction on transformation, whether we are really 
spending money to support an effective transformation strategy.
    Overall, R&D funding still appears to be very much still 
tilted toward traditional kinds of weapons systems. If you look 
at spending comparing unmanned aerial vehicles versus tactical 
fighter modernization, the 2004 budget request projects about 
$870 million for UAVs and $5.5 billion for the three manned 
fighter programs.
    Now, no one would suggest that we should transform the U.S. 
military overnight, or that these ratios should be reversed. 
But I think they still suggest that we are still tilted too far 
toward traditional systems and not enough toward innovative new 
kinds of systems.
    The allocation of funding among different R&D budget 
activities also raises questions about the priority given to 
transformation in the 2004 budget request. In particular, the 
current plan seems to underfund science and technology 
programs. S&T programs are the earliest stages of R&D 
development, and it is widely believed that the discovery of 
new technologies is most apt to happen at that stage, and 
especially the kinds of technology that could really lead to 
dramatic improvements in military capabilities. As a result, 
most advocates of transformation believe it is important to 
really focus a lot of energy on S&T programs.
    But, under the administration's plan, funding for S&T 
programs would only be increased by about 10 percent in real 
terms. That is adjusting for inflation, there would only be 
about a 10-percent increase between 2001 and 2004.
    And in fact, in this year's budget, the 2004 budget request 
would represent a slight 6-percent decline from 2003. This very 
modest increase in S&T funding is in stark contrast to funding 
elsewhere in the R&D budget.
    The overall R&D budget is projected under the 
administration's plan to increase by 42 percent in real terms, 
between 2001 and 2004. And the ballistic missile programs are 
projected to increase--funding for ballistic missile defense 
programs is expected to increase by 76 percent over this same 
period. So this seems to indicate to me a misplaced or a lack 
of emphasis on S&T programs, which, again, I think are a very 
important facet of developing transformational capabilities.
    The last area of R&D I would like to look at is the full 
scale development phase. Essentially, the administration argues 
that the programs in this phase are transformational oriented, 
for the most part. Some of them I think are, but I think there 
are some questionable programs in there as well.
    This is an important area, because it is, by far and away, 
the most expensive area of R&D. Perhaps the most questionable 
programs being funded in this area again are the 
administration's--are the three tactical fighter modernization 
programs. This focus on relatively short-range systems seems at 
odds with recent experience we have had in Operation Enduring 
Freedom in Afghanistan, Desert Fox in Iraq back in 1998, and 
prospectively the experience we may have in Iraq in a few weeks 
if we do decide to go to war.
    A better approach might be to shift some of the funding 
allocated to full scale development for these kind of 
traditional short-range systems and put more money into 
developing long range weapons systems, and in particular, 
putting more money at the S&T level.
    The next area I want to talk about--the next and last 
area--is the potential cost of a war in Iraq and its post-war 
occupation. We have done a study at the Center for Strategic 
and Budgetary Assessments. And what we tried to do is look 
particularly as costs related to direct military costs of a war 
and peacekeeping operations. So that is what I want to talk 
about mainly.
    We also did look a little bit, try to get some range of 
estimates for costs, nonmilitary costs for reconstruction and 
other activities, I will talk briefly about those as well.
    One of the important fundings which I think will come to no 
surprise to the members of this committee, is that there is an 
enormous amount of uncertainty inherent in trying to make this 
kind of estimate. There is a great amount of uncertainty about 
the number of troops that will be involved in the conflict, the 
duration of the conflict, the level of hostilities we will 
meet, the level of allied participation.
    And when we have that level of uncertainty about what the 
fundamentals of the conflict or the peacekeeping are going to 
look like, by definition you are going to have a wide range of 
estimates on what they could cost. Notwithstanding the 
limitations of doing this kind of analysis, we did make a stab 
at it.
    We looked at three different scenarios, the cheapest and 
smallest scenario was that we have 175,000 troops in the region 
and the war would last a month. The more costly, high-end 
option was that it would require a total of 350,000 troops and 
the war would last 6 months.
    Given that range of fundamentals, we estimated that the 
cost of a conflict would range from something like $20 billion 
to as much as $85 billion.
    Occupation costs we found could, and in fact, are likely to 
exceed the cost of the war itself. Again, you have to make some 
guesstimate about the size of the peacekeeping contingent. We 
looked at again a range of scenarios. Looking at an average of 
20,0000 U.S. peacekeepers there for a period of 5 years, to a 
high average of 90,000 peacekeepers kept there for 5 years.
    Those two scenarios generated cost estimates ranging from 
about $25 billion to $105 billion. Again, that is over a 5-year 
period. Another important point, I think it is not strictly 
budgetary, but it is important, is that even a relatively small 
occupation force could have a significant impact on the 
readiness of the U.S. military to fight wars elsewhere and to 
carry out other important missions.
    In Bosnia and Kosovo, we have, in the past couple of years, 
had only about 10,000 peacekeepers in the two countries 
combined. That obviously is a much, much smaller presence than 
we are likely to see, at least over the first year and possibly 
several years in Iraq. And the need to maintain this, as I say, 
could hurt readiness levels, it could also harm the ability of 
the U.S. military to attract and retain quality personnel.
    On the other hand, if we are able to fight a war there and 
win it quickly, we may, in some sense, be able to put up with 
more reduced readiness levels because we will have defeated one 
of the powers in the region that the U.S. has been most 
concerned about.
    Although the focus of our study was on direct military 
costs, as I noted earlier, we also took a brief look at trying 
to estimate some of the various nonmilitary costs associated 
with a war and its aftermath. I will run through these real 
quickly. These costs include something like $6 [billion] to $10 
billion potentially for aid to allies in the region; $1 
[billion] to $10 billion for humanitarian assistance; $5 
[billion] to $12 billion for governance activities, like paying 
their police force and civil service for some period of time; 
and $10 [billion] to $105 billion for reconstruction and 
recovery activities.
    In the end, the degree to which one can usefully conduct 
sort of a cost benefit analysis to try to determine the wisdom 
of launching an attack against Iraq is limited, I think. And 
one reason for that is there is a substantial divergence 
between reasonable low-end estimates of the cost and reasonable 
high end estimates of the cost. There is also the possibility 
that if an effective and durable peaceful solution to the 
current crisis cannot be found, that we might ultimately have 
to fight a war later that could be actually more costly, both 
in terms of direct military costs and nonmilitary costs.
    Nevertheless, I think speculating about the cost of a 
potential war with Iraq and its aftermath is a useful exercise. 
Ironically, I think that one of the most useful things that 
comes out of this kind of analysis is it just really 
graphically illustrates just how uncertain going to war is.
    Now, the fact that there is a great amount of uncertainty 
doesn't mean that we shouldn't go to war. We operate in an 
environment of imperfect information all of the time, and 
certainly policymakers trying to decide whether to go to war or 
not, operate generally, operate in that kind of environment.
    But I do think the existence of that level of uncertainty 
does provide some insights on some things that we may or may 
not want to do. And one thing in particular I think is that one 
might want to be more cautious about signing on to additional 
tax cuts or spending increase than one would otherwise would be 
when there is that level of uncertainty.
    It might make more sense to wait until--if we do have a 
war--to wait until the war is over and we have a better idea 
for what the costs of the war itself were, and also what the 
costs of peacekeeping operations might be and reconstruction 
activities might be.
    A second insight is simply the importance of support, of 
gaining support from friends and allies. The direct military 
cost of this operation, unlike the 1991 gulf war, are very 
likely to be borne by the United States alone, and to the 
extent that we have peacekeeping troops there, we are likely to 
incur those costs as well. On the other hand, if we could get 
more allied participation to help with peacekeeping after a 
conflict, that would obviously reduce the cost, and support 
from friends and allies might be most important in trying to 
cover some of the reconstruction and humanitarian assistance 
and other nonmilitary costs.
    With that, I would like to end my presentation. And I would 
be happy to take any questions.
    [The prepared statement of Mr. Kosiak follows:]

Prepared Statement of Steven Kosiak, Director of Budget Studies, Center 
                for Strategic and Budgetary Assessments

    Mr. Chairman and members of the committee, it is a great honor to 
have the opportunity to appear before you today to discuss the 
administration's fiscal year 2004 defense budget request and related 
issues.
    Today we face a remarkable range of challenges to our national 
security. There is the terrorist threat demonstrated so cruelly and 
tragically on September 11, 2001, the threat posed by the proliferation 
of weapons of mass destruction (WMD), and the imminent prospect of a 
war with Iraq. Figuring out how to effectively meet and manage these 
challenges while also meeting other demands on our national resources, 
such as preparing for the retirement of the baby boomer generation 
toward the end of this decade, is a complex and difficult task. But it 
is a task that falls very much within the purview of this committee.
    It is my hope that I might be able to help you, in some small way, 
with this task through my testimony today. I would like to focus on 
three important topics related to defense policies, programs and 
spending. First, the question of whether or not the administration's 
latest defense plan puts the Department of Defense (DOD) and the 
services on a path that is likely to prove affordable and sustainable 
over the long term. Second, whether the administration's defense plan 
adequately provides for the transformation of the U.S. military. Third, 
I want to spend a few minutes talking about the cost of a potential war 
with Iraq, as well as the costs associated with occupying Iraq for some 
period of time after a war.
                    affordability and sustainability
    During the 2000 presidential campaign, then-candidate Bush 
suggested that the U.S. military should modernize its military 
``selectively,'' but that the real goal should be to ``move beyond 
marginal improvements--to replace existing programs with new 
technologies and strategies: to skip a generation of technology.'' 
These goals were essentially reaffirmed in the 2001 Quadrennial Defense 
Review (QDR). After conducting a series of program reviews, however, 
the administration seems to have decided to largely abandon this 
approach. With the exception of the Crusader artillery system, which 
was canceled last year, the administration has decided to move ahead 
with virtually all of the major weapons platforms included in the plans 
it inherited from the Clinton administration.
    This decision has enormous implications for United States' defense 
spending. Buying all of these new weapons systems in the quantities 
called for in the services' plans, while simultaneously maintaining the 
current force structure and high readiness levels, will require 
dramatically increasing funding for defense over not just the next few 
years, but the coming decade and beyond.
    The administration's fiscal year fiscal year 2004 request would 
bring the defense budget to its highest level since the early 1990s. 
The proposed budget would be about 13-percent higher than the average 
cold war budget in real (inflation-adjusted) terms.\1\ In addition, 
under the administration's long-term plan, by fiscal year 2009 DOD's 
budget would reach some $430 billion (fiscal year 2004 dollars). This 
would be about 22 percent above average cold war levels and roughly 
equal to the levels sustained during the 1980s, the decade of the 
Reagan buildup. But even defense budgets of this magnitude are unlikely 
to prove sufficient to pay for DOD's existing long-term plans.
    A recent report by the Congressional Budget Office (CBO) concluded 
that--assuming historical rates of cost growth in operations and 
support (O&S) activities and modernization programs--executing existing 
plans could require substantially higher DOD funding levels, perhaps as 
much as an additional $60 billion a year.\2\ This would bring defense 
budgets up to nearly $500 billion (fiscal year 2004 dollars) annually. 
Furthermore, this level of spending would need to be sustained through 
2020 and beyond. Such a large and sustained boost in spending on 
defense would be truly unprecedented for the United States.
    Moreover, it is not just historical precedent that suggests that 
achieving and sustaining these budget levels would be difficult. The 
long-term Federal budget picture has dramatically worsened over the 
past 2 years. Two years ago, CBO projected a 10-year surplus of about 
$5.6 trillion over the fiscal year 2002-11 period. By contrast, CBO's 
baseline estimate now projects large deficits for the next several 
years and a net surplus over the entire fiscal year 2002-11 period of 
only about $20 billion. The dramatic change in the government's fiscal 
outlook has resulted from the enactment of large tax cuts, as well as a 
weak economy and other factors. Unfortunately, it is likely that the 
outlook will deteriorate still further in coming years. The 
administration has proposed further large tax cuts at the same time it 
is proposing a large increase in defense spending. In addition, there 
is strong bipartisan support for adding a Medicare prescription drug 
benefit, and increasing spending on homeland security, as well popular 
domestic programs, such as education. Taken together, this mix is 
likely to lead to sizable deficits for the remainder of this decade. 
And at the end of this decade, we will begin to see the retirement of 
the ``baby boomer'' generation, with the enormous implications that has 
for spending on Social Security and Medicare, and for a worsening of 
the deficit picture in the years beyond this decade.
    With this fiscal outlook, is it really reasonable and wise to 
assume that DOD will be able to achieve and sustain budget levels 
approaching $500 billion a year? Probably not. At best making such an 
assumption amounts to a very risky approach to defense planning. It is 
risky because, if those funding levels do not materialize or prove 
unsustainable, DOD will have wasted tens of billions of dollars 
developing new weapons systems it cannot ultimately afford to put into 
production, or which it can produce only at very low and inefficient 
rates.
    Fortunately, there is good reason to believe that United States' 
security requirements could be met at lower levels of defense spending 
than are now being proposed by the administration, or would be required 
to execute the services' existing plans. One important element in this 
alternative strategy would be for the administration to re-embrace the 
concept of skipping a generation of some weapons systems and to adopt a 
more selective approach to modernization.
    DOD and the services are in the best position to make the kinds of 
hard choices that would be required to implement this approach. But one 
step in particular would almost certainly be necessary: the services' 
plans for tactical fighter modernization would have to be significantly 
scaled back. These plans have been cut somewhat over the past few 
years, but they still remain enormously ambitious and expensive. 
Altogether, the Air Force, Navy and Marine Corps plan to buy some 3,300 
new F/A-22 fighters, F/A-18E/F fighters and Joint Strike Fighters at a 
cost that is likely to exceed $300 billion over the next couple 
decades. Given the level of superiority the United States currently 
enjoys with its existing air forces, the impressive capabilities of 
new, and far cheaper, current-generation systems like the F-16 block 
60, and the promise of new kinds of systems such as unmanned combat air 
vehicles (UCAVs), it seems clear that the planned buy of at least one 
of these new, next-generation fighters could be substantially scaled 
back, or possibly even cancelled, without significantly reducing the 
effectiveness of the U.S. military.
                             transformation
    Another critical element that could, over the long-term, help the 
U.S. military live within more modest spending levels is the 
transformation of the U.S. military. The need to transform the U.S. 
military is driven by the notion that advances in technology--
especially information technology--and changes in organization and 
operational concepts could dramatically alter the way wars are fought 
in the future. This revolution in military affairs (RMA) creates both 
opportunities and challenges for the U.S. military. However, 
transforming the U.S. military is, over time, likely to help DOD 
control or even reduce costs because, by definition, successfully 
transformed forces should prove more cost-effective than the forces and 
systems they replace.
    A central theme of the administration's fiscal year 2004 defense 
budget request is that it would effectively support efforts to 
transform the U.S. military. According to the administration, the 
proposed budget includes $23 billion in fiscal year 2004 and $239 
billion over the fiscal year 2004-09 period for military 
transformation. Until the DOD provides greater detail concerning which 
programs are included in this estimate, it is difficult to evaluate the 
reasonableness of this claim. However, an analysis of DOD's fiscal year 
2004 request for defense research and development (R&D) suggests that--
notwithstanding administration assertions to the contrary--efforts to 
transform the U.S. military may not be receiving sufficient priority in 
DOD's plans.
    Although the fiscal year 2004 budget request does contain R&D 
funding for several programs widely believed to be important for 
transformation (such as the conversion of four Trident ballistic 
missile submarines to carry Tomahawk cruise missiles), overall, defense 
R&D funding still appears to be very much focused on traditional kinds 
of weapons programs. For example, while the fiscal year 2004 request 
includes $870 million for the development of unmanned aerial vehicles 
(UAVs), it includes $5.5 billion for continued development of the 
services' three short-range fighter programs. No one believes that the 
U.S. military can or should be transformed overnight, but the magnitude 
of the tilt in this budget toward traditional systems may be 
inconsistent with an effective transformation strategy. The allocation 
of funding among different R&D budget activities also raises questions 
about the priority given to transformation in the fiscal year 2004 
budget request.
    The Science and Technology (S&T) budget activity includes programs 
in the three earliest phases of R&D. The discovery and development of 
new technologies promising major leaps in military capability are most 
likely to be made in these early phases of R&D. As a result, many 
advocates of military transformation believe that S&T programs should 
be given a high priority. Under the administration's plan, at $10.2 
billion, funding for S&T programs would be higher in fiscal year 2004 
than it was in fiscal year 2001. But the level of growth provided is 
extremely modest compared to the increases provided for the overall R&D 
budget. Under the new plan, S&T funding would be increased by only some 
$1.3 billion, or 10 percent, between fiscal year 2001 and fiscal year 
2004. Moreover, the administration's new plan actually calls for 
spending 6 percent less on DOD S&T programs in fiscal year 2004 than in 
fiscal year 2003. By comparison, the overall defense R&D budget is 
projected to grow by some 8 percent in fiscal year 2004, and by a total 
of 42 percent between fiscal year 2001 and fiscal year 2004. The level 
of increase requested for S&T programs also falls far below that 
projected for specific programs, such as ballistic missile defense 
(BMD) activities and fighter development.
    The Advanced Component Development and Prototypes budget activity 
represents the middle phase of the R&D process. Compared to S&T 
programs, which focus primarily on technology development, these 
efforts place greater emphasis on the development of specific weapon 
systems and testing under realistic operational conditions. Thus, the 
potential for major breakthroughs is less, but there is a greater 
potential for nearer-term payoff. As such, the demonstration and 
validation phase of the R&D process might also be considered important 
for transformation. Under the administration's plan, funding in this 
category would grow by $5.1 billion, from $8.1 billion in fiscal year 
2001 to $13.2 billion in fiscal year 2004, or 57 percent. However, this 
projected increase is almost entirely due to the expansion of BMD 
programs. Exclusive of BMD programs, funding for advanced component 
development and prototype programs would grow by only some $773 
million, or 11 percent, over this period.
    The final phase of the R&D process I would like to discuss today is 
the System Development and Demonstration (SDD) budget activity. This is 
the last phase of R&D prior to production, as well as the most costly 
phase for most programs. Under the administration's plan, SDD funding 
would increase more than any other category. Between fiscal year 2001 
and fiscal year 2004, SDD funding would grow by about $7.5 billion, or 
81 percent. Altogether, SDD programs account for $15.9 billion of the 
fiscal year 2004 request. The dramatic growth in SDD funding projected 
in DOD's latest plan essentially reflects the administration's 
decision--noted earlier--to proceed with virtually all of the new 
weapons systems it inherited from the Clinton administration and to 
forego the ``skip-a-generation'' strategy it had earlier embraced. 
Among the long-planned, next-generation programs included in the 
administration's plans are the F-35 JSF, the Comanche helicopter, and 
the DD(X) destroyer. Much of the funding growth projected for SDD 
funding is due to the JSF program in particular. The decision to move 
ahead with this short-range fighter will cause SDD funding associated 
with fighter modernization programs to increase by $3.6 billion between 
fiscal year 2001 and fiscal year 2004.
    The administration and the services claim that most of the programs 
undergoing SDD are transformational systems, or at least consistent 
with a sound transformation strategy. If so, this boost in SDD funding 
may be appropriate. But at least some of the weapons programs being 
pushed into SDD appear ill-suited for the emerging security 
environment. Perhaps most questionable is the administration's decision 
to continue to move ahead with all three planned tactical fighter 
programs. This focus on relatively short-range tactical fighters seems 
at odds with recent experience in Operation Enduring Freedom 
(Afghanistan, 2001-03), Operation Desert Fox (Iraq, 1998) and elsewhere 
which suggests that, in the future, the U.S. military may often have to 
operate in wartime without access to forward bases. Arguably, a better 
approach would be to shift some of the funding allocated to SDD 
programs to earlier phases of the R&D process, and to focus more on the 
development long-range weapon systems.
    Another problem is that the administration's decision to move ahead 
with so many costly traditional programs today might make it impossible 
to increase funding for more transformational kinds of systems several 
years down the road, when their feasibility and potential is better 
proven and they are ready to be moved beyond the early stages of R&D. 
This is because the level of funding absorbed by traditional weapon 
systems entering SDD today will grow significantly over the next 5 
years or more, as they move further through the SDD process and into 
production--potentially crowding out promising, emerging transformation 
programs.
    Determining the appropriate level of funding for defense R&D is an 
important and challenging task. But even more critical than the 
question of how much the United States should spend on defense R&D is 
the question of how defense R&D dollars should be spent. This is 
especially true today because of the widespread belief that we are in 
the midst of an RMA. However, while there is broad support for the 
notion that the U.S. military needs to be transformed, there is 
substantial disagreement over specifically what transformation means.
    In general, if one believes that the greatest threats to United 
States' security are relatively near-term challenges, and that the 
major weapons programs already under development by the services are 
well suited to counter those challenges, or one believes that the 
threat of ballistic missile attacks is the preeminent military 
challenge facing the United States, one may be well satisfied with the 
administration's new R&D budget request and its approach toward 
transformation. As noted above, it provides a large increase in SDD 
funding, as well as an enormous increase for BMD programs over the 
fiscal year 2001-04 period.
    On the other hand, if one believes that the greatest threats to 
United States' security are likely to emerge over the longer term, and 
that many of the major weapons programs included in the services' 
existing plans will likely prove ill-equipped to counter these 
challenges, or even many of the challenges that exist today, one may 
find the administration's plan more troubling. As mentioned earlier, 
the most significant breakthroughs, with the greatest long-term payoff, 
are likely to come from the earliest phases of R&D. But the new defense 
plan provides only a very modest increase in funding for S&T programs 
over the fiscal year 2001-04 period, and would actually reduce funding 
for S&T activities between fiscal year 2003 and fiscal year 2004. 
Moreover, the effect of buying-in today to the many weapons programs in 
the services' existing plans may be to crowd out purchases of more 
transformation-oriented weapons programs later in this decade.
     potential cost of a war with iraq and its post-war occupation
    The last topic I would like to discuss is the potential cost of a 
war with Iraq and its post-war occupation. The Bush administration has 
made clear that it expects to soon begin military operations against 
Iraq, very possibly within the next several weeks. One of the factors 
that should be considered before a decision is made to initiate a war 
with Iraq is the likely financial and economic costs of such a war, as 
well as the costs of any post-war occupation, humanitarian assistance 
and reconstruction activities. In deciding whether to begin this war, 
it may be appropriate to give greater weight to political, strategic 
and humanitarian interests than to the likely financial and economic 
costs and consequences of the war, but those costs should at least be 
considered.
    I would like to share with you some of findings of a recent CSBA 
study that attempted to estimate a subset of the potential costs of a 
war and its aftermath. Specifically, our study focused on the direct 
military costs to the United States of a war with Iraq and the post-war 
occupation of the country. Although not the focus of our study, I will 
also briefly note some of the non-military costs that might be incurred 
in the aftermath of a war. Among other things our study concluded the 
following:
     Given the great amount of uncertainty surrounding the size 
of the U.S. force that will be required, the level of resistance that 
will be offered, the duration of the conflict, the level of allied 
participation, and other factors, it is impossible to provide more than 
a very rough estimate of even the direct military costs of a war with 
Iraq and its post-war occupation.
     Based on publicly available information, a reasonable 
estimate of the number of U.S. troops that might ultimately be deployed 
to the Gulf region would be 175,000 to 350,000. Assuming the war were 
to last from one to 6 months, this suggests that the direct military 
costs of the war could range from as little as $18 billion to as much 
as $85 billion, roughly the cost of the 1991 gulf war.
     Occupation costs could far exceed the direct military 
costs of the war itself. A reasonable estimate of the average number of 
U.S. troops that would be required for occupation and peacekeeping 
duties after a war might be 20,000 to 90,000 over the next 5 years. 
This would equate to 5-year costs of roughly $25 [billion]-$105 
billion.
     Even a relatively small occupation force could greatly 
exceed the size of past U.S. deployments to peacekeeping missions 
(e.g., in Bosnia and Kosovo, where the U.S. military has had an average 
of about 10,000 troops stationed over the past few years). The need to 
maintain this presence over a period of years could impair the ability 
of the U.S. military to recruit and retain quality personnel, and to 
carry out some other important military missions. On the other hand, 
the fact that the U.S. military would no longer have to plan and 
prepare for a possible future war with Iraq might partially offset the 
risks associated with lower readiness levels.
     Although the focus of our study was on direct military 
costs, it is important to understand that those costs could be 
substantially exceeded by various non-military costs associated with 
the war and its aftermath. By one estimate, those costs include roughly 
$6 [billion]-$10 billion for aid to allies in the region, $1 [billion]-
$10 billion for humanitarian assistance, $5 [billion]-$12 billion for 
governance activities, $10 [billion]-$105 billion for reconstruction 
and recovery, and $62 [billion]-$361 billion for debt relief and 
related costs.\3\ On the other hand, these costs would almost certainly 
be borne not just by the United States, but by the United States' 
friends, allies and international financial institutions.
    In the end, the degree to which one can usefully conduct a cost-
benefit analysis to help determine the wisdom of launching a war 
against Iraq is limited. There is a substantial divergence between 
reasonable low-end estimates and reasonable high-end estimates. There 
is also the possibility that--if an effective and durable peaceful 
solution to the current crisis cannot be found--the failure to take 
military action today could necessitate waging a war in the future that 
could be even more expensive, both in terms of direct military and non-
military costs. Nevertheless, speculating about the cost of a potential 
war with Iraq and its aftermath can provide some useful insights.
    Ironically, what may be the most important insight to be gained 
from these estimates is related to what may also be their most serious 
limitation: they show in graphic terms just how much uncertainty there 
is surrounding a war with Iraq and its aftermath. The existence of so 
much uncertainty should not necessarily prevent the country from going 
to war. Policymakers rarely have the luxury of operating in an 
environment of perfect information, especially when trying to decide 
questions of war and peace. At a minimum, however, the existence of so 
much uncertainty, and the possibility that the costs of a war with Iraq 
and the peace following the war could be quite high and be incurred 
over a period of many years, might suggest that policymakers should 
take a more cautious approach to considering additional tax cuts or 
spending increases than they otherwise might--at least until the war is 
over and we have better idea of what the true costs of the war and its 
aftermath will be.
    A second insight that flows from our study is how critically some 
of these costs are likely to depend on the level of support the United 
States receives from friends and allies. Under any circumstances the 
United States will undoubtedly have to pay for the bulk of the direct 
military costs associated with the war itself. However, if the United 
States can win the support of a broad range of friends and allies, it 
might be able to significantly reduce the size of the occupation force 
it needs to maintain in Iraq and the level of reconstruction and 
related assistance it need to provide. Conversely, the failure to win 
broad and deep support among important friends and allies could leave 
the United States with a bill that ranges toward the high end of the 
estimates discussed earlier.
                                endnotes
    1. Unless otherwise noted, all changes in funding levels noted in 
this testimony are expressed in real terms.
    2. Lane Pierrot and Gregory T. Kiley, ``The Long-Term Implications 
of Current Defense Plans'' (Washington, DC: CBO, January 2003), p. 5. 
With cost risk, CBO estimates that executing the current defense plan 
would require an average of $471 billion (fiscal year 2002 dollars) a 
year over the fiscal year 2008-20 period. This is equivalent to roughly 
$490 billion in fiscal year 2004 dollars.
    3. Gordon Adams and Steven Kosiak, ``The Price We Pay,'' The New 
York Times, February 15, 2003, p. A31.

    Mr. Shays. We are going to begin with Mr. Spratt. I will 
have some questions. But, Mr. Scott, I will go to you after Mr. 
Spratt.
    Mr. Spratt. Thank you very much for coming. Thank you for 
your testimony. Do you have a copy of your study you can submit 
for the record?
    Mr. Kosiak. Certainly.
    Mr. Spratt. If you could, I ask unanimous consent that it 
be made part of the record.
    Mr. Shays. Without objection so ordered.
    [The information referred to follows:]

     Potential Cost of a War With Iraq and its Post-War Occupation

    The Bush administration has made clear that it expects to soon 
begin military operations against Iraq, very possibly within the next 
several weeks. One of the factors that should be considered before a 
decision is made to initiate a war with Iraq is the likely financial 
and economic costs of such a war, as well as the costs of any post-war 
occupation, humanitarian assistance and reconstruction activities. In 
deciding whether to begin this war, it may be appropriate to give 
greater weight to political, strategic and humanitarian interests than 
to the likely financial and economic costs and consequences of the war, 
but those costs should at least be considered. This backgrounder 
provides a range of estimates related to a subset of those potential 
costs. Specifically, it focuses on the direct military costs to the 
United States of a war with Iraq and the post-war occupation of the 
country. It also briefly discusses some of the non-military costs that 
might be incurred in the aftermath of a war.
    This analysis finds that:
     Given the great amount of uncertainty surrounding the size 
of the U.S. force that will be required, the level of resistance that 
will be offered, the duration of the conflict, the level of allied 
participation, and other factors, it is impossible to provide more than 
a very rough estimate of even the direct military costs of a war with 
Iraq and its post-war occupation.
     Based on publicly available information, a reasonable 
estimate of the number of U.S. troops that might ultimately be deployed 
to the gulf region would be 175,000 to 350,000. Assuming the war were 
to last from one to 6 months, this suggests that the direct military 
costs of the war could range from as little as $18 billion to as much 
as $85 billion, roughly the cost of the 1991 gulf war.
     Occupation costs could far exceed the direct military 
costs of the war itself. A reasonable estimate of the average number of 
U.S. troops that would be required for occupation and peacekeeping 
duties after a war might be 20,000 to 90,000 over the next 5 years. 
This would equate to 5-year costs of roughly $25 [billion]-$105 
billion.
     Even a relatively small occupation force could greatly 
exceed the size of past U.S. deployments to peacekeeping missions 
(e.g., in Bosnia and Kosovo, where the U.S. military has had an average 
of about 10,000 troops stationed over the past few years). The need to 
maintain this presence over a period of years could impair the ability 
of the U.S. military to recruit and retain quality personnel, and to 
carry out some other important military missions. On the other hand, 
the fact that the U.S. military would no longer have to plan and 
prepare for a possible future war with Iraq might offset the risks 
associated with lower readiness levels.
     Although the focus of this analysis is on direct military 
costs, it is important to understand that those costs could be 
substantially exceeded by various non-military costs associated with 
the war and its aftermath. By one estimate, those costs include roughly 
$6 [billion]-$10 billion for aid to allies in the region, $1 [billion]-
$10 billion for humanitarian assistance, $5 [billion]-$12 billion for 
governance activities, $10 [billion]-$105 billion for reconstruction 
and recovery, and $62 [billion]-$361 billion for debt relief and 
related costs.\1\ On the other hand, these costs would almost certainly 
be borne not just by the United States, but by the United States' 
friends, allies and international financial institutions.
     In weighing the merits of military action, it is also 
important to understand that there could be substantial financial costs 
associated with foregoing or delaying military action. It is clear that 
Iraq's willingness to accept the return of U.N. weapons inspectors has 
been due largely, if not entirely, to the existence of U.S. military 
forces in the region and the threat of imminent attack posed by the 
U.S. military. Maintaining this posture could cost $1 billion a month, 
or more. In addition, over time, it could have a deleterious effect on 
the readiness of the U.S. military. More generally, if an effective and 
durable peaceful solution to the current crisis cannot be found, it is 
possible that the failure to take military action today could 
necessitate waging a war in the future that would be even more 
expensive, both in terms of direct military costs and non-military 
costs.
                   how much is a war likely to cost?
    The direct military costs of a war with Iraq can be only very 
roughly estimated. There is substantial disagreement and uncertainty 
concerning the size of the U.S. force that will be required to fight 
the war, the level of resistance that will be offered, the duration of 
the conflict, the level of allied participation, and other factors that 
could significantly affect the cost of the war. The approach used in 
this analysis was to generate three different scenarios which appear to 
represent a reasonable range of possible requirements, both in terms of 
force levels and conflict duration.
    The first scenario assumes the war would involve 175,000 U.S. 
troops deployed to the Persian Gulf region and would last 1 month, 
about 2 weeks less than the 1991 gulf war. The second scenario assumes 
that a total of 250,000 U.S. troops would be deployed to the region and 
that the war would last about 2 months, 2 weeks longer than the last 
gulf war. The third scenario, assumes that a total of some 350,000 U.S. 
troops would take part in the war, and that the conflict would last 
about 6 months. Most military experts appear to believe that such a 
lengthy war is unlikely. However, given the level of uncertainty 
inherent in any major military operation (especially, perhaps, one in 
which chemical or biological weapons might well be used), the 
possibility of a prolonged conflict should be considered.
    In order to estimate the direct military costs of each of these 
scenarios two sources of data were relied upon. One source is a range 
of estimates derived by the Congressional Budget Office (CBO) 
concerning the costs of various aspects of a possible military 
operation against Iraq.\2\ This data is supplemented by Department of 
Defense (DOD) estimates of the direct military costs of the 1991 gulf 
war. In both cases, the estimates reflect the extra or incremental 
costs of conducting military operations-costs above and beyond those 
that would be incurred by DOD as part of its normal peacetime 
operations.\3\
    According to CBO, deploying a force of 250,000-350,000 U.S. troops 
to the gulf region, would cost about $13 billion, the war itself would 
cost roughly $8 [billion]-$9 billion for the first month, and $6 
[billion]-$8 billion for subsequent months, and redeploying troops back 
to the United States would cost $5 [billion]-$7 billion.\4\ These 
estimates suggest that the cost of the scenarios outlined above would 
range from about $15 billion to $68 billion. Another approach to 
estimating the costs of the a war with Iraq would be to assume that it 
will cost roughly the same amount as the 1991 gulf war, adjusted for 
differences in the size of the U.S. force involved and the duration of 
the conflict. This would suggests that the three scenarios outlined 
above would incur direct costs ranging from about $22 billion to $100 
billion.
    Rather than choosing one of these two approaches, this analysis 
assumes that actual costs for the three scenarios would range from 
about $18 billion to $85 billion, with these figures representing 
roughly the midpoint between the estimates derived through the two 
different approaches. In the 1991 gulf war, the United States' friends 
and allies covered almost 90 percent of the incremental costs incurred 
during the operation. By contrast, it seems unlikely that contributions 
from other countries would cover much, if any, of the costs incurred by 
DOD in a second war against Iraq. Table 1 summarizes the three 
scenarios and the costs associated with each one.

                       TABLE 1.--ROUGH ESTIMATE OF DIRECT MILITARY COSTS OF A WAR IN IRAQ
----------------------------------------------------------------------------------------------------------------
          Number of troops                       Duration of war              Estimated cost (fiscal year 2003)
----------------------------------------------------------------------------------------------------------------
                         175,000                               1 month                           $18 billion
                         250,000                              2 months                           $35 billion
                         350,000                              6 months                           $85 billion
----------------------------------------------------------------------------------------------------------------
Source: CSBA based on CBO and DOD data.

      how much is the post-war occupation of iraq likely to cost?
    As with the costs of the war itself, the direct military costs of 
occupying Iraq in the war's aftermath can be only very roughly 
estimated. The level of disagreement and uncertainty surrounding the 
size of the occupation force that may be needed in Iraq and the 
duration of that occupation is, if anything, even greater than the 
uncertainty surrounding the war itself. Among other things, the size 
and duration of the U.S. occupation force required after the war would 
depend on four factors: the attitude of the Iraqi population toward the 
U.S. presence; the amount of tension or hostility between different 
ethnic groups within Iraq; the degree of participation by the United 
States' friends and allies in carrying out occupation duties; and the 
goals of the occupation--the more ambitious the goals, the larger and 
longer the occupation that would likely be required.
    According to Bush administration officials, current plans call for 
a U.S. general to be placed in overall charge of Iraq for at least 2 
years.\5\ The administration, has not, however, indicated the overall 
size of the U.S. force that would be needed for peacekeeping or the 
likely length of the occupation. Estimates of the size of the 
occupation force that might be needed range from about 75,000 to 
200,000 troops.\6\ Past experience in Bosnia, Kosovo, and elsewhere, 
suggests that the size of the force could be reduced over time. Thus, 
for example, while a force of 75,000 troops may be required the first 
year after the war, it might be possible to cut the size of the 
occupation force to 50,000 troops the second year, and to 25,000 troops 
over the following 3 years. Such a deployment profile would result in 
an average of some 40,000 troops being stationed in Iraq over the next 
5 years.
    As in the case of estimating the cost of a war with Iraq, the 
approach used in this analysis to estimate the potential cost of the 
post-war occupation of the country is to consider a range of possible 
requirements. Table 2 shows the costs associated with maintaining 
average forces of between about 20,000 and 90,000 U.S. troops in Iraq 
over the next 5 years. These averages would be consistent with a 
variety of different possible deployment profiles. The high-end 
estimate, for example, would be consistent with a deployment profile 
that included 150,000 troops the first year, 100,000 troops the second 
year, and 65,000 troops in the third and subsequent years. The low-end 
estimate would be consistent with a deployment profile that included 
50,000 troops in year one, 25,000 troops in year two and only some 
10,000 troops by the third and subsequent years. The cost estimates for 
these force levels are based on CBO estimates of the incremental costs 
of peacekeeping operations.\7\ As Table 2 indicates, the 5-year costs 
associated with these different scenarios range from about $25 billion 
to over $105 billion.

       TABLE 2.--ESTIMATED 5-YEAR COSTS OF U.S. OCCUPATION OF IRAQ
------------------------------------------------------------------------
      Average number of troops        Estimated cost (fiscal year 2003)
------------------------------------------------------------------------
                         20,000                          $25 billion
                         40,000                          $45 billion
                         90,000                         $105 billion
------------------------------------------------------------------------
Source: CSBA based on CBO and DOD data.

    These figures suggest that the direct military costs associated 
with the post-war occupation of Iraq could exceed the cost of the war 
itself. They also point to the potential importance of gaining 
substantial support among U.S. friends and allies for a war in Iraq. In 
Kosovo, for example, the U.S. military fought and won the war almost 
single-handedy, but was able to rely on friends and allies to provide 
the vast majority of the follow-on peacekeeping force. The situation in 
Bosnia followed a similar pattern. In both countries, today U.S. troops 
account for only 15-20 percent of the overall peacekeeping force. It 
seems doubtful that the U.S. military will be able to hand over 
responsibility for the occupation of Iraq in a similar manner. However, 
the more support the Bush administration can generate among friends and 
allies for the attack, the more likely it is that non-US forces will be 
able to relieve the United States of a significant portion of the 
burden of occupation--and the more likely it is that the United States' 
costs will range toward the low end, rather than the high end, of the 
estimates provided in this analysis.
potential impact of the post-war occupation of iraq on the readiness of 
                           the u.s. military
    In addition to financial costs, the long-term occupation of Iraq by 
U.S. troops could have a negative impact on the ability of the U.S. 
military to recruit and retain quality personnel, and to carry out some 
other important military missions. During the Clinton administration, 
the U.S. military became involved in long-term peacekeeping missions in 
Bosnia and Kosovo. Some military leaders and others argued that 
involvement in these operations was causing significant strains in the 
U.S. military. Among other things, they argued that involvement in 
these operations: resulted in lower mission-capable rates for many 
weapons systems (because of higher usage rates); reduced the time 
available for combat training; limited the ability of the U.S. military 
to redeploy forces in the event of war; and led to personnel retention 
problems, as troops had to spend more time away from home. In the 2000 
presidential campaign, candidate Bush was among those who raised 
concerns about the impact of peacekeeping missions on military 
readiness.
    If the U.S. peacekeeping presence in Bosnia and Kosovo--which has 
involved an average of about 10,000 troops in recent years--has indeed 
significantly undermined the readiness of the U.S. military, it follows 
that a long-term occupation of Iraq, which might well involve several 
or even many times that number of troops, could do a great deal more 
damage. Military officials have in the past stated that in order to 
maintain a single unit overseas, another two or three units must 
typically be available as a rotation base.\8\ In other words, 
supporting 10,000 troops overseas could require a total of as many as 
30,000-40,000 troops. If this same metric were applied to potential 
occupation force in Iraq, it would suggest that supporting a force of 
20,000 to 90,000 troops in Iraq would actually affect the readiness and 
availability for other missions of 60,000 to 360,000 U.S. troops.
    On the other hand, these figures may overstate the impact of a 
long-term occupation of Iraq on the readiness of the U.S. military. 
Notwithstanding the concerns raised by candidate Bush in 2000 and 
others throughout the late 1990s, it is not clear that U.S. involvement 
in peacekeeping operations in Bosnia and Kosovo had a significant 
negative impact on military readiness. Overall, the impact of these 
operations on military readiness appears to have been relatively 
modest, and in some cases, mixed. Perhaps more importantly, if the U.S. 
military were to defeat Iraq, one of the most significant major 
regional powers against which the U.S. military has, for the past two 
decades, planned and prepared to fight, would disappear as a military 
challenge. The disappearance of this threat might offset at least some 
of the risks associated with the lower readiness levels that might 
result from the occupation of Iraq.
            potential non-military costs of rebuilding iraq
    Although the focus of this analysis is on direct military costs, it 
is important to understand that those costs could be substantially 
exceeded by various non-military costs associated with the war and its 
aftermath. By one estimate,\9\ non-military costs incurred over the 
next 5 years or so could include:
     $6 [billion]-$10 billion for aid to friends and allies in 
the region, especially, Turkey, Jordan and Israel. In part, this aid is 
needed to gain access to bases in the region for U.S. forces.\10\
     $1 [billion]-$10 billion for humanitarian assistance. 
These funds would, for example, be needed to pay for emergency food and 
medical supplies for the Iraqi civilian population.
     $5 [billion]-$12 billion for governance activities, such 
as paying Iraqi civil service and police salaries.
     $10 [billion]-$105 billion for reconstruction and 
recovery. The low-end estimate assumes a relatively modest rebuilding 
program, while the high-end estimate would fund something akin to the 
Marshall Plan with which the United States helped rebuild Europe after 
World War II.\11\
     $62 [billion]-$361 billion for debt relief and related 
costs. The low-end estimate represents Iraq's foreign debt. The high-
end estimate also includes both settled and unsettled claims, and 
reparations to Kuwait.
    It is important to understand that these costs would almost 
certainly not be borne by the United States alone. The United State's 
friends and allies, and international financial institutions would 
likely bear a substantial portion of these costs. Although just how 
much of these costs the United States could avoid would likely depend, 
at least in part, on how successful it was in gaining broad 
international support for the war.
    Over the long term, at least, Iraqi oil production would be 
expected to increase, and oil production would presumably remain the 
core of the Iraqi economy for the foreseeable future. However, it would 
probably be a mistake to assume that Iraqi oil revenues could be used 
in the post-war period to reimburse the United States for any costs it 
incurred in waging the war to oust Saddam Hussein, or in the subsequent 
occupation mission. Depending on how extensively Iraq's oil production 
capabilities were damaged during military operations (or intentionally 
sabotaged by Iraqi forces), it could be years before production levels 
could be increased beyond today's levels. More importantly, given the 
enormity of Iraq's reconstruction requirements and the size of its 
foreign debt, if the Bush administration's goal is to turn Iraq into a 
stable, pro-United States democracy, it would probably prove 
counterproductive to use Iraqi oil revenues to reimburse DOD for its 
costs.\12\
    In addition to the non-military costs outlined above, it is 
possible that a war with Iraq could have broader economic consequences. 
Estimating these costs is even more speculative than estimating the 
costs of military operations or the cost of rebuilding Iraq after a 
war. Nevertheless, the costs could be significant. By one estimate, if 
a war with Iraq were to substantially disrupt oil supplies, it could 
cause an ``oil shock'' that could result in a reduction in real 
national income for the United States of $175 billion the first year 
and billions more over the course of the decade.\13\ Moreover, the oil 
shock could, in turn, tip the U.S. economy into recession, causing 
economic losses of another $391 billion.\14\ On the other hand, if the 
war is short and decisive, the impact on oil prices and the U.S. 
economy could be very modest, and might even be modestly positive.\15\ 
Moreover, in the context of a U.S. economy of some $11 trillion 
annually, even a relatively severe oil shock might not prove too 
disruptive or costly.
                      potential costs of inaction
    In weighing the merits of military action, it is also important to 
understand that there may be substantial financial costs associated 
with foregoing or delaying military action. It is clear that Iraq's 
willingness to accept the return of U.N. weapons inspectors has been 
due largely, if not entirely, to the existence of U.S. military forces 
in the region, and the threat of imminent attack posed by the U.S. 
military. This strongly suggests that sustaining an enhanced inspection 
regime over the long-term would require maintaining a substantial U.S. 
presence in the region as well. Just how much of a presence would be 
required is unclear. It might not be necessary to maintain a force as 
large the force the U.S. military now has in the region, which consists 
of perhaps 175,000 service men and women.\16\ However, even assuming 
that only some 75,000 troops would be required (triple the number of 
U.S. troop normally present in the region), the annual incremental 
costs to DOD might amount to some $10 billion a year.\17\
    In addition, over time, maintaining such a heightened near-war 
posture could have a negative impact on the readiness of the U.S. 
military--both to fight in Iraq and to carry out other missions. By 
giving the Iraqi military more time to prepare for an attack, any delay 
could also reduce the odds of winning the war quickly and decisively, 
especially if Iraq were to use the time to improve its WMD 
capabilities. More generally, it is possible that the failure to take 
military action today could necessitate waging a war in the future that 
would be even more expensive, both in terms of direct military costs 
and the non-military costs discussed in the preceding section of this 
analysis.
                              conclusions
    As the analysis in this backgrounder suggests, the United States is 
likely to incur substantial financial costs if it invades Iraq. 
Moreover, the cost of occupying Iraq after the war could exceed the 
cost of the war itself. And non-military costs associated with 
rebuilding Iraq and providing other kinds of assistance could well 
exceed the direct military costs of both the war and the subsequent 
occupation of the country. However, it is impossible to determine with 
much certainty and precision just how much a war with Iraq would cost, 
or how much would need to be spent on peacekeeping or reconstruction 
and other non-military activities after the war. This is because there 
is substantial uncertainty surrounding a wide range of variables that 
could affect these costs, such as the size of the U.S. force that would 
be required for the war and occupation duties, the level of resistance 
that will be offered, the duration of the conflict, and the level of 
participation by U.S. friends and allies.
    The degree to which one can usefully conduct a cost benefit 
analysis to help determine the wisdom of launching a war against Iraq 
is also complicated by the fact that there could be substantial 
financial cost associated with a failure to act, or a decision to defer 
an attack, as well. This does not mean that the financial costs 
discussed in this analysis have no bearing on the merits of a decision 
to go to war. It does, however, suggest that, by themselves, these 
considerations do not offer a clear-cut answer to the question of 
whether or not such a decision is in the best interest of the United 
States. Thus, in the end, in making this decision, it may be 
appropriate that political, strategic and humanitarian interests be 
given greater weight than the likely financial and economic costs and 
consequences of the war. Whether those interests provide greater 
support to those advocating war, or those advocating alternative 
approaches to resolving the current crisis, is of course a question 
that lies far beyond the scope of this analysis.
                                endnotes
    1. Gordon Adams and Steven Kosiak, ``The Price We Pay,'' The New 
York Times, February 15, 2003, p. A31.
    2. Dan Crippen, Director of CBO, Letter to Senator Kent Conrad and 
Representative John Spratt concerning the cost of possible military 
operations against Iraq, September 30, 2007.
    3. Incremental costs include, for example, costs associated with 
activating reserve personnel, operating equipment more intensively than 
normal, combat pay, and expending munitions in wartime. They do not 
include military pay for active duty personnel, the cost of equipping 
U.S. forces, or the cost of regular day-to-day operations, since those 
costs would be incurred by DOD even absent a war.
    4. CBO, pp. 9-10.
    5. Barbara Slavin, ``U.S. General Would Run Iraq,'' USA Today, 
February 13, 2002, p. 1.
    6. CBO, p. 5.
    7. Ibid.
    8. The rotation base consists of units preparing for upcoming 
deployments and recovering from past deployments.
    9. Adams and Kosiak, p. A31. These figures represent the authors' 
estimates. They were derived from a variety of sources, including the 
Asia Development Bank, the Center for Strategic and International 
Studies, the Congressional Budget Office, the Council on Foreign 
Relations, the House Budget Committee Minority Staff, the United 
Nations, the World Bank, and economist William D. Nordhaus.
    10. At the end of February, the United States offered Turkey up to 
$6 billion in aid plus perhaps $20 billion in loan guarantees for 
Turkish support in the event of a war with Iraq. www.economist.com/
agenda/displayStory.cfm?story--id=1591496.
    11. Among other things, these estimates include the cost of 
repairing and rebuilding Iraqi oil production capabilities. The high-
end estimate is taken from William D. Nordhaus, ``The Economic 
Consequences of a War With Iraq,'' in War With Iraq: Costs, 
Consequences, and Alternatives (Cambridge, MA: American Academy of Arts 
and Sciences, 2002), p. 66.
    12. In any case, it is unclear how much Iraqi oil production could 
or would (given the inverse relationship between oil production levels 
and price) likely be increased after a war. For a discussion of this 
question, see Nordhaus, pp. 68-73.
    13. Ibid.
    14. Ibid., pp. 74-76.
    15. Ibid., pp. 68-76.
    16. On the other hand, since even the presence of roughly 175,000 
U.S. troops in the region today has not led Iraq to fully cooperate 
with U.N. weapons inspectors, it is unclear whether a smaller force 
would suffice.
    17. This assumes that 50,000 more troops would be deployed to the 
region than is typical in peacetime and that the per-troop costs of 
maintaining this force would be roughly the same as the per-troop costs 
CBO estimates for peacekeeping missions.

    Mr. Shays. Thank you. Mr. Kosiak, you have provided very 
helpful testimony.
    I will also ask unanimous that all members may have 7 days 
to submit a written statement for the record. Without objection 
so ordered.
    Mr. Spratt. Going down the categories that you have listed 
as potential cost components of the war in the gulf region, you 
have got direct cost of the war itself, of course that includes 
getting there and getting back. You have got occupation costs 
which are, in your analysis, basically the personnel costs of 
personnel and equipment costs of deploying a force. And then 
you have got additional costs on top of that for 
reconstruction, for humanitarian assistance, for governance 
activities, and an enormous number for debt relief, as much as 
$361 billion.
    If you took everything you have got there, all of the 
categories, I can't quite get it together on the back of an 
envelope, low end to high end, what is the low end of all 
categories? What is the high end of all categories?
    Mr. Kosiak. I didn't bring my calculator, so I couldn't 
actually tell you. I would say that final category, debt relief 
and related costs includes claims, Kuwaiti claim for 
reparations from Iraq and some other claims, contract claims 
and not just debt relief. But, it is a very large number. I 
honestly can't--I can't answer that question.
    Mr. Spratt. Reparations from Iraq?
    Mr. Kosiak. Reparations to Kuwait.
    Mr. Spratt. To Kuwait.
    Mr. Kosiak. From the 1991 gulf war.
    Mr. Spratt. You are assuming that those might be 
exonerated?
    Mr. Kosiak. We don't know. If one--and in part, it depends 
on what your real goal is for Iraq. Obviously, if the American 
goal there is to essentially oust Saddam Hussein and make sure 
there are no weapons of mass destruction, and then pretty much 
leave the country on its own, then presumably these kind of 
reconstruction and other debt relief and costs like that would 
not have to be borne or are not borne at the high end of these 
estimates.
    On the other hand, if your goal is to really establish a 
long-term democracy that is pro western and a country that has 
a viable and growing economy, then one might want to make some 
of these--incur some of these costs.
    Mr. Spratt. In just basic costs for the first two 
categories, the war itself and occupation afterwards, you have 
got a range of $18 [million] to $85 million for war itself, and 
a range of $25 [million] to $105 million for occupation. So the 
low end of the first two categories would be $43 [billion] to 
almost $200 billion.
    Mr. Kosiak. Right.
    Mr. Spratt. You are in Larry Lindsey's ballpark now.
    Mr. Kosiak. It is not too difficult to get to that 
ballpark.
    Mr. Spratt. Do you have any notions as to how likely any of 
those numbers is, where you would fall?
    Mr. Kosiak. I mean, I think the--in terms of the war 
itself, it is very difficult to say, because there is a wide 
range of uncertainty as to what a war might look like. What I 
have seen, this is just based on press reports, it looks like 
we are moving in with something like 250,000 troops into the 
region. The estimates I have seen for the war's length from 
people, military experts, seems to be in the range of as short 
as a week to as long as 2 months.
    One of the options we looked at here was a war that 
involved 250,000 U.S. troops in the region and lasted 2 months. 
Our estimate for the cost of that war was about $35 billion 
just for the war itself.
    Mr. Spratt. Pretty close to CBO then?
    Mr. Kosiak. Right. A little higher than CBO numbers would 
suggest. In terms of peacekeeping, it is just very hard to say. 
There was the statement by Gen. Shinseki, where he suggested 
that several hundred thousand troops might be needed for some 
period of time after the conflict. But, most estimates have 
been that we would have fewer troops in there than that.
    Mr. Spratt. You mentioned two other problems. No. 1 is 
transformation which is a long time coming, and it is 
questionable as you look at the accounts where you would expect 
to see a plus-up, the science and technology accounts, and find 
that they are actually being shaved, whether or not we are 
laying the basis for transformation.
    I was always a skeptic about transformation because I 
thought it would involve maintaining three levels of Armed 
Forces, the legacy force, the transition force, and an 
objective, transformed force, more or less all at the same time 
as you merged toward the eventual day when everything would be 
transformed.
    But, you see right now, in today's world that you have got 
to have a legacy force that can fight. You can't take a 
transformed force over there yet. We don't have any 
transitional forces, but you have got to maintain a robust 
legacy force for a long time to come, because these 
transformational items, if ever, may not materialize.
    So when we started this process, the chairman of this 
committee was a bit chagrined with the DOD request for an 
increase for next year, because he thought that the 
transformation meant getting more for less. In truth, it will 
be a long time before we get the less for the more, will it 
not?
    Mr. Kosiak. Well, I think it is difficult to say. So I 
think that you have to look at it on a case-by-case basis. But 
I think over the long term, I think one thing that is important 
to remember, if you look historically at transformation 
efforts, and we have done some work in this area, you know that 
a real transformation really is transformation, it is not 
layering on one system on the next.
    When the U.S. Navy transitioned from battle ships to 
aircraft carriers, there was a period of transition. But, 
ultimately we basically got rid of the battle ships, got these 
out of the fleet, and were focused almost entirely on aircraft 
carriers.
    Mr. Spratt. At least until John Lehman came back.
    Mr. Kosiak. That is right. And so ultimately, and carriers 
won the day, because they were the most cost effective systems. 
So I think ultimately when this force is transformed, and 
obviously this will be a slow process, it might be faster in 
some areas than in others, but I think ultimately it will lead 
to a more cost-effective military.
    But, again, you--you kind of have to look at it on a case-
by-case basis. One of the things that I tried to do in our 
analysis of transformation funding was to look at--not so much 
look at the programs, but look at the process. And I think my 
concern is that the--if you look at the R&D budget and look at 
the categories of funding where you would think we should be 
spending money if you are worried about transformation, we 
don't seem to be spending.
    Mr. Spratt. One final point. Let me highlight it about your 
testimony, because you point to a problem that CBO has raised 
in a recent study, that is, the sustainability of the programs 
that we have in development at this point in time, the total 
program, whether or not we can bring to fruition with the 
budget totals that are projected all of the systems that we 
have now got on our drawing boards.
    And you raise a red flag here saying if you look, anybody 
looks at any recent period in defense spending history, it is 
cyclical. There are ups and downs. And if indeed the current 
wave of spending proves to be cyclical, we could be developing 
a lot more stuff than we can actually bring to fruition; is 
that your point correctly stated?
    Mr. Kosiak. Yes. I think the concern is that there are 
risks associated with this strategy, with assuming that you are 
going to have extremely large and sustained increases in 
funding for defense, and the risk is, among other things, that 
you will spend a lot of money developing systems that you 
ultimately won't be able to put into production, or if you can 
put them into production, only at very low and inefficient 
production rates.
    So in the end, you actually end up worse off than if you 
had more realistic assumptions, and made harder choices 
earlier.
    Mr. Spratt. Thank you very much for your testimony, for 
bridging the study with you. And I yield back to the chairman.
    Mr. Shays. I thank the gentleman. I think with three 
members, we can go back and forth too. I would--I would like to 
ask you to comment. You can't audit the DOD. I mean, there is 
over a trillion transactions that are not auditable yet. That 
goes back historically over all administrations. Inventory 
control is not like what a modern store would have where you 
would know what is in and out of your inventory on a timely 
basis.
    Our ability to use IT equipment, we always seem one step 
behind or two. And we have more weapons systems than we can 
afford. And we have a military that really isn't yet--it is in 
transformation. But would you--if 10 was all the way there, to 
1, you know, we really haven't even begun, tell me where we are 
in this transformation process?
    Mr. Kosiak. That is an excellent question. I think it is 
very difficult to answer. I am not sure that I can offer an 
effective answer to that. In certain parts of the defense--some 
defense plans, we are quite far along. In some areas we are 
quite far along. In other areas we are not so far along. I 
think the area where we have the most concern is that we are 
not developing a capability, we are not focusing on 
capabilities to be able to project power into regions of the 
world where we don't have--where we don't have military bases, 
or in wartime where we may not have access to military bases, 
either because of political reasons, or because those bases are 
subject--are put at risk by ballistic missiles or other 
capabilities possessed by, you know, regional powers.
    And I think one dramatic example of that is our focus on 
short-range tactical fighters and how much money we are 
projecting to spend on short-range tactical fighters, when this 
is an area where we really currently have an enormous 
superiority over any potential foes, and at the same time we 
are not spending any new money or very little new money to 
develop capabilities to project power over great distances.
    For example, stealthy long range, UCAVs, for example. We 
are spending money on UCAVs, but not on stealthy long range 
ones. It is very difficult to say. I mean, and again, part of 
the reason why I focus on looking at, you know, you can find 
people, there are many people who believe in transformation, 
but obviously people have very different views on exactly what 
that means.
    One of the reasons I focus in my analysis of the R&D budget 
on sort of looking at the process of where the money is going 
rather than specific programs, was to try to get around that 
problem. But, in fact, it is a problem, because people--
everybody embraces the notion of transformation, but there are 
dramatic differences about what that means.
    Mr. Shays. I am not on the Armed Services Committee, like 
my colleague, Mr. Spratt, but when I think of transformation, I 
think of the ability to move, for instance, men and equipment 
more quickly from one place to the other, to not have to be 
tied down with heavy armaments, quick in, quick out. I think of 
the Predator as being an example of moving into new technology 
that is transforming us.
    Is that the way I should be thinking of transformation?
    Mr. Kosiak. Well, I think transformation in general is--the 
notion of transformation is based on this idea that we are in 
or entering a period of revolutionary change in military--the 
so-called revolution in military affairs. The notion is because 
of changes and advances in technology and especially 
information technology, when you combine those changes with 
changes in the way forces are organized and the use of new 
operational concepts, that the combination of those three 
things can lead to dramatic increases in capabilities, just 
like the aircraft carriers did in World War II, or strategic 
bombing in World War II, or mechanized forces.
    Mr. Shays. Bottom line, transformation is critical. The 
nations that are able to transform have extraordinary 
advantages over those that don't, correct?
    Mr. Kosiak. Right. And also, again, it is not--I think in 
general, when you see a transformed military, it is not as 
though militaries that have not transformed are necessarily 
cheaper than those that have transformed if you look back 
historically.
    We shouldn't feel that we have to break the budget, I 
think, in order to effectively transform the U.S. military.
    Mr. Shays. Just one last point. Frankly I don't know why 
the administration isn't able to give us a range of numbers, 
and we can decide whether it is helpful or not. But, you know, 
for me in this whole issue of going into Iraq, we need to go 
in. If Saddam doesn't disarm, and he shows no intention of 
doing that, we need to make sure that we go in before he has 
the weapon I most fear, a nuclear capability.
    And so I am willing to live with almost any cost. Because I 
think it has to happen. But it is perplexing to me why we are 
not able to nail it down a little bit more. But one of the 
things you seem to talk about that I had originally thought the 
war would be paid for by Iraq. And I was not chastised but 
corrected quickly by the administration.
    It is not a war about oil, this is not a war about their 
having to pay us for our having to come in. The administration 
made very clear, the oil revenues and so on will go to rebuild 
Iraq, to feed the people, to give them the medical care to 
rebuild their schools and to generate their economic activity.
    And so are you excluding that from the cost? Are you also 
subtracting from that cost what you think the Northern Watch 
and the Southern Watch, when you calculate these costs to us?
    Mr. Kosiak. Well----
    Mr. Shays. One is the war and then one is what happens 
afterwards.
    Mr. Kosiak. Right. One of the things I didn't include in my 
testimony but is something that I looked at in the study, was 
what is the cost of maintaining--I didn't actually--the cost of 
Northern and Southern Watch is typically a billion, a billion 
and a half dollars a year, something like that.
    So if you didn't have to pay that, that would be a--you 
should deduct that from these amounts, because I did not do 
that. Also, it is possible that you--if you don't go to war, 
you may have to maintain a significant presence there, maybe 
not like the presence we have there now, but if you want to 
maintain a level of threat to Iraq that would help enforce an 
enhanced inspection regime, you may have to spend significantly 
more than we spent on Southern and Northern Watch.
    My own estimate was it could be $1 billion a month, 
depending on how big a presence you felt that you had to keep 
in the area in order to keep the pressure on. So those costs, I 
did not mention those costs when I went through it in my 
testimony.
    Mr. Shays. Let me go to Mr. Scott. Thanks for your 
patience.
    Mr. Scott. Thank you, Mr. Kosiak, for your testimony. It 
has been extremely helpful. Your testimony on page 6 mentioned 
this $361 billion for debt relief and related costs. What does 
that mean?
    Mr. Kosiak. Well, part of it is foreign debt owed by Iraq. 
Part of it is.
    Mr. Scott. Owed by Iraq to who?
    Mr. Kosiak. I am not sure to who in particular. To various 
countries.
    Mr. Scott. If we were to satisfy that item, would we have 
to pay or would we just cancel what they owe us?
    Mr. Kosiak. Well, one option would be canceling what they 
owe us, if it is owed to us. If it is owed to other countries, 
hopefully they would cancel it. Another thing is to refinance 
the debt so they would ultimately still have to pay it back, 
but of course, that may be difficult if you--again, it depends 
on part on what your real goals are for the country, and how 
much you want to give them a boost.
    So you wouldn't necessarily have to pay those costs, 
certainly, but you might want to pay at least some of those 
costs to give them an economic boost.
    Some of the other costs, that is the last category, and it 
is, by far and away, the most speculative of those categories, 
I don't want to suggest that we would necessarily have to cover 
the costs of anything like $360 billion. A lot of that may be 
debt that we can refinance and not necessarily forgive, for 
example. And it is not all debt by any means. Some of it, as I 
say, are reparations owed to Iraq--to Kuwait based on the----
    Mr. Scott. What are the prospects that we can get other 
countries to contribute some of the costs?
    Mr. Kosiak. I think in terms of the direct military costs, 
both the peacekeeping aspect and the cost of the war itself, I 
think they are very limited. In 1991, of course, allies through 
cash and in-kind contributions covered 90 percent of the 
incremental cost of that war. There is no chance that that is 
going to happen. There is no indication that that is going to 
happen this time. We are going to have to cover the direct 
military costs of both the war and the peacekeeping.
    But where we might be able to get assistance in having, 
hopefully we would be getting allies and friends to help 
contribute peacekeeping forces, and then also to hopefully take 
a lead in, or at least to contribute to some of these 
reconstruction and other costs.
    Mr. Scott. Well, if these expenses, we are going to pay 
those expense, this is the Budget Committee, we are already 
running up a deficit, what--how are we going to pay for it? Do 
we add it to the bottom line debt? Is there any proposal that 
we have to cut something or raise revenues or what, or just add 
it to debt?
    Mr. Kosiak. Well, I certainly----
    Mr. Scott. From a budget perspective, what is going on 
here?
    Mr. Kosiak. I have not heard any proposals to finance it in 
any way other than--I think the hope is that we will get allies 
to contribute and friends to contribute to some of it. But 
other than that, I have not seen any indication from the 
administration that they are proposing any kind of--certainly a 
tax increase or anything to cover the cost. So I guess it would 
add to the debt. That is the short answer.
    Mr. Scott. Missile defense. Where is that in the budget? 
And where should it be in priorities?
    Mr. Kosiak. Well, I think, you know, I think there is some 
strong bipartisan support for some level of research and 
development, and probably deployment of a ballistic missile 
defense program.
    I think, my own concern is that we not lose sight of some 
of the other important priorities. One of things I pointed out 
this afternoon was that we are spending--we have only had a 
modest 10-percent increase in S&T funding overall, which could 
have enormous impact on military capabilities down the road, 
but we have dramatically increased funding for ballistic 
missile defense development.
    And I think that may indicate too much of an emphasis, and 
perhaps going too fast in that area. I think clearly a robust 
R&D program supporting missile defense should be a priority, 
whether we need to be spending as much as we are now is more 
questionable.
    Mr. Scott. Navy and priority of ship-building, especially 
aircraft carriers.
    Mr. Kosiak. Well, I think the--you know, maintaining an 
adequate ship-building production rate is a real challenge for 
this administration. Over the long term, I think one hope is 
that we will be able to get by with a smaller Navy than we have 
today. I think it is inevitable if you look at the 
administration's plans. I think it is not necessarily a bad 
thing. If we can--you know, as we get new and better ships, we 
should be able to get by with a smaller Navy.
    In terms of aircraft carrier production, I think going 
ahead with the new generation of aircraft carriers probably 
makes sense. But, over the longer term, I have real concern 
about the vulnerability of aircraft carriers and the ability to 
operate and project power in an efficient way in different 
regions of the world.
    So I am not sure. I think we need to look for alternative 
solutions over the longer term.
    Mr. Scott. Except those are what we actually use as opposed 
to some of the other stuff that we spend a lot of money on. 
And, particularly, in light of the fact that we are having 
trouble trying to find bases to locate on, it is the only way 
that we can project power.
    Mr. Kosiak. Absolutely. And having a sizeable aircraft 
carrier fleet today is critically important today, no question 
about that. And it gets back to this point of transformation 
and how transformation occurs. I would certainly not suggest, I 
think we will have carriers in the fleet, a large number of 
carriers in our fleet for years to come.
    My point is only that we need to spend some time and money 
investigating some alternatives. One of things I think the 
administration has done right is to finance the funding of--the 
conversion of four Trident ballistic missile submarines to 
carry Tomahawk cruise missiles. I think more efforts along 
those lines could, over the long term, yield some capabilities 
that could supplement aircraft carriers.
    Mr. Scott. Thank you, Mr. Chairman.
    Mr. Shays. I thank the gentleman for his question. Mr. 
Kosiak, I thank you for your patience. I thank you for your 
very intelligent answers and for your contribution to the 
committee's work. Thank you.
    Mr. Kosiak. Thank you.
    [Whereupon, at 4:45 p.m., the committee was adjourned.]