[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]

LONG-TERM SUSTAINABILITY OF CURRENT DEFENSE PLANS

=======================================================================

HEARING

before the

COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

FIRST SESSION

__________

HEARING HELD IN WASHINGTON, DC, FEBRUARY 4, 2009

__________

Serial No. 111-2

__________

Printed for the use of the Committee on the Budget

Available on the Internet:
http://www.gpoaccess.gov/congress/house/budget/index.html

----------
U.S. GOVERNMENT PRINTING OFFICE

47-035 PDF WASHINGTON : 2009

For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800;
DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC,
Washington, DC 20402-0001

COMMITTEE ON THE BUDGET

JOHN M. SPRATT, Jr., South Carolina, Chairman
ALLYSON Y. SCHWARTZ, Pennsylvania PAUL RYAN, Wisconsin,
MARCY KAPTUR, Ohio Ranking Minority Member
XAVIER BECERRA, California JEB HENSARLING, Texas
LLOYD DOGGETT, Texas SCOTT GARRETT, New Jersey
EARL BLUMENAUER, Oregon MARIO DIAZ-BALART, Florida
MARION BERRY, Arkansas MICHAEL K. SIMPSON, Idaho
ALLEN BOYD, Florida PATRICK T. McHENRY, North Carolina
JAMES P. McGOVERN, Massachusetts CONNIE MACK, Florida
NIKI TSONGAS, Massachusetts K. MICHAEL CONAWAY, Texas
BOB ETHERIDGE, North Carolina JOHN CAMPBELL, California
BETTY McCOLLUM, Minnesota JIM JORDAN, Ohio
CHARLIE MELANCON, Louisiana CYNTHIA M. LUMMIS, Wyoming
JOHN A. YARMUTH, Kentucky STEVE AUSTRIA, Ohio
ROBERT E. ANDREWS, New Jersey ROBERT B. ADERHOLT, Alabama
ROSA L. DeLAURO, Connecticut, DEVIN NUNES, California
CHET EDWARDS, Texas GREGG HARPER, Mississippi
ROBERT C. ``BOBBY'' SCOTT, Virginia
JAMES R. LANGEVIN, Rhode Island
RICK LARSEN, Washington
TIMOTHY H. BISHOP, New York
GWEN MOORE, Wisconsin
GERALD E. CONNOLLY, Virginia
KURT SCHRADER, Oregon

Professional Staff

Thomas S. Kahn, Staff Director and Chief Counsel
Austin Smythe, Minority Staff Director

C O N T E N T S

Page
Hearing held in Washington, DC, February 4, 2009................. 1

Statement of:
Hon. John M. Spratt, Jr., Chairman, House Committee on the
Budget..................................................... 1
Questions for the record................................. 72
Hon. Paul Ryan, ranking minority member, House Committee on
the Budget................................................. 2
Hon. Rick Larsen, a Representative in Congress from the State
of Washington, prepared statement of....................... 3
Stephen Daggett, specialist in defense policy and budgets,
Congressional Research Service............................. 3
Prepared statement of.................................... 9
Responses to questions for the record.................... 57
J. Michael Gilmore, Assistant Director, Congressional Budget
Office..................................................... 20
Prepared statement of.................................... 26
Responses to questions for the record.................... 72
Hon. Steve Austria, a Representative in Congress from the
State of Ohio, questions for the record.................... 56
Hon. Rosa L. DeLauro, a Representative in Congress from the
State of Connecticut, questions for the record............. 56
Hon. James R. Langevin, a Representative in Congress from the
State of Rhode Island, questions for the record............ 73

LONG-TERM SUSTAINABILITY OF
CURRENT DEFENSE PLANS

----------

WEDNESDAY, FEBRUARY 4, 2009

House of Representatives,
Committee on the Budget,
Washington, DC.
The committee met, pursuant to call, at 10:05 a.m. in room
210, Cannon House Office Building, Hon. John Spratt [chairman
of the committee] presiding.
Present: Representatives Spratt, Schwartz, Becerra,
Blumenauer, McGovern, McCollum, Melancon, Scott, Larsen,
Doggett, Berry, Yarmuth, Connolly, Kaptur, Tsongas, Etheridge,
Langevin, Ryan, Hensarling, Simpson, Nunes, Harper and Lummis.
Chairman Spratt. Call the meeting to order.
I first would thank our witnesses and, for that matter,
everyone else for coming to the hearing this morning on the
long-term sustainability of our current defense plans.
Our object in this hearing is a better understanding of
defense spending increases over the last 8 years and some
notion, at least we hope to come out with, of the
sustainability of concurrent defense plans for 2010 and beyond.
Over the past 8 years, the defense funding level has
enjoyed a--defense spending has enjoyed a rather permissive
environment; and it has increased at a rapid rate. The so-
called base, or our non-war budget, increased between 7 and 8
percent; and the cost of our deployments in Iraq and
Afghanistan increased steadily each year, surpassing $185
billion in the year 2008. As a result, total defense spending,
Function 050, more than doubled over this period, rising from
$335 billion in 2001 to $691 billion in 2008.
Defense spending in real terms is now at its highest level
since World War II. So it is reasonable to ask, can this trend
continue? Given our fiscal condition, the receding economy,
surging deficits, annual increases in defense on par with what
we have seen over the last 8 years are not going to be easy to
accommodate in the budget.
Secretary Gates implied as much himself. In his testimony
recently before the House and Senate Armed Services Committees,
he told the committee, and I quote, the spigot of defense
spending opened by 9/11 is closing. He also said that the
Defense Department is going to have to differentiate between,
quote, those things that are desirable as opposed to those
things that are truly needed.
Now, let there be no mistake about it. I have been on the
Armed Services Committee for all of the 26 years I have been
here, and I have been a stalwart supporter of national defense.
We will spend whatever we need to see that our national
security needs are met. Only now more than ever, given the
budget we have got, we must ensure that we do so in a fiscally
sound manner.
For the government to make fiscally sound, responsible
decisions it must first have a full accounting of its policies,
including both DOD's base defense plans and its prospective war
plans. Over the past 8 years, such an accounting has been
lacking.
The government must also assess options, identify cost
pressures, explore tradeoffs and assess opportunity costs; and
this is what we want to begin exploring today. We have two
excellent witnesses for this purpose. Michael Gilmore is the
Assistant Director for National Security at the Congressional
Budget Office; and Steve Daggett, an expert in defense policy,
and budgeting in particular, at the Congressional Research
Service.
I welcome you both, and I thank you for your willingness to
come before the committee and for your excellent testimony,
which I have read. I think you will be two good witnesses to
help us understand past trends in defense spending and any
implications for the future, long-term cost implications of the
defense plans that we have in place now.
But before turning to either one of you, I want to turn to
Mr. Ryan, the ranking member from Wisconsin, and ask him for
any opening statement he cares to make.
Mr. Ryan. Thank you, Mr. Chairman.
Our conference is just winding down, so I expect our
members to start coming soon.
Clearly, the bulk of Congress' attention has been focused
on and remains to be focused on addressing the current crisis
in our economy. But dealing with the economic crisis does not
excuse or even diminish Congress' responsibility to the primary
role of the Federal Government, and that is our national
defense. So even as the economy has replaced the global war on
terrorism on the front page, it does not replace our commitment
to those on the front lines. Our job, as it has always been, is
to ensure that American soldiers have the best available to
them.
But as this hearing will point out, DOD's plan far exceeds
what has been budgeted. Just as in the civilian sector, DOD's
health care spending is increasing at an unsustainable rate;
and, just as in the rest of the budget, these costs are
beginning to eat into their discretionary budget. So I have a
particular interest in hearing from both witnesses about what
DOD is doing or at least planning to do to address this
particular problem.
Finally, as everyone on the committee is well aware, DOD
did not receive a clean audit last year. It has, in fact, been
on GAO's high-risk list for as long as I can personally
remember; and, regrettably, I have not heard any indication
that these problems will be resolved in the near future.
My point here is that, while we must ensure our troops are
fully funded, we cannot simply throw money at the Pentagon
without proper oversight and accountability. I look forward to
exploring our witnesses and the drivers behind DOD's growing
budgets and how, together with Congress, it might be more
efficiently transparently met in this important mission.
Thank you.
Chairman Spratt. Thank you, Mr. Ryan.
One further housekeeping detail, I ask unanimous consent
that all members be allowed at this point to submit an opening
statement for the record.
Hearing no objection, so ordered.
[The prepared statement of Mr. Larsen follows:]

Prepared Statement of Hon. Rick Larsen, a Representative in Congress
From the State of Washington

Chairman Spratt, thank you for holding today's hearing on the Long-
Term Sustainability of Current Defense Plans. I appreciate your
dedication to thoroughly examining all aspects of our nation's fiscal
future.
The previous Administration has left us with defense spending plans
that are both unsustainable and unrealistic. The Pentagon's base budget
has already reached its highest levels since World War II, and
executing current defense plans will result in the dramatic defense
spending increases for the foreseeable future. Plans to increase the
size of the military, maintain aging facilities and equipment, procure
new weapons, and develop more sophisticated technology all contribute
to unsustainable growth in defense spending.
Unbudgeted costs for wars in Iraq and Afghanistan will further
strain our defense budget in the coming years. The Congressional Budget
Office estimates that funding for these operations will cost nearly
$900 billion over the next ten years in addition to the Pentagon's base
budget.
Earlier this month, media outlets reported that officials within
the Department of Defense were preparing a request for $587 billion in
defense spending in fiscal year 2010, a dramatic increase over the $513
billion provided by Congress in fiscal year 2009. The Bush
Administration projected that a defense budget of $527 billion in
fiscal year 2010 would be sufficient, and other media reports have
indicated that the Office of Management and Budget plans to adhere to
this budget cap. To be clear, an internal Defense Department document
requesting $587 billion is not a budget, it is a Christmas wish-list
from the military services. Congress will write and enact the defense
budget based on thorough discussions with military leaders, the
civilian leadership of the Defense Department, and the White House.
In the coming year, the Department of Defense and Congress must
make tough choices regarding future defense spending. As Secretary of
Defense Gates has said, we cannot buy everything and do everything. Our
nation faces enormous fiscal deficits, and our current recession will
only make budget shortfalls worse. Facing this budgetary reality, we
will need to scrutinize each major weapons program to reduce costs
while ensuring that our military personnel have the tools they need to
meet the threats we face.
I look forward to working with you, Chairman Spratt, both here on
the Budget Committee and on the Armed Services Committee, to ensure
that our future defense spending plans are both sustainable and
consistent with our national security objectives.

Chairman Spratt. In addition, for the record, let me note,
if there is no objection, we will have the full written
statement of Mr. Daggett and Mr. Gilmore entered in the record,
so that you can summarize it as you see fit.
But, today, we have one panel, two witnesses and some
excellent testimony, so I encourage you to take your time to
give us a thorough review of what you have said.
And, Mr. Daggett, let us begin with you, sir. Or Mr.
Gilmore. I will let the two of you settle it out.
Mr. Gilmore. It is your preference, Mr. Chairman.

STATEMENT OF STEPHEN DAGGETT, SPECIALIST IN DEFENSE POLICY AND
BUDGETS, CONGRESSIONAL RESEARCH SERVICE

Mr. Daggett. I am glad to start out.
Mr. Chairman, thanks very much for the invitation to
testify.
Mr. Spratt, you and I go back I think 25 years or so now,
so it is really a pleasure to see you. But I have to say I
particularly appreciate you asking me to be on a panel with
Mike today. I know that, whatever question you ask, one of us
at least will be able to answer it. Mike has done--Mike's work
at CBO really has been the definitive work on the cost of long-
term defense plans that all of us in town really use for
further analysis.
Chairman Spratt. Let me interrupt you here at this point,
Stephen.
Recall when we launched the second Persian Gulf War against
Iraq, CBO was the first to say, if this going to be a long
undertaking, you have got manpower and rotational problems that
the DOD did not acknowledge to us. CBO was on the front lines
of that. You have done some excellent work also in projecting
defense budgets. So we have got two good, disinterested experts
here; and we are glad to have both of you.
Mr. Daggett. Thanks.
Mr. Chairman, if you look at what the leaders of the
military services have said, what defense industry analysts
have said, what analysts in think tanks have said, you come
away with a strong sense that there is a real gap in the
defense budget, a real mismatch between the cost of planned
programs and what most are projecting will be the likely trend
in the defense budget.
The Chairman of the Joint Chiefs has said that defense
spending ought to be kept to a floor of 4 percent of GDP, which
by my calculations would mean adding about $100 billion in 2010
to the defense budget to accommodate. Each of the military
services has said similar things.
The Chiefs of Staff and the Secretary of the Air Force for
the past couple of years have been saying that the Air Force
needs about $20 billion more per year in acquisition accounts
to accommodate its planned program. To put that into context,
the overall Air Force acquisition budget, which is weapons
procurement plus R&D, was scheduled to go from about $63
billion in 2009 up to about $70 billion by 2013. So, in effect,
they are saying they are about 30 percent short in the amount
of money available for the program that they want.
The Army has said similar things. They are projecting about
130 or $140 billion base budget, and they are saying that their
annual requirements are on the order of 170 to $180 billion. A
big piece of that is for war costs that they are concerned
might not be funded if the war is financed out of the base
budget without an accommodating increase in it.
The Navy has just increased estimates of the cost of its
30-year shipbuilding plan quite substantially and says now that
there is a shortfall over the next few years in fighter
aircraft procurement. So, by all accounts, there appears to be
a gap between projected budgets and the cost of the program.
If you look, on the other hand, at the overall level of
defense spending, you have to ask why that is true. If I look
at defense in a historical context, as you noted, the 2008
budget is high by any historical standard. It is actually about
20 percent bigger after adjusting for inflation than the budget
in 1985, which was the peak in the post Cold War period, except
for one year in Korea.
The overall defense budget, just the base defense budget,
excluding supplemental appropriations, has increased by 43
percent above inflation since 1998, which is about as large as
the buildup in the first Reagan administration. By the middle
of the Reagan administration the Defense Department felt that
programs were pretty well-funded, and we really did
recapitalize the force with budgets in the 1980s.
A comparison that I like to do--and if we have slides up it
would be one of the first slides--this is a slide that just
shows the trend, the historical trend in the base defense
budget, not including war-related funding going back to the end
of the Korean War. And what it shows is that, on average, the
defense budget has increased by about 2.1 percent per year
above inflation year after year. In some years, the trend has
been above the average; in some years, it has been below. In
2009, which is a measure I use, the budget is actually about 8
percent above the historical trend.
So, again, by historical standards, the budget appears
relatively high. So the question I pose is, why the disconnect?
Why on the one hand do the budgets appear relatively robust and
on the other hand we hear from the military services that
budgets are very tight and getting tighter?
I have six answers to that question, and I will just
briefly go over each of them, and then I will leave that as a
basis for discussion.
The first factor is just the increasing cost of military
personnel, and if you look at the next slide that tracks it.
This is a slide that shows the cost of a military service
member, active duty military service member, index to inflation
and then index to 1972, which is the inception of the all-
volunteer force.
If you look at the trend, it tracks with what you would
think. The cost of a service member declined in the 1970s
because pay raises didn't keep up with inflation.
There were big catch-up pay raises in 1980 under the Carter
administration; in 1981, under Reagan, 11.7 percent and then
14.3 percent. So about a 25 percent pay raise over a 2-year
period.
The trend in the 1980s and 1990s was a very modest
increase, if any increase at all, but then it shot up like a
rocket after about 1999. By my numbers, a military service
member in 2009 is 45 percent more expensive above inflation, in
addition to inflation, than in 1998. And there are a lot of
factors that went into that.
There were pay raises of the employment cost index plus
one-half percent in 7 of the last 8 years. There were three
rounds of pay cable reform in which people in the middle grades
got larger pay raises to improve retention. There were very big
increases in the basic allowance for housing to eliminate on-
base versus off-base discrepancies in housing costs. That is on
the take-home-pay side of the equation.
There were also very big increases in deferred benefits,
particularly in retirement benefits, the biggest one being
TRICARE for Life in which 65 and over military retirees may now
use TRICARE as a second care to Medicare for military medical
care; and that is a pretty expensive benefit. DOD pays into the
military retirement fund about $10 billion a year for the cost
of TRICARE for Life, which is 10 percent of the entire military
pay and benefits package. So a hugely expensive benefit.
The second factor driving up costs is reflected in the next
slide, and that is the ongoing trend in operation and
maintenance costs. Operation and maintenance is one of the
titles of the Defense Appropriations Act.
If you go back again to the end of the Korean War, take out
recent war costs, index it for inflation and look at what the
trend is relative to the size of the force per active duty
troop, it increases over time at a pace of about 2-\1/2\
percent per year above base inflation. The question is, is that
a problem? And my answer is I think you can make a strong case
that it is.
That rate of growth above inflation is not as high as in
some sectors of the economy, like health care, but we are all
concerned that health care costs are eating into Federal
budgets and undermining efficiency in lots of areas of the
economy. And while the trend in defense operation and
maintenance isn't as high it is still significant, and it is at
odds with trends in the overall economy in which the trend has
generally been in the opposite direction, the direction of
improved efficiency, rather than less efficiency.
There are a lot of factors that explain that. Part of it is
that a large part of the O&M budget is comprised of pay of
civilian personnel, and pay of civilian personnel has increased
over time in real terms above inflation, as it should. But in
return for that you would also look for increased deficiency;
fewer people doing more work. We don't seem to have achieved
that across the board.
Another factor is increasing medical costs, which are a big
part of the operation and maintenance account. DOD is terribly
concerned about that.
Another factor is the cost of weapons operation and
maintenance. The Air Force has complained for many years that,
as its aircraft have aged, the cost of operating and
maintaining them has climbed. It also appears to be the case
that newer generations of weapon systems are more expensive
rather than less expensive to operate and maintain, which again
is at odds with the trend in the civilian sector.
What appears to be happening is that, although DOD is to
some degree pursuing improvements in reliability and
maintainability, when the final decision is made on what to
procure they are really going after performance. And
performance comes at a price, including difficulties in
operational and maintenance accounts.
The fourth factor--a third factor, excuse me, driving up
the cost of defense which is reflected in a table that I showed
you is increasing intergenerational costs in major weapons
programs. Again, that is the next slide.
This is a slide that compares the number of various--number
of weapon systems in various categories procured in fiscal year
1985 and in fiscal year 2008. Those years are quite comparable
in that the total acquisition budget in both years--that is,
again, the amount of procurement plus R&D--is pretty close. It
was about $240 billion in 2008 and, if you adjust for
inflation, about $220 billion in fiscal year 1985. So pretty
comparable amounts of money. But, in 2008, the budget is buying
many, many fewer units of many different categories of weapon
systems--aircraft, ships, missiles--pretty much across the
board. That is a very simple measure of intergenerational cost
growth in major weapons programs.
If you consider, for example, the F-35 fighter aircraft,
which is going to be the mainstay both for the Air Force and
for the Navy and Marine Corps in the future, the unit flyaway
cost of the F-35 is now projected to be $83 million a copy. In
1985, the low-cost fighter for the Air Force, which is the kind
of equivalent of the F-35, was the F-16. In today's prices, in
1985 the F-16 cost about $30 million apiece. So an increase
from 30 million to 80 or $85 million a copy. That is not
atypical of trends in weapons costs.
There certainly is a rationale for spending more on weapons
over time because you get more capability in return. The issue
is, has the tradeoff between the number of systems you can buy
and the capability gotten to a point of diminishing returns?
Secretary Gates is arguing really that it has and that we need
to take, therefore, a very close look at the investment cost of
weapons and the capabilities we are trying to build into new
generations of weapons.
A fourth and very closely related factor that I look at
independently from intergenerational cost growth in major
weapons programs is systematic underestimation of costs on the
part of DOD. The General Accounting Office has for the last 6
years taken a careful look at the status of major weapons
programs in DOD, and this is a table that GAO provided, which
shows what is going on in cost estimation, and it is not moving
in the right direction.
One way to look at this slide is in what they did was
compare the portfolio of what we call major defense acquisition
programs. That is the major weapons programs above certain
thresholds in cost in the system in 2000, 2005 and then in
2007. And if you compare cost estimation in 2000 with the
accuracy of cost estimation in 2007, it has gotten worse over
time. On average, in 2000, DOD underestimated the R&D cost of
weapons programs by about 27 percent, which in itself is not
very good. But, in 2007, they underestimated R&D costs by an
average of 44 percent. If you look at it from the point of view
of the impact on the overall budget, cost growth in the 2007
inventory of major weapons is projected now to total about $300
billion, which is more than a year's worth of weapons
acquisition, and it is about 18 percent cost growth over
initial projections. So, in effect, we are losing almost one-
fifth--we are losing our ability to acquire almost one-fifth of
the weapons we plan to buy because we underestimate cost.
The fifth factor driving costs up has been the
reorganization in the Army. The Army was criticized in the
1990s for not reorganizing itself very rapidly to be a more
deployable force. Throughout the 1990s, it still had pretty
much a kind of Cold War-oriented force which was designed to be
mobilized for one big war, rather than to be able to be
deployed on a rotational basis or expeditionary basis, as we
say, abroad. Just as the war in Iraq was beginning, they were
beginning to reorganize into a more modular force; and then the
war in Iraq also had some lessons with it.
All of that has conspired to really drive up the cost of
the Army, much of it as I think a one-time cost but some of it
ongoing cost as well. Modularization in the Army is projected
to cost in all about $50 billion. Much of that has been paid
for already, mainly in supplemental appropriations, but there
remains some costs to be accommodated for finishing the
modularization of the Army.
There has also been an increase of 92,000 troops in the
Army and the Marine Corps, 65,000 in the Army and 27,000 in the
Marine Corps. Once that is fully in place, that will add to
military personnel and directly related operation and
maintenance costs about $13 billion a year. So that is built
into long-term budgets as a long-term increase.
And then, in addition to that, the lesson of the war has
been that the Army has taken away as one of the lessons of the
war that it systematically underfunded what we used to call
minor procurement for things like force protection equipment,
communications and transportation. So that to outfit the Army
in the future on an ongoing basis requires a substantially
larger ongoing capital investment.
Add to that the need to provide equipment for Army National
Guard combat units at a much higher level than we used to do in
the past. Then you further increase costs. In the past,
National Guard units were regarded as likely to be mobilized
only very rarely in the event of a major war, and they were
equipped largely with material cascaded from the active duty
forces. Well, now they are part of the rotation base, so they
need to be equipped at a level much closer to that of active
duty forces. So all that is driving the cost of the Army
substantially higher.
And then a final factor which is much harder to quantify is
an expanded range of, as DOD puts it, challenges for which they
think we need to prepare. And that is the next chart. This is
what DOD calls the quad chart or the four challenges chart.
And what it does is--it is an interesting beginning point
for discussion, I think. What it does is break down the kinds
of challenges DOD thinks we will face in the future into
various categories, and it organizes them according to
vulnerability and the likelihood that they may materialize.
So DOD's official assessment is that the likelihood of what
they call traditional state-on-state, force-on-force conflict
is relatively low; and we are relatively not vulnerable to that
because we are so militarily capable in those areas.
Irregular warfare has a high likelihood, 100 percent
likelihood. We are engaged in it now. But they also argue our
vulnerability to it being damaging to the U.S. per se is
relatively low because we can manage it.
Catastrophic dangers, terrorists armed with weapons of mass
destruction are, they say, a high likelihood and also high
vulnerability. So that obviously would be a focus of additional
investment in the future.
And then a new category that is interesting for discussion
they refer to as disruptive challenges. Others, including near
peer competitors in the future, trying to identify areas of
U.S. weakness and exploit those militarily. So things like
anti-satellite weapons or cyber warfare or other efforts to
exploit the vulnerabilities of our communications networks and
energy dependence and so on.
The investment implications of this, part of it is clear
and part of it is not. Presumably, what this suggests is we
should invest less money over time in traditional capabilities,
because the likelihood of that kind of conflict is low and we
are pretty strong in that area. That is hard to do. That
involves taking a very hard look at the kinds of weapon systems
we are currently building and making some choices among them.
Whether we will actually be able to do that to what extent
therefore to me is very unclear.
For the rest, most of these additional challenges appear to
me to be primarily additive to the base budget we already have;
and the cost of some of them could in the future be fairly
high.
There is an ongoing discussion of what disruptive
challenges we might face in the future. With China, it would be
likely to challenge us directly in a force-on-force way or more
likely to challenge us, if they do, with disruptive threats.
And there is a lot of thinking that suggests they are more
likely to challenge us in areas of our vulnerability.
With that, Mr. Chairman, those are what I see at least as
the main things driving the cost of defense higher over the
long term; and we can discuss further what we might want to do
about it in some questions.
Chairman Spratt. Thank you for an excellent presentation.
[The prepared statement of Stephen Daggett follows:]

Prepared Statement of Stephen Daggett, Specialist in Defense Policy and
Budgets, Congressional Research Service

Mr. Chairman, Members of the Committee, thank you very much for
inviting me to testify this morning on the sustainability of current
defense plans. This is an issue that appears to be rising very rapidly
toward the top of the defense policy agenda, even at a time when the
agenda is very crowded. Certainly, when you listen to the senior
leaders of the military services, you are hearing a great deal of
concern about the potential for a more or less severe mismatch,
beginning now and extending as far ahead as you care to look, between,
on the one hand, the cost of currently planned defense programs and, on
the other hand, what most see as the likely trend in the defense
budget.
Admiral Mullen, the Chairman of the Joint Chiefs, has urged
repeatedly that the defense budget should stay at a floor of about 4%
of GDP, which, is about the current level of defense spending with war-
related supplementals included.\1\ Department of Defense outlays in
FY2008, including war costs, were $595 billion, which was 4.2% of GDP.
Outlays for the overall national defense budget function were about
4.4% of GDP. If you apply the 4% target just to the Department of
Defense base budget, not including war costs, which is what Admiral
Mullen appeared to endorse in earlier statements, it would entail an
increase of about $100 billion in FY2010 compared to last year's
projection, and of even larger amounts in future years.
For their part, each of the military services has echoed Admiral
Mullen's plea for more money. The former Secretary and Chief of Staff
of the Air Force, for example, argued for the past couple of budget
cycles that the Air Force alone needed $20 billion more per year for
weapons acquisition.\2\ To put that into perspective, in last year's
six-year defense plan, acquisition funding--that is, procurement plus
R&D--in the Air Force base budget was scheduled to grow from $63
billion in FY2009 to $70 billion in FY2013. So the senior leaders of
the Air Force appeared to be saying, in effect, that their budget was
30% short of the amount they thought necessary for equipment.
The Army reportedly is now projecting ongoing budget requirements
of $170 to $180 billion a year, which is $30 to $40 billion per year
higher than currently projected base funding.\3\ The Navy has not been
so explicit, but last year increased substantially its estimates of the
cost of its 30 year shipbuilding plan, and it has warned of a
substantial shortfall in fighter aircraft inventories as well.
If you look at defense industry projections you'll get the same
message, as you will if you survey the spectrum of views among the
various Washington defense think tanks--most of them using CBO's
numbers, by the way--though prescriptions for what to do about it vary.
Part of the widespread concern about a budget shortfall has to do
with expectations about the trend in the overall defense budget--or
what defense budget planners refer to as the defense top line. Analysts
generally assume, first, that as the war in Iraq winds down, war-
related supplemental appropriations will decline and ongoing war costs
will be absorbed into the regular, annual defense budget, and, second,
that the regular budget itself will be constrained because of budget
deficits and competing spending demands. Secretary of Defense Gates
said just last week before the Senate Armed Services Committee that
`the spigot of defense spending that opened on 9/11 is closing.'
For our part, CRS would rather not speculate about the top line
trend. We can all do the budget arithmetic--and the arithmetic
certainly leads you anticipate baseline budget deficits that exceed
what, in the past, led to limits on defense spending. But, how much to
spend for defense is, in the final analysis, a political decision for
Congress to make and there's no value added in our guessing about that.
Instead I want to focus on the other side of the equation, which is
the cost side--why things cost as much as they do, and what the
implications are for addressing the budget mismatch now and in the
future.
why does the defense budget seem tight?
If you look just at the total amount of money available for defense
in recent years--and projected for the next several years--it is not at
all apparent why there should be a budget shortfall of the magnitude
the military services are warning about. The overall, enacted
Department of Defense budget for FY2008 amounts to $656 billion,
including a base budget of $484 billion and supplemental appropriations
of $171 billion. We don't know the final FY2009 amount yet, because we
still have a supplemental funding request to consider.
After adjusting for inflation, the FY2008 total is about 20% higher
than the DOD budget in FY1985. FY1985 was the peak year of the buildup
of the 1980s and also the second highest DOD budget in the Cold War era
(the highest was in FY1952, during the Korean War). And the FY2008
amount is for an active duty force which was about 1/3 smaller than the
force in the 1980s. For weapons acquisition, that is, for procurement
plus research and development, the total in FY2008, when you include
supplemental funding, was about $240 billion. That is about the same as
the peak in FY1985, which was $220 billion in FY2008 prices--and the
FY2008 amount is, again, for a force about 1/3 smaller. So the FY2008
budget appears comparable to earlier peaks in defense spending.
Other measures suggest the same thing. One approach is to compare
current spending to the average trend in defense over time. If you
track the total DOD budget per active duty troop, excluding war costs,
funding has grown by a bit more than 2% per year above inflation on
average since the end of the Korean War (see Figure 1). In some years,
actual budgets were above the trend line, in other years, below it. In
FY2009, the overall DOD base budget, not including war costs, is about
8% above this historic trend line.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Another reference point is simply the growth of the defense budget
over the past few years. Considering just the base defense budget,
without including war-related funding, there has been a very large
increase in defense spending over the past ten years. In all, the DOD
base budget has grown by 43% above inflation since it reached its
lowest post-Cold War level in FY1998. That buildup is about the same as
the increase at the end of the Carter and beginning of the Reagan
Administrations--which was about 40% above inflation from FY1980-
FY1985.
If you take all of this together, you come away with the impression
that today's defense budget appears, by most historical standards, to
be quite robust. But listening to the military services, to defense
industry, to defense budget analysts in the think tanks you get a very
different impression--that even now the budget is tight, and that if
spending does not continue to climb, planners will face tougher and
tougher choices. So why the disconnect? CRS's analysis, quite bluntly,
is that the budget seems tight because the cost of almost everything we
been doing in defense has been accelerating upward too fast even for
growing budgets to keep up.
And what is driving the cost of defense higher? In what follows, I
will propose six answers to that question, and I will mention each of
them at least very briefly. Following that, I will very briefly discuss
a couple of themes that emerge from this analysis of defense cost
trends.
the growing cost of uniformed personnel
The first factor driving up the price of defense is, simply, the
growing cost of uniformed military personnel. If you take the amount
provided for active duty military personnel in annual defense
appropriations bills, exclude supplemental appropriations, adjust for
inflation using the Consumer Price Index (CPI), and divide by the
number of active duty troops, again excluding war-related increments,
you will find that an average military service member is about 45% more
expensive, after adjusting for inflation, in FY2009 than in FY1998.
This does not include the cost of medical care for service members,
dependents, and recent retirees, which is financed in the operation and
maintenance accounts, and which also has grown substantially. Nor does
it include benefits that are not part of the national defense budget,
and which are not, therefore, among the cost tradeoffs that planners
directly face. These include tax advantages for service personnel and
veterans benefits, including VA medical and educational benefits.
A long term perspective on the price of military personnel is
reflected in Figure 2, which shows the cost of an individual active
duty service member indexed to the inception of the all volunteer force
in 1972. In brief, pay and benefits of military personnel declined in
the 1970s because annual pay raises didn't keep up with inflation;
jumped up in FY1980 and FY1981 with catch up pay raises of 11.7% and
then of 14.3%--that is, more than 25% over a two-year period; climbed
very modestly in the remainder of the 1980s and '90s; and then rocketed
up dramatically beginning in about FY1999.
The main increases over the past ten years include:
Congressionally mandated annual pay raises equal to the
Employment Cost Index (ECI) plus \1/2\ percent in seven of the last
eight years. The ECI is a measure of the average cost of pay and
benefits in the civilian economy. Since FY1982, pay raises had fallen
behind the growth of the ECI and the `ECI plus \1/2\' formula was
designed to catch up over a period of several years.
Three rounds of `pay table reform,' requested by the
Defense Department, which provided additional pay raises, sometimes of
as much as 10%, to middle grades in order to improve retention of
experienced personnel.
Substantial increases over several years, requested by the
Clinton Administration, in the non-taxable Basic Allowance for Housing
(BAH), intended to eliminate differences in out-of-pocket on-base and
off-base housing costs.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Those increases, along with changes in subsistence pay for
officers, bonuses and special pays, and some other things, are
reflected in higher take home paychecks of military personnel. In
addition, there have been very large increases in retirement benefits,
including
Tricare-for-Life, enacted by Congress as part of the
FY2001 national defense authorization act, and implemented in FY2003,
which makes the military Tricare medical insurance system into a second
payer for Medicare for 65-and-older military retirees. DOD pays $10 to
$11 billion a year into the military retirement fund to cover future
costs of this new benefit for current uniformed personnel, which is
about 10% of the entire military pay and benefits package.
Concurrent receipt of military retired pay and veterans
disability payments for those with disabilities of 50% or more. Another
congressional initiative, this is paid for out of the national defense
budget function as a mandatory amount of about $5 billion a year.
Repeal of the `Redux' retirement plan, which had provided
somewhat lower retirement benefits to military personnel who enlisted
after 1986 than to earlier enlistees.
The elimination of social security offsets in pensions of
62 and older survivors of military retirees who chose dependent
benefits as part of their retirement.
Figure 3 shows the relative growth per troop in the major elements
of both take-home pay and deferred compensation in the military
personnel accounts, adjusted for inflation, between FY1998 and FY2009.
As noted earlier, with everything included, these elements of
compensation grew by 45% above inflation. Even if you leave out the
cost of Tricare-for-Life and concurrent receipt, military pay and
benefits would still have grown by 30% above inflation.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Before I go on with this discussion let me emphasize one point. The
purpose of doing this analysis is not to address whether military pay
and benefits are adequate or more than adequate or less than adequate.
A discussion of that question is certainly important, but it goes way
beyond the point I am making. The only purpose of this analysis is to
address the issue of budget tradeoffs. If only a given amount of money
is available for defense, the growing cost of personnel necessarily
comes at the expense of something else. Moreover, others have addressed
the issues of pay comparability, the value of deferred compensation,
promises of medical care in retirement, and other matters at great
length. Last year's Quadrennial Review of Military Compensation, for
example, can give you chapter and verse on all of the key measures of
compensation comparability.
That said, a couple of other points may also be worth noting. One
has to do with analyses which show that there has been a military `pay
gap'--i.e., that military pay has lagged behind average increases in
compensation in the civilian economy. Usually, the pay gap is measured
by comparing cumulative raises in military basic pay with a trend line
that starts with pay in FY1982, after the catch up raises of FY1980 and
FY1981, and adjusts upward annually by the amount of the Employment
Cost Index. Using this measure, there was a significant pay gap by the
end of the 1990s, which ECI plus + raises have been intended to
correct.
In measuring military pay, however, it is important to note that
the amount service members take home every month includes both basic
pay and the basic allowance for housing--and you might also want to
include amounts for subsistence, which is provided both as pay and as a
direct service. While increases in basic pay may still fall somewhat
short of growth in the Employment Cost Index, when very large increases
in the basic allowance for housing are included, the pay gap, measured
as the FY1982 level adjusted for cumulative growth in the ECI, has been
made up in recent years.
One other issue may be a matter for some further discussion. A
frequently asked long-term budget question is whether it might be
cheaper to rely more on reserve than on active duty forces. In the
past, when Army National Guard (ARNG) combat units were, for the most
part, regarded as a strategic reserve that would be called up only in
the event of a major war, it was reasonable to calculate that Guard
units were cheaper than active duty forces. Personnel and operating
costs were typically 25-35% of those of active duty units, and
investment costs were less, as well, because Guard units were often
equipped with older material cascaded from active duty forces. Now,
however, ARNG units are no longer regarded as a strategic reserve, but
as an operational reserve available for regular deployment abroad. In
that role, Guard units no longer appear much cheaper per day of
availability--and might even be more expensive--than active duty
forces, since they are available for deployment for only a fraction of
the time of active units, and equipment levels must come closer to
matching those of active forces.
continued growth in operation and maintenance costs
A second cost driver is the continued, steady growth of operation
and maintenance budgets. If you put together a spread sheet that shows
defense funding back to end of the Korean war, exclude recent war
costs, divide annual O&M budgets by the number of active duty troops,
and adjust for inflation, you will come up with a trend line that grows
by somewhere between 2.5% and 3.0% above inflation every year--year
after year after year (see Figure 4).

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

It is a bit difficult to analyze why O&M grows at such a
relentless, steady pace, because the O&M budget covers all kinds of
very different activities--advertising and recruiting; basic and
advanced individual and unit training; professional military education;
fuel costs; transportation; medical care for service members, their
dependents, and some retirees; utility bills; facility maintenance and
repair; warehouse and supply operations; purchases of spare and repair
parts; day-to-day operation of weapons and equipment; overhauls,
including sometimes extensive upgrades, of weapons and equipment;
defense think tank studies of strategy and of trends in O&M; pay and
financial management; and management of much of the Defense Department.
There are, however, a few pieces of the picture that collectively
explain in very large part why O&M costs keep climbing.
One is that a very large share of the O&M budget goes to pay
civilian Department of Defense personnel. In the FY2009 base budget,
civilian pay in the O&M accounts was projected to total $53 billion,
about 30% of total O&M funding. While federal civilian pay and benefits
have not grown as rapidly as those of uniformed personnel, they have
outpaced the growth of inflation--as in most skilled occupations,
compensation of federal civilian workers has grown in real terms over
time.
Second, the O&M budget includes costs of operating and maintaining
major weapon systems. Those costs also appear to have increased faster
than base inflation, though the reasons are complicated. Military
service officials, particularly in the Air Force, have long argued that
aging equipment becomes progressively more and more expensive to
operate and maintain. CBO found some time ago that this was not a major
factor in O&M. On the other hand, though it may not add up in itself to
a huge amount of money, it may be one of a large number of individually
minor factors that should be considered in concert to explain the
larger trend.
Most observers also agree that new weapons are typically more
expensive to operate and maintain than earlier generations of similar
systems. Why this should be the case is very hard to explain. It is
certainly at odds with trends in the civilian sector, in which
reliability and maintainability of all kinds of goods have improved
dramatically--consider automobiles, household appliances, and,
especially, consumer electronics (leaving aside battery replacement).
It appears, however, that while military developers promise lower
operating costs, in the end they choose to pursue advances in
performance instead.
Third, the O&M budget includes most of the annual funding for
providing medical care to service members, their dependents, and many
retirees (it does not include $5-6 billion a year in military personnel
accounts for pay and benefits of unformed health care providers). DOD
officials see growing medical costs, which have climbed much faster
than overall inflation, as a critical long-term budget issue.
Fourth, and finally, the O&M budget finances operation and repair
of military facilities. As the quality of life in the civilian sector
improves, defense facilities also, in general, are expected to keep up,
which, in turn, also may drive up costs in real terms.
This list is by no means exhaustive, but may help to understand
some of the principal factors behind the continued growth of O&M costs.
The corollary question, then, is whether this is a problem. Some may
say no--that this is the cost of doing business and as long as growth
isn't excessive, it is simply a fact of life for which budgets need to
be adjusted. On the other hand, continued steady growth in the day-to-
day cost of doing business appears to be at odds with experience in
many parts of the private sector, in which improved productivity is the
norm. The trend in defense O&M prices appears to be more similar to the
trend in health care costs--which is universally seen to be a problem--
than to the trend in other economic activities.
Most importantly, within limited budgets, higher O&M costs will
crowd out other things. The effect of growing O&M costs on trade-offs
within the defense budget in the 1990s illustrates the issue. Defense
advocates often complain about the dramatic decline of weapons
procurement funding in the 1990s. Then-Secretary of Defense William
Perry, at the time, agreed, saying that the `procurement holiday' of
the early '90s had gone on long enough and needed to be reversed. The
Defense Department's target for many years was to get the procurement
budget up from the $45 billion range to at least $60 billion. While $60
billion for procurement appears quite constrained by today's standards,
achieving even that target proved elusive. The reason was the
continuing growth of overall O&M costs. Successive long-term defense
plans generally assumed that O&M costs would level off in future years.
When they did not, within limited budgets, the Defense Department
shifted funds from procurement to cover must pay O&M bills. Year after
year, therefore, planned increases in procurement funding were deferred
due to the growth in O&M accounts.
As a side note, the problem should not be attributed only to the
Clinton Administration. Underestimation of O&M costs, rather, was
something the Clinton defense team inherited from the outgoing Bush
Administration's defense plan and then was unable to correct. After
adjusting for lower than expected trends in inflation, over the FY1994
to FY1999 period, for which we can compare Bush and Clinton defense
plans in detail, the total amount the Clinton Administration spent on
defense was, in terms of real purchasing power, not much lower than the
previous Administration projected in its final six year defense
program.\4\ O&M spending, however, was much higher, and procurement
much lower.
CRS' conclusion is that steadily growing O&M costs devoured the
budget for weapons modernization through most of the 1990s. The danger,
of course, is that we will face the same tradeoffs again if budgets in
the next decade are as tight as in the '90s.
intergenerational cost growth in major weapons programs
A third cost factor, and one that is a matter of extensive
discussion today, is the apparently accelerating pace of
intergenerational cost growth in major weapons programs. The issue of
intergenerational cost growth in weapons programs often considered in
conjunction with discussions of the growth in costs of programs
compared to initial development estimates--but the two factors are
really quite distinct. The systematic underestimation of weapons
acquisition costs is an independent factor, which I'll mention next.
Examples of very large intergenerational leaps in weapons costs are
all around. The F-35 fighter, which is the new `low-end' fighter for
the Air Force, is now projected to have a unit flyaway cost of $83
million each and a total unit acquisition cost of over $100 million.\5\
In FY1985, the Defense Department procured 150 F-16s fighters, the
previous low-end fighter, at a then-year price of $16 million apiece,
which is about $30 million in FY2009 prices. In later years, F-16
prices climbed as new models incorporated more and more advanced
technology. Still, the leap in costs is dramatic.
It is not, however, by any means atypical. Below is a quite
illustrative table, prepared by Cecil Black of the Boeing Corporation,
which compares numbers of major weapons in selected categories procured
in FY1985 with numbers bought in FY2008 (with funding both in the base
DOD budget and in war-related appropriations). As I noted earlier, in
FY1985, acquisition funding (again, procurement plus R&D) totaled about
$220 billion in FY2008 prices. In FY2008, acquisition funding totaled
about $240 billion.

TABLE 1.--RECAPITALIZATION RATES: FY1985 VS FY2008
[Quantities of weapons procured]
------------------------------------------------------------------------
1985 2008 Difference
------------------------------------------------------------------------
Tactical Fighters..................... 338 56 -282
Bombers............................... 34 0 -34
Other Fixed Wing...................... 211 153 -58
Rotary Wing........................... 354 373 +19
Missiles.............................. 87,113 13,471 -73,642
Tracked Combat Vehicles............... 2,414 1,258 -1,156
Tactical Vehicles..................... 56,551 32,276 -24,275
Satellites (Unclassified)............. 10 1 -9
Ships................................. 23 7 -16
------------------------------------------------------------------------
Source: Cecil Black, Boeing Corporation.

The growing price of weapons does much to explain why the expense
of maintaining even a smaller force structure than in the past has
climbed so high. At current prices of major weapon systems, the `steady
state' cost of replacing platforms as they reach the end of their
planned service lives has become very difficult to afford, even with
budgets that exceed previous peaks.
Why this is the case--and what to do about--is a matter that is far
beyond the scope of this brief survey. In some cases, at least, cost
has been driven up by an attempt to build systems to perform multiple
missions with maximum capabilities in every dimension. The DDG-1000,
which I cite only because it has been a focus of debate for the past
year, and may well be terminated, may be a informative example.
In brief the DDG-1000 (formerly DDX) destroyer is a 15,000 ton
ship. This is about the size of a World War II cruiser, and it is half
again as large as the earlier generation DDG-51 destroyer it is
intended, in part, to replace. Why is it so large? It incorporates the
most advanced Aegis air defense radar and anti-air missile systems; the
anti-submarine warfare capabilities of a dedicated ASW frigate; the
ability to provide long-range fire support to forces ashore from two
guns and from vertically launched missiles; a full flag officer
communications capability; the ability to deploy two helicopters or one
helicopter and two UAVs for multiple missions, such as mine-sweeping
and ASW; and the ability to carry aboard and deploy ashore either a
marine unit or a special forces detachment. It also includes an
advanced drive and multiple systems intended to reduce the required
number of sailors. In short, it is all things to all requirements
writers. The result is a ship that is now projected to cost between
$3.5 and $4.0 billion each, and that cannot, therefore, be afforded in
substantial numbers.
The rationale for developing a ship like the DDG-1000 is apparent.
A large multi-mission ship has considerable advantages, including an
ability to absorb future growth in capabilities. With a smaller force
in prospect, it is understandable that the Navy would want some of its
newer ships to be as flexible as possible. Still, the resulting cost of
the ship has led the Navy to an internal debate about terminating the
program and resuming DDG-51 procurement in its place. And, in any case,
the DDG-1000 is too expensive to be produced in large numbers.
How typical is this of recent development efforts? Secretary Gates,
at least, thinks it has become the norm. In his article on defense
policy in the January/February issue of Foreign Affairs he wrote:
When it comes to procurement, for the better part of five decades,
the trend has gone toward lower numbers as technology gains have made
each system more capable. In recent years, these platforms have grown
ever more baroque, have become ever more costly, are taking longer to
build, and are being fielded in ever-dwindling quantities. Given that
resources are not unlimited, the dynamic of exchanging numbers for
capability is perhaps reaching a point of diminishing returns. A given
ship or aircraft, no matter how capable or well equipped, can be in
only one place at one time.\6\
underestimation of program costs
Systematic underestimation of weapons costs has become such a
significant element of defense costs that it can easily be seen as an
independent factor driving up the overall price of defense. For the
past six years, GAO has done annual overviews of cost trends in major
defense acquisition programs based on a review of Department of Defense
Selected Acquisition Reports. In the review it reported last March, GAO
provided a very clear summary of what has been happening--and it is,
frankly, not going in the right direction. Table 2 is a summary of
GAO's findings.

TABLE 2.--GAO ANALYSIS OF MAJOR DEFENSE ACQUISITION PROGRAM COST GROWTH
[Amounts in constant FY2008 $]
------------------------------------------------------------------------
2000 2005 2007
portfolio portfolio portfolio
------------------------------------------------------------------------
Number of programs............... 75 91 95
Total planned commitments........ $790 $1.5 $1.6
Billion Trillion Trillion
Commitments outstanding.......... $380 $887 $858
Billion Billion Billion
Portfolio performance (change to 27 percent 33 percent 40 percent
total RDT&E costs from first
estimate).......................
Change in total acquisition cost 6 percent 18 percent 26 percent
from first estimate.............
Estimated total acquisition cost $42 Billion $202 $295
growth.......................... Billion Billion
Share of programs with 25 percent 37 percent 44 percent 44 percent
or more increase in program
acquisition unit cost...........
Average schedule delay in 16 months 17 months 21 months
delivering initial capabilities.
------------------------------------------------------------------------
Source: Government Accountability Office, Defense Acquisitions:
Assessment of Selected Weapon Programs, GAO-08-467SP, March 31, 2008.

To summarize the results: GAO compared the average acquisition
performance of all the Major Defense Acquisition Programs (MDAPs) on
which DOD reported in 2000, 2005, and 2007. There were 75 MDAPs in
2000, 91 in 2005, and 95 in 2007. On average, DOD underestimated R&D
costs of MDAP programs in the 2000 program by 27 percent and in 2007 by
40%. It underestimated total acquisition costs of MDAPs in the 2000
program by an average of 6 percent, and it underestimated total
acquisition costs of MDAPs in the 2007 plan by an average of 26
percent. In the 2007 program, 44 percent of the programs had cost
growth of more than 25%, a thresholds established by the Nunn-McCurdy
amendment, which triggers requirements for a thorough program review.
Most significantly, total cost growth in the 2007 programs is now
expected to total $295 billion, which is 18% of the overall $1.6
trillion value of the major weapons programs in the acquisition plan.
Such substantial unplanned cost growth undermines efficiency, further
increases costs, and creates a need to restructure acquisition programs
across the all the services. Some programs may have to be cancelled and
many stretched out to adjust the overall budget to accommodate the
resulting gap on funding.
new requirements for ground forces
A fifth factor driving up defense costs is the apparent need to
restructure the Army, in particular, and the Marine Corps to some
degree, to be able to respond to new missions that have been adopted in
response to the attacks of 9/11. The decision to engage first in
Afghanistan and then in Iraq led the Army to accelerate plans to
restructure its basic organization. Instead of a force designed for
wholesale mobilization for a major war, the Army has become a modular
force organized around fully manned and readily deployable Brigade
Combat Teams (BCTs) designed for rotational deployment abroad. The
Defense Department, with broad support in Congress, has also decided to
increase the size of the Army by 65,000 active duty troops, mainly to
add six additional brigades, and of the Marine Corps by 27,000. When
fully phased in, the addition of 92,000 active duty troops will cost
more than $13 billion a year in increased personnel and operating
expenses of the Army and Marine Corps.
The modularization of the Army in itself will cost more than $50
billion, mainly to fill out equipment requirements for the force.\7\
The conflicts in Iraq and Afghanistan have also led the Army to
redefine its requirements for equipment in all its units. To fight the
wars in Iraq and Afghanistan the Army has, in effect, established new
standards that it sees necessary for force protection equipment,
transportation equipment, and communications equipment for almost every
unit in the force. And these requirements now extend not only to active
duty units but also to National Guard combat units that have become
part of the regular rotation base for deployment abroad, and therefore
require largely the same equipment as active duty forces.
The cost of reorganizing ground forces to be more flexible and
deployable is a significant factor that has driven the overall cost of
defense somewhat higher. The Army's case for reorganizing and for
adding to the size of the force is based on anticipated requirements
for rotating forces abroad. Following the 2004 Quadrennial Defense
Review, the goal to be able to deploy 18 or 19 brigade combat teams
abroad on a recurring basis. Later, the force generation goal was
increased to as many as 23 forward deployed brigades.
If active duty units are available for deployment one year out of
every three, then 48 active brigades, as is now planned, would provide
16 deployable brigades a year. Additional brigades would be generated
from the Army National Guard, which requires Guard units to be trained
and equipped for regular deployments.
a broader array of global security challenges
A final, and much less easily quantifiable factor that may affect
the defense budget has to do with entirely new security challenges that
planners have only begun to characterize. A good starting point in
thinking about the range of new challenges is what has come to be
called the `Quad Chart' in the Pentagon. I have attached one version of
the Quad Chart at the end of this statement.
In brief, the Quad Chart divides security challenges into four
categories: Traditional military conflicts between states with
conventional military forces; irregular conflict such as insurgencies
in Iraq, Afghanistan and elsewhere, catastrophic challenges posed by,
for example, state-sponsored or not-state terrorist groups with access
to weapons of mass destruction; and, a the newest category, disruptive
threats from a range of competitors, including peer or near-peer
regional or global actors, who would not attempt to compete with
traditional U.S. military forces directly, but would instead try to
identify and attack U.S. vulnerabilities. The quad chart divides these
challenges according to likelihood and vulnerability. The premise is
that traditional military threats are unlikely and the United States
has such overwhelming capabilities that it is not vulnerable to them.
Catastrophic challenges are seen as likely to appear, and vulnerability
as high. Irregular threats are likely, but vulnerability low.
Disruptive threats are regarded as unlikely, but vulnerability high.
The quad chart has important implications for the allocation of
resources. If traditional challenges are unlikely, and U.S.
vulnerability is low, the implication is that resources might be
shifted away from investments in such capabilities in favor of other,
higher, priorities. Much of what Secretary Gates has said in recent
articles and speeches reflects this perspective. An effort to reduce
investments in traditional military capabilities, however, implies a
willingness to accept greater risks to U.S. security in some potential
areas of conflict. While direct state-on-state conflict may appear less
likely than in the past, assessments of the international security
environment nonetheless point up the potential for future conflicts
over many issues, including access to resources, economic and social
dislocations caused by climate change, and remaining unresolved
regional disputes. So traditional challenges could reappear in the
future, and planners must decide in the present how much to invest as a
means of hedging against them.
The apparent need to prepare for a broader array of new challenges
than planners had assumed at the end of the Cold War may prove to have
a very big effect on budgets--or it may not. It is not clear to what
extent the new challenges may shape spending in the future. Some more
spending to counter anti-satellite weapons and cyberwarfare may prove
necessary--but it is very difficult to anticipate how much money will
be required to counter other `disruptive' challenges that remain to be
defined.
So far, the main effect of identifying new challenges seems to have
been to push budget requirements marginally higher, though there may
later be offsetting trade-offs.
themes and implications
A few themes--with some implications for policy--emerge from this
review of the things that are driving up defense costs. One important
theme is that the price of defense is driven in very large part by the
cost of people--including both uniformed and civilian personnel in the
Defense Department. This, in itself, does not imply that we should trim
the defense budget by reducing pay and benefits or by abandoning
increases in the number of troops in the Army and Marine Corps. It may,
however, serve to point up the importance of considering other means of
reining in personnel costs. This could mean reducing the size of the
other services, or pursuing more vigorously than in the past reductions
in the number of uniformed personnel performing support functions.
In general, when defense budgets are tight, the variable part of
the budget, which bears the brunt of most cut drills, is investment,
both in weapons and in facilities. You can certainly trim the budget by
reducing investment without dire consequences for a few years. But
ultimately, simply slowing the pace of weapons modernization will lead
to an aging and less capable force, and skimping on facilities can
leave you with a backlog of problems.
This may suggest that if defense budget shortfalls continue, we
will, later if not now, have to consider reductions in the number of
personnel. And from a budgeting perspective, if you are going to
eliminate something in the long run, the sooner policy-makers decide to
do so, the better, because it saves money in the interim for other
important things.
A second theme is that the military services have, to varying
degrees, been caught in a budget bind that is by no means entirely of
their own making. Rather, it is a result, in part of growing personnel
costs and, in part, of changing guidance on priorities from senior
decision-makers, including Congress. In the first few years after the
end of the Cold War--and in the wake of the first Persian Gulf War--the
guidance, implicitly if not explicitly, was that our technology would
save us--particularly information technology that would give U.S.
forces a critical advantage in seeing an arena of conflict. Now, faced
with irregular warfare in Iraq and Afghanistan, the emphasis is on
larger numbers of highly trained and flexible foot soldiers--the
`strategic corporal' as a former Marine Commandant put it. High tech
forces for `traditional' state on state, force on force conflicts are
becoming a lesser priority.
The implications of that theme are varied. The Air Force, lately,
has been subject to some criticism--to put it mildly--on a number of
grounds. One complaint is about the growing cost of many of the
programs the Air Force manages--including a large share of space and
other programs that are fundamentally joint in nature, that are
essential to all of the services. In its defense, however, the Air
Force was, for many years, only doing what its leaders thought was the
key task, which was to exploit U.S. technological advantages as much as
possible in order to maintain military strength even if, as was
commonly expected, the size of the overall force would continue to
decline.
Another implication has to do with funding for the Army. As
discussed earlier, one factor that has driven up the cost of defense in
recent years is the urgent restructuring of the Army. At the end of the
1990s, the Army was being criticized because it had not adjusted, as
the other services had, to the post-Cold War era. It was still
organized, not for expeditionary, rotational operations abroad, but to
fight one big war. As it became engaged in Iraq and Afghanistan,
however, the Army embraced the need to reorganize itself into a very
different, modular force with fully manned, more readily deployable
units.
For the most part, the costs of modularization and the initial
costs of adding to the size of the force have been financed with
supplemental appropriations. A question now on the agenda is whether
large supplementals should continue. To the extent there remain some
additional Army restructuring costs, as there may well be, particularly
to better equip National Guard units, Congress may want to consider
whether to continue using supplemental funding for at least a limited
additional period to cover one-time expenses associated with continued
Army reorganization.
For the Budget Committee, this may present something of a dilemma.
On the one hand, these requirements have long since gone past the point
of being uncertain, unpredictable, and unplanned costs that should be
financed through emergency appropriations exempt from caps on
discretionary spending. On the other hand, to the extent that these
investments are seen as one-time expenses, then it may make more sense
to continue to pay for them with presumably temporary war-related
appropriations, rather than build them into the base budget.
I'll be happy to address any questions you may have.
endnotes
\1\ Most recently Admiral Mullen reiterated his views in a Pentagon
press briefing on November 17, 2008--see Department of Defense News
Transcript, `Department of Defense News Briefing with Admiral Michael
Mullen at The Pentagon, Arlington, Va.,' November 17, 2008.
\2\ Author's notes on a presentation by then-Secretary of the Air
Force, Michael Wynne, at an Aviation Week Defense Technology and
Requirements Conference, February 13, 2008.
\3\ John T. Bennett, $40B Price Tag for Larger Army: U.S. Service
Predicts Cost of 1.1 Million-Soldier Force, Defense News, December 15,
2008, p. 1.
\4\ The bulk of the reduction can be traced to two things--a cut of
about 150,000 in active duty troops and reductions in missile defense
funding. This discussion is based on CRS Report 95-20, `A Comparison of
Clinton Administration and Bush Administration Long-Term Defense Budget
Plans for FY1994-99,' Dec. 20, 1994, by Stephen Daggett, and on
subsequent unpublished update information. Both are available to
congressional offices from the author on request.
\5\ Data from F-35 Selected Acquisition Report, June 2008.
\6\ Robert M. Gates, `A Balanced Strategy: Reprogramming the
Pentagon for a New Age,' Foreign Affairs, January/February 2009.
\7\ See CRS Report RL32476, U.S. Army's Modular Redesign: Issues
for Congress, by Andrew Feickert, updated January 24, 2007.

Chairman Spratt. Mr. Gilmore.

STATEMENT OF J. MICHAEL GILMORE, ASSISTANT DIRECTOR,
CONGRESSIONAL BUDGET OFFICE

Mr. Gilmore. Mr. Chairman, Congressman Ryan, members of the
Committee, I appreciate the opportunity to discuss the
sustainability of the defense plan this morning.
My remarks are going to be based on the report that CBO
released early last month on the long-term implications of the
2009 future years defense program. So if I could have the first
chart, please.
In these charts that I am going to show you this morning,
funding is going to just be displayed in constant 2009 dollars.
So the effects of inflation are removed and you can compare the
buying power of past budgets, which is on the left of the
chart, to projected future budgets, which is on the right of
the chart.
In CBO's projection, DOD funding averages about $549
billion annually in the period from 2014 to 2026, which is the
projection period we considered. And that is more than the peak
of the 1980's buildup, which is shown on the left of the chart,
about $485 billion. So a $549 billion annual average in the
future versus $485 billion during the peak of the Reagan
buildup, and that is to pay for a force one-half to two-thirds
the size of the force we had during the mid-1980s.
Now, including what we label on this chart as potential
unbudgeted costs, that could push that average in the future to
$652 billion a year, 35 percent more than the 1980's peak. And
what we include in that unbudgeted cost category are, first of
all, funding for continued operations overseas in the near term
and the long-term. And in the long-term we made a somewhat
arbitrary assumption of 75,000 troops deployed somewhere in the
world 2013 and thereafter, and that would cost about $60
billion a year. So that is $60 billion worth of the unbudgeted
cost.
And then the remainder of the unbudgeted cost is associated
with historical experience in cost growth in major weapon
systems, and that is about $43 billion. So we project that in
order to buy the current program without cutting back on the
number of aircraft or ships or other major weapon systems
bought, which, by the way, is typically the way the Department
has handled the problem with cost growth, if you wanted to pay
for the programs as they are currently laid out that would cost
another $43 billion a year, on average.
The sustained relatively high level of funding in our
projection is due to, as Steve Daggett has already alluded to,
growing costs of pay and benefits for military personnel and
plans to increase of size of U.S. ground forces, as well as
plans to purchase new systems, including systems with the
advance capabilities the Department associates with military
transformation that are turning out to be much more expensive
than the systems that they are going to replace.
Let me say a little bit more about each of the areas, the
two areas of funding that are indicated on the chart,
investment and operations and support. And let me turn first to
operations and support, which currently is about 60 percent of
the budget and which under our projections will grow to almost
67 percent of the budget over time in real growth. So let me
turn first to operations----
Excuse me, next chart.
Let me show you another way of looking at defense
expenditures. This showed you spending or funding. This looks
at past and projected defense spending as a share of the
economy. Defense spending averaged about 5.6 percent of gross
domestic product in the 1980s. It declined to 3.8 percent of
GDP in the 1990s; and it is currently about 4.5 percent of GDP,
including the costs of the wars in Iraq and Afghanistan.
Now, in our projection, which shows relatively flat
constant funding, defense spending would decline to 2.5 percent
to 3 percent of GDP by 2026, excluding and including unbudgeted
costs. And that assumes the GDP continues to grow. Right now,
it is not.
Next chart.
Now let me turn to operations and support in more detail,
currently about 60 percent of the budget. About 40 percent of
this funding is for military pay; and the remaining 60 percent
is for operations and maintenance, which is running units,
maintaining equipment, and providing other benefits, including
medical care, to military personnel.
In our projection, operations and support funding rises
steadily in real terms, from $307 billion in 2009 to $380
billion in 2026, excluding that unbudgeted cost category, and
$443 billion, including those unbudgeted costs, which in this
projection are associated mostly with continued operations
overseas, because most of the costs of operations overseas are
in the operations and support category. Not all of them, and I
will say more about that in a minute.
Now, what is driving this growth is continued real pay
increases and real increases in the cost of benefits,
particularly medical benefits, and I will say more about that
in a minute.
However, another source of growth is the increasing cost to
operate both new equipment, which turns out to be more complex
and more expensive to operate overall than the equipment it
replaces, as well as aging equipment. The cost of aging
equipment--maintaining and operating aging equipment are
growing as well.
Let me have the next chart.
This is to bore in a little bit on the medical care cost
dilemma that the Department is facing that, as already has been
mentioned, is similar to the medical cost dilemma that the
economy as a whole is facing. DOD's budget for health care,
including accrual payments for care that will be provided to
future retirees, so-called TRICARE for Life, is now about
double the amounts budgeted in the 1990s, as shown on this
chart. And CBO and DOD's own actuaries project that the
Department's health care costs will increase steadily, $5
billion in real growth from 2009 to 2013 and $32 billion in
real growth, or 79 percent, through 2026.
Unfortunately, the situation could be worse than that 79
percent growth if faster than projected medical inflation--and
certainly history tells us we frequently underestimate the
growth in medical costs--if faster than projected medical
inflation occurs, that could cause a real increase in these
accounts of 126 percent; and that is depicted by the dash line
labeled unbudgeted costs.
The accrual payment growth is 6.25 percent on an annual
basis nominal growth. Per capita pharmaceutical cost growth is
9 percent, and per capita direct care and purchase care growth
is about 6 percent nominal growth. So all of those areas
contributing to substantial growth in the Department's medical
care costs.
Let me have the next chart.
This is a reprise of a chart that Steve showed. This is a
somewhat truncated version showing per capita, meaning per
active duty service member growth, in operations and
maintenance funding. Measured on a per-service-member basis,
DOD's O&M funding has grown steadily during the past 20 years,
averaging $2,100, 2009 dollars, per active duty member per
year--that is shown here on this chart--which does not remove
the current war costs which causes that large increase there
over the last 5 years.
Then, in the future, we project that the 20-year trend will
continue. And the fact that in the period there labeled FYDP,
or future years defense program, that that black line above the
dash line indicates that in DOD's plans, at least in the 2009
future years defense program, there isn't an indication there
in its base program DOD was underfunding its readiness
accounts. If it were doing that, then you would expect that
black line to be below the dash line. So there is no evidence
when you look at this metric that DOD was actually paying for
peacetime readiness in the supplemental appropriations as
opposed to its base program. And we currently project the per
capita O&M funding will increase by another 20 percent through
2026 relative to today's level.
Next chart.
Let me turn to the investment accounts. I have given you an
overview of operations and support, which was 60 percent of the
budget. Let me turn to the other 35 percent of the budget. This
shows past and projected funding for investment.
In our projection investment, which is funding to develop
and purchase new weapons, would average about $187 billion
during 2014 to 2026; and that is about 10 percent below the 1-
year peak in investment that occurred during the 1980's buildup
of about $207 billion.
Accommodating historical trends in cost growth would
increase funding demands in our projection by about $30 billion
annually, or about a 15 percent increase overall, to pay for
the program if we continued to try and buy it but historical
trends and cost growth were realized. And the cost of
purchasing new equipment to support continued contingency
operations--remember, our projection assumes that we continue
to be engaged overseas--could cause funding to advance and
increase by another $22 billion annually, on average, based on
experience in Iraq and Afghanistan.
Next chart.
Chairman Spratt. You got--if I could interrupt you there--
two items: total unbudgeted costs, as opposed to contingency
unbudgeted costs. What is the difference between them?
Mr. Gilmore. Contingency unbudgeted costs are associated
with paying for refurbishing equipment and buying new equipment
to replace worn-out equipment and damaged equipment if we
continue to be involved in operations overseas. So our
projection included an assumption that over the long run we
would have 75,000 troops involved somewhere overseas, not
necessarily Iraq and Afghanistan, although it could be there.
So if you continued to have 75,000 troops involved overseas
with the kind of operational tempo that we have been
experiencing over the last couple of years, then that would, in
our projection, imply an additional $22 billion in investment,
mostly procurement, annually to continue to replace and repair
equipment associated with maintaining those operations. And
then historical cost growth is the remainder of the unbudgeted
cost.
So there is contingency unbudgeted cost, which is the first
dash line, and then there is with total unbudgeted cost, which
is the second dash line. And the difference between the two is
just historical trends in cost growth.
If we take today's investment program and we experience
what we have seen in the past with regard to growth in the cost
of major weapon systems that are preproduction, then that would
add another $30 billion annually to the cost of the program on
our projection. That assumes that you don't cut back on the
amount of weapons that we are currently planning to purchase so
that you don't further reduce joint strike fighter purchases in
the Air Force below any aircraft year. You try to buy those
aircraft, but costs go up as they have in the past and you just
pay for those increased costs.
Have I made that at all clear?
Next chart.
Those two dash lines will be on every one of these
investment charts, and it is most noticeable in the case of the
Army because the Army would bear the brunt of these continued
operations overseas. So you see that there is a large amount of
unbudgeted costs--a relatively large amount of unbudgeted costs
associated with contingency operations in this chart. That is
because the Army would bear the brunt of those operations if
they occurred.
One of the--this is Army investment, so I just showed you
investment overall for the Department of Defense past and
projected. Now I am going to show you past and projected
investment for each one of the services, beginning with the
Army.
One of the most noticeable features on this chart is that
recently, due to funding provided in supplemental
appropriations to replace and repair equipment associated with
operations in Iraq and Afghanistan, the Army has received as
much investment, mostly procurement funding, in supplementals
as it has requested in the base budget. And that is shown by
that spike there, which, by the way, is well above the peak in
investment that occurred during the Reagan buildup in the
1980s.
Now, in the future, CBO's projection of Army investment
averages about $36 billion annually, so that is towards the
right hand part of the chart, excluding unbudgeted costs and
$58 billion including them. Historical trends in cost growth
for Army systems, particularly for combat vehicles such as
those being developed under the future combat systems program,
account for about 40 percent of those unbudgeted costs. And the
remaining 60 percent is associated with paying for the costs of
equipment used in continued operations overseas if that were to
occur.
Now, saying a little bit more about the future combat
systems program, which as you can see there takes up a good
deal of the funding in our projection, FCS funding exceeds $100
billion through 2026, about 6 to $8 billion annually in the
projection. That would buy 13 brigade sets of equipment through
2026, with another two planned to be purchased beyond 2026. But
that is about one-half of what may be needed for the Army,
because the Army will have 19 active heavy brigades, seven
heavy brigades in the Army National Guard according to current
plans, and three to five prepositioning sets of heavy equipment
that may have to be replaced with FCS.
The plan now is to eventually replace all of the equipment
in the heavy brigades with FCS. So something will have to--if
that doesn't occur and if they stick with the plan to buy 15
brigade sets, as opposed to more than twice that amount,
something will have to be done to maintain the existing
equipment, the Bradley fighting vehicles and the Abrams tanks
that they will have in several thousands of numbers. So CBO's
projection includes more than $3 billion annually to replace an
upgrade to combat vehicles that will not be replaced by the
future combat system.
Let me show you the next chart, which illustrates one of
the challenges the Department faces overall but in particular
the Army faces with its combat vehicle fleet.
The top part of this panel shows on the left the weapon
systems that were purchased during the 1980s and the 1990s, and
in the 1980s a lot of Abrams tanks and Bradley fighting
vehicles were bought. And then on the right hand part of the
chart, on the top, it shows the number of vehicles that will be
procured under the future combat systems program current plans,
one brigade set a year.
Then, on the bottom, the chart shows funding to buy those
weapon systems, the funding that was necessary during the 1980s
to buy the number of tanks shown on the chart and then the
funding that under current Army estimates will be required to
buy future combat systems at a rate of one brigade set a year.
And under current Army plans, which we hear, by the way, may
change, development in some of the FCS combat vehicles
contained in this projection may in fact be ended. They may end
up developing a fewer number of those vehicles.
The Army will spend at levels comparable to those in the
1980s to purchase about one-quarter the number of new vehicles.
Those purchases alone would not be sufficient to sustain its
force, as I mentioned; and absent that $3 billion a year in
annual funding that we include in our projection to upgrade and
replace older systems, the FCS purchases displayed in the chart
wouldn't be sufficient to sustain the force, as I said; and the
aged Army combat vehicles would double over the long term from
about 10 years currently to 20 years by 2026, which is about
double the desired fleet wide age. So the additional $3 billion
a year or something in that neighborhood will probably have to
be spent if more FCS vehicles are not bought, and which is the
current plan.
Next chart.
Let me turn to the Navy. This shows past and projected
funding for investment in Navy systems.
CBO's projection indicates that funding for investment in
Navy and Marine Corps weapon systems will average about $58
billion annually during 2014 to 2026, which is slightly less
than the average funding of $61 billion during the period of
the 2009 FYDP, 2009 to 2013. And through 2018, in this
projection anyway, funding will be comparable to that of the
mid-1980s, and that is to support a fleet of about half the
size of the ship fleet that we had during the 1980s.
Funding for shipbuilding, excluding historical cost growth,
so there is that ships' portion of the funding at the top of
the chart, will average about $21 billion through 2026. That is
about 40 percent greater than it is in 2009.
Funding to develop new weapon systems, the bottom part of
the chart, shows the development funding for new systems. And
you can see that funding to develop new weapon systems would
decline from $19 billion in 2009 to $11 billion in 2013 and
eventually in our projection to about $7 billion by 2026. And,
as seen in the chart, such a steady, substantial decline in
RDT&E funding would be inconsistent with experience during the
past 20 years. But, nonetheless, that is the implication of
current plans. They will buy out the joint strike fighter
program and F-18 EF and multi-mission maritime aircraft, and
they will not begin to develop the replacements for those
systems even though towards the end of this projection the F-18
EFs that have been bought over the last several years will be
nearing the end of their service lives.
Next chart.
Finally, let me show you our projection for Air Force
investment that is shown on this chart. CBO projects that Air
Force investment will average about $70 billion annually during
2014 to 2026, versus about $64 billion annually during the 2009
to 2013 period of the 2009 future years defense program.
Accommodating historical cost growth would increase funding
demands by about $6 billion annually. And note that a
substantial portion of the other funding depicted in this chart
is associated with intelligence activities that experienced
substantially increased funding since 2001.
Next chart.
Let me just bore in here for a second on one of the
particular challenges facing the Air Force, and that is the
modernization of its tactical aircraft fleet. So this is the
Air Force analog of that chart that I showed you a few moments
ago for combat vehicles in the Army. On the left, we have the
numbers of aircraft that were purchased in the past. So there
were large purchases of F-16s, particularly F-16s and F-15s,
during the 1980s. Then there was not much aircraft procurement
during much of the 1990s. Then we began to buy the F-22, which
are the pink bars on the chart. And then, in the future, we
will buy in increasing numbers the joint strike fighter for the
Air Force rising in this projection to 80 aircraft a year,
although we have heard that part of the increase in funding in
the fiscal year 2010 future years defense program that the
Department has developed would be to buy an additional 30 joint
strike fighters a year for the Air Force. That would raise that
number to 110 a year if that were correct.
Then on the bottom part of the chart you can see the
funding, and you can see that recently and in the future we
will be spending at levels roughly comparable to the levels
that we spent during the 1980s but to buy substantially fewer
aircraft. Those aircraft have gotten a lot more expensive.
Let me just give you a bit more detail on that. During 1981
to 1988, 1,877 aircraft were purchased, for a total of $54
billion. That is an average unit cost of about $30 million.
Most of those were F-16s. During 1993 to 2001, 105 aircraft
were purchased for $9 billion, an average unit cost of $80
million per plane. And during 2001 to 2008, 156 aircraft were
purchased. Almost all of those were F-22s, although that is the
beginning of joint strike fighter purchases as well, so about
\1/10\th--less than \1/10\th the number of aircraft that were
produced during 1981 to 1988. And those were purchased for $32
billion and an average unit cost of $210 million.
So during 2001 to 2008 we purchased about 60 percent of the
aircraft that we did during the 1980s--excuse me, we spent
about 60 percent buying aircraft in 2001 to 2008 that we spent
during the 1980s, and we bought 10 percent of the aircraft. So
60 percent of the funding, 10 percent of the aircraft.
And then in the future the joint strike fighter which will
replace those--well, not entirely replace those F-16s, those
dark blue bars there that were purchased in the 1980s, we will
be buying those at $80 million a plane, versus $30 million a
plane during the 1980s.
That concludes my remarks, and I am happy to take your
questions.
[The statement of Mr. Gilmore may be accessed at the
following Internet address:]

http://www.cbo.gov/ftpdocs/99xx/doc9972/02-04-Long-Term--Defense--
Testimony.pdf

Chairman Spratt. Well, thank you both. We asked for
numbers, and we got them back in spades.
But, interestingly enough, the one thing you didn't mention
was the one thing that 4 years ago or longer Senator Kerry and
President Bush when they debated were put to the question, what
do you think is the greatest threat facing the United States
today? Kerry answered, a terrorist equipped with some kind of
nuclear device; and President Bush readily concurred. It is the
one thing they commonly agreed upon. You haven't touched upon
that at all.
By my calculation, if you scrub this budget down, go to DOE
and scrub its budget down for CTR and for Nunn-Lugar and all
the different components of nonproliferation, you come up with
about $2 billion. Is my approximation pretty close to what you
would approximate is what we are really spending on this
particular threat, nonproliferation? Steve? Mike?
Mr. Daggett. Well, there are two major categories in the
defense account. One is cooperative threat reduction, which is
in the DOD budget; and that has been running about $400 million
a year. And then Department of Energy has a substantially
larger nonproliferation program, counterproliferation program,
largely to buy nuclear material and so on. I think you are
right. I think it has been running about a billion and a half a
year.
There are other initiatives in the State Department as
well. I mean, the whole counterproliferation, international
counterproliferation efforts. But those don't involve lots of
money. The money for it is really in Department of Energy. And
so I think your total is about right.
Chairman Spratt. And it has been pretty steady at that
particular level for several years at least.
Mr. Daggett. Yes.
Chairman Spratt. How do you account for that? Do you think
there is an underallocation here simply because it gets
squeezed out by other programs, or this is all the Pentagon and
the Department of Energy think can be sensibly applied?
Mr. Daggett. Well, I know there is an ongoing program. The
big budget driver, as I understand it, is purchasing nuclear
material; and there are agreements, international agreements on
how much we are going to purchase each year. You might be able
to increase that to some extent, but I think that is what
drives really the cost of it.
You asked me are there other things we should be doing that
we are not doing? I don't know. That is a bit beyond what I
have looked at in detail. I can certainly get back to you.
And Amy Wolf, who works with us, has worked very closely on
counterproliferation programs. The Harvard Belfer Center does a
study every year of the status of nonproliferation efforts, and
they make a number of recommendations. They have made a number
of recommendations for changes in policy.
I have looked at it pretty closely a couple of years ago
and didn't see many that required a lot more money. It was more
international diplomatic initiatives and things of that sort
that they were looking at. But I would be glad to look more at
that and talk with you and with Scott about it.
You can certainly identify, I think, some additional areas
of possible investment. I am not sure it would be a huge amount
of money.
Chairman Spratt. Mr. Gilmore, if we cut through all of your
charts and information here to the basics, to the bottom line,
what are we spending today on the base defense budget for
national defense and what are we spending typically in terms of
supplementals for emergency purposes, primarily Iraq and
Afghanistan?
Mr. Gilmore. Let us see. In 2009, I think the Department
requested $517 billion and the Congress appropriated about $515
billion in the base budget; and there was about another $180
billion or so in supplemental funding for operations in Iraq
and Afghanistan and other purposes.
Chairman Spratt. So that comes to nearly $700 billion?
Mr. Gilmore. Pretty close.
Chairman Spratt. And in real terms how does that compare to
the post-war expenditure levels in the post-war period?
Mr. Gilmore. It is a peak. I mean, if you look at a chart
that is on our Web site that displays defense funding over the
past 60 years, I think we are at a peak in inflation-adjusted
spending.
Chairman Spratt. Compared to Korea?
Mr. Gilmore. It has been a pretty steady increase, so I
think it is an overall peak.
Chairman Spratt. Now, we have received from DOD from time
to time bills for reset--renovation, repair, reconstitution and
repurchase, really--of equipment that is either badly damaged
or worn out due to the operating environment and the OPSTEMPO
in the two war zones we find ourselves now, Afghanistan and
Iraq. Have either of you paid any particular attention, spent
any effort to try to unpack what is in those substantial
requests that started at about 15, $16 billion?
The Chiefs told us that if we stopped the war in Iraq
tomorrow we would still have these costs for at least 2, 3,
maybe 4 years at a substantial level. But the level has risen
considerably from about 15 or $16 billion several years ago to
around $50 billion today, just under $50 billion today.
Mr. Gilmore. I think a year and a half or 2 years ago,
Grant Lussier in our division produced a report on the Army
reset program trying to, as you put it, unpack some of the
details, which turns out to be a challenge to do, given the
information that is available from the Department.
Nonetheless----
Chairman Spratt. Give me some examples under the
acquisition of new equipment.
Mr. Gilmore. Yes. A lot of the increase is associated with
buying new equipment for the Army. Substantial numbers of up-
armored, high-mobility, multi-purpose wheeled vehicles, Humvees
that were not in the force at the beginning of the conflict, as
everyone knows.
A substantial amount of money, about $20 billion, I think--
I could be wrong--for purchases of mine-resistant, ambush-
protected vehicles. Substantial amounts of money to purchase
the most modern versions of Army trucks, the trucks built as
part of the so-called Family of Medium Tactical Vehicles
Program. A lot of those trucks were bought for National Guard
units that lacked the most modern trucks. And, in fact, a large
number of those trucks are just kept in the theater, and the
units that come in haul in on those trucks.
So a substantial portion of that growth has been associated
with buying that kind of new equipment that was not in the
force prior to the operation.
Mr. Daggett. And I have one point. It really is unclear to
me to what extent the Army has filled out its evolving
requirements and plans for that kind of minor equipment. One of
the tasks for the next administration, it seems to me, is to
really unpack where the Army is going and what bills remain
unfunded and try to distinguish what is to replace war
equipment and what is to fill out modularization of the force
and what additional kinds of equipment needs they might
identify because of lessons of the war to equip the Army
National Guard.
They spent a lot of money on it already. I am just not sure
how far along they are in meeting all of those additional
requirements. It could require a substantial amount additional
if you do everything the Army wanted. It could be almost all of
it has already been spent. I just don't know the answer to
that. And I don't know that anybody really----
Mr. Gilmore. Well, I think the Army has indicated that, in
fact, there are substantial additional bills that will come
due. I read, anyway--I can't verify the accuracy of the
reports--that the Army has claimed that they are about $40
billion a year short in their investment accounts of where they
would want to be if they could fully modernize and fully equip
their force the way they want to. I have just read that; I
haven't had a chance to get any information that would actually
verify that figure.
Chairman Spratt. These requests come not in the base
budget, but in, primarily, largely in the supplemental.
Mr. Gilmore. Well, it is a combination of the two. For
example, some of the increases that occurred early on in the
procurement requests in the supplementals were buying equipment
associated with modular conversions, the conversion of the
Army's combat brigades from division-centered to brigade-
centered, modular brigades that were more capable of
independent operations. Although, now the Department claims
that almost all those costs, if not all those costs, are being
requested in the base budget. But, initially, there were
amounts requested in the supplementals.
So it is a combination of the two. But, as I pointed out on
that chart, in Army procurement, the Army has gotten as much
recently in procurement in the supplemental as it is requesting
in its base budget.
Chairman Spratt. Typically, when advocates or opponents
speak of the percentage of defense expenditures as a percent of
GDP, they talk basically about the defense budget and, to some
extent, Function 050, which would include the DOE nuclear
program as well. But they generally do not include some direct
collateral costs, such as veterans. The veterans bill today is
running about, for both mandatory and discretionary, about $95
billion a year. They rarely mention homeland security, an
account that didn't even exist in the budgets several years ago
and today is at $35 billion to $40 billion, maybe half of which
is really classified money, but there is at least a $20 billion
to $25 billion increase there. And they rarely mention military
aid under the 150 account for foreign purposes. And you could
go down the list.
Do you think, as we try to arrive at that measure, what
percentage of our GDP are we allocating to national security,
that these accounts should be included?
Mr. Daggett?
Mr. Daggett. Yes, it is really a policy issue for Congress.
I will say, when I look at it--I have spent a lot of time
talking about personnel costs. And when you are tracking
personnel costs, if you just look at the defense budget, even
the 050 account, as a whole--in whichconcurrent receipt, is
part of 050, not 051--you don't get a whole picture of it,
largely because of VA costs.
So it may affect allocation decisions in this sense, that
you are not capturing the full cost of personnel when you just
talk about what the budget cost in DOD is, that the full cost
of hiring somebody in the military is actually substantially
higher than just the DOD cost because of future veterans'
benefits and so on.
So it is useful, in general, to keep that in mind. But
whether you have an overall budget account for national
security or whatever as a way of doing it, you know, I don't
have an axe to grind on that. But I do think visibility of all
those kinds of costs is certainly useful from a planning point
of view.
Chairman Spratt. I think the message that both of you bring
us in great detail in your testimony today is that, typically
when we think about cost growth in the defense business, we
think about the investment accounts, R&D and procurement,
because the percentage increases over and above baseline tend
to be substantial over time.
But now we have a defense budget where the personnel
accounts are swelling just as much as the--or substantially, if
not as much as the investment accounts. O&M, of course, is
growing substantially because we have troops deployed in two
theaters and still troops stationed at places throughout the
world.
It is hard to contain a budget which has got every account
in it demanding substantial funding because of its level of
engagement right now. Would you agree with that?
Mr. Daggett. My discussion is that personnel costs really
drive a large part of the defense budget and have really driven
costs up across the board. The implication I draw, by the way,
is, to the extent that there is a decision to cope with that by
reducing spending in some way, if you just look at the
investment accounts, you are really focusing on a relatively
narrow part of the budget disproportionately.
So you really do need to consider the cost of personnel,
both uniformed personnel and civilian personnel, in this budget
environment. If you think the budget is going to be tight for
the foreseeable future, eventually you are going to have to
look at the size of the force. And, from my point of view, just
from a planning perspective, if you are going to draw down the
size of the force in the future, the sooner you decide to do
it, in a way, the better, because then you save resources in
the interim for other investments.
So, absolutely, I think it really is important to keep in
mind that a big, big part of the budget is driven by the cost
of people.
Chairman Spratt. Mr. Gilmore, one final question. Some time
ago we asked, after not getting the information from DOD, we
turned to CBO and said, would you give us your best estimate of
what our engagement in Iraq and Afghanistan has cost to date
and what it is likely to cost over the future?
Could I just put those two charts up to see if those
estimates are still applicable in the eyes of CBO?
This shows that, if you take funding all the way back to
2001, primarily, solely almost, for the first couple of years
for Iraq, and then for Iraq and Afghanistan together, from 2001
through 2009, the total amount of war funding to date, the
supplementals has been $864 billion. That is primarily a matter
of record, and it is just a matter of which costs were
allocated to that theater and which costs went elsewhere.
Is that still----
Mr. Gilmore. That seems correct to me.
Chairman Spratt. Now, second chart. Picking up from there,
we agreed that CBO would estimate a drawdown in troops over a
5-year period of time to about 75,000 troops in both theaters
in that zone of the world. And once the force level reached
75,000, that would be the steady state, it would continue at
that level for the next 5 years.
The total then came to 867. Of course, that is a
projection, not a record number. Is that still roughly what CBO
would project for the costs under that scenario?
Mr. Gilmore. That looks consistent to me with what was
included in the recent outlook.
Chairman Spratt. This is driving a large part of that O&M
account that we saw swelling as you showed us the numbers
earlier, then, and the reset and reconstitution account as
well.
Mr. Gilmore. Yes, although there are underlying reasons
separate from operations in Iraq and Afghanistan that the
operations and support costs have been growing, as both Steve
and I have mentioned. But the recent rapid increase is
obviously due to the need to fund those operations.
Chairman Spratt. Thank you very much, both of you, for your
fine testimony.
Mr. Ryan?
Mr. Ryan. Thank you, Chairman.
This is a very interesting hearing. And for those of us who
aren't on Armed Services or Approps, this is very helpful to
us.
Okay. A number of questions.
Mr. Daggett, I want to go to your cost overrun chart. I
think it is chart 6 of your testimony. The change in total
acquisition cost from the first estimate, 6 percent increase in
fiscal year 2000, 18 percent overrun in fiscal year 2005, and
26 percent in fiscal year 2007. Is that right?
Mr. Daggett. Right.
Mr. Ryan. That is a staggering increase. Can you drill down
into that number and give us a sense of why, how, and what
direction are we headed now?
Mr. Daggett. The question is, why is it getting worse? It
seems to be getting worse, not better----
Mr. Ryan. Right.
Mr. Daggett [continuing]. In spite of really pretty serious
efforts on the part of DOD to get a better handle on it. There
is a cost-analysis improvement group at the Pentagon that
really does go over cost projections very carefully.
Mr. Ryan. So what is happening?
Mr. Daggett. I think a couple of things. And this is drawn
mostly from reading GAO's testimony on it. GAO really has
looked very carefully at this, and this is from GAO's latest
analysis.
Part of it might just be cyclical. Typically, weapons cost
growth is greatest as systems and full-scale engineering
development begin to enter the production phase, because we are
finally getting down to what it is going to take to produce it.
So you get larger cost growth at the end of the development
cycle. And it could be just that part of the inventory of
weapons is in that part of the cycle. I have had some
discussions with people at OMB who think that that is part of--
--
Mr. Ryan. Is it the higher-tech nature of the equipment
and, therefore, the less predictability?
Mr. Daggett. Yes. The other issue that GAO, in particular,
points to is a willingness to accept very high levels of
technical risk in the development process. And DOD and GAO do
measures of that. They call them TRLs, technical risk levels.
And for each major development program, there are various
elements of technology in the development effort, and they
assign various TRL levels to it. And there does seem, just by
that measure, to have been a greater willingness to accept
higher levels of risk in the development process, which then
leads to schedule delays and cost increases.
Let me say, part of that is driven, by the way, by just the
length of time it takes to develop a weapon. If you are going
to develop something that is not going to be fielded for 10 or
20 years, and you look at what is going on, say, in electronic
developments in the civilian sector, it is proceeding so
rapidly that what you say is, well, I can't afford to leave
that behind; that new technology is going to be very helpful to
the weapons system. So we have to assume its availability in
the development process. So we will look ahead to what we think
is technically reasonable and assume we can build it. But then,
when you actually try to develop it or do it, it becomes more
difficult than you think--the schedule slips, cost increases,
and so on.
But if you really look at what GAO is saying--and, again,
they are looking at this very closely--that is one of the
drivers of it, just a general across-the-board willingness--
again, not for bad reasons, not with an unreasonable view
toward what is going on--to get into a program on the
assumption that we will make it work later.
Mr. Ryan. A 20 percentage point increase in 7 years, that
is just staggering.
A lot of people on our side of the aisle like this idea of
a 4 percent GDP floor on spending. As a budgeteer, I don't like
the idea of any floor on any program; caps, yes, but floors,
no.
But looking at the CBO's--your chart--you don't have your
charts numbered here, and you had about 75, so looking at the
one which is percentage of GDP----
Mr. Gilmore. I think it was my second chart.
Mr. Ryan. Yeah. I have them all detached here.
So give me a sense for where we are headed, percentage GDP,
if your health care projections go off. And then I want to ask
you about that.
Your TRICARE projection kicks in in, what, 2002, where it
really starts taking off, your accrual projection? And that is
probably chart 5 or 6.
Mr. Gilmore. The program was initiated--I mean, prior to
2001 or 2002, it was pay-as-you-go, and they just paid for
expenses not on an accrual basis. Then TRICARE for Life was
instituted, and it was decided to fund it on an accrual basis.
So the funding every year is based on a projection of what you
need to invest today in order to pay for future retirees, and
that is when the costs began to increase.
Mr. Ryan. We concur with accrual principles.
I want to get at this. So, looking at the accrual rate of
TRICARE and all of the other health care issues, what goes into
your projection? How much of it is health inflation? What
health inflation rate do you use? Do you use the same health
inflation rate the trustees at Medicare use? And how much of it
is demographics?
So breaking that projection down, how much do you ascribe
to demographics, how much do you ascribe to health inflation?
And how do you arrive at your health inflation rate?
Mr. Gilmore. I can't give you a breakdown on demographics;
I would have to get back to you on that. But the demographics
of the DOD retiree population, we will have to look at how much
that is changing over time. You don't have exactly the same
problem there that you do in the economy as a whole. I can't
give you more detail on that off the top of my head, but I can
get back to you on that.
But, in any event, in terms of the growth rates that are
assumed in these projections, the growth rate for the accrual
costs and the TRICARE for Life accounts that we use is the same
as the one that the DOD actuaries use. We have looked at it,
and it seems reasonable to us, and that is 6.25 percent nominal
growth.
Mr. Ryan. Do they use the same rate that the Medicare
trustees use?
Mr. Gilmore. It is comparable.
And then there are other things that are budgeted for in
those health accounts, as was displayed in my fourth chart, I
guess, including pharmaceutical costs. And per capita
pharmaceutical nominal growth is 9 percent in 2014, which we
assume slows to 6 percent by 2026. And that is consistent with
the kinds of growth rates that CBO and others use when they
project pharmaceutical costs for civilian----
Mr. Ryan. And even with all that, your percent-of-GDP
projection stays under 4 percent in the out-years?
Mr. Gilmore. Yes, it does. On that second chart, ``Defense
Resources as a Percentage of Gross Domestic Product,'' there is
the dotted line, administration plan with unbudgeted costs.
That includes all of the unbudgeted costs that I showed you on
all those charts. You insert the upper end of the range in
every case for all those dotted lines. And that includes the
dotted line for total unbudgeted costs in the Military Medical
System chart, which incorporated even faster growth than 6.25
percent for accrual and 9 percent per capita pharmaceutical
growth, cost growth, and 6 percent per capita for direct and
purchase care cost growth.
Mr. Ryan. What is the measurement of the crowd-out within
the DOD budget in nominal terms with new health care costs
versus all other military spending?
Mr. Gilmore. Well, medical spending, I mean, that is one
way to look at it----
Mr. Ryan. You know how we do this all the time on mandatory
versus discretionary with the entire budget, and how we show
that the crowd-out is occurring so rapidly over the years. Give
me an apples-to-apples comparison with the DOD budget.
Mr. Gilmore. Well, about the best I can do off the top of
my head is just return to chart 4, which shows funding for the
military medical system of about $40 billion currently. And
that could grow to as much as $90 billion by 2026, so more than
a doubling over 17 years. So that is more than 100 percent cost
growth over that period versus about a 7 percent growth overall
in operations and support costs.
So our projection for needed funding for the military
medical system is growing seven, eight times more rapidly than
O&S costs as a whole.
Mr. Ryan. We have had these complaints in the last number
of budgets about the administration trying to sneak, you know,
what we would consider base spending into the supplemental
bills. And they did a lot of this 3, 4 years ago. We kept
criticizing them; they did a little less of it.
Are you now saying that, from your estimation, they are not
sneaking base spending into supplemental bills and that the
supplemental bills themselves are pretty much truly
supplementals?
Mr. Gilmore. We really haven't taken a position----
Mr. Ryan. Mr. Daggett, please feel free. I mean, either one
of you can answer the question.
Mr. Gilmore. We haven't taken a position on whether a
certain kind of funding is appropriate in supplementals or the
base budget. There are arguments on both sides of that.
But in terms of--what many people have argued in the past,
for example, that the costs for converting combat brigades from
division-centered to a modular design should be part of the
base budget, that was originally in the supplementals and it
now seems to be part of the base budget.
Other people have argued that the upgrades that are made to
the Bradleys and Abrams when they return from the theater--
because the Army determined that they have to be torn apart
completely, and since they were torn apart and we have to put
them back together, we might as well upgrade them to the most
modern configuration; not an unreasonable argument--but some
people have argued that those costs ought to be borne in the
base budgets since those kinds of upgrades had long been part
of the Army's desired base program but not funded because of
other constraints. Those kinds of upgrades still are in the
supplementals, although there are fewer of them now because
there are fewer tanks, for example, in the theater.
So I think what you will find is what you stated, that over
time the amount of money that is included in the supplementals
that a number of people would argue should be, in other
circumstances, funded in the base budget has been reduced, but
I don't think it has been entirely eliminated.
Mr. Ryan. And, last question, our airplanes, our fighters,
what is the cost of a Joint Strike Fighter and an F-22?
Mr. Gilmore. The Joint Strike Fighter, the current
projection for the Air Force version is that it will cost about
$80 million apiece. And the F-22 is on the order of $180
million or $190 million apiece.
Mr. Ryan. And the F-16--which, in my mind, I should think
of Joint Strike Fighter as the new version of an F-16, right?
F-16s were $30 million?
Mr. Gilmore. They were $30 million when we bought them in
the 1980s, although the more recent versions of the F-16s,
which are more capable, which have been sold to some foreign--
--
Mr. Ryan. These are in real dollars, right?
Mr. Gilmore. Yes, these are in 2009 dollars. All the
numbers I have given you are in 2009 constant dollars.
The more recent versions of that plane that have been
purchased, I think, by the United Arab Emirates, which are more
capable--they have, for example, much better radar--have been
more on the order of $40 million to $50 million.
Chairman Spratt. You are talking flyaway costs as opposed
to program unit cost, are you not?
Mr. Gilmore. I am talking procurement unit costs.
Procurement unit costs are a little bit more than flyaway.
Chairman Spratt. Of course they are. They have the R&D in
them.
Mr. Gilmore. Well, no, Mr. Chairman, I am just talking
about procurement. I am not including the R&D costs. The
flyaway costs don't include things like initial spares and that
sort of thing.
So procurement unit costs are a little more than flyaway
unit costs, which are both less than acquisition unit costs,
which include the R&D.
Mr. Ryan. Thank you.
Chairman Spratt. Ms. Schwartz.
Ms. Schwartz. Thank you, Mr. Chairman.
And thank you for your testimony and information.
I think all of us understand, and I think would agree, that
protecting and defending our Nation and getting the size of our
military and our costs in DOD right is one of our most
significant responsibilities as Congress, and I certainly do.
Certainly we are facing a budget that is the largest since
World War II, at $527 billion. So we want to get this right,
and appreciate your information.
And I think, as both the chairman and the ranking member
pointed out, that having information that is accurate from DOD
is extremely important, and that has not been so easy, given
the previous administration sometimes not sharing all of this
information that we would like.
Really, just one comment and one question. I did want to
thank the chairman for his asking questions about the reset
costs. I do recall, in a previous budget hearing, asking DOD
whether all the reset costs for replacement of equipment and
repair of equipment from the war zone in Iraq and Afghanistan
have been accounted for, and his answer was yes, absolutely,
100 percent. It was rather stunning. I am happy to get that
testimony.
But if, in fact, that is not correct, which is what you are
suggesting, that is pretty important for this new
administration to understand what the cost for replacement of
equipment and repairing of equipment is going forward. And, of
course, the war continues in Iraq and Afghanistan, as you
project.
My question really has to do with also some problems that I
realize came out of the supplemental discussions more than DOD,
but wondered if it related to DOD and whether you could speak
to them. And that is, certainly there have been concerns about
inefficiencies and overspending in contracting. And, again, the
stories have come out, by and large, around the wars in Iraq
and Afghanistan, particularly with private contractors.
Could you speak to whether you have looked at--again, we
are in tough economic times. We are looking for the greatest
efficiency going forward, and that includes within DOD. And we
have a new administration that is very keen on greater
transparency and accountability for use of Federal dollars.
So could you speak to whether there, in fact, have been
problems in terms of contracting and costs that we might be
able to rein in?
And yet, again, I am coming at this from a point that we do
want to and need to make sure that we are the right sized
Department of Defense and that we are protecting both our
troops in the field, of course, but then also, going forward,
are prepared for the challenges and threats ahead.
But given that, could you speak to any of the specifics you
might on efficiencies and what greater transparency and
accountability might lead to within DOD so that we might apply
those costs where we need to?
Mr. Gilmore. We have not--and it is not our function at CBO
to do audits of these contracts. The Special Inspector General
for Iraq has done that and published quite a bit of material
about his findings. That is not something that we have done.
What we have done and published last August is a report
that summarized what we thought was the total amount of funding
that had been spent in the Iraq theater on contractors that
support military operations in Iraq and neighboring countries,
such as Kuwait. And we concluded that, through late 2007, about
$85 billion had been spent for those purposes, and that, if the
current rate of spending continued, which was probably likely
given that force levels weren't going to change that much--they
were going to decline somewhat, but not dramatically, at least
not at that time, not yet--that probably, by the end of 2008,
about $100 billion would have been spent on contractor support
of our operations.
The other thing that we took a look at was whether it would
have been cheaper for the military to perform those functions,
those support functions itself. And what we concluded was it
wouldn't have been, not unless we thought we were going to be
continually involved in an occupation of Iraq of the size that
we have had continually, meaning virtually always, in which
case, then, yes, it would be cheaper for the military to do
that itself, but----
Ms. Schwartz. Is there a point at which, 10 years, 20
years----
Mr. Gilmore. Yeah, if you don't think you are going to be
involved in it continually, then it is actually cheaper to hire
contractors and then shed them when you are no longer engaged
in those activities and only hire them when you are.
Ms. Schwartz. That makes sense, although it has now been 8,
9 years, and you projected out for another 10. So it is much
longer than temporary. We hope it is temporary, too, of course.
Mr. Gilmore. I won't dispute that.
But with regard to your specific question about
efficiencies, we have not looked at that, but the Iraq
Inspector General has and I think GAO has. They have reached
the conclusions that they have.
Ms. Schwartz. Well, you get a sense of $100 billion out
of--it is not the $527 billion. It is out of the supplemental;
it is out of the $800 billion.
Mr. Gilmore. At that time, it probably would have been on
the order of $100 billion out of $600 billion or $700 billion
was spent on contractors.
Ms. Schwartz. Maybe it is something for us to continue to
consider going forward.
Mr. Gilmore. Yes, but I would point out that probably about
two-thirds of the defense budget is spent on contractors, one
way or another. Contractors develop the weapons systems. There
are a lot of contractors that perform other functions. And so
if you look at that $515 billion, there is a third of it that
is spent on military personnel, but----
Ms. Schwartz. Well, I am not suggesting that we not use
private contracting. I am just suggesting that--and I believe
there is quite a bit of oversight. In some situations where I
visited, certainly, Defense contractors said there is someone
from DOD there auditing what they do all the time.
So I am just saying that, under the previous
administration, there were some real issues with this, again,
to those audits, and that we ought to make sure that we are
spending precious public dollars as efficiently and effectively
as we might. So, maybe a question for another day and for
someone else.
Thank you.
Chairman Spratt. Mr. Simpson.
Mr. Simpson. Thank you, Mr. Chairman.
I would just note that there has been a question of
contract management under every administration, not just the
previous administration. And, in fact, you don't go into
whether contract management has been appropriate or not. I sit
on the Energy and Water Subcommittee, and we have looked at a
lot of the contracts that have been done with the Department of
Energy and some of the programs. The waste treatment plant at
Hanford that started off at $4 billion and went to $14 billion
causes us a great deal of concern.
I wonder about the relationship between the contractors who
work for DOD, who have a close relationship with them. How much
contract management oversight is there? And you don't go into
that, do you?
Mr. Gilmore. No, we don't.
Mr. Simpson. Let me ask a couple of other questions. In
your budget, when you are looking at your numbers here, do you
take into account defense operations that are outside of the
DOD? Department of Energy, for example, the weapons complex,
the nonproliferation funds that the chairman was talking about,
those types of things? Because those are certainly as much a
part of defense as anything else we do.
Mr. Gilmore. In the projections that I showed you, we
focused just on budget function 051, which is the Department of
Defense. Considering 050 would add another $18 billion to $20
billion. And then there would be amounts in addition to that
that Chairman Spratt mentioned, substantial amounts, associated
with veterans affairs and other activities, homeland security,
homeland defense. But my projections focused just on Department
of Defense.
Mr. Simpson. There is a proposal that this administration
is currently looking at, is taking the weapons complex out of
civilian management and putting it under DOD. Have you looked
at that proposal at all?
Mr. Gilmore. We have not.
Mr. Simpson. Let me ask you about one of the costs that you
mentioned, health care costs, as driving the O&M budget. How
does that compare with private-sector health care increases
that we are seeing in the private sector?
Mr. Gilmore. In the projections that I showed you, the
growth rates for the cost of DOD medical care and
pharmaceuticals and so forth are all comparable to those that
CBO uses in its projections for the costs in civilian health
care.
Mr. Simpson. That is surprising, seeing as how I thought
government control of that was going to keep the cost down, and
that is why we were going to go to universal health care, but
that is another question.
What about the long-term increase in inefficiency that you
would expect when you have new technologies and so forth? We
don't see that within--I think, Mr. Daggett, you said we don't
see that within the Department of Defense as we do in the
private sector. As an example, the first cell phone I bought
cost $960. Today they will give you a cell phone.
Why don't we see that type of thing within the Department
of Defense?
Mr. Daggett. There is a huge literature that discusses
that, and the bottom line on it is seeking performance rather
than reliability, availability, and maintainability, as they
say.
For its part, the DOD has been looking pretty hard at that
in the last couple of years. There is a new team that is
working at DOD to actually get involved in the operational
testing or development testing of major systems, with a view
toward identifying possible improvements in long-term
maintainability of the system. But that is a new initiative. I
mean, we will have to see how that plays out.
DOD itself is very concerned about the fact that the cost
of operating and maintaining weapons systems really hasn't come
down as costs have come down in the civilian sector. And you
look at any part of the civilian sector, not just electronics,
but automobiles or aircraft operation and maintenance, the
trends are not as good in DOD, and sometimes they are going the
opposite direction in DOD from what is going on in the civilian
sector.
So, you know, it is certainly an area that DOD recognizes
and that they are trying to work at. That said, if you go back
to the 1980s, that was an issue back then, as well.
But, again, what drives it here is, when you are developing
a weapons system, what are you looking for? You are looking for
performance, and you are trying to push the envelope, in a lot
of cases. In electronics, you are trying to get a complete
picture of the battlefield. And that involves--to the extent
that you could use off-the-shelf consumer technology to do
that, then it would get cheaper over time. But a lot of these
are unique kinds of things that DOD alone does that there is
not a parallel requirement for in the civilian sector, so they
are left to do it themselves. And it becomes a very costly kind
of thing to try to do it.
Another aspect of the problem is, again, given that it
takes so long to develop a weapons system, some of the old
software and even the computer systems that you are using are
getting pretty out of date. So when they do break, you have to
go back to the manufacturers and get old systems or you have to
replicate it in a way. So it is more expensive to replace it
than it typically is in the civilian sector.
So there are a lot of factors that drive this.
Mr. Simpson. That is the one thing we found within the
Department of Energy, is that they do unique things that are
sometimes hard to do estimate the cost of because they have
never been done before.
I appreciate your testimony. As the chairman said, it is
interesting to get the background on this, but an awful lot of
this discussion depends on the policy decisions that we
ultimately have to make.
Chairman Spratt. Thank you, Mr. Simpson.
Ms. McCollum.
Ms. McCollum. Thank you, Mr. Chair.
Gentlemen, we sit here today, and Congress and the new
administration, as has been pointed out in other questions,
must begin making smart decisions for best overall security
strategy for the United States.
As the DOD working paper states, capabilities based on
planning should be apportionate to the risks that are across
the challenges. Now, it seems our current defense strategy
focuses on spending on the least likely scenarios, according to
the quad chart that was put up. Clearly, an example of this was
the money that was spent on missile defense. And I am afraid
that we are not focused enough on high-risk, high-vulnerable
scenarios.
As we look to make the Pentagon more cost-efficient, one of
the tools that we have in our national security strategy box is
supporting the 3-D strategy: National security is defense,
diplomacy, and development. And one of the things that I
noticed that is missing on this quad chart is any discussion
about how climate change--and we know that the Department of
Defense is spending a lot of money with climate change
scenarios out here.
So what are some of the potential cost savings to our
national security spending by increasing funding for
development and diplomacy? What kind of savings could we see,
doing that?
Thank you, Mr. Chair.
Mr. Daggett. I put the quad chart up, so I guess I am on
for that.
It is a hard question. As I said, Secretary Gates really
has done a series of speeches recently in which he has raised a
lot of precisely the kinds of questions that you have. Those of
us who work in Washington, on defense policy in particular,
discuss quite often very fundamentally different alternative
approaches to national security; I mean, are there things you
can do in prevention by building relations with allies that
could then lead to reduced requirements over the long term for
forces and so on. I mean, we talk academically about that all
the time. They are now on the political agenda, and they are
there because Secretary Gates has really put them on the
political agenda. He is talking about a whole-of-government
approach now to national security that involves all of the
elements that you talked about. So, you know, it is a very
lively discussion.
I think in the short term, his priority, as he has
articulated it, has been to reduce the emphasis on what he
calls traditional systems and increase the emphasis, as he puts
it, on the wars we are fighting now, by which he means
irregular conflicts. So he is more focused on the fairly short
term, not on the kind of longer-term issue so much immediately
that you talked about, but on the shorter term. And that does
involve some potential shifts in priorities. And I look for DOD
to be discussing them even in the 2010 budget, and particularly
in future budgets.
But that, to me, is likely to mean tradeoffs in major
weapons programs--are we going to continue to produce DDG-1000
Destroyer or not--transformational communications satellites,
things of that sort, all of which support capabilities for
traditional conflicts.
And in favor of what? He has been very focused on trying to
find more resources for the immediate fight. Some of them are
not necessarily low-tech. Some of those things are, certainly,
UAVs and so on. But his argument has precisely been that we
have not put sufficient resources into those areas.
So I think there is going to be a big debate about the
allocation of resources, or there is likely to be a big debate
about the allocation of resources. And I am not sure how it
will play out.
I mean, you raised a much longer-term question. And I think
there also certainly is a discussion in the government about
allocation of resources between defense and nondefense. That
gets way beyond what Mike and I work on, but it is a big part
of the discussion.
DOD has been involved now--there have been some increases
in what DOD is doing in typical areas of foreign affairs. If
you leave aside military assistance, security assistance, and
even economic assistance in foreign countries, if you leave
aside, though, what DOD is doing in Iraq and Afghanistan, that
is not, by DOD standards, a huge amount of money. Global train
and equip has become a big focus of attention. DOD, last year,
asked for authority for $800 million, I think, for that. From
the State Department's point of view, that is a lot of money.
From the Department of Defense point of view, it isn't
particularly.
The appropriators then have taken some issue with that.
They think that that should be handled primarily by the State
Department rather than by DOD. And I think that, again, is an
issue for, in a sense, this committee to address, and Congress.
Ms. McCollum. Mr. Chair, I hope we have a chance to talk
about those tradeoffs and balances later in the committee,
especially as the reauthorization for State Department starts
moving forward.
Chairman Spratt. We will. Thank you very much.
Mrs. Lummis, from Wyoming.
Mrs. Lummis. Well, good morning. I appreciate very much
your attendance today.
I would like to start with a very basic question about the
Department of Defense and its inability to produce a clean
audit. I am curious why that is, what obstacles you think
prevent that from happening?
I support peace through strength. I support a robust,
capable military. But I do find it interesting that earlier in
this discussion we were talking about how military auditors are
auditing contracts, but why can't they, in turn, produce a
clean audit of the Department of Defense? Any thoughts in that
regard?
Mr. Gilmore. That is not an issue that CBO really looks at.
You know, auditing is the forte of the Government
Accountability Office.
I guess the only thing I would observe--and this is by no
means to try and make an excuse for the problems in DOD
bookkeeping--but I think we have seen that many large
organizations have problems keeping their books and accounting
for every dollar that is spent, no matter how hard they try to
do that. And DOD is another large organization, so it is not
surprising that they have those problems, which is not to say
that they shouldn't continue very hard to try and eliminate all
of them.
But that is not something that we have looked at
specifically.
Mrs. Lummis. Thank you, Mr. Chairman.
My next question is perhaps more on point. One of the
biggest tensions, I understand, that occurs in the budget
process for DOD is the constant battle between funding current
operations and long-term planning and acquisition.
So my question is this: Based on your analysis, do the
budget numbers give us an indication of where DOD is focusing?
Is it more focused towards replenishing what we have or
spending money on what we think we might need in the future?
Mr. Gilmore. Well, I think that the base budget contains
funding for both kinds of activities, although predominantly
for systems in the future.
So if you look at the investment program, it is dominated
by things like the Joint Strike Fighter program, the Littoral
Combatant Ship program, the DDG-1000, other systems like that
that are going to come online in the future.
But there are also requests in the base budget for billions
of dollars' worth of procurement for what Steve and we at CBO
refer to as minor equipment in the Army--ammunition, radios,
other things like that--that are very important to current
operations. And then, of course, there are also substantial
amounts in the supplementals for those kinds of things.
So the short answer is, it is a mixture of both. The base
budget is primarily focused on the future, not surprisingly,
and the supplementals are primarily focused on funding current
operations.
Mr. Daggett. Could I just make one point?
Secretary Gates, again, has raised precisely that issue in
those terms. He made a speech a few months ago in which he
argued that we need to focus less on the war we are not
fighting and more on the war we are fighting now. And I think
that is partly where concern about that kind of issue comes
from.
You know, his argument is that a large part of investment
has been in the direction of the systems for conflicts 20 or 30
years down the road at a time when we are having a problem, in
his view, finding sufficient resources for some of the things
he wanted to do in Iraq and Afghanistan. And that drove it.
It is not necessarily a big budget driver. The kinds of
items he was talking about for Iraq and Afghanistan aren't
necessarily going to drive the budget, in itself, much higher.
But it is a matter of allocation. It is an issue in DOD.
Mrs. Lummis. Thank you.
And one more question, Mr. Chairman--and thank you very
much for working so hard to pronounce my name right. I am
struggling in both my own conference and with others to get it.
And you got it right, so I deeply appreciate that.
My last question is about the Army National Guard or
National Guardsmen and -women deployed in both Iraq and
Afghanistan. And this is a subject that is very close to home
with me because, in April, over 940 Guardsmen and -women from
Wyoming will be deploying to Iraq in what will be the largest
mobilization in history of Wyoming's Army National Guard.
So my question is, in terms of both manpower and machinery,
in your opinion, have the DOD's budget numbers aligned with the
increased burden on our National Guard around the country?
Mr. Gilmore. They are beginning to. There have been
substantial amounts of funding requested in the supplementals
and increased amounts in the base budget associated with
equipping the National Guard units, for the reasons that Steve
mentioned: The National Guard is now being used as an
operational force, and, before Iraq, for the prior 20 or 30
years, it was not regarded that way. It was regarded as a
strategic reserve, and equipment fill and personnel fill levels
for the Guard were well short of those maintained for the
active force--you know, 80 percent equipment fill versus 90 or
95 percent for the active force, for example. And the budgets
in those years prior to operations in Iraq and Afghanistan
reflected that difference, that difference in priorities.
But that has been changing. But I don't think the
Department or the Army, in particular, would claim that they
have filled all the shortfalls. And so there are still tens of
billions of dollars' worth of shortfall that I am sure the Army
would claim needs to be spent to fill those shortfalls.
Mr. Daggett. Could I add just one point? There is another
policy issue here, and that is, it is clear that what the Army
wants is for all forward-deployed units to have the most modern
equipment. They want units that are training to deploy to train
on the same kind of equipment. Then the question becomes, what
about the next in line after them? Do they have to be equipped
with everything the next-to-deploy unit has? And the answer is,
well, no, but we need to think through what the mix is.
And then, for the fourth-to-deploy unit that is resetting,
what kind of equipment levels do you need? And, you know, not
every unit in the force is going to have all the most modern
equipment all the time. The real policy issue for the Army that
I think is still unresolved is, what are overall equipment
requirements relative to our rotational policy?
And, again, that is why I think there is still a need for a
look at what Army investment requirements are and what have
been met and what needs to be met as yet. And that applies, as
well, in particular to our Army National Guard.
Chairman Spratt. Mr. Blumenauer.
Mr. Blumenauer. Thank you, Mr. Chairman.
I would like to shift just a little bit, thinking about
some of the long-term obligations that the Department of
Defense has, where there is some potential significant savings,
and if we don't do it right, it is going to cost us a lot of
money.
The Department of Defense is the largest manager of
infrastructure in the world, the largest consumer of energy. We
have, what, 10 million to 40 million acres potentially
contaminated from past military operations, training. Yet it
seems that, year after year after year--and I fault the
Congress more than the Department of Defense--that we are sort
of missing in action, that we don't really put significant
resources to helping the military clean up after itself.
I mean, ultimately, those munitions break down, the
military chemicals get into the water supply. We spent I don't
know how much in Massachusetts to protect the groundwater for
Martha's Vineyard. Or something explodes, literally and
figuratively. And so we throw a lot of money at Hawaii, but we
find in front pages, just in the course of the last couple of
weeks, that there is huge local resistance to expanding
training facilities because we are not a very good steward, we
are not a very good neighbor, people get stuck with stuff. I
think in Sacramento it is going to be 2077 before the base that
was closed in the first round of base closure is cleaned up and
returned.
Now, it would seem to me that this has significance in
terms of just military readiness, that we are kind of stupid in
terms of how we use energy. We make it hard to have energy
savings contracts that would pay for themselves. We are not
developing the technology that would help the military
determine whether it is a hubcap or a 105 shell. That doesn't
just mean that it is hard to clean up in Colorado or
Pennsylvania or Wyoming. Every State in the Union has
unexploded ordnance problems. But it has implications for those
people in Wyoming that are going to be shipped overseas because
we haven't developed it.
Can you give me any sense of where you see indications with
the development of future budgets going forward, that there is
any indication that we are going to help the military save
money by cleaning up after itself, help local communities avoid
pollution and, frankly, explosions? Because three times since I
have been in Congress we have had to pull firefighters out of
national forests because the heat was exploding shells from
prior training.
Do you have a sense of where we might be going in this, in
terms of budget categorization and strategy?
Mr. Daggett. Just a couple of things.
I can't, by any means, give you an overall picture of where
DOD is going on environmental issues. They spend a substantial
amount of money each year on environmental clean-up and
compliance. And there are budget figures, and I can provide you
with the data on the trend.
I actually coauthored a report some years ago on trends in
DOD environmental clean-up and compliance activities. DOD is
subject to the same kinds of environmental compliance
requirements as private industry is, really the Federal
Government is.
Mr. Blumenauer. Theoretically. Not in practice.
Mr. Daggett. Let me speak to that point. And there have
been a lot of debates about whether the investments that they
are making in clean-up are sufficient.
On the compliance end, and especially on things like energy
efficiency, DOD has done some looking at that lately, and they
are not satisfied with what they have invested in energy
efficiency.
It has a security component to it, actually. There was a
Defense Science Board report done last year which discussed
potential vulnerability of military facilities to loss of power
from the public grid. And it affected potentially even mission-
critical activities. So it is a really natural area, when you
think about it, for DOD to look at.
So what is the solution to that? Well, part of the solution
that the DSB discussed and that is being discussed much more
extensively now inside the Defense Department as a whole is
build green power production facilities for the base itself.
Use wind power, use geothermal power if you have those kinds of
things on the base.
And it is not just a matter of being green for the sake of
being green. It is being green for the sake of security
interests.
Mr. Blumenauer. Yeah. Well, I see my time has expired, but
I would very much appreciate the report, the research that you
are talking about.
Mr. Chairman, I think Mr. Daggett's last words are very
important. This is not just being green for the sake of being
green. It has operational implications for security of our
bases in terms of energy, in terms of the safety of our
personnel, to protect them from military toxins and unexploded
ordnance, building the technology and saving money.
And because, Mr. Chairman, you wear two hats, both with
Armed Services and with Budget, this is something that I would
love to be able to pursue with you to make sure that we have
the budget headroom but also we get the policies aligned.
Chairman Spratt. Three hats. I represent a couple of
bombing ranges, too.
Mr. Scott of Virginia.
Mr. Scott. Thank you, Mr. Chairman.
And I would like to follow through on that, because it has
a specific interest in Virginia on BRAC closings.
Have the BRAC closing costs, including clean-up--I think
you used the words ``systematic underestimate of costs''--have
the real costs of closing these bases, including clean-up, been
appropriately projected?
Mr. Daggett. I can't speak to that. I just haven't looked
at it closely enough. If you want, I will be glad to get back
with you. We have looked at it some.
Mr. Scott. Okay. Let me just say that the Fort Monroe
closing and the clean-up may be off in the hundreds of millions
of dollars. And if the systematic underestimate is system-wide,
you are talking about many billions of dollars.
Shipbuilding--under shipbuilding, I noticed you had
significant acquisition costs there. What is our ship strength
that we are projecting?
Mr. Gilmore. Well, currently, in 2009, the information we
have is that we have a 288-ship fleet. And by 2013, that would
grow to 295 ships. And by 2026, that would grow to 319 ships;
55 littoral combatant ships at that time. That would be the
total buy that is currently planned, although there has been
difficulty with that program, and it is being restructured.
That included seven DDG-1000s. This projection was based on the
2009 Future Years Defense Program that was put forward prior to
the restructuring of the DDG-1000 program. That may reduce it
to two or three ships.
Fifteen CG(X)s, seven CG-47s, 62 DDG-51s, 62 submarines,
including 12 ballistic missile submarines, 44 amphibs, and 54
support ships, for a total of about 319 ships in 2026.
Mr. Scott. Did you say aircraft carriers?
Mr. Gilmore. Aircraft carriers are in there. I didn't
mention them. But it was 11----
Mr. Scott. Well, I am from Newport News, if you want to
mention those.
Mr. Gilmore. Eleven aircraft carriers. Sorry, that was an
oversight.
Mr. Scott. Ship repair--is there a backlog on maintenance
of ships?
Mr. Gilmore. We have not looked at that, so I can't say.
Mr. Scott. Because you may have another systematic
``misunderestimate'' on----
Mr. Gilmore. I don't know what current DOD budgeting
programming practice is, but many years ago when I worked there
the practice was to program in future years any year beyond the
budget year for 80 percent of ship depot maintenance
requirements versus funding at what the Navy thought the real
requirement was in the budget year, which meant that, when
those future years became budget years, you had to find an
additional substantial amount of money to pay for what was
really going to happen. But whether the Navy still programs in
that manner, I don't know.
Mr. Scott. You mentioned the fact that the Defense budget
kind of includes--you kind of have to think about the cost of
veterans. You talk about veterans health care. Have we talked
about the social services and other health care, like mental
health, homelessness, unemployment, that we have systematically
not addressed? Are we including those? Are we including
business as usual on mental health, homelessness, and problems
like that?
Mr. Daggett. We have both focused really just on the
Department of Defense budget, not on the VA budget. You know,
my view is, in order to cover the complete cost of personnel in
particular, you do need to take a look at the VA budget.
Mr. Scott. On contractors, one of the problems of hiring
contractors is you don't even know what law they are under,
what chain of command they are under. I mean, you have problems
like use of deadly force, and who makes those decisions. There
are also financial complications, like they are actually
competing for employees with the military. We train the guys on
our dime, and if they hire them at a slightly higher pay grade,
then we have to train and everything else.
In addition to the complications on policy, have you looked
at the financial implications of the unprecedented level of
contractors we are using now in the Defense budget?
Mr. Daggett. I have not.
Mr. Gilmore. We have just done the analysis that I
discussed previously of what the contract costs have been in
Iraq, and that would total $85 billion to $100 billion.
By the way, in the process of doing that work, we did
interact with the Department and asked them whether the problem
that you mentioned of people, for example, highly trained
special operations personnel retiring and then being hired as
contractors, what----
Mr. Scott. Well, deciding not to re-up because they can
get----
Mr. Gilmore. Correct--whether that was, in their view, a
problem, whether that was creating a problem for them. And they
indicated it was not. And we have no independent way of
checking to determine whether that is accurate, but they
indicated it was not.
Mr. Scott. Thank you. Thank you, Mr. Chairman.
Chairman Spratt. Mr. Scott. Mr. Larsen.
Mr. Larsen. Thank you, Mr. Chairman. The Defense News
February 2nd headline, ``New Destroyer Emerges in U.S. Plans
Options, Mulled as DDG-1000 Hits $6 Billion.'' I think your
analysis still had it at merely $4 billion. And so another
headline in this is, ``Presidential Helo Cost Growth Cracks
Nunn-McCurdy ceiling.'' That is for Marine One replacement. It
cracks the Nunn-McCurdy ceiling. And then, of, course Gates
Foresees U.S. Cuts. Now, that is based on his testimony in the
Senate Armed Services and the House Armed Services Committee.
It just seems very difficult for me to understand that as much
supplemental dollars we have provided to the Department of
Defense, and I am a member of the House Armed Services
Committee, so I have seen it all happen over the last 8 years,
both given to them in supplemental and in base budgets that
they are yet coming for even--asking for even more beyond what
one projected increase is. And so I guess I would expect in
Armed Services for us to be fairly tough over there.
But something that Secretary Gates testified to last week,
and I wonder if you have thought through these in looking at
your numbers, he listed seven or eight separate steps, general
steps that he planned to take to squeeze down on acquisition
costs, purchasing systems at 75 percent solution rather than 99
percent solution. We apparently are on--some programs are
hitting stable rates for acquisition, freezing requirements on
programs, and a few other things. Mr. Daggett and Mr. Gilmore,
do either of you have some views on Secretary Gates' thoughts
on how to keep costs--ameliorate increases? I won't say keep
costs down. That seems impossible in the Department of Defense.
Let us say ameliorate the cost increases. Mr. Daggett.
Mr. Daggett. Let me begin by saying CRS really doesn't make
recommendations on policy per se. We can assess the impact of
alternatives though.
Mr. Larsen. Assess away.
Mr. Daggett. When I look at what is driving the cost of
major weapons programs, I look, first of all, at just the
requirements process. And I use in the testimony, written
testimony I use DDG-1000 as an example. If you look at it, it
is designed to be a multi-mission system with pretty much
maximum capabilityin most areas. The air defense radar is not
quite missile defense radar, but short of that, it is as
capable as any system you will have across the board, but just
has so many missions. Well, what drove that? Well, it was
driven by the internal requirements writing process in the
Navy. And when you--and now, you know, I mention it not because
I have a view on whether you should buy it or not, but it is in
trouble because it costs so much because it is such a big ship
and so much has been added to it.
So it, to me, is precisely the kind of example of a system
that is a 95 percent solution or a 99 percent solution to a
host of issues. And what Secretary Gates is saying is accept a
75 percent solution in areas where that will work. Well, first
of all, you need some oversight in the acquisition in the
requirements process to ensure that. I am not sure where that
is at this point. But it is a matter for organization and
senior leadership to use the requirements development process
really as a way of doing these cost tradeoffs. What is the role
of the joint requirements oversight council and so on. I would
look very hard at that.
Another area you need to look at is are there some areas
where you want maximum capability, others where you don't. For
an air-to-air fighter, I can make an argument for having a very
highly capable system with a view toward being in the service
long down the road. For an airlift aircraft, I am not sure I
need that, so why do you need the kind of acceleration
requirements that you have in various systems. I think that is
a matter for oversight.
Mr. Larsen. As my time runs out, could I ask Mr. Gilmore to
respond to that question.
Mr. Gilmore. Well, we don't make policy recommendations
either, but I would simply observe what common sense tells you
that the actions the Secretary is proposing to take should all
help reduce cost. But I think the most important thing for the
Department to do is to be realistic in its initial estimates
for the costs of these systems, whatever it thinks the
requirements for the systems ought to be. And when it comes to,
for example, the DDG-1000, we still think on the basis of past
experience that that ship will cost between 4 and $5 billion.
The $6 billion number, I think, includes some of the
development cost, but I don't know for sure. I have read the
article, but I haven't seen the details behind it. And the
comparable number from the Navy previously was 3 to $4 billion,
more like 3\1/2\.
Originally, when it was the surface combatant of the 21st
century, the SC 21 program, the fourth ship in the class was
supposed to cost in today's dollars, $1.5 billion. Now, if you
looked at the cost of that ship on a cost per ton of light ship
displacement, you know the ship without any fuel or crew or
anything else, that would have made it the cheapest surface
combatant ever built, substantially cheaper than the DDG-51.
So there were a lot of people in the building, I was in the
building at the time, who knew that that initial estimate was
unrealistic. So I would say that when you have initial cost
estimates for systems like that, no program manager in the
world is going to be able to manage the program in such a way
that the costs will not grow. And it is not really so much cost
growth as cost realism setting in. When you actually have to
design the system and build it, it always ends up costing more
than these initial very optimistic estimates where people sit
down and think, well, if we did this differently and this
differently and this differently, it will save substantial
costs. Unfortunately history tells us that the problems that
were experienced in the past may not occur, but different
problems will occur and the optimism isn't warranted.
And so a lot of what I think people characterize, and, in
fact, I characterized in the charts I showed you as cost
growth, really isn't cost growth so much as it is cost realism.
It is reality setting in. And if you want to avoid having that
problem, you need to have realistic initial estimates of the
costs which the Department doesn't have in many instances.
Mr. Larsen. Thank you.
Chairman Spratt. Mr. Yarmuth.
Mr. Yarmuth. Thank you, Mr. Chairman. Thanks to both of you
for your testimony. On the question of the percentage of the
GDP, that Defense Department budget constitutes, what kind of
growth rate are you projecting in GDP over this term at the
same time.
Mr. Gilmore. It was a little over a couple of percent real
growth long-term.
Mr. Yarmuth. Some people might take solace from the
standpoint that even with these projected increases in absolute
cost that the percentage of growth--percentage of GDP does not
grow, in fact, declines. But would you be familiar with what
other costs, governmental costs would be rising out of the same
time, because Defense is competing with obviously every other
portion of the budget. So if say Medicare, Social Security, all
the other cost sectors are increasing at a much higher rate,
and I assume they would be.
Mr. Gilmore. They are. CBO has done a number of projections
of the long-term cost of those entitlement programs and over
the long-run Social Security as a share of GDP will rise
several percentage points. And the cost of paying for Medicare
and Medicaid and other programs like that will rise by tens of
percentage points. That is really the bigger problem areas; the
future health care costs associated with those programs. But I
would observe that you could set the defense budget at zero
dollars and it would not materially affect the problem that the
overall Federal budget faces in paying for Social Security and
Medicaid, which is not to say that anyone who is reasonable
doesn't think that because defense currently composes over half
of domestic discretionary spending, that it isn't going to be
under pressure. It obviously will be. And if you look at the
long-term trend for overall Federal spending as a share of GDP
and its components, what you see is that defense basically has
been the bill payer. Its share of GDP has declined as the share
of GDP associated with these entitlement programs has grown.
Mr. Yarmuth. On that question, what would be comparable
numbers of other industrialized nations in the world? What is
the range that you would say it would spend of GDP.
Mr. Gilmore. We are at 4\1/2\ percent of GDP. The Japanese
are 2 percent or less.
Mr. Daggett. Under 1.
Mr. Gilmore. All the other countries in the world are much,
much less, much less.
Mr. Yarmuth. Mr. Simpson raised the issue of the health
care costs and the growth rate that is projected and tried to
make a connection between that and some kind of argument for or
against universal health care. I suspect that one of the
reasons that the growth rate in medical in Defense Department
health care relates to factors that aren't present in the
general population. Is that true? The nature of the injuries,
the length of care that is going to be required because of many
of the injuries concerned, you don't think those are factors,
or would they be?
Mr. Gilmore. Actually, those factors would apply more to
the Department of Veterans Affairs health care costs because of
the veterans who suffer those kinds of injuries and require
long-term care. And there are obviously horrible injuries that
occur, although thankfully, a relatively small number of people
deployed who have suffered those injuries. But nonetheless
those are costs that end up being borne by the Department of
Veterans Affairs. Our projections for medical care costs from
the Department of Defense are based upon the practices that the
Department of Defense currently uses. And we did not speculate
in the future in doing our projection about how the Defense
Department might change its practices; you know, employing more
health information technology and so forth and so on.
So our current projections don't incorporate any savings
from those kinds of practices because those are not, literally
speaking, part of the current plan, which is not to say they
may not be realized, but this is a projection of current policy
not how it might change in the future.
Mr. Yarmuth. One quick question before my time expires. So
we are dealing primarily with TRICARE here. TRICARE employs a
number of private insurers to administer the program, so in
fact, it is really not fair to say that the TRICARE system is a
single payer system as is often talked about with regard to the
Federal Government.
Mr. Gilmore. That is correct.
Mr. Yarmuth. Thank you very much. Thank you, Mr. Chairman.
Chairman Spratt. Ms. Kaptur.
Ms. Kaptur. Thank you, Mr. Chairman, very much. Gentlemen,
you have had a long morning and we thank you very much for your
work. I wanted to go to Mr. Daggett and say that in your
testimony on page 4, you touch on a subject I am very
interested in. And that is the rising cost per average military
service member. You state about it is 45 percent more expensive
today than it would be 10 years ago. And that does not include
the cost of medical costs. And nor retirees. Nor does it
include benefits that are not part of the national defense
budget. I am interested in your discussing that a little bit
more. Does this have anything to do with the rising costs of
recruitment bonuses and retention, and could you discuss that a
little bit please? And the nature of that cost versus when we
had a conscripted force as opposed to a volunteer force?
Mr. Daggett. In these figures I just tracked cash income of
personnel and deferred benefits, retirement benefits. I did not
track noncash compensation, which is in the operation and
maintenance accounts. And that includes medical care, family
services, dependent education, commissaries, nor did I track
family housing. So it is really just focused on the military
personnel accounts. That is the kind of a technical answer. So
it is only part of the compensation package, although it is the
biggest share of the compensation package. I also did not track
Veterans Administration benefits, either disability pensions or
health care or any other aspect of VA educational benefits,
again just because it is outside the Department of Defense. So
what this tracks really is what has been happening in the DOD
military personnel accounts in pay and benefits of military
personnel. It does include retirement benefits in the sense
that the accrual costs of military retirement are covered here.
The DOD pays into the military retirement fund an
actuarially determined amount for future retirement benefits
for current personnel. And that is included here. That is part
of the cost. And that has been increasing dramatically. But it
has increased dramatically because of two programs; TRICARE For
Life and concurrent receipt of military retired pay and VA
disability benefits. Otherwise, it is increased just with basic
pay. So what is driving it up? Lots of different things;
increases in basic pay, increases in basic allowance for
housing, bonuses. Retention bonuses are part of it, but that is
not a big part of the overall account. Those have increased
substantially in percentage terms, but they are not a big part,
a huge part of the overall budget.
Ms. Kaptur. So what is in that? Because when you look at
the number of personnel, obviously your disbursements for
personnel are your largest expenditure.
Mr. Daggett. Look at page 3, which is on the next page.
Page 6 actually. And that is just a bar graph that shows the
major elements of the part of the compensation package I am
looking at. So it includes basic pay subsistence and separation
pay. The bulk of that is just day-to-day paychecks. The basic
allowance for housing, people often miss how large a share of
military compensation that is, and that is actually a part of
take-home pay. And that has increased dramatically over time.
Ms. Kaptur. Does this reflect a rental of the housing off
base or the on base contracted-out housing situation? Why is
that number going up?
Mr. Daggett. Well, basic allowance for housing is given to
personnel in their paychecks to pay for housing themselves.
This does not track the part of military compensation that is
for family housing for on base facilities. That is a different
account. What I am tracking here is really the trend in cash
income of military personnel.
Ms. Kaptur. If I were to ask you the question since we had
the draft versus today, and you look at this cross cut, can one
make any judgments about how the current system is different or
more expensive than when we had the draft?
Mr. Daggett. I haven't specifically done those numbers. But
suffice it to say, personnel are much more expensive on average
now than draftees were. But then typically the draftees were in
for a limited period of time. They were not part of the
professional military. And the draftees were a larger part of
the military, a very large part of the military force. The
uniform force was actually the smaller part of it. They were
paid at higher rates more comparable to this. But again, the
bulk of the force being drafted, they were paid at much lower
rates and were in for a shorter period of time. I don't know if
that is responsive. But I can give you the numbers on it.
Ms. Kaptur. I would like two pieces of information for the
record, Mr. Chairman, if I might. My time is expired. Mr.
Daggett, if you could provide the figure on, though you said it
was small, the actual amount of reenlistment bonuses, bonus
payments to retain and attract individuals to go into the
military now versus 10 years ago. That would be very--it is
billions of dollars. I would just like to see that. And then
Mr. Gilmore, I would be very interested if you could provide
for the record of the Federal deficit, the accumulated deficit
in the last 10 years where we have had to borrow to cover that,
how would one look at defense spending, and the war in
particular, as a segment of that.
Mr. Gilmore. That is something that the organization
doesn't do, which is ascribe a particular part of defense
spending to the deficit. We typically don't do that.
Ms. Kaptur. You don't do that. Does the CBO do that? Excuse
me, CRS do that?
Mr. Daggett. No.
Ms. Kaptur. You don't do that either? That is interesting.
Who does do that?
Mr. Gilmore. Well, we don't do it because we think there
are good reasons not to do it, that you can't identify a
particular dollar spent and say that is a deficit dollar versus
another dollar that is not a deficit dollar.
Ms. Kaptur. Well, there is over $850 billion that has been
spent; $864 billion on the war funding has all been borrowed,
so it can't be that hard a calculation. I thought there would
be a chart on it or something.
Mr. Gilmore. You can make a distinction like that, but it
is not something the organization argues is a correct thing to
do.
Ms. Kaptur. All right. Thank you very much.
Mr. Daggett. If you ask, we will be glad to take a cut at
it. I mean, we respond to any of those.
Ms. Kaptur. I would be very grateful for how you might
arrange that mathematically. Thank you.
Chairman Spratt. Mr. Etheridge.
Mr. Etheridge. Thank you, Mr. Chairman. Thank you for
holding this meeting. Thank you gentlemen for staying, and I
appreciate your presentation. Let me ask a question a little
different way because I represent Fort Bragg in North Carolina,
and also have the privilege of having the headquarters of the
30th heavy brigade that has been pulled up as an Old Hickory
Unit pulled to Iraq and now getting ready to come back again.
So thousands of brave men and women who are stationed in those
areas and many who served multiple tours in Afghanistan and
Iraq.
But my question is a little different in that the new
administration is now considering plans to substantially
increase troop levels in Afghanistan. My question is, does
future war cost projections that we saw, and you talked about
them in some detail, do the charts and graphs and numbers give
us any help in looking at future projections by the CBO as you
put these numbers out? Do they take any kind of probable
increase in the accounts or adjustments given this
administrative change?
Mr. Gilmore. The projections I showed you, which over the
next few years, assume that troop levels decline from, in the
total Iraq theater from 180 or 190,000 troops in Iraq and then
another 30,000 or so in Afghan, that the total number deployed
declined to 75,000.
Mr. Etheridge. So you were using the 75,000 figure as the
number?
Mr. Gilmore. Yeah. That rampdown does not--we had to make
an assumption so we just assumed. We had a beginning point
which is the current size of the deployments in Iraq, the Iraq
theater and Afghanistan, and then we had a somewhat arbitrarily
chosen end point, 75,000, and we just linearly ramped it down
over 3 or 4 years. That obviously does not account for how the
detailed deployments might evolve over the next year or two. It
certainly could end up being consistent with what happens. If
there is a draw down in Iraq that proceeds at a more rapid
pace, or is more substantial, larger than the increase in
forces in Afghanistan, that somewhat arbitrary assumption could
turn out to be roughly consistent with what happens, but that
is not the way it was designed.
Mr. Etheridge. Let me follow that because I hear from our
men and women quite frequently, and you touched on it earlier
on the reset cost. And we talk about a reset cost, but also you
got that training piece if you don't have the equipment to
train with, and we have been through this a number of times. Is
that in the projections as well of getting equipment up to
speed, because when we come home, we are assuming that it will
wind up in Afghanistan? You got a little different environment
in Afghanistan than you do in Iraq in the sands. It is still a
tough environment. Is that included in these projections?
Mr. Gilmore. The short answer is yes. We include in our
projection an estimate of what it will cost to ``reset the
equipment based on what our experience has been over the last
year or so.'' So to the extent that that experience is a good
predictor of the future we have accounted for it well. But
there are many details of those costs that, notwithstanding our
report of a year and a half ago, we still don't understand.
So I am not going to sit here and say that I think that
that projection is a real prediction of the future, but it is
based on our experience in reset costs over the last year or
so.
Mr. Etheridge. One other point, and then I will yield back,
Mr. Chairman. Because you touched on it and I had a note here
on the health care costs that you responded earlier to two
questions. Having had the opportunity to spend some time in the
military, the days when the draft was active with a lot of my
friends and neighbors. The health care issue that was raised in
the current environment we find ourselves in with an all-
volunteer army, we really have a much younger force if you look
from top to bottom than you would have in the general public at
large, even with TRICARE, because you have got a selected force
by and large that is fairly active, accustomed to staying
physically fit by and large more so than the public at large.
Mr. Daggett. But under 65 retirees do get access to the
military.
Mr. Etheridge. No, I understand that. But by and large,
they normally would be a more physically fit group of people I
would think.
Mr. Gilmore. You are obviously correct that the enlisted
force which composes the bulk of the force is going to be
younger than the population as a whole, yes. Although as I
mentioned before, we haven't really looked at the effect that
the somewhat different demographics may have.
Mr. Etheridge. That would be interesting to know as we go
through this, not to call attention to either one, but show
what happens if a person stays physically fit, what happens in
life. I think we know the answer, but it sure would be good to
quantify. Thank you, Mr. Chairman. I yield back.
Chairman Spratt. Thank you, Mr. Etheridge. Just quickly one
question before we turn to Mr. Langevin. Do you have a rule of
thumb at CRS or CBO for what it costs to move a division or a
brigade with full equipment sent back to the States from Iraq?
Mr. Gilmore. No, I can't give you a number off the top of
my head. But I can say that my recollection is in the past we
have tried to estimate those transportation costs. And I am not
going to claim that they are small in absolute terms, but as a
percentage of the operations and maintenance bill, the total
operations and maintenance bill that accrues every year which
is probably 80 percent of that $180 billion or so, it is a
small fraction of that.
Mr. Daggett. We have tried to defer to CBO on cost
estimates on forces abroad, on deployments abroad.
Chairman Spratt. Could you submit, for the record, your
growth estimation that--your rule of thumb for, division set,
brigade set, whatever the proper unit is?
Mr. Gilmore. I would say brigade set would probably be it.
Chairman Spratt. You are able to caveat it for. Mr.
Langevin.
Mr. Langevin. Thank you, Mr. Chairman. And gentlemen, I
want to thank you for your patience and your testimony here
today and for what you do to make sure that we stay informed
with good information. I sit on not only the Budget Committee,
but also the House Armed Services Committee. And following the
debate on the issue of the DDG-1000 versus the 51 that is going
on right now, and just for my own knowledge and clarification
for the record, when you talk about the range of potential
costs, whether it is 4 or 5 to $6 billion for the DDG-1000, I
would assume that you are talking about the first ship, which
obviously is the most expensive and then costs moderate over
time as you achieve economies of scale. Can you clarify that
for the record?
And also talk about your analysis on start-up costs if we
were to start the DDG-51 line. And you estimate real costs of
what that would be, what that ship would be per copy now with
the add on technologies. And also the tradeoffs versus going
with the DDG-1000 and the fact that these aren't supposed to be
incorporating follow-on or transformational technologies that
would, at a later point, be used on the cruiser or other
platforms. So that it is kind of you can't just talk about the
51 in a vacuum, you know, they have other follow-on
technologies that would be applied to other platforms and would
be of course useful as the cruisers is developed. So if you
could just kind of talk about those for a few minutes.
Mr. Gilmore. Well, the cost numbers that I quoted of 4 to
$5 billion were, for the first ship, exclusive of the--so it
excluded the development costs, the design costs for the ship,
the cost of building the first ship. And then, yes, we do
assume in our estimate that subsequent costs, subsequent ships
costs less. That there is a learning effect that occurs.
Mr. Langevin. So can you estimate what the following costs
would be?
Mr. Gilmore. I don't know off the top of my head, but I can
certainly provide them to you.
Mr. Langevin. That would be helpful.
Mr. Gilmore. And as far as the start-up costs and the new
ship costs for new versions of the DDG-51 are concerned, that
is not something at which we have looked. And I would have to
take a look at what the Department is claiming before I could
actually decide whether we have enough information to do a cost
estimate at this point. I don't know if there is sufficient
information available from the Department of what it would
actually put in new DDG-51s to do a definitive estimate.
Mr. Langevin. They are making what they claim to be
definitive estimates. So I think it would be helpful if you
would look at that and get back to us for the record.
Mr. Gilmore. All right.
Mr. Langevin. And then have you looked at--this is the last
part of my question--the value of the fact that the kind of
technologies that the 51 would be incorporated--the DDG-1000
would be incorporated and would be used on other platforms, and
particularly for the cruiser.
Mr. Gilmore. I don't mean to sound obtuse, and I probably
will. I really don't know how to measure that value
quantitatively. I certainly would admit that it exists. What
analysis I could do that would generate numbers that would
measure that value I fall short trying to think of. So I am not
certain--in fact, I am fairly certain that I couldn't give you
a--provide you with an analysis and a quantitative result that
would measure that value. I think that that is a matter of
judgment on the part of people in the Congress and people in
the Department of Defense as to whether they think whatever
costs will accrue to implement those new technologies is worth
it.
Mr. Langevin. Let me go back. Mr. Daggett, do you have a
comment to that?
Mr. Daggett. No.
Mr. Langevin. Let me go back to a line of questioning that
my colleague, Ms. McCollum, was asking. Obviously the country
is facing an economic and fiscal crisis right now. And with the
Department of Defense spending, we obviously need to do the job
of keeping the country safe, but spend our dollars more wisely.
Just as the QDR helps inform the FYDP, isn't it more important
than ever right now that we look at security from a more global
perspective. There are those who would argue that we need to do
a better job at using our soft par assets, incorporating that
in an overall national security strategy as opposed to just
looking at it myopically from the point of view of the Defense
Department.
And so that something that I have thought about and have
introduced legislation to that effect of calling for a
Quadrennial National Security Review that would be done that
would, I believe, better inform the QDR which would better
inform the FYDP and overall defense policy and strategy, and
would obviously make sure that we are spending our dollars in
the best way most effective way possible. Can you talk about
that?
Mr. Daggett. A couple of points. A lot of organizations
lately have been looking at improved interagency cooperation in
National Security Affairs. There has been discussion of doing
an overall national security strategy statement with guide
budgeting for DOD as well as for other agencies for security
purposes. We will see if this administration will propose that.
It could be part of consideration of legislative measures as
well if there are proposals to strengthen the inner agency. At
the center of some of the proposals are--by the way, you will
find some of the strongest advocates of this in DOD. Not just
Secretary Gates, but other military commanders who have been
involved in Iraq and elsewhere who argue that the whole
interagency system needs to be bolstered across the board for
prevention, but also for stability operations once they are
involved overseas.
A big focus of attention is on how do you build teams to
work on national security issues like proliferation which cuts
across agencies. It is a State Department issue, it is a DOD
issue, it is a Department of Energy issue, it could be a
Treasury issue to track funding flows. We are not very good or
as good as we could be probably at building--we do build teams
at the Assistant Secretary level to discuss policy issues, but
at the implementation level, we don't do that on a regular
basis. Or it doesn't work as well as it could because DOD is
such a big agency it comes in and everybody defers to them. How
do you build those kinds of structures across the board. That
is a very big matter of discussion. And we have been looking at
that a little bit. There is a whole commission that did a
recent study on it that has a number of direct recommendations
for team building. So absolutely a huge issue on the agenda.
Mr. Gilmore. I think that the arguments in favor of a
Quadrennial National Strategy Review, those arguments in
principle are sound and they certainly make sense. I
participated in the 1997 Quadrennial Defense Review and in the
2001 Quadrennial Defense Review, when I worked at the Pentagon.
And I observed the last Quadrennial Defense Review from my
position as CBO. And I would observe the following. If you look
at the reviews which went from lasting 3 or 4 months in 1997 to
over a year in the most recent version, and if you look at then
what changes were actually made in the program, defense program
subsequent to the reviews, you find that virtually nothing
changed.
So in principle, I understand all the arguments in favor of
these reviews. In practice, what I have seen happen is the
reviews extend in length, expand in scope and have lesser
impact or--it probably wouldn't be fair to say lesser, but not
what I would characterize as significant effect on the actual
defense program measured by what changed, what did I actually
change in the program as a result of the review. And I would
say probably not much in almost every instance. So going
forward, if we can find a different way to do these reviews,
perhaps it can be more successful in taking strategy and
connecting them to the Future Years Defense Program and to
spending in other departments.
But when I look at the record, I haven't really seen that
happen. And I measure that according to what are the
differences between the program that existed before the review
and after the review.
Now, in principle, there could be good reasons why not much
of anything changed. But all the arguments I have heard in
favor of things like the Quadrennial National Strategy Review
are, there are all these problems that we have left
unaddressed, and the only way to address them is to have a
broader scope more encompassing review. And when you look at
what has happened in the past, not much has changed. And if not
much has changed, then it would indicate to me that all these
problems that people have identified haven't been addressed.
Mr. Langevin. Like to go on, but I see my time has expired.
Thank you for your input. If you have ways to suggest that we
could change that to make those reviews more effective, I know
I would be open to hear those thoughts. Thank you.
Chairman Spratt. That concludes the hearing. I want to
thank you once again for your excellent testimony. I think it
speaks volumes about defense, but also about the value of
analysis that we have valuable in CBO and CRS. Thank you very
much indeed for coming in. Thank you for the effort you put in
to make this hearing a useful venture. I also ask unanimous
consent that members who did not have the opportunity to ask
questions be given 7 days to submit questions for the record.
Once again thank you for coming.
[Questions for the record and their responses follow:]

Questions for the Record Submitted by Hon. Steve Austria, a
Representative in Congress From the State of Ohio

1. The successful completion of the most recent round of BRAC and
military R&D are both very important to central Ohio. Can you tell me
by service, whether BRAC is currently projected to achieve the savings
that were envisioned? If the savings aren't realized, has DOD indicated
how they will respond?
2. I would like to discuss two Air Force programs--the F-22 and the
Joint Strike Fighter (JSF). What is the status of these two systems?
How can we get DOD to do realistic budgeting?

Questions for the Record Submitted by Hon. Rosa L. DeLauro, a
Representative in Congress From the State of Connecticut

1. As you are likely aware, the Navy recently declared a so-called
Nunn-McCurdy violation for the VH-71 presidential helicopter
replacement program. Last year, the Defense Department announced that
the total acquisition costs for the program were projected to increase
from $6.5 billion to $11.2 billion. Now, merely two years after
submitting initial baseline estimates, the Navy is confirming that the
cost per helicopter will be at least 50 percent higher than the
original estimate.
In recent testimony, Secretary Gates identified acquisitions as a
chief challenge facing the Defense Department and specifically
mentioned the VH-71 as a ``big ticket'' item experiencing contract or
program performance problems, suggesting that ``the FY 2010 budget must
make hard choices.'' As we examine cost growth in Defense programs, how
do you think we should approach big contract issues such as this one?
What policies are needed to control such egregious cost over-runs? On
the VH-71 program in particular, with the modifications and the new
requirements being as extensive as they are, and the fact that had
these changes been clear from the outset competing firms would likely
have submitted different proposals, do you think a re-competition of
Increment II of the program is worthwhile to identify whether this
helicopter can be made at a better value to the taxpayer?
2. As with the controversial original award for the Air Force KC-X
aerial refueling tanker contract, the Marine One contract was awarded
to a consortium that involved a substantial amount of work being
outsourced overseas. I believe such outsourcing of defense contracts
runs against both U.S. national security and economic interests,
eroding our defense industrial base, costing jobs and stunting economic
growth. Do you believe, particularly in these very difficult economic
times, that the Defense Department should consider adjusting its
methodology to account for potential job creation and economic growth
when considering proposals for major projects such as the KC-X and VH-
71?

Mr. Daggett's Responses to Questions for the Record

subject: trends in dod reenlistment bonuses and other special pays and
allowances
This is in response to your request, in a question at a House
Budget Committee hearing on February 4, for information on amounts the
Defense Department has spent for enlistment and reenlistment bonuses.
CRS testimony for the hearing shows that compensation of an average
active duty service member increased by 45% above inflation between
FY1998 and FY2009. Your question is how much of that increase can be
attributed to bonuses intended to aid in recruiting and retaining
personnel at a time when the military services were concerned about
potential shortfalls in meeting personnel goals.
A graph prepared for the testimony shows funding per active duty
service member in FY1998 and FY2009 in constant, inflation-adjusted
dollars, broken down into various categories within DOD's Military
Personnel budget accounts.\1\ One of the categories is ``Incentive
Pays, Special Pays, and Allowances.'' Funding for enlistment and
reenlistment bonuses are included in subaccounts for ``Special Pays.''
As Figure 1 shows, overall funding for ``Incentive Pays, Special Pays,
and Allowances'' per active duty service member grew from $3,387 per
troop in FY1998 to $4,976 per troop in FY2009. This is an increase of
47% above inflation, which about in line with the growth in overall
personnel funding.
---------------------------------------------------------------------------
\1\ The data reflect amounts provided in the DOD base budget for
each year, not including war-related funding provided in ``bridge
funds'' or in supplemental appropriations. The data are in constant
FY2009 dollars--the FY1998 amounts are adjusted to reflect inflation.
---------------------------------------------------------------------------
Table 1 shows funding for enlistment and reenlistment bonuses
within the ``Special Pays'' subaccounts of each of the military
services. It provides the amounts in current year dollars and in
constant FY2009 dollars and then shows the total in constant FY2009
dollars per active duty service member for comparison to the amounts
shown in Figure 1. In all, after adjusting for inflation, funding for
reenlistment bonuses grew from $229 per service member in FY1998 to
$796 in FY2009, an increase of 248%, and for enlistment bonuses from
$207 per service member in FY1998 to $371 in FY2009, an increase of
79%. While these are large increases proportionally, enlistment and
reenlistment bonuses represent less than 1.5% of cash compensation in
FY2009. As a result, the increases are not a major factor explaining
the overall growth of personnel costs.

TABLE 1.--FUNDING FOR ENLISTMENT AND REENLISTMENT BONUSES, FY1998 AND FY2009
[Current year and constant FY2009 dollars]
----------------------------------------------------------------------------------------------------------------
FY1998 FY2009
---------------------------------------------------------------
Officer Enlisted Total Officer Enlisted Total
----------------------------------------------------------------------------------------------------------------
Current Year Dollars (000s):
Army:
Reenlistment Bonus...................... 0 50,650 50,650 0 339,030 339,030
Enlistment Bonus........................ 0 58,223 58,223 0 314,861 314,861
Navy:
Reenlistment Bonus...................... 0 140,359 140,359 0 359,600 359,600
Enlistment Bonus........................ 0 144,761 144,761 0 108,797 108,797
Marine Corps:
Reenlistment Bonus...................... 0 18,850 18,850 0 213,685 213,685
Enlistment Bonus........................ 0 2,750 2,750 0 70,803 70,803
Air Force:
Reenlistment Bonus...................... 0 36,431 36,431 0 176,333 176,333
Enlistment Bonus........................ 0 16,966 16,966 0 12,986 12,986
Total:
Reenlistment Bonus...................... 0 246,290 246,290 0 1,088,648 1,088,648
Enlistment Bonus........................ 0 222,700 222,700 0 507,447 507,447
Constant FY2009 Dollars (000s):
Army:
Reenlistment Bonus...................... 0 66,124 66,124 0 339,030 339,030
Enlistment Bonus........................ 0 76,011 76,011 0 314,861 314,861
Navy:
Reenlistment Bonus...................... 0 183,240 183,240 0 359,600 359,600
Enlistment Bonus........................ 0 188,987 188,987 0 108,797 108,797
Marine Corps:
Reenlistment Bonus...................... 0 24,609 24,609 0 213,685 213,685
Enlistment Bonus........................ 0 3,590 3,590 0 70,803 70,803
Air Force:
Reenlistment Bonus...................... 0 47,561 47,561 0 176,333 176,333
Enlistment Bonus........................ 0 22,149 22,149 0 12,986 12,986
Total:
Reenlistment Bonus...................... 0 321,534 321,534 0 1,088,648 1,088,648
Enlistment Bonus........................ 0 290,737 290,737 0 507,447 507,447
Constant FY2009 Dollars per Active Duty Service
Member:
Total:
Reenlistment Bonus...................... 0 229 229 0 796 796
Enlistment Bonus........................ 0 207 207 0 371 371
----------------------------------------------------------------------------------------------------------------
Source: CRS based on data in military service Military Personnel budget justification books--FY1998 amounts are
actual amounts reported in FY2000 justification books, FY2009 amounts reflect the original base budget
request.

subject: share of cumulative federal budget deficits due to defense
spending
This is in response to your request, in a question at a House
Budget Committee hearing on February 4, for an estimate of the share of
cumulative federal budget deficits attributable to defense spending.
For a number of reasons, any answer to the question is problematic and
may well raise objections on several grounds. This response, therefore,
should not be taken as a definitive answer to your question, but,
rather, as one illustrative approach to the issue.
The conceptual difficulty of the question lies in the fact that
deficits are, by definition, a result of an imbalance between spending
on the one hand and revenues on the other, and it is very difficult to
assign responsibility to one or the other. Deficits may grow from year
to year either because spending increases, compared to some baseline,
or because revenues decline, again relative to some baseline. But it is
not clear what baseline to use in either case. It is certainly possible
to calculate changes in spending or in revenues from year to year due
to changes to standing law--i.e., to apply something like the baseline
estimates calculated by the Congressional Budget Office (CBO) and the
Office of Management and Budget (OMB). But then the problem is how many
years ahead to continue attributing deficits either to changes in
spending or to changes in revenues at one point in time. The issue is
further complicated by the fact that both revenues and spending are
affected by the state of the economy. Should, then, an economic
downturn be held more responsible for deficits than changes in policy?
Rather than try to unpack these issues, this memo approaches the
question, not by calculating what changes in spending and revenues
cause deficits, but, rather, by determining what proportion of deficits
have financed defense compared to non-defense spending. Specifically,
it calculates the national defense percentage of annual federal budget
outlays and then attributes an equal percentage of annual deficits to
defense. The defense share of cumulative deficits, then, equals the sum
of defense-attributable annual deficits compared to total deficits
(less surpluses) over the chosen period of time.
Table 1 at the end of this memo, follows this approach for each
year from FY1947 through FY2007. FY1947 was chosen as a starting point
since it marked the first year of post-World War II outlays. Outlays in
FY1946 still included a very large amount of money appropriated for the
war, including funding carried over from prior years They also included
funding to return forces home and to close down weapons production
lines. FY2007 was chosen as an end-point because it is the latest year
for which actual data on Budget Function 050 outlays are currently
available.
Please note that the table calculates the defense share of
cumulative deficits over the FY1947-FY2007 period rather than the
defense share of the national debt owed to the public. For purposes of
comparison, the table also shows the debt owed to the public at the end
of each year in the final column. Annual changes in debt owed to the
public correlate only quite roughly with annual deficits or surpluses,
since off-budget borrowing is also reflected in the amount of the debt.
While this approach avoids some of the conceptual difficulties
discussed earlier, it does not resolve them, and it raises some
additional ones. One issue is whether it is appropriate to equate the
share of deficits used to finance defense spending with the annual
defense share of total federal outlays or whether, instead, annual
increases in spending should be seen as financed by deficits. This
issue is particularly acute with regard to supplemental appropriations.
In years when supplemental appropriations were used to finance military
operations, for example, without offsetting cuts in other spending or
increases in revenues, one could very reasonably argue that the whole
amount of war-related supplemental funding should be seen as an
addition to the budget and therefore as responsible for an equal amount
of the deficit (or for all of the deficit if the deficit is less than
total war-related funding). If so, the cumulative share of deficits
attributable to defense might appear significantly higher.
Another issue is whether it would be better to assume that the debt
owed to the public is amortized over a period of time--over 30 years,
or so, for example--so that the burden of earlier deficits are
progressively erased from the books. If that approach were taken, the
current defense-related share of cumulative deficits would appear
smaller in recent years because defense has declined as a share of
federal outlays.
Another alternative would involve assigning federal outlays for net
interest on the debt differently. Table 1, in effect, treats interest
on the debt as an element of total outlays, rather than allocating it
in proportion to the defense or non-defense shares of cumulative
deficits. If a share of net interest were attributed to defense, the
defense share of cumulative deficits might appear somewhat larger.
Table 1 follows. In brief, it shows that defense outlays in the
post-World War II era declined as a share of Federal spending from a
peak of almost 70% of the budget during the Korean War to a low of 16%
in FY1999 and increased after that to about 20% in FY2007. Accordingly,
the share of cumulative deficits that can be said to have financed
defense spending has also declined. Between FY1947 and FY1959, the
cumulative budgets showed a surplus. The cumulative share of defense
spending that might be said to be financed with deficits has declined
from 53% in FY1959, the first year of net cumulative deficits in post-
World War II budgets; to 23% in FY2007.
If CRS can be of any further assistance, please contact Stephen
Daggett at the phone number shown above.

TABLE 1.--SHARE OF CUMULATIVE DEFICITS FROM FY1947-FY2007 USED TO FINANCE DEFENSE OUTLAYS AS SHARE OF TOTAL FEDERAL OUTLAYS
[Amounts in millions of current year dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Defense- Defense-
National Related Share Defense- Related
National Total Federal Defense Annual Surplus/ of Annual Cumulative Related Share Percentage of Note: Debt
Fiscal year Defense Outlays Percentage of Deficit Surplus/ Surpluses/ of Cumulative Cumulative Owed to the
Outlays Total Outlays Deficit Deficits Deficits Deficits (7)/ Public
(2)/(3) (3)X(4) (6)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1947 12,808 34,496 37.10% 4,018 1,492 4,018 .............. ............. 202,467
1948 9,105 29,764 30.60% 11,796 3,608 15,814 .............. ............. 194,904
1949 13,150 38,835 33.90% 580 196 16,394 .............. ............. 194,979
1950 13,724 42,562 32.20% -3,119 -1,006 13,275 .............. ............. 200,692
1951 23,566 45,514 51.80% 6,102 3,159 19,377 .............. ............. 191,344
1952 46,089 67,686 68.10% -1,519 -1,034 17,858 .............. ............. 191,852
1953 52,802 76,101 69.40% -6,493 -4,505 11,365 .............. ............. 193,637
1954 49,266 70,855 69.50% -1,154 -802 10,211 .............. ............. 199,462
1955 42,729 68,444 62.40% -2,993 -1,869 7,218 .............. ............. 203,009
1956 42,523 70,640 60.20% 3,947 2,376 11,165 .............. ............. 198,398
1957 45,430 76,578 59.30% 3,412 2,024 14,577 .............. ............. 196,285
1958 46,815 82,405 56.80% -2,769 -1,573 11,808 .............. ............. 200,898
1959 49,015 92,098 53.20% -12,849 -6,838 -1,041 -554 53.20% 208,657
1960 48,130 92,191 52.20% 301 157 -740 -397 53.60% 210,317
1961 49,601 97,723 50.80% -3,335 -1,693 -4,075 -2,090 51.30% 211,104
1962 52,345 106,821 49.00% -7,146 -3,502 -11,221 -5,591 49.80% 218,347
1963 53,400 111,316 48.00% -4,756 -2,282 -15,977 -7,873 49.30% 221,951
1964 54,757 118,528 46.20% -5,915 -2,733 -21,892 -10,605 48.40% 222,055
1965 50,620 118,228 42.80% -1,411 -604 -23,303 -11,210 48.10% 221,678
1966 58,111 134,532 43.20% -3,698 -1,597 -27,001 -12,807 47.40% 221,545
1967 71,417 157,464 45.40% -8,643 -3,920 -35,644 -16,727 46.90% 219,907
1968 81,926 178,134 46.00% -25,161 -11,572 -60,805 -28,299 46.50% 237,315
1969 82,497 183,640 44.90% 3,242 1,456 -57,563 -26,842 46.60% 224,013
1970 81,692 195,649 41.80% -2,842 -1,187 -60,405 -28,029 46.40% 225,484
1971 78,872 210,172 37.50% -23,033 -8,644 -83,438 -36,673 44.00% 237,519
1972 79,174 230,681 34.30% -23,373 -8,022 -106,811 -44,695 41.80% 250,951
1973 76,681 245,707 31.20% -14,908 -4,653 -121,719 -49,347 40.50% 265,729
1974 79,347 269,359 29.50% -6,135 -1,807 -127,854 -51,155 40.00% 263,051
1975 86,509 332,332 26.00% -53,242 -13,859 -181,096 -65,014 35.90% 309,707
1976 89,619 371,792 24.10% -73,732 -17,773 -254,828 -82,787 32.50% 382,690
TQ 22,269 95,975 23.20% -14,744 -3,421 -269,572 -86,208 32.00% 398,807
1977 97,241 409,218 23.80% -53,659 -12,751 -323,231 -98,959 30.60% 444,100
1978 104,495 458,746 22.80% -59,185 -13,481 -382,416 -112,440 29.40% 491,646
1979 116,342 504,028 23.10% -40,726 -9,401 -423,142 -121,840 28.80% 524,712
1980 133,995 590,941 22.70% -73,830 -16,741 -496,972 -138,581 27.90% 591,077
1981 157,513 678,241 23.20% -78,968 -18,339 -575,940 -156,921 27.20% 664,944
1982 185,309 745,743 24.80% -127,977 -31,801 -703,917 -188,722 26.80% 790,078
1983 209,903 808,364 26.00% -207,802 -53,959 -911,719 -242,680 26.60% 981,741
1984 227,413 851,853 26.70% -185,367 -49,486 -1,097,086 -292,166 26.60% 1,151,853
1985 252,748 946,396 26.70% -212,308 -56,700 -1,309,394 -348,866 26.60% 1,337,454
1986 273,375 990,441 27.60% -221,227 -61,062 -1,530,621 -409,928 26.80% 1,549,767
1987 281,999 1,004,083 28.10% -149,730 -42,052 -1,680,351 -451,980 26.90% 1,677,713
1988 290,361 1,064,481 27.30% -155,178 -42,328 -1,835,529 -494,308 26.90% 1,822,398
1989 303,559 1,143,829 26.50% -152,639 -40,509 -1,988,168 -534,817 26.90% 1,970,628
1990 299,331 1,253,130 23.90% -221,036 -52,798 -2,209,204 -587,615 26.60% 2,177,147
1991 273,292 1,324,331 20.60% -269,238 -55,561 -2,478,442 -643,175 26.00% 2,430,408
1992 298,350 1,381,649 21.60% -290,321 -62,691 -2,768,763 -705,867 25.50% 2,703,341
1993 291,086 1,409,522 20.70% -255,051 -52,672 -3,023,814 -758,538 25.10% 2,922,744
1994 281,642 1,461,907 19.30% -203,186 -39,145 -3,227,000 -797,683 24.70% 3,077,915
1995 272,066 1,515,884 17.90% -163,952 -29,426 -3,390,952 -827,108 24.40% 3,230,264
1996 265,753 1,560,608 17.00% -107,431 -18,294 -3,498,383 -845,402 24.20% 3,343,149
1997 270,505 1,601,307 16.90% -21,884 -3,697 -3,520,267 -849,099 24.10% 3,347,826
1998 268,207 1,652,685 16.20% 69,270 11,242 -3,450,997 -837,858 24.30% 3,262,917
1999 274,785 1,702,035 16.10% 125,610 20,279 -3,325,387 -817,579 24.60% 3,135,719
2000 294,394 1,789,216 16.50% 236,241 38,871 -3,089,146 -778,708 25.20% 2,898,391
2001 304,759 1,863,190 16.40% 128,236 20,975 -2,960,910 -757,733 25.60% 2,785,480
2002 348,482 2,011,153 17.30% -157,758 -27,335 -3,118,668 -785,068 25.20% 2,936,235
2003 404,778 2,160,117 18.70% -377,585 -70,755 -3,496,253 -855,823 24.50% 3,257,327
2004 455,847 2,293,006 19.90% -412,727 -82,050 -3,908,980 -937,872 24.00% 3,595,203
2005 495,326 2,472,205 20.00% -318,346 -63,783 -4,227,326 -1,001,656 23.70% 3,855,852
2006 521,840 2,655,435 19.70% -248,181 -48,772 -4,475,507 -1,050,428 23.50% 4,060,048
2007 552,568 2,730,241 20.20% -162,002 -32,787 -4,637,509 -1,083,215 23.40% 4,255,497
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: CRS calculations based on data from Office of Management and Budget, Historical Tables: Budget of the United States Government, FY2009, February
2008

subject: cost of military personnel before and after the inception of
the all volunteer force
This is in response to your request, in a question at a House
Budget Committee hearing on February 4, for information on the relative
cost of military personnel under the draft compared to their cost since
the inception of the All Volunteer Force (AVF) in 1972. During the
hearing, I noted that personnel have become considerably more expensive
since beginning of the AVF, but I did not have detailed information
immediately at hand.
This memo provides three tables and one figure in response to your
request. Table 1 and Figure 1 show all compensation provided to active
duty military personnel in military personnel budget accounts per
service member from FY1955, following the Korean War, through FY2009,
excluding war costs in FY1990-FY1992 and from FY2003 on. The amounts
are shown both in current year prices and in inflation adjusted
constant FY2009 prices, with figures adjusted for inflation using the
consumer price index. These data are consistent with information I
provided on the cost of personnel since FY1972 in written testimony on
February 4. The amounts appropriated in the military personnel accounts
provide cash compensation and deferred retirement benefits for
uniformed personnel, but do not include either tax benefits that are
not part of the Department of Defense budget nor benefits such as
medical care and child care services, that are financed in DOD
operation and maintenance accounts.
Table 1 provides a reasonably complete picture of the relative cost
of personnel under a draft compared to the cost of personnel since the
inception of the All Volunteer force. The amounts in the table reflect
all major elements of cash compensation of military personnel plus the
value of retirement benefits. The final column of Table 1 shows that
compensation per service member in constant FY2009 prices grew from
about $36,000 in FY1955 to $49,000 in FY1970, just before the AVF was
implemented, to $57,000 in FY1973, after the AVF was in place.
Subsequently, compensation declined in the 1970s, as annual pay raises
fell behind inflation, but grew to $61,000, again in FY2009 prices, in
FY1983, following ``catch-up'' pay raises of 11% in FY1980 and of 14%
in FY1981. Average compensation remained at about that level through
the 1990s and then began to increase substantially, growing to about
$80,000 per service member by FY2009--again, all in constant, inflation
adjusted dollars, using the CPI as a measure of inflation. These
elements of compensation grew by more than 40% above inflation between
FY1998 and FY2009. Figure 1 illustrates the long-term trend.
figure 1. military personnel funding per active duty service member,
fy1955-fy2009

[Constant FY2009 $ Adjusted Using CPI-U]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Source: CRS based on Department of Defense data for budget amounts
and end-strength and Bureau of Labor Statistics for CPI-U inflation
index.

Notes: Funding amounts include all military pay and benefits
financed in the military personnel accounts of annual appropriations
bills, excluding pay and benefits of reserve personnel. These include
basic pay, basic allowance for housing, subsistence, retired pay and
medical benefits accrual contributions to the military retirement fund,
bonuses and other special pays and allowances, permanent change of
station travel allowances, and other cash allowances. The amounts do
not reflect medical benefits or in-kind benefits funded in operation
and maintenance accounts. Amounts are for the base defense budget only,
not including war-related funding in FY1990-FY1992 and from FY2003
through FY2009. End-strength levels also exclude reserves mobilized for
military operations in those years.

TABLE 1.--MILITARY PERSONNEL FUNDING PER ACTIVE DUTY SERVICE MEMBER,
FY1955-FY2009
[Budget authority in current year dollars and in constant FY2009 dollars
using CPI-U]
------------------------------------------------------------------------
Active Active Funding Funding
Duty Duty per per
Military Military Active Active Active
Personnel Personnel Duty End- Duty Duty
Fiscal year Funding Funding Strength Service Service
(Current (FY2009 $ (000s) Member Member
Year $ in in (Current (FY2009
Millions) Millions) Year $) $)
------------------------------------------------------------------------
FY1955........... 11,060 89,707 2,935 3,768 30,565
FY1956........... 11,096 88,597 2,807 3,953 31,563
FY1957........... 11,008 85,229 2,795 3,938 30,494
FY1958........... 10,378 77,985 2,599 3,993 30,006
FY1959........... 11,313 84,391 2,504 4,518 33,703
FY1960........... 10,878 79,982 2,476 4,393 32,303
FY1961........... 11,439 83,505 2,483 4,607 33,631
FY1962........... 12,028 86,571 2,808 4,284 30,830
FY1963........... 12,400 88,006 2,700 4,593 32,595
FY1964........... 13,111 92,408 2,687 4,879 34,391
FY1965........... 13,827 95,480 2,656 5,206 35,949
FY1966........... 16,170 108,725 3,093 5,228 35,152
FY1967........... 19,170 124,787 3,375 5,680 36,974
FY1968........... 21,098 132,286 3,547 5,948 37,295
FY1969........... 22,837 135,696 3,460 6,600 39,218
FY1970........... 24,564 137,937 3,066 8,012 44,989
FY1971........... 24,595 132,294 2,714 9,062 48,745
FY1972........... 25,164 131,211 2,324 10,828 56,459
FY1973........... 26,300 129,223 2,253 11,673 57,356
FY1974........... 27,254 120,579 2,163 12,600 55,746
FY1975........... 28,976 117,512 2,129 13,610 55,196
FY1976........... 30,401 116,368 2,081 14,609 55,919
FY1977........... 31,870 114,687 2,075 15,359 55,271
FY1978........... 33,706 112,572 2,062 16,346 54,594
FY1979........... 36,080 108,135 2,031 17,765 53,242
FY1980........... 39,561 104,472 2,063 19,176 50,641
FY1981........... 46,418 111,098 2,101 22,093 52,879
FY1982........... 56,603 127,701 2,130 26,574 59,954
FY1983........... 60,349 132,069 2,163 27,900 61,058
FY1984........... 57,746 120,935 2,184 26,440 55,373
FY1985........... 60,002 121,430 2,207 27,187 55,020
FY1986........... 59,570 118,445 2,233 26,677 53,043
FY1987........... 65,620 125,823 2,244 29,242 56,071
FY1988........... 67,723 124,708 2,209 30,658 56,454
FY1989........... 69,351 121,781 2,203 31,480 55,280
FY1990........... 69,759 116,303 2,144 32,537 54,246
FY1991........... 75,007 119,964 2,077 36,113 57,758
FY1992........... 71,477 111,017 1,880 38,020 59,052
FY1993........... 66,499 100,239 1,775 37,464 56,473
FY1994........... 61,775 90,840 1,678 36,815 54,136
FY1995........... 62,090 88,750 1,583 39,223 56,064
FY1996........... 60,421 83,900 1,538 39,285 54,551
FY1997........... 60,924 82,688 1,504 40,508 54,979
FY1998........... 59,535 79,535 1,406 42,343 56,569
FY1999........... 61,347 80,175 1,386 44,262 57,846
FY2000........... 63,853 80,765 1,384 46,137 58,356
FY2001........... 66,568 81,868 1,386 48,029 59,068
FY2002........... 71,096 86,091 1,386 51,296 62,114
FY2003........... 80,506 95,339 1,386 58,085 68,787
FY2004........... 84,414 97,371 1,386 60,905 70,253
FY2005........... 91,396 101,973 1,386 65,942 73,573
FY2006........... 95,766 103,459 1,357 70,595 76,267
FY2007........... 96,247 101,094 1,328 72,451 76,100
FY2008........... 100,761 102,978 1,326 76,009 77,681
FY2009........... 109,469 109,469 1,368 80,004 80,004
------------------------------------------------------------------------
Sources: CRS using data from the Department of Defense and adjusted for
inflation using the Consumer Price Index for Urban Wage Earners (CPI-
U) from the Bureau of Labor StatisticsNotes: Amounts include all funding provided in military personnel
accounts for active duty personnel. Amounts do not reflect medical
care and in-kind benefits such as child care services, commissary and
exchange privileges, and recreational facilities, financed in
operation and maintenance accounts

As a complement to the data in Table 1, Tables 2 and 3 show monthly
basic pay of representative enlisted personnel and officers, at the
most common grade levels, for selected years (the data go back to 1905
for enlisted personnel and to 1922 for officers). These data are taken
directly from tables in background papers prepared by the Library of
Congress Federal Research Division for the Office of the Secretary of
Defense in preparation for the Ninth Quadrennial Review of Military
Compensation.\1\ The data are derived from annual pay tables, which
show, within each grade, pay levels for personnel with increasing
numbers of years of service. The Table 2 shows monthly basic pay of an
``E-4'' enlisted service member, and Table 3 shows monthly basic pay of
an ``O-3'' grade officer. These grades were chosen because they
represent the most common ranks in today's force. The most common grade
level of an enlisted service member in 2008 was ``E-4,'' which
corresponds to a rank of corporal or specialist in the Army, corporal
in the Marine Corps, senior airman in the Air Force, and Petty Officer
Third Class in the Navy. The most common grade level of an officer in
2008 was O-3, which corresponds to a rank of Captain in the Army, Air
Force, and Marine Corps, and to Lieutenant in the Navy. Amounts are
shown in current year dollars and in constant FY2009 prices, again
adjusted for inflation using the CPI.
---------------------------------------------------------------------------
\1\ Dr. Glenn Curtis, Military Compensation Background Papers:
Sixth Edition, Federal Research Division, Library of Congress,
Washington, DC, May 2005, http://www.loc.gov/rr/frd/pdf-files/
Military--Comp.pdf. The gaps in the table, which skip over most years
until 1940, are as shown in the background tables--CRS did not alter
the information in current year prices in any way. It would require
additional research to fill in the figures for intervening years.
---------------------------------------------------------------------------
It is important to note that basic pay is only a part of cash and
deferred compensation. In FY2008, funding for basic pay was 49% of the
total provided in military personnel budget accounts Other elements of
cash compensation included housing and subsistence allowances, clothing
allowances, special pays and bonuses, permanent change of station
moving allowances, and a number of other smaller categories of
compensation. In all, these parts of compensation totaled 23% of
funding. Financing of future retirement benefits comprised the
remaining 28%. Though they do not reflect a complete picture of
military compensation, these tables of monthly basic pay are provided
in order to present a more concrete comparison of military pay when the
draft was in effect with pay of members of the current professional
military force.
If CRS can be of any further assistance, please contact Stephen
Daggett by direct phone at 202 707-7642 or by e-mail at
sdaggett@crs.loc.gov.

TABLE 2.--MONTHLY BASIC PAY SCHEDULE FOR E-4 ENLISTED PERSONNEL, SELECTED YEARS FROM 1905-2004
[Monthly pay at rank with years of service]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Under Over Over Over Over Over Over Over Over Over Over
2 Over 2 Over 3 Over 4 Over 6 Over 8 10 12 14 16 18 20 22 24 26 30
--------------------------------------------------------------------------------------------------------------------------------------------------------
CURRENT YEAR DOLLARSJul-1905................ 54 54 54 57 57 59 59 62 62 65 65 65 65 65 65 65
Oct-40.................. 60 60 60 66 66 69 69 72 72 75 75 75 75 75 75 75
Aug-41.................. 70 70 70 76 76 79 79 82 82 85 85 85 85 85 85 85
Jun-42.................. 78 78 82 82 86 86 90 94 94 98 101 105 109 109 113 117
Jul-46.................. 100 100 105 105 110 110 115 120 120 125 130 135 140 140 145 150
Oct-49.................. 118 125 125 132 140 147 154 162 169 176 191 191 191 191 191 191
May-52.................. 122 130 130 138 145 153 161 168 176 183 199 199 199 199 199 199
Apr-55.................. 122 140 140 160 168 179 187 190 203 211 218 218 218 218 218 218
Jun-58.................. 122 150 160 170 180 190 190 190 190 190 190 190 190 190 190 190
Oct-63.................. 122 180 190 205 215 215 215 215 215 215 215 215 215 215 215 215
Sep-64.................. 122 185 195 210 221 221 221 221 221 221 221 221 221 221 221 221
Sep-65.................. 166 205 216 233 245 245 245 245 245 245 245 245 245 245 245 245
Jul-66.................. 169 212 223 241 253 253 253 253 253 253 253 253 253 253 253 253
Oct-67.................. 178 223 236 254 267 267 267 267 267 267 267 267 267 267 267 267
Jul-68.................. 190 239 252 272 285 285 285 285 285 285 285 285 285 285 285 285
Jul-69.................. 214 269 284 306 321 321 321 321 321 321 321 321 321 321 321 321
Jan-70.................. 232 290 307 331 347 347 347 347 347 347 347 347 347 347 347 347
Jan-71.................. 250 313 331 357 374 374 374 374 374 374 374 374 374 374 374 374
Nov-71.................. 323 341 361 389 405 405 405 405 405 405 405 405 405 405 405 405
Jan-72.................. 347 366 387 418 434 434 434 434 434 434 434 434 434 434 434 434
Oct-72.................. 370 391 413 446 463 463 463 463 463 463 463 463 463 463 463 463
Oct-73.................. 393 415 439 473 492 492 492 492 492 492 492 492 492 492 492 492
Oct-74.................. 414 437 463 499 519 519 519 519 519 519 519 519 519 519 519 519
Oct-75.................. 435 459 486 524 545 545 545 545 545 545 545 545 545 545 545 545
Oct-76.................. 451 476 504 543 564 564 564 564 564 564 564 564 564 564 564 564
Oct-77.................. 479 505 535 577 599 599 599 599 599 599 599 599 599 599 599 599
Oct-78.................. 505 533 564 608 632 632 632 632 632 632 632 632 632 632 632 632
Oct-79.................. 540 571 604 651 677 677 677 677 677 677 677 677 677 677 677 677
Oct-80.................. 604 638 675 727 756 756 756 756 756 756 756 756 756 756 756 756
Oct-81.................. 682 720 762 822 854 854 854 854 854 854 854 854 854 854 854 854
Oct-82.................. 710 749 793 855 889 889 889 889 889 889 889 889 889 889 889 889
Jan-84.................. 738 779 825 889 924 924 924 924 924 924 924 924 924 924 924 924
Jan-85.................. 767 810 858 925 961 961 961 961 961 961 961 961 961 961 961 961
Oct-85.................. 791 835 884 952 990 990 990 990 990 990 990 990 990 990 989 990
Jan-87.................. 814 860 910 981 1,019 1,019 1,019 1,019 1,019 1,019 1,019 1,019 1,019 1,019 1,019 1,019
Jan-88.................. 830 877 928 1,000 1,040 1,040 1,040 1,040 1,040 1,040 1,040 1,040 1,040 1,040 1,040 1,040
Jan-89.................. 864 913 966 1,041 1,082 1,082 1,082 1,082 1,082 1,082 1,082 1,082 1,082 1,082 1,082 1,082
Jan-90.................. 896 946 1,001 1,079 1,121 1,121 1,121 1,121 1,121 1,121 1,121 1,121 1,121 1,121 1,121 1,121
Jan-91.................. 932 984 1,042 1,123 1,167 1,167 1,167 1,167 1,167 1,167 1,167 1,167 1,167 1,167 1,167 1,167
Jan-92.................. 971 1,026 1,086 1,170 1,216 1,216 1,216 1,216 1,216 1,216 1,216 1,216 1,216 1,216 1,216 1,216
Jan-93.................. 1,007 1,064 1,126 1,213 1,261 1,261 1,261 1,261 1,261 1,261 1,261 1,261 1,261 1,261 1,261 1,261
Jan-94.................. 1,029 1,087 1,151 1,240 1,289 1,289 1,289 1,289 1,289 1,289 1,289 1,289 1,289 1,289 1,289 1,289
Jan-95.................. 1,056 1,115 1,181 1,272 1,322 1,322 1,322 1,322 1,322 1,322 1,322 1,322 1,322 1,322 1,322 1,322
Jan-96.................. 1,081 1,142 1,209 1,303 1,354 1,354 1,354 1,354 1,354 1,354 1,354 1,354 1,354 1,354 1,354 1,354
Jan-97.................. 1,114 1,176 1,246 1,342 1,395 1,395 1,395 1,395 1,395 1,395 1,395 1,395 1,395 1,395 1,395 1,395
Jan-98.................. 1,145 1,209 1,280 1,379 1,434 1,434 1,434 1,434 1,434 1,434 1,434 1,434 1,434 1,434 1,434 1,434
Jan-99.................. 1,186 1,253 1,327 1,429 1,485 1,485 1,485 1,485 1,485 1,485 1,485 1,485 1,485 1,485 1,485 1,485
Jan-00.................. 1,243 1,313 1,390 1,497 1,557 1,557 1,557 1,557 1,557 1,557 1,557 1,557 1,557 1,557 1,557 1,557
Jul-00.................. 1,243 1,373 1,447 1,520 1,594 1,594 1,594 1,594 1,594 1,594 1,594 1,594 1,594 1,594 1,594 1,594
Jan-01.................. 1,289 1,424 1,501 1,576 1,653 1,653 1,653 1,653 1,653 1,653 1,653 1,653 1,653 1,653 1,653 1,653
Jan-02.................. 1,444 1,518 1,600 1,680 1,752 1,752 1,752 1,752 1,752 1,752 1,752 1,752 1,752 1,752 1,752 1,752
Jan-03.................. 1,503 1,580 1,665 1,749 1,824 1,824 1,824 1,824 1,824 1,824 1,824 1,824 1,824 1,824 1,824 1,824
Jan-04.................. 1,558 1,638 1,727 1,814 1,892 1,892 1,892 1,892 1,892 1,892 1,892 1,892 1,892 1,892 1,892 1,892 CONSTANT 2009 $ ADJUSTED USING CPI-UJul-1904................ 1,346 1,346 1,346 1,413 1,413 1,481 1,481 1,548 1,548 1,615 1,615 1,615 1,615 1,615 1,615 1,615
Oct-40.................. 929 929 929 1,022 1,022 1,068 1,068 1,115 1,115 1,161 1,161 1,161 1,161 1,161 1,161 1,161
Aug-41.................. 1,037 1,037 1,037 1,126 1,126 1,170 1,170 1,215 1,215 1,259 1,259 1,259 1,259 1,259 1,259 1,259
Jun-42.................. 1,049 1,049 1,101 1,101 1,154 1,154 1,206 1,259 1,259 1,311 1,364 1,416 1,468 1,468 1,521 1,573
Jul-46.................. 1,111 1,111 1,166 1,166 1,222 1,222 1,278 1,333 1,333 1,389 1,444 1,500 1,555 1,555 1,611 1,666
Oct-49.................. 1,073 1,140 1,140 1,207 1,274 1,341 1,408 1,476 1,543 1,610 1,744 1,744 1,744 1,744 1,744 1,744
May-52.................. 1,008 1,071 1,071 1,134 1,197 1,260 1,323 1,386 1,449 1,512 1,638 1,638 1,638 1,638 1,638 1,638
Apr-55.................. 992 1,139 1,139 1,297 1,360 1,455 1,518 1,541 1,645 1,708 1,771 1,771 1,771 1,771 1,771 1,771
Jun-58.................. 919 1,127 1,202 1,278 1,353 1,428 1,428 1,428 1,428 1,428 1,428 1,428 1,428 1,428 1,428 1,428
Oct-63.................. 868 1,278 1,348 1,455 1,526 1,526 1,526 1,526 1,526 1,526 1,526 1,526 1,526 1,526 1,526 1,526
Sep-64.................. 862 1,300 1,372 1,480 1,554 1,554 1,554 1,554 1,554 1,554 1,554 1,554 1,554 1,554 1,554 1,554
Sep-65.................. 1,143 1,415 1,492 1,610 1,690 1,690 1,690 1,690 1,690 1,690 1,690 1,690 1,690 1,690 1,690 1,690
Jul-66.................. 1,134 1,422 1,499 1,618 1,698 1,698 1,698 1,698 1,698 1,698 1,698 1,698 1,698 1,698 1,698 1,698
Oct-67.................. 1,158 1,453 1,533 1,654 1,736 1,736 1,736 1,736 1,736 1,736 1,736 1,736 1,736 1,736 1,736 1,736
Jul-68.................. 1,193 1,495 1,578 1,702 1,787 1,787 1,787 1,787 1,787 1,787 1,787 1,787 1,787 1,787 1,787 1,787
Jul-69.................. 1,273 1,595 1,685 1,816 1,907 1,907 1,907 1,907 1,907 1,907 1,907 1,907 1,907 1,907 1,907 1,907
Jan-70.................. 1,301 1,629 1,722 1,856 1,949 1,949 1,949 1,949 1,949 1,949 1,949 1,949 1,949 1,949 1,949 1,949
Jan-71.................. 1,344 1,683 1,780 1,919 2,014 2,014 2,014 2,014 2,014 2,014 2,014 2,014 2,014 2,014 2,014 2,014
Nov-71.................. 1,686 1,780 1,883 2,030 2,112 2,112 2,112 2,112 2,112 2,112 2,112 2,112 2,112 2,112 2,112 2,112
Jan-72.................. 1,808 1,908 2,019 2,177 2,264 2,264 2,264 2,264 2,264 2,264 2,264 2,264 2,264 2,264 2,264 2,264
Oct-72.................. 1,817 1,919 2,030 2,189 2,276 2,276 2,276 2,276 2,276 2,276 2,276 2,276 2,276 2,276 2,276 2,276
Oct-73.................. 1,737 1,834 1,940 2,093 2,175 2,175 2,175 2,175 2,175 2,175 2,175 2,175 2,175 2,175 2,175 2,175
Oct-74.................. 1,680 1,774 1,877 2,025 2,104 2,104 2,104 2,104 2,104 2,104 2,104 2,104 2,104 2,104 2,104 2,104
Oct-75.................. 1,665 1,758 1,860 2,006 2,084 2,084 2,084 2,084 2,084 2,084 2,084 2,084 2,084 2,084 2,084 2,084
Oct-76.................. 1,622 1,712 1,813 1,954 2,031 2,031 2,031 2,031 2,031 2,031 2,031 2,031 2,031 2,031 2,031 2,031
Oct-77.................. 1,598 1,687 1,786 1,926 2,002 2,002 2,002 2,002 2,002 2,002 2,002 2,002 2,002 2,002 2,002 2,002
Oct-78.................. 1,513 1,598 1,691 1,823 1,895 1,895 1,895 1,895 1,895 1,895 1,895 1,895 1,895 1,895 1,895 1,895
Oct-79.................. 1,427 1,507 1,595 1,719 1,787 1,787 1,787 1,787 1,787 1,787 1,787 1,787 1,787 1,787 1,787 1,787
Oct-80.................. 1,445 1,526 1,615 1,741 1,809 1,809 1,809 1,809 1,809 1,809 1,809 1,809 1,809 1,809 1,809 1,809
Oct-81.................. 1,539 1,625 1,720 1,854 1,928 1,928 1,928 1,928 1,928 1,928 1,928 1,928 1,928 1,928 1,928 1,928
Oct-82.................. 1,553 1,639 1,735 1,870 1,945 1,945 1,945 1,945 1,945 1,945 1,945 1,945 1,945 1,945 1,945 1,945
Jan-84.................. 1,546 1,632 1,727 1,862 1,935 1,935 1,935 1,935 1,935 1,935 1,935 1,935 1,935 1,935 1,935 1,935
Jan-85.................. 1,553 1,640 1,736 1,871 1,945 1,945 1,944 1,945 1,945 1,945 1,945 1,945 1,945 1,945 1,945 1,945
Oct-85.................. 1,572 1,659 1,757 1,893 1,968 1,968 1,968 1,968 1,968 1,968 1,968 1,968 1,968 1,968 1,966 1,968
Jan-87.................. 1,561 1,648 1,745 1,880 1,955 1,955 1,955 1,955 1,955 1,955 1,955 1,955 1,955 1,955 1,955 1,955
Jan-88.................. 1,529 1,614 1,709 1,842 1,915 1,915 1,915 1,915 1,915 1,915 1,915 1,915 1,915 1,915 1,915 1,915
Jan-89.................. 1,518 1,603 1,697 1,829 1,901 1,901 1,901 1,901 1,901 1,901 1,901 1,901 1,901 1,901 1,901 1,901
Jan-90.................. 1,493 1,577 1,669 1,799 1,870 1,870 1,870 1,870 1,870 1,870 1,870 1,870 1,870 1,870 1,870 1,870
Jan-91.................. 1,491 1,574 1,667 1,796 1,867 1,867 1,867 1,867 1,867 1,867 1,867 1,867 1,867 1,867 1,867 1,867
Jan-92.................. 1,508 1,593 1,687 1,817 1,889 1,889 1,889 1,889 1,889 1,889 1,889 1,889 1,889 1,889 1,889 1,889
Jan-93.................. 1,518 1,604 1,698 1,829 1,901 1,901 1,901 1,901 1,901 1,901 1,901 1,901 1,901 1,901 1,901 1,901
Jan-94.................. 1,514 1,599 1,693 1,823 1,895 1,895 1,895 1,895 1,895 1,895 1,895 1,895 1,895 1,895 1,895 1,895
Jan-95.................. 1,509 1,594 1,688 1,818 1,890 1,890 1,890 1,890 1,890 1,890 1,890 1,890 1,890 1,890 1,890 1,890
Jan-96.................. 1,501 1,586 1,679 1,809 1,880 1,880 1,880 1,880 1,880 1,880 1,880 1,880 1,880 1,880 1,880 1,880
Jan-97.................. 1,511 1,597 1,691 1,821 1,893 1,893 1,893 1,893 1,893 1,893 1,893 1,893 1,893 1,893 1,893 1,893
Jan-98.................. 1,529 1,616 1,711 1,842 1,915 1,915 1,915 1,915 1,915 1,915 1,915 1,915 1,915 1,915 1,915 1,915
Jan-99.................. 1,550 1,637 1,734 1,867 1,941 1,941 1,941 1,941 1,941 1,941 1,941 1,941 1,941 1,941 1,941 1,941
Jan-00.................. 1,572 1,660 1,758 1,894 1,969 1,969 1,969 1,969 1,969 1,969 1,969 1,969 1,969 1,969 1,969 1,969
Jul-00.................. 1,572 1,737 1,830 1,923 2,016 2,016 2,016 2,016 2,016 2,016 2,016 2,016 2,016 2,016 2,016 2,016
Jan-01.................. 1,585 1,751 1,846 1,938 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033 2,033
Jan-02.................. 1,748 1,838 1,937 2,035 2,122 2,122 2,122 2,122 2,122 2,122 2,122 2,122 2,122 2,122 2,122 2,122
Jan-3................... 1,780 1,871 1,972 2,072 2,160 2,160 2,160 2,160 2,160 2,160 2,160 2,160 2,160 2,160 2,160 2,160
Jan-04.................. 1,797 1,890 1,992 2,093 2,182 2,182 2,182 2,182 2,182 2,182 2,182 2,182 2,182 2,182 2,182 2,182
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: All data in current year dollars from Library of Congress, Federal Research Division, Military Compensation Background Papers, Volume 1, May
2005. Data in constant FY2009 dollars calculated by CRS using CPI deflators from the Department of Commerce, Bureau of Labor Statistics for all years
from 1913 on and, for years prior to 1913, from Professor Robert Sahr, Oregon State University, Inflation Conversion Factors for Dollars 1774 to
Estimated 2018, available on line at: http://oregonstate.edu/cla/polisci/faculty-research/sahr/sahr.htm

TABLE 3.--MONTHLY BASIC PAY SCHEDULE FOR O-3 OFFICERS, SELECTED YEARS FROM 1922-2004
[Monthly pay at rank with years of service]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Under Over Over Over Over Over Over Over Over Over Over
2 Over 2 Over 3 Over 4 Over 6 Over 8 10 12 14 16 18 20 22 24 26 30
--------------------------------------------------------------------------------------------------------------------------------------------------------
CURRENT YEAR DOLLARSJul-22.................. 200 200 210 210 220 220 230 240 240 250 325 338 350 350 363 375
Jun-42.................. 200 200 210 210 220 230 230 240 240 313 325 338 350 350 363 375
Jul-46.................. 230 230 242 242 253 265 265 276 276 344 358 371 385 385 399 413
Oct-49.................. 314 314 314 328 342 356 371 385 399 413 428 428 442 442 442 442
May-52.................. 326 326 326 341 356 371 385 400 415 430 445 445 459 459 459 459
Apr-55.................. 326 326 351 374 406 421 437 452 468 484 499 499 515 515 515 515
Jun-58.................. 326 346 372 415 440 460 480 510 525 525 525 525 525 525 525 525
Oct-63.................. 326 440 470 520 545 565 595 625 640 640 640 640 640 640 640 640
Sep-64.................. 354 451 482 533 559 579 610 641 656 656 656 656 656 656 656 656
Sep-65.................. 428 478 511 565 592 614 647 679 695 695 695 695 695 695 695 695
Jul-66.................. 442 493 527 583 611 633 667 701 718 718 718 718 718 718 718 718
Oct-67.................. 466 521 556 616 645 669 705 740 758 758 758 758 758 758 758 758
Jul-68.................. 498 557 595 659 690 715 753 791 810 810 810 810 810 810 810 810
Jul-69.................. 561 627 670 742 777 805 848 890 912 912 912 912 912 912 912 912
Jan-70.................. 606 678 724 802 840 870 917 962 986 986 986 986 986 986 986 986
Jan-71.................. 654 731 781 865 906 939 989 1,038 1,064 1,064 1,064 1,064 1,064 1,064 1,064 1,064
Nov-71.................. 654 731 781 865 906 939 989 1,038 1,064 1,064 1,064 1,064 1,064 1,064 1,064 1,064
Jan-72.................. 701 784 838 927 971 1,007 1,061 1,113 1,141 1,141 1,141 1,141 1,141 1,141 1,141 1,141
Oct-72.................. 748 836 894 989 1,037 1,074 1,131 1,188 1,217 1,217 1,217 1,217 1,217 1,217 1,217 1,217
Oct-73.................. 794 888 949 1,050 1,100 1,140 1,201 1,261 1,292 1,292 1,292 1,292 1,292 1,292 1,292 1,292
Oct-74.................. 838 937 1,001 1,108 1,161 1,203 1,268 1,331 1,363 1,363 1,363 1,363 1,363 1,363 1,363 1,363
Oct-75.................. 880 984 1,052 1,164 1,219 1,263 1,331 1,397 1,431 1,431 1,431 1,431 1,431 1,431 1,431 1,431
Oct-76.................. 912 1,019 1,090 1,206 1,263 1,309 1,379 1,448 1,483 1,483 1,483 1,483 1,483 1,483 1,483 1,483
Oct-77.................. 968 1,083 1,157 1,280 1,342 1,390 1,465 1,538 1,575 1,575 1,575 1,575 1,575 1,575 1,575 1,575
Oct-78.................. 1,022 1,142 1,221 1,351 1,415 1,467 1,545 1,622 1,662 1,662 1,662 1,662 1,662 1,662 1,662 1,662
Oct-79.................. 1,094 1,222 1,307 1,446 1,515 1,570 1,654 1,736 1,779 1,779 1,779 1,779 1,779 1,779 1,779 1,779
Oct-80.................. 1,221 1,365 1,460 1,615 1,692 1,753 1,847 1,939 1,987 1,987 1,987 1,987 1,987 1,987 1,987 1,987
Oct-81.................. 1,396 1,561 1,668 1,846 1,934 2,004 2,112 2,216 2,271 2,271 2,271 2,271 2,271 2,271 2,271 2,271
Oct-82.................. 1,452 1,623 1,735 1,920 2,012 2,084 2,196 2,305 2,362 2,362 2,362 2,362 2,362 2,362 2,362 2,362
Jan-84.................. 1,510 1,688 1,804 1,997 2,092 2,168 2,284 2,397 2,456 2,456 2,456 2,456 2,456 2,456 2,456 2,456
Jan-85.................. 1,570 1,755 1,877 2,076 2,176 2,254 2,376 2,493 2,555 2,555 2,555 2,555 2,555 2,555 2,555 2,555
Oct-85.................. 1,617 1,808 1,933 2,139 2,241 2,322 2,447 2,568 2,631 2,631 2,631 2,631 2,631 2,631 2,631 2,631
Jan-87.................. 1,666 1,862 1,991 2,203 2,308 2,391 2,521 2,645 2,710 2,710 2,710 2,710 2,710 2,710 2,710 2,710
Jan-88.................. 1,699 1,900 2,031 2,247 2,354 2,439 2,571 2,698 2,765 2,765 2,765 2,765 2,765 2,765 2,765 2,765
Jan-89.................. 1,769 1,978 2,114 2,339 2,451 2,539 2,676 2,809 2,878 2,878 2,878 2,878 2,878 2,878 2,878 2,878
Jan-90.................. 1,832 2,049 2,190 2,423 2,539 2,630 2,773 2,910 2,981 2,981 2,981 2,981 2,981 2,981 2,981 2,981
Jan-91.................. 1,907 2,133 2,280 2,523 2,643 2,738 2,886 3,029 3,104 3,104 3,104 3,104 3,104 3,104 3,104 3,104
Jan-92.................. 1,988 2,222 2,376 2,629 2,754 2,853 3,008 3,156 3,234 3,234 3,234 3,234 3,234 3,234 3,234 3,234
Jan-93.................. 2,061 2,305 2,464 2,726 2,856 2,959 3,119 3,273 3,353 3,353 3,353 3,353 3,353 3,353 3,353 3,353
Jan-94.................. 2,106 2,355 2,518 2,786 2,919 3,024 3,188 3,345 3,427 3,427 3,427 3,427 3,427 3,427 3,427 3,427
Jan-95.................. 2,161 2,417 2,583 2,858 2,995 3,102 3,270 3,432 3,516 3,516 3,516 3,516 3,516 3,516 3,516 3,516
Jan-96.................. 2,213 2,474 2,645 2,927 3,067 3,177 3,349 3,515 3,601 3,601 3,601 3,601 3,601 3,601 3,601 3,601
Jan-97.................. 2,279 2,549 2,725 3,015 3,159 3,272 3,449 3,620 3,709 3,709 3,709 3,709 3,709 3,709 3,709 3,709
Jan-98.................. 2,343 2,620 2,801 3,099 3,248 3,364 3,546 3,721 3,812 3,812 3,812 3,812 3,812 3,812 3,812 3,812
Jan-99.................. 2,428 2,714 2,902 3,211 3,365 3,485 3,674 3,855 3,950 3,950 3,950 3,950 3,950 3,950 3,950 3,950
Jan-00.................. 2,544 2,844 3,041 3,365 3,526 3,652 3,850 4,040 4,139 4,139 4,139 4,139 4,139 4,139 4,139 4,139
Jul-00.................. 2,544 2,884 3,113 3,365 3,526 3,703 3,850 4,040 4,139 4,139 4,139 4,139 4,139 4,139 4,139 4,139
Jan-01.................. 2,638 2,991 3,228 3,489 3,656 3,840 3,993 4,190 4,292 4,292 4,292 4,292 4,292 4,292 4,292 4,292
Jan-02.................. 2,797 3,170 3,422 3,699 3,876 4,070 4,232 4,441 4,550 4,550 4,550 4,550 4,550 4,550 4,550 4,550
Jan-03.................. 2,911 3,300 3,562 3,884 4,070 4,274 4,406 4,623 4,736 4,736 4,736 4,736 4,736 4,736 4,736 4,736
Jan-04.................. 3,019 3,422 3,694 4,027 4,220 4,432 4,569 4,794 4,911 4,911 4,911 4,911 4,911 4,911 4,911 4,911 CONSTANT 2009 DOLLARS USING CPI-UJul-22.................. 200 200 210 210 220 220 230 240 240 250 325 338 350 350 363 375
Jun-42.................. 200 200 210 210 220 230 230 240 240 313 325 338 350 350 363 375
Jul-46.................. 230 230 242 242 253 265 265 276 276 344 358 371 385 385 399 413
Oct-49.................. 314 314 314 328 342 356 371 385 399 413 428 428 442 442 442 442
May-52.................. 326 326 326 341 356 371 385 400 415 430 445 445 459 459 459 459
Apr-55.................. 326 326 351 374 406 421 437 452 468 484 499 499 515 515 515 515
Jun-58.................. 326 346 372 415 440 460 480 510 525 525 525 525 525 525 525 525
Oct-63.................. 326 440 470 520 545 565 595 625 640 640 640 640 640 640 640 640
Sep-64.................. 354 451 482 533 559 579 610 641 656 656 656 656 656 656 656 656
Sep-65.................. 428 478 511 565 592 614 647 679 695 695 695 695 695 695 695 695
Jul-66.................. 442 493 527 583 611 633 667 701 718 718 718 718 718 718 718 718
Oct-67.................. 466 521 556 616 645 669 705 740 758 758 758 758 758 758 758 758
Jul-68.................. 498 557 595 659 690 715 753 791 810 810 810 810 810 810 810 810
Jul-69.................. 561 627 670 742 777 805 848 890 912 912 912 912 912 912 912 912
Jan-70.................. 606 678 724 802 840 870 917 962 986 986 986 986 986 986 986 986
Jan-71.................. 654 731 781 865 906 939 989 1,038 1,064 1,064 1,064 1,064 1,064 1,064 1,064 1,064
Nov-71.................. 654 731 781 865 906 939 989 1,038 1,064 1,064 1,064 1,064 1,064 1,064 1,064 1,064
Jan-72.................. 701 784 838 927 971 1,007 1,061 1,113 1,141 1,141 1,141 1,141 1,141 1,141 1,141 1,141
Oct-72.................. 748 836 894 989 1,037 1,074 1,131 1,188 1,217 1,217 1,217 1,217 1,217 1,217 1,217 1,217
Oct-73.................. 794 888 949 1,050 1,100 1,140 1,201 1,261 1,292 1,292 1,292 1,292 1,292 1,292 1,292 1,292
Oct-74.................. 838 937 1,001 1,108 1,161 1,203 1,268 1,331 1,363 1,363 1,363 1,363 1,363 1,363 1,363 1,363
Oct-75.................. 880 984 1,052 1,164 1,219 1,263 1,331 1,397 1,431 1,431 1,431 1,431 1,431 1,431 1,431 1,431
Oct-76.................. 912 1,019 1,090 1,206 1,263 1,309 1,379 1,448 1,483 1,483 1,483 1,483 1,483 1,483 1,483 1,483
Oct-77.................. 968 1,083 1,157 1,280 1,342 1,390 1,465 1,538 1,575 1,575 1,575 1,575 1,575 1,575 1,575 1,575
Oct-78.................. 1,022 1,142 1,221 1,351 1,415 1,467 1,545 1,622 1,662 1,662 1,662 1,662 1,662 1,662 1,662 1,662
Oct-79.................. 1,094 1,222 1,307 1,446 1,515 1,570 1,654 1,736 1,779 1,779 1,779 1,779 1,779 1,779 1,779 1,779
Oct-80.................. 1,221 1,365 1,460 1,615 1,692 1,753 1,847 1,939 1,987 1,987 1,987 1,987 1,987 1,987 1,987 1,987
Oct-81.................. 1,396 1,561 1,668 1,846 1,934 2,004 2,112 2,216 2,271 2,271 2,271 2,271 2,271 2,271 2,271 2,271
Oct-82.................. 1,452 1,623 1,735 1,920 2,012 2,084 2,196 2,305 2,362 2,362 2,362 2,362 2,362 2,362 2,362 2,362
Jan-84.................. 1,510 1,688 1,804 1,997 2,092 2,168 2,284 2,397 2,456 2,456 2,456 2,456 2,456 2,456 2,456 2,456
Jan-85.................. 1,570 1,755 1,877 2,076 2,176 2,254 2,376 2,493 2,555 2,555 2,555 2,555 2,555 2,555 2,555 2,555
Oct-85.................. 1,617 1,808 1,933 2,139 2,241 2,322 2,447 2,568 2,631 2,631 2,631 2,631 2,631 2,631 2,631 2,631
Jan-87.................. 1,666 1,862 1,991 2,203 2,308 2,391 2,521 2,645 2,710 2,710 2,710 2,710 2,710 2,710 2,710 2,710
Jan-88.................. 1,699 1,900 2,031 2,247 2,354 2,439 2,571 2,698 2,765 2,765 2,765 2,765 2,765 2,765 2,765 2,765
Jan-89.................. 1,769 1,978 2,114 2,339 2,451 2,539 2,676 2,809 2,878 2,878 2,878 2,878 2,878 2,878 2,878 2,878
Jan-90.................. 1,832 2,049 2,190 2,423 2,539 2,630 2,773 2,910 2,981 2,981 2,981 2,981 2,981 2,981 2,981 2,981
Jan-91.................. 1,907 2,133 2,280 2,523 2,643 2,738 2,886 3,029 3,104 3,104 3,104 3,104 3,104 3,104 3,104 3,104
Jan-92.................. 1,988 2,222 2,376 2,629 2,754 2,853 3,008 3,156 3,234 3,234 3,234 3,234 3,234 3,234 3,234 3,234
Jan-93.................. 2,061 2,305 2,464 2,726 2,856 2,959 3,119 3,273 3,353 3,353 3,353 3,353 3,353 3,353 3,353 3,353
Jan-94.................. 2,106 2,355 2,518 2,786 2,919 3,024 3,188 3,345 3,427 3,427 3,427 3,427 3,427 3,427 3,427 3,427
Jan-95.................. 2,161 2,417 2,583 2,858 2,995 3,102 3,270 3,432 3,516 3,516 3,516 3,516 3,516 3,516 3,516 3,516
Jan-96.................. 2,213 2,474 2,645 2,927 3,067 3,177 3,349 3,515 3,601 3,601 3,601 3,601 3,601 3,601 3,601 3,601
Jan-97.................. 2,279 2,549 2,725 3,015 3,159 3,272 3,449 3,620 3,709 3,709 3,709 3,709 3,709 3,709 3,709 3,709
Jan-98.................. 2,343 2,620 2,801 3,099 3,248 3,364 3,546 3,721 3,812 3,812 3,812 3,812 3,812 3,812 3,812 3,812
Jan-99.................. 2,428 2,714 2,902 3,211 3,365 3,485 3,674 3,855 3,950 3,950 3,950 3,950 3,950 3,950 3,950 3,950
Jan-00.................. 2,544 2,844 3,041 3,365 3,526 3,652 3,850 4,040 4,139 4,139 4,139 4,139 4,139 4,139 4,139 4,139
Jul-00.................. 2,544 2,884 3,113 3,365 3,526 3,703 3,850 4,040 4,139 4,139 4,139 4,139 4,139 4,139 4,139 4,139
Jan-01.................. 2,638 2,991 3,228 3,489 3,656 3,840 3,993 4,190 4,292 4,292 4,292 4,292 4,292 4,292 4,292 4,292
Jan-02.................. 2,797 3,170 3,422 3,699 3,876 4,070 4,232 4,441 4,550 4,550 4,550 4,550 4,550 4,550 4,550 4,550
Jan-03.................. 2,911 3,300 3,562 3,884 4,070 4,274 4,406 4,623 4,736 4,736 4,736 4,736 4,736 4,736 4,736 4,736
Jan-04.................. 3,019 3,422 3,694 4,027 4,220 4,432 4,569 4,794 4,911 4,911 4,911 4,911 4,911 4,911 4,911 4,911
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Same as Table 2, above.

Mr. Gilmore's Responses to Questions for the Record

question from chairman spratt
Do you have a rule of thumb at CRS or CBO for what it costs to move
a division or a brigade with full equipment sent back to the States
from Iraq? Could you submit, for the record, your growth estimation
that--your rule of thumb for, division set, brigade set, whatever the
proper unit is?

Answer: The Congressional Budget Office (CBO) estimates that it
would cost approximately $50 million (in 2009 dollars) to transport a
fully manned and equipped Army heavy brigade combat team (HBCT) from
Iraq to the United States.
CBO's estimate reflects several assumptions. First, since Kuwait is
the primary entry and exit point for units deploying to and redeploying
from the Iraqi theater of operations, CBO assumes that the brigade's
equipment and personnel would leave the Iraqi theater of operations
through Kuwait. In addition, CBO assumes that the brigade's equipment
would be sealifted from Kuwait to the United States, and that personnel
would be airlifted from Kuwait to the United States. Once the equipment
reaches the United States, CBO assumes that the brigade's equipment
would be moved by rail from the port of arrival to the brigade's final
destination.
Based on historical Department of Defense (DoD) cost factors for
transporting equipment and personnel, CBO estimates that the sealift
costs, including costs associated with handling the brigade's equipment
at the departing and arriving ports, would be $33 million and would be
the single largest cost associated with the transportation of an HBCT
from Iraq to the United States. In addition, CBO estimates that the
transportation of personnel from Iraq to the United States via Kuwait
would cost $8 million. The remainder of the cost estimated by CBO is
associated with the movement of equipment from Iraq to Kuwait and from
the arriving port in the United States to its final destination.
The cost to transport Army combat brigades from Iraq to the United
States would not account for all of the transportation costs of
withdrawing U.S. forces from Iraq. The U.S. military has many units in
Iraq that are not Army combat brigades, and it has supplies and
equipment not associated with any specific unit. In particular, the
Army has a substantial number of forces in the Iraqi theater of
operations that provide support to its combat brigades. Those support
units contain more total personnel than do the Army's combat brigades.
Moreover, the Navy, Air Force, and Marine Corps all have units in the
Iraqi theater of operations that would need to be redeployed.
DoD also maintains a substantial stock of additional equipment
(primarily its so-called Theater-Provided Equipment pool) not directly
associated with any single unit that would need to be redeployed,
although DoD may have plans to leave some of that equipment pool behind
in Iraq. Finally, DoD has a substantial stock of supplies and
ammunition that would also be redeployed. The need to transport the
personnel and equipment not associated with Army combat brigades means
that the total transportation costs of withdrawing U.S. forces from
Iraq will be greater than the costs of withdrawing the Army's combat
brigades.
Thus, the cost to re-deploy personnel and equipment not associated
directly with HBCTs is likely to be significant.
questions from representative delauro
1. As you are likely aware, the Navy recently declared a so-called
Nunn-McCurdy violation for the VH-71 presidential helicopter
replacement program. Last year, the Defense Department announced that
the total acquisition costs for the program were projected to increase
from $6.5 billion to $11.2 billion. Now, merely two years after
submitting initial baseline estimates, the Navy is confirming that the
cost per helicopter will be at least 50 percent higher than the
original estimate.
In recent testimony, Secretary Gates identified acquisitions as a
chief challenge facing the Defense Department and specifically
mentioned the VH-71 as a ``big ticket'' item experiencing contract or
program performance problems, suggesting that ``the FY 2010 budget must
make hard choices.'' As we examine cost growth in Defense programs, how
do you think we should approach big contract issues such as this one?
What policies are needed to control such egregious cost over-runs? On
the VH-71 program in particular, with the modifications and the new
requirements being as extensive as they are, and the fact that had
these changes been clear from the outset competing firms would likely
have submitted different proposals, do you think a re-competition of
Increment II of the program is worthwhile to identify whether this
helicopter can be made at a better value to the taxpayer?

Answer: As I stated in my testimony, realistic cost estimates
developed as early as possible in the life of a program are key to
developing realistic budgets and to avoiding subsequent cost increases.
A realistic estimate would use parametric analysis of past costs for
programs with technical content analogous to the proposed program's
content. A realistic estimate would also account not just for the
requirements stated at a program's inception but for changes in
requirements that might reasonably be expected.
Whether it would be worthwhile to re-compete Increment II of the
presidential helicopter program because of the changes in requirements
that have occurred is a policy decision that must be made by the
Congress and DoD. CBO does not make recommendations for how to decide
such policy issues.

2. As with the controversial original award for the Air Force KC-X
aerial refueling tanker contract, the Marine One contract was awarded
to a consortium that involved a substantial amount of work being
outsourced overseas. I believe such outsourcing of defense contracts
runs against both U.S. national security and economic interests,
eroding our defense industrial base, costing jobs and stunting economic
growth. Do you believe, particularly in these very difficult economic
times, that the Defense Department should consider adjusting its
methodology to account for potential job creation and economic growth
when considering proposals for major projects such as the KC-X and VH-
71?

Answer: Whether it would be worthwhile to account for potential job
creation and economic growth when considering proposals for major
projects such as the KC-X and VH-71 is a policy decision that must be
made by the Congress and DoD. CBO does not make recommendations for how
to decide such policy issues.

question from representative langevin
I sit on not only the Budget Committee, but also the House Armed
Services Committee. And following the debate on the issue of the DDG-
1000 versus the 51 that is going on right now, and just for my own
knowledge and clarification for the record, when you talk about the
range of potential costs, whether it is 4 or 5 to $6 billion for the
DDG-1000, I would assume that you are talking about the first ship,
which obviously is the most expensive and then costs moderate over time
as you achieve economies of scale. Can you clarify that for the record?
And also talk about your analysis on start-up costs if we were to
start the DDG-51 line. And you estimate real costs of what that would
be, what that ship would be per copy now with the add on technologies.
And also the tradeoffs versus going with the DDG-1000 and the fact that
these aren't supposed to be incorporating follow-on or transformational
technologies that would, at a later point, be used on the cruiser or
other platforms. So that it is kind of you can't just talk about the 51
in a vacuum, you know, they have other modern technologies that would
be applied to other platforms and would be of course useful as the
cruisers develop. So if you could just kind of talk about those for a
few minutes.
Mr. Gilmore. Well, the cost numbers that I quoted of $4 billion to
$5 billion were, for the first ship, exclusive of the development
costs; so, they excluded the development costs, the design costs for
the ship, the cost of building the first ship. And then, yes, we do
assume in our estimate that subsequent costs, subsequent ships' costs,
are less; that there is a learning effect that occurs.
Mr. Langevin. So can you estimate what the following costs would
be?

Answer: The table displayed below, taken from CBO testimony before
the Seapower Subcommittee of the House Armed Services Committee on July
31, 2008, displays estimates of the costs of follow-on DDG-1000 ships
and of buying one or two DDG-51s per year. The DDG-51s are assumed for
this analysis to have the same design as the DDG-112, the last ship
purchased in 2005.

PROJECTED COSTS OF CONSTRUCTING DDG-1000 AND DDG-51 DESTROYERS, 2009 TO 2013
[Billions of 2009 Dollars]
----------------------------------------------------------------------------------------------------------------
2009 2010 2011 2012 2013 Total
----------------------------------------------------------------------------------------------------------------
DDG-1000 Zumwalt Class (One per year, 3rd through 3.7 3.8 3.6 3.7 3.6 18.5
7th ships).........................................
DDG-51 Arleigh Burke Class:
One per year starting in 2010................... 0.4 2.2 2.3 2.3 2.4 9.6
Two per year starting in 2010................... 0.4 3.7 3.8 3.9 3.9 15.7
DDG-1000 (Navy's Estimate).......................... 2.5 2.5 2.2 2.3 2.0 11.4
----------------------------------------------------------------------------------------------------------------
Source: Congressional Budget Office.Notes: All estimates include outfitting and postdelivery costs of $50 million to $60 million per ship. The DDG-
1000 cost estimate assumes a single ship would be ordered every year from one of two alternating shipyards.

In its testimony from July 2008, CBO assumed the cost to restart
DDG-51 production--which is separate from purchasing the ships
themselves--would be about $400 million. Recently, a memorandum leaked
to the trade press from John Young, Undersecretary of Defense for
Acquisition, Technology, and Logistics, implied that the cost to
restart the DDG-51 line would be $348 million.
CBO cannot estimate the cost of future surface combatants that
include new technologies at this time. The Navy has not determined
which technologies, and at what pace, it will incorporate in future
ships or how many of those types of ships it will buy. In addition, the
Navy has not yet determined, officially, whether the future surface
combatant would be based on a DDG-51 hull or a DDG-1000 hull.
Determining which hull the Navy would use for a future surface
combatant will have a substantial effect on the cost of those ships.
For your reference, I am also providing the table below, which
displays growth in the projected cost of the DDG-1000 program that has
occurred since its inception as the DD-21 program in 1997.

GROWTH IN THE ESTIMATED COSTS OF THE FIFTH SHIP OF THE DD-21/DD(X)/DDG-
1000 DESTROYER PROGRAM, SELECTED YEARS
------------------------------------------------------------------------
Billions of
2009 dollars
------------------------------------------------------------------------
1997 Navy Cost Goals (DD-21):
Objective Goal..................................... 1.2
Threshold Goal..................................... 1.4
2004 Future Years Defense Program...................... 1.6
2009 Navy Estimate..................................... 2.1
2009 CBO Estimate...................................... 3.6
------------------------------------------------------------------------
Sources: Department of the Navy, Fiscal Year 2009 Budget Estimates,
Shipbuilding and Conversion (February 2008); Department of Defense,
Future Years Defense Program for Fiscal Year 2004; and Department of
the Navy, DD-21 Program Office, DD-21 Program Brief (October 19,
1998).Notes: All years are federal fiscal years. For the historical
comparison, the numbers exclude outfitting and postdelivery costs of
about $60 million per ship.

questions from representative austria
1. The successful completion of the most recent round of BRAC and
military R&D are both very important to central Ohio. Can you tell me
by service, whether BRAC is currently projected to achieve the savings
that were envisioned? If the savings aren't realized, has DOD indicated
how they will respond?

Answer: Estimates of the savings generated by implementing the 2005
base realignment and closure (BRAC) recommendations (the most recent
round) have declined relative to initial projections. In 2005, the BRAC
Commission estimated that annual recurring savings due to the 2005 BRAC
round would be about $4.2 billion for fiscal year 2012 and beyond.
DoD's 2009 budget submission indicates that net annual savings due to
BRAC would be about $4 billion.
Estimates of the costs to implement the 2005 BRAC round have
increased relative to initial projections. The BRAC Commission
originally estimated that the costs to implement the 2005 BRAC round
would total about $21 billion. DoD's 2009 budget submission indicates
that total costs to implement the 2005 BRAC round are now about of $32
billion.
Because of higher costs and smaller expected savings, estimates of
the net savings attributable to BRAC over the 20-year period ending in
2025 have declined. The BRAC Commission estimated in 2005 that total
savings over that period would be about $36 billion (in constant 2005
dollars). In 2009, the Government Accountability Office (GAO)
calculated that total savings over that period would equal about $14
billion (in constant 2005 dollars, see the GAO report, Military Base
Realignments and Closures: DOD Faces Challenges in Implementing
Recommendations on Time and Is Not Consistently Updating Savings
Estimates, GAO-09-217, January 2009).
Estimates of savings by service arising from BRAC are not available
to CBO. Both DoD and GAO, which has published multiple reports on BRAC,
should be able provide those data.
CBO is not aware of a position taken by DoD on how the department
would respond to realizing lesser BRAC savings. In testimony before the
Subcommittee on Readiness of the House Armed Services Committee on
December 12, 2007, the Deputy Undersecretary of Defense (Installations
and Environment) acknowledged the difficulty of estimating savings due
to BRAC. He stated, however, that ``the fact that BRAC has generated
substantial savings has not been credibly questioned.''

2. I would like to discuss two Air Force programs--the F-22 and the
Joint Strike Fighter (JSF). What is the status of these two systems?
How can we get DoD to do realistic budgeting?

The F-22 Raptor is the newest Air Force fighter in service. Like
the F-15C Eagle that it is replacing, the F-22 was designed primarily
as an air-to-air fighter. However, the Air Force plans to make the F-22
capable of launching some types of air-to-ground weapons. Since the
retirement of the F-117 in 2007, the F-22 is the only stealthy fighter
(able to elude detection by radar) currently in the Air Force
inventory. The latest plans released by DoD call for fielding 183 F-
22s. The last of those aircraft were funded in the 2009 budget at a
cost of about $150 million per aircraft. As of February 2009, 135 F-22s
had been delivered to the Air Force. DoD also has indicated that it
plans to spend approximately $8 billion to upgrade the F-22's
capabilities.
The Air Force has stated the need for no fewer than 381 F-22s,
although recent remarks by the Chairman of the Joint Chiefs of Staff
have indicated that requirement may be revised downward to around 240
aircraft, about 60 more than in DoD's current plans. In the Department
of Defense Appropriations Act, 2009 (Division C of Public Law 110-329),
the Congress included $523 million for advanced procurement of 20 more
F-22s (in addition to the 183 that are planned), pending a decision by
the new Administration on whether to continue production. That decision
is expected to be announced when DoD releases its detailed 2010 budget
request in April 2009.
The F-35 is currently under development for use by the Air Force,
Navy, and Marine Corps. The F-35 has been designed as a stealthy
multirole fighter with an emphasis on ground attack capabilities but
incorporating substantial air-to-air capabilities as well. Three
versions of the F-35 are being developed: the land-based F-35A, the
short takeoff/vertical landing (STOVL) F-35B, and the aircraft carrier-
based F-35C. Under the latest plans released by DoD, the Air Force
would purchase 1,763 F-35As by 2034 (at a maximum rate of 80 aircraft
per year from 2015 to 2033), and the Navy and Marine Corps would
purchase an unspecified mix of F-35Bs and F-35Cs totaling 680 aircraft
by 2025 (at a maximum rate of 50 aircraft per year from 2014 through
2022).
Funding for production versions of the F-35 JSF began in fiscal
year 2007. Through fiscal year 2009, funds had been appropriated for 14
Air Force aircraft and 12 Navy Department aircraft. Current schedules
call for the first F-35 squadrons to be operational in the Marine
Corps, Air Force, and Navy by 2012, 2013, and 2015, respectively. As of
December 2007, DoD estimated that slightly more than $200 billion in
constant 2009 dollars would be needed from 2010 through 2034 to
complete development and planned procurement of the F-35. Many
observers remain concerned, however, that costs for the JSF will be
higher than reported. (See, for example, the GAO report, Joint Strike
Fighter: Recent Decisions by DOD Add to Program Risks, GAO-08-388,
March 2008.)
Two recent Congressional Research Service reports provide more
detailed overviews of the F-22 and F-35 programs. See F-22A Raptor,
Congressional Research Service, RL31673, December 19, 2008; and F-35A
Lightning II Joint Strike Fighter (JSF) Program: Background, Status,
and Issues, Congressional Research Service, RL30563, February 17, 2009.
As I stated in my testimony, realistic cost estimates developed as
early as possible in the life of a program are key to developing
realistic budgets and to avoiding subsequent cost increases. A
realistic estimate would use parametric analysis of past costs for
programs with technical content analogous to the proposed program's
content. A realistic estimate also would account not just for the
requirements stated at a program's inception but for changes in
requirements that might reasonably be expected.

[Whereupon, at 12:40 p.m., the committee was adjourned.]