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[H.A.S.C. No. 106–7]



FOR FISCAL YEAR 2000—H.R. ????






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(H.R. ???)

FEBRUARY 25, 1999


House of Representatives,
Committee on Armed Services,
Military Installations and Facilities Subcommittee,
Washington, DC Thursday, February 25, 1999.

    The subcommittee met, pursuant to call, at 1 p.m. in room 2216, Rayburn House Office Building, Hon. Joel Hefley (chairman of the subcommittee) presiding.

    Mr. HEFLEY. The Subcommittee on Military Installations and Facilities will come to order.


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    This afternoon the subcommittee opens its hearings on the President's request for funding for the military construction and military family housing programs of the Department of Defense [DOD] for fiscal year [FY] 2000. We will take testimony today from senior officials from the Office of the Secretary of Defense [OSD] and the Department of the Army.

    At the outset, I want to take a few moments to recognize some of the new faces and I am not sure they are here. Some of them—it looks like they are not here, but anyway we want to recognize them, one that is, first of all, the ranking member, the new ranking member, Gene Taylor from Mississippi.

    And, Gene, we are delighted to have you, not only on the committee, but in this role. With the exception that we have two other members that have been ranking members on this committee since I have been chairman who are also still on the committee, but are no longer ranking members. And it raises the question if they are trying to send me some kind of a message, so this may not be a great assignment for you. I am not sure, you need to talk to Mr. Ortiz and Mr. Abercrombie.

    Now, before we move on to, I would like to—Buck McKeon is not here, but he is a new Republican member of the committee, also Robert Brady of Pennsylvania and Mike Thompson of California as new members on the Democratic side of the subcommittee.

    While we come—and I say this often, and you probably get tired of hearing it, but while we come to the committee with partisan hats, we want those partisan hats left at the door, because we kind of pride ourselves on this committee and it being probably the most bipartisan committees on the Hill, in that here we to try to solve problems for our military and not to grind partisan or ideological axes.
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    A year ago this committee sat to consider the administration's 1999 budget request for military construction. I suggested that the judgment and patience of all members would be tested as we continued to wrestle with the conflicting signals coming out of the Pentagon. Last year, the budget request continued a recent pattern of DOD budget requests by falling short by almost every measure.

    This subcommittee has repeatedly endured departmental budget requests which fail to keep pace with the previously enacted program, the previous budget request and the prior year's budget projections. It has been a continual case of unrealized promises by DOD and the military departments concerning the modernization of the military infrastructure.

    I did not think the situation could get much worse, but this year I think it has, and what I want to do just very briefly is express some of my concerns. I think these are concerns that are shared by most of the committee, but at the outset I want to express some of those concerns, and then as the witnesses testify, they can speak to some of those concerns.

    Sadly the Department, it seems to me, has chosen to kick the can down the road yet again by choosing to build an $8.5 billion program and spread its funding over two fiscal years with an extraordinary, unprecedented and I think unworkable financing scheme. Quite frankly I am deeply disappointed with this approach to budgeting. To me, it is simply not good government and will not deliver on its promises on time.

    Now, in my earlier remarks, you noticed that I talked about how that we continually fall short of the previous year's budget request, the previous year's budget projections and all of that. With this kind of a plan I think we are setting this up big time for that kind of thing again.
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    The Department asserted when the budget request was released on February 1st that this request represents a robust, and I quote, robust construction program. Senior officials of the Department have suggested it means a commitment to the revitalization of military facilities.

    The fact is that this budget request will not revitalize, in my opinion, the facilities. It will merely delay the completion of badly needed facilities to support readiness, as well as critical improvements to military housing.

    The Military Construction [MILCON] request rests upon a shaky financial structure and relies on a number of unsound budgetary gimmicks and risky administrative assumptions that will affect execution. $3.1 billion, 36 percent, of the funds needed to implement the Department's program, would be pushed into the following fiscal year. However, for each new start construction project listed in the budget request, the budget request would provide about 25 cents on the dollar for fiscal year 2000.

    Last year the administration proposed a different and more limited version of the plan. In the fiscal year 1999 budget request, the Department requested advance appropriations of approximately $569 million spread over three fiscal years for 15 major projects. This proposal was rejected by Congress.

    This year, the Department not only is requesting advance appropriations for military construction, which is opposed by the Congress, but has compounded the problem by requesting such appropriations for nearly every construction project regardless of its size and scope. Moreover, the fiscal year 2000 increment for every project appears to be based upon outlay rates and not upon the complete and usable standards which have traditionally governed large phase-funded projects.
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    Outlay rates have absolutely nothing to do with the ability of the military services to execute a contract and begin construction, and incrementally funding small projects simply makes no programmatic sense to me. To use a couple of examples from the budget request, I am certain that $330,000 of a $1.34 million family services center or $934,000 of a 4.0 million control tower, I don't know what it buys. These inefficiencies can only lead to increased costs and will delay in delivery.

    Moreover, there is no consistency between the military construction accounts. To cite three examples; a land acquisition for the Army Reserve is one of the few funded MILCON projects contained in the budget request on the grounds that a purchase cannot be incrementally funded. Yet a major land acquisition affecting the safety of military personnel and the public at Marine Corps Air Station Yuma is incrementally funded.

    Each of the services were required to spread their supervision, inspection and overhead charges over a 5-year period, except for the Army and the Air National Guard, which were given a 1-year waiver. Of course, the Army and Air National Guard have been mandated to annualize their project supervision charges beginning with the fiscal year 2001 budget request.

    Third, despite incremental funding, the Army and the Air Force have fully funded construction projects supporting their remaining base closure and realignment activities. The Navy, however, has incrementally funded their Base Realignment and Closure Construction [BRACON] projects although at a significantly higher rate than the regular construction program is funded.

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    We in the Congress have worked strenuously with the Department to improve program execution to make the best use of the resources available to us. Frankly, no one with whom I have spoken in the military departments understands fully how to execute the incrementally funded program as proposed. The MILCON program for the coming fiscal year is quite simply broken.

    Chairman Spence put it succinctly on February 2nd when he dubbed the budget request the MILCON massacre, to quote him. Secretary Cohen at the full committee hearing on that day responded to my concern by suggesting that it was a one-time proposal to permit the Department to pay for a number of immediate bills of great concern to the Service Chiefs. But he also said that, and again quote, this is not a system as far as the advance appropriation that I have endorsed in the past, nor do I like it.

    He also indicated that as a Member of the Senate, he resisted such funding approaches. I wish he would have resisted it here as well. I fear should this approach be adopted, the temptation would be overwhelming to implement it on a permanent basis, creating huge, unfunded bow waves in the military construction accounts. If MILCON can be taxed in fiscal year 2000 and Congress goes along, why not tax MILCON again and again to support other departmental initiatives? At that point, program integrity and any hope of building out the deficit for facilities supporting military housing, training and readiness will likely be lowest.

    The subcommittee will be told that there was no alternative. I disagree with that. The $3.1 billion requested in advance appropriations would not be available until fiscal year 2001. That amount added to the budget assumptions contained in the current Future Years Defense Plan [FYDP] for military construction would yield a program in fiscal year 2001 of approximately 10.8 billion.
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    If the Department of Defense truly intends to fund the next program year at that level, the alternative was to fully fund a small, completely executable program, albeit the smallest in 19 years, with a commitment to a truly robust program to follow. Some might call that a MILCON pause, and they would be right, but the program proposed by the Department is a MILCON pause, given the great difficulty of execution.

    In recent years, the Department of Defense has left the problem of crumbling and unfunded infrastructure at the door of Congress. I regret that this year is no exception. Unlike past years, however, we not only have to find the dollars to plug the holes in an unfunded budget, but we will have to fix the foundation of the program as well.

    I apologize for the length of that, but I thought we needed to lay the groundwork before we begin our witnesses.

    [The prepared statement of Mr. Hefley can be found in the appendix.]

    Mr. Taylor, do you have comments you would like to make at this time?


    Mr. TAYLOR. Mr. Chairman, if we were out in the country and it was Sunday morning, I am sure someone in the congregation would have called for an amen by now. Since we are not, I just have to say I am really pleased to be here. I have heard from both my predecessor, Mr. Abercrombie, and the Democratic staffers who have worked with you over the years that everything you said about nonpartisanship is true, that is the way this Congress should be run. I commend you for that. I am certainly going to do everything I can to cooperate.
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    I would like to join you in welcoming our witnesses today, and while a new member of the subcommittee, I bring with me continuing interests in quality-of-life issues that I pursued on each of my previous assignments, including my most recent subcommittee, Personnel. I believe the core of our military is its people and as such, we would be derelict in our duties if we do not provide them with the necessary quality of life, including pay, retirement benefits, adequate personnel, family health care, housing and other important needs.

    While I am at it, let me commend our Senate—our colleagues in the Senate for the great payback that they passed yesterday by a very, very large margin. I am glad to be a member of this subcommittee, because it affords me the opportunity to continue to pursue these goals and one of the most important quality-of-life venues, the authorization, oversight of the military's construction and family housing programs.

    Since I am a supporter of these programs, I am particularly concerned about this year's Presidential request for these accounts. As you noted, the dramatic departure from previous budgeting practice puts these accounts in serious risk of not being fully funded in this fiscal year. For several reasons, many of them articulated by you, both incremental funding and additional programming authority that have been requested for the military construction and family housing accounts are in grave danger of not being accepted by the authorizers and the appropriators of these accounts.

    Without the full amount of the request of authorization being appropriated for the coming fiscal year, the entire program is likely to be thrown into chaos, and that cannot be good for our service members. The difference between the 8.5 billion program value requested and the 5.4 billion which would be appropriated signifies the difference between a reasonably responsible budget and a MILCON pause that our infrastructure cannot endure.
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    I am also interested in several other issues that we will work on this year, including the individual service requests, the military construction implications of what we may need to do in the post Panama environment and the issue of public-private ventures for housing. And my hope is that we—I hope it is we—can scuttle the efforts within the administration for another round of base closures. I anticipate discussing these and other issues with my colleagues on the subcommittee, and today I especially look forward to the testimony of our witnesses.

    Thank you, sir.

    [The prepared statement of Mr. Taylor can be found in the appendix.]

    Mr. HEFLEY. Thank you, Mr. Taylor. No one in the Congress takes a back seat to you when it comes to concern for the welfare, not only of our Active Duty service personnel, but also of our retirees. And I think you have come to a good committee to exercise those concerns, because this is a committee where we can do enormous good for the welfare of these folks, as you did on personnel.

    I would like to call on our first two witnesses now, the Honorable William Lynn, Principal Deputy Under Secretary of Defense, and Mr. Randall Yim, Deputy Under Secretary of Defense for Installations. And you two choose your order, whichever wants to go first.

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    Secretary LYNN. Thank you very much, Mr. Chairman. If it is all right with the committee, what I would propose that we do is if you could—I have a longish statement, if you could include that in the record. I think it covers a number of the issues that the committee is interested in. I propose to summarize that in a few moments and then ask Secretary Yim to summarize his remarks in a few minutes. Then we would spend the bulk of our time on the questions.

    Mr. HEFLEY. Without objection, it is so ordered.

    Secretary LYNN. If I could in my oral comments here cover three basic points. I would like to go over an overview of the overall budget, because I think it is very important to get to the issue of the split funding that you talked about in your opening remarks, Mr. Chairman.

    I would like to talk about that split funding question, and I would also like to talk about the underlining military construction program. I turn to the first of those areas, the overall budget. This budget is different than the one that we—quite different than the one we proposed in the last couple of years. It represents the considered judgment of the President's defense advisers, both in uniform and civilian, that a substantial increase in the defense budget was needed to support the strategy that was identified in the quadrennial defense review [QDR].

    That judgment was come to over the course of the past summer and fall, working in coordination with the Congress, and the series of hearings as well as internal meetings between the chiefs and the commanders and chiefs of the operational commands with the President both in September and in December. The outcome of those discussions was the proposal that the President laid out in his budget, which was to increase the defense program by a total of $112 billion over 6 years.
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    What drove that increase were four high priorities, a couple of which Mr. Taylor mentioned in his opening remarks. First and foremost, the people. We are seeing some cracks in terms of recruiting, in terms of retention. They have not reached a crisis proportionate at this point, but if they were to reach that point, it is too late. You need to take steps early to deal with any personnel problems in order to maintain the high quality that we currently have.

    Those problems we saw come up in recruiting. The Army has recently fallen short of its recruiting goals. The Navy has achieved them more recently, but just this past year fell short by 7200. This is not an across-the-board program. The Marine Corps, in fact, has hit their recruiting goals for a record number of months. Nevertheless, the problems are there, they need to be addressed.

    Similarly in retention, we are seeing some dips in retentions of second- and third-term reenlistment, particularly in the high skill areas, with the pilots, computer technicians and others. Part of this has to do with the strength of the economy and the competition with the economy, some of it has to do with operating tempo [OPSTEMPO], some of it has to do with compensation. To deal with those issues, we proposed a three-part package, a so-called triad.

    The Senate addressed this yesterday on the floor involving the same basic issues. They made some changes, but it involves—I won't go into the details, but it involves a restoring of retirement benefits to 50 percent, an increased pay raise, the largest in fact since 1982, and pay table reform, an attempt to reward more promotion than has been done in the current pay table. In addition to that, the second priority was readiness.
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    We have seen some cracks there as well, not so much in operational units, which continue to deploy and perform in an exemplary fashion, but in the Continental U.S. based units, the nondeployed units, we are seeing some slide in terms of mission capability rates, cannibalism rates, other metrics that we use to try and watch the readiness, come to the conclusion that they are, too, additional resources were required.

    At the same time, we did not want to fall off of the third priority, which was an increase in modernization. The QDR identified a goal of $60 billion for procurement for 2001. We have held to that goal, but in order to do so we felt again additional resources were required.

    And, finally, the area of concern for this subcommittee, installations and facilities. We felt that, as the chairman has indicated, we did need a revitalization of our facilities that we have put off for too long. Frankly for 15 years, as the defense budget has been drawing down since the mid-1980's, there has been too often a temptation to go to those facility accounts and use those as bill payers, and there is a feeling that we need to restore some of that funding.

    Those priorities led to the proposal for a $112 billion increase. Within that $112 billion, there is a proposal for $12 billion in the first year, 12.6 in fact. That proposal is done within, as required by law, within the balanced budget agreement. So it falls under the caps that Congress and the administration agreed to within the balanced budget agreement, within that framework.

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    That created a difficulty in achieving the $12 billion that we felt was needed in the first year of this increase. We are able to identify some offsets on the mandatory side of the equation, about $4 billion. We are able to identify some fuel inflation and other savings, it amounted to another 4 or 5 billion, but that only reached a goal of 9 billion, reached a level of 9 billion. The goal, was, in fact, 12 billion, 12–1/2 billion.

    Indeed, the Service Chiefs, as they testified before this committee and, of course the committee on the other side of the Hill, really the desire was 21 or 22 billion in the fiscal 2000 column and that 12, 12–1/2 billion was an absolute minimum. So we did not feel we could stop at $9 billion. The way that we proposed to get between the 9- and the $12 billion is the proposal that this committee, I think justifiably, sees as controversial. It is a split funding of the military construction account.

    I call it split funding, some will come it incremental funding. That is fair to a degree. We have called it split funding, because as you noted, Mr. Chairman, we are not proposing a permanent change. We are proposing a 1-year split of the military construction funding. This allows us to fit within the caps, get the priorities I identified to get the 12.6 billion. It also allows us to have a robust military construction program where the program value is $8–1/2 billion.

    That $8–1/2 billion program is I think a relatively robust program. It is, in terms of the military construction account, the subset of the overall account. It is somewhat higher than what Congress enacted last year. So the chairman properly noted in the past several years, we have generally fallen below what Congress has enacted.

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    This year with this approach we have been able to get program value that exceeds by a moderate amount the program—the military construction program that was enacted last year. So we think that that starts to deal with the facilities issues that I think you have appropriately raised.

    Over the course of the whole future year defense plan, over the whole 6 years, you see a 5 to 10 percent rise in the overall military construction account. So I think we are starting to get at the problems that have grown over the past 15 years.

    In the family housing, the second component of the military construction account, we have taken a somewhat different approach. With the aid and approval of this—or the authorization of this committee and the other committees, we have developed a privatization approach where we will leverage private financing together with the family housing budget that will allow us to get an enormously large number of family housing units in a relatively short period of time.

    That is highly important because we have a problem in family housing that is very daunting. We have 300,000 units, they are on average over 30-year-olds, two-thirds of them need some kind of a remediation or reconstruction. If we use the conventional means of just family housing appropriation, we will be able to treat 5, 6, 7,000 a year.

    That is—that is a 50-, 60-, even a longer cycle, 50, 60-year cycle. That is unacceptable, it will not deal with the problem. It will not give our military service members a quality of life in the housing area that they deserve. If we are able to pursue the privatization project that we think we can get on the order of 20, 25,000 a year housing units replaced or reconstructed. That leverage is why we are pursuing it.
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    I will leave to the experts on this panel and the following panel the details of that proposal. But as the steward of the finances, that leverage is enormously important if we are going to deal with this quality-of-life issue. This committee and other committees have properly raised questions about how we are going to do it, whether we have the right instruments, whether we have the right controls. I think the Department needs to answer those questions.

    I am endeavoring to work with this committee and the others to answer those questions. But I think it is absolutely crucial that we find a way to leverage that financing if we are going to deal with this housing problem.

    The final element of the military construction budget is the base closure account. In that area, we are phasing out the funding of the first four rounds of base closure. The funding will complete, except for some of the environmental remediation, will complete by 2001, at which point we propose two new rounds. I know this is a controversial proposal, Congress has not approved it in the past. We hope to work with you.

    I know we haven't yet received the support of this committee or its chairman, but we appreciate we have been working actively with you. We hope to continue that relationship. We hope to persuade you that this is the way to go or we can find some meeting of the minds as to how to deal with what I think is a fact, that we have more infrastructure than we need for our forcestructure, that we need to reduce that infrastructure in order to fund the critical needs of the Department.

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    And with that, I would close my comments and ask Mr. Yim to provide the committee with his.

    [The prepared statement of Mr. Lynn can be found in the appendix.]

    Mr. HEFLEY. Mr. Yim.


    Secretary YIM. Thank you, Mr. Chairman and distinguished members of the committee. And thank you, Mr. Lynn, for a clear description of the Department's commitment to providing quality facilities while optimizing the use of the fiscal year 2000 resources.

    I am very pleased to be here today. This is my first appearance before this committee, and I appreciate very much the opportunity to discuss the Department's initiatives for reshaping our installation infrastructure.

    Let me first begin, however, by pledging my commitment to you, Mr. Chairman, and to each Member of the committee to work closely and effectively with each of you and your staff to develop and to share the information necessary to intelligently discuss and resolve these very challenging issues that we face, as we work together to reshape our installation structure to meet the changing mission requirements of the 21st Century, while at the same time preserving the quality of life for our most precious assets, our civilian and military work force and their families.
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    I am very confident with the experience and expertise represented in this room today that we will reach good, common sense, practical solutions to the challenges we all face, and I commit to you my best efforts to make this happen.

    And as a more tangible demonstration of my commitment to be practical and use good common sense, I will keep my remarks very brief, so that you will have ample opportunity to question my esteemed colleague, Mr. Lynn, today.

    Secretary Cohen recently testified before the full committee about the important role that installations play in the defense mission. Installations are platforms from which diverse strategies and missions are executed. There are facilities and equipment for training and mobilization of forces and their communities where our people live and work. Our installation programs must enhance readiness and mission accomplishment and maintain a high quality of life.

    But our military mission needs have changed. We must be very vigilant to ensure that our installation structure similarly changes to match these new mission requirements. To this end, we are embarking on a series of interrelated initiatives to help reshape our installation structure. These include privatization of housing and utilities, energy conservation and restructuring programs, enhanced outleasing of underutilized real property and facilities, competitive sourcing of noninherently governmental functions, demolition of excess facilities, construction supporting the improved standards and conditions for critical facilities, particularly barracks and dormitories and, most importantly, authorization for two additional rounds of base closure and realignment.
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    We can save upwards of $3 billion each year from two additional rounds of closure, and we may use these savings to support our high priority readiness and modernization programs. But it is a mistake to view BRAC as simply a billpayer to generate money to fund someone else's readiness programs. The BRAC process is the most effective tool that we have to move forces and activities and reshape the installation infrastructure to match the new mission requirements, and, as such, has to be viewed as an integral part of any force modernization of readiness plan.

    We will be bringing information to you and working with each of you to hopefully reach consensus on a new BRAC strategy.

    And finally, let me highlight another extremely important initiative. Quality of life and housing, in particular, remains a priority for the Department. Two years ago the Department established clear goals for improving the quality of housing. The Department directed the services to program resources to eliminate permanent party gang latrine barracks, one of the worst conditions facing our single service members, by no later than the end of fiscal year 2008.

    The services are continuing to implement the 1+1 standard, and they are developing plans to eliminate our inventory of inadequate housing by 2010. The housing privatization initiatives have progressed considerably over the past year. We have devolved the execution—more execution authority to the Services while maintaining basic oversight within the Department. Last fall the Department provided to you plans from each of the services. And as you have directed, we have recently begun providing you with quarterly progress reports. I am committed to moving these projects to completion as they provide sorely needed housing for our service members and their families.
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    So in closing, Mr. Chairman, and members of the committee, I would like to thank you for providing me with this opportunity to describe our facility programs. We are very, very grateful for this committee's strong support. I feel very privileged to work with you, and I will do my best to answer your questions and work together toward common sense solutions both today and in the future.

    Thank you again, Mr. Chairman.

    Mr. HEFLEY. Thank you, Mr. Yim. You did well for your inaugural flight with this committee, and I think you are particularly astute by deflecting the questions to your colleague there. I mean that is a very fast learning curve on your part, and I will try to keep that in mind.

    Secretary YIM. Thank you, sir.

    Mr. HEFLEY. Mr. Taylor, do you have questions?

    Mr. TAYLOR. Mr. Chairman, going back to your concern, my concern, what we have heard from the appropriator's concern about incremental funding. I find it ironic and I certainly want to give the gentlemen an opportunity to respond that although they say they are convinced that it will work, that they have exempted a handful of new start military construction projects, some for the Special Operations Command, some for the National Security Agency, and a few classified projects from this program.

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    I think a fair question is, if you think it is going to work, why do you exempt anyone from these provisions?

    Secretary LYNN. Congressman Taylor, there was one intended exemption, which was the classified programs. We did not apply this to the National Foreign Intelligence Program [NFIP] for the simple reason that we did not use it to finance any of the intelligence requirements. The intelligence budget is handled somewhat separately along different channels. They had quite a large supplemental provided in fiscal year 1999, and there was no need in the way of personnel and readiness and other requirements that the Department as a whole had.

    So that it was the intelligence programs. None of them was this applied to, nor was any of the savings used for intelligence needs. The Special Operations Command [SOCOM] was—frankly it was my fault. It is an oversight, it came in a separate budget decision. We didn't realize it had come in, it was—the program should have been funded as all the others were.

    Mr. TAYLOR. I am curious. If, as a result of the failure of the negotiations for what was being dubbed the regional counternarcotics center, multilateral counternarcotics center in Panama, since apparently that is not going to happen——

    Secretary LYNN. That is right.

    Mr. TAYLOR [continuing]. Do you anticipate coming before this committee for funds to be included in either the supplemental appropriations that will be passed out probably this spring, or do you anticipate amending your request to make up for the fact that many of those things will have to either go to Puerto Rico or to one of the Florida operating locations that are now being researched as we move—plan to move some of those assets around Latin America?
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    Secretary LYNN. We have no current plans for a supplemental. But you are absolutely right in that we are going to have to adapt for the relatively late breaking fact that we are not going to be able to continue our presence under any guise, including the most recent effort was that multinational drug center. That was, in fact, it was that decision I believe that caused us to miss the SOCOM one. That failure caused us to move that one military construction project, that was on a separate—it was on that Panama track, it wasn't part of the regulation military construction at that point, and that is in fact why we missed it.

    We also reprogrammed some funds in 1999 to cover some of the costs of the move. We are preparing to do that. The Southern Command, as you alluded to, is looking at forward operating locations to try and replace the presence that we had in Panama. No decisions have yet been made on that. So I don't have any budget estimates. Obviously we are going to have to adjust, either with supplemental or potential, adjust the fiscal 2001 budget to accommodate these changes. I just don't know what the details are. So I can't provide them to the committee.

    Mr. TAYLOR. The funds that are going to be reprogrammed in the immediate future to pay some of those bills, have you come up with a list of where those funds will come from?

    Secretary LYNN. I can provide that for the record. But it was—if my memory serves, it was a combination. There were some execution savings in the counterdrug count itself, a small amount, and there were some fuel savings in 1999, and we diverted those fuel savings in 1999 to cover those costs.

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    Mr. TAYLOR. You do not anticipate deferring any projects or rescinding any projects in order to pay for that?

    Secretary LYNN. No, sir.

    Mr. TAYLOR. OK, thank you, Mr. Chairman.

    Mr. HEFLEY. Thank you, Mr. Taylor.

    Mr. Hostettler. He stepped out.

    Mr. Underwood.

    Mr. UNDERWOOD. Thank you, Mr. Chairman, and thank you for your testimony. I want to draw attention to the privatization of the utility systems. Originally, as I understood it that the original goal has slipped somewhat. What effect will this have and has there been new candidates for privatization? And I am still awaiting kind of a clarification of the exemptions that will be granted from this privatization effort.

    Secretary YIM. Yes, Congressman, if I could assist in answering that question. We did have a slippage a bit on the goal for the privatization volatility systems. Originally the Defense Reform Initiative [DRI] had a goal for privatization of all systems in what we call the big four category, water, electric, gas and sewer, by the end of fiscal year 2000.

    As we examined, as we asked each of the services to examine the number of utility services within their purview both in the United States and overseas, they came up with a very, very large inventory. And there were some complex issues that arose, such as for example, tax treatment of the conveyance of the systems to the private sector. And some limitations we believed existed in statute, and our ability to lease facilities, utility systems for greater than 10 years, which caused some problems on the amortization of private sector capital investment on the privatization of those systems.
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    As a result, as we analyzed the data, there were approximately 146 utility systems that have been privatized to date, and we identified over 2300 additional systems for consideration. And as a result of that, there was a recent extension of the goal of privatization to the year 2003. However, we wish to create some interim milestones, and we issued guidance that has the services completing their studies to determine which systems are economical or maybe exempt from privatization by the end of September 2000 with all solicitations to be released by no later than September 30th, 2001, so that we can adhere to the revised goal of privatization of systems by 2003.

    Mr. UNDERWOOD. The criteria for exempting systems, how would you characterize those criteria, as related primarily to some of the financial and legal questions about lender security issues or——

    Secretary YIM. Two primary criteria, sir. One is mission requirements security issues, that is first and foremost. We expect the exclusions to be fairly limited in nature and to be rarely exercised by the services. But certainly, if there are mission security issues, we would not expect those—the services to go forward with privatization. There are other areas, also.

    The second nature stumbling block would be where it is simply not economical to do so. There may be small markets or other unique site specific economic conditions which do not make privatization a viable alternative.

    Mr. UNDERWOOD. On this outleasing of underutilized property, where there is a couple of projects that have been identified here, one in Ford Island and Hawaii. Is this kind of a trend of substitute for BRAC, or could you characterize that? Would you care to characterize that? I assume that these are on properties that are not slated for BRAC, but perhaps are underutilized and that there is a new approach to leasing these out for private use?
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    Secretary YIM. Yes, that is correct, sir. We find that we have many facilities in excellent condition that are simply underutilized, and we hope to make better use of these fellow assets by allowing joint use or outleasing them to the private sector. Provided, of course, they don't jeopardize our missions or create security concerns for us. We currently outlease to the tune of about $25 million a year. That is the order of magnitude.

    In my wild dreams, and I am a very optimistic person, that we may through enhanced leasing authorities increase that revenue stream to perhaps 100 million to 130 million, 150 million annually. And that is no substitute, it is complementary to BRAC. But when you compare the BRAC savings we anticipate of $3 billion per year, following the implementation period, it is not a substitute for BRAC, sir.

    Mr. UNDERWOOD. Well, I can think of a lot of ideas that would raise your 25 million on ground alone.

    Secretary YIM. I would be very happy to work with you on that.

    Mr. UNDERWOOD. Very good, thank you.

    Thank you, Mr. Chairman.

    Mr. HEFLEY. Mr. Stump.

    Mr. STUMP. I have no questions.
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    Mr. HEFLEY. Mr. Snyder.

    Mr. SNYDER. Thank you, Mr. Chairman. I just wanted to talk a minute or two just about the whole process of BRAC. You know, I am kind of reminded of the story about the husband and wife newly married, and the husband says he wants to get a dog. And the wife says I don't want you to have a dog, they have a mess. He tries again and again and again, I want a dog. And he keeps being persistent, and she keeps being stubborn. And finally she comes home one night and walks in the living room, and he is standing there and he has got a palomino horse standing in the living room. And she looks at him and says, well, at least you didn't bring home a dog.

    And I feel that sooner or later we have to do something on base closure, but we are so dug in—I mean this Congress is so polarized over this whole issue of something called a BRAC we may need to be looking for other roots to achieve the same goal. And maybe it is a pride thing, maybe it is anti-Bill Clinton. I don't know what it is. But there is some really hard feelings, as you know, particularly on the committee.

    Have you all considered other options in order to achieve what I think is a legitimate goal of reducing infrastructure?

    Secretary YIM. We have, sir. As I indicated, we are looking at outleasing of excess facilities. We are looking at privatization of utility systems. Again, the whole concept is to divest ourselves of the ownership responsibilities, the maintenance responsibilities of facilities that we simply can't use to their full potential.
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    Part of the strategy is demolition of excess facilities. We have, for example, 80 million square feet of excess facilities that we pour property maintenance funds into unnecessarily. But when you compare those techniques to the comprehensive technique available through the BRAC process, they frankly pale in significance in terms of either dollar amount——

    Mr. SNYDER. I actually meant other approaches to bring to the Congress.

    Secretary YIM. Well, what we hope to be able to do is at least convince Congress that we have made the case for additional infrastructure reduction. We can show, based on the history of the prior BRAC grounds, that the forcestructure drawdown has declined more dramatically than our infrastructure. So as a baseline I hope that we can convince members there is a need for. In terms of additional proposals, it is very difficult.

    We do not—the existing statutory authority that we have outside of the BRAC authorization requires the site-by-site analysis and approval. I think that that would be a very difficult environment for us to be in, because we would not be able to have a comprehensive look at force realignments. We may have a receiving location that we wish to identify for closing a particular installation that is not approved.

    We may have mismatches. We simply do not have an effective alternative tool than to have a comprehensive BRAC-like process. We acknowledge that there have been controversies, particularly in the 1995 closure of the issue of privatization, we are encouraged by Senator McCain's introduction of a bill in the Senate. We know that he put in a provision we are looking very carefully at that would require the commission to make a determination before a privatization and place initiative could be approved. That may have merit. We are examining that. Those are the type of approaches that we wish to bring forward.
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    Mr. SNYDER. When you look at the different services, it has seemed to me that we have had the testimony that the Air Force is making the greatest plea for doing something with regard to reducing infrastructure that I think General Ryan talks about being in an expeditionary mode, and he can't support infrastructure overseas and here.

    How do you rank the services in terms of need for reduced infrastructure? Do you put the Air Force at the top of the list or have you—do you think like that?

    Secretary YIM. Well, I think that leads to the question of whether we have generated a list or not. And I can assure you we have not yet, sir.

    Mr. SNYDER. Let me express it this way then. In terms of the pleas you get from the different branches, I mean, Marine Corps doesn't seem to be quite as concerned as the Air Force is about too much infrastructure; is that a fair statement?

    Secretary YIM. I don't know that I can say that is a fair statement, sir. I think that we have it—there are certain categories that we have identified that give us an idea, a starting point, that there is an excess infrastructure. If we look at the number of ships compared to the number of berths available in the Navy, and it looks like there may be some room there to look at some reductions, we look at the number of—the amount of open space that the Air Force has compared to the number of plants that they have. And there may be some categories there to look at.

    We look at our lab and engineering infrastructure. And we look that there may be some room there. We would also like to consider some joint cross servicing proposals that were very controversial within the services as some directions for consolidation.
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    Mr. SNYDER. Explain to me what you mean by that.

    Secretary YIM. Are there opportunities to have services have joint facilities, for example? That is contrary to some of the historical practices, but may be necessary in this area of shrinking budgets and changing mission requirements.

    Mr. SNYDER. Which would also be another need to have a comprehensive base program that——

    Secretary YIM. Absolutely, sir.

    Mr. SNYDER [continuing]. And one final comment—by the way if I can make a comment and go on with another question. We are real big on candor this year. We really like the Joint Chiefs to tell us exactly what they think until they say we really need to have a BRAC and then we don't want candor. I appreciate you all sticking by your guns here.

    Sometime ago, Mr. Hefley and I have talked about this, sometime last year, we always hear the talk about the, you know, the forces have been, personnel and so on have been reduced by this much percent and the infrastructure has not followed behind.

    And I asked one time how we came up with this percentage. You know, we can calculate the number of troops and the number the planes and so on. But with infrastructure, it seems to me to be a more complex thing. Is it by acreage? Is it by square footage? Is it by usable square footage? Is it by number of berths? How do you come up with this, with this percentage that we say but infrastructure has only been reduced by this much percent? And we have got back, I did it for the record, and we got back like a one-sentence statement that basically was, it was a count of the total number of facilities at the beginning of BRAC and the total number of facilities at the end of the BRAC and that was the number.
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    That seemed like a very unscientific basis for coming to that conclusion. It made no distinction between how much square foot, how much acreage, you know, the quality of the facilities that were there. I know that you have had a long interest in BRAC.

    Do you have any comments on that or maybe if you want to submit something for the record as far as how you see that number of infrastructure following the reduction in forces?

    Secretary YIM. Let me say in my answer by having the luxury of submitting something for the record. Initially, let me say not only to the rough gross metric of square footage to number of people, which I understand is not always the best measurement. We are looking at metrics, such as plant and placement volume. What is the capital value of that or the replacement value of that infrastructure and comparing that to the drawdown in forces as a good metric. What we really want to do is not——

    Mr. SNYDER. That was not the metric that was used?

    Secretary YIM. It was not. What we really want to do is not have a statistical exercise here. If we are really serious about reshaping the installation structure to match the forcestructure, we must present to the Congress the right metrics to do so. Now we have the advantage of a Quadrennial Defense Review that talks about the type of forcestructure we should have. That is May 1997.

    We are proposing two rounds, so that the first round could take advantage of that first QDR and then the second round following the next QDR iteration, which would be in May 2001, the second round following that to follow-up on the closures in the first round, and then take advantage of the second QDR. So we can address your concern directly, sir.
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    Mr. SNYDER. Thank you, Mr. Chairman.

    Mr. HEFLEY. Thank you, Mr. Snyder, for pursuing that line of questioning. We are going to have a lot of time I think to discuss the BRAC question as we go through this year. And I think you know that I have been fairly consistent on this, not that I deny that we may not need to get rid of some infrastructure. I have told you, Mr. Yim, personally and maybe have told the Secretary of Defense as late as yesterday that maybe we do need to get rid of some more infrastructure.

    But what I am concerned about is that the easy decisions have been made in the other rounds. They got progressingly more difficult. The idea that you would throw open two more rounds of BRAC and just throw everything on the table again boggles my mind, because certainly you know what you have access of, what categories you have access of.

    And I think what you end up—the approach that you are proposing is more things like Cecil Field and Jacksonville, a wonderful airstrip, top rated, where the noise didn't bother anybody, where you could take off and you could get to your training space without talking to a single controller after you left the field, are worried about people in houses complaining about your noise, and it is gone.

    It is gone because of BRAC, and we will never get it back. We don't have very many places like that in America, and I think you are going to get that repeated over and over again.

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    What I told the Secretary of Defense yesterday is that in the late 1970's and 1980's you couldn't close a facility of any size, no matter what you did in this country. Politics wouldn't let you do it. And then many of us who were here at the time voted for the BRAC process, because we felt you do need to evaluate and close. But we are reluctant now that we have gone through these BRAC sessions now to do it again.

    So somewhere between not being able to close anything and having everything on the table so that every community in America that has a military facility of any kind just goes nuts again and worries and wrings their hands, somewhere between those two extremes there ought to be some kind of a middle ground for a focused BRAC process.

    And I would hope that the Department would open their minds to thinking about that, because I am tired of boring the committee with my statements about it. But somehow or another I think there ought to be.

    Let me ask you some questions if I might. Mr. Lynn, you recognize, the Secretary of Defense recognized in his open testimony to the committee that the financing method that you have proposed is not one that you particularly like or would pursue if you could help it. I suggested in my statement that there is an alternative.

    Can you tell me why when you saw the difficulties that you were facing this year that you didn't come here and visit with us about it and come to an early agreement about how to proceed with a smaller but fully funded program for fiscal year 2000 and a larger more robust program in 2001? I think we wouldn't have liked that very much, and we would have moaned and groaned about it. But I think we would have thought it was a more honest approach, because on the other hand, you are creating the impression that we have a robust program, which the other method wouldn't do.
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    But on the other, that robust program is kind of pie in the sky out there, yeah, we start a lot of things here, but do we get them finished next year. I don't know.

    Why wasn't that considered? Or maybe it was considered.

    Secretary LYNN. Mr. Chairman, you are right, this wasn't the most desirable approach if we had unlimited freedom. We did not. We were constrained within the balanced budget agreement. We didn't take the approach of guess—I think you called it in your opening statement a MILCON pause and followed by a large increase the following year, because in some ways, that is—well, for two reasons, I think. One is we do think that the facilities are one of the priorities. It is one of the four that I mentioned in terms of what drove the increase.

    The feeling I think is that we postponed facility spending probably too long, and to postpone it one more year we didn't think was the right approach. We felt that the financing, the split funding was a better approach, because it got the—it got the program started 1 year earlier. And in many ways the approach you suggest is something that we have done in the past couple of years, and we come down in the budget year and then promised to go up later, and we haven't been able to succeed at that.

    We thought that the committee frankly would not support that kind of a approach again, and we were trying to come up with an alternative where we were able to work within the dollars we had, but that we got a—started on a MILCON increase that would address the facilities issues that I think everybody on this committee and on the other side of the river in the Pentagon agrees were there.
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    Mr. HEFLEY. When you were coming to this decision, did you consider the execution community, the Army Corps of Engineers and the Navy Facilities Engineering Command when you were making this decision, or were their views taken into account?

    Secretary LYNN. We worked with the military departments in terms of how we did this and how we proposed it. My assumption is they talked with their facilities people, but I did not do so directly.

    Mr. HEFLEY. This decision I understand came late in the process. In fact came right around the Christmas timeframe. Why did it come so late? Was it because you were weighing—was it a decision you didn't want to make, you were weighing everything before you actually had to come to grips with this kind of an approach?

    Secretary LYNN. Well, to a degree that is probably true. But the normal process would have you make your major budget decisions in December, particularly a decision where you are increasing the defense budget substantially. That is a decision that you—that we work with the White House. It is not a decision that can be made internally within the Pentagon. You have to go with Office of Management and Budget [OMB] and National Security Council [NSC] and ultimately we met with the President. And we met with the President in early to middle December, which is the normal timeframe for meetings with the President for cabinet departments in this administration and past administration. And it was in that timeframe that we made the decision.

    Mr. HEFLEY. Are there additional reprogramming or changes to statute or regulations or directives which would be required to implement the Department's proposal?
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    Secretary LYNN. Required, no, I don't think so. Although if we decided—if we came to that conclusion, we would propose them, but we have not yet. I think that there are things that might be desirable. I think in terms of higher thresholds on reprogramming, more flexibility in terms of reprogramming, that would certainly be of great assistance in executing this in a coherent fashion.

    Mr. HEFLEY. Types of additional reprogramming allowances which you seek have been previously denied by the Appropriations Committees, and last year Congress rejected the advanced appropriations for the MILCON program. I can find little or no support for it up here.

    Why did the Department believe that such, what now appears to be such a radical idea, would be accepted in light of the past history on similar ideas like this?

    Secretary LYNN. Because we thought it was crucial to funding the 12 to $12–1/2 billion in irreducible requirements that we identified working with the military chiefs. We thought the requirement was there, and that we had to take extraordinary means to meet that requirement within the constraints of the balanced budget agreement.

    Mr. HEFLEY. Well, Mr. Lynn, how can we be assured when—every year that I have been chairman of this subcommittee, that budget request has fallen short of budget projections that were made just 1 year earlier, fallen short. How can we be assured that the resources which are currently programmed for 2001 under this plan will in fact be delivered 1 year later? In the past this hasn't been the case.
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    Secretary LYNN. I think the most effective means is the one that I don't think is entirely desirable, as you indicated to the committee, but I think would be to approve the advanced appropriations as proposed. That would lock in those 2001 outyear funding. That is one of the reasons we proposed it, is to try and ensure that that happened.

    Mr. HEFLEY. Mr. McKeon, any questions?

    Mr. MCKEON. I am still kind of baffled by this process of where we look like we have money to do something next year or we are pretending like we have money next year, and by talking about it this year, it looks like we have the ability to do things I don't think we do. It just looks like a scheme to me to satisfy some people to get through a process.

    Now, I just would rather play it straight and say we don't have the money or go for more money. I'm sorry I came in late. Did we talk about were any projects actually going to be started and would they be put at risk? I mean in one of the other hearings we talked about if you could build like a foundation or if you could do engineering work or something like that, that you could actually do and it wouldn't put—you know, we wouldn't end up with a lot of started things that we couldn't finish. Is that contemplated? Is that what this is going to be?

    Secretary LYNN. What we would contemplate is you would contract for the full completion of the project, but you would limit the spending in the first year to the amount that Congress appropriated. We would hope to have the advanced appropriations so that there would be the assurance of that money. But we would plan to provide it with or without that advanced appropriation.
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    This is, if I could just make one more point, Congressman, this is not unprecedented. The other parts of the government do this. The Corps of Engineers on the civil side does do this, and they use the kind of contract vehicle I have alluded to. I don't want to say that this is without its challenges and without its problems. It will be challenging for the Department to shift to this. We think we can do it. As I say, it has been done by the Corps of Engineers.

    Mr. MCKEON. How do we have the increase, it seems like—I don't remember the numbers exactly, but it was like 2 billion to 8 billion or something like that, a pretty big jump the second year. Why do we not have the money within the caps this year and next year the caps will allow that?

    Secretary LYNN. For the outyears, as you probably noted——

    Mr. MCKEON. I am just talking the second year.

    Secretary LYNN. The second year, but—the second year and all of the other outyears, but the second year as well, the President has proposed that, as he did in the State of the Union, that we do an allocation of the surplus that would start with Social Security, and would start with some kind of an agreement that 60-plus percent of the surplus would go to Social Security, and there is some other proposals on universal savings accounts and Medicare.

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    Mr. MCKEON. And raise the caps?

    Secretary LYNN. There is a proposal as well to allocate I think it is 11 percent of the surplus to discretionary spending, that would inevitably raise the caps the two priorities the President announced in the State of the Union for that discretionary spending increase for education and defense. So that is how——

    Mr. MCKEON. When I listened to the State of the Union speech, the first thing was 62 percent for Social Security——

    Secretary LYNN. Right.

    Mr. MCKEON [continuing]. Then 15 percent for Medicare, then 11 percent for the savings program.

    Secretary LYNN. Correct.

    Mr. MCKEON. We are up to 87 percent.

    Secretary LYNN. I think it was 89, and that left 11 percent for discretionary spending priorities of which he identified defense and education. You did the math, I think——

    Mr. MCKEON. I counted about 50 programs that he did in the next hour. But I think we are playing games. But it would be nice if you could pull it off. Good luck.
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    Secretary LYNN. Thank you.

    Mr. HEFLEY. Mr. Taylor, you had another question?

    Mr. TAYLOR. First an observation to echo the remarks of my colleague, Mr. McKeon. Last fall, I remember Congress voting on an approximately $622 billion omnibus bill that had something like an $11 billion amount for defense. And the members had, if I recall, 2 or 3 hours to study the thousands of pages of documents associated with it as if it could be done.

    That agreement busted the budget caps on a number of accounts. I take great offense that they can bust the budget caps for everybody but the troops. Because although the comment was made is that it plussed up defense spending by 11 billion, that meant, I am talking off the top of my head, I will be off a little bit, that they also did it for 611 billion of things other than defense. I think you are also playing a game with these numbers. And if you could play—if they could break the budget deal last fall for all of those other things other than defense, don't turn around and play a game when it comes to the quality of life of the troops.

    I hope you will take that message back to the administration. On something a little bit closer to what is happening right now, legislative person from Southern Command [SOUTHCOM], Mr. Withers and myself just finished looking at several potential sites for the Forward Operating Locations [FOLs] in Latin America. And we found a very receptive audience everywhere we went, which leads me to believe that it is going to happen and happen in the very near future. We had heard that the MILCON price tag for that could be 40 million, could be more, could be less, depending on where they decide to locate.
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    I would like to, on behalf of this committee, express the opinion that I think that amount has to be authorized by this committee and that to do otherwise would certainly be contrary to the intent of Congress that any funds appropriated for military construction would be authorized by this committee. I am asking you to assure me that when you come up with a final plan and some final numbers that you will get back to the committee with that and to the chairman and myself with that, because I do think it has to be authorized.

    I will be a favorable audience. I think we have to remain engaged in Latin America, but it is this committee's duty to be responsible for the expenditure of those funds, and we need to know how much and we need to know where they are going.

    Secretary LYNN. Mr. Taylor, I am not familiar with the $40 million proposal that you are talking about. But I am aware that the Southern Command is out actively reviewing their options and is proposing them up the chain, and I would certainly commit that we would consult with Congress. Congress obviously authorizes and appropriates the money, and we don't plant to spend any money that you don't authorize and appropriate.

    Mr. TAYLOR. I was told that because of the very short timeframe that exists because of the collapse of the talks over the multinational center that the actual transfer of some of these units will have to take place by May or June, which means there was some talk of taking it out of the central transfer account. Again, since we—the ultimate responsibility for this as far as the citizens of this country are concerned for the expenditure of those funds rests with Congress, I am going to ask that you do come to this committee with the locations and the expenditures for that transfer.
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    Secretary LYNN. Let me—if I could, I would like to respond for the record, Mr. Taylor, because I am just not familiar with the details, and I am afraid I would misstate something.

    Mr. TAYLOR. That is very fair. I made my request for the record.

    Thank you, Mr. Chairman.

    [The information referred to can be found in the appendix.]

    Mr. HEFLEY. Thank you. Just a few more questions very briefly. A number of our members are deeply concerned about the incremental funding of the BRAC accounts and particularly since most of the deferred funds affect environmental remediation, what effect will this have on reuse? Are we simply delaying the time when these properties can be transferred?

    Secretary LYNN. The intent is no, not to do that, Mr. Chairman. When we develop these proposals with the services, we ask them to, and particularly with the BRAC accounts, to identify the amounts that are needed to meet the reuse of and remediation schedules that were already planned. We went back several times to each of the military departments to try and ensure that that funding was there for that. I know each of the military departments added varying amounts back to those accounts to try and do that.

    Mr. HEFLEY. Mr. Yim, on the question of family housing, did you or the comptroller question the Army's decision to defund their Contintenial United States [CONUS] housing MILCON program? And then I guess I would say if not, why not, and do you support that decision?
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    Secretary YIM. It is a question of shifting the funds from the military construction account to the specialized account that you create for the family housing improvements funds and to use that under the authorities that this committee was instrumental in helping us acquire to leverage that against the private sector. So what we are hoping is that we simply not lose those funds or have reallocated them to other purposes, but rather we put them in the posture of being able to leverage those funds with private sector capital investment, and what we are hoping to obtain is 8 to 1, 3 to 1 additional leveraging impacts of our dollars. So to that extent, we did support the use of the military construction funds for those purposes.

    Mr. HEFLEY. Well, as we developed those new initiatives with Secretary Perry, we made it very plain, he agreed, everybody around the table agreed, made it very plain that we had no intention of the privatization initiatives taking the place of MILCON, but wanted to supplement MILCON so that we could get to our goal faster. And I think we ought to remember that as we proceed with this program.

    I am concerned about the Department's proposals when you were talking about outleasing property and the proposed amendments to section 2667 of Title X, especially concerned about the indemnification of the leases, I guess environmental claims. If that means releasing the Department from its responsibilities and providing the option for new military construction without authorization by Congress—I know we will discuss this some more—but can you elaborate on this a bit?

    Secretary YIM. The indemnification provisions we found from intense discussion with the private sector is often necessary to have quality companies come onto the base and utilize the facilities. What we are doing is trying to hold—give them some measure of protection from liability for a preexisting contamination, something that they had no responsibility for, and because many of our bases, through historic practices, have underlying groundwater contamination, for example, which would not have an impact upon the surface usage, but given the structure of our Superfund or Federal and state cleanup statutes imposes liability just to attend to it, even if they bore no responsibility, but the cost of the contamination we thought that that would be an appropriate and useful mechanism to help kickstart outleasing the proposals.
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    We have seen the growth of environmental insurance products also in the past year, and I know that I have been actively involved in that, that have helped to put liability caps both for the private sector and possibly to protect us. And I think we will be investigating those types of mechanisms in the future.

    In terms of the use of the proceeds from the outleasing, the second part of your question, what we are struggling to find is an incentive for installation commanders to make efficient use of their underutilized facilities, and so if we took all of the proceeds from the outleasing and it went back into an account that they did not see or could not readily capture for the benefit of their installation, we were concerned about the lack of the incentive for them.

    We understand that creates issues about the appropriation of funds, but that is the purpose of that is to create some incentives on the local level to encourage these types of activities.

    Mr. HEFLEY. Thank you very much. Any further questions? If not, we will excuse this panel and thank you very much for your testimony.

    Secretary LYNN. Thank you very much, Mr. Chairman.

    Mr. TAYLOR [presiding]. Our second panel on the Department of the Army includes the Honorable Mahlon Apgar, IV, Assistant Secretary of the Army for the Installations and Environment; Major General Robert Van Antwerp, Jr., Assistant Chief of Staff for Installations Management; Major General Milton Hunter, Director of Military Programs, United States Army Corps of Engineers; Brigadier General Michael Squier, Deputy Director, Army National Guard; Brigadier General James Helmly, Deputy Chief of the Army Reserve.
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    Gentlemen, on behalf of the chairman, I would like to welcome you. He will be back very shortly, and we would invite you to begin your testimony.


    Secretary APGAR. Thank you, Congressman Taylor, distinguished members of the committee. It is an honor to appear before you to discuss the Army's budget request for the fiscal year 2000 military construction program. This is my first appearance before this committee, and I look forward to working with all of you. I have brought some force protection with me here today in this maiden voyage, and since you already introduced them, each of us will follow in turn.

    Our combined written statement provides details of our military construction budget request, and with your permission, Mr. Chairman, I would like to submit the full statement for the record. It represents a balance among Army objectives for readiness, modernization, and quality of life and emphasizes that this budget continues to support our main priorities, barracks and family housing, strategic mobility, Reserve component construction, and base realignment and closure. As recommended by the defense reform initiative, this budget also includes construction for the chemical demil program, which was formerly budgeted in the military construction defense account.

    I would like now to highlight two initiatives, family housing and utilities that contribute to the Army's readiness by leveraging our resources through partnerships with the private sector. The overriding goal of our family housing program is to enhance the quality of life of soldiers and their families.
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    The Army's value of selfless service demands unique sacrifices. Taking care of our soldiers and their families is imperative to attracting and maintaining a trained and ready Army. Providing better places in which to work and live is thus a central institutional responsibility, one that I take as my most important professional and personal challenge in this position. But traditional methods of funding, renovating and operating housing will not allow us to meet this responsibility or the defense direction to eliminate all inadequate family housing by 2010.

    So we have a three-pronged strategy to meet the challenge. First, to privatize Army family housing in the U.S. wherever feasible and divest or demolish unsuitable or unneeded houses. Second, program additional resources for construction, major maintenance and repair overseas, and finally, to use the remaining housing, family housing funds to fully fund operations, utilities and leasing for all of our housing.

    We renamed our housing privatization program from CVI, or Capital Ventures Initiative, which to me describes a financing deal, to RCI, Residential Communities Initiative, which reflects our overriding goal to enhance the quality of life by providing affordable, attractive, quality residential communities for our soldiers and their families on our Army installations.

    The centerpiece of the Residential Communities Initiative is the home, not housing units, but attractive, comfortable homes in neighborhoods that are safe, clean and convenient with features and amenities enjoyed by the majority of Americans in their neighborhoods, such as landscaping, recreation facilities, schools, community centers, child care centers and similar support facilities.
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    The means to this end is privatization. The Army leadership believes the privatization is the only way we will be able both to clear the enormous backlog of substandard houses and to provide the quality features and amenities that I have cited.

    But privatization of Army family housing has two-interrelated objectives. Attracting private capital to fund housing improvements and enlisting private enterprise to revitalize residential neighborhoods, the American home building and real estate development industry from which I have come, is not only the most efficient in the world, but it is also the most creative and effective in meeting peoples' needs.

    The Army depends on the industry's energy and expertise as well as capital to meet our soldiers' needs for attractive homes and supportive neighborhoods.

    We appreciate the Congressional support for housing privatization as defined in the 1996 legislation. In my professional judgment, it is a remarkably innovative and robust set of authorities that if implemented properly will attract the best of the private sector homebuilders and real estate development firms to help us.

    That is why I have pursued our RCI program with such vigor. Since my appointment last June, my main priority has been to implement that legislation. But I have been pressing so hard to launch this initiative within the Army and with the industry that I now realize that I did not allow adequate time for you and your colleagues to review our plans.

    At your request, we have halted our efforts to give you more time to review our proposals and to allow us to work with you to ensure that we are carrying out a program that has your full support. I wish to acknowledge that we need your full support to execute this program and to affirm my commitment to working with you on it.
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    We hope to privatize 85,000 units at 43 U.S. installations by fiscal year 2005. Fort Carson will be the first with an award expected in July 1999. The emphasis in RCI is on partnering with the private entity at each installation, and because of that, we plan to change the approach to subsequent projects by using a request for qualifications, or RFQ.

    The RFQ is much simpler and less costly for the developer to complete, it provides more flexibility to develop projects that meet the various needs of all parties concerned, it maximizes the opportunities for innovation to benefit our soldiers, and it will enable the Army to achieve better financing and a higher return on investment.

    The Army's RFQ process, and I emphasize the Army's, because each of the services has approached its own methodology and elsewhere in the Federal Government is yet another set of methods for the RFQ, but ours involves several steps. First, for each installation, we will competitively select an experienced developer to work closely with the Army and affected stakeholders to prepare a community development and management plan.

    After completing this plan, the Army will make a full report on the plan to Congress as required in the legislation. And upon approval of the plan, the Army will implement it through a contract and/or lease or other structure with the developer.

    The RFQ method should increase competition significantly, and we have already had firm evidence within the industry that it will attract a number of well-qualified partners who simply would not respond to the traditional government RFP.

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    We plan to conduct pilot tests of the RFQ process at four installations, Forts Hood, Lewis, Stewart and Meade. The first RCI project to be implemented under the RFQ process was scheduled at Fort Hood but is now on hold pending your review.

    In summary, Mr. Chairman, we need your continued help and support to make the residential communities initiative a success for our soldiers and their families. By implementing it, we will best be able to meet the needs of our soldiers and to provide them with the best quality housing in the shortest period of time at an affordable cost.

    The second area of privatization I would like to summarize is the Army's utilities program. This program will transfer an operational function that is not core to the Army's mission to companies that are experts in the utilities business. Our goal is to privatize all utilities systems in CONUS and outside the contintenial United States [OCONUS] in which it is profitable for utility companies to provide reliable, safe service and where there are no national security impacts, by 2003. And we are on track to meet that goal.

    I know that you are conducting a special hearing on housing and utilities privatization on March 9th, and we look forward to providing more details on these initiatives at that time.

    Mr. Chairman, our fiscal year 2000 budget permits us to execute our military construction programs. Our long-term facility strategy can be accomplished only through balanced funding, reduction of excess capacity and improvements in management. We plan to work closely with you to streamline, consolidate and establish partnerships that generate resources for infrastructure improvements and continuance of services.
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    With the support of this committee and approval of your budget, we will be better able to support the Army, our soldiers and their families who serve our Nation.

    Each of the other witnesses will now provide additional highlights of our budget request. First, Major General Van Antwerp.

    [The prepared statement of Mr. Apgar can be found in the appendix.]

    Mr. HEFLEY. General.


    General VAN ANTWERP. Mr. Chairman, members of the committee, it is a great honor for me to be here today and talk to you about the Army's fiscal year 2000 military construction, family housing and base realignment and closure programs.

    Improving the quality of life for our soldiers and their families is an important piece of our program to improve the Army's readiness. And as Mr. Perry, Dr. Perry said, several years ago, and I was in his presence, that quality of life is a readiness issue.

    We are committed to making the right funding choices to take care of our people while modernizing our equipment and facilities. This budget continues our effort of the last several years to provide better living and working conditions and you, Mr. Chairman, and fellow members of this committee are responsible for the improvement that we have seen, and we appreciate your strong efforts on our behalf.
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    Our military construction requests for fiscal year 2000 is 1.1 billion with an appropriations request of 656 billion and an advanced appropriations of 660 million. The family housing program is 1.1 billion with advanced appropriations of 44 million and the Army BRAC request is 155 million, with advanced appropriations of 196 million in Fiscal Year 2001.

    Our barracks modernization program is a good example of the support you have provided for America's soldiers. Since we initiated the 1+1 program, 53 percent of our required single soldier housing is funded to meet or approximate the new standard.

    Our plan is on schedule to complete the barracks modernization program Army wide by 2008. Our fiscal year 2000 military construction budget requests 431 million and appropriations for barracks and appropriations of 81 million to construct and revitalize the barracks, and that plays out to putting about 4,600 soldiers a year in renovated or new barracks housing.

    When combined with the barracks upgrade program, financed with operation and maintenance Army, and quality of life enhancements defense funds, approval of the budget will complete almost 60 percent of the program. This continuing committee will improve the quality of life for our single soldiers substantially.

    In the family housing areas, as you heard from Mr. Apgar, we have a plan to provide all of our military families with excellent housing by the year 2010. Without privatization, the Army does not have sufficient funds, sufficient resources to provide adequate housing that our soldiers deserve. Your support of the housing privatization initiative is important to the Army, especially important to our families.
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    This budget represents the Army's final 2-year budget required to implement the first four rounds of BRAC. By the end of this fiscal year, we will have completed 3 rounds out of the 4 rounds. By the end of 2001, we will have completed the final round. We will achieve about $1 billion a year in annual savings once our current program is fully implemented.

    Last year, we supported legislation that would permit closing and realigning additional infrastructure. We continued to believe that this is the best way to dispose of unneeded infrastructure. Mr. Chairman, approval of our budget request for military construction family housing and base realignment and closure programs keeps faith with our commitment to improve readiness by improving the quality of life for our soldiers and their families by providing full authorization for all new fiscal year 2000 projects, but only the appropriations that can be spent in the first year resources can be freed up to fund critical readiness requirements.

    On behalf of our soldiers, civilians and their families, I thank you for your support in improving our quality of life and for keeping America's Army the most capable Army in the world. And on a personal note, I have a new second lieutenant infantry son who is in ranger school right now and a son who will graduate from West Point and join the infantry in May. And they appreciate your efforts, too, as we look into the future.

    And, sir, this concludes my comments. I will be followed by Brigadier General Michael Squier, the Deputy Director of the Army National Guard.

    Mr. HEFLEY. Mr. Squier.
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    General SQUIER. Mr. Chairman, distinguished members of the committee. I welcome the opportunity to appear before you today to present the Army National Guard's military construction program. We had planned for fiscal year 2000 one readiness center, three major support facilities, and one training facility. As already discussed today, you are aware of the DOD critical funding need for readiness this year.

    In order to free up the funds to rectify the readiness problem, we will be asking for incremental appropriations in fiscal year 2000 and the balance in fiscal year 2001, full authorization as requested for the year 2000.

    The Army National Guard needs your support for our fiscal year 2000 appropriation budget request of 11,145,000 for major construction, 4,129,000 for planning and design and 771,000 for unspecified minor construction.

    The 11,145,000 represents 21 percent of the total amount required to complete our five projects. Executing these projects will be a challenge, because of the states' statutes that apply. But, if below threshold reprogramming would be allowed against the full authorization amount, we would be able to execute the our entire appropriation.

    Mr. Chairman, today our Army National Guard is an integral part of America's Army. With these responsibilities, your guard is manned with a higher quality of soldiers that are trained and equipped to a greater level of readiness than we have ever experienced in our history. We continue to provide cost effective forces, a majority of the combat forces for our Army and over one-third of the combat support services to our Army as a total part of the Army. We have been active participants in all conflicts involving our Army around the world, and to include recent history with our role and support of the Army in Bosnia and upcoming events to include the Foreign Act Division from Texas which we will be supporting in the future.
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    With the continued decline of defense spending over the past few years, the active and Reserve components are exploring ways in which America's Army can retain and improve its versatility, deployment decisive capabilities to meet the defense needs of our Nation into the 21st century.

    It is our intent to design, implement and operate and maintain our facilities using private sector business practices, 21st century technologies, and commercial off the shelf facility software. We are currently in the developmental stage to integrate all faces of our MILCON process and to commercial off the shelf software. And in addition, state-of-the-art energy efficient facilities are being constructed, and we are upgrading existing facilities to meet energy efficient standards for the future.

    The Army National Guard also has an obligation to provide safe, cost effective and mission effective facilities for our soldiers. We must support our States and communities by providing modern and efficient facilities that promote professionalism and attract and retain quality soldiers.

    If the Army National Guard is to ensure that the forces needed to meet the needs of the community, the Army and the Nation, it is necessary that we, too, have quality facilities to support our forced troops for the future.

    With your continued support, the Army National Guard will strive to become an even more viable and cost effective force to accomplish our mission. National disasters hit numerous national Army guard facilities this year. We greatly appreciate the assistance in military construction funds that you gave us to repair the storm damages in Georgia and Puerto Rico and other States.
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    On behalf of the Army National Guard men and women serving the country and hometown communities, I wish to express our appreciation for the efforts of this committee and your past support of the Army National Guard. We look forward to the challenges and opportunities for improvements today and into the future.

    This concludes my official statement. I will be followed by Brigadier General Helmly, Deputy Chief of the Army Reserve.

    Mr. HEFLEY. Mr. Helmly.


    General HELMLY. Mr. Chairman and distinguished members of the committee. On behalf of Major General Thomas Plewes, Chief, Army Reserve, and representing the men and women of America's Army Reserve, thank you for the opportunity to represent them here today and to present their military construction needs to you for the fiscal year 2000 President's budget.

    As we speak, your Army Reserve soldiers and units continue to serve proudly in four countries supporting Operation Joint Forge, and we are currently beginning deployment in major numbers of soldiers to Central America to accomplish Hurricane Mitch reconstruction operations, accepting the deployment of Army Reserve in soldiers and units who participated in Operation Desert Fox and other recent operations in Southwest Asia.
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    In all cases our community based citizen soldiers performed their many and varied tasks with distinction and excellence, serving seamless, integrated formations with their active component and Army National Guard comrades in arms around the world. Our soldiers provide daily proof that America's Army Reserve is in fact a trained, ready and relevant force. With your continued support in the Congress they will remain trained and ready, carrying us forward into the 21st century.

    The organization, roles and missions of your Army Reserve dictate the need for a widely dispersed inventory of facilities and lands. We occupy approximately 1150 facilities worldwide, consisting of more than 7600 buildings and structures with an average age of approximately 37 years. Army Reserve operated installations had another approximately 2600 buildings and structures to the total inventory. The average age on these installations is approximately 48 years.

    To effectively carry out our stewardship responsibilities toward this facilities inventory, we have adopted priorities and strategies that guide the application of resources to readiness, our top priority requirement. The essence of our program is straightforward, to provide essential facilities to improve the readiness and quality of life for our soldiers and units, to preserve and enhance the Army's image across America and the world, and to conserve and protect the facilities resources for which you have held us responsible.

    The Army Reserve has been successful in demonstrating itself to be a competent and effective steward of the resources placed in its care. Since 1981, we have completed more than 300 major construction projects, representing an investment of over $1.3 billion. In addition to programmed military construction, we realized significant savings from previous base reassignment and closure actions.
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    We acquired facilities from all services under these processes as well as the active Army offsetting military construction requirements. The facilities we acquired through the previous BRAC processes provided a military construction cost avoidance of over $120 million. Other facilities acquired through the BRAC process permitted us to relocate units from high cost leased areas to quality government-owned centers. This effort alone allowed us to reduce our lease costs over the past 5 years by over $6 million.

    The budget request for fiscal year 2000 provides funds for our highest priority, Army Reserve MILCON requirements. This is in line with our responsibility to become more effective stewards, and it reflects the realities of maintaining near-term force readiness and meeting critical requirements for MILCON that directly supports that readiness for the units. The fiscal year 2000 MCAR appropriations for the Army Reserve includes three major categories of funding, major construction, unspecified minor construction and planning and design costs.

    Our fiscal year 2000 budget requests an authorization of $81.2 million, request for appropriations and authorization of 23.1 million and request for advanced appropriation of 54.5 million to fund the construction of three new Army Reserve centers in the States of Georgia, Guam and Puerto Rico to accomplish essential facility replacements, the regional maintenance training facility at Fort Hood, Texas, a tactical vehicle wash facility at Fort Dix, New Jersey that supports training and environmental requirements, revitalization of existing facilities in New York and land acquisition to support a future construction project in the State of Florida.

    The fiscal year 2000 budget includes $1.4 million for unspecified minor construction. These important funds provide for construction of projects not otherwise authorized by law and which have a funded cost of less than $1.5 million. Unspecified and minor construction may include construction, alteration or conversion of permanent or temporary facilities. This program provides an important means to accomplish relatively small projects not now identified but which may arise during the course of the fiscal year and that must be accomplished to satisfy critical, unforeseen mission requirements.
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    Our budget request in 2000 for planning and design is $8–1/2 million. These funds provide for a continuous multiyear process of designing construction projects for execution in the budget years and beyond. Planning and design activities include the preparation of engineering designs, drawings, specifications and solicitation documents necessary to execute major and unspecified and minor construction projects. Planning and designing funds are also required to support our share of the costs of the continued development of the successful modular design system as an effective cost saving and time saving facility design tool.

    In closing, we are grateful to the Congress, the Nation and, Mr. Chairman, your subcommittee for the support you have given and continue to give to America's Army Reserve and our most valuable resource, our soldiers, the sons and daughters of America. Thank you.

    I will be followed by Mr. Apgar—Mr. Hunter, I'm sorry.

    Mr. HEFLEY. Mr. Hunter.


    General HUNTER. Mr. Chairman, and distinguished members of the committee, it is my pleasure to appear before you today to discuss the execution strategy of the fiscal year 2000 military construction budget request as a responsible agent for the Department for the Army. This responsibility is assigned to the Chief of Engineers in 10 U.S. Code, Section 2851, and it includes the Army's military construction, family housing improvements and construction, base closure and Reserve projects.
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    As you are aware, we have improved our performance in executing the military construction program in the past few years. We awarded 98 percent of the Army's MILCON program in fiscal year 1997, 97 percent in fiscal year 1998. And we project 100 percent for fiscal year 1999. A large part of this success is due to our continuing efforts to improve design completion and use of a variety of acquisition methods and innovations, such as electronic bid sets and the use of a design build.

    We can execute the Army's budget request for the military construction program in fiscal year 2000 provided we receive full authorization, advance appropriations and flexibility and reprogramming. We need full authorization of each project to allow for award of a contract for a complete and usable facility during fiscal year 2000.

    The contract will limit the government's obligation to make payments to the amount of funds available for the project. The contract will include the provision that full project funding is not available at the time of award and would be subject to following year appropriation. These contracts will also have a termination Reserve, a lump sum set-aside at award to cover the contractor's demobilization costs and associated fees required in the unlikely event that the second incremental funding does not arrive.

    Timing of contract award and the subsequent notice to proceed to the contractor that actually starts the placement are critical and will have to be carefully managed. We also need approval of advanced appropriation for fiscal year 2001 funds to continue the projects without interruption. This assures that full funding to complete the construction is available on the first day of the succeeding fiscal year.
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    This is essential in order for us to maintain the contract's momentum during construction and avoid costly delays due to the possible lack of project funds. Approval of advanced appropriation will reduce possible contract uncertainties and perception of risk, as well as make program administration more manageable.

    We also need the flexibility in reprogramming to transfer funds between projects as work progresses during fiscal year 2000. This flexibility is required because some projects may proceed faster due to variations in construction schedule or we may need to start earlier in the year due to changes in mission priorities. In these cases, we would need to finance more construction on some projects than budgeted in the first year.

    The Army has requested that the Appropriations Committee allow reprogramming based upon total amount authorized for a project in fiscal year 2000. This would give us the flexibility we need to manage the program, yet still remain within the cost variation authorities and the intent of the reprogramming rules of the appropriators for each project. Although this is an Appropriations Committee issue, we request your support for this proposal.

    If advanced appropriation or reprogramming flexibility is not available, we anticipate more fourth quarter awards in order to assure that we have funds on hand to bridge the gap between fiscal years. We acknowledge that this budget recognizes our efficiencies in the supervision and administration of our construction contracts. The allowance for supervision, inspection and overhead on the project DD Form 1391s submitted is reduced to 5.7 from the 6 percent of recent budget submittals. The Army elected to maintain the 5.7 percent Supervision, Inspection and Overhead [SIOH] with each increment of a project to help minimize the management challenges we may have in making sure that each project has an uninterrupted funding stream during construction.
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    In summary, we can execute the Army's fiscal year 2000 military construction program provided we receive full authorization and advanced appropriation and flexibility in reprogramming.

    Mr. Chairman, I thank you and the committee for providing me with this opportunity to describe our strategy for execution of the fiscal year 2000 MILCON program.

    Mr. Chairman, thanks to you and your committee for your support of America's Army. This concludes my remarks. I return you to Secretary Apgar.

    Mr. HEFLEY. Mr. Secretary, do you have any further comments?

    Secretary APGAR. No, sir, we await your questions.

    Mr. HEFLEY. Let me first of all apologize for the lack of a committee. Either there has been a bomb scare that they didn't share with the rest of us, or we are through voting today and they are flushing like quails to the airplanes, and I think that is what happened. It doesn't indicate a lack of interest in what you had to say, and we will pass on your words in the record.

    Mr. Snyder—or Taylor, I mean. I don't know why I said Snyder, Snyder is gone.

    Mr. TAYLOR. Mr. Secretary, I think it should be very apparent now to anyone who can hear and see that there is not going to be incremental funding. The chairman is not going to vote for it. I am not going to vote for it. The appropriators aren't going to vote for it. The members aren't going to vote for it. It is not going to happen. That is reality.
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    Given that reality, have you begun to prepare a list prioritizing your needs for the coming year given the apparent limited funds that will be available, unless the administration, with the support I am sure of many of us, would be willing to bust the budget caps and do what we really need to do?

    Secretary APGAR. The priorities that the Army has set have been defined as readiness priorities, and all of those were carefully thought through under the defense guidance for incremental funding. Now, I ask, General Van Antwerp, if you have any further definition of those priorities.

    General VAN ANTWERP. Mr. Taylor, we do have a priority funding list. But if I read you correctly, you are suggesting if we got what we are asking in fiscal year 2000 year, how far down that would go on the list? It wouldn't go very far. It would go through about 15 percent. That is about what we are asking for the fiscal year 2000 appropriations.

    Mr. TAYLOR. It has kind of been a tradition for some members of the Mississippi delegation to mumble. When Chairman Whitten did it, because he was a chairman of appropriations everyone understood him. Apparently when I do it, because I am not a chairman, people don't. So I will say it again. I heard the chairman say it, I have heard the members of the committee say it, I have said it. The appropriators have said it just as clearly as they can. There is not going to be incremental funding.

    Given that reality and given the amount of money that you had planned on spending this year, have you prepared a list of priorities that you would like to see funded with the limited amount of money that the administration is asking for?
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    General VAN ANTWERP. Sir, I would say——

    Mr. TAYLOR. And if you haven't, my suggestion for the record would be that you do and submit it to the committee as quickly as possible.

    General VAN ANTWERP [continuing]. We would like to submit that for the record, thank you.

    Mr. TAYLOR. OK, thank you, thank you, sir.

    [The information referred to can be found in the appendix.]

    Mr. HEFLEY. I think Mr. Taylor makes a good point. I am sure you have seen this wherever you have gone, that there is not great support up here for this plan. So you might, you know, Army's—they plan a battle plan, but they also plan contingency plans in case the battle plan doesn't work just like they thought.

    I think what Mr. Taylor is saying, you better look to that contingency plan just in case on a far-out chance that you might have to have a contingency plan. And, you know, this committee wants to be helpful to you in this area, but you have got to help us do that.

    Let me start with General Hunter and General Van Antwerp. As engineers, in your personal opinions, what are some of the principal challenges in executing the program as put forth by the Department?
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    General VAN ANTWERP. Sir, I will start first. I think there is some risk involved. In my personal opinion, one of the risks is that you will have a situation where you need additional funds to allow the contractor to continue with the placement on a particular project, and that really would be why we would ask for programming up to the authorization level.

    I think the other risk is that if you did not have the advanced appropriations that you would have a risk of having to terminate a contractor at some point during the project. As we calculated the 15 percent funding for this first year, part of the money in that has to consider whether or not we would terminate a project, and so there is some funding in that for early termination.

    General HUNTER. Sir, you aptly described my opening statement in terms of the battle plan and our contingency. And in my personal opinion, we can award all contracts, part of management's challenge would be the timing of the award to ensure we don't have interrupted funding. And if we do, as General Van described, we have in that 15 percent what we considered the contingencies and management flex if we had to terminate a project.

    But it is really trying to reduce the risks by the timing of the awards of the contracts and holding the notice to proceed to ensure that we have no interruption in the construction progress.

    Mr. HEFLEY. Isn't it true that this makes planning a construction project, whether you be in the military or civilian side, much more difficult when you do it this way and, particularly, given the history of projections and what you assume is going to be available the next year, and so forth, creates an additional possibility that there will be a number of projects sitting around partially funded not doing you any good or anybody else any good?
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    General HUNTER. Sir, we do have some experience with incrementally funded projects. Of course, the committee had authorized those in that manner to proceed, and so we have written the contracts to accomplish the work that we can accomplish in that particular fiscal year. We don't have the experience in our smaller projects where you go to lower thresholds.

    We don't think that we have a contracting community out there that has experience with the incrementally funded small projects. So we have to manage that a little differently, I think, in order to minimize the risks. There is no doubt it would be a management challenge. But we would have to look at the various sizes of projects and the categories to try to meet those challenges.

    Mr. HEFLEY. You know, earlier today, it is my understanding that Dr. Hamre visited with our colleagues on the Appropriations Committee and he said he regretted the military construction budget this year. And I think most of you would, too. But he also suggested that without cap relief, the fiscal year 2001 budget could be as bad and maybe even worse than this one. Do you think that is an accurate assessment?

    General VAN ANTWERP. Sir, I think that is a very accurate assessment. I think with the amount of appropriations that would be expected in fiscal year 2001 that that cap would be a restriction, and so that is a very real possibility. So I totally agree.

    Mr. HEFLEY. The Army has chosen to try to anticipate outlays on a project-by-project basis in an effort to try to make the program work. In your personal opinion, General Hunter, wouldn't a series of bid busts throw off that very carefully crafted schedule?
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    General HUNTER. Sir, possibly. We always have a program where we have a bid bust or two, and we are able to work through that. But I don't foresee it as throwing off the entire program, and that is why we asked for the flexibility and reprogramming so that we can capture projects to make sure we have an award of our program over that fiscal year 2000. But I don't see it as totally disrupting the program.

    General VAN ANTWERP. Mr. Chairman, if I might just add a comment on that. If you had a bid bust it would basically delay the process, so you would have less outlay in the first year. So it would probably make the situation slightly better if anything, it wouldn't cause it to be worse. The worst thing would be if you went ahead at greater speed and didn't have the funding to go reprogram in there.

    Mr. HEFLEY. As I understand it, the Army provides the full amount for supervision, inspection and overhead on a project at the outset. How would the annualization of these—of those charges, especially since they are not indexed for inflation, affect contract execution and administration?

    General HUNTER. Sir, our approach for the supervision, inspection and overhead charges was to tie it to the project, because they are really project costs, and it allows us primarily to staff our field offices for the prosecution of the work. And so we looked at the incremental approach to MILCON and tied it to those 2 years for the duration of the project. But the challenge you have in this particular instance is as we staff the field offices, and I would tell you a large percentage of those dollars go to labor, is to ensure continuity so we don't have to go through either reassignments to other projects or a reduction in force of our personnel and turn around later and have to rehire them to continue to work for years.
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    Mr. HEFLEY. That led to my next question, that it was my understanding that supervision costs ordinarily pay for salaries, and when you analyze it this way doesn't that threaten possible layoffs?

    General HUNTER. Well, sir, there is that risk, but what we did was break it out for those 2 years. Our historical averages for placement in the first year has been around 15 percent or less, and, therefore, we feel that there will be some flex in there to continue our program if we had the advanced appropriation because it reduces the risk of that gap between fiscal years.

    Mr. HEFLEY. General Squier, what unique execution will be faced by the Army National Guard, since you use the States as your construction agent, and also don't most States require that all the money be there? They are sometimes putting up some of the money, but don't they require that all the money be there from the Federal Government before they start construction?

    General SQUIER. Yes, sir. As a matter of fact, we have done a polling of our States. I don't have the complete results right now, but we will be sure to give that right to you, but right now about 90 percent of our States require full funding before they can contract. We are a benefactor of some of this readiness reprogramming in the Guard. We have some serious challenges. So we are trying to work with the Army to solve this particular problem.

    It is going to be a difficult challenge in executing under this incremental funding, but it is not impossible. It can be achieved. There are three ways to get at it for us. One, if we can get the authority to informally reprogram against an authorization, against the full authorization, then we can make some decisions and go for a completion of a complete project. If we don't get that authority, then a second option that we could choose would be to subdivide the project, which we have not done.
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    We traditionally don't do that and it is very difficult to do. We haven't looked at our five projects in any great detail to even see if adequately we can do that or not. But that would be an option that we might want to pursue if it is not permitted for us to have the authority for informal reprogramming.

    And, of course, a third option is formal reprogramming authority, which would come through the process to get approval from Congress to reappropriate those and do the full project with the funding that we have. So it is potentially doable but it has some challenges.

    Mr. HEFLEY. I think we are seeing lots of challenges here. In your opinion, General Hunter and General Van Antwerp, can this programming be executed without the risk of additional costs and delay in the delivery of facilities?

    General HUNTER. Sir, I can't say that for certain, because as—without the advanced appropriations, in many cases, the contractor will not assume the risk. He will put the risk on the government and so, therefore, you could have higher bids, just ensure that the termination possibilities and all of these other things that we described earlier would not occur. But I think there is that risk that the contracting community will take a look at these incrementally funded projects.

    General VAN ANTWERP. We usually have a clause in there that says subject to availability of funds, and my experience has been when that clause is in there that there is risk built into the bids and so you get higher bids generally.
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    Mr. HEFLEY. You don't have any idea how much added costs would be added on a percentage basis, do we?

    General VAN ANTWERP. I really wouldn't have a clear view of that. It is just the way they mitigate risk.

    Mr. HEFLEY. I wouldn't necessarily expect you to.

    Secretary Apgar, as you can tell, I am deeply concerned about the Army's budget decision to completely defund CONUS military housing. Do you propose no new construction, no improvements to existing units? You have all your eggs, it looks to me like, in the basket of privatization without having any clear sense that it can work in every location.

    I am also not certain it would be wise to forego all improvements. Even if we knew it could work everywhere, we simply couldn't execute the program quickly enough to take that risk. I suspect that base commanders are not happy with the decision.

    Can you explain the Army's rationale for such a radical departure in this year's budget? Is it strictly the numbers thing again? Are we back to that? No one likes it but it is the numbers thing?

    Secretary APGAR. Well, Mr. Chairman, faced with very limited resources and very heavy demands, we had to first see how to use the full range of tools that you have given us against priorities and, given the important leverage of the 1996 legislation, we concluded that we could maximize the opportunity within the U.S. through that legislation if we approached it as aggressively and as fully as possible and then use all the available resources for OCONUS needs, which are acute in many areas, as acute, even more acute in some respects as in the U.S., and it is that balance of priorities that led to the conclusion.
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    I think it is also important to underscore that privatization is not an experiment, in that is does draw on a very well-established, well-equipped, very fully resourced industry, and in that sense the reliance on a well-established industry is not risky, is not faced with the potential for failure, but rather an issue of how to gain maximum value and maximum leverage from the dollars that are available.

    But there is no question equally that we approach this as a matter of balance. If there are situations in which privatization will not work, those will be quite clear well in advance and for those military construction funds would still be the appropriate form. But at this point in launching the program, capitalizing on these authorities and tapping into both the capital and the energies of the private sector, we believe that we can best achieve that difficult balance.

    Mr. HEFLEY. Well, it is, as I said, disturbing to us, because again, and I repeat myself, but it was never intended that privatization would take the full load; it was always intended that we are not going to get here from there with just MILCON dollars, so we will keep putting the MILCON dollars in to do whatever we can with those.

    But beyond that privatization will pick up and help us accomplish our goals faster. So to find us relying totally on privatization is completely outside the bounds of what I think anyone ever intended to happen. And frankly I think it is not a good business decision, but strictly a numbers driven decision when we are in tight numbers, and of course that is legitimate, too. But I disagree with the decision, I guess I would say.

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    Mr. Secretary, you are fully funding the BRAC-related construction, I understand. These projects which there aren't very many of, but they are not subject to the incremental funding, and I wonder why that is, if we think the incremental funding is going to work well, why not all of it?

    Secretary APGAR. The benefit of pursuing the BRAC programs and projects as aggressively as we can is to realize a benefit stream that was already projected and will serve our other needs, and in order to accomplish that those projects have been fully capitalized. I think the important distinction is to recognize that we are working through a BRAC program that was fully committed and programmed and is now in its final stages of completion, and those completions are ones that we are counting on.

    General Van Antwerp, are there supplementary comments?

    General VAN ANTWERP. Sir, there is six projects for 25.9 million associated with this, and as we look and did the design reviews, we are on schedule to award all of those projects in the first quarter. So if we only appropriated 15 percent of those projects, we would have to slip those projects later into the year, probably into the fourth quarter, and that would put us at risk for making our July 2001 deadline for completing this. So it is partly because the design on these projects and the need to keep on this schedule requires early award in the year.

    Mr. HEFLEY. I think I asked a similar question to an earlier panel, but—to the earlier panel. But Mr. Secretary, the Army proposes to defer 176.4 million, or 67 percent, of its BRAC remediation requirements from 2000 to 2001 using the advanced appropriations. How will that affect reuse, getting these properties back into reuse? Which—and do you know which specific locations will have less or no funds spent in 2000 in environmental cleanup under the Army's plan?
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    Secretary APGAR. Well, we are working closely with local communities on reuse, and it is that productive approach to support reuse that is kind of carrying through the program. The 85 million requested for fiscal year 2000 and the balance later is incrementally funded, and it is the approach to reuse that really will help us carry through.

    Mr. HEFLEY. What is the status of the development of a new standard for unaccompanied housing for trainees and students? What are the principle issues in the development of this new standard, and do you expect it to cost more than the current housing standard? General?

    General VAN ANTWERP. Sir, the status of that is that it is in design, and we are working on the final aspects of that. It will be less expensive than the permanent party barracks, partly because the permanent party barracks are generally as we construct unit areas we have battalion headquarters, company headquarters and other facilities associated with that, that we won't have with the trainee barracks. And also the trainee barracks won't be in the 1+1 standard because it is just a different living environment.

    They won't be the big bays and gang latrines either, but it will be somewhat of an in between. So we are very close. Probably in March we should have the design completed and have a good—then we need to do a good cost takeoff to give a really clear view of what the cost is going to be. But it should be less.

    Mr. HEFLEY. Thank you. Our former ranking member from Hawaii has joined us. Mr. Abercrombie, do you have questions?
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    Mr. ABERCROMBIE. Yes, Mr. Chairman. I realize you have had a long hearing already and I am very appreciative of having an opportunity, I hope, to perhaps reinforce some of the things that you may have already gone over.

    First though, let me say to General Hunter, I am pleased to see you here today, and I want to pay particular tribute and recognition to the Pacific Ocean division of the Army Corps. That may sound self-serving to others——

    General HUNTER. Sir, I like it.

    Mr. HEFLEY. Shall we put that to a vote?

    Mr. ABERCROMBIE. To everybody else it is self-serving, for everybody else except those that get assigned to go there in Hawaii? But I do think that was a good decision by any objective standard and I welcome that examination. It was a good decision to make because of the logistics, the implications for the Army Corps of dealing with the Pacific and the Pacific Rim. And you have excellent people out there, uniformly excellent people.

    General HUNTER. Thank you, sir.

    Mr. ABERCROMBIE. Now having said that, let me—Mr. Chairman, if I could, use as an example here, if you will go to, I guess I will go to you, Mr. Secretary, to try to deal with this and anybody who cares to get in, under the projection here. It is on page 4 of the news release of the Assistant Secretary of Defense for Public Affairs. That is at least the—what we have in front of us. And I am sure you are familiar with it, under the Army, of Scofield Barracks. I have a particular interest in Scofield Barracks for lots of reasons which may be familiar to you.
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    This is the whole barracks complex renewal. This has been kind of the centerpiece of my tenure here in the Congress, of which I am very proud, and I think the Army has been well served by the whole proposal moving ahead.

    Under the authorization, it says 95 million, and then authorization of appropriation 14.2 million and appropriation 14.2 million. If you examine the manner in which the whole barracks renewal has been carried out to this point, you will find that while there have been varying amounts, each of the amounts each year which have put this project into reality—and by the way, has anybody visited the new barracks? Aren't they terrific?

    General HUNTER. Yes, sir.

    Mr. ABERCROMBIE. It is excellent.

    General HUNTER. Excellent.

    Mr. ABERCROMBIE. I was saying to some other folks that are heading out there, General Ohle is going to go out shortly, he was in charge when I first came into the Congress. I remember Sergeant Major Washington out there when I first came up saying, look, we are going to move this thing along and try to get the whole barracks. He had a look in his eye and expressed to me, I won't use exactly the colorful Anglo-Saxon language that he indicated he thought where this was going, he heard it before. But he was the one who was there to have the key to the new facilities and to show me around this time there.

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    So it is something obviously that is a statement for the Army. I cite all of those things, because each of the increments that we have funded and has been authorized and appropriated has been put into effect as—what is the phrase—complete and usable, right. Each phase has been done, it made sense. It is on a whole and Sergeant Major comes in there, the whole building is there. Everything is in there. The laundry is in there. The tile is there. Everything has been built to scale, people move in and they take over and they take ownership of it and it is terrific.

    How are you going to do that with $14.2 million unless you are telling me that the 14.2 million is a whole and usable project with respect to Schofield? And, General Hunter, you have to convince me of that, because I don't believe that is the way an Army Corps of Engineer in the Pacific Ocean Division [POD] would address this.

    General HUNTER. Sir, you weren't here earlier, but one of the things we talked about was the pace of the award in the prosecution of the work, and what it may mean in some instances is we award at a later point in the year to ensure that we don't have a gap in funding, and then in some cases maybe a fourth quarter award as we talked about the need for advanced appropriations, and also we talked about the need for flexibility and reprogramming. But if that pace of the contractor started to accelerate, then we have an ability to move moneys to that particular project.

    Mr. ABERCROMBIE. To make it more incomplete?

    General HUNTER. Yes, sir.

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    Mr. ABERCROMBIE. Doesn't that obviate or undermine the whole rationale behind doing this?

    General HUNTER. Not necessarily so.

    Mr. ABERCROMBIE. If that isn't the case, shouldn't there be an asterisk after all of these projects; namely, it will be $14.2 million unless it isn't?

    General HUNTER. Sir, as I just described, in many of those cases, the goal in our view for execution is to keep that gap as close as possible so that we don't have a disruption in the work.

    Mr. ABERCROMBIE. I understand. You are a good soldier, and you are doing the best you can with that answer.

    General VAN ANTWERP. Sir, I think the amount that is appropriate—the amount that is authorized is for the complete and usable facility. The amount that is appropriated is really based on our anticipated first year outlays.

    Mr. ABERCROMBIE. I understand that very well. But does the outlay match?

    General VAN ANTWERP. The outlay does not match.

    Mr. ABERCROMBIE. It does not match which was to be required to have a complete and usable building in quadrangle D or whatever it is?
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    General VAN ANTWERP. Correct, it is does not match that. It does not match that.

    Mr. ABERCROMBIE. I know you are valiantly trying here. Mr. Chairman, I simply want to give a, no pun intended, concrete example of where this is unlikely to get congressional approval here on a bipartisan basis. So I realize we have got other difficulties here, and this requires us to find innovative ways to do our financing to keep up with what needs to be done.

    Mr. Chairman, I appreciate the opportunity to raise this particular issue, and I want to indicate my support for the approach that you and Mr. Taylor are espousing.

    Mr. HEFLEY. Mr. Abercrombie, I appreciate that. I appreciate your questions and I appreciate you being here, and I think you did reinforce what the gentlemen have been hearing from us all afternoon, and what they have been indicating to us, too. All have indicated that there are some problems with this. There is no question about that.

    If there are no further questions, the committee will stand adjourned, and with our thanks and appreciation for your testimony.

    General HUNTER. Thank you.

    [Whereupon, at 3:20 p.m., the subcommittee was adjourned.]

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February 25, 1999
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