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[H.A.S.C. No. 107–5]



FOR FISCAL YEAR 2002—H.R. 2586







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JULY 11, 2001


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CURT WELDON, Pennsylvania, Chairman
WALTER B. JONES, North Carolina
BOB RILEY, Alabama
HOWARD P. ''BUCK'' McKEON, California
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J.C. WATTS, Jr., Oklahoma

LANE EVANS, Illinois
JAMES H. MALONEY, Connecticut
MIKE McINTYRE, North Carolina
ROBERT A. BRADY, Pennsylvania
BARON P. HILL, Indiana
SUSAN A. DAVIS, California

Peter M. Steffes, Professional Staff Member
Diane W. Bowman, Staff Assistant



    Wednesday, July 11, 2001, Fiscal Year 2002 National Defense Authorization Act—Adequacy of the Fiscal Year 2002 Budget Request to Meet Readiness Needs
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    Wednesday, July 11, 2001



    Ortiz, Hon. Solomon P., a Representative from Texas, Ranking Member, Military Readiness Subcommittee
    Weldon, Hon. Curt, a Representative from Pennsylvania, Chairman, Military Readiness Subcommittee

    Church, Rear Adm. Albert T., III, Director, Office of Budget/Fiscal Management Division, U.S. Navy

    Dauer, Bruce, Director, Programs and Budget, Department of Defense

    Northington, Maj. Gen. Larry W., Director, Financial Management and Budget, U.S. Air Force

    Sinn, Maj. Gen. Jerry L., Deputy Assistant Secretary of the Army Budget, Director of the Army Budget, U.S. Army
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    Wallenhorst, William J., Director, Fiscal Division for Programs and Resources, U.S. Marine Corps


Church, Rear Adm. Albert T., III

Ortiz, Hon. Solomon P.

Sinn, Maj. Gen. Jerry L.

Wallenhorst, William J.

[There were no Documents submitted for the Record.]

[The Questions and Answers are pending.]


House of Representatives,
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Committee on Armed Services,
Military Readiness Subcommittee,
Washington, DC, Wednesday, July 11, 2001.

    The subcommittee met, pursuant to call, at 1:45 p.m., in room 2212, Rayburn House Office Building, Hon. Curt Weldon (chairman of the subcommittee) presiding.


    Mr. WELDON. The subcommittee will come to order. We know that Mr. Ortiz is on his way here, but we have been joined by our colleague, Ms. Davis, so we can start the hearing since we have representation from both parties.

    We welcome our witnesses. The subcommittee today is receiving testimony from Department of Defense (DOD) on the adequacy of the readiness funding levels in the proposed fiscal year 2002 amended budget request, and whether the requested levels of funding will sustain and improve the readiness of our military services.

    We do not yet have the complete budget data, but what we have seen thus far is encouraging. It appears that the request for readiness funding should minimize the decline that we have seen over the past several years created by previous years' underfunding.

    An adequate and sustained level of readiness funding is vital to our national security. The amended budget request before us is a good first step. There are, however, some troubling issues that we would like clarification on from our witnesses today, and I have raised several of these in previous hearings.
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    One of these troubling issues is the absence of any data presented thus far on where DOD will be taking or has taken nearly $1 billion in anticipated savings associated with several business reform initiatives, some of which will require legislation to accomplish. First, DOD has said that it plans to save $140 million in fiscal year 2002 by changing current law associated with depot maintenance. DOD has requested legislation authorizing depot level repair and maintenance work to go to the private sector if a depot has reached its capacity based on its level of resources.

    The department has not yet provided, and I will ask for it today, an interpretation of the terms, capacity, or level of resources. We do not know what that definition is. How can we, in fact, know when you expect to apply it?

    I and many of the other members of the subcommittee would welcome a complete discussion on these operative terms. It is also not clear where these supposed savings are in the budget or how this number of $140 million was derived.

    There is also $190 million of savings associated with proposed changes to the Davis-Bacon Act. Currently, all construction contracts with a value of $2,000 or more must use union or prevailing wage scales, even if non-union workers are performing under the contract.

    DOD has stated it is seeking to raise the Davis-Bacon threshold level from $2,000 to $1 million. I am very interested in this, because I offered House legislation in the last session, supported by organized labor, to raise the threshold there.

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    The question again is where in the budget are the savings, and if the legislation is not passed, how will the savings be funded? This committee cannot, on its own, amend Davis-Bacon. It is a labor law that all federal agencies are required to comply with.

    So this committee cannot, in fact, have DOD tell us its anticipated savings unless DOD can assure us that the Congress and the White House are going to make a change in Davis-Bacon. I have had conversations with the comptroller, who called me last Friday, and we talked about working together, to which I have pledged my cooperation.

    But that is a long shot to get that legislation through; and, certainly, you have got to reach out to organized labor to make that happen. This committee cannot, with its own jurisdiction, control the parameters of that action.

    So the question is if we do not get that passed, where is that savings going to come from, or where is it going to be taken from, because this committee and our oversight, in my opinion, is not going to be left holding the bag to try to cut other account lines to pay for what, in fact, is a pie-in-the-sky hope that, in fact, these changes can be enacted during the rest of this year. So I would like comments from our witnesses on the Davis-Bacon Act savings, and if that savings has not, in fact, emerged, then where, in fact, do you expect us to find that additional money, and how do we achieve that through transfers or whatever.

    I have also been informed that DOD has associated savings with its legislative proposal to repeal current law prohibiting the outsourcing of security guards and fire fighters. That also will meet with serious concern by Members of the Congress from both parties, and I would like to have some explanation from the services and from the DOD itself about what would be the fallback position if those savings are not realized.
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    I expect our witnesses today to provide highlights of their readiness funding contained in the amended budget request for fiscal year 2002. I am particularly interested in the Army's decision to reduce its air-ground operational tempo accounts by $300 million in order to stabilize facility deterioration.

    I look forward to hearing more from each of our witnesses, and I would ask for unanimous consent, without objection, and order that the opening statement of my good friend, Solomon Ortiz, be made a part of the record. The opening statement of any other Member will also be considered a part of the record.

    With that, since we have enough to start the hearing, we will now turn to our witnesses. We are very pleased and happy to welcome Bruce Dauer, Director of Programs and Budget for DOD; Major General Jerry Sinn, Deputy Assistant Secretary of the Army Budget, Department of the Army; Rear Admiral Albert Church, Director, Office of Budget and Fiscal Management, Department of the Navy; Major General Larry Northington, Director of Financial Management and Budget for the Department of the Air Force; and Mr. William Wallenhorst, Director, Fiscal Division for Programs and Resources, United States Marine Corps.

    Gentlemen, your statements will be entered into the record in their entirety, and we would allow you such time as you may consume to give any verbal summary or statement you would like to make.

    [The prepared statement of Mr. Ortiz can be found in the Appendix.]

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    Mr. WELDON. And with that, we will turn to Mr. Dauer.


    Mr. DAUER. Thank you, Mr. Chairman. I did not prepare a specific statement for this hearing, but I would like to, I guess, respond to a couple of the comments that you made in opening up the hearing.

    The billion dollars that you refer to, the two biggest pieces of it, which you did not mention, are savings associated with force levels in our contracts supporting our forces in Bosnia and Kosovo. That savings is reflected in the overseas contingency account; and that is in there, and it just reflects what has already been agreed to at the North Atlantic Council. So I think that one is very straightforward and is a typical kind of budget savings.

    The second is over $300 million savings in the health program associated with going to what is called prospective payments, which is a system of preset rates. Virtually every health insurance company in this country negotiates preset rates with a lot of the providers. And we have, already, many of those kinds of rates negotiated and set; and we actually have the authority under Title 10 to do it ourselves.

    But we are asking for your help to accelerate the process, because we can skip a couple of steps if we get the legislation that we are asking for. And with that, we can basically get negotiated rates with the skilled nursing care providers, which was not a problem for us until we expanded the health care benefit for the over-65 population. So that is important to us at this point, and I think that is also already reflected in the health budget and is, again, kind of a normal kind of thing.
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    The ones that you expressed the most concern about, I think, to some extent, I share your concern. I think Davis-Bacon is a tough thing. I think that is why Dr. Zakheim plans to meet with you and to discuss it further. I believe that it is possible, but it is difficult, and I do not really have an answer for you on, you know, what you would do if you do not get it.

    We can certainly derive for you how that savings would be taken by account. Today, it is reflected as a legislative contingency, you know, in the budget, which says that all the budgets are untouched, and then there is a negative number at the end.

    And, basically, it is the same thing with the depot, 50–50, and in that case, what we are proposing is that we are trying, to some extent, to manage a situation where we seem to be building a backlog in the depots, and there to kind of carry out a fair amount of work; and we are trying to attack that work, that it was not going to be done in the fiscal year and was going to be budgeted anyway, and trying to look at that and see if there is a way to get that done in the year we need it done in more cases.

    We think we can do that, and we plan to meet with the staffs of the committee on Friday to go through that in greater detail with them.

    Thank you, sir.

    Mr. WELDON. Very good. Thank you.

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    General Sinn.


    General SINN. Mr. Chairman and distinguished members of the committee, I have a brief opening statement. If I may, about 45 seconds if we have it timed right here.

    Sir, every day, as the Army's budget officer, I am reminded that we have 24,000 soldiers operationally deployed around the world; and in addition to that, another 141,000 forward stationed, and beyond that, counting U.S. Army Reserve, National Guard, and Active Component Army, 805,000 in the United States ready to respond to U.S. requirements as they exist.

    We remain a war-fighting Army, and our primary focus attends to our war fighting powers; but we also understand that we provide versatile and agile solutions for all other challenges confronting the United States. To meet these obligations, the fiscal year 2002 Presidential amended budget reflects a balanced program that allows the Army to meet its readiness requirements in fiscal 2002 while sustaining other key elements of our vision, those being people and then transformation of the force.

    I believe that this budget proposal represents the best balance we have had in years in terms of the mix of operating tempo, base operation services, and sustainment, restoration, and modernization of our facilities. With support from the Congress, we have achieved sustainable momentum in transforming the Army. We are committed to making that momentum irreversible as we make the Army faster, more lethal and decisive, and more affordable.
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    We are grateful for this committee's devotion to improving the well being of our soldiers and their families. It is making a difference. These initiatives have begun to slow the rate of decay in our infrastructure but not reverse it. We must protect the dollars we have elected to shift into these accounts and remain vigilant in fixing this program.

    Mr. Chairman, I thank you for your invitation to appear today, and I look forward to your questions.

    Mr. WELDON. Thank you very much, General.

    [The prepared statement of General Sinn can be found in the Appendix.]

    Admiral Church.


    Admiral CHURCH. Mr. Chairman, distinguished members of the committee, I think my 45 seconds will be shorter than General Sinn's.

    There are three perspectives on the budget from the Department of the Navy. Number one, we are, as you said, much better off in readiness accounts. We have got about $2.5 billion more in the areas we consider our key readiness areas as opposed to 2001.
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    We did not get everything we needed. A couple of areas are still short, but we are in a much better position, and we do not think we will need a supplemental next year, which was our goal.

    The second thing is that the budget makes modest improvements in two other areas, our infrastructure and technology investment; but we still have a ways to go there. And, third, it continues the rate of shipbuilding and aircraft procurement that we have seen in recent years, which primarily is a challenge left unmet. We do not have enough ships or aircraft to recapitalize the force, and we need to continue to work that; and, hopefully, the Quadrennial Defense Review (QDR) will move us along in that direction.

    I look forward to your questions. Thank you very much.

    [The prepared statement of Admiral Church can be found in the Appendix.]

    Mr. WELDON. Thank you, Admiral.

    General Northington.


    General NORTHINGTON. Good afternoon, sir. It is a pleasure to be here with you.
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    I just have four brief comments on the budget from the Air Force point of view. In a very real sense, this budget for the Air Force is, in fact, a readiness and a people budget. As we move from last year's top line enacted by the Congress to this year's proposed budget, 87 percent of that increase goes in the readiness and people accounts, and so it is very heavily focused in those areas.

    It allows us to make focused improvement, not complete improvement across the board, but focused improvement, tying in with your comments in the opening statement, very much in the readiness area. We are able to address some foundational programs like fully funding flying hours, depot costs, contractor logistics support, the cost of the human resources and personnel accounts, and some of the foundational programs such as base operating support.

    In a very large measure, it also requires us to defer major decisions in the modernization and transformation area. This will be consistent with the upcoming QDR; and, put simply, funds are not available to make any major steps forward in the transformational or modernization programs.

    And then, finally, I guess I would describe this to you as, generally speaking, pretty good news. I think, consistent with your opening comments, this focused improvement in these core areas enables us to fix some problems where we have had programs that have experienced, quite frankly, several years of underfunding and enables us to restore those to a much more healthy level of execution. In many cases, we are paying cost growth as opposed to program growth, but we have got the programs back at an executable level.

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    Sir, I will stand by for your questions.

    Mr. WELDON. Thank you, General.

    And, finally, Director Wallenhorst.


    Mr. WALLENHORST. Mr. Chairman, Mr. Ortiz, and members of the committee, like my colleagues, this budget looks much better from the Marine Corps perspective. Most of our readiness and personnel concerns have been addressed.

    We have some other issues that still remain in terms of modernization that we expect will be addressed as a result of the QDR. We are most grateful for the support of this committee in the past for a number of the areas, especially the readiness concerns that you have addressed on our behalf.

    With that, I stand ready to take your questions.

    Thank you.

    [The prepared statement of Mr. Wallenhorst can be found in the Appendix.]

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    Mr. WELDON. Thank you. I cannot believe it. This has got to be a record for five panelists speaking in record time.

    Mr. Ortiz, can you believe it? And welcome, by the way.

    Mr. ORTIZ. This is wonderful.

    Mr. WELDON. You know why they were so brief? Because you did not come on time, Solomon.

    Mr. ORTIZ. It was my fault, and I am sorry. Of course, redistricting is very important this time of the year; and I was tied up someplace else. But, if I may, Mr. Chairman, I would like to include my statement for the record.

    Mr. WELDON. Absolutely. It has already been included.

    And Mr. Ortiz, as you all know, is one of our top champions on defense issues in this Congress. He is a very close personal friend of mine and is someone who I have the highest respect for. So even in his absence, he is here with us; and his vote is always there for the readiness and support of our troops.

    I have a few questions I would like to go through with, and I heard the response that you gave, Mr. Dauer, on the Davis-Bacon issue, and the only thing I would say is to anticipate that kind of savings, this committee cannot in any way guarantee that. That requires major legislative action in the Congress.
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    And as I told the secretary when he spoke, and I told Dr. Zakheim when he called me last week, I did, in fact, work with the labor unions to come up with a modification of the Davis-Bacon law the last session of Congress, which would have raised the threshold on federal contracts.

    Mr. WELDON. We raised the threshold on federal contracts. We could not get the leadership of the House to agree to move that legislation, but I have expressed my willingness to work with the comptroller and with the secretary to accomplish a similar type of change this year.

    Now, the threshold that you have targeted is a very aggressive one. You go from $2,000 to $1 million. That is not going to be easy. And my concern is what happens if we do not get that, because I would say it is almost a certainty that we are not going to be able to pass Davis-Bacon reform before the end of this year, certainly. So the savings that is already anticipated is not going to be there. And yet the oversight of this committee is going to have to be able to come up with replacement dollars to fill that gap.

    Now, we do have another ally on the committee. Mr. Brady from my neighboring district is himself a labor leader and very well respected in the labor movement; and I am sure he will work with us to try to bring labor together to find an acceptable compromise as we did in the last session.

    But I would say I cannot see how we in the Congress—let me ask this question: Has the administration gone to the Labor Committee to ask them to work on a piece of Davis-Bacon reform yet? Has that taken place?
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    Mr. DAUER. To my knowledge, it has not, but I cannot say that they would have checked with me before doing that. I will certainly go back and ask that question.

    The proposal had the coordination and agreement with Office of Management and Budget (OMB) in more than just the fact that they included it in the budget amendment, and it was not a surprise to them at the eleventh hour. It was discussed with them well in advance. They knew it was in there, and it has their support.

    Mr. WELDON. So if we do not achieve that Davis-Bacon reform, then what happens? Are you going to give us a schedule as to where those dollars that were included as savings but did not materialize, where that money is going to come from?

    Mr. DAUER. Yes, sir. I can provide a listing of how, if it succeeds, it would be taken out. Today, it is not reflected out. It is reflected as a negative entry, in effect.

    So, you know, I agree with you. If we are unsuccessful or if it is delayed or any of those things, you know, we will have a hole to fill.

    Mr. WELDON. When you go back, I would just ask you to pass along to the department again what I told the comptroller. I am willing to work, and I would ask that Mr. Brady be included in discussions because of his role with labor. And the building trades, this is their number one issue in the country, prevailing wage.

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    Mr. Ortiz will be involved, obviously, but I am sure, Bob, you want to be involved in that issue as we try to reach reform legislation.

    The other issue deals with the depots, and Mr. Ortiz is a leader in the depot caucus. Has there been any discussion with those leaders about this idea of this savings through privatization?

    Mr. DAUER. We have in the last week tried to contact most of the member staffs from the depot caucus, and we have offered to come over and try and go through this in a great deal more detail later this week, and we hope to do that. I think the proposal has some advantages. I mean, like all savings proposals, it is not a gimme. But I think it has some advantages, and it is something that is serious, and we need to think about it.

    Mr. WELDON. The key question here, and I am not coming out against what you are suggesting, my mind is open to any idea that can give us savings, as long as the savings can be properly defined. And I can tell you in the short time I have been chairman of the Readiness subcommittee, I have not been too happy with the financial accounting systems that DOD has been using, one, in the A–76 process, and, two, in the justification of any savings from base closings.

    I guess, in my way of looking at it, the first question that I raised in my opening statement is what is the definition of the word, capacity? Is there a definition I can show to my colleagues that says when your depot is at this level, then we want to be able to do some private outsourcing? Have you defined that, and is it defined on an individual basis for each depot, and if so, who is going to determine that?
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    Mr. DAUER. Yes, sir. It can be defined for each depot. There is a DOD handbook that defines the capacity of the depots as well as, you know, how do you go about calculating what the capacity is.

    But what we have really been looking at is the issue of funded carryover. In the last budget, the 2001 budget, Congress, on the one hand, had added money for depot maintenance activities, to do more depot maintenance and address the backlog that we have. But on the other hand, they took money out because of funded carryover, in other words, work that could not be accomplished in the year it was budgeted.

    And so that is really what we are looking at, and what we are hoping to achieve is a way to reduce that carryover, or at least have fewer things going into that carryover, so that we can get the work sooner and perhaps, as a result, get a better price as well. And that is really what we are after is that funded carryover; and, as you know, in the amended budget, we put more money into maintenance as well, following Congress' lead.

    I think it is important, and the secretary clearly thinks it is important, to get the maintenance backlog down; and I think we may have a short-term bubble here, where the current workforce in the depots and the current capacities in the depots simply cannot do all the work; and we are searching for a way to deal with that. And it can be that other depots can step in and fill some of the void. They can compete for the work. Or it can be that private contractors can step in and compete for the work, and we are trying to get over this kind of bubble in the workload that we see going into the depots.

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    Mr. WELDON. Admiral Church, in your statement, you mentioned the fact that we have some degree of stability now in what our shipbuilding account lines are; and I would agree with you. But I think we have to, for the record, acknowledge the fact that in the overall scheme of things, the shipbuilding account lines are woefully underfunded. Is it not true that we are only anticipating building six ships this next fiscal year?

    Admiral CHURCH. Sir, that is correct.

    Mr. WELDON. If we follow that, does that not draw us down to somewhere near a 200-ship Navy?

    Admiral CHURCH. Assuming a notional service life of 30 to 35 years, that would eventually get you to that level, yes, sir.

    Mr. WELDON. Which is, to me, absolutely unacceptable and ridiculous that we would be moving in a budget process to build us down to a 200-ship Navy. I would assume you would agree with that.

    Admiral CHURCH. Yes, sir. I agree.

    Mr. WELDON. So while we may, in fact, agree that we have some stability, and we may be pleased with where we are with our operation and management (O&M) account lines, the bottom line is that we are nowhere near what I think most of us feel we should be.

    Do you share the same feeling in terms of the Army's needs, General? Even though we are perhaps meeting the specific O&M needs right now, would you agree that we have serious shortfalls in, for instance, the transformation of the Army and programs that need to be more fully funded, like Comanche and Crusader and so forth?
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    General SINN. Sir, not necessarily. I would agree that we have shortfalls in funding up against the three elements of transformation which include looking after the interim force, certainly putting the necessary science and technology resourcing up against our objective force requirement; and then the enabler for all of that, of course, is our legacy force, the force that is on the ground today.

    And if we have a shortfall, it exists in that force by way of keeping it kind of in a band of a reasonable future life that it can have, engineer design life, if you will, that takes even what it should. So I think transformation is reasonably funded, but not critically unfunded.

    On the flip side of that, if we are looking after the operations and support (O&S) requirements, operation and support requirements in the Army, this budget reflects a better position than any that we have enjoyed in about the last 15 years, as near as I can tell from just looking at the data; and so we are pleased with that. I am not saying that everything is perfect, Mr. Chairman.

    Mr. WELDON. It is moving in the right direction. I would agree with that.

    General SINN. Yes, sir.

    Mr. WELDON. General Northington, how about from the Air Force perspective? Do you still have shortfalls that need to be met?
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    General NORTHINGTON. Yes, sir, we do. In this year's budget, again, as I described it, it is a generally good news story. That is very much true in the readiness accounts, those that I mentioned, flying hours, contractor logistics support, some very good positive movement in depot cost, depot repair work. There is going to be increased money in spare parts. And so all those that are sometimes most closely associated with readiness accounts, the Big R, if you will, there is positive movement there.

    But the shortfall areas that we simply were not able to get to in this budget are in the transformational area, the ability to be able, again, to recapitalize an aging aircraft fleet. We have not been able to make any significant progress in that particular area. So we have significant shortfalls in Collection Operations Management (COM) infrastructure, information technology areas that we have not been able to step up to there, to mention a few.

    The RPM accounts for the Air Force, the real property maintenance accounts for the Air Force, we were not able to increase those to the level we would have liked to have been able to do so. And so while we have made good progress in the budget in military construction accounts, we have not been able to make that same kind of progress in the RPM accounts. So new construction is positive. Repair of current facilities is not so robust. So I would offer that balance.

    Mr. WELDON. And, finally, Mr. Wallenhorst, I notice there are no cameras in the room today, so I am well aware that Dan Rather has not joined us today to criticize the Marines and their pursuit of the Osprey, in spite of the fact that we just had another tragic accident with the CH–46. In fact, the pilot was from my district, in fact, from my old hometown, and three Marines were killed in that crash, and Dan Rather does not choose to focus on the fact that we have lost a brigade of Marines in crashes of the CH–46 since that program was developed, and we are having more and more difficulty in keeping those aircraft flying.
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    So we could always use additional dollars, but are you satisfied from the Marine Corps standpoint with the dollars in the budget?

    Mr. WALLENHORST. Sir, from the readiness perspective, we are. From the infrastructure and modernization perspective, we know we have a long way to go.

    I would reiterate what General Northington said about RPM. In fact, for the Marine Corps, our maintenance of real property is down in 2002. That is a problem for us. It has been a bill payer. It continues to be a bill payer.

    We are also concerned about the pace of modernization. You mentioned the CH–46 going down. There are a number of initiatives that we have to try to keep that airplane in the air until the V–22s come along. But there are a number of other areas where the pace of modernization needs to be accelerated in order for the Marine Corps to succeed.

    Mr. WELDON. Mr. Ortiz.

    Mr. ORTIZ. Thank you, Mr. Chairman, and I want to take this opportunity to welcome the witnesses today.

    You know, I noted that the budget submissions for each of the services and the corps include some funds from saving initiatives; and I would like for each of you to tell us how much of your budget is dependent upon achieving some anticipated savings, and what readiness programs are at risk if the savings did not materialize. I mean, we hope they do, but suppose they do not. Now, what percentage is depending?
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    Mr. DAUER. Let me try and approach that from the overall point of view. Mr. Weldon and I have discussed back and forth about the 190 for Davis-Bacon and the 140 for the depots. Those, I think, are the two most significant.

    The other savings that have been mentioned are the firefighters and security guards. In that case, the funds are actually left in the budget, and the services have those funds, and it is kind of up to them how they use it. And you can ask them whether they left them in the accounts in anticipation of, whether they anticipated success or whether they did not. I mean, they can tell you that.

    The other savings were: One was in the health program, which the services do not control, and the other was in the contingency operations account, which, again, the services do not control. They are both DOD accounts. And those are pretty much straightforward budget kind of things. So it is really the 190 and the 140, and I do not have with me a split by service, but we can certainly provide one.

    Mr. ORTIZ. But suppose it does not pan out, and you do not have the savings that you anticipate you are going to have? What is next?

    Mr. DAUER. Well, then we have a problem that we will need to deal with.

    Mr. ORTIZ. The reason I asked this question is because in the past, they have anticipated savings in many, many areas, and they have not materialized. What I am really concerned about is what effect does this have on readiness. I mean, are we going to go through the same thing we have gone through for the past two or three years?
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    Mr. DAUER. No, sir. I think, given a $32 billion higher budget than it was in 2001, that there should not be any need to go through the same thing that we have gone through for the last few years with supplementals and those kinds of things, no, sir. Even if that $300 million worth of savings does not materialize, I think, hopefully, we can manage our way through that.

    Mr. ORTIZ. So what happens with the firefighters? I mean, is this policy that you can do on our own, or do you have to come to the Congress to change that?

    Mr. DAUER. No, sir. It requires legislative authorization to do that.

    Mr. ORTIZ. So, see, this is what I mean. Suppose it does not pass? You will not have that savings.

    Mr. DAUER. Well, in that case, the budget, no funds are taken away from the services in anticipation of those. So the money associated with the firefighters and the security guards is still with the services. So if that does not pan out, they can go back to where they started out originally.

    Mr. ORTIZ. See, this is something I feel that we need to not depend on assumptions, because assumptions are assumptions.

    You think you might have that savings, but it is a good possibility that it will not happen, and then this is really going to impact on the readiness accounts.
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    And I have seen this in the past, where they were taken away from, you know, building roads, or taken away from readiness to build this, to build that. I hope we do not go into the same thing we have had in the past, Mr. Chairman.

    And something else now, what about the A–76, you know? I understand that there is going to be at least 3,200 A–76 studies that might impact on I do not know how many thousands of workers. That is $16 million, from what I understand, that you will be spending for the A–76.

    With the A–76, we are focused on taking jobs away from the civil public section, in-house, and putting them out. But once those jobs go out, we have no idea whether the prices go up, whether they become more costly or not, because nobody is telling us that.

    But I am toying with an idea of bringing in an amendment to put another $16 million to see those jobs that have left the public sector, to see if we can bring them back in at a savings, because it has been one way for many, many years, focusing on putting the workload out and nothing to bring those jobs in. And I am not against contracting out when it makes sense. But, I mean, 3,200 A–76 studies—that is a lot. Can you tell me how you are pursuing that for all the services?

    Admiral CHURCH. Well, I can speak for the Department of the Navy. We have got experience with assuming savings and then not being able to achieve them. We built ourselves a pretty good hole on assuming A–76 savings over the years that we were not able to achieve.
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    We now have a plan which we think we can get to over the next five years. We are going to be studying over 100,000 positions, and over 40,000 of those will be subject to A–76 competition. To add on top of that an aggressive pursuit of A–76 that we already have, I doubt that we can achieve. In fact, we have money in the budget now for studies that we are not able to execute because we just cannot move that fast.

    So I am worried that we have already built ourselves such an aggressive time line that we cannot achieve what we have in our own budget. Anything more is going to put us in a difficult position.

    Mr. DAUER. If I could just come back to that for a second, you are correct, Mr. Ortiz, in that $16 million is included in this budget to do 3,200 studies. But no money was taken out of the budget to reflect any results of those studies.

    So in this particular case, the services have the money, and the savings will basically go to them if they are successful in doing the competitions and actually save money. And if they do not, they do not lose anything because no money was taken away from their budgets. So what you have is $16 million in there and no minuses anywhere. So, you know, I think it is a healthier situation in some ways than some of the other ones we have been talking about, because you have the intention to try and make this work, and if it does not work, no money has been taken away, so there is a no-harm, no-foul kind of thing.

    Mr. ORTIZ. On these A–76 studies that you are conducting, I saw somewhere it was 3,000 and some. Do you know how many employees are impacted, how many would be affected under these 3,200 studies?
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    Mr. DAUER. I do not know, sir.

    Mr. ORTIZ. Does anybody know?

    General NORTHINGTON. I could give you some numbers for the Air Force, specifically, sir, not for DOD at large. In the fiscal year 2002 budget for the Air Force, the total number of dollars of manpower positions that we are examining for study is about $900 million. If historical evidence proves to be true in the future as it has in the past, you save about 25 percent.

    And so when you pay for any separation costs, the cost of actually executing the study, if you will, the overhead cost of doing the A–76 study, out of the $900 million worth of manpower positions, and by the way, that equals about 15,000 manpower billets, or positions, if you will, you can save about $140 million. Again, that is based on historical evidence only.

    Mr. ORTIZ. All assumptions.

    General NORTHINGTON. That is correct.

    Mr. ORTIZ. This is what bothers me, Mr. Chairman. And most of you know the problems we are having with the aging workforce, in that we do not have young blood coming in like we would like to see.

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    And last year, Congress added money to the budget to fund a depot apprenticeship program in the Army; and I do not know if you have plans to include more money in this year's budget to continue to have this apprenticeship program in the Army?

    General SINN. Sir, across the Army, I think I would make it a little broader, if I may. Certainly, the depot apprenticeship programs would be a proper subset of what we are talking about here.

    We funded about 50 percent of what we think the known requirement is to go ahead and start to put some youth back into the force to accommodate this spike that may occur from the force that is averaging close to 50 years in age as it moves on. We got halfway there inside the budget. We will take another look at it as we move into 2003.

    And it is kind of a chancy forecast, I guess, to make. The question is are those folks that are eligible to retire at age 55, plus 30, going to leave at the time; or because of better health, better working conditions, and the rest of it, are they going to stay a little bit longer? So we took about half of it, and we got that in our program this year. We will take another look at it as we move into next year.

    And then, of course, with the status review going on and the results of the QDR pending, that could also impact on what we are doing. So I think we took a prudent position.

    Mr. ORTIZ. But if I understand correctly, there are a lot of young men and women under this apprenticeship program, but after the year 2002 budget, what happens to them? Are they going to be left, gone? Are they going to be terminated? And then we have the same problem we had before.
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    General SINN. Sir, you know what our problem is better than most and better, certainly, than I in the depots; and there are particular skills that we are going to have to retain in the depots. We need them there not only for the typical depot maintenance operations that we provided, but we are going to take greater interest in that because of the recapitalization effort that is associated with providing major assemblies to bring systems back to zero hours and then zero miles.

    So we are not treating this thing lightly. I am just making sure you understand, sir, that we only funded 50 percent of what we think the requirement is inside this budget.

    Mr. ORTIZ. I do not want to take anymore time.

    Mr. WELDON. Will the gentleman yield?

    Mr. ORTIZ. Yes, I yield, Mr. Chairman.

    Mr. WELDON. The key frustration that we have in the department's attempts to provide additional savings—and nobody in Congress is against saving money, because we need to free up more resources to modernize, to do research, and to take care of quality of life issues—the problem we have is that there is a lack of confidence in the basic financial reporting and accounting systems that allow you to make the case to us as to what you are saving.

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    We had the hearing on the A–76 process. Mr. Yim gave us a number that was what he said DOD had accumulated in savings in a year or so of the program's operation. It was a year, I guess, or more than a year, total. He gave us a figure of $200 million.

    And then I went down to each of the services, and I said give us what you saved. Well, the Navy said we saved $1.2 billion, and the Air Force said we saved $180 million. When you add up all those numbers, the services were saying that we have saved $1.5 billion, when the representative of the secretary was saying we saved $200 million.

    So you can see that the problem we have up here is that we do not have confidence that you have a common set of financial operational numbers and processes that gives us a feeling that the numbers you are giving us are credible. And so you are going to have a tough time convincing the Congress that there should be enhancements of the A–76 process, depot maintenance moved out, base closings, all of which could be perhaps justified in need, until you deal with the most fundamental issue of establishing a credible financial system and processes that all of you agree on, so that we have a common set of numbers; because when the services come in and tell us that they have saved $1.5 billion and the secretary's office says, well, we have only accounted for $200 million, it creates that lack of confidence that stops us from moving in these reform areas that all of you think are so vitally necessary.

    We want to help you, but you cannot expect it, because the Congress has its parochial concerns. And if I have a depot in my district, which I do not, then I am not going to listen to your numbers unless I have total confidence that the numbers you are giving me are, in fact, based on an accurate set of data that all the services agree on; and up until now, we have not seen that.
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    So I would try to convey to the secretary and to Mr. Wolfowitz and to Dr. Zakheim that that has got to be the top priority. Get that in place. Show us what the system is that you are using. Show us that all the services are in agreement on how they are going to estimate savings, and whether it is through A–76 or base closings or outsourcing or whatever, and then we can move forward to take on some of the tough challenges. Otherwise, you are going to have Members ganging up opposing the closing of additional depots, the phasing out of work, or enhancement of the A–76 process because of that lack of confidence.

    So I just wanted to make that statement, Mr. Ortiz, because you know we have had the same problem before.

    With that, we will go to Mr. Bartlett.

    Mr. BARTLETT. Thank you very much.

    Mr. Dauer, will you tell us what you understand is meant by activity-based costing?

    Mr. DAUER. Yes, sir. Activity based costing, to me, means that we can break down our costs so that we know exactly what we are getting for basically every dollar we spend, and we know exactly how productive the activity at the other end is.

    Mr. BARTLETT. Are we doing this?

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    Mr. DAUER. I think we are trying to move in that direction, but it is not fast enough to satisfy me, and I suspect from your question it is not nearly fast enough to satisfy you.

    Mr. BARTLETT. Do all of the services use the same parameters when doing this so that we can compare from one to another?

    Mr. DAUER. No, sir. In this budget, we are proposing to put some money into improving our financial management systems, particularly putting in place an over-arching architecture which, hopefully, will move us in that direction. Unfortunately, I hasten to add that it is not something that we can do as quickly as I would like or you would like.

    Mr. BARTLETT. Competition, of course, generally makes things better and cheaper; and with competition in the military between the services, you would expect to achieve the same kind of results. But if we do not have a common system between the services, then there is no way for them really to lay claim to be doing a better job than another service, is there?

    Mr. DAUER. No, sir. On the other hand, we have to be careful about competition among systems, because if we are going to have an over-arching system that makes sense and can be audited from the beginning to the end and provide the kind of activity-based information that you referred to, we need some consistency amongst the services as well.

    Mr. BARTLETT. Let me ask the service representatives, in terms of retention, would we be better served by across-the-board pay raises or targeted pay raises?
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    General NORTHINGTON. I would be happy to start on that, sir.

    Mr. BARTLETT. Okay.

    General NORTHINGTON. From the Air Force's point of view, retention, not recruiting, but retention is the greatest challenge in our personnel area today. We may have turned the corner in the recruiting area. For the second year in a row, we are meeting our recruiting goals, bringing on 34,000 plus recruits this year and, in fact, believe that we can actually increase that slightly to about 36,000 next year.

    That is working pretty well for us, after a significant level of investment to get to that level, to include national advertising programs, enlistment bonuses, and a number of areas to bring on and attract new recruits. And so that part of the people account is working pretty well.

    The story is not so rosy in the retention area for the Air Force. While we are meeting our goals in recruiting, we are also meeting our goals in retention of only our first term airmen. Our second term non commissioned offices (NCOs), those at about the six to eight to 12 year point, and our more senior NCOs, as well as the middle of our officer force, those at the major grade, if you will, eight to 14 years of service, we are falling short of the goal in being able to retain those kinds of folks.

    The career fields would not surprise you. In a very real sense, despite the turn in the economy, if it is high tech, it is still at a high demand; and there is still very much an attraction for our folks and those mid-grade NCOs, senior NCOs, and mid-grade officers to migrate out of the service for the attractiveness of those jobs.
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    And so in this year's budget for the Air Force, we have put a significant portion of our people ads, the money for people programs, specifically in the retention area, specifically in the middle of the NCO force, in reenlistment bonuses and in, to some measure, the targeted pay raise, which answers your question. The Air Force would say to you that we favor the targeted pay raise because the targeted pay raise goes after our specific and precise problem in the middle of the NCO force and the middle of the officer force.

    There is an equity issue, Mr. Bartlett, that I understand. Do we make that pay raise a flat or a level pay raise across the board, or do you focus it more at those mid-grades.

    And because of the Air Force's problem with retention, the Air Force would favor the targeted pay raise, specifically to attack the retention problems we are having.

    Mr. BARTLETT. Is this going to create a morale problem if the same rank is getting different pay?

    General NORTHINGTON. I would suggest to you that, certainly, there is potential for that. I mean, it is a good observation, sir. Also, there is the possibility to reverse that the other way around or talk about that from a different perspective.

    There is some apprehension by some of the more senior NCOs that, in fact, we have used enlistment bonuses, reenlistment bonuses, to attract the more younger NCOs to stay in the force; and you begin to create not a pay inversion yet at the senior grades, but a pay imbalance at the senior grades. And this, in some measure, begins to reverse that and put that back in perspective.
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    So, again, we think that that can have the effect of a positive retention impact, not a negative retention impact. When you are measuring people's attitude about their compensation package, it is not a precise science. And so, again, what we are giving you is our best judgment as to the way we think it will be received by our troops in the field.

    Mr. BARTLETT. Does the Marine Corps have problems with retention of specific skills so that you need a targeted pay raise, or would across the board do?

    Mr. WALLENHORST. Sir, the Marine Corps has long supported across the board pay raises. We feel that we need to treat all of our Marines the same. However, because of some of the same problems that General Northington mentioned in terms of retention, the Commandant this time supported this targeted pay raise in order to attract and retain the people that are in those more senior grades.

    Mr. BARTLETT. The Navy?

    Admiral CHURCH. I think we would concur. The five percent applies to everybody, and then I think some of the targeted areas get as high as close to a ten percent pay raise for the same reason as the Air Force and Marine Corps. That is what the Chief of Naval Operations (CNO) supported, and we think that is the right answer.

    General SINN. The same in the Army. We are all in agreement. I think the senior chiefs from the other services and our Sergeant Major of the Army took a look at this, and they like what they see out there in the enlisted side of the house, in terms of a directed pay raise. Certainly, the service chiefs looked at the other, and it is okay. Regarding our retention, our retention average right now is 105 percent in the Army.
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    Mr. BARTLETT. A very well intentioned Congress in the last couple of years has legislated a floor on your personnel. You could not go below that floor.

    I was opposed to that then. I am opposed to it now, because I think that if we legislate a floor, which requires you to maintain more personnel than the dollars we give you can support with infrastructure and modernization and so forth, we have not done you or our country any favor.

    Have we mandated floors which are too high so that we have reduced readiness by requiring you to expend monies for support of these personnel when we do not have adequate infrastructure and munitions and modernization?

    General SINN. Sir, I would tell you from the Army's standpoint that it is not so much the floor. It is the ceiling that is difficult. And what we have got is a force that is over-missioned and under-resourced in terms of people, that is, up against the current strategy that we have.

    Mr. BARTLETT. Do we not make that problem worse if we require you to have more people and give you less money to support them?

    General SINN. Mr. Congressman, again, I do not think you're requiring us to have more people. I think the ceiling is our problem.

    Mr. BARTLETT. But we have legislated floors. You cannot go below a certain number.
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    General SINN. I do not see it as problematic from the Army's side on the floor side.

    Mr. BARTLETT. Okay. The Navy?

    Admiral CHURCH. Actually, the Navy has gone a little bit in the opposite direction. You have legislated 372,000. They are going to finish 2001 very close to 376, which is the plus one percent.

    Because they have had better than expected retention, and the CNO wants to keep that momentum going, we have reduced the billets at sea that are gapped. But it is presenting a situation where we have had to get money this year through a supplemental and probably through a reprogramming action to get through the year.

    So the floor has not hurt us. We were actually targeting the ceiling.

    Mr. BARTLETT. You are above the floor, so the floor has not hurt you.

    Admiral CHURCH. And we need those people for anti-terrorism force protection, to fill out our maintenance billets, and to reduce the gapped billets at sea.

    Mr. BARTLETT. And the Air Force?

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    General NORTHINGTON. Sir, the floor has not been a barrier to us this year. As I mentioned before, our problem, opposite to my friends from the Army and the Navy, is the fact that our retention problems are going to cause us to come in slightly under strength. In other words, we are executing all that we can in the recruiting area, bringing in all the recruits, and, in fact, increasing that, as I described to you a few minutes ago, as an effort to bring that number up.

    And, in fact, our chief will tell you that based on the operating tempo (OPSTEMPO), the workload, if you will, General Sinn's comment of we are over-missioned, that OPSTEMPO issue, the chief would argue that we need to actually grow the manpower account slightly, not go down. So the floor, sir, we are attempting to operate somewhat above that floor and having some difficulty being able to achieve the kind of growth we think is necessary to match up the people and the mission account.

    Mr. BARTLETT. But are missions and dollars matched? This is my concern. I know you do not have enough people for the missions that you have been required to do, and so you have put off O&M, you have put off modernization; and my concern is that if we are requiring you to have too large a personnel account, we are now detracting from quality of life or detracting from O&M. We are taking money away from modernization.

    I know that our concern was that it looked like the military was going to shrivel up and blow away a few years ago. They called it downsizing. You know, we were tearing it down rather than downsizing.

    And I was concerned that we ought to leave it to the good judgment of the military as to the right mix of personnel and support dollars and modernization, and we were not doing that. We were mandating floors, and I know several years ago that the services all came in opposition to our mandating those floors, and I was just wondering was it still a problem.
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    Apparently, with the increased funding we have given you in the last few years, that is not now a problem. That is what I am hearing.

    Is it the same in the Marine Corps?

    Mr. WALLENHORST. Sir, I would say for the Marine Corps, the issues you addressed are right on. Like the Navy, we are over strength this year. From the commanders' perspective in the field, of course, that is good news, because too often they have complained to the commandant about being under-manned.

    The other side of that issue is, like the Navy, we will request reprogramming to move money from our modernization account, our procurement Marine Corps account, into military personnel this year in order to cover that over strength situation. So it does mean we are concerned about the pace of modernization, and yet we are having to move some of that money into military personnel to cover that.

    Mr. BARTLETT. Just in closing, Mr. Chairman, if you are looking at personnel numbers relative to missions, clearly, you are not over-staffed. If you are looking at them relative to the dollars that you have available, that is a whole different way of looking at it.

    And you have just admitted that you are having to rob modernization to pay for personnel, which confirms my concern.

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    Mr. WALLENHORST. Yes, sir.

    Mr. BARTLETT. Thank you very much.

    Mr. WELDON. Thank you, Mr. Bartlett.

    The gentlelady, Ms. Davis.

    Mrs. DAVIS OF CALIFORNIA. Thank you, Mr. Chairman, and I appreciate all of you being here.

    We talked a lot about ship maintenance, and I am still a little unclear in terms of your requirement and what you actually request versus what you get versus what you can actually spend. Could you walk me through that a little clearer? What I am trying to figure out is where is the gap. And I think what I heard you say is that we do not have as great a gap now going into 2002; and that, in fact, we are funding better, but I do not know how much of that is coming unfunded from 2001, and whether we still need to answer those needs.

    Admiral CHURCH. Yes, ma'am. The short answer is, in my opening statement, I said we did not meet all our goals. We are a couple of hundred million dollars short of where we would like to be in ship depot maintenance for 2002. So that is going to cause some availabilities to be unfunded.

    Now, we are $600 million, almost $700 million higher than we were last year, so it is primarily a good news story, but we did not quite get all the way up. Part of the reason we did not is we, as the CNO has testified he would do, he re-baselined the requirement, and so in the process of re-looking at the requirement, the requirement grew. We were understating the requirement.
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    We now think we have the requirement fully stated so that in this budget, you will see that we are funding nationally 90 percent of our requirement. Last year, we were funding 95 percent.

    So we have added money, but we are still five percent short, or $200 million, roughly, of our goal for ship depot maintenance. We are going to get a lot more maintenance done, but we are not quite at the level we would like to be.

    Mrs. DAVIS OF CALIFORNIA. What is missing in the five percent, then? When you are setting some priorities about not funding it fully or not asking for that full requirement, what is left out?

    Admiral CHURCH. I can give you a general answer, that we generally fund our depots, our public sector yards, to capacity; the question that the chairman was raising earlier, to make sure they are at capacity, and then the difference would fall out in terms of generally private sector work spread around the country, not necessarily canceled availabilities, but availabilities that might be funded at $20 million would be funded at $10 million, that type of thing. I could probably give you a more detailed breakout if I could take that for the record of what we would do with that additional roughly $200 million that we did not quite get.

    Mrs. DAVIS OF CALIFORNIA. Does that impact the ability of some of our firms that are doing, obviously, your work and other work as well to maintain their work force? Part of what I hear in San Diego is that with nervousness around supplementals, there is a fallout, that people who are skilled may leave; and we are not able to really keep them employed over the course of time. Do you see that as a factor? Is that something that we should be concerned about?
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    Admiral CHURCH. Well, of course, we are concerned about it. If there is $200 million of work that is not being done, that would certainly impact the workload at the private yards.

    In the case of San Diego, as I remember, I think their workload is up significantly from what it has been in the last couple of years. I am not sure. With the supplemental, 2002 may be fairly close to 2001.

    But, again, by adding $600 million of work from where we were last year, I think it is generally a good news story. I would have to get you the specific numbers from San Diego. But I think we are certainly in a lot better shape than we were last year, even with the supplemental.

    Mrs. DAVIS OF CALIFORNIA. Well, that is good to hear. When we talk about how we could not achieve all the work that is out there, is that personnel that is not available? Is it spare parts?

    Admiral CHURCH. It is strictly funding. We have the capacity in the yards, public or primarily private sector. The workforce would go up. It is just primarily the level of funding that we did not quite achieve. We are actually fairly happy we got almost $700 million more into that account this year, but, again, we did not quite make the number we were shooting for.

    Mrs. DAVIS OF CALIFORNIA. Okay, fine. Thank you. I appreciate that.
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    If I could just turn for a second to Mr. Wallenhorst, how is the Navy-Marine Corps Intranet going? Where are we in the progress that we are making?

    Mr. WALLENHORST. Well, ma'am, the Marine Corps is not scheduled to implement Navy-Marine Corps Intranet until the third quarter of fiscal year 2002. What we are doing right now is watching how the Navy is implementing. We have the funds lined up to be prepared to do that. We are concerned about slippage in the program.

    Our situation is a little bit different than the Navy's, because we had our Marine Corps enterprise network online, whereas the Navy had a number of disparate systems across the climates, so their needs are a little bit different.

    But our concern is that because we have stopped investing in the Marine Corps enterprise network, with the expectation that NMCI will be there in the third quarter of fiscal year 2002, we are concerned that if there is any great slippage in that program that we will need to begin to re-invest in our existing system.

    Mrs. DAVIS OF CALIFORNIA. Are we wasting some money in that process? I do not know.

    Admiral Church, do you know?

    Admiral CHURCH. I do not think so. This has been a fairly significant endeavor, and I know this committee has been very involved in the Navy-Marine Corps Intranet.
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    We have assumed contractual responsibility for over 45,000 seats now. The good news is people are starting to call and wanting to hook up, so the number is over 400,000 now, I think, of eventual seats that we will be bringing online.

    We are entering the pause phase right now. We have to do the reports to Congress. There are several things impacting that. We got a four month late start. A lot of legacy applications, more than we thought, have to be dealt with.

    And, finally, there is an internal discussion of how much testing we have to do, and I think you have been very supportive. If we have to meet a full weapons systems type testing schedule, we are probably going to be delayed with restarting the next phase of NMCI until next year. So we hope that we can get a commercial standard for testing and, by January at the latest, have all the reports to you and continue to move on. And that is where you could certainly be a continued help to us, keep the testing on schedule.

    Mrs. DAVIS OF CALIFORNIA. Basically, our role here is to continue to ask those questions.

    Admiral CHURCH. Yes, ma'am.

    Mrs. DAVIS OF CALIFORNIA. How are you doing? Staying on track?

    Admiral CHURCH. The testing right now appears to be the long pole in the tent. If we can get that part of it ironed out, we can, hopefully, make progress.
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    Mrs. DAVIS OF CALIFORNIA. Is there a sense that the testing is overkill?

    Admiral CHURCH. There is a difference of opinion. Some people would like us to test all of NAVAIR Headquarters, for example. Some people think it is sufficient just to test some elements of that headquarters. You do not need to bring the whole headquarters online to do the testing. So if we can go with the lesser requirement, we can get it accomplished much quicker.

    Mrs. DAVIS OF CALIFORNIA. Thank you.

    Thank you, Mr. Chairman.

    Mr. WELDON. I thank the gentlelady.

    Mr. Gibbons.

    Mr. GIBBONS. Thank you very much, Mr. Chairman.

    I have been very interested in reading the testimony of all of you, and there is still some persistent questions out there as I talk to units and groups across the country and oftentimes visit bases, not only in my Congressional district, but in other states. I am still very concerned about spare parts.

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    I would like each of you to tell me what your sense is of the current status of your spare parts in major organizational groups right now. Tell me what your sense is. Are we adequately covered with spare parts? Are we short? What is going on?

    General SINN. Sir, I will start on the Army side. If you asked us six months ago what the dollar magnitude of our spares shortage was, elements on the shelf, parts on the shelf, we would have told you that the number was $1.3 billion.

    Mr. GIBBONS. $1.3 billion?

    General SINN. It comes with a qualifier. Of that, about $800 million and a little bit is really associated with direct funding or what you would have to put into the cash corpus of the Army Working Capital Fund to bring parts on the shelf.

    How have we done in this budget against that $800-plus million? This budget funds $350 million of it. It gets us a ways down the road.

    We think that if our cash position stays reasonably high via obligation authority on our own hook within the system, we could maybe generate another $200 million during the year in terms of relief. It would ultimately have to be backed up by a customer sale. But I think it is okay there. That is about as far as we could possibly get inside of 2002.

    I would remind, sir, that that is a long ways from what I started with, a huge number, and knocking it down to something that is still a huge number, we applied a pretty husky amount on it in this budget.
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    Mr. GIBBONS. So you are anywhere from $500 million to $300 million short this year just for spare parts.

    General SINN. For spares on the shelf, yes, correct.

    Mr. GIBBONS. The Navy?

    Admiral CHURCH. Yes, sir. There is really two pieces to this. The first is the flying hour program, which is the consumption on an annual basis, and that program had, I think, $700 million added to it. We think that program is adequately funded.

    The second piece is the procurement piece, which buys the spares initially and puts them on the shelf. Again, this is mostly a good news story. We have got $500 million more in that program this year than we had last year.

    Mr. GIBBONS. What is your shortfall?

    Admiral CHURCH. I will have to get you the exact number. I am guessing $100 million. But, again, like ship depot maintenance, we got about 80 percent of the way there. If I can take that for the record sir, I will get you the exact number.

    Mr. GIBBONS. General.

    General NORTHINGTON. Mr. Gibbons, again, I did not have a specific spares shortfall in all the various accounts between depot and flight line spares. I will get that for you for the record.
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    Mr. GIBBONS. Do you have a sense of what magnitude it is going to be?

    General NORTHINGTON. No, sir, I do not, not at this point. But what I would like to add, though, is that the initiative to try to address the spare parts issue is, as in the case of the Navy, substantial increases in the flying hour costs. Sixty cents out of every dollar in flying hours goes for spare parts, and the largest problem we have had in properly pricing the flying hour program has been cost growth due to consumption of spare parts and increasing price of the spare parts. So fully funding the flying hour program has been one of the most important steps to try to go forward, as well as fully funding the depot.

    Mr. GIBBONS. We will go back to the issue of cannibalization of flying hours in a second as well. How about the Marine Corps?

    Mr. WALLENHORST. Sir, as far as the flying hour program goes, I would reiterate what Admiral Church said in terms of the additional spares. The money received in the 2002 budget will be helpful.

    For ground spares, we have budgeted at relatively the same level for a number of years. I do not have what our shortfall is, and I will provide that to you, sir, but our funding level, we think, is balanced, given the rest of the funding requirements that the Marine Corps has.

    Mr. GIBBONS. Mr. Wallenhorst, let me just reverse, and we will go back in the other direction. What is your policy on cannibalization?
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    Mr. WALLENHORST. Sir, of course, we would prefer to not cannibalize.

    Mr. GIBBONS. I think everybody would agree with that.

    Mr. WALLENHORST. But as the need exists, as equipment becomes older, that is a fact of life that that occurs from time to time. I do not know that we have a specific policy on cannibalization, but I will check that and provide it to you.

    Mr. GIBBONS. General.

    General NORTHINGTON. As a former wing commander, cannibalization is about choice number 30. I mean, that is one of the last things you want to do, because it is double or triple work to be able to do it.

    Now, one of the things, in terms of the spares inventory and the help that this Congress and the committee has given us, as an indicator of improving inventory of spare parts, is reduction in CANN rates. In the Air Force, overall, we are down from about 14 CANNS per 100 sorties to about 11 CANNS. That is about ten and a half too high, but that is movement in a positive direction and an indicator at the macro level that the inventory of spare parts has moved from the purchase plan, if you will, to the shelf down to the squadron level where it can be actually applied.

    Mr. GIBBONS. Okay. Navy?
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    Admiral CHURCH. I do not remember the data, sir. I will have to get it for you. But, again, it is the choice of last resort, obviously.

    Mr. GIBBONS. Army?

    General SINN. We do not use the term, cannibalization, sir.

    Mr. GIBBONS. It is to eat your young.

    General SINN. I know what you are talking about. On ground systems, the policy is you do not do it. On air systems, the policy also is you do not do it, but we do do controlled replacement.

    And let me illustrate what is going on here. If you took a look at two high density Army air systems, you could draw some immediate conclusions. One, the UH–60 Blackhawk, we have been through a process of modernizing that fleet, bringing on the L and M series. Our cannibalization rate on that, your term—our term is controlled replacement—is only one-eighth of what it was in 1990 because of that effort in that system.

    The flip side of that is when you get into the AH–64, the Apache, all categories, we are five times what we were doing in 1990, as we take the measure of the man hours applied. Our policy is we do not do it unless specifically directed by probably—and I think it is a colonel commander—06 commander in the chain of command that can direct it because of the same difficulty that is already been talked about at the table here. As you break things and when you take them off, a lot of times losing track of where you are at is easy to do; and it is a problem. And that problem in our aviation system relates to the spares question that you asked me earlier.
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    Mr. GIBBONS. As I look across this table here, there is not one of you that is inexperienced in budgetary matters. And what I find is when asked about the budgetary shortfalls for spare parts, it is a vague description that has to be divided into a couple or several parts.

    And, Mr. Chairman, I know that our nation's military has been around for 225 years. The principals of accounting and budget have been around since before Ebeneezer Scrooge. And I have sat on this committee for five years, and each of the five years, we have been very concerned about spare parts, what has happened with the cannibalization rates, and various activities that have to do with modernization, with readiness, with retention, and all of those parts.

    As you have said, when you take one part off an old plane, put it on another one to make one fly, take that part back off, put it on the old plane, put the new one back on when it arrives, it is a duplication and triplication of work. What worries me is when we in this Congress ask GAO to ask for a spare parts funding study, what happens is the Department of Defense and agencies, either from the Army, Navy, Air Force, or Marines, cannot tell us exactly what is happening to the funding on these spare parts accounts.

    And so, albeit typical, one of our real concerns is how do we keep our readiness high and yet we keep finding ourselves unable to answer questions about what are the dollar figures, where do we go, how much more do we need in spare parts, and what happens to the funding that we send you for spare parts.

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    Mr. Chairman, I apologize for getting on a soap box there, but this spare parts issue is an enormous question. I do not know if we are using the money in categories that were not available to tell us in previous years, or whether or not it is aging maintenance that is causing spare parts questions in funding, but we do need to get to the bottom line. How much spare parts do we need? Where do we solve and plug this bathtub that we are filling up now?

    Thank you, Mr. Chairman.

    Mr. WELDON. There is no apology necessary. The gentleman makes a very valid point, and I share his concern.

    Mr. Chambliss.

    Mr. CHAMBLISS. Thank you, Mr. Chairman.

    Mr. Dauer, how much money do you have in your budget for the various A–76s where we are going into the private sector and trying to determine whether or not we are achieving the savings that were projected on projects that were moved out of our depots into the private sector?

    Mr. DAUER. Mr. Chambliss, to my knowledge, we have no money to go back in and do that kind of a study.

    Mr. CHAMBLISS. Okay. And we have got $16 million to do A–76s in this budget?
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    Mr. DAUER. Yes, sir.

    Mr. CHAMBLISS. General Northington, do you think we have full funding for our depot maintenance in the Air Force this year?

    General NORTHINGTON. Sir, I think we are at about between 89 and 90 percent. What that money does is we put about another $400 million into the depot lines this year. We moved up from $2.4 billion last year to $2.8 billion this year. That is good news. That increase is good news.

    The not-so-good news is it buys us about the same level of output. If I just measure that in something very simple, like total aircraft overhauls and total engine overhauls, we are running about 350 aircraft overhauls and about 1,000 to 1,100 engine overhauls. Mr. Chambliss, that is just about flat line from where it was last year.

    So we are experiencing some increase in cost growth, if you will, to buy us the same level of output or production from it. Another $113 million would enable us to jump that from about 89 percent funding level to 92 percent funding level; and, sir, that is about where we probably need to meet the capacity.

    And that capacity, as you know very well, is limited by a number of factors. One of those is aging aircraft. It is not a question of can the depot work better, faster, more efficiently, because, in some cases, they can and have and have shown they can do that. But they are also working on older aircraft that is taking more man days per aircraft to push through that depot line, and that is causing us a bit of a problem as well.
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    So my answer to you, sir, is we are at 89 percent funding, and $400 million additional buys us about the same level of output in terms of repair work done at the end of the year in 2002 as we would have had in 2001.

    Mr. CHAMBLISS. And that assumes no reason for a surge in the upcoming year.

    General NORTHINGTON. No, sir. That is a steady state production level.

    Mr. CHAMBLISS. Okay. How about the Marine Corps?

    Mr. WALLENHORST. Sir, in the 2002 budget, we are at about 78 percent funding of our executable requirement. We have an issue there where we are working within the Marine Corps to better define our backlog, because, in some cases, when we say executable, that does not mean that it is the smart thing to do in terms of the piece of gear that may be available to be worked on. If that piece of gear is being replaced a little later in the fit-up by a more modern piece of gear, then it may be smarter for us to not work on that at this point. So those are the kinds of things that we are working on to refine our definitions of our backlog.

    Mr. CHAMBLISS. General Northington, let me make a statement to you to take back to the building. I talked to the secretary about this again this morning. I am not going to support any movement on 50–50 whatsoever. If anything, we are going to tighten it up until we get the Air Force to give us a clear definition of what is core work.
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    General NORTHINGTON. What is core?

    Mr. CHAMBLISS. What is core.

    General NORTHINGTON. I understand, sir.

    Mr. CHAMBLISS. I wish you would take that back in exactly those terms.

    Thank you, Mr. Chairman.

    Mr. WELDON. I think I have heard that statement a few times in the past. Is not that correct?

    Mr. CHAMBLISS. You have heard that for five years, Mr. Chairman.

    Mr. WELDON. Gentlemen, we thank you for being here. We appreciate your leadership and your service to the country, and we look forward to working with you.

    This hearing now stands adjourned. We will submit questions for the record which we would ask you to respond to.

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    Thank you.

    [Whereupon, at 3:00 p.m., the subcommittee was adjourned.]


July 11, 2001

[The Appendix is pending.]