Segment 3 Of 3 Previous Hearing Segment(2)
SPEAKERS CONTENTS INSERTS
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REVIEW OF GENERAL AND FLAG OFFICER AUTHORIZATIONS
House of Representatives,
Committee on National Security,
Military Personnel Subcommittee,
Washington, DC, Tuesday, April 8, 1997.
The subcommittee met, pursuant to notice, at 2:00 p.m., in room 2118, Rayburn House Office Building, Hon. Steve Buyer (chairman of the subcommittee) presiding.
OPENING STATEMENT OF HON. STEVE BUYER, A REPRESENTATIVE FROM INDIANA, CHAIRMAN, MILITARY PERSONNEL SUBCOMMITTEE
Mr. BUYER. This hearing will come to order.
Today's hearing is an outgrowth of the Fiscal Year 1997 Defense Authorization Act increase in Marine Corps general officer authorizations and the statutory mandate for the Department of Defense to reassess its general and flag officer requirements and report the results to Congress by late March of this year.
As I understand it, the Department's study is finished, and draft recommendations have been developed, however, the Secretary of Defense has decided not to submit either the report or any recommended changes to the existing general and flag officer authorizations until after the quadrennial review process [QDR] is finished. That presumably will be sometime later this year.
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Informally, we have been told that no requests for increases in general officer strength will be sought until at least the Fiscal Year 1999 Defense Authorization Act. While I can in part empathize with the Department's desire to delay the formal request for changes to general and flag officer authorizations until after the QDR, I do not understand the reluctance to submit a report to Congress which details the process, methodology, and underlying rationale used by DOD and the services, particularly since the same methodology, process, and rationale will be applied to the QDR revised force structure and staffing patterns. Until this subcommittee fully understands the process, methodology, and rationale behind DOD's recommendations, I believe it will be reluctant to grant increases in current authorizations.
Beyond that, the legislation also called for the Department to address significant issues related to Active and Reserve general officers that went beyond the issue of adequacy of numbers. Therefore, I formally ask that the Secretary of Defense deliver to Congress, as required by law, the report specified by section 1213 of the National Defense Authorization Act for Fiscal Year 1997. In the absence of a written report, I see today's hearings as a step toward gaining insight into the DOD study. In addition, today's hearing is an opportunity for the DOD to receive and discuss congressional and General Accounting Office concerns with the process and methodology in order that changes might be made and applied as part of the post-QDR effort.
Finally, I see today's hearing as an opportunity to explore one of the reasons behind what I assume would be the DOD's ultimate recommendation for some increases in current limits on Active and Reserve component general and flag officers. As articulated by the Marine Corps last year, the fundamental reason for the need to increase the numbers of general and flag officers was that, ''The unconstrained growth of the number of joint and external general and flag officer requirements and the growing need for services to fill those positions has left the services, whose available pool of general and flag officers is tightly constrained, unable to fill both external and internal service requirements.''
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So today, I would like to spend some time examining the issue of the growth of joint and external general officer requirements as an engine that is driving up the services' need for more general officers.
Before I introduce this panel, I would also like to note that a good friend and colleague of the National Security Committee, Glen Browder, is in the audience today. Glen, it is nice of you to be here from sunny California. The sun has arrived out here in Washington, DC.
Mr. Taylor, do you have any opening remarks that you would like to make?
STATEMENT OF HON. GENE TAYLOR, A REPRESENTATIVE FROM MISSISSIPPI, RANKING MEMBER, MILITARY PERSONNEL SUBCOMMITTEE
Mr. TAYLOR. Thank you, Mr. Chairman.
I also want to join you in welcoming our witnesses and my good friend and the person who sat next to me for almost 7 years in this committee, Glen Browder, who was a great asset to this committee; his presence is certainly missed by all.
I agree with you that we need to understand the rationale and methodology that went into the recent Department of Defense study of its general and flag officer requirements so that we can better judge future recommendations for the post-QDR period. If there is a compelling reason for an increase in the numbers of general and flag officers at a time when the military stands on the verge of yet another drawdown, then DOD ought to be able to make its case on the basis that the increase will improve effectiveness and efficiency.
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Frankly, my own personal bias in this matter is that the numbers of generals and admirals must remain linked to the size of the military forces. It disturbs me that the Department has designed a methodology that delivery sets out to break that historical link. I am interested in understanding the reasons for cutting this link.
On a more practical level, I am disturbed to read in the Navy Times that the Navy apparently plans to cut 22,000 people, including 14,000 more than it had previously planned, in the next 2 years. The people who will bear the brunt of these cuts include 8,800 E–3's, 3,300 E–5's, 5,200 E–6's, and 1,400 O–3's. However, no cuts are planned in the number of admirals. As a matter of fact, as I understand it, the DOD's draft recommendation in the most recent study is to add 20 admirals to its total.
Similarly, the Air Force plans to reduce its end strength by 32,000 over the next couple of years. However, like the Navy, additions to general officer strength, not cuts, are being considered.
Why should there be increases, not cuts, in flag officers in those services, and why DOD and all the services believe more general officers are justified remain key questions for me and I hope for this hearing. For that reason, Mr. Chairman, I look forward to today's hearing and the answers that our witnesses will provide.
Thank you.
Mr. BUYER. Thank you.
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If I can get ''Buyer'' out of ''Buyer,'' to these Frenchmen I see sitting down there, I am going to give these names a shot, and please correct me if I am wrong.
The first witness is Mark Gebicke.
Mr. GEBICKE. Gebicke, Mr. Chairman.
Mr. BUYER. Gebicke.
Mr. GEBICKE. My own brother pronounces it the way you pronounce it, so that is OK.
Mr. BUYER. OK. Mr. Gebicke is the Director of Military Operations and Capabilities Issues at the National Security and International Affairs Division, General Accounting Office. He is accompanied by Dr. William Beusse, the Assistant Director, Military Operations and Capabilities Issues, and Brian Lepore, senior evaluator, Military Operations and Capabilities Issues.
Please, gentlemen, you may begin.
STATEMENT OF MARK E. GEBICKE, DIRECTOR, MILITARY OPERATIONS AND CAPABILITIES ISSUES, NATIONAL SECURITY AND INTERNATIONAL AFFAIRS DIVISION, U.S. GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY WILLIAM E. BEUSSE, ASSISTANT DIRECTOR, AND BRIAN J. LEPORE, SENIOR EVALUATOR
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Mr. GEBICKE. Thank you, Mr. Chairman and other members of the subcommittee. We are very pleased to be here with you this afternoon.
We would like to share with you the evaluation of our work, of DOD's study to determine its requirements for general and flag officers.
DOD's draft report suggests that they need 54 more active general and flag officers and 35 more Reserve general and flag officers. Now, I need to stress that the recommendations in the report are draft; the report is draft, and this does not necessarily reflect the final position of the DOD on this issue.
The DOD has suggested that it would like to wait until after the QDR report before releasing its final report. I heard your introductory remarks, and I guess that is going to be decided later today.
This is a complex topic, and let me see if I can start us out on the same ground.
Mr. BUYER. First, could you give us the breakdown of that, the 54 Active and 35 Reserve? Do you have a breakdown?
Mr. GEBICKE. In terms of the services?
Mr. BUYER. Yes.
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Mr. GEBICKE. Yes, I believe we have that available.
Mr. BUYER. OK. I have it. Do you have it in your written testimony?
Mr. GEBICKE. I do not think we do. I am going to do some quick math here. Nineteen of the increase would be in the Army, 20 in the Navy, 15 in the Air Force, and none in the Marine Corps. That should add up to 54.
Mr. BUYER. And the Reserves?
Mr. GEBICKE. In the Reserves, the increase would be 20 in the Army, 4 in the Navy, 5 in the Air Force, and 6 in the Marine Corps, for a total of 35.
Mr. BUYER. All right. You may proceed. Thank you.
Mr. GEBICKE. Thank you.
Now, the services and the joint community determine the number of positions, or spaces, that they believe should be filled or occupied by general, or flag officers. Congress then authorizes a maximum number of those spaces that can actually be filled by a general or flag officer, and that is found in title X of the U.S. Code.
Most recently, the Congress authorized the Marine Corps to add 12 more general and flag officers in 1996, so our base that we are working from right now and the Active component is a total of 877 general and flag officers.
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Congress has also authorized 12 more to the Chairman of the Joint Chiefs of Staff, and these 12 are commonly referred to as the ''Chairman's 12,'' and they are provided primarily to the services to assist them in providing general and flag officers to the Joint Chiefs.
Congress also authorizes the services to ''frock'' up to 75 Navy captains and colonels. By ''frocking,'' they can wear the insignia of the next higher rank, but they do not receive the salary commensurate with that rank until they are actually promoted.
So if you add those three together, and you take the title X authority of 877, the Chairman's 12, and the 75 frocking authority, you have a current total of 964 general and flag officers authorized.
I would like to make one point here about the current requirements, and it is in the joint community. The joint requirements have gone up 26 positions in the last 2 years, and as you are probably aware, the joint community does not need congressional approval for the number of positions that it staffs with general and flag officers. Basically, they determine how many they need, and they levy that requirement on the services. Since the authorization level, except for the Marine Corps, has remained steadfast over the last 2 years, and the joint community has levied increases of 26 positions on the services, the Marine Corps is going to provide 4 of those 26 out of the 12 they received last year, but we have 22 requirements coming out of the joint staff that will have to be provided within the current authorization of the other three services. I thought you should be aware of that.
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Let me talk a little bit about the approach and services that DOD used in doing their study on general flag officer requirements.
There were two job evaluations used; the first was developed by the Hay Group, and it basically scores positions on the basis of know-how, problem solving, and accountability, and it ranks the positions from the most to the least important.
The other methodology that was used was developed by Kapos Associates, Inc. It groups positions by similarity of function, and it looks for up to 25 different attributes within the positions. Some of the attributes—I am not going to list all 25—deal with things like the rank of the official to whom the position evaluated will report, how many personnel the individual will have under his command, and other duties, for instance, involving their representation before the Congress.
In doing its work, the Office of the Secretary of Defense, [OSD] established a four-level structure to oversee the study, and they came up with a six-step process. I should emphasize that they are at step five of that six-step process. The very final step would be approval of the report by the Secretary of Defense and submission to the Congress.
Each service and the joint staff conducted individual, general, and flag officer requirement studies using one of those two methodologies that I mentioned earlier. The service Secretaries and the Chairman of the Joint Chiefs of Staff then adjusted the results and forwarded recommendations for consolidation into a final report.
I need to mention here that any job evaluation methodology is inherently subjective, and although the methodologies that were used attempted to bring as much objectivity as possible to the process, they still are subjective. The selection of the factors, of the scoring that takes place when you evaluate positions, the management override, which is important, is obviously ultimately subjective.
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So as a result, while we believe that DOD's draft report and recommendations need adjustment—and I will explain those in just a minute—we see no benefit in having DOD redo its individual studies.
Now, what are our concerns? We basically have three. First, the service Secretaries adjusted the study results without explanation in developing their recommendations, and it is unclear as to how many requirements there actually are. There actually was a total downsizing of 123 positions from what the studies had recommended to what the service Secretaries suggested; so 123 positions were eliminated. And what we would like to see is a fuller, more robust explanation as to why those 123 were eliminated and the criteria used. Second, DOD's draft recommendations counted 35 active component positions twice. And third, some of the general and flag officer positions already authorized may not really need to be staffed by military officers. We took a look at just 12 positions that are current general and flag officer positions that we thought were candidates for conversion to civilian status. These included positions such as the Army's Director for the Center of Military History, currently a brigadier general, eight brigadier and major generals in various financial management positions, and three at the Armed Forces Exchange Service and the Navy Exchange Service.
We also took a look at the cost of implementation of the recommendations as drafted, and it is not an earth-shattering amount of money, but if the Congress were to agree to make 54 new general and flag officers, it would cost about $1.2 million more per year, and that is basically in added compensation to the new general and flag officers; also, it includes some personnel assistance that some of those individuals would be entitled to, and in some cases, there is some office furniture and some other incidentals as well.
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One of the points I would like to make, though, is that that assumes that the general and flag officer positions would be made and that colonel and captain positions would be eliminated. If that does not occur, then your cost would go up significantly because the delta between the two would be greater. In fact, if you look back at what the Marine Corps did, they did not eliminate 12 colonels. In fact, they eliminated 6 lieutenants, 5 captains and one major to take care of the 12 that it received last year.
DOD wants to wait for the QDR report, which is due out in the middle of May, before it releases its final report and recommendations. We think that that makes some sense for the recommendations to take into consideration or at least to evaluate the effect of the QDR's recommendation because the QDR may talk about force structure, mission, strategy, and what-have-you. This would also give DOD an opportunity, we believe, to take care of some of the concerns that I have talked to you about here this afternoon.
So we are making four recommendations to the DOD, and I will summarize those very quickly for you. First, we recommend that the Secretary of Defense modify the current draft report to include an explanation of the basis used by the service Secretaries to modify the results of the services' studies and a statement about whether the numbers represent the actual requirements for general and flag officers; second, an adjustment to the consolidated draft recommendations to eliminate the double-counting; third, an evaluation of the potential to convert nonmilitary essential general and flag officer positions to civilian status; and fourth, an explanation of the mechanism to ensure that the number of colonel or Navy captain positions are reduced by the same number of added general and flag officers.
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Mr. Chairman, I would also like to add that we were able to watch very closely as the DOD went through its study and its methodology. They were very free and candid with us in sharing their views and their information, and because of their cooperation, it enables us to come before you today to talk about some of the areas where we think the study could be improved.
This concludes a short synopsis of my longer statement, and we would be glad to respond to any questions that you or other subcommittee members may have.
[The prepared statement of Mr. Gebicke can be found in the appendix on page 412.]
Mr. BUYER. Help me out on your last point on your rationale for reducing the number of O–6's by the same number of general officers that are increased.
Mr. GEBICKE. In many cases, you either have positions that were newly created, or you have positions that were upgraded from an O–6 to an O–7. So if a position is upgraded from an O–6 to an O–7, you would think that you would need one less O–6, and the services, when we talked to them about that, agreed that that was probably how they were going to proceed. So our point was that since it is not really controlled by this particular law—what their authorization is for colonels and captains is controlled by another law—we felt that some rationale in their report as to how they were going to ensure that that actually took place would be a wise addition.
Mr. BUYER. Earlier, you testified about having the service Secretaries explain the adjustment and that they had downsized 123 positions. Am I to assume that the original request coming from the services was not for an additional 54 Active and 35 Reserves, but that it was pumped up to a total of about 212 general officers?
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Mr. GEBICKE. Actually, the service studies indicated requirements of 1,118 positions. The service Secretaries in assessing those 1,118 positions came up with a total of 995 positions, or a decrease of 123. And the point that we were making, Mr. Chairman, is that obviously that is a subjective process. It is a process that is important, and it is part of the process that should have been done. The only thing that we were suggesting is that the rationale or the criteria for those reductions should be stated in the report more fully.
Mr. BUYER. Let me ask about the level of rank from the service Secretaries. Of the 54 Active, are any of them requests for additional four-stars?
Mr. GEBICKE. Let us check on that. [Pause.] O–10's are at the same level, 34; O–9's would increase from 99 to 127.
Mr. BUYER. That is a lot of three-stars. How does it break out in the services—Army, Navy, and Air Force—on three-stars?
Mr. GEBICKE. On what they are recommending—do you just want to talk about the increase?
Mr. BUYER. Yes.
Mr. GEBICKE. OK. In the Army, the number of three-stars will stay the same—oh, the difference is in the joint, the difference is in the joint. We are asking for 28 new three-stars in the joint community. It is not all in the joint, however. There is an increase of one three-star in the Marine Corps, an increase of one three-star in the Air Force, and a decrease of two in the Navy.
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Mr. BUYER. Wait, wait, so I do not get confused. Earlier, on active duty, you said no active duty Marine generals. Isn't the three-stars that the Marines will be asking for a Reserve three-star?
Mr. GEBICKE. Apparently, it has something to do with the way the formula works.
Mr. BUYER. I am just trying to get a feel for the breakout here.
Mr. GEBICKE. Yes, I understand; I see your question. [Pause.] We cannot answer that question at this time, Mr. Chairman. We would be glad to explore that and provide it for the record if the subsequent witnesses cannot explain it.
Mr. BUYER. All right. We can ask Mr. Pang and the others for the breakouts. We are trying to get a good understanding. The committee was pretty stern in its opposition—the House was—in its opposition to general officers for the Marine Corps last year, and we wanted to do this study. So we want to get a full understanding. If the joint community and the external requirements and additional duties are stressing this, we need to know about it and understand it and try to get a handle on it.
With the Reserve generals on this list—20 for the Army, four for the Navy, five for the Air Force, and six for the Marine Corps—are any of those three-stars?
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Mr. GEBICKE. We do not have that information with us.
Mr. BUYER. All right. I yield to Mr. Taylor for any questions he may have.
Mr. TAYLOR. Mr. Gebicke, I have yet to hear a good reason why the number of flag officers and generals should be increased. I think I listened to your remarks pretty closely, and I have yet to hear a good reason. Would you like to try again to tell me of a good reason why there should be an increase at a time when——
Mr. GEBICKE. I am not here to suggest they should be increased——
Mr. TAYLOR. Are you here to suggest they should not be?
Mr. GEBICKE. No. I am here to tell you that we assess the methodology that the services and the Joint Chiefs used to determine how many they needed. We actually saw some reasons to indicate why the number they are asking for could be smaller. For instance, we do know that there are some existing positions that have the potential to be civilianized, so we would question whether all the positions that are currently general and flag officers actually need to be military-specific. We also know that in the numbers that they have suggested or they recommend in their draft that there is some double-counting.
Mr. TAYLOR. So you saw no compelling reason to increase the number of general and flag officers?
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Mr. GEBICKE. We did not look at each position on a position-by-position basis, so I can just tell you that the number that they have asked for is clearly greater than they really need because they have opportunities to civilianize some of those positions—how many, we do not know. We only looked at a dozen of those, and they have the potential for being civilianized, and we do know that 35 positions were double-counted.
Mr. TAYLOR. OK. Let me clarify my question again. Is there reason to increase any of them, and if so, by how many in each service?
Mr. GEBICKE. I cannot answer that. We did not go through and do a position——
Mr. TAYLOR. Well, Mr. Gebicke, you know, we brought you in as an expert witness. First, I ask you if they should be increased, and I get the impression you say no, they shouldn't.
Then I asked, then there is no compelling reason to increase them, and you said, ''Well, I did not say that; I said there may be reason for some.''
Then I asked you, If there is reason for some, how many per service, and you said, ''Well, I cannot tell you that.''
We do these things in order to build a case either for increases or reductions as we put together the defense markup, and basically, you have not really told us anything. Now, would you like me to ask again, or would you like to clarify?
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Mr. GEBICKE. I do not think I can clarify above and beyond what I have already stated. In order for us to determine whether or not the number of officers should be increased or decreased, we would have had to go back and independently assess each one of those positions, and we did not do that.
What we did was we monitored and we oversaw what the services did and the Joint Chiefs did, and we assessed the process as the military went through that. That process in and of itself is very, very subjective—very subjective. There is a lot of military judgment that plays in that process. And that is one of the reasons why we suggested that redoing the study is really not necessarily going to give you different answers, or it is not going to be worth redoing the study, because there is so much subjectivity in the process itself. That is the point that we are really trying to make.
Mr. TAYLOR. OK. So as a result of your study, you would not recommend an increase; you would not definitely recommend zero increase. You say there may be some justification, but you cannot exactly tell us where. Is that a fair summary of what you told us?
Mr. GEBICKE. Yes, that is fair, I think.
Mr. TAYLOR. OK.
Thank you, Mr. Chairman.
Mr. BUYER. Mr. Taylor has asked the question pretty pointedly. Let me put it this way so I can understand your testimony. You note that under current authorization, the system that the joint community—they do not need congressional authorization, and they put the pressure on the services to meet their billets; correct?
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Mr. TAYLOR. That is right.
Mr. BUYER. OK. So we are talking about the process out there. So the joint world that was created under Goldwater-Nickles, the jointness out there tell us that we have these requirements, and because the administration has increased our contingencies of where our forces are globally throughout the world, the joint world in billets is growing, and those external requirements are placing stress upon the military to provide for those external requirements, and the Army and the Navy and the Air Force are saying, ''But we do not have much left. If the joint world will always take from us, we do not have much left.''
Am I getting close here?
Mr. GEBICKE. You are right on target, right on target.
Mr. BUYER. So let me ask it this way. What have been the effects of this unconstrained ability of the joint community to determine how many general and flag officers it must have on active duty?
Mr. GEBICKE. Clearly, I do not think I could summarize it any better than you did, Mr. Chairman. As I said in my statement, they have decided they need 26 more over the last several years. Now, the only service that has received an increase in their authorization of the last few years, the Marine Corps—they got the 12, 12 of those positions in the Marine Corps—4 of them will go to satisfy the joint requirements, which means there are 22 joint community requirements that will have to come from the current authorization of the other three services.
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Mr. BUYER. Well, something gives. Either we make a revisit of Goldwater-Nickles and the joint arena—and perhaps it is appropriate for us to begin to look at that because that was created under a cold-war-era scenario, and there have been tremendous benefits from the joint operations, but the external requirements cause us great concern.
Let me ask you this——
Mr. GEBICKE. Could I add one thing that might be very relevant to your line of questioning here?
Mr. BUYER. Yes.
Mr. GEBICKE. The DOD IG did a study that was issued in November of 1995, and it looked at the method that the joint community actually used for determining their requirements and also for validating those requirements and for the services' ability to provide those requirements when levied. That particular report made a number of recommendations as to how that whole process should be improved. I know the DOD is in the process of responding, the joint community is in the process of responding to those recommendations.
We actually have a legislative mandate also to issue a report later this fall which will comment on the progress that the DOD is making to take care of those. So at least another group, the DOD IG, are going on record indicating that the requirements determinations process for the joint community is inadequate.
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Mr. BUYER. What is your sense if we do some statutory controls upon the joint community to create these general officer billets?
Mr. GEBICKE. I do not know if statutory controls would be the answer. Certainly there needs to be greater visibility over that, and if you think about it, right now, the joint community has 244 of the 877 authorized positions, and there is absolutely no visibility over that whatsoever.
So I would agree that something needs to be done. Whether it needs to be rooted in statute would have to be discussed.
Mr. BUYER. Part of the anguish—and I do not want to put words in Mr. Taylor's mouth, but myself and some others on the committee have some concerns. As you know, America looks at this one and says look how much we have downsized our forces, yet they are coming in and asking for more general officers. I do not understand this one.
And if these external and global requirements are pulling away from our active duty commitments in order for them to meet their needs, we have got to figure this one out.
Mr. Lewis, you are recognized for any questions you may have.
Mr. LEWIS. I have no questions, Mr. Chairman.
Mr. BUYER. Mr. Ryun.
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Mr. RYUN. No questions, Mr. Chairman.
Mr. BUYER. Mr. Bartlett.
Mr. BARTLETT. Thank you very much.
Who asked you to do the analysis that you did?
Mr. GEBICKE. We were actually mandated in the authorization act of last year to do a report that would both monitor the process and report on the adequacy and comprehensiveness of the DOD study and its methodology.
Mr. BARTLETT. So what you were charged to do was to just look at the methodology and determine whether or not that was appropriate?
Mr. GEBICKE. Yes, sir.
Mr. BARTLETT. OK. If we wanted to know the answer to Mr. Taylor's question, this now involves an additional analysis?
Mr. GEBICKE. It would involve an additional analysis, and quite frankly, I do not know that we would even have the capability to do that type of analysis because of the subjectivity involved and also because of the inherent military judgment that would be required to actually do it.
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Mr. BARTLETT. What would be your advice, then, as to where we can go for information on which we can base a decision which we make?
Mr. GEBICKE. I think you clearly have got to go to the services and to the DOD, and you have got to do what we have done. That is, you have got to ask a lot of questions and really get down into the specific requirements and ask on each one of the requirements, and maybe a place to start is with the requirements being levied by the Joint Staff on the services because that 244 up to this point is a relatively large—almost a quarter of the total authorized ceiling for general and flag officers, which has had no oversight up until now.
Mr. BARTLETT. In the general downsizing, was that done pretty much across the board, taking appropriate billets from officer ranks and enlisted ranks?
Mr. BEUSSE. The downsizing began in 1990 in terms of general officers, and at that time, the general officer authorization was at 1,073. And the joint community voluntarily took a portion of the cut that was mandated for the general and flag officer community, and they did take some cuts, but over the last 2 years, they have been increasing again—11 in 1 year and 15 in another. So they did take some cuts, but it was not nearly proportional to the cut that was taken by the rest of the military or even the rest of the officer corps.
Mr. BARTLETT. If in fact the need for these 54 is real, then we need to understand how we got here so that this can be justified. If it is difficult to do on the basis of looking at it position by position because of the qualitative nature of the assessment, then we might try to get at it by looking at how did we get to where we are now, so that we can justify the additional 54 if in fact they are needed.
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I appreciate your answers. Thank you very much.
Thank you, Mr. Chairman.
Mr. BUYER. Mr. Skelton is recognized.
Mr. SKELTON. I fully understand the request from the various services, and I notice, however, in some services that general officers have been yanked from some positions, and I am not sure exactly where they went. For instance, the Deputy Office Chief, Legislative Liaison [OCLL] is now a colonel, the regional corpsman out in Omaha, NE is now a colonel. And I do understand fully the necessity for certain flag billets in joint staff operations.
I will be looking forward to hearing the testimony from the uniformed services as to their requests and their requirements. And by the way, Mr. Gebicke, I compliment you and your associates on not just this, but a lot of good work that you did for us and particularly for me.
Mr. GEBICKE. Thank you.
Mr. SKELTON. Thank you, Mr. Chairman.
Mr. BUYER. Thank you, Mr. Skelton.
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What you are saying about GAO's position about the subjectivity in both the Hay and Kapos studies kind of leaves me trying to ask this question now. When the services come in with a particular number for general officers, the actual number, the actual requirement, could range above or below that number. Now what I need to know, though, is where should I be siding? I do not know. Tell me which way I should be siding. I mean, if there is so much subjectivity in this, they come up with a number, the service secretaries take it down, and then they get another number, where do I—help me read between the lines.
Mr. GEBICKE. One thing that was obvious to us as we went through was that for the positions that were upgraded or where they would like to see an upgrade from say, an O–6 to an O–7, well, it is clear that there is already an O–6 in that job, and that job is probably being done adequately by an O–6. And you have other situations where officers are frocked, and they are in a position as well, and although they do not have the pay, they are wearing the star now instead of the bird, and they are performing fine in that position as well.
The thing is that when you start comparing positions and position descriptions, and you compare them one against the other, and you score them, you know as you go through the scoring that a high score is going to put you in the high end, and a relatively lower score is going to put you in the low end. And what you do in these two methodologies is you look for a cut point or for a threshold, and then you basically say for those above that threshold, they are general and flag officer positions, and for those below, they are colonel, captain and on down, and even then there is subjectivity involved in it.
So the whole process is extremely subjective, and that is not necessarily a criticism of the two approaches that were used. I mean, we did some research of the scholarly literature that is out there, and I think there are up to 19 different evaluation processes that could be used, and one of the things that you read when you study each one of those is that they are highly subjective. So these two processes attempted to bring some objectivity to it, but it is never going to be a totally objective process.
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Mr. BUYER. OK. Based on your answer, I do not have an answer. On which side do I err? On which side do I err with all the subjectivity that is out there—above or below the number—or do you want me to be subjective?
Mr. GEBICKE. If I were you, if you are comfortable with the number that they have right now, the 877, then I would look very carefully at each of the new positions that have been requested. In other words, use the 877 as a starting point. That is your title X authorization right now. And I would look at each one of those new positions very, very carefully. That is where I would start.
Mr. BUYER. All right. Let me ask about Reserve general officers. In your statement, it does not say much about the process by which the Reserve component—''General and flag officer requirements to develop beyond the process result in an apparent need for about 35 more general and flag officers.'' How does the methodology provided for the accurate determination of Reserve general and flag officer requirements address the Reserve and Active component general and flag officer integration?
Mr. GEBICKE. It really does not address the integration at all. The studies were conducted independently. The same two evaluations, Hay and Kapos, were used for the Reserve and the Guard forces. There was no frocking that came into play, there were no ''Chairman's 12,'' so there was no double-counting. The issue there was one of the process used, and we look at the process, and the process was acceptable, and we found no recommendations that we could make for improving it.
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Mr. BUYER. You do not have any caveats or anything with that.
Mr. GEBICKE. No.
Mr. BUYER. Of the 20 Army that come under Reserve, are any National Guard?
Mr. GEBICKE. I do not think we have that information, Mr. Chairman.
Mr. BUYER. Does anyone have any further questions?
[No response.]
Mr. BUYER. Thank you very much, gentlemen, for your testimony. If at least one of you would stick around for the next panel, I would appreciate it. That way, if I do not get information, I may have a follow-up question. Is that all right?
Mr. GEBICKE. Yes.
Mr. BUYER. Thank you.
Mr. BUYER. The second panel today represents the Department of Defense. The principal witnesses are the Honorable Frederick Pang, Assistant Secretary of Defense for Force Management Policy, and Mr. Terrence O'Connell, Chairman of the Reserve Forces Policy Board. They are accompanied by Lt. Gen. Frederick Vollrath, Deputy Chief of Staff for Personnel, U.S. Army; Vice Adm. Daniel T. Oliver, Deputy Chief of Naval Operations, Manpower, Personnel and Training for the U.S. Navy; Lt. Gen. Carol Mutter, Deputy Chief of Staff for Manpower and Reserve Affairs, U.S. Marine Corps, and Lt. Gen. Michael McGinty, Deputy Chief of Staff for Personnel, U.S. Air Force; and Maj. Gen. Stephen Rippe, Vice Director of the Joint Staff.
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Thank you very much, Mr. Pang, for being here, and you are now recognized.
STATEMENTS OF A PANEL CONSISTING OF FREDRICK PANG, ASSISTANT SECRETARY OF DEFENSE FOR FORCE MANAGEMENT POLICY, U.S. DEPARTMENT OF DEFENSE; MAJ. GEN. STEPHEN T. RIPPE, VICE DIRECTOR, JOINT STAFF, JOINT CHIEF OF STAFF, U.S. DEPARTMENT OF DEFENSE AND TERRENCE O'CONNELL, CHAIRMAN, RESERVE FORCES POLICY BOARD. U.S. DEPARTMENT OF DEFENSE ACCOMPANIED BY LT. GEN. FEDERICK E. VOLLRATH, DEPUTY CHIEF OF STAFF FOR PERSONNEL, U.S. ARMY; VICE ADM. DANIEL T. OLIVER, DEPUTY CHIEF OF NAVAL OPERATIONS, MANPOWER, AND PERSONNEL, U.S. NAVY; LT. GEN. CAROL A. MUTTER, DEPUTY CHIEF OF STAFF FOR MANPOWER AND RESERVE AFFAIRS, U.S. MARINE CORPS; LT. GEN. MICHAEL D. MCGINTY, DEPUTY CHIEF OF STAFF FOR PERSONNEL, U.S. AIR FORCE
Mr. PANG. Mr. Chairman and members of the subcommittee, I appreciate the opportunity to appear before you today to testify on our general and flag officer authorizations. I have submitted a written statement for the record, and with your permission, I would like to summarize its salient points.
Mr. Chairman, throughout our history there has been a dialogue, just as is going on now, that has ebbed and flowed between Congress and the military on the number of general and flag officers we need. I would like to briefly review with you the last 50 years of that debate, then turn to where we are today, and then finally describe where I believe we are headed.
I think it is fair to say that over the years, the Congress has consistently taken the view that we have needed fewer general and flag officers, and that we have taken the opposite view, that we needed more than the Congress would allow. These debates tended to intensify during periods of major downsizing and restructuring of our forces, such as after World War II, the Korean war, the Vietnam war, and now after the cold war.
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For example, at the close of World War II, we had 2,068 general and flag officers on active duty leading an active force of over 12 million. Demobilization reduced our forces to 1.4 million by 1948, and in order to reduce the general and flag officer strength consistent with the demobilization, Congress enacted into law the Officer Personnel Act of 1947. Among other things, this act established a limit on general and flag officers of three-quarters of one percent of officer strength.
This placed the limit on general and flag officers at that time at 1,443. But this limit soon proved to be too high in the eyes of the Senate, so in 1951, using its power of confirmation of general and flag officer appointments, the Senate imposed a lower limit by restricting confirmation to 1,147 generals and admirals—a reduction of 296.
During the Korean war, the number of general and flag officers was allowed to grow to 1,219, to lead a mobilized active force of over 3.6 million. However, following the Korean war, the Congress enacted the Officer Grade Limitation Act of 1954. Among other things, the act imposed a sliding scale ratio linking active duty general and flag officer strength to active duty officer strength.
But as with its predecessor, the Officer Personnel Act, the number of general and flag officers was still seen by the Congress as too high, so Congress, throughout most of the 35 years that this Act was in existence, restricted the number of general and flag officers the military was allowed to have to a level below the ratio that was allowed by the Officer Grade Limitation Act until that Act was finally repealed.
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A similar cycle of increase and decrease occurred during the Vietnam mobilization and demobilization. At the height of the Vietnam war, we had 1,300 general and flag officers on active duty, leading an active force of some 3.5 million. By 1981, through a number of congressional restrictions and mandates, we were reduced to 1,073 general and flag officers, leading an active force of approximately 2 million. The number of general and flag officers then remained at the 1,073 level throughout the rest of the cold war.
As the military prepared to draw down its forces after the end of the cold war, the Congress enacted a provision in the fiscal year 1991 Defense Authorization Act to reduce the number of general and flag officers allowed on active duty by 20 percent to 865. This was the largest single peacetime reduction mandated by the Congress in the last 50 years. The last time the general and flag officer strength approached this level of 865 was in 1948, when we had 860 general and flag officers on active duty.
Unlike previous reductions, I believe it is fair to say that the resistance from the military to the post-cold war reduction was relatively muted. I think it is fair to say that there was an acceptance that a substantial reduction was appropriate, but that the mandated reduction was excessive.
Subsequent actions taken by the Congress in response to requests for specific relief from the effects of the reduction I think proved this to be the case. The first relief granted by the Congress was in recognition of the increased demand in the joint arena for 12 more general and flag officers. This temporary relief has been in effect since October 1995. The second relief granted by the Congress was in recognition of the increased need for 12 more general and flag officers in the Marine Corps, and this relief was provided last year in the fiscal year 1997 Authorization Act.
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In the same Act, the Congress mandated that we undertake a comprehensive review of our general and flag officer requirements and to submit a report to the Congress on the adequacy of active duty and Reserve and general and flag officer authorizations. We were required to include in our report our views on whether current authorizations: First, permit the Secretaries of the military departments, in view of increased requirements for assignment of general and flag officers in positions external to their organic services, to meet adequately both internal and external requirements for general and flag officers; second, adequately recognize the significantly increased role of the Reserve components in both service-specific and joint operations; and third, permit the Secretaries of the military departments and the Reserve components to assign general and flag officers to active and Reserve component positions with grades commensurate with the scope of duties and responsibilities of the position.
In undertaking this effort, we determined that it was necessary for us to take a different approach than was taken in past studies of this matter. We focused on creating a methodology that would break the relationship of general and flag officer strength to overall officer strength levels because we found that that did not work.
Our goal was to develop an analytically sound statement of general and flag officer authorizations needed to support or organizational and command structures. In this process, the military service and the joint staff collected and analyzed individual position descriptions using generally consistent methodologies to evaluate certain core attributes such as scope of responsibility, extent of resource control, independence of decisionmaking, and complexity of organizational and command relationships. By using this approach, we will evaluate positions on the basis of their relationship to organizational structures and staffing patterns in order to determine whether they warrant being filled with a general or flag officer.
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In order to ensure consistency and analytical rigor, the Rand Corp. served as an independent evaluator of the methodologies employed by the services and joint staff. Representatives of the General Accounting Office participated in the oversight process as observers so that they could be in a position to give you their independent views as they did today.
As required by the Congress, the Reserve Forces Policy Board was actively engaged throughout the entire process and effectively represented the Reserve perspective. Our goal from the outset was to ensure the increased role of the Reserves in both service-specific and joint operations was adequately covered and that active and Reserve general and flag officer assignments across component lines be made more fungible. I believe the process that we have established will succeed on both counts.
Mr. Chairman, I believe we have developed a sound process for determining our general and flag officer needs on the basis of our organizational and command structures and our staffing patterns. Since the results of the process we have developed are very dependent upon the organizational and command structures and the staffing patterns to which they are applied, and since these structures and patterns are currently being evaluated as part of our quadrennial defense review, QDR, we believe it is prudent to defer finalizing our report at this time. It is our intent to finalize and submit our report and recommendations to you only after we have considered any changes to our organizational and command structures and staffing patterns that result from the QDR.
I want to underscore to the subcommittee that we have not—we have not—sought in our authorization request to increase the 889 general and flag officers we are currently allowed to have in the active component and the 422 general and flag officers we are currently allowed to have in the Reserve component.
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Mr. Chairman, I believe we have been responsible in the management of our general and flag officer resources. At our current level, they comprise about five one-hundredths of one percent of our total force. The number of general and flag officers we have on active duty today is at about the same level we had in 1950, just before the Korean war, and it is the lowest we have had since then. The ration of general and flag officers we have on active duty in the Active Force is also comparable to 1950.
I think it is fair to say that the similarities stop there. Our military today is much more sophisticated technologically, as you well know, organizationally, and doctrinally. The environment in which we operate is much more complex, demanding and fluid. Our weapons systems are much more complex and lethal.
These factors, along with the revolution in joint management and operations, put an enormous demand on our general and flag officers. I think they have responded to the demand with tough, innovative and visionary leadership in providing for our national security and caring for the 2.5 million active and Reserve service members under their command and managing the three-quarters of a million civilian employees who support them.
Mr. Chairman, this concludes my summary statement. I am prepared to answer any questions that the subcommittee may have at the appropriate time.
[The prepared statement of Mr. Pang can be found in the appendix on page 431.]
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Mr. BUYER. Mr. O'Connell, you are recognized.
Mr. O'CONNELL. Thank you, Mr. Chairman. I appreciate the opportunity to be here and comment on this complex, sometimes vexing issue.
The Reserve Forces Policy Board [RFPB], as Secretary Pang mentioned, were involved in this process from the very beginning at all levels. We were mandated to observe this process and to be involved in it.
I would like to divide my remarks into two sections, first, to comment on exactly what we were asked to do by this subcommittee, and second, to try to talk about some of the issues that were raised in the previous testimony.
I believe one of the intents of the Congress for the Reserve Forces Policy Board was to help bridge some of that gap in at least verbiage and definitions of words, and I hope to be able to bring some insight to that.
First of all, as far as the process is concerned, we would agree with the GAO that the services made a very solid effort to validate the process from zero-based to try to as much as possible with a process that is substantially subjective come to conclusions that could relate to each other as closely as possible, across services and certainly within services; second, as far as the inclusion of the Reserve components; to try to look at the Reserve components in the same way that we looked at the general and flag officers for the active duty, taking into consideration that there are some differences that are important to note, also taking into consideration that there are important requirements on the joint side for Reserve officers that perhaps have not been filled in the past, and we believe that the services and the joint staff were responsive to that, and in point of fact, during the process, the joint staff re-looked at their numbers in relation to the Reserve general officers.
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So the bottom line on that is that we agree with the methodology, we agree that it was applied fairly and accurately and came up with good results in terms of that process.
Second, the process was visible and transparent to us. There was nothing hidden; all of our questions were answered. It was a very responsive process. We agree with GAO that that occurred at all levels.
I also think that it was a very valuable experience from the point of view of integration. We looked to include from the beginning of this process elements and concerns that the board has had about the effects of general officers or lack thereof in certain positions on integration, and that was included in the thinking and in the analysis portion as far as Reserve components were concerned. And finally, we understand and agree with the concept that the ongoing processes that include not only the QDR but the National Defense Panel and perhaps most importantly the Alternative Force Structure Panel may have a dramatic impact on the total numbers of general officers and that it would be wise to wait until all the aspects of those have been examined before we come up with some final numbers.
And finally, as far as the process is concerned, we share the concern of the GAO that if there is a difference between the number of slots validated and the number of slots requested, that raises some questions which GAO has raised and suggested that the service answer about why that number was brought down. We felt that the process was fair and was a good process and that, quite frankly, changing that number that was valid needlessly calls into question elements of that process. But since that has occurred, we would agree that those discriminations that caused lowering of the number from the validated slots ought to be addressed.
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Now I would like to make a couple of comments about the difficulty of the process and trying to interact with the information that you all need to make decisions about how many general officers ought to be authorized and whether the numbers ought to go up or down or stay the same or how they should be distributed.
It is very difficult in a sense. The requests are made in the law, and they have to be by definition very specific on how they are done. I noticed the GAO people struggling to answer questions that they were really not charged to investigate and, as they mentioned, do not really have the ability to investigate and to make discriminations on particular general officer slots and whether they are needed and where that line is drawn between O–6's and O–7's and also as importantly, within the structure between O–7's and O–8's and O–9's and O–10's. So that each of the elements that were involved in the study—the GAO, the RFPB and the Department of Defense—has different ways of looking at things, different approaches in terms of not so much the methodologies, but in terms of what they are looking for—the GAO, to validate the process; the RFPB, not only to validate the process, but to be concerned about the involvement of the Reserve components in this process and that they are addressed fairly and properly, but also to look at and perhaps evaluate some of the political concerns that are evident whenever you are talking about making discriminations between the people at the top or near the top of an organization when you are downsizing at the bottom and in the middle. These are very difficult political decisions, but there are some dynamics that we have noticed that are very important.
You, Mr. Chairman, identified—and I would agree with the gentlemen from the GAO—you could not have put it more clearly and more accurately—that with the growth in our joint requirements and joint responsibilities and working under a cap, in essence what is happening is that the services are being starved for general officers at the same time that there is an increased demand for them not only at the joint level, but also in the service level. We have a situation where the change in the nature of the way we fight wars has, I believe, increased the level and responsibility of management to the point where it makes it logical that more senior-level people are needed in order to manage the complexities of the modern battlefield.
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I know from my background, I grew up in the post-World War II world, and I was brought up on World War II movies and John Wayne movies and of course served in Vietnam, so I have a feeling for that era's structure and relationships between senior leaders and the people on the ground, the people at the bottom. And I would maintain that what we are seeing here are the effects of the changes not only in technology but in the methodologies of fighting wars that those technologies drive, and perhaps more important, as you noted, there is a change in the way we do things in the world, some of it mandated by Congress in the way we fight wars, are now coordinated on a different basis than in the past. But additionally—and I have not heard it mentioned so far—the way we carry out operations in the real world as not only joint within the United States services, but joint with other nations, we increase requirements for coordination that can only be done at higher levels. And determining where those higher levels are and what those requirements are is really what this is all about.
So there are dynamics in the process that have changed rather significantly that could very well argue for increases in these numbers rather than an obvious relationship between the number of privates versus the number of general officers.
The other concern that we have that Congress asked to be addressed is the issue of the level of the rank of the heads of the Reserve components. I am concerned that in the process of determining when the final report will be delivered and what those final numbers are that we not lose something that I think was a rather extraordinary occurrence in this process, and that was that all of the services, the Department of Defense and the joint staff, came together in agreement that the rank of those Reserve component commanders was appropriately at the O–9 level. And as you will recollect from the hearings last year, there was substantial disagreement on that. I think that that is an important element of this, and it ought not be lost in this process and cause potential delay of the report.
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Thank you.
[The prepared statement of Mr. O'Connell can be found in the appendix on page 442.]
Mr. BUYER. Thank you very much.
I have a couple of questions, and then I am going to yield to my colleagues. First of all, Mr. Pang, as I recall, in the 104th Congress, you were very tactful to make clear to the committee that you were not asking for more general officers, just as tactfully as you stated today, yet the Marine Corps ran to the Senate and got more general officers.
Can I expect any of the services here to run to the Senate and ask for more general officers in this authorization bill?
Mr. PANG. Mr. Chairman, we would unequivocally oppose any increases in this authorization. Having said that, we cannot control.
Mr. BUYER. I just wanted to throw it out. It is a reality. It happened. We saw it happen.
Mr. PANG. Yes, sir.
Mr. BUYER. We had to deal with it in conference. We will be watchful.
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Also, I would give you an opportunity to clarify the written statement from which you read, based upon my opening statement, give you an opportunity now to clarify so we do not place unwarranted stress upon our working relationship.
Mr. PANG. Yes, sir. I know that you have asked for the process, the method and the rationale that we used in conducting the study. Obviously, the study, as I have indicated, is not finalized yet and in fact has not been seen by the Secretary of Defense. We applied the methodology, frankly, to existing organizational structure and staffing patterns, but knowing that, we are going to be reviewing the organizational structure and staffing patterns as part of the QDR and will seriously do that. We are very reluctant at this point in time to even suggest any numbers—very reluctant——
Mr. SKELTON. Mr. Chairman.
Mr. PANG [continuing]. Because let me say that this is the very undertaking we are doing in the QDR. Let me just read to you from a document I have here. It says: ''By April 7th''—which was yesterday—''the Under Secretary of Defense for Personnel Readiness shall prepare a detailed proposal to complete a comprehensive review of all headquarters activities except those of the combatant commands, which the joint staff will review separately. The purpose of the review should be to reduce overhead by streamlining administrative command and control, eliminating redundancy, and flattening excess layers of organizational hierarchy. The study should make specific recommendations for reducing the overall military and civilian positions associated with these headquarters. To facilitate the Steering Group's consideration of the prospects for achieving reductions to headquarters activities, the study proposals should define the baseline of organizations, military and civilian positions and budgets subject to the review and should substantiate the potential savings described in the task force's presentation to the Steering Committee.''
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So we have done this. We have drawn up this plan, and it missed the date by one day, but we have it, and we are serious about conducting this review. Once this review is complete and we know what the results are, then we can apply the methodology, which we will be fully prepared to explain to you and in fact give you copies of the methodology and the rationale and the process we are going to use; we will apply that to the outcome, and I think that at that time, we will be prepared to come forward with numbers. And I must say that the numbers could be a plus to what we have, a minus, or zero.
Mr. BUYER. All right. I am not finished, but let me yield to Mr. Skelton for a moment.
Mr. SKELTON. Mr. Chairman, I have a clarifying question if I may.
On page 12 of the GAO testimony is Table 1. In the far right is a column that says ''DOD Draft Recommendations.'' What is that, Mr. Pang?
Mr. PANG. These numbers are the application of our methodology to the existing organizational structure——
Mr. SKELTON. In other words, they reflect——
Mr. PANG [continuing]. And staffing patterns that we currently have——
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Mr. SKELTON [continuing]. They reflect what you have not yet submitted to the Secretary; is that correct?
Mr. PANG. That is correct.
Mr. SKELTON. Thank you very much.
Mr. BUYER. So Mr. Pang, you have your time lines for how you conduct your business, and we have ours, and we have asked for something. I understand about the QDR and your reluctance to step forward, but I want to have an ongoing conversation with you. I do not want to butt heads; I do not want to do that. So if it can be of a final draft or a nonfinalized process which we can have, maybe there is some ground; would you agree?
Mr. PANG. Mr. Chairman, I will go back, and we will take the draft that we currently have—there are some refinements that we would like to make to it on the basis of the General Accounting Office's recommendations that were made today. Quite frankly, I did not know what their recommendations were until just very, very recently. We will take that into account, and I think we might—well, I know we will be making some adjustments to even the draft methodology, and then we will reapply it and see what comes out.
[The information can be found in the appendix on page 480.]
Mr. BUYER. What will be helpful to us is that we have this draft, we have the GAO report on it, and also, why I am anxious to have this in as close to final as possible if you do not want to give us that final is because then, when the QDR comes out, I want to have a constant scrutiny of the process so I can become comfortable becuse if I and this committee take a position that yes, we will agree to general officers, it had better be pretty sound.
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Mr. PANG. Mr. Chairman, I understand the subcommittee's oversight responsibilities, and we will cooperate fully with the subcommittee.
Mr. BUYER. I have one question before I yield to my colleague, and it deals with Major General Rippe.
General, if the services are to be believed, that you represent the villain in this drama—you are here as the joint staff—the popular view has it that the unconstrained appetite of the joint staff for more general and flag officers has outstripped the constrained ability of the services to meet both the joint staff requirements and their own internal needs.
I think there may be some truth to the services' allegations, and I have a chart—the chart is being passed out to all of you. This chart was principally put together by DOD data and past general and flag officer studies done for the Department by the Hay Group, and two trends stand out.
First, DOD's Hay studies have consistently validated 222 to 233 joint external positions in DOD. That is in column two. However, the number of general and flag officers actually serving in joint and external billets, which is column 1, has consistently exceeded what DOD studies have said were required.
Why are there more general and flag officers actually serving than there are validated positions?
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General RIPPE. The short answer to that, Mr. Chairman, is validated requirements after the completion of the studies. There have been a lot of numbers thrown around today, and I will admit that it is painful for the services when you have joint growth, but since 1990, based on a validated number of 280, the joint general and flag officer requirements have come down to 237. So there has been a decrease.
Now, admittedly, over the last 2 years, sir, there has been an increase of not 24 or 26, but 18 requirements, which brings the number to 237.
Mr. BUYER. So this 241 should be 237?
General RIPPE. It is 237, sir, today.
Mr. BUYER. When you said that these are validated requirements—by whom?
General RIPPE. Well, by the process that we have gone through in the past and presently and certainly by——
Mr. BUYER. No—by the joint world.
General RIPPE. By the Chairman and Secretary, yes, sir.
Mr. BUYER. So the Chairman of the Joint Chiefs and the Secretary of Defense did a validation of the external requirements for general and flag officers?
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General RIPPE. Based on the recommendation of the staff. There are some exceptions for that. We have occasionally, as you know, sir, in Congressional language mandated requirements—and approved.
Mr. BUYER. But what I am trying to get a sense and a feel for, for our oversight and responsibilities, is whether or not we should—if these positions are ending up becoming—if a quarter of all general officers are in the joint world, should Congress now play a hand and play a part in this? That I do not know at this point.
General RIPPE. I think Congress does play a part in it, sir. I know it is counter-intuitive. There is really no law of proportionality here when you talk about joint growth. If you think about, sir, where we have been since 1980, we have stood up CENTCOM, SOCOM, Space Command; we have reorganized to form ACOM, TRANSCOM, STRATCOM. As you know, since the cold war, we have conducted over 50 operations. All of those in this environment require superb leadership.
We have gone to a power projection strategy. So the environment has changed, and the world has changed, and there are dynamic requirements that have emerged, and we have tried to work very, very closely with the services to balance those requirements against actual authorization, sir.
Mr. BUYER. I agree with you about the proportionality. Mr. Pang, when he was in the Senate in 1990, did the proportionality analysis, brought the services down tremendously, but is now before us today arguing about a delinkage of proportionality; correct?
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Mr. PANG. Mr. Chairman, could I respond to what drove us at that point in time?
Mr. BUYER. Certainly, and then I will yield to Mr. Skelton.
Mr. PANG. As you pointed out, I worked on the staff of the Senate Armed Services Committee at that time when the reduction was enacted. There were reductions on both sides proposed by the Senate and the House, and that was done because when we were reviewing the strength plans of the military services at the time, we saw no reduction in the number of general and flag officers; it was at 1,073, a figure that I had pressed for before, and on the basis of analysis—and it was a very broad analysis of figures—we felt at that time, both the House and Senate, that the reduction that was passed in 1991 was correct. And those numbers have held fairly well. I mean, I think it is fair to say that the services at the time knew that some reduction was required, but they just did not have a plan. So this set a target for them. We also acknowledged, I believe, in report language that if these were too stringent, that they had an opportunity to come back and make a case.
Mr. BUYER. All right, thank you.
Mr. Taylor.
Mr. TAYLOR. Mr. Chairman, I yield to Mr. Skelton.
Mr. BUYER. Mr. Skelton.
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Mr. SKELTON. Thank you. Mr. Chairman, I think that this whole issue of additional flag officers probably stems, at least 90 percent of it, from the joint requirements that were established back in the 1986 Goldwater-Nickles legislation passed by Congress—which I might add, Mr. Chairman, it appears I am the only one on this panel today who has any corporate memory of the 4-year, bitter struggle that that was. But it did come to pass, and part of that was the requirement for jointness which, at the bottom of the page, those who fought it came back, and some testified or told us privately that the best thing we ever did was to require that.
General Schwarzkopf, in his success, also came back and testified favorably during Goldwater-Nickles. I might also say as an interesting footnote, Mr. Chairman, that in my initial bill that started this whole thing which eventually, 4 years later, turned into Goldwater-Nickles, eliminated the Joint Chiefs of Staff. Now I will tell you, Mr. Chairman, that none of the Joint Chiefs of Staff had a sense of humor at that time.
We had some very interesting discussions, and we passed in the House three times only to be thwarted in the Senate, as Mr. Pang will recall very, very well; and finally, with Chairman Goldwater and Sam Nunn, we were able to work out a very good piece of legislation that has worked. But out of all of this joint business came additional requirements, not the least of which deal with warfighting—warfighting from one aspect all the way down to and including military education, which as you know, I have done a bit of work in.
So I think there are two things we should look at, Mr. Chairman, in this whole process, and I am not sure I am in a position to ask the right questions, but let me make this observation to begin with: It has worked, and it has worked well, and if anyone in or out of uniform who has been working in the joint arena feels to the contrary, I wish they would let this committee know. In all honesty, I think they will say that you won a very fine piece of military conflict as a result of the left hand knowing what the right hand was doing in this nebulous thing called jointness and stemming from the Goldwater-Nickles bill. Those of us who worked on it—it sounds bad, but I will tell you this—some of us felt that war is too important to leave to the generals, and the fact that the Pentagon fought us so deeply after many, many hearings, and it came back to be praised by those who used it tells you, Mr. Chairman, that this thing called representative democracy in the Congress of the United States does work when we put our efforts and intelligence to work. It came out in the form of Goldwater-Nickles, which created jointness, as well as a much better chain of command, and I think there are many young Americans who were successful and came back from the gulf war as a result of what we did.
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So I think we should look at two things, Mr. Chairman, if I may—the really down, bottom line—any way you want to cut it, whoever recommends it or not—the absolute requirements—not the wish list, but the requirements—for joint general and flag officer shortfalls, whatever that may be. And the other, there are some special new requirements that I know have come about, calling for flag officers. My recollection is—correct me if I am wrong—that a flag officer has been assigned to force protection in the Middle East where that was not true before; am I correct?
General RIPPE. Yes, sir.
Mr. SKELTON. All right. And I do not think anyone on this committee would disagree with that. So maybe my earlier comments as to where those two Army brigadier generals go—one from Omaha, NE and one from the Pentagon—maybe that is where at least two of them went.
I think, Mr. Chairman, that that should be the test we should look at, the shortfall in those special new requirements, but I will be with you to screen them and scrutinize then to the nth degree.
Mr. BUYER. Thank you, Mr. Skelton.
There are some who believe that I may have a position of no general officers, which would be false. I just want to make sure that I have an understanding of the process and that we will scrutinize it in the view of the overall, not only the joint world, but the downsizing, and make sure it works. That is why I threw on the brakes with regard to the Marine Corps. I would agree with Mr. Skelton—in Indiana, we do not call it the down dirty; we usually refer to it as ''the bottom line''—but I think we mean the same thing, and we will scrutinize it and get to that number.
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I will now yield to Mr. Ryun to for any questions he may have.
Mr. RYUN. No questions, Mr. Chairman.
Mr. BUYER. Mr. Bartlett is recognized.
Mr. BARTLETT. Thank you very much, Mr. Chairman.
Is there a general consensus that the best argument for increased numbers for flag officers is that the use of the military and the various activities it is involved with around the world has increased the need for flag officers in the joint activities?
Yes, sir?
General VOLLRATH. Speaking for the Army, I would agree that that is the root from our perspective. The Army has in fact downsized the general officer force as we have downsized overall, from 780,000 active components to about 500,000 active components now.
The problem that we have today really stems from the continued increased requirements in the joint arena, because every time that occurs, it is one more decrement. So the downsizing I refer to—those are absolute losses down to what title X currently authorizes, the 302 for the active component. So that every time there is yet another joint requirement, it comes off that bottom line, and the district engineer from Ohio disappears and goes off and does something else.
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The other thing that drives the requirements are those real world contingencies such as Bosnia—that is not a permanent plus-up requirement in the joint arena, but we have in Army sent a major general over there for about the past 2 years to head up the combined logistics organization to support Bosnia, which is yet another drain that is not recognized.
So that yes, from an Army perspective, I would agree.
Mr. BARTLETT. We are discharging a constitutional responsibility to hold these hearings and to make an ultimate decision. We are talking here, in terms of dollars and cents, about one-two hundred thousandth of the total amount of money that the military gets, and I am not about to try to second-guess the military after they have done what I think is a conscientious job of making this recommendation to the Congress.
Thank you all very much for your testimony today.
Mr. BUYER. Mr. Pickett is now recognized.
Mr. PICKETT. Thank you, Mr. Chairman.
What impact on the requirement for general and flag officers does the restructuring of our military have, if any? We are moving into an area where our forces are organized in a different way than they were just a few years ago. Is this having an impact in lessening the requirement, increasing the requirement, or no impact at all?
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General VOLLRATH. Within the Army, we have not particularly changed the makeup of the force structure based on doctrine, but in terms of downsizing and the effect on the general officer force, I can give you an example that gets to the proportionality issue. The Active Army was at 18 divisions. The division on average is about 15,000 people. That is 8 times 15,000; about 120,000 people were downsized. In each of those divisions, there are only three general officers—one major general and two brigadier generals. That is 24 generals versus a 120,000 reduction. So the proportionality as you downsize does not track. In other words, the notion that if the force came down 37 percent, the general officer force ought to also come down 37 percent. If it were in fact constructed that way to start with, that would make great sense.
Now, if I projected into the future for the Force 21 experiment going on out in California, it is too early to tell what impact that potential change of force structure will have on the general officer requirements. We are not prepared to say that yet.
Mr. PICKETT. And the other side of the question is what is the impact on a military department if you do not have an adequate number of general and flag officers to carry out what you think are general and flag officer responsibilities? How does that impact on your operations and on your organization and on morale and your ability to function?
Admiral OLIVER. Mr. Pickett, I think you almost have to look at it individual billet by billet; that is the way I would have to address that. But there are some examples of things. Obviously, if you put someone in a situation where they have to deal with counterparts in the international arena, that is one example. If you stick an O–6, for instance, into an attache billet where the other countries provide flag officers, he or she is at a disadvantage in a circumstance like that.
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The same thing applies to some extent even within our own services on joint billets or in external-to-service situations where you have the wrong rank person in there; there is an inverse kind of thing.
Within the service, we have some perverse examples in the Navy where, for instance, you have a three-star-numbered fleet commander whose deputy for all practical purposes, when he is gone is the chief of staff, which is a captain, who now is in the chain of command superior to the one- or two-star battle group commander, which makes for an awkward situation. We have a similar situation with our major fleets as well, where the deputy is a two-star, ostensibly in the chain of command superior to the three-star-numbered fleets.
The structure of the military, as you well know, is so very much structured that what rank you have very much is what determines your access and in many cases, whether or not you are taken seriously by whom.
Mr. PICKETT. So an insufficient number makes it difficult for you to function in the most efficient and effective way that you are capable of functioning; is that a fair summary?
Admiral OLIVER. Yes, sir. The right number is the right number.
Mr. O'CONNELL. I would also like to add at this point that that holds true for the Reserve components, but with the additional concern that that rank structure has a very serious impact and impediment to integration and to the ease of integration. It is one of the important concepts behind raising the rank of those Reserve component commanders to O–9 so that they can participate in those kinds of meetings.
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We have a situation now that works, and I will say this for our military, that no matter what happens, they would make it work. If you dictated there was no one above the rank of sergeant, I believe that our military would somehow make it work. They might not stay around for very long at that pay grade, but they find some field-expedient way to make things work. They dual-hat people in a job; they accept people of lower rank in higher-ranking meetings. We have a situation where we have a major general which, outside the Chief of the Guard Bureau, is the highest rank that a Reserve component person can have, sitting in, working with the JROC—who, as you know, are all four-star vice chiefs—and that works. Good things happen. It has been very, very important for integration. But when you start getting down to those day-to-day activities, especially with the increased utilization of the Reserve component, it is necessary to have people of similar rank to participate in these activities, especially when you get into the joint arena.
Mr. PICKETT. Thank you.
Thank you, Mr. Chairman.
Mr. BUYER. Thank you, Mr. Pickett.
Mr. Taylor, you are now recognized.
Mr. TAYLOR. Mr. Chairman, I really promised myself that this was one of those things that I was just so thoroughly against that I was not going to get involved because nothing they could say could change my mind. But Mr. Pickett perked my interest when he mentioned the effect on morale.
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I am just wondering if the people at this table can tell me—many of whom have appeared before this committee earlier in the year, in some instances with an occasional crocodile tear, talking about the average Army soldier having to be away from his family about 120 days a year, the average Air Force man having to be away about 140 days, the average sailor about 160 days, how about 13,000 of the lower enlistees have to be on food stamps—and now we are hearing that the Navy is going to let 8,800 E–3's, 5,000 E–6's and 3,300 E–5's go—but by the way, we need to add some more generals and admirals.
Now, if you are one of those E–5's who is about to go, or one of those E–3's, how in the heck do you think you would feel about this, and how in the heck do you think it is going to affect the morale throughout the services, through that fine corps of NCOs that every, single base I visit, you all tell me is the backbone of the military? Has anyone even thought about that?
Mr. O'CONNELL. Well, I want to jump into that question. I understand exactly your point. I will say this from my personal experience at the bottom end of the officer rank in Vietnam that I was involved in a force for 6 years in which there was some serious lack of good leadership at the top, whether it is the political top or the military top. And quite frankly, I watched a lot of people suffer for that lack of leadership all up and down the line.
The leadership in the military today is dramatically different. If you could get further away than 180 degrees, it would be that far different than the situation I experienced in Vietnam. I believe in the enlisted ranks as well as the lower officer ranks that when you get into a situation in combat, you are absolutely dependent on your senior leadership, whatever level that might be and at the very top, to have you prepared adequately as far as training, as far as equipment, as far as your war plan, as far as the coordination of forces. And I think the success of Desert Storm in terms of the protection of our troops and the preservation of their lives and well-being demonstrates that having that ''top-heavy'' kind of force proves itself.
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Now, that does not eliminate the political question and the political problem of explaining to people why this makes sense. It is counter-intuitive that if you lose the number of people or reduce the number of people at the bottom that you should increase the number of people at the top even by one, but if you have created, No. 1, a functionality that requires that leadership at that level, and No. 2, if you have created a type of situation in which the cooperation with allies around the world, the cooperation among the services requires leadership at that level, then that is your answer. I would agree with the GAO suggestion that the only way to look at this is to look at those individual slots and examine them and examine their utilization for exactly the questions that you raise, Congressman, about how are they going to impact on the protection of those people at the bottom of the pyramid.
Mr. SKELTON. Mr. Chairman—oh, excuse me, Mr. Taylor.
Mr. TAYLOR. Captain, no one, certainly not I, have any reason to doubt what you are saying based on what you have given to your country and continue to give. But I would also point out that the stars of Desert Storm that you just referred to—the McCaffrey's, the Schwarzkopfs and the Powells—were all junior officers in Vietnam, and I think that that experience did make them better senior officers when the time came. But I still do not think it builds a case for more admirals and generals at a time when we have 13,000 young enlistees, the ones you led so well, on food stamps, when we are talking about letting about 14,000 of them go, and when, because of the—what we are facing now are situations other than war. I do not vote for these things, but they keep happening somehow, and they require boots on the ground, not admirals or generals.
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So it is just completely contrary to what is actually happening in reality, and I think it has just got to be devastating for morale, and I hope you will accept that I do have a little bit different opinion, but I will agree with you entirely that I think much of the brilliance of Desert Storm was learned the hard way by young Naval and Army officers and Marine Corps officers in Vietnam.
If I have any remaining time, I would like to give it to Mr. Pickett, Mr. Chairman.
Mr. BUYER. All right. May I use the prerogative of the Chair for a moment to make a comment on Mr. Taylor's comment before I yield to Mr. Skelton?
Mr. SKELTON. Yes.
Mr. BUYER. I share Mr. Taylor's concern. Then, I wanted to look at the historical data, and I passed this out to the members because I also approach this with the belief that we have driven down the force structure, we have forced out a lot of the numbers, most of which are the enlisted. We are having requests from the services, this discussion about increase in general officer strength, yet there are also in this joint world senior noncommissioned officers—are there not, General——
General RIPPE. Yes, sir.
Mr. BUYER [continuing]. But you are not requesting an increase in command sergeant majors; I have not heard that being uttered. So we looked at the top two enlisted grades historical data from 1945, 1968, and 1996. If you take the 1968 and the 1996, the modern era of the force structure, and you look at the enlisted to force ratio, really, the trends are about the same. I want you to comment so that I can have the understanding. At first, I was left with the impression that we are asking for more general officers and that there are less in the ratios between the noncommissioned officer and the enlisted. However, that is not necessarily true when you actually look at the force structure and the ratio.
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Would anybody care to comment on that? They want to decipher it first—because Mr. Taylor's point is well taken about morale, and I want to make sure that if in fact the enlisted world recognizes that, yes, if we are going to say they are somewhat ranked heavy at the officer strength, this is showing me that we also have some pretty heavy ranked in senior NCOs.
Go ahead, General Vollrath.
General VOLLRATH. For the Army, we have taken a look at the NCO structure. We did not limit our look to the top two grades. What I would say to you is that when we looked at the NCO ratios at the end of the drawdown compared to the beginning, the percent of the NCO force of the enlisted force rose from 47 percent to 50 percent, so it did increase.
When we took a look at that, of course, it has caused us some concern, so we are reviewing it. I do not know the results of that yet. But we also took a look at the field grade structure vis-a-vis the company grade structure as we were looking at the general officer structure compared to the rest of the force.
I would only offer one observation, and that is that as the size of the force gets smaller, you do not necessarily want less talent at the top, because in part you need to hedge for expendability. It also does not mean that your problems go away; it just means you have less people. And I would submit that our involvement certainly is not less today than it was before.
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We also then took a look at the precedents and what would lead us in this direction, and if you take a look at Title X in DOPMA, you will find that in the DOPMA field grade tables established back in 1980, there is a sliding scale that as the force gets smaller, the percent of field grade content rises permitted with law, with that understanding that the smaller you get, the richer the talent——
Mr. BUYER. My point is not on field grade, but it is on the senior noncommissioned.
General VOLLRATH. It is the same with the enlisted.
Mr. BUYER. Is that across services—are all the services finding it the same way, pretty much?
Admiral OLIVER. This is upward mobility and opportunity for the younger ranks.
Mr. BUYER. Mr. Skelton?
Mr. SKELTON. Mr. Chairman, I hope that everybody was listening to Terry O'Connell's comment, the substance of it. It was not responsive directly to the question that Mr. Taylor asked, but what he said was very, very important.
You made the case as well as anyone I have heard, Mr. O'Connell, for joint and individual service military education. I think if there was something lacking in Vietnam, from my limited study of history, that a good some of Army War College, Navy War College, or commander and general staff college-level courses could have been retaken by those commanders and done a better job.
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A number of years ago, Mr. Pickett and I worked on a military education panel which had successful legislation and changes in policy within the Pentagon—and to the Pentagon's credit, they cooperated with us quite well—that upgraded the military education of all 10 of the war colleges. And I am convinced that the flag officers, colonels, lieutenant colonels and majors today are much more equipped to handle joint challenges on the battlefield and joint and several decisions above battlefield level.
So that what you said makes my point, and I hope that will ring true to all the members who are listening. I hate to be critical of you, Mr. O'Connell, because of my fondness for you, but I do not think it was quite responsive to my friend Mr. Taylor's question, but I compliment for your attention, and what you said substantively was excellent.
Mr. O'CONNELL. That is not critical; that is accurate.
Mr. BUYER. If we are going to pick apart Mr. O'Connell's statement, what I remember best about your statement, about the 10 percent retention, is something—and I want to compliment my three colleagues who are here because I have heard them talk about it—what is the impact of decisions that we make here on the troop in the battlefield—the sailor, the Marine Corps hitting the beach, the ones in the sky, the ones who make the planes run—what is the impact on them and on their families? Are these going to be decisions that may lead to a loss of life on the battlefield? So you caught my attention.
The GAO did not have some answers, and I know someone has stuck around, and I want to try to get to the bottom of this. We have a draft report out there for 54 active and 35 Reserve generals; as I understand, 19 for the Army, 20 for the Navy, 15 for the Air Force, and zero for the Marine Corps on the active duty; of the Reserves, 20 Army, 4 Navy, 5 Air Force, and 6 Marines. Is that accurate?
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Mr. PANG. Mr. Chairman, I believe those are generally accurate.
Mr. BUYER. OK. I know it is a draft; we are talking about a rough draft.
Mr. PANG. Right.
Mr. BUYER. General Mutter?
General MUTTER. No, sir. On the Reserve side, our numbers have changed. That six was in an original draft, and it has been reduced to three.
Mr. BUYER. To three. And why was that changed?
General MUTTER. Because we focused strictly on the joint requirement as validated by the joint staff, sir.
Mr. BUYER. All right. While I have your attention, of these three for the Marine Reserves, what level is their rank?
General MUTTER. They are all brigadier generals, sir.
Mr. BUYER. All right. What I do not understand, then, is how or why General Krulak, the Commandant of the Marine Corps, can have a conversation with me about the need for a Marine Reserve three-star general, but it is not in this. Why is that?
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General MUTTER. Sir, what we have done is supported the other services who have said that we should upgrade, not add, a general officer, but upgrade the head of our Reserve organization to a three-star, because that billet does in fact validate out by all the criteria we used for all the other billets as a valid three-star billet. So it is not an additional billet.
Mr. BUYER. He is active duty.
General MUTTER. Yes, sir.
Mr. BUYER. So with one that you picked up last year, you will be able to make it, a three-star billet—you want it upgraded?
General MUTTER. We would like to have it upgraded in addition to what we are currently authorized, yes, sir.
Mr. BUYER. Ah.
Mr. O'CONNELL. I think the agreement was not to add those O–9 slots but to in effect take them out of hide, so it would come out of existing numbers.
Mr. BUYER. Is that the discussion that your board had?
Mr. O'CONNELL. Pardon me?
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Mr. BUYER. Tell me what the board talked about on the three-stars for the Reserves.
Mr. O'CONNELL. Well, basically, what we suggested—as you know from last year, our position was to try to determine and to have the services identify what grade these ought to be in the same kinds of methodologies they use to determine similar kinds of positions. And basically what happened was that those positions all graded out at O–9, so the agreement was to take them out of hide for that same reason.
Mr. BUYER. Let me move to the Army. Now I understand upgrade and why it is not in there. Thank you. And you can tell the commandant I am trying to be a very good listener, okay?
General MUTTER. Yes, sir, I will.
Mr. BUYER. For the Army, you are 20 Reserve. Of the 20 Reserve, are any National Guard?
General VOLLRATH. Yes, Mr. Chairman, 9 are for the National Guard; 11 USAR, 9 National Guard.
Mr. BUYER. Give me a breakout—of the 9 in the National Guard, how many are two-star and how many one-star?
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General VOLLRATH. Those would be brigadier generals.
Mr. BUYER. All brigadiers.
General VOLLRATH. Right.
Mr. BUYER. Of the 11 for the USAR, what are they?
General VOLLRATH. The same, brigadier generals.
Mr. BUYER. OK. Was there discussion about the upgrade of the Reserve commander from a two-star to a three-star——
General VOLLRATH. Yes, sir.
Mr. BUYER [continuing]. And tell me about the methodology that was discussed. And I am going to ask the same of each of you.
General VOLLRATH. Fundamentally, as explained, the 20 Reserve positions are not full-time positions, so set those aside. The upgrades of the Chief of the National Guard and the Chief of the USAR from our perspective are purely upgrades—they are not additions to; we are not adding to the general officer force.
Mr. BUYER. Wait a minute; sorry. The upgrades of whom?
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General VOLLRATH. Our upgrades to existing——
Mr. BUYER. No, no. The upgrades of whom? I missed that?
General VOLLRATH. Excuse me. The chief of the National Guard, the Director of the Army National Guard, and——
Mr. BUYER. Upgrade of the Director of the National Guard.
General VOLLRATH [continuing]. Upgrade of a two-star major general to three-star. We have an existing full-time two-star Chief of the Army Reserve and Chief of the Army National Guard, Novice and Berets.
Mr. BUYER. What would you do with the Air Guard?
General VOLLRATH. Sir, I will defer to the Air Force.
Mr. BUYER. Are they going to three-star, also?
General MCGINTY. Yes, sir.
Mr. BUYER. So you are left with the—all right. So the Chief of the National Guard is a three-star?
General VOLLRATH. The Chief of the Bureau is a three.
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Mr. BUYER. OK.
General VOLLRATH. So you would have from the Army perspective a three-star and then two three-stars, one Army National Guard and one United States Army Reserve.
Mr. BUYER. So if they are upgraded, those 2 come out of your 20?
General VOLLRATH. No, sir, they do not come out of the 20. They come out of the full-time numbers that we have that are already on the books. Within the 302 full-time, active general officer positions, you will find those positions.
Mr. O'CONNELL. They come out of the existing general officer pool.
General VOLLRATH. The existing general officer pool.
Mr. O'CONNELL. What we may need to do is change the head space rules for O–9's to allow an additional O–9 within the total number of general officers.
Mr. BUYER. I recall last year in this discussion about Reserve Chiefs being upgraded from a two-star to a three-star that the Chief of the Guard Bureau made a suggestion that he felt that if that happened, he should then be a four-star. Was any of that discussed and methodology or rationale as to why that should be?
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Mr. O'CONNELL. I think we basically skilled that question.
Mr. BUYER. You skipped it; okay. Does the Army see any necessity or reason as to why we should do such a thing.
General VOLLRATH. No, Mr. Chairman, we do not.
Mr. BUYER. All right. Let us shift to the Navy. Give me your breakout—wait a minute, I have got to go back to the Army for a second. Of the 19 in the Army on active, give me your breakout.
General VOLLRATH. Active would be primarily brigadier generals, but I will break them out by category to give you a feel for the 19. Six are for what I call the new joint.
Mr. BUYER. All right.
General VOLLRATH. Three are for a USAR upgrade. We took a look at the Reserve positions, and we concluded that we needed to take three part-time general officer positions and make them full-time positions. Those are primarily the Reserve advisors, for example, to UCOM, SOCOM, et cetera. And then, three to cover operations other than war. What we did was we took a look at the cost of doing business over the last 3 years—Haiti, Bosnia, Somalia, et cetera—and what we were on average paying in terms of man-years, and that is three.
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Mr. BUYER. All right. That is the 12 BGs?
General VOLLRATH. Right.
Mr. BUYER. All right.
General VOLLRATH. The remaining seven are a combination of the engineer positions, the by law engineer positions, and the other requirements in the joint arena that go back to what is called the Chairman's 12.
If those are not made permanent, if the Chairman's 12 are not made permanent, then instead of being a plus, they become a negative which we must pay, because there will be no authorizations for them. So from my bottom line, that is yet another decrement to it, but if they are made permanent, then the issue goes away in part.
The other part is in the Corps of Engineers, we have a requirement to fill those because they come out of a different portion of the law. So the combination of trying to cover those requirements gets you to the 19; it is a combination.
Mr. BUYER. All right. The Navy. Tell me about your 20 for active duty and your four for Reserves. How do they break out?
Admiral OLIVER. Nominal O–7 is just the request, but the formula would be applied to the active, of course, which would give us three additional O–9/10 headroom is the way we would imagine this would work.
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We are currently authorized 216 plus four for the Chairman's pool. If we went to 240 active, and you applied the same formula, that would result in either one extra O–10, two extra O–9's or three extra O–9's, just by the way the formula would work. That is the way we would imagine this would play out.
Mr. BUYER. And where are they going?
Admiral OLIVER. Well, I have a nominal list of places for them to go, but 17 of those are in-service and three are for joint, combined or departmental positions.
On the Reserve side, we are talking either four or five, depending on how the latest draft works out. Three are in-service, and two would be for the same joint combined or departmental. All of those are SelRes billets as we envision it and all at the O–7 level, and of course, moving the Chief, NavRes, to O–9 would be something we would recommend. Today, he is an O–8. We would like to make him an O–9. He is one of three active duty Reserves that we have currently in our organization.
We actually have—oh, by the way, we have two Selected Reserves who are on active duty for special work, extended 179-day periods right now, filling out what would otherwise be gapped O–7 billets, just because of a shortage of flags to do what we need to do today. But they do not really count in this discussion except as a commentary on the side.
Mr. BUYER. Thank you.
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General McGinty.
General MCGINTY. Sir, the Air Force has, as you said, 15. That is 10 in-service billets, seven of which are wing commander jobs; one is a numbered Air Force vice commander job in Japan, and two are directors of logistics at major air commands, for the 10 in-service billets. Those would notionally be all brigadier generals. Five, as you stated, are in the joint world, and they would be dependent upon which billets we would fill. I would expect most would be one- or two-star.
Your question on the Reserves, you cited five. The number I have seen is four. It would be an increase of four for the Reserves. We would like to see those interchangeable between Guard or Reserve, so you would put the best Guardsmen or the best Reservists in the billet; let them compete, let them both nominate, just like we recently did for our Deputy IG, where we let the active Guard and Reserve all nominate a person.
Mr. BUYER. And also in your potential analysis, or in your analysis, but yet it will carry into the QDR, I am hearing this discussion about an increase of the Reserve Chiefs to three stars. I am going to start with Mr. Pang, but then I want to go right down the line, and please tell me the methodology for that—or, not the methodology—just tell me why you can justify doing that.
Mr. PANG. Mr. Chairman, I think I am going to defer to the service chiefs, but let me say this. What we have described here for you is the application of a methodology that we have come up with for our existing organizational structure and staffing patterns, and obviously those are subject to change. So these are not numbers that we are requesting. I just want to make it crystal clear that we are not asking for——
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Mr. BUYER. It is fluid, it is in motion.
Mr. PANG. Yes, sir, it is fluid.
Mr. BUYER. It is fluid, in motion. You are thinking about it, you are contemplating it, and you are going to try to hold the services at bay if they go run for it.
Mr. PANG. That is correct, Mr. Chairman. But having great faith and confidence in my colleagues here, I do not think they are going to do that.
Mr. BUYER. All right. General McGinty?
General MCGINTY. I think your question is why do we feel the Guard and Reserves should be three-star.
Mr. BUYER. Yes.
General MCGINTY. We are very proud of our Guard and Reserve. They have contributed a lot to the Air Force and helped us through these days of high OPSTEMPO. Our Air Force Reserve, recently established as a separate major air command, represents 19 percent of our total Air Force manpower. It is the second largest major air command we have in the Air Force today, with 37 wings of people. That is a big job. That is bigger than many of our major air commands.
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Our Air National Guard, with 1,600 units, 1,194 airplanes assigned to them, and 112,000 people—that is equivalent to our major air commands.
So our Guard and Reserve in size and scope and responsibility are equal to our major air commands, and we compare them, and that is how we want to upgrade them.
Mr. BUYER. Admiral.
Admiral OLIVER. Ours is similar. When we look at the methodology that went through validating these billets, and you look at the attribute groups that they put them in, if you look at things like nature of position, and you look at whom he reports to—he reports in our service directly to the four-star—he is currently a two-star, he is an echelon 1, and he is an echelon 2—the size of his position, there are 98,000 Selected Reserve in the U.S. Navy today. They cover the world. He testifies independently before Congress as a commander. He is close to the seat of the Government. He is publicly exposed in terms of his dealings with the media and the external audiences. And then there are special considerations of the number of warfare specialties that he covers, and so on. So every time we apply these attributes to someone with that sort of domain, it comes up in our methodology as an O–9 level billet.
Mr. BUYER. General Vollrath?
General VOLLRATH. There is not much I can add, quite similarly—breadth of responsibility, budgetary and program oversight—a major responsibility—dealing routinely with Members of Congress, Congressional oversight; the overall leader responsibilities and, again, whom they report to, and then a comparison of the size of the force that they have oversight responsibility for. The active component, 495, and the Reserve component combined is 527,000. So it is significant oversight, significant leadership, significant responsibilities.
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Mr. BUYER. General Mutter?
General MUTTER. I would give virtually the same answer, sir. We apply virtually the same methodology, and going through all of it, looking at scope of responsibility and so forth, it came out to be a three-star billet.
Mr. BUYER. And the last question I have is for Major General Rippe on bringing Reserve general officers into the joint world. What do you think about it?
General RIPPE. I think it is one force, sir, and I think it is what we have to do.
Mr. BUYER. Boy, if I didn't serve him a softball. [Laughter.]
Mr. BUYER. Mr. Taylor, do you have any further questions?
Mr. TAYLOR. No questions.
Mr. BUYER. Thank you very much for your testimony.
The hearing is now concluded.
[Whereupon, at 4:14 p.m., the subcommittee was adjourned.]
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"The Official Committee record contains additional material here."
"The Official Committee record contains additional material here."
THE STATUS OF THE READY RESERVE MOBILIZATION INCOME INSURANCE PROGRAM
House of Representatives,
Committee on National Security,
Military Personnel Subcommittee,
Washington, DC, Thursday, May 8, 1997.
The subcommittee met, pursuant to call, at 10:10 a.m. in room 2118, Rayburn House Office Building, Hon. Steve Buyer (chairman of the subcommittee) presiding.
OPENING STATEMENT OF HON. STEVE BUYER, A REPRESENTATIVE FROM INDIANA, CHAIRMAN, MILITARY PERSONNEL SUBCOMMITTEE
Mr. BUYER. This hearing will come to order.
Today the subcommittee will hear testimony on the Ready Reserve Mobilization Income Insurance Program, a program we now know to be, how should I say, bankrupt and an embarrassing failure.
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The problem of the mobilized reservists losing income became a major issue during and after the Persian Gulf conflict. Operations Desert Shield and Desert Storm involved the largest activation and employment of reserve deployment forces since the Korean war with more than 246,000 National Guardsmen and reservists from all the Armed Forces serving on active duty. Postwar surveys indicated that 45 percent of the officers and 55 percent of the enlisted personnel reported income losses. There were significant financial hardships endured by some reservists and Guardsmen, especially highly paid professionals and those that were self-employed.
The DOD response to the problem was the creation of an insurance program designed to be self-funded by premiums. Those premiums over a period of years, DOD actuaries believed, would provide the accumulated funds to pay the benefits for a moderate mobilization, something along the line of the current Bosnian deployment. However, it was always assumed that a large mobilization like the Persian Gulf conflict would create a program liability that could never be supported by premiums, that would require supplemental funding from Congress.
Two problems occurred during the implementation. First the insurance enrollment period coincided with the notification of units that were subject to activation to support operations in Bosnia. Not surprisingly, 85 percent of the personnel in the units scheduled for deployment participated in the program. I am concerned about those that didn't participate in the program. Many signed up for the maximum amount of coverage, $5,000. Such adverse selection immediately bankrupted the program and left it $72 million in debt, and the arrearages continued.
The second problem that emerged was the lack of participation in the program by reservists. Following the Persian Gulf conflict, a RAND survey indicated 65 percent of the enlisted and 55 percent of the officers would purchase mobilization insurance at a rate comparable to the rate that was eventually included in the law. Today, less than 3 percent of the reserve force has signed up to participate. Even had DOD actuaries' conservative estimate of 40 percent participation rate been accurate, it is now apparent the program would not have been solvent.
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There is evidence that this program failed in part because of the inadequate preparation and flawed implementation and marketing. But that is not the whole story. The unexpectedly low participation rate raises serious questions about the future need for the program.
The committee must understand how and why the program got off to such an abysmal start and if failure could have been prevented. Moreover, the committee must understand if such a program should continue.
Before I introduce the first panel, I want to yield to the Ranking Member, Mr. Taylor, for any comments he may have.
STATEMENT OF HON. GENE TAYLOR, A REPRESENTATIVE FROM MISSISSIPPI, RANKING MEMBER, MILITARY PERSONNEL SUBCOMMITTEE
Mr. TAYLOR. Thank you, Mr. Chairman. I have a fairly lengthy prepared statement, so I will try to cut it short.
I want to thank Ms. Lee for being with us today and bringing her very qualified staff, many of whom were a great help to us in their previous life as staffers here for the National Security Committee.
I want to join you in saying that the Mobilization Income Insurance Plan to date has been a disappointment. As a Member of Congress during the Persian Gulf conflict, I can assure you from the calls and letters I received from the families back home, I became very aware of the hardship incurred by the many reservists also called to active duty. Although some of the larger firms in my congressional district, such as Chevron and Ingalls, continued to pay their employees during their period they were called away from home, obviously that was not the case for everyone, and many of them who were highly paid professionals in their private lives enjoyed being E–4's and E–5's on the weekends, only to discover it was pretty tough to live on that E–4/E–5 salary for 6 months or more.
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The Mobilization Income Insurance Program was designed to address that hardship. We expected to see high levels of participation. I suspect that a factor contributing to the low participation rate among reservists is just the natural human tendency to forget a painful experience or think it won't happen again.
Frankly, I am surprised that more reservists did not participate in the program. In my view, the likelihood of a reservist being called up is going to only increase in the coming years as the reservists expand the support of the active component. Additionally, the recent information in the press of the QDR suggests that active forces may be further reduced. If that should happen, I can only conclude that the reserves will be called to active duty more frequently than they are today. Mr. Chairman, I hope we can examine this program and learn from its weaknesses.
Can participation rates be improved? I continually hear from reservists that people were denied the opportunity to enroll. Even worse, others made a decision not to enroll based on inaccurate information. I am convinced the concerns which led to the creation of this program have not gone away. Every time we deploy reserves, someone will suffer an economic loss.
As we consider the future of the program, I hope to discuss additional tools that we can use to address the financial hardship of our reservists and Guardsmen when they are mobilized. I am not one of those people who think that government can solve every problem. However, at this time there appears to be no alternative insurance in the private sector to address this need. This is obviously an instance when the private sector has chosen not to address a problem.
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The Ready Reserve Mobilization Insurance Program was intended to pay for itself in the long run. Like the national flood insurance program the people from my part of the country so desperately depend on, it was designed with the knowledge that in some years there would be no contingencies that would require an outflow of capital. The accumulation of capital during the years in which there were no claims will provide the resources to pay claims when they do occur.
Despite the shortcomings of this program thus far, and given the present mood of Congress, we should not expect large mobilizations of National Guardsmen and reservists unless under the direst of circumstances. Therefore, I do believe that if this program is properly designed, properly capitalized, and properly managed along sound business principles, the program can become the financial safety net that it was envisioned to be when it became law during the 104th Congress.
As someone who spent 13 years in the Coast Guard Reserves, it is my opinion that a large callup for Desert Storm and Desert Shield made it abundantly clear to the National Guardsmen and reservists that they will be called again when the Nation needs their help. It also became clear that those Guard and reserve personnel who served for a fraction of the private sector pay when called to active duty, that they need to take steps to protect their financial security when they are called up again. This program gives them that opportunity.
Hopefully in the near future, the private sector will be willing to come forward with a program that addresses their needs. However, until then, I think this committee, Assistant Secretary Lee, should work together to provide an insurance program that protects the financial security of these Guardsmen and reservists when they are called upon to protect our Nation's security.
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Thank you, Mr. Chairman.
Mr. BUYER. There are statements by General Sandler, ROA; The Military Coalition; and Mike Cline, Master Sergeant and executive director of the Enlisted Association of the National Guard of the United States. Their statements will be placed in the record. I read the Guard's and ROA's, but I haven't seen The Military Coalition's. That was just delivered this morning. If you want me to read it the night before a hearing, get it to me the night before a hearing. If you get it to me the morning of the hearing, I don't get a chance to read it.
[The prepared statements of Mr. Sandler and Mr. Cline can be found in the appendix on pages 650 and 694.]
Mr. BUYER. For housekeeping, we also have with us Mr. Paul McHale, who is not a member of the subcommittee, although he is a member of the National Security Committee and is also cochairman of the Reserve Components Caucus. We welcome him to this subcommittee hearing.
I would ask unanimous consent that he also be able to participate in the questioning during this hearing.
Hearing no objection, so ordered.
I would like to welcome the witnesses we have here today. Mr. Robert J. Lieberman, Jr., the Assistant Inspector General for Auditing, the Office of the Inspector General, United States Department of Defense; and Mr. Mark E. Gebicke—if you keep coming up here and testifying, I will get your name right—Director of Military Operations and Capabilities Issues, United States General Accounting Office; and the Honorable Deborah Lee. Thank you for coming up.
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Gentlemen, you may begin your presentation in any manner you wish.
Mr. Lieberman.
STATEMENT OF ROBERT J. LIEBERMAN, JR., ASSISTANT INSPECTOR GENERAL FOR AUDITING, OFFICE OF THE INSPECTOR GENERAL, U.S. DEPARTMENT OF DEFENSE
Mr. LIEBERMAN. Thank you, Mr. Chairman.
Members of the subcommittee, in order to save your time, I would like to highlight certain parts of my written statement and ask that the remainder of it be read into the record.
I appreciate the opportunity to appear before you today to discuss the results of our evaluation of the Ready Reserve Mobilization Income Insurance Program. We conducted this review both at the request of the Department and of this committee, and we have worked closely with the GAO to avoid duplication throughout the process.
We evaluated the design, implementation, and future viability of the insurance program as currently constituted. In addition, we addressed the issues raised in your letter to the GAO last January.
We want to begin by stating that we agree with the Department's proposals related to the emergency supplemental appropriation and the suspension of the program pending further study on how to fix it or replace it. As manifested by its estimated $80 million shortfall, the program has not met the expectation of either the Department or the Congress that it would be self-sustaining. We will discuss in detail the reasons for this lack of viability in our formal report, which we will issue in draft form later this month and in final form in June. For the benefit of the subcommittee this morning, I will summarize our findings.
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The program was based on erroneous assumptions, deviated significantly from the successful practices used in private sector and other government insurance programs, was not effectively marketed, and suffered from the consequences of circumstances beyond the control of its managers. Underlying the design flaws were the serious underestimation of liability risk and drastic overestimation of likely participation levels by reservists in a voluntary program.
There was no reliable way to estimate the duration, number, and timing of future mobilizations, nor the numbers and specialties of reservists who would be called up. In developing the program and the rates, the Department made several assumptions based on the previous 50 years experience.
Using the past to predict the future is very risky, especially in our ever-changing post-cold-war world environment. Indeed, the unpredictability of risk in the program was immediately proven because the initial implementation coincided with the unexpected third rotation of reservists to Bosnia in Operation Joint Endeavor.
A warning about the potential impact of future Bosnia call-ups has been given to the Secretary of Defense by the DOD Education Benefits Board of Actuaries in August 1996. They noted that in insurance terms, Bosnia was a preexisting condition. They were concerned that while the reservists already on active duty in Bosnia could not enroll, those replacing them could. They warned that if those enrolled in the reserves were deployed, it could trigger substantial benefit payments and endanger the fund's solvency right away. Of course, the fund was not capitalized up front. It had to—its corpus had to be built up gradually, starting with the initial enrolled members' contributions.
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This warning came true. It is exactly what happened. The program began on August 1, 1996, and the first call-ups for the third rotation to Bosnia began in the middle of October. This resulted in severe adverse selection because those reservists with a high likelihood of being activated simultaneously had an opportunity to enroll in the program. In fact, initial data showed that 85 percent of those reservists going to Bosnia had enrolled in the program. More current data pegs that figure at 65 percent, but still a substantial majority. The exact numbers are 2,143 out of 3,293. Eighty-four percent of the reservists who signed up for the program chose the maximum coverage, that is $5,000 a month.
The operating assumption at the time of the Board's warning to DOD, however, last August, was that Operation Joint Endeavor would be over by December 1996. Therefore, the DOD continued prompt implementation of the program as specified in the law.
Once the scenario for the U.S. presence in Bosnia changed, in retrospect the program was hopelessly compromised, although we found no indication this was recognized before the Congress adjourned in October. So there was no dialogue about revising the terms of the program at that point.
By the time the extent of the developing financial problem in the fund was clear a few weeks later, there was no practical recourse except to reduce benefit payments so the fund would not be overexpended and to submit a supplemental budget request to Congress to cover the expected shortfall. Those actions were taken.
A fatal flaw in the program, as mentioned in the chairman's opening statement, was that the actual enrollment was drastically lower than the enrollment projections from either the RAND Corp. analysis of the post-Desert Storm survey or the DOD's own actuarial estimates. The chairman gave those percentages, so I will not repeat them. The gap was so overwhelming that the fund's corpus was simply inadequate.
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In my written statement, I discuss several contributing factors. First the previous opinion surveys may simply have been misleading, perhaps because of the sampling methodology or perhaps because opinions had shifted over the intervening 3 or 4 years. We had no time to do another comprehensive opinion survey as part of our review over the past 4 months, but we did make some observations concerning the enrollment patterns for the program to date.
While total enrollment was low, we found that certain groups of reservists were clearly more interested in the program than others. Of the approximately 5,500 military specialties for the reserve components, about 1,930 specialties, or one-third, had some reservists enrolled in the program, but less than 8 percent of the 5,500 specialties enrolled at levels of 10 percent or more. Those were heavily concentrated in the medical, aviation, and legal fields. The disproportionate participation by those professional groups was generally consistent with the higher than average interest shown by those same groups in the various previous opinion surveys. Due to the distortions caused by adverse selection, no analysis of the enrollment data can substitute for a comprehensive opinion survey.
Another factor was poor marketing. There was no comprehensive marketing plan. The entire exercise was heavily decentralized. Marketing terms were not available until the last minute because the premium rate was not approved until the middle of August 1996, and there were long lead times for preparing and distributing materials. The recent survey, which was not a comprehensive survey, but still may be indicative of problems, indicated that 26 percent of the respondents to the survey had never heard of the program. If that percentage is anywhere near valid across the board, obviously the marketing was very flawed.
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Another factor was price. The premium rates of over $12 could have been higher than some reservists were willing to pay, although the difference was probably not great enough for the rate alone to have been a significant factor.
Another contributing factor was that the program was designed to default to declination of coverage if reservists did not take any enrollment action by the end of December 1996. Therefore, reservists who may not have received the package or did not have sufficient time to make a decision were automatically disenrolled from the program.
Mr. BUYER. I am going to have to interrupt and recess this hearing. We have about 10 minutes remaining on a journal vote. We are going to vote and immediately come back. So we stand in recess until we return for the vote.
[Brief recess.]
Mr. BUYER. This hearing will come back to order.
I apologize, Mr. Lieberman. That is life on the Hill. You have been here long enough. Please continue with your statement.
Mr. LIEBERMAN. Thank you.
I was in the midst of a laundry list of reasons why the program ran into the problems that it did. It differed from general insurance norms in several other ways, for what the Department thought were good reasons.
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It did not require any proof of income lost, thereby allowing reservists to sign up for the maximum allowable coverage without demonstrating a need for the insurance. It had no waiting period prior to entitlement for benefit payments. It lacked sufficient provisions to discourage what the insurance industry calls adverse selection, which means that a disproportionate number of individuals with a known high probability of loss join the insured pool.
The program design, which was specified in detail in the authorizing law, reflected an awareness of those differences and an attempt to make reasonable accommodations. For example, to reduce the impact of a decision not to require proof of income loss, the law limited the amount of coverage to $5,000 per month. Similarly, there was an awareness that a common private sector method used to prevent adverse selection is to allow benefits only after a specified waiting period following enrollment in a policy. Instead of a waiting period after enrollment, the program excluded the first 30 days of mobilization from benefits coverage, in essence creating a deductible. From a purely fiscal standpoint of capping liability, 30 days was not enough, but it can be argued reasonably the longer waiting period or additional signup restrictions would have been unfair to the beneficiary population that the program was set up to serve.
So, where do we go from here? First we must carefully reassess the true need for the program. This is a very difficult thing to do because the very fact that it failed for the reasons that it did, that is distortions caused by the Bosnia call-up and problems in implementing it, somewhat mask the situation. We can measure need through assessing reservist opinions. Another way is to track recruiting and retention statistics. I will address the second first.
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There does not appear to be a major recruitment or retention problem among the reserve components in general at the present time. Recruiting and retention goals for the most part are being met and in strengths of all between the 98- and 99-percent level of goals at the component level. There are some medical specialties in particular that are not staffed at the desired goals, however, for various reasons, and this has been a longstanding problem. The low participation levels by reservists in the insurance program may belie the existence of a widespread quality of life issue, but at the present time I would posit that we don't really know.
As previously noted, there certainly may be valid concerns related to certain professional groups. Clearly the most interested has been expressed by doctors, pilots, and lawyers. An obvious question to be addressed in this study proposed by the DOD is whether the needs of those individuals can be fairly addressed in some broad-based program, perhaps through means other than mobilization insurance.
We support the supplemental request, which I understand has been reported out favorably by both of the appropriation committees. We would also point out that there will still be some liability extending into fiscal year 1998, an estimated $8 million.
Although the Department has identified the risk associated with all of the options and done a commendable job in addressing lessons learned from the current program, the prospective success of any option for continuing the program is doubtful, given all the unknowns about mobilizations: the number and timing of the potential deployments, the number of reservists to be called, the specialties of reservists called, the duration of the deployments, et cetera. Definitive need for the program is unproven, and its financial stability cannot be assured.
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I think that the fact that the private sector has not made any attempt to market a product to address this population is instructive. Certainly because of the risk involved, if the program is going to continue as any kind of insurance program, the Government is going to have to assume considerable risk, and it is going to be very difficult to promise that the program would be self-sustaining over the long run.
In our view, the legislative proposal submitted by the Department is a reasonable approach, given the current situation. Our only potential concern is with the amount of time being projected for the additional study. The work over the past 4 months by my staff, the six DOD working groups, the GAO and the committee in this hearing have, in effect, already started such a study. So I don't believe that it should run on the order of a year and a half, which is what I understand some people have proposed.
Mr. Chairman, that concludes my statement. I would be happy to take questions.
[The prepared statement of Mr. Lieberman can be found in the appendix on page 633.]
Mr. BUYER. Mr. Gebicke.
STATEMENT OF MARK E. GEBICKE, DIRECTOR, MILITARY OPERATIONS AND CAPABILITIES ISSUES, NATIONAL SECURITY AND INTERNATIONAL AFFAIRS DIVISION, U.S. GENERAL ACCOUNTING OFFICE
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Mr. GEBICKE. Mr. Chairman, I am going to keep my statement very brief this morning.
We are pleased to be here to discuss the Ready Reserve Mobilization Income Insurance Program and the DOD's role in reviewing that program, and what I would like to do is basically two things: Explain the role the GAO had in the review, and also make a couple of observations that I feel compelled to make based on the information that we have had made available to us.
If you recall, on January 9 of this year, you asked our office to review this program to assess its need, its actuarial soundness and DOD's implementation. As we began the planning for that review, we very quickly found out that the DOD IG had already in place a very similar type review, and we brought that to your attention.
We met with representatives of the subcommittee and the DOD IG and my office to talk about how we should proceed. At that meeting, we reached agreement that it really was not logical for two audit groups to proceed to review the same program, and since the DOD IG had already initiated the audit and had pledged that they would address all of the issues that you had laid out to us, we agreed and your staff agreed with that arrangement.
We worked then with the IG to come up with what we call a memorandum of agreement that outlined our respective roles during the course of the review, and basically the agreement called for the IG to perform the review and for us to review their audit guidelines, receive periodic updates, have access to key documents, attend key meetings with DOD officials, and review the IG's draft report when it was completed. The essence of the agreement was detailed in a letter to you dated February 10 from the IG.
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We and the IG have complied with the spirit and the nature of the agreement. For example, the IG staff incorporated several of our suggestions into their audit plan, and we believe that they used a very reasonable methodology in conducting their review. They also briefed us on their preliminary results, which seems to address the subcommittee's concerns. However, we also told the IG staff that we could not offer a final position until we saw their draft report, which, as Mr. Lieberman indicated, will be available later this month.
There are four observations I would like to make after outlining our role. These are things that we felt—even with our limited involvement, we felt so compelled to make, they jumped right out at us. The first deals with the issue of need. Mr. Lieberman covered that very well.
The DOD estimated conservatively they thought that about 40 percent of the eligible reservists would enroll in the program, but only 3 percent actually enrolled. The low enrollment rate raises a serious question about the extent of the need for the program. Previous studies had shown that many reservists suffered economic losses and would be interested in an income insurance program. Very few actually enrolled when it was offered.
Now, there is some evidence that DOD did not market the program as adequately as they could have, and that alone, unfortunately, can't explain the low rate of participation. Mr. Lieberman gave some statistics a moment ago about a percentage. I think he used 26 percent of individuals who were polled by RAND recently had claimed in the telephone survey they had no information whatsoever; in other words, they had never heard of this particular program. There was another 16 percent that indicated they had heard very little about the program, not enough to make a decision, or did not have enough time to make a decision on whether or not to participate.
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If you add those two percentages up, the 26 and the 16, 42 percent said that they didn't have any information or didn't have enough. A different way to look at it is 58 percent indicated they did know about the program, they did have enough information, and did have enough time, yet the enrollment was still very low, less than 3 percent.
The second point I would like to make is that because of the low enrollment which limits the amount of insurance paid into the fund, and because many of those who did enroll suspected or possibly knew they would be activated due to the ongoing Bosnia operation, the program is not self-sustaining as intended. Many reservists activated for duty in Bosnia began to receive benefits almost immediately after enrolling in the program.
The program, as you know, is expected to be $72 million in the red by the end of this fiscal year, and the legislation allows DOD to seek a supplemental appropriation from the Congress to cover the funding shortfalls, and that act has already taken place, is beginning to take place.
The third point I want to make is that because enrollment in the program is a one-time opportunity that most reservists have already declined, the existing program cannot significantly be improved—cannot improve its viability through increased premium income from new enrollees, at least in the near term. So as designed right now—and that provision was put in there for a good reason. It was put in there to eliminate adverse selection. Now we have a situation where enrollment is so low, it works counter to what we need, and we need more participation if the need is out there.
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The fourth point that I want to make is that the program is not actuarially sound. It probably cannot be designed in an actuarially sound way. There are too many things that are unknown. We do not know and we cannot predict, and we can run a lot of models, and certainly the DOD ran, I understand, 10,000 models, but in each case a number of assumptions had to be inserted into the model in order to get an output.
Generally with insurance, and I am not an insurance agent, so bear with me, what I understand is what an insurance program tries to do is spread risk. They spread risk because they know the frequency of the occurrence of an event, and they also know when those events occur how much it is going to cost them, so they can take those two pieces of information, they can calculate their outflow of funds or their expenses, if you will. They can add a profit, their administrative fees, and then calculate a premium based on an enrollment in that particular program they can expect.
Now, in this particular case, let's think about what we don't have. We don't know how often we are going to need to send people overseas, to involuntarily call them up. We don't know how long they are going to be there, nor do we know how many people we are going to send. Those are all three critical things that you really need to quantify which are basically impossible to quantity.
The DOD used the last 50 years history as an indication of what might occur in the future. That was probably as reasonable as anything. But as Mr. Lieberman said, in the world we live in today, what happened over the last 50 years is not necessarily an indication as to what is going to happen in the future.
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Taken together, our observations tend to support the DOD's recent proposal to suspend the program and reexamine the need for it and to consider possible alternatives to meet the needs of reservists and their families.
This concludes my brief opening remarks. I would be glad to respond to any questions that you or other members of the subcommittee may have. Thank you.
[The prepared statement of Mr. Gebicke can be found in the appendix on page 620.]
Mr. BUYER. You mentioned the 72 million by the end of this fiscal year. Is that or is that not excepting out phases 4 and 5 of deployment? Obviously excepting out phase 5, but what about phase 4?
Mr. GEBICKE. I believe, and Mr. Lieberman may know more than I, but I believe it takes into consideration all of phase 3 and an estimate of 10 percent of the individuals who would participate in phase 4. Would you like to add to that, Mr. Lieberman?
Mr. LIEBERMAN. No, I think that is correct.
Mr. BUYER. Notices for phase 4 on the alert roster should be going out soon, right? So the Department of Defense should know kind of what those numbers are going to be, don't they? Maybe I should be asking Ms. Lee this question.
Mr. LIEBERMAN. In terms of how many they are going to call up, yes.
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Mr. BUYER. Both of you gentlemen had noted some different things which we also had some reports about the marketing of the program being inconsistent and nonexistent also in some cases, this 40-some percent that you had mentioned. Tell me why you think that is? What happened? What did you find? That is a huge chunk.
Mr. LIEBERMAN. Well, there were a lot of people that needed to be contacted. In fairness, it was not an easy thing to do and different ways of contacting them had to be found, because in some cases there were regularly scheduled drills during the period, and in other cases because of the holidays and things like that, the schedules had been kicked around.
Basically, instead of trying to run the whole thing centrally, the implementation was turned over to each reserve component, each National Guard component, and based on the size of their population, they were allowed to choose those marketing approaches that they thought were best. The Army Reserve, having a very large population, for example, appears to have had a problem in getting the packages out timely. We are talking about hundreds of thousands of sets of materials that had to be made up, and somebody had to try to make them intelligible to the reservists. Then the unit level commanders or advisers had to have some instruction on what this all meant so they could answer at least some of the questions from the troops as these things were given out.
These things do take time. Unfortunately, nobody perceived the urgency of getting this marketing distribution of materials exercise into place timely enough. Some components simply did better than others.
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Mr. BUYER. What is your read on a soldier who is about to be deployed in phase 4 that says, ''Hey, I didn't get my notice. I didn't know about this program. I want to be included in this program. I have a right to be included in this program.'' What is the present read on that right now?
Mr. LIEBERMAN. The present read is it is too late. The window of opportunity is gone. If you did not enroll by the end of 1996, it is too late. As a matter of fact, the law also provides that you cannot decline coverage and then later on sign up, which some people have said, ''I didn't understand what I was being told; therefore I declined,'' or, ''I did nothing and defaulted the declination. Had I understood this better, I would have signed up.''
Mr. BUYER. What is GAO's read about our potential liability?
Mr. LIEBERMAN. I don't know the answer to that question. However, let me say this. We were talking about that as recently as this morning. There is ambiguity in the law. It says two things, that there is clearly an open enrollment period, but it also says that reservists have 60 days from the time they are notified to make a decision. I haven't done full legislative research on that, but just on the surface——
Mr. BUYER. You could make a case. A lawyer can easily make the case, and that is why I am just curious about our potential liability out there. I am glad you are thinking it through.
Here is something that does bother me, though. Is your testimony here about the Secretary of Defense, the DOD Education Benefits Board of Actuaries, where they said that a warning was given to the Secretary of Defense, in what form?
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Mr. LIEBERMAN. Via a memo.
Mr. BUYER. Via a memo. Do you have a copy of that memo? Can I see it? And in whose hands was it all sent to?
Mr. LIEBERMAN. I have a copy. It is dated August 9, 1996. There are copies to the two Under Secretaries and the Executive Secretary of the DOD Education Benefits Board of Actuaries, and it is signed by three actuaries. It is addressed to Secretary Perry.
[The information can be found in the appendix on page 662.]
Mr. BUYER. Did Ms. Lee get a copy of this? Do you know if she has gotten this?
Mr. LIEBERMAN. I am sure they are familiar with it.
Mr. BUYER. Do you know what action, if any, was taken on this?
Mr. LIEBERMAN. Not specifically, no.
Mr. BUYER. In your investigation you found no specific evidence that anything was taken on this?
Mr. LIEBERMAN. Well, what that memo did was raise some warning flags, which I think people duly noted. But in terms of taking action, I am not sure what action anybody could have taken at that point. It was saying we are insurance professionals. We would like to point out how drastically this whole program departs from normal private sector practices.
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Of course, everybody already knew that. The law was already in place. And then they pointed out if there should be another Bosnia rotation, you are going to have immediate financial problems. And that, in fact, was noted also.
Mr. BUYER. You know, I like this. Here is an interworking department within the Department of Defense writing about the likelihood of the extension of the callup for Bosnia beyond October 1. We had hearings in this National Security Committee, and we couldn't get anybody to give us an honest answer about the extension of the Bosnia mission. Not one person would be realistic and give us an honest answer. Here is an August letter that talks about the extension. This just really bothers me. Wow.
Did you see this?
Mr. GEBICKE. We sure did.
Mr. BUYER. Give me your read on this.
Mr. GEBICKE. Similar to yours. I would even point out, if you want to go back a year to August 1995, the minutes of the same organization that sent the letter there to the DOD also talked and gave a warning about the prospects of what would happen if we had a call-up immediately after the program was opened or initiated.
Mr. BUYER. What did they say? What kind of call-up?
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Mr. GEBICKE. I have the minutes right in front of me. What it basically says, if we set the program up and 2 months later we have a problem where people are mobilized, where is the money going to come from to pay for the benefits we need to make?
So there was a realization in August of 1995 by that same group that sent that memo that we need to be concerned because whenever this program is implemented, if there is a possibility, a likelihood—I saw this as a warning message when I read it, the August 1995, I saw the August 1996 as it is almost here. And then I think the question you need to ask is the information we have—and we don't have all the information available to Mr. Lieberman, and he might not have it either—but the question is when did the Department of Defense come to realize there was going to be a call-up?
At least I would suggest this, Mr. Chairman, that at least in the July-August time frame, the possibility of a third rotation was very obvious, and it seemed to me that there should have been some precautionary steps to be taken at that point in time, so if they did come to fruition, you would have been prepared to take some steps that would mitigate the situation.
Mr. BUYER. During your testimony I wrote a note here: GAO, what did they know, and when did they know it? So you are right, it is the right question.
So let me ask you—I will ask both of you, based on your investigation, what did they know, and when did they know it?
Mr. LIEBERMAN. I can't say that we have been able to determine that. We do know that in August it was still clearly the administration's policy that there was not going to be a third rotation. That changed sometime between August and the beginning of October. Perhaps Ms. Lee could tell us when she was notified. We don't have any document to tell us that.
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Mr. GEBICKE. Nor do I, Mr. Chairman.
Mr. BUYER. All right. We will have to ask Ms. Lee those questions.
Let me yield to the ranking member for any questions he may have at this time.
Mr. TAYLOR. Thank you. Let me——
Mr. BUYER. Would you submit your minutes also for the record?
Mr. GEBICKE. I would be glad to.
Mr. BUYER. Thank you.
[The information can be found in the appendix on page 678.]
Mr. TAYLOR. Let me thank you both for being here, let me make a couple of observations, and then we will turn it around and give you a chance to pick my observations apart.
After Desert Shield and Desert Storm, Congress responded to what was a real problem. We had a number of people who left their families and professions, put their lives on the line to defend our Nation, but many of those people truly had an incredible economic loss, going from fairly high-paying, private jobs back to being E–4 and E–5, which we asked them to do.
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Congress, in hearing that problem, responds to it by creating this program in the 104th Congress.
Looking back on it, Congress basically says, there is a problem out there, go out and fix it, and doesn't give you much guidance as to how to fix it. It does not say, there should be a minimum time that people—just like in the private sector, where people have to wait before they can claim a benefit, does not say what the maximum amount people can draw is; does not say when it should be based on a mortgage payment or what they make in the private sector. It really gives you almost no guidance whatsoever.
No. 2 is, the uncertainties that you talk about. Congress, under both Democratic and Republican administrations, refuses to participate in its constitutionally mandated job of deciding when and where to deploy troops. We keep leaving it up to the whims of one man in the White House, whether he is a Democrat or a Republican. So suddenly we have a program where anyone can join in at the last minute, they can ask for the maximum amount of money, whether or not they earn that much in the private sector.
We have one man in the White House, and I have seen it under both Democrat and Republican administrations, wake up one morning and say, I am going to send a whole bunch of people across the world, and call up the Reserves. And we turn around and want to blame the administrators of the program.
Mr. Chairman, as Pogo says, I think we found the problem, and the problem is us.
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I think this program is worthwhile. I think Congress made a mistake in not defining this problem a little bit better and not defining a solution a little bit better. I am absolutely shocked that just yesterday, 400 of my colleagues said the Bureau of Labor Statistics is incapable of making a mistake, but turns right around and says the rest of you guys in government can't do anything right.
It is a good program. We did not give you enough guidance. Those people deserve to have some financial security when they are called up, if we want the very best to continue to serve. We don't want them to be ruined financially.
As you point out very well in your testimony and those of us who served in the State legislature know, the financial loss continues even when you get back, because if you are working for yourself, you have lost a heck of a lot of business and will continue to lose a heck of a lot of business because you have been gone for a while. We need to take that into account if we want these people to stay in uniform.
So I am going to agree with you, it is mismanaged, but I will take my share of the responsibility. We need to further define how it ought to be run, but we ought to give the program a chance.
With that, I will take what time I have remaining to allow you gentlemen to respond to what I have said, rather than me picking your testimony apart, since I agree with everything you have told us.
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Mr. LIEBERMAN. Two points, sir: First of all, I certainly agree with you that the program was put together to respond to what seemed to be a very evident need, and surely there are reservists who keep coming forth with individual, compelling stories about the hardships they have had to incur as a result of being members of the reserve and serving their country. So we fully support the idea.
I don't think anybody is against the idea of finding a way to deal with those people's problems. Of course, the rub comes in, how do you do that on some fair way? We try to run a voluntary program. Voluntary programs work only when enough people sign up so that, as Mark said, you can spread the risk among a large population. That hasn't worked.
The obvious alternative is a mandatory program. Once you get into mandatory coverage, then you are going to have an element of that population saying, ''I don't need this insurance, I don't want it, and I resent having to pay premiums so that somebody else benefits.''
So it is a real tough problem, and I think the Congress and the DOD collaboratively took a risk for good reasons. In retrospect, the design of the program was flawed. There were several things that could have been written into the law differently.
I do differ with you about the amount of guidance given. The law was quite specific. My criticism or my observations after the fact would be more in terms of what those specifics were as opposed to how many there were.
But the basic problem was, it was not set up so that it could cope with an early large-scale draw on the program, and it was set up with the idea there would be a tremendous rush to join up, and there was no backup when that did not happen.
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So I think the initial design was simply inexecutable. And hindsight is golden, which is where we are now. The fact that the implementation was not handled efficiently certainly kept down the amount of enrollment, but the numbers are such that it would have gone bankrupt anyway.
Mr. TAYLOR. Mr. Gebicke?
Mr. GEBICKE. I agree with most of what you said also. I am not sure, however—the one thing that I would debate with you would be whether or not this is the right vehicle, this particular program is the right vehicle for achieving what we both or all three recognize is something that makes a lot of sense.
There probably are some other options out there, and one of the reasons that we support the position of the DOD at this point in time is one of the things they are going to look at is other ways, besides changing this program. They are going to look at this program and look at a way to change the design flaws in this program, but also look to other mechanisms that may be used to get to the same end, but using a different means.
Some things that just come to mind would be maybe some sort of a loan program. As you are aware, this is a value-based program, as opposed to an indemnification program. That was put into the law for good reason also, because there are apparently very high administrative expenses involved with proving a loss of income as opposed to the other type, which is value-based.
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If you went to a loan system, and that is a possibility, people would have to prove that they incurred a loss while they were deployed. But the disadvantage, of course, would also be, you are not reimbursing people immediately. They have got to have the loss; and as you said, they continue to believe once they return back, if they were in that private practice, it takes awhile to build that practice back up.
So it really wouldn't accomplish the same thing that this program was designed to accomplish, but it is a different approach. A loan program might work.
One of the things I was thinking about as Bob was talking, too, he correctly pointed out that there is not an even risk across all reservists. He mentioned aviators, the medical community. We can include civil affairs, military police, all of those groups were called up at a disproportionate number to the other reservists. It would appear, at least at this point in time, given the types of operations that we may be involved in at least in the near and short-term and mid-term future, that these might be the types of units that would continue to be called up with more regularity.
A couple of options: If you make it mandatory, it appears it would be very unfair to those folks who probably would not be called you up. I think there maybe are groups in basic infantry. You would probably need to have another major contingency before those folks would be called up. So maybe there is some way, too, we could target those people who would really have the loss, plus also really have the greater risk, if you will, of being called up.
The question though that I don't know the answer to, and I don't think anybody does right now, is even if you target that program to that group, are they willing to assume the risk of lost income, or are they willing to enroll in any type of program that you set up? Because you are talking about people here that are on the high end of income. You are talking about doctors, lawyers, others that may be on the high-income end, and they may decide, I joined the reserves, I knew when I joined the reserves or Guard that there is a possibility I might be called up involuntarily, and I am not willing to pay the premium, but I am willing to assume the risk that I might have to go away and serve my country for 3 or 4 or 5 months.
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And I don't know the answer to that question. But apparently there is a large group of people that weighed that risk and decided, this program is not for me.
Mr. TAYLOR. Mr. Chairman, if I may? You talked about some different options. Two things that come to mind, you pointed out the problem in not limiting the amount of coverage to what a person earns in the private sector. In your response to identifying the problem, would some of the solutions be a limit—a limit to what you pay out of what the mortgage payment is, which for a lot of people is the biggest chunk out of their paycheck?
Could it possibly be another alternative? Has anyone looked at allowing those people who participate in some sort of a 401(k) program to withdraw those funds without penalty if they are activated? I realize that gets us into the Ways and Means folks, and they are not a lot of fun to deal with, but again, that is—a lot of people I know, that is their rainy day fund. Maybe it could be in this instance, as well.
Have you looked at some other options? Again, I do want to compliment both of you on, I think, being very straightforward and just pointing out, I guess, like putting together any insurance company, this is how we should have done it the first time. I would hope you would put together a very long list of recommendations to where, if it is the decision of this committee to continue the program, that these are some things that we have to do in order to continue.
But those two things in particular, did you look at either of those options?
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Mr. GEBICKE. No, we haven't at all. I would suggest to you that I think what the DOD has in mind is that they would have a study period and they would look at alternatives. I would hope that all alternatives, including the two you suggested, should be on the table and considered.
Mr. TAYLOR. The third thing, by having a very limited period of time for people to enroll, that is not the norm in the private sector. The norm in the private sector is you can buy insurance at any time, but you know it doesn't kick in for a short time. That, in a way, encourages people to join now, because they want to get that waiting period out of the way. Should there be something like a hurricane in the case of south Mississippi or a flood in the Midwest, you want to have your premiums current.
Mr. GEBICKE. A real good model for that program is government life insurance. When you join the Federal Government, you have to decline life insurance. Once you decline, there is no guarantee there will be another open enrollment period. There have been several over the 26 years or so that I have been in the Federal Government, but there is no guarantee there will be another one. So you run a risk that if you don't take it right away, you may not have another opportunity.
Mr. TAYLOR. Thank you, Mr. Chairman. You have been very generous.
Mr. BUYER. Thank you. I just want to make one comment before I yield to Mr. Skelton in response to Mr. Taylor.
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I was on the Personnel Committee in the last Congress. This issue came up and was placed into the chairman's mark. No one on the committee opposed the particular program and it went into the full committee's mark.
I recall vividly the comments by Ms. Lee at the time. I only had one question, I had a threshold question that I asked. What is it going to cost the government? And in print, the statement by Ms. Lee was, this would be at no cost to the government because reservists would join who would, in fact, pay for the policy.
That is how most of us viewed this, a ''no cost to the government'' program. I don't think, really, many of us jumped into the details. We extended a trust that all of this got worked out.
So I would say to my friend if there is an edge on my questioning today, it deals with my sense of, I trusted something, there were some warning mechanisms, and it broke. How can it be fixed? It is a good idea, a great idea.
I want to respond to my friend.
Mr. TAYLOR. May I respond? I guess we are all a product of our past. I served in the Mississippi legislature. We left absolutely nothing to chance. We micromanaged so much we ended up changing almost every law every year because we just didn't anticipate the future. So I do think there, the proper place is someplace in between the two. But I will take my share of the responsibility, that we simply did not have the proper guidelines for the program; and I hope we will put the proper guidelines on this program.
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Mr. BUYER. Mr. Skelton is now recognized.
Mr. SKELTON. To both Mr. Lieberman and my friend Mark, assume Bosnia did not come on and assume the call-up of the reserve units did not come to pass. Where would this fund be today?
Mr. GEBICKE. I can't tell you exactly where the fund would be, but that is a great question. Let's consider that.
We have about, right now, 2.6 percent enrollment of those people who are eligible. A group of those were in the Bosnia—the third rotation to Bosnia deployment, because they suspected or maybe even knew they were going to be going. We don't know that today.
If you back out those folks, you are basically talking about a little over 2 percent actually enrolled in the program. But on the other hand, you wouldn't have had any payouts. So we might be having a hearing, we might not be having it today, but we would probably be having a hearing at some point in time to discuss why we have such a dismal turnout for a program that everybody had been told there was great interest in having.
So you are right. I mean, the program would be solvent. It would be in the black, it would not be in the red, but it would be a program. We might be debating whether or not it is worth the administration expense of having this program for such a small group of individuals who are participating. And with no open enrollment opportunity in the future, you have very few opportunities for anyone to enter the program, except for your new individuals who join the ready reserve for the first time. They have an opportunity to join. But that is not going to help your program that much.
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Mr. SKELTON. Do you have any additional comments, Mr. Lieberman?
Mr. LIEBERMAN. No, sir.
Mr. SKELTON. Thank you.
Mr. BUYER. Mr. Pickett, you are now recognized.
Mr. PICKETT. Thank you, Mr. Chairman. I think most of the areas have been covered, but I am curious, was there any initial capitalization of this program, or was it just going to be started off on a zero basis, collecting premiums with no capital being put in?
Mr. LIEBERMAN. That is correct. There was no up-front capitalization.
Mr. PICKETT. Well, what state of the United States would allow an insurance company to commence on that type of a basis?
Mr. LIEBERMAN. As I said, we certainly didn't follow the private sector model.
Mr. PICKETT. Mr. Chairman, I think that this is a program that we do need to try to make available to those people who feel like they need it in some form, and obviously the architecture for this program is not one that would normally be followed—no capitalization to begin with, a rate structure that in hindsight may be adequate, but nevertheless is woefully inadequate to provide for the exposure.
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Like Mr. Taylor, I think we all have some responsibility in this. Being able to anticipate the future is not very easy, as we hear so often. There are no facts in the future. So thank you very much for this opportunity.
Mr. BUYER. Mr. Pickett, before I yield to Mr. McHale, I think your question about the architecture leads me to ask this one particular question off his statement.
What in your investigations did you find where the Department of Defense went out, if they did or did not, and got consultation with some of the top insurance companies in America? Is this a good idea? Will this model work? Are the actuarials sound, the rates, the whole thing, like Mr. Pickett is talking about?
Mr. LIEBERMAN. Yes, there was consultation with the private sector. Originally, the idea was that this would be run through the Veterans Administration, or the Department of Veterans Affairs, using perhaps the Prudential, which runs the Servicemen's Group Life Insurance program for the government, in a somewhat similar mode.
So there were consultations there, and both VA and Prudential raised the same kinds of warnings and problems that we have talked about all morning and had no interest in taking on that particular burden.
The DOD also consulted with several other experts from the insurance sector, and basically the things that they pointed out, going back a number of years as a matter of fact, back to the 1992 period when this idea first came up, are all very similar to the issues that we have discussed, because there was great interest in trying to get the private sector to take this on. And they explained in great detail why the private sector would not be interested in doing this, because the risk was so high, unless there was some sort of sharing proposition where the government provided reinsurance or basically carried the bulk of the risk for them.
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So nobody went into this without knowing that we were consciously deviating from what the private sector would have done.
Mr. BUYER. Mr. Gebicke?
Mr. GEBICKE. I agree with that.
Mr. BUYER. How many companies did DOD talk with; do you know? You said ''they.''
Mr. LIEBERMAN. I am aware of three consultants, plus the Prudential.
Mr. BUYER. All right.
Mr. McHale, you are now recognized.
Mr. MCHALE. Thank you, Mr. Chairman.
Gentlemen, you just answered at least in part the first question I had jotted down. Let me just read it and then move beyond my question and your immediate response to the chairman's most recent question.
The question I wrote down was, why did the creation of the program deviate so widely from private sector insurance standards? Then the handwritten notation I have here is, were those who designed the program unfamiliar with those private sector standards, or was there a callous disregard of those standards?
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I wrote that before the chairman just asked his question. The answer obviously does not involve a lack of familiarity based on what you have just said. Apparently from any number of consultants, at least three, as I counted them during your testimony, plus one more major insurance company, those who designed the program were very much aware, intimately aware in the detail of why this was not a risk acceptable in the private sector, and yet they chose to go forward with it on the basis of the program as designed in the public sector.
Why?
Mr. LIEBERMAN. Well, I think it leads back to the two fatally flawed assumptions: One, there would be a very high level of enrollment because the reservists were really interested in this, so you would have a very large population to spread the risk through, and you had to have that in order to keep premiums down to an affordable level; and second, an assumption that it was unlikely that there would be large-scale call-ups that would bankrupt the fund before the corpus could be built up.
So I think it was decided—the judgment at the time was that those risks were worth taking, because we thought, everybody thought there was data now, particularly on the enrollment side, to support the alternative architecture that was actually put into place. Those assumptions proved to just be flat wrong.
Mr. MCHALE. Mr. Lieberman, I understand hope springs eternal, and I can understand the optimism that obviously history has now shown us to be unfounded. I can understand why officials at DOD felt that way. But on something—and I came to this body from the State legislature in Pennsylvania and private law practice, and I could give you a full lecture on my knowledge of the insurance industry, and it would take about 30 seconds.
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But it seems to me that something as up-front as capitalization would be so basic that even in the context of the rosy assumptions, the essential assumptions that you have just described, that a State insurance commission would require up-front capitalization before the program would go into effect, even if those who designed the program believed that the optimistic assumptions would come into being.
I just don't understand—frankly, until this hearing, I didn't know there were so many warning flags. Prior to this hearing, I was concerned that bad judgments were made, but were largely made in ignorance. Now I find out that ignorance is no longer an explanation.
There were sufficient warnings and prudent officials should have responded to those warnings in a way that would have at least called into question some of the basic assumptions of the program. I don't understand why those warning flags were disregarded.
Mr. LIEBERMAN. Well, if I might add one thing to what I said previously, sir, the scenario that the designers of the program thought they were working under was basically, they would compensate for the lack of up-front capitalization by having one short, intensive marketing exercise——
Mr. MCHALE. Which never materialized.
Mr. LIEBERMAN. Well, it materialized. Unfortunately, once again, we built it and they did not come. Therefore, you did not have a large corpus within just a couple of months after initiation of the program.
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Mr. MCHALE. Mr. Lieberman, I focused on the word you chose to use, and that is ''marketing.'' There was a short period of time in which they expected an infusion of funds because of the limited window of opportunity. But clearly there was no marketing strategy during that period. That is a separate, but related, question.
Mr. LIEBERMAN. There was an inadequate strategy.
Mr. MCHALE. I don't want to beat a dead horse. The second and final question I have is why do we need a study? Why not make a decision? When I hear proposals that a study might drag on for a year or a year-and-a-half, let me be ruthlessly candid.
I think 99 percent of the facts are now on the table. We have an aversion to the facts. We don't want to look at them. They are painful and they are embarrassing for the Department of Defense and for us in the Congress who passed the statute. But I think it is a shirking of our responsibility collectively if we now have another study.
I think we have the facts; it is time to come forward with three courses of action. It is time for the Department of Defense to recommend one of those courses of action to the Congress. And then it is time for us in the Congress to step up to the plate and solve the obvious problem.
I think a study avoids accountability—at the Pentagon, in the Congress, and by doing so, we shirk our responsibility to the American people.
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I don't understand the need for a study. Would you comment on that?
Mr. LIEBERMAN. Well, I certainly don't see the need for a lengthy study. I do think that a bit more time intensively working this would probably be a good idea, so that you really could explore some of the options, such as Mr. Taylor raised this morning. It seems like every time we have a conversation with people about this particular situation, people come up with completely new ideas for how to fix it. So there are probably a lot of potential options.
In figuring out the ramifications of these options, it is not all that easy, because you are talking with a very diverse population with different needs.
Mr. MCHALE. Mr. Lieberman, the human imagination is infinite. There will also be new, fresh, creative ideas, such as those brought forward by my colleague, Mr. Taylor, whose ideas I thought were superb; and we need to look at those. But it is time to confront the problem and make a tough decision. Proposals such as Mr. Taylor's could be seriously analyzed by the bright people at the Department of Defense within a week or two; and then we in the Congress could face the responsibility of our earlier misjudgment, and with those new ideas on the table, make some hard choices. It seems to me it is time to do that.
Thank you, Mr. Chairman.
Mr. BUYER. Very well said, Mr. McHale. I have just a couple of more questions, and then anyone else can ask any other questions.
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One is, I would ask the GAO when you do your final report to please address the liability, the legal question that we have, because the concern I have is, this whole 60-day notice window, it brings us into the whole adverse selection with phases 4 and 5. So I need to get a sense and feel about what our open-end liability is, potential, if any, or what your legal assessment of that is.
Mr. GEBICKE. We will be glad to look into that.
Mr. BUYER. OK. The other is, let's take Mr. McHale's and move it into an arena. All right, with regard to a decision to suspend or terminate the program, let's talk about what the costs would be and what we would do.
Full payments to beneficiaries for those who are presently in the program, is there reimbursement of premiums to those who have already paid in? The administrative costs, give me some ideas here. Have you thought about that scenario?
Mr. GEBICKE. I have one thought on one aspect. It has to do with the reimbursement of the premiums.
We don't have a position on it, but there are two ways to look at that. One way to look at that is that the reservists signed up for the program—who did sign up, signed up in good faith. They felt they had a binding contract with the Department of Defense to have this insurance available to them for as long as they elected to continue to pay the premiums.
The Government, if they terminate or suspend the program, basically breaks that promise. One way to look at it is maybe these people should be compensated in some way because that promise was broken.
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A different and maybe an extreme way to look at it would be the people who enrolled for the program, but did not deploy to Bosnia, were covered; should a deployment have occurred, they would have been made whole. At the time the supplemental was passed, a service was provided and rendered; they didn't need to avail themselves of the payoff. So it is a little different way to look at it.
I realize $8 million is not a lot of money in the scheme of things in the Department of Defense, and good faith and political goodwill goes a long way; but just two different ways to look at the same issue on the $8 million that it has been estimated it would take to return premiums to the individuals who did enroll.
Mr. BUYER. The last question I have for you is, I can't figure out what the rush was. If there were some markers in place—rush? Why wasn't there the communication?
Did you notice—I didn't get a call on this one until the very end of December or the very first part of January, and you alluded in a statement that, well, Congress was out of session. Do you agree with that? What did you find on the communications side?
Mr. GEBICKE. I thought it was lacking. I mean, I thought that there was adequate warning back to August 1995 that there were things or events that could occur that would bankrupt this particular program.
Of course, Bosnia was not even an issue at that point in time, but Bosnia became an issue 4 or 5 months later in December 1995 when we had the first rotation to Bosnia. So clearly, at least in the minds of the administrators of the program, there had to be—at least the possibility existed that we would continue to send additional people to Bosnia.
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The second rotation went. There continued to be a dialog played out as to whether we would be able to certainly pull out within a year, as the President had hoped. A lot of different sides of that question were being taken. At least the issue and the possibility of having people continue to go to Bosnia was there.
It just seems to me that, particularly after the August letter, that dialog would have made a lot of sense. As Mr. Lieberman said, I didn't see that the dialog took place at all.
Mr. LIEBERMAN. Could I comment on that, Mr. Chairman?
I would agree with Mark. I do think that there was probably at least one school of opinion in the Pentagon among those officials who knew about this program that would have said, well, we are not quite sure what the impact of the Bosnia callup is really going to be on enrollment rates. It might have no effect. There may still be large enrollment to be expected from those people who had not been called up for Bosnia, because there was supposed to be this general interest in signing up whenever the program was offered.
So I am not sure that that was perceived as necessarily a disaster in terms of enrollment.
In terms of how many of the Bosnia reservists would join up and thereby get us into this adverse selection mode and create this big drawdown on the fund, that was a real concern. But the wheels were in motion to implement this program, and unfortunately, sometimes the Department of Defense is like a glacier going down a mountain.
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You get a program, in this case mandated by the Congress, and I believe the words are that after establishment of the program, it will be promptly implemented. Well, it took 6 months to implement the program. I don't know if that is prompt or not. But in DOD terms, I have seen things happen quicker, and I have seen things take a lot longer, too.
I think it was felt that they were trying to—that the Congress expected them to have something in place certainly before the end of that calendar year. That was probably a reasonable expectation.
But why they did not get back to you and address this question of what do we do if there is a Bosnia callup, I can't answer. Then, of course, even if they had, the issue would have been, what do you do? Do you exclude those people going to Bosnia, which, of course, is exactly those—those are a part of the beneficiary population that this whole program is designed to serve. So that could have been perceived as grossly unfair by anybody going to Bosnia.
Anyway, in retrospect, more dialog is always healthy. Unfortunately, in this case it didn't happen.
Mr. BUYER. I am going to throw something here on the table that very seldom is done in this committee—maybe in oversight or others, is the political question. I am going to throw it on the table because I am tired of all the rumors.
So I want you to comment on what you have heard, and it gives Ms. Lee an opportunity for her to make her comment. And that is, the rumblings that come out of the building, that find their way over here, was that despite any of the warning signals? These notices were going out just before the election. Did you find anything or hear any of that comment?
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If not, that is fine; we give Ms. Lee an opportunity to make her comment and respond publicly.
Mr. LIEBERMAN. No, I had never heard that.
Mr. BUYER. You never heard election being used as a time line to make sure all these notices get out?
Mr. LIEBERMAN. No.
Mr. GEBICKE. No.
Mr. BUYER. Thank you. Does anyone have any questions based on my questions?
Mr. MCHALE. Mr. Chairman, I have only one brief comment and would invite a response from this panel, and then ultimately from Ms. Lee when she testifies. I apologize; I have to leave now for a conflicting hearing on Khobar Towers.
I would hope throughout the course of this hearing and everything we would say, we would make it clear to the American people and clear to our soldiers, though, who would qualify for this payment; that there is no consideration of failing to meet the Government's obligation. I, for one, do not even look at that as a possibility.
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Regardless of the motivation, regardless of the knowledge that those who signed up may have had at the time that they signed up for the program, this is a legally binding, moral obligation to pay the insureds the amount of money that they are due under the contract they signed and for which they paid. So I would not want anyone to leave hanging in the air a doubt as to whether we will make good on the financial commitment we made to these soldiers.
I have 50 from my district serving in Hungary right now. I am going to see them in about 2 weeks. I intend to look every one of those soldiers and National Guardsmen in the eye and tell them, this is something that is absolutely vital to the integrity of DOD and this Congress, that regardless of the mismanagement and misjudgment that gave rise to the program, we will now honor our financial obligation to each and every soldier.
Mr. BUYER. That is going to be done, Mr. McHale. Let me also thank you. America doesn't know what kinds of things you did behind the scenes to make sure that the funds for that were not taken out of the Guard's and Reserves, equipment account list as recommended. When we vote on that supplemental, those payments will be made. So you can look them in the eye and say that.
Did you have anything, Mr. Taylor?
Mr. TAYLOR. Mr. Chairman, if I may, I would certainly like to request of you and of these gentlemen that Mr. McHale's very timely comments be taken to heart, that we be presented with three options, that those options be as detailed as possible.
I realize, given what you said, that ideas are floating out there from time to time. But we do meet every year. I would rather make a major overhaul of this program this year and fine tune it later, than study it for another year and continue the mistakes that we are making now.
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I would also, if you do not mind, like to submit for the record a time line of really where this program came from, because, again, it shows under both Democrats and Republicans running this committee, both Democrats and Republicans in the White House, this is a program that we asked the reservists what was important, what troubled them about being called up.
This is something they told us was a big problem. It is a problem we tried to address in good faith. If any mistakes were made, I think it was in Congress, contrary to what the reporters accuse us of doing every day; in this case, we did not micromanage, and maybe we should have.
Mr. MCHALE. If the gentleman would yield for a moment, I thank him for his kind words.
When I asked for three courses of action, I frankly was asking for a military model. The military people probably knew that. In addition to the courses of action, I would ask that DOD select one of those courses as the recommended course of action. I would not want simply a laundry list of things we might do, without a recommendation as to which among them would be preferred.
So I would look toward the three options, one of which should be recommended. Thank you, Mr. Chairman.
Mr. BUYER. We now welcome the Honorable Deborah R. Lee, the Assistant Secretary of Defense for Reserve Affairs, our witness for panel 2; and Secretary Lee, you may proceed.
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STATEMENT OF HON. DEBORAH R. LEE, ASSISTANT SECRETARY OF DEFENSE FOR RESERVE AFFAIRS, U.S. DEPARTMENT OF DEFENSE
Ms. LEE. Good morning, Mr. Chairman, Mr. Taylor. You have my prepared statement; allow me to summarize.
As you have heard, the Mobilization Income Insurance Program is the product of quite a number of years, 6 years to be precise, of study and concern, beginning with several major surveys of reservists in the late 1980's and then in the early 1990's, which showed that the potential for income loss resulting from involuntary activation was a major quality-of-life concern for both reserve officers and reserve enlisted personnel, particularly after the Persian Gulf war. It was a major concern for those who made large amounts of money in private life; it was also a major concern for enlisted members who made much lesser amounts of money in civilian life.
From 1992 to 1994, Congress directed DOD and we completed with the assistance of the RAND Corp. several studies assessing the feasibility of providing insurance against reservists' income loss. RAND found that more than 67 percent of enlisted personnel and 55 percent of officers said that they would buy or that they were interested in buying mobilization insurance at the rate of about $10 per $1,000 of coverage; and that, even more precisely, 73 percent of enlisted personnel and 60 percent of officers said that they would buy it at $4 per $1,000 of coverage.
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On the basis of this very strong Reserve interest in income loss insurance and in a very deliberate effort to try to get out in front of what was widely predicted by our military commanders to be a looming recruiting and retention problem as we, in the post-cold-war world, increase the use of the Guard and Reserve, the Department worked with this subcommittee and with others in Congress to create the program that we have today. It was our mutual intent that the program would cover its losses and expenses from premiums paid by members of the Ready Reserve. The rates, as you know, were recommended by the DOD Board of Actuaries in an August 1996 memo to the Secretary of Defense at $12.20 per month for each $1,000 of coverage, up to a maximum of $5,000 per month of income replacement benefits.
We all knew that there were risks associated with this program. There are risks associated with every program. But we believed that the risks were manageable.
We also believed that addressing the No. 1 quality-of-life concern among reservists was worth those risks. We knew that there were deviations from private sector practices. We accepted those deviations, just as we, as a government, have accepted deviations when it comes to flood insurance and wartime debts under the SGLI program.
Let me tell you some of the ways—having accepted these risks and understanding these risks, let me tell you some of of the ways that we attempted to minimize the risks. The actuaries, as you know from the letter before you, set the premium rate at $12.20 per $1,000 of coverage. This was somewhat higher than we had originally anticipated and we would have liked.
But the reason the rate was somewhat higher was precisely to take into account the probability of some amount of adverse selection. Adverse selection, as has been explained, is a phenomenon in which too many people with knowledge of their greater-than-average risk purchase insurance and too few people with knowledge of their lower-than-average risk buy the coverage.
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We also included a number of safeguards in the program, again, specifically to try to protect against adverse selection and to minimize the risks. For example, benefits were provided only upon activation if, for more than 30 days, volunteers are ineligible to draw benefits.
This program is only triggered under an involuntary call-up. There is a one-time enrollment opportunity. New entrants into the Selected Reserve have 60 days in which to participate or not, and if they decline, that is an irrevocable decision. Coverage may not be increased after the initial enrollment choice is made, and there is a maximum coverage each month which is allowable.
Another point is that the actuaries based their figures on a 40 percent enrollment estimate, an estimate which I would simply remind was substantially below the number indicated in the reserve survey. So the idea in taking an estimate substantially below was an effort to be conservative with our expectations.
Finally, the committees in Congress added a provision involving supplemental appropriations in the event the fund would run dry one day, again, as SGLI did during the Vietnam war. Again, this was specifically to protect against that possibility and specific recognition of the risk. We in DOD agreed with that provision.
Unfortunately, as you well know, two things happened: Enrollments were much, much lower than we anticipated, No. 1; and, No. 2, as you now know, the program's initial enrollment period coincided precisely—and I mean precisely—with an activation of reservists for Operation Joint Endeavor.
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The program ran into trouble because a substantial majority of reservists activated for the Bosnia action elected to purchase the protection and did so at the maximum rates. Thus, before we had enough money in the fund, the program's fund incurred a significant liability. As you know, we project that to be $72 million for 1997.
As I have noted, despite the strong indication of reserve interest in the program, the enrollment was very low, and indeed, as you said, Mr. Taylor, it was very disappointing. Overall enrollment is now just over 24,600 reservists, which is about 3 percent of the Selected Reserve, rather than the 40 percent that we had planned for.
As far as I am concerned, this is the single most important factor, the single most important lesson, that we have learned in the last several months and one which we simply did not predict based on the available data, based on the survey work.
Now, we have some preliminary thoughts, some preliminary explanations, for why this may occur. You have heard other people speculate on that, having to do with maybe there simply was a general lack of interest, or perhaps the cost was somewhat too high, the marketing was less than effective.
Let me take a moment to just discuss marketing. We met with the Reserve chiefs, and we specifically talked through whether there should be central marketing or whether there should be decentralized marketing. It was the judgment of each Reserve chief that decentralized was the way to go, that the chain of command was the way to go, that is the way many, many benefit explanations are handled, and indeed I agreed with that. We prepared some centralized materials for their use, and they distributed the materials.
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We need to take some more time, all in all, in my judgment, to get to the bottom of this central question: Why didn't more people participate? Because it is the core question, whether or not reservists really want and need this kind of a program or whether, in fact, there are better ways to address quality-of-life concerns.
The second important lesson that we have learned over the last several months is that even with the steps we took and the protections which were incorporated to protect against adverse selection, in hindsight, they were clearly not enough when it became apparent that the program was in trouble and, as the law requires, we immediately asked Congress for a special appropriation to cover the fiscal 1997 deficit.
It has been up here for 4 months, and I am pleased that it is now moving through the appropriations process for inclusion in the emergency supplemental appropriation bill for 1997. Thank you for your efforts on our behalf.
We also notified reservists of the problems as quickly as possible. We alerted them that we would pay them 4 percent of the monthly benefit with the promise of full payments down the line. We have said at all times, to echo Mr. McHale's statement, that we are going to stand by the commitment in full.
I have been in touch with beneficiaries on a monthly basis through letters to give them updates, and they have also received updates through their chain of command.
Finally, the Department organized a high-level team and engaged some outside help to undertake an analysis of the program's early experience so that we could recommend measures to Congress that would either put the program on a firm financial footing or bring it to an orderly conclusion.
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Our analysis led us to the following points:
First, the current program's systemic problems, those being adverse selection and low overall enrollment, require and lead us to believe that suspension is in order while alternative approaches to addressing the potential for income losses are considered by both the Department and the Congress.
Second, if the program is not to be subsidized by the Government, it is unlikely that any voluntary alternative program could overcome the combination of what we now know to be the extent of adverse selection and low enrollment.
Third, this means that any alternative income protection plan probably would require some degree of mandatory participation and a variety of other safeguards against adverse selection in order to be financially viable.
Fourth, a mandatory income protection program has important pros, and it has important cons associated with it. Very briefly, one important benefit is that it drives the costs down for everyone. Our preliminary indications are that it would be well under $5 for $1,000 of coverage if it were mandatory for all. So it becomes quite inexpensive. That is a pro.
An important con with a mandatory program is that it is mandatory, and that may work very poorly on morale or it may not. Most of the services are interested in exploring mandatory alternatives, but none was willing to sign up to this notion without exploring more specifically outsourcing options, costs to the individual, more specifically, and, of course, the reaction of the troops.
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Fifth, the widespread recruiting and retention problems which were widely predicted from the increased use of the Guard and Reserve have simply not occurred, and this is very good news indeed. Therefore, we no longer believe that recruiting and retention concerns should be a key driver for deciding whether or not to have this kind of a program.
However, we remain as committed as ever to doing our utmost for quality of life, so that is why we want additional time to think through the future of the program as well as other quality-of-life alternatives.
In accordance with these views, we prepared in mid-April some draft legislation that would authorize the Secretary of Defense to suspend further enrollment in the current program and, second, to continue benefit programs only to enrolled members activated for covered service prior to a date which would be determined by Congress.
Should you approve this legislation, we would suspend enrollment in the current program and we would also undertake a study to answer the four questions which are central to a determination of the role that income protection could play in our efforts to protect Reserve quality of life.
These questions are: Do reservists and their services want and need a mobilization income insurance program? As you well know, the reviews on that at the present time are very mixed and we simply don't know. We need to do additional work if we are going to answer that with greater precision.
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Are the military departments willing to require reservist participation until such a program if it is determined that only a mandatory program would be viable? And how would the troops view this?
What additional adverse protections would be required in some sort of follow-on program? We have heard some initial ideas, and, again, all of those would be on the table.
Is it feasible to outsource a form of mandatory mobilization income insurance program to the private sector? We would get better information on this question if we were to put out a request for information.
Are there better means of addressing Reserve component concerns about income lost than a mobilization income insurance program? Are there targeted ways of going about it?
Mr. Chairman, let me sum up. No. 1, the mobilization insurance program is the result of years of study, three major Reserve surveys, and longstanding congressional and DOD interest.
No. 2, it was designed to be a proactive measure to get out in front of what was widely predicted to be a future recruiting and retention problem by addressing the No. 1 quality-of-life concern that reservists reported to us.
No. 3 while it was in development, it was reviewed and it was coordinated on by all elements of DOD, including, I might add, the Inspector General's Office. We all knew that there were risks, but we believed the risks were manageable and that the benefits to our reservists made the risks worthwhile.
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No. 4, we took what we believed to be prudent steps to reduce the risks. Unfortunately, hindsight has 20-20 vision and real life frequently does not. In hindsight, we could have done more.
No. 5, the concurrent Bosnia alert, coupled with the open enrollment period and lower-than-expected enrollments, triggered the problems that we are here today to speak about.
If the Bosnia alert had occurred 2 or 3 months earlier or 2 or 3 months later, we would not be facing today's shortfall. Alternatively, if enrollment had been anywhere near the 40 percent prediction, we would not be facing today's problem. The fund could have managed either situation in isolation but could not handle both at once, nor could we have predicted in advance these two factors working in unison.
Finally, No. 6, when the problem was upon us, we tried to act quickly to take care of our people through partial payments, through the supplemental request, and by keeping them informed. We also did an extensive review.
I think we did the best review we could have done with 3 months of time, and that is how we arrived at the recommendation that we are making to you today; namely, to suspend the program, to pay people what we owe them through the supplemental, and to give us the additional time to think through the future.
I might add that we looked specifically at the option of outright termination, and it was our judgment that the concept and the needs of the reservists were still sufficiently strong that we were not prepared at this time to recommend termination. Forever is a long time, and ''termination'' is a very final word, and that simply was not our judgment.
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We ask for your support with these conclusions, and I thank you for the opportunity to come before you today.
[The prepared statement of Ms. Lee can be found in the appendix on page 644.]
Mr. BUYER. All right. Thank you, Ms. Lee.
We have one vote on, so we are going to vote. We will recess and come immediately back for our followup questions. Is that permissible with you?
Ms. LEE. Yes.
Mr. BUYER. Thank you. We will stand in recess for the vote.
[Recess.]
Mr. BUYER. The committee will come back to order.
We thank the Secretary for her statement. In fact, if I can get organized, Mr. Taylor, you can begin if you like.
Mr. TAYLOR. Ms. Lee, I just have a couple of questions. It is said the DOD Educational Benefits Board of Actuaries warned the Secretary of potential risks in the program. Were the risks ignored? What actions were taken as soon as you realized the program was not viable?
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Ms. LEE. Mr. Taylor, the so-called warning was an August 9, 1996, letter, which I know Mr. Buyer has in front of him and I have in front of me as well.
The letter essentially does several things. It first of all recommends to the Secretary of Defense the premium rate of $12.20 per $1,000 of coverage. In addition, it lists four caveats, four warnings, if you will, three of which were well known, were well known to all parties who worked on this program and this legislation for years. They involved the general volatility of when mobilizations will or will not occur and the fact that we do not have terrific mobilization data to predict the future, antiselection possibilities, and so on.
The fourth caveat related to Bosnia. It related to the speculation that Bosnia could possibly be extended, and in fact it does say that reservists could sign up at high rates. Such outlays may endanger the fund right away. Indeed, that did occur.
I will tell you the actuaries, although it does not say in this letter, had an alternative speculation which was certainly conveyed on a verbal basis, and I would encourage you to contact them, and I would imagine they would tell you the same. That alternative speculation was that ongoing operations worldwide and Reserve callups could have triggered much higher participation in this fund than even the 40 percent that we anticipated, because it seems very real to people who might get called up. My point being, it could have gone either way. Regrettably, it was the way which was adverse to the program and to the fund.
Let me also say what this letter does not say. It does not say to the Secretary of Defense, ''Red alert, stop the program, imminent danger.'' It does not use those words either. It set the premium rate, which, as I noted earlier, did contain a certain calculation of adverse selection.
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Let me now tell you what we did. As soon as it became apparent that the participation rate was indeed very low—and, again, I want to emphasize, that was not apparent on October 1, it was not apparent on November 1, it was only apparent toward the end when, in fact, the enrollments were not coming in—we took a number of actions.
We asked the DOD IG to get involved and provide us with some management analysis, recommendations, on what is going wrong, what happened, how can we improve. We also immediately informed Congress at that point that we were running into difficulties. We developed our best estimate, based on what we knew then, of what the fund shortfall would be, and we tried to put together very quickly the supplemental to ensure the troops would get paid as quickly as possible.
We made the decision, trying to balance the needs of our troops and keeping faith with also our fiscal responsibilities to the taxpayer, to pay a 4-percent benefit level to troops immediately when they are due the money, with the promise of full payments down the line, and we in fact did do that.
We have attempted to keep the troops fully informed. As I said, I communicate with them on a monthly basis.
Finally, we pulled together a senior-level working group and we started to pile through all the information that we had to try to determine what happened, what can we do differently, what are our options for the future. The culmination of all of that work is the recommendations that we have brought to you today.
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Mr. TAYLOR. If I may, Mr. Chairman, follow up, where are we today? Is the program in limbo? Could a young person who enlists in the Reserve or the Guard today sign up for the program today?
The reason I ask that is based on, I guess, the only other federally insured insurance program that I am familiar with, which is the Federal Flood Insurance Program, and it is an extremely popular program that does fill a void that the private sector would not fill back home because of the extensive history that the entire gulf coast has with hurricanes.
One of the things I see different is that with Federal flood insurance, you can sign up at any time but you are not covered for a while. That prevents people from—when the National Weather Service says the storm is going to hit tomorrow, from signing up today and receiving full benefits a week from now.
But it does allow the day after the storm, for example, people saying, ''I am never going to make that mistake,'' and people days after the storm by the thousands start signing up, realizing they made a mistake once and they will not make that mistake the next time.
Having said that, why do you limit the period of participation to that first 60 days when, judging from the people that I joined the Reserves with, most of them who join are fresh out of school, probably don't even have a car note yet, certainly don't have a house note yet, none of which are married, and of course over the period of their careers, all these things change, and it is only later when you realize, ''Gosh, I could lose my house, my family could be in a jam if I get called up,'' only then do you realize the need to be in a program; why do you limit it to the first 60 days? It just doesn't seem reasonable. Why don't you make it at any time they choose to participate, but the benefits don't kick in for a period of time?
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Ms. LEE. Mr. Taylor, to answer the first question, where are we today? There was a 60-day, roughly, open enrollment period for everybody currently in the Selected Reserve. That period has closed out. So if you did not sign up during that period and you are in the Selected Reserve, you are forever denied the opportunity to sign up.
Mr. TAYLOR. How about the young person who signs up today?
Ms. LEE. The young person signing up today has 60 days.
Why did we do a 60-day window? This was a judgment call. Again, we tried to weigh trying to be fair to our people, trying to give them what we thought was adequate time to make a very important judgment, but at the same time recognizing that too much choice and too many possibilities would drive up the possibility of adverse selection. So we settled on that 60-day period as our best effort to try to balance those two.
Now, clearly, in hindsight, if we had had a delay mechanism greater than the 30-day delay mechanism that we have in the law today, we would not be facing the extent of the problem that we are facing today. So this is adverse selection protection, an additional protection clearly on the table for the future, provided that in the future we put together a package to have this program going in some form.
Mr. TAYLOR. But I hope you do keep in mind that over the course of their careers reservists get married, they buy houses, their circumstances change. I think the likelihood of wanting to participate in this program and their real need for this program is going to be in the outyears. It is going to be once they have been a reservist for 5 or more years.
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So I think it is counterproductive to limit it to that first 60 days. I think it has hurt the ability of people to enroll and therefore hurt the program. I do believe that you have already—the previous panel has already mentioned a second serious flaw, and that is, there has to be some rationale of why they get as much as they do.
Every other insurance program is based on that, and the premiums go way up with the amount that you get, but there is also a cap as to what you can get based on a number of factors, be it income, be it the value of a home, be it the liability of an automobile accident. I would certainly encourage you to take that step.
I will share in the blame. I just don't think you personally nor your folks can be given a hard time about undercapitalization of this program. Quite honestly, we saw a problem, we told you all to go fix it, and we didn't have much money to fix it with, and we hoped you would somehow save us from ourselves. I will take part of the blame that you did not save us from ourselves. In the future, hopefully we can create a situation where we will not be counting on you to save us from ourselves and we will do our own work.
But I would like to echo what Mr. McHale said a while earlier. I think the program is worth saving. I would hope that you, as its administrator, would come to us with a fairly narrow list of options, each of those options being as detailed as possible, so this committee can make an informed case when it comes time for the authorization bill.
I think we have all kind of learned the hard way that we can't presume the right thing is going to happen every time and have it happen every time. We got burned on this one, but I don't think our intentions were wrong. I think the intention of helping the Guardsmen and reservists to stay in the service and without losing their home and suffering hardship when they got called up was a noble one.
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Ms. LEE. Can I make comment? And that is the so-called means testing, proof of loss and so on, that particular issue. I will tell you, when we were in the development stage of the program, that is an issue that we thought long and hard about. Again, there were pros and cons.
In order for us to create a way to means test—that is, to have people show that they actually lost money in a callup—there were several negative factors involved. It would have delayed the payment of benefits to reservists, and that we felt was a big negative, and in the end we opted not to go with it, that being one of the reasons.
Another problem was, it was determined to be very administratively burdensome. The last thing we wanted to do was create some big, new, huge Government program with lots of overhead that would be reviewing documents and proving income lost. So that is the reason why we at the time judged against it.
We have gone back over the last 3 months and looked at that again, and we have some preliminary thoughts about how to do it not quite that way, because, again, that would be very administratively burdensome. But there is a slightly different tack we could take, that tack being for people who want higher levels of coverage, that they would have to show up front a probable loss would occur and that that would be an alternative mechanism to more or less get at that issue.
But I did want to explain how it was that we arrived at that original decision.
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Mr. TAYLOR. If I may respond, Ms. Lee, again, we are filling a void that the private sector has chosen, probably wisely, not to fill, because the private sector is in the business of making money. We are hopefully in the business of being good to our troops.
I don't think that many of the things the private sector does to limit its losses are bad ideas. I would think any private insurer would very quickly require someone to show a W–2 if they were going to offer some sort of insurance to cover the loss of income. I think any private sector insurer very quickly would ask someone to show them monthly bank notes on a home if they were going to insure against someone somehow defaulting on the ability to pay that loan. I don't think it has to get real complicated.
I do think that we, as the stewards of this Nation, have to take some responsibility to see that it is done properly, and I don't think we can address every single circumstance, but I think by very simple things like that we can limit the losses to the Nation and be fair to the vast majority of the people. I think that is all we can ever try to do.
Thank you, Mr. Chairman.
Mr. BUYER. Thank you, Mr. Taylor.
In doing my homework for this hearing, I came across a document that was part of a justification document that came over with the legislation, and it is pretty heavy in here, about the justification, DOD relying more heavily on the National Guard and Reserve forces, and it goes into all the particular reasons.
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There is a line in here, Mr. Taylor, I want to bring to your attention: Even where it talked about estimated costs, the enactment of this proposal would not increase the budgetary requirements of the Department of Defense. However, some modest tax revenue loss may be anticipated. It is not possible to predict the occurrence or duration of a contingency operation or the number of reservists required to support such an operation. However, based on the contingency operations of the past 3 years, annual costs would be estimated at $1 to $2 million.
I just thought it is interesting what comes over here and then what ends up happening.
Mr. TAYLOR. Mr. Chairman, I have only been here 8 years, so I certainly hate to sound old and cantankerous. But having been here for the C–17, the V–2 and B–2 and several other programs, those guys are not notorious for sticking to their estimates as far as cost. We certainly should have known better.
Mr. BUYER. One thing I have to ask, Ms. Lee: When I look at this justification document that was prepared for the program and you look at the low numbers, when you look at the Army National Guard and the Guard Bureau, we are down to 1 percent and 1.5 percent, respectively, participated. Did you get a sense of why that was?
Ms. LEE. I can offer you a speculation.
Mr. BUYER. Sure.
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Ms. LEE. Part of it, again, may be lack of interest; part of it may be the cost; part of it may be the marketing. The way the Army National Guard marketed the program, or I should say distributed the materials, they choose to distribute materials to each individual Adjutant General and then left it up to each individual Adjutant General to distribute the materials to troops within his State.
Mr. BUYER. How do you know whether or not each particular State in fact marketed the program?
Ms. LEE. I think what you have heard here is that there are questions about how well it was marketed.
Mr. BUYER. Were there any deadlines or dates that you set, requirements, that this has to get out in the field by a particular time?
Ms. LEE. The requirement is in the law. It is 60 days notification.
Mr. BUYER. Right. And your start date was when?
Ms. LEE. The start date is when the commanders or the chain of command notifies the individual troop.
Mr. BUYER. You sent this out to the field when? You gave the instructions and you sent this out to all of the commanders across the country when?
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Ms. LEE. The start date was October 1 under the law. The materials were available for the Reserve chiefs to utilize their chains of command shortly after the fee or the premium was set in August. So each of them, beginning certainly in early September, initiated distribution of materials. But to get the precise figures, we would have to go back to them and I would have to provide that for the record.
Mr. BUYER. In the letters, this August 9 letter, you are correct, it doesn't say, ''Stop,'' it doesn't say, ''Warning,'' it does say, ''Such outlays may endanger the fund right away.'' I don't know, maybe they should have highlighted it, underlined it.
Did you receive this letter in August?
Ms. LEE. I was aware of it in August, yes.
Mr. BUYER. OK. Did you meet with any of these individuals or discuss it with them?
Ms. LEE. Our staffs were in discussion about it, yes. I did not personally.
Mr. BUYER. All right. And did you have—somewhere along the line a decision was made to disregard this warning. Why?
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Ms. LEE. As I stated earlier, although it does not say here, it was also the opinion of the actuaries that the Bosnia operation could have increased enrollment. It could have been better than 40 percent. The feeling that operations are ongoing in the world could have triggered people to remember more what Desert Storm had been like 6 or 7 years earlier. It could have gone either way.
Having said that, we had an October 1 start date. We were initiating the distribution of materials. There was no way in August—even if I had believed that this was a certainty, there was no way in August to predict that we would receive only 3 percent enrollment.
If we had gotten 40 percent enrollment, which I still believed to be a reasonable and conservative figure, we would have not encountered these problems. We would not have a $72 million shortfall. It was only with the correct prediction of the low enrollment, coupled with that concurrent callup to Bosnia, that one could have concluded that the fund would immediately run dry.
Now, if I had made that prediction, I may well have called you and others and said, ''Quickly, is there a legislative vehicle? Can you act quickly to do something?'' I did not believe that to be the case, and therefore I did not take that action.
Mr. BUYER. When were you aware that there would be a third phase in Bosnia?
Ms. LEE. I was aware that I believe the President announced an extension of the Bosnia operation in November or December, I believe.
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Mr. BUYER. That is the President. When were you aware that there would be an extension of the Bosnian mission?
Ms. LEE. When the President announced it.
Mr. BUYER. That is hard to imagine. So when you receive a letter here from the actuaries in August that says the Bosnia callup appears likely to extend beyond October 1, 1996, did you think they were dreaming that date? Everybody in the building had a strong sense, everybody in Congress knew this thing was going to be extended.
Ms. LEE. I certainly knew there was speculation. But no, there was no decision.
Mr. BUYER. See, the Air Force used volunteers for Bosnia. The Army does not. Was there ever any indication that we shouldn't use mandatory, that in case—I don't know; I am just throwing out. I don't know if it was ever discussed that if this is going to endanger a fund that is going to cost us up to millions and millions of dollars, not to send mandatory units to Bosnia? No, never thought about it?
Ms. LEE. The callup of reserves and whether to use volunteers or the Presidential callup authority, these are operational questions on which the CINC and the Joint Staff and so on collaborate to determine what is the best operational plan. They do not consider costs associated with mobilization insurance or hostile fire pay or any of these additional costs which are triggered by contingencies.
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Mr. BUYER. And rightfully so.
Let me ask a question in regard to a decision to either suspend or terminate the program. If the program is terminated, suspended—I don't care what you want to call it—there is no more program, what is your sense or recommendation to us on premiums? To return the premiums, or to say no, that is what they have paid into the program; had they used it, we would have paid it? What is your recommendation to us?
Ms. LEE. Mr. Chairman, we do not have an administrative position, unfortunately, today to make a recommendation to you. However, I certainly hope that we will have one by the time that you mark up.
Let me just say on the premium question, there are pros and cons. The GAO witness actually, I thought, talked through those pros and cons and the different arguments on both sides quite well. In a nutshell, one line of thought says you should not return the premiums because people who paid in and were not called up nonetheless had coverage for 1 year, and a private insurer would never give the money back and why should the Government? That is one line of thought.
The other line of thought is that reservists had a reasonable expectation that this program would be in operation for a long period of time, they made a one-time decision, which was hopefully based on career aspects, and if we are changing the program or suspending it, that it is fair to give them their money back. So there are arguments on both sides of that.
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We estimate the premium payback would be about $8 million if, in fact, premiums are given back.
Mr. BUYER. Mr. Taylor, did you have something?
Mr. TAYLOR. Ms. Lee, I am looking down the road; should it be the will of Congress for this program to survive, and I personally hope it is, I hope we can fix the problems and provide this level of protection for the troops.
Going back to the national flood insurance model, let's suppose it had been just the opposite; the President did not choose to get involved in Bosnia; a large number of reservists chose to participate based on their potential losses due to Desert Shield and Desert Storm. You had a sizeable sum of money paid in premiums; you had very little liability to pay out. What provisions do you have now to either invest that money, pool that money, set it aside for a rainy day?
If it is indeed our intention to make this program self-supporting, we can't just look in the micro at 365 days. We have to be looking at 36 years. What provisions are made so that in the good years, when there is not a massive callup, that these funds are invested, set aside for the sole purpose for which they are raised, and that they will be there when the day comes, as we know it will come, that there is another callup and there will be a run on this particular fund? Is there anything?
Ms. LEE. Mr. Chairman, the actual fund is held and managed by the Treasury Department, and although I cannot quote you chapter and verse, but I will get you the information for the record, there is a mechanism to do precisely what you said; that is, to invest monies and set them aside appropriately.
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So that does exist, and if I may provide that for you for the record, I would like to do that.
[The information can be found in the appendix beginning on page 699.]
Mr. TAYLOR. That contingency has been taken care of, because, again, we have to be thinking in terms of decades, not just weeks.
Ms. LEE. Yes.
Mr. TAYLOR. Thank you.
Mr. BUYER. Ms. Lee, under the option of a mandatory program, what impact on morale would that have for our reserve components, if you mandated this program? Have you thought about that?
Ms. LEE. I have thought about it, and I simply do not know. That is one of the central questions that we would need to think through very, very carefully. We would want to do some survey work, and we would want to do some sensing, because the last thing we would want to do, obviously, is to hurt morale.
I would tell you, we know of only one slightly similar precedent; it is not precisely the same, but it is a mandatory payment that all troops make, all enlisted troops in this case, and that is a small payment which is made monthly to the Soldiers and Sailors Home. I believe it is $1.50 per month. Everybody pays it; few ever benefit or go to live at the home, but it sustains the home. That is the one precedent of a mandatory program that I know of.
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Mr. BUYER. Mr. Taylor?
Mr. TAYLOR. Thank you, Mr. Chairman.
Ms. Lee, you point out in your testimony the inability to provide payroll deductions to participate in this program. Has that been addressed? Will that be addressed? Because I certainly know that most of the insurance premiums I pay are deducted out of my paycheck rather than me having to write a check every month, and it does make it a little bit more palatable to participate in those programs.
Ms. LEE. We are working on it. I cannot tell you that it is squared away and done. It relates to issues with the Defense Finance and Accounting Service, who would be required to redo computer models and make a variety of changes in order to make it happen. It has proven to be difficult thus far. We are working on it. We are reasonably hopeful, but it is not done yet.
Mr. TAYLOR. Can that be solved through a nonlegislative manner, or will you need legislation in order to do so?
Ms. LEE. If I could get back to you for the record on that and be precise, I would appreciate it.
[The information can be found in the appendix beginning on page 699.]
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Mr. TAYLOR. Mr. Chairman, I have just one more question, and I will submit it for the record since I think we need to get back to our series of votes pending.
Mr. BUYER. We sure do. We are going to go ahead and conclude the hearing. We are going to digest all this and try to figure out what the right course and direction to go is. I have a strong sense and feeling of what that professional or whoever it is that gets called up, what they go through. Having been there and knowing what that judgment is, I don't whine, I don't snivel; sometimes you do things that you have to do and you answer your call to duty for the country. We will assess all this and come to judgment.
Thank you.
[Whereupon, at 1:05 p.m., the subcommittee was adjourned.]
"The Official Committee record contains additional material here."
QUESTIONS SUBMITTED BY MR. TAYLOR
Mr. TAYLOR. Ms. Lee, * * *; you had very little liability to pay out. What provisions do you have now to either invest that money, pool that money, set it aside for a rainy day? What provisions are made so that in the good years, when there is not a massive call-up, that these funds are invested, set aside for the sole purpose for which they were raised, and that they will be there when the day comes, as we know it will come, that there is another call-up and there will be a run on this particular fund? Is there anything?
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Ms. LEE. When the Premiums are collected by the Defense Finance and Accounting Service-Cleveland they are deposited into the General Fund of the Treasury for credit to the Reserve Mobilization Income Insurance Fund. The Fund is administered by the Defense Finance and Accounting Service, Headquarters, Investment Trust Directorate. Assets in the Fund, not required for immediate disbursement, are invested in public debt securities by the Treasury at the request of the Investment Trust Directorate. An accounting system has been established which accounts for all assets in the Fund, including investments, collections, and payments.
Mr. TAYLOR. Ms. Lee, you point out in your testimony the inability to provide payroll deductions to participate in this program. Has that been addressed? Will that be addressed? Can that be solved through a nonlegislative manner, or will you need legislation in order to do so?
Ms. LEE. The cost of reprogramming the five military payroll systems to allow for Ready Reserve Mobilization Income Insurance Program (RRMIIP) premiums to be deducted from a Reservists' pay, was estimated to be nearly $5 million. In addition, an estimated 24 months would be required to complete the reprogramming. In view of these concerns, an alternate system was developed to perform all the account maintenance for the Reservist's RRMIIP account, i.e. this ''insurance'' system would collect premiums, provide billings to Reservists, and pay all insurance benefits of the program for all seven of the Reserve Components. With the system operating independent of the military pay systems, collection of monthly RRMIIP premiums is accomplished through quarterly billings to Reservists (<20%) or automatic debit deduction from the checking or savings account (80% +). This is similar to the process used by commercial financial institutions to pay bills for citizens. The program allows the Reservist to choose the date that the payment is drawn from their checking account which allows the Reservist to coincide the premium deduction with the date the Reservist's drill pay check is deposited into their bank account.
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Developing an automatic deduction from the Reservist's pay and passing that pay information to the RRMIIP System is part of a long-term goal. This is considered long term because two of the five existing military pay systems will be consolidated within the next two years and the Reserve and active pay systems will be combined in the next four years. However, in view of the low participation in the RRMIIP program and the estimated cost of completing the interfaces between the military pay systems and the RRMIIP, these changes are pending the decision on a replacement insurance program.