would be needed. But conflicts of a global scale have become so unlikely that we can plan on having years, not months to expand our force structure and produce additional weapons. Because of the increased emphasis on technology demonstrators and prototypes, not all programs will lead to production. Thus, our new acquisition approach means that industry no longer can plan on recouping research and development (R&D) costs during production. Defense R&D now will have to be made attractive in its own right. Industry is entitled to a reasonable profit and return on investment. That means DOD should expect to pay more for R&D, and we are reflecting that in our proposed budgets. In addition, we plan to avoid fixed-price R&D contracts; they simply do not make sense when there is significant technological risk.

In spite of the obstacles, DOD will continue to work to promote an adequate defense industrial base, especially to support those critical manufacturing processes that would be difficult to reconstitute if allowed to end. Meanwhile, there certainly will be a shake out in industry. Firms that are efficient and have a high technology capability will survive, and even prosper. Others may not. Joint ventures and mergers among companies may prove desirable to take advantage of different companies' strengths and to spread risk and costs. Perhaps the greatest rewards will go to firms that capitalize on the fact that many advanced technologies can have both military and commercial applications.

ACQUISITION PROGRAM ADJUSTMENTS

The new program adjustments announced by President Bush are consistent with DOD's new acquisition philosophy and reflect the new global security environment. B-2 bomber.-Capping procurement of the B-2 bomber at 20 aircraft is now possible because, with the transformation of the Soviet threat, America's strategic bomber force is far less likely to face the sophisticated air defenses for which it was designed. The current bomber force of B-1Bs and B-52s can be adapted to ensure that our total aircraft inventory has adequate capabilities for needed strategic nuclear and conventional missions. However, even though B-2 procurement is being curtailed, stealth remains a key advantage in warfare. The Department therefore will pursue various applications of improved stealth technologies. Estimated net savings through 1997: $14.5 billion.

Completing production of 20 B-2 bombers is wise because it will make possible two supportable special-mission squadrons of 8 aircraft each, plus four aircraft as backup (for attrition, replacement of aircraft in maintenance, etc.). U.S. forces need this capability and the B-2's unique combination of payload, range, and stealth. Moreover, completing 20 aircraft makes the most of monies already committed to the program. Effort on the final four B-2s began with fiscal year 1990 advance procurement funding. Through fiscal year 1992 the Department will have invested nearly $2 billion for materials, subassemblies, and initial manufacturing activities for these four aircraft, and they are now over 20 percent complete.

SSN-21 attack submarine.—The SSN-21 Seawolf is being terminated because the Soviet Union's collapse greatly reduces the U.S. priority given to "blue-water" antisubmarine (ASW) systems and to countering foreign ballistic missile submarines. The improved SSN-688 submarine is among the most capable in the world and will serve the nation well for many years more. To conserve scarce shipbuilding resources, DOD plans to adopt a lower-cost design that will enable it to modernize, yet maintain adequate submarine force levels. DOD also will continue to develop other ASW systems. Only the one SSN-21 already funded will be completed. Estimated net acquisition savings through 1997: $17.5 billion.

Comanche helicopter.-With their focus shifted from a Soviet threat to regional contingencies, U.S. forces can be supported adequately with the existing Apache helicopter fleet (with the planned Longbow fire control radar upgrade), other very capable helicopters, and greater use of unmanned aerial vehicles. DOD therefore will restructure the Comanche light helicopter development program. The near-term focus will be on building prototypes of the Comanche and emphasizing further development of its avionics, an upgraded engine, and a Longbow system for it. Estimated net savings through 1997: $3.4 billion.

Other adjustments.-The budget also proposes to: terminate development of the small ICBM; terminate the Army's air defense antitank system (ADATS); end procurement of the Advanced Cruise Missile (ACM) at 640 missiles, vice the 1000 previously planned; proceed with RDT&E, but not procurement for the Navy's Fixed Distributed System (FDS); forego entry into engineering and manufacturing development for the Advanced Air-to-Air Missile (AAAM); defer funding for Block III tank development beyond the FYDP; and stretch out RDT&E and postpone procurement for the Army's line of sight antitank (LOSAT) program.

For these new fiscal year 1993 major program adjustments, the cumulative net savings through 1997 will be $42.1 billion. Previously planned major program terminations in the fiscal year 1993 defense request will save an added $7.4 billion in fiscal year 1993-97. The new program adjustments highlighted above come on top of DOD's earlier program terminations. In the previous two years, we have terminated over 100 weapons programs.

DEFENSE BUDGET TRENDS

The fiscal year 1993 budget request for DOD is $267.6 billion in budget authority and $272.8 billion in outlays. Adjusting for inflation, this means a real decline in budget authority of 7 percent below the fiscal year 1992 level enacted by Congress and 29 percent below fiscal year 1985. For fiscal year 1993 through fiscal year 1997 DOD budget authority will decline, in real terms, an average 4 percent per year. By fiscal year 1997 the cumulative real decline in budget authority since fiscal year 1985 will total 37 percent. That will leave 1997, in inflation-adjusted budget authority, on a par with 1960, and only slightly higher than the nadir hit in 1974–76.

Defense outlays as a share of the U.S. Gross National Product (GNP) are expected to fall to 3.4 percent in fiscal year 1997, well below any time since before World War II. By fiscal year 1997 defense outlays should fall to 16 percent of total federal outlays, down from a post-Vietnam peak of 27 percent in 1987.

Under the President's defense request, by fiscal year 1997 the cumulative real decline in defense outlays since fiscal year 1985 will be 26 percent. Over the same period, mandatory federal spending is projected to increase in real terms about 33 percent and domestic discretionary outlays increase about 8 percent.

DOD's fiscal year 1992-97 Future Years Defense Program (FYDP) has been reduced by $50.4 billion in budget authority below the levels, adjusted for inflation revisions, that were in last year's request and that were consistent with the budget summit levels. Over the six-year period, outlays would be cut $27.4 billion below last year's plan, revised for inflation.

OPERATION DESERT SHIELD/DESERT STORM

The topline budget figures in this document and its charts exclude the dollars appropriated to pay the incremental U.S. costs of Operation Desert Shield and Desert Storm. Doing this is consistent with the 1990 Budget Enforcement Act, which mandated that U.S. spending on Desert Shield/Storm be treated as emergency funding requirements and not subject to the budget ceilings agreed by Congress and the Ad

ministration.

The Department estimates that the incremental U.S. costs of Desert Shield/Storm will not exceed $61.1 billion. To offset these incremental costs, our allies pledged to contribute $54.0 billion. Subtracting from the estimated incremental costs these allied contributions and the $1.2 billion in materiel losses that will not be replaced, the net cost to the U.S. for Desert Shield/Storm should not exceed $5.9 billion.

As of February 1992, allied contributions are $47.0 billion in cash and $5.6 billion in in-kind assistance, for a total of $52.6 billion.

MILITARY FORCE LEVELS AND PERSONNEL

Favorable global trends have reduced the forces required to support sufficiently our new defense strategy and safeguard U.S. security. The Base Force is the term adopted to specify the force structure that DOD believes to be the minimum required to meet America's defense needs at an acceptable level of risk. It is tailored to maintain forward presence and for rapid response to regional contingencies; it also facilitates reconstitution of capabilities. Our recommended Base Force structure assumes that future commitments of U.S. forces would likely be in partnership with other nations. It takes account of the contributions that could be made by our allies and friends.

After being delayed by the Gulf War, force reductions are proceeding rapidly. By fiscal year 1995, the U.S. military will be at the force structure of the Base Force, which will be about 25 percent smaller than force levels in fiscal year 1990.

The Base Force relies on both active and reserve components. Active forces will provide the primary capabilities for day-to-day operations, as well as most of the combat and support units needed for an initial response to regional contingencies. Reserve forces will provide other essential support units (in increasing numbers for extended confrontations), as well as combat units to augment and reinforce active forces in large or protracted confrontations and units to perform several missions well-suited to reserve forces-including stateside air defense, civil affairs, and tactical air reconnaissance.

For America's armed forces to derive the maximum fighting power from its limited and declining personnel, reservists cannot be exempted from our planned streamlining. As we take down active forces, it is wasteful not to reduce the reserve elements assigned to specific active units which are deactivated. For example, with the elimination of six active Army divisions must come elimination of the reserve logistics and service outfits that supported those divisions. Otherwise, those units will have no wartime mission, and their cost will displace genuine wartime needs. The Administration's defense plans ensure a proper balance between active and reserve forces.

Defense personnel totals will fall more rapidly than planned just a year ago. From its post-Vietnam peak of 2,174,000 in fiscal year 1987, active military end strength will be down by 530,000 in fiscal year 1995; by fiscal year 1997 it will be 1,626,000-about 25 percent below the 1987 peak. In fiscal year 1997, reserve personnel levels are planned to be 20 percent below fiscal year 1987.

In fiscal year 1997 DOD civilian strength will fall to 904,000-about 20 percent below its fiscal year 1987 post-Vietnam peak. This planned decrease reflects both the shrinking U.S. military strength and DOD management improvements.

BUDGET RESCISSIONS AND ENVIRONMENTAL NEEDS

Savings from DOD's new program terminations are reflected in the budget request's proposed rescissions, which total $7.7 billion for fiscal year 1992. In addition to these terminations, the rescission proposal includes numerous programs that DOD did not request and that do not address genuine defense needs. Congressional support of these rescissions will enable DOD to make the most of ever-diminishing defense resources.

The rescission request will not only prevent spending on unnecessary programs, it also will help fund DOD environmental needs, which have grown considerably. Our planned budget authority for environmental programs for fiscal year 1993 is $3.7 billion. Increased environmental spending supported by these rescissions will enable DOD to accelerate its cleanup work at previously contaminated sites, more carefully ensure compliance with environmental regulations, and increase pollution prevention and protection of natural and cultural resources.

OTHER FISCAL YEAR 1993 DEFENSE BUDGET HIGHLIGHTS

Strategic defense.-Funding for strategic defense programs remains a high priority with a request for $5.4 billion in budget authority in fiscal year 1993, up from $4.1 billion in fiscal year 1992. The fiscal year 1993 request includes $1 billion for Theater Missile Defense programs.

Research, development, test and evaluation (RDT&E).-Reflecting DOD's emphasis on leading-edge research, funding for Science and Technology-which is research not geared to a specific weapon-will climb to $12.0 billion, from $10.6 billion in fiscal year 1992. Total RDT&E will experience 1.5 percent real growth in fiscal year 1993.

National defense stockpile.-Largely because of Congressional restrictions on its acquisition and disposal actions, the National Defense Stockpile (NDS) now contains about $7 billion worth of materials excess to DOD requirements for full-scale military mobilization. Yet Congress is still requiring DOD to upgrade certain NDS ores, already in excess of requirements by 1.3 million tons, at a price exceeding the open market by 64 percent. To reverse this waste, DOD has proposed legislation to enable it to sell up to $1 billion of excess materials per year and to use the proceeds and available cash balances to fund high priority environmental projects. The Department also seeks legislation permitting the Secretary to impose a moratorium on unneeded NDS purchases.

Base closure and realignment.-DOD's recent announcement brings to 441 the number of overseas bases and sites that will be returned to host nations, with another 51 that will be reduced or placed in standby status. These announced actions affect about 30 percent of the U.S. overseas base structure. Eventually DOD expects to reduce its overseas base structure by almost 40 percent. The 1988 and 1991 base closure commissions have closed or reduced about 9 percent of the domestic military base structure. However, there is still more to do to bring the domestic base structure in line with planned force reductions and to avoid wasting money on unneeded defense infrastructure.

DEFENSE MANAGEMENT

Effective management of the Department of Defense and our defense programs is an integral part of DOD's overall plan to restructure the armed forces by 1995. Sec

retary Cheney's July 1989 "Defense Management Report to the President" (DMR) has served as the road map for making fundamental changes in the way the Pentagon does business, in order to preserve essential military capabilities within the limits of the resources available.

Implementation of the DMR involves basic organizational restructuring, improved operational efficiencies, and a more disciplined acquisition process. Costs are being reduced and operations improved by streamlining management structures, cutting excess infrastructure, eliminating redundant functions, and greater use of standard business practices throughout the Department. DMR efficiencies have allowed the Department to maintain and support America's defense capabilities despite declining defense resources.

The underlying philosophy guiding the Department's management improvements is centralized control of policies, procedures, and systems, with decentralized policy implementation and program execution. At the heart of the Department's ability to use sound business practices is the need for accurate, timely, and comprehensive information. With the implementation of DMR, defense managers will now have access to the information and cost data necessary to make informed business decisions and to be held accountable for the performance and effectiveness of the business area for which they are responsible.

Our Corporate Information Management (CIM) initiative seeks to integrate and streamline a multitude of DOD business functions and to exploit information technology to implement the improved operations that result. Our objectives are to identify efficiencies in business areas common to various DOD organizations; improve the standardization, quality, and consistency of data from the Department's many business management information systems; and reduce the costs of developing and maintaining these systems. Our initial CIM focus was on these business areas: civilian payroll, civilian personnel, contract payment, distribution centers, financial operations, government furnished material, materiel management, and medical.

One very promising information improvement has been the establishment of the Defense Business Operations Fund. It seeks to make more visible to DOD managers the complete cost of their organizational outputs, thereby facilitating more informed decisions. Its focus on products and costs promotes better communication between the entity producing or providing products and the customer, who sets the requirements and seeks the best price and value.

One of our most important organizational changes has been creation of the Defense Finance and Accounting Service (DFAS) to improve these services and reduce costs. DFAS is making rapid progress in adopting standard policies, procedures, forms, data, and systems; streamlining and consolidating operations; and eliminating redundancies. Once fully implemented, DFAS initiatives should yield over $800 million in savings.

Within the DOD logistics system, our initiatives will save over $20 billion. Our supply depot actions will consolidate under the Defense Logistics Agency (DLA) the 30 supply depots that have been separately managed by the military departments and DLA. In addition, we will coordinate the activities of all maintenance depots to increase utilization of facilities and expand competition among the military departments and contractors. Further, the DOD Inventory Reduction Plan is resizing our materiel stockpiles in view of our new defense strategy and declining forces, yet maintaining current readiness standards. Finally, we are consolidating our activities relative to health affairs, research laboratories, intelligence, and commissaries.

The above are highlights of only some of our many DMR efforts. In essence, DMR establishes the framework to facilitate new, better ways of doing business that will lead to ongoing and long-lasting management improvements within the Department of Defense into the 1990s and beyond. The current DMR management initiatives will achieve fiscal year 1991-97 savings of about $70 billion. This savings represents approximately $70 billion that will not have to be taken out of critical defense capabilities and military assets in order to meet the limitations of declining defense budgets.

CONCLUSION

To preserve the quality and sufficiency of America's armed forces as we transition to lower levels, while staying below the sharply lower defense spending levels proposed by President Bush, Congress must allow DOD to: terminate unneeded programs, and to do so without mandating a "soft landing" or year or two of respite; close, reduce, or realign military bases and facilities; streamline and improve our defense infrastructure and procedures; and achieve a proper balance between active and reserve forces.

We in the Department of Defense look forward to working with Congress to make this ongoing transformation of America's defense structure the most successful in our history.

Senator INOUYE. Mr. Chairman, thank you very much. Before I proceed, I have been asked by Senator Specter to convey his apologies for leaving. There is a special memorial service for those men and women from Pennsylvania who made the supreme sacrifice in Desert Storm. But he will be submitting questions for your consideration.

Mr. Secretary, we are faced with two realities. One you have discussed with some eloquence, about the demise of the Soviet Union, the changes in the international environment. We can understand the rationale for this drawdown, and I believe the people of the United States anticipate and expect the Government of the United States to reduce defense spending.

Having said that, I believe there is another reality. At this moment, there is a primary in South Dakota. There will be another set of those a week from now. The front page headline is the closing of factories by General Motors. The lead stories on all television programs have been, for the last 48 hours, how many people are going to be laid off.

The second reality is economy and employment. We have just heard from you and Mr. O'Keefe that during this phase of the drawdown, we can anticipate about 1 million men and women from DOD activities to be on the streets. Then, on defense related industries, another million.

The Army itself this year will be laying off the total that GM will lay off, and that is causing a furor. Seventy-four thousand people, I believe is that not correct-for the Army itself.

Some would argue that with our economy in a recession stage, it will be increasingly difficult if not impossible for the economy to absorb the number of men and women who would be laid off as a result of this drawdown.

Second, there is a question-whether you call it ethical or moral or legal. Does the Government of the United States have an obligation or a responsibility to be concerned about these men and women who will be leaving the military or the civilian work force of the Department, or defense-related industries?

Third, this Congress, in anticipation of problems of this nature, last year created and funded, I believe we call it the Defense Conversion Commission. It has been about a year now, and we are hoping that we can see some action in that now.

Can you comment on all of those items that I have mentioned? Do you think the economy can absorb all of these people? No. 2, should we consider it an obligation and responsibility on our part to concern ourselves about those being unemployed, and third, what about this commission?

DEFENSE CONVERSION AND JOB LOSSES

Mr. ATWOOD. I would be pleased to, Mr. Chairman. And I think those questions are at the root of all of the discussions that are ongoing now.

I would like, if I may, to answer them in two ways. One, let me answer them from my pure responsibilities to the Department of

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