Mr. Chairman, members of the committee, thank you for this opportunity to discuss the administration's fiscal year 1993 defense budget request.

We meet at the dawn of what is unquestionably a new era for global security and for America. Gone not only is the Cold War, but also the former Soviet Union governmental apparatus and ideology that were our prime foes.

In this new era, America's defense posture will be transformed. This will be as historic as the geostrategic changes that make it possible. The challenge facing our nation's leaders is to ensure that this is carried out wisely. Unfortunately, our nation has a discouraging track record when it comes to restructuring its military. We in the Department of Defense look forward to working with this committee and the Congress to make sure that our 1990's transformation is one that will preserve the quality of America's military and support fully our nation's vital security needs.

Global events in 1991 validated the favorable assumptions underlying the new U.S. defense strategy and force structure cuts approved by President (George) Bush in 1990. The collapse of the Soviet Union confirms the shift of our strategy away from containment of communism and Kremlin-backed aggression. The end of the Warsaw Pact and communist rule in Eastern Europe enable a dramatic reduction in NATO force levels and U.S. troop strength in Europe. The rising support for democracy and capitalism around the world is improving

prospects for greater international stability and economic progress. Security Environment

In spite of favorable developments over the past year, instability and regional conflicts remain a major potential security threat. The Persian Gulf war illustrated how U.S. military forces can prove decisive in protecting the vital interests of America and its allies. Of special concern for the future, a number of developing countries are acquiring improved conventional military capabilities, as well as weapons of mass destruction and accurate means of delivering them. Prudence demands that we recognize that future adversaries will be able to accumulate — as did Iraq - sophisticated weaponry that, if used effectively, could challenge U.S. military forces.

In this changing security environment, U.S. leadership will remain uniquely important. We must continue to lead our allies and friends in the preservation of our shared values. A stable world order supportive of those values is still as essential to our well-being as it has been throughout this century.

The past year's events confirm the appropriateness of the new U.S. defense strategy and its four main elements:

Strategic deterrence and defense. As a result of both arms control agreements and unilateral actions, the U.S. nuclear arsenal is shrinking substantially. But the remaining weapons must be kept modern and capable of deterring attack. Additionally, we must continue work on our Global

Protection Against Limited Strikes system to provide limited defense against ballistic missiles for the United States, our forward-deployed forces and our allies. Regional instabilities and nuclear proliferation make the development and fielding of GPALS especially imperative.

O Forward presence. To safeguard our global interests, U.S. military forces must continue to maintain a forward presence abroad. This serves to deter aggression, lend credibility to our commitments and alliances, enhance regional stability, promote U.S. influence and access, and when required -- enable us to respond to crises most effectively. The forward basing of forces and the pre-positioning of equipment facilitates our projection of military power into vital strategic areas, when necessary. On the other hand, diminished global threats and increasing allied security contributions will allow us to withdraw some of our troops from permanent overseas locations and to reduce the size and frequency of our periodic deployments.

Crisis response. Ensuring America's ability to respond militarily to regional crises threatening U.S. interests is key to deciding on the optimum size and composition of our armed forces. Such contingencies are highly varied, and so U.S. forces must be versatile. They must be ready for deployment on short notice and be technologically sophisticated to ensure them a decisive qualitative advantage in combat. U.S. forces also must be able to be deployed to

defense planners with sound technological options for our weapons to meet unforeseen threats should they emerge, support affordable technological improvements to existing systems to improve their military capabilities at less cost than for the production of replacements, eliminate cost overruns that have resulted from premature engineering and manufacturing development and production of new systems, and provide America's armed forces with the technological advantages they need to prevail in any conflict.

distant regions rapidly; therefore, we must continue to invest in prepositioning, airlift and sealift capabilities.

Reconstitution. Should a global military threat someday return, U.S. defense strategy calls for our nation to be prepared to expand its military capabilities as necessary. This requires that we preserve those security components that would take the longest to resurrect, most importantly: our alliance structures, forward deployments and arrangements for access to key nations and regions; the technological and doctrinal edge derived from vigorous research and development; our industrial base; and the high quality and morale of our military and civilian professionals.

Acquisition Practices

Positive changes in the global security environment make it possible and prudent for DoD to adopt a more appropriate, more economical philosophy for the acquisition of military goods. This new acquisition approach has two complementary aims. First, we must ensure that U.S. forces have military hardware that will give them a decisive advantage in combat with adversaries they would be most likely to confront in the future. Second, should a massive global military threat begin to emerge, we must be able to field the quantity and quality of weapons and materiel that would be needed for an expanded U.S. force structure to counter that threat.

Past acquisition practices featured development and procurement of new systems as rapidly as feasible, so as to stay ahead of or keep up with a constantly modernizing Soviet military machine. To prevent hardware from being dated by the time fielded, we often stressed "concurrency," meaning the pursuit of some phases of our

acquisition process simultaneously, rather than sequentially. This sometimes caused new systems to exceed original cost estimates and be fielded before design or production flaws had been fixed. We also assumed that we eventually would produce nearly every system successfully taken through research and development. Defense firms carried out R&D with the expectation that they would realize a profit once they moved to full-scale production.

This year's defense budget request is the first to reflect fully a fundamental departure from our earlier acquisition approach. The salient features of our new acquisition approach are:

Increased research on advanced technologies for application in military systems in the future;

Increased development and evaluation of demonstrators and prototypes using advanced technology;

Incorporation of advanced technologies into existing systems only when the technology and associated subsystems are thoroughly tested and proven, there is a substantive need for improved performance or reliability and the incorporation or retrofit program is cost-effective;

O Production of new systems using advanced technology only when the technology and associated subsystems are thoroughly tested and proven; the technical, production and operational risks are significantly minimized; the production program is cost-effective; and the absolute need for a new system is verified.

New Approach

To illustrate this new acquisition approach, consider tanks. The M-1 Abrams tank has proven itself to be the best in the world. We have 8,000 M-1s in inventory, more than enough for our projected force structure. Upgrading older models now would not fulfill the criteria of our new acquisition approach. Nor is there justification at this time for moving to complete the development and initiate the production of the next generation Block III tank.

That we can safely scale back our weapons modernization is corroborated by the performance of U.S. hardware in the gulf war. Our weapons were outstanding in nearly all performance characteristics. Combat readiness rates were also extraordinarily high for our most critical weapons. Despite the harsh environment, readiness was often higher than normally attained in peacetime.

Reduced military budgets and forces clearly mean reduced defense production. Moreover, DoD's new acquisition approach means a slower development and fielding of replacements for existing systems. This may result in a gap in the production of some systems. This slower replacement is now possible because most U.S. weapons on hand are superior technologically to those of potential enemies and have a number of years of useful life left. In addition, development of advanced technology weapons by potential enemies has slowed down significantly.

Production Prototypes

Stronger R&D efforts focused on technology demonstration and prototyping prior to production decisions will help our nation maintain a strong and dynamic defense technology base, provide

Industrial Base

These changing circumstances will have major consequences for

America's defense industry. The stark reality is this: We cannot afford to maintain a warm production capability for everything we might need for a future global war. For regional contingencies, our plan is to have on hand or quickly available all the weapons that 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 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.

The new program adjustments announced by President Bush are consistent with DoD's new acquisition philosophy and reflect the new global security environment.

O B-2 Bomber. Capping procurement of the B-2 bomber at 20 aircraft is now possible because with the transformation of the

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.

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 eight 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 1990 advance procurement funding. Through fiscal 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.

OSSN-21 Attack Submarine. The SSN-21 Seawolf is being terminated because the Soviet Union's collapse greatly reduces the U.S. priority given to "bluewater" anti-submarine 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

Other Adjustments.

The budget also proposes to terminate development of the small ICBM; terminate the Army's air defense antitank system; end procurement of the Advanced Cruise Missile at 640 missiles, vice the 1,000 previously planned; proceed with RDT&E (research, development, test and evaluation), but not procurement for the Navy's Fixed Distributed System; forgo entry into engineering and manufacturing development for the Advanced Air-to-Air Missile; defer funding for Block III tank development beyond the FYDP (Future Years Defense Program); and stretch out RDT&E and postpone procurement for the Army's line-ofsight anti-tank program.

For these new FY 1993 major program adjustments, the cumulative net savings through 1997 will be $42.1 billion. Previously planned major program termina

war.

tions in the FY 1993 defense request will save an added $7.4 billion in FY 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.

The FY 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 FY 1992 level enacted by Congress and 29 percent below FY 1985. For FY 1993 through FY 1997, DoD budget authority will decline, in real terms, an average 4 percent per year. By FY 1997, the cumulative real decline in budget authority since FY 1985 will total 37 percent. That will leave 1997, in inflationadjusted 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 are expected to fall to 3.4 percent in FY 1997, well below any time since before World War II. By FY 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 FY 1997, the cumulative real decline in defense outlays since FY 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 FY 1992-97 Future Years Defense Program 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.

The topline budget figures ... 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 administration.

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.

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 FY 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 FY 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 wellsuited 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 FY 1987, active military end strength will be down by 530,000 in FY 1995; by FY 1997, it will be 1,626,000 – about 25 percent below the 1987 peak. In FY 1997, reserve personnel levels are planned to be 20

Base Force

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

percent below FY 1987.

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

Savings from DoD's new program terminations are reflected in the budget request's proposed rescissions, which total $7.7 billion for FY 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.

Rescission Savings

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 FY 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.

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

Research, Development, Test and Evaluation. 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 FY 1992. Total RDT&E will experience 1.5 percent real growth in FY 1993.

O National Defense Stockpile. Largely because of congressional restrictions on its acquisition and disposal actions, the National Defense Stockpile 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.

O 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.

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. Secretary (Dick) Cheney's July 1989 Defense Management Report to the President 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.

Information Management

Our Corporate Information Management 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 consis