-Leading To War-

2/27/2003

Paul Wolfowitz

House Budget Committee Hearing

http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=108_house_hearings&docid=f:85421.wais

Mr. Shays [presiding]. The committee will come to order.

Today's hearing will examine the Department of Defense

budget request for fiscal year 2004. Our witness will be the

Honorable Paul D. Wolfowitz, Deputy Secretary of Defense.

Appearing with Secretary Wolfowitz will be Dov Zakheim, the

Under Secretary of Defense, and Chief Financial Officer.

Also appearing will be Steven Kosiak, Director of Budget

Studies at the Center for Strategic and Budgetary Assessments.

In the face of unprecedented threats to our domestic and

international security, the defense budget must advance three

overarching goals: to win the global war on terrorism, to

invest in the procurements and people needed to sustain that

effort, and to transform the cold war military structure to

meet the 21st century demands.

The President said his aim was, ``to move beyond marginal

improvements, to replace existing programs with new

technologies and strategies.'' He said, ``Securing our common

defense will require spending more and spending more wisely.''

The fiscal year 2004 defense budget requests more. This

committee and others will have to decide if the Department is

capable of moving beyond marginal, often glacial reforms to the

wiser spending the President demands. We are at war. Terrorism

is being uprooted in Afghanistan. It appears more likely, with

each passing day, Saddam Hussein will persist in refusing to

comply with the United Nations and that the United States will

be required to lead a coalition of willing nations to disarm

him.

This budget reflects this committee's commitment and the

commitment of every American that the brave men and women of

our military will have every resource they need in the

difficult months and years to come. One specific area raises

concerns in that regard: individual protective equipment

against chemical and biological weapons.

The Government Reform Subcommittee on National Security,

which I chair, was told last year of significant procurement

shortfalls in key CB defense items. The Department's own 2002

report on the CB defense program pointed to high risks now and

the outyears due to a lag in procurements of modern protective

garments--boots, gloves, and collective protection shelters.

I am concerned this budget does little, too little, to

close the gap between what it will take to protect U.S. forces

on the contaminated battlefield of the future and the equipment

we will be able to give them. Nor does this budget appear to

take any bold, new steps toward solving the long-festering

dilemma of how to pay for all of the tactical aircraft

procurements now under way.

More money for fewer planes is not a wise fiscal policy,

nor will it address the problem of an aging air fleet. This

committee has consistently provided the resources our Armed

Forces have needed to do their job, including the $10 billion

war reserve that was not appropriated until this month.

Despite the controversy surrounding the appropriation of an

undefined request, this committee was willing to step up to the

plate and provide the Department of Defense with the

flexibility it asked for, and to do it in a timely fashion.

It is noteworthy and perhaps paradoxical that DOD officials

have described the fiscal year 2004 budget request as a

peacetime budget. The reason, of course, is that the

administration's budget does not include the cost of potential

conflict with Iraq. We all know there are great uncertainties

about the cost of disarming Saddam Hussein, uncertainties that

make it difficult to put a precise number on the cost of

possible military operations. But this committee still needs to

learn all it can about those costs.

Just yesterday, the White House released Pentagon estimates

that the war and its immediate aftermath will cost between $60

[billion] and $95 billion. Today, the Washington Post reports

that some internal administration estimates show the cost

growing above $100 billion.

It is worth noting that the 1991 Persian Gulf war cost

$82.5 billion in current dollars, which brings me to another

critical subject, burden sharing. In the gulf war, the United

States received financial contributions of over $48 billion

from our allies. This time we are being presented with a bill

in advance from countries, I would argue, that will greatly and

directly benefit from a regime change in Iraq. We have already

agreed to a $15-billion aid package to Turkey in exchange for

rights to base American troops there; and we may also be

increasing our aid to Jordan, Israel, Egypt, and others.

The bottom line is, we need a better and fuller

understanding of the financial commitments we are undertaking,

and how much of these costs our allies are willing to bear.

Finally, there is the big picture. Is the Pentagon's budget

plan the right one for a long-term operation? Will it achieve

the bold transformation progress that the President envisions,

or will service rivalries and entrenched inefficiencies soak up

any additional spending to feed a sluggish but voracious status

quo?

That said, I want to repeat our assurance that this

committee will do everything in its power to assure that the

men and women of our Armed Forces will receive the tools and

the training they need to defeat terrorism and assure the

safety of this Nation.

We look forward to your testimony, Mr. Secretary.

At this time, I would like to recognize Mr. Spratt, and

announce to our members that the Under Secretary needs to leave

here at 4 o'clock. I will be very strong on the 5-minute rule,

which doesn't mean you ask a question for 5 minutes and then

give him 5 minutes to answer, alright?

Mr. Spratt. Thank you.

Secretary Wolfowitz, welcome to our committee. I usually

see you in my other capacity as a member of the House Armed

Services Committee, and since today I am wearing my budget hat,

I want to express some budget and fiscal concerns.

The Department of Defense is now in the middle of the

largest sustained buildup in 20 years. Your 6-year plan--we

call it the FYDP--associated with this 2004 budget would leave

the defense budget one-third larger in real terms at the end of

that plan in 2009, than it was when the administration took

office.

We haven't seen an increase of this size since the cold

war, during President Reagan's first term. Much of that

increase has already taken place. It is committed since the

budget for national defense has increased from $300 billion in

fiscal 2000 to at least $400 billion by the time we finish

fiscal 2003, or 3 short years. This budget proposal, therefore,

proposes to increase that to $500 billion by the year 2009.

Let me make clear, all of us support a strong national

defense. We certainly are going to put forward the funds

necessary for the United States to work its policies in the

world. And, most of all, we are going to support our men and

women in uniform, and say, thank God there are such men and

women who will go in an hour like this in harm's way and defend

the United States of America. They are being asked to do

Herculean feats around the world, night and day, and we will

not let them down; we will support them.

Unfortunately, the increases in defense that you are

requesting are being financed by deficit spending. And the

bills for national defense, ultimately, when you charge it to

the deficit, get charged to our children and grandchildren. The

fiscal year 2004 budget proposes the largest deficit in

American history, $307 billion. That projects a deficit of over

$300 billion in 2003 as well.

The 10-year surplus of $5.6 trillion, which was projected

back in 2001, has been wiped out. That is a message that CBO

gave us just a few weeks ago, and then OMB confirmed it.

Between now and 2011, the administration's policies and,

particularly the new tax cuts, would add an additional $2

trillion to that public debt.

As bad as that sounds, it is likely to get worse. Data from

the Treasury Department indicates that during the first few

months of fiscal 2003, revenues are off 8 percent.

You have sent us a budget that has nothing in it for the

war in Iraq to which--I understand why you wouldn't make that

particular request, but you also included nothing for the

global war against terrorism and, in particular, Afghanistan. I

am at a loss to understand why that was not included in this

particular budget request.

Yesterday's Wall Street Journal contains this news, that

the Bush administration is preparing to submit supplemental

spending requests totaling as much as $95 billion for a war

with Iraq, its aftermath, and new expenses to fight terrorism.

Today, the New York Times reported that Pentagon officials said

yesterday that the military's part of the cost over the next

several months, through fiscal year, this fiscal year at least,

would be $60 billion. And, of course, these are just a portion

of the costs.

We are reading about deals that are being cut with Turkey

and other allies that we have no way of scoring or keeping a

tab on. We don't really know what the cumulative cost of this

effort is likely to be.

I hope that today's hearing will give us better insight

into the real costs that we are facing because it is this

committee's responsibility to put things in the stark light of

fiscal reality. Today, we are not in position to do that,

because there are so many significant things we just don't know

about this budget.

If the estimated cost of additional spending for Iraq of

$95 billion turns out to be correct, that would push the

deficit for 2003 up to $400 billion, by far the largest ever

recorded. Even if the lower figure of $60 billion is more

accurate, that will still give us the largest deficit, in

constant dollars, since World War II was over.

Finally, as bad as the situation is today, we have to think

about the long term; and really, the retirement of the baby

boomers is not long term, it begins in 2008. They draw Social

Security then. In 2011, they start drawing Medicare. And we are

going to see a demographic change in this budget that is going

to be phenomenal.

The question is, can we sustain this buildup in the face of

the retiring baby boomers? I put these hard questions to you

because these are questions we should be asking you, asking

ourselves, and trying to resolve in the budgets that we will be

preparing in the weeks ahead.

Thank you for coming. We look forward to your answers to

our questions.

[The prepared statement of Mr. Spratt follows:]

Prepared Statement of Hon. John M. Spratt, Jr., a Representative in

Congress From the State of South Carolina

Thank you, Mr. Chairman. I join you in welcoming Deputy Secretary

Wolfowitz and Dr. Zakheim. I usually see you in my other committee,

Armed Services. Today, wearing my budget cap, I want to express some

serious concerns.

The Department of Defense is in the middle of the largest sustained

buildup in 20 years. The Department's 6-year plan associated with this

2004 budget request would leave the defense budget one-third larger, in

real terms, at the end of that plan in 2009 than it was when this

administration took office. We have not seen an increase of this size

since the cold war, during President Reagan's first term. Much of this

increase has already taken place, since the budget for national defense

will have increased from $300 billion in fiscal year 2000, to at least

$400 billion by the time we finish fiscal year 2003, in just three

short years. This budget request then proposes to increase that to $500

billion by fiscal year 2009.

All of us support a strong national defense and a strong U.S.

military that remains second to none. We all support our men and women

in uniform. They are being asked to do Herculean feats around the world

night and day, and we will not let them down.

Unfortunately, these increases are being financed by deficit

spending, and the bills for our national defense are being sent to our

children. The fiscal year 2004 budget proposes the largest deficit in

American history, $307 billion, and now projects a deficit over $300

billion in 2003 as well. The 10-year surplus of $5.6 trillion projected

in 2001 has been wiped out. Between now and 2011, the Bush

administration's policies, in particular the new tax cuts, would add an

additional $2 trillion to the public debt. This would represent an

astounding turnaround, reducing the unified budget surplus by $7.8

trillion over 10 years.

And as bad as this sounds, the reality is, it's going to get worse,

because this budget understates how big the deficits are likely to get:

Data from the Treasury Department shows that revenues are coming in

well below the levels assumed in this budget. For the first 4 months of

fiscal year 2003, revenues are down 8 percent from the same period in

the previous fiscal year.

There is no money in this budget for the cost of our ongoing global

war on terrorism in Afghanistan and other locations around the world.

There is no money in the budget for the cost of a war in Iraq, nor

any money for the costs associated with such a conflict, including

post-war occupation and reconstruction, and aid to Turkey and other key

allies.

Yesterday's Wall Street Journal reports that, ``The Bush

administration is preparing supplemental spending requests totaling as

much as $95 billion for a war with Iraq, its aftermath, and new

expenses to fight terrorism, officials said.'' Today's New York Times

reports that, ``Pentagon officials said today that the military's part

of the cost over the next 7 months, through the fiscal year, would be

at least $60 billion.'' And of course the military's costs are only a

portion, and perhaps not ultimately the largest portion, of these

costs. So it appears the administration is aware of these costs, but

they do not appear in the budget.

I hope today's hearing will give us some greater insight into the

real costs we are facing, because it is this committee's responsibility

to put things in the stark light of fiscal reality. Today, we are not

in a position to do that, because there are these significant hidden

costs out there. And there is no plan, that I am aware of, for how to

pay for all of this. If the administration has a plan for where all the

money would come from to pay for all of this, I would like to hear it.

If the estimated cost of additional spending for Iraq of $95

billion turns out to be correct, that would push the deficit for 2003

up to $400 billion, by far the largest ever recorded. Even if the lower

figure of $60 billion is more accurate, that would still give us the

largest deficit, in constant dollars, since World War II.

Finally, as bad as the situation is today, we also have to think

about the long term. Pretty soon we will not be able to call the

retirement of the baby boomers a ``long term'' issue. That day is fast

approaching. A few weeks ago the Congressional Budget Office released a

study on the long-term implications of current defense spending plans.

This study shows that, in order to carry out all the long-range plans

DOD has to modernize its weapons systems: defense spending, in real

terms, will probably have to be even higher 10 years from now, when the

baby boomers are retiring, than it is today.

This will put defense spending on a collision course with the

rapidly rising costs of Social Security and Medicare. But even if we

did not have that fiscal squeeze coming, to carry out these plans would

require a period of sustained increases in defense spending that, if

you look at your history books, just doesn't happen.

I invite my colleagues, and our witnesses, to look over that study,

because we all need to think seriously about whether we are on a path

we can afford to sustain.

I look forward to your testimony, Secretary Wolfowitz.

[The prepared statement of Mr. Putnam follows:]

Prepared Statement of Hon. Adam H. Putnam, a Representative in Congress

From the State of Florida

Mr. Chairman, I am pleased that we have convened today to receive

the fiscal year 2004 budget priorities for the U.S. Department of

Defense from Deputy Secretary Paul D. Wolfowitz. I am honored to be

here with you, Ranking Member Spratt, and the rest of the committee, to

exchange views on the Department of Defense budget for the coming year.

Thank you, Mr. Secretary, for appearing before this committee to

present the priorities and plans of your Department. The Department of

Defense is essential in this time of global uncertainty and I would

like to commend DOD's commitment to keeping Americans safe in an era of

evolving threats.

Knowing the current and emerging threats to America, it is

imperative that we continue to strive to reach the goals of the 21st

century transformation of the U.S. Armed Forces outlined by Secretary

of Defense, Donald Rumsfeld. We must prepare for new forms of

terrorism, such as cyber attacks on our network infrastructure. At the

same time, we must work to increase our own areas of advantages, such

as the ability to project military power over long distances,

precision-strike weapons, and our space, intelligence, and under-sea

warfare capabilities. As it is difficult to predict every conceivable

type of attack, we are required to prepare for new and unexpected

challenges in order to continue to defend against terrorism and other

emerging threats of the 21st century.

Being prepared also includes the transformation of the military

toward more efficient internal systems and weapons driven by

information technology. Secretary Rumsfeld has said the transformation

process will ``require a longstanding commitment'' but concurrently

``must be embraced in earnest today'' because the Nation is under

immediate threat.

Military IT transformation is necessary to keep the U.S. military

ahead of its adversaries. As stated in the Quadrennial Defense Review,

the technological revolution in military affairs holds the potential to

confer enormous advantages and to extend the current period of U.S.

military superiority.

Transforming the military largely involves changing its ``state of

mind'' to one that is more business-like. It also involves using

advanced technologies to gather intelligence and manage information. A

secure, global information backbone of unlimited depth and global reach

will be essential.

A strong emphasis should be placed on the efficient use of

technology. The services must protect critical infrastructure so that

it is available to only our troops and not infiltrated. The

transformation of the U.S. military is not just about weapons, but the

unification of what were once isolated components into one

technologically unified battlefield scheme.

Mr. Secretary, I look forward to your testimony and I am sure you

will provide all of us with a clear picture of the Department of

Defense's strategy to lead our forces militarily and technologically

into the 21st century.

Mr. Shays. Mr. Secretary, we are going to hear from you. If

we finish your statement in some time--we have an hour and a

half for questions, we could potentially get everyone in this

room being able to ask a question. But if you don't need to use

the 5 minutes, please don't, OK?

Mr. Wolfowitz, thank you so much for being here.

STATEMENT OF PAUL D. WOLFOWITZ, DEPUTY SECRETARY, U.S.

DEPARTMENT OF DEFENSE

Mr. Wolfowitz. Thank you, Mr. Chairman. I will just read

portions of my testimony and submit the entire testimony for

the record.

Mr. Shays. Without objection, that will happen.

Mr. Wolfowitz. Mr. Chairman, this is a large budget that we

are requesting, $379.9 billion. But I would like to begin by

pointing out that by historical standards, this budget is a

sustainable defense burden, one that is significantly less than

the burden we sustained throughout the cold war.

Moreover, this is a wartime defense budget, although it is

fair to point out that some possible war costs are not

included, particularly those that would be associated if we

have a conflict in Iraq.

But if I could have--and I think we have rearranged the

charts in the wrong order. Could I have the chart that shows

the percent of GDP that goes to defense historically? You will

see that in fiscal year 2004, DOD outlays are projected, even

with the unfortunate economic situation, to be at 3.4 percent

of our gross domestic product. That is well below its level at

any time during the cold war, much less the peak during the

cold war. Similarly, if you compare it to total Federal

outlays, it is 16.6 percent, again, well below its level at any

time--I underscore, ``any time''--during the cold war.

Another fact to remember, when one thinks about whether

these are controllable costs, is that about 45 percent of the

defense budget goes to cover the personnel costs for our

magnificent men and women in uniform and for the civilians who

support them. Despite great efforts to try to limit increases

in personnel, we have had to activate a significant number of

Reservists and National Guardsmen to meet our warfighting

tasks. It is hard to imagine at this time how we could reduce

costs by cutting force structure and people.

The proposed $15.3-billion increase over last year is

sizeable. But each year, much of any Defense Department

increase is consumed by what we call, ``fact-of-life''

increases, specifically pay raises, and nonpay inflation. In

the fiscal year 2004 request, over $8.5 billion of the $15-

billion increase goes to inflation and non--to nonpay inflation

and the increases in military and civilian pay, $4.2 billion in

pay increases and $4.3 billion in nonpay inflation.

Some critics I read say the U.S. Defense budget is higher

than it needs to be because it exceeds that of all our possible

adversaries combined. But it is our task to defend against real

threats, Mr. Chairman, not against budget accounts.

The defense budget of the Taliban was an insignificant

fraction of ours, yet that regime proved to be a major threat

to the United States. And it was thanks to the overwhelming

superiority of our forces that we were able to achieve our

objectives in that country in miraculously short order, and

with miraculously low casualties.

Indeed, when we send our forces into combat, we want them

to have that kind of overwhelming advantage that minimizes

casualties and provides for decisive victories, not just the

bare margin necessary for a close win. The only reasonable

evaluation, the only reasonable evaluation of a U.S. Defense

budget is its ability to cover the full range of uncertain

risks that threaten America's vital interests.

Besides the horrific toll, let's remember that the attacks

of September 11 cost our Nation billions of dollars in both

physical destruction and damage to our economy. The direct

costs of September 11 are already estimated to exceed $100

billion. Another such catastrophe could cost far more,

especially if attackers use weapons of mass terror.

The President's defense budget is sustainable because,

first, we have insisted on realistic budgeting, especially for

acquisition programs and readiness requirements; and secondly,

because we have made many hard choices in this budget to ensure

that our programs are executable within their projected top

lines.

For the FYDP of 2004-09, the Department has shifted over

$80 billion from previous budget plans into acquisition

programs that support a strategy of transforming our military.

These hard choices will reduce the cost risk to the DOD top

line that were highlighted in a recent Congressional Budget

Office report. That report was done before it could reflect the

work that we did in preparing this budget request.

Our commitment to realistic budgeting includes properly

funding investment programs based on independent cost

estimates. This practice not only protects our future

readiness, it also protects our near-term readiness, because

training and operations funds are no longer a bill payer for

underfunded investment programs, as they were throughout much

of the last decade.

Let me say a little bit about funding the cost of war. The

same rigorous planning and tough decision-making used in our

budget preparation are being applied to our execution of the

war on terrorism and to plans and preparations for the

possibility of a war in Iraq. Our military and civilian

planners are working hard to ensure that our scarce personnel

and budgetary resources are directed to the highest priorities

and that all alternatives are exhaustively assessed.

Nevertheless, any war is fraught with uncertainty, and that

makes all projections of future war costs extremely uncertain.

The President's proposed budget does not estimate the

incremental cost of a possible war with Iraq, nor does it

request contingency funding to cover them. Such estimates are

so dependent on future, unpredictable circumstances as to be of

little value. We are, however, doing everything possible in our

planning now to make postwar recovery smoother and less

expensive should the use of force become necessary. As in

Afghanistan, we would seek and expect to get allied

contributions, both in cash and in kind, particularly for the

reconstruction effort in a post-Saddam Iraq.

If I might digress for a moment, Mr. Chairman, from my

prepared testimony, because there has been a good deal of

comment--some of it quite outlandish--about what our postwar

requirements might be in Iraq. That great Yankee catcher and

occasional philosopher, Yogi Berra, once observed that it is

dangerous to make predictions, especially about the future.

That piece of wise advice certainly applies to predictions

about wars and their aftermath, and I am reluctant to try to

predict anything about what the cost of a possible conflict in

Iraq would be--what the possible cost of reconstructing and

stabilizing that country afterwards might be. But some of the

higher-end predictions that we have been hearing recently, such

as the notion that it will take several hundred thousand U.S.

troops to provide stability in post-Saddam Iraq, are wildly off

the mark.

First, it is hard to conceive that it would take more

forces to provide stability in a post-Saddam Iraq than it would

take to conduct the war itself and to secure the surrender of

Saddam's security forces and his army--hard to imagine.

Second, in making predictions, one should at least pay

attention to past experience. And in the case of Iraq, we have

some recent experience to look to. The northern third of Iraq

has been liberated from Saddam Hussein's grasp since Operation

Provide Comfort, which we undertook just 1 month after the

cease-fire of the Persian Gulf war in 1991.

By the way, our current Supreme Allied Commander in Europe,

Gen. Jim Jones, was a colonel commanding a Marine battalion in

that operation.

After that operation, we withdrew our ground forces from

northern Iraq completely in the fall of 1991, and in the 12

years since then, we have not had any forces--emphasize, ``any

forces''--on the ground there. And yet the northern third of

Iraq has remained reasonably stable even though, sadly, it is

subjected to the same economic sanctions that have been applied

to the rest of the country, and even though the people there

live under daily threat from Saddam's military, from Saddam's

security forces, and for the last year and a half, from an al

Qaeda cell that operates in northeastern Iraq called Ansar al-

Islam.

In fact, even the U.S. air presence, which we have

maintained over northern Iraq, is not necessary to keep peace

among the people of northern Iraq, but to keep Saddam Hussein

out.

There are other differences that suggest that peacekeeping

requirements in Iraq might be much lower than our historical

experience in the Balkans suggest. There has been none of the

record in Iraq of ethnic militias fighting one another that

produced so much bloodshed and permanent scars in Bosnia, along

with a continuing requirement for large peacekeeping forces to

separate those militias. And the horrors of Iraq are very

different from the horrific ethnic cleansing of Kosovars by

Serbs that took place in Kosovo and left scars that continue to

require peacekeeping forces today in Kosovo.

The slaughter in Iraq, and it is has been substantial, has

unfortunately been the slaughter of people of all ethnic and

religious groups by the regime. It is equal-opportunity terror.

Third, whatever numbers are required--and I emphasize I am

not trying to make a prediction, but I will say, there is no

reason, there is simply no reason to assume that the United

States will or should supply all of those forces.

Many countries have already indicated to us, some of them

privately, a desire to help in reconstruction of post-Saddam

Iraq, even though they may not want to be associated with

Saddam's forcible removal.

Indeed, remember that we are talking about one of the most

important countries in the Arab world, with not only enormous

natural resources that we keep hearing about, but equally

importantly, I would say more importantly, extraordinary human

resources.

I would expect that even countries like France will have a

strong interest in assisting Iraq's reconstruction.

Moreover, the Iraqis themselves can provide a good deal of

whatever manpower is necessary. We are training free Iraqi

forces to perform functions of that kind, including command of

Iraqi units, once those units have been purged of their

Baathist leadership.

But the fourth and most fundamental point is that we go

back to Yogi Berra. We simply cannot predict. We have no idea

whether weapons of mass terror will be used. We have no idea

what kind of ethnic strife might appear in the future, although

as I have noted, it has not been the history of Iraq's past. We

do not know what kind of damage Saddam Hussein will wreak on

Iraq's oil fields or its other infrastructure.

On the other side, we can't be sure that the Iraqi people

will welcome us as liberators, although based on what Iraqi-

Americans told me in Detroit a week ago, many of them, most of

them with families in Iraq, I am reasonably certain that they

will greet us as liberators, and that will help us to keep

requirements down.

In short, we don't know what the requirements will be. But

we can say with reasonable confidence that the notion of

hundreds of thousands of American troops is way off the mark.

I would like to add also, there is a danger in making

single point estimates. It is not just an intellectual and

analytical danger that you can't predict the future; this is a

particularly bad time to be publishing specific numbers,

because official numbers become part of our declaratory policy.

And single point estimates right now about the possible

costs of the conflict, or about the possible length and size of

a postwar reconstruction effort, could be misinterpreted. Think

about that issue. The best estimate of what we will need, post-

Saddam Hussein, is what the President and Secretary Powell and

Secretary Rumsfeld have been saying: we will stay as long as

necessary and leave as soon as possible.

I understand that that is a frustrating estimate for people

who want a single point estimate of the future. But, it is the

truth. Moreover, stop and think about it from an Iraqi point of

view. They want to know that they won't be abandoned, that we

will do what is needed for postwar reconstruction.

For that purpose, large numbers for long periods of time

have a reassuring quality. On the other hand, they also want to

know that we are coming as liberators and not as occupiers.

From that point of view, they would prefer to hear that we

won't be there in large numbers for very long.

Fundamentally, we have no idea what is needed unless and

until we get there on the ground. There will be appropriate

times for making public estimates, along with a range of

assumptions that lead to them. But this delicate moment, when

we are assembling a coalition, when we are mobilizing people

inside Iraq and throughout the region to help us in the event

of war, and when we are still trying through the United Nations

and by other means to achieve a peaceful solution without war,

is not a good time to publish highly suspect numerical

estimates and have them drive our declaratory policy.

Let my say something else, if I may, Mr. Chairman, to put

the costs of war into some context; and then I will wrap up

with one other comment. The possible cost of war in Iraq ought

to be considered in the context of America's other

international undertakings of recent years. We must remember

that there is a cost of containment in both dollars as well as

risk to our national security. We have been doing some

preliminary estimates--I emphasize they are preliminary, and

until I am confident of the assumptions I wouldn't want to

swear by them. But our preliminary estimate is that it has cost

us slightly over $30 billion to maintain the containment of

Saddam Hussein for the last 12 years. And it has cost us far

more than money, because as I think many of you know, it is

that American presence in the holy land of Saudi Arabia and the

sustained American bombing of Iraq as part of that containment

policy that have been Osama bin Laden's principal recruiting

device, even more than the other grievances he cites. I can't

imagine anyone here wanting to spend another $30 billion to be

there for another 12 years to continue helping recruit

terrorists.

Furthermore, it is worthwhile to consider what we might

spend on reconstruction in Iraq against what we have already

spent in Bosnia and Kosovo.

Again, these are very preliminary estimates, but the

estimates already, so far, in Bosnia and Kosovo are that we

have spent somewhere between $12 [billion] and $15 billion. I

think that is a worthwhile expenditure, but our purposes in

those two places are largely humanitarian. Iraq presents a case

of direct threat to the security of the United States and our

allies, and a key to the future of one of the most important

regions in the world.

Indeed, I believe the most significant cost associated with

Iraq, which is very, very difficult to estimate, is the cost of

doing nothing. The simple truth is, disarming Iraq and fighting

the war on terror are not merely related; disarming Iraq's

arsenal of terror is a crucial part of winning the war on

terror. If we can disarm or defeat Saddam's brutal regime in

Baghdad, it will be a defeat for terrorists globally, and the

value of such a victory against a terrorist regime will be of

incalculable value in the continuing war on terrorism.

Mr. Chairman, let me spare a good deal of the rest, you can

read it, but I would like to just have a minute on this

business of transforming the business on defense. We are

working hard not only to spend more, as we are doing, but to

spend more wisely.

Much has happened as the President directed us to do. Much

has happened in the last 2 years within our department to

realize the President's mandate. But we also have a challenge

that we share with you. In consultation with Members of

Congress, including members on this committee, and many more

that we hope to talk to in coming weeks, we are trying to

develop an agenda for change that both the executive branch and

the Congress can agree on that will streamline and modernize

how the Department of Defense manages people, buys weapons,

uses training ranges and manages money.

In an age when terrorists move information at the speed of

an e-mail and money at the speed of a wire transfer, the

Defense Department is bogged down in micromanagement and

bureaucratic processes of the industrial age. We have created a

culture that too often stifles innovation. The major obstacles

faced by us all in making the broad transition that is

necessary, include reforming an antiquated personnel structure,

both civilian and military, increasing flexibility in managing

money and managing the Department, reforming broken acquisition

processes, and requirements and resource processes.

Mr. Chairman, we are fighting the first wars of the 21st

century with a Defense Department that was fashioned to meet

the challenges of the mid 20th century. We have an industrial

age organization, but we are living in an information age

world, where new threats emerge suddenly, often without

warning, to surprise us.

Last year, Congress and the administration faced up to the

fact that our government was not organized to deal with the new

threats to the American homeland and created a new Department

of Homeland Security. We must now address the Department of

Defense.

Many of the obstacles we face today are self-imposed. Where

we have the authority to fix those problems, we are working

hard to do so. For example, we are modernizing our financial

management structures to replace some 1,900 information

systems. We are doing many things, and even more than I have

mentioned in my testimony. But to get the kind of agility and

flexibility required in the 21st century security environment,

we also need some legislative relief, and for that we need your

help.

We must work together, Congress and the administration, to

transform not only the U.S. Armed Forces, but the Defense

Department that serves them and prepares them for battle. The

lives of the servicemen and -women in the field, and of our

friends and families here at home, depend on our ability to do

so.

Mr. Chairman, let me conclude with that, I think you want

to get to your questions.

[The prepared statement of Deputy Secretary Wolfowitz

follows:]

Prepared Statement of Hon. Paul D. Wolfowitz, Deputy Secretary, U.S.

Department of Defense

Mr. Chairman and members of the committee, I welcome this

opportunity to return this year to give you a brief overview of the

fiscal year fiscal year 2004 defense budget request and address your

questions at this critical time for America and the world.

defense budget topline

The President's budget requests $379.9 billion for the Department

of Defense for fiscal year 2004, a $15.3-billion increase over last

year's enacted level. The budget projects that the DOD topline will, in

real terms, grow about 2.5 percent per year through 2008.

This fiscal year 2004 defense budget is indeed large and it will

grow larger, even without factoring in likely costs for continuing the

war on terrorism. But by historical standards, this budget is a

sustainable defense burden--one that is significantly less than the

burden we sustained throughout the cold war. Moreover, this is a

wartime defense budget needed to help us wage the global war against

terror. Fiscal year 2004 DOD outlays will be 3.4 percent of our gross

domestic product (GDP) and 16.6 percent of total Federal outlays--both

well below their levels at any time during the cold war. Another fact

to remember is that about 45 percent of the defense budget goes to

cover the personnel costs for our magnificent men and women in

uniform--many of whom are now in harm's way as they fight the war

against terror--and the civilians who support them. Despite great

efforts to try to limit increases in personnel, we have had to activate

a significant number of the reserve component to meet our warfighting

tasks. It is hard to imagine how we could reduce costs by cutting force

structure at this time.

This proposed $15.3-billion increase is sizable. But each year much

of any DOD topline hike is consumed by what could be termed ``fact of

life'' increases--most significantly, pay raises and nonpay inflation.

In the fiscal year 2004 request, over $8.5 billion of the $15-billion

increase is for such increases: $4.2 billion for military and civilian

pay raises and $4.3 billion to cover non-pay inflation.

Some critics say the U.S. defense budget is higher than necessary

because it exceeds that of all our possible adversaries combined. But

we must defend against real threats, not budget accounts. The defense

budget of the Taliban was an insignificant fraction of ours, yet that

regime proved to be a major threat to America. Indeed, in an era of

proliferation and asymmetric threats, we must have the ability to

confront a potentially wide range of threats. Moreover, when we send

our forces into combat, we want them to have the kind of overwhelming

advantage that minimizes casualties and provides for decisive

victories, not the bare margin necessary for a close win. Thus,

comparative national defense budgets are an inappropriate standard for

measuring whether our defense capabilities are adequate to confront a

21st century security environment of uncertain and asymmetric threats.

The only reasonable evaluation of a U.S. defense budget is its

ability to cover the range of uncertain risks that threaten America's

vital interests. Besides their horrific human toll, the September 11

attacks cost our Nation billions, in both physical destruction and

damage to our economy. Direct costs of September 11 already exceed $100

billion. Another such catastrophe could cost much more--especially if

attackers use weapons of mass destruction.

The President's defense budget is sustainable. Within its topline,

the proposed budget funds a strong, strategy-driven program that

supports both short-term and long-term requirements. Our multi-year

program is sustainable first because we have insisted on realistic

budgeting--especially for acquisition programs and readiness

requirements. Second, we made hard choices--most notably, by

restructuring acquisition programs--to ensure that they are executable

within our projected topline. For fiscal year 2004-09 the Department

shifted over $80 billion from previous budget plans into acquisition

programs that support a strategy of transforming our military. These

hard choices in the fiscal year 2004 budget request will reduce the

cost risks to the DOD topline that were highlighted in a recent

Congressional Budget Office report, which does not reflect the work we

did preparing this budget request.

Our commitment to realistic budgeting includes properly funding

investment programs based on independent cost estimates.

This practice not only protects our future readiness, it also

protects our near-term readiness because training and operations funds

are no longer a billpayer for underfunded investment programs.

funding the costs of war

The same rigorous planning and tough decision making used in our

budget preparation are being applied to our execution of the war on

terrorism and to preparations for a possible war in Iraq. Our military

and civilian planners are working exceedingly hard to ensure that our

scarce personnel and budgetary resources are directed to the highest

priorities and that all alternatives are exhaustively assessed. Still,

war is fraught with uncertainty and that makes all predictions of

future war costs highly uncertain.

The President's proposed budget does not estimate the incremental

costs of a possible war with Iraq, nor does it request contingency

funding to cover them. Such estimates are so dependent on future,

unpredictable circumstances as to be of little value. However, we are

doing everything possible in our planning now to make post-conflict

recovery smoother and less expensive should the use of force become

necessary. As in Afghanistan, we would seek and expect to get allied

contributions, both in cash and in kind, particularly for the

reconstruction effort in a post-Saddam Iraq.

The possible cost of war in Iraq should be considered in the

context of America's other international undertakings of recent years.

We must remember that there is a cost of containment in both dollars as

well as risk to our national security.

While the United States has judged it worthwhile to expend some

very significant amounts on the efforts in Bosnia and Kosovo where our

purposes are largely humanitarian, Iraq presents a case of direct

threat to the security of the United States and our allies. Indeed, I

believe the most significant cost associated with Iraq is the cost of

doing nothing. The simple truth is, disarming Iraq and fighting the war

on terror are not merely related; disarming Iraq's arsenal of terror is

a crucial part of winning the war on terror. If we can disarm or defeat

Saddam's brutal regime in Baghdad, it will be a defeat for terrorists

globally. The value of such a victory against a terrorist regime will

be of incalculable value in the continuing war on terrorism.

balancing near-term requirements and long-term transformation

The President's budget is designed to do two very important things

at the same time. First, it funds the readiness and capabilities needed

to fight the war on terrorism and meet other near-term requirements.

Second, it advances the long-term transformation of the U.S. military

and defense establishment, both critical to enabling us to counter 21st

century threats most effectively. Thus our challenge is to fight the

war on terrorism at the same time we are transforming. We have to do

both. Although facing near-term funding pressures, we nevertheless must

invest for the future--otherwise we undoubtedly will have to pay more

later--in dollars, in economic losses, and perhaps even in lives.

Transformation overview: Transformation is a process that DOD is

using to overhaul the U.S. military and defense establishment.

Transformation is about new ways of thinking, fighting, and managing

the Department's scarce resources.

The fiscal year 2004 budget reflects the Department's new way of

thinking, first articulated in our 2001 Quadrennial Defense Review and

intensively developed since then. That new way of thinking is now being

implemented in visionary warfighting operational concepts, a

restructured unified command plan, and transformational military

capabilities such as unmanned aerial vehicles and new generations of

satellite communications.

Transforming U.S. military capabilities: Transformation is more

about changing the way people think, the way they do things, and what

is commonly called ``culture'' than it is about budgets. But, of

course, budgets matter. In DOD budgets, military transformation is

reflected primarily in our investment programs--i.e., in programs

funded in the appropriations titles of Research, Development, Test, and

Evaluation (RDT&E) and Procurement. Through such funding, new military

systems are being developed and fielded--to achieve a new portfolio of

military capabilities to decisively combat the full spectrum of threats

to U.S. security.

To appreciate the impact of the Department's investment on

transforming our military capabilities, one must look at programs, not

simply funding levels. The key is not simply how much we are investing,

but whether we are investing in the right areas.

Given the immediate risk of terrorism and other non-traditional or

asymmetric threats, we must be able to develop new capabilities while

selectively modernizing current ones. The war on terrorism demonstrates

that we need to be prepared to face both traditional and non-

traditional threats.

We must be able to fight against conventional weapons systems as

well as be prepared for the use of weapons of mass destruction against

our troops or here at home. Countering such threats will require a

carefully planned mix of capabilities.

Indicative of the Department's strong emphasis on transformation,

the military services have shifted billions of dollars from their older

multi-year budget plans to new ones--as they have terminated and

restructured programs and identified important efficiencies. For fiscal

year 2004-09, the military services estimate that they have shifted

over $80 billion to help them transform their warfighting capabilities

and support activities.

Some examples of cancellations, slow-downs or restructured programs

include the following:

<bullet> The Army came up with savings of some $22 billion over the

6-year FYDP, by terminating 24 systems, including Crusader, the Bradley

A-3 and Abrams upgrades, and reducing or restructuring another 24

including Medium Tactical Vehicles. The Army used these savings to help

pay for new transformational capabilities, such as the Future Combat

Systems.

<bullet> The Navy reallocated nearly $39 billion over the FYDP, by

retiring 26 ships and 259 aircraft, and integrating the Navy and Marine

air forces. They invested these savings in new ship designs and

aircraft.

<bullet> The Air Force shifted funds and changed its business

practices to account for nearly $21 billion over the FYDP. It will

retire 114 fighter and 115 mobility/tanker aircraft. The savings will

be invested in readiness, people, modernization and new system starts

and cutting edge systems like unmanned aerial vehicles (UAVs) and

unmanned combat aerial vehicles (UCAVs).

Transforming the Business of Defense: We know we must become more

efficient in our business practices and get more out of our defense

budget by transforming the way we operate in the Department of Defense.

President Bush gave the Department of Defense ``a broad mandate to

challenge the status quo and envision a new architecture of American

defense for decades to come.'' The goal, he said, is ``to move beyond

marginal improvements--to replace existing programs with new

technologies and strategies.'' Doing this, he said, ``will require

spending more--and spending more wisely.'' Much has happened in the

last 2 years to begin realizing that mandate.

In response to this challenge, the Department of Defense is

developing an agenda for change that--once approved by the President--

will require the concerted effort of many--both inside the Department

and in Congress. The agenda advances the process of streamlining and

modernizing how the Department of Defense manages people, buys weapons,

uses training ranges and manages money.

Most agree that to win the global war on terror, our Armed Forces

need to be flexible, light and agile--so they can respond quickly to

sudden changes. The same is true of the men and women who support them

in the Department of Defense. They also need to be flexible and agile

so they can move money, shift people, and design and buy new weapons

quickly, and respond to sudden changes in our security environment.

In an age when terrorists move information at the speed of an

email, money at the speed of a wire transfer, and people at the speed

of a commercial jetliner, the Defense Department is bogged down in the

micromanagement and bureaucratic processes of the industrial age. Some

of our difficulties are self-imposed, to be sure. Some are the result

of law and regulation. Together they have created a culture that too

often stifles innovation.

We are working, instead, to promote a culture in the Defense

Department that:

<bullet> Rewards unconventional thinking;

<bullet> Gives people the freedom and flexibility to take risks and

try new things;

<bullet> Fosters a more entrepreneurial approach to developing

military capabilities; and

<bullet> Does not wait for threats to emerge and be ``validated,''

but anticipates them before they emerge, and develops and deploys new

capabilities quickly.

The major obstacles faced by us all in making that broad a

transition include:

<bullet> Antiquated personnel structure--both civilian and

military;

<bullet> Lack of flexibility in managing money and managing the

department;

<bullet> Support structures that are outdated, slow and inflexible;

and

<bullet> Broken acquisition, requirements and resource processes.

We are fighting the first wars of the 21st century with a Defense

Department that was fashioned to meet the challenges of the mid-20th

century. We have an industrial age organization, yet we are living in

an information age world, where new threats emerge suddenly, often

without warning, to surprise us.

Last year, Congress and the administration faced up to the fact

that our government was not organized to deal with the new threats to

the American homeland. Congress enacted historic legislation to create

a new Department of Homeland Security and rearrange our government to