more important, it was your leadership that brought a new approach to our defense strategy and the transformation of our Armed Forces into focus. I know these times have been both a professional and personal challenges. I thank you for your dedication and leadership and look forward to the changes you will make within the Department of Defense.

Mr. Chairman, the President's budget request for fiscal year 2003 is the largest increase to the defense budget since 1981. It represents nearly a 30 percent increase over the 1998 defense budget which was the first major increase to the defense budget since the end of the Cold War. The proposed $379 billion for fiscal year 2003 is a huge investment in defense and in my judgement one that is long overdue. Although I support the funding level, I am concerned about some specifics that I have read and heard in the media. It appears that we are still dedicating significant resources toward procuring legacy type systems. I hope that once we receive the details on the budget this perception is wrong and that there is a focus on developing the technology and systems that will equip our soldiers, sailors, airmen, and marines with the capability they need to fight the battles of the future.

Although equipping our forces is critical, we must not neglect the quality of life of our military personnel and their families. Last year's budget provided a significant increase in military construction funding, I am disappointed that this year's budget does not keep pace with that level of funding. The living and working conditions that we provide to our men and women in uniform are as critical to their war fighting capability and morale as the latest weapon systems. I urge the committee to carefully review the proposed construction program and make the changes required to ensure it meets the critical needs of our personnel.

Mr. Chairman, I look forward to another productive year and a continued close relationship with our two distinguished witnesses. We all have a common goal of ensuring the security of our Nation and nothing must interfere with achieving that aim.

Before I close, I want to pay tribute to our Armed Forces and the men and women who daily risk their lives in the service of our Nation. I especially want to express my condolences to the families of the men and women who have made the ultimate sacrifice in the service of our Nation. God bless them all.

Thank you, Mr. Chairman.

Chairman LEVIN. Thank you, Senator Warner.

There is going to be a vote at 10:30. My plan is that we will continue the hearing right through that vote, and hopefully enough of us can vote early so we can get back in time to pick up. After the opening statements of Secretary Rumsfeld and General Myers, there will be a 6 minute round of questions for each Senator on the basis of the early bird rule.

Again, we give Secretary Rumsfeld, General Myers, and Dr. Zakheim a very warm welcome. Secretary Rumsfeld.

STATEMENT OF HON. DONALD H. RUMSFELD, SECRETARY OF DEFENSE; ACCOMPANIED BY HON. DOV S. ZAKHEIM, COMP. TROLLER, DEPARTMENT OF DEFENSE

Secretary RUMSFELD. Thank you very much, Mr. Chairman and members of the committee. I certainly want to join the chairman and Senator Warner in expressing our appreciation to the men and women in the Armed Forces. They are, as you said, doing an absolutely superb job. You cannot travel anywhere in the world or in this country and visit with them and not come away with a great deal of energy, pride, and confidence.

I also want to say that from the first day on September 11 when Senators Levin and Warner arrived at the Pentagon, we recognized the very strong bipartisan support that this committee has given the Department of Defense. We recognize it, appreciate it, and value it. Thank you.

I have submitted a fairly lengthy statement for the record, which I will not read through. I have some other remarks that I would like to deliver at this point.

Chairman LEVIN. Your statement will be made part of the record. Secretary RUMSFELD. Thank you, sir.

The events of September 11 shattered many myths, including the illusion that the post-Cold War world would be one of extended peace, where America could stand down, cut defense spending, and focus our resources and attention on domestic and personal priorities. We learned on September 11, that that really is not the case. When the Cold War ended, a defense drawdown took place that went too far. In my view it overshot the mark. Many on this committee of both parties fought an uphill battle to provide the resources the Department needed. With the benefit of 20-20 hindsight, the reality is that our country spent much of the 1990s living off the investments that the American people made during the 1980s.

Through the prism of September 11 we can now see that our challenge today is not simply to fix the underfunding of the past, but it is to accomplish several difficult missions at once: win the worldwide war on terrorism; restore capabilities by making delayed investments in procurement, people, and modernization; and prepare for the future by transforming the defense establishment to fit the 21st century.

There are some who say this may be too much to ask, that any one of these challenges is daunting and tackling them all at once is not a good idea. I disagree. I think we can do it and I think we must do it.

Our adversaries are watching what we do. They are studying how we have been successfully attacked, how we are responding, and how we may be vulnerable in the future. We stand still at our peril.

For these reasons, President Bush has sent to Congress a 2003 defense budget request of $379 billion, a $48 billion increase from the 2002 budget. He includes $19.4 billion for the war on terrorism; a $10 billion contingency fund; and $9.4 billion for a variety of programs related to the war, a good portion of which goes to force protection here in the United States, which is at a totally different level than it has previously been.

That is a great deal of hard-earned tax dollars. But let me try to put it in context. Last year, before this committee, I said that a decade of overuse and underfunding had left us in a hole sufficiently deep that the President's 2002 budget, which also had a significant increase, still left shortfalls in a number of critical areas, including infrastructure, procurement, and operations and maintenance. Moreover, I advised this committee that just to keep the Department going in 2003 on a straight line basis with no improvements, simply covering the costs of inflation and realistic budgeting, we estimated that the DOD would require a budget of $347 billion, an $18.3 billion increase over 2002.

Well, as high as it may have sounded then, it turned out that that estimate was a bit low. If you combine the cost of inflation plus military health care, retirement benefits, pay increase, realistic estimates for weapons costs, and readiness and depot mainte

nance, then the correct figure just to have a straight line over 2002 is $359.4 billion.

When one adds that to the $19.4 billion in this budget for the war on terrorism, the total comes to $378 billion out of a request of $379 billion. That is a significant investment. We are investing it differently. We are accelerating programs we consider transformational and made program adjustments to achieve something in the neighborhood of $9.3 billion in proposed savings and adjustments to be used for transformation and other pressing requirements.

At the same time, we are fully funding those areas we must in order to continue reversing years of underinvestment in people, readiness, and modernization.

The 2003 budget request before you was guided by the result of last year's defense strategy review. Given the questions that some people posed last year, I must say that it is really quite remarkable what the people in the Department of Defense have accomplished. In 1 year, 2001, the Department has developed and adopted a new defense strategy; replaced the decade-old two major theater war construct for sizing our forces with a new approach much more appropriate to the 21st century; and adopted a new approach for balancing war risks, as opposed to people risks, against the risks of not modernizing sufficiently. It is not an easy thing to do because we are comparing apples and oranges, but the Department has worked mightily to try to do a much better job than has been the case in the past-reorganized and revitalized the missile defense research and testing program.

We have reorganized the Department to better focus on space capabilities. Because of the nuclear posture review mandate adopted by Congress, we have adopted a new approach to strategic deterrence that increases our security while allowing deep reductions in strategic nuclear weapons. As you pointed out, Mr. Chairman and Senator Warner, within a week or so we will present to the President a new unified command structure.

All this was done with about half of our leadership being new during the first half of the year and while conducting the war on terrorism. That is not bad for a defense establishment, military and civilian, public and private, executive and legislative, that has a reputation for being impossibly resistant to change. I think that is quite a year.

When I look back on that challenging year, I feel we made good progress, thanks to the superb work of the men and women in the Department who have put forth an enormous effort.

In the course of the defense reviews, we identified six key transformational goals around which we will focus our defense strategy. They are: First, to protect the homeland and forces overseas; Second, to project and sustain power in distant theaters;

Third, to deny enemy sanctuary;

Fourth, to protect information networks from attack;

Fifth, to use information technology to link up U.S. forces so that they can truly fight jointly; and

Sixth, to maintain unhindered access to space and to protect U.S. space capabilities from enemy attack.

The President's 2003 budget requests advances in each of these six transformational goals. With respect to protecting bases of operation and homeland defense, the President's budget requests a number of programs, including a refocused missile defense research, development, and testing program and the development of biological defenses. It requests about $8 billion for programs to support defense of the homeland and forces overseas, $45.8 billion over the 5-year Future Years Defense Plan (FYDP), which is an increase of about 47 percent.

Denying the enemy sanctuary: This budget requests $3.2 billion for programs to support this objective and $16.9 billion over the 5 years, an increase of 157 percent.

Projecting power in denied areas: Today in many cases U.S. forces depend on vulnerable foreign bases to operate, creating incentives for adversaries to develop access denial capabilities to keep us out. The 2003 budget requests $7.4 billion for programs to help ensure the ability to project power over long distances and $53 billion over the 5-year period, an increase of 21 percent.

Leveraging information technology: A key transformational goal is to leverage advances in information to seamlessly connect U.S. forces in the air and on the sea and ground. The President's budget requests $2.5 billion for programs to support this objective or $18.6 billion over the 5 years, an increase of 125 percent.

Conducting effective information operations: As information warfare takes an increasingly significant role in modern war, our ability to protect our networks and to attack and cripple those of an adversary will be critical. The President's 2003 budget requests $174 million for programs to support this objective and $773 million over the 5-year period, an increase of 28 percent.

Last, strengthening space operations: From the dawn of time, a key to victory on the battlefield has been to control the high ground. Space is indeed the ultimate high ground. The 2003 budget requests about $200 million to strengthen space capabilities and $1.5 billion over the 5-year period, an increase of 145 percent.

Of course, we cannot transform the military in 1 year or even in a decade, nor would it be wise to do so. Rather, we intend to transform some relatively modest percentage of the force, turning it into the leading edge of change that will over time lead the rest of the force into the 21st century.

Moreover, investments in transformation cannot be measured in numbers alone. Transformation is not about weapons systems particularly. It is more about changing how we think about war. All the high-tech weapons in the world will not transform our Armed Forces unless we transform the way we think, train, exercise, and fight.

Modernization, procurement, and readiness: As we have transformed for the threats we face, we also have to prepare our forces for conflicts that we may have to fight during this decade by improving readiness, increasing procurement, and selectively modernizing. To deal with the backlog that resulted from the procurement holiday of the last decade, we have requested some $68.7 billion for procurement in the 2003 budget. That is an increase of about 10 percent over 2002. Procurement is projected to grow steadily over the 5-year defense program to more than $98 billion

in 2007, and it will increasingly fund transformation programs over the period of time.

We have requested $150 billion for the operations and maintenance account in fiscal year 2003, including substantial funding for the so-called readiness accounts of tank miles, steaming days, and flying hours for the services.

If we are to win the war on terror and prepare for tomorrow, we have to take care of the Department's greatest asset, the men and women in uniform. We are competing with the private sector for the best young people our Nation offers, and we cannot simply count on their patriotism and willingness to sacrifice alone to attract them. That is why the President's 2003 budget requests some $94 billion in military pay and allowances, including a $1.9 billion across the board 4.1 percent pay increase; $300 million for targeted pay raises for the mid-grade officers and non-commissioned officers (NCOs); $4.2 billion to improve military housing, putting the Department on track to eliminate most substandard housing by 2007; funds to lower out-of-pocket housing costs for those living off base from 11.3 percent to 7.5 percent in 2003, putting us on the track to eliminate out-of-pocket housing costs for the men and women in uniform by 2005; and $10 billion for education, training, and recruitment, as well as a breathtaking $22.8 billion to cover the realistic costs of military health care.

Smart weapons are worthless unless they are in the hands of smart, well-trained, highly-motivated soldiers, sailors, airmen, and marines. While this budget includes proposed increases in a number of areas, it also includes a number of savings. We are committed to pursuing what works and stopping what does not. For example, we terminated the Navy Area Missile Defense program because of delays, poor performance, and cost overruns. We are proceeding towards a goal of a 15 percent average reduction in headquarters staff and the Senior Executive Council of the Department is seeking additional ways to ensure that we manage the Department more efficiently.

We need to save more, but two things make it difficult. First was the decision not to make deep cuts in manpower. Now, in the midst of a war on terror whose final dimension is still unknown, we do not believe is the time to be cutting manpower. We now have 60,000 Guard and Reserves that have been called up and another 10,000 who have been held in the service, for a total of 70,000 people.

It is interesting to note that the largest theater for the United States is not Afghanistan today; it is Salt Lake City and the environs where we have people there for the Olympics. We literally have more people in the area around Salt Lake City for the Olympics than we do in Afghanistan.

Second, Congress' decision to put off base closures for a couple of years means that the Department will have to continue supporting between 20 to 25 percent more infrastructure than we believe is needed for the force. I know this committee was forceful in urging base closing and we appreciate that. It is a fact, however, that with the 2-year delay we have to continue providing force protection for the bases even though we believe a substantial number of