the bases, something in the neighborhood of 20 to 23 percent, are not currently needed.

I have another concern, Mr. Chairman, and it is a hard thing to specify because no one congressional earmark is critical. Each one looks reasonable. But when one looks at the changes made, some 2022 individual programs and line items, the effect of it overall means that fairly substantial portion of the budget that we proposed last year was changed. I think it is something like 13 percent of all research, development, test and evaluation programs, some 995 changes, 8.6 percent of all the procurement programs-436 individual changes, and 15 percent of all military construction, or 146 changes.

Congress clearly has the constitutional right to do that. There is no question about that. Any one of these individual earmarks when looked at seems very reasonable. I do think, however, it is important for all of us to step back and look at them in the aggregate and ask what the effect of that is year after year and if that is really the way we feel it is best to conduct our business.

After counting the costs of keeping the Department moving on a straight line and the costs of the war and the savings generated, we are left with about $9.8 billion, so-called free money to invest in transformational activities. It is a lot of money, but it requires us to make a lot of difficult tradeoffs.

Just to get it up on the table before we start, we were not able to meet our objective of lowering the average age of tactical aircraft. We are investing in unmanned aircraft, the F-22, and the Joint Strike Fighter, which require significant up-front investments, and will be coming on the line in future years. But in the current year, the average age of aircraft will not be declining as we had hoped.

Second, while the budget funds faster growth in science and technology, we were not able to meet our goal of 3 percent of the overall budget, though we are slightly higher than the President's request from 2002.

Third and most importantly, we clearly were not able to fund shipbuilding at a replacement rate in 2003, and we must do that in the future. As with every Department, the Department of the Navy had to make choices, and I know they will be up here next week to discuss the choices they made where they decided to place more money in operations and maintenance and other accounts than in shipbuilding.

The fiscal year 2003 shipbuilding budget is $8.6 billion. It procures five ships. This is for several reasons. First, there are a number of problems, including contractor problems. But also, past shipbuilding cost estimates were off and they needed to be funded. So this year's shipbuilding budget is funding some of the cost increases that were not budgeted from prior years.

Second, the Navy made a calculation that in the short term we can maintain the desired Navy force level at the proposed procurement rate because of the relatively young age of the fleet. A lot of the ships were purchased during the 1980s and the average age of the Navy, I am told, is at or is slightly better than the average age that is expected and targeted. They felt it is more important now to deal with significant needs that have been underfunded in re

cent years, such as shortfalls in munitions, spare parts, and steaming hours, which are fully funded in this budget.

Further, we are investing significant sums in nuclear-powered cruise missile attack submarine (SSGN) conversions, which do not count in ship numbers because while they give us new capabilities, they do not buy new ships as such.

The Navy's future year defense plan budgets 5 ships in 2004, 7 in 2005, 7 in 2006, and 10 in 2007.

Finally, the $379 billion that we are talking about here is a great deal of money, but consider that New York City's Comptroller's Office has estimated that the local economic cost of the September 11 attack in New York City alone will add up to about $100 billion; estimates of the cost to the national economy range to about $170 billion last year; estimates range as high as almost $250 billion a year in lost productivity, sales, jobs, airline revenues, and advertising; and most importantly the loss in human lives and the pain and suffering of so many thousands of Americans who lost husbands, wives, fathers, mothers, sons, daughters, sisters, and broth

ers.

The President's proposed defense budget amounts to about 3.3 percent of our gross domestic product. When I came to Washington in 1957, during the sixties, and in the Eisenhower and Kennedy era, we were spending about 10 percent of our gross national product on defense. It is about 3.3 percent in this budget proposal. In those days we were spending over 50 percent of the Federal budget on defense. This budget proposes that we spend, I believe, 16.9 percent of our Federal budget on defense.

I point that out because there has been a mistake repeated throughout history that free nations tend to recognize the need to invest in their Armed Forces only after a crisis has already arrived. In 1950, just 5 years after the allied victory in World War II, General Omar Bradley urged President Truman to spend $18 billion on defense. The service chiefs gave an even higher estimate to Congress, around $23 billion. The services' estimate was still higher, around at $30 billion.

President Truman concluded that the country could not afford anything more than $15 billion. The fact was that 6 months later we were at war in Korea, and just as suddenly we found that we could in fact afford, not just $18 billion, but $48 billion, a 300 percent increase, because the war was on.

We need to work together to see that our country makes the investments necessary to deter wars, not just to win them. Let us do so with our experience on September 11 in mind and with a renewed commitment to ensure that once the fires burn out, the war ends, and the Nation rebuilds that we will not forget the lessons learned at the cost of so many innocent lives and we will not go back to the old ways of doing things.

Thank you, Mr. Chairman.

[The prepared statement of Secretary Rumsfeld follows:]

PREPARED STATEMENT BY HON. DONALD H. RUMSFELD

INTRODUCTION

Mr. Chairman, members of the committee.

On September 11, terrorists attacked the symbols of American freedom, prosperity, and military might killing thousands. In just a few short weeks, the United States responded. We built coalitions, positioned our forces, and launched devastating military strikes against Taliban and al Qaeda strongholds in Afghanistan. Before the fires at the World Trade Center burned out, the Taliban had been driven from power and the terrorists were on the run.

We are still in the early stages of a long, dangerous, and global war on terrorism. But while much work remains, we can take notice of the achievements of our brave men and women in uniform, who have accomplished so much in so little time-and who, at this moment, continue to risk their lives in dangerous corners of the world. September 11 changed our Nation forever. As time passes and wounds heal, we should not forget the horror of what befell us that day, and go back to old ways of doing things. We owe it to those who died September 11 and those who will come after us to ensure that our Nation learns-and heeds-the lessons of that fateful day.

The events of September 11 shattered many myths-among them, the illusion that the post-Cold War world would be one of extended peace, and that after four decades on high alert, America could relax, stand down, and cut defense spending. We learned on September 11 that this is not the case and that all the things that we Americans hold dear-freedom, security, prosperity-all these are made possible by the peace and stability our Armed Forces provide. To preserve these precious gifts, we need to invest in the capabilities that the men and women of the Armed Forces need to defend our country and our interests.

This truth was well understood during the Cold War. Then, Americans lived with the knowledge that a dangerous adversary had thousands of missiles on hair-trigger alert, pointed at their homes, schools, and places of work. We spent what was necessary for the Armed Forces to deter that adversary, defend our people, and contribute to peace and freedom. We succeeded.

But when the Cold War ended, so did the consensus behind a robust investment in our national defense. A defense drawdown took place that went too far-overshooting the mark by a wide margin. Many on this committee, Democrats and Republicans alike, fought an uphill battle to secure the resources needed. Hindsight is 20/20, and the truth is that we spent much of the 1990s living off of the investments made during the Cold War, instead of making the new investments needed to address the fast-approaching threats of this new century.

Our military was asked to do the impossible: to stay ready for near-term threats, take on a range of new missions, and prepare for the 21st century-all this while absorbing sizable budget cuts. They did their best-they always do-but to meet the near-term challenges, they were forced to put off critical investments in people, modernization, and the future. Every year those investments were put off, the hole we were in grew deeper-and the task of digging out more difficult.

Now, through the prism of September 11, we can see the error of that approach. Today, the consensus to spend what is necessary on national defense has been restored.

But as we undertake the task of rebuilding, we must do so with eyes wide open, aware of the size of the task facing us, and what will be required.

Our challenge today is to accomplish three difficult missions at once:

(1) To win the worldwide war on terrorism;

(2) To restore our force by making long-delayed investments in areas like procurement, people, infrastructure, and modernization; and in addition; and

(3) To prepare for the future by transforming for the 21st century.

Each of these tasks must be done-none can be put off. We have no choice but to fight and win today's war on terror; but we must also modernize our forces for the wars we may have to fight later in this decade; and, because of the long leadtimes in bringing new capabilities online, we must prepare now for the wars we may have to fight in the next decade-in 2010 and beyond.

There are some who say this is too much to ask of our Armed Forces-that any one of these challenges is daunting but that doing all three at once-fighting a war, modernizing, and transforming at the same time-is too difficult. It is not. We can do it.

But even if it were impossible, we would have no choice but to get about the task. Why? Because our adversaries are transforming. They are studying how we were successfully attacked, how we are responding, and how we may be vulnerable in the future. They are developing dangerous new capabilities, and new ways of fighting, to take advantage of what they see as our weaknesses and vulnerabilities. We stand still at our peril.

Far from being a time to put off transformation, now is the moment to pursue it more aggressively. If we do not, new enemies will find new ways to strike usand with the increasing power and range of weapons today, those attacks could well surpass the death toll of September 11.

THE 2003 BUDGET

But transforming our Armed Forces, fighting the war on terror, and selectively modernizing our existing force can't be done without sizable investments over a sustained period.

Because of that, President Bush sent to Congress a 2003 defense budget request of $379 billion-a $48 billion increase from the 2002 budget. That is the largest increase since the early 1980s-a significant investment.

It includes $19.4 billion for the war on terrorism-a $10 billion contingency fund that will be available, if needed, for the war, plus $9.4 billion for a variety of programs related to the war, including:

• $3 billion for counter-terrorism, force protection, and homeland security;

• $1.2 billion for continuing increased air patrols over the continental United States; and

• $800 million for converting Tomahawk cruise missiles to newer versions and for increased procurement of precision munitions such as the Joint Direct Attack Munition (JDAM) and Laser Guided Bombs (in addition to what was already funded).

Providing U.S. forces faster, more precise, real-time intelligence will be critical to transformation. The President's 2003 budget includes investments to improve U.S. intelligence collection, analysis, processing, and dissemination.

Moreover, the President has made clear that this is not a one-time increase. It is a commitment to sustained investments over many years. That is why the President's 5-year projected budget for 2003-2007 is $2.057 trillion—about $400 billion higher than when he took office.

That is a great of money-hard earned tax dollars. But it should be put in context.

Last year, before this committee, I explained that a decade of overuse and underfunding had left us in a hole so deep, that the President's 2002 budget, while a significant increase, would still leave 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-with no improvements, simply covering the costs of inflation and realistic budgeting-we estimated that DOD required a budget of $347.2 billion-an $18.3 billion increase over the President's 2002 request.

Well, as high as it may have sounded then, it turns out my estimate was low. When one combines the costs of inflation, plus the "must pay" bills (like military health care, retirement benefits, and pay), plus realistic cost estimates for weapons, readiness and depot maintenance, the correct figure is $359.4 billion.

When one adds to that the $19.4 billion in this budget for the war on terrorism, the total comes to $378.8 billion out of a $379.3 billion budget.

That is still a significant investment of the taxpayer's money. We are investing it differently-by accelerating programs we consider transformational. We have also made program adjustments to achieve $9.3 billion in proposed savings, to be used for transformation and other pressing requirements. At the same time, we are fully funding those areas we must to continue reversing years of under-investment in people, readiness, and modernization.

While it does not correct a decade of under-funding, it is a lot of money. We need to invest that money wisely if we are to accelerate transformation and continue our efforts to reverse years of under-investment in people, readiness, and modernization, while fighting the war on terrorism. Allow me to briefly set forth how the budget addresses each of these challenges.

NEW DEFENSE STRATEGY

The budget before you is driven by the results of last year's defense strategy review. When President Bush took office, he asked the senior civilian and military leaders of the Department to take a hard look at the emerging security environment and consider whether a new defense strategy was needed. Given the questions some posed last year, I must say that it is really quite remarkable what the people of this Department accomplished. In 1 year-2001-the Department has:

• Developed and adopted a new defense strategy;

• Replaced the decade-old two major theater war (MTW) construct for sizing our forces, with a new approach more appropriate for the 21st century;

• Adopted a new approach for balancing risks;

• Reorganized and revitalized the missile defense research and testing program, free of the constraints of the Anti-Ballistic Missile (ABM) Treaty;

Reorganized the Department to better focus on space capabilities;

• Through the Nuclear Posture Review, adopted a new approach to strategic deterrence that increases our security while reducing our strategic nuclear weapons; and

• Within a week or so we will present to the President a new Unified Command Structure.

We did all this while fighting a war on terrorism. Not a bad start for a defense establishment-military and civilian, executive and legislative, public and private— that is supposedly so resistant to change.

In January of last year, we initiated a series of informal strategic reviews. We found a Department filled with dedicated men and women-uniformed and civilian—who were doing their best under difficult circumstances to maintain the readiness of our Armed Forces. We also found that the pressure to prepare for near-term risks was crowding out efforts to prepare for longer-term challenges. While we found some transformation underway (such as development of the unmanned combat aircraft employed in Afghanistan), we also found some efforts were without clear goals, measures of success, or the necessary resources. We found chronic under-funding of procurement and infrastructure, and a culture that did not seem to embrace or reward innovation.

These reviews helped pave the way for the Quadrennial Defense Review (QDR), during which the senior civilian and military leaders of the Department came to the unanimous conclusion that a new approach was needed for the 21st century. The President's budget has been designed to fund the priorities we identified in the QDR process.

In the QDR, we made three major decisions. First, we decided to move away from the two MTW construct for sizing our forces-an approach that called for maintaining forces, capable of marching on and occupying the capitals of two aggressors at the same time and changing their regimes. That approach served us well in the immediate post-Cold War period, but after a decade it threatened to leave us too narrowly focused on preparing for two specific conflicts, and under-prepared for other contingencies and 21st century challenges.

To ensure we have the resources to prepare for the future, and to address the emerging challenges to homeland security, we needed a more realistic and balanced assessment of our near-term war fighting needs. Instead of maintaining two occupation forces, we will place greater emphasis on deterrence in four critical theaters, backed by the ability to swiftly defeat two aggressors at the same time, while preserving the option for one major offensive to occupy an aggressor's capital and replace his regime. Since neither aggressor would know which conflict would be selected for regime change, the deterrent is undiminished. But by removing the requirement to maintain a second occupation force, we can free up resources for the various lesser contingencies that face us and be able to invest for the future.

Second, to prepare for the future, we decided to move away from the old "threat based" strategy that had dominated our Nation's defense planning for nearly halfa-century, and adopt a new "capabilities based" approach-which focuses less on who might threaten us, or where, or when, and more on how we might be threatened—and what capabilities we need to do to deter and defend against those threats.

Under the new approach, we will develop a portfolio of military capabilities that will not only help us fight and win the wars of the 21st century, but also help to prevent them. Our goal is to influence the decision-making of potential adversaries-to deter them not only from attacking us with existing capabilities, but by demonstrating the futility of potential military competition, to dissuade them from building dangerous new capabilities in the first place.

Third, to put our capabilities-based approach into action, we identified six key transformational goals around which we will focus our defense strategy and develop our force. These are:

• First, to protect the U.S. homeland and our bases overseas;

• Second, to project and sustain power in distant theaters;

• Third, to deny enemies sanctuary-so they know no corner of the world is remote enough, no mountain high enough, no cave or bunker deep enough, no SUV fast enough, to protect them from our reach;