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27 February 2003

Wolfowitz: $379.9 Billion Defense Budget Needed for Terror Fight

(Deputy Secretary Wolfowitz testifies to House budget panel) (3180)

Deputy Defense Secretary Paul Wolfowitz says his agency's $379.9
billion budget request for fiscal year 2004 "is a wartime defense
budget needed to help us wage the global war against terror."

In remarks prepared for delivery to the House of Representatives'
Budget Committee February 27, Wolfowitz noted that the overall figure
represented an increase of $15.3 billion over last year's enacted
level, but explained that $8.5 billion of the increase is needed to
cover two "fact-of-life" increases: personnel pay raises and
inflation.

In anticipating critics who would say the request is too high,
Wolfowitz noted that the budget of Afghanistan's Taliban regime was
tiny, but that the damage caused by the September 11th terrorists
trained under Taliban auspices "already exceed $100 billion. Another
such catastrophe could cost much more -- especially if attackers use
weapons of mass destruction," he said.

Turning to Iraq, Wolfowitz said the budget proposal "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, he said, "[t]he 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."

Iraq, Wolfowitz said, "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,"

(Note: In the text, "billion" equals 1,000 million.)

Following is the text of Wolfowitz's prepared remarks:

(begin text)

Prepared Statement on the FY 2004 Defense Budget Request
By Deputy Secretary of Defense Paul Wolfowitz
For the House Budget Committee
February 27, 2003

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
(FY) 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 [DoD] for FY 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 FY 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. FY 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 non-pay
inflation. In the FY 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 11th
attacks cost our nation billions in both physical destruction and
damage to our economy. Direct costs of September 11th 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 multiyear 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 FY 2004-2009 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 FY 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 FY 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 FY
2004-2009, 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:

-- The Army came up with savings of some $22 billion over the six-year
FYDP [fiscal year deployment plan], by terminating 24 systems,
including Crusader, the Bradley A3 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.

-- The Navy reallocated nearly $39 billion over the FYDP, by retiring
26 ships and 259 aircraft, and integrating the Navy & Marine air
forces. They invested these savings in new ship designs and aircraft.

-- 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 two 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 e-mail,
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:
-- Rewards unconventional thinking;
-- Gives people the freedom and flexibility to take risks and try new
things;
-- Fosters a more entrepreneurial approach to developing military
capabilities; and
-- 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:
-- Antiquated personnel structure - both civilian and military;
-- Lack of flexibility in managing money and managing the department;
-- Support structures that are outdated, slow and inflexible; and
-- 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 be
better prepared for potential attacks against our homes and schools
and places of work.

We must now address the Department of Defense. Many of the obstacles
we face today are self-imposed. Where we have 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 so we can produce timely and accurate management
information. We are modernizing our internal acquisition structures to
reduce the length of time it takes to field new systems and drive
innovation. We are working to push joint operational concepts
throughout the Department, so we train and prepare for war the way we
will fight it-jointly. And we are taking steps to better measure and
track performance.

We are doing all these things, and more. But to get the kind of
agility and flexibility that are required in the 21st century security
environment, we also need some legislative relief. 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 service men and women in the field -- and of our friends and
families here at home -- depend on our ability to do so.

Getting more out of defense dollars.

In summary, there is much we can and must do to get the most out of
our defense dollars. Especially with budget pressures from the war on
terrorism, we must be able to focus resources on the most critical
priorities. The Department cannot do this without strong support from
the Congress. Yes, we will need additional funds in order to prevail
in the War on Terrorism and transform our military to meet the
challenges of the 21st century. But we also confront a historic
challenge to make the maximum use of those funds by transforming how
we carry out the business of defense. Now is an historic opportunity
to ensure that we make the best possible use of taxpayers' money by
transforming how we carry out the business of defense. We look forward
to working closely with the Congress to meet this important and
pressing challenge.

Conclusion

The President's FY 2004 budget addresses our country's need to fight
the war on terror, to support our men and women in uniform, and
prepare to meet the threats of the 21st century. It reflects hard
choices to ensure sufficient funding for our most pressing
requirements and to advance defense transformation. Those hard choices
and our proposed transformation of the business of defense underscores
our resolve to be exemplary stewards of taxpayer dollars.

This committee has provided our country strong leadership in providing
for the national defense and ensuring taxpayers' dollars are wisely
spent. We look forward to continuing our work with you to achieve both
of these critical goals.

(end text)

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Department of State. Web site: http://usinfo.state.gov)