Hearing of the Defense Subcommittee of the Senate Appropriations Committee - Defense Department Fiscal Year 2009 Budget Request

Chaired By: Senator Daniel Inouye (D-HI)

Witnesses: Secretary of Defense Robert Gates; Joint Chiefs of Staff Chairman Admiral Michael Mullen

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SEN. INOUYE: I should point out that this committee will not tolerate any demonstrations. We expect all of us here to conduct ourselves like ladies and gentlemen.

I've been advised that the secretary has an important meeting at the White House, so we will have to set some time limitations. May I suggest 10 minutes.

Today the subcommittee is pleased to welcome the Honorable Robert Gates, secretary of Defense, and Admiral Mike Mullen, the chairman of the Joint Chiefs of Staff, to testify on the administration's budget request for fiscal year 2009.

Gentlemen, the budget before this subcommittee requests 492 billion (dollars) for the coming year. Of course, this amount includes neither funding for military construction nor an additional amount for the cost of wars in Iraq and Afghanistan. In total, funding for the Department of Defense is at historical high levels unmatched since World War II.

Mr. Secretary, we have all been impressed with your passion and commitment to ensure that our military men and women are receiving the best equipment, medical treatment, housing and support. Over the past several months, we have also noted your statements in favor of enhancing diplomatic efforts in the fight on the war of terror, and calling for improvements in ISR and innovation in military planning, sir. It has been the most impressive performance.

On this committee I believe we have followed your lead. Congress provided an unprecedented $17 billion budget increase in response to your call for MRAPs. In the FY 2008 supplemental, which is now pending before the Senate, the committee has increased resources for health care by more than 900 million (dollars), added half a billion to repair barracks. We have recommended increases for ASRAR (ph) type of capabilities, and done so by allowing for the lease of existing assets which can be deployed almost immediately to the theater rather than in 14 or 28 months as traditional procurement would require.

But Mr. President, with all due -- Mr. Secretary, with all due respect, when we review your budget request, we find that it is filled with maintaining the status quo. As this subcommittee has noted in recent years, again this year we find that in the administration's budget request stable production programs are being curtailed or even terminated in favor of advancing new technology such as in our space systems and shipbuilding, even in Army ground equipment, all to encounter (sic) some notional future conventional threat which is difficult to see looming on the horizon.

Your health care budget assumes $1.2 billion in savings, which it is clear will not materialize, leaving a hole that the Congress would have to fill. Your budget assumes risk in vehicle maintenance by only requesting funding for 75 percent of the known requirement.

Mr. Secretary and Admiral Mullen, as we discuss these matters today, we will be seeking your candid assessments on how this budget can be improved. Gentlemen, we commend you for your leadership in managing this enormous department in very challenging times and we very much appreciate your service and look forward to your testimony.

However, before you proceed, I'd like to defer to the vice chairman of this subcommittee for any comments he wishes to make. Senator Stevens?

SEN. TED STEVENS (R-AK): Thank you very much, Mr. Chairman.

Secretary Gates and Admiral Mullen, we thank you for your service and for your presence here today. I don't disagree with anything the chairman has said. I do believe we are totally in agreement. And we have a difficult task of balancing the military's competing requirements with the amount of funds available. We do look forward to your comments today and look forward to the opportunity to work with you to meet the pressing needs of the military.

It's not going to be an easy job, as we all know. And the procedural parliamentary situation here is so screwed up, God knows where we'll come out.

Thank you.

SEN. INOUYE: Thank you very much.

Senator Specter.

SEN. ARLEN SPECTER (R-PA): Thank you, Mr. Chairman.

Well, Mr. Secretary and Admiral Mullen and Ms. Jonas, I join my colleagues in welcoming you here. You have a very tough job.

In the few moments that I'm going to have today I would like to focus on the future and most specifically on Iran and on the critical issue of talks with Iran and whether talking with Iran is really feasible. We have seen our talks with North Korea bear fruition. We have seen the talks with Libya, Qadhafi, bear fruition. Qadhafi, arguably the worst terrorist in the history of the world in very tough competition with Pan Am 103 and the bombing of the Berlin discotheque, and yet he has given up his nuclear weapons.

And as we enter the family of nations -- and we have seen the president's comment about appeasement of terrorists, but if we do not have dialogue with Iran, at least in one man's opinion, we're missing a great opportunity to avoid a future conflict. These are views which I have held over a long period of time for my service on this committee and chairing the Intelligence Committee and the Foreign Operations Subcommittee, extensive floor statements and an article in the Washington Quarterly in December of '06, '07. And I think that your statements on this issue, in encouraging talks, have been extremely productive.

And I think we really need to focus on that issue.

Very briefly, I will ask you about the situation with Yemen. I'm concerned about what is happening with Yemen after the killing of 17 sailors on the Cole -- al Qaeda, the worst terrorists in the world. Funded by the Defense Department $150 million from FY '03 through FY '08, and 28-plus million (dollars) more on the agenda now. I'd like to explore with you the reasons for that and whether we couldn't have some leverage to see to it that those terrorists are brought to justice or at least not to finance those who were accomplices after the fact.

Thank you very much, Mr. Chairman.

SEN. INOUYE: Thank you.

Senator Feinstein, would you care to make a statement?

SEN. DIANNE FEINSTEIN (D-CA): Thank you very much. I have no opening statement.

SEN. INOUYE: Senator Bond?

SEN. CHRISTOPHER BOND (R-MO): Thank you very much, Mr. Chairman. And we welcome Secretary Gates, Admiral Mullen, and we -- I will have some questions for you on some TAC air acquisitions things that I think are looming large for the military.

But first I commend you on your farsightedness in the development not only of the counterinsurgency strategy with General Petraeus but what is a broader concept, I believe, of the non-kinetic force, or smart power, that is necessary to win the long war against those radical terrorists who would attack us.

And my view is, the Department of Defense, particularly the Army, is way out ahead of anybody else in knowing how to work with people in less developed countries who are subject to the appeals of terrorists and also to get out the strategic information or the campaigns to explain what we're doing. I believe you've -- your -- at least your staff has had an opportunity to meet with LibForAll, the group of moderate Muslims led by former Indonesian President Gus Dur, or Abdurrahman Wahid, as his real name, that are reaching out to Muslims throughout the world, carrying the message of moderate Islam. And I would either -- like to maybe talk with you in person later on about it. But I commend you, because I think this is an essential part of the long-term battle that you, as secretary of Defense, have recognized better than anyone else.

And I thank you for it, and I want to learn more about it.

Thank you, Mr. Chairman.

SEN. INOUYE: Thank you.

Senator Leahy, do you care to make --

SEN. PATRICK LEAHY (D-VT): Yes. Mr. Chairman, I'm more interested in hearing from Secretary Gates. I would note that it is nice to see him without his arm in a sling, and that he made it very clear that did not come from arm twisting here on the Hill.

I am going to want to talk with him about a number of things when we get going: our National Guard, of course, our homeland defense, how we respond to disasters. The press was talking about the high probability of severe earthquakes out in our western part of our country. Obviously, the Guard would be called out there. We will go into that, the shortfalls in the Guard, equipment, so on.

I do want to talk about the secretary's speech last week in which he said we're going to have to engage Iran, including through low- level, government-to-government talks. I tend to agree with him. I remember during the height of the Cold War when we could have bellicose statements from the head of the Soviet Union and the head of the United States, and at the same time we had people going back and forth having discussions, and how well that worked. We even did during the -- as the secretary knows, even during the height of the Cuban missile crisis. There are a lot of distasteful people we have to talk with around the world, but it is realpolitik.

But mostly I'm -- I am pleased that Secretary Gates -- I've told him this privately, I'll say it publicly -- that he was willing, at what was both personal and financial sacrifice, to come and take the position that he has, giving up a dream position when he did. And I applaud him for it.

That's all, Mr. Chairman.

SEN. INOUYE: Thank you.

Senator Dorgan?

SEN. BYRON DORGAN (D-ND): Mr. Chairman, I'll defer. I do have some questions for the secretary and for Admiral Mullen, but let me defer an opening statement so that we can hear the witnesses.

SEN. INOUYE: Thank you very much.

And now may I call upon the Honorable Robert Gates, secretary of Defense?

SEC. GATES: Thank you, Mr. Chairman.

Mr. Chairman, members of the committee, it's a pleasure to be here for my second and last budget testimony before this committee. First, let me thank you for your continued support of our military these many years, and I appreciate the opportunity to discuss the president's fiscal year 2009 budget request.

Before getting into the components of the request, I thought it might be useful briefly to consider in -- consider it in the light of the current strategic landscape, a landscape still being shaped by forces unleashed by the end of the Cold War two decades ago. In recent years, old hatreds and conflicts have combined with new threats and forces of instability, challenges made more dangerous and prolific by modern technology, among them terrorism, extremism and violent jihadism; ethnic, tribal and sectarian conflict; proliferation of dangerous weapons and materials; failed and failing states; nations discontented with their role in the international order; and rising and resurgent powers whose future paths are uncertain.

In light of this strategic environment, we must make the choices and investments necessary to protect the security, prosperity and freedom of the American people. The investment being presented today in the base Defense budget is $515.4 billion or about 4 percent of our gross domestic product when combined with war costs. This compares to spending levels of about 14 percent, of GDP, during the Korean War and 9 percent during Vietnam.

Our FY '09 request is a 7.5 percent increase or $35.9 billion over last year's enacted level. When counting for inflation, this translates into a real increase of about five-and-a-half percent. The difference consists of four main categories, which are outlined in more detail in my submitted statements.

Overall the budget includes $183.8 billion for overall strategic modernization, including $104 billion for procurement to sustain our nation's technological advantage over current and future adversaries; $158.3 billion for operations, readiness and support to maintain a skilled and agile fighting force; $149.4 billion to enhance quality of life by providing pay, benefits, health care and other services earned by our all-volunteer force; and $20.5 billion to increase ground capabilities by growing the Army and Marine Corps.

This budget includes new funding for critical ongoing initiatives such as global train and equip, to build the security capacity of our partner nations; security and stabilization assistance; foreign language capabilities; and the new Africa Command.

In summary, this request provides the resources needed, to respond to current threats while preparing for a range of conventional and irregular challenges that our nation may face in the years ahead. In addition to the $515.4 billion base budget, the fiscal year 2009 request also includes $70 billion in emergency bridge funding.

There is however a more immediate concern. Congress has yet to pass the pending $102.5 billion global war on terror request for fiscal year 2008. And as a result, the Defense Department is currently using fourth quarter funds from the base budget to cover current war costs.

Shortly two critical accounts will run dry. First, Army military personnel: After June 15th, we will run out of funds in this account to pay soldiers, including those in Iraq and Afghanistan. Second, operations and maintenance accounts: Around July 5th, O&M funds across the services will run out, starting with the Army. this may result in civilian furloughs, limits on training and curbing family support activities.

If war funds are not available, the Defense Department can transfer funds from Navy and Air Force military personnel accounts to pay soldiers. But that would get us only to late July.

Using the limited transfer authority granted by Congress would also help get us to late July. Doing so however is a shell game which will disrupt existing programs and push the services' O&M accounts to the edge of fiscal viability.

Beyond the Army personnel account and O&M account, other programs will be adversely impacted if the pending FY '08 supplemental is not passed soon. Among them, critically, is the Commanders Emergency Response Program, or CERP, the single most effective program to enable commanders to address local populations' needs, and get potential insurgents in Iraq and Afghanistan off the streets and into jobs. Congress has provided a half-a-billion dollars of our total CERP request of ($)1.7 billion. Without the balance of ($)1.2 billion, this vital program will come to a standstill. The department does not have the authority to extend funding beyond the ($)977 million in authority provided in the FY '08 National Defense Authorization Act.

While I understand that the Congress may pass the 2008 -- FY 2008 war funding bill before the Memorial Day recess, I am obligated to plan for the possibility that this may not occur. I will keep Congress informed of these plans in an effort to ensure transparency and to minimize possible misunderstandings.

Delaying the supplemental makes it difficult to manage the department in a way that is fiscally sound and prudent. To illustrate this point, I have compared the Department of Defense to the world's largest supertanker: it cannot turn on a dime, and it cannot be steered like a skiff -- and I would add it cannot operate without paying its people. And so I urge approval of the FY '08 war funds as quickly as possible.

Finally, I'd like to thank the committee for all you've done to support our troops as well as their families. In visits to the combat theaters and military hospitals and in bases and posts at home and around the world, I continue to be amazed by their decency, their resilience and their courage. Through the support of the Congress and our nation, these young men and women will prevail in the current conflicts, and be prepared to confront the threats that they, their children and our nation may face in the future.

Thank you, Mr. Chairman.

ADM. MULLEN: Mr. Chairman, Senator Stevens, distinguished members of the committee, thank you for the opportunity to appear before you today.

We are here, as you know, to discuss with you the president's fiscal year 2009 budget submission and more broadly the state of our armed forces. Let me speak for a moment about the latter.

The United States armed forces remain the most powerful, capable military forces on the face of the Earth. No other nation has or can field and put to sea the superb combat capabilities resident in our Army, Navy, Air Force and Marine Corps. This stands as a testament, of course, to the brave and talented men and women who serve -- active, Reserve, Guard and civilian -- as well their families. They are, as I have said many times before, the finest I have ever seen, and I am privileged and proud to serve alongside them.

Each trip to the field, each visit to a base, each bedside I stand beside only reaffirms that fact for me. I know you have also made such visits and can attest to the same, and I thank you for that.

And so I also believe our strength speaks well of the hard work of this subcommittee and the Congress as a whole, as it does of the American people -- who, through you, their elected representatives, continue to invest wisely in their national defense. We are grateful. We will continue to need that support, for however powerful we are today, that power is not assured tomorrow.

That's why the budget the president submitted raises over last year's request an additional 5.7 billion (dollars) for the readiness accounts, increasing tank miles for the Army, maintaining 45 steaming days per quarter for the Navy and fully funding flying hours for the Air Force. That's why it calls for more than $180 billion for strategic modernization, fully 35 percent of the total request, a figure that includes some 45 billion (dollars) to upgrade an aging air fleet, nearly $10 billion to field new ground combat vehicles like MRAP and $14-1/2 billion to continue to grow the Navy's fleet, as well as a $700 million increase for research and development, the total of which is $11.5 billion. And that's why it includes funding to complete the stand-up of Africa Command, to grow the end strength of the Army and the Marine Corps, to continue development of a robust ballistic missile defense system for Europe and to improve our cybersecurity and our ISR capabilities.

I'm convinced this budget reveals balance in our vision for the future: a realization that while we must continue to develop irregular warfare skills needed to effectively wage irregular warfare both today and tomorrow, we must also prepare for, build for and train for a broad spectrum of warfighting capabilities.

The war in Iraq remains our number one strategic priority, as it should be. We cannot afford, the world cannot afford to have an Iraq unable to govern, defend or sustain itself in effect and in practice as a failed state. We get it wrong there, we place an unacceptable risk on our national interests throughout the Middle East. We get it wrong there and Iran's growing and negative influence, Hezbollah's growing extremism or al Qaeda's ability to reconstitute itself only intensify and imperil the region that much more. That's why we've worked so hard to improve our counterinsurgency skills and to adapt when necessary to changing conditions. We've attained far too much experience in this type of warfare to ignore the lessons learned or the practicalities of application elsewhere.

But even in Iraq, the counterinsurgency fight is not all of a classic small-war flavor. We hit the enemy with precision raids on the ground, with precision strikes from the air and even in his lairs in cyberspace. We help protect Iraqi oil flow with our ships at sea. We bolster diplomatic efforts with a strong and vibrant military presence.

We are doing well in Iraq as a result of such choices, including, I might add, the choices of the Iraqi leadership who are now taking a much more assertive role in both military and civil affairs. We saw that in Basra recently. We're seeing it today in Sadr City. And Iraqi security forces are leading in many areas in our current fight in Mosul. I'm encouraged, but we are far from done.

And we are trying, in concert with our NATO allies to achieve similar progress in Afghanistan, where fresh violence in the south, a burgeoning poppy trade and increasingly unstable and ungoverned border with Pakistan all tear at the very fragile seams of security.

It's hard work, and it's tenuous, at best, all the more reason we so desperately need the supplemental funding still being considered by the Congress.

I'm especially concerned about the availability of funds under the Commanders Emergency Response Program, authority for which expires next month. CERP has proven in most cases more valuable and perhaps more rapid than bullets or bombs in the fight against extremism, delivering, as it does, to local officials the money they need to deliver in turn the civil improvements their citizens need. As one young American officer in Afghanistan put it, and I quote, "CERP is small scale but quick impact." Without these funds, without the supplemental, our ability to have this sort of impact will suffer. And in fact, we are beginning to suffer now. Again, our progress is tenuous.

But tenuous, too, are the long-term risks we take to our security commitments elsewhere if we focus too heavily on one discipline at the expense of all others, if we prove unable to free up more ground forces or if we fail to properly address the toll being taken by current operations on our equipment, our people and their families.

The president's decision to reduce to 12 months all active Army tour lengths to the Central Command region is both welcome and necessary, but we must create even longer dwell times at home as soon as possible and pursue the various family support and employment initiatives that have been outlined in the president's State of the Union address.

I was with families of deployed soldiers in Germany last week. They are trusting. And allow me to add here just how gratified I am to see the debate and discussion in these halls over a revised GI bill, which will increase educational benefits for our troops and grant transferability of those benefits to military dependents. It is wanted and it is needed. It will go a long way to improve the quality of life for our people and their families, as did, quite, frankly, the wounded warrior legislation Congress passed last year.

I am pleased that this budget too allocates more than $41 billion for world-class care and quality of life, but too many of our returning warriors still suffer in silence and in fear of the stigma attached to their mental health issues. We must now turn our attention to better identifying the wounds of war we do not see and to treating the trauma and stress we do not fully understand.

Finally, the growth of the Army and Marine Corps will over coming years provide much-needed flexibility in engagement and in crisis response. And we must set about the task of restoring some of the more conventional and expeditionary capabilities these services will require in the dangerous and uncertain years ahead. There are young Marines who have never deployed aboard a Navy ship, and there are Army officers who have not spent any time on their speciality of providing artillery fire support. These sort of gaps in professional expertise cannot persist, particularly at a time when we are being called upon to stay better engaged around the globe, building our partners' capacity for such work, improving international and interagency cooperation and fostering both security and stability.

The State Department and the Defense Department have asked for such authorities in the Building Global Partnerships Act, which I strongly urge the Congress to enact. At its core, this act will help us solve problems, before they become crises, and help us contain crises, before they become conflicts.

And as I said, the business of war is all about choices. Military leaders must make hard decisions every day; choices that affect the outcome of major battles, whole nations and the lives of potentially millions of people; choices which ensure the incidents of American military power are adequate to their purpose and responsibility.

As we head into the latter half of this year, with better and more continuous assessments of our progress in Iraq, a new push in Afghanistan and a continued fight against violent extremists; as we consider the depth and the breadth of combat capabilities we must improve; please know that I and the Joint Chiefs remain committed to making informed choices, careful choices and choices which preserve, at all times and in all ways, our ability to defend the American people.

Thank you, Chairman. I look forward to your questions.

SEN. INOUYE: Thank you very much, Mr. Chairman.

I'd like to advise the committee that because of time limitations, all members will have eight minutes of questioning.

Senator Stevens.

SEN. STEVENS: Thank you very much, Mr. Chairman.

Admiral Mullen, the secretary has mentioned that the CERP funding, if my memory is correct, it was this committee that started that with a very small amount for each commander. Now it's over a billion dollars.

Can you give us some idea what the scope of the project is now in terms of how this money is handled? We thought it would be just a local commander, a platoon leader, et cetera. Now it's looks like it's a fairly large concept.

ADM. MULLEN: I think the growth in the request is tied directly to the improvements in security. And so when in the counterinsurgency strategy, when an area is provided more security with a joint security station, in fact, young captains are given certain amounts of cash to then essentially build projects, restart markets, build schools and do it very, very rapidly.

What CERP really provides and, in fact, I now see requests coming in from other combatant commanders. It provides very rapid response, not just on top of the improved security but in order to improve and in fact create projects that help a village or a town or a city improve, as well as provide salaries to local -- we call them in Iraq -- Sons of Iraq, some 105,000 who are now providing their local security.

And we've seen it grow from very small amounts to -- and distributed over very wide areas. So the more security that is established, this has become essentially, as I indicated, the ammunition for success throughout Iraq, where security has improved.

SEN. STEVENS: Well, I think, another time, perhaps, you ought to go into this. Because it does seem these projects have gotten larger and are really rebuilding coming from the -- in the war zone.

And the decisions being made -- I don't know -- is there any guidelines how much a commander can spend? Is there any guidelines as to how much he has to go to a senior officer before they spends over a certain amount?

ADM. MULLEN: Yes, sir, my experience in the field is it's allocated down again to the 03 level, and that captain in a certain area has a certain amount of cash to spend during a given quarter, and it's very carefully monitored. And I would differentiate where it goes in terms of projects versus reconstruction projects, which it is not allocated to.

SEN. STEVENS: Well, it boggles my mind a little bit to have trickling down a billion 300 million dollars down to captains who are getting maybe ($)2(00) or $300. That -- I don't follow that. This fund is building up and up and up.

ADM. MULLEN: They're getting --

SEN. STEVENS: I think we ought to have a special hearing on it one of these days.

ADM. MULLEN: Yes, sir, I'd be more than happy to go through it in detail with you.

SEN. STEVENS: Secretary Gates -- I want -- I want to be short here because I want everyone to have a chance today -- the concept of limiting deployments and dwell times, both of you mentioned those now. When are we going to have certainty that they won't be changed for the next period? How many years will the current practice that's been announced of one year and then, what is it, 18 months at home -- whatever that is -- is this for sure now or can it be changed?

SEC. GATES: Senator Stevens, beginning with the units that deploy on the 1st of August, the deployment period will be 12 months maximum, and initially at least, for most units, probably 12 months at home. With the growth in the Army -- particularly in the size of the Army -- and the Marine Corps, our objective is to get to one year deployed, two years at home. And we believe -- think the statistics work out this way, that we will begin to get beyond a year at home sometime during the course of calendar year 2009. Our hope with the Guard is one year at home -- or one year deployed, four years at home, four or five years at home. And we hope to begin moving in that direction in fiscal year 2009 as well.

I think that one of the surest guarantees that we will be able to hold to this trend of longer periods at home and shorter periods deployed, the 12 months deployed, is in fact the growth the Army and the Marine Corps. I would say also that I would expect that further reductions in the presence in Iraq during the course of 2009 and perhaps later this year will also contribute significantly to meeting those goals.

SEN. STEVENS: Well, just one clarification. When you say 12 months deployment and then 12 months at home, does that mean -- home mean leaving the U.S.? We have people from Alaska who are sent maybe to Louisiana and join up in a unit there. Is it 12 months from the time they're deployed as the larger unit from Louisiana?

SEC. GATES: It is the time from -- for a Guard unit, it would be from the day they are mobilized they will have one year on active duty. For the active service, it's a year back at home, a year deployed overseas.

SEN. STEVENS: Thank you.

Thank you very much, Mr. Chair. Appreciate it.

SEN. INOUYE: Senator Specter.

SEN. SPECTER: Thank you.

SEN. STEVENS: (As an aside.) Is this Mullen's last appearance, too?

SEN. SPECTER: Thank you, Mr. Chairman.

Ambassador Gates, we have seen that President Reagan identified the Soviet Union as the "Evil Empire;" shortly thereafter engaged in direct bilateral negotiations, and very, very successfully.

As noted before, we have seen President Bush authorize bilateral talks with North Korea as well as multilateral talks which have produced results. As noted, with Libya and Qadhafi, the talks have produced very positive results.

I was -- I note that there have been three rounds of bilateral talks where United States Ambassador Crocker has had direct contact with Iranian Ambassador Qomi. So we are not really saying, in practice, that we will not talk to them. The question is to what extent will we talk.

I'm very much encouraged, Mr. Secretary, by the statement you made on May 14th of this year, that, "We need to figure out a way to develop some leverage and then sit down and talk with them. If there is to be a discussion, then they need something, too. We can't go to a discussion and be completely the demander, with them not feeling that they need anything from us," close quote.

Now, the position taken by the secretary of State has been we won't talk to Iran unless, as a precondition, they stop enriching uranium. It seems to me that it is unrealistic to try to have discussions but to say to the opposite party, as a precondition to discussions, we want the principle concession that we're after. Do you think it makes sense to insist on a concession like stopping enriching uranium, which is what our ultimate objective is, before we even sit down and talk to them on a broader range of issues?

SEC. GATES: Well, Senator, I'm not going to disagree with the secretary of State. I would say this, though, in all three of the instances, examples that you used, the United States either developed or had significant leverage when the talks began.

President Reagan did not sit down with the Soviet leadership almost entirely through his first term. And his first meeting with Gorbachev was in November, 1985, after the United States had embarked on a major arms build-up and strengthening of the United States' position vis-a-vis the Soviet Union.

In the case of Libya, Qadhafi wanted to get the sanctions lifted that were a result of Pan Am 103 and the international sanctions that were applied after that. And the financial sanctions against North Korea created significant leverage that helped prompt them to come to the negotiating table.

So as I said in the statement that you read, I think the key here is developing leverage either through economic or diplomatic or military pressures on the Iranian government, so that they believe they must have talks with the United States, because there is something they want from us. And that is the relief of the pressure.

SEN. SPECTER: Mr. Secretary, we had leverage in 2003 when we were successful in Afghanistan and in Iraq, and we erected -- it's pretty clear that we wasted an opportunity to respond to their initiatives.

So the question is, how do we have find the leverage? How do we find economic, political or military leverage?

Well, isn't it sensible to engage in discussions with somebody to try to find out what it is they are after? We sit apart from them, and we speculate. And we have all these learned op-ed pieces and speeches made, and we're searching for leverage. But wouldn't it make sense to talk to the Iranians and try to find out what it is that they need as at least one step on the process?

SEC. GATES: Well, Senator, I was involved in the very first contacts between the United States and the Islamic Revolutionary Government of Iran in October 1979. And what has happened in Iran since then is -- most revolutions tend to lose their sharp edge over time. It's one of the reasons that Mao launched the Cultural Revolution in the '60s, because he saw that happening in China. We saw that happen, I think, beginning to happen with the Khatami government, when Khatami was president of Iran. And I think it was one of the things that created perhaps an opportunity that may or may not have been lost in 2003, 2004.

But what we have now is a resurgence of the original hard-line views of the Islamic revolutionaries that, with the accession to power of President Ahmadinejad, who was one of the students who occupied our embassy in November of 1979 -- and I might add that happened two weeks after the first talks between the United States and the Iranian government in Algiers, where I was a participant.

So the question is, do you have the kind of government in Iran now with whom there can be productive discussions on substantive issues? And I think that's an open question, because this is a different kind of government --

SEN. SPECTER: So what's the answer? We only have one government to deal with.

But let me put it to you very bluntly, Mr. Secretary. Is President Bush correct when he says that it's appeasement to talk to Iran?

SEC. GATES: Well, I don't know exactly what the president said. I believe he said that it was appeasement to talk to terrorists, to negotiate with terrorists.

SEN. SPECTER: Well, he said on April 24th -- in the May 15th address, to the members of the Knesset, said, quote, "Some seem to believe that we should negotiate with terrorists and radicals."

He does not say specifically Iran. But I think the inference is unmistakable in light of the entire policy of the administration.

I have 12 seconds left, Mr. Secretary. And let me thank you for your service. Let me note our personal relationship. Went to the same grade school, College Hill, in Wichita, Kansas.

And let me commend you for what, I think, is a very forthright statement you made, really gutsy. And I know you don't want to disagree with the secretary of State. And I know you don't want to even more disagree with the president.

And I've had an opportunity to talk to the president about it directly. And I believe he needs to hear more from people like you than from people like me but from both of us, and that it's not appeasement, and that the analogy to Neville Chamberlain is wrong. And we've only got one government to deal with there. And they were receptive in 2003.

I've had a chance to talk to the last three Iranian ambassadors to the U.N. And I think there is an opportunity for dialogue. But I think we have to be a little courageous about it and take a chance, because the alternatives are very, very, very bleak. Thank you, Mr. Secretary.

Thank you, Mr. Chairman.

SEN. KIT BOND (R-MO): Thank you very much, Mr. Chairman.

And Admiral Mullen, I was most interested in your discussion about CERP and its successes. We would like to know more about the fiscal accountability. But from what I have seen, it has made some tremendous successes. And I think that certainly in my mind, there is no question about the viability of it.

I would also call to the attention, your attention again and my colleagues', the fact that in Afghanistan, we have National Guard units serving as agriculture redevelopment teams and helping bring what has been sometimes referred to as 18th century agriculture up almost to modern-day and training the trainers.

These ag units have 10 extension specialists and about 25 Guardsmen, who are their military protectors, who also happen to be very skilled agriculturalists -- we call them farm boys back home. But I note that a number of -- a number of states are pursuing it, and I commend you. I think this is -- this is a tremendous way to help Afghan farmers and thus Afghanistan get back on track.

Now for the tough questions. Mr. Secretary and Mr. Chairman, I am very much concerned about the Air Force's TACAIR program. Their fifth-generation acquisition strategy is going to lead to tremendous gaps in the force structure, and it fails to address the impact on the industrial base. The Air Force has testified that there will be an 800-aircraft shortfall. We are falling way behind.

I could not believe that when bids were taken for the Joint Strike Fighter, it was not a split bid. I told everybody that it made no sense to give the entire TACAIR production to one company. It has been demonstrated that that warning, unfortunately, was correct. And right now the GAO has reported that the F-35 costs are to hit $1 trillion -- that's trillion with a T. And we also will see the only competing TACAIR line shut down in 2013.

And we're -- if we don't do something about developing a plan B for the Air Force such as the Navy has adopted, we're going to see not enough aircraft for fully equipping the active or the National Guard -- Air National Guard. They're not going to have the aircraft. And it seems to me that it is time for the Defense Department and the Air Force to come up with a plan to keep legacy -- upgraded legacy aircraft in production so that our fine pilots will have something to fly.

What is being done about this gap? The Air Force has not been able to tell us.

ADM. MULLEN: I certainly, Senator Bond, share your concern about the Tactical Air community writ large. And clearly the new airplane that is planned on to relieve that is going to be the Joint Strike Fighter. It's a brand-new program. It's actually done fairly well on schedule. As with all new programs, there have been challenges and will continue to be. And clearly the investment on the Navy side in terms of what has happened with respect to the F-18s, the investment there of -- and the adaptation to the electronic warfare airplane, the Growler, was also, I think, absolutely on target. Clearly -- and I've had a concern for some time about, you know, how far we go with the F- 22 program. It's a very expensive airplane.

The overall concern was increased on -- at least I felt an increased level of concern because of what happened with the F-15s. I mean, we had an F-15 literally destroy itself in flight. Old airplanes, upwards of 25 to 30 years, which is a long time for a tactical jet, would certainly increase the risk about this whole TACAIR plan.

That said, I think it's very important to get to the Joint Strike Fighter as soon as we can.

The president's budget doesn't shut the line down. I've got enough background in programs to know that clearly there is not just a principle vendor piece in this that we need to be concerned about, but there's a supply side, lower-tier vendors that also need to be able to anticipate whether they're going to be in business or not. So the concern is there. There's also huge challenges just from an expense standpoint and from an applicability point of view. So I'm comfortable that we at least left a F-22 line open and that it's open to be determined whether that should continue in 2010.

SEN. BOND: Are both of you comfortable with having only one tac air source? We have seen the military time and time again say we need two sources. We need competing sources --

ADM. MULLEN: Right.

SEN. BOND: -- to make sure that if one falls back, the other can pick it up. And competition does work, even in military acquisition. Are you comfortable seeing us cut down to one source for tac air?

ADM. MULLEN: I'd like to see as much competition as possible, Senator Bond. This is a decision made, as you know, some time again --

SEN. BOND: And it was a bad one --

ADM. MULLEN: And it's not -- it is not unique to tac air because we've made it across the entire industrial base in many, many areas. And that consolidation in getting us down to single vendors or single lines may seem wise initially, but can cost us down the road. So it's a decision that I'm not sure I'd call it fait accompli, but it's one that was made some time ago, and I think we have to make the best of it -- best of what we have to produce quality aircraft for the future.

SEN. BOND: Secretary Gates, are you comfortable with one tac air supplier?

SEC. GATES: I think as long as we end up with aircraft companies that, as we go forward, you have competing companies so that you actually do have competition for subsequent fighters, for subsequent programs, I think that's where the competition is important is ensuring that we have several of these companies that are in a position to bid for these big programs.

SEN. BOND: Right now we're on path not to have any. And you do not need to shut them down. You can solve some of the shortfall problems buying upgraded versions of the F-15 and the F-16 and maintain that. And I would point out the Navy is looking at upgrading 350 old -- the F/A-18s, the As and Ds to 10,000 hours. You just talked about, Admiral, the possibility that they're starting to fall apart. That would cost 4 (billion dollars) to $5 billion; 4 (billion dollars) to $5 billion, with a multi-year, you could get 200 new F/A- 18 E and Fs and keep the line alive. To me, that makes sense. What am I missing?

ADM. MULLEN: I think it's a matter of choices. We actually don't have a very good history of upgrading airplanes.

SEN. BOND: That has been a disaster.

ADM. MULLEN: I mean we just -- it's been in difficult budgets, putting modernization money into tactical aircraft. So clearly there's there's a plan to do that. Ten thousand hours is a long time on a jet, and I think you know that. And at the same time, there is -- there has been a plan for some time to shut down the F/A-18 line and essentially transition into the Joint Strike Fighter. That's been the plan on record, it remains that. And I think if Joint Strike Fighter gets there, you know, in some kind of timely way, that that transition will work.

SEN. BOND: If. Thank you, Mr. Chairman.

SEN. INOUYE: Senator Feinstein?

SEN. DIANNE FEINSTEIN (D-CA): Thank you very much, Mr. Chairman.

And Mr. Secretary, I want to begin by thanking you for your service. I'm very glad you are where you are.

I want to begin with an easy one. There are parts of my state that are under threat of catastrophic fire. The fire -- the Forest Service has committed to us by may, we would have two 130 -- two C- 130Js and the MAFF -- two units.

We have learned we're not going to be getting them. This is a problem. We've lost 4,200 homes in the last five years in the San Diego area. The nearest ones are a thousand miles away, which take 24 hours to get to California.

I'd just like to ask that you look into that and that I can contact you and see what we might be able to do about that.

SEC. GATES: Yes, ma'am.

SEN. FEINSTEIN: Thank you very much.

I very much agree with what Senator Specter said. I happen to serve on the Intelligence Committee. I've checked; to date, there is no contrary intelligence to the fact that Iran has not halted its nuclear weapons program. I believe that's a window of opportunity. I thought, "Yes!" when I heard you make that speech a week ago.

To the best of my knowledge, it isn't the president of Iran that counts in these matters. It's the supreme leader. And it seems to me that we ought to find ways to develop back-channel or front-channel discussions with this individual. I really think the fate of the area depends on it. And I think saber-rattling and talking about exercises for military intrusions do nothing but escalate the situation. I wanted an opportunity to say that.

At this hearing last year, you said that you were looking at ways to close the detention facilities at Guantanamo Bay and that you had tasked a group inside the Pentagon to review options. Since then, the number of detainees has dropped to 270. Exactly one person has been convicted. It's my understanding that 68 to 70 detainees can be sent back to their own country, about the same number charged and about the same number would have to be detained for some time.

The military commissions process has undergone numerous setbacks, most recently included an order by Navy Captain Judge Allred to remove Brigadier General Hartmann from the Hamdan case and the dropping of charges which al-Qahtani, the so-called 20th hijacker, because the evidence against him was coerced by torture. I was surprised to read in The New York Times that he is virtually senseless and the belief is it's a product of the interrogation he's gone through.

My question to you is what is the status of your Pentagon review and what is the status of the inter-agency review to close Guantanamo?

SEC. GATES: Senator, I think the brutally frank answer is that we're stuck. And we're stuck in several ways. One, as you suggest, there are about 70 or so detainees that we are now prepared to return home. The problem is that either their home government won't accept them or we are concerned that the home government will let them loose once we return them home. And we just had a suicide bomber outside of Mosul, I believe, who killed a number of people who was a released detainee who had been sent home and then let go. So that's one problem we have.

The second problem we have is that we just have a hard time figuring out -- and I've talked to members of Congress and I've talked to the attorney general and I've talked to various people in the administration -- what do you do with that irreducible 70 or 80 or whatever the number is who you cannot let loose but will not be charged and will not be sent home.

And that leads to the third area where we're stuck, and that is we have a serious not-in-my-backyard problem. I haven't found anybody who wants these terrorists to be placed in a prison in their home state. So those three problems, I think, really have brought us to a standstill in trying to work this problem.

SEN. FEINSTEIN: Well, I mean, on the last thing you said, the fact of the matter is that the Bureau of Prisons has maximum security facilities in isolated areas and they are very maximum.

It seems to me that nothing that you've said absolves the enormous loss of credibility we have in the eyes of the world by being called hypocrites, that we have double laws, laws for some and no laws for others. I think that's a real problem. It would seem to me that if there are changes in law that need to be made to accept some form of administrative detention with specific findings, that might be the case, but I think for the United States to have this facility -- and you felt the same way.

SEC. GATES: Still do.

SEN. FEINSTEIN: I've heard you say it in this very chair --

SEC. GATES: And still do.

SEN. FEINSTEIN: -- that you were opposed to Guantanamo, that you wanted it shut down. And it's going to take, I think, some innovation to do it. But there are many of us in this Congress that would like to work with you on it.

Now, if I might just move on, I'm puzzled by this emergency supplemental. And CRS apparently says that if you request and Congress approves additional transfers of funds to the Army to meet its personnel and operational expenses, the Army could finance those needs with current funding through July. Also, if DOD receives the 2009 bridge funds, I'm told that DOD could finance war costs until June or July of 2009. So it is less clear to me why the passage of a $70 billion '09 bridge fund is urgent at this time, particularly given that funding for next year is less clear.

If Congress approves the monies requested in its regular budget for military personnel and O&M and uses the 5 billion (dollars) in transfer authority requested for '09, my question is this: How long could the Army and Marine Corps, the services most taxed by war needs, finance war costs without passage of a supplemental assuming that the 5 additional brigade combat teams brought in for the surge are brought home by the end of '08?

SEC. GATES: Well, first of all, your statements about the FY '08 supplemental in terms of when we run out and how long we could run, both of them being until late July, are both correct. And that is what we will do if the supplemental doesn't pass this week. We will initiate beginning to draw down the Army -- I'm sorry, the Navy and Air Force military pay accounts for transferring to the Army. So that will turn out as you -- as you just described.

For FY '09, it basically -- you know, the problem that I have, Senator, is that the combination of delays in the supplementals and continuing resolutions has really thrown managing the department out of whack.

We -- it is costing the taxpayers money. It disrupts programs. It creates enormous problems just from a management standpoint because we're always kind of borrowing from Peter to pay Paul, and it's very difficult to do a lot of things in terms of long-range planning.

So the notion of having to borrow from the base budget in '09 to pay war costs -- I mean, we probably could make it work for a number of months. But the question is, what kind of disruption does that do to all the procurement programs, to military expectations, because various things get wrapped into these supplementals. We have money for barracks. We have money for day care centers. We have money for training and equipment, for reconstituting the force. And all that money has to come from someplace. And so the absence of a supplemental to help pay for those and -- is just enormously disruptive and creates real problems for our troops. So can we technically get through some part of FY '09 without a supplemental? Probably so. But the question is, at what cost?

SEN. FEINSTEIN: Thank you very much. Thank you, Mr. Chairman.

SEN. LEAHY: Thank you, Mr. Chairman.

Secretary Gates, when Senator Specter spoke to you about 2003 and the Iranians -- there's been a lot in the press about their inquiries to us shortly after we went into Iraq. Did we make a mistake and not negotiate with them?

SEC. GATES: I think that this was something that sort of tangentially the Iraq Study Group looked at a bit. And I must say that -- as did the Council on Foreign Relations Task Force on U.S. relations with Iran that Dr. Brzezinski and I co-chaired in 2004. And as I said in my -- in the comments last week that Senator Specter quoted, that at a time when we had overthrown the Taliban and we had overthrown Saddam Hussein, the Iranians clearly were very concerned about what we might do next in 2003, 2004. And you did have a different government there. There was evidence that the Iranian government was doing some things that was helpful in Iraq. At the same time, they were doing some things that were not helpful. And what I said last week was, it's a matter for the historians to look at, whether there was a missed opportunity around 2003, 2004.

SEN. LEAHY: But what's your view? What's your view? You weren't here at the time --

SEC. GATES: No.

SEN. LEAHY: But you've looked at this more --

SEC. GATES: I was in a happier place. (Chuckles.)

SEN. LEAHY: I understand. I complimented you on being willing to leave that. But you've looked at it more than probably anybody else in this room. Was it -- was an opportunity lost?

SEC. GATES: You know, the honest answer is I really don't know. I'd like to say that -- I mentioned earlier about being in that meeting in 1979 with Brzezinski, the first meeting with the Iranian government, the prime minister, defense minister and foreign minister.

And I tell people that since November -- since October 1979, I've been on a quest for the elusive Iranian moderate, and I haven't found one yet. And so the question of whether there was a real opportunity, whether it was a strategic opportunity or a tactical opportunity, I just don't know because I don't know -- I know that the administration was in fact in having talks with the Iranians at that time on a wide range of issues, and I have forgotten why those talks were called off. But that may have been an opportunity.

SEN. LEAHY: Our government also for years worked with -- directly and indirectly with Saddam Hussein -- no leading moderate he -- with the idea that this was a counterbalance to Iraq. Am I overstating that?

SEC. GATES: I'm sorry?

SEN. LEAHY: Am I overstating that?

SEC. GATES: Well --

SEN. LEAHY: Counterbalance to Iran, I meant to say. Am I overstating that?

SEC. GATES: I think that as I recall particularly the first years of the 1980s, the reality is that at one time or another we worked with both Iran and Iraq to make sure that neither one of them won the war.

SEN. LEAHY: It might be interesting if Iran woudl be anywhere near this influential if oil was still $40 a barrel and if the American dollar hadn't tanked as much as it has.

Secretary Gates, you gave some remarks about your priorities in the remaining time in your position. I'd submit there's a realm of the defense bureaucracy that needs a lot of attention. That's the realm of military support to civilian authorities in domestic emergencies. We need to make sure the military help and respond to disasters at home. Senator Feingold, of course, represents the largest state in population in the Senate, has raised that very clearly. But we know if a major emergency occurs, whether it's something as terrible as the earthquakes that California faced -- was in 1998, '97? -- or, God forbid, another terrorist attack, the military is going to have to be there to support civilian authorities.

I think we have to have a clear budget request about what the Department of Defense is doing to purchase homeland defense-oriented equipment. I don't see it in the budget request.

I think the nation's governors need concrete procedures in place to assure that active military personnel that arrive will not try to somehow usurp the authority -- the governors' authorities. They haven't received that. We know back here a couple of years ago was slipped into the defense bill a provision, which was then repealed, that would have overridden governors' authorities in a way unprecedented.

We'd like to know if the department has plans to implement the recently enacted provisions from the National Guard Empowerment Act. We haven't seen that.

I would hope you'd have time to personally engage in this area, Mr. Secretary, before you leave. I mean, everybody -- we've given you enough things to personally engage in to take care of the next 12 years of your few months left, but please personally engage in that.

I think it is -- whether it's coming from a little state like mine, a large state, from California, we have a concern.

SEC. GATES: Senator, I'm -- first of all, I'm very positively inclined toward many of the recommendations of the Punaro commission. I think that was indicated by the fact that in their interim report last year, they made 23 recommendations. We implemented 20 of those 23 recommendations. We are in the midst of looking at the recommendations for the -- of the 95 recommendations that are made in the final report. But I think the fact that we leaned forward on the interim report in terms of implementing the recommendations is indicative of an open attitude toward trying to do the right thing.

SEN. LEAHY: Well, and I should note this report -- Admiral Mullen spent a great deal of time in my office. He was very direct, very forthcoming. And Admiral, I do appreciate that. That meeting meant a great deal to me. It was very helpful. In looking at this -- I know it's being looked at. I'm just -- I'm concerned. We see a $10 billion shortfall in the Army's long-range budget. The Air National Guard listed 8 billion (dollars) of critically needed upgrades. Department of Defense metric has equipment stocks of a nationwide average of 60 percent of required stocks.

I just -- and I realize a great deal of attention goes to Iraq and Afghanistan. I am concerned that we have an equal amount of attention here inside the United States, because of the things that we can face here.

SEC. GATES: I will tell you, Senator Leahy, we -- I have been paying attention to it. We had a 40 percent equipment fill for the Guard in 2006. It was 49 percent at the end of '07. It will be, as you suggest, by the end of this fiscal year, about 60 to 65 percent. Over the next 24 months, we will put more than $17 billion into National Guard equipment -- 16,000 trucks; helicopters; the full range of equipment.

SEN. LEAHY: But a lot of these things have been gone -- I mean, I look at my own state, where our Army -- I mean, our Mountain Brigade's been alerted for 2010 to go to Afghanistan, join with the military there. And we have a lot of presence in Afghanistan, but I see a resurgent Taliban, and I wonder how much we're going to have to divert to go there. I -- do we see the light at the end of the tunnel in Afghanistan, or are you as concerned about the resurgent Taliban as I am?

SEC. GATES: Yes, sir, I am. I don't see a diversion of National Guard equipment to Afghanistan, though. I -- and I would tell you that --

SEN. LEAHY: But National Guard members are going there.

SEC. GATES: National Guard members. But one of the things that helps us a lot and that we saw in the tornados in Kansas that destroyed Greensburg was, most states have agreements with the Guard, with the states that are their neighbors in terms of being able to pool equipment when units are deployed overseas or are not available, and it's that pooling that gives -- has as multiplying effect in terms of being able to meet the domestic need.

SEN. LEAHY: I realize, but we saw, as in Katrina, sometimes it can take a long time to get that equipment there.

Mr. Chairman, thank you very much.

But again, I -- I join in the praise of Secretary Gates. We've known each other for 25 years, at least, and have worked together on a number of issues. And Admiral Mullen, I thank you again. You took a great deal of your time to meet with me and Daniel Ginsberg and others the other day, and that meant a lot to me.

SEN. INOUYE: Thank you.

Senator Dorgan.

SEN. DORGAN: Mr. Chairman, thank you very much. I have five questions I wanted to ask, and we'll see if we can get them done.

First, I was embarrassed, and I assume the Defense Department was, by the Boston Globe article that said Kellogg, Brown & Root had 10,500 Americans working in Iraq for KBR but they were not listed as employees for the Houston-based company, they were employed by a Cayman subsidiary that is listed at Post Office Box 847 on Shadded (sp) Road in the Grand Cayman Islands. They pay a thousand dollars a year for the post office. No one's there and there's no telephone.

In addition, AIP, which is a contractor, UPRI -- or MPRI, which is a contractor, all three of these folks are hiring U.S. workers and running their employment through Cayman Island subsidiaries to avoid paying U.S. taxes. The Kellogg, Brown & Root spokesperson said they were set up, quote, "in order to allow us to reduce certain tax obligations of the company and its employees," and the Defense Department, it says, has known since 2004 that KBR was avoiding taxes by declaring its American workers as employees of the Cayman Islands. Officials from the State Department said the move allowed KBR to perform the work more cheaply.

Frankly, I think this sort of thing is embarrassing, and I would -- I put something in the supplemental that would shut this down, but I would hope that, Mr. Secretary, you would tomorrow just (ascribe ?) a rule in DOD that, if you're not going to pay your taxes, don't bother contracting with us; if you're going to run your employees through sham companies in the Cayman Islands and you want to do business with the federal government but don't want to pay your obligations to the federal government, don't bother coming around.

SEC. GATES: Senator, first of all I will tell you that I was embarrassed to learn in preparing for this hearing that you had written me about this, and particularly the KBR issue, on the 1st of April and I have not responded to you yet. I will within the next 48 hours.

My understanding, very briefly, of a fairly complicated matter is that our regulations are derived from the tax code. And one of the reasons, I'm told, that I haven't gotten a letter to sign back to you is that our auditors have been trying to work with the IRS in terms of figuring out the right answer to your question. And so they are working on that, and I will get you an answer.

SEN. DORGAN: Well -- all right. I mean, I think Congress will eventually find an answer to this, to say this is disgraceful and it's going to stop. I would hope that you could do that by regulation instantly. But --

SEC. GATES: Well, and when we -- my understanding is when we think somebody is inappropriately using the tax code to benefit themselves -- we have our Defense contract Audit Agency taking a look at it, and my understanding is they are looking at this at this point.

SEN. DORGAN: Two-and-a-half billion dollars in this supplemental for Iraq security forces fund training: That's the training and equipping of Iraq security forces. Iraq has earned a third more money than was expected, 2004 to 2007, from oil revenues. They'll earn $70 billion this year.

Isn't at some point, after we've spent close to $20 billion of American taxpayers' money training over 400,000 Iraqis for security, police, soldiers, isn't it time that the Iraqis perhaps would spend their money for training their troops and equipping their troops?

SEC. GATES: Well, Senator, they are. And in 2008, in FY '08, they will spend $9 billion compared to our 3. The trendline, I think, is in a direction that you would like. We were at 5.5 billion in helping them on training and equipping in '07. Down to 3 in '08 and it will be 2 in 2009. So I think we're headed in the right direction.

I would say that we need to do this. We need to scale this down gradually though so we can keep an oar in, in terms of the quality and in terms of making sure that the training is of the kind that we'd want to make sure that they have. And they are beginning to move from our giving them equipment to making use of foreign military sales.

SEN. DORGAN: I understand the trendline. I appreciate that.

It is the case that on this two-and-a-half billion, we're going to borrow that from somebody and ante up when, in fact, the Iraqis are producing a great deal of oil money they didn't previously expect. I would hope that we'd ask them to do even more rather than just deal with trendlines.

I want to mention and I won't ask you about this but the executive agency responsibility for UAVs. One of my great concerns: The fact is, there's waste in the Pentagon. We all know that, a lot of waste in some cases.

The services want to do exactly the same thing. The Air Force has UAVs. The Army has UAVs. The Air Force is producing their planes. The Army is producing their planes.

And the Army wants to control their airplanes at 12,000 and 15,000 feet, as opposed to just tactical control over the battlefield. And it seems to me, that probably ought to be the Air Force.

And I understand from an executive agency matter, you've described a task force here. I further understand that one of my colleagues put a little piece in a bill last year that prevents you from doing anything on this.

But I mean, shouldn't we try to avoid this kind of duplication of effort by the services? It's gone on forever and continues to go on, especially now with respect to UAVs.

SEC. GATES: Well, I think that first of all, this is an area where I've spent quite a bit of time over the last few months, principally in an effort to try and get more intelligence, surveillance and reconnaissance into Iraq and Afghanistan to help the commanders.

The reality is, I think that there are a number of bureaucratic problems, inside the Department of Defense, having to do with ISR. And one of my hopes is that as a result, after the task force has finished its work, they can sit back and look at the whole range of UAVs and other ISR capabilities and see the best way to organize this thing.

SEN. DORGAN: Well, I appreciate your work on that. We've got to avoid this kind of duplication. And each service wants to do it. Doesn't matter what's right for the taxpayer. They want to do what the other service does.

I want to ask you about bin Laden.

And Admiral Mullen talked about the most likely near-term attack on the United States will come from al Qaeda via these safe havens. You know, I've asked these questions before, but we're talking about 140,000 soldiers in Iraq now beyond the surge. We're talking about borrowing a lot of money; another $102 billion in the sup and then $500-plus billion in the -- and the fact is that Osama bin Laden is reconstituting his training camps, apparently is in northern Pakistan or somewhere, and we're busy in Iraq, when in fact the greatest threat of an attack against our country comes from al Qaeda. Is there a disconnect here?

I mean, tell me what we are doing. I've asked this question repeatedly. What are we doing seven years after our country was attacked by those who boasted about the attack to bring them to justice? Because they, in fact, are reconstituting their training camps and reorganizing. It seems to me, that is a failure. And I don't lay that just at your feet. I'm just saying, my observation is here, we're spending a lot of money and engaged in the area that is apart from what Admiral Mullen has described as the greatest threat to our homeland.

ADM. MULLEN: The -- and I would just reiterate that if -- it's still my belief that if another attack comes that it will emanate from the planning there, because that's where the al Qaeda leadership is, and that it's a very difficult problem because this is sovereign territory. It's my belief, and we talk, and often -- as we should, about Afghanistan, but we need to talk about Afghanistan and Pakistan, because there's an overlap there. There's a border, across which obviously the Taliban come. And I think we need a strategy that essentially addressed both those countries together, particularly the overlap.

We've got a new government in Pakistan. It's my belief we've got to deal with that government. We've got to -- my individual -- I deal with, in Pakistan, as the head of the army there, General Kayani, who I think has a -- has got a strategic view, but it's going to take him a while. He's in charge of an army that has not been fighting counterinsurgency. I think it's a long-term effort, clearly, and that there are -- there are some near-term things that we need to do -- and some things we are doing to address it, but it's a very, very difficult problem.

SEN. DORGAN: I would just observe -- and my time has ended -- if the greatest threat to this country, an attack in this country, is shielded by the sovereignty of some other place on this globe, there's something wrong with that. There ought not be one acre of ground that's safe to walk for Osama bin Laden. Not an acre anywhere.

And finally, if I might just in 10 seconds say, Mr. Secretary, I'm going to send you some information in a letter about the issue of privatizing houses on bases. They're fixing to do that in two North Dakota bases and turn over brand new housing to a private contractor, who will then guarantee for 50 years to maintain -- I have great difficulty with that ,and I have a series of questions.

Having said all that, let me thank you for your service, both of you. I was asking questions that were on my mind, but I think this committee appreciates the service that both of you provide this country.

Thank you very much.

SEN. INOUYE: Thank you.

Senator Murray?

SEN. PATTY MURRAY (D-WA): Thank you very much, Mr. Chairman.

Secretary, all of you, thank you so much for appearing today.

Mr. Secretary, there are a lot of important issues before us, but I want to focus first on the future of our military and the weapons platforms that they use. As you are aware, I've been particularly concerned about the KC-135 recapitalization effort, how the RFP and the evaluation of those proposals were handled.

I've had meetings and asked questions of the Air Force, the National Guard, the Air Force Reserve and members of your staff regarding costs and process, and I have to tell you I am still not satisfied.

Last Tuesday, Mr. Secretary, you did speak to the Heritage Foundation, and I want to quote back to you what you said. You said, "The perennial procurement cycle going back many decades of adding layer upon layer of cost and complexity onto fewer and fewer platforms that take longer and longer to build must come to an end. Without a fundamental change in this dynamic, it will be difficult to sustain support for these kinds of weapons programs in the future," unquote.

Now, I think you and I share this similar perspective on that issue. However, I would like you today to comment on concerns that were raised by the GAO in a couple of their reports. The first one was from March 6th of last year, titled "Air Force Decision to Include a Passenger and Cargo Capability in Its Replacement Refueling Aircraft Was Made without Required Analysis."

The second, from January of this year, is titled "KC-135 Recapitalization Analysis of Alternatives Does Not Inform Decision- Makers Regarding Cost, Effectiveness and Suitability."

So it seems to me from the beginning the Air Force and DOD are part of the problem that you have identified by adding requirements to a refueling tanker without the mandatory analysis. Do you have a comment on that?

SEC. GATES: The only comment that I would make, because I am far from expert on this subject, is that I look forward to the completion of the GAO response to the protest that was filed, to see how they come out on it.

SEN. MURRAY: Well, it is a problem for me that the Air Force didn't complete the mandatory analysis and the JROC determined that that was okay. So I hope you take a look at that.

And one of the reasons that that analysis is mandatory is to prevent purchasing a platform with capability that may not be needed. Now, we're talking about a $35 billion platform. And although I'm being told that it was the most transparent, I remain unconvinced, because that process was flawed on thorough evaluation of military construction, necessary maintenance steps and fuel cost. How am I supposed to believe that this program is going to be on time and on cost if we don't have a fundamental sense and justification for what we're buying?

SEC. GATES: Well, again, Senator, I'm just not familiar enough with the details. At this point I think I just have to wait for the GAO report to -- investigation to see what their conclusions are on it.

SEN. MURRAY: Can you give me any sense that this program, unlike others, isn't going to go over budget and miss deadlines because we haven't fully evaluated all the costs?

SEC. GATES: I think a secretary of Defense who would give you an assurance like that prospectively would be on very thin ice. I think that happens to so many programs. I mean, it's one of the problems that -- in acquisition that we have and that we're trying to deal with, frankly.

SEN. MURRAY: Well, I am worried that the acquisition process in general isn't serving our needs. I've heard again and again that only cost, technology and capability can be considered in an acquisition. You know, perhaps that's not enough.

At the same Heritage Foundation event, you were quoted -- in The Washington Post, I think it was -- by saying, "I believe that any major weapons program, in order to remain viable, will have to show some utility and relevance to the kind of irregular campaigns that I mentioned are most likely to engage America's military in coming decades."

Now, I have to say, I am deeply concerned that the EADS platform has a lower score on survivability than the Boeing 757. Shouldn't we be buying the most survivable tanker? I mean, isn't that -- shouldn't that be a higher consideration?

SEC. GATES: Well, I don't -- again, I'm no expert on this, but I would say that just based on our experience after five years of war in Iraq that survivability of the tanker -- of our tankers has not been a particular problem.

SEN. MURRAY: Well, let me ask you, do you think we need to make changes in the way we do acquisitions to take into account everything that is important?

SEC. GATES: Well, I think -- you know, you've quoted the three criteria that limit us by law in terms of what we can look at: technology, cost and capability. And the law is very explicit, as I understand, that we cannot look at anything else. So the only way to correct that would be to change the law. But my only caution in changing the law is that all of our companies sell a lot of equipment to other countries, and so I think we need to be very careful about how we limit access and bidding and the criteria we take into account, because what we gain over here we may lose over there.

SEN. MURRAY: Well, is it possible -- I mean, should we, as Congress, be thinking about the fact that in trying to give our warfighters the lowest price possible that we could, in fact, be undercutting our own ability to protect our country in the future? Should we ever take that into account?

SEC. GATES: Well, I -- you know, my personal view would be anything that affects our long-term national security should be taken into account. But as I say, in this particular case, that would require a change in the law.

SEN. MURRAY: Well, as you said, you can only take into account cost, capability and technology. But in Congress we have to take a lot wider purview. We have to do -- a duty to do what DOD can't do. We have to look at unfair competition. We have to look at the impact of companies who are using illegal means to break into the U.S. defense and commercial markets. We have to look at the long-term security of the United States. We have to look at our industrial base. We have to look at the industrial capability of our country far into the future. We have to make sure we have a level playing field; I mean -- in regards to subsidies, Berry Amendment compliance, all of that, we have to ask if that is coming at a cost to our domestic companies.

So when DOD is limited to just three narrow things, I fear that we're handicapping the U.S. industrial base in the future. Is that a concern that Congress should be looking at in your -- from your point of view?

SEC. GATES: Well, I think that the -- I've had a concern about our industrial base, particularly for defense and intelligence for about 20 years now. And I think that the consolidation of industry and the fewer and fewer companies that are able to bid on and produce what we need is a concern.

SEN. MURRAY: Well, I share that concern. And I know you have a close association with higher education -- attracting workers into a dynamic field is critically important in our aerospace industry. We need engineers and mechanics and a whole range of people thinking into the future. We have to have an aerospace industry here that is strong if we want to attract people into that field. I would assume you would agree with that as well.

SEC. GATES: Yes.

SEN. MURRAY: Well, there -- I have a lot of questions about this, Mr. Secretary, and some deep concerns. And I hope at some time you and I can have a more private conversation about that and the acquisition process and what we of Congress have to be thinking about and looking at into the future.

And I only have a second left. I did want to thank you for following up. Last year, we talked about traumatic brain injury and making sure that we are tracking our soldiers better.

I do want you to know, we did have a hearing recently with the National Guard. And there was a young soldier in the audience, who I asked if he had been tracked. He was in the vicinity of two major explosions, and no one had ever asked him.

And I just wanted to make sure that we follow up and are doing what you're trying to do, in the National Guard and Reserve as well, to make sure that we don't lose those folks when they come home.

SEC. GATES: Absolutely.

SEN. MURRAY: Thank you, Mr. Secretary.

SEN. INOUYE: Thank you very much.

Senator Cochran.

SEN. THAD COCHRAN (R-MS): Mr. Chairman, Secretary Gates, Admiral Mullen, thank you very much for your cooperation with our committee, being here to testify in support of the request for supplemental funding.

In preparation for the hearing, my very able staff provided me with information about your dealings, with the House Appropriations Committee and other committees here in the Congress, on the subject of adequacy of funding, for critical programs and challenges that we face in Iraq and elsewhere, overall needs to protect the security interests of our country.

And I'm alarmed by some of the conclusions that I drew from this information. And I'm asking this in the form of a question, for your to confirm or explain these conclusions that I've reached in looking through my briefing papers.

The Army will run out of personnel funds by mid-June. Reprogramming actions will be initiated next week to borrow from the other services. But all services will run out of military personnel funds by late July.

The Army will run out of operation and maintenance funds by early July, including funds for civilian personnel. Reprogramming will allow operations to continue until late July.

The critical Commanders Emergency Response Program is used to fund local projects in Iraq and Afghanistan. And it will run out of funds in June. And reprogramming actions cannot be taken to extend this account.

Added to this is an observation that we drew, from comments that have been made, by leaders of the committee over on the House side, that there is a likelihood that consideration of the FY '09 Defense appropriations bill may be deferred.

I wonder what your conclusions would be about the impact that would have on the Defense Department, in terms of its fiscal year 2009 appropriations bill not being passed.

Secretary Gates, would you like the first crack at that?

SEC. GATES: Let me start and then turn it over to Admiral Mullen.

First of all, on all of the information, with respect to what happens in the absence of the FY '08 supplemental, war on terror supplemental, what you said is exactly right.

All of those things will happen just as you describe them.

With respect to FY '09, I was -- I must say I was very concerned when I read that there may not be an FY '09-based budget, because -- let me just give you a few examples of the consequences of a continuing resolution for FY '09 for us.

First of all, we would lose nearly $9 billion, $8.7 billion for growing the Army and the Marine Corps. The money that -- so since we can only spend under a continuing resolution in '09 what we spent in '08, the 8.7 billion additional dollars we need for growing the Army and the Air -- the Army and the Marine Corps we would lose. We would lose 246 million additional dollars we need to stand up the Africa Command. We would lose $1.8 billion for BRAC, which includes barracks, day care centers, family facilities and so on. We'd lose a billion dollars on search and rescue and mobility. We have 14 UAVs, Predators, that are new -- that represent new money in the '09 budget, and that we would not have access to as a result of a continuing resolution.

And the list goes on and on. Anything in which there is more money in the budget for reconstitution, for rebuilding our forces, for improving readiness, any increment between the '08 and '09 budget would be lost under a continuing resolution. So a continuing resolution of some length of time would be a real problem for you.

And I'll give you an example of the result of this. In FY '08 -- FY '07, we did not get the supplemental until May. That supplemental had significant dollars in it for BRAC. And we then had four months to contract and obligate that money out of an entire fiscal year. And so we lost about a half a billion dollars, not to mention eight months in terms of meeting the BRAC statutory deadline.

So the consequences of these continuing resolutions have -- are real for us in the way we manage the department.

SEN. COCHRAN: Thank you.

Admiral Mullen?

ADM. MULLEN: Doable, as the secretary has previously indicated, but consequences of great significance. I'll give you -- I'll speak to two examples.

In my last two trips to Iraq, I'm at a joint security station in Baghdad with a young captain, who is -- and this is February time frame -- who has provided the security and has essentially allocated all of his CERP money, his emergency response money, for the quarter by the end of March. Now, that's as a result of the needle valve that the commanders in Iraq were applying because of the both authority as well as the funds, which were due to run out. So the extension of the security environment into the area, to put Iraqi civilians to work in terms of security and to fund local projects which would improve the future of Iraqi citizens was essentially on hold as early as February in this one place.

Not too long after that I was with the 3rd Division commander -- who has done extraordinary work, General Rick Lynch -- and the only thing he asked me about given what he's done from a security standpoint is he needs that money because he's got to fund the security forces, the Iraqi civilians, as well as the projects.

He'd had great success with it. So that's real impact on the ground to get where we need to go.

And then back here, only to reemphasize what the secretary said, as a former service chief who has had to go through multiple reprogrammings, late -- I mean, deadlines like this, it brings the organization almost to a halt. And then when you get to execute, you execute very inefficient, very late contracts, which, in fact, is a significant waste of money. The whole service, everybody in DOD, and particularly the services, start to anticipate not having the money. Even knowing it may come, if it comes late it has devastating impacts on the ability to execute, not even to speak to new programs, similar to what the secretary has spoken to in terms of what would happen in '09 on a CR.

SEN. COCHRAN: Well, thank you very much. It grieves me to have to acknowledge that, you know, it's one of those -- we've met the enemy and he is us, the old line from Pogo, I think?. And I worry that the Congress is becoming an impediment to the efficiency and to the capability of our government and our Department of Defense, particularly, and our challenge to protect the security of our troops who we're putting in harm's way and sending on dangerous missions, and others we're trying to train and get them prepared to take over other responsibilities for national security.

And all of us are going to be at risk in some way because of the slowdown and slow-walking of the appropriations process by the United States Congress. I think it's unfortunate, but I'm afraid it's real.

So your being here and your helping to explain the practicalities of our delays is appreciated very much, and your leadership is deeply appreciated as well.

Thank you.

SEN. INOUYE: Thank you very much.

I realize the time constraints, so I will ask one question, a question that no one wants to ask, and I'll submit the rest to you, Mr. Chairman and Mr. Secretary.

Mr. Secretary, between 2000 and 2006, military personnel compensation costs increased by 32 percent for active duty and 47 percent for reserve personnel. We're now spending about $180 billion a year on pay, benefits and health care for our armed forces. And according to the GAO, this equates to $126,000 per service member.

And my question is, is the cost of maintaining an all-volunteer force becoming unsustainable? And secondly, do we need to consider reinstituting the draft?

SEC. GATES: Let me answer and then invite Admiral Mullen to answer. I think that your commanders would tell you that this is the finest Army the United States has ever fielded, particularly the Army, but all of the services; that in terms of quality, in terms of resilience, in terms of dedication and in terms of skill.

I think that it is -- there is no question that it is expensive. When I was in Ukraine a few months ago, they told me they were thinking about going to a volunteer force. And I said, "Well, you better think carefully about it, because it will be very expensive." And the difference -- one of the huge differences between a volunteer force and a conscription force is the attention that must be paid to families and taking care of families of soldiers whether they are deployed are not, and making sure that the families have access to the kind of services and so on.

So it's not just the soldiers.

I would tell you that I personally believe that it is worth the cost. And I think that in some ways, the burden -- I don't know the demographics specifically. But just as an example, I know that there are a number, of members of Congress, who have sons and daughters in the military. There are sons and daughters of well-to-do families, from across the country, who have -- who are in our military.

So I think that it is -- it does encompass a socioeconomic range in the country, and so that we don't have just one slice of the society that's serving. I think that it would be a real problem to try and go back to the draft.

ADM. MULLEN: The military, with whom I serve now, is the finest military by orders of magnitude that, I believe, we've ever had, and certainly by direct comparison of when I was commissioned in 1968. And I believe the single biggest reason for that has been the fact that we have gone to an all-volunteer force. And they emanate excellence in everything that they do.

This is the most critical investment that we make, in terms of the Department of Defense, in our people. That said, your citing of those statistics is of great concern to me, because we -- I -- a future, that argues for or in fact results in the continuous escalation of those costs, does not bode well for a military of this size.

Eventually I mean, there are limits which we will hit which will, in the constraints that exist, will force us to a smaller military, or force us away from any kind of modernization or programs that we need, for the future, or curtail operations.

And I think this issue, which is such a challenging one, is the top issue with which we need to come to grips with, not just in the near term but in the long term. This was cited as well by Arnold Punaro in his report.

And our military and our families have been incredibly well supported. The overall compensation package since the mid-'90s has gone up dramatically and rightfully so. And nobody knows that better than you.

We must continue to take care of them and, at the same time, look at how we address this issue long-term. Because we cannot -- I don't see us as a country being able to afford the kind of cost increase, at the rate they've occurred over the last several years, as you've quoted.

That said, we've got to have this right for our people. Or essentially we will not have a military to support our national security efforts.

SEC. GATES: Mr. Chairman, let me go back to an issue that you raised in your opening statement, because it is one area that not only concerns us but where we believe we have to get it under control. And that is the cost of health care. Health care costs in the military, for the Department of Defense, have gone from about $19.5 billion in 2001 to $42.8 billion for FY '09. By FY '11, 65 percent of the people being served by that budget item will be retirees.

Now, the problem is, many of those are still working retirees. They're retired from the military, but they're in reasonably good health or very good health, and they are working in other jobs. And we have not had an increase in the premium, in the -- in what the service member pays for TRICARE, since the program was initiated. It's been a real issue here on the Hill, but it is one of those areas where in fact we -- and as you mentioned, we have a -- over a billion- dollar hole in the budget because we were -- we keep hoping, as the commission on military medicine recommended, that we can get agreement to make some modest increase in the TRICARE premium for those who are not yet at retirement age -- 65 or 62 or whatever it is. And so this is an area where we may be able to make some -- have some kind of impact on those dramatically rising costs without impinging on those who are in the service today.

SEN. INOUYE: Thank you very much.

Senator Domenici.

SEN. PETE DOMENICI (R-NM): Thank you very much.

First of all, Mr. Chairman, I apologize for being late. I had three hearings, and I was very insistent that I make this hearing, as I've tried.

Let me talk about a subject that I've asked my staff about. And it has not been broached today, so I will not duplicate. Two of my other issues have already been addressed, and I will not ask about them.

But let me ask both the secretary and the chairman to talk a minute about the fact that our country is so dependent upon foreign oil or foreign energy for our very existence, including the existence of our military. We have -- we now import over 65 percent of what we use.

At the same time, we are trying very hard to develop alternative sources of energy. Of those alternatives, some have to do with the development of new technologies and new innovations like -- I'll just give you an example -- converting oil shale up in Colorado and Utah to diesel fuel, at the minimum, and then to perfect it even further.

We are interested now in the new technology of converting coal to liquid. That liquid would be of various kinds, but at first it would be at least diesel that could be used in all of the military equipment of the country. So I wonder if anything is going on that you can recall that has the military involved in trying to put together this kind of package that is going to be required to move this kind of technology and development along. Is there anything going on like purchase -- considering purchase agreements for companies that develop new sources of alternative energy. That would be one way where you could be of great help. Is anything going on there in that field, Mr. Secretary?

SEC. GATES: Senator Warner raised this with me at a breakfast that I had with the Senate Armed Services Committee leadership last week, and I promised to get back to him and we will get back to you. We do have -- I think we do have research dollars involved in alternative energy programs. I would tell you also that we have some very interesting recovery projects. I just visited the Red River Army Depot a week or so ago. And when they brink back the humvees and strikes and tankers and everything from the theater, they still have the fluids in them -- the gasoline, the oil and so on. And they have a contract with a private company that takes all of that stuff, re- refines it and sell it. So they make several million dollars back for the taxpayers simply by not throwing away this used fuel and petroleum products. And we cam get back to you with some -- the specifics on the energy programs that we have under way in alternative energy.

But Admiral, do you have anything?

ADM. MULLEN: The only thing I would add, Senator, I think clearly this crisis needs to be address, and investments in those kinds of technologies would be very important. And I also would praise, in particular the Air Force, whose taken a lead on flying on synthetic fuels and in fact has flown an awful lot of air -- aircraft, including a B-52 an and I believe --

SEN. DOMENICI: That's correct.

ADM. MULLEN : A B-2 on -- a B-1 or B-2, I can't remember -- and their initiative in their efforts are significant. You know what we invest in each year for fuels, and we've got to look for more diversity.

SEN. DOMENICI: It was B-1. Let me say that I would like to know what kind of money and projects you have in alternative fuel creation. But I want to stress another point, and then I'll be through. In order to get some of this technology perfected, we're going to reach a point where they're going to want to sell their product to Wall Street to finance a $5 billion plant for something. And in order for that to happen, somebody has to be the purchaser of the product.

And what seems to me inevitable and quite appropriate is that the military could agree to contract, to purchase the product for 10 years, because you're going to need that much. You could just document that you need 10 times that much. But you would be the assurance to this investment, in this new technology, that if it proves up, you will buy it for a given length of time.

Would you check and see if you have such authority? Because if you don't, we ought to give it to you. Because they're going to be knocking on your door, in two or three areas, within the next couple years.

One, clearly coal-to-liquid, where they're going to be building very big facilities and they're going to have to have a buyer or two and they're going to go to the military. And that's very appropriate in my opinion. You're going to get it at market value anyway. It's a matter of where you buy it. Buy it American-made or buy it overseas, and they'll be producing it.

Believe it or not, Shell Oil, S-H-E-L-L, is only a few years away from shale oil conversion right out in the field. In situ, they call it, as you've heard. And they're just going to boil it in the ground and take it out, you know, just take it out like you would suck out from a can of Coke. And what they'll be taking out will be a fuel of certain sorts.

And clearly they're going to need a purchaser or two, so that they have that backed when they finance their bigger projects. And I just want to get you all involved in thinking about it, because it's certainly going to be in the ballgame. And you'll be important players.

And I thank you for listening. And whatever you can give me on that, I would -- it would help me, so we would only bother to add on to such authorities, if it's needed. Thank you.

SEN. INOUYE: Thank you very much, Senator.

SEN. DOMENICI: Thank you.

SEN. INOUYE: Mr. Secretary and Admiral, we very much appreciate your appearance today and your testimony.

With this hearing, the subcommittee concludes its overview of the Defense budgets. Our final hearing will be with members of the public. And I can assure you that this subcommittee will act expeditiously as we have in the past.

As you have heard today, Secretary Gates, the subcommittee has many questions regarding your department and your budget requirements. And as we have pointed out, you have offered many candid views, over the past several months, regarding shortcomings in the equipping and management of our forces. In the next week, the subcommittee will meet to consider your Defense needs and formulate a set of recommendations for funding.

So Mr. Secretary, in advance of this review, allow me to make this offer. If there are items, in the FY 2009 budget request, which you no longer wish to prioritize, or items which you would like to increase, please feel free to inform us officially or unofficially. And we'll take them under consideration.

SEC. GATES: Thank you, sir.

SEN. INOUYE: And gentlemen, we thank you for your testimony. I look forward to working with you as we refine our views on the FY 2009 defense appropriation requirements.

And Mr. Secretary, I gather this is your last appearance before this subcommittee. I'm certain every member of this subcommittee appreciates your leadership and your contributions to our country.

SEC. GATES: Thank you.

SEN. INOUYE: We thank you very much, sir.

SEC. GATES: Thank you.

SEN. INOUYE: The subcommittee will now stand in recess until Wednesday, June 4th, at 10:00 P.M. -- 10:00 A.M., when we will receive testimony from public witnesses. Thank you very much.

END.