DOC. Y 1.1/3: 102-31 UNIVERSITY OF ILLINOIS LIBRARY AT URBANA CHAMPAIGN SENATE REPUBLICAN TASK FORCE ON ADJUSTING THE DEFENSE BASE JUNE 25, 1992 I. INTRODUCTION II. OVERVIEW A. Defense Spending in Recent Years B. Defense Spending in the 1990's III. HELPING PEOPLE A. Military Personnel B. Defense Department Civilian Employees C. Private Sector Workers and Job Training Program Improvements IV. ASSISTING IMPACTED COMMUNITIES A. Redevelopment Planning B. Economic Development Grants C. Hazardous Waste on Closing Military Bases D. Impact Aid for Education E. Federal Re-use of a Closing Military Base F. Health Care for Retired Servicemen. V. INDUSTRIAL CONVERSION/RETAINING AN INDUSTRIAL BASE A. Diversifying our Defense Production Base B. Retaining our Industrial Base I. INTRODUCTION The formation of the Senate Republican Task Force on Adjusting the Defense Base was announced on April 16, 1992, by Senate Republican Leader Robert Dole. Senator Warren Rudman was named as Chairman of the Task Force. Other members appointed to the Task Force were Senator Hank Brown, Senator William Cohen, Senator John Danforth, Senator Pete Domenici, Senator Orrin Hatch, Senator Nancy Kassebaum, Senator Trent Lott, Senator Richard Lugar, Senator John McCain, Senator John Seymour, Senator Ted Stevens, and Senator John Warner. The Task Force was charged with the responsibility of helping to develop responsible policies to deal with the build down and restructuring of America's defense system in the wake of our nation's Cold War victory and the collapse of the Soviet Union. It focussed on policies to facilitate a productive shifting of our human and technological resources while maintaining a viable defense base. Fulfilling this mandate and developing responsible and cost-effective policies for adjusting the defense base cuts across the jurisdiction of a number of Senate committees. Accordingly, the Task Force membership includes Senators from the Armed Services, Appropriations, Budget, Commerce, Finance, Foreign Relations, Governmental Affairs, and Labor and Human Resources Committees. / =»C YTI8«3V»MU yhapsi J ; v'OiA-r - ■■■,"! H ■ '• r -. T3ar ?»ao vfUIOAi .-BAflr.! i 2 This report includes recommendations that, if followed, will facilitate a transition to a post-Cold War economy in a manner that minimizes human dislocation, strengthens America's economy, and does not overburden the American taxpayer. It is important to understand that a sound economy and sustained economic growth is the only force that can ensure jobs and high living standards for those who must leave the military, defense jobs in government, and the defense industry. The most important step that Congress can take is to pursue policies which will strengthen the overall economy and provide productive jobs for all Americans. Even the ^ best defense conversion package will be a poor substitute for efforts that bring the federal deficit under control, for tax policies which spur investment and technological development, and for controlling government spending. It is the view of every Member of this Task Force that no mix of defense adjustment policies can succeed in the face of government policies which weaken the American economy by continuing to sanction out-of-control federal deficit spending. II. OVERVIEW A. Defense Spending in Recent Years. Beginning with the last year of his Administration, President Carter and the Congress embarked on a policy of rebuilding our national defense. This policy was initiated in response to a massive defense build-up by the Soviet Union and an increasingly aggressive and interventionist foreign policy by that nation, most notably the 1979 invasion of Afghanistan. President Reagan, upon taking office in 1981, continued and accelerated this policy. Contrary to the perceptions of many Americans, however, the defense build-up did not continue unabated through the eight years of his presidency. The last time real (i.e. after adjusting for inflation) defense budget authority increased was in fiscal year 1985, a budget which was adopted prior to President Reagan's reelection to a second term. Excluding costs associated with Operation Desert Storm, real defense budget authority fell 23.7 percent between FY 1985 and FY 199 2, and dropped by 12 percent between FY 1990 and FY 1992. This is a cut in defense spending in constant FY 1992 dollars from $350 billion to $278 billion, and is equivalent to a peace dividend of $62 billion in the current fiscal year alone. In nominal terms (i.e., without adjusting for inflation), the budget grew slightly. However,, this growth was largely attributable to inflation-based increases for personnel and operation and maintenance accounts. Budget authority for defense procurement (the authority to order new weapons systems and related hardware), however, has fallen dramatically. Between FY 1985 and 1992, budget authority for defense procurement fell from $96.8 billion to $60.5 billion, a nominal decrease of 37 percent and a real decline of 53 percent. . 3 Although these procurement cuts are very real, the fact that they have occurred has been largely obscured by spend-out rates and the Persian Gulf War. There is normally a significant gap between the time new weapons systems are ordered and when they are actually built and paid for. Similarly, when procurement reductions are imposed, there is a delay from cuts in new orders to termination of production and cuts in the flow of actual dollars to industry. Thus, in terms of the federal budget, defense procurement outlays held steady through fiscal 1991. Overall defense outlays did not decline in real terms until fiscal 1990 and, after a two year decline, grew again in fiscal 1992 due to the Gulf War. The delay in the actual spending of procurement dollars has also, to date, minimized the effect of the previously agreed to cuts on defense industry jobs. According to the Defense Budget Project, private sector defense industry employment^ stood at 3.1 million in fiscal 1991. This was the same number the defense industry employed in fiscal 1985, but 265,000 below the peak number of workers employed in fiscal.1987. Thus, although the cuts have had significant impacts on particular defense-dependent plants and communities, the overall effect of cuts in defense procurement has been relatively limited to date. This will change rapidly in the next few years. B. Defense Spending in the 1990's. 1. President Bush's Budget. Defense spending will continue to drop during the 1990's. The inherent contradictions and weaknesses of the communist system of government, coupled with the steadfast policy of the United States and its allies against Soviet expansionism, led to the collapse of the Warsaw Pact in 1990 and the Soviet Union in 1991. As a result, the United States can afford to reduce the size of its military forces and defense spending will be cut over the next several years. Because of the Gulf War, both defense budget authority and off-setting receipts (the contributions made by our allies) surged in fiscal 1991. However, many of the outlays associated with that budget authority were not incurred until fiscal 1992. Thus, ironically, although combat in the Gulf ended in March, 1991, outlays were lower in fiscal 1991 and are higher in fiscal 1992 than they would have been had there been no war. 2 Estimates of defense-dependent private sector employment are woefully deficient because there is no good data on the work force employed by subtier contractors or in jobs which are indirectly defense dependent. These estimates reflect only direct contractor and subcontractor employment. Digitized by the Internet Archive in 2019 with funding from University of Illinois Urbana-Champaign Alternates https://archive.org/details/reportofsenatereOOunit 4 President Bush this year proposed additional defense budget authority reductions, beyond those previously agreed to by the Administration, of 15 percent in real terms through fiscal 1997. This will allow us to reduce the burden of defense spending from a post-World War II high of 14.5 percent of Gross Domestic Product (GDP), a high of 6.3 percent during the Reagan build-up, and 4.9 percent today, to 3.6 percent of GDP by FY 1997. Similarly, defense spending will drop from 28 percent of the federal budget during the height of the Reagan build-up, and 21 percent today, to about 17 percent in FY 1997. To put these trends in perspective, discretionary domestic spending remained relatively constant at 16-17 percent of the federal budget between FY 1985 and FY 1992, and is likely to remain at this percentage through FY 1997. Non-discretionary federal domestic spending — so-called "entitlement" expenditures — has risen from 46 percent of the budget in FY 1985 to about 52 percent today. It will rise to at least 61 percent by FY 1997 under current spending projections. These trends mean that the major peace dividend which would be produced under the Bush budget will sustain a massive restructuring of federal spending on domestic programs. While defense spending was double the amount the federal government spent on payments to individuals at the time the Berlin Wall was erected in 1961, it will be only one-third the amount we spend on payments to individuals in 1996. This peace dividend, however, also means further reductions in defense-related employment, with most of the new cuts in jobs occurring between FY 1992 and FY^1995. The Office of Technology Assessment estimates such losses' 5 as follows: (1) 396,000 active duty military, 1? percent of the current total; (2) 104,000 DOD civilian, 10 percent of the current total; and (3) between 530,000 and 620,000 defense industry positions, 18-21 percent of the current total. The loss of defense industry jobs is difficult to estimate. The Defense Budget Project estimates larger private sector losses at 745,000 by FY 1995 and 906,000 through FY 1997, provided that Congress does not cut the present Bush defense spending plan. This estimate is higher than the OTA estimate, but may well be correct. The number of positions lost is larger than the number of workers involuntarily separated through lay-offs. Much of the job reduction will be accomplished through voluntary separation and retirement. . 5 It is also important to note that the Defense Budget Project estimates that 19 percent of all the defense industry jobs that will be lost during FY 1991-97 will have been lost by the end of FY 1992, that 31 percent will be lost in FY 1993, and 22 percent will be lost in FY 1994. This means that 72 percent of all the changes taking place in defense industry employment as a result of the current defense build-down will have been completed within the next three years. Job losses of this magnitude are manageable from a macroeconomic standpoint if the American economy performs well. ^ In contrast to the 1 to 1.25 million jobs that will be lost as a result of this defense build-down, the number of defense related positions eliminated totalled 2.5 million in the three years following the Korean War and 3.05 million between 1968 and 1974 as the United States disengaged from Vietnam. The job losses resulting from U.S. disengagement in Vietnam were absorbed by an economy that created 20.1 million new jobs in the 1970's and 18.1 million in the 1980's. Similar job growth can be expected in the next decade with steady economic growth. The importance of strong generic economic growth to offset the defense reductions is magnified by the current fiscal situation facing the federal government. The massive deficits of recent years have severely diminished, if not eliminated, the ability to use the federal budget as a tool to stimulate the economy. Although the aggregate macroeconomic effects of defense budget cuts are manageable (and may even be beneficial in the long run), this spending is not spread evenly through the economy. Some communities are heavily dependent on defense spending and will be especially hard hit by the cuts. In these communities, absent an effective response, the impact of the cuts will spread through the rest of the local economy, affecting construction, real estate, and other industries. Similarly, some industrial sectors will be hard hit. The ship building and repair capacity of the United States is virtually 100 percent defense-dependent while the missile industry is 90 percent dependent. Examples of other industries more than 40 percent dependent on DOD include radio and television communications equipment manfacturing and aircraft (including engine, parts, and equipment) manufacturing. Helping the individuals employed in these sectors, many of whom are highly skilled, find productive employment will be especially important. These individuals have the ability to work in critical areas of technology development and manufacturing which are essential to the ability of the United States to compete in the global marketplace. The State of California represents an especially dramatic example of this trend. One out of every nine Americans now lives in California, and the state's economy nurtures a wide variety of ✓ ' 6 technologies, industries, and manufacturing processes that can sustain the competitive edge of the United States. At the same time, dramatic cuts in the defense and aerospace industries of California threaten to drain the state of some of its most productive human and economic resources. California receives more than 20 percent of total DOD expenditures annually, far more than any other state, and it has lost over 60,000 defense and aerospace jobs since 1986. Independent studies indicate that southern California alone could lose another 210,000 positions within this sector and its supplier network by 1995. The policies recommended below by this Task Force are designed to minimize the short-term dislocations and transitional problems that will affect individuals in communities and industrial sectors which are affected by the defense cuts. 2. The Prospect for Deeper Defense Cuts. Some have proposed defense cuts much larger than those recommended by President Bush. The Task Force opposes significant cuts beyond those recommended by the President for two reasons. o First, while recognizing that our Armed Forces can and should be cut, the Task Force is opposed to repeating the mistakes made following the Vietnam War which led to the hollow military of the late 197 0's. An orderly build-down of our military is necessary to maintain the morale, readiness, and technological and materiel capability of our Armed Forces. Although the single greatest military threat to the United States is largely neutralized at present with the collapse of the Warsaw Pact and the election of a democratic government in Russia, a cursory reading of the daily news headlines establishes that the world is still not a peaceful place. The United States must maintain defense forces adequate to cope with such contingencies as could arise. o Second, defense spending reductions at any level need to be undertaken in a phased, steady manner to ensure that the short-term dislocations resulting from defense cuts can be managed in a way that minimizes the harm to affected individuals and communities, and the overall impact on the nation's economy and unemployment. More immediate drastic cuts in defense spending will not only unnecessarily damage our defense capability, but prolong the recession and cause needless disruption and harm to millions of Americans. C. Paying for Defense Adjustment Policies. Many proposals have been made in the last couple of years to pay for a wide variety of non-defense programs out of the defense budget. Many of these ideas have been proposed as a way to avoid the domestic spending constraints imposed by the Budget Enforcement Act of 1990. Part of that Act imposed separate / 7 defense, domestic, and international affairs discretionary- spending ceilings, and required that savings in any of these categories be applied to reducing the federal budget deficit. The Act also required that legislation which increases spending on entitlement programs be offset with cuts in other entitlement programs or tax increases. Earlier this year, Congress rejected legislation to replace the three separate discretionary spending ceilings with one overall ceiling. However, under the Budget Enforcement Act, that change will automatically go into effect in FY 1994 and FY 1995. The Task Force believes that the cost of programs directly responding to problems resulting from the declining defense budget can and must be paid for in FY 1993 with funds attributed to the defense budget and be scored against the discretionary defense spending cap for FY 1993 in the Budget Enforcement Act. Transitional assistance, job training, and placement services for servicemen clearly fall into this category. Leaving these programs aside, the Task Force believes the defense budget should only be used to fund programs which have a defense application and enhance our defense capability. The coming cuts in defense spending and the steady rise in domestic spending leave little room to shift defense funds to non-defense purposes. Programs whose primary purpose is to strengthen the economy or sectors thereof should be counted against the domestic budget, even if the need for such programs has become more important because of the defense cuts. Programs to assist our competitiveness in manufacturing and industrial technologies would normally fall into that category. Some contest this view, arguing that the defense spending cuts made possible by the end of the Cold War represent a "peace dividend," a portion of which should be reinvested. That argument ignores the fact that a peace dividend is already being taken and is already being spent. Whether the peace dividend turns out to be $50, $100, or $150 billion in the next five years, that amount pales by comparison to the $800 billion that entitlement programs are expected to increase, over and above the amount attribut|ble to inflation and population changes, during the same period. The Task Force is not hereby taking a position on entitlement programs. Its point is that any discussion of taking a greater peace dividend ignores budgetary reality. Defense spending is already being cut to low levels, and additional cuts simply cannot These numbers are based on cumulative annual savings or increases. While this is not necessarily the most useful way of measuring changes in fiscal policy, it is the method that has been most commonly used in this debate. ’ 8 be big enough to pay for major new domestic programs without being so draconian as to threaten national security. III. HELPING PEOPLE A. Military personnel. The size of our active duty Armed Forces will be reduced by almost 400,000 men and women by 1995 to a total of just over 1.6 million. While much of this reduction can be accomplished through retirement and voluntary separation, some involuntary separation ^ is and will be required. The degree to which involuntary separation will be necessary will in large part be determined by the extent to which Congress reduces the force structure below the level recommended by the President. 1. Benefits for Departing Servicemen and Women. As we reduce and reshape our forces, our overriding objectives remain the same: to maintain a high state of readiness and to treat people fairly — both those who leave and those who stay. Therefore, Congress established and implemented several policies to ensure we accomplish these objectives and execute the drawdown in a fair, uniform, and consistent manner. Two programs were authorized by Congress in 1991 to encourage voluntary separations, the Voluntary Separation Incentive (VSI) and Special Separation Benefit (SSB), which are designed to address the differing needs of departing servicemen. The Department of Defense has implemented these programs, and VSI/SSB benefits are now being offered to selected servicemen who fall into categories based on ranks, groups, or skills, when a particular service is, or will be, overstrength. Servicemen with more than 6 years and less than 20 years of active duty are eligible for these programs. The Task Force supports these programs. On January 16, 1991, the Department of Defense instituted a personnel policy to protect all servicemen with 15 or more years of service until they are retirement eligible. This policy protects career servicemen and prevents the services from intentionally passing people over for promotion to encourage them to separate. In fact, this new policy is in place and personnel passed over who have more than 15 years of military service are continuing to serve. Due to the fact that the current VSI and SSB exit bonuses — which are in reality aimed at those servicemen with between 6 and 15 years — may not be proving as attractive as DOD had hoped, additional force reduction tools may be necessary. Compounding this equation is the belief that there will be further personnel reductions beyond those currently planned. Because of this, the Task Forces supports a provision which would authorize DOD to conduct Selective Early Retirement Boards (SERB) as a balanced / . 9 approach to the officer force reductions for those with at least 15 but less than 20 years of eligible service. Officers who would be eligible for this SERB would be those in the 15 to 20 year window of service who have not yet been selected for at least the paygrade of 0-5 (i.e., Lt. Colonel, Navy Commander). The Secretary of Defense must oversee this 15-year retirement personnel management tool and report his findings on the effectiveness of this force reduction process in meeting mandated end-strength requirements. Additionally, the Secretary should review other options to continue to make the necessary force ^ reductions less painful and examine whether other paygrades or ranks need to be addressed to meet potentially precipitous end-strength reductions. The Task Force supports legislation that provides transition benefits to the Reserves and National Guard whose status is affected by the ongoing cuts in our forces, if the down-sizing recommended by DOD is approved by Congress. As noted above, the Congress last year provided benefits for active duty service members who lose their jobs due to force structure reductions. This Task Force also believes that we must provide the proper mix of benefits to our National Guardsmen and Reservists. This Task Force supports the following benefits for the selected Reserve: o protection of Reservists and National Guardsmen with more than 15, but less than 20, years of credible service; o separation pay for members of the selected Reserve with more than 6, but less than 15, years of service, whose units are inactivated and who cannot cross-level to another unit; o provide that those who signed up for six years in the selected Reserve in exchange for educational assistance after completion of their six years of service will be protected. They would currently lose those benefits when terminated; o permit individuals who receive separation benefits because they must leave active service, and who then enter service in the selected Reserve, to do so without losing the equivalent of their drill pay by having it deducted from their separation benefits. This Task Force believes that we need to recognize the immense contribution that the men and women who served in the National Guard and Reserves made to the total force concept, to winning the Cold War, and to winning Operation Desert Storm, just as we have recognized the contributions made by those who have served on active duty. ✓ ' 10 2. Finding Productive Work for Departing Servicemen and Women. Many of the nearly 400,000 men and women leaving the active duty military services in the next five years are leaving in the prime of their professional lives. With a high degree of discipline and outstanding work and moral ethic, their ability to become highly productive members of our civilian society is without question. However, this group, many with families to support, had never planned to leave active duty and are not now in a financial position to return to school to enhance their employment opportunities and increase their value to society. In ^ addition, the high proportion of minorities represented in the military presents an important opportunity to incorporate their leadership skills into the community. About 95 percent of the officer corps have college degrees and 30 percent have advanced degrees. Many of these degrees are in the sciences, engineering, and language arts where there are shortages in the civilian sector, especially in teaching. In addition, many enlisted personnel also have technical and other skills which can be used productively in the private sector and in public service. The Task Force recommends that Congress adopt legislation to encourage states to adopt alternative teacher certification programs for separated and retiring servicemen whose college education provides them with the substantive knowledge to enable them to become qualified teachers. Alternative programs are necessary to meet the immediate needs of these talented personnel for part-time, short-term certification procedures. Such certification programs could include a brief period of training servicemen to learn teaching methods, and if necessary, to take final steps to complete a bachelor's degree. Not only will this enable some former military personnel to put their talents to productive use in public service, it will help address the teacher shortage found in some, particularly urban, areas and disciplines. The Task Force supports an expansion of the DOD program to pay for coursework of departing servicemen which meets reasonable state certification requirements. The Department of Education should identify those states with acceptable alternative certification programs, and assist in the replication of university/school district partnerships which have been successful in recruiting minority teachers for needy urban school districts. The Task Force recognizes that veterans could apply their experience and military discipline training to community related services, such as establishing training centers, military style boot camps, or summer educational programs for disadvantaged youth. These programs could be operated with support from the business community and out of existing Job Corps and Job Training Partnership Act programs and funds. / . 11 The original G.I. Bill of post-World War II served a dual purpose by giving released veterans an opportunity to retrain for productive employment while allowing the economy time to absorb them as it transitioned to a peace-time economy. The original G.I. Bill produced a qualified work force that was ready when the private sector needed them and was a primary factor in our nation's economic growth in the last forty years. The Task Force believes that two temporary steps should be taken to improve the value of the current G.I. Bill during the down-sizing of the Armed Forces, both of which will help reduce ^ the impact of cuts in military personnel on unemployment and the total number of jobs available to all American during the next few years. o First, for the next three years, servicemen separating voluntarily should be authorized to purchase eligibility for G.I. Bill education benefits. This opportunity is now being granted to involuntary separatees. This would permit voluntary separatees to purchase $12,600 in benefits (based on a $300 monthly benefit) for $1,200. o Second, the monthly G.I. Bill education benefit should be increased for servicemen departing during this down-sizing to $500 per month from the regularly authorized level of $300. (Benefit levels are now temporarily at $350 per month, with the funds coming from the Gulf War account.) These steps will help departing servicemen receive education and skills which lead to more productive employment. Moreover, by spreading out the time frame in which the departing servicemen re-enter the workforce, it will give the economy more time to generate the jobs necessary to employ these individuals productively. The Task Force also recommends that funding levels for the highly successful Transition Assistance Program be increased through 1995 to ensure that all members of the Armed Forces have the opportunity to receive counseling and private sector employment skills before their termination dates from the active duty force structure. B. Civilian Defense Employees. Under the Administration budget proposal, the number of DOD civilian employees will decline by 104,000 over the next few years. The Task Force supports the benefits available under current law to federal civilian employees who lose their positions. These benefits include: o severance pay equal to as much as one year's salary (1-2 weeks for each year of service); a lump sum payment for unused annual leave; / o ' 12 o and the ability to convert their government-subsidized health insurance to an individual policy without a physical exam. The Department of Defense, together with the Office of Personnel Management, is also operating the Defense Outplacement Referral System to match employees and their job skills with federal civilian and private sector jobs. Current law also permits the Administration to authorize early retirement for employees with 25 years of service at any age and to employees with 20 years of service at age 50. The Task ^ Force strongly supports the President's May 26, 1992 decision to authorize early retirement for eligible DOD civilian employees. The Task Force believes that early retirement waivers should be liberally granted for DOD civilians in selected locations and occupations. Under the Priority Placement Program, DOD civilian workers who sign up are entitled to vacant positions in the Department for which they are qualified. However, employees have only one day to decide whether to take a job once it is offered to them. While recognizing DOD concerns about delays in filling a position through PPP, the Task Force believes that 24 hours is too short a period in which to ask individuals to make such a critical decision. The one day deadline should be extended to three days. The Task Force also recommends that the federal government pay for the relocation costs of civilian DOD employees who obtain another federal government job in a different locality. C. Private Sector Workers and Job Training Program Improvements. The Task Force recognizes that every effort must be made to reduce the total level of unemployment in private industry, and that the government has a responsibility to aid all Americans to find employment. It is clear, however, that defense workers often face special problems in shifting their skills to work in the commercial sector, and that unless the government makes a special effort to help workers leaving the defense industry, it risks delaying or slowing the economic recovery that will shape living standards and job opportunities open to all Americans. According to a conservative estimate by OTA, employment by private sector defense contractors and sub-contractors has declined by 395,000 in the last two years, and is estimated to drop by 530,000 to 620,000 by 1995 if the President's budget request is approved. As has been noted earlier, the Defense Budget Project's estimates are substantially higher. Sharp additional job losses will occur if Congress cuts the defense budget more deeply. Even if no additional cuts take place, some industries and localities will be especially hard hit by currently planned cuts, making it even more difficult for some individuals to find other employment. / 13 Pursuant to the Defense Conversion Act (DCA), Congress appropriated $150 million in FY 1990 funds (available through the end of FY 1993) to be used by the Department of Labor for job training and placement assistance under Economic Dislocation and Worker Adjustment Assistance (EDWAA) for workers losing defense- related employment. These funds are transferred to state and local job training programs on receipt and approval of a grant application. Because of delays in the Labor Department's receipt of the $150 million, only $17 million of this amount has been spent as of V mid-April. However, the Labor Department also spent $38 million of its discretionary funds on assisting defense-dislocated workers, bringing the total amount spent to $55 million. The Task Force supports appropriating the amount necessary to ensure that job training and placement assistance is available to those individuals requiring assistance. However, in light of the fact that $133 million remains from the FY 1990 appropriation, the Labor Department has indicated it will require no additional funds at least until FY 1994. The Task Force recommends extending the availability of the current appropriation through FY 1997. In addition, the Appropriations Committee should closely monitor the Labor Department's progress in disbursing these funds, and make any necessary additional funds available on a timely basis. States should be encouraged to use the discretionary funds they receive from the federal government to provide "rapid response" services to displaced defense workers. To assist in this, the Task Force recommends that DCA funds be used to reimburse states for such services, provided the states have depleted the funds available for this purpose. The Task Force also recommends that the Department of Defense be required to provide the Labor Department and affected states with information regarding upcoming contract and program terminations which will result in layoffs. Similarly, state job training program managers should be required to seek such information from defense contractors. Such information, provided on a more timely basis than is now the case, will permit workers to get more advanced warning regarding the possibility of job loss and will assist in making the necessary preparations for rapid assistance to dislocated workers. In addition, the Task Force notes that availability of information regarding the impact of defense cuts on employment by subtier contractors and on jobs which are indirectly defense- dependent is woefully deficient. The Task Force recommends that DOD take steps to immediately comply with existing legislation calling for improved reporting on the defense industrial base, so appropriate worker assistance responses can be developed. / I 14 The Task Force has received reports that some state and local programs are not providing the proper mix of services suitable for defense-dislocated workers. In particular, concern has been expressed that some of the state and local job training programs for displaced defense-related workers may not be adequately taking into account the differences between these workers and the populations normally served by such programs. Many of the displaced defense-related workers are managers, engineers, scientists, and skilled technicians who may need more emphasis on job placement, technical skill upgrade courses, and ^ training in the differences between the defense procurement and commercial markets. The Task Force calls upon the state and local program managers, as well as the responsible Labor Department officials, to review the adequacy of the services being provided and make such adjustments as are necessary. The Labor Department should also use the authorized 10 percent set-aside from DCA funds to make demonstration project grants. In particular, the Labor Department should give favorable consideration to applications for in-house retraining by defense firms who are seeking to diversify into the commercial market. Finally, the Task Force supports legislation to permit job training and placement assistance to be extended to workers at closing military installations up to six months prior to their closing, rather than only 60 days prior tc closing. Individual job losses can be forecast with much greater precision at closing bases, making possible earlier response with less risk of wasting resources on individuals who do not require assistance. IV. ASSISTING IMPACTED COMMUNITIES. A. Redevelopment Planning. The closing of a military base or major defense plant(s) can be a serious blow for the affected community or region, especially for those localities which are heavily dependent on the base or plant in question. Adjusting to such a change in a way that minimizes the short-term dislocation and ultimately strengthens the community can be a difficult task which requires careful planning. The Task Force strongly believes that redevelopment planning is best accomplished if the process is driven by the affected communities, and their state or local governments. The federal government can assist in that process, and DOD's Office of Economic Adjustment (OEA) is in charge of the federal effort. OEA, which has a budget of $7 million in the current fiscal year, provides planning grants and technical assistance to the duly constituted redevelopment authority, as determined by state or local law. By all accounts, OEA has done an excellent job and their efforts are to be commended. / 15 The Task Force believes that, as the pace of base and plant closings accelerates in the next few years, it is incumbent upon Congress to provide OEA with the resources it needs to accomplish its mission. An increase in funding for OEA will be necessary, with the exact amount to be determined through the regular, annual appropriations process. B. Economic Development Grants. The federal government can also assist affected communities by providing them with economic development grants. To this end, V Congress provided $50 million in FY 1990 (available through the end of FY 1993) to be distributed on a grant application basis by the Economic Development Administration (EDA) of the Department of Commerce. Unfortunately, delays in transferring the funds to EDA and issuing regulations governing their use have meant that only three grants were awarded as of mid-April. The Task Force, at this time, believes that the nearly $50 million which remains available will be sufficient to fund worthy economic development grants for displaced communities through FY 1993. This estimate should be reviewed in September, prior to final action on the FY 1993 budget. To ensure that the authority to spend the $50 million does not expire at end of FY 1993, the Task Force recommends extending its availability through FY 1997. The Task Force supports providing additional funds for EDA grants for defense-impacted communities at the time such additional funds are needed. The Task Force is concerned that the EDA grant process takes too long, an estimated nine months from receipt of the application to approval. EDA should be required to take steps to expedite this process, and to provide regular semi-annual reports on the timeliness and effectiveness of its grants. C. Hazardous Waste on Closing Military Bases and Installations. One problem that has already emerged relates to the presence of hazardous waste sites on many military installations. The problem is so severe that a number of closing installations have been placed on the Superfund National Priority List for cleanup. Cleanup costs will be in the billions of dollars over the next decade, but solid estimates do not exist because of uncertainty about the extent of the problem and the remedial efforts required. The Task Force believes that cleaning up the hazardous waste sites is a high priority, especially at closing installations where they interfere with redevelopment, and supports the appropriation of such funds as are necessary to achieve this end. Federal law makes DOD responsible for this operation. Identifying the precise nature of and resolving the hazardous waste problem at a given installation can, however, take years. / 16 Redevelopment cannot be delayed while this process is underway. Congress can take two steps to facilitate redevelopment. o First, federal law should be amended to clarify that DOD has the authority to parcel bases and transfer uncontaminated tracts on an expeditious basis. While the Task Force believes that DOD already has this authority, an explicit statement in federal law to this effect will be helpful. In addition, DOD should be authorized to convey contaminated parcels to willing parties where there is minimal risk to public health and DOD agrees to fulfill its statutory V responsibility to complete the clean-up, and the Department is legally guaranteed the access it requires for remedial activities. o Second, legislation should be enacted to authorize DOD to indemnify the parties to whom land is transferred, either by lease or title conveyance, for the future costs arising from DOD-generated hazardous waste. Congress passed such legislation for Pease Air Force Base, New Hampshire in 1990; it should be extended to cover all closing installations. Such legislation is necessary because the Superfund Act makes all subsequent occupants of contaminated land equally liable for cleanup costs in the first instance. Many businesses and governments, not to mention lenders, are unwilling to incur such a risk. Clearly, however, decisions to indemnify must be made on a case-by-case basis and be contingent on the parties agreeing not to take actions which would increase federal clean-up costs. D. Impact Aid for Education. The federal Impact Aid program provides assistance to local school systems for the cost of educating children who live on or whose parents work on federal property. The closing of a military- base, especially in smaller communities, will significantly reduce the student population, forcing the local school system to undertake a major and costly retrenchment. To help address this problem, section 3(e) of the Impact Aid statute authorizes transitional Impact Aid payments to affected school systems for a four year period. The Task Force supports funding of this program. E. Federal Re-Use of a Closing Military Base. Closing military bases, or portions thereof, are and should be prime candidates for being used by other federal agencies to locate their facilities or operate programs. For example, some Members have proposed locating prisons or military-style boot camps at closing bases. Current law gives federal agencies a prior claim to a closing base over any non-federal party. The Task Force endorses the creative re-use of closing military bases by the federal government. In addition, the Task ✓ 17 Force believes that federal agencies which must relocate a facility should be required to examine the closing bases to determine their suitability to host that facility, and give preference to locating the facility at the closing base. However, the desires of the affected state and local communities must be given equal or greater consideration when contemplating federal re-use of a closing base. The Task Force recommends that DOD, as a general practice, refuse to transfer a closing base, or portions thereof, to another federal agency for use where such transfer is opposed by the affected state and local ^ communities. Other federal agencies should refrain from requesting such use. The Task Force also recommends amending the Base Closure Act to provide for low and no-cost transfer of surplus base land to the state or local community even where the property in question will be used for commercial purposes. This will assist the states in attracting new businesses and other users to the base. Under current policy, DOD will transfer excess property at little or no cost if such property is to be used for public purposes. However, if the land is intended for commercial development, DOD intends to sell the land at the market price. F. Health Care for Retired Servicemen. Currently, retired military personnel are eligible to receive health care coverage through the CHAMPUS program and at existing military hospitals and health care facilities. As many retired personnel live near bases that are closing, their access to health care is going to be negatively impacted. It is worth noting that the cost to DOD of providing treatment through CHAMPUS for an individual retiree and his or her family is higher than the net cost of care at an otherwise justified military hospital and treatment facility. The retiree also incurs higher out-of-pocket costs for such care. We should, therefore, be exploring options that will better manage the costs of providing care. The Task Force recommends that DOD reform the military medical system so as to ensure continued military medical readiness and access to care for ail who are currently eligible for care. The Task Force believes that such reform can be undertaken in a cost-effective manner which does not add to the cost of the program. For example, development of a mail-order pharmacy service to serve members of the military community could reduce the cost of care, and the claims processing and billing process for the military medical system should be fully standardized and automated. The Task Force also recommends that DOD and the Veterans' Administration should examine, with respect to each DOD health care facility slated for closure, whether such facility should be / 18 turned over to the VA to be operated for the benefit of both military retirees and veterans eligible for VA health care. Under such an arrangement, the VA would be reimbursed for the cost of care provided to military retirees. In addition, DOD should examine the possibility of contracting out such facilities to private health care providers to deliver care to retirees and their families. The Task Force believes that in some areas this could be a cost-effective option. V. INDUSTRIAL CONVERSION/RETAINING AN INDUSTRIAL BASE. V A. Diversifying our Defense Production Base There are several affordable and cost-effective measures that Congress and the President can take which will help retain needed elements of the defense production base. These primarily involve steps to permit defense research and production facilities to diversify into commercial activity and to maintain defense production lines in a more efficient manner. 1. DOD Recoupment Policy. When a defense contractor successfully finds a commercial use for a new technology developed by DOD research and development funds, DOD attempts to recover some or all of the R&D funds paid to the contractor. This policy has the effect of discouraging commercial use of DOD-funded technology developments, thus discouraging contractors to diversify their business. By contrast, federal law grants universities, as well as medium and small businesses, the patent rights for inventions financed with research grants made by other federal agencies such as the National Institutes of Health. Recoupment for major defense equipment in the case of foreign military sales is required by the Arms Export Control Act (Public Law 94-329). In other cases, primarily involving commercial products, recoupment is required by DOD regulation, not by statute. On June 19, 1992, the Administration proposed elimination of the existing recoupment policy, including legislation to repeal the statutory requirement for recoupment. The Task Force supports the elimination of recoupment in cases where it is not required by statute. In addition, the Task Force believes that the congressional committees with jurisdiction should work with the Administration for a mutually agreeable legislative resolution of the policy relating to foreign military sales. 2. Procurement Reform. Existing DOD procurement policies, many of which have been mandated by Congress, were adopted with the goal of establishing public confidence in the acquisition process by ensuring that weapons systems met necessary performance criteria, ensuring fair / . 19 competition in bidding for contractors, and protecting against fraud by defense contractors. One result has been to force companies to segregate their defense and non-defense operations, making it more difficult for the defense divisions to now move into commercial markets. In addition, some companies have refused to participate in the defense market or to make privately- developed technological breakthroughs available to DOD. These myriad rules, regulations, and specifications have become so detailed that their cost effectiveness is in serious doubt, particularly in the upcoming era of smaller defense V procurement budgets. In such an environment, facilities producing goods for the Armed Forces may need to be active in the commercial market in order to survive. Accordingly, a total rethinking of existing DOD procurement policies are now in order. The Task Force believes that a number of steps must be given serious consideration for future defense procurement to be possible with a reasonable level of efficiency. o First, DOD needs to seriously emphasize off-the-shelf procurement for its purchases. Many of the goods purchased by DOD have widespread commercial uses and are readily available. It is entirely unnecessary for DOD to issue its own detailed specifications for such products, the result often being higher costs to the taxpayers and an unwillingness of many companies to compete for the business. The recent proposed change to the Federal Acquisition Regulation (FAR) placing the highest priority on the use of non-government or commercial standards in purchase descriptions should be implemented without delay. o Second, where military specifications for products are necessary, DOD should demand performance standards and permit potential contractors flexibility in determining how to meet those standards. At present, DOD writes specifications governing every detail of the proposed product, with the result also being fewer competitors and higher costs. An increased reliance on performance standards rather than detailed product specifications would not only save money, but enable DOD to take advantage of certain technological breakthroughs developed in the commercial sector. The proposed FAR change, if properly implemented, could help solve this problem. o Third, the accounting and record-keeping requirements demanded of defense contractors need to be reviewed. To the maximum extent possible, DOD standards in this area should be revised so as to permit contractors to integrate their cost accounting systems with the systems employed in the commercial world. Legislative changes will be necessary to fully accomplish this. The Task Force believes that fraud in the defense industry may be more effectively combatted by aggressive enforcement of criminal and civil statutes rather / ■ 20 than by burying defense contractors in a blizzard of paperwork which prevents those contractors from using their defense-related assets in commercial endeavors. The Task Force notes that in 1990 Congress established a government-industry commission to examine these issues and to report in December. This commission will ensure that acquisition reform will be addressed in a comprehensive rather than piecemeal fashion. In light of that, and given that the House has already passed the FY 1993 defense authorization bill while the Senate Armed Services Committee will act next month, it is necessary that \ the majority of the legislative initiatives in this area will have to be addressed next year. However, the Task Force believes that defense procurement reform should be a high priority for Congress and the Administration in 19 93 . In addition, DOD must be much more rigorous in streamlining those administrative and regulatory requirements that are not driven by statute. 3. Stabilizing the Procurement Market. Congress should place greater emphasis on multi-year procurement decisions in order to stabilize the production of particular weapons systems, thereby permitting more efficient resource allocation with resultant savings to the taxpayers. At present, the current process in which Congress routinely revisits major weapons purchases on an annual basis forces DOD and the contractors to constantly revise and redeploy resources, and the taxpayers pay the price. Along with this, Congress and the Administration need to depart from "camel's nose-under-the tent" mentality in making procurement decisions. One contributor to the annual vagaries in the budget process is the repeated, and often successful, effort to slide a potentially controversial and expensive programs into the budget by focussing on the limited first-year costs while ignoring the significant out-year costs. Both Congress and the Administration need to change their focus on new programs away from initial costs towards life-cycle costs, make realistic decisions, and stick with them. No multi-year procurement emphasis can be successful unless this change in mind-set of addressing weapons development and procurement is successful. 4. Dual-Use Technology Research and Development. The Task Force believes that increased funds should be devoted to the development of so-called dual-use technologies — i.e., technologies that have applications both for defense and commercial markets — by entering into partnerships with the private sector. Dual-use technologies will be increasingly important to ensure efficient use of defense procurement resources, and advances in this area will have the added benefit of strengthening the U.S. commercial sector. Congress provided $60 million for competitive awards to such partnerships in FY 1992, and the funds devoted to this purpose should be increased in / 21 FY 1993. In order for these projects to be effective, there should be a requirement that half the funding be provided by non-federal participants. 5. DOD and DOE Laboratories. Over the last fifty years, the DOD and DOE laboratories have developed technologies critical to our national security. The ever-changing nature of the threats faced by the United States require that some of these capabilities be maintained in the future. Technology leadership is not only vital to our national security but to our economic development as well. Many of the technologies developed by these laboratories have had commercial applications -- for example in computing and materials processing. By permitting the national laboratories to engage in more dual-use efforts and cooperating more closely with the private sector, immediate contributions can be made to our economic prowess in a variety of areas. In 1990, the Congress provided a structure for such joint research and the transfer of commercially useful technologies from the labs to the private sector. A second critical area requiring the technological leadership of our national laboratories is the education of our citizenry. Recent dramatic changes within our country have strained the educational system to its limits. These challenges demand national leadership and solutions to carry the educational system into the 21st century. Through joint research and development projects, the nation can effectively utilize the unique strengths of its laboratories in numerous areas such as computer information systems, computer-based instruction, and distant learning. The Task Force supports providing increased funds to expand commercial use of dual-use technologies developed in these labs. The Administration has proposed providing additional funds to the DOE laboratories for this purpose by expanding joint research and development projects with private sector partners. The Task Force supports this initiative and believes that similar steps should be undertaken with respect to the DOD laboratories. There may also be a need to further streamline existing laws and regulations to facilitate greater cooperation between the laboratories and the private sector. We also support expanded civilian research at the DOE labs where large, challenging projects require government involvement, such as certain energy, environmental, and pre-competitive generic science and technology development efforts. 6. Foreign Military Sales. The Task Force believes that decisions to sell U.S. defense products abroad must be made carefully and judiciously. In many / . . 22 instances, sales of weaponry to allies can be an important component of foreign policy and serve the additional function of helping to maintain the defense industrial base. However, as regional conflicts continue to grow in importance, the U.S. must take particular care to maintain its lead in ensuring that arms from the world's arms supplying nations do not counteract efforts to promote stability and the development of lasting, peaceful solutions to these tensions. The Task Force believes that loan guarantees for government- to-government and commercial sales of defense products should be provided to our closest allies. Virtually every other defense manufacturing country in the world today provides credit backing to its contractors to ensure commercially-financed sales are concluded at the lowest possible interest rates. Hampered by a lack of guarantees, U.S. defense products -- even though renowned for their technological superiority — are becoming increasingly less competitive on the international market. Our NATO allies, Japan, Australia, and Israel should be among the countries considered for such a program. The U.S. should also begin to give special consideration to approving overseas arms sales when there is foreign competition for provision of the types of weapons in question. It is clearly important for the U.S. to consider whether the number of weapons and types of technology in the proposed sale could generate regional arms races or heighten regional tensions. But, in many instances, making such a sale can directly benefit U.S. foreign policy and national security objectives by giving the U.S. the ability to exert influence over the recipient of the arms, while supporting its defense contractors and their employees. Special consideration should also be given to a sale which would extend the operation of a product line, particularly when that extension bridges a gap until either the U.S. or another ally requires such arms . B. Retaining our Industrial Base Retaining and improving the competitiveness of the American industrial and manufacturing base must be a critical goal of both public and private policy over the next few years. While many American companies have improved their productivity and competitiveness in recent years, and while the export of American goods has increased, the importance of manufacturing industries in the economy has continued to decline. The full range of policies that the U.S. government can adopt to strengthen our manufacturing base is beyond the scope of this Task Force's jurisdiction, and the recommendations listed below are not intended to be all-inclusive. Instead, the Task Force has confined itself to particular domestic policy proposals that will help our industrial base and at the same time be of some assistance to the individuals and companies that have been producing defense products. 23 1. Small Business Innovation and Research. Small businesses have been the leader in job creation and technology development in this country for many years. To facilitate the role of small businesses in this area, Congress in 1982 enacted legislation requiring that 1.25 percent of the research budgets of the largest federal research agencies be awarded in grants to businesses with fewer than 500 employees. Research projects are initially awarded a Phase I grant of up to $50,000. A project is eligible for a Phase II grant of up to $500,000 following a review of its potential. The SBIR program will end in 1992 if not extended by Congress. This legislation has proven to be a tremendous success. As of 1990, almost one in four SBIR participants reported successful commercialization of projects six years after receiving Phase II funding. Seventy percent of the participants were businesses with fewer than 30 employees at the time of their Phase I award. The Task Force recommends reauthorizing the SBIR program and increasing the set-aside from 1.25 percent to 2.5 percent. In addition, consideration should be given to increasing the maximum amount of the Phase I and II awards. 2. Aerospace Programs. The Task Force believes that the important programs of the National Aeronautics and Space Administration (NASA) need to be adequately funded. Four programs, for which President Bush has recommended significant increases within the non-defense discretionery spending caps, deserve particular mention. Space Station Freedom stands as one of the most promising examples of a federal program that cultivates dual-use technologies. The Space Station already offers the valuable opportunity for us to discover how and why human beings can live in space over long periods of time. It also has the potential to uncover unknown atmospheric impacts on weather patterns and soil quality, give doctors and technicians new insights into how medicine might cope with deadly diseases, and provide access to lighter and stronger components for manufacturing activity. NASA's Aeronautics Research and Technology programs provide support for key technologies such as aerodynamics, high speed propulsion materials, and high performance computing. The President recommended a $73 million (13 percent) increase in this program for FY 1993. The President also recommended a $24 million (16 percent) increase for NASA's Commercial Programs, including increased funding of the 16 Centers for the Commercial Development of Space. Finally, a $18 million (7 percent) increase was proposed for NASA's space technology programs, including increases for communications technology and Earth-to-orbit transportation. 24 3. R&E Tax Credit/Educational Assistance Tax Deduction. The R&E tax credit provides a tax credit to businesses for their research and experimentation expenditures. This tax credit has been critical to maintaining the worldwide lead of American industry in advanced technologies. The Employer-provided Educational Assistance tax exclusion permits individuals to exclude from their taxable income employer-provided educational assistance for upgrading their skills and training. This deduction could be of particular ^ utility to employees of a defense contractor which needs to retrain its workers as part of an effort to diversify or expand into commercial markets. Both the tax credit and the exclusion have received repeated temporary extensions to prevent them from expiring. The latest extension of six months expires on June 30, 1992. The Task Force recommends that both of these provisions be made a permanent part of the tax code or, at the very least, be extended for a period of five years to encompass the period of the defense build-down. A permanent or lengthy extension is desirable since it would bring some stability to this area of the tax code and facilitate long-range planning by businesses. 4. NIST Programs The Task Force endorses two programs of the National Institute of Standards and Technology (NIST) as important to the effort to promote technology transfer to allow defense industries to convert to civilian activities. These programs are the Manufacturing Technology Program (MTC) and the Advanced Technology Program (ATP). During FY 1992, $15 million is available for the MTCs, and the President has requested $17.8 million for FY 1993. MTCs are designed to enhance American manufacturing competitiveness by improving the level of technology used by small and medium sized companies. They serve as regional centers of information for these firms and also assist in workforce training to allow for the adoption of advanced manufacturing technology. The ATP is funded at a level of $49.9 million in FY 1992, and the President requested $67.9 million for FY 1993. This program provides grants to industry for the development of pre-competitive generic technologies. Current projects include research and development in such areas as data storage, X-ray lithography, lasers, superconductivity, machine tool control, and flat panel display manufacturing. 5. Manufacturing Technology Programs. The Task Force supports increased funding for the manufacturing technology (MANTECH) programs in DOD. History has / 25 shown that MANTECH programs often return the value of the initial investment many times over through lowered production costs or improved equipment performance. As the new acquisition strategy places greater emphasis on research and development at the expense of production, defense firms can be expected to invest less in technologies to improve their manufacturing process. Over time, this lack of investment could provide a significant barrier to the application of new technologies in weapons programs. Therefore, substantial increases in DOD investment in MANTECH will be necessary over the next five years. Additional funds should be provided above the $138 million requested by DOD for FY 1993. The ' Task Force believes that, for such an investment to be effective, MANTECH funds should be expended on projects that are selected competitively on the basis of merit. 6. Manufacturing Extension Programs. In section 824 of the FY 1992 Defense Authorization Act, Congress provided authority to the Secretary of Defense to support regional, state, local, and other efforts aimed at providing manufacturing technology services to small businesses. $50 million was authorized, but no funds were appropriated. The Task Force also notes that there are ongoing efforts to create such programs in other federal agencies; for example, $1.3 million was appropriated to the Department of Commerce in FY 1992 for state technology extension programs. The Task Force recommends that any DOD role in this area should be limited to the support role envisioned by section 824 to reduce duplication among programs conducted by state and local governments and federal agencies. 7. Advanced Manufacturing Technology Transfer The Task Force recommends use of the existing network of DOD maintenance depots (including shipyards) as sites to develop, test, evaluate, validate, and certify advanced manufacturing technologies for direct application to current manufacturing functions at the facility. Existing MANTECH procedures should be used in the identification, selection, and procurement of such technologies, to include emphasis on their dual-use features. The maintenance depots could seek to bring the technologies to the stage where they can be applied to existing manufacturing problems, creating an incentive fcr private sector investment in relatively risk-free, high-productivity equipment. The depots should observe MANTECH practices in encouraging industrial participation in the transfer of such technology from the laboratory to the factory floor. 8. Manufacturing Education. One of the key limitations to building a competitive manufacturing base has been the lack of education programs emphasizing manufacturing and production process engineering. To date, a few models have been developed by universities working with local manufacturing firms to structure integrated multi- ■ 26 disciplinary programs involving a significant work-experience component. In order to foster a greater number of such programs, the FY 1992 Defense Authorization Act authorized $25 million to fully fund DOD participation in ten existing or new university programs for manufacturing engineering education. A condition for an award is that at least 50 percent of funding be provided by non-federal participants in the program and that the program have the prospect of being fully funded by non-federal sources within three years. The Task Force supports a continuation of this program as an ^ effective means of significantly increasing the number of well-trained, fully-qualified engineers, managers, and teachers entering and supporting the manufacturing workforce. The benefits will accrue to the defense as well as the commercial industrial base. 9. Environmental Research and Education. The Task Force is aware that a major obstacle in the process of site environmental clean-up is that there are not enough trained professionals in the environmental sciences. The Task Force therefore recommends that legislation be enacted that will establish programs at universities in the United States in the environmental sciences for men and women with prior training in hazardous waste management and radioactive materials through the Departments of Energy and Defense to create a cadre of environmental scientists, technicians, and engineers. This will not only provide additional, needed professionals in this area, but will help provide productive employment for those individuals now working on the U.S. nuclear weapons programs. / .