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Last year, the Congress authorized a 2-year budget for the Department of Defense. Now, in the area of compensation and benefits, the Congress authorized increases in basic pay and allowances, enhancement and certain special incentive pay, and extensions to certain temporary personnel management and compensation authorities.

The one big disappointment for me last year was our inability to give our military personnel a larger pay raise for fiscal year 1988. The Senate took a 4-percent pay raise to conference with the House. Unfortunately, we came out with a 3-percent raise in basic pay and a 3.5-percent raise in basic allowance for quarters and basic allowance for subsistence.

As it turned out, in order to avoid a Gramm-Rudman sequestration, the Congress and the administration agreed during our budget summit, as it was called, just before the holidays, to adjust the military pay raise to 2 percent, the same as for Federal civilians.

This was a tough choice, and I did not want to make that choice. I fought against it, as a matter of fact, in my participation in that group. Given the budget deficit pressure, however, there was little we could do to turn it around.

Now, I have noted and I agree that Secretary Carlucci has done the right thing when he put the 4.3-percent pay raise for military personnel in the amended DOD budget for fiscal year 1989 at the top of Defense priorities. I certainly support the requested increase and have discussed that with him as well as with some of you here.

I think it is essential that we keep the 11-percent gap between military and private sector pay stable. We do not want to see that widen out even further. The current gap of 11 percent is the largest we have had since we went to an All Volunteer Force.

In my view, the only reason we have not seen a lot of our military personnel voting with their feet to get out is that we have been able to put in some very meaningful enhancements in targeted pay and benefits that have improved the quality of life of military personnel. However, the current pay gap and the caps on appropriations in the military personnel accounts last year such as the freeze on variable housing allowance put us on a risky course which we must be

wary

of. With regard to recruiting and retention, I continue to applaud the success of the Department of Defense in sustaining unprecedented levels of recruit quality as measured by enlistment test category and high school degree holders.

I also note that retention levels continue to provide the experience needed to generally meet the petty officer and noncommissioned officer requirements of the military services.

I know there are some shortfalls, and you will discuss the issue of pilot retention which is a problem which we will have to come to

grips with

I understand the Department of Defense has set aside some $54 million for a pilot bonus for the Air Force. We have not yet received that proposed legislation that would provide this authority, so I will be interested in hearing from our witnesses this morning on why the bonus is needed and how it is to be structured, if that is the way we are going to go or what you are going to propose.

So at this point, I would see if Senator McCain has any comments to make before we go ahead and proceed with the hearing.

Senator McCAIN. No, Mr. Chairman. I would just like to echo your concern about the action that the House Budget Committee took last Friday. We had all anticipated an attack on the pay raise, and at the same time every witness that has testified before this committee, both civilian and military, have placed that pay raise as their highest priority for services.

I find it terribly disappointing and I think one that we are going to have to do battle over. I hope that we will be able to prevail in not only that but the pilot retention issue.

I will save my questions and comments for after the witnesses.
Thank you, Mr. Chairman.
Senator GLENN. Thank you.

We welcome our witnesses. At the table we have Mr. Grant Green, the Assistant Secretary of Defense for Force Management and Personnel. He is accompanied by Lt. Gen. Allen Ono, the Deputy Chief of Staff for Personnel of the Army; Vice Adm. Leon Edney, the Chief of Naval Personnel; Lt. Gen. Thomas J. Hickey, the Deputy Chief of Staff for Personnel of the Air Force; and Lt. Gen. John I. Hudson, the Deputy Chief of Staff for Personnel of the Marine Corps.

Gentlemen, I believe I am correct that each of you has submitted a written statement that is to be, I believe, included in the record.

Was that the agreement you all made on that? If anyone disagrees and wants to deliver their statement for whatever reason, we would be glad to entertain that, but it was my understanding that each of you had agreed to include your statement in the record because of our tight schedule this morning.

I would ask you each, then, to summarize your statements so we can then turn to the questions and the discussion period this morning.

Mr. Green, will you proceed?

STATEMENT OF HON. GRANT S. GREEN, ASSISTANT SECRETARY

OF DEFENSE FOR FORCE MANAGEMENT AND PERSONNEL, ACCOMPANIED BY LT. GEN. ALLEN K. ONO, USA, DEPUTY CHIEF OF STAFF FOR PERSONNEL; VICE ADM. LEON A. EDNEY, USN, CHIEF OF NAVAL PERSONNEL; LT. GEN. JOHN I. HUDSON, USMC, DEPUTY CHIEF OF STAFF FOR PERSONNEL; AND LT. GEN. THOMAS J. HICKEY, USAF, DEPUTY CHIEF OF STAFF FOR PERSONNEL

Mr. GREEN. Thank you, Mr. Chairman, Senator McCain. I appreciate this opportunity to appear again before you, this time to focus on military recruiting, retention and compensation.

As you mentioned, you have the prepared statement which covers the detailed achievements of the services during fiscal year 1987 and lays out some of the challenges we face in the year ahead.

My comments this morning will highlight quickly only my most pressing concerns. I hope we will be able to discuss these and others in responding to your questions.

In fiscal year 1987, the services have continued to attract and keep top quality people in the Active and the Reserve Forces. You can be proud of our military members and of the programs you have supported through the years that have made this happen.

The first signs are surfacing, however, suggesting that this is the year to be particularly mindful of the compensation programs and policies we must have to sustain this superior force.

One key indicator of the deteriorating outlook is the total number of high school graduates we recruited declined 16 percent during the first quarter of fiscal year 1988 when compared to the same period last fiscal year. The recruiting effort is getting significantly more difficult.

Likewise, while retention continues at desirable levels over all, it peaked in 1982. Since then, the trends are down, and a look at continuation patterns shows retention is falling off more quickly in the more highly technical skills. I am concerned.

For example, in fiscal year 1987, the Marine Corps achieved only 93 percent of their first term reenlistment goal, and the Navy fell short of its objectives for both second term and career petty officers, many of whom must serve extended tours of sea duty away from their families.

These initial danger signs underscore the single most urgent requests in the defense manpower program for fiscal year 1989; that is, a 4.3-percent pay raise for our people in uniform.

I can summarize the importance of the pay raise with two thoughts: First, adequate compensation. As you mentioned, Mr. Chairman, a foundation of the volunteer force, competitive pay, has eroded because military raises have been outpaced by growth in the private sector by 11 percent since 1982. Without competitive pay, the number and magnitude of retention problems facing us can be expected to grow.

Second and, I believe, equally as important, we need to show with clear and decisive action the value we place on service by our military people. Arresting the trend toward an ever-widening gap will communicate positively that all members of the military team, married, single, enlisted, officer, on or behind the line, are essential to combat readiness.

Compounding the military pay gap is the decline in the value of variable housing allowance. That has seriously hurt military people who reside off base. Even though housing costs have climbed 8.5 percent since fiscal year 1986, overall VHA rates have been frozen. Combined housing allowances now fall short of meeting member costs by 22 percent instead of the 15 percent Congress intended when it restructured the military housing allowance program in 1985.

To keep member's absorption of housing costs from worsening, we have included funding in the fiscal year 1989 budget request to match the growth in housing costs over the past year.

As you mentioned, some specific officer communities need attention. Pilot losses in the Navy and the Air Force are increasing to unacceptable levels. While the Army and the Marine Corps do not have, or anticipate, near term problems, the Navy is already short well over 1,000 pilots, and the Air Force projects a shortage of 2,500 pilots by fiscal year 1993.

We have developed a legislative proposal, which cleared OMB yesterday and we understand was sent yesterday. If not, it should be here today.

Senator GLENN. If it is here, we have not yet read it.

Mr. GREEN. The legislative proposal lays out a pilot bonus that includes flexibility so that the service Secretaries and the Secretary of Defense can tailor the program to specific service needs. The bonus is one of several initiatives we are exploring to deal with this problem, but we need it now to stem an existing problem before it gets totally out of control.

Retention of nuclear officers in the Navy is also of great concern. The current submarine community shortage of 516 officers in the lieutenant commander through captain grades represents a shortfall of 28 percent. The nuclear surface community is only marginally better off.

We are hopeful that expansion of shore duty opportunities, more post-graduate education spaces, and increase in nuclear officer continuation pay from $9,000 to $10,000, and, with congressional support, an increase in submarine pay and an extension of the spot promotion authority will cause substantial improvements in the current situation.

Shortfalls of medical personnel are also a matter of considerable concern to us, as I know they are to you. We are working with the Assistant Secretary of Defense for Health Affairs to attack this problem at every level: recruiting; retention; compensation for Active and Reserve components. We need to succeed here. The quantity and quality of health care both in peacetime and war is obviously of the highest priority.

The real challenges we face now in attracting and retaining the people we need are likely to become more severe in the years ahead. The problems are significant, and there is some risk. While it is an acceptable risk in my judgment, the Department may fall short of some of its goals.

The proposed program and funding requests for fiscal year 1989 represent a balanced mix; recruiting resources and incentives designed to appeal to different segments of the market, and compensation to retain those who are critical to our mission today.

The only real growth in the request is to improve medical recruiting incentives for the Reserve components. Although the joint recruitment advertising program showed real growth, $7.2 million, it only partially offsets the reductions totaling more than $15 million in service advertising purchasing power.

Overall, the Department's outlay for advertising is down 25 percent compared to the fiscal year 1986 program. The remainder of our request represents real declines after the effects of this inflation are discounted, balancing the increasingly difficult recruiting and retention environment against reduced force structure requirements.

While the pay raise and specific concerns I have discussed are important, we need your support for other key initiatives in the military personnel program as well. Selective reenlistment bonus, special and incentive pays, full funding for recruiting and advertising programs, and improved reimbursement for family moving expenses.

The accumulating effect of overly conservative funding in recent years for military pay, variable housing allowances, essential bonus payments, PCS funds and recruiting resources has produced clear indicators that trouble lies ahead.

Mr. Chairman, I solicit your support and that of every member of this committee for the full 4.3-percent pay raise and the other initiatives I have outlined.

I am personally convinced that we have a unique opportunity now to avoid repeating the costing mistakes of the last decade and undoing some of the remarkable accomplishments that we, together, have achieved over the past 7 years.

Thank you for the opportunity to present these concerns to the subcommittee. I look forward to working with you and meeting these challenges.

[The prepared statements of Mr. Green, Lieutenant General Ono, Vice Admiral Edney, Lieutenant General Hudson, and Lieutenant General Hickey follow:]

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