By Sen. Carl Levin
Recently, the Senate Armed Services Committee, which I chair, completed a year-long investigation into the costs of maintaining our nation’s overseas military presence.  The investigation produced a bipartisan report that reaches some troubling conclusions.
I directed the review of our costs in Japan, South Korea and Germany. Together, those countries account for 70 percent of the roughly $10 billion we spend each year on overseas bases – a figure that doesn’t include personnel costs to pay and take care of our troops and their families.  All three countries are also key U.S. allies. In order to better sustain our presence in these important locations, we need to understand and control our costs.
Our review found that contributions from our allies are failing to keep up with rapidly rising costs, increasing the burden on U.S. taxpayers. At the same time, allied payments are increasingly coming as in-kind , rather than cash payments.
This shift to in-kind payments makes it harder to monitor how funds are used.  In fact, our review found that, in many cases, in-kind payments are spent without proper oversight, congressional notification or approval.   In some cases, in-kind payments are being used for projects that simply aren’t necessary.
Cost increases and the use of funds on projects that aren’t mission critical are unacceptable at a time when there is incredible pressure on the defense budget and the federal budget as a whole, and when cutbacks to bases in the U.S. are under debate.
Our review found that South Korean contributions are not keeping pace with the growth in U.S. costs. While South Korea’s estimated contribution grew by about $42 million between 2008 and 2012, U.S. costs increased by more than $500 million.
Japan’s contributions also have not kept pace with U.S. costs.  For example, at its peak in 1992, Japan’s contribution to funding for infrastructure and facilities amounted to more than $1 billion. That figure has fallen by 80 percent.
Our use of in-kind payments from South Korea and Germany is especially worrisome.
South Korea’s contributions to a program that supports the construction of U.S. military facilities amounted to about $339 million in 2012 alone – all of it in-kind. But projects built using these in-kind contributions are not reviewed at all by the Department of the Army and only undergo limited review at higher headquarters or at the Pentagon. Congress isn’t even notified, let alone given a chance to review and approve these projects. That lack of oversight increases the chance that funds will go to non-essential projects. In fact, our review found that plans for using in-kind contributions include a $10.4 million museum.
In Germany, we receive in-kind payments as compensation for facilities that we turn over to the German government as we reduce our military presence there. We found millions of dollars of in-kind payments from Germany earmarked for projects that simply don’t make sense. For example, $200,000 was spent on sunroom additions for senior officer homes.
We also have to take a hard look at the cost of our future commitments.
In South Korea, the Army has proposed a public-private venture to build housing for military families that, if approved, would add hundreds of millions of dollars to our costs. Setting aside questions about the wisdom of bringing additional families in the region while North Korea continues its belligerence, the plan is simply not affordable.
The Defense Department is also planning a series of troop movements in the Asia-Pacific region. We found that rough estimates provided for some items in the plan are highly speculative and do not account for potentially significant additional costs. Congress already has barred most spending on these projects until the Pentagon produces more detailed and useful estimates, and our review found no reason to set aside those conditions.
The military should always be careful with taxpayer dollars. There is never a good time for large construction projects to go forward with little or no oversight. But at a time when the military, and the entire federal government, are facing significant budget cuts, cuts that will damage our national security and important domestic programs, the current situation is simply not acceptable. I’m working with my colleagues on the Armed Services Committee to develop reforms that will increase oversight and help ensure that we only spend money on projects we really need.
Carl Levin is the senior U.S. senator from Michigan.

By Sen. Carl Levin

The Senate returned to the Capitol this month after a turbulent 2012. In the areas our citizens look to us to address—boosting economic growth and job creation, building a foundation for long-term competitiveness, protecting our environment and our national security—we overcame some major challenges and made some progress in 2012, but delayed many of the tough decisions until 2013.

We ended the year with a debate over the “fiscal cliff,” and while we avoided the potential economic catastrophe of going over the cliff on Dec. 31, we only temporarily delayed draconian automatic spending cuts that will kick in early this year if we can’t reach another agreement to avoid them.

One way we can bring down the deficit while avoiding those damaging cuts is to close some egregious corporate tax loopholes.

Over the last year, I’ve fought for changes to bring down the deficit and make the tax code fairer. For example, we should end the tax loopholes and accounting gimmicks that allow companies to give lucrative stock options to executives and stick Uncle Sam with the tab; that allow companies to avoid taxes by shifting U.S. income to offshore shell corporations; that subsidize companies for moving U.S. jobs offshore; and that allow hedge fund managers to pay a lower tax rate than their staff.

Revenue from closing those loopholes will help us preserve programs that support the aspirations of average families. For example, Congress acted over the summer to avoid a doubling of student-loan rates that would have put college – already a financial strain for most families – even further out of reach. We beat back attempts to reduce the budgets for education, research into groundbreaking technology and life-saving medical treatments. We must continue to fight to preserve these important investments in our people and their future.

Of course, for us in Michigan, the continuing renaissance of the domestic auto industry has been vital. Growing auto sales and employment continue to demonstrate the wisdom of the federal investments in preserving this backbone of American manufacturing. Just as important as what’s happening on factory floors today is how we’re preparing for long-term competitiveness. We need to make sure we build the cars of tomorrow as well as those of today.

The announcement in December that several of our state’s companies and educational institutions will participate in a federal research consortium developing next-generation vehicle batteries means good jobs for our people now and in the future. And the continued growth of clean energy technologies–not just as sources for energy, but as a growing business for our companies—underlines the strong steps taken by our entrepreneurs, often with federal support, to build for the future.

As chairman of the Senate Armed Services Committee, I know how important a strong and innovative industrial base is to our defense. The Defense Authorization Act we passed at the end of the year draws on Michigan’s manufacturing, engineering and technological prowess in a host of ways. And in November, my wife, Barbara, and I attended the keel-laying ceremony for the USS Detroit, one of a new class of Navy vessels built to counter the security threats of the coming decades. Hundreds of Michigan workers will help build the USS Detroit and sister ships at a shipyard in Marinette, Wis., just across the state line from Menominee.

That is just the latest chapter in Michigan’s maritime heritage, a heritage inextricably linked to the Great Lakes. In 2012, Congress passed legislation I pushed for that could help improve harbor maintenance. The Senate passed a bill I authored to protect thousands of acres of wilderness at Sleeping Bear Dunes National Lakeshore, and though the House did not pass this bill, I’m hopeful we’ll succeed in this Congress. And as co-chair of the Senate Great Lakes Task Force, I helped lead bipartisan efforts to ensure adequate funding for Great Lakes preservation and restoration, including programs to protect against invasive species such as Asian carp.

I just returned from a trip to Afghanistan and Pakistan, looking ahead to an important year for our policy in that region. Spending time with the brave men and women of our military is always inspiring. We are on schedule to hand over security responsibility for all of Afghanistan to that nation’s security forces. Serious challenges remain, most notably in helping develop Afghan government institutions that are effective and free of corruption.

We face no shortage of challenges entering 2013. I’m optimistic we can meet them. The people we serve expect and deserve it, and our nation’s future demands it.

Carl Levin is the senior U.S. senator from Michigan.

by Sen. Carl Levin

Once again, oil prices are spiking, threatening our economic recovery and causing real hardship for American families and businesses. The price of a barrel of oil is up nearly 30 percent since early October.

Unfortunately, that’s nothing new. For years now, the commodity markets have taken the American people on an expensive and damaging roller coaster ride with rapidly changing prices for crude oil. At the start of 2007, oil cost about $50 a barrel. By July of 2008, oil prices had shot to nearly $150 per barrel and then, by the end of the year, crashed to $35. In the beginning of 2011, oil prices took off again, climbing to over $110 a barrel in May. By October, the price fell to $75 a barrel, a drop of more than 30 percent over four months. Now, three and a half months later, oil prices are back up.

One of the major factors driving these high prices isn’t getting enough attention: excessive speculation in the commodity markets.  Investigations by the Senate Permanent Subcommittee on Investigations, which I chair, have shown how the activities of speculators – those who don’t produce or use oil, but who bet on oil price changes – have overwhelmed normal supply and demand factors and pushed up prices at the expense of consumers and American business.

In 2006, the subcommittee released a report that found that billions of dollars in trading by speculators in the crude oil market was responsible for an estimated $20 out of the then $70 cost for a barrel of oil that year – and a corresponding rise in the price at the gas pump. Since then, even more speculators have entered the commodity markets. Today they bet billions of dollars on oil prices every day.

Oil markets exist to enable producers of oil and users of oil to do business. But at a November hearing before my subcommittee, the chairman of the Commodity Futures Trading Commission, Gary Gensler, testified that 80 percent or more of oil trades are now made by speculators. In February, Forbes magazine, citing a recent report by Goldman Sachs, reported that oil speculation adds 56 cents to the price of each gallon of gas bought at the pump.

Before speculators flooded the markets, oil prices were determined by fundamental market forces of supply and demand. When supplies were tight and demand high, prices went up. In contrast, when supplies were ample and demand low, prices went down.  Nowadays, that relationship is largely absent. There is no shortage in the supply of oil globally, and the United States is producing more oil than it has in a decade. Last year, the United States actually exported more gasoline and other petroleum products than we imported. At the same time, U.S. demand for fuel actually sank.

Under normal economic conditions, rising production and lower demand should mean lower prices. Instead, prices are more volatile than ever. One key reason is that speculators are playing too large a role in the oil market. If we are to get a handle on oil prices, we have to curb excessive speculation.

Congress has already taken the first steps. In July 2010, we told federal regulators to establish rules to prevent speculators from dominating markets and distorting prices. Last year, the regulators rolled out the new rules. They are not as tough as they should be, but the real problem is that they are not yet fully in force. That means this important new tool lies dormant. One big roadblock is that the financial industry has filed a lawsuit to stop it from taking effect.

In the meantime, Congress should acknowledge that speculation is helping to drive up gas prices. We should urge federal regulators to exercise emergency authority, without waiting any longer, to clamp down on excessive speculation in the oil markets.

Congress should also ask more of the president’s task force on commodity speculation. A year ago, Sen. Jack Reed of Rhode Island and I sent a letter asking President Obama to convene a task force to investigate and combat excessive oil speculation. While the attorney general did convene a task force, it focused on criminal cases instead of the broader problem of commodity traders driving up gas prices. The task force should urgently refocus and bring its firepower to the battle against excessive speculation.

American families cannot afford the current price of oil and neither can our economy, which after four years is beginning to turn a corner toward real growth. Ignoring how speculators affect oil prices could put our recovery at risk.

Carl Levin is the senior U.S. senator from Michigan.

By Sen. Carl Levin

Earlier this year, the Senate Armed Services Committee, which I chair, began an investigation of counterfeit electronic parts finding their way into the systems that our military uses to defend us. We recently held our first hearing to look at what our investigation has discovered so far, and what we have found will shock the American public.
There is a flood of counterfeit electronic parts entering the defense supply chain.  It is endangering our troops and costing us a fortune. And the overwhelming share of these counterfeits comes from one country: China.
Here is some of what we have found:
*Looking at just a slice of the defense contracting universe, the committee reviewed 1,800 cases of electronic parts suspected to be counterfeit.  Those 1,800 cover more than 1 million individual parts. Now, 1 million parts is surely a huge number, but remember, we’ve only looked at a portion of the defense supply chain. Those 1,800 cases are just the tip of the iceberg.
*Staff selected more than 100 of those cases to trace the suspect parts back through the supply chain. In more than 70 percent of cases, the trail led to China, where a brazenly open market in counterfeit electronic parts thrives.  In most of the remaining cases, the trail led to known resale points for parts coming from China.
*We also conducted detailed investigations of how suspect counterfeit parts from China ended up in three key defense systems. In each case, we traced the parts through a complex web of subcontractors and suppliers back to Chinese companies.
*It is stunning how far the counterfeiters are willing to go.  We asked the Government Accountability Office (GAO), acting undercover, to go online and buy electronic parts used in military systems. Every single part the GAO has received so far has been counterfeit. GAO found suppliers who not only sold them counterfeit parts when they sought real parts; suppliers were also willing to sell them parts with nonexistent, made-up part numbers. Every one of the counterfeit parts they received came from China.
Too often, the cost of replacing counterfeit parts once they are discovered falls on taxpayers. We are working on legislation that would change Pentagon rules so that contractors, not taxpayers, pay to replace counterfeit parts when they are discovered. We will require that contractors notify the military immediately when they discover electronic parts that are suspected to be counterfeit, and that they report those counterfeit cases to a computerized system that contractors and the government use to track such problems.
But as we do that, we also must stop the flood of counterfeit parts at the source – and that source is mainly in China.
Witnesses told us how counterfeiters in China remove electronic parts from scrapped computers and other electronic waste, how they wash the parts in dirty rivers, and dry them in the street.  Counterfeiters make this scrap look like new parts and sell them openly in markets in Chinese cities and through the Internet to buyers around the world.
Chinese authorities impeded our investigation, refusing even to issue visas to our investigators to enter mainland China. At one point, a Chinese embassy official told staff that the issues we were investigating were “sensitive” and that the investigation could be “damaging” to U.S.-China relations.
They got it backwards. What is damaging to U.S.-China relations is China’s refusal to act against brazen counterfeiting.
If China does not act promptly to end counterfeiting, then we will have no choice but to treat all electronic parts coming in from China—whether for military or civilian use—as  suspected counterfeits. That would mean requiring inspection of all shipments of Chinese electronic parts to ensure that they are legitimate.
We cannot afford to put our troops at risk by arming them with unreliable weapons or asking them to fly planes with fake parts on them. We cannot afford to spend needed defense dollars on fake parts. And we cannot allow our national security to depend on electronic scrap salvaged from trash heaps by counterfeiters in China.
Carl Levin is the senior U.S. senator from Michigan and chairman of the Senate Armed Services Committee.