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Statement on Major Budget Decisions

As Delivered by Secretary of Defense Leon E. Panetta, Pentagon Briefing Room, Thursday, January 26, 2012

Good afternoon, everybody.

As all of you know, this department has undertaken a very fundamental review of its defense strategy and of our spending priorities.

The reasons for the review are clear.  First of all, we are at a strategic turning point after a decade of war and after a very substantial growth in the defense budget.  And second, the Congress of the United States, through the passage of the Budget Control Act, has required that the defense budget be reduced by $487 billion over 10 years.

To accomplish this effort, we decided that it was important to make this an opportunity to develop a new defense strategy for the United States and for the U.S. military force that we wanted for the future.

That strategy has guided us in making a series of tough budget choices and establishing a new set of defense priorities.

The ongoing process reached an important milestone earlier this month with the release of the new strategic guidance and the priorities for a 21st century defense.  And it will be reflected in the decisions that have been made and will be presented in the President's budget.

When I announced the new guidance, I highlighted five key elements of the strategy and five key elements of the vision that we have for a military force of the future.  And let me just summarize each of those.

First, the military will be smaller and leaner, but it will be agile, flexible, rapidly deployable and technologically advanced.  It will be a cutting-edge force.

Second, we will rebalance our global posture and presence to emphasize where we think the potential problems will be in the world. And that means emphasizing Asia-Pacific and the Middle East.

Third, we will maintain our presence elsewhere in the world and will do that by building innovative partnerships and strengthening our key alliances and develop new partnerships elsewhere in the world:  in Europe, in Africa and Latin America and elsewhere.

Fourth, we will ensure that we can quickly confront and defeat aggression from any adversary anytime, anyplace.

And fifth, we will protect and prioritize some very important and key investments in technology and new capabilities as well as our capacity to grow, adapt, to mobilize, to surge as needed.

Given the significant fiscal constraints that have been imposed on the department, our approach was to develop this force for the future with some pretty important guidelines.  We wanted to maintain the strongest military in the world.  We committed ourselves not to hollow out the force, as has been done in the past in these kinds of drawdowns, to take a balanced approach to our budget by putting everything on the table and to not break faith with the troops and their families.

I want to thank the entire leadership of this department, military and civilian alike, for their participation and support in this effort.  This has truly been a team effort, and I am deeply appreciative for their cooperation.

And we are united in the belief that this strategy and the resulting budget decisions followed the right approach to meet the country's most pressing security challenges and to preserve the strongest military in the world and at the same time meet our fiscal responsibilities. 

Today I'd like to offer a preview of the decisions that we made to help build the department's budget request for fiscal year 2013 and the future years' defense plan. 

Consistent with the Budget Control Act, this plan reduces spending over the 10 years, obviously, by $487 billion.  But in the five-year budget that will be presented by the President, we reduce the defense budget by 259 billion [dollars] over the next five years. 

Specifically, the department will request for its base budget $525 billion in its base budget for fiscal year FY13.  And our -- by the way, that compares to 531 billion [dollars] in fiscal year 2012 -- and our hope and plan here is to try to rise to 567 billion [dollars] by fiscal [year] 2017.   I would just point out that the projected growth before we had to do this was to reach about 622 billion [dollars] by that year of 2017. 

In fiscal 13, we will also ask for an additional $88.4 billion for overseas contingency operations, so-called OCO funds.  That compares to about 115 billion [dollars] that we receive in fiscal year 12, all of that obviously to maintain support for our troops in combat. 

We believe this is a balanced and complete package that follows the five key elements of the strategy and vision that I've described. You have the specifics in the package you've been provided.  And I know that Ash Carter, the deputy, and Sandy Winnefeld, the vice chair, will fill you in on any additional specifics that you're interested in. 

But what I wanted to do is to kind of summarize some of the key decisions for you.

First of all, with regards to the area of developing a smaller and leaner but agile and flexible and technologically advanced force, we knew that coming out of the wars and dealing with budget reductions of this magnitude, the military would be smaller.  But the key -- as tough as it was to make the decisions with regards to drawing these down -- the key is to fashion an agile and flexible military force that we need in the future.

What that means for the services is that we will have an adaptable and battle-tested Army that is our nation's force for decisive action, capable of defeating any adversary on land.  Let me say that again:  capable of defeating any adversary on land.  We will have a significant land force presence in places like Korea and in the Middle East.  But at the same time, we will emphasize special operations forces.  And we will also emphasize a rotational presence so that we can establish the kind of partnerships that I discussed and provide training and advice in other parts of the world.

We will have a Navy that maintains a forward presence and is able to penetrate enemy defenses.  The Navy essentially has agility built into its force because it can move and deploy anywhere throughout the world.

The Air Force is the same.  It will be an Air Force that dominates air and space and provides rapid mobility, global strike and persistent ISR, and it will provide unmanned capabilities through their operators as well.

A Marine Corps that is a middleweight expeditionary force with reinvigorated amphibious capabilities.  And a National Guard and Reserve component that is ready and prepared for operations, all of this networked into a highly capable joint force for the future.

To ensure an agile and ready force, we made a conscious choice not to maintain more force structure than we could afford to properly train and equip.  The budget also seeks to retain the most flexible, versatile and technologically advanced platforms that we will need for the future.  That involves unmanned systems, satellites, submarines, helicopters, aircraft carriers and fifth-generation aircraft.  What we're looking at are multi-mission weaponry and technology that can support that kind of agile force.

Striking the right balance between force structure and readiness is critical to our efforts to avoid a hollow force, and we'll continue to focus on this area to ensure that we make the right choices. 

In this budget, we plan to gradually resize the active Army to 490,000.  That's down from present force level of 562,000.  And the active Marine Corps will go to 182,000.  That's down from 202,000. That transition will take place over the five years.  We won't reach those numbers until 2017. 

This plan maintains, as I said, a very significant Army and Marine force.  Both services are at larger levels than they were at prior to 9/11. 

They will be fundamentally reshaped by a decade of war.  They will be far more lethal, battle hardened and ready.

The changes to the size of our ground forces allowed us to examine the Air Force's airlift fleet.  Our intensive review determined that we could reduce, streamline and standardize our air fleet with minimal risk.  So, as you'll see, we are retiring some aging C-5As and C-130s, but we will maintain a very healthy airlift capability.   

We were also able to identify excess capabilities in tactical air forces.  We currently have 60 Air Force tactical air squadrons, and the review determined that we could eliminate six of the 60 as well as one training squadron.  None of that will impact our ability to dominate the skies.   

The Navy is protecting our highest-priority and most flexible ships, such as the Arleigh Burke destroyers and the littoral combat ships.  It will retire lower-priority cruisers that have not been upgraded with ballistic missile defense capability or that require significant maintenance as well as some combat logistics and fleet support ships.   

As we build this leaner and more agile force, we frankly need to also look at a department that is leaner and more agile as well.  And for that reason, this budget seeks to reduce excess overhead, eliminate west -- waste in this department, and improve business practices across the department.  We've identified about $60 billion in savings over five years on top of the substantial efficiency efforts that are already under way. 

This will involve areas such as aggressive and competitive contracting practices, better use of information technology, streamlining the staff, reductions in contract services and better inventory management. 

As a result of all this, we will also need to look at facilities infrastructure, balancing overseas forward presence requirements with basing requirements back home.  In this budget environment, we simply cannot -- we simply cannot sustain the infrastructure that is beyond our needs or ability to maintain.  Therefore, the President will request the Congress to authorize to use of the base realignment and closure process -- so-called BRAC process -- with the goal of identifying additional savings and implementing them as soon as possible. 

The second area: rebalancing our global posture and presence to emphasize the Asia-Pacific and Middle East areas.  The budget protects and in some cases increases our investments in these critical areas. That requires an Air Force that is able to penetrate sophisticated enemy defenses and strike over long distances.  So we will be funding the next-generation bomber, and we will be sustaining the current bomber fleet.  We are also moving ahead with our next-generation aerial refueling tanker. 

The strategy also envisions a Navy and Marine Corps that is postured forward, bringing a stabilizing presence and combat power as needed, with an emphasis on these critical regions. 

The Marines will sustain their level of presence in the Pacific and the budget supports an enhanced presence and partnering opportunities with Australia and others, such as the Philippines.  And in all of these cases, obviously we'll do this in a way that respects the sovereignty of the nations that we will be working with.  It also provides the resources to forward station littoral combat ships in Singapore and a patrol craft in Bahrain. 

As I announced last weekend, sustaining our ability to project power in these regions will require maintaining the aircraft carrier fleet at 11 ships, with 10 air wings, and maintaining our big-deck amphibious fleet.  Modernizing our submarine fleet will also be critical to our efforts to maintain maritime access in these vital regions of the world.  In this budget, the Navy will invest in a design that will allow new Virginia class submarines to be modified to carry more cruise missiles and develop an undersea conventional prompt strike option. 

Across the force, we will invest in upgraded sensors for aircraft, ships and missiles, and the most advanced electronic warfare and communications capabilities.  Meanwhile, the strategy requires the Army to return to a full-spectrum training, developing a versatile mix of capabilities, developing a versatile mix of formations and equipment to succeed on land, including in environments where access will be contested.  The Army will maintain its significant force structure in the Pacific, including on the Korean Peninsula, and will maintain an operationally responsive peacetime presence in the Middle East as well. 

The third area: in building innovative partnerships and strengthening our alliances throughout the world.  This strategy envisions an Army that develops innovative approaches to presence and a partnership development that will ensure our continued engagement with allies and partners across the globe.  For example, in Europe, while we're taking down two brigades, we will maintain two brigades and, in addition, align a brigade combat team with each regional [combatant] command, and we will increase our rotational deployments on the continent so that our forces have more opportunities to train and operate with their European counterparts. 

More broadly, the United States will continue to invest in our shared capabilities and responsibilities with NATO, responding to the alliance's most critical needs such as increased ISR and ballistic missile defense capabilities. 

Elsewhere in the world, the gradual drawdown of the post-9/11 wars will provide more opportunities for special operations forces to assist and advise our partners in other regions, and we prioritize the most important programs for building partnership capacity. 

Fourth: we will ensure that we can quickly confront and defeat aggression from any adversary anytime, anywhere.  The strategic guidance reaffirmed that the United States must have the capability to fight more than one conflict at the same time.  Still, the changing nature of conflict demands greater flexibility to shift and deploy forces to be able to fight and defeat any enemy anywhere. 

The strategic guidance recognizes that we're dealing with the changing realities of the world that we live in in the 21st century. We're not just facing conventional threats.  We're also facing technological threats.  And we have to be prepared to be able to leap ahead technologically in order to be able to confront those kinds of adversaries. 

This requires that we have the capability to defeat the enemy across a broad horizon of different conflicts.  And the budget leverages, as a result of that, new concepts of operations and advances in space, cyberspace, special operations, long-range precision strike capabilities and other capabilities as well to ensure that we can still confront and defeat multiple adversaries. 

The budget also affirms the importance of strategic deterrence and provides for all three legs of the nuclear triad:  bombers, intercontinental ballistic missiles and ballistic missile submarines. However, our review determined that we could achieve better cost control by delaying the next-generation ballistic missile submarine for two years without harming the survivability of our nuclear deterrent.  We are fully committed to a safe, secure and effective deterrent to achieve national security objectives. 

And lastly, with regards to the key investments in technology and new capabilities, we have to retain a decisive technological edge. 

We have to retain the kind of leverage the lessons of recent conflicts have given us.  And we need to stay ahead of the most lethal and disruptive threats that we're going to face in the future.  

That meant protecting or increasing investments in cyber capabilities, the ability to project power in denied areas, special operations forces -- the kind that we saw that conducted the bin Laden raid and the hostage rescue operation -- homeland missile defense, and countering weapons of mass destruction.  In order to protect vital investments for the future, we protected science and technology programs as well.   

At the same time, the strategic guidance recognizes the need to prioritize and distinguish urgent modernization needs from those that can be delayed, particularly in light of schedule and cost problems. We've made reasonable adjustments to a number of programs.  Let me briefly mention the change with regards to the Joint Strike Fighter.   

It's a program that remains essential for the future of our superiority.  We have to develop the next generation fighter, and we will.  The department remains committed to the JSF program of record.  But in this budget, what we've done is slowed the procurement to be able to complete more testing and allow for developmental changes before we buy in significant quantities.  We want to make sure before we go into full production that we are ready.   

The force structure shifts I've outlined today entail some risks to be sure.  But to manage that risk we will ensure that we can mobilize, surge and adapt our force to meet the requirements of an uncertain future.   

To that end, the Army will retain more mid-level, mid-grade officers and NCOs.  These are the guys who have the experience.  And they will maintain them even as their overall strength decreases to ensure that we have the structure and experienced leaders necessary to re-grow the force quickly if we have to. 

Another part of ensuring the ability to mobilize quickly will be retaining a capable, ready and operational Reserve Component, leveraging 10 years of experience in war.  Consequently, we are maintaining a strong Army Reserve and National Guard.  There will be no reductions in the Marine Corps Reserve.  The Air Force will make balanced reductions in the Air National Guard consistent with reductions in both the Active Component and Air Force Reserve. 

And finally, the budget recognizes that a critical part of our ability to mobilize is a healthy industrial base.  Maintaining the vitality of the industrial base and avoiding imposing unacceptable costs or risks on our critical suppliers will guide many of the decisions that we have made. 

Now let me turn to the quality of our All-Volunteer Force.  The most fundamental element in our strategy and in our decision-making process is our people.  This budget recognizes that they, far more than any weapon system, far more than any technology, are the great strength of the United States military.  For that reason, we focus first on every other area of the defense enterprise for savings in order to minimize any impact on the quality of the troops and their families. 

As a result, we were able to sustain or enhance critical support programs while reforming and reorganizing others to be more effective and responsive to the needs of their troops and their families. 

Yet in order to build the force needed to defend the country under existing budget constraints, the escalating growth in personnel costs must be confronted.  This is an area of the budget that has grown by nearly 90 percent since 2001.   

The budget will contain a road map to try to address the costs of military pay, health care and retirement in ways that we believe are fair, transparent and consistent with our fundamental commitments to our people.  We recognize through this process that we can never repay our service members or their families for all their sacrifices.  

On compensation for service members, we've created sufficient room in the budget to allow full pay raises in 2013 and 2014 that keep pace with increases in private-sector pay.  In addition, let me make clear:  nobody's pay will be cut.  Nobody's pay will be cut. 

With regards to pay raises, however, in order to achieve cost savings, we will provide more limited pay raises, beginning in 2015. That will give troops and their families fair notice and lead time before these proposed changes go into effect.   

On health care, another area of tremendous cost growth in the department, we've avoided changes that negatively impact active-duty troops or their families. We've protected health care services for these troops, for our wounded warriors. 

But we decided that to help control the growth of health care costs, which is now almost $50 billion in this department, we are recommending increases in health care fees, co-pays and deductibles for retirees.  They'll be phased in over five years.  But let me clear that even after these increases, the cost borne by military retirees will remain below levels in most comparable private sector plans, as they should be. 

We also feel that the fair way to address military retirement costs is to ask Congress to establish a commission with authority to conduct a comprehensive review of military retirement.  But the President and the Department have made clear that the retirement benefits of those who currently serve will be protected by grandfathering their benefits.  There will be, for those who serve today, no changes in retirement benefits. 

Finally, let me just conclude.  Putting together this kind of budget that maintains the quality of an all-volunteer force and implements significant mandated savings has been a difficult undertaking.  This has been tough work.  And at the same time, we have viewed it as an important opportunity to try to shape the force we need for the future. 

I believe we've developed a very complete package aligned to achieve our strategic aims.  The bottom line is that there is little room here for a significant modification if we want to preserve the force and the capabilities that we believe we need in order to protect the country and the fully assigned missions that we have to deal with. 

Ultimately, we will need the support and the partnership of Congress to implement the vision that we have for a future military, and we look forward to working with the Congress in this effort. After all, it was a bi-partisan Congress that mandated that we reduce the defense budget by 487 billion [dollars] over 10 years.  So we look forward to their partnership in this effort. 

Make no mistake:  the savings that we are proposing will impact on all 50 states and many districts, congressional districts, across America.  This will be a test, a test of whether reducing the deficit is about talk or about action. 

I understand how tough these kinds of issues can be, and I understand also that this is the beginning and not the end of this process.  But my hope is that when members understand the sacrifice involved in reducing the defense budget by almost a half a trillion dollars that it will convince Congress of the important responsibility they have to make sure that we avoid sequestration. 

That would be a doubling of the cuts, another $500 billion in additional cuts that would be required to take place through a meat- axe approach, and that we are convinced would hollow out the force and would inflict severe damage to our national defense for generations. 

So the leadership of this department, both military and civilian, we are united behind the strategy that we have presented.  And we look forward to working closely with the leaders of the Hill to do what the American people expect of all of their leaders:  to be fiscally responsible at a time of record deficits and a record national debt; to use this opportunity to develop the force we need for the future, a force that can effectively defend this country, a force that can support our men and women in uniform and their families, and a force that is, and always will be, the strongest military power in the world. 

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