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Opening Summary -- Senate Armed Services Committee (Budget Request)

As Delivered by Secretary of Defense Leon E. Panetta, Washington, DC, Tuesday, February 14, 2012

Mr. Chairman and members of the committee, I appreciate the opportunity to appear before you to discuss the president's budget request for fiscal year 2013. Let me begin, as always, by thanking you for the support that you provide to service members and to our military families. These brave men and women, along with the department's civilian professionals who support them, have done everything asked of them and more during more than a decade of war. And I want to thank you for the support that you have given them in the past, present and hopefully in the future.

Defense Strategy Review

The F.Y. '13 budget request for the Department of Defense was the product of an intensive strategy review that was conducted by the senior military and civilian leaders of the department, with the advice and guidance of the president. The total request represents a $614 billion investment in national defense that includes $525.4 billion for the department's base budget and $88.5 billion in spending to support our troops in combat.

The reasons for this review are clear. First, the United States is at a strategic turning point after a decade of war and after very substantial growth in defense budgets. And second, with the nation confronting a very large debt problem and deficit problem in this country, Congress passed the Budget Control Act of 2011 imposing a reduction in the defense budget of $487 billion over the next decade.

We at the department decided to step up to the plate. This crisis provided us an opportunity to establish a new strategy for the force that we would need in the future. And that strategy has guided us in making the budget decisions and choices that are contained in the president's budget.

The fact is, we are at an important turning point that would have required us to make a strategic shift probably under any circumstances. The U.S. military's mission in Iraq has ended. While we still have a tough fight on our hands in Afghanistan, 2011 marked significant progress in reducing violence and transitioning to an Afghan-led responsibility for security. And we are on track to complete this transition by the end of 2014, in accordance with our Lisbon commitments.

Having just returned from the NATO ministerial, I can assure you that all of the NATO nations are in line with the strategy that we are approaching with regards to Afghanistan. We are in a transition. We are transitioning security to Afghan forces, and our hope is that as we make the final transition in 2014, that they can take the lead on combat operations. We will be there. We'll be in support. We'll be combat-ready to support them through that process. And I want to assure you that NATO is fully in agreement with the strategy that we are moving in in Afghanistan.

Last year, in addition the NATO effort in Libya also concluded with the fall of Gadhafi and successful counterterrorism efforts have significantly weakened Al Qaida and decimated its leadership. But despite what we have been able to achieve, unlike past drawdowns when threats have receded, the United States still faces a very complex array of security challenges across the globe. We are still a nation at war in Afghanistan.

We still face threats to our homeland from terrorists. There is a dangerous proliferation of lethal weapons and materials. The behavior of Iran and North Korea continue to threaten global stability. There is continuing turmoil and unrest in the Middle East, from Syria to Egypt to Yemen and beyond. Rising powers in Asia are testing international rules and relationships. And there are growing concerns about cyber-intrusions and -attacks.

Our challenge -- our challenge is to meet these threats, to protect our nation and our people, and at the same time meet our responsibility to fiscal discipline. This is not an easy task. To build the force we need for the future, we developed new strategic guidance that consists of five key elements.

First, military will be smaller and leaner, but we want a military that is agile, and flexible, and ready and technologically advanced.

Second, we will rebalance our global posture and presence to emphasize Asia-Pacific and the Middle East because those areas represent the threats for the future.

Third, for the rest of the world, we need to build innovative partnerships and strengthen key alliances and partnerships from Europe to Latin America to Africa.

Fourth, we will ensure that we have the capability to quickly confront and defeat aggression from any adversary anytime, anywhere.

And fifth, this can't just be about cuts. It also has to be about protecting and prioritizing key investments in technology and new capabilities, as well as our capacity to grow, adapt and mobilize as needed.

Strategy to FY13 Budget

We developed this new strategic guidance before any final budget decisions were made in order to ensure that the decisions that are here, the choices we made, reflect the new defense strategy.

While shaping this strategy, we didn't want to repeat the mistakes of the past. Our goals are to maintain the strongest military in the world, to not hollow out the force, to take a balanced approach to budget cuts by putting everything on the table, and to not break faith with our troops and their families.

Throughout this review, we also wanted to make sure that this was an inclusive process. General Dempsey and I worked closely with the leadership of the services and the combatant commanders and consulted regularly with members of Congress. As a result of these efforts, the department is strongly unified behind the recommendations that we are presenting today. Consistent with the Budget Control Act, this budget reflects in the next five years a savings of $259 billion. That's compared to the budget plan that was submitted obviously to Congress last year.

We think this is a balanced and complete package. It follows the key elements of the strategy and adheres to the guidelines that we established. The savings come from three broad areas. First, efficiencies -- we have redoubled our efforts to discipline the use of taxpayer dollars. And that has yielded, we hope, about one-quarter of the targeted savings that we have in this package.

The second area is force structure and procurement reforms and adjustments. We've made strategy-driven changes in both force structure and procurement programs to achieve roughly half of the savings in this package.

And finally, on compensation, we made modest, but important adjustments in personnel costs to achieve some very necessary cost savings in this area. This area represents about one-third of our budget. But here, it accounted for little more than 10 percent of the total reduction that we've presented.

Let me walk through each of these areas.

More Disciplined Use of Defense Dollars

First of all, with regards to disciplining defense dollars, if we're going to tighten up the force then I, like Senator McCain, believe very strongly that we have to begin by tightening up the operations of the department. We've got to reduce excess overhead, eliminate waste, and improve business practices across the department.

The F.Y. '12 budget, as you know, proposed more than $150 billion in efficiencies and we continue to implement those changes. But we also identified another $60 billion in additional savings over five years through measures like streamlining support functions, consolidating I.T. enterprise services, refacing military construction projects, consolidating inventory, and reducing service support contractors.

As we reduce force structure, we also have a responsibility to provide the most cost-efficient support for the force. For that reason, the president will request the Congress to authorize the base realignment and closure process for 2013 and 2015. As somebody who went through the BRAC process in my own district, I recognize how controversial this process is for members and for constituencies. And yet it is the only effective way to achieve needed infrastructure savings.

To provide better financial information, we are also increasing our emphasis on audit readiness and accelerating key (inaudible) timelines. In October 2011, I directed the department to accelerate efforts to achieve fully auditable financial statements. We were mandated to do it by 2017. What I have ordered is that we move that up to 2014.

Strategy-driven Changes in Force Structure and Programs

But efficiencies alone are not enough to achieve the required savings. Budget reductions of this magnitude require that we make adjustments to force structure and procurement investments. The choices that we made have to fit the five elements of the strategy that we developed for the future military force.

First, we knew that coming out of these wars, as I said, the military would be smaller, but our approach to accommodating these reductions has been to take this as an opportunity to fashion an agile and flexible military that we need for the future.

That highly networked and capable joint force consists of an adaptable and battle-tested Army that remains our nation's force for decisive action, capable of defeating any adversary on land, and at the same time being innovative about how it deploys its forces; a Navy that maintains forward presence and is able to penetrate enemy defenses; a Marine Corps that remains a middle-weight expeditionary force with reinvigorated and amphibious capabilities; an Air Force that dominates air and space and provides rapid mobility, global strike, and persistent ISR; and a National Guard and Reserve that continue to be ready and prepared for operations when needed.

To ensure this agile force, we made a conscience choice not to maintain more force structure than we could afford to properly train and equip. We do it the other way, we guarantee a hollow course. We wanted a force structure that we could effectively train and maintain.

We are implementing force structure reductions consistent with the new strategic guidance for a total savings of $50 billion over the next five years. The adjustments include, as was pointed out, a re- sizing of the active Army from 562,000 to 490,000 soldiers by 2017. This will transition down in a responsible way. We'll gradually re- size the active Marine Corps from about 202,000 to 182,000. We'll reduce and streamline the Air Force's airlift fleet. We'll retire some aging C-5As and C-130s, but at the same time we'll maintain a fleet of 275 strategic airlifters and 318 C-130s -- a fleet that will be more than capable of meeting the airlift requirements of the new strategy.

The Navy will protect our highest priority and most flexible ships, but we also will retire seven lower-priority Navy cruisers. The reason we're doing that is that these cruisers have not been upgraded with ballistic missile defense capability and would require significant repairs. That's the reason the Navy chose to do that.

Second, the strategic guidance made clear that we must protect our capabilities needed to project power in Asia-Pacific and the Middle East. To this end, the budget maintains the current bomber fleet. It maintains the aircraft carrier fleet at a longer-term level of 11 ships and 10 air wings. It maintains the big-deck amphibious fleet and it restores Army and Marine Corps force structure in the Pacific after the drawdown from Iraq and as we draw down in Afghanistan, while continuing to maintain a strong presence in the Middle East. Our goal is to expand our rotational presence in both areas.

The budget also makes selected new investments to ensure we develop new capabilities to project power in key territories and domains. We're going to put $300 million to fund the next generation Air Force bomber. We're putting $1.8 billion to develop the new Air Force tanker, $18.2 billion for the procurement of 10 new warships, including two Virginia class submarines, two Aegis class destroyers, four Littoral Combat Ships, one joint high-speed vessel, and one CBN- 21 class aircraft carrier. We're also investing $100 million to increase cruise missile capacity of future Virginia class submarines.

Third, the strategy makes clear that even as Asia-Pacific and the Middle East represent the areas of growing strategic priority, the United States will continue to work to strengthen its key alliances, to build partnerships, to develop innovative ways, such as rotational deployments, to sustain our presence elsewhere in the world.

To that end, we make key investments in NATO and other partnership programs. We're putting $200 million in F.Y. '13 and nearly $900 million over the next five years on the NATO Alliance Ground Surveillance system, one that was just approved by the NATO ministerials in this last meeting; $9.7 billion in F.Y. '13 and about $47 billion to develop and deploy missile defense capabilities that protect the U.S. homeland and strengthen regional missile defenses as well.

The new strategy envisions a series of organizational changes to boost efforts to partner with other militaries. We're allocating a U.S.-based brigade to the NATO Response Force and we'll rotate U.S.- based units to Europe on a regular basis for training and exercises, increasing the opportunities as well for special operations forces to advise and assist our partners in other regions.

Fourthly, the U.S. must have the capability to fight more than one conflict at a time. But we are in the 21st century and we have to use 21st century capabilities. That's the reason this budget invests in space, in cyberspace, in long-range precision strike, and in the continued growth of special operations forces to ensure that we can still confront and defeat multiple adversaries even with the force structure reductions that I've outlined earlier.

It also sustains the nuclear triad of bombers, missiles and submarines to continue to ensure that we have a safe, reliable and effective nuclear deterrent.

Even with some adjustments to force structure, the budget sustains a military that I believe is the strongest in the world.

  • An army of more than 1 million active and reserve soldiers with 18 divisions, approximately 65 brigade combat teams and 21 combat aviation brigades.
  • A naval force of 285 ships, the same size force that we have today, that will remain the most powerful and flexible naval force on Earth.
  • A Marine Corps with 31 infantry battalions, 10 artillery battalions and 20 tactical air squadrons.
  • And an Air Force that will continue to ensure air dominance with 54 combat coded fighter squadrons in the current bomber fleet.

Lastly, we can't just, as I said, cut. We have to invest. We have to leap ahead of our adversaries by investments in the latest technologies. That's why this budget provides $11.9 billion for science and technology. It includes $2.1 billion for basic research. It provides $10.4 billion to sustain the continued growth in special operations forces. It provides $3.8 billion for unmanned air systems. And it invests $3.4 billion in cyber activities.

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. Therefore, the budget has identified $75 billion in savings over five years, resulting from canceled or restructured programs.

Some examples:

  • $15.1 billion in savings from restructuring the Joint Strike Fighter, by delaying aircraft purchases so that we can allow more time for development and testing. $1.3 billion in savings from delaying development of the Army's Ground Combat Vehicle due to contracting difficulties.
  • $4.3 billion in savings from delaying the next generation of ballistic missile submarines by two years for affordability and management reasons.

In addition, we terminate selected programs:

  • the Block 30 version of Global Hawk, which has grown in cost to the point that it is simply no longer cost-effective.
  • The weather satellite program, because we can depend on existing satellites resulting in a savings of $2.3 billion.

All of this requires that we have to have and maintain the ability to mobilize and to regrow the force if we have to. That means we need to maintain a capable and ready National Guard and Reserve.

One of the things we are doing is that the Army is going to retain more mid-grade officers and NCOs so that they can be there with the experience and structure we need if we have to move quickly to regrow the force.

The reserve component has demonstrated its readiness and importance over the past 10 years of war, and we must ensure that it remains available, trained and equipped to serve in an operational capacity when necessary.

And another key part of preserving our ability to quickly adapt and mobilize is maintaining a strong and flexible industrial base. I'm committed to make sure that our budget recognizes that industry is our partner in the defense acquisition enterprise, and we have to maintain a base if we're going to be able to mobilize and be prepared in the future.

Ensuring Quality of the All-Volunteer Force

And finally, with regards to our most important element of our strategy and our decision-making process, our people. This budget recognizes that they, far more than any weapon system or technology, are the great strength of the United States military.

One of the guiding principles in our decision-making process was that we must try to keep faith with our troops and their families. For that reason, we've determined to protect family assistance programs, to sustain these important investments in this budget that serve our troops and their families and continue to make efforts to ensure that these programs are responsive to their needs.

Yet, in order to build the force needed to defend the country under existing budget constraints, the growth in costs of military pay and benefits must be put on a sustainable course. This is an area of a budget has grown by nearly 90 percent since 2001, about 30 percent above inflation, while end strength has only grown by 3 percent.

So this budget contains a road map to try to address those costs in military pay and health care and retirement in ways that we believe are fair, transparent, and consistent with our fundamental commitments to our people.

On military pay, there are no pay cuts. We've created sufficient room to allow full pay raises in 2013 and 2014. However, we will provide more limited pay raises beginning in 2015, giving troops and their families fair notice and lead time before changes take effect.

The budget devotes about $48 billion, almost $50 billion to health care costs. It's a big part of our budget and an amount that has more than doubled over the last decade.

In order to continue to control the growth of these costs, we're recommending increases in health care fees, in copays and deductibles, that are to be phased in from four to five years. None of these fee proposals would apply to active duty servicemembers, and there will be no increases in health care premiums for families of active duty servicemembers under this proposal.

And we also feel that it's important to address the military retirement costs as well. And what we urge is the establishment of a commission with authority to conduct a comprehensive review of military retirement. But we have made clear, the president and the department, that the retirement benefits of those who currently serve should be protected by grandfathering their benefits.

Members of the committee, putting this together, this kind of balanced package, has been difficult. And at the same time, it has been an opportunity to try to think about what force do we need now and what force do we need in the future.

I believe we, the service chiefs, the combatant commanders, have developed a complete package to try to address our threats for the future and to try to ensure that we achieve our strategic aim.

As a result, the F.Y. '13 request is balanced. It keeps America safe and we think it sustains U.S. leadership abroad. Please take a look at each of the individual parts of this plan. I encourage you to review this entire budget. It has to be a partnership. But I ask you also to bear in mind the strategic tradeoffs that are inherent in any particular budget decision. This is a zero-sum game. There is no free money here.

The need to balance competing strategic objectives is taking place in a resource-constrained environment. We'll need your support and partnership to implement this vision of the future military. I know these are tough issues. This is the beginning. It's not the end of this process. But make no mistake, the savings that we are proposing are significant and broad-based and will impact on all 50 states.

But this is what Congress mandated on a bipartisan basis, that we reduce the defense budget by almost a half-trillion dollars. We need your partnership to do this in a manner that preserves the strongest military in the world. This will be a test for all of us of whether reducing the deficit is about talk or about action.

Let me be clear. Let me be clear. You can't take a half- trillion dollars out of the defense budget and not incur additional risk. We believe they are acceptable risks, but there are risks. We're going to have a smaller force. We'll depend on the speed of mobilization. We've got to depend on ingenuity in terms of new technologies for the future. And very frankly, when you go through this, there is no margin for error.

This is why Congress must do everything possible to make sure that we avoid sequestration. We are more than prepared to work with the Congress to try to develop an approach that will de-trigger sequestration. This approach would subject the department to another $500 billion in additional cuts that would be required to take place in a meat-ax approach. We are convinced that it would result in hollowing-out the force and inflicting severe damage to our national defense.

The leadership of this department, both military and civilian, is unified behind the strategy we presented, behind this budget, and behind the need to avoid sequestration. I look forward to working closely with you in the months ahead. This is going to be a tough challenge, but it's what the American people expect of its elected leaders -- to be fiscally responsible in developing the force for the future, a force that can defend the country, a force that supports our men and women in uniform, and a force that is and always will be the strongest military in the world.

Thank you. 

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