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Special Defense Department Briefing with the Fiscal Year 2005 Budget

Presenters: Undersecretary of Defense and Comptroller Dr. Dov Zakheim
February 02, 2004 12:00 PM EDT
Special Defense Department Briefing with the Fiscal Year 2005 Budget

(Slides used in this briefing are available at http://www.defenselink.mil/news/Feb2004/05brief.pdf)

 

            MR. ZAKHEIM:  Well, good afternoon, everybody.  I don't know whether you may have more slides in your packets than I'll be showing up here.  But in any event, I would like your indulgence, so that I can go through them all and then take questions afterwards.  And I'll try to do that quickly and hopefully clearly.

 

            So, moving to the first slide; as you can see, this year we have a budget of something over $400 billion, which is approximately 26 billion (dollars) more than we had last year.

 

            You'll see that we have $6 billion worth of rescissions, and those are really in three parts.  First, Congress took $3-1/2 billion that we were able to apply to a reduction in the Iraqi Freedom Fund. Now that was a fiscal year '03 fund, but it was a two-year fund, and so therefore we took money out of it in fiscal year '04, another $800   million in rescissions in the various accounts, and then a billion-eight that came out of the '04 appropriations act, the omnibus act, that we essentially have to identify by the middle of August, because of the act tells us that the rescissions must be completed by the end of September, and we need to decide upon them a month earlier than that.  So if you add those up, those are 6.1 billion (dollars).

 

            For technical reasons, all of those rescissions are booked as fiscal year '04 rescissions.  There's agreement between our Office of Management and Budget and the Congressional Budget Office on how we attribute those rescissions.

 

            Next slide, please.

 

            This slide is full of little asterisks.  The asterisks essentially address the rescissions I just spoke about.  You'll see that there's a significant increase in Military Personnel, also in Operations and Maintenance, although I should point out that a good part of that Operations and Maintenance account, to the tune of something over $17 billion, is actually money for the Defense Health Program, which is something that is more of what might be called an entitlement, since it's automatic, rather than something that we can decide upon, which, in the technical parlance, is called "discretionary."

 

            You'll see a slight reduction in procurement.  That's a little misleading.  The reason there's a reduction is that there are two ships that, like most ships, would normally have been funded fully. That is to say, whatever the total cost of the ship is, you fund it in the first year, when you might actually be doing research and development.

 

            This year, two of those ships -- the littoral combat ship, which is a new ship that's going to fight, not necessarily in open ocean but in more enclosed areas, as well as the new DD(X) Destroyer -- those ships are being treated as research and development ships, which, in fact -- they're not so much research and development ships; the money on research and development for them is being accurately portrayed as just that.  Had they been fully funded, it would have been an additional $2 billion that would show up in the procurement accounts.  The procurement has not really declined and, in fact, the workload at the shipyards will be exactly the same. 

 

Research has gone up again.  Military construction is virtually where we were last year. Family housing has gone up.  And then the other category includes a variety of different areas, revolving funds and management funds in particular, the largest of which is the National Defense Sealift Fund, which was one of the sources of the rescissions.

 

            Next slide, please.

 

            This shows you how the money has been allocated by Service. Don't be misled by the small change in the Army and the larger changes in the Air Force and Defense-wide.  The Army is the least capital-intensive, the most personnel-intensive of the services, and as a result, by definition, you're going to spend a lot more money on very large equipments than you will on individual personnel.

 

            Another area that's worth bearing in mind, and I'll come back to, is the revolutionary changes that we're contemplating for the Army. Those have to do with structure, with operations, and not really with the acquisition of systems per se.  On the Air Force and Defense-wide side, you've got some significant funding in intelligence, and I can't get into those numbers except to say they're significant enough that that's driven the numbers for both the Air Force and Defense-wide higher.  Also, the Defense health program, again, is reflected in the Defense-wide program.

 

            Next slide, please.

 

            This is clearly our top priority.  To pursue the global war on terrorism, we have to do all the things that you can see there: robustly fund force-readiness requirements, deal with immediate acquisition needs.  The up-armored Humvees are very, very important; this is a force- protection initiative that began in this fiscal year, fiscal year '04.  We've got to protect our troops both when they're on the ground and when they're mobile.  This future acquisition, which I will speak to with more detail later on, laser satellite system, the joint tactical radio, cruise missile defense.

 

            We also need legislative authority to support other nations; I'll get into that in more detail.  And then the improvement in integration of intelligence capabilities.

 

            Next slide, please.

 

            So here's the money for operations to maintenance.  Now, we meet all our goals, but then you see this bullet here: we're adopting new metrics.  Army tank miles is a good example of why you need to adopt new metrics.  These metrics that are up there are essentially inputs, they're not output oriented.  And for a long time people have asked: "Readiness indicators?  Ready for what?"  So we have the Defense Readiness Reporting System, which is going to adopt new output measures that are not really going to replace the measures we have, but be alongside them.

 

            And then there is relevance to these measures, too.  To take that Army example:  tank miles reflect measurements that include training at home station, but also the National Training Center.  The National Training Center is the most sophisticated center of its kind in the world; it's probably light-years ahead of anything else.  It's a 21st century place.  Similarly, you have simulation training, so the more advanced your computers are, the more advanced your simulators are. It is important to measure that, but it is insufficient.   And so we are developing new metrics, even as we use the old ones and we've met all our objectives and goals.

 

            Next slide, please.

 

            Each of these three really doesn't involve new money per se. What it does involve is the authority to move monies from another account in order to pay for one or the other of these three, and we have a billion dollars in total.     Now, why are they important? 

 

We have found that, by using train- and-equip authority that we had previously, in the region of $150 million, we were able to really get the Afghan national army going. We were able to take raw recruits, who couldn't even crawl on the ground and keep their helmets on at the same time, into a sophisticated force that operates alongside us and that creates a very positive image for the central government of Afghanistan.

 

            We've also had money for the new Iraqi army, but we've discovered that the real criterion in Iraq at this time is not to protect against an external threat.  I mean, after all, we have well over 100,000 coalition troops -- ours and others -- there who would certainly dissuade anybody from trying an external attack.  The real issue is internal stability.  And therefore, what we need to do is train the Civil Defense Force, train the Facilities Protection Force, train the border police, train those who really provide visible security for their Iraqi compatriots.

 

            What this does is expand the notion of train and equip beyond just the militaries to security forces, both in Iraq and in Afghanistan, and indeed, in nearby neighboring states.  Because after all is said and done, you may have bad folks crossing borders from these nearby states, or operating in these nearby states to destabilize them. That's what that first bullet's about.

 

            The second bullet:  the Commanders' Emergency Response Program -- probably the single-most successful program in Iraq today.  We used, in the past, '04 money, $340 million for this program, of which $300 million is being allocated for Iraq; $40 million for Afghanistan. What does it do?  Using monies that we seized, we took $160 million of our seized Iraqi monies, monies that were found in holes in the ground or elsewhere, as well as $180 million that the Congress gave to us, we allocated those to the commanders in the field, particularly the brigade commanders.  They spend up to about $10,000 a project -- it averages about $7,000 -- and they spend it on the kinds of things that your local city council will spend it on:  health, electricity, food distribution, sanitation, education, irrigation, telecommunications.

 

            What does this do?  It eliminates the middleman.  It allows the military to be seen as providing services.  The military is no longer perceived as some kind of occupational force that threatens to be there forever.  Instead, it's seen as helping to get local communities off the ground, wins Iraqi support, and also provides intelligence to us because the Iraqis that recognize what we're trying to do get very short tempered with those who are trying to disrupt what we're trying to do.  It's a phenomenally successful program.  We're asking for 300 million (dollars) more in authority for that.

 

            And finally, what's called draw down authority.  We have a long- standing practice of, in certain circumstances, taking American equipment and providing it to others under this authority.  Two years ago, Congress allowed us specifically to do that to the tune of 150 million (dollars) a year for the Afghans, to the Afghan national army. We're asking for 200 million (dollars) more for that, again, so that we strengthen the central government, which of course as you know are coming up for elections, and weaken the local warlords, who have been a disruptive element in Afghanistan's history for centuries.

 

            Next slide, please.

 

            A quick word on the supplemental.  As you can see, we have about $65 billion, that's for the Defense Department.  There's an additional 18.4 (billion dollars) for Iraqi assistance and an additional billion-two (dollars) for Afghan assistance.  The execution of this supplemental -- in other words, how we're spending the money -- is going smoothly, but obviously there are what people in this building call challenges, what the rest of the world would call problems of one sort or another.

 

            We're going to have to rotate troops in and out, a massive rotation.  That's a true challenge to do that right; not a problem, that is a challenge.  We have to reconstitute our forces at home. That could be a problem: getting it all right, making sure that they don't come back with worn-out equipment and we don't reequip them properly.  We have to increase the reconstruction process in both Afghanistan and Iraq, and the biggest challenge of all: doing it right to return the governance of Iraq to the Iraqi people.

 

            We don't anticipate another supplemental in this calendar year, and I underline calendar year.  We are working to finance all our incremental costs within the money that Congress has already given us for fiscal year '04.  At the beginning of fiscal year '05, we will do, what's called, cash flow.  We will use the resources we have until we get a supplemental, which we do anticipate getting in the next calendar year.

 

            Next slide, please.

 

            This year, the base pay increase will be three-and-a-half percent, which is based on the employment cost index, the comparables with the rest of society, plus an additional half-percent to continue the catch up so our military aren't underpaid.  We're also keeping a very important promise.  The first time I briefed, out-of-pocket housing expenses constituted 18 percent of personnel living costs.  We said we're going to get that down to zero…they're down to zero.  We kept our word, and we kept it when we said we would keep it.

 

            There's a lot of confusion about these two categories.  End strength is what the Congress gives us money in its regular budgets and allows us to spend on forces that have to reach a certain level by the end of a given fiscal year.  Actual strength is what we actually have based on drawing upon emergency authorities that are available and that the Congress does make available to the Secretary of Defense, and those authorities are financed by supplemental appropriations. And as you can see, in fiscal year '03, we were up by 44,000; in fiscal year '04, we're anticipating being up by about -- we're roughly up  -- actually – now, as of January, by about 32,000.  And that will fluctuate because of the nature of what we call stop loss, keeping people and letting them go.

 

            Next slide, please.

 

            Managing demand on our force.  We have a situation where we have 1,400,000, roughly, people in the active force.  We have another 875,000, give or take, in what are called the selective reserve.  We have another 300,000, give or take, in the individual ready reserve. We have, in other words, about 2.2 million people serving in one way or another, and yet people are telling us there's a strain in maintaining the forces in Iraq.  That's a management challenge.  And we have to manage the demand on the force.

 

            And what you see up there -- fulfilling our missions with smaller forces, rebalancing our forces -- and I'll have another slide on that -- managing our personnel to retain critical skills, having more authority for peak demand, and finally, military-to civilian conversions.  And what that's all about, is that you have a lot of military folks who are actually doing the work of civilians in defense agencies.

 

            For instance, one of the defense agencies that reports to me is the Finance and Accounting system -- Service, rather.  These folks do financial and accounting.  We had several hundred people, Air Force people in uniform, working in that service.  We worked out an arrangement with the Secretary of the Air Force; they went back to the Air Force.  We're gong to rehire -- or hire, actually -- we won't rehire -- hire civilians to do that job.  We'll use fewer civilians than we're using right now.  We'll use the new National Security Personnel Service, which allows for quicker hiring to get people that we really want without having to tell them they have to wait a year before the federal government will get back to them.

 

            At the same time, the military folks that moved out of the finance service, back to the Air Force, get retrained or recycled, and then the Air Force has people they need for military jobs.  So it's win-win:  a more efficient civilian side, a more effective military side.  This program has started, 10,000 positions in this fiscal year, nearly 10,000 to 10,070 in the next fiscal year.

 

            Next slide, please.

 

            But there's more.  I mentioned rebalancing the forces.  We are going to reduce the need for involuntary Reserve mobilization; that is folks who are called up, even though they don't want to be.  And there are many who volunteer, make no mistake.  But we want to reduce the number who are involuntarily called up in the first 15 days of operations.  We want to limit that involuntary Reserve mobilization. We only want people to have to serve not more than one year in every six.

 

            By the way, there are a lot of misconceptions about how many people are serving more than once and being called up again and again and again. In fact, the numbers show that if you include everything from Desert Storm onwards, you're in the region of about six percent of the entire Reserve force that has served more than once.  That's it. And if you talk about people two or three times -- three or four times, those percentages go way, way down.

 

            We are also looking at increasing early response support functions in the active side.  We're also looking at moving around some of the things the Reserves do.  We don't need as many people in artillery; we need a lot of people in military police, and in civic affairs, and in medical and transportation.  And again, as with the civilian military conversion, you see here, this has started:  10,000 positions in fiscal year '03; 20,000 more in '04; and 20,000 more in '05.

 

            Next slide, please.

 

            This year and next year, we are going into what's called the Base Realignment and Closure process.  Very briefly, in this month, February of '04, two things happen.  We submit a force structure plan and an inventory of our military installations to Congress.  By the middle of the month, February 16th, the selection criteria will be published and transmitted to Congress.  A year from now, or just over a year from now, March 15th, 2005, the nominations for the BRAC commission go to the Senate.  In May, the Secretary of Defense's recommendations for closure and realignment are transmitted.  In September, again of  '05, the commission transmits their recommendations to the president.  Later on in September, September 23rd, the president approves or disapproves the recommendations.  And then Congress has 45 legislative days -- not calendar days, but days when they're actually in session -- to disapprove the recommendations in a joint resolution.

 

            This very complex process avoids the issue that many many senators and congressmen have pointed out over the years:  that everybody is ready to cut a base, but not in their district.  And that's why this has been set up the way it has.

 

            The Global Defense Posture Review is an ongoing process that started in the middle of 2002.  And there's no money set aside for that.  And the reason there's no money set aside is because we are looking at where we might move troops to be in a more relevant place for future threats and where we might reduce troops that are already serving or based somewhere overseas.

 

            Now a couple of things are important to bear in mind.  Both moving people into countries and moving people out of countries require sophisticated negotiations.  Those take time.

 

            Second of all, there is a connection to the BRAC process.  We cannot simply willy-nilly pull people out of a country and put them on a base.  That is a violation of what the BRAC law says, which is, we cannot in any way disrupt the BRAC process.

 

            So what could happen, in effect, is you decide you want to move forces out of Iraq; you want to move them, really, to the United States, but you can't, because that'll affect the BRAC process.  So instead they have to be based overseas -- not very efficient, but those are the rules.

 

            Ultimately, though, we hope, as the BRAC process moves along, the negotiation process moves along, and we will reconfigure our -- what we call in the jargon our "footprint," our overseas posture, from what it's been for the last half-century.

 

            The next slide, please.

 

            Here's the money we're putting into the Missile Defense Agency, and I think it's important to point out a number of things here. First, it's really in two parts.  We have $900 million that is continuing the ongoing process.  And by the end of calendar year 2005, we'll have 20 ground-based interceptors and up to 10 sea-based ones and upgraded radars and command and control.

 

            By the end of calendar (sic) 2004 -- in other words, the end of this year -- we're scheduled to have an initial capability within nine ground-based interceptors, six in Alaska, three in California, and five sea-based ones, and appropriate radars and command and control. The radars work on what's called a different band.  They're not like other radars, and therefore we have a lot of development to do there.

 

            The ultimate goal of both the $900 million chunk and the new $600 million, which is for the next increment of this system, is to have an integrated and, what's called, a layered system.  The reason we say it's layered is because we want to stop missiles wherever they may be coming -- at whatever point, rather, in their flight -- in the boost phase, the beginning, midcourse, the middle or in the terminal phase in the -- toward the end of their flight.  We want to have the maximum capability to stop missiles from coming in.

 

            The next slide, please.

 

            Some highlights of our Land Forces programs:

 

            Centerpiece of the Army's new program is the Future Combat System.  This is really a system that allows both precision direct and indirect fires -- direct fires, like a tank; indirect fires, like artillery.  They're both going to be more precise.

 

            The indirect side is a follow-on to the Crusader program that was terminated.  And the precision on the indirect side will probably be as great as direct precision was maybe 10 years ago.  It just shows you how far we've advanced.  This is on target for 2010.

 

            Stryker is our new, more flexible combat vehicle.  We have three brigades up and running.  The Army is fielding its fourth.  This is funding for the fifth.

 

            The V-22 is the combination, hybrid helicopter/fixed-wing aircraft, and we are going to buy 11 of those, and that program is very much on track.  We're making it more interoperable.  We're trying to keep costs under control with new cost-reduction initiatives.  And finally, we're trying to make it what's called executable.  It's got to be a program that works.  This past year we went through some rigorous testing with the V-22 and it passed with flying colors.

 

            Next slide, please.

 

            Shipbuilding.  As I mentioned earlier, there are some ships that we have fully funded for most of the program, but a couple that we did not.  These two, as I mentioned, are the R&D ships, research and development.  They're not research and development ships.  The research and development portion is being funded in the shipbuilding budget this year.

 

            The Littoral Combat Ship is a major departure from the kinds of ships that we are used to fielding and have been fielding for decades. We basically call ourselves a blue-water navy.  We can fight anywhere, in any ocean.  These ships are not really meant to be open-ocean ships.  They're meant to fight in more restricted areas, and they are what their name says they are: littoral combat, fighting nearby in littoral areas, and people can imagine where those areas might be.

 

            The DDX, the new destroyer.  Because it's a new development ship, first of its kind, we are funding it with research and development.

 

            Next slide, please.

 

            Not much news in the way of tactical mobility aircraft.  We are in the second year of our two-year budget cycle.  Generally speaking, things that are not thrown up at us by events are matters that we will deal with in the first year of the two-year cycle, the next one being fiscal year '06.  And tactical mobility aircraft in general are the kinds of programs that are ongoing, and sure they will be reviewed, but next year.

 

            Next two slides talk about transformation.  Next slide, please.

 

            This is the systems side of it.  The J-UCAS is essentially what's called -- again, not necessarily in English, but I think people might understand anyway -- the unmanned combat aerial vehicle.  This is the Joint Unmanned Combat Air System.  Essentially, it's a pilotless plane that can do a lot of harm to the target by firing some kind of projectile at it, whether it's a missile or what have you.  That now is a consolidated program.  We had a lot of them that were sort of individual programs.  It's going to be operationally assessed in 2007 to 2009.  We will have a common operating program.

 

            Other unmanned vehicles: Pilotless planes include the Global Hawk, which is a rather large, long-distance unmanned aerial vehicle, four of those for around $700 million.  We're buying four, we're continuing research and development.  The Predator, I know you have all written about this in Iraq and to some extent in Afghanistan.  About 300 million (dollars) for that, and again to continue research and development.  We're going to get nine of those. We're also going to get the Shadow unmanned aerial vehicle.

 

            What's transformational about the satellite communications is that it's based on laser communications.  And what that means is that the limitations that we all have when we use our computers, because of what's called bandwidth constraints, simply will disappear.  You will have so much more communication going in so many more ways, so much more quickly, which will obviously make a tremendous difference to the folks who have to operate and fight.  This is the heart of what is called network-centric warfare.  This allows you to have viable networks.

 

            The next one, which is an interesting acronym, it's pronounced "jitters."  What it does, the system really is an Internet protocol- based system, which means that you are now using the Internet so that the military doesn't just talk to itself, it can talk to civilians, it can talk to anybody. Space-based radar is what it says it is.

 

            SSGN.  "SS" stands for submarine.  The "G" is the cruise missile. What this has done is change what was originally a Trident submarine, a strategic nuclear submarine, into a submarine that will fire cruise missiles and also carry Special Operations Forces.  It reflects the different way we're thinking about "strategic warfare" today.  It is a major tool in our arsenal.

 

            And finally, cruise missile defense includes a group of programs, some of them with acronyms that will twist anybody's tongue, that essentially will allow us to provide some capability in 2008, and the first units in 2010 to defend against cruise missiles.

 

            That's systems transformation.

 

            Now let me go to operational transformation.

 

            These two bullets reflect the most revolutionary change for us, and maybe for many others, in the way the Army has been structured since Napoleon made divisions the central maneuver unit of land forces.  Napoleon didn't eliminate corps, and this will not eliminate divisions.  But the brigade -- roughly about 4,000 people -- becomes the maneuver unit, becomes the module that can operate -- the Army brigade can operate with the Marines or the Air Force or the Navy.  It has 21st century communications capability.  But most important of all, it maximizes the fighting power of the Army.  Every division, instead of having three brigades, will now have four.  And so the total of 33 brigades -- because we have 10 divisions -- will go up to 43.  And maybe, depending on how things work out, it will even go up to 48.

 

            The Fleet Response Plan of the Navy is just as revolutionary.

 

            The Army one, we're still working out the details.  The Fleet Response Plan is already up and running.  What this is going to do is allow us to get our forces in the field overseas with far more firepower far more quickly. It is, again, a major, major development.

 

            The other three are ongoing developments.  The Air Force has already transformed and has been transforming for several years into capabilities-based Air and Space Expeditionary Forces.  The Special Forces have taken on expanded roles and have grown.  And then the Joint Forces Command, based in Norfolk, has radically changed the way we train jointly and transformed the way we train and transformed the way we fight, and, in fact, has become a model for many other countries who seem to be constantly sending delegations down to Norfolk to see how we do what we do.

 

            Next side, please.

 

            Science and technology, an increase over last year's request. Basically, in addition to what you see up there, money for basic research and applied research, those two may or may not translate into actual military capability.  The National Aerospace Initiative, Hypersonic and Space Systems, the future combat system technologies, future naval capabilities, high-efficiency, light-weight power sources for our troops, and what the Joint Forces Command is doing, some emphases in general, if you will, on nanotechnology, on computers, on sensors, on propulsion systems.  This is our cutting edge, and once again we've put more money into it.

 

            Next slide, please.

 

            We're going to -- we have to continue to streamline our own management processes.  I mentioned the National Security Personnel System implementation.  The initial implementation will involve 300,000 civilians in the Defense Department with performance-based pay, with pay bands as opposed to the rigid schedule structure we've had for decades and decades, with greater ability to hire critical skills, and also the very bright people coming out of the schools who are being courted by everyone and who just get fed up waiting until they hear from the federal government, and go elsewhere.  And, as I mentioned, it will enhance our ability to achieve the military-to- civilian conversions.

 

            The Business Management Modernization Program, the basic new management information system for the department to let taxpayers know, on the one hand, that we do have visibility into all the money that's being spent, to let managers know, on the other hand, all the information that's available so they can make the right decisions at the right levels.

 

            Better budget execution.  I want to focus a little bit on that. This is a very selfish personal plea by the office that manages the funds.  Our budget is $400 billion, give or take.  Congress has been letting us move monies around to the tune of $2-1/2 billion for quite a long time.  Now, when anybody is managing funds, they recognize two things.  The first thing they recognize is that budgets are only estimates.  You cannot know exactly how quickly or how slowly you're going to spend money on a program over the course of the year.  And remember, we are talking about fiscal year '05. Here we are in February.  It doesn't even begin till October, and then it runs to the following September 30th.  How can we possibly know, to the dollar, to the day, how we're going to spend the money?  And yet all we can move is $2-1/2 billion.  Three-quarters of a percent of the budget is all we can do to account for changes on the ground that take place in the course of the budget year, and we need more help there and we're asking for it.

 

            Metrics.  We have to measure and improve our performance, and I mentioned our two-year budget process.  We're continuing to focus on that.  And with metrics, again I have to say, what you measure usually results in improvement.  What you can't measure usually results in stagnation.  We have to continue to improve what we're measuring.

 

            Next slide, please.

 

            Here's our entitlement program.  The defense budget is considered to be discretionary.  Supposedly we control everything we want to control.  Not so.  The Defense Health Program, which reflects what Congress votes in terms of benefits, is now, as you can see, in the region of seventeen-and-a-half billion (dollars).  The payment into our accrual fund, which is for future retirees for medical eligibility, is now $10 billion.  So when Congress goes and says that we can extend our medical benefits to retirees over 65, that goes into this fund.  It doesn't help our current military capability, but it has to be paid, and we are at the mercy of the actuaries who decide what that fund should be.  It's not in the least bit discretionary. We have no discretion.  So nearly $30 billion out of our budget is going to programs over which we really have no control.

 

            Next slide, please.

 

            Here's an area we're very, very proud of, military construction family housing, because you have to look at housing and construction not just in terms of the dollars that are up there.  And as you can see, our request in '05 is almost what Congress enacted in '04 and above what we asked for.  Our family housing is an increase, but it's also the fact that we have public-private partnerships.

 

            This year, if we get the funds we request, we will have 90,000 additional units funded and privatized by the end of fiscal year '05. That will be over and above 45,000 that have been privatized by the end of fiscal year '03.  Now why is that significant?  For every dollar that the U.S. taxpayer spends in the federal budget for these programs, we get eight to $10 returned, based on what the private folks are putting in; based on the way this is done, where contractors build and we lease.  It is a phenomenally capable program.

 

            So you add that to the fact that the out-of-pocket housing expenses have gone to zero, to the fact that sustainment of all our facilities is now at 95 percent across the services, for all facilities, for fiscal year '05.  So we're saying that with that being able to predict exactly what has to be repaired, 95 percent of what we think will have to be repaired can be repaired.  We have put together, we think, an excellent package in military construction and family housing.

 

            And now I'll take your questions.

 

            Q     Dov, what's the '05 O figure?

 

            MR. ZAKHEIM:  The '05 O number.  I'll have to get that.  It's considerably higher.  The '05 O is -- of course includes Defense-related programs of the Energy Department.  It includes the Coast Guard, includes some other things, and I'll be able to get you that number.  But I'm just briefing right now what's called '05 1, which is the DOD number.

 

            Q     Maybe someone could get it --

 

            MR. ZAKHEIM:  We'll get it to you.

 

            Yeah?

 

            Q     Dov, explain one number, the procurement number in the P-1 budget document, 81.1 billion (dollars), I believe, and here it's 75 --

 

            MR. ZAKHEIM:  I would have to look carefully at that.  It may well be the things have been moved around in terms of total obligation authority.  I'm -- you know, this is new budget authority, and there may be TOA element in there.

 

            Yeah?

 

            Q     Could you explain how -- it's not clear to me whether the figure for the Joint Strike Fighter this year is any significant change from what was anticipated.  But I know that you've changed the long-term outlook for the program.  Just explain --

 

            MR. ZAKHEIM:  Talk about that?  Sure.  Basically, what we've done is try, as best we can, to fund what needs to be done to deal with the cost increase that results from the growth of weight in the program, in the aircraft.

 

            Now there hasn't been a single aircraft -- I've challenged a number of people to point one out to me, but to my knowledge, there's not a single aircraft in the last 50 years that hasn't had weight growth.

 

            Weight growth correlates phenomenally well with increase in cost. And so the question is, how do you deal with that over the longer term?  The first thing you have to do is address the problem now, not later.  Which means that a lot of your R&D money is now going to be directed at dealing with the problem, because weight growth, if you let it go, what will happen is, you'll actually correct the problem by taking out systems from the aircraft that later you have to put in. And that's much less efficient.  And people have tried that, and it's a good way of fooling yourself or following everybody else.

 

            So what we're really doing is maintaining the structure of the program, recognizing that you have this issue of weight growth, and the budget reflects a focus on that.

 

            Q     Well, what causes the weight growth?  Is it that the contractors didn't estimate correctly when they designed the plane --

 

            MR. ZAKHEIM:  No.  No.

 

            Q     -- or is it the government asking for more stuff on --

 

            MR. ZAKHEIM:  No.  Like I said, this isn't unique to the United States.  It's every aircraft ever -- whoever's built one, whether it's the British or the French, you saw that in spades with the Tornado program, the joint European program.  I remember when I was working on the Israeli Lavi program we saw it.

 

            The reason is that designers, no matter how sophisticated the computer work, never can fully account for what the weight will actually look like as they go through and as the engineers actually take a computer-aided design and begin to put a plane together.  It just happens every single time.  It has a lot to do with the fact that a paper design is never an actual aircraft.  And so as you're going through and reevaluating what this plan looks like, it always, always gets heavier.

 

            And therefore, the question then becomes what are you going to do about it?  Some people have thought, well, we don't want our legislatures -- and just our country; I mean, as I say, it's a worldwide phenomenon -- we don't want the legislators to get too uptight about this.  So what we're going to do is not talk too much about it.  We'll pull systems out, whether it's radar systems or whatever, and we'll build them in later.  That is the least efficient way of doing it.

 

            What we're doing instead is restructuring to cover the cost growth, to prevent the disruption of what's supposed to go on the plane.  And the fact that we have a lot of partners, multinational partners, primarily in Europe, who recognize this cost growth and agree with us that this is the right procedure, tells you that in fact this is the right way to go.  And of course, they have to face their own legislatures.

 

            Q    But you're not suggesting --

 

            STAFF:  One more question.  One more question.

 

            Q     First question, the plan to increase end strength by 30,000 troops for the Army, how do you plan to pay for that in '04 as well as in '05 and projecting out?

 

            MR. ZAKHEIM:  Okay.  Let me start with your question, as opposed to the answer.  The plan to increase end strength by 30,000 troops. As you saw on the slide -- and maybe we can bring it back up, if you folks find it -- we already are above 30,000 troops.  We're not increasing the end strength at all.  We have what is a temporary increase.  There.  Stop.  Okay?  We were at 44,000.  Now we're at 32,000.  So that's there.

 

            What we're trying to do and how we will fund it is the following. What the Army wants to do is restructure its active force.  It will pay for that restructuring in fiscal year '04.  And what it wants to do is to create three new brigades in fiscal year '04, three more in '05, and I believe four in '06, for a total of 10.  Then that will get them up to 43, and then we'll see if they can get to 48.  One thing at a time.  Fund the '04 restructuring out of the '04 supplemental, because after all is said and done, why is this happening?  Yes, objectively, it's a wonderful thing to restructure the Army.  People like Colonel MacGregor have been writing about it for years.  But in practice, it's this issue of managing demand; and the demand right now is because of the war on terror.  So we are looking to a supplemental for fiscal year '04; we anticipate one in '05, and we'll look to that for funding the Army program in fiscal year '05, out of the '05 supplemental. Beyond, that we haven't gone yet.

 

            Q     But to follow up on that, the '04 supplemental, wasn't that fairly prescribed that you'd have to sort of make a tradeoff and pay for it with something else?

 

            MR. ZAKHEIM:  Well, a couple of things.  First, there is the ability within the supplemental to move funds around, number one. Number two is, you know, you will be paying for forces that you might not need; for instance, Reserves.  Number three is we have to see whether in fact we're going to have to use the funds that were allocated possibly for other Army units to come in -- the Enhanced Separate Brigades -- whether we'll need those.  So there's enough flexibility in the '04 budget that allows us to do this thing.

 

            Q     Dr. Zakheim?

 

            STAFF:  Thank you so much.  Unfortunately, Dr. Zakheim is out of time.

 

            MR. ZAKHEIM:  Thank you.  I'll show up for you all again.

 

            Q     Oh, come on!

 

            Q     Aw!

 

            Q     (Inaudible) -- only get three questions?  Gee! 

 

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