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Under Secretary of Defense (Comptroller) Briefing

Presenter: Dov Zakheim
April 16, 2003 12:00 PM EDT

(Fiscal 2003 Budget Supplemental.  Pictures of this briefing are available at http://www.defenselink.mil/photos/Apr2003/030416-D-9880W-014.html.)

Zakheim: As you know, the Congress did in terms of both dollars and time what we asked them to do. And we really are grateful to them for that. We got our part of the supplemental -- $62.6 billion, which I'm told is the largest ever supplemental in history for defense. And we thank the Congress for that. It was done in extremely quick fashion, not in record time. I believe the post-9/11 may have been record time, but this was done very, very quickly. We needed it before the recess, and we got it before the recess.

We didn't get everything we wanted. We had asked for a lot more in the way of flexibility, in the region of $59 billion. If you parse what the actual language of the bill is and report language and so on, you see that the flexibility is closer to between 10-1/2 and 11 billion, and that's unfettered flexibility. There are other elements which we're allowed to spend up to certain amounts, and so on, but that's not what I would called unfettered.

Another area, though, that we did make some significant progress on was the question of general transfer authority, which in and of itself is an element of major flexibility for us. As you know, the secretary of Defense had emphasized on more than one occasion how difficult it was for us to move monies around. Historically, we normally would get somewhere between $2.5 billion and $3 billion a year for what's called reprogramming, moving monies from one program to another. If you take what the supplemental does, it gets us up to $4.5 billion a year. And everyone I've spoken to says they've never recalled such a high level, in their memory. Whether it's a record or not, I'll suggest you look it up in the record books; I don't know, but it's certainly up there and may well be a record. So that's an element of flexibility that we did receive from the Congress.

And why don't I just stop there and leave it to you folks to ask the questions you have.

Yeah?

Q: Dov, how much has the war cost so far in terms of moving troops --

Zakheim: Sure.

Q: -- expended ammo, you know?

Zakheim: No, fair enough. The war has cost in the region of about $20 billion so far; actually, over that. And the way we spent it is somewhere in excess of 15 billion (dollars) for personnel- related costs; we've spent some $4 billion, as I recall, for personnel sustainment costs; we've got -- oh, let me see; in fact, I have a better piece of paper on that -- (looks through briefing materials) -- (SIC) [correct personnel cost numbers follow - 15 billion refers to another summary] personnel cost 4 billion (dollars); personnel support about 2 billion (dollars); military operations, that's somewhere over 10 (SIC) [10 to 12] (billion dollars); and munitions and other equipment, somewhere in the region of 3 (billion dollars). So if you tot those up, you'll see that you're somewhat in excess of $20 billion. And that's what has been spent so far. Of course, we still have funds that we know we'll have to expend just to bring people home.

And our estimates seem to be holding up pretty well, relative to what we thought. If you recall, we had always said we thought that there would be a short and intense element to this conflict and to this operation, and we all know that that's exactly what it was. In fact, if you go back to Operation Enduring Freedom and our estimates there, those have held up pretty well, too.

So costing methodologies, by definition, are not perfect. You have lots and lots of variables in terms of the intensity, in terms of what you're actually going to use. The very flexibility of the plan itself makes it very difficult to predict how things will play out, and we saw that very much in spades in this particular operation.

But having said all of that, our costing out algorithms seem to be, you know, reasonably on the mark, and what we're seeing now is pretty much what we anticipated.

Q: That's -- excuse me. The personnel costs -- does that include getting the people over there?

Zakheim: It includes the special pays. It includes the mobilization of reserves. It includes the personnel support, includes housing and feeding. Operation and maintenance is -- or military operations, to be more precise -- is -- includes the airlift and the sealift. So the 10 billion-plus that I was talking about -- and it's probably a few billion above that now -- that includes the cost of moving them.

Q: And how much did you --

Zakheim: Out, not back.

Q: I'm sorry. How much did you say it would cost to bring them home, or did you?

Zakheim: I didn't. Not yet. You know, again, we have to see -- it's in terms of how quickly you do it and the move around. Certainly several billions of dollars, (SIC) [5 - 7 billion] there's no question about that.

Q: Going back to special pays, they upped the combat pay for these guys.

Zakheim: Yeah. Well, the Congress made some additions that will cost us somewhere in the region of -- I believe it's approximately $700 million. Now, that money was not in -- obviously, by definition, not in our original estimate. And in order to find that money, we're going to have to do what we call a reprogramming, and that goes to the general transfer authority issue. So in a sense, we may not have gotten $4.5 billion, we really got something like -- something less than that because the Congress gave us this additional requirement which we will have to move monies around for.

Now, Congress gave us, obviously, money in the operations and maintenance accounts, but that was relative to what they thought and what the services thought might be needed. This latter thing, as you know, was an amendment that was offered and passed, and so it wasn't really in our original estimates in any way, shape or form.

Yeah?

Q: Can you just go over what's in that $700 million real quick?

Zakheim: I don't have the details. I can get them to you.

Q: Just to go back to your opening remark, that they gave you, both in dollars and in time, what we asked them for.

Zakheim: Yes. Yes.

Q: I mean, they've been saying that -- the secretary, ever since he started talking about this. You come up with an urgent requirement, and never mind horror stories, that we all know, that it takes eight months or 10 months, when you really needed it for an obvious need, the Congress has been fairly responsive.

So explain to me again why you need $9 billion in transfer authority, which is what you've requested, for instance, in the Transformation Act --

Zakheim: I've just given you the best example. Congress passes an amendment. Nobody anticipated it. Nobody costed it. Bingo. My four and a half billion in transfer authority is now closer to 3.8.

Q: Some people --

Zakheim: I'll give you another example, all right?

Q: All right.

Zakheim: You want an -- you asked a question, I'll give you an answer and a half.

Q: Good.

Zakheim: Fuel. Okay? Congress recognized that fuel costs are going up relative to what we anticipated. Now, let me be clear on this. If you actually pick up your newspaper today, you'll see that fuel costs are going down. But what we had budgeted for fuel relative to what we're paying for fuel -- I mean, there's a real significant gap. I believe it's about $12 a barrel, which is a chunk of change -- Congress gives us a billion-one for it. That's still not going to be enough. We know that. Because for us to average out at approximately $27 or $28 a barrel, we would have to be really down at the $22, $23 a barrel purchases because half of the year is over. And we've spent so much more. And I don't know that we're going to get that far down. Again, another example of why we need that flexibility.

Yeah.

Q: Why does Congress not give you that flexibility? Is it a question of trust? I mean, I don't understand why you don't get it. And also, if I could, there's something called the Iraqi Freedom Fund --

Zakheim: Yes.

Q: -- fifteen point -- could you talk a little about what that's for and how that works?

Zakheim: Yes. Yes. Well, question number one, does Congress trust us, I don't think it's a matter of trust. Congress is a separate branch of the government. It has its own sense of what its responsibilities are. The Constitution gives them the power of the purse. And so, the Congress always feels that it wants to have a clear sense of how the money is being spent. We believe that we're giving that clear sense in the way we make our budget request, because everything is reported out. On the other hand, there are those -- and there is no uniform view within Congress, as you know. I mean, all you had to do was watch the conference and you see there aren't uniform views. It was a rare opportunity for the American people to see how a conference committee works. So, there aren't uniform views, and different people have a different sense of what oversight requires. I don't think it's a matter of trust, per se.

Now, on the new Iraqi fund, the Freedom Fund, as it's called, that is the money that Congress set aside and is kind of the analog to what we had originally called a Defense Emergency Response Fund, and that was in the $59 billion range. Congress came back and gave us 15.7 billion (dollars).

However, within that 15.7 billion (dollars), there are a number of categories -- for instance, the fund that would allow us to take care of oil infrastructure and so on, which is called the Natural Resources Risk Remediation Fund -- it's a mouthful -- that fund is within this 15.7 billion (dollars); we can spend up to $489 million -- we may, we may not, but it's clearly marked off. And you've got several of those.

Another example of that is we requested $1.4 billion to repay allies for the support they're giving us. The Pakistanis, for example, are still spending in the region of $70 million a month redeploying their forces into areas that they would normally not go, in order to go after terrorists and so on in the Northwest Frontier Province, in the tribal areas, which otherwise we would have to do, and maybe with a lot less success. So we're reimbursing them.

Now, what the Congress did was say, "That's fine, we want you to report on it," which, you know, that's a congressional demand, but they put it in that 15.7 billion. They said, "You can spend up to 1.4 billion." So if we spend all 1.4 billion, then you have to deduct that out of the 15.7 because we no longer have that flexibility. So they did that with a number of categories. And that's why I talk about unfettered spending in the region of 10.5 to 11 as opposed to the 15.7 that you just referred to.

Q: Do you foresee having to go back to the Congress in the near future for another supplemental?

Zakheim: Well, you know, I remember Ronald Reagan used to say "presidents never say never." I think on budgets, neither do comptrollers. But right now, as we are looking at it, we believe that this 62 billion is going to go a very, very long way, to the end of the fiscal year. As I said, this is what we asked for, this is what we received; so we're comfortable on that macro score. Now, I can't predict what's around the corner, and I certainly can't predict what's around the corner a few months down -- you know, a few months hence. But as it's -- as I see it right now, which is all I can tell you, I think we're fine.

Yes?

Q: You've indicated that this is actually pretty close to your estimates -- the assumption --

Zakheim: In aggregate, yeah.

Q: Right. We've seen, for example, that the 1st Cavalry Division now isn't going to deploy. Were you estimating that not all the units would deploy, that there wouldn't be chemical weapons? Could you walk us through your estimates a little bit?

Zakheim: Well, again, estimates are only estimates. And we took account of a series, as I said, of variables. You have different estimates about who's going to deploy, about when they will deploy, about what they will use, about what will be thrown at them. And what we did was essentially take a composite of these many variables and come up with a number. So it isn't really "Oh, this weapon is going to be used and that weapon won't be used," because it's more of a composite. Okay?

Now, having said that, we came up with a general sense that this conflict was going to be relatively short. And I would say that every one in the world will agree with me that this conflict was relatively short. So we were pretty much on the mark there.

Again, there's going to be variation. We used some weapons more. Everybody knows we used Tomahawks quite a bit. We used less of other weapons. We have to now parse all that out. But at first blush, from where we're looking, it seems that once again our estimates played out pretty well.

Q: Dov?

Zakheim: Yeah?

Q: Just to give us an idea, talking about --

Zakheim: Yeah.

Q: -- to break this down a bit for the great unwashed, we're talking about 62 billion you got here.

Zakheim: Yes, sir.

Q: You said the war has cost you a little over 20 billion so far.

Zakheim: So far.

Q: So -- so take that 20 billion away from the 62, right?

Zakheim: Yeah.

Q: How much do you think it will cost you the rest of the year for the war itself, to keep troops in Iraq, how much -- how much of the 62 billion is going for the overall war on terrorism, how about the rest of the 62 after you get past the 20? And what are the chunks for?

Zakheim: Yeah. Sure. Okay. Well, as you know, we had approximately $7 billion for reconstruction. We had, as I recall offhand, when I briefed this the last time, we had about $3 billion for munitions. That's 10 right there. We have to bring the troops back as well. So -- I've talked about that. That's going to be measured in the billions. (SIC) [5 to 7 billion] And then we simply have to maintain the forces that we have out there and keep them going.

Let me put it to you this way. A rough estimate of the monthly cost of the war from here on out -- and obviously it's not the same degree of intensity. But a rough estimate, really rough, but nevertheless, is approximately $2 billion a month. (SIC) [another 1.5 to 2 billion should be added to this figure per month for reserve forces costs] Okay? Two, okay? That's not including the 1.4 billion to help allies, it's not including bringing the people home, it's simple -- it's not including the -- if you do it on your fingers, that's another $10 billion, give or take.

Q: Yeah.

Zakheim: All right? So if I've spent about 20, okay, and I'm actually over that, and I'm probably spending no less than about 10. So now you're way up -- you're up to 30, and now you're bringing people back, and you're -- probably by the time you're done with that and assistance to the allies and reconstruction, which we have money for, that's where the money's going.

Q: And how about -- how about the overall war on terrorism? Does any of that -- is any of that 62 billion for that?

Zakheim: Well, yes and no. What we found was that there were forces that we would have had to ask money for, because they were in-theater. A good example is bombers operating out of Diego Garcia, that we would have had to pay for, even if there were no war in Iraq. But now we pay for them because they were in the war in Iraq. So we cover a good number of billions of dollars, I would say in excess of $5 billion, just that way.

Yeah?

Q: The $1.4 billion for help to the allies, can you break that down in terms of what allies are getting help and how much?

Zakheim: Sure. To some extent, yes, I can. The biggest contributor on a daily, weekly, monthly basis, as they have been now for well over a year, the Pakistanis. And as I said, roughly speaking, up to now, we have been reimbursing them -- or want to reimburse them at the rate of about $70 million a month. And these are simply for things they have done. We have a very rigorous process; they come to us with their bills, we review them at Central Command, we then review them at the Office of the Secretary of Defense. We don't pay 100 cents on the dollar, I have to tell you that, because we really expect documentation. So that's approximately $70 million a month. You can calculate that, and seven times 12 is 84, so you're well over three-quarters of a billion dollars just for them.

The Jordanians have been very helpful, and we've reimbursed them.

And those are the two countries that are explicitly mentioned in the legislation, but there may be others.

Q: Is Turkey getting anything?

Zakheim: No, not under this so far, no. We haven't paid the Turks anything under this.

Yes?

Q: Sir, a couple of questions. First, do you have an estimate of how much it costs to have those ships floating around off the coast of Turkey? And also, at any point down the road, do you expect to have any blank ink coming from Iraq? Will you be -- will there be any revenue being generated in Iraq by oil or seized assets that will be going into the U.S. Treasury?

Zakheim: Well, on the question of the ships floating around, I don't have an estimate. I don't know if we've actually done one in that sense.

In terms of Iraqi revenues, we've said very clearly that we want Iraqi revenues to be used to rebuild Iraq. But, of course, to the extent that those revenues are used to rebuild Iraq, we don't have to find our own revenues to help rebuild Iraq. So in a sense, it's a cost-avoidance on our part. And absolutely, the frozen assets and whatever their economy can generate is going to be put back into their system so they can get their economy going. I mean, as one person from the region pointed out to me, he says, "Iraq is about the only country in the Middle East that has both oil and water." Okay? (Soft laughter.) You know, you've got a lot of countries with oil, and you've got some countries with water. But Iraq's the only one -- those two big rivers and all that oil. So fundamentally, it is -- the basis for a sound economy is there, they've just got to get from here to there.

Q: But if you could be a little more clear; help me out, I'm a little slow on this here.

Zakheim: Yeah?

Q: Are you taking the money, putting it in, like, a trust fund here in the U.S. Treasury so the Iraqis can --

Zakheim: Well, we are -- we are -- we already have requirements, some very urgent requirements, to get the Iraqi infrastructure going. I mean, there are humanitarian requirements, there's a need for water, there's a need for food. I mean, some of these things are being donated by other countries, in a very big way, by the way. The Australians have donated -- I think it's about 100 million's worth already; the Japanese have donated to various agencies about 100 million, including loads of rice; Australians, loads of wheat. So, you have some very urgent requirements, and some of the Iraqi monies are being worked through a very rigorous system, because we know that people are going to want to see the money flow, and it does involve cooperation between us and the Treasury and so on -- and the White House -- to get that money out to Iraq and to account for it. And it's being used for humanitarian purposes.

Q: But would some of it offset any of our costs?

Zakheim: Let's put it this way: It will -- I think the answer is probably yes, in the sense that had those monies not been available, we would have had to pay the costs. Remember, we did get from the Congress money for humanitarian activities. And to the extent we don't have to spend it because we got this other money, then yes, it's an offset.

Yes?

Q: Just to clarify that rough estimate you gave, about 2 million a month, (SIC) [cost is approximately 3.5 to 4 billion a month when reserve forces costs are added in] this is just on troop support and maintenance, not including the reconstruction or humanitarian support?

Zakheim: That's correct. That's the cost of the war.

Q: Just the troop maintenance.

Zakheim: Yeah.

Q: But the overall figure is just Iraq and reconstruction and the war on terror. There's nothing -- those two sort of war things, right, of the whole 62 billion?

Zakheim: Excuse me. Nothing goes to what things?

Q: There's nothing else in there that is not related to either the global war on terrorism, or Iraq and its reconstruction?

Zakheim: That's pretty much accurate. There may be some small amounts that got by me. But even if you take something that you may have noticed in the legislation, counternarcotics activities in Colombia -- which is $34 million, relatively microscopic relative to 62 billion, but 34 million is not a bad sum to have -- again, this is part of the global war on terrorism. And so if you parse through just about everything here, you'd be hard pressed to find items -- and again, within a $62 billion budget, maybe there's something in there that the Congress put in -- but you'd be hard pressed to find things that are not part of the primarily Iraq and secondarily the global war on terrorism.

Q: But the 62 billion doesn't include the 8 billion to reward allies like Jordan, Egypt, Afghanistan, except in terms of direct aid to the war effort; or am I wrong?

Zakheim: The 1.4 billion does. If you're talking about security assistance, that's a different part, you see. I mean, like the Turkish question --

Q: Right.

Zakheim: -- that was outside what was in our defense portion.

Yeah?

Q: The $20 billion estimate for the cost of the war, I believe you said it's so far.

Zakheim: Yeah.

Q: Are there costs that you may have incurred that you haven't been able to add up yet?

Zakheim: Well again, I mean, these costs are constantly being refined. They're first-cut estimates. This is a conflict that was very intense in the last month, and we still have to work our way through the numbers. I mean everything I'm giving you other than what the Congress has done is quite preliminary. On the other hand, I have a pretty good sense that, certainly having seen the way our estimates bore out in Afghanistan and the Operation Enduring Freedom and Nobel Eagle, that these estimates are going to hold up pretty well. But of course, they're constantly being refined.

Yeah?

Q: Do you anticipate, in the longer run, as the U.S. repositions its forces in that region, you know -- and I'm thinking of Saudi Arabia and other places -- that the costs of maintaining military forces there will shrink, decline?

Zakheim: It's really hard to predict, because I -- the only way you can have a sense of what your cost of your presence is going to be is if you really know what the elements of that presence are. And so obviously the presence we have now and some of the military construction we've undertaken already has yielded a different profile or, to use the term of the art, footprint than we had five years ago or three years ago. So until this system works its way through, I'm in no way of -- in no position to tell you whether it'll cost more, less or the same. I just don't know.

Yeah?

Q: On the personnel costs, just to be clear, is most of that the cost of paying the reservists? Because the active-duty people already --

Zakheim: That's correct. That's correct. The -- most of the money is being used to pay reservists, as well as the special pays for the actives. So that, of course, is -- and that's different from the monies that the Congress just voted, which was for the reserves. But you've got all kinds of special pays that are paid out. Those are for the active forces. Combat pay, for example, is what you pay the actives.

Q: Do you have an amount that splits between the two, the actual amount to call up the reserves and then the special pay?

Zakheim: We -- it's roughly a couple of billion dollars for mobilizing the reserves, give or take, and about a couple of billion dollars for the special pays. And again, those are rough estimates.

Q: Can you give a sense how much Operation Enduring Freedom is costing on a monthly --

Zakheim: Well, as -- I think I had given a briefing here which had pointed out that our original estimate as, you know, recently as about five, six months ago was 1.6 million -- billion a month, and then we had re-estimated it down. Roughly now we're between one-one and one-two a month.

Q: But yet you're saying that with Iraq it'd be 2 billion now?

Zakheim: Well, right now, well, sure. (SIC) [2 billion does not include reserve forces costs - total per month is estimated at 3.5 to 4 billion] I mean, remember -- take a look. If Enduring Freedom was 1.6 a half a year ago, then 2 billion is not way out of line. And I said 2 billion is on the lower side; it'll probably be higher than that. And that's another reason why, you know, with the question of how you get from here to there under 62 billion, well -- if it's higher than 2 billion -- just for argument's sake, say it's 2-1/2 billion. Then by definition you just added 2-1/2 billion to the bill. But it -- but 2 billion is on the lower side.

Again, it's a rough estimate. And what we found with Enduring Freedom is that as you refine the estimates and as the tempo of operations decline, then, of course, the monthly costs decline.

Yeah.

Q: Sir, do you expect to spend much money on milcon in Iraq and what sort of things do you --

Zakheim: Milcon in Iraq!?

Q: Yeah. I mean --

Zakheim: I haven't seen anything proposed for Iraq in terms of milcon.

Q: Thanks.

Zakheim: Okay. Well, thank you, everybody.

Q: Thank you.

Q: (Ignore the ?) five minutes.

Zakheim: I'll give them back to you. (Laughter.)

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