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Under Secretary Zakheim Briefs on FY 2002 Budget Supplemental

Presenter: Under Secretary of Defense (Comptroller) Dov S. Zakheim
July 12, 2002

(Special briefing on defense requirements in the pending fiscal year 2002 budget supplemental. Slides shown at this briefing are located at http://www.defenselink.mil/news/Jul2002/g020712-D-6570C.html.)

Zakheim: This is what is called -- what I'm about to say is what Congress calls out of scope. I just came back from Doc Cooke's memorial service. I don't know if any of you all were there. And I couldn't get something out of my head, so I'll say it. There's a passage in the "Ethics of the Fathers," as Rabbi Simon said, there are three crowns: the crown of Torah or Biblical scholarship, the crown of priesthood, and the crown of royalty. And the crown of a good name supersedes them all.

And I just felt I couldn't start speaking in front of you all without saying something about a man that I only knew for 22 years, which is like nothing in this place. He was a truly great and good man, and I'm going to miss him a lot.

I wanted to speak to you all today because of what's up there, the supplemental request. And let me preface this by saying that I have been in constant contact with staff directors of both houses, of both parties; with chairmen and ranking members -- both houses and both parties. And everybody's trying to make this happen. And my concern here is simply to outline why we in the Defense Department are uptight that this happen by the first of August, or roughly thereabouts, that is to say before Congress breaks for the August recess. Everybody on the Hill is trying to move this along, but when you're nervous, you're nervous, and we are nervous.

And let met first tell you what we requested. You're all familiar with this. The $7.2 billion to conduct military operations was basically a projection of our deployment order estimates. That is to say you get deployment orders to move forces and equipment out to the theater, you have an estimate of what it's going to cost; that drove the $7.2 billion.

As you know, we've got roughly -- give or take -- 82,000 Reservists and Guardsmen on active duty. That's about -- we estimate it would cost us about $4.1 billion to carry us through the rest of the fiscal year.

We have to pay -- or the Air Force, actually, has to pay for its stop-loss actions; people who were kept from leaving the service, and that's a couple hundred million dollars.

We also need about a half a million -- a half a billion dollars for a variety of munitions. For example, we're going to more than double the production rate of our Joint Direct Attack Munition, the JDAMs, from 700 to 1,500. We're going to get some nonstandard munitions for the Special Forces -- for example, training munitions, 5.56, what's called frangible munitions. Basically, it breaks up into lead dust. This is important training munitions for those folks.

We have a variety of classified programs that come to 1.6 billion (dollars.)

And the 400 million -- actually, it's 420 million -- for coalition support -- this is similar to what the Congress gave us in authority but not in dollars last December, where we have, in particular, Pakistan, which has been moving forces and equipment and doing all sorts of direct support to our forces in the theater, and it's costing a country that is not exactly flush with money an awful lot. And for those kinds of activities, direct support -- and I emphasize this is not foreign assistance, not security assistance. It's not prospective in the sense of somehow a long-term plan, like what our security assistance budgets are like; this is for direct support. We have given the Pakistanis some money through December. They have been clocking up a rather large bill since January, because they haven't pulled forces off. And I should say, in spite of the crisis that went on with India, they have still been with us, and -- they and some other countries too. In the previous legislation, Jordan was mentioned, and the Jordanians haven't moved anybody. So that too is terribly important.

(To staff.) And if you show the next slide, please, I can show you just -- this is how it breaks down by category. And I'll give you a chance to look at that. (Pause.)

So that's what we submitted. And now I'll show you why we're uptight. (To staff.) Next slide, please.

We submit this request for about 14 billion -- for 14 billion on March 21st. Now let me tell you that that 17.3 billion number is no longer 17.3 anyway. First of all, we moved some money back to OMB for a variety of projects, including, by the way, getting some money to the State Department. And our real number shrank from about 17.3 to about 16.5, give or take. We have committed all of it. In the technical term of obligating the money as opposed to simply committing the money, we have obligated about 14.5. If you were to tot up the remaining costs between now and the end of August, you're going to be way in excess of 16.5. And as I say, you've got commitments that you've got to fill, and it's simply a matter of doing the paperwork to do the obligation.

Now, the cost of the war itself has been roughly, give or take, $2 billion. So, it therefore makes sense -- per month. Not 2 billion, 2 billion per month, slight difference, factor of 12. And therefore, it makes sense that if this thing is allowed to drag out another month or more, we're in the soup for several billions of dollars.

Next slide, please.

Now, what have we been doing? Because we said -- and I remember being up here and saying this, that we really needed this sup a couple of months ago. So, essentially what we've done is taken money out of the fourth quarter of our budget and moved it forward. And that's simply a cash flow, cash management effort. Well, that's all all right if you're going to get your cash when you expect to get it or more or less within a tolerable delay. But what happens if the delay is intolerable? I'll show you what happens.

Next slide, please.

Okay. Ship operations; I'm talking about steaming operations. Aircraft operations; looks like Air Force flying hours for training and readiness are just going to die by the middle of August. Gone.

Maintenance on ships and aircraft; let me give you a couple of examples of maintenance on aircraft. You know the EA-6B is a jammer that is what's called in our crazy parlance HD-LD, high-demand, low- density, which really means we need a lot of them and we don't have many of them. Well, now we're not going to be able to do engine maintenance on these things. So, the demand will stay high and the density will be even lower. Aircraft engine maintenance on F-18's is just going to go south.

Training exercises, it looks like the Army's going to have to cancel three training events, two battalion rotations through the National Training Center at Fort Irwin and one brigade rotation. So you're not going to be able to train people to go out and continue operating around the world.

When you stop ordering spare parts, all you really do is start creating hangar queens and cannibalizing. You take active ships or active aircraft or tanks or whatever, and you start taking the parts. And pretty soon you've got fewer systems that you actually use because you started robbing other systems to cover some of the ones you do want to use. It's a vicious spiral.

And then the payroll. No money, no payroll. If we can't get a supp by the end of this month, before the August recess, we cannot pay any of our people in uniform by August 30th. Full stop. No paychecks. Nobody's going to like me. Thirty-five thousand civilians are going to be furloughed. The Air Force has told us they will not be able to make any civilian payments by the end of August. Zero. So all those civilians in 80-plus bases and facilities, no paycheck. Terrific. And, as you see, temporary and term employees, civilian hiring, problems with that, as well.

Next slide, please.

Okay, quality of life. It isn't just comfort. When we're talking about increasing safety risks, we mean that we're not going to be able to fund repair projects. What kind of repair projects? You go into a base now, you see barriers. Well, will we be able to continue to build the barriers? Trucks that pull into a road, now you have lay-bys right inside the gate. Some of them are still being built so they can be inspected. Not all that's going to be able to be done. That kind of problem. We just won't be able to spend the money.

Scheduled moves. It will be totally disruptive, what people were planning to do with their families, kids starting school, women and men, spouses, doing jobs to support the family, to support the service member. All that goes up in the air. Leases being broken. Rentals not being paid. I mean, you can just imagine the disruption if all of a sudden scheduled moves go by the wayside.

And promotions. And frankly, just speaking as a householder, promotions and bonus payments, which is a bad-news thing if you suspend them, is second order to that. I mean, the families are just going to be in uproar. And then, how do you get new people to come in?

Now, I'm not crying wolf here. This is what's going to happen.

Next slide, please.

So the bottom line is, we know Congress is working real hard on this one, but there's an awful lot at stake. And those who think that somehow we're just, you know, making a lot of noise and wringing hands again are really, really wrong. And we're just praying that this -- and we'll do whatever we can to help out, obviously -- that the supp can be approved and voted and signed so that none of these things happen. And that has to happen before the August recess takes place, otherwise we're waiting till after Labor Day.

That's all I had to say.

Yeah?

Q: Dov, people on the Hill in Congress are claiming that they had a deal last night to get this through and that the White House scotched it. I don't have the details, but do you have --

Zakheim: Well, I haven't spoken to the White House today. I've heard a lot of second- and third-hand stuff. But when you're in the business of actually having to make dollar decisions, I need to get the real skinny, and I haven't gotten it. So I just -- I don't know what to make of that. You know, I've heard all kinds -- I've heard at least five different stories this morning, so I don't know what to do with that.

Yeah?

Q: So what is your understanding of where this all stands? How close are you?

Zakheim: Well, as I -- you know, of course, that both houses have voted this up, that they're supposed to be going into conference. I heard they were actually thinking about even going into conference this morning. We need for them to go into conference and come out of conference. And, obviously, the president has sent up a supplemental. He has concerns about busting ceilings and so on, and the Congress is fully aware of that.

But those are -- you know, from our narrow perspective, our concern is what I just showed you. And we just hope that these other issues, such as they exist, get worked out. Our biggest concern is that they do get worked out before the recess. And as I've said -- I said at the outset, I mean, my conversations with the senior people on the Hill, both the members and the staff, is that there really is a lot of goodwill going on here with just trying to make it happen. And, you know, you've got -- as in all negotiations, which is what a conference is, you know, sometimes things take time to get sorted out. We're just saying, by all means, sort them out, but please do so by the beginning of August.

Yeah?

Q: Some of the consequences that you mentioned -- Air Force flying hours, Navy ship sailings -- those seem to be the primary missions of the military. How do you decide what gets paid and what doesn't?

Zakheim: (Inaudible.) Well, I mean, that's right. I mean, they are primary missions of the military. This is what we're saying. We're not crying "wolf" here. I mean, this is a real problem.

And we have quite frankly stretched it out. We would have liked to have gotten this supp before the Easter recess. Okay? That's what I was talking about. Here we are, talking about the Labor Day -- the August recess. We reached into the fourth quarter in order to carry on. I mean, we can't just stop operations. But you reach a point where if you don't have the money, you don't have the money.

Yeah?

Q: Sir, could you just go into a little bit more detail about the ship steaming-hour side of things? You mentioned that the Air Force flying-hour program would stop by the end of August if you didn't get its money.

Zakheim: (Inaudible.)

Q: What happens to the ship sailing --

Zakheim: Well, I guess what happens when you cut back on ship steaming hours is they stay in port. By and large, what it's going to mean is that you have to cut back on deployments. I mean, I guess the first thing they would do is cut back on training.

Q: You're talking the same situation for the Navy as for the Air Force?

Zakheim: The Navy hasn't been as black and white as the Air Force has been about this. My guess is that where the Navy is going to head is -- and I really refer you to the folks in the Navy; Admiral Clark and his people are very, very concerned about this and have been for some time -- is, you know, they first cut back on anything that's training-related, and then eventually, if the money still isn't there, you start cutting back on operations. And so this is not a good signal to send to some of the bad guys out there, either.

Yeah?

Q: Have any operations thus far been cut back or --

Zakheim: No. What we have done is we have slowed down some things. We have basically delayed some facilitizations and sort of lower-order priorities in order to be able to fund the operations. But the focus has been, you got to treat your personnel right, you got to pay them, you got to operate your forces. That has been the highest priority.

Other things have been kind of slipped a little bit, and the idea was that we -- you know, we would be able to replenish what we dipped into the fourth quarter for. What I'm now saying is, we've reached where, you know, it's kind of hard to dip in anymore.

Back over here.

Q: How much of the supplemental would through the DERF (Defense Emergency Response Fund)? And has that been an issue?

Zakheim: Well, this is all -- you know, the way we're trying -- the DERF -- going through the DERF has not been an issue. The idea is, it's going to be a transfer account via the DERF, and it would go all through the DERF. It hasn't been an issue like -- I mean, there were certain complications with the DERF before, but those weren't -- you know, we've learned how to live with the DERF and love it, or at least live with it.

Yes?

Q: You know, it seems like the Pentagon is in this position every time -- we hear about this towards the end of every single fiscal year. And skeptics might say there is exactly zero chance that the U.S. military is going to shut down in the way you've postulated it might. And even you say that there's good will here. So, how much of this -- I guess I'm not clear what the motivation is --

Zakheim: How much of this is fluff?

Q: No, how much of this is, you know, politics? I mean, you've set down quite a gauntlet here, but yet you say that Congress has good will on this issue.

Zakheim: Well, I think they do have good will, but they've got to work it out. I mean, good will in and of itself doesn't do the trick for you.

Look, there's two ways to -- let me answer your first part first. You know, yes, in the past, there's always been this wringing of the hands. But that was part of the -- you know, the old drill where you had supplementals, you know, peacetime supplementals. We came here -- I remember telling you folks this -- we'll only ask for a supp in wartime. And that was before September 11th. I had no idea there'd be a September 11th. We're in a war. Okay? We're operating here. We're operating overseas. Al Qaeda and the Taliban folks haven't just given up and walked away. We know that. We have incidents all the time. And you know that. You report that.

So, we really -- and, oh, by the way, let me give you a sense -- maybe this will help you. Just for the rest of '02, at the current so-called lower level of operations in Enduring Freedom, we reckon we're going to burn about $2.5 billion per month. And I'll even break that down for you. You've got the transportation pipeline. That's still going on out to Afghanistan. That's a half a billion. You've got the mobilization still going on, $600 million. You've got the sorties and the steaming days, the stuff that you -- you know, you saying we're crying wolf about, but 350 million, that's going on. The combat air patrol in this country, it's been ratcheted back a bit, but it's still 50 million bucks. Okay, we're still doing that.

Q: Per month?

Zakheim: Yeah. Logistic --

Q: (Inaudible) -- report 1.8 billion when the war was more exciting?

Zakheim: Yeah, but now what you're doing is you're rotating people. You've got all these rotations.

Q: So, it's more expensive now to run the war than it was when the war was --

Zakheim: In some ways, you've got some new expenses that have come up. You still have deployment orders that are going on to rotate and you -- so you have a different order of expenses. The fact is we are running a massive supply line. Okay? This is not a war in our backyard. And so, what happens is you drop your combat operations, but now you've got what you might call your war maintenance operations. We're still there. We're still conducting a war. And we're still conducting it at very, very long distances.

Q: Is there any way to --

Zakheim: So that was the answer to your first part. Okay? And then let me answer your second part, and then I'll give you a third part. How's that?

Q: That's better than the secretary.

Zakheim: That's the difference. That's the difference, okay?

Part two. Therefore, we're uptight and it's not a -- there's two ways you can approach the Congress, no question about it. One is they're a bunch of bad guys, and they're just sitting there blowing smoke and so on. It's not the case. These people have been working. They have been in touch with us. But you know, you reach the stage where you say, "Folks, come on." Okay? And they're trying. And you've got two parties and two houses, and we know it's not simple. And we know it's not only defense either, by the way. There are a lot of other issues in that supplemental apart from ours. All we're saying is, hey, try even harder.

Q: So none of this has to do with diverting attention from the budget deficit numbers that the White House is coping with.

Zakheim: I told you, I mean, the White House has not been in touch with me today and I have not been told by the White House, "Hey, go out there and divert attention from the budget deficits we're coping with." I mean, we have -- and this is a theme that I think we constantly repeat here. We have our concerns and, you know, the overall larger budget issues are -- you know, let me refer you to Mitch Daniels and the OMB folks on that. But, you know, I've got my little problem, called Enduring Freedom and Noble Eagle and funding all of that.

Q: Is there any way to understand how much this supplemental and the war is contributing to the overall deficit issue? Is it a contributing factor or not really?

Zakheim: Well, I mean, as I understand it, the projected deficit is considerably larger than this. And so, you know, I don't know what you take and say this is a contributor to the deficit or this isn't. I mean, the fact is that wars cost money. Normally wars result in large deficits. This war actually -- I mean, 2 billion bucks a month for a war that far away, which has been, you know, pretty conclusive and has clearly made a difference already, isn't that high a price to pay. So is this war -- to the extent that every dollar that's spent contributes to the deficit, we're spending some dollars and they contribute to the deficit. You know, take away this war, will the deficit go away? You know the answer to that.

But again, beyond that, I can't address it. I can only address my concerns.

Yes?

Q: You mentioned the 400 million for coalition support. How much of that is for Pakistan, for instance? And what kind of a --

Zakheim: For the most part.

Q: For the most part.

Zakheim: For the most part. Look. These folks have done all kinds of things like moving troops to help deal with the Northwest Frontier Province and to help back us up and helping -- you know, they've caught a whole lot of al Qaeda people, several hundreds, we understand. They have literally redeployed forces and provided some force protection, provided a variety of direct support -- and I mean direct support -- to U.S. forces. And they continued doing that even during this latest crisis, which is pretty remarkable, when you think about it; you know, the crisis with India. And they've continued; they did not diminish that level of support. So they're hurting, and they asked us -- they said, look, you know, we need help; we just can't continue doing this.

Q: Is there a rough estimate of how large a bill we've chalked up there?

Zakheim: Well, we gave them about $300 million for the first three months -- October, November, December -- which were, of course, the most intense months. You know, we're asking for $420 million, and it's not all for Pakistan. So that gives you a sense of what we think it will cost us through the end of this fiscal year.

But I have to reiterate, the Pakistanis, I mean, particularly -- I mean, I would have hated to have been the comptroller of the Pakistan budget when they're, you know, dealing with Kashmir and still being asked by the United States to help support them exactly on the other side of their country.

Yeah?

Q: On a day such as today, where you're talking about not being able to pay people if there's no money, I mean, this huge problem, it's also come out that the Pentagon is funding, you know, polio -- you know, making a polio virus that, in fact, could arguably be used against us in bio-war. How do you juggle those funding priorities?

Zakheim: Well, I mean, I don't think the polio virus expenditures are going to be enough to cover the flying hours, steaming hours and pay issues that we're talking about.

Q: But as an example.

Zakheim: Yeah, but I'm turning it on its head. I mean, the point is, you have such an overwhelming cost that is not going to be met that it trivializes this other stuff. Not that the issue you raised is trivial, but of the overwhelming cost of the problem -- I don't use the word "challenge" here, I use the word "problem"; it's a problem -- overwhelms some of these other things. Okay? I can't solve it by taking a half a dozen of those kinds of programs and moving the money around. It's way beyond that. That's my point.

Yeah?

Q: Following her question, how realistic do you think it is that Congress will throw up their hands at the end of the month and say, "We can't do a supp. We're going home for the summer."

Zakheim: I can't believe they'll do that. I just can't believe they'll do it. I mean, they have every intention of trying to make this happen. I wouldn't bet the family farm that they will go home, but I'd bet an awful lot that they won't. I really believe that they want to make this happen.

Yeah?

Q: You touched on JDAM production earlier and plans to ramp that up. And I think the contractor was expecting to have gotten the supplemental by now. And I wonder whether you can tell us how many -- how much behind the curve has this put you, not being able to -- how many JDAMs have we not bought that we would have bought?

Zakheim: Well, I mean, every week of delay means a week that you get the stuff later. I mean, it's a straightforward calculation.

Q: So the contractor could've turned out more of them?

Zakheim: Look, we would've gotten them in any event by next spring. So the longer you delay, the later you get 'em. Simple as that.

Q: When did the delays start kicking in?

Zakheim: I think that the contractors were hoping for this -- you know, this up around June. And you know -- look, you can -- I've been in business -- you can make up a four-week slip. You can make up a five-week slip. It's much harder to make up a 10-week slip.

Q: Which is what you're looking at --

Zakheim: This is what we're looking at, because -- look, if they're going to come back after Labor Day, okay, they're not going to turn this thing around in 24 hours. So I'm looking at, you know, from today -- we're in the middle of July -- so that's two more weeks to (in) July -- two and a half, really -- four and a half in August makes seven. Figure a week in September is eight, and we were hoping to get some of this stuff in June. So we're passing 10 weeks.

Q: You just said that you don't think that it'll happen.

Zakheim: I am hoping that they will get it done, but the question was, you know, what kind of a delay are you talking about? And that's how I come up with my 10 weeks.

Q: Is the real money issue August 1st, or is it really August 30th?

Zakheim: August 30th.

Q: So if you get the money August 29th, it's not going to happen.

Zakheim: There's no -- it's a recess. I don't get it. That's my point.

Q: It's just pretend.

Zakheim: But you can't pretend.

Q: I understand the -- (laughter) --

Zakheim: Cap Weinberger, when he was my boss, said, "I never engage in hypotheticals," but I can't ever remember him saying, "I don't engage in pretension -- (laughter) -- or pretense." Look --

Q: (Inaudible.)

Zakheim: No, no, no. The point is, if they leave at the beginning of August, they're gone. Gone. I mean, they have --

Q: But they have until August 29th to do something about that.

Zakheim: I'll tell you what --

Q: Look, I understand --

Zakheim: Do you want to go up to the Hill and tell them to cancel everything that they're planning for August?

Q: I'm just trying to find out exactly when the money problem --

Zakheim: No, in some cases, it's sooner than that. I tell you, with the Air Force, it's mid-August -- August 15th, give or take. So you know, some things are late August; some things are mid-August.

And remember: You've got to start drawing things down in anticipation. So as soon as -- the end of July, they're going to start ratcheting back. They're not going to wait till August 29th. That's crazy anyway. You don't do that as a money manager. So while in theory you're right -- we could wait until August 29th till 11:59 at night -- in practice it's not going to happen. That's even assuming you could bring back Congress from all over the world and wherever they are and whatever they're doing. And maybe you have influence like that. I certainly don't.

Okay, folks. Thank you very much.

Q: Thank you.

Q: Thanks.

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