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DOD News Briefing by Under Secretary of Defense Hale and Lt. Gen. Ramsay on the Fiscal 2014 Defense Budget Proposal from the Pentagon

Presenters: Robert Hale, Under Secretary of Defense (Comptroller), and Lieutenant General Mark Ramsay (USAF), Director, Force Structure, Resources and Assessment, Joint Staff (J8)
April 10, 2013

            Go to http://www.defense.gov/news/briefingslide.aspx?briefingslideid=364 to view briefing slides associated with this transcript.

            BRYAN WHITMAN, PRINCIPAL DEPUTY ASSISTANT SECRETARY OF DEFENSE FOR PUBLIC AFFAIRS: So, ladies and gentlemen, we're going to move right into the second part of this briefing. We will have a filing break at the end of this before we start the service briefings. Probably don't need any introduction to our two individuals, but I will anyway. This is Mr. Bob Hale, undersecretary of defense, comptroller, and Lieutenant General Mark Ramsay with J-8. And they're here to go through in a little more detail the budget and then take some of your questions before we get into the service briefs. 

            So with that, let me let the gentlemen get started and then we'll take your questions. 

            ROBERT F. HALE, UNDER SECRETARY OF DEFENSE: Okay, our goal today -- could I get the slides, please? Our goal today is to give you an update -- or not update -- I should say a description of the 2014 budget request. But we're going to start with a brief update on 2013, because what's going on now will influence 2014. And General Ramsay and I will do a tag-team match. 

            Next slide. So we are making major changes in 2013 that are going to have significant and adverse effects, particularly on military readiness, and let me talk to what's going on. 

            Next slide. We are very pleased to have an appropriations bill from the United States Congress that's very helpful in a number of ways, but two major problems remain. One, sequestration is still in effect under this legislation, total cut as much as $41 billion. I think you all know it has to be across the board or what's called program project activity, 2,500 line items in the department budget have to be cut by the same percentage. 

            Our OCO [Overseas Contingency Operations] budgets are cut by sequestration, but we have made the decision that we will protect the operating portion of the OCO budget for many reductions. We can't leave General Dunford and the troops in Afghanistan without the funds they need to protect themselves and to reach a responsible conclusion to that war. And the only way we can do that is to start cutting the base budget, the operations and maintenance portion of the base budget, and so I'll focus more on the base budget. 

            We have another problem. We are spending more in our OCO budget than we anticipated two years ago when it was put together, both due to higher operating tempo and higher transportation costs. So if you go to the next slide, when you put these together, the slide shows you reductions in our base O&M budget in the active forces, who can't move money around between accounts generally under sequestration, so we picked the largest one, the active account, relative to the PB '13 request, relative to what we think we need. 

            Sequestration cuts $11 billion out of that base O&M budget for active forces. We've decided to protect our wartime operations, as I told you. That means we've got to take that OCO money out of the base. That's another $4 billion. 

            Fortunately, the continuing resolution, which had the money in the wrong appropriations -- and you can see from the crossed-out numbers how big that was -- that's gone, but we're $7 billion to $10 billion short, we think, in our needs for OCO for fiscal '13. When you add all that up, we're $22 billion to $25 billion short in base budget O&M [operations and maintenance] for active forces, 15 percent to 17 percent, with about six months to go, so you can sort of roughly double it. 

            And I'll give you a sense of why we're having such problems. It's not just sequestration. It's also OCO problems. 

            Next slide. We won't do this across the board. Some programs are exempt or protected. The military personnel funding exempt by law, embarrassingly so are Senate-confirmed political appointees. By policy, we'll exempt Afghan wartime operations, our wounded warrior programs, and some others. And we will protect -- that is, to the extent we can -- we'll avoid cuts in some of our deployed forces, especially first-to-fight forces in Korea and other deployed forces, intelligence, surveillance and reconnaissance assets in critical theaters -- we don't want to blind ourselves -- and in general we want to make clear to our potential adversaries that even though we're having some budgetary problems, we are still there, and we will protect the United States and its allies. 

            Next slide. So what are we doing? Most of the rest of the programs are going to get cut, sometimes by a lot. We started some near-term actions in January, hiring freezes, which are in effect in a widespread basis, releasing of temporary term employees, cuts in facilities maintenance, but we're going to have to do a lot more to accommodate these shortfalls. 

            We will, for example -- not example, a major area -- we'll have to make major cutbacks in training and maintenance. And in a moment, I'm going to let General Ramsay tell you the effects that those are having. 

            We are looking at the possibility of furloughs for our civilian employees. We've got an overall approach if we need to do that. We've started the notification process with Congress, and with eventually our civilian employees we have started the union bargaining. We're looking at TRICARE. It has some special problems we can come back to. And there will be potentially some disruption in at least some of our investment programs, as well. 

            So what is all this doing? What are the impacts of sequestration? And let me turn it over to General Ramsay to talk to this slide. 

            LIEUTENANT GENERAL MARK RAMSAY: Secretary Hale stated on the previous two slides, because of this convergence of the OCO shortfalls, the higher burn rate, if you will, this year, now halfway through the year, as well as sequestration, really, we've had to touch everything within the department to survive FY '13, if I can use that term. I believe it's been used by the chairman before. 

            But when you look at just our direct readiness operating accounts, all the services have had to take different actions over time, and, quite frankly, more actions may be on the horizon. But in terms of tangible numbers -- and I'm sure the folks to follow us can give you even more detail -- but anecdotally, the Army has already had to cancel seven combat training center rotations and five brigade- level exercises, and they, like all the services, have had to reduce training and maintenance across the board.

            The Air Force, as you probably saw yesterday, announced that there are 12 combat-coded fighter and bomber squadrons that will be stood down. Eight of those are stood down from flying this week, and four more units, once they've returned from overseas deployment, and the Air Force is already -- is also reducing curtailing exercises. 

            The Navy and Marine Corps -- again, a few months ago -- the president and the secretary announced that the USS Truman battle group deployment to the Persian Gulf would be delayed. In the last week or so, the Navy -- the secretary has made the decision to curtail the sailing of the U.S. Comfort to its planned cruise to SOUTHCOM, and four others ships' cruises were also canceled. 

            And the Navy has been forced to begin reducing flying hours, and they've reduced one of their carrier air wings down to minimum flying hours. They've also been impacted in beginning to reduce steaming days and flying hours across the Navy and Marine Corps. 

            When you add all this up, to be very candid, what we've had to do, beginning a few months ago, is to start to burn readiness, as the chairman mentioned. We're not adding readiness or maintaining readiness. We're burning readiness. 

            UNDER SEC. HALE: Okay, next slide. So this is a good segue. What's happening in '13 is going to influence '14, and I'll come back to it, but let me turn to fiscal '14. 

            The broad theme of this budget is that we want to implement and deepen the program alignment to this defense strategy that the president announced a little more than a year ago in January 2012, but we recognize that we are presenting this budget in a period of great uncertainty. 

            Next slide. So what does this budget try to accomplish in '14? We want to continue to act as good stewards of the taxpayer dollars. We want, as I said, to implement and deepen our program alignment to strategic guidance, carrying out the things we've said before, and make sure that we're doing them fully. 

            We seek a ready force, and I use that word advisedly, because I don't think we can say we're going to maintain it, given what's going on in '13, but we seek it. We would like people to remain central to this budget, although we understand sequestration will affect that, too. And, finally, we need to fully fund a responsible drawdown in Afghanistan. 

            I'm going to go through examples of these, but before I do, you got the comptroller here. 

            Next slide. You've got to suffer through a couple of numbers slides. So bear with me. These are a little more complicated than usual. 

            This shows you the 2000 defense budget up through 2018. The fiscal '14 through '18 projections are consistent with the President's Budget. Let's start with the base budget. That's the dark blue, large bars toward the bottom. The president asked for $526.6 billion of budget authority, $527 billion. That's about 8 percent higher than what we were executing in '13, $493 billion, after adjustment for inflation, and that increase is almost entirely due to the reduction in '13 due to sequestration. In the years beyond '14, about 2 percent a year, roughly enough to keep pace with inflation. 

            Now, it will immediately be asked, so I'll try to answer it, and you've already heard the secretary comment. The fiscal '14 number does not take into account what could be a $52 billion reduction if the Budget Control Act remains unchanged. The president just a few minutes ago has submitted a budget that calls for a deficit reduction of $1.8 trillion over the 10-year period, more than enough to satisfy the requirements of the Budget Control Act, and would allow the Congress to de-trigger sequestration. 

            Let me go to the OCO portion of the budget, and that's the light blue bars at the top, and here there's a simple story about fiscal '14 OCO budget. We don't have one yet. The president, in order to give his commanders time to make the best judgments about the levels of the drawdown that was appropriate in Afghanistan, did not announce the force level decisions until mid-February, and even then only through February 2014. So we have now made some pricing assumptions that I'll discuss later. We're working hard on an OCO budget, and I hope we'll have it up to Congress within a month. 

            Next slide? Just a little more detail and a basic point on comparing '14 to the past -- $526.6 billion in the right-hand column, as you can see -- and I've showed you the dollars by appropriation -- compared to their request, they're almost unchanged, at the total level and, really, in almost every appropriation. This budget's pretty much the same as the '13 request. It's 7 percent to 9 percent higher than we're actually executing in '13 after the adjustment for sequestration, and most of that is due to the cuts in '13 associated with sequestration. 

            So what are we doing with that $526.6 billion? Next slide. We are -- we are trying to act -- continue to act as good stewards of the taxpayers' dollars. We know we need to stretch our dollars for a country -- in a country that is facing the economic problems that we are facing here. I'll give you some selected initiatives. There are many others. They add up to about $34 billion in savings in 2014 through '18. 

            We need to consolidate infrastructure in the Department of Defense. The only effective way to do that is through Base Realignment and Closure [BRAC]. We will ask the Congress for a BRAC round in 2015. And we are patterning that round after the '93-'95 rounds. We can't identify -- it's not appropriate that we identify specific bases until this process has been completed, but we were patterning it after the '93-'95 rounds. And we have added money to the out-years of this budget in fiscal '16, '17, and '18 to pay the added costs of BRAC. 

            We are studying a restructure of the health care system, which has some significant underutilization, and those first two items and others will allow us to restructure our civilian workforce and achieve some reductions, 5 percent to 6 percent, in our civilian workforce. 

            We've had some success, but continue to work hard to control health care costs and are working on that as part of our selected initiatives. We are making some changes in the missile defense program. We will terminate the precision tracking satellite system in favor of some additional research on interceptor capability, and we'll restructure the SM-3 IIB missile system in favor of some money spent on warhead improvements. And we're also using some of the funds from that restructure to pay for increases in the Ground Based Interceptors that were announced recently. So a number of initiatives. We're also working to slow the growth in military compensation. And let me ask General Ramsay if he would describe our initiatives there. 

            LT. GEN. RAMSAY: Yes, thank you very much. The military compensation and pay package that the secretary has already alluded to, I just want to say that the Joint Chiefs of Staff last fall, as the department put this budget together, had many deliberations on military pay and compensation. And, of course, the growth rates in that area are well publicized. 

            But certainly, as we looked across the balanced force to look at modernization and readiness, recruiting, retention and training of the best military force in the world, we had to look at pay and compensation. So we are very comfortable at the Joint Chiefs of Staff level with a 1 percent pay raise to military members, and there are also some resubmissions of those TRICARE changes that were proposed last year, but we made a lot of changes to those proposals that we think will get at some of the issues that came about with enactment of some of those changes. Some we got, and some we do not. 

            UNDER SEC. HALE: We have a process to implement our past initiatives, and we'll apply that same process here. The services have a process in place. I co-chair a review twice a year of how we're doing. We're slipping on some, but for the most part, we are moving to implement these and we'll continue to do so. 

            And I'll mention one close to my heart, which is audit efforts. We are making a lot of progress to achieve auditable financial statements in the Department of Defense. It is being harmed by the budget chaos that we are experiencing right now, but we're working hard to meet our interim goal of audit-ready budget resource statements by the end of 2014. 

            Next slide? We'll implement and deepen program alignment to the new strategies. That means a smaller, leaner force. The drawdown in the ground forces continues. By the end of '14, we'll be two-thirds of the way toward our target of 490,000 end strength in the Army and the 182,000 in the Marine Corps. 

            The Congress turned down some ship retirements we proposed last year and provided money to operate them through 2014. We'll do that, of course, but then we'll re-propose those retirements. And we did reach agreement with the Congress on aircraft retirements, and we'll pursue those. 

            Despite the budgetary problems, we are working to rebalance toward the Asia Pacific region. And I'll just mention a couple of things. Our most capable force is forward. We've sent F-22s to Kadena and Okinawa. By 2020, we'll have 60 percent of our Navy forces stationed in the Pacific region. We are working to expand access and cooperation, for example, a rotational presence in Australia, ships in Singapore. In the Middle East, we have a strong presence, as you're well aware, aimed at both pressuring Iran and stabilizing our presence there. 

            Next slide? We're going to protect and prioritize some key investments, but I'm going to hold off, because the next slide I'll give you some numbers there. Innovative partnerships, we know we won't fight alone. We need to build allies, continue to do that at all times. We have authority for something called the Global Security Contingency Fund [GSCF], a joint fund with the State Department to aid allies. And for the first time in fiscal '14, we will ask dedicated funding for the GSCF of $75 million. Overall, we're working to confront and defeat aggression and (inaudible) some up of this slide. 

            LT. GEN. RAMSAY: We looked at some very broad strategic choices as we moved from FY '13 into '14, as we built this budget. And the key issue here was protecting and investing in new capabilities and technology that we felt was innovative and include (inaudible) with our partners. And the bottom line is, this budget maintains the world's finest military force, notwithstanding some of the readiness issues we talked about earlier. 

            But some of our key investment areas, as we looked around the world, is certainly in missile defense. Those changes have already been announced by the secretary. We're investing in upgrades to our carriers, a broad portfolio involving long-range strike. The new tanker remains on track. The Joint Strike Fighter, we're buying more and better precision-guided munitions, and we invested in one extra Virginia class submarine in the FY '14 budget. 

            UNDER SEC. HALE: Next slide? So Mark mentioned a few of these. We'll increase cyber from $3.9 billion to $4.7 billion, consistent with our concerns and focus on the area. Mark mentioned the second Virginia class sub (inaudible) EA-18G Growler aircraft as part of our anti- access efforts, and a variety of other increases that you can see on the slide. 

            Next slide? We seek a ready force. And let me ask General Ramsay to describe our situation here. 

            LT. GEN. RAMSAY: Certainly, the last 11 or 12 years has -- the focus of the force has really been counterinsurgency and counterterrorism. As we begin to come out of Afghanistan, we've drawn the surge down, we're looking at getting back to if there's -- if there's any key phrase off this slide, it's full-spectrum operations across the services. 

            So depending on how we end up in FY '13 in readiness, the FY '14 budget certainly funds the shift back to full-spectrum operations and training. The Marines are shifting more from a land back to their specialty, which is amphibious expeditionary warfare. We're investing in steaming and flying hours. And Special Operations Command is beginning to come out of an era where they're re-shifting from Afghanistan to more of a global force and some -- shifting some of their funds from OCO [Overseas Contingency Operations] into the base budget. 

            I just want to point out -- it says at the bottom -- and this is true -- that the FY '14 budget as submitted is not a get well plan for the readiness that we're looking at in FY '13, the challenges. 

            UNDER SEC. HALE: Next slide? People will remain central, family support programs funded (inaudible) level, wounded warrior programs, fully funding the health care system. Here again, sequestration is rearing its ugly head. Our civilians, I think, are going to be devastated by sequestration if we end up going through with furloughs. And military training and military personnel are also affected. These men and women joined to train, and if we tell them they can't, I think -- or at least some of them can't -- that it will adversely affect their morale, as well. 

            Next slide? So this is a pretty picture that makes the point I made before. Not a lot of changes in the base budget with regard to appropriation. And not a lot by service, either. Air Force up just a little bit. Army down just a little bit. 

            Next slide? We seek to fully fund a responsible drawdown in Afghanistan. As I told you, we don't yet have an OCO budget. We have decided on pricing assumptions. The 34,000 troops in Afghanistan by the end of February  '14, that is the president's decision. And for pricing only, we will assume 34,000 continues through September 2014. That decision is yet to be made. And we're working hard on that budget and hope to have it in the Hill -- to the Hill in about a month. 

            Next slide? So let me finish up with a little bit of discussion of uncertainty. And you've had some of that with the secretary and the chairman. There's some in 2014, for sure. If the Budget Control Act is not changed, it would take $52 billion out of the numbers I've -- I've proposed or mentioned here. The budget -- the President's Budget, as I've said, proposes deficit targets that more than meet the BCA [Budget Control Act of 2011] and would allow the Congress to de-trigger sequestration. And we note that both the House and Senate budget resolutions basically are at the same level as the President's Budget for 2014. 

            Even more uncertainty beyond 2014, the BCA, if it's left unchanged, could year by year add up to total cuts of $500 billion over 10 years. Now the Senate budget resolution in the out-years does cut a little below the President's Budget. But the House resolution is actually a little above the president's request in the out-years. 

            So it looks to us like if Congress does reach a deal, that we will see numbers not that different than what we are proposing, at least we would hope. This remains to be seen if that will happen. We know there's uncertainty -- next slide -- and I think the secretary already described the strategic choices and management review [SCMR], as we call it in Pentagon-ese. He has ordered this review. Carter is conducting it along with General Dempsey. It will start with the 2012 guidance. That is the starting point. And we will look at choices on how we implement that in light of various budget outcomes. 

            And we hope to have results by May 31st. That will be results to him. I think it would be sometime after that before those results were more widely available. 

            Next slide? So $527 billion, implement and deepen the commitment to the strategy, a lot of uncertainty, both associated with sequestration and the top line. 

            And last slide, if you're having trouble sleeping, I offer this each year. Go to our website. I don't know if they're up there yet, but there will be all kinds of stuff, the famous dash-ones that will surely put you to sleep, if you can't. 

            All right. 

            MR. WHITMAN: Okay. So we're going to try to keep on schedule, give you a filing break here, so we'll take about 20 minutes of questions. And let's just get into it. So Bob and then Phil? 

            Q: Secretary, I have a quick question on -- you mentioned spending, costs in Afghanistan will be higher than expected this year. And you made a couple references to transportation costs, for example. Is that the closure of the GLOCs [Ground Lines of Communication], as they call them? 

            UNDER SEC. HALE: Yes. 

            Q: And did you say $4 billion higher than you anticipated (OFF-MIKE) 

            UNDER SEC. HALE: Well, the total is about $7 billion to $10 billion, and the range depends. We're not quite sure how much the Army will need. The sluggish opening in the GLOCs -- their closure and then sluggish opening -- is probably $1.5 billion to $2 billion of that. The rest of it is unexpectedly high operating tempo across all the services. 

            Q: So $7 billion to $10 billion is the correct number? 

            UNDER SEC. HALE: Correct. For the total, all services. 

            Q: So the secretary mentioned in his remarks that the department will reduce the size of the civilian workforce. Can you give me a sense of how many -- roughly how many civilian personnel you're looking at or even whether or not these are going to be reduced through attrition of layoffs and how far along in the process you are of answering that question? 

            UNDER SEC. HALE: Well, we're looking for about a 5 percent to 6 percent cut in fiscal '13 to '18. We have about 750,000 direct hire civilians, so it's probably 40,000 or 50,000. A lot of it, frankly, is in the out- years, because it's tied to BRAC, which will allow us to consolidate infrastructure and eliminate needs for civilians, also tied to -- to a restructuring of military health care that consolidates some of our facilities and the drawdowns in depot maintenance, as we finish the reset activities. 

            I would hope that, given the time to prepare, we could do this through attrition, but we aren't far enough along to really know for sure as to how we do it. 

            MR. WHITMAN: Let's go over to this side of the room. Jennifer, and then we'll go to Tony. 

            Q: Hi, General Ramsay, can you explain how the tiered readiness of the Air Force has entered -- is affected? If sequestration is de-triggered, will that then go away? And has the president been briefed that if the Air Force is not training, that after 30 days, 60 days, there will be a much longer lead time before you can divert the Air Force, for instance, to North Korea? 

            LT. GEN. RAMSAY: Yeah, I'm going to defer most of this to the Air Force. And I don't know if the secretary has been briefed, but I want to key in on a word that you mentioned, which is tiered readiness. The Air Force today, because of the nature of what they're called upon to do, maintains a very high level of readiness in active Guard and Reserve forces. And that's what's being affected. 

            So what the Air Force is doing like the other services is, all of those forces that are deployed, those that are rotating out, those that are in key regions -- we mentioned the Korean peninsula and other places -- those are at full ready status. Many of the forces back home will still be at a mid or high level of readiness, but we've had -- the Air Force has had to just make the conscious decision to maintain all of that, to just stand down these 12 combat squadrons -- combat (inaudible) for now. Certainly they don't want to have to do that. I think the president is aware that there are some arrows in the quiver that are going to be affected as the year goes by. That's the best... 


            UNDER SEC. HALE: The secretary is aware of this. You mentioned him -- he has been briefed. 

            LT. GEN. RAMSAY: Yes... 


            UNDER SEC. HALE: I don't know about the president. 


            Q: ... if sequestration is de-triggered, then would that go away? I mean, is this simply related to sequestration or further budget cuts? 

            UNDER SEC. HALE: Let me take a shot at that. I mean, it depends when and how. If it -- if it were de-triggered tomorrow -- while that seems pretty unlikely that we could stop immediately, after some period passes, some of this damage will be done, we'll have to then work toward a get well plan. It would certainly help greatly if it were de-triggered back to the enacted level for '13. We would have a lot more funds, and we would certainly then start the get well plan. 

            But, you know, I can't believe how many things we're trying to do right now. I mean, we're trying to re-plan '13 for the second time, because it just passed, thankfully, the appropriation bill, trying to roll out '14, trying to work through a major reprogramming that will help us manage in '13. 

            I mean, we are flat-out stressed at the moment in the financial community and elsewhere, so we have not done detailed planning yet in terms of a get well plan and what would be required. 

            LT. GEN. RAMSAY: It's fairly fluid, is I guess the best word for it. 

            Q: A couple questions. One on the OCO, if you could try this again. Your request -- your placeholders in -- it looks like $88 billion, if my glasses are correct. 

            UNDER SEC. HALE: Right. 

            Q: Your request last year was for $89 billion, with 64,000 troops in Afghanistan. You got 34,000 troops. Why so high? That's question one. 

            UNDER SEC. HALE: It is just a placeholder at this point. And it's set equal to the amount of the request -- I rounded there -- I guess rounded up, but it's $88.5 billion is the placeholder. We will change it when we get a budget amendment and actually send it to the Hill, I hope in about a month, and I think it'll be lower, although not dramatically lower, because there are so many other things going on, reset. The costs of getting out of Afghanistan will go up substantially, so it will come down some. And also, the 34,000 will probably be back-loaded. And, of course, we're assuming that they stay constant at 34,000 through September, which may not end up being the final assumption. 

            Q: One follow-up -- just a follow-up -- $150 billion in the president's -- where did that come from? Is that something you worked with the -- you, the DOD, have worked with the White House on and you gave them a strategic assessment of J-8? Or is this just out of the -- out of thin air from the West Wing over there? 

            UNDER SEC. HALE: Well, it's not out of thin air. There were discussions with the Department of Defense. And I think our view, as the secretary has said, is that no agency particularly looks for chances to cut its budget, but the choice of having $150 billion, largely back-loaded, or $500 billion that starts immediately sounded like the right approach to us. And the $150 billion was part of the president's overall proposal to cut that $1.8 trillion out, which will, hopefully, allow the Congress to de-trigger sequestration. 

            For '14, we have accommodated it fully. For the out-years, we will start with the strategic guidance that the president signed out. And as part of the strategic choices and management review, we'll look at the options to accommodate the out-year changes. 

            Q: That'll be your plan, the SCMR... 

            UNDER SEC. HALE: There you go. All right. 

            Q: (OFF-MIKE) 

            UNDER SEC. HALE: Some people call it scammer, but I don't. 

            Q: I won't, either. 

            Q: A SCMR is -- basically is a plan B for -- if sequestration continues, this -- because they will... 

            UNDER SEC. HALE: It's one of the options that we'll look at. I mean, we'll look at a range. I told you there's -- the Senate Budget Committee is kind of an interim position. We'll probably look at that, as well. But one of the options will be a full sequestration. 

            MR. WHITMAN: Let's work our way back to the other side here (OFF-MIKE) 

            Q: Thank you. Can you highlight for us particular aspects of the budget request that would be most helpful in your view regarding the pivot to Asia and particularly in light of what could be longer-term raised tensions with North Korea? 

            UNDER SEC. HALE: Well, I mean, there aren't a lot of real specific budget items in the area of building alliances. It's more diplomacy. There are a number of actions we're taking to build up our capabilities if we ever needed to deter or hopefully won't ever need to -- needed to fight in that region. We're pursuing a new bomber program for $379 million. I think you're aware we bought 21 or plan to buy 21 EA-18G Growler aircraft for about $2 billion. We have some others of precision munitions, like the JASSM [Joint Air Surface Stand-off Missile] extended range that we're buying to beef up our capabilities for area denial kinds of activities.

            So all of those budgets are part of the balance. I think our focus is pretty heavily on the -- the building alliances and a regional security network. And there perhaps the Global Security Contingency Fund I mentioned, that $75 million, would be specific. 

            Mark, you want to add to that? 

            LT. GEN. RAMSAY: I'll just add -- I think I mentioned a couple of these, but the Littoral Combat Ships to Singapore, the first one of those will arrive soon. Obviously, we've got some Marine repositioning that's been well discussed about -- that involves Guam and Okinawa and also the rotation through Australia, which is part of our partnership with Australia. The new tanker -- I think we mentioned that earlier on, too. That program remains on track, and that's fundamental to airpower projection in the Pacific theater, given (inaudible) distance. And then, of course, the missile defense that's been already announced. 

            Q: And is there a point -- I'm sorry. Is there a point at which your concerns about readiness being sort of, you know, cut into budget-wise could affect our readiness to handle a contingency in North Korea? 

            LT. GEN. RAMSAY: I think the simple answer is we don't know what we don't know right now. We're protecting readiness in that theater at the moment. 

            UNDER SEC. HALE: I can't see that happening anytime soon. I don't want -- I don't want to suggest to the North Koreans they got any free pass here. I mean, we will protect the readiness of the forces on the Korean peninsula and any that are deployed. As I said, the first to fight -- or fight tonight forces in Korea will be high priority. 

            Q: Didn't your slide say limited protection for that? 

            UNDER SEC. HALE: Yes, but I think there will be substantial protection for those forces. Yes, it did. 


            UNDER SEC. HALE: ... protected area and not in the -- in exempt area, you're right. Good catch. But given what's going on, you know, I sure don't want to leave the impression in the minds of any of our potential adversaries that this is an opportunity for them. It's not. I mean, we're going to be there if we have to be. 

            MR. WHITMAN: John? 

            Q: Could you talk a little bit more about BRAC? I know you can't be specific about installations you'd want to close, but how much excess capacity do you have? I know there are certain regions of the country that we... 


            UNDER SEC. HALE: Yeah, I mean, there were -- there were some studies done at the BRAC 2005 round, and I don't have the numbers in my head that suggested that that round didn't get at all the excess capacity, so I think I'm not going to be able to give you a precise figure. I think you might address that to the services. They may be able to do a little better. 

            I mean, we know that there are some areas where we believe we need to consolidate infrastructure. As you just said, it's not appropriate that we'd be specific. But we do have some aggregate numbers. I just don't have them in my head. 

            MR. WHITMAN: Let's go back to this side of the room here, and work ahead, and then we will... 

            Q: If we can stay on BRAC, I mean, what do you think the odds are of getting Congress on board with this? I mean, I know you've been asking about it, but there are already members of Congress saying it's DOA [dead on arrival] and they don't want... 

            UNDER SEC. HALE: My sense is you ask, you ask, and it's no, no, no, okay. I don't know if we're at okay yet or not, but it seems to me we have to keep asking. I mean, we know we need it. It's the only effective way to consolidate infrastructure. I think it would be irresponsible of us not to go up there and say, as part of a package, we need you to let us do this. So... 

            Q: (OFF-MIKE) maybe change things for you this time around? 

            UNDER SEC. HALE: Possibly. And, I mean, it is out several years. If -- if our plan went through, the commission would meet in 2015, and we'd actually not begin base closures until 2016, at which time I hope the economy is -- is in much better shape. And so I think that may work in our favor.

            I mean, I'm not going to sit here and tell you that this is a slam dunk. That would be naive. But I believe we need to keep saying that as a part of a package of these efforts, we -- we have to have this. 

            Congress passed a law that stated that we had to reduce civilian personnel roughly in proportion to military personnel. We can't do that without things like BRAC and the ability to restructure some of our treatment facilities, because a lot of our civilians work there, and we have to eliminate the requirement before we eliminate the people. 

            Q: On that OCO... 

            MR. WHITMAN: Sorry, we'll take a few and then (OFF-MIKE) 

            Q: Okay. Back on the OCO, the $88 billion, there have been some hopes of shifting money that had been in OCO over the last few years to the base budget, as, you know, operations in Afghanistan wind down, particularly military personnel and O&M. Will that not happen, given the uncertainty of the base budget? And could that also contribute to the higher OCO number? 

            UNDER SEC. HALE: Yeah, I don't expect that -- I mean, we haven't finished the '14 OCO, so I can't be specific. But I don't expect to see any major shifts in '14. I think in the years beyond, as we actually achieve a responsible drawdown in Afghanistan, we'll have to relook at that issue. But it's probably primarily an issue for the years beyond 2014. 

            Q: Just a clarification on one of your slides showing the projected -- or the President's Budget request from the last 10 years and projected into the future, are those all on the same terms? Are they adjusted for expected inflation? Are they in real terms or nominal? 

            UNDER SEC. HALE: No, no, they include anticipated inflation. If that -- the bar chart slide? 

            Q: Yeah. 

            UNDER SEC. HALE: Yeah, no, those -- those are not real dollars. Those include anticipated inflation. 

            Q: Those are -- okay. And also, why -- why is 2014's request so high? I mean, it's about the same as 2010 and 2011, you know, twice as much as... 


            UNDER SEC. HALE: Well, it's higher than 2013, if that's what you're asking. Because 2013 does reflect sequestration, it is now in effect. And therefore, we cut about -- as much as $41 billion out of the 2013 budget, which lowered it, which is why you see the big increase. 

            Q: Can I just go back to, you know, 2010, '11 and '12, it's roughly the same? Is it... 

            UNDER SEC. HALE: All right. I should have those numbers in my head. Can you go back to slide -- whatever slide it is -- slide nine? 

            Q: (OFF-MIKE) 

            UNDER SEC. HALE: Yeah, they're pretty flat. I mean, our budget has been staying flat. I mean, if you're looking at the base budget now, it's $528 [billion], $528 [billion], $530 [billion], sequestration cuts it down, then we go back to $527 [billion], pretty flat in nominal dollars. There's been real decline, because we're not keeping up with inflation. Does that answer your question? 

            Q: (OFF-MIKE) have a drawdown of one war, Iraq, but yet the numbers seem to continue increasing. It's just what I'm wondering. I mean, obviously, we're... 


            UNDER SEC. HALE: Well, you're seeing the light blue bar has come down more aggressively. I mean, we peaked for the OCO or supplemental force into the budget at $162 billion in fiscal '10. It's now down to -- with sequestration, would be $81 billion and probably more like $88 billion when we fix it in '13, so it's down by about half. And I would expect some -- the light blue bars to continue to come down in the out-years. OK? 

            MR. WHITMAN: Got a few more minutes. Let's go right here. 

            Q: Mr. Hale, you talked about -- that you're preparing a reprogramming. Could you describe the magnitude of the reprogramming? What types of areas... 


             UNDER SEC. HALE: I don't know yet, but I can tell you that we're limited by a transfer authority that is the limits on the money we can move between appropriations to about $7.5 billion. So that may give you some idea, but I don't know the exact amount yet. 

            Q: Do you know the areas (OFF-MIKE) 

            UNDER SEC. HALE: We'll focus on fixing those OCO shortfalls, because they are our highest priorities, in terms of the requirements. And as you know, resources are (inaudible) and those we haven't identified yet. 

            MR. WHITMAN: (OFF-MIKE) keep going (OFF-MIKE) 

            Q: Can I ask, what percent in '14 -- what -- do you cap pay raises the rest of the FYDP, as well? 

            UNDER SEC. HALE: Yeah, I mean, of course, they're just out-year plans and subject to annual review, but right now, our out-year plans for military raises are, if I remember correctly, 1 percent in '15 and '16, and then they go up some -- I want to say one-and-a-half, two- and-a-half in the out-years. But I'd emphasize that those get reviewed each year, and I wouldn't put too much credence on them. 

            For one thing, unless we propose an alternative raise, as I think you know, the military raise is determined by the employment cost index, and so we -- unless we're going to propose an alternative, we would be tied to that, and that depends on how the economy performs. 

            MR. WHITMAN: Let's go in the back. 

            Q: What do you think the likelihood is that you will face another full round of sequestration in FY '14? 

            UNDER SEC. HALE: Oh, my goodness. I know my hope is to definitely avoid it. I can't rule it out, but I can't put a percentage on it, either. I mean, I don't want to declare -- I don't want to be too pessimistic. Secretary Panetta teased me that I was the Eeyore of the Pentagon at one point. I don't want to say that -- that we're not going to get this. I sure hope so.

            Q: Would you say it's more likely than not that you will face that? 

            UNDER SEC. HALE: You're not going to let me get away by wiggling out of this, are you? But I'm going to wiggle out anyway. I don't know. I honestly don't. I mean, obviously, what will determine that is well above my pay grade, is the president and senior leaders of Congress, and I'm not sure (inaudible) 

            Q: General, do you have an opinion on that or... 

            LT. GEN. RAMSAY: I do not. (Laughter.)

             UNDER SEC. HALE: Sure, take a shot here, fella. I will stay... 


            MR. WHITMAN: All right. We're just about out of time, but let's go and finish it up and get you on a filing break. Let's do Tony and then Phil and then get (OFF-MIKE) 

            Q: Just had a clarification question. If sequestration does continue to 2014, the automatic across-the-board at the PPA [programs, projects, activities] level, that continues, is that correct? 

            UNDER SEC. HALE: No, not necessarily. There's two things -- you asked this question, Tony, so you're going to get an answer. There two forms. There's a -- we'll call it joint committee sequestration. It's the one that would take $52 billion out of the budget. That in years beyond 2013 simply lowers the caps, and so if that is all that happened, then we would -- we would have authority to do that as we proposed. 

            If Congress were to enact the budget at $527 billion and not change the Budget Control Act, then there's a cap over here, and that would be enforced with sequester rules. So -- but I would hope that, if this happens, that it would simply be a lowering of the discretionary caps, and we would have authority to figure out how to do it. 

            Q: But you have authority (OFF-MIKE) have some flexibility under one scenario... 

            UNDER SEC. HALE: Right, unless Congress -- I mean, they obviously could decide to limit that flexibility in some fashion. They might appropriate at that sequester level, in which case then they would tell us how to do it. But if they didn't and they just lower the cap, then we could decide how to do it. 

            MR. WHITMAN: All right. Last one. Phil? 

            Q: I just wanted a clarification on the Pakistan -- the $1.5 billion to $2 billion for the transportation out of Afghanistan. Does that factor in the -- is that assuming that the GLOCs are actually working, like, you know, well? Or do you (OFF-MIKE) 

            UNDER SEC. HALE: It's our best guess of how to do it. And they are opening up. And we are starting to get materials through there, so I think that number is predicated on a best guess, and it's higher transportation, because we're using more air and higher costs because we're using the northern distribution network. 

            LT. GEN. RAMSAY: We cost out a range -- there's sort of a range of options there that involve the three -- three modes of getting out of Afghanistan, so it really all depends on how fast the spigot opens up through Pakistan. 

            Q: (OFF-MIKE) I guess I was just wondering, because I think the assumption is that 75 percent is going to -- the retrograde is going to go through the GLOCs, right?  So... 

            UNDER SEC. HALE: That sounds about right. I can't swear to that number and have... 


            UNDER SEC. HALE: ... sounds about right. 


            UNDER SEC. HALE: Yes, we are -- we are hoping -- that is the cheapest way. To get it out through Karachi is definitely... 


            Q: (OFF-MIKE) Okay. 

            UNDER SEC. HALE: Yes, because some of it's already happened. I mean, remember, this is a fiscal '13 number, so some of it is driven by the closures and the -- and I would call it sluggish reopening process that has occurred. 

            Q: Thank you. 

            Q: Do you recall how much was added to the previous year's -- having it closed the previous year?

             UNDER SEC. HALE: I don't. 

            Q: Okay. 

            MR. WHITMAN:  All right. Look, I know that the Army wants you to start right at 3:15 [p.m.], that gives you about a little less than an hour filing break, 3:15 [p.m.]back in here.

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