Thank you, Gene, and thank you all for the opportunity to be here once again at the National Press Club.
One month ago, Secretary Hagel gave a speech at National Defense University that described the major strategic and budgetary challenges, choices, and opportunities that we as a defense enterprise face. I’d like to pick up where he left off, in one of what will undoubtedly be a series of discussions that extend over the spring and summer as we in the Defense Department, with the Congress, work together to try to put a stable and solid foundation under the strategic transition that we are embarked upon as nation.
As President Obama made clear in the new defense strategy we announced last January, we are turning a corner, a strategic corner, from a post-9/11 era dominated by two wars—in Iraq and Afghanistan—to the challenges and opportunities that will define our future in security.
We know what many of those challenges are: continued turmoil in the Middle East, the persistent threat of terrorism, enduring threats like weapons of mass destruction, and a range of new threats such as cyber.
We also see great opportunities: among them, to shift the great weight of the Department of Defense, both intellectual and physical, that has been devoted to Iraq and Afghanistan, to the Asia-Pacific region, where America will continue to play its seven-decade-old pivotal stabilizing role into the future; to develop innovative new capabilities from a vibrant defense technology effort; to capitalize on the lessons of the last decade on how to use forces innovatively, including special forces and the integration of intelligence and operations; to manage presence in new ways; to leverage the Reserve and Guard components that have performed so superbly over the past decade; and to build the capacity of partners and allies so they can shoulder more of the burden.
This great strategic transition, which we need to make, coincides with a need to absorb some reductions in defense spending in the interest of the nation’s overall fiscal situation.
Those two great historical currents are coming together, and it is my view that they can, if managed properly, reinforce one another. That is the task before us in the Department of Defense.
In terms of our responsibility to the American taxpayer, we know that in making this strategic transition, we only deserve the amount of money we need and not the amount of money we have gotten used to.
That’s why, well before the current budget turmoil, we made reductions to the Department’s budget by $487 billion over 10 years.
This half-trillion-dollar adjustment came on top of significant adjustments that Secretary Gates made to eliminate unneeded or underperforming acquisition programs.
At the same time, our Overseas Contingency Operations funding – which is not included in the base budget and which is largely for Iraq and Afghanistan, otherwise known as wartime supplemental funding – is also decreasing, now that we have exited Iraq and are drawing down our forces in Afghanistan.
Taken together, these reductions compare in pace and magnitude to historical cycles in defense spending the nation has experienced in the past – after Vietnam, and after the Cold War.
In order to execute the President’s defense strategy and to responsibly prepare for reductions in defense spending, we need to continue a relentless effort to make every defense dollar count. I began this effort in acquisition when I was the Under Secretary of Defense for Acquisition, Technology, and Logistics under the title “Better Buying Power” that continues under my successor, Frank Kendall. Extended throughout the entire Department, this means making hard choices and persuading our own bureaucracy, and ultimately the Congress, to support even the very hardest of them.
In acquisition, we made important changes to control costs, like setting targets for what systems should cost, a notion we are applying to Joint Strike Fighter, the Ohio-class replacement, and the new bomber to avoid outcomes like the VH-71 Presidential helicopter, which ballooned to the point where it became unaffordable.
We also gave renewed emphasis, where appropriate, to greater use of fixed-price contracts, an approach that we applied to the KC-X, now KC-46, aerial refueling tanker replacement competition.
We also learned, from the wars in Iraq and Afghanistan, hard-earned lessons in speed and agility. We delivered the Mine Resistant Ambush Protected All-Terrain Vehicle—MRAP ATV—which went from commander’s need to production and fielding in less than 10 months, largely by bypassing the ponderous acquisition system. Of course the most important savings achieved through the MRAP program were in the lives saved, and the devastating injuries avoided, something that is truly priceless.
Outside of acquisition, there are many other areas in which we simply must do better. Making better use of taxpayer dollars is important not only in its own right, since every dollar that is wasted could be used for the nation’s defense, but is also important in order to win the taxpayers’ confidence that they are getting full value for their defense dollar. This is a confidence we must earn to get the public and Congress to support a reasonable level of defense spending such as the President's budget contains…and for this reason I begin, as the Department’s entire leadership begins, with driving down tail to strengthen tooth.
In this regard, we are placing a great emphasis on reducing the cost of what we in the Pentagon call the “Fourth Estate,” which consists of the Office of the Secretary of Defense, the Joint Staff, the Combatant Commanders, and the defense agencies. The Fourth Estate represents a fifth of the Department’s budget, and it merits at least as much scrutiny as the military services’ budgets. There are real savings to be realized here.
Next, we must drive down health care costs across the Department. We have achieved substantial reductions in recent years, largely by holding down costs we spend to buy pharmaceuticals and pay health care providers but also through modest increases in fees and co-pays assessed to beneficiaries. As a result of these and other efforts, our Fiscal Year 2014 budget request for the Defense Health Program, at $49 billion, is more than $3 billion lower than the Fiscal Year 2012 enacted level of $53 billion. In contrast, health care spending in the broader economy continues to grow faster than the overall rate of inflation. But we need to do more. To that end, we must look at ways to make more efficient use of beds, staffing, and facilities at Military Treatment Facilities, and again at health care fees.
We also need to restructure our civilian workforce as we restructure our fighting forces. Specifically, we plan to reduce civilian workforce levels by between five and six percent over the next five fiscal years. These reductions are largely proportional to the military end strength reductions that we have proposed. Because they are contingent, in large part, upon our ability to consolidate our infrastructure and restructure our military treatment facilities, we will need a BRAC round to achieve them.
Given this connection, we are submitting our request to Congress for a BRAC round in 2015. As Secretary Hagel recently testified before Congress, we believe BRAC is a comprehensive and fair tool that allows communities a role in re-use decisions for their property and provides redevelopment assistance. BRAC requires an upfront investment. And for that reason, the future year defense program adds $2.4 billion to pay for these costs. But in the long-term, BRAC rounds have consistently generated significant savings. The previous five rounds of BRAC are saving $12 billion annually, and those savings will continue.
I realize that BRAC is not exactly a crowd pleaser. People often say to me, how can you propose that? And our answer is how can we not propose that? How can we not propose the cutting of tail and only the cutting of tooth?
Finally, everyone who looks at the defense budget realizes that military compensation, like healthcare costs, cannot grow at unsustainable rates without threatening the force. We are therefore resubmitting a new package of military compensation proposals that we believe address congressional concerns raised last year. None of the new proposals would result in a reduction in pay or benefits; they simply reduce the rate of growth. Specifically, we are proposing a modest reduction in the growth of military pay by implementing a one percent pay raise for service members in Fiscal Year 2014; and a modest additional increase in TRICARE fees and pharmacy co-pays, as I alluded to above. Where applicable, these fee and co-pay increases would be phased in and have maximum limits to allow service members and retirees to adjust accordingly, and they would be grandfathered if appropriate.
Just as we are redoubling our efforts in Fiscal Year 2014 to obtain greater efficiencies in defense spending, we are deepening our program alignment to the President’s strategy.
Let me remind you what the key tenets of the strategy are:
The first tenet was that as we draw down from the wars in Iraq and Afghanistan, our force needs to make a very difficult transition from a large, rotational, counterinsurgency-based force to a leaner, more agile, more flexible, and ready force for the future.
That’s not to say there’s anything wrong with the force that we built for Iraq and Afghanistan—it was the right force for the period. This is a different period.
As we make this transition, we want to preserve what we have worked so hard to achieve in the last decade:
First, the tremendous strength that the all-volunteer force has brought to this fight over the last 10 years, and the qualities that they embody.
Second, the use ofspecial operations forces and their integral application in modern operations.
Third, the contribution of the Guard and Reserve. We used the Guard and Reserve in this era in a way never foreseen, and they performed superbly. I’ve been to Iraq and Afghanistan many times—I’ll be leaving again the day after tomorrow—and you can never tell the difference between an active duty and reserve component unit, in terms of their proficiency and dedication.
Fourth, the fusion of intelligence and operations – an area where we have unrivaled capability.
And fifth, new and disruptive technologies, all conceived and fielded over the past decade.
This is the legacy of Iraq and Afghanistan that we want to preserve and adapt as we turn a strategic corner.
The second key tenet of the new strategy has to do with protecting and prioritizing key investments in technology and new capabilities. President Obama insisted that we go out of our way to protect our newest investments because these kinds of investments tend to have the shallowest roots, and are therefore most susceptible to being bureaucratically uprooted. Because these investments are so important to keeping the technological edge upon which so much of our national security depends, the President wanted to ensure that we didn’t eat our seed corn in the process of reducing our budget.
In this regard, we are continuing, even in our current budgetary environment, to grow our Special Operations Forces. A portion of this somewhat larger force will be redeployed from Iraq and Afghanistan to locations around the world. The remainder, not unimportantly, will have a chance to reset and be home with family more than they’ve been able to be over the past decade.
Next, we are increasing our investments in cyber, in recognition of the growing threat that cyber poses to our national security and critical infrastructure. Our Fiscal Year 2014 budget request repurposes and adds manpower to create cyber teams in three primary functional areas: defending Department of Defense networks; degrading adversary cyber capabilities, and supporting the defense of the nation’s critical infrastructure.
Space, like cyber, is also an area where we also have a large installed base upon which we depend, and we need to figure out either how to defend it or where that is not possible, because of the nature of orbital dynamics and the inherent vulnerability of an object in space, how to operate without it if we need to. We are also developing options to counter the space capabilities of potential adversaries.
Another area the President wanted protected is countering weapons of mass destruction. We still have a Nunn-Lugar program, and it is very active and operational.
We’re also investing in Intelligence, Surveillance, and Reconnaissance platforms. You see the Predators and Reapers at work, you see the Global Hawk, which is the higher altitude platform. Then there are other things you don’t see. We have an innovative effort to increase the range of our unmanned vehicles to operate unmanned vehicles from ships, and other areas of innovation in ISR that don’t involve unmanned aircraft but other techniques.
Finally, we’re increasing our investments in certain areas of our science and technology portfolio, such as electronic warfare, anti-jamming capabilities, and command, control and communications. It’s always been the case that the Department of Defense led innovation and contributed to innovation at the national level. Today, there’s a larger commercial technology base relative to DoD’s than there used to be. And of course the overall technology base is global. Still in all, there’s a leadership role for the Department of Defense, and despite our fiscal challenges, this is an area that will remain a priority.
The third key tenet of our new defense strategy concerns our rebalance to the Asia-Pacific region.
Our rebalance – to be clear – is predominantly a political and economic concept, not a military one. But since I’m Deputy Secretary of Defense, I naturally focus on its security aspects.
In the security sphere, the logic of our rebalance is very simple: the Asia-Pacific region has largely enjoyed overall peace and stability for sixty years, apart, of course, from the Vietnam War.
And the only exception to that today, and a dangerous one, is North Korea.
We are responding to North Korea’s threats. We’re doing it by defending ourselves and our allies. We’re taking a firm but measured approach. But North Korea is an exception, really the only exception in terms of imminent nation-state aggression in the Asia-Pacific region.
This climate of peace and stability has prevailed in the Asia-Pacific region for so long despite the fact that there’s been no overarching security structure—no NATO—to make sure that historical wounds, which were deep in Asia, were healed after World War II. And during those years, first Japan rose and prospered, then South Korea rose and prospered, then many nations in Southeast Asia rose and prospered. And now, today, India and China rise and prosper. All this has been welcomed by the United States.
But none of this was a foregone conclusion when you consider where Asia was at the end of World War II.
While the Asian political and economic miracle was realized, first and foremost, by the hard work and talent of the Asian people themselves, it was enabled by the enduring principles that the United States has stood for in the region, and also by American military power.
These principles we stood for have included a commitment to free and open commerce; a just international order that emphasizes rights and responsibilities of nations and fidelity to the rule of law; civilian control of the military; open access, by all, to the shared domains of sea, air, space, and now, cyberspace; and the principle of resolving conflict without the use of force.
In addition to these principles, it was also enabled by the pivotal role of U.S. military power and presence in the region. We believe that our strong security presence in the Asia-Pacific has provided a critical foundation for these principles to take root. And in one sentence, our rebalance says we’re going to continue to provide this foundation for decades to come.
Our partners in the region welcome our leadership and our robust engagement, and the values that underlie them, and therefore I believe that our rebalance will be welcomed and will be reciprocated. It’s good for us, and it’s good for everyone in the region. And it includes everyone in the region. And by the way it’s not aimed at anyone in the region – no individual country, or group of countries.
Our rebalance is reflected in force structure decisions; presence and posture; investments; innovations in our operational plans and tactics; and perhaps most importantly, the work we are doing to strengthen our alliances and partnerships in the region.
I’ve given a number of recent speeches, here in town and in Asia, that describe each of these lines of effort in significant detail, and in the interest of time, I would refer you to those speeches for a fuller and more complete accounting of how we are implementing the rebalance. Needless to say, there is much that is going into this undertaking.
When I discuss the rebalance, I’m usually asked two questions.
The first is: can you do it? Can you do it with the budgetary challenges you face?
And the answer to this question is yes – we can do the rebalance. And here’s why:
First, as I mentioned earlier, we are shifting that huge weight that we have applied to Iraq and Afghanistan, to the region.
And a second reason is that within our budget, which is still substantial, we are making investments in this region a priority.
In addition to the current weight of our own defense spending you also have to take into account that it has accumulated over time. It takes decades to build a military capability like ours.
It’s also true that in addition to having substantial resources, our force has substantial operational experience, which no other military can match.
So for all these reasons, we can do it.
The second question I get is, “Isn’t our rebalance really about China?”
And the answer is no, our rebalance is not about China. Our rebalance is not aimed at anyone – any individual country, or group of countries. It’s about ensuring the peace and stability that the Asia-Pacific has enjoyed for sixty years continues.
In a normal budgetary environment, an efficiencies- and strategy-driven approach to defense, such as I have described, and which is reflected in President Obama’s budget, would be sufficient. However, this budgetary environment is anything but normal, particularly because we are operating under the sequester.
Sequester is not only regrettable in its own right, but it distracts from the true strategic and managerial tasks before us.
Sequester requires us to subtract from our budget for the remainder of Fiscal Year 2013 $37 billion, and it presumes that we take equal shares or proportionate shares from each and every part of the budget, which is the worst managerial approach possible.
Secretary Hagel and I, and the entire leadership of the Department, are doing everything we possibly can under this deliberatively restrictive law to mitigate its harmful effects on national security. Everything we possibly can.
For example, the President used his authority under the law to exempt military compensation from sequestration.
We also must, of necessity, fully protect funding for Afghanistan and other ongoing operations. It turns out that our Afghanistan war costs have been higher this year than we anticipated, in part because of a higher than expected operating tempo and in part because of increased transportation costs due to the extended closure of the Pakistan ground lines of communication.
Next, we are fully protecting wounded warrior programs.
We are fully protecting our core nuclear deterrent, critical portions of homeland defense like the ability to interdict hijacked airliners, some Special Operations Forces, and other critical capabilities.
And we are fully protecting key other expenditures such as those, for example, that will allow school children in our military schools to finish the school year in a way that can be fully accredited.
Next, there are accounts we are preferentially protecting to the extent feasible:
First, key features of the new defense strategy that I have described.
Second, forces forward-deployed to the Asia-Pacific and the Persian Gulf for possible near-term contingencies, for example, the ability to “fight tonight” if there is aggression on the Korean Peninsula.
Third, military family programs.
And fourth, certain acquisition efficiencies like multi-year contracts.
But we cannot exempt or protect most of our budget, and so you see serious repercussions of sequester appearing as the months go by.
You might ask, why does this turbulence hit so hard and so fast? Why does an 8 percent sequester budget cut lead to a crisis in readiness, as the Joint Chiefs of Staff have so aptly called it?
To understand this requires some explanation. Sequestration commenced on March 1 and, as I noted, will reduce DoD funding for FY 2013 by $37 billion. About $20 billion of that $37 billion cut affects our operation and maintenance or O&M accounts – the accounts that most influence day-to-day military readiness. But it gets worse for O&M. The wartime, or OCO, budget is also subject to sequestration, and most of this must come from the same O&M accounts. To protect funding for our troops at war – which is a must – we have to impose extra cuts on the base-budget portion of O&M. Worse yet, two years ago, when we were estimating the costs of wartime operations, we could not foresee the higher than expected operating tempo and transportation costs that we are experiencing this year. So now we have to make further cuts in base-budget O&M in order to sustain wartime operations. The bottom line: cuts in the base-budget portion of O&M will be more than 20% compared to our request. And we have only about six months left to accommodate most of those cuts. So much for the 8% sequester cut!
We realized last January, before sequester kicked in, that we had potentially large budget problems, and we began taking action. We imposed hiring freezes, cuts in travel and conferences, reductions in facilities maintenance, and much more. Now that sequester is in effect, we are preparing a request to Congress to move money from other accounts into O&M, called reprogramming. We will be urging Congress to approve that reprogramming quickly. But, unfortunately, this won’t be enough. Reprogramming will help with much of the wartime O&M funding problem, but by law reprogramming is limited, and it is not large enough to address sequester. We will still have to make large cuts in training and maintenance, which in turn are seriously harming readiness. In short, reprogramming addresses war costs, but not sequester.
Let me start with the Army. Among numerous training-related actions, the Army plans to cancel at least six remaining combat center training sessions for its brigade combat teams. These are the culminating training events, and their cancellation seriously harms readiness. By the end of the fiscal year, excluding deployed units, two-thirds of Army active brigade combat teams, and most reserves, will be below acceptable readiness levels. This means that we are less ready for contingency operations, and it may interfere with our ability to replace units in Afghanistan next year.
The Air Force has or will soon stop all flying for 12 combat-coded squadrons, which means that about one third of its active squadrons will be markedly less ready to meet contingency demands. The Air Force is also reducing or stopping training at numerous other squadrons. This is not only dangerous; it will also be expensive to repair this damage. Once you lose flying proficiency, it is very expensive and time consuming to get it back.
The Navy and Marine Corps are also cutting back on flight operations and fleet operations. The Navy has imposed flying restrictions on some non-deployed carrier air wings and as you’ve seen, we’re not sending ships to sea as we had planned. As the Navy cuts back on maintenance support and steaming days, there will be fewer opportunities for the Marines to train, which will in turn degrade their readiness.
Finally, we may have to consider furloughing many of our civilian employees in order to hold down operating costs. Secretary Hagel has not made a final decision on furloughs. But if we have to impose them, they will harm morale and productivity throughout most of our support functions. This will in turn further damage readiness.
What's tragic in all of this is that the damage to readiness and national security is not a result of economic emergency, or a recession. It's not because defense cuts are the answer to the nation’s overall fiscal challenge—do the math. It's not in reaction to a sudden transformation to a more peaceful world. It's not due to a breakthrough in military technology or a new strategic insight of some sort. It's not because paths of revenue growth and entitlement spending have been explored and exhausted. It's purely the collateral damage of political gridlock. We have and will still have the most formidable military in the world, but we are accepting unnecessary risk.
Now, the sequester for FY 2013 ends October 1, but there is no way to know for sure what’s next here in Washington.
The DoD can adjust and adapt to a wide range of contingencies, but this will be easiest if we have stability, time, and flexibility. The President has submitted a budget that meets these goals. The President’s budget reflects his overall approach to deficit reduction. For defense it contains $150 billion more in ten-year cuts compared to last year’s plan in addition to the $487 billion reflected in the Department of Defense’s Fiscal Year 2013 budget. Most of these cuts occur beyond FY 2018, which gives us time to plan and adjust. While no agency wants to cut its budget, the President’s plan is much more practical than the cuts that could occur under the Budget Control Act – cuts that could amount to $52 billion in FY 2014 alone and could total $500 billion over ten years.
We urgently need Congress to grant us stability, time, and flexibility. The House budget resolution, the Senate budget resolution, and of course the Budget Control Act all confront us not with stability, but with an exceedingly wide range of future scenarios for our budget.
We also need Congress’s support to have the flexibility to make budget cuts where they are most in the interest of long-term national defense. Last year, Congress denied proposals we had made ranging from health care efficiencies to force structure and modernization proposals that our leadership had proposed and comprehensively justified. Most immediately, additionally, we need reprogramming relief from Congress for Fiscal Year 2013 in order to shift money to meet our highest priorities.
Ideally, we will have all three elements—stability, time, and flexibility—with which to make critical budget decisions. But we must anticipate a wide range of possible contingencies. In this regard, for this reason, Secretary Hagel asked me, working with Chairman Dempsey, to conduct a Strategic Choices and Management Reviewto examine the choices that underlie our defense strategy, posture, and investments, including all past assumptions and systems. The Review will define the major strategic choices and institutional challenges affecting the defense posture in the decade ahead that must be made to preserve and adapt our defense strategy and the Department’s management under a wide range of future circumstances that could result from a comprehensive deficit reduction deal or the persistence of the cuts that began with this year’s sequester.
Everything will be on the table during this review: roles and missions, war planning, business practices, force structure, personnel and compensation, acquisition and modernization investments, and how we operate, and how we measure and maintain readiness.
We plan to complete our work and provide decision-points and recommendations to Secretary Hagel in the coming weeks and months.
The choices the Secretary and the President make in response to decision-points identified in the review in the months thereafter will then inform our FY 2015 budget submission as well as how we execute our FY 2014 budget.
In closing, we in the Defense Department are prepared to make difficult strategic and budgetary choices. We also are committed to finding new ways to improve the way we do business and obtain greater efficiency and productivity in defense spending. But in order to sustain our military’s unrivaled strength, we need the cloud of sequester dispelled—not just moved to the horizon—and we need a return to normal budgeting. Together with the Congress, we can then continue the great strategic transition upon which we have embarked with certainty and stability.