SECRETARY OF DEFENSE CHUCK HAGEL: Good afternoon. Today I'm announcing the president's fiscal year 2014 budget request for the Department of Defense.
This budget request represents a base budget of $526.6 billion. This budget continues to balance the compelling needs of supporting troops at war in Afghanistan, implementing the president's defense strategic guidance, and sustaining the quality of the All-Volunteer Force, all while ensuring we maximize the use of every taxpayer dollar and addresses internal imbalances within the Department of Defense budget.
As I discussed in my speech last week at the National Defense University [NDU], the cost of infrastructure and overhead, acquisitions, and personnel compensation must be addressed in order to put the Department of Defense's budget on a sustainable path, particularly given the pressures on our top-line budget. The request being presented today takes important steps in each of these areas.
First, the budget continues to maximize our use of resources. It proposes a set of initiatives that saves an additional $34 billion over the next five years by changing the way we do business and reducing support costs. This savings is on top of the approximately $211 billion in ongoing overhead reductions and business efficiencies identified in the last two budget requests, which are still being implemented.
The new initiatives being proposed include a restructuring of the civilian workforce to meet key needs with fewer personnel and overhaul military treatment facilities and efforts to control health care costs by taking advantage of lower prices for private-sector care. These efforts are having some success, with projected health care spending in this budget declining by some 4 percent compared to our budget two years ago.
With this budget, the department is requesting to consolidate infrastructure with the authorization of a round of Base Realignment and Closure, BRAC [Base Realignment AND Closure], in 2015. BRAC is a comprehensive and fair tool that allows communities a role in reuse decisions by them for their property. And it provides redevelopment assistance.
This process is an imperfect process, and there are upfront costs for BRAC. This budget adds $2.4 billion over the next five years to pay for those costs. But in the long term, there are significant savings, as we've seen from past BRAC decisions. This budget also continues the department's efforts to better align acquisition programs with the president's strategic guidance and to eliminate or restructure those programs that are performing poorly.
Over the last four years, the department has canceled or curtailed more than 30 major acquisition programs, rebalancing our portfolio towards platforms better suited to 21st century security challenges, and making new investments in areas like cyber and advanced intelligence, surveillance and reconnaissance capabilities.
In this budget, the department has continued to shift priorities within modernization portfolios, shifting to achieve an $8.2 billion in savings from weapons programs, terminations, and restructuring over the next five years. As one example, by revising the acquisition strategy by the Army's Ground Combat Vehicle program, the department will save over $2 billion in development costs. This budget also increases DOD's investments in its cyber workforce, continues to implement our rebalance to Asia, and makes new investments in the flexible platforms needed for the future. Another area of significant spending growth has been pay and benefits for our military personnel. The current fiscal environment has demanded that we take another look at these costs, which would represent $170.2 billion, or roughly one-third of the fiscal year 2014 budget request. In this budget, the department is submitting a new package of military compensation proposals, including a modest slowing of the growth of military pay by implementing a 1 percent pay raise for servicemembers in 2014.
The department is also seeking additional changes to the TRICARE program and the FY 2014 budget to bring the beneficiaries' cost share closer to the levels envisioned when the program was first implemented. Particularly, this goes for working-age retirees. These changes, which have the strong support of the Joint Chiefs of Staff, save about $1.4 billion in FY 2014 and a total of $12.8 billion over the next five years.
I am committed, as well as all of the leadership at the Pentagon, to working in partnership with Congress and all stakeholders to implement needed reforms, because current fiscal realities demand that we make tough decisions that have been deferred in the past. The longer we put this off, the harder it's going to be, particularly given the uncertainty that still exists about future levels of defense spending.
Let me now address that uncertainty. As we all know, the department is in the process of implementing steep budget cuts for the current fiscal year as a result of sequester, reductions of up to $41 billion, $41 billion that will lead to the suspension of important activities, curtailed training, and could result in furloughs of civilian personnel. If these cuts persist, the defense budget would be reduced by another $500 billion over the next decade.
The President's Budget request offers a comprehensive deficit reduction plan that would permit Congress to eliminate sequestration. That plan averts what would otherwise be another significant reduction in the defense budget, some $52 billion in fiscal year 2014 alone and $500 billion over a decade. Instead, it calls for $150 billion in additional defense savings over 10 years.
Unlike sequester, these cuts are back-loaded, occurring mainly in the years beyond FY 2018. While no agency welcomes further budget cuts, the president's deficit reduction proposal requested in this budget gives the department time -- and that's important -- time, to achieve these longer-term savings, without disproportionate harm to modernization and readiness, the budget categories what will provide the most immediate savings, but also encompass most of our military capabilities.
We need to plan wisely for a long-term future of budget constraints, with thorough, clearheaded analysis that is anchored in the president's defense strategic guidance. That is why I directed the strategic choices and management review. This review will examine the choices that underlie our defense strategy, posture, and investments, identify the opportunities to more efficiently and effectively structure the department, and develop options to deal with the wide range of future budgetary circumstances, and that review is underway.
The purpose of the review is to ensure that the department is prepared to defend the nation and America's strategic interests. No matter the outcome of this budget debate, going forward, every decision must be carefully weighed against our national interests and it must be worthy of the service, sacrifice and loyalty of our men and women in uniform and their families.
These decisions must also be made with the partnership of Congress, and I look forward to having this important discussion about our national security priorities and interests in the days and the weeks ahead.
With that, I'll turn to General Dempsey, chairman of the Joint Chiefs, and then we'll ask our comptroller, Bob Hale, and General Ramsay from the Joint Chiefs to respond to specific questions, but General Dempsey and I will take a few questions when he's complete before we ask Comptroller Hale and General Ramsay. Thank you.
GENERAL MARTIN E. DEMPSEY: Thank you, Mr. Secretary.
We built this budget to prepare the joint force for an uncertain future. It aims to restore the versatility of a more affordable military for a more sustainable defense strategy. But let's be clear about what it does not do. The FY '14 defense budget does not reflect the full sequestration amount. However, as the secretary of defense said, it does impose less reduction and gives us more time.
Nevertheless, uncertainty persists about what the top line will be for this and any future budget, nor does it include funds to restore lost readiness. We don't know yet the full impact or the cost of recovery from the readiness shortfalls that we're experiencing this fiscal year.
As expected, we've already curtailed or canceled training for many units across the services, specifically those not preparing to deploy. And it's more expensive to get ready than it is to stay ready. Recovery costs will compete with costs to build the future joint force.
So what does this budget do? It invests in our priorities. It keeps the force in balance. It supports our forward-deployed operations. It upholds funding for emerging capabilities, such as cyber. It funds those conventional and those nuclear capabilities that have proven so essential to our defense. It also lowers manpower costs, reduces excess infrastructure, and makes health care more sustainable.
Most importantly, it protects investment in what I've often described as our real decisive advantage, and that is our people. It treats being the best-led, the best-trained, and the best-equipped military as the non-negotiable imperative.
As you know, I just returned from Germany and Afghanistan. I had the honor of recognizing one of our nation's most humble and effective military servants, General Carter Ham, and of re-enlisting later in the week 10 of our nation's sons and daughters at Bagram Airfield. I also spoke with senior leaders and our troops in the field. Budget uncertainty weighs on their minds.
For those on the frontlines, they trust that we'll get them what they need, and we will. They are less confident than when they return home to a force that trains hard and stays ready and they want to make sure they're part of that training hard and staying ready.
We have an opposition and an obligation with this and any future budget to restore their confidence. The force is looking to us to lead through this period of transition. We can't do it alone. As I've said before, we need a predictable funding stream and full flexibility to keep the force in balance. This is the message that I will take to Congress tomorrow.
SEC. HAGEL: General Dempsey, thank you.
Q: Mr. Secretary, part of the backdrop to the budget challenges that you've just outlined is a real-world crisis that seems to be developing on the Korean peninsula. What would be the consequences of a North Korean ballistic missile launch, which now is widely expected? Are they flirting with war?
And if I may ask a related question to General Dempsey, how close do you think -- how close does the U.S. think North Korea is to being able to mate a nuclear warhead to a ballistic missile that could reach Japan or further?
SEC. HAGEL: Well, I'll begin and then ask General Dempsey to finish your line of questions, Bob. First, this country, the United States of America, our allies, United Nations, has been very clear that North Korea has been, with its bellicose rhetoric, with its actions, have been skating very close to a dangerous line. Their actions and their words have not helped defuse a combustible situation.
And it is, I believe, the -- certainly the intent and hope of all of our allies, certainly this country, that that rhetoric be ratcheted down, those actions be neutralized, and that's in the interest of all countries.
Now, in the event that that does not occur, as we have said many times, our country is fully prepared to deal with any contingency, any action that North Korea may take or any provocation that they may instigate. And we have contingencies prepared to do that.
With that said, let me ask General Dempsey for his remarks. And that will get us into your second question.
GEN. DEMPSEY: Well, the proximity of the North Koreans to achieving a miniaturization of a nuclear device on a ballistic missile is really a matter of -- is a classified matter. But they have conducted two nuclear tests. They have conducted several successful ballistic missile launches. And in the absence of concrete evidence to the contrary, we have to assume the worst case, and that's -- that's why we're postured as we are today.
SEC. HAGEL: Okay.
Q: Mr. Secretary?
SEC. HAGEL: Yeah.
Q: Mr. Secretary, moving on past this budget, last week at NDU in your speech, you made specific reference to Goldwater- Nichols, and you said that that reform was done at a time when cost was really not an issue in the United States of America. Is it time, moving past this budget, for the department and the Congress to re-examine Goldwater-Nichols?
SEC. HAGEL: The concept of Goldwater-Nichols was jointness, as you know, which you all are familiar with what it produced. And I will allow the chairman of the Joint Chiefs to respond to this more fully. But I think what came out of Goldwater-Nichols was a modernization of our force structure and a reality of the integration of the force structure that was needed at the time and I think brought a preparation and a capability to our armed forces to deal with the realities of what was coming at the back end of the 20th century and how we integrated our forces and our commands.
What I was referring to was -- you have noted, I think -- that environment at that time, where budget issues were not a primary factor, in much of that debate -- now, I wasn't in the Congress at the time. I was an interested citizen. And I read and was aware of what was going on. After 12 years in the Senate, I'm far more familiar with it than I was as a civilian in 1986.
But it -- but the context of when and what they did at that time is different in one sense, on -- on budget -- on the budget environment, but it's not different, as I think I tried to note in the speech, in that these are defining times. We're living at a defining time in the world order, world events.
In the '80s, it was a defining time for a different -- a different reason, but it was an important time. And the leadership of our country at that time -- and interestingly enough, too, bipartisan leadership -- came together to make that happen. So I don't know if I've confused you further or clarified anything, but that was -- that was my intent, not to challenge the fundamental context and foundation of Goldwater-Nichols, but -- but to show the difference of where our priorities were in factoring in what the environment was at the time.
The budget is surely a big environment this time, much more so than last time. Marty, you may have...
GEN. DEMPSEY: Yeah, the only thing I'd add is, Goldwater-Nichols drove reluctant services to work together as a joint team. The last 10 years of war have made it crystal clear that we will only fight as a joint team. So there's no necessity of driving us together. The services understand that their future is in the joint community.
Q: (OFF-MIKE) budget question. This budget is predicated on the hope that this balanced deficit reduction plan will be accepted by Congress, and instead of getting hit with $500 billion, you'll be reduced by $150 billion over the next 10 years.
Realistically, you both know the landscape. This has not worked out in the last year. What is the chances of this package passing? And if it doesn't, when do you execute Plan B and come up with a sequestration budget earlier than, you know, next January and scare the hell out of the industrial base?
SEC. HAGEL: Well, I'll give you an answer, and then General Dempsey may want to respond. A couple of observations to your question. First, that's why I directed the deputy secretary of defense, Ash Carter, working along with the chairman of the Joint Chiefs, to undertake a strategic choice and budget and management review to address the reality of what we are living with -- living with now, and that is the reality that you noted, sequestration is law. But interestingly enough, both the House and Senate budget resolutions, as well as the President's Budget, are about the same, as it relates to the amount of money for the Defense Department.
Now, I don't think anybody is minimizing the reality of sequestration as law. And I've noted, and as Marty has, we all are preparing for that reality. We're taking significant cuts this fiscal year.
But at the same time, we have -- as a representative government -- an opportunity to get beyond that and hopefully find a budget resolution, both from the Congress and the president, that will allow us not only some new flexibilities, but some new numbers. And when also you look at -- this is a $600 billion enterprise, the Department of Defense. You can't shift budget dynamics and planning in a month or two. These are long-term dynamics.
So we have to plan for budgets, of course -- that's why any entity has a budget -- not unmindful of sequestration and what's coming down the road if nothing is done, if a compromise can't be made on a new budget act. We are planning for every eventuality. Again, that's why I directed that strategic review, because it may not happen. But this is uncertain. I think that's the -- I will end my comments and go to Marty.
We are living in a world of complete uncertainty. Also, the flexibility that we need to manage, any institution needs to manage is not there in the same way that we need it to be there and hopefully will be there. And the other part of that is time.
This is why the President's Budget numbers are particularly important, because of the $150 billion that -- in his budget over the next 10 years, most of that is at the back end that gives this institution the time to manage and respond and adjust to staying -- fulfilling -- and fulfilling the strategic interests and guidance not only of what the president has given this institution a couple of years ago, but also our national security interests, our readiness interests, to protect the security of this nation. And that's what we've got to look at, all those options, and we are.
Q: That's going to be attacked as a budget gimmick, though, the back-loading the -- $150 billion, after you and he and most of the people in this room are gone, not covering defense, I mean.
SEC. HAGEL: Well, I'm not going to get into -- I'm not going to get into debating whether it should come at the front end or the back end or any of that. It is what it is. And that's what we've got to manage and plan for, and then to your bigger point, prepare for whatever eventuality that's coming.
GEN. DEMPSEY: Yeah, I don't think it's a gimmick, Tony. I mean, you've heard me say for some time that we need certainty, time and flexibility, time. So -- but to your point, the -- using the president's defense strategy from a year ago as the foundation, we're running several excursions, alternative futures, one of which is full sequestration, because I want to be able to tell the secretary, this is what that force looks like, this is what it can do, this is what it can't do. So, I mean, I think we're doing due diligence here.
Q: Mr. Secretary?
Q: Mr. Secretary, you've been in Congress when this Pentagon has tried to change or slow down the cost of health care. What's different this time that perhaps you are more optimistic that Congress will make the kind of changes that you worry about, the budget eating the Pentagon (inaudible)
SEC. HAGEL: I don't know if you have in your pocket my voting record on any of this, but there's a big difference. When I was in Congress, I left Congress in January of 2009. That was, as you know, right at the front end of the global financial crisis. And all of this was coming.
So the last four years that I've been out of Congress, I haven't had to deal with that as a member of the United States Senate. But it goes back to your question. When I was in the Senate for those 12 years, we didn't have the kind of pressures at all. They weren't even close to what we're dealing with now. That's the big difference.
The fiscal realities that are forcing down now some tough choices and some big decisions are going to have to be made. I mean, we don't have any choice here, because -- because if we don't start getting a hold of this and moving this back towards some high ground, with making some tough choices, the Congress is going to have to be a partner here. I mean, we can help manage it and we can help propose, we can be part of this, but the Congress is a hugely critical component of all that -- of all that we need to do, but that's the big -- the big difference.
Marty, you may want to...
GEN. DEMPSEY: I completely agree, Mr. Secretary. We've got -- to absorb cuts of this magnitude, we've got to -- we've got to take them across the entire enterprise.
Q: One more?
SEC. HAGEL: And that's -- I might just add, that's what I instructed in my direction on the strategic choices and -- and management review, is to look at everything. Everything's on the table, has to be on the table.
Q: (OFF-MIKE) completed? When do you expect the results of that review?
SEC. HAGEL: The review is ongoing. And I have been getting reports, progress reports along the way. We're looking at trying to have this completed by the end of next -- the next -- next month.
Q: Thank you, sir. Can we go back to North Korea for a moment? What is your -- both of you gentlemen, please -- your bottom- line view on what you think Kim Jong Un is up to right now? Is he looking for war? Is he looking to just buy his way back to the negotiating table? And, sir, you said that he is walking close to a line. Should the American people, as we sit here today, be worried that we're headed towards war with North Korea?
SEC. HAGEL: Well, first, he doesn't check with me on his decisions or how he's feeling each day, the leader. I don't know if he does with the chairman. But he -- I mean, the...
SEC. HAGEL: The reality is that he is unpredictable. That country is unpredictable. If that is the reality that we're dealing with -- and it is -- you prepare for every contingency. As to -- and we are, which I think has been made very clear. Admiral Locklear was on Capitol Hill yesterday and I think went pretty deep into that.
SEC. HAGEL: As to, should the American people be concerned about their safety and security? We have every capacity to deal with any action that North Korea would take to protect this country and the interests of this country and our allies.
Q: Well, can I just follow up? You keep saying we have the capacity to take an action if they do something. This suggests that the U.S. military strategy is to respond once North Korea would take a first step. What if you see something? Do you respond before they take this step?
SEC. HAGEL: Well, I'm going to hand this off in a moment to General Dempsey, but I don't discuss -- I don't think General Dempsey discusses -- operations and the specifics of what our contingency plans are. General?
GEN. DEMPSEY: Well, I mean, look, the military's job is to do three things equally well, deter -- deter enemy actions, assure our allies, and prevent. And we have options in every one of those bins to offer to our senior leaders, and this is no exception.
As far as knowing what the Kim Jong Un is about, you know, we're having a press conference today about the Defense Department absorbing hundreds of billions of dollars in reductions for the good of the American people so that the United States of America can get back on a more solid economic foundation.
And what is Kim Jong Un doing? He's starving his people with a military first policy. It's pretty hard for us to figure that out.
Q: General Dempsey...
SEC. HAGEL: Thank you. Thank you. Thanks.