UNDER SECRETARY OF DEFENSE ROBERT F. HALE: Ready to go? All right. So I think you know who I am. I'll say good afternoon. That's probably the high point of this discussion.
So I'm going to start with a few words, then I'll turn to your questions. Let me start by saying the administration firmly believes that a shutdown due to a lapse of appropriation should not occur.
The administration is working with Congress to try to prevent a lapse. Unfortunately, we may not know the outcome of those efforts until next Monday, conceivably even Monday night.
So we have to be prudent and plan for a lapse of appropriations. So what is involved in this planning? As I answer this question and everything I say today, let me say I'm going to focus on the Department of Defense, solely on DOD., but other federal agencies are definitely affected. I just don't -- I know less about them, so I'll focus on DOD.
First it's important to recognize that if DOD's appropriations lapse, we can only conduct limited activity specifically authorized by law. The lapse could lead to civilian furloughs, it will, in fact.
But these furloughs are very different than the sequester furloughs that occurred this summer. The sequester furloughs sought to reduce costs. And we had the authority to design them to reduce costs and to reflect policies like minimizing effects on readiness.
In the case of a lapse of appropriations, law governs, not policy. Specifically the law says that in the event of a lapse of appropriations, DOD can only conduct activities designed to protect safety of life and property and carry out a few other activities.
Administration lawyers interpret this to mean that DOD can support specific military operations that the secretary of defense has approved: Afghanistan, for example, and a number of others.
We can also maintain emergency services, police, fire, emergency medical. We label the activities that can continue as excepted activities, and you will hear me use that word repeatedly in the next couple of minutes.
So what would happen under a lapse of appropriations? First, government employees would be significantly affected. In the event of a lapse, all of our military personnel would be directed to remain on a normal duty status. Their military status means they can't be placed in a non-pay status, so we would direct them to continue in normal-duty status. Civilian workers who support these excepted activities, again Afghanistan emergency activities, they -- they would be directed to continue to work.
But all other civilian workers who do not primarily support excepted activities would be placed in a non-duty, non-pay status on an emergency no-notice basis at the time the lapse occurs. Based on planning in 2011, we would expect roughly half of our civilian personnel would go into this status, essentially a non-pay furlough status.
Pay of government employees could also be seriously affected, especially if the lapse continues for a period of time. During a lapse, DOD cannot pay military personnel and civilian personnel, even if they have been directed to work. Military and those civilians directed to work would be paid retroactively once the lapse of appropriation ends. Civilians on emergency furloughs, and those for the -- primarily doing non-excepted activities would be paid retroactively only if a law is enacted providing the authority to pay them.
Training and travel of military and civilian employees would be disrupted. Unless connected with excepted activities, training and travel would have to be stopped. It would either be stopped before it started, or if it's going on at the time the lapse occurs, then folks associated with -- on TDY associated with non-accepted travel would have to pack up and come home, although they could do that in an orderly fashion.
We would also be required to do some other bad things to our people. Just some examples, we couldn't immediately pay death gratuities to those who die on active duty during the lapse, we would have to close stateside commissaries, promotion boards and other similar important personnel activities would be disrupted, probably would have to be stopped, and a number of other actions.
DOD vendors would also be affected, especially if the lapse continues for a substantial period of time. Vendors working on contracts with funds obligated prior to the lapse in fiscal '13 or earlier funds could continue to work, assuming government personnel are available to provide any needed supervision. And, they could be paid for that work, but during the period of the lapse, we can't sign new contracts or extend old ones unless they're directly in support of excepted activities.
So if I haven't already confused you, let me try to sum up by saying how all these confusing actions affect the DOD mission. We can and will continue to support key military operations. We're allowed to do that by law, but the law would force us to disrupt many of our support activities. We wouldn't be able to do most training, we couldn't enter into most new contracts, routine maintenance would have to stop, we couldn't continue efforts to improve contracting and financial management, including our auto improvement efforts, for example. Even worse, a lapse of appropriations causes civilian furloughs and is one more blow to the morale of our civilian workforce, and that morale is already low and I think would get lower. And that adversely affects productivity and costs the taxpayers money.
Even if a lapse never occurs, the planning itself is disruptive. People are worrying right now about whether their paychecks are going to be delayed, rather than focusing fully on their mission. And while I can't quantify the time being spent to plan, it has or will consume a lot of senior management attention, probably thousands of hours in employee time better spent on supporting national security. For all these reasons, I very much hope that Congress acts to avert a lapse of appropriations, and though it will probably sound contradictory, I hope you will understand when I say that I hope we are all wasting our time planning for this lapse.
With that, I'll stop and I'll be glad to try to answer your questions. I'm going to get George, here.
Q: (inaudible), can you, since everyone lived through the furloughs recently, can you explain a little bit in detail the difference between the civilians who were furloughed under that, and the fact that there are fewer numbers being furloughed now?
If you could maybe give -- maybe an example, it would help so that people would understand what -- how that difference is, and I just have a second, one other, second question. I know contractors is a really hard thing to get your arms around, but is there any way to talk about the number of contractors as in people that could be affected by this?
UNDER SEC. HALE: Well, first on the furloughs. The ones we did in the summer were called administrative furloughs. It's a long notification process, if you remember, that we need to go through. They were designed to save money.
And, therefore, as I mentioned, we can -- we have the authority to design them based on criteria like readiness and cost-savings. These are specified by law. Anybody who is not -- any civilian not primarily working on an excepted activity has to be placed on furloughs.
Can I think of good examples for you? Well, here's one. Most of our working capital fund employees are going to not be furloughed immediately because the working capital funds have a cash balance that's based on funds obligated before the lapse, if you're following me. And so we have the funds and they don't have to be furloughed right away.
Now that would have to be gradually some of them if we run out of cash. Whereas most of our working capital fund employees were furloughed in the summer because we wanted to reduce costs.
As far as the contractors, just briefly, all of the ones working on contracts, as I said, that were obligated with money before the lapse would be able to continue if supervision was available.
I think in the early stages of a lapse, that would be the majority of our contractors because most are going to be working on contracts just almost by definition that were funded before. If the lapse continued, that number would fall. But I don't have specific numbers.
Q: I'm sorry, clarify on the difference between the contractors. If I'm not mistaken, there are about 650,000 that were affected over the summer. Now it's about 400,000. So a difference of a couple hundred thousand seems to be a lot. Am I...
UNDER SEC. HALE: Again, it's -- yes, the numbers are roughly right. I mean, I don't know exactly how many. Probably around half. So it will be close to that.
I mean, again, working capital funds alone are probably 100,000, 150,000 people that we'll keep this time and there are many others. And they're just totally different animals just because one is driven by law, one was driven by policy to save money. One is driven by law -- a specific law about excepted and non-excepted activities.
Q: But they weren't contractors, correct? I mean, these are government...
UNDER SEC. HALE: No. I'm talking government employees now. Contractors, most of them are probably going to be able to continue working if supervision is available because I think most of them would -- although I don't have numbers, most of them are going to be funded by contracts already that were funded with fiscal '13 or earlier money.
Q: For (OFF-MIKE) are looking towards that October 15th paycheck, can you give them a sense of how long this government shutdown might be able to go before their paycheck was definitely delayed? I mean, if Congress reached an agreement on the 4th, would these...
UNDER SEC. HALE: Yes, I think so. I think the earliest we'd start having trouble would be October 7th. And that's not a hard date. We'll push it as far as we can. But at some point we have to run the payroll.
Frankly, I'm in triage mode right now. I'm trying to help coordinate getting the department ready to shut down if we have to. And so I haven't focused on the problems that will occur if a lapse -- like that one, if the lapse occurs. I'll have to work with the Defense Financing and Accounting Service. We'll put it off as long as we can.
Clearly if the lapse extends to October 15th, there won't be a question. There may be some time prior to that when we'd be faced with either having to take a chance and go ahead and run the payroll and be ready, or delay it. But we have got a while.
Q: Can you talk about what happens to ships at sea, particularly those in the Mediterranean, and whether operations -- kinetic operations could be launched, such as by Special Operations Forces or even a hypothetical strike in Syria?
UNDER SEC. HALE: I mean, it would depend on whether it was a military operation. In the case you just mentioned, I think it surely would be and therefore it would be -- that is if we were -- hypothetically, the president were to authorize some action against Syria, it would be a military operation approved by the secretary and so it would be an excepted activity and, yes, we could go forward with it.
Q: And then ships at sea that are basically...
UNDER SEC. HALE: Well, again, the issue is, are they in direct support of excepted activities? I think many of them will be and therefore they will be excepted. And I might add the great majority of the people on there are military and they're going to remain at work. And so I don't think many of them will be disrupted.
But these are the sort of gray area decisions that our managers and commanders are making right now as they identify excepted and non- excepted. But I think most of the ships at sea would stay there.
If there were some that stayed strictly in training and weren't excepted, they would be able to stand down if they had to in an orderly fashion. And we'll have to make some judgment about what that means. Obviously you can't get the ship back immediately.
Q: Right. But obviously part of the mission at sea often involves planes going on training mission, it requires refueling, purchasing. Can those activities continue?
UNDER SEC. HALE: Again, and I don't want to sound like a stuck record. But it is going to depend on whether the judgment is that this is directly related to an excepted activity, which would be a military operation. I think in many cases, if they're in the Med, that's going to be true.
It would be harder if they're training off Newport -- or Norfolk, for example. That might not be true. Then the question is, are there civilians involved? Or can we go ahead and do it with the military? And I'm -- these are things that get delegated, and our commanders and managers are considering those issues right now.
Q: The memo talks about limiting movements from excepted areas. And I'm wondering if it could affect the draw-down from Afghanistan.
UNDER SEC. HALE: Well, Afghanistan is excepted. So let me think. I mean, the -- the PCS [Permanent Change of Station] is -- we can move to an excepted area, so the troops going over to Afghanistan would be OK. From an excepted area if the commander judges that there would be problems created if the move is not carried out.
So that's a judgment General Dunford and his staff will have to make. And I'm not sure where they are on that. Again, I'm sounding like a stuck record, but I don't have all these details. This is what we've passed out to our commanders, managers, and asked them to make these judgments.
UNDER SEC. HALE: Well, it's an excepted activity, so -- my lawyer here -- sounds like we should be able to go ahead with that.
Q: So just wondered if you could think back -- I don't know if you were comptroller in '95 and '96.
UNDER SEC. HALE: No.
Q: Probably not.
UNDER SEC. HALE: [inaudible]. I was the Air Force comptroller. (CROSSTALK)
Q: OK. So I know that in one of those shutdowns, Congress had passed an appropriation for DOD. And so -- but I can't remember which one. So just, could compare, you know, the two scenarios...
UNDER SEC. HALE: Yeah.
Q: ... and why this would be...
UNDER SEC. HALE: Well, we shut down in '95, if my memory serves me right, for about a week in DOD. It was longer in the non-defense agencies. So they passed, I guess it was a CR [Continuing Resolution] -- I can't remember -- or whether it was a full appropriations bill earlier for defense.
I mean, there was a lot of similarity. We went through all of these machinations that we are engaged in right now to decide what to do at that time, and then of course executed that plan.
One thing I distinctly remember is that it was a horrendous blow to the civilians. I mean, there was months after that that I was hearing from them. We used a phrase that we have stopped using because it was wrong, essential and non-offensial -- essential back then.
And it's just not right because it's not whether you're essential. It's whether the law says you're doing an excepted activity. There are lots of essential items to keep this military going that don't deal directly with excepted activities.
We've stopped that. Maybe it'll help, but not too much, I mean, especially coming on the heels of the summer furloughs. I am very concerned about the effect this is going to have on our civilian work force.
Q: Just one last -- one other related question is, the shut-down plans in 2011 versus what you're having to, you know, come up with now, are there, you know, differences in operations now that make those shut-down plans not a complete blueprint for what you're doing?
UNDER SEC. HALE: Not many differences. I mean, we made a few exceptions kind of based on recent events. For example, because of the potential flaws to our security system, we exempted the Navy Yard investigation. Obviously, in 2011, that wasn't an issue. But they were pretty minor. I'd say the vast majority of the guidance is the same.
Q: Just to confirm, like troop death benefits would be delayed? Can you provide a little more information about that?
UNDER SEC. HALE: If the -- if the death -- this is ghoulish, but it's the law, not policy. Remember that. If the death occurred after the lapse took place, then the money would be obligated after the lapse took place, and we would have no authority to pay based on that money until the lapse ended. So in that case, they could be delayed.
If the death occurred prior to the lapse, then I -- and assuming we had enough people to process the payment, then I think it wouldn't be delayed.
Q: If the government doesn't shut down, you're still gonna be stuck with a CR come next Tuesday. In the past, you've communicated to Congress provisions you'd like to see in the CR to -- so programs such as ship building wouldn't be hampered. Have you done anything like that? And what...
UNDER SEC. HALE: Yes, we always do through the Office of Management and Budget. I will say there are very few of them in the CR passed by the House and just passed by the Senate. But it's fairly short. This one I believe will go through November 15th.
So we can probably hold our breath for a while, but we would certainly appreciate it, and we would have liked more flexibility for new starts, for example, rate increases, and a variety of other activities that we won't be able to carry out under this CR. But yes, we did ask. We always ask.
Q: Also, if - if you do get funding, you will be facing sequestration again, right? How can you - have you thought about how that will affect?
UNDER SEC. HALE: Yes, potentially. I mean, this CR will be only through, if it - if it's passed as the Senate version, through November 15th, and if it were extended through the whole year in that form, yes, it would generate a sequestration in January, probably around 4 percent, so we could be facing it. Just in general, I think whereas a year ago we said, I think I may have stood at this podium and said we're not going to sequester ourselves, we really thought this would be resolved, I think this time we will start operating at a somewhat lower level than - than certainly than the President's request. The CR itself cuts the DOD budget, or would result in a cut of around $30 billion. The sequester would take out another $20 [billion] or so, so we will start at a level below the President's budget in order to conserve resources until we get a better sense of where we're actually headed.
Q: Just one quick clarification, so that October 1st, all paychecks will go out October 1st, right?
UNDER SEC. HALE: Correct. There's a payday today for the civilians that of course is not affected, and one on October 1st to the military, and it's not affected because it's all for time before any lapse would occur, and then the reserves are trickier because they are paid at various times, and we're already struggling with some of that, but I mean, I'm hoping we can minimize or avoid any disruptions there too.
Q: And then I (inaudible) clarification of, so one of the things that - that's listed as excepted, and I guess this is under the - this is under the law, (inaudible), but is activities necessary to continue recruiting? So are we talking like air shows, and that kind of ...
UNDER SEC. HALE: No, I mean, we'll be talking about probably recruiting offices, the military entrance examination centers, the things more directly related to it.
Q: And I mean I know this is a - this is a - putting a linear question on like - on a very three-dimensional problem here, but - but I - I mean, why is it that if there is money that would be available if something were to happen and - and there was a need to send a force to, we'll just say Syria since it's, you know, topic of the day, but to Syria, but there's not money that's available somewhere to pay people. Is there a good reason?
UNDER SEC. HALE: It's - it's the - yeah, it's the difference between obligations and our ability to disperse. The law says that in the lapse of appropriations, we can obligate money, which means we can enter into a contract and legally commit the government, we can obligate money for items related to safety of life, preservation of property, that's with all military operations, but we can't disperse anything, actually send a check until we get an appropriation, so we can go ahead with the operation, we'd be committing the government, but they're not going to get paid, or the - the personnel at least aren't going to get paid until we actually get an appropriation. Does that make sense?
Q: Yeah, absolutely. Thank you.
Q: Are there any specific upcoming multinational training exercises that would have to be canceled if there's a shutdown?
UNDER SEC. HALE: I don't know. My guess is, I don't know. As I say, you know, I assume nobody knows of it either. If we get into this, you know, we're going to have to go one level of indenture down. I mean, somebody knows, PACOM [U.S. Pacific Command] or EUCOM [U.S. European Command] they certainly would know, but I'm not aware of any.
Q: (inaudible) Roughly 400,000 DOD employees?
UNDER SEC. HALE: Based on - Tony, we don't have the numbers yet. We're still gathering them for this year, but it was around 50 percent of our civilians who were excepted two and a half years ago. I would expect it to be in that vicinity again. That would be around 400,000 maybe a little less. Our foreign national employees who are part of that 800,000 are excepted if they are paid by foreign governments, so we take them off the top, it would probably be a little less than 400,000 when we're done.
Q: They should be around 800,000 of which 400,000 potentially could be, and most of those are outside of the Washington, D.C. area, is that?
UNDER SEC. HALE: Eighty-six percent of our overall civilians are outside of Washington, so I think it's fair to say the majority of them will be.
Q: What is the thinking in terms of when RIF [Reduction in Force] notices or RIF packages would have to be pulled together, since you're not planning for furloughs in 2014?
UNDER SEC. HALE: Well, I mean, you will - we have planned some of them based on accommodating a $487 billion 10-year cut that we took in prior budgets, that - that over the next few months, I think some of those would be announced. The ones associated with these cuts takes awhile to formulate these, and - and so it will probably be a period of time and I'm not sure exactly when before we'll have those out. But you're going to see some reductions in force actions over coming months, and some involuntary separations in the military as we begin this drawdown.
Q: (OFF-MIKE) potentially it was like 6,200 a couple - back in early August you were thinking of -- you and the department, any rough number of potential RIFs?
UNDER SEC. HALE: No, I don't want to give you a number, because I don't think we're far enough along to be specific. And that number is headline stuff. So I'd prefer not to.
Q: How will Arlington burials be affected?
UNDER SEC. HALE: Yeah, we will exempt -- Arlington is actually paid to the Army. And I believe it will stay open, but I'd kind of like to check that.
We have decided -- based on mental health and other reasons -- to except funerals and dignified transfers. And so the people supporting those would be excepted and they will continue.
Q: And then just a follow up on the civilians expected to work but no guarantee of pay, is that unless something is passed in Congress?
UNDER SEC. HALE: It comes in two flavors. The ones who are associated with excepted activities, they will be directed to work. They will be paid retroactively -- as soon as we get an appropriation. And that will be automatic. The ones who are put on furlough, that would require an act of Congress in order to pay them retroactively.
Q: Are there any very significant differences between this guidance and the guidance from April 2011 or any of the ...
UNDER SEC. HALE: No, it's pretty modest -- I gave you the one example of the Navy Yard investigation, and there may be a couple others, but they are very modest. Unfortunately, we're getting good at this.
Q: In addition to having to worry about FY [fiscal year] '14, you have to develop an FY '15 budget concurrently. Can you update us on how that's going, and is all the time and attention you have to deal with for planning for a shutdown taking away from that?
UNDER SEC. HALE: I mean, absolutely. It's taking away from everything we do, at least anything of the people who are related to budget. Yes, it's slowing it down.
But we have to press forward, and it's a particularly demanding task this year, because we really feel we have to plan for a range of outcomes. We just don't know where we're gonna end up. A decision the president will ultimately make in December as to the size of the '15 budget and the plan beyond. So we're really planning for a pretty wide range of spending.
Q: Have the services given you everything they need for that?
UNDER SEC. HALE: They are in the process of doing that. They have submitted briefings on what we call our program objectives memoranda, and are submitting detail data right now.
Q: You had mentioned some ability to do -- to sign new contracts in the event of a government shutdown. The guidance mentions that it would be allowed when delaying contracting would endanger national security, but I wonder for some of your bigger weapons programs and vehicles and things how would you legally be able to decide what delays would endanger?
UNDER SEC. HALE: I mean, we can (inaudible) sign new contracts or extend old ones if they are in direct support of excepted activities. I think it would probably be a stretch for a major acquisition to qualify there, although it's extremely important -- that's another good difference between excepted and non-excepted and essential and non-essential. I mean, we need these weapons, but they’d probably be hard to relate them directly to a current military operation.
Now, the good news is, this coming at the beginning of the year, you don't tend to have a lot of those decisions facing you early on. So -- and those that you have, you could delay. I think if a lapse occurs, I definitely hope it doesn't, but the severity of the effects would grow quickly as it - if it turns out to be long. If it's short, it will be damaging, but less so. If it's long, it will be increasingly so, because it will catch more issues like that.
Q: Can you talk some more about the extent to which you would expect military personnel to be performing the duties of furloughed civilians as opposed to their normal day jobs? And I guess the same question for any contractors who might be able to stick around because they're paid the prior years.
Well, on the military side, I mean, they would have their normal jobs and they would continue that. I think there could be circumstances, for example, if there was an important contract funded with money before the lapse, and supervision was needed and the civilian was furloughed that, maybe the person had the capability to do that, I could see them doing that. But I think for the most part they will be doing their same jobs.
Same with the contractors, in general, they're going to be doing the jobs they were assigned. They can't -- the contractors would never be allowed -- furlough -- shutdown or not, to do inherently governmental work. There could be some circumstances, an admin assistant who was a contractor answering phones because a -- a person – a civilian was furloughed. It could be some of that, but for the most part, they're gonna go ahead and do the jobs they were assigned to.
(UNKNOWN): Thank you very much. Mr. Hale, thanks.
UNDER SEC. HALE: OK.