Thursday, December 1, 1994
[Note: Dr. Deutch is accompanied by Mr. John J. Hamre, Comptroller and Chief Financial Officer of the Department of Defense]
Dr. Deutch: I just want to say that I'm here with John Hamre, the Comptroller; and with Bill Lynn, the head of PA&E. I may ask them to help me with some of the questions.
Q: Could you describe anymore the selected force structure increases in frigates, Patriots, and AWACS? Are you talking people, equipment?
Deutch: Different in different cases, but I would call them illustrative. I think the slide, I hope, says "illustrative" on top.
In the case of AWACS, of course we can't get any more airplanes. We're talking here crews and crew training and simulation.
Q: So that's a slowdown in drawdown of people, or are you going to just...
Deutch: We would allocate additional people specifically for AWACS training. In the case of the frigates, it was just an extension of the ships which are currently programmed out to the end of the year, out to the end of the century. In the case of the Patriots it would also be a special end strength allocation to the Patriot batteries because they've had such high OpTempo. We aren't quite sure with the Army yet whether that would end up being a small increase in end strength, whether they would want to absorb it. I suspect they will want to absorb it.
Q: Do you have any other illustrative examples?
Deutch: Not that I want to talk about, because we really haven't yet reviewed them all from the services. They are really intended to be illustrative.
Q: When you say extension of ships out to the end of the century, are you talking about...
Deutch: The frigates, as I recall, John, were expected to go out in '98 or '97...
Hamre: Phased starting out in FY97, to be phased out by '99.
Deutch: We would keep them all throughout the six year planning period.
Q: You're going to build three more, or...
Deutch: No, no.
Hamre: We're keeping the ones the ones that are around, the FFG-7s.
Q: Oh, I see. Could you give us a breakdown, please, of the $25 billion, where you think it's going to go?
Deutch: I have a little bit of a problem in doing that because the readiness enhancements that we are going to do will exceed the amount that nominally is in that package. Once we have come to an agreement on the top line additions, the enhancements we plan to do will take place not only from that, but from other changes we've made in our program. What we will be able to do is tell you how much the total size of the readiness enhancement will be, but it won't be directly related to that $25 billion because it's paying for several things, and we're paying for the rest of the costs, or the rest of the program changes we've made within our overall program.
Q: You really lost me. Are you going to spend most of your money on putting more guys flying around in aircraft, or are you going to put more housing on the ground? Can you give us...
Deutch: In the case of quality of life, I think Bill Perry has already said that for all of those categories that are on chart number two or three would be about $450 million a year. That we can be very precise on.
Cost of the military pay increases in FY96 and throughout the period, we can also be quite consistent about. That would be $1.5 billion in '96, and the pay raise increase over the rest of the six year period will be... And here I think I don't have the right chart. $12.5 is what I'm going to say, but I may have to come back to you and give you a more precise...
Deutch: For the pay increases for the military for FY96, 97, 98, and 99. All of it, the whole thing with all it entails.
Q: Including the $1.5?
Deutch: Yes. I'm going to have to come back and confirm the exact number for '96 to '01. The FY96 number is correct, it's $1.5.
Q: A question on the $2 billion sup. Is that on top of...
Deutch: Two-plus billion. It's on top of the 25.
Q: So, $27 billion?
Deutch: $27 to $28 billion.
Q: If you can't give a dollar figure, what's the proportion that you expect to go to modernization?
Deutch: In the out years we have one percent real growth, and I believe that in the out years we are roughly speaking of this, the modernization increase that is allowed in here I think is roughly about $15 billion. Is that the right way to say it?
Hamre: The five year plan that we had up in FY95 had 20 percent real growth in the out years that came from the savings we were getting from infrastructure reductions. There's going to be considerable growth beyond the one percent increase that's in the top line.
Deutch: I was going to get to that.
Hamre: We're still working that because we're still working the out years in our five year plan. We're only about halfway through the fine tuning on the budget preparation. But the one percent the Secretary referred to increases the entire top line by one percent. Not just the investment account, not just procurement.
Deutch: Clearly, we have to, at the end of the century, pay attention to recapitalization and modernization. There are two sources of funding for that. One is the increases that have been provided for at that time when it's needed by the President; and secondly, hoped-for and worked for efficiencies in the way we acquire systems, also part of the President's initiative. I want to be sure that we manage matters efficiently.
Q: What dictated the timing of the announcement today? Why now?
Deutch: The timing of the announcement today was that it's important for us, before we submit the budget which formally goes to the Hill in January, it takes a lot of time to get it all put together. We made the case, the President wanted to have increases in readiness, he wanted to have the pay increase and quality of life, that we needed to get all of that decided before we could put that budget together, and program the money for the six year period for the services. Much later than today we wouldn't have had the time to really run the machines to do the programming for all the different services and all the different accounts over the six year period. So this was an important timing issue in order to be ready for the FY96 budget.
Q: So it's totally related to criticisms from some in the House on the Republican side that...
Deutch: We have been talking about this matter, of the need to do something about military pay and inflation -- not in this room, but in the room upstairs -- since July of 1993 when the Bottom-Up Review was discussed. We've been talking about those shortfalls. We've been talking about the need to fully fund the program with the President. For months Bill Perry has been talking about the need for readiness increases and quality of life for months. I personally met with the President on this in July. So this is the program that we've been talking about, the emphasis on readiness and the program the President has endorsed for a long period of time. This is not a new thing.
Q: The question goes more to the way you unveiled it. If this is just going to be part of the budget, then why don't you treat it as part of the budget. You don't tell us about the new budget until the new budget goes up to the Hill. Instead we had a big ceremony in the Rose Garden with the Joint Chiefs, etc., etc. You're saying that that whole presentation is totally unrelated to the criticism that you've been getting?
Deutch: I think the important point here is that it's not only a FY96 fix. This is not a one-year fix in the budget. This is a program over the six year period that fully funds the Bottom-Up Review, as well as readiness shortfall.
Q: I'm talking about your presentation of it. The dog and pony show.
Deutch: Was I the dog or was I the pony? [Laughter]
Q: No, you're the pointy headed bureaucrat. No, seriously.
Are you saying that the presentation of it is totally unrelated to...
Deutch: I'm just delighted with the presentation. I think it's important for the President to get out there and say he's supporting defense and that he's adding support for the military people in this country. I just don't see why that's not a good thing to do, especially when he's given such consistent support on these points. Its important that that story is out there.
Q: Tell me what's wrong with this perception of events. The Pentagon is facing a shortfall in the budget to do all the things they'd like to do. You issue a memo, a hit list for some modernization programs. The Pentagon appears poised to announce some major cuts in those programs as soon as the election is over in November. But, surprise, the Republicans take control. They start hitting you on defense spending. You pull back on that announcement. Now, about a month later we suddenly have a completely different announcement of much more spending for defense.
Deutch: Let me say something to you. The program that this department has been advocating and the President has endorsed -- all the way back to July of 1993 when we presented to him the Bottom-Up Review... The program that was presented to him -- end strength, drawdown, quality of the force, mixture of the modernization programs, all of that is unchanged. We are talking here about the funding of that force, the recognition that we put aside the year before on the pay raise on quality of life. This program has not been adjusted because of elections. It is the same program that was provided for before. We think it is a hell of a good news story from the point of view of the defense of the United States. The President wanted to be sure that people understood that he wanted to be associated with it, that he instructed it, that he insisted upon. So we think it's a fully good news story.
Q: Can we go over the math of the original gap of $40 billion? That was over the next four years?
Deutch: Five years. We're now talking about a six year period.
Q: So, about $9 billion of this...
Deutch: Plus the [inaudible] which changed. You're now looking at a six year period. We're not talking '96 to '01.
Q: What had been the gap that you were projecting for that...
Deutch: On the six year basis, I try every time I use the word $40 to say "about $40" on the six year basis.
Of that, when you do it on a six year basis, that gap, we would describe it as a $49 billion gap over the six year period. The same as the $40 billion over the five year period to the precision of trying to communicate on this.
Now, we believe we have accounted for that. $25 billion of that comes from the presidential initiative that we've announced today. The modernization reductions that we hope we make these decisions, we will announce to you very shortly, we'll have another chunk of it.
Q: Can you put a dollar figure on that?
Deutch: I can't do it now, but I would say, roughly, if such a word can be remembered, roughly $10 to $12 billion. We had very favorable new economic assumptions for the whole government by the Congressional Budget Office about reduced inflation which reduced the requirements that were previously expected for inflation and for pay increases. Those three numbers make up that shortfall.
So, in our view, the important point from the continuing management of the Department of Defense is that that shortfall has been funded. There are no wedges in the program that we now have.
Q: You have been trying earlier to save through modernization about twice that, about $20 billion...
Deutch: The point was, we made it very clear, the modernization savings, the reductions and delays were going to have to pay for the higher priority things the President wanted to do. The pay increases, readiness, and quality of life. Because we have the $25 billion additional to the top line, the requirements for the modernization reductions are sharply reduced. Moreover, there's another good story on modernization, and that is specifically in the out years, allowances have been made for one percent real growth so that we have money available when it's needed to recapitalize the planes and the ships in the future. So, from the point of view of modernization, this is a very good news story.
Q: You said you had the modernization increase was going to be about $15 billion?
Deutch: The two out-year numbers I believe were roughly... But remember, that is only part of what we need to do the modernization/recapitalization. We are counting on, although we haven't yet realized it, significant savings from acquisition reform; and we're going to have to do more to do the whole modernization and recapitalization in the next century, but this is an excellent first step. That's where the good news is. It's not a complete story on recapitalization and modernization.
Q: From this $25 billion you're looking at roughly... how much is modernization again? I just want to make sure I've got that number.
Deutch: The bottom line relief that we have doesn't come with restrictions on how you spend it. But it allows for a significant, I said $15 billion roughly in the out-years, to begin that recapitalization and modernization.
Q: That $15 can't come totally out of the $25 because that doesn't add up, right?
Deutch: It does add up, actually.
Q: You said the $12 from the pay, and then $15...
Deutch: Because not all of the pay is being paid for out of the $25 billion. We have stuff in our base budget.
Q: Was this proposal taken to the new majority leaders, the Republican leadership, cleared with them, or done in collaboration with them? And the question about the future, have they talked to you yet about what they want to do in increasing the defense budget in future years?
Deutch: This program is the same program we've been talking about for a year and a half. We really are talking about funding that program. There were no specific consultations on it with members of Congress on either side of the aisle. There was this morning a breakfast which Bill Perry hosted for the leadership, both sides of the aisle, of our Defense Appropriations and Authorization Committees when he mentioned that this presidential initiative was under consideration.
Q: You were talking about this one percent real growth in out-year budgets for modernization as being very good news. That compares to what might have been?
Deutch: A flat budget.
Q: Flat, or even...
Deutch: No, I think a flat budget. Near term programs which are lower... Not every modernization program is an absolute priority, and not every modernization program deserves to be supported. That has to be looked at all the time and we try to use that judgment. But the fact that we have a modernization and recapitalization need at the end of the century is absolutely clear.
Q: Are you going to reconsider buying more B-2s?
Deutch: That is not a part of this program. We have made it very clear we ordered 20 B-2s. We are undertaking a very careful, and I think it will be an interesting study on B-2s as required by the FY95 Authorization and Appropriation Act, but we do not have any plans to increase the number of B-2s.
Q: But you're not ruling out down the road buying more
Deutch: I'm not ruling it out down the road. I'm saying that we have a study underway which we will look at as Congress directed us to do.
Press: Thank you.