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Remarks Previewing the FY 2017 Defense Budget

Thanks, David.  Appreciate it.  And good morning, everyone.  Appreciate you being here.  It's a pleasure for me to be -- what I understand, David, to be the first secretary of defense to address the Economic Club of Washington.

And one of the core tasks for me, and one of my core goals in this job has been to build and to rebuild bridges between our wonderful department, and the wonderful, innovative, strong American technology and industry community.

So, I appreciate you returning the favor by giving me the opportunity to be here as, what is, of course, the largest institution with the largest budget in America.

And it's that budget I'd like to discuss with you this morning.  A week from now, President Obama will release his administration's budget for fiscal year 2017.  About half of its discretionary portion -- that is, $582.7 billion, to be precise -- will be allocated for the Department of Defense.

And today, I would like to preview with you some of the overarching themes, and some of the new investments that we will be making -- because the fact is, this budget marks a major inflection point for the Department of Defense.

In this budget, we're taking the long view.  We have to, because even as we fight today's fights, we must also be prepared for the fights that might come, 10, 20 or 30 years down the road.

Last fall's budget deal set the size of our budget, allowing us to focus on the shape, making choices and trade-offs to adjust to a new, strategic era, and to seize opportunities for the future.

Let me describe the strategic thinking that drove our budget decisions.  First of all, it's evident that America is still, today, the world's foremost leader, partner and underwriter of stability and security in every region across the globe -- as we have been since the end of World War II.

And as we fulfill this enduring role, it's also evident that we're entering a new strategic era.  Context is important here.  A few years ago, following over a decade when we were focused, of necessity, on large scale counter insurgency operations in Iraq and Afghanistan, DOD began embarking on a major strategy shift to sustain our lead in full spectrum war fighting.

While the basic elements of our resulting defense strategy remain valid, it has also been abundantly clear to me over the last year that the world has not stood still since then – the emergence of ISIL and the resurgence of Russia being just a couple of the examples.

This is reflective of a broader strategic transition underway, not unlike those we've seen in history following the end of other major wars.

Today's security environment is dramatically different than the one we've been engaged in for the last 25 years and it requires new ways of thinking and new ways of acting.

I've talked with President Obama about this a great deal over the last year and as a result, we have five, in our minds, evolving challenges that have driven the focus of the Defense Department's planning and budgeting this year.

Two of these challenges reflect a return to great power of competition.  First is in Europe, where we're taking a strong and balanced approach to deter Russian aggression, and we haven't had to worry about this for 25 years; while I wish it were otherwise, now we do.  Second is in the Asia-Pacific, where China is rising and where we're continuing and will continue our rebalance, so-called, to maintain the stability in the region that we have underwritten for 70 years and that's allowed so many nations to rise and prosper and win.  That's been our presence.

Third challenge is North Korea – a hardy perennial – a threat to both us and to our allies, and that's why our forces on the Korean Peninsula remain ready every single day, today, tomorrow, to, as we call it, fight tonight.

Iran is the fourth challenge, because while the nuclear deal was a good deal and doesn't limit us in the Defense Department in any way – none of its provisions affect us or limit us – we still have to counter Iran's malign influence against our friends and allies in the region, especially Israel.

And challenge number five is our ongoing fight to defeat terrorism and especially ISIL, most immediately in its parent tumor in Iraq and Syria, and also, where it is metastasizing in Afghanistan, Africa and elsewhere.  All the time, we protect -- all the while, we're protecting our homeland and our people.

While ISIL must and will be defeated now, in the longer perspective we must also take into account in our budget that as destructive power of greater and greater magnitude falls into the hands of smaller and smaller and more aberrant groups of people, countering terrorists will likely be a continuing part of the future responsibilities of defense and national security leaders far into the future as I can see.

DOD must and will address all five of those challenges as part of its mission to defend our people and defend our country.  Doing so requires some new thinking on our part, new posture in some regions and also new and enhanced capabilities.  For example, as we confront these five challenges, we'll now have to deal with them across all domains, not just the usual air, land and sea, but also particularly in the areas of cyber, space and electronic warfare, where our reliance on technology has given us great strengths, but also lead to vulnerabilities that adversaries are eager to exploit.

Here, our approach is being able to deter our most advanced competitors.  We must have – and be seen to have – the ability to impose unacceptable costs on an advanced aggressor that will either dissuade them from taking provocative action or make them deeply regret it if they do.

To be clear, the U.S. military will fight very differently in coming years than we have in Iraq and Afghanistan or in the rest of the world's recent memory.

We will be prepared for a high-end enemy.  That's what we call full spectrum.  In our budget, our plans, our capabilities and our actions, we must demonstrate to potential foes, that if they start a war, we have the capability to win.  Because a force that can deter conflict must show that it can dominate a conflict.

 In this context, Russia and China are our most stressing competitors.  They have developed and are continuing to advance military systems that seek to threaten our advantages in specific areas.  And in some case, they are developing weapons and ways of wars that seek to achieve their objectives rapidly, before they hope, we can respond.

Because of this and because of their actions to date, from Ukraine to the South China Sea, DOD has elevated their importance in our defense planning and budgeting.  While we do not desire conflict of any kind with either of these nations -- and let me be clear, though they pose similar defense challenges, they're otherwise very different nations and situations – we also cannot blind ourselves to the actions they appear to choose to pursue. 

Let me now highlight some new investments we're making in this budget to address both the near-term challenges – I'll start with the near-term challenges and begin there with our campaign to deliver a lasting defeat to ISIL.

As I said a couple of weeks ago at Fort Campbell, Kentucky, and in Paris a week and a half ago, and as I'll reiterate when I meet with my coalition counterparts in Brussels next week, we must and we will defeat ISIL.

Because we are accelerating the campaign, DOD is backing that up and we need to back it up in our budget with a total of $7.5 billion in 2017, 50 percent more than in 2016.  This will be critical as our updated coalition military campaign plan kicks in.

For example, we've recently been hitting ISIL with so many GPS-guided smart bombs and laser-guided rockets that we’re starting to run low on the ones that we use against terrorists the most.  So we're investing $1.8 billion in F.Y. '17, to buy over 45,000 more of them.

We're also investing to maintain more of our 4th generation fighter and attack jets that we previously planned, including the 810, which has been devastating to ISIL from the air. The budget defers the A-10's final retirement until 2022, replacing it with F-35 Joint Strike Fighters on a squadron-by-squadron basis, so we'll always have enough aircraft for today's conflicts.

Another near-term investment in the budget is how we are reinforcing our posture in Europe to support our NATO allies in the face of Russia's aggression – in Pentagon parlance, this is called the European Reassurance Initiative – and after requesting about $800 million for last year, this year we're more than quadrupling it for a total of $3.4 billion in 2017.

That will fund a lot of things: more rotational U.S. forces in Europe, more training and exercising with our allies, more preposition and war-fighting gear and infrastructure improvements to support all this. And when combined with U.S. forces already in and assigned to Europe -- though also substantial -- all of this together by the end of 2017 will let us rapidly form a highly-capable combined arms ground force that can respond across that theater, if necessary.

And as you can imagine, the budget also makes important investments in new technologies.  We have to do this to stay ahead of future threats in a changing world.  As other nations try to catch on the advantages that we have enjoyed for decades, in areas like precision-guided munitions, stealth, cyber and space.

Some of these investments are long-term, and I will get to them in a moment.  But to help maintain our advantages now, DOD has an office that we don't often talk about, but I want to highlight today.  It's called the Strategic Capabilities Office, or SCO for short.

I created the SCO in 2012 when I was deputy secretary of defense to help us to re-imagine existing DOD and intelligence community and commercial systems by giving them new roles and game-changing capabilities to confound potential enemies -- the emphasis here was on rapidity of fielding, not 10 and 15-year programs.  Getting stuff in the field quickly.

We need to make long-term investments as well.  I will get to them in a moment.  But the focus here was to keep up with the pace of the world.

I picked a talented physicist -- also, by the way, a Rhodes Scholar.  SCO is incredibly innovative, but it also has the rare virtue of rapid development, and an rarer virtue of keeping current capabilities viable for as long as possible -- in other words, it tries to build on what we have.  Smart.  So, it's good for the troops, it's good for the taxpayers, too. 

Thinking differently in this way – as is well known in U.S. defense history – put us in space, our country on the moon, computers in the pockets, information at the fingertips -- all of that.  Taking airplanes off of the decks of ships, nuclear submarines beneath the seas, satellite networks that take pictures of the world -- all of those things.

This kind of bold and innovative thinking can't be lost to history, it's happening now everyday, not only in SCO but in other places throughout the Department of Defense, like our dozens of laboratories and engineering centers, located all over the country.

As we drive this work for the budget, grows our research and development accounts for the second year in a row, investing a total of $71.4 billion in R&D in 2017 -- a number that no other institution in the United States or the world comes close to.

And to show the return we're getting on those investments, I'll tell you about a few projects in the SCO that it has been working on, and that are funded in this budget.  Some of them you may have heard of, but my guess is some of them you have not -- and I know that some of them, we're talking about for the very first time here.

First is a project focused on advanced navigation.  What the SCO's doing is taking the same kinds of micro-cameras, sensors, MEMS [microelectromechanical systems], and so forth that are littered throughout our smartphones and everything today, and putting them on our small diameter bombs to augment the existing target capabilities on the SDB.  This will eventually be a modular kit that will work with many other payloads, enabling off network targeting through commercial components, small enough to hold in your hand like your phone, and cheap enough to own like your phone.

Another project uses swarming autonomous vehicles in all sorts of ways and in multiple domains.  In the air, they develop micro-drones that are really fast, really resistant.  They can fly through heavy winds and be kicked out the back of a fighter jet moving at Mach 0.9, like they did during an operational exercise in Alaska last year, or they can be thrown into the air by a soldier in the middle of the Iraqi desert.  And for the water, they've developed self-driving boats which can network together to do all kinds of missions, from fleet defense to close-in surveillance, without putting sailors at risk.  Each one of these leverages the wider world of technology.  For example, the microdrones, I mentioned a moment ago, use a lot of commercial components and are actually 3-D printed and the boats build on some of the same artificial intelligence algorithms that long-ago and in a much more primitive form were on the Mars lander.

They've also got a project on gun-based missile defense, where we're taking some of the same hypervelocity smart projectiles that we developed for the electromagnetic gun.  That's the railgun.  And using it for point defense.  By firing it with artillery, we already have in our inventory, including the five-inch guns on the front of every Navy destroyer and also the hundreds of Army Paladin self-propelled howitzers.  In this way, instead of spending more money on more expensive interceptors or on new platforms, we can turn past offense into future defense – defeating incoming missile raids at a much lower cost per round and thereby imposing higher costs on an attacker.  In fact, we tested the first shots of the hypervelocity projectile out of a Paladin a little over a month ago, and we also found that it significantly increases the Paladin's range.

And the last project I want to highlight is one that we're calling the arsenal plane, which takes one of our oldest aircraft platform and turns it into a flying launchpad for all sorts of different conventional payloads. In practice, the arsenal plane will function as a very large airborne magazine, network to fifth generation aircraft that act as forward sensor and targeting nodes, essentially combining different systems already in our inventory to create holy new capabilities.

So these are just a few examples of what the SCO has done so far and they're working a lot more.

Now, there are many other areas where we're driving smart and essential technological innovation in the budget to stay ahead of future threats over the long-term and keep our military in the decades ahead the best in the world, the first with the most, bar none.

One of these is undersea capabilities, where we continue to dominate and where the budget invests over $8.1 billion in 2017 and more than $40 billion over the next five years to give us the most lethal undersea and any submarine force in the world.  It buys more advanced maritime control aircraft.  And it not only buys nine of our most advanced Virginia-class attack submarines over the next five years; it also equips –more of them with the versatile Virginia Payload Module, which triples each submarine platform’s strike capacity from 12 Tomahawk missiles to 40.

Now, budgets often require trade-offs, which all of you in your own domains are very familiar with.  So where trade-offs among force structure, modernization and readiness posture needed to be made we generally pushed to favor the latter two.  This is important, because our military has to have the agility and ability to win not only the wars that could happen today, but also the wars that could happen in the future.

To put more money in submarines, Navy fighter jets, and a lot of other important areas, one trade-off we made was to buy only as many Littoral Combat Ships as we really need.  This is part of a broader effort in our budget to focus the Navy on having greater lethality and capability that can turn deter and defeat even the most high-end future threats.  I'll be discussing this further tomorrow in San Diego when I visit some of our Navy surface warfare sailors. 

We're also investing more in cyber, totaling nearly $7 billion in 2017, and almost $35 billion over the next five years.  Among other things, this will help to further DOD's network defenses, which is critical; build more training ranges for our cyber warriors; and also develop cyber tools and infrastructure needed to provide offensive cyber options.

I also want to mention space because at times in the past, space was seen as a sanctuary, new and emerging threats make clear that that's not the case anymore and we must be prepared for the possibility of a conflict that extends in space.  Last year we added over $5 billion in new investments to make us better postured for that.  And then in 2017 we’re doing even more, enhancing our ability to identify, attribute and negate all threatening actions in space.  For so many commercial space endeavors, we want this domain to be just like the oceans and the Internet: free and safe for all. 

There are some in this world who don't want that to happen – who see America's dominance in these and other areas and want to take that away from us in the future so that we can't operate effectively around the globe.  So we’re not waiting to invest until the threats are fully realized.  We're investing now so we stay ahead of them. 

And of course, pioneering and dominating technological frontiers is just one way that our budget seizes its opportunities for the future.  We're also innovating operationally, making our contingency plans and operations more flexible and dynamic, from Europe to the Asia-Pacific.  And we're investing to build the force of the future, as I call it – the all-volunteer force of the future.  Because as good as our technology is, it is nothing compared to our people.  Our people are the reason we have the finest fighting force the world has ever known.  And we have to ensure that the talent we recruit and retain generations from now, is just as good as the excellent people we have today.

I made several announcements over the last few months to help to do that.  We're opening all remaining combat positions to women, very simply, so that we have access to 50 percent of our population for the all-volunteer force.  And every American who can meet our exacting standards – and that's important – will have the equal opportunity to contribute to our mission.  We're also implementing several new initiatives to improve and modernize our personnel management systems to create what I call, on ramps and off ramps that allow more people inside and outside DOD to engage with and contribute to our mission.

People outside the defense to come in for a while, maybe not for career for a few years and contribute to the most consequential mission that a human being can contribute to, and our own people to get out and learn about how the rest of the world works and make sure that their up to date and up to speed.

I've emphasized this, both at Silicon Valley and at our Boston technology hub.  And we're strengthening the support we provide to our military families to improve their quality of life, the emphasis here being on retention of excellent people, and where we can, making it possible for them to reconcile the needs of -- having a family with our needs of military service.

Not always possible to reconcile, but we're making an effort where we can, consistent with the profession of arms and our needs.  There will be more to come along this line.

Now, having told you about the budget, and particularly talking to an audience like this, I need to say something also about how we're reforming the DOD enterprise to make us more efficient.  I can't come before a group like this and ask for the amount of money that I believe we need for our defense, unless I can also satisfy you that we're spending it in the best possible way.

Just like you have your shareholders, we have our taxpayers, and we owe it to them to ensure that we're doing everything we can to spend our defense dollars as wisely and responsibly as possible.

That's why, along with our budget, we are keeping us our focus on, for examples, acquisition reform.  We are already starting to see results from our better buying power initiatives, and we are looking to do more and get better.  We are also doing more to reduce overhead, which we expect to help nearly eight -- provide us more than $8 billion over the next five years – eight billion dollars that we can use elsewhere for real capability and not overhead.  And we're looking at reforms to the Goldwater-Nichols Act, the famous act of the 1980s, that defines much of DOD's institutional organization. On this last point, we've been doing a thorough review for the last several months, and I expect to begin receiving recommendations on that in coming weeks and making decisions.

Let me close by touching on the broader shift that is reflected in this budget.  For a long time, DOD tended to focus and plan and prepare for whatever big war people thought was coming over the horizon, at one point becoming so bad that after a while, it started to come at the expense of current conflicts -- long-term at the expense of the here-and-now.

Thankfully, we were able to realize that over the decade, correct it, and turn our attention to the fights we were in.  We had to do that.

The difference is, while that kind of singular focus may have made sense when we were facing off against the Soviets, or sending hundreds of thousands of troops to Iraq and Afghanistan, it won't work for the world we live in today.  Now we have to think and do a lot of different things about a lot of challenges the same time.  Sad to say, but true -- not just ISIL and other terrorist groups, but also competitors like Russia and China, and threats like North Korea and Iran.  We don't have the luxury of just one opponent, or the choice between current fights and future fights.  We have to do both.  And that's what this budget is designed to do.

When this forum we're in now was founded 30 years ago, its inaugural speaker declared that “America's best days should still lie ahead.”  With this budget, and with our magnificent men and women of the Department of Defense, our best years will lie ahead.  And those men and women of the Department of Defense continue to defend our country, help make a better world for our children.

Thank you.