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Department of Defense Briefing by Deputy Secretary Work and Adm. Winnefeld on the Fiscal Year 2016 Budget in the Pentagon Briefing Room

DEPUTY SECRETARY OF DEFENSE BOB WORK: Well good afternoon, ladies and gentlemen. Thank you for joining us as we preview the FY 2016 defense budget request.

Now, in my time with you, I'd like to hit three key things. One, we believe very strongly that this is a strategy-driven, resource-informed budget that meets 21st century national security needs of our great nation.

Second, the surest path in our view to a resource-driven, strategy-derived budget is to keep sequestration caps in effect in FY 2016 and beyond, and accordingly, as I'll detail in a moment, and as Mike McCord and [Lt. Gen] Mark Ramsay will talk to you later, we will submit a budget that is above the sequestration-enacted caps.

Third, even at the president's budget level, which is above sequestration caps, trying to achieve a healthy balance between capacities or size of the force, the capabilities of that force, what it is able to do, and the readiness of that force to respond to challenges, will remain a constant challenge. And this is especially true with regard to maintaining our technological superiority in the 21st century.

Now, our defense strategy, as outlined in the 2014 QDR, we're not going to go over it very much here, but I commend it all to you have then seen it. But it calls for a joint force to defend the homeland, conduct a global counter-terrorism campaign, primarily through partners whenever possible and wherever possible, and to operate forward in multiple theaters to assure our friends and Allies and deter potential adversaries.

Now, this is a strategy that is designed to preserve U.S. global leadership and to help preserve global peace in the 21st century.

Like it or not, America remains the global first security responder of choice, as we have seen this past year when the U.S. first led NATO in responding to Russian aggression in the Crimea and Ukraine, then formed an international coalition to fight against ISIL in Iraq and Syria, and finally, to respond to the Ebola crisis in Western Africa.

Now, these responses come on top of an already very volatile security environment that many of in this room, I don't need to tell too much about. But it requires a lot of our joint force. Today, there's about 211,000 servicemen and women around the world in 136 countries trying to preserve the peace or fighting against our adversaries. Now, in this very stressing and volatile environment, we constantly try to scrutinize whether our strategy, force structure, and global allocation of forces, if they're aligned with what we see happening in the world, and if it's keeping pace with emerging threats.

And at the requested levels, we believe quite strongly that this budget is the best balance of ends, ways, and means that we could possibly achieve, given the level of resources. We're asking for $534 billion in FY 2016. That's $36 billion above the FY 2016 sequestration caps, and about $38 billion, or 7.6 percent above the enacted FY 2015 levels.

All together, when you add it all up, across the five year defense plan, fiscal years 2016 through 2020, this is approximately $150 billion, approximately, over the sequestration caps.

Now, in addition to the base budget, we're asking for $51 billion in overseas contingency operations or OCO funding. This budget supports our efforts to continue the drawdown in Afghanistan, to operate forward in the CENTCOM, Central Command area of responsibility, Persian Gulf, and the environments thereto, and assist Iraq and our partners in combating terrorism.

Now, this strategy-driven resource and forward budget is designed to support the five key priorities of the 2014 Quadrennial Defense Review (QDR) strategy, and I'd like to run down them very quickly, because we believe they are the right ones.

Number one, continue to rebalance to the Asia-Pacific region. We continue to do that and will continue to do so.

Second, we'll maintain a strong commitment to security and stability in Europe and the Middle East.

Third, we'll sustain a global counter-terrorism campaign, again, through and with partners whenever possible.

Four, we want to strengthen our key alliances and partnerships.

And finally, we want to prioritize key modernization efforts.

We also think our force planning construct, which informs the types and number of forces in our program, remains sound.

But as I said, we recognize that the events of the past year will cause us to question the assumptions that underpin each of these priorities, especially with respect to what is required to keep security in Europe and the Middle East.

For now, however, we believe the requested FY 2016 and FYDP, future year's defense program budget levels will allow us to execute the 2014 QDR strategy at manageable levels of risk, but with elevated risks in some areas.

Now, funding levels lower than the president is proposing, especially at full sequestration cap levels, our defense strategy will become brittle and more prone to breaking. For that reason, the leaders of this department believe firmly that any reduction in funding below what is in the president's budget, or a broad denial of the reform initiatives that we have proposed to Congress, would make the overall risk to the strategy unmanageable.

And this comes to my third key theme. Even at the president's budget level, which is above the sequestration caps, maintaining a prudent balance among force ready -- joint force readiness capabilities and capacity, remains extremely challenging for three reasons. First, we're coming out of thirteen years of war: the longest sustained period of combat in our history. This has caused enormous strain on the men and women in uniform, as well as the civilians who support them and our contractors. And it also has been very stressing on our equipment.

We've long planned to keep two to three years of a reset, but what's happening because of high demand and a very volatile environment, we're going to be doing a running reset over the course of the next several years. And as a result, we will not return to full spectrum combat readiness in the joint force until 2020 to 2023.

Second, because O&M costs, operations and maintenance, or readiness costs, as well as personnel costs continually go up faster than the rate of inflation, the department needs to see one to three percent real growth per year, or otherwise the balance starts to get a little bit out of kilter.

Now, we've been at the same level for three years, essentially between FY [2013]13 and FY[2015]15, we've been at about $496 billion. And due to high demand, the services have to keep their force structure. And as a result, and on top of that, we've been digging out of the readiness problem we had in FY[2013]13 when sequestration hit.

So we've been trying to do this -- attack this problem by becoming more efficient and using more disciplined uses of defense resources. But it's still very, very hard to keep up with the lost buying power that we've had. And we continue to pursue these reforms aggressively, especially so that we can put more money into modernization.

And that's the third reason why we're having so much problems. Look, we're facing challenges unlike anything we've seen since the end of the Cold War. Our nuclear deterrent force is aging. It will be modernized in the 2020s and 2030s. We need to keep the old equipment and systems going, but it is becoming more expensive for us to do so and requiring us to divert resources in that regard.

Our space capabilities which help support our global operations face unprecedented threats. And they force -- we are forced to spend more money on space resiliency and space control measures. The proliferation of guided munitions makes it more difficult for us to project power, so we're having to shift money into what we call counter-anti-access area denial areas.

All this money has to come from somewhere, so even at the president's budget level, it's a constant Rubik's cube trying to figure out what is the best mix of capabilities, capacities and readiness. The White House has actually helped us in this regard, adding about $21 billion in requirements, specifically more towards modernization, as compared to the PB15 budget level.

This is a deferred modernization problem and we're trying to tackle it in this budget and we need help above sequestration caps to do so. Now, we look very much forward -- we look forward to Congress in addressing this problem. We think this is the right budget and this afternoon, we will answer any questions that you have, and we expect to answer a lot more over the course of the next several weeks as we deliver our budget and talk to the members of Congress about it.

ADMIRAL JAMES WINNEFELD: Thank you, Mr. Secretary.

And good afternoon, everyone.

First message I have is sort of an internal message. And that is assembling a defense budget is hard enough in the best of times, but it's extraordinarily difficult to do in our time due to the trifecta of declining resources, constraints on our flexibility, and uncertainty over future resources.

So I want to thank by -- start by thanking the many people both civilian and military who put in the long hours required to put this thing together. They are as dedicated and hardworking as anybody else in this department. So thanks to those folks.

Deputy Secretary Work has outlined the contours of this year's submission and the details are online. I'm sure you've probably already looked at them. This budget -- no budget is perfect, but we believe we've assembled the best possible combination of capability, capacity and readiness investments that we need to protect our nation and our national security interests.

We also believe it meets the current and future needs of the all-volunteer force that has served us so well and that represents our most asymmetric advantage in this world.

As such, the chairman and the service chiefs and I all fully support this budget. It's what we feel we need to remain at the edge of manageable risk in our ability to execute the defense strategy that's outlined in the 2014 QDR. But we have little margin left for error or strategic surprise.

I heard the term "third and manageable" last night a couple of times. It shouldn't surprise anyone that when it comes to defending our national security interests, the chiefs don't really like to hear "third and manageable." In fact, we don't like third-down at all and fourth-down is not an option.

Any defense strategy represents a delicate balance among the ends, ways, means, risk, all that live inside a security environment. That balance is inescapable. If you disturb one variable, something has to change among all the others to re-set the balance.

As Mr. Work outlined, the means that we've aligned to defense have steadily decreased over the last several years. At the same time, the security environment has become more chaotic and potential adversaries are eroding our technical advantages.

But there's been no corresponding change in the ends of the strategy that we're trying to serve. We are making progress in some of our ways, through efficiencies and a few new ideas and technologies. But the variable that has carried the lion's share of -- of the strategic balance is risk. And we believe there's no room left on that end of the balance.

So, our best military advice is that any decrease below the PB16 request, to echo Mr. Work, will require adjustments to our defense strategy to restore balance. It doesn't mean the strategy completely breaks, but we will have to make adjustments to that strategy if we're going to stay in balance. All you have to do is look inside the unclassified QDR's force planning construct to get an idea for what that means.

Ultimately, it will mean reduced American leadership and freedom of action, and that's, of course, an option, but not one that I think most of us would prefer. I'd underscore that when I talk about reductions, I'm not only talking about reductions down to sequestration, as the service chiefs testified to last week. I mean anything below the level that we're submitting.

I'd also reiterate, while fully respectful of Congress's role in not only how much money we spend, but how -- what we spend it on, unfunded changes to this submission are the same as a reduction and would require adjustments to that strategy as well.

That's what makes this strategy -- or this budget a strategy-driven budget because we're asking for what we need above the sequester levels in order to keep risk manageable. We have to do better than manageable in the most important things, such as nuclear deterrence, which this budget does.

And again, it represents an opportunity to arrest the decline in our investment in protecting our national security interests under the current strategy, rather than having to adjust or rewrite it.

We do look forward to working with the Congress to get this submission across the finish line, hopefully on time next fall. In the meantime, we'll continue to work hard on the ways part of how we defend our country through our innovation initiatives, and we'd be happy to talk about that.

So thank you again. I believe we'll now take a couple of questions before turning it over to the real experts who are sitting off-stage.

Q: I wonder if you could talk a little bit about what happens if you don't get all the savings or you don't get a budget above sequester? How does the strategy change or how does it break? What can't you do?

MR. WORK: Well, this is something that I would hope that everybody in this audience and all of the members of Congress considers first. It's easy for us to tell you if you go to the sequestration level budget, we'll buy this many fewer JSFs, Joint Strike Fighters; we'll buy this many fewer ships. But what does that mean? We're really trying to get to what part of the strategy that we won't be able to do.

Now, in the broadest sense, our program is designed to allow us to do two things simultaneously, to respond to two crises, big crises simultaneously. One, through a large multi-phase joint campaign involving the Navy, the Air Force, the Army, the Marine Corps, combined arms operations, et cetera. And the other one is to respond to an opportunistic aggressor in a different theater in which we try to impose costs or deny the adversary the objectives.

So we believe that the PB15 force structure that we submitted last year is broadly sufficient to need. And if we had to take more cuts, Julian, we would have to consider moving down the number of forces that we have. And at that point, you would have to ask yourselves: All right, would you still be able to do those two things simultaneously? Would you still be able to have the same level of presence in our forward theaters? Would you still be able to respond in the timelines that we think we can respond to today? And the answer to all three of those, in our view, is: not likely.

So we don't have a specific -- we do not -- we want to maintain focus on this budget because we believe this budget is what the nation needs. If Congress doesn't agree, then we would answer that question specifically.

Q: You're going to have a lot of people doing the math and saying "so what if you lose $36 billion in sequestration." That takes you down to $498 billion. That was roughly what you had in 2008 and 2009. Why couldn't you live with $498 billion, the same amount, when the Iraq war was running out of control?" What do you say to that?

MR. WORK: Well, in real terms, off the wartime peak, we've dropped 22, 23 percent off the wartime peak. What we see happening is the challenges, to, as I've outlined, challenges to our space constellation, the demands of trying to keep our nuclear deterrent force going, the demands -- the problems that we're facing, potentially projecting power in certain theaters because of the proliferation of these forces.

In the past three years, you are right, we've had flat budgets. But we have taken risks both in readiness and in capabilities to maintain the capacities the size of the force necessary to respond. So we have three years of built-up demand on modernization that we haven't been able to get to.

And so, if anybody says, look, it's -- you've been at $496 billion, yes, that's true, but we've been accumulating risk, while we do so. And the President has said I'm not comfortable with those risks and that's why he's asking for the increase from 15 to 16 and he's asking for release of the sequestration caps at $150 billion over it.

Q: Admiral Winnefeld, I got to ask you, how close are the Joint Chiefs to just telling the White House, we need to abandon this strategy. We need to radically re-write it, because it's too uncertain whether Congress is going to -- in its hyperventilated partisan environment, is going to relief the Pentagon from caps, much less domestic spending.

I mean, you keep saying it's unmanageable, but at what point do you tell the White House, we just have to rewrite this, sir, before you leave office?

ADM. WINNEFELD: Yeah, I think that -- I wouldn't want to put words into the White House piece. But I do believe they would agree that it's sequester, we're going to have to re-craft the strategy. I don't know that I would say abandon it. Abandon means completely starting with a clean sheet of paper. We would have to make adjustments inside this strategy.

If you look at the -- as I mentioned in my remarks, the force planning construct, it talks about steady state operations and it talks about crisis operations. And in steady state operations, it asks us to do three things: defend the homeland; to do counterterrorism operations, you know, distributed counterterrorism operations; and also provide a deterrent presence in many different regions.

Well, first thing, we are not going to compromise on homeland defense. We know that. And in sequestered cuts, we probably wouldn't have to. But you start digging into the other pieces, it would probably affect counterterrorism operations a bit and it would certainly affect our ability to do deterrent presence across the world. So you may find that we would have to do presence in fewer locations or lower amplitude presence in many locations.

Those are the kinds of decisions we'll have to make. And that will impact our freedom of action in the world and American leadership. And I just don't think very many people would sign up for that right now.

So I think that we would have broad agreement across the government that had sequestered levels we will have to make adjustments to the strategy.

MODERATOR: We have time for one more.

MR. WORK: Well, in FY[2013]13, we took kind of a punch in the gut with sequestration when it hit in '13. If you remember, we had to stop flying -- squadrons stopped flying, we stopped putting ships in depo maintenance. We stopped doing all of those things. And we dug a readiness hole.

The balance -- the Bipartisan Budget Act, we were not satisfied at those levels. But we accepted them -- I mean, happily, because it helped us get out of the readiness hole. But we said -- what we'll -- the best way to say it is we've been surviving, but not thriving, over the past three years because we haven't been able to get to these modernization issues that have been facing us. And when we presented this to the White House this fall, they agreed with us. And that's why we're asking for a budget that's above.

So we believe this is the right budget of the right balance.

ADM. WINNEFELD: And Tony, we have a pretty good way of looking at the relationship between supply and demand for forces. And on the supply side, we can capture this in a diagram of how many of a particular force element that we have and how ready they are, both now, and what will look like under this budget and what it would look like under sequester. And that's -- it's not a pretty story, when you compare that to the requirements that we have across the globe. And I'm not talking about desirements. I'm talking about real requirements for presence and also crisis response. It's starting to get pretty dicey and that's why we're saying it's a manageable risk. But anything below that would rapidly leave the manageable fold.

Last one.

Q: In your overseas -- to these operations, I'm told you have some $7.9 billion for investment, reset and readiness, which sounds a lot like spending money on procurement and operations and maintenance and readiness. Did you guys have a criteria in mind when you decided what you're going to fund from that account, versus operations and maintenance procurement? Because some people think that's just pure padding.

ADM. WINNEFELD: We'd be the first to say that over the course of the decade or so that we've had overseas contingency operations, funding, that too much has crept in to that account on the investment side and the like. And we're determined to fix that. It's going to take time. We can't do it overnight. If we were to try to do it overnight, it would represent a bill almost as a big the sequester bill.

So we are going to be putting together a plan to do that. We hope to have it teased out of there, starting in the '17 budget and completing in '20. But it remains to be seen, as we start to noodle our way through this thing how we're going to get to that.

But we agree that we need to get OCO spent on what OCO was intended to do.

MR. WORK: And just to follow up on this, the White House will announce that their intent is to try to move what these enduring base costs that have crept into OCO over 13 years of war back into the base budget. But we can only do it if the sequestration caps are lifted. Otherwise, if you took 20 (billion dollars) to $30 billion of enduring costs -- or enduring costs and tried to put it into the budget without a concomitant topline increase, as the vice chairman as said, that, in essence, is a 20 [billion dollar] to $30 billion per year cut.

So we are working with the White House and we will announce our -- you know, first of all, we have to find out if sequestration caps are lifted and then we will work throughout this year and in the PB '17 budget submission, we'll unveil our plan.

Ladies and gentlemen, the people who can really answer your detailed questions are Mike McCord, our undersecretary of defense for -- comptroller and Mark Ramsey, who's in the J-8. So I'd like to turn it over to them.

Again, thank you all for being here this afternoon, and we look forward to answering your questions over the next several weeks and months as we try to find the right balance in capabilities, capacities and readiness.

ADM WINNEFELD: Thanks, everybody.