USADOD Briefing on the Fiscal 2012 Budget Proposal

DOD News Brief­ing by Under Sec­re­tary Hale and Lt. Gen. Spencer from the Pen­ta­gon on the Fis­cal 2012 Bud­get Pro­pos­al

COL. DAVID LAPAN (Deputy Assis­tant Sec­re­tary of Defense for Media Oper­a­tions): All right, ladies and gen­tle­men. As adver­tised, the under sec­re­tary comp­trol­ler, Mr. Bob Hale, and Lieu­tenant Gen­er­al Spencer from the Joint Staff will make some brief open­ing remarks and then be hap­py to take your ques­tions.

MR. HALE: Okay, well, thank you. Put the slides up here? Or do you have — you have hard copies of the slides? Okay. Might be eas­i­er to see them if you fol­low along with me.

The first one under the cov­er slide is an agen­da. What we’re going to try to do briefly is talk to you — an overview of the fis­cal ’12 bud­get. We’ll start with some chal­lenges it faces, just to set the stage, give you some of the num­bers in that bud­get. We’ll focus on key themes and some of the pri­or­i­ties, and then I’d like to stop at that point.

But unfor­tu­nate­ly, we’re not done with fis­cal ’11, so I’ll say a few words about the con­tin­u­ing res­o­lu­tion, the prob­lems it’s caus­ing us at the moment. We turn first to chal­lenges. If you go to the next slide, please, I’m going to ask Gen­er­al Spencer — we’ll do a tag-team match here to talk about some of the strate­gic chal­lenges.

GEN. SPENCER: Good after­noon. Before Mr. Hale dives into the num­bers, we want­ed to pro­vide some con­text to help shape this bud­get. We cur­rent­ly have about 98,000 troops deployed in Afghanistan and less than 50,000 deployed in Iraq. If we devel­op this bud­get, we have to con­sid­er the full spec­trum of mil­i­tary chal­lenges, to include pre­vent­ing the pro­lif­er­a­tion of weapons of mass destruc­tion and com­bat­ing vio­lent extrem­ism.

We’re also cog­nizant of ris­ing peer com­peti­tors and the need to main­tain the glob­al com­mons that allows a free flow of inter­na­tion­al trade. Final­ly, the U.S. mil­i­tary has a unique capa­bil­i­ty to respond to world­wide nat­ur­al dis­as­ters when called upon.

The bot­tom line is, the world is an uncer­tain and dynam­ic envi­ron­ment that spans the full range of mil­i­tary oper­a­tions. This bud­get ensures the Amer­i­can mil­i­tary is pre­pared to respond when our nation calls. Mr. Hale?

MR. HALE: Thank you. Next slide.

In addi­tion to nation­al-secu­ri­ty chal­lenges, the coun­try obvi­ous­ly faces impor­tant eco­nom­ic chal­lenges. These are the administration’s deficit fore­casts that I think cap­ture that: $1.6- tril­lion deficit in fis­cal ’11, $1.1 tril­lion in fis­cal ’12. And we skipped some num­ber — or some years out there, but down to, still, $649 bil­lion in fis­cal ’16.

We in the Depart­ment of Defense need to be part of the effort to resolve these chal­lenges, the eco­nom­ic chal­lenges. And that was part of what was in our mind as we put togeth­er this bud­get.

Next slide, please.

Let me talk to you about the num­bers in the bud­get. This slide shows you the total dol­lars in the bud­get, includ­ing both the base bud­get and also our over­seas con­tin­gency oper­a­tions [OCO], the wartime por­tion of the bud­get. Well, that’s for $671 bil­lion of bud­get author­i­ty in fis­cal ’12. That’s down 15 to about 35 bil­lion (dol­lars) com­pared to fis­cal ’11. The range depends on whether we end up under a con­tin­u­ing res­o­lu­tion or a bud­get request, or prob­a­bly some­where in between when the dust set­tles.

But the key point is, this bud­get is down in terms of total dol­lars for defense.

Now, beyond fis­cal ’12 we real­ly need to focus on the base bud­get. We don’t do pro­gram­mat­ic pro­jec­tions of the wartime bud­get beyond the bud­get year. So if you look at the base bud­get — go to the next slide — we asked for $553 bil­lion for the base bud­get.

Could be as much as 3.6 per­cent real growth com­pared to the con­tin­u­ing res­o­lu­tion, prob­a­bly be 2 1/2 (per­cent) to 3 1/2 (per­cent) again when the dust set­tles; 1 per­cent real growth in fis­cal ’13, a half (per­cent) in fis­cal ’14, and then no real growth — and adjust­ment for infla­tion, but no real growth in the out years. So this is a bud­get that grows mod­est­ly, the base bud­get in real terms. Total bud­get com­ing down, base bud­get grows mod­est­ly in real terms.

Next slide.

Let me talk about how we invest that mon­ey in order to meet our nation­al secu­ri­ty needs. I’ll talk about four themes and give you some exam­ples for each: tak­ing care of peo­ple, our high­est pri­or­i­ty. But we need to focus on putting the cur­rent war and the abil­i­ty to fight irreg­u­lar wars, and mod­ern­ize for pos­si­ble future con­flicts and sup­port our deployed troops.

And we need to know — or we know we need — must make every defense dol­lar count, so I’ll say a lit­tle bit about the secretary’s reform agen­da. Over­all, Sec­re­tary Gates has said this is a rea­son­able bud­get and meets nation­al secu­ri­ty needs. It’s respon­si­ble, in that we tried to assist in deficit reduc­tion, and sus­tain­able.

Let me talk about each theme. (Inaudi­ble.) Next slide. Yeah, no, that’s the right one.

Tak­ing care of peo­ple is our high­est pri­or­i­ty. Some exam­ples there: We’re propos­ing mil­i­tary pay raise of 1.6 per­cent for fis­cal year ’12, which will — match the employ­ment cost index. It will keep mil­i­tary salaries con­sis­tent with increas­es in the pri­vate sec­tor. Our civil­ians, like all civil­ians in the gov­ern­ment, are under a pay freeze for fis­cal ’11 and ’12; $8.3 bil­lion of fam­i­ly- sup­port ini­tia­tives. I’ll not go through all of the details on this slide, but there are child care and youth pro­grams, sup­port for our schools, morale, wel­fare and recre­ation, warfight­ers’ ser­vices. Over­all, we think this bud­get ful­ly sup­ports the president’s mil­i­tary fam­i­ly ini­tia­tive.

Next slide.

We’ll ask for $52.5 bil­lion for mil­i­tary health care, includ­ing about 32 bil­lion (dol­lars) for the defense health pro­gram, that’s TRICARE, and about .7 bil­lion (dol­lars) for trau­mat­ic brain injury, psy­cho­log­i­cal health, .4 bil­lion (dol­lars) for wound­ed, ill and injured med­ical research and care. As Sec­re­tary Gates has said, oth­er than win­ning the wars them­selves, noth­ing is more impor­tant than tak­ing care of those who have shed their blood for us; and about 2 bil­lion (dol­lars) of qual­i­ty-of-life-relat­ed con­struc­tion. So this is the high­est pri­or­i­ty for the Sec­re­tary of Defense, also for the Chair­man of the Joint Chiefs.

And let me ask Gen­er­al Spencer to com­ment.

GEN. SPENCER: Thank you. This bud­get request is con­sis­tent with the chairman’s pri­or­i­ties of improv­ing the health of the force by tak­ing care of our peo­ple. Com­pet­i­tive com­pen­sa­tion and selec­tive bonus­es, improve­ments in hous­ing, access to qual­i­ty school­ing for fam­i­lies — for mil­i­tary chil­dren, men­tal health coun­sel­ing and attrac­tive fam­i­ly sup­port cen­ters make the sac­ri­fices of mil­i­tary life eas­i­er to bear.

MR. HALE: Next slide.

We also need to focus on the cur­rent wars and the abil­i­ty to pros­e­cute irreg­u­lar, uncon­ven­tion­al wars such as the one in Afghanistan. We’ll spend $84 bil­lion of direct com­bat readi­ness in train­ing. But sig­nif­i­cant invest­ment in intel­li­gence, sur­veil­lance and recon­nais­sance capa­bil­i­ty, almost an insa­tiable demand on the part of our com­bat­ant com­man­ders for these assets. And you see a whole list of unmanned air­craft system(s) there, from Glob­al Hawks to Reaper, Gray Eagle, the MQ‑8 Fire Scout, which is the sea-based ver­sion. We’ll also pro­cure 12 MC-12 sur­veil­lance air­craft; $2.3 bil­lion for cyber­ca­pa­bil­i­ties, includ­ing, as Sec­re­tary Gates said, half a bil­lion (dol­lars) to DARPA for S&T on iden­ti­fi­ca­tion and defense against cyber­at­tacks. We under­stand this is both part of the cur­rent war part — also part of any future wars. Cyber is very impor­tant. We stood up the Cyber Com­mand this year, very impor­tant pri­or­i­ty for us.

Next slide.

We have a chem­i­cal bio­log­i­cal defense pro­gram, heavy invest­ment in rotary air­craft capa­bil­i­ty. Again, these are crit­i­cal to pros­e­cut­ing irreg­u­lar, non­con­ven­tion­al war.

But it’s not all weapons. We will ask the Con­gress for half a bil­lion dol­lars for what’s called Sec­tion 1206. This is glob­al train- and-equip mon­ey. It’s sup­port for allied mil­i­taries to — so that they can some­day, if need be, be our allies in future con­flicts. Coun­ter­drug activ­i­ties, $1.2 bil­lion for intel­li­gence sup­port, com­bat­ant com­mand sup­port, assis­tance in domes­tic ini­tia­tives, with an increased focus here on Mex­i­co.

Next slide. We’re invest­ing not only for cur­rent wars, but we rec­og­nize we need to mod­ern­ize for future con­flicts. And there is a broad-based mod­ern­iza­tion, includ­ing recap­i­tal­iz­ing our tac­ti­cal Air Forces with a restruc­tured Joint Strike Fight­er pro­gram, 9.4 bil­lion (dol­lars) for the JSF pro­gram, includ­ing some defer­ral of pro­cure­ment. Com­pared to last year’s plan, we’ll buy 124 few­er air­craft. But we still buy 325 JS air — JSF air­craft in fis­cal ’12 to ’16. Of the three vari­ants, the STOVL is hav­ing the great­est prob­lems with some aero­dy­nam­ic per­for­mance prob­lems and oth­ers. The sec­re­tary has put it on a two-year pro­ba­tion.

We will do every­thing we can to make it work dur­ing that peri­od and then assess where we are at the end in terms of going for­ward.

Giv­en the sta­tus of the GSF, we’ve extend­ed F/A‑18 pro­cure­ment through fis­cal year ’14. We’ll buy 91 F/A‑18 air­craft in fis­cal years ’12 to ’14, includ­ing 40 in fis­cal ’12. An aggres­sive ship­build­ing pro­gram, 56 ships — 55 for the Navy, one for the Army — includ­ing 11 in fis­cal ’12. And you can see on the slide the ships that we’re actu­al­ly plan­ning to buy in fis­cal ’12.

Next slide.

We’ll pur­sue a fam­i­ly of long-range strike options. And these are key to anti-access chal­lenges that we expect to face in the future, pre­mier among them a new bomber pro­gram in the Air Force. It will be a long-range bomber. It will be a pen­e­trat­ing bomber. It will be a manned air­craft, though it will have the capa­bil­i­ty to be remote­ly pilot­ed. And we are com­mit­ted to try­ing to cre­ate this bomber large­ly with exist­ing tech­nolo­gies to keep the costs down so that we can buy it in sub­stan­tial num­bers.

We have — we’re ask­ing for $900 mil­lion for the KC‑X tanker and hope to make an award with­in a month or so for that pro­gram. I won’t go through all of these. A new fam­i­ly of armored vehi­cles in the Army that will be under devel­op­ment; $10.7 bil­lion for bal­lis­tic mis­sile defens­es, includ­ing $8.6 bil­lion (dol­lars) for the Mis­sile Defense Agency. And we have not for­got­ten our seed corn. We will grow the sci­ence and tech­nol­o­gy por­tion of this bud­get — or the basic research por­tion of sci­ence and tech­nol­o­gy, I should say, the six one part, for you bud­get types — by 2 per­cent in real terms.

Over­all we are invest­ing heav­i­ly to mod­ern­ize for the future.

Next slide.

We need to sup­ply our — sup­port our deployed troops with every­thing they need, includ­ing finan­cial resources, $117.8 bil­lion for OCO, as the sec­re­tary said, essen­tial­ly flat assump­tions, flat at cur­rent lev­els for Afghanistan, but a sig­nif­i­cant draw­down in Iraq.

You can see the num­bers here that — key items for the OCO bud­get. Again, I won’t go through all of them. Sig­nif­i­cant expen­di­tures for reset of dam­aged and destroyed equip­ment. The Con­gress autho­rized an Afghan infra­struc­ture fund from — to han­dle larg­er projects in Afghanistan. We ask for 475 mil­lion (dol­lars) for that and 425 (mil­lion dol­lars) for the Com­man­ders Emer­gency Response, or CERP, pro­gram, and $524 mil­lion of request­ed funds to assist in the Iraq tran­si­tion from a mil­i­tary to civil­ian pres­ence. That will be pri­mar­i­ly for Office of Secu­ri­ty Coop­er­a­tion per­son­nel, who will sup­port for­eign mil­i­tary sales in Iraq.

Let me ask Gen­er­al Spencer if he’d com­ment on our OCO bud­get.

GEN. SPENCER: The chairman’s top pri­or­i­ty is to pre­vail in today’s wars, and this request ful­ly funds our deployed troops to ensure they achieve their mis­sion.

MR. HALE: Fis­cal ’12 — let me go to the next slide.

So I’ve talked about themes and how we’re invest­ing these dol­lars we’re request­ing. Let me talk about the reform agen­da. We know we need to make every defense dol­lar count. The sec­re­tary real­ly start­ed the reform agen­da in earnest in 2010, focused in ’10 and ’11 on weapons, end­ing pro­duc­tion of the F‑22, end­ing pro­duc­tion of the C‑17, ter­mi­nat­ing a trou­bled VH-71 pres­i­den­tial heli­copter and not request­ing funds for the extra engine.

In ’12 to ’16, the empha­sis shifts. There’s still a weapons review and some changes I’ll talk about, but a lot more focus on busi­ness oper­a­tions. We saved $178 bil­lion in fis­cal ’12 to ’16. We’ll rein­vest a hun­dred (bil­lion dol­lars) of that, the ser­vices will, and 78 (bil­lion dol­lars) will accom­mo­date top-line reduc­tions. And I’ll talk about each of those cat­e­gories.

Next slide.

First the $100 bil­lion, which was rein­vest­ed by the ser­vices. And you heard embed­ded in the dis­cus­sion of ear­li­er pri­or­i­ties some of these invest­ments, anoth­er six addi­tion­al ships in the Navy, a new bomber pro­gram in the Air Force, financed through the sav­ings, the Army focus­ing on sui­cide pre­ven­tion, includ­ing in the Reserves, and recap­i­tal­iz­ing some of its old­er vehi­cles, and many, many oth­er exam­ples.

I’ll say a lit­tle more about how we saved the mon­ey. At the bot­tom you see cat­e­gories. About half of it was through what we call broad­ly bet­ter busi­ness prac­tices, like con­sol­i­dat­ing e‑mail servers, some reor­ga­ni­za­tion, some pro­gram reduc­tion ter­mi­na­tions — these are weapons-relat­ed — and some stream­lin­ing of low­er-pri­or­i­ty pro­grams.

Next slide.

Now, if you’re nice to me — and I’ll know ahead, in terms of ques­tions — I won’t go through all of this, but I will give you just a few exam­ples of things that we did. In the top-left quad­rant and at the top, the Army reor­ga­nized in sev­er­al ways, but among oth­er things, it elim­i­nat­ed an eval­u­a­tion task force at Fort Bliss, Texas, set up to mon­i­tor the future com­bat sys­tem, but with its restruc­tur­ing, much of it is no longer need­ed. The remain­ing tasks will be picked up by oth­er units on Fort Bliss. The Navy reor­ga­nized by cut­ting shore man­ning in more than 290 units.

Some of those went to sav­ings; some of those got reas­signed to sea duty.

The Marine Corps ter­mi­nat­ed the expe­di­tionary fight­ing vehi­cle, one of the key issues in this bud­get. If you look out in the 10 years fol­low­ing this FYDP, the — if they had re-pur­sued it, would have eat­en up about half of all the pro­cure­ment in the Marine Corps, based on his­tor­i­cal aver­ages, and about — almost all of the ground-forces- relat­ed pro­cure­ment. It was just some­thing we could not — could not afford, and it was a niche mis­sion and very high capa­ble — high­ly capa­ble vehi­cle.

We have decid­ed to ter­mi­nate this, but we will take the mon­ey and rein­vest it in strength­en­ing amphibi­ous capa­bil­i­ty. And the sec­re­tary, if he were here, would empha­size that this deci­sion does not mean we are get­ting out of the amphib busi­ness at all in the Marine Corps. We are just going to do it in what we view as a more effec­tive man­ner.

The Air Force reor­ga­nized, for exam­ple, by con­sol­i­dat­ing three num­bered air forces and by stream­lin­ing some low­er-pri­or­i­ty process­es like facil­i­ty sus­tain­ment. So this stuff is pret­ty basic block­ing and tack­ling, but we real­ly are try­ing to tight­en our belts in the Depart­ment of Defense.

Next slide.

Let me talk now about that $78 bil­lion that was tak­en out of the bud­get through top-line reduc­tions as our con­tri­bu­tion to the administration’s efforts to hold down the deficit. Here are all the items that we did. Again, I’m not going to talk about — I’ll men­tion a cou­ple that may be of inter­est. The sec­re­tary imposed a freeze on civil­ian bil­lets, with some lim­it­ed excep­tions, such as growth in the acqui­si­tion work­force, and also about halfway down imposed some reduc­tions at 10 per­cent a year for the next three years, and con­trac­tors per­form­ing staff aug­mentee roles; saved a fair amount of mon­ey, 18 — 19 bil­lion (dol­lars), I should say, for those two changes over the five years. Essen­tial­ly, he’s chal­lenged us to look for things we can stop doing and also look for things we can stream­line.

We will pro­pose some changes in the mil­i­tary health care sys­tem in this bud­get, in three broad cat­e­gories. One are effi­cien­cies. For exam­ple, a TRICARE mod­ern­iza­tion — or TRICARE man­age­ment agency will cut back on con­trac­tors. And we will pro­pose changes in phar­ma­cy copays to pro­vide more incen­tives to use mail-order and gener­ic drugs — gener­ic-brand drugs, which are much cheap­er for us.

We’ll pro­pose some equi­ty changes, includ­ing some mod­est increas­es in TRICARE enroll­ment fees. They haven’t been changed since the mid-1990s, and they’re going up by — or will go up by $5 a month for those in the TRICARE Prime fam­i­ly por­tion of the cov­er­age, $60 a year. They’ll go from $460 in enroll­ment fees to 520 (dol­lars). So they’re pret­ty mod­est. And they will be indexed after that increase to a — to a health care index.

And final­ly, we’ll pro­pose some reduc­tions in sub­si­dies to select­ed hos­pi­tals so that we’re pay­ing all the hos­pi­tals that serve the mil­i­tary health care in the same man­ner.

The oth­er thing I’ll men­tion here is reduc­tion in the size of the ground forces. In fis­cal year ’15 and ’16, we will — we pro­pose a reduc­tion of 27,000 in the end strength in the Army and 15(,000) to 20,000 in the end strength of the Marine Corps. These are con­di­tions- based pro­pos­als. They’re con­di­tioned on the end of the mil­i­tary com­mit­ment in Iraq, sub­stan­tial end of a mil­i­tary com­mit­ment in Afghanistan, and also no new ground-force com­mit­ments aris­ing. And they’re far enough out that if those com­mis­sions are — con­di­tions aren’t met, that we will be able to look at changes.

So through that, those items and a num­ber of oth­ers that you see list­ed on that slide, we achieve the 78 bil­lion (dol­lars).

Next slide.

Let me sum­ma­rize some key take­aways that I see it — from this fis­cal ’12 bud­get plan: total defense spend­ing decreas­es from ’11 to ’12, but the base bud­get increas­es mod­est­ly. I talked about our pri­or­i­ties of invest­ment, our high­est pri­or­i­ty being tak­ing care of peo­ple; and a reform agen­da that seeks to make every defense dol­lar count. In all, we think it’s a rea­son­able, respon­si­ble and sus­tain­able bud­get.

Now, I’d like to stop there. But unfor­tu­nate­ly, we still don’t have a bud­get — if I could get the next slide for fis­cal ’12 — ’11, I should say. We are on a con­tin­u­ing res­o­lu­tion through at least March 4th. We could be on a con­tin­u­ing res­o­lu­tion through the whole year. I cer­tain­ly hope not, but I can’t rule it out.

If that were to hap­pen, bad things will occur. We won’t have enough funds to meet our nation­al-secu­ri­ty com­mit­ments, in our view. We won’t have enough flex­i­bil­i­ty: For exam­ple, we can’t have any new START under this CR, nor can we have any increas­es in pro­cure­ment rates. And it will lead to inef­fi­cient man­age­ment: stop-start con­tract­ing, near-term con­tracts in order to sus­tain fund­ing flex­i­bil­i­ty.

And this is all not — this is not aca­d­e­m­ic. A lot of this is hap­pen­ing right now. And let me just give you some exam­ples. The Navy could not pro­cure the sec­ond Vir­ginia-class sub­ma­rine as planned by Jan­u­ary 31st. They’re try­ing to man­age the risk of work ter­mi­na­tion at the yard, but they can’t hold their breath too much longer.

We have about 50 major mil­i­tary con­struc­tion projects that are delayed beyond the pro­ject­ed award dates. So, for exam­ple, we are delay­ing a vehi­cle main­te­nance shop at Fort Leav­en­worth; at Hol­lo­man Air Force Base, a main­te­nance hangar for unmanned air sys­tems. These cause our mis­sion to suf­fer. We’re delay­ing train­ing bar­racks at Fort Leonard Wood; and at McGuire Air Force Base, a delay in enlist­ed dor­mi­to­ry — our peo­ple suf­fer.

In some of these, the invest­ment issues will be long-term in terms of pain — they’ll be long-term in nature, but some are hap­pen­ing right now. The Army’s insti­tut­ed a tem­po­rary hir­ing freeze, so if a tank mechan­ic leaves, we can’t fill the job. All the ser­vices have direct­ed their bases to slow con­tract­ing. That means we’re going to sign one- and two-month con­tracts that are inher­ent­ly inef­fi­cient.

The Navy is issu­ing per­ma­nent-change-of-sta­tion order with two months of notice rather than six. That pre­serves their fund­ing flex­i­bil­i­ty, but it hurts our peo­ple, and it hurts mil­i­tary fam­i­lies.

I’ve been watch­ing the defense — work­ing in and around defense finan­cial man­age­ment for more than 30 years. I can’t think of a more seri­ous sit­u­a­tion than the one we face right now. We need to the Con­gress to enact an appro­pri­a­tion. As Sec­re­tary Gates said, this is a cri­sis at our doorstep.

We’re pleased that the House Fri­day night issued a bill, which for us would be essen­tial­ly an appro­pri­a­tion bill. But we are con­cerned that the fund­ing lev­els in that bill are quite low. They’re a bit above the con­tin­u­ing res­o­lu­tion. And I under­stand the pres­sures that are on the House right now. But I do want to note that if they were to pass this bill at a lev­el — it’d be around 552 — 532 (bil­lion dol­lars) to 533 bil­lion (dol­lars) for us. As you’ve heard the sec­re­tary said, we think we need at least 540 bil­lion (dol­lars) to meet our nation­al secu­ri­ty needs effec­tive­ly.

There will be some sig­nif­i­cant risk. For exam­ple, they have cut the wartime bud­get, assum­ing under-exe­cu­tion, which we did see in fis­cal ’10 — it may hap­pen again, but five months into the fis­cal year with three months of account­ing data, I can’t be sure. And I view it as prob­a­bly my most impor­tant job to be sure that we fund all of those OCO oper­at­ing costs. So there is a risk of con­cern to us.

They’ve also made sig­nif­i­cant cuts in the reset part, the bud­get that pays for equip­ment that is dam­aged or destroyed, and some oth­er cuts that will lim­it our flex­i­bil­i­ty. We use those accounts to meet wartime — we call them joint urgent oper­a­tional needs state­ment — wartime — warfight­er needs. So they’ll lim­it our flex­i­bil­i­ty there.

They imposed a bil­lion one (dol­lars) in rescis­sions. He had dis­cussed some of those a good three months ago. I don’t know whether they’re still exe­cutable. We are look­ing at that now. They cut $2 bil­lion out of the work­ing cap­i­tal fund cash. Cash is high right now, but it will elim­i­nate some flex­i­bil­i­ty to han­dle fuel increas­es. So far fuel is doing okay, but who knows what will hap­pen to fuel over the rest of the year.

So the ser­vices are still review­ing this bud­get. There are some sig­nif­i­cant risks. On the oth­er hand, it is cer­tain­ly bet­ter than a con­tin­u­ing res­o­lu­tion. So I’m hop­ing that we get some agree­ment between the House and the Sen­ate — gets the dol­lars up some but also gives us an appro­pri­a­tion.

Next slide.

And with that, I’ll stop. It says where you can get more infor­ma­tion. And Gen­er­al Spencer and I would be glad to answer your ques­tions. And I think the colonel here is going to do the —

COL. LAPAN: Just one quick clar­i­fi­ca­tion before we take your ques­tions. At the begin­ning when I intro­duced Lieu­tenant Gen­er­al Spencer, I said that he was a rep­re­sen­ta­tive — or rep­re­sent­ing the Joint Staff. I think it’s more accu­rate to say he’s assigned to the Joint Staff, but he’s here rep­re­sent­ing the Chair­man of the Joint Chiefs of Staff.

So with that, Lita.

Q: Just a cou­ple sort of detail ques­tions. There is 12.8 bil­lion (dol­lars) for train­ing and equip­ping the Afghanistan secu­ri­ty forces. What lev­el is that at? What lev­el — what is the force num­ber that that would do?

And then my sec­ond ques­tion is about the cyber num­bers. I’ve seen a cou­ple of dif­fer­ent ones: the 2.3 (bil­lion dol­lars), and then there was anoth­er one that was about 1.3 bil­lion (dol­lars). Can you just talk a lit­tle bit more about what that is going to give us in addi­tion to the half a bil­lion (dol­lars) for DARPA?

MR. HALE: Well, first to the ANSF ques­tion, the Afghan Nation­al Secu­ri­ty Forces, it’s con­sis­tent with the strength of about 305,000 between both the police and the army. I think it’s 174 (thou­sand) and around 130 (thou­sand) army and police. Don’t hold me to those last num­bers.

In terms of cyber, there’s a vari­ety of things that are in that $2.3 bil­lion. And I — I’m not going to be able to help you with the 1.3 (bil­lion dol­lars). I’m not sure where it comes from. So the 500 (mil­lion dol­lars) I men­tioned for DARPA S&T — there’s also some train­ing mon­ey for more ana­lysts and some increased fund­ing for iden­ti­fi­ca­tion and reme­di­a­tion of cyber risks. But I think we’re going to have to get some­body else to help you with the details, because I can’t go too much beyond that.

Q: Thanks. I was won­der­ing if you could walk us through that — what the FY ’12 bud­get includes as far as mak­ing good on Pres­i­dent Obama’s com­mit­ment in sign­ing the new START res­o­lu­tion to fund the mod­ern­iza­tion of strate­gic weapons plat­forms.

And in par­tic­u­lar — in par­tic­u­lar I won­der if you could address if there’s any­thing in FY ’12 for a future ICBM or if that comes lat­er in the out years?

MR. HALE: There’s ICBM mod­ern­iza­tion mon­ey. There’s, of course, devel­op­ment mon­ey for the SSBNX. I’m not going to be able to give you off the top of my head the exact num­bers. What I can’t tell you unless there’s — unless Lar­ry can help or some­body over there, in terms of ver­i­fi­ca­tion. We will do that and we will fund it ful­ly, but I don’t have on top of my head the num­bers. But there is a fair­ly aggres­sive mod­ern­iza­tion pro­gram of our ICBMs, our strate­gic forces.

Q: Got a three-parter on the bomber that I sus­pect the gen­er­als will prob­a­bly be able to answer bet­ter. I’m just curi­ous. Giv­en the project was sort of tabled about two years ago, what has changed in terms of need or require­ments or the per­spec­tive on the pro­gram then to now? Also, when do you need for it to be in the fleet to actu­al­ly accom­plish mis­sions? And final­ly, what gives the depart­ment con­fi­dence that the Air Force can pro­cure this, giv­en the prob­lems it’s had with the tanker and with oth­er pro­grams in terms of acqui­si­tion prowess?

GEN. SPENCER: Let me take the first part of that. First of all, you may recall the last year, the so-called next gen­er­a­tion bomber was sort of all things to all peo­ple, relied on tech­nolo­gies that weren’t proven. And so the deci­sion was to do some exten­sive analy­sis, exten­sive review on the bombers to deter­mine what our way ahead would be. As a result, we came up with this long-range strike con­cept that ensures that this new bomber would, first of all, take advan­tage of proven tech­nol­o­gy and be a part of a fam­i­ly of sys­tems that Mr. Hale men­tioned, the bomber being the cen­ter­piece, but looked at holis­ti­cal­ly in terms of a fam­i­ly of strike sys­tems that could be used.

In terms of the Air Force being able to, I guess, you ques­tioned the suc­cess of them going for­ward. I guess I would refer to specifics of that to the Air Force, but gen­er­al­ly speak­ing, as Mr. Hale — I haven’t been in finan­cial man­age­ment quite as long as he has, but I will say that I have nev­er seen — I have nev­er seen the scruti­ny and intense analy­sis that went into this bomber, meet­ing after meet­ing, analy­sis after analy­sis, very open and trans­par­ent, a lot of give and take, a lot of dis­cus­sion with the Air Force and par­tic­u­lar­ly with our folks that are in acqui­si­tion. So at least from my per­spec­tive, I feel very con­fi­dent that the Air Force is ready to go for­ward with this pro­gram.

MR. HALE: And we are com­mit­ted to being — try­ing to devel­op this bomber large­ly with exist­ing capa­bil­i­ties. We rec­og­nize that if we’re going to get some­thing we can buy in sub­stan­tial num­bers, and that’s our goal, that we will have to — we will have to do that. And I also rec­og­nize it’s a chal­lenge.

Q: And the sec­ond ques­tion is when you need that in ser­vice to accom­plish mis­sions?

MR. HALE: Push­ing for the mid-2020s.

Q: Thank you. Sec­re­tary Hale, you talked about the $178 bil­lion sav­ings over the next five years, out of which 100 bil­lion (dol­lars) will be invest­ed in new weapons. In your pre­vi­ous role as a bud­get ana­lyst, you have not­ed that invest­ing in new weapons based on future plans’ sav­ings has nev­er been a good idea and there’s real­ly no his­tor­i­cal prece­dent for that.

So I was won­der­ing if you can talk a lit­tle bit about what are you doing to make sure this $100 bil­lion that you fore­see com­ing from sav­ings in the next five years actu­al­ly mate­ri­al­izes?

MR. HALE: Well, first of all, take it a year at a time, and in fis­cal ’12, we have fair­ly detailed plans that we’ll be shar­ing with the Con­gress, and I’m fair­ly con­fi­dent that we will be able to achieve those sav­ings. I rec­og­nize that when you get out beyond fis­cal ’12, the plans aren’t as detailed and I think the ser­vices who will fol­low us here will agree with that. So we need to watch care­ful­ly. We will have an imple­men­ta­tion team at OSD and so will the ser­vices that we’ll be watch­ing to be sure that we achieve these sav­ings, but frankly it’s self-enforc­ing. We’ve tak­en this mon­ey out of the — of the busi­ness oper­a­tions. We put it over here into invest­ment. If we don’t achieve the sav­ings, we’re going to have to move it back because I don’t antic­i­pate that we will see top line increas­es any time soon.

So there will be strong incen­tives to the ser­vices and the defense agen­cies to achieve these sav­ings. Is it a chal­lenge? Yes. But I think it’s — I think — I’m con­fi­dent that we will meet that chal­lenge.

GEN. SPENCER: Mr. Hale, if I could add on to that, you know, it’s easy to focus on this 100 bil­lion (dol­lars), 178 bil­lion (dol­lars) total, but I view this as — this is real­ly a begin­ning.

I mean, Mr. Hale men­tioned ear­li­er that we real­ly start­ed this in FY ’10, so it’s step­ping through ’11, into ’12. I mean, this is not the end of effi­cien­cies. The sec­re­tary led us through this effort. But this is, in my view, more about a cul­ture change, a par­a­digm shift, whichev­er term you want to use.

I view this as every year com­ing back with being as effi­cient as we can to make sure that we — in terms of the tax­pay­ers’ dol­lars that we are giv­en, that we’re tak­ing best — mak­ing best use of those dol­lars and stretch­ing the dol­lars as far as we can.

Q: Quick fol­low-up to that. So is there a list of pro­grams for each of these ser­vices that will tell them what falls off if they don’t meet those goals?

MR. HALE: Well, no. They’d have to address that in exe­cu­tion, if they real­ly aren’t able to meet the goals. I’m pret­ty con­fi­dent we’ll meet them in fis­cal ’12. I think there’ll be more of a strug­gle as they get larg­er and we have less def­i­nite plans in the years beyond.

They may be — those would be good ques­tions to address to the mil­i­tary ser­vices that are fol­low­ing us. Q: Mr. Hale and Gen­er­al, while you’re cut­ting for­eign assis­tance in the mil­i­tary, you’re increas­ing the sup­port to the Mex­i­can activ­i­ties. Why do you do that? And sec­ond, how much do you plan to assign to this issue? How this is going to be used? And I would like to know if it is part of the Meri­da Ini­tia­tive or there are addi­tion­al resources. MR. HALE: Well, Mex­i­co is one of our most impor­tant allies. Obvi­ous­ly, we share a major bor­der. We want to do every­thing we can to assist the coun­try and its — and its gov­ern­ment in ways that are con­sis­tent with their goals.

I don’t have an — and it would prob­a­bly be hard to give you an exact num­ber of what we’re spend­ing on drug-assis­tance efforts for Mex­i­co, because so many — there would be so many dual pur­pose. So I hes­i­tate to give you a num­ber. I’ll look at that one lat­er. But at least on the top of my head, I can’t do that. But I can tell you that there’s a com­mit­ment to pro­vide assis­tance to a very — a coun­try that is very impor­tant to us. Q: But is this part of the Meri­da Ini­tia­tive resources, or there will be an addi­tion­al amount of mon­ey?

MR. HALE: There is some added fund­ing for counter-drug activ­i­ties in sup­port of Mex­i­co. I think it — I want to say it’s 20 (mil­lion dol­lars) to 30 mil­lion (dol­lars) above cur­rent lev­els. But what I can’t tell you is — and it would be prob­a­bly hard to pick an absolute num­ber because, again, many of these are forces and ini­tia­tives that have mul­ti­ple pur­pos­es.

Q: And most of this is going to be used for train­ing, I under­stand?

MR. HALE: Yes, train­ing and sup­port, maybe some equip­ment activ­i­ties.

Q: The drop in over­seas con­tin­gency oper­a­tions funds is also built around the assump­tion that the U.S. would pret­ty much com­plete its with­draw­al from Iraq by the end of the year. Were the Iraqi gov­ern­ment to come back and request that either troops stay longer, or were it deter­mined that the State Depart­ment just could­n’t get by with­out some mil­i­tary sup­port, are we cor­rect in assum­ing the depart­ment would have to request addi­tion­al funds?

MR. HALE: Well, I want to treat that as strict­ly a hypo­thet­i­cal, because this bud­get is pred­i­cat­ed on the president’s pol­i­cy that we will essen­tial­ly have all troops out of Iraq by end of Decem­ber 2011. If there were a sub­stan­tial change in that pol­i­cy, yes, we would have to look at how to meet those — how to meet the resource needs. And beyond that, I don’t want to spec­u­late.

Q: Can you talk about what went into the secretary’s kind of com­pro­mise num­ber of $540 bil­lion if you can’t get an appro­pri­a­tion this year but Con­gress agrees to fund.…

MR. HALE: Right. We looked at a num­ber of pol­i­cy changes, things that have either — poli­cies that have changed or events that have occurred since the — since we sub­mit­ted the bud­get. For exam­ple, there’s the civil­ian pay freeze that was put in place. That saved us in fis­cal ’11 about 800 mil­lion (dol­lars). There was the civil­ian bil­let freeze and con­trac­tor cut that I talked about — anoth­er 800 mil­lion (dol­lars). We have, giv­en the sta­tus of the JSF pro­gram, decid­ed we prob­a­bly have 32 to 35 air­craft for that. That was 1 (bil­lion dol­lars) to 2 bil­lion (dol­lars). We have decid­ed to ter­mi­nate the Expe­di­tionary Fight­ing Vehi­cle. There was some pro­cure­ment mon­ey there, some oth­er sup­port effi­cien­cies. And frankly, the CR will force us — and there’s going to be some under­ex­e­cu­tion in this because we’re late enough in the year, and we guess that’s on the order of a cou­ple of bil­lion.

So it’s events like that. Either the world has changed, or we’ve made spe­cif­ic pol­i­cy changes. There’s an old phrase in the bud­get busi­ness: Time is the best bud­get ana­lyst. And it’s been a year since we sub­mit­ted that bud­get. So not sur­pris­ing­ly, there are some areas where we can come down.

Q: Mr. Sec­re­tary, health care costs — a year ago, you told us that health care was the fastest grow­ing por­tion of the bud­get. With these new mea­sures, has that changed, or is health care still the fastest grow­ing por­tion of the bud­get?

MR. HALE: Yeah, if I said that, I’d be wor­ried about — I mean, there are prob­a­bly some weapons pro­grams that because of the ramp-up are grow­ing faster, but I do recall say­ing it’s eat­ing our bud­getary lunch, and I’ll stick with that phrase. It’s still grow­ing in this bud­get pro­jec­tion prob­a­bly 3 to 5 per­cent a year that — in total.

And we are com­mit­ted to pro­vid­ing high-qual­i­ty health care but look­ing for ways to slow the growth, and that’s the gen­er­al ratio­nal behind this set of ini­tia­tives that I described briefly and maybe in the back­up slides there may be more detail or we can get it for you. That includes the mod­est increas­es in TRICARE enroll­ment fees, changes in phar­ma­cy co-pays, and some changes in sub­si­dies to some of our hos­pi­tals. So we’re try­ing to look for ways to slow the growth in health care, and we hope that the Con­gress will allow us to do that.

GEN. SPENCER: Also, if you look at the num­bers, back in 2001, we paid $19 bil­lion for health care. In 2012 it’s over $52 bil­lion. So it’s more than dou­bled over that peri­od of time.

Q: Sir, just to pick up on that, so do you know how much mon­ey would be brought in by chang­ing the co-pay­ments and tweaks you’re mak­ing, sort of the sav­ings —

MR. HALE: You mean The TRICARE enroll­ment fees?

Q: Right.

MR. HALE: It’s a fair­ly small part of the total and the next five years is about 424 mil­lion (dol­lars). But it will keep grow­ing because we are propos­ing index­ing those fees to a health care index. So if you go out, you know, 10 or 20 years, it will have a major influ­ence.

But we want­ed to start slow, giv­en the past his­to­ry in this area. Sev­er­al years ago, the admin­is­tra­tion made much more far-reach­ing pro­pos­als that were turned down, pret­ty much flat, by the Con­gress. We are hope­ful that by start­ing slow­ly and mod­est pro­pos­als, we will get their agree­ment.

Q: But the over­all total sav­ings besides just the increase in fees?

MR. HALE: The total sav­ings for all of our health care pro­pos­als are almost 8 bil­lion (dol­lars) over the five years. So the TRICARE enroll­ment fee is a fair­ly small part of it in these five years. But again, it will be grow­ing in the years beyond.

COL. LAPAN: Yes, sir, back in the fourth row.

Q: Sir, you men­tioned the KC‑X. What impact, if any, is this unre­solved CR going to have on mov­ing for­ward with that pro­gram?

MR. HALE: I don’t antic­i­pate an impact there. It is not a new start in tech­ni­cal bud­get terms, because there was some fis­cal ’10 mon­ey, so it would not be — we would not be pro­hib­it­ed from award­ing the con­tract.

If we are under a CR — and I hope we’re not, but if we are, then the Air Force would have to repri­or­i­tize with­in its RDT&E fund­ing in order to find the mon­ey for the ini­tial con­tract. But I think they will do that, so I don’t antic­i­pate the CR will affect the KC‑X con­tract award.

GEN. SPENCER: But the only thing I would add is that — keep in mind, once the con­tract is decid­ed, that we’d ini­tial­ly be in devel­op­ing, not pro­duc­tion; and also if you look back at the ’10 bud­get, the Air Force had mon­ey in their tanker trans­fer fund as well. So I’ll refer the details to the Air Force, but Mr. Hale is obvi­ous­ly cor­rect there.

MR. HALE: You might want to ask them again, although we’ll — I think we can make the KC‑X work, and it’s a high pri­or­i­ty, so we — I think we would. By repri­or­i­tiz­ing, we’re going to affect some­thing else, and so it’s sort of which child do you kill sort of issue when you’re oper­at­ing under a CR, and it’s just not a good arrange­ment. I guess — I hope I made that clear.

COL. LAPAN: Yes, ma’am.

Q: How about the Army’s ground com­bat vehi­cle con­tract? Do you need an omnibus bill for ’11 to move for­ward with that pro­gram?

MR. HALE: I think so, but I think I bet­ter defer that one to the Army.

Q: Right, sir, but the dol­lar amount is…

MR. HALE: All right, not a new start. So you’re okay on that one?

Q: With addi­tion­al fund­ing, yes, sir, with —

MR. HALE: Yeah. I mean, again, they’ll have to re-pri­or­i­tize. My guess is, the Army will do that. I’ll leave it to them.

But it’s the same prob­lem. I mean, it’s which child do you choose? We have oth­er needs with­in those accounts. See, ours are man­aged at an account lev­el. Essen­tial­ly, it says we can con­tin­ue spend­ing at the account lev­el of, say, weapons, the tracked com­bat vehi­cle or Army RDT&E. So you can repri­or­i­tize with­in those accounts, but it’s dif­fi­cult, and it’s not some­thing we want to do.

COL. LAPAN: Okay. Go ahead.

Q: What’s the pro­cure­ment out­look in this — over the future years’ defense bud­get? This year it’s 113 bil­lion (dol­lars) —

MR. HALE: Right.

Q: — same amount as in fis­cal ’11. Going out, is there growth or not, or does it…

MR. HALE: Yes, I think there is. You already — there’s growth. Tony, I’m not sure how much. I should know this, but I don’t know.

I mean, you asked a good ques­tion of the sec­re­tary — no, we don’t have 2 to 3 per­cent real growth. It’s a plan­ning fac­tor. I’d like to have it, but I think I cer­tain­ly sup­port my boss’s answer, which is, we’ve re-pri­or­i­tized, we’ve made some cuts with­in, so we think — we think we have a strong pro­cure­ment pro­gram.

Can we keep that up over five years with this growth? Prob­a­bly, with the effi­cien­cies we’d have achieved, I think, in the longer run, if we don’t get growth in the bud­get, we will have to start look­ing at force cuts, and indeed in ’15 and ’16, we have begun to do mod­est force cuts or think about them in those far out years.

Q: $78 bil­lion. Back in August, Sec­re­tary Gates sat at the table here and he said, my worst night­mare is that the defense bud­get will be cut for deficit-reduc­tion pur­pos­es. That’s almost the exact quote. Five months lat­er, your worst night­mare in one respect is hap­pen­ing: 78 bil­lion (dol­lars).

Can you give us now the sense of how much the OMB want­ed to cut orig­i­nal­ly? Was it like in the $100 bil­lion range and you fought the good fight and you end­ed up with only $78 bil­lion? Give us some con­text there.

MR. HALE: Well, I’m not going to spec­u­late on inter­nal dis­cus­sions. We would have pre­ferred the full bud­get. We would have been able to do more in the way of mod­ern­iza­tion and oth­er activ­i­ties.

But I think that word “respon­si­ble” comes to mind, that the sec­re­tary used. This is a coun­try that faces some real­ly severe eco­nom­ic prob­lems, and we felt we need­ed to be part of a pack­age of changes the admin­is­tra­tion is rec­om­mend­ing. So, I mean, the sec­re­tary, in the end, I think, was ful­ly sup­port­ive of the $78 bil­lion.

Q: And final­ly, $78 bil­lion over the FYB, can you let the pub­lic know how — what’s the per­cent­age that rep­re­sents of the total.…

MR. HALE: It would be fair­ly small; about 3 per­cent, I want to say, of the total bud­get in last year’s plan.

Q: Three per­cent of $3 tril­lion or what­ev­er it is over the FYB — just so the pub­lic knows, for good or evil, that’s the amount.

MR. HALE: Right.

Q: About 3 per­cent is what you’re offer­ing, I think.

MR. HALE: That’s about right, 550 — that sound about right to you? Three is pret­ty close.

Q: Okay. Thank you.

MR. HALE: Round­ing will come to my aid.

Q: You’ve got $524 mil­lion to assist in Iraq tran­si­tion. That’s sep­a­rate from the cost of keep­ing 50,000 troops there for a quar­ter of a year, right?

MR. HALE: Yes.

Q: And what — and so what is — can you unpack that a lit­tle bit? What’s involved there?

MR. HALE: Yes. It would assist the State Depart­ment and the Office of Secu­ri­ty Coop­er­a­tion in Iraq. These are con­trac­tors and some gov­ern­ment per­son­nel who pro­vide assis­tance with for­eign mil­i­tary sales. They might be main­tain­ing the equip­ment. They might be doing train­ing. The dol­lars in fis­cal ’12 that are request­ed are large­ly for oper­at­ing costs. They may be — they could be some dol­lars ear­li­er for con­struc­tion of facil­i­ties to house those peo­ple. But it’s for these Office of Secu­ri­ty Coop­er­a­tion per­son­nel, con­trac­tors and gov­ern­ment.

Q: Appar­ent­ly help­ing them with — show­ing them U.S.-made equip­ment.

MR. HALE: Yes. I think it pri­mar­i­ly — I mean, our parts of it are going to be U.S.-made equip­ment, or U.S. com­pa­nies. Let me be care­ful here. Don’t get me in trou­ble.

Q: The sec­re­tary ear­li­er talked about the Joint Strike Fight­er engine pro­gram, how he’s going to take it on a month-to-month basis.

Can you explain how that would exact­ly work? And would you be going to Con­gress every month and ask­ing?

MR. HALE: Well, I think the sec­re­tary — what he said is he will look at all options to ter­mi­nate the pro­gram. We remain strong­ly opposed to the extra engine. No, we’ll fund it, as we’re doing now, out of — while we’re on a con­tin­u­ing appro­pri­a­tion by repri­or­i­tiz­ing with­in the JSF pro­gram. Again, we pre­fer not to, but our hope is that the Con­gress clar­i­fies the sit­u­a­tion, that — for exam­ple, the pro­gram is debat­ed in the House this week, and we think it may be. And we would cer­tain­ly rec­om­mend that they vote to take the mon­ey out and that that be part of the ulti­mate bill. And that will resolve the issue.

COL. LAPAN: Yes, sir. In the back.

Q: On the mil­i­tary con­struc­tion ques­tion, mil-con ques­tion, nor­mal­ly when you put togeth­er your mil-con bud­get, you do it with the knowl­edge that mem­bers up on the Hill are going to add a lot of projects onto that. This time, it’s the oppo­site. It would appear that they can add noth­ing. And in addi­tion, there are all kinds of projects they tried to add this last time around that were zeroed out.

How does that affect how you put your mil-con bud­get togeth­er? And I mean, do you have to be more selec­tive or less selec­tive? What —

MR. HALE: I take issue with your state­ment that we pre­sume Con­gress is going to add a lot to mil­i­tary con­struc­tion. They have at times. We try to rec­om­mend what we think are the right set of projects to meet nation­al secu­ri­ty needs, and I think we’ll con­tin­ue doing that in the con­text of the total dol­lars.

And there are obvi­ous­ly pri­or­i­ty trade-offs. The more we spend on mil-con, the less we can spend in oth­er places. But I don’t antic­i­pate that we will — we will change the way we put togeth­er our bud­gets in view of con­gres­sion­al dif­fer­ences in how Con­gress may han­dle the mil-con bud­get. We’ll still rec­om­mend what we think we need.

Q: I’m curi­ous if you could just fill us in on STOVL. In terms of bud­get plan­ning, have you tak­en that mon­ey out — it’s been repri­or­i­tized — so if STOVL sur­vives, you have to buy those jets back by killing some­thing else in the future?

MR. HALE: No. In ’12 and ’13, we held the buy to six a year for STOVL — that’s the min­i­mum we need to keep the pro­gram going — and added mon­ey for — and I’ll let the Navy and Marine Corps give you more details — but for test­ing and devel­op­ment.

And the goal, as I said, is to try to make the STOVL work. And two years from now I think we’ll have to reassess where we are. The Navy will say that they’re con­fi­dent they’ll make it, and I hope they do. We could use the plane.

But no, we haven’t tak­en the mon­ey out of the out years. There is a ramp-up of STOVL in the out years, is the plan, and I’ll have to get them to give you the num­bers. So I think it’s fair to say we’re bet­ting on suc­cess, but we will need to reassess in two years about where we are.

Q: Okay. If I could, was there an inten­tion­al dri­ve to take risks in the air defense area? And I’m ask­ing specif­i­cal­ly about the sort of new approach to needs, the ter­mi­na­tion of SLAMRAAM, and then it looks like JLENS might be being altered a bit. So was there sort of a cohe­sive view here that air defense can take a hit?

MR. HALE: No, I don’t think so. I mean, I think we looked at indi­vid­ual pro­grams. MEADS has a long his­to­ry. We’re going to — those of you who are not aware, we’ll com­plete the con­tract through fis­cal ’13. We cer­tain­ly hope to har­vest some tech­nol­o­gy that we may use our­selves, and then some of our for­eign part­ners may go ahead and deploy MEADS.

SLAMRAAM was a case of pri­or­i­ties. I think the Army felt the mon­ey would be bet­ter spent for oth­er kinds of pri­or­i­ties: rock­et and mor­tar defense, as opposed to a sur­face-to-air mis­sile. So I don’t think there was any broad scheme to try to reduce air defens­es.

Q: Did you ter­mi­nate MEADS after 2013?

MR. HALE: Yes, our pro­pos­al would be that we would invest no more U.S. funds in MEADS after 2013, fis­cal year ’13. We will — we will let the pro­gram run out under its cur­rent plan so we don’t incur any ter­mi­na­tion lia­bil­i­ty. But we would­n’t spend mon­ey beyond there. And we would try to har­vest some of the tech­nol­o­gy, and we may use that in oth­er pro­grams, and our part­ners may go for­ward with some MEADS. But it is not our plan to do so.

Q: How much mon­ey are you going to save by doing it over the FYDP? Do you rough­ly know?

MR. HALE: That I don’t know off­hand, Tony. I’ll have to —

Q: Thank you.

MR. HALE: I mean, com­pared to last year’s plan, I don’t know.

Q: Gen­tle­men, the Marine Corps has talked opti­misti­cal­ly about being able to acquire the new amphibi­ous vehi­cle much ear­li­er than the nor­mal eight- to 10-year acqui­si­tion cycle. What’s your view on that? How soon do you think they can get it? And what do you think the cost is going to be?

MR. HALE: I think that’s a great ques­tion for the Marine Corps — unless you want to —

GEN. SPENCER: No, I don’t —

MR. HALE: Let me defer that one, if you would, and let them answer it.

Q: So you have no views on that —

MR. HALE: Well, I mean, we’ll sup­port the Marine Corps. And I know it’s an impor­tant pri­or­i­ty to them. As we always do, we’ll review it. But I don’t have in mind a spe­cif­ic plan, and I’m not sure they are to the point of hav­ing a spe­cif­ic plan. But I’d rather let them answer it. It’s a high pri­or­i­ty for the sec­re­tary. He’s under­scored that his deci­sion on the EFV does­n’t mean that he’s aban­don­ing amphibi­ous capa­bil­i­ty. We will take that mon­ey and invest in oth­er ways that we think are more effec­tive to improve that capa­bil­i­ty.

Q: Ear­li­er you talked about the effect that the fail­ure to pass a bill — the — a spend­ing bill this year would have on the FY ’11 bud­get. Can you talk about some rip­ple effects it might have for FY ’12, such as the Vir­ginia-class sub­ma­rine and MILCON projects?

MR. HALE: Right. Well, I mean, in the worst case, which is we end up under a year-long CR, we don’t have any new START author­i­ty, we don’t have any author­i­ty to increase rates, it’s going to affect the ramp of pro­grams. In some cas­es, these pro­grams were ramp­ing up and would have car­ried on to fis­cal ’12. We may not be able to do that if we can’t do the ’11 ramp.

I’d be even more con­cerned about the things we don’t see from Wash­ing­ton, the kind of insid­i­ous effects on the con­tract­ing com­mu­ni­ty. I mean, in some cas­es they’re kind of at an all-stop right now, they just can’t go for­ward, which is build­ing up a back­log, so when this does get resolved, they’ll have to work off that back­log at the same time they need to be turn­ing to fis­cal ’12. There’s only so many of them that have the skills to do this. So I’d be very con­cerned that we’ll see less effec­tive or effi­cient con­tract­ing if the — if we end up under a year-long CR. Again, I think I’ve made clear — I hope I have — this is a bad idea. It’s a bad way to bud­get. We need an appro­pri­a­tions bill as soon as pos­si­ble.

Q: Quick fol­low-up. Is — are you doing any kind of worst-case- sce­nario plan­ning in the event there is a gov­ern­ment shut­down after March 4th?

MR. HALE: No; I mean, I’m sor­ry to say we do know how to do this, although it’s been a long time, for­tu­nate­ly, since we had to exe­cute it. But we have gone through it as we got near some — the absence of sup­ple­men­tals in the past. I cer­tain­ly hope that we don’t go through that again. It’s both time-con­sum­ing to plan and if we ever did it, I was actu­al­ly here as the Air Force FM when we did it. In the ’90s, it was very not inef­fi­cient — or it was inef­fi­cient and it was destruc­tive of morale. It’s just — I cer­tain­ly hope we don’t do it again.

COL. LAPAN: Sir, in the back.

Q: Yes. Just two quick ques­tions. There’s a $200 mil­lion cut in MWR funds. I was won­der­ing what the impact of that would be? You prob­a­bly don’t know that either. (Laugh­ter.)

MR. HALE: Sir, I don’t know. I’m sor­ry. I’ll give the ser­vices a warn­ing; maybe they can fig­ure it out, but I don’t know. I’m sor­ry.

Q: Is the sub­sidy for the com­mis­saries is being reduced at all?

MR. HALE: No, I don’t think so. My knowl­edge is it’s 1.4 bil­lion (dol­lars). I do remem­ber that num­ber. I don’t believe it’s being reduced.

COL. LAPAN: Okay. One on the side and one on that side and we’ll have to wrap it up.

Q: Bal­lis­tic mis­sile defense. I’m won­der­ing if you could give us a sense of how that num­ber is going to be divid­ed.

MR. HALE: Well, I can give you a real aggre­gate sense — 8.6 bil­lion (dol­lars) will go to the Mis­sile Defense Agency, which has, as you prob­a­bly well know, a vari­ety of pro­grams. I don’t have a pro­gram­mat­ic break. The rest of it is in things like Patri­ot, there’s THAAD — you remem­ber any oth­er exam­ples? GEN. SPENCER: AEGIS, phased adap­tive approach.

MR. HALE: Okay. All right. Phased adap­tive approach is in there. I don’t know if that’s help­ful. You could prob­a­bly hit up the Air Force for some more — some more detail on that, would that be fair?

Q: Yeah, prob­a­bly not. (Laugh­ter.)

MR. HALE: But I can — I can offer them.

Q: Yes. I was hop­ing to talk to you about the effi­cien­cy ini­tia­tive. Back in August, there was talk of shut­ter­ing JFCOM, BTA, and six months lat­er the details just still aren’t out there. Can you give any sense as to where these peo­ple are going and whether you have to expend mon­ey in order to basi­cal­ly take them apart?

MR. HALE: Well, we’re get­ting there. I mean, we have offi­cial approval, have signed the JFCOM dis­es­tab­lish­ment, I believe the tar­get is August and there are inter­ac­tions going on now with the peo­ple involved and that’s some­thing very impor­tant to us.

As far as BTA, it will also be dis­es­tab­lished. I’m not sure of the tar­get date, prob­a­bly this sum­mer. I can tell you a lit­tle more there. The pro­gram man­age­ment peo­ple will — first off, there will be some very sub­stan­tial over­all reduc­tions, stream­lin­ing. The pro­gram man­age­ment per­son­nel will go to the Defense Logis­tics Agency. Some of the pol­i­cy folks will come to the deputy chief man­age­ment office and there’s a small wartime group that will move also to OSD.

So this is — this is hard and a lot of detailed plan­ning is required and we want to be mind­ful that peo­ple are involved. We want to do this with­out risk if we can and so we are work­ing through that lev­el of detail at the moment, but it is get­ting a fair amount of atten­tion and I think we are mov­ing for­ward.

Q: — that detail might fin­ish?

MR. HALE: Prob­a­bly on a rolling basis and it’s real­ly down now to the com­mands, and because peo­ple are involved, I think the com­mands will want to take the time to work with their employ­ees and the con­trac­tors that are involved, too, before they announce details. So I can’t give you a firm date. They may know, but I don’t — I don’t have in my head a firm date for either one.

Q: I have an addi­tion­al ques­tion. Do you have to spend mon­ey in order to —

MR. HALE: Well, cer­tain­ly, there will be some costs. We’ll offer buy­out incen­tives, in cas­es where we need peo­ple to leave, and again, in order to try to — or avoid risk. Depend­ing, as pos­si­ble that there may be some con­tract ter­mi­na­tion costs, depend­ing on the specifics of the con­tract. So I think the answer is yes. It will be my rule of thumb and it does­n’t relate direct­ly to JFCOM, but hav­ing done a lot of these draw­downs in the past, is you don’t save any mon­ey in the first year. You do well to break even, frankly. But we do expect to see some sub­stan­tial sav­ings over the FYDP. As I recall for JFCOM and BTA togeth­er, it was around 1.9 bil­lion (dol­lars) over the ’12 to ’16 peri­od.

Okay. Thank you very much. I appre­ci­ate it.

Go to http://www.defense.gov/pdf/Hale_2012_Budget_Request.pdf to view brief­ing slides asso­ci­at­ed with this tran­script.

Source:
U.S. Depart­ment of Defense
Office of the Assis­tant Sec­re­tary of Defense (Pub­lic Affairs)

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