 All right. Good morning. Welcome to the second round of CSIS's Global Security Forum. This is the discussion on whether or not the budget crisis has shattered the Cold War consensus on defense budgets. My name is David Burto. I'm a Senior Vice President here at the Center for Strategic International Studies. I want to welcome also our viewers on the web. This is our first event in this room, and so we're inaugurating it with a very serious topic and a very distinguished group of people to talk about it. I'd like those in the room if you have your cell phones to please silence them so that we can... Or you could turn them up really high so that when they go off we'll know who you are and we'll be able to single you out. Our viewers on the web, you won't be able to see the slides that I'm showing at the beginning as part of the background here, but those slides are available to download just to the upper right of the webcast that you're watching, if you will. I'm going to open up with a little bit of background material. I'm then going to ask for each of the panel members to provide some commentary of their choosing, and then we'll turn to questions. We've got about an hour and 15 minutes, and that's enough time to get ourselves wet in this topic and move on. I want to go ahead and introduce my panel members right now, though. In order, starting from the far right, Steve Cortese, Steve is the Executive Vice President for Washington Operations at DRS Technologies and a former Staff Director of the Senate Appropriations Committee. Next to him is David Lyles, who is a former Staff Director of the Senate Armed Services Committee and recently retired Chief of Staff for Senator Carl Levin of Michigan. To my left, Jim Dyer, now with Podesta Group and longtime Chief Clerk of the House Appropriations Committee. And finally, Charlie Hoy, a former Staff Director of the Senate Appropriations Committee. I'm using the term Staff Director and Chief Clerk interchangeably here because I actually don't know which one you're supposed to use, at which point in the Senate. So these guys can correct me on that later on. Welcome to each of you. I'm going to start by rapidly going through a handful of slides. Those of you in the back, you might be able to see them better on the side wall than on the front because I don't know how visible the bottom of these things are. Can I have the next slide? So for most of the past 65 years, we've seen federal deficits in spending. And this slide shows that all is a percentage of GDP. That's the left-hand legend, if you will. The four exceptions are also noted here. So the top, the red bar is spending. The black line is receipts. And you can see that spending usually exceeds receipts. And the bottom hovering around the 0% line is surpluses and deficits, if you will. It shows up as green because I couldn't figure out how to change green to red back and forth as we went back and forth. But you can see the four big exceptions here. One under Harry Truman before Korea, under President Eisenhower in the 1950s. For a very brief moment under Presidents Johnson and Nixon in 1969. And then not again until four years under President Clinton. And those surpluses followed more than a decade. Those surpluses under Clinton followed more than a decade of debate on how much government America wanted and needed and how we were going to pay for it. Note, if you would, that each of those surpluses is preceded by an increase in revenue, in federal government revenue, as well as a decline in outlays. In other words, history shows that the Republican path of trying to balance the budget without increasing revenue has never happened in the modern era. Note also that twice in the last decade, we've seen a historic low in terms of percent of GDP that is federal revenue. First under President George W. Bush with the Republican Congress. And again, after the Republicans regained the majority in the House in the 2010 midterm elections, even the tax cuts under President Reagan did not bring revenues down to barely 15% of GDP. Let me have the next slide. I'm adding now to the previous slide two more lines. Defense spending and net interest on the debt. So defense spending is kind of in the middle. It's that railroad track line that you see in the middle there. As a percent of GDP, it was really high in Korea about 15%. Hit roughly 10% at the peak of Vietnam. But since the end of Vietnam, defense spending has been between 3.5% and 6% of GDP. That's relatively stable compared to overall receipts and outlays. But in real dollar terms, it's actually quite a different story. Let me look at the next slide. This is what it looks like when you talk in real dollar terms as opposed to percent of GDP. You see the peaks and you see the declines. This really represents the four big drawdowns, the previous three after Korea, after Vietnam, and post-Cole War, as well as the current drawdown, the post-Iraq, Afghanistan drawdown, or the post-BCA drawdown, whatever your measure of success is in that regard. And even though those drawdowns were very steep, roughly 30% from the peaks down to the valleys, if you will, from a constant dollar perspective. Even though the floor of the current drawdown, the final BCA caps that you see on the right-hand side of the purple there is about $100 billion above historic low points in real dollar terms. Internal cost growth in DoD, and we've covered this in other reports elsewhere, has eroded defense buying power to the point that they're roughly equal, if you will, to those previous drawdown floors. Also on this chart is a black line that shows the size of the military, reflected in active duty and strength. The legend's on the right-hand side going from zero at the bottom to 4 million people up at the top. So in all the previous drawdowns, post-Korea, post-Vietnam, post-Cole War, military and strength declined along with defense spending, and that meant that military pay could take its share of the cuts. So far that's not happening this time. There's not as much room for drawdown because there was no buildup in the early 2000s to have that drawdown come from. And so far Congress is showing little sign of agreeing with either additional cuts in active duty and strength, or perhaps more importantly, in changes in the rate of growth in military pay and benefits. Let me have the next slide. Now I add two more lines to the receipts and outlays. This now has all the spending in it. It's a little hard for you to see the line, but there's kind of an orangish line down around the defense spending line. It's a little bit different railroad track. That's domestic discretionary spending. All of the government non-mandatory spending. Mandatory spending is also added in this line. That's the kind of purplish line in the middle that starts pretty low back in 1962 and climbs up to by 2008 equal to 100% of total federal revenue. So in 2008 all of federal revenue would have covered mandatory programs. There were zero dollars left over for discretionary spending in either domestic or defense. That's the trillion three deficit that we had that year. This can also mislead you a little bit because if you look at the far right-hand side you'll see that outlays are going down over the last few years and you'll see that receipts are going up. This might lead you to believe that if we just extend those lines out a little bit we'll be balanced in a couple of years. Projections particularly from the congressional budget office but also OMB's projections for the out years show this is not going to be the case. That's about as low as we're going to go and about as high as we'll go under current law and you'll stretch out with deficits. And of course once you get to the 20s you get into the David Walker territory of scary charts that dwarf American spending with debt over the long run. But right now both the House and Senate budget resolutions for fiscal year 14 foot defense spending higher than non-defense. You can't really see it on this chart. Defense and non-defense are pretty flat and even since about the end of the Cold War. But in recent years defense has declined not as fast as domestic discretionary spending and that trend would also project. So both the House and Senate budget resolutions have the same number for defense, a higher number than the Budget Control Act caps. They differ by 20% in terms of domestic discretionary, 90 billion out of about 500 billion. And of course they're conferring even as we speak, well not technically, but the conference is on the clock even as we speak to resolve those differences. Does this mean though this agreement between the House and the Senate and the administration on what the FY 14 defense spending level should be? Does this mean we have a new emerging consensus on defense? I don't think so, we'll come back to that in a few minutes. Let me have the next chart. This adds one more line and that's total federal debt. Total federal debt means I have to change the scale on this chart. The top on the other chart was about 30% of GDP, now I have to go up to 80% of GDP. That has the effect of making all the other lines which were a lot up and down on the previous charts look flat down at the bottom on this line. And in fact defense looks so low, it almost looks like it's down around the neighborhood of between zero and nothing. But what you see here is in fact the trend in the total rise of the federal debt if you will. One of the things that I note is that beginning at the Reagan administration, federal debt was about 25% of GDP over the next 15 years as we debated what to do about our federal deficit, that debt as a percent of GDP doubled up to 50%. It's actually a higher increase over that 15 year period than a 15 year period since then in terms of growth in percent of GDP. So during the Cold War though, while those debates were going on, there was general agreement on the need for defense on the purposes for which we had a military. I'm not sure we have that consensus today and if we don't we have to ask the questions how do we get it back? How does the Defense Department deal with this lack of consensus? You heard the Secretary comment this morning about his six priorities in regards to that exercise. What should they do differently? What should we do differently? What does the Congress do differently? To look at these kinds of questions, I want to turn now to our outstanding panel of experts. I think we can take down the slides. Let's see if we can turn off. No one better starts out here this morning. Ah, mics are back on. Thank you. I'm reminded now actually in my training for this room I was told it takes a minute for the mics to come back on. So obviously that training didn't stick very well. You know, I'm a result of O&M funding cuts and we've probably cut some of our pre-deployment training out a little bit here. So with that let me turn my mic off and turn the microphone over to Steve Cortese. Welcome Steve. David, thank you. Good morning. After the entirely uplifting and encouraging presentation that David provided it's awfully hard to follow directly but as I've often been accused I'm much more of a glass half full kind of person and outlook. And to me a half a trillion dollars a year roughly the BCA 2015 to 22 kind of number is a bigger number for defense spending than I ever thought I would see in my professional lifetime. So to me it's not that we need to debate in a consensus about how much to spend on defense. We need to debate in consensus about what to spend the nation's resources for defense on because I would argue it's not a lack of dollars. In fact the BCA providing roughly a floor I would argue more than a ceiling for defense spending is a new development. The Graham Rubin's Hollings legislation the balanced budget agreement of 1997 these were much more thought of as ceilings and a consensus emerged around those ceilings. The BCA to me means that for 10 years there's roughly a commitment to a level of defense spending that should afford both the executive branch and the Congress an opportunity to think a little bit longer term and to make choices that are more focused on the future than responding to today's sense of immediate crisis. But I would argue the only way that happens is that if the members especially speaking to the congressional piece of this decide they're going to do something. The absence of legislation the absence of the predictability by the department of the Congress making choices exercising its constitutional responsibility an obligation to set those funding priorities and decisions is a significant contributor to this sense of crisis in defense spending. The quickest remedy to that cutting right to the chase is that there has to be a reason for members to feel connected and engaged to the bills. Much of the consensus we enjoyed if you look at the period through the wall coming down was surrounded around the Cold War and there was a bipartisan consensus about what defense was needed for. If you look at that period we kind of floated during the early 90s till we had the crisis in the Balkans that then kind of set the tone for the post-Cold War outlook on defense. But there was great uncertainty over both the amount and priority of this investments for the country during that early 90s period. We came out of Bosnia again early in the Bush administration a sense of transformation was the hallmark and Secretary Rumsfeld was looking to create a consensus around transformation for a future force and then there was the terrible events of 9-11. So we then had a period of consensus about the global war on terrorism. Finding down, that's not going to be the consensus point in my judgment looking ahead for the next 10 years under this BCA structure of spending and new consensus coming out of Iraq and Afghanistan is going to be central to how the Congress again accepts and discharges those responsibilities as it relates to defense spending. The generational shift we've seen in just the past three years sets the stage for just that reset of a consensus on defense spending. The members I worked for and had the privilege of serving during my time on the Hill have all passed from the scene and their successors are entering into this undefined period establishing for themselves their priority their recognition of what that next decade period of defense spending and priorities are going to look like. In the absence of bills happening and in the absence of the dreaded word earmarks or what I choose to describe as the Congress exercising its constitutional authority to set spending priorities we've had a period where the engagement commitment to the bills has been harder to track and understand and I think that's going to be part of what the leadership in both houses the new chairs and ranking members of the Appropriations Committee the Defense Subcommittee increasingly in the Armed Services Committees that Senator Levin retires they're going to have a period here of a new group that's come to these leadership positions in this different period who are going to help create or not that architecture of how defense spending will be prioritized over the next decade so from my point of view it's much more about the choices people make and their determination to make difficult choices than it is about the total volume of dollars of the percentage of spending for defense any number is going to work if the right choices are made and people are committed to a coherent responsible plan I think we have the luxury of numbers that are more than adequate to be able to accomplish that objective David? Thanks Steve Good morning everyone you know David being in this fancy new building I can't help remember, think of the story of the guy who was driving around New Zealand in this little BMW convertible and he was driving around on the back roads and he all of a sudden he comes around a curve and there's a huge flock of sheep in the middle of the road and he gets out of his car and he goes over the sheep herder and he says um that's a nice flock of sheep he got there and the sheep herder said yes it is and the guy says well if I can guess how many sheep you have in that herd can I have one of them and the sheep herder says well I guess so so he looks and he says um he got 436 sheep in that herd and the sheep herder says well that's absolutely right go ahead and take one so he reaches down picks up an animal heads back to his car and the sheep herder calls out after him and says tell you what if I can guess what you do for a living and where you come from can I have that car of yours and the guy said yeah that'll be alright so what do I do for a living and he said I think you're an economist you work for a think tank in Washington DC and the guy says that's absolutely amazing how did you figure that out and the sheep herder says well if you put my dog down and come back here I'll tell you all of us here at this table and many of you in this room have devoted a great deal of time and energy in your careers to building a strong national defense in a military second to none we're all concerned about the current prospects for defense frankly I'm worried that the budget conference that's going on right now could end up at the same place as the super committee in December of 2011 which is absolutely nowhere that means the federal government will be left to limp along under successive continuing resolutions and our defense capability will continue to erode under the effects of the sequester no one imagined back in October of 2011 that the two parties would really shoot their respective hostages defense spending and domestic discretionary spending but they did just that in December of 2011 when they failed to reach an agreement and let the sequester go into effect I began my defense career in Congress with the hollow army of the 1970s and I remember the outcry then I'm amazed to see the same problems heading toward us now and no widespread commitment to do what is necessary to avoid them but just worrying about restoring a national consensus for a strong military I think misses the real problem the real problem is that Congress which is an institution I revere has become totally dysfunctional it's failing in its responsibility to deal with national defense but it's also failing in its responsibility to deal with immigration reform with comprehensive tax reform with farm policy with deficit reductions in fact it's hard to think of a single important issue that Congress is dealing with effectively right now in fact all Congress seems to do is to lurch from one artificial self-inflicted fiscal crisis to the next which in itself is damaging our economy I think and holding back sustained economic growth frankly I think the largest part of the problem lies in the House which is not which is natural since I spent most of my 37 years of federal service on the Senate staff but over 60% of the majority party last month in the House voted against the measure to reopen the federal government and to avoid default some of you will say well that was just a free vote the bill is going to pass anyway with Democratic votes but that misses an important point 144 members of the House told their constituents that they believe choosing closing the federal government and defaulting on our national debt was actually a rational course of action until Congress restores returns to being a truly legislated body I think in which compromise is not a sign of weakness or not a sign of surrender I think the likelihood of a consensus on national security or any other important issue is going to be very difficult to achieve Jim thank you David and good morning everyone it's good to be with you as always I have to reflect on the fact that this is the first time in several decades that Charlie Hoy and I have been on the same side of the table so I have a feeling there is a deal in the works here if we can just stay here long enough this is one of those subjects in my mind that is it's as the late and lamented Morris K. Udall used to say it's all been said before but not by everyone so I want to try to say it a little differently this morning if I could when the if you ask if you said to me Jim what's the problem David touched on it a little bit and it's not just the House by the way but the problem really is that the congressional budget process has collapsed and I think even the most enthusiastic defender of the process has got to concede the point and the collapse of the budget process has been especially hard on defense because the reality of this congress and the previous congress and the congresses before it and I fear the congresses after it is that they absolutely positively refuse to address the parts of the budget that are growing the fastest and I'm not arguing here this morning to put take food out of people's tummies and I'm not arguing to take roofs off of people's heads and we're not arguing to take health care away from folks we're simply saying that there's a fiduciary responsibility that I think all of us have been born and bred upon in this town and that is to try to look long term at the federal budget and to address the places where it's growing to trim the growth a little bit to manage our resources if we have to have more revenues yes I'll say it we have to find creative ways within this political context of getting them now I was somewhat encouraged in 2011 by the BCA I was encouraged because I thought that for the first time we had what appropriators have coveted for a long time and I suspect what our friends in the Pentagon coveted which was the prospect of some long term planning and understanding of what our top lines were I'll speak for Steve and Charlie briefly here and say we are very much linear people with budgets one year at a time but the truth of the matter is the executive branch projects them out farther it helps them to do that it helps us to get down to the micro level and in effect help them by reviewing these budgets with a great deal of meticulous care I thought the BCA would give us that opportunity what I didn't appreciate was that since the ink was dry on the 2011 act basically this Congress and the Congress again and I fear the one after it has spent all of its time tweaking the defense number and absolutely ignoring everything else and through a lack of thought on the part of just about everyone executive branch and legislative branch we have been dragged into the concept of sequestration again I want to speak for my appropriations friends this is the anti-appropriations act this is the bill that basically says never mind the appropriators never mind oversight never mind waste never mind what works never mind contingency spending just cut it all just do that and then we're all going to feel good well we're heading into year two of feeling good here and I can't find anybody in or out of this room that feels very good about defense spending as long as we have to live with this monstrosity and how long will we have to live with it well I don't know maybe another year you noticed on David's charts all the numbers start to creep up a little bit the hardest two years of sequester or last one and this one and maybe things do improve and maybe the sky opens up and the sun comes out and people of relative good will look at each other and say hey there's something we can and should be doing here about this issue and we need to solve the problem as I both work in and observe this congress and this administration as well I'm stricken by the fact that sequestration becomes almost entirely quated with defense spending and the truth of the matter is this is hard on defense because as we all know the defense equation it's not just about money it's about threat and it's about management it's about a whole bunch of things back in the day when we were all sitting around the Capitol Hill campfire it was common to hear one of us say at the end of a conference or at the end of the day money solves all problems and it does and that's not to say that unlimited amounts of money solve all problems but the careful management of resources the careful review of what works and what doesn't work the careful review of cutting and the careful review of investing is what I think taxpayers and think tanks expect this congress to do and it's absolutely what this congress is not doing and it's what the last congress didn't do either so the BCA it is the law of the land which is the current term of favor in this town and we have to respect the law of the land but we don't have to respect lousy laws and we do need to change this law and we need to fix it I think and I think Steve made a very good point and I just want to second it for me too this is not just been about a set of numbers most of us and the people we worked for if you put us in a room and a table all you really needed to do with us was to say here's your number this is the number you have this is the amount of money you have this is what you have to work with and there is a 100% expectation that you'll do your job with certainty today we have a delta that exists between the house and the senate of almost 100 billion dollars as good as these guys are and I think they're pretty good we're not going to be able to manage things with that kind of a delta the other thing we're not going to be able to manage here is we're not going to solve defense spending sequester wise without solving non defense spending as well and I say that because in my time in this town I have watched people say where's the national security consensus well some of it went away when some of the people who shaped our ideas like Dan Inouye and Ted Stevens and Richard Luger and David Boren and Bill Young and a whole host of people Jack Edwards to name them all Jack Murther when these people left these were the great consensus shavers they had served in the military and the military left them a strong sense of discipline and a strong sense of what was important to do and what was less important to do and I think in our own way because we worked for them we tried to reflect those desires but the world's more complicated today as all of you know national security today doesn't necessarily mean you wear a uniform and carry a gun it may mean you stand by a border it may mean that you inspect things in a port it may mean you track illegal money it may mean you represent business interests overseas it may mean you have a dark suit and a white shirt and a blue tie on but you're still doing national security it also may mean that you're trying to manage the United States developmental assistance programs to bring stability into the system all of those things and the budgeteers in their ultimate wisdom decided that those were national security concerns too and indeed even those things suffer today under this failed budget process so what could we hope for my hope would be that again the leadership of this congress takes a second look at these issues and God forbid, give the appropriators a number bring me throw David I'll throw David a bone here too let the authorization bill come to the floor if you have policy debates whether it's federal harassment or Syria put them on the floor let people do that thing that members used to love doing but don't do anymore and that's vote and if you have an opportunity to vote, voting like money solves a few problems too and it certainly would give people like us the clarity and the direction we would need to produce legislation so I'm going to stop because I always talk too much but there's a lot to think about and a lot to talk about and I hope that to fix defense and to fix non-defense in this country there would all of a sudden emerge starting at the leadership and maybe working its way down through the ranks some kind of belief that this process has gone bad and it needs to be fixed Charlie thank you it's a pleasure to be here this morning address this topic which is probably not easy to come up with solutions so maybe I can focus a little bit differently than some of my colleagues did so far and the first thing that I'd like to note is that a topic here is the consensus been lost on defense and I would point out that today the military has held an extremely high regard by the American public you can hardly watch a sporting event on television without seeing a tribute being paid to the veterans or to the active duty military personnel there are restaurants that are giving way free food later this month to our women in uniform you see the congress on the eve of the shutdown it says even if we're going to shut down we're going to continue to pay the troops so the notion that the military is not supported is probably not accurate and I'm not saying anyone said that but I think it's important a distinction to make this is not post-Vietnam when there was a problem with the view of the military the American public strongly supports the military but I'm not so sure that they strongly support defense spending in the current environment the situation that we face right now with the hemorrhaging debt is such that people are in fact saying hey everything's got to be on the table as we look to ways to solve this problem the budget control act set up what they thought was going to be a sort of damocles and said well if you can't solve this problem with the super committee then we will in fact cut defense and domestic discretionary spending half and half and that everyone thought at the time and the White House thought at the time and I think the leaders in the congress thought at the time that that was such a a solution that no one could possibly want that there would be a solution we would find something and the super committee would come to an agreement and we would have something that would in fact forestall sequester but now we see the consensus in the hill that the sequester is taking place and you have even mainstream republicans not just those who are further on the conservative side of the house saying that we have to get the savings that we got through the budget control act which means the sequester takes effect which means defense gets cut so you starting to see a consensus that says in fact yes we do have to defenses on the table and we have to make these cuts which I think is a change that we have seen in the past and I think even as we went through those negotiations in 2011 no one thought that the republicans would come along to the agreement that we could in fact cut defense that we thought that for sure that they would say no it cannot be done the democrats say sure we are not going to cut domestic discretionary spending that far but that didn't happen what happened was we are now in the process where we are implementing sequester we have fallen off that cliff and we are now figuring out how to live with it because I thought about this in a consensus of how we got here I thought of that factor and I also thought of a couple of other things it seems to me that if you are in this information age where we are bombarded 24-hour media in which every person now can be a journalist through tweeting and internet comments and blogs that we are bombarded constantly with the idea of how there's problems here and how do we solve these problems there is a scandal a small scandal gets blown out of proportion into a major scandal so if the F-35 has experienced cost problems it becomes a huge problem and I think that something in this constant bombardment of media is something that makes it more difficult to come up with a consensus that says we ought to spend more on defense the second thing I would note is that in a very unscientific poll I went in and I looked at the comments that are made on the internet to articles that are written about spending and defense spending and normally speaking when you go and you read the cost of comments that come after the article I'm retired now so I have a little bit of time to do things like that normally what you get is you get those people on one side of the issue and you get the other people on the other side of the issue and normally these things devolve into name calling without a lot of information that's out there and it says we looked at defense spending there was a general agreement on everybody who's writing that says we ought to cut defense spending you have it on the left and you have it on the right and so that's different from what I think we've been in the past so the question is what are we going to do, how are we going to get over this and our colleagues have talked about a lot of different things about the congress dysfunction and I thought I'd take a little bit of a different approach and that is this one thing we know we're going to be bombarded by this and we're going to be so-called investigative journalists that are always looking to get somebody to make a comment and you can generally find the same pundits in Washington to see that we'll make a negative comment about what it ever is on defense so you know you're going to be faced with that what can we do to try and get over some of these hurdles and one of the things that I looked at as I thought about it was what about the internal workings of the defense department on the defense budget for the last four years I had the opportunity to work with the defense committee previously that I had just worked on the defense subcommittee for many, many years and I got to think about the defense budget is with all of the flaws and as I saw it compared to the domestic spending I noticed that the way the defense budget is put together is probably a lot better than the way that the domestic spending budgets are put together having said that there are always problems with the defense budget when it comes before the congress one of the reasons why the congress makes so many changes is because the budget that gets sent up to the congress is always flawed I think one of the things that needs to be done is the defense needs to improve its oversight of the budget process I think it needs to reinvigorate its financial management I think it needs to re-empower the office of secretary defense comptroller which I personally believe has been weakened over the past 20 or 30 years some say it started in the Weinberger administration I don't know if that's correct but it's certainly been weakened I think DOD has to set better priorities the secretary I am told has announced his six priorities today but I would say that generally speaking the priorities are somewhat like this when we get the defense budget and I think the other problem is that it's a huge task to put together a defense budget it's enormous with thousands and thousands of programs, projects and activities and generally speaking it's put together about 14 months before the congress passes a law to how it gets implemented DOD is not very good in adapting to that change in that 14 months there are always going to be changes there needs to be a better cooperation between the congress and between those people in the department of defense that are putting their budgets together to try and figure out how you do a better job of managing those resources those are just some small things that could probably be done hopefully could be done the last thing I would put out there which is kind of a pie in the sky idea which is never going to happen and that is cooperation the defense process the budget process an extremely adversarial process throughout probably all levels of public and private spending certainly it is on the public side of the house from the lowest levels of the individual who's managing his money to the highest levels everyone tries to have a little bit of a management reserve the compilation of all those management reserves ends up in incredible inefficiency one of the things that we need to figure out a better way to do be great to figure out a better way to do is to figure out how everyone is in fact on the same team we're all trying to get the best programs the best projects to in fact have the most efficient use of resources but because it is an adversarial relationship everyone tries to hide if I worked in the very beginning of my career back in the naval systems command and they tried to hide a little bit of chunks of money from their overseers that time was the navy material command who then tried to hide the money from the navy comptroller who tried to hide it from OSD comptroller who tried to hide it from OMB who tried to hide it from us on the congress that's just how the process worked the process would work a lot better in my opinion if I were king for a day if in fact we all are in fact on the same team we ought to try and figure out a way to work together on some of these things and trust each other but at that I'll just stop having thrown out a bunch of crazy ideas thank you all for an excellent round of commentary I would note that with the projector being off I've now moved to the middle of the table giving more room for Tim Dyer and Charlie Hoy in case they want to spread out a little further apart as the morning goes on actually be a little more comfortable if you will I just have one question it's kind of a long one though it goes for you guys and then I want to throw it open to the audience we even have a few former comptrollers here who probably love the idea of a stronger comptroller but maybe not one of the things that happens is after you're gone you see the flaws of where you were a lot better than when you were there um I want to look forward more than backwards and I did in my own presentation a lot of backward looking here but does defense hurt itself and we've seen some of this already this year with the run up to sequestration and the cuts does defense hurt itself by claiming harm from these reductions if you will but then rising up and delivering whatever it is we need anyway or if we just not had enough time yet so you know the idea that the sky is falling but it hasn't hit yet come back in two years and you'll see the damage if you will or will it actually take some kind of an internal disaster like a desert one in 1980 before we have a wake up call here how does defense handle this situation where they have to be both responsive to all the demands and at the same time reflect the impact of less money Steve you want to start off on that yeah I think Davis we've gotten into financial management by continuing resolution has sort of let everyone off the hook I mean to some degree you can mask or push around problems because it's very hard to define the period of performance and have you executed the funds and made those choices layer sequestration on top of that and then the safety valve as some see it for pressures on the budget for funds that don't count against the sequestration caps are an above that line it's been quite a cauldron of financial confusion in the execution of budgets the last couple of years I think we face a couple of years of unwinding even if we got to a more predictable pattern of congressional decision making unwinding the carryover effect of the 11-12-13 challenges I think is the massive job facing just Charlie's point about further strengthening those financial management controls but I think we're really a couple years away from being able to reset and then benefit from a more disciplined predictable transparent approach which the last three years has made difficult despite all the good will that may exist Jim you got your finger on the mic so let me have you next I agree with what Steve says I was just at the point that now folks understand I think better why we appropriated a bunch of authority not outlays we had a period of time with the Pentagon and I don't think anybody begrudge them using carryover monies and monies they had on hand or moving monies around I thought it was noteworthy this year the Pentagon caught itself I think they always felt that this was going to be reversed somewhere in the Congress and when that didn't happen I think they found themselves having obligated a lot of money in their first quarters and then having to pull back sharply in their last quarter and that was true but I also thought it was instructive to me because I had talked with the subcommittees who were reviewing last minute attempts by DOD to move money around both through transfers and through reprogrammings but the Congress pretty much went along with what the Pentagon wanted to do I also thought it was interesting that and I say this with a touch of irritation I heard a lot of people especially on my side of the political aisle talking about giving the Pentagon flexibility I would rather give them more money and keep on a tight leash than give them less money and give them flexibility I as an appropriator would have a better feel for what they're doing and how they're doing it if I thought they were properly resourced but I knew everything that was going on and we're kind of getting away with that if we start talking about flexibility around here that's going to become the byword and resources which we really need to focus on are going to go the way of the past I also thought we suffered over the course of the past 10 months or so from quite a bit of rhetorical excess we when you call for the sky to fall the sky better fall and it didn't and I think the public perception of oh these folks are so big and so strong they can manage I think it kicked in and then when all the adjustments came in September and they got through the final quarter I think people said see what I tell you so I while I hope that there is enough common sense out there to to put this sequester in advance I think next year will be a little bit different because some of these early pots that Steve mentioned I think will have been exhausted and we'll be back to doing straight out BABO again Charlie why don't you add some things and David maybe you can wrap up I think three things about this issue we did think that that the initial results from sequester were going to be a bit more damaging than what we've seen and a part of that is the fact that as I was describing these management reserves they're squirreled away in all levels of the budget that actually provides some relief in in 2013 there was some things if you look at a sequester as hopefully from the DOD's point of view only a one year event as opposed to an eight year event you figure out how to delay costs into the future so that you don't have to deal with them right now and that will provide some relief the second thing though importantly is the furloughs that occurred were extremely painful for those civilians throughout all levels of the federal government that made it difficult for them to make their mortgage payment or their rent payments or to pay for their kids college tuition or their high school private education or whatever it is it was tough for the civil servants and they were the ones who bore the brunt in many respects for the cost of sequestering but the other thing once again on that level from a short term perspective you can furlough people right now without having to deal with whether or not your structure needs to be reduced in order to live within a lower level you don't need to do that if you think it's only a one year event and third point escapes me at this point sorry David has the Pentagon done all it should be doing here or are they falling short well you and I talked about that a little bit on the run up to this discussion Dave it seems to me Pentagon's on the horns of dilemma number one they have to be able to execute whatever mission they're asked to execute but on the other hand they have a responsibility to try to say look here's what the impact of this is here's what the impact of the sequester is and then they have an obligation to be candid and to let the congress know I can't get out of my mind the story in the Washington Post early in the spring I think it was about the first tactical fighter wing down at Langley maybe you guys remember that story in which basically the wing commander was basically putting two squadrons of the wing on it in kind of in a reserve status and not doing any training and had one squadron that was operational and was trained up to up to standard and I just wondered since that article first what really surprised me when the article came out was that there wasn't more an uproar over that situation but I just can't help but wonder what the long-term impact is of letting that pilot proficiency and training go down like that, surely they'll be able to answer any mission that comes up in the near term that's not a credible peer competitor out there that's going to require more than our full military capability but it does seem to me that we're going to pay a price in the long term here that we need to be aware of thank you we have a robust set of intellectual capacities in the audience here today and also watching on the web here's the way we do our questions I think we've got folks in the room with microphones right so if you'll raise your hand and wait for a mic to come to you and then if you can use the microphone and both identify yourself and your affiliation and if you have no affiliation you can say unaffiliated and then ask your question or comment and you can either address it to any particular member up here or to all of us for those of you on the web who would like to submit a question you can actually send it to my email dbertoe at and if I get one from somebody in the room I'm not sure what I'll do with that so let's go to the next question here on the fourth row good morning guys Patrick Garvey currently with triple canopy incorporated a lot of good fodder out there and I'm not sure where my questions are going to go but David you said on a panel a couple of weeks ago that to make decisions you need decision makers and I think the question I asked you on that panel was why is the list of submitted proposals growing by the week that are under warranted by the contracts but the other thing I've seen in the year and a half since I've left the senate and been out in the corporate world and we do work for state DOD and DOE is that DOD is unique I think and that it spends so much time building a really what it thinks a good budget and then it throws it over the transom to the contractors or the contracting officers and they get it by the time they have the budget they have about nine months to spend one year money and so what you end up with is this race to spend at the end of the year some really clumsy sloppy contract vehicles why don't they just let unfunded contracts you can do it it's in the law it's in the far the other question is one other comment is at the end of last year the Marine Corps ended up turning over 300 million to the Army at the end of the year that it couldn't use said here you go we can't obligate this and it was just one of those sorts of end of year races that we end up with in this situation thanks I will hold off on the comment that the Marines actually think the Army can obligate money better than they can but the because I don't have any data to draw a conclusion on that you know Patrick your view is different when you leave Hillstaff and you go on the other side and I think part of your question is the reflection of that but I think it comes back to the comment Charlie Hoy made of if you think this is just a one year problem then an awful lot of your solutions to that problem is going to be to ask yourself the question can this wait and if the answer is yes it can wait then you'll wait a while if it's an eight year challenge and the meeting is not an option you know is this well understood by the leadership on the Hill and by the committees what do you guys think? Well the four of us were there the last time the Congress completed its work by the end of the fiscal year and I think that gets to the heart of the question execution obligation as money winds its way from appropriation to apportionment by OMB to authority that's extended by the office secretary to the services especially very tight windows and then the Congress is standing there poised to scoop up and further disrupt through recision and to me the first thing I look at when the bill comes out is not usually what's in the front but what's in the back because there's more mischief and more creativity reflected in the general provisions and especially the recision general provision that reflects a lot of then how things get disrupted and have to be reconsidered 18 months or even two years into the period of authority to execute a program so I think the timing factor till we start giving the department a year to spend a year's worth of money we're going to run up against this wall at a full throttle pace and the results speak for themselves it's a lot of discontinuity Steve you pointed out the demise of earmarks as being one of the ways that undermine the ability to restore regular order and get things done both Jim yes and both David and Jim said you know this problem may be more of a congressional problem I think we would actually all agree that there's a major congressional problem here but but on the other hand it could be that individual impacts to individual programs and jobs in individual states and districts through these kinds of reductions is that a backdoor way of getting at getting the Congress's attention to there really is going to be a long-term problem here Jim I can't go anywhere in the world without talking about earmarks the drug store the supermarket anything like that so here we go again I've never understood as a congressional aide and I had the good fortune of being the executive branch for a while I never understood why the Congress would walk away from directing spending whether it's in their own districts in another district in another part of the world to me it's a fundamental constitutional obligation that empowers them and when this absolutely arbitrary pointless earmark ban was put in place it to me sent the message out that we in the Congress are prepared to turn over all this specific decision making to the executive branch as a congressional aide I would be strongly opposed to that I think I think the problem is hyper exaggerated in the context of the amounts of money you are dealing with here we did a survey on my side one year that we shared about when allegedly earmarks were running wild and everybody was earmarking everything it was really not a very big percentage of the overall budget going into these things a man who I admired greatly former chairman Jack Murphy used to say Jimmy you can't make a good roast on Sunday afternoon with a lot of fat in the outside you gotta have some and he was right there's got to be some incentive to build consensus and coalitions around legislation today you don't have any of that it's all sticks and no carrots and I hope that they're coming back under a different name if they must be Steve good word anymore he's right we can call him something else but at some point in time the institution needs to reassert how and where and whether it is going to direct spending whether it's to its own districts or wherever it is it needs a bigger voice in this thing and that's not just true in defense it's true in non defense as well I don't know how we build impoundments I don't know how we build facilities in this country without specifying out of the congress where they ought to be built let's take another question on the right side of the room and then we'll work our way up the left side Alan Fowler I'm a soldier playing hooky from work today in the current hyper partisanship environment is the BCA the new form of a compromise and if that's the case is that some how do we leverage those types of tools to actually get some sort of solution and if not how can compromise be found can I take a try at that first the BCA had good and bad the good was you actually got some reductions in federal spending and you got them over a projected 10-year span and you got them based on reductions in the CBO base you got all the things you wanted that's the good news the bad news is the side of the budget where all the spending is hemorrhaging you got nothing you got a failed committee that could not deliver anything and you got what you deal with on the hill and this is what hurts defense the most is because of the inability to build any kind of bridges to get at entitlement or mandatory spending call it what you will because of that the pressure and there's a lot of talk on the hill about debt and deficits the pressure to do something about these things and it is there and I think it's there among good meaning well-meaning people on both sides of the aisle but the pressure to do something about that if we can't find a way to build any consensus around some mandatory reductions or even some revenue increases you're going to fall back in discretionary and now I'm somewhat encouraged by the fact that even the most conservative elements of the Republican party are now saying hey we recognize that going into this area is we can't go much farther we may have gone too far but we've got to look elsewhere but that has yet to translate itself into some kind of common consensus on how you would get at the non-discretionary aspect of the government of the government's budget. Hi Frank Fennelly with the Karla group great panel thank you very much Secretary Hagel commented on the looming readiness crisis this morning and David your comment about Langley was spot on I wonder if your perspective is about just how the O&M accounts unfold here Charlie I recognize your point about the impact of the frullos and everything but the depth of the readiness crisis is largely to get at the civilian pay and infrastructure which is the largest component of the base O&M so how do we get this balance here so that readiness takes its prerata share instead of being the bill payer for the inability to deal with infrastructure. Under sequester rules you really don't have that ability I mean the rules are that each appropriation account is going to get hit by the same amount by the same percentage. There is great flexibility offered to the O&M accounts in that it's considered a single lied item for purposes sequester which means DOD has the ability to go in for all of operation maintenance army and decide how they're going to achieve the reduction that's mandated be that through civilians be it through readiness be it through more legitimate savings perhaps you know whatever we can do to come up with ways to curtail costs in that O&M side of the house and one of the things I would point out though in the short term it's easy to delay certain things you know for example if you have a building that needs to be repaired you kick that off into the next year because you figure you know you're going to get well next year that's always the philosophy and budget process and certainly in the defense budget process it will fix this in the future so we won't have to deal with it right now. If this is going to be an eight or nine year problem it's going to be a problem I don't know but you're going to be able to transfer additional funds to the O&M accounts I'm not so sure that either DoD or the Congress is going to look at that and say that that is in fact where the real problems are going to exist if we are to live with sequester for the next eight years or so. Let me work my way down the aisle here first the gentleman with his hand up there. Good morning Joshua Tremblay I'm a graduate student in the security studies program at Georgetown I wanted to know if the panel thought that Congress would actually stop funding the OCO in fiscal year 15 or 16 as operations run down and if there's another looming internal crisis at DoD that some of those supplemental funds will be going away. My answer to that question is without looking too far into the future I doubt it. OCO is a term of art that back a few years ago when we were all together we just used to call supplemental spending and I think there are sufficient a number of unforeseen activities down the road that will require the Pentagon to have some kind of account. I have no problem with them being bundled under a heading called OCO or anything you want to but if you decide to go zero here that doesn't necessarily mean the end of contingency spending. That just means that the department is going to have to go through the process of coming back up to the hill and starting from scratch. I think the OCO account probably gives the executive branch a little bit of movement here especially as it attempts to extract itself from two major land wars down the road and I still and I follow it every day and I just can't tell me that the depth of commitment that we have remaining in Iraq or Afghan at all once we have the troops out so I would if I were a betting man and I had a quarter I'd flip it heads and say that it would still be around. I just add maybe to Jim's comment irrespective of the pace and continuity of combat and operation security operations the reset bill for the volume of equipment that's been used accumulated is going to be a fact of life that can either erode the spending on O&M and readiness or the Congress and the executive branch will reach a convention about how to treat it. I think we're more likely to see a successor to OCO as we saw after Desert Storm in the early 90s though in those years it was funded by the Kuwaitis and the Saudis but I think there's going to be a two to three year period where we try to reset and I think that can be a valuable asset in making some of these big structural decisions by funding it through that mechanism and maybe creating a little bit more consensus about what the military is going to look like next as part of this transition out of Iraq and Afghanistan. And this may be attractive not only to the Defense Department but to the Congress itself because sometimes you need the safety valve at the committee level and marking up as well as when you're building your budget. I'll come all the way down to the front here. We'll do George on the left and then Byron on the right or their left and my right. David, excellent panel. George Nicholson, a policy consultant to U.S. Special Operations Command. One of the excellent events you had in the past was the one with Sam Nunn and all the key players but that's not the question I'm going to ask. Congressman Adam Smith at AEI a few months ago was asked about the same issue about the American public supporting what's happening and he said you know what a huge supporter I am in the Department of Defense that was the chairman of the subcommittee on Special Operations, the chairman of the airline committee and now the ranking member he says I've got Fort Dix next to district I've got McCord, I go back to my district they're not interested in talking about what's happening to the defense budget at all they want to talk about social security they want to talk about Medicare they want to talk about Medicaid they want to talk about are we living in a bubble here in Washington talking about the threats to the defense budget and what it's going to do and how do you go ahead and educate the American public? I'll provide an opening comment and welcome the panel members I think it's been a theme here this morning the whole budget control act premise is that we'll somehow be able to cut enough spending from a part of the budget that's barely 25% of total federal spending today and defense is only half of that when we all know that the real problems are in fact entitlement and taxes how we get defense though out of that box whether or not the American people in Congressman Smith's district care about it or not the fact of the matter is I don't think we're living in a bubble in the sense that we're unaware I think we're living in an awareness that says we're going to have to pay attention to the defense department whether or not the American people want to spend the money on it and that's the real issue of leadership in Congress but anybody else want to throw something in there before we pass it off? Well to be completely tactical if you look up through the 1980s into the Cold War a map of the United States that showed major military installations and major defense industrial activities was a dense map spread virtually from one coast to the other from north to south the downsizing the efficiency the restructuring we've seen over the past 25 years is one of the political facts of life that makes this consensus hard to achieve there are a lot of districts and a lot of states that other than maybe a national guard or reserve component facility have very little direct connection day to day with the department of defense and the defense budget 25 years ago that wasn't the case you could build that consensus getting to David Javier point about the direct immediate impact the reality is a preponderance of members in both bodies aren't feeling pain locally from the downsizing of defense that's not to be critical I just think it's an empirical fact could add one thing to that and that is is that I agree with everything that Steve has said on it from that one perspective but from the American public's point of view when unemployment rates are very high when they feel that the economy still hasn't rebounded and they look at the crime the crime is Washington spending that every man consensus is these guys spend too much money and if it's defense or if it's Medicare or if it's the FAA they're all going to say well you're spending too much money it's not all there's a large segment of the population that is taking that point of view and I agree with really what David said in a way we're a little bit in a bubble but it's also that is the responsibility of leadership to say these are things that have to be done you cannot willy-nilly cut defense spending and then just not worry that there's going to be a new threat that's a horizon that emerges on the horizon my boss Senator Inou his view was something that others have said which is in order to you had to be prepared for war and he truly believed that and every day he worked to try and make sure that we supported the defense budget to the best of our ability but that's something for the leaders here in Washington you see they have to take that view Thanks Hi Byron Cowan Capital Alpha Partners and thanks David for pulling the panel together this morning Secretary Hagel talked this morning about Congress being a willing partner on military personnel issues and I'd also like to bring in the term BRAC just wonder how likely you think FY15 16 or 17 Congress would actually be a willing partner on military personnel or excess infrastructure issues I'll take a run at that just because I revel in unpopularity I think there's I think I can make a case for BRAC Pentagon can make the case is not in the Congress and BRAC in my judgment it gets caught up in this whole congressional response which includes oh my god we've got all these problems with the defense budget and now we're going to layer BRAC on it also gets caught up in the congressional debate over how to grow the economy and one minute I'm out trying to grow the economy and the next minute I'm threatening my industrial base when I was up there we used to say the best and the worst reasons to support defense were the industrial base and I think that's true but I could see a scenario whereby if the administration wanted to say to the Congress look if you really want to do this right you need to work with us on developing a plan that does get rid of excess capacity and you need to move it for us I don't think that is an unreasonable approach but in this current environment I don't believe I think there's a prohibition in the 2013 appropriations built for no BRAC and I would anticipate there might be another one if they have to do another continuing resolution to say no BRAC but I think it's a function of those two issues as opposed to the substance of could we do something positive here let me say one thing and turn it over to probably the only person in the room who's been yelled at by more members of Congress is David Lyles the BRAC base realignment enclosure will eventually have to happen unless the defense budget hits a higher floor than the one it's headed for there is excess capacity and we will waste money keeping excess capacity around that we don't need the process by which we get Congress to be a partner even an unwilling partner is going to be I suspect a bit longer than any of the timelines that you laid out there simply because it will take longer to prove that we need it but David you may have a different view on this for those that don't know I was the staff director of the 95 BRAC ground that was the one that closed two Air Force depots which was pretty controversial at the time I think there was widespread support for the last BRAC well I take that back because I think we only passed it in the Senate by two or three votes as I recall but boy there sure wasn't any any support for a BRAC in the last two or three years before I left the Hill Jim I would be very surprised to see one come in the next three or four years I really would I know it's going to I know all the people who are out you know peddling there their skills to the local communities that think they're going to be closed are still going to do that but I would be very surprised to see a BRAC in the next three or four years we're winding down this is going to be a tough call here I'm going to give the mic to Tony on the aisle here I don't know if you'll get in the last word Tony although it's entirely possible it depends on your question Tony Capasio with Bloomberg News talking about living within a bubble to what extent do you think that the public's angst over the Iraq and Afghanistan wars and the spending the goals there that were never achieved and I haven't been achieved that's pretty much given the public reason to not support helping defense and sequestration allowing sequestration to go through the public's way of pulling back after Iraq and Afghanistan to let the cuts happen that's a very interesting question I mean I have heard you recall back in February I think before sequestration hit there was testimony by the Pentagon that well I've put one carrier back from the Persian Gulf instead of two we'll only have one we won't be as ready in the event that they're needed to respond and I heard more than one congressman say well you know maybe if we're not so ready we won't be so quick to go to war that's a bit of a dangerous mentality if you will but it's not all that uncommon is it I'd be surprised if that's a common view but it's certainly possible I would say though that the fact that so much spending has occurred and the wars have gone on for so long has certainly probably eroded the desire of the American public to continue to support that type of thing rather or I think more so than on whether or not the goals have been achieved in Iraq and Afghanistan but that's just from my perspective I've always thought that one of the strange realities of our life is that we support our troops we support our veterans but we get a little fuzzy about the policies that they're implementing and I don't know we gotta do a better job we've been a leadership on both sides of Pennsylvania Avenue in trying to educate on those policies there's a press drumbeat and I'm not singling you out there I can read it every day that yes we're all war weary ok we're war weary but I agree with Charlie that does not mean that we're not as a nation gonna have to be prepared for threats that are different of any other kind of threats we've ever seen in the future I'm not sure Tony the problem is that sequestration is we're stuck with it it takes a positive action by the congress to do away with it and we're having a hard time doing that I don't think I can't imagine that the average person in the country really understands that this is a choice here that we could avoid sequestration if congress would act so I'm not sure there's a good enough understanding out there we're just warming up but unfortunately we're also out of time and there is gonna be a need for some other topic to be discussed in this room I like the idea of making Charlie Hoy King for a day and solving this I like even better the idea of taking the four of these and we'll just create a committee we won't call it a super committee we'll just call it a committee we thought we'd figure out what to do and how to implement it if you would please join me in thanking them for being here this morning