 Coming out here to CSIS, excuse me, that just turned on. I'm Kathleen Hicks, I run the International Security Program here and it's my pleasure to welcome you to today's Military Strategy Forum which is hosted by Rolls Royce North America. We thank them for their sponsorship for this program. And I have the great honor of introducing the Honorable Jamie Moran. Jamie is the Director of the Cost Assessment and Program Evaluation Office, CAPE, within the Office of the Secretary of Defense. He's here at a very timely juncture in terms of the NDAA and its passage in terms of the midterm election having been completed and the small ray of hope that may create for progress towards some kind of budget outcome for the U.S. military. And Jamie also has experience not only in OSD but on the service side. Many of you may know that he served for five years as Assistant Secretary, spent well over a year as the Acting Undersecretary of the Air Force in previous incarnation. He's also been up on the Hill from 2003 to 2009 on the Budget Committee. So I can't think of anyone better qualified to help the department navigate its way through this very difficult set of circumstances with regard to the program and the budget than Jamie Moran. So please join me in welcoming him. Well, I can think of somebody better qualified but she left the department. Kat, thank you for the generous introduction, excessively generous introduction. And thank you for the opportunity really to talk to this audience and to lay out a few of the thoughts from the department as we move into a chilly December and we've moved to the period in the internal defense department processes where we're really trying to balance and pull together the elements of strategy and budget that the department will carry forward in the coming year. It's a fascinating time inside the Department of Defense but it's not as fun of a time with you go on. So we miss you. It's actually really interesting for me to have a chance to be here at CSIS to talk because I was an undergraduate at Georgetown back in the day when the affiliation between Georgetown and CSIS was really tight. And at that point in time, the ultimate internship to aim for was CSIS. Looking at the competition, I of course chose not to apply but I'm hopeful that I might be more competitive at this point if I sent you an internship application. So it's important to have an exit strategy. So I suspect the vast majority of the folks in the room here are familiar with the organization I was asked to lead just several months ago, the OSD Cape organization. But let me say just a few words as a scene setter there. OSD Cape is the heir to the tradition created by Robert McNamara with the stand-up of the systems analysis office in the dawn of the planning, programming, budgeting process. Obviously, despite some of the baggage associated with Secretary McNamara's tenure, PPBE and PPBS as it was originally termed is I think one of the enduring legacies of department management. And as much as we may all hate to execute it, it's better than almost any alternative that we've got that's out there. And so it is really quite an honor and a privilege to have the chance to lead an organization charged with carrying on that legacy of bringing rigorous analysis and assessment of trade-offs on some of the toughest problems facing the nation. Being steward of a process with that heritage and that importance is a really cool opportunity. Our goal is ultimately of course to provide the department's leadership, civilian and military with the best possible unbiased analytically-based advice on all of their tough problems. The role of the organization shifted a little bit in the last five years when we were among other things renamed from, of course originally first systems analysis then through a variety of other titles, most notably program analysis and evaluation P&E. But in 2009 Congress institutionalized and renamed the organization called it CAPE, Cost Assessment Program Evaluation. The intent was really to tie together even more tightly those two aspects, the aspects of figuring out what it really costs to acquire the stuff we wanna have and then the prioritization of picking amongst them because of course in any sort of perfect world you would want those two pieces to be inextricably tied, cost and benefit, right? Cost and benefit both understood rigorously and analytically is the right way to make decisions in a really complex organization. So the Weapon System Acquisition Reform Act I think took important steps in that regard. I am now in the great position of being just the second director of CAPE. For a while I was signing retirement certificates and things like that as CAPE 2.0 but then I realized there was an expectation that version 2.0 would be an upgrade and so I'm more in the model of Windows Vista I'm afraid. The challenges that the Department of Defense faces right now start of course with strategy and that strategy then needs to be instantiated in a series of resource choices so that we can execute the strategy and then that strategy needs to be carried out through full exercise in the military art. Our role is really in the first two pieces. Thankfully no one's asking me to charge a trench line. I wouldn't be your best choice. But if it's a matter of looking at budgetary uncertainty, if it's a matter of looking at operational modeling, if it's a matter of picking an optimum outcome I've got the team for you. We're doing this as I said in the context of strategic change and strategic choice and the defense strategic guidance that the CAF was very involved with and the follow on 2014 quidrennial defense review have really laid out a great agenda for the department. It's an agenda that we know is gonna require sustained work over a period of multiple years to instantiate in real budgets and real programs and to make a reality. It's that job of refining the department's alignment with the strategy is massively complicated in the environment of fiscal uncertainty that we're operating in. And that's what I'd like to talk about most today. Like to talk about how that PPBE process that dates back to McNamara, that process of aligning budgets to strategy becomes far more complex given fiscal uncertainty. We are programming, budgeting and executing today in what some folks have taken to calling the specter of sequester. So what I'd like to do is talk about the challenges that come from that specter of sequester both on the very direct level. We will be able to buy less stuff if our budget takes a precipitous decline. But also in the sense that the nation has an enormously large and complex institution, one of the largest human institutions that exists that we are leaving in a lurch because of this massive uncertainty. And that itself drives inefficiency, that itself drives us to strategically suboptimal outcomes. So I'd like to hit that from both parts. The PPBE process in the department, as you would expect with any organization that was trying to allocate half a trillion dollars of resources per year is a long and complicated one. The process starts in the military services where I used to work two and oftentimes three years in advance of the development and execution of the budget. The early decisions that we make once they're set in motion are have very high sunk costs even before they actually hit the street in a budget much less get spent. There's sunk costs associated with bringing an institution to a strategy for resolving a problem. And so those two to three year lead time decisions clearly suffer in an atmosphere of high uncertainty. The process that I'm now charged with managing within the office of the secretary of defense, that's really about a year in advance of the submission of the budget. But building on an analytic foundation and a strategic foundation that itself is multiple years in advance. And of course, as you all know, the Department of Defense says in many ways, jokingly referred to as the last vestiges of socialism in America, we have five year plans like all good socialist systems. So our five year plan, the five year plan we're developing right now, 2016 out through 2020. Looking at that level of future alternative and then looking the five and the 10 years beyond that with a massive fan of uncertainty, if you will, a massive range of uncertainty is an enormously complicated endeavor. The process that I'm responsible for, Kath and many folks in this room have experienced of building a program is fundamentally about giving the national leadership clear cut trade offs. The decisions about how much is enough in defense and how much is enough in each of the many sub fields which constitute the national defense for the United States is extremely complicated and interlinked. It's about looking at what you might call incommensurable goods, right? There's no easy, intuitive, obvious way to develop in a way that no one would disagree with the trade off in value between say an infantry brigade combat team and a carrier fighter squadron. You can develop different ways of looking at that. You can confront different scenarios with those different structures, but there is no one universally agreeable standard way that you can make those trade offs. That requires strategy, leadership, and judgment. And it requires since no human individually is capable of comprehending that incredible complexity, it requires strategy, leadership, and judgment that is supported by rigorous analysis that simplifies down to the essentials wherever possible. Good decisions in that environment benefit from stability of assumptions. During the middle and latter part of the 1990s, we had a lot of stability inside the Department of Defense about our core assumptions. It allowed us to develop very complicated, elaborate models that helped us to make those complicated trade offs between incommensurable goods. We're operating now in an external environment and a fiscal environment that combined to make that sort of deeply well understood modeling pretty much infeasible on the cycles that we're dealing with. We're also injecting from the political level new complications on a regular basis. So in the last six years I've been working in the Department of Defense, almost every year we've gotten to November or December operating under a continuing resolution. So again, thinking back to that five year threshold of planning built on the end of a cycle of internal planning, you're right now in the final stages of nailing down a 2016 through 2020 plan while in some respects you're executing the 2014 fiscal 2014 budget. But given the lack of responsiveness and lack of support from Congress for many of the reforms that were in the 2014 budget, in many cases you're executing with a 2012 or 2013 force structure or orientation of programs. So again, that passage of time dramatically increases the complication. All that said, the last two years, I should say last year and the year we are now in, the fiscal year we're now in, fiscal 2015 and fiscal 2014 are in a sense easy, right? We in the department and agencies across the federal government are operating in the comparative near term stability that came from the Murray Ryan Bipartisan Budget Act and the settlement that in essence delayed the full onset of sequestration level budgets after the super committee that was set up by the Budget Control Act failed. So we've had this temporary reprieve, partial reprieve, you know, I jokingly refer to it as 2014 being a half off sale on sequester. 2015 is a 25% off sale. We don't know yet what 2016 looks like. There's some signs that a deal might emerge in the Congress that could moderate the fiscal reductions. I think the president is likely to continue to press for a budget sufficient to execute the strategy he's laid out and is not gonna take sequestration lying down either for the domestic agencies or the Department of Defense and the national security agencies. But this remains an overhang for the department. And it's an overhang that has in my sense, my sense is it is a hostile threat to rational policymaking. It's a hostile threat to rational budgeting. And if you as many of you American taxpayers are looking to the Department of Defense to squeeze the maximum combat capability out of every one of your dollars that you entrust to us, well, this is not the recipe for doing that. It's not the recipe for doing that. Let me talk briefly about the more concrete and direct impacts that we see if the nation returns to those budget control act levels. Before I move on, many of you have probably heard some of the contingency plans that the department laid out last year. I expect we will continue to be very clear about where we see that potential fiscal future taking us, what kinds of choices we would have to make. But let me cover that at the topmost level just in case some haven't. Some of the issues that we've laid out include, for example, if we return to sequestration level budgets in 2016 and beyond, we would have to find a way to draw down our aircraft carrier force structure. We could afford probably only to have 10 as opposed to 11. That would mean extricating ourselves from the refueling of one of the Nimitz class carriers which is really just about to start. The Congress just authorized dollars for that and I suspect we'll appropriate it. But we won't have the resources to maintain that additional force structure if we go to sequestration level budgets. So we're gonna have to figure out a way to extricate ourselves. There will be, this will be enormously painful and inefficient, but the tenure projections clearly show that we don't have the resources to retain that structure. The Army would clearly have to continue its ramp down in size. They're right now on a track to get to a force structure of 450,000 active duty soldiers. And our initial assessment is they'd have to go at least to 420,000. Another 30,000 fewer, it would place still further stress on the strategy there. In the modernization world, it's clear that the joint force would not be able to afford to buy as many of the joint strike fighters as we had planned. And just within the five year window that we would be looking at most immediately, we would lose at least a squadron of those which would clearly hurt our ability to stand that up as an operational capability in the near term. Troubling in light of the strategic guidance to rebalance US efforts towards the Pacific, the Air Force would probably need to stand down and cut its KC-10 tanker fleet, which is only a small portion of our total tanker fleet. But that's a portion of the American military infrastructure, these aerial refueling tankers that really in that scale distinguishes us from any other nation in the world. It's a critical force multiplier, but we wouldn't be able to afford to keep that level of structure and we would need to retire probably that entire fleet of KC-10s. The cases may be even more acute for the Marine Corps. The Marine Corps is of course a very personal, personnel intense part of our force. And given that certainly in the budget year, there's almost no way to take large dollars out of our military personnel expenditures, right? Even if you did inhumane things like massive reductions in force and throwing people out, you would make severance payments, right? Separation allowances to the individual service members that would cost you money. So you're not getting significant dollars out of the personnel accounts. That leaves the Marine Corps in a tremendous lurch and we project they would have to cut their modernization budget by half. It's a fixed cost variable cost problem. And that's actually the next theme I want to come to. There are a lot of folks in the Washington environment who will point at the fact that even post sequestration, the department is projecting a half a trillion dollar a year budget and maybe even some growth from that. And that is an enormous, enormous amount of money and it buys an enormously capable defense in any way, shape, or form. I mean, there's no country in the world that'll come close to that. Which is a good thing for American ability to create a safe and peaceful world. So why is it so hard? Why is it difficult? Why is that not enough? Well, there's a bunch of good reasons. And then there's some reasons that we actually have to get after from a management perspective and we are. A big part of the challenge that's not well understood is this balance between fixed and variable costs within the department. And let me tell you a little bit about this from personal experience. So I had the unfortunate distinction of serving as the Air Force's comptroller and as Kath said, for part of the time as the acting undersecretary of the Air Force during the initial offset of the 2013 sequestration and then during the 2013 to 2014 government shutdown. A lot of not fun decisions during that period to say nothing of all of the real world implications get beyond me here, the real world implications that our American airmen felt because of this craziness. But all of the problems that we faced during that period were made more acute by this fixed cost variable cost problem. So again, you have major issues like your military personnel budget that are not as susceptible to rapid change. You have programs underway with contracts signed where extracting yourself from them is a matter of time and a matter of cost. You have a fixed base infrastructure which in many cases you may be able to achieve limited economies but there are fundamental things you can't stop doing. You will still have guards at the gates. You will still keep the heat on in buildings. There's many areas that are just not susceptible to rapid change. As a consequence of those fixed costs, the pressure of a quick 10% reduction in resources drove much more than a 10% reduction in activity and capability. The consequence for the Air Force was they stood down 31 operational and training flying squadrons altogether for months. Not a small undertaking and not without consequence back in 2013. In total they cut 200,000 flying hours out of their flying activity. That's pilots not trained, not ready to fight. The, all of the services had to walk away from what they consider sort of their pinnacle exercises for the Air Force red flag. The Army, the National Combat Training Center, National Training Center combat rotations, things like that were hit disproportionately because they were things that could be turned off and stopped. But the consequences last for years. We are gradually recovering readiness. The relative stability from the BBA, the bipartisan budget act for 2014 and 2015, has allowed the US Department of Defense to begin readiness recovery strongly enabled by the fact that we have continued drawdown in our overseas tempo with the winding down of operations in Afghanistan. But all of that remains at risk if the balance gets shifted again if we go back to these sequestration levels. To close with one other point about why this is hard and I'm not looking for sympathy here, just understanding. Even without sequestration, the US Defense establishment has some core cost challenges that we need to get after if we are going to sustain our ability to execute the kind of national security strategy the nation expects. I'll give you again an Air Force example from my tenure there. The Air Force has made conscious choices over a period of decades that it needs to achieve dramatic improvements in capability across its aircraft fleet. A lot of those programs have taken many years to deliver but are now beginning to deliver. They've also bought new capabilities that nobody would have dreamed of years ago, particularly the remotely piloted aircraft. Many of these capabilities are expensive to maintain because they are so complex and so world beating in their technological advancement. But the upshot of that is over the last many years the Air Force has seen five to six, sometimes seven percent annual growth in the cost of operating every aircraft in its fleet. The average cost of each aircraft in its fleet to operate. Again, that's because aircraft are getting older. It's also because the old aircraft are being replaced with new, more complex ones. You can stop operating those aircraft but then you don't have much of an Air Force. If you're not gonna stop operating them, you've added a substantial again fixed cost and to the extent that budgets come down, more fungible areas like our modernization accounts be bare the brunt. This again occurs across the department. Medical is a challenge across the department. Department medical costs have quadrupled since 2000 in nominal dollars. While we've seen some very positive progress in just the last couple of years, last few years there with cost inflation coming down. The department, if we don't continue to advance the reform agenda there, very easily could find ourselves looking much like General Motors did a few years ago. A pension program and a healthcare program that happens to produce a few cars on the side. That's not a good outcome for the nation. We have to get at it in a sensible way that honors the sacrifices, those who've served in the past have made and that produces the force we need by recruiting and retaining world-class soldiers, sailors and airmen. But we need to, both from management reform and from getting at really building a benefit package that can stand the test of time, we need to get at that problem in the long run. We also of course have to have a very rigorous posture when it comes to underperforming programs. And that I think has been a theme. Secretary Gates probably hit it the hardest. I think he terminated more than 30 weapons systems as part of our first round of budget reductions and we need to continue to have a tough eye on that. Watching for those systems that are underperforming programmatically and then also those systems that maybe are just no longer very well aligned strategically as we have to pick both. That sort of underpins some of the work that my organization led prior to my arrival as we conducted the skimmer, the strategic choices and management review on behalf of Secretary Hagel. That is a, you know, there's a need to lay out a vision for the department to be cost effective and to have the balanced force we require. I'll close with just a brief discussion of the interplay with the Congress on all of these issues. Because if you're pushing a reform agenda in the Department of Defense, if you're pushing an agenda in the Department of Defense to better align the force to the strategy, you're going to create winners and losers. You're going to create pain in places. And so the interaction, the interplay, the collaboration with Congress is absolutely critical. That doesn't make it easy. And just because we believe it's critical doesn't mean that we can simply accomplish everything we need. In the category of good news, the House moved forward on a Defense Authorization Act yesterday and it's going to the Senate. It has some vitally important authorities for the Department of Defense. It also lays a line in the sand on a bunch of the important proposals that we laid out in our last budget. And it's going to, we're accumulating a long list of no's that tie the hand of the department in aligning to the strategy. We have to continue that dialogue with the Congress. There were some incremental steps in the agreement that was reached and we appreciate those. But there is more work to be done. You should expect, I think, the Department to continue to press for base realignment and closure authority. You should expect the Department to continue to press for aligning our force structure properly to the strategy. You should expect the Department to continue to press for smart compensation reform and smart reforms to get cost out of our management overhead and other sources of overhead cost. The consequences to the nation if the answer is always no are pretty bad. And we will continue to work to articulate that. We'll continue to work to lay that out in detail. We'll continue to refine our plans to make them as tenable as possible. We are not the sole source of wisdom in the world. The Constitution set up a separation of powers for a reason. We appreciate that and value that dialogue. But we've got to get to a reasonable compromise over time. I would love to come in front of this group in a few months or in a few years and say we achieved fiscal stability. We got the reform agenda approved and we have a brilliant strategy that we'll be able to execute for the next 10 years that will leave every American able to sleep safely, sleep soundly at night knowing they are safe, short term, medium term, long term. Our first choice would be to have all those things come together. Knowing that perfect stability and perfect acceptance of all of our proposals is probably more than we can expect. We in the department leadership have a responsibility to provide responsive leadership. And so we are working internally to improve our processes, to include that PPBE process that I talked about, to improve those processes, to be more responsive to a rapidly changing world, to be more responsive to external pressures on our fiscal environment and to be more responsive to the strategic directions that any leadership wants to take the department. You can count on us to work on that. We will continue to need great support from the intellectual capital, from folks here at CSIS and elsewhere around our Washington intellectual ecosystem. We look forward to that dialogue, we value it. And I really look forward to hearing your questions and ideas as we continue this discussion. What I think is, as you say, a very challenging set of circumstances in which you're operating. And I have maybe a strange question given that, which is what gives you hope right now? I think we do so many of these events where we, we all read articles, we listen to speakers, we're frustrated with the system we live in. Many in the defense community are obviously frustrated about sequestration in particular. So you have to get up every day and live in that set of circumstances. What is giving you hope about coming to a solution as a nation on issues related to strategy meeting, budget on defense? Oh, I was doing great until you had that last bit there. I was just going to tell you, my Detroit Lions are playing the best football I've seen in probably my lifetime. But so hope on strategy and national defense. Okay. I actually, I subscribe to that. I think it's a tribute to Winston Churchill, right, Americans will do the right thing after trying every other alternative. I think our system is an inherently conservative one and it's an inherently slow one and that was part of the founders design. And so we accept inefficiencies. We accept maybe a lack of instantaneous response to change circumstances because it is part of a constitutional design that prevents us from making really big mistakes and provides stability to the American people. And I actually, one of my consistent messages to the civilian and military leadership inside the Department of Defense as we grapple with some of these challenging reform topics is that we need to have courage of our convictions. We need where we believe we have strong arguments to renew our arguments and to lay them out clearly because sometimes it takes time for people to recognize the facts. One of the interesting challenges that Department of Defense leadership faces, particularly in the process I've got responsibility for now in planning and programming is for a period of time each year, we are living in the out years. So I've spent the last three months focusing intently on 2016, 17, 18, 19, and 20. The average American is looking forward to Christmas 2014 and the Congress still hasn't completed action on appropriations for the fiscal year that started in October 1st. So we are looking to a future and thinking intensely about future problems, which is good, but we miss sometimes what's happening in the now as a result of that focus. So I actually think in many respects the Department is on an upswing right now. And I spoke to the relative stability that came from the BVA. We received that stability for 2014, 2015. We still, if you drew a chart, our budget kind of looks like a big dipper. We came down from where we were in 2013 to a significantly lower level for, sorry, we came down from where we were in 2012 to a significantly lower level in 2013 when sequestration hit, 2014, 2015, basically flat between those three years. And then we come back up based on the plan the President submitted last year. We are programmatically talking about that plan and we have a lot of good ideas for things to do in that plan. At the same time, we're living in today and seeing the impact of the three years of flat nominal dollar budgets where purchasing power is being eaten up by inflation and by the cost growth factors that are even above inflation I talked about. But we are laying out a course that will get the force back to the levels of readiness we're expecting, that will get the force ready for a full spectrum of military operations, not just, not solely, the sort of counterinsurgency type activity that has taken an enormous amount of blood, treasure, and intellectual energy, all rightfully so over the last few years. So the shift is happening, we're just not living in it quite yet. So that gives me hope and I always have to update my timeline between the today that we're living in and the tomorrow that we're planning for. You also have, of course, likely a new secretary in the first couple of months of the new year, at least we would all hope it would be that fast Secretary Hagel has decided to step down. Today the President's nominated Ash Carter, someone you know very well, worked with before. What do you think in these last two years of an administration, the Secretary of Defense, whoever it may end up being, but we're going to presume that Deputy Secretary Carter has a successful confirmation process and he becomes the Secretary. What do you, from your world and your advice to the Secretary, what do you need the Secretary to be able to push for on behalf of the department in order to help move along this issue set of getting the variable costs and the fixed costs right? So, if Dr. Carter is confirmed as Secretary, I think he will be an enormously energetic and powerful force for continued change in the department. He's shown through his career just, A, an intense focus on getting the military men or women in harm's way what they need. I mean you saw that through how he drove on issues like MRAP and counter IED, both when he was in acquisition and as Deputy Secretary. You see somebody who doesn't have, he has a deep insight into the process issues, but he doesn't have a lot of patience for when they don't work properly or when they get in the way of the delivering real outcomes to the service member into the nation. And that's absolutely the right sight picture for a Secretary of Defense. It is, he has a degree of strategic outlook that is pretty rare and I think will be very powerful and effective for the department. It will be a great challenge for me personally, I'm sure he'll be a enormously voracious consumer of analytic work and so I've advised my staff that we need to finish program reviews so people can take a couple days of vacation so they're ready. Secretary Hagel has been an absolute pleasure to work with and I think has been a good steady hand for the department in the trying time. I think if he's confirmed, Dr. Carter will bring a an even more energetic perspective based on what I saw from him during his time as Deputy Secretary and as Acquisition Executive and I'm prepared to buckle my seat belt and get ready to both drive and ride. So I think it'll be an exciting opportunity for the department and the reality is that job is so draining that I even observed that with Secretary Hagel through his two years there, it takes an enormous amount out of a person and so while in an ideal world you might want three or four years continuity in today's environment is so, that's so difficult and so hard on a person. In particular, do you think that there's an appetite on Capitol Hill, you've spent your, you've done your service on Capitol Hill as well to have a, I don't know whether to call it a fresh dialogue, a continuing dialogue, what do you think the appetite is there for having at this point in the administration a new secretary in there and talking to the Hill and do you think there are any promising avenues for progress, you mentioned for instance, BRAC which is of course a third rail issue, compensation, healthcare, all these issues where the administration's been pressing for progress, defense hawks have been pressing in some cases for progress but there's a real tension with the politics of the Hill. Do you think that's an area where the next secretary can make a difference? I think there is an opportunity there. All of the things you just listed and referred to as third rails, they are hard but we have a history of doing each and every one of those in the past. So they're hard but they're not impossible and it requires a degree of will and agreement and I'll be honest, we haven't seen a lot of agreement in certainly in the last couple of years out of between Congress and the administration or within Congress but the problems are getting more acute and the time in which we can afford to delay is passing and so I think you should expect the department of leadership to make strong cases on these issues and I will say I'm seeing signs of receptivity. I saw more receptivity this year than I saw last year and I'm hopeful there'll be still more next year. It is not, these are not easy choices for the nation and the legislative branch has every right to look at them closely. In some cases they've set up commissions or asked for studies that are now coming to fruition and so hopefully we will be able to have more informed and advanced debates there. So I'm generally optimistic about these things and that unfortunately means sometimes you're disappointed but I think if you come in as a pessimist then you end up paralyzed by pessimism. You're in the wrong line of business if you come in as a pessimist. Let me turn internal to the department for a minute and talk about something you didn't mention which is OCO. Part of that might be because it's not necessarily your direct wheelhouse and Kate but it certainly affects everything about the discipline of the process. You are a large part of overseeing in terms of PPBE. OCO is essentially as best I can tell at this point seen as a positive relief valve on strain on the department but at the same time there are limitations to what one can do through OCO. There's a discipline question about the role of OCO or supplemental funding and if you're worried about long-term modernization it may in fact be a panacea that ends up not actually helping you in the long run. How are you in the department thinking through the role of OCO going forward? What are the assumptions you think are healthy for the department to use and what are those conversations again back with the Hill about what OCO can and can't do for you. So this is an ongoing discussion and it's probably not come to full fruition yet. As you mentioned in your introduction I spent six years with the Senate Budget Committee. Part of my effort when I was there was during the earlier stages of the wars in Iraq and Afghanistan and part of my effort when I was there was focused on how can we instill a level of discipline in supplemental or OCO funding that gets us the outcomes we need for the war fighters in the field but also doesn't, neither puts the Congress behind the eight ball with they have completed they can't put any serious attention against nor sets the taxpayer up to watch massive amounts of dollars leave the Treasury with no real clear sense of where they're going. And I think the nation's made a lot of progress on that that shouldn't be surprising right? We're 13 years into this process now and we've regularized it and we brought it to a better level of understanding. There were big steps taken once we moved to simultaneous submission of the base budget and the OCO request. Now that was more feasible when you were in a fairly stable operational environment and so I continue to believe that there will always be emergent challenges in the world. When those challenges come up if they require substantial military response we will have an unanticipated contingency and the administrations will come to the Congress looking for support. I think it's unlikely that Congress will in anything other than an extraordinary crisis provide the administration with a large fungible pot of money for whatever war might come up, right? That's unlikely to happen. But. You can always wish, but. Well and we have reached I think a better understanding of what is the overseas operational tempo that reasonable contingencies and ongoing contingencies are likely to drive and I think we've gotten better at figuring out what that costs and we've gotten better at putting scrutiny on those costs so that without introducing delay or risk for the folks in the field we can improve our stewardship. I've seen continual progress in that and I expect to see continued progress. Okay I'm gonna ask one more question and then open it up for the audience. You talked a bit about aligning with the strategy or better focusing the strategy over time. You talked about the knows that make that difficult but can you step back and help us understand how you see at the strategic level the walk from FY 14 to 15 to 16. How are you increasing alignment each time and perhaps less politely said what did you miss in 14 and then 15? That means that we're not yet aligned with the strategy. Right, so that's a great question. What I've seen is actually a combination each year of big things better aligning with the strategy. So the strategy has laid out to us a pretty clear path toward gradual shrinking in the land forces over a multi-year period. So the Army has been shrinking by about 20,000 active duty soldiers a year for the last three years now and they're on that path that I mentioned earlier to 450,000, 420,000 if we return to sequestration level budgets. So each year that that gradual drawdown which was laid in in that way in order to be more humane and more respectful of the sacrifices of people who served in wartime. So it allows the Army to shrink largely by normal attrition rather than large scale. Some like what we saw after Vietnam or prior to the all volunteer force in previous wars, Korea or World War II where people left on mass were in a different environment. So we built a ramp that supports that but each year we continue down that we're tightening our alignment. There's also a bunch of small things that actually kind of cross the two pieces of my responsibilities, this cost assessment and the program evaluation. So we get a better understanding of the costs of individual programs that we are focusing on or we get a better understanding of risks that we had taken in the department maybe without fully recognizing it. For example, in the nuclear mission where it's pretty clear that department level resources allocated to sustaining and maintaining the nuclear triad were not adequate to the demands that were being placed on those forces and we were seeing deterioration in the status of maintenance and in the manning of units and people working inappropriately long hours that aren't supportive of the zero fail mission. So if we're gonna align to the strategy which tells us we need to have an effective safe, secure and reliable nuclear deterrent underpinning everything else we do, well, looks like we maybe need to put a little more money against that and that's a strategic adjustment, it's a funding adjustment to support the strategy as we understand it. Similarly, we're getting a better understanding of challenges in space as space becomes increasingly congested and contested and so we're making program adjustments to better align there and you've seen that each and every year, you've seen the department and the whole of government focus on cyberspace grow and again that's producing potentially strategic leverage points for us but every year that passes, we better understand those and we can refine how we approach them. So those are the things I'm talking about. Okay, I wanna open it up to the audience. We have some microphones. I'm gonna couple the questions together because we don't have a lot of time. Please wait for the microphone to come and then tell us your name and affiliation and please make it a question. I'm Hank Gaffney, had 54 years in defense. I saw you use the word strategy often. What strategy? Is it to run the world and invade everywhere like all the pundits are telling us to do now or is it to defend America? What lies in between? Okay, and let's group that with one more. I have one right back here. Hi, Rob Levinson, Bloomberg government. You know, all of this stuff you've talked about is all the Budget Control Act, et cetera, was driven by fiscal imperatives to get the deficit and the deficit down. You're making a lot of hard choices as you've outlined. Congress just passed a $40, $45 billion unpaid for tax cut after abandoning apparently a $400 billion tax cut. To put it in simple terms, is it appropriate for the department to say at a time when we pass a defense authorization that cuts the housing allowance for troops, maybe now is not a good time to pay, for example, $168 million for Puerto Rican Rum and maybe the department needs to voice that part of these hard choices, we've capped the spending but depriving ourselves of revenue and then making more defense cuts. Is it appropriate for the department to weigh in on that discussion in a public way? Okay, so we have one question on the strategy. What is it? You can interpret that, I think, however you like and one question about the departments, the appropriateness of the department weighing in on non-departmental issues. These are real softballs here. So, I think on the strategic question, it's absolutely in the middle and it is a strategy for the nation that advances global security and makes Americans safer. It's not build a wall at the border and forget everything else and it's not invade every country that does something we don't like and that's been American policy essentially for the last 70 years. It is, and we argue about the details, right? They're big details. But we continue to be engaged in the world. There's good discussions inside the Department of Defense as to how do we best deter bad things in the world that would affect the livelihood of Americans. We have discussions about whether the relative balance between having our armed forces out there in the world, working with partner nations, building common understanding, strengthening our ties with allies and partners versus more time at home to train against any potential future contingency. Both of those things can contribute to deterrence. Both of those things can contribute to a safe world. We're striking a balance and every strategy will do that. It's a question of where you put it there. We continue, I think, as a nation to endorse strategies that are more tending towards engagement, more tending towards shaping the world. But there's always a balance in there. On the tax policy question and rum in particular, I'm not a big rum guy. So my personal position on that tax set aside that is probably not a high priority for me. But no, I'm not planning as one leader at the Department of Defense, taking a position on any particular tax bill going through the Congress. If the current secretary or the next one decides he wants to fight on that, I guess I will smartly salute and fall into line. But we have a federal government and an executive branch of specialization. And so I'll defer to the director of OMB and the president if they want to make a grand strategic argument saying, hey, the nation is spending too much on tax preferences and as a consequence of that, we can't invest in education, we can't invest in defense, we can't invest in science and technology. That's a perfectly valid position for them to take but a little beyond my direct scope of advice to the president and the leadership. Okay, let's take a couple more. I have one right up here in the front. Hello, sir, Sidney Friedberg, Breaking Defense. We talked about the 2012 strategy. Are you a favor of Breaking Defense or are you? We do spend so much time explaining that name, it's supposedly implying breaking news, not breaking defense as a thing. Although sometimes our readers may not be able to tell the difference. Speaking of which, you talk about the 2012 strategy and QDR, of course, a lot has happened since the not just sequestration in town and now a Republican Congress but we've had Crimea and the Ukraine reactivating the whole Russian front as it were. We've had increased anxieties in the West Pacific. We've had the re-ignition or collapse of states in Syria and Iraq and we even have Ebola. So as you look at those changing factors, do you have to change how you do, analyze the relevance of programs? Does it change how you apply that 2012 strategy or do you say, aha, we didn't predict this specifically but actually we predicted this kind of thing and this is all what we expected. Okay, let's take one more. I love that you're getting all these strategy questions by the way, right here. Mine at the office, but then? Oh wait for the microphone. This is the military strategy for me. Yes, that's true. Well, mine relates to military strategy but it's a much narrower question. Two questions related to the cost of things. The Air Force has been advertising they can build a bomber for 500 million recurring and while they're paying 250 million for a tanker it doesn't seem to add up. Is there any reason to believe that 500 million? The second question relates to the cost of carriers. They've gotten to 13, 14 million. Is that just too much? Okay, so first is how flexible and elastic is the strategy to deal with everything that's happened since it was created and the second is are we gonna keep these strategic systems at the right cost level? So I would say rumors of the strategy's demise have been exaggerated. But the litany of issues that you've mentioned are real. Some parts of it I think were better anticipated in the last two pieces of strategy that you referred to than others. The revisionist Russia piece is probably the most significant area where I would say there is a shift from sort of the sketch of the world that's carved out in the strategy. Continued instability and challenge in the Middle East was obviously very much a part of both the QDR and the Defense Strategic Guidance and they're written in words, right? So there's no line in there saying we expect 17 incidences of instability in the Middle East and there's now 19 so we're beyond it, right? It doesn't work that precisely but I would say as a general matter the strategy, both those strategic documents anticipated continued instability in the Middle East. Ebola is a new challenge. I don't expect it to drive either massive demands on military force structure or massive changes in how we invest. It is a sub case if you will of the humanitarian assistance and disaster relief that we take as kind of a lesser included case. It's a tough, I mean it's a tough operational challenge and my hat's off to the folks that are going out there to support the medical professionals in those stricken countries. That's a tough mission but living in 2016, 2017, 2018, 2019, 2020 as I do I don't see the fact that we've responded to that crisis this year as fundamentally changing as meaning now we have to fundamentally consider what force we organize, train and equip if that makes sense. But so again to wrap it, the revisionist Russia is probably the biggest area where you could point to a divide growing and that's something we have to grapple with and work on. Obviously being worked at the most senior levels of government and it is something we spend time thinking about. So a great question Sydney. And then on cost, so it is very hard to wrap your head around the fact that the cost of a modern aircraft carrier and we've been having a challenge sort of even casting a firm line in the sand or the surf or whatever the appropriate term is for where carrier construction starts and ends in order to say what exactly the cost is. A 13 billion dollar asset, if that's the number for any particular one is an enormously expensive asset but it's an asset that offers the nation a pretty unique capability. As I said, given the price of those assets we've already determined, both buying them and operating them, we've already determined that if we go to the sequester level budget it's simply not sustainable to plan to have 11 carrier and carrier battle groups. So that's, it's in question but whether you would simply stop buying carriers because now they're double digit billions of copy. That, I'm not ready to go there. There's areas that it provides just an extraordinarily valuable asset for the nation. And again, these are decisions with 50 year implementation and effect. So we have to be careful and conservative about how we respond. You also talked about aircraft. It's, the details of the Air Force Brommer program are kept at a classified level so I can't go into much detail here. But I will say that I have seen from Air Force leadership both when I was part of it and now that I'm not I've seen very significant focus on the cost side of the equation when it comes to that program. And that is I think positive because there are clear lessons in aviation programs that if you do not keep cost and hence quantity that you will be able to buy a system in mind that you can end up on a very negative spiral that results in you not buying much of anything at all. And so the fact that they're taking that seriously is I think positive and makes it more likely that America's airmen will get a capability that they can actually use as opposed to just have a development program that doesn't produce much. And that I think is very important. Jamie, you've been very generous with your time today. We're appreciative you were able to come over and have a bit of a discussion with us. Give us some insight into what's happening over there in the Pentagon. We want you to get back to work now and solve some of these problems please. And to the audience also, thank you for your great questions and please join me in thanking Jamie Moran.